Camden National (CAC) - 2024 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Presents unaudited consolidated financial statements, including Statements of Condition, Income, Equity, Cash Flows, and detailed notes Consolidated Statements of Condition Consolidated Statements of Condition (September 30, 2024 vs. December 31, 2023) | (In thousands) | September 30, 2024 | December 31, 2023 | | :--------------- | :----------------- | :------------------ | | ASSETS | | | | Total cash, cash equivalents and restricted cash | $139,512 | $99,804 | | Total investments | $1,157,116 | $1,190,780 | | Net loans | $4,081,315 | $4,061,159 | | Total assets | $5,745,180 | $5,714,506 | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | Total deposits | $4,575,226 | $4,597,360 | | Short-term borrowings | $516,336 | $485,607 | | Total liabilities | $5,215,280 | $5,219,442 | | Total shareholders' equity | $529,900 | $495,064 | | Total liabilities and shareholders' equity | $5,745,180 | $5,714,506 | Consolidated Statements of Income Consolidated Statements of Income (Three and Nine Months Ended September 30, 2024 vs. 2023) | (In thousands, except per share data) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total interest income | $63,721 | $57,669 | $186,066 | $166,449 | | Total interest expense | $30,134 | $25,085 | $89,022 | $66,895 | | Net interest income | $33,587 | $32,584 | $97,044 | $99,554 | | Provision (credit) for credit losses | $239 | ($574) | ($1,213) | $1,531 | | Total non-interest income | $11,406 | $5,072 | $32,373 | $25,048 | | Total non-interest expense | $28,900 | $26,207 | $83,572 | $79,515 | | Net Income | $13,073 | $9,787 | $38,338 | $34,903 | | Basic earnings per share | $0.90 | $0.67 | $2.63 | $2.39 | | Diluted earnings per share | $0.90 | $0.67 | $2.62 | $2.39 | | Cash dividends declared per share | $0.42 | $0.42 | $1.26 | $1.26 | Consolidated Statements of Comprehensive Income (Loss) Consolidated Statements of Comprehensive Income (Loss) (Three and Nine Months Ended September 30, 2024 vs. 2023) | (In thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net Income | $13,073 | $9,787 | $38,338 | $34,903 | | Other comprehensive income (loss) | $14,132 | ($8,274) | $14,453 | ($4,253) | | Comprehensive Income | $27,205 | $1,513 | $52,791 | $30,650 | Consolidated Statements of Changes in Shareholders' Equity Shareholders' Equity Changes (Nine Months Ended September 30, 2024 vs. December 31, 2023) | (In thousands) | Balance at Dec 31, 2023 | Net Income | Other Comprehensive Income | Stock-based Compensation Expense | Issuance of Vested Share Awards, net | Common Stock Repurchased | Cash Dividends Declared | Balance at Sep 30, 2024 | | :--------------- | :---------------------- | :--------- | :------------------------- | :------------------------------- | :----------------------------------- | :----------------------- | :---------------------- | :---------------------- | | Common Stock Amount | $115,602 | — | — | $2,325 | ($209) | ($1,646) | — | $116,072 | | Retained Earnings | $481,014 | $38,338 | — | — | — | — | ($18,425) | $500,927 | | Accumulated Other Comprehensive Income (Loss) | ($101,552) | — | $14,453 | — | — | — | — | ($87,099) | | Total Shareholders' Equity | $495,064 | $38,338 | $14,453 | $2,325 | ($209) | ($1,646) | ($18,425) | $529,900 | Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows (Nine Months Ended September 30, 2024 vs. 2023) | (In thousands) | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $17,745 | $78,805 | | Net cash provided by investing activities | $33,881 | $21,549 | | Net cash (used in) provided by financing activities | ($11,918) | $35,733 | | Net increase in cash, cash equivalents and restricted cash | $39,708 | $136,087 | | Cash, cash equivalents and restricted cash at end of period | $139,512 | $211,514 | Notes to the Unaudited Consolidated Financial Statements NOTE 1 – BASIS OF PRESENTATION - The unaudited consolidated interim financial statements are prepared in accordance with Form 10-Q instructions and GAAP, including normal recurring accruals, consolidating Camden National Corporation, Camden National Bank, and its wholly-owned subsidiaries, while eliminating intercompany transactions and excluding fiduciary assets[12] NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS - ASU No. 2023-09, 'Improvements to Income Tax Disclosures,' is effective for annual periods beginning after December 15, 2024, with the Company expecting no material impact on its consolidated financial statements, only on income tax disclosures[16] NOTE 3 – BUSINESS COMBINATIONS - On September 10, 2024, Camden National Corporation announced a definitive agreement to acquire Northway Financial, Inc. (NFI) in an all-stock transaction valued at approximately $86.6 million, expected to close in Q1 2025, expanding the Company's New England presence with combined assets, loans, and deposits projected at $7.0 billion, $5.1 billion, and $5.5 billion, respectively, as of June 30, 2024[17][18][20] - The Company incurred $727 thousand in non-recurring merger-related expenses, including legal and professional fees, for the three and nine months ended September 30, 2024, recorded as merger and acquisition costs[21] NOTE 4 – INVESTMENTS AFS Debt Securities (September 30, 2024 vs. December 31, 2023) | (In thousands) | September 30, 2024 | December 31, 2023 | | :--------------- | :----------------- | :------------------ | | Amortized Cost | $664,768 | $702,937 | | Fair Value | $603,211 | $625,808 | | Unrealized Gains | $1,937 | $1,793 | | Unrealized Losses | ($63,494) | ($78,922) | HTM Debt Securities (September 30, 2024 vs. December 31, 2023) | (In thousands) | September 30, 2024 | December 31, 2023 | | :--------------- | :----------------- | :------------------ | | Amortized Cost | $526,251 | $544,931 | | Fair Value | $500,619 | $510,595 | | Unrealized Gains | $1,999 | $3,134 | | Unrealized Losses | ($27,631) | ($37,470) | - The Company recovered $910 thousand from the sale of its Signature Bank corporate bond in Q1 2024, which was previously written off in Q1 2023 for $1.8 million due to the bank's failure[35][36] Other Investments (September 30, 2024 vs. December 31, 2023) | (In thousands) | September 30, 2024 | December 31, 2023 | | :--------------- | :----------------- | :------------------ | | FHLBB stock | $17,140 | $10,020 | | FRB stock | $5,373 | $5,374 | | Total other investments | $22,513 | $15,394 | NOTE 5 – LOANS AND ALLOWANCE FOR CREDIT LOSSES ON LOANS Loan Portfolio Composition (September 30, 2024 vs. December 31, 2023) | (In thousands) | September 30, 2024 | December 31, 2023 | | :--------------- | :----------------- | :------------------ | | Commercial Loans | $2,090,430 | $2,076,207 | | Retail Loans | $2,026,299 | $2,021,887 | | Total loans | $4,116,729 | $4,098,094 | - The Company sold $62.4 million in residential mortgage loans in Q3 2024 (vs. $66.2 million in Q3 2023), generating $687 thousand in gains, with year-to-date sales totaling $157.3 million (vs. $137.2 million in 2023) and gains of $1.5 million[47] Allowance for Credit Losses on Loans (September 30, 2024 vs. December 31, 2023) | (In thousands) | September 30, 2024 | December 31, 2023 | | :--------------- | :----------------- | :------------------ | | Ending balance, ACL on loans | $35,414 | $36,935 | | Net charge-offs (9 months) | $828 | $1,161 | | Provision (credit) for loan losses (9 months) | ($693) | $1,174 | - As of September 30, 2024, the Company's total exposure to lessors of nonresidential buildings and residential buildings industries were 13% and 12% of total loans, respectively, and 31% and 30% of commercial real estate loans, respectively, with no other industry concentrations exceeding 10% of the total loan portfolio[60] Non-Accrual Loans (September 30, 2024 vs. December 31, 2023) | (In thousands) | September 30, 2024 | December 31, 2023 | | :--------------- | :----------------- | :------------------ | | Total Non-Accrual Loans | $5,350 | $5,448 | - For the nine months ended September 30, 2024, the Company modified $407 thousand in commercial loans for borrowers experiencing financial difficulty, primarily through term extensions, with a weighted average term extension of 1.0 years[78][79] NOTE 6 – BORROWINGS Short-Term Borrowings (September 30, 2024 vs. December 31, 2023) | (In thousands) | September 30, 2024 | December 31, 2023 | | :--------------- | :----------------- | :------------------ | | FHLBB Borrowings | $325,000 | $125,000 | | Overnight Borrowings | — | $24,950 | | Bank Term Funding Program | — | $135,000 | | Customer Repurchase Agreements | $191,336 | $200,657 | | Total Short-Term Borrowings | $516,336 | $485,607 | - The Company has $44.3 million in junior subordinated debentures as of September 30, 2024 and December 31, 2023[83] NOTE 7 – REPURCHASE AGREEMENTS Customer Repurchase Agreements Collateral (September 30, 2024 vs. December 31, 2023) | (In thousands) | September 30, 2024 | December 31, 2023 | | :--------------- | :----------------- | :------------------ | | MBS issued or guaranteed by U.S. government-sponsored enterprises | $169,488 | $179,809 | | CMO issued or guaranteed by U.S. government-sponsored enterprises | $21,848 | $20,848 | | Total | $191,336 | $200,657 | - All customer repurchase agreements mature continuously or overnight[87] NOTE 8 – COMMITMENTS AND CONTINGENCIES Off-Balance Sheet Commitments (September 30, 2024 vs. December 31, 2023) | (In thousands) | September 30, 2024 | December 31, 2023 | | :--------------- | :----------------- | :------------------ | | Commitments to extend credit | $800,748 | $706,719 | | Standby letters of credit | $5,065 | $5,998 | | Total | $805,813 | $712,717 | - The Allowance for Credit Losses (ACL) on off-balance sheet credit exposures was $2.7 million as of September 30, 2024, up from $2.4 million at December 31, 2023[90] - For the nine months ended September 30, 2024, the provision for off-balance sheet credit losses was $391 thousand, compared to a credit of ($595 thousand) in the prior year[91] - Management believes that the outcome of pending and threatened legal actions will not have a material adverse effect on the Company's consolidated financial statements[92] NOTE 9 – DERIVATIVES AND HEDGING - The Company uses interest rate swaps as cash flow hedges to stabilize interest income and expense, with gains/losses recorded in AOCI and reclassified to earnings as interest payments occur[95][96] - An estimated $1.2 million will be reclassified as a decrease to interest expense over the next 12 months[97] Derivative Financial Instruments (September 30, 2024 vs. December 31, 2023) | (In thousands) | September 30, 2024 (Fair Value) | December 31, 2023 (Fair Value) | | :--------------- | :------------------------------ | :----------------------------- | | Derivative Assets: | | | | Interest rate contracts (hedging) | $9,362 | $12,206 | | Customer loan swaps (non-hedging) | $6,413 | $10,699 | | Fixed rate mortgage interest rate lock commitments (non-hedging) | $230 | $215 | | Forward delivery commitments (non-hedging) | $81 | $51 | | Derivative Liabilities: | | | | Interest rate contracts (hedging) | $4,971 | $3,387 | | Customer loan swaps (non-hedging) | $6,451 | $10,748 | | Fixed rate mortgage interest rate lock commitments (non-hedging) | $14 | $11 | | Forward delivery commitments (non-hedging) | $48 | $132 | - The fair value of derivatives in a net liability position was $6.4 million as of September 30, 2024, down from $10.8 million at December 31, 2023, with no collateral posted by the Company as of these dates[116] NOTE 10 – BALANCE SHEET OFFSETTING - The Company does not offset the carrying value of derivative instruments or repurchase agreements on its consolidated statements of condition, but nets the right to reclaim cash collateral against the obligation to return cash collateral under master netting arrangements with the same counterparty[117] Netting Arrangements for Derivative Assets (September 30, 2024 vs. December 31, 2023) | (In thousands) | September 30, 2024 (Net Amount Presented) | December 31, 2023 (Net Amount Presented) | | :--------------- | :---------------------------------------- | :--------------------------------------- | | Customer loan swaps - dealer bank | $1,376 | $368 | | Customer loan swaps - commercial customer | $2,387 | $1,531 | | Interest rate contracts | $1,961 | $2,135 | | Total Derivative Assets | $5,724 | $4,034 | NOTE 11 – REGULATORY CAPITAL REQUIREMENTS - The Company and Bank exceeded all regulatory capital requirements, including the capital conservation buffer, as of September 30, 2024, and December 31, 2023, with the Bank considered 'well capitalized' under prompt corrective action provisions[127][128] Camden National Corporation Regulatory Capital Ratios (September 30, 2024 vs. December 31, 2023) | Ratio | September 30, 2024 | December 31, 2023 | | :------------------------- | :----------------- | :------------------ | | Total risk-based capital ratio | 14.85% | 14.36% | | Tier 1 risk-based capital ratio | 13.90% | 13.38% | | Common equity Tier 1 risk-based capital ratio | 12.83% | 12.31% | | Tier 1 leverage capital ratio | 9.84% | 9.40% | - The Company includes $43.0 million of junior subordinated debentures in its Tier 1 and total risk-based capital calculations, as permitted by regulation[129] NOTE 12 – OTHER COMPREHENSIVE INCOME (LOSS) Other Comprehensive Income (Loss) Components (Nine Months Ended September 30, 2024 vs. 2023) | (In thousands) | Nine Months Ended Sep 30, 2024 (After-Tax) | Nine Months Ended Sep 30, 2023 (After-Tax) | | :--------------- | :----------------------------------------- | :----------------------------------------- | | Net change in fair value of debt securities | $16,060 | ($7,689) | | Net change in fair value of cash flow hedging derivatives | ($1,590) | $3,452 | | Net change in other comprehensive income for supplemental executive retirement plan and other postretirement benefit plan | ($17) | ($16) | | Other comprehensive income (loss) | $14,453 | ($4,253) | Changes in AOCI Components (Nine Months Ended September 30, 2024 vs. December 31, 2023) | (In thousands) | Balance at Dec 31, 2023 | Other comprehensive (loss) income before reclassifications | Less: Amounts reclassified from AOCI | Other comprehensive (loss) income | Balance at Sep 30, 2024 | | :--------------- | :---------------------- | :--------------------------------------------------------- | :----------------------------------- | :-------------------------------- | :---------------------- | | Net Unrealized Gains (Losses) on Debt Securities | ($107,409) | $12,224 | ($3,836) | $16,060 | ($91,349) | | Net Unrealized Gains (Losses) on Cash Flow Hedges | $6,096 | ($523) | $1,067 | ($1,590) | $4,506 | | Net Gains (Losses) on Defined Benefit Postretirement Plans | ($239) | — | $17 | ($17) | ($256) | | Total AOCI | ($101,552) | $11,701 | ($2,752) | $14,453 | ($87,099) | NOTE 13 – REVENUE FROM CONTRACTS WITH CUSTOMERS Revenue from Contracts with Customers (Three and Nine Months Ended September 30, 2024 vs. 2023) | (In thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Debit card interchange income | $3,169 | $3,130 | $9,104 | $9,147 | | Services charges on deposit accounts | $2,168 | $2,040 | $6,308 | $5,737 | | Fiduciary services income | $1,817 | $1,641 | $5,436 | $5,016 | | Investment program income | $1,414 | $1,217 | $4,094 | $3,462 | | Other non-interest income | $508 | $505 | $1,371 | $1,392 | | Total non-interest income within the scope of ASC 606 | $9,076 | $8,533 | $26,313 | $24,754 | NOTE 14 – EMPLOYEE BENEFIT PLANS Net Periodic Pension and Postretirement Benefit Costs (Nine Months Ended September 30, 2024 vs. 2023) | (In thousands) | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--------------- | :----------------------------- | :----------------------------- | | Supplemental Executive Retirement Plan: | | | | Service cost | — | $211 | | Interest cost | $542 | $567 | | Total | $542 | $778 | | Other Postretirement Benefit Plan: | | | | Service cost | $6 | $8 | | Interest cost | $115 | $121 | | Recognized net actuarial gain | ($3) | ($2) | | Amortization of prior service credit | ($19) | ($18) | | Total | $99 | $109 | NOTE 15 – EPS Basic and Diluted EPS (Nine Months Ended September 30, 2024 vs. 2023) | (In thousands, except per share data) | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net income available to common shareholders | $38,326 | $34,855 | | Weighted-average common shares outstanding for basic EPS | 14,579,195 | 14,564,431 | | Diluted effect of stock-based awards | 63,834 | 42,600 | | Weighted-average common and potential common shares for diluted EPS | 14,643,029 | 14,607,031 | | Basic EPS | $2.63 | $2.39 | | Diluted EPS | $2.62 | $2.39 | NOTE 16 – FAIR VALUE MEASUREMENT AND DISCLOSURE - The Company classifies financial instruments into a fair value hierarchy (Level 1, 2, or 3) based on the observability of valuation inputs[148][149][150][151][152][153][154][155][156] - Trading securities and deferred compensation are Level 1, while debt securities, loans held for sale, and most derivatives are Level 2[161][162] - Collateral-dependent loans and servicing assets are measured at fair value on a nonrecurring basis, often using Level 3 inputs[163] Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis (September 30, 2024) | (In thousands) | Fair Value | Level 1 | Level 2 | Level 3 | | :--------------- | :--------- | :------ | :------ | :------ | | Financial assets: | | | | | | Trading securities | $5,141 | $5,141 | — | — | | AFS debt securities | $603,211 | — | $603,211 | — | | Loans held for sale | $11,706 | — | $11,706 | — | | Customer loan swaps | $6,413 | — | $6,413 | — | | Interest rate contracts | $9,362 | — | $9,362 | — | | Financial liabilities: | | | | | | Deferred compensation | $5,141 | $5,141 | — | — | | Customer loan swaps | $5,644 | — | $5,644 | — | | Interest rate contracts | $4,971 | — | $4,971 | — | Financial Assets Measured at Fair Value on a Non-Recurring Basis (September 30, 2024 vs. December 31, 2023) | (In thousands) | September 30, 2024 (Fair Value) | December 31, 2023 (Fair Value) | | :--------------- | :------------------------------ | :----------------------------- | | Collateral-dependent loans | $4,497 | $4,768 | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis of financial condition, operations, asset quality, capital, and non-GAAP measures FORWARD-LOOKING STATEMENTS - The report contains forward-looking statements subject to numerous risks and uncertainties, including those related to the pending merger with NFI (e.g., integration challenges, regulatory approvals, cost savings realization, dilution), general economic conditions, interest rate fluctuations, competition, cybersecurity, and geopolitical events[175][176] NON-GAAP FINANCIAL MEASURES AND RECONCILIATION TO GAAP - Management uses non-GAAP financial measures like core net income, core diluted EPS, and efficiency ratio to assess performance against peers and analyze internal trends, believing these provide a clearer understanding by excluding unusual items[181] Core Net Income and EPS (Nine Months Ended September 30, 2024 vs. 2023) | (In thousands, except per share data) | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net income, as presented | $38,338 | $34,903 | | Core net income | $38,193 | $40,570 | | Diluted earnings per share, as presented | $2.62 | $2.39 | | Core diluted earnings per share | $2.61 | $2.77 | Efficiency Ratio (Nine Months Ended September 30, 2024 vs. 2023) | (In thousands) | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--------------- | :----------------------------- | :----------------------------- | | Adjusted non-interest expense | $82,845 | $79,515 | | Adjusted net interest income plus non-interest income | $129,892 | $130,638 | | Efficiency ratio | 63.78% | 60.87% | Tangible Book Value and Equity Ratio (September 30, 2024 vs. December 31, 2023) | (In thousands, except per share data and ratios) | September 30, 2024 | December 31, 2023 | | :----------------------------------------------- | :----------------- | :------------------ | | Tangible shareholders' equity | $434,649 | $399,396 | | Tangible book value per share | $29.82 | $27.42 | | Tangible assets | $5,649,929 | $5,618,838 | | Tangible common equity ratio | 7.69% | 7.11% | Core Deposits (September 30, 2024 vs. December 31, 2023) | (In thousands) | September 30, 2024 | December 31, 2023 | | :--------------- | :----------------- | :------------------ | | Total deposits | $4,575,226 | $4,597,360 | | Core deposits | $3,853,071 | $3,885,938 | CRITICAL ACCOUNTING POLICIES - Critical accounting policies involve significant judgments and uncertainties, including the Allowance for Credit Losses (ACL) on loans, off-balance sheet credit exposures, and investments; accounting for acquisitions, goodwill, and intangible assets; income taxes; and defined benefit and postretirement plans, with no material changes reported from the 2023 Annual Report on Form 10-K[200][201] GENERAL OVERVIEW - Camden National Corporation, a Maine-based bank holding company with $5.7 billion in assets as of September 30, 2024, provides banking, wealth management, and insurance services primarily in Maine and select areas of New Hampshire, emphasizing customer service, local decision-making, and long-term relationships[202][203] EXECUTIVE OVERVIEW - The Company announced the acquisition of Northway Financial, Inc. (NFI) on September 10, 2024, expected to close in Q1 2025, aiming to enhance its New England presence and future financial profile[204] Key Financial Metrics (Nine Months Ended September 30, 2024 vs. 2023) | Metric | Sep 30, 2024 | Sep 30, 2023 | % Change | | :----- | :----------- | :----------- | :------- | | Net income | $38,338 | $34,903 | 10% | | Diluted EPS | $2.62 | $2.39 | 10% | | Core net income (non-GAAP) | $38,193 | $40,570 | (6)% | | Core diluted EPS (non-GAAP) | $2.61 | $2.77 | (6)% | | Net interest margin (fully-taxable equivalent) | 2.37% | 2.44% | (7 bps) | | Loans | $4,116,729 | $4,058,413 | 1% | | Deposits | $4,575,226 | $4,678,406 | (2)% | | Non-performing assets to total assets | 0.12% | 0.11% | 0.01% | | Allowance for credit losses on loans to total loans | 0.86% | 0.90% | (0.04)% | | Tangible common equity ratio (non-GAAP) | 7.69% | 6.47% | 1.22% | - Net interest margin compression to 2.37% for the nine months ended September 30, 2024, was primarily due to the changing interest rate environment, though Q3 2024 saw an improvement to 2.46%, with the Company anticipating future Federal Funds Rate cuts to benefit its net interest margin[206][207] - Asset quality remains strong with past due loans at 0.03% of total loans and non-performing assets at 0.12% of total assets, while the ACL on loans decreased to 0.86% due to strong credit quality and an improving macroeconomic forecast[208] RESULTS OF OPERATIONS Net Interest Income and Net Interest Margin - Net interest income was 75% of total revenues for the quarter and nine months ended September 30, 2024, compared to 87% and 80% for the same periods in 2023, respectively[215] Net Interest Income (Fully-Taxable Equivalent) (Three and Nine Months Ended September 30, 2024 vs. 2023) | (In thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net interest income (fully-taxable equivalent) | $33,752 | $32,821 | $97,519 | $100,255 | | Net interest margin (fully-taxable equivalent) | 2.46% | 2.39% | 2.37% | 2.44% | - For the three months ended September 30, 2024, interest income increased 10% due to a higher interest rate environment, with average loan yield at 5.29% (up 44 bps YoY) and average investment yield at 2.59% (up 32 bps YoY), while interest expense increased $5.0 million due to a 42 bps rise in average cost of funds to 2.35%[217][218][219] - For the nine months ended September 30, 2024, net interest income (fully-taxable equivalent) decreased 3% to $97.5 million, with interest expense increasing $22.1 million due to a 58 bps increase in average cost of funds to 2.32%, while interest income increased $19.6 million due to a 48 bps yield expansion on interest-earning assets to 4.57%[220][221] Provision (Credit) for Credit Losses Provision (Credit) for Credit Losses (Three and Nine Months Ended September 30, 2024 vs. 2023) | (In thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Provision (credit) for loan losses | $283 | ($456) | ($693) | $288 | | (Credit) provision for credit losses on off-balance sheet credit exposures | ($44) | ($118) | $390 | ($595) | | (Credit) provision for HTM debt securities | — | — | ($910) | $1,838 | | Total Provision (credit) for credit losses | $239 | ($574) | ($1,213) | $1,531 | - The nine months ended September 30, 2024, saw a negative provision (credit for credit losses) of $1.2 million, primarily due to strong asset quality and an improved macroeconomic forecast, including a $910 thousand credit from the sale of the Signature Bank corporate bond[228] Non-Interest Income Non-Interest Income Components (Three and Nine Months Ended September 30, 2024 vs. 2023) | (In thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Debit card income | $3,169 | $3,130 | $9,104 | $9,147 | | Service charges on deposit accounts | $2,168 | $2,040 | $6,308 | $5,737 | | Income from fiduciary services | $1,817 | $1,641 | $5,436 | $5,016 | | Brokerage and insurance commissions | $1,414 | $1,217 | $4,094 | $3,462 | | Bank-owned life insurance | $709 | $644 | $2,086 | $1,849 | | Mortgage banking income, net | $973 | $583 | $2,297 | $1,889 | | Net loss on sale of securities | — | ($5,335) | — | ($5,335) | | Other income | $1,156 | $1,152 | $3,048 | $3,283 | | Total non-interest income | $11,406 | $5,072 | $32,373 | $25,048 | - Total non-interest income increased 125% for the three months and 29% for the nine months ended September 30, 2024, primarily due to the absence of a $5.3 million net loss on sale of securities recorded in 2023, and increases in mortgage banking income (up 67% for Q3), fiduciary services income (up 11% for Q3), and brokerage/insurance commissions (up 16% for Q3)[229][230] Non-Interest Expense Non-Interest Expense Components (Three and Nine Months Ended September 30, 2024 vs. 2023) | (In thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Salaries and employee benefits | $16,545 | $14,744 | $48,100 | $44,605 | | Furniture, equipment and data processing | $3,578 | $3,382 | $10,704 | $9,772 | | Net occupancy costs | $1,890 | $1,804 | $5,941 | $5,735 | | Debit card expense | $1,368 | $1,318 | $3,943 | $3,781 | | Consulting and professional fees | $788 | $897 | $2,797 | $3,327 | | Regulatory assessments | $784 | $861 | $2,454 | $2,574 | | Merger and acquisition costs | $727 | — | $727 | — | | Other expenses | $2,987 | $3,087 | $8,338 | $9,302 | | Total non-interest expense | $28,900 | $26,207 | $83,572 | $79,515 | - Total non-interest expense increased 10% for the three months and 5% for the nine months ended September 30, 2024, driven by higher incentive accruals in salaries and benefits, increased investment in technology, and $727 thousand in merger and acquisition costs related to the NFI acquisition[231] FINANCIAL CONDITION Cash and Cash Equivalents - Total cash and cash equivalents increased to $139.5 million as of September 30, 2024, from $99.8 million at December 31, 2023, reflecting ongoing liquidity management[233] Investments - The total investment portfolio decreased by $33.7 million (2.8%) to $1.2 billion as of September 30, 2024, driven by $85.4 million in pay downs/maturities, offset by $26.0 million in AFS debt security purchases and a $22.6 million change in fair value of AFS debt securities[235] Investment Portfolio Composition (September 30, 2024 vs. December 31, 2023) | (Dollars in thousands) | September 30, 2024 | Percent of Total Debt Securities | December 31, 2023 | Percent of Total Debt Securities | | :--------------------- | :----------------- | :------------------------------- | :---------------- | :------------------------------- | | MBS - Agency-backed | $792,403 | 67% | $830,288 | 67% | | CMO - Agency-backed | $288,041 | 24% | $306,505 | 24% | | Municipal | $61,900 | 5% | $62,691 | 5% | | Corporate | $40,980 | 3% | $40,790 | 3% | | Other - Agency-backed | $7,695 | 1% | $7,593 | 1% | | Total | $1,191,019 | 100% | $1,247,867 | 100% | - The debt securities portfolio has limited credit risk, composed of U.S. government/agency-backed securities and highly-rated corporate/municipal bonds[237] - All municipal bonds and 69% of corporate bonds held investment-grade ratings as of September 30, 2024[240][241] Loans Loan Portfolio Composition (September 30, 2024 vs. December 31, 2023) | (Dollars in thousands) | September 30, 2024 | December 31, 2023 | Change ($) | Change (%) | | :--------------------- | :----------------- | :---------------- | :--------- | :--------- | | Commercial real estate - non-owner-occupied | $1,387,593 | $1,370,446 | $17,147 | 1% | | Commercial real estate - owner-occupied | $320,330 | $301,860 | $18,470 | 6% | | Commercial | $382,507 | $403,901 | ($21,394) | (5)% | | Residential real estate | $1,762,395 | $1,763,378 | ($983) | 0% | | Consumer and home equity | $263,904 | $258,509 | $5,395 | 2% | | Total loans | $4,116,729 | $4,098,094 | $18,635 | 0% | - Maine remains the primary market, accounting for 68% of the loan portfolio, with Massachusetts and New Hampshire as the second and third largest markets (16% and 10% respectively)[246] Real Estate Investment Loan Portfolio by Property Type (September 30, 2024 vs. December 31, 2023) | (Dollars in thousands) | September 30, 2024 | % of Real Estate Investment Portfolio | December 31, 2023 | % of Real Estate Investment Portfolio | | :--------------------- | :----------------- | :------------------------------------ | :---------------- | :------------------------------------ | | Multi-family (5+ units) | $266,681 | 25% | $274,181 | 26% | | Multi-family (1-4 units) | $174,308 | 17% | $153,166 | 14% | | Office | $167,181 | 16% | $169,904 | 16% | | Industrial | $165,150 | 16% | $164,021 | 16% | | Retail | $159,640 | 15% | $167,865 | 16% | | Other | $116,691 | 11% | $128,011 | 12% | | Total | $1,049,651 | 100% | $1,057,148 | 100% | Asset Quality - The Company proactively manages its loan portfolio, with oversight from Credit Risk and Special Assets teams, Credit Risk Policy Committee, Management Provision Committee, Directors' Credit Committee, and the Audit Committee, to identify problem credits early and maintain underwriting standards[252][253] Non-Performing Assets (September 30, 2024 vs. December 31, 2023) | (Dollars in thousands) | September 30, 2024 | December 31, 2023 | | :--------------------- | :----------------- | :------------------ | | Total non-accrual loans | $5,350 | $5,448 | | Accruing TDRs prior to ASU 2022-02 adoption not included above | $1,645 | $1,990 | | Total non-performing loans | $6,995 | $7,438 | | Total non-performing assets | $6,995 | $7,438 | | Non-performing assets to total assets | 0.12% | 0.13% | - Potential problem loans (classified accruing commercial and commercial real estate loans 30-89 days past due) decreased to $137 thousand as of September 30, 2024, from $1.2 million at December 31, 2023[255] ACL on Loans and Off-Balance Sheet Credit Exposures (September 30, 2024 vs. December 31, 2023) | (Dollars in thousands) | September 30, 2024 | December 31, 2023 | | :--------------------- | :----------------- | :------------------ | | ACL on loans | $35,414 | $36,935 | | ACL on off-balance sheet credit exposures | $2,743 | $2,353 | | ACL at end of the period | $38,157 | $39,288 | | ACL on loans to total loans | 0.86% | 0.90% | - The reduction in ACL on loans to $35.4 million (0.86% of total loans) as of September 30, 2024, from $36.9 million (0.90%) at December 31, 2023, was primarily driven by a lower weighting for a forecasted recession scenario due to an improved macroeconomic outlook[262][263] Liabilities - Total deposits remained stable at $4.6 billion as of September 30, 2024, compared to December 31, 2023[270] - Core deposits decreased by $32.9 million (1%), while CD balances decreased by $56.0 million (9%), and savings and money market accounts increased by $102.1 million (7%), driven by a new high-yield savings product[271] - The loan-to-deposit ratio was 90% as of September 30, 2024, up from 89% at December 31, 2023[272] - Uninsured and uncollateralized deposits totaled $698.4 million (15% of total deposits) as of September 30, 2024, compared to $669.5 million (15%) at December 31, 2023[273] - Total borrowings increased by $30.7 million (6%) to $560.7 million as of September 30, 2024, primarily due to a $175.1 million increase in FHLBB advances, partially offset by a $9.3 million decrease in customer repurchase agreements[275] Shareholders' Equity - Shareholders' equity increased by $34.8 million (7%) to $529.9 million as of September 30, 2024, driven by $38.3 million in net income and a $14.5 million increase in AOCI, partially offset by $18.4 million in cash dividends[276] - The Company declared a quarterly cash dividend of $0.42 per share, resulting in an annualized dividend yield of 4.07% as of September 30, 2024[277] - The Board authorized a repurchase of up to 750 thousand shares in January 2024, with 50,000 shares repurchased through September 30, 2024[278] LIQUIDITY - The Company maintains $1.4 billion in primary liquidity sources, which is 2.0 times its uninsured and uncollateralized deposits as of September 30, 2024[281] - These sources include excess cash at the FRB, unpledged AFS debt securities, and available borrowing capacity from FHLBB and FRB Discount Window[282] - Core deposits decreased by $32.9 million (1%) to $3.9 billion, while brokered deposits increased by $66.8 million (65%) to $168.7 million, including $75.0 million in brokered CDs maturing within 12 months[284] Scheduled Maturities of CDs (September 30, 2024) | (In thousands) | CDs | | :--------------- | :---- | | 1 year or less | $514,406 | | > 1 year | $39,075 | | Total | $553,481 | Scheduled Maturities of Borrowings (September 30, 2024) | (In thousands) | FHLBB Advances | Customer Repurchase Agreements | Junior Subordinated Debentures | Total | | :--------------- | :------------- | :----------------------------- | :----------------------------- | :---- | | 1 year or less | $325,000 | $191,336 | — | $516,336 | | > 1 year | — | — | $44,331 | $44,331 | | Total | $325,000 | $191,336 | $44,331 | $560,667 | Contractual Maturities of Loans (September 30, 2024) | (Dollars in thousands) | Due in or 1 Year Less | Due after 1 Through 5 Years | Due after 5 Through 15 Years | Due in More than 15 Years | Total Loans | | :--------------------- | :-------------------- | :-------------------------- | :--------------------------- | :------------------------ | :---------- | | Fixed Rate | $22,578 | $422,653 | $720,112 | $1,405,508 | $2,570,851 | | Adjustable/Variable Rate | $99,963 | $386,220 | $426,425 | $633,270 | $1,545,878 | | Total Loans | $122,541 | $808,873 | $1,146,537 | $2,038,778 | $4,116,729 | CAPITAL RESOURCES - Shareholders' equity totaled $529.9 million (9% of total assets) as of September 30, 2024, reflecting a strong capital base[297] - The Company declared $18.4 million in dividends for the nine months ended September 30, 2024, with the Bank declaring $20.1 million in dividends to the Company[298][299] - Both the Company and the Bank exceeded all regulatory capital requirements and the Bank maintained its 'well capitalized' status as of September 30, 2024[300] RISK MANAGEMENT - The Company's Board of Directors and management identify and manage significant risk categories, including credit, liquidity, market, interest rate, capital, operational, technology, vendor, people, compliance, legal, strategic alignment, and reputation, under an Enterprise Risk Management (ERM) Policy[301] Net Interest Income Sensitivity Analysis (September 30, 2024 vs. 2023) | Rate Change from Year 1 — Base | Estimated Net Interest Income Changes (Sep 30, 2024) | Estimated Net Interest Income Changes (Sep 30, 2023) | | :----------------------------- | :--------------------------------------------------- | :--------------------------------------------------- | | Year 1 | | | | +200 basis points | (3.5)% | (1.3)% | | -200 basis points | 3.8% | 2.1% | | Year 2 | | | | +200 basis points | 1.1% | 15.1% | | -200 basis points | 14.8% | 17.1% | - The Company's net interest income sensitivity analysis indicates a projected increase in net interest income in Year 1 if rates decrease by 200 basis points (3.8% increase), and a decrease if rates increase by 200 basis points (3.5% decrease)[308][309] - In Year 2, both scenarios project an increase, with a significant 14.8% increase in a -200 bps scenario[310] PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Details pending and threatened legal actions, with management expecting no material adverse financial impact - Management believes that the outcome of pending and threatened legal actions, individually or in the aggregate, will not have a material adverse effect on the Company's consolidated financial position[319] ITEM 1A. RISK FACTORS Highlights merger-related risks including integration, regulatory approvals, and transaction costs, supplementing 10-K risks - Risks related to the pending merger with NFI include the possibility that anticipated benefits and cost savings may not be fully realized or may take longer than expected, potential disruptions to business operations, and challenges in integrating NFI's business[321] - Regulatory approvals for the merger may be delayed, not received, or impose conditions that could adversely affect the combined company or reduce the anticipated benefits[322][323][324][325][326] - The Company and NFI expect to incur significant nonrecurring transaction and integration costs, including legal, financial advisor, accounting, and systems consolidation fees, which may not be offset by expected benefits[327] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section details the Company's stock repurchase activities for the three months ended September 30, 2024, primarily involving shares surrendered by employees for tax withholding related to restricted stock awards Issuer Purchases of Equity Securities (Three Months Ended September 30, 2024) | Period | Total number of shares purchased | Average price paid per share | | :--------------- | :------------------------------- | :--------------------------- | | July 1-31, 2024 | 72 | $37.76 | | August 1-31, 2024 | 137 | $38.80 | | September 1-30, 2024 | — | — | | Total | 209 | $38.44 | - All shares purchased were surrendered by employees to satisfy tax withholding obligations from restricted stock awards[328] - The Company has an authorized common stock repurchase program for up to 750 thousand shares, which replaced the 2023 program and terminates by January 5, 2025, or upon reaching the authorized amount[328] ITEM 3. DEFAULTS UPON SENIOR SECURITIES This item states that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[329] ITEM 4. MINE SAFETY DISCLOSURES This item indicates that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable[329] ITEM 5. OTHER INFORMATION This item states that there is no other information to report - No other information to report[329] ITEM 6. EXHIBITS This section lists all exhibits filed with the Form 10-Q, including the Agreement and Plan of Merger, CEO and CFO certifications, and iXBRL financial statements - Key exhibits include the Agreement and Plan of Merger with Northway Financial, Inc., CEO and CFO certifications (pursuant to Rule 13a-14(a) and 18 U.S.C. Section 1350), and iXBRL formatted financial statements[330] SIGNATURES