Item 1A. Risk Factors
An investment in the Company involves risk, which could be substantial. Market, liquidity, credit, operational, legal, compliance, reputational and strategic risks are inherent in our business. The material risks and uncertainties that management believes affect the Company are described below. Any of the following risks could affect the Company’s financial condition and results of operations and could be material and/or adverse in nature. You should consider all of the following risks together with all of the other information in this Annual Report on Form 10-K.
Economic and Market Conditions Risk
Our financial condition and results of operations have been adversely affected, and in the future may be adversely affected, by the U.S. and international financial market and economic conditions.
We have been, and in the future may be, affected by general business and economic conditions in the U.S. and, to a lesser extent, abroad. These conditions include short-term and long-term interest rates, inflation, money supply, political issues, legislative and regulatory changes, fluctuations in both debt and equity capital markets, broad trends in industry and finance, unemployment, investor confidence and customer deposit behavior, all of which are beyond our control. These conditions can change suddenly and negatively. For example, changes in these conditions caused by the COVID-19 pandemic, geopolitical events such as Russia’s invasion in Ukraine, and inflation adversely affected our business in prior periods. In addition, volatility due to failures of other banks or general uncertainty regarding the health of banks may affect customer deposit behavior and cause deposit withdrawals, even if we are not experiencing the same uncertainty. Future changes in any of these conditions, whether related to pandemic, geopolitical conflict, the threat or occurrence of a U.S. sovereign default or government shutdown, a downgrade, or perceived future downgrade, in the U.S. sovereign credit rating or outlook, disruptions in the financial services industry or other future events that we are unable to predict, could result in increases in loan delinquencies and non-performing assets, decreases in loan collateral values, the value of our investment portfolio and demand for our products and services or otherwise adversely affect our financial condition or results of operations.
In addition, volatility and uncertainty related to inflation and its effects may contribute to or enhance some of the risks described in this section. For example, higher inflation has in the past reduced, and could in the future reduce, demand for our products, adversely affect the creditworthiness of our borrowers or result in lower values for our interest-earning assets and investment securities. Any of these effects, or others that we are not able to predict, could adversely affect our financial condition or results of operations.
Fluctuations in market interest rates have in the past adversely affected, and may in the future adversely affect, our performance.
Our profitability depends to a large extent upon our net interest income, which is the difference between interest income earned from loans and investments and the interest expense paid on deposits and borrowings. Net interest income is our largest source of revenue and can be affected significantly by changes in market interest rates, including in the shape of the yield curve or in spreads between different market interest rates, as well as by changes related to inflation. In particular, changes in relative interest rates may reduce our net interest income as the difference between interest income and interest expense decreases. As a result, we have adopted asset and liability management policies to minimize the potential adverse effects of changes in interest rates on net interest income, primarily by altering the mix and maturity of loans, investments and funding sources. See Item 7. “Management’s Discussion and Analysis—Risk Management Policies—Interest Rate Risk” for additional information regarding the Company’s asset and liability management policies and practices, as well as its interest rate risk position, including assumptions used in determining such, as of December 31, 2024. There is risk that any change in interest rates could negatively affect our results of operations or financial condition. Because market interest rates may change by differing magnitudes and at different times, significant changes in interest rates over an extended period of time could reduce overall net interest income.
In response to inflation, the Federal Reserve raised targeted Effective Federal Funds Rate throughout 2022 and 2023, and in 2024 began to lower interest rates. The Federal Reserve Board may continue to lower short-term interest rates during 2025 in response to economic conditions. Longer-term interest rates, while volatile, have remained elevated. Volatility in interest rates can result in customer deposits flowing away from financial institutions into direct investments, and a prolonged high-interest rate environment may cause the Bank to experience increased deposit migration. This may cause the Bank to lose some of its low-cost deposit funding or could adversely affect the Bank’s operations and liquidity. Customers may also continue to move non-interest-bearing deposits into interest-bearing accounts, thereby increasing our overall deposit costs. Higher funding costs may continue to reduce our net interest margin and net interest income.
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Volatility in interest rates can also result in customer deposits flowing away from financial institutions into direct investments. Direct investments, such as U.S. government and corporate securities and other investment vehicles (including money market mutual funds), generally pay higher rates of return than financial institutions because of the absence of federal insurance premiums, and a prolonged high-interest rate environment may cause the Bank to experience increased deposit migration. This may cause the Bank to lose some of its low-cost deposit funding or could adversely affect the Bank’s operations and liquidity. Customers may also continue to move non-interest-bearing deposits into interest-bearing accounts, thereby increasing our overall deposit costs. Higher funding costs may continue to reduce our net interest margin and net interest income.
Changes in U.S. trade policies, including the imposition of tariffs and retaliatory tariffs, may adversely affect our business, financial condition and results of operations.
There has been recent significant change to U.S. trade policies, including tariffs affecting China, Canada and Mexico and there continues to be significant discussion regarding other potential changes to U.S. trade policies, treaties and tariffs, including the potential for additional tariffs. In addition, retaliatory tariffs have been imposed and additional retaliatory tariffs are likely. Tariffs, retaliatory tariffs or other trade restrictions on products and materials that our customers import or export could cause the prices of our customers’ products to increase, which could reduce demand for such products. Any of these effects could adversely affect the ability of our customers to pay their loans. For example, tariffs on Canadian imports could negatively affect a number of industries in Maine, and therefore our customers. In addition, if prices of consumer goods increase materially due to tariffs or other trade policy, the ability of individual households to pay their mortgages and other debt may be affected negatively. If our borrowers are unable to pay their loans, it would adversely affect our financial condition and results of operations. At this time, we are unable to predict whether and to what extent additional or higher tariffs or retaliatory tariffs will be imposed. This uncertainty complicates business planning for our customers in certain industries, and any resulting changes in our customers’ spending and borrowing patterns in response to this uncertainty could have an adverse effect on our business and results of operations.
We could be adversely affected by the actions or commercial soundness, strength or stability of other financial institutions.
Actual or perceived issues with, or rumors or questions about, one or more financial institutions, or the financial services industry more generally, have led to, and may in the future lead to, market-wide liquidity problems; rapid and significant deposit withdrawals at certain banks, particularly those with elevated levels of uninsured deposits; losses or defaults by certain institutions, up to and including failures of certain banks; and significant volatility in the stock of financial services institutions. In addition, our ability to engage in routine funding and settlement transactions could be adversely affected by any of these events or by other events that affect the commercial soundness of other financial institutions. Failures of one or more banks that are unrelated to the Bank may in the future increase the Bank’s deposit insurance assessments, and customers and others may seek to make comparisons between failed or failing banks and the Bank, which, even if unfounded, can spread quickly through social media or other online channels. Such comparisons could affect customer confidence in the Bank and lead to deposit withdrawals or other negative effects we are unable to predict, any of which could materially and negatively affect our results of operations and financial condition.
Financial services institutions are interrelated as a result of trading, clearing, counterparty and other relationships. We maintain a diversified securities portfolio and have exposure to many different counterparties, and we routinely execute transactions with counterparties in the financial services industry. As a result, defaults by, or even rumors or questions about, the soundness, strength or stability of one or more financial services institutions, or the financial services industry generally, could lead to losses or defaults by us or by other institutions and organizations. Many of these transactions expose us to credit risk in the event of default of our counterparty or client. Furthermore, our credit risk may be exacerbated when the collateral held by us cannot be liquidated or is liquidated at prices not sufficient to recover the full amount of the financial instrument exposure due to us. Any such losses could materially and adversely affect our results of operations.
In addition, if a counterparty should default, become insolvent, declare bankruptcy, or otherwise cease to exist, the value of our investment securities may be impaired. This could result in provision for credit losses or realized losses being charged against future income. Given the significant judgments involved, there is risk that material provisions may be recorded to establish an allowance for credit losses resulting in realized losses.
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Camden National Wealth Management may be negatively affected by changes in economic and market conditions.
A substantial portion of income from fiduciary services is dependent on the market value of wealth management assets under management, which are primarily marketable securities. Changes in domestic and foreign economic conditions, volatility in financial markets, and general trends in business and finance, all of which are beyond our control, could adversely impact the market value of these assets and the fee revenues derived from the management of these assets.
Continued market volatility has impacted, and may in the future impact, our business and the value of our common stock.
Our business performance and the trading price of shares of our common stock have in the past, and may in the future be, affected by many factors, including volatility in the credit, mortgage and housing markets, fluctuations in interest rates (including in response to inflation), the markets for securities relating to mortgages or housing, and the value of debt and mortgage-backed and other securities that we hold in our investment portfolio. Government action and legislation may also impact us and the value of our common stock. We cannot predict what impact, if any, future volatility will have on our business or share price.
In addition, the value of securities, derivatives and other financial instruments which we own can be affected materially by market volatility. Volatility, illiquid market conditions or other disruptions in the financial markets may make it difficult to value certain financial instruments. Valuations of financial instruments in future periods may result in significant changes in the value of financial instruments we own. At the time of any disposition of such financial instruments, the price that we realize will depend on the demand and liquidity in the market at that time and may be materially lower than their current fair value. Any of these factors could cause a decline in the value of financial instruments that we own, which may have an adverse effect on our results of operations. In addition, losses in the value of our investment securities or loan portfolio could affect market perception of us and create volatility in our stock price. Losses in the value of our investment securities, even if they do not affect earnings or capital, could also cause some depositors, particularly those who maintain uninsured and uncollateralized deposits, to question the stability of the Bank and to move their deposits away from the Bank. Such events could negatively affect our liquidity, financial condition and results of operations.
Credit Risk and Lending Business Risk
Our loans are concentrated in certain areas of Northern New England and adverse conditions in those markets could adversely affect our operations.
Prior to 2025, we primarily served individuals and businesses located in the state of Maine, with 68% of our loan portfolio concentrated among borrowers in Maine as of December 31, 2024, with higher concentrations of exposure in Cumberland, Kennebec, Knox and York counties. Although our loan portfolio became more geographically diverse following our acquisition of Northway, our loan portfolio remains significantly concentrated among Northern New England borrowers, with over 50% still located in Maine. Because a substantial portion of the loan portfolio is secured by real estate in this area, the value of the associated collateral is also subject to regional real estate market conditions. Adverse economic, political or business developments or natural hazards, the severity and frequency of which are increasing as a result of climate change, may affect these areas and the ability of property owners in these areas to make payments of principal and interest on the underlying mortgages. If these regions experience adverse economic, political or business conditions, such as prolonged elevated inflation and interest rates, or if they experience a pandemic or similar event, we likely would likely higher rates of loss and delinquency on these loans than if the loans were more geographically diverse. In addition, adverse economic, political or other events may affect certain industries in our markets more than others. For example, the COVID-19 pandemic adversely affected hospitality, transportation and commercial real estate industries in Maine. Negative effects on those industries could result in higher rates of loss and delinquency on our loans, which could have a material, adverse effect on our financial condition or results of operations.
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Our loan portfolio includes commercial real estate and commercial loans, which are generally riskier than other types of loans.
At December 31, 2024, our commercial real estate and commercial loan portfolios comprised 51% of our total loan balances. Commercial loans generally carry larger loan balances and involve a higher risk of nonpayment or late payment than residential mortgage loans. Commercial loans may lack standardized terms and may include a balloon payment feature. The ability of a borrower to make or refinance a balloon payment may be affected by a number of factors, including the financial condition of the borrower, prevailing economic conditions and prevailing interest rates, and rising interest rates may make it more difficult or impossible for borrowers to refinance maturing loans. Repayment of these loans is generally more dependent on the economy and the successful operation of a business. High vacancy rates in commercial properties have affected, and in the future may affect, the value of commercial real estate, including by causing the value of properties securing commercial real estate loans to be less than the amounts owed on such loans. Because of the risks associated with commercial loans, we may experience higher rates of default, and other risks described above may be more pronounced, than if the portfolio were more heavily weighted toward residential mortgage loans. Higher rates of default or other events could cause us to experience higher credit losses or could otherwise have an adverse effect on our financial condition and results of operations.
Refer to “—Financial Condition—Loans” for additional information regarding concentrations within our commercial loan portfolio. Risks of higher credit losses and other risks described above that could result from adverse economic or other events affecting any industry within our commercial loan portfolio may be exacerbated by industry concentrations within the commercial loan portfolio.
If our allowance for credit losses for loans is not adequate to cover actual loan losses, our earnings could decrease.
We make various assumptions and judgments about the collectability of our loan portfolio and provide an allowance for credit losses for these loans (herein referred to as the “allowance for loan losses”) based on a number of factors. The level of the allowance for loan losses reflects management's continuing evaluation of industry concentrations, specific credit risks, credit loss experience, current loan portfolio quality, current economic trends and conditions, reasonable and supportable forecasts about the future, changes in competitive, legal, and regulatory conditions, and unidentified losses inherent in the current loan portfolio. Determination of the allowance for loan losses is inherently subjective because it requires significant estimates and management judgment of credit risks and future trends, which are subject to material changes. If our assumptions are incorrect, the allowance for loan losses may not be sufficient to cover the losses we could experience, which would have an adverse effect on operating results, and may also cause us to increase the allowance for loan losses in the future. Deterioration in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans, changes in accounting principles, and other factors, both within and outside our control, may require an increase in the allowance for loan losses. In addition, bank regulators periodically review our allowance for loan losses and may require us to increase our provisions for credit losses or recognize further loan charge-offs. Any increase in our allowance for loan losses or loan charge-offs as required by regulatory authorities could have a material adverse effect on our consolidated results of operations and financial condition. If additional amounts are provided to the allowance for credit losses, our earnings could decrease.
Prepayments of loans may negatively impact our business.
Generally, our customers may prepay the principal amount of their outstanding loans at any time, frequently without financial penalty to the borrower. The speeds at which such prepayments occur, as well as the size of such prepayments, are within our customers’ discretion. Fluctuations in interest rates, in certain circumstances, may also lead to high levels of loan prepayments. If customers prepay the principal amount of their loans, and we are unable to lend those funds to other borrowers or invest the funds at the same or higher interest rates, interest income will be reduced. A significant reduction in interest income could have a negative impact on our results of operations and financial condition.
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Competitive and Strategic Risk
We experience strong competition within our industry and markets, which may impact our profitability and adversely affect the price of our common stock.
Competition in the banking and financial services industry is strong. In our market areas, we compete for loans, deposits and other financial products and services with large financial companies, local independent banks, thrift institutions, savings institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, insurance companies, brokerage and investment banking firms, and other financial intermediaries that offer similar services. Some of these competitors have substantially greater resources and lending limits than those of the Bank and may offer services that the Bank does not or cannot provide. Some of our non-bank competitors are not subject to the same extensive regulations we are, and, as a result, may be able to compete more effectively for business. In particular, the activity of non-bank lenders and other financial technology companies (“fintechs”) has grown significantly over recent years and is expected to continue to grow. Fintechs have offered and may continue to offer bank or bank-like products. For example, a number of fintechs have applied for, and in some cases received, bank or industrial loan charters. In addition, other fintechs have partnered with existing banks to allow them to offer deposit and loan products to their customers. Regulatory changes may also make it easier for fintechs to partner with banks and offer deposit products, or increase the ability of fintechs to compete through the use of non-banking products such as cryptocurrency or alternative payment systems. There is also increased competition by out-of-market competitors through online and mobile channels. Our long-term success depends on our ability to compete successfully with other financial institutions and fintechs. Because we maintain a smaller staff and have fewer financial and other resources than larger institutions with which we compete, we may be limited in our ability to attract customers. If we are unable to attract and retain customers, we may be unable to achieve growth in the loan and core deposit portfolios, and our results of operations and financial condition may be negatively affected.
In addition, return on shareholders’ equity and other measures of profitability, which affect the market price of our common stock, depend in part on continued growth and expansion. The ability to generate internal growth is affected by the competitive factors described herein as well as by the primarily rural characteristics and related demographic features of the markets we serve. If we are unable to compete or grow effectively in our markets, it could adversely affect our business and the price of our common stock.
Market changes may adversely affect pricing of, and demand for, our services and impact results of operations.
Channels for servicing our customers are evolving rapidly, with less reliance on traditional branches, more use of online and mobile banking, and increased demand for universal bankers and other relationship managers who can service multiple product lines. We compete with larger providers that are rapidly evolving their service offerings, thereby escalating the costs of evolving the Bank’s efforts to keep pace. We have a process for evaluating the profitability of our branches and other office and operational facilities. The identification of unprofitable operations and facilities can lead to restructuring charges and introduce the risk of disruptions to revenues and customer relationships.
In addition, our success depends, in part, on our ability to adapt products and services to changing industry standards. There is increasing pressure to provide products and services at lower prices. Lower prices can reduce our net interest margin and revenues from fee-based products and services. The adoption of new or emerging technologies, such as blockchain and artificial intelligence, or further developments in current technologies may require us to make substantial expenditures to modify or adapt our existing products and services to remain competitive. These and other capital investments in our businesses may not produce expected growth in earnings anticipated at the time of the expenditure. We might not be successful in developing or introducing new products and services, adapting to changing customer preferences and spending and saving habits (which may be altered significantly and suddenly), achieving market acceptance of our products and services, or sufficiently developing and maintaining loyal customer relationships.
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Sustainability-related topics as well as companies’ actions and initiatives on such issues, have received significant attention from a wide range of stakeholders. The U.S. federal government, U.S. states and certain other countries and regions have adopted or are considering legislation, regulation or policies on these topics. Compliance with such laws, regulations or policies, including any that may be adopted in the future, could, among other things, increase the costs of operating our businesses, reduce the demand for our products and services and impact the prices we charge our customers, any or all of which could adversely affect our results of operations. In addition, policymakers in some jurisdictions have adopted or proposed laws, regulations and policies that diverge from, or potentially conflict with, those in other jurisdictions. Failure to comply with any legislation, regulation or policy, including as a result of making good faith interpretations that may differ from those taken by enforcement authorities in relevant jurisdictions, could potentially result in substantial fines, criminal sanctions, reputational harm or operational changes. Moreover, our customers, stockholders, employees and other stakeholders have diverse expectations, demands and perspective on these topics, which are continuing to evolve. We may not be able to meet the diverse expectations and demands of all our stakeholders, which could harm our reputation, reduce customer demand for our products and services, and subject us to legal and operational risks.
Camden National Wealth Management faces intense competition in attracting and retaining clients.
Due to strong competition, Camden National Wealth Management may not be able to attract and retain clients at current levels. Competition is strong as there are numerous well-established and successful investment management and wealth advisory firms including commercial banks and trust companies, investment advisory firms, mutual fund companies, stock brokerage firms, and other financial companies. Our ability to attract and retain wealth management clients is dependent upon our ability to compete with competitors’ investment products, level of investment performance, client services, and marketing and distribution capabilities. If we are not successful, our results of operations and financial condition may be negatively affected.
The Company faces competition in pursuing acquisition opportunities, may not be able to identify attractive acquisition targets or may not be able to complete future acquisitions.
In pursuing acquisition opportunities, we may be in competition with other companies having similar growth strategies, including banks, bank holding companies, mutual banks and mutual holding companies. In addition, economic conditions may impede our ability to identify or acquire acquisition candidates. In particular, current market conditions have resulted in large unrealized losses in the investment portfolios at many banking organizations. If we were to acquire such an organization, any such losses would be recognized, thereby impeding our ability to complete an acquisition on acceptable terms. Furthermore, a number of banks in our markets or neighboring markets are organized as mutual banks and may not be interested in a transaction with a counterparty that is not organized in the same manner, such as the Company. These and other economic factors or competition for these acquisitions could result in increased acquisition prices and a lack of attractive acquisition opportunities. As a result, we may not be able to identify or acquire acquisition candidates.
In addition, we generally must receive federal regulatory approval before we can acquire a bank or bank holding company. Our ability to pursue or complete an attractive acquisition could be negatively affected by regulatory delay or other regulatory issues. We cannot be certain when or if, or on what terms and conditions, any required regulatory approvals will be granted. If we commit certain regulatory violations, including those that result in a downgrade in certain of our bank regulatory ratings, we may not be able to pursue future acquisitions for a period of time, or governmental authorities could preclude us from doing so even if we were otherwise able.
Completed acquisitions may not produce the expected results, may result in unforeseen integration difficulties and may dilute shareholders’ interests.
There can be no assurance that we will realize the anticipated positive results of any acquisition we complete, such as our recently completed acquisition of Northway, including results related to expected revenue increases, cost savings, increases in geographic or product presence or other projected benefits. We may incur substantial expenses related to acquisitions and integration of acquired companies. Successful integration of an acquired company may present challenges due to differences in systems, operations, policies and procedures, management teams and corporate cultures and may be more costly or difficult to complete than anticipated or have unanticipated adverse results. Integration efforts could divert management’s attention and resources, which could adversely affect our operations or results. Integration efforts could result in higher than expected customer loss, deposit attrition, loss of key employees, issues with systems and technology, disruption of our businesses or the businesses of the acquired company, or otherwise adversely affect our ability to maintain relationships with customers and employees or achieve anticipated benefits of the acquisition. We issued additional shares of our common stock as consideration for our acquisition of Northway, which diluted our shareholders’ ownership interests. Other future acquisitions may be material
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to us, and we may issue additional shares of our common stock to pay for those acquisitions, which would further dilute current shareholders’ ownership interests.
Liquidity Risk
Our cost of funds has increased and may in the future increase further as a result of loss of deposits, a change in deposit mix or changes in interest rates.
Deposits are a low cost, stable source of funding. We compete with banks, other financial institutions and fintechs for deposits. Increases in short-term interest rates throughout 2022 and 2023 resulted in more intense competition in deposit pricing. Competition and increasing interest rates caused us to increase the interest rates we pay on deposits. Although the Federal Reserve began to lower short-term interest rates in 2024, competition for deposits remains elevated. In addition, a loss in the value of our investment or loan portfolio, perceived concerns regarding our or the Bank’s capital position or perceived concerns regarding the level of the Bank’s uninsured and uncollateralized deposits could cause rapid and significant deposit outflows. Funding costs may increase further if we lose deposits and are forced to replace them with more expensive sources of funding, if clients shift their deposits into higher cost products or if we need to continue to raise interest rates to avoid losing deposits. Higher funding costs reduce our net interest margin, net interest income and net income. If we were to experience a significant outflow of deposits, we may face significantly increased funding costs, suffer significant losses and have a significantly reduced ability to raise new capital.
As of December 31, 2024, brokered deposits made up 4% of our total deposits. We have utilized and will continue to utilize brokered deposits when it is a more cost effective source of funding compared to alternative funding sources. Should we become less than well-capitalized under the prompt corrective action framework, our use of brokered deposits may be limited, which could result in the use of more costly funding sources that would reduce our net interest margin, net interest income and net income. See “Supervision and Regulation—Capital Adequacy and Safety and Soundness—Prompt Corrective Action” and “Supervision and Regulations—Regulation of the Bank—Brokered Deposits” for additional information on the prompt corrective action framework and the regulation of brokered deposits.
Wholesale funding sources may prove insufficient to replace deposits and support our operations and future growth.
The Company and the Bank must maintain sufficient funds to respond to the needs of depositors and borrowers. To manage liquidity, we draw upon a number of funding sources in addition to core deposit growth and repayments and maturities of loans and investments. These sources include brokered deposits, borrowings through the Federal Home Loan Bank of Boston (“FHLBB”) and correspondent banks, proceeds from the sale of investments and loans, and liquidity resources at the holding company. Our ability to manage liquidity will be severely constrained if we are unable to maintain access to funding or if adequate financing is not available to accommodate future growth at acceptable costs, or if there are unforeseen outflows of cash or collateral, such as that seen by certain banks that experienced large and sudden outflows of deposits in 2023. In addition, if we are required to rely more heavily on more expensive funding sources to support future growth, our revenues may not increase proportionately to cover our costs. In this case, operating margins and profitability would be adversely affected. Turbulence in the capital and credit markets may adversely affect our liquidity and financial condition and the willingness of certain counterparties and customers to do business with us.
We could lose access to sources of liquidity if we were to experience financial or regulatory issues.
We rely on sources of liquidity provided by the Federal Reserve, such as the Federal Reserve discount window and other liquidity facilities that the Federal Reserve may establish from time to time, as well as liquidity provided by FHLBB. To access these sources of liquidity, the Federal Reserve or FHLBB may impose conditions that we and the Bank are in sound financial condition (as determined by the Federal Reserve or FHLBB) or that we and the Bank maintain minimum supervisory ratings. If we or the Bank were to experience financial or regulatory issues, it could affect our or the Bank’s ability to access liquidity facilities, including at times when we or the Bank needs additional liquidity for the operation of its business. If we or the Bank were to lose access to these liquidity sources, it could have a material adverse effect on our operations and financial condition.
In addition, bank failures during 2023 led to significant volatility in the financial services industry and to liquidity problems at certain institutions. Although governmental support was provided in connection with the 2023 bank failures, including the FDIC’s invoking the systemic risk exception to guarantee uninsured deposits, there can be no guarantee that the FDIC will invoke the systemic risk exception in connection with any future bank failures or that the government would otherwise take any action to provide liquidity to troubled institutions. Further, even if governmental support for financial institutions is available in the future, it may not be sufficient to address systemic risks.
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We are a holding company and dependent upon our subsidiary for dividends, distributions and other payments to meet our liquidity needs.
We are a legal entity separate and distinct from our direct and indirect subsidiaries. Our revenue (on a parent-only basis) is derived primarily from interest and dividends paid to us by the Bank. Our right, and consequently the right of our shareholders, to participate in any distribution of the assets or earnings of the Bank through the payment of such dividends or otherwise is necessarily subject to the prior claims of creditors of the Bank (including depositors), except to the extent that certain claims of us in a creditor capacity may be recognized.
Holders of our common stock are entitled to receive dividends only when, and if declared by our Board of Directors. Although we have historically declared cash dividends on our common stock, we are not required to do so and our Board of Directors may reduce or eliminate our common stock dividend in the future. The FRB has authority to prohibit bank holding companies from paying dividends if such payment is deemed to be an unsafe or unsound practice. Additionally, the OCC has the authority to use its enforcement powers to prohibit a bank from paying dividends if, in its opinion, the payment of dividends would constitute an unsafe or unsound practice. Further, as a bank holding company, we are required inform and consult with FRB supervisory staff prior to declaring and paying a dividend that exceeds earnings for the period for which the dividend is being paid. If we experience losses in a series of consecutive quarters, we may be required to inform and consult with the FRB supervisory staff prior to declaring or paying any dividends. In this event, there can be no assurance that the FRB will approve the payment of such dividends. Our ability to pay dividends would also be restricted under current regulatory capital rules if we do not maintain a capital conservation buffer. A reduction or elimination of dividends could adversely affect the market price of our common stock. See Item 1. “Business—Supervision and Regulation—Dividend Restrictions” and “Business—Supervision and Regulation—Regulatory Capital Requirements.”
Regulatory and Legal Risk
Our banking business is highly regulated, and we may be adversely affected by changes in law and regulation.
We are subject to regulation and supervision by the FRB, and the Bank is subject to regulation and supervision by the OCC and the FDIC, as well as regulations issued by the CFPB. Federal laws and regulations govern numerous matters affecting us, including changes in the ownership or control of banks and bank holding companies, maintenance of adequate capital and the financial condition of a financial institution, permissible types, amounts and terms of extensions of credit and investments, permissible non-banking activities, the level of reserves against deposits and restrictions on dividend payments. The OCC possesses the power to issue cease and desist orders to prevent or remedy unsafe or unsound practices or violations of law by banks subject to their regulation, and the FRB possesses similar powers with respect to bank holding companies. These and other restrictions limit the manner in which we may conduct business and obtain financing.
Our business is highly regulated and the laws, rules, regulations, and supervisory guidance and policies applicable to us are subject to regular modification and change, and there have been significant revisions to the laws and regulations applicable to banks and bank holding companies that have been enacted or proposed in recent years. We expect that we will remain subject to extensive regulation and supervision, and that the level of regulatory scrutiny may fluctuate over time, based on numerous factors, including changes in the U.S. presidential administration or one or both houses of Congress and public sentiment regarding financial institutions (which can be influenced by scandals and other incidents that involve participants in the industry). In particular, recent changes in national political leadership have introduced uncertainty into the direction and timing of any future regulation. Although an overall reduction in the regulation of the financial services sector could result in some operational and cost benefits, any potential new regulations or changes to existing regulations and supervisory expectations may necessitate changes to our existing regulatory compliance and risk management programs. New regulations and changes to existing regulations and supervisory expectations have increased, and may in the future increase, our costs over time.
In addition, changes to statutes, regulations or regulatory policies, or their interpretation or implementation, and/or regulatory practices, requirements or expectations, could affect us in substantial and unpredictable ways. In particular, the potential effects of a number of proposed regulations on us remain uncertain due to legal challenges and therecent changes in the U.S. presidential administration and control of the U.S. Senate, which could result in changing federal or state regulatory priorities.
We are unable to predict the form or nature of any future changes to statutes or regulation, including the interpretation or implementation thereof. Changes to statutes, regulations, or regulatory policies, including changes in interpretation or implementation of statutes, regulations, or policies, have and could in the future subject us to additional costs, limit the types of financial services and products we may offer, and/or increase the ability of non-banks to offer competing financial services and products, among other things. Failure to comply with laws, regulations, policies or supervisory guidance could result in enforcement and other legal actions by federal or state authorities, including criminal and civil penalties, the loss of FDIC
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insurance, revocation of a banking charter, other sanctions by regulatory agencies, civil money penalties, and/or reputational damage, which could have a material adverse effect on our business, financial condition, and results of operations. See Item 1., “Business—Supervision and Regulation.”
We may become involved in lawsuits and legal proceedings that may lead to adverse consequences.
As a participant in the financial services industry, many aspects of the Company’s business involve substantial risk of legal liability. For example, banking organizations have been subject to claims regarding patent infringement or other violations of intellectual property rights in recent years which, in some cases, have resulted in large judgments against the banks. From time to time, we are named or threatened to be named as defendants in various lawsuits, including class actions, arising from our business activities. In addition, when other financial institutions receive adverse judgments in litigation or agree to settlements, that may encourage plaintiffs and their attorneys to bring and maintain claims, including class actions, against other financial institutions, including the Company. There is no assurance that litigation with private parties will not increase in the future. Future actions against us may result in judgments, settlements, fines, penalties or other results adverse to us, which could materially adversely affect our business, financial condition or results of operations, or cause serious reputational harm to us. In addition, the scope of insurance coverage we maintain may not provide us with full, or even partial, coverage in any particular case. As a result, a judgment against us in any such litigation and/or legal costs incurred in defending us against such litigation could have a material adverse effect on our financial condition and results of operation.
We may incur fines, penalties and other negative consequences from regulatory violations, possibly even inadvertent or unintentional violations.
The financial services industry is subject to intense scrutiny from bank supervisors in the examination process and aggressive enforcement of federal and state regulations, particularly with respect to mortgage-related practices and other consumer compliance matters, and compliance with AML, BSA and OFAC regulations, and economic sanctions against certain foreign countries and nationals. Enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. In addition, some legal/regulatory frameworks provide for the imposition of fines or penalties for noncompliance even though the noncompliance was inadvertent or unintentional and even though there were systems and procedures designed to ensure compliance in place at the time. There have been a number of significant enforcement actions in recent years by regulators, state attorneys general and the Department of Justice against banks and other non-bank financial institutions with respect to AML and sanctions laws, and some have resulted in substantial penalties including criminal pleas. Although the Company and the Bank have adopted policies and procedures designed to comply with these laws, any failure to comply with these laws and other regulations, or to maintain an adequate compliance program, could result in significant fines, penalties, lawsuits, regulatory sanctions, reputational damage, or restrictions on our business.
We are subject to numerous laws designed to meet the credit needs of low- and moderate-income communities and to protect consumers, including the Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to a wide variety of sanctions.
The Community Reinvestment Act, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose community investment and nondiscriminatory lending requirements on financial institutions. The FRB, OCC, CFPB, the Department of Justice and other federal agencies are responsible for enforcing these laws and regulations. A successful regulatory challenge to an institution’s performance under the Community Reinvestment Act, the Equal Credit Opportunity Act, the Fair Housing Act or other fair lending laws and regulations could result in a wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions, restrictions on expansion and restrictions on entering new business lines. Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation. Such actions could have a material adverse effect on our business, financial condition and results of operations.
We are required to maintain sufficient capital and adequate liquidity.
As a banking organization, our capital and liquidity are subject to regulation and supervision by banking regulators. We are required to maintain minimum levels of capital. In addition, our banking regulators could require us to maintain more and higher quality capital than previously expected. Our banking regulators could also require us to hold higher levels of short-term investments, thereby limiting our ability to invest in longer-term or less liquid assets at higher yields. The need to maintain capital and liquidity could result in our being required to take steps to increase our regulatory capital and may dilute shareholder value or limit our ability to pay dividends or otherwise return capital to our investors through stock repurchases. In addition, if we fail to maintain appropriate levels of capital or liquidity, we could become subject to formal or informal enforcement actions that may impose restrictions on our business, including limiting our lending activities or our ability to expand, requiring us to
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raise additional capital (which may be dilutive to shareholders) or requiring regulatory approval to pay dividends or otherwise return capital to shareholders. See Item 1. “Business-Supervision and Regulation-Regulatory Capital Requirements” for additional information on capital requirements applicable to us and the Bank.
Operational and Business Risk
Damage to our reputation could significantly harm our business.
We are dependent on our reputation within our market area, as a trusted and responsible financial company, for all aspects of our relationships with customers, employees, vendors, third-party service providers and others with whom we conduct business or potential future business, particularly because our business is primarily concentrated in certain areas of Northern New England. Our actual or perceived failure to (i) identify and address potential conflicts of interest, ethical issues, money-laundering, or privacy issues; (ii) meet legal and regulatory requirements applicable to the Bank and to the Company; (iii) maintain the privacy of customer and accompanying personal information; (iv) maintain adequate record keeping; (v) engage in proper sales and trading practices; and (vi) identify the legal, reputational, credit, liquidity and market risks inherent in our products; or any action of one of our employees that results in actual or perceived misconduct or error, among other things, could give rise to reputational risk that could cause harm to the Bank and our business prospects. If we fail to address any of these issues in an appropriate manner, we could be subject to additional legal risks, which, in turn, could increase the size and number of litigation claims and damages asserted or subject us to enforcement actions, fines and penalties and cause us to incur related costs and expenses. Because we primarily serve individuals and businesses located in Maine and New Hampshire, any negative impact resulting from reputational harm, including any impact on our ability to attract and retain customers and employees, likely would be greater than if our business were more geographically diverse. Moreover, the advent and expansion of social media creates the potential for rapid and widespread dissemination of information, including inaccurate, misleading, or false information, that could damage our reputation and affect our ability to attract and retain customers and employees.
We may incur significant losses as a result of ineffective risk management processes and strategies.
We seek to monitor and control our risk exposure through a risk and control framework encompassing a variety of separate but complementary financial, credit, operational, compliance and legal reporting systems, internal controls, management review processes and other mechanisms. While we employ a broad and diversified set of risk monitoring and risk mitigation techniques, those techniques and the judgments that accompany their application may not be effective and may not anticipate every economic and financial outcome in all market environments or the specifics and timing of such outcomes. Market conditions over the last several years have involved unprecedented dislocations and highlight the limitations inherent in using historical data to manage risk. If our risk and control framework, or the assumptions underlying our framework, prove ineffective, we may not be able to mitigate our risk exposures effectively, and, as a result, we could incur litigation, negative regulatory consequences, reputational damage or other adverse consequences, and we could suffer unexpected losses that may affect our business, financial condition or results of operations.
Our business may be adversely affected if we are unable to attract and retain qualified employees.
Competition for qualified personnel is intense in many areas of the financial services industry. If the Company provides inadequate succession planning, or is unable to continue to retain and attract qualified employees, this could result in a material adverse effect on the Company’s performance, including its competitive position.
We could be held responsible for environmental liabilities of properties we acquired through foreclosure.
In the course of business, we may acquire, through foreclosure, properties securing loans originated or purchased that are in default. Particularly in commercial real estate lending, there is a risk that material environmental violations could be discovered on these properties. In this event, we might be required to remedy these violations at the affected properties at our sole cost and expense. The cost of remedial action could substantially exceed the value of affected properties. We may not have adequate remedies against the prior owner or other responsible parties and could find it difficult or impossible to sell the affected properties. These events could have an adverse effect on our financial condition and results of operations.
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Systems failures, interruptions or breaches of security concerning ourinformation base, including the information we maintain relating to our customers, could have an adverse effect on our financial condition and results of operations.
In the ordinary course of business, we rely on electronic communications and information systems to conduct our business and to store sensitive data, including financial information regarding customers. We are subject to certain operational risks, including, but not limited to, data processing system failures and errors, inadequate or failed internal processes, human error, customer or employee fraud, cyberattacks, hacking, identity theft and catastrophic failures resulting from terrorist acts or natural disasters. We depend upon data processing, software, communication, and information exchange on a variety of computing platforms and networks and over the internet, and we rely on the services of a variety of vendors to meet our data processing and communication needs. We cannot be certain that all of our systems are entirely free from vulnerability to attack or other technological difficulties or failures. If information security is breached or other technology difficulties or failures occur, information may be lost or misappropriated, services and operations may be interrupted and we could be exposed to claims from customers. A cybersecurity breach or cyberattack could persist for an extended period before being detected and could result in theft of sensitive data or disruption of our transaction processing systems. Any of these results could have a material adverse effect on our reputation, business, financial condition, results of operations or liquidity.
We are subject to a variety of cybersecurity risks that, if realized, could adversely affect our business, financial condition and results of operations.
Information security risks for financial institutions such as the Company and the Bank are significant due to the use of online, telephone and mobile banking channels by customers and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties. Third parties with whom we or our customers do business also present operational and information security risks to us. We see an increasing trend of cyberattacks targeting providers in the financial services industry, as well as increased security breaches or failures of their own systems. Our operations rely on the secure processing, transmission and storage of confidential information in our computer systems and networks. Our businesses rely on our digital technologies, computer and email systems, software, and networks to conduct their operations. As our reliance on technology systems increases, the potential risks of technology-related interruptions in our operations or the occurrence of cyber incidents also increases. Our technologies, systems, networks and our customers’ devices are periodically the target of cyberattacks, and may be the target of future cyberattacks, including through the introduction of computer viruses, and/or malicious code, or by means of phishing attacks, social engineering or other information security breaches. Malicious actors may also attempt to fraudulently induce employees, customers or other users of our systems to disclose sensitive information, including passwords and other identifying information, in order to gain access to data or our systems.
In recent years, there have been several well-publicized attacks on various companies, including in the financial services industry, and personal, proprietary, and public e-mail systems in which the perpetrators gained unauthorized access to confidential information and customer data, often through the introduction of computer viruses or malware, cyberattacks, phishing, social engineering or other means. Even if not directed at the Company or the Bank specifically, attacks on other entities with whom we do business or on whom we otherwise rely or attacks on financial or other institutions important to the overall functioning of the financial system could adversely affect, directly or indirectly, aspects of our business.
Information security risks continue to increase, in part because of the proliferation of new technologies, including artificial intelligence (“AI”), ongoing work-from-home arrangements, the use of the Internet and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists, activists, and other external parties, some of which may be linked to terrorist organizations or hostile foreign governments. We have expended substantial resources to protect our systems and, as cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our systems or to investigate and remediate vulnerabilities. System enhancements and updates may also create risks associated with implementing and integrating new systems. Due to the complexity and interconnectedness of information technology systems, the process of enhancing our systems can itself create a risk of systems disruptions and security issues. Failure to properly utilize system enhancements that are implemented in the future could result in impairment charges and could result in significant costs to remediate or replace the defective components. In addition, we may incur significant training, licensing, maintenance, consulting and amortization expenses during and after systems implementations, and any such costs may continue for an extended period of time.
We may not be able to anticipate, detect, or implement effective preventative measures against all potential threats, particularly because the techniques used by cyber criminals change frequently, often are not recognized until launched and can be initiated from a variety of sources. In addition, a cybersecurity breach or cyberattack could persist for an extended period before being detected, which could exacerbate the harmful effects of a successful cyberattack. If one or more of the events described above occurs, this could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of our or our customers’ confidential, proprietary and other information, the theft of customer assets through fraudulent transactions or
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disruption of our or our customers’ or other third parties’ business operations, which could result in legal or regulatory action, significant losses, increased compliance costs or reputational damage, any of which could adversely affect our business, financial condition or results of operations. Because the investigation of any information security breach is inherently unpredictable and would require substantial time to complete, the Company may not be able to quickly remediate the consequences of any breach, which may increase the costs, and enhance the negative consequences associated with a breach. In addition, to the extent the Company’s insurance covers aspects of any breach, such insurance may not be sufficient to cover all of the Company’s losses.
As cybersecurity and data privacy risks for banking organizations and other financial institutions have significantly increased in recent years, cybersecurity and data privacy issues have become the subject of increasing legislative and regulatory focus. We could be adversely affected if new legislation or regulations are adopted or if existing legislation or regulations are modified such that we are required to alter our systems or are required to change our business practices or privacy policies. If cybersecurity, data privacy, data protection, data transfer or data retention laws are implemented, interpreted or applied in a manner inconsistent with our current practices, we may be subject to fines, litigation or regulatory enforcement actions or ordered to change our business practices, policies or systems in a manner that adversely affects our results of operations.
We must adapt to information technology changes in the financial services industry, which could present operational issues, require significant capital spending, or impact our reputation.
The financial services industry is constantly undergoing technological changes, with frequent introductions of new technology-driven products and services. Our future success will depend, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for convenience, as well as to create additional efficiencies in our operations. To compete effectively, the Company may use new and evolving technologies, including AI and machine learning, to help improve its customer service, marketing, and products or to automate certain business decisions or risk management practices, such as fraud identification. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. Failure to successfully implement and integrate future system enhancements could adversely impact the ability to provide timely and accurate financial information in compliance with legal and regulatory requirements, which could result in sanctions from regulatory authorities. Such sanctions could include fines and suspension of trading in our stock, among others. In addition, future system enhancements could have higher than expected costs and/or result in operating inefficiencies, which could increase the costs associated with the implementation as well as ongoing operations. Furthermore, legal and regulatory requirements relating to new technologies such as AI are evolving rapidly, and the inability to predict how this regulation will take shape and the absence of a uniform regulatory framework for AI may present unforeseen challenges in applying and relying on existing compliance systems. Complying with such requirements could increase expenses and exposure to legal or regulatory proceedings.
We rely on other companies to provide key components of our business infrastructure.
Third-party vendors provide key components of our business infrastructure. Any problems caused by these third parties, including as a result of their not providing us their services for any reason or their performing their services poorly, could adversely affect our ability to deliver products and services to our customers or otherwise conduct our business efficiently and effectively. Replacing these third party vendors could also entail significant delay and expense.
Third parties with which we do business could also be sources of information security risk to us, including from breakdowns, systems failures or cyber threats through their systems to our systems. Any of these occurrences could impact our ability to operate our business, or cause financial loss, potential liability to clients, reputational damage or regulatory consequences, any of which could have a material adverse effect on our financial condition or results of operations.
Our operations and financial performance could be adversely affected by natural disasters, and climate change may exacerbate those risks and create compliance, strategic, reputational and other risks.
Our business, as well as the operations and activities of our customers, could be negatively affected by climate change. Climate change presents both immediate and long-term risks to us and our customers and these risks are expected to increase over time. Climate change presents several risks, including (i) operational risk from the physical effects of climate events on our facilities and other assets, on our vendors’ facilities and on our customers’ assets, including real estate pledged as collateral for our loans; and (ii) transitional risks, including new or more stringent regulatory requirements and potential effects on our reputation and/or changes in our business as a result of our climate change practices, our carbon footprint and our business relationships with customers who operate in carbon-intensive industries.
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Natural disasters can disrupt our operations, result in damage to our properties, reduce or destroy the value of the collateral for our loans and negatively affect the economies in which we operate, which could have a material adverse effect on our results of operations and financial condition. A significant natural disaster, such as a tornado, hurricane, earthquake, fire or flood, could have a material adverse impact on our ability to conduct business (including as a result of damage to our own facilities or systems or to the facilities or systems of third-party vendors on which we rely), and our insurance coverage may be insufficient to compensate for losses that may occur. Because we primarily serve individuals and businesses located in Northern New England, a natural disaster likely would have a greater impact on our business, operations and financial condition than if our business were more geographically diverse.
Both the frequency and severity of some kinds of natural disasters, including wildfires, flooding, tornadoes and hurricanes, have increased, and we expect will continue to increase, as a result of climate change. In addition, long-term shifts in the climate, including altered distribution and intensity of rainfall, rising sea levels and a rising heat index, negatively affect our ability to predict the effects of natural disasters accurately. Climate change may result in reduced availability of insurance for our borrowers, including insurance that protects property pledged as collateral, or disrupt their operations, which could increase our credit risk by diminishing borrowers’ repayment capacity or collateral values.
To the extent the U.S. continues to transition to a low-carbon economy, related risks may arise from changes in consumer preferences, technologies, public policies and legal and regulatory requirements. New laws and regulations could result in significant costs as the we implement compliance, disclosure and other programs. Failure to comply with any applicable laws or regulations could result in legal or regulatory sanctions and harm to our reputation. Failure to adequately consider transition risks in our operations could lead to a loss of market share, lower revenues, decreased asset values and higher credit costs. In addition, we may not be able to meet the diverging expectations and priorities of different groups, including our employees, shareholders and regulators. We could also experience increased expenses resulting from strategic planning, litigation and technology and market changes, and reputational harm as a result of negative public sentiment, regulatory scrutiny and reduced investor and employee confidence due to our response to climate change and our climate change strategy.
Risks associated with climate change are continuing to evolve rapidly, making it difficult to assess the effects of climate change on our business, and we expect that climate change-related risks will continue to evolve and increase over time.
Acts of terrorism, pandemics and other external events could harm our business.
Acts of terrorism, war or other international hostilities, civil unrest, violence or pandemics could cause disruptions to our business or the economy as a whole, such as the disruptions experienced during the COVID-19 pandemic. Any of these events could affect us directly (for example, by interrupting our systems, causing significant damage to our facilities or otherwise preventing us from conducting our ordinary business) or indirectly as a result of effects on our borrowers and other customers or third-party vendors (for example, by damaging property pledged as collateral for our loans). The Company has suffered, and could in the future suffer, adverse consequences to the extent that pandemics, terrorist activities, civil unrest, international hostilities, or other external events affect the financial markets or the economy in general or in any region in which the Company, or third parties on which the Company relies, operate.
Depending on the impact of external events on general economic and market conditions, there is a risk that adverse conditions could occur or worsen, including supply chain disruptions; higher inflation; decreased demand for our products and services or those of our borrowers, which could increase credit risk; challenges related to maintaining sufficient qualified personnel due to labor shortages, talent attrition, employee illness, or willingness to return to work; and disruptions to our business operations or those of our counterparties, vendors and other service providers.
Our ability to mitigate the adverse consequences of these occurrences is in part dependent on the quality of our resiliency planning, and our ability, if any, to anticipate the nature of any such event that occurs. The adverse effects of pandemics, terrorist activities, civil unrest, international hostilities or other external events also could be increased to the extent that there is a lack of preparedness on the part of national or regional emergency responders or on the part of other organizations and businesses that we transact with, particularly those that we depend upon, but have no control over.
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Accounting and Tax Risk
Our financial statements are based in part on assumptions and estimates, which, if wrong, could cause unexpected losses in the future.
Pursuant to U.S. generally accepted accounting principles, we are required to use certain assumptions and estimates in preparing our financial statements, including in determining credit loss reserves, reserves related to litigation and the fair value of certain assets and liabilities, among other items. If assumptions or estimates underlying our financial statements are incorrect, we may experience material losses. For additional information, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates.”
We may be required to write down goodwill and other identifiable intangible assets.
When we acquire a business, a portion of the purchase price of the acquisition may be allocated to goodwill and other identifiable intangible assets. The excess of the purchase price over the fair value of the net identifiable tangible and intangible assets acquired determines the amount of the purchase price that is allocated to goodwill. At December 31, 2024, our goodwill and other identifiable intangible assets totaled $95.7 million. Under current accounting standards, if we determine goodwill or intangible assets are impaired, we would be required to write down the value of these assets to fair value. We conduct an annual review, or more frequently if events or circumstances warrant such additional review, to determine whether goodwill is impaired. We recently completed our goodwill impairment analysis as of November 30, 2024 and concluded goodwill was not impaired. We conduct a review of our other intangible assets for impairment should events or circumstances warrant such review. There were no triggers for such review for impairment for other intangible assets for the year ended December 31, 2024. We may be required to take an impairment charge in the future. Any impairment charge would have a negative effect on our shareholders’ equity and financial results and may cause a decline in our stock price.
On January 2, 2025, we completed the acquisition of Northway. As part of this acquisition, we expect additional goodwill and other intangible assets to be recognized upon completion of our purchase accounting, as further described within Note 23 of the consolidated financial statements. The goodwill and intangible assets created from the acquisition of Northway will also be subject to assessment for impairment as described above.
Changes in accounting standards can be difficult to predict and can materially impact how we record and report our financial condition and results of operations.
Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. From time to time, the FASB and the SEC change the financial accounting and reporting standards that govern the preparation of our financial statements. These changes can be hard to anticipate and implement and can materially impact how we record and report our financial condition and results of operations. For example, the introduction of Accounting Standard Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), as updated, commonly referred to as “CECL,” substantially changed how we calculate our allowance for credit losses. Other future changes in accounting standards could materially impact how we report our financial condition, and we cannot predict whether such standards will be adopted or their resultant impact.
Changes in tax laws and regulations and differences in interpretation of tax laws and regulations may adversely impact our financial statements.
Local, state or federal tax authorities may interpret tax laws and regulations differently than we do and challenge tax positions that we have taken on tax returns. This may result in differences in the treatment of revenues, deductions, credits and/or differences in the timing of these items. The differences in treatment may result in payment of additional taxes, interest or penalties that could have a material adverse effect on our results. In addition, there may be future changes to tax laws, administrative rulings or court decisions that could adversely affect our financial condition, including an increased provision for income taxes and/or reduced net income. We are not able to predict the timing or impact of any changes in local, state or federal tax laws.
Item 1B. Unresolved Staff Comments
None.
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Item 1C. Cybersecurity
Cybersecurity Risk Management and Strategy
The Company has developed and implemented a comprehensive cybersecurity risk management program that is intended to protect the secure processing, transmission and storage of confidential information in its computer systems and networks. The Company’s cybersecurity risk management program, a component of the Company’s Enterprise Risk Management (“ERM”) Program, is based on the National Institute of Standards and Technology (“NIST”) Cybersecurity Framework, regulatory guidance and other industry standards. The Company’s process for identifying, assessing, managing and prioritizing cybersecurity risks throughout the Company includes:
•A third party risk assessment program for the Company’s third party vendors that access the Company’s data (each, a “Vendor”) to ensure that all Vendors meet the Company’s cybersecurity requirements, including, periodic risk assessments of Vendors, monitoring Vendor compliance with the Company’s cybersecurity requirements, and a requirement that all contracts with Vendors include provisions requiring the Vendor to notify the Company of any cyber incident, and/or to maintain minimum levels of cybersecurity insurance;
•A security awareness program that includes training employees on best practices for securing the Company’s data, as well as regular social engineering testing to keep employees informed of cybersecurity threats and to train them to look for malicious emails and other potential cybersecurity threats;
•A dedicated information security team that monitors threats and vulnerabilities that arise, and regularly performs threat intelligence and vulnerability management;
•The Company’s engagement of a third party to conduct periodic independent testing of the Company’s cybersecurity defenses to confirm that the defenses are effective;
•A Managed Detection and Response (“MDR”) service that continuously monitors the Company’s systems and alerts the Company’s information security team of any detected anomalies or suspicious activity and stops any event that is deemed dangerous to the Company’s systems or networks;
•An Incident Response Plan (“IRP”) and Business Continuity Plan (“BCP”) which outline steps to be taken during a cyber incident and to recover systems and continue business operations following a cyber incident; and
•A Cybersecurity Incident Response Team (“CSIRT”) that tracks cyber incidents, including those that affect third parties that are handling the Company’s data.
Cybersecurity Threats
During the fiscal year ended December 31, 2024, the Company did not identify any risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, that have materially affected, or that are reasonably likely to materially affect the Company, including its business strategy, results of operations, or financial condition other than the risks described in Item 1A. “Risk Factors”.
Cybersecurity Governance
Board of Directors’ Oversight. The Company’s Board of Directors oversees the Company’s cybersecurity program, including the oversight of risks related to cybersecurity through various committees that are responsible for monitoring and testing the Company's information security. The Board of Directors conducts an annual review of the Company’s cybersecurity- related policies. Quarterly, the Company’s Senior Vice President, Director of Information Security (“DIS”) presents reports to the Audit Committee on vulnerability management and cybersecurity testing effectiveness, emerging threats and industry and regulatory changes that affect cybersecurity, and responds to inquiries from the Audit Committee. In addition, the Technology Committee receives and evaluates quarterly updates from the DIS on cybersecurity performance and on cybersecurity trends and strategies. The Board of Directors receives quarterly updates from the EVP, Chief Risk Officer (“CRO”) on cybersecurity metrics and the cybersecurity risk management program’s performance.
Management Oversight. While the Board of Directors and its Audit and Technology Committees oversee management’s processes related to cybersecurity risks, management is responsible for identifying, monitoring and mitigating the material cybersecurity risks that face the Company. The Company’s CRO is directly responsible for the overall cybersecurity risk management program which is a part of the Company's ERM Program. The CRO and the DIS oversee the information security department’s implementation and maintenance of the cybersecurity risk management program, including oversight of Vendors and regular reporting to the Board of Directors and its Audit and Technology Committees on the effectiveness of the
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cybersecurity risk management program. The DIS updates the CRO as appropriate, including as new developments or information related to cyber incidents arise.
The Company’s CRO has over 27 years of experience in cybersecurity and information technology. The CRO joined the Company in 2011 and became CRO in July 2023. Prior to becoming CRO, he served as SVP and Director of Information Security & ERM for six years and prior to that served five years as Vice President and Senior Information Security Officer of the Company. Prior to joining the Company, the CRO had a ten year career in information technology and began his career serving with the U.S. Air Force, specializing in information technology, cybersecurity, risk mitigation, and encrypted communications.
The Company’s DIS joined the Company in 2023 and has over 20 years of experience in information technology and cybersecurity. The DIS has held senior management positions in information security for the past ten years. The DIS holds several industry certifications including Certified Information Systems Security Professional (“CISSP”), Certified Information Systems Auditor (“CISA”), Certified in Risk and Management Systems Controls (“CRISC”) and Certified Data Privacy Solutions Engineer (“CDPSE”).
Item 2. Properties
As of December 31, 2024, the Company owns its principal executive offices, located at 2 Elm Street, Camden, Maine, and the Company leases additional executive offices at 3 Canal Plaza, Portland, Maine. The Company also owns and operates a service center in Rockport, Maine, and owns or leases, and operates, 56 branches located throughout Maine, a branch in Portsmouth, New Hampshire, and a commercial loan production office in Manchester, New Hampshire. None of the properties owned by the Company are subject to a mortgage or other encumbrance. All facilities are fully utilized and considered suitable and adequate for the purposes intended.
For additional information regarding the Company's premises and equipment and lease obligations see Notes 6 and 7 of the consolidated financial statementswithin Item 8. Financial Statements and Supplementary Data.
Item 3. Legal Proceedings
The Company is currently involved, and from time to time in the future may become involved, in various legal claims that arise in the normal course of the Company’s business. The Company may also in the future become involved in other regulatory, judicial and/or arbitration proceedings relating to matters that arise in connection with the conduct of the Company’s business. Because of the difficulty in predicting the outcome of these matters, particularly when they are in their early stages, the Company cannot predict what the final outcome of each legal proceeding may be, or what the eventual loss, fine or penalty related to each proceeding may be, if any. Based on currently available information, in our opinion the results of legal proceedings that are currently pending are not expected to have a material effect on our consolidated financial statements.
Reserves are established for legal claims only when losses associated with the claims are judged to be probable, and the loss can be reasonably estimated. In many lawsuits and arbitrations, it is not possible to determine whether a liability has been incurred or to estimate the ultimate or minimum amount of that liability until the case is close to resolution, in which case a reserve will not be recognized until that time. As of December 31, 2024 and 2023, the Company did not maintain material reserves against legal claims.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The Company’s common stock is currently traded on the NASDAQ Global Market (“NASDAQ”) under the ticker symbol “CAC.” The Company has paid quarterly dividends since its foundation in 1984. The high and low closing sales prices (as quoted by NASDAQ for 2024 and 2023) and cash dividends declared per share of the Company’s common stock, by calendar quarter for the past two years, were as follows:
High Low High Low
As of February 25, 2025, there were 16,864,810 shares of the Company’s common stock outstanding, and there were approximately 1,000 holders of record of the Company’s common stock. Such number of shareholders does not reflect the number of persons or entities holding stock in nominee name through banks, brokerage firms and other nominees.
Although the Company has historically paid quarterly dividends on its common stock, the Company’s ability to pay such dividends depends on a number of factors, including restrictions under federal laws and regulations on the Company’s ability to pay dividends, and as a result, there can be no assurance that dividends will be paid in the future. For further information on dividend restrictions, refer to Item 1.“Business—Supervision and Regulation” and Item 7.“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Resources.”
The following graph illustrates the annual percentage change in the cumulative total shareholder return of the Company’s common stock for the period December 31, 2019 through December 31, 2024. For purposes of comparison, the graph illustrates comparable shareholder returns of the S&P U.S. SmallCAP Banks Index and the Russell 2000 Index. The graph assumes a $100 investment on December 31, 2019 in the Company’s common stock and each of the foregoing indices and assumes the reinvestment of all dividends. The comparisons in the graph are based on historical data and are not indicative of, nor intended to forecast, future performance of the Company’s common stock.
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Stock Performance Graph
In January 2024, the Board of Directors approved a common stock repurchase program, authorizing management to repurchase up to 750,000 shares, or approximately 5%, of the Company's outstanding common stock, that had an expiration date of the earlier of (i) reaching the authorized share repurchase amount, (ii) vote by the Board of Directors to terminate the plan, or (iii) one year. As of December 31, 2024, the Company repurchased 50,000 shares at an average price of $32.19, none of which were repurchased during the fourth quarter of 2024. This repurchase program expired in January 2025.
Issuer's Purchases of Equity Securities
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Item 6. [Reserved]
Not applicable.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The discussion below focuses on the factors affecting our consolidated results of operations and financial condition at and for the year ended December 31, 2024, and where appropriate, factors that may affect our future financial performance, unless stated otherwise. This discussion should be read in conjunction with the consolidated financial statements, notes to the consolidated financial statements and selected consolidated financial data.
Refer to the Company’s 2023 annual report on Form 10-K filed with the SEC on March 8, 2024 for the discussion of results of operations and financial condition at and for the year ended December 31, 2023.
INTRODUCTORY NOTE
On January 2, 2025, the Company completed its previously announced stock-for stock acquisition of Northway. The total consideration paid by the Company consisted of approximately $96.5 million (approximately 2.3 million shares of the Company’s common stock) based on the closing price of the Company’s common stock of $42.25, as reported by Nasdaq on January 2, 2025. Results of operations and cash flows for all periods presented in this Annual Report on Form 10-K reflect only the results of operations and cash flows of the Company and do not include the results of operations or cash flows of Northway. In addition, neither the shares of Company common stock issued as consideration in the acquisition nor any purchase accounting adjustment that the Company will make in connection with the acquisition are reflected in the Company’s financial condition for any period presented in this Annual Report on Form 10-K. The Company will account for the Northway acquisition as a business combination in results of operations for the first quarter of 2025. For additional information regarding the Company’s acquisition of Northway, refer to Note 23 of the consolidated financial statements in Item 8 of this Annual Report on Form 10-K.
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ACRONYMS AND ABBREVIATIONS
The acronyms and abbreviations identified below are used throughout Item 7. “Management's Discussion and Analysis of Financial Condition and Results of Operations.” The following is provided to aid the reader and provide a reference page when reviewing this section of the Form 10-K:
Acronym Description Acronym Description
ALCO: Asset/Liability Committee GDP: Gross domestic product
ACL: Allowance for credit losses HTM: Held-to-maturity
AOCI: Accumulated other comprehensive income (loss) LGD: Loss given default
ASC: Accounting Standards Codification LIBOR: London Interbank Offered Rate
ASU: Accounting Standards Update LTIP: Long-Term Performance Share Plan
BOLI: Bank-owned life insurance MBS: Mortgage-backed security
CECL: Current Expected Credit Losses N.M.: Not meaningful
CMO: Collateralized mortgage obligation OCI: Other comprehensive income (loss)
DCRP: Defined Contribution Retirement Plan PD: Probability of default
EPS: Earnings per share ROU: Right-of-use
FRBB: Federal Reserve Bank of Boston U.S.: United States of America
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NON-GAAP FINANCIAL MEASURES AND RECONCILIATION TO GAAP
In addition to evaluating the Company’s results of operations in accordance with GAAP, management supplements this evaluation with an analysis of certain non-GAAP financial measures, such as core net income; core diluted earnings per share; core return on average assets; core return on average equity; pre-tax, pre-provision income and core pre-tax, pre-provision; income; the efficiency ratio; return on average tangible equity and core return on average tangible equity; tangible book value per share and tangible common equity ratio; net interest income (fully-taxable equivalent); and core deposits and average core deposits. We utilize these non-GAAP financial measures for purposes of measuring our performance against our peer group and other financial institutions and analyzing our internal performance. We also believe these non-GAAP financial measures help investors better understand the Company’s operating performance and trends and allow for better performance comparisons to other banks. In addition, these non-GAAP financial measures remove the impact of unusual items that may obscure trends in the Company’s underlying performance. These disclosures should not be viewed as a substitute for GAAP operating results, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other financial institutions.
Core Net Income; Core Diluted Earnings per Share; Core Return on Average Assets; and Core Return on Average Equity. Core net income, core diluted earnings per share, core return on average assets and core return on average equity are each supplemental measures that exclude certain transactions as outlined and calculated in the table below. Each item reconciles to reported net income, diluted earnings per share, return on average assets and return on average equity. The Company believes these core financial metrics assist users of its financial statements with their financial analysis period-over-period as they are core for certain non-recurring items.
For the Year EndedDecember 31,
Core Net Income:
Adjustment for net loss on sale of securities — 10,310 912
Adjustment for Signature Bank bond (recovery) write-off (910) 1,838 —
Adjustment for merger and acquisition costs 1,159
Core Diluted Earnings per Share:
Diluted earnings per share, as presented $ 3.62 $ 2.97 $ 4.17
Adjustment for net loss on sale of securities — 0.71 0.06
Adjustment for Signature Bank bond (recovery) write-off (0.06) 0.13 —
Adjustment for merger and acquisition costs 0.08
Tax impact of above adjustments(1) 0.01 (0.18) (0.01)
Core diluted earnings per share $ 3.65 $ 3.63 $ 4.22
Core Return on Average Assets:
Return on average assets, as presented 0.92 % 0.76 % 1.12 %
Adjustment for net loss on sale of securities — % 0.18 % 0.02 %
Adjustment for Signature Bank bond (recovery) write-off (0.02) % 0.03 % —
Adjustment for merger and acquisition costs 0.02 %
Tax impact of above adjustments(1) — % (0.04) % —
Core return on average assets 0.92 % 0.93 % 1.14 %
Core Return on Average Equity:
Return on average equity, as presented 10.36 % 9.30 % 13.15 %
Adjustment for net loss on sale of securities — % 2.21 % 0.20 %
Adjustment for Signature Bank bond (recovery) write-off (0.18) % 0.39 % —
Adjustment for merger and acquisition costs 0.23 %
Tax impact of above adjustments(1) 0.04 % (0.55) % (0.04) %
(1) Assumed a 21% income tax rate for eligible costs.
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Pre-Tax, Pre-Provision Income. Pre-tax, pre-provision income is a supplemental measure of operating earnings and performance. Pre-tax, pre-provision income is calculated as net income before adjustment for (credit) provision for credit losses and adjustment for income tax expense. This supplemental measure became a widely used by financial institutions as a measure of financial performance for comparability across financial institutions.
For the Year EndedDecember 31,
Adjustment for (credit) provision for credit losses (404) 2,100 4,500
Efficiency Ratio. The efficiency ratio represents an approximate measure of the cost required for the Company to generate a dollar of revenue. This is a common measure used by financial institutions and is a key ratio for evaluating Company performance. The efficiency ratio is calculated as the ratio of (i) total non-interest expense, adjusted for certain operating expenses, as necessary to (ii) net interest income on a tax equivalent basis plus total non-interest income, adjusted for certain other income items, as necessary.
For the Year EndedDecember 31,
Adjustment for merger and acquisition costs 1,159 — —
Adjustment for the effect of tax-exempt income(1) 637 901 937
Adjustment for net loss on sale of securities — 10,310 912
Ratio of non-interest expense to total revenues(2) 63.24 % 65.75 % 56.72 %
(1) Reported on a tax-equivalent basis using a 21% income tax rate.
(2) Revenue is the sum of net interest income and non-interest income.
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Return on Average Tangible Equity and Core Return on Average Tangible Equity. Return on average tangible equity is the ratio of (i) net income, adjusted for tax effected amortization of core deposit intangible assets and other adjustments, as necessary, to (ii) average shareholders' equity, adjusted for average goodwill and core deposit intangible assets. This adjusted financial ratio reflects a shareholders' return on tangible capital deployed in our business and is a common performance measure within the financial services industry. Core return on average tangible equity is calculated the same as return on average tangible equity but uses core net income which excludes certain transactions as shown in the table above. The Company believes this adjusted metric assists users of its financial statements with their period-over-period financial analysis as it is adjusted for certain non-recurring items.
For the Year EndedDecember 31,
Return on Average Tangible Equity:
Adjustment for amortization of core deposit intangible assets 556 592 625
Tax impact of above adjustment(1) (117) (124) (131)
Core Return on Average Tangible Equity:
Core net income (see “Core Net Income” table above) $ 53,432 $ 52,980 $ 62,159
Adjustment for amortization of core deposit intangible assets 556 592 625
Tax impact of above adjustment(1) (117) (124) (131)
Core return on average tangible equity 12.94 % 14.42 % 16.90 %
(1) Assumed a 21% income tax rate.
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Tangible Book Value per Share and Tangible Common Equity Ratio. Tangible book value per share is the ratio of (i) shareholders’ equity less goodwill, and core deposit intangible assets to (ii) total common shares outstanding at period end. Tangible book value per share is a common measure within our industry when assessing the value of a company as it removes goodwill and other intangible assets generated within purchase accounting upon a business combination.
Tangible common equity is the ratio of (i) shareholders’ equity less goodwill and core deposit intangible assets to (ii) total assets less goodwill and core deposit intangible assets. This ratio is a measure used within our industry to assess whether or not a company is highly leveraged.
(In thousands, except number of shares and per share data) December 31,
Tangible Book Value Per Share:
Adjustment for goodwill and core deposit intangible assets (95,112) (95,668)
Tangible book value per share $ 29.91 $ 27.42
Tangible Common Equity Ratio:
Adjustment for goodwill and core deposit intangible assets (95,112) (95,668)
Common equity ratio 9.15 % 8.66 %
Tangible common equity ratio 7.64 % 7.11 %
Net Interest Income (Fully-Taxable Equivalent). Net interest income on a fully-taxable equivalent basis is net interest income plus the taxes that would have been paid had tax-exempt securities been taxable. This number attempts to enhance the comparability of the performance of assets that have different tax liabilities. This is a common measure with the financial services industry and is used within the calculation of net interest margin on a fully-taxable equivalent basis.
For the Year EndedDecember 31,
Adjustment for the effect of tax-exempt income(1) 637 901 937
(1) Reported on a tax-equivalent basis using a 21% income tax rate.
Core Deposits. Core deposits are used by management to measure the portion of the Company's total deposits that management believes to be more stable and lower cost. The Company calculates core deposits as total deposits less CDs and brokered deposits.Management believes core deposits is a useful measure to assess the Company's deposit base, including its potential volatility.
December 31,
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Average Core Deposits. Average core deposits are used by management to measure the portion of the Company's total deposits that management believes to be more stable and at a lower interest rate cost. The Company calculates average core deposits as total deposits less CDs. Management believes core deposits is a useful measure to assess the Company's deposit base, including its potential volatility.
For the Year EndedDecember 31,
(1) Brokered deposits are excluded from total average deposits, as presented on the Average Balance, Interest and Yield/Rate analysis table.
CRITICAL ACCOUNTING ESTIMATES
Critical accounting estimates are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. In preparing the Company’s consolidated financial statements, management is required to make significant estimates and assumptions that affect assets, liabilities, revenues, and expenses reported. Actual results could materially differ from our current estimates, as a result of changing conditions and future events. Estimates particularly critical and susceptible to significant near-term change, include (i) the ACL on loans and (ii) accounting for acquisitions and the subsequent review of goodwill and intangible assets generated in an acquisition for impairment.
Refer to Note 1 of the consolidated financial statements for additional details of the Company's accounting policies, including new accounting standards recently adopted.
Allowance for Credit Losses (“ACL”). The ACL is calculated using the current expected credit loss accounting model, often referred to as “CECL.” Under CECL, the ACL at each reporting period serves as our best estimate of projected credit losses over the contractual life of certain assets, adjusted for expected prepayments, given an expectation of economic conditions and forecasts as of the valuation date.
The recorded ACL on loans is determined based on the amortized cost basis of the assets and may be determined at various levels, including homogeneous loan pools and individual credits with unique risk factors. We use a discounted cash flow approach to calculate the ACL for each loan segment. Within the discounted cash flow model, a probability of default (“PD”) and loss given default (“LGD”) assumption is applied to calculate the expected loss for each loan segment. PD is the probability the asset will default within a given timeframe and LGD is the percentage of the assets not expected to be collected due to default. PD and LGD data may be derived using (1) internal historical default and loss experience, as well as from (2) external data if there are not statistically meaningful loss events or our own internal loss data does not span a full economic cycle for a given loan segment.
CECL may create more volatility in our ACL and particularly in our ACL on loans. Under CECL, our ACL may increase or decrease period-to-period based on many assumptions, including, but not limited to: (i) macroeconomic forecasts and conditions; (ii) a change in the forecast period; (iii) a change in the reversion speed; (iv) a change in the prepayment speed assumption; (v) various qualitative factors outlined in ASU 2016-13.
ACL on Loans. We consider the ACL on loans to be a critical accounting estimate given the uncertainty in evaluating the allowance required to cover management’s estimate of all expected credit losses over the expected contractual life of the loans in its portfolio. Determining the appropriateness of the allowance is a key management function that requires significant judgment and estimate by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the current loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowance in future periods. While our current evaluation indicates that the ACL on loans at December 31, 2024 and 2023 was appropriate, the allowance may need to be increased under adversely different conditions or assumptions.
The significant key assumptions used with the ACL on loans calculation at December 31, 2024 and 2023 using the CECL methodology, included:
•Macroeconomic factors (loss drivers): Macroeconomic factors are used within our discounted cash flow model to forecast the PD over the forecast period. As macroeconomic factor conditions worsen, the PD increases, and the
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corresponding LGD increases, resulting in an increase in the ACL on loans. We monitor and assess Maine unemployment, changes in Maine GDP, changes in National GDP, and changes in Maine's Housing Price Index at least annually to determine if these macroeconomic factors continue to be the most predictive indicator of losses within our loan portfolio. Macroeconomic factors used in the calculation of the ACL on loans may change from time to time and in times of greater uncertainty, we may consider a range of possible forecasts and evaluate the probability of each scenario. We assessed our loss factors again in the fourth quarter of 2024 and there were no changes made to the ACL on loans calculation for reporting as of December 31, 2024.
•Forecast Period and Reversion speed: The company uses a reasonable and supportable forecast period in developing the ACL, which represents the time period that management believes it can reasonably forecast the identified loss drivers. Generally, the forecast period management believes to be reasonable and supportable is set annually and validated through an assessment of economic leading indicators. In periods of greater volatility and uncertainty, such as that seen across the global markets and economies, including the U.S., we are likely to use a shorter forecast period, whereas when markets, economies and various other factors are considered more stable and certain, we are likely to use a longer forecast period. Generally, we expect our forecast period to range from one to three years. Once the reasonable and supportable forecast period is determined, the company reverts its loss expectations to the long-run historical mean for the remainder of the contract life of the asset, adjusted for prepayments. In determining the length of time over which the reversion will take place (i.e. “reversion speed”), we consider such factors such as, but not limited to, historical loan loss experience over previous economic cycles, as well as where we believe we are within the current economic cycle. At December 31, 2024 and 2023, we used a two-year forecast period and a two-year reversion period for each loan segment to measure the ACL on loans as we believe this methodology aligns the economic forecasted data used to calculate the ACL with the Company’s internal views of the future economic state.
•Prepayment speeds: Prepayment speeds are determined for each loan segment utilizing our own historical loan data, as well as consideration of current environmental factors. The prepayment speed assumption is utilized with the discounted cash flow model (i.e. the CECL model) to forecast expected cash flows over the contractual life of the loan, adjusted for expected prepayments. A higher prepayment speed assumption will drive a lower ACL, and vice versa.
•Qualitative factors: Companies are required to consider various qualitative factors that may impact expected credit losses. We continue to consider qualitative factors in determining and arriving at our ACL on loans each reporting period. In 2024 the Company increased the qualitative factors used to address the increased risk for all loans that were rated as criticized or classified.
As of December 31, 2024 and 2023, the recorded ACL on loans was $35.7 and $36.9 million, respectively, and represented our best estimate of expected credit losses within our loan portfolio as of each date. However, we may adjust our assumptions to account for differences between expected and actual losses each period. A future change of our assumptions will likely alter the level of allowance required and may have a material impact on future results of operations and financial condition. The ACL is reviewed periodically within a calendar quarter to assess trends in the aforementioned key assumptions, as well as asset quality within our loan portfolio, and we consider the impact of these trends on the ACL and the Company's financial condition, if any. The ACL on loans is reviewed and approved on a quarterly basis by the Company's Audit Committee, and later reviewed and ratified by the Bank's Board of Directors.
Refer to “—Results of Operations—Provision for Credit Losses,” “—Financial Condition—Asset Quality,” and Note 3 of the consolidated financial statements for further discussion.
Purchase Price Allocation and Impairment of Goodwill and Identifiable Intangible Assets. We record all acquired assets and liabilities at fair value, which is an estimate determined by the use of internal valuation techniques. We also may engage external valuation services to assist with the valuation of material assets and liabilities acquired, including, but not limited to, loans, core deposit intangibles and/or other intangible assets, real estate and time deposits. As part of purchase accounting, we typically acquire goodwill and other intangible assets as part of the purchase price. These assets are subject to ongoing periodic impairment tests under differing accounting models. We did not acquire any other company or assets during 2024 or 2023, however, refer to Note 23 of the consolidated financial statements for subsequent events.
Goodwill impairment evaluations are required to be performed at least annually, but may be required more frequently if certain conditions indicate a potential impairment may exist. Our policy is to perform the goodwill impairment analysis annually as of November 30th, or more frequently as warranted. The goodwill impairment evaluation is required to be performed at the reporting unit level. Goodwill impairment is measured by the amount the book value of the reporting unit exceeds its fair value, and an impairment charge is recorded for the lesser of this amount or the amount to write-down goodwill to zero.
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We elected to use the quantitative analysis to perform the annual goodwill impairment assessment as of November 30, 2024 and 2023 and concluded that goodwill was not impaired. We may use a qualitative analysis to evaluate goodwill for impairment when it is believed that it is not more-likely-than-not that the fair value of the reporting unit is below its book value, or if a quantitative analysis was recently used to estimate the fair value of the reporting unit, and there are not any indications of events that would suggest such conclusions for impairment have changed. The Company did not recognize any impairment of goodwill in 2024, 2023 or 2022.
Refer to “—Financial Condition—Goodwill and Core Deposit Intangible Assets” and Note 4 of the consolidated financial statements for further discussion.
EXECUTIVE OVERVIEW
2024 Overview. Throughout 2024, we continued our work and efforts from 2023 with a goal of continuing to improve and optimize our net interest margin and maintain our strong asset quality. Over the course of 2024, we took various actions to improve our net interest margin. Those actions, combined with the Federal Reserve reducing the Federal Funds Rate by 100 basis points during the second half of 2024, resulted in an improvement to our net interest margin from a reported 2.30% for the first quarter of 2024 to 2.57% for the fourth quarter of 2024. Our improvement in net interest margin consistently each calendar quarter throughout 2024, along with continued strong asset quality and disciplined management of our operating expenses, translated into strong reported earnings for 2024 of $53.0 million, or $3.62 per a diluted share, which was 22% higher than reported net income for 2023. Profitability continues to improve, highlighted by a return on average assets of 1.01%, return on average equity of 10.99% and a return on tangible shareholders’ equity (non-GAAP) of 13.50% for the fourth quarter of 2024.
On September 10, 2024, we announced our planned acquisition of Northway, the bank holding company of Northway Bank, which we later closed on January 2, 2025. The acquisition of Northway presented a great opportunity for two historic franchises in Northern New England to combine and create a premier banking and financial services franchise across Maine and New Hampshire through 73 total branches. Through the combination, the Company’s total assets are approximately $7.0 billion as of January 2, 2025.
We enter 2025 with strong financial momentum and a balance sheet positioned well for the current interest rate environment.
Operating Results. For 2024, the Company reported net income of $53.0 million and diluted EPS of $3.62, each an increase of 22% compared to 2023. During 2023, we took certain actions to improve the Company’s future earnings capacity and profitability by selling certain investments and redeploying the proceeds into higher yielding assets. In doing so, the Company recorded pre-tax investment losses totaling $10.3 million in 2023. Also, during 2023, we wrote-off a $1.8 million Signature Bank corporate bond in full due to Signature Bank’s failure. During 2024, we sold our position in this corporate bond and recovered $910,000, before taxes. Adjusting for these items, along with $1.2 million, before taxes, of merger-related costs associated with the acquisition of Northway Financial during 2024, we reported core net income of $53.4 million and diluted EPS of $3.65, each an increase of 1% over 2023.
Financial Highlights. Our financial highlights for 2024 include:
Improving Profitability and Return Profile – Improved net interest margin and disciplined management of operating expenses, the Company resulted in positive operating leverage of 4% for 2024, which drove improved financial profitability and shareholder returns, headlined by a return on average assets of 0.92%, return on average equity of 10.36% and return on average tangible equity (non-GAAP) of 12.83%, compared to 0.76%, 9.30% and 11.83% for 2023, respectively.
Strong Asset Quality – Key credit quality metrics in both commercial and consumer portfolios remained resilient throughout 2024, headlined by non-performing assets of 0.11% of total assets and past due loans of 0.05% of total loans at December 31, 2024.
Strong Capital Position – At December 31, 2024, all of our regulatory capital ratios were well in excess of regulatory capital requirements. Our capital and loan reserve levels, along with our strong credit quality position us for continued success.
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Financial Highlights As of or For The Year endedDecember 31,
(In thousands, except per share data and ratios) 2024 2023 Change
Earnings and Profitability
Core diluted EPS (non-GAAP) $ 3.65 $ 3.63 1 %
Core return on average assets (non-GAAP) 0.92 % 0.93 % (0.01) %
Core return on average equity (non-GAAP) 10.45 % 11.35 % (0.90) %
Return on average tangible equity (non-GAAP) 12.83 % 11.83 % 1.00 %
Core return on average tangible equity (non-GAAP) 12.94 % 14.42 % (1.48) %
Balance Sheet and Liquidity
Cash dividends declared per share $ 1.68 $ 1.68 — %
Uninsured and uncollateralized deposits to total deposits 16.42 % 14.56 % 1.86 %
Credit Quality and Capital
Non-performing assets to total assets 0.11 % 0.13 % (0.02) %
Allowance for credit losses on loans to total loans 0.87 % 0.90 % (0.03) %
Tangible common equity ratio (non-GAAP) 7.64 % 7.11 % 0.53 %
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RESULTS OF OPERATIONS
Net Interest Income and Net Interest Margin
Net interest income is the interest earned on our lending activities, investment securities and other interest-earning assets, less the interest paid on interest-bearing deposits and borrowings (i.e. our primary business activities). Net interest income, which is our largest source of revenue, accounted for 75%, 81% and 78% of total revenues for the years ended 2024, 2023 and 2022, respectively. Net interest income is affected by factors including, but not limited to, changes in interest rates, loan and deposit pricing strategies and competitive conditions, loan prepayment speeds, the volume and mix of interest-earning assets and interest-bearing liabilities, and the level of non-performing assets.
Net Interest Income. Net interest income on a fully-taxable equivalent basis for the year ended December 31, 2024 was $133.1 million, a slight decrease of $75,000 from 2023. The decrease consisted of a $23.1 million, or 25%, increase in interest expense, which was partially offset by an increase in interest income on a fully-taxable equivalent basis of $23.3 million, or 10%, between periods.
•The Company’s average cost of funds for the year ended December 31, 2024 was 2.28%, compared to 1.83% for the year ended December 31, 2023, and was the driver for the increase in interest expense year-over-year. The increase in our average funding costs year-over-year reflects the higher short-term interest rate environment, highlighted by an average Federal Fund Effective Interest Rate of 5.14% for the year ended December 31, 2024, compared to 5.02% for the year ended December 31, 2023. Beginning in September 2024, the Federal Reserve Bank began lowering the Federal Funds Interest Rate. From September 2024 through December 31, 2024, the Federal Funds Rate was decreased by 1.00%, and the Federal Funds Target rate stood at 4.25% to 4.50% at December 31, 2024.
•The increase in interest income on a fully-taxable equivalent basis was also primarily driven by the higher interest rate environment between years. For the year ended December 31, 2024, the Company’s yield on average interest-earning assets was 4.62%, compared to 4.19% for the year ended December 31, 2023. The average 10-year U.S. Treasury Rate for 2024 was 4.58%, compared to 3.96% for 2023.
Net Interest Margin. Net interest margin is calculated as net interest income on a fully-taxable equivalent basis as a percentage of average interest-earning assets. Our net interest margin on a fully-taxable equivalent basis for each of the years ended December 31, 2024 and 2023 was 2.46%.
The following table presents, for the periods noted, average balances, interest income, interest expense, and the corresponding average yields earned and rates paid, as well as net interest income, net interest rate spread and net interest margin:
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Average Balance, Interest and Yield/Rate Analysis
For the Year Ended December 31,
ASSETS
Interest-earning assets:
Loans(3):
LIABILITIES & SHAREHOLDERS’ EQUITY
Deposits:
Borrowings:
Less: fully-taxable equivalent adjustment (637) (901) (937)
Net interest rate spread (fully-taxable equivalent) 2.34 % 2.36 % 2.83 %
Net interest margin (fully-taxable equivalent) 2.46 % 2.46 % 2.86 %
(1) Reported average balances are calculated on a daily basis.
(2) Reported on a tax-equivalent basis calculated using a 21% tax rate, including certain commercial loans.
(3) Non-accrual loans and loans held for sale are included in total average loans.
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The following table presents certain information on a fully-taxable equivalent basis regarding changes in interest income and interest expense for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes attributable to rate and volume. The (a) changes in volume (change in volume multiplied by prior year's rate), (b) changes in rates (change in rate multiplied by current year's volume), and (c) changes in rate/volume (change in rate multiplied by the change in volume), which is allocated to the change due to rate column.
(In thousands) Volume Rate Volume Rate
Interest-earning assets:
Interest-bearing liabilities:
Junior subordinated debentures — (18) (18) — 10 10
Net interest income included the following for the periods indicated:
Income Statement Location For the Year EndedDecember 31,
Recoveries on previously charged-off acquired loans Interest income 488 88 217
The Company's consolidated financial statements and the notes to the consolidated financial statements presented within have been prepared in accordance with GAAP, which requires the measurement of the financial position and operating results in terms of historical dollars and, in some cases, current fair values without considering changes in the relative purchasing power of money over time due to inflation. Unlike many industrial companies, substantially all of our assets and virtually all of
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our liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the general level of inflation. Over short periods of time, interest rates and the yield curve may not necessarily move in the same direction or in the same magnitude as inflation.
(Credit) Provision for Credit Losses
The (credit) provision for credit losses was made up of the following components for the periods indicated:
For the Year EndedDecember 31, Change from2024 to 2023
Provision for loan losses. For the year ended December 31, 2024, a provision for loan losses of $53,000 was recorded and was primarily driven by improvement within our macroeconomic forecast for 2024 and lower loan growth of $17.2 million during 2024, compared to $87.7 million of loan growth for 2023. Asset quality continued be strong through 2024, as highlighted by non-accruals of 0.12% of total loans and net charge-offs of 0.03% of average loans as of and for the year ended December 31, 2024, compared to 0.13% and 0.03%, respectively, as of and for the year ended December 31, 2023. The Company’s asset quality remained strong at December 31, 2024 and 2023. Refer to “—Financial Condition—Asset Quality” for further details.
Provision for credit losses on off-balance credit exposures. At December 31, 2024, the ACL on off-balance sheet credit exposures was $2.8 million, as compared to $2.4 million as of December 31, 2023. The increase was driven by the increase in unfunded credit lines of $37.0 million and the increase in the residential and commercial pipelines of $19.4 million between periods.
Provision for HTM debt securities: In the first quarter of 2023, the Company fully wrote-off a $1.8 million Signature Bank corporate bond due to Signature Bank’s failure. In the first quarter of 2024, the Company sold its Signature Bank corporate bond and recovered proceeds of $910,000.There was no additional provision expense recorded for the years ended December 31, 2024 and 2023, respectively.
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Non-Interest Income
The following table sets forth information regarding non-interest income for the periods indicated:
For the Year EndedDecember 31, Change from2024 to 2023
Non-interest income as a percentage of total revenues(1) 25 % 19 % 22 %
(1) Revenue is the sum of net interest income and non-interest income.
Debit card income represents theinterchange fees earned from debit card transactions of our business and consumer checking account customers, and the annual incentive bonus received from our network provider.
Service charges on deposit accounts represents the fees earned from providing various services to deposit customers, including overdraft, normal fees for servicing deposit accounts, and cash management fees for business customers. The increase in 2024 compared to 2023 was primarily driven by: (1) an increase in cash management fees of $399,000 as commercial deposit customers opted to pay services fees and waive any service fee credit as short-term interest rates increased, and (2) overdraft fee income increased $255,000 to $5.7 million for the year ended 2024.
Income from fiduciary services represents the fees earned for investment advisory and trust services provided by Camden National Wealth Management. The fees earned are primarily a percentage of our clients' assets under management. Assets under management increased 10% during 2024 to $1.2 billion as of December 31, 2024.
Mortgage banking income, net is generated through the sale of residential mortgage loans to secondary market investors and also includes income recognized upon the sale of residential mortgages in which we maintain the servicing rights creating a mortgage servicing asset, net of related amortization of the capitalized mortgage servicing asset. Our practice has been to sell the servicing rights for residential mortgages originated, except for certain third party relationships that require the Company to service the loan.
The increase in mortgage banking income, net for the year ended 2024 compared to 2023, was driven by the increase in net gains recognized on residential mortgage loan sales. In 2024, we sold 56% of our residential mortgage production, compared to 48% in 2023.
Brokerage and insurance commissions represent the fees earned for brokerage services, investment advisory and insurance services provided by the Bank, doing business as Camden Financial Consultants. Assets under administration grew 15% during 2024 to $913.3 million as of December 31, 2024.
Bank-owned life insurance represents the change in cash surrender value of the Company's various BOLI policies in place for certain current and former officers of the Company and Bank. The change in cash surrender value reflects the performance of the underlying investments of the policies.
Net loss on sale of securities represents the realized (loss) gain upon sale of our debt investments. In 2023, we executed investment sales that resulted in pre-tax losses of $10.3 million. The trades were completed to reposition a portion of our balance sheet. We reinvested $126.8 million of cash proceeds from the investment sales and expect these trades will optimize our balance sheet and improve future earnings and profitability. We did not execute on any similar investment trades during 2024. Refer to “—Financial Condition—Investments,” and Note 3 of the consolidated financial statements for further discussion.
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Other Income includes third party merchant and credit card commissions, customer loan swap fees and other miscellaneous fees and net gains on equity securities.
Non-Interest Expense
The following table sets forth information regarding non-interest expense for the periods indicated:
For the Year EndedDecember 31, Change from2024 to 2023
Merger and acquisition costs 1,159 — — 1,159 — %
Amortization of core deposit intangible assets 556 592 625 (36) (6) %
Ratio of non-interest expense to total revenues 63.24 % 65.75 % 56.72 %
Salaries and employee benefits includes employee wages, commissions, incentives, equity compensation, employer-related taxes, insurance benefits, and other certain employee-related costs, net of direct employee-related costs incurred for loan originations. The increase for the year ended December 31, 2024 compared to 2023 was primarily driven by an increase in performance-based incentives of $3.5 million between periods. The operating environment in 2023 included the Federal Reserve increasing the Federal Funds Interest Rate by 1.00% to a target range of 5.25% to 5.50% at December 31, 2023, as well as the well-publicized failure of three banks in the U.S., one of which resulted in the Company writing-off a $1.8 million Signature Bank bond during 2023 (refer to Note 3 of the consolidated financial statement for further details). In comparison, the Federal Reserve lowered the Federal Funds Interest rate by 1.00% during the second half of 2024 to a target range of 4.25% to 4.50% at December 31, 2024.
Furniture, equipment and data processing includes depreciation expense of capitalized furniture, equipment and data-related costs, and ongoing system and other data processing costs, including outsourced solutions. The increase for the year ended December 31, 2024 compared to 2023 was driven by the Company’s continued investments in customer-facing technology platforms, which during 2024 included investment in an enhanced wealth management platform and continued investments in our online banking platform and mobile app, internal systems and production platforms to drive increased productivity and efficiencies, and updates to various information security and resiliency-related systems and enhancements.
Net occupancy costs include building and property costs associated with the operation of our branches, loan production offices and service centers, including, but not limited to, rent, depreciation, maintenance and related taxes, net of rental income earned from the lease of office space.
Consulting and professional fees include third party consulting services and other professional fees, such as audit and tax services, legal services, and Company and Bank director fees. During 2023, we incurred legal, consulting and director fees associated with the succession and transition of the Company and Bank’s President and CEO, which was the driver of elevated consulting and professional costs for 2023 in comparison to 2024.
Debit card expense is the cost incurred for the generation of debit card income, including third party switch network provider fees and related data transmission costs, and plastic card costs for the generation of debit cards for checking account customers. The increase for the year ended December 31, 2024 compared to 2023 was driven by rising vendor costs, including fraud detection and prevention costs. Many of the costs associated with debit card expense are fixed per unit regardless of the activity that generates income, and, thus, an increase or decrease in debit card income may not necessarily directly correlate with the change in debit card expense year-over-year.
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Regulatory assessments are the costs incurred and paid to various regulatory agencies, including the FDIC and OCC. Regulatory assessment fees are based on a number of factors, including but not limited to, asset growth, regulator risk assessment and positive or negative trends specific to the financial institution.
Merger and acquisition costsare the acquisition costs, including legal, investment banker, consulting and other related costs, incurred through December 31, 2024 associated with our acquisition of Northway Financial on January 2, 2025. Of the merger and acquisition costs incurred through December 31, 2024, all but $56,000 of the costs were estimated to be non-deductible for federal income tax purposes. We anticipate incurring additional merger-related costs during 2025, with the majority of costs expected to be incurred during the first half of 2025.
The following table summarizes Merger-related costs incurred through December 31, 2024:
(Dollars in thousands) Merger and Acquisition Costs
Legal fees $ 695
Investment banker 156
OREO and collection costs, net include the costs associated with OREO, collection and foreclosure efforts for the Company's loans. Should asset quality metrics deteriorate in 2025, the costs associated with OREO, collection and foreclosure efforts likely would increase.
Amortization of core deposit intangible assets represents the amortization expense on core deposit intangible assets. Refer to “—Financial Condition—Goodwill and Core Deposit Intangible Assets,” and Note 4 of the consolidated financial statements for further details. We anticipate the creation of additional core deposit intangible assets associated with the acquisition of Northway Financial on January 2, 2025. These core deposit intangible assets are definite-lived intangible assets and will be amortized over their estimated useful life.
Other expenses include employee-related costs, such as certain SERP and other postretirement benefits expenses; hiring, training, education, meeting and business travel costs; donations and marketing costs; postage, freight and courier costs; and other expenses. The decrease for the year ended December 31, 2024, compared to the same period in 2023, was driven by external recruiting costs associated with the CEO succession and transition that was effective on January 1, 2024.
Income Tax Expense
Income tax expense for the years ended December 31, 2024 and 2023 was $12.5 million and $10.5 million, respectively, and resulted in an effective income tax rate of 19.0% for 2024 and 19.4% for 2023, respectively. The Company's effective income tax rate for the year ended December 31, 2024 of 19.0% was lower than our marginal tax rate of 22.8%, which includes our 21.0% federal income tax rate and a 1.8% blended state income tax rate, net of federal tax benefit. The decrease in the effective tax rate for the year ended December 31, 2024 compared to 2023, was primarily due to an increase in tax credit investments, partially offset by nondeductible merger and acquisition costs and an increase in income before income tax expense of $11.6 million, or 21.6%, compared to 2023,
The Company's deferred tax assets were $40.0 million and $42.2 million at December 31, 2024 and 2023, respectively. The decrease in deferred tax assets during 2024 was primarily driven by the decrease in unrealized losses on the AFS investments portfolio, including the remaining losses from the investments transferred from AFS to HTM in June 2022. While not anticipated as of December 31, 2024, should the Company realize a loss on these investments, the loss would be characterized as an ordinary loss for income tax purposes and not as a capital loss, and thus would not carry restrictions on use of any such loss. We continuously monitor and assess the need for a valuation allowance on our deferred tax assets, and we determined that no valuation allowance was necessary as of December 31, 2024 or December 31, 2023.
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Refer to “—Financial Condition—Investments,” and Note 2 of the consolidated financial statements for further discussion of investments.
Refer to Note 19 of the consolidated financial statements for further discussion of income taxes and related deferred tax assets and liabilities.
2023 Operating Results as Compared to 2022 Operating Results
Results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022 can be found in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s 2023 annual report on Form 10-K filed with the SEC on March 8, 2024.
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FINANCIAL CONDITION
Cash and Cash Equivalents
Total cash and cash equivalents at December 31, 2024 were $215.0 million, compared to $99.8 million at December 31, 2023. The elevated cash balances at December 31, 2024 were temporary due to anticipated cash usage in the first quarter of 2025 associated with normal seasonal deposit outflows, an expected deposit outflow of $61.8 million by one large deposit customer that temporarily deposited funds with the Bank in fourth quarter of 2024, and the payoff of $45.0 million of Northway’s FHLBB advances to optimize our balance sheet upon the Company’s completion of the acquisition of Northway on January 2, 2025.
Included within the Company’s cash and cash equivalents balances at December 31, 2024 and 2023, was cash held in escrow by the FHLBB as collateral posted by the counterparties for our derivatives in a net asset position at each reporting date totaling $13.2 million and $15.4 million, respectively. We and the counterparty manage these cash accounts daily. Refer to Notes 12 and 13 of the consolidated financial statements for additional detail on the Company’s derivatives and collateral.
Investments
The Company utilizes the investment portfolio to manage liquidity, interest rate risk, and regulatory capital, as well as to take advantage of market conditions to generate returns without undue risk. At December 31, 2024 and 2023, the Company’s investment portfolio generally consisted of MBS, CMO, municipal and corporate debt securities, FHLBB and FRB common stock, and mutual funds held in a rabbi trust for purposes of Company executive and director nonqualified retirement plans. We designate our debt securities as AFS or HTM based on our intent and investment strategy and they are carried at fair value and amortized cost, respectively. Our FHLBB and FRB common stock is carried at cost, and our mutual fund investments are carried at fair value. At December 31, 2024 and 2023, total investments were 20% and 21%, respectively, of total assets.
In 2022, we transferred securities from AFS to HTM to help manage our capital position in a rising interest rate environment. The securities were reclassified at fair value at the time of the transfer, which was a non-cash transaction. At December 31, 2024, the net unrealized losses on the transferred securities reported within AOCI were $41.8 million, net of a deferred tax asset of $11.4 million, and the weighted-average life on these securities was 7.9 years. At December 31, 2023, the net unrealized losses on the transferred securities reported within AOCI were $46.9 million, net of a deferred tax asset of $12.8 million and the weighted-average of these securities was 8.5 years.
At December 31, 2024 and 2023, the Company's investments portfolio totaled $1.1 billion and $1.2 billion, respectively, representing a decrease of $51.5 million, or 4%, for the year ended December 31, 2024. Given the interest rate environment, our primary strategy throughout 2024 was to redeploy normal investment cash flows from pay downs, calls and maturities to fund loan growth and optimize funding costs. The primary components for the net change in total investments for the year ended 2024 were:
•Pay downs, calls and maturities of $122.2 million;
•Purchases of $60.4 million of debt securities during 2024;
•Net amortization and accretion of $4.7 million; and
•The change in the fair value of the Company’s AFS debt securities of $4.7 million.
Our AFS debt securities portfolio, which comprised 52% and 53% of our investment portfolio at December 31, 2024 and 2023, respectively, was carried at fair value using level 2 valuation techniques. Refer to Notes 1 and 21 of the consolidated financial statements for further details on the Company's fair value techniques.
The AFS and HTM debt securities portfolio has limited credit risk due to its composition, which includes securities backed by the U.S. government and government-sponsored agencies, and corporate and municipal bonds that are highly rated by nationally recognized rating agencies. At December 31, 2024 and 2023, the book value of U.S. government and government-sponsored agencies represented approximately 91% of the AFS and HTM debt securities portfolio. The book value of corporate and municipal bonds carrying a credit rating of “AA” or higher at December 31, 2024 and 2023 and was 5% and 4% of the AFS and HTM debt securities, respectively.
Our other investments on the consolidated statements of condition consist of FHLBB and FRB common stock. These investments are carried at cost. We are required to maintain a certain level of investment in FHLBB stock based on our level of FHLBB advances, and maintain a certain level of investment in FRB common stock based on the Bank's capital levels. As of
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December 31, 2024 and 2023, our investment in FHLBB stock totaled $17.1 million and $10.0 million, respectively, and our investment in FRB stock was $5.4 million at each date.
Our investments in mutual funds are designated as trading securities and carried at fair value. These investments are held within a rabbi trust and will be used for future payments associated with the Company’s Executive and Director Deferred Compensation Plan. These investments are carried at fair value using level 1 valuation techniques.
The following table sets forth the carrying value of the Company’s investments portfolio along with the percentage distribution as of the dates indicated:
December 31,
Trading Securities (carried at fair value):
Total trading securities 5,243 — % 4,647 — %
AFS Debt Investments (carried at fair value):
Obligations of states and political subdivisions 5,289 — % 6,386 — %
HTM Debt Investments (carried at amortized cost):
Obligations of U.S. government-sponsored enterprises 7,729 1 % 7,593 1 %
Obligations of states and political subdivisions 56,047 5 % 56,262 5 %
Other Investments (carried at cost):
We continuously monitor and evaluate our investment securities portfolio to identify and assess risks within our portfolio, including, but not limited to, the impact of the current rate environment and the related prepayment risk, and credit ratings. The overall mix of debt securities at December 31, 2024 compared to December 31, 2023 remains relatively unchanged and well positioned to provide a stable source of cash flow. The duration of our debt investment securities portfolio at December 31, 2024 was 5.2 years, compared to 5.7 years at December 31, 2023. The weighted average life of our debt securities portfolio at December 31, 2024 was 7.0 years, compared to 7.8 years at December 31, 2023.
The Company’s AFS debt securities that are in an unrealized loss position are assessed to determine if an allowance should be recorded or if a write-down is required in accordance with ASU 2016-13. As of and for the years ended December 31, 2024, 2023 and 2022, we did not record any allowances or write-down any of our AFS debt securities in an unrealized loss position. Refer to Note 1 of the consolidated financial statements for further discussion of our practices and policies, and refer to Note 2 of the consolidated financial statements for additional details of our assessment of the allowance for AFS investments as of December 31, 2024 and 2023.
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We assess our HTM debt securities each reporting period to determine if an allowance should be recorded or if a write-down is required. In the first quarter of 2023, we wrote-off a $1.8 million corporate bond issued by Signature Bank due to Signature Bank's failure through provision expense on the consolidated statements of income. This corporate bond was designated as HTM and previously carried no ACL. In January 2024, we sold the Signature Bank security and recovered $910,000. We completed a review of our HTM investment portfolio as of December 31, 2024 and 2023, and concluded that no ACL was warranted on any bonds at this time. Refer to Note 1 of the consolidated financial statements for further discussion of our practices and policies, and refer to Note 2 of the consolidated financial statements for additional details of our assessment of the allowance for HTM investments as of December 31, 2024 and 2023.
The fair value and book value of the Company's corporate bonds and municipal securities as of December 31, 2024 and 2023 was as follows:
At December 31, 2024 and 2023, municipal bonds were 5% of the book value of the total bond portfolio. At December 31, 2024 and 2023, all municipal bonds carried an investment-grade credit rating.
At December 31, 2024 and 2023, corporate bonds were 3% of the book value of the total bond portfolio. At December 31, 2024 and 2023, corporate bonds with a book value of $25.9 million and $31.2 million, or 70% and 77% of the corporate bond portfolio, carried an investment-grade credit rating. The remaining $11.2 million and $9.6 million of book value, or 30% and 23% of the corporate bond portfolio, were non-rated corporate bonds of community banks within our markets. As of December 31, 2024, the corporate bond portfolio was made up of 18 different companies, which included 16 different banks. The banks in the portfolio range from the largest U.S. banks to community banks, with 35% of our exposure as of December 31, 2024, being to global systemically important banks, or "G-SIBs." A limited number of our rated corporate bonds were downgraded in 2023 as a result of stress in the banking system, although all remain investment-grade as of December 31, 2024. We continue to monitor and analyze the performance of our corporate bond portfolio.
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The following table presents the book value and fully-taxable equivalent weighted-average yields of debt investments by contractual maturity and the carrying value of other investments, for the periods indicated. Actual maturities of debt investments may differ from contractual maturities because borrowers may have the right to call or prepay.
December 31,
Debt investments:
Other investments(2):
Mutual funds (fair value) $ 5,243 $ 4,647
(1) Weighted average is calculated by dividing the book value by the book value times tax yield.
(2) There is no scheduled maturity date.
Loans
The following table sets forth the composition of our loan portfolio at the dates indicated, as well as the change during 2024:
December 31,
Loan portfolio mix:
Refer to Note 3 of the consolidated financial statements for additional details on our loan segmentation and risks as of December 31, 2024 and 2023.
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At December 31, 2024 and 2023, 36% and 35% of the consumer loan portfolio was unsecured, respectively. At December 31, 2024 and 2023, 55% and 53% of the home equity portfolio was secured by a junior lien position, respectively.
Portfolio Concentrations
The Company provides loans primarily to customers located within our geographic market area. As of December 31, 2024 and 2023, our primary markets continued to be in Maine, making up 68% of our loan portfolio. Massachusetts and New Hampshire were our second and third largest markets, making up 16% and 11%, respectively, of our total loan portfolio as of December 31, 2024, compared to 16% and 10%, respectively, as of December 31, 2023. As of December 31, 2024, our distribution channels included 56 branches within Maine, two locations in New Hampshire, including a branch in Portsmouth and a commercial loan production office in Manchester, and an online residential mortgage and small business digital loan platform. On January 2, 2025, we completed our acquisition of Northway, which included Northway Bank and its 17 branches across New Hampshire. Northway Bank’s primary lending area is within New Hampshire.
At December 31, 2024, the lessors of residential buildings industry (lessors of buildings used as residences, such as single-family homes, apartments and town houses) and the non-residential building operators' industry (operators of commercial and industrial buildings, retail establishments, theaters, banks and insurance buildings) concentrations were 32% and 31%, respectively, of our total commercial real estate portfolio and both were 13% of total loans. At December 31, 2023, the non-residential building operators’ industry and lessors of residential building industry concentrations were 33% and 28%, respectively, of total commercial real estate portfolio and 13% and 11% of total loans. At December 31, 2024, there were no other industry concentrations within our loan portfolio that exceeded 10% of total loans.
The table below summarizes the industry concentrations of the commercial loan portfolio at the dates indicated:
December 31,
Commercial loan portfolio mix:
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(1) The following table summarizes the real estate investment loan portfolio, by property type as of the dates indicated:
December 31,
(a) Multi-family (5+ units) loans are primarily located in non-urban locations, including 68% in Maine, 23% in New Hampshire, and 7% in Massachusetts at December 31, 2024.
(b) Office loans are nearly all located in non-urban locations, including 52% in Maine, 26% in New Hampshire, and 23% in Massachusetts at December 31, 2024.
(c) Represents multi-family (1-4 units) that are used for commercial purposes.
(d) Other includes multiple property types that individually are less than 5% of the real estate investment portfolio and individually are 1% or less of the total loan portfolio.
Related Party Transactions
The Bank is permitted, in its normal course of business, to make loans to certain officers and directors of the Company and Bank under terms that are consistent with the Bank’s lending policies and regulatory requirements. In addition to extending loans to certain officers and directors of the Company and Bank on terms consistent with the Bank’s lending policies, federal banking regulations also require training, audit and examination of the adherence to this policy (also known as “Regulation O” requirements). Note 3 and Note 8 of the consolidated financial statements provide information on related party lending and deposit transactions, respectively. We have not entered into significant related party transactions.
Asset Quality
Asset quality is of the upmost importance to the Company, and continues to be of great focus given current market conditions. Our practice is to manage the Company's loan portfolio proactively so that we are able to effectively identify problem credits and trends early, assess and implement effective work-out strategies, and take charge-offs as promptly as practical. In addition, the Company continuously reassesses its underwriting standards in response to credit risk posed by changes in economic conditions. The Company continues to dedicate significant resources to monitor and manage credit risk throughout our loan portfolio and includes management and board-level oversight as follows:
•The Credit Risk team, Collection and Special Assets team and the Credit Risk Policy Committee, which is an internal management committee comprised of various executives and senior managers across business lines, including Accounting and Finance, Credit Underwriting, Collections and Special Assets, Risk, and Commercial and Retail Banking, oversee the Company's systems and procedures to monitor the credit quality of its loan portfolio, conduct a loan review program, and maintain the integrity of the loan rating system.
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•The adequacy of the ACL is overseen by the Management Provision Committee, which is an internal management committee comprised of various Company executives and senior managers across business lines, including Accounting and Finance, Credit Underwriting, Collections and Special Assets, Compliance, and Commercial and Retail Banking. The Management Provision Committee supports the oversight efforts of the Audit Committee of the Board of Directors.
•The Directors' Credit Committee of the Board of Directors reviews large credit exposures, monitors external loan review reports, reviews the lending authority for individual loan officers when required, and has approval authority and responsibility for all matters regarding the loan policy and other credit-related policies, including reviewing and monitoring asset quality trends, and concentration levels.
•The Audit Committee of the Board of Directors has approval authority and oversight responsibility for the ACL adequacy and methodology.
Non-Performing Assets. Non-performing assets include non-accrual loans, accruing loans 90 days or more past due, and property acquired through foreclosure or repossession. The following table sets forth the composition and amount of our non-performing loans as of the dates indicated:
December 31,
Non-accrual loans:
Commercial real estate - non-owner-occupied $ 129 $ 262
Commercial real estate - owner-occupied 430 124
Consumer and home equity 452 798
Accruing loans past due 90 days — —
Other real estate owned — —
Total non-performing assets $ 4,829 $ 5,448
ACL on loans to non-accrual loans 739.86 % 677.96 %
Non-accrual loans to total loans 0.12 % 0.13 %
Non-performing loans to total loans 0.12 % 0.13 %
Non-performing assets to total assets 0.08 % 0.10 %