# Camden National Corp: Form 10-Q for the period ended Mar 31, 2024

- Company: [Camden National Corp](/companies/cac.md) (CIK 750686)
- Form: 10-Q
- Filed: 2024-05-08
- Accepted by EDGAR: May 8, 2024, 13:22 ET
- Period: 2024-03-31
- Accession: 0000750686-24-000186
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/750686/000075068624000186/cac-20240331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/750686/000075068624000186/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $8.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Interest expense | 3 months, 2024-01-01 to 2024-03-31 | $28.9m | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-01-01 to 2024-03-31 | $3.1m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | $13.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | $0.91 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | $0.91 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 14,625,771 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | $17.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-01-01 to 2024-03-31 | $545.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2024-01-01 to 2024-03-31 | $6.1m | us-gaap:PaymentsOfDividends |
| Total assets | at 2024-03-31 | $5.79bn | us-gaap:Assets |
| Total liabilities | at 2024-03-31 | $5.29bn | us-gaap:Liabilities |
| Short-term borrowings | at 2024-03-31 | $601.5m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2024-03-31 | $501.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 90,891 characters.

### AND RESULTS OF OPERATIONS

### FORWARD-LOOKING STATEMENTS

The discussions set forth below and in the documents we incorporate by reference herein contain certain statements that may be considered forward-looking statements under the Private Securities Litigation Reform Act of 1995, as amended, including certain plans, exceptions, goals, projections, and statements, which are subject to numerous risks, assumptions, and uncertainties. Forward-looking statements can be identified by the use of the words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “assume,” “plan,” “target,” “potential” or “goal” or future or conditional verbs such as “will,” “may,” “might,” “should,” “could” and other expressions which predict or indicate future events or trends and which do not relate to historical matters. Forward-looking statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult for the Company to predict. The actual results, performance or achievements of the Company may differ materially from what is reflected in such forward-looking statements

Forward-looking statements should not be relied on, because they involve known and unknown risks, uncertainties and other factors, some of which are beyond the control of the Company. These risks, uncertainties and other factors may cause the actual results, performance or achievements of the Company to be materially different from the anticipated future results, performance or achievements expressed or implied by the forward-looking statements.

The following factors, among others, could cause the Company’s financial performance to differ materially from the Company’s goals, plans, objectives, intentions, expectations and other forward-looking statements:

- weakness in the United States economy in general and the regional and local economies within the New England region and Maine, which could result in a deterioration of credit quality, an increase in the allowance for credit losses or a reduced demand for the Company’s credit or fee-based products and services;
- changes in trade, monetary, and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System;
- inflation, interest rate, market, and monetary fluctuations;
- ongoing competition in the labor markets and increased employee turnover;
- the adequacy of succession planning for key executives or other personnel, and the Company’s ability to transition effectively to new members of the senior executive team;
- competitive pressures, including continued industry consolidation and the increased financial services provided by non-banks;
- deterioration in the value of the Company's investment securities;
- commercial real estate vacancies and their impact on the ability of borrowers to repay their loans;
- volatility in the securities markets that could adversely affect the value or credit quality of the Company’s assets, impairment of goodwill, or the availability and terms of funding necessary to meet the Company’s liquidity needs;
- changes in information technology and other operational risks, including cybersecurity, that require increased capital spending;
- changes in consumer spending and savings habits;
- changes in tax, banking, securities and insurance laws and regulations;
- the outcome of pending and future litigation and governmental proceedings, including tax-related examinations and other matters;
- changes in accounting policies, practices and standards, as may be adopted by the regulatory agencies as well as the Financial Accounting Standards Board ("FASB"), and other accounting standard setters;
- the effects of climate change on the Company and its customers, borrowers or service providers;
- the effects of civil unrest, international hostilities, including the war in Ukraine and conflict in the Middle East, or other geopolitical events;
- the effects of epidemics and pandemics;
- turmoil and volatility in the financial services industry, including failures or rumors of failures of other depository institutions, which could affect the ability of depository institutions, including Camden National Bank, to attract and retain depositors, and could affect the ability of financial services providers, including the Company, to borrow or raise capital;
- actions taken by governmental agencies to stabilize the financial system and the effectiveness of such actions;
- increases in deposit insurance assessments due to bank failures;
- changes to regulatory capital requirements in response to recent development affecting the banking sector; and
- questions about the soundness of one or more financial institutions with which the Company does business.

In addition, statements regarding the potential effects of notable national and global current events on the Company’s business, financial condition, liquidity and results of operations may constitute forward-looking statements and are subject to the risk that the actual effects may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond the Company's control.

You should carefully review all of these factors, and be aware that there may be other factors that could cause differences, including the risk factors listed in our Annual Report on Form 10-K for the year ended December 31, 2023, as updated by the Company's quarterly reports on Form 10-Q, including this report, and other filings with the Securities and Exchange Commission. Readers should carefully review the risk factors described therein and should not place undue reliance on our forward-looking statements.

These forward-looking statements were based on information, plans and estimates at the date of this report, and we undertake no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes, except to the extent required by applicable law or regulation.

### 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: adjusted net income; adjusted diluted earnings per share; adjusted return on average assets; adjusted return on average equity; pre-tax, pre-provision income; adjusted pre-tax, pre-provision income; return on average tangible equity and adjusted return on average tangible equity; the efficiency and tangible common equity ratios; net interest income (fully-taxable equivalent); tangible book value per share; core deposits and average core deposits. We utilize these non-GAAP financial measures for purposes of measuring performance against the Company's peer group and other financial institutions, as well as for analyzing its internal performance. The Company also believes these non-GAAP financial measures help investors better understand the Company's operating performance and trends and allows 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.

**Adjusted Net Income; Adjusted Diluted Earnings per Share; Adjusted Return on Average Assets; and Adjusted Return on Average Equity.** The following table provides a reconciliation of net income, diluted EPS, return on average assets and return on average equity to adjusted net income, adjusted diluted EPS, adjusted return on average assets and adjusted return on average equity. Certain transactions have been excluded to calculate adjusted net income, adjusted diluted EPS, adjusted return on average assets and adjusted return on average equity. We believe the following adjusted financial metrics assist users of our financial statements with their financial analysis period-over-period as it adjusts for certain non-recurring items.

*(In thousands, except number of shares, per share data and ratios)*

| Adjusted Net Income: | For the Three Months Ended March 31, 2024 | March 31, 2023 |
| --- | ---: | ---: |
| Net income, as presented | $13,272 | $12,727 |
| Adjustment for Signature Bank bond (recovery) write-off | (910) | 1,838 |
| Tax impact of above adjustments(1) | 191 | (386) |
| Adjusted net income | $12,553 | $14,179 |
| **Adjusted Diluted Earnings per Share:** |  |  |
| Diluted earnings per share, as presented | $0.91 | $0.87 |
| Adjustment for Signature Bank bond (recovery) write-off | (0.06) | 0.13 |
| Tax impact of above adjustments(1) | 0.01 | (0.03) |
| Adjusted diluted earnings per share | $0.86 | $0.97 |
| **Adjusted Return on Average Assets:** |  |  |
| Return on average assets, as presented | 0.93% | 0.91% |
| Adjustment for Signature Bank bond (recovery) write-off | (0.06)% | 0.13% |
| Tax impact of above adjustments(1) | 0.01% | (0.03)% |
| Adjusted return on average assets | 0.88% | 1.01% |
| **Adjusted Return on Average Equity:** |  |  |
| Return on average equity, as presented | 10.77% | 11.16% |
| Adjustment for Signature Bank bond (recovery) write-off | (0.74)% | 1.61% |
| Tax impact of above adjustments(1) | 0.16% | (0.34)% |
| Adjusted return on average equity | 10.19% | 12.43% |

(1) Assumed a 21% tax rate.

***Pre-Tax, Pre-Provision Income and Adjusted Pre-Tax, Pre-Provision Income.*** Pre-tax, pre-provision income and adjusted pre-tax, pre-provision income are each a supplemental measure of operating earnings and performance. Pre-tax, pre-provision income is calculated as net income before provision for credit losses and income tax expense, and adjusted pre-tax, pre-provision income is calculated as net income before provision for credit losses, income tax expense, and adjusted for certain other items, as applicable. These supplemental measures became more widely used by financial institutions as a measure of financial performance for comparability across financial institutions.

*(Dollars in thousands)*

|  | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Net income, as presented | $13,272 | $12,727 |
| Adjustment for (credit) provision for credit losses | (2,102) | 2,002 |
| Adjustment for income tax expense | 3,063 | 3,252 |
| Adjusted pre-tax, pre-provision income | $14,233 | $17,981 |

***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 within the financial services industry 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.

*(Dollars in thousands)*

|  | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Non-interest expense, as presented | $27,362 | $26,165 |
| Net interest income, as presented | $31,273 | $34,280 |
| Adjustment for the effect of tax-exempt income(1) | 150 | 229 |
| Non-interest income, as presented | 10,322 | 9,866 |
| Adjusted net interest income plus non-interest income | $41,745 | $44,375 |
| Ratio of non-interest expense to total revenues(2) | 65.78% | 59.27% |
| Efficiency ratio | 65.55% | 58.96% |

(1) Assumed a 21% tax rate.

(2) Revenue is the sum of net interest income and non-interest income.

***Return on Average Tangible Equity:*** Return on average tangible equity is the ratio of (i) net income, adjusted for (a) amortization of core deposit intangible assets and the tax impact of the adjustment and (b) goodwill impairment, as necessary, to (ii) average shareholders' equity, adjusted for average goodwill and core deposit intangible assets. This adjusted financial ratio reflects a shareholder's return on tangible capital deployed in our business and is a common measure within the financial services industry.

***Adjusted Return on Average Tangible Equity:*** Adjusted return on average tangible equity is the ratio of (i) adjusted net income (as defined in the table above) adjusted for (a) amortization of core deposit intangible assets and the tax impact of the adjustment and (b) goodwill impairment, as necessary, to (ii) average shareholders' equity, adjusted for average goodwill and core deposit intangible assets.

*(Dollars in thousands)*

| Return on Average Tangible Equity: | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Net income, as presented | $13,272 | $12,727 |
| Adjustment for amortization of core deposit intangible assets | 139 | 148 |
| Tax impact of above adjustment(1) | (29) | (31) |
| Net income, adjusted for amortization of core deposit intangible assets | $13,382 | $12,844 |
| Average equity, as presented | $495,513 | $462,651 |
| Adjustment for average goodwill and core deposit intangible assets | (95,604) | (96,191) |
| Average tangible equity | $399,909 | $366,460 |
| Return on average equity | 10.77% | 11.16% |
| Return on average tangible equity | 13.46% | 14.21% |
| **Adjusted Return on Average Tangible Equity:** |  |  |
| Adjusted net income (see "Adjusted Net Income" table above) | $12,553 | $14,179 |
| Adjustment for amortization of core deposit intangible assets | 139 | 148 |
| Tax impact of above adjustment(1) | (29) | (31) |
| Adjusted net income, adjusted for amortization of core deposit intangible assets | $12,663 | $14,296 |
| Adjusted return on average tangible equity | 12.74% | 15.82% |

(1) Assumed a 21% tax rate.

***Tangible Book Value per Share.*** Tangible book value per share is the ratio of (i) shareholders’ equity less goodwill and other intangibles to (ii) total common shares outstanding at period end. Tangible book value per share is a common measure within the financial services industry to assess the value of a company, as it removes goodwill and other intangible assets generated within purchase accounting upon a business combination.

***Tangible Common Equity Ratio.*** Tangible common equity is the ratio of (i) shareholders’ equity less goodwill and other intangible assets to (ii) total assets less goodwill and other intangible assets. This ratio is a measure used within the financial services industry to assess a company's capital adequacy.

*(Dollars in thousands, except number of shares, per share data and ratios)*

| Tangible Book Value Per Share: | March 31, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Shareholders’ equity, as presented | $501,577 | $495,064 |
| Adjustment for goodwill and core deposit intangible assets | (95,529) | (95,668) |
| Tangible shareholders’ equity | $406,048 | $399,396 |
| Shares outstanding at period end | 14,593,830 | 14,565,952 |
| Book value per share | $34.37 | $33.99 |
| Tangible book value per share | $27.82 | $27.42 |
| **Tangible Common Equity Ratio:** |  |  |
| Total assets | $5,794,785 | $5,714,506 |
| Adjustment for goodwill and core deposit intangible assets | (95,529) | (95,668) |
| Tangible assets | $5,699,256 | $5,618,838 |
| Common equity ratio | 8.66% | 8.66% |
| Tangible common equity ratio | 7.12% | 7.11% |

***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 at a lower interest rate cost. The Company calculates core deposits as total deposits (as reported on the consolidated statements of condition) less certificates of deposit and brokered deposits. Management believes core deposits is a useful measure to assess the Company's deposit base, including its potential volatility.

*(Dollars in thousands)*

|  | March 31, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Total deposits | $4,551,524 | $4,597,360 |
| Adjustment for certificates of deposit | (585,786) | (609,503) |
| Adjustment for brokered deposits | (153,942) | (101,919) |
| Core deposits | $3,811,796 | $3,885,938 |

***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 average deposits (excluding average brokered deposits, as disclosed on the Average Balance, Interest and Yield/Rate Analysis tables) less average certificates of deposit. Management believes core deposits is a useful measure to assess the Company's deposit base, including its potential volatility.

*(Dollars in thousands)*

|  | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Total average deposits(1) | $4,370,688 | $4,520,424 |
| Adjustment average certificates of deposit | (582,806) | (320,209) |
| Average core deposits | $3,787,882 | $4,200,215 |

(1) Brokered deposits are excluded from total average deposits, as presented on the Average Balance, Interest and Yield/Rate analysis table.

### CRITICAL ACCOUNTING POLICIES

Critical accounting policies 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 differ materially from our current estimates as a result of changing conditions and future events. Several estimates are particularly critical and are susceptible to significant near-term change, including (i) the ACL, including the ACL on loans, off-balance sheet credit exposures and investments; (ii) accounting for acquisitions and the subsequent review of goodwill and intangible assets generated in an acquisition for impairment; (iii) income taxes; and (iv) accounting for defined benefit and postretirement plans.

There have been no material changes to the Company's critical accounting policies from those disclosed within its Annual Report on Form 10-K for the year ended December 31, 2023. Refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2023, for discussion of the Company's critical accounting policies.

Refer to Note 2 of the consolidated financial statements for discussion of accounting pronouncements issued but yet to be adopted and implemented.

### GENERAL OVERVIEW

Camden National Corporation (hereafter referred to as “we,” “our,” “us,” or the “Company”) is a publicly-held bank holding company, with approximately $5.8 billion in assets at March 31, 2024, incorporated under the laws of the State of Maine and headquartered in Camden, Maine. Camden National Bank (the "Bank"), a wholly-owned subsidiary of the Company, was founded in 1875. The Company was founded in 1984, went public in 1997 and is registered with NASDAQ Global Market (“NASDAQ”) under the ticker symbol "CAC."

The primary business of the Company and the Bank is to attract deposits from, and to extend loans to, consumer, institutional, municipal, non-profit and commercial customers. The Company, through the Bank, provides a broad array of banking and other financial services, including wealth management and trust services, brokerage, investment advisory and insurance services, to consumer, business, non-profit and municipal customers.

The Company operates throughout Maine, with its primary markets and presence being throughout coastal and central Maine, and select areas of New Hampshire and Massachusetts. The Company and the Bank generally have effectively competed with other financial institutions by emphasizing customer service, highlighted by local decision-making, establishing long-term customer relationships, building customer loyalty and providing products and services designed to meet the needs of customers.

### EXECUTIVE OVERVIEW

Net income for the first quarter of 2024 was $13.3 million, an increase of $545,000, or 4%, compared to the first quarter of 2023, and diluted EPS increased $0.04 or 5%, to $0.91 for the first quarter of 2024 compared to the same period last year. The Company's operating results for the first quarter of 2024 included a $910,000 partial recovery from the sale of a Signature Bank corporate bond that we had written off in the first quarter of 2023 upon notice of Signature Bank failing. Excluding the sale of the corporate bond, adjusted net income (non-GAAP) for the first quarter of 2024 was $12.6 million and adjusted EPS was $0.86, each a decrease of 11% from the first quarter of 2023.

Like many others across the banking industry, the Company's earnings continue to be affected by the inverted yield curve. Through the first quarter of 2024, our funding costs continued to rise at a faster pace than our earning asset yields, which resulted in further net interest margin compression period-over-period. The Company's net interest margin for the first quarter of 2024 was 2.30%, compared to 2.54% for the same period of 2023.

Our asset quality continues to be a strength of the Company, and we continue to monitor the portfolio actively for potential risks. In light of the current macroeconomic environment and developments in the banking industry, we have and continue to monitor our commercial real estate portfolio. Through these reviews, there have been no significant signs of distress within the portfolios, which speaks to our disciplined and consistent underwriting of loans in all economic environments and cycles. On March 31, 2024, loans 30-89 days past due to total loans decreased to 0.05% of total loans, from 0.12% at December 31, 2023, and annualized net charge-offs continue to be very strong at 0.02% of average loans for the first quarter of 2024, compared to 0.03% for the fourth quarter of 2023. Due to these strong credit quality metrics, combined with a more favorable macroeconomic forecast between periods, the Company’s allowance for credit losses ("ACL") on loans decreased to 0.86% as of March 31, 2024, compared to 0.90% at December 31, 2023.

The following table outlines other key financial metrics for the periods indicated:

*(In thousands, except per share data and ratios)*

| Earnings and Profitability | At or for the Three Months Ended March 31, 2024 | December 31, 2023 | March 31, 2023 | % Change Mar 2024 vs. Dec 2023 | % Change Mar 2024 vs. Mar 2023 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net income | $13,272 | $8,480 | $12,727 | 57% | 4% |
| Diluted EPS | $0.91 | $0.58 | $0.87 | 57% | 5% |
| Adjusted net income (non-GAAP) | $12,553 | $12,410 | $14,179 | 1% | (11)% |
| Adjusted diluted EPS (non-GAAP) | $0.86 | $0.85 | $0.97 | 1% | (11)% |
| Return on average assets | 0.93% | 0.59% | 0.91% | 0.34% | 0.02% |
| Adjusted return on average assets (non-GAAP) | 0.88% | 0.87% | 1.01% | 0.01% | (0.13)% |
| Return on average equity | 10.77% | 7.20% | 11.16% | 3.57% | (0.39)% |
| Adjusted return on average equity (non-GAAP) | 10.19% | 10.53% | 12.43% | (0.34)% | (2.24)% |
| Return on average tangible equity (non-GAAP) | 13.46% | 9.18% | 14.21% | 4.28% | (0.75)% |
| Adjusted return on average tangible equity (non-GAAP) | 12.74% | 13.38% | 15.82% | (0.64)% | (3.08)% |
| Efficiency ratio (non-GAAP) | 65.55% | 63.48% | 58.96% | 2.07% | 6.59% |
| **Balance Sheet and Liquidity** |  |  |  |  |  |
| Loans | $4,121,040 | $4,098,094 | $4,073,108 | 1% | 1% |
| Deposits | $4,551,524 | $4,597,360 | $4,642,734 | (1)% | (2)% |
| Cash dividends declared per share | $0.42 | $0.42 | $0.42 | —% | —% |
| Uninsured and uncollateralized deposits to total deposits | 14.80% | 14.60% | 14.90% | 0.20% | (0.10)% |
| Available liquidity sources to uninsured and uncollateralized deposits | 207.86% | 201.67% | 187.70% | 6.19% | 20.16% |
| **Credit Quality and Capital** |  |  |  |  |  |
| Non-performing assets to total assets | 0.13% | 0.13% | 0.09% | —% | 0.04% |
| Loans 30-89 days past due to total loans | 0.05% | 0.12% | 0.05% | (0.07)% | —% |
| Allowance for credit losses on loans to total loans | 0.86% | 0.90% | 0.91% | (0.04)% | (0.05)% |
| Total risk-based capital ratio | 14.52% | 14.36% | 13.95% | 0.16% | 0.57% |
| Tangible common equity ratio (non-GAAP) | 7.12% | 7.11% | 6.56% | 0.01% | 0.56% |

47

### RESULTS OF OPERATIONS

### Net Interest Income and Net Interest Margin

Net interest income is the interest earned on loans, securities, and other interest-earning assets, adjusted for net loan fees, origination costs, and accretion or amortization of fair value marks on loans and/or CDs created in purchase accounting, less the interest paid on interest-bearing deposits and borrowings. Net interest income is our largest source of revenue ("revenue" is defined as the sum of net interest income and non-interest income). For the quarter ended March 31, 2024, net interest income was 75% of total revenues, compared to 78% for the quarter ended March 31, 2023. 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 margin is calculated as net interest income on a fully-taxable equivalent basis (non-GAAP) as a percentage of average interest-earning assets.

***Net Interest Income.*** Net interest income on a fully-taxable equivalent basis for the quarter ended March 31, 2024 was $31.4 million, a decrease of $3.1 million, or 9%, compared to the first quarter of 2023. The decrease consisted of a $10.5 million increase in interest expense, partially offset by an increase in interest income on a fully-taxable equivalent basis of $7.4 million between periods.

- The increase in interest expense between periods was primarily the result of an 82 basis point increase in our average cost of funds to 2.27% for the first quarter of 2024. Our deposit and borrowing costs increased throughout the past year and in the first quarter of 2024 as the Federal Funds Rate target range was 5.25% - 5.50% in the first quarter of 2024, compared to 4.75% - 5.00% as of March 31, 2023. The increase in short-term interest rates between periods has resulted in rising funding costs between periods and we remain in a higher interest rate environment.

The Company’s average deposit costs for the quarter ended March 31, 2024 were 1.97%, compared to 1.22% for the same period in 2023. Deposit costs have continued to be pressured throughout the first quarter of 2024 due to the higher short-term rates. Other drivers of deposit costs included strong deposit competition within our markets, and more broadly across depository institutions, including changes in the deposit mix as depositors moved deposits into higher interest-earning deposit accounts. Customers continued to deploy excess cash into higher interest-earning deposit accounts to obtain the best rates, and this change in deposit mix drove a significant increase in money market and CD balances over the past year and a significant decrease in low-cost savings and checking accounts.

The Company’s average cost of borrowings for the three months ended March 31, 2024 increased to 3.96%, up from 3.13% for the three months ended March 31, 2023. The increase was driven by the continued increase in short-term interest between years, but also was due to the increase in average borrowings of $139.0 million, or 22%, which were used to offset the decreases in deposits of $149.7 million, or 3%, over the past year.

- 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 first quarter of 2024, the Company’s yield on average interest-earning assets was 4.44%, compared to 3.92% for the same period in 2023.

The Company’s average loan yield was 5.00% for the first three months of 2024, an increase of 50 basis points over the first three months of 2023. We continue to reinvest loan and investment cash flows primarily back into loans at current market rates to support yield expansion.

The Company’s average investment yield was 2.59% for the first quarter of 2024, an increase of 40 basis points over the same period in 2023. The increase between periods is the result of the continued cash flow from lower-yielding investments combined with the sale of investments in the second half of 2023 to reposition the Company's balance sheet. The increase in our investment yield was able to drive an increase in interest income on investments year-over-year and fully offset the impact of a decrease in average investment balances of 7% between periods.

***Net Interest Margin.*** Net interest margin on a fully-taxable equivalent basis for the three months ended March 31, 2024 and 2023 was 2.30% and 2.54%, respectively.

### Quarterly Average Balance, Interest and Yield/Rate Analysis

*(Dollars in thousands)*

| Assets Interest-earning assets: | Three Months Ended March 31, 2024 Average Balance | Interest | Yield/Rate | March 31, 2023 Average Balance | Interest | Yield/Rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest-bearing deposits in other banks and other interest-earning assets | $44,487 | $488 | 4.34% | $26,018 | $253 | 3.89% |
| Investments - taxable | 1,187,699 | 7,521 | 2.53% | 1,237,351 | 6,377 | 2.06% |
| Investments - nontaxable(1) | 62,385 | 589 | 3.78% | 105,502 | 966 | 3.66% |
| Loans(2): |  |  |  |  |  |  |
| Commercial real estate | 1,682,599 | 21,007 | 4.94% | 1,646,005 | 18,959 | 4.61% |
| Commercial(1) | 389,695 | 5,960 | 6.05% | 409,112 | 5,615 | 5.49% |
| SBA PPP | 324 | 4 | 4.46% | 594 | 4 | 2.55% |
| Municipal(1) | 14,653 | 160 | 4.40% | 15,997 | 140 | 3.56% |
| Residential real estate | 1,773,077 | 19,557 | 4.41% | 1,715,192 | 16,200 | 3.78% |
| Consumer and home equity | 257,305 | 5,047 | 7.89% | 253,760 | 4,440 | 7.10% |
| Total loans | 4,117,653 | 51,735 | 5.00% | 4,040,660 | 45,358 | 4.50% |
| **Total interest-earning assets** | **5,412,224** | **60,333** | **4.44%** | **5,409,531** | **52,954** | **3.92%** |
| Cash and due from banks | 65,763 |  |  | 46,713 |  |  |
| Other assets | 276,937 |  |  | 268,550 |  |  |
| Less: ACL | (36,944) |  |  | (37,127) |  |  |
| **Total assets** | **$5,717,980** |  |  | **$5,687,667** |  |  |
| **Liabilities & Shareholders' Equity** |  |  |  |  |  |  |
| **Deposits:** |  |  |  |  |  |  |
| Non-interest checking | $933,321 | $— | —% | $1,076,469 | $— | —% |
| Interest checking | 1,490,185 | 9,381 | 2.53% | 1,689,862 | 8,341 | 2.00% |
| Savings | 599,791 | 305 | 0.20% | 734,804 | 137 | 0.08% |
| Money market | 764,585 | 6,260 | 3.29% | 699,080 | 3,785 | 2.20% |
| Certificates of deposit | 582,806 | 5,470 | 3.77% | 320,209 | 1,368 | 1.73% |
| **Total deposits** | **4,370,688** | **21,416** | **1.97%** | **4,520,424** | **13,631** | **1.22%** |
| **Borrowings:** |  |  |  |  |  |  |
| Brokered deposits | 133,385 | 1,762 | 5.31% | 220,559 | 2,201 | 4.05% |
| Customer repurchase agreements | 182,487 | 728 | 1.60% | 182,754 | 481 | 1.07% |
| Junior subordinated debentures | 44,331 | 534 | 4.85% | 44,331 | 528 | 4.83% |
| Other borrowings | 401,683 | 4,470 | 4.40% | 175,223 | 1,604 | 3.71% |
| **Total borrowings** | 761,886 | 7,494 | 3.96% | 622,867 | 4,814 | 3.13% |
| **Total funding liabilities** | **5,132,574** | **28,910** | **2.27%** | **5,143,291** | **18,445** | **1.45%** |
| Other liabilities | 89,893 |  |  | 81,725 |  |  |
| Shareholders' equity | 495,513 |  |  | 462,651 |  |  |
| **Total liabilities & shareholders' equity** | **$5,717,980** |  |  | **$5,687,667** |  |  |
| Net interest income (fully-taxable equivalent) |  | 31,423 |  |  | 34,509 |  |
| Less: fully-taxable equivalent adjustment |  | (150) |  |  | (229) |  |
| Net interest income |  | $31,273 |  |  | $34,280 |  |
| **Net interest rate spread (fully-taxable equivalent)** |  |  | **2.17%** |  |  | **2.47%** |
| **Net interest margin (fully-taxable equivalent)** |  |  | **2.30%** |  |  | **2.54%** |

(1) Reported on tax-equivalent basis calculated using a 21% tax rate, including certain commercial loans.

(2) Non-accrual loans and loans held for sale are included in total average loans.

49

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 period's rate), (b) changes in rates (change in rate multiplied prior period'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)*

| Interest-earning assets: | Three Months Ended March 31, 2024 vs. March 31, 2023 Increase (Decrease) Due to: Volume | Rate | Net Increase (Decrease) |
| --- | ---: | ---: | ---: |
| Interest-bearing deposits in other banks and other interest-earning assets | $315 | $(80) | $235 |
| Investments – taxable | (256) | 1,400 | 1,144 |
| Investments – nontaxable | (395) | 18 | (377) |
| Commercial real estate | 422 | 1,626 | 2,048 |
| Commercial | (268) | 613 | 345 |
| Municipal | (12) | 32 | 20 |
| Residential real estate | 547 | 2,810 | 3,357 |
| Consumer and home equity | 62 | 545 | 607 |
| **Total interest income (fully-taxable equivalent)** | 415 | 6,964 | 7,379 |
| **Interest-bearing liabilities:** |  |  |  |
| Interest checking | (985) | 2,025 | 1,040 |
| Savings | (27) | 195 | 168 |
| Money market | 355 | 2,120 | 2,475 |
| Certificates of deposit | 1,120 | 2,982 | 4,102 |
| Brokered deposits | (871) | 432 | (439) |
| Customer repurchase agreements | (1) | 248 | 247 |
| Junior subordinated debentures | — | 6 | 6 |
| Other borrowings | 2,073 | 793 | 2,866 |
| **Total interest expense** | 1,664 | 8,801 | 10,465 |
| **Net interest income (fully-taxable equivalent)** | $(1,249) | $(1,837) | $(3,086) |

Net interest income on a fully-taxable equivalent basis included the following for the periods indicated:

*(In thousands)*

|  | Income Statement Location 2024 | Three Months Ended March 31, 2023 |  |
| --- | --- | ---: | ---: |
| Interest income from residential real estate derivatives | Interest income | $1,519 | $479 |
| Loan fees (costs) | Interest income | 326 | (467) |
| Net fair value mark accretion from purchase accounting | Interest income and Interest expense | 23 | 34 |
| Recoveries on previously charged-off acquired loans | Interest income | 98 | 26 |
| Total |  | $1,966 | $72 |

50

### Provision for Credit Losses

The provision for credit losses was made up of the following components for the periods indicated:

*(Dollars in thousands)*

|  | Three Months Ended March 31, 2024 | 2023 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| (Credit) provision for loan losses(1) | $(1,164) | $439 | $(1,603) | (365)% |
| Credit for credit losses on off-balance sheet credit exposures(2) | (28) | (276) | 248 | (90)% |
| (Credit) provision for HTM debt securities(3) | (910) | 1,839 | (2,749) | —% |
| **Provision for credit losses** | $(2,102) | $2,002 | $(4,104) | (205)% |

(1) **(Credit) provision for loan losses:** Negative provision expense (i.e., credit for credit losses) of $1.2 million was recorded for the first quarter of 2024 and was driven by strong asset quality and an improved macroeconomic forecast between periods.

(2) **Credit for credit losses on off-balance sheet credit exposures:** At March 31, 2024, the ACL on off-balance sheet credit exposures was $2.3 million, as compared to $3.0 million as of March 31, 2023. The decrease was driven by the decrease in unfunded commitments of $76.1 million between periods and the improvement of the macroeconomic forecast between periods.

(3) **Provision for HTM debt securities:** In the first quarter of 2024, the Company sold a Signature Bank corporate bond and recovered proceeds of $910,000. In the first quarter of 2023, the Company had written-off the Signature Bank corporate bond upon receiving notice of its failure.

### Non-Interest Income

The following table presents the components of non-interest income for the periods indicated:

*(Dollars in thousands)*

|  | Three Months Ended March 31, 2024 | 2023 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Debit card income | $2,866 | $2,938 | $(72) | (2)% |
| Service charges on deposit accounts(1) | 2,027 | 1,762 | 265 | 15% |
| Income from fiduciary services | 1,749 | 1,600 | 149 | 9% |
| Brokerage and insurance commissions | 1,239 | 1,093 | 146 | 13% |
| Mortgage banking income, net | 808 | 716 | 92 | 13% |
| Bank-owned life insurance | 683 | 592 | 91 | 15% |
| Other income(2) | 950 | 1,165 | (215) | (18)% |
| **Total non-interest income** | $10,322 | $9,866 | $456 | 5% |
| Non-interest income as a percentage of total revenues | 25% | 22% |  |  |

(1) **Service charges on deposit accounts:** The increase was driven by the increase in overdraft income of $199,000 between periods.

(2) **Other income**: The decrease was driven by a decrease in customer loan swap fees of $238,000 between periods.

### Non-Interest Expense

The following table presents the components of non-interest expense for the periods indicated:

*(Dollars in thousands)*

|  | Three Months Ended March 31, 2024 | 2023 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Salaries and employee benefits(1) | $15,954 | $14,573 | $1,381 | 9% |
| Furniture, equipment and data processing(2) | 3,629 | 3,211 | 418 | 13% |
| Net occupancy costs | 2,070 | 2,079 | (9) | N.M. |
| Debit card expense | 1,264 | 1,201 | 63 | 5% |
| Consulting and professional fees | 860 | 1,055 | (195) | (18)% |
| Regulatory assessments | 857 | 845 | 12 | 1% |
| Amortization of core deposit intangible assets | 139 | 148 | (9) | (6)% |
| OREO and collection costs, net | 10 | 5 | 5 | 100% |
| Other expenses(3) | 2,579 | 3,048 | (469) | (15)% |
| **Total non-interest expense** | $27,362 | $26,165 | $1,197 | 5% |
| Ratio of non-interest expense to total revenues | 65.78% | 59.27% |  |  |
| Efficiency ratio (non-GAAP) | 65.55% | 58.96% |  |  |

(1) **Salaries and employee benefits:** The increase between periods was primarily driven by higher incentive accruals due to better company performance in the first quarter 2024 compared to the same period of 2023.

(2) **Furniture, equipment and data processing:** The increase between periods reflects the continued investments in customer-facing technology platforms, internal systems and production platforms to drive increased productivity and efficiencies, and updates to various information security and resiliency-related systems and enhancements.

(3) **Other expense:** The decrease between periods was driven by the decrease in external hiring costs of $237,000 due to CEO transition costs incurred in the first quarter of 2023 and the decrease in donations of $118,000.

### FINANCIAL CONDITION

### Cash and Cash Equivalents

Total cash and cash equivalents at March 31, 2024, was $176.7 million, compared to $99.8 million at December 31, 2023. The increase in cash of $76.9 million, or 77%, between periods was driven by the increase in timing of loan and deposit cash flows. Subsequent to quarter end cash levels have decreased to our historical normal levels and management continually monitors our cash levels as part of our liquidity risk management practices. Refer to the "—Liquidity" section for additional details.

### 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 March 31, 2024 and December 31, 2023, our investment portfolio consisted of MBS, CMO, municipal and corporate debt securities, FHLBB and FRB common stock, and mutual funds held in a rabbi trust for the 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 funds are designated as trading securities and are carried at fair value.

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 March 31, 2024, the net unrealized losses on the transferred securities reported within AOCI were $45.7 million, net of a deferred tax asset of $12.5 million, and the weighted-average life on these securities was 8.4 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 life of these securities was 8.5 years.

At March 31, 2024, the reported value of the Company's total investments portfolio was $1.2 billion, a decrease of $27.6 million, or 2.3%, since December 31, 2023. This was driven by changes within our debt securities portfolio, including:

- Paydowns, calls and maturities of $23.3 million.
- A net decrease in the fair value of the AFS debt securities portfolio of $6.6 million due to interest rate movements during the quarter.

Our AFS debt securities portfolio, which comprised 52% and 53% of our investment portfolio at March 31, 2024 and December 31, 2023, respectively, was carried at fair value using Level 2 valuation techniques. Refer to Note 15 of the consolidated financial statements for further details on the Company's fair value techniques. Our HTM debt securities portfolio comprised 46% of our investment portfolio at both March 31, 2024 and December 31, 2023.

The book value of our debt securities as of both March 31, 2024 and December 31, 2023, was $1.2 billion. Our 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 highly rated corporate and municipal bonds by nationally recognized rating agencies. The following table provides the make-up of the Company's investment portfolio as of March 31, 2024 and December 31, 2023, based on the book value of each security type as a percentage of total book value of the Company's debt securities:

*(Dollars in thousands)*

|  | March 31, 2024 | Percent of Total at March 31, 2024 | December 31, 2023 | Percent of Total at December 31, 2023 |
| --- | ---: | ---: | ---: | ---: |
| MBS - Agency-backed | $816,230 | 67% | $830,288 | 67% |
| CMO - Agency-backed | 299,141 | 24% | 306,505 | 25% |
| Municipal | 61,759 | 5% | 62,691 | 5% |
| Corporate | 40,853 | 3% | 40,790 | 3% |
| Other - Agency-backed | 7,627 | 1% | 7,593 | 1% |
| **Total** | **$1,225,610** | **100%** | **$1,247,867** | **100%** |

We continually monitor and evaluate our investment portfolio to identify and assess risks within our portfolio, including but not limited to, the impact of the current interest rate environment and the related prepayment risk, and the review of credit ratings. The overall mix of debt securities at March 31, 2024, compared to December 31, 2023, remains relatively unchanged and the Company expects the portfolio will continue to be well positioned to provide a stable source of cash flow. At March 31, 2024 and December 31, 2023, the duration of our debt investment securities portfolio, adjusting for calls when appropriate and consensus prepayment speeds, was 5.5 years and 5.7 years, respectively.

We completed a review of our HTM and AFS investment portfolio as of March 31, 2024, and concluded that no ACL was warranted on any of the remaining bonds at this time. The fair value and book value of the Company's corporate bonds and municipal securities as of March 31, 2024 and December 31, 2023 was as follows:

*(Dollars in thousands)*

|  | March 31, 2024 # of Securities | Fair Value | Book Value | Net Unrealized (Loss) Gain | December 31, 2023 # of Securities | Fair Value | Book Value | Net Unrealized (Loss) Gain |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Municipal bonds | 54 | $61,151 | $61,759 | $(608) | 55 | $63,159 | $62,691 | $468 |
| Corporate bonds | 20 | 37,874 | 40,853 | (2,979) | 20 | 37,714 | 40,790 | (3,076) |
| **Total** | 74 | $99,025 | $102,612 | $(3,587) | 75 | $100,873 | $103,481 | $(2,608) |

At March 31, 2024 and December 31, 2023, municipal bonds were 5% of the book value of the total bond portfolio and all carried an investment-grade credit rating.

At March 31, 2024 and December 31, 2023, corporate bonds were 3% of the book value of the total bond portfolio and 77% of these corporate bonds carried an investment-grade credit rating. The remaining 23% of corporate bonds were non-rated corporate bonds of community banks within our markets. As of March 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 32% of our exposure as of March 31, 2024, being to global systemically important banks, or "G-SIBs".

At March 31, 2024 and December 31, 2023, the Company did not carry an ACL on any of its corporate or municipal bonds.

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 March 31, 2024 and December 31, 2023, our investment in FHLBB stock totaled $11.0 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. Refer to Note 15 of the consolidated financial statements for further details on fair value.

### Loans

The following table sets forth the composition of our loan portfolio as of the dates indicated:

*(Dollars in thousands)*

|  | March 31, 2024 | December 31, 2023 | Change ($) | (%) |
| --- | ---: | ---: | ---: | ---: |
| Commercial real estate - non-owner-occupied | $1,402,326 | $1,370,446 | $31,880 | 2% |
| Commercial real estate - owner-occupied | 300,626 | 301,860 | (1,234) | —% |
| Commercial | 397,395 | 403,901 | (6,506) | (2)% |
| Residential real estate | 1,762,482 | 1,763,378 | (896) | —% |
| Consumer and home equity | 258,211 | 258,509 | (298) | —% |
| Total loans | $4,121,040 | $4,098,094 | $22,946 | 1% |
| Commercial Loan Portfolio | $2,100,347 | $2,076,207 | $24,140 | 1% |
| Retail Loan Portfolio | $2,020,693 | $2,021,887 | $(1,194) | —% |
| Commercial Portfolio Mix | 51% | 51% |  |  |
| Retail Portfolio Mix | 49% | 49% |  |  |

### Portfolio Concentrations

Our primary market continues to be Maine, making up 68% of the loan portfolio as of both March 31, 2024 and December 31, 2023. Massachusetts and New Hampshire are our second and third largest markets that we serve, making up 15% and 10%, of our total loan portfolio as of March 31, 2024, respectively, and 16% and 10% as of December 31, 2023, respectively. As of March 31, 2024, our distribution channels included 55 branches within Maine, two locations in New Hampshire, including a branch in Portsmouth and a commercial loan production office in Manchester, a mortgage loan production office in Braintree, Massachusetts, and an online residential mortgage and small business digital loan platform.

At March 31, 2024, the non-residential building operators' industry (operators of commercial and industrial buildings, retail establishments, theaters, banks and insurance buildings) and lessors of residential buildings industry (lessors of buildings used as residences, such as single-family homes, apartments and town houses) concentrations were 32% and 28% of our total commercial real estate portfolio and 13% and 11% of total loans, respectively. 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 14% and 11% of total loans. At March 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:

*(Dollars in thousands)*

|  | March 31, 2024 $% of Commercial Loan Portfolio |  | December 31, 2023 $% of Commercial Loan Portfolio |  | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Real estate investment(1) | $1,056,849 | 50% | $1,057,148 | 51% | $(299) | —% |
| Lodging | 242,536 | 12% | 229,017 | 11% | 13,519 | 6% |
| Retail trade | 118,395 | 6% | 116,623 | 6% | 1,772 | 2% |
| Health care | 97,906 | 5% | 95,801 | 5% | 2,105 | 2% |
| Manufacturing | 72,494 | 3% | 74,089 | 4% | (1,595) | (2)% |
| Construction | 71,753 | 3% | 73,936 | 4% | (2,183) | (3)% |
| Wholesale trade | 68,338 | 3% | 67,512 | 3% | 826 | 1% |
| Finance and insurance | 64,511 | 3% | 66,038 | 3% | (1,527) | (2)% |
| Other (each \< 3%) | 307,565 | 15% | 296,043 | 14% | 11,522 | 4% |
| **Total** | **$2,100,347** | **100%** | **$2,076,207** | **100%** | **$24,140** | **1%** |
| **Commercial loan portfolio mix:** |  |  |  |  |  |  |
| Commercial real estate - non-owner-occupied | $1,402,326 | 67% | $1,370,446 | 66% | 31,880 | 2% |
| Commercial real estate - owner-occupied | 300,626 | 14% | 301,860 | 15% | (1,234) | —% |
| Commercial | 397,395 | 19% | 403,901 | 19% | (6,506) | (2)% |
| **Total** | **$2,100,347** | **100%** | **$2,076,207** | **100%** | **$24,140** | **1%** |

(1) The following table summarizes the real estate investment loan portfolio, by property type as of the dates indicated:

*(Dollars in thousands)*

|  | March 31, 2024 $% of Real Estate Investment Portfolio |  | % of Total Loan Portfolio | December 31, 2023 $% of Real Estate Investment Portfolio |  | % of Total Loan Portfolio | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Multi-family (5+ units)(a) | $272,752 | 26% | 7% | $274,181 | 26% | 7% | $(1,429) | (1)% |
| Office(b) | 169,729 | 16% | 4% | 169,904 | 16% | 4% | (175) | —% |
| Multi-family (1-4 units)(c) | 168,395 | 16% | 4% | 153,166 | 14% | 4% | 15,229 | 10% |
| Industrial | 165,154 | 16% | 4% | 164,021 | 16% | 4% | 1,133 | 1% |
| Retail | 163,691 | 15% | 4% | 167,865 | 16% | 4% | (4,174) | (2)% |
| Other(d) | 117,128 | 11% | 3% | 128,011 | 12% | 3% | (10,883) | (9)% |
| **Total** | **$1,056,849** | **100%** | **26%** | **$1,057,148** | **100%** | **26%** | **$(299)** | **—%** |

(a) Multi-family (5+ units) loans are primarily located in non-urban locations, including 79% in Maine, 11% in Massachusetts, 8% in New Hampshire, and 2% in other states at March 31, 2024 and December 31, 2023, respectively.

(b) Office loans are located in non-urban locations, including 52% in Maine, 26% in New Hampshire, and 22% in Massachusetts at March 31, 2024. and December 31, 2023, respectively.

(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

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 continually 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 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, Credit Risk 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 ratings system.
- 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, Credit Risk 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, accruing TDRs prior to the Company's adoption ASU 2022-02, and property acquired through foreclosure or repossession. The following table sets forth the composition and amounts of our non-performing loans as of the dates indicated:

*(Dollars in thousands)*

| Non-accrual loans: | March 31, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Commercial real estate - non-owner-occupied | $82 | $262 |
| Commercial real estate - owner-occupied | 123 | 124 |
| Commercial | 1,980 | 1,725 |
| Residential real estate | 2,473 | 2,539 |
| Consumer and home equity | 1,000 | 798 |
| **Total non-accrual loans** | **5,658** | **5,448** |
| Accruing TDRs prior to ASU 2022-02 adoption not included above | 1,973 | 1,990 |
| **Total non-performing loans** | **7,631** | **7,438** |
| Other real estate owned | — | — |
| **Total non-performing assets** | **$7,631** | **$7,438** |
| Total loans, excluding loans held for sale | $4,121,040 | $4,098,094 |
| Total assets | 5,794,785 | 5,714,506 |
| ACL on loans | 35,613 | 36,935 |
| ACL on loans to non-accrual loans | 629.43% | 677.96% |
| Non-accrual loans to total loans | 0.14% | 0.13% |
| Non-performing loans to total loans | 0.19% | 0.18% |
| Non-performing assets to total assets | 0.13% | 0.13% |

***Potential Problem Loans.*** Potential problem loans consist of classified accruing commercial and commercial real estate loans that were 30-89 days past due. Such loans are characterized by weaknesses in the financial condition of borrowers or collateral deficiencies. Based on historical experience, the credit quality of some of these loans may improve due to changes in collateral values or the financial condition of the borrowers, while the credit quality of other loans may deteriorate, resulting in a loss. These loans are not included in the above analysis of non-accrual loans. At March 31, 2024 and December 31, 2023, loans classified as potential problem loans totaled $173,000 and $1.2 million, respectively.

***Past Due Loans.*** Past due loans consist of accruing loans that were 30-89 days past due. The following table presents the recorded investment of past due loans as of the dates indicated:

*(Dollars in thousands)*

| Accruing loans 30-89 days past due: | March 31, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Commercial real estate - non-owner-occupied | $— | $84 |
| Commercial real estate - owner-occupied | 92 | 656 |
| Commercial | 537 | 2,007 |
| Residential real estate | 797 | 1,290 |
| Consumer and home equity | 618 | 922 |
| **Total** | $2,044 | $4,959 |
| Total loans | $4,121,040 | $4,098,094 |
| Accruing loans 30-89 days past due to total loans | 0.05% | 0.12% |

57

***ACL.*** The following table sets forth information concerning the components of our ACL for the periods indicated:

*(Dollars in thousands)*

|  | At or For The Three Months Ended March 31, 2024 | 2023 | At or For The Year Ended December 31, 2023 |
| --- | ---: | ---: | ---: |
| **ACL on loans at the beginning of the period** | $36,935 | $36,922 | $36,922 |
| **(Credit) provision for loan losses** | (1,164) | 439 | 1,174 |
| **Net charge-offs (recoveries)1** |  |  |  |
| Commercial real estate | (7) | (1) | 39 |
| Commercial | 217 | 213 | 1,089 |
| Residential real estate | (6) | 14 | (26) |
| Consumer and home equity | (46) | 1 | 59 |
| **Total net charge-offs** | **158** | **227** | **1,161** |
| **ACL on loans at the end of the period** | **$35,613** | **$37,134** | **$36,935** |
| **Components of ACL:** |  |  |  |
| ACL on loans | $35,613 | $37,134 | $36,935 |
| ACL on off-balance sheet credit exposures | 2,325 | 2,990 | 2,353 |
| **ACL at end of the period** | **$37,938** | **$40,124** | **$39,288** |
| Total loans, excluding loans held for sale | $4,121,040 | $4,073,108 | $4,098,094 |
| Average Loans | $4,117,653 | $4,040,660 | $4,076,681 |
| Net charge-offs to average loans (annualized) | 0.02% | 0.02% | 0.03% |
| (Credit) provision for loan losses (annualized) to average loans | (0.11)% | 0.04% | 0.03% |
| ACL on loans to total loans | 0.86% | 0.91% | 0.90% |

(1) Additional information related to net charge-offs (recoveries) is presented in the following table for the periods indicated:

*(Dollars in thousands)*

| 2024: | For The Three Months Ended March 31, Total Charge-offs | Total Recoveries | Net Charge-Offs (Recoveries) | Average Loans | Ratio of Net Charge-Offs (Recoveries) to Average Loans |
| --- | ---: | ---: | ---: | ---: | ---: |
| Commercial real estate | $— | $7 | $(7) | $1,682,599 | —% |
| Commercial | 309 | 92 | 217 | 404,672 | 0.05% |
| Residential real estate | — | 6 | (6) | 1,773,077 | —% |
| Consumer and home equity | 36 | 82 | (46) | 257,305 | (0.02)% |
| **Total** | **$345** | **$187** | **$158** | **$4,117,653** | **0.02%** |
| **2023:** |  |  |  |  |  |
| Commercial real estate | $— | $1 | $(1) | $1,646,005 | —% |
| Commercial | 312 | 99 | 213 | 425,703 | 0.05% |
| Residential real estate | 18 | 4 | 14 | 1,715,192 | —% |
| Consumer and home equity | 4 | 3 | 1 | 253,760 | —% |
| **Total** | **$334** | **$107** | **$227** | **$4,040,660** | **0.02%** |
|  | **For the Year Ended December 31,** |  |  |  |  |
| **2023:** |  |  |  |  |  |
| Commercial real estate | $58 | $19 | $39 | $1,659,078 | —% |
| Commercial | 1,560 | 471 | 1,089 | 415,650 | 0.26% |
| Residential real estate | 18 | 44 | (26) | 1,748,076 | —% |
| Consumer and home equity | 91 | 32 | 59 | 253,877 | 0.02% |
| **Total** | **$1,727** | **$566** | **$1,161** | **$4,076,681** | **0.03%** |

***ACL on Loans.*** There were no significant changes in our modeling methodology to determine the ACL on loans during the three months ended March 31, 2024. The significant key assumptions used with the ACL on loans calculation at March 31, 2024 and December 31, 2023, included: (i) Company-specific macroeconomic factors (i.e., loss drivers), (ii) our forecast period and reversion speed, (iii) prepayment speeds, and (iv) various qualitative factors.

As of March 31, 2024 and December 31, 2023, the recorded ACL on loans was $35.6 million, or 0.86% to total loans, and $36.9 million, or 0.90% of total loans, respectively, and represented our best estimate. Our ACL on loans estimate as of each date incorporated the ongoing risk of a recession over the next 12 to 24 months using multiple scenarios and probability weighting each scenario. The ACL on loans as of March 31, 2024 incorporated a lower weighting for the probability of a recession over the next 12 to 24 months based on management's forecasted macroeconomic outlook as of that date. The improved macroeconomic outlook, combined with the Company's strong asset quality at both March 31, 2024 and December 31, 2023, which included proactive stress testing by management on certain loan segments, resulted in a decrease in the ACL on loans.

The overall global and national markets continue to be volatile and carry a high degree of uncertainty, and any changes to our forecast or qualitative factors subject our ACL estimate to a higher risk of fluctuation between periods.

We may adjust our assumptions to account for differences between expected and actual losses from period to period. A future change of our assumptions likely will alter the level of allowance required and may have a material impact on future results of operations and financial condition. The ACL on loans is reviewed periodically within a calendar quarter to assess trends in CECL ("Current Expected Credit Losses") key assumptions and asset quality, and their effects on the Company's financial condition.

***ACL on Off-Balance Sheet Credit Exposures.*** There were no significant changes in our modeling methodology to determine the ACL on off-balance sheet credit exposures during the three months ended March 31, 2024. The model uses the credit loss factors for each segment calculated within the ACL on loans model described above. The ACL on off-balance sheet credit exposures as of March 31, 2024 and December 31, 2023, was $2.3 million and $2.4 million, respectively.

The ACL on off-balance sheet credit exposures was presented within accrued interest and other liabilities on the consolidated statements of condition. Increases (decreases) to the ACL on off-balance sheet credit exposures were presented within (credit) provision for credit losses on the consolidated statements of income.

We may adjust our assumptions to account for differences between expected and actual losses from period to period. A future change to our assumptions will likely alter the level of allowance required and may have a material impact on future results of operations and financial condition.

***ACL on HTM Securities.*** As of March 31, 2024, we have evaluated our HTM debt securities and we have not identified any credit concerns. As of March 31, 2024 and December 31, 2023, there was no ACL recorded on HTM investments. Refer to "—*Investments"* and Note 3 of the consolidated financial statements for further discussion.

### Liabilities

***Deposits.*** At March 31, 2024 and December 31, 2023, deposits totaled $4.6 billion. The deposit landscape continues to be highly competitive across our markets due to the interest rate environment as depositors look to deploy excess liquidity into higher yielding, interest-bearing deposit accounts. We continue to manage our deposits closely with a focus on maintaining and enhancing existing depositor relationships and developing new ones, while balancing the Company's overall funding cost and liquidity position.

The decrease of 1% in deposits in the first quarter of 2024, was driven by a decrease in checking account balances, which were lower by $89.2 million, or 4%, due to: (1) normal seasonality; (2) continued remix from low-cost deposits, such as checking and savings accounts, to money market and CDs; and (3) we managed out a single higher-cost municipal deposit relationship totaling $72.0 million at December 31, 2023. From time-to-time, we will move in and out of this municipal deposit relationship based on funding needs and opportunities to optimize our funding costs. CD balances decreased $23.7 million, or 4%, in the first quarter of 2024, as the Company opted to not renew a single higher-cost municipal CD totaling $50.0 million as we were able to utilize other funding means that were more cost effective, including the BTFP, brokered deposits and derivatives.

The Company's loan-to-deposit ratio was 91% at March 31, 2024, compared to 89% at December 31, 2023.

At March 31, 2024, the Company had no customer relationships that exceeded 10% of total deposits.

***Uninsured and Uncollateralized Deposits.*** Total deposits that exceeded the FDIC deposit insurance limit of $250,000 were $935 million, or 21% of total deposits, as of March 31, 2024, and $1.1 billion, or 23% of total deposits, as of December 31, 2023.

Total uninsured and uncollateralized deposits that exceeded the FDIC deposit insurance limit of $250,000 and were not secured by pledged assets or any other guarantee of the Company totaled $674.4 million, or 15% of total deposits, as of March 31, 2024 and $669.5 million, or 15% of total deposits, as of December 31, 2023.

The balance of CDs that exceeded the FDIC deposit insurance limit of $250,000 was $117.1 million, or 20% of CD balances, as of March 31, 2024, and $167.2 million, or 27% of CD balances, as of December 31, 2023. The total uninsured portion of these CDs was $41.6 million, or 7% and $93.7 million, or 15% as of March 31, 2024 and December 31, 2023, respectively.

***Borrowings***. At March 31, 2024, total borrowings were $645.8 million, an increase of $115.9 million, or 22%, since December 31, 2023. In the first quarter of 2024, we took several actions to optimize our funding costs and improve net interest income and net interest margin. This included refinancing our existing BTFP and increasing our advances by $90.0 million and increasing our FHLBB advances by $50.0 million as part of an interest rate swap. The Company’s borrowings at March 31, 2024, consisted of:

- Borrowings from the BTFP totaling $225.0 million that are at a fixed rate of 4.76% and scheduled to mature in January 2025. The Company may prepay the BTFP borrowing at any time without penalty.
- Customer repurchase agreements totaling $201.5 million, an increase of $842,000, since December 31, 2023.
- Short-term FHLBB advances of $175.0 million, an increase of $50.0 million since December 31, 2023.

### Shareholders' Equity

Shareholders' equity at March 31, 2024, totaled $501.6 million, an increase of $6.5 million, or 1%, since December 31, 2023. The increase was driven by net income of $13.3 million for the three months ended March 31, 2024, offset by regular quarterly cash dividends of $6.1 million, and a decrease to AOCI of $1.5 million.

On March 26, 2024, the Company announced a quarterly cash dividend to shareholders of $0.42 per share, payable on April 30, 2024 to shareholders of record as of April 15, 2024. As of March 31, 2024, the Company's annualized dividend yield was 5.01% based on Camden National's closing share price of $33.52, as reported by NASDAQ on March 28, 2024, the last trading day of the first quarter of 2024.

In January 2024, the Company's Board of Directors authorized the repurchase of up to 750,000 shares of the Company's common stock, representing approximately 5% of the Company's issued and outstanding shares of common stock as of December 31, 2023. We did not repurchase any shares of the Company's common stock during the first quarter of 2024.

The following table presents certain information regarding shareholders’ equity as of and for the periods indicated:

| Financial Ratios | At or For The Three Months Ended March 31, 2024 | 2023 | At or For The Year Ended December 31, 2023 |
| --- | ---: | ---: | ---: |
| Average equity to average assets | 8.67% | 8.13% | 8.18% |
| Common equity ratio | 8.66% | 8.13% | 8.66% |
| Tangible common equity ratio (non-GAAP) | 7.12% | 6.56% | 7.11% |
| Dividend payout ratio | 46.15% | 48.28% | 56.38% |
| **Per Share Data** |  |  |  |
| Book value per share | $34.37 | $31.87 | $33.99 |
| Tangible book value per share (non-GAAP) | $27.82 | $25.28 | $27.42 |
| Dividends declared per share | $0.42 | $0.42 | $1.68 |

Refer to "—*Capital Resources"* and Note 10 of the consolidated financial statements for further discussion of the Company and Bank's capital resources and regulatory capital requirements.

### LIQUIDITY

Our liquidity needs require the availability of cash to meet the withdrawal demands of depositors and credit commitments to borrowers. Liquidity is defined as our ability to maintain availability of funds to meet customer needs, as well as to support our asset base. The primary objective of liquidity management is to maintain a balance between sources and uses of funds to meet our cash flow needs in the most economical and expedient manner. Due to the potential for unexpected fluctuations in both deposits and loans, active management of liquidity is necessary. We maintain various sources of funding and levels of liquid assets and monitor liquidity in accordance with internal guidelines and all applicable regulatory requirements. Sources of funds that we utilize consist of deposits; borrowings from the FHLBB and other sources; cash flows from loans and investments; and cash flows from operations, including other contractual obligations and commitments.

As of March 31, 2024, our primary liquidity sources available were as follows:

*(In thousands)*

| Available primary liquidity: | Amount |
| --- | ---: |
| Excess cash1 | $101,978 |
| Unpledged investment securities | 412,146 |
| Over collateralized securities pledging position | 62,561 |
| FHLBB | 683,235 |
| Fed Discount Window | 46,126 |
| Unsecured borrowing lines | 94,872 |
| **Total available primary liquidity** | **$1,400,918** |

(1) Excess cash represents cash held at the FRB that is above the minimum reserve requirement. At March 31, 2024, the minimum reserve requirement remains at zero.

Total available primary liquidity of $1.4 billion was 2.1 times uninsured and uncollateralized deposits as of March 31, 2024. Refer to "—*Financial Condition—Liabilities—Uninsured and Uncollateralized Deposits*" for further details.

In addition to the available primarily liquidity noted above, as of March 31, 2024, we may access additional funding through brokered deposits.

Although we believe that our level of liquidity is sufficient to meet current and future funding requirements, changes in current economic conditions, including consumer saving habits and the availability or access to the brokered deposit and wholesale repurchase markets, could significantly affect our liquidity position.

***Deposits.*** Deposits continue to represent our primary source of funds. As of March 31, 2024 and December 31, 2023, total deposits, including brokered deposits, were $4.6 billion at each date. The slight decrease in the first quarter of 2024 was driven by the decrease in core deposits (which exclude CDs and brokered deposits) (non-GAAP) of $74.1 million, or 2%, due to the decrease from a single higher-cost deposit relationship we manage. Additionally, CDs decreased $23.7 million, or 4%, in the first quarter.

The following is a summary of the scheduled maturities of CDs (not including brokered CDs) as of March 31, 2024:

*(In thousands)*

|  | CDs |
| --- | ---: |
| 1 year or less | $545,998 |
| \> 1 year | 39,788 |
| **Total** | **$585,786** |

The decrease in retail deposits was offset by the increase in brokered deposits of $52.0 million, or 51%, to $153.9 million at March 31, 2024. Brokered deposits consisted of $75.0 million of brokered CDs and $78.9 million of brokered money market accounts. As of March 31, 2024, all brokered CDs were scheduled to mature within 12 months.

***Borrowings***. Borrowings are used to supplement deposits as a source of liquidity. Our primary sources of borrowings are the FHLBB, FRB and other federal funds and customer repurchase agreements. As of March 31, 2024, total borrowings were $645.8 million, compared to $529.9 million as of December 31, 2023. We secure borrowings from the FHLBB with qualified residential real estate loans, certain investment securities and certain other assets available to be pledged.

As of March 31, 2024, the Company had $683.2 million in borrowing capacity from the FHLBB. At March 31, 2024, the Company has $225.0 million in borrowings under the BTFP at a rate of 4.76%, which are secured by the Company's investment securities at par. The BTFP loan is scheduled to mature in January 2025 and may be prepaid at any time without penalty. The BTFP is no longer a source for additional liquidity as new advances can no longer be issued under the program.

Customer repurchase agreements are secured by mortgage-backed securities and government-sponsored enterprises. Through the Bank, as of March 31, 2024, we have available lines of credit of $9.9 million with the FHLBB, of $95.0 million with three correspondent banks, and of $38.1 million with the FRB Discount Window. We also have access to the brokered deposit market and wholesale reverse repurchase transactions market. These sources are considered as liquidity alternatives in our contingent liquidity plan.

The following is a summary of the scheduled maturities of borrowings as of March 31, 2024:

*(In thousands)*

|  | FHLBB Advances | BTFP | Customer Repurchase Agreements | Junior Subordinated Debentures | Total |
| --- | ---: | ---: | ---: | ---: | ---: |
| 1 year or less | $175,000 | $225,000 | $201,499 | $— | $601,499 |
| \> 1 year | — | — | — | 44,331 | 44,331 |
| **Total** | **$175,000** | **$225,000** | **$201,499** | **$44,331** | **$645,830** |

***Loans***. Contractual loan repayments also affect our liquidity position. Actual speed and timing of repayment may differ materially from contract terms due to prepayments or nonpayment.

The Company's unpledged residential mortgage loan portfolio is also a source of contingent liquidity as it could be sold in a reasonable time period, at fair value, on the secondary market. As of March 31, 2024, qualifying residential mortgage loans with a book value of $1.7 billion were pledged as collateral to the FHLBB.

The following table presents the contractual maturities of loans at the date indicated:

*(Dollars in thousands)*

| Maturity Distribution(1): Fixed Rate: | March 31, 2024 Due in 1 Year or Less | Due after 1 Year Through 5 Years | Due After 5 Years Through 15 Years | Due in More than 15 Years | Total | Percent of Total Loans |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial real estate(2) | $19,501 | $255,973 | $539,493 | $2,576 | $817,543 | 20% |
| Commercial | 5,449 | 102,719 | 66,709 | 368 | 175,245 | 4% |
| Residential real estate | 181 | 10,479 | 145,352 | 1,235,229 | 1,391,241 | 34% |
| Consumer and home equity | 1,548 | 11,774 | 19,101 | 169,389 | 201,812 | 5% |
| Total fixed rate | 26,679 | 380,945 | 770,655 | 1,407,562 | 2,585,841 | 63% |
| **Adjustable/Variable Rate:** |  |  |  |  |  |  |
| Commercial real estate(2) | 21,130 | 285,155 | 341,275 | 237,849 | 885,409 | 21% |
| Commercial | 62,040 | 113,466 | 38,034 | 8,610 | 222,150 | 5% |
| Residential real estate | 20 | 928 | 38,837 | 331,456 | 371,241 | 9% |
| Consumer and home equity | 140 | 2,297 | 13,918 | 40,044 | 56,399 | 1% |
| Total adjustable/variable rate | 83,330 | 401,846 | 432,064 | 617,959 | 1,535,199 | 37% |
| **Total loans** | **$110,009** | **$782,791** | **$1,202,719** | **$2,025,521** | **$4,121,040** | **100%** |

(1) Scheduled repayments are reported in the maturity category in which payment is due. Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less.

(2) Commercial real estate loans includes non-owner-occupied and owner-occupied properties.

Additionally, we have active relationships with various secondary market investors that purchase residential mortgage loans we originate. In addition to managing our interest rate risk position and earnings through the sale of these loans, we are also able to manage our liquidity position through timely sales of residential mortgage loans to the secondary market.

***Investments.*** We generally invest in amortizing MBS and CMO debt securities that return cash flow at an accelerated rate in comparison to other types of debt securities that are of a bullet structure. MBS and CMO debt security cash flow will vary

depending on the interest rate environment because borrowers may have the right to call or prepay obligations with or without

prepayment penalties. The rise in interest rates during 2022 and 2023 resulted in slowing cash flows. As of March 31, 2024 and December 31, 2023, the Company's MBS and CMO debt securities portfolio totaled 91% of book value for both periods, respectively, of the Company's investment portfolio.

The Company's unpledged AFS investment portfolio is also a source of contingent liquidity, as it could be sold in a reasonable time period on the secondary market, at fair value, which was $267.5 million at March 31, 2024.

The following is a summary of the scheduled cash flows from our debt securities portfolio, including investments designated as AFS and HTM, as of March 31, 2024:

*(In thousands)*

|  | Contractual Cash Flows(1) |
| --- | ---: |
| 1 year or less | $100,730 |
| \> 1 year | 1,041,195 |
| **Total** | **$1,141,925** |

(1) Expected contractual cash flows could differ as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

***Other Liquidity Requirement***s. The Company generates cash flows from earnings through its normal course of business from earnings and, although not contractual, the Company has a history of paying a quarterly cash dividend to its shareholders and repurchasing its shares of common stock. For the three months ended March 31, 2024, the Company reported net income of $13.3 million and paid cash dividends of $6.1 million to shareholders.

In addition, in the course of its normal operations the Company is party to several other contractual obligations not previously discussed, such as various lease agreements on a number of its branches. Renewal options within the various lease contracts, as applicable, were considered to determine the lease term and estimate the contractual obligation and commitment for the Company's operating and finance leases. Furthermore, certain lease contracts of the Company contain language that subject its rent payment to variability, such as those tied to an index or change in an index. As a result, the future contractual obligation and commitment may materially differ from that estimated and disclosed within the table below. At March 31, 2024, we had the following lease and other contractual obligations to make future payments under each of these contracts as follows:

*(In thousands)*

| Contractual obligations and commitments | Total Amount Committed | Payments Due per Period 1 Year or Less | \> 1 Year |
| --- | ---: | ---: | ---: |
| Operating leases | $12,299 | $1,027 | $11,272 |
| Finance leases | 7,532 | 396 | 7,136 |
| Other contractual obligations | 10,400 | 10,400 | — |
| **Total** | $30,231 | $11,823 | $18,408 |

The Company's estimated lease liability for its various operating and finance leases was reported within other liabilities on our consolidated statements of condition.

In the normal course of business, we are a party to credit related financial instruments with off-balance sheet risk, which are not reflected in the consolidated statements of condition. These financial instruments include commitments to extend credit and standby letters of credit. Many of the commitments will expire without being drawn upon, and thus, the total amount does not necessarily represent future cash requirements. Refer to Note 7 of the consolidated financial statements for additional details.

We use derivative financial instruments for risk management purposes (primarily interest rate risk) and not for trading or speculative purposes. These contracts with our various counterparties may subject the Company to various cash flow requirements, which may include posting of cash as collateral (or other assets) for arrangements that the Company is in a liability position (*i.e. “*underwater”). Refer to Note 8 of the consolidated financial statements for further discussion of our derivatives and hedge instruments.

### CAPITAL RESOURCES

As part of our goal to operate a safe, sound and profitable financial organization, we are committed to maintaining a strong capital base. Shareholders’ equity totaled $501.6 million and $495.1 million at March 31, 2024 and December 31, 2023, respectively, which amounted to 9% of total assets for both periods. Refer to "—*Financial Condition—Shareholders' Equity*" for further discussion on shareholders' equity for the three months ended March 31, 2024.

Our principal cash requirement is the payment of dividends on our common stock, as and when declared by the Company's Board of Directors. We declared dividends to shareholders in the aggregate amount of $6.1 million for each of the three months ended March 31, 2024 and 2023. The Company's Board of Directors approves cash dividends on a quarterly basis after careful analysis and consideration of various factors, including the following: (i) capital position relative to total assets, (ii) risk-based assets, (iii) total classified assets, (iv) economic conditions, (v) growth rates for total assets and total liabilities, (vi) earnings performance and projections and (vii) strategic initiatives and related capital requirements. All dividends declared and distributed by the Company will be in compliance with applicable state corporate law and regulatory requirements.

We are primarily dependent upon the payment of cash dividends by the Bank, our wholly-owned subsidiary, to service our commitments. We, as the sole shareholder of the Bank, are entitled to dividends, when and as declared by the Bank's Board of Directors from legally available funds. For the three months ended March 31, 2024 and 2023, the Bank declared dividends payable to the Company in the amount of $6.0 million and $6.3 million, respectively. Under regulations prescribed by the OCC, the Bank may not declare dividends in excess of the Bank’s net income for the current year plus its retained net income for the prior two years without prior approval from the OCC. If we are required to use dividends from the Bank to service unforeseen commitments in the future, we may be required to reduce the dividends paid to our shareholders going forward.

Please refer to Note 10 of the consolidated financial statements for discussion and details of the Company and Bank's regulatory capital requirements. At March 31, 2024 and December 31, 2023, the Company and Bank exceeded all regulatory capital requirements, and the Bank continues to meet the capital requirements to be classified as "well capitalized" under applicable prompt corrective action provisions.

### RISK MANAGEMENT

The Company’s Board of Directors and management have identified significant risk categories which affect the Company. The risk categories include: credit; liquidity; market; interest rate; capital; operational; technology, including cybersecurity; vendor and third party; people and compensation; compliance and legal; strategic alignment; and reputation. The Board of Directors has approved an Enterprise Risk Management ("ERM") Policy that addresses each category of risk. The direct oversight and responsibility for the Company's risk management program has been delegated to the Company's Executive Vice President, Chief Risk Officer, who is a member of the Executive Committee and reports directly to the Chief Executive Officer.

There have been no material changes to the Company's risk categories and risk management policies as described in Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2023. Please refer to Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2023 for further details regarding the Company's risk management.

### Interest rate risk

Interest rate risk represents the sensitivity of earnings to changes in market interest rates. As interest rates change, the interest income and expense streams associated with our financial instruments also change, thereby impacting net interest income, the primary component of our earnings. Board ALCO and Management ALCO utilize the results of a detailed and dynamic simulation model to quantify the estimated exposure of net interest income to sustained interest rate changes. While Board ALCO and Management ALCO routinely monitor simulated net interest income sensitivity over a rolling two-year horizon, they also utilize additional tools to monitor potential longer-term interest rate risk.

The simulation model captures the impact of changing interest rates on the interest income received and interest expense paid on all interest-earning assets and interest-bearing liabilities reflected on our consolidated statements of condition, as well as for derivative financial instruments. This sensitivity analysis is compared to ALCO policy limits, which specify a maximum tolerance level for net interest income exposure over a one- and two-year horizon, assuming a static balance sheet, given a 200 basis point upward and downward shift in interest rates. A parallel and pro rata shift in rates over a 12-month period is assumed. Using this approach, we are able to produce simulation results that illustrate the effect that both a gradual change of rates and a “rate shock” have on earnings expectations. In the down 200 basis points scenario, Federal Funds and Treasury yields are floored at 0.01% while Prime is floored at 3.00%. All other market rates are floored at the lesser of current levels or 0.25%.

The sensitivity analysis below does not represent a forecast and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions including, among others, the nature and timing of interest rate levels, yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits and reinvestment/replacement of asset and liability cash flows. While assumptions are developed based upon current economic and local market conditions, we cannot make any assurances as to the predictive nature of these assumptions, including how customer preferences or competitor influences might change.

As of March 31, 2024 and 2023, our net interest income sensitivity analysis reflected the following changes to net interest income, as compared to our modeled Year 1 Base net interest income, assuming no balance sheet growth and a parallel shift in interest rates. All rate changes were “ramped” over the first 12-month period and then maintained at those levels over the remainder of the ALCO simulation horizon.

| Rate Change from Year 1 — Base Year 1 | Estimated Changes In Net Interest Income March 31, 2024 | March 31, 2023 |
| --- | ---: | ---: |
| +200 basis points | (1.9)% | (2.2)% |
| -200 basis points | 3.5% | 1.9% |
| **Year 2** |  |  |
| +200 basis points | 6.1% | 13.5% |
| -200 basis points | 20.0% | 11.0% |

If rates remain at or near current levels, net interest income is projected to increase in year two of the simulation. Asset cash flows reprice and replace into the current higher rate environment at rates above current portfolio averages more than offsetting the pressure from funding costs replacing into higher rates, causing balance sheet spread to expand.

If rates increase 200 basis points, net interest income is projected to decrease slightly in the first year of the simulation as the funding base adjusts into the higher rate environment to a greater degree than asset yields increase. In the second year, net interest income is projected to increase as loan and investment yields continue to reprice/reset into higher yields and funding cost increases slow.

If rates decrease 200 basis points, net interest income is projected to increase slightly in the first year of the simulation as reductions in funding costs are able to more than offset near-term asset yield deterioration. In the second year, net interest income is projected to increase as asset yields are supported by fixed rates and floors while cost of funds reductions continue.

In addition to using our investments portfolio to manage liquidity risk, we also use it to manage our interest rate risk and provide a natural hedge to our interest risk exposure created by loans, deposits and borrowings. Refer to "—*Financial Condition—Investments*" for further details of the Company's investment portfolio, including the duration of the bond portfolio as of March 31, 2024 and December 31, 2023.

Periodically, if deemed appropriate, we use back-to-back loan swaps, interest rate swaps, floors and caps, which are common derivative financial instruments, to hedge our interest rate risk position. The Board of Directors has approved hedging policy statements governing the use of these instruments. The Board and Management ALCO monitor derivative activities relative to their expectations and our hedging policies. Refer Note 8 of the consolidated financial statements for further discussion of these derivative instruments.

## Market risk

As filed, 234 characters.

Information required by this Item 3 is included in Item 2. *"Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Management"* and such information is incorporated into this Item 3 by reference.

## Controls and procedures

As filed, 1,929 characters.

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company’s management conducted an evaluation with the participation of the Company’s Chief Executive Officer and Chief Operating Officer and Chief Financial Officer & Principal Financial and Accounting Officer, regarding the effectiveness of the Company’s disclosure controls and procedures, as of the end of the last fiscal year. In designing and evaluating the Company’s disclosure controls and procedures, the Company and its management recognize that any controls and procedures, no matter how well designed and operated, can provide only a reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating and implementing possible controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Operating Officer and Chief Financial Officer & Principal Financial and Accounting Officer concluded that they believe the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. We intend to continue to review and document our disclosure controls and procedures, including our internal controls and procedures for financial reporting, and we may from time to time make changes to the disclosure controls and procedures to enhance their effectiveness and to ensure that our systems evolve with our business.

There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 250 characters.

There are a number of factors that may adversely affect the Company’s business, financial results or stock price. Refer to “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, for discussion of these risks.

Filed May 8, 2024.
Source: SEC EDGAR, the filing index for accession 0000750686-24-000186. Last ingested by Listed: Nov 5, 2026, 13:16 ET. No prices; not investment advice.