# Camden National Corp: Form 10-Q for the period ended Sep 30, 2024

- Company: [Camden National Corp](/companies/cac.md) (CIK 750686)
- Form: 10-Q
- Filed: 2024-11-07
- Accepted by EDGAR: Nov 7, 2024, 10:03 ET
- Period: 2024-09-30
- Accession: 0000750686-24-000262
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/750686/000075068624000262/cac-20240930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/750686/000075068624000262/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $9.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $26.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Interest expense | 3 months, 2024-07-01 to 2024-09-30 | $30.1m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2024-01-01 to 2024-09-30 | $89.0m | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | $2.8m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | $8.7m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | $13.1m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | $38.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.90 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | $2.62 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.90 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | $2.63 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 14,645,675 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 14,643,029 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | $17.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $3.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2024-01-01 to 2024-09-30 | $18.4m | us-gaap:PaymentsOfDividends |
| Share repurchases | 9 months, 2024-01-01 to 2024-09-30 | $1.6m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Total assets | at 2024-09-30 | $5.75bn | us-gaap:Assets |
| Total liabilities | at 2024-09-30 | $5.22bn | us-gaap:Liabilities |
| Short-term borrowings | at 2024-09-30 | $516.3m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2024-09-30 | $529.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 110,328 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:

- risks relating to the pending merger with NFI, including the following:
- risk that the cost savings and other anticipated benefits from the merger may not be fully realized or may take longer than anticipated to be realized;
- disruption to the Company’s or NFI’s business as a result of the announcement and pendency of the merger;
- risk that the integration of NFI’s business and operations into the Company’s will be delayed or will be more costly or difficult than expected, or that the Company is unable to integrate NFI’s business into the Company’s successfully, including because of factors or events that may be beyond the Company’s control;
- the possibility that required regulatory approvals are not received on a timely basis, or at all, or are received subject to conditions that could adversely affect the Company or the expected benefits of the merger;
- the possibility that NFI shareholder approval is not received;
- the failure of closing conditions to the merger to be satisfied, or any unexpected delay in completing the merger or the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement between the Company and NFI;
- the dilution caused by the issuance of additional shares of the Company’s common stock in connection with the merger;
- the possibility that the merger may be more expensive to complete than anticipated, including because of factors or events that may be beyond the Company’s control;
- risks related to management and oversight of the Company’s expanded business and operations following the merger due to increased size and geographical scope;
- the risk that expectations regarding the timing, completion and accounting and tax treatments of the merger are not met;
- the risk that any announcements relating to the merger could have adverse effects on the market price of the Company’s common stock;
- the diversion of management’s attention from ongoing business operations and other opportunities;
- the risk that revenues following the merger may be lower than expected and/or the risk that certain expenses of NFI or the combined company may be greater than expected;
- the Company’s success in managing the foregoing risks;
- effects of the announcement, pendency or completion of the merger on the Company’s or NFI’s ability to retain customers and key employees; and
- other factors that may affect the Company’s or NFI’s future results;
- 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 developments 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: core net income; core diluted earnings per share; core return on average assets; core return on average equity; pre-tax, pre-provision income; return on average tangible equity and core 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.

**Core Net Income; Core Diluted Earnings per Share; Core Return on Average Assets; and Core 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 core net income, core diluted EPS, core return on average assets and core return on average equity. Certain transactions have been excluded to calculate core net income, core diluted EPS, core return on average assets and core 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)*

| Core Net Income: | For the Three Months Ended September 30, 2024 | September 30, 2023 | For the Nine Months Ended September 30, 2024 | September 30, 2023 |
| --- | ---: | ---: | ---: | ---: |
| Net income, as presented | $13,073 | $9,787 | $38,338 | $34,903 |
| Adjustment for net loss on sale of securities | — | 5,335 | — | 5,335 |
| Adjustment for Signature Bank bond (recovery) write-off | — | — | (910) | 1,838 |
| Adjustment for merger and acquisition costs | 727 | — | 727 | — |
| Tax impact of above adjustments(1) | (153) | (1,120) | 38 | (1,506) |
| Core net income | $13,647 | $14,002 | $38,193 | $40,570 |
| **Core Diluted Earnings per Share:** |  |  |  |  |
| Diluted earnings per share, as presented | $0.90 | $0.67 | $2.62 | $2.39 |
| Adjustment for net loss on sale of securities | — | 0.37 | — | 0.37 |
| Adjustment for Signature Bank bond (recovery) write-off | — | — | (0.06) | 0.13 |
| Adjustment for merger and acquisition costs | 0.05 | — | 0.05 | — |
| Tax impact of above adjustments(1) | (0.01) | (0.08) | — | (0.12) |
| Core diluted earnings per share | $0.94 | $0.96 | $2.61 | $2.77 |
| **Core Return on Average Assets:** |  |  |  |  |
| Return on average assets, as presented | 0.91% | 0.68% | 0.89% | 0.82% |
| Adjustment for net loss on sale of securities | —% | 0.37% | —% | 0.13% |
| Adjustment for Signature Bank bond (recovery) write-off | —% | —% | (0.02)% | 0.04% |
| Adjustment for merger and acquisition costs | 0.05% | —% | 0.02% | —% |
| Tax impact of above adjustments(1) | (0.01)% | (0.08)% | —% | (0.04)% |
| Core return on average assets | 0.95% | 0.97% | 0.89% | 0.95% |
| **Adjusted Return on Average Equity:** |  |  |  |  |
| Return on average equity, as presented | 10.04% | 8.25% | 10.13% | 10.00% |
| Adjustment for net loss on sale of securities | —% | 4.50% | —% | 1.53% |
| Adjustment for Signature Bank bond (recovery) write-off | —% | —% | (0.24)% | 0.53% |
| Adjustment for merger and acquisition costs | 0.56% | —% | 0.19% | —% |
| Tax impact of above adjustments(1) | (0.12)% | (0.95)% | 0.01% | (0.43)% |
| Core return on average equity | 10.48% | 11.80% | 10.09% | 11.63% |

(1) Assumed a 21% tax rate.

***Pre-Tax, Pre-Provision Income.*** Pre-tax, pre-provision income is a supplemental measure of operating earnings and performance. Pre-tax, pre-provision income is calculated as net income before provision for credit losses and income tax expense. This supplemental measure has become more widely used by financial institutions as a measure of financial performance for comparability across financial institutions.

*(Dollars in thousands)*

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Net income, as presented | $13,073 | $9,787 | $38,338 | $34,903 |
| Adjustment for provision (credit) for credit losses | 239 | (574) | (1,213) | 1,531 |
| Adjustment for income tax expense | 2,781 | 2,236 | 8,720 | 8,653 |
| Pre-tax, pre-provision income | $16,093 | $11,449 | $45,845 | $45,087 |

***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 September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Non-interest expense, as presented | $28,900 | $26,207 | $83,572 | $79,515 |
| Adjustment for merger and acquisition costs | 727 | — | 727 | — |
| Adjusted non-interest expense | $28,173 | $26,207 | $82,845 | $79,515 |
| Net interest income, as presented | $33,587 | $32,584 | $97,044 | $99,554 |
| Adjustment for the effect of tax-exempt income(1) | 165 | 237 | 475 | 701 |
| Non-interest income, as presented | 11,406 | 5,072 | 32,373 | 25,048 |
| Adjustment for net loss on sale of securities | — | 5,335 | — | 5,335 |
| Adjusted net interest income plus non-interest income | $45,158 | $43,228 | $129,892 | $130,638 |
| Ratio of non-interest expense to total revenues(2) | 64.23% | 69.60% | 64.58% | 63.82% |
| Efficiency ratio | 62.39% | 60.63% | 63.78% | 60.87% |

(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) core 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 September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Net income, as presented | $13,073 | $9,787 | $38,338 | $34,903 |
| Adjustment for amortization of core deposit intangible assets | 139 | 148 | 417 | 444 |
| Tax impact of above adjustment(1) | (29) | (31) | (88) | (93) |
| Net income, adjusted for amortization of core deposit intangible assets | $13,183 | $9,904 | $38,667 | $35,254 |
| Average equity, as presented | $518,222 | $470,750 | $505,452 | $466,563 |
| Adjustment for average goodwill and core deposit intangible assets | (95,319) | (95,888) | (95,460) | (96,037) |
| Average tangible equity | $422,903 | $374,862 | $409,992 | $370,526 |
| Return on average equity | 10.04% | 8.25% | 10.13% | 10.00% |
| Return on average tangible equity | 12.40% | 10.48% | 12.60% | 12.72% |
| **Core Return on Average Tangible Equity:** |  |  |  |  |
| Core net income (see "Core Net Income" table above) | $13,647 | $14,002 | $38,193 | $40,570 |
| Adjustment for amortization of core deposit intangible assets | 139 | 148 | 417 | 444 |
| Tax impact of above adjustment(1) | (29) | (31) | (88) | (93) |
| Core net income, adjusted for amortization of core deposit intangible assets | $13,757 | $14,119 | $38,522 | $40,921 |
| Core return on average tangible equity | 12.94% | 14.94% | 12.55% | 14.77% |

(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: | September 30, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Shareholders’ equity, as presented | $529,900 | $495,064 |
| Adjustment for goodwill and core deposit intangible assets | (95,251) | (95,668) |
| Tangible shareholders’ equity | $434,649 | $399,396 |
| Shares outstanding at period end | 14,577,218 | 14,565,952 |
| Book value per share | $36.35 | $33.99 |
| Tangible book value per share | $29.82 | $27.42 |
| **Tangible Common Equity Ratio:** |  |  |
| Total assets | $5,745,180 | $5,714,506 |
| Adjustment for goodwill and core deposit intangible assets | (95,251) | (95,668) |
| Tangible assets | $5,649,929 | $5,618,838 |
| Common equity ratio | 9.22% | 8.66% |
| Tangible common equity ratio | 7.69% | 7.11% |

50

***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)*

|  | September 30, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Total deposits | $4,575,226 | $4,597,360 |
| Adjustment for certificates of deposit | (553,481) | (609,503) |
| Adjustment for brokered deposits | (168,674) | (101,919) |
| Core deposits | $3,853,071 | $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 September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Total average deposits(1) | $4,379,935 | $4,483,614 | $4,366,635 | $4,476,668 |
| Adjustment average certificates of deposit | (565,063) | (497,301) | (577,007) | (409,909) |
| Average core deposits | $3,814,872 | $3,986,313 | $3,789,628 | $4,066,759 |

(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 $5.7 billion in assets as of September 30, 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. 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

On September 10, 2024, we announced the acquisition of Northway Financial, Inc. (“NFI”) with an expected closing date in the first quarter of 2025, subject to Northway shareholder approval, receiving required regulatory approvals and other customary closing conditions. NFI is the parent company of Northway Bank, a New Hampshire state-chartered bank, with 16 branches in New Hampshire. The merger will allow the Company to build upon its presence in New England and is forecasted to improve its future financial profile.

Net income and diluted EPS for the nine months ended September 30, 2024 was $38.3 million and $2.62, respectively, each an increase of 10% over the same period in 2023. Our operating results for the nine months ended September 30, 2024 and 2023, included certain non-recurring events, which included merger-related costs of $727,000 for the nine months ended September 30, 2024 (refer to "Non-GAAP Financial Measures and Reconciliation to GAAP" for additional details). On a non-GAAP basis, core net income for the nine months ended September 30, 2024, was $38.2 million and core diluted EPS was $2.61, each a decrease of 6% compared to the same period in 2023.

The Company’s financial results for the nine months ended September 30, 2024 continued to be impacted by the change in the interest rate environment between periods, which directly affected net interest income. Net interest income for the nine months ended September 30, 2024, decreased 3% compared to the same period of 2023, and was primarily driven by net interest margin compression of seven basis points between periods to 2.37% for the nine months ended September 30, 2024. Our net interest margin bottomed-out in the first quarter of 2024 at 2.30%, and we have seen steady improvements since that time as highlighted by a reported net interest margin of 2.46% for the third quarter of 2024. We have taken actions to optimize our net interest margin throughout 2023 and 2024, including, but not limited to: (1) redeploying investment cash flows to fund new loan originations at current market interest rates; (2) maintaining disciplined new loan origination pricing; (3) introducing a new high-yield savings deposit account focused on driving new and expanding existing relationships; (4) repricing and driving the outflow of certain high-cost, non-core deposit customer relationships and replacing funding with more cost-effective alternatives; and (5) leveraging interest rate swap derivatives. We continue to be liability sensitive as of September 30, 2024 (refer to “Risk Management — interest Rate Risk”) and anticipate the recent 50 basis point cut of the Federal Funds Rate that occurred in mid-September 2024, and future Federal Funds Rate cuts, to prove beneficial to our net interest margin in future periods.

Asset quality continues to be a top focus in the current economic cycle. We continue to actively monitor our loan portfolio, including those segments and industries that have been identified as having higher credit risk in the current economic cycle (such as nonowner occupied commercial real estate office loans), through reviews and stress analyses. Through these reviews and analyses, we have not identified any increased risks or signs of systemic distress within any segments in our loan portfolios as of September 30, 2024. We continue to maintain our lending discipline and did not have any credit concentrations exceeding internal or regulatory limits as of September 30, 2024. For the nine months ended September 30, 2024, we continued to track favorably across our key credit quality indicator metrics, highlighted by past due loans of 0.03% of total loans, non-performing assets of 0.12% of total assets, and annualized net charge-offs of 0.03%. When combining these strong credit quality metrics, with a more favorable macroeconomic forecast since December 31, 2023, the allowance for credit losses ("ACL") on loans decreased to 0.86% as of September 30, 2024, compared to 0.90% at December 31, 2023.

We continue to maintain a strong capital position with all regulatory capital ratios exceeding regulatory levels and growing over the nine months ended September 30, 2024. Additionally, the change in the interest rate environment since December 31, 2023, has provided relief with regard to the valuation of the Company’s investment portfolio and has resulted in elevated levels of shareholders’ equity and tangible capital. The Company’s common equity ratio increased 56 basis points since December 31, 2023 to 9.22% at September 30, 2024, and its tangible common equity ratio increased 58 basis points over the same period to 7.69% at September 30, 2024.

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

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

| Earnings and Profitability | As of or for the Three Months Ended September 30, 2024 | December 31, 2023 | September 30, 2023 | % Change Sep 2024 vs. Dec 2023 | % Change Sep 2024 vs. Sep 2023 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net income | $13,073 | $8,480 | $9,787 | 54% | 34% |
| Core net income (non-GAAP) | $13,647 | $12,410 | $14,002 | 10% | (3)% |
| Diluted EPS | $0.90 | $0.58 | $0.67 | 55% | 34% |
| Core diluted EPS (non-GAAP) | $0.94 | $0.85 | $0.96 | 11% | (2)% |
| Return on average assets | 0.91% | 0.59% | 0.68% | 0.32% | 0.23% |
| Core return on average assets (non-GAAP) | 0.95% | 0.87% | 0.97% | 0.08% | (0.02)% |
| Return on average equity | 10.04% | 7.20% | 8.25% | 2.84% | 1.79% |
| Core return on average equity (non-GAAP) | 10.48% | 10.53% | 11.80% | (0.05)% | (1.32)% |
| Return on average tangible equity (non-GAAP) | 12.40% | 9.18% | 10.48% | 3.22% | 1.92% |
| Core return on average tangible equity (non-GAAP) | 12.94% | 13.38% | 14.94% | (0.44)% | (2.00)% |
| Efficiency ratio (non-GAAP) | 62.39% | 63.48% | 60.63% | (1.09)% | 1.76% |
| **Balance Sheet and Liquidity** |  |  |  |  |  |
| Loans | $4,116,729 | $4,098,094 | $4,058,413 | —% | 1% |
| Deposits | $4,575,226 | $4,597,360 | $4,678,406 | —% | (2)% |
| Cash dividends declared per share | $0.42 | $0.42 | $0.42 | —% | —% |
| Uninsured and uncollateralized deposits to total deposits | 15.27% | 14.56% | 15.33% | 0.71% | (0.06)% |
| Available liquidity sources to uninsured and uncollateralized deposits | 204.17% | 201.67% | 214.54% | 2.50% | (10.37)% |
| **Credit Quality and Capital** |  |  |  |  |  |
| Non-performing assets to total assets | 0.12% | 0.13% | 0.11% | (0.01)% | 0.01% |
| Loans 30-89 days past due to total loans | 0.03% | 0.12% | 0.09% | (0.09)% | —% |
| Allowance for credit losses on loans to total loans | 0.86% | 0.90% | 0.90% | (0.04)% | (0.04)% |
| Total risk-based capital ratio | 14.85% | 14.36% | 14.19% | 0.49% | 0.66% |
| Tangible common equity ratio (non-GAAP) | 7.69% | 7.11% | 6.47% | 0.58% | 1.23% |

54

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

| Earnings and Profitability | As of or for the Nine Months Ended September 30, 2024 | September 30, 2023 | % Change Sep 2024 vs. Sep 2023 |
| --- | ---: | ---: | ---: |
| Net income | $38,338 | $34,903 | 10% |
| Core net income (non-GAAP) | $38,193 | $40,570 | (6)% |
| Diluted EPS | $2.62 | $2.39 | 10% |
| Core diluted EPS (non-GAAP) | $2.61 | $2.77 | (6)% |
| Return on average assets | 0.89% | 0.82% | —% |
| Core return on average assets (non-GAAP) | 0.89% | 0.95% | (0.06)% |
| Return on average equity | 10.13% | 10.00% | 0.13% |
| Core return on average equity (non-GAAP) | 10.09% | 11.63% | (1.54)% |
| Return on average tangible equity (non-GAAP) | 12.60% | 12.72% | (0.12)% |
| Core return on average tangible equity (non-GAAP) | 12.55% | 14.77% | (2.22)% |
| Efficiency ratio (non-GAAP) | 63.78% | 60.87% | 2.91% |
| **Balance Sheet and Liquidity** |  |  |  |
| Loans | $4,116,729 | $4,058,413 | 1% |
| Deposits | $4,575,226 | $4,678,406 | (2)% |
| Cash dividends declared per share | $1.26 | $1.26 | —% |
| Uninsured and uncollateralized deposits to total deposits | 15.27% | 15.33% | (0.06)% |
| Available liquidity sources to uninsured and uncollateralized deposits | 204.17% | 214.54% | (10.37)% |
| **Credit Quality and Capital** |  |  |  |
| Non-performing assets to total assets | 0.12% | 0.11% | 0.01% |
| Loans 30-89 days past due to total loans | 0.03% | 0.09% | —% |
| Allowance for credit losses on loans to total loans | 0.86% | 0.90% | (0.04)% |
| Total risk-based capital ratio | 14.85% | 14.19% | 0.66% |
| Tangible common equity ratio (non-GAAP) | 7.69% | 6.47% | 1.22% |

55

### 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 September 30, 2024, net interest income was 75% of total revenues, compared to 87% for the same period in 2023. For the nine months ended September 30, 2024, net interest income was 75% of total revenues, compared to 80% for the first nine months of 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 (Fully-Taxable Equivalent).*** Net interest income on a fully-taxable equivalent basis for the quarter ended September 30, 2024 was $33.8 million, an increase of $931,000, or 3%, compared to the third quarter of 2023. Between periods the Company’s net interest margin on a fully-taxable equivalent basis increased 7 basis points to 2.46% for the third quarter of 2024.

- Interest income on a fully-taxable equivalent basis increased $6.1 million, or 10%, between periods primarily driven by the higher interest rate environment between years. For the third quarter of 2024, the Company’s yield on average interest-earning assets was 4.69%, compared to 4.23% for the same period in 2023.

The Company’s average loan yield was 5.29% for the three months ended September 30, 2024, an increase of 44 basis points over the same period in 2023. In mid-June 2024, a $100.0 million balance sheet interest rate swap on the commercial real estate loan portfolio matured, and the third quarter of 2024 marked the first complete quarter in which the benefit of this maturity was realized, contributing to improved expansion between periods. Throughout 2024, we redeployed loan and investment cash flows primarily to fund new loan originations at current market interest rates and further support our loan yield expansion.

The Company’s average investment yield was 2.59% for the third quarter of 2024, an increase of 32 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 drove 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.

- Interest expense increased $5.0 million between periods primarily due to a 42 basis point increase in our average cost of funds to 2.35% for the second quarter of 2024. Our deposit and borrowing costs increased throughout the past year due to the higher interest rate environment.

The Company’s average deposit costs for the quarter ended September 30, 2024 were 2.09%, compared to 1.67% for the same period in 2023. Deposit costs continued to be inflated throughout the first nine months 2024 due to prolonged higher short-term interest rates. Increases in deposit costs over the past year were also the result of strong deposit competition within our markets, and more broadly across depository institutions, as well as changes in the deposit mix as depositors have been more conscious to move excess cash into higher interest-earning deposit accounts.

The Company’s average cost of borrowings for the three months ended September 30, 2024, was 3.90%, compared to 3.70% for the three months ended September 30, 2023. The increase was driven by the continued higher short-term interest rates between years and the change in mix of borrowings.

***Net Interest Income (Fully-Taxable Equivalent).*** For the nine months ended September 30, 2024, the Company's net interest income on a fully-taxable equivalent basis was $97.5 million, a decrease of $2.7 million, or 3%, compared to the same period in 2023. Between periods, the Company’s net interest margin on a fully-taxable equivalent basis decreased 7 basis points to 2.37% for the nine months ended September 30, 2024.

- Interest expense increased $22.1 million between periods primarily due to a 58 basis point increase in our average cost of funds to 2.32% for the nine months ended September 30, 2024, which included an increase in average deposit costs of 58 basis points between periods to 2.04% for the nine months ended September 30, 2024.
- Interest income on a fully-taxable equivalent basis increased $19.6 million between periods primarily driven by interest-earning assets yield expansion of 48 basis points to 4.57% for the nine months ended September 30, 2024. This increase in yields more than offset the decrease in average interest-earning assets of $10.5 million. Between periods, our average loan yield expanded 46 basis points to 5.15% for nine months ended September 30, 2024. For the first nine months of 2024, our investment yield expanded to 2.61%, an increase of 39 basis points over the same period in 2023. These increased yields reflect the increase in interest rates between periods and the maturity of lower yielding assets.

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

*(Dollars in thousands)*

| Assets Interest-earning assets: | Three Months Ended September 30, 2024 Average Balance | Interest | Yield/Rate | September 30, 2023 Average Balance | Interest | Yield/Rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest-bearing deposits in other banks and other interest-earning assets | $48,914 | $583 | 4.66% | $48,401 | $500 | 4.04% |
| Investments - taxable | 1,138,979 | 7,192 | 2.53% | 1,177,367 | 6,306 | 2.14% |
| Investments - nontaxable(1) | 61,864 | 584 | 3.78% | 102,872 | 947 | 3.68% |
| Loans(2): |  |  |  |  |  |  |
| Commercial real estate | 1,706,509 | 23,610 | 5.41% | 1,658,125 | 20,496 | 4.84% |
| Commercial(1) | 375,944 | 6,254 | 6.51% | 391,491 | 6,082 | 6.08% |
| Municipal(1) | 17,186 | 223 | 5.17% | 18,888 | 210 | 4.41% |
| Residential real estate | 1,780,665 | 20,151 | 4.53% | 1,762,860 | 18,441 | 4.18% |
| Consumer and home equity | 264,178 | 5,289 | 7.96% | 252,357 | 4,924 | 7.74% |
| Total loans | 4,144,482 | 55,527 | 5.29% | 4,083,721 | 50,153 | 4.85% |
| **Total interest-earning assets** | **5,394,239** | **63,886** | **4.69%** | **5,412,361** | **57,906** | **4.23%** |
| Cash and due from banks | 64,063 |  |  | 75,633 |  |  |
| Other assets | 288,590 |  |  | 265,781 |  |  |
| Less: ACL | (35,334) |  |  | (36,975) |  |  |
| **Total assets** | **$5,711,558** |  |  | **$5,716,800** |  |  |
| **Liabilities & Shareholders' Equity** |  |  |  |  |  |  |
| **Deposits:** |  |  |  |  |  |  |
| Non-interest checking | $934,403 | $— | —% | $1,019,450 | $— | —% |
| Interest checking | 1,440,374 | 9,283 | 2.56% | 1,584,314 | 9,669 | 2.42% |
| Savings | 679,118 | 1,614 | 0.95% | 661,126 | 225 | 0.14% |
| Money market | 760,977 | 6,613 | 3.46% | 721,423 | 5,182 | 2.85% |
| Certificates of deposit | 565,063 | 5,473 | 3.85% | 497,301 | 3,828 | 3.05% |
| **Total deposits** | **4,379,935** | **22,983** | **2.09%** | **4,483,614** | **18,904** | **1.67%** |
| **Borrowings:** |  |  |  |  |  |  |
| Brokered deposits | 156,618 | 2,068 | 5.25% | 161,623 | 2,065 | 5.07% |
| Customer repurchase agreements | 190,936 | 921 | 1.92% | 193,297 | 822 | 1.69% |
| Junior subordinated debentures | 44,331 | 534 | 4.79% | 44,331 | 539 | 4.83% |
| Other borrowings | 336,899 | 3,628 | 4.28% | 263,705 | 2,755 | 4.14% |
| **Total borrowings** | 728,784 | 7,151 | 3.90% | 662,956 | 6,181 | 3.70% |
| **Total funding liabilities** | **5,108,719** | **30,134** | **2.35%** | **5,146,570** | **25,085** | **1.93%** |
| Other liabilities | 84,617 |  |  | 99,480 |  |  |
| Shareholders' equity | 518,222 |  |  | 470,750 |  |  |
| **Total liabilities & shareholders' equity** | **$5,711,558** |  |  | **$5,716,800** |  |  |
| Net interest income (fully-taxable equivalent) |  | 33,752 |  |  | 32,821 |  |
| Less: fully-taxable equivalent adjustment |  | (165) |  |  | (237) |  |
| Net interest income |  | $33,587 |  |  | $32,584 |  |
| **Net interest rate spread (fully-taxable equivalent)** |  |  | **2.34%** |  |  | **2.30%** |
| **Net interest margin (fully-taxable equivalent)** |  |  | **2.46%** |  |  | **2.39%** |

(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.

### Year-to-Date Average Balance, Interest and Yield/Rate Analysis

*(Dollars in thousands)*

| Assets Interest-earning assets: | Nine Months Ended September 30, 2024 Average Balance | Interest | Yield/Rate | September 30, 2023 Average Balance | Interest | Yield/Rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest-bearing deposits in other banks and other interest-earning assets | $47,893 | $1,840 | 5.05% | $30,002 | $1,088 | 4.78% |
| Investments - taxable | 1,163,118 | 22,222 | 2.55% | 1,209,000 | 18,996 | 2.09% |
| Investments - nontaxable(1) | 62,014 | 1,757 | 3.78% | 104,518 | 2,878 | 3.67% |
| Loans(2): |  |  |  |  |  |  |
| Commercial real estate | 1,696,882 | 66,511 | 5.15% | 1,658,188 | 59,494 | 4.73% |
| Commercial(1) | 384,402 | 18,591 | 6.35% | 402,331 | 17,681 | 5.80% |
| Municipal(1) | 16,067 | 580 | 4.82% | 17,467 | 524 | 4.01% |
| Residential real estate | 1,775,502 | 59,569 | 4.47% | 1,742,340 | 52,371 | 4.01% |
| Consumer and home equity | 260,635 | 15,471 | 7.93% | 253,137 | 14,118 | 7.46% |
| Total loans | 4,133,488 | 160,722 | 5.15% | 4,073,463 | 144,188 | 4.69% |
| Total interest-earning assets | **5,406,513** | **186,541** | **4.57%** | **5,416,983** | **167,150** | **4.09%** |
| **Cash and due from banks** | 68,596 |  |  | 61,290 |  |  |
| Other assets | 282,728 |  |  | 264,665 |  |  |
| Less: ACL | (35,937) |  |  | (37,172) |  |  |
| Total assets | **$5,721,900** |  |  | **$5,705,766** |  |  |
| **Liabilities & Shareholders' Equity** |  |  |  |  |  |  |
| **Deposits:** |  |  |  |  |  |  |
| **Non-interest checking** | $923,207 | $— | —% | $1,031,700 | $— | —% |
| Interest checking | 1,469,812 | 27,939 | 2.54% | 1,637,231 | 27,339 | 2.23% |
| Savings | 634,478 | 2,729 | 0.57% | 693,468 | 526 | 0.10% |
| Money market | 762,131 | 19,325 | 3.39% | 704,360 | 13,226 | 2.51% |
| Certificates of deposit | 577,007 | 16,597 | 3.84% | 409,909 | 7,799 | 2.54% |
| Total deposits | **4,366,635** | **66,590** | **2.04%** | **4,476,668** | **48,890** | **1.46%** |
| **Borrowings:** |  |  |  |  |  |  |
| **Brokered deposits** | 146,969 | 5,808 | 5.28% | 206,206 | 7,156 | 4.64% |
| Customer repurchase agreements | 186,401 | 2,486 | 1.78% | 189,532 | 2,010 | 1.42% |
| Junior subordinated debentures | 44,331 | 1,592 | 4.80% | 44,331 | 1,600 | 4.83% |
| Other borrowings | 379,751 | 12,546 | 4.41% | 237,546 | 7,239 | 4.07% |
| Total borrowings | 757,452 | 22,432 | 3.96% | 677,615 | 18,005 | 3.55% |
| **Total funding liabilities** | **5,124,087** | **89,022** | **2.32%** | **5,154,283** | **66,895** | **1.74%** |
| **Other liabilities** | 92,361 |  |  | 84,920 |  |  |
| Shareholders' equity | 505,452 |  |  | 466,563 |  |  |
| Total liabilities & shareholders' equity | **$5,721,900** |  |  | **$5,705,766** |  |  |
| **Net interest income (fully-taxable equivalent)** |  | 97,519 |  |  | 100,255 |  |
| Less: fully-taxable equivalent adjustment |  | (475) |  |  | (701) |  |
| Net interest income |  | $97,044 |  |  | $99,554 |  |
| **Net interest rate spread (fully-taxable equivalent)** |  |  | **2.25%** |  |  | **2.35%** |
| **Net interest margin (fully-taxable equivalent)** |  |  | **2.37%** |  |  | **2.44%** |

(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.

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 September 30, 2024 vs. September 30, 2023 Increase (Decrease) Due to: Volume | Rate | Net Increase (Decrease) Volume | Nine Months Ended September 30, 2024 vs. September 30, 2023 Increase (Decrease) Due to: Rate |  | Net Increase (Decrease) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest-bearing deposits in other banks and other interest-earning assets | $5 | $78 | $83 | $641 | $111 | $752 |
| Investments – taxable | (205) | 1,091 | 886 | (719) | 3,945 | 3,226 |
| Investments – nontaxable | (377) | 14 | (363) | (1,170) | 49 | (1,121) |
| Commercial real estate | 598 | 2,516 | 3,114 | 1,393 | 5,624 | 7,017 |
| Commercial | (242) | 414 | 172 | (791) | 1,701 | 910 |
| Municipal | (19) | 32 | 13 | (42) | 98 | 56 |
| Residential real estate | 186 | 1,524 | 1,710 | 997 | 6,201 | 7,198 |
| Consumer and home equity | 230 | 135 | 365 | 419 | 934 | 1,353 |
| **Total interest income (fully-taxable equivalent)** | 176 | 5,804 | 5,980 | 728 | 18,663 | 19,391 |
| **Interest-bearing liabilities:** |  |  |  |  |  |  |
| Interest checking | (876) | 490 | (386) | (2,795) | 3,395 | 600 |
| Savings | 6 | 1,383 | 1,389 | (44) | 2,247 | 2,203 |
| Money market | 283 | 1,148 | 1,431 | 1,086 | 5,013 | 6,099 |
| Certificates of deposit | 520 | 1,125 | 1,645 | 3,177 | 5,621 | 8,798 |
| Brokered deposits | (64) | 67 | 3 | (2,058) | 710 | (1,348) |
| Customer repurchase agreements | (10) | 109 | 99 | (33) | 509 | 476 |
| Junior subordinated debentures | — | (5) | (5) | — | (8) | (8) |
| Other borrowings | 763 | 110 | 873 | 4,333 | 974 | 5,307 |
| **Total interest expense** | 622 | 4,427 | 5,049 | 3,666 | 18,461 | 22,127 |
| **Net interest income (fully-taxable equivalent)** | $(446) | $1,377 | $931 | $(2,938) | $202 | $(2,736) |

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 September 30, 2023 | 2024 | Nine Months Ended September 30, 2023 |  |
| --- | --- | ---: | ---: | ---: | ---: |
| Interest income from residential real estate derivatives | Interest income | $1,523 | $1,412 | $4,566 | $3,095 |
| Loan fees (costs) | Interest income | 1,344 | 241 | 2,248 | (70) |
| Net fair value mark accretion from purchase accounting | Interest income and Interest expense | 54 | 29 | 97 | 110 |
| Recoveries on previously charged-off acquired loans | Interest income | 8 | 31 | 109 | 68 |
| Total |  | $2,929 | $1,713 | $7,020 | $3,203 |

60

### Provision (Credit) for Credit Losses

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

*(Dollars in thousands)*

|  | Three Months Ended September 30, 2024 | 2023 | Change $% |  | Nine Months Ended September 30, 2024 2024 | 2023 | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Provision (credit) for loan losses(1) | $283 | $(456) | $739 | (162)% | $(693) | $288 | $(981) | (341)% |
| (Credit) provision for credit losses on off-balance sheet credit exposures(2) | (44) | (118) | 74 | (63)% | 390 | (595) | 985 | (166)% |
| (Credit) provision for HTM debt securities(3) | — | — | — | —% | (910) | 1,838 | (2,748) | (150)% |
| **Provision (credit) for credit losses** | $239 | $(574) | $813 | (142)% | $(1,213) | $1,531 | $(2,744) | (179)% |

(1) **Provision (credit) for loan losses:** The Company recorded provision expense of $283,000 driven by increasing reserves on loans more adversely rated. The release of $456,000 in provision for the three months ended September 30, 2023 was primarily driven by the economic forecast improving from in the quarter and continued strong asset quality. For the nine months ended September 30, 2024, negative provision expense (i.e., credit for credit losses) of $693,000 was recorded and was primarily driven by the continued strong asset quality and the continued improvement of the macroeconomic forecast seen in 2024. The provision of $288,000 for the nine months ended September 30, 2023 was driven by 1% loan growth along with the economic forecast worsening slightly in the first nine months of 2023.

(2) **(Credit) provision for credit losses on off-balance sheet credit exposures:** As of September 30, 2024 and 2023, the ACL on off-balance sheet credit exposures was $2.7 million. The credit for credit losses recorded for the third quarter of 2024 was primarily due to the decrease in the commercial and residential loan pipelines of $24 million from the second quarter of 2024. The provision for credit losses recorded for the nine months ended September 30, 2024, was driven by a $76.9 million increase in unfunded commitments during the period.

(3) **(Credit) provision for HTM debt securities:** In the first quarter of 2023, the Company fully wrote-off its Signature Bank corporate bond totaling $1.8 million, upon the announcement of Signature Bank’s failure. In the first quarter of 2024, the Company sold its Signature Bank corporate bond and recovered proceeds of $910,000.

### Non-Interest Income

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

*(Dollars in thousands)*

|  | Three Months Ended September 30, 2024 | 2023 | Change $% |  | Nine Months Ended September 30, 2024 | 2023 | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Debit card income | $3,169 | $3,130 | $39 | 1% | $9,104 | $9,147 | $(43) | —% |
| Service charges on deposit accounts(1) | 2,168 | 2,040 | 128 | 6% | 6,308 | 5,737 | 571 | 10% |
| Income from fiduciary services (2) | 1,817 | 1,641 | 176 | 11% | 5,436 | 5,016 | 420 | 8% |
| Brokerage and insurance commissions(3) | 1,414 | 1,217 | 197 | 16% | 4,094 | 3,462 | 632 | 18% |
| Bank-owned life insurance | 709 | 644 | 65 | 10% | 2,086 | 1,849 | 237 | 13% |
| Mortgage banking income, net(4) | 973 | 583 | 390 | 67% | 2,297 | 1,889 | 408 | 22% |
| Net loss on sale of securities(5) | — | (5,335) | 5,335 | N.M. | — | (5,335) | 5,335 | N.M. |
| Other income(6) | 1,156 | 1,152 | 4 | —% | 3,048 | 3,283 | (235) | (7)% |
| **Total non-interest income** | $11,406 | $5,072 | $6,334 | 125% | $32,373 | $25,048 | $7,325 | 29% |
| Non-interest income as a percentage of total revenues | 25% | 13% |  |  | 25% | 20% |  |  |

(1) **Service charges on deposit accounts:** The increase for the three and nine months ended September 30, 2024, over the same periods in 2023, was driven by the increase in deposit customers’ overdraft utilization and cash management fees earned on corporate and municipal clients.

(2) **Income from fiduciary services:** The increase for the three and nine months ended September 30, 2024 over the same periods in 2023, was driven by the increase in assets under management of 6% and 12% respectively, to $1.2 billion as of September 30, 2024.

(3) **Brokerage and insurance commissions:** The increase for the three and nine months ended September 30, 2024 over the same periods in 2023, was driven by the increase in assets under administration of 6% and 14%, respectively, to $904.4 million as of September 30, 2024.

(4) **Mortgage banking income, net**: The increase for the three and nine months ended September 30, 2024, compared to the same periods of 2023, was due to the increase in net gains recognized on residential mortgage loan sales. For the three months ended September 30, 2024, the Company sold $62.4 million, or 63%, of its residential mortgages at an average net gain of 1.10%, compared to $66.2 million, or 59%, at an average net gain of 0.65% for the three months ended September 30, 2023. For the nine months ended September 30, 2024, the Company sold $157.3 million, or 57%, of its residential mortgages at an average net gain of 0.98%, compared to $137.3 million, or 47%, at an average net gain of 0.87% for the nine months ended September 30, 2023.

(5) **Net loss on sale of securities:** Represents the realized loss upon sale of debt investments in 2023, as we executed investment sales that resulted in pre-tax losses of $5.3 million. The trades were completed to reposition a portion of our balance sheet with an expectation of improved future earnings and profitability as we reinvested the cash proceeds for balance sheet optimization.

(6) **Other income**: The decrease for the nine months ended September 30, 2024, was driven by a decrease in customer loan swap fees of $273,000 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 September 30, 2024 | 2023 | Change $% |  | Nine Months Ended September 30, 2024 | 2023 | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Salaries and employee benefits(1) | $16,545 | $14,744 | $1,801 | 12% | $48,100 | $44,605 | $3,495 | 8% |
| Furniture, equipment and data processing(2) | 3,578 | 3,382 | 196 | 6% | 10,704 | 9,772 | 932 | 10% |
| Net occupancy costs | 1,890 | 1,804 | 86 | 5% | 5,941 | 5,735 | 206 | 4% |
| Debit card expense | 1,368 | 1,318 | 50 | 4% | 3,943 | 3,781 | 162 | 4% |
| Consulting and professional fees(3) | 788 | 897 | (109) | (12)% | 2,797 | 3,327 | (530) | (16)% |
| Regulatory assessments | 784 | 861 | (77) | (9)% | 2,454 | 2,574 | (120) | (5)% |
| Amortization of core deposit intangible assets | 139 | 148 | (9) | (6)% | 417 | 444 | (27) | (6)% |
| OREO and collection costs, net | 94 | (34) | 128 | N.M. | 151 | (25) | 176 | N.M. |
| Merger and acquisition costs(4) | 727 | — | 727 | N.M. | 727 | — | 727 | N.M. |
| Other expenses(5) | 2,987 | 3,087 | (100) | (3)% | 8,338 | 9,302 | (964) | (10)% |
| **Total non-interest expense** | $28,900 | $26,207 | $2,693 | 10% | $83,572 | $79,515 | $4,057 | 5% |
| Ratio of non-interest expense to total revenues | 64.23% | 69.60% |  |  | 64.58% | 63.82% |  |  |
| Efficiency ratio (non-GAAP) | 62.39% | 60.63% |  |  | 63.78% | 60.87% |  |  |

(1) **Salaries and employee benefits:** The increase in the three and nine months ended September 30, 2024, compared to the same periods in 2023, was primarily driven by higher incentive accruals due to the change in the operating environment between periods.

(2) **Furniture, equipment and data processing:** The increase for the three and nine months ended September 30, 2024, compared to the same periods in 2023, reflects the continued investment 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) **Consulting and professional fees:** The decrease for the three and nine months ended September 30, 2024, compared to the same periods in 2023, were driven by legal, consulting and director-related costs associated with the CEO succession and transition that was effective on January 1, 2024.

(4) **Merger and acquisition costs:** On September 10, 2024, the Company announced the acquisition of NFI with an expected closing date in the first quarter of 2025, subject to NFI shareholder approval, receiving required regulatory approvals and other customary closing conditions. NFI is the parent company of Northway Bank, a New Hampshire state-chartered bank, with 16 branches in New Hampshire. The Company accrued for acquisition associated legal, consulting and other related costs incurred through September 30, 2024.

(5) **Other expenses:** The decrease for the nine months ended September 30, 2024, compared to the same period in 2023, was driven by external recruiting costs associated with the CEO succession and transition that was effective on January 1, 2024.

### FINANCIAL CONDITION

### Cash and Cash Equivalents

Total cash and cash equivalents as of September 30, 2024, were $139.5 million, compared to $99.8 million at December 31, 2023. We continually monitor 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. As of September 30, 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.

As of September 30, 2024, the reported value of the Company's total investments portfolio was $1.2 billion, a decrease of $33.7 million, or 2.8%, since December 31, 2023. This was driven by changes within our debt securities portfolio, including:

- Pay downs, calls, and maturities of $85.4 million.
- Purchases of MBS and CMO securities of $26.0 million, all of which were designated as AFS.
- Net amortization and accretion of $3.6 million
- The change in fair value of the Company’s AFS debt securities of $22.6 million due to the decrease in interest rates between periods.

Our AFS debt securities portfolio, which comprised 52% and 53% of our investment portfolio as of September 30, 2024 and December 31, 2023, respectively, was carried at fair value using Level 2 valuation techniques. Refer to Note 16 of the consolidated financial statements for further details on the Company's fair value techniques. Our HTM debt securities are carried at amortized cost and comprised 45% and 46% of our investment portfolio as of September 30, 2024 and December 31, 2023, respectively.

The book value of our debt securities as of September 30, 2024 and December 31, 2023, was $1.2 billion at each date. 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 September 30, 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)*

|  | September 30, 2024 | Percent of Total Debt Securities as of September 30, 2024 | December 31, 2023 | Percent of Total Debt Securities as of December 31, 2023 |
| --- | ---: | ---: | ---: | ---: |
| MBS - Agency-backed | $792,403 | 67% | $830,288 | 67% |
| CMO - Agency-backed | 288,041 | 24% | 306,505 | 24% |
| Municipal | 61,900 | 5% | 62,691 | 5% |
| Corporate | 40,980 | 3% | 40,790 | 3% |
| Other - Agency-backed | 7,695 | 1% | 7,593 | 1% |
| **Total** | **$1,191,019** | **100%** | **$1,247,867** | **100%** |

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 as of September 30, 2024, compared to December 31, 2023, remains consistent and is believed to be well-positioned to provide a stable source of cash flow. As of September 30, 2024 and December 31, 2023, the duration of our debt investment securities portfolio, adjusting for calls when appropriate and consensus prepayment speeds, was

5.3 years and 5.7 years, respectively.

We completed a review of our HTM and AFS investment portfolio as of September 30, 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 September 30, 2024 and December 31, 2023 was as follows:

*(Dollars in thousands)*

|  | September 30, 2024 # of Securities | Fair Value | Book Value | Net Unrealized (Loss) Gain | December 31, 2023 # of Securities | Fair Value | Book Value | Net Unrealized Gain (Loss) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Municipal bonds | 55 | $61,993 | $61,900 | $93 | 55 | $63,159 | $62,691 | $468 |
| Corporate bonds | 19 | 39,705 | 40,980 | (1,275) | 20 | 37,714 | 40,790 | (3,076) |
| **Total** | 74 | $101,698 | $102,880 | $(1,182) | 75 | $100,873 | $103,481 | $(2,608) |

As of September 30, 2024 and December 31, 2023, all of our municipal bonds carried an investment-grade credit rating.

As of September 30, 2024 and December 31, 2023, 69% of our corporate bonds carried an investment-grade credit rating. The remaining corporate bonds were non-rated corporate bonds of community banks within our markets. As of September 30, 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 September 30, 2024 being to global systemically important banks, or "G-SIBs".

As of September 30, 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 September 30, 2024 and December 31, 2023, our investment in FHLBB stock totaled $17.1 million and $10.0 million, respectively, and our investment in FRB stock was $5.4 million at each date.

Our investments in mutual funds are designated as trading securities and carried at fair value. These investments are held within a rabbi trust and will be used for future payments associated with the Company’s Executive and Director Deferred Compensation Plan. These investments are carried at fair value using Level 1 valuation techniques. Refer to Note 16 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)*

|  | September 30, 2024 | December 31, 2023 | Change ($) | (%) |
| --- | ---: | ---: | ---: | ---: |
| Commercial real estate - non-owner-occupied | $1,387,593 | $1,370,446 | $17,147 | 1% |
| Commercial real estate - owner-occupied | 320,330 | 301,860 | 18,470 | 6% |
| Commercial | 382,507 | 403,901 | (21,394) | (5)% |
| Residential real estate | 1,762,395 | 1,763,378 | (983) | —% |
| Consumer and home equity | 263,904 | 258,509 | 5,395 | 2% |
| Total loans | $4,116,729 | $4,098,094 | $18,635 | —% |
| Commercial Loan Portfolio | $2,090,430 | $2,076,207 | $14,223 | 1% |
| Retail Loan Portfolio | $2,026,299 | $2,021,887 | $4,412 | —% |
| Commercial Portfolio Mix | 51% | 51% |  |  |
| Retail Portfolio Mix | 49% | 49% |  |  |

64

***Portfolio Concentrations.*** Our primary market continues to be Maine, making up 68% of the loan portfolio as of September 30, 2024 and December 31, 2023. Massachusetts and New Hampshire are our second and third largest markets that we serve, making up 16% and 10% of our total loan portfolio, respectively, as of September 30, 2024 and December 31, 2023. As of September 30, 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, and an online residential mortgage and small business digital loan platform.

As of September 30, 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 31% and 30% of our total commercial real estate portfolio and 13% and 12% of total loans, respectively. As of 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. As of September 30, 2024, there were no other industry concentrations within our loan portfolio that exceeded 10% of total loans.

The table below summarizes the significant industries within the Company’s commercial loan portfolio at the dates indicated:

*(Dollars in thousands)*

|  | September 30, 2024 $% of Commercial Loan Portfolio |  | December 31, 2023 $% of Commercial Loan Portfolio |  | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Real estate investment(1) | $1,049,651 | 50% | $1,057,148 | 51% | $(7,497) | (1)% |
| Lodging | 225,960 | 11% | 229,017 | 11% | (3,057) | (1)% |
| Retail trade | 137,222 | 7% | 116,623 | 6% | 20,599 | 18% |
| Health care | 105,030 | 5% | 95,801 | 5% | 9,229 | 10% |
| Construction | 79,141 | 4% | 73,936 | 4% | 5,205 | 7% |
| Manufacturing | 69,921 | 3% | 74,089 | 4% | (4,168) | (6)% |
| Finance and insurance | 61,619 | 3% | 66,038 | 3% | (4,419) | (7)% |
| Wholesale trade | 60,263 | 3% | 67,512 | 3% | (7,249) | (11)% |
| Other (each \< 3%) | 301,623 | 14% | 296,043 | 14% | 5,580 | 2% |
| **Total** | **$2,090,430** | **100%** | **$2,076,207** | **100%** | **$14,223** | **1%** |
| **Commercial loan portfolio mix:** |  |  |  |  |  |  |
| Commercial real estate - non-owner-occupied | $1,387,593 | 67% | $1,370,446 | 66% | 17,147 | 1% |
| Commercial real estate - owner-occupied | 320,330 | 15% | 301,860 | 15% | 18,470 | 6% |
| Commercial | 382,507 | 18% | 403,901 | 19% | (21,394) | (5)% |
| **Total** | **$2,090,430** | **100%** | **$2,076,207** | **100%** | **$14,223** | **1%** |

65

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

*(Dollars in thousands)*

|  | September 30, 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) | $266,681 | 25% | 6% | $274,181 | 26% | 7% | $(7,500) | (3)% |
| Multi-family (1-4 units)(b) | 174,308 | 17% | 4% | 153,166 | 14% | 4% | 21,142 | 14% |
| Office(c) | 167,181 | 16% | 4% | 169,904 | 16% | 4% | (2,723) | (2)% |
| Industrial | 165,150 | 16% | 4% | 164,021 | 16% | 4% | 1,129 | 1% |
| Retail | 159,640 | 15% | 4% | 167,865 | 16% | 4% | (8,225) | (5)% |
| Other(d) | 116,691 | 11% | 3% | 128,011 | 12% | 3% | (11,320) | (9)% |
| **Total** | **$1,049,651** | **100%** | **25%** | **$1,057,148** | **100%** | **26%** | **$(7,497)** | **(1)%** |

(a) Multi-family (5+ units) loans are primarily located in non-urban locations, including 80% in Maine, 11% in Massachusetts, 7% in New Hampshire, and 2% in other states as of September 30, 2024. As of December 31, 2023, there were 79% in Maine, 11% in Massachusetts, 8% in New Hampshire, and 2% in other states.

(b) Represents multi-family (1-4 units) that are used for commercial purposes.

(c) Office loans are primarily located in non-urban locations, including 52% in Maine and 26% in New Hampshire as of September 30, 2024 and December 31, 2023, respectively. There were 23% and 22% in Massachusetts as of September 30, 2024 and December 31, 2023, respectively.

(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 5 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 teams and the Credit Risk Policy Committee, which is an internal management committee comprised of the Company’s president and chief executive officer and other 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 the Company’s president and chief executive officer and other executives and senior managers across business lines, including Accounting and Finance; Credit Underwriting, Credit Risk and Special Assets; Risk and Compliance; Commercial Banking; 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: | September 30, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Commercial real estate - non-owner-occupied | $130 | $262 |
| Commercial real estate - owner-occupied | — | 124 |
| Commercial | 2,057 | 1,725 |
| Residential real estate | 2,497 | 2,539 |
| Consumer and home equity | 666 | 798 |
| **Total non-accrual loans** | **5,350** | **5,448** |
| Accruing TDRs prior to ASU 2022-02 adoption not included above | 1,645 | 1,990 |
| **Total non-performing loans** | **6,995** | **7,438** |
| Other real estate owned | — | — |
| **Total non-performing assets** | **$6,995** | **$7,438** |
| Total loans, excluding loans held for sale | $4,116,729 | $4,098,094 |
| Total assets | 5,745,180 | 5,714,506 |
| ACL on loans | 35,414 | 36,935 |
| ACL on loans to non-accrual loans | 661.94% | 677.96% |
| Non-accrual loans to total loans | 0.13% | 0.13% |
| Non-performing loans to total loans | 0.17% | 0.18% |
| Non-performing assets to total assets | 0.12% | 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. As of September 30, 2024 and December 31, 2023, loans classified as potential problem loans totaled $137,000 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: | September 30, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Commercial real estate - non-owner-occupied | $— | $84 |
| Commercial real estate - owner-occupied | 239 | 656 |
| Commercial | 578 | 2,007 |
| Residential real estate | 216 | 1,290 |
| Consumer and home equity | 358 | 922 |
| **Total** | $1,391 | $4,959 |
| Total loans | $4,116,729 | $4,098,094 |
| Accruing loans 30-89 days past due to total loans | 0.03% | 0.12% |

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

*(Dollars in thousands)*

|  | As of or For The Three Months Ended September 30, 2024 | 2023 | As of or For The Nine Months Ended September 30, 2024 | 2023 | As of or For The Year Ended December 31, 2023 |
| --- | ---: | ---: | ---: | ---: | ---: |
| **ACL on loans at the beginning of the period** | $35,412 | $36,983 | $36,935 | $36,922 | $36,922 |
| **Provision (credit) for loan losses** | 283 | (456) | (693) | 288 | 1,174 |
| **Net charge-offs (recoveries)(1)** |  |  |  |  |  |
| Commercial real estate | (1) | 41 | (9) | 39 | 39 |
| Commercial | 286 | 66 | 887 | 749 | 1,089 |
| Residential real estate | (6) | (5) | (19) | (20) | (26) |
| Consumer and home equity | 2 | 18 | (31) | 35 | 59 |
| **Total net charge-offs** | **281** | **120** | **828** | **803** | **1,161** |
| **ACL on loans at the end of the period** | **$35,414** | **$36,407** | **$35,414** | **$36,407** | **$36,935** |
| **Components of ACL:** |  |  |  |  |  |
| ACL on loans | $35,414 | $36,407 | $35,414 | $36,407 | $36,935 |
| ACL on off-balance sheet credit exposures | 2,743 | 2,670 | 2,743 | 2,670 | 2,353 |
| **ACL at end of the period** | **$38,157** | **$39,077** | **$38,157** | **$39,077** | **$39,288** |
| Total loans, excluding loans held for sale | $4,116,729 | $4,058,413 | $4,116,729 | $4,058,413 | $4,098,094 |
| Average Loans | $4,144,482 | $4,083,721 | $4,133,488 | $4,073,463 | $4,076,681 |
| Net charge-offs to average loans (annualized) | 0.03% | 0.01% | 0.03% | 0.03% | 0.03% |
| Provision (credit) for loan losses (annualized) to average loans | 0.03% | (0.04)% | (0.02)% | 0.01% | 0.03% |
| ACL on loans to total loans | 0.86% | 0.90% | 0.86% | 0.90% | 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 September 30, Total Charge-offs | Total Recoveries | Net Charge-Offs (Recoveries) | Average Loans | Ratio of Net Charge-Offs (Recoveries) to Average Loans |
| --- | ---: | ---: | ---: | ---: | ---: |
| Commercial real estate | $— | $1 | $(1) | $1,706,509 | —% |
| Commercial | 394 | 108 | 286 | 393,130 | 0.07% |
| Residential real estate | — | 6 | (6) | 1,780,665 | —% |
| Consumer and home equity | 28 | 26 | 2 | 264,178 | —% |
| **Total** | **$422** | **$141** | **$281** | **$4,144,482** | **0.01%** |
| **2023:** |  |  |  |  |  |
| Commercial real estate | $58 | $17 | $41 | $1,658,125 | —% |
| Commercial | 255 | 189 | 66 | 410,379 | 0.02% |
| Residential real estate | — | 5 | (5) | 1,762,860 | —% |
| Consumer and home equity | 32 | 14 | 18 | 252,357 | 0.01% |
| **Total** | **$345** | **$225** | **$120** | **$4,083,721** | **—%** |
|  | **For The Nine Months Ended September 30,** |  |  |  |  |
| **2024:** |  |  |  |  |  |
| Commercial real estate | $— | $9 | $(9) | $1,696,882 | —% |
| Commercial | 1,157 | 270 | 887 | 400,469 | 0.22% |
| Residential real estate | — | 19 | (19) | 1,775,502 | —% |
| Consumer and home equity | 83 | 114 | (31) | 260,635 | (0.01)% |
| **Total** | **$1,240** | **$412** | **$828** | **$4,133,488** | **0.02%** |
| **2023:** |  |  |  |  |  |
| Commercial real estate | $58 | $19 | $39 | $1,658,188 | —% |
| Commercial | 1,101 | 352 | 749 | 419,798 | 0.18% |
| Residential real estate | 18 | 38 | (20) | 1,742,340 | —% |
| Consumer and home equity | 63 | 28 | 35 | 253,137 | 0.01% |
| **Total** | **$1,240** | **$437** | **$803** | **$4,073,463** | **0.03%** |
|  | **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 or nine ended September 30, 2024. The significant key assumptions used with the ACL on loans calculation as of September 30, 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 September 30, 2024 and December 31, 2023, the recorded ACL on loans was $35.4 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 multiple forecasted economic scenarios and probability weighting of each scenario. Included within our ACL on loans as of September 30, 2024 and December 31, 2023, was consideration for qualitative factors that may not be, or may not be completely, represented within the Company’s accounting model used to determine its ACL on loans. Each quarter, in conjunction with our quarterly close and financial reporting, we evaluate the need for these qualitative factors and make adjustments as appropriate, including consideration of macro- and micro-level changes. The ACL on loans as of September 30, 2024, incorporated a lower weighting for the probability of a forecasted recession scenario over the next 12 to 24 months based on management’s forecasted macroeconomic outlook as of that date, as compared to December 31, 2023, which was the primary driver for the reduction in the ACL on loans between periods.

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 nine months ended September 30, 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 September 30, 2024 and December 31, 2023, was $2.7 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 September 30, 2024, we have evaluated our HTM debt securities, and we have not identified any credit concerns. As of September 30, 2024 and December 31, 2023, there was no ACL recorded on HTM investments. Refer to "—*Investments"* and Note 4 of the consolidated financial statements for further discussion.

### Liabilities

***Deposits.*** As of September 30, 2024 and December 31, 2023, deposits totaled $4.6 billion for both periods. The deposit landscape remains intensely competitive across our markets due to the current interest rate environment as depositors continuing to allocate excess liquidity into higher yielding, interest-bearing deposit accounts. We continue to closely manage our deposits. prioritizing the maintenance and enhancement of existing depositor relationships while cultivating new ones. This is balanced with the Company's overall funding cost and liquidity position.

The slight decrease in deposits during the nine months ended September 30, 2024, was primarily driven by a decrease in checking account balances, which were lower by $135.0 million, or 5%, due to: (1) continued remix from low-cost deposits, such as checking accounts, to savings and money markets and CDs; (2) large outflow from normal business activities of one of our larger commercial deposit relationships; and (3) managed outflows of one of our larger high-cost municipal deposit relationships in an effort to optimize our funding costs. CD balances decreased $56.0 million, or 9%, over this same period, as we opted to not renew a single higher-cost municipal CD totaling $50.0 million and were able to utilize other, more cost-effective funding sources. Savings and money market accounts increased $102.1 million, or 7%, over this same period primarily driven by the launch of a new high-yield savings deposit product in the first quarter of 2024 as part of our effort to raise more cost-effective deposits, drive new customer acquisition and deepen customer relationships. This high-yield savings deposit product launch drove a 16% increase in savings accounts as compared to December 31, 2023.

The Company's loan-to-deposit ratio was 90% as of September 30, 2024, compared to 89% at December 31, 2023.

As of September 30 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 $979.1 million, or 21% of total deposits, as of September 30, 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 $698.4 million, or 15% of total deposits, as of September 30, 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 $109.2 million, or 20% of CD balances, as of September 30, 2024, and $167.2 million, or 27% of CD balances, as of December 31, 2023. The total uninsured portion of these CDs was $40.4 million, or 7% and $93.7 million, or 15% as of September 30, 2024 and December 31, 2023, respectively.

***Borrowings***. As of September 30, 2024, total borrowings were $560.7 million, an increase of $30.7 million, or 6%, since December 31, 2023 and were comprised of:

- Customer repurchase agreements totaling $191.3 million, a decrease of $9.3 million, since December 31, 2023
- FHLBB advances of $325.0 million, an increase of $175.1 million since December 31, 2023
- The Company carries interest rate swaps on $325.0 million of FHLBB advances to manage our interest rate risk position and as part of our effort to optimize net interest income and net interest margin.

### Shareholders' Equity

Shareholders' equity as of September 30, 2024, totaled $529.9 million, an increase of $34.8 million, or 7%, since December 31, 2023. The increase was driven by net income of $38.3 million for the nine months ended September 30, 2024, offset by regular quarterly cash dividends of $18.4 million, and an increase to AOCI of $14.5 million.

On September 24, 2024, the Company announced a quarterly cash dividend to shareholders of $0.42 per share, payable on October 31, 2024 to shareholders of record as of October 15, 2024. As of September 30, 2024, the Company's annualized dividend yield was 4.07% based on Camden National's closing share price of $41.32, as reported by NASDAQ on September 30, 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 repurchased 50,000 shares of our common stock at an average price of $32.19 per share through the nine months ended September 30, 2024.

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

| Financial Ratios | As of or For The Three Months Ended September 30, 2024 | 2023 | As of or For The Nine Months Ended September 30, 2024 | 2023 | As of or For The Year Ended December 31, 2023 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Average equity to average assets | 9.07% | 8.23% | 8.83% | 8.18% | 8.18% |
| Common equity ratio | 9.22% | 8.02% | 9.22% | 8.02% | 8.66% |
| Tangible common equity ratio (non-GAAP) | 7.69% | 6.47% | 7.69% | 6.47% | 7.11% |
| Dividend payout ratio | 46.67% | 62.69% | 47.91% | 52.72% | 56.38% |
| **Per Share Data** |  |  |  |  |  |
| Book value per share | $36.35 | $31.82 | $36.35 | $31.82 | $33.99 |
| Tangible book value per share (non-GAAP) | $29.82 | $25.24 | $29.82 | $25.24 | $27.42 |
| Dividends declared per share | $0.42 | $0.42 | $1.26 | $1.26 | $1.68 |

Refer to "—*Capital Resources"* and Note 11 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 September 30, 2024, our primary liquidity sources available were as follows:

*(In thousands)*

| Available primary liquidity: | Amount |
| --- | ---: |
| Excess cash(1) | $60,117 |
| Unpledged investment securities | 596,633 |
| Over collateralized securities pledging position | 65,395 |
| FHLBB | 570,519 |
| Fed Discount Window | 37,427 |
| Unsecured borrowing lines | 94,872 |
| **Total available primary liquidity** | **$1,424,963** |

(1) Excess cash represents cash held at the FRB that is above the minimum reserve requirement. As of September 30, 2024, the minimum reserve requirement remains at zero.

Total available primary liquidity of $1.4 billion was 2.0 times uninsured and uncollateralized deposits as of September 30, 2024. Refer to "—*Financial Condition—Liabilities—Uninsured and Uncollateralized Deposits*" for further details.

In addition to the available primarily liquidity noted above, as of September 30, 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 September 30, 2024 and December 31, 2023, total deposits, including brokered deposits, were $4.6 billion at each date. Core deposits (which excludes CDs and brokered deposits) (non-GAAP) decreased $32.9 million, or 1%, during the nine months ended September 30, 2024 to $3.9 billion. CDs decreased $56.0 million, or 9%, during the nine months ended September 30, 2024 to $553.5 million. The decreases in core deposits and CDs were offset by an increase in brokered deposits of $66.8 million, or 65%, during the nine months ended September 30, 2024 to $168.7 million. Brokered deposits consisted of $75.0 million of brokered CDs and $93.7 million of brokered money market accounts. As of September 30, 2024, all brokered CDs were scheduled to mature within 12 months. Refer to “—*Financial Condition—Liabilities—Deposits”* for further discussion on deposits.

The following is a summary of the scheduled maturities of CDs (not including brokered CDs) as of September 30, 2024:

*(In thousands)*

|  | CDs |
| --- | ---: |
| 1 year or less | $514,406 |
| \> 1 year | 39,075 |
| **Total** | **$553,481** |

***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 September 30, 2024, total borrowings were $560.7 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 September 30, 2024, the Company had $570.5 million in borrowing capacity from the FHLBB.

Customer repurchase agreements are secured by mortgage-backed securities and government-sponsored enterprises. Through the Bank, as of September 30, 2024, we have available lines of credit of $9.9 million with the FHLBB, $95.0 million with three correspondent banks, and of $37.4 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 September 30, 2024:

*(In thousands)*

|  | FHLBB Advances | Customer Repurchase Agreements | Junior Subordinated Debentures | Total |
| --- | ---: | ---: | ---: | ---: |
| 1 year or less | $325,000 | $191,336 | $— | $516,336 |
| \> 1 year | — | — | 44,331 | 44,331 |
| **Total** | **$325,000** | **$191,336** | **$44,331** | **$560,667** |

***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 September 30, 2024, qualifying residential mortgage loans with a book value of $1.7 million 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: | September 30, 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) | $16,270 | $303,507 | $490,685 | $2,728 | $813,190 | 20% |
| Commercial | 4,491 | 98,132 | 65,154 | 362 | 168,139 | 4% |
| Residential real estate | 173 | 10,096 | 144,662 | 1,224,425 | 1,379,356 | 34% |
| Consumer and home equity | 1,644 | 10,918 | 19,611 | 177,993 | 210,166 | 5% |
| Total fixed rate | 22,578 | 422,653 | 720,112 | 1,405,508 | 2,570,851 | 63% |
| **Adjustable/Variable Rate:** |  |  |  |  |  |  |
| Commercial real estate(2) | 24,731 | 299,528 | 328,718 | 241,757 | 894,734 | 22% |
| Commercial | 75,032 | 83,514 | 47,704 | 8,118 | 214,368 | 5% |
| Residential real estate | 15 | 902 | 36,052 | 346,070 | 383,039 | 9% |
| Consumer and home equity | 185 | 2,276 | 13,951 | 37,325 | 53,737 | 1% |
| Total adjustable/variable rate | 99,963 | 386,220 | 426,425 | 633,270 | 1,545,878 | 37% |
| **Total loans** | **$122,541** | **$808,873** | **$1,146,537** | **$2,038,778** | **$4,116,729** | **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, which have remained elevated during 2024, has resulted in slowing cash flows. As of September 30, 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 $332.5 million as of September 30, 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 September 30, 2024:

*(In thousands)*

|  | Contractual Cash Flows(1) |
| --- | ---: |
| 1 year or less | $115,634 |
| \> 1 year | 1,013,828 |
| **Total** | **$1,129,462** |

(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 nine months ended September 30, 2024, the Company reported net income of $38.3 million and paid cash dividends of $18.4 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. As of September 30, 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 | $11,962 | $434 | $11,528 |
| Finance leases | 9,441 | 105 | 9,336 |
| Other contractual obligations | 6,559 | 6,559 | — |
| **Total** | $27,962 | $7,098 | $20,864 |

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 8 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 9 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 $529.9 million and $495.1 million as of September 30, 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 nine months ended September 30, 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 $18.4 million for each of the nine months ended September 30, 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 nine months ended September 30, 2024 and 2023, the Bank declared dividends payable to the Company in the amount of $20.1 million and $18.0 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 11 of the consolidated financial statements for discussion and details of the Company and Bank's regulatory capital requirements. As of September 30, 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 September 30, 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 September 30, 2024 | September 30, 2023 |
| --- | ---: | ---: |
| +200 basis points | (3.5)% | (1.3)% |
| -200 basis points | 3.8% | 2.1% |
| **Year 2** |  |  |
| +200 basis points | 1.1% | 15.1% |
| -200 basis points | 14.8% | 17.1% |

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 and funding costs remain relatively unchanged, causing balance sheet spread to expand. If deposit pricing increased from current levels without any changes to market rates or if unfavorable funding mix changes occurred, it would negatively impact net interest income projections.

If rates increase 200 basis points, net interest income is projected to decrease 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 improve 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 further 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 September 30, 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 9 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, 6,702 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. Except as set forth below, there have been no material changes from the risk factors previously disclosed in the “Risk Factors” section of our 2023 Annual Report on Form 10-K.

### Risks Relating to Our Pending Merger with NFI

#### We may fail to realize the anticipated benefits of the merger.

We and NFI have operated independently and will continue to do so until the completion of the merger. The success of the merger, including anticipated benefits and cost savings, will depend on, among other things, our ability to successfully combine our and NFI’s businesses, including by minimizing any disruptions to our and NFI’s existing customer relationships and business functions, and avoiding any inconsistencies in standards, controls, procedures and policies. If we are not able successfully to achieve these objectives, the anticipated benefits of the merger may not be realized fully, or at all, or may take longer to realize than expected. Failure to achieve these anticipated benefits could result in increased costs, decreases in the amount of expected revenues and diversion of management’s time and energy and could have an adverse effect on our business, financial condition, operating results and prospects. There can be no assurance that the anticipated benefits will be realized within the time periods contemplated or at all.

***Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or cannot be met.***

Before the transactions contemplated in the merger agreement can be completed, various approvals must be obtained from bank regulatory agencies and other governmental authorities. In deciding whether to grant regulatory approval, the relevant governmental entities will consider a variety of factors, including the regulatory standing of each of the parties. An adverse condition or development in either party’s regulatory standing or other factors could prevent or delay the receipt of one or more of the required regulatory approvals. Even if granted, the terms and conditions of the approvals may impose requirements, limitations or costs or place restrictions on the conduct of the combined company’s business. Despite the parties’ commitments to use their reasonable best efforts to obtain regulatory approvals, under the terms of the merger agreement, we and NFI will not be required to complete the merger if any such approval imposes a burdensome condition. There can be no assurance that regulators will not impose conditions, terms, obligations or restrictions and that such conditions, terms, obligations or restrictions will not have the effect of delaying the completion of the merger, imposing additional material costs on or materially limiting the revenues of the combined company following the merger or otherwise reduce the anticipated benefits of the merger if the merger were completed successfully within the expected timeframe. Additionally, the completion of the merger is subject to the satisfaction or waiver of certain other closing conditions, including the absence of certain orders, injunctions or decrees by any governmental authority that would prohibit or make illegal the completion of the merger.

***Because of the closing conditions in the merger agreement and the ability of either us or NFI to terminate the merger agreement in specific instances, there can be no assurance when or if the merger will be completed.***

The merger agreement is subject to a number of conditions that must be satisfied or waived to complete the merger. Those conditions include, among other things, (i) the accuracy of the other party’s representations and warranties, subject to certain materiality standards, including the accuracy of the other party’s representation and warranty of the absence of a material adverse effect on the other party, (ii) the other party’s performance in all material respects of its obligations under the merger agreement, (iii) the adoption of the merger agreement and the transactions contemplated thereby by NFI shareholders, (iv) the absence of any proceeding in connection with, or that could prevent, delay, make illegal or interfere with, any of the transactions contemplated by the merger agreement, (v) the receipt of required regulatory approvals, including the approval of certain federal and state banking agencies, (vi) the effectiveness of the registration statement filed by us in connection with the issuance of our common stock in the merger, (vii) the receipt by each party of an opinion from such party’s counsel to the effect that the merger qualifies as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code, and (viii) the approval for listing on the Nasdaq of the shares of our common stock issuable in the merger. These conditions to the closing of the merger may not be fulfilled in a timely manner or at all, and, accordingly, the merger may not be completed. In addition, the parties can mutually decide to terminate the merger agreement at any time, before or after the required NFI shareholder approval, or we or NFI may elect to terminate the merger agreement in certain other circumstances, including that NFI is permitted to terminate the merger agreement if, as of the date regulatory approvals for the merger are received, the price of our common stock has both decreased by 20% percent or more and decreased by 20% or more relative to a regional banking index, as more fully described in the merger agreement.

***We and NFI will incur transaction and integration costs in connection with the merger.***

We and NFI have each incurred and expect to incur significant, nonrecurring costs in connection with consummating the merger. In addition, we will incur integration costs following the completion of the merger, including facilities and systems consolidation costs and employment-related costs. There can be no assurances that the expected benefits and efficiencies related to the integration of the businesses will be realized to offset these transaction and integration costs over time. We and NFI may also incur additional costs to maintain employee morale and to retain key employees. We and NFI will also incur significant legal, financial advisor, accounting, banking and consulting fees, fees relating to regulatory filings and notices, SEC filing fees, printing and mailing fees and other costs associated with the merger.

Filed Nov 7, 2024.
Source: SEC EDGAR, the filing index for accession 0000750686-24-000262. Last ingested by Listed: Nov 5, 2026, 12:16 ET. No prices; not investment advice.