Executive Summary / Key Takeaways

• Camden National Corporation recently completed its strategic acquisition of Northway Financial, significantly expanding its footprint in the high-growth New Hampshire market and increasing its asset base to approximately $7 billion.
• The merger is expected to drive substantial cost synergies, with 35% of Northway's operating expenses targeted for elimination, 75% of which are anticipated in 2025, beginning to materialize in Q2.
• Core financial performance shows positive momentum, with core net interest margin expanding to 2.68% in Q1 2025, and management anticipates further core NIM expansion of 2-5 basis points, alongside a projected $1.25 million benefit from a 25-basis-point Fed rate cut.
• Asset quality remains a core strength, characterized by disciplined underwriting, proactive management, low non-performing and past-due loan ratios, and a prudent allowance for credit losses (0.96% of loans) reflecting macroeconomic uncertainty rather than specific portfolio deterioration.
• Strategic investments in technology, including online account opening, process automation, and AI pilots, are enhancing operational efficiency, improving customer experience, and positioning the company for future growth and competitive differentiation against larger and fintech rivals.

Camden National Corporation, rooted in a legacy stretching back to the founding of Camden National Bank in 1875, has long served as a cornerstone financial institution in Maine. The holding company, established in 1984 and publicly traded since 1997, built its foundation on traditional banking principles: attracting deposits and extending credit across diverse customer segments, emphasizing local decision-making and deep community ties. This historical focus on relationship banking and customer service has been a defining characteristic, shaping its operational approach and competitive stance within its core coastal and central Maine markets.

In a pivotal strategic move, Camden National recently completed the acquisition of Northway Financial, Inc., which closed on January 2, 2025. This all-stock transaction was designed to significantly bolster the company's presence in Northern New England by expanding into the contiguous, higher-growth market of New Hampshire, adding 17 branches and substantially increasing the company's scale. As of March 31, 2025, the combined entity boasts 73 branches across Maine and New Hampshire and approximately $7 billion in total assets. This expansion is not merely about size; it is a strategic play aimed at unlocking growth opportunities, broadening product reach, increasing lending limits, and driving efficiencies through anticipated cost synergies. The full systems and branch integration, completed in mid-March 2025, marks a critical milestone, enabling the realization of these expected benefits.

Within the competitive landscape of regional banking in the Northeast, Camden National faces a diverse set of rivals, ranging from large national players like TD Bank Group (TD) and KeyCorp (KEY) to other regional institutions such as M&T Bank Corporation (MTB) and Citizens Financial Group (CFG), as well as increasingly agile fintech firms. While larger competitors often benefit from greater scale, broader geographic reach, and more extensive digital infrastructure, Camden National differentiates itself through its deep-rooted community brand and personalized, relationship-focused service model. This approach fosters higher customer loyalty, particularly in its established markets, providing a stable deposit base and recurring revenue streams.

However, this community-centric model can also lead to higher operating costs per unit compared to the more efficient, scalable operations of larger banks. Furthermore, while Camden National is actively investing in technology, it faces a gap in digital speed and innovation cycles when compared to the rapid advancements of national banks and fintechs, which offer faster transaction processing and potentially lower costs. The Northway merger is strategically important in this context, as the increased scale is expected to enhance efficiency and provide resources to accelerate technological development, helping to narrow these gaps and strengthen its competitive positioning.

Camden National is actively leveraging technology not just as a catch-up mechanism but as a strategic enabler for future growth and efficiency. The recent launch of its online consumer and business account opening platform in January 2025 is a tangible step, designed to allow customers to open and fund accounts within minutes, enhancing convenience and operational efficiency. This platform, backed by human-centered service, is crucial for attracting new customers in the expanded New Hampshire and Maine markets. Beyond customer-facing tools, the company is investing heavily in process automation, with its robotics automation team processing millions of support service transactions, aiming for end-to-end automation of predictable activities through API integrations. An AI pilot for data scientist simulation is also underway, targeting simplified access to higher-order analytics for business units. While specific quantifiable benefits like percentage cost reductions or speed improvements from these initiatives are not consistently detailed across all projects, the strategic intent is clear: to enhance operational efficiency, improve the customer experience, and build a more scalable and competitive infrastructure. These technological advancements are foundational to the company's strategy to drive growth and profitability in an increasingly digital banking environment, aiming to create a more robust platform for future earnings growth.

Financially, the first quarter of 2025 results reflect the significant impact of the Northway acquisition. GAAP net income was $7.3 million, or $0.43 per diluted share, a decrease compared to the same period in 2024, primarily due to acquisition-related costs ($7.5 million pre-tax), a one-time provision expense for acquired non-PCD loans ($6.5 million pre-tax), and a one-time tax benefit ($2.4 million) from revaluing deferred tax assets post-merger. Adjusting for these non-recurring items, non-GAAP adjusted net income was $16.0 million, a 28% increase over Q1 2024, demonstrating the underlying earnings power of the combined entity, although adjusted diluted EPS ($0.95) saw a more modest 10% increase due to the increased share count from the merger consideration.

Net interest income, the primary revenue driver (81% of Q1 2025 total revenue), saw a substantial increase to $48.86 million in Q1 2025 from $31.27 million in Q1 2024. The fully-taxable equivalent net interest margin expanded significantly by 74 basis points to 3.04%. While purchase accounting accretion contributed 36 basis points to this expansion, the core net interest margin also saw positive momentum, expanding 11 basis points on a linked-quarter basis to 2.68%. This core expansion is attributed to success in lowering funding costs, benefiting from the change in the interest rate environment and the strength of Northway's low-cost deposit franchise, which contributed to a lower average cost of funds (1.94% in Q1 2025).

Non-interest income saw an 8% increase in Q1 2025 compared to Q1 2024, reaching $11.2 million, primarily driven by the Northway acquisition adding new customers and accounts, boosting debit card income and service charges. Brokerage and insurance commissions also saw a significant 37% increase, reflecting growth in assets under management ($999.3 million at March 31, 2025, up 16% from Dec 2024). Mortgage banking income, however, decreased due to changes in the fair value of loans held for sale and pipelines. Non-interest expense saw a substantial 62% increase to $44.5 million, largely due to operating two franchises for most of the quarter and increased amortization of core deposit intangibles ($1.5 million in Q1 2025 vs $139k in Q1 2024) created by the merger ($48.1 million provisional estimate).

The balance sheet reflects the impact of the merger, with total assets growing to $6.96 billion at March 31, 2025, from $5.81 billion at December 31, 2024. Total loans increased 19% to $4.89 billion, including $775.7 million acquired from Northway (net of fair value marks). Organically, loan balances were relatively flat in Q1 2025, consistent with seasonal expectations, although management notes healthy pipelines in commercial and residential segments. Total deposits increased 21% to $5.60 billion, including $971.7 million acquired from Northway (net of purchase accounting), with 82% of acquired deposits being low-cost core deposits. Organically, deposits were also relatively flat, impacted by an expected drawdown from a large customer relationship. The loan-to-deposit ratio remained stable at 89%. Uninsured and uncollateralized deposits stood at 14.11% of total deposits. Total borrowings increased, including acquired repurchase agreements and FHLBB advances, although acquired FHLBB advances were prepaid post-acquisition to optimize the balance sheet.

Asset quality remains a key strength, with non-performing loans at just 0.15% of total loans and past-due loans (30-89 days) at 0.07% as of March 31, 2025. Net charge-offs were low at 0.08% annualized. The allowance for credit losses on loans increased to 0.96% of total loans (from 0.87% at Dec 31, 2024), primarily driven by the one-time provision for acquired non-PCD loans ($6.3 million) and an additional $2.6 million reserve build reflecting heightened macroeconomic uncertainty and recession risk, rather than specific portfolio deterioration. Management emphasizes a disciplined underwriting culture and proactive oversight, which has historically resulted in limited charge-offs and strong confidence in the portfolio's health.

Looking ahead, management is optimistic about the outlook, driven by the expected benefits of the Northway merger and continued momentum in core operations. Cost synergies are a key focus, with 75% of the targeted 35% annual savings expected in 2025, beginning in Q2. This disciplined expense management is expected to drive improved operating leverage. Management anticipates continued core net interest margin expansion, projecting an additional 2-5 basis points, reaching a core NIM in the 2.70-2.75% range. They are slightly liability-sensitive and forecast a $1.25 million benefit from a 25-basis-point Fed rate cut. Purchase accounting accretion is expected to contribute around $5 million net income per quarter. Loan growth is projected to remain in the low single digits organically for 2025, although healthy pipelines and the expanded New Hampshire presence offer potential for upside depending on macroeconomic conditions. Non-interest income is expected to build throughout the year as Northway customers are integrated and wealth management momentum continues. The estimated annualized effective tax rate is 20.60%. Regular cash dividends from the Bank subsidiary are expected to resume in Q2 2025. The company's strong capital position, exceeding regulatory requirements, and robust capital generation capability support its ability to execute its strategy and return capital to shareholders.

Key risks to the outlook include macroeconomic uncertainty, which could impact loan demand, credit quality, and deposit flows. Changes in interest rates, particularly if the yield curve shifts unfavorably or deposit betas differ from expectations, could affect net interest margin expansion. Integration risks, while mitigated by the successful systems conversion, could still impact cost synergy realization or customer retention. Competition from larger banks and fintechs remains a constant challenge, requiring continued investment in technology and differentiation through service. Regulatory changes could also impact capital requirements or operational flexibility.

Conclusion

Camden National Corporation is at a transformative point, having successfully integrated Northway Financial to significantly enhance its scale, geographic reach, and market position in Northern New England. The investment thesis hinges on the successful realization of anticipated cost synergies and gradual revenue opportunities from the merger, combined with the underlying strength of its core banking operations, disciplined asset quality management, and strategic investments in technology. While the first quarter results reflect the initial costs and accounting impacts of the acquisition, the underlying core performance and management's outlook point towards continued net interest margin expansion and improved operating leverage as synergies materialize. The company's strong capital base provides resilience against potential macroeconomic headwinds. For investors, the story is one of a regional bank leveraging a strategic acquisition and technological advancements to drive future profitability and shareholder value, balancing community-focused service with the need for scale and efficiency in a competitive landscape. The successful execution of integration and synergy targets, alongside effective navigation of the interest rate environment and competitive pressures, will be key factors to watch.