CAC Q4 2025: Net Interest Margin Expands 13bps as Deposit Costs Ease
Camden National’s fourth quarter saw tangible margin expansion and robust deposit inflows, powered by disciplined cost management and digital engagement gains. With the Northway acquisition fully integrated, management is leaning into organic growth in key markets and deepening advisory-led customer relationships. Deposit repricing and automation-driven efficiency remain central to the 2026 playbook, with cautious optimism on loan growth and credit quality.
Summary
- Margin Expansion Momentum: Deposit cost control and funding mix drove net interest margin gains.
- Digital and Wealth Initiatives: New digital products and wealth franchise growth are deepening customer engagement.
- Capital and Credit Discipline: Proactive credit actions and capital rebuild underpin confidence for 2026.
Performance Analysis
Fourth quarter results highlighted Camden National’s ability to expand net interest margin by 13 basis points sequentially, reaching 3.29 percent, aided by a notable 11 basis point drop in funding costs as deposit repricing outpaced market rate declines. Net income set a new record for the company, reflecting both the full absorption of the Northway acquisition and successful cost containment, with an efficiency ratio below 52 percent. Average loan and deposit balances grew 1 percent and 2 percent quarter over quarter respectively, with high-yield savings balances up 5 percent for the quarter and 28 percent for the year, signaling strong customer acquisition and primacy efforts.
Non-interest income was stable, though its composition shifted with annual Visa bonus incentives and elevated loan swap fees. Operating expenses rose as anticipated, driven by year-end incentive and healthcare accruals, but remained well-anchored by ongoing automation initiatives. Credit quality remained strong, with nonperforming assets at just 10 basis points of total assets, despite a $3 million charge-off from a resolved office CRE loan. Loan loss reserves stood at 91 basis points of total loans, or 6.4 times non-performing loans, providing a buffer against credit normalization.
- Deposit Mix Shift: High-yield savings and interest checking led deposit growth, reflecting both retail and municipal inflows.
- Efficiency Gains: Automation processed over 5 million tasks, helping contain expense growth despite franchise investments.
- Credit Resolution: The decisive exit from a classified office loan underscores a proactive approach to portfolio risk.
Management’s focus on disciplined growth, digital engagement, and cost leverage positions Camden National to weather rate and credit cycle shifts while pursuing mid-single digit loan and deposit growth in 2026.
Executive Commentary
"This strong finish to the year reflects a 6% increase in earnings from the prior quarter, underscoring the consistent execution and discipline across our teams. We are pleased that several key financial performance indicators continue to trend positively this quarter, including 13 basis points of net interest margin expansion over the prior quarter to 3.29%... With the benefits from Northway financial acquisition now fully delivering, we are pleased to report that we are ahead of our strategic and financial objectives in several areas."
Simon Griffiths, President and Chief Executive Officer
"In the second half of 2025, we began to see the earnings power of Camden National following the acquisition of Northway at the start of the year and the execution of our cost takeout initiatives during the first half of 2025. Our financial performance in the fourth quarter resulted in strong profitability metrics, including a return on average assets of 1.28%, a return on average tangible equity of 19.06%, and an efficiency ratio of 51.69%. Given this strong performance, we've been able to rebuild capital used in the Northway acquisition at a pace that exceeded our initial projections."
Stephen Hamilton, Chief Financial Officer
Strategic Positioning
1. Margin Management and Funding Cost Discipline
Camden National’s core strategy centers on expanding net interest margin through targeted deposit pricing and funding mix optimization. The bank is leveraging the repricing of maturing CDs, with 40 percent set to reprice in the next quarter, to further lower funding costs. Management is avoiding “hot money” and instead focusing on relationship-based deposits, which supports margin durability as market rates shift.
2. Digital Engagement and Product Innovation
Investments in digital banking, such as the launch of Family Wallet, are aimed at attracting younger demographics and building long-term customer relationships. The Roundup Savings feature, now approaching one million transactions, has boosted digital engagement among customers under 45 by 19 percent year over year. These initiatives not only drive deposit growth but also support cross-sell opportunities in wealth and brokerage.
3. Wealth and Brokerage Expansion
The wealth franchise delivered 15 percent organic growth in assets under administration, reaching $2.4 billion, reflecting the company’s push to deepen advice-led relationships. Management views cross-franchise collaboration as a key lever for future growth, especially as commercial and wealth teams increasingly partner to serve complex client needs.
4. Automation and Operating Leverage
Automation remains a core pillar of Camden National’s efficiency strategy. Over 143 bots now process more than 5 million tasks, freeing staff for higher-value activities and helping offset expense pressures from wage and healthcare inflation. This self-funding approach enables reinvestment in talent and digital capabilities without materially eroding efficiency ratios.
5. Proactive Credit and Capital Management
Management’s swift resolution of a long-classified CRE office loan, with an 88 percent recovery and a $3 million charge-off, highlights a willingness to take decisive action to protect credit quality. Loan loss reserves remain robust, and capital ratios have been rebuilt ahead of plan, enabling the launch of a new share repurchase program covering up to 5 percent of shares outstanding.
Key Considerations
This quarter’s results reflect a bank that has fully absorbed a transformative acquisition and is now executing on organic growth levers while maintaining a strong risk posture. The interplay between margin management, digital innovation, and disciplined credit actions will shape performance in a changing rate and competitive environment.
Key Considerations:
- Deposit Repricing Tailwind: With 95 percent of CDs set to reprice in the next year, funding cost relief is likely to persist, supporting further margin expansion if market rates remain stable.
- Loan Growth Pipeline: Residential and commercial pipelines are healthy, positioning Camden for flat to low-single digit loan growth in Q1 and a potential pickup to mid-single digits by mid-2026.
- Expense Control via Automation: Ongoing automation adoption is key to offsetting wage and healthcare cost pressures while enabling targeted investments in franchise growth.
- Credit Normalization Watch: While credit quality is strong, management acknowledges that provision levels may normalize as the cycle evolves, though current reserves are considered adequate.
Risks
Key risks include a potential slowdown in loan growth if prepayments remain elevated, especially in a declining rate environment. Deposit competition could intensify, pressuring funding costs if market rates move unexpectedly. Cyclical credit normalization, particularly in CRE, remains a watchpoint despite current portfolio strength. Management’s proactive risk posture mitigates some concerns, but execution discipline will be critical as the economic cycle progresses.
Forward Outlook
For Q1 2026, Camden National guided to:
- Flat to up 2 percent loan growth, with a stronger pickup expected in April and May.
- Non-interest income of $12 to $13 million, reflecting normalized fee levels post seasonal incentives.
- Operating expenses of $36 to $37 million, consistent with prior quarter trends and ongoing investment.
For full-year 2026, management signaled:
- Mid-single digit loan and deposit growth targets, anchored by commercial and retail expansion in southern markets.
- Efficiency ratio expected to trend in the mid-50s as reinvestment continues but automation offsets much of the increase.
- Effective tax rate to rise slightly as certain 2025 tax credits roll off.
Management highlighted several factors that will shape 2026:
- Deposit growth momentum in high-yield and relationship accounts to support loan growth ambitions.
- Proactive credit management and robust reserves underpin confidence in asset quality.
Takeaways
Camden National enters 2026 with a strong margin trajectory, a rebuilt capital base, and a proven playbook for digital and wealth-driven growth.
- Deposit and Margin Leverage: Continued funding cost relief and disciplined deposit strategy are likely to sustain margin outperformance, especially as CDs reprice throughout 2026.
- Growth Engine Reset: With Northway integration complete, management’s focus shifts to organic growth in key markets and deeper customer engagement through digital and wealth offerings.
- Execution Watchpoint: Investors should monitor credit normalization, deposit competition, and the scalability of automation-driven efficiency as the core levers for sustained profitability.
Conclusion
Camden National’s Q4 capped a year of record profitability and strategic execution, with margin gains, digital advances, and proactive credit actions setting the stage for 2026. Management’s disciplined approach to growth, risk, and capital allocation positions the bank well, though vigilance on loan demand and funding costs remains warranted as the cycle evolves.
Industry Read-Through
Camden National’s experience highlights a broader trend among regional banks: margin expansion is increasingly driven by disciplined deposit management and automation-enabled efficiency rather than loan growth alone. The bank’s proactive credit actions and digital engagement initiatives provide a template for peers navigating similar rate and competitive pressures. Expect continued focus across the sector on repricing deposits, leveraging automation, and deepening fee-based customer relationships as key profitability levers in a maturing credit cycle.