UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2017~~March 31, 2018

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Commission File No. 0-28190

CAMDEN NATIONAL CORPORATION

(Exact name of registrant as specified in its charter)



MAINE	01-0413282
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

2 ELM STREET, CAMDEN, ME	04843
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code: (207) 236-8821

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer ¨	Accelerated filer x
Non-accelerated filer ¨	Smaller reporting company ¨
(Do not check if a smaller reporting company)	Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date:

Outstanding at ~~October~~April 27, ~~2017:~~2018: Common stock (no par value) ~~15,516,049~~15,566,603 shares.

CAMDEN NATIONAL CORPORATION

FORM 10-Q FOR THE QUARTER ENDED ~~SEPTEMBER 30, 2017~~MARCH 31, 2018

TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT



		PAGE
PART I. FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS

	Consolidated Statements of Condition - ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017	3

	Consolidated Statements of Income - Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~	4

	Consolidated Statements of Comprehensive Income - Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~	5

	Consolidated Statements of Changes in Shareholders’ Equity - ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~	6

	Consolidated Statements of Cash Flows - ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~	7

	Notes to the Unaudited Consolidated Financial Statements	8

ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	4543

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	6361

ITEM 4.	CONTROLS AND PROCEDURES	6563

PART II. OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	6664

ITEM 1A.	RISK FACTORS	6664

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	6664

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	6664

ITEM 4.	MINE SAFETY DISCLOSURES	6664

ITEM 5.	OTHER INFORMATION	6664

ITEM 6.	EXHIBITS	6765

SIGNATURES		6866

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CONDITION (unaudited)	CONSOLIDATED STATEMENTS OF CONDITION (unaudited)							CONSOLIDATED STATEMENTS OF CONDITION (unaudited)

(In thousands, except number of shares)		September 30, 2017			December 31, 2016				March 31, 2018			December 31, 2017
ASSETS
Cash and due from banks		$	89,435		$	87,707			$	48,159		$	44,057
Interest-bearing deposits in other banks									76,950			58,914
Total cash, cash equivalents and restricted cash									125,109			102,971
Investments:
Available-for-sale securities, at fair value		797,251			779,867				796,687			789,899
Held-to-maturity securities, at amortized cost		94,207			94,609
Federal Home Loan Bank and Federal Reserve Bank stock, at cost		24,560			23,203
Held-to-maturity securities, at amortized cost (fair value of $91.9 million and $94.9 million, respectively)									93,192			94,073
Other investments									23,774			23,670
Total investments		916,018			897,679				913,653			907,642
Loans held for sale, at fair value		12,997			14,836				9,548			8,103
Loans		2,748,290			2,594,564				2,789,148			2,782,439
Less: allowance for loan losses		(24,413		)	(23,116		)		(22,990		)	(24,171		)
Net loans		2,723,877			2,571,448				2,766,158			2,758,268
Goodwill		94,697			94,697				94,697			94,697
Other intangible assets		5,347			6,764				4,774			4,955
Bank-owned life insurance		86,869			78,119				88,097			87,489
Premises and equipment, net		42,422			42,873				41,545			41,891
Deferred tax assets		36,344			39,263				23,181			22,776
Other assets		31,937			30,844				46,423			36,606
Total assets		$	4,039,943		$	3,864,230			$	4,113,185		$	4,065,398
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits:
Demand		$	476,386		$	406,934			$	463,496		$	478,643
Interest checking		758,568			701,494				840,054			855,570
Savings and money market		976,246			979,263				1,005,329			985,508
Certificates of deposit		498,965			468,203				471,155			475,010
Brokered deposits		246,248			272,635				245,546			205,760
Total deposits		2,956,413			2,828,529				3,025,580			3,000,491
Short-term borrowings		538,997			530,129				552,624			541,796
Long-term borrowings		10,738			10,791				10,773			10,791
Subordinated debentures		58,872			58,755				58,950			58,911
Accrued interest and other liabilities		60,557			44,479				61,203			49,996
Total liabilities		3,625,577			3,472,683				3,709,130			3,661,985
Commitments and Contingencies
Shareholders’ Equity
Common stock, no par value: authorized 40,000,000 shares, issued and outstanding 15,515,577 and 15,476,379 on September 30, 2017 and December 31, 2016, respectively		156,561			156,041
Common stock, no par value: authorized 40,000,000 shares, issued and outstanding 15,565,868 and 15,524,704 on March 31, 2018 and December 31, 2017, respectively									156,860			156,904
Retained earnings		270,316			249,415				275,841			266,723
Accumulated other comprehensive loss:
Net unrealized losses on available-for-sale securities, net of tax		(5,165		)	(6,085		)
Net unrealized losses on available-for-sale debt securities, net of tax									(20,227		)	(10,300		)
Net unrealized losses on cash flow hedging derivative instruments, net of tax		(5,344		)	(5,694		)		(4,547		)	(5,926		)
Net unrecognized losses on postretirement plans, net of tax		(2,002		)	(2,130		)		(3,872		)	(3,988		)
Total accumulated other comprehensive loss		(12,511		)	(13,909		)		(28,646		)	(20,214		)
Total shareholders’ equity		414,366			391,547				404,055			403,413
Total liabilities and shareholders’ equity		$	4,039,943		$	3,864,230			$	4,113,185		$	4,065,398

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF INCOME (unaudited)	CONSOLIDATED STATEMENTS OF INCOME (unaudited)									CONSOLIDATED STATEMENTS OF INCOME (unaudited)

		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
(In thousands, except number of shares and per share data)		2017		2016		2017		2016			2018				2017
Interest Income
Interest and fees on loans		$	29,350	$	27,395	$	84,835	$	82,117		$	29,834			$	27,062
Interest on U.S. government and sponsored enterprise obligations		4,177		4,049		12,788		12,055
Interest on state and political subdivision obligations		686		702		2,079		2,127
Interest on federal funds sold and other investments		497		448		1,362		1,051
Interest on U.S. government and sponsored enterprise obligations (taxable)											4,225				4,256
Interest on state and political subdivision obligations (nontaxable)											672				702
Interest on deposits in other banks and other investments											547				394
Total interest income		34,710		32,594		101,064		97,350			35,278				32,414
Interest Expense
Interest on deposits		3,027		2,204		8,568		6,355			3,749				2,554
Interest on borrowings		1,665		1,161		4,302		3,610			1,780				1,161
Interest on subordinated debentures		858		857		2,553		2,557			847				844
Total interest expense		5,550		4,222		15,423		12,522			6,376				4,559
Net interest income		29,160		28,372		85,641		84,828			28,902				27,855
Provision for credit losses		817		1,279		2,797		5,003
Net interest income after provision for credit losses		28,343		27,093		82,844		79,825
(Credit) provision for credit losses											(497		)		579
Net interest income after (credit) provision for credit losses											29,399				27,276
Non-Interest Income
Debit card income		2,061		1,894		5,887		5,650			1,929				1,834
Service charges on deposit accounts		1,852		1,799		5,632		5,356			1,836				1,823
Mortgage banking income, net		2,076		2,407		5,566		4,921			1,391				1,553
Income from fiduciary services		1,229		1,225		3,831		3,736			1,283				1,247
Brokerage and insurance commissions											650				453
Bank-owned life insurance		603		585		1,750		1,899			608				577
Brokerage and insurance commissions		600		594		1,601		1,569
Other service charges and fees		589		591		1,558		1,494			462				468
Net gain on sale of securities		827		—		827		4
Other income		462		1,906		2,107		4,841			645				617
Total non-interest income		10,299		11,001		28,759		29,470			8,804				8,572
Non-Interest Expense
Salaries and employee benefits		12,359		12,044		36,882		35,634			12,562				11,933
Furniture, equipment and data processing		2,429		2,349		7,204		7,157			2,586				2,325
Net occupancy costs		1,599		1,685		5,234		5,352			1,873				1,946
Consulting and professional fees		714		742		2,412		2,609			804				845
Debit card expense		662		669		2,034		2,107			730				660
Regulatory assessments		574		667		1,607		2,162			499				545
Amortization of intangible assets		473		475		1,417		1,427			181				472
Other real estate owned and collection costs, net		258		877		558		2,029
Merger and acquisition costs		—		45		—		866
Other real estate owned and collection costs (recoveries), net											75				(44		)
Other expenses		2,757		2,596		8,063		8,045			2,994				2,746
Total non-interest expense		21,825		22,149		65,411		67,388			22,304				21,428
Income before income tax expense		16,817		15,945		46,192		41,907			15,899				14,420
Income tax expense		5,478		5,042		14,543		12,742			3,079				4,344
Net Income		$	11,339	$	10,903	$	31,649	$	29,165		$	12,820		��	$	10,076

Per Share Data
Basic earnings per share		$	0.72	$	0.70	$	2.03	$	1.88		$	0.82			$	0.65
Diluted earnings per share		$	0.72	$	0.70	$	2.02	$	1.88		$	0.82			$	0.64
Weighted average number of common shares outstanding		15,515,189		15,425,452		15,505,698		15,410,310			15,541,975				15,488,848
Diluted weighted average number of common shares outstanding		15,589,008		15,507,561		15,580,072		15,483,320			15,603,380				15,568,639
Cash dividends declared per share											$	0.25			$	0.23

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
Three Months Ended
September 30, Nine Months Ended
September 30,
(In thousands) 2017 2016 2017 2016
Net Income $ 11,339
$ 10,903
$ 31,649
$ 29,165
Other comprehensive income (loss):

Net change in unrealized gains (losses) on available-for-sale securities:

Net change in unrealized gains (losses) on available-for-sale securities, net of tax of $142, $405, ($784) and ($5,599), respectively (262 ) (752 ) 1,458
10,399
Net reclassification adjustment for net gains included in net income, net of tax of $289, $0, $289 and $1, respectively⁽¹⁾
(538 ) —
(538 ) (3 )
Net change in unrealized gains (losses) on available-for-sale securities, net of tax (800 )
(752 )
920

10,396
Net change in unrealized gains (losses) on cash flow hedging derivatives:
Net change in unrealized gains (losses) on cash flow hedging derivatives, net of tax of $43, ($107), $243 and $1,859, respectively (80 ) 199
(452 ) (3,453 )
Net reclassification adjustment for effective portion of cash flow hedges, net of tax of ($128), ($187), ($432) and ($532), respectively⁽²⁾
238
347
802
989
Net change in unrealized gains (losses) on cash flow hedging derivatives, net of tax 158

546

350

(2,464 )
Reclassification of amortization of net unrecognized actuarial loss and prior service cost, net of tax of ($23), ($20), ($69) and ($62), respectively⁽³⁾
42
39
128
115
Other comprehensive income (loss) (600 ) (167 ) 1,398
8,047
Comprehensive Income $ 10,739
$ 10,736
$ 33,047
$ 37,212

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

	Three Months Ended March 31,
(In thousands)	2018			2017
Net Income	$	12,820		$	10,076
Other comprehensive loss:
Net change in unrealized losses on available-for-sale securities, net of tax of $2,666 and $247, respectively	(9,729		)	(458		)
Net change in unrealized losses on cash flow hedging derivatives:
Net change in unrealized losses on cash flow hedging derivatives, net of tax of ($355) and ($48) respectively	1,328			90
Net reclassification adjustment for effective portion of cash flow hedges, net of tax of ($13) and ($159), respectively⁽¹⁾	51			296
Net change in unrealized losses on cash flow hedging derivatives, net of tax	1,379			386
Reclassification of amortization of net unrecognized actuarial loss and prior service cost, net of tax of ($31) and ($23), respectively⁽²⁾	116			43
Other comprehensive loss	(8,234		)	(29		)
Comprehensive Income	$	4,586		$	10,047


(1)	Reclassified into the consolidated statements of income ~~in net gain~~within interest on ~~sale of securities.~~borrowings and subordinated debentures.


(2)	Reclassified into the consolidated statements of income within ~~interest expense.~~


~~(3)~~	~~Reclassified into the consolidated statements of income in~~ salaries and employee ~~benefits.~~benefits and other expenses.

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)	CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)																CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)

		Common Stock								Accumulated Other Comprehensive Loss				Total Shareholders’ Equity				Common Stock									Accumulated Other Comprehensive Loss			Total Shareholders’ Equity
(In thousands, except number of shares and per share data)		Shares Outstanding⁽¹⁾		Amount			Retained Earnings							Total Shareholders’ Equity			Shares Outstanding		Amount				Retained Earnings				Accumulated Other Comprehensive Loss			Total Shareholders’ Equity
Balance at December 31, 2015		15,330,717		$	153,083		$	222,329		Accumulated Other Comprehensive Loss	$	(12,222	)		$	363,190
Cumulative effect adjustment⁽²⁾		—		72			(72		)	—				—
Cash in-lieu, stock split⁽³⁾		(173	)	(5		)	—			—				(5		)
Net income		—		—			29,165			—				29,165
Other comprehensive income, net of tax		—		—			—			8,047				8,047
Stock-based compensation expense		—		1,521			—			—				1,521
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings		104,312		593			—			—				593
Cash dividends declared ($0.60 per share)⁽¹⁾		—		—			(9,330		)	—				(9,330		)
Balance at September 30, 2016		15,434,856		$	155,264		$	242,092		$	(4,175	)		$	393,181

Balance at December 31, 2016		15,476,379		$	156,041		$	249,415		$	(13,909	)		$	391,547			15,476,379		$	156,041			$	249,415		$	(13,909	)	$	391,547
Net income		—		—			31,649			—				31,649				—		—				10,076			—			10,076
Other comprehensive income, net of tax		—		—			—			1,398				1,398				—		—				—			(29		)	(29		)
Stock-based compensation expense		—		1,135			—			—				1,135				—		366				—			—			366
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings		39,198		(615		)	—			—				(615		)		31,646		(552		)		—			—			(552		)
Cash dividends declared ($0.69 per share)		—		—			(10,748		)	—				(10,748		)
Balance at September 30, 2017		15,515,577		$	156,561		$	270,316		$	(12,511	)		$	414,366
Cash dividends declared ($0.23 per share)																		—		—				(3,581		)	—			(3,581		)
Balance at March 31, 2017																		15,508,025		$	155,855			$	255,910		$	(13,938	)	$	397,827

Balance at December 31, 2017																		15,524,704		$	156,904			$	266,723		$	(20,214	)	$	403,413
Cumulative-effect adjustment (Note 2)																		—		—				198			(198		)	—
Net income																		—		—				12,820			—			12,820
Other comprehensive income, net of tax																		—		—				—			(8,234		)	(8,234		)
Stock-based compensation expense																		—		431				—			—			431
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings																		41,164		(475		)		—			—			(475		)
Cash dividends declared ($0.25 per share)																		—		—				(3,900		)	—			(3,900		)
Balance at March 31, 2018																		15,565,868		$	156,860			$	275,841		$	(28,646	)	$	404,055


~~(1)~~	~~Share and per share amounts as of December 31, 2015 have been adjusted to reflect the three-for-two stock split effective September 30, 2016.~~


~~(2)~~	In the second quarter of 2016, the Company adopted ASU 2016-09, effective January 1, 2016. The Company made a policy election to not estimate the forfeiture rate in the accounting for share-based compensation on its unvested share-based awards. The change in policy was accounted for on a modified-retrospective basis and represents the cumulative effect adjustment to shareholders' equity.


~~(3)~~	~~In the third quarter of 2016, the Company paid shareholders cash in-lieu of fractional shares of common stock in connection with the three-for-two stock split effective September 30, 2016.~~

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)	CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)							CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

		Nine Months Ended September 30,							Three Months Ended March 31,
(In thousands)		2017			2016				2018			2017
Operating Activities
Net Income		$	31,649		$	29,165			$	12,820		$	10,076
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses		2,797			5,003
(Credit) provision for credit losses									(497		)	579
Depreciation and amortization expense		2,789			3,498				940			916
Purchase accounting accretion, net		(2,204		)	(3,792		)		(514		)	(748		)
Investment securities amortization and accretion, net		2,350			2,234				763			786
Stock-based compensation expense		1,135			1,521				431			366
Amortization of intangible assets		1,417			1,427				181			472
Net gain on sale of investment securities		(827		)	(4		)
Net increase in other real estate owned valuation allowance and gain on disposition		(60		)	(147		)		—			(27		)
Originations of mortgage loans held for sale		(148,661		)	(180,182		)		(46,641		)	(33,629		)
Proceeds from the sale of mortgage loans		155,086			170,765				46,426			44,320
Gain on sale of mortgage loans, net of origination costs		(4,323		)	(4,171		)		(1,220		)	(1,280		)
(Increase) decrease in other assets		(82		)	7,533				(2,850		)	3,283
Increase in other liabilities		1,325			154
Increase (decrease) in other liabilities									7,218			(20		)
Net cash provided by operating activities		42,391			33,004				17,057			25,094
Investing Activities
Proceeds from maturities of held-to-maturity securities									750			—
Proceeds from the sale and maturity of available-for-sale securities		124,548			105,863				29,531			32,557
Purchase of available-for-sale securities		(127,684		)	(130,254		)		(50,152		)	(77,286		)
Purchase of held-to-maturity securities		—			(10,448		)
Net increase in loans		(153,629		)	(101,732		)		(7,008		)	(50,049		)
Purchase of bank-owned life insurance, net of death benefit proceeds		(7,000		)	(16,122		)
Purchase of Federal Home Loan Bank and Federal Reserve Bank stock		(8,304		)	(7,341		)
Purchase of Federal Home Loan Bank stock									(2,815		)	(2,143		)
Proceeds from sale of Federal Home Loan Bank stock		6,947			5,652				3,472			—
Proceeds from the sale of other real estate owned		641			672				—			329
Recoveries of previously charged-off loans		442			381				122			183
Proceeds from the liquidation of equity investment									205			—
Purchase of premises and equipment		(2,378		)	(1,507		)		(595		)	(264		)
Proceeds from the sale of premises and equipment		137			90				—			137
Net cash used by investing activities		(166,280		)	(154,746		)		(26,490		)	(96,536		)
Financing Activities
Net increase in deposits		128,131			163,563				25,126			108,736
Net proceeds from borrowings less than 90 days		33,841			36,846
Repayments on Federal Home Loan Bank long-term advances		(20,000		)	(25,000		)
Net proceeds from (repayments of ) borrowings less than 90 days									10,816			(37,779		)
Repayments of wholesale repurchase agreements		(5,000		)	(25,000		)		—			(5,000		)
Exercise of stock options and issuance of restricted stock, net of repurchase for tax withholdings		(615		)	593				(475		)	(552		)
Cash dividends paid on common stock		(10,740		)	(9,290		)		(3,896		)	(3,575		)
Net cash provided by financing activities		125,617			141,712				31,571			61,830
Net increase in cash and cash equivalents		1,728			19,970
Cash and cash equivalents at beginning of period		87,707			79,488
Cash and cash equivalents at end of period		$	89,435		$	99,458
Net increase (decrease) in cash, cash equivalents and restricted cash									22,138			(9,612		)
Cash, cash equivalents, and restricted cash at beginning of period									102,971			87,707
Cash, cash equivalents and restricted cash at end of period									$	125,109		$	78,095
Supplemental information
Interest paid		$	15,383		$	12,673			$	6,384		$	4,549
Unsettled purchases of investment securities		13,954			—
Income taxes paid		11,559			4,844				69			57
Transfer from loans to other real estate owned		—			32
Measurement-period adjustments		—			960

The accompanying notes are an integral part of these consolidated financial statements.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in tables expressed in thousands, except per share data)

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited consolidated interim financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures required by accounting principles generally accepted in the United States of America for complete presentation of financial statements. In the opinion of management, the consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the consolidated statements of condition of Camden National Corporation as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017, the consolidated statements of income for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 and ~~2016~~2017, the consolidated statements of comprehensive income for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 and ~~2016~~2017, the consolidated statements of changes in shareholders' equity for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 and ~~2016,~~2017, and the consolidated statements of cash flows for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 and ~~2016~~2017. All significant intercompany transactions and balances are eliminated in consolidation. Certain items from the prior period were reclassified to conform to the current period presentation. The income reported for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 is not necessarily indicative of the results that may be expected for the full year. The information in this report should be read in conjunction with the consolidated financial statements and accompanying notes included in the year ended December 31, ~~2016~~2017 Annual Report on Form 10-K.

The acronyms and abbreviations identified below are used throughout this Form 10-Q, including Part I. "Financial Information." The following was provided to aid the reader and provide a reference page when reviewing this section of the Form 10-Q.



AFS:	Available-for-sale	~~GAAP:~~	~~Generally accepted accounting principles in the United States~~
~~ALCO:~~	~~Asset/Liability Committee~~	HPFC:	Healthcare Professional Funding Corporation, a wholly-owned subsidiary of Camden National Bank
ALCO:	Asset/Liability Committee	HTM:	Held-to-maturity
ALL:	Allowance for loan losses	~~HTM:~~IRS:	~~Held-to-maturity~~Internal Revenue Service
AOCI:	Accumulated other comprehensive income (loss)	~~IRS:~~LIBOR:	~~Internal Revenue Service~~London Interbank Offered Rate
ASC:	Accounting Standards Codification	~~LIBOR:~~LTIP:	~~London Interbank Offered Rate~~Long-Term Performance Share Plan
ASU:	Accounting Standards Update	~~LTIP:~~Management ALCO:	~~Long-Term Performance Share Plan~~Management Asset/Liability Committee
Bank:	Camden National Bank, a wholly-owned subsidiary of Camden National Corporation	~~Management ALCO:~~MBS:	Mortgage-backed security
BOLI:	Bank-owned life insurance	MSPP:	Management ~~Asset/Liability Committee~~Stock Purchase Plan
Board ALCO:	Board of Directors' Asset/Liability Committee	~~MBS:~~N.M.:	~~Mortgage-backed security~~
~~BOLI:~~	~~Bank-owned life insurance~~	~~MSRs:~~	~~Mortgage servicing rights~~
~~BSA:~~	~~Bank Secrecy Act~~	~~MSPP:~~	~~Management Stock Purchase Plan~~Not meaningful
CCTA:	Camden Capital Trust A, an unconsolidated entity formed by Camden National Corporation	~~OTTI:~~	~~Other-than-temporary impairment~~
~~CDARS:~~	~~Certificate of Deposit Account Registry System~~	~~NIM:~~	~~Net interest margin on a fully-taxable basis~~
~~CDs:~~	~~Certificate of deposits~~	~~N.M.:~~	~~Not meaningful~~
~~CMO:~~	~~Collateralized mortgage obligation~~	OCC:	Office of the Comptroller of the Currency
~~CNWM:~~CDs:	~~Camden National Wealth Management, a division~~Certificate of ~~Camden National Bank~~deposits	OCI:	Other comprehensive income (loss)
Company:	Camden National Corporation	~~OFAC:~~OREO:	~~Office of Foreign Assets Control~~Other real estate owned
CMO:	Collateralized mortgage obligation	OTTI:	Other-than-temporary impairment
DCRP:	Defined Contribution Retirement Plan	~~OREO:~~SBM:	~~Other real estate owned~~SBM Financial, Inc., the parent company of The Bank of Maine
EPS:	Earnings per share	SERP:	Supplemental executive retirement plans
FASB:	Financial Accounting Standards Board	~~TDR:~~Tax Act:	~~Troubled-debt restructured loan~~Tax Cuts and Jobs Act of 2017, enacted on December 22, 2017
FDIC:	Federal Deposit Insurance Corporation	TDR:	Troubled-debt restructured loan
FHLB:	Federal Home Loan Bank	UBCT:	Union Bankshares Capital Trust I, an unconsolidated entity formed by Union Bankshares Company that was subsequently acquired by Camden National Corporation
~~FHLB:~~FHLBB:	Federal Home Loan Bank of Boston	U.S.:	United States of America
~~FHLBB:~~FRB:	Federal ~~Home Loan Bank of Boston~~	~~USD:~~	~~United States Dollar~~
~~FRB:~~	Reserve System Board of Governors ~~of the Federal Reserve System~~	2003 Plan:	2003 Stock Option and Incentive Plan
FRBB:	Federal Reserve Bank of Boston	2012 Plan:	2012 Equity and Incentive Plan
~~Freddie Mac:~~GAAP:	~~Federal Home Loan Mortgage Corporation~~Generally accepted accounting principles in the United States	~~2013 Repurchase Program:~~	~~2013 Common Stock Repurchase Program, approved~~

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Standards Adopted

The Company adopted the following new accounting standards in the first quarter of 2018 and such standards have been accounted for and presented within the accompanying consolidated financial statements for the three months ended March 31, 2018 as follows:

ASU 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09") and ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date ("ASU 2015-14"): In May 2014, the FASB issued ASU 2014-09 followed by the issuance of ASU 2015-14 in August 2015, to defer the effective date of ASU 2014-09 by one year. ASU 2014-09 was issued to clarify the principles for recognizing revenue and to develop a common revenue standard. Effective January 1, 2018, the Company adopted ASU 2014-09 using the modified-retrospective transition method. As part of its assessment, the Company concluded that the following material revenue streams were within the scope of ASU 2014-09: (i) service charges on deposit accounts; (ii) debit card interchange income; (iii) income from fiduciary services and (iv) investment program income. Through the Company's assessment, it was determined that there will be no cumulative-effect adjustment to beginning shareholders' equity under the modified-retrospective transition method within the consolidated financial statements as there was no change in revenue recognition upon adoption of ASU 2014-09.

The details of the revenue streams within the scope of ASU 2014-09 are as follows:

Service charges on deposit accounts: Deposit-related fees, include, but are not limited to, overdraft income, service charge income, and other fees generated by the depositor relationship with the Bank. For each depositor relationship, an agreement and related disclosures outline the terms of the contract between the depositor and the Bank, including the assessment of fees and fee structure for its various products. The contract is day-to-day and can be closed by the customer or the Bank at any time. As such, the Company recognizes revenue at the time of the transaction as the performance obligation has been met.

The Company presents its revenues earned on service charges on deposit accounts within (i) service charges on deposit accounts and (ii) other service charges and fees on the consolidated statements of income.

Debit card interchange income: The Bank has separate contracts with intermediaries and earns interchange revenue and incurs related expenses on debit card transactions of its deposit customers. Income earned and expenses incurred by the Bank are dependent on its depositors' debit card usage, including depositor spend, transaction type and merchant. The rates earned are determined by the intermediaries. The Company determined that while the contract for which revenues are directly earned is with the intermediary rather than the depositor, that the underlying contract with each depositor is required for the generation of debit card interchange income and it is the depositors' debit card usage that drives the revenues earned and related expenses incurred. The contract with the depositor is day-to-day and can be closed by the customer or the Bank at any time. As such, the Company recognized revenue at the time of the transaction as the performance obligation has been met.

The Company's debit card interchange revenue and related expenses are presented on a gross basis in accordance with ASU 2014-09 as clarified by ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations ("ASU 2016-08"), as it has control of the specified service prior to transfer to the depositor through the extension of credit.

The Bank pays to certain depositors cash rewards for debit card usage to promote usage and increase interchange revenue. As the consideration paid to its depositors is not for any separate or distinct service these costs are accounted for and presented as a reduction of debit card income upon adoption for periods beginning on January 1, 2018. The Company did not revise prior period presentation on its consolidated statements of income as the modified-retrospective transition method was used.

The Company presents its revenues earned on debit card income within debit card income and related expenses on debit card transactions within debit card expense on the consolidated statements of income.

Fiduciary services income: The Company, through the Bank's wealth management and trust services department, doing business as Camden National Wealth Management, earns fees for its investment management and related services for its clients. Fees earned for its services are largely dependent on assets under management as of the last day of the month and do not contain performance clauses. Should the contract be terminated by either party, fees for services are earned up to the effective date of contract termination. As such, fiduciary services income is earned and recognized daily.

The Company presents its revenues earned on fiduciary services within income from fiduciary services on the consolidated statements of income.

•

Investment program income: Under an investment program offered by the ~~Company's Board~~Bank, doing business as Camden Financial Consultant (“Program”), its clients are provided access to brokerage, advisory and insurance products offered through an unaffiliated third party, LPL Financial LLC¹ ("LPL Financial"). Certain Bank employees are registered securities representatives and/or registered investment advisor representatives of ~~Directors~~LPL Financial who operate in such capacity under Camden Financial Consultants to provide clients with brokerage, investment advisory and insurance related services. The Bank receives a portion of the commissions and fees received by LPL Financial from the sale of investment products and investment advisory services in accordance with the terms of the contract between the two parties.

The revenues earned by the Bank are net of administrative expenses and the portion retained by LPL Financial. The Bank does not have control of the specified services provided to its clients under the Program by LPL Financial. Revenues earned from Program-related services are presented on the consolidated statements of income on a net basis in accordance with ASU 2014-09 as clarified by ASU 2016-08.

The Company presents its revenues earned from Program-related services within brokerage and insurance commissions on the consolidated statements of income.

ASU No. 2016-01, Income Statement - Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Liabilities ("ASU 2016-01"): In January 2016, the FASB issued ASU 2016-01 to enhance the reporting model for financial instruments to provide the users of financial statements with more useful information for decisions. Effective January 1, 2018, the Company adopted ASU 2016-01 and applied the provisions of the standard within its consolidated financial statements for the three months ended March 31, 2018, which included:

The Company's equity investments are no longer designated and accounted for as AFS securities, with the change in fair value recognized within AOCI, net of tax. Instead, the change in fair value of equity investments with a readily determinable fair value are to be recognized within net income. For the three months ended March 31, 2018, the Company recognized an unrealized loss of $35,000 for the change in fair value of its equity investments within other income on the Company's consolidated statements of income. The recognition for the change in fair value within net income was applied prospectively, and the Company recorded a cumulative-effect adjustment as of January 1, 2018 for its equity investments to reclassify the unrealized gain, net of tax, of $198,000 previously recognized within AOCI to retained earnings.

The Company used the "exit price" notion when measuring the fair value of financial instruments for disclosure purposes only. The Company previously used the "entry price" notion for purposes of measuring its loans held for investment for disclosure purposes only. The change in valuation methodology has been applied prospectively as it does not have a material effect on the comparability of the disclosure.

The Company no longer discloses the method or significant assumptions used to estimate the fair value for its financial instruments measured at amortized cost on its consolidated statements of condition for which fair value is provided for disclosure purposes only.

Securities are offered through LPL Financial, Member FINRA/SIPC. Camden Financial Consultants and the Bank are not registered broker/dealers and are not affiliated with LPL Financial. The investment products sold through LPL Financial are not insured by Bank deposits and are not insured by the Federal Deposit Insurance Corporation ("FDIC"). These products are not obligations of the Bank and are not endorsed, recommended or guaranteed by the Bank or any government agency. The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible.

ASU No. 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost ("ASU 2017-07"): In March 2017, the FASB issued ASU 2017-07 to improve the presentation of net periodic pension cost and net periodic postretirement by companies to disaggregate the service cost component from the other components of net benefit cost, as well as provide other guidance to improve consistency, transparency and usefulness. Prior to adoption, the Company presented all components of net periodic benefit costs within the salaries and employee benefits on the Company's consolidated statements of income. Upon adoption, the Company now presents the service cost component of net periodic benefit cost in the salaries and employee benefits line and all other components of net periodic cost within other expenses on its consolidated statements of income. The change in presentation has been applied retrospectively to prior periods represented on the Company's consolidated statements of income using the amounts previously disclosed within its prior year financial statements as a practical expedient.

ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"): In August 2016, the FASB issued ASU 2016-15 to address eight specific cash flow presentation matters within the statement of cash flows and reduce diversity of presentation across companies. Of the eight specific cash flow presentation matters addressed by the standard, it is noted that one matter addressed is of relevance to the Company based on its current and past operations: proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies. The standard states that cash proceeds received from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, should be classified as cash inflows from investing activities within statement of cash flows.

The Company adopted the standard for financial reporting periods beginning after December 15, 2017 and it has been applied within the accompanying consolidated statement of cash flows using a retrospective transition method.

ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash ("ASU 2016-18"):In November 2017, the FASB issued ASU 2016-18 to reduce the diversity in practice for the classification and presentation of changes in restricted cash on the statement of cash flows. The standard requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. As such, the statement of cash flows should consider the changes in amounts generally described as restricted cash or restricted cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown in the statements of cash flows.

Accounting Standards Issued

The following are recently issued accounting pronouncements that have yet to be adopted by the Company:

ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"): In February 2016, the FASB issued ASU 2016-02 to increase transparency and comparability among organizations by recognizing lease assets and liabilities (including operating leases) on the balance sheet and disclosing key information about leasing arrangements. Current lease accounting does not require the inclusion of operating leases in the balance sheet. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, early application is permitted. The Company will adopt under a modified-retrospective approach.

Upon adoption, ASU 2016-02 will increase the Company's total assets and liabilities on its consolidated statements of condition as its operating leases will be accounted for as a right-of-use asset and a lease liability; however, the Company does not anticipate that upon adoption the ASU will have a material effect on its consolidated financial statements. The Company continues to evaluate the impact of adoption of this standard.

ASU No. 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities ("ASU 2017-08"): In March 2017, the FASB issued ASU 2017-08 to shorten the amortization period for certain callable debt securities purchased and carried at a premium, by requiring the premium to be amortized to the earliest call date of the debt security. ASU 2017-08 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. The Company will adopt on a modified retrospective basis with any necessary adjustments to retained earnings as a cumulative-effect adjustment. While the Company continues to assess the impact of ASU 2017-08, it does not expect the ASU will have a material impact to its financial statements upon adoption.

ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12"): In August 2017, the FASB issued ASU 2017-12 to make certain specific improvements to hedge accounting to better align hedge accounting with risk management activities, eliminate the separate measurement and recording of hedge ineffectiveness, improve presentation and disclosure, and other simplifications. ASU 2017-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. All transition requirements and elections are to be applied to existing hedging relationships upon adoption. While the Company continues to assess the impact of ASU 2017-12, it does not believe it will have a material impact on the Company's consolidated financial statements upon adoption.

ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"): In June 2016, the FASB issued ASU 2016-13 to require timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years, for public companies. Early adoption is permitted for annual periods beginning after December 15, 2018, including interim periods within that fiscal year. The Company will adopt the guidance under a modified-retrospective approach, whereby a cumulative-effect adjustment will be made to retained earnings upon adoption. The Company will use a prospective transition approach for debt securities for which an OTTI had been recognized before the effective date, as applicable.

While the Company continues to prepare for the adoption of ASU 2016-13 on January 1, 2020, it recognizes the changes to its consolidated financial statements upon adoption are imminent as the ASU requires:

A change in the Company's assessment of its ALL and allowance on unused commitments as it will transition from an incurred loss model to an expected loss model, which may result in an increase in the ALL upon adoption and may negatively impact the Company and Bank's regulatory capital ratios.

May reduce the carrying value of the Company's HTM investment securities as it will require an allowance on the expected losses over the life of these securities to be recorded upon adoption.

Changes to the considerations when assessing AFS debt securities for OTTI, including (i) no longer considering the amount of time a security has been in an unrealized loss position and (ii) no longer considering the historical and implied volatility of a security and recoveries or declines in the fair value after the balance sheet date, as well as the presentation of OTTI as an allowance rather than a permanent write-down of the debt security.

Changes to the disclosure requirements to reflect the transition from an incurred loss methodology to an expected credit loss methodology, as well as certain disclosures of credit quality indicators in relation to the amortized cost of financing receivables disaggregated by year of origination (or vintage).

The Company continues to assess the overall impact to its financial statements, and, at this time, it does not have an estimated impact to its financial statements.

Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"): In January 2017, the FASB issued ASU 2017-04 to reduce the cost and complexity of the goodwill impairment test. To simplify the subsequent measurement of goodwill, step two of the goodwill impairment test was eliminated. Instead, in accordance with ASU 2017-04, a Company will recognize an impairment of goodwill should the carrying value of a reporting unit exceed its fair value (i.e. step one). ASU 2017-04 will be effective for the Company on January 1, 2020 and will be applied prospectively.

NOTE 23 – EPS

The following is an analysis of basic and diluted EPS, reflecting the application of the two-class method, as described below:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2017			2016			2018			2017
Net income	$	11,339		$	10,903		$	31,649		$	29,165		$	12,820		$	10,076
Dividends and undistributed earnings allocated to participating securities⁽¹⁾	(46		)	(54		)	(134		)	(134		)	(40		)	(45		)
Net income available to common shareholders	$	11,293		$	10,849		$	31,515		$	29,031		$	12,780		$	10,031
Weighted-average common shares outstanding for basic EPS	15,515,189			15,425,452			15,505,698			15,410,310			15,541,975			15,488,848
Dilutive effect of stock-based awards⁽²⁾	73,819			82,109			74,374			73,010			61,405			79,791
Weighted-average common and potential common shares for diluted EPS	15,589,008			15,507,561			15,580,072			15,483,320			15,603,380			15,568,639
Earnings per common share⁽¹⁾:
Basic EPS	$	0.72		$	0.70		$	2.03		$	1.88		$	0.82		$	0.65
Diluted EPS	$	0.72		$	0.70		$	2.02		$	1.88		$	0.82		$	0.64
Awards excluded from the calculation of diluted EPS⁽³⁾:
Stock options	—			—			—			18,375

(1) Represents dividends paid and undistributed earnings allocated to nonvested stock-based awards that contain non-forfeitable rights to dividends.

(2) Represents the effect of the assumed exercise of stock options, vesting of restricted shares and vesting of restricted stock units utilizing the treasury stock method. Not included are the unvested LTIP awards as they have not met the performance criteria for the periods presented.

~~(3) Represents stock-based~~

For the three months ended March 31, 2018 and 2017, there are no anti-dilutive stock based awards ~~not included in~~that have been excluded from the computation of potential common shares for purposes of calculating diluted EPS as the ~~exercise prices were greater than the~~ average market price of the Company's common stock ~~and are considered anti-dilutive.~~is greater than the exercise prices.

Nonvested stock-based payment awards that contain non-forfeitable rights to dividends are participating securities and are included in the computation of EPS pursuant to the two-class method. The two-class method is an earnings allocation formula that determines EPS for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. Certain of the Company’s nonvested stock-based awards qualify as participating securities.

Net income is allocated between the common stock and participating securities pursuant to the two-class method. Basic EPS is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period, excluding participating nonvested stock-based awards.

Diluted EPS is computed in a similar manner, except that the denominator includes the number of additional common shares that would have been outstanding if potentially dilutive common shares were issued using the treasury stock method.

NOTE 34 – ~~SECURITIES~~INVESTMENTS

AFS and HTM Investments

The following ~~tables summarize~~table summarizes the amortized cost and estimated fair values of AFS and HTM securities, as of the dates indicated:

Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Fair
Value
September 30, 2017

AFS Securities:
Obligations of states and political subdivisions $ 7,233
$ 132
$ —
$ 7,365
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises 524,763
961
(4,620 ) 521,104
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises 267,096
131
(4,837 ) 262,390
Subordinated corporate bonds 5,483
168
—
5,651
Total AFS debt securities 804,575
1,392
(9,457 ) 796,510
Equity securities 623
118
—
741
Total AFS securities $ 805,198
$ 1,510
$ (9,457 ) $ 797,251
HTM Securities:
Obligations of states and political subdivisions $ 94,207
$ 1,169
$ (282 ) $ 95,094
Total HTM securities $ 94,207
$ 1,169
$ (282 ) $ 95,094
December 31, 2016

AFS Securities:
Obligations of states and political subdivisions $ 8,848
$ 153
$ —
$ 9,001
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises 485,222
2,515
(7,115 ) 480,622
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises 289,046
265
(5,421 ) 283,890
Subordinated corporate bonds 5,481
132
—
5,613
Total AFS debt securities 788,597
3,065
(12,536 ) 779,126
Equity securities 632
109
—
741
Total AFS securities $ 789,229
$ 3,174
$ (12,536 ) $ 779,867
HTM Securities:
Obligations of states and political subdivisions $ 94,609
$ 618
$ (631 ) $ 94,596
Total HTM securities $ 94,609
$ 618
$ (631 ) $ 94,596



	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
March 31, 2018
AFS Investments (carried at fair value):
Obligations of states and political subdivisions	$	5,776	$	55	$	(4	)	$	5,827
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	517,823		490		(15,317		)	502,996
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	293,371		6		(11,098		)	282,279
Subordinated corporate bonds	5,485		119		(19		)	5,585
Total AFS investments	$	822,455	$	670	$	(26,438	)	$	796,687
HTM Investments (carried at amortized cost):
Obligations of states and political subdivisions	$	93,192	$	130	$	(1,448	)	$	91,874
Total HTM investments	$	93,192	$	130	$	(1,448	)	$	91,874
December 31, 2017
AFS Investments (carried at fair value):
Obligations of states and political subdivisions	$	7,232	$	103	$	—		$	7,335
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	510,176		597		(7,471		)	503,302
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	279,575		14		(6,790		)	272,799
Subordinated corporate bonds	5,484		173		—			5,657
Equity investments⁽¹⁾	554		252		—			806
Total AFS investments	$	803,021	$	1,139	$	(14,261	)	$	789,899
HTM Investments (carried at amortized cost):
Obligations of states and political subdivisions	$	94,073	$	1,077	$	(237	)	$	94,913
Total HTM investments	$	94,073	$	1,077	$	(237	)	$	94,913


(1)	As of December 31, 2017, equity investments were classified as AFS investments. Effective January 1, 2018, these investments were reclassified to other investments on the consolidated statements of condition as they are no longer eligible to be classified as AFS upon adoption of ASU 2016-01. Refer to Note 2 for further details.

Net unrealized losses on AFS ~~securities~~investments at ~~September 30, 2017~~March 31, 2018 included in AOCI amounted to $~~5.2~~20.2 million, net of a deferred tax benefit of $~~2.7~~5.5 million. Net unrealized losses on AFS ~~securities~~investments at December 31, ~~2016~~2017 included in AOCI amounted to ~~$6.1~~$10.3 million, net of a deferred tax benefit of ~~$3.3~~$2.8 million.

~~During~~For the ~~first nine~~three months ofended March 31, 2018 and 2017, the Company purchased ~~investment securities totaling $141.6~~debt investments of $50.1 million and $77.3 million, respectively, all of which were designated as AFS ~~securities.~~

~~During the first nine months of 2016, the Company purchased investment securities totaling $140.7 million. The Company designated $130.3 million as AFS securities and $10.4 million as HTM securities.~~debt investments.

Impaired ~~Securities~~AFS and HTM Investments:

Management periodically reviews the Company’s ~~investment portfolio~~AFS and HTM investments to determine the cause, magnitude and duration of declines in the fair value of each security. Thorough evaluations of the causes of the unrealized losses are performed to determine whether the impairment is temporary or other-than-temporary in nature. Considerations such as the ability of the securities to meet cash flow requirements, levels of credit enhancements, risk of curtailment, and recoverability of invested

amount over a reasonable period of time, and the length of time the security is in a loss position, for example, are applied in

determining OTTI. Once a decline in value is determined to be other-than-temporary, the cost basis of the security is permanently reduced and a corresponding charge to earnings is recognized.

The following table presents the estimated fair values and gross unrealized losses ~~of investment securities~~on AFS and HTM investments that were in a continuous loss position at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017, by length of time that an individual ~~securities~~security in each category ~~have~~has been in a continuous loss position:

Less Than 12 Months 12 Months or More Total

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses
September 30, 2017

AFS Securities:
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises $ 345,629
$ (3,127 ) $ 47,553
$ (1,493 ) $ 393,182
$ (4,620 )
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises 134,761
(1,579 ) 88,177
(3,258 ) 222,938
(4,837 )
Total AFS securities $ 480,390
$ (4,706 ) $ 135,730
$ (4,751 ) $ 616,120
$ (9,457 )
HTM Securities:
Obligations of states and political subdivisions $ 15,234
$ (193 ) $ 2,361
$ (89 ) $ 17,595
$ (282 )
Total HTM securities $ 15,234
$ (193 ) $ 2,361
$ (89 ) $ 17,595
$ (282 )
December 31, 2016

AFS Securities:
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises $ 348,579
$ (5,780 ) $ 29,496
$ (1,335 ) $ 378,075
$ (7,115 )
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises 163,412
(2,906 ) 74,212
(2,515 ) 237,624
(5,421 )
Total AFS securities $ 511,991
$ (8,686 ) $ 103,708
$ (3,850 ) $ 615,699
$ (12,536 )
HTM Securities:
Obligations of states and political subdivisions $ 42,805
$ (631 ) $ —
$ —
$ 42,805
$ (631 )
Total HTM securities $ 42,805
$ (631 ) $ —
$ —
$ 42,805
$ (631 )



	Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
March 31, 2018
AFS Investments:
Obligations of states and political subdivisions	$	1,516	$	(4	)	$	—	$	—		$	1,516	$	(4	)
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	236,851		(5,661		)	233,957		(9,656		)	470,808		(15,317		)
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	122,669		(2,308		)	154,622		(8,790		)	277,291		(11,098		)
Subordinated corporate bonds	965		(19		)	—		—			965		(19		)
Total AFS investments	$	362,001	$	(7,992	)	$	388,579	$	(18,446	)	$	750,580	$	(26,438	)
HTM Investments:
Obligations of states and political subdivisions	$	62,815	$	(958	)	$	10,225	$	(490	)	$	73,040	$	(1,448	)
Total HTM investments	$	62,815	$	(958	)	$	10,225	$	(490	)	$	73,040	$	(1,448	)
December 31, 2017
AFS Investments:
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	$	221,466	$	(2,393	)	$	233,971	$	(5,078	)	$	455,437	$	(7,471	)
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	102,612		(696		)	164,389		(6,094		)	267,001		(6,790		)
Total AFS investments	$	324,078	$	(3,089	)	$	398,360	$	(11,172	)	$	722,438	$	(14,261	)
HTM Investments:
Obligations of states and political subdivisions	$	9,317	$	(57	)	$	9,436	$	(180	)	$	18,753	$	(237	)
Total HTM investments	$	9,317	$	(57	)	$	9,436	$	(180	)	$	18,753	$	(237	)

At ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the Company held ~~177~~328 and 209 ~~investment securities~~debt investments classified as AFS and HTM with a fair value of $~~633.7~~823.6 million and ~~$658.5~~$741.2 million that were in an unrealized loss position totaling ~~$9.7~~$27.9 million and ~~$13.2~~$14.5 million, respectively, that were considered temporary. Of these, MBS and CMOs with a fair value of ~~$135.7~~$388.6 million and ~~$103.7~~$398.4 million were in an unrealized loss position, and have been in an unrealized loss position for 12 months or more, totaling ~~$4.8~~$18.4 million and ~~$3.9~~$11.2 million at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, respectively. The unrealized loss was reflective of current interest rates in excess of the yield received on debt investments and is not indicative of an overall change in credit quality or other factors with the Company's AFS and HTM investment portfolio. At ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, gross unrealized losses on the Company's AFS and HTM ~~securities~~investments were ~~1.5%~~3.0% and 2.0%, respectively, of ~~the~~its respective ~~investment securities~~ fair value.

The Company has the intent and ability to retain its ~~investment securities~~debt investments in an unrealized loss position at ~~September 30, 2017~~March 31, 2018 until the decline in value has recovered.

Sale of ~~Securities~~

~~The following table details the Company's sales of~~ AFS ~~securities for the period indicated below:~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Proceeds from sales of securities $ 20,269
$ —
$ 20,269
$ 84
Gross realized gains 841
—
841
4
Gross realized losses (14 ) —
(14 ) —

Investments:

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017, the Company ~~sold certain~~did not sell any AFS securities with a total amortized cost of $19.4 million and recorded net gains on the sale of AFS securities of $827,000 within non-interest income in the consolidated statements of income. The Company had not previously recorded any OTTI on these securities sold.investments.

~~For the nine months ended September 30, 2016, the Company sold certain~~ AFS ~~securities with a total amortized cost of $80,000~~ and recorded net gains on the sale of AFS securities of $4,000 within non-interest income in the consolidated statements of income. The Company had not previously recorded any OTTI on these securities sold.

~~The cost basis of securities sold is measured on a specific identification basis.~~

~~FHLBB and FRB Stock~~

As of September 30, 2017 and December 31, 2016, the Company's investment in FHLBB stock was $19.2 million and $17.8 million, respectively. As of September 30, 2017 and December 31, 2016, the Company's investment in FRB stock was $5.4 million.

~~Securities Pledged~~HTM Investments Pledged:

At ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017, ~~securities~~AFS and HTM investments with an amortized cost of $~~714.0~~684.3 million and $~~597.3~~702.5 million and estimated fair values of $~~707.2~~661.9 million and $~~589.7~~691.2 million, respectively, were pledged to secure FHLBB advances, public deposits, and securities sold under agreements to repurchase and for other purposes required or permitted by law.

Contractual ~~Maturities~~Maturities:

The amortized cost and estimated fair values of ~~debt securities~~the Company's AFS and HTM investments by contractual maturity at ~~September 30, 2017~~March 31, 2018, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	Amortized Cost		Fair Value		Amortized Cost		Fair Value
AFS Securities
AFS Investments
Due in one year or less	$	1,581	$	1,585	$	5,307	$	5,302
Due after one year through five years	100,951		100,901		112,412		110,253
Due after five years through ten years	176,090		175,368		213,112		206,368
Due after ten years	525,953		518,656		491,624		474,764
	$	804,575	$	796,510	$	822,455	$	796,687
HTM Securities
HTM Investments
Due in one year or less	$	754	$	757	$	1,418	$	1,418
Due after one year through five years	4,737		4,798		3,783		3,796
Due after five years through ten years	7,011		7,121		13,035		12,954
Due after ten years	81,705		82,418		74,956		73,706
	$	94,207	$	95,094	$	93,192	$	91,874

~~NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES~~

~~The composition of the Company’s loan portfolio, excluding residential loans held for sale, at~~ ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016~~ ~~was as follows:~~

September 30,
2017 December 31,
2016
Residential real estate $ 852,851
$ 802,494
Commercial real estate 1,131,883
1,050,780
Commercial 369,155
333,639
Home equity 328,328
329,907
Consumer 18,123
17,332
HPFC 47,950
60,412
Total loans $ 2,748,290
$ 2,594,564

~~The loan balances for each portfolio segment presented above are net of their respective unamortized fair value mark discount on acquired loans and net of unamortized loan origination costs totaling:~~

September 30,
2017 December 31,
2016
Net unamortized fair value mark discount on acquired loans $ 6,782
$ 8,810
Net unamortized loan origination costs (612 ) (66 )
Total $ 6,170
$ 8,744

The Bank’s lending activities are primarily conducted in Maine, but also include a mortgage loan production office in Massachusetts and a commercial loan production office in New Hampshire. The Company originates single family and multi-family residential loans, commercial real estate loans, business loans, municipal loans and a variety of consumer loans. In addition, the Company makes loans for the construction of residential homes, multi-family properties and commercial real estate properties. The ability and willingness of borrowers to honor their repayment commitments is generally dependent on the level of overall economic activity within the geographic area and the general economy.

The HPFC loan portfolio consists of niche commercial lending to the small business medical field, including dentists, optometrists and veterinarians across the U.S. The ability and willingness of borrowers to honor their repayment commitments is generally dependent on the success of the borrower's business. Effective February 19, 2016, the Company closed HPFC's operations and is no longer originating loans.

The ALL is management’s best estimate of the inherent risk of loss in the Company’s loan portfolio as of the consolidated statement of condition date. Management makes various assumptions and judgments about the collectability of the loan portfolio and provides an allowance for potential losses based on a number of factors including historical losses. If those assumptions are incorrect, the ALL may not be sufficient to cover losses and may cause an increase in the allowance in the future. Among the factors that could affect the Company’s ability to collect loans and require an increase to the allowance in the future are: (i) financial condition of borrowers; (ii) real estate market changes; (iii) state, regional, and national economic conditions; and (iv) a requirement by federal and state regulators to increase the provision for loan losses or recognize additional charge-offs.

Effective January 1, 2017, the Company's internal policy for assessing individual loans for impairment was changed to increase the principal balance threshold for a loan from $250,000 to $500,000. The qualitative factors for assessing a loan individually for impairment in accordance with the Company's internal policy were unchanged, and continue to require the loan to be classified as substandard or doubtful and on non-accrual status. There were no other significant changes in the Company's ALL methodology during the nine months ended September 30, 2017.

The Board of Directors monitors credit risk through the Directors' Loan Review Committee, which reviews large credit exposures, monitors the 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, concentration levels, and the ALL methodology. The Company's Credit Risk Administration and the Credit Risk Policy Committee oversee the systems and procedures to monitor the credit

quality of its loan portfolio, conduct a loan review program, maintain the integrity of the loan rating system, determine the adequacy of the ALL and support the oversight efforts of the Directors' Loan Review Committee and the Board of Directors. The Company's practice is to proactively manage the portfolio such that management can identify problem credits early, assess and implement effective work-out strategies, and take charge-offs as promptly as practical. In addition, the Company continuously reassesses its underwriting standards in response to credit risk posed by changes in economic conditions. For purposes of determining the ALL, the Company disaggregates its loans into portfolio segments, which include residential real estate, commercial real estate, commercial, home equity, consumer and HPFC. Each portfolio segment possesses unique risk characteristics that are considered when determining the appropriate level of allowance. These risk characteristics unique to each portfolio segment include:

~~Residential Real Estate~~. Residential real estate loans held in the Company's loan portfolio are made to borrowers who demonstrate the ability to make scheduled payments with full consideration to underwriting factors. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines. Collateral consists of mortgage liens on one- to four-family residential properties.

~~Commercial Real Estate.~~ Commercial real estate loans consist of mortgage loans to finance investments in real property such as multi-family residential, commercial/retail, office, industrial, hotels, educational, health care facilities and other specific use properties. Commercial real estate loans are typically written with amortizing payment structures. Collateral values are determined based upon appraisals and evaluations in accordance with established policy guidelines. Loan-to-value ratios at origination are governed by established policy and regulatory guidelines. Commercial real estate loans are primarily paid by the cash flow generated from the real property, such as operating leases, rents, or other operating cash flows from the borrower.

~~Commercial.~~ Commercial loans consist of revolving and term loan obligations extended to business and corporate enterprises for the purpose of financing working capital and/or capital investment. Collateral generally consists of pledges of business assets including, but not limited to, accounts receivable, inventory, plant & equipment, or real estate, if applicable. Commercial loans are primarily paid by the operating cash flow of the borrower. Commercial loans may be secured or unsecured.

~~Home Equity.~~ Home equity loans and lines are made to qualified individuals for legitimate purposes secured by senior or junior mortgage liens on owner-occupied one- to four-family homes, condominiums, or vacation homes. The home equity loan has a fixed rate and is billed as equal payments comprised of principal and interest. The home equity line of credit has a variable rate and is billed as interest-only payments during the draw period. At the end of the draw period, the home equity line of credit is billed as a percentage of the principal balance plus all accrued interest. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines.

~~Consumer.~~ Consumer loan products including personal lines of credit and amortizing loans made to qualified individuals for various purposes such as education, auto loans, debt consolidation, personal expenses or overdraft protection. Borrower qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines. Consumer loans may be secured or unsecured.

~~HPFC.~~ Prior to the Company's closing of HPFC's operations, effective February 19, 2016, it provided commercial lending to dentists, optometrists and veterinarians, many of which were start-up companies. HPFC's loan portfolio consists of term loan obligations extended for the purpose of financing working capital and/or purchase of equipment. Collateral consists of pledges of business assets including, but not limited to, accounts receivable, inventory, and/or equipment. These loans are primarily paid by the operating cash flow of the borrower and the terms range from seven to ten years.

Other Investments

The following ~~presents~~table summarizes the ~~activity~~cost and estimated fair values of the Company's investment in equity securities, FHLBB stock and FRBB stock as presented within other investments on the ~~ALL and select loan information by portfolio segment for~~consolidated statements of condition, as of the ~~three and nine months ended September 30, 2017 and 2016, and for the year ended December 31, 2016:~~dates indicated:

Residential
Real Estate

Commercial
Real Estate
Commercial
Home
Equity
Consumer HPFC Total
For The Three and Nine Months Ended September 30, 2017
ALL for the three months ended:

Beginning balance $ 4,481
$ 12,848
$ 4,275
$ 2,094
$ 182
$ 514
$ 24,394
Loans charged off (238 ) (69 ) (369 ) (11 ) (28 ) (193 ) (908 )
Recoveries 26
25
59
1
9
5
125
Provision (credit)⁽¹⁾
273
(8 ) 256
93
32
156
802
Ending balance $ 4,542
$ 12,796
$ 4,221
$ 2,177
$ 195
$ 482
$ 24,413
ALL for the nine months ended:
Beginning balance $ 4,160
$ 12,154
$ 3,755
$ 2,194
$ 181
$ 672
$ 23,116
Loans charged off (433 ) (81 ) (650 ) (403 ) (90 ) (274 ) (1,931 )
Recoveries 30
138
254
2
13
5
442
Provision⁽¹⁾
785
585
862
384
91
79
2,786
Ending balance $ 4,542
$ 12,796
$ 4,221
$ 2,177
$ 195
$ 482
$ 24,413
ALL balance attributable to loans:

Individually evaluated for impairment $ 464
$ 1,470
$ —
$ —
$ —
$ —
$ 1,934
Collectively evaluated for impairment 4,078
11,326
4,221
2,177
195
482
22,479
Total ending ALL $ 4,542
$ 12,796
$ 4,221
$ 2,177
$ 195
$ 482
$ 24,413
Loans:

Individually evaluated for impairment $ 4,792
$ 6,373
$ 1,842
$ 423
$ —
$ —
$ 13,430
Collectively evaluated for impairment 848,059
1,125,510
367,313
327,905
18,123
47,950
2,734,860
Total ending loans balance $ 852,851
$ 1,131,883
$ 369,155
$ 328,328
$ 18,123
$ 47,950
$ 2,748,290
For The Three and Nine Months Ended September 30, 2016
ALL for the three months ended:
Beginning balance $ 4,431
$ 11,559
$ 4,558
$ 2,946
$ 193
$ 30
$ 23,717
Loans charged off —
(32 ) (1,541 ) (44 ) (19 ) (205 ) (1,841 )
Recoveries 1
7
118
—
1
—
127
Provision (credit)⁽¹⁾
163
1,046
148
(335 ) (13 ) 278
1,287
Ending balance $ 4,595
$ 12,580
$ 3,283
$ 2,567
$ 162
$ 103
$ 23,290
ALL for the nine months ended:
Beginning balance $ 4,545
$ 10,432
$ 3,241
$ 2,731
$ 193
$ 24
$ 21,166
Loans charged off (229 ) (273 ) (1,970 ) (229 ) (60 ) (507 ) (3,268 )
Recoveries 72
50
252
2
5
—
381
Provision⁽¹⁾
207
2,371
1,760
63
24
586
5,011
Ending balance $ 4,595
$ 12,580
$ 3,283
$ 2,567
$ 162
$ 103
$ 23,290
ALL balance attributable to loans:

Individually evaluated for impairment $ 511
$ 1,284
$ —
$ 88
$ —
$ 74
$ 1,957
Collectively evaluated for impairment 4,084
11,296
3,283
2,479
162
29
21,333
Total ending ALL $ 4,595
$ 12,580
$ 3,283
$ 2,567
$ 162
$ 103
$ 23,290
Loans:

Individually evaluated for impairment $ 4,551
$ 13,286
$ 2,243
$ 489
$ 7
$ 106
$ 20,682
Collectively evaluated for impairment 792,485
1,041,021
322,179
332,606
17,409
65,627
$ 2,571,327
Total ending loans balance $ 797,036
$ 1,054,307
$ 324,422
$ 333,095
$ 17,416
$ 65,733
$ 2,592,009

Residential
Real Estate

Commercial
Real Estate
Commercial
Home
Equity
Consumer HPFC Total
For The Year Ended December 31, 2016
ALL:

Beginning balance $ 4,545
$ 10,432
$ 3,241
$ 2,731
$ 193
$ 24
$ 21,166
Loans charged off (356 ) (315 ) (2,218 ) (308 ) (101 ) (507 ) (3,805 )
Recoveries 95
50
332
2
7
—
486
Provision (credit)⁽¹⁾
(124 ) 1,987
2,400
(231 ) 82
1,155
5,269
Ending balance $ 4,160
$ 12,154
$ 3,755
$ 2,194
$ 181
$ 672
$ 23,116
ALL balance attributable to loans:
Individually evaluated for impairment $ 483
$ 1,373
$ —
$ 86
$ —
$ 65
$ 2,007
Collectively evaluated for impairment 3,677
10,781
3,755
2,108
181
607
21,109
Total ending ALL $ 4,160
$ 12,154
$ 3,755
$ 2,194
$ 181
$ 672
$ 23,116
Loans:





Individually evaluated for impairment $ 4,348
$ 13,317
$ 2,028
$ 457
$ 7
$ 97
$ 20,254
Collectively evaluated for impairment 798,146
1,037,463
331,611
329,450
17,325
60,315
2,574,310
Total ending loans balance $ 802,494
$ 1,050,780
$ 333,639
$ 329,907
$ 17,332
$ 60,412
$ 2,594,564



	Cost		Unrealized Gains		Unrealized Losses		Fair Value
March 31, 2018
Equity securities - bank stock (carried at fair value)⁽¹⁾	$	544	$	217	$	—	$	761
FHLBB (carried at cost)	17,639		—		—		17,639
FRB (carried at cost)	5,374		—		—		5,374
Total other investments	$	23,557	$	217	$	—	$	23,774
December 31, 2017
FHLBB (carried at cost)	$	18,296	$	—	$	—	$	18,296
FRB (carried at cost)	5,374		—		—		5,374
Total other investments	$	23,670	$	—	$	—	$	23,670

(1)

~~The provision (credit) for loan losses excludes any impact for the change in the reserve for unfunded commitments, which represents management's estimate of the amount required~~Effective January 1, 2018, these investments were reclassified to ~~reflect the probable inherent losses on outstanding letters of credit and unused lines of credit. The reserve for unfunded commitments is presented within accrued interest and~~ other ~~liabilities~~investments on the consolidated statements of ~~condition. At September 30, 2017 and 2016, and December 31, 2016, the reserve~~condition as they are no longer eligible for ~~unfunded commitments was $22,000, $14,000 and $11,000, respectively.~~AFS classification upon adoption of ASU 2016-01. Refer to Note 2 for further details.

The following reconciles the three and nine months ended September 30, 2017 and 2016, and year ended December 31, 2016 provision for loan losses to the provision for credit losses as presented on the consolidated statement of income:

Three Months Ended
September 30, Nine Months Ended
September 30,
Year Ended December 31,
2016
2017 2016 2017 2016
Provision for loan losses $ 802
$ 1,287
$ 2,786
$ 5,011
$ 5,269
Change in reserve for unfunded commitments 15
(8 ) 11
(8 ) (11 )
Provision for credit losses $ 817
$ 1,279
$ 2,797
$ 5,003
$ 5,258

The Company focuses on maintaining a well-balanced and diversified loan portfolio. Despite such efforts, it is recognized that credit concentrations may occasionally emerge as a result of economic conditions, changes in local demand, natural loan growth and runoff. To ensure that credit concentrations can be effectively identified, all commercial and commercial real estate loans are assigned Standard Industrial Classification codes, North American Industry Classification System codes, and state and county codes. Shifts in portfolio concentrations are monitored by the Company's Credit Risk Administration. As of September 30, 2017, the non-residential building operators' industry exposure was 11% of the Company's total loan portfolio and 27% of the total commercial real estate portfolio. There were no other industry exposures exceeding 10% of the Company's total loan portfolio as of September 30, 2017.

To further identify loans with similar risk profiles, the Company categorizes each portfolio segment into classes by credit risk characteristic and applies a credit quality indicator to each portfolio segment. The indicators for commercial, commercial real estate, residential real estate, and HPFC loans are represented by Grades 1 through 10 as outlined below. In general, risk ratings are adjusted periodically throughout the year as updated analysis and review warrants. This process may include, but is not limited to, annual credit and loan reviews, periodic reviews of loan performance metrics, such as delinquency rates, and quarterly reviews of adversely risk rated loans. The Company uses the following definitions when assessing grades for the purpose of evaluating the risk and adequacy of the ALL:

Grade 1 through 6 — Grades 1 through 6 represent groups of loans that are not subject to adverse criticism as defined in regulatory guidance. Loans in these groups exhibit characteristics that represent low to moderate risks, which is measured using a variety of credit risk criteria, such as cash flow coverage, debt service coverage, balance sheet leverage, liquidity, management experience, industry position, prevailing economic conditions, support from secondary sources of repayment and other credit factors that may be relevant to a specific loan. In general, these loans are supported by properly margined collateral and guarantees of principal parties.

Grade 7 — Loans with potential weakness (Special Mention). Loans in this category are currently protected based on collateral and repayment capacity and do not constitute undesirable credit risk, but have potential weakness that may result in deterioration ofFor the ~~repayment process at some future date. This classification is used if a negative trend is evident in the obligor’s financial situation. Special mention loans do not sufficiently expose~~three months ended March 31, 2018, the Company ~~to warrant adverse classification.~~

Grade 8 — Loans with definite weakness (Substandard). Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or by collateral pledged. Borrowers experience difficulty in meeting debt repayment requirements. Deterioration is sufficient to cause the Company to look to the sale of collateral.

Grade 9 — Loans with potential loss (Doubtful). Loans classified as doubtful have all the weaknesses inherent in the substandard grade with the added characteristic that the weaknesses make collection or liquidation of the loan in full highly questionable and improbable. The possibility of some loss is extremely high, but because of specific pending factors that may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined.

Grade 10 — Loans with definite loss (Loss). Loans classified as loss are considered uncollectible. The loss classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the asset because recovery and collection time may be protracted.

Asset quality indicators are periodically reassessed to appropriately reflect the risk composition of the Company’s loan portfolio. Home equity and consumer loans are not individually risk rated, but rather analyzed as groups taking into account delinquency rates and other economic conditions which may affect the ability of borrowers to meet debt service requirements, including interest rates and energy costs. Performing loans include loans that are current and loans that are past due less than 90 days. Loans that are past due over 90 days and non-accrual loans, including TDRs, are considered non-performing.

~~The following summarizes credit risk exposure indicators by portfolio segment as of the following dates:~~

Residential
Real Estate

Commercial
Real Estate
Commercial
Home
Equity
Consumer HPFC Total
September 30, 2017
Pass (Grades 1-6) $ 841,539
$ 1,086,856
$ 361,343
$ —
$ —
$ 45,920
$ 2,335,658
Performing —
—
—
326,702
18,123
—
344,825
Special Mention (Grade 7) 933
16,663
1,770
—
—
209
19,575
Substandard (Grade 8) 10,379
28,364
4,645
—
—
1,821
45,209
Doubtful (Grade 9) —
—
1,397
—
—
—
1,397
Non-performing —
—
—
1,626
—
—
1,626
Total $ 852,851
$ 1,131,883
$ 369,155
$ 328,328
$ 18,123
$ 47,950
$ 2,748,290
December 31, 2016

Pass (Grades 1-6) $ 789,554
$ 1,003,386
$ 321,148
$ —
$ —
$ 58,943
$ 2,173,031
Performing —
—
—
328,287
17,328
—
345,615
Special Mention (Grade 7) 2,387
5,724
5,598
—
—
257
13,966
Substandard (Grade 8) 10,553
41,670
5,437
—
—
1,212
58,872
Doubtful (Grade 9) —
—
1,456
—
—
—
1,456
Non-performing —
—
—
1,620
4
—
1,624
Total $ 802,494
$ 1,050,780
$ 333,639
$ 329,907
$ 17,332
$ 60,412
$ 2,594,564

to a borrower is placed on non-accrual status, all other loans to the borrower are re-evaluated to determine if they should also be placed on non-accrual status. All previously accrued and unpaid interest is reversed at this time. A loan may return to accrual status when collection of principal and interest is assured and the borrower has demonstrated timely payments of principal and interest for a reasonable period. Unsecured loans, however, are not normally placed on non-accrual status because they are charged-off once their collectability is in doubt.

The following is a loan aging analysis by portfolio segment (including loans past due over 90 days and non-accrual loans) and a summary of non-accrual loans, which include TDRs, and loans past due over 90 days and accruing as of the following dates:

30-59 Days
Past Due

60-89 Days
Past Due

Greater
than
90 Days

Total
Past Due
Current
Total Loans
Outstanding

Loans > 90
Days Past
Due and
Accruing

Non-Accrual
Loans
September 30, 2017

Residential real estate $ 3,308
$ 157
$ 3,393
$ 6,858
$ 845,993
$ 852,851
$ —
$ 4,465
Commercial real estate 1,036
1,260
5,761
8,057
1,123,826
1,131,883
—
5,887
Commercial 721
—
1,484
2,205
366,950
369,155
—
1,830
Home equity 1,022
284
1,375
2,681
325,647
328,328
—
1,626
Consumer 29
15
—
44
18,079
18,123
—
—
HPFC 646
834
297
1,777
46,173
47,950
—
838
Total $ 6,762
$ 2,550
$ 12,310
$ 21,622
$ 2,726,668
$ 2,748,290
$ —
$ 14,646
December 31, 2016

Residential real estate $ 1,783
$ 924
$ 2,904
$ 5,611
$ 796,883
$ 802,494
$ —
$ 3,945
Commercial real estate 855
223
12,625
13,703
1,037,077
1,050,780
—
12,849
Commercial 633
218
1,675
2,526
331,113
333,639
—
2,088
Home equity 892
134
1,321
2,347
327,560
329,907
—
1,620
Consumer 38
—
4
42
17,290
17,332
—
4
HPFC 438
688
110
1,236
59,176
60,412
—
207
Total $ 4,639
$ 2,187
$ 18,639
$ 25,465
$ 2,569,099
$ 2,594,564
$ —
$ 20,713

~~Interest income that would have been~~ recognized if loans on non-accrual status had been current in accordance with their original terms was $187,000, $673,000, $251,000, and $675,000 for the three and nine months ended September 30, 2017 and 2016, respectively.

~~TDRs:~~

The Company takes a conservative approach with credit risk management and remains focused on community lending and reinvesting. The Company works closely with borrowers experiencing credit problems to assist in loan repayment or term modifications. TDRs consist of loans where the Company, for economic or legal reasons related to the borrower’s financial difficulties, granted a concession to the borrower that it would not otherwise consider. TDRs, typically, involve term modifications or a reduction of either interest or principal. Once such an obligation has been restructured, it will remain a TDR until paid in full, or until the loan is again restructured at current market rates and no concessions are granted.

The specific reserve allowance was determined by discounting the total expected future cash flows from the borrower at the original loan interest rate, or if the loan is currently collateral-dependent, using the net realizable value, which was obtained through independent appraisals and internal evaluations. The following is a summary of TDRs, by portfolio segment, and the associated specific reserve included within the ALL as of the periods indicated:

Number of Contracts Recorded Investment Specific Reserve
September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016
Residential real estate 25
21
$ 3,728
$ 3,221
$ 464
$ 483
Commercial real estate 3
3
987
1,008
19
—
Commercial 8
10
1,393
1,502
—
—
Home equity 2
1
308
16
—
—
Total 38
35
$ 6,416
$ 5,747
$ 483
$ 483

At September 30, 2017, the Company had performing and non-performing TDRs with a recorded investment balance of $5.2 million and $1.3 million, respectively. At December 31, 2016, the Company had performing and non-performing TDRs with a recorded investment balance of $4.3 million and $1.4 million, respectively.

~~The following represents loan modifications that qualify as TDRs that occurred for the three and nine months ended September 30, 2017 and 2016:~~

Number of Contracts
Pre-Modification
Outstanding
Recorded Investment

Post-Modification
Outstanding
Recorded Investment
Specific Reserve
2017 2016 2017 2016 2017 2016 2017 2016
For the three months ended
Commercial:
Maturity concession —
6
$ —
$ 1,344
$ —
$ 1,652
$ —
$ —
Residential real estate:
Interest rate concession 1
—
134
—
145
—
—
—
Maturity concession 1
—
147
—
147
—
—
—
Interest rate and maturity concession 1
—
148
—
156
—
29
—
Total 3
6
$ 429
$ 1,344
$ 448
$ 1,652
$ 29
$ —
For the nine months ended
Commercial:
Maturity concession —
6
$ —
$ 1,344
$ —
$ 1,652
$ —
$ —
Residential real estate:
Interest rate concession 1
—
134
—
145
—
—
—
Maturity concession 2
—
298
—
298
—
15
—
Interest rate and maturity concession 1
—
148
—
156
—
29
—
Home equity:
Interest rate and maturity concession 1
—
315
—
315
—
—
—
Total 5
6
$ 895
$ 1,344
$ 914
$ 1,652
$ 44
$ —

~~For the three and nine months ended September 30, 2017 and 2016, no loans were modified as TDRs within the previous 12 months for which the borrower subsequently defaulted.~~

~~Impaired Loans:~~

Impaired loans consist of non-accrual loans and TDRs that are individually evaluated for impairment in accordance with the Company's policy. The following is a summary of impaired loan balances and the associated allowance by portfolio segment as of and for the three and nine months ended September 30, 2017 and 2016, and as of and for the year-ended December 31, 2016:

Three Months Ended Nine Months Ended

Recorded
Investment

Unpaid
Principal
Balance

Related
Allowance

Average
Recorded
Investment

Interest
Income
Recognized⁽¹⁾
Average
Recorded
Investment Interest
Income
Recognized
September 30, 2017:

With an allowance recorded:

Residential real estate $ 3,262
$ 3,262
$ 464
$ 3,194
$ 48
$ 3,084
$ 103
Commercial real estate 5,589
5,589
1,470
6,590
4
10,048
15
Commercial —
—
—
82
—
41
—
Home equity —
—
—
—
—
167
—
Consumer —
—
—
—
—
—
—
HPFC —
—
—
—
—
33
—
Ending balance 8,851
8,851
1,934
9,866
52
13,373
118
Without an allowance recorded:

Residential real estate 1,530
1,949
—
1,427
15
1,349
15
Commercial real estate 784
1,032
—
794
15
1,250
22
Commercial 1,842
3,015
—
1,891
(6 ) 1,959
8
Home equity 423
482
—
440
1
271
6
Consumer —
—
—
—
(4 ) 3
—
HPFC —
—
—
—
—
—
—
Ending balance 4,579
6,478
—
4,552
21
4,832
51
Total impaired loans $ 13,430
$ 15,329
$ 1,934
$ 14,418
$ 73
$ 18,205
$ 169
September 30, 2016:
With an allowance recorded:

Residential real estate $ 3,041
$ 3,041
$ 511
$ 3,050
$ 56
$ 3,108
$ 81
Commercial real estate 11,354
11,354
1,284
7,582
—
3,092
—
Commercial —
—
—
1,782
—
1,016
—
Home equity 302
302
88
303
—
307
—
Consumer —
—
—
—
—
—
—
HPFC 106
106
74
35
—
97
—
Ending Balance 14,803
14,803
1,957
12,752
56
7,620
81
Without an allowance recorded:

Residential real estate 1,510
1,996
—
1,731
7
2,275
7
Commercial real estate 1,932
2,427
—
2,015
33
2,322
37
Commercial 2,243
4,667
—
1,354
(11 ) 2,639
12
Home equity 187
374
—
188
3
181
—
Consumer 7
10
—
7
4
7
—
HPFC —
—
—
—
—
—
—
Ending Balance 5,879
9,474
—
5,295
36
7,424
56
Total impaired loans $ 20,682
$ 24,277
$ 1,957
$ 18,047
$ 92
$ 15,044
$ 137

~~(1) Negative interest income represents the re-allocation of income between "with an allowance recorded" and "without an allowance recorded" (or vice versa) during the period.~~

Year Ended

Recorded
Investment

Unpaid
Principal
Balance

Related
Allowance

Average
Recorded
Investment

Interest
Income
Recognized
December 31, 2016:
With an allowance recorded:

Residential real estate $ 3,019
$ 3,019
$ 483
$ 3,088
$ 106
Commercial real estate 11,443
11,443
1,373
5,165
—
Commercial —
—
—
762
—
Home equity 299
299
86
305
—
Consumer —
—
—
—
—
HPFC 97
97
65
98
—
Ending Balance 14,858
14,858
2,007
9,418
106
Without an allowance recorded:




Residential real estate 1,329
1,800
—
2,057
9
Commercial real estate 1,874
2,369
—
2,214
51
Commercial 2,028
3,209
—
2,507
16
Home equity 158
368
—
180
—
Consumer 7
10
—
12
—
HPFC —
—
—
—
—
Ending Balance 5,396
7,756
—
6,970
76
Total impaired loans $ 20,254
$ 22,614
$ 2,007
$ 16,388
$ 182

~~Loan Sales:~~

For the three and nine months ended September 30, 2017 and 2016, the Company sold $59.9 million, $150.8 million, $71.4 million, and $166.6 million, respectively, of fixed rate residential mortgage loans on the secondary market that resulted in gains on the sale of loans (net of costs) of $1.6 million, $4.3 million, $2.0 million, and $4.2 million, respectively.

At September 30, 2017 and December 31, 2016, the Company had certain residential mortgage loans with a principal balance of $13.0 million and $15.1 million, respectively, designated as held for sale. The Company has elected the fair value option of accounting for its loans held for sale, and at September 30, 2017 and December 31, 2016, recorded an unrealized loss of ~~$26,000 and $289,000, respectively. For~~$35,000 due to the ~~three and nine months ended September 30, 2017 and 2016, the Company recorded within mortgage banking income, net on its consolidated statements of income the net~~ change in ~~unrealized gains (losses) of $72,000, $263,000, $(55,000), and $99,000, respectively, on its loans held for sale.~~

~~The Company has forward delivery commitments with a secondary market investor on each of its loans held for sale at September 30, 2017 and December 31, 2016. The~~ fair value of its ~~forward delivery commitments~~bank stock equity securities, and has been presented within other income on the consolidated statements of income. In addition, the Company's investment in a reinsurance program liquidated during the three months ended March 31, 2018, and a gain of $195,000 was recognized within other income on the Company's consolidated statements of income.

The Bank is a member of the FHLBB and FRBB, and as a member, the Bank is required to hold a certain amount of FHLBB and FRB common stock. This stock is a non-marketable equity security and is reported at ~~September 30, 2017~~cost. The Company evaluates its FHLBB and ~~December 31, 2016 was $313,000 and $278,000, respectively.~~FRB common stock for impairment based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value. For the three months ended ~~September 30,~~March 31, 2018 and 2017, and 2016, the net unrealized gain from the change in fair value on the Company's forward delivery commitments reported within mortgage banking income, net on the consolidated statements of income was $16,000 and $0, respectively. For the nine months ended September 30, 2017 and 2016, the net unrealized gain from the change in fair value on the Company's forward delivery commitments reported within mortgage banking income, net on the consolidated statements of income was $35,000 and $0, respectively. Refer to Note 12 for further discussion of the Company's forward delivery commitments.

~~In-Process Foreclosure Proceedings:~~

~~At September 30, 2017 and December 31, 2016,~~ the Company ~~had $2.2 million~~did not record any other-than-temporary impairment on its FHLBB and $1.4 million, respectively, of consumer mortgage loans secured by residential real estate properties for which foreclosure proceedings were in process. The Company continues to be focused on working these consumer mortgage loans through the foreclosure process to resolution; however, the foreclosure process, typically, will take 18 to 24 months due to the State of Maine foreclosure laws.

~~FHLB Advances:~~

FHLB advances are those borrowings from the FHLBB greater than 90 days. FHLB advances are collateralized by a blanket lien on qualified collateral consisting primarily of loans with first mortgages secured by one- to four-family properties,

certain commercial real estate loans, certain pledged investment securities and other qualified assets. The carrying value of residential real estate and commercial loans pledged as collateral was $1.1 billion at September 30, 2017 and December 31, 2016.

~~Refer to Notes 3 and 10 of the consolidated financial statements for discussion of securities pledged as collateral.~~

~~NOTE 5 – GOODWILL AND OTHER INTANGIBLE ASSETS~~

~~The Company has recognized goodwill and certain identifiable intangible assets in connection with certain business combinations in prior years.~~

~~Goodwill as of September 30, 2017 and December 31, 2016 for each reporting unit is shown in the table below:~~

Goodwill
Banking
Financial
Services
Total
September 30, 2017 and December 31, 2016:

Goodwill, gross $ 90,793
$ 7,474
$ 98,267
Accumulated impairment losses —
(3,570 ) (3,570 )
Reported goodwill at September 30, 2017 and December 31, 2016 $ 90,793
$ 3,904
$ 94,697

~~The changes in core deposit and trust relationship intangible assets for the~~ ~~nine months ended September 30, 2017~~ ~~are shown in the table below:~~

Core Deposit Intangible Trust Relationship Intangible
Gross Accumulated Amortization Net Gross Accumulated Amortization Net Total
Balance at December 31, 2016 $ 23,908
$ (17,220 ) $ 6,688
$ 753
$ (677 ) $ 76
$ 6,764
2017 amortization —
(1,360 ) (1,360 ) —
(57 ) (57 ) (1,417 )
Balance at September 30, 2017 $ 23,908
$ (18,580 ) $ 5,328
$ 753
$ (734 ) $ 19
$ 5,347

~~The following table reflects the expected amortization schedule for intangible assets over the period of estimated economic benefit (assuming no additional intangible assets are created or impaired):~~

Core Deposit
Intangible

Trust
Relationship
Intangible
Total
2017 $ 375
$ 19
$ 394
2018 725
—
725
2019 705
—
705
2020 682
—
682
2021 655
—
655
Thereafter 2,186
—
2,186
Total $ 5,328
$ 19
$ 5,347
FRB stock.

NOTE 65 – ~~REGULATORY CAPITAL REQUIREMENTS~~LOANS AND ALLOWANCE FOR LOAN LOSSES

The Company and Bank are subject to various regulatory capital requirements administered by the FRB and the OCC. Failure to meet minimum capital requirements can result in mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect oncomposition of the Company’s ~~consolidated financial statements.~~loan portfolio, excluding residential loans held for sale, at March 31, 2018 and December 31, 2017 was as follows:



	March 31, 2018		December 31, 2017
Residential real estate	$	860,533	$	858,369
Commercial real estate	1,169,533		1,164,023
Commercial	378,015		373,400
Home equity	320,642		323,378
Consumer	18,011		18,149
HPFC	42,414		45,120
Total loans	$	2,789,148	$	2,782,439

The ~~Company and Bank~~loan balances for each portfolio segment presented above are ~~required to maintain certain levels of capital based on risk-adjusted assets. These capital requirements represent quantitative measures~~net of their ~~assets, liabilities~~respective unamortized fair value mark discount on acquired loans and ~~certain off-balance sheet items as calculated under regulatory accounting practices.~~net of unamortized loan origination costs totaling:



	March 31, 2018			December 31, 2017
Net unamortized fair value mark discount on acquired loans	$	5,703		$	6,207
Net unamortized loan origination costs	(958		)	(963		)
Total	$	4,745		$	5,244

The Bank’s lending activities are primarily conducted in Maine, but also include a mortgage loan production office in Massachusetts and two commercial loan production offices in New Hampshire. The Company originates single family and ~~Bank's capital classification is also subject to qualitative judgments by our regulators about components, risk weightings~~multi-family residential loans, commercial real estate loans, business loans, municipal loans and ~~other factors. The quantitative measures established to ensure capital adequacy require~~a variety of consumer loans. In addition, the Company makes loans for the construction of residential homes, multi-family properties and ~~Bank~~commercial real estate properties. The ability and willingness of borrowers to ~~maintain minimum amounts~~honor their repayment commitments is generally dependent on the level of overall economic activity within the geographic area and ~~ratios~~the general economy.

The HPFC loan portfolio consists of ~~total, Tier I capital, and common equity Tier I to risk-weighted assets, and of Tier I capital to average assets, or the leverage ratio. These guidelines apply~~niche commercial lending to the small business medical field, including dentists, optometrists and veterinarians across the U.S. The ability and willingness of borrowers to honor their repayment commitments is generally dependent on the success of the borrower's business. In 2016, the Company ~~on a consolidated basis.~~closed HPFC's operations and is no longer originating loans.

~~Under~~The ALL is management’s best estimate of the ~~current guidelines, banking organizations must have~~inherent risk of loss in the Company’s loan portfolio as of the consolidated statement of condition date. Management makes various assumptions and judgments about the collectability of the loan portfolio and provides an allowance for potential losses based on a ~~minimum total risk-based capital ratio~~number of ~~8.0%,~~factors including historical losses. If those assumptions are incorrect, the ALL may not be sufficient to cover losses and may cause an increase in the allowance in the future. Among the factors that could affect the Company’s ability to collect loans and require an increase to the allowance in the future are: (i) financial condition of borrowers; (ii) real estate market changes; (iii) state, regional, and national economic conditions; and (iv) a ~~minimum Tier I risk-based capital ratio of 6.0%, a minimum common equity Tier I risk-based capital ratio of 4.5%,~~requirement by federal and ~~a minimum leverage ratio of 4.0%~~state regulators to increase the provision for loan losses or recognize additional charge-offs.

There were no significant changes in order to be "adequately capitalized." In addition to these requirements, banking organizations must maintain a 2.5% capital conservation buffer consisting of common Tier I equity, subject to a transition schedule with a full phase-in by 2019. Effective January 1, 2017, the ~~Company and Bank were required to establish a capital conservation buffer of 1.25%, increasing~~Company's ALL methodology during the minimum required total risk-based capital, Tier I risk-based and common equity Tier I capital to risk-weighted assets they must maintain to avoid limits on capital distributions and certain bonus payments to executive officers and similar employees.three months ended March 31, 2018.

The ~~Company~~Board of Directors monitors credit risk through the Directors' Loan Review Committee, which reviews large credit exposures, monitors the external loan review reports, reviews the lending authority for individual loan officers when required, and ~~Bank's risk-based capital ratios exceeded regulatory guidelines at September 30, 2017~~has approval authority and ~~December 31, 2016,~~responsibility for all matters regarding the loan policy and ~~specifically~~other credit-related policies, including reviewing and monitoring asset quality trends, concentration levels, and the ~~Bank was "well capitalized" under prompt corrective action provisions for each period. There were no new conditions or events~~ALL methodology. Credit Risk Administration and the Credit Risk Policy Committee oversee the Company's systems and procedures to monitor the credit quality of its loan portfolio, conduct a loan review program, maintain the integrity of the loan rating system, determine the adequacy of the ALL and support the oversight efforts of the Directors' Loan Review Committee and the Board of Directors. The Company's practice is to proactively manage the portfolio such that ~~occurred subsequent to September 30, 2017 that would change~~management can identify problem credits early, assess and implement effective work-out strategies, and take charge-offs as promptly as practical. In addition, the Company ~~or Bank's regulatory capital capitalization. The following table presents~~continuously reassesses its underwriting standards in response to credit risk posed by changes in economic conditions.

For purposes of determining the ALL, the Company disaggregates its loans into portfolio segments, which include residential real estate, commercial real estate, commercial, home equity, consumer and ~~Bank's regulatory capital ratios at~~HPFC. Each portfolio segment possesses unique risk characteristics that are considered when determining the ~~periods indicated:~~

September 30,
2017 Minimum Regulatory Capital Required for Capital Adequacy plus Capital Conservation Buffer Minimum Regulatory Provision To Be "Well Capitalized" Under Prompt Corrective Action Provisions December 31,
2016 Minimum Regulatory Capital Required for Capital Adequacy plus Capital Conservation Buffer Minimum Regulatory Provision To Be "Well Capitalized" Under Prompt Corrective Action Provisions
Amount Ratio Amount Ratio
Camden National Corporation:
Total risk-based capital ratio $ 392,660
14.09 % 9.25 % N/A
$ 368,856
14.04 % 8.63 % N/A
Tier I risk-based capital ratio 353,225
12.67 % 7.25 % N/A
330,729
12.59 % 6.63 % N/A
Common equity Tier I risk-based capital ratio 314,218
11.28 % 5.75 % N/A
296,120
11.27 % 5.13 % N/A
Tier I leverage capital ratio 353,225
9.01 % 4.00 % N/A
330,729
8.83 % 4.00 % N/A
Camden National Bank:
Total risk-based capital ratio $ 360,174
12.88 % 9.25 % 10.00 % $ 340,908
12.92 % 8.63 % 10.00 %
Tier I risk-based capital ratio 335,739
12.01 % 7.25 % 8.00 % 317,782
12.05 % 6.63 % 8.00 %
Common equity Tier I risk-based capital ratio 335,739
12.01 % 5.75 % 6.50 % 317,782
12.05 % 5.13 % 6.50 %
Tier I leverage capital ratio 335,739
8.60 % 4.00 % 5.00 % 317,782
8.54 % 4.00 % 5.00 %
appropriate level of allowance. These risk characteristics unique to each portfolio segment include:

~~On October 8, 2015, the Company issued $15.0 million of 10 year subordinated debentures bearing interest at an annual rate of 5.50%~~Residential Real Estate. ~~In addition, $43.0 million of junior subordinated debentures were issued~~ Residential real estate loans held in ~~connection with the issuance of trust preferred securities in 2006 and 2008. Although the subordinated debentures and the junior subordinated debentures are recorded as liabilities on~~ the Company's ~~consolidated statements~~loan portfolio are made to borrowers who demonstrate the ability to make scheduled payments with full consideration to underwriting factors. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines. Collateral consists of ~~condition, the Company is permitted,~~mortgage liens on one- to four-family residential properties.

Commercial Real Estate. Commercial real estate loans consist of mortgage loans to finance investments in real property such as multi-family residential, commercial/retail, office, industrial, hotels, educational, health care facilities and other specific use properties. Commercial real estate loans are typically written with amortizing payment structures. Collateral values are determined based upon appraisals and evaluations in accordance with established policy guidelines. Loan-to-value ratios at origination are governed by established policy and regulatory ~~guidelines, to include, subject to certain limits, each within its calculation of risk-based capital. At~~ guidelines. Commercial real estate loans are primarily paid by the cash flow generated from the real property, such as operating leases, rents, or other operating cash flows from the borrower.

~~September 30, 2017~~Commercial. Commercial loans consist of revolving and ~~December 31, 2016, $15.0 million~~term loan obligations extended to business and corporate enterprises for the purpose of ~~subordinated debentures were included as Tier II~~financing working capital ~~and were included in~~and/or capital investment. Collateral generally consists of pledges of business assets including, but not limited to, accounts receivable, inventory, plant & equipment, or real estate, if applicable. Commercial loans are primarily paid by the ~~calculation~~operating cash flow of the ~~Company's total risk-based capital,~~borrower. Commercial loans may be secured or unsecured.

Home Equity. Home equity loans and ~~at September 30, 2017~~lines are made to qualified individuals for legitimate purposes secured by senior or junior mortgage liens on owner-occupied one- to four-family homes, condominiums, or vacation homes. The home equity loan has a fixed rate and ~~December 31, 2016, $43.0 million~~is billed as equal payments comprised of principal and interest. The home equity line of credit has a variable rate and is billed as interest-only payments during the draw period. At the end of the ~~junior subordinated debentures~~draw period, the home equity line of credit is billed as a percentage of the principal balance plus all accrued interest. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines.

Consumer. Consumer loan products including personal lines of credit and amortizing loans made to qualified individuals for various purposes such as education, auto loans, debt consolidation, personal expenses or overdraft protection. Borrower qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines. Consumer loans may be secured or unsecured.

HPFC. Prior to the Company's closing of HPFC's operations in 2016, it provided commercial lending to dentists, optometrists and veterinarians, many of which were ~~included in Tier I and total risk-based capital~~start-up companies. HPFC's loan portfolio consists of term loan obligations extended for the ~~Company.~~purpose of financing working capital and/or purchase of equipment. Collateral consists of pledges of business assets including, but not limited to, accounts receivable, inventory, and/or equipment. These loans are primarily paid by the operating cash flow of the borrower and the terms range from seven to ten years.

The ~~Company~~following presents the activity in the ALL and ~~Bank's regulatory capital~~select loan information by portfolio segment for the three months ended March 31, 2018 and ~~risk-weighted assets fluctuate due to normal business, including profits~~2017, and ~~losses generated by~~for the Company and Bank as well as changes to their asset mix. Of particular significance are changes within the Company and Bank's loan portfolio mix due to the difference in regulatory risk-weighting differences between retail and commercial loans. Furthermore, the Company and Bank's regulatory capital and risk-weighted assets are subject to change due to changes in GAAP and regulatory capital standards. The Company and Bank proactively monitor their regulatory capital and risk-weighted assets, and the impact of changes to their asset mix, and impact of proposed and pending changes as a result of new and/or amended GAAP standards and regulatory changes.year ended December 31, 2017:



	Residential Real Estate			Commercial Real Estate			Commercial			Home Equity			Consumer			HPFC			Total
For The Three Months Ended March 31, 2018
ALL for the three months ended:
Beginning balance	$	5,086		$	11,863		$	4,171		$	2,367		$	233		$	451		$	24,171
Loans charged off	(31		)	(426		)	(171		)	(149		)	(26		)	—			(803		)
Recoveries	—			13			63			43			3			—			122
Provision (credit)⁽¹⁾	442			(1,164		)	63			166			20			(27		)	(500		)
Ending balance	$	5,497		$	10,286		$	4,126		$	2,427		$	230		$	424		$	22,990
ALL balance attributable to loans:
Individually evaluated for impairment	$	553		$	368		$	—		$	112		$	—		$	—		$	1,033
Collectively evaluated for impairment	4,944			9,918			4,126			2,315			230			424			21,957
Total ending ALL	$	5,497		$	10,286		$	4,126		$	2,427		$	230		$	424		$	22,990
Loans:
Individually evaluated for impairment	$	5,059		$	3,961		$	1,714		$	491		$	—		$	—		$	11,225
Collectively evaluated for impairment	855,474			1,165,572			376,301			320,151			18,011			42,414			2,777,923
Total ending loans balance	$	860,533		$	1,169,533		$	378,015		$	320,642		$	18,011		$	42,414		$	2,789,148
For The Three Months Ended March 31, 2017
ALL for the three months ended:
Beginning balance	$	4,160		$	12,154		$	3,755		$	2,194		$	181		$	672		$	23,116
Loans charged off	(5		)	(3		)	(136		)	(1		)	(14		)	—			(159		)
Recoveries	—			103			77			1			2			—			183
Provision (credit)⁽¹⁾	116			472			119			(87		)	6			(45		)	581
Ending balance	$	4,271		$	12,726		$	3,815		$	2,107		$	175		$	627		$	23,721
ALL balance attributable to loans:
Individually evaluated for impairment	$	485		$	1,100		$	—		$	83		$	—		$	66		$	1,734
Collectively evaluated for impairment	3,786			11,626			3,815			2,024			175			561			21,987
Total ending ALL	$	4,271		$	12,726		$	3,815		$	2,107		$	175		$	627		$	23,721
Loans:
Individually evaluated for impairment	$	4,408		$	13,191		$	1,994		$	430		$	7		$	98		$	20,128
Collectively evaluated for impairment	815,231			1,083,284			331,613			322,396			16,662			55,825			$	2,625,011
Total ending loans balance	$	819,639		$	1,096,475		$	333,607		$	322,826		$	16,669		$	55,923		$	2,645,139

~~NOTE 7 – INCOME TAXES~~

~~The Company's effective income tax rate for the three and nine months ended September 30, 2017 and 2016 was as follows:~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Income tax expense $ 5,478
$ 5,042
$ 14,543
$ 12,742
Income before income tax expense $ 16,817
$ 15,945
$ 46,192
$ 41,907
Effective tax rate 32.6 % 31.6 % 31.5 % 30.4 %
Discrete period item(s) — impact on effective tax rate:
Windfall tax benefits, net⁽¹⁾
(0.2 )% (0.4 )% (0.4 )% (1.0 )%
BOLI death benefit income (non-taxable) — % — % — % (0.3 )%



	Residential Real Estate			Commercial Real Estate			Commercial			Home Equity			Consumer			HPFC			Total
For The Year Ended December 31, 2017
ALL:
Beginning balance	$	4,160		$	12,154		$	3,755		$	2,194		$	181		$	672		$	23,116
Loans charged off	(482		)	(124		)	(1,014		)	(434		)	(124		)	(290		)	(2,468		)
Recoveries	30			141			301			2			17			6			497
Provision (credit)⁽¹⁾	1,378			(308		)	1,129			605			159			63			3,026
Ending balance	$	5,086		$	11,863		$	4,171		$	2,367		$	233		$	451		$	24,171
ALL balance attributable to loans:
Individually evaluated for impairment	$	568		$	1,441		$	—		$	—		$	—		$	—		$	2,009
Collectively evaluated for impairment	4,518			10,422			4,171			2,367			233			451			22,162
Total ending ALL	$	5,086		$	11,863		$	4,171		$	2,367		$	233		$	451		$	24,171
Loans:
Individually evaluated for impairment	$	5,171		$	6,199		$	1,791		$	429		$	—		$	—		$	13,590
Collectively evaluated for impairment	853,198			1,157,824			371,609			322,949			18,149			45,120			2,768,849
Total ending loans balance	$	858,369		$	1,164,023		$	373,400		$	323,378		$	18,149		$	45,120		$	2,782,439

(1)

~~Represents~~The provision (credit) for loan losses excludes any impact for the ~~net windfall tax benefits generated upon vesting~~change in the reserve for unfunded commitments, which represents management's estimate of ~~share-based awards issued~~the amount required to reflect the probable inherent losses on outstanding letters of credit and ~~exercise~~unused lines of ~~stock options that were accounted~~credit. The reserve for unfunded commitments is presented within ~~income tax expense~~accrued interest and other liabilities on the consolidated statements of ~~income as a discrete period item.~~condition. At March 31, 2018 and 2017, and December 31, 2017, the reserve for unfunded commitments was $23,000, $9,000 and $20,000, respectively.

~~During~~The following reconciles the three months ended ~~September 30,~~March 31, 2018 and 2017, and year ended December 31, 2017 (credit) provision for loan losses to the ~~IRS completed its examination~~(credit) provision for credit losses as presented on the consolidated statement of income:



	Three Months Ended March 31,						Year Ended December 31, 2017
	2018			2017			Year Ended December 31, 2017
(Credit) provision for loan losses	$	(500	)	$	581		$	3,026
Change in reserve for unfunded commitments	3			(2		)	9
(Credit) provision for credit losses	$	(497	)	$	579		$	3,035

The Company focuses on maintaining a well-balanced and diversified loan portfolio. Despite such efforts, it is recognized that credit concentrations may occasionally emerge as a result of economic conditions, changes in local demand, natural loan growth and runoff. To ensure that credit concentrations can be effectively identified, all commercial and commercial real estate loans are assigned Standard Industrial Classification codes, North American Industry Classification System codes, and state and county codes. Shifts in portfolio concentrations are monitored by the Company's Credit Risk Administration. As of March 31, 2018, the non-residential building operators' industry exposure was 11% of the Company's ~~2013~~total loan portfolio and ~~2014 federal~~26% of the total commercial real estate portfolio. There were no other industry exposures exceeding 10% of the Company's total loan portfolio as of March 31, 2018.

Grade 7 — Loans with potential weakness (Special Mention). Loans in this category are currently protected based on collateral and repayment capacity and do not constitute undesirable credit risk, but have potential weakness that may result in deterioration of the repayment process at some future date. This classification is used if a negative trend is evident in the obligor’s financial situation. Special mention loans do not sufficiently expose the Company to warrant adverse classification.

The following summarizes credit risk exposure indicators by portfolio segment as of the following dates:



	Residential Real Estate		Commercial Real Estate		Commercial		Home Equity		Consumer		HPFC		Total
March 31, 2018
Pass (Grades 1-6)	$	847,822	$	1,146,947	$	361,377	$	—	$	—	$	40,768	$	2,396,914
Performing	—		—		—		319,178		18,011		—		337,189
Special Mention (Grade 7)	662		8,510		12,437		—		—		174		21,783
Substandard (Grade 8)	12,049		14,076		4,201		—		—		1,472		31,798
Non-performing	—		—		—		1,464		—		—		1,464
Total	$	860,533	$	1,169,533	$	378,015	$	320,642	$	18,011	$	42,414	$	2,789,148
December 31, 2017
Pass (Grades 1-6)	$	846,394	$	1,130,235	$	354,904	$	—	$	—	$	43,049	$	2,374,582
Performing	—		—		—		321,727		18,149		—		339,876
Special Mention (Grade 7)	922		9,154		12,517		—		—		191		22,784
Substandard (Grade 8)	11,053		24,634		5,979		—		—		1,880		43,546
Non-performing	—		—		—		1,651		—		—		1,651
Total	$	858,369	$	1,164,023	$	373,400	$	323,378	$	18,149	$	45,120	$	2,782,439

The Company closely monitors the performance of its loan portfolio. A loan is placed on non-accrual status when the financial condition of the borrower is deteriorating, payment in full of both principal and interest is not expected as scheduled or principal or interest has been in default for 90 days or more. Exceptions may be made if the asset is well-secured by collateral sufficient to satisfy both the principal and accrued interest in full and collection is reasonably assured. When one loan to a borrower is placed on non-accrual status, all other loans to the borrower are re-evaluated to determine if they should also be placed on non-accrual status. All previously accrued and unpaid interest is reversed at this time. A loan may return to accrual status when collection of principal and interest is assured and the borrower has demonstrated timely payments of principal and interest for a reasonable period. Unsecured loans, however, are not normally placed on non-accrual status because they are charged-off once their collectability is in doubt.



	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans Outstanding		Loans > 90 Days Past Due and Accruing		Non-Accrual Loans
March 31, 2018
Residential real estate	$	2,969	$	533	$	4,762	$	8,264	$	852,269	$	860,533	$	—	$	6,185
Commercial real estate	1,455		72		4,167		5,694		1,163,839		1,169,533		—		4,603
Commercial	144		103		1,532		1,779		376,236		378,015		—		1,991
Home equity	1,121		101		1,083		2,305		318,337		320,642		—		1,464
Consumer	14		9		—		23		17,988		18,011		—		—
HPFC	109		419		655		1,183		41,231		42,414		—		655
Total	$	5,812	$	1,237	$	12,199	$	19,248	$	2,769,900	$	2,789,148	$	—	$	14,898
December 31, 2017
Residential real estate	$	3,871	$	1,585	$	4,021	$	9,477	$	848,892	$	858,369	$	—	$	4,979
Commercial real estate	849		323		5,528		6,700		1,157,323		1,164,023		—		5,642
Commercial	329		359		1,535		2,223		371,177		373,400		—		2,000
Home equity	1,046		173		1,329		2,548		320,830		323,378		—		1,650
Consumer	57		10		—		67		18,082		18,149		—		—
HPFC	139		1,372		419		1,930		43,190		45,120		—		1,043
Total	$	6,291	$	3,822	$	12,832	$	22,945	$	2,759,494	$	2,782,439	$	—	$	15,314

Interest income ~~tax returns~~that would have been recognized if loans on non-accrual status had been current in accordance with their original terms was $162,000 and $210,000 for the three months ended March 31, 2018 and 2017, respectively.

TDRs:



	Number of Contracts		Recorded Investment				Specific Reserve
	March 31, 2018	December 31, 2017	March 31, 2018		December 31, 2017		March 31, 2018		December 31, 2017
Residential real estate	24	24	$	3,581	$	3,604	$	410	$	452
Commercial real estate	2	3	354		976		20		16
Commercial	7	7	1,339		1,345		—		—
Home equity	2	2	306		307		—		—
Total	35	36	$	5,580	$	6,232	$	430	$	468

At March 31, 2018, the Company had performing and non-performing TDRs with a recorded investment balance of $4.4 million and $1.2 million, respectively. At December 31, 2017, the Company had performing and non-performing TDRs with a recorded investment balance of $5.0 million and $1.2 million, respectively.

The following represents loan modifications that qualify as TDRs that occurred for the three months ended March 31, 2018 and 2017:



	Number of Contracts		Pre-Modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment				Specific Reserve
	2018	2017	2018		2017		2018		2017		2018		2017
Residential real estate:
Maturity concession	—	1	$	—	$	151	$	—	$	151	$	—	$	15
Total	—	1	$	—	$	151	$	—	$	151	$	—	$	15

For the three months ended March 31, 2018 and 2017, no loans were modified as TDRs within the previous 12 months for which the borrower subsequently defaulted.

Impaired Loans:

Impaired loans consist of non-accrual loans and TDRs that are individually evaluated for impairment in accordance with the Company's policy. The following is a summary of impaired loan balances and the associated allowance by portfolio segment as of and for the three months ended March 31, 2018 and 2017, and as of and for the year-ended December 31, 2017:



								For the Three Months Ended
	Recorded Investment		Unpaid Principal Balance			Related Allowance		Average Recorded Investment		Interest Income Recognized
March 31, 2018:
With an allowance recorded:
Residential real estate	$	3,544	$	3,544		$	553	$	3,745	$	30
Commercial real estate	3,591		3,591			368		4,275		1
Commercial	—		—			—		—		—
Home equity	147		147			112		49		—
Consumer	—		—			—		—		—
HPFC	—		—			—		—		—
Ending balance	7,282		7,282			1,033		8,069		31
Without an allowance recorded:
Residential real estate	1,515		1,791			—		1,350		7
Commercial real estate	370		677			—		637		3
Commercial	1,714		2,923			—		1,740		2
Home equity	344		468			—		396		2
Consumer	—		—			—		—		—
HPFC	—		—			—		—		—
Ending balance	3,943		5,859			—		4,123		14
Total impaired loans	$	11,225	$	13,141		$	1,033	$	12,192	$	45
March 31, 2017:
With an allowance recorded:
Residential real estate	$	3,048	$	3,048		$	485	$	3,025	$	26
Commercial real estate	11,791		11,791			1,100		11,654		—
Commercial	1		1			—		—		—
Home equity	297		297			83		298		—
Consumer	—		—			—		—		—
HPFC	98		98			66		98		—
Ending Balance	15,235		15,235			1,734		15,075		26
Without an allowance recorded:
Residential real estate	1,360		1,740			—		1,292		2
Commercial real estate	1,400		1,707			—		1,704		10
Commercial	1,993		3,167			—		2,024		3
Home equity	133		269		��	—		139		—
Consumer	7		10			—		7		—
HPFC	—		—			—		—		—
Ending Balance	4,893		6,893			—		5,166		15
Total impaired loans	$	20,128	$	22,128		$	1,734	$	20,241	$	41



							For the Year Ended
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
December 31, 2017:
With an allowance recorded:
Residential real estate	$	3,858	$	3,858	$	568	$	3,177	$	131
Commercial real estate	5,422		5,422		1,441		8,900		22
Commercial	—		—		—		31		—
Home equity	—		—		—		125		—
Consumer	—		—		—		—		—
HPFC	—		—		—		24		—
Ending Balance	9,280		9,280		2,009		12,257		153
Without an allowance recorded:
Residential real estate	1,313		1,673		—		1,345		15
Commercial real estate	777		1,084		—		1,132		29
Commercial	1,791		2,964		—		1,920		10
Home equity	429		495		—		310		8
Consumer	—		—		—		2		—
HPFC	—		—		—		—		—
Ending Balance	4,310		6,216		—		4,709		62
Total impaired loans	$	13,590	$	15,496	$	2,009	$	16,966	$	215

Loan Sales:

For the three months ended March 31, 2018 and 2017, the Company sold $45.2 million and $43.0 million, respectively, of fixed rate residential mortgage loans on the secondary market that resulted in ~~no material changes~~gains on the sale of loans (net of costs) of $1.2 million and $1.3 million, respectively.

At March 31, 2018 and December 31, 2017, the Company had certain residential mortgage loans with a principal balance of $9.5 million and $8.1 million, respectively, designated as held for sale. The Company has elected the fair value option of accounting for its loans held for sale, and at March 31, 2018 and December 31, 2017, recorded an unrealized gain of $47,000 and $37,000, respectively. For the three months ended March 31, 2018 and 2017, the Company recorded within mortgage banking income, net on its consolidated statements of income the net change in unrealized gains of $9,000 and $254,000, respectively, on its loans held for sale.

The Company has forward delivery commitments with a secondary market investor on each of its loans held for sale at March 31, 2018 and December 31, 2017. The fair value of its forward delivery commitments at March 31, 2018 and December 31, 2017 was $123,000 and $142,000, respectively. For the three months ended March 31, 2018 and 2017, the net unrealized loss from the change in fair value on the Company's forward delivery commitments reported within mortgage banking income, net on the consolidated statements of income were $19,000 and $118,000, respectively. Refer to Note 12 for further discussion of the Company's forward delivery commitments.

In-Process Foreclosure Proceedings:

At March 31, 2018 and December 31, 2017, the Company had $2.0 million and $1.9 million, respectively, of consumer mortgage loans secured by residential real estate properties for which foreclosure proceedings were in process. The Company continues to be focused on working these consumer mortgage loans through the foreclosure process to resolution; however, the foreclosure process, typically, will take 18 to 24 months due to the ~~Company's~~State of Maine foreclosure laws.

FHLB Advances:

Refer to Notes 4 and 10 of the consolidated financial ~~statements.~~statements for discussion of securities pledged as collateral.

NOTE 6 – REGULATORY CAPITAL REQUIREMENTS

The Company and Bank are subject to various regulatory capital requirements administered by the FRB and the OCC. Failure to meet minimum capital requirements can result in mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements.

The Company and Bank are required to maintain certain levels of capital based on risk-adjusted assets. These capital requirements represent quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Company and Bank's capital classification is also subject to qualitative judgments by our regulators about components, risk weightings and other factors. The quantitative measures established to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios of total, Tier I capital, and common equity Tier I to risk-weighted assets, and of Tier I capital to average assets, or the leverage ratio. These guidelines apply to the Company on a consolidated basis.

Under the current guidelines, banking organizations must have a minimum total risk-based capital ratio of 8.0%, a minimum Tier I risk-based capital ratio of 6.0%, a minimum common equity Tier I risk-based capital ratio of 4.5%, and a minimum leverage ratio of 4.0% in order to be "adequately capitalized." In addition to these requirements, banking organizations must maintain a 2.5% capital conservation buffer consisting of common Tier I equity, subject to a transition schedule with a full phase-in by 2019. Effective January 1, 2018, the Company and Bank were required to establish a capital conservation buffer of 1.875%, increasing the minimum required total risk-based capital, Tier I risk-based and common equity Tier I capital to risk-weighted assets they must maintain to avoid limits on capital distributions and certain bonus payments to executive officers and similar employees.

The Company and Bank's risk-based capital ratios exceeded regulatory guidelines at March 31, 2018 and December 31, 2017, and specifically the Bank was "well capitalized" under prompt corrective action provisions for each period. There were no new conditions or events that occurred subsequent to March 31, 2018 that would change the Company or Bank's regulatory capital categorization. The following table presents the Company and Bank's regulatory capital ratios at the periods indicated:



	March 31, 2018				Minimum Regulatory Capital Required for Capital Adequacy plus Capital Conservation Buffer		Minimum Regulatory Provision To Be "Well Capitalized" Under Prompt Corrective Action Provisions		December 31, 2017				Minimum Regulatory Capital Required for Capital Adequacy plus Capital Conservation Buffer		Minimum Regulatory Provision To Be "Well Capitalized" Under Prompt Corrective Action Provisions
	Amount		Ratio						Amount		Ratio
Camden National Corporation:
Total risk-based capital ratio	$	403,941	14.32	%	9.88	%	N/A		$	396,451	14.14	%	9.25	%	N/A
Tier I risk-based capital ratio	365,930		12.98	%	7.88	%	N/A		357,261		12.74	%	7.25	%	N/A
Common equity Tier I risk-based capital ratio	322,930		11.45	%	6.38	%	N/A		316,677		11.30	%	5.75	%	N/A
Tier I leverage capital ratio	365,930		9.23	%	4.00	%	N/A		357,261		9.07	%	4.00	%	N/A
Camden National Bank:
Total risk-based capital ratio	$	375,434	13.31	%	9.88	%	10.00	%	$	369,540	13.18	%	9.25	%	10.00	%
Tier I risk-based capital ratio	352,422		12.49	%	7.88	%	8.00	%	345,350		12.32	%	7.25	%	8.00	%
Common equity Tier I risk-based capital ratio	352,422		12.49	%	6.38	%	6.50	%	345,350		12.32	%	5.75	%	6.50	%
Tier I leverage capital ratio	352,422		8.92	%	4.00	%	5.00	%	345,350		8.80	%	4.00	%	5.00	%

In 2015, the Company issued $15.0 million of subordinated debentures, and in 2006 and 2008, it issued $43.0 million of junior subordinated debentures in connection with the issuance of trust preferred securities. Although the subordinated debentures and the junior subordinated debentures are recorded as liabilities on the Company's consolidated statements of condition, the Company is permitted, in accordance with regulatory guidelines, to include, subject to certain limits, each within its calculation of risk-based capital. At March 31, 2018 and December 31, 2017, $15.0 million of subordinated debentures were included as Tier II capital and were included in the calculation of the Company's total risk-based capital, and, at March 31,

2018 and December 31, 2017, $43.0 million of the junior subordinated debentures were included in Tier I and total risk-based capital for the Company.

The Company and Bank's regulatory capital and risk-weighted assets fluctuate due to normal business, including profits and losses generated by the Company and Bank as well as changes to their asset mix. Of particular significance are changes within the Company and Bank's loan portfolio mix due to the difference in regulatory risk-weighting differences between retail and commercial loans. Furthermore, the Company and Bank's regulatory capital and risk-weighted assets are subject to change due to changes in GAAP and regulatory capital standards. The Company and Bank proactively monitor their regulatory capital and risk-weighted assets, and the impact of changes to their asset mix, and impact of proposed and pending changes as a result of new and/or amended GAAP standards and regulatory changes.

NOTE 7 – INCOME TAXES

The Company's effective income tax rate for the three months ended March 31, 2018 and 2017 was as follows:



	Three Months Ended March 31,
	2018			2017
Income tax expense	$	3,079		$	4,344
Income before income tax expense	$	15,899		$	14,420
Effective tax rate⁽¹⁾	19.4		%	30.1		%


(1)	On December 22, 2017, the Tax Act was enacted, reducing the U.S. federal corporate income tax rate from 35.0% to 21.0%, effective January 1, 2018.

NOTE 8 – EMPLOYEE BENEFIT PLANS

The Company sponsors unfunded, non-qualified SERPs for certain officers and provides medical and life insurance to certain eligible retired employees.

The components of net ~~period~~periodic benefit cost for the periods ended ~~September 30, 2017~~March 31, 2018 and ~~2016~~2017 were as follows:

Supplemental Executive Retirement Plan:


	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
Net periodic benefit cost	2017		2016		2017		2016
Net periodic pension cost									Income Statement Presentation	2018		2017
Service cost	$	84	$	77	$	252	$	231	Salaries and employee benefits	$	112	$	84
Interest cost	113		108		339		324		Other expenses	122		112
Recognized net actuarial loss	61		55		185		165		Other expenses	140		62
Recognized prior service cost	—		2		—		6
Net period benefit cost⁽¹⁾	$	258	$	242	$	776	$	726
Total										$	374	$	258


~~(1)~~	~~Presented within the consolidated statements of income within salaries and employee benefits.~~

Other Postretirement Benefit Plan:


	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended March 31,
Net periodic benefit cost	2017			2016			2017			2016
Net periodic postretirement benefit cost													Income Statement Presentation	2018	2017
Service cost	$	13		$	15		$	39		$	45		Salaries and employee benefits	$12	$13
Interest cost	36			38			108			114			Other expenses	33	36
Recognized net actuarial loss	10			8			30			24			Other expenses	13	10
Amortization of prior service credit	(6		)	(6		)	(18		)	(18		)	Other expenses	(6)	(6)
Net period benefit cost⁽¹⁾	$	53		$	55		$	159		$	165
Total														$52	$53


~~(1)~~	~~Presented within the consolidated statements of income within salaries and employee benefits.~~

NOTE 9 – BORROWINGS

The following summarizes the Company's short-term and long-term borrowed funds as presented on the consolidated statements of condition at:


	September 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Short-Term Borrowings (mature within one year):
Customer repurchase agreements	$	265,627	$	225,605	$	256,274	$	244,646
FHLBB borrowings	270,000		210,000		135,000		250,000
Overnight borrowings	3,300		89,450		161,350		47,150
Wholesale repurchase agreements	—		5,007
Capital lease obligation	70		67
Total short-term borrowings	$	538,997	$	530,129	$	552,624	$	541,796
Long-Term Borrowings (maturity greater than one year):
FHLBB borrowings	$	10,000	$	10,000	$	10,000	$	10,000
Capital lease obligation	738		791		773		791
Total long-term borrowings	$	10,738	$	10,791	$	10,773	$	10,791

NOTE 10 – REPURCHASE AGREEMENTS

The Company can raise additional liquidity by entering into repurchase agreements at its discretion. In a security repurchase agreement transaction, the Company will generally sell a security, agreeing to repurchase either the same or substantially identical security on a specified later date, at a greater price than the original sales price. The difference between the sale price and purchase price is the cost of the proceeds, which is recorded as interest expense on the consolidated statement of income. The securities underlying the agreements are delivered to counterparties as security for the repurchase obligations. Because the securities are treated as collateral and the agreement does not qualify for a full transfer of effective control, the transaction does not meet the criteria to be classified as a sale, and is therefore considered a secured borrowing transaction for accounting purposes. Payments on such borrowings are interest only until the scheduled repurchase date. In a repurchase agreement, the Company is subject to the risk that the purchaser may default at maturity and not return the securities underlying the agreements. In order to minimize this potential risk, the Company either deals with established firms when entering into these transactions or with customers whose agreements stipulate that the securities underlying the agreement are not delivered to the customer and instead are held in segregated safekeeping accounts by the Company's safekeeping agents.

The table below sets forth information regarding the Company’s repurchase agreements accounted for as secured borrowings and types of collateral as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016:~~2017:


	Remaining Contractual Maturity of the Agreements										Remaining Contractual Maturity of the Agreements
	Overnight and Continuous		Up to 30 Days		30 - 90 Days		Greater than 90 Days		Total		Overnight and Continuous		Up to 30 Days		30 - 90 Days		Greater than 90 Days		Total
September 30, 2017
March 31, 2018
Customer Repurchase Agreements:
Obligations of states and political subdivisions	$	451	$	—	$	—	$	—	$	451	$	1,125	$	—	$	—	$	—	$	1,125
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	168,103		—		—		—		168,103		90,903		—		—		—		90,903
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	97,073		—		—		—		97,073		164,246		—		—		—		164,246
Total Customer Repurchase Agreements	265,627		—		—		—		265,627		256,274		—		—		—		256,274
Total Wholesale Repurchase Agreements	—		—		—		—		—
Total Repurchase Agreements	$	265,627	$	—	$	—	$	—	$	265,627	$	256,274	$	—	$	—	$	—	$	256,274
December 31, 2016
December 31, 2017
Customer Repurchase Agreements:
Obligations of states and political subdivisions											$	630	$	—	$	—	$	—	$	630
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	$	117,784	$	—	$	—	$	—	$	117,784	98,460		—		—		—		98,460
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	107,821		—		—		—		107,821		145,556		—		—		—		145,556
Total Customer Repurchase Agreements	225,605		—		—		—		225,605		244,646		—		—		—		244,646
Wholesale Repurchase Agreements:
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	—		—		3,715		—		3,715
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	—		—		1,292		—		1,292
Total Wholesale Repurchase Agreements	—		—		5,007		—		5,007
Total Repurchase Agreements	$	225,605	$	—	$	5,007	$	—	$	230,612	$	244,646	$	—	$	—	$	—	$	244,646

Certain customers held CDs totaling ~~$919,000 and $917,000~~$920,000 with the Bank at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, respectively, that were collateralized by CMO and MBS securities that were overnight repurchase agreements.

Certain counterparties monitor collateral, and may request additional collateral to be posted from time to time.

NOTE 11 – FAIR VALUE MEASUREMENT AND DISCLOSURE

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined using quoted market prices. However, in many instances, quoted market prices are not available. In such instances, fair values are determined using various valuation techniques. Various assumptions and observable inputs must be relied upon in applying these techniques. GAAP establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

GAAP permits an entity to choose to measure eligible financial instruments and other items at fair value. The Company has elected the fair value option for its loans held for sale. Electing the fair value option for loans held for sale enables the Company’s financial position to more clearly align with the economic value of the actively traded asset.

The fair value hierarchy for valuation of an asset or liability is as follows:

Level 1: Valuation is based upon unadjusted quoted prices in active markets for identical assets and liabilities that the entity has the ability to access as of the measurement date.

Level 2: Valuation is determined from quoted prices for similar assets or liabilities in active markets, from quoted prices for identical or similar instruments in markets that are not active or by model-based techniques in which all significant inputs are observable in the market.

Level 3: Valuation is derived from model-based and other techniques in which at least one significant input is unobservable and which may be based on the Company’s own estimates about the assumptions that market participants would use to value the asset or liability.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon model-based techniques incorporating various assumptions including interest rates, prepayment speeds and credit losses. Assets and liabilities valued using model-based techniques are classified as either Level 2 or Level 3, depending on the lowest level classification of an input that is considered significant to the overall valuation. A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

Financial Instruments Recorded at Fair Value on a Recurring Basis

Loans Held For Sale: The fair value of loans held for sale is determined using quoted secondary market prices or executed sales agreements and is classified as Level 2.

~~AFS~~Debt Securities: The fair value of investments in debt ~~AFS~~ securities is reported utilizing prices provided by an independent pricing service based on recent trading activity and other observable information including, but not limited to, dealer quotes, market spreads, cash flows, market interest rate curves, market consensus prepayment speeds, credit information, and the bond’s terms and conditions. The fair value of debt securities are classified as Level 2.

Equity Securities:The fair value of investments in equity ~~AFS~~ securities is reported utilizing market prices based on recent trading activity and dealer quotes. The equity securities are traded on inactive markets and are classified as Level 2.

Derivatives: The fair value of the Company's interest rate swaps, including its junior subordinated debt interest rate swaps, FHLBB advance interest rate swaps and customer loan swaps, are determined using inputs that are observable in the market place obtained from third parties including yield curves, publicly available volatilities, and floating indexes and, accordingly, are classified as Level 2 inputs. The credit value adjustments associated with derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. As of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives due to collateral postings.

The fair value of the Company's ~~fixed rate~~fixed-rate interest rate lock commitments are determined using secondary market pricing for loans with similar structures, including term, rate and borrower credit quality, adjusted for the Company's pull-through rate estimate (i.e. estimate of loans within its pipeline that will ultimately complete the origination process and be funded). The Company has classified its ~~fixed rate~~fixed-rate interest rate lock commitments as Level 2 as the quoted secondary market prices are the

more significant input, and while the Company's internal pull-through rate estimate is a Level 3 estimate it is not as critical to the ultimate valuation.

The fair value of the Company's forward delivery commitments are determined using secondary market pricing for loans with similar structures, including term, rate and borrower credit quality, and the locked and agreed to price with the secondary market investor. The Company has classified its ~~fixed rate~~fixed-rate interest rate lock commitments as Level 2.

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:


	Fair Value		Readily Available Market Prices (Level 1)		Observable Market Data (Level 2)		Company Determined Fair Value (Level 3)		Fair Value		Readily Available Market Prices (Level 1)		Observable Market Data (Level 2)		Company Determined Fair Value (Level 3)
September 30, 2017
March 31, 2018
Financial assets:
Loans held for sale	$	12,997	$	—	$	12,997	$	—	$	9,548	$	—	$	9,548	$	—
AFS securities:
AFS investments:
Obligations of states and political subdivisions	7,365		—		7,365		—		5,827		—		5,827		—
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	521,104		—		521,104		—		502,996		—		502,996		—
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	262,390		—		262,390		—		282,279		—		282,279		—
Subordinated corporate bonds	5,651		—		5,651		—		5,585		—		5,585		—
Equity securities	741		—		741		—
Equity securities - bank stock									761		—		761		—
Customer loan swaps	3,482		—		3,482		—		10,707		—		10,707		—
Fixed-rate interest rate lock commitments	495		—		495		—
Fixed-rate mortgage interest rate lock commitments									308		—		308		—
Forward delivery commitments	332		—		332		—		145		—		145		—
FHLBB advance interest rate swaps									85		—		85		—
Financial liabilities:
Junior subordinated debt interest rate swaps	8,123		—		8,123		—		5,877		—		5,877		—
FHLBB advance interest rate swaps	98		—		98		—
Customer loan swaps	3,482		—		3,482		—		10,707		—		10,707		—
Fixed-rate interest rate lock commitments	25		—		25		—
Fixed-rate mortgage interest rate lock commitments									35		—		35		—
Forward delivery commitments	19		—		19		—		22		—		22		—
December 31, 2016
December 31, 2017
Financial assets:
Loans held for sale	$	14,836	$	—	$	14,836	$	—	$	8,103	$	—	$	8,103	$	—
AFS securities:
AFS investments:
Obligations of states and political subdivisions	9,001		—		9,001		—		7,335		—		7,335		—
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	480,622		—		480,622		—		503,302		—		503,302		—
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	283,890		—		283,890		—		272,799		—		272,799		—
Subordinated corporate bonds	5,613		—		5,613		—		5,657		—		5,657		—
Equity securities	741		—		741		—
Equity investments									806		—		806		—
Customer loan swaps	1,945		—		1,945		—		5,036		—		5,036		—
Fixed-rate interest rate lock commitments	202		—		202		—
Fixed-rate mortgage interest rate lock commitments									307		—		307		—
Forward delivery commitments	587		—		587		—		158		—		158		—
FHLBB advance interest rate swaps									21		—		21		—
Financial liabilities:
Junior subordinated debt interest rate swaps	8,372		—		8,372		—		7,571		—		7,571		—
FHLBB advance interest rate swaps	389		—		389		—
Customer loan swaps	1,945		—		1,945		—		5,036		—		5,036		—
Fixed-rate interest rate lock commitments	15		—		15		—
Fixed-rate mortgage interest rate lock commitments									22		—		22		—
Forward delivery commitments	309		—		309		—		16		—		16		—

The Company did not have any transfers between Level 1 and Level 2 of the fair value hierarchy during the ~~nine~~three months ended ~~September 30, 2017.~~March 31, 2018. The Company’s policy for determining transfers between levels occurs at the end of the reporting period when circumstances in the underlying valuation criteria change and result in transfer between levels.

Financial Instruments Recorded at Fair Value on a Nonrecurring Basis

The Company may be required, from time to time, to measure certain financial assets and financial liabilities at fair value on a nonrecurring basis in accordance with GAAP. These include assets that are measured at the lower of cost or market value that were recognized at fair value below cost at the end of the period.

Collateral-Dependent Impaired Loans: Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Effective January 1, 2017, the Company's policy is to individually evaluate for impairment loans with a principal balance greater than $500,000 or more and are classified as substandard or doubtful and are on non-accrual status. Prior to January 1, 2017, the Company's policy was to individually evaluate for impairment loans with a principal balance greater than $250,000 or more and was classified as substandard or doubtful and was on non-accrual status. Once the population of loans is identified for individual impairment assessment, the Company measures these loans for impairment by comparing net realizable value, which is the fair value of the collateral, less estimated costs to sell, to the carrying value of the loan. If the net realizable value of the loan is less than the carrying value of the loan, then a loss is recognized as part of the ALL to adjust the loan's carrying value to net realizable value. Accordingly, certain collateral-dependent impaired loans are subject to measurement at fair value on a non-recurring basis. Management has estimated the fair values of these assets using Level 2 inputs, such as the fair value of collateral based on independent third-party market approach appraisals for collateral-dependent loans, and Level 3 inputs where circumstances warrant an adjustment to the appraised value based on the age of the appraisal and/or comparable sales, condition of the collateral, and market conditions.

~~MSRs~~Servicing Assets: The Company accounts for mortgage servicing assets at cost, subject to impairment testing. When the carrying value of a tranche exceeds fair value, a valuation allowance is established to reduce the carrying cost to fair value. Fair value is based on a valuation model that calculates the present value of estimated net servicing income. The Company obtains a third-party valuation based upon loan level data including note rate, type and term of the underlying loans. The model utilizes two significant unobservable inputs, which are loan prepayment assumptions and the discount rate used, to calculate the fair value of each tranche, and, as such, the Company has classified within Level 3 of the fair value hierarchy. At March 31, 2018 and December 31, 2017, the mortgage servicing assets were not carried at fair value.

Non-Financial ~~Assets and Non-Financial Liabilities~~Instruments Recorded at Fair Value on a Non-Recurring Basis

The Company has no non-financial assets or non-financial liabilities measured at fair value on a recurring basis. Non-financial assets measured at fair value on a non-recurring basis consist of OREO and goodwill and other intangible assets.

OREO: OREO properties acquired through foreclosure or deed in lieu of foreclosure are recorded at net realizable value, which is the fair value of the real estate, less estimated costs to sell. Any write-down of the recorded investment in the related loan is charged to the ALL upon transfer to OREO. Upon acquisition of a property, a current appraisal is used or an internal valuation is prepared to substantiate fair value of the property. After foreclosure, management periodically, but at least annually, obtains updated valuations of the OREO properties and, if additional impairments are deemed necessary, the subsequent write-downs for declines in value are recorded through a valuation allowance and a provision for losses charged to other non-interest expense within the consolidated statements of income. As management considers appropriate, adjustments are made to the appraisal obtained for the OREO property to account for recent sales activity of comparable properties, changes in the condition of the property, and changes in market conditions. These adjustments are not observable in an active market and are classified as Level 3.

Goodwill and Other Intangible Assets: Goodwill represents the excess cost of an acquisition over the fair value of the net assets acquired. The fair value of goodwill is estimated by utilizing several standard valuation techniques, including discounted cash flow analyses, bank merger multiples, and/or an estimation of the impact of business conditions and investor activities on the long-term value of the goodwill. Should an impairment occur, the associated goodwill is written-down to fair value and the impairment charge is recorded within non-interest expense in the consolidated statements of income. The Company conducts an annual impairment test of goodwill in the fourth quarter each year, or more frequently as necessary. There have been no indications or triggering events during for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 for which management believes that it is more likely than not that goodwill is impaired.

The Company's core deposit intangible assets represent the estimated value of acquired customer relationships and are amortized on a straight-line basis over the estimated life of those relationships. Core deposit intangibles are reviewed for

impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If necessary, management will test the core deposit intangibles for impairment by comparing its carrying value to the expected undiscounted cash flows of the assets. If the undiscounted cash flows of the intangible assets exceed its carrying value then the intangible assets are deemed to be fully recoverable and not impaired. However, if the undiscounted cash flows of the intangible assets are less than its carrying value, then an impairment charge is recorded to mark the carrying value of the intangible assets to fair value. There were no events or changes in circumstances for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 that indicated the carrying amount may not be recoverable.

The table below highlights financial and non-financial assets measured and recorded at fair value on a non-recurring basis as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017.:

Fair
Value

Readily
Available
Market
Prices
(Level 1)

Observable
Market
Data
(Level 2)

Company
Determined
Fair Value
(Level 3)
September 30, 2017

Financial assets:

Collateral-dependent impaired loans $ 3,276
$ —
�� $ —
$ 3,276
MSRs⁽¹⁾
330
—
—
330
Non-financial assets:
OREO 341
—
—
341
December 31, 2016

Financial assets:

Collateral-dependent impaired loans $ 500
$ —
$ —
$ 500
MSRs⁽¹⁾
1,090
—
—
1,090
Non-financial assets:

OREO 922
—
—
922

~~(1) Represents MSRs deemed to be impaired and a valuation allowance was established to carry at fair value.~~



	Fair Value		Readily Available Market Prices (Level 1)		Observable Market Data (Level 2)		Company Determined Fair Value (Level 3)
March 31, 2018
Financial assets:
Collateral-dependent impaired loans	$	3,600	$	—	$	—	$	3,600
Non-financial assets:
OREO	130		—		—		130
December 31, 2017
Financial assets:
Collateral-dependent impaired loans	$	3,696	$	—	$	—	$	3,696
Non-financial assets:
OREO	130		—		—		130

The following table presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a non-recurring basis at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016:~~2017:

Fair Value Valuation Methodology Unobservable input
Discount Range
(Weighted-Average)
September 30, 2017
Collateral-dependent impaired loans:

Partially charged-off $ 166
Market approach appraisal of collateral Management adjustment of appraisal 0-50% (9%)
Estimated selling costs 0 - 10% (3%)
Specifically reserved 3,110
Market approach appraisal of collateral Management adjustment of appraisal 0% (0%)
Estimated selling costs 10% (10%)
MSR 330
Discounted cash flow Prepayment rate 14% (14%)
Discount rate 7% (7%)
OREO 341
Market approach appraisal of collateral Management adjustment of appraisal 0% (0%)
Estimated selling cost 10% (10%)
December 31, 2016

Collateral-dependent impaired loans:

Partially charged-off $ 166
Market approach appraisal of collateral Management adjustment
of appraisal 0% (0%)
Estimated selling costs 0 - 10% (5%)
Specifically reserved 344
Market approach appraisal of collateral Management adjustment
of appraisal 0 - 50% (13%)
Estimated selling costs 10 - 28% (12%)
MSR 1,090
Discounted cash flow Prepayment rate 15% (15%)
Discount rate 8% (8%)
OREO 922
Market approach appraisal of collateral Management adjustment
of appraisal 0 - 73% (7%)
Estimated selling costs 10% (10%)

GAAP requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above. The following methods and assumptions were used by the Company in estimating the fair values of its other financial instruments.

~~Cash and Due from Banks: The carrying amounts reported in the consolidated statements of condition approximate fair value.~~

~~HTM securities~~: The fair value is estimated utilizing prices provided by an independent pricing service based on recent trading activity and other observable information including, but not limited to, dealer quotes, market spreads, cash flows, market interest rate curves, market consensus prepayment speeds, credit information, and the bond’s terms and conditions. The fair value is classified as Level 2.

~~Loans~~: For variable rate loans that reprice frequently and have no significant change in credit risk, fair values are based on carrying values. The fair value of other loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

~~Interest Receivable and Payable: The carrying amounts reported in the consolidated statements of condition approximate fair value.~~

~~Deposits~~: The fair value of demand, interest checking, savings and money market deposits is determined as the amount payable on demand at the reporting date. The fair value of time deposits is estimated by discounting the estimated future cash flows using market rates offered for deposits of similar remaining maturities.



	Fair Value		Valuation Methodology	Unobservable input	Discount Range (Weighted-Average)
March 31, 2018
Collateral-dependent impaired loans:
Partially charged-off	$	18	Market approach appraisal of collateral	Management adjustment of appraisal	0%	(0%)
				Estimated selling costs	10%	(10%)
Specifically reserved	3,582		Market approach appraisal of collateral	Management adjustment of appraisal	0%	(0%)
				Estimated selling costs	10%	(10%)
OREO	130		Market approach appraisal of collateral	Management adjustment of appraisal	20%	(20%)
				Estimated selling cost	10%	(10%)
December 31, 2017
Collateral-dependent impaired loans:
Partially charged-off	$	86	Market approach appraisal of collateral	Management adjustment of appraisal	0 - 50%	(18%)
				Estimated selling costs	0 - 10%	(6%)
Specifically reserved	3,610		Market approach appraisal of collateral	Management adjustment of appraisal	0%	(0%)
				Estimated selling costs	10%	(10%)
OREO	130		Market approach appraisal of collateral	Management adjustment of appraisal	20%	(20%)
				Estimated selling costs	10%	(10%)

~~Borrowings~~: The carrying amounts of short-term borrowings from the FHLBB, securities sold under repurchase agreements, notes payable and other short-term borrowings approximate fair value. The fair values of long-term borrowings and commercial repurchase agreements are based on the discounted cash flows using current rates for advances of similar remaining maturities.

~~Subordinated Debentures: The fair values of are based on quoted prices from similar instruments in inactive markets.~~

The ~~following table presents the~~estimated fair values and related carrying amounts ~~and estimated fair value~~ for ~~financial instrument~~ assets and liabilities ~~measured at~~ for which fair value is only disclosed are shown below as of the periods indicated:~~September 30, 2017~~:

Carrying
Amount
Fair Value
Readily
Available
Market
Prices
(Level 1)

Observable
Market
Prices
(Level 2)

Company
Determined
Market
Prices
(Level 3)
Financial assets:

Cash and due from banks $ 89,435
$ 89,435
$ 89,435
$ —
$ —
AFS securities 797,251
797,251
—
797,251
—
HTM securities 94,207
95,094
—
95,094
—
Loans held for sale 12,997
12,997
—
12,997
—
Residential real estate loans⁽¹⁾
848,309
854,198
—
—
854,198
Commercial real estate loans⁽¹⁾
1,119,087
1,082,977
—
—
1,082,977
Commercial loans⁽¹⁾⁽²⁾
412,402
409,833
—
—
409,833
Home equity loans⁽¹⁾
326,151
323,943
—
—
323,943
Consumer loans⁽¹⁾
17,928
17,465
—
—
17,465
MSRs⁽³⁾
1,109
1,740
—
—
1,740
Interest receivable 9,415
9,415
—
9,415
—
Customer loan swaps 3,482
3,482
—
3,482
—
Fixed-rate interest rate lock commitments 495
495
—
495
—
Forward delivery commitments 332
332
—
332
—
Financial liabilities:

Deposits $ 2,956,413
$ 2,953,386
$ —
$ 2,953,386
$ —
Short-term borrowings 538,997
538,861
—
538,861
—
Long-term borrowings 10,738
10,816
—
10,816
—
Subordinated debentures 58,872
42,090
—
42,090
—
Interest payable 574
574
—
574
—
Junior subordinated debt interest rate swaps 8,123
8,123
—
8,123
—
FHLBB advance interest rate swaps 98
98
—
98
—
Customer loan swaps 3,482
3,482
—
3,482
—
Fixed-rate interest rate lock commitments 25
25
—
25
—
Forward delivery commitments 19
19
—
19
—



	Carrying Amount		Fair Value		Readily Available Market Prices (Level 1)		Observable Market Prices (Level 2)		Company Determined Market Prices (Level 3)
March 31, 2018
Financial assets:
HTM securities	$	93,192	$	91,874	$	—	$	91,874	$	—
Residential real estate loans⁽¹⁾	855,036		842,132		—		—		842,132
Commercial real estate loans⁽¹⁾	1,159,247		1,119,406		—		—		1,119,406
Commercial loans⁽¹⁾⁽²⁾	415,879		404,925		—		—		404,925
Home equity loans⁽¹⁾	318,215		311,142		—		—		311,142
Consumer loans⁽¹⁾	17,781		16,880		—		—		16,880
Servicing assets	972		1,840		—		—		1,840
Financial liabilities:
Time deposits	$	538,957	$	532,244	$	—	$	532,244	$	—
Short-term borrowings	552,624		552,289		—		552,289		—
Long-term borrowings	10,773		10,658		—		10,658		—
Subordinated debentures	58,950		45,588		—		45,588		—
December 31, 2017
Financial assets:
HTM securities	$	94,073	$	94,913	$	—	$	94,913	$	—
Residential real estate loans⁽¹⁾	853,283		853,056		—		—		853,056
Commercial real estate loans⁽¹⁾	1,152,160		1,115,618		—		—		1,115,618
Commercial loans⁽¹⁾⁽²⁾	413,898		401,902		—		—		401,902
Home equity loans⁽¹⁾	321,011		318,230		—		—		318,230
Consumer loans⁽¹⁾	17,916		17,335		—		—		17,335
Servicing assets	1,025		1,766		—		—		1,766
Financial liabilities:
Time deposits	$	517,032	$	512,483	$	—	$	512,483	$	—
Short-term borrowings	541,796		541,605		—		541,605		—
Long-term borrowings	10,791		10,777		—		10,777		—
Subordinated debentures	58,911		44,333		—		44,333		—


(1)	The presented carrying amount is net of the allocated ALL.


(2)	Includes the HPFC loan portfolio.


~~(3)~~	~~Reported fair value represents all MSRs currently being serviced by the Company.~~

Excluded from the summary are financial instruments measured at fair value on a recurring and nonrecurring basis, as previously described.

The ~~following table presents~~Company considers its financial instruments' current use to be the ~~carrying amounts~~highest and ~~estimated fair value for financial instrument assets and liabilities measured at December 31, 2016:~~best use of the instruments.

Carrying
Amount
Fair Value
Readily
Available
Market
Prices
(Level 1)

Observable
Market
Prices
(Level 2)

Company
Determined
Market
Prices
(Level 3)
Financial assets:

Cash and due from banks $ 87,707
$ 87,707
$ 87,707
$ —
$ —
AFS securities 779,867
779,867
—
779,867
—
HTM securities 94,609
94,596
—
94,596
—
Loans held for sale 14,836
14,836
—
14,836
—
Residential real estate loans⁽¹⁾
798,334
800,122
—
—
800,122
Commercial real estate loans⁽¹⁾
1,038,626
1,006,249
—
—
1,006,249
Commercial loans⁽¹⁾⁽²⁾
389,624
391,493
—
—
391,493
Home equity loans⁽¹⁾
327,713
327,292
—
—
327,292
Consumer loans⁽¹⁾
17,151
16,845
—
—
16,845
MSRs⁽³⁾
1,210
1,701
—
—
1,701
Interest receivable 8,654
8,654
—
8,654
—
Customer loan swaps 1,945
1,945
—
1,945
—
Fixed-rate interest rate lock commitments 202
202
—
202
—
Forward delivery commitments 587
587
—
587
—
Financial liabilities:




Deposits $ 2,828,529
$ 2,826,484
$ —
$ 2,826,484
$ —
Short-term borrowings 530,129
530,435
—
530,435
—
Long-term borrowings 10,791
10,836
—
10,836
—
Subordinated debentures 58,755
41,660
—
41,660
—
Interest payable 534
534
—
534
—
Junior subordinated debt interest rate swaps 8,372
8,372
—
8,372
—
FHLBB advance interest rate swaps 389
389
—
389
—
Customer loan swaps 1,945
1,945
—
1,945
—
Fixed-rate interest rate lock commitments 15
15
—
15
—
Forward delivery commitments 309
309
—
309
—


~~(1)~~	~~The presented carrying amount is net of the allocated ALL.~~


~~(2)~~	~~Includes the HPFC loan portfolio.~~


~~(3)~~	~~Reported fair value represents all MSRs currently being serviced by the Company.~~

NOTE 12 – COMMITMENTS, CONTINGENCIES AND DERIVATIVES

Legal Contingencies

In the normal course of business, the Company and its subsidiary are subject to pending and threatened legal actions. Although the Company is not able to predict the outcome of such actions, after reviewing pending and threatened actions with counsel, management believes that based on the information currently available the outcome of such actions, individually or in the aggregate, will not have a material adverse effect on the Company’s consolidated financial statements.

Reserves are established for legal claims only when losses associated with the claims are judged to be probable and the loss can be reasonably estimated. In many lawsuits and arbitrations, it is not possible to determine whether a liability has been incurred or to estimate the ultimate or minimum amount of that liability until the case is close to resolution, in which case a reserve will not be recognized until that time.

As of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the Company did not have any material loss contingencies for which accruals were provided for and/or disclosure was deemed necessary.

Financial Instruments

In the normal course of business, the Company is a party to both on- and off-balance sheet financial instruments involving, to varying degrees, elements of credit risk and interest rate risk in addition to the amounts recognized in the consolidated statements of condition.

The following is a summary of the contractual and notional amounts of the Company’s financial instruments:


	September 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Lending-Related Instruments:
Loan origination commitments and unadvanced lines of credit:
Home equity	$	461,731	$	454,225	$	501,127	$	477,401
Residential					36,352		41,368
Commercial and commercial real estate	75,972		83,103		31,667		49,482
Residential	39,128		17,795
Letters of credit	3,054		2,580		3,426		2,848
Other commitments	394		432		1,151		523
Derivative Financial Instruments:
Customer loan swaps	$	592,090	$	532,526	$	708,316	$	703,336
Junior subordinated debt interest rate swaps					43,000		43,000
FHLBB advance interest rate swaps	50,000		50,000		25,000		50,000
Junior subordinated debt interest rate swaps	43,000		43,000
Interest rate lock commitments	26,182		15,249		24,753		21,746
Forward delivery commitments	13,023		15,125		9,502		8,065

Lending-Related Instruments

The contractual amounts of the Company’s lending-related financial instruments do not necessarily represent future cash requirements since certain of these instruments may expire without being funded and others may not be fully drawn upon. These instruments are subject to the Company’s credit approval process, including an evaluation of the customer’s creditworthiness and related collateral requirements. Commitments generally have fixed expiration dates or other termination clauses.

Derivative Financial Instruments

The Company uses derivative financial instruments for risk management purposes (primarily interest rate risk) and not for trading or speculative purposes. The Company controls the credit risk of these instruments through collateral, credit approvals and monitoring procedures. Additionally, as part of Company's normal mortgage origination process, it provides the borrower with the option to lock their interest rate based on current market prices. During the period from commitment date to the loan closing date, the Company is subject to the risk of interest rate change. In an effort to mitigate such risk, the Company may enter into forward delivery sales commitments, typically on a "best effort" basis, with certain approved investors. The Company accounts for its interest rate lock commitments on loans within the normal origination process for which it intends to sell as a derivative instrument. Furthermore, the Company records a derivative for its "best effort" forward delivery commitments upon origination of a loan identified as held for sale. Should the Company enter into a forward delivery commitment on a mandatory delivery arrangement with an investor it accounts for the forward delivery commitment upon execution of the contract.

Derivative instruments are carried at fair value in the Company’s financial statements. The accounting for changes in the fair value of a derivative instrument is dependent upon whether or not it qualifies and has been designated as a hedge for accounting purposes, and further, by the type of hedging relationship.

The Company has designated its interest rate swaps on its junior subordinated debentures and its interest rate swaps on forecasted 30-day FHLBB borrowings as cash flow hedges. The change in the fair value of the Company's cash flow hedges is accounted for within ~~OCI,~~AOCI, net of tax. Quarterly, in conjunction with financial reporting, the Company assesses each cash flow

hedge for ineffectiveness. To the extent any significant ineffectiveness is identified, this amount is recorded within the consolidated statements of income. Furthermore, the Company will reclassify the gain or loss on the effective portion of the cash flow hedge from ~~OCI~~AOCI into interest within the consolidated statements of income in the period the hedged transaction affects earnings.

The change in fair value of the Company's other derivative instruments, not designated and qualifying as hedges, are accounted for within the consolidated statements of income.

~~Junior Subordinated Debt Interest Rate Swaps:~~

The Company, from time to time, will enter into an interest rate swap agreement with a counterparty to manage interest rate risk associated with its variable rate borrowings. The Company has entered into a master netting arrangement with its counterparty and settles payments with the counterparty quarterly on a net basis. The interest rate swap arrangements contain provisions that require the Company to post cash or other assets as collateral with the counterparty for contracts that are in a net liability position based on their fair values and the Company’s credit rating. If the interest rate swaps are in a net asset position based on their fair value, the counterparty will post collateral to the Company as requested. At September 30, 2017, the Company had $9.1 million of cash posted as collateral to the counterparty. The collateral posted by the Company was not readily available and has been presented within cash and due from banks on the consolidated statements of condition.

~~The details of the junior subordinated debt interest rate swaps for the periods indicated were as follows:~~

September 30,
2017 December 31,
2016
Notional
Amount Trade
Date Maturity Date Variable Index
Received Fixed Rate
Paid
Fair Value⁽¹⁾

Fair Value⁽¹⁾
$ 10,000
3/18/2009 6/30/2021 3-Month USD LIBOR 5.09% $ (670 ) $ (806 )
10,000
7/8/2009 6/30/2029 3-Month USD LIBOR 5.84% (2,268 ) (2,321 )
10,000
5/6/2010 6/30/2030 3-Month USD LIBOR 5.71% (2,253 ) (2,290 )
5,000
3/14/2011 3/30/2031 3-Month USD LIBOR 5.75% (1,198 ) (1,211 )
8,000
5/4/2011 7/7/2031 3-Month USD LIBOR 5.56% (1,734 ) (1,744 )
$ 43,000
$ (8,123 ) $ (8,372 )


~~(1)~~	~~Presented within accrued interest and other liabilities on the consolidated statements of condition.~~

~~For the three and nine months ended September 30, 2017 and 2016, the Company did not record any ineffectiveness on these cash flow hedges within the consolidated statements of income.~~

Net payments to the counterparty for the nine months ended September 30, 2017 and 2016 were $981,000 and $1.2 million, respectively, and were classified as cash flows from operating activities in the Company's consolidated statements of cash flows.

~~FHLBB Advance Interest Rate Swaps:~~

The Bank has two interest rate swap arrangements with a counterparty on two tranches of 30-day FHLBB advances with a total notional amount of $50.0 million. Each derivative arrangement commenced on February 25, 2016, with one contract set to expire on February 25, 2018 and the other on February 25, 2019. The Bank entered into these interest rate swaps to mitigate its interest rate exposure on borrowings in a rising interest rate environment. The Bank has designated each arrangement as a cash flow hedge in accordance with GAAP, and, therefore, the change in unrealized gains or losses on the derivative instruments is recorded within AOCI, net of tax. Also, quarterly, in conjunction with financial reporting, the Company assesses each derivative instrument for ineffectiveness. To the extent any significant ineffectiveness is identified this amount would be recorded within the consolidated statements of income. For the three and nine months ended September 30, 2017 and 2016, the Company did not record any ineffectiveness within the consolidated statements of income.

The Bank's arrangement with the counterparty requires it to post cash collateral for its FHLBB advance interest rate swap and customer loan swap contracts in a net liability position based on their fair values and the Bank's credit rating. If the interest rate swaps are in a net asset position based on their fair value, the counterparty will post collateral to the Bank as requested. The collateral posted by the Bank (or counterparty) is not readily available and is presented within cash and due from banks on the Company's consolidated statements of condition. At September 30, 2017, the Bank had $1.2 million of cash held at a correspondent bank as collateral on its FHLBB advance interest rate swap and customer loan swap contracts.

~~The details of the FHLBB advance interest rate swaps for the periods indicated were as follows:~~

September 30,
2017
December 31,
2016
Notional
Amount Trade
Date Maturity Date Variable Index
Received Fixed Rate
Paid
Fair Value⁽¹⁾

Fair Value⁽¹⁾
$ 25,000
2/25/2015 2/25/2018
1-Month
USD LIBOR
1.54% $ (24 ) $ (152 )
25,000
2/25/2015 2/25/2019
1-Month
USD LIBOR
1.74% (74 ) (237 )
$ 50,000
$ (98 ) $ (389 )


~~(1)~~	~~Presented within accrued interest and other liabilities on the consolidated statements of condition.~~

Net payments to the counterparty for the nine months ended September 30, 2017 and 2016 were $241,000 and $351,000, respectively, and were classified as cash flows from operating activities in the consolidated statements of cash flows.

Customer Loan Swaps:

The Bank will enter into interest rate swaps with its commercial customers, from time to time, to provide them with a means to lock into a long-term fixed rate, while simultaneously the Bank enters into an arrangement with a counterparty to swap the fixed rate to a variable rate to allow it to effectively manage its interest rate exposure.

The Bank's customer loan level derivative program is not designated as a hedge for accounting purposes. As the interest rate swap agreements have substantially equivalent and offsetting terms, they do not materially change the Bank's interest rate risk or present any material exposure to the Company's consolidated statements of income. The Company records its customer loan swaps at fair value and presents such on a gross basis within other assets and accrued interest and other liabilities on the consolidated statements of ~~condition~~

condition.

The following table presents the total positions, notional and fair value of the Company's customer loans swaps with its commercial customers and the corresponding interest rate swap agreements with counterparty for the periods indicated:


		September 30, 2017						December 31, 2016							March 31, 2018						December 31, 2017
	Balance Sheet Location	Number of Positions	Notional		Fair Value			Number of Positions	Notional		Fair Value			Balance Sheet Location	Number of Positions	Notional		Fair Value			Number of Positions	Notional		Fair Value
Receive fixed, pay variable	Other assets / (accrued interest and other liabilities)	29	$	145,292	$	(3,482	)	50	$	266,263	$	(1,945	)	Other assets / (accrued interest and other liabilities)	63	$	334,395	$	(10,707	)	42	$	226,884	$	(5,036	)
Receive fixed, pay variable	Other assets / (accrued interest and other liabilities)	30	150,753		2,618			—	—		—			Other assets / (accrued interest and other liabilities)	6	19,763		402			23	124,784		1,799
Pay fixed, receive variable	Other assets / (accrued interest and other liabilities)	59	296,045		864			50	266,263		1,945			Other assets / (accrued interest and other liabilities)	69	354,158		10,305			65	351,668		3,237
Total		118	$	592,090	$	—		100	$	532,526	$	—			138	$	708,316	$	—		130	$	703,336	$	—

The Bank seeks to mitigate its customer counterparty credit risk exposure through its loan policy and underwriting process, which includes credit approval limits, monitoring procedures, and obtaining collateral, where appropriate. The Bank seeks to mitigate its institutional counterparty credit risk exposure by limiting the institutions for which it will enter into interest swap arrangements through an approved listing by the Company's Board of Directors. The Company has entered into a master netting arrangement with its counterparty and settles payments with the counterparty quarterly on a net basis. The Bank's arrangement with its institutional counterparty requires it to post cash or other assets as collateral for its FHLBB advance interest rate swap and customer loan swap contracts in a net liability position based on their fair values and the Bank's credit rating or receive collateral for contracts in a net asset position as requested.

Junior Subordinated Debt Interest Rate Swaps:

The Company, from time to time, will enter into an interest rate swap agreement with a counterparty to manage interest rate risk associated with its variable rate borrowings. The Company has entered into a master netting arrangement with its counterparty and settles payments with the counterparty quarterly on a net basis. The interest rate swap arrangements contain provisions that require the Company to post cash or other assets as collateral with the counterparty for contracts that are in a net liability position based on their fair values and the Company’s credit rating. If the interest rate swaps are in a net asset position based on their fair value, the counterparty will post collateral to the Company as requested. At March 31, 2018, the Company posted $6.0 million of cash as collateral to the counterparty and was presented within other assets on the consolidated statements of financial condition.

The details of the junior subordinated debt interest rate swaps for the periods indicated were as follows:



						March 31, 2018		December 31, 2017
Notional Amount		Trade Date	Maturity Date	Variable Index Received	Fixed Rate Paid	Fair Value⁽¹⁾		Fair Value⁽¹⁾
$	10,000	3/18/2009	6/30/2021	3-Month USD LIBOR	5.09%	$	343	$	527
10,000		7/8/2009	6/30/2029	3-Month USD LIBOR	5.84%	1,695		2,133
10,000		5/6/2010	6/30/2030	3-Month USD LIBOR	5.71%	1,671		2,129
5,000		3/14/2011	3/30/2031	3-Month USD LIBOR	4.35%	899		1,137
8,000		5/4/2011	7/7/2031	3-Month USD LIBOR	4.14%	1,269		1,645
$	43,000					$	5,877	$	7,571


(1)	Presented within accrued interest and other liabilities on the consolidated statements of condition.

For the three months ended March 31, 2018 and 2017, the Company did not record any ineffectiveness on these cash flow hedges within the consolidated statements of income.

Net payments to the counterparty for the three months ended March 31, 2018 and 2017 were $275,000 and $346,000, respectively, and were classified as cash flows from operating activities in the Company's consolidated statements of cash flows.

FHLBB Advance Interest Rate Swaps:

On February 25, 2015, the Bank entered into two $25.0 million one year forward-starting interest rate swap arrangements with a counterparty to mitigate short-term interest rate risk. One contract matured on February 25, 2018 and the other is scheduled to mature on February 25, 2019. The Bank entered into these interest rate swaps to mitigate its interest rate exposure on borrowings in a rising interest rate environment. The Bank has designated each arrangement as a cash flow hedge in accordance with GAAP, and, therefore, the change in unrealized gains or losses on the derivative instruments is recorded within AOCI, net of tax. Also, quarterly, in conjunction with financial reporting, the Company assesses each derivative instrument for ineffectiveness. To the extent any significant ineffectiveness is identified this amount would be recorded within the consolidated statements of income. For the three months ended March 31, 2018 and 2017, the Company did not record any ineffectiveness within the consolidated statements of income.

The Bank's arrangement with the counterparty requires it to post cash collateral for its FHLBB advance interest rate swap and customer loan swap contracts in a net liability position based on their fair values and the Bank's credit rating. If the interest rate swaps are in a net asset position based on their fair value, the counterparty will post collateral to the Bank as requested. The collateral posted by the Bank (or counterparty) is not readily available and is presented within cash and due from banks on the Company's consolidated statements of condition. At March 31, 2018, the counterparty posted to the Bank $10.4 million of cash as collateral on its FHLBB advance interest rate swap and customer loan swap contracts. The collateral posted by the counterparty to the Bank is not readily available and has been designated as restricted cash and was presented within total cash, cash equivalents and restricted cash on the consolidated statements of condition.

The details of the FHLBB advance interest rate swaps for the periods indicated were as follows:



						March 31, 2018		December 31, 2017
Notional Amount		Trade Date	Maturity Date	Variable Index Received	Fixed Rate Paid	Fair Value⁽¹⁾		Fair Value⁽¹⁾
$	25,000	2/25/2015	2/25/2018	1-Month USD LIBOR	1.54%	$	—	$	20
25,000		2/25/2015	2/25/2019	1-Month USD LIBOR	1.74%	85		1
						$	85	$	21


(1)	Presented within other assets on the consolidated statements of condition.

Net payments to the counterparty for the three months ended March 31, 2018 and 2017 were $9,000 and $109,000, respectively, and were classified as cash flows from operating activities in the consolidated statements of cash flows.

Interest Rate Locks Commitments:

As part of the origination process of a residential loan, the Company may enter into rate lock agreements with its borrower, which is considered an interest rate lock commitment. If the Company has the intention to sell the loan upon origination, it will account for the interest rate lock commitment as a derivative. ~~Our~~The Company's pipeline of mortgage loans with fixed-rate interest rate lock commitments for which the Company intends to sell the loan upon origination were as follows for the periods indicated:


		September 30, 2017					December 31, 2016						March 31, 2018					December 31, 2017
	Balance Sheet Location	Notional		Fair Value			Notional		Fair Value			Balance Sheet Location	Notional		Fair Value			Notional		Fair Value
Fixed-rate mortgage interest rate locks	Other Assets	$	23,052	$	495		$	12,310	$	202		Other Assets	$	20,374	$	308		$	19,886	$	307
Fixed-rate mortgage interest rate locks	Accrued interest and other liabilities	3,130		(25		)	2,939		(15		)	Accrued interest and other liabilities	4,379		(35		)	1,860		(22		)
Total		$	26,182	$	470		$	15,249	$	187			$	24,753	$	273		$	21,746	$	285

For the three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ the net unrealized ~~gain~~loss from the change in fair value on the Company's fixed-rate mortgage ~~interest~~ rate locks reported within mortgage banking income, net, on the consolidated statements of income were $60,000 and $226,000, respectively. For the nine months ended September 30, 2017 and 2016, the net unrealized gain from the change in fair value on the Company's mortgage interest rate locks were $283,000 and $610,000, respectively.$12,000 for each period.

Forward Delivery Commitments:

The Company typically enters into a forward delivery commitment with a secondary market investor, which has been approved by the Company within its normal governance process, at the onset of the loan origination process. The Company may enter into these arrangements with the secondary market investors on a "best effort" or "mandatory delivery" basis. The Company's normal practice is to typically enter into these arrangements on a "best effort" basis. The Company enters into these arrangements with the secondary market investors to manage its interest rate exposure. The Company accounts for the forward

delivery commitment as a derivative (but does not designate as a hedge) upon origination of a loan for which it intends to sell. The Company's forward delivery commitments on loans held for sale was as follows for the periods indicated:


		September 30, 2017					December 31, 2016						March 31, 2018					December 31, 2017
	Balance Sheet Location	Notional		Fair Value			Notional		Fair Value			Balance Sheet Location	Notional		Fair Value			Notional		Fair Value
Forward delivery commitments ("best effort")	Other Assets	$	11,348	$	332		$	14,250	$	587		Other Assets	$	8,155	$	145		$	6,692	$	158
Forward delivery commitments ("best effort")	Accrued interest and other liabilities	1,675		(19		)	875		(309		)	Accrued interest and other liabilities	1,347		(22		)	1,373		(16		)
Total		$	13,023	$	313		$	15,125	$	278			$	9,502	$	123		$	8,065	$	142

For the three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ the net unrealized ~~gain~~loss from the change in fair value on the Company's forward delivery commitments reported within mortgage banking income, net on the consolidated statements of income were ~~$16,000~~$19,000 and $0, respectively. For the nine months ended September 30, 2017 and 2016, the net unrealized gain from the change in fair value on the Company's forward delivery commitments reported within mortgage banking income, net on the consolidated statements of income were $35,000 and $0,$118,000, respectively.

The table below presents the effect of the Company’s derivative financial instruments included in OCI and current earnings for the periods indicated:


	For The Three Months Ended September 30,					For The Nine Months Ended September 30,						For The Three Months Ended March 31
	2017			2016		2017			2016			2018		2017
Derivatives designated as cash flow hedges:
Effective portion of unrealized gains (losses) recognized within AOCI during the period, net of tax	$	(80	)	$	199	$	(452	)	$	(3,453	)
Effective portion of unrealized gains recognized within AOCI during the period, net of tax												$	1,328	$	90
Net reclassification adjustment for effective portion of cash flow hedges included in interest expense, gross⁽¹⁾	$	366		$	534	$	1,234		$	1,521		$	64	$	455

(1) Reclassified into the consolidated statements of income within interest expense.

The Company expects approximately ~~$1.2 million~~$693,000 (pre-tax) to be reclassified to interest expense from OCI, related to the Company’s cash flow hedges, in the next twelve months. This reclassification is due to anticipated payments that will be made and/or received on the swaps based upon the forward curve as of ~~September 30, 2017.~~March 31, 2018.

~~NOTE 13 – RECENT ACCOUNTING PRONOUNCEMENTS~~

(The following recently issued accounting pronouncements are presented in chronological order of required adoption date for the Company. Should the Company have early adopted a recently issued accounting pronouncement it has been presented in the year of adoption.)

~~In August 2015, the FASB issued ASU No. 2015-14,~~ ~~Revenue from Contracts with Customers~~ ~~(Topic 606): Deferral of the Effective Date~~ ~~("ASU 2015-14"). ASU 2015-14 was issued to defer the effective date of ASU 2014-09,~~ ~~Revenue from Contracts with Customers~~ (Topic 606) ("ASU 2014-09"), for all entities by one year. ASU 2014-09 was issued to clarify the principles for recognizing revenue and to develop a common revenue standard. ASU 2014-09 is now effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period.

~~The scope of ASU 2014-09 specifically excludes financial instruments and other contractual rights or obligations within the scope of ASC 310,~~ ~~Receivables; ASC 320,~~ ~~Investments - Debit and Equity Securities; ASC 815,~~ ~~Derivatives and Hedging~~; and certain other ASC topics. As such, many significant revenue streams of the Company, including interest income, fair value adjustments, gains and losses on sale of financial instruments, and loan origination fees, are not within the scope of ASU 2014-09. Additionally, the FASB's Transition Resource Group for Revenue Recognition put forth a white paper specific to scoping considerations for financial institutions that concluded that servicing arrangements that are within the scope of ASC

~~860,~~ ~~Transfers and Servicing, are not within the scope of ASU 2014-09. The FASB's Transition Resource Group also concluded that deposit-related fees are within the scope of ASU 2014-09.~~

The Company is currently performing an overall assessment of its revenue streams and has identified those potentially affected by ASU 2014-09, including (i) deposit-related fees; (ii) interchange income; and (iii) asset management, brokerage and trust fees. In evaluating the revenue streams and contracts, the Company does not expect the adoption of ASU 2014-09 to have a material impact on the timing or recognition of its revenue streams determined to be within scope.

In combination with the overall assessment of the Company's revenue streams within the scope of ASU 2014-09, it is assessing the need to present the identified revenue streams on a gross or net basis (i.e. principal versus agent) in accordance with ASU 2014-09 and as clarified by ASU No. 2016-08, ~~Principal versus Agent Considerations (Reporting Revenue Gross versus Net)~~.

~~In January 2016, the FASB issued ASU No. 2016-01,~~ ~~Income Statement - Financial Instruments - Overall~~ ~~(Subtopic 825-10):~~ ~~Recognition and Measurement of Financial Assets and Liabilities~~ ("ASU 2016-01"). ASU 2016-01 was issued to enhance the reporting model for financial instruments to provide the users of financial statements with more useful information for decisions. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company will adopt ASU 2016-01 through a cumulative-effect adjustment to the balance sheet upon adoption.

The Company will adopt ASU 2016-01 effective January 1, 2018. Upon adoption, the Company will be required to recognize unrealized gains and losses on its equity securities directly through the Company's consolidated statements of income, whereas these equity securities currently are designated as AFS and unrealized gains and losses are recognized within AOCI. The Company does not anticipate this portion of ASU 2016-01 will materially impact the Company's financial position upon adoption.

ASU 2016-01 also requires Companies to utilize an "exit price" fair value methodology for purposes of disclosing the fair value of financial assets and liabilities not measured and reported at fair value on a recurring or non-recurring basis. The Company currently discloses the fair value of its loan portfolio segments using an "entry price" fair value methodology (as disclosed within Note 11).

~~In March 2017, the FASB issued ASU No. 2017-07,~~ ~~Compensation-Retirement Benefits~~ ~~(Topic 715):~~ ~~Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~ ("ASU 2017-07"). ASU 2017-07 was issued to improve the presentation of net periodic pension cost and net periodic postretirement by Companies to disaggregate the service cost component from the other components of net benefit cost, as well as provide other guidance to improve consistency, transparency and usefulness. Upon adoption in the first quarter of 2018, the Company will present and disclose the service cost component in the salaries and employee benefits line on its consolidated statements of income and the other components of net periodic benefit cost within other expenses on its consolidated statements of income. Upon adoption, the change in presentation will be applied retrospectively. The Company will use the amounts previously disclosed within its prior year financial statements as a practical expedient for retrospective presentation within its consolidated statements of income. The other provisions of ASU 2017-07 are not applicable to the Company. ASU 2017-07 will not have a material impact to its financial statements upon adoption.

~~In May 2017, the FASB issued ASU No. 2017-09,~~ ~~Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting~~ ~~("ASU 2017-09")~~. ASU 2017-09 was issued to provide clarification about which changes to the terms or conditions of a share-based payment award would require application of modification accounting in Topic 718. ASU 2017-09 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. ASU 2017-09 is to be applied prospectively effective as of the adoption date.

During the three months ended June 30, 2017, the Company elected to early adopt ASU 2017-09, effective as of January 1, 2017. The Company has not had any modifications to its share-based awards for the nine months ended September 30, 2017.

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases~~ (Topic 842) ("ASU 2016-02"). ASU 2016-02 was issued to increase transparency and comparability among organizations by recognizing lease assets and liabilities (including operating leases) on the balance sheet and disclosing key information about leasing arrangements. Current lease accounting does not

require the inclusion of operating leases in the balance sheet. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, early application is permitted. The Company will adopt under a modified-retrospective approach.

~~In March 2017, the FASB issued ASU No. 2017-08,~~ ~~Receivables - Nonrefundable Fees and Other Costs~~ ~~(Subtopic 310-20):~~ ~~Premium Amortization on Purchased Callable Debt Securities~~ ("ASU 2017-08"). ASU 2017-08 was issued to shorten the amortization period for certain callable debt securities purchased and carried at a premium, by requiring the premium to be amortized to the earliest call date of the debt security. ASU 2017-08 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. The Company will adopt on a modified retrospective basis with any necessary adjustments to retained earnings as a cumulative-effect adjustment. While the Company continues to assess the impact of ASU 2017-08, it does not expect the ASU will have a material impact to its financial statements upon adoption.

~~In August 2017, the FASB issued ASU No. 2017-12,~~ ~~Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities~~ ~~("ASU 2017-12")~~. ASU 2017-12 was issued to make certain specific improvements to hedge accounting to better align hedge accounting with risk management activities, eliminate the separate measurement and recording of hedge ineffectiveness, improve presentation and disclosure, and other simplifications. ASU 2017-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. All transition requirements and elections are to be applied to existing hedging relationships upon adoption. While the Company continues to assess the impact of ASU 2017-12, it does not believe it will have a material impact on the Company's consolidated financial statements upon adoption.

~~In June 2016, the FASB issued ASU No. 2016-13,~~ ~~Financial Instruments - Credit Losses~~ ~~(Topic 326):~~ ~~Measurement of Credit Losses on Financial Instruments~~ ("ASU 2016-13"). ASU 2016-13 was issued to require timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years, for public companies. Early adoption is permitted for annual periods beginning after December 15, 2018, including interim periods within that fiscal year. The Company will adopt the guidance under a modified-retrospective approach, whereby a cumulative-effect adjustment will be made to retained earnings upon adoption. The Company will use a prospective transition approach for debt securities for which an OTTI had been recognized before the effective date, as applicable.

~~May reduce the carrying value of the Company's HTM investment securities as it will require an allowance on the expected losses over the life of these securities to be recorded upon adoption.~~

~~The Company continues to assess the overall impact to its financial statements, and, at this time, it does not have an estimated impact to its financial statements.~~

~~In January 2017, the FASB issued ASU No. 2017-04,~~ ~~Intangibles - Goodwill and Other~~ ~~(Topic 350):~~ ~~Simplifying the Test for Goodwill Impairment~~ ("ASU 2017-04"). ASU 2017-04 was issued to reduce the cost and complexity of the goodwill impairment test. To simplify the subsequent measurement of goodwill, step two of the goodwill impairment test was eliminated. Instead, in accordance with ASU 2017-04, a Company will recognize an impairment of goodwill should the carrying value of a reporting unit exceed its fair value (i.e. step one). ASU 2017-04 will be effective for the Company on January 1, 2020 and will be applied prospectively.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)

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

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

weakness in the United States economy in general and the regional and local economies within the New England region and Maine, which could result in a deterioration of credit quality, an increase in the allowance for loan 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;

competitive pressures, including continued industry consolidation and the increased financial services provided by non-banks;

volatility in the securities markets that could adversely affect the value or credit quality of the Company’s assets, impairment of goodwill, the availability and terms of funding necessary to meet the Company’s liquidity needs, and could lead to impairment in the value of securities in the Company's investment portfolio;

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; and

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.

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 ~~Part II, Item 1A. “Risk Factors” of this Form 10-Q and in~~ our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2017, 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.

Acronyms and Abbreviations

The acronyms and abbreviations identified below are used throughout this Form 10-Q, including Part II. "Management's Discussion and Analysis of Financial Conditions and Results of Operations." The following was provided to aid the reader and provide a reference page when reviewing this section of the Form 10-Q.



AFS:	Available-for-sale	~~GAAP:~~	~~Generally accepted accounting principles in the United States~~
~~ALCO:~~	~~Asset/Liability Committee~~	HPFC:	Healthcare Professional Funding Corporation, a wholly-owned subsidiary of Camden National Bank
ALCO:	Asset/Liability Committee	HTM:	Held-to-maturity
ALL:	Allowance for loan losses	~~HTM:~~IRS:	~~Held-to-maturity~~Internal Revenue Service
AOCI:	Accumulated other comprehensive income (loss)	~~IRS:~~LIBOR:	~~Internal Revenue Service~~London Interbank Offered Rate
ASC:	Accounting Standards Codification	~~LIBOR:~~LTIP:	~~London Interbank Offered Rate~~Long-Term Performance Share Plan
ASU:	Accounting Standards Update	~~LTIP:~~Management ALCO:	~~Long-Term Performance Share Plan~~Management Asset/Liability Committee
Bank:	Camden National Bank, a wholly-owned subsidiary of Camden National Corporation	~~Management ALCO:~~MBS:	Mortgage-backed security
BOLI:	Bank-owned life insurance	MSPP:	Management ~~Asset/Liability Committee~~Stock Purchase Plan
Board ALCO:	Board of Directors' Asset/Liability Committee	~~MBS:~~N.M.:	~~Mortgage-backed security~~
~~BOLI:~~	~~Bank-owned life insurance~~	~~MSRs:~~	~~Mortgage servicing rights~~
~~BSA:~~	~~Bank Secrecy Act~~	~~MSPP:~~	~~Management Stock Purchase Plan~~Not meaningful
CCTA:	Camden Capital Trust A, an unconsolidated entity formed by Camden National Corporation	~~OTTI:~~	~~Other-than-temporary impairment~~
~~CDARS:~~	~~Certificate of Deposit Account Registry System~~	~~NIM:~~	~~Net interest margin on a fully-taxable basis~~
~~CDs:~~	~~Certificate of deposits~~	~~N.M.:~~	~~Not meaningful~~
~~CMO:~~	~~Collateralized mortgage obligation~~	OCC:	Office of the Comptroller of the Currency
~~CNWM:~~CDs:	~~Camden National Wealth Management, a division~~Certificate of ~~Camden National Bank~~deposits	OCI:	Other comprehensive income (loss)
Company:	Camden National Corporation	~~OFAC:~~OREO:	~~Office of Foreign Assets Control~~Other real estate owned
CMO:	Collateralized mortgage obligation	OTTI:	Other-than-temporary impairment
DCRP:	Defined Contribution Retirement Plan	~~OREO:~~SBM:	~~Other real estate owned~~SBM Financial, Inc., the parent company of The Bank of Maine
EPS:	Earnings per share	SERP:	Supplemental executive retirement plans
FASB:	Financial Accounting Standards Board	~~TDR:~~Tax Act:	~~Troubled-debt restructured loan~~Tax Cuts and Jobs Act of 2017, enacted on December 22, 2017
FDIC:	Federal Deposit Insurance Corporation	TDR:	Troubled-debt restructured loan
FHLB:	Federal Home Loan Bank	UBCT:	Union Bankshares Capital Trust I, an unconsolidated entity formed by Union Bankshares Company that was subsequently acquired by Camden National Corporation
~~FHLB:~~FHLBB:	Federal Home Loan Bank of Boston	U.S.:	United States of America
~~FHLBB:~~FRB:	Federal ~~Home Loan Bank of Boston~~	~~USD:~~	~~United States Dollar~~
~~FRB:~~	Reserve System Board of Governors ~~of the Federal Reserve System~~	2003 Plan:	2003 Stock Option and Incentive Plan
FRBB:	Federal Reserve Bank of Boston	2012 Plan:	2012 Equity and Incentive Plan
~~Freddie Mac:~~GAAP:	~~Federal Home Loan Mortgage Corporation~~Generally accepted accounting principles in the United States	~~2013 Repurchase Program:~~	~~2013 Common Stock Repurchase Program, approved by the Company's Board of Directors~~

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 materially differ 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 allowance for loan losses; (ii) accounting for acquisitions and the subsequent review of goodwill and core deposit intangible assets generated in an acquisition for impairment; (iii) OTTI of investments; ~~(iv) accounting for postretirement plans;~~ and ~~(v)~~(iv) income taxes.

There have been no ~~other~~ material changes to our critical accounting policies as disclosed within our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017. Refer to the Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017 for discussion of the Company's critical accounting policies.

Refer to Note 132 of the consolidated financial statements for ~~recently~~discussion of accounting pronouncements adopted during the three months ended March 31, 2018 and the impact to our consolidated financial statements, as well as the status of issued accounting ~~pronouncements.~~pronouncements yet to be adopted and implemented.

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 the efficiency ratio; tax equivalent net interest income; tangible book value per share; tangible common equity ratio; and return on average tangible equity. We utilize these non-GAAP financial measures for purposes of measuring our performance against our peer group and other financial institutions and analyzing our internal performance. We also believe these non-GAAP financial measures help investors better understand the Company’s operating performance and trends and allow for better performance comparisons to other banks. In addition, these non-GAAP financial measures remove the impact of unusual items that may obscure trends in the Company’s underlying performance. These disclosures should not be viewed as a substitute for GAAP operating results, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other financial institutions.

Return on Average Tangible Equity: Return on average tangible equity is the ratio of (i) net income, adjusted for tax effected amortization of intangible assets and goodwill impairment (the numerator) to (ii) average shareholders' equity, adjusted for average goodwill and other intangible assets. This adjusted financial ratio reflects a shareholders' return on tangible capital deployed in our business and is a common measure within our industry.



	Three Months Ended March 31,
	2018			2017
Net income, as presented	$	12,820		$	10,076
Amortization of intangible assets, net of tax⁽¹⁾	143			307
Net income, adjusted for amortization of intangible assets	$	12,963		$	10,383
Average shareholders' equity	$	402,626		$	394,276
Less: average goodwill and other intangible assets	(99,568		)	(101,229		)
Average tangible equity	$	303,058		$	293,047
Return on average tangible equity	17.35		%	14.37		%
Return on average shareholders' equity	12.91		%	10.36		%


(1)	Reported on a tax-equivalent basis using the corporate federal income tax rate in effect for the period.

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 our 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 ~~(assumed 35% tax rate)~~ plus total non-interest income, adjusted for certain other income ~~items.~~items, as necessary.


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2017			2016			2018			2017
Non-interest expense, as presented	$	21,825		$	22,149		$	65,411		$	67,388		$	22,304		$	21,428
Less: merger and acquisition costs	—			(45		)	—			(866		)
Adjusted non-interest expense	$	21,825		$	22,104		$	65,411		$	66,522
Net interest income, as presented	$	29,160		$	28,372		$	85,641		$	84,828		$	28,902		$	27,855
Add: effect of tax-exempt income	535			533			1,580			1,588
Add: effect of tax-exempt income⁽¹⁾													254			520
Non-interest income, as presented	10,299			11,001			28,759			29,470			8,804			8,572
Less: net gain on sale of securities	(827		)	—			(827		)	(4		)
Adjusted net interest income plus non-interest income	$	39,167		$	39,906		$	115,153		$	115,882		$	37,960		$	36,947
Non-GAAP efficiency ratio	55.72		%	55.39		%	56.80		%	57.40		%	58.76		%	58.00		%
GAAP efficiency ratio	55.31		%	56.25		%	57.18		%	58.96		%	59.15		%	58.82		%


(1)	Reported on a tax-equivalent basis using the corporate federal income tax rate in effect for the period.

Tax Equivalent Net Interest Income. Tax-equivalent net interest income is net interest income plus the taxes that would have been paid had tax-exempt securities been ~~taxable (assuming a 35% tax rate).~~taxable. This number attempts to enhance the comparability of the performance of assets that have different tax liabilities.


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2017		2016		2017		2016		2018		2017
Net interest income, as presented	$	29,160	$	28,372	$	85,641	$	84,828	$	28,902	$	27,855
Add: effect of tax-exempt income(1)	535		533		1,580		1,588		254		520
Net interest income, tax equivalent	$	29,695	$	28,905	$	87,221	$	86,416	$	29,156	$	28,375


(1)	Reported on a tax-equivalent basis using the corporate federal income tax rate in effect for the period.

Tangible Book Value per Share. Tangible book value per share is the ratio of (i) shareholders’ equity less goodwill, premium on deposits and other acquisition-related intangibles (the numerator) to (ii) total common shares outstanding at period end. The following table reconciles tangible book value per share to book value per share. Tangible book value per share is a common measure within our industry when assessing the value of a Company as it removes goodwill and other intangible assets generated within purchase accounting upon a business combination.

Tangible Common Equity Ratio. Tangible common equity is the ratio of (i) shareholders’ equity less goodwill and other intangible assets (the numerator) to (ii) total assets less goodwill and other intangible assets. This ratio is a measure used within our industry to assess whether or not a company is highly leveraged.


	September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
Tangible Book Value Per Share
Shareholders’ equity, as presented	$	414,366		$	391,547		$	404,055		$	403,413
Less: goodwill and other intangibles	(100,044		)	(101,461		)	(99,471		)	(99,652		)
Tangible shareholders’ equity	$	314,322		$	290,086		$	304,584		$	303,761
Shares outstanding at period end	15,515,577			15,476,379			15,565,868			15,524,704
Tangible book value per share	$	20.26		$	18.74		$	19.57		$	19.57
Book value per share	$	26.71		$	25.30		$	25.96		$	25.99
Tangible Common Equity Ratio
Total assets	$	4,039,943		$	3,864,230		$	4,113,185		$	4,065,398
Less: goodwill and other intangibles	(100,044		)	(101,461		)	(99,471		)	(99,652		)
Tangible assets	$	3,939,899		$	3,762,769		$	4,013,714		$	3,965,746
Tangible common equity ratio	7.98		%	7.71		%	7.59		%	7.66		%
Shareholders' equity to total assets	10.26		%	10.13		%	9.82		%	9.92		%

~~Return on Average Tangible Equity:~~ Return on average tangible equity is the ratio of (i) net income, adjusted for tax effected amortization of intangible assets and goodwill impairment (the numerator) to (ii) average shareholders' equity, adjusted for average goodwill and other intangible assets. This adjusted financial ratio reflects a shareholders' return on tangible capital deployed in our business and is a common measure within our industry.

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Net income, as presented $ 11,339
$ 10,903
$ 31,649
$ 29,165
Amortization of intangible assets, net of tax⁽¹⁾
307
309
921
928
Net income, adjusted for amortization of intangible assets $ 11,646
$ 11,212
$ 32,570
$ 30,093
Average shareholders' equity $ 411,497
$ 387,972
$ 403,195
$ 378,647
Less: average goodwill and other intangible assets (100,273 ) (102,168 ) (100,746 ) (103,054 )
Average tangible equity $ 311,224
$ 285,804
$ 302,449
$ 275,593
Return on average tangible equity 14.85 % 15.61 % 14.40 % 14.59 %
Return on average shareholders' equity 10.93 % 11.18 % 10.49 % 10.29 %


~~(1)~~	~~Assumed a 35% tax rate.~~

EXECUTIVE OVERVIEW

Operating Results

Net income and diluted EPS for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 was ~~$11.3~~$12.8 million and ~~$31.6 million,~~$0.82 per share, respectively, , representing increases over the same ~~periods last year~~period of 4%2017 of 27% and 9%28%. ~~Diluted EPS~~Net income growth for the three ~~and nine~~ months ended ~~September 30, 2017 was $0.72 per share and $2.02 per share, representing increases of 3% and 7%, respectively,~~March 31, 2018 over the same ~~periods~~period last ~~year.~~year was due to the following factors:

A decrease in our effective tax rate as the federal corporate income tax rate was lowered from 35% to 21%, as tax reform was passed in December 2017 and went into effect on January 1, 2018. Our ~~return on average assets~~effective tax rate for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 was ~~1.12%~~19.4%, compared to 30.1% for the three months ended March 31, 2017. As a result, the estimated benefit for the Company for the three months ended was $1.9 million in lower income tax expense, or $0.12 per diluted share.

Total revenue (sum of net interest income and ~~1.07%~~non-interest income) grew $1.3 million, or 4%, ~~respectively, while our return on average equity~~driven by net interest income growth of $1.0 million, or 4%. Our net interest income growth for the three months ended March 31, 2018 over the same ~~periods~~period last year was ~~10.93%~~due to average loan growth of $156.4 million, or 6%, and ~~10.49%~~average demand deposit and interest checking growth of $177.4 million, or 16%. The importance of low-cost deposit growth can't be understated as borrowing rates have risen, highlighted by an increase in our average borrowing rate of 50 basis points to 1.68% for the three months ended March 31, 2018 over the same period last year.

Negative (or credit) provision expense for the three months ended March 31, 2018 of $497,000, compared to an expense of $579,000 for three months ended March 31, 2017. The negative provision expense for three months ended March 31, 2018 was driven by strong asset quality across our loan portfolio and the favorable resolution of one large non-accruing commercial real estate loan, for which we were able release the specific reserve.


•	Non-interest expense for the three months ended March 31, 2018 increased $876,000, or 4%, over the same period last year partially offsetting the income increases outlined above. Our efficiency ratio¹ for the three months ended March 31, 2018 was 58.76%, compared to 58.00% for the three months ended March 31, 2017.

Our key profitability measures for the three months ended March 31, 2018 and 2017 were as follows:



	For the Three Months Ended
	March 31, 2018		March 31, 2017		Increase (Decrease)
Return on average assets	1.28	%	1.05	%	0.23	%
Return on average equity	12.91	%	10.36	%	2.55	%
Return on average tangible equity⁽¹⁾	17.35	%	14.37	%	2.98	%


(1)	The following was not calculated in accordance with GAAP. Refer to the "—Non-GAAP Financial Measures and Reconciliation to GAAP" above.

Financial Condition

As of ~~September 30, 2017~~March 31, 2018, total assets increased ~~$175.7 million, or 5%,~~1% to $4.1 billion since ~~year end to $4.0 billion. Our asset growth~~December 31, 2017. Total loans for the ~~nine~~first three months ~~ended September 30,~~of 2018 grew $6.7 million to $2.8 billion, while total investments grew $6.0 million to $913.7 million over the same period. At March 31, 2018 and 2017, ~~was driven by loan growth~~total investments were 22% of ~~$153.7 million, or 6%, and investment securities increased $18.3 million, or 2%.~~total assets.

Total deposits at ~~September 30, 2017~~March 31, 2018 increased ~~$127.9 million, or 5%, since year-end to $3.0 billion, while total borrowings increased $8.9~~$25.1 million, or 1%, to ~~$608.6 million~~$3.0 billion since December 31, 2017 and over the same ~~period.~~period, total borrowings increased $10.8 million, or 2%, to $622.3 million. At March 31, 2018 and December 31, 2017, our loan-to-deposit ratio was 92% and 93%, respectively.

Asset quality remained strong across our loan portfolio throughout the first three months of 2018, highlighted by our non-performing assets to total assets ratio of 0.47% and a loans 30-89 days past due to total loans ratio of 0.21% at ~~September 30, 2017 improved compared~~March 31, 2018. Non-performing loans decreased $1.1 million in the first three months of 2018 to ~~year-end~~$19.3 million, or 0.69% of total loans at March 31, 2018. The decrease in non-performing assets in the first three months of 2018 was driven by the favorable resolution of aone large commercial real estate ~~relationship~~loan. Upon resolution, the associated loan reserve was released driving a negative provision expense for the first quarter of 2018 of $497,000 and a decrease in the ~~third quarter of 2017. Non-performing loans and assets~~allowance for loan losses to total loans ~~and assets~~ratio of 5 basis points to 0.82% at ~~September 30, 2017 were 0.72% and 0.50%, respectively, compared to 0.97% and 0.67% at year-end.~~March 31, 2018 since December 31, 2017.

~~The Company and Bank, maintain risk-based~~Our capital ~~ratios in excess of the regulatory levels required for an institution to be considered “well capitalized.” At September 30, 2017, the Company’s~~position remained strong at March 31, 2018, highlighted by a total risk-based capital ratio of 14.32%, well in excess of regulatory requirements, and ~~Tier I leverage capital ratio were 14.09% and 9.01%, respectively.~~

~~Tangible book value per share at September 30, 2017 increased 8% since year-end to $20.26 per share, while the~~a tangible common equity ratio ~~increased to 7.98% from 7.71% at December 31, 2016.~~¹ of 7.59%.

RESULTS OF OPERATIONS

Net Interest Income

Net interest income is the interest earned on loans, securities, and other interest-earning assets, plus 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, which is our largest source of revenue and accounted for ~~75%~~77% and ~~74%~~76% of total revenues (net interest income and non-interest income) for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ respectively, is affected by factors including, but not limited to, changes in interest rates, loan and deposit pricing strategies and competitive conditions, the volume and mix of interest-earning assets and liabilities, and the level of non-performing assets.

Our net interest margin on a fully-taxable basis, which is calculated as annualized net interest income on a fully-taxable basis over total average interest-earning assets, for the three months ended March 31, 2018 and 2017 was 3.10% and 3.15%, respectively.

Net Interest Income -— Three months ended ~~September 30, 2017~~March 31, 2018 and ~~2016.~~2017. Net interest income on a ~~tax equivalent~~fully-taxable basis for the three months ended March 31, 2018 was ~~$29.7~~$29.0 million compared to $28.4 million for the ~~third quarter of 2017 compared to $28.9 million for the third quarter of 2016, representing an increase of $790,000, or 3%.~~three months ended March 31, 2017. The increase in net interest income on a fully-taxable basis over this period of $781,000, or 3%, was primarily driven by average loan growth of $156.4 million, or 6% ~~for the third quarter~~, and demand deposit and interest checking growth of ~~2017 over the third quarter of 2016,~~$177.4 million, or 16%. This was partially offset by a decrease in our ~~NIM for the third quarter of 2017~~net interest margin on a fully-taxable basis of 5 basis points to ~~3.19% over~~3.10% for the three months ended March 31, 2018, compared to the same period ~~which was~~last year. The decrease in our net interest margin on a fully-taxable basis were driven by ~~a decrease in~~the following factors:

For the three months ended March 31, 2018, loan and deposit fair value mark accretion income and income from collection on previously charged-off loans was $558,000, representing a decrease of ~~$434,000. Excluding~~$246,000, or 3 basis points, compared to the ~~fair value mark accretion income and income from collections on previously charged-off acquired loans, our NIM was 3.11% and 3.10% for the third quarter of 2017 and 2016, respectively.~~same period last year.

~~During~~

For the ~~first nine~~three months ended March 31, 2018, tax-equivalent interest income was $254,000, representing a decrease of ~~2017,~~$266,000, or 3 basis points, compared to the ~~Federal Open Market Committee ("FOMC") raised~~same period last year. Tax-equivalent interest income decreased primarily due to the decrease in the federal ~~funds~~corporate income tax rate, ~~twice, 25 basis points each,~~effective for a total of 50 basis points. Excluding the loan fair value mark accretion income and income from collections on previously charged-off acquired loans recognized for the third quarter of 2017 and 2016 of $722,000 and $1.0 million, respectively, our loan yield, as adjusted, for the third quarter of 2017 was 4.12% compared to 4.01% for the third quarter of 2016. The increase in our yield, as adjusted, was primarily the result of repricing variable rate loans linked to prime rate and LIBOR. However, as a result of the rate hike in the first half of 2017, our cost of funds has also increased. Excluding the fair value mark accretion recognized on CDs for the third quarter of 2017 and 2016 of $82,000 and $220,000, respectively, our cost of funds for the third quarter of 2017 and was 0.63% compared to 0.51% for the third quarter of 2016. The increase in our cost of funds was driven by the increased rates for FHLBB overnight borrowings and brokered deposits that were utilized to supplement funding of loan growth.2018.

The following table presents average balances, interest income, interest expense, and the corresponding average yields earned and cost of funds, as well as net interest income, net interest rate spread and ~~NIM~~net interest margin on a fully-taxable basis for the three months ended ~~September 30, 2017~~March 31, 2018 and ~~2016:~~2017:

Quarterly Average Balance, Interest and Yield/Rate Analysis
	For The Three Months Ended																For The Three Months Ended
	September 30, 2017								September 30, 2016								March 31, 2018								March 31, 2017
(In thousands)	Average Balance			Interest			Yield/Rate		Average Balance			Interest			Yield/Rate		Average Balance			Interest			Yield/Rate		Average Balance			Interest			Yield/Rate
Assets
Interest-earning assets:
Interest-bearing deposits in other banks⁽¹⁾																	$	52,510		$	184		1.40	%	$	34,529		$	60		0.69	%
Securities - taxable	$	819,778		$	4,674		2.28	%	$	810,747		$	4,497		2.22	%	826,529			4,588			2.22	%	833,162			4,590			2.20	%
Securities - nontaxable⁽¹⁾	101,507			1,055			4.16	%	103,657			1,081			4.17	%
Loans⁽²⁾⁽³⁾:
Securities - nontaxable⁽²⁾																	99,560			851			3.42	%	102,928			1,080			4.20	%
Loans⁽³⁾⁽⁴⁾:
Residential real estate	851,828			8,717			4.09	%	824,985			8,664			4.20	%	860,783			8,859			4.12	%	814,626			8,357			4.10	%
Commercial real estate	1,136,851			11,836			4.07	%	1,031,674			10,394			3.94	%	1,171,598			12,297			4.20	%	1,076,788			10,574			3.93	%
Commercial⁽¹⁾	347,469			3,712			4.18	%	307,184			3,052			3.89	%
Municipal⁽¹⁾	24,847			203			3.24	%	24,628			165			2.66	%
Commercial⁽²⁾																	349,963			3,737			4.27	%	319,556			3,266			4.09	%
Municipal⁽²⁾																	17,277			142			3.33	%	16,071			134			3.39	%
Consumer	345,533			3,986			4.58	%	355,144			3,854			4.32	%	341,078			4,000			4.76	%	342,775			3,658			4.33	%
HPFC	49,619			1,062			8.38	%	68,334			1,420			8.13	%	43,757			874			7.99	%	58,252			1,215			8.34	%
Total loans	2,756,147			29,516			4.23	%	2,611,949			27,549			4.17	%	2,784,456			29,909			4.30	%	2,628,068			27,204			4.15	%
Total interest-earning assets	3,677,432			35,245			3.79	%	3,526,353			33,127			3.72	%
Total interest-earning assets⁽¹⁾																	3,763,055			35,532			3.78	%	3,598,687			32,934			3.67	%
Cash and due from banks	85,931								97,755								41,935								42,707
Other assets	291,319								314,062								274,582								285,695
Less: ALL	(24,539		)						(23,984		)						(24,205		)						(23,247		)
Total assets	$	4,030,143							$	3,914,186							$	4,055,367							$	3,903,842
Liabilities & Shareholders' Equity
Deposits:
Demand	$	450,350		$	—		—	%	$	415,558		$	—		—	%	$	452,629		$	—		—	%	$	391,671		$	—		—	%
Interest checking	727,959			352			0.19	%	721,459			255			0.14	%	833,410			775			0.38	%	716,940			269			0.15	%
Savings	493,447			82			0.07	%	466,113			71			0.06	%	493,660			77			0.06	%	489,041			73			0.06	%
Money market	469,458			627			0.53	%	488,793			528			0.43	%	487,685			790			0.66	%	483,914			540			0.45	%
Certificates of deposit⁽³⁾	454,013			952			0.83	%	486,698			971			0.79	%
Certificates of deposit⁽⁴⁾																	472,213			1,169			1.00	%	463,786			1,008			0.88	%
Total deposits	2,595,227			2,013			0.31	%	2,578,621			1,825			0.28	%	2,739,597			2,811			0.42	%	2,545,352			1,890			0.30	%
Borrowings:
Brokered deposits	310,207			1,014			1.30	%	239,975			379			0.63	%	238,870			938			1.59	%	308,594			664			0.87	%
Customer repurchase agreements	222,386			285			0.51	%	189,539			140			0.29	%	237,056			424			0.72	%	221,590			176			0.32	%
Junior subordinated debentures	58,853			858			5.78	%	58,697			857			5.81	%	58,930			847			5.83	%	58,775			844			5.83	%
Other borrowings	386,643			1,380			1.42	%	396,828			1,021			1.02	%	328,141			1,356			1.68	%	330,918			985			1.21	%
Total borrowings	978,089			3,537			1.43	%	885,039			2,397			1.08	%	862,997			3,565			1.68	%	919,877			2,669			1.18	%
Total funding liabilities	3,573,316			5,550			0.62	%	3,463,660			4,222			0.49	%	3,602,594			6,376			0.72	%	3,465,229			4,559			0.53	%
Other liabilities	45,330								62,554								50,147								44,337
Shareholders' equity	411,497								387,972								402,626								394,276
Total liabilities & shareholders' equity	$	4,030,143							$	3,914,186							$	4,055,367							$	3,903,842
Net interest income (fully-taxable equivalent)				29,695								28,905								29,156								28,375
Less: fully-taxable equivalent adjustment				(535		)						(533		)						(254		)						(520		)
Net interest income				$	29,160							$	28,372							$	28,902							$	27,855
Net interest rate spread (fully-taxable equivalent)							3.17	%							3.23	%
Net interest margin (fully-taxable equivalent)							3.19	%							3.24	%
Net interest margin (fully-taxable equivalent), excluding fair value mark accretion and collection of previously charged-off acquired loans⁽³⁾							3.11	%							3.10	%
Net interest rate spread (fully-taxable equivalent)⁽¹⁾																							3.06	%							3.14	%
Net interest margin (fully-taxable equivalent)⁽¹⁾																							3.10	%							3.15	%
Net interest margin (fully-taxable equivalent), excluding fair value mark accretion and collection of previously charged-off acquired loans⁽¹⁾⁽⁴⁾																							3.04	%							3.06	%


(1)	Prior period was revised to include average interest-bearing deposits in other banks in total average interest-earning assets. Previously, average interest-bearing deposits in other banks was presented in cash and due from banks.


(2)	Reported on tax-equivalent basis calculated using athe federal corporate income tax rate of 21% and 35%, for the three months ended March 31, 2018 and 2017, respectively, including certain commercial loans.


~~(2)~~(3)	Non-accrual loans and loans held for sale are included in total average loans.


~~(3)~~(4)	Excludes the impact of the fair value mark accretion on loans and CDs generated in purchase accounting and collection of previously charged-off acquired loans for the three months ended ~~September 30,~~March 31, 2018 and 2017 totaling $558,000 and ~~2016 totaling~~ $804,000, ~~and $1.2 million,~~ respectively.

~~Net Interest Income - Nine months ended September 30, 2017 and 2016.~~ Net interest income on a tax equivalent basis of $87.2 million for the nine months ended September 30, 2017 increased $805,000, or 1% compared to the same period last year. The increase was driven by average loan growth of 5% for the nine months ended September 30, 2017 over the same period last year, partially offset by a decrease in our NIM of 12 basis points to 3.19% over the same period, which was driven by a decrease in fair value mark accretion income and income from collection on previously charged-off loans of $2.7 million. Excluding the fair value mark accretion income and income from collections on previously charged-off acquired loans, our NIM was 3.10% for the nine months ended September 30, 2017 compared to 3.11% for the same period last year.

Excluding the loan fair value mark accretion income and income from collections on previously charged-off acquired loans recognized for the nine months ended September 30, 2017 and 2016 of $2.2 million and $4.4 million, respectively, our loan yield, as adjusted, for the nine months of 2017 was 4.09% compared to 4.04% for the same period last year. The increase in our yield, as adjusted, was primarily the result of repricing variable rate loans linked to prime rate and LIBOR. However, as a result of the rate hike in the first half of 2017, our cost of funds has also increased. Excluding the fair value mark accretion recognized on CDs for the nine months ended September 30, 2017 and 2016 of $247,000 and $717,000, respectively, our cost of funds for the nine months ended September 30, 2017 and was 0.59% compared to 0.52% for the same period last year. The increase in our cost of funds was driven by the increased rates for FHLBB overnight borrowings and brokered deposits that were utilized to supplement funding of loan growth.

The following table presents average balances, interest income, interest expense, and the corresponding average yields earned and cost of funds, as well as net interest income, net interest rate spread and NIM for the nine months ended September 30, 2017 and 2016:

Year-To-Date Average Balance, Interest and Yield/Rate Analysis
For The Nine Months Ended
September 30, 2017 September 30, 2016
(In thousands) Average Balance Interest Yield/Rate Average Balance Interest Yield/Rate
Assets
Interest-earning assets:
Securities - taxable $ 832,054
$ 14,150
2.27 % $ 798,054
$ 13,106
2.19 %
Securities - nontaxable⁽¹⁾
102,075
3,198
4.18 % 102,812
3,273
4.24 %
Loans⁽²⁾⁽³⁾:

Residential real estate 831,072
25,580
4.10 % 825,660
25,915
4.18 %
Commercial real estate 1,109,386
33,833
4.02 % 988,329
30,690
4.08 %
Commercial⁽¹⁾
334,247
10,560
4.17 % 290,459
9,318
4.21 %
Municipal⁽¹⁾
19,761
493
3.34 % 18,655
419
3.00 %
Consumer 343,294
11,358
4.42 % 361,085
11,399
4.22 %
HPFC 53,873
3,472
8.50 % 72,380
4,818
8.75 %
Total loans 2,691,633
85,296
4.20 % 2,556,568
82,559
4.27 %
Total interest-earning assets 3,625,762
102,644
3.76 % 3,457,434
98,938
3.79 %
Cash and due from banks 82,548
87,248

Other assets 287,255
305,890

Less: ALL (23,976 ) (22,446 )
Total assets $ 3,971,589
$ 3,828,126

Liabilities & Shareholders' Equity
Deposits:
Demand $ 411,818
$ —
— % $ 372,131
$ —
— %
Interest checking 725,705
952
0.18 % 722,764
649
0.12 %
Savings 490,648
229
0.06 % 455,134
204
0.06 %
Money market 476,983
1,753
0.49 % 485,611
1,532
0.42 %
Certificates of deposit⁽³⁾
458,208
3,014
0.88 % 492,892
2,835
0.77 %
Total deposits 2,563,362
5,948
0.31 % 2,528,532
5,220
0.28 %
Borrowings:
Brokered deposits 322,860
2,620
1.09 % 216,589
1,135
0.70 %
Customer repurchase agreements 225,426
747
0.44 % 188,124
387
0.27 %
Junior subordinated debentures 58,814
2,553
5.80 % 58,712
2,557
5.82 %
Other borrowings 354,443
3,555
1.34 % 402,121
3,223
1.07 %
Total borrowings 961,543
9,475
1.32 % 865,546
7,302
1.13 %
Total funding liabilities 3,524,905
15,423
0.58 % 3,394,078
12,522
0.49 %
Other liabilities 43,489
55,401

Shareholders' equity 403,195
378,647

Total liabilities & shareholders' equity $ 3,971,589
$ 3,828,126

Net interest income (fully-taxable equivalent) 87,221
86,416

Less: fully-taxable equivalent adjustment (1,580 ) (1,588 )
Net interest income $ 85,641
$ 84,828

Net interest rate spread (fully-taxable equivalent) 3.18 % 3.30 %
Net interest margin (fully-taxable equivalent) 3.19 % 3.31 %
Net interest margin (fully-taxable equivalent), excluding fair value mark accretion and collection of previously charged-off acquired loans⁽³⁾
3.10 % 3.11 %


~~(1)~~	~~Reported on tax-equivalent basis calculated using a tax rate of 35%, including certain commercial loans.~~


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


~~(3)~~	Excludes the impact of the fair value mark accretion on loans and CDs generated in purchase accounting and collection of previously charged-off acquired loans for the nine months ended September 30, 2017 and 2016 totaling $2.5 million and $5.2 million, respectively.

(Credit) Provision for Credit Losses

The (credit) provision for credit losses is ~~made up~~comprised of the (credit) provision for loan losses and the (credit) provision for unfunded commitments.

The (credit) provision for loan losses, which makes up the vast majority of the (credit) provision for credit losses, is a recorded (credit) expense determined by management that adjusts the ALL to a level that, in management’s best estimate, is necessary to absorb probable losses within the existing loan portfolio. The (credit) provision for loan losses reflects loan quality trends, including, among other factors, the levels of and trends related to non-accrual loans, past due loans, potential problem loans, criticized loans, net charge-offs or recoveries and growth in the loan portfolio. Accordingly, the amount of the (credit) provision for loan losses reflects both the necessary increases in the ALL related to newly identified criticized loans, as well as the actions taken related to other loans including, among other things, any necessary increases or decreases in required allowances for specific loans or loan pools. The (credit) provision for loan losses for the ~~third quarter of 2017~~three months ended was ~~$802,000, or 0.12% of average loans (annualized)~~($500,000), compared to ~~$1.3 million, or 0.20% of average loans (annualized),~~$581,000 for the ~~third~~three months ended March 31, 2017. The Company maintained strong asset quality across its loan portfolio throughout the first quarter of ~~2016. The~~2018 with non-performing loans to total loans of 0.69% at March 31, 2018, compared to 0.99% at March 31, 2017. Asset quality improvement over the past year led to a decrease in provision for ~~loan~~credit losses of $1.1 million for the ~~nine~~three months ended ~~September 30, 2017 was $2.8 million, or 0.14% of average loans (annualized),~~March 31, 2018 compared to ~~$5.0 million, or 0.26% of average loans (annualized), for~~ the same period last year.

The (credit) provision for unfunded commitments represents management's estimate of the amount required to reflect the probable inherent losses on outstanding letters and unused lines of credit. The reserve for unfunded commitments was presented within accrued interest and other liabilities on the consolidated statement of condition.

Please refer to “—“—Financial Condition—Asset ~~Quality”~~Quality” below for additional discussion regarding the ALL and overall asset quality.

Non-Interest Income

The following table presents the components of non-interest income for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 and ~~2016:~~2017:


	Three Months Ended September 30,						Change					Nine Months Ended September 30,						Change					Three Months Ended March 31,						Change
	2017			2016			$			%		2017			2016			$			%		2018			2017			$			%
Debit card income	$	2,061		$	1,894		$	167		9	%	$	5,887		$	5,650		$	237		4	%	$	1,929		$	1,834		$	95		5	%
Service charges on deposit accounts	1,852			1,799			53			3	%	5,632			5,356			276			5	%	1,836			1,823			13			1	%
Mortgage banking income, net	2,076			2,407			(331		)	(14	)%	5,566			4,921			645			13	%	1,391			1,553			(162		)	(10	)%
Income from fiduciary services	1,229			1,225			4			—	%	3,831			3,736			95			3	%	1,283			1,247			36			3	%
Brokerage and insurance commissions																							650			453			197			43	%
Bank-owned life insurance	603			585			18			3	%	1,750			1,899			(149		)	(8	)%	608			577			31			5	%
Brokerage and insurance commissions	600			594			6			1	%	1,601			1,569			32			2	%
Other service charges and fees	589			591			(2		)	—	%	1,558			1,494			64			4	%	462			468			(6		)	(1	)%
Net gain on sale of securities	827			—			827			(100	)%	827			4			823			N.M.
Other income	462			1,906			(1,444		)	(76	)%	2,107			4,841			(2,734		)	(56	)%	645			617			28			5	%
Total non-interest income	$	10,299		$	11,001		$	(702	)	(6	)%	$	28,759		$	29,470		$	(711	)	(2	)%	$	8,804		$	8,572		$	232		3	%
Non-interest income as a percentage of total revenues⁽¹⁾	26		%	28		%						25		%	26		%						23		%	24		%

(1) Revenue is defined as the sum of net interest income and non-interest income.

Non-Interest Income -— Three Months Ended ~~September 30, 2017~~March 31, 2018 and ~~2016.~~2017. The significant changes in non-interest income for the three months ended ~~September 30, 2017~~March 31, 2018 compared to the three months ended ~~September 30, 2016~~March 31, 2017 included:

A decrease in mortgage banking income primarily due to an unrealized loss of $146,000 due to the change in fair value on loans held for sale and related mortgage banking derivatives.

An increase in brokerage and insurance commissions was driven by strong production and assets under management growth of 8% to $418.9 million at March 31, 2018 over the last year.

An increase in other income ~~driven~~was in part due to a one-time gain of $195,000 recognized upon the mandatory liquidation of our investment in a reinsurance program, partially offset by ~~(i) one-time legal proceeds of $638,000 in the third quarter of 2016; (ii)~~ a decrease in fees from customer loan swaps of ~~$426,000; and (iii) exiting a sub-servicing contract effective December 31, 2016 that decreased sub-servicing income $336,000.~~

~~An increase in net gain on sale of securities of $827,000 primarily due to the sale of several small lot investment positions with a total amortized cost of $19.4 million.~~

~~A decrease in mortgage banking income of $331,000 due to a decrease in mortgage sales of $11.5 million to $59.9 million for the third quarter of 2017, compared to the third quarter of 2016.~~$153,000.

~~Non-Interest Income - Nine Months Ended September 30, 2017 and 2016.~~ ~~The significant changes in non-interest income for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 included:~~

A decrease in other income driven by (i) exiting a sub-servicing contract effective December 31, 2016 that decreased sub-servicing income $1.0 million; (ii) a decrease in fees from customer loan swaps of $965,000; and (iii) one-time legal proceeds of $638,000 for the nine months ended September 30, 2016.

~~An increase in net gain on sale of securities of $827,000 primarily due to the sale of several small lot investment positions with a total amortized cost of $19.4 million.~~

An increase in mortgage banking income driven by an increase in net gains on mortgage sales of $104,000, a decrease in amortization of our MSR loan portfolio, and recovery of a temporary impairment of our MSR portfolio.

Non-Interest Expense

The following table presents the components of non-interest expense for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 and ~~2016:~~2017:


	Three Months Ended September 30,						Change					Nine Months Ended September 30,						Change					Three Months Ended March 31,						Change
	2017			2016			$			%		2017			2016			$			%		2018			2017			$			%
Salaries and employee benefits	$	12,359		$	12,044		$	315		3	%	$	36,882		$	35,634		$	1,248		4	%	$	12,562		$	11,933		$	629		5	%
Furniture, equipment and data processing	2,429			2,349			80			3	%	7,204			7,157			47			1	%	2,586			2,325			261			11	%
Net occupancy costs	1,599			1,685			(86		)	(5	)%	5,234			5,352			(118		)	(2	)%	1,873			1,946			(73		)	(4	)%
Consulting and professional fees	714			742			(28		)	(4	)%	2,412			2,609			(197		)	(8	)%	804			845			(41		)	(5	)%
Debit card expense	662			669			(7		)	(1	)%	2,034			2,107			(73		)	(3	)%	730			660			70			11	%
Regulatory assessments	574			667			(93		)	(14	)%	1,607			2,162			(555		)	(26	)%	499			545			(46		)	(8	)%
Amortization of intangible assets	473			475			(2		)	—	%	1,417			1,427			(10		)	(1	)%	181			472			(291		)	(62	)%
Other real estate owned and collection costs, net	258			877			(619		)	(71	)%	558			2,029			(1,471		)	(72	)%	75			(44		)	119			270	%
Merger and acquisition costs	—			45			(45		)	(100	)%	—			866			(866		)	(100	)%
Other expenses	2,757			2,596			161			6	%	8,063			8,045			18			—	%	2,994			2,746			248			9	%
Total non-interest expense	$	21,825		$	22,149		$	(324	)	(1	)%	$	65,411		$	67,388		$	(1,977	)	(3	)%	$	22,304		$	21,428		$	876		4	%
Non-GAAP efficiency ratio	55.72		%	55.39		%						56.80		%	57.40		%						58.76		%	58.00		%

Non-Interest Expense -— Three Months Ended ~~September 30, 2017~~March 31, 2018 and ~~2016.~~2017. The significant changes in non-interest expense for the three months ended ~~September 30, 2017~~March 31, 2018 compared to the three months ended ~~September 30, 2016:~~

~~A decrease in other real estate owned and collection costs was primarily due to a decrease in sub-servicing costs of $569,000 upon exiting a sub-servicing contract effective December~~March 31, ~~2016.~~2017 included:

An increase in salaries and employee benefits ~~costs~~ of 3%5% primarily driven by an increase salary costs and accrued bonuses due to normal annual merit increases, increased headcount and ~~higher health~~continued wage inflation.

An increase in furniture, equipment and ~~benefits costs.~~data processing costs primarily driven by an increase in technology investments and advancement costs of $264,000, or 15%, over the past year.

A decrease in ~~regulatory assessments costs driven by the change in the FDIC fee structure that went into effect for the third quarter~~amortization of ~~2016 that reduced the assessment rate.~~

~~Non-Interest Expense - Nine Months Ended September 30, 2017 and 2016.~~ ~~The significant changes in non-interest expense for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016:~~

~~A decrease in other real estate owned and collection costs was primarily due to a decrease in sub-servicing costs~~intangible assets as its trust relationship intangible assets were fully amortized as of ~~$1.2 million upon exiting a sub-servicing contract effective~~ December 31, ~~2016.~~2017.

An increase in other expenses primarily driven by an increase in external recruiting fees of $124,000, an increase in donations and marketing expenses of $73,000, and an increase in pension and postretirement benefit (excluding the service cost component, which was presented within salaries and employee ~~benefits costs~~benefits) of ~~4% driven by normal annual merit increases and higher health and benefits costs.~~

~~A decrease in merger and acquisition costs as they did not reoccur in 2017.~~

~~A decrease in regulatory assessments costs driven by the change in the FDIC fee structure that went into effect for the third quarter of 2016 that reduced the assessment rate.~~

$48,000.

Income Tax Expense

~~Our~~For the three months ended March 31, 2018, we recorded income tax expense of $3.1 million on pre-tax income of $15.9 million, or an effective tax rate for the period of 19.4%, compared to $4.3 million of income tax expense on pre-tax income of $14.4 million, or an effective tax rate of 30.1%, for the three months ended March 31, 2017. The decrease in our effective tax rate was due to the decrease in the federal corporate income tax rate from 35% to 21%, effective for periods beginning on January 1, 2018, as the Tax Act was passed in December 2017. We estimate that the net income benefit due to the lower federal income tax rate for the three months ended ~~September 30, 2017 and 2016~~March 31, 2018 was 32.6% and 31.6%, respectively, and for the nine months ended September 30, 2017 and 2016 was 31.5% and 30.4%, respectively. The increase in our effective tax rate for the three and nine months ended September 30, 2017 over the same period last year was driven by (i) a change in ourapproximately $1.9 million. Our current estimated annual effective tax rate for calendar year 2017 due to a change in our estimate of tax-exempt income as a percentage of total pre-tax income; (ii) a change in our state apportionment percentages as our income continues to grow outside the state of Maine; and (iii) certain2018, excluding any discrete period items, ~~that are further described in Note 7 of the consolidated financial statements.~~is 19.9%.

At ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, net deferred tax assets totaled ~~$36.3~~$23.2 million and ~~$39.3~~$22.8 million, respectively, ~~that are determined~~ and reported utilizing a deferred tax rate of 35.0% based on current enacted tax rates. Should a change in the federal and/or state enacted tax rate occur, we would be required to record our net deferred tax assets at the newly issued enacted tax rate at that time, and a corresponding immediate charge (assuming a decrease in tax rates) to income tax expenses would be recorded.

~~At September 30, 2017 and December 31, 2016,~~ we did not carry any valuation allowances on our deferred tax ~~assets.~~assets as of those dates. We continue monitor and assess the need for a valuation allowance on our deferred tax assets quarterly in conjunction with our financial reporting.

FINANCIAL CONDITION

Investment Securities

We purchase and hold investment securities ~~including municipal bonds, MBS (pass through securities and CMOs), subordinated corporate bonds and FHLB and FRB stock~~ to diversify our revenues, interest rate and credit risk, and to provide for liquidity and funding needs. ~~At September 30, 2017,~~Our investment securities portfolio is primarily made up of MBS (pass through securities and CMOs), which accounted for 99% of our total investment securities ~~holdings were $916.0 million, an increase of $18.3 million since~~portfolio at March 31, 2018 and December 31, ~~2016. For~~2017, followed by municipal bonds, subordinated corporate bonds, and a minority (less than 5%) equity position in certain bank stocks. Additionally, the ~~nine months ended September 30,~~Bank is a member of the FHLBB and FRBB and is required to hold a certain amount of FHLBB and FRBB common stock.

With the exception of our municipal bonds portfolio, we have historically designated our debt investment securities as AFS to provide us greater flexibility in managing our liquidity and funding needs in conjunction with our overall asset/liability management program. At March 31, 2018 and December 31, 2017, ~~we purchased $141.6 million~~the fair value of debt securities ~~and had sales with an amortized cost of $19.4 million; we had maturities, calls and principal pay-downs of $101.1~~designated as AFS was $796.7 million and ~~net amortization~~$789.1 million, respectively, whereas the carrying value of ~~$2.3 million.~~

~~During the nine months ended September 30, 2017, the $141.6~~our municipal bonds designated as HTM was $93.2 million ~~of securities purchased were a combination of MBS~~ and ~~CMOs. All of these investments have been categorized as~~$94.1 million, respectively. AFS securities ~~and~~ are carried at fair value on the consolidated statements of condition with the associated unrealized gains or ~~losses~~(losses) recorded in AOCI, net of tax. ~~At September 30, 2017, we had a $5.2 million net unrealized loss on our AFS~~HTM securities ~~net of tax, compared to a $6.1 million net unrealized loss, net of tax,~~are carried at December 31, 2016. The fluctuation in the fair value of our MBS and CMO investment securities is highly dependent on interest rates as of the end of the reporting period and is not reflective of an overall credit deterioration within our portfolio.amortized cost.

The duration of our investment securities portfolio decreased to 3.8 years at September 30, 2017 from 4.3 years at December 31, 2016. This decrease was due to the purchase of shorter duration MBS and CMOs and a reductionOur investments in long term rates since year-end. MBS and CMO investments have a shorter weighted-average life than the municipal bonds. We generally purchase MBS and CMO investments with an average life of no longer than six years to limit prepayment risk compared to fifteen years for a municipal bond.

We completed our quarterly OTTI assessment for our investment portfolio as of September 30, 2017, which included assessment of our Texas municipal bonds due to the impact of Hurricane Harvey. Texas municipal bonds represent 10% of our total municipal bond portfolio. Through our assessment, we identified that we did not have any municipal bonds in Houston or any of its immediately surrounding districts. We concluded that no OTTI existed across our investment portfolio, including our Texas municipal bonds as of September 30, 2017. Our process and methodology for analyzing our investments portfolio for OTTI has not changed since last disclosed within our Annual Report on Form 10-K for the year ended December 31, 2016. Refer to the Annual Report on Form 10-K for the year ended December 31, 2016 for further discussion of the Company's process and methodology.

FHLBB and FRB ~~Bank Stock~~

common stock continued to be accounted for and carried at cost. We are required to maintain a level of investment in FHLBB stock based on ~~the Bank's~~our level of FHLBB ~~advances. For the nine months ended September 30, 2017, the Bank had net purchases of $1.4 million of FHLBB stock. Our investment balance at September 30, 2017~~advances, and ~~December 31, 2016 was $19.2 million and $17.8 million, respectively. No market exists for shares of FHLBB stock.~~

~~We are required to~~ maintain a level of investment in ~~FRBB~~FRB common stock based on the ~~Company's shareholders' equity position. We did not purchase or sell any FRBB stock for the nine months ended September 30, 2017. Our investment balance at September 30, 2017~~Bank's capital levels. As of March 31, 2018 and December 31, ~~2016~~2017, our investment in FHLBB stock totaled $17.6 million and $18.3 million, respectively, and our investment in FRB stock was $5.4 million. ~~No market exists~~

At March 31, 2018 and December 31, 2017, our investment portfolio was 22% of total assets.

The following table presents the activity within our investments portfolio for ~~shares~~the period indicated:



	Debt									Equity
	AFS			HTM			Total			Bank Stock⁽¹⁾			FHLBB and FRB Stock			Other			Total			Total
Carrying value at December 31, 2017	$	789,093		$	94,073		$	883,166		$	796		$	23,670		$	10		$	24,476		$	907,642
Purchases	50,152			—			50,152			—			2,815			—			2,815			52,967
Sales, carrying value	—			—			—			—			(3,472		)	(10		)	(3,482		)	(3,482		)
Principal repayments, maturities and calls	(29,531		)	(750		)	(30,281		)	—			—			—			—			(30,281		)
Amortization, net	(632		)	(131		)	(763		)	—			—			—			—			(763		)
Change in unrealized losses	(12,395		)	—			(12,395		)	(35		)	—			—			(35		)	(12,430		)
Carrying value at March 31, 2018	$	796,687		$	93,192		$	889,879		$	761		$	23,013		$	—		$	23,774		$	913,653

(1)

Effective January 1, 2018, upon adoption of ASU 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"), equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) are to be measured at fair value with changes in fair value recognized in net income. The change in unrealized losses for the three months ended March 31, 2018 of $35,000 was presented within other income on the consolidated statements of income.

For the three months ended March 31, 2018 and 2017, we did not have net gains or (losses) on sale of ~~FRBB stock.~~investments. However, for the three months ended March 31, 2018, we recognized a gain of $195,000 within other income on the consolidated statements of income upon mandatory liquidation of a reinsurance program investment.

We continuously monitor and evaluate our investment securities portfolio to identify and assess risks within our portfolio, including, but not limited to, the impact of the current rate environment and the related prepayment risk, and review credit ratings. The overall mix of debt securities at March 31, 2018 compared to December 31, 2017 remains relatively unchanged and well positioned to provide a stable source of cash flow. The duration of our debt investment securities portfolio, adjusting for calls when appropriate and consensus prepayment speeds, at March 31, 2018 was 4.1 years as compared to December 31, 2017 of 3.8 years. We continue to invest in debt securities with a short period until maturity or call option to limit prepayment risk.

MBS securities are directly impacted by the interest rate environment and the yield curve. A low interest rate environment directly affects the interest income earned on these investments by accelerating prepayments and, consequently, the acceleration of our premium amortization. Additionally, a low rate environment and a flatter yield curve will decrease the yield earned upon reinvestment of the prepayment proceeds back into other MBS securities, impacting our net interest income and margin. As of March 31, 2018, the amount of net premiums on our investment securities to be recognized in future periods totaled $11.7 million, which equated to a weighted-average premium above par of approximately 1%.

Subsequent changes to the interest rate environment will continue to impact our investment yield and earned net interest income.

We review our investments portfolio quarterly for impairment in accordance with our internal policy. Our assessment includes, but is not limited to, reviewing available financial data, assessing credit rating changes, if any, and consideration of our intent and ability to hold temporarily impaired investment securities until we expect them to recover. At March 31, 2018 and December 31, 2017, we held debt securities that were in an unrealized loss position totaling $27.9 million and $14.5 million, respectively, that we concluded were temporarily impaired and we have the intent and ability to hold these securities until they recover. The decline in the fair value of the debt securities was reflective of current interest rates in excess of the yield received on investments and was not indicative of an overall credit deterioration or other factors within our investment securities portfolio. Refer to Note 4 of the consolidated financial statementsfor further discussion.

Loans

We provide loans primarily to customers located within our geographic market area. Our primary market continues to be in Maine, making up ~~83%~~81% of our loan portfolio at ~~September 30, 2017,~~March 31, 2018, followed by Massachusetts and New Hampshire, making up 7%8% and 5%, respectively.

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


	September 30, 2017				December 31, 2016			Change					March 31, 2018				December 31, 2017				Change
				($)				(%)				($)					December 31, 2017			(%)
Residential real estate	September 30, 2017		$	852,851	December 31, 2016			$	802,494		$	50,357	March 31, 2018		6	%		$	860,533			$	858,369		$	2,164	—	%
Commercial real estate	1,131,883				1,050,780			81,103			8	%	1,169,533				1,164,023				5,510			—	%
Commercial	369,155				333,639			35,516			11	%	378,015				373,400				4,615			1	%
Home equity	328,328				329,907			(1,579		)	—	%
Consumer	18,123				17,332			791			5	%
Consumer and home equity													338,653				341,527				(2,874		)	(1	)%
HPFC	47,950				60,412			(12,462		)	(21	)%	42,414				45,120				(2,706		)	(6	)%
Total loans	$	2,748,290			$	2,594,564		$	153,726		6	%	$	2,789,148			$	2,782,439			$	6,709		—	%
Commercial Loan Portfolio	$	1,548,988			$	1,444,831		$	104,157		7	%	$	1,589,962			$	1,582,543			$	7,419		—	%
Retail Loan Portfolio	$	1,199,302			$	1,149,733		$	49,569		4	%	$	1,199,186			$	1,199,896			$	(710	)	—	%
Commercial Portfolio Mix	56		%		56		%						57		%		57		%
Retail Portfolio Mix	44		%		44		%						43		%		43		%

For the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2018, we originated ~~$302.2~~$85.5 million of residential mortgages and sold ~~51%~~55% of our production (including loans designated as held for sale at ~~September 30, 2017)~~March 31, 2018).

The decrease in the HPFC loan portfolio of $12.5 million, or 21%, for the nine months ended September 30, 2017 was due to the natural run-off of loan balances as we are no longer originating loans out of this loan segment.

At ~~September 30, 2017,~~March 31, 2018, the principal balance of loans held for sale totaled ~~$13.0~~$9.5 million, for which an unrealized ~~loss~~gain of ~~$26,000~~$47,000 was reported to carry it at fair value on our consolidated statements of condition. At December 31, ~~2016,~~2017, the principal balance of loans held for sale totaled ~~$15.1~~$8.1 million, for which an unrealized loss of ~~$289,000~~$37,000 was reported to carry it at fair value on our consolidated statements of condition.

~~BOLI~~

In the third quarter of 2017 the Company made an additional BOLI investment of $7.0 million. Our BOLI investment at September 30, 2017 and December 31, 2016 was $86.9 million and $78.1 million, respectively.

Asset Quality

Non-Performing Assets. Non-performing assets include non-accrual loans, accruing loans 90 days or more past due, accruing TDRs, and property acquired through foreclosure or repossession. The following table sets forth the make-up and amount of our non-performing assets as of the dates indicated:


	September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
Non-accrual loans:
Residential real estate	$	4,465		$	3,945		$	6,185		$	4,979
Commercial real estate	5,887			12,849			4,603			5,642
Commercial	1,830			2,088			1,991			2,000
Consumer and home equity loans	1,626			1,624			1,464			1,650
HPFC	838			207			655			1,043
Total non-accrual loans	14,646			20,713			14,898			15,314
Accruing loans past due 90 days	—			—			—			—
Accruing TDRs not included above	5,154			4,338			4,361			5,012
Total non-performing loans	19,800			25,051			19,259			20,326
Other real estate owned	341			922			130			130
Total non-performing assets	$	20,141		$	25,973		$	19,389		$	20,456
Non-accrual loans to total loans	0.53		%	0.80		%	0.53		%	0.55		%
Non-performing loans to total loans	0.72		%	0.97		%	0.69		%	0.73		%
ALL to non-performing loans	123.30		%	92.28		%	119.37		%	118.92		%
Non-performing assets to total assets	0.50		%	0.67		%	0.47		%	0.50		%
ALL to non-performing assets	121.21		%	89.00		%	118.57		%	118.16		%

Our ~~non-accrual~~asset quality for the first three months remained strong with non-performing loans to total loans ~~ratio decreased 27 basis points to 0.53% at September 30, 2017 since year-end,~~of 0.69% and ~~our~~ non-performing assets to total assets ~~ratio decreased 17 basis points~~of 0.47% at March 31, 2018, compared to 0.73% and 0.50% over the same period. The majority of the decrease in non-accrual loans and non-performing assets within commercial real estate of $7.0 million was driven by one $10.0 million relationship that resolved in the third quarter of 2017.at December 31, 2017, respectively.

Potential Problem Loans. Potential problem loans consist of classified accruing commercial and commercial real estate loans that were between 30 and 89 days past due. Such loans are characterized by weaknesses in the financial condition of borrowers or collateral deficiencies. Based on historical experience, the credit quality of some of these loans may improve due to changes in collateral values or the financial condition of the borrowers, while the credit quality of other loans may deteriorate, resulting in a loss. These loans are not included in the above analysis of non-accrual loans. At ~~September 30, 2017,~~March 31, 2018, potential problem loans amounted to ~~$2.4 million,~~$534,000, or ~~0.09%~~0.02% of total loans and ~~0.15%~~0.03% of our commercial loan portfolio.

Past Due Loans. Past due loans consist of accruing loans that were between 30 and 89 days past due. The following table sets forth information concerning the past due loans at the date indicated:


	September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
Accruing loans 30-89 days past due:
Residential real estate	$	3,169		$	2,470		$	2,777		$	5,277
Commercial real estate	2,297			971			1,121			1,135
Commercial	712			851			243			518
Consumer and home equity loans	1,256			1,018			1,190			1,197
HPFC	938			1,029			528			887
Total accruing loans 30-89 days past due	$	8,372		$	6,339		$	5,859		$	9,014
Accruing loans 30-89 days past due to total loans	0.30		%	0.24		%	0.21		%	0.32		%

Allowance for Loan Losses. We use a methodology to systematically measure the amount of estimated loan loss exposure inherent in the loan portfolio for purposes of establishing a sufficient ALL. The ALL is management’s best estimate of the probable loan losses as of the balance sheet date. The ALL is increased by provisions charged to earnings and by recoveries of amounts previously charged-off, and is reduced by charge-offs on loans.

The following table sets forth information concerning the activity in our ALL for the periods indicated:


	At or For The Three Months Ended September 30,						At or For The Nine Months Ended September 30,						At or For The Year Ended December 31, 2016			At or For The Three Months Ended March 31,						At or For The Year Ended December 31, 2017
	2017			2016			2017			2016			At or For The Year Ended December 31, 2016			2018			2017			At or For The Year Ended December 31, 2017
ALL at the beginning of the period	$	24,394		$	23,717		$	23,116		$	21,166		$	21,166		$	24,171		$	23,116		$	23,116
Provision for loan losses	802			1,287			2,786			5,011			5,269
(Credit) provision for loan losses																(500		)	581			3,026
Charge-offs:
Residential real estate	238			—			433			229			356			31			5			482
Commercial real estate	69			32			81			273			315			426			3			124
Commercial	369			1,541			650			1,970			2,218			171			136			1,014
Consumer and home equity	39			63			493			289			409			175			15			558
HPFC	193			205			274			507			507			—			—			290
Total charge-offs	908			1,841			1,931			3,268			3,805			803			159			2,468
Recoveries:
Residential real estate	26			1			30			72			95			1			—			30
Commercial real estate	25			7			138			50			50			13			103			141
Commercial	59			118			254			252			332			62			77			301
Consumer and home equity	10			1			15			7			9			46			3			19
HPFC	5			—			5			—			—			—			—			6
Total recoveries	125			127			442			381			486			122			183			497
Net charge-offs	783			1,714			1,489			2,887			3,319
Net charge-offs (recoveries)																681			(24		)	1,971
ALL at the end of the period	$	24,413		$	23,290		$	24,413		$	23,290		$	23,116		$	22,990		$	23,721		$	24,171
Components of allowance for credit losses:
Allowance for loan losses	$	24,413		$	23,290		$	24,413		$	23,290		$	23,116		$	22,990		$	23,721		$	24,171
Liability for unfunded credit commitments	22			14			22			14			11			23			9			20
Balance of allowance for credit losses at end of the period	$	24,435		$	23,304		$	24,435		$	23,304		$	23,127		$	23,013		$	23,730		$	24,191
Net charge-offs (annualized) to average loans	0.11		%	0.26		%	0.07		%	0.15		%	0.13		%	0.10		%	—		%	0.07		%
Provision for loan losses (annualized) to average loans	0.12		%	0.20		%	0.14		%	0.26		%	0.21		%	N.M.			0.09		%	0.11		%
ALL to total loans	0.89		%	0.90		%	0.89		%	0.90		%	0.89		%	0.82		%	0.90		%	0.87		%
ALL to net charge-offs (annualized)	779.47		%	339.70		%	1,229.67		%	605.04		%	696.47		%	843.98		%	N.M.			1,226.33		%

The determination of an appropriate level of ALL, and subsequent provision for loan losses which affects earnings, is based on our analysis of various economic factors and review of the loan portfolio. During our analysis and review, many factors are considered including, but not limited to, loan growth, payoffs of lower quality loans, recoveries on previously charged-off loans, improvement in the financial condition of the borrowers, risk rating downgrades/upgrades and charge-offs. We utilize a comprehensive approach toward determining the ALL, which includes an expanded risk rating system to assist us in identifying the risks being undertaken.

The ~~increase~~decrease in the ALL of ~~$1.3~~$1.2 million, or 6%5%, since ~~year-end~~December 31, 2017 to ~~$24.4~~$23.0 million at ~~September 30, 2017~~March 31, 2018 was driven by continued asset quality improvement across our loan ~~growth~~portfolio and the favorable resolution of 6%one large commercial real estate loan that was on non-accrual for which the specific loan reserve was released driving a negative credit loss provision for the first quarter of 2018 of $497,000. In the first quarter of 2018, credit quality across our loan portfolio improved since year-end requiring less ALL at March 31, 2018. At March 31, 2018 and ~~net charge-offs~~2017, and December 31, 2017, loans designated as passing and performing were 98%, 97% and 98% of ~~$1.8 million over the same period.~~our total loans, respectively.

Due to the recent weather events of Hurricanes Harvey and Irma in Texas and Florida, respectively, we assessed our exposure to the areas impacted by the hurricanes. As of September 30, 2017, our total residential and commercial loan exposure was $8.9 million and we did not have any unfunded commitments on these loans or other relationships secured by property in the affected areas. Of this amount, borrowers with $3.5 million of loan balances accepted our offering of 90 day deferment for payment. As of September 30, 2017, we did not identify any impaired loans as a result of the hurricanes.

We believe the ALL of ~~$24.4~~$23.0 million, or ~~0.89%~~0.82% of total loans and ~~123.30%~~119.37% of total non-performing loans, at ~~September 30, 2017~~March 31, 2018 is appropriate given the current economic conditions in our service area and the condition of the loan portfolio. However, if conditions deteriorate the provision will likely increase.

Liabilities and Shareholders’ Equity

Deposits and Borrowings. ~~Core~~Total deposits ~~(demand, interest checking,~~at March 31, 2018 increased $25.1 million to $3.0 billion since December 31, 2017, primarily due to brokered deposits growth of $39.8 million and savings and money ~~market) at September 30, 2017 increased $123.5~~market growth of $19.8 million, ~~or 6%, since year-end to $2.2 billion driven~~partially offset by ~~an increase~~a decrease in demand and interest checking balances of ~~$69.5~~$30.7 million, which was driven by the seasonality in our deposit flows within our markets. Our loan-to-deposit ratio at March 31, 2018 and December 31, 2017 was 92% and 93%, respectively.

Total borrowings at March 31, 2018 were $622.3 million, representing an increase of $10.8 million, or ~~17%, and $57.1 million, or 8%, respectively. CDs increased $30.8 million, or 7%, to $499.0 million at September 30, 2017~~2% since ~~year-end, primarily~~December 31, 2018. The increase was due to one large municipal relationship transferring its deposits from interest checking to CDs. Over the same period, brokered deposits decreased $26.4 million, or 10%, to $246.3 million, while total borrowings increased $8.9 million, or 1%, to $608.6 million over the same period.an increase in customer repurchase agreements of $11.6 million.

Shareholders' Equity. Total shareholders' equity at ~~September 30, 2017~~March 31, 2018 increased ~~$22.8 million, or 6%,~~$642,000 to ~~$414.4~~$404.1 million since ~~year-end.~~December 31, 2017. The increase was primarily due to net income for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 of ~~$31.6~~$12.8 million, partially offset by a change in AOCI of $8.2 million and dividends declared of $3.9 million, or $0.25 per share for the ~~nine~~three months ended ~~September 30, 2017 of $10.7 million (or $0.69 per share).~~March 31, 2018.

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


	At or For The Three Months Ended September 30,						At or For The Nine Months Ended September 30,						At or For The Year Ended December 31, 2016			At or For The Three Months Ended March 31,						At or For The Year Ended December 31, 2017
	2017			2016			2017			2016			At or For The Year Ended December 31, 2016			2018			2017			At or For The Year Ended December 31, 2017
Return on average assets	1.12		%	1.11		%	1.07		%	1.02		%	1.04		%	1.28		%	1.05		%	0.71		%
Return on average equity	10.93		%	11.18		%	10.49		%	10.29		%	10.47		%	12.91		%	10.36		%	7.00		%
Average equity to average assets	10.21		%	9.91		%	10.15		%	9.89		%	9.97		%	9.93		%	10.10		%	10.19		%
Dividend payout ratio	31.59		%	28.44		%	33.96		%	31.99		%	32.22		%	30.40		%	35.54		%	51.43		%
Book value per share	$	26.71		$	25.47		$	26.71		$	25.47		$	25.30		$	25.96		$	25.65		$	25.99
Tangible book value per share	$	20.26		$	18.87		$	20.26		$	18.87		$	18.74
Dividends declared per share	$	0.23		$	0.20		$	0.69		$	0.60		$	0.83		$	0.25		$	0.23		$	0.94

Refer to "Capital Resources" and Note 6 of the consolidated financial statements 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 in excess of regulatory guidelines in order to satisfy their varied liquidity requirements. We monitor liquidity in accordance with internal guidelines and all applicable regulatory requirements. As of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, our level of liquidity exceeded target levels. We believe that we currently have appropriate liquidity available to respond to liquidity demands. Sources of funds that we utilize consist of deposits; borrowings from the FHLBB and other sources; cash flows from operations; prepayments and maturities of outstanding loans, investments and mortgage-backed securities; and the sale of mortgage loans.

Deposits continue to represent our primary source of funds. For the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2018, average deposits (excluding brokered deposits) of ~~$2.6~~$2.7 billion increased ~~$34.8~~$194.2 million, or 1%8%, compared to the same period last year. Average core deposits (demand, interest checking, savings and money market) of ~~$2.1~~$2.3 billion for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 increased ~~$69.5~~$185.8 million, or 3%9%, compared to the same period a year ago. Included within our money

market deposits at ~~September 30, 2017~~March 31, 2018 were ~~$66.9~~$53.0 million of deposits from ~~CNWM~~Camden National Wealth Management, our wealth management and trust department, which represents client funds. These deposits fluctuate with changes in the portfolios of ~~the clients of CNWM.~~its clients.

Borrowings are used to supplement deposits as a source of liquidity. In addition to borrowings and advances from the FHLBB, we utilize brokered deposits, purchase federal funds, and sell securities under agreements to repurchase. For the ~~nine~~ three

months ended ~~September 30, 2017~~March 31, 2018 average total borrowings (including brokered deposits) ~~increased $96.0~~decreased $56.9 million to ~~$961.5~~$863.0 million compared to the same period last year. We secure borrowings from the FHLBB, whose advances remain the largest non-deposit-related funding source, with qualified residential real estate loans, certain investment securities and certain other assets available to be pledged. Through the Bank, we have available lines of credit with the FHLBB of $9.9 million, with PNC Bank of $50.0 million, and with the FRB Discount Window of ~~$98.9~~$101.7 million as of ~~September 30, 2017.~~March 31, 2018. We had no outstanding balances on these lines of credit at ~~September 30, 2017. Long-term borrowings represent securities sold under repurchase agreements with major brokerage firms. Both wholesale and customer~~March 31, 2018. Customer repurchase agreements are secured by mortgage-backed securities and government-sponsored enterprises. The Company also has a $10.0 million line of credit with a maturity date of December 20, ~~2017.~~2018. We had no outstanding balance on these lines of credit at ~~September 30, 2017.~~March 31, 2018.

We believe ~~the~~our investment ~~portfolio~~ and residential loan portfolio provide a significant amount of contingent liquidity that could be accessed in a reasonable time period through sales of those portfolios. We also believe that we have additional untapped access to the brokered deposit market, wholesale reverse repurchase transaction market and the FRB discount window. These sources are considered as liquidity alternatives in our contingent liquidity plan. We believe that the level of liquidity is sufficient to meet current and future funding requirements; however, changes in economic conditions, including consumer saving habits and the availability or access to the national brokered deposit and wholesale repurchase markets, could significantly impact our liquidity position.

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 ~~$414.4~~$404.1 million and ~~$391.5~~$403.4 million at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, respectively, which amounted to 10% of total ~~assets for all of the respective dates.~~assets. Refer to "—"— Financial Condition — Liabilities and Shareholders' ~~Equity"~~Equity" above for discussion regarding changes in shareholders' equity ~~since December~~for the three months ended March 31, ~~2016.~~2018.

Our principal cash requirement is the payment of dividends on our common stock, as and when declared by the Board of Directors. We declared dividends to shareholders in the aggregate amount of ~~$10.7~~$3.9 million and ~~$9.3~~$3.6 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ respectively. ~~The Company's Board of Directors approved a $0.03 per share, or 15%, increase in the fourth quarter 2016 dividend to $0.23 per share.~~ For the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2018, the Company's Board of Directors approved a dividend of $0.25 per share, compared to a dividend of $0.23 ~~each quarter,~~per share for the same period last year, which drove ~~the~~an increase in dividends declared ~~for~~of $319,000 over the ~~nine months ended September 30, 2017 of $1.4 million compared to the same period for 2016.~~period. Our 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 have been and 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 ~~subsidiaries~~wholly-owned subsidiary, to service our commitments. We ~~as the sole shareholder of our subsidiaries,~~ are entitled to dividends, when and as declared by ~~each subsidiary’s~~the Bank's Board of Directors from legally available funds. The Bank declared dividends to the Company in the aggregate amount of ~~$16.8~~$6.0 million and ~~$10.9~~$5.1 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ respectively. Under regulations prescribed by the OCC, without prior OCC approval, the Bank may not declare dividends in any year in excess of the Bank’s (i) net income for the current year, (ii) plus its retained net income for the prior two years. 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 6 of the consolidated financial statements for discussion and details of the Company and Bank's regulatory capital ~~regulatory~~ requirements. At ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the Company and Bank ~~met~~exceeded all regulatory capital requirements, and the Bank continues to be classified as "well capitalized" under the prompt correction action provisions.

CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET COMMITMENTS

Off-Balance Sheet Financial Instruments

Credit Commitments.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 lending commitments and letters of credit. Those instruments involve varying degrees of credit risk in excess of the amount recognized in the consolidated statements of condition. We follow the same credit policies in making commitments to extend credit and conditional obligations as we do for on-balance sheet instruments, including requiring similar collateral or other security to support financial instruments with credit risk. Our exposure to credit loss in the event of nonperformance by the customer is represented by the contractual amount of those instruments. Since many of the commitments are expected to expire without being drawn upon, the total amount does not necessarily represent future cash requirements. ~~At September 30, 2017, we had the following levels of commitments to extend credit:~~

Total Amount Commitment Expires in:
Committed <1 Year 1 – 3 Years 4 – 5 Years >5 Years
Home equity line of credit commitments $ 461,731
$ 178,340
$ 48,162
$ 6,705
$ 228,524
Commercial commitment letters 75,972
75,972
—
—
—
Residential loan origination 39,128
39,128
—
—
—
Letters of credit 3,054
3,054
—
—
—
Other commitments to extend credit 394
394
—
—
—
Total $ 580,279
$ 296,888
$ 48,162
$ 6,705
$ 228,524

Derivatives.We ~~are a party to several off-balance sheet contractual obligations~~use derivative financial instruments for risk management purposes (primarily interest rate risk) and not for trading or speculative purposes. We control the credit risk of these instruments through ~~lease agreements on a number of branch facilities.~~collateral, credit approvals and monitoring procedures. Additionally, ~~we enter into agreements routinely~~ as part of our normal ~~business~~mortgage origination process, we provide the borrower with the option to ~~manage deposits and borrowings. At September 30, 2017,~~lock their interest rate based on current market prices. During the period from commitment date to the loan closing date, we ~~had~~are subject to the risk of interest rate change. In an ~~obligation and commitment~~effort to ~~make future payments under each of these contracts as follows:~~

Total Amount Payments Due per Period
(Dollars in Thousands) of Obligations <1 Year 1 – 3 Years 4 – 5 Years >5 Years
Operating leases $ 5,526
$ 1,225
$ 1,964
$ 823
$ 1,514
Capital leases 1,096
126
253
260
457
FHLBB borrowings - overnight 3,300
3,300
—
—
—
FHLBB borrowings less than 90 days 270,000
270,000
—
—
—
FHLBB borrowings - other 10,000
—
10,000
—
—
Retail repurchase agreements 265,627
265,627
—
—
—
Junior subordinated debentures 44,305
—
—
—
44,305
Subordinated debentures 14,566
—
—
—
14,566
Total $ 614,420
$ 540,278
$ 12,217
$ 1,083
$ 60,842

~~Borrowings from the FHLBB consist of short- and long-term fixed and variable~~mitigate such risk, we may enter into forward delivery sales commitments, typically on a best-efforts basis, with certain approved investors. We account for its interest rate ~~borrowings that are collateralized by all stock in the FHLBB and a blanket lien~~lock commitments on ~~qualified collateral consisting primarily of~~ loans ~~with first mortgages secured by one-to four-family properties, certain pledged investment securities and other qualified assets.~~

~~We have an obligation and commitment to repay all short- and long-term borrowings. These commitments and borrowings and the related payments are made during~~within the normal ~~course~~origination process for which we intend to sell as a derivative instrument. Furthermore, we record a derivative for our best-effort forward delivery commitments upon origination of ~~business.~~a loan identified as held for sale. Should we enter into a forward delivery commitment on a mandatory delivery arrangement with an investor it accounts for the forward delivery commitment upon execution of the contract.

~~Derivatives~~

Hedge Instruments.From time to time, we may enter into derivative instruments as partial hedges against large fluctuations in interest rates. We may also enter into fixed-rate interest rate swaps and floor instruments to partially hedge against potentially lower yields on the variable prime rate loan category in a declining rate environment. If interest rates were to decline, resulting in reduced income on the adjustable rate loans, there would be an increased income flow from the interest rate swap and floor instrument. We may also enter into variable rate interest rate swaps and cap instruments to partially hedge against increases in short-term borrowing rates. If interest rates were to rise, resulting in an increased interest cost, there would be an increased income flow from the interest rate swaps and cap instruments. These financial instruments are factored into our overall interest rate risk position. We regularly review the credit quality of the counterparty from which the instruments have been purchased. ~~For additional details refer~~

Refer to Note 12 of the consolidated financial ~~statements.~~statements for additional details.

At March 31, 2018, we had the following levels of off-balance sheet financial instruments:



	Total Amount		Commitment Expires in:
Off-Balance Sheet Financial Instruments	Committed		<1 Year		1 – 3 Years		4 – 5 Years		>5 Years
Home equity line of credit commitments	$	501,127	$	196,452	$	70,610	$	5,503	$	228,562
Commercial commitment letters	31,667		31,667		—		—		—
Residential loan origination	36,352		36,352		—		—		—
Letters of credit	3,426		3,426		—		—		—
Other commitments to extend credit	1,151		1,151		—		—		—
Customer loan swaps - notional value	708,316		—		18,656		161,447		528,213
FHLBB advance interest rate swaps - notional value	25,000		25,000		—		—		—
Junior subordinated debt interest rate swaps - notional value	43,000		—		—		10,000		33,000
Fixed-rate mortgage interest rate lock commitments -notional value	24,753		24,753		—		—		—
Forward delivery commitments - notional value	9,502		9,502		—		—		—
Total	$	1,384,294	$	328,303	$	89,266	$	176,950	$	789,775

Contractual Obligations and Commitments

We are a party to several contractual obligations through lease agreements on a number of branches. Our operating leases represent off-balance sheet arrangements, while our one capital lease is reflected on our consolidated statements of condition.

We enter into agreements routinely as part of our normal business to manage deposits and borrowings.

At March 31, 2018, we had an obligation and commitment to make future payments under each of these contracts as follows:



	Total Amount		Payments Due per Period
Contractual obligations and commitments	of Obligations		<1 Year		1 – 3 Years		4 – 5 Years		>5 Years
Operating leases	$	6,039	$	1,429	$	2,097	$	1,086	$	1,427
Capital leases	1,032		126		384		262		260
FHLBB borrowings - overnight	161,350		161,350		—		—		—
FHLBB advances less than 90 days	135,000		135,000		—		—		—
FHLBB advances - other	10,000		—		10,000		—		—
Retail repurchase agreements	256,274		256,274		—		—
Junior subordinated debentures	44,357		—		—		—		44,357
Subordinated debentures	14,593		—		—		—		14,593
Other contractual obligations	2,215		2,215		—		—		—
Total	$	630,860	$	556,394	$	12,481	$	1,348	$	60,637

Borrowings from the FHLBB consist of short- and long-term fixed and variable rate borrowings that are collateralized by all stock in the FHLBB and a blanket lien on qualified collateral consisting primarily of loans with first mortgages secured by one-to four-family properties, certain pledged investment securities and other qualified assets.

We have an obligation and commitment to repay all short- and long-term borrowings. These commitments and borrowings and the related payments are made during the normal course of business.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

MARKET RISK

Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates/prices, such as interest rates, foreign currency exchange rates, commodity prices and equity prices. Our primary market risk exposure is interest rate risk. The ongoing monitoring and management of this risk is an important component of our asset and liability management process, which is governed by policies established by the Bank’s Board of Directors that are reviewed and approved annually. The Board ALCO delegates responsibility for carrying out the asset/liability management policies to Management ALCO. In this capacity, Management ALCO develops guidelines and strategies impacting our asset/liability management-related activities based upon estimated market risk sensitivity, policy limits and overall market interest rate levels/trends. Management ALCO and Board ALCO jointly meet on a quarterly basis to review strategies, policies, economic conditions and various activities as part of the management of these risks.

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 no balance sheet growth, given a 200 basis point upward and downward shift in interest rates. Although our policy specifies a downward shift of 200 basis points, this would results in negative rates as many deposit and funding rates are now below 2.00%. Our current downward shift is 100 basis points. 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 100 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 0.25%.

As of ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ our net interest income sensitivity analysis reflected the following changes to 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.


	Estimated Changes In Net Interest Income				Estimated Changes In Net Interest Income
Rate Change from Year 1 — Base	September 30, 2017		September 30, 2016		March 31, 2018		March 31, 2017
Year 1
+200 basis points	0.30	%	(0.75	)%	0.23	%	(1.31	)%
-100 basis points	(2.69	)%	(1.76	)%	(2.16	)%	(1.75	)%
Year 2
+200 basis points	7.00	%	(3.51	)%	8.85	%	2.96	%
-100 basis points	(8.11	)%	(9.76	)%	(5.43	)%	(8.35	)%

The preceding sensitivity analysis 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.

If rates remain at or near current levels, net interest income is projected to increase slightly as loan rates reprice up to current rates and the cost of funds remains relatively unchanged. Beyond the first year, net interest income increases slightly. If rates decrease 100 basis points, net interest income is projected to decrease as loans reprice into lower yields and funding costs have limited capacity to reduce the cost of funds in the first year. In the second year, net interest income is projected to continue to decrease as loans and investment cash flow reprice into lower yields as prepayments increase while reduction in the cost of funds become limited. If rates increase 200 basis points, net interest income is projected to increase slightly in the first year due to the repricing of assets outpacing that of liabilities. In the second year, net interest income is projected to continue to increase as loan and investment yields continue to reprice/reset into higher yields and the cost of funds lags.

Periodically, if deemed appropriate, we use 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. As of ~~September 30, 2017,~~March 31, 2018, we had $43.0 million notional principal amount of interest rate swap agreements related to the junior subordinated debentures, ~~$50.0~~$25.0 million notional principal amount of interest swap agreements related to our FHLBB 30-day funding and ~~$592.1~~$354.2 million notional principal amount of interest rate swap agreements related to our commercial loan level derivative program. The Board and Management ALCO monitor derivative activities relative to their expectations and our hedging policies.

ITEM 4. CONTROLS AND PROCEDURES

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 Financial Officer (Principal Financial & Accounting Officer), regarding the effectiveness of the Company’s disclosure controls and procedures, as of the end of the last fiscal quarter covered by this report. 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 Financial Officer (Principal Financial & 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 Securities and Exchange Commission’s rules and forms.

There was no change in the 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, the Company's internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the normal course of business, the Company and its subsidiaries are subject to pending and threatened legal actions. Although the Company is not able to predict the outcome of such actions, after reviewing pending and threatened actions with counsel, management believes that based on the information currently available the outcome of such actions, individually or in the aggregate, will not have a material adverse effect on the Company’s consolidated financial position as a whole.

ITEM 1A. RISK FACTORS

There have been no material changes to the Company's Risk Factors described in Item 1A. of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) None.

(b) None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS



Exhibit No.		Definition
10.1*+		Form of Restricted Stock Award Agreement under the Camden National Corporation Management Stock Purchase Plan.
10.2*+		Form of Restricted Stock Unit Award Agreement for Company Employees under the Camden National Corporation 2012 Equity and Incentive Plan.
10.3*+		Form of Restricted Stock Award Agreement under the Camden National Corporation 2012 Equity and Incentive Plan.
10.4*+		Form of Incentive Stock Option Agreement under the Camden National Corporation 2012 Equity and Incentive Plan.
10.5+		Camden National Corporation 2018-2020 Amended and Restated Long-Term Performance Share Plan (incorporated herein by reference to Exhibit 10.1 to the Company's Form 8-K filed with the Commission on April 27, 2018).
10.6+		Third Amendment to Camden National Corporation 2012 Equity and Incentive Plan, dated as of April 24, 2018 (incorporated herein by reference to Exhibit 10.2 to the Company's Form 8-K filed on April 27, 2018.
10.7+		Camden National Corporation Amended and Restated Management Stock Purchase Plan, under the Camden National Corporation 2012 Equity and Incentive Plan dated as of April 24, 2018 (incorporated herein by reference to Exhibit 10.3 to the Company's Form 8-K filed on April 27, 2018.
31.1*		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
31.2*		Certification of Chief Financial Officer, Principal Financial & Accounting Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
32.1**		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**		Certification of Chief Financial Officer, Principal Financial & Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101		XBRL (Extensible Business Reporting Language). The following materials from Camden National Corporation’s Quarterly Report on Form 10-Q for the period ended ~~September 30, 2017,~~March 31, 2018, formatted in XBRL: (i) Consolidated Statements of Condition - ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016;~~2017; (ii) Consolidated Statements of Income - Three ~~and Nine~~ Months Ended ~~September 30, 2017~~March 31, 2018 and ~~2016;~~2017; (iii) Consolidated Statements of Comprehensive Income - Three ~~and Nine~~ Months Ended ~~September 30, 2017~~March 31, 2018 and ~~2016;~~2017; (iv) Consolidated Statements of Changes in Shareholders’ Equity - ~~Nine~~Three Months Ended ~~September 30, 2017~~March 31, 2018 and ~~2016;~~2017; (v) Consolidated Statements of Cash Flows - ~~Nine~~Three Months Ended ~~September 30, 2017~~March 31, 2018 and ~~2016;~~2017; and (vi) Notes to the Unaudited Consolidated Financial Statements.
*		Filed herewith.
**		Furnished herewith.
+		Management contract or a compensatory plan or arrangement.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



CAMDEN NATIONAL CORPORATION
(Registrant)

/s/ Gregory A. Dufour		~~November 3, 2017~~May 4, 2018
Gregory A. Dufour		Date
President and Chief Executive Officer (Principal Executive Officer)

/s/ Deborah A. Jordan		~~November 3, 2017~~May 4, 2018
Deborah A. Jordan		Date
Chief Operating Officer, Chief Financial Officer and
Principal Financial & Accounting Officer

6866



	Three Months Ended September 30,					Nine Months Ended September 30,
	2017			2016		2017			2016
Proceeds from sales of securities	$	20,269		$	—	$	20,269		$	84
Gross realized gains	841			—		841			4
Gross realized losses	(14		)	—		(14		)	—



	Three Months Ended September 30,					Nine Months Ended September 30,					Year Ended December 31, 2016
	2017		2016			2017		2016			Year Ended December 31, 2016
Provision for loan losses	$	802	$	1,287		$	2,786	$	5,011		$	5,269
Change in reserve for unfunded commitments	15		(8		)	11		(8		)	(11		)
Provision for credit losses	$	817	$	1,279		$	2,797	$	5,003		$	5,258



							Three Months Ended					Nine Months Ended
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized⁽¹⁾			Average Recorded Investment		Interest Income Recognized
September 30, 2017:
With an allowance recorded:
Residential real estate	$	3,262	$	3,262	$	464	$	3,194	$	48		$	3,084	$	103
Commercial real estate	5,589		5,589		1,470		6,590		4			10,048		15
Commercial	—		—		—		82		—			41		—
Home equity	—		—		—		—		—			167		—
Consumer	—		—		—		—		—			—		—
HPFC	—		—		—		—		—			33		—
Ending balance	8,851		8,851		1,934		9,866		52			13,373		118
Without an allowance recorded:
Residential real estate	1,530		1,949		—		1,427		15			1,349		15
Commercial real estate	784		1,032		—		794		15			1,250		22
Commercial	1,842		3,015		—		1,891		(6		)	1,959		8
Home equity	423		482		—		440		1			271		6
Consumer	—		—		—		—		(4		)	3		—
HPFC	—		—		—		—		—			—		—
Ending balance	4,579		6,478		—		4,552		21			4,832		51
Total impaired loans	$	13,430	$	15,329	$	1,934	$	14,418	$	73		$	18,205	$	169
September 30, 2016:
With an allowance recorded:
Residential real estate	$	3,041	$	3,041	$	511	$	3,050	$	56		$	3,108	$	81
Commercial real estate	11,354		11,354		1,284		7,582		—			3,092		—
Commercial	—		—		—		1,782		—			1,016		—
Home equity	302		302		88		303		—			307		—
Consumer	—		—		—		—		—			—		—
HPFC	106		106		74		35		—			97		—
Ending Balance	14,803		14,803		1,957		12,752		56			7,620		81
Without an allowance recorded:
Residential real estate	1,510		1,996		—		1,731		7			2,275		7
Commercial real estate	1,932		2,427		—		2,015		33			2,322		37
Commercial	2,243		4,667		—		1,354		(11		)	2,639		12
Home equity	187		374		—		188		3			181		—
Consumer	7		10		—		7		4			7		—
HPFC	—		—		—		—		—			—		—
Ending Balance	5,879		9,474		—		5,295		36			7,424		56
Total impaired loans	$	20,682	$	24,277	$	1,957	$	18,047	$	92		$	15,044	$	137



							Year Ended
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
December 31, 2016:
With an allowance recorded:
Residential real estate	$	3,019	$	3,019	$	483	$	3,088	$	106
Commercial real estate	11,443		11,443		1,373		5,165		—
Commercial	—		—		—		762		—
Home equity	299		299		86		305		—
Consumer	—		—		—		—		—
HPFC	97		97		65		98		—
Ending Balance	14,858		14,858		2,007		9,418		106
Without an allowance recorded:
Residential real estate	1,329		1,800		—		2,057		9
Commercial real estate	1,874		2,369		—		2,214		51
Commercial	2,028		3,209		—		2,507		16
Home equity	158		368		—		180		—
Consumer	7		10		—		12		—
HPFC	—		—		—		—		—
Ending Balance	5,396		7,756		—		6,970		76
Total impaired loans	$	20,254	$	22,614	$	2,007	$	16,388	$	182



	Goodwill
	Banking		Financial Services			Total
September 30, 2017 and December 31, 2016:
Goodwill, gross	$	90,793	$	7,474		$	98,267
Accumulated impairment losses	—		(3,570		)	(3,570		)
Reported goodwill at September 30, 2017 and December 31, 2016	$	90,793	$	3,904		$	94,697



	Core Deposit Intangible								Trust Relationship Intangible
	Gross		Accumulated Amortization			Net			Gross		Accumulated Amortization			Net			Total
Balance at December 31, 2016	$	23,908	$	(17,220	)	$	6,688		$	753	$	(677	)	$	76		$	6,764
2017 amortization	—		(1,360		)	(1,360		)	—		(57		)	(57		)	(1,417		)
Balance at September 30, 2017	$	23,908	$	(18,580	)	$	5,328		$	753	$	(734	)	$	19		$	5,347



	Core Deposit Intangible		Trust Relationship Intangible		Total
2017	$	375	$	19	$	394
2018	725		—		725
2019	705		—		705
2020	682		—		682
2021	655		—		655
Thereafter	2,186		—		2,186
Total	$	5,328	$	19	$	5,347

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

	For The Nine Months Ended
	September 30, 2017								September 30, 2016
(In thousands)	Average Balance			Interest			Yield/Rate		Average Balance			Interest			Yield/Rate
Assets
Interest-earning assets:
Securities - taxable	$	832,054		$	14,150		2.27	%	$	798,054		$	13,106		2.19	%
Securities - nontaxable⁽¹⁾	102,075			3,198			4.18	%	102,812			3,273			4.24	%
Loans⁽²⁾⁽³⁾:
Residential real estate	831,072			25,580			4.10	%	825,660			25,915			4.18	%
Commercial real estate	1,109,386			33,833			4.02	%	988,329			30,690			4.08	%
Commercial⁽¹⁾	334,247			10,560			4.17	%	290,459			9,318			4.21	%
Municipal⁽¹⁾	19,761			493			3.34	%	18,655			419			3.00	%
Consumer	343,294			11,358			4.42	%	361,085			11,399			4.22	%
HPFC	53,873			3,472			8.50	%	72,380			4,818			8.75	%
Total loans	2,691,633			85,296			4.20	%	2,556,568			82,559			4.27	%
Total interest-earning assets	3,625,762			102,644			3.76	%	3,457,434			98,938			3.79	%
Cash and due from banks	82,548								87,248
Other assets	287,255								305,890
Less: ALL	(23,976		)						(22,446		)
Total assets	$	3,971,589							$	3,828,126
Liabilities & Shareholders' Equity
Deposits:
Demand	$	411,818		$	—		—	%	$	372,131		$	—		—	%
Interest checking	725,705			952			0.18	%	722,764			649			0.12	%
Savings	490,648			229			0.06	%	455,134			204			0.06	%
Money market	476,983			1,753			0.49	%	485,611			1,532			0.42	%
Certificates of deposit⁽³⁾	458,208			3,014			0.88	%	492,892			2,835			0.77	%
Total deposits	2,563,362			5,948			0.31	%	2,528,532			5,220			0.28	%
Borrowings:
Brokered deposits	322,860			2,620			1.09	%	216,589			1,135			0.70	%
Customer repurchase agreements	225,426			747			0.44	%	188,124			387			0.27	%
Junior subordinated debentures	58,814			2,553			5.80	%	58,712			2,557			5.82	%
Other borrowings	354,443			3,555			1.34	%	402,121			3,223			1.07	%
Total borrowings	961,543			9,475			1.32	%	865,546			7,302			1.13	%
Total funding liabilities	3,524,905			15,423			0.58	%	3,394,078			12,522			0.49	%
Other liabilities	43,489								55,401
Shareholders' equity	403,195								378,647
Total liabilities & shareholders' equity	$	3,971,589							$	3,828,126
Net interest income (fully-taxable equivalent)				87,221								86,416
Less: fully-taxable equivalent adjustment				(1,580		)						(1,588		)
Net interest income				$	85,641							$	84,828
Net interest rate spread (fully-taxable equivalent)							3.18	%							3.30	%
Net interest margin (fully-taxable equivalent)							3.19	%							3.31	%
Net interest margin (fully-taxable equivalent), excluding fair value mark accretion and collection of previously charged-off acquired loans⁽³⁾							3.10	%							3.11	%



	Total Amount		Payments Due per Period
(Dollars in Thousands)	of Obligations		<1 Year		1 – 3 Years		4 – 5 Years		>5 Years
Operating leases	$	5,526	$	1,225	$	1,964	$	823	$	1,514
Capital leases	1,096		126		253		260		457
FHLBB borrowings - overnight	3,300		3,300		—		—		—
FHLBB borrowings less than 90 days	270,000		270,000		—		—		—
FHLBB borrowings - other	10,000		—		10,000		—		—
Retail repurchase agreements	265,627		265,627		—		—		—
Junior subordinated debentures	44,305		—		—		—		44,305
Subordinated debentures	14,566		—		—		—		14,566
Total	$	614,420	$	540,278	$	12,217	$	1,083	$	60,842