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 ~~March 31,~~June 30, 2020

¨☐ 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~~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

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, without par value	CAC	The NASDAQ Stock Market LLC

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 every Interactive Data File required to be submitted 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 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 filerx	☒
Non-accelerated filer¨	☐	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 ~~April 30,~~July 31, 2020: Common stock (no par value) ~~14,954,765~~14,963,170 shares.

CAMDEN NATIONAL CORPORATION

FORM 10-Q FOR THE QUARTER ENDED ~~MARCH 31,~~JUNE 30, 2020

TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT



		PAGE
PART I. FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS

	Consolidated Statements of Condition (unaudited) - ~~March 31,~~June 30, 2020 and December 31, 2019	3

	Consolidated Statements of Income (unaudited) - Three and Six Months Ended ~~March 31,~~June 30, 2020 and 2019	4

	Consolidated Statements of Comprehensive Income (unaudited) - Three and Six Months Ended ~~March 31,~~June 30, 2020 and 2019	5

	Consolidated Statements of Changes in Shareholders’ Equity (unaudited) - Three and Six Months Ended ~~March 31,~~June 30, 2020 and 2019	6

	Consolidated Statements of Cash Flows (unaudited) - ~~Three~~Six Months Ended ~~March 31,~~June 30, 2020 and 2019	7

	Notes to the Unaudited Consolidated Financial Statements	8

ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	4144

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	6772

ITEM 4.	CONTROLS AND PROCEDURES	6873

PART II. OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	6974

ITEM 1A.	RISK FACTORS	6974

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	7075

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	7075

ITEM 4.	MINE SAFETY DISCLOSURES	7075

ITEM 5.	OTHER INFORMATION	7075

ITEM 6.	EXHIBITS	7075

SIGNATURES		7176

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)		March 31, 2020			December 31, 2019				June 30, 2020			December 31, 2019
ASSETS
Cash and due from banks		$	32,477		$	39,586			$	56,292		$	39,586
Interest-bearing deposits in other banks (including restricted cash)		21,732			36,050				99,536			36,050
Total cash, cash equivalents and restricted cash		54,209			75,636				155,828			75,636
Investments:
Available-for-sale securities, at fair value (book value of $931,876 and $913,978, respectively)		960,131			918,118
Held-to-maturity securities, at amortized cost (fair value of $1,358 and $1,359, respectively)		1,300			1,302
Available-for-sale securities, at fair value (book value of $1,010,325 and $913,978, respectively)									1,047,663			918,118
Held-to-maturity securities, at amortized cost (fair value of $1,388 and $1,359, respectively)									1,299			1,302
Other investments		15,056			13,649				15,127			13,649
Total investments		976,487			933,069				1,064,089			933,069
Loans held for sale, at fair value (book value of $28,356 and $11,915, respectively)		27,730			11,854
Loans held for sale, at fair value (book value of $35,909 and $11,915, respectively)									36,590			11,854
Loans		3,157,762			3,095,023				3,326,041			3,095,023
Less: allowance for loan losses		(26,521		)	(25,171		)		(35,539		)	(25,171		)
Net loans		3,131,241			3,069,852				3,290,502			3,069,852
Goodwill		94,697			94,697				94,697			94,697
Core deposit intangible assets		3,355			3,525				3,184			3,525
Bank-owned life insurance		93,033			92,344				93,647			92,344
Premises and equipment, net		41,131			41,836				41,109			41,836
Deferred tax assets		10,708			16,823				10,705			16,823
Other assets		161,948			89,885				168,665			89,885
Total assets		$	4,594,539		$	4,429,521			$	4,959,016		$	4,429,521
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits:
Non-interest checking		$	536,243		$	552,590			$	712,146		$	552,590
Interest checking		1,147,653			1,153,203				1,349,456			1,153,203
Savings and money market		1,146,038			1,119,193				1,278,603			1,119,193
Certificates of deposit		545,013			521,752				431,376			521,752
Brokered deposits		188,758			191,005				224,777			191,005
Total deposits		3,563,705			3,537,743				3,996,358			3,537,743
Short-term borrowings		326,722			268,809				245,998			268,809
Long-term borrowings		35,000			10,000				25,000			10,000
Subordinated debentures		59,155			59,080				59,231			59,080
Accrued interest and other liabilities		117,277			80,474				125,962			80,474
Total liabilities		4,101,859			3,956,106				4,452,549			3,956,106
Commitments and Contingencies
Shareholders’ Equity
Common stock, no par value: authorized 40,000,000 shares, issued and outstanding 14,951,597 and 15,144,719 on March 31, 2020 and December 31, 2019, respectively		131,498			139,103
Common stock, no par value: authorized 40,000,000 shares, issued and outstanding 14,963,041 and 15,144,719 on June 30, 2020 and December 31, 2019, respectively									131,981			139,103
Retained earnings		349,141			340,580				355,130			340,580
Accumulated other comprehensive income (loss):
Net unrealized gain on available-for-sale debt securities, net of tax		22,180			3,250				29,310			3,250
Net unrealized loss on cash flow hedging derivative instruments, net of tax		(6,802		)	(6,048		)		(6,750		)	(6,048		)
Net unrecognized loss on postretirement plans, net of tax		(3,337		)	(3,470		)		(3,204		)	(3,470		)
Total accumulated other comprehensive income (loss)		12,041			(6,268		)		19,356			(6,268		)
Total shareholders’ equity		492,680			473,415				506,467			473,415
Total liabilities and shareholders’ equity		$	4,594,539		$	4,429,521			$	4,959,016		$	4,429,521

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

CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months Ended
March 31,
(In thousands, except number of shares and per share data) 2020 2019
Interest Income

Interest and fees on loans $ 34,045
$ 35,721
Taxable interest on investments 4,878
4,994
Nontaxable interest on investments 787
644
Dividend income 168
230
Other interest income 335
420
Total interest income 40,213
42,009
Interest Expense

Interest on deposits 6,662
8,423
Interest on borrowings 838
974
Interest on subordinated debentures 887
717
Total interest expense 8,387
10,114
Net interest income 31,826
31,895
Provision for credit losses 1,775
744
Net interest income after provision for credit losses 30,051
31,151
Non-Interest Income

Mortgage banking income, net 3,534
1,252
Debit card income 2,141
2,010
Service charges on deposit accounts 2,012
2,023
Income from fiduciary services 1,502
1,392
Bank-owned life insurance 689
594
Brokerage and insurance commissions 657
585
Customer loan swap fees 114
525
Other income 754
1,008
Total non-interest income 11,403
9,389
Non-Interest Expense

Salaries and employee benefits 14,327
12,978
Furniture, equipment and data processing 2,790
2,680
Net occupancy costs 2,003
1,914
Debit card expense 934
823
Consulting and professional fees 783
813
Amortization of core deposit intangible assets 170
176
Regulatory assessments 162
472
Other real estate owned and collection costs (recoveries), net 101
(307 )
Other expenses 3,291
3,234
Total non-interest expense 24,561
22,783
Income before income tax expense 16,893
17,757
Income Tax Expense 3,400
3,484
Net Income $ 13,493
$ 14,273
Per Share Data

Basic earnings per share $ 0.89
$ 0.91
Diluted earnings per share $ 0.89
$ 0.91
Weighted average number of common shares outstanding 15,103,176
15,592,141
Diluted weighted average number of common shares outstanding 15,147,218
15,634,126
Cash dividends declared per share $ 0.33
$ 0.30

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands, except number of shares and per share data)	2020		2019		2020		2019
Interest Income
Interest and fees on loans	$	33,120	$	36,092	$	67,165	$	71,813
Taxable interest on investments	4,883		4,941		9,761		9,935
Nontaxable interest on investments	828		624		1,615		1,268
Dividend income	167		174		335		404
Other interest income	180		606		515		1,026
Total interest income	39,178		42,437		79,391		84,446
Interest Expense
Interest on deposits	3,392		9,156		10,054		17,579
Interest on borrowings	359		885		1,197		1,859
Interest on subordinated debentures	888		823		1,775		1,540
Total interest expense	4,639		10,864		13,026		20,978
Net interest income	34,539		31,573		66,365		63,468
Provision for credit losses	9,398		1,173		11,173		1,917
Net interest income after provision for credit losses	25,141		30,400		55,192		61,551
Non-Interest Income
Mortgage banking income, net	4,691		1,742		8,225		2,994
Debit card income	2,391		2,281		4,532		4,291
Service charges on deposit accounts	1,337		2,209		3,349		4,232
Income from fiduciary services	1,603		1,545		3,105		2,937
Bank-owned life insurance	614		603		1,303		1,197
Brokerage and insurance commissions	622		732		1,279		1,317
Customer loan swap fees	57		285		171		810
Net gain on sale of securities	—		27		—		27
Other income	745		613		1,499		1,621
Total non-interest income	12,060		10,037		23,463		19,426
Non-Interest Expense
Salaries and employee benefits	13,627		13,461		27,954		26,439
Furniture, equipment and data processing	2,710		2,723		5,500		5,403
Net occupancy costs	1,997		1,639		4,000		3,553
Consulting and professional fees	1,181		974		1,964		1,787
Debit card expense	878		883		1,812		1,706
Regulatory assessments	299		437		461		909
Amortization of core deposit intangible assets	171		176		341		352
Other real estate owned and collection costs, net	98		409		199		102
Other expenses	2,548		3,256		5,839		6,490
Total non-interest expense	23,509		23,958		48,070		46,741
Income before income tax expense	13,692		16,479		30,585		34,236
Income Tax Expense	2,752		3,275		6,152		6,759
Net Income	$	10,940	$	13,204	$	24,433	$	27,477
Per Share Data
Basic earnings per share	$	0.73	$	0.85	$	1.62	$	1.76
Diluted earnings per share	$	0.73	$	0.85	$	1.62	$	1.76
Weighted average number of common shares outstanding	14,959,851		15,519,827		15,031,525		15,555,770
Diluted weighted average number of common shares outstanding	14,997,611		15,559,760		15,069,132		15,595,654
Cash dividends declared per share	$	0.33	$	0.30	$	0.66	$	0.60

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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
Three Months Ended
March 31,
(In thousands) 2020 2019
Net Income $ 13,493
$ 14,273
Other comprehensive income:
Net change in unrealized gain on available-for-sale securities, net of tax 18,930
10,899
Net change in unrealized loss on cash flow hedging derivatives, net of tax (754 )
(831 )
Net gain on postretirement plans, net of tax 133
48
Other comprehensive income 18,309
10,116
Comprehensive Income $ 31,802
$ 24,389

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
(In thousands)	2020		2019			2020			2019
Net Income	$	10,940	$	13,204		$	24,433		$	27,477
Other comprehensive income:
Net change in unrealized gain on available-for-sale securities, net of tax	7,130		10,839			26,060			21,738
Net change in unrealized loss on cash flow hedging derivatives, net of tax	52		(1,046		)	(702		)	(1,877		)
Net gain on postretirement plans, net of tax	133		48			266			96
Other comprehensive income	7,315		9,841			25,624			19,957
Comprehensive Income	$	18,255	$	23,045		$	50,057		$	47,434

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

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)

	Three Months Ended
	Common Stock					Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
(In thousands, except number of shares and per share data)	Shares Outstanding		Amount			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
Balance at March 31, 2019	15,560,565		$	156,152		$	311,870		$	(14,304	)	$	453,718
Net income	—		—			13,204			—			13,204
Other comprehensive income, net of tax	—		—			—			9,841			9,841
Stock-based compensation expense	—		477			—			—			477
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings	8,136		(26		)	—			—			(26		)
Common stock repurchased	(111,221	)	(4,802		)	—			—			(4,802		)
Cash dividends declared ($0.30 per share)	—		—			(4,653		)	—			(4,653		)
Balance at June 30, 2019	15,457,480		$	151,801		$	320,421		$	(4,463	)	$	467,759
Balance at March 31, 2020	14,951,597		$	131,498		$	349,141		$	12,041		$	492,680
Net income	—		—			10,940			—			10,940
Other comprehensive income, net of tax	—		—			—			7,315			7,315
Stock-based compensation expense	—		530			—			—			530
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings	11,444		(47		)	—			—			(47		)
Cash dividends declared ($0.33 per share)	—		—			(4,951		)	—			(4,951		)
Balance at June 30, 2020	14,963,041		$	131,981		$	355,130		$	19,356		$	506,467

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)

	Three Months Ended																	Six Months Ended
	Common Stock					Retained Earnings				Accumulated Other Comprehensive Income (Loss)				Total Shareholders’ Equity				Common Stock						Retained Earnings				Accumulated Other Comprehensive Income (Loss)				Total Shareholders’ Equity
(In thousands, except number of shares and per share data)	Shares Outstanding		Amount							Accumulated Other Comprehensive Income (Loss)			Shares Outstanding					Amount						Retained Earnings				Accumulated Other Comprehensive Income (Loss)				Total Shareholders’ Equity
Balance at December 31, 2018	15,591,914		$	158,215		Retained Earnings		$	302,030			$	(24,420	Total Shareholders’ Equity	)		$	435,825		15,591,914			$	158,215			$	302,030			$	(24,420	)		$	435,825
Cumulative-effect adjustment upon adoption of ASU 2016-02⁽¹⁾	—		—			254				—				254				—		—				254				—				254
Net income	—		—			14,273				—				14,273				—		—				27,477				—				27,477
Other comprehensive income, net of tax	—		—			—				10,116				10,116				—		—				—				19,957				19,957
Stock-based compensation expense	—		458			—				—				458				—		935				—				—				935
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings	24,208		(215		)	—				—				(215		)		32,344		(241		)		—				—				(241		)
Common stock repurchased	(55,557	)	(2,306		)	—				—				(2,306		)		(166,778	)	(7,108		)		—				—				(7,108		)
Cash dividends declared ($0.30 per share)	—		—			(4,687		)		—				(4,687		)
Balance at March 31, 2019	15,560,565		$	156,152		$	311,870			$	(14,304	)		$	453,718
Cash dividends declared ($0.60 per share)																		—		—				(9,340		)		—				(9,340		)
Balance at June 30, 2019																		15,457,480		$	151,801			$	320,421			$	(4,463	)		$	467,759
Balance at December 31, 2019	15,144,719		$	139,103		$	340,580			$	(6,268	)		$	473,415			15,144,719		$	139,103			$	340,580			$	(6,268	)		$	473,415
Net income	—		—			13,493				—				13,493				—		—				24,433				—				24,433
Other comprehensive income, net of tax	—		—			—				18,309				18,309				—		—				—				25,624				25,624
Stock-based compensation expense	—		421			—				—				421				—		951				—				—				951
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings	23,909		(53		)	—				—				(53		)		35,353		(100		)		—				—				(100		)
Common stock repurchased	(217,031	)	(7,973		)	—				—				(7,973		)		(217,031	)	(7,973		)		—				—				(7,973		)
Cash dividends declared ($0.33 per share)	—		—			(4,932		)		—				(4,932		)
Balance at March 31, 2020	14,951,597		$	131,498		$	349,141			$	12,041			$	492,680
Cash dividends declared ($0.66 per share)																		—		—				(9,883		)		—				(9,883		)
Balance at June 30, 2020																		14,963,041		$	131,981			$	355,130			$	19,356			$	506,467


(1)	Effective January 1, 2019, the Company adopted ASU 2016-02, Leases, on a modified-retrospective basis.

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)

		Three Months Ended March 31,							Six Months Ended June 30,
(In thousands)		2020			2019				2020			2019
Operating Activities
Net Income		$	13,493		$	14,273			$	24,433		$	27,477
Adjustments to reconcile net income to net cash used in operating activities:
Originations of mortgage loans held for sale		(85,676		)	(32,405		)		(194,149		)	(86,351		)
Proceeds from the sale of mortgage loans		70,711			28,834				176,250			79,575
Gain on sale of mortgage loans, net of origination costs		(1,476		)	(826		)		(6,095		)	(1,998		)
Provision for credit losses		1,775			744				11,173			1,917
Depreciation and amortization expense		969			922				1,892			1,901
Investment securities amortization and accretion, net		742			660				1,755			1,371
Stock-based compensation expense		421			458				951			935
Amortization of intangible assets		170			176				341			352
Purchase accounting accretion, net		(244		)	(477		)		(617		)	(817		)
Net increase in derivative collateral									(30,820		)	(26,050		)
Increase in other assets		(34,101		)	(10,710		)		(7,789		)	(4,245		)
Increase (decrease) in other liabilities		221			(6,291		)		3,188			(374		)
Net cash used in operating activities		(32,995		)	(4,642		)		(19,487		)	(6,307		)
Investing Activities
Proceeds from sales and maturities of available-for-sale securities		40,188			26,355				108,396			115,715
Purchase of available-for-sale securities		(58,826		)	(26,749		)		(206,496		)	(98,755		)
Net increase in loans		(62,982		)	(16,734		)		(231,369		)	(74,556		)
Purchase of Federal Home Loan Bank stock		(9,161		)	(2,012		)		(9,232		)	(3,656		)
Proceeds from sale of Federal Home Loan Bank stock		7,754			5,691				7,754			6,706
Purchase of premises and equipment		(1,284		)	(1,583		)		(2,261		)	(1,896		)
Recoveries of previously charged-off loans		68			75				170			133
Proceeds from the sale of other real estate owned									—			554
Net cash used in investing activities		(84,243		)	(14,957		)		(333,038		)	(55,755		)
Financing Activities
Net increase in deposits		25,966			113,740				458,624			127,169
Net proceeds from (repayments of) borrowings less than 90 days		57,913			(14,687		)
Net repayments of borrowings less than 90 days									(22,811		)	(29,221		)
Proceeds from Federal Home Loan Bank long-term advances		25,000			—				25,000			—
Repayments of Federal Home Loan Bank long-term advances									(10,000		)	—
Common stock repurchases		(7,973		)	(1,957		)		(7,973		)	(6,997		)
Exercise of stock options and issuance of restricted stock, net of repurchase for tax withholdings		(53		)	(215		)		(100		)	(241		)
Cash dividends paid on common stock		(5,009		)	(4,687		)		(9,954		)	(9,358		)
Finance lease payments		(33		)	(26		)		(69		)	(53		)
Net cash provided by financing activities		95,811			92,168				432,717			81,299
Net (decrease) increase in cash, cash equivalents and restricted cash		(21,427		)	72,569
Net increase in cash, cash equivalents and restricted cash									80,192			19,237
Cash, cash equivalents, and restricted cash at beginning of period		75,636			66,999				75,636			66,999
Cash, cash equivalents and restricted cash at end of period		$	54,209		$	139,568			$	155,828		$	86,236
Supplemental information
Interest paid		$	8,555		$	9,738			$	13,528		$	20,214
Income taxes paid		126			91				279			5,351
Transfer from loans and premises to other real estate owned									24			543
Unsettled common stock repurchase		—			349				—			111
Transfer from loans to other real estate owned		—			543

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

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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 (the "Company") as of ~~March 31,~~June 30, 2020 and December 31, 2019, the consolidated statements of income for the three and six months ended ~~March 31,~~June 30, 2020 and 2019, the consolidated statements of comprehensive income for the three and six months ended ~~March 31,~~June 30, 2020 and 2019, the consolidated statements of changes in shareholders' equity for the three and six months ended ~~March 31,~~June 30, 2020 and 2019, and the consolidated statements of cash flows for the ~~three~~six months ended~~March 31,~~June 30, 2020 and 2019. The consolidated financial statements include the accounts of the Company and Camden National Bank (the "Bank"), a wholly-owned subsidiary of the Company (which includes the consolidated accounts of Healthcare Professional Funding Corporation ("HPFC"), Property A, Inc. and Property P, Inc.). All intercompany accounts and transactions have been eliminated in consolidation. Assets held by the Bank in a fiduciary capacity, through Camden National Wealth Management, a division of the Bank, are not assets of the Company and, therefore, are not included in the consolidated statements of condition. The Company also owns 100% of the common stock of Camden Capital Trust A and Union Bankshares Capital Trust I. These entities are unconsolidated subsidiaries of the Company. Certain reclassifications have been made to prior period amounts to conform to the current period presentation. Such reclassifications did not impact net income or shareholders' equity as previously reported. Net income reported for the three and six months ended ~~March 31,~~June 30, 2020, 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 Company's Annual Report on Form 10-K for the year ended December 31, 2019.

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



AFS:	Available-for-sale	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	IRS:	Internal Revenue Service
AOCI:	Accumulated other comprehensive income (loss)	LIBOR:	London Interbank Offered Rate
ASC:	Accounting Standards Codification	LTIP:	Long-Term Performance Share Plan
ASU:	Accounting Standards Update	Management ALCO:	Management Asset/Liability Committee
Bank:	Camden National Bank, a wholly-owned subsidiary of Camden National Corporation	MBS:	Mortgage-backed security
BOLI:	Bank-owned life insurance	MSPP:	Management Stock Purchase Plan
Board ALCO:	Board of Directors' Asset/Liability Committee	N/A:	Not applicable
CCTA:	Camden Capital Trust A, an unconsolidated entity formed by Camden National Corporation	N.M.:	Not meaningful
CDs:	Certificate of deposits	OCC:	Office of the Comptroller of the Currency
Company:	Camden National Corporation	OCI:	Other comprehensive income (loss)
CMO:	Collateralized mortgage obligation	OREO:	Other real estate owned
DCRP:	Defined Contribution Retirement Plan	OTTI:	Other-than-temporary impairment
EPS:	Earnings per share	SBA:	Small Business Administration
FASB:	Financial Accounting Standards Board	SERP:	Supplemental executive retirement plans
~~FASB:~~FDIC:	~~Financial Accounting Standards Board~~Federal Deposit Insurance Corporation	Tax Act:	Tax Cuts and Jobs Act of 2017, enacted on December 22, 2017
~~FDIC:~~FHLB:	Federal ~~Deposit Insurance Corporation~~Home Loan Bank	TDR:	Troubled-debt restructured loan
~~FHLB:~~FHLBB:	Federal Home Loan Bank of Boston	UBCT:	Union Bankshares Capital Trust I, an unconsolidated entity formed by Union Bankshares Company that was subsequently acquired by Camden National Corporation
~~FHLBB:~~	~~Federal Home Loan Bank of Boston~~	~~U.S.:~~	~~United States of America~~
FRB:	Federal Reserve System Board of Governors	~~2003 Plan:~~U.S.:	~~2003 Stock Option and Incentive Plan~~United States of America
FRBB:	Federal Reserve Bank of Boston	~~2012~~2003 Plan:	~~2012 Equity~~2003 Stock Option and Incentive Plan
GAAP:	Generally accepted accounting principles in the United States	2012 Plan:	2012 Equity and Incentive Plan

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Standards Adopted in 2020

The Company adopted and updated its accounting policy for the following accounting standard(s) that became effective January 1, 2020 and were applied to the Company's three and six months ended ~~March 31,~~June 30, 2020 interim consolidated financial statements:

Goodwill. The Company adopted ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"), effective January 1, 2020.In accordance with ASU 2017-04, the Company will recognize an impairment of goodwill to the extent the carrying value of a reporting unit exceeds its fair value ("Step 1"). ASU 2017-04 eliminated the need to calculate the implied fair value of goodwill for a reporting unit and recognize an impairment to the extent the carrying value exceeded its implied fair value ("Step 2"). The Company adopted ASU 2017-04 prospectively. Upon adoption, ASU 2017-04 did not have a material impact on the Company's consolidated financial statements. Under the new accounting guidance the Company is more likely to record an impairment of goodwill, as there are now less requirements.

As described within the Company's Annual Report on Form 10-K for the year ended December 31, 2019, the Company last evaluated goodwill for impairment as of November 30, 2019 and determined goodwill was not impaired. In light of the COVID-19 pandemic and its impact on global, national and local markets and economy, in the ~~Company assessed if a triggering event that would require an interim goodwill impairment assessment occurred as~~second quarter of ~~March 31, 2020. Through its assessment,~~2020, the Company determined that a triggering event had ~~not~~ occurred and an interim goodwill impairment assessment was necessary. A quantitative assessment was performed using various valuation methodologies as of ~~March~~May 31, 2020. ~~The~~Through its assessment, the Company ~~will continue to monitor~~concluded that the ~~impact and effects~~indicated fair value of the ~~pandemic on~~reporting unit exceeded its ~~business~~book value, and, ~~assess~~thus goodwill ~~for impairment should a triggering event occur.~~was not impaired as of May 31, 2020. At June 30, 2020, the Company considered whether there were any new events or information that would materially change its quantitative analysis performed as of May 31, 2020, and there were none.

Accounting Standards Issued

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

ASU No. 2016-13, Financial Instruments - Credit Losses(Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), updated by ASU No. 2018-19 - Financial Instruments - Credit Losses (Topic 326): Codification improvements to Topic 326 ("ASU 2018-19"), and ASU No. 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief ("ASU 2019-05").The FASB issued ASU 2016-13, commonly referred to as “CECL,” to require more timely recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.

On March 27, 2020, the Coronavirus, Relief, and Economic Security Act ("CARES Act") was signed into law in response to the COVID-19 pandemic. Under Section 4014 of the CARES Act, the Company iswas permitted to delay its compliance with CECL until the earlier of (1) the date on which the national emergency concerning the COVID-19 pandemic that the President of the United States declared on March 15, 2020 terminates, or (2) December 31, 2020. The Company intends to delay the implementation of CECL until December 31, 2020, unless earlier implementation is required. The Company opted to delay its compliance with CECL so it could devote its resources to serve its customers impacted by the pandemic and support the roll-out of the various federal relief programs introduced by the CARES ~~Act, such as the Paycheck Protection Program.~~Act. When ~~adopted,~~implemented, the Company will adopt CECL using a modified-retrospective approach as of January 1, 2020, which is the original effective date of the standard for the Company, and will record a cumulative-effect adjustment to retained earnings.

The measurement of expected credit losses under CECL is applicable to financial assets measured at amortized cost, including loan receivables and HTM debt securities. CECL also applies to certain off-balance sheet credit exposures, such as loan commitments, standby letters of credit, financial guarantees and other similar investments. In addition, ASU 2016-13 made changes to the accounting for AFS debt securities, and a company will no longer immediately write-down a security for any impairment deemed to be a credit loss. Instead, a company will be required to present credit losses on AFS debt securities as an allowance on investments if it does not intend to sell the impaired security or it is not more-likely-than-not required to sell the impaired security before recovery of its amortized cost basis.

The Company assembled a cross-functional project team that met regularly to address the additional data requirements, to determine the approach for implementation, and to identify new internal controls over enhanced accounting processes for estimating the allowance for credit losses (“ACL”). This included assessing the adequacy of existing loan and loss data, as well as assessing models for default and loss estimates. The Company ~~is currently working to finalize its~~engaged an independent third party ~~independent~~to review ~~of the Company's~~its CECL model, ~~mechanics~~methodologies and certain key assumptions, internal CECL policy, and internal ~~control~~controls framework.

The Company has completed the development of its process for estimation of the allowance for loan losses and off-balance sheet exposures. To estimate the allowance for loan losses, the Company will primarily utilize a discounted cash flow model that contains additional assumptions to calculate credit losses over the estimated life of financial assets and will include the impact of forecasted economic conditions. To estimate the off-balance sheet credit exposures, which are primarily unfunded loan commitments, the Company will apply certain assumptions, including, but not limited to, a funding assumption and expected loss rate.

The Company ~~has performed parallel calculations~~estimates that as of June 30, 2020, assuming adoption of CECL as of January 1, 2020, its ACL would have been $40.0 million to $44.0 million, or 1.20% to 1.32% of total loans at June 30, 2020, and as of December 31, 2019 and March 31, 2020 comparing the ALL calculated under current accounting guidance, commonly referred to as the “incurred model,” to the ACL calculated under CECL. Had CECL been adopted as of January 1, 2020, the Company estimates that its ACL would have ~~increased $2.0~~been $27.0 million to ~~$4.0~~$31.0 million, ~~over the ALL reported as~~or 0.87% to 1.00% of total loans at December 31, ~~2019, and increased $2.5~~2019. Based on these ACL estimates, the Company's provision for credit losses would range from $9.0 million to ~~$8.7~~$17.0 million ~~over~~for the ~~ALL reported~~six months ended June 30, 2020 under CECL, as compared to a provision for credit losses recorded under the incurred methodology of ~~March 31,~~$11.2 million for the six months ended June 30, 2020.

In March 2020, the regulatory banking agencies issued an interim final rule that allows banking institutions that implement CECL during 2020 to delay for two years the estimated impact of CECL on regulatory capital, followed by a three-year transition period. As an alternative, banking institutions may elect to forego the provided relief under the interim final rule, and may use the regulatory capital transition rule issued by the regulatory banking agencies in February 2019 that provided a three-year phase in option, effective upon adoption of CECL. The Company ~~is currently assessing its options at this time, and~~anticipates that it will ~~make its election during~~elect to delay the capital impact of CECL in accordance with the interim final rule issued in March 2020 ~~calendar quarter in which it adopts~~upon adoption of CECL.

NOTE 3 – INVESTMENTS

AFS and HTM Investments

The following table summarizes the amortized cost and estimated fair values of AFS and HTM investments, as of the dates indicated:



(In thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
June 30, 2020
AFS Investments (carried at fair value):
Obligations of states and political subdivisions	$	121,347	$	5,973	$	(193	)	$	127,127
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	516,580		19,687		(42		)	536,225
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	361,860		11,781		(109		)	373,532
Subordinated corporate bonds	10,538		285		(44		)	10,779
Total AFS investments	$	1,010,325	$	37,726	$	(388	)	$	1,047,663
HTM Investments (carried at amortized cost):
Obligations of states and political subdivisions	$	1,299	$	89	$	—		$	1,388
Total HTM investments	$	1,299	$	89	$	—		$	1,388
December 31, 2019
AFS Investments (carried at fair value):
Obligations of states and political subdivisions	$	115,632	$	2,779	$	(328	)	$	118,083
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	462,593		3,398		(2,605		)	463,386
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	325,200		3,183		(2,478		)	325,905
Subordinated corporate bonds	10,553		191		—			10,744
Total AFS investments	$	913,978	$	9,551	$	(5,411	)	$	918,118
HTM Investments (carried at amortized cost):
Obligations of states and political subdivisions	$	1,302	$	57	$	—		$	1,359
Total HTM investments	$	1,302	$	57	$	—		$	1,359

(In thousands)
Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Fair
Value
March 31, 2020

AFS Investments (carried at fair value):
Obligations of states and political subdivisions $ 123,893
$ 3,324
$ (337 ) $ 126,880
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises 472,508
15,618
(77 ) 488,049
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises 324,929
9,698
(12 ) 334,615
Subordinated corporate bonds 10,546
116
(75 ) 10,587
Total AFS investments $ 931,876
$ 28,756
$ (501 ) $ 960,131
HTM Investments (carried at amortized cost):
Obligations of states and political subdivisions $ 1,300
$ 58
$ —
$ 1,358
Total HTM investments $ 1,300
$ 58
$ —
$ 1,358
December 31, 2019

AFS Investments (carried at fair value):
Obligations of states and political subdivisions $ 115,632
$ 2,779
$ (328 ) $ 118,083
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises 462,593
3,398
(2,605 ) 463,386
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises 325,200
3,183
(2,478 ) 325,905
Subordinated corporate bonds 10,553
191
—
10,744
Total AFS investments $ 913,978
$ 9,551
$ (5,411 ) $ 918,118
HTM Investments (carried at amortized cost):
Obligations of states and political subdivisions $ 1,302
$ 57
$ —
$ 1,359
Total HTM investments $ 1,302
$ 57
$ —
$ 1,359

The net unrealized gain on AFS investments reported within AOCI at ~~March 31,~~June 30, 2020, was $~~22.2~~29.3 million, net of a deferred tax liability of $~~6.1~~8.0 million. The net unrealized gain on AFS investments reported within AOCI at December 31, 2019, was $3.3 million, net of a deferred tax liability of $890,000.

Impaired AFS and HTM Investments:

Quarterly, management reviews the Company’s 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 on AFS and HTM investments that were in a continuous loss position that was considered temporary, by length of time that an individual security in each category has been in a continuous loss position as of the dates indicated:



		Less Than 12 Months					12 Months or More					Total
(In thousands, except number of holdings)	Number of Holdings	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
June 30, 2020
AFS Investments:
Obligations of states and political subdivisions	4	$	8,249	$	(193	)	$	—	$	—		$	8,249	$	(193	)
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	8	16,635		(27		)	1,602		(15		)	18,237		(42		)
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	5	22,156		(109		)	—		—			22,156		(109		)
Subordinated corporate bonds	2	1,956		(44		)	—		—			1,956		(44		)
Total AFS investments	19	$	48,996	$	(373	)	$	1,602	$	(15	)	$	50,598	$	(388	)
December 31, 2019
AFS Investments:
Obligations of states and political subdivisions	11	$	30,459	$	(328	)	$	—	$	—		$	30,459	$	(328	)
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	59	162,964		(1,850		)	63,633		(755		)	226,597		(2,605		)
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	35	66,549		(733		)	68,614		(1,745		)	135,163		(2,478		)
Total AFS investments	105	$	259,972	$	(2,911	)	$	132,247	$	(2,500	)	$	392,219	$	(5,411	)

Less Than 12 Months 12 Months or More Total
(In thousands, except number of holdings)
Number of
Holdings

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses
March 31, 2020

AFS Investments:
Obligations of states and political subdivisions 168
$ 20,029
$ (337 ) $ —
$ —
$ 20,029
$ (337 )
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises 144
7,626
(34 ) 1,638
(43 ) 9,264
(77 )
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises 86
5,180
(12 ) —
—
5,180
(12 )
Subordinated corporate bonds 8
4,925
(75 ) —
—
4,925
(75 )
Total AFS investments 406
$ 37,760
$ (458 ) $ 1,638
$ (43 ) $ 39,398
$ (501 )
December 31, 2019

AFS Investments:
Obligations of states and political subdivisions 11
$ 30,459
$ (328 ) $ —
$ —
$ 30,459
$ (328 )
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises 59
162,964
(1,850 ) 63,633
(755 ) 226,597
(2,605 )
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises 35
66,549
(733 ) 68,614
(1,745 ) 135,163
(2,478 )
Total AFS investments 105
$ 259,972
$ (2,911 ) $ 132,247
$ (2,500 ) $ 392,219
$ (5,411 )

At ~~March 31,~~June 30, 2020 and December 31, 2019, unrealized losses within the AFS and HTM investment portfolios were reflective of current interest rates in excess of the yield received on debt investments, and were not indicative of an overall change in credit quality or other factors. At ~~March 31,~~June 30, 2020 and December 31, 2019, gross unrealized losses on the Company's AFS and HTM investments were 1% of their respective fair values.

At ~~March 31,~~June 30, 2020, the Company had the intent and ability to retain its debt investments in an unrealized loss position until the decline in value has recovered.

Sale of AFS Investments:

~~For~~The following table details the ~~three months ended March 31, 2020 and 2019,~~Company's sales of AFS investments for the periods indicated below:



	Three Months Ended June 30,					Six Months Ended June 30,
(In thousands)	2020		2019			2020		2019
Proceeds from sales of investments⁽¹⁾	$	—	$	45,826		$	—	$	45,826
Gross realized gains	—		371			—		371
Gross realized losses	—		(344		)	—		(344		)

(1) The Company ~~did not sell~~had 0t previously recorded any ~~AFS investments.~~OTTI on these investments sold.

AFS and HTM Investments Pledged:

At ~~March 31,~~June 30, 2020 and December 31, 2019, AFS and HTM investments with an amortized cost of $~~712.4~~624.9 million and $709.0 million and estimated fair values of $~~735.3~~650.2 million and $712.4 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:

The amortized cost and estimated fair values of the Company's AFS and HTM investments by contractual maturity at ~~March 31,~~June 30, 2020, 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.


(In thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
AFS Investments
Due in one year or less	$	—	$	—	$	4,439	$	4,487
Due after one year through five years	76,517		78,367		64,370		66,655
Due after five years through ten years	215,515		223,272		225,186		238,559
Due after ten years	639,844		658,492		716,330		737,962
Total	$	931,876	$	960,131	$	1,010,325	$	1,047,663
HTM Investments
Due in one year or less	$	—	$	—	$	—	$	—
Due after one year through five years	511		532		511		542
Due after five years through ten years	789		826		788		846
Due after ten years	—		—		—		—
Total	$	1,300	$	1,358	$	1,299	$	1,388

Other Investments

The following table summarizes the 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 consolidated statements of condition, as of the dates indicated:



(In thousands)	Cost		Unrealized Gains		Unrealized Losses		Fair Value / Carrying Value
June 30, 2020
Equity securities - bank stock (carried at fair value)	$	544	$	1,130	$	—	$	1,674
FHLBB (carried at cost)	8,079		—		—		8,079
FRB (carried at cost)	5,374		—		—		5,374
Total other investments	$	13,997	$	1,130	$	—	$	15,127
December 31, 2019
Equity securities - bank stock (carried at fair value)	$	544	$	1,130	$	—	$	1,674
FHLBB (carried at cost)	6,601		—		—		6,601
FRB (carried at cost)	5,374		—		—		5,374
Total other investments	$	12,519	$	1,130	$	—	$	13,649

(In thousands) Cost
Unrealized
Gains

Unrealized
Losses

Fair Value /
Carrying Value
March 31, 2020

Equity securities - bank stock (carried at fair value) $ 544
$ 1,130
$ —
$ 1,674
FHLBB (carried at cost) 8,008
—
—
8,008
FRB (carried at cost) 5,374
—
—
5,374
Total other investments $ 13,926
$ 1,130
$ —
$ 15,056
December 31, 2019

Equity securities - bank stock (carried at fair value) $ 544
$ 1,130
$ —
$ 1,674
FHLBB (carried at cost) 6,601
—
—
6,601
FRB (carried at cost) 5,374
—
—
5,374
Total other investments $ 12,519
$ 1,130
$ —
$ 13,649

For the three months ended ~~March 31,~~June 30, 2020 and 2019, the Company recognized an unrealized loss of $0 and $159,000, respectively, due to the change in fair value of its bank stock equity securities, which was presented within other income on the consolidated statements of income. For the six months ended June 30, 2020 and 2019, the Company recognized an unrealized gain of $0 and ~~$243,000,~~$84,000, respectively, due to the change in fair value of its bank stock equity securities, which was presented within other income on the consolidated statements of income.

The Company did not record any OTTI on its FHLBB and FRB stock for the three and six months ended ~~March 31,~~June 30, 2020 and 2019.

NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES

The composition of the Company’s loan portfolio, excluding residential loans held for sale, was as follows for the dates indicated:



(In thousands)	June 30, 2020		December 31, 2019
Commercial real estate	$	1,310,985	$	1,243,397
Commercial	411,225		421,108
SBA PPP	218,803		—
HPFC	16,961		21,593
Residential real estate	1,054,333		1,070,374
Home equity	290,815		312,779
Consumer	22,919		25,772
Total loans	$	3,326,041	$	3,095,023

(In thousands) March 31,
2020 December 31,
2019
Residential real estate $ 1,064,212
$ 1,070,374
Commercial real estate 1,299,860
1,243,397
Commercial 444,830
421,108
Home equity 306,226
312,779
Consumer 24,377
25,772
HPFC 18,257
21,593
Total loans $ 3,157,762
$ 3,095,023

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 for the dates indicated:



(In thousands)	June 30, 2020			December 31, 2019
Net unamortized fair value mark discount on acquired loans	$	(1,970	)	$	(2,593	)
Net unamortized loan (fees) origination costs⁽¹⁾	(4,045		)	3,111
Total	$	(6,015	)	$	518


(1)	The change in net unamortized loan (fees) origination costs from December 31, 2019 to June 30, 2020, was primarily driven by origination fees capitalized upon origination of SBA PPP loans during the second quarter of 2020. As of June 30, 2020, unamortized loan fees on originated SBA PPP loans were $7.0 million.

(In thousands) March 31,
2020 December 31,
2019
Net unamortized fair value mark discount on acquired loans $ (2,346 ) $ (2,593 )
Net unamortized loan origination costs 3,115
3,111
Total $ 769
$ 518

The Company's lending activities are primarily conducted in Maine, but also include loan production offices in Massachusetts and New Hampshire. The Company originates single- 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 is an acquired loan portfolio. It 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. In 2016, the Company closed HPFC's operations and is no longer originating HPFC loans.

In the normal course of business, the Bank makes loans to certain officers, directors and their associated companies, under terms that are consistent with the Company's lending policies and regulatory requirements and that do not involve more than the normal risk of collectability or present other unfavorable features. At ~~March 31,~~June 30, 2020 and December 31, 2019, outstanding loans to certain officers, directors and their associated companies was less than 5% of the Company's shareholders' equity.

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, including consideration of the effect and impact of the COVID-19 pandemic; and (iv) a requirement by federal and state regulators to increase the provision for loan losses or recognize additional charge-offs. The Company has accounted for the estimated impact of the COVID-19 pandemic on its loan portfolio as of June 30, 2020 through adjustments to its economic qualitative factor ("Q-factor"), based on available information, as the Company has not yet experienced any significant COVID-19 credit deterioration through June 30, 2020.

As discussed in Note 2, the Company did not adopt ASU 2016-04, commonly referred to as "CECL", induring the ~~first quarter of~~six months ended June 30, 2020. The Company's ALL, as presented, has been determined in accordance with its policies and procedures described within its Annual Report on Form 10-K for the year ended December 31, 2019. ~~In light~~

As of and for the ~~COVID-19 pandemic,~~three and six months ended June 30, 2020, the Company ~~adjusted~~has disclosed SBA PPP loans as its ~~economic qualitative factor ("Q-factor") to estimate~~own loan segment given the ~~impact of~~credit risk profile differs greatly from the health crisis on its loan portfolio, based on information available as of March 31, 2020. The Q-factor adjustment resulted in an $800,000 increase in the ALL as of March 31, 2020. The Company will continue to adjust its economic Q-factor in coming quarters, as appropriate, as additional economic data becomes available and/or should the Company experienceCompany's commercial credit ~~deterioration within its loan portfolio.~~risk profile. There were no other significant changes to the Company's ALL methodology during the three or six months ended ~~March 31,~~June 30, 2020.

The Board of Directors monitors credit risk ~~through~~through: (i) 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 under the incurred loss accounting methodology for March 31, 2020 and periods prior to; and (ii) the Audit Committee, which, effective June 30, 2020 and for the three months ended June 30, 2020, has approval authority and oversight responsibility for ALL adequacy and methodology. The change in governance structure for the ALL methodology was done to align with the governance structure that will exist upon implementation of CECL at the earlier of (1) the date on which the national emergency concerning the COVID-19 pandemic that the President of the United States declared on March 15, 2020 terminates, or (2) December 31, 2020.

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, and maintain the integrity of the loan rating ~~system, determine~~system. Effective for annual and interim periods beginning January 1, 2020, the adequacy of the ALL is overseen by the Management Provision Committee, which is an internal management committee comprised of various Company executives and ~~support~~senior managers across business lines, including Accounting and Finance, Credit Risk, Compliance, and Commercial and Retail Banking. The Management Provision Committee is further supported by other management-level committees to ensure the adequacy of the ALL under the incurred model, as well as the CECL methodology upon adoption. The Management Provision Committee supports the oversight efforts of the ~~Directors' Loan Review Committee~~director-level committees discussed in the paragraph above and the Board of Directors. The Company's practice is to manage the portfolio proactively 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~~disaggregated its loans into portfolio segments, which include ~~residential real estate,~~ commercial real estate, commercial, SBA PPP, HPFC, residential real estate, home equity ~~consumer~~ and ~~HPFC.~~consumer. 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 the following:

~~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, including for investment purposes.

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 and equipment, and/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.

SBA PPP. SBA PPP loans are unsecured, fully-guaranteed commercial loans backed by the SBA, issued to qualifying small businesses as part of federal stimulus issued in response to the COVID-19 pandemic. Loans made under the PPP have terms of two to five years and are to be used by the borrower to offset certain payroll and other operating costs, such as rent and utilities. The loan and accrued interest, or a portion thereof, is eligible for forgiveness by the SBA should the qualifying small business meet certain conditions. PPP loans were originated under the guidance of the SBA, which has been subject to change.

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 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.

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, including for investment purposes.

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 include 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 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.

The following presents the activity in the ALL and select loan information by portfolio segment for the periods indicated:


(In thousands)	Residential Real Estate			Commercial Real Estate			Commercial			Home Equity			Consumer			HPFC			Total			Commercial Real Estate			Commercial			SBA PPP		HPFC			Residential Real Estate			Home Equity			Consumer			Total
At or For The Three Months Ended March 31, 2020
At or For The Three Months Ended June 30, 2020
ALL for the three months ended:
Beginning balance																						$	13,374		$	4,114		$	—	$	183		$	5,897		$	2,480		$	473		$	26,521
Loans charged off																						(21		)	(420		)	—		—			—			(17		)	(26		)	(484		)
Recoveries																						3			63			—		—			21			—			15			102
Provision (credit)⁽¹⁾																						5,030			922			113		(13		)	2,685			621			42			9,400
Ending balance																						$	18,386		$	4,679		$	113	$	170		$	8,603		$	3,084		$	504		$	35,539
ALL for the six months ended:
Beginning balance	$	5,842		$	12,414		$	3,769		$	2,423		$	507		$	216		$	25,171		$	12,414		$	3,769		$	—	$	216		$	5,842		$	2,423		$	507		$	25,171
Loans charged off	(96		)	(50		)	(253		)	(34		)	(57		)	—			(490		)	(71		)	(673		)	—		—			(96		)	(51		)	(83		)	(974		)
Recoveries	2			4			53			4			5			—			68			7			116			—		—			23			4			20			170
Provision (credit)⁽¹⁾	149			1,006			545			87			18			(33		)	1,772			6,036			1,467			113		(46		)	2,834			708			60			11,172
Ending balance	$	5,897		$	13,374		$	4,114		$	2,480		$	473		$	183		$	26,521		$	18,386		$	4,679		$	113	$	170		$	8,603		$	3,084		$	504		$	35,539
ALL balance attributable to loans:
Individually evaluated for impairment	$	324		$	34		$	—		$	89		$	—		$	—		$	447		$	35		$	—		$	—	$	—		$	338		$	89		$	—		$	462
Collectively evaluated for impairment	5,573			13,340			4,114			2,391			473			183			26,074			18,351			4,679			113		170			8,265			2,995			504			35,077
Total ending ALL	$	5,897		$	13,374		$	4,114		$	2,480		$	473		$	183		$	26,521		$	18,386		$	4,679		$	113	$	170		$	8,603		$	3,084		$	504		$	35,539
Loans:
Individually evaluated for impairment	$	3,286		$	400		$	299		$	370		$	—		$	—		$	4,355		$	461		$	179		$	—	$	—		$	3,153		$	370		$	—		$	4,163
Collectively evaluated for impairment	1,060,926			1,299,460			444,531			305,856			24,377			18,257			3,153,407			1,310,524			411,046			218,803		16,961			1,051,180			290,445			22,919			3,321,878
Total ending loans balance	$	1,064,212		$	1,299,860		$	444,830		$	306,226		$	24,377		$	18,257		$	3,157,762		$	1,310,985		$	411,225		$	218,803	$	16,961		$	1,054,333		$	290,815		$	22,919		$	3,326,041
At or For The Three Months Ended March 31, 2019
At or For The Three Months Ended June 30, 2019
ALL for the three months ended:
Beginning balance																						$	11,838		$	3,616		$	—	$	308		$	6,153		$	3,027		$	259		$	25,201
Loans charged off																						—			(217		)	—		—			(14		)	(34		)	(6		)	(271		)
Recoveries																						3			49			—		—			2			—			4			58
Provision (credit)⁽¹⁾																						311			659			—		(28		)	108			(1		)	126			1,175
Ending balance																						$	12,152		$	4,107		$	—	$	280		$	6,249		$	2,992		$	383		$	26,163
ALL for the six months ended:
Beginning balance	$	6,071		$	11,654		$	3,620		$	2,796		$	234		$	337		$	24,712		$	11,654		$	3,620		$	—	$	337		$	6,071		$	2,796		$	234		$	24,712
Loans charged off	(11		)	(65		)	(236		)	(10		)	(14		)	—			(336		)	(65		)	(453		)	—		—			(25		)	(44		)	(20		)	(607		)
Recoveries	2			4			62			—			7			—			75			7			111			—		—			4			—			11			133
Provision (credit)⁽¹⁾	91			245			170			241			32			(29		)	750			556			829			—		(57		)	199			240			158			1,925
Ending balance	$	6,153		$	11,838		$	3,616		$	3,027		$	259		$	308		$	25,201		$	12,152		$	4,107		$	—	$	280		$	6,249		$	2,992		$	383		$	26,163
ALL balance attributable to loans:
Individually evaluated for impairment	$	553		$	27		$	—		$	347		$	—		$	—		$	927		$	27		$	322		$	—	$	—		$	524		$	310		$	—		$	1,183
Collectively evaluated for impairment	5,600			11,811			3,616			2,680			259			308			24,274			12,125			3,785			—		280			5,725			2,682			383			24,980
Total ending ALL	$	6,153		$	11,838		$	3,616		$	3,027		$	259		$	308		$	25,201		$	12,152		$	4,107		$	—	$	280		$	6,249		$	2,992		$	383		$	26,163
Loans:
Individually evaluated for impairment	$	4,736		$	410		$	223		$	895		$	—		$	—		$	6,264		$	409		$	675		$	—	$	—		$	4,472		$	887		$	—		$	6,443
Collectively evaluated for impairment	1,012,706			1,258,064			390,759			323,074			20,733			30,842			3,036,178			1,260,230			428,001			—		28,016			1,031,320			322,649			23,665			3,093,881
Total ending loans balance	$	1,017,442		$	1,258,474		$	390,982		$	323,969		$	20,733		$	30,842		$	3,042,442		$	1,260,639		$	428,676		$	—	$	28,016		$	1,035,792		$	323,536		$	23,665		$	3,100,324


(In thousands)	Residential Real Estate			Commercial Real Estate			Commercial			Home Equity			Consumer			HPFC			Total			Commercial Real Estate			Commercial			SBA PPP		HPFC			Residential Real Estate			Home Equity			Consumer			Total
At or For The Year Ended December 31, 2019
ALL:
Beginning balance	$	6,071		$	11,654		$	3,620		$	2,796		$	234		$	337		$	24,712		$	11,654		$	3,620		$	—	$	337		$	6,071		$	2,796		$	234		$	24,712
Loans charged off	(462		)	(300		)	(1,167		)	(412		)	(301		)	(71		)	(2,713		)	(300		)	(1,167		)	—		(71		)	(462		)	(412		)	(301		)	(2,713		)
Recoveries	16			49			225			1			19			—			310			49			225			—		—			16			1			19			310
Provision (credit)⁽¹⁾	217			1,011			1,091			38			555			(50		)	2,862			1,011			1,091			—		(50		)	217			38			555			2,862
Ending balance	$	5,842		$	12,414		$	3,769		$	2,423		$	507		$	216		$	25,171		$	12,414		$	3,769		$	—	$	216		$	5,842		$	2,423		$	507		$	25,171
ALL balance attributable to loans:
Individually evaluated for impairment	$	364		$	30		$	—		$	69		$	—		$	—		$	463		$	30		$	—		$	—	$	—		$	364		$	69		$	—		$	463
Collectively evaluated for impairment	5,478			12,384			3,769			2,354			507			216			24,708			12,384			3,769			—		216			5,478			2,354			507			24,708
Total ending ALL	$	5,842		$	12,414		$	3,769		$	2,423		$	507		$	216		$	25,171		$	12,414		$	3,769		$	—	$	216		$	5,842		$	2,423		$	507		$	25,171
Loans:
Individually evaluated for impairment	$	3,384		$	402		$	319		$	373		$	—		$	—		$	4,478		$	402		$	319		$	—	$	—		$	3,384		$	373		$	—		$	4,478
Collectively evaluated for impairment	1,066,990			1,242,995			420,789			312,406			25,772			21,593			3,090,545			1,242,995			420,789			—		21,593			1,066,990			312,406			25,772			3,090,545
Total ending loans balance	$	1,070,374		$	1,243,397		$	421,108		$	312,779		$	25,772		$	21,593		$	3,095,023		$	1,243,397		$	421,108		$	—	$	21,593		$	1,070,374		$	312,779		$	25,772		$	3,095,023

The following reconciles the provision for loan losses to the provision for credit losses as presented on the consolidated statements of income for the periods indicated:



	Three Months Ended June 30,						Six Months Ended June 30,					Year Ended December 31, 2019
(In thousands)	2020			2019			2020		2019			Year Ended December 31, 2019
Provision for loan losses	$	9,400		$	1,175		$	11,172	$	1,925		$	2,862
Change in reserve for unfunded commitments	(2		)	(2		)	1		(8		)	(1		)
Provision for credit losses	$	9,398		$	1,173		$	11,173	$	1,917		$	2,861

Three Months Ended
March 31,
Year Ended December 31,
2019
(In thousands) 2020 2019
Provision for loan losses $ 1,772
$ 750
$ 2,862
Change in reserve for unfunded commitments 3
(6 ) (1 )
Provision for credit losses $ 1,775
$ 744
$ 2,861

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 identify credit concentrations effectively, 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. As of ~~March 31,~~June 30, 2020, the Company's total exposure to the lessors of nonresidential buildings' industry was 13% of total loans and 32% of total commercial real estate loans. There were no0 other industry exposures exceeding 10% of the Company's total loan portfolio as of ~~March 31,~~June 30, 2020.

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:

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:



(In thousands)	Commercial Real Estate		Commercial		SBA PPP		HPFC		Residential Real Estate		Home Equity		Consumer		Total
June 30, 2020
Pass (Grades 1-6)	$	1,260,532	$	406,475	$	218,803	$	16,111	$	1,046,718	$	—	$	—	$	2,948,639
Performing	—		—		—		—		—		288,451		22,914		311,365
Special Mention (Grade 7)	15,711		1,154		—		—		409		—		—		17,274
Substandard (Grade 8)	34,742		3,596		—		850		7,206		—		—		46,394
Non-performing	—		—		—		—		—		2,364		5		2,369
Total	$	1,310,985	$	411,225	$	218,803	$	16,961	$	1,054,333	$	290,815	$	22,919	$	3,326,041
December 31, 2019
Pass (Grades 1-6)	$	1,196,683	$	415,870	$	—	$	20,667	$	1,062,825	$	—	$	—	$	2,696,045
Performing	—		—		—		—		—		310,653		25,748		336,401
Special Mention (Grade 7)	31,753		2,544		—		89		473		—		—		34,859
Substandard (Grade 8)	14,961		2,694		—		837		7,076		—		—		25,568
Non-performing	—		—		—		—		—		2,126		24		2,150
Total	$	1,243,397	$	421,108	$	—	$	21,593	$	1,070,374	$	312,779	$	25,772	$	3,095,023

(In thousands)
Residential
Real Estate

Commercial
Real Estate
Commercial
Home
Equity
Consumer HPFC Total
March 31, 2020
Pass (Grades 1-6) $ 1,057,552
$ 1,254,201
$ 439,638
$ —
$ —
$ 17,410
$ 2,768,801
Performing —
—
—
304,131
24,372
—
328,503
Special Mention (Grade 7) 469
31,028
1,424
—
—
77
32,998
Substandard (Grade 8) 6,191
14,631
3,768
—
—
770
25,360
Non-performing —
—
—
2,095
5
—
2,100
Total $ 1,064,212
$ 1,299,860
$ 444,830
$ 306,226
$ 24,377
$ 18,257
$ 3,157,762
December 31, 2019

Pass (Grades 1-6) $ 1,062,825
$ 1,196,683
$ 415,870
$ —
$ —
$ 20,667
$ 2,696,045
Performing —
—
—
310,653
25,748
—
336,401
Special Mention (Grade 7) 473
31,753
2,544
—
—
89
34,859
Substandard (Grade 8) 7,076
14,961
2,694
—
—
837
25,568
Non-performing —
—
—
2,126
24
—
2,150
Total $ 1,070,374
$ 1,243,397
$ 421,108
$ 312,779
$ 25,772
$ 21,593
$ 3,095,023

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 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, generally at least six months. 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:



(In thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loans Outstanding		Loans > 90 Days Past Due and Accruing		Non-Accrual Loans
June 30, 2020
Commercial real estate	$	117	$	1,509	$	221	$	1,847	$	1,309,138	$	1,310,985	$	—	$	432
Commercial	4		91		657		752		410,473		411,225		—		699
SBA PPP	—		—		—		—		218,803		218,803		—		—
HPFC	127		1		321		449		16,512		16,961		—		392
Residential real estate	2,765		1,483		3,431		7,679		1,046,654		1,054,333		—		4,664
Home equity	230		171		2,051		2,452		288,363		290,815		—		2,366
Consumer	49		71		5		125		22,794		22,919		—		5
Total	$	3,292	$	3,326	$	6,686	$	13,304	$	3,312,737	$	3,326,041	$	—	$	8,558
December 31, 2019
Commercial real estate	$	267	$	1,720	$	544	$	2,531	$	1,240,866	$	1,243,397	$	—	$	1,122
Commercial	548		—		417		965		420,143		421,108		—		420
SBA PPP	—		—		—		—		—		—		—		—
HPFC	—		243		288		531		21,062		21,593		—		364
Residential real estate	2,297		627		2,598		5,522		1,064,852		1,070,374		—		4,096
Home equity	681		238		1,459		2,378		310,401		312,779		—		2,130
Consumer	108		31		23		162		25,610		25,772		—		24
Total	$	3,901	$	2,859	$	5,329	$	12,089	$	3,082,934	$	3,095,023	$	—	$	8,156

(In thousands)
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, 2020

Residential real estate $ 1,778
$ 320
$ 2,445
$ 4,543
$ 1,059,669
$ 1,064,212
$ —
$ 3,499
Commercial real estate 1,207
1,460
478
3,145
1,296,715
1,299,860
—
646
Commercial 1,315
388
602
2,305
442,525
444,830
—
748
Home equity 1,140
430
1,743
3,313
302,913
306,226
—
2,098
Consumer 58
31
5
94
24,283
24,377
—
4
HPFC 21
144
252
417
17,840
18,257
—
322
Total $ 5,519
$ 2,773
$ 5,525
$ 13,817
$ 3,143,945
$ 3,157,762
$ —
$ 7,317
December 31, 2019

Residential real estate $ 2,297
$ 627
$ 2,598
$ 5,522
$ 1,064,852
$ 1,070,374
$ —
$ 4,096
Commercial real estate 267
1,720
544
2,531
1,240,866
1,243,397
—
1,122
Commercial 548
—
417
965
420,143
421,108
—
420
Home equity 681
238
1,459
2,378
310,401
312,779
—
2,130
Consumer 108
31
23
162
25,610
25,772
—
24
HPFC —
243
288
531
21,062
21,593
—
364
Total $ 3,901
$ 2,859
$ 5,329
$ 12,089
$ 3,082,934
$ 3,095,023
$ —
$ 8,156

Interest income that would have been recognized if loans on non-accrual status had been current in accordance with their original terms is estimated to have been ~~$79,000~~$87,000 and ~~$109,000~~$115,000 for the three months ended ~~March 31,~~June 30, 2020 and 2019, respectively. For the six months ended June 30, 2020 and 2019, the interest income that is estimated to have been recognized if loans on non-accrual status had been current in accordance with their original terms was $166,000 and $224,000, respectively.

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 for the dates indicated:



	Number of Contracts		Recorded Investment				Specific Reserve
(In thousands, except number of contracts)	June 30, 2020	December 31, 2019	June 30, 2020		December 31, 2019		June 30, 2020		December 31, 2019
Residential real estate	21	22	$	2,683	$	2,869	$	338	$	364
Commercial real estate	2	2	335		338		35		30
Commercial	2	2	114		123		—		—
Consumer and home equity	1	1	299		299		89		69
Total	26	27	$	3,431	$	3,629	$	462	$	463

At ~~March 31,~~June 30, 2020, the Company had performing and non-performing TDRs with a recorded investment balance of ~~$3.0~~$2.9 million and ~~$438,000,~~$555,000, respectively. At December 31, 2019, the Company had performing and non-performing TDRs with a recorded investment balance of $3.0 million and $636,000, respectively.

There were 0 loan modifications that qualify as TDRs that occurred for the three and six months ended June 30, 2020 and 2019.

For the three and six months ended June 30, 2020 and 2019, 0 loans were modified as TDRs within the previous 12 months for which the borrower subsequently defaulted.

COVID-19 Loan Modifications:

In response to the COVID-19 pandemic, the Company worked with businesses and consumers to provide temporary debt payment ~~relief. The Company's payment~~ relief ~~program~~that generally provided principal and/or interest payment ~~deferrals of 30 to 180 days for businesses and 90 to 180 days for consumers.~~deferrals. For loans modified due to the COVID-19 pandemic, under the CARES Act and regulatory guidance, the Company may apply the following accounting treatment in this order:

~~There were no~~The Company's loans impacted by the COVID-19 pandemic and operating under temporary loan modifications, ~~that qualify~~including both (i) the original COVID-related loan modification or (ii) a second COVID-related loan modification, upon expiration of the original COVID-related loan modification, were as ~~TDRs that occurred~~follows for the ~~three months ended March 31, 2020 and 2019.~~dates indicated:



	June 30, 2020			July 23, 2020
(In thousands, except number of units)	Units	Recorded Investment		Units	Recorded Investment
Original Loan Modification:
Commercial	992	$	410,298	544	$	242,272
Retail	489	101,373		188	40,627
Total	1,481	511,671		732	282,899
Second Loan Modification:
Commercial	31	5,308		57	15,041
Retail	251	29,743		412	53,039
Total	282	35,051		469	68,080
Total	1,763	$	546,722	1,201	$	350,979

For the three and six months ended ~~March 31,~~June 30, 2020, and ~~2019,~~through July 30, 2020, there were no ~~loans were modified~~COVID-related loan modifications that qualified as ~~TDRs within the previous 12 months for which the borrower subsequently defaulted.~~TDRs.

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 periods indicated:



							For the Year Ended
(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
December 31, 2019:
With an allowance recorded:
Commercial real estate	$	128	$	128	$	30	$	130	$	11
Commercial	—		—		—		292		—
SBA PPP	—		—		—		—		—
HPFC	—		—		—		—		—
Residential real estate	2,395		2,395		364		2,989		110
Home equity	318		318		69		522		—
Consumer	—		—		—		—		—
Ending Balance	2,841		2,841		463		3,933		121
Without an allowance recorded:
Commercial real estate	274		433		—		381		13
Commercial	319		685		—		238		7
SBA PPP	—		—		—		—		—
HPFC	—		—		—		—		—
Residential real estate	989		1,116		—		1,258		21
Home equity	55		192		—		115		—
Consumer	—		—		—		1		—
Ending Balance	1,637		2,426		—		1,993		41
Total impaired loans	$	4,478	$	5,267	$	463	$	5,926	$	162

For the three months ended ~~March 31,~~June 30, 2020 and 2019, the Company sold ~~$69.2~~$197.8 million and ~~$28.0~~$49.6 million, respectively, of fixed rate residential mortgage loans on the secondary market, which resulted in gains on the sale of loans (net of costs) of ~~$1.5~~$4.6 million and ~~$826,000,~~$1.2 million, respectively. For the six months ended June 30, 2020 and 2019, the Company sold $267.0 million and $77.6 million, respectively, of fixed rate residential mortgage loans on the secondary market, which resulted in gains on the sale of loans (net of costs) of $6.1 million and $2.0 million.

At ~~March 31,~~June 30, 2020 and December 31, 2019, the Company had certain residential mortgage loans with a principal balance of ~~$28.4~~$36.6 million and $11.9 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,~~June 30, 2020 and December 31, 2019, recorded an unrealized ~~loss~~gain (loss) of ~~$626,000~~$681,000 and ~~$61,000,~~($61,000), respectively. For the three months ended ~~March 31,~~June 30, 2020 and 2019, the net change in unrealized ~~losses (gains)~~gains on loans held for sale recorded within mortgage banking income, net, on the Company's consolidated statements of income was ~~$565,000~~$1.3 million and ($~~4,000)~~60,000), respectively. For the six months ended June 30, 2020 and 2019, the net change in unrealized gains on loans held for sale recorded within mortgage banking income, net, on the Company's consolidated statements of income was $742,000 and ($64,000).

The Company has forward delivery commitments with a secondary market investor on each of its loans held for sale at ~~March 31,~~June 30, 2020 and December 31, 2019. Refer to Note 8 for further discussion of the Company's forward delivery commitments.

In-Process Foreclosure Proceedings:

At ~~March 31,~~June 30, 2020 and December 31, 2019, the Company had $1.4 million and $1.3 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 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 $1.3 billion and $1.4 billion at ~~March 31,~~June 30, 2020 and December 31, ~~2019.~~2019, respectively.

Refer to Notes 3 and 6 of the consolidated financial statements for discussion of securities pledged as collateral.

NOTE 5 – BORROWINGS

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



(In thousands)	June 30, 2020		December 31, 2019
Short-Term Borrowings:
Customer repurchase agreements	$	195,998	$	237,984
FHLBB borrowings	50,000		25,000
Overnight borrowings	—		5,825
Total short-term borrowings	$	245,998	$	268,809
Long-Term Borrowings:
FHLBB borrowings	$	25,000	$	10,000
Total long-term borrowings	$	25,000	$	10,000

(In thousands) March 31,
2020
December 31,
2019
Short-Term Borrowings:

Customer repurchase agreements $ 265,997
$ 237,984
FHLBB borrowings 50,000
25,000
Overnight borrowings 10,725
5,825
Total short-term borrowings $ 326,722
$ 268,809
Long-Term Borrowings:

FHLBB borrowings $ 35,000
$ 10,000
Total long-term borrowings $ 35,000
$ 10,000

NOTE 6 – 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 a 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 within interest on borrowings on the consolidated statements of income. The securities underlying the agreements are delivered to counterparties as collateral 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 for the dates indicated:



(In thousands)	June 30, 2020		December 31, 2019
Customer Repurchase Agreements⁽¹⁾⁽²⁾:
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	$	82,069	$	118,969
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	112,017		117,654
Obligations of states and political subdivisions	1,912		1,361
Total	$	195,998	$	237,984

(In thousands)
March 31,
2020

December 31,
2019
Customer Repurchase Agreements⁽¹⁾⁽²⁾:

Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises $ 147,529
$ 118,969
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises 116,852
117,654
Obligations of states and political subdivisions 1,616
1,361
Total $ 265,997
$ 237,984


(1)	Presented within short-term borrowings on the consolidated statements of condition.


(2)	All customer repurchase agreements mature continuously or overnight for the dates indicated.

At ~~March 31,~~June 30, 2020 and December 31, 2019, certain customers held CDs totaling $1.0 million, 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 7 – COMMITMENTS AND CONTINGENCIES

Commitments

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 Company's contractual off-balance sheet commitments for the dates indicated:



(In thousands)	June 30, 2020		December 31, 2019
Commitments to extend credit	$	687,915	$	734,649
Standby letters of credit	5,046		5,211
Total	$	692,961	$	739,860

(In thousands)
March 31,
2020

December 31,
2019
Commitments to extend credit $ 764,368
$ 734,649
Standby letters of credit 5,002
5,211
Total $ 769,370
$ 739,860

The Company’s commitments to extend credit from its lending activities 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 commitments 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. ~~Of the total commitments to extend credit, $272.5 million and $274.6 million were unconditionally cancellable by the Company at March 31, 2020 and December 31, 2019, respectively.~~

Standby letters of credit are conditional commitments issued to guarantee the performance of a borrower to a third party. In the event of nonperformance by the borrower, the Company would be required to fund the commitment and would be entitled to the underlying collateral, if applicable, which generally consists of pledges of business assets including, but not limited to, accounts receivable, inventory, plant and equipment, and/or real estate. The maximum potential future payments are limited to the contractual amount of the commitment.

Legal Contingencies

In the normal course of business, the Company and its subsidiaries are subject to pending and threatened litigation, claims investigations and legal and administrative cases and proceedings. 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. Assessments of litigation exposure are difficult because they involve inherently unpredictable factors including, but not limited to: whether the proceeding is in the early stages; whether damages are unspecified, unsupported, or uncertain; whether there is a potential for punitive or other pecuniary damages; whether the matter involves legal uncertainties, including novel issues of law; whether the matter involves multiple parties and/or jurisdictions; whether discovery has begun or is not complete; whether meaningful settlement discussions have commenced; and whether the lawsuit involves class allegations. 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. Assessments of class action litigation, which is generally more complex than other types of litigation, are particularly difficult, especially in the early stages of the proceeding when it is not known whether a class will be certified or how a potential class, if certified, will be defined. As a result, the Company may be unable to estimate reasonably possible losses with respect to every litigation matter it faces.

As of ~~March 31,~~June 30, 2020 and December 31, 2019, the Company did ~~not~~0t have any material loss contingencies that were provided for and/or that are required to be disclosed.

NOTE 8 – DERIVATIVES AND HEDGING

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 associated with these derivative financial instruments through collateral, credit approvals and monitoring procedures.

Derivative financial instruments are carried at fair value on the consolidated statements of condition. The accounting for changes in the fair value of a derivative instrument is dependent upon whether or not it has been designated as a hedge for accounting purposes, and, if so, the type of hedge it has been designated as. The changes in fair value of the Company's derivative instruments not designated as hedges are accounted for within the consolidated statements of income.

Quarterly, in conjunction with financial reporting, each cash flow hedge is assessed for ineffectiveness. To the extent ineffectiveness is identified, this amount is recorded within the consolidated statements of income. The gain or loss on the effective portion of the cash flow hedge is reclassified from AOCI into interest within the consolidated statements of income in the period the hedged transaction affects earnings.

Derivatives Not Designated as Hedges

Customer Loan Swaps

The Company will enter into interest rate swaps with its commercial customers to provide them with a means to lock into a long-term fixed rate, while simultaneously entering into an arrangement with a counterparty to swap the fixed rate to a variable rate to manage its interest rate exposure effectively. As the interest rate swap agreements have substantially equivalent and offsetting terms, they do not materially change the Company's interest rate risk or present any material exposure to its consolidated statements of income. ~~Customer loan swaps are presented on a gross basis within other assets and accrued interest and other liabilities on the consolidated statements of condition.~~

The following table presents the total positions, notional and fair value of the Company's customer loans swaps with each party for the dates indicated:



(In thousands, except number of positions)		June 30, 2020						December 31, 2019
(In thousands, except number of positions)	Presentation on Consolidated Statements of Condition	Number of Positions	Notional Amount		Fair Value			Number of Positions	Notional Amount		Fair Value
Receive fixed, pay variable	Accrued interest and other liabilities	—	$	—	$	—		10	$	45,243	$	(514	)
Receive fixed, pay variable	Other assets	83	400,934		47,338			75	366,351		17,756
Pay fixed, receive variable	Accrued interest and other liabilities	83	400,934		(47,338		)	85	411,594		(17,242		)
Total		166	$	801,868	$	—		170	$	823,188	$	—

(In thousands, except number of positions) March 31, 2020 December 31, 2019
Presentation on Consolidated Statements of Condition Number of Positions Notional Amount Fair Value Number of Positions Notional Amount Fair Value
Receive fixed, pay variable Accrued interest and other liabilities —
$ —
$ —
10
$ 45,243
$ (514 )
Receive fixed, pay variable Other assets 85
408,545
45,220
75
366,351
17,756
Pay fixed, receive variable (Accrued interest and other liabilities) / other assets 85
408,545
(45,220 ) 85
411,594
(17,242 )
Total 170
$ 817,090
$ —
170
$ 823,188
$ —

The Company 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

Company mitigates its institutional counterparty credit risk exposure by limiting the institutions for which it will enter into

interest swap arrangements through an approved listing by its Board of ~~Directors.~~Directors, as well as by posting cash or other financial assets from or to the counterparty.

The Company has entered into a master netting arrangement with its counterparty and settles payments with the counterparty as necessary. The Company's arrangement with its institutional counterparty requires it to post cash or other assets as collateral for its customer loan swap contracts in a net liability position based on their aggregate fair value and the Company's credit rating. The Company may also receive cash collateral for contracts in a net asset position as requested. At ~~March 31,~~June 30, 2020 and December 31, 2019 the Company posted ~~$46.2~~$48.2 million and $18.4 million, respectively, of cash to the counterparty as collateral on its customer loan swap contracts which was presented within other assets on the consolidated statements of condition. Refer to Note 9 for further discussion of master netting arrangements and presentation within the Company's consolidated financial statements.

Fixed-Rate Mortgage Interest Rate Lock 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 intends to sell the loan upon origination, it will account for the interest rate lock commitment as a derivative. The Company's pipeline of mortgage loans with fixed-rate interest rate lock commitments for which it intends to sell the loan upon origination was as follows for the dates indicated:



		June 30, 2020					December 31, 2019
(In thousands)	Presentation on Consolidated Statements of Condition	Notional Amount		Fair Value			Notional Amount		Fair Value
Fixed-rate mortgage interest rate locks	Other assets	$	69,914	$	1,287		$	27,087	$	480
Fixed-rate mortgage interest rate locks	Accrued interest and other liabilities	34,138		(329		)	2,519		(18		)
Total		$	104,052	$	958		$	29,606	$	462

March 31, 2020 December 31, 2019
(In thousands) Presentation on Consolidated Statements of Condition Notional Amount Fair Value Notional Amount Fair Value
Fixed-rate mortgage interest rate locks Other assets $ 91,943
$ 2,241
$ 27,087
$ 480
Fixed-rate mortgage interest rate locks Accrued interest and other liabilities 36,538
(264 ) 2,519
(18 )
Total $ 128,481
$ 1,977
$ 29,606
$ 462

For the three months ended ~~March 31,~~June 30, 2020 and 2019, the net unrealized (loss) gain from the change in fair value on the Company's fixed-rate mortgage rate locks reported within mortgage banking income, net, on the consolidated statements of income was ($1.0) million and $223,000, respectively. For the six months ended June 30, 2020 and 2019, the net unrealized gain from the change in fair value on the Company's fixed-rate mortgage rate locks reported within mortgage banking income, net, on the consolidated statements of income was ~~$1.5 million~~$496,000 and ~~$181,000,~~$404,000, respectively.

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 typically to 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 upon origination of a loan identified as held for sale.

The Company's forward delivery commitments on loans held for sale for the dates indicated were as follows:



		June 30, 2020					December 31, 2019
(In thousands)	Presentation on Consolidated Statements of Condition	Notional Amount		Fair Value			Notional Amount		Fair Value
Forward delivery commitments ("best effort")	Other Assets	$	19,649	$	359		$	10,846	$	312
Forward delivery commitments ("best effort")	Accrued interest and other liabilities	16,260		(218		)	1,069		(15		)
Total		$	35,909	$	141		$	11,915	$	297

March 31, 2020 December 31, 2019
(In thousands) Presentation on Consolidated Statements of Condition Notional Amount Fair Value Notional Amount Fair Value
Forward delivery commitments ("best effort") Other Assets $ 26,786
$ 1,185
$ 10,846
$ 312
Forward delivery commitments ("best effort") Accrued interest and other liabilities 1,570
(30 ) 1,069
(15 )
Total $ 28,356

$ 1,155
$ 11,915
$ 297

For the three months ended ~~March 31,~~June 30, 2020 and 2019, the net unrealized (loss) 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 ~~$858,000~~($1.0) million and ~~$83,000,~~$159,000, respectively. For the six months ended June 30, 2020 and 2019, the net unrealized (loss) 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 ($156,000) and $242,000, respectively.

Derivatives Designated as Hedges

Interest Rate Swap on Loans

In 2019, the Company entered into a $100.0 million interest rate swap contract with a counterparty to manage interest rate risk associated with its variable-rate loans. The Company has entered into a master netting arrangement with its institutional counterparty and settles payments monthly on a net basis.

The arrangement with the institutional counterparty requires it to post collateral for its interest rate swaps on loans and borrowings when they are in a net liability position based on their fair values. If the interest rate swaps are in a net asset position based on their fair values, the counterparty will post collateral to the Company as requested. At ~~March 31,~~June 30, 2020, the institutional counterparty posted ~~$3.8~~$4.0 million of cash as collateral on its interest rate swaps on loans and borrowings, which was presented within interest-bearing deposits in other banks as restricted cash with a matching liability within accrued interest and other liabilities on the consolidated statements of condition. At December 31, 2019, the counterparty posted $560,000 as collateral on its interest rate swap on loans. Refer to Note 9 for further discussion of master netting arrangements and presentation within the Company's consolidated financial statements.

The details of the interest rate swap for the dates indicated were as follows:

(Dollars in thousands)

June 30, 2020

December 31, 2019

Trade
Date

Maturity Date

Variable Index
Paid

Fixed Rate
Received

Presentation on Consolidated

Statements of Condition

Notional
Amount

Fair

Value

Notional
Amount

Fair

Value

6/12/2019

6/10/2024

1-Month

USD LIBOR

1.693%

Other assets

100,000

6,109

100,000

483

(Dollars in thousands) March 31, 2020 December 31, 2019
Trade
Date Maturity Date Variable Index
Paid Fixed Rate
Received
Presentation on Consolidated
Statements of Condition
Notional
Amount
Fair
Value
Notional
Amount
Fair
Value
6/12/2019 6/10/2024
1-Month
USD LIBOR
1.693% Other assets $ 100,000
$ 5,591
$ 100,000
$ 483

For the three and six months ended ~~March 31,~~June 30, 2020, the Company did not record any ineffectiveness within the consolidated statements of income.

Net payments received from the institutional counterparty for the ~~three~~six months ended ~~March 31,~~June 30, 2020 were ~~$52,000,~~$299,000, and were classified as cash flows from operating activities within the consolidated statements of cash flows.

Interest Rate Swaps on Borrowings

In March 2020, the Company entered into ~~two~~2 $50.0 million interest rate swap arrangements with an institutional counterparty to mitigate interest rate risk. The Company ~~has~~ entered into a master netting arrangement with the institutional counterparty and settles payments on a net basis, monthly for the Federal Funds Effective Rate swap and quarterly for the 3-Month USD LIBOR swap.

The details of the Company's interest rate swaps on borrowings for the dates indicated were as follows:



(Dollars in thousands)					June 30, 2020
Trade Date	Maturity Date	Variable Index Received	Fixed Rate Paid	Presentation on Consolidated Statements of Condition	Notional Amount		Fair Value
3/2/2020	3/1/2023	Fed Funds Effective Rate	0.705%	Accrued interest and other liabilities	$	50,000	$	(952	)
3/26/2020	3/26/2030	3-Month USD LIBOR	0.857%	Accrued interest and other liabilities	50,000		(1,171		)
					$	100,000	$	(2,123	)

(Dollars in thousands) March 31, 2020
Trade
Date Maturity Date Variable Index
Received Fixed Rate
Paid
Presentation on Consolidated
Statements of Condition
Notional
Amount
Fair
Value
3/2/2020 3/1/2023 Fed Funds Effective Rate 0.705% Accrued interest and other liabilities $ 50,000
$ (853 )
3/26/2020 3/26/2030
3-Month
USD LIBOR
0.857% Accrued interest and other liabilities 50,000
(762 )
$ 100,000
$ (1,615 )

For the three and six months ended ~~March 31,~~June 30, 2020, the Company did not record any ineffectiveness within the consolidated statements of income.

Net payments received from the institutional counterparty for the six months ended June 30, 2020 were $30,000 and were classified as cash flows from operating activities within the consolidated statements of cash flows.

Junior Subordinated Debt Interest Rate Swaps

The Company entered into five interest rate swap agreements with an institutional counterparty to manage interest rate risk associated with the Company's variable rate borrowings. The Company entered into a master netting arrangement with its institutional counterparty and settles payments 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 aggregate fair value and the Company’s credit rating. If the interest rate swaps are in a net asset position based on their aggregate fair value, the institutional counterparty will post collateral to the Company as requested. At ~~March 31,~~June 30, 2020 and December 31, 2019, the Company posted $13.3 million and $8.8 million, respectively, of cash as collateral to the institutional counterparty, which was presented within other assets on the consolidated statements of financial condition. Refer

to Note 9 for further discussion of master netting arrangements and presentation within the Company's consolidated financial statements.

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



(Dollars in thousands)					June 30, 2020					December 31, 2019
Trade Date	Maturity Date	Variable Index Received	Fixed Rate Paid	Presentation on Consolidated Statements of Condition	Notional Amount		Fair Value			Notional Amount		Fair Value
3/18/2009	6/30/2021	3-Month USD LIBOR	5.09%	Accrued interest and other liabilities	$	10,000	$	(346	)	$	10,000	$	(299	)
7/8/2009	6/30/2029	3-Month USD LIBOR	5.84%	Accrued interest and other liabilities	10,000		(3,497		)	10,000		(2,318		)
5/6/2010	6/30/2030	3-Month USD LIBOR	5.71%	Accrued interest and other liabilities	10,000		(3,693		)	10,000		(2,384		)
3/14/2011	3/30/2031	3-Month USD LIBOR	4.35%	Accrued interest and other liabilities	5,000		(1,988		)	5,000		(1,279		)
5/4/2011	7/7/2031	3-Month USD LIBOR	4.14%	Accrued interest and other liabilities	8,000		(3,060		)	8,000		(1,907		)
					$	43,000	$	(12,584	)	$	43,000	$	(8,187	)

(Dollars in thousands) March 31, 2020 December 31, 2019
Trade
Date Maturity
Date Variable Index
Received Fixed Rate
Paid
Presentation on Consolidated
Statements of Condition

Notional
Amount

Fair
Value

Notional
Amount

Fair
Value
3/18/2009 6/30/2021 3-Month USD LIBOR 5.09% Accrued interest and other liabilities $ 10,000
$ (396 ) $ 10,000
$ (299 )
7/8/2009 6/30/2029 3-Month USD LIBOR 5.84% Accrued interest and other liabilities 10,000
(3,494 ) 10,000
(2,318 )
5/6/2010 6/30/2030 3-Month USD LIBOR 5.71% Accrued interest and other liabilities 10,000
(3,686 ) 10,000
(2,384 )
3/14/2011 3/30/2031 3-Month USD LIBOR 4.35% Accrued interest and other liabilities 5,000
(1,993 ) 5,000
(1,279 )
5/4/2011 7/7/2031 3-Month USD LIBOR 4.14% Accrued interest and other liabilities 8,000
(3,073 ) 8,000
(1,907 )
$ 43,000
$ (12,642 ) $ 43,000
$ (8,187 )

For the three and six months ended ~~March 31,~~June 30, 2020 and 2019, the Company did ~~not~~0t record any ineffectiveness on these cash flow hedges within the consolidated statements of income.

Net payments to the counterparty for the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019 were ~~$240,000~~$537,000 and ~~$152,000,~~$318,000, respectively, and were classified as cash flows from operating activities in the Company's consolidated statements of cash flows.

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 March 31,						For The Three Months Ended June 30,						For The Six Months Ended June 30,
(In thousands)	2020			2019			2020			2019			2020			2019
Derivatives designated as cash flow hedges:
Effective portion of unrealized losses recognized within OCI during the period, net of tax	$	(902	)	$	(925	)	$	(11	)	$	(1,203	)	$	(912	)	$	(2,128	)
Net reclassification adjustment for effective portion of cash flow hedges included in interest expense, gross	$	240		$	119		$	327		$	201		$	567		$	320
Net reclassification adjustment for effective portion of cash flow hedges included in interest income, gross	$	(52	)	$	—		$	(247	)	$	—		$	(299	)	$	—

The Company expects approximately ~~$577,000~~$771,000 to be reclassified from AOCI, related to the Company’s cash flow hedges, in the next 12 months, decreasing net interest income on the consolidated statements of income. This reclassification is due to anticipated payments that will be made on the swaps based upon the forward curve as of ~~March 31,~~June 30, 2020.

NOTE 9 – BALANCE SHEET OFFSETTING

The Company does not offset the carrying value for derivative instruments or repurchase agreements on the consolidated statements of condition. The Company does net the amount recognized for the right to reclaim cash collateral against the obligation to return cash collateral arising from instruments executed with the same counterparty under a master netting arrangement. Collateral legally required to be pledged or received is monitored and adjusted as necessary. Refer to Note 6 for further discussion of repurchase agreements and Note 8 for further discussion of derivative instruments.

The following table presents the Company's derivative positions and repurchase agreements, and the potential effect of netting arrangements on its financial position, as of the dates indicated:

Financial Instruments Pledged (Received)⁽¹⁾

Cash Collateral Pledged (Received)⁽¹⁾

Customer loan swaps - commercial customer⁽²⁾

Interest rate swap on loans⁽³⁾

Interest rate swaps on borrowings⁽³⁾

Customer loan swaps - commercial customer⁽²⁾

NOTE 10 – 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 capital, Tier 1 capital, and common

equity Tier 1 capital to risk-weighted assets, and of Tier 1 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 1 risk-based capital ratio of 6.0%, a minimum common equity Tier 1 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 capital conservation buffer consisting of common Tier 1 equity in an amount above the minimum risk-based capital requirements for "adequately capitalized" institutions equal to 2.5% of total risk-weighted assets, resulting in a requirement for the Company and the Bank effectively to maintain common equity Tier 1, Tier 1 and total capital ratios of 7.0%, 8.5% and 10.5%, respectively. The Company and the Bank must maintain the capital conservation buffer to avoid restrictions on the ability to pay dividends, pay discretionary bonuses and to engage in share repurchases based on the amount of the shortfall and the institution's "eligible retained income" (that is, four quarter trailing net income, net of distributions and tax effects not reflected in net income).

The Company and Bank's risk-based capital ratios exceeded regulatory guidelines, including the capital conservation buffer, at ~~March 31,~~June 30, 2020 and December 31, 2019, and the Bank's capital ratios met the requirements for it to be considered "well capitalized" under prompt correct action provisions for each period. There were no changes to the Company or Bank's capital ratios that occurred subsequent to ~~March 31,~~June 30, 2020, 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:

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 applicable regulation, to include, subject to certain limits, each within its calculation of risk-based capital. At ~~March 31,~~June 30, 2020 and December 31, 2019, $15.0 million of subordinated debentures were included as Tier 2 capital and were included in the calculation of the Company's total risk-based capital, and, at ~~March 31,~~June 30, 2020 and December 31, 2019, $43.0 million of the junior subordinated debentures were included in Tier 1 and total risk-based capital

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 differences in regulatory risk-weighting 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 11 – OTHER COMPREHENSIVE INCOME (LOSS)

The following tables present a reconciliation of the changes in the components of other comprehensive income and loss for the periods indicated, including the amount of tax (expense) benefit allocated to each component:


										For The Three Months Ended
	For The Three Months Ended March 31, 2020									June 30, 2020									June 30, 2019
(In thousands)	Pre-Tax Amount			Tax (Expense) Benefit			After-Tax Amount			Pre-Tax Amount			Tax (Expense) Benefit			After-Tax Amount			Pre-Tax Amount			Tax (Expense) Benefit			After-Tax Amount
AFS Securities:
Unrealized holdings gains	$	24,115		$	(5,185	)	$	18,930		$	9,082		$	(1,952	)	$	7,130		$	13,835		$	(2,975	)	$	10,860
Less: reclassification adjustment for net realized losses⁽¹⁾										—			—			—			27			(6		)	21
Net unrealized gains	24,115			(5,185		)	18,930			9,082			(1,952		)	7,130			13,808			(2,969		)	10,839
Cash Flow Hedges:
Net decrease in fair value	(1,149		)	247			(902		)	(14		)	3			(11		)	(1,533		)	330			(1,203		)
Less: effective portion reclassified into interest expense⁽¹⁾	(240		)	52			(188		)
Less: effective portion reclassified into interest income⁽²⁾	52			(12		)	40
Net decrease in fair value	(961		)	207			(754		)
Less: effective portion reclassified into interest expense⁽²⁾										(327		)	70			(257		)	(201		)	44			(157		)
Less: effective portion reclassified into interest income⁽³⁾										247			(53		)	194			—			—			—
Net increase (decrease) in fair value										66			(14		)	52			(1,332		)	286			(1,046		)
Postretirement Plans:
Net actuarial gain	175			(37		)	138			175			(37		)	138			67			(15		)	52
Less: Amortization of net prior service credits⁽³⁾	6			(1		)	5
Less: Amortization of net prior service credits⁽⁴⁾										6			(1		)	5			6			(2		)	4
Net gain on postretirement plans	169			(36		)	133			169			(36		)	133			61			(13		)	48
Other comprehensive income	$	23,323		$	(5,014	)	$	18,309		$	9,317		$	(2,002	)	$	7,315		$	12,537		$	(2,696	)	$	9,841

For The Three Months Ended

Less: reclassification adjustment for net realized gains⁽¹⁾

Less: effective portion reclassified into interest expense⁽¹⁾

Less: effective portion reclassified into interest expense⁽²⁾

Less: effective portion reclassified into interest income⁽³⁾

Less: Amortization of net prior service credits⁽³⁾

Less: Amortization of net prior service credits⁽⁴⁾

The following table presents the changes in each component of AOCI for the periods indicated:

NOTE 12 – REVENUE FROM CONTRACTS WITH CUSTOMERS

A portion of the Company's non-interest income is derived from contracts with customers, and, as such, the revenue recognized depicts the transfer of promised goods or services to its customers in an amount that reflects the consideration to

which the entity expects to be entitled in exchange for those goods or services. The Company considers the terms of the contract and all relevant facts and circumstances when applying this guidance.

The Company has disaggregated its revenue from contracts with customers into categories based on the nature of the revenue. The categorization of revenues from contracts with ~~customer~~customers that are within the scope of ASC 606 closely aligns with the presentation of revenue categories presented within non-interest income on the consolidated statements of income. The following table presents the revenue streams ~~with~~within the scope of ASC 606 for the periods indicated:



		Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	Income Statement Line Item	2020		2019		2020		2019
Debit card interchange income	Debit card income	$	2,391	$	2,281	$	4,532	$	4,291
Services charges on deposit accounts	Service charges on deposit accounts	1,337		2,209		3,349		4,232
Fiduciary services income	Income from fiduciary services	1,603		1,545		3,105		2,937
Investment program income	Brokerage and insurance commissions	622		732		1,279		1,317
Other non-interest income	Other income	423		415		806		798
Total non-interest income within the scope of ASC 606		6,376		7,182		13,071		13,575
Total non-interest income not in scope of ASC 606		5,684		2,855		10,392		5,851
Total non-interest income		$	12,060	$	10,037	$	23,463	$	19,426

Three Months Ended March 31,
(In thousands) Income Statement Line Item 2020 2019
Debit card interchange income Debit card income $ 2,141
$ 2,010
Services charges on deposit accounts Service charges on deposit accounts 2,012
2,023
Fiduciary services income Income from fiduciary services 1,502
1,392
Investment program income Brokerage and insurance commissions 657
585
Other non-interest income Other income 383
383
Total non-interest income within the scope of ASC 606 6,695
6,393
Total non-interest income not in scope of ASC 606 4,708
2,996
Total non-interest income $ 11,403
$ 9,389

In each of the revenue streams identified above, there were no significant judgments made in determining or allocating the transaction price, as the consideration and services are generally explicitly identified in the associated contracts.

NOTE 13 – 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 periodic benefit cost for the periods ended ~~March 31,~~June 30, 2020 and 2019, were as follows:

Supplemental Executive Retirement Plan:



(In thousands)		Three Months Ended June 30,				Six Months Ended June 30,
Net periodic pension cost	Income Statement Presentation	2020		2019		2020		2019
Service cost	Salaries and employee benefits	$	116	$	99	$	232	$	198
Interest cost	Other expenses	115		130		230		261
Recognized net actuarial loss	Other expenses	156		61		312		122
Total		$	387	$	290	$	774	$	581

(In thousands) Three Months Ended
March 31,
Net periodic pension cost Income Statement Presentation 2020 2019
Service cost Salaries and employee benefits $ 116
$ 99
Interest cost Other expenses 115
131
Recognized net actuarial loss Other expenses 156
61
Total $ 387
$ 291

Other Postretirement Benefit Plan:



(In thousands)		Three Months Ended June 30,						Six Months Ended June 30,
Net periodic postretirement benefit cost	Income Statement Presentation	2020			2019			2020			2019
Service cost	Salaries and employee benefits	$	7		$	12		$	14		$	24
Interest cost	Other expenses	31			37			62			74
Recognized net actuarial loss	Other expenses	20			6			39			12
Amortization of prior service credit	Other expenses	(6		)	(6		)	(12		)	(12		)
Total		$	52		$	49		$	103		$	98

(In thousands) Three Months Ended
March 31,
Net periodic postretirement benefit cost Income Statement Presentation 2020 2019
Service cost Salaries and employee benefits $ 7
$ 12
Interest cost Other expenses 31
37
Recognized net actuarial loss Other expenses 19
6
Amortization of prior service credit Other expenses (6 ) (6 )
Total $ 51
$ 49

NOTE 14 – 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 June 30,						Six Months Ended June 30,
(In thousands, except number of shares and per share data)	2020			2019			2020			2019
Net income	$	10,940		$	13,204		$	24,433		$	27,477
Dividends and undistributed earnings allocated to participating securities⁽¹⁾	(27		)	(26		)	(55		)	(54		)
Net income available to common shareholders	$	10,913		$	13,178		$	24,378		$	27,423
Weighted-average common shares outstanding for basic EPS	14,959,851			15,519,827			15,031,525			15,555,770
Dilutive effect of stock-based awards⁽²⁾	37,760			39,933			37,607			39,884
Weighted-average common and potential common shares for diluted EPS	14,997,611			15,559,760			15,069,132			15,595,654
Earnings per common share:
Basic EPS	$	0.73		$	0.85		$	1.62		$	1.76
Diluted EPS	$	0.73		$	0.85		$	1.62		$	1.76
Awards excluded from the calculation of diluted EPS⁽³⁾:
Stock options	11,202			—			3,429			—

Three Months Ended
March 31,
(In thousands, except number of shares and per share data) 2020 2019
Net income $ 13,493
$ 14,273
Dividends and undistributed earnings allocated to participating securities⁽¹⁾
(28 ) (28 )
Net income available to common shareholders $ 13,465
$ 14,245
Weighted-average common shares outstanding for basic EPS 15,103,176
15,592,141
Dilutive effect of stock-based awards⁽²⁾
44,042
41,985
Weighted-average common and potential common shares for diluted EPS 15,147,218
15,634,126
Earnings per common share:

Basic EPS $ 0.89
$ 0.91
Diluted EPS $ 0.89
$ 0.91
Awards excluded from the calculation of diluted EPS⁽³⁾:

Stock options 1,000
1,000


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


(2)	Represents the assumed dilutive effect of unexercised and/or unvested stock options, restricted shares, restricted share units and contingently issuable performance-based awards utilizing the treasury stock method.


(3)	Represents stock-based awards not included in 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, therefore, are considered anti-dilutive.

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 15 – 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 on an individual loan basis using quoted secondary market prices and is classified as Level 2.

Debt Securities: The fair value of investments in debt 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 is classified as Level 2.

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

Derivatives: The fair value of interest rate swaps is 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 ~~March 31,~~June 30, 2020 and December 31, 2019, 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 interest rate lock commitments were 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 loan pipeline that will ultimately complete the origination process and be funded). The Company has classified its fixed-rate interest rate lock commitments as Level 2, as the quoted secondary market prices are the more significant input, and, although the Company's internal pull-through rate estimate is a Level 3 estimate, it is less significant to the ultimate valuation.

The fair value of the Company's forward delivery commitments is 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 interest rate lock commitments as Level 2.

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value, for the dates indicated:



(In thousands)	Fair Value		Readily Available Market Prices (Level 1)		Observable Market Data (Level 2)		Company Determined Fair Value (Level 3)
June 30, 2020
Financial assets:
Loans held for sale	$	36,590	$	—	$	36,590	$	—
AFS investments:
Obligations of states and political subdivisions	127,127		—		127,127		—
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	536,225		—		536,225		—
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	373,532		—		373,532		—
Subordinated corporate bonds	10,779		—		10,779		—
Equity securities - bank stock	1,674		—		1,674		—
Customer loan swaps	47,338		—		47,338		—
Interest rate swap on loans	6,109		—		6,109		—
Fixed-rate mortgage interest rate lock commitments	1,287		—		1,287		—
Forward delivery commitments	359		—		359		—
Financial liabilities:
Junior subordinated debt interest rate swaps	12,584		—		12,584		—
Customer loan swaps	47,338		—		47,338		—
Interest rate swap on borrowings	2,123		—		2,123		—
Fixed-rate mortgage interest rate lock commitments	329		—		329		—
Forward delivery commitments	218		—		218		—
December 31, 2019
Financial assets:
Loans held for sale	$	11,854	$	—	$	11,854	$	—
AFS investments:
Obligations of states and political subdivisions	118,083		—		118,083		—
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	463,386		—		463,386		—
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	325,905		—		325,905		—
Subordinated corporate bonds	10,744		—		10,744		—
Equity securities - bank stock	1,674		—		1,674		—
Customer loan swaps	17,756		—		17,756		—
Interest rate swap on loans	483		—		483		—
Fixed-rate mortgage interest rate lock commitments	480		—		480		—
Forward delivery commitments	312		—		312		—
Financial liabilities:
Junior subordinated debt interest rate swaps	8,187		—		8,187		—
Customer loan swaps	17,756		—		17,756		—
Fixed-rate mortgage interest rate lock commitments	18		—		18		—
Forward delivery commitments	15		—		15		—

(In thousands)
Fair
Value

Readily
Available
Market
Prices
(Level 1)

Observable
Market
Data
(Level 2)

Company
Determined
Fair Value
(Level 3)
March 31, 2020

Financial assets:

Loans held for sale $ 27,730
$ —
$ 27,730
$ —
AFS investments:

Obligations of states and political subdivisions 126,880
—
126,880
—
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises 488,049
—
488,049
—
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises 334,615
—
334,615
—
Subordinated corporate bonds 10,587
—
10,587
—
Equity securities - bank stock 1,674
—
1,674
—
Customer loan swaps 45,220
—
45,220
—
Interest rate swap on loans 5,591
—
5,591
—
Fixed-rate mortgage interest rate lock commitments 2,241
—
2,241
—
Forward delivery commitments 1,185
—
1,185
—
Financial liabilities:

Junior subordinated debt interest rate swaps 12,642
—
12,642
—
Customer loan swaps 45,220
—
45,220
—
Interest rate swap on borrowings 1,615
—
1,615
—
Fixed-rate mortgage interest rate lock commitments 264
—
264
—
Forward delivery commitments 30
—
30
—
December 31, 2019

Financial assets:

Loans held for sale $ 11,854
$ —
$ 11,854
$ —
AFS investments:


Obligations of states and political subdivisions 118,083
—
118,083
—
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises 463,386
—
463,386
—
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises 325,905
—
325,905
—
Subordinated corporate bonds 10,744
—
10,744
—
Equity securities - bank stock 1,674
—
1,674
—
Customer loan swaps 17,756
—
17,756
—
Interest rate swap on loans 483
—
483
—
Fixed-rate mortgage interest rate lock commitments 480
—
480
—
Forward delivery commitments 312
—
312
—
Financial liabilities:

Junior subordinated debt interest rate swaps 8,187
—
8,187
—
Customer loan swaps 17,756
—
17,756
—
Fixed-rate mortgage interest rate lock commitments 18
—
18
—
Forward delivery commitments 15
—
15
—

The Company did not have any transfers between Level 1 and Level 2 of the fair value hierarchy during the ~~three~~six months ended ~~March 31,~~June 30, 2020. 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. The Company's policy is to evaluate individually for impairment loans with a principal balance of $500,000 or more, that are classified as substandard or doubtful and are 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.

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, namely loan prepayment assumptions and the discount rate used, to calculate the fair value of each tranche, and, as such, the Company has classified the model within Level 3 of the fair value hierarchy. At ~~March 31,~~June 30, 2020 and December 31, 2019, the mortgage servicing assets were not carried at fair value.

Non-Financial 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, goodwill and core deposit 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 Core Deposit 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~~In the second quarter of 2020, the Company determined that a triggering event had occurred and an interim goodwill impairment assessment was necessary. A quantitative assessment was performed using various valuation methodologies as of May 31, 2020. Through its assessment, the Company concluded that the indicated fair value of the reporting unit exceeded its book value, and, thus goodwill was not impaired as of May 31, 2020. At June 30, 2020, the Company considered whether there were any new events or ~~triggering events during the three months ended March~~information that would materially change its quantitative analysis performed as of May 31, 2020, ~~for which management believes that it is more likely than not that goodwill is impaired.~~and there were none. Refer to Note 2 for further discussion.

The Company's core deposit intangible assets represent the estimated value of acquired customer relationships and are amortized 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. There were no events or changes in circumstances for the ~~three~~six months ended ~~March 31,~~June 30, 2020, 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 for the dates indicated:



(In thousands)	Fair Value		Readily Available Market Prices (Level 1)		Observable Market Data (Level 2)		Company Determined Fair Value (Level 3)
June 30, 2020
Non-financial assets:
OREO	$	94	$	—	$	—	$	94
December 31, 2019
Non-financial assets:
OREO	$	94	$	—	$	—	$	94

(In thousands)
Fair
Value

Readily
Available
Market
Prices
(Level 1)

Observable
Market
Data
(Level 2)

Company
Determined
Fair Value
(Level 3)
March 31, 2020

Financial assets:

Collateral-dependent impaired loans $ 110
$ —
$ —
$ 110
Non-financial assets:
OREO 94
—
—
94
December 31, 2019

Non-financial assets:
OREO $ 94
$ —
$ —
$ 94

The following table presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a non-recurring basis for the dates indicated:



(Dollars in thousands)	Fair Value		Valuation Methodology	Unobservable Input	Discount
June 30, 2020
OREO	$	94	Market approach appraisal of collateral	Management adjustment of appraisal	18%
				Estimated selling cost	13%
December 31, 2019
OREO	$	94	Market approach appraisal of collateral	Management adjustment of appraisal	18%
				Estimated selling cost	13%

(Dollars in thousands) Fair Value Valuation Methodology Unobservable Input Discount
March 31, 2020
Collateral-dependent impaired loans:

Partially charged-off $ 110

Market approach appraisal of
   collateral

Management adjustment of
   appraisal
0% (0%)
Estimated selling costs 10% (10%)
OREO $ 94
Market approach appraisal of
collateral
Management adjustment of
   appraisal
18% (18%)
Estimated selling cost 13% (13%)
December 31, 2019

OREO $ 94

Market approach appraisal of
   collateral

Management adjustment of
   appraisal
18% (18%)
Estimated selling cost 13% (13%)

The estimated fair values and related carrying amounts for assets and liabilities for which fair value is only disclosed are shown below as of the dates indicated:



(In thousands)	Carrying Amount		Fair Value		Readily Available Market Prices (Level 1)		Observable Market Prices (Level 2)		Company Determined Market Prices (Level 3)
June 30, 2020
Financial assets:
HTM securities	$	1,299	$	1,388	$	—	$	1,388	$	—
Commercial real estate loans⁽¹⁾	1,292,599		$	1,247,001	—		—		1,247,001
Commercial loans⁽¹⁾⁽²⁾	423,337		$	416,406	—		—		416,406
SBA PPP loans⁽¹⁾	218,690		$	225,707	—		—		225,707
Residential real estate loans⁽¹⁾	1,045,730		1,058,558		—		—		1,058,558
Home equity loans⁽¹⁾	287,731		280,674		—		—		280,674
Consumer loans⁽¹⁾	22,415		20,552		—		—		20,552
Servicing assets	1,486		1,849		—		—		1,849
Financial liabilities:
Time deposits	$	481,396	$	485,240	$	—	$	485,240	$	—
Short-term borrowings	245,998		245,976		—		245,976		—
Long-term borrowings	25,000		25,362		—		25,362		—
Subordinated debentures	59,231		45,588		—		45,588		—
December 31, 2019
Financial assets:
HTM securities	$	1,302	$	1,359	$	—	$	1,359	$	—
Commercial real estate loans⁽¹⁾	1,230,983		1,196,297		—		—		1,196,297
Commercial loans⁽¹⁾⁽²⁾	438,716		431,892		—		—		431,892
Residential real estate loans⁽¹⁾	1,064,532		1,066,544		—		—		1,066,544
Home equity loans⁽¹⁾	310,356		293,565		—		—		293,565
Consumer loans⁽¹⁾	25,265		23,355		—		—		23,355
Servicing assets	877		1,496		—		—		1,496
Financial liabilities:
Time deposits	$	595,549	$	594,881	$	—	$	594,881	$	—
Short-term borrowings	268,809		268,631		—		268,631		—
Long-term borrowings	10,000		10,002		—		10,002		—
Subordinated debentures	59,080		50,171		—		50,171		—

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

Observable
Market
Prices
(Level 2)

Company
Determined
Market
Prices
(Level 3)
March 31, 2020
Financial assets:

HTM securities $ 1,300
$ 1,358
$ —
$ 1,358
$ —
Residential real estate loans⁽¹⁾
1,058,315
1,070,839
—
—
1,070,839
Commercial real estate loans⁽¹⁾
1,286,486
1,246,184
—
—
1,246,184
Commercial loans⁽¹⁾⁽²⁾
458,790
455,364
—
—
455,364
Home equity loans⁽¹⁾
303,746
292,371
—
—
292,371
Consumer loans⁽¹⁾
23,904
22,034
—
—
22,034
Servicing assets 903
1,418
—
—
1,418
Financial liabilities:



Time deposits $ 595,061
$ 598,911
$ —
$ 598,911
$ —
Short-term borrowings 326,722
326,678
—
326,678
—
Long-term borrowings 35,000
34,923
—
34,923
—
Subordinated debentures 59,155
44,327
—
44,327
—
December 31, 2019
Financial assets:
HTM securities $ 1,302
$ 1,359
$ —
$ 1,359
$ —
Residential real estate loans⁽¹⁾
1,064,532
1,066,544
—
—
1,066,544
Commercial real estate loans⁽¹⁾
1,230,983
1,196,297
—
—
1,196,297
Commercial loans⁽¹⁾⁽²⁾
438,716
431,892
—
—
431,892
Home equity loans⁽¹⁾
310,356
293,565
—
—
293,565
Consumer loans⁽¹⁾
25,265
23,355
—
—
23,355
Servicing assets 877
1,496
—
—
1,496
Financial liabilities:



Time deposits $ 595,549
$ 594,881
$ —
$ 594,881
$ —
Short-term borrowings 268,809
268,631
—
268,631
—
Long-term borrowings 10,000
10,002
—
10,002
—
Subordinated debentures 59,080
50,171
—
50,171
—


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


(2)	Includes the HPFC loan portfolio.

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

The Company considers its financial instruments' current use to be the highest and best use of the instruments.

~~NOTE 16 – SUBSEQUENT EVENTS~~

Subsequent to March 31, 2020, global, national and local economies and financial markets have continued to be negatively impacted by the effects of the worldwide COVID-19 pandemic. The Company is actively working through this unprecedented situation. The impact the pandemic may have on the Company’s consolidated financial statements is unknown at this time.

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

AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

The discussions set forth below and in the documents we incorporate by reference herein contain certain statements that may be considered forward-looking statements under the Private Securities Litigation Reform Act of 1995, as amended, including certain plans, exceptions, goals, projections, and statements, which are subject to numerous risks, assumptions, and uncertainties. Forward-looking statements can be identified by the use of the words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “assume,” “plan,” “target,” 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 which 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.

In addition, statements about the potential effects of the COVID-19 pandemic on the Company's businesses and results of operations and financial conditions may constitute forward-looking statements. Such statements may include, but are not limited to, statements concerning:

the continued effectiveness of our Pandemic Work Group;

the continuing ability of our employees to work remotely;

our continuing ability to staff our branches and keep our branches open;

the continuing strength of our capital and liquidity positions;

our continued ability to access sources of contingent liquidity;

the continuing strength of the asset quality in our lending portfolios; and

the potential effectiveness of relief measures and programs for customers affected by COVID-19.

These statements are subject to the risk that the actual effects may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond our control, including the scope and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on our customers, third parties and the Company.

You should carefully review all of these factors, and be aware that there may be other factors that could cause differences, including the risk factors listed in our Annual Report on Form 10-K for the year ended December 31, 2019, as updated by the Company's quarterly reports on Form 10-Q, including this report, and other filings with the Securities and Exchange Commission. Readers should carefully review the risk factors described therein and should not place undue reliance on our forward-looking statements.

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

NON-GAAP FINANCIAL MEASURES AND RECONCILIATION TO GAAP

In addition to evaluating the Company’s results of operations in accordance with GAAP, management supplements this evaluation with an analysis of certain non-GAAP financial measures, such as the return on average tangible equity, efficiency ratio; tax equivalent net interest income; ~~tangible~~pre-tax, pre-provision earnings;tangible book value per share; tangible common equity ratio; and core deposits and average core deposits. These non-GAAP financial measures are utilized for purposes of measuring performance against the Company's peer group and other financial institutions, as well as for analyzing its internal performance. The Company also believes these non-GAAP financial measures help investors better understand the Company's operating performance and trends and allows for better performance comparisons to other banks. In addition, these non-GAAP financial measures remove the impact of unusual items that may obscure trends in the Company’s underlying performance. These disclosures should not be viewed as a substitute for GAAP operating results, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other financial institutions.

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


	Three Months Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2020			2019			2020			2019			2020			2019
Net income, as presented	$	13,493		$	14,273		$	10,940		$	13,204		$	24,433		$	27,477
Add: amortization of intangible assets, net of tax⁽¹⁾	134			139
Net income, adjusted for amortization of intangible assets	$	13,627		$	14,412
Add: amortization of core deposit intangible assets, net of tax⁽¹⁾							135			139			269			278
Net income, adjusted for amortization of core deposit intangible assets							$	11,075		$	13,343		$	24,702		$	27,755
Average equity, as presented	$	480,174		$	441,027		$	499,449		$	455,529		$	489,811		$	448,318
Less: average goodwill and other intangible assets	(98,143		)	(98,838		)
Less: average goodwill and core deposit intangible assets							(97,965		)	(98,660		)	(98,054		)	(98,749		)
Average tangible equity	$	382,031		$	342,189		$	401,484		$	356,869		$	391,757		$	349,569
Return on average equity	11.30		%	13.13		%	8.81		%	11.63		%	10.03		%	12.36		%
Return on average tangible equity	14.35		%	17.08		%	11.09		%	15.00		%	12.68		%	16.01		%


(1)	Assumed a 21% tax rate.

Efficiency Ratio. The efficiency ratio represents an approximate measure of the cost required for the Company to generate a dollar of revenue. This is a common measure within the financial services industry and is a key ratio for evaluating Company performance. The efficiency ratio is calculated as the ratio of (i) total non-interest expense, adjusted for certain operating expenses, as necessary, to (ii) net interest income on a tax equivalent basis plus total non-interest income, adjusted for certain other income items, as necessary.


	Three Months Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2020			2019			2020			2019			2020			2019
Non-interest expense, as presented	$	24,561		$	22,783		$	23,509		$	23,958		$	48,070		$	46,741
Net interest income, as presented	$	31,826		$	31,895		$	34,539		$	31,573		$	66,365		$	63,468
Add: effect of tax-exempt income⁽¹⁾	280			244			295			248			574			491
Non-interest income, as presented	11,403			9,389			12,060			10,037			23,463			19,426
Less: net gain on sale of securities							—			(27		)	—			(27		)
Adjusted net interest income plus non-interest income	$	43,509		$	41,528		$	46,894		$	41,831		$	90,402		$	83,358
Ratio of non-interest expense to total revenues⁽²⁾	56.82		%	55.19		%	50.45		%	57.58		%	53.51		%	56.39		%
Efficiency ratio	56.45		%	54.86		%	50.13		%	57.27		%	53.17		%	56.07		%

~~Tax Equivalent~~ Net Interest Income (Fully-Taxable Equivalent). ~~Tax~~ Net interest income on a fully-taxable equivalent ~~net interest income~~basis is net interest income plus the taxes that would have been paid had tax-exempt securities been taxable. This number attempts to enhance the comparability of the performance of assets that have different tax liabilities. This is a common measure within the financial services industry and is used within the calculation of net interest margin on a fully-taxable equivalent basis.

Add: effect of tax-exempt income⁽¹⁾

Pre-tax, Pre-provision Earnings. Pre-tax, pre-provision earnings is a supplemental measure of operating earnings and performance, and is calculated as net income before provision for credit losses and income tax expense. This supplemental measure is becoming more widely used by financial institutions as a measure of financial performance for comparability across financial institutions due to the impact of the COVID-19 pandemic on the provision for credit losses, as well as the differences in accounting methodology for the allowance for credit losses currently across financial institutions as the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") provided financial institutions the option to delay adoption of the new accounting methodology, commonly referred to as "CECL," as further described in "– Critical Accounting Policies" and Note 2 of the consolidated financial statements.



	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2020		2019		2020		2019
Net income, as presented	$	10,940	$	13,204	$	24,433	$	27,477
Add: provision for credit losses	9,398		1,173		11,173		1,917
Add: income tax expense	2,752		3,275		6,152		6,759
Pre-tax, pre-provision earnings	$	23,090	$	17,652	$	41,758	$	36,153

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

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

Core Deposits. Core deposits are used by management to measure the portion of the Company's total deposits that management believes to be more stable and lower cost. The Company calculates core deposits as total deposits (as reported on the consolidated statements of condition) less certificates of deposit and brokered deposits. Management believes core deposits is a useful measure to assess the Company's deposit base, including its potential volatility.

Average Core Deposits. Average core deposits are used by management to measure the portion of the Company's total deposits that management believes to be more stable and at a lower interest rate cost. The Company calculates average core deposits as total deposits (as disclosed on the Average Balance, Interest and Yield/Rate Analysis tables) less certificates of deposit. Management believes core deposits is a useful measure to assess the Company's deposit base, including its potential volatility.

CRITICAL ACCOUNTING POLICIES

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. In preparing the Company’s consolidated financial statements, management is required to make significant estimates and assumptions that affect assets, liabilities, revenues and expenses reported. Actual results could differ materially ~~differ~~ from the Company's 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 ALL; (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) income taxes; and (v) accounting for defined benefit and postretirement plans.

There have been no material changes to the Company's critical accounting policies as disclosed within its Annual Report on Form 10-K for the year ended December 31, 2019, with the exception of updates noted below. Refer to the Annual Report on Form 10-K for the year ended December 31, 2019, for discussion of the Company's critical accounting policies.

ALL. On March 27, 2020, the ~~Coronavirus Aid, Relief, and Economic Security~~CARES Act ~~("CARES Act")~~ was signed into law in response to the COVID-19 pandemic. Under Section 4014 of the CARES Act, we were permitted to delay our compliance with ASU No. 2016-13, Financial Instruments - Credit Losses(Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), commonly referred to as "CECL," until the earlier of (1) the date on which the national emergency concerning the COVID-19 pandemic that the President of the United States declared on March 15, 2020 terminates, or (2) December 31, 2020. We opted to delay our compliance with CECL to devote our attention and resources to supporting our customers and communities during these unprecedented times. Upon the earlier of the termination of the national emergency or December 31, 2020, the Company will adopt CECL as of January 1, 2020, using a modified-retrospective method, and will record a one-time adjustment to shareholders' equity through retained earnings. Refer to Note 2 of the consolidated financial statements for ~~discussion of our current status for CECL readiness and estimated one-time charge to shareholders' equity upon adoption.~~further discussion.

Furthermore, because we opted to delay adoption of CECL as outlined above, we will be required to reassess our ALL and reserve for unfunded commitments recorded during interim periods in 2020 (including these interim consolidated financial statements for the three and six months ended ~~March 31,~~June 30, 2020) and restate interim period financial statements to present such interim period financial statements in accordance with ASU 2016-13 upon adoption of CECL. This will require a restatement of interim period 2020 consolidated financial statements, including net income, EPS, and diluted EPS, upon adoption of CECL. Refer to Note 2 of the consolidated financial statements for ~~discussion of our estimated impact to the allowance for credit losses in accordance with ASU 2016-13 as of March 31, 2020.~~discussion.

Goodwill Impairment. Effective January 1, 2020, the Company adopted ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). ASU 2017-04 eliminated "Step 2" of the goodwill impairment test. As such, upon completion of our annual (or more frequent should a trigger event be identified) assessment of goodwill for impairment, if the book value of a reporting unit exceeds its fair value, an impairment charge will be recorded, which will reduce goodwill. The carrying value of goodwill may not be less than zero. Although ASU 2017-04 simplifies the goodwill impairment test, it increases the likelihood of impairment because it no longer requires a two-step analysis. Refer to Note 2 of the consolidated financial statements for further discussion.

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

GENERAL OVERVIEW

Camden National Corporation (hereafter referred to as “we,” “our,” “us,” or the “Company”) is a publicly-held bank holding company, with ~~$4.6~~approximately $5.0 billion in assets at ~~March 31,~~June 30, 2020, incorporated under the laws of the State of Maine and headquartered in Camden, Maine. Camden National Bank (the "Bank"), a wholly-owned subsidiary of the Company, was founded in 1875. The Company was founded in 1984, went public in 1997 and is now registered with NASDAQ Global Market (“NASDAQ”) under the ticker symbol "CAC."

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

The Company competes throughout Maine, and select areas of New Hampshire and Massachusetts. We operate in 13 of Maine's 16 counties, with our primary markets and presence being throughout coastal and central Maine. The Company and the Bank generally have effectively competed with other financial institutions by emphasizing customer service, highlighted by local decision-making, establishing long-term customer relationships, building customer loyalty and providing products and services designed to meet the needs of customers.

EXECUTIVE OVERVIEW

~~First~~Second Quarter 2020 Review. ~~Global,~~Through the second quarter of 2020, the challenges and uncertainty stemming from the COVID-19 pandemic continued on a global, national and local ~~markets~~scale throughout economies and ~~economies are facing unprecedented challenges from~~markets. The full health and economic effect of the ~~COVID-19 pandemic.~~pandemic is still unclear as waves of new information and data filter through almost daily. The Company continues to use its best efforts to respond to the pandemic, with the full support of its Board of Directors, ~~has taken certain actions (i) to provide~~and remains focused on providing for the safety and health of its employees, customers, and ~~communities; (ii) to help ease~~communities, supporting its employees and customers through the ~~far-reaching~~ financial hardships the pandemic presents, ~~to our employees~~ and ~~customers; and (iii)~~ fortify the financial strength of the Company.

As the pandemic unfolded in March 2020, we swiftly initiated a Pandemic Work Group that was led by the Company's executive team and certain senior managers across various business lines. The Pandemic Work Group, along with various sub-teams reporting to the Pandemic Work Group, took immediate action ~~including, but not limited to:~~

~~Devised~~at that time and ~~executed a plan that shifted~~continued to refine and update its plans throughout the second quarter of 2020 as new information and data became available. A few of the team's highlights over ~~half of our employees to work remotely;~~the last several months include:

Developed procedures and policies to provide for the safety of our employees and customers, which included (i) devising and executing a plan that swiftly shifted over half of our employees to work remotely and (ii) transitioning our branch network to serve customers through our drive-up windows by eliminating lobby visits other than by appointment, and temporarily closing certain branches to maximize staffing resources and ensure contingency plans are in ~~place;~~

~~Began providing premium pay~~place. By the end of June 2020, we had re-opened all branches to ~~front-line employees that~~the public with limited operating hours, and we continue to ~~provide essential banking services to our customers~~apply necessary safety and ~~communities, as well as announced that we would not have any layoffs as a result of the pandemic for a period of 90 days, and that we would reassess our position thereafter;~~health protocols.

Developed temporary loan payment deferral programs to assist customers impacted by the ~~pandemic;~~pandemic. Through June 30, 2020, we had modified 2,064 business and retail customer loans to provide temporary debt relief to customers impacted by the COVID-19 pandemic. As of June 30, 2020, 1,763 customer loans with total loan balances of $546.7 million were still under the terms of a loan modification.

Oversaw the roll-out of the Small Business ~~Administration~~Administration's ("SBA") Paycheck Protection Program ("PPP") issued by the federal government as part of its stimulus plan to respond to the pandemic. Through June 30, 2020, the Company originated 2,919 PPP loans with total balances of $237.0 million, of which $217.0 million was issued to qualifying small businesses in Maine, representing approximately 10% of the PPP loans originated in Maine, according to SBA data. At June 30, 2020, outstanding PPP loan balances were $225.8 million.

~~Over~~The Company continues to be well-positioned to withstand the ~~course~~uncertainty of ~~a few weeks,~~the COVID-19 pandemic. Its regulatory capital ratios at June 30, 2020 each exceeded minimum required regulatory capital levels and further conservative internal policy levels. We continue to manage and monitor capital closely, which included performing various stress tests to validate our strategic focus shifted from executing on long-terms plans and initiatives to drive earnings growth to capital preservation to further solidify our balance sheet as we enter uncertain times. Fortunately, we enter these challenging economic times after having record net income for 2019, solid operating results for the first quarter of 2020, and solid asset quality.position.

Operating Results. Net income for the three months and six months ended ~~March 31,~~June 30, 2020, was ~~$13.5~~$10.9 million aand $24.4 million, respectively, compared to $13.2 million and $27.5 million for the three and six months ended June 30, 2019, respectively. The decrease ~~of $780,000, or 5%,~~in net income for the three and six months ended June 30, 2020, compared to the same ~~period~~periods last ~~year. Diluted EPS~~

year, of 17% and 11%, respectively, was largely driven by an increase in provision for ~~the three months ended March 31, 2020, was $0.89, a decrease of $0.02, or 2%, compared~~credit losses between periods in response to the ~~same period last year.~~COVID-19 pandemic. While asset quality was strong through the first six months of 2020, the allowance for loan losses at December 31, 2019, increased from $25.2 million, or 0.81% of total loans, to $35.5 million, or 1.07% of total loans, at June 30, 2020, based on available information at that time, including consideration of COVID-related loan modification levels and industry risk.

Other key financial metrics over these periods include:

~~A return~~Diluted EPS for the three and six months ended June 30, 2020, was $0.73 and $1.62, respectively, compared to $0.85 and $1.76 for the same periods last year, respectively;

Pre-tax, pre-provision earnings (non-GAAP) for the three and six months ended June 30, 2020, increased 31% and 16% over the same periods last year, respectively;

Return on average assets for the three and six months ended ~~March 31,~~June 30, 2020, ~~of 1.21%~~was 0.90% and 1.05%, respectively, compared to ~~1.33%~~1.21% and 1.27% for the same ~~period~~periods last ~~year;~~year, respectively; and

~~A return~~Return on average equity for the three and six months ended ~~March 31,~~June 30, 2020, ~~of 11.30%~~was 8.81% and 10.03%, respectively, compared to ~~13.13%~~11.63% and 12.36% for the same ~~period~~periods last ~~year; and~~year, respectively.

~~A return on average tangible equity (non-GAAP) for the three months ended March 31, 2020, of 14.35%, compared to 17.08% for the same period last year.~~

Asset Quality. As of ~~March 31,~~June 30, 2020, ~~non-performing~~the Company's asset quality metrics continue to be stable and consistent with past quarters.

Non-performing assets were 0.23% of total assets at June 30, 2020, compared to 0.23% and ~~past~~0.25% at March 31, 2020 and December 31, 2019, respectively.

Past due loans were ~~0.24%~~0.19% of total ~~loans. In comparison,~~loans at June 30, 2020, compared to 0.24% and 0.17% at March 31, 2020 and December 31, 2019, ~~non-performing assets~~respectively.

Net charge-offs (annualized) for the second quarter of 2020 were ~~0.25%~~0.05% of ~~total assets~~average loans, compared to 0.05% for the first quarter of 2020 and ~~past due loans were 0.17%~~0.09% for the fourth quarter of ~~total loans. At March 31, 2020, the ALL was 0.84% of total loans and 257% of non-performing loans.~~2019.

COVID-19 Loan Modification Program. In March 2020, we ~~offered~~began offering temporary debt relief to business and retail customers impacted by the COVID-19 pandemic under the terms of the CARES Act or bank regulator guidance.

Through June 30, 2020, we modified 2,064 business and retail customer loans to provide temporary debt relief to customers ~~affected~~impacted by the COVID-19 pandemic. ~~Generally,~~

CECL. In the ~~terms~~first quarter of ~~the internal temporary debt relief program provided customers with up to 180 days of payment deferral. As of April 22,~~ 2020, we ~~had approved for deferral 1,732 loans totaling $547.7 million~~chose to delay our implementation of ~~loans, or 17% of the Company's loan portfolio at March 31, 2020.~~

~~In response to the COVID-19 pandemic, the CARES Act was signed into law in March 2020. The CARES Act provided certain companies with optional temporary relief from applying~~ the current expected credit losses model, commonly referred to as ~~"CECL.~~"CECL," ~~We chose to delay~~in accordance with the ~~implementation of CECL under the terms~~provisions of the CARES Act. As such, the reported allowance for credit losses and related provision expense for the ~~first quarter of~~three and six months ended June 30, 2020 was accounted for under the incurred loss model. ~~Refer to "– Critical Accounting Policies" and Note 2~~In accordance with the CARES Act, we will delay implementation of CECL until the ~~consolidated financial statements for further discussion~~earlier of ~~CECL.~~

~~The provision for credit losses for~~(i) the ~~three months ended March 31 2020, was $1.8 million, an increase of $1.0 million over~~date on which the ~~same period last year. The increase reflects our initial estimate of the impact of the pandemic as of March 31, 2020, based on known information at that time.~~

~~Capital Position.~~ ~~Our capital strategy shifted during the first quarter of 2020 as~~national emergency concerning the COVID-19 pandemic ~~spread and growing uncertainty~~terminates, or (ii) December 31, 2020.

While we have not yet adopted CECL, had we adopted CECL as ~~to its impact on the global, national and local economies mounted. Through early-March~~of January 1, 2020, we ~~repurchased 217,031 shares~~estimate that as of June 30, 2020, the ~~Company's common stock at a cost~~ACL under CECL would have been $40.0 million to $44.0 million, or 1.20% to 1.32% of ~~$8.0 million. In mid-March 2020, we suspended repurchasing shares~~loans, and would have been $27.0 million to $31.0 million, or 0.87% to 1.00% of ~~our common stock.~~loans, as of December 31, 2019.

Capital Position.The Company ~~enters this period of economic uncertainty~~continues to be well-positioned from a capital ~~perspective.~~perspective to withstand the economic uncertainty surrounding the COVID-19 pandemic. At ~~March 31,~~June 30, 2020, the Company's capital position was well in excess of regulatory requirements, including a total risk-based capital ratio of ~~13.81%~~14.56%, a tier 1 risk-based capital ratio of ~~12.56%~~13.01%, common equity tier 1 risk-based capital ratio of ~~11.27%~~11.69%, and a tier 1 leverage ratio of ~~9.53%~~8.95%. Additionally, at ~~March 31,~~June 30, 2020, the Company's common equity ratio was ~~10.72%~~10.21% and tangible common equity ratio (non-GAAP) was ~~8.78%~~8.41%.

In ~~March~~June 2020, the Company announced a cash dividend to shareholders of $0.33 per share, ~~an increase~~consistent with that issued for the first quarter of ~~10% compared to a year ago.~~2020. The cash dividend is payable to shareholders of record as of ~~April~~July 15, 2020, and shareholders will begin receiving payments on ~~April 30,~~July 31, 2020. As of ~~March 31,~~June 30, 2020, the Company's annualized dividend yield was ~~4.20%,~~3.82% based on Camden National's closing share price of ~~$31.45 on March 31, 2020,~~$34.54, as reported by NASDAQ.

The Company suspended its share repurchase program during the first quarter of 2020 in response to the COVID-19 pandemic. We will continue to evaluate our use of the share repurchase program as the impact and our response to the COVID-19 pandemic develops.

RESULTS OF OPERATIONS

Net Interest Income and Net Interest Margin

Net interest income is the interest earned on loans, securities, and other interest-earning assets, ~~plus~~adjusted for net loan fees, origination costs, and accretion or amortization of fair value marks on loans and/or CDs created in purchase accounting, less the interest paid on interest-bearing deposits and borrowings. Net interest income is our largest source of ~~revenue.~~revenue, which defined as the sum of net interest income and non-interest income. For the three months ended ~~March 31,~~June 30, 2020 and 2019, net interest income ~~accounted for~~was $34.5 million, or 74% ~~and 77%, respectively,~~ of total ~~revenues.~~revenues, and $31.6 million, or 76% of total revenues, respectively. For the six months ended June 30, 2020 and 2019, net interest income was $66.4 million, or 74% of total revenues, and $63.5 million, or 77% of total revenues, respectively. Net interest income is affected by several 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.

Second Quarter 2020 vs. 2019. Net interest income on a fully-taxable equivalent (non-GAAP) basis for the ~~three months ended March 31,~~second quarter of 2020, was ~~$32.1~~$34.8 million, ~~a decrease~~an increase of ~~$33,000~~$3.0 million, or 9%, over the ~~same period last year.~~second quarter of 2019. The ~~decrease~~increase was due to ~~net interest margin~~¹~~compression~~an increase in average interest-earning assets of ~~ten basis points~~$394.5 million, or 10%, between periods to ~~3.08% for the first quarter of 2020, but was partially offset by average interest-earning asset growth between periods of $103.4 million, or 3%, to $4.1~~$4.5 billion for the ~~first~~second quarter of 2020.

~~Interest income on a fully-taxable equivalent basis.~~ ~~Interest income~~ Net interest margin on a fully-taxable equivalent basis for the ~~three~~second quarter of 2020 and 2019 was 3.11%.

•

Interest income on a fully-taxable equivalent basis. Interest income on a fully-taxable equivalent basis for the second quarter decreased $3.2 million, or 8%, to $39.5 million, compared to the second quarter of 2019. Our interest-earning asset yield decreased 0.65% between periods to 3.53% for the second quarter of 2020, as loan yields decreased 0.71% between periods, which was reflective of the change in interest rate environment. The average 10-year U.S. Treasury interest rate for the second quarter of 2020 was 0.69%, compared to 2.34% for the second quarter of 2019. The growth in average interest-earning assets partially offset the decrease in asset yield between periods. Average loans grew $255.0 million, or 8%, between periods to $3.3 billion for the second quarter of 2020, and was primarily driven by SBA PPP loans funded in the second quarter of 2020 in response to the COVID-19 pandemic. For the second quarter of 2020, average SBA PPP loans were $178.1 million, for which we recognized $1.7 million of interest income.

•

Interest expense. Interest expense for the second quarter of 2020 decreased $6.2 million, or 57%, to $4.6 million, compared to the second quarter of 2019. Cost of funds for the second quarter of 2020 decreased 0.69% between periods to 0.44% for the second quarter of 2020 driven by: (i) a decrease in deposit costs of 0.51% between periods to 0.35% for the second quarter of 2020; (ii) a decrease in borrowing costs of 1.36% between periods to 0.98% for the second quarter of 2020; and (iii) a shift in funding mix as average deposits grew $505.0 million, or 16%, between periods to $3.7 billion for the second quarter of 2020, while average borrowings decreased $112.0 million, or 16%, between periods to $580.3 million for the second quarter of 2020. The Federal Funds rate through the second quarter of 2020 was 0.25%, compared to 2.50% for the second quarter of 2019.

Six Months Ended June 30, 2020 vs. 2019. Net interest income on a fully-taxable equivalent (non-GAAP) basis for the six months ended ~~March 31,~~June 30, 2020, ~~decreased $1.8~~was $66.9 million, an increase of $3.0 million, or 4%5%, ~~to $40.5 million, compared to~~over the same period ~~last year.~~of 2019. The ~~decrease~~increase was ~~driven by a decrease~~due to an increase in average interest-earning ~~asset yield~~assets of ~~30 basis points~~$245.5 million, or 6%, between periods to ~~3.90%~~$4.3 billion for the first quarter of 2020, as loan yields decreased 38 basis points between periods, which was reflective of the change in interest rate environment. The average 10-year U.S. Treasury interest rate for the first quarter of 2020 was 1.37%, compared to 2.65% for the first quarter of 2019.

~~Interest expense.~~ ~~Interest expense for the three~~six months ended ~~March 31,~~June 30, 2020, ~~decreased $1.7 million, or 17%, to $8.4 million, compared to the same period last year. The decrease~~but was ~~due to~~partially offset by a ~~decrease in cost~~lower net interest margin on a fully-taxable equivalent basis of ~~funds of 21 basis points~~0.04% between periods to ~~0.86%~~3.10% for the ~~first quarter of~~six months ended June 30, 2020. Cost of funds decreased between periods primarily due to: (i) strong average deposit growth of $268.5 million, or 9%, between periods, which drove a decrease in borrowings of $185.2 million, or 25%, and enabled the Company to fund asset growth with lower cost funding; and (ii) the Federal Funds rate was cut twice in the first quarter of 2020 dropping the rate to 0.25% at March 31, 2020, compared to 2.50% at March 31, 2019.

•

Interest income on a fully-taxable equivalent basis. Interest income on a fully-taxable equivalent basis for the six months ended June 30, 2020 decreased $5.0 million, or 6%, to $80.0 million, compared to the same period of 2019. Our interest-earning asset yield decreased 0.48% between periods to 3.71% for the six months ended June 30, 2020, as loan yields decreased 0.55% between periods, which was reflective of the change in interest rate environment. The growth in average interest-earning assets was able to partially offset the decrease in asset yield between periods. Average loans grew $170.8 million, or 6%, between periods to $3.2 billion for the six months ended June 30, 2020, and was primarily driven by average SBA PPP loans of $89.0 million, for which we recognized $1.7 million of interest income, average residential mortgage growth of $61.6 million and commercial growth of $31.0 million.

•

Interest expense. Interest expense for the six months ended June 30, 2020 decreased $8.0 million, or 38%, to $13.0 million, compared to the same period of 2019. Cost of funds for the six months ended June 30, 2020 decreased 0.46% between periods to 0.64% for the six months ended June 30, 2020 driven by: (i) a decrease in deposit costs of 0.30% between periods to 0.52% for the six months ended June 30, 2020; (ii) a decrease in borrowing costs of 0.46% between periods to 1.38% for the six months ended June 30, 2020; and (iii) a shift in funding mix as average deposits grew $386.5 million, or 12%, between periods to $3.5 billion for the six months ended June 30, 2020, while average borrowings decreased $148.5 million, or 21%, between periods to $571.6 million for the six months ended June 30, 2020. The Federal Funds rate was cut twice in the first quarter of 2020 to 0.25%.

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 net interest margin on a fully-taxable basis for the followings periods:


1	~~Net interest margin on a fully-taxable equivalent basis is calculated as net interest income on a full-taxable equivalent basis as a percentage of average interest-earning assets.~~

Quarterly Average Balance, Interest and Yield/Rate Analysis
	For The Three Months Ended																For The Three Months Ended
	March 31, 2020								March 31, 2019								June 30, 2020								June 30, 2019
(Dollars 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 and other interest-earning assets	$	66,180		$	207		1.24	%	$	29,985		$	197		2.63	%	$	168,221		$	26		0.06	%	$	59,901		$	355		2.34	%
Investments - taxable	809,041			5,174			2.56	%	851,516			5,447			2.56	%	836,885			5,203			2.49	%	839,714			5,366			2.56	%
Investments - nontaxable⁽¹⁾	117,537			996			3.39	%	94,710			815			3.44	%	124,101			1,049			3.38	%	90,087			790			3.51	%
Loans⁽²⁾:
Residential real estate	1,078,836			11,292			4.19	%	1,008,285			10,838			4.30	%
Commercial real estate	1,273,538			13,646			4.24	%	1,281,501			15,169			4.73	%	1,302,393			12,609			3.83	%	1,255,172			14,840			4.68	%
Commercial⁽¹⁾	416,527			4,435			4.21	%	369,832			4,344			4.70	%	404,545			3,868			3.78	%	389,166			4,639			4.72	%
SBA PPP																	178,119			1,706			3.79	%	—			—			—	%
HPFC																	17,659			414			9.28	%	29,472			584			7.83	%
Municipal⁽¹⁾	16,990			155			3.67	%	15,333			136			3.60	%	19,567			176			3.62	%	20,117			179			3.56	%
Residential real estate																	1,084,931			11,002			4.06	%	1,032,215			11,200			4.34	%
Consumer and home equity	334,771			4,186			5.03	%	347,052			4,671			5.46	%	321,019			3,420			4.29	%	347,141			4,732			5.47	%
HPFC	20,336			402			7.83	%	32,171			636			7.91	%
Total loans	3,140,998			34,116			4.32	%	3,054,174			35,794			4.70	%	3,328,233			33,195			3.97	%	3,073,283			36,174			4.68	%
Total interest-earning assets	4,133,756			40,493			3.90	%	4,030,385			42,253			4.20	%	4,457,440			39,473			3.53	%	4,062,985			42,685			4.18	%
Cash and due from banks	42,869								40,362								49,777								40,835
Other assets	336,819								292,482								392,271								300,256
Less: ALL	(25,252		)						(24,780		)						(27,823		)						(25,487		)
Total assets	$	4,488,192							$	4,338,449							$	4,871,665							$	4,378,589
Liabilities & Shareholders' Equity
Deposits:
Non-interest checking	$	529,501		$	—		—	%	$	490,382		$	—		—	%	$	664,605		$	—		—	%	$	485,724		$	—		—	%
Interest checking	1,146,783			1,987			0.70	%	1,085,301			2,622			0.98	%	1,298,468			906			0.28	%	1,110,567			2,791			1.01	%
Savings	476,849			86			0.07	%	485,646			95			0.08	%	518,803			76			0.06	%	476,104			104			0.09	%
Money market	650,383			1,586			0.98	%	582,685			1,740			1.21	%	717,056			659			0.37	%	581,638			1,863			1.28	%
Certificates of deposit	552,079			2,209			1.61	%	443,107			1,465			1.34	%	477,068			1,588			1.34	%	516,972			2,064			1.60	%
Total deposits	3,355,595			5,868			0.70	%	3,087,121			5,922			0.78	%	3,676,000			3,229			0.35	%	3,171,005			6,822			0.86	%
Borrowings:
Brokered deposits	208,084			794			1.54	%	405,837			2,501			2.50	%	234,823			163			0.28	%	370,448			2,334			2.53	%
Customer repurchase agreements	236,351			633			1.08	%	238,499			729			1.24	%	209,302			291			0.56	%	246,935			799			1.30	%
Subordinated debentures	59,119			887			6.04	%	59,007			717			4.93	%	59,194			888			6.03	%	58,985			823			5.60	%
Other borrowings	59,257			205			1.39	%	44,711			245			2.22	%	76,983			68			0.35	%	15,940			86			2.17	%
Total borrowings	562,811			2,519			1.80	%	748,054			4,192			2.27	%	580,302			1,410			0.98	%	692,308			4,042			2.34	%
Total funding liabilities	3,918,406			8,387			0.86	%	3,835,175			10,114			1.07	%	4,256,302			4,639			0.44	%	3,863,313			10,864			1.13	%
Other liabilities	89,612								62,247								115,914								59,747
Shareholders' equity	480,174								441,027								499,449								455,529
Total liabilities & shareholders' equity	$	4,488,192							$	4,338,449							$	4,871,665							$	4,378,589
Net interest income (fully-taxable equivalent)				32,106								32,139								34,834								31,821
Less: fully-taxable equivalent adjustment				(280		)						(244		)						(295		)						(248		)
Net interest income				$	31,826							$	31,895							$	34,539							$	31,573
Net interest rate spread (fully-taxable equivalent)							3.04	%							3.13	%							3.09	%							3.05	%
Net interest margin (fully-taxable equivalent)							3.08	%							3.18	%							3.11	%							3.11	%
Net interest margin (fully-taxable equivalent), excluding fair value mark accretion and collection of previously charged-off acquired loans⁽³⁾							3.06	%							3.14	%							3.07	%							3.07	%


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


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


(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 three months ended ~~March 31,~~June 30, 2020 and 2019, totaling ~~$283,000~~$403,000 and ~~$390,000,~~$439,000, respectively.

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

	For The Six Months Ended
	June 30, 2020								June 30, 2019
(Dollars in thousands)	Average Balance			Interest			Yield/Rate		Average Balance			Interest			Yield/Rate
Assets
Interest-earning assets:
Interest-bearing deposits in other banks and other interest-earning assets	$	117,201		$	233		0.39	%	$	48,301		$	552		2.27	%
Investments - taxable	822,963			10,377			2.52	%	845,583			10,814			2.56	%
Investments - nontaxable⁽¹⁾	120,819			2,044			3.38	%	92,386			1,606			3.48	%
Loans⁽²⁾:
Commercial real estate	1,287,965			26,255			4.03	%	1,268,264			30,006			4.71	%
Commercial⁽¹⁾	410,563			8,302			4.00	%	379,552			8,983			4.71	%
SBA PPP	89,033			1,706			3.79	%	—			—			—	%
HPFC	18,997			817			8.50	%	30,814			1,220			7.87	%
Municipal⁽¹⁾	18,279			331			3.64	%	17,738			315			3.58	%
Residential real estate	1,081,884			22,294			4.12	%	1,020,316			22,038			4.32	%
Consumer and home equity	327,895			7,606			4.66	%	347,097			9,403			5.46	%
Total loans	3,234,616			67,311			4.14	%	3,063,781			71,965			4.69	%
Total interest-earning assets	4,295,599			79,965			3.71	%	4,050,051			84,937			4.19	%
Cash and due from banks	46,323								40,600
Other assets	364,544								293,114
Less: ALL	(26,537		)						(25,135		)
Total assets	$	4,679,929							$	4,358,630
Liabilities & Shareholders' Equity
Deposits:
Non-interest checking	$	597,053		$	—		—	%	$	488,040		$	—		—	%
Interest checking	1,222,626			2,893			0.48	%	1,098,003			5,411			0.99	%
Savings	497,826			162			0.07	%	480,849			199			0.08	%
Money market	683,720			2,245			0.66	%	582,158			3,603			1.25	%
Certificates of deposit	514,573			3,796			1.48	%	480,244			3,529			1.48	%
Total deposits	3,515,798			9,096			0.52	%	3,129,294			12,742			0.82	%
Borrowings:
Brokered deposits	221,454			958			0.87	%	388,045			4,837			2.51	%
Customer repurchase agreements	222,827			925			0.83	%	242,740			1,528			1.27	%
Subordinated debentures	59,157			1,775			6.03	%	58,996			1,540			5.26	%
Other borrowings	68,120			272			0.80	%	30,237			331			2.21	%
Total borrowings	571,558			3,930			1.38	%	720,018			8,236			2.31	%
Total funding liabilities	4,087,356			13,026			0.64	%	3,849,312			20,978			1.10	%
Other liabilities	102,762								61,000
Shareholders' equity	489,811								448,318
Total liabilities & shareholders' equity	$	4,679,929							$	4,358,630
Net interest income (fully-taxable equivalent)				66,939								63,959
Less: fully-taxable equivalent adjustment				(574		)						(491		)
Net interest income				$	66,365							$	63,468
Net interest rate spread (fully-taxable equivalent)							3.07	%							3.09	%
Net interest margin (fully-taxable equivalent)							3.10	%							3.14	%
Net interest margin (fully-taxable equivalent), excluding fair value mark accretion and collection of previously charged-off acquired loans⁽³⁾							3.06	%							3.10	%


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


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


(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 six months ended June 30, 2020 and 2019, totaling $687,000 and $829,000, respectively.

The following table presents certain information on a fully-taxable equivalent basis regarding changes in interest income and interest expense for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes attributable to rate and volume. The (a) changes in volume (change in volume multiplied by prior period's rate), (b) changes in rates (change in rate multiplied prior period's volume), and (c) changes in rate/volume (change in rate multiplied by the change in volume), which is allocated to the change due to rate column.


	For The Three Months Ended March 31, 2020 vs. March 31, 2019									For The Three Months Ended June 30, 2020 vs. June 30, 2019										For The Six Months Ended June 30, 2020 vs. June 30, 2019
	Increase (Decrease) Due to:						Net Increase (Decrease)			Increase (Decrease) Due to:						Net Increase (Decrease)				Increase (Decrease) Due to:							Net Increase (Decrease)
(In thousands)	Volume			Rate⁽¹⁾						Volume			Rate						Volume				Rate
Interest-earning assets:
Interest-bearing deposits in other banks and other interest-earning assets	$	238		$	(228	)	$	10		$	634		$	(963	)	$	(329	)		$	782			$	(1,101	)	$	(319	)
Investments – taxable	(272		)	(1		)	(273		)	(18		)	(145		)	(163		)		(290		)		(147		)	(437		)
Investments – nontaxable	196			(15		)	181			298			(39		)	259				495				(57		)	438
Residential real estate	758			(304		)	454
Commercial real estate	(94		)	(1,429		)	(1,523		)	559			(2,790		)	(2,231		)		467				(4,218		)	(3,751		)
Commercial	549			(458		)	91			125			(896		)	(771		)		734				(1,415		)	(681		)
SBA PPP										1,706			—			1,706				1,706				—			1,706
HPFC										(234		)	64			(170		)		(468		)		65			(403		)
Municipal	15			4			19			(5		)	2			(3		)		10				6			16
Residential real estate										572			(770		)	(198		)		1,330				(1,074		)	256
Consumer and home equity	(165		)	(320		)	(485		)	(356		)	(956		)	(1,312		)		(520		)		(1,277		)	(1,797		)
HPFC	(234		)	—			(234		)
Total interest income	991			(2,751		)	(1,760		)
Total interest income (fully-taxable equivalent)										3,281			(6,493		)	(3,212		)		4,246				(9,218		)	(4,972		)
Interest-bearing liabilities:
Interest checking	149			(784		)	(635		)	473			(2,358		)	(1,885		)		612				(3,130		)	(2,518		)
Savings	(2		)	(7		)	(9		)	10			(38		)	(28		)		7				(44		)	(37		)
Money market	202			(356		)	(154		)	432			(1,636		)	(1,204		)		630				(1,988		)	(1,358		)
Certificates of deposit	360			384			744			(159		)	(317		)	(476		)		252				15			267
Brokered deposits	(1,219		)	(488		)	(1,707		)	(855		)	(1,316		)	(2,171		)		(2,074		)		(1,805		)	(3,879		)
Customer repurchase agreements	(7		)	(89		)	(96		)	(122		)	(386		)	(508		)		(125		)		(478		)	(603		)
Subordinated debentures	1			169			170			3			62			65				4				231			235
Other borrowings	80			(120		)	(40		)	330			(348		)	(18		)		415				(474		)	(59		)
Total interest expense	(436		)	(1,291		)	(1,727		)	112			(6,337		)	(6,225		)		(279		)		(7,673		)	(7,952		)
Net interest income (fully-taxable equivalent)	$	1,427		$	(1,460	)	$	(33	)	$	3,169		$	(156	)	$	3,013			$	4,525			$	(1,545	)	$	2,980


~~(1)~~	Presented within increase (decrease) due to rate for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 was a decrease in net interest income on a fully-taxable equivalent basis of $107,000 due to a decrease in fair value mark accretion on loans and CDs generated in purchase accounting and collection of previously charged-off acquired loans.

Provision for Credit Losses

As further described in "– "—Critical Accounting ~~Policies"~~Policies" and Note 2 of the consolidated financial statements, the Company opted to delay implementation of ASU 2016-13, commonly referred to as "CECL," under the terms provided for within the CARES Act, signed into law in March 2020. The Company will ~~be required to~~ adopt CECL upon the earlier of (1) the date on which the national emergency concerning the COVID-19 pandemic that the President of the United States declared on March 15, 2020 terminates, or (2) December 31, 2020. As ~~such,~~of June 30, 2020, the ~~Company determined its first quarter 2020~~national emergency for the COVID-19 pandemic was not rescinded, and, therefore, Company's reported provision for credit losses for the three and six months ended June 30, 2020 was determined using the policies and procedures described in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.

The provision for credit losses consists of the provision for loan losses and the provision for unfunded commitments.

The provision for loan losses is a recorded 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 provision for loan losses reflects loan quality, 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 provision for loan losses reflects 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.

For the ~~three months ended March 31,~~second quarter of 2020, the provision for loan losses was ~~$1.8~~$9.4 million, an increase of ~~$1.0~~$8.2 million ~~or 136%,~~over the second quarter of 2019. For the six months ended June 30, 2020, the provision for loan losses was $11.2 million, an increase of $9.3 million over the same period ~~last year.~~of 2019. The increase in the provision for loan losses for both periods was ~~primarily~~driven by an increase in the ALL due to anestimates relating to the potential effects of the COVID-19 pandemic on our borrowers. Although asset quality was strong at June 30, 2020, the increase in the provision for loan losses for both periods reflects a measure of ~~$800,000 for a qualitative factor adjustment under the incurred model for consideration of~~impact attributed to the COVID-19 pandemic, based on available information ~~known~~at that time, which includes consideration of loan modification levels and available as of March 31, 2020. As of March 31, 2020, the Company had not experienced any deteriorating asset quality trends. We, however, expect that credit strain within our loan portfolio is probable given the impact the COVID-19 pandemic has had, and is anticipated to continue to have, on the economy. industry risk.

Refer to "—Financial Condition—Asset Quality" for further discussion ~~and details~~ of the Company's asset quality, including its temporary debt relief ~~program~~ provided to loan ~~customers.~~customers impacted by the COVID-19 pandemic.

The 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 is presented within accrued interest and other liabilities on the consolidated statements of condition. Refer to Note 4 of the consolidated financial statements for further discussion.

~~Please refer to "—Financial Condition—Asset 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 periods indicated:


	Three Months Ended March 31,						Change					Three Months Ended June 30,						Change					Six Months Ended June 30,						Change
(Dollars in thousands)	2020			2019			$			%		2020			2019			$			%		2020			2019			$			%
Mortgage banking income, net⁽¹⁾	$	3,534		$	1,252		$	2,282		182	%	$	4,691		$	1,742		2,949			169	%	$	8,225		$	2,994		$	5,231		175	%
Debit card income	2,141			2,010			131			7	%	2,391			2,281			110			5	%	4,532			4,291			241			6	%
Service charges on deposit accounts(2)	2,012			2,023			(11		)	(1	)%	1,337			2,209			(872		)	(39	)%	3,349			4,232			(883		)	(21	)%
Income from fiduciary services	1,502			1,392			110			8	%	1,603			1,545			58			4	%	3,105			2,937			168			6	%
Bank-owned life insurance	689			594			95			16	%	614			603			11			2	%	1,303			1,197			106			9	%
Brokerage and insurance commissions	657			585			72			12	%	622			732			(110		)	(15	)%	1,279			1,317			(38		)	(3	)%
Customer loan swap fees⁽²⁾⁽³⁾	114			525			(411		)	(78	)%	57			285			(228		)	(80	)%	171			810			(639		)	(79	)%
Other income⁽³⁾	754			1,008			(254		)	(25	)%
Net gain on sale of securities												—			27			(27		)	(100	)%	—			27			(27		)	(100	)%
Other income												745			613			132			22	%	1,499			1,621			(122		)	(8	)%
Total non-interest income	$	11,403		$	9,389		$	2,014		21	%	$	12,060		$	10,037		$	2,023		20	%	$	23,463		$	19,426		$	4,037		21	%
Non-interest income as a percentage of total revenues	26		%	23		%						26		%	24		%						26		%	23		%

(1) Mortgage banking income, net: For the second quarter of 2020, the net gain on sale of residential mortgages, including the fair value mark on the loan pipeline designated for sale, was $3.9 million, an increase of $2.4 million over the second quarter of 2019.The increase ~~for the three months ended March 31, 2020, compared to the same period last year,~~between periods was driven by ~~higher~~strong residential mortgage ~~sales and pipeline~~ activity ~~in the first quarter of 2020~~ due to ~~a sharp decrease in~~the historically low interest ~~rates.~~rate environment. In the ~~first~~second quarter of 2020, the Company sold ~~$69.2~~$197.8 million of residential ~~mortgage loans,~~mortgages to the secondary market, compared to ~~$28.0~~$49.6 million infor the ~~first~~second quarter of ~~2019,~~2019. The Company maintained the servicing rights on certain mortgages sold, and, as a result, servicing income for the ~~unrealized~~second quarter of 2020 increased $551,000 over the second quarter of 2019.

For the six months ended June 30, 2020, the net gain on ~~mortgage banking activity~~sale of residential mortgages, including the fair value mark on the loan pipeline designated for sale, was ~~$1.5~~$7.2 million, ~~higher in~~an increase of $4.6 million over the ~~first~~same period of 2019.During the six months ended June 30, 2020, the Company sold $267.0 million of residential mortgages to the secondary market, compared to $77.6 million for the second quarter of 2019. The Company maintained the servicing rights on certain

mortgages sold, and, as a result, servicing income for the six months ended June 30, 2020 increased $633,000 over the same period of 2019.

(2) Service charges on deposit accounts: The decrease for thethree and six months ended June 30, 2020, compared to the same ~~period last year.~~periods of 2019, was primarily due to a decrease in overdraft fees of $823,000 and $870,000, respectively. In response to the COVID-19 pandemic, we have seen a shift in customer behavior as there are less merchant transactions and higher deposit balances, in part, due to the federal stimulus provided to consumers and commercial customers, as well as an increase in the national personal savings rate, which reached 23% in May 2020.


~~(2)~~(3)	Customer loan swap fees: The decrease for the three and six months ended ~~March 31,~~June 30, 2020, compared to the same ~~period last year, due~~periods of 2019, was driven by a change in appetite by the Company for this loan product and structure as interest rates have decreased significantly to ~~a decrease in volume.~~historically low levels.

~~(3)~~ ~~Other income:~~ The decrease for the three months ended March 31, 2020, compared to the same period last year, was due to the recognition of an unrealized gain of $242,000 in the first quarter of 2019 on its bank equity securities.

Non-Interest Expense

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


	Three Months Ended March 31,						Change					Three Months Ended June 30,						Change					Six Months Ended June 30,						Change
(Dollars in thousands)	2020			2019			$			%		2020			2019			$			%		2020			2019			$			%
Salaries and employee benefits⁽¹⁾	$	14,327		$	12,978		$	1,349		10	%	$	13,627		$	13,461		$	166		1	%	$	27,954		$	26,439		$	1,515		6	%
Furniture, equipment and data processing	2,790			2,680			110			4	%	2,710			2,723			(13		)	—	%	5,500			5,403			97			2	%
Net occupancy costs	2,003			1,914			89			5	%	1,997			1,639			358			22	%	4,000			3,553			447			13	%
Consulting and professional fees												1,181			974			207			21	%	1,964			1,787			177			10	%
Debit card expense	934			823			111			13	%	878			883			(5		)	(1	)%	1,812			1,706			106			6	%
Consulting and professional fees	783			813			(30		)	(4	)%
Amortization of intangible assets	170			176			(6		)	(3	)%
Regulatory assessments⁽²⁾	162			472			(310		)	(66	)%	299			437			(138		)	(32	)%	461			909			(448		)	(49	)%
Other real estate owned and collection costs (recoveries), net⁽³⁾	101			(307		)	408			(133	)%
Amortization of core deposit intangible assets												171			176			(5		)	(3	)%	341			352			(11		)	(3	)%
Other real estate owned and collection costs, net⁽³⁾												98			409			(311		)	(76	)%	199			102			97			95	%
Other expenses(4)	3,291			3,234			57			2	%	2,548			3,256			(708		)	(22	)%	5,839			6,490			(651		)	(10	)%
Total non-interest expense	$	24,561		$	22,783		$	1,778		8	%	$	23,509		$	23,958		$	(449	)	(2	)%	$	48,070		$	46,741		$	1,329		3	%
GAAP efficiency ratio	56.82		%	55.19		%						50.45		%	57.58		%						53.51		%	56.39		%
Non-GAAP efficiency ratio	56.45		%	54.86		%						50.13		%	57.27		%						53.17		%	56.07		%

~~(1)~~ ~~Salaries and employee benefits:~~ The increase for the three months ended March 31, 2020, compared to the same period last year, was primarily driven by normal merit increases, an increase in the number of employees, and higher incentive accruals.

(1)

Salaries and employee benefits: The increase for the six months ended June 30, 2020, compared to the same period of 2019, was driven by annual merit cycle, an increase in wages of $219,000 in the second quarter of 2020 for those employees that continued to service our customers as an essential business during the COVID-19 pandemic, an increase in the number of employees and an 8% increase in health insurance-related costs. The increases were partially offset by lower performance-based incentive accruals for the six months ended June 30, 2020, compared to the same period of 2019.

(2)

Regulatory assessments: The decrease for the three and six months ended ~~March 31,~~June 30, 2020 compared to the same ~~period~~periods last year, was driven by the receipt ~~during the first quarter of 2020~~ of a Small Bank Assessment Credit from the FDIC, ~~for the Company's fourth quarter assessment period,~~ as the FDIC Deposit Insurance Fund ("DIF") reserve ratio exceeded its regulatory ~~limit. It is anticipated that~~limit for the prior assessment periods. As of June 30, 2020, the Company has no remaining Small Bank Assessment Credits, and anticipates its regulatory assessment costs will ~~receive its final credit in the second quarter of 2020, should the FDIC continue~~revert back to ~~meet and exceed its required DIF reserve ratio.~~historical levels.

(3) Other real estate owned and collection costs (recoveries), net: The ~~increase~~decrease for the ~~three months ended March 31,~~second quarter of 2020, compared to the ~~same period last year, was driven by reimbursement of $378,000 in the first~~second quarter of 2019, ~~for related legal costs.~~was primarily driven by a non-recurring expense in the second quarter of 2019 of $360,000.

(4)

Other expenses: The decrease for the three and six months ended June 30, 2020, compared to the same periods of 2019, was driven by (i) lower employee-related costs, including hiring, training and travel, as employees transitioned to remote working in the second quarter of 2020; and (ii) marketing costs as programs were put on hold in the second quarter of 2020 as we prioritized our response to the COVID-19 pandemic, including the health and safety of our employee and customers. Second quarter 2020 employee-related costs were $392,000 lower than the second quarter of 2019, and $457,000 lower for the six months ended June 30, 2020, compared to the same period of 2019. Second quarter 2020 market costs were $210,000 lower than the second quarter of 2019, and $131,000 lower for the six months ended June 30, 2020, compared to the same period of 2019.

FINANCIAL CONDITION

Investments

The Company utilizes the investment portfolio to manage liquidity, interest rate risk, and regulatory capital, as well as to take advantage of market conditions to generate a favorable return on investments without undue risk. The Company’s investment portfolio consists of debt securities we have designated as AFS ~~debt securities we have designated as~~and HTM, and common stock of the FHLBB, FRB and certain banks. Investments increased ~~$43.4~~$131.0 million, or 5%14%, at ~~March 31,~~June 30, 2020 as compared to December 31, 2019. The following is the activity in our investment portfolio:

The purchase of ~~$58.8~~$206.5 million of investments in the first ~~three~~six months of 2020 with a weighted-average life of ~~6.1~~5.0 years;

A net increase in the fair value of the AFS debt securities portfolio of ~~$24.1~~$33.2 million driven by the change in general market conditions, specifically a decrease in long-term interest rates at ~~March 31,~~June 30, 2020, compared to December 31, 2019;

Partially offset by paydowns and calls of ~~$40.2~~$108.4 million.

Our investments in FHLBB and FRB common stock are carried at cost. These investments are presented within other investments on the consolidated statements of condition. We are required to maintain a level of investment in FHLBB stock based on our level of FHLBB advances, and maintain a level of investment in FRB common stock based on the Bank's capital levels. As of ~~March 31,~~June 30, 2020 and December 31, 2019, our investment in FHLBB stock totaled ~~$8.0~~$8.1 million and $6.6 million, respectively, and our investment in FRB stock was $5.4 million at each date.

As further described in "– Critical Accounting Policies" and Note 2 of the consolidated financial statements, the Company opted to delay implementation of ASU 2016-13, commonly referred to as "CECL," under the terms provided for within the CARES Act, signed into law in March 2020. The Company will ~~be required to~~ adopt CECL upon the earlier of (1) the date on which the national emergency concerning the COVID-19 pandemic that the President of the United States declared on March 15, 2020 terminates, or (2) December 31, 2020. As of June 30, 2020, the national emergency for the COVID-19 pandemic has not yet been rescinded, and as such, the Company for the three and six months ended June 30, 2020, assessed its investments for OTTI using the policies and procedures described in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

The Company monitors its investments for the presence of OTTI. For debt securities ~~which made up 99% of our investment portfolio at March 31, 2020,~~ the primary consideration in determining OTTI impairment is whether or not the Bank expects to collect all contractual cash flows. There was no OTTI recorded on investments as of ~~March 31,~~June 30, 2020 or December 31, 2019.

We continuously monitor and evaluate our investment portfolio to identify and assess risks within our portfolio, including, but not limited to, the impact of the current interest rate environment and the related prepayment risk, and review credit ratings. The overall mix of debt securities at ~~March 31,~~June 30, 2020, compared to December 31, 2019, remains relatively unchanged and well positioned to provide a stable source of cash flow. At ~~March 31,~~June 30, 2020 and December 31, 2019, the duration of our debt investment securities portfolio, adjusting for calls when appropriate and consensus prepayment speeds, was ~~4.4~~4.1 and 4.7 years, respectively. We are currently investing in longer duration debt securities, or those with call protection, to limit prepayment risk and to protect against a lower rate environment.

Loans

The Company provides loans primarily to customers located within our geographic market area. Our primary ~~markets~~market continues to be in Maine, making up ~~75% and~~ 76% of the loan portfolio as of ~~March 31,~~June 30, 2020 and December 31, ~~2019, respectively.~~2019. Massachusetts and New Hampshire are our second and third largest markets that we serve, making up 13% and 6%, respectively, of our total loan portfolio as of ~~March 31,~~June 30, 2020 and December 31, 2019. Our distribution channels include 57 branches within Maine, a residential mortgage lending office in Massachusetts, a branch and commercial loan production office in New Hampshire, and on-line residential mortgage and small commercial loan platforms.

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


	March 31, 2020				December 31, 2019			Change													Change
(Dollars in thousands)				($)				(%)			June 30, 2020				December 31, 2019			($)			(%)
Residential real estate	March 31, 2020		$	1,064,212	December 31, 2019			$	1,070,374			$	(6,162	)		(1	)%
Commercial real estate	1,299,860				1,243,397			56,463				5	%		$	1,310,985		$	1,243,397		$	67,588		5	%
Commercial	444,830				421,108			23,722				6	%		411,225			421,108			(9,883		)	(2	)%
SBA PPP															218,803			—			218,803			N.M.
HPFC															16,961			21,593			(4,632		)	(21	)%
Residential real estate															1,054,333			1,070,374			(16,041		)	(1	)%
Consumer and home equity	330,603				338,551			(7,948		)		(2	)%		313,734			338,551			(24,817		)	(7	)%
HPFC	18,257				21,593			(3,336		)		(15	)%
Total loans	$	3,157,762			$	3,095,023		$	62,739			2	%		$	3,326,041		$	3,095,023		$	231,018		7	%
Commercial Loan Portfolio	$	1,762,947			$	1,686,098		$	76,849			5	%		$	1,957,974		$	1,686,098		$	271,876		16	%
Retail Loan Portfolio	$	1,394,815			$	1,408,925		$	(14,110	)		(1	)%		$	1,368,067		$	1,408,925		$	(40,858	)	(3	)%
Commercial Portfolio Mix	56		%		54		%								59		%	54		%
Retail Portfolio Mix	44		%		46		%								41		%	46		%

Beginning in April 2020, the Company started funding SBA ~~Paycheck Protection Program~~PPP loans issued to qualifying small businesses as part of the federal stimulus package issued due to the COVID-19 pandemic. AsUnder the terms of ~~April 22, 2020,~~the SBA PPP, loans issued may be forgiven in part or in full should the borrower meet certain conditions. In this instance, the Company ~~had approved 1,649 loans with total balances~~will seek payment for the forgivable portion of ~~$197.4 million for funding.~~the loan from the SBA. Loans made under the SBA ~~Paycheck Protection Program~~PPP may have terms of two to five years, are ~~two-year loans,~~ fully guaranteed by the SBA, and have a fixed rate of 1.0%. For originating the loans, the Company ~~will receive a~~receives an origination fee, ~~to be~~ paid by the SBA, based on a tiered structure that is dependent on each individual loan size. These fees are to be capitalized as origination fees and earned over the life of the loan in accordance with the Company's policy.

In the second quarter of 2020, we originated 2,919 PPP loans with total funding of $237.0 million. As of June 30, 2020, there were 2,893 PPP loans outstanding with a total recorded investment of $218.8 million, which includes $7.0 million of unearned fees. We anticipate that over the coming months, as borrowers apply for forgiveness, the Company's PPP loans balance will decrease significantly, which will also expedite the recognition of the unearned fees.

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:


(Dollars in thousands)	March 31, 2020			December 31, 2019			June 30, 2020			December 31, 2019
Non-accrual loans:
Residential real estate	$	3,499		$	4,096
Commercial real estate	646			1,122			$	432		$	1,122
Commercial	748			420			699			420
SBA PPP							—			—
HPFC							392			364
Residential real estate							4,664			4,096
Consumer and home equity	2,102			2,154			2,371			2,154
HPFC	322			364
Total non-accrual loans	7,317			8,156			8,558			8,156
Accruing loans past due 90 days	—			—			—			—
Accruing TDRs not included above	3,008			2,993			2,874			2,993
Total non-performing loans	10,325			11,149			11,432			11,149
Other real estate owned	94			94			118			94
Total non-performing assets	$	10,419		$	11,243		$	11,550		$	11,243
Non-accrual loans to total loans	0.23		%	0.26		%	0.26		%	0.26		%
Non-performing loans to total loans	0.33		%	0.36		%	0.34		%	0.36		%
ALL to non-performing loans	256.86		%	225.77		%	310.87		%	225.77		%
Non-performing assets to total assets	0.23		%	0.25		%	0.23		%	0.25		%
ALL to non-performing assets	254.54		%	223.88		%	307.70		%	223.88		%

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 ~~March 31,~~June 30, 2020, potential problem loans amounted to ~~$2.8~~$1.5 million, or ~~0.09%~~0.05% of total loans.

Past Due Loans. Past due loans consist of accruing loans that were between 30 and 89 days past due. The following table presents the recorded investment of past due loans at the date indicated:


(Dollars in thousands)	March 31, 2020			December 31, 2019			June 30, 2020			December 31, 2019
Accruing loans 30-89 days past due:
Residential real estate	$	1,781		$	2,227
Commercial real estate	2,641			1,582			$	1,625		$	1,582
Commercial	1,560			548			95			548
SBA PPP							—			—
HPFC							128			243
Residential real estate							4,016			2,227
Consumer and home equity	1,379			750			388			750
HPFC	165			243
Total	$	7,526		$	5,350		$	6,252		$	5,350
Accruing loans 30-89 days past due to total loans	0.24		%	0.17		%	0.19		%	0.17		%

COVID-19 Loan Modifications. In ~~response~~March 2020, we began offering temporary debt relief to our business and retail customers impacted by the COVID-19 pandemic, which included providing temporary payment, in full or in part, of principal and/or interest. All loan modifications we made complied with the ~~Company worked with businesses~~terms of the CARES Act or bank regulator guidance, and, ~~consumers~~thus, were not designated or accounted for as TDRs.

Through June 30, 2020, we had modified 2,064 business and retail customer loans to provide temporary debt ~~payment relief. The Company's~~relief to those impacted by the COVID-19 pandemic. As of June 30, 2020, 1,763 customer loans with total loan balances of $546.7 million, or 16% of total loans, were still operating under the terms of a COVID-19 loan modification. As the original loan modification term matures, we may, at our discretion, extend or modify the loan terms again. With many of the original loan modifications maturing in July 2020, we are currently engaged in discussions with these customers to determine if further payment relief ~~program provided principal and/~~is needed. The terms of those loan modifications will be on a case-by-case basis, and may include an extension of payment deferral in full or interest payment deferrals of 30 to 180 days for businesses and 90 to 180 days for consumers. Refer to Note 4 of the consolidated financial statements for the Company's accounting treatment for loans modified due to the COVID-19 pandemic.

in part. As of ~~April 22,~~July 23, 2020, ~~the Company~~we had ~~modified the following~~agreed to a second COVID-related loan modification for 469 customer loans with total loan balances of ~~which none were deemed to be a TDR:~~$68.1 million.

(Dollars in thousands) Units Recorded Investment
Percent of Total Loans at
March 31, 2020
Business 1,072
$ 435,615
14 %
Consumer 660
112,040
3 %
Total 1,732
$ 547,655
17 %

As these loans are performing loans, the Company will continue to accrue interest and recognize interest income in accordance with the Company's policies.

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 the ALL for the periods indicated:


	At or For The Three Months Ended March 31,						At or For The Year Ended December 31, 2019			At or For The Three Months Ended June 30,						At or For The Six Months Ended June 30,						At or For The Year Ended December 31, 2019
(Dollars in thousands)	2020			2019			At or For The Year Ended December 31, 2019			2020			2019			2020			2019			At or For The Year Ended December 31, 2019
ALL at the beginning of the period	$	25,171		$	24,712		$	24,712		$	26,521		$	25,201		$	25,171		$	24,712		$	24,712
Provision for loan losses	1,772			750			2,862			9,400			1,175			11,172			1,925			2,862
Charge-offs:
Residential real estate	96			11			462
Commercial real estate	50			65			300			21			—			71			65			300
Commercial	253			236			1,167			420			217			673			453			1,167
SBA PPP										—			—			—			—			—
HPFC										—			—			—			—			71
Residential real estate										—			14			96			25			462
Consumer and home equity	91			24			713			43			40			134			64			713
HPFC	—			—			71
Total charge-offs	490			336			2,713			484			271			974			607			2,713
Recoveries:
Residential real estate	2			2			16
Commercial real estate	4			4			49			3			3			7			7			49
Commercial	53			62			225			63			49			116			111			225
SBA PPP										—			—			—			—			—
HPFC										—			—			—			—			—
Residential real estate										21			2			23			4			16
Consumer and home equity	9			7			20			15			4			24			11			20
HPFC	—			—			—
Total recoveries	68			75			310			102			58			170			133			310
Net charge-offs	422			261			2,403			382			213			804			474			2,403
ALL at the end of the period	$	26,521		$	25,201		$	25,171		$	35,539		$	26,163		$	35,539		$	26,163		$	25,171
Components of allowance for credit losses:
Allowance for loan losses	$	26,521		$	25,201		$	25,171		$	35,539		$	26,163		$	35,539		$	26,163		$	25,171
Liability for unfunded credit commitments	24			16			21			22			14			22			14			21
Balance of allowance for credit losses at end of the period	$	26,545		$	25,217		$	25,192		$	35,561		$	26,177		$	35,561		$	26,177		$	25,192
Net charge-offs (annualized) to average loans	0.05		%	0.03		%	0.08		%	0.05		%	0.03		%	0.05		%	0.03		%	0.08		%
Provision for loan losses (annualized) to average loans	0.23		%	0.10		%	0.09		%	1.13		%	0.15		%	0.46		%	0.13		%	0.09		%
ALL to total loans	0.84		%	0.83		%	0.81		%	1.07		%	0.84		%	1.07		%	0.84		%	0.81		%
ALL to net charge-offs (annualized)	1,571.15		%	2,413.89		%	1,047.48		%	2,325.85		%	3,070.77		%	2,210.14		%	2,759.81		%	1,047.48		%

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, which included consideration of the COVID-19 pandemic, 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, known changes 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.

We believe the ALL of ~~$26.5~~$35.5 million, or ~~0.84%~~1.07% of total loans and ~~256.86%~~310.87% of total non-performing loans, at ~~March 31,~~June 30, 2020 was appropriate given the current economic conditions in our ~~service area,~~markets, which included consideration of the COVID-19 pandemic and its impact on our customers, local economies, and ~~markets, and~~ the condition of the loan portfolio. Based on information available as of March 31, 2020, the ALL was increased by $800,000, with a corresponding charge to provision for loan losses, as we considered the impact of the COVID-19 pandemic within our qualitative factors. The impact of the COVID-19 pandemic on a global, national ~~and/or~~and local ~~economy is~~level continues to be uncertain at this time, though we expect it will likely result in overall credit quality deterioration, particularly within certain industries more susceptible to the impact of COVID-19, which we believe to include lodging, senior living and care facilities, restaurants, and travel and recreation, which made up

13% of total loans as of ~~March 31,~~June 30, 2020. Should credit quality, or factors known to affect credit quality, deteriorate in future periods and/or the Company experience elevated net charge-offs, we would anticipate a corresponding increase in the ALL and provision for loan losses.

~~We evaluated~~In the ~~Company's goodwill for impairment as~~first quarter of ~~November 30, 2019 and determined goodwill was not impaired. In light of~~2020, we assessed whether the COVID-19 pandemic and its impact on the global, national and local markets and economy, ~~we assessed if~~including the Company's share price, created a triggering event ~~occurred as~~that required assessment of the Company's goodwill for impairment in an interim period. As of March 31, 2020, ~~that would require an interim goodwill impairment assessment. Through our assessment,~~ we had determined that a triggering event had not yet occurred. ~~We will continue to monitor~~

Given the sustained impact ~~and effects~~ of the COVID-19 pandemic in the second quarter, including its impact on the economy and capital markets, including the Company's ~~business and operations, including its economies and markets. We will assess goodwill for impairment should~~stock price, we concluded that a triggering event ~~occur.~~had occurred, and, thus, an interim goodwill impairment assessment was performed. A quantitative assessment was performed, using various valuation methodologies, as of May 31, 2020. Through the assessment we concluded that the indicated fair value of the reporting unit exceeded its book value, and, thus goodwill was not impaired as of May 31, 2020. At June 30, 2020, we determined there were no new events or information that would materially change our quantitative analysis that was performed as of May 31, 2020.

Deposits. Total deposits increased ~~$26.0~~$458.6 million, or 1%13%, since December 31, 2019, to ~~$3.6~~$4.0 billion at ~~March 31,~~June 30, 2020. In For

the ~~first quarter of~~six months ended June 30, 2020, checking account balances grew $355.8 million, or 21%, and savings and money market ~~deposits~~balances grew ~~2% and certificates of deposit grew 4%, while checking account and brokered deposits each decreased 1%~~$159.4 million, or 14%. The ~~decrease~~increase in ~~checking account balances~~deposits was ~~primarily~~ driven by ~~certain large depositors' balances reducing interest checking balances by $20.7 million. The Company did not see its normal core deposit outflows~~various factors in ~~the first quarter of 2020, likely due to changes in customer behavior due~~response to the COVID-19 ~~pandemic.~~pandemic, including the federal government stimulus programs and a shift in consumer habits as the national personal savings rate reached 23% in May 2020.

The Company's loan-to-deposit ratio was 83% at June 30, 2020, compared to 87% at December 31, 2019.

Borrowings. Total borrowings ~~increased $83.0~~decreased $7.6 million, or ~~25%~~2%, since December 31, 2019 to ~~$420.9~~$330.2 million at ~~March 31,~~June 30, 2020. InThe Company continues to primarily use short-term borrowings to supplement funding in the ~~first quarter of~~current low interest rate environment. During the six months ended June 30, 2020, we ~~entered into two FHLBB term borrowings: (i) $25.0~~locked-in $125.0 million ~~at a fixed rate~~ of ~~0.98% for five years; and (ii) $50.0 million at a fixed rate of 0.34% for 90 days. We took certain actions in the first quarter of 2020 to ladder in~~ long-term funding at ~~fixed~~interest rates below ~~1.00% for future ALM~~1% through a five-year $25.0 million FHLBB borrowing and ~~interest rate risk planning.~~

~~Additionally, we entered into~~ two $50.0 million interest rate swaps ~~to lock in $50.0 million of three-year funding at 0.71%~~for three- and ~~$50.0 million of~~ ten-year ~~funding at 0.86%. Each interest rate swap was designated as a cash flow hedge for accounting purposes.~~funding. Refer to "—Contractual Obligations and Off-Balance Sheet Commitments" and Note 8 of the consolidated financial statements for further discussion.

~~A $10.0 million FHLBB borrowing at a rate of 1.87% matured in April 2020.~~

Shareholders' Equity. In January 2020, the Company's Board of Directors authorized the purchase of up to 750,000 shares of our common stock, representing approximately 5.0% of our issued and outstanding shares as of December 31, 2019. In the first quarter of 2020, we repurchased 217,031 shares of the Company's common stock at a weighted average price of $36.74 per share, before suspending our repurchase program on March 20, 2020, as our strategy shifted from earnings generation to capital preservation during the COVID-19 pandemic. We will continue to evaluate our use of the share repurchase program as the impact and our response to the COVID-19 pandemic develops.

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

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

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 demands. We monitor liquidity in accordance with internal guidelines and all applicable regulatory requirements. As of ~~March 31,~~June 30, 2020 and December 31, 2019, 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 ~~three~~six months ended ~~March 31,~~June 30, 2020, average deposits (excluding brokered deposits) of ~~$3.4~~$3.5 billion increased ~~$268.5~~$386.5 million, or 9%12%, compared to the same period last year. Average core deposits (non-GAAP) of ~~$2.8~~$3.0 billion for the ~~three~~six months ended ~~March 31,~~June 30, 2020, increased ~~$159.5~~$352.2 million, or 6%13%, compared to the same period a year ago. Included within our average money market deposits for the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019, were ~~$75.6~~$86.6 million and ~~$69.2~~$67.8 million, respectively, of deposits from the Bank's wealth management department, Camden National Wealth Management, which represent client funds. These deposits fluctuate with changes in the portfolios of the clients of Camden National Wealth Management.

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 ~~three~~six months ended ~~March 31,~~June 30, 2020, average total borrowings (including brokered deposits) decreased ~~$185.2~~$148.5 million, or ~~25%~~21%, to ~~$562.8~~$571.6 million compared to the same period last year. We secure borrowings from the FHLBB with qualified residential real estate loans, certain investment securities and certain other assets available to be pledged. Customer repurchase agreements are secured by mortgage-backed securities and government-sponsored enterprises. Through the Bank, we have available lines of credit with the FHLBB of $9.9 million, with a correspondent bank of $50.0 million, and with the FRB Discount Window of ~~$64.5~~$60.0 million as of ~~March 31,~~June 30, 2020. The Company also has a $10.0 million line of credit with a correspondent bank that matures on December 18, 2020.

We believe 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, the 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 our current 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, whether as a result of the COVID-19 pandemic or otherwise, 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 ~~$492.7~~$506.5 million and $473.4 million at ~~March 31,~~June 30, 2020 and December 31, 2019, respectively, which amounted to 10% and 11% of total assets as of the respective dates. Refer to "— Financial Condition — Liabilities and Shareholders' Equity" for discussion regarding changes in shareholders' equity for the ~~three~~six months ended ~~March 31,~~June 30, 2020.

Our principal cash requirement is the payment of dividends on our common stock, as and when declared by the Company's Board of Directors. We declared dividends to shareholders in the aggregate amount of ~~$4.9~~$9.9 million and ~~$4.7~~$9.3 million for the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019, respectively. The Company's Board of Directors approves cash dividends on a quarterly basis after careful analysis and consideration of various factors, including the following: (i) capital position relative to total assets, (ii) risk-based assets, (iii) total classified assets, (iv) economic conditions, (v) growth rates for total assets and total liabilities, (vi) earnings performance and projections and (vii) strategic initiatives and related capital requirements. All dividends declared and distributed by the Company will be in compliance with applicable state corporate law and regulatory requirements.

We are primarily dependent upon the payment of cash dividends by the Bank, our wholly-owned subsidiary, to service our commitments. We, as the sole shareholder of the Bank, are entitled to dividends, when and as declared by the Bank's Board of Directors from legally available funds. For the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019, the Bank declared dividends payable to the Company in the amount of ~~$6.9 million and $7.0 million, respectively.~~$14.4 million. Under regulations prescribed by the OCC, the Bank may not declare dividends in excess of the Bank’s net income for the current year plus its retained net income for the prior two years without prior approval from the OCC. If we are required to use dividends from the Bank to service unforeseen commitments in the future, we may be required to reduce the dividends paid to our shareholders going forward.

Please refer to Note 10 of the consolidated financial statements for discussion and details of the Company and Bank's regulatory capital requirements. At ~~March 31,~~June 30, 2020 and December 31, 2019, the Company and Bank exceeded all regulatory capital requirements, and the Bank continues to meet the capital requirements to be classified as "well capitalized" under applicable prompt corrective action provisions.

CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET COMMITMENTS

Off-Balance Sheet Financial Instruments

Credit Commitments and Standby Letters of Credit. In the normal course of business, we are a party to credit related financial instruments with off-balance sheet risk, which are not reflected in the consolidated statements of condition. These financial instruments include commitments to extend credit and standby letters of credit. 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 borrower is represented by the contractual amount of those instruments. ~~Since many~~Many of the commitments ~~are expected to~~will expire without being drawn upon, and thus, the total amount does not necessarily represent future cash requirements. In the event of nonperformance by the borrower, we are entitled to underlying collateral, as applicable, which generally consists of pledges of business assets including, but not limited to, accounts receivable, inventory, plant and equipment, and/or real estate.

Derivatives.We 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 collateral, credit approvals and monitoring procedures. Additionally, as part of our normal mortgage origination process, we provide 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, we are subject to the risk of interest rate change. In an effort to mitigate such risk, we may enter into forward delivery sales commitments, typically on a best-efforts basis, with certain approved investors. We account for interest rate lock commitments on loans that will be held for sale as derivative instruments. Furthermore, we record a derivative for our best-effort forward delivery commitments upon origination of a loan identified as held for sale. Should we enter into a forward delivery commitment on a mandatory delivery arrangement with an investor, we account for the forward delivery commitment as a derivative upon execution of the mandatory delivery contract.

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 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.

Refer to Notes 7 and 8 of the consolidated financial statements for additional details.

At ~~March 31,~~June 30, 2020, we had the following levels of off-balance sheet financial instruments:


(In thousands)	Total Amount		Commitment Expires in:								Total Amount		Commitment Expires in:
Off-Balance Sheet Financial Instruments	Committed		<1 Year		1 – 3 Years		3 – 5 Years		>5 Years		Committed		<1 Year		1 – 3 Years		3 – 5 Years		>5 Years
Commitments to extend credit	$	764,368	$	345,062	$	70,854	$	20,944	$	327,508	$	687,915	$	301,269	$	63,020	$	20,280	$	303,346
Standby letters of credit	5,002		2,161		1,819		—		1,022		5,046		2,305		1,719		—		1,022
Customer loan swaps - notional value	817,090		—		76,901		75,578		664,611		801,868		2,238		73,912		75,309		650,409
Interest rate swap on loans - notional value	100,000		—		—		100,000		—		100,000		—		—		100,000		—
Interest rate swaps on borrowings - notional value	100,000		—		50,000		—		50,000		100,000		—		50,000		—		50,000
Fixed-rate mortgage interest rate lock commitments - notional value	128,481		128,481		—		—		—		104,052		104,052		—		—		—
Junior subordinated debt interest rate swaps - notional value	43,000		—		10,000		—		33,000		43,000		—		10,000		—		33,000
Forward delivery commitments - notional value	28,356		28,356		—		—		—		35,909		35,909		—		—		—
Total	$	1,986,297	$	504,060	$	209,574	$	196,522	$	1,076,141	$	1,877,790	$	445,773	$	198,651	$	195,589	$	1,037,777

Contractual Obligations and Commitments

We are a party to several contractual obligations through lease agreements on a number of branches. Renewal options within our various lease contracts, as applicable, are considered to determine the lease term and estimate the contractual obligation and commitment for the Company's operating and finance leases. Furthermore, certain lease contracts of the Company contain language that subject its rent payment to variability, such as those tied to an index or change in an index. As a result, the future contractual obligation and commitment may materially differ from that estimated and disclosed within the table below.

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

At ~~March 31,~~June 30, 2020, we had an obligation and commitment to make future payments under each of these contracts as follows:


(In thousands)	Total Amount		Payments Due per Period								Total Amount		Payments Due per Period
Contractual obligations and commitments	Committed		<1 Year		1 – 3 Years		3 – 5 Years		>5 Years		Committed		<1 Year		1 – 3 Years		3 – 5 Years		>5 Years
Operating leases	$	16,583	$	1,415	$	2,703	$	2,386	$	10,079	$	16,206	$	1,381	$	2,672	$	2,334	$	9,819
Finance leases	7,964		304		616		627		6,417		7,888		305		618		628		6,337
FHLBB advances less than 90 days	50,000		50,000		—		—		—		50,000		50,000		—		—		—
FHLBB advances - other	35,000		10,000		—		25,000		—		25,000		—		—		25,000		—
Retail repurchase agreements	265,997		265,997		—		—		—		195,998		195,998		—		—		—
Junior subordinated debentures	44,331		—		—		—		44,331		44,331		—		—		—		44,331
Subordinated debentures	14,824		—		—		—		14,824		14,900		—		—		—		14,900
Other contractual obligations	1,582		1,582		—		—		—		1,386		1,386		—		—		—
Total	$	436,281	$	329,298	$	3,319	$	28,013	$	75,651	$	355,709	$	249,070	$	3,290	$	27,962	$	75,387

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.

RISK MANAGEMENT

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

The spread of the COVID-19 pandemic has increased many of the risks we face, including our credit, operational, vendor and third party, and technology risks. In response to the COVID-19 pandemic, the Company formed the Pandemic Work Group to develop and oversee the Company’s response. The Pandemic Work Group has: (i) developed employee practices, policies and playbooks to address pandemic related issues; (ii) implemented monitoring of all federal, state and local actions (e.g., stay-at-home orders) so that the Company can comply with all legal requirements; (iii) completed risk assessments and proactive monitoring over critical vendors, along with enhanced cybersecurity monitoring and reporting; (iv) created ongoing assessment and monitoring over employee availability, safety, workloads and access to tools (including technology needed to work from home effectively); (v) initiated temporary loan relief programs; (vi) rolled out the SBA Paycheck Protection Program; ~~and~~ (vii) developed our branch network plan, including determinations of which branches should be closed in order to best allocate ~~resources.~~ resources; and (viii) developed a plan for, and oversaw the re-opening of branches throughout June 2020, which included ensuring health and safety protocols and practices were in place for our employees and customers. In addition, the Pandemic Work Group is currently formulating the Company's short- and long-term strategy for returning its employees that continue to work remotely back to its locations safely in compliance with health officials' guidelines.

The Pandemic Work Group continues to oversee areas of the Company’s response such as employee practices and assessment of employee availability, safety and workload. Members of the Pandemic Work Group include the Company’s executive team and other members of senior management. The Pandemic Work Group, through the Company's executive team, regularly reports to the Board of Directors to assist the Board of Directors with both its ongoing oversight of the Company’s response to COVID-19 as well as its management of all areas of risks the Company faces, which have been affected by the COVID-19 pandemic.

Please refer to "– Executive Overview" and "– Financial Condition" above for additional discussion of specific actions the Company has taken in response to the COVID‑19 pandemic. Please also refer to Item 1A, "Risk Factors" for additional information on the Company’s risks relating to the COVID-19 pandemic.

Other than as described above, for the three and six months ended ~~March 31,~~June 30, 2020, there have been no material changes to the Company's risk categories and risk management policies as described in Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2019. Please refer to Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2019 for further details regarding the Company's risk management.

For the three and six months ended ~~March 31,~~June 30, 2020, there have been no material changes to the Company's risk categories and risk management policies as described in Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2019, with the exception of the addition of the Pandemic Work Group described above. Please refer to Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2019 for further details regarding the Company's risk management.

Interest rate risk

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

The simulation model captures the impact of changing interest rates on the interest income received and interest expense paid on all interest-earning assets and interest-bearing liabilities reflected on our consolidated statements of condition, as well as for derivative financial instruments. This sensitivity analysis is compared to ALCO policy limits, which specify a maximum tolerance level for net interest income exposure over a one- and two-year horizon, assuming 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 result in negative rates as many deposit and funding rates are below 2.00%. During the last few years, our downward shift has been 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 ~~March 31,~~June 30, 2020 and 2019, 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	March 31, 2020		March 31, 2019		June 30, 2020		June 30, 2019
Year 1
+200 basis points	(0.97	)%	0.47	%	0.28	%	(0.49	)%
-100 basis points	(0.18	)%	(0.83	)%	0.55	%	(0.47	)%
Year 2
+200 basis points	4.51	%	6.87	%	6.04	%	5.10	%
-100 basis points	(3.79	)%	(2.26	)%	(4.44	)%	(2.81	)%

The preceding sensitivity analysis does not represent a forecast and should not be relied upon as being indicative of expected operating results. Furthermore, this sensitivity analysis may not represent the full magnitude of interest rate shocks, because Federal Funds and Treasury yields are floored at 0.01%, and Prime is floored at 3.00%. The COVID-19 pandemic has driven significant economic and interest rate contraction over recent months, and the future state of the economy remains to be highly uncertain at this time. 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.~~flows, and non-performing asset levels. 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 ~~decrease marginally as assets redeploy~~decrease. Asset cash flows reprice and replace into ~~reduced replacement yields~~the low rate environment, and are ~~nearly~~more than offset by the positive impact of funding cost reductions, causing balance sheet spread to ~~funding costs. As assets continue to reset and reprice into rates below portfolio averages and funding costs reach their assumed floors, net interest income begins to trend downward.~~tighten. If rates decrease 100 basis points, net interest income is projected to trend slightly ~~below~~above current levels as funding cost reductions mitigate asset yield pressure. 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 is exhausted. If rates increase 200 basis points, net interest income is projected to ~~decrease~~increase slightly in the first year due to ~~pressure on~~asset yields outpacing funding ~~costs outpacing asset yields.~~cost increases. 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 funding cost increases subside.

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

LIBOR is a benchmark interest rate for certain floating rate loans, deposits and borrowings, and off-balance sheet exposures of the Company. In 2017, the U.K. Financial Conduct Authority, which regulates LIBOR, announced that it will not compel panel banks to contribute to LIBOR after 2021. As such, we have begun an internal project that is focused on an orderly transition from LIBOR to alternative reference rates. The markets for alternative rates are developing. We will continue to assess the use of alternative rates, and expect to transition to alternative rates as the markets and best practices develop.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

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

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.

Although a significant number of our employees began working from home in mid-March 2020 as a result of the COVID-19 pandemic, we have concluded that these changes in work arrangements did not have a material effect on our internal controls over financial reporting during the second quarter. 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

Our business, financial condition, liquidity, capital and results of operations have been, and will likely continue to be, adversely affected by the COVID-19 pandemic.

The COVID-19 pandemic has created economic and financial disruptions that have adversely affected, and are likely to continue to adversely affect, our business, financial condition, liquidity, capital and results of operations. We cannot predict at this time the extent to which the COVID-19 pandemic will continue to negatively affect our business, financial condition, liquidity and results of operations. The extent of any continued or future adverse effects of the COVID-19 pandemic will depend on future developments, which are highly uncertain and outside our control, including the scope and duration of the pandemic, the direct and indirect impact of the pandemic on our employees, customers, counterparties and service providers, as well as other market participants, and actions taken by governmental authorities and other third parties in response to the pandemic. Although our Pandemic Work Group continues to monitor the COVID-19 pandemic and to take action in response to ongoing developments, there can be no guarantee this or any other aspect of our business continuity planning will be effective in addressing some or all of the effects of the COVID-19 pandemic.

~~The~~Although economies began to re-open in the second quarter of 2020, many of the circumstances to which the COVID-19 pandemic ~~has~~ contributed ~~or will likely contribute, to~~persisted at the end of the second quarter, including (i) ~~sudden and~~ significant ~~declines, and significant increases in~~ volatility in financial markets; (ii) ~~ratings downgrades,~~heightened credit ~~deterioration~~risks and increased instances of defaults in many industries, including hospitality, transportation and commercial real estate; (iii) significant ~~draws on credit lines as customers seek to increase liquidity; (iv) significant~~ reductions in the targeted ~~federal funds~~Federal Funds rate (which was reduced to a target rate of between zero and 0.25% in the first quarter of 2020, and may be reduced to below zero if the Federal Reserve determines economic conditions warrant); and ~~(v)~~(iv) heightened cybersecurity, information security and operational risks as a result of work-from-home arrangements. Many of our counterparties and third-party service providers have been, and may further be, affected by “stay-at-home” orders, market volatility and other factors that increase their risks of business disruption or that may otherwise affect their ability to perform under the terms of any agreements with us or provide essential services. As a result, our operational and other risks are generally expected to increase until the pandemic subsides. In addition, our business operations may be disrupted if significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, or other restrictions in connection with the pandemic, or if we are unable to keep our branches open because of, or risk of, infection. WeAlthough we have ~~already temporarily closed certain~~re-opened our branches ~~and have taken action to reduce~~with limited operating hours, the resurgence of COVID-19 cases in parts of the U.S. has resulted in stricter lock-down measures being re-imposed in affected areas. A resurgence of COVID-19 cases in Maine could result in us being required to close our branches or restrict our branch operations. In addition, depending on the duration and ~~eliminate lobby services (other than by appointment) at~~severity of the pandemic going forward, and the effects of the pandemic on our ~~remaining branches.~~customers, these conditions could continue for an extended period and other adverse developments may occur.

In response to the pandemic and to support our customers, we have provided temporary debt payment relief ~~in some cases of up to 180 days,~~ to business and ~~consumer~~retail borrowers. ~~A significant number~~As of ~~our~~July 23, 2020, there were 1,201 total loans still on deferment with a total recorded investment balance of $351.0 million, which included 469 loans that had sought and received a second loan deferment with a total recorded investment balance of $68.1 million. We are currently engaged in discussions with many loan customers ~~have sought~~ to ~~defer payments of interest and/or principal under these programs.~~determine if further payment relief is needed. Payment deferrals under these programs may adversely affect our revenue and results of operations. In addition, if such measures are not effective in mitigating the effects of COVID-19 on borrowers, we may experience higher rates of default and increased credit losses in future periods.

Certain industries to which the Company has credit exposure, including lodging, senior living and care facilities, restaurants, and travel and recreation, have experienced, and may continue to experience, significant operational challenges as a result of COVID-19. ~~These negative effects~~While we have not yet experienced higher credit line draws from our customers to support their liquidity and working capital needs, the operation challenges stemming from COVID-19 may result in a number of our customers making higher than usual credit line draws ~~on outstanding lines of credit,~~in the future, which ~~may~~could negatively affect our liquidity if current economic conditions persist. ~~The~~Also, while we have not yet experienced elevated levels of non-performing assets, the negative effects of COVID-19 may ~~also~~ cause our business and consumer customers to be unable to pay their loans as they come due or may decrease the value of collateral, which we expect would cause significant increases in our credit losses.

Governmental authorities worldwide have taken unprecedented measures to stabilize the markets and support economic growth. The success of these measures is unknown and they may not be sufficient to address the negative effects of COVID-19 or avert severe and prolonged reductions in economic activity.

~~the COVID-19 pandemic may also have the effect of heightening many of the other risks described in the section entitled “Risk Factors” in our most recent Annual Report on Form 10-K.~~ Until the pandemic subsides, we ~~expect~~may experience reduced revenues from our lending businesses, and increased credit losses in our lending portfolios, as well as recognize the possibility for an increase in credit line utilization. Even after the pandemic subsides, it is possible that the U.S. and other major economies continue to experience a prolonged recession, which we expect would materially and adversely affect our business, financial condition, liquidity, capital and results of operations.

Governmental authorities worldwide have taken unprecedented measures to stabilize the markets and support economic growth. The continued success of these measures is unknown and they may not be sufficient to address the negative effects of COVID-19 or avert severe and prolonged reductions in economic activity.

Other negative effects of COVID-19 that may impact our business, financial condition, liquidity, capital and results of operations cannot be predicted at this time, but it is likely that our business, financial condition, liquidity, capital and results of operations will continue to be adversely affected until the pandemic subsides and the U.S. economy begins to recover. Further, the COVID-19 pandemic may also have the effect of heightening many of the other risks described in the section entitled “Risk Factors” in our most recent Annual Report on Form 10-K.

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
3.1		Camden National Corporation Amended and Restated Bylaws (incorporated herein by reference to Exhibit 3.1 to the Company's Form 8-K filed with the Commission on May 4, 2020).
~~10.1~~31.1+*		Camden National Corporation 2020-2022 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 May 4, 2020).
~~10.2~~+*		~~Form of Performance Share Unit Award Agreement for Company Employees under the Camden National Corporation Amended and Restated Long-Term Performance Share Unit Plan.~~
~~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~~iXBRL (Inline eXtensible Business Reporting Language). The following materials from Camden National Corporation’s Quarterly Report on Form 10-Q for the period ended ~~March 31,~~June 30, 2020, formatted in ~~XBRL:~~iXBRL: (i) Consolidated Statements of Condition - ~~March31,~~June 30, 2020 and December 31, 2019; (ii) Consolidated Statements of Income - Three and Six Months Ended ~~March 31,~~June 30, 2020 and 2019; (iii) Consolidated Statements of Comprehensive Income - Three and Six Months Ended ~~March 31,~~June 30, 2020 and 2019; (iv) Consolidated Statements of Changes in Shareholders’ Equity - Three and Six Months Ended ~~March 31,~~June 30, 2020 and 2019; (v) Consolidated Statements of Cash Flows - ~~Three~~Six Months Ended ~~March 31,~~June 30, 2020 and 2019; and (vi) Notes to the Unaudited Consolidated Financial Statements.
104*		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).
*		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		~~May 7,~~August 10, 2020
Gregory A. Dufour		Date
President and Chief Executive Officer (Principal Executive Officer)

/s/ Gregory A. White		~~May 7,~~August 10, 2020
Gregory A. White		Date
Chief Financial Officer and Principal Financial & Accounting Officer

7176


3.	Should a loan modification (i) not meet the criteria set forth in Section 4013 of the CARES Act or the interagency guidance described above, or (ii) the Company elects not to apply the guidance, then the Company would assess the loan modification under its existing accounting policies (GAAP).


							For the Three Months Ended										For the Three Months Ended					For the Six Months Ended
(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized⁽¹⁾			Average Recorded Investment		Interest Income Recognized
March 31, 2020:
June 30, 2020:
With an allowance recorded:
Residential real estate	$	2,220	$	2,220	$	324	$	2,307	$	24
Commercial real estate	128		128		34		128		1		$	127	$	127	$	35	$	128	$	3		$	128	$	4
Commercial	—		—		—		—		—		—		—		—		—		—			—		—
SBA PPP											—		—		—		—		—			—		—
HPFC											—		—		—		—		—			—		—
Residential real estate											2,304		2,304		338		2,262		22			2,306		46
Home equity	318		318		89		318		—		318		318		89		318		—			318		—
Consumer	—		—		—		—		—		—		—		—		—		—			—		—
HPFC	—		—		—		—		—
Ending balance	2,666		2,666		447		2,753		25		2,749		2,749		462		2,708		25			2,752		50
Without an allowance recorded:
Residential real estate	1,066		1,247		—		1,028		3
Commercial real estate	272		431		—		273		3		334		514		—		303		3			293		6
Commercial	299		665		—		309		2		179		242		—		239		1			266		3
SBA PPP											—		—		—		—		—			—		—
HPFC											—		—		—		—		—			—		—
Residential real estate											849		972		—		957		(1		)	968		2
Home equity	52		190		—		54		—		52		189		—		52		—			53		—
Consumer	—		—		—		—		—		—		—		—		—		—			—		—
HPFC	—		—		—		—		—
Ending balance	1,689		2,533		—		1,664		8		1,414		1,917		—		1,551		3			1,580		11
Total impaired loans	$	4,355	$	5,199	$	447	$	4,417	$	33	$	4,163	$	4,666	$	462	$	4,259	$	28		$	4,332	$	61
March 31, 2019:
June 30, 2019:
With an allowance recorded:
Residential real estate	$	3,454	$	3,454	$	553	$	3,462	$	30
Commercial real estate	131		131		27		131		1		$	131	$	131	$	27	$	131	$	5		$	131	$	6
Commercial	—		—		—		278		—		461		461		322		230		—			339		—
SBA PPP											—		—		—		—		—			—		—
HPFC											—		—		—		—		—			—		—
Residential real estate											3,286		3,286		524		3,370		26			3,404		56
Home equity	828		828		347		573		—		828		828		310		828		—			658		—
Consumer	—		—		—		—		—		—		—		—		—		—			—		—
HPFC	—		—		—		—		—
Ending Balance	4,413		4,413		927		4,444		31		4,706		4,706		1,183		4,559		31			4,532		62
Without an allowance recorded:
Residential real estate	1,282		1,406		—		1,286		10
Commercial real estate	279		455		—		539		3		278		437		—		278		4			452		7
Commercial	223		286		—		226		2		214		278		—		219		2			222		4
SBA PPP											—		—		—		—		—			—		—
HPFC											—		—		—		—		—			—		—
Residential real estate											1,186		1,310		—		1,234		7			1,253		17
Home equity	67		265		—		96		—		59		197		—		63		—			84		—
Consumer	—		—		—		—		—		—		—		—		—		—			2		—
HPFC	—		—		—		—		—
Ending Balance	1,851		2,412		—		2,147		15		1,737		2,222		—		1,794		13			2,013		28
Total impaired loans	$	6,264	$	6,825	$	927	$	6,591	$	46	$	6,443	$	6,928	$	1,183	$	6,353	$	44		$	6,545	$	90


(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.


							Gross Amount Not Offset in the Consolidated Statements of Condition													Gross Amount Not Offset in the Consolidated Statements of Condition
(In thousands)	Gross Amount Recognized in the Consolidated Statements of Condition		Gross Amount Offset in the Consolidated Statements of Condition		Net Amount Presented in the Consolidated Statements of Condition		Financial Instruments Pledged (Received)⁽¹⁾		Cash Collateral Pledged (Received)⁽¹⁾			Net Amount		Gross Amount Recognized in the Consolidated Statements of Condition		Gross Amount Offset in the Consolidated Statements of Condition		Net Amount Presented in the Consolidated Statements of Condition		Financial Instruments Pledged (Received)⁽¹⁾		Cash Collateral Pledged (Received)⁽¹⁾			Net Amount
March 31, 2020
June 30, 2020
Derivative assets:
Customer loan swaps - commercial customer⁽²⁾	$	45,220	$	—	$	45,220	$	—	$	—		$	45,220	$	47,338	$	—	$	47,338	$	—	$	—		$	47,338
Interest rate swap on loans⁽³⁾	5,591		—		5,591		—		(5,435		)	156		6,109		—		6,109		—		(6,109		)	—
Total	$	50,811	$	—	$	50,811	$	—	$	(5,435	)	$	45,376	$	53,447	$	—	$	53,447	$	—	$	(6,109	)	$	47,338
Derivative liabilities:
Customer loan swaps - dealer bank	$	45,220	$	—	$	45,220	$	—	$	45,220		—		$	47,338	$	—	$	47,338	$	—	$	47,338		—
Junior subordinated debt interest rate swaps	12,642		—		12,642		—		12,642			—		12,584		—		12,584		—		12,584			—
Interest rate swaps on borrowings⁽³⁾	1,615		—		1,615		—		1,615			—		2,123		—		2,123		—		2,123			—
Total	$	59,477	$	—	$	59,477	$	—	$	59,477		$	—	$	62,045	$	—	$	62,045	$	—	$	62,045		$	—
Customer repurchase agreements	$	265,997	$	—	$	265,997	$	265,997	$	—		$	—	$	195,998	$	—	$	195,998	$	195,998	$	—		$	—
December 31, 2019
Derivative assets:
Customer loan swaps - commercial customer⁽²⁾	17,756		—		17,756		—		—			17,756		17,756		—		17,756		—		—			17,756
Interest rate swap on loans	483		—		483		—		(483		)	—		483		—		483		—		(483		)	—
Total	$	18,239	$	—	$	18,239	$	—	$	(483	)	$	17,756	$	18,239	$	—	$	18,239	$	—	$	(483	)	$	17,756
Derivative liabilities:
Customer loan swaps - dealer bank	$	17,242	$	—	$	17,242	$	—	$	17,242		$	—	$	17,242	$	—	$	17,242	$	—	$	17,242		$	—
Junior subordinated debt interest rate swaps	$	8,187	$	—	$	8,187	$	—	$	8,187		$	—	$	8,187	$	—	$	8,187	$	—	$	8,187		$	—
Customer loan swaps - commercial customer⁽²⁾	514		—		514		—		—			514		514		—		514		—		—			514
Total	$	25,943	$	—	$	25,943	$	—	$	25,429		$	514	$	25,943	$	—	$	25,943	$	—	$	25,429		$	514
Customer repurchase agreements	$	237,984	$	—	$	237,984	$	237,984	$	—		$	—	$	237,984	$	—	$	237,984	$	237,984	$	—		$	—


(1)	The amount presented was the lesser of the amount pledged (received) or the net amount presented in the consolidated statements of condition.


(3)	Interest rate swap contracts were completed with the same dealer bank. The Company maintains a master netting arrangement and settles collateral requested or pledged on a net basis for all contracts.


	March 31, 2020				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, 2019						Minimum Regulatory Capital Required for Capital Adequacy plus Capital Conservation Buffer			Minimum Regulatory Provision To Be "Well Capitalized" Under Prompt Corrective Action Provisions			June 30, 2020						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, 2019						Minimum Regulatory Capital Required for Capital Adequacy plus Capital Conservation Buffer			Minimum Regulatory Provision To Be "Well Capitalized" Under Prompt Corrective Action Provisions
(Dollars in thousands)	Amount		Ratio				Amount			Ratio				Amount							Ratio				Amount								Ratio
Camden National Corporation:
Total risk-based capital ratio	$	458,376	13.81	%	10.50	%			N/A		$	455,702		14.44	%		10.50	%		N/A			$	474,226		14.56	%		10.50	%		N/A			$	455,702		14.44	%		10.50	%		N/A
Tier 1 risk-based capital ratio	416,831		12.56	%	8.50	%		N/A		415,511			13.16	%		8.50	%		N/A			423,667			13.01	%		8.50	%		N/A			415,511			13.16	%		8.50	%		N/A
Common equity Tier 1 risk-based capital ratio	373,831		11.27	%	7.00	%		N/A		372,511			11.80	%		7.00	%		N/A			380,667			11.69	%		7.00	%		N/A			372,511			11.80	%		7.00	%		N/A
Tier 1 leverage capital ratio	416,831		9.53	%	4.00	%		N/A		415,511			9.55	%		4.00	%		N/A			423,667			8.95	%		4.00	%		N/A			415,511			9.55	%		4.00	%		N/A
Camden National Bank:
Total risk-based capital ratio	$	432,673	13.08	%	10.50	%		10.00	%	$	423,540		13.45	%		10.50	%		10.00	%		$	446,322		13.75	%		10.50	%		10.00	%		$	423,540		13.45	%		10.50	%		10.00	%
Tier 1 risk-based capital ratio	406,129		12.28	%	8.50	%		8.00	%	398,349			12.65	%		8.50	%		8.00	%		410,763			12.65	%		8.50	%		8.00	%		398,349			12.65	%		8.50	%		8.00	%
Common equity Tier 1 risk-based capital ratio	406,129		12.28	%	7.00	%		6.50	%	398,349			12.65	%		7.00	%		6.50	%		410,763			12.65	%		7.00	%		6.50	%		398,349			12.65	%		7.00	%		6.50	%
Tier 1 leverage capital ratio	406,129		9.33	%	4.00	%		5.00	%	398,349			9.19	%		4.00	%		5.00	%		410,763			8.71	%		4.00	%		5.00	%		398,349			9.19	%		4.00	%		5.00	%


										For The Six Months Ended
	For The Three Months Ended March 31, 2019									June 30, 2020									June 30, 2019
(In thousands)	Pre-Tax Amount			Tax (Expense) Benefit			After-Tax Amount			Pre-Tax Amount			Tax (Expense) Benefit			After-Tax Amount			Pre-Tax Amount			Tax (Expense) Benefit			After-Tax Amount
AFS Securities:
Unrealized holdings gains	$	13,884		$	(2,985	)	$	10,899		$	33,197		$	(7,137	)	$	26,060		$	27,719		$	(5,960	)	$	21,759
Less: reclassification adjustment for net realized gains⁽¹⁾										—			—			—			27			(6		)	21
Net unrealized gains	13,884			(2,985		)	10,899			33,197			(7,137		)	26,060			27,692			(5,954		)	21,738
Cash Flow Hedges:
Net decrease in fair value	(1,178		)	253			(925		)	(1,162		)	250			(912		)	(2,711		)	583			(2,128		)
Less: effective portion reclassified into interest expense⁽¹⁾	(119		)	25			(94		)
Less: effective portion reclassified into interest expense⁽²⁾										(567		)	122			(445		)	(320		)	69			(251		)
Less: effective portion reclassified into interest income⁽³⁾										299			(64		)	235			—			—			—
Net decrease in fair value	(1,059		)	228			(831		)	(894		)	192			(702		)	(2,391		)	514			(1,877		)
Postretirement Plans:
Net actuarial gain	67			(14		)	53			351			(76		)	275			134			(29		)	105
Less: Amortization of net prior service credits⁽³⁾	6			(1		)	5
Less: Amortization of net prior service credits⁽⁴⁾										12			(3		)	9			12			(3		)	9
Net gain on postretirement plans	61			(13		)	48			339			(73		)	266			122			(26		)	96
Other comprehensive income	$	12,886		$	(2,770	)	$	10,116		$	32,642		$	(7,018	)	$	25,624		$	25,423		$	(5,466	)	$	19,957


(1)	Reclassified into net gain on sale of securities on the consolidated statements of income.


(2)	Reclassified into interest on borrowings and/or subordinated debentures on the consolidated statements of income.


~~(2)~~(3)	Reclassified into interest and fees on loans on the consolidated statements of income.


~~(3)~~(4)	Reclassified into compensation and related benefits and other expense on the consolidated statements of income.


(In thousands)	Net Unrealized Gains (Losses) on AFS Securities⁽¹⁾			Net Unrealized Losses on Cash Flow Hedges⁽¹⁾			Defined Benefit Postretirement Plans⁽¹⁾			AOCI⁽¹⁾			Net Unrealized Gains (Losses) on AFS Securities⁽¹⁾			Net Unrealized Losses on Cash Flow Hedges⁽¹⁾			Defined Benefit Postretirement Plans⁽¹⁾			AOCI⁽¹⁾
Balance at December 31, 2018	$	(17,826	)	$	(4,437	)	$	(2,157	)	$	(24,420	)	$	(17,826	)	$	(4,437	)	$	(2,157	)	$	(24,420	)
Other comprehensive income (loss) before reclassifications	10,899			(925		)	53			10,027			21,759			(2,128		)	105			19,736
Less: Amounts reclassified from AOCI	—			(94		)	5			(89		)	21			(251		)	9			(221		)
Other comprehensive income (loss)	10,899			(831		)	48			10,116			21,738			(1,877		)	96			19,957
Balance at March 31, 2019	$	(6,927	)	$	(5,268	)	$	(2,109	)	$	(14,304	)
Balance at June 30, 2019													$	3,912		$	(6,314	)	$	(2,061	)	$	(4,463	)

Balance at December 31, 2019	$	3,250		$	(6,048	)	$	(3,470	)	$	(6,268	)	$	3,250		$	(6,048	)	$	(3,470	)	$	(6,268	)
Other comprehensive income (loss) before reclassifications	18,930			(902		)	138			18,166			26,060			(912		)	275			25,423
Less: Amounts reclassified from AOCI	—			(148		)	5			(143		)	—			(210		)	9			(201		)
Other comprehensive income (loss)	18,930			(754		)	133			18,309			26,060			(702		)	266			25,624
Balance at March 31, 2020	$	22,180		$	(6,802	)	$	(3,337	)	$	12,041
Balance at June 30, 2020													$	29,310		$	(6,750	)	$	(3,204	)	$	19,356



		Three Months Ended March 31,
(In thousands)	Income Statement Line Item	2020		2019
Debit card interchange income	Debit card income	$	2,141	$	2,010
Services charges on deposit accounts	Service charges on deposit accounts	2,012		2,023
Fiduciary services income	Income from fiduciary services	1,502		1,392
Investment program income	Brokerage and insurance commissions	657		585
Other non-interest income	Other income	383		383
Total non-interest income within the scope of ASC 606		6,695		6,393
Total non-interest income not in scope of ASC 606		4,708		2,996
Total non-interest income		$	11,403	$	9,389


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


(In thousands, except number of shares, per share data and ratios)	March 31, 2020			December 31, 2019			June 30, 2020			December 31, 2019
Tangible Book Value Per Share:
Shareholders’ equity, as presented	$	492,680		$	473,415		$	506,467		$	473,415
Less: goodwill and other intangible assets	(98,052		)	(98,222		)	(97,881		)	(98,222		)
Tangible shareholders’ equity	$	394,628		$	375,193		$	408,586		$	375,193
Shares outstanding at period end	14,951,597			15,144,719			14,963,041			15,144,719
Book value per share	$	32.95		$	31.26		$	33.85		$	31.26
Tangible book value per share	$	26.39		$	24.77		$	27.31		$	24.77
Tangible Common Equity Ratio:
Total assets	$	4,594,539		$	4,429,521		$	4,959,016		$	4,429,521
Less: goodwill and other intangible assets	(98,052		)	(98,222		)	(97,881		)	(98,222		)
Tangible assets	$	4,496,487		$	4,331,299		$	4,861,135		$	4,331,299
Common equity ratio	10.72		%	10.69		%	10.21		%	10.69		%
Tangible common equity ratio	8.78		%	8.66		%	8.41		%	8.66		%


	At or For The Three Months Ended March 31,						At or For The Year Ended December 31, 2019			At or For The Three Months Ended June 30,						At or For The Six Months Ended June 30,						At or For The Year Ended December 31, 2019
	2020			2019						2020			2019			2020			2019
Financial Ratios
Average equity to average assets	10.70		%	10.17		%	10.43		%	10.25		%	10.40		%	10.47		%	10.29		%	10.43		%
Common equity ratio	10.72		%	10.26		%	10.69		%	10.21		%	10.52		%	10.21		%	10.52		%	10.69		%
Tangible common equity ratio⁽¹⁾	8.78		%	8.21		%	8.66		%	8.41		%	8.49		%	8.41		%	8.49		%	8.66		%
Dividend payout ratio	37.08		%	32.97		%	33.24		%	45.21		%	35.29		%	40.74		%	34.09		%	33.24		%
Per Share Data
Book value per share	$	32.95		$	29.16		$	31.26		$	33.85		$	30.26		$	33.85		$	30.26		$	31.26
Tangible book value per share⁽¹⁾	26.39			22.81			24.77			27.31			23.88			27.31			23.88			24.77
Dividends declared per share	0.33			0.30			1.23			0.33			0.30			0.66			0.60			1.23