UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2020~~2021

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

SECURITIES EXCHANGE ACT OF 1934

Commission File No. 0-28190

CAMDEN NATIONAL CORPORATION

(Exact name of registrant as specified in its charter)


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

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

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

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 filer

☒

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 ☒

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

Outstanding at ~~October 29, 2020:~~July 30, 2021: Common stock (no par value) ~~14,916,644~~14,951,200 shares.

CAMDEN NATIONAL CORPORATION

FORM 10-Q FOR THE QUARTER ENDED ~~SEPTEMBER~~JUNE 30, ~~2020~~2021

TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT


		PAGE
PART I. FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS

	Consolidated Statements of Condition (unaudited) - ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020	3

	Consolidated Statements of Income (unaudited) - Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020	4

	Consolidated Statements of Comprehensive Income (unaudited) - Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020	5

	Consolidated Statements of Changes in Shareholders’ Equity (unaudited) - Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020	6

	Consolidated Statements of Cash Flows (unaudited) - ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020	7

	Notes to the Unaudited Consolidated Financial Statements	8

ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	4645

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	7374

ITEM 4.	CONTROLS AND PROCEDURES	7475

PART II. OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	7576

ITEM 1A.	RISK FACTORS	7576

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	76

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	76

ITEM 4.	MINE SAFETY DISCLOSURES	76

ITEM 5.	OTHER INFORMATION	76

ITEM 6.	EXHIBITS	76

SIGNATURES		7877

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CONDITION

(unaudited)

(In thousands, except number of shares) September 30,
2020 December 31,
2019
ASSETS
Cash and due from banks $ 42,119 $ 39,586
Interest-bearing deposits in other banks (including restricted cash) 304,270 36,050
Total cash, cash equivalents and restricted cash 346,389 75,636
Investments:
Available-for-sale securities, at fair value (book value of $1,070,479 and $913,978, respectively) 1,107,069 918,118
Held-to-maturity securities, at amortized cost (fair value of $1,403 and $1,359, respectively) 1,298 1,302
Other investments 13,345 13,649
Total investments 1,121,712 933,069
Loans held for sale, at fair value (book value of $37,301 and $11,915, respectively) 37,935 11,854
Loans 3,274,842 3,095,023
Less: allowance for loan losses (36,414) (25,171)
Net loans 3,238,428 3,069,852
Goodwill 94,697 94,697
Core deposit intangible assets 3,014 3,525
Bank-owned life insurance 94,262 92,344
Premises and equipment, net 40,517 41,836
Deferred tax assets 11,195 16,823
Other assets 165,644 89,885
Total assets $ 5,153,793 $ 4,429,521
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits:
Non-interest checking $ 800,582 $ 552,590
Interest checking 1,419,544 1,153,203
Savings and money market 1,306,868 1,119,193
Certificates of deposit 405,434 521,752
Brokered deposits 291,616 191,005
Total deposits 4,224,044 3,537,743
Short-term borrowings 210,055 268,809
Long-term borrowings 25,000 10,000
Subordinated debentures 59,306 59,080
Accrued interest and other liabilities 117,866 80,474
Total liabilities 4,636,271 3,956,106
Commitments and Contingencies
Shareholders’ Equity
Common stock, 0 par value: authorized 40,000,000 shares, issued and outstanding 14,917,344 and 15,144,719 shares on September 30, 2020 and December 31, 2019, respectively 130,988 139,103
Retained earnings 366,959 340,580
Accumulated other comprehensive income (loss):
Net unrealized gain on available-for-sale debt securities, net of tax 28,724 3,250
Net unrealized loss on cash flow hedging derivative instruments, net of tax (6,078) (6,048)
Net unrecognized loss on postretirement plans, net of tax (3,071) (3,470)
Total accumulated other comprehensive income (loss) 19,575 (6,268)
Total shareholders’ equity 517,522 473,415
Total liabilities and shareholders’ equity $ 5,153,793 $ 4,429,521


(In thousands, except number of shares)	June 30, 2021		December 31, 2020
ASSETS
Cash and due from banks	$	46,326	$	49,524
Interest-bearing deposits in other banks (including restricted cash)	57,407		96,250
Total cash, cash equivalents and restricted cash	103,733		145,774
Investments:
Trading securities	4,354		4,161
Available-for-sale securities, at fair value (book value of $1,381,864 and $1,078,474, respectively)	1,399,823		1,115,813
Held-to-maturity securities, at amortized cost (fair value of $1,397 and $1,411, respectively)	1,294		1,297
Other investments	10,224		11,541
Total investments	1,415,695		1,132,812
Loans held for sale, at fair value (book value of $14,887 and $40,499, respectively)	15,140		41,557
Loans	3,285,916		3,219,822
Less: allowance for credit losses on loans	(32,060)		(37,865)
Net loans	3,253,856		3,181,957
Goodwill	94,697		94,697
Core deposit intangible assets	2,516		2,843
Bank-owned life insurance	96,062		94,877
Premises and equipment, net	39,050		39,884
Deferred tax assets	13,237		11,956
Other assets	118,083		152,388
Total assets	$	5,152,069	$	4,898,745
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits:
Non-interest checking	$	1,183,403	$	792,550
Interest checking	1,138,273		1,288,575
Savings and money market	1,355,316		1,282,886
Certificates of deposit	334,336		357,666
Brokered deposits	282,786		283,567
Total deposits	4,294,114		4,005,244
Short-term borrowings	170,413		162,439
Long-term borrowings	0		25,000
Subordinated debentures	44,331		59,331
Accrued interest and other liabilities	97,663		117,417
Total liabilities	4,606,521		4,369,431
Commitments and Contingencies	0		0
Shareholders’ Equity
Common stock, 0 par value: authorized 40,000,000 shares, issued and outstanding 14,951,067 and 14,909,097 shares on June 30, 2021 and December 31, 2020, respectively	132,278		131,072
Retained earnings	404,602		377,502
Accumulated other comprehensive income:
Net unrealized gain on available-for-sale debt securities, net of tax	14,097		29,310
Net unrealized loss on cash flow hedging derivative instruments, net of tax	(1,826)		(4,626)
Net unrecognized loss on postretirement plans, net of tax	(3,603)		(3,944)
Total accumulated other comprehensive income	8,668		20,740
Total shareholders’ equity	545,548		529,314
Total liabilities and shareholders’ equity	$	5,152,069	$	4,898,745

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

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
(In thousands, except number of shares and per share data)	(In thousands, except number of shares and per share data)	2020		2019		2020		2019		(In thousands, except number of shares and per share data)	2021		2020		2021		2020
Interest Income	Interest Income									Interest Income
Interest and fees on loans	Interest and fees on loans	$	33,025	$	36,207	$	100,190	$	108,020	Interest and fees on loans	$	30,865	$	33,120	$	61,425	$	67,165
Taxable interest on investments	Taxable interest on investments	4,480		4,794		14,241		14,729		Taxable interest on investments	4,376		4,883		8,205		9,761
Nontaxable interest on investments	Nontaxable interest on investments	823		675		2,438		1,943		Nontaxable interest on investments	763		828		1,491		1,615
Dividend income	Dividend income	163		158		498		562		Dividend income	102		167		207		335
Other interest income	Other interest income	176		686		691		1,712		Other interest income	160		180		326		515
Total interest income	Total interest income	38,667		42,520		118,058		126,966		Total interest income	36,266		39,178		71,654		79,391
Interest Expense	Interest Expense									Interest Expense
Interest on deposits	Interest on deposits	2,899		8,963		12,953		26,542		Interest on deposits	1,921		3,392		3,984		10,054
Interest on borrowings	Interest on borrowings	394		801		1,591		2,660		Interest on borrowings	176		359		332		1,197
Interest on subordinated debentures	Interest on subordinated debentures	893		833		2,668		2,373		Interest on subordinated debentures	640		888		1,445		1,775
Total interest expense	Total interest expense	4,186		10,597		17,212		31,575		Total interest expense	2,737		4,639		5,761		13,026
Net interest income	Net interest income	34,481		31,923		100,846		95,391		Net interest income	33,529		34,539		65,893		66,365
Provision for credit losses		987		730		12,160		2,647
Net interest income after provision for credit losses		33,494		31,193		88,686		92,744
(Credit) provision for credit losses										(Credit) provision for credit losses	(3,403)		9,398		(5,359)		11,173
Net interest income after (credit) provision for credit losses										Net interest income after (credit) provision for credit losses	36,932		25,141		71,252		55,192
Non-Interest Income	Non-Interest Income									Non-Interest Income
Mortgage banking income, net	Mortgage banking income, net	4,664		2,668		12,889		5,662		Mortgage banking income, net	2,598		4,691		9,707		8,225
Debit card income	Debit card income	2,627		2,432		7,159		6,723		Debit card income	3,112		2,391		5,848		4,532
Income from fiduciary services										Income from fiduciary services	1,707		1,603		3,233		3,105
Service charges on deposit accounts	Service charges on deposit accounts	1,606		1,970		4,955		6,202		Service charges on deposit accounts	1,517		1,337		3,056		3,349
Income from fiduciary services		1,504		1,444		4,609		4,381
Brokerage and insurance commissions	Brokerage and insurance commissions	755		625		2,034		1,942		Brokerage and insurance commissions	939		622		1,892		1,279
Bank-owned life insurance	Bank-owned life insurance	615		613		1,918		1,810		Bank-owned life insurance	591		614		1,185		1,303
Customer loan swap fees	Customer loan swap fees	51		109		222		919		Customer loan swap fees	0		57		0		171
Net gain on sale of securities		0		1		0		28

Other income	Other income	874		877		2,373		2,498		Other income	856		745		1,614		1,499
Total non-interest income	Total non-interest income	12,696		10,739		36,159		30,165		Total non-interest income	11,320		12,060		26,535		23,463
Non-Interest Expense	Non-Interest Expense									Non-Interest Expense
Salaries and employee benefits	Salaries and employee benefits	13,739		13,604		41,693		40,043		Salaries and employee benefits	15,318		13,627		29,840		27,954
Furniture, equipment and data processing	Furniture, equipment and data processing	3,076		2,708		8,576		8,111		Furniture, equipment and data processing	2,947		2,710		5,974		5,500
Net occupancy costs	Net occupancy costs	1,785		1,710		5,785		5,263		Net occupancy costs	1,805		1,997		3,756		4,000
Debit card expense										Debit card expense	1,074		878		2,060		1,812
Consulting and professional fees	Consulting and professional fees	913		892		2,877		2,679		Consulting and professional fees	997		1,181		1,860		1,964
Debit card expense		972		960		2,784		2,666
Regulatory assessments	Regulatory assessments	510		182		971		1,091		Regulatory assessments	487		299		990		461
Amortization of core deposit intangible assets	Amortization of core deposit intangible assets	170		177		511		529		Amortization of core deposit intangible assets	164		171		328		341
Other real estate owned and collection costs, net		71		251		270		353
Other real estate owned and collection (recoveries) costs, net										Other real estate owned and collection (recoveries) costs, net	(25)		98		(216)		199
Other expenses	Other expenses	3,985		3,264		9,824		9,754		Other expenses	2,823		2,548		5,897		5,839
Total non-interest expense	Total non-interest expense	25,221		23,748		73,291		70,489		Total non-interest expense	25,590		23,509		50,489		48,070
Income before income tax expense	Income before income tax expense	20,969		18,184		51,554		52,420		Income before income tax expense	22,662		13,692		47,298		30,585
Income Tax Expense	Income Tax Expense	4,194		3,696		10,346		10,455		Income Tax Expense	4,519		2,752		9,415		6,152
Net Income	Net Income	$	16,775	$	14,488	$	41,208	$	41,965	Net Income	$	18,143	$	10,940	$	37,883	$	24,433
Per Share Data	Per Share Data									Per Share Data
Basic earnings per share	Basic earnings per share	$	1.12	$	0.94	$	2.74	$	2.70	Basic earnings per share	$	1.21	$	0.73	$	2.53	$	1.62
Diluted earnings per share	Diluted earnings per share	$	1.11	$	0.94	$	2.73	$	2.70	Diluted earnings per share	$	1.21	$	0.73	$	2.52	$	1.62
Weighted average number of common shares outstanding	Weighted average number of common shares outstanding	14,961,465		15,339,093		15,008,004		15,482,765		Weighted average number of common shares outstanding	14,943,486		14,959,851		14,930,017		15,031,525
Diluted weighted average number of common shares outstanding	Diluted weighted average number of common shares outstanding	15,001,047		15,381,928		15,044,427		15,522,501		Diluted weighted average number of common shares outstanding	15,007,471		14,997,611		14,994,138		15,069,132
Cash dividends declared per share	Cash dividends declared per share	$	0.33	$	0.30	$	0.99	$	0.90	Cash dividends declared per share	$	0.36	$	0.33	$	0.72	$	0.66

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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	(In thousands)	2020		2019		2020		2019		(In thousands)	2021		2020		2021		2020
Net Income	Net Income	$	16,775	$	14,488	$	41,208	$	41,965	Net Income	$	18,143	$	10,940	$	37,883	$	24,433
Other comprehensive income:
Other comprehensive income (loss):										Other comprehensive income (loss):
Net change in unrealized gain on available-for-sale securities, net of tax	Net change in unrealized gain on available-for-sale securities, net of tax	(586)		3,572		25,474		25,310		Net change in unrealized gain on available-for-sale securities, net of tax	2,296		7,130		(15,213)		26,060
Net change in unrealized loss on cash flow hedging derivatives, net of tax	Net change in unrealized loss on cash flow hedging derivatives, net of tax	672		(41)		(30)		(1,918)		Net change in unrealized loss on cash flow hedging derivatives, net of tax	(2,364)		52		2,800		(702)
Net gain on postretirement plans, net of tax		133		49		399		145
Other comprehensive income		219		3,580		25,843		23,537
Net change in other comprehensive income for supplemental executive retirement plan and other postretirement benefit plan, net of tax										Net change in other comprehensive income for supplemental executive retirement plan and other postretirement benefit plan, net of tax	171		133		341		266
Other comprehensive income (loss)										Other comprehensive income (loss)	103		7,315		(12,072)		25,624
Comprehensive Income	Comprehensive Income	$	16,994	$	18,068	$	67,051	$	65,502	Comprehensive Income	$	18,246	$	18,255	$	25,811	$	50,057

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

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(unaudited)


		Three Months Ended																Three 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)	(In thousands, except number of shares and per share data)	Shares Outstanding	Amount								(In thousands, except number of shares and per share data)				Shares Outstanding				Amount
Balance at June 30, 2019		15,457,480	$	151,801			$	320,421			$	(4,463)				$	467,759
Balance at March 31, 2020															Balance at March 31, 2020			14,951,597		$	131,498		$	349,141		$	12,041		$	492,680
Net income	Net income	—	—		14,488				—				14,488		Net income			—		—		10,940			—			10,940
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—	—		—				3,580				3,580		Other comprehensive income, net of tax			—		—		—			7,315			7,315
Stock-based compensation expense	Stock-based compensation expense	—	429		—				—				429		Stock-based compensation expense			—		530		—			—			530
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings	Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings	4,858	51		—				—				51		Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings			11,444		(47)		—			—			(47)
Common stock repurchased		(237,435)	(10,066)		—				—				(10,066)
Cash dividends declared ($0.30 per share)		—	—		(4,569)				—				(4,569)
Balance at September 30, 2019		15,224,903	$	142,215	$	330,340			$	(883)			$	471,672

Cash dividends declared ($0.33 per share)															Cash dividends declared ($0.33 per share)			—		—		(4,951)			—			(4,951)
Balance at June 30, 2020	Balance at June 30, 2020	14,963,041	$	131,981	$	355,130			$	19,356			$	506,467	Balance at June 30, 2020			14,963,041		$	131,981	$	355,130		$	19,356		$	506,467
Balance at March 31, 2021															Balance at March 31, 2021			14,928,434		$	131,695	$	391,860		$	8,565		$	532,120
Net income	Net income	—	—		16,775				—				16,775		Net income			—		—		18,143			—			18,143
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—	—		—				219				219		Other comprehensive income, net of tax			—		—		—			103			103
Stock-based compensation expense	Stock-based compensation expense	—	422		—				—				422		Stock-based compensation expense			—		811		—			—			811
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings	Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings	2,218	(13)		—				—				(13)		Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings			22,633		(228)		—			—			(228)
Common stock repurchased		(47,915)	(1,402)		—				—				(1,402)

Cash dividends declared ($0.33 per share)		—	—		(4,946)				—				(4,946)
Balance at September 30, 2020		14,917,344	$	130,988	$	366,959			$	19,575			$	517,522

Cash dividends declared ($0.36 per share)															Cash dividends declared ($0.36 per share)			—		—		(5,401)			—			(5,401)
Balance at June 30, 2021															Balance at June 30, 2021			14,951,067		$	132,278	$	404,602		$	8,668		$	545,548


		Nine 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)	(In thousands, except number of shares and per share data)	Shares Outstanding	Amount								(In thousands, except number of shares and per share data)				Shares Outstanding				Amount
Balance at December 31, 2018		15,591,914	$	158,215			$	302,030			$	(24,420)				$	435,825
Cumulative-effect adjustment upon adoption of ASU 2016-02(1)		—	—		254				—				254
Net income		—	—		41,965				—				41,965
Other comprehensive income, net of tax		—	—		—				23,537				23,537
Stock-based compensation expense		—	1,364		—				—				1,364
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings		37,202	(190)		—				—				(190)
Common stock repurchased		(404,213)	(17,174)		—				—				(17,174)
Cash dividends declared ($0.90 per share)		—	—		(13,909)				—				(13,909)
Balance at September 30, 2019		15,224,903	$	142,215	$	330,340			$	(883)			$	471,672
Balance at December 31, 2019	Balance at December 31, 2019	15,144,719	$	139,103	$	340,580			$	(6,268)			$	473,415	Balance at December 31, 2019			15,144,719		$	139,103		$	340,580		$	(6,268)		$	473,415
Net income	Net income	—	—		41,208				—				41,208		Net income			—		—		24,433			—			24,433
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—	—		—				25,843				25,843		Other comprehensive income, net of tax			—		—		—			25,624			25,624
Stock-based compensation expense	Stock-based compensation expense	—	1,373		—				—				1,373		Stock-based compensation expense			—		951		—			—			951
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings	Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings	37,571	(113)		—				—				(113)		Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings			35,353		(100)		—			—			(100)
Common stock repurchased	Common stock repurchased	(264,946)	(9,375)		—				—				(9,375)		Common stock repurchased			(217,031)		(7,973)		—			—			(7,973)
Cash dividends declared ($0.99 per share)		—	—		(14,829)				—				(14,829)
Balance at September 30, 2020		14,917,344	$	130,988	$	366,959			$	19,575			$	517,522
Cash dividends declared ($0.66 per share)															Cash dividends declared ($0.66 per share)			—		—		(9,883)			—			(9,883)
Balance at June 30, 2020															Balance at June 30, 2020			14,963,041		$	131,981	$	355,130		$	19,356		$	506,467
Balance at December 31, 2020															Balance at December 31, 2020			14,909,097		$	131,072	$	377,502		$	20,740		$	529,314
Net income															Net income			—		—		37,883			—			37,883
Other comprehensive loss, net of tax															Other comprehensive loss, net of tax			—		—		—			(12,072)			(12,072)
Stock-based compensation expense															Stock-based compensation expense			—		1,514		—			—			1,514
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings															Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings			41,970		(308)		—			—			(308)

Cash dividends declared ($0.72 per share)															Cash dividends declared ($0.72 per share)			—		—		(10,783)			—			(10,783)
Balance at June 30, 2021															Balance at June 30, 2021			14,951,067		$	132,278	$	404,602		$	8,668		$	545,548

~~(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)


		Nine Months Ended September 30,					Six Months Ended June 30,
(In thousands)	(In thousands)	2020		2019		(In thousands)	2021		2020
Operating Activities	Operating Activities					Operating Activities
Net Income	Net Income	$	41,208	$	41,965	Net Income	$	37,883	$	24,433
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Adjustments to reconcile net income to net cash provided by (used in) operating activities:						Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Originations of mortgage loans held for sale	Originations of mortgage loans held for sale	(475,131)		(176,782)		Originations of mortgage loans held for sale	(277,778)		(194,149)
Proceeds from the sale of mortgage loans	Proceeds from the sale of mortgage loans	460,130		168,394		Proceeds from the sale of mortgage loans	312,474		176,250
Gain on sale of mortgage loans, net of origination costs	Gain on sale of mortgage loans, net of origination costs	(10,385)		(3,928)		Gain on sale of mortgage loans, net of origination costs	(9,084)		(6,095)
Provision for credit losses		12,160		2,647
(Credit) provision for credit losses						(Credit) provision for credit losses	(5,359)		11,173
Depreciation and amortization expense	Depreciation and amortization expense	2,850		2,889		Depreciation and amortization expense	1,826		1,892
Investment securities amortization and accretion, net	Investment securities amortization and accretion, net	3,115		2,148		Investment securities amortization and accretion, net	3,733		1,755
Stock-based compensation expense	Stock-based compensation expense	1,373		1,364		Stock-based compensation expense	1,514		951
Amortization of core deposit intangible assets	Amortization of core deposit intangible assets	511		529		Amortization of core deposit intangible assets	328		341
Purchase accounting accretion, net	Purchase accounting accretion, net	(924)		(1,180)		Purchase accounting accretion, net	(435)		(617)

Net increase in derivative collateral posted		(30,250)		(26,630)
Increase in other assets		(10,088)		(1,799)
Decrease in other liabilities		(501)		(6,767)
Net cash (used in) provided by operating activities		(5,932)		2,850
Net decrease (increase) in derivative collateral posted						Net decrease (increase) in derivative collateral posted	22,090		(30,820)
Decrease (increase) in other assets						Decrease (increase) in other assets	3,385		(7,789)
(Decrease) increase in other liabilities						(Decrease) increase in other liabilities	(6,072)		3,188
Net cash provided by (used in) by operating activities						Net cash provided by (used in) by operating activities	84,505		(19,487)
Investing Activities	Investing Activities					Investing Activities
Proceeds from sales and maturities of available-for-sale securities		181,489		247,991
Purchase of available-for-sale securities		(341,100)		(220,696)
Proceeds from available-for-sale debt securities						Proceeds from available-for-sale debt securities	175,036		108,396
Purchase of available-for-sale debt securities						Purchase of available-for-sale debt securities	(482,156)		(206,496)

Net increase in loans	Net increase in loans	(180,174)		(85,817)		Net increase in loans	(66,366)		(231,369)

Purchase of Federal Home Loan Bank stock	Purchase of Federal Home Loan Bank stock	(9,231)		(4,340)		Purchase of Federal Home Loan Bank stock	(12)		(9,232)
Proceeds from sale of Federal Home Loan Bank stock	Proceeds from sale of Federal Home Loan Bank stock	9,535		7,463		Proceeds from sale of Federal Home Loan Bank stock	1,329		7,754
Purchase of premises and equipment	Purchase of premises and equipment	(2,591)		(2,378)		Purchase of premises and equipment	(1,176)		(2,261)

Recoveries of previously charged-off loans	Recoveries of previously charged-off loans	352		228		Recoveries of previously charged-off loans	208		170
Proceeds from the sale of other real estate owned	Proceeds from the sale of other real estate owned	110		554		Proceeds from the sale of other real estate owned	465		0
Net cash used in investing activities	Net cash used in investing activities	(341,610)		(56,995)		Net cash used in investing activities	(372,672)		(333,038)
Financing Activities	Financing Activities					Financing Activities
Net increase in deposits	Net increase in deposits	686,314		153,539		Net increase in deposits	288,870		458,624
Net (repayments of) proceeds from borrowings less than 90 days		(58,754)		2,586
Net proceeds from (repayments of) borrowings less than 90 days						Net proceeds from (repayments of) borrowings less than 90 days	7,974		(22,811)
Proceeds from Federal Home Loan Bank long-term advances	Proceeds from Federal Home Loan Bank long-term advances	25,000		0		Proceeds from Federal Home Loan Bank long-term advances	—		25,000
Repayments of Federal Home Loan Bank long-term advances	Repayments of Federal Home Loan Bank long-term advances	(10,000)		0		Repayments of Federal Home Loan Bank long-term advances	(25,000)		(10,000)
Repayment of subordinated debt						Repayment of subordinated debt	(15,000)		0

Common stock repurchases	Common stock repurchases	(9,140)		(17,174)		Common stock repurchases	(11)		(7,973)
Exercise of stock options and issuance of restricted stock, net of repurchase for tax withholdings	Exercise of stock options and issuance of restricted stock, net of repurchase for tax withholdings	(113)		(190)		Exercise of stock options and issuance of restricted stock, net of repurchase for tax withholdings	(308)		(100)
Cash dividends paid on common stock	Cash dividends paid on common stock	(14,907)		(14,004)		Cash dividends paid on common stock	(10,323)		(9,954)
Finance lease payments	Finance lease payments	(105)		(79)		Finance lease payments	(76)		(69)
Net cash provided by financing activities	Net cash provided by financing activities	618,295		124,678		Net cash provided by financing activities	246,126		432,717
Net increase in cash, cash equivalents and restricted cash		270,753		70,533
Net (decrease) increase in cash, cash equivalents and restricted cash						Net (decrease) increase in cash, cash equivalents and restricted cash	(42,041)		80,192
Cash, cash equivalents, and restricted cash at beginning of period	Cash, cash equivalents, and restricted cash at beginning of period	75,636		66,999		Cash, cash equivalents, and restricted cash at beginning of period	145,774		75,636
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	346,389	$	137,532	Cash, cash equivalents and restricted cash at end of period	$	103,733	$	155,828
Supplemental information	Supplemental information					Supplemental information
Interest paid	Interest paid	$	17,778	$	31,402	Interest paid	$	5,874	$	13,528
Income taxes paid	Income taxes paid	10,689		9,785		Income taxes paid	10,294		279

Transfer from loans and premises to other real estate owned		24		543
Unsettled common stock repurchase		235		0
Transfer from premises to other real estate owned						Transfer from premises to other real estate owned	204		24

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 ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the consolidated statements of income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, the consolidated statements of comprehensive income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, the consolidated statements of changes in shareholders' equity for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, and the consolidated statements of cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~2020. 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"), and Property A, Inc. as of and for the three and six months ended June 30, 2021, and HPFC, Property A, Inc. and Property P, Inc.) as of and for the three and six months ended June 30, 2020). 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 ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, 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.~~2020.

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

~~HTM:~~FRBB:

~~Held-to-maturity~~Federal Reserve Bank of Boston

ALCO:

Asset/Liability Committee

~~IRS:~~GAAP:

~~Internal Revenue Service~~Generally accepted accounting principles in the United States

~~ALL:~~ACL:

Allowance for ~~loan~~credit losses

~~LIBOR:~~GDP:

~~London Interbank Offered Rate~~Gross domestic product

AOCI:

Accumulated other comprehensive income (loss)

~~LTIP:~~HPFC:

~~Long-Term Performance Share Plan~~Healthcare Professional Funding Corporation, a wholly-owned subsidiary of Camden National Bank

ASC:

Accounting Standards Codification

~~Management ALCO:~~HTM:

~~Management Asset/Liability Committee~~Held-to-maturity

ASU:

Accounting Standards Update

~~MBS:~~IRS:

~~Mortgage-backed security~~Internal Revenue Service

Bank:

Camden National Bank, a wholly-owned subsidiary of Camden National Corporation

~~MSPP:~~LGD:

~~Management Stock Purchase Plan~~Loss given default

BOLI:

Bank-owned life insurance

~~N/A:~~LIBOR:

~~Not applicable~~London Interbank Offered Rate

Board ALCO:

Board of Directors' Asset/Liability Committee

~~N.M.:~~LTIP:

~~Not meaningful~~Long-Term Performance Share Plan

CARES Act:

Coronavirus Aid, Relief, and Economic Security Act, signed into law in March 2020 in response to COVID-19

Management ALCO:

Management Asset/Liability Committee

CCTA:

Camden Capital Trust A, an unconsolidated entity formed by Camden National Corporation

MBS:

Mortgage-backed security

CDs:

Certificate of deposits

MSPP:

Management Stock Purchase Plan

CECL:

Current Expected Credit Losses

N/A:

Not applicable

Company:

Camden National Corporation

N.M.:

Not meaningful

CMO:

Collateralized mortgage obligation

OCC:

Office of the Comptroller of the Currency

~~CDs:~~CUSIP:

~~Certificate of deposits~~Committee on Uniform Securities Identification Procedures

OCI:

Other comprehensive income (loss)

~~Company:~~DCRP:

~~Camden National Corporation~~Defined Contribution Retirement Plan

OREO:

Other real estate owned

~~CMO:~~EPS:

~~Collateralized mortgage obligation~~Earnings per share

OTTI:

Other-than-temporary impairment

~~DCRP:~~FASB:

~~Defined Contribution Retirement Plan~~Financial Accounting Standards Board

PD:

Probability of default

FDIC:

Federal Deposit Insurance Corporation

SBA:

U.S. Small Business Administration

~~EPS:~~FHLB:

~~Earnings per share~~Federal Home Loan Bank

SBA PPP

U.S. Small Business Administration Paycheck Protection Program

~~FASB:~~FHLBB:

~~Financial Accounting Standards Board~~Federal Home Loan Bank of Boston

SERP:

Supplemental executive retirement plans

~~FDIC:~~

~~Federal Deposit Insurance Corporation~~

~~Tax Act:~~

~~Tax Cuts and Jobs Act of 2017, enacted on December 22, 2017~~

~~FHLB:~~FHLMC:

Federal Home Loan ~~Bank~~Mortgage Corporation

TDR:

Troubled-debt restructured loan

~~FHLBB:~~FNMA:

Federal ~~Home Loan Bank of Boston~~National Mortgage Association

UBCT:

Union Bankshares Capital Trust I, an unconsolidated entity formed by Union Bankshares Company that was subsequently acquired by Camden National Corporation

FRB:

Federal Reserve System Board of Governors

U.S.:

United States of America

~~FRBB:~~

~~Federal Reserve Bank of Boston~~

~~2003 Plan:~~

~~2003 Stock Option and Incentive Plan~~

~~GAAP:~~

~~Generally accepted accounting principles in the United States~~

~~2012 Plan:~~

~~2012 Equity and Incentive Plan~~

~~HPFC:~~

~~Healthcare Professional Funding Corporation, a wholly-owned subsidiary of Camden National Bank~~

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Standards Adopted in ~~2020~~2021

The Company adopted and updated its accounting policy for the following accounting ~~standard(s)~~standards that ~~became effective January 1, 2020, and were~~have been applied to the Company's interim consolidated financial statements for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020:~~2021:

~~Goodwill.~~ ~~The Company adopted~~ ASU No. ~~2017-04~~2019-12, ~~, Intangibles - Goodwill and Other~~Income Taxes (Topic ~~350)~~740): Simplifying the ~~Test~~Accounting for ~~Goodwill Impairment~~Income Taxes ("ASU 2019-12"). ("The FASB issued ASU ~~2017-04"),~~2019-12 to simplify the accounting for income taxes by removing certain technical exceptions and by clarifying and amending certain areas. ASU 2019-12 is effective for interim and annual periods beginning after December 15, 2020, and as such the Company adopted 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 a2021. There was no material impact on the Company's consolidated financial ~~statements. Under the new accounting guidance the Company is more likely to record an impairment~~statements as a result of ~~goodwill, as there are now less requirements.~~

In the second quarter of 2020, the Company determined that the COVID-19 pandemic and its impact on global, national and local markets and economy, as well as its impact on the Company's year-to-date consolidated financial results, was a "triggering event" in accordance with ASC 350-20, ~~Goodwill~~, and an interim goodwill impairment assessment was completed. 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. As of June and September 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:~~

adopting ASU ~~No. 2016-13~~2019-12.~~, Financial Instruments - Credit Losses(Topic 326):~~ M~~easurement 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 was 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 ("National Emergency") terminates, or (2) December 31, 2020. 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. As the National Emergency was not terminated prior to September 30, 2020, the Company will adopt CECL on December 31, 2020, 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 engaged an independent third party to review its CECL model, methodologies and certain key assumptions, internal CECL policy, and internal controls framework.

The Company has completed the development of its process for estimation of the allowance for loan losses and off-balance sheet exposures in accordance with CECL. 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 estimates that as of September 30, 2020, assuming adoption of CECL as of January 1, 2020, its ACL, which includes the allowance for loan losses and off-balance sheet exposures, would have been $39.0 million to $43.0 million, or 1.19% to 1.31% of total loans at September 30, 2020. The Company estimates that as of December 31, 2019, its ACL, assuming adoption of CECL, would have been $27.0 million to $31.0 million, or 0.87% to 1.00% of total loans at December 31, 2019. Based on these ACL estimates, the Company's provision for credit losses under CECL for the nine months ended September 30, 2020, would range from $9.0 million to $17.0 million, as compared to a provision for credit losses recorded under the incurred methodology of $12.2 million for the nine months ended September 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 anticipates that it will elect to delay the capital impact of CECL in accordance with the interim final rule issued in March 2020 upon adoption of CECL.

ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform ("ASU 2020-04"), as amended by ASU No. 2021-01, Reference Rate Reform (Topic 848) Scope ("ASU 2021-01"). On March 12, 2020, the FASB issued ASU 2020-04, which was subsequently amended by ASU 2021-01. The FASB issued ~~ASU 2020-04~~these updates to ease the ~~potential~~ burden in accounting for ~~recognizing~~ the effects of reference rate reform on financial reporting. ~~The~~ ASU ~~provides~~2020-04 and ASU 2021-01 contain optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions ~~that are~~ affected by reference rate ~~reform, if certain criteria are met.~~reform. The ~~amendments in~~Company adopted ASU 2020-04 and ASU 2021-01 effective January 1, 2021, and there was no material impact on the Company's consolidated financial statements as a result of adopting this ~~update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform.~~guidance.

ASU 2020-04 is effective as of March 12, 2020 through December 31, 2022, with adoption permitted prospectively from a date within an interim period that includes or is subsequent to March 12, 2020. Once elected, the amendments must be applied prospectively for all eligible contract modifications. The Company, which has not yet adopted the amendments in this update, has assembled a cross-functional project team that is currently reviewing contracts and existing processes in order to assess the risks and potential impact to the Company of the transition away from LIBOR to a new reference rate.

NOTE 3 – INVESTMENTS

~~AFS and HTM Investments~~Trading Securities

Trading securities are reported on the Company's consolidated statements of condition at fair value. As of June 30, 2021 and December 31, 2020, the fair value of the Company's trading securities were $4.4 million and $4.2 million, respectively. These securities are held in a rabbi trust account and invested in mutual funds. The trading securities will be used for future payments associated with the Company's Executive Deferred Compensation Plan and Director Deferred Compensation Plan.

AFS Debt Securities

AFS debt securities are reported on the Company's consolidated statements of condition at fair value. The following table summarizes the amortized cost, ~~and~~ estimated fair ~~values~~value, and unrealized gains (losses) of AFS ~~and HTM investments,~~debt securities, as of the dates indicated:


(In thousands)	(In thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value		(In thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
September 30, 2020
AFS Investments (carried at fair value):
June 30, 2021										June 30, 2021
Obligations of U.S. government sponsored enterprises										Obligations of U.S. government sponsored enterprises	$	7,200	$	2	$	(119)	$	7,083
Obligations of states and political subdivisions	Obligations of states and political subdivisions	$	120,636	$	7,055	$	(78)	$	127,613	Obligations of states and political subdivisions	112,792		6,116		(255)		118,653
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	549,930		19,036		(864)		568,102		Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	829,611		13,290		(3,360)		839,541
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	389,382		11,313		(129)		400,566		Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	423,244		5,782		(3,724)		425,302
Subordinated corporate bonds	Subordinated corporate bonds	10,531		313		(56)		10,788		Subordinated corporate bonds	9,017		245		(18)		9,244
Total AFS investments		$	1,070,479	$	37,717	$	(1,127)	$	1,107,069
HTM Investments (carried at amortized cost):
Obligations of states and political subdivisions		$	1,298	$	105	$	0	$	1,403
Total HTM investments		$	1,298	$	105	$	0	$	1,403
December 31, 2019
AFS Investments (carried at fair value):
Total AFS debt securities										Total AFS debt securities	$	1,381,864	$	25,435	$	(7,476)	$	1,399,823
December 31, 2020										December 31, 2020
Obligations of states and political subdivisions	Obligations of states and political subdivisions	$	115,632	$	2,779	$	(328)	$	118,083	Obligations of states and political subdivisions	$	119,608	$	7,627	$	(115)	$	127,120
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	462,593		3,398		(2,605)		463,386		Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	547,396		19,796		(574)		566,618
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	325,200		3,183		(2,478)		325,905		Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	399,937		10,652		(135)		410,454
Subordinated corporate bonds	Subordinated corporate bonds	10,553		191		0		10,744		Subordinated corporate bonds	11,533		186		(98)		11,621
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	$	0	$	1,359
Total HTM investments		$	1,302	$	57	$	0	$	1,359
Total AFS debt securities										Total AFS debt securities	$	1,078,474	$	38,261	$	(922)	$	1,115,813

As of June 30, 2021 and December 31, 2020, there was 0 allowance carried on AFS debt securities in accordance with ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13").

The net unrealized ~~gain~~gains on AFS ~~investments~~debt securities reported within AOCI at ~~September~~June 30, ~~2020, was $28.7~~2021, were $14.1 million, net of a deferred tax liability of ~~$7.9~~$3.9 million. The net unrealized ~~gain~~gains on AFS investments reported within AOCI at December 31, ~~2019, was $3.3~~2020, were $29.3 million, net of a deferred tax liability of ~~$890,000.~~$8.0 million.

~~Impaired~~For the three and six months ended June 30, 2021 and 2020, the Company did 0t sell any 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.

debt securities.

1211

The following table presents the ~~estimated fair values and~~Company's AFS debt securities with gross unrealized losses, ~~on AFS and HTM investments that were in a continuous loss position that was considered temporary,~~for which an ACL has not been recorded, segregated by the length of time ~~that an individual security in each category has~~the securities have been in a continuous loss position, as of the dates indicated:


			Less Than 12 Months				12 Months or More				Total						Less Than 12 Months				12 Months or More				Total
(In thousands, except number of holdings)	(In thousands, except number of holdings)	Number of Holdings	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		(In thousands, except number of holdings)	Number of Holdings	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
September 30, 2020
AFS Investments:
June 30, 2021															June 30, 2021
Obligations of U.S. government sponsored enterprises															Obligations of U.S. government sponsored enterprises	3	$	6,081	$	(119)	$	0	$	0	$	6,081	$	(119)
Obligations of states and political subdivisions	Obligations of states and political subdivisions	1	$	2,441	$	(78)	$	0	$	0	2,441		$	(78)	Obligations of states and political subdivisions	2	1,294		(2)		2,265		(253)		3,559		(255)
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	14	59,434		(858)		1,004		(6)		$	60,438	(864)		Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	54	329,607		(3,358)		297		(2)		329,904		(3,360)
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	8	33,046		(129)		0		0		33,046		(129)		Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	42	211,308		(3,665)		4,063		(59)		215,371		(3,724)
Subordinated corporate bonds	Subordinated corporate bonds	3	2,944		(56)		0		0		$	2,944	(56)		Subordinated corporate bonds	2	1,982		(18)		0		0		1,982		(18)
Total AFS investments		26	$	97,865	$	(1,121)	$	1,004	$	(6)	$	98,869	$	(1,127)
Total AFS debt securities															Total AFS debt securities	103	$	550,272	$	(7,162)	$	6,625	$	(314)	$	556,897	$	(7,476)

December 31, 2019
AFS Investments:
December 31, 2020															December 31, 2020
Obligations of states and political subdivisions	Obligations of states and political subdivisions	11	$	30,459	$	(328)	$	0	$	0	$	30,459	$	(328)	Obligations of states and political subdivisions	1	$	2,404	$	(115)	$	0	$	0	$	2,404	$	(115)
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	59	162,964		(1,850)		63,633		(755)		226,597		(2,605)		Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	15	61,222		(568)		980		(6)		62,202		(574)
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	35	66,549		(733)		68,614		(1,745)		135,163		(2,478)		Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	9	39,107		(135)		0		0		39,107		(135)

Total AFS investments		105	$	259,972	$	(2,911)	$	132,247	$	(2,500)	$	392,219	$	(5,411)
Subordinated corporate bonds															Subordinated corporate bonds	5	4,902		(98)		0		0		4,902		(98)
Total AFS debt securities															Total AFS debt securities	30	$	107,635	$	(916)	$	980	$	(6)	$	108,615	$	(922)

For the three and six months ended June 30, 2021 and 2020, the unrealized losses on Company's AFS debt securities have not been recognized within income because management does not intend to sell and it is not more-likely-than-not it will be required to sell any of the AFS debt securities before recovery of its amortized cost basis. Furthermore, the unrealized losses were due to changes in interest rates and other market conditions and not reflective of credit events. The issuers continue to make timely principal and interest payments on the bonds.

At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019, unrealized losses~~2020, total accrued interest receivable on AFS debt securities, which has been excluded from reported amortized cost basis on AFS debt securities, was $3.3 million and $3.1 million respectively and was reported 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 September 30, 2020 and December 31, 2019, gross unrealized losses~~assets on the ~~Company's AFS and HTM investments were 1%~~consolidated statements of ~~their respective fair values.~~

~~At September 30, 2020,~~condition. An allowance was not carried on the ~~Company had the intent and ability to retain its debt investments in an unrealized loss position until the decline in value has recovered.~~

accrued interest receivable at either date.

1312

~~Sale of AFS Investments:~~

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

Three Months Ended
September 30, Nine Months Ended
September 30,
(In thousands) 2020 2019 2020 2019
Proceeds from sales of investments(1)
$ 0 $ 97,042 $ 0 $ 142,868
Gross realized gains 0 1,015 0 1,386
Gross realized losses 0 (1,014) 0 (1,358)

~~(1) The Company had 0t previously recorded any OTTI on these investments sold.~~

~~AFS and HTM Investments Pledged:~~

At September 30, 2020 and December 31, 2019, AFS and HTM investments with an amortized cost of $597.7 million and $709.0 million and estimated fair values of $622.6 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~~debt securities by contractual maturity at ~~September~~June 30, ~~2020,~~2021, 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. Mortgage-related securities are shown in total, as their maturities are highly variable.


(In thousands)	(In thousands)	Amortized Cost		Fair Value		(In thousands)	Amortized Cost			Fair Value
AFS Investments
Due in one year or less	Due in one year or less	$	4,415	$	4,448	Due in one year or less	$	3,018		$	3,072
Due after one year through five years	Due after one year through five years	64,310		66,551		Due after one year through five years	4,276			4,641
Due after five years through ten years	Due after five years through ten years	229,933		244,118		Due after five years through ten years	74,599			77,814
Due after ten years	Due after ten years	771,821		791,952		Due after ten years	47,116			49,453
Subtotal						Subtotal	129,009			134,980
Mortgage-related securities						Mortgage-related securities	1,252,855			1,264,843
Total	Total	$	1,070,479	$	1,107,069	Total	$	1,381,864	1381864000	$	1,399,823
HTM Investments
Due in one year or less		$	0	$	0
Due after one year through five years		510		547
Due after five years through ten years		788		856
Due after ten years		0		0
Total		$	1,298	$	1,403

HTM Debt Securities

HTM debt securities are reported on the Company's consolidated statements of condition at amortized cost. The following table summarizes the amortized cost, estimated fair value and unrealized gains (losses) of HTM debt securities as of the dates indicated:


(In thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
March 31, 2021
Obligations of states and political subdivisions	$	1,294	$	103	$	0	$	1,397
Total HTM debt securities	$	1,294	$	103	$	0	$	1,397
December 31, 2020
Obligations of states and political subdivisions	$	1,297	$	114	$	0	$	1,411
Total HTM debt securities	$	1,297	$	114	$	0	$	1,411

As of June 30, 2021 and December 31, 2020, the Company’s HTM debt securities portfolio was made up of three investment grade municipal debt securities, of which two securities also carried credit enhancements. The HTM debt securities portfolio was comprised solely of high credit quality (rated AA or higher) state and municipal obligations. High credit quality state and municipal obligations have a history of zero to near-zero credit loss. As a result, the Company determined that the expected credit loss on its HTM portfolio was immaterial, and therefore, an allowance was 0t carried on its HTM debt securities at June 30, 2021 or December 31, 2020.

As of June 30, 2021 and December 31, 2020, none of the Company's HTM debt securities were past due or on non-accrual status. For the three and six months ended June 30, 2021 and 2020, the Company did not recognize any interest income on non-accrual HTM debt securities. At June 30, 2021 and December 31, 2020, total accrued interest receivable on HTM debt securities, which has been excluded from reported amortized cost basis on HTM debt securities, was $10,000, and reported within other assets on the consolidated statements of condition. An allowance was not carried on the accrued interest receivable at either date.

1413

The amortized cost and estimated fair values of HTM debt securities by contractual maturity at June 30, 2021 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






Due in one year or less	$	0	$	0
Due after one year through five years	868		933
Due after five years through ten years	426		464
Due after ten years	0		0
Total	$	1,294	$	1,397

AFS and HTM Debt Securities Pledged

At June 30, 2021 and December 31, 2020, AFS and HTM debt securities with an amortized cost of $500.8 million and $485.0 million and estimated fair values of $512.9 million and $507.1 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.

Other Investments

The Company's FHLBB and FRB common stock are reported at cost within other investments on the consolidated statements of condition. The Company evaluates these investments for impairment based on the ultimate recoverability of the par value. The Company did not record any impairment on its FHLBB and FRB stock for the three and six months ended June 30, 2021 and 2020.

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
September 30, 2020
Equity securities - bank stock (carried at fair value) $ 544 $ 1,130 $ 0 $ 1,674
FHLBB (carried at cost) 6,297 — — 6,297
FRB (carried at cost) 5,374 — — 5,374
Total other investments $ 12,215 $ 1,130 $ 0 $ 13,345
December 31, 2019
Equity securities - bank stock (carried at fair value) $ 544 $ 1,130 $ 0 $ 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 $ 0 $ 13,649


(In thousands)	June 30, 2021		December 31, 2020
FHLBB	$	4,850	$	6,167
FRB	5,374		5,374
Total other investments	$	10,224	$	11,541

For the three months ended September 30, 2020 and 2019, the Company recognized an unrealized loss of $0 and $22,000, 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 nine months ended September 30, 2020 and 2019, the Company recognized an unrealized gain of $0 and $62,000, 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 nine months ended September 30, 2020 and 2019.~~

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

Loans

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


(In thousands)	(In thousands)	September 30, 2020		December 31, 2019		(In thousands)	June 30, 2021		December 31, 2020
Commercial Loans:	Commercial Loans:					Commercial Loans:
Commercial real estate		$	1,333,733	$	1,243,397
Commercial real estate - non owner-occupied						Commercial real estate - non owner-occupied	$	1,127,200	$	1,097,975
Commercial real estate - owner-occupied						Commercial real estate - owner-occupied	296,697		271,495
Commercial	Commercial	360,629		421,108		Commercial	367,093		381,494
SBA PPP	SBA PPP	223,838		0		SBA PPP	126,064		135,095
HPFC		14,919		21,593
Total commercial loans	Total commercial loans	1,933,119		1,686,098		Total commercial loans	1,917,054		1,886,059
Retail Loans:	Retail Loans:					Retail Loans:
Residential real estate	Residential real estate	1,044,103		1,070,374		Residential real estate	1,120,917		1,054,798
Home equity	Home equity	274,743		312,779		Home equity	228,690		258,573
Consumer	Consumer	22,877		25,772		Consumer	19,255		20,392
Total retail loans	Total retail loans	1,341,723		1,408,925		Total retail loans	1,368,862		1,333,763
Total loans	Total loans	$	3,274,842	$	3,095,023	Total loans	$	3,285,916	$	3,219,822

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)	(In thousands)	September 30, 2020		December 31, 2019		(In thousands)	June 30, 2021		December 31, 2020
Net unamortized fair value mark discount on acquired loans	Net unamortized fair value mark discount on acquired loans	$	(1,667)	$	(2,593)	Net unamortized fair value mark discount on acquired loans	$	(857)	$	(1,291)
Net unamortized loan (fees) origination costs(1)	Net unamortized loan (fees) origination costs(1)	(2,439)		3,111		Net unamortized loan (fees) origination costs(1)	(2,012)		856
Total	Total	$	(4,106)	$	518	Total	$	(2,869)	$	(435)

(1) The change in net unamortized loan (fees) origination costs from December 31, ~~2019~~2020 to ~~September~~June 30, ~~2020,~~2021, was primarily driven by SBA PPP loan origination fees capitalized ~~upon origination of SBA PPP loans~~ during the ~~second and third quarters of 2020.~~six months ended June 30, 2021. As of ~~September~~June 30, 2021 and December 31, 2020, unamortized loan fees on originated SBA PPP loans were $5.4 ~~million.~~million and $2.2 million, respectively.

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,Beginning in April 2020, the Company ~~closed HPFC's operations and is no longer originating HPFC loans.~~

~~The Company participated in~~started funding SBA PPP ~~funding~~loans issued to qualifying businesses inas part of the ~~second and third quarter of 2020. Through September~~federal stimulus package issued due to the COVID-19 pandemic. For the six months ended June 30, ~~2020,~~2021, the Company originated ~~3,034~~1,620 SBA PPP loans totaling ~~$244.8~~$102.2 million to qualifying businesses across our markets in need of financial support due to the COVID-19 pandemic. For the year ended December 31, 2020, the Company originated 3,034 SBA PPP loans totaling $244.8 million. This program provided qualifying businesses a specialized low-interest loan by the U.S. Treasury Department and is administered by the SBA. The PPP provides borrower guarantees for lenders, as well as loan forgiveness incentives for borrowers that utilize the loan proceeds to cover employee compensation-related business operating costs, as well as certain other costs up to pre-established limits.

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 ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, 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~~

Loan Sales

For the three months ended June 30, 2021 and 2020, the Company sold $110.8 million and $197.8 million, respectively, of fixed rate residential mortgage loans on the ~~inherent risk~~secondary market, which resulted in gains on the sale of ~~loss~~loans (net of costs) of $2.9 million and $4.6 million, respectively. For the six months ended June 30, 2021 and 2020, the Company sold $303.4 million and $267.0 million, respectively, of fixed rate residential mortgage loans on the secondary market which resulted in gains on the ~~Company’s loan portfolio~~sale of loans (net of costs) of $9.1 million and $6.1 million.

At June 30, 2021 and December 31, 2020, the Company had certain residential mortgage loans with a principal balance of $14.9 million and $40.5 million, respectively, designated 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~~held 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.~~sale. The Company has ~~accounted~~elected the fair value option of accounting for its loans held for sale, and at June 30, 2021 and December 31, 2020, recorded an unrealized gain of $253,000 and $1.1 million, respectively. For the ~~estimated impact~~three months ended June 30, 2021 and 2020, the Company recorded an unrealized gain on loans held for sale recorded within mortgage banking income, net, on the Company's consolidated statements of income of $267,000 and $1.3 million, respectively. For the six months ended June 30, 2021 and 2020, the Company recorded an unrealized (loss) gain on loans held for sale recorded within mortgage banking income, net, on the Company's consolidated statements of income of ($804,000) and $742,000, respectively.

The Company has forward delivery commitments with a secondary market investor on each of its loans held for sale at June 30, 2021 and December 31, 2020. Refer to Note 8 for further discussion of the ~~COVID-19 pandemic~~Company's forward delivery commitments.

ACL on Loans

Under CECL, effective January 1, 2020 but applied to interim reporting periods on or after October 1, 2020, the ACL on loans is management's estimate of expected credit losses within its loan portfolio as of September 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 September 30, 2020.each reporting date.

As discussed in Note 2, the Company did not adopt ASU 2016-04, commonly referred to as "CECL", during the nine months ended September 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.

As of and for the three and nine months ended September 30, 2020, the Company has disclosed SBA PPP loans as a standalone loan segment, separate from the Company's commercial loan segment, as the credit risk profiles differ. Refer to discussion of each loan segment's risk characteristics below for further details. There were no other significant changes to the Company's ALL methodology during the three or nine months ended September 30, 2020.

The Board of Directors monitors credit risk through: (i) the Directors' ~~Loan Review~~Credit 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, and concentration ~~levels, and the ALL methodology under the incurred loss accounting methodology for March 31, 2020 and periods prior to;~~levels; and (ii) the Audit Committee, which ~~effective June 30, 2020,~~ has approval authority and oversight responsibility for ~~ALL~~ACL 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 on December 31, 2020, effective retrospectively as of January 1, 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. ~~Effective for annual and interim periods beginning January 1, 2020, the~~The adequacy of the ~~ALL~~ACL, including the ACL on loans, is overseen by the Management Provision Committee, which is an internal management committee comprised of various Company executives and 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.~~ACL. The Management Provision Committee supports the oversight efforts of the director-level committees discussed in the paragraph above and the Board of Directors. The Company's practice is to manage ~~the~~its loan 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,~~ACL on loans, the Company ~~disaggregated~~disaggregates its loans into portfolio ~~segments, which include commercial real estate, commercial, SBA PPP, HPFC, residential real estate, home equity and consumer.~~segments. Each portfolio segment possesses unique risk characteristics that are considered when determining the appropriate level of allowance. ~~These~~As of June 30, 2021, the Company's loan portfolio segments, as determined based on the unique risk characteristics ~~unique to~~of each, ~~portfolio segment~~ include the following:

Commercial Real ~~Estate.~~Estate - Non Owner-Occupied. ~~Commercial~~Non-owner occupied commercial real estate loans are, in substance, all commercial real estate loans that are not categorized by the Company as owner-occupied commercial real estate loans. Non owner-occupied commercial estate loans are investment properties in which the primary source for repayment of the loan by the borrower is derived from rental income associated with the property or the proceeds of the sale, refinancing, or permanent refinancing of the property. Non owner-occupied commercial real estate loans consist of mortgage loans to finance investments in real property ~~such as~~that may include, but are not limited to, multi-family residential, commercial/retail office ~~industrial,~~space, industrial/warehouse space, hotels, assisted living facilities and other specific use properties. Also included within the non owner-occupied commercial real estate loan segment are construction projects until they are completed. 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. Maximum loan-to-value ratios at origination are governed by established policy and regulatory guidelines.

Commercial Real Estate - Owner-Occupied. Generally, owner-occupied commercial real estate loans are properties that are owned and operated by the borrower, and the primary source for repayment is the cash flow from the ongoing operations and activities conducted by the borrower's business. Owner-occupied commercial real estate loans consist of mortgage loans to finance investments in real property that may include, but are not limited to, commercial/retail office space, restaurants, educational ~~health care~~and medical practice 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~~Maximum 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~~program during the year ended December 31, 2020 have terms of two or five years, and those made for the six months ended June 30, 2021 have a term of five years. SBA PPP loans 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~~These 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,~~residences, including for investment purposes.

Home Equity. Home equity loans and lines of credit are made to qualified individuals ~~for legitimate purposes~~and are 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.

The following table presents the activity in the ACL on loans, as reported under CECL, for the periods indicated:


	Commercial Real Estate
(In thousands)	Non Owner-Occupied		Owner- Occupied		Commercial		SBA PPP		Residential Real Estate		Home Equity		Consumer		Total
At or For The Three Months Ended June 30, 2021

Beginning balance, March 31, 2021	$	22,473	$	2,548	$	5,170	$	87	$	3,093	$	2,176	$	228	$	35,775
Loans charged off	0		0		(259)		0		(35)		(107)		(19)		(420)
Recoveries	0		3		67		0		70		0		17		157
(Credit) provision for loan losses	(2,896)		(35)		(636)		(21)		77		(4)		63		(3,452)
Ending balance, June 30, 2021	$	19,577	$	2,516	$	4,342	$	66	$	3,205	$	2,065	$	289	$	32,060
At or For The Six Months Ended June 30, 2021
Beginning balance, December 31, 2020	$	21,778	$	2,832	$	6,703	$	69	$	3,474	$	2,616	$	393	$	37,865
Loans charged off	0		0		(406)		0		(88)		(145)		(68)		(707)
Recoveries	0		5		110		0		70		0		23		208
(Credit) provision for loan losses	(2,201)		(321)		(2,065)		(3)		(251)		(406)		(59)		(5,306)
Ending balance, June 30, 2021	$	19,577	$	2,516	$	4,342	$	66	$	3,205	$	2,065	$	289	$	32,060
At or For The Year Ended December 31, 2020

Beginning balance, December 31, 2019	$	10,924	$	1,490	$	3,985	$	0	$	5,842	$	2,423	$	507	$	25,171
Impact of adopting CECL(1)	(668)		(90)		1,548		0		(1,129)		792		(220)		233
Loans charged off	(82)		(21)		(1,130)		0		(121)		(317)		(167)		(1,838)
Recoveries	107		13		572		0		292		33		67		1,084
Provision (credit) for loan losses	11,497		1,440		1,728		69		(1,410)		(315)		206		13,215
Ending balance, December 31, 2020	$	21,778	$	2,832	$	6,703	$	69	$	3,474	$	2,616	$	393	$	37,865

(1) The Company adopted ASU 2016-13, "CECL," effective January 1, 2020 but applied to reporting periods on or after October 1, 2020.

During the six months ended June 30, 2021, there were no significant changes in our CECL modeling methodology to determine the ACL on loans at June 30, 2021. The significant key assumptions used with the ACL on loans calculation at June 30, 2021 and December 31, 2020, included: (i) Company-specific macroeconomic factors (i.e., loss drivers), (ii) our forecast period and reversion speed, (iii) prepayment speeds, and (iv) various qualitative factors.

The ACL on loans, as presented and accounted for under the CECL methodology, decreased $5.8 million during the six months ended June 30, 2021, to $32.1 million as of June 30, 2021. The decrease in the ACL on loans was driven by an overall improvement in management's forecast of macroeconomic factors over a one-year forecast period.

The following ~~tables present the~~table presents activity in the ~~ALL~~ACL on loans and select loan information by portfolio segment, under the incurred loss methodology, for the periods indicated:

(In thousands) Commercial
Real Estate Commercial SBA PPP HPFC Residential
Real Estate Home
Equity Consumer Total
At or For The Three and Nine Months Ended September 30, 2020
ALL for the three months ended:
Beginning balance $ 18,386 $ 4,679 $ 113 $ 170 $ 8,603 $ 3,084 $ 504 $ 35,539
Loans charged off (33) (184) 0 0 (25) (10) (55) (307)
Recoveries 3 139 0 0 4 0 36 182
Provision (credit)(1)
1,173 (246) 2 (21) 124 (51) 19 1,000
Ending balance $ 19,529 $ 4,388 $ 115 $ 149 $ 8,706 $ 3,023 $ 504 $ 36,414
ALL for the nine months ended:
Beginning balance $ 12,414 $ 3,769 $ 0 $ 216 $ 5,842 $ 2,423 $ 507 $ 25,171
Loans charged off (104) (857) 0 0 (121) (61) (138) (1,281)
Recoveries 10 255 0 0 27 4 56 352
Provision (credit)(1)
7,209 1,221 115 (67) 2,958 657 79 12,172
Ending balance $ 19,529 $ 4,388 $ 115 $ 149 $ 8,706 $ 3,023 $ 504 $ 36,414
ALL balance attributable to loans:
Individually evaluated for impairment $ 36 $ 0 $ 0 $ 0 $ 371 $ 87 $ 0 $ 494
Collectively evaluated for impairment 19,493 4,388 115 149 8,335 2,936 504 35,920
Total ending ALL $ 19,529 $ 4,388 $ 115 $ 149 $ 8,706 $ 3,023 $ 504 $ 36,414
Loans:
Individually evaluated for impairment $ 460 $ 171 $ 0 $ 0 $ 3,128 $ 365 $ 0 $ 4,124
Collectively evaluated for impairment 1,333,273 360,458 223,838 14,919 1,040,975 274,378 22,877 3,270,718
Total ending loans balance $ 1,333,733 $ 360,629 $ 223,838 $ 14,919 $ 1,044,103 $ 274,743 $ 22,877 $ 3,274,842
At or For The Three and Nine Months Ended September 30, 2019
ALL for the three months ended:
Beginning balance $ 12,152 $ 4,107 $ 0 $ 280 $ 6,249 $ 2,992 $ 383 $ 26,163
Loans charged off (92) (183) 0 (11) (411) (348) (258) (1,303)
Recoveries 34 56 0 0 2 0 3 95
Provision (credit)(1)
(18) 124 0 (32) 382 132 145 733
Ending balance $ 12,076 $ 4,104 $ 0 $ 237 $ 6,222 $ 2,776 $ 273 $ 25,688
ALL for the nine months ended:
Beginning balance $ 11,654 $ 3,620 $ 0 $ 337 $ 6,071 $ 2,796 $ 234 $ 24,712
Loans charged off (157) (636) 0 (11) (436) (392) (278) (1,910)
Recoveries 41 167 0 0 6 0 14 228
Provision (credit)(1)
538 953 0 (89) 581 372 303 2,658
Ending balance $ 12,076 $ 4,104 $ 0 $ 237 $ 6,222 $ 2,776 $ 273 $ 25,688
ALL balance attributable to loans:
Individually evaluated for impairment $ 29 $ 303 $ 0 $ 0 $ 337 $ 69 $ 0 $ 738
Collectively evaluated for impairment 12,047 3,801 0 237 5,885 2,707 273 24,950
Total ending ALL $ 12,076 $ 4,104 $ 0 $ 237 $ 6,222 $ 2,776 $ 273 $ 25,688
Loans:
Individually evaluated for impairment $ 406 $ 646 $ 0 $ 0 $ 3,880 $ 585 $ 0 $ 5,517
Collectively evaluated for impairment 1,255,113 421,108 0 23,712 1,058,018 322,979 24,187 3,105,117
Total ending loans balance $ 1,255,519 $ 421,754 $ 0 $ 23,712 $ 1,061,898 $ 323,564 $ 24,187 $ 3,110,634


(In thousands)	(In thousands)	Commercial Real Estate		Commercial		SBA PPP		HPFC		Residential Real Estate		Home Equity		Consumer		Total		(In thousands)	Commercial Real Estate(1)		Commercial		SBA PPP		Residential Real Estate		Home Equity		Consumer		Total
At or For The Year Ended December 31, 2019
ALL:
At or For The Three and Six Months Ended June 30, 2020																		At or For The Three and Six Months Ended June 30, 2020
Allowance for the three months ended:																		Allowance for the three months ended:
Beginning balance	Beginning balance	$	11,654	$	3,620	$	—	$	337	$	6,071	$	2,796	$	234	$	24,712	Beginning balance	$	13,374	$	4,297	$	0	$	5,897	$	2,480	$	473	$	26,521
Loans charged off	Loans charged off	(300)		(1,167)		—		(71)		(462)		(412)		(301)		(2,713)		Loans charged off	(21)		(420)		0		0		(17)		(26)		(484)
Recoveries	Recoveries	49		225		—		—		16		1		19		310		Recoveries	3		63		0		21		0		15		102
Provision (credit)(1)		1,011		1,091		—		(50)		217		38		555		2,862
Provision																		Provision	5,030		909		113		2,685		621		42		9,400
Ending balance	Ending balance	$	12,414	$	3,769	$	—	$	216	$	5,842	$	2,423	$	507	$	25,171	Ending balance	$	18,386	$	4,849	$	113	$	8,603	$	3,084	$	504	$	35,539
ALL balance attributable to loans:
Allowance for the six months ended:																		Allowance for the six months ended:
Beginning balance																		Beginning balance	$	12,414	$	3,985	$	0	$	5,842	$	2,423	$	507	$	25,171
Loans charged off																		Loans charged off	(71)		(673)		0		(96)		(51)		(83)		(974)
Recoveries																		Recoveries	7		116		0		23		4		20		170
Provision(1)																		Provision(1)	6,036		1,421		113		2,834		708		60		11,172
Ending balance																		Ending balance	$	18,386	$	4,849	$	113	$	8,603	$	3,084	$	504	$	35,539
Allowance balance attributable to loans:																		Allowance balance attributable to loans:
Individually evaluated for impairment	Individually evaluated for impairment	$	30	$	—	$	—	$	—	$	364	$	69	$	—	$	463	Individually evaluated for impairment	$	35	$	0	$	0	$	338	$	89	$	0	$	462
Collectively evaluated for impairment	Collectively evaluated for impairment	12,384		3,769		—		216		5,478		2,354		507		24,708		Collectively evaluated for impairment	18,351		4,849		113		8,265		2,995		504		35,077
Total ending ALL		$	12,414	$	3,769	$	—	$	216	$	5,842	$	2,423	$	507	$	25,171
Total ending allowance																		Total ending allowance	$	18,386	$	4,849	$	113	$	8,603	$	3,084	$	504	$	35,539
Loans:	Loans:																	Loans:
Individually evaluated for impairment	Individually evaluated for impairment	$	402	$	319	$	—	$	—	$	3,384	$	373	$	—	$	4,478	Individually evaluated for impairment	$	461	$	179	$	0	$	3,153	$	370	$	0	$	4,163
Collectively evaluated for impairment	Collectively evaluated for impairment	1,242,995		420,789		—		21,593		1,066,990		312,406		25,772		3,090,545		Collectively evaluated for impairment	1,310,524		428,007		218,803		1,051,180		290,445		22,919		3,321,878
Total ending loans balance	Total ending loans balance	$	1,243,397	$	421,108	$	—	$	21,593	$	1,070,374	$	312,779	$	25,772	$	3,095,023	Total ending loans balance	$	1,310,985	$	428,186	$	218,803	$	1,054,333	$	290,815	$	22,919	$	3,326,041

(1) ~~The provision (credit) for~~Includes both commercial real estate - non owner-occupied and owner-occupied loan losses excludes any impact for the change in the reserve for unfunded commitments, which represents management's estimate of the amount required to reflect the probable inherent losses on outstanding letters of credit and unused lines of credit. The reserve for unfunded commitments is presented within accrued interest and other liabilities on the consolidated statements of condition. At September 30, 2020 and 2019, and December 31, 2019, the reserve for unfunded commitments was $9,000, $11,000 and $21,000, respectively.

~~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
September 30, Nine Months Ended
September 30, Year Ended December 31,
2019
(In thousands) 2020 2019 2020 2019
Provision for loan losses $ 1,000 $ 733 $ 12,172 $ 2,658 $ 2,862
Change in reserve for unfunded commitments (13) (3) (12) (11) (1)
Provision for credit losses $ 987 $ 730 $ 12,160 $ 2,647 $ 2,861
segments.

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 ~~September~~June 30, ~~2020,~~2021, the Company's total exposure to the lessors of nonresidential buildings' industry was ~~13%~~14% of total loans and 32% of total commercial real estate loans. There were 0 other industry exposures exceeding 10% of the Company's total loan portfolio as of ~~September~~June 30, ~~2020.~~2021.

COVID-19 Loan Deferral ~~Program:~~Program

In response to the COVID-19 pandemic, the Company worked with businesses and consumers through the year ended 2020 to provide temporary debt payment relief that generally provided principal and/or interest payment deferrals for a period of 180 days or less. ~~For~~All loans ~~temporarily modified due to~~that were granted temporary payment relief during the ~~COVID-19 pandemic, under~~year ended 2020 complied with the ~~CARES Act and regulatory guidance, the Company may apply the following accounting treatment in this order:~~

1.~~The Company may account for a loan modification in accordance with Section 4013~~terms of the CARES Act, ifwhich was signed into law in March 2020, and bank regulator guidance, and thus were not individually assessed, designated or accounted for as TDRs.

The Company did not issue or extend temporary debt relief to customers due to COVID-19 hardships during the ~~loan modification (i) meets~~six months ended June 30, 2021. However, the ~~criteria set forth in Section 4013~~Company may do so on case-by-case under bank regulator guidance or the Consolidated Appropriations Act of 2021, which extended the provisions within the CARES Act ~~and (ii) the Company elects to apply Section 4013 of the CARES Act. Section 4013 of the CARES Act suspended~~that provided TDR ~~designation for loan modifications related~~accounting relief to the COVID-19 pandemic. In order for the loan modification to qualify under Section 4013 of the CARES Act, the loan must not have been more than 30 days past due as of December 31, 2019. This guidance is applicable for loan modifications beginning on March 1, 2020 and ending on the earlier ofof: (i) December 31, ~~2020,~~2021 or (ii) the date that is 60 days after the date the national emergency concerning the COVID-19 pandemic declared by the President on March 13, 2020 ~~under the National Emergencies Act~~ terminates.

2.Should a loan modification (i) not meet the criteria set forth in Section 4013 of the CARES Act or (ii) the Company elects to not apply Section 4013 of the CARES Act, but the loan modification (a) meets the criteria provided in the "Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised)," issued by the banking agencies on April 7, 2020, and (b) the Company elects to apply this guidance, then the Company may account for the loan modification in accordance with the interagency guidance. Under this guidance, if the loan was no more than 30 days past due at the time the loan modification program was implemented, the modification was short-term in duration (generally, less than six months), and the modification was related to the COVID-19 pandemic, then it may be presumed that the borrower is not experiencing financial difficulty, and, therefore, that the modification does not qualify as a TDR.

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).

~~All loans granted temporary payment relief by~~At June 30, 2021, the Company ~~complied with the terms of the CARES Act or bank regulator guidance, and, thus, were not individually assessed, designated or accounted for as TDRs.~~

~~For the dates indicated, the Company's~~did 0t have any loans ~~impacted by the COVID-19 pandemic and~~ operating under temporary short-term payment deferral arrangements ~~for~~due to being impacted by the COVID-19 pandemic, compared to $26.5 million at December 31, 2020. The majority of these loans have returned to normal payment status or have since fully paid-off. Of those loans that were previously operating under a ~~period~~short-term deferral arrangement, $1.3 million were classified as non-accrual and $536,000 were 30-89 days past due as of ~~180 days or less were as follows:~~June 30, 2021.

September 30,
2020 June 30,
2020
(In thousands, except number of units) Units Recorded Investment % of
Total Loans Units Recorded Investment % of
Total Loans
Commercial 210 $ 105,879 3.2 % 1,023 $ 415,606 12.5 %
Retail 502 75,337 2.3 % 740 131,116 3.9 %
Total 712 $ 181,216 5.5 % 1,763 $ 546,722 16.4 %

Credit Quality Indicators

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 ~~loans in commercial,~~ commercial real estate - non owner-occupied and owner-occupied, commercial and residential real estate ~~and HPFC~~ portfolio segments 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:~~ACL on loans:

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

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

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

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

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

Loans that were granted temporary debt relief due to the COVID-19 pandemic were not automatically downgraded into lower credit risk ratings. ~~The Company will continue to actively monitor these loans for indications of deterioration as the deferral period matures, which could result in future downgrades.~~

The Company periodically reassesses asset quality indicators to reflect appropriately 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~~Based on the most recent analysis performed, the risk ~~exposure indicators~~category of loans by portfolio segment by vintage, reported under the CECL methodology, was as follows as of the ~~following dates:~~dates indicated:


(In thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
As of June 30, 2021
Commercial real estate - non owner-occupied
Risk rating
Pass (Grades 1-6)	$	97,672	$	195,046	$	208,784	$	126,420	$	104,904	$	337,990	$	0	$	0	$	1,070,816
Special mention (Grade 7)	97		7,337		1,490		0		4,342		3,924		0		0		17,190
Substandard (Grade 8)	216		1,693		224		10,112		397		26,552		0		0		39,194
Doubtful (Grade 9)	0		0		0		0		0		0		0		0		0
Total commercial real estate - non owner-occupied	97,985		204,076		210,498		136,532		109,643		368,466		0		0		1,127,200
Commercial real estate - owner-occupied
Risk rating
Pass (Grades 1-6)	44,361		34,774		32,982		46,093		49,000		81,397		0		0		288,607
Special mention (Grade 7)	0		0		0		3,458		0		1,444		0		0		4,902
Substandard (Grade 8)	0		0		71		0		1,829		1,288		0		0		3,188
Doubtful (Grade 9)	0		0		0		0		0		0		0		0		0
Total commercial real estate - owner occupied	44,361		34,774		33,053		49,551		50,829		84,129		0		0		296,697
Commercial
Risk rating
Pass (Grades 1-6)	49,954		51,324		57,039		34,303		17,277		37,592		83,722		31,487		362,698
Special mention (Grade 7)	0		0		26		21		192		469		0		23		731
Substandard (Grade 8)	0		323		966		325		121		1,342		24		563		3,664
Doubtful (Grade 9)	0		0		0		0		0		0		0		0		0
Total commercial	49,954		51,647		58,031		34,649		17,590		39,403		83,746		32,073		367,093
SBA PPP
Risk rating
Pass (Grades 1-6)	96,794		29,270		0		0		0		0		0		0		126,064
Special mention (Grade 7)	0		0		0		0		0		0		0		0		0
Substandard (Grade 8)	0		0		0		0		0		0		0		0		0
Doubtful (Grade 9)	0		0		0		0		0		0		0		0		0
Total SBA PPP	96,794		29,270		0		0		0		0		0		0		126,064
Residential Real Estate
Risk rating
Pass (Grades 1-6)	261,642		316,822		136,803		83,561		59,003		257,481		882		0		1,116,194
Special mention (Grade 7)	0		0		0		0		0		236		0		0		236
Substandard (Grade 8)	0		0		0		144		0		4,343		0		0		4,487
Doubtful (Grade 9)	0		0		0		0		0		0		0		0		0
Total residential real estate	261,642		316,822		136,803		83,705		59,003		262,060		882		0		1,120,917
Home equity
Risk rating
Performing	339		639		7,838		13,805		2,967		14,278		174,564		12,864		227,294
Non-performing	0		0		0		42		0		196		818		340		1,396
Total home equity	339		639		7,838		13,847		2,967		14,474		175,382		13,204		228,690
Consumer
Risk rating
Performing	4,364		4,873		4,664		1,859		890		1,998		579		0		19,227
Non-performing	0		9		16		0		0		3		0		0		28
Total consumer	4,364		4,882		4,680		1,859		890		2,001		579		0		19,255
Total Loans	$	555,439	$	642,110	$	450,903	$	320,143	$	240,922	$	770,533	$	260,589	$	45,277	$	3,285,916

(In thousands) Commercial
Real Estate Commercial SBA PPP HPFC Residential
Real Estate Home
Equity Consumer Total
September 30, 2020
Pass (Grades 1-6) $ 1,273,616 $ 354,160 $ 223,838 $ 14,100 $ 1,037,649 $ — $ — $ 2,903,363
Performing — — — — — 272,246 22,873 295,119
Special Mention (Grade 7) 23,899 2,762 — — 405 — — 27,066
Substandard (Grade 8) 36,218 3,707 — 819 6,049 — — 46,793
Non-performing — — — — — 2,497 4 2,501
Total $ 1,333,733 $ 360,629 $ 223,838 $ 14,919 $ 1,044,103 $ 274,743 $ 22,877 $ 3,274,842
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)	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
As of December 31, 2020
Commercial real estate - non owner-occupied
Risk rating
Pass (Grades 1-6)	$	138,010	$	224,148	$	144,552	$	119,409	$	157,588	$	264,253	$	0	$	0	$	1,047,960
Special mention (Grade 7)	5,739		0		0		4,256		3,497		847		0		0		14,339
Substandard (Grade 8)	24		125		2,070		405		1,522		31,530		0		0		35,676
Doubtful (Grade 9)	0		0		0		0		0		0		0		0		0
Total commercial real estate - non owner-occupied	143,773		224,273		146,622		124,070		162,607		296,630		0		0		1,097,975
Commercial real estate - owner-occupied
Risk rating
Pass (Grades 1-6)	35,948		29,217		48,312		47,065		25,507		76,098		0		0		262,147
Special mention (Grade 7)	0		0		4,584		0		0		1,513		0		0		6,097
Substandard (Grade 8)	0		0		891		462		0		1,898		0		0		3,251
Doubtful (Grade 9)	0		0		0		0		0		0		0		0		0
Total commercial real estate - owner occupied	35,948		29,217		53,787		47,527		25,507		79,509		0		0		271,495
Commercial
Risk rating
Pass (Grades 1-6)	53,966		72,863		40,688		25,478		15,788		51,869		72,425		37,026		370,103
Special mention (Grade 7)	0		22		313		4,924		117		400		0		867		6,643
Substandard (Grade 8)	187		1,012		211		51		42		2,081		65		1,099		4,748
Doubtful (Grade 9)	0		0		0		0		0		0		0		0		0
Total commercial	54,153		73,897		41,212		30,453		15,947		54,350		72,490		38,992		381,494
SBA PPP
Risk rating
Pass (Grades 1-6)	135,095		0		0		0		0		0		0		0		135,095
Special mention (Grade 7)	0		0		0		0		0		0		0		0		0
Substandard (Grade 8)	0		0		0		0		0		0		0		0		0
Doubtful (Grade 9)	0		0		0		0		0		0		0		0		0
Total SBA PPP	135,095		0		0		0		0		0		0		0		135,095
Residential Real Estate
Risk rating
Pass (Grades 1-6)	339,834		183,877		119,426		79,159		57,269		266,324		3,028		0		1,048,917
Special mention (Grade 7)	0		0		0		0		0		398		0		0		398
Substandard (Grade 8)	0		0		176		487		0		4,820		0		0		5,483
Doubtful (Grade 9)	0		0		0		0		0		0		0		0		0
Total residential real estate	339,834		183,877		119,602		79,646		57,269		271,542		3,028		0		1,054,798
Home equity
Risk rating
Performing	855		9,415		17,281		3,478		1,339		17,664		194,065		12,480		256,577
Non-performing	0		0		0		0		0		207		1,241		548		1,996
Total home equity	855		9,415		17,281		3,478		1,339		17,871		195,306		13,028		258,573
Consumer
Risk rating
Performing	6,572		6,525		3,096		1,359		378		1,780		678		0		20,388
Non-performing	0		0		0		0		4		0		0		0		4
Total consumer	6,572		6,525		3,096		1,359		382		1,780		678		0		20,392
Total Loans	$	716,230	$	527,204	$	381,600	$	286,533	$	263,051	$	721,682	$	271,502	$	52,020	$	3,219,822

In the second quarter of 2020, the Company downgraded one loan from special mention (Grade 7) to substandard (Grade 8), which drove the increase in substandard (Grade 8) loans for the nine months ended September 30, 2020. The loan was downgraded as a result of the Company's assessment of the borrower's 2019 financial performance

Past Due and ~~was not directly related to the impact of the COVID-19 pandemic on the borrower.~~Non-Accrual Loans

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~~will 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 generally charged-off once their collectability is in doubt.

All loans that were granted temporary payment relief due to the COVID-19 pandemic were current with payments in accordance with the terms of the CARES Act orand bank regulatory guidance at the time of initial relief. ~~At September~~As of June 30, 2021, all loans that were once granted temporary debt relief and had outstanding principal balances have returned to regular payment status. As of December 31, 2020, the payment status for loans that continued to operate under a payment deferral arrangement were reported based on payment status at the time the deferral was granted to the borrower. Of those loans operating under a short-term deferral arrangement, $1.3 million were classified as non-accrual and $536,000 were 30-89 days past due as of June 30, 2021, compared to $457,000 and $1.2 million, respectively, as of December 31, 2020.

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)	(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		(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
September 30, 2020
Commercial real estate		$	671	$	1,490	$	246	$	2,407	$	1,331,326	$	1,333,733	$	0	$	565
June 30, 2021																		June 30, 2021
Commercial real estate - non owner-occupied																		Commercial real estate - non owner-occupied	$	99	$	0	$	63	$	162	$	1,127,038	$	1,127,200	$	0
Commercial real estate - owner-occupied																		Commercial real estate - owner-occupied	0		0		47		47		296,650		296,697		0
Commercial	Commercial	1,315		0		605		1,920		358,709		360,629		0		605		Commercial	183		0		836		1,019		366,074		367,093		0
SBA PPP	SBA PPP	0		0		0		0		223,838		223,838		0		0		SBA PPP	0		0		0		0		126,064		126,064		0
HPFC		233		228		304		765		14,154		14,919		0		509
Residential real estate	Residential real estate	1,036		775		3,369		5,180		1,038,923		1,044,103		0		4,017		Residential real estate	489		155		1,570		2,214		1,118,703		1,120,917		0
Home equity	Home equity	367		109		2,102		2,578		272,165		274,743		0		2,499		Home equity	236		0		919		1,155		227,535		228,690		0
Consumer	Consumer	48		56		4		108		22,769		22,877		0		4		Consumer	35		9		28		72		19,183		19,255		0
Total	Total	$	3,670	$	2,658	$	6,630	$	12,958	$	3,261,884	$	3,274,842	$	0	$	8,199	Total	$	1,042	$	164	$	3,463	$	4,669	$	3,281,247	$	3,285,916	$	0
December 31, 2019
Commercial real estate		$	267	$	1,720	$	544	$	2,531	$	1,240,866	$	1,243,397	$	0	$	1,122
December 31, 2020																		December 31, 2020
Commercial real estate - non owner-occupied																		Commercial real estate - non owner-occupied	$	0	$	50	$	173	$	223	$	1,097,752	$	1,097,975	$	0
Commercial real estate - owner-occupied																		Commercial real estate - owner-occupied	99		0		47		146		271,349		271,495		0
Commercial	Commercial	548		0		417		965		420,143		421,108		0		420		Commercial	430		0		857		1,287		380,207		381,494		0
SBA PPP	SBA PPP	0		0		0		0		0		0		0		0		SBA PPP	0		0		0		0		135,095		135,095		0
HPFC		0		243		288		531		21,062		21,593		0		364
Residential real estate	Residential real estate	2,297		627		2,598		5,522		1,064,852		1,070,374		0		4,096		Residential real estate	1,406		1,103		2,535		5,044		1,049,754		1,054,798		0
Home equity	Home equity	681		238		1,459		2,378		310,401		312,779		—		2,130		Home equity	335		173		1,416		1,924		256,649		258,573		0
Consumer	Consumer	108		31		23		162		25,610		25,772		0		24		Consumer	92		67		4		163		20,229		20,392		0
Total	Total	$	3,901	$	2,859	$	5,329	$	12,089	$	3,082,934	$	3,095,023	$	0	$	8,156	Total	$	2,362	$	1,393	$	5,032	$	8,787	$	3,211,035	$	3,219,822	$	0

The following table presents the amortized cost basis of loans on non-accrual status (including non-accruing TDRs) by portfolio segment as of the dates indicated:


	June 30, 2021						December 31, 2020
(In thousands)	Non-Accrual Loans With an Allowance		Non-Accrual Loans Without an Allowance		Total Non-Accrual Loans		Non-Accrual Loans With an Allowance		Non-Accrual Loans Without an Allowance		Total Non-Accrual Loans
Commercial real estate - non owner-occupied	$	71	$	15	$	86	$	351	$	15	$	366
Commercial real estate - owner-occupied	89		47		136		99		47		146
Commercial	1,459		52		1,511		1,549		58		1,607
Residential real estate	2,432		293		2,725		3,136		341		3,477
Home equity	1,396		0		1,396		1,961		35		1,996
Consumer	28		0		28		4		0		4
Total	$	5,475	$	407	$	5,882	$	7,100	$	496	$	7,596

The following table presents the amortized cost basis of collateral-dependent non-accrual loans (including non-accruing TDRs) by portfolio segment and collateral type, as of the dates indicated:


	June 30, 2021						December 31, 2020
	Collateral Type				Total Collateral -Dependent Non-Accrual Loans		Collateral Type				Total Collateral -Dependent Non-Accrual Loans
(In thousands)	Real Estate		General Business Assets				Real Estate		General Business Assets


Commercial	$	0	$	623	$	623	$	0	$	689	$	689
Residential real estate	218		0		218		248		0		248
Home equity	88		0		88		0		0		0

Total	$	306	$	623	$	929	$	248	$	689	$	937

Collateral-dependent loans are loans for which the repayment is expected to be provided substantially by the underlying collateral and there are no other available and reliable sources of repayment.

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 ~~$85,000~~$67,000 and ~~$106,000~~$87,000 for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, 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 ~~$251,000~~$143,000 and ~~$330,000,~~$166,000, respectively.

~~TDRs:~~The Company's policy is to reverse previously recorded interest income when a loan is placed on non-accrual, as such, the Company did not record any interest income on its non-accruals for the three or six months ended June 30, 2021 and 2020. An immaterial amount of accrued interest on non-accrual loans was written-off during the three and six months ended June 30, 2021 and 2020, by reversing interest income. At June 30, 2021 and December 31, 2020, total accrued interest receivable on loans, which has been excluded from reported amortized cost basis on loans, was $8.6 million and $10.2 million, respectively, and reported within other assets on the consolidated statements of condition. An allowance was not carried on the accrued interest receivable at either date.

TDRs

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

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


		Number of Contracts		Recorded Investment				Specific Reserve					Number of Contracts		Recorded Investment				Specific Reserve
(In thousands, except number of contracts)	(In thousands, except number of contracts)	September 30, 2020	December 31, 2019	September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019		(In thousands, except number of contracts)	June 30, 2021	December 31, 2020	June 30, 2021		December 31, 2020		June 30, 2021		December 31, 2020
Commercial real estate - owner-occupied												Commercial real estate - owner-occupied	1	2	$	123	$	328	$	41	$	37
Commercial												Commercial	2	2	89		100		0		0
Residential real estate	Residential real estate	21	22	$	2,670	$	2,869	$	371	$	364	Residential real estate	19	21	2,383		2,638		364		364
Commercial real estate		2	2	331		338		36		30
Commercial		2	2	107		123		0		0
Consumer and home equity	Consumer and home equity	1	1	297		299		87		69		Consumer and home equity	2	0	231		0		23		0
Total	Total	26	27	$	3,405	$	3,629	$	494	$	463	Total	24	25	$	2,826	$	3,066	$	428	$	401

At ~~September~~June 30, 2021, the Company had performing and non-performing TDRs with a recorded investment balance of $2.5 million and $306,000, respectively. At December 31, 2020, the Company had performing and non-performing TDRs with a recorded investment balance of ~~$3.0~~$2.8 million and ~~$454,000, 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,~~$248,000, respectively.

~~There were 0~~The following represents loan modifications that qualify as TDRs that occurred ~~for~~during the ~~three~~periods indicated:


	Number of Contracts		Pre-Modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment				Specific Reserve

(In thousands, except number of contracts)	2021	2020	2021		2020		2021		2020		2021		2020







For the Three Months Ended June 30,:
Home equity:
Maturity concession	1	0	$	144	$	0	$	143	$	0	$	6	$	0
Total	1	0	$	144	$	0	$	143	$	0	$	6	$	0
For the Six Months Ended June 30,:
Home equity:
Interest rate concession and payment deferral	1	0	$	159	$	0	$	170	$	0	$	56	$	0
Maturity concession	1	0	144		0		143		0		6		0
Total	2	0	$	303	$	0	$	313	$	0	$	62	$	0

As of June 30, 2021 and ~~nine months ended September 30,~~December 31, 2020, ~~and 2019.~~the Company did 0t have any material commitments to lend additional funds to borrowers with loans classified as TDRs.

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, 0 loans were modified as TDRs within the previous 12 months for which the borrower subsequently defaulted.

2425

Impaired ~~Loans:~~Loans

~~Impaired~~

For periods prior to the adoption of CECL (i.e. periods before October 1, 2020), under the incurred loss methodology, impaired loans ~~consist~~consisted of non-accrual loans and TDRs that ~~are~~were 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 Three Months Ended				For the Six Months Ended
(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized(1)		Average Recorded Investment		Interest Income Recognized
June 30, 2020:
With an allowance recorded:
Commercial real estate	$	127	$	127	$	35	$	128	$	3	$	128	$	4
Commercial	0		0		0		—		—		—		—
SBA PPP	0		0		0		—		—		—		—
Residential real estate	2,304		2,304		338		2,262		22		2,306		46
Home equity	318		318		89		318		—		318		—
Consumer	0		0		0		—		—		—		—
Ending balance	2,749		2,749		462		2,708		25		2,752		50
Without an allowance recorded:
Commercial real estate	334		514		0		303		3		293		6
Commercial	179		242		0		239		1		266		3
SBA PPP	0		0		0		—		—		—		—
Residential real estate	849		972		0		957		(1)		968		2
Home equity	52		189		0		52		—		53		—
Consumer	0		0		0		—		—		—		—
Ending balance	1,414		1,917		0		1,551		3		1,580		11
Total impaired loans	$	4,163	$	4,666	$	462	$	4,259	$	28	$	4,332	$	61

For the
Three Months Ended For the
Nine Months Ended
(In thousands) Recorded
Investment Unpaid
Principal
Balance Related
Allowance Average
Recorded
Investment Interest
Income
Recognized Average
Recorded
Investment Interest
Income
Recognized
September 30, 2020:
With an allowance recorded:
Commercial real estate $ 126 $ 126 $ 36 $ 127 $ 2 $ 127 $ 6
Commercial 0 0 0 — — — —
SBA PPP 0 0 0 — — — —
HPFC 0 0 0 — — — —
Residential real estate 2,394 2,394 371 2,349 33 2,328 79
Home equity 316 316 87 317 — 318 —
Consumer 0 0 0 — — — —
Ending balance 2,836 2,836 494 2,793 35 2,773 85
Without an allowance recorded:
Commercial real estate 334 548 0 334 3 304 9
Commercial 171 233 0 175 1 242 4
SBA PPP 0 0 0 — — — —
HPFC 0 0 0 — — — —
Residential real estate 734 858 0 791 2 909 4
Home equity 49 187 0 50 — 52 —
Consumer 0 0 0 — — — —
Ending balance 1,288 1,826 0 1,350 6 1,507 17
Total impaired loans $ 4,124 $ 4,662 $ 494 $ 4,143 $ 41 $ 4,280 $ 102
September 30, 2019:
With an allowance recorded:
Commercial real estate $ 130 $ 130 $ 29 $ 130 $ 3 $ 130 $ 9
Commercial 442 442 303 301 — 365 —
SBA PPP 0 0 0 — — — —
HPFC 0 0 0 — — — —
Residential real estate 2,337 2,337 337 3,026 28 3,137 84
Home equity 318 318 69 658 — 573 —
Consumer 0 0 0 — — — —
Ending Balance 3,227 3,227 738 4,115 31 4,205 93
Without an allowance recorded:
Commercial real estate 276 435 0 278 3 408 10
Commercial 204 267 0 214 1 218 5
SBA PPP 0 0 0 — — — —
HPFC 0 0 0 — — — —
Residential real estate 1,543 2,007 0 1,337 11 1,325 28
Home equity 267 705 0 131 — 130 —
Consumer 0 0 0 — — — —
Ending Balance 2,290 3,414 0 1,960 15 2,081 43
Total impaired loans $ 5,517 $ 6,641 $ 738 $ 6,075 $ 46 $ 6,286 $ 136

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 0 0 0 292 —
SBA PPP 0 0 0 0 —
HPFC 0 0 0 0 —
Residential real estate 2,395 2,395 364 2,989 110
Home equity 318 318 69 522 —
Consumer 0 0 0 0 —
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 0 0 — 0 0
HPFC 0 0 — 0 —
Residential real estate 989 1,116 — 1,258 21
Home equity 55 192 — 115 —
Consumer 0 0 — 1 —
Ending Balance 1,637 2,426 — 1,993 41
Total impaired loans $ 4,478 $ 5,267 $ 463 $ 5,926 $ 162

~~Loan Sales:~~

~~For~~(1) Negative interest income represents the three months ended September 30, 2020 and 2019, the Company sold $182.7 million and $86.9 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 $4.3 million and $1.9 million, respectively. For the nine months ended September 30, 2020 and 2019, the Company sold $449.7 million and $164.5 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 $10.4 million and $3.9 million.

At September 30, 2020 and December 31, 2019, the Company had certain residential mortgage loans with a principal balance of $37.3 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 September 30, 2020 and December 31, 2019, recorded an unrealized gain (loss) of $634,000 and ($61,000), respectively. For the three months ended September 30, 2020 and 2019, the Company recorded an unrealized loss on loans held for sale recorded within mortgage banking income, net, on the Company's consolidated statementsre-allocation of income ~~of $47,000~~between "with an allowance recorded" and ~~$205,000, respectively. For~~"without an allowance recorded" (or vice versa) during the nine months ended September 30, 2020 and 2019, the Company recorded an unrealized gain (loss) on loans held for sale recorded within mortgage banking income, net, on the Company's consolidated statements of income of $695,000 and ($269,000), respectively.

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

In-Process Foreclosure ~~Proceedings:~~Proceedings

At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company had ~~$1.7~~$1.3 million and ~~$1.3~~$1.5 million, respectively, of consumer mortgage loans secured by residential real estate properties for which foreclosure proceedings were in process. Due to the COVID-19 pandemic, the Company has been abiding by state issued mandates requiring a temporary moratorium on foreclosures. The Company will continue to work these consumer mortgage loans through the foreclosure process once the moratorium is lifted, which typically takes 18 to 24 months.

26FHLB Advances

~~FHLB Advances:~~

FHLB advances are those borrowings from the FHLBB greater than 90 days. FHLB advances are collateralized by a blanket lien on qualified collateral consisting primarily of loans with first mortgages secured by one- to four-family properties, certain commercial real estate loans, certain pledged investment securities and other qualified assets. The carrying value of residential real estate and commercial loans pledged as collateral was $1.3 billion ~~and $1.4 billion~~ at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019, respectively.~~2020.

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~~as of the dates indicated:


(In thousands)	(In thousands)	September 30, 2020		December 31, 2019		(In thousands)	June 30, 2021		December 31, 2020
Short-Term Borrowings:	Short-Term Borrowings:					Short-Term Borrowings:
Customer repurchase agreements	Customer repurchase agreements	$	210,055	$	237,984	Customer repurchase agreements	$	170,413	$	162,439
FHLBB borrowings		0		25,000
Overnight borrowings		0		5,825

Total short-term borrowings	Total short-term borrowings	$	210,055	$	268,809	Total short-term borrowings	$	170,413	$	162,439
Long-Term Borrowings:	Long-Term Borrowings:					Long-Term Borrowings:
FHLBB borrowings	FHLBB borrowings	$	25,000	$	10,000	FHLBB borrowings	$	0	$	25,000
Total long-term borrowings	Total long-term borrowings	$	25,000	$	10,000	Total long-term borrowings	$	0	$	25,000

As of June 30, 2021 and December 31, 2020, the Company's subordinated debentures were $44.3 million and $59.3 million, respectively. On April 16, 2021, the Company exercised its call option on its $15.0 million of subordinated debentures, at par plus accrued interest. As of June 30, 2021, the Company's remaining subordinated debentures were comprised of two tranches of junior subordinated debentures.

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~~Since the securities are treated as collateral and the agreement does not qualify for a full transfer of effective control, the ~~transaction does~~transactions do not meet the criteria to be classified as ~~a sale,~~sales, and isare therefore considered a secured borrowing ~~transaction~~transactions 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~~as of the dates indicated:


(In thousands)	(In thousands)	September 30, 2020		December 31, 2019		(In thousands)	June 30, 2021		December 31, 2020
Customer Repurchase Agreements(1)(2):	Customer Repurchase Agreements(1)(2):					Customer Repurchase Agreements(1)(2):
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	$	79,813	$	118,969	Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	$	89,858	$	90,015
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	128,839		117,654		Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	80,555		70,902
Obligations of states and political subdivisions	Obligations of states and political subdivisions	1,403		1,361		Obligations of states and political subdivisions	0		1,522
Total	Total	$	210,055	$	237,984	Total	$	170,413	$	162,439

(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 ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, 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)	(In thousands)	September 30, 2020		December 31, 2019		(In thousands)	June 30, 2021		December 31, 2020
Commitments to extend credit	Commitments to extend credit	$	674,071	$	734,649	Commitments to extend credit	$	753,052	$	723,986
Standby letters of credit	Standby letters of credit	5,565		5,211		Standby letters of credit	6,441		4,735
Total	Total	$	679,636	$	739,860	Total	$	759,493	$	728,721

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.

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.

The Company establishes an ACL on off-balance sheet credit exposures on its contractual off-balance sheet commitments, except those that are unconditionally cancellable by the Company, of $2.5 million and $2.6 million as of June 30, 2021 and December 31, 2020, respectively. The ACL on off-balance sheet credit exposures was presented within accrued interest and other liabilities on the consolidated statements of condition.

For the three months ended June 30, 2021 and 2020, the provision (credit) for credit losses on off-balance sheet credit exposures was $49,000 and ($2,000), respectively. For the six months ended June 30, 2021 and 2020, the (credit) provision for credit losses on off-balance sheet credit exposures was ($53,000) and $1,000.

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.

In the third quarter of 2020, the Company settled a lawsuit for $1.2 million to avoid the burden and expense of litigation. At September 30, 2020, the Company accrued for the settlement within accrued interest and other liabilities on the Company's consolidated statements of condition, and recorded the expense within other expenses on the Company's consolidated statements of income for the three and nine months ended September 30, 2020.

The Company did 0t have any material loss contingencies that were provided for and/or that are required to be disclosed as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

NOTE 8 – DERIVATIVES AND HEDGING

The Company ~~uses~~is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments ~~for risk management purposes (primarily~~to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by 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.rates.

~~Derivative financial instruments are carried at fair value on the consolidated statements~~Derivatives Designated as Hedging Instruments - Cash Flow Hedges 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.Interest Rate Risk

~~Quarterly,~~Interest Rate Contracts

The Company’s objectives in ~~conjunction with financial reporting, each~~using interest rate derivatives are to add stability to interest income and expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments or the receipt of fixed-rate amounts from a counterparty in exchange for the Company making variable-rate payments over the life of the agreements without exchange of the underlying notional amount. For the three and six months ended June 30, 2021 and 2020, such derivatives were used to hedge ~~is assessed for ineffectiveness. To~~ the ~~extent ineffectiveness is identified, this amount is recorded within~~variable cash flows associated with existing variable-rate assets or liabilities or forecasted issuances of debt.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the ~~consolidated statements of income. The~~ gain or loss on the ~~effective portion of the cash flow hedge~~derivative is recorded in AOCI and subsequently reclassified ~~from AOCI~~ into interest ~~within the consolidated statements of~~expense or interest income in the ~~period~~same period(s) during which the hedged transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest expense or interest income as interest payments are made or received on the Company’s variable-rate liabilities or assets. The Company estimates that an additional $2.1 million will be reclassified as an increase to interest expense and an additional $1.6 million will be reclassified as an increase to interest income over the next 12 months.

Derivatives ~~Not~~not Designated as Hedges

Customer Loan Swaps

Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company ~~will enter into~~executes interest rate swaps with ~~its~~ commercial banking customers to ~~provide them~~facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a ~~means to lock into a long-term fixed rate, while simultaneously entering into an arrangement with a counterparty to swap~~third party, such that the ~~fixed rate to a variable rate to manage~~Company minimizes its ~~interest rate~~net risk exposure ~~effectively.~~resulting from such transactions. As the interest rate ~~swap agreements have substantially equivalent and offsetting terms, they~~derivatives associated with this program do not ~~materially change~~meet the ~~Company's interest rate risk or present any material exposure to its consolidated statements of income.~~

~~The following table presents~~strict hedge accounting requirements, changes in the ~~total positions, notional and~~ fair value of both the ~~Company's~~ customer ~~loans swaps with each party for the dates indicated:~~

(In thousands, except number of positions) September 30, 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 0 $ 0 $ 0 10 $ 45,243 $ (514)
Receive fixed, pay variable Other assets 80 378,428 44,123 75 366,351 17,756
Pay fixed, receive variable Accrued interest and other liabilities 80 378,428 (44,123) 85 411,594 (17,242)
Total 160 $ 756,856 $ 0 170 $ 823,188 $ 0

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, 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 valuederivatives and the ~~Company's credit rating. The Company may also receive cash collateral for contracts~~offsetting derivatives are recognized directly in a net asset position as requested. At September 30, 2020 and December 31, 2019 the Company posted $47.7 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.earnings.

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:~~

September 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 $ 76,279 $ 977 $ 27,087 $ 480
Fixed-rate mortgage interest rate locks Accrued interest and other liabilities 42,915 (405) 2,519 (18)
Total $ 119,194 $ 572 $ 29,606 $ 462

For the three months ended September 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 ($386,000) and $467,000, respectively. For the nine months ended September 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 $110,000 and $871,000, 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.

3029

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

September 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 $ 21,201 $ 505 $ 10,846 $ 312
Forward delivery commitments ("best effort") Accrued interest and other liabilities 16,100 (241) 1,069 (15)
Total $ 37,301 $ 264 $ 11,915 $ 297

~~For the three months ended September 30, 2020 and 2019, the net unrealized gain from the change in~~ fair value onof the Company's ~~forward delivery commitments reported within mortgage banking income, net,~~derivative financial instruments as well as their classification on the consolidated statements of ~~income was $123,000~~condition as of the dates indicated:


	Derivative Assets					Derivative Liabilities
(In thousands)	Notional Amount		Location	Fair Value		Notional Amount		Location	Fair Value
June 30, 2021
Derivatives designated as hedging instruments
Interest rate contracts(1)	$	160,000	Other assets	$	6,814	$	83,000	Accrued interest and other liabilities	$	9,153
Total derivatives designated as hedging instruments				$	6,814				$	9,153
Derivatives not designated as hedging instruments
Customer loan swaps(1)	$	364,977	Other assets	$	27,648	$	364,977	Accrued interest and other liabilities	$	27,648
Fixed-rate mortgage interest rate lock commitments	37,771		Other assets	870		6,331		Accrued interest and other liabilities	54
Forward delivery commitments	11,797		Other assets	145		3,089		Accrued interest and other liabilities	17
Total derivatives not designated as hedging instruments				$	28,663				$	27,719
December 31, 2020
Derivatives designated as hedging instruments
Interest rate contracts	$	110,000	Other assets	$	5,731	$	143,000	Accrued interest and other liabilities	$	11,625
Total derivatives designated as hedging instruments				$	5,731				$	11,625
Derivatives not designated as hedging instruments
Customer loan swaps	$	376,290	Other assets	$	39,627	$	376,290	Accrued interest and other liabilities	$	39,627
Fixed-rate mortgage interest rate lock commitments	58,574		Other assets	608		28,346		Accrued interest and other liabilities	248
Forward delivery commitments	24,951		Other assets	311		15,548		Accrued interest and other liabilities	196
Total derivatives not designated as hedging instruments				$	40,546				$	40,071

(1) Reported fair values include accrued interest receivable and $238,000, respectively. For the nine months ended September 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 ($33,000) and $480,000, respectively.payable.

~~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 September 30, 2020, the institutional counterparty posted $4.1 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) September 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 $ 5,717 $ 100,000 $ 483

~~For the three and nine months ended September 30, 2020, the Company did 0t record any ineffectiveness within the consolidated statements of income.~~

Net payments received from (paid to) the institutional counterparty for the nine months ended September 30, 2020 and 2019 were $610,000 and ($176,000), 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 2 $50.0 million interest rate swap arrangements with an institutional counterparty to mitigate interest rate risk. The Company 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) September 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 $ (813)
3/26/2020 3/26/2030 3-Month
USD LIBOR 0.857% Accrued interest and other liabilities 50,000 (901)
$ 100,000 $ (1,714)

~~For the three and nine months ended September 30, 2020, the Company did 0t record any ineffectiveness within the consolidated statements of income.~~

Net payments to the institutional counterparty for the nine months ended September 30, 2020 were $48,000 and were classified as cash flows from operating activities within the consolidated statements of cash flows.

~~Junior Subordinated Debt Interest Rate Swaps~~

In July 2020, the Company entered into a $10.0 million forward-starting interest rate swap with an effective date of June 30, 2021, that will effectively replace its $10.0 million interest rate swap that is scheduled to mature on June 30, 2021. The Company has entered into this new interest rate swap agreement, as well as its existing 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 September 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) September 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 3.69% Accrued interest and other liabilities $ 10,000 $ (262) $ 10,000 $ (299)
7/8/2009 6/30/2029 3-Month USD LIBOR 4.44% Accrued interest and other liabilities 10,000 (3,354) 10,000 (2,318)
5/6/2010 6/30/2030 3-Month USD LIBOR 4.31% Accrued interest and other liabilities 10,000 (3,534) 10,000 (2,384)
3/14/2011 3/30/2031 3-Month USD LIBOR 4.35% Accrued interest and other liabilities 5,000 (1,897) 5,000 (1,279)
5/4/2011 7/7/2031 3-Month USD LIBOR 4.14% Accrued interest and other liabilities 8,000 (2,914) 8,000 (1,907)
7/16/2020 6/30/2036 3-Month USD LIBOR 0.83% Accrued interest and other liabilities 10,000 214 0 0
$ 53,000 $ (11,747) $ 43,000 $ (8,187)

~~For the three and nine months ended September 30, 2020 and 2019, the Company did 0t record any ineffectiveness on these cash flow hedges within the consolidated statements of income.~~

Net payments to the counterparty for the nine months ended September 30, 2020 and 2019 were $942,000 and $518,000, respectively, and were classified as cash flows from operating activities in the Company's consolidated statements of cash flows.

3230

The table below presents the effect of ~~the Company’s derivative financial instruments included in OCI and current earnings~~cash flow hedge accounting, before tax, on AOCI for the periods indicated:

For The
Three Months Ended
September 30, For The
Nine Months Ended
September 30,
(In thousands) 2020 2019 2020 2019
Derivatives designated as cash flow hedges:
Effective portion of unrealized gains (losses) recognized within OCI during the period, net of tax $ 540 $ (310) $ (328) $ (2,438)
Net reclassification adjustment for effective portion of cash flow hedges included in interest expense, gross $ 479 $ 342 $ 990 $ 662
Net reclassification adjustment for effective portion of cash flow hedges included in interest income, gross $ (311) $ 0 $ (610) $ 0


(Dollars in thousands)	Amount of Gain (Loss) Recognized in OCI on Derivative		Amount of Gain (Loss) Recognized in OCI Included Component		Amount of Gain (Loss) Recognized in OCI Excluded Component		Location of Gain (Loss) Recognized from AOCI into Income	Amount of Gain (Loss) Reclassified from AOCI into Income		Amount of Gain (Loss) Reclassified from AOCI into Income Included Component		Amount of Gain (Loss) Reclassified from AOCI into Income Excluded Component
Derivatives in Cash Flow Hedge Relationships
For the Three Months Ended June 30, 2021
Interest rate contracts	$	66	$	66	$	0	Interest and fees on loans	$	403	$	403	$	0
Interest rate contracts	(1,511)		(1,511)		0		Interest on deposits	(164)		(164)		0

Interest rate contracts	(1,758)		(1,758)		0		Interest on subordinated debentures	(431)		(431)		0
Total	$	(3,203)	$	(3,203)	$	0		$	(192)	$	(192)	$	0

For the Six Months Ended June 30, 2021
Interest rate contracts	$	(736)	$	(736)	$	0	Interest and fees on loans	$	795	$	795	$	0
Interest rate contracts	1,952		1,952		0		Interest on deposits	(320)		(320)		0

Interest rate contracts	1,973		1,973		0		Interest on subordinated debentures	(853)		(853)		0
Total	$	3,189	$	3,189	$	0		$	(378)	$	(378)	$	0

For the Three Months Ended June 30, 2020
Interest rate contracts	$	765	$	765	$	0	Interest and fees on loans	$	247	$	247	$	0
Interest rate contracts	(122)		(122)		0		Interest on deposits	(22)		(22)		0
Interest rate contracts	(365)		(365)		0		Interest on borrowings	44		44		0
Interest rate contracts	(239)		(239)		0		Interest on subordinated debentures	(297)		(297)		0
Total	$	39	$	39	$	0		$	(28)	$	(28)	$	0

For the Six Months Ended June 30, 2020
Interest rate contracts	$	5,925	$	5,925	$	0	Interest and fees on loans	$	299	$	299	$	0
Interest rate contracts	(978)		(978)		0		Interest on deposits	(26)		(26)		0
Interest rate contracts	(1,123)		(1,123)		0		Interest on borrowings	48		48		0
Interest rate contracts	(4,934)		(4,934)		0		Interest on subordinated debentures	(537)		(537)		0
Total	$	(1,110)	$	(1,110)	$	0		$	(216)	$	(216)	$	0

The table below presents the effect of cash flow hedge accounting on the consolidated statements of income for the periods indicated:


	Location and Amount of Gain (Loss) Recognized in Income
	Three Months Ended June 30,
	2021								2020
(Dollars in thousands)	Interest and fees on loans		Interest on deposits		Interest on borrowings		Interest on subordinated debentures		Interest and fees on loans		Interest on deposits		Interest on borrowings		Interest on subordinated debentures
Total presented on the consolidated statements of income in which the effects of cash flow hedges are recorded	$	30,865	$	1,921	$	176	$	640	$	33,120	$	3,392	$	359	$	888
Gain (loss) on cash flow hedging relationships
Interest rate contracts:
Amount of gain (loss) reclassified from AOCI into income	$	403	$	(164)	$	0	$	(431)	$	247	$	(22)	$	44	$	(297)
Amount of gain (loss) reclassified from AOCI into income - included component	$	403	$	(164)	$	0	$	(431)	$	247	$	(22)	$	44	$	(297)
Amount of gain (loss) reclassified from AOCI into income - excluded component	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0


	Location and Amount of Gain (Loss) Recognized in Income
	Six Months Ended June 30,
	2021								2020
(Dollars in thousands)	Interest and fees on loans		Interest on deposits		Interest on borrowings		Interest on subordinated debentures		Interest and fees on loans		Interest on deposits		Interest on borrowings		Interest on subordinated debentures
Total presented on the consolidated statements of income in which the effects of cash flow hedges are recorded	$	61,425	$	3,984	$	332	$	1,445	$	67,165	$	10,054	$	1,197	$	1,775
Gain (loss) on cash flow hedging relationships
Interest rate contracts:
Amount of gain (loss) reclassified from AOCI into income	$	795	$	(320)	$	0	$	(853)	$	299	$	(26)	$	48	$	(537)
Amount of gain (loss) reclassified from AOCI into income - included component	$	795	$	(320)	$	0	$	(853)	$	299	$	(26)	$	48	$	(537)
Amount of gain (loss) reclassified from AOCI into income - excluded component	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0

The table below presents the effect of the Company's derivative financial instruments that are not designated as hedging instruments on the consolidated statements of income for the periods indicated:


	Location of Gain Recognized in Income	Amount of Gain (Loss) Recognized in Income
		Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)		2021		2020		2021		2020
Fixed-rate mortgage interest rate lock commitments	Mortgage banking income, net	$	(489)	$	(1,019)	$	456	$	496
Forward delivery commitments	Mortgage banking income, net	(469)		(1,014)		13		(156)
Total		$	(958)	$	(2,033)	$	469	$	340

Credit Risk-Related Contingent Features

By using derivatives, the Company is exposed to credit risk to the extent that counterparties to the derivative contracts do not perform as required. Should a counterparty fail to perform under the terms of a derivative contract, the Company’s credit exposure on interest rate swaps is limited to the net positive fair value and accrued interest of all swaps with each counterparty. The Company seeks to minimize counterparty credit risk through credit approvals, limits, monitoring procedures, and obtaining

collateral, where appropriate. As such, management believes the risk of incurring credit losses on derivative contracts with institutional counterparties is remote.

The Company ~~expects approximately $1.4 million~~has agreements with its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. In addition, the Company also has agreements with certain of its derivative counterparties that contain a provision where if the Company fails to maintain its status as a well- capitalized institution, then the counterparty could terminate the derivative position(s) and the Company could be ~~reclassified from AOCI,~~required to settle its obligations under the agreements.

As of June 30, 2021 and December 31, 2020, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for non-performance risk, related to these agreements was $35.2 million and $50.5 million, respectively. As of June 30, 2021 and December 31, 2020, the ~~Company’s~~Company has minimum collateral posting thresholds with certain of its derivative counterparties and has posted cash ~~flow hedges, in~~collateral of $36.2 million and $57.5 million, respectively. If the ~~next 12 months, decreasing net interest income on~~Company had breached any of these provisions at June 30, 2021 or December 31, 2020, it could have been required to settle its obligations under the ~~consolidated statements~~agreements at their termination value of ~~income. This reclassification is due to anticipated payments that will be made on the swaps based upon the forward curve as of September 30, 2020.~~$35.2 million and $50.5 million, respectively.

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:


								Gross Amount Not Offset in the Consolidated Statements of Condition													Gross Amount Not Offset in the Consolidated Statements of Condition
(In thousands)	(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		(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
September 30, 2020
June 30, 2021														June 30, 2021
Derivative assets:	Derivative assets:													Derivative assets:
Customer loan swaps - commercial customer(2)	Customer loan swaps - commercial customer(2)	$	44,123	$	0	$	44,123	$	0	$	0	$	44,123	Customer loan swaps - commercial customer(2)	$	27,648	$	0	$	27,648	$	0	$	0	$	27,648
Interest rate swap on loans(3)		5,717		0		5,717		0		(5,717)		0
Interest rate contracts(3)														Interest rate contracts(3)	6,814		0		6,814		0		(6,662)		152

Total	Total	$	49,840	$	0	$	49,840	$	0	$	(5,717)	$	44,123	Total	$	34,462	$	0	$	34,462	$	0	$	(6,662)	$	27,800
Derivative liabilities:	Derivative liabilities:													Derivative liabilities:
Customer loan swaps - dealer bank(3)	Customer loan swaps - dealer bank(3)	$	44,123	$	0	$	44,123	$	0	$	44,123	0		Customer loan swaps - dealer bank(3)	$	27,648	$	0	$	27,648	$	0	$	27,648	$	0
Junior subordinated debt interest rate swaps(3)		11,747		0		11,747		0		11,747		0
Interest rate swaps on borrowings(3)		1,714		0		1,714		0		1,714		0
Interest rate contracts(3)														Interest rate contracts(3)	9,153		0		9,153		0		9,153		0

Total	Total	$	57,584	$	0	$	57,584	$	0	$	57,584	$	0	Total	$	36,801	$	0	$	36,801	$	0	$	36,801	$	0
Customer repurchase agreements	Customer repurchase agreements	$	210,055	$	0	$	210,055	$	210,055	$	0	$	0	Customer repurchase agreements	$	170,413	$	0	$	170,413	$	170,413	$	0	$	0
December 31, 2019
December 31, 2020														December 31, 2020
Derivative assets:	Derivative assets:													Derivative assets:
Customer loan swaps - commercial customer(2)	Customer loan swaps - commercial customer(2)	17,756		0		17,756		0		0		17,756		Customer loan swaps - commercial customer(2)	$	39,627	$	0	$	39,627	$	0	$	0	$	39,627
Interest rate swap on loans		483		0		483		0		(483)		0
Interest rate contracts(3)														Interest rate contracts(3)	5,731		0		5,731		0		(5,595)		136

Total	Total	$	18,239	$	0	$	18,239	$	0	$	(483)	$	17,756	Total	$	45,358	$	0	$	45,358	$	0	$	(5,595)	$	39,763
Derivative liabilities:	Derivative liabilities:													Derivative liabilities:
Customer loan swaps - dealer bank(3)	Customer loan swaps - dealer bank(3)	$	17,242	$	0	$	17,242	$	0	$	17,242	$	0	Customer loan swaps - dealer bank(3)	$	39,627	$	0	$	39,627	$	0	$	39,627	$	0
Junior subordinated debt interest rate swaps(3)		$	8,187	$	0	$	8,187	$	0	$	8,187	$	0
Customer loan swaps - commercial customer(2)		514		0		514		0		0		514
Interest rate contracts(3)														Interest rate contracts(3)	11,625		0		11,625		0		11,625		0

Total	Total	$	25,943	$	0	$	25,943	$	0	$	25,429	$	514	Total	$	51,252	$	0	$	51,252	$	0	$	51,252	$	0
Customer repurchase agreements	Customer repurchase agreements	$	237,984	$	0	$	237,984	$	237,984	$	0	$	0	Customer repurchase agreements	$	162,439	$	0	$	162,439	$	162,439	$	0	$	0

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

(2) The Company manages its net exposure on its commercial customer loan swaps by obtaining collateral as part of the normal loan policy and underwriting practices.

(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.

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, the greater of (i) net income for the preceding four quarters, net of distributions and associated tax effects not reflected in net income and (ii) average net income over the preceding four quarters).

The Company and Bank's risk-based capital ratios exceeded regulatory ~~guidelines,~~requirements, including the capital conservation buffer, at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, and the Bank's capital ratios met the requirements for it to be considered "well capitalized" under prompt corrective action provisions for each period. There were no changes to the Company or Bank's capital ratios that occurred subsequent to ~~September~~June 30, ~~2020~~2021 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:


		September 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			June 30, 2021				Minimum Regulatory Capital Required for Capital Adequacy plus Capital Conservation Buffer				Minimum Regulatory Provision To Be "Well Capitalized"				December 31, 2020							Minimum Regulatory Capital Required for Capital Adequacy plus Capital Conservation Buffer				Minimum Regulatory Provision To Be "Well Capitalized"
(Dollars in thousands)	(Dollars in thousands)	Amount		Ratio						Amount			Ratio					(Dollars in thousands)			Amount		Ratio						Amount					Ratio
Camden National Corporation:	Camden National Corporation:																					Camden National Corporation:
Total risk-based capital ratio	Total risk-based capital ratio	$	486,289	15.15	%	10.50	%	N/A			$	455,702		14.44	%	10.50	%		N/A		Total risk-based capital ratio	$	509,478	15.26	%		10.50		%		10.00		%		$	498,290		15.40		%		10.50		%		10.00		%
Tier 1 risk-based capital ratio	Tier 1 risk-based capital ratio	434,867		13.55	%	8.50	%	N/A			415,511			13.16	%	8.50	%		N/A		Tier 1 risk-based capital ratio	474,903		14.23	%	8.50		%		6.00		%		445,858			13.78		%		8.50		%		6.00		%
Common equity Tier 1 risk-based capital ratio(1)	Common equity Tier 1 risk-based capital ratio(1)	391,867		12.21	%	7.00	%	N/A			372,511			11.80	%	7.00	%		N/A		Common equity Tier 1 risk-based capital ratio(1)	431,903		12.94	%	7.00		%		N/A				402,858			12.45		%		7.00		%		N/A
Tier 1 leverage capital ratio(1)	Tier 1 leverage capital ratio(1)	434,867		8.96	%	4.00	%	N/A			415,511			9.55	%	4.00	%		N/A		Tier 1 leverage capital ratio(1)	474,903		9.48	%	4.00		%		N/A				445,858			9.13		%		4.00		%		N/A
Camden National Bank:	Camden National Bank:																				Camden National Bank:
Total risk-based capital ratio	Total risk-based capital ratio	$	457,137	14.29	%	10.50	%	10.00	%		$	423,540		13.45	%	10.50	%		10.00	%	Total risk-based capital ratio	$	470,146	14.14	%	10.50		%		10.00		%		$	460,611		14.28		%		10.50		%		10.00		%
Tier 1 risk-based capital ratio	Tier 1 risk-based capital ratio	420,715		13.15	%	8.50	%	8.00	%		398,349			12.65	%	8.50	%		8.00	%	Tier 1 risk-based capital ratio	435,571		13.10	%	8.50		%		8.00		%		420,294			13.03		%		8.50		%		8.00		%
Common equity Tier 1 risk-based capital ratio	Common equity Tier 1 risk-based capital ratio	420,715		13.15	%	7.00	%	6.50	%		398,349			12.65	%	7.00	%		6.50	%	Common equity Tier 1 risk-based capital ratio	435,571		13.10	%	7.00		%		6.50		%		420,294			13.03		%		7.00		%		6.50		%
Tier 1 leverage capital ratio	Tier 1 leverage capital ratio	420,715		8.70	%	4.00	%	5.00	%		398,349			9.19	%	4.00	%		5.00	%	Tier 1 leverage capital ratio	435,571		8.72	%	4.00		%		5.00		%		420,294			8.64		%		4.00		%		5.00		%

(1) “Minimum Regulatory Provisions To Be ‘Well Capitalized’” are not formally defined under applicable banking regulations for bank holding companies.

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 September 30, 2020 and December 31, 2019,~~The Company's $15.0 million of subordinated debentures ~~were included as~~became subject to phase-out of Tier 2 capital 20% annually beginning in October 2020, and ~~were included in the calculation of the Company's total risk-based capital, and, at September~~20% annually thereafter, until fully phased-out by 2024. At June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, $43.0 million of the junior subordinated debentures were included in Tier 1 and ~~total risk-based~~Tier 2 capital for the Company. ~~The Company's~~

On April 16, 2021, the Company redeemed its $15.0 million of subordinated debentures ~~are subject to phase-out~~in full, at par plus accrued and unpaid interest, and, thus, was no longer included as Tier 2 capital within the calculation of ~~20% annually after its five year anniversary, and 20% a year thereafter until it is fully phases out.~~total risk-based capital at June 30, 2021. At December 31, 2020, $12.0 million, or 80%, of the subordinated debentures were included as Tier 2 capital within the calculation of the Company's 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 the 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
September 30, 2020 September 30, 2019
(In thousands) Pre-Tax
Amount Tax (Expense)
Benefit After-Tax
Amount Pre-Tax
Amount Tax (Expense)
Benefit After-Tax
Amount
AFS Securities:
Unrealized holdings (losses) gains $ (746) $ 160 $ (586) $ 4,551 $ (978) $ 3,573
Less: reclassification adjustment for net realized losses(1)
0 0 0 1 0 1
Net unrealized (losses) gains (746) 160 (586) 4,550 (978) 3,572
Cash Flow Hedges:
Net increase (decrease) in fair value 688 (148) 540 (394) 84 (310)
Less: effective portion reclassified into interest expense(2)
(479) 103 (376) (342) 73 (269)
Less: effective portion reclassified into interest income(3)
311 (67) 244 0 0 0
Net increase (decrease) in fair value 856 (184) 672 (52) 11 (41)
Postretirement Plans:
Net actuarial gain(4)
175 (37) 138 68 (14) 54
Less: Amortization of net prior service credits(4)
6 (1) 5 6 (1) 5
Net gain on postretirement plans 169 (36) 133 62 (13) 49
Other comprehensive income $ 279 $ (60) $ 219 $ 4,560 $ (980) $ 3,580


	Three Months Ended
	June 30, 2021						June 30, 2020
(In thousands)	Pre-Tax Amount		Tax (Expense) Benefit		After-Tax Amount		Pre-Tax Amount		Tax (Expense) Benefit		After-Tax Amount
AFS Debt Securities:
Unrealized holdings gains	$	2,925	$	(629)	$	2,296	$	9,082	$	(1,952)	$	7,130

Net unrealized gains	2,925		(629)		2,296		9,082		(1,952)		7,130
Cash Flow Hedges:
Net (decrease) increase in fair value	(3,203)		689		(2,514)		39		(8)		31
Less: reclassified AOCI loss into interest expense(1)	(595)		128		(467)		(274)		59		(215)
Less: reclassified AOCI gain into interest income(2)	403		(86)		317		247		(53)		194
Net (decrease) increase in fair value	(3,011)		647		(2,364)		66		(14)		52
Postretirement Plans:



Amortization of settlement recognition of net loss and prior service credit(3)	217		(46)		171		169		(36)		133
Other comprehensive income	$	131	$	(28)	$	103	$	9,317	$	(2,002)	$	7,315

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

~~(2)~~ Reclassified into interest on deposits, borrowings and/or subordinated debentures on the consolidated statements of income. Refer to Note 8 of the consolidated financial statements for further details.

~~(3)~~(2) Reclassified into interest and fees on loans on the consolidated statements of income. Refer to Note 8 of the consolidated financial statements for further details.

~~(4)~~(3) Reclassified into other expenses on the consolidated statements of income.

For The Nine Months Ended
September 30, 2020 September 30, 2019
(In thousands) Pre-Tax
Amount Tax (Expense)
Benefit After-Tax
Amount Pre-Tax
Amount Tax (Expense)
Benefit After-Tax
Amount
AFS Securities:
Unrealized holdings gains $ 32,451 $ (6,977) $ 25,474 $ 32,270 $ (6,938) $ 25,332
Less: reclassification adjustment for net realized gains(1)
0 0 0 28 (6) 22
Net unrealized gains 32,451 (6,977) 25,474 32,242 (6,932) 25,310
Cash Flow Hedges:
Net decrease in fair value (418) 90 (328) (3,105) 667 (2,438)
Less: effective portion reclassified into interest expense(2)
(990) 213 (777) (662) 142 (520)
Less: effective portion reclassified into interest income(3)
610 (131) 479 0 0 0
Net decrease in fair value (38) 8 (30) (2,443) 525 (1,918)
Postretirement Plans:
Net actuarial gain(4)
526 (113) 413 202 (43) 159
Less: Amortization of net prior service credits(4)
18 (4) 14 18 (4) 14
Net gain on postretirement plans 508 (109) 399 184 (39) 145
Other comprehensive income $ 32,921 $ (7,078) $ 25,843 $ 29,983 $ (6,446) $ 23,537

~~(1) Reclassified into net gain on sale~~ Refer to Note 13 of ~~securities on~~ the consolidated financial statements ~~of income.~~for further details.

~~(2)~~


	Six Months Ended
	June 30, 2021						June 30, 2020
(In thousands)	Pre-Tax Amount		Tax (Expense) Benefit		After-Tax Amount		Pre-Tax Amount		Tax (Expense) Benefit		After-Tax Amount
AFS Debt Securities:
Unrealized holdings (losses) gains	$	(19,380)	$	4,167	$	(15,213)	$	33,197	$	(7,137)	$	26,060

Net unrealized (losses) gains	(19,380)		4,167		(15,213)		33,197		(7,137)		26,060
Cash Flow Hedges:
Net increase (decrease) in fair value	3,189		(685)		2,504		(1,110)		239		(871)
Less: reclassified AOCI loss into interest expense(1)	(1,173)		252		(921)		(515)		111		(404)
Less: reclassified AOCI gain into interest income(2)	795		(170)		625		299		(64)		235
Net increase (decrease) in fair value	3,567		(767)		2,800		(894)		192		(702)
Postretirement Plans:



Amortization of settlement recognition of net loss and prior service credit(3)	435		(94)		341		339		(73)		266
Other comprehensive (loss) income	$	(15,378)	$	3,306	$	(12,072)	$	32,642	$	(7,018)	$	25,624

(1) Reclassified into interest on deposits, borrowings and/or subordinated debentures on the consolidated statements of income. Refer to Note 8 of the consolidated financial statements for further details.

~~(3)~~

(2) Reclassified into interest and fees on loans on the consolidated statements of income. Refer to Note 8 of the consolidated financial statements for further details.

~~(4)~~(3) Reclassified into other expenses on the consolidated statements of income. Refer to Note 13 of the consolidated financial statements for further details.

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

(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)
Balance at December 31, 2018 $ (17,826) $ (4,437) $ (2,157) $ (24,420)
Other comprehensive income (loss) before reclassifications 25,332 (2,438) 159 23,053
Less: Amounts reclassified from AOCI 22 (520) 14 (484)
Other comprehensive income (loss) 25,310 (1,918) 145 23,537
Balance at September 30, 2019 $ 7,484 $ (6,355) $ (2,012) $ (883)
Balance at December 31, 2019 $ 3,250 $ (6,048) $ (3,470) $ (6,268)
Other comprehensive income (loss) before reclassifications 25,474 (328) 413 25,559
Less: Amounts reclassified from AOCI 0 (298) 14 (284)
Other comprehensive income (loss) 25,474 (30) 399 25,843
Balance at September 30, 2020 $ 28,724 $ (6,078) $ (3,071) $ 19,575

~~(1) All amounts are net of tax.~~


(In thousands)	Net Unrealized Gains (Losses) on AFS Debt Securities		Net Unrealized Losses (Gains) on Cash Flow Hedges		Defined Benefit Postretirement Plans		AOCI
At or For the Three Months Ended June 30, 2021
Balance at March 31, 2021	$	11,801	$	538	$	(3,774)	$	8,565
Other comprehensive income (loss) before reclassifications	2,296		(2,514)		175		(43)
Less: Amounts reclassified from AOCI	0		(150)		4		(146)
Other comprehensive income (loss)	2,296		(2,364)		171		103
Balance at June 30, 2021	$	14,097	$	(1,826)	$	(3,603)	$	8,668
At or For the Six Months Ended June 30, 2021
Balance at December 31, 2020	$	29,310	$	(4,626)	$	(3,944)	$	20,740
Other comprehensive (loss) income before reclassifications	(15,213)		2,504		350		(12,359)
Less: Amounts reclassified from AOCI	0		(296)		9		(287)
Other comprehensive (loss) income	(15,213)		2,800		341		(12,072)
Balance at June 30, 2021	$	14,097	$	(1,826)	$	(3,603)	$	8,668
At or For the Three Months Ended June 30, 2020
Balance at March 31, 2020	$	22,180	$	(6,802)	$	(3,337)	$	12,041
Other comprehensive income (loss) before reclassifications	7,130		31		137		7,298
Less: Amounts reclassified from AOCI	0		(21)		4		(17)
Other comprehensive income (loss)	7,130		52		133		7,315
Balance at June 30, 2020	$	29,310	$	(6,750)	$	(3,204)	$	19,356
At or For the Six Months Ended June 30, 2020
Balance at December 31, 2019	$	3,250	$	(6,048)	$	(3,470)	$	(6,268)
Other comprehensive income (loss) before reclassifications	26,060		(871)		275		25,464
Less: Amounts reclassified from AOCI	0		(169)		9		(160)
Other comprehensive income (loss)	26,060		(702)		266		25,624
Balance at June 30, 2020	$	29,310	$	(6,750)	$	(3,204)	$	19,356

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 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 within the scope of ASC 606 for the periods indicated:


			Three Months Ended September 30,				Nine Months Ended September 30,					Location on Consolidated Statements of Income		Three Months Ended June 30,								Six Months Ended June 30,
(In thousands)	(In thousands)	Income Statement Line Item	2020		2019		2020		2019		(In thousands)		2021			2020				2021				2020
Debit card interchange income	Debit card interchange income	Debit card income	$	2,627	$	2,432	$	7,159	$	6,723	Debit card interchange income		Debit card income			$	3,112			$	2,391			$	5,848			$	4,532
Services charges on deposit accounts	Services charges on deposit accounts	Service charges on deposit accounts	1,606		1,970		4,955		6,202		Services charges on deposit accounts	Service charges on deposit accounts		1,517				1,337				3,056				3,349
Fiduciary services income	Fiduciary services income	Income from fiduciary services	1,504		1,444		4,609		4,381		Fiduciary services income	Income from fiduciary services		1,707				1,603				3,233				3,105
Investment program income	Investment program income	Brokerage and insurance commissions	755		625		2,034		1,942		Investment program income	Brokerage and insurance commissions		939				622				1,892				1,279
Other non-interest income	Other non-interest income	Other income	467		491		1,275		1,289		Other non-interest income	Other income		447				423				847				806
Total non-interest income within the scope of ASC 606	Total non-interest income within the scope of ASC 606		6,959		6,962		20,032		20,537		Total non-interest income within the scope of ASC 606			7,722				6,376				14,876				13,071
Total non-interest income not in scope of ASC 606	Total non-interest income not in scope of ASC 606		5,737		3,777		16,127		9,628		Total non-interest income not in scope of ASC 606			3,598				5,684				11,659				10,392
Total non-interest income	Total non-interest income		$	12,696	$	10,739	$	36,159	$	30,165	Total non-interest income			$	11,320			$	12,060			$	26,535			$	23,463

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 pension and postretirement benefit cost were as follow for the ~~periods ended September 30, 2020 and 2019, were as follows:~~following periods:

Supplemental Executive Retirement Plan:


(In thousands)	(In thousands)		Three Months Ended September 30,				Nine Months Ended September 30,				(In thousands)	Location on Consolidated Statements of Income		Three Months Ended June 30,								Six Months Ended June 30,
Net periodic pension cost	Net periodic pension cost	Income Statement Presentation	2020		2019		2020		2019		Net periodic pension cost		2021			2020				2021				2020
Service cost	Service cost	Salaries and employee benefits	$	116	$	98	$	348	$	296	Service cost		Salaries and employee benefits			$	126			$	116			$	252			$	232
Interest cost	Interest cost	Other expenses	116		131		346		392		Interest cost	Other expenses		98				115				195				230
Recognized net actuarial loss	Recognized net actuarial loss	Other expenses	155		61		467		183		Recognized net actuarial loss	Other expenses		194				156				389				312
Total	Total		$	387	$	290	$	1,161	$	871	Total			$	418			$	387			$	836			$	774

Other Postretirement Benefit Plan:


(In thousands)	Location on Consolidated Statements of Income	Three Months Ended June 30,				Six Months Ended June 30,
Net periodic postretirement benefit cost		2021		2020		2021		2020
Service cost	Salaries and employee benefits	$	6	$	7	$	13	$	14
Interest cost	Other expenses	25		31		51		62
Recognized net actuarial loss	Other expenses	29		20		58		39
Amortization of prior service credit	Other expenses	(6)		(6)		(12)		(12)
Total		$	54	$	52	$	110	$	103

~~Other Postretirement Benefit Plan:~~

(In thousands) Three Months Ended
September 30, Nine Months Ended
September 30,
Net periodic postretirement benefit cost Income Statement Presentation 2020 2019 2020 2019
Service cost Salaries and employee benefits $ 7 $ 12 $ 21 $ 36
Interest cost Other expenses 31 37 92 111
Recognized net actuarial loss Other expenses 20 7 59 19
Amortization of prior service credit Other expenses (6) (6) (18) (18)
Total $ 52 $ 50 $ 154 $ 148

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 September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
(In thousands, except number of shares and per share data)	(In thousands, except number of shares and per share data)	2020		2019		2020		2019		(In thousands, except number of shares and per share data)	2021		2020		2021		2020
Net income	Net income	$	16,775	$	14,488	$	41,208	$	41,965	Net income	$	18,143	$	10,940	$	37,883	$	24,433
Dividends and undistributed earnings allocated to participating securities(1)	Dividends and undistributed earnings allocated to participating securities(1)	(47)		(33)		(101)		(86)		Dividends and undistributed earnings allocated to participating securities(1)	(51)		(27)		(105)		(55)
Net income available to common shareholders	Net income available to common shareholders	$	16,728	$	14,455	$	41,107	$	41,879	Net income available to common shareholders	$	18,092	$	10,913	$	37,778	$	24,378
Weighted-average common shares outstanding for basic EPS	Weighted-average common shares outstanding for basic EPS	14,961,465		15,339,093		15,008,004		15,482,765		Weighted-average common shares outstanding for basic EPS	14,943,486		14,959,851		14,930,017		15,031,525
Dilutive effect of stock-based awards(2)	Dilutive effect of stock-based awards(2)	39,582		42,835		36,423		39,736		Dilutive effect of stock-based awards(2)	63,985		37,760		64,121		37,607
Weighted-average common and potential common shares for diluted EPS	Weighted-average common and potential common shares for diluted EPS	15,001,047		15,381,928		15,044,427		15,522,501		Weighted-average common and potential common shares for diluted EPS	15,007,471		14,997,611		14,994,138		15,069,132
Earnings per common share:	Earnings per common share:									Earnings per common share:
Basic EPS	Basic EPS	$	1.12	$	0.94	$	2.74	$	2.70	Basic EPS	$	1.21	$	0.73	$	2.53	$	1.62
Diluted EPS	Diluted EPS	$	1.11	$	0.94	$	2.73	$	2.70	Diluted EPS	$	1.21	$	0.73	$	2.52	$	1.62
Awards excluded from the calculation of diluted EPS(3):	Awards excluded from the calculation of diluted EPS(3):									Awards excluded from the calculation of diluted EPS(3):
MSPP										MSPP	0		6,748		0		0
Performance-based awards										Performance-based awards	0		3,454		0		2,429
Stock options	Stock options	8,206		0		3,206		0		Stock options	0		1,000		0		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:~~

Trading Securities: The fair value of ~~loans held for sale~~trading securities is ~~determined on an individual loan basis~~reported using market quoted ~~secondary market~~ prices and ishas been classified as Level 2.1 as they are actively traded and no valuation adjustments have been applied.

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:~~Loans Held For Sale: The fair value of ~~equity securities in bank stock~~loans held for sale is ~~reported utilizing~~determined on an individual loan basis using quoted secondary market prices ~~based on recent trading activity~~ and ~~dealer quotes. These equity securities are traded on inactive markets and are~~is 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 ~~September 30, 2020~~June30, 2021 and December 31, ~~2019,~~2020, 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 as sufficient collateral exists, mitigating the credit risk.

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.

4140

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)	(In thousands)	Fair Value		Readily Available Market Prices (Level 1)		Observable Market Data (Level 2)		Company Determined Fair Value (Level 3)		(In thousands)	Fair Value		Readily Available Market Prices (Level 1)		Observable Market Data (Level 2)		Company Determined Fair Value (Level 3)
September 30, 2020
June 30, 2021										June 30, 2021
Financial assets:	Financial assets:									Financial assets:
Loans held for sale		$	37,935	$	0	$	37,935	$	0
AFS investments:
Trading securities										Trading securities	$	4,354	$	4,354	$	0	$	0
AFS debt securities:										AFS debt securities:
Obligations of U.S. government sponsored enterprises										Obligations of U.S. government sponsored enterprises	7,083		0		7,083		0
Obligations of states and political subdivisions	Obligations of states and political subdivisions	127,613		—		127,613		—		Obligations of states and political subdivisions	118,653		0		118,653		0
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	568,102		—		568,102		—		Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	839,541		0		839,541		0
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	400,566		—		400,566		—		Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	425,302		0		425,302		0
Subordinated corporate bonds	Subordinated corporate bonds	10,788		0		10,788		0		Subordinated corporate bonds	9,244		0		9,244		0
Equity securities - bank stock		1,674		0		1,674		0
Loans held for sale										Loans held for sale	15,140		0		15,140		0
Customer loan swaps	Customer loan swaps	44,123		—		44,123		—		Customer loan swaps	27,648		0		27,648		0
Interest rate swap on loans		5,717		—		5,717		—
Interest rate contracts										Interest rate contracts	6,814		0		6,814		0

Fixed-rate mortgage interest rate lock commitments	Fixed-rate mortgage interest rate lock commitments	977		—		977		—		Fixed-rate mortgage interest rate lock commitments	870		0		870		0
Forward delivery commitments	Forward delivery commitments	505		—		505		—		Forward delivery commitments	145		0		145		0
Financial liabilities:	Financial liabilities:									Financial liabilities:
Junior subordinated debt interest rate swaps		11,747		—		11,747		—
Trading securities										Trading securities	$	4,354	$	4,354	$	0	$	0

Customer loan swaps	Customer loan swaps	44,213		0		44,213		0		Customer loan swaps	27,648		0		27,648		0
Interest rate swap on borrowings		1,714		—		1,714		—

Interest rate contracts										Interest rate contracts	9,153		—		9,153		0
Fixed-rate mortgage interest rate lock commitments	Fixed-rate mortgage interest rate lock commitments	405		—		405		0		Fixed-rate mortgage interest rate lock commitments	54		—		54		0
Forward delivery commitments	Forward delivery commitments	241		—		241		0		Forward delivery commitments	17		—		17		0
December 31, 2019
December 31, 2020										December 31, 2020
Financial assets:	Financial assets:									Financial assets:
Loans held for sale		$	11,854	$	0	$	11,854	$	0
AFS investments:
Trading securities										Trading securities	$	4,161	$	4,161	$	0	$	0
AFS debt securities:										AFS debt securities:
Obligations of states and political subdivisions	Obligations of states and political subdivisions	118,083		—		118,083		—		Obligations of states and political subdivisions	127,120		0		127,120		0
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	463,386		—		463,386		—		Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	566,618		0		566,618		0
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	325,905		—		325,905		—		Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	410,454		0		410,454		0
Subordinated corporate bonds	Subordinated corporate bonds	10,744		0		10,744		0		Subordinated corporate bonds	11,621		0		11,621		0
Equity securities - bank stock		1,674		0		1,674		0
Loans held for sale										Loans held for sale	41,557		0		41,557		0
Customer loan swaps	Customer loan swaps	17,756		—		17,756		—		Customer loan swaps	39,627		0		39,627		0
Interest rate swap on loans		483		—		483		—
Interest rate contracts										Interest rate contracts	5,731		0		5,731		0

Fixed-rate mortgage interest rate lock commitments	Fixed-rate mortgage interest rate lock commitments	480		—		480		—		Fixed-rate mortgage interest rate lock commitments	608		0		608		0
Forward delivery commitments	Forward delivery commitments	312		—		312		—		Forward delivery commitments	311		0		311		0
Financial liabilities:	Financial liabilities:									Financial liabilities:
Junior subordinated debt interest rate swaps		8,187		—		8,187		—
Trading securities										Trading securities	$	4,161	$	4,161	$	0	$	0
Customer loan swaps	Customer loan swaps	17,756		—		17,756		—		Customer loan swaps	39,627		0		39,627		0
Interest rate contracts										Interest rate contracts	11,625		0		11,625		0

Fixed-rate mortgage interest rate lock commitments	Fixed-rate mortgage interest rate lock commitments	18		—		18		0		Fixed-rate mortgage interest rate lock commitments	248		0		248		0
Forward delivery commitments	Forward delivery commitments	15		—		15		—		Forward delivery commitments	196		0		196		0

The Company did not have any transfers between Level 1 and Level 2 of the fair value hierarchy during the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. 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.

4241

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~~Expected credit losses on individually assessed loans deemed to be collateral dependent are valued based upon the lower of ~~interest and principal will not be made in accordance with the contractual terms~~amortized cost 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 underlying 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.sell. Management ~~has estimated~~estimates 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.

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~~ACL 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 credit 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. ~~As of September 30, 2020, the Company did 0t have any OREO properties. As of December 31, 2019, the Company had one OREO property with a net realizable value of $94,000.~~

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. InThere have been no indications or triggering events during the ~~second quarter of 2020, the Company determined~~six months ended June 30, 2021, for which management believes it is more likely than not 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. As of June and September 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. Refer to Note 2 for further discussion.is impaired.

Core Deposit Intangible Assets: 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 ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, that indicated the carrying amount may not be recoverable.

4342

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)	(In thousands)	Fair Value		Readily Available Market Prices (Level 1)		Observable Market Data (Level 2)		Company Determined Fair Value (Level 3)		(In thousands)	Fair Value		Readily Available Market Prices (Level 1)		Observable Market Data (Level 2)		Company Determined Fair Value (Level 3)
September 30, 2020
June 30, 2021										June 30, 2021
Financial assets:	Financial assets:									Financial assets:
Collateral-dependent impaired loans		$	3	$	0	$	0	$	3
Servicing assets		764		0		0		764
Collateral-dependent loans										Collateral-dependent loans	$	74	$	0	$	0	$	74

December 31, 2019

December 31, 2020										December 31, 2020
Financial assets:										Financial assets:
Servicing assets										Servicing assets	$	1,010	$	0	$	0	$	1,010

Non-financial assets:	Non-financial assets:									Non-financial assets:
OREO	OREO	$	94	$	—	$	—	$	94	OREO	$	236	$	0	$	0	$	236

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
September 30, 2020
Collateral-dependent impaired loans:
Partially charged-off $ 3 Market approach appraisal of
collateral Management adjustment of appraisal 0%
Estimated selling costs 10%
Servicing assets $ 764 Discounted cash flow Weighted-average constant prepayment rate 19%
Weighted average discount rate 10%
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

June 30, 2021

Collateral-dependent loans:

Specifically reserved

Market approach appraisal of
collateral

Estimated selling costs

11%

December 31, 2020

Servicing assets

1,010

Discounted cash flow

Weighted-average constant prepayment rate

19%

Weighted average discount rate

10%

OREO

236

Market approach appraisal of
collateral

Management adjustment of appraisal

Estimated selling cost

11%

4443

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)	(In thousands)	Carrying Amount		Fair Value		Readily Available Market Prices (Level 1)		Observable Market Prices (Level 2)		Company Determined Market Prices (Level 3)		(In thousands)	Carrying Amount		Fair Value		Readily Available Market Prices (Level 1)		Observable Market Prices (Level 2)		Company Determined Market Prices (Level 3)
September 30, 2020
June 30, 2021												June 30, 2021
Financial assets:	Financial assets:											Financial assets:
HTM securities		$	1,298	$	1,403	$	0	$	1,403	$	0
Commercial real estate loans(1)		1,314,204		$	1,282,149	0		0		1,282,149
Commercial loans(1)(2)		371,011		$	364,655	0		0		364,655
SBA PPP loans(1)		223,723		$	229,137	0		0		229,137
Residential real estate loans(1)		1,035,397		1,054,587		0		0		1,054,587
Home equity loans(1)		271,720		271,416		0		0		271,416
Consumer loans(1)		22,373		20,499		0		0		20,499
HTM debt securities												HTM debt securities	$	1,294	$	1,397	$	0	$	1,397	$	0
Commercial real estate loans(1)(2)												Commercial real estate loans(1)(2)	1,401,804		1,360,353		0		0		1,360,353
Commercial loans(2)												Commercial loans(2)	362,751		358,273		0		0		358,273
SBA PPP loans(2)												SBA PPP loans(2)	125,998		131,418		0		0		131,418
Residential real estate loans(2)												Residential real estate loans(2)	1,117,712		1,123,720		0		0		1,123,720
Home equity loans(2)												Home equity loans(2)	226,625		224,569		0		0		224,569
Consumer loans(2)												Consumer loans(2)	18,966		17,137		0		—		17,137
Servicing assets												Servicing assets	2,498		3,030		0		0		3,030
Financial liabilities:												Financial liabilities:
Time deposits												Time deposits	$	384,357	$	385,620	$	0	$	385,620	$	0
Short-term borrowings												Short-term borrowings	170,413		170,394		0		170,394		0

Subordinated debentures												Subordinated debentures	44,331		32,583		0		32,583		0
December 31, 2020												December 31, 2020
Financial assets:												Financial assets:
HTM debt securities												HTM debt securities	$	1,297	$	1,411	$	0	$	1,411	$	0
Commercial real estate loans(1)(2)												Commercial real estate loans(1)(2)	1,344,860		1,307,132		0		0		1,307,132
Commercial loans(2)												Commercial loans(2)	374,791		372,194		0		0		372,194
SBA PPP loans(2)												SBA PPP loans(2)	135,026		137,209		0		0		137,209
Residential real estate loans(2)												Residential real estate loans(2)	1,051,324		1,066,991		0		0		1,066,991
Home equity loans(2)												Home equity loans(2)	255,957		253,276		0		0		253,276
Consumer loans(2)												Consumer loans(2)	19,999		18,102		0		0		18,102
Servicing assets	Servicing assets	1,143		1,411		0		0		1,411		Servicing assets	2,196		1,437		0		0		1,437
Financial liabilities:	Financial liabilities:											Financial liabilities:
Time deposits	Time deposits	$	505,451	$	508,785	$	0	$	508,785	$	0	Time deposits	$	457,694	$	460,278	$	0	$	460,278	$	0
Short-term borrowings	Short-term borrowings	210,055		210,030		0		210,030		0		Short-term borrowings	162,439		162,420		0		162,420		0
Long-term borrowings	Long-term borrowings	25,000		25,465		0		25,465		0		Long-term borrowings	25,000		25,442		0		25,442		0
Subordinated debentures	Subordinated debentures	59,306		46,032		0		46,032		0		Subordinated debentures	59,331		46,475		0		46,475		0
December 31, 2019
Financial assets:
HTM securities		$	1,302	$	1,359	$	0	$	1,359	$	0
Commercial real estate loans(1)		1,230,983		1,196,297		0		0		1,196,297
Commercial loans(1)(2)		438,716		431,892		0		0		431,892
Residential real estate loans(1)		1,064,532		1,066,544		0		0		1,066,544
Home equity loans(1)		310,356		293,565		0		0		293,565
Consumer loans(1)		25,265		23,355		0		0		23,355
Servicing assets		877		1,496		0		0		1,496
Financial liabilities:
Time deposits		$	595,549	$	594,881	$	0	$	594,881	$	0
Short-term borrowings		268,809		268,631		0		268,631		0
Long-term borrowings		10,000		10,002		0		10,002		0
Subordinated debentures		59,080		50,171		0		50,171		0

(1) Commercial real estate loan includes non owner-occupied and owner-occupied properties.

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

~~(2) Includes the HPFC loan portfolio.~~ACL on loans.

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.

4544

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~~credit losses or a reduced demand for the Company’s credit or fee-based products and services;

•changes in trade, monetary, and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System;

•inflation, interest rate, market, and monetary fluctuations;

•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.

4645

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,~~2020, 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.

4746

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,~~equity; efficiency ratio; ~~tax equivalent~~ net interest ~~income;~~income (fully-taxable equivalent); pre-tax, pre-provision earnings; t~~angible~~adjusted yield on interest-earning assets and adjusted net interest margin (fully-taxable equivalent); tangible book value per share; tangible common equity ratio; core deposits and average core deposits; and ~~ALL to~~ total loans, excluding SBA PPP loans. 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 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 September 30,						Nine Months Ended September 30,							Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	2020			2019			2020			2019			(Dollars in thousands)	2021			2020			2021			2020
Net income, as presented	Net income, as presented	$	16,775		$	14,488		$	41,208		$	41,965		Net income, as presented	$	18,143		$	10,940		$	37,883		$	24,433
Add: amortization of core deposit intangible assets, net of tax(1)	Add: amortization of core deposit intangible assets, net of tax(1)	134			140			404			418			Add: amortization of core deposit intangible assets, net of tax(1)	130			135			259			269
Net income, adjusted for amortization of core deposit intangible assets	Net income, adjusted for amortization of core deposit intangible assets	$	16,909		$	14,628		$	41,612		$	42,383		Net income, adjusted for amortization of core deposit intangible assets	$	18,273		$	11,075		$	38,142		$	24,702
Average equity, as presented	Average equity, as presented	$	512,902		$	468,920		$	497,564		$	455,261		Average equity, as presented	$	538,947		$	499,449		$	536,311		$	489,811
Less: average goodwill and core deposit intangible assets	Less: average goodwill and core deposit intangible assets	(97,794)			(98,484)			(97,967)			(98,659)			Less: average goodwill and core deposit intangible assets	(97,292)			(97,965)			(97,377)			(98,054)
Average tangible equity	Average tangible equity	$	415,108		$	370,436		$	399,597		$	356,602		Average tangible equity	$	441,655		$	401,484		$	438,934		$	391,757
Return on average equity	Return on average equity	13.01		%	12.26		%	11.06		%	12.32		%	Return on average equity	13.50		%	8.81		%	14.24		%	10.03		%
Return on average tangible equity	Return on average tangible equity	16.21		%	15.67		%	13.91		%	15.89		%	Return on average tangible equity	16.60		%	11.09		%	17.52		%	12.68		%

(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 September 30,						Nine Months Ended September 30,							Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	2020			2019			2020			2019			(Dollars in thousands)	2021			2020			2021			2020
Non-interest expense, as presented	Non-interest expense, as presented	$	25,221		$	23,748		$	73,291		$	70,489		Non-interest expense, as presented	$	25,590		$	23,509		$	50,489		$	48,070
Less: legal settlement		(1,200)			—			(1,200)			—
Less: prepayment penalty on borrowings														Less: prepayment penalty on borrowings	—			—			(514)			—
Adjusted non-interest expense	Adjusted non-interest expense	$	24,021		$	23,748		$	72,091		$	70,489		Adjusted non-interest expense	$	25,590		$	23,509		$	49,975		$	48,070
Net interest income, as presented	Net interest income, as presented	$	34,481		$	31,923		$	100,846		$	95,391		Net interest income, as presented	$	33,529		$	34,539		$	65,893		$	66,365
Add: effect of tax-exempt income(1)	Add: effect of tax-exempt income(1)	292			264			865			752			Add: effect of tax-exempt income(1)	265			295			536			574
Non-interest income, as presented	Non-interest income, as presented	12,696			10,739			36,159			30,165			Non-interest income, as presented	11,320			12,060			26,535			23,463
Less: net gain on sale of securities		—			(1)			—			(28)

Adjusted net interest income plus non-interest income	Adjusted net interest income plus non-interest income	$	47,469		$	42,925		$	137,870		$	126,280		Adjusted net interest income plus non-interest income	$	45,114		$	46,894		$	92,964		$	90,402
Ratio of non-interest expense to total revenues(2)	Ratio of non-interest expense to total revenues(2)	53.46		%	55.67		%	53.50		%	56.14		%	Ratio of non-interest expense to total revenues(2)	57.06		%	50.45		%	54.63		%	53.51		%
Efficiency ratio	Efficiency ratio	50.60		%	55.32		%	52.29		%	55.82		%	Efficiency ratio	56.72		%	50.13		%	53.76		%	53.17		%

(1) Assumed a 21% tax rate.

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

4847

Net Interest Income (Fully-Taxable Equivalent). Net interest income on a fully-taxable equivalent 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.


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	(In thousands)	2020		2019		2020		2019		(In thousands)	2021		2020		2021		2020
Net interest income, as presented	Net interest income, as presented	$	34,481	$	31,923	$	100,846	$	95,391	Net interest income, as presented	$	33,529	$	34,539	$	65,893	$	66,365
Add: effect of tax-exempt income(1)	Add: effect of tax-exempt income(1)	292		264		865		752		Add: effect of tax-exempt income(1)	265		295		536		574
Net interest income (fully-taxable equivalent)	Net interest income (fully-taxable equivalent)	$	34,773	$	32,187	$	101,711	$	96,143	Net interest income (fully-taxable equivalent)	$	33,794	$	34,834	$	66,429	$	66,939

(1) Assumed a 21% tax rate.

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~~has become 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~~ACL 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.institutions.


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	(In thousands)	2020		2019		2020		2019		(In thousands)	2021		2020		2021		2020
Net income, as presented	Net income, as presented	$	16,775	$	14,488	$	41,208	$	41,965	Net income, as presented	$	18,143	$	10,940	$	37,883	$	24,433
Add: provision for credit losses		987		730		12,160		2,647
Add: (credit) provision for credit losses										Add: (credit) provision for credit losses	(3,403)		9,398		(5,359)		11,173
Add: income tax expense	Add: income tax expense	4,194		3,696		10,346		10,455		Add: income tax expense	4,519		2,752		9,415		6,152
Pre-tax, pre-provision earnings	Pre-tax, pre-provision earnings	$	21,956	$	18,914	$	63,714	$	55,067	Pre-tax, pre-provision earnings	$	19,259	$	23,090	$	41,939	$	41,758

~~Allowance~~Adjusted Yield on Interest-Earning Assets. Adjusted yield on interest-earning assets normalizes the Company's reported yield on interest-earning assets for ~~loan losses to total loans, excluding SBA PPP loans.~~ ~~ALL to total loans, excluding SBA~~certain unusual, non-recurring items, including: (i) the impact of PPP loans ~~is calculated as (i) allowance~~and (ii) excess cash/liquidity held by the Company, primarily due to Federal stimulus programs and changes in the FRB cash holding requirements for loan losses, adjusted for the allowance for loan losses allocated to SBA PPP loans, to (ii) total loans, adjusted to exclude SBA PPP loans. SBA PPP loans were provided to qualifying businesses as part of the federal government stimulus package issuedfinancial institutions both in response to the COVID-19 pandemic. These loans are fully-guaranteed by the SBA, and may even be forgiven in full or in part, and, thus, present little to no credit risk to the Company. By excluding the impact of the SBA PPP loans, the ratio attempts to be more comparable with prior periods and demonstrates the level of loan loss reserves established on the Company's loans originated as part of its core operations and credit underwriting standards.COVID-19.

(In thousands) September 30,
2020 December 31,
2019
Allowance for loan losses, as presented $ 36,414 $ 25,171
Less: allowance for loan losses on SBA PPP loans (115) —
Adjusted allowance for loan losses $ 36,299 $ 25,171
Total loans, as presented $ 3,274,842 $ 3,095,023
Less: SBA PPP loans (223,838) —
Adjusted total loans $ 3,051,004 $ 3,095,023
Allowance for loan losses to total loans 1.11 % 0.81 %
Allowance for loan losses to total loans, excluding SBA PPP loans 1.19 % 0.81 %


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Yield on interest-earning assets, as presented	3.06	%	3.53	%	3.10	%	3.71	%
Add: effect of excess liquidity on yield on interest-earning assets	0.12	%	0.08	%	0.11	%	0.04	%
Less: effect of SBA PPP loans on yield on interest-earning assets	(0.04)	%	(0.02)	%	(0.05)	%	(0.01)	%
Adjusted yield on interest-earning assets	3.14	%	3.59	%	3.16	%	3.74	%

4948

Adjusted Net Interest Margin (Fully-Taxable Equivalent). Adjusted net interest margin on a fully-taxable equivalent basis normalizes the Company's reported net interest margin on a fully-taxable equivalent basis for certain unusual, non-recurring items, including: (i) the impact of PPP loans and (ii) excess cash/liquidity held by the Company, primarily due to Federal stimulus programs and changes in the FRB cash holding requirements for financial institutions both in response to COVID-19.


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net interest margin (fully-taxable equivalent), as presented	2.83	%	3.11	%	2.85	%	3.10	%
Add: effect of excess liquidity on net interest margin (fully-taxable equivalent)	0.11	%	0.07	%	0.10	%	0.03	%
Less: effect of SBA PPP loans on net interest margin (fully-taxable equivalent)	(0.05)	%	(0.03)	%	(0.05)	%	(0.02)	%
Adjusted net interest margin (fully-taxable equivalent)	2.89	%	3.15	%	2.90	%	3.11	%

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.


(In thousands, except number of shares, per share data and ratios)	(In thousands, except number of shares, per share data and ratios)	September 30, 2020			December 31, 2019			(In thousands, except number of shares, per share data and ratios)	June 30, 2021			December 31, 2020
Tangible Book Value Per Share:	Tangible Book Value Per Share:							Tangible Book Value Per Share:
Shareholders’ equity, as presented	Shareholders’ equity, as presented	$	517,522		$	473,415		Shareholders’ equity, as presented	$	545,548		$	529,314
Less: goodwill and other intangible assets	Less: goodwill and other intangible assets	(97,711)			(98,222)			Less: goodwill and other intangible assets	(97,213)			(97,540)
Tangible shareholders’ equity	Tangible shareholders’ equity	$	419,811		$	375,193		Tangible shareholders’ equity	$	448,335		$	431,774
Shares outstanding at period end	Shares outstanding at period end	14,917,344			15,144,719			Shares outstanding at period end	14,951,067			14,909,097
Book value per share	Book value per share	$	34.69		$	31.26		Book value per share	$	36.49		$	35.50
Tangible book value per share	Tangible book value per share	$	28.14		$	24.77		Tangible book value per share	$	29.99		$	28.96
Tangible Common Equity Ratio:	Tangible Common Equity Ratio:							Tangible Common Equity Ratio:
Total assets	Total assets	$	5,153,793		$	4,429,521		Total assets	$	5,152,069		$	4,898,745
Less: goodwill and other intangible assets	Less: goodwill and other intangible assets	(97,711)			(98,222)			Less: goodwill and other intangible assets	(97,213)			(97,540)
Tangible assets	Tangible assets	$	5,056,082		$	4,331,299		Tangible assets	$	5,054,856		$	4,801,205
Common equity ratio	Common equity ratio	10.04		%	10.69		%	Common equity ratio	10.59		%	10.81		%
Tangible common equity ratio	Tangible common equity ratio	8.30		%	8.66		%	Tangible common equity ratio	8.87		%	8.99		%

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.


(In thousands)	(In thousands)	September 30, 2020		December 31, 2019		(In thousands)	June 30, 2021		December 31, 2020
Total deposits	Total deposits	$	4,224,044	$	3,537,743	Total deposits	$	4,294,114	$	4,005,244
Less: certificates of deposit	Less: certificates of deposit	(405,434)		(521,752)		Less: certificates of deposit	(334,336)		(357,666)
Less: brokered deposits	Less: brokered deposits	(291,616)		(191,005)		Less: brokered deposits	(282,786)		(283,567)
Core deposits	Core deposits	$	3,526,994	$	2,824,986	Core deposits	$	3,676,992	$	3,364,011

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.


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,				Six Months Ended June 30,
(In thousands)	(In thousands)	2020		2019		2020		2019		(In thousands)	2021		2020		2021		2020
Total average deposits	Total average deposits	$	3,794,434	$	3,300,599	$	3,609,355	$	3,187,023	Total average deposits	$	3,984,113	$	3,676,000	$	3,877,803	$	3,515,798
Less: average certificates of deposit	Less: average certificates of deposit	(417,788)		(533,110)		(482,076)		(498,059)		Less: average certificates of deposit	(338,595)		(477,068)		(345,039)		(514,573)
Average core deposits	Average core deposits	$	3,376,646	$	2,767,489	$	3,127,279	$	2,688,964	Average core deposits	$	3,645,518	$	3,198,932	$	3,532,764	$	3,001,225

Total Loans, Excluding SBA PPP loans. Total loans, excluding SBA PPP loans is used by management to measure the Company's core loan portfolio. The Company calculates total loans, excluding SBA PPP loans as total loans (as reported on the consolidated statements of condition) less SBA PPP loans.


(In thousands)	June 30, 2021		December 31, 2020



Total loans, as presented	$	3,285,916	$	3,219,822
Less: SBA PPP loans	(126,064)		(135,095)
Total loans, excluding SBA PPP loans	$	3,159,852	$	3,084,727

CRITICAL ACCOUNTING POLICIES

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. In preparing the Company’s consolidated financial statements, management is required to make significant estimates and assumptions that affect assets, liabilities, revenues, and expenses reported. Actual results could materially differ ~~materially~~ from ~~the Company's~~our current estimates, as a result of changing conditions and future events. Several estimates are particularly critical and are susceptible to significant near-term change, including (i) the ~~ALL;~~ACL, including the ACL on loans, off-balance sheet credit exposures and investments; (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)~~(iv) 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.~~2020. Refer to the Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, for discussion of the Company's critical accounting policies.

~~ALL.~~ ~~On March 27, 2020, the 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):~~ M~~easurement 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 ("National Emergency") 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. As the National Emergency did not terminate prior to the end of the third quarter of 2020, the Company will adopt CECL in the fourth quarter of 2020, using a modified-retrospective method effective January 1, 2020. The Company will record a one-time adjustment to shareholders' equity through retained earnings upon adoption, effective January 1, 2020, and will retrospectively restate interim period 2020 consolidated financial statements as appropriate, including net income, and basic and diluted EPS, as well as total assets, liabilities and shareholders' equity. Refer to Note 2 of the consolidated financial statements for further 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 approximately $5.2 billion in assets at ~~September~~June 30, ~~2020,~~2021, 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

~~Third Quarter 2020 Review.~~ The challenges and uncertainty stemming from the COVID-19 pandemic persisted through the third quarter of 2020, and continue to affect global, national and local economies and markets. Although many measures used to monitor and assess the health of the U.S. economy improved throughout the third quarter of 2020, including national unemployment, national GDP, and several other metrics, we continue to be cautiously optimistic understanding markets and economies are still fragile, and that these times are truly unprecedented. The full health and economic effect of the 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, and to support its employees and customers where possible, while also continuing to strengthen the Company's financial position and resiliency through our actions.

Operating Results. Net income for the ~~three months~~second quarter of 2021 was $18.1 million, an increase of $7.2 million, or 66%, over the second quarter of 2020, and ~~nine months ended September 30, 2020,~~diluted EPS was ~~$16.8 million and $41.2 million, respectively, compared to $14.5 million and $42.0 million~~$1.21 for the ~~three and nine months ended September 30, 2019, respectively.~~second quarter of 2021, an increase $0.48, or 66%, over the same period. Pre-tax, pre-provision earnings (non-GAAP) for the second quarter were $19.3 million, a decrease of $3.8 million, or 17%.

~~Key~~The key earnings drivers between ~~quarters included:~~periods were:

•~~Higher net interest income~~A release of ~~$2.6~~provision for credit losses of $3.4 million ~~or 8%, was driven by SBA PPP lending in~~for the second ~~and third~~quarter of 2021, compared to a $9.4 million provision charge for the second quarter of 2020. The second quarter of 2020 ~~leading to average loan growth of 7% between quarters. Excluding SBA PPP loans (non-GAAP), average loans shrunk modestly between~~marked the ~~second and third~~first full quarter of ~~2020 by $2.1 million as loan demand slowed after~~ the COVID-19 pandemic, ~~took hold~~and, in ~~mid-March~~response to the significant level of risk and uncertainty at that time, the Company increased its reserve levels on its loan portfolio using the incurred loss accounting model. Fast forward 12 months and there continues to be a degree of risk and uncertainty, however, as of June 30, 2021, the Company's asset quality remains very strong and current and forecasted economic conditions have improved considerably. As such, under the current expected credit loss accounting model, commonly referred to as "CECL," the Company has begun to release its loan reserves it built up in 2020. ~~Interest income earned on SBA PPP fees in the third quarter of 2020 totaled $2.4 million, including accretion of related origination fees.~~

•~~Higher mortgage~~Mortgage banking income for the second quarter of ~~$2.0~~2021 was $2.6 million, a decrease of $2.1 million, or 45%, compared to the second quarter of 2020. In the first quarter of 2021, the Company shifted its strategy to hold more residential mortgage loans within its loan portfolio, and, as a result, the Company sold 40% of its residential mortgage production during the second quarter of 2021, compared to 65% for the second quarter of 2020.

•Net interest income for the second quarter was $33.5 million, a decrease of $1.0 million, or 3%, compared to the second quarter of 2020. The decrease was driven by net interest margin (fully-taxable equivalent) compression of 28 basis points between periods to 2.83% for the second quarter of 2021 as interest rates dropped and average deposits grew considerably as consumers and businesses received federal government stimulus in response to the COVID-19 pandemic.

•Debit card income for the second quarter of 2021 was $3.1 million, an increase of $721,000, or 30%, compared to the second quarter of 2020. The increase in revenue was driven by an increase in residential mortgage production of 54% between periods. Historically low interest rates drove significant refinance activity in the third quarter of 2020, highlighted by an average 10-year U.S. Treasury rate of 0.65%customer spending as consumers and businesses received proceeds from various government stimulus programs.

•Salaries and employee benefit costs for the ~~third~~second quarter were $15.3 million, an increase of $1.7 million, or 12%, due to higher performance-based incentive accruals.

Net income for the six months ended June 30, 2021 was $37.9 million, an increase of $13.5 million, or 55%, over the six months ended June 30, 2020, and diluted EPS was $2.52 for the six months ended June 30, 2021, an increase of $0.90, or 56%, over the same period last year. Pre-tax, pre-provision earnings (non-GAAP) for the six months ended June 30, 2021 were $41.9 million, compared to $41.8 million for the same period last year..

The key earnings drivers between periods, and the reasons for such, were relatively consistent with the discussion above between quarters and included:

•A release of provision for credit losses of $5.4 million for the first half of 2021, compared to a $11.2 million provision charge for the first half of 2020.

•InMortgage banking income for the ~~third quarter~~first half of ~~2020,~~2021 was $9.7 million, an increase of $1.5 million, or 18%, over the ~~Company accrued $1.2~~first half of 2020.

•Net interest income for the first half of 2021 was $65.9 million, a decrease of $472,000, or 1%, compared to the first half of 2020. The decrease was driven by net interest margin (fully-taxable equivalent) compression of 25 basis points between periods to 2.85% for the first half of 2021, which included SBA PPP loan income of $3.5 million for the ~~settlement of a lawsuit. When excluding this settlement, our efficiency ratio (non-GAAP)~~six months ended June 30, 2021, compared to $1.7 million for the ~~third quarter~~six months ended June 30, 2020.

•Debit card income for the first half of ~~2020~~2021 was ~~50.60%~~$5.8 million, an increase of $1.3 million, or 29%, compared to ~~55.32%~~the first half of 2020.

•Salaries and employee benefit costs for the ~~same quarter last year.~~first half of 2021 were $29.8 million, an increase of $1.9 million, or 7%.

Other key financial metrics ~~between quarters included:~~

•~~Diluted EPS~~ for the ~~third quarter of 2020 was $1.11, an increase of $0.17, or 18%, over the third quarter last year;~~periods indicated were as follows:

•~~Net income and pre-tax, pre-provision earnings (non-GAAP) for the third quarter of 2020 each increased 16% over the third quarter last year.~~

•~~Return on average assets for the third quarter of 2020 was 1.34%, compared to 1.29% for the third quarter last year.~~

•~~Return on average equity for the third quarter of 2020 was 13.01%, compared to 12.26% for the third quarter last year.~~


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Return on average assets	1.42	%	0.90	%	1.52	%	1.05	%
Return on average equity	13.50	%	8.81	%	14.24	%	10.03	%
Return on average tangible equity (non-GAAP)	16.60	%	11.09	%	17.52	%	12.68	%
Ratio of non-interest expense to total revenues	57.06	%	50.45	%	54.63	%	53.51	%
Efficiency ratio (non-GAAP)	56.72	%	50.13	%	53.76	%	53.17	%

Asset Quality. As of ~~September~~June 30, ~~2020,~~2021, the Company's asset quality metrics ~~continue to be stable~~remained very strong, continuing its trend from December 31, 2020. Non-performing assets were 0.17% of total assets and ~~consistent with~~loans 30-89 days past ~~quarters.~~

•~~Non-performing~~due were 0.02% of total loans. In comparison, at December 31, 2020, non-performing assets were 0.22% of total assets ~~at September 30, 2020, compared to 0.23%~~ and ~~0.25% at June 30, 2020 and December 31, 2019, respectively.~~

•~~Past~~loans 30-89 days past due ~~loans~~ were ~~0.18%~~0.10% of total ~~loans at September 30, 2020, compared to 0.19% and 0.17% at June 30, 2020 and December 31, 2019, respectively.~~

•~~Net charge-offs (annualized) for the third quarter of 2020 were 0.01% of average loans, compared to 0.05% for the second quarter of 2020 and 0.16% for the third quarter of 2019.~~loans.

~~COVID-19 Short-Term Deferment Program.~~ In March 2020, we began offering temporary debt relief to business and retail customers impacted by the COVID-19 pandemic. for periods up to 180 days, including full and partial principal and/or interest payment relief. At SeptemberAs of June 30, ~~2020,~~2021, no loans were operating under a short-term deferral arrangement ~~totaled $181.2~~due to COVID-19, compared to $26.5 million at December 31, 2020 and $546.7 million as of June 30, 2020. The majority of these loans have returned to normal payment status or ~~5.5% of total loans at September 30, 2020, of which $67.7 million were retail~~have since fully paid-off. Of those loans that were ~~provided an automatic 90-day deferment extension upon maturity of the initial 90-day deferment period. In comparison, at June 30, 2020, loans~~previously operating under a short-term deferral arrangement, ~~totaled $546.7~~$1.3 million ~~or 16.4% of total loans.~~

~~Allowance for Loan Losses.~~ ~~At September 30, 2020, the allowance for loan losses was 1.11% of total loans,~~were classified as non-accrual and ~~3.3 times non-performing loans, compared to 0.81% of total loans and 2.3 times non-performing loans, respectively, at December 31, 2019.~~

~~CECL.~~ ~~We delayed the adoption of CECL as permitted under the CARES Act. The Company will adopt CECL in the fourth quarter 2020 and apply retroactively effective~~$536,000 were 30-89 days past due as of ~~January 1, 2020.~~

We estimate that had we adopted CECL as of January 1, 2020, the Company's allowance for credit losses, which is comprised of allowance for loan losses and unfunded commitments, would have been $39.0 million to $43.0 million, or 1.19% to 1.31% of total loans, at SeptemberJune 30, ~~2020.~~2021.

Capital Position. At ~~September~~June 30, ~~2020,~~2021, the Company's capital position remained well in excess of regulatory capital requirements, including a ~~Total~~total risk-based capital ratio of ~~15.15%~~15.26% and a Tier 1 leverage ratio of ~~8.96%~~9.48%. ~~Additionally,~~In April 2021, the Company called its $15.0 million of subordinated debt, at ~~September 30, 2020,~~par plus accrued and unpaid interest, reducing Tier 2 risk-based

capital and reducing the Company's ~~tangible common equity ratio (non-GAAP) was 8.30%.~~total risk-based capital ratio.

~~We maintained our~~On June 29, 2021, the Company announced a cash dividend ~~at $0.33~~to shareholders of $0.36 per share, ~~for~~payable on July 30, 2021 to shareholders of record as of July 15, 2021. As of June 30, 2021, the ~~third quarter of 2020, resulting in an~~Company's annualized dividend yield ~~of 4.37%~~was 3.02% based on ~~the Company's~~its closing share price of ~~$30.23,~~$47.76, as reported by NASDAQ. As of June 30, 2021, the Company's book value per share grew 8% to $36.49 and its tangible book value per share (non-GAAP) grew 10% to $29.99 over the last twelve months.

~~We temporarily suspended~~In the ~~Company's~~first quarter of 2021, the Company initiated a new share repurchase program ~~mid-March 2020 in response~~for up to ~~the COVID-19 pandemic. In September 2020, we lifted the suspension and repurchased 47,915 shares. For the nine months ended September 30, 2020, we repurchased 264,946~~750,000 shares of ~~Company stock. We will continue to evaluate~~its common stock, or approximately 5% of the ~~use of the~~Company's shares outstanding. This share repurchase program asreplaces the ~~impact and our response to~~program that terminated in January 2021. The Company did not repurchase any shares of its common stock during the ~~COVID-19 pandemic continues to develop.~~first half of 2021.

RESULTS OF OPERATIONS

Net Interest Income and Net Interest Margin

Net interest income is the interest earned on loans, securities, and other interest-earning assets, adjusted for net loan fees, origination costs, and accretion or amortization of fair value marks on loans and/or CDs created in purchase accounting, less the interest paid on interest-bearing deposits and borrowings. Net interest income is our largest source of revenue, which is defined as the sum of net interest income and non-interest income. For the three and six months ended ~~September~~June 30, ~~2020 and 2019,~~2021, net interest income was ~~$34.5 million, or 73% of total revenues, and $31.9~~$33.5 million, or 75% of total revenues, ~~respectively. For the nine months ended September 30, 2020~~ and ~~2019, net interest income was $100.8~~$65.9 million, or 71% of total revenues, respectively, compared to $34.5 million, or 74% of total revenues, and ~~$95.4~~$66.4 million, or ~~76%~~74% of total revenues, for the three and six months ended June 30, 2020, 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.

Net Interest Income

~~Third Quarter 2020 vs. 2019.~~
~~Net~~

For the three months ended June 30, 2021, net interest income on a fully-taxable equivalent basis (non-GAAP) was $33.8 million, a decrease of $1.0 million, or 3%, compared to the three months ended June 30, 2020. The decrease was driven by a $2.9 million decrease in interest income on a fully-taxable equivalent basis ~~for~~between periods that was partially offset by a decrease in interest expense of $1.9 million between periods.

•The decrease in interest income on a fully-taxable equivalent basis between periods was the ~~third quarter~~result of ~~2020,~~a 47 basis point decrease in yield on average interest-earning assets driven by the lower interest rate environment and a change in the mix of average interest-earning assets as higher yield average loan balances were replaced with lower interest-earning assets, including cash and investments. Average loans balances decreased $59.3 million, or 2%, between periods while average interest-earning cash and investment balances increased $351.0 million, or 31%.

•The decrease in interest expense between periods was ~~$34.8 million, an increase~~the result of ~~$2.6~~a 20 basis point decrease in our average cost of funds driven by lower interest rates and the change in funding mix as average deposits grew $308.1 million, or 8%, ~~over~~led by average core deposits (non-GAAP) growth of $446.6 million, or 14%, reducing the ~~third quarter of 2019. The increase was due to an increase in~~need for more costly borrowings. As a result, average ~~interest-earning assets of $465.8~~borrowings decreased $64.8 million, or 11%, between periods. Average deposit growth between periods was fueled by the various federal government stimulus programs issued in response to ~~$4.6 billion~~the COVID-19 pandemic.

For the six months ended June 30, 2021, net interest income on a fully-taxable equivalent basis (non-GAAP) was $66.4 million, a decrease of $510,000, or 1%, compared to the six months ended June 30, 2020. The decrease was driven by a $7.8 million decrease in interest income on a fully-taxable equivalent basis between periods that was partially offset by a decrease in interest expense of $7.3 million between periods.

•The decrease in interest income on a fully-taxable equivalent basis between periods was the result of a 61 basis point decrease in yield on average interest-earning assets driven by the lower interest rate environment and a change in the mix of average interest-earning assets as higher yield average loan balances were replaced with lower interest-earning assets, including cash and investments. Average loans balances increased $29.7 million, or 1%, between periods while average interest-earning cash and investment balances increased $317.6 million, or 30%.

•The decrease in interest expense between periods was the result of a 38 basis point decrease in our average cost of funds driven by lower interest rates and the change in funding mix as average deposits grew $362.0 million, or 10%, led by average core deposits (non-GAAP) growth of $531.5 million, or 18%, reducing the need for more costly borrowings. As a result, average borrowings decreased $51.8 million, or 9%, between periods. Average deposit growth between periods was fueled by the ~~third quarter of 2020. Over~~various federal government stimulus programs issued in response to the ~~same period,~~COVID-19 pandemic.

Net Interest Margin

For the three months ended June 30, 2021, net interest margin on a fully-taxable equivalent basis ~~decreased 9~~was 2.83%, a decrease of 28 basis points ~~to 3.00% for the third quarter of 2020.~~

•~~Interest income on a fully-taxable equivalent basis.~~ ~~Interest income on a fully-taxable equivalent basis for the third quarter decreased $3.8 million, or 9%, to $39.0 million,~~ compared to the ~~third quarter of 2019. Over this period, our~~three months ended June 30, 2020. The Company's yield on interest-earning assets decreased 74 basis points to 3.37% for the third quarter of 2020. The decrease in our yield on interest-earning assets was driven by: (i) a change in our average interest-earning asset mix as average cash and investment balances (lower yielding assets) were 27% of average interest-earnings assets for the third quarter of 2020, compared to 24% for the third quarter of 2019; as well as, (ii) a decrease in loan yields of 68 basis points, which was reflective of the change in interest rate environment. The average 10-year U.S. Treasury interest rate for the third quarter of 2020 was 0.65%, compared to 1.80% for the third quarter of 2019. The growth in average interest-earning assets partially offset the decrease in our yield on interest-earning assets between periods. Average loans grew $219.5 million, or 7%, between periods to $3.3 billion for the third quarter of 2020, and was primarily driven by SBA PPP loans funded in the second and third quarter of 2020 in response to the COVID-19 pandemic. For the third quarter of 2020, average SBA PPP loans were $221.7 million, for which we recognized $2.4 million of interest income (including accretion income on origination fees).

•~~Interest expense.~~ ~~Interest expense for the third quarter of 2020 decreased $6.4 million, or 60%, to $4.2 million, compared to the third quarter of 2019. Cost of funds for the third quarter of 2020 decreased 70~~compressed 47 basis points between periods to ~~0.38%~~3.06% for the ~~third quarter~~three months ended June 30, 2021, while its cost of ~~2020 driven by: (i) a decrease in deposit costs of 56~~funds decreased 20 basis points between periods to ~~0.29%~~0.24% for the third quarter of 2020; (ii) a decrease in borrowing costs of 126 basis points between periods to 1.01% for the third quarter of 2020; and (iii) a shift in funding mix as average deposits grew $493.8 million, or 15%, between periods to $3.8 billion for the third quarter of 2020, while average borrowings decreased $39.7 million, or 7%, between periods to $570.0 million for the third quarter of 2020. The Federal Funds rate through the third quarter of 2020 was 0.25%, compared to a range of 2.00% to 2.50% for the third quarter of 2019.three months ended June 30, 2021.

~~Nine Months Ended September 30, 2020 vs. 2019.~~ ~~Net interest income on a fully-taxable equivalent (non-GAAP) basis for the nine months ended September 30, 2020, was $101.7 million, an increase of $5.6 million, or 6%, over the same period of 2019.~~ The increase was due to an increase in average interest-earning assets of $319.4 million, or 8%, between periods to $4.4 billion for the nine months ended September 30, 2020, but was partially offset by a lowerCompany's adjusted net interest margin on a fully-taxable equivalent basis (non-GAAP), which excludes the impact of 7SBA PPP loans and excess cash, for the three months ended June 30, 2021, was 2.89%, compared to 3.15% for the three months ended June 30, 2020.

For the six months ended June 30, 2021, net interest margin on a fully-taxable equivalent basis was 2.85%, a decrease of 25 basis points compared to the six months ended June 30, 2020. The Company's yield on average interest-earning assets compressed 61 basis points between periods to ~~3.06%~~3.10% for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021, while its cost of funds decreased 38 basis points between periods to 0.26% for the six months ended June 30, 2021.

•~~Interest income on a fully-taxable equivalent basis.~~ ~~Interest income~~The Company's adjusted net interest margin on a fully-taxable equivalent basis (non-GAAP), which excludes the impact of SBA PPP loans and excess cash, for the ~~nine~~six months ended ~~September~~June 30, 2020 decreased $8.8 million, or 7%, to $118.9 million, compared to the same period of 2019. Our interest-earning asset yield decreased 57 basis points between periods to 3.59% for the nine months ended September 30, 2020. The decrease in our yield on interest-earning assets2021, was driven by: (i) a change in our average interest-earning asset mix as average cash and investment balances (lower yielding assets) were 26% of average interest-earnings assets for the nine months ended September 30, 2020, compared to 24% for the same period of 2019; as well as, (ii) a decrease in loan yields of 60 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 nine months ended September 30, 2020, was 0.90%2.90%, compared to ~~2.26%~~3.11% for the same period of 2019. The growth in average interest-earning assets was able to partially offset the decrease in our yield on interest-earning assets between periods. Average loans grew $187.1 million, or 6%, between periods to $3.3 billion for the ninesix months ended ~~September~~June 30, ~~2020, and was primarily~~

~~driven by average SBA PPP loans of $133.6 million, for which we recognized $4.1 million of interest income (including accretion income on origination fees).~~

•~~Interest expense.~~ Interest expense for the nine months ended September 30, 2020 decreased $14.4 million, or 45%, to $17.2 million, compared to the same period of 2019. Cost of funds for the nine months ended September 30, 2020, decreased 54 basis points between periods to 0.55% for the nine months ended September 30, 2020 driven by: (i) a decrease in deposit costs of 39 basis points between periods to 0.44% for the nine months ended September 30, 2020; (ii) a decrease in borrowing costs of 104 basis points between periods to 1.26% for the nine months ended September 30, 2020; and (iii) a shift in funding mix as average deposits grew $422.3 million, or 13%, between periods to $3.6 billion for the nine months ended September 30, 2020, while average borrowings decreased $111.8 million, or 16%, between periods to $571.0 million for the nine months ended September 30, 2020. The change in funding mix between periods is in large part due to the impact of federal stimulus issued to businesses and consumers in response to the COVID-19 pandemic, as well as a shift in consumer habits in response to the COVID-19 pandemic, highlighted by the national personal savings rate nearly doubling to 14.1% in August 2020 compared to December 2019.

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:

5554

Quarterly Average Balance, Interest and Yield/Rate Analysis


		For The Three Months Ended													Three Months Ended
		September 30, 2020						September 30, 2019							June 30, 2021						June 30, 2020
(Dollars in thousands)	(Dollars in thousands)	Average Balance		Interest		Yield/Rate		Average Balance		Interest		Yield/Rate		(Dollars in thousands)	Average Balance		Interest		Yield/Rate		Average Balance		Interest		Yield/Rate
Assets	Assets													Assets
Interest-earning assets:	Interest-earning assets:													Interest-earning assets:
Interest-bearing deposits in other banks and other interest-earning assets	Interest-bearing deposits in other banks and other interest-earning assets	$	216,027	$	48	0.09	%	$	92,352	$	530	2.24	%	Interest-bearing deposits in other banks and other interest-earning assets	$	235,676	$	56	0.09	%	$	168,221	$	26	0.06	%
Investments - taxable	Investments - taxable	906,374		4,771		2.11	%	807,591		5,109		2.53	%	Investments - taxable	1,129,682		4,582		1.62	%	836,885		5,203		2.49	%
Investments - nontaxable(1)	Investments - nontaxable(1)	122,204		1,042		3.41	%	98,378		854		3.47	%	Investments - nontaxable(1)	114,811		965		3.36	%	124,101		1,049		3.38	%
Loans(2):	Loans(2):													Loans(2):
Commercial real estate	Commercial real estate	1,315,958		12,562		3.74	%	1,255,417		14,626		4.56	%	Commercial real estate	1,407,374		12,792		3.60	%	1,302,393		12,609		3.83	%
Commercial(1)	Commercial(1)	372,416		3,547		3.73	%	399,689		4,753		4.65	%	Commercial(1)	319,100		3,046		3.78	%	404,545		3,868		3.78	%
SBA PPP	SBA PPP	221,672		2,357		4.16	%	—		—		—	%	SBA PPP	158,258		1,660		4.15	%	178,119		1,706		3.79	%
HPFC	HPFC	16,104		333		8.09	%	25,973		558		8.40	%	HPFC	10,775		269		9.89	%	17,659		414		9.28	%
Municipal(1)	Municipal(1)	19,072		169		3.52	%	22,730		206		3.60	%	Municipal(1)	26,137		212		3.26	%	19,567		176		3.62	%
Residential real estate	Residential real estate	1,083,052		10,822		4.00	%	1,062,728		11,440		4.31	%	Residential real estate	1,093,502		10,310		3.77	%	1,084,931		11,002		4.06	%
Consumer and home equity	Consumer and home equity	305,194		3,308		4.31	%	347,405		4,708		5.38	%	Consumer and home equity	253,825		2,639		4.17	%	321,019		3,420		4.29	%
Total loans	Total loans	3,333,468		33,098		3.92	%	3,113,942		36,291		4.60	%	Total loans	3,268,971		30,928		3.76	%	3,328,233		33,195		3.97	%
Total interest-earning assets	Total interest-earning assets	4,578,073		38,959		3.37	%	4,112,263		42,784		4.11	%	Total interest-earning assets	4,749,140		36,531		3.06	%	4,457,440		39,473		3.53	%
Cash and due from banks	Cash and due from banks	52,499						47,845						Cash and due from banks	53,048						49,777
Other assets	Other assets	401,213						324,046						Other assets	364,258						392,271
Less: ALL		(35,756)						(26,273)
Less: ACL														Less: ACL	(35,629)						(27,823)
Total assets	Total assets	$	4,996,029					$	4,457,881					Total assets	$	5,130,817					$	4,871,665
Liabilities & Shareholders' Equity	Liabilities & Shareholders' Equity													Liabilities & Shareholders' Equity
Deposits:	Deposits:													Deposits:
Non-interest checking	Non-interest checking	$	741,757	$	—	—	%	$	540,542	$	—	—	%	Non-interest checking	$	970,446	$	—	—	%	$	664,605	$	—	—	%
Interest checking	Interest checking	1,339,389		881		0.26	%	1,130,632		2,728		0.96	%	Interest checking	1,311,400		588		0.18	%	1,298,468		906		0.28	%
Savings	Savings	557,718		79		0.06	%	474,096		98		0.08	%	Savings	659,892		67		0.04	%	518,803		76		0.06	%
Money market	Money market	737,782		652		0.35	%	622,219		2,068		1.32	%	Money market	703,780		506		0.29	%	717,056		659		0.37	%
Certificates of deposit	Certificates of deposit	417,788		1,126		1.07	%	533,110		2,210		1.64	%	Certificates of deposit	338,595		449		0.53	%	477,068		1,588		1.34	%
Total deposits	Total deposits	3,794,434		2,738		0.29	%	3,300,599		7,104		0.85	%	Total deposits	3,984,113		1,610		0.16	%	3,676,000		3,229		0.35	%
Borrowings:	Borrowings:													Borrowings:
Brokered deposits	Brokered deposits	242,390		161		0.26	%	305,019		1,859		2.42	%	Brokered deposits	284,194		311		0.44	%	234,823		163		0.28	%
Customer repurchase agreements	Customer repurchase agreements	194,937		207		0.42	%	234,362		745		1.26	%	Customer repurchase agreements	184,663		176		0.38	%	209,302		291		0.56	%
Subordinated debentures	Subordinated debentures	59,269		893		6.00	%	58,998		833		5.60	%	Subordinated debentures	46,639		640		5.50	%	59,194		888		6.03	%
Other borrowings	Other borrowings	73,370		187		1.02	%	11,273		56		1.96	%	Other borrowings	—		—		—	%	76,983		68		0.35	%
Total borrowings	Total borrowings	569,966		1,448		1.01	%	609,652		3,493		2.27	%	Total borrowings	515,496		1,127		0.88	%	580,302		1,410		0.98	%
Total funding liabilities	Total funding liabilities	4,364,400		4,186		0.38	%	3,910,251		10,597		1.08	%	Total funding liabilities	4,499,609		2,737		0.24	%	4,256,302		4,639		0.44	%
Other liabilities	Other liabilities	118,727						78,710						Other liabilities	92,261						115,914
Shareholders' equity	Shareholders' equity	512,902						468,920						Shareholders' equity	538,947						499,449
Total liabilities & shareholders' equity	Total liabilities & shareholders' equity	$	4,996,029					$	4,457,881					Total liabilities & shareholders' equity	$	5,130,817					$	4,871,665
Net interest income (fully-taxable equivalent)	Net interest income (fully-taxable equivalent)			34,773						32,187				Net interest income (fully-taxable equivalent)			33,794						34,834
Less: fully-taxable equivalent adjustment	Less: fully-taxable equivalent adjustment			(292)						(264)				Less: fully-taxable equivalent adjustment			(265)						(295)
Net interest income	Net interest income			$	34,481					$	31,923			Net interest income			$	33,529					$	34,539
Net interest rate spread (fully-taxable equivalent)	Net interest rate spread (fully-taxable equivalent)					2.99	%					3.03	%	Net interest rate spread (fully-taxable equivalent)					2.82	%					3.09	%
Net interest margin (fully-taxable equivalent)	Net interest margin (fully-taxable equivalent)					3.00	%					3.09	%	Net interest margin (fully-taxable equivalent)					2.83	%					3.11	%
Net interest margin (fully-taxable equivalent), excluding fair value mark accretion and collection of previously charged-off acquired loans(3)						2.96	%					3.05	%
Adjusted net interest margin (fully-taxable equivalent) (non-GAAP)														Adjusted net interest margin (fully-taxable equivalent) (non-GAAP)					2.89	%					3.15	%

(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 September 30, 2020 and 2019, totaling $453,000 and $409,000, respectively.

5655

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


		For The Nine Months Ended													Six Months Ended
		September 30, 2020						September 30, 2019							June 30, 2021						June 30, 2020
(Dollars in thousands)	(Dollars in thousands)	Average Balance		Interest		Yield/Rate		Average Balance		Interest		Yield/Rate		(Dollars in thousands)	Average Balance		Interest		Yield/Rate		Average Balance		Interest		Yield/Rate
Assets	Assets													Assets
Interest-earning assets:	Interest-earning assets:													Interest-earning assets:
Interest-bearing deposits in other banks and other interest-earning assets	Interest-bearing deposits in other banks and other interest-earning assets	$	150,383	$	282	0.25	%	$	63,146	$	1,081	2.26	%	Interest-bearing deposits in other banks and other interest-earning assets	$	223,329	$	102	0.09	%	$	117,201	$	233	0.39	%
Investments - taxable	Investments - taxable	850,970		15,148		2.37	%	832,780		15,922		2.55	%	Investments - taxable	1,038,575		8,636		1.66	%	822,963		10,377		2.52	%
Investments - nontaxable(1)	Investments - nontaxable(1)	121,284		3,086		3.39	%	94,405		2,460		3.47	%	Investments - nontaxable(1)	116,630		1,887		3.24	%	120,819		2,044		3.38	%
Loans(2):	Loans(2):													Loans(2):
Commercial real estate	Commercial real estate	1,297,364		38,817		3.93	%	1,263,934		44,634		4.66	%	Commercial real estate	1,395,152		25,166		3.59	%	1,287,965		26,255		4.03	%
Commercial(1)	Commercial(1)	397,754		11,847		3.91	%	386,338		13,736		4.69	%	Commercial(1)	326,240		6,167		3.76	%	410,563		8,302		4.00	%
SBA PPP	SBA PPP	133,569		4,063		4.00	%	—		—		—	%	SBA PPP	156,588		3,536		4.49	%	89,033		1,706		3.79	%
HPFC	HPFC	18,026		1,150		8.38	%	29,183		1,777		8.03	%	HPFC	11,657		495		8.44	%	18,997		817		8.50	%
Municipal(1)	Municipal(1)	18,545		500		3.60	%	19,421		518		3.56	%	Municipal(1)	25,141		410		3.29	%	18,279		331		3.64	%
Residential real estate	Residential real estate	1,082,276		33,116		4.08	%	1,034,609		33,479		4.31	%	Residential real estate	1,088,330		20,388		3.75	%	1,081,884		22,294		4.12	%
Consumer and home equity	Consumer and home equity	320,273		10,914		4.55	%	347,201		14,111		5.43	%	Consumer and home equity	261,227		5,403		4.17	%	327,895		7,606		4.66	%
Total loans	Total loans	3,267,807		100,407		4.06	%	3,080,686		108,255		4.66	%	Total loans	3,264,335		61,565		3.76	%	3,234,616		67,311		4.14	%
Total interest-earning assets	Total interest-earning assets	4,390,444		118,923		3.59	%	4,071,017		127,718		4.16	%	Total interest-earning assets	4,642,869		72,190		3.10	%	4,295,599		79,965		3.71	%
Cash and due from banks	Cash and due from banks	48,397						43,041						Cash and due from banks	52,305						46,323
Other assets	Other assets	376,857						303,538						Other assets	376,234						364,544
Less: ALL	Less: ALL	(29,633)						(25,519)						Less: ALL	(36,771)						(26,537)
Total assets	Total assets	$	4,786,065					$	4,392,077					Total assets	$	5,034,637					$	4,679,929
Liabilities & Shareholders' Equity	Liabilities & Shareholders' Equity													Liabilities & Shareholders' Equity
Deposits:	Deposits:													Deposits:
Non-interest checking	Non-interest checking	$	645,640	$	—	—	%	$	505,733	$	—	—	%	Non-interest checking	$	894,460	$	—	—	%	$	597,053	$	—	—	%
Interest checking	Interest checking	1,261,831		3,775		0.40	%	1,108,999		8,140		0.98	%	Interest checking	1,300,516		1,200		0.19	%	1,222,626		2,893		0.48	%
Savings	Savings	517,936		241		0.06	%	478,573		296		0.08	%	Savings	643,333		130		0.04	%	497,826		162		0.07	%
Money market	Money market	701,872		2,897		0.55	%	595,659		5,671		1.27	%	Money market	694,455		1,029		0.30	%	683,720		2,245		0.66	%
Certificates of deposit	Certificates of deposit	482,076		4,921		1.36	%	498,059		5,739		1.54	%	Certificates of deposit	345,039		998		0.58	%	514,573		3,796		1.48	%
Total deposits	Total deposits	3,609,355		11,834		0.44	%	3,187,023		19,846		0.83	%	Total deposits	3,877,803		3,357		0.17	%	3,515,798		9,096		0.52	%
Borrowings:	Borrowings:													Borrowings:
Brokered deposits	Brokered deposits	228,483		1,119		0.65	%	360,066		6,696		2.49	%	Brokered deposits	284,406		627		0.44	%	221,454		958		0.87	%
Customer repurchase agreements	Customer repurchase agreements	213,463		1,131		0.71	%	239,917		2,273		1.27	%	Customer repurchase agreements	175,245		297		0.34	%	222,827		925		0.83	%
Subordinated debentures	Subordinated debentures	59,195		2,668		6.02	%	58,997		2,373		5.38	%	Subordinated debentures	52,950		1,445		5.50	%	59,157		1,775		6.03	%
Other borrowings	Other borrowings	69,883		460		0.88	%	23,847		387		2.17	%	Other borrowings	7,182		35		0.99	%	68,120		272		0.80	%
Total borrowings	Total borrowings	571,024		5,378		1.26	%	682,827		11,729		2.30	%	Total borrowings	519,783		2,404		0.93	%	571,558		3,930		1.38	%
Total funding liabilities	Total funding liabilities	4,180,379		17,212		0.55	%	3,869,850		31,575		1.09	%	Total funding liabilities	4,397,586		5,761		0.26	%	4,087,356		13,026		0.64	%
Other liabilities	Other liabilities	108,122						66,966						Other liabilities	100,740						102,762
Shareholders' equity	Shareholders' equity	497,564						455,261						Shareholders' equity	536,311						489,811
Total liabilities & shareholders' equity	Total liabilities & shareholders' equity	$	4,786,065					$	4,392,077					Total liabilities & shareholders' equity	$	5,034,637					$	4,679,929
Net interest income (fully-taxable equivalent)	Net interest income (fully-taxable equivalent)			101,711						96,143				Net interest income (fully-taxable equivalent)			66,429						66,939
Less: fully-taxable equivalent adjustment	Less: fully-taxable equivalent adjustment			(865)						(752)				Less: fully-taxable equivalent adjustment			(536)						(574)
Net interest income	Net interest income			$	100,846					$	95,391			Net interest income			$	65,893					$	66,365
Net interest rate spread (fully-taxable equivalent)	Net interest rate spread (fully-taxable equivalent)					3.04	%					3.07	%	Net interest rate spread (fully-taxable equivalent)					2.84	%					3.07	%
Net interest margin (fully-taxable equivalent)	Net interest margin (fully-taxable equivalent)					3.06	%					3.13	%	Net interest margin (fully-taxable equivalent)					2.85	%					3.10	%
Net interest margin (fully-taxable equivalent), excluding fair value mark accretion and collection of previously charged-off acquired loans(3)						3.03	%					3.09	%
Adjusted net interest margin (fully-taxable equivalent) (non-GAAP)														Adjusted net interest margin (fully-taxable equivalent) (non-GAAP)					2.90	%					3.11	%

(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 nine months ended September 30, 2020 and 2019, totaling $1.1 million and $1.2 million, respectively.

5756

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 September 30, 2020 vs. September 30, 2019							For The Nine Months Ended September 30, 2020 vs. September 30, 2019									Three Months Ended June 30, 2021 vs. June 30, 2020								Six Months Ended June 30, 2021 vs. June 30, 2020
		Increase (Decrease) Due to:				Net Increase (Decrease)			Increase (Decrease) Due to:						Net Increase (Decrease)			Increase (Decrease) Due to:					Net Increase (Decrease)			Increase (Decrease) Due to:						Net Increase (Decrease)
(In thousands)	(In thousands)	Volume		Rate				Volume			Rate			(In thousands)			Volume		Rate			Volume				Rate
Interest-earning assets:	Interest-earning assets:																	Interest-earning assets:
Interest-bearing deposits in other banks and other interest-earning assets	Interest-bearing deposits in other banks and other interest-earning assets	$	693	$	(1,175)	$	(482)		$	1,479		$	(2,278)		$	(799)	Interest-bearing deposits in other banks and other interest-earning assets	$	10	$	20			$	30		$	207		$	(338)		$	(131)
Investments – taxable	Investments – taxable	625		(963)		(338)			348			(1,122)			(774)		Investments – taxable	1,823		(2,444)			(621)			2,717			(4,458)			(1,741)
Investments – nontaxable	Investments – nontaxable	207		(19)		188			700			(74)			626		Investments – nontaxable	(79)		(5)			(84)			(71)			(86)			(157)

Commercial real estate	Commercial real estate	706		(2,770)		(2,064)			1,181			(7,000)			(5,819)		Commercial real estate	1,016		(833)			183			2,184			(3,273)			(1,089)
Commercial	Commercial	(324)		(882)		(1,206)			406			(2,295)			(1,889)		Commercial	(816)		(6)			(822)			(1,705)			(430)			(2,135)
SBA PPP	SBA PPP	2,357		—		2,357			4,063			—			4,063		SBA PPP	(190)		144			(46)			1,294			536			1,830
HPFC	HPFC	(212)		(13)		(225)			(679)			52			(627)		HPFC	(162)		17			(145)			(315)			(7)			(322)
Municipal	Municipal	(33)		(4)		(37)			(23)			7			(16)		Municipal	59		(23)			36			124			(45)			79
Residential real estate	Residential real estate	219		(837)		(618)			1,541			(1,904)			(363)		Residential real estate	87		(779)			(692)			133			(2,039)			(1,906)
Consumer and home equity	Consumer and home equity	(572)		(828)		(1,400)			(1,094)			(2,103)			(3,197)		Consumer and home equity	(717)		(64)			(781)			(1,545)			(658)			(2,203)
Total interest income (fully-taxable equivalent)	Total interest income (fully-taxable equivalent)	3,666		(7,491)		(3,825)			7,922			(16,717)			(8,795)		Total interest income (fully-taxable equivalent)	1,031		(3,973)			(2,942)			3,023			(10,798)			(7,775)
Interest-bearing liabilities:	Interest-bearing liabilities:																Interest-bearing liabilities:
Interest checking	Interest checking	505		(2,352)		(1,847)			1,120			(5,485)			(4,365)		Interest checking	9		(327)			(318)			186			(1,879)			(1,693)
Savings	Savings	17		(36)		(19)			24			(79)			(55)		Savings	21		(30)			(9)			51			(83)			(32)
Money market	Money market	384		(1,800)		(1,416)			1,009			(3,783)			(2,774)		Money market	(12)		(141)			(153)			35			(1,251)			(1,216)
Certificates of deposit	Certificates of deposit	(477)		(607)		(1,084)			(184)			(634)			(818)		Certificates of deposit	(461)		(678)			(1,139)			(1,248)			(1,550)			(2,798)
Brokered deposits	Brokered deposits	(382)		(1,316)		(1,698)			(2,451)			(3,126)			(5,577)		Brokered deposits	34		114			148			272			(603)			(331)
Customer repurchase agreements	Customer repurchase agreements	(125)		(413)		(538)			(251)			(891)			(1,142)		Customer repurchase agreements	(34)		(81)			(115)			(197)			(431)			(628)
Subordinated debentures	Subordinated debentures	4		56		60			8			287			295		Subordinated debentures	(188)		(60)			(248)			(186)			(144)			(330)
Other borrowings	Other borrowings	307		(176)		131			747			(674)			73		Other borrowings	(68)		—			(68)			(242)			5			(237)
Total interest expense	Total interest expense	233		(6,644)		(6,411)			22			(14,385)			(14,363)		Total interest expense	(699)		(1,203)			(1,902)			(1,329)			(5,936)			(7,265)
Net interest income (fully-taxable equivalent)	Net interest income (fully-taxable equivalent)	$	3,433	$	(847)	$	2,586		$	7,900		$	(2,332)		$	5,568	Net interest income (fully-taxable equivalent)	$	1,730	$	(2,770)		$	(1,040)		$	4,352		$	(4,862)		$	(510)

Net interest income on a fully-taxable equivalent basis included the following for the periods indicated:


	Income Statement Location	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)		2021		2020		2021		2020
Loan fees(1)	Interest income	$	1,253	$	1,023	$	2,693	$	689
Net fair value mark accretion from purchase accounting	Interest income and Interest expense	192		381		425		632
Recoveries on previously charged-off acquired loans	Interest income	108		23		133		55
Total		$	1,553	$	1,427	$	3,251	$	1,376

(1) As of June 30, 2021 and December 31, 2020, there were $5.4 million and $2.2 million of SBA PPP loan origination fees yet to be recognized, respectively.

Provision for Credit Losses

~~As further described in "~~

~~—Critical Accounting Policies" and Note 2 of the consolidated financial statements,~~Effective January 1, 2020, but applied to interim reporting periods on or after October 1, 2020, the Company ~~opted to delay implementation~~adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU ~~2016-13,~~2016-13"), commonly referred to as "CECL," ~~under~~to account for the ~~terms provided~~ACL. CECL requires the measurement of expected lifetime credit losses for ~~within~~financial assets measured at amortized cost, including loans and HTM debt investments, as well as certain off-balance sheet credit exposures. CECL requires that the ~~CARES Act, signed into law in March 2020. The Company will adopt CECL upon~~ACL be calculated based on current expected credit losses over the ~~earlier of (1) the National Emergency terminates, or (2) December 31, 2020. As the National Emergency did not terminate prior to the end~~remaining expected life of the ~~third quarter of 2020,~~financial asset and also considers expected changes in macroeconomic conditions. The (credit) provision for credit losses on the ~~Company will adopt~~consolidated statements income for the three and six months June 30, 2021, was calculated using the CECL inmethodology, whereas the ~~fourth quarter of 2020, using a modified-retrospective method effective January 1, 2020. As such, the Company's reported~~(credit) provision for credit losses for the three and ~~nine~~six months ended ~~September~~June 30, 2020, was ~~determined~~calculated using the ~~policies and procedures described in~~incurred loss model, which relied on management's periodic assessment of the ~~Company's Annual Report on Form 10-K for~~adequacy of the ~~year ended December 31, 2019.~~ACL.

The (credit) provision for credit losses ~~consists~~was made up of the ~~provision~~following components for ~~loan losses and~~ the ~~provision for unfunded commitments.~~

periods indicated:

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.


	Three Months Ended June 30,				Change				Six Months Ended June 30,				Change
(Dollars in thousands)	2021		2020		$		%		2021		2020		$		%
	CECL		(Incurred Loss)						CECL		(Incurred Loss)
(Credit) provision for loan losses	$	(3,452)	$	9,400	$	(12,852)	(137)	%	$	(5,306)	$	11,172	$	(16,478)	(147)	%
Provision (Credit) for credit losses on off-balance sheet credit exposures	49		(2)		51		N.M.		(53)		1		(54)		N.M.
(Credit) provision for credit losses	$	(3,403)	$	9,398	$	(12,801)	(136)	%	$	(5,359)	$	11,173	$	(16,532)	(148)	%

For the ~~third quarter~~three and six months ended June 30, 2021, a release of ~~2020, the~~ provision for loan losses of $3.5 million and $5.4 million, respectively, was ~~$1.0 million, an increase~~recorded. The release of $267,000 over the third quarter of 2019. For the nine months ended September 30, 2020, the provision for loan losses was $12.2 million, an increase of $9.5 million over the same period of 2019. The increase in the provision for loan losses for ~~both periods~~the three and six months ended June 30, 2021, was ~~driven by~~primarily within the non owner-occupied commercial real estate and commercial loan segments. Collectively, the two loan segments made up 102% of the net change for three months ended June 30, 2021 and 80% of the net change for the six months ended June 30, 2021. The release of provision for loan losses with these two loan segments, and more broadly across the loan portfolio, reflects the Company's overall asset quality and an ~~increase~~improvement in its macroeconomic outlook (i.e. loss drivers) over its four-quarter forecast period under CECL. The Company's provision for loan losses for the ~~ALL due to estimates relating to~~three and six months ended June 30, 2020, reflected the ~~potential effects~~onset of the COVID-19 pandemic ~~on our borrowers. Although asset quality at September 30, 2020 remains strong~~ and ~~COVID-19 deferments have steadily decreased, there continues to be~~ an elevated ~~credit risk throughout~~qualitative factor adjustment ("Q-factor") under the ~~industry given current market conditions, as well as the level of economic, political, and medical uncertainty that remains.~~incurred loss model.

~~Refer~~For the three and six months ended June 30, 2021, annualized net charge-offs were 0.03% of average loans, compared to "~~—Financial Condition—Asset Quality~~"0.05% of average loans for ~~further discussion of the Company's asset quality, including its temporary debt relief provided to loan customers impacted by the COVID-19 pandemic.~~three and six months ended June 30, 2020.

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.

Non-Interest Income

~~Non-Interest Income~~

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


		Three Months Ended September 30,						Change				Nine Months Ended September 30,						Change					Three Months Ended June 30,						Change				Six Months Ended June 30,						Change
(Dollars in thousands)	(Dollars in thousands)	2020			2019			$		%		2020			2019			$		%		(Dollars in thousands)	2021			2020			$		%		2021			2020			$		%
Mortgage banking income, net(1)	Mortgage banking income, net(1)	$	4,664		$	2,668		1,996		75	%	$	12,889		$	5,662		$	7,227	128	%	Mortgage banking income, net(1)	$	2,598		$	4,691		(2,093)		(45)	%	$	9,707		$	8,225		$	1,482	18	%
Debit card income(2)	Debit card income(2)	2,627			2,432			195		8	%	7,159			6,723			436		6	%	Debit card income(2)	3,112			2,391			721		30	%	5,848			4,532			1,316		29	%
Service charges on deposit accounts(2)		1,606			1,970			(364)		(18)	%	4,955			6,202			(1,247)		(20)	%
Income from fiduciary services	Income from fiduciary services	1,504			1,444			60		4	%	4,609			4,381			228		5	%	Income from fiduciary services	1,707			1,603			104		6	%	3,233			3,105			128		4	%
Service charges on deposit accounts(3)																						Service charges on deposit accounts(3)	1,517			1,337			180		13	%	3,056			3,349			(293)		(9)	%
Brokerage and insurance commissions	Brokerage and insurance commissions	755			625			130		21	%	2,034			1,942			92		5	%	Brokerage and insurance commissions	939			622			317		51	%	1,892			1,279			613		48	%
Bank-owned life insurance	Bank-owned life insurance	615			613			2		—	%	1,918			1,810			108		6	%	Bank-owned life insurance	591			614			(23)		(4)	%	1,185			1,303			(118)		(9)	%
Customer loan swap fees~~(3)~~	Customer loan swap fees~~(3)~~	51			109			(58)		(53)	%	222			919			(697)		(76)	%	Customer loan swap fees~~(3)~~	—			57			(57)		(100)	%	—			171			(171)		(100)	%
Net gain on sale of securities		—			1			(1)		(100)	%	—			28			(28)		(100)	%

Other income	Other income	874			877			(3)		—	%	2,373			2,498			(125)		(5)	%	Other income	856			745			111		15	%	1,614			1,499			115		8	%
Total non-interest income	Total non-interest income	$	12,696		$	10,739		$	1,957	18	%	$	36,159		$	30,165		$	5,994	20	%	Total non-interest income	$	11,320		$	12,060		$	(740)	(6)	%	$	26,535		$	23,463		$	3,072	13	%
Non-interest income as a percentage of total revenues	Non-interest income as a percentage of total revenues	27		%	25		%					26		%	24		%					Non-interest income as a percentage of total revenues	25		%	26		%					29		%	26		%

(1) Mortgage banking income, net: ~~For~~The decrease in mortgage banking income, net for the ~~third quarter~~three months ended June 30, 2021, compared to the same period of 2020 ~~the net gain on sale of residential mortgages, including the fair value mark on the loan pipeline designated for sale, was $4.0 million, an increase of $1.5 million over the third quarter of 2019.The increase between periods~~ was driven by ~~strong~~a shift in the Company's strategy to hold more residential mortgage activity due to the historically low interest rate environment. In the third quarter of 2020, the Company sold $182.7 million of residential mortgages to the secondary market, compared to $86.9 million for the third quarter of 2019. The Company maintained the servicing rights on certain mortgages sold,loans within its portfolio, and, as a result ~~servicing income~~the company sold $110.8 million, or 40% of its residential mortgage loan originations, of its residential mortgage production during the second quarter of 2021, compared to $198.0 million, or 65% of its residential mortgage loan originations, for the ~~third~~second quarter of ~~2020 increased $446,000 over~~2020.

The increase in mortgage banking income, net for the ~~third quarter of 2019.~~

~~For the nine~~six months ended ~~September~~June 30, ~~2020, the net gain on sale of residential mortgages, including the fair value mark on the loan pipeline designated for sale, was $11.2 million, an increase of $6.1 million over~~2021, compared to the same period of ~~2019.During~~2020 was due to an increase in residential mortgage loan sales, compared to June 30, 2020. For the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, the Company sold ~~$449.7~~$303.4 million of its residential mortgages, ~~to the secondary market,~~ compared to ~~$164.5~~$267.3 million for the ~~nine~~six months ended ~~September~~June 30, 2019. The Company maintained the servicing rights on certain mortgages sold, and, as a result, servicing income for the nine months ended September 30, 2020 increased $1.1 million over the same period of 2019.

2020.

(2) ~~Service charges on deposit accounts:~~ Debit card income: The ~~decrease~~increase for thethree and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, compared to the same periods of ~~2019,~~2020 was ~~primarily due to lower utilization of the overdraft program which resulted~~driven by an increase in ~~a decrease~~customer spending driven by federal government stimulus in ~~overdraft fees of $312,000 and $1.2 million, respectively. In~~ response to the COVID-19 pandemic, we saw a shift in customer behavior as there were 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 nearly doubled to 14.1% in August 2020 compared to December 2019.pandemic.

(3) ~~Customer loan swap fees:~~Brokerage and insurance commissions: The ~~decrease~~increase for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, compared to the same periods of ~~2019,~~2020 was driven by ~~a change in appetite by~~assets under administration growth of 30% over the ~~Company for this loan product and structure as interest rates have decreased significantly to historically low levels.~~last twelve months.

Non-Interest Expense

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


		Three Months Ended September 30,						Change				Nine Months Ended September 30,						Change					Three Months Ended June 30,						Change				Six Months Ended June 30,						Change
(Dollars in thousands)	(Dollars in thousands)	2020			2019			$		%		2020			2019			$		%		(Dollars in thousands)	2021			2020			$		%		2021			2020			$		%
Salaries and employee benefits(1)	Salaries and employee benefits(1)	$	13,739		$	13,604		$	135	1	%	$	41,693		$	40,043		$	1,650	4	%	Salaries and employee benefits(1)	$	15,318		$	13,627		$	1,691	12	%	$	29,840		$	27,954		$	1,886	7	%
Furniture, equipment and data processing(2)	Furniture, equipment and data processing(2)	3,076			2,708			368		14	%	8,576			8,111			465		6	%	Furniture, equipment and data processing(2)	2,947			2,710			237		9	%	5,974			5,500			474		9	%
Net occupancy costs	Net occupancy costs	1,785			1,710			75		4	%	5,785			5,263			522		10	%	Net occupancy costs	1,805			1,997			(192)		(10)	%	3,756			4,000			(244)		(6)	%
Debit card expense																						Debit card expense	1,074			878			196		22	%	2,060			1,812			248		14	%
Consulting and professional fees	Consulting and professional fees	913			892			21		2	%	2,877			2,679			198		7	%	Consulting and professional fees	997			1,181			(184)		(16)	%	1,860			1,964			(104)		(5)	%
Debit card expense		972			960			12		1	%	2,784			2,666			118		4	%
Regulatory assessments~~(2)~~(3)	Regulatory assessments~~(2)~~(3)	510			182			328		180	%	971			1,091			(120)		(11)	%	Regulatory assessments~~(2)~~(3)	487			299			188		63	%	990			461			529		115	%
Amortization of core deposit intangible assets	Amortization of core deposit intangible assets	170			177			(7)		(4)	%	511			529			(18)		(3)	%	Amortization of core deposit intangible assets	164			171			(7)		(4)	%	328			341			(13)		(4)	%
Other real estate owned and collection costs, net		71			251			(180)		(72)	%	270			353			(83)		(24)	%
Other real estate owned and collection (recoveries) costs, net(4)																						Other real estate owned and collection (recoveries) costs, net(4)	(25)			98			(123)		(126)	%	(216)			199			(415)		(209)	%

Other expenses~~(3)~~	Other expenses~~(3)~~	3,985			3,264			721		22	%	9,824			9,754			70		1	%	Other expenses~~(3)~~	2,823			2,548			275		11	%	5,897			5,839			58		1	%
Total non-interest expense	Total non-interest expense	$	25,221		$	23,748		$	1,473	6	%	$	73,291		$	70,489		$	2,802	4	%	Total non-interest expense	$	25,590		$	23,509		$	2,081	9	%	$	50,489		$	48,070		$	2,419	5	%
GAAP efficiency ratio		53.46		%	55.67		%					53.50		%	56.14		%
Non-GAAP efficiency ratio		50.60		%	55.32		%					52.29		%	55.82		%
Ratio of non-interest expense to total revenues																						Ratio of non-interest expense to total revenues	57.06		%	50.45		%					54.63		%	53.51		%
Efficiency ratio (non-GAAP)																						Efficiency ratio (non-GAAP)	56.72		%	50.13		%					53.76		%	53.17		%

(1) Salaries and employee benefits: The increase for the ~~nine~~three months ended ~~September~~June 30, ~~2020, over~~2021, compared to the same ~~periods~~period of ~~2019~~2020 was driven by ~~normal annual merit increases~~an increase in incentive compensation accruals of $1.9 million based on year-to-date performance to budget, and was partially offset by lower insurance costs of $177,000.

The increase for the six months ended June 30, 2021, compared to the same period of 2020 was driven by an increase in incentive compensation accruals of $2.2 million based on year-to-date performance to budget, and was partially offset by lower insurance costs of $236,000 and a ~~temporary increase~~one-time employer tax credit of $329,000 in ~~wages~~the first quarter of ~~$238,000 for those employees that continued to service our customers as an essential business during the COVID-19 pandemic.~~2021.

(2) Furniture, equipment and data processing costs: The increase for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020, over~~2021, compared to the same periods of ~~2019~~2020 was driven by ~~$196,000~~our continued investment in ~~one-time system conversion costs in the third quarter of 2020~~technology and ~~increased online banking costs of $54,000 and $113,000 for the three and nine months ended September 30, 2020, respectively, over the same periods last year driven by higher customer utilization due~~data processing, which included transitioning our items' processing to ~~the COVID-19 pandemic.~~an outsourced solution during 2020.

(3)~~Net occupancy costs:~~ The increase for the nine months ended September 30, 2020, over the same period of 2019 was driven by an increase in rent and related-expenses of $356,000 and office cleaning expenses of $237,000 due to the COVID-19 pandemic, partially offset by lower office utility costs of $207,000 as many of our employees worked remotely due to the COVID-19 pandemic.

~~(4)~~ Regulatory assessments: The increase for the three and six months ended ~~September~~June 30, ~~2020,~~2021, compared to the same ~~period~~periods of ~~2019, as well as the decrease for the nine months ended September 30,~~ 2020 ~~compared to the same period of 2019,~~ was driven by the receipt of the Small Bank Assessment Credit from the FDIC ~~beginning~~ in the ~~third quarter of 2019 through the~~first and second ~~quarter~~quarters of 2020. ~~Effective for the third quarter of 2020, the~~The Company has no remaining Small Bank Assessment Credits, and its regulatory assessment costs ~~are now reverting back to~~for the first and second quarter of 2021 align with normal historical levels.

~~(5)~~(4) Other ~~expenses:~~real estate owned and collection (recoveries) costs, net: The ~~increase~~decrease for the three and ~~nine~~six months ended ~~September~~June 30, 2020, over the same periods of 2019 was primarily driven by a $1.2 million legal settlement in the third quarter of 2020 to avoid the burden and expense of litigation. This was partially offset by: (i) lower employee-related costs, including hiring, training and travel, of $285,000 and $753,000 for the three and nine months ended September 30, 2020,2021, compared to the same periods ~~last year, respectively, as employees transitioned to a remote work environment~~of 2020 reflects the Company's current asset quality position. Also, in the second quarter of ~~2020~~2021, the Company recognized a gain on the sale of an OREO property of $76,000, and ~~many continued operating in this fashion through the third quarter of 2020; and (ii) lower marketing costs of $239,000 and $370,000~~ for the ~~three and nine~~six months ended ~~September~~June 30, ~~2020, compared to~~2021, it recouped $160,000 of costs previously incurred and recorded total gains upon the ~~same periods last year, respectively, as certain programs~~

~~were put on hold in 2020 as we prioritized our response to the COVID-19 pandemic, including the health and safety~~sale of ~~our employee and customers.~~OREO properties of $190,000.

FINANCIAL CONDITION

Cash and Cash Equivalents

Total cash and cash equivalents at June 30, 2021, were $103.7 million, compared to $145.8 million at December 31, 2020. The decrease in cash and cash equivalents balances of $42.0 million during the first half of 2021 was primarily driven by an increase in investments of $282.9 million and loans (including loans held for sale) of $39.7 million, net of an increase in total funding liabilities of $256.8 million. We continuously monitor our cash levels to ensure compliance with applicable regulatory requirements, including liquidity and FRB reserve requirements.

For the reserve maintenance period beginning March 26, 2020, the FRB eliminated the cash reserve requirement for all depository institutions in response to COVID-19, by effectively reducing the required reserve ratio against net transaction deposits above and in the low reserve tranche to 0%.

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~~returns without undue risk. ~~The~~At June 30, 2021 and December 31, 2020, the Company’s investment portfolio generally consists of MBS, CMO, municipal and corporate debt securities, FHLBB and FRB common stock, and mutual funds held in a rabbi trust for its executive and director nonqualified retirement plans. We designate our debt securities as AFS or HTM based on our intent and investment strategy, FHLBB and FRB common stock is carried at cost, and mutual funds are trading securities.

At June 30, 2021, the Company's investments portfolio totaled $1.4 billion, an increase of $282.9 million, or 25%, since December 31, 2020. The increase during the first half of 2021 was driven by changes within its AFS debt securities portfolio, including:

•Purchases of $482.1 million of debt securities ~~we have designated as AFS and HTM, as well as common stock of the FHLBB, FRB and certain banks. Investments increased $188.6 million, or 20%, at September 30, 2020 as compared~~in an effort to ~~December 31, 2019, driven by the deployment of~~deploy excess ~~cash~~liquidity that ~~has~~ resulted from significant deposit ~~growth.~~growth over the past year, including the most recent six months, as consumers and businesses alike received proceeds from various government stimulus programs in response to the COVID-19 pandemic. The ~~following is the activity in our investment portfolio:~~

•~~The purchase of $341.1 million of investments during the nine months ended September 30, 2020 with a~~ weighted-average life of ~~4.9 years;~~investments purchased during the first half of 2021 was 5.7 years, in part driving the increase in the weighted-average life of our debt securities portfolio from 5.1 years at December 31, 2020 to 5.9 years at June 30, 2021.

•~~A net increase~~Partially offsetting the purchases during the first half of 2021 were (i) paydowns and calls of $175.0 million and (ii) a $19.4 million decrease in the fair value of ~~the AFS debt~~certain securities, ~~portfolio of $32.5 million driven by the change~~based on changes in ~~general~~ market ~~conditions, specifically a decrease in long-term~~ interest ~~rates at September 30, 2020, compared to December 31, 2019;~~

•~~Partially offset by paydowns and calls of $181.5 million.~~rates.

Our ~~investments in FHLBB~~debt securities designated as AFS, which comprised 99% of our investment portfolio at June 30, 2021 and ~~FRB common stock are~~December 31, 2020, were carried at ~~cost. These~~fair value using level 2 valuation techniques. Refer to Note 15 of the consolidated financial statements for further details on fair value. At June 30, 2021 and December 31, 2020, investments ~~are presented within other~~were 27% and 23% of total assets, respectively.

The AFS and HTM debt securities portfolio has limited credit risk due to its composition, which includes highly rated debt securities by nationally recognized rating agencies, and securities backed by the U.S. government and government sponsored agencies. At June 30, 2021 and December 31, 2020, these investments represented approximately 91%, of the investment portfolio. The majority of the municipal bonds, which represented 9% of the investment portfolio at June 30, 2021 and December 31, 2020, had a credit rating of "AA" or higher.

The Company's "other investments" on the consolidated statements of ~~condition.~~condition consist of FHLBB and FRB common stock. These investments are carried at cost. We are required to maintain a certain level of investment in FHLBB stock based on our level of FHLBB advances, and maintain a certain level of investment in FRB common stock based on the Bank's capital levels. As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019, our~~2020, investment in FHLBB stock totaled ~~$6.3~~$4.9 million and ~~$6.6~~$6.2 million, respectively, and our investment in FRB stock was $5.4 million at each date.

~~As further described~~Our investments in ~~"– Critical Accounting Policies"~~mutual funds are designated as trading securities and carried at fair value. These investments are held within a rabbi trust and will be used for future payments associated with the Company’s Executive and Director Deferred Compensation Plan. These investments are carried at fair value using level 1 valuation techniques. Refer to Note 215 of the consolidated financial statements ~~the Company opted to delay~~for further details on fair value.

Upon implementation of ASU 2016-13, ~~commonly referred~~effective January 1, 2020, but applied to reporting periods beginning on or after October 1, 2020, each reporting period our AFS debt securities that are in an unrealized loss position are assessed to determine if an allowance should be recorded or if a write-down is required. We did not record any allowances or write-down any of our AFS debt securities in an unrealized loss position as ~~"CECL," under the terms provided for within the CARES Act, signed into law in March 2020. The Company will 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,~~June 30, 2021 or ~~(2)~~ December 31, 2020. As of September 30, 2020, the national emergency for the COVID-19 pandemic has not yet been rescinded, and as such, the Company for the three and nine months ended September 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~~Upon implementation of ~~OTTI. For~~ASU 2016-13, effective January 1, 2020, but applied to reporting periods beginning on or after October 1, 2020, each reporting period our HTM debt securities ~~the primary consideration in determining OTTI impairment~~are assessed to determine if an allowance should be recorded or if a write-down is ~~whether~~required. We did not record any allowances or ~~not the Bank expects to collect all contractual cash flows. There was no OTTI recorded on investments~~write-down any of our HTM debt securities as of ~~September~~June 30, ~~2020~~2021 or December 31, ~~2019.~~2020.

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 ~~September~~June 30, ~~2020,~~2021, compared to December 31, ~~2019,~~2020, remains relatively unchanged and well positioned to provide a stable source of cash flow. At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the duration of our debt investment securities portfolio, adjusting for calls when appropriate and consensus prepayment speeds, was ~~3.9 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.~~3.9 years, respectively.

Loans

~~Loans~~

The Company provides loans primarily to customers located within our geographic market area. Our primary market continues to be Maine, making up ~~75%~~72% and ~~76%~~73% of the loan portfolio as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. Massachusetts and New Hampshire are our second and third largest markets that we serve, making up ~~13%~~14% and ~~7% and 13% and 6%~~9%, respectively, of our total loan portfolio as of ~~September~~June 30, ~~2020~~2021, compared to 13% and 8% as of December 31, ~~2019.~~2020. 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~~online residential mortgage and small commercial loan platforms.

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


								Change											Change
(Dollars in thousands)	(Dollars in thousands)	September 30, 2020			December 31, 2019			($)		(%)		(Dollars in thousands)	June 30, 2021			December 31, 2020			($)		(%)
Commercial real estate		$	1,333,733		$	1,243,397		$	90,336	7	%
Commercial real estate - non owner-occupied												Commercial real estate - non owner-occupied	$	1,127,200		$	1,097,975		$	29,225	3	%
Commercial real estate - owner-occupied												Commercial real estate - owner-occupied	296,697			271,495			25,202		9	%
Commercial	Commercial	360,629			421,108			(60,479)		(14)	%	Commercial	367,093			381,494			(14,401)		(4)	%
SBA PPP	SBA PPP	223,838			—			223,838		N.M.		SBA PPP	126,064			135,095			(9,031)		(7)	%
HPFC		14,919			21,593			(6,674)		(31)	%
Residential real estate	Residential real estate	1,044,103			1,070,374			(26,271)		(2)	%	Residential real estate	1,120,917			1,054,798			66,119		6	%
Consumer and home equity	Consumer and home equity	297,620			338,551			(40,931)		(12)	%	Consumer and home equity	247,945			278,965			(31,020)		(11)	%
Total loans	Total loans	$	3,274,842		$	3,095,023		$	179,819	6	%	Total loans	$	3,285,916		$	3,219,822		$	66,094	2	%
Commercial Loan Portfolio	Commercial Loan Portfolio	$	1,933,119		$	1,686,098		$	247,021	15	%	Commercial Loan Portfolio	$	1,917,054		$	1,886,059		$	30,995	2	%
Retail Loan Portfolio	Retail Loan Portfolio	$	1,341,723		$	1,408,925		$	(67,202)	(5)	%	Retail Loan Portfolio	1,368,862			1,333,763			35,099		3	%
Commercial Portfolio Mix	Commercial Portfolio Mix	59		%	54		%					Commercial Portfolio Mix	58		%	59		%
Retail Portfolio Mix	Retail Portfolio Mix	41		%	46		%					Retail Portfolio Mix	42		%	41		%

Beginning in April 2020, the Company started funding SBA PPP loans issued to qualifying small businesses as part of the federal stimulus package issued due to the COVID-19 pandemic. In the first quarter of 2021, the Company began originating SBA PPP loans again as a result of another round of federal stimulus that provided additional funding for the PPP program. The Company continues to participate in SBA PPP lending to customers and borrowers in need of funding due to the COVID-19 pandemic. Under the terms of the SBA PPP, loans issued may be forgiven in part or in full should the borrower meet certain conditions. In this instance, the Company will seek payment for the forgivable portion of the loan from the SBA. Loans made under the SBA PPP may have terms of two or five years, are fully guaranteed by the SBA, and have a fixed rate of 1.0%. For originating the loans, the Company receives an origination fee, paid by the SBA, based on a tiered structure that is dependent on each individual loan size. These fees were capitalized as origination fees and earned over the life of the loan in accordance with the Company's policy. As of June 30, 2021 and December 31, 2020, there were $5.4 million and $2.2 million of SBA PPP loan origination fees yet to be recognized, respectively. As SBA PPP loans are forgiven, these loan balances will decrease and unearned fees will be recognized.

In the second and third quarters of 2020, we originated 3,034 PPP loans with total funding of $244.8 million. As of September 30, 2020, there were 3,004 PPP loans outstanding with a total recorded investment of $223.8 million, which includes $5.4 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

Asset Quality

Asset quality is of the ~~unearned fees.~~upmost importance and continues to be of great focus to the Company, particularly in light of COVID-19 and its impact on our markets and economies. The Company continues to dedicate significant resources to monitor and manage credit risk throughout our loan portfolio.

The Board of Directors monitors credit risk through: (i) the Directors' Credit Committee, which reviews large credit exposures, monitors external loan review reports, reviews the lending authority for individual loan officers when required, and has approval authority and responsibility for all matters regarding the loan policy and other credit-related policies, including

~~Asset Quality~~reviewing and monitoring asset quality trends, and concentration levels; and (ii) the Audit Committee, which has approval authority and oversight responsibility for ACL adequacy and methodology.

Credit Risk Administration and the Credit Risk Policy Committee oversee the Company's systems and procedures to monitor the credit quality of its loan portfolio, conduct a loan review program, and maintain the integrity of the loan rating system. The adequacy of the ACL is overseen by the Management Provision Committee, which is an internal management committee comprised of various Company executives and 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 ACL. The Management Provision Committee supports the oversight efforts of the 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 response to the COVID-19 pandemic, we worked directly with businesses and consumers through 2020 to provide temporary debt relief that generally provided principal and/or interest payment deferrals for a period of 180 days or less. For loans that received temporary debt relief, we provided such relief under the guidance of the CARES Act and bank regulatory guidance that enabled such qualifying loans to be exempted from assessment under TDR accounting guidance. All loans granted temporary debt relief met the TDR exemption criteria under authoritative guidance, and, therefore, were not individually assessed, designated or accounted for as a TDR. In addition, those loans that were granted temporary debt relief were not automatically downgraded into lower credit risk ratings. Lastly, in order to qualify for temporary debt relief, those loans were required to be current with terms of payments in accordance with the CARES Act and bank regulatory guidance at the time of relief. At December 31, 2020, the payment status of loans operating under a temporary payment deferral arrangement were reported based on payment status at the time the deferral was granted to the borrower.

At June 30, 2021, the Company had no loans operating under a short-term deferral arrangement, whereas at December 31, 2020, the amortized cost of loans operating under a short-term temporary debt relief program was $26.5 million. In late-December 2020, another stimulus package was signed into law to provide additional COVID-19 relief for businesses and consumers. This stimulus package permits the Company the opportunity to again provide temporary debt relief to borrowers impacted by COVID-19. As of June 30, 2021, the Company had not provided any additional temporary debt relief to borrowers; however, such relief may be made in the future on a case-by-case basis.

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)	June 30, 2021			December 31, 2020
Non-accrual loans:
Commercial real estate - non owner-occupied	$	86		$	366
Commercial real estate - owner-occupied	136			146
Commercial	1,511			1,607
SBA PPP	—			—
Residential real estate	2,725			3,477
Consumer and home equity	1,424			2,000
Total non-accrual loans	5,882			7,596

Accruing TDRs not included above	2,519			2,818
Total non-performing loans	8,401			10,414
Other real estate owned	165			236
Total non-performing assets	$	8,566		$	10,650
Non-accrual loans to total loans	0.18		%	0.24		%
Non-performing loans to total loans	0.26		%	0.32		%
ACL on loans to non-performing loans	381.62		%	363.60		%
Non-performing assets to total assets	0.17		%	0.22		%
ACL on loans to non-performing assets	374.27		%	355.54		%

(Dollars in thousands) September 30,
2020 December 31,
2019
Non-accrual loans:
Commercial real estate $ 565 $ 1,122
Commercial 605 420
SBA PPP — —
HPFC 509 364
Residential real estate 4,017 4,096
Consumer and home equity 2,503 2,154
Total non-accrual loans 8,199 8,156
Accruing TDRs not included above 2,952 2,993
Total non-performing loans 11,151 11,149
Other real estate owned — 94
Total non-performing assets $ 11,151 $ 11,243
Non-accrual loans to total loans 0.25 % 0.26 %
Non-performing loans to total loans 0.34 % 0.36 %
ALL to non-performing loans 326.55 % 225.77 %
Non-performing assets to total assets 0.22 % 0.25 %
ALL to non-performing assets 326.55 % 223.88 %
As of June 30, 2021 and December 31, 2020, $1.3 million and $457,000 of loan balances that were previously operating under a short-term deferral arrangement were classified as non-accrual, respectively.

Potential Problem Loans

Potential problem loans consist of classified accruing commercial and commercial real estate loans that were between 30 and 89 days past due. Such loans are characterized by weaknesses in the financial condition of borrowers or collateral deficiencies. Based on historical experience, the credit quality of some of these loans may improve due to changes in collateral values or the financial condition of the borrowers, while the credit quality of other loans may deteriorate, resulting in a loss. These loans are not included in the above analysis of non-accrual loans. At ~~September~~June 30, ~~2020,~~2021, potential problem loans amounted to ~~$2.8 million,~~$107,000, or ~~0.09%~~less than 0.01% 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 as of the dates indicated:


(Dollars in thousands)	(Dollars in thousands)	September 30, 2020			December 31, 2019			(Dollars in thousands)	June 30, 2021			December 31, 2020
Accruing loans 30-89 days past due:	Accruing loans 30-89 days past due:							Accruing loans 30-89 days past due:
Commercial real estate		$	2,056		$	1,582
Commercial real estate - non owner-occupied								Commercial real estate - non owner-occupied	$	99		$	50
Commercial real estate - owner-occupied								Commercial real estate - owner-occupied	—			—
Commercial	Commercial	1,315			548			Commercial	183			430
SBA PPP	SBA PPP	—			—			SBA PPP	—			—
HPFC		323			243
Residential real estate	Residential real estate	1,784			2,227			Residential real estate	303			2,297
Consumer and home equity	Consumer and home equity	434			750			Consumer and home equity	214			440
Total	Total	$	5,912		$	5,350		Total	$	799		$	3,217
Accruing loans 30-89 days past due to total loans	Accruing loans 30-89 days past due to total loans	0.18		%	0.17		%	Accruing loans 30-89 days past due to total loans	0.02		%	0.10		%

As of June 30, 2021 and December 31, 2020, $536,000 and $1.2 million of loan balances that were previously operating under a short-term deferral arrangement were 30-89 days past due, respectively.

~~COVID-19 Payment Deferral.~~ In response to the COVID-19 pandemic, we worked with businesses and consumers to provide temporary debt payment relief that generally provided principal and/or interest payment deferrals for a period of 180 days or less. All loans that were granted a short-term payment deferral were done so in accordance with the terms of the CARES Act or regulatory guidance. As such, none of the loans that were temporarily granted payment relief were assessed, designated or accounted for as TDRs. As of September 30, 2020, 5.5% of total loans were operating under a COVID-19 payment deferral arrangement, compared to 16.4% at June 30, 2020. We anticipate that the number of loans and loan balances operating under this arrangement will continue to decrease in coming months as the temporary debt relief provided to our loan customers matures. As the payment deferral period ends, these loans will return to payment status, and we will continue to monitor these loans closely and take any necessary actions swiftly should we see signs of payment risk or stress.ACL

Loans that were granted temporary debt relief were not automatically downgraded into lower credit risk ratings. We continue to actively monitor these loans for indications of credit deterioration as the deferral period matures, which could result in future downgrades.

All loans that were granted temporary payment relief due to the COVID-19 pandemic were current with payments in accordance with the terms of the CARES Act or bank regulatory guidance at the time of initial relief. At September 30, 2020, the payment status for loans that continued to operate under a payment deferral arrangement were reported based on payment status at the time the deferral was granted to the borrower.

The Company continued to accrue and recognize interest on loans that were granted temporary debt relief throughout the payment deferral period. We instituted robust monitoring protocols on these loans, so that at the first sign of credit risk or collection of the contractual payment in full, the loan would be then designated as non-performing and any uncollected interest due to the Company would be written-off at that time, reducing interest income. As of September 30, 2020, we had not written-off any uncollected interest on these loans.

~~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~~components of our ACL for the periods indicated:


		At or For The Three Months Ended September 30,						At or For The Nine Months Ended September 30,						At or For The Year Ended December 31, 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, 2020
(Dollars in thousands)	(Dollars in thousands)	2020			2019			2020			2019						(Dollars in thousands)	2021			2020			2021			2020
ALL at the beginning of the period		$	35,539		$	26,163		$	25,171		$	24,712		$	24,712
Provision for loan losses		1,000			733			12,172			2,658			2,862
																		(CECL)			(Incurred Loss)			(CECL)			(Incurred Loss)			(CECL)
ACL on loans at the beginning of the period																	ACL on loans at the beginning of the period	$	35,775		$	26,521		$	37,865		$	25,171		$	25,171
Impact of CECL adoption																	Impact of CECL adoption	—			—			—			—			233
(Credit) provision for loan losses																	(Credit) provision for loan losses	(3,452)			9,400			(5,306)			11,172			13,215
Charge-offs:	Charge-offs:																Charge-offs:
Commercial real estate		33			92			104			157			300
Commercial real estate - non owner-occupied																	Commercial real estate - non owner-occupied	—			—			—			—			82
Commercial real estate - owner-occupied																	Commercial real estate - owner-occupied	—			21			—			71			21
Commercial	Commercial	184			183			857			636			1,167			Commercial	259			420			406			673			1,130
SBA PPP	SBA PPP	—			—			—			—			—			SBA PPP	—			—			—			—			—
HPFC		—			11			—			11			71
Residential real estate	Residential real estate	25			411			121			436			462			Residential real estate	35			—			88			96			121
Consumer and home equity	Consumer and home equity	65			606			199			670			713			Consumer and home equity	126			43			213			134			484
Total charge-offs	Total charge-offs	307			1,303			1,281			1,910			2,713			Total charge-offs	420			484			707			974			1,838
Recoveries:	Recoveries:																Recoveries:
Commercial real estate		3			34			10			41			49
Commercial real estate - non owner-occupied																	Commercial real estate - non owner-occupied	—			—			—			1			107
Commercial real estate - owner-occupied																	Commercial real estate - owner-occupied	3			3			5			6			13
Commercial	Commercial	139			56			255			167			225			Commercial	67			63			110			116			572
SBA PPP	SBA PPP	—			—			—			—			—			SBA PPP	—			—			—			—			—
HPFC		—			—			—			—			—
Residential real estate	Residential real estate	4			2			27			6			16			Residential real estate	70			21			70			23			292
Consumer and home equity	Consumer and home equity	36			3			60			14			20			Consumer and home equity	17			15			23			24			100
Total recoveries	Total recoveries	182			95			352			228			310			Total recoveries	157			102			208			170			1,084
Net charge-offs	Net charge-offs	125			1,208			929			1,682			2,403			Net charge-offs	263			382			499			804			754
ALL at the end of the period		$	36,414		$	25,688		$	36,414		$	25,688		$	25,171
Components of allowance for credit losses:
Allowance for loan losses		$	36,414		$	25,688		$	36,414		$	25,688		$	25,171
Liability for unfunded credit commitments		9			11			9			11			21
Balance of allowance for credit losses at end of the period		$	36,423		$	25,699		$	36,423		$	25,699		$	25,192
ACL on loans at the end of the period																	ACL on loans at the end of the period	$	32,060		$	35,539		$	32,060		$	35,539		$	37,865
Components of ACL:																	Components of ACL:
ACL on loans																	ACL on loans	$	32,060		$	35,539		$	32,060		$	35,539		$	37,865
ACL on off-balance sheet credit exposures																	ACL on off-balance sheet credit exposures	2,515			22			2,515			22			2,568
ACL at end of the period																	ACL at end of the period	$	34,575		$	35,561		$	34,575		$	35,561		$	40,433
Net charge-offs (annualized) to average loans	Net charge-offs (annualized) to average loans	0.01		%	0.16		%	0.04		%	0.07		%	0.08		%	Net charge-offs (annualized) to average loans	0.03		%	0.05		%	0.03		%	0.05		%	0.02		%
Provision for loan losses (annualized) to average loans		0.12		%	0.09		%	0.50		%	0.12		%	0.09		%
ALL to total loans		1.11		%	0.83		%	1.11		%	0.83		%	0.81		%
(Credit) provision for loan losses (annualized) to average loans																	(Credit) provision for loan losses (annualized) to average loans	(0.42)		%	1.13		%	(0.33)		%	0.46		%	0.40		%
ACL on loans to total loans																	ACL on loans to total loans	0.98		%	1.07		%	0.98		%	1.07		%	1.18		%

ALL to net charge-offs (annualized)		7,282.80		%	531.62		%	2,939.77		%	1,145.42		%	1,047.48		%
ACL on loans to net charge-offs (annualized)																	ACL on loans to net charge-offs (annualized)	3,047.53		%	2,325.85		%	3,212.42		%	2,210.14		%	5,021.88		%

~~The determination of an appropriate level of ALL, and subsequent provision for loan losses which affects earnings, is based~~ACL 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.Loans

~~We believe~~During the ~~ALL~~first half of ~~$36.4 million, or 1.11% of total loans and 326.55% of total non-performing~~2021, there were no significant changes in our modeling methodology to determine the ACL on loans at ~~September~~June 30, 2021. The significant key assumptions used with the ACL on loans calculation at June 30, 2021 and December 31, 2020, ~~was appropriate given the current economic conditions in~~included: (i) Company-specific macroeconomic factors (i.e. loss drivers), (ii) our ~~markets, which included consideration of the COVID-19 pandemic~~forecast period and ~~its impact on our customers, local economies,~~reversion speed, (iii) prepayment speeds, and the condition of the loan portfolio. The impact of the COVID-19 pandemic on a global, national and local 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 12%(iv) various qualitative factors.

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As of ~~total~~June 30, 2021 and December 31, 2020, the recorded ACL on loans aswas $32.1 million and $37.9 million, respectively, and represented our best estimate. The decrease in the ACL on loans between periods was primarily driven by an improvement in management's forecast of ~~September 30, 2020. Should~~its macroeconomic factors over its one-year forecast period. Refer to "—Results of Operations-(Credit) Provision for Credit Losses" for further discussion of the drivers for change between periods.

We may adjust our assumptions to account for differences between expected and actual losses from period to period. A future change of our assumptions will likely alter the level of allowance required and may have a material impact on future results of operations and financial condition. The ACL on loans is reviewed periodically within a calendar quarter to assess trends in CECL key assumptions and asset quality, and consider their impact on the Company's financial condition.

ACL on Off-Balance Sheet Credit Exposures

During the first half of 2021, there were no significant changes in our modeling methodology to determine the ACL on off-balance sheet credit ~~quality, or~~exposures. The model uses the credit loss factors ~~known to affect~~for each segment calculated within the ACL on loans model described above. The decrease in the ACL on off-balance sheet credit ~~quality, deteriorate~~exposures during the first half of 2021 of $53,000 was also driven by the improvement in ~~future periods and/or the Company experience elevated net charge-offs, we would anticipate a corresponding~~management's forecast of its macroeconomic factors over its one-year forecast period, however, it was largely offset by an increase in unfunded commitments of $30.8 million, or 4%, over this period to $759.5 million at June 30, 2021.

The ACL on off-balance sheet credit exposures was presented within accrued interest and other liabilities on the ~~ALL and~~consolidated statements of condition. (Decreases) increases to the ACL on off-balance sheet credit exposures were presented within (credit) provision for ~~loan losses.~~credit losses on the consolidated statements of income.

We may adjust our assumptions to account for differences between expected and actual losses from period to period. A future change to our assumptions will likely alter the level of allowance required and may have a material impact on future results of operations and financial condition.

~~Goodwill~~

~~In the first quarter of 2020, we assessed whether the COVID-19 pandemic~~Liabilities and its impact on the global, national and local markets and economy, including the Company's share price, created a triggering event that required assessment of the Company's goodwill for impairment in an interim period. As of March 31, 2020, we had determined that a triggering event had not yet occurred.Shareholders’ Equity

Given the sustained impact of the COVID-19 pandemic in the second quarter, including its impact on the economy and capital markets, including the Company's stock price, we concluded that a triggering event 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. As of June and September 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

~~Liabilities and Shareholders’ Equity~~.

~~Deposits.~~ ~~Total~~At June 30, 2021, deposits ~~increased $686.3~~totaled $4.3 billion, an increase of $288.9 million, or ~~19%~~7%, since December 31, ~~2019, to $4.2 billion at September 30,~~ 2020. ~~For the nine months ended September 30, 2020, checking account balances grew $514.3 million, or 30%, and savings and money market balances grew $187.7 million, or 17%.~~ The increase in deposits during the first half of 2021 was driven by ~~various factors~~an increase in core deposits (non-GAAP) of $313.0 million, or 9%. The increase was driven by seasonal inflows and another round of stimulus provided to businesses and consumers in response to the COVID-19 ~~pandemic, including the federal government stimulus programs and a shift in consumer habits as the national personal savings rate nearly doubled to 14.1% in August 2020 compared to December 31, 2019.~~pandemic.

The Company's loan-to-deposit ratio was ~~78%~~77% at ~~September~~June 30, ~~2020,~~2021, compared to ~~87%~~80% at December 31, ~~2019.~~2020.

Borrowings

~~Borrowings.~~
~~Total~~

At June 30, 2021, total borrowings ~~decreased $43.5~~were $214.7 million, ~~or 13%,~~a decrease of $32.0 million since December 31, ~~2019 to $294.4~~2020. During the first quarter of 2021, in light of its liquidity position, the Company terminated a $25.0 million ~~at September 30, 2020. The Company continues to primarily use short-term borrowings to supplement funding in~~long-term borrowing contract with the ~~current low~~FHLBB under which advances had an interest rate ~~environment. During the nine months ended September 30, 2020, we locked-in $135.0 million~~ of ~~long-term funding at interest rates below 1% through~~0.98%, and incurred a five-year $25.0 million FHLBB borrowing, two $50.0 million interest rate swaps for three- and ten-year funding, and a $10.0 million forward-starting interest swap on 15-year funding, effective June 30, 2021. Refer to "~~—Contractual Obligations and Off-Balance Sheet Commitments" and Note 8~~one-time prepayment penalty of ~~the consolidated financial statements for further discussion.~~$514,000.

On April 16, 2021, the Company redeemed in full $15.0 million of subordinated notes that had a 5.50% interest rate, at a redemption price equal to the principal amount of the notes plus accrued and unpaid interest.

Shareholders' ~~Equity.~~ Equity

On June 29, 2021, the Company announced a quarterly cash dividend to shareholders of $0.36 per share, payable on July 30, 2021 to shareholders of record as of July 15, 2021. As of June 30, 2021, the Company's annualized dividend yield was 3.02% based on Camden National's closing share price of $47.76, as reported by NASDAQ.

In ~~January 2020,~~the first quarter of 2021, 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~~the Company's issued and outstanding shares as of ~~December 31, 2019. In~~June 30, 2021. The Company did not repurchase any shares during the first ~~quarter~~six months of 2020, we repurchased 217,031 shares of the Company's common stock at a weighted average price of $36.74 per share, before temporarily suspending our repurchase program in mid-March 2020, as our strategy shifted from earnings generation to capital preservation during the COVID-19 pandemic. In the third quarter of 2020, we lifted our temporary suspension and repurchased 47,915 shares at a weighted average price of $29.26 for the three months ended September 30, 2020, bringing our total shares repurchased for the nine months ended September 30, 2020, to 264,946.2021.

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

At or For The
Three Months Ended
September 30, At or For The
Nine Months Ended
September 30, At or For The
Year Ended
December 31,
2019
2020 2019 2020 2019
Financial Ratios
Average equity to average assets 10.27 % 10.52 % 10.40 % 10.37 % 10.43 %
Common equity ratio 10.04 % 10.43 % 10.04 % 10.43 % 10.69 %
Tangible common equity ratio(1)
8.30 % 8.44 % 8.30 % 8.44 % 8.66 %
Dividend payout ratio 29.46 % 31.91 % 36.13 % 33.33 % 33.24 %
Per Share Data
Book value per share $ 34.69 $ 30.98 $ 34.69 $ 30.98 $ 31.26
Tangible book value per share(1)
28.14 24.52 28.14 24.52 24.77
Dividends declared per share 0.33 0.30 0.99 0.90 1.23

~~(1) Please refer to "Non-GAAP Financial Measures and Reconciliation to GAAP" for further details.~~


	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, 2020
	2021			2020			2021			2020
Financial Ratios
Average equity to average assets	10.50		%	10.25		%	10.65		%	10.47		%	10.39		%
Common equity ratio	10.59		%	10.21		%	10.59		%	10.21		%	10.81		%
Tangible common equity ratio (non-GAAP)	8.87		%	8.41		%	8.87		%	8.41		%	8.99		%
Dividend payout ratio	29.75		%	45.21		%	28.46		%	40.74		%	33.33		%
Per Share Data
Book value per share	$	36.49		$	33.85		$	36.49		$	33.85		$	35.50
Tangible book value per share (non-GAAP)	29.99			27.31			29.99			27.31			28.96
Dividends declared per share	0.36			0.33			0.72			0.66			1.32

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.

LIQUIDITY

Our liquidity needs require the availability of cash to meet the withdrawal demands of depositors and credit commitments to borrowers. Liquidity is defined as our ability to maintain availability of funds to meet customer needs, as well as to support our asset base. The primary objective of liquidity management is to maintain a balance between sources and uses of funds to meet our cash flow needs in the most economical and expedient manner. Due to the potential for unexpected fluctuations in both deposits and loans, active management of liquidity is necessary. We maintain various sources of funding and levels of liquid assets in excess of regulatory guidelines in order to satisfy their varied liquidity demands. We monitor liquidity in accordance with internal guidelines and all applicable regulatory requirements. As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, our level of liquidity exceeded target levels. We believe that we currently have appropriate liquidity available to respond to liquidity demands. Sources of funds that we utilize consist of deposits, borrowings from the FHLBB and other sources, cash flows from operations, prepayments and maturities of outstanding loans, investments and mortgage-backed securities and the sale of mortgage loans.

Deposits continue to represent our primary source of funds. For the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, average deposits (excluding brokered deposits) of ~~$3.6~~$3.9 billion increased ~~$422.3~~$362.0 million, or ~~13%~~10%, compared to the same period last year. Average core deposits (non-GAAP) of ~~$3.1~~$3.5 billion for the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, increased ~~$438.3~~$531.5 million, or ~~16%~~18%, compared to the same period a year ago. Included within our average money market deposits for the ~~nine~~six months ended ~~September~~June 30, 2021 and 2020, ~~and 2019,~~ were ~~$85.3~~$55.9 million and ~~$70.2~~$86.6 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 ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, average total borrowings (including brokered deposits) decreased ~~$111.8~~$51.8 million, or ~~16%~~9%, to ~~$571.0~~$519.8 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 ~~$58.8~~$66.2 million as of ~~September~~June 30, ~~2020.~~2021. The Company also has a $10.0 million line of credit with a correspondent bank that matures on December ~~18, 2020.~~17, 2021.

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

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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 ~~$517.5~~$545.5 million and ~~$473.4~~$529.3 million at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, 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 ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021.

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 ~~$14.8~~$10.8 million and ~~$13.9~~$9.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, 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 ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, the Bank declared dividends payable to the Company in the amount of ~~$22.4~~$24.8 million and ~~$29.4~~$14.4 million, respectively. Under regulations prescribed by the OCC, the Bank may not declare dividends in excess of the Bank’s net income for the current year plus its retained net income for the prior two years without prior approval from the OCC. If we are required to use dividends from the Bank to service unforeseen commitments in the future, we may be required to reduce the dividends paid to our shareholders going forward.

Please refer to Note 10 of the consolidated financial statements for discussion and details of the Company and Bank's regulatory capital requirements. At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, 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.~~ 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. Many of the commitments 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.

Refer to Note 7 of the consolidated financial statements for additional details.

~~Derivatives.~~

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~~"best effort" 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~~"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.

Refer to Note 8 of the consolidated financial statements for additional details.

Hedge ~~Instruments.~~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~~Note 8 of the consolidated financial statements for additional details.

At ~~September~~June 30, ~~2020,~~2021, we had the following levels of off-balance sheet financial instruments:


(In thousands)	(In thousands)	Total Amount		Commitment Expires in:								(In thousands)	Total Amount		Commitment Expires in:
Off-Balance Sheet Financial Instruments	Off-Balance Sheet Financial Instruments	Committed		<1 Year		1 – 3 Years		3 – 5 Years		>5 Years		Off-Balance Sheet Financial Instruments	Committed		<1 Year		1 – 3 Years		3 – 5 Years		>5 Years
Commitments to extend credit	Commitments to extend credit	$	674,071	$	327,286	$	44,256	$	29,958	$	272,571	Commitments to extend credit	$	753,052	$	401,318	$	53,157	$	12,744	$	285,833
Standby letters of credit	Standby letters of credit	5,565		3,562		1,870		—		133		Standby letters of credit	6,441		5,522		367		—		552
Customer loan swaps - notional value	Customer loan swaps - notional value	756,856		2,220		53,778		96,517		604,341		Customer loan swaps - notional value	729,954		11,581		55,287		186,088		476,998
Interest rate swap on loans - notional value		100,000		—		—		100,000		—
Interest rate swaps on borrowings - notional value		100,000		—		50,000		—		50,000
Interest rate contracts - notional value												Interest rate contracts - notional value	253,000		10,000		150,000		—		93,000
Fixed-rate mortgage interest rate lock commitments - notional value	Fixed-rate mortgage interest rate lock commitments - notional value	119,194		119,194		��		—		—		Fixed-rate mortgage interest rate lock commitments - notional value	44,102		44,102		—		—		—
Junior subordinated debt interest rate swaps - notional value		53,000		10,000				—		43,000
Forward delivery commitments - notional value	Forward delivery commitments - notional value	37,301		37,301		—		—		—		Forward delivery commitments - notional value	14,886		14,886		—		—		—
Total	Total	$	1,845,987	$	499,563	$	149,904	$	226,475	$	970,045	Total	$	1,801,435	$	487,409	$	258,811	$	198,832	$	856,383

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 ~~September~~June 30, ~~2020,~~2021, 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
Contractual obligations and commitments Committed <1 Year 1 – 3 Years 3 – 5 Years >5 Years
Operating leases $ 15,854 $ 1,373 $ 2,634 $ 2,255 $ 9,592
Finance leases 7,813 305 619 630 6,259
FHLBB advances - other 25,000 — — 25,000 —
Retail repurchase agreements 210,055 210,055 — — —
Junior subordinated debentures 44,331 — — — 44,331
Subordinated debentures 14,975 — — — 14,975
Other contractual obligations 1,236 1,236 — — —
Total $ 319,264 $ 212,969 $ 3,253 $ 27,885 $ 75,157

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.


(In thousands)	Total Amount		Payments Due per Period
Contractual obligations and commitments	Committed		<1 Year		1 – 3 Years		3 – 5 Years		>5 Years
Operating leases	$	14,722	$	1,380	$	2,479	$	1,918	$	8,945
Finance leases	7,584		307		623		606		6,048




Retail repurchase agreements	170,413		170,413		—		—		—
Junior subordinated debentures	44,331		—		—		—		44,331
Other contractual obligations	2,787		2,787		—		—		—
Total	$	239,837	$	174,887	$	3,102	$	2,524	$	59,324

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 in 2020 to develop and oversee the Company’s response. The Pandemic Work ~~Group has:~~Group: (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 and monitored the temporary loan relief programs; (vi) ~~rolled~~oversaw the roll out of the SBA ~~PPP;~~PPP loan program and continues to monitor; (vii) developed our branch network plan, including determinations of which branches should be closed in order to best allocate resources; and (viii) developed a plan for, and oversaw the re-opening of branches ~~throughout~~in June 2020, which included ensuring health and safety protocols and practices were in place for our employees and customers. ~~In addition,~~During the second quarter of 2021, the Pandemic Work Group ~~is currently formulating~~formulated the Company's ~~short- and long-term~~ strategy ~~for returning~~to return its employees ~~that continue to work remotely~~ back to its locations safely in compliance with health officials' ~~guidelines.~~guidelines, along with enabling certain employees to work in a hybrid model (i.e. work from home part time and from one of our locations part time) and others to work fully remote. The Company's Executive Committee will monitor this strategy over the near term and re-evaluate its decision in early-2022.

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 nine months ended September 30, 2020, there~~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.~~2020. Please refer to Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 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~~have resulted in negative rates as of June 30, 2021 and 2020, as many deposit and funding rates ~~are~~were below 2.00%. ~~During the last few years, our~~In this case, a downward shift ~~has been~~of 100 basis ~~points.~~points was the only down scenario performed. 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 and 200 basis points scenario, Federal Funds and Treasury yields are floored at 0.01% while Prime is floored at 3.00%. All other market rates are floored at the lesser of current levels or 0.25%.

As of ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, 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	Rate Change from Year 1 — Base	September 30, 2020		September 30, 2019		Rate Change from Year 1 — Base	June 30, 2021		June 30, 2020
Year 1	Year 1					Year 1
+200 basis points	+200 basis points	1.57	%	(0.51)	%	+200 basis points	0.81	%	0.28	%
-100 basis points	-100 basis points	0.32	%	(0.51)	%	-100 basis points	(1.27)	%	0.55	%

Year 2	Year 2					Year 2
+200 basis points	+200 basis points	8.66	%	4.54	%	+200 basis points	5.86	%	6.04	%
-100 basis points	-100 basis points	(5.46)	%	(4.33)	%	-100 basis points	(11.41)	%	(4.44)	%

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 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, and non-performing asset levels. Although~~flows. While assumptions are developed based upon current economic and local market conditions, we cannot make any assurances as to the predictive nature of these assumptions, including how customer preferences or competitor influences might change.

If rates remain at or near current levels, net interest income is projected to ~~decrease.~~decrease over the next year. Asset cash flows reprice and replace into the low rate environment, and are more than offset by the positive impact of funding cost reductions, causing balance sheet spread to tighten. If rates decrease 100 basis points, net interest income is projected to ~~trend slightly above current levels~~continue to decrease as ~~funding~~loans and investment cash flow reprice lower, prepayments increase and the ability to reduce cost ~~reductions mitigate asset yield pressure.~~of funds is limited. In the second year, net interest income is projected to decrease as asset yields continue to ~~decrease as loans~~drop and ~~investment cash flow reprice into lower yields as prepayments increase while reduction in~~ the cost of funds isreductions are exhausted. If rates increase 200 basis points, net interest income is projected to increase slightly in the first year due to asset yields outpacing funding 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.~~lag.

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 an internal project team 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. ~~Refer to Note 2 of the consolidated financial statements for additional details.~~

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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." and such information is incorporated into this Item 3 by reference.

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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~~continue to work 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 ~~third quarter.~~second quarter of 2021. 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.

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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~~There 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.

Although economies began to re-open in the second quarter of 2020, many of the circumstances to which the COVID-19 pandemic contributed persisted at the end of the third quarter, including (i) significant volatility in financial markets; (ii) heightened credit risks and increased instances of defaults in many industries, including hospitality, transportation and commercial real estate; (iii) significant reductions in the targeted 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 (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. Although we have re-opened our branches with modified 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 severity of the pandemic going forward, and the effects of the pandemic on our customers, these conditions could continue for an extended period and other adverse developments may occur.

In response to the COVID-19 pandemic, we worked with businesses and loan customers to provide temporary debt payment relief that generally provided principal and/or interest payment deferrals for a period of 180 days or less. As of September 30, 2020, 5.5% of total loans were operating under a COVID-19 payment deferral arrangement, compared to 16.4% at June 30, 2020. We anticipate that the number of loans and loan balances operating under this arrangement will continue to decrease in coming months as the temporary debt relief provided to our loan customers matures. As the payment deferral period ends, these loans will return to payment status, and we will continue to monitor these loans closely and take any necessary actions swiftly should we see signs of payment risk or stress. Payment deferrals under these programsfactors that 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. 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 in the future, which could negatively affect our liquidity if current economic conditions persist. Also, while we have not yet experienced elevated levels of non-performing assets, the negative effects of

COVID-19 may 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.

Until the pandemic subsides, we 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 ourCompany’s business, financial ~~condition, liquidity, capital and~~ results ~~of operations.~~

~~Governmental authorities worldwide have taken unprecedented measures~~or stock price. Refer 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~~the Company’s Annual Report on Form ~~10-K.~~

10-K for the year ended December 31, 2020, for discussion of these risks.

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)~~March 30, 2021).
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*						iXBRL (Inline eXtensible Business Reporting Language). The following materials from Camden National Corporation’s Quarterly Report on Form 10-Q for the period ended ~~September~~June 30, ~~2020,~~2021, formatted in iXBRL: (i) Consolidated Statements of Condition - ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019;~~2020; (ii) Consolidated Statements of Income - Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021 and ~~2019;~~2020; (iii) Consolidated Statements of Comprehensive Income - Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021 and ~~2019;~~2020; (iv) Consolidated Statements of Changes in Shareholders’ Equity - Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021 and ~~2019;~~2020; (v) Consolidated Statements of Cash Flows - ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021 and ~~2019;~~2020; 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.

7776

SIGNATURES

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


CAMDEN NATIONAL CORPORATION
(Registrant)

/s/ Gregory A. Dufour						~~November~~August 5, ~~2020~~2021
Gregory A. Dufour						Date
President and Chief Executive Officer (Principal Executive Officer)

/s/ Gregory A. White						~~November~~August 5, ~~2020~~2021
Gregory A. White						Date
Chief Financial Officer and Principal Financial & Accounting Officer

7877


(In thousands)	Cost		Unrealized Gains		Unrealized Losses		Fair Value / Carrying Value
September 30, 2020
Equity securities - bank stock (carried at fair value)	$	544	$	1,130	$	0	$	1,674
FHLBB (carried at cost)	6,297		—		—		6,297
FRB (carried at cost)	5,374		—		—		5,374
Total other investments	$	12,215	$	1,130	$	0	$	13,345
December 31, 2019
Equity securities - bank stock (carried at fair value)	$	544	$	1,130	$	0	$	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	$	0	$	13,649


	Three Months Ended September 30,				Nine Months Ended September 30,				Year Ended December 31, 2019
(In thousands)	2020		2019		2020		2019
Provision for loan losses	$	1,000	$	733	$	12,172	$	2,658	$	2,862
Change in reserve for unfunded commitments	(13)		(3)		(12)		(11)		(1)
Provision for credit losses	$	987	$	730	$	12,160	$	2,647	$	2,861


	September 30, 2020					June 30, 2020
(In thousands, except number of units)	Units	Recorded Investment		% of Total Loans		Units	Recorded Investment		% of Total Loans
Commercial	210	$	105,879	3.2	%	1,023	$	415,606	12.5	%
Retail	502	75,337		2.3	%	740	131,116		3.9	%
Total	712	$	181,216	5.5	%	1,763	$	546,722	16.4	%


							For the Three Months Ended				For the Nine Months Ended
(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
September 30, 2020:
With an allowance recorded:
Commercial real estate	$	126	$	126	$	36	$	127	$	2	$	127	$	6
Commercial	0		0		0		—		—		—		—
SBA PPP	0		0		0		—		—		—		—
HPFC	0		0		0		—		—		—		—
Residential real estate	2,394		2,394		371		2,349		33		2,328		79
Home equity	316		316		87		317		—		318		—
Consumer	0		0		0		—		—		—		—
Ending balance	2,836		2,836		494		2,793		35		2,773		85
Without an allowance recorded:
Commercial real estate	334		548		0		334		3		304		9
Commercial	171		233		0		175		1		242		4
SBA PPP	0		0		0		—		—		—		—
HPFC	0		0		0		—		—		—		—
Residential real estate	734		858		0		791		2		909		4
Home equity	49		187		0		50		—		52		—
Consumer	0		0		0		—		—		—		—
Ending balance	1,288		1,826		0		1,350		6		1,507		17
Total impaired loans	$	4,124	$	4,662	$	494	$	4,143	$	41	$	4,280	$	102
September 30, 2019:
With an allowance recorded:
Commercial real estate	$	130	$	130	$	29	$	130	$	3	$	130	$	9
Commercial	442		442		303		301		—		365		—
SBA PPP	0		0		0		—		—		—		—
HPFC	0		0		0		—		—		—		—
Residential real estate	2,337		2,337		337		3,026		28		3,137		84
Home equity	318		318		69		658		—		573		—
Consumer	0		0		0		—		—		—		—
Ending Balance	3,227		3,227		738		4,115		31		4,205		93
Without an allowance recorded:
Commercial real estate	276		435		0		278		3		408		10
Commercial	204		267		0		214		1		218		5
SBA PPP	0		0		0		—		—		—		—
HPFC	0		0		0		—		—		—		—
Residential real estate	1,543		2,007		0		1,337		11		1,325		28
Home equity	267		705		0		131		—		130		—
Consumer	0		0		0		—		—		—		—
Ending Balance	2,290		3,414		0		1,960		15		2,081		43
Total impaired loans	$	5,517	$	6,641	$	738	$	6,075	$	46	$	6,286	$	136


							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	0		0		0		292		—
SBA PPP	0		0		0		0		—
HPFC	0		0		0		0		—
Residential real estate	2,395		2,395		364		2,989		110
Home equity	318		318		69		522		—
Consumer	0		0		0		0		—
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	0		0		—		0		0
HPFC	0		0		—		0		—
Residential real estate	989		1,116		—		1,258		21
Home equity	55		192		—		115		—
Consumer	0		0		—		1		—
Ending Balance	1,637		2,426		—		1,993		41
Total impaired loans	$	4,478	$	5,267	$	463	$	5,926	$	162


(Dollars in thousands)					September 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	$	(813)
3/26/2020	3/26/2030	3-Month USD LIBOR	0.857%	Accrued interest and other liabilities	50,000		(901)
					$	100,000	$	(1,714)


	For The Three Months Ended September 30,				For The Nine Months Ended September 30,
(In thousands)	2020		2019		2020		2019
Derivatives designated as cash flow hedges:
Effective portion of unrealized gains (losses) recognized within OCI during the period, net of tax	$	540	$	(310)	$	(328)	$	(2,438)
Net reclassification adjustment for effective portion of cash flow hedges included in interest expense, gross	$	479	$	342	$	990	$	662
Net reclassification adjustment for effective portion of cash flow hedges included in interest income, gross	$	(311)	$	0	$	(610)	$	0


(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)
Balance at December 31, 2018	$	(17,826)	$	(4,437)	$	(2,157)	$	(24,420)
Other comprehensive income (loss) before reclassifications	25,332		(2,438)		159		23,053
Less: Amounts reclassified from AOCI	22		(520)		14		(484)
Other comprehensive income (loss)	25,310		(1,918)		145		23,537
Balance at September 30, 2019	$	7,484	$	(6,355)	$	(2,012)	$	(883)

Balance at December 31, 2019	$	3,250	$	(6,048)	$	(3,470)	$	(6,268)
Other comprehensive income (loss) before reclassifications	25,474		(328)		413		25,559
Less: Amounts reclassified from AOCI	0		(298)		14		(284)
Other comprehensive income (loss)	25,474		(30)		399		25,843
Balance at September 30, 2020	$	28,724	$	(6,078)	$	(3,071)	$	19,575