Camden National (CAC) 10-Q 2021 Q2 Quarterly report

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 June 30, 2021

OR

☐       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 July 30, 2021:  Common stock (no par value) 14,951,200 shares.

CAMDEN NATIONAL CORPORATION

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

TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT

		PAGE
PART I.  FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS
	Consolidated Statements of Condition (unaudited) - June 30, 2021 and December 31, 2020	3
	Consolidated Statements of Income (unaudited) - Three and Six Months Ended June 30, 2021 and 2020	4
	Consolidated Statements of Comprehensive Income (unaudited) - Three and Six Months Ended June 30, 2021 and 2020	5
	Consolidated Statements of Changes in Shareholders’ Equity (unaudited) - Three and Six Months Ended June 30, 2021 and 2020	6
	Consolidated Statements of Cash Flows (unaudited) - Six Months Ended June 30, 2021 and 2020	7
	Notes to the Unaudited Consolidated Financial Statements	8
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	45
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	74
ITEM 4.	CONTROLS AND PROCEDURES	75
PART II. OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	76
ITEM 1A.	RISK FACTORS	76
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		77

2

PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CONDITION

(unaudited)

(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.

3

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands, except number of shares and per share data)	2021		2020		2021		2020
Interest Income
Interest and fees on loans	$	30,865	$	33,120	$	61,425	$	67,165
Taxable interest on investments	4,376		4,883		8,205		9,761
Nontaxable interest on investments	763		828		1,491		1,615
Dividend income	102		167		207		335
Other interest income	160		180		326		515
Total interest income	36,266		39,178		71,654		79,391
Interest Expense
Interest on deposits	1,921		3,392		3,984		10,054
Interest on borrowings	176		359		332		1,197
Interest on subordinated debentures	640		888		1,445		1,775
Total interest expense	2,737		4,639		5,761		13,026
Net interest income	33,529		34,539		65,893		66,365
(Credit) provision for credit losses	(3,403)		9,398		(5,359)		11,173
Net interest income after (credit) provision for credit losses	36,932		25,141		71,252		55,192
Non-Interest Income
Mortgage banking income, net	2,598		4,691		9,707		8,225
Debit card income	3,112		2,391		5,848		4,532
Income from fiduciary services	1,707		1,603		3,233		3,105
Service charges on deposit accounts	1,517		1,337		3,056		3,349
Brokerage and insurance commissions	939		622		1,892		1,279
Bank-owned life insurance	591		614		1,185		1,303
Customer loan swap fees	0		57		0		171
Other income	856		745		1,614		1,499
Total non-interest income	11,320		12,060		26,535		23,463
Non-Interest Expense
Salaries and employee benefits	15,318		13,627		29,840		27,954
Furniture, equipment and data processing	2,947		2,710		5,974		5,500
Net occupancy costs	1,805		1,997		3,756		4,000
Debit card expense	1,074		878		2,060		1,812
Consulting and professional fees	997		1,181		1,860		1,964
Regulatory assessments	487		299		990		461
Amortization of core deposit intangible assets	164		171		328		341
Other real estate owned and collection (recoveries) costs, net	(25)		98		(216)		199
Other expenses	2,823		2,548		5,897		5,839
Total non-interest expense	25,590		23,509		50,489		48,070
Income before income tax expense	22,662		13,692		47,298		30,585
Income Tax Expense	4,519		2,752		9,415		6,152
Net Income	$	18,143	$	10,940	$	37,883	$	24,433
Per Share Data
Basic earnings per share	$	1.21	$	0.73	$	2.53	$	1.62
Diluted earnings per share	$	1.21	$	0.73	$	2.52	$	1.62
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	15,007,471		14,997,611		14,994,138		15,069,132
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.  

4

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2021		2020		2021		2020
Net Income	$	18,143	$	10,940	$	37,883	$	24,433
Other comprehensive income (loss):
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	(2,364)		52		2,800		(702)
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)	103		7,315		(12,072)		25,624
Comprehensive Income	$	18,246	$	18,255	$	25,811	$	50,057

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

5

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(unaudited)

	Three Months Ended
	Common Stock			Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
(In thousands, except number of shares and per share data)	Shares Outstanding	Amount
Balance at March 31, 2020	14,951,597	$	131,498	$	349,141	$	12,041	$	492,680
Net income	—	—		10,940		—		10,940
Other comprehensive income, net of tax	—	—		—		7,315		7,315
Stock-based compensation expense	—	530		—		—		530
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings	11,444	(47)		—		—		(47)
Cash dividends declared ($0.33 per share)	—	—		(4,951)		—		(4,951)
Balance at June 30, 2020	14,963,041	$	131,981	$	355,130	$	19,356	$	506,467
Balance at March 31, 2021	14,928,434	$	131,695	$	391,860	$	8,565	$	532,120
Net income	—	—		18,143		—		18,143
Other comprehensive income, net of tax	—	—		—		103		103
Stock-based compensation expense	—	811		—		—		811
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings	22,633	(228)		—		—		(228)
Cash dividends declared ($0.36 per share)	—	—		(5,401)		—		(5,401)
Balance at June 30, 2021	14,951,067	$	132,278	$	404,602	$	8,668	$	545,548

	Six Months Ended
	Common Stock			Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
(In thousands, except number of shares and per share data)	Shares Outstanding	Amount
Balance at December 31, 2019	15,144,719	$	139,103	$	340,580	$	(6,268)	$	473,415
Net income	—	—		24,433		—		24,433
Other comprehensive income, net of tax	—	—		—		25,624		25,624
Stock-based compensation expense	—	951		—		—		951
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings	35,353	(100)		—		—		(100)
Common stock repurchased	(217,031)	(7,973)		—		—		(7,973)
Cash dividends declared ($0.66 per share)	—	—		(9,883)		—		(9,883)
Balance at June 30, 2020	14,963,041	$	131,981	$	355,130	$	19,356	$	506,467
Balance at December 31, 2020	14,909,097	$	131,072	$	377,502	$	20,740	$	529,314
Net income	—	—		37,883		—		37,883
Other comprehensive loss, net of tax	—	—		—		(12,072)		(12,072)
Stock-based compensation expense	—	1,514		—		—		1,514
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)	—	—		(10,783)		—		(10,783)
Balance at June 30, 2021	14,951,067	$	132,278	$	404,602	$	8,668	$	545,548

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

6

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Six Months Ended June 30,
(In thousands)	2021		2020
Operating Activities
Net Income	$	37,883	$	24,433
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Originations of mortgage loans held for sale	(277,778)		(194,149)
Proceeds from the sale of mortgage loans	312,474		176,250
Gain on sale of mortgage loans, net of origination costs	(9,084)		(6,095)
(Credit) provision for credit losses	(5,359)		11,173
Depreciation and amortization expense	1,826		1,892
Investment securities amortization and accretion, net	3,733		1,755
Stock-based compensation expense	1,514		951
Amortization of core deposit intangible assets	328		341
Purchase accounting accretion, net	(435)		(617)
Net decrease (increase) in derivative collateral posted	22,090		(30,820)
Decrease (increase) in other assets	3,385		(7,789)
(Decrease) increase in other liabilities	(6,072)		3,188
Net cash provided by (used in) by operating activities	84,505		(19,487)
Investing Activities
Proceeds from available-for-sale debt securities	175,036		108,396
Purchase of available-for-sale debt securities	(482,156)		(206,496)
Net increase in loans	(66,366)		(231,369)
Purchase of Federal Home Loan Bank stock	(12)		(9,232)
Proceeds from sale of Federal Home Loan Bank stock	1,329		7,754
Purchase of premises and equipment	(1,176)		(2,261)
Recoveries of previously charged-off loans	208		170
Proceeds from the sale of other real estate owned	465		0
Net cash used in investing activities	(372,672)		(333,038)
Financing Activities
Net increase in deposits	288,870		458,624
Net proceeds from (repayments of) borrowings less than 90 days	7,974		(22,811)
Proceeds from Federal Home Loan Bank long-term advances	—		25,000
Repayments of Federal Home Loan Bank long-term advances	(25,000)		(10,000)
Repayment of subordinated debt	(15,000)		0
Common stock repurchases	(11)		(7,973)
Exercise of stock options and issuance of restricted stock, net of repurchase for tax withholdings	(308)		(100)
Cash dividends paid on common stock	(10,323)		(9,954)
Finance lease payments	(76)		(69)
Net cash provided by financing activities	246,126		432,717
Net (decrease) increase in cash, cash equivalents and restricted cash	(42,041)		80,192
Cash, cash equivalents, and restricted cash at beginning of period	145,774		75,636
Cash, cash equivalents and restricted cash at end of period	$	103,733	$	155,828
Supplemental information
Interest paid	$	5,874	$	13,528
Income taxes paid	10,294		279
Transfer from premises to other real estate owned	204		24

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

7

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 June 30, 2021 and December 31, 2020, the consolidated statements of income for the three and six months ended June 30, 2021 and 2020, the consolidated statements of comprehensive income for the three and six months ended June 30, 2021 and 2020, the consolidated statements of changes in shareholders' equity for the three and six months ended June 30, 2021 and 2020, and the consolidated statements of cash flows for the six months ended June 30, 2021 and 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 six months ended June 30, 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, 2020.

8

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	FRBB:	Federal Reserve Bank of Boston
ALCO:	Asset/Liability Committee	GAAP:	Generally accepted accounting principles in the United States
ACL:	Allowance for credit losses	GDP:	Gross domestic product
AOCI:	Accumulated other comprehensive income (loss)	HPFC:	Healthcare Professional Funding Corporation, a wholly-owned subsidiary of Camden National Bank
ASC:	Accounting Standards Codification	HTM:	Held-to-maturity
ASU:	Accounting Standards Update	IRS:	Internal Revenue Service
Bank:	Camden National Bank, a wholly-owned subsidiary of Camden National Corporation	LGD:	Loss given default
BOLI:	Bank-owned life insurance	LIBOR:	London Interbank Offered Rate
Board ALCO:	Board of Directors' Asset/Liability Committee	LTIP:	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
CUSIP:	Committee on Uniform Securities Identification Procedures	OCI:	Other comprehensive income (loss)
DCRP:	Defined Contribution Retirement Plan	OREO:	Other real estate owned
EPS:	Earnings per share	OTTI:	Other-than-temporary impairment
FASB:	Financial Accounting Standards Board	PD:	Probability of default
FDIC:	Federal Deposit Insurance Corporation	SBA:	U.S. Small Business Administration
FHLB:	Federal Home Loan Bank	SBA PPP	U.S. Small Business Administration Paycheck Protection Program
FHLBB:	Federal Home Loan Bank of Boston	SERP:	Supplemental executive retirement plans
FHLMC:	Federal Home Loan Mortgage Corporation	TDR:	Troubled-debt restructured loan
FNMA:	Federal 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

9

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Standards Adopted in 2021

The Company adopted and updated its accounting policy for the following accounting standards that have been applied to the Company's interim consolidated financial statements for the three and six months ended June 30, 2021:

ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"). The FASB issued ASU 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, 2021. There was no material impact on the Company's consolidated financial statements as a result of adopting ASU 2019-12.

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 these updates to ease the burden in accounting for the effects of reference rate reform on financial reporting. ASU 2020-04 and ASU 2021-01 contain optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform. The 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 guidance.

NOTE 3 – 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.

10

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, estimated fair value, and unrealized gains (losses) of AFS debt securities, as of the dates indicated:

(In thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
June 30, 2021
Obligations of U.S. government sponsored enterprises	$	7,200	$	2	$	(119)	$	7,083
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	829,611		13,290		(3,360)		839,541
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	423,244		5,782		(3,724)		425,302
Subordinated corporate bonds	9,017		245		(18)		9,244
Total AFS debt securities	$	1,381,864	$	25,435	$	(7,476)	$	1,399,823
December 31, 2020
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	547,396		19,796		(574)		566,618
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	399,937		10,652		(135)		410,454
Subordinated corporate bonds	11,533		186		(98)		11,621
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 gains on AFS debt securities reported within AOCI at June 30, 2021, were $14.1 million, net of a deferred tax liability of $3.9 million. The net unrealized gains on AFS investments reported within AOCI at December 31, 2020, were $29.3 million, net of a deferred tax liability of $8.0 million.

For the three and six months ended June 30, 2021 and 2020, the Company did 0t sell any AFS debt securities.

11

The following table presents the Company's AFS debt securities with gross unrealized losses, for which an ACL has not been recorded, segregated by the length of time the securities have been in a continuous loss position, as of the dates indicated:  

		Less Than 12 Months				12 Months or More				Total
(In thousands, except number of holdings)	Number of Holdings	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
June 30, 2021
Obligations of U.S. government sponsored enterprises	3	$	6,081	$	(119)	$	0	$	0	$	6,081	$	(119)
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	54	329,607		(3,358)		297		(2)		329,904		(3,360)
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	2	1,982		(18)		0		0		1,982		(18)
Total AFS debt securities	103	$	550,272	$	(7,162)	$	6,625	$	(314)	$	556,897	$	(7,476)
December 31, 2020
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	15	61,222		(568)		980		(6)		62,202		(574)
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	9	39,107		(135)		0		0		39,107		(135)
Subordinated corporate bonds	5	4,902		(98)		0		0		4,902		(98)
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 June 30, 2021 and December 31, 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 other assets on the consolidated statements of condition. An allowance was not carried on the accrued interest receivable at either date.

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The amortized cost and estimated fair values of the Company's AFS 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. Mortgage-related securities are shown in total, as their maturities are highly variable.

(In thousands)	Amortized Cost			Fair Value
Due in one year or less	$	3,018		$	3,072
Due after one year through five years	4,276			4,641
Due after five years through ten years	74,599			77,814
Due after ten years	47,116			49,453
Subtotal	129,009			134,980
Mortgage-related securities	1,252,855			1,264,843
Total	$	1,381,864	1381864000	$	1,399,823

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.

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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 Company's investment in FHLBB stock and FRBB stock as presented within other investments on the consolidated statements of condition, as of the dates indicated:

(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

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NOTE 4 – LOANS AND ALLOWANCE FOR 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)	June 30, 2021		December 31, 2020
Commercial Loans:
Commercial real estate - non owner-occupied	$	1,127,200	$	1,097,975
Commercial real estate - owner-occupied	296,697		271,495
Commercial	367,093		381,494
SBA PPP	126,064		135,095
Total commercial loans	1,917,054		1,886,059
Retail Loans:
Residential real estate	1,120,917		1,054,798
Home equity	228,690		258,573
Consumer	19,255		20,392
Total retail loans	1,368,862		1,333,763
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)	June 30, 2021		December 31, 2020
Net unamortized fair value mark discount on acquired loans	$	(857)	$	(1,291)
Net unamortized loan (fees) origination costs(1)	(2,012)		856
Total	$	(2,869)	$	(435)

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

Beginning in April 2020, the Company started funding SBA PPP loans issued to qualifying businesses as part of the federal stimulus package issued due to the COVID-19 pandemic. For the six months ended June 30, 2021, the Company originated 1,620 SBA PPP loans totaling $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 June 30, 2021 and December 31, 2020, outstanding loans to certain officers, directors and their associated companies was less than 5% of the Company's shareholders' equity.

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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 secondary market, which resulted in gains on the sale of 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 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 held for sale. The Company has 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 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 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 each reporting date.

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 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, 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 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 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 ACL on loans, the Company disaggregates its loans into portfolio segments. Each portfolio segment possesses unique risk characteristics that are considered when determining the appropriate level of allowance. As of June 30, 2021, the Company's loan portfolio segments, as determined based on the unique risk characteristics of each, include the following:

Commercial Real Estate - Non Owner-Occupied. 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 that may include, but are not limited to, multi-family residential, commercial/retail office 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

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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 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. Maximum loan-to-value ratios at origination are governed by established policy and regulatory guidelines.

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 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. These loans were originated under the guidance of the SBA, which has been subject to change.

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 residences, including for investment purposes.

Home Equity. Home equity loans and lines of credit are made to qualified individuals 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.

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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.

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

(In thousands)	Commercial Real Estate(1)		Commercial		SBA PPP		Residential Real Estate		Home Equity		Consumer		Total
At or For The Three and Six Months Ended June 30, 2020
Allowance for the three months ended:
Beginning balance	$	13,374	$	4,297	$	0	$	5,897	$	2,480	$	473	$	26,521
Loans charged off	(21)		(420)		0		0		(17)		(26)		(484)
Recoveries	3		63		0		21		0		15		102
Provision	5,030		909		113		2,685		621		42		9,400
Ending balance	$	18,386	$	4,849	$	113	$	8,603	$	3,084	$	504	$	35,539
Allowance for the six months ended:
Beginning balance	$	12,414	$	3,985	$	0	$	5,842	$	2,423	$	507	$	25,171
Loans charged off	(71)		(673)		0		(96)		(51)		(83)		(974)
Recoveries	7		116		0		23		4		20		170
Provision(1)	6,036		1,421		113		2,834		708		60		11,172
Ending balance	$	18,386	$	4,849	$	113	$	8,603	$	3,084	$	504	$	35,539
Allowance balance attributable to loans:
Individually evaluated for impairment	$	35	$	0	$	0	$	338	$	89	$	0	$	462
Collectively evaluated for impairment	18,351		4,849		113		8,265		2,995		504		35,077
Total ending allowance	$	18,386	$	4,849	$	113	$	8,603	$	3,084	$	504	$	35,539
Loans:
Individually evaluated for impairment	$	461	$	179	$	0	$	3,153	$	370	$	0	$	4,163
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	$	1,310,985	$	428,186	$	218,803	$	1,054,333	$	290,815	$	22,919	$	3,326,041

(1)    Includes both commercial real estate - non owner-occupied and owner-occupied loan 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 June 30, 2021, the Company's total exposure to the lessors of nonresidential buildings' industry was 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 June 30, 2021.

COVID-19 Loan Deferral 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. All loans that were granted temporary payment relief during the year ended 2020 complied with the terms of the CARES Act, which 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 six months ended June 30, 2021. However, the 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 that provided TDR accounting relief to the earlier of: (i) December 31, 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 terminates.

At June 30, 2021, the Company did 0t have any loans operating under temporary short-term payment deferral arrangements 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 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.

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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 commercial real estate - non owner-occupied and owner-occupied, commercial and residential real estate 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 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 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.

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Based on the most recent analysis performed, the risk category of loans by portfolio segment by vintage, reported under the CECL methodology, was as follows as of the 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

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(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

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Past Due and 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 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 and bank regulatory guidance at the time of initial relief. 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 loans past due over 90 days and accruing as of the following dates:

(In thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loans Outstanding		Loans > 90 Days Past Due and Accruing
June 30, 2021
Commercial real estate - non owner-occupied	$	99	$	0	$	63	$	162	$	1,127,038	$	1,127,200	$	0
Commercial real estate - owner-occupied	0		0		47		47		296,650		296,697		0
Commercial	183		0		836		1,019		366,074		367,093		0
SBA PPP	0		0		0		0		126,064		126,064		0
Residential real estate	489		155		1,570		2,214		1,118,703		1,120,917		0
Home equity	236		0		919		1,155		227,535		228,690		0
Consumer	35		9		28		72		19,183		19,255		0
Total	$	1,042	$	164	$	3,463	$	4,669	$	3,281,247	$	3,285,916	$	0
December 31, 2020
Commercial real estate - non owner-occupied	$	0	$	50	$	173	$	223	$	1,097,752	$	1,097,975	$	0
Commercial real estate - owner-occupied	99		0		47		146		271,349		271,495		0
Commercial	430		0		857		1,287		380,207		381,494		0
SBA PPP	0		0		0		0		135,095		135,095		0
Residential real estate	1,406		1,103		2,535		5,044		1,049,754		1,054,798		0
Home equity	335		173		1,416		1,924		256,649		258,573		0
Consumer	92		67		4		163		20,229		20,392		0
Total	$	2,362	$	1,393	$	5,032	$	8,787	$	3,211,035	$	3,219,822	$	0

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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 $67,000 and $87,000 for the three months ended June 30, 2021 and 2020, respectively. For the six months ended June 30, 2021 and 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 $143,000 and $166,000, respectively.

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.

24

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 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 ACL for the dates indicated:

	Number of Contracts		Recorded Investment				Specific Reserve
(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	1	2	$	123	$	328	$	41	$	37
Commercial	2	2	89		100		0		0
Residential real estate	19	21	2,383		2,638		364		364
Consumer and home equity	2	0	231		0		23		0
Total	24	25	$	2,826	$	3,066	$	428	$	401

At 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 $2.8 million and $248,000, respectively.

The following represents loan modifications that qualify as TDRs that occurred during the 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 December 31, 2020, the Company did 0t have any material commitments to lend additional funds to borrowers with loans classified as TDRs.

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

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Impaired Loans

For periods prior to the adoption of CECL (i.e. periods before October 1, 2020), under the incurred loss methodology, impaired loans consisted of non-accrual loans and TDRs that 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

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

In-Process Foreclosure Proceedings

At June 30, 2021 and December 31, 2020, the Company had $1.3 million and $1.5 million, respectively, of consumer mortgage loans secured by residential real estate properties for which foreclosure proceedings were in process.

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 at June 30, 2021 and December 31, 2020.

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

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NOTE 5 – BORROWINGS

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

(In thousands)	June 30, 2021		December 31, 2020
Short-Term Borrowings:
Customer repurchase agreements	$	170,413	$	162,439
Total short-term borrowings	$	170,413	$	162,439
Long-Term Borrowings:
FHLBB borrowings	$	0	$	25,000
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. Since the securities are treated as collateral and the agreement does not qualify for a full transfer of effective control, the transactions do not meet the criteria to be classified as sales, and are therefore considered secured borrowing 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 as of the dates indicated:

(In thousands)	June 30, 2021		December 31, 2020
Customer Repurchase Agreements(1)(2):
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	80,555		70,902
Obligations of states and political subdivisions	0		1,522
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 June 30, 2021 and December 31, 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.

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NOTE 7 – COMMITMENTS AND CONTINGENCIES

Commitments

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

The following is a summary of the Company's contractual off-balance sheet commitments for the dates indicated:

(In thousands)	June 30, 2021		December 31, 2020
Commitments to extend credit	$	753,052	$	723,986
Standby letters of credit	6,441		4,735
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.

28

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

NOTE 8 – DERIVATIVES AND HEDGING

The Company 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 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 rates.

Derivatives Designated as Hedging Instruments - Cash Flow Hedges of Interest Rate Risk

Interest Rate Contracts

The Company’s objectives in 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 the 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 gain or loss on the derivative is recorded in AOCI and subsequently reclassified into interest expense or interest income in the 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 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 executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in 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.

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.

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The following table presents the fair value of the Company's derivative financial instruments as well as their classification on the consolidated statements of 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 payable.

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The table below presents the effect of cash flow hedge accounting, before tax, on AOCI for the periods indicated:

(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

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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

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

The Company 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 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 has minimum collateral posting thresholds with certain of its derivative counterparties and has posted cash collateral of $36.2 million and $57.5 million, respectively. If the 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 agreements at their termination value of $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.

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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
(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
June 30, 2021
Derivative assets:
Customer loan swaps - commercial customer(2)	$	27,648	$	0	$	27,648	$	0	$	0	$	27,648
Interest rate contracts(3)	6,814		0		6,814		0		(6,662)		152
Total	$	34,462	$	0	$	34,462	$	0	$	(6,662)	$	27,800
Derivative liabilities:
Customer loan swaps - dealer bank(3)	$	27,648	$	0	$	27,648	$	0	$	27,648	$	0
Interest rate contracts(3)	9,153		0		9,153		0		9,153		0
Total	$	36,801	$	0	$	36,801	$	0	$	36,801	$	0
Customer repurchase agreements	$	170,413	$	0	$	170,413	$	170,413	$	0	$	0
December 31, 2020
Derivative assets:
Customer loan swaps - commercial customer(2)	$	39,627	$	0	$	39,627	$	0	$	0	$	39,627
Interest rate contracts(3)	5,731		0		5,731		0		(5,595)		136
Total	$	45,358	$	0	$	45,358	$	0	$	(5,595)	$	39,763
Derivative liabilities:
Customer loan swaps - dealer bank(3)	$	39,627	$	0	$	39,627	$	0	$	39,627	$	0
Interest rate contracts(3)	11,625		0		11,625		0		11,625		0
Total	$	51,252	$	0	$	51,252	$	0	$	51,252	$	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

34

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 requirements, including the capital conservation buffer, at June 30, 2021 and December 31, 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 June 30, 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:

	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)	Amount		Ratio						Amount		Ratio
Camden National Corporation:
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	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)	431,903		12.94	%	7.00	%	N/A		402,858		12.45	%	7.00	%	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:
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	435,571		13.10	%	8.50	%	8.00	%	420,294		13.03	%	8.50	%	8.00	%
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	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. The Company's $15.0 million of subordinated debentures became subject to phase-out of Tier 2 capital 20% annually beginning in October 2020, and 20% annually thereafter, until fully phased-out by 2024. At June 30, 2021 and December 31, 2020, $43.0 million of the junior subordinated debentures were included in Tier 1 and Tier 2 capital for the Company.

On April 16, 2021, the Company redeemed its $15.0 million of subordinated debentures in full, at par plus accrued and unpaid interest, and, thus, was no longer included as Tier 2 capital within the calculation of 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.

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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:

	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 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.

(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.

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

	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.

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(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.

(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 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.

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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:

	Location on Consolidated Statements of Income	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)		2021		2020		2021		2020
Debit card interchange income	Debit card income	$	3,112	$	2,391	$	5,848	$	4,532
Services charges on deposit accounts	Service charges on deposit accounts	1,517		1,337		3,056		3,349
Fiduciary services income	Income from fiduciary services	1,707		1,603		3,233		3,105
Investment program income	Brokerage and insurance commissions	939		622		1,892		1,279
Other non-interest income	Other income	447		423		847		806
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		3,598		5,684		11,659		10,392
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 following periods:

Supplemental Executive Retirement Plan:

(In thousands)	Location on Consolidated Statements of Income	Three Months Ended June 30,				Six Months Ended June 30,
Net periodic pension cost		2021		2020		2021		2020
Service cost	Salaries and employee benefits	$	126	$	116	$	252	$	232
Interest cost	Other expenses	98		115		195		230
Recognized net actuarial loss	Other expenses	194		156		389		312
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

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NOTE 14 – EPS

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

	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands, except number of shares and per share data)	2021		2020		2021		2020
Net income	$	18,143	$	10,940	$	37,883	$	24,433
Dividends and undistributed earnings allocated to participating securities(1)	(51)		(27)		(105)		(55)
Net income available to common shareholders	$	18,092	$	10,913	$	37,778	$	24,378
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)	63,985		37,760		64,121		37,607
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:
Basic EPS	$	1.21	$	0.73	$	2.53	$	1.62
Diluted EPS	$	1.21	$	0.73	$	2.52	$	1.62
Awards excluded from the calculation of diluted EPS(3):
MSPP	0		6,748		0		0
Performance-based awards	0		3,454		0		2,429
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.

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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

Trading Securities: The fair value of trading securities is reported using market quoted prices and has been classified as Level 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.

Loans Held For Sale: The fair value of loans held for sale is determined on an individual loan basis using quoted secondary market prices and is classified as Level 2.

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 June30, 2021 and December 31, 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.

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

(In thousands)	Fair Value		Readily Available Market Prices (Level 1)		Observable Market Data (Level 2)		Company Determined Fair Value (Level 3)
June 30, 2021
Financial assets:
Trading securities	$	4,354	$	4,354	$	0	$	0
AFS debt securities:
Obligations of U.S. government sponsored enterprises	7,083		0		7,083		0
Obligations of states and political subdivisions	118,653		0		118,653		0
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	425,302		0		425,302		0
Subordinated corporate bonds	9,244		0		9,244		0
Loans held for sale	15,140		0		15,140		0
Customer loan swaps	27,648		0		27,648		0
Interest rate contracts	6,814		0		6,814		0
Fixed-rate mortgage interest rate lock commitments	870		0		870		0
Forward delivery commitments	145		0		145		0
Financial liabilities:
Trading securities	$	4,354	$	4,354	$	0	$	0
Customer loan swaps	27,648		0		27,648		0
Interest rate contracts	9,153		—		9,153		0
Fixed-rate mortgage interest rate lock commitments	54		—		54		0
Forward delivery commitments	17		—		17		0
December 31, 2020
Financial assets:
Trading securities	$	4,161	$	4,161	$	0	$	0
AFS debt securities:
Obligations of states and political subdivisions	127,120		0		127,120		0
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	410,454		0		410,454		0
Subordinated corporate bonds	11,621		0		11,621		0
Loans held for sale	41,557		0		41,557		0
Customer loan swaps	39,627		0		39,627		0
Interest rate contracts	5,731		0		5,731		0
Fixed-rate mortgage interest rate lock commitments	608		0		608		0
Forward delivery commitments	311		0		311		0
Financial liabilities:
Trading securities	$	4,161	$	4,161	$	0	$	0
Customer loan swaps	39,627		0		39,627		0
Interest rate contracts	11,625		0		11,625		0
Fixed-rate mortgage interest rate lock commitments	248		0		248		0
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 six months ended June 30, 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.

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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 Loans:  Expected credit losses on individually assessed loans deemed to be collateral dependent are valued based upon the lower of amortized cost of fair value of the underlying collateral less costs to sell. Management 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 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.

Goodwill: Goodwill represents the excess cost of an acquisition over the fair value of the net assets acquired. The fair value of goodwill is estimated by utilizing several standard valuation techniques, including discounted cash flow analyses, bank merger multiples, and/or an estimation of the impact of business conditions and investor activities on the long-term value of the goodwill. Should an impairment occur, the associated goodwill is written-down to fair value and the impairment charge is recorded within non-interest expense in the consolidated statements of income. The Company conducts an annual impairment test of goodwill in the fourth quarter each year, or more frequently as necessary. There have been no indications or triggering events during the six months ended June 30, 2021, for which management believes it is more likely than not that goodwill 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 six months ended June 30, 2021, that indicated the carrying amount may not be recoverable.

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The table below highlights financial and non-financial assets measured and recorded at fair value on a non-recurring basis for the dates indicated:

(In thousands)	Fair Value		Readily Available Market Prices (Level 1)		Observable Market Data (Level 2)		Company Determined Fair Value (Level 3)
June 30, 2021
Financial assets:
Collateral-dependent loans	$	74	$	0	$	0	$	74
December 31, 2020
Financial assets:
Servicing assets	$	1,010	$	0	$	0	$	1,010
Non-financial assets:
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
June 30, 2021
Collateral-dependent loans:
Specifically reserved	$	74	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	5%
				Estimated selling cost	11%

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

(In thousands)	Carrying Amount		Fair Value		Readily Available Market Prices (Level 1)		Observable Market Prices (Level 2)		Company Determined Market Prices (Level 3)
June 30, 2021
Financial assets:
HTM debt securities	$	1,294	$	1,397	$	0	$	1,397	$	0
Commercial real estate loans(1)(2)	1,401,804		1,360,353		0		0		1,360,353
Commercial loans(2)	362,751		358,273		0		0		358,273
SBA PPP loans(2)	125,998		131,418		0		0		131,418
Residential real estate loans(2)	1,117,712		1,123,720		0		0		1,123,720
Home equity loans(2)	226,625		224,569		0		0		224,569
Consumer loans(2)	18,966		17,137		0		—		17,137
Servicing assets	2,498		3,030		0		0		3,030
Financial liabilities:
Time deposits	$	384,357	$	385,620	$	0	$	385,620	$	0
Short-term borrowings	170,413		170,394		0		170,394		0
Subordinated debentures	44,331		32,583		0		32,583		0
December 31, 2020
Financial assets:
HTM debt securities	$	1,297	$	1,411	$	0	$	1,411	$	0
Commercial real estate loans(1)(2)	1,344,860		1,307,132		0		0		1,307,132
Commercial loans(2)	374,791		372,194		0		0		372,194
SBA PPP loans(2)	135,026		137,209		0		0		137,209
Residential real estate loans(2)	1,051,324		1,066,991		0		0		1,066,991
Home equity loans(2)	255,957		253,276		0		0		253,276
Consumer loans(2)	19,999		18,102		0		0		18,102
Servicing assets	2,196		1,437		0		0		1,437
Financial liabilities:
Time deposits	$	457,694	$	460,278	$	0	$	460,278	$	0
Short-term borrowings	162,439		162,420		0		162,420		0
Long-term borrowings	25,000		25,442		0		25,442		0
Subordinated debentures	59,331		46,475		0		46,475		0

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

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

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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 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.

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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, 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.

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NON-GAAP FINANCIAL MEASURES AND RECONCILIATION TO GAAP

In addition to evaluating the Company’s results of operations in accordance with GAAP, management supplements this evaluation with an analysis of certain non-GAAP financial measures, such as the return on average tangible equity; efficiency ratio; net interest income (fully-taxable equivalent); pre-tax, pre-provision earnings; 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 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 June 30,						Six Months Ended June 30,
(Dollars in thousands)	2021			2020			2021			2020
Net income, as presented	$	18,143		$	10,940		$	37,883		$	24,433
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	$	18,273		$	11,075		$	38,142		$	24,702
Average equity, as presented	$	538,947		$	499,449		$	536,311		$	489,811
Less: average goodwill and core deposit intangible assets	(97,292)			(97,965)			(97,377)			(98,054)
Average tangible equity	$	441,655		$	401,484		$	438,934		$	391,757
Return on average equity	13.50		%	8.81		%	14.24		%	10.03		%
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 June 30,						Six Months Ended June 30,
(Dollars in thousands)	2021			2020			2021			2020
Non-interest expense, as presented	$	25,590		$	23,509		$	50,489		$	48,070
Less: prepayment penalty on borrowings	—			—			(514)			—
Adjusted non-interest expense	$	25,590		$	23,509		$	49,975		$	48,070
Net interest income, as presented	$	33,529		$	34,539		$	65,893		$	66,365
Add: effect of tax-exempt income(1)	265			295			536			574
Non-interest income, as presented	11,320			12,060			26,535			23,463
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)	57.06		%	50.45		%	54.63		%	53.51		%
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.

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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 June 30,				Six Months Ended June 30,
(In thousands)	2021		2020		2021		2020
Net interest income, as presented	$	33,529	$	34,539	$	65,893	$	66,365
Add: effect of tax-exempt income(1)	265		295		536		574
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 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 ACL across financial institutions.

	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2021		2020		2021		2020
Net income, as presented	$	18,143	$	10,940	$	37,883	$	24,433
Add: (credit) provision for credit losses	(3,403)		9,398		(5,359)		11,173
Add: income tax expense	4,519		2,752		9,415		6,152
Pre-tax, pre-provision earnings	$	19,259	$	23,090	$	41,939	$	41,758

Adjusted Yield on Interest-Earning Assets. Adjusted yield on interest-earning assets normalizes the Company's reported yield on interest-earning assets 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
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	%

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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)	June 30, 2021			December 31, 2020
Tangible Book Value Per Share:
Shareholders’ equity, as presented	$	545,548		$	529,314
Less: goodwill and other intangible assets	(97,213)			(97,540)
Tangible shareholders’ equity	$	448,335		$	431,774
Shares outstanding at period end	14,951,067			14,909,097
Book value per share	$	36.49		$	35.50
Tangible book value per share	$	29.99		$	28.96
Tangible Common Equity Ratio:
Total assets	$	5,152,069		$	4,898,745
Less: goodwill and other intangible assets	(97,213)			(97,540)
Tangible assets	$	5,054,856		$	4,801,205
Common equity ratio	10.59		%	10.81		%
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)	June 30, 2021		December 31, 2020
Total deposits	$	4,294,114	$	4,005,244
Less: certificates of deposit	(334,336)		(357,666)
Less: brokered deposits	(282,786)		(283,567)
Core deposits	$	3,676,992	$	3,364,011

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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 March 31,				Six Months Ended June 30,
(In thousands)	2021		2020		2021		2020
Total average deposits	$	3,984,113	$	3,676,000	$	3,877,803	$	3,515,798
Less: average certificates of deposit	(338,595)		(477,068)		(345,039)		(514,573)
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

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CRITICAL ACCOUNTING POLICIES

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

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 June 30, 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

Operating Results. Net income for the second quarter of 2021 was $18.1 million, an increase of $7.2 million, or 66%, over the second quarter of 2020, and diluted EPS was $1.21 for the 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%.

The key earnings drivers between periods were:

•A release of provision for credit losses of $3.4 million for the second quarter of 2021, compared to a $9.4 million provision charge for the second quarter of 2020. The second quarter of 2020 marked the first full quarter of the COVID-19 pandemic, and, in 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.

•Mortgage banking income for the second quarter of 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.

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•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 customer spending as consumers and businesses received proceeds from various government stimulus programs.

•Salaries and employee benefit costs for the 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.

•Mortgage banking income for the first half of 2021 was $9.7 million, an increase of $1.5 million, or 18%, over the 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 six months ended June 30, 2021, compared to $1.7 million for the six months ended June 30, 2020.

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

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

Other key financial metrics for the periods indicated were as follows:

	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 June 30, 2021, the Company's asset quality metrics remained very strong, continuing its trend from December 31, 2020. Non-performing assets were 0.17% of total assets and loans 30-89 days past due were 0.02% of total loans. In comparison, at December 31, 2020, non-performing assets were 0.22% of total assets and loans 30-89 days past due were 0.10% of total loans.

As of June 30, 2021, no loans were operating under a short-term deferral arrangement 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 have since fully paid-off. Of those loans that were previously 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.

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

52

capital and reducing the Company's total risk-based capital ratio.

On June 29, 2021, the Company announced a 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 its closing share price of $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.

In the first quarter of 2021, the Company initiated a new share repurchase program for up to 750,000 shares of its common stock, or approximately 5% of the Company's shares outstanding. This share repurchase program replaces the program that terminated in January 2021. The Company did not repurchase any shares of its common stock during the 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 June 30, 2021, net interest income was $33.5 million, or 75% of total revenues, and $65.9 million, or 71% of total revenues, respectively, compared to $34.5 million, or 74% of total revenues, and $66.4 million, or 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

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 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 result of 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 the result of 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%, led by average core deposits (non-GAAP) growth of $446.6 million, or 14%, reducing the need for more costly borrowings. As a result, average 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 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%.

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•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 various federal government stimulus programs issued in response to the COVID-19 pandemic.

Net Interest Margin

For the three months ended June 30, 2021, net interest margin on a fully-taxable equivalent basis was 2.83%, a decrease of 28 basis points compared to the three months ended June 30, 2020. The Company's yield on average interest-earning assets compressed 47 basis points between periods to 3.06% for the three months ended June 30, 2021, while its cost of funds decreased 20 basis points between periods to 0.24% for the three months ended June 30, 2021.

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 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 3.10% for the six months ended June 30, 2021, while its cost of funds decreased 38 basis points between periods to 0.26% for the six months ended June 30, 2021.

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 six months ended June 30, 2021, was 2.90%, compared to 3.11% for the six months ended June 30, 2020.

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:

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Quarterly Average Balance, Interest and Yield/Rate Analysis

	Three Months Ended
	June 30, 2021						June 30, 2020
(Dollars in thousands)	Average Balance		Interest		Yield/Rate		Average Balance		Interest		Yield/Rate
Assets
Interest-earning assets:
Interest-bearing deposits in other banks and other interest-earning assets	$	235,676	$	56	0.09	%	$	168,221	$	26	0.06	%
Investments - taxable	1,129,682		4,582		1.62	%	836,885		5,203		2.49	%
Investments - nontaxable(1)	114,811		965		3.36	%	124,101		1,049		3.38	%
Loans(2):
Commercial real estate	1,407,374		12,792		3.60	%	1,302,393		12,609		3.83	%
Commercial(1)	319,100		3,046		3.78	%	404,545		3,868		3.78	%
SBA PPP	158,258		1,660		4.15	%	178,119		1,706		3.79	%
HPFC	10,775		269		9.89	%	17,659		414		9.28	%
Municipal(1)	26,137		212		3.26	%	19,567		176		3.62	%
Residential real estate	1,093,502		10,310		3.77	%	1,084,931		11,002		4.06	%
Consumer and home equity	253,825		2,639		4.17	%	321,019		3,420		4.29	%
Total loans	3,268,971		30,928		3.76	%	3,328,233		33,195		3.97	%
Total interest-earning assets	4,749,140		36,531		3.06	%	4,457,440		39,473		3.53	%
Cash and due from banks	53,048						49,777
Other assets	364,258						392,271
Less: ACL	(35,629)						(27,823)
Total assets	$	5,130,817					$	4,871,665
Liabilities & Shareholders' Equity
Deposits:
Non-interest checking	$	970,446	$	—	—	%	$	664,605	$	—	—	%
Interest checking	1,311,400		588		0.18	%	1,298,468		906		0.28	%
Savings	659,892		67		0.04	%	518,803		76		0.06	%
Money market	703,780		506		0.29	%	717,056		659		0.37	%
Certificates of deposit	338,595		449		0.53	%	477,068		1,588		1.34	%
Total deposits	3,984,113		1,610		0.16	%	3,676,000		3,229		0.35	%
Borrowings:
Brokered deposits	284,194		311		0.44	%	234,823		163		0.28	%
Customer repurchase agreements	184,663		176		0.38	%	209,302		291		0.56	%
Subordinated debentures	46,639		640		5.50	%	59,194		888		6.03	%
Other borrowings	—		—		—	%	76,983		68		0.35	%
Total borrowings	515,496		1,127		0.88	%	580,302		1,410		0.98	%
Total funding liabilities	4,499,609		2,737		0.24	%	4,256,302		4,639		0.44	%
Other liabilities	92,261						115,914
Shareholders' equity	538,947						499,449
Total liabilities & shareholders' equity	$	5,130,817					$	4,871,665
Net interest income (fully-taxable equivalent)			33,794						34,834
Less: fully-taxable equivalent adjustment			(265)						(295)
Net interest income			$	33,529					$	34,539
Net interest rate spread (fully-taxable equivalent)					2.82	%					3.09	%
Net interest margin (fully-taxable equivalent)					2.83	%					3.11	%
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.

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

	Six Months Ended
	June 30, 2021						June 30, 2020
(Dollars in thousands)	Average Balance		Interest		Yield/Rate		Average Balance		Interest		Yield/Rate
Assets
Interest-earning assets:
Interest-bearing deposits in other banks and other interest-earning assets	$	223,329	$	102	0.09	%	$	117,201	$	233	0.39	%
Investments - taxable	1,038,575		8,636		1.66	%	822,963		10,377		2.52	%
Investments - nontaxable(1)	116,630		1,887		3.24	%	120,819		2,044		3.38	%
Loans(2):
Commercial real estate	1,395,152		25,166		3.59	%	1,287,965		26,255		4.03	%
Commercial(1)	326,240		6,167		3.76	%	410,563		8,302		4.00	%
SBA PPP	156,588		3,536		4.49	%	89,033		1,706		3.79	%
HPFC	11,657		495		8.44	%	18,997		817		8.50	%
Municipal(1)	25,141		410		3.29	%	18,279		331		3.64	%
Residential real estate	1,088,330		20,388		3.75	%	1,081,884		22,294		4.12	%
Consumer and home equity	261,227		5,403		4.17	%	327,895		7,606		4.66	%
Total loans	3,264,335		61,565		3.76	%	3,234,616		67,311		4.14	%
Total interest-earning assets	4,642,869		72,190		3.10	%	4,295,599		79,965		3.71	%
Cash and due from banks	52,305						46,323
Other assets	376,234						364,544
Less: ALL	(36,771)						(26,537)
Total assets	$	5,034,637					$	4,679,929
Liabilities & Shareholders' Equity
Deposits:
Non-interest checking	$	894,460	$	—	—	%	$	597,053	$	—	—	%
Interest checking	1,300,516		1,200		0.19	%	1,222,626		2,893		0.48	%
Savings	643,333		130		0.04	%	497,826		162		0.07	%
Money market	694,455		1,029		0.30	%	683,720		2,245		0.66	%
Certificates of deposit	345,039		998		0.58	%	514,573		3,796		1.48	%
Total deposits	3,877,803		3,357		0.17	%	3,515,798		9,096		0.52	%
Borrowings:
Brokered deposits	284,406		627		0.44	%	221,454		958		0.87	%
Customer repurchase agreements	175,245		297		0.34	%	222,827		925		0.83	%
Subordinated debentures	52,950		1,445		5.50	%	59,157		1,775		6.03	%
Other borrowings	7,182		35		0.99	%	68,120		272		0.80	%
Total borrowings	519,783		2,404		0.93	%	571,558		3,930		1.38	%
Total funding liabilities	4,397,586		5,761		0.26	%	4,087,356		13,026		0.64	%
Other liabilities	100,740						102,762
Shareholders' equity	536,311						489,811
Total liabilities & shareholders' equity	$	5,034,637					$	4,679,929
Net interest income (fully-taxable equivalent)			66,429						66,939
Less: fully-taxable equivalent adjustment			(536)						(574)
Net interest income			$	65,893					$	66,365
Net interest rate spread (fully-taxable equivalent)					2.84	%					3.07	%
Net interest margin (fully-taxable equivalent)					2.85	%					3.10	%
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.

56

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.

	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)
(In thousands)	Volume		Rate				Volume		Rate
Interest-earning assets:
Interest-bearing deposits in other banks and other interest-earning assets	$	10	$	20	$	30	$	207	$	(338)	$	(131)
Investments – taxable	1,823		(2,444)		(621)		2,717		(4,458)		(1,741)
Investments – nontaxable	(79)		(5)		(84)		(71)		(86)		(157)
Commercial real estate	1,016		(833)		183		2,184		(3,273)		(1,089)
Commercial	(816)		(6)		(822)		(1,705)		(430)		(2,135)
SBA PPP	(190)		144		(46)		1,294		536		1,830
HPFC	(162)		17		(145)		(315)		(7)		(322)
Municipal	59		(23)		36		124		(45)		79
Residential real estate	87		(779)		(692)		133		(2,039)		(1,906)
Consumer and home equity	(717)		(64)		(781)		(1,545)		(658)		(2,203)
Total interest income (fully-taxable equivalent)	1,031		(3,973)		(2,942)		3,023		(10,798)		(7,775)
Interest-bearing liabilities:
Interest checking	9		(327)		(318)		186		(1,879)		(1,693)
Savings	21		(30)		(9)		51		(83)		(32)
Money market	(12)		(141)		(153)		35		(1,251)		(1,216)
Certificates of deposit	(461)		(678)		(1,139)		(1,248)		(1,550)		(2,798)
Brokered deposits	34		114		148		272		(603)		(331)
Customer repurchase agreements	(34)		(81)		(115)		(197)		(431)		(628)
Subordinated debentures	(188)		(60)		(248)		(186)		(144)		(330)
Other borrowings	(68)		—		(68)		(242)		5		(237)
Total interest expense	(699)		(1,203)		(1,902)		(1,329)		(5,936)		(7,265)
Net interest income (fully-taxable equivalent)	$	1,730	$	(2,770)	$	(1,040)	$	4,352	$	(4,862)	$	(510)

57

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

Effective January 1, 2020, but applied to interim reporting periods on or after October 1, 2020, the Company adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), commonly referred to as "CECL," to account for the ACL. CECL requires the measurement of expected lifetime credit losses for 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 ACL be calculated based on current expected credit losses over the remaining expected life of the financial asset and also considers expected changes in macroeconomic conditions. The (credit) provision for credit losses on the consolidated statements income for the three and six months June 30, 2021, was calculated using the CECL methodology, whereas the (credit) provision for credit losses for the three and six months ended June 30, 2020, was calculated using the incurred loss model, which relied on management's periodic assessment of the adequacy of the ACL.

The (credit) provision for credit losses was made up of the following components for the periods indicated:

	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 three and six months ended June 30, 2021, a release of provision for loan losses of $3.5 million and $5.4 million, respectively, was recorded. The release of provision for loan losses for the three and six months ended June 30, 2021, was 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 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 three and six months ended June 30, 2020, reflected the onset of the COVID-19 pandemic and an elevated qualitative factor adjustment ("Q-factor") under the incurred loss model.

For the three and six months ended June 30, 2021, annualized net charge-offs were 0.03% of average loans, compared to 0.05% of average loans for three and six months ended June 30, 2020.

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Non-Interest Income

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

	Three Months Ended June 30,				Change			Six Months Ended June 30,				Change
(Dollars in thousands)	2021		2020		$	%		2021		2020		$		%
Mortgage banking income, net(1)	$	2,598	$	4,691	(2,093)	(45)	%	$	9,707	$	8,225	$	1,482	18	%
Debit card income(2)	3,112		2,391		721	30	%	5,848		4,532		1,316		29	%
Income from fiduciary services	1,707		1,603		104	6	%	3,233		3,105		128		4	%
Service charges on deposit accounts(3)	1,517		1,337		180	13	%	3,056		3,349		(293)		(9)	%
Brokerage and insurance commissions	939		622		317	51	%	1,892		1,279		613		48	%
Bank-owned life insurance	591		614		(23)	(4)	%	1,185		1,303		(118)		(9)	%
Customer loan swap fees	—		57		(57)	(100)	%	—		171		(171)		(100)	%