CAMDEN NATIONAL CORP - Quarter Report: 2021 March (Form 10-Q)

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 March 31, 2021

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

SECURITIES EXCHANGE ACT OF 1934

Commission File No. 0-28190

CAMDEN NATIONAL CORPORATION

(Exact name of registrant as specified in its charter)


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

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

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

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


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

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

Yes x No ¨

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

Yes x No ¨

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

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

Yes ☐ No ☒

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

Outstanding at April 30, 2021: Common stock (no par value) 14,941,949 shares.

CAMDEN NATIONAL CORPORATION

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2021

TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT


		PAGE
PART I. FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS

	Consolidated Statements of Condition (unaudited) - March 31, 2021 and December 31, 2020	3

	Consolidated Statements of Income (unaudited) - Three Months Ended March 31, 2021 and 2020	4

	Consolidated Statements of Comprehensive Income (unaudited) - Three Months Ended March 31, 2021 and 2020	5

	Consolidated Statements of Changes in Shareholders’ Equity (unaudited) - Three Months Ended March 31, 2021 and 2020	6

	Consolidated Statements of Cash Flows (unaudited) - Three Months Ended March 31, 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	43

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	68

ITEM 4.	CONTROLS AND PROCEDURES	69

PART II. OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	70

ITEM 1A.	RISK FACTORS	70

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	70

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	70

ITEM 4.	MINE SAFETY DISCLOSURES	70

ITEM 5.	OTHER INFORMATION	70

ITEM 6.	EXHIBITS	70

SIGNATURES		71

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CONDITION

(unaudited)


(In thousands, except number of shares)	March 31, 2021		December 31, 2020
ASSETS
Cash and due from banks	$	48,558	$	49,524
Interest-bearing deposits in other banks (including restricted cash)	319,689		96,250
Total cash, cash equivalents and restricted cash	368,247		145,774
Investments:
Trading securities	4,123		4,161
Available-for-sale securities, at fair value (book value of $1,100,514 and $1,078,474, respectively)	1,115,548		1,115,813
Held-to-maturity securities, at amortized cost (fair value of $1,396 and $1,411, respectively)	1,295		1,297
Other investments	10,212		11,541
Total investments	1,131,178		1,132,812
Loans held for sale, at fair value (book value of $22,243 and $40,499, respectively)	22,229		41,557
Loans	3,237,046		3,219,822
Less: allowance for credit losses on loans	(35,775)		(37,865)
Net loans	3,201,271		3,181,957
Goodwill	94,697		94,697
Core deposit intangible assets	2,680		2,843
Bank-owned life insurance	95,471		94,877
Premises and equipment, net	39,075		39,884
Deferred tax assets	13,866		11,956
Other assets	120,565		152,388
Total assets	$	5,089,279	$	4,898,745
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits:
Non-interest checking	$	860,024	$	792,550
Interest checking	1,349,528		1,288,575
Savings and money market	1,367,274		1,282,886
Certificates of deposit	346,046		357,666
Brokered deposits	288,758		283,567
Total deposits	4,211,630		4,005,244
Short-term borrowings	186,408		162,439
Long-term borrowings	—		25,000
Subordinated debentures	59,331		59,331
Accrued interest and other liabilities	99,790		117,417
Total liabilities	4,557,159		4,369,431
Commitments and Contingencies
Shareholders’ Equity
Common stock, no par value: authorized 40,000,000 shares, issued and outstanding 14,928,434 and 14,909,097 shares on March 31, 2021 and December 31, 2020, respectively	131,695		131,072
Retained earnings	391,860		377,502
Accumulated other comprehensive income:
Net unrealized gain on available-for-sale debt securities, net of tax	11,801		29,310
Net unrealized gain (loss) on cash flow hedging derivative instruments, net of tax	538		(4,626)
Net unrecognized loss on postretirement plans, net of tax	(3,774)		(3,944)
Total accumulated other comprehensive income	8,565		20,740
Total shareholders’ equity	532,120		529,314
Total liabilities and shareholders’ equity	$	5,089,279	$	4,898,745

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

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)


	Three Months Ended March 31,
(In thousands, except number of shares and per share data)	2021		2020
Interest Income
Interest and fees on loans	$	30,560	$	34,045
Taxable interest on investments	3,829		4,878
Nontaxable interest on investments	728		787
Dividend income	105		168
Other interest income	166		335
Total interest income	35,388		40,213
Interest Expense
Interest on deposits	2,063		6,662
Interest on borrowings	156		838
Interest on subordinated debentures	805		887
Total interest expense	3,024		8,387
Net interest income	32,364		31,826
(Credit) provision for credit losses	(1,956)		1,775
Net interest income after (credit) provision for credit losses	34,320		30,051
Non-Interest Income
Mortgage banking income, net	7,109		3,534
Debit card income	2,736		2,141
Service charges on deposit accounts	1,539		2,012
Income from fiduciary services	1,526		1,502
Brokerage and insurance commissions	953		657
Bank-owned life insurance	594		689
Customer loan swap fees	—		114

Other income	758		754
Total non-interest income	15,215		11,403
Non-Interest Expense
Salaries and employee benefits	14,522		14,327
Furniture, equipment and data processing	3,027		2,790
Net occupancy costs	1,951		2,003
Debit card expense	986		934
Consulting and professional fees	863		783
Regulatory assessments	503		162
Amortization of core deposit intangible assets	164		170
Other real estate owned and collection (recoveries) costs, net	(191)		101
Other expenses	3,074		3,291
Total non-interest expense	24,899		24,561
Income before income tax expense	24,636		16,893
Income Tax Expense	4,896		3,400
Net Income	$	19,740	$	13,493
Per Share Data
Basic earnings per share	$	1.32	$	0.89
Diluted earnings per share	$	1.31	$	0.89
Weighted average number of common shares outstanding	14,916,387		15,103,176
Diluted weighted average number of common shares outstanding	14,994,534		15,147,218
Cash dividends declared per share	$	0.36	$	0.33

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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)


	Three Months Ended March 31,
(In thousands)	2021		2020
Net Income	$	19,740	$	13,493
Other comprehensive (loss) income:
Net change in unrealized gain on available-for-sale securities, net of tax	(17,509)		18,930
Net change in unrealized gain (loss) on cash flow hedging derivatives, net of tax	5,164		(754)
Net change in other comprehensive income for supplemental executive retirement plan and other postretirement benefit plan, net of tax	170		133
Other comprehensive (loss) income	(12,175)		18,309
Comprehensive Income	$	7,565	$	31,802

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

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(unaudited)


	Three Months Ended
	Common Stock			Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
(In thousands, except number of shares and per share data)	Shares Outstanding	Amount
Balance at December 31, 2019	15,144,719	$	139,103	$	340,580	$	(6,268)	$	473,415
Net income	—	—		13,493		—		13,493
Other comprehensive income, net of tax	—	—		—		18,309		18,309
Stock-based compensation expense	—	421		—		—		421
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings	23,909	(53)		—		—		(53)
Common stock repurchased	(217,031)	(7,973)		—		—		(7,973)
Cash dividends declared ($0.33 per share)	—	—		(4,932)		—		(4,932)
Balance at March 31, 2020	14,951,597	$	131,498	$	349,141	$	12,041	$	492,680
Balance at December 31, 2020	14,909,097	$	131,072	$	377,502	$	20,740	$	529,314
Net income	—	—		19,740		—		19,740
Other comprehensive loss, net of tax	—	—		—		(12,175)		(12,175)
Stock-based compensation expense	—	703		—		—		703
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings	19,337	(80)		—		—		(80)


Cash dividends declared ($0.36 per share)	—	—		(5,382)		—		(5,382)
Balance at March 31, 2021	14,928,434	$	131,695	$	391,860	$	8,565	$	532,120

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Three Months Ended March 31,
(In thousands)	2021		2020
Operating Activities
Net Income	$	19,740	$	13,493
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Originations of mortgage loans held for sale	(174,370)		(85,676)
Proceeds from the sale of mortgage loans	198,799		70,711
Gain on sale of mortgage loans, net of origination costs	(6,173)		(1,476)
(Credit) provision for credit losses	(1,956)		1,775
Depreciation and amortization expense	927		969
Investment securities amortization and accretion, net	1,971		742
Stock-based compensation expense	703		421
Amortization of core deposit intangible assets	164		170
Purchase accounting accretion, net	(234)		(244)



Net decrease (increase) in derivative collateral posted	24,380		(29,040)
Decrease (increase) in other assets	591		(1,801)
Decrease in other liabilities	(2,484)		(3,039)
Net cash provided by (used in) by operating activities	62,058		(32,995)
Investing Activities
Proceeds from sales and maturities of available-for-sale securities	94,697		40,188
Purchase of available-for-sale securities	(118,707)		(58,826)


Net increase in loans	(17,277)		(62,982)

Purchase of Federal Home Loan Bank stock	—		(9,161)
Proceeds from sale of Federal Home Loan Bank stock	1,329		7,754
Purchase of premises and equipment	(320)		(1,284)


Recoveries of previously charged-off loans	51		68
Proceeds from the sale of other real estate owned	350		—
Net cash used in investing activities	(39,877)		(84,243)
Financing Activities
Net increase in deposits	206,386		25,966
Net proceeds from borrowings less than 90 days	23,969		57,913
Proceeds from Federal Home Loan Bank long-term advances	—		25,000
Repayments of Federal Home Loan Bank long-term advances	(25,000)		—


Common stock repurchases	(11)		(7,973)
Exercise of stock options and issuance of restricted stock, net of repurchase for tax withholdings	(80)		(53)
Cash dividends paid on common stock	(4,934)		(5,009)
Finance lease payments	(38)		(33)
Net cash provided by financing activities	200,292		95,811
Net increase (decrease) in cash, cash equivalents and restricted cash	222,473		(21,427)
Cash, cash equivalents, and restricted cash at beginning of period	145,774		75,636
Cash, cash equivalents and restricted cash at end of period	$	368,247	$	54,209
Supplemental information
Interest paid	$	3,117	$	8,555
Income taxes paid	176		126

Transfer from premises to other real estate owned	204		—

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

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited consolidated interim financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures required by accounting principles generally accepted in the United States of America for complete presentation of financial statements. In the opinion of management, the consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the consolidated statements of condition of Camden National Corporation (the "Company") as of March 31, 2021 and December 31, 2020, the consolidated statements of income for the three months ended March 31, 2021 and 2020, the consolidated statements of comprehensive income for the three months ended March 31, 2021 and 2020, the consolidated statements of changes in shareholders' equity for the three months ended March 31, 2021 and 2020, and the consolidated statements of cash flows for the three months ended March 31, 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 months ended March 31, 2021 and HPFC, Property A, Inc. and Property P, Inc. as of and for the three months ended March 31, 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 months ended March 31, 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.

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

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 months ended March 31, 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 financial statements of condition at fair value. As of March 31, 2021 and December 31, 2020, the fair value of the Company's trading securities were $4.1 million and $4.2 million, respectively. These securities are held in a rabbi trust account and invested in mutual funds. The trading securities will be used for future payments associated with the Company's Executive Deferred Compensation Plan and Director Deferred Compensation Plan.

AFS Debt Securities

AFS debt securities are reported on the Company's consolidated statements of condition at fair value. The following table summarizes the amortized cost, 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
March 31, 2021
Obligations of U.S. government sponsored enterprises	$	5,200	$	—	$	(217)	$	4,983
Obligations of states and political subdivisions	114,280		5,982		(463)		119,799
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	564,151		10,581		(5,413)		569,319
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	406,358		6,452		(2,166)		410,644
Subordinated corporate bonds	10,525		293		(15)		10,803
Total AFS debt securities	$	1,100,514	$	23,308	$	(8,274)	$	1,115,548
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 March 31, 2021 and December 31, 2020, there was no 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 March 31, 2021, were $11.8 million, net of a deferred tax liability of $3.2 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 months ended March 31, 2021 and 2020, the company did not sell any AFS debt securities.

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
March 31, 2021
Obligations of U.S. government sponsored enterprises	2	$	4,983	$	(217)	$	—	$	—	$	4,983	$	(217)
Obligations of states and political subdivisions	3	2,445		(116)		2,171		(347)		4,616		$	(463)
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	51	234,124		(5,410)		347		(3)		234,471		(5,413)
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	30	142,364		(2,166)		—		—		142,364		(2,166)
Subordinated corporate bonds	1	985		(15)		—		—		985		(15)
Total AFS debt securities	87	$	384,901	$	(7,924)	$	2,518	$	(350)	$	387,419	$	(8,274)



December 31, 2020
Obligations of states and political subdivisions	1	$	2,404	$	(115)	$	—	$	—	$	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)		—		—		39,107		(135)
Subordinated corporate bonds	5	4,902		(98)		—		—		4,902		(98)
Total AFS debt securities	30	$	107,635	$	(916)	$	980	$	(6)	$	108,615	$	(922)

For the three months ended March 31, 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 largely 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 March 31, 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 $3.1 million 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.

The amortized cost and estimated fair values of the Company's AFS debt securities by contractual maturity at March 31, 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	$	3,025	$	3,102
Due after one year through five years	61,558		63,040
Due after five years through ten years	248,264		255,924
Due after ten years	787,667		793,482
Total	$	1,100,514	$	1,115,548

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	$	1,295	$	101	$	—	$	1,396
Total HTM debt securities	$	1,295	$	101	$	—	$	1,396
December 31, 2020
Obligations of states and political subdivisions	$	1,297	$	114	$	—	$	1,411
Total HTM debt securities	$	1,297	$	114	$	—	$	1,411

As of March 31, 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 not carried on its HTM debt securities at March 31, 2021 or December 31, 2020.

As of March 31, 2021 and December 31, 2020, none of the Company's HTM debt securities were past due or on non-accrual status. For the three months ended March 31, 2021 and 2020, the Company did not recognize any interest income on non-accrual HTM debt securities. At March 31, 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 $8,000 and $10,000, 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.

The amortized cost and estimated fair values of HTM debt securities by contractual maturity at March 31, 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	$	—	$	—
Due after one year through five years	869		937
Due after five years through ten years	426		459
Due after ten years	—		—
Total	$	1,295	$	1,396

AFS and HTM Debt Securities Pledged

At March 31, 2021 and December 31, 2020, AFS and HTM debt securities with an amortized cost of $484.3 million and $485.0 million and estimated fair values of $495.4 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 months ended March 31, 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)	Cost
March 31, 2021
FHLBB	$	4,838
FRB	5,374
Total other investments	$	10,212
December 31, 2020
FHLBB	$	6,167
FRB	5,374
Total other investments	$	11,541

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)	March 31, 2021		December 31, 2020
Commercial Loans:
Commercial real estate - non owner-occupied	$	1,116,617	$	1,097,975
Commercial real estate - owner-occupied	273,710		271,495
Commercial	366,159		381,494
SBA PPP	169,407		135,095
Total commercial loans	1,925,893		1,886,059
Retail Loans:
Residential real estate	1,051,765		1,054,798
Home equity	240,486		258,573
Consumer	18,902		20,392
Total retail loans	1,311,153		1,333,763
Total loans	$	3,237,046	$	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)	March 31, 2021		December 31, 2020
Net unamortized fair value mark discount on acquired loans	$	(1,058)	$	(1,291)
Net unamortized loan (fees) origination costs(1)	(2,444)		856
Total	$	(3,502)	$	(435)

(1) The change in net unamortized loan (fees) origination costs from December 31, 2020 to March 31, 2021, was primarily driven by SBA PPP loan origination fees capitalized during the three months ended March 31, 2021. As of March 31, 2021 and December 31, 2020, unamortized loan fees on originated SBA PPP loans were $5.1 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 three months ended March 31, 2021, the Company originated 1,348 SBA PPP loans totaling $85.1 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 March 31, 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.

Loan Sales

For the three months ended March 31, 2021 and 2020, the Company sold $192.6 million and $69.2 million, respectively, of fixed rate residential mortgage loans on the secondary market, which resulted in gains on the sale of loans (net of costs) of $6.2 million and $1.5 million, respectively.

At March 31, 2021 and December 31, 2020, the Company had certain residential mortgage loans with a principal balance of $22.2 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 March 31, 2021 and December 31, 2020, recorded an unrealized (loss) gain of ($14,000) and $1.1 million, respectively. For the three months ended March 31, 2021 and 2020, the Company recorded an unrealized loss on loans held for sale recorded within mortgage banking income, net, on the Company's consolidated statements of income of $1.1 million and $565,000, respectively.

The Company has forward delivery commitments with a secondary market investor on each of its loans held for sale at March 31, 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.

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 the portfolio proactively such that management can identify problem credits early, assess and implement effective work-out strategies, and take charge-offs as promptly as practical. In addition, the Company continuously reassesses its underwriting standards in response to credit risk posed by changes in economic conditions.

For purposes of determining the 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 March 31, 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 is 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 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 is 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 three months ended March 31, 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.

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 March 31, 2021

Beginning balance, December 31, 2020	$	21,778	$	2,832	$	6,703	$	69	$	3,474	$	2,616	$	393	$	37,865
Loans charged off	—		—		(147)		—		(53)		(38)		(49)		(287)
Recoveries	—		2		43		—		—		—		6		51
Provision (credit) for loan losses	695		(286)		(1,429)		18		(328)		(402)		(122)		(1,854)
Ending balance, March 31, 2021	$	22,473	$	2,548	$	5,170	$	87	$	3,093	$	2,176	$	228	$	35,775
At or For The Year Ended December 31, 2020

Beginning balance, December 31, 2019	$	10,924	$	1,490	$	3,985	$	—	$	5,842	$	2,423	$	507	$	25,171
Impact of adopting CECL(1)	(668)		(90)		1,548		—		(1,129)		792		(220)		233
Loans charged off	(82)		(21)		(1,130)		—		(121)		(317)		(167)		(1,838)
Recoveries	107		13		572		—		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 three months ended March 31, 2021, there were no significant changes in our CECL modeling methodology to determine the ACL on loans at March 31, 2021. The significant key assumptions used with the ACL on loans calculation at March 31, 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 $2.1 million during the three months ended March 31, 2021, to $35.8 million as of March 31, 2021. The decrease in the ACL on loans was driven by an overall improvement in management's forecast of its macroeconomic factors over its one-year forecast period.

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


(In thousands)	Commercial Real Estate(1)		Commercial		Residential Real Estate		Home Equity		Consumer		Total
At or For The Three Months Ended March 31, 2020
Allowance for the three months ended:
Beginning balance	$	12,414	$	3,985	$	5,842	$	2,423	$	507	$	25,171
Loans charged off	(50)		(253)		(96)		(34)		(57)		(490)
Recoveries	4		53		2		4		5		68
Provision	1,006		512		149		87		18		1,772
Ending balance	$	13,374	$	4,297	$	5,897	$	2,480	$	473	$	26,521






Allowance balance attributable to loans:
Individually evaluated for impairment	$	34	$	—	$	324	$	89	$	—	$	447
Collectively evaluated for impairment	13,340		4,297		5,573		2,391		473		26,074
Total ending allowance	$	13,374	$	4,297	$	5,897	$	2,480	$	473	$	26,521
Loans:
Individually evaluated for impairment	$	400	$	299	$	3,286	$	370	$	—	$	4,355
Collectively evaluated for impairment	1,299,460		462,788		1,060,926		305,856		24,377		3,153,407
Total ending loans balance	$	1,299,860	$	463,087	$	1,064,212	$	306,226	$	24,377	$	3,157,762

(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 March 31, 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 no other industry exposures exceeding 10% of the Company's total loan portfolio as of March 31, 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 three months ended March 31, 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 March 31, 2021, the Company's loans impacted by the COVID-19 pandemic and operating under temporary short-term payment deferral arrangements for a period of 180 days or less totaled $2.4 million, compared to $26.5 million at December 31, 2021.

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 continues to actively monitor these loans for indications of deterioration as the deferral period matures, which could result in future downgrades.

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

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 March 31, 2021
Commercial real estate - non owner-occupied
Risk rating
Pass (Grades 1-6)	$	30,274	$	145,318	$	220,520	$	140,581	$	116,094	$	408,514	$	—	$	—	$	1,061,301
Special mention (Grade 7)	—		5,878		1,454		—		4,258		8,734		—		—		20,324
Substandard (Grade 8)	—		23		124		4,406		401		30,038		—		—		34,992
Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—
Total commercial real estate - non owner-occupied	30,274		151,219		222,098		144,987		120,753		447,286		—		—		1,116,617
Commercial real estate - owner-occupied
Risk rating
Pass (Grades 1-6)	7,062		34,293		32,904		47,928		44,604		97,690		—		—		264,481
Special mention (Grade 7)	—		—		—		3,488		1,386		1,497		—		—		6,371
Substandard (Grade 8)	—		—		—		885		452		1,521		—		—		2,858
Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—
Total commercial real estate - owner occupied	7,062		34,293		32,904		52,301		46,442		100,708		—		—		273,710
Commercial
Risk rating
Pass (Grades 1-6)	11,196		46,824		70,501		36,679		24,848		63,924		74,255		28,928		357,155
Special mention (Grade 7)	—		—		21		21		4,617		493		—		—		5,152
Substandard (Grade 8)	—		184		971		203		51		1,797		275		371		3,852
Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—
Total commercial	11,196		47,008		71,493		36,903		29,516		66,214		74,530		29,299		366,159
SBA PPP
Risk rating
Pass (Grades 1-6)	81,032		88,375		—		—		—		—		—		—		169,407
Special mention (Grade 7)	—		—		—		—		—		—		—		—		—
Substandard (Grade 8)	—		—		—		—		—		—		—		—		—
Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—
Total SBA PPP	81,032		88,375		—		—		—		—		—		—		169,407
Residential Real Estate
Risk rating
Pass (Grades 1-6)	102,106		331,223		158,297		101,369		65,714		286,323		921		—		1,045,953
Special mention (Grade 7)	—		—		—				—		239		—		—		239
Substandard (Grade 8)	—		—		643		174		—		4,756		—		—		5,573
Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—
Total residential real estate	102,106		331,223		158,940		101,543		65,714		291,318		921		—		1,051,765
Home equity
Risk rating
Performing	77		782		8,443		15,723		3,256		16,192		182,664		11,481		238,618
Non-performing	—		—		48		—		—		167		1,153		500		1,868
Total home equity	77		782		8,491		15,723		3,256		16,359		183,817		11,981		240,486
Consumer
Risk rating
Performing	1,612		5,716		5,454		2,281		1,078		2,128		604		—		18,873
Non-performing	—		9		17		—		—		3		—		—		29
Total consumer	1,612		5,725		5,471		2,281		1,078		2,131		604		—		18,902
Total Loans	$	233,359	$	658,625	$	499,397	$	353,738	$	266,759	$	924,016	$	259,872	$	41,280	$	3,237,046


(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	$	—	$	—	$	1,047,960
Special mention (Grade 7)	5,739		—		—		4,256		3,497		847		—		—		14,339
Substandard (Grade 8)	24		125		2,070		405		1,522		31,530		—		—		35,676
Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—
Total commercial real estate - non owner-occupied	143,773		224,273		146,622		124,070		162,607		296,630		—		—		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		—		—		262,147
Special mention (Grade 7)	—		—		4,584		—		—		1,513		—		—		6,097
Substandard (Grade 8)	—		—		891		462		—		1,898		—		—		3,251
Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—
Total commercial real estate - owner occupied	35,948		29,217		53,787		47,527		25,507		79,509		—		—		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)	—		22		313		4,924		117		400		—		867		6,643
Substandard (Grade 8)	187		1,012		211		51		42		2,081		65		1,099		4,748
Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—
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		—		—		—		—		—		—		—		135,095
Special mention (Grade 7)	—		—		—		—		—		—		—		—		—
Substandard (Grade 8)	—		—		—		—		—		—		—		—		—
Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—
Total SBA PPP	135,095		—		—		—		—		—		—		—		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		—		1,048,917
Special mention (Grade 7)	—		—		—		—		—		398		—		—		398
Substandard (Grade 8)	—		—		176		487		—		4,820		—		—		5,483
Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—
Total residential real estate	339,834		183,877		119,602		79,646		57,269		271,542		3,028		—		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	—		—		—		—		—		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		—		20,388
Non-performing	—		—		—		—		4		—		—		—		4
Total consumer	6,572		6,525		3,096		1,359		382		1,780		678		—		20,392
Total Loans	$	716,230	$	527,204	$	381,600	$	286,533	$	263,051	$	721,682	$	271,502	$	52,020	$	3,219,822

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 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. At March 31, 2021, the payment status for loans that continued to operate under a payment deferral arrangement were reported based on payment status at the time the deferral was granted to the borrower.

The 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
March 31, 2021
Commercial real estate - non owner-occupied	$	102	$	—	$	106	$	208	$	1,116,409	$	1,116,617	$	—
Commercial real estate - owner-occupied	—		75		47		122		273,588		273,710
Commercial	425		—		1,022		1,447		364,712		366,159		—
SBA PPP	—		—		—		—		169,407		169,407		—
Residential real estate	423		514		2,542		3,479		1,048,286		1,051,765		—
Home equity	35		192		1,312		1,539		238,947		240,486		—
Consumer	21		22		29		72		18,830		18,902		—
Total	$	1,006	$	803	$	5,058	$	6,867	$	3,230,179	$	3,237,046	$	—
December 31, 2020
Commercial real estate - non owner-occupied	$	—	$	50	$	173	$	223	$	1,097,752	$	1,097,975	$	—
Commercial real estate - owner-occupied	99		—		47		146		271,349		271,495		—
Commercial	430		—		857		1,287		380,207		381,494		—
SBA PPP	—		—		—		—		135,095		135,095		—
Residential real estate	1,406		1,103		2,535		5,044		1,049,754		1,054,798		—
Home equity	335		173		1,416		1,924		256,649		258,573		—
Consumer	92		67		4		163		20,229		20,392		—
Total	$	2,362	$	1,393	$	5,032	$	8,787	$	3,211,035	$	3,219,822	$	—

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:


	March 31, 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	$	155	$	15	$	170	$	351	$	15	$	366
Commercial real estate - owner-occupied	92		47		139		99		47		146
Commercial	1,681		56		1,737		1,549		58		1,607
Residential real estate	3,192		445		3,637		3,136		341		3,477
Home equity	1,575		293		1,868		1,961		35		1,996
Consumer	29		—		29		4		—		4
Total	$	6,724	$	856	$	7,580	$	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:


	March 31, 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	$	—	$	657	$	657	$	—	$	689	$	689
Residential real estate	336		—		336		248		—		248


Total	$	336	$	657	$	993	$	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 $76,000 and $79,000 for the three months ended March 31, 2021 and 2020, 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 months ended March 31, 2021 and 2020. An immaterial amount of accrued interest on non-accrual loans was written-off during the three months ended March 31, 2021 and 2020, by reversing interest income. At March 31, 2021 and December 31, 2020, total accrued interest receivable on loans, which has been excluded from reported amortized cost basis on loans, was $9.6 million and $10.2 million, respectively, and reported within other assets on the consolidated statements of condition. An allowance was not carried on the accrued interest receivable at either date.

TDRs

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

The specific reserve allowance was determined by discounting the total expected future cash flows from the borrower at the original loan interest rate, or if the loan is currently collateral-dependent, using 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)	March 31, 2021	December 31, 2020	March 31, 2021		December 31, 2020		March 31, 2021		December 31, 2020
Commercial real estate - owner-occupied	2	2	$	330	$	328	$	43	$	37
Commercial	2	2	95		100		—		—
Residential real estate	20	21	2,520		2,638		307		364
Consumer and home equity	1	—	157		—		56		—
Total	25	25	$	3,102	$	3,066	$	406	$	401

At March 31, 2021, the Company had performing and non-performing TDRs with a recorded investment balance of $2.6 million and $494,000, 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)	For The Three Months Ended March 31,		For The Three Months Ended March 31,				For The Three Months Ended March 31,				For The Three Months Ended March 31,
	2021	2020	2021		2020		2021		2020		2021		2020







Home equity:
Interest rate concession and payment deferral	1	—	$	159	$	—	$	170	$	—	$	56	$	—
Total	1	—	$	159	$	—	$	170	$	—	$	56	$	—

As of March 31, 2021 and December 31, 2020, the Company did not have any material commitments to lend additional funds to borrowers with loans classified as TDRs.

For the three months ended March 31, 2021 and 2020, no loans were modified as TDRs within the previous 12 months for which the borrower subsequently defaulted.

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
(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
March 31, 2020:
With an allowance recorded:
Commercial real estate	$	128	$	128	$	34	$	128	$	1
Commercial	—		—		—		—		—
Residential real estate	2,220		2,220		324		2,307		24
Home equity	318		318		89		318		—
Consumer	—		—		—		—		—
Ending balance	2,666		2,666		447		2,753		25
Without an allowance recorded:
Commercial real estate	272		431		—		273		3
Commercial	299		665		—		309		2
Residential real estate	1,066		1,247		—		1,028		3
Home equity	52		190		—		54		—
Consumer	—		—		—		—		—
Ending balance	1,689		2,533		—		1,664		8
Total impaired loans	$	4,355	$	5,199	$	447	$	4,417	$	33

In-Process Foreclosure Proceedings

At March 31, 2021 and December 31, 2020, the Company had $1.1 million and $1.5 million, respectively, of consumer mortgage loans secured by residential real estate properties for which foreclosure proceedings were in process. Due to the COVID-19 pandemic, the Company has been abiding by state issued mandates requiring a temporary moratorium on foreclosures. The Company will continue to work these consumer mortgage loans through the foreclosure process once the moratorium is lifted, which typically takes 18 to 24 months.

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 March 31, 2021 and December 31, 2020.

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

NOTE 5 – BORROWINGS

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


(In thousands)	March 31, 2021		December 31, 2020
Short-Term Borrowings:
Customer repurchase agreements	$	186,408	$	162,439



Total short-term borrowings	$	186,408	$	162,439
Long-Term Borrowings:
FHLBB borrowings	$	—	$	25,000
Total long-term borrowings	$	—	$	25,000

NOTE 6 – REPURCHASE AGREEMENTS

The Company can raise additional liquidity by entering into repurchase agreements at its discretion. In a security repurchase agreement transaction, the Company will generally sell a security, agreeing to repurchase either the same or a substantially identical security on a specified later date, at a greater price than the original sales price. The difference between the sale price and purchase price is the cost of the proceeds, which is recorded within interest on borrowings on the consolidated statements of income. The securities underlying the agreements are delivered to counterparties as collateral for the repurchase obligations. 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 for the dates indicated:


(In thousands)	March 31, 2021		December 31, 2020
Customer Repurchase Agreements(1)(2):
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	$	106,135	$	70,902
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	78,790		90,015
Obligations of states and political subdivisions	1,483		1,522
Total	$	186,408	$	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 March 31, 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.

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)	March 31, 2021		December 31, 2020
Commitments to extend credit	$	696,086	$	723,986
Standby letters of credit	4,855		4,735
Total	$	700,941	$	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 March 31, 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 March 31, 2021 and 2020, the (credit) provision for credit losses on off-balance sheet credit exposures was ($102,000) and $3,000, respectively.

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.

The Company did not have any material loss contingencies that were provided for and/or that are required to be disclosed as of March 31, 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 months ended March 31, 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 $2.2 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.

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
March 31, 2021
Derivatives designated as hedging instruments
Interest rate contracts(1)	$	160,000	Other assets	$	9,188	$	93,000	Accrued interest and other liabilities	$	8,520
Total derivatives designated as hedging instruments				$	9,188				$	8,520
Derivatives not designated as hedging instruments
Customer loan swaps(1)	$	370,240	Other assets	$	25,164	$	370,240	Accrued interest and other liabilities	$	25,164
Fixed-rate mortgage interest rate lock commitments	66,389		Other assets	1,465		15,418		Accrued interest and other liabilities	160
Forward delivery commitments	20,872		Other assets	607		1,353		Accrued interest and other liabilities	10
Total derivatives not designated as hedging instruments				$	27,236				$	25,334
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.

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 March 31, 2021
Interest rate contracts	$	(802)	$	(802)	$	—	Interest and fees on loans	$	392	$	392	$	—
Interest rate contracts	7,194		7,194		—		Interest on deposits	(79)		(79)		—
							Interest on borrowings	(77)		(77)
							Interest on subordinated debentures	(422)		(422)
Total	$	6,392	$	6,392	$	—		$	(186)	$	(186)	$	—

For the three months ended March 31, 2020
Interest rate contracts	$	(6,309)	$	(6,309)	$	—	Interest and fees on loans	$	52	$	52	$	—
Interest rate contracts	5,160		5,160		—		Interest on deposits	(4)		(4)		—
							Interest on borrowings	4		4
							Interest on subordinated debentures	(240)		(240)
Total	$	(1,149)	$	(1,149)	$	—		$	(188)	$	(188)	$	—

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 March 31,
	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	$	30,560	$	2,063	$	156	$	805	$	34,045	$	6,662	$	838	$	887
Gain (loss) on cash flow hedging relationships
Interest rate contracts:
Amount of gain (loss) reclassified from AOCI into income	$	392	$	(79)	$	(77)	$	(422)	$	52	$	(4)	$	4	$	(240)
Amount of gain (loss) reclassified from AOCI into income - included component	$	392	$	(79)	$	(77)	$	(422)	$	52	$	(4)	$	4	$	(240)
Amount of gain (loss) reclassified from AOCI into income - excluded component	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

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:


		Amount of Gain Recognized in Income
		Three Months Ended March 31,
(Dollars in thousands)	Location of Gain Recognized in Income	2021		2020
Fixed-rate mortgage interest rate lock commitments	Mortgage banking income, net	$	945	$	1,515
Forward delivery commitments	Mortgage banking income, net	482		858
Total		$	1,427	$	2,373

Credit Risk-Related Contingent Features

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

The Company 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 March 31, 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 $31.4 million and $50.5 million, respectively. As of March 31, 2021 and December 31, 2020, the Company has minimum collateral posting thresholds with certain of its derivative counterparties and has posted cash collateral of $35.5 million and $57.5 million, respectively. If the Company had breached any of these provisions at March 31, 2021 or December 31, 2020, it could have been required to settle its obligations under the agreements at their termination value of $31.4 million and $50.5 million, respectively.

NOTE 9 – BALANCE SHEET OFFSETTING

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

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


							Gross Amount Not Offset in the Consolidated Statements of Condition
(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
March 31, 2021
Derivative assets:
Customer loan swaps - commercial customer(2)	$	25,164	$	—	$	25,164	$	—	$	—	$	25,164
Interest rate contracts(3)	9,188		—		9,188		—		(8,943)		245

Total	$	34,352	$	—	$	34,352	$	—	$	(8,943)	$	25,409
Derivative liabilities:
Customer loan swaps - dealer bank(3)	$	25,164	$	—	$	25,164	$	—	$	25,164	$	—
Interest rate contracts(3)	8,520		—		8,520		—		8,520		—


Total	$	33,684	$	—	$	33,684	$	—	$	33,684	$	—
Customer repurchase agreements	$	186,408	$	—	$	186,408	$	186,408	$	—	$	—
December 31, 2020
Derivative assets:
Customer loan swaps - commercial customer(2)	$	39,627	$	—	$	39,627	$	—	$	—	$	39,627
Interest rate contracts(3)	5,731		—		5,731		—		(5,595)		136


Total	$	45,358	$	—	$	45,358	$	—	$	(5,595)	$	39,763
Derivative liabilities:
Customer loan swaps - dealer bank(3)	$	39,627	$	—	$	39,627	$	—	$	39,627	$	—
Interest rate contracts(3)	11,625		—		11,625		—		11,625		—


Total	$	51,252	$	—	$	51,252	$	—	$	51,252	$	—
Customer repurchase agreements	$	162,439	$	—	$	162,439	$	162,439	$	—	$	—

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

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

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

NOTE 10 – REGULATORY CAPITAL REQUIREMENTS

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

The Company and Bank are required to maintain certain levels of capital based on risk-adjusted assets. These capital requirements represent quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Company and Bank's capital classification is also subject to qualitative judgments by our regulators about components, risk weightings and other factors. The quantitative measures established to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios of total capital, Tier 1 capital, and common equity Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets, or the leverage ratio. These guidelines apply to the Company on a consolidated basis.

Under the current guidelines, banking organizations must have a minimum total risk-based capital ratio of 8.0%, a minimum Tier 1 risk-based capital ratio of 6.0%, a minimum common equity Tier 1 risk-based capital ratio of 4.5%, and a minimum leverage ratio of 4.0% in order to be "adequately capitalized." In addition to these requirements, banking organizations must maintain a capital conservation buffer consisting of common Tier 1 equity in an amount above the minimum

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

The Company and Bank's risk-based capital ratios exceeded regulatory requirements, including the capital conservation buffer, at March 31, 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 March 31, 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:


	March 31, 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	$	511,438	16.00	%	10.50	%	10.00	%	$	498,290	15.40	%	10.50	%	10.00	%
Tier 1 risk-based capital ratio	461,197		14.43	%	8.50	%	6.00	%	445,858		13.78	%	8.50	%	6.00	%
Common equity Tier 1 risk-based capital ratio(1)	418,197		13.08	%	7.00	%	N/A		402,858		12.45	%	7.00	%	N/A
Tier 1 leverage capital ratio(1)	461,197		9.61	%	4.00	%	N/A		445,858		9.13	%	4.00	%	N/A
Camden National Bank:
Total risk-based capital ratio	$	462,401	14.53	%	10.50	%	10.00	%	$	460,611	14.28	%	10.50	%	10.00	%
Tier 1 risk-based capital ratio	424,160		13.33	%	8.50	%	8.00	%	420,294		13.03	%	8.50	%	8.00	%
Common equity Tier 1 risk-based capital ratio	424,160		13.33	%	7.00	%	6.50	%	420,294		13.03	%	7.00	%	6.50	%
Tier 1 leverage capital ratio	424,160		8.87	%	4.00	%	5.00	%	420,294		8.64	%	4.00	%	5.00	%

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

In 2015, the Company issued $15.0 million of subordinated debentures, and in 2006 and 2008, it issued $43.0 million of junior subordinated debentures in connection with the issuance of trust preferred securities. Although the subordinated debentures and the junior subordinated debentures are recorded as liabilities on the Company's consolidated statements of condition, the Company is permitted, in accordance with applicable regulation, to include, subject to certain limits, each within its calculation of risk-based capital. At March 31, 2021 and December 31, 2020, $12.0 million of subordinated debentures were included as Tier 2 capital and were included in the calculation of the Company's total risk-based capital, and, at March 31, 2021 and December 31, 2020, $43.0 million of the junior subordinated debentures were included in Tier 1 and total risk-based capital for the Company. The Company's $15.0 million of subordinated debentures were subject to phase-out of 20% annually after its five year anniversary, and 20% a year thereafter until it fully phases out.

On April 16, 2021, the Company redeemed the $15.0 million of subordinated debentures, in full, at a redemption price equal to the principal amount of the notes plus accrued and unpaid interest. At March 31, 2021 and December 31, 2020, the Company's $15.0 million of subordinated debt provided $12.0 million of Tier 2 capital, or 38 basis points and 37 basis points, respectively, of the Total risk-based capital ratio. The Company's Total risk-based capital ratio exceeded regulatory requirements, including the capital conservation buffer, after the debentures were redeemed.

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

NOTE 11 – OTHER COMPREHENSIVE INCOME (LOSS)

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


	Three Months Ended
	March 31, 2021						March 31, 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	$	(22,305)	$	4,796	$	(17,509)	$	24,115	$	(5,185)	$	18,930

Net unrealized (losses) gains	(22,305)		4,796		(17,509)		24,115		(5,185)		18,930
Cash Flow Hedges:
Net increase (decrease) in fair value	6,392		(1,374)		5,018		(1,149)		247		(902)
Less: reclassified AOCI gain (loss) into interest expense(1)	(578)		124		(454)		(240)		52		(188)
Less: reclassified AOCI gain (loss) into interest income(2)	392		(84)		308		52		(12)		40
Net increase (decrease) in fair value	6,578		(1,414)		5,164		(961)		207		(754)
Postretirement Plans:



Amortization of settlement recognition of net loss and prior service credit(3)	218		(48)		170		169		(36)		133
Other comprehensive (loss) income	$	(15,509)	$	3,334	$	(12,175)	$	23,323	$	(5,014)	$	18,309

(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.

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
Balance at December 31, 2019	$	3,250	$	(6,048)	$	(3,470)	$	(6,268)
Other comprehensive income (loss) before reclassifications	18,930		(902)		138		18,166
Less: Amounts reclassified from AOCI	—		(148)		5		(143)
Other comprehensive income (loss)	18,930		(754)		133		18,309
Balance at March 31, 2020	$	22,180	$	(6,802)	$	(3,337)	$	12,041

Balance at December 31, 2020	$	29,310	$	(4,626)	$	(3,944)	$	20,740
Other comprehensive (loss) income before reclassifications	(17,509)		5,018		175		(12,316)
Less: Amounts reclassified from AOCI	—		(146)		5		(141)
Other comprehensive (loss) income	(17,509)		5,164		170		(12,175)
Balance at March 31, 2021	$	11,801	$	538	$	(3,774)	$	8,565

NOTE 12 – REVENUE FROM CONTRACTS WITH CUSTOMERS

A portion of the Company's non-interest income is derived from contracts with customers, and, as such, the revenue recognized depicts the transfer of promised goods or services to its customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company considers the terms of the contract and all relevant facts and circumstances when applying this guidance.

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


		Three Months Ended March 31,
(In thousands)	Location on Consolidated Statements of Income	2021		2020
Debit card interchange income	Debit card income	$	2,736	$	2,141
Services charges on deposit accounts	Service charges on deposit accounts	1,539		2,012
Fiduciary services income	Income from fiduciary services	1,526		1,502
Investment program income	Brokerage and insurance commissions	953		657
Other non-interest income	Other income	400		383
Total non-interest income within the scope of ASC 606		7,154		6,695
Total non-interest income not in scope of ASC 606		8,061		4,708
Total non-interest income		$	15,215	$	11,403

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)		Three Months Ended March 31,
Net periodic pension cost	Location on Consolidated Statements of Income	2021		2020
Service cost	Salaries and employee benefits	$	126	$	116
Interest cost	Other expenses	97		115
Recognized net actuarial loss	Other expenses	195		156
Total		$	418	$	387

Other Postretirement Benefit Plan:


(In thousands)		Three Months Ended March 31,
Net periodic postretirement benefit cost	Location on Consolidated Statements of Income	2021		2020
Service cost	Salaries and employee benefits	$	7	$	7
Interest cost	Other expenses	26		31
Recognized net actuarial loss	Other expenses	29		19
Amortization of prior service credit	Other expenses	(6)		(6)
Total		$	56	$	51

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 March 31,
(In thousands, except number of shares and per share data)	2021		2020
Net income	$	19,740	$	13,493
Dividends and undistributed earnings allocated to participating securities(1)	(53)		(28)
Net income available to common shareholders	$	19,687	$	13,465
Weighted-average common shares outstanding for basic EPS	14,916,387		15,103,176
Dilutive effect of stock-based awards(2)	78,147		44,042
Weighted-average common and potential common shares for diluted EPS	14,994,534		15,147,218
Earnings per common share:
Basic EPS	$	1.32	$	0.89
Diluted EPS	$	1.31	$	0.89
Awards excluded from the calculation of diluted EPS(3):
Stock options	1,000		1,000

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

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

(3) Represents stock-based awards not included in the computation of potential common shares for purposes of calculating diluted EPS as the exercise prices were greater than the average market price of the Company's common stock, and, therefore, are considered anti-dilutive.

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

Net income is allocated between the common stock and participating securities pursuant to the two-class method. Basic EPS is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period, excluding participating nonvested stock-based awards. Diluted EPS is computed in a similar manner, except that the denominator includes the number of additional common shares that would have been outstanding if potentially dilutive common shares were issued using the treasury stock method.

NOTE 15 – FAIR VALUE MEASUREMENT AND DISCLOSURE

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

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

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

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

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

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

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

Financial Instruments Recorded at Fair Value on a Recurring Basis

Trading Securities: The fair value of trading securities e 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 March 31, 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.

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)
March 31, 2021
Financial assets:
Trading securities	$	4,123	$	4,123	$	—	$	—
AFS debt securities:
Obligations of U.S. government sponsored enterprises	4,983		—		4,983		—
Obligations of states and political subdivisions	119,799		—		119,799		—
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	569,319		—		569,319		—
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	410,644		—		410,644		—
Subordinated corporate bonds	10,803		—		10,803		—
Loans held for sale	22,229		—		22,229		—
Customer loan swaps	25,164		—		25,164		—
Interest rate contracts	9,188		—		9,188		—

Fixed-rate mortgage interest rate lock commitments	1,465		—		1,465		—
Forward delivery commitments	607		—		607		—
Financial liabilities:
Trading securities	$	4,123	$	4,123	$	—	$	—

Customer loan swaps	25,164		—		25,164		—

Interest rate contracts	8,520		—		8,520		—
Fixed-rate mortgage interest rate lock commitments	160		—		160		—
Forward delivery commitments	10		—		10		—
December 31, 2020
Financial assets:
Trading securities	$	4,161	$	4,161	$	—	$	—
AFS debt securities:
Obligations of states and political subdivisions	127,120		—		127,120		—
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	566,618		—		566,618		—
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	410,454		—		410,454		—
Subordinated corporate bonds	11,621		—		11,621		—
Loans held for sale	41,557		—		41,557		—
Customer loan swaps	39,627		—		39,627		—
Interest rate contracts	5,731		—		5,731		—


Fixed-rate mortgage interest rate lock commitments	608		—		608		—
Forward delivery commitments	311		—		311		—
Financial liabilities:
Trading securities	$	4,161	$	4,161	$	—	$	—
Customer loan swaps	39,627		—		39,627		—
Interest rate contracts	11,625		—		11,625		—


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

The Company did not have any transfers between Level 1 and Level 2 of the fair value hierarchy during the three months ended March 31, 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.

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 three months ended March 31, 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 three months ended March 31, 2021, that indicated the carrying amount may not be recoverable.

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


(In thousands)	Fair Value		Readily Available Market Prices (Level 1)		Observable Market Data (Level 2)		Company Determined Fair Value (Level 3)
March 31, 2021
Financial assets:
Collateral-dependent loans	$	210	$	—	$	—	$	210



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

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

March 31, 2021

Collateral-dependent loans:

Partially charged-off

210

Market approach appraisal of
collateral

Estimated selling costs

11%

December 31, 2020

Servicing assets

1,010

Discounted cash flow

Weighted-average constant prepayment rate

19%

Weighted average discount rate

10%

OREO

236

Market approach appraisal of
collateral

Management adjustment of appraisal

Estimated selling cost

11%

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)
March 31, 2021
Financial assets:
HTM debt securities	$	1,295	$	1,396	$	—	$	1,396	$	—
Commercial real estate loans(1)(2)	1,365,306		1,325,614		—		—		1,325,614
Commercial loans(2)	360,989		357,306		—		—		357,306
SBA PPP loans(2)	169,320		174,409		—		—		174,409
Residential real estate loans(2)	1,048,672		1,057,713		—		—		1,057,713
Home equity loans(2)	238,310		237,736		—		—		237,736
Consumer loans(2)	18,674		16,764		—		—		16,764
Servicing assets	2,447		3,063		—		—		3,063
Financial liabilities:
Time deposits	$	396,072	$	397,667	$	—	$	397,667	$	—
Short-term borrowings	186,408		186,390		—		186,390		—

Subordinated debentures	59,331		46,697		—		46,697		—
December 31, 2020
Financial assets:
HTM debt securities	$	1,297	$	1,411	$	—	$	1,411	$	—
Commercial real estate loans(1)(2)	1,344,860		1,307,132		—		—		1,307,132
Commercial loans(2)	374,791		372,194		—		—		372,194
SBA PPP loans(2)	135,026		137,209						137,209
Residential real estate loans(2)	1,051,324		1,066,991		—		—		1,066,991
Home equity loans(2)	255,957		253,276		—		—		253,276
Consumer loans(2)	19,999		18,102		—		—		18,102
Servicing assets	2,196		1,437		—		—		1,437
Financial liabilities:
Time deposits	$	457,694	$	460,278	$	—	$	460,278	$	—
Short-term borrowings	162,439		162,420		—		162,420		—
Long-term borrowings	25,000		25,442		—		25,442		—
Subordinated debentures	59,331		46,475		—		46,475		—

(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.

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.

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.

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; and core deposits and average core deposits. These non-GAAP financial measures are utilized for purposes of measuring performance against the Company's peer group and other financial institutions, as well as for analyzing its internal performance. The Company also believes these non-GAAP financial measures help investors better understand the Company's operating performance and trends and allows for better performance comparisons to other banks. In addition, these non-GAAP financial measures remove the impact of unusual items that may obscure trends in the Company’s underlying performance. These disclosures should not be viewed as a substitute for GAAP operating results, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other financial institutions.

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


	Three Months Ended March 31,
(Dollars in thousands)	2021			2020
Net income, as presented	$	19,740		$	13,493
Add: amortization of core deposit intangible assets, net of tax(1)	130			134
Net income, adjusted for amortization of core deposit intangible assets	$	19,870		$	13,627
Average equity, as presented	$	533,645		$	480,174
Less: average goodwill and core deposit intangible assets	(97,463)			(98,143)
Average tangible equity	$	436,182		$	382,031
Return on average equity	15.00		%	11.30		%
Return on average tangible equity	18.47		%	14.35		%

(1) Assumed a 21% tax rate.

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


	Three Months Ended March 31,
(Dollars in thousands)	2021			2020
Non-interest expense, as presented	$	24,899		$	24,561
Less: prepayment penalty on borrowings	(514)			—
Adjusted non-interest expense	$	24,385		$	24,561
Net interest income, as presented	$	32,364		$	31,826
Add: effect of tax-exempt income(1)	271			280
Non-interest income, as presented	15,215			11,403



Adjusted net interest income plus non-interest income	$	47,850		$	43,509
Ratio of non-interest expense to total revenues(2)	52.33		%	56.82		%
Efficiency ratio	50.96		%	56.45		%

(1) Assumed a 21% tax rate.

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

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 March 31,
(In thousands)	2021		2020
Net interest income, as presented	$	32,364	$	31,826
Add: effect of tax-exempt income(1)	271		280
Net interest income (fully-taxable equivalent)	$	32,635	$	32,106

(1) Assumed a 21% tax rate.

Pre-tax, Pre-provision Earnings. Pre-tax, pre-provision earnings is a supplemental measure of operating earnings and performance, and is calculated as net income before provision for credit losses and income tax expense. This supplemental measure is becoming 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 currently across financial institutions as the CARES Act provided financial institutions the option to delay adoption of the new accounting methodology, commonly referred to as "CECL," as further described in "– Critical Accounting Policies" and Note 2 of the consolidated financial statements.


	Three Months Ended March 31,
(In thousands)	2021		2020
Net income, as presented	$	19,740	$	13,493
Add: (credit) provision for credit losses	(1,956)		1,775
Add: income tax expense	4,896		3,400
Pre-tax, pre-provision earnings	$	22,680	$	18,668

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 March 31,
	2021		2020
Yield on interest-earning assets, as presented	3.15	%	3.90	%
Add: effect of excess liquidity on yield on interest-earning assets	0.10	%	—	%
Less: effect of SBA PPP loans on yield on interest-earning assets	(0.06)	%	—	%
Adjusted yield on interest-earning assets	3.19	%	3.90	%

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 March 31,
	2021		2020
Net interest margin (fully-taxable equivalent), as presented	2.88	%	3.08	%
Add: effect of excess liquidity on net interest margin (fully-taxable equivalent)	0.10	%	0.01	%
Less: effect of SBA PPP loans on net interest margin (fully-taxable equivalent)	(0.07)	%	—	%
Adjusted net interest margin (fully-taxable equivalent)	2.91	%	3.09	%

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)	March 31, 2021			December 31, 2020
Tangible Book Value Per Share:
Shareholders’ equity, as presented	$	532,120		$	529,314
Less: goodwill and other intangible assets	(97,377)			(97,540)
Tangible shareholders’ equity	$	434,743		$	431,774
Shares outstanding at period end	14,928,434			14,909,097
Book value per share	$	35.64		$	35.50
Tangible book value per share	$	29.12		$	28.96
Tangible Common Equity Ratio:
Total assets	$	5,089,279		$	4,898,745
Less: goodwill and other intangible assets	(97,377)			(97,540)
Tangible assets	$	4,991,902		$	4,801,205
Common equity ratio	10.46		%	10.81		%
Tangible common equity ratio	8.71		%	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)	March 31, 2021		December 31, 2020
Total deposits	$	4,211,630	$	4,005,244
Less: certificates of deposit	(346,046)		(357,666)
Less: brokered deposits	(288,758)		(283,567)
Core deposits	$	3,576,826	$	3,364,011

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


	Three Months Ended March 31,
(In thousands)	2021		2020
Total average deposits	$	3,770,314	$	3,355,595
Less: average certificates of deposit	(351,555)		(552,079)
Average core deposits	$	3,418,759	$	2,803,516

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 $5.1 billion in assets at March 31, 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 three months ended March 31, 2021, was $19.7 million, a quarterly record for the Company and 46% greater than the three months ended March 31, 2020. Over the same comparable period, diluted EPS increased 47% to $1.31 for the three months ended March 31, 2021.

Key earnings drivers between periods included:

•A release of provision for credit losses of $2.0 million for the first quarter of 2021, as compared to a $1.8 million provision charge for the first quarter of 2020. In March 2020, COVID-19 had been announced as a global pandemic and the Company's provision for credit losses for the three months ended March 31, 2021 was accounted for and reported under the incurred loss model, whereas the Company's provision for credit losses for the three months ended March 31, 2021 was accounted for and reported under the Current Expected Credit Loss model (commonly referred to as "CECL").

•Mortgage banking income for the first quarter of 2021 was $3.6 million, or 101%, higher than the same period of 2020. In response to the COVID-19 pandemic, interest rates dropped to new historical lows while housing demand grew within our markets, driving an 85% increase in residential mortgage originations for the first quarter of 2021 compared to the first quarter of 2020 and an increase in loans sold between periods of $123.4 million, or 178%.

•Net interest income increased $538,000, or 2%, between periods driven by SBA PPP income of $1.9 million for the first quarter of 2021. SBA PPP lending did not begin until the second quarter of 2020. Net interest margin on a fully-taxable equivalent basis decreased 20 basis points between periods to 2.88% for the first quarter of 2021. The

combination of lower interest rates and an increase excess cash from average deposit growth of 12% between periods compressed our net interest margin on a fully-taxable equivalent basis. Our adjusted net interest margin on a fully-taxable equivalent basis (non-GAAP), which is adjusted for SBA PPP income and excess cash, for the three months ended March 31, 2021 was 2.91%, compared to 3.09% for the three months ended March 31, 2020.

Other key financial metrics between quarters included:

•Diluted EPS for the three months ended March 31, 2021 was $1.31, an increase of $0.42, or 47%, over the three months ended March 31, 2020.

•Pre-tax, pre-provision earnings (non-GAAP) for the three months ended March 31, 2021 increased $4.0 million, or 21%, over the three months ended March 31, 2021.

•Return on average assets for the three months ended March 31, 2021 was 1.62%, compared to 1.21% for the three months ended March 31, 2020.

•Return on average equity for the three months ended March 31, 2021 was 15.00%, compared to 11.30% for the three months ended March 31, 2020, and return on average tangible equity (non-GAAP) was 18.47% and 14.35% for the same periods, respectively.

Asset Quality. As of March 31, 2021, the Company's asset quality metrics remained very strong, continuing its trend from December 31, 2020. Non-performing assets were 0.20% of total assets and loans 30-89 days past due of 0.05% 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 March 31, 2021, total commercial and retail loans operating under short-term deferral arrangements due to COVID-19 were $2.4 million, compared to $26.5 million at December 31, 2020. As of March 31, 2021, the Company has not provided any additional temporary debt relief to borrowers; however, such relief may be made in the future on a case-by-case basis and, if so, would be done within the terms of CARES Act and bank regulatory guidance.

Capital Position. At March 31, 2021, the Company's capital position remained well in excess of regulatory capital requirements, including a total risk-based capital ratio of 16.00% and a tier 1 leverage ratio of 9.61%, compared to 13.81% and 9.53% at March 31, 2020, respectively.

On March 30, 2021, the Company announced a $0.03, or 9%, increase in its quarterly cash dividend to shareholders to $0.36 per share, payable on April 30, 2021 to shareholders of record as of April 15, 2021. As of March 31, 2021, the Company's annualized dividend yield was 3.01% based on its closing share price of $47.86, as reported by NASDAQ. As of March 31, 2021, the Company's book value per share grew 8% to $35.64 year-over-year, while its tangible book value per share (non-GAAP) grew 10% over the same period to $29.12 at March 31, 2021.

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.

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 months ended March 31, 2021 and 2020, net interest income was $32.4 million, or 68% of total revenues, and $31.8 million, or 74% of total revenues, respectively. Net interest income is affected by several factors including, but not limited to, changes in interest rates, loan and deposit pricing strategies and competitive conditions, the volume and mix of interest-earning assets and liabilities, and the level of non-performing assets.

Net Interest Income

For the three months ended March 31, 2021, net interest income on a fully-taxable equivalent basis (non-GAAP) was $32.6 million, an increase of $529,000, or 2%, over the three months ended March 31, 2020. The increase was driven by a $5.4 million decrease in interest expense between periods that offset the decrease of $4.8 million in interest income on a fully-taxable equivalent basis between periods. The decrease in interest expense between periods was the result of a 57 basis point decrease in our average cost of funds driven by lower interest rates and the change in funding mix as average deposits grew to 88% of total funding for the three months ended March 31, 2021, compared to 86% for the three months ended March 31, 2020. The decrease in interest income on a fully-taxable equivalent basis between periods was the result of a 75 basis point decrease in our yield on average interest-earning assets driven by the lower interest rate environment, but was partially offset by average loan growth of $118.6 million, or 4%. Average loan growth for the period was fueled by SBA PPP loans and commercial real estate growth of $154.9 million and $109.3 million, respectively, but was partially offset by a decrease in average commercial loans of $83.1 million and average consumer and home equity loans of $66.1 million.

Net Interest Margin

For the three months ended March 31, 2021, net interest margin on a fully-taxable equivalent basis was 2.88%, a decrease of 20 basis points compared to the three months ended March 31, 2020. The Company's yield on average interest-earning assets compressed 75 basis points period-over-period to 3.15% for the three months ended March 31, 2021, while its cost of funds decreased 57 basis points period-over-period to 0.29% for the three months ended March 31, 2021. The decrease in net margin on a fully-taxable equivalent basis was driven by the following factors:

•During the first quarter of 2020, the Federal Reserve reduced the targeted Federal Funds rate to between zero and 0.25% in response to COVID-19 and benchmark interest rates fell, compressing asset yields. In response to compressing asset yields, we proactively took actions to reduce deposit costs.

•SBA PPP loans originated during 2020 and the first quarter of 2021 provided a 6 basis point lift to our average interest-earning asset yield and a 7 basis point lift to net interest margin on a fully-taxable equivalent basis for the three months ended March 31, 2021.

•Average deposits grew $414.7 million, or 12%, for the three months ended March 31, 2021, compared to the same period of 2020, driven by federal government stimulus provided to retail and business customers in response to the COVID-19 pandemic. Average deposit growth occurred within average core deposits (non-GAAP), highlighted by an increase in average balances of $615.2 million, or 22%, period-over-period. Over the same period, average investments grew $138.3 million, or 15%, and average loans grew $118.6 million. The pace in which deposits outgrew loans and investments created excess cash holdings further compressing interest-earning asset yields and net interest margin on a fully-taxable equivalent basis. For the three months ended March 31, 2021, excess cash/liquidity reduced the Company's average interest-earning asset yield 10 basis points and net interest margin 10 basis points.

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 March 31, 2021, was 2.91%, compared to 3.09% for the three months ended March 31, 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:

Quarterly Average Balance, Interest and Yield/Rate Analysis


	Three Months Ended
	March 31, 2021						March 31, 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	$	210,844	$	47	0.09	%	$	66,180	$	207	1.24	%
Investments - taxable	946,456		4,054		1.71	%	809,041		5,174		2.56	%
Investments - nontaxable(1)	118,469		922		3.11	%	117,537		996		3.39	%
Loans(2):
Commercial real estate	1,382,795		12,374		3.58	%	1,273,538		13,646		4.24	%
Commercial(1)	333,458		3,120		3.74	%	416,527		4,435		4.21	%
SBA PPP	154,900		1,877		4.85	%	—		—		—	%
HPFC	12,549		225		7.18	%	20,336		402		7.83	%
Municipal(1)	24,133		198		3.33	%	16,990		155		3.67	%
Residential real estate	1,083,101		10,078		3.72	%	1,078,836		11,292		4.19	%
Consumer and home equity	268,711		2,764		4.17	%	334,771		4,186		5.03	%
Total loans	3,259,647		30,636		3.76	%	3,140,998		34,116		4.32	%
Total interest-earning assets	4,535,416		35,659		3.15	%	4,133,756		40,493		3.90	%
Cash and due from banks	51,554						42,869
Other assets	388,345						336,819
Less: ACL	(37,926)						(25,252)
Total assets	$	4,937,389					$	4,488,192
Liabilities & Shareholders' Equity
Deposits:
Non-interest checking	$	817,631	$	—	—	%	$	529,501	$	—	—	%
Interest checking	1,289,511		612		0.19	%	1,146,783		1,987		0.70	%
Savings	626,591		64		0.04	%	476,849		86		0.07	%
Money market	685,026		523		0.31	%	650,383		1,586		0.98	%
Certificates of deposit	351,555		549		0.63	%	552,079		2,209		1.61	%
Total deposits	3,770,314		1,748		0.19	%	3,355,595		5,868		0.70	%
Borrowings:
Brokered deposits	284,620		315		0.45	%	208,084		794		1.54	%
Customer repurchase agreements	165,721		121		0.29	%	236,351		633		1.08	%
Subordinated debentures	59,331		805		5.50	%	59,119		887		6.04	%
Other borrowings	14,444		35		0.99	%	59,257		205		1.39	%
Total borrowings	524,116		1,276		0.99	%	562,811		2,519		1.80	%
Total funding liabilities	4,294,430		3,024		0.29	%	3,918,406		8,387		0.86	%
Other liabilities	109,314						89,612
Shareholders' equity	533,645						480,174
Total liabilities & shareholders' equity	$	4,937,389					$	4,488,192
Net interest income (fully-taxable equivalent)			32,635						32,106
Less: fully-taxable equivalent adjustment			(271)						(280)
Net interest income			$	32,364					$	31,826
Net interest rate spread (fully-taxable equivalent)					2.86	%					3.04	%
Net interest margin (fully-taxable equivalent)					2.88	%					3.08	%
Adjusted net interest margin (fully-taxable equivalent) (non-GAAP)					2.91	%					3.09	%

(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.

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 March 31, 2021 vs. March 31, 2020
	Increase (Decrease) Due to:				Net Increase (Decrease)
(In thousands)	Volume		Rate
Interest-earning assets:
Interest-bearing deposits in other banks and other interest-earning assets	$	448	$	(608)	$	(160)
Investments – taxable	879		(1,999)		(1,120)
Investments – nontaxable	8		(82)		(74)

Commercial real estate	1,171		(2,443)		(1,272)
Commercial	(884)		(431)		(1,315)
SBA PPP	1,877		—		1,877
HPFC	(154)		(23)		(177)
Municipal	65		(22)		43
Residential real estate	45		(1,259)		(1,214)
Consumer and home equity	(826)		(596)		(1,422)
Total interest income (fully-taxable equivalent)	2,629		(7,463)		(4,834)
Interest-bearing liabilities:
Interest checking	248		(1,623)		(1,375)
Savings	26		(48)		(22)
Money market	84		(1,147)		(1,063)
Certificates of deposit	(803)		(857)		(1,660)
Brokered deposits	293		(772)		(479)
Customer repurchase agreements	(189)		(323)		(512)
Subordinated debentures	3		(85)		(82)
Other borrowings	(155)		(15)		(170)
Total interest expense	(493)		(4,870)		(5,363)
Net interest income (fully-taxable equivalent)	$	3,122	$	(2,593)	$	529

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


	Income Statement Location	Three Months Ended March 31,
(In thousands)		2021		2020
Loan fees (cost)(1)	Interest income	$	1,440	$	(334)
Net fair value mark accretion from purchase accounting	Interest income and Interest expense	234		251
Recoveries on previously charged-off acquired loans	Interest income	25		32
Total		$	1,699	$	(51)

(1) As of March 31, 2021 and December 31, 2020, there were $5.1 million and $2.2 million of SBA PPP loan origination fees yet to be recognized, respectively.

(Credit) 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 months March 31, 2021, was calculated using the CECL methodology, whereas the (credit) provision for credit losses for the three months ended March 31, 2020, was calculated using the incurred loss model, which relied on management's periodic assessment of the adequacy of the ACL.

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


	Three Months Ended March 31,				Change
	2021		2020		$		%
	CECL		(Incurred Loss)
(Credit) provision for loan losses	$	(1,854)	$	1,772	$	(3,626)	(205)	%
(Credit) provision for credit losses on off-balance sheet credit exposures	(102)		3		(105)		N.M.
(Credit) provision for credit losses	$	(1,956)	$	1,775	$	(3,731)	(210)	%

For the three months ended March 31, 2021, a release of provision for loan losses of $1.9 million was recorded, which reflects the Company's current asset quality strength and an improvement in its macroeconomic outlook over its four quarter forecast period under CECL. The Company's provision for loan losses for the three months ended March 31, 2020, reflected the onset of the COVID-19 pandemic and an elevated qualitative factor adjustment ("Q-factor") under the incurred loss model.

Annualized net charge-offs for the three months ended March 31, 2021, were 0.03% of average loans, compared to 0.05% of average loans for three months ended March 31, 2020.

Non-Interest Income

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


	Three Months Ended March 31,						Change
(Dollars in thousands)	2021			2020			$		%
Mortgage banking income, net(1)	$	7,109		$	3,534		3,575		101	%
Debit card income(2)	2,736			2,141			595		28	%
Service charges on deposit accounts(3)	1,539			2,012			(473)		(24)	%
Income from fiduciary services	1,526			1,502			24		2	%
Brokerage and insurance commissions	953			657			296		45	%
Bank-owned life insurance	594			689			(95)		(14)	%
Customer loan swap fees	—			114			(114)		(100)	%

Other income	758			754			4		1	%
Total non-interest income	$	15,215		$	11,403		$	3,812	33	%
Non-interest income as a percentage of total revenues	32		%	26		%

(1) Mortgage banking income, net: The increase in mortgage banking income, net was driven by an increase in residential mortgage sales during the first quarter of 2021 of $123.4 million, or 178%. The increase in originations was largely due to the historically low interest rate environment as benchmark interest rates decreased in response to the COVID-19 pandemic. The increase in loan sales between periods also led to the creation of additional mortgage servicing assets and an increase in related income of $332,000 period-over-period. The carrying value of mortgage servicing assets at March 31, 2021, was $2.4 million, compared to $2.2 million at December 31, 2020.

(2) Debit card income: The increase was driven by an increase in customer spend driven by federal government stimulus in the first quarter of 2021 in response to the COVID-19 pandemic.

(3) Service charges on deposit accounts: The decrease in fees earned was largely driven by lower overdraft and non sufficient funds fees of $430,000, which was primarily driven by elevated deposit balances across our customers from government stimulus in the first quarter of 2021 issued in response to the COVID-19 pandemic.

Non-Interest Expense

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


	Three Months Ended March 31,						Change
(Dollars in thousands)	2021			2020			$		%
Salaries and employee benefits(1)	$	14,522		$	14,327		$	195	1	%
Furniture, equipment and data processing(2)	3,027			2,790			237		8	%
Net occupancy costs	1,951			2,003			(52)		(3)	%
Debit card expense	986			934			52		6	%
Consulting and professional fees	863			783			80		10	%
Regulatory assessments(3)	503			162			341		210	%
Amortization of core deposit intangible assets	164			170			(6)		(4)	%
Other real estate owned and collection (recoveries) costs, net(4)	(191)			101			(292)		(289)	%

Other expenses(5)	3,074			3,291			(217)		(7)	%
Total non-interest expense	$	24,899		$	24,561		$	338	1	%
GAAP efficiency ratio	52.33		%	56.82		%
Non-GAAP efficiency ratio	50.96		%	56.45		%

(1) Salaries and employee benefits: During the first quarter of 2021, the Company received a one-time employer tax credit of $329,000, partially offsetting the increase in incentive-related accruals of $377,000 between periods driven by strong performance to budget for the three months ended March 31, 2020, which included record reported quarterly earnings.

(2) Furniture, equipment and data processing costs: The increase was driven by our continued investment in technology and data processing, which included transitioning our items' processing to an outsourced solution during 2020.

(3) Regulatory assessments: The increase was driven by the receipt of the Small Bank Assessment Credit from the FDIC beginning in the first quarter of 2020. The Company has no remaining Small Bank Assessment Credits, and its regulatory assessment costs for the first quarter of 2021 aligned with normal historical levels.

(4) Other real estate owned and collection (recoveries) costs, net: In the first quarter of 2021, the Company recouped $160,000 of costs previously incurred and recorded a gain upon sale of an OREO property of $114,000.

(5) Other expenses: The decrease was driven by lower employee-related costs of $316,000 and marketing-related costs of $257,000, partially offset by a one-time prepayment penalty of $514,000 upon the termination of a long-term FHLBB borrowing.

FINANCIAL CONDITION

Cash and Cash Equivalents

Total cash and cash equivalents at March 31, 2021 were $368.2 million, compared to $145.8 million at December 31, 2020. The increase in cash and cash equivalents balances of $222.5 million during the first quarter was primarily driven by an increase in deposits of $206.4 million, or 5%, resulting from another round of government stimulus in response to COVID-19. We continuously monitor our cash levels to ensure compliance with applicable regulatory requirements, including liquidity and FRB reserve requirements.

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

Investments

The Company utilizes the investment portfolio to manage liquidity, interest rate risk, and regulatory capital, as well as to take advantage of market conditions to generate returns without undue risk. At March 31, 2021 and December 31, 2020, the Company’s investment portfolio generally consists of MBS, CMO, municipal and corporate debt securities, FHLBB and FRB common stock, and mutual funds held in a rabbi trust for purposes of Company executive and director nonqualified retirement plans. We designate our debt securities as AFS or HTM based on our intent and investment strategy, FHLBB and FRB common stock is carried at cost, and mutual funds are trading securities.

At March 31, 2021, the Company's investments portfolio totaled $1.1 billion, a decrease of $1.6 million since December 31, 2020. The decrease during the first quarter of 2021 was driven by changes within AFS debt securities attributable to: (i) paydowns and calls of $94.7 million, and (ii) and a $22.3 million decrease in the fair value of certain securities, based on changes in market interest rates, (iii) partially offset by debt security purchases in the first quarter of 2021 of $118.7 million, which had a weighted-average life of 6.0 years. Our debt securities designated as AFS, which comprised 99% of our investment portfolio at March 31, 2021 and December 31, 2020 were carried at fair value using level 2 valuation techniques. Refer to Note 15 of the consolidated financial statements for further details on fair value. At March 31, 2021 and December 31, 2020, investments were 22% and 23% of total assets, respectively.

The AFS and HTM debt securities portfolio has limited credit risk due to its composition, which includes highly rated debt securities by nationally recognized rating agencies, and securities backed by the U.S. government and government sponsored agencies. At March 31, 2021 and December 31, 2020, these investments represented approximately 88%, of the investment portfolio. The majority of the municipal bonds, which represented 11% of the investment portfolio at March 31, 2021 and December 31, 2020, had a credit rating of "AA" or higher.

The Company's "other investments" on the consolidated statements of condition consist of FHLBB and FRB common stock. These investments are carried at cost. We are required to maintain a certain level of investment in FHLBB stock based on our level of FHLBB advances, and maintain a certain level of investment in FRB common stock based on the Bank's capital levels. As of March 31, 2021 and December 31, 2020, investment in FHLBB stock totaled $4.8 million and $6.2 million, respectively, and our investment in FRB stock was $5.4 million at each date.

Our investments in mutual funds are designated as trading securities and carried at fair value. These investments are held within a rabbi trust and will be used for future payments associated with the Company’s Executive and Director Deferred Compensation Plan. These investments are carried at fair value using level 1 valuation techniques. Refer to Note 15 of the consolidated financial statements for further details on fair value.

Upon implementation of ASU 2016-13, effective January 1, 2020, but applied to reporting periods beginning on or after October 1, 2020, each reporting period, our AFS debt securities that are in an unrealized loss position are assessed to determine if an allowance should be recorded or if a write-down is required. We did not record any allowances or write-down any of our AFS debt securities in an unrealized loss position as of March 31, 2021 or December 31, 2020.

Upon implementation of ASU 2016-13, effective January 1, 2020, but applied to reporting periods beginning on or after October 1, 2020, each reporting period our HTM debt securities are assessed to determine if an allowance should be recorded or if a write-down is required. We did not record any allowances or write-down any of our HTM debt securities as of March 31, 2021 or December 31, 2020.

We continuously monitor and evaluate our investment portfolio to identify and assess risks within our portfolio, including, but not limited to, the impact of the current interest rate environment and the related prepayment risk, and review credit ratings. The overall mix of debt securities at March 31, 2021, compared to December 31, 2020, remains relatively unchanged and well positioned to provide a stable source of cash flow. At March 31, 2021 and December 31, 2020, the duration of our debt investment securities portfolio, adjusting for calls when appropriate and consensus prepayment speeds, was 4.3 and 3.9 years, respectively.

Loans

The Company provides loans primarily to customers located within our geographic market area. Our primary market continues to be Maine, making up 73% of the loan portfolio as of March 31, 2021 and December 31, 2020. Massachusetts and New Hampshire are our second and third largest markets that we serve, making up 13% and 8%, respectively, of our total loan portfolio as of March 31, 2021 and December 31, 2020. Our distribution channels include 57 branches within Maine, a residential mortgage lending office in Massachusetts, a branch and commercial loan production office in New Hampshire, and on-line residential mortgage and small commercial loan platforms.

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


							Change
(Dollars in thousands)	March 31, 2021			December 31, 2020			($)		(%)
Commercial real estate - non owner-occupied	$	1,116,617		$	1,097,975		$	18,642	2	%
Commercial real estate - owner-occupied	273,710			271,495			2,215		1	%
Commercial	366,159			381,494			(15,335)		(4)	%
SBA PPP	169,407			135,095			34,312		25	%
Residential real estate	1,051,765			1,054,798			(3,033)		—	%
Consumer and home equity	259,388			278,965			(19,577)		(7)	%
Total loans	$	3,237,046		$	3,219,822		$	17,224	1	%
Commercial Loan Portfolio	$	1,925,893		$	1,886,059		$	39,834	2	%
Retail Loan Portfolio	1,311,153			1,333,763			(22,610)		(2)	%
Commercial Portfolio Mix	59		%	59		%
Retail Portfolio Mix	41		%	41		%

Beginning in April 2020, the Company started funding SBA PPP loans issued to qualifying small businesses as part of the federal stimulus package issued due to the COVID-19 pandemic. In the first quarter of 2021, the Company began originating SBA PPP loans again as a result of another round of federal stimulus that provided additional funding for the PPP program. The Company continues to participate in SBA PPP lending to customers and borrowers in need of funding due to the COVID-19 pandemic. Under the terms of the SBA PPP, loans issued may be forgiven in part or in full should the borrower meet certain conditions. In this instance, the Company will seek payment for the forgivable portion of the loan from the SBA. Loans made under the SBA PPP may have terms of two or five years, are fully guaranteed by the SBA, and have a fixed rate of 1.0%. For originating the loans, the Company receives an origination fee, paid by the SBA, based on a tiered structure that is dependent on each individual loan size. These fees were capitalized as origination fees and earned over the life of the loan in accordance with the Company's policy. As of March 31, 2021 and December 31, 2020, there were $5.1 million and $2.2 million of SBA PPP loan origination fees yet to be recognized, respectively. As SBA PPP loans are forgiven, these loan balances will decrease and unearned fees will be recognized.

Asset Quality

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

The Board of Directors monitors credit risk through: (i) the Directors' Credit Committee, which reviews large credit exposures, monitors external loan review reports, reviews the lending authority for individual loan officers when required, and has approval authority and responsibility for all matters regarding the loan policy and other credit-related policies, including reviewing and monitoring asset quality trends, and concentration levels; and (ii) the Audit Committee, which has approval authority and oversight responsibility for ACL adequacy and methodology.

Credit Risk Administration and the Credit Risk Policy Committee oversee the Company's systems and procedures to monitor the credit quality of its loan portfolio, conduct a loan review program, and maintain the integrity of the loan rating system. The adequacy of the ACL is overseen by the Management Provision Committee, which is an internal management committee comprised of various Company executives and senior managers across business lines, including Accounting and Finance, Credit Risk, Compliance, and Commercial and Retail Banking. The Management Provision Committee is further supported by other management-level committees to ensure the adequacy of the ACL. The Management Provision Committee supports the oversight efforts of the director-level committees discussed in the paragraph above and the Board of Directors. The Company's practice is to manage the portfolio proactively such that management can identify problem credits early, assess and implement effective work-out strategies, and take charge-offs as promptly as practical.

In response to the COVID-19 pandemic, we have worked directly with businesses and consumers to provide temporary debt relief that generally provided principal and/or interest payment deferrals for a period of 180 days or less. For these loans receiving temporary debt relief, we provided such relief under the guidance of the CARES Act and bank regulatory guidance that enabled such qualifying loans to be exempted from assessment under TDR accounting guidance. All loans granted temporary debt relief met the TDR exemption criteria under authoritative guidance, and, therefore, were not individually assessed, designated or accounted for as a TDR. In addition, these loans that were granted temporary debt relief were not automatically downgraded into lower credit risk ratings. Instead, we have monitored, and continue to, actively monitor these loans for any sign of more permanent credit deterioration, and should such occur, a future downgrade and/or change in accrual status may occur. Lastly, in order to qualify for temporary debt relief, these loans were required to be current with terms of payments in accordance with the CARES Act and bank regulatory guidance at the time of relief. At March 31, 2021 and

December 31, 2020, the payment status of loans operating under a temporary payment deferral arrangement were reported based on payment status at the time the deferral was granted to the borrower.

At March 31, 2021 and December 31, 2020, the amortized cost of loans operating under a short-term temporary debt relief program was $2.4 million and $26.5 million, respectively. In late December 2020, another stimulus package was signed into law to provide additional COVID-19 relief for businesses and consumers. This stimulus package permits the Company the opportunity to again provide temporary debt relief to borrowers impacted by COVID-19. As of March 31, 2021, the Company had not provided any additional temporary debt relief to borrowers; however, such relief may be made in the future on a case-by-case basis.

Non-Performing Assets

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


(Dollars in thousands)	March 31, 2021			December 31, 2020
Non-accrual loans:
Commercial real estate - non owner-occupied	$	170		$	366
Commercial real estate - owner-occupied	139			146
Commercial	1,737			1,607
SBA PPP	—			—
Residential real estate	3,637			3,477
Consumer and home equity	1,897			2,000
Total non-accrual loans	7,580			7,596

Accruing TDRs not included above	2,579			2,818
Total non-performing loans	10,159			10,414
Other real estate owned	204			236
Total non-performing assets	$	10,363		$	10,650
Non-accrual loans to total loans	0.23		%	0.24		%
Non-performing loans to total loans	0.31		%	0.32		%
ACL on loans to non-performing loans	352.15		%	363.60		%
Non-performing assets to total assets	0.20		%	0.22		%
ACL on loans to non-performing assets	345.22		%	355.54		%

Potential Problem Loans

Potential problem loans consist of classified accruing commercial and commercial real estate loans that were between 30 and 89 days past due. Such loans are characterized by weaknesses in the financial condition of borrowers or collateral deficiencies. Based on historical experience, the credit quality of some of these loans may improve due to changes in collateral values or the financial condition of the borrowers, while the credit quality of other loans may deteriorate, resulting in a loss. These loans are not included in the above analysis of non-accrual loans. At March 31, 2021, potential problem loans amounted to $186,000, or 0.01% of total loans.

Past Due Loans

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


(Dollars in thousands)	March 31, 2021			December 31, 2020
Accruing loans 30-89 days past due:
Commercial real estate - non owner-occupied	$	102		$	50
Commercial real estate - owner-occupied	75			—
Commercial	425			430
SBA PPP	—			—
Residential real estate	772			2,297
Consumer and home equity	264			440
Total	$	1,638		$	3,217
Accruing loans 30-89 days past due to total loans	0.05		%	0.10		%

ACL

The following table sets forth information concerning the components of our ACL for the periods indicated:


	At or For The Three Months Ended March 31,						At or For The Year Ended December 31, 2020
(Dollars in thousands)	2021			2020
	(CECL)			(Incurred Loss)				(CECL)
ACL on loans at the beginning of the period	$	37,865		$	25,171			$	25,171
Impact of CECL adoption	—			—				233
(Credit) provision for loan losses	(1,854)			1,772				13,215
Charge-offs:
Commercial real estate - non owner-occupied	—			—				82
Commercial real estate - owner-occupied	—			50				21
Commercial	147			253				1,130
SBA PPP	—			—				—
Residential real estate	53			96				121
Consumer and home equity	87			91				484
Total charge-offs	287			490				1,838
Recoveries:
Commercial real estate - non owner-occupied	—			1				107
Commercial real estate - owner-occupied	2			3				13
Commercial	43			53				572
SBA PPP	—			—				—
Residential real estate	—			2				292
Consumer and home equity	6			9				100
Total recoveries	51			68				1,084
Net charge-offs	236			422				754
ACL on loans at the end of the period	$	35,775		$	26,521			$	37,865
Components of ACL:
ACL on loans	$	35,775		$	26,521			$	37,865
ACL on off-balance sheet credit exposures	2,466			24				2,568
ACL at end of the period	$	38,241		$	26,545			$	40,433
Net charge-offs (annualized) to average loans	0.03		%	0.05		%		0.02		%
(Credit) provision for loan losses (annualized) to average loans	(0.23)		%	0.23		%		0.40		%
ACL on loans to total loans	1.11		%	0.84		%		1.18		%

ACL on loans to net charge-offs (annualized)	3,789.72		%	1,571.15		%		5,021.88		%

ACL on Loans

During the first quarter of 2021, there were no significant changes in our modeling methodology to determine the ACL on loans at March 31, 2021. The significant key assumptions used with the ACL on loans calculation at March 31, 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.

As of March 31, 2021 and December 31, 2020, the recorded ACL on loans was $35.8 million and $37.9 million, respectively, and represented our best estimate. The decrease in the ACL on loans during the first quarter of $2.1 million was driven by an improvement in management's forecast of its macroeconomic factors over its one-year forecast period.

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

ACL on Off-Balance Sheet Credit Exposures

During the first quarter of 2021, there were no significant changes in our modeling methodology to determine the ACL on off-balance sheet credit exposures as of March 31, 2021. The model uses the credit loss factors for each segment calculated within the ACL on loans model described above. The decrease in the ACL on off-balance sheet credit exposures during the first quarter of 2021 of $102,000 was also driven by the improvement in management's forecast of its macroeconomic factors over its one-year forecast period.

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

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

Liabilities and Shareholders’ Equity

Deposits

At March 31, 2021, deposits totaled $4.2 billion, an increase of $206.4 million, or 5%, since December 31, 2020. The increase in deposits during the first quarter of 2021 was driven by an increase in core deposits (non-GAAP) of $212.8 million, or 6%. The increase was driven by another round of stimulus provided to businesses and consumers in response to the COVID-19 pandemic driving higher checking, savings and money mark account balances.

The Company's loan-to-deposit ratio was 77% at March 31, 2021, compared to 80% at December 31, 2020.

Borrowings

At March 31, 2021, total borrowings were $245.7 million, a decrease of $1.0 million since December 31, 2020. During the first quarter of 2021, in light of its liquidity position, the Company terminated a $25.0 million long-term borrowing contract with the FHLBB under which advances had an interest rate of 0.98%, and incurred a one-time prepayment penalty of $514,000.

On April 16, 2021, the Company redeemed in full $15.0 million of subordinated notes that had a 5.50% interest rate, at a redemption price equal to the principal amount of the notes plus accrued and unpaid interest. As of March 31, 2021, the Company's $15.0 million of subordinated notes provided 38 basis points of tier 2 capital for its total risk-based capital ratio. The Company's total risk-based capital ratio at March 31, 2021, was 16.00%, well in excess of regulatory requirements.

Shareholders' Equity

In the first quarter of 2021, the Company's Board of Directors authorized the purchase of up to 750,000 shares of our common stock, representing approximately 5.0% of the Company's issued and outstanding shares as of March 31, 2021. The Company did not repurchase any shares during the first quarter of 2021.

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


	At or For The Three Months Ended March 31,						At or For The Year Ended December 31, 2020
	2021			2020
Financial Ratios
Average equity to average assets	10.81		%	10.70		%		10.39		%
Common equity ratio	10.46		%	10.72		%		10.81		%
Tangible common equity ratio (non-GAAP)	8.71		%	8.78		%		8.99		%
Dividend payout ratio	27.27		%	37.08		%		33.33		%
Per Share Data
Book value per share	$	35.64		$	32.95			$	35.50
Tangible book value per share (non-GAAP)	29.12			26.39				28.96
Dividends declared per share	0.36			0.33				1.32

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

LIQUIDITY

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

Deposits continue to represent our primary source of funds. For the three months ended March 31, 2021, average deposits (excluding brokered deposits) of $3.8 billion increased $414.7 million, or 12%, compared to the same period last year. Average core deposits (non-GAAP) of $3.4 billion for the three months ended March 31, 2021, increased $615.2 million, or 22%, compared to the same period a year ago. Included within our average money market deposits for the three months ended March 31, 2021 and 2020, were $57.6 million and $75.6 million, respectively, of deposits from the Bank's wealth management department, Camden National Wealth Management, which represent client funds. These deposits fluctuate with changes in the portfolios of the clients of Camden National Wealth Management.

Borrowings are used to supplement deposits as a source of liquidity. In addition to borrowings and advances from the FHLBB, we utilize brokered deposits, purchase federal funds, and sell securities under agreements to repurchase. For the three months ended March 31, 2021, average total borrowings (including brokered deposits) decreased $38.7 million, or 7%, to $524.1 million compared to the same period last year. We secure borrowings from the FHLBB with qualified residential real estate loans, certain investment securities and certain other assets available to be pledged. Customer repurchase agreements are secured by mortgage-backed securities and government-sponsored enterprises. Through the Bank, we have available lines of credit with the FHLBB of $9.9 million, with a correspondent bank of $50.0 million, and with the FRB Discount Window of $58.9 million as of March 31, 2021. The Company also has a $10.0 million line of credit with a correspondent bank that matures on December 17, 2021.

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

consumer saving habits and the availability or access to the national brokered deposit and wholesale repurchase markets, whether as a result of the COVID-19 pandemic or otherwise, could significantly impact our liquidity position.

CAPITAL RESOURCES

As part of our goal to operate a safe, sound and profitable financial organization, we are committed to maintaining a strong capital base. Shareholders’ equity totaled $532.1 million and $529.3 million at March 31, 2021 and December 31, 2020, respectively, which amounted to 10% and 11% of total assets as of the respective dates. Refer to "— Financial Condition — Liabilities and Shareholders' Equity" for discussion regarding changes in shareholders' equity for the three months ended March 31, 2021.

Our principal cash requirement is the payment of dividends on our common stock, as and when declared by the Company's Board of Directors. We declared dividends to shareholders in the aggregate amount of $5.4 million and $4.9 million for the three months ended March 31, 2021 and 2020, respectively. The Company's Board of Directors approves cash dividends on a quarterly basis after careful analysis and consideration of various factors, including the following: (i) capital position relative to total assets, (ii) risk-based assets, (iii) total classified assets, (iv) economic conditions, (v) growth rates for total assets and total liabilities, (vi) earnings performance and projections and (vii) strategic initiatives and related capital requirements. All dividends declared and distributed by the Company will be in compliance with applicable state corporate law and regulatory requirements.

We are primarily dependent upon the payment of cash dividends by the Bank, our wholly-owned subsidiary, to service our commitments. We, as the sole shareholder of the Bank, are entitled to dividends, when and as declared by the Bank's Board of Directors from legally available funds. For the three months ended March 31, 2021 and 2020, the Bank declared dividends payable to the Company in the amount of $17.0 million and $6.9 million, respectively. Under regulations prescribed by the OCC, the Bank may not declare dividends in excess of the Bank’s net income for the current year plus its retained net income for the prior two years without prior approval from the OCC. If we are required to use dividends from the Bank to service unforeseen commitments in the future, we may be required to reduce the dividends paid to our shareholders going forward.

Please refer to Note 10 of the consolidated financial statements for discussion and details of the Company and Bank's regulatory capital requirements. At March 31, 2021 and December 31, 2020, the Company and Bank exceeded all regulatory capital requirements, and the Bank continues to meet the capital requirements to be classified as "well capitalized" under applicable prompt corrective action provisions.

CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET COMMITMENTS

Off-Balance Sheet Financial Instruments

Credit Commitments and Standby Letters of Credit

In the normal course of business, we are a party to credit related financial instruments with off-balance sheet risk, which are not reflected in the consolidated statements of condition. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve varying degrees of credit risk in excess of the amount recognized in the consolidated statements of condition. We follow the same credit policies in making commitments to extend credit and conditional obligations as we do for on-balance sheet instruments, including requiring similar collateral or other security to support financial instruments with credit risk. Our exposure to credit loss in the event of nonperformance by the borrower is represented by the contractual amount of those instruments. Many of the commitments will expire without being drawn upon, and thus, the total amount does not necessarily represent future cash requirements. In the event of nonperformance by the borrower, we are entitled to underlying collateral, as applicable, which generally consists of pledges of business assets including, but not limited to, accounts receivable, inventory, plant and equipment, and/or real estate.

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

Derivatives

We use derivative financial instruments for risk management purposes (primarily interest rate risk) and not for trading or speculative purposes. We control the credit risk of these instruments through collateral, credit approvals and monitoring procedures. Additionally, as part of our normal mortgage origination process, we provide the borrower with the option to lock their interest rate based on current market prices. During the period from commitment date to the loan closing date, we are subject to the risk of interest rate change. In an effort to mitigate such risk, we may enter into forward delivery sales commitments, typically on a best-efforts basis, with certain approved investors. We account for interest rate lock commitments on loans that will be held for sale as derivative instruments. Furthermore, we record a derivative for our best-effort forward delivery commitments upon origination of a loan identified as held for sale. Should we enter into a forward delivery commitment on a mandatory delivery arrangement with an investor, we account for the forward delivery commitment as a derivative upon execution of the mandatory delivery contract.

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

Hedge Instruments

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

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

At March 31, 2021, we had the following levels of off-balance sheet financial instruments:


(In thousands)	Total Amount		Commitment Expires in:
Off-Balance Sheet Financial Instruments	Committed		<1 Year		1 – 3 Years		3 – 5 Years		>5 Years
Commitments to extend credit	$	696,086	$	391,420	$	18,893	$	15,712	$	270,061
Standby letters of credit	4,855		3,344		70		—		1,441
Customer loan swaps - notional value	740,480		6,169		49,466		146,706		538,139
Interest rate contracts - notional value	253,000		10,000		50,000		100,000		93,000
Fixed-rate mortgage interest rate lock commitments - notional value	81,807		81,807		—		—		—
Forward delivery commitments - notional value	22,225		22,225		—		—		—
Total	$	1,798,453	$	514,965	$	118,429	$	262,418	$	902,641

Contractual Obligations and Commitments

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

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

At March 31, 2021, we had an obligation and commitment to make future payments under each of these contracts as follows:


(In thousands)	Total Amount		Payments Due per Period
Contractual obligations and commitments	Committed		<1 Year		1 – 3 Years		3 – 5 Years		>5 Years
Operating leases	$	14,950	$	1,332	$	2,461	$	1,998	$	9,159
Finance leases	7,660		307		621		633		6,099




Retail repurchase agreements	186,408		186,408		—		—		—
Junior subordinated debentures	44,331		—		—		—		44,331
Subordinated debentures(1)	15,000		—		—		15,000		—
Other contractual obligations	3,065		3,065		—		—		—
Total	$	271,414	$	191,112	$	3,082	$	17,631	$	59,589

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

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

RISK MANAGEMENT

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

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

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

There have been no material changes to the Company's risk categories and risk management policies as described in Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2020. Please refer to Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2020 for further details regarding the Company's risk management.

Interest rate risk

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

The simulation model captures the impact of changing interest rates on the interest income received and interest expense paid on all interest-earning assets and interest-bearing liabilities reflected on our consolidated statements of condition, as well as for derivative financial instruments. This sensitivity analysis is compared to ALCO policy limits, which specify a maximum tolerance level for net interest income exposure over a one- and two-year horizon, assuming no balance sheet growth, given a 200 basis point upward and downward shift in interest rates. Although our policy specifies a downward shift of 200 basis points, this would result in negative rates as many deposit and funding rates are below 2.00%. During the last few years, our downward shift has been 100 basis points. A parallel and pro rata shift in rates over a 12-month period is assumed. Using this approach, we are able to produce simulation results that illustrate the effect that both a gradual change of rates and a “rate shock” have on earnings expectations. In the down 100 basis points scenario, Federal Funds and Treasury yields are floored at 0.01% while Prime is floored at 3.00%. All other market rates are floored at the lesser of current levels or 0.25%.

As of March 31, 2021 and 2020, our net interest income sensitivity analysis reflected the following changes to net interest income assuming no balance sheet growth and a parallel shift in interest rates. All rate changes were “ramped” over the first 12-month period and then maintained at those levels over the remainder of the ALCO simulation horizon.


	Estimated Changes In Net Interest Income
Rate Change from Year 1 — Base	March 31, 2021		March 31, 2020
Year 1
+200 basis points	2.61	%	(0.97)	%
-100 basis points	(0.94)	%	(0.18)	%

Year 2
+200 basis points	10.03	%	4.51	%
-100 basis points	(9.80)	%	(3.79)	%

The preceding sensitivity analysis does not represent a forecast and should not be relied upon as being indicative of expected operating results. Furthermore, this sensitivity analysis may not represent the full magnitude of interest rate shocks, because Federal Funds and Treasury yields are floored at 0.01%, and Prime is floored at 3.00%. The COVID-19 pandemic has driven significant economic and interest rate contraction over recent months, and the future state of the economy remains highly uncertain at this time. These hypothetical estimates are based upon numerous assumptions including, among others, the nature and timing of interest rate levels, yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment/replacement of asset and liability cash flows, and non-performing asset levels. Although assumptions are developed based upon current economic and local market conditions, we cannot make any assurances as to the predictive nature of these assumptions, including how customer preferences or competitor influences might change.

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

Periodically, if deemed appropriate, we use back-to-back loan swaps, interest rate swaps, floors and caps, which are common derivative financial instruments, to hedge our interest rate risk position. The Board of Directors has approved hedging policy statements governing the use of these instruments. The Board and Management ALCO monitor derivative activities

relative to their expectations and our hedging policies. Refer to "—Contractual Obligations and Off-Balance Sheet Commitments" and Note 8 of the consolidated financial statements for further discussion of these derivative instruments.

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company’s management conducted an evaluation with the participation of the Company’s Chief Executive Officer and Chief Financial Officer (Principal Financial & Accounting Officer), regarding the effectiveness of the Company’s disclosure controls and procedures, as of the end of the last fiscal quarter covered by this report. In designing and evaluating the Company’s disclosure controls and procedures, the Company and its management recognize that any controls and procedures, no matter how well designed and operated, can provide only a reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating and implementing possible controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer (Principal Financial & Accounting Officer) concluded that they believe the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Although a significant number of our employees continue to work from home as a result of the COVID-19 pandemic, we have concluded that these changes in work arrangements did not have a material effect on our internal controls over financial reporting during the first quarter of 2021. There was no change in the internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

There are a number of factors that may adversely affect the Company’s business, financial results or stock price. Refer to “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, for discussion of these risks.

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

(a) None.

(b) None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS


Exhibit No.						Definition
3.1						Camden National Corporation Amended and Restated Bylaws (incorporated herein by reference to Exhibit 3.1 to the Company's Form 8-K filed with the Commission on March 30, 2021 ).
31.1*						Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
31.2*						Certification of Chief Financial Officer, Principal Financial & Accounting Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
32.1**						Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**						Certification of Chief Financial Officer, Principal Financial & Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*						iXBRL (Inline eXtensible Business Reporting Language). The following materials from Camden National Corporation’s Quarterly Report on Form 10-Q for the period ended March 31, 2021, formatted in iXBRL: (i) Consolidated Statements of Condition - March 31, 2021 and December 31, 2020; (ii) Consolidated Statements of Income - Three Months Ended March 31, 2021 and 2020; (iii) Consolidated Statements of Comprehensive Income - Three Months Ended March 31, 2021 and 2020; (iv) Consolidated Statements of Changes in Shareholders’ Equity - Three Months Ended March 31, 2021 and 2020; (v) Consolidated Statements of Cash Flows - Three Months Ended March 31, 2021 and 2020; and (vi) Notes to the Unaudited Consolidated Financial Statements.
104*						Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).
*						Filed herewith.
**						Furnished herewith.
+						Management contract or a compensatory plan or arrangement.

SIGNATURES

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


CAMDEN NATIONAL CORPORATION
(Registrant)

/s/ Gregory A. Dufour						May 6, 2021
Gregory A. Dufour						Date
President and Chief Executive Officer (Principal Executive Officer)

/s/ Gregory A. White						May 6, 2021
Gregory A. White						Date
Chief Financial Officer and Principal Financial & Accounting Officer