CAMDEN NATIONAL CORP - Quarter Report: 2023 September (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 September 30, 2023

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

SECURITIES EXCHANGE ACT OF 1934

Commission File No. 0-28190

CAMDEN NATIONAL CORPORATION

(Exact name of registrant as specified in its charter)


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

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

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

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


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

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

Yes x No ¨

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

Yes x No ¨

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

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

Yes ☐ No ☒

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

Outstanding at October 31, 2023: Common stock (no par value) 14,558,137 shares.

CAMDEN NATIONAL CORPORATION

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2023

TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT


		PAGE
PART I. FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS

	Consolidated Statements of Condition (unaudited) - September 30, 2023 and December 31, 2022	3

	Consolidated Statements of Income (unaudited) - Three and Nine Months Ended September 30, 2023 and 2022	4

	Consolidated Statements of Comprehensive Income (Loss) (unaudited) - Three and Nine Months Ended September 30, 2023 and 2022	5

	Consolidated Statements of Changes in Shareholders’ Equity (unaudited) - Three and Nine Months Ended September 30, 2023 and 2022	6

	Consolidated Statements of Cash Flows (unaudited) - Nine Months Ended September 30, 2023 and 2022	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	77

ITEM 4.	CONTROLS AND PROCEDURES	78

PART II. OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	79

ITEM 1A.	RISK FACTORS	79

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	79

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	79

ITEM 4.	MINE SAFETY DISCLOSURES	79

ITEM 5.	OTHER INFORMATION	79

ITEM 6.	EXHIBITS	80

SIGNATURES		81

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CONDITION

(unaudited)


(In thousands, except number of shares)	September 30, 2023		December 31, 2022
ASSETS
Cash and due from banks	$	91,291	$	50,566
Interest-bearing deposits in other banks (including restricted cash)	120,223		24,861
Total cash, cash equivalents and restricted cash	211,514		75,427
Investments:
Trading securities	4,195		3,990
Available-for-sale securities, at fair value (amortized cost of $705,019 and $796,960, respectively)	589,003		695,875
Held-to-maturity securities, at amortized cost (fair value of $483,547 and $506,193, respectively)	549,961		546,583
Other investments	14,459		12,713
Total investments	1,157,618		1,259,161
Loans held for sale, at fair value (book value of $11,299 and $5,259, respectively)	11,187		5,197
Loans	4,058,413		4,010,353
Less: allowance for credit losses on loans	(36,407)		(36,922)
Net loans	4,022,006		3,973,431
Goodwill	94,697		94,697
Core deposit intangible assets	1,119		1,563
Bank-owned life insurance	101,001		99,142
Premises and equipment, net	35,121		36,022
Deferred tax assets	50,247		50,217
Other assets	95,165		76,993
Total assets	$	5,779,675	$	5,671,850
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits:
Non-interest checking	$	1,023,239	$	1,141,753
Interest checking	1,579,991		1,763,850
Savings and money market	1,389,180		1,439,622
Certificates of deposit	552,111		300,451
Brokered deposits	133,885		181,253
Total deposits	4,678,406		4,826,929
Short-term borrowings	470,140		265,176

Junior subordinated debentures	44,331		44,331
Accrued interest and other liabilities	123,500		84,136
Total liabilities	5,316,377		5,220,572
Commitments and Contingencies (Note 7)
Shareholders’ Equity
Common stock, no par value: authorized 40,000,000 shares, issued and outstanding 14,558,137 and 14,567,325 on September 30, 2023 and December 31, 2022, respectively	114,842		115,069
Retained earnings	478,664		462,164




Accumulated other comprehensive loss	(130,208)		(125,955)
Total shareholders’ equity	463,298		451,278
Total liabilities and shareholders’ equity	$	5,779,675	$	5,671,850

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

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands, except number of shares and per share data)	2023		2022		2023		2022
Interest Income
Interest and fees on loans	$	50,115	$	37,568	$	144,092	$	102,724
Taxable interest on investments	5,814		5,756		17,629		17,395
Nontaxable interest on investments	748		790		2,273		2,324
Dividend income	302		137		788		349
Other interest income	690		330		1,667		677
Total interest income	57,669		44,581		166,449		123,469
Interest Expense
Interest on deposits	20,969		5,442		56,046		9,785
Interest on borrowings	3,577		787		9,249		1,372
Interest on junior subordinated debentures	539		539		1,600		1,600
Total interest expense	25,085		6,768		66,895		12,757
Net interest income	32,584		37,813		99,554		110,712
(Credit) provision for credit losses	(574)		2,764		1,531		4,034
Net interest income after provision for credit losses	33,158		35,049		98,023		106,678
Non-Interest Income
Debit card income	3,130		3,234		9,147		9,371
Service charges on deposit accounts	2,040		1,941		5,737		5,705
Income from fiduciary services	1,641		1,535		5,016		4,847
Brokerage and insurance commissions	1,217		1,003		3,462		3,269
Mortgage banking income, net	583		635		1,889		3,186
Bank-owned life insurance	644		374		1,849		1,519

Net loss on sale of securities	(5,335)		—		(5,335)		(9)
Other income	1,152		1,232		3,283		3,032
Total non-interest income	5,072		9,954		25,048		30,920
Non-Interest Expense
Salaries and employee benefits	14,744		15,849		44,605		46,757
Furniture, equipment and data processing	3,382		3,305		9,772		9,639
Net occupancy costs	1,804		1,765		5,735		5,715
Debit card expense	1,318		1,210		3,781		3,410
Consulting and professional fees	897		814		3,327		3,114
Regulatory assessments	861		575		2,574		1,745
Amortization of core deposit intangible assets	148		156		444		469
Other real estate owned and collection (recoveries) costs, net	(34)		56		(25)		9
Other expenses	3,087		3,361		9,302		8,998
Total non-interest expense	26,207		27,091		79,515		79,856
Income before income tax expense	12,023		17,912		43,556		57,742
Income Tax Expense	2,236		3,645		8,653		11,654
Net Income	$	9,787	$	14,267	$	34,903	$	46,088
Per Share Data
Basic earnings per share	$	0.67	$	0.97	$	2.39	$	3.13
Diluted earnings per share	$	0.67	$	0.97	$	2.39	$	3.12
Cash dividends declared per share	$	0.42	$	0.40	$	1.26	$	1.20
Weighted average number of common shares outstanding	14,556,057		14,619,460		14,564,431		14,670,450
Diluted weighted average number of common shares outstanding	14,597,649		14,675,332		14,607,031		14,728,349

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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2023		2022		2023		2022
Net Income	$	9,787	$	14,267	$	34,903	$	46,088
Other comprehensive loss:
Net change in unrealized loss on debt securities, net of tax	(11,399)		(24,231)		(7,689)		(139,095)
Net change in unrealized gain on cash flow hedging derivatives, net of tax	3,130		2,560		3,452		8,324
Net change in other comprehensive income for supplemental executive retirement plan and other postretirement benefit plan, net of tax	(5)		181		(16)		544
Other comprehensive loss	(8,274)		(21,490)		(4,253)		(130,227)
Comprehensive Income (Loss)	$	1,513	$	(7,223)	$	30,650	$	(84,139)

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 June 30, 2022	14,625,041	$	116,825	$	444,522	$	(114,966)	$	446,381
Net income	—	—		14,267		—		14,267
Other comprehensive loss, net of tax	—	—		—		(21,490)		(21,490)
Stock-based compensation expense	—	522		—		—		522
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings	2,476	16		—		—		16
Common stock repurchased	(63,689)	(2,827)		—		—		(2,827)
Cash dividends declared ($0.40 per share)	—	—		(5,862)		—		(5,862)
Balance at September 30, 2022	14,563,828	$	114,536	$	452,927	$	(136,456)	$	431,007
Balance at June 30, 2023	14,554,778	$	114,302	$	475,008	$	(121,934)	$	467,376
Net income	—	—		9,787		—		9,787
Other comprehensive loss, net of tax	—	—		—		(8,274)		(8,274)
Stock-based compensation expense	—	543		—		—		543
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings	3,359	(3)		—		—		(3)
Common stock repurchased	—	—		—		—		—

Cash dividends declared ($0.42 per share)	—	—		(6,131)		—		(6,131)
Balance at September 30, 2023	14,558,137	$	114,842	$	478,664	$	(130,208)	$	463,298


	Nine 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, 2021	14,739,956	$	123,111	$	424,412	$	(6,229)	$	541,294
Net income	—	—		46,088		—		46,088
Other comprehensive loss, net of tax		—		—		(130,227)		(130,227)
Stock-based compensation expense	—	2,039		—		—		2,039
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings	49,117	(374)		—		—		(374)
Common stock repurchased	(225,245)	(10,240)		—		—		(10,240)
Cash dividends declared ($1.20 per share)	—	—		(17,573)		—		(17,573)
Balance at September 30, 2022	14,563,828	$	114,536	$	452,927	$	(136,456)	$	431,007
Balance at December 31, 2022	14,567,325	$	115,069	$	462,164	$	(125,955)	$	451,278
Net income	—	—		34,903		—		34,903
Other comprehensive loss, net of tax	—	—		—		(4,253)		(4,253)
Stock-based compensation expense	—	1,950		—		—		1,950
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings	56,504	(177)		—		—		(177)
Common stock repurchased	(65,692)	(2,000)		—		—		(2,000)

Cash dividends declared ($1.26 per share)	—	—		(18,403)		—		(18,403)
Balance at September 30, 2023	14,558,137	$	114,842	$	478,664	$	(130,208)	$	463,298

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Nine Months Ended September 30,
(In thousands)	2023		2022
Operating Activities
Net Income	$	34,903	$	46,088
Adjustments to reconcile net income to net cash provided by operating activities:
Originations of mortgage loans held for sale	(143,277)		(130,725)
Proceeds from the sale of mortgage loans	138,429		134,597
Gain on sale of mortgage loans, net of origination costs	(1,191)		(2,948)
Provision for credit losses	1,531		4,034
Depreciation and amortization expense	2,465		2,638
Investment securities amortization and accretion, net	3,653		3,118
Stock-based compensation expense	1,950		2,039
Amortization of core deposit intangible assets	444		469
Purchase accounting accretion, net	(110)		(197)
Net gain on sale of premises and equipment	—		(204)
Net loss on sale of investment securities	5,335		9

Net increase in derivative collateral posted	32,690		30,470
Increase in other assets	(3,277)		(774)
Increase (decrease) in other liabilities	5,260		(3,899)
Net cash provided by operating activities	78,805		84,715
Investing Activities
Proceeds from sales of available-for-sale debt securities	61,343		8,723
Proceeds from maturities of available-for-sale debt securities	55,565		151,985
Purchase of available-for-sale debt securities	(31,611)		(80,868)
Proceeds from maturities of held-to-maturity securities	18,557		15,192
Purchase of held-to-maturity securities	(20,981)		(24,502)
Net increase in loans	(58,285)		(429,948)

Purchase of Federal Home Loan Bank stock	(27,377)		(29,104)
Proceeds from sale of Federal Home Loan Bank stock	25,631		24,276
Purchase of premises and equipment	(1,730)		(1,348)
Proceeds from the sale of premises and equipment	—		466

Recoveries of previously charged-off loans	437		437
Proceeds from the sale of other real estate owned	—		287
Net cash provided by (used in) investing activities	21,549		(364,404)
Financing Activities
Net decrease in deposits	(148,523)		(40,285)
Net proceeds from borrowings less than 90 days	204,964		209,493





Common stock repurchases	(2,000)		(9,968)
Exercise of stock options and issuance of restricted stock, net of repurchase for tax withholdings	(177)		(374)
Cash dividends paid on common stock	(18,406)		(17,671)
Finance lease payments	(125)		(119)
Net cash provided by financing activities	35,733		141,076
Net increase (decrease) in cash, cash equivalents and restricted cash	136,087		(138,613)
Cash, cash equivalents, and restricted cash at beginning of period	75,427		220,625
Cash, cash equivalents and restricted cash at end of period	$	211,514	$	82,012
Supplemental information
Interest paid	$	65,798	$	12,565
Income taxes paid	8,845		9,761
Transfer from available-for-sale to held-to-maturity securities	—		592,438
Cash dividends declared, not paid	6,131		5,861
Change in fair value hedges presented within residential real estate loans and other assets	9,095		—

Unsettled common stock repurchase	—		272

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

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited consolidated interim financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures required by accounting principles generally accepted in the United States of America for complete presentation of financial statements. In the opinion of management, the consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the consolidated statements of condition of Camden National Corporation (the "Company") as of September 30, 2023 and December 31, 2022, the consolidated statements of income for the three and nine months ended September 30, 2023 and 2022, the consolidated statements of comprehensive income (loss) for the three and nine months ended September 30, 2023 and 2022, the consolidated statements of changes in shareholders' equity for the three and nine months ended September 30, 2023 and 2022, and the consolidated statements of cash flows for the nine months ended September 30, 2023 and 2022. 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.). 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 may have been made to prior period amounts to conform to the current period presentation. Any such reclassifications did not impact net income or shareholders' equity as previously reported. Net income reported for the three and nine months ended September 30, 2023, 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, 2022.

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.

Acronym

Description

Acronym

Description

AFS:

Available-for-sale

FRB:

Board of Governors of the Federal Reserve System

ALCO:

Asset/Liability Committee

FRBB:

Federal Reserve Bank of Boston

ACL:

Allowance for credit losses

GAAP:

Generally accepted accounting principles in the United States

AOCI:

Accumulated other comprehensive income (loss)

GDP:

Gross domestic product

ASC:

Accounting Standards Codification

HPFC:

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

ASU:

Accounting Standards Update

HTM:

Held-to-maturity

Bank:

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

IRS:

Internal Revenue Service

BOLI:

Bank-owned life insurance

LIBOR:

London Interbank Offered Rate

Board ALCO:

Board of Directors' Asset/Liability Committee

LTIP:

Long-Term Performance Share Plan

BTFP:

Bank Term Funding Program, introduced by the Federal Reserve Bank in March 2023

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

SBA:

U.S. Small Business Administration

FASB:

Financial Accounting Standards Board

SBA PPP:

U.S. Small Business Administration Paycheck Protection Program

FDIC:

Federal Deposit Insurance Corporation

SERP:

Supplemental executive retirement plans

FHLB:

Federal Home Loan Bank

SOFR:

Secured Overnight Financing Rate

FHLBB:

Federal Home Loan Bank of Boston

TDR:

Troubled-debt restructured loan

FHLMC:

Federal Home Loan Mortgage Corporation

UBCT:

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

FNMA:

Federal National Mortgage Association

U.S:

United States of America

FOMC:

Federal Open Market Committee

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS

The Company adopted and updated its accounting policies for the following accounting standards that have been applied to the Company's interim consolidated financial statements for the three and nine months ended September 30, 2023:

ASU No. 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method ("ASU 2022-01"). The FASB issued ASU 2022-01 to amend ASU 2017-12, which was adopted by the Company in 2018. This amendment renames the "last-of-layer" method to the "portfolio layer" method, permits non-repayable financial assets to be included in a closed portfolio hedged using the portfolio layer method, and provides additional guidance for entities that apply the portfolio layer method of hedge accounting in accordance with Topic 815. The Company adopted ASU 2022-01, as amended, effective January 1, 2023 and leveraged the "portfolio layer" method to enter into interest rate swaps to hedge fixed-rate residential mortgages during the nine months ended September 30, 2023. There was no impact to the Company's consolidated financial statements upon adoption. Refer to Note 8 of the consolidated financial statements for further details.

ASU No. 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures ("ASU 2022-02"). The FASB issued ASU 2022-02 to provide new guidance on TDRs and charge-offs for entities that have adopted ASU 2016-13. The Company adopted ASU 2022-02 effective January 1, 2023 on a prospective basis, and upon adoption there was no impact to the consolidated financial statements. The adoption of ASU 2022-02 eliminates the accounting and disclosure requirements for TDRs, including the requirement to measure the allowance using a discounted cash flow ("DCF") methodology. Beginning January 1, 2023, the Company no longer establishes a specific reserve for newly modified loans to borrowers experiencing financial difficulty. Instead, these modifications are included in their respective segments, and the ACL is calculated utilizing models that consider the borrowers' probability of default, loss given default and exposure at default.

ASU 2022-02 also requires disclosure of modifications of loans to borrowers experiencing financial difficulty if the modification involves principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, a term extension, or a combination of any of these types of modifications. Additionally, ASU 2022-02 requires the disclosure of current period gross charge-offs by year of loss origination (vintage) which are required to be applied prospectively as of January 1, 2023, the Company's date of adoption. Refer to Note 4 of the consolidated financial statements for further details.

The following provides a brief description of recently issued accounting pronouncements that have yet to be adopted by the Company:

ASU No. 2023-02, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method ("ASU 2023-02"). The FASB issued ASU 2023-02 to permit reporting entities to elect to account for tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. Under the proportional amortization method, the initial cost of the investment is amortized in proportion to the income tax credits or other tax benefits received. ASU 2023-02 is effective for interim and annual periods beginning after December 15, 2023. Although the Company continues to evaluate the potential effects of ASU 2023-02, it does not expect the adoption of ASU 2023-02 to have a material impact on its consolidated financial statements.

NOTE 3 – INVESTMENTS

Trading Securities

Trading securities are reported on the Company's consolidated statements of condition at fair value. As of September 30, 2023 and December 31, 2022, the fair value of the Company's trading securities were $4.2 million and $4.0 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 deferred compensation plan for eligible employees and directors.

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
September 30, 2023
Obligations of states and political subdivisions	$	42,652	$	—	$	(1,983)	$	40,669
MBS issued or guaranteed by U.S. government-sponsored enterprises	521,794		19		(96,837)		424,976
CMO issued or guaranteed by U.S. government-sponsored enterprises	118,890		25		(14,099)		104,816
Corporate bonds	21,683		—		(3,141)		18,542
Total AFS debt securities	$	705,019	$	44	$	(116,060)	$	589,003
December 31, 2022

Obligations of states and political subdivisions	$	49,678	$	11	$	(463)	$	49,226
MBS issued or guaranteed by U.S. government-sponsored enterprises	598,845		131		(84,957)		514,019
CMO issued or guaranteed by U.S. government-sponsored enterprises	122,760		—		(13,413)		109,347
Corporate bonds	25,677		3		(2,397)		23,283
Total AFS debt securities	$	796,960	$	145	$	(101,230)	$	695,875

As of September 30, 2023 and December 31, 2022, there was no allowance carried on AFS debt securities.

In June of 2022, the Company transferred securities with a fair value of $520.3 million from AFS to HTM. The unrealized losses on the AFS debt securities at the time of transfer were $72.1 million, pre-tax, and were reported within AOCI. These unrealized losses are being amortized over the remaining life of the securities from AOCI into the HTM securities on the consolidated statements of condition. At September 30, 2023, the net unrealized losses on the transferred securities reported within AOCI were $48.2 million, net of a deferred tax asset of $13.2 million and at December 31, 2022 were $52.2 million, net of a deferred tax asset of $14.3 million.

The net unrealized losses on AFS debt securities reported within AOCI (excluding the aforementioned securities transferred from AFS to HTM) at September 30, 2023 and December 31, 2022, were $91.1 million and $79.4 million, respectively, and were net of a deferred tax asset of $24.9 million and $21.7 million, respectively.

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
September 30, 2023
Obligations of states and political subdivisions	82	$	29,363	$	(1,272)	$	11,306	$	(711)	$	40,669	$	(1,983)
MBS issued or guaranteed by U.S. government-sponsored enterprises	153	12,086		(274)		405,769		(96,563)		417,855		(96,837)
CMO issued or guaranteed by U.S. government-sponsored enterprises	50	21,429		(172)		78,344		(13,927)		99,773		(14,099)
Corporate bonds	12	2,705		(910)		15,837		(2,231)		18,542		(3,141)
Total AFS debt securities	297	$	65,583	$	(2,628)	$	511,256	$	(113,432)	$	576,839	$	(116,060)



December 31, 2022

Obligations of states and political subdivisions	83	$	42,276	$	(463)	$	—	$	—	$	42,276	$	(463)
MBS issued or guaranteed by U.S. government-sponsored enterprises	175	118,290		(11,521)		381,355		(73,436)		499,645		(84,957)
CMO issued or guaranteed by U.S. government-sponsored enterprises	64	47,340		(4,589)		62,007		(8,824)		109,347		(13,413)
Corporate bonds	13	7,687		(384)		14,593		(2,013)		22,280		(2,397)
Total AFS debt securities	335	$	215,593	$	(16,957)	$	457,955	$	(84,273)	$	673,548	$	(101,230)

For the three and nine months ended September 30, 2023 and 2022, the unrealized losses on the Company's AFS debt securities have not been recognized into income because management does not intend to sell and it is not more-likely-than-not it will be required to sell any of the AFS debt securities before recovery of its amortized cost basis. Furthermore, the unrealized losses were due to changes in interest rates and other market conditions and were not reflective of credit events. Agency-backed and government-sponsored enterprise securities have a long history with no credit losses, including during times of severe stress. The principal and interest payments on agency guaranteed debt is backed by the U.S. government. Government-sponsored enterprises similarly guarantee principal and interest payments and carry an implicit guarantee from the U.S. Department of the Treasury. Additionally, government-sponsored enterprise securities are exceptionally liquid, readily marketable, and provide a substantial amount of price transparency and price parity, indicating a perception of zero credit losses. AFS municipal debt holdings are comprised solely of high credit quality (rated A- or higher) state and municipal obligations. High credit quality state and municipal obligations have a history of zero to near-zero credit loss. Corporate bonds are primarily comprised of investment grade senior notes and senior subordinated notes of other financial institutions.

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


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2023		2022		2023		2022
Proceeds from sales of investments	$	61,343	$	—	$	61,343	$	8,723
Gross realized gains	—		—		—		13
Gross realized losses	(5,335)		—		(5,335)		(22)

At September 30, 2023 and December 31, 2022, total accrued interest receivable on AFS debt securities, which has been excluded from reported amortized cost basis on AFS debt securities, was $1.8 million and $1.9 million respectively, and was reported within other assets on the consolidated statements of condition. An allowance was not carried on the accrued interest receivable at either date.

The amortized cost and estimated fair values of the Company's AFS debt securities by contractual maturity at September 30, 2023, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-related securities are shown in total, as their maturities are highly variable.


(In thousands)	Amortized Cost		Fair Value
Due in one year or less	$	1,001	$	995
Due after one year through five years	10,304		9,272
Due after five years through ten years	53,030		48,944
Due after ten years	—		—
Subtotal	64,335		59,211
Mortgage-related securities	640,684		529,792
Total	$	705,019	$	589,003

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(1)		Unrealized Gains		Unrealized Losses		Fair Value
September 30, 2023
Obligations of U.S. government-sponsored enterprises	$	7,559	$	—	$	(876)	$	6,683
Obligations of states and political subdivisions	56,191		—		(5,441)		50,750
MBS issued or guaranteed by U.S. government-sponsored enterprises	307,846		—		(38,755)		269,091
CMO issued or guaranteed by U.S. government-sponsored enterprises	159,322		—		(20,135)		139,187
Corporate bonds	19,043		103		(1,310)		17,836
Total HTM debt securities	$	549,961	$	103	$	(66,517)	$	483,547
December 31, 2022
Obligations of U.S. government-sponsored enterprises	$	7,457	$	—	$	(777)	$	6,680
Obligations of states and political subdivisions	55,978		431		(1,610)		54,799
MBS issued or guaranteed by U.S. government-sponsored enterprises	317,406		—		(24,766)		292,640
CMO issued or guaranteed by U.S. government-sponsored enterprises	145,069		—		(13,724)		131,345
Corporate bonds	20,673		332		(276)		20,729
Total HTM debt securities	$	546,583	$	763	$	(41,153)	$	506,193

(1) Amortized cost presented above includes unamortized unrealized losses from the aforementioned transfer from AFS to HTM securities as of September 30, 2023 and December 31, 2022, as follows: (1) $1.0 million and $1.1 million in obligations of U.S. government-sponsored enterprises, (2) $5.8 million and $6.1 million in obligations of state and political subdivisions, (3) $35.5 million and $38.4 million in mortgage-backed securities, (4) $18.9 million and $20.7 million in collateralized mortgage obligations, and (5) $93,000 and $117,000 in corporate bonds, respectively.

Agency-backed and government-sponsored enterprise securities have a long history with no credit losses, including during times of severe stress. The principal and interest payments on agency-guaranteed debt is backed by the U.S. government. Government-sponsored enterprises similarly guarantee principal and interest payments and carry an implicit guarantee from the U.S. Department of the Treasury. Additionally, government-sponsored enterprise securities are exceptionally liquid, readily marketable, and provide a substantial amount of price transparency and price parity, indicating a perception of zero credit losses. HTM municipal debt holdings are comprised solely of high credit quality (rated A- or higher) state and municipal obligations. High credit quality state and municipal obligations have a history of zero to near-zero credit loss. Corporate bonds are primarily comprised of investment grade senior notes and senior subordinated notes of other financial institutions. For the three months ended September 30, 2023 and 2022, the Company did not record a provision for credit losses on its HTM debt security portfolio. For the nine months ended September 30, 2023 and 2022, the Company recorded a provision for credit losses on its HTM debt securities portfolio of $1.8 million and $0, respectively. The provision for credit losses recorded during the nine months ended September 30, 2023, was due to the write-off of a corporate bond issued by Signature Bank, which was designated as HTM and previously carried no ACL, resulting from Signature Bank's failure during the quarter ended March 31, 2023. Accordingly, the Company also wrote-off accrued interest receivable of $8,000 that was due from the Signature Bank corporate bond during the nine months ended September 30, 2023, the write-off was recorded as a reversal of interest income on the consolidated statements of income. The Company did not write-off any accrued interest for the nine months ended September 30, 2022.

The Company evaluated its HTM debt securities with an amortized cost as of September 30, 2023 and December 31, 2022, and determined that the expected credit loss on its HTM portfolio was immaterial, and therefore it did not carry an ACL on the HTM portfolio at either date.

As of September 30, 2023 and December 31, 2022, none of the Company's HTM debt securities were past due or on non-accrual status. For the three and nine months ended September 30, 2023 and 2022, the Company did not recognize any interest income on non-accrual HTM debt securities. At September 30, 2023 and December 31, 2022, total accrued interest receivable on HTM debt securities, which has been excluded from reported amortized cost basis of HTM debt securities, was $1.5 million and $1.7 million, respectively, and was reported within other assets on the consolidated statements of condition. An allowance was not carried on the HTM debt securities accrued interest receivable at either date.

The amortized cost and estimated fair values of HTM debt securities by contractual maturity at September 30, 2023 are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-related securities are shown in total, as their maturities are highly variable.


(In thousands)	Amortized Cost		Fair Value






Due in one year or less	$	—	$	—
Due after one year through five years	2,293		2,245
Due after five years through ten years	34,134		31,732
Due after ten years	46,366		41,292
Subtotal	82,793		75,269
Mortgage-related securities	467,168		408,278
Total	$	549,961	$	483,547

AFS and HTM Debt Securities Pledged

At September 30, 2023 and December 31, 2022, AFS and HTM debt securities with an amortized cost of $672.1 million and $821.9 million and estimated fair values of $564.7 million and $726.5 million, respectively, were pledged to secure FHLBB advances, FRB advances (including the BTFP), public deposits, and securities sold under agreements to repurchase and for other purposes required or permitted by law.

Other Investments

The Company's FHLBB and FRB common stock are reported at cost within other investments on the consolidated statements of condition. The Company evaluates these investments for impairment based on the ultimate recoverability of the par value. The Company did not record any impairment on its FHLBB and FRB stock for the three and nine months ended September 30, 2023 and 2022.

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)	September 30, 2023		December 31, 2022
FHLBB	$	9,085	$	7,339
FRB	5,374		5,374
Total other investments	$	14,459	$	12,713

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)	September 30, 2023		December 31, 2022
Commercial Loans:
Commercial real estate - non-owner-occupied	$	1,349,463	$	1,292,443
Commercial real estate - owner-occupied	303,825		332,494
Commercial	400,031		430,131

Total commercial loans	2,053,319		2,055,068
Retail Loans:
Residential real estate	1,752,401		1,700,266
Home equity	233,452		234,428
Consumer	19,241		20,591
Total retail loans	2,005,094		1,955,285
Total loans	$	4,058,413	$	4,010,353

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)	September 30, 2023		December 31, 2022
Net unamortized loan origination costs	$	7,069	$	6,890
Net unamortized fair value mark discount on acquired loans	(203)		(313)
Total	$	6,866	$	6,577

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.

SBA PPP Loans. Beginning in April 2020, the Company originated SBA PPP loans issued to qualifying businesses as part of the federal stimulus packages issued due to the COVID-19 pandemic. This program provided qualifying businesses a specialized, low-interest-rate loan by the U.S. Treasury Department and was administered by the SBA. SBA PPP loans provided borrower guarantees for lenders, as well as loan forgiveness incentives for borrowers that utilized the loan proceeds to cover employee compensation-related business operating costs, as well as certain other costs up to pre-established limits. Effective May 31, 2021, the SBA PPP loan program ended and the Company ceased originating loans under this program. At September 30, 2023 and December 31, 2022, four loans with a total principal balance of $425,000 and five loans with a total principal balance of $648,000, respectively, remained outstanding and were presented in commercial loans.

Related Party Loans. In the normal course of business, the Bank makes loans to certain officers, directors and their associated companies, under terms that are consistent with the Company's lending policies and regulatory requirements and that do not involve more than the normal risk of collectability or present other unfavorable features. At September 30, 2023 and December 31, 2022, outstanding loans to certain officers, directors and their associated companies were less than 5% of the Company's shareholders' equity.

Loan Sales

For the three months ended September 30, 2023 and 2022, the Company sold $66.2 million and $37.9 million, respectively, of residential mortgage loans on the secondary market, which resulted in gains on the sale of loans (net of costs) of $429,000 and $783,000, respectively. For the nine months ended September 30, 2023 and 2022, the Company sold $137.2 million and $131.6 million, respectively, of residential mortgage loans on the secondary market, which resulted in gains on the sale of loans (net of costs) of $1.2 million and $2.9 million, respectively.

At September 30, 2023 and December 31, 2022, the Company had certain residential mortgage loans with a principal balance of $11.3 million and $5.3 million, respectively, designated as held for sale. The Company has elected the fair value option of accounting for its loans held for sale, and at September 30, 2023 and December 31, 2022, recorded an unrealized loss of $112,000 and $62,000, respectively on residential mortgage loans held for sale. For the three months ended September 30, 2023 and 2022, the Company recorded an unrealized gain on residential mortgage loans held for sale recorded within mortgage banking income, net, on the Company's consolidated statements of income of $69,000 and $193,000, respectively. For the nine months ended September 30, 2023 and 2022, the Company recorded an unrealized gain on residential mortgage loans held for sale recorded within mortgage banking income, net, on the Company's consolidated statements of income of $49,000 and $262,000, respectively.

The Company has forward delivery commitments with a secondary market investor on each of its residential mortgage loans held for sale at September 30, 2023 and December 31, 2022. Refer to Note 8 for further discussion of the Company's forward delivery commitments.

ACL on Loans

The Company manages its loan portfolio proactively to effectively identify problem credits and assess trends early, 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. The Company monitors and manages credit risk through the following governance structure:

•The Credit Risk and Special Assets team and the Credit Risk Policy Committee, which is an internal management committee comprised of various executives and senior managers across business lines, including Accounting and Finance, Credit Underwriting, Credit Risk and Special Assets, Compliance, and Commercial and Retail Banking, 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 Underwriting, Credit Risk and Special Assets, Compliance, and Commercial and Retail Banking. The Management Provision Committee supports the oversight efforts of the Audit Committee of the Board of Directors.

•The Directors' Credit Committee of the Board of Directors 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.

•The Audit Committee of the Board of Directors has approval authority and oversight responsibility for the ACL adequacy and methodology.

Segmentation. 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 September 30, 2023 and December 31, 2022, the Company's loan portfolio segments, as determined based on the unique risk characteristics of each, include the following:

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

Commercial Real Estate - Owner-Occupied. Generally, owner-occupied commercial real estate loans are properties that are owned and operated by the borrower, and the primary source for repayment is the cash flow from the ongoing operations and activities conducted by the borrower's business. Owner-occupied commercial real estate loans consist of mortgage loans to finance investments in real property that may include, but are not limited to, commercial/retail office space, restaurants, educational 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 primarily are paid by the operating cash flow of the borrower. Commercial loans may be secured or unsecured.

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. Each home equity loan has a fixed rate and is billed as equal payments comprised of principal and interest. Each 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, as applicable. Consumer loans may be secured or unsecured.

The following table presents the activity in the ACL on loans for the periods indicated:


	Commercial Real Estate
(In thousands)	Non-Owner-Occupied		Owner- Occupied		Commercial		Residential Real Estate		Home Equity		Consumer		Total
At or For The Three Months Ended September 30, 2023

Beginning balance, June 30, 2023	$	16,155	$	2,351	$	4,795	$	10,627	$	2,397	$	658	$	36,983
Charge-offs	—		(58)		(255)		—		—		(32)		(345)
Recoveries	17		—		189		5		1		13		225
Provision (credit) for loan losses	607		(131)		(247)		(590)		(101)		6		(456)
Ending balance, September 30, 2023	$	16,779	$	2,162	$	4,482	$	10,042	$	2,297	$	645	$	36,407
At or For The Nine Months Ended September 30, 2023
Beginning balance, December 31, 2022	$	17,296	$	2,362	$	5,446	$	9,089	$	2,225	$	504	$	36,922
Charge-offs	—		(58)		(1,101)		(18)		—		(63)		(1,240)
Recoveries	19		—		352		38		1		27		437
(Credit) provision for loan losses	(536)		(142)		(215)		933		71		177		288
Ending balance, September 30, 2023	$	16,779	$	2,162	$	4,482	$	10,042	$	2,297	$	645	$	36,407
At or For The Three Months Ended September 30, 2022
Beginning balance, June 30, 2022	$	16,210	$	2,501	$	5,146	$	8,438	$	1,796	$	153	$	34,244
Charge-offs	—		—		(183)		(49)		—		(46)		(278)
Recoveries	1		—		61		—		1		—		63
Provision for loan losses	922		146		192		696		63		494		2,513
Ending balance, September 30, 2022	$	17,133	$	2,647	$	5,216	$	9,085	$	1,860	$	601	$	36,542
At or For The Nine Months Ended September 30, 2022
Beginning balance, December 31, 2021	$	18,834	$	2,539	$	4,202	$	6,133	$	1,469	$	79	$	33,256
Charge-offs	—		—		(744)		(65)		—		(130)		(939)
Recoveries	2		2		341		—		87		5		437
(Credit) provision for loan losses	(1,703)		106		1,417		3,017		304		647		3,788
Ending balance, September 30, 2022	$	17,133	$	2,647	$	5,216	$	9,085	$	1,860	$	601	$	36,542
At or For The Year Ended December 31, 2022
Beginning balance, December 31, 2021	$	18,834	$	2,539	$	4,202	$	6,133	$	1,469	$	79	$	33,256
Charge-offs	—		—		(1,042)		(66)		—		(134)		(1,242)
Recoveries	3		2		379		—		87		7		478
(Credit) provision for loan losses	(1,541)		(179)		1,907		3,022		669		552		4,430
Ending balance, December 31, 2022	$	17,296	$	2,362	$	5,446	$	9,089	$	2,225	$	504	$	36,922

The ACL on loans decreased $515,000 during the nine months ended September 30, 2023, to $36.4 million. The net decrease over this period was primarily driven by:

•An increase of $954,000 in the ACL on loans for the residential real estate loan portfolio, primarily due to the deterioration in the economic outlook primarily for the Maine unemployment forecast over the Company's forecast period, as compared to December 31, 2022, and 3% loan growth in this loan portfolio during the forecast period; and

•A combined $1.5 million decrease in commercial and commercial real estate non-owner occupied ACL on loans, primarily due to the forecasted improvement in U.S. and Maine GDP over the Company's forecast period, as compared to December 31, 2022. Additionally, charge offs for the commercial loans for the first nine months of 2023 decreased the ACL $1.1 million primarily due to a few large commercial relationships charges off that were considered to be isolated and not part of a trend for higher charge offs.

Credit Concentrations

The Company focuses on maintaining a well-balanced and diversified loan portfolio. Despite such efforts, it is recognized that credit concentrations may occasionally emerge as a result of economic conditions, changes in local demand, natural loan growth and runoff. To identify credit concentrations effectively, all commercial and commercial real estate loans are assigned Standard Industrial Classification codes, North American Industry Classification System codes, and state and county codes. Shifts in portfolio concentrations are monitored. As of September 30, 2023, the Company's total exposure to the lessors of nonresidential buildings' industry and lessors of residential buildings' industry were 13% and 12% of total loans and 33% and 28% of total commercial real estate loans, respectively. There were no other industry exposures exceeding 10% of the Company's total loan portfolio as of September 30, 2023.

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.

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 prior to adoption of ASU 2022-02, are considered non-performing.

Based on the most recent analysis performed, the risk category of loans by portfolio segment by vintage was as follows as of and for the dates indicated:


(In thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
As of and for the period ended September 30, 2023
Commercial real estate - non-owner-occupied
Risk rating
Pass (Grades 1-6)	$	60,945	$	356,211	$	300,251	$	149,663	$	118,273	$	341,183	$	—	$	—	$	1,326,526
Special mention (Grade 7)	7,997		—		—		352		34		3,629		—		—		12,012
Substandard (Grade 8)	—		176		116		2,183		115		8,335		—		—		10,925
Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—
Total commercial real estate - non-owner-occupied	$	68,942	$	356,387	$	300,367	$	152,198	$	118,422	$	353,147	$	—	$	—	$	1,349,463
Gross charge-offs for the nine months ended	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate - owner-occupied
Risk rating
Pass (Grades 1-6)	$	22,527	$	55,097	$	77,457	$	25,120	$	18,982	$	95,828	$	—	$	—	$	295,011
Special mention (Grade 7)	—		—		—		—		—		142		—		—		142
Substandard (Grade 8)	—		—		2,179		—		—		6,493		—		—		8,672
Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—
Total commercial real estate - owner occupied	$	22,527	$	55,097	$	79,636	$	25,120	$	18,982	$	102,463	$	—	$	—	$	303,825
Gross charge-offs for the nine months ended	$	—	$	—	$	—	$	—	$	—	$	58	$	—	$	—	$	58
Commercial
Risk rating
Pass (Grades 1-6)	$	25,211	$	57,843	$	59,490	$	26,000	$	27,833	$	40,535	$	111,723	$	41,471	$	390,106
Special mention (Grade 7)	47		—		166		205		1		105		2,181		871		3,576
Substandard (Grade 8)	265		427		310		803		294		1,374		1,380		1,496		6,349
Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—
Total commercial	$	25,523	$	58,270	$	59,966	$	27,008	$	28,128	$	42,014	$	115,284	$	43,838	$	400,031
Gross charge-offs for the nine months ended	$	—	$	68	$	137	$	23	$	20	$	725	$	32	$	96	$	1,101
Residential Real Estate
Risk rating
Pass (Grades 1-6)	$	119,925	$	542,015	$	552,802	$	225,028	$	73,467	$	234,661	$	361	$	391	$	1,748,650
Special mention (Grade 7)	—		—		—		—		—		—		—		—		—
Substandard (Grade 8)	—		—		968		—		90		2,693		—		—		3,751
Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—
Total residential real estate	$	119,925	$	542,015	$	553,770	$	225,028	$	73,557	$	237,354	$	361	$	391	$	1,752,401
Gross charge-offs for the nine months ended	$	—	$	—	$	—	$	—	$	—	$	18	$	—	$	—	$	18
Home equity
Risk rating
Performing	$	12,311	$	23,740	$	553	$	329	$	4,197	$	13,442	$	165,017	$	13,230	$	232,819
Non-performing	—		—		—		—		—		14		373		246		633
Total home equity	$	12,311	$	23,740	$	553	$	329	$	4,197	$	13,456	$	165,390	$	13,476	$	233,452
Gross charge-offs for the nine months ended	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Consumer
Risk rating
Performing	$	4,720	$	5,671	$	2,393	$	986	$	447	$	2,433	$	2,550	$	—	$	19,200
Non-performing	—		—		—		—		7		34		—		—		41
Total consumer	$	4,720	$	5,671	$	2,393	$	986	$	454	$	2,467	$	2,550	$	—	$	19,241
Gross charge-offs for the nine months ended	$	—	$	19	$	21	$	10	$	2	$	4	$	7	$	—	$	63


(In thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
As of December 31, 2022
Commercial real estate - non-owner-occupied
Risk rating
Pass (Grades 1-6)	$	339,171	$	287,749	$	160,621	$	125,029	$	108,823	$	242,024	$	—	$	—	$	1,263,417
Special mention (Grade 7)	—		167		364		259		75		321		—		—		1,186
Substandard (Grade 8)	—		127		1,306		203		7,798		18,406		—		—		27,840
Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—
Total commercial real estate - non-owner-occupied	$	339,171	$	288,043	$	162,291	$	125,491	$	116,696	$	260,751	$	—	$	—	$	1,292,443

Commercial real estate - owner-occupied
Risk rating
Pass (Grades 1-6)	$	60,127	$	80,781	$	28,378	$	23,381	$	39,554	$	70,568	$	—	$	—	$	302,789
Special mention (Grade 7)	—		2,053		—		19,992		—		411		—		—		22,456
Substandard (Grade 8)	17		—		—		—		3,266		3,966		—		—		7,249
Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—
Total commercial real estate - owner occupied	$	60,144	$	82,834	$	28,378	$	43,373	$	42,820	$	74,945	$	—	$	—	$	332,494

Commercial
Risk rating
Pass (Grades 1-6)	$	73,537	$	70,110	$	32,272	$	33,491	$	22,271	$	26,245	$	135,157	$	30,191	$	423,274
Special mention (Grade 7)	—		—		93		141		70		189		1,196		12		1,701
Substandard (Grade 8)	149		52		133		216		846		1,524		50		2,186		5,156
Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—
Total commercial	$	73,686	$	70,162	$	32,498	$	33,848	$	23,187	$	27,958	$	136,403	$	32,389	$	430,131

Residential Real Estate
Risk rating
Pass (Grades 1-6)	$	533,035	$	579,216	$	244,691	$	79,492	$	50,214	$	210,262	$	340	$	—	$	1,697,250
Special mention (Grade 7)	—		—		—		—		—		23		—		—		23
Substandard (Grade 8)	—		—		—		—		163		2,830		—		—		2,993
Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—
Total residential real estate	$	533,035	$	579,216	$	244,691	$	79,492	$	50,377	$	213,115	$	340	$	—	$	1,700,266

Home equity
Risk rating
Performing	$	26,712	$	693	$	341	$	4,842	$	7,730	$	8,551	$	173,338	$	11,735	$	233,942
Non-performing	—		—		—		—		—		27		377		82		486
Total home equity	$	26,712	$	693	$	341	$	4,842	$	7,730	$	8,578	$	173,715	$	11,817	$	234,428

Consumer
Risk rating
Performing	$	8,009	$	3,816	$	1,702	$	1,188	$	345	$	2,462	$	3,069	$	—	$	20,591
Non-performing	—		—		—		—		—		—		—		—		—
Total consumer	$	8,009	$	3,816	$	1,702	$	1,188	$	345	$	2,462	$	3,069	$	—	$	20,591

Past Due and Non-Accrual Loans

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

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
September 30, 2023
Commercial real estate - non-owner-occupied	$	45	$	—	$	92	$	137	$	1,349,326	$	1,349,463	$	—
Commercial real estate - owner-occupied	—		142		—		142		303,683		303,825
Commercial	1,975		820		515		3,310		396,721		400,031		—
Residential real estate	507		527		1,024		2,058		1,750,343		1,752,401		—
Home equity	585		14		281		880		232,572		233,452		—
Consumer	30		6		7		43		19,198		19,241		—
Total	$	3,142	$	1,509	$	1,919	$	6,570	$	4,051,843	$	4,058,413	$	—
December 31, 2022
Commercial real estate - non-owner-occupied	$	267	$	—	$	11	$	278	$	1,292,165	$	1,292,443	$	—
Commercial real estate - owner-occupied	55		—		47		102		332,392		332,494		—
Commercial	667		134		640		1,441		428,690		430,131		—
Residential real estate	852		186		524		1,562		1,698,704		1,700,266		—
Home equity	357		—		171		528		233,900		234,428		—
Consumer	23		11		—		34		20,557		20,591		—
Total	$	2,221	$	331	$	1,393	$	3,945	$	4,006,408	$	4,010,353	$	—

The following table presents the amortized cost basis of loans on non-accrual status (including non-accruing TDRs prior to adoption of ASU 2022-02) by portfolio segment as of the dates indicated:


	September 30, 2023						December 31, 2022
(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	$	83	$	9	$	92	$	—	$	11	$	11
Commercial real estate - owner-occupied	—		—		—		—		46		46
Commercial	978		105		1,083		415		300		715
Residential real estate	1,943		832		2,775		1,314		419		1,733
Home equity	570		63		633		421		65		486
Consumer	41		—		41		—		—		—
Total	$	3,615	$	1,009	$	4,624	$	2,150	$	841	$	2,991

The following table presents the amortized cost basis of collateral-dependent non-accrual loans (including non-accruing TDRs prior to adoption of ASU 2022-02) by portfolio segment and collateral type, as of the dates indicated:


	September 30, 2023						December 31, 2022
	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


Residential real estate	$	144	$	—	$	144	$	387	$	—	$	387


Total	$	144	$	—	$	144	$	387	$	—	$	387

Collateral-dependent loans are loans for which 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 $34,000 and $30,000 for the three months ended September 30, 2023 and 2022, respectively. For the nine months ended September 30, 2023 and 2022, the interest income that is estimated to have been recognized if loans on non-accrual status had been current in accordance with their original terms was $84,000 and $115,000, respectively.

The Company's policy is to reverse previously recorded interest income when a loan is placed on non-accrual. As a result, the Company did not record any interest income on its non-accruals for the three or nine months ended September 30, 2023 and 2022. At September 30, 2023 and December 31, 2022, total accrued interest receivable on loans, which has been excluded from reported amortized cost basis on loans, was $11.6 million and $8.9 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.

Loan Modifications for Borrowers Experiencing Financial Difficulty

Effective January 1, 2023, the Company adopted prospectively ASU No. 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures ("ASU 2022-02"). ASU 2022-02 provided guidance that eliminated the recognition and measurement of TDRs. Following the adoption of this guidance, the Company evaluates all loan modifications made to borrowers experiencing financial difficulty according to the accounting guidance for loan refinancing and restructuring to determine whether such loan modification should be accounted for as a new loan or a continuation of the existing loan. Our loan modifications for borrowers experiencing financial difficulty are generally accounted for as a continuation of the existing loan.

The Company offers several types of loans and receivables modification programs to borrowers experiencing financial difficulty, primarily interest rate reductions and term extensions. In such instances, the Company may modify loans and receivables with the intention to minimize future losses and improve collectability, while providing customers with temporary or permanent financial relief. There were no modified loans that required disclosure for the three and nine months ended September 30, 2023.

TDR Disclosures Prior to Adoption of ASU 2022-02

Prior to the Company's adoption of ASU 2022-02, which became effective for the Company on January 1, 2023, TDRs consisted 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 involved 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 prior to adoption of ASU 2022-02, by portfolio segment, and the associated specific reserve included within the ACL as of December 31, 2022:


(In thousands, except number of contracts)	Number of Contracts	Recorded Investment		Specific Reserve
Commercial real estate - owner-occupied	1	$	113	$	50
Commercial	—	—		—
Residential real estate	18	2,208		307
Consumer and home equity	3	245		9
Total	22	$	2,566	$	366

At December 31, 2022, the Company had performing and non-performing TDRs with a recorded investment balance of $2.1 million and $452,000, respectively.

The following represents loan modifications that qualified as TDRs during the year ended December 31, 2022:



(In thousands, except number of contracts)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Specific Reserve

Home equity:

Maturity concession	1	$	69	$	96	$	—
Total	1	$	69	$	96	$	—

For the year ended December 31, 2022, no loans were modified as TDRs within the previous 12 months for which the borrower subsequently defaulted.

In-Process Foreclosure Proceedings

At September 30, 2023 and December 31, 2022, the Company had $135,000 and $481,000, respectively, of consumer mortgage loans secured by residential real estate properties for which foreclosure proceedings were in process.

FHLB Advances

FHLB advances are those borrowings from the FHLBB greater than 90 days. FHLB advances are collateralized by a blanket lien on qualified collateral consisting primarily of loans with first mortgages secured by one- to four-family properties, certain commercial real estate loans, certain pledged investment securities and other qualified assets. At September 30, 2023 and December 31, 2022, the combined carrying value of residential real estate and commercial loans pledged as collateral was $1.9 billion and $1.8 billion, respectively.

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

NOTE 5 – BORROWINGS

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


(In thousands)	September 30, 2023		December 31, 2022
Short-Term Borrowings:
Customer Repurchase Agreements	$	210,140	$	196,451
Bank Term Funding Program(1)	135,000		—
Overnight Borrowings	—		18,725
FHLBB Borrowings	125,000		50,000

Total Short-Term Borrowings	$	470,140	$	265,176

(1) In the second quarter of 2023, the Company borrowed $135.0 million from the BTFP for a period of one year at a fixed rate of 4.70%. Under the program, the Company may prepay this borrowing at any time without penalty and the borrowing is secured by the Company's MBS and CMO securities at par.

The Company did not have any long-term borrowings as of the dates indicated.

The Company has two tranches of junior subordinated debentures in the amount of $44.3 million as of September 30, 2023 and December 31, 2022. Refer to Note 10 of the consolidated financial statements for further details.

NOTE 6 – REPURCHASE AGREEMENTS

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

The table below sets forth information regarding the Company’s repurchase agreements accounted for as secured borrowings and types of collateral as of the dates indicated:


(In thousands)	September 30, 2023		December 31, 2022
Customer Repurchase Agreements(1)(2):
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	$	177,453	$	99,105
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	32,687		94,328
Obligations of states and political subdivisions	—		3,018
Total	$	210,140	$	196,451

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

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

At September 30, 2023 and December 31, 2022, certain customers held CDs totaling $617,000 and $616,000, respectively, that were collateralized by CMO and MBS securities that were overnight repurchase agreements.

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

NOTE 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 as of the dates indicated:


(In thousands)	September 30, 2023		December 31, 2022
Commitments to extend credit	$	741,482	$	817,772
Standby letters of credit	5,880		6,801
Total	$	747,362	$	824,573

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. As of September 30, 2023 and December 31, 2022, the ACL on off-balance sheet credit exposures was $2.7 million and $3.3 million, respectively. The ACL on off-balance sheet credit exposure was presented within accrued interest and other liabilities on the consolidated statements of condition.

For the three months ended September 30, 2023 and 2022, the (credit) provision for credit losses on off-balance sheet credit exposures was ($118,000) and $251,000, respectively. For the nine months ended September 30, 2023 and 2022, the (credit) provision for credit losses on off-balance sheet credit exposures was ($595,000) and $246,000, 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 September 30, 2023 and December 31, 2022, respectively.

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. The Company’s credit derivatives result from loan participation arrangements, and therefore are not used to manage interest rate risk in the Company’s assets or liabilities.

Derivatives Designated as Hedging Instruments - Hedges of Interest Rate Risk

Interest Rate Contracts - Cash Flow Hedges. The Company’s objectives in using interest rate derivatives are to add stability to interest income and expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed rate payments or the receipt of fixed rate amounts from a counterparty in exchange for the Company making variable-rate payments over the life of the agreements without exchange of the underlying notional amount. For the three and nine months ended September 30, 2023 and 2022, 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 is 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 $3.5 million will be reclassified as a decrease to interest expense and an additional $2.6 million will be reclassified as a decrease to interest income over the next 12 months.

Interest Rate Contracts - Fair Value Hedges. Derivatives designated as fair value hedges are utilized to mitigate the risk of changes in the fair values of recognized assets and liabilities. The Company uses interest rate contracts in this manner to manage its exposure to changes in the fair value of hedged items caused by changes in interest rates.

Changes in the fair value of the derivatives and changes in the fair value of the hedged item due to changes in the hedged risk are recognized in earnings in the same line item. If a hedge is terminated, but the hedged item was not derecognized, all remaining adjustments to the carrying amount of the hedged item are amortized over a period that is consistent with the amortization of other discounts or premiums associated with the hedged item.

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.

Risk Participation Agreements. The Company’s existing credit derivatives result from participations in or out of interest rate swaps provided by or to external lenders as part of loan participation arrangements, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain lenders which participate in loans.

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
(Dollars in thousands)	Notional Amount		Location	Fair Value		Notional Amount		Location	Fair Value
September 30, 2023
Derivatives designated as hedging instruments:
Interest rate contracts(1)	$	543,000	Other Assets	$	23,853	$	100,000	Accrued interest and other liabilities	$	2,817
Total derivatives designated as hedging instruments				$	23,853				$	2,817
Derivatives not designated as hedging instruments:
Customer loan swaps(1)	$	290,340	Other assets	$	19,785	$	290,340	Accrued interest and other liabilities	$	19,834
Risk participation agreements	28,201		Other assets	—		43,470		Accrued interest and other liabilities	—
Fixed rate mortgage interest rate lock commitments	5,537		Other assets	26		14,159		Accrued interest and other liabilities	154
Forward delivery commitments	10,587		Other assets	198		321		Accrued interest and other liabilities	2
Total derivatives not designated as hedging instruments				$	20,009				$	19,990
December 31, 2022
Derivatives designated as hedging instruments:
Interest rate contracts(1)	$	110,000	Other assets	$	13,051	$	133,000	Accrued interest and other liabilities	$	5,515
Total derivatives designated as hedging instruments				$	13,051				$	5,515
Derivatives not designated as hedging instruments:
Customer loan swaps(1)	$	260,130	Other assets	$	14,802	$	345,545	Accrued interest and other liabilities	$	14,850
Risk participation agreements	21,818		Other assets	—		53,704		Accrued interest and other liabilities	—
Fixed rate mortgage interest rate lock commitments	4,493		Other assets	31		9,597		Accrued interest and other liabilities	87
Forward delivery commitments	5,259		Other assets	114		—		Accrued interest and other liabilities	—
Total derivatives not designated as hedging instruments				$	14,947				$	14,937

(1) Reported fair values include accrued interest receivable and payable.

The following table shows the carrying amount and associated cumulative basis adjustments related to the application of hedge accounting that is included in the carrying amount of hedged assets and liabilities in fair value hedging relationships:


Location in Consolidated Statements of Condition	Carrying Amount of Hedged Assets/(Liabilities)				Cumulative Fair Value Hedging Adjustment in the Carrying Amount of the Hedged Assets/(Liabilities)
(Dollars in thousands)	September 30, 2023		December 31, 2022		September 30, 2023		December 31, 2022
Loans(1)	$	365,905	$	—	$	(9,095)	$	—
Total	$	365,905	$	—	$	(9,095)	$	—

(1) These amounts include the amortized cost basis of residential real estate loans that were used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolio anticipated to be outstanding for the designated hedged period. At September 30, 2023, the amortized cost basis of the residential real estate loans used

in these hedging relationships was $823.8 million and the amount of the designated hedged residential loans was $375.0 million.

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
For the Three Months Ended September 30, 2023
Interest rate contracts	$	(130)	$	(130)	$	—	Interest and fees on loans	$	(909)	$	(909)	$	—

Interest rate contracts	2,033		2,033		—		Interest on borrowings	650		650		—
Interest rate contracts	2,013		2,013		—		Interest on junior subordinated debentures	222		222		—
Total	$	3,916	$	3,916	$	—		$	(37)	$	(37)	$	—

For the Nine Months Ended September 30, 2023
Interest rate contracts	$	(812)	$	(812)	$	—	Interest and fees on loans	$	(2,488)	$	(2,488)	$	—
Interest rate contracts	(1)		(1)		—		Interest on deposits	306		306		—
Interest rate contracts	2,755		2,755		—		Interest on borrowings	1,674		1,674		—
Interest rate contracts	2,485		2,485		—		Interest on junior subordinated debentures	538		538		—
Total	$	4,427	$	4,427	$	—		$	30	$	30	$	—

For the Three Months Ended September 30, 2022
Interest rate contracts	$	(1,798)	$	(1,798)	$	—	Interest and fees on loans	$	(121)	$	(121)	$	—
Interest rate contracts	146		146		—		Interest on deposits	189		189		—
Interest rate contracts	$	2,544	2,544				Interest on borrowings	185		185
Interest rate contracts	2,489		2,489				Interest on junior subordinated debentures	(133)		(133)
Total	$	3,381	$	3,381	$	—		$	120	$	120	$	—

For the Nine Months Ended September 30, 2022
Interest rate contracts	$	(5,713)	$	(5,713)	$	—	Interest and fees on loans	$	498	$	498	$	—
Interest rate contracts	5,867		5,867		—		Interest on deposits	72		72		—
Interest rate contracts	2,544		2,544		—		Interest on borrowings	185		185		—
Interest rate contracts	7,906		7,906		—		Interest on junior subordinated debentures	(755)		(755)		—
Total	$	10,604	$	10,604	$	—		$	—	$	—	$	—

The table below presents the effect of fair value and 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 September 30,
	2023								2022
(Dollars in thousands)	Interest and fees on loans		Interest on deposits		Interest on borrowings		Interest on junior subordinated debentures		Interest and fees on loans		Interest on deposits		Interest on borrowings		Interest on junior subordinated debentures
Total presented on the consolidated statements of income in which the effects of cash flow hedges are recorded	$	50,115	$	20,969	$	3,577	$	539	$	37,568	$	5,442	$	787	$	539
Gain (loss) on fair value hedging relationships
Interest rate contracts:
Hedged items	$	(2,992)	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Derivatives designated as hedging instruments	$	4,404	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Gain (loss) on cash flow hedging relationships
Interest rate contracts:
Amount of gain (loss) reclassified from AOCI into income	$	(909)	$	—	$	650	$	222	$	(121)	$	189	$	185	$	(133)
Amount of gain (loss) reclassified from AOCI into income - included component	$	(909)	$	—	$	650	$	222	$	(121)	$	189	$	185	$	(133)
Amount of gain (loss) reclassified from AOCI into income - excluded component	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


	Location and Amount of Gain (Loss) Recognized in Income
	Nine Months Ended September 30,
	2023								2022
(Dollars in thousands)	Interest and fees on loans		Interest on deposits		Interest on borrowings		Interest on junior subordinated debentures		Interest and fees on loans		Interest on deposits		Interest on borrowings		Interest on junior subordinated debentures
Total presented on the consolidated statements of income in which the effects of cash flow hedges are recorded	$	144,092	$	56,046	$	9,249	$	1,600	$	102,724	$	9,785	$	1,372	$	1,600
Gain (loss) on fair value hedging relationships
Interest rate contracts:
Hedged items	$	(9,095)	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Derivatives designated as hedging instruments	$	12,190	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Gain (loss) on cash flow hedging relationships
Interest rate contracts:
Amount of gain (loss) reclassified from AOCI into income	$	2,488	$	306	$	1,674	$	538	$	498	$	72	$	185	$	(755)
Amount of gain (loss) reclassified from AOCI into income - included component	$	2,488	$	306	$	1,674	$	538	$	498	$	72	$	185	$	(755)
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:


	Location of Gain (Loss) Recognized in Income	Amount of Gain (Loss) Recognized in Income
		Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)		2023		2022		2023		2022
Customer loan swaps	Other expense	$	(12)	$	28	$	(1)	$	166
Fixed rate mortgage interest rate lock commitments	Mortgage banking income, net	(76)		(473)		(72)		(664)
Forward delivery commitments	Mortgage banking income, net	62		227		82		238
Total		$	(26)	$	(218)	$	9	$	(260)

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 September 30, 2023 and December 31, 2022, 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 $19.8 million and $14.8 million, respectively. As of September 30, 2023 and December 31, 2022, the Company has minimum collateral posting thresholds with certain of its derivative counterparties and has posted cash collateral of $0 and $0, respectively. If the Company had breached any of these provisions at September 30, 2023 or December 31, 2022, it could have been required to settle its obligations under the agreements at their termination value of $19.8 million and $14.8 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 nets 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
(Dollars in thousands)	Gross Amount Recognized in the Consolidated Statements of Condition		Gross Amount Offset in the Consolidated Statements of Condition		Net Amount Presented in the Consolidated Statements of Condition		Financial Instruments Pledged (Received)(1)		Cash Collateral Pledged (Received)(1)		Net Amount
September 30, 2023
Derivative assets:
Customer loan swaps - dealer bank(2)	$	19,785	$	—	$	19,785	$	—	$	(19,785)	$	—
Interest rate contracts(2)	23,853		—		23,853		—		(19,829)		4,024

Total	$	43,638	$	—	$	43,638	$	—	$	(39,614)	$	4,024
Derivative liabilities:
Customer loan swaps - commercial customer(3)	$	19,834	$	—	$	19,834	$	—	$	—	$	19,834
Interest rate contracts(2)	2,817		—		2,817		—		2,817		—


Total	$	22,651	$	—	$	22,651	$	—	$	2,817	$	19,834
Customer repurchase agreements	$	210,140	$	—	$	210,140	$	—	$	—	$	210,140
December 31, 2022
Derivative assets:
Customer loan swaps - dealer bank(2)	$	14,802	$	—	$	14,802	$	—	$	—	$	14,802
Interest rate contracts(2)	13,051		—		13,051		—		(10,915)		2,136


Total	$	27,853	$	—	$	27,853	$	—	$	(10,915)	$	16,938
Derivative liabilities:
Customer loan swaps - commercial customer(3)	$	14,850	$	—	14,850		$	—	$	—	$	14,850
Interest rate contracts(2)	5,515		—		5,515		—		5,515		—


Total	$	20,365	$	—	$	20,365	$	—	$	5,515	$	14,850
Customer repurchase agreements	$	196,451	$	—	$	196,451	$	196,451	$	—	$	—

(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 maintains master netting arrangements with each counterparty and settles collateral on a net basis for all contracts.

(3) 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. The Company does not post collateral to its commercial customers as part of its contract.

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 requirements apply to the Company on a consolidated basis.

Under the current requirements, 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 September 30, 2023 and December 31, 2022, and the Bank's capital ratios met the requirements for it to be considered "well capitalized" under prompt corrective action provisions for each period. There were no changes to the Company or Bank's capital ratios that occurred subsequent to September 30, 2023 that would change the Company or Bank's regulatory capital categorization. The following table presents the Company and Bank's regulatory capital ratios at the periods indicated:


	September 30, 2023				Minimum Regulatory Capital Required for Capital Adequacy plus Capital Conservation Buffer		Minimum Regulatory Provision to Be "Well Capitalized"		December 31, 2022				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	$	573,773	14.19	%	10.50	%	10.00	%	$	557,571	13.80	%	10.50	%	10.00	%
Tier 1 risk-based capital ratio	534,696		13.22	%	8.50	%	6.00	%	517,385		12.81	%	8.50	%	6.00	%
Common equity Tier 1 risk-based capital ratio(1)	491,696		12.16	%	7.00	%	N/A		474,385		11.74	%	7.00	%	N/A
Tier 1 leverage capital ratio(1)	534,696		9.35	%	4.00	%	N/A		517,385		9.22	%	4.00	%	N/A
Camden National Bank:
Total risk-based capital ratio	$	544,093	13.48	%	10.50	%	10.00	%	$	525,346	13.03	%	10.50	%	10.00	%
Tier 1 risk-based capital ratio	505,017		12.51	%	8.50	%	8.00	%	485,160		12.03	%	8.50	%	8.00	%
Common equity Tier 1 risk-based capital ratio	505,017		12.51	%	7.00	%	6.50	%	485,160		12.03	%	7.00	%	6.50	%
Tier 1 leverage capital ratio	505,017		8.84	%	4.00	%	5.00	%	485,160		8.65	%	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 2006 and 2008, the Company issued $43.0 million of junior subordinated debentures in connection with the issuance of trust preferred securities. Although 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 the debentures within its calculation of risk-based capital, subject to certain limits. At September 30, 2023 and December 31, 2022, $43.0 million of the junior subordinated debentures were included in Tier 1 and Tier 2 capital for the Company.

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

NOTE 11 – OTHER COMPREHENSIVE INCOME (LOSS)

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


	For the Three Months Ended
	September 30, 2023						September 30, 2022
(In thousands)	Pre-Tax Amount		Tax (Expense) Benefit		After-Tax Amount		Pre-Tax Amount		Tax (Expense) Benefit		After-Tax Amount
Debt Securities:
Change in fair value	$	(18,115)	$	3,895	$	(14,220)	$	(28,432)	$	6,113	$	(22,319)
Less: reclassification adjustment for amortization of securities transferred from AFS to HTM(1)	1,742		(375)		1,367		2,436		(524)		1,912
Less: reclassification adjustment for net realized losses(2)	(5,335)		1,147		(4,188)		—		—		—
Net change in fair value	(14,522)		3,123		(11,399)		(30,868)		6,637		(24,231)
Cash Flow Hedges:
Change in fair value	3,950		(849)		3,101		3,381		(727)		2,654
Less: reclassified AOCI gain (loss) into interest expense(3)	872		(187)		685		241		(52)		189
Less: reclassified AOCI (loss) gain into interest income(4)	(909)		195		(714)		(121)		26		(95)
Net change in fair value	3,987		(857)		3,130		3,261		(701)		2,560
Postretirement Plans:



Amortization of settlement recognition of net loss and prior service credit(5)	(6)		1		(5)		230		(49)		181
Other comprehensive loss	$	(10,541)	$	2,267	$	(8,274)	$	(27,377)	$	5,887	$	(21,490)

(1) Reclassified into taxable interest on investments and/or nontaxable interest on investments in the consolidated statements of income. Refer to Note 3 of the consolidated financial statements for further details.

(2) Reclassified into net loss on sale of securities in the consolidated statements of income. Refer to Note 3 of the consolidated financial statements for further details.

(3) 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.

(4) 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.

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


	For the Nine Months Ended
	September 30, 2023						September 30, 2022
(In thousands)	Pre-Tax Amount		Tax (Expense) Benefit		After-Tax Amount		Pre-Tax Amount		Tax (Expense) Benefit		After-Tax Amount
Debt Securities:
Change in fair value	$	(9,993)	$	2,149	$	(7,844)	$	(173,421)	$	37,286	$	(136,135)
Less: reclassification adjustment for amortization of securities transferred from AFS to HTM(1)	5,137		(1,104)		4,033		3,780		(813)		2,967
Less: reclassification adjustment for net realized losses(2)	(5,335)		1,147		(4,188)		(9)		2		(7)
Net change in fair value	(9,795)		2,106		(7,689)		(177,192)		38,097		(139,095)
Cash Flow Hedges:
Change in fair value	4,427		(951)		3,476		10,604		(2,280)		8,324
Less: reclassified AOCI gain (loss) into interest expense(3)	2,518		(541)		1,977		(498)		107		(391)
Less: reclassified AOCI (loss) gain into interest income(4)	(2,488)		535		(1,953)		498		(107)		391
Net change in fair value	4,397		(945)		3,452		10,604		(2,280)		8,324
Postretirement Plans:



Amortization of settlement recognition of net loss and prior service credit(5)	(20)		4		(16)		693		(149)		544
Other comprehensive loss	$	(5,418)	$	1,165	$	(4,253)	$	(165,895)	$	35,668	$	(130,227)

(2) Reclassified into net loss on sale of securities in the consolidated statements of income. Refer to Note 3 of the consolidated financial statements for further details.

(4) 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.

(5) 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 Debt Securities(1)		Net Unrealized (Losses) Gains on Cash Flow Hedges(1)		Defined Benefit Postretirement Plans(1)		AOCI(1)
At or For the Three Months Ended September 30, 2023
Balance at June 30, 2023	$	(127,829)	$	6,213	$	(318)	$	(121,934)
Other comprehensive (loss) income before reclassifications	(14,220)		3,101		—		(11,119)
Less: Amounts reclassified from AOCI	(2,821)		(29)		5		(2,845)
Other comprehensive (loss) income	(11,399)		3,130		(5)		(8,274)
Balance at September 30, 2023	$	(139,228)	$	9,343	$	(323)	$	(130,208)
At or For the Nine Months Ended September 30, 2023
Balance at December 31, 2022	$	(131,539)	$	5,891	$	(307)	$	(125,955)
Other comprehensive (loss) income before reclassifications	(7,844)		3,476		—		(4,368)
Less: Amounts reclassified from AOCI	(155)		24		16		(115)
Other comprehensive (loss) income	(7,689)		3,452		(16)		(4,253)
Balance at September 30, 2023	$	(139,228)	$	9,343	$	(323)	$	(130,208)
At or For the Three Months Ended September 30, 2022
Balance at June 30, 2022	$	(116,037)	$	3,985	$	(2,914)	$	(114,966)
Other comprehensive (loss) income before reclassifications	(22,319)		2,654		—		(19,665)
Less: Amounts reclassified from AOCI	1,912		94		(181)		1,825
Other comprehensive (loss) income	(24,231)		2,560		181		(21,490)
Balance at September 30, 2022	$	(140,268)	$	6,545	$	(2,733)	$	(136,456)
At or For the Nine Months Ended September 30, 2022
Balance at December 31, 2021	$	(1,173)	$	(1,779)	$	(3,277)	$	(6,229)
Other comprehensive (loss) income before reclassifications	(136,135)		8,324		—		(127,811)
Less: Amounts reclassified from AOCI	2,960		—		(544)		2,416
Other comprehensive (loss) income	(139,095)		8,324		544		(130,227)
Balance at September 30, 2022	$	(140,268)	$	6,545	$	(2,733)	$	(136,456)

(1) All amounts are net of tax.

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:


	Location on Consolidated Statements of Income	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)		2023		2022		2023		2022
Debit card interchange income	Debit card income	$	3,130	$	3,234	$	9,147	$	9,371
Services charges on deposit accounts	Service charges on deposit accounts	2,040		1,941		5,737		5,705
Fiduciary services income	Income from fiduciary services	1,641		1,535		5,016		4,847
Investment program income	Brokerage and insurance commissions	1,217		1,003		3,462		3,269
Other non-interest income	Other income	505		509		1,392		1,360
Total non-interest income within the scope of ASC 606		8,533		8,222		24,754		24,552
Total non-interest income not in scope of ASC 606		(3,461)		1,732		294		6,368
Total non-interest income		$	5,072	$	9,954	$	25,048	$	30,920

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 costs were as follows for the following periods:

Supplemental Executive Retirement Plan:


(In thousands)	Location on Consolidated Statements of Income	Three Months Ended September 30,				Nine Months Ended September 30,
Net periodic pension cost		2023		2022		2023		2022
Service cost	Salaries and employee benefits	$	71	$	133	$	211	$	400
Interest cost	Other expenses	189		115		567		345
Recognized net actuarial loss	Other expenses	—		214		—		645
Total		$	260	$	462	$	778	$	1,390

Other Postretirement Benefit Plan:


(In thousands)	Location on Consolidated Statements of Income	Three Months Ended September 30,				Nine Months Ended September 30,
Net periodic postretirement benefit cost		2023		2022		2023		2022
Service cost	Salaries and employee benefits	$	3	$	5	$	8	$	15
Interest cost	Other expenses	40		28		121		84
Recognized net actuarial (gain) loss	Other expenses	(1)		22		(2)		66
Amortization of prior service credit	Other expenses	(7)		(6)		(18)		(18)
Total		$	35	$	49	$	109	$	147

NOTE 14 – EPS

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


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands, except number of shares and per share data)	2023		2022		2023		2022
Net income	$	9,787	$	14,267	$	34,903	$	46,088
Dividends and undistributed earnings allocated to participating securities(1)	(9)		(39)		(48)		(121)
Net income available to common shareholders	$	9,778	$	14,228	$	34,855	$	45,967
Weighted-average common shares outstanding for basic EPS	14,556,057		14,619,460		14,564,431		14,670,450
Dilutive effect of stock-based awards(2)	41,592		55,872		42,600		57,899
Weighted-average common and potential common shares for diluted EPS	14,597,649		14,675,332		14,607,031		14,728,349
Earnings per common share:
Basic EPS	$	0.67	$	0.97	$	2.39	$	3.13
Diluted EPS	$	0.67	$	0.97	$	2.39	$	3.12
Awards excluded from the calculation of diluted EPS(3):

Performance-based awards	9,049		3,903		10,829		—

(1) Represents dividends paid and undistributed earnings allocated to non-vested 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.

Non-vested 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 non-vested 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 non-vested 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 align more clearly 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 and Deferred Compensation: The fair value of trading securities and deferred compensation is reported using market quoted prices and has been classified as Level 1 as such securities and underlying securities 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. As of September 30, 2023 and December 31, 2022, the credit valuation adjustment on the overall valuation of its derivative positions and was not significant to the overall valuation of its derivatives, and, thus, the Company's interest rate swaps were classified as Level 2.

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)
September 30, 2023
Financial assets:
Trading securities	$	4,195	$	4,195	$	—	$	—
AFS debt securities:

Obligations of states and political subdivisions	40,669		—		40,669		—
MBS issued or guaranteed by U.S. government-sponsored enterprises	424,976		—		424,976		—
CMO issued or guaranteed by U.S. government-sponsored enterprises	104,816		—		104,816		—
Corporate bonds	18,542		—		18,542		—
Loans held for sale	11,187		—		11,187		—
Customer loan swaps	19,785		—		19,785		—
Interest rate contracts	23,853		—		23,853		—

Fixed rate mortgage interest rate lock commitments	26		—		26		—
Forward delivery commitments	198		—		198		—
Financial liabilities:
Deferred compensation	$	4,195	$	4,195	$	—	$	—

Customer loan swaps	19,834		—		19,834		—

Interest rate contracts	2,817		—		2,817		—
Fixed rate mortgage interest rate lock commitments	154		—		154		—
Forward delivery commitments	2		—		2		—
December 31, 2022
Financial assets:
Trading securities	$	3,990	$	3,990	$	—	$	—
AFS debt securities:

Obligations of states and political subdivisions	49,226		—		49,226		—
MBS issued or guaranteed by U.S. government-sponsored enterprises	514,019		—		514,019		—
CMO issued or guaranteed by U.S. government-sponsored enterprises	109,347		—		109,347		—
Corporate bonds	23,283		—		23,283		—
Loans held for sale	5,197		—		5,197		—
Customer loan swaps	14,802		—		14,802		—
Interest rate contracts	13,051		—		13,051		—


Fixed rate mortgage interest rate lock commitments	31		—		31		—
Forward delivery commitments	114		—		114		—
Financial liabilities:
Deferred compensation	$	3,990	$	3,990	$	—	$	—
Customer loan swaps	14,850		—		14,850		—
Interest rate contracts	5,515		—		5,515		—


Fixed rate mortgage interest rate lock commitments	87		—		87		—

The Company did not have any transfers between Level 1 and Level 2 of the fair value hierarchy during the nine months ended September 30, 2023. 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, which may consist of collateral-dependent loans and servicing assets. 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. As of September 30, 2023 and December 31, 2022, the Company did not have any material financial instruments measured and reported at fair value.

Collateral-Dependent Loans: Expected credit losses on individually assessed loans deemed to be collateral dependent are valued based upon the lower of amortized cost or 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 had no non-financial assets or non-financial liabilities measured at fair value on a non-recurring basis as of September 30, 2023 and December 31, 2022. 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. At September 30, 2023 and December 31, 2022, the Company did not have any OREO properties.

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 nine months ended September 30, 2023, 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 nine months ended September 30, 2023, that indicated the carrying amount may not be recoverable.

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:


	Carrying Amount		Fair Value		Readily Available Market Prices (Level 1)		Observable Market Prices (Level 2)		Company Determined Market Prices (Level 3)
September 30, 2023
Financial assets:
HTM debt securities	$	549,961	$	483,547	$	—	$	483,547	$	—
Commercial real estate loans(1)(2)	1,634,347		1,532,605		—		—		1,532,605
Commercial loans(2)	395,549		379,502		—		—		379,502
Residential real estate loans(2)	1,742,359		1,460,556		—		—		1,460,556
Home equity loans(2)	231,155		228,878		—		—		228,878
Consumer loans(2)	18,596		16,385		—		—		16,385
Servicing assets	2,316		4,321		—		—		4,321
Financial liabilities:
Time deposits	$	617,609	$	609,195	$	—	$	609,195	$	—
Short-term borrowings	470,140		469,103		—		469,103		—

Junior subordinated debentures	44,331		31,475		—		31,475		—
December 31, 2022
Financial assets:
HTM debt securities	$	546,583	$	506,193	$	—	$	506,193	$	—
Commercial real estate loans(1)(2)	1,605,279		1,550,379		—		—		1,550,379
Commercial loans(2)	424,685		414,353		—		—		414,353
Residential real estate loans(2)	1,691,177		1,494,707		—		—		1,494,707
Home equity loans(2)	232,203		237,967		—		—		237,967
Consumer loans(2)	20,087		17,853		—		—		17,853
Servicing assets	2,458		4,412		—		—		4,412
Financial liabilities:
Time deposits	$	300,451	$	291,568	$	—	$	291,568	$	—
Short-term borrowings	265,176		264,779		—		264,779		—

Junior subordinated debentures	44,331		31,032		—		31,032		—

(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 forward-looking statements within the meaning of 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,” “potential” 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 are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult for the Company to predict. The actual results, performance or achievements of the Company may differ materially from what is reflected in such forward-looking statements

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:

•the impact of the COVID-19 pandemic;

•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;

•ongoing competition in the labor markets and increased employee turnover;

•the adequacy of succession planning for key executives or other personnel, and the Company’s ability to transition effectively to new members of the senior executive team;

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

•deterioration in the value of the Company's investment securities;

•commercial real estate vacancies and their impact on the ability of borrowers to repay their loans;

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

•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;

•the outcome of pending and future litigation and governmental proceedings, including tax-related examinations and other matters;

•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;

•the effects of climate change on the Company and its customers, borrowers or service providers;

•the effects of civil unrest, international hostilities, including the war in Ukraine and conflict in the Middle East, or other geopolitical events;

•turmoil and volatility in the financial services industry, including failures or rumors of failures of other depository institutions, which could affect the ability of depository institutions, including Camden National Bank, to attract and retain depositors, and could affect the ability of financial services providers, including the Company, to borrow or raise capital;

•actions taken by governmental agencies to stabilize the financial system and the effectiveness of such actions;

•increases in deposit insurance assessments due to bank failures;

•changes to regulatory capital requirements in response to recent development affecting the banking sector; and

•questions about the soundness of one or more financial institutions with which the Company does business.

In addition, statements regarding the potential effects of notable national and global current events on the Company’s business, financial condition, liquidity and results of operations may constitute forward-looking statements and 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 the Company's control.

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, 2022, 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: adjusted net income; adjusted diluted earnings per share; adjusted return on average assets; adjusted return on average equity; pre-tax, pre-provision income; adjusted pre-tax, pre-provision income; return on average tangible equity and adjusted return on average tangible equity; the efficiency and tangible common equity ratios; net interest income (fully-taxable equivalent); tangible book value per share; core deposits and average core deposits. We utilize these non-GAAP financial measures 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.

Adjusted Net Income; Adjusted Diluted Earnings per Share; Adjusted Return on Average Assets; and Adjusted Return on Average Equity. The following table provides a reconciliation of net income, diluted EPS, return on average assets and return on average equity to adjusted net income, adjusted diluted EPS, adjusted return on average assets and adjusted return on average equity. Certain transactions have been excluded to calculate adjusted net income, adjusted diluted EPS, adjusted return on average assets and adjusted return on average equity. We believe the following adjusted financial metrics assist users of our financial statements with their financial analysis period-over-period as it adjusts for certain non-recurring items.


	For the Three Months Ended						For the Nine Months Ended
(In thousands, except number of shares, per share data and ratios)	September 30, 2023			September 30, 2022			September 30, 2023			September 30, 2022
Adjusted Net Income:
Net income, as presented	$	9,787		$	14,267		$	34,903		$	46,088
Adjustment for net loss on sale of securities	5,335			—			5,335			9
Adjustment for Signature Bank bond write-off	—			—			1,838			—
Tax impact of above adjustments(1)	(1,120)			—			(1,506)			(2)
Adjusted net income	$	14,002		$	14,267		$	40,570		$	46,095
Adjusted Diluted Earnings per Share:
Diluted earnings per share, as presented	$	0.67		$	0.97		$	2.39		$	3.12
Adjustment for net loss on sale of securities	0.37			—			0.37			—
Adjustment for Signature Bank bond write-off	—			—			0.13			—
Tax impact of above adjustments(1)	(0.08)			—			(0.12)			—
Adjusted diluted earnings per share	$	0.96		$	0.97		$	2.77		$	3.12
Adjusted Return on Average Assets:
Return on average assets, as presented	0.68		%	1.03		%	0.82		%	1.13		%
Adjustment for net loss on sale of securities	0.37		%	—			0.13		%	—
Adjustment for Signature Bank bond write-off	—			—			0.04		%	—
Tax impact of above adjustments(1)	(0.08)		%	—			(0.04)		%
Adjusted return on average assets	0.97		%	1.03		%	0.95		%	1.13		%
Adjusted Return on Average Equity:
Return on average equity, as presented	8.25		%	12.50		%	10.00		%	12.88		%
Adjustment for net loss on sale of securities	4.50		%	—			1.53		%	—
Adjustment for Signature Bank bond write-off	—			—			0.53		%	—
Tax impact of above adjustments(1)	(0.95)		%	—			(0.43)		%	—
Adjusted return on average equity	11.80		%	12.50		%	11.63		%	12.88		%

(1) Assumed a 21% tax rate.

Pre-Tax, Pre-Provision Income and Adjusted Pre-Tax, Pre-Provision Income. Pre-tax, pre-provision income and adjusted pre-tax, pre-provision income are each a supplemental measure of operating earnings and performance. Pre-tax, pre-provision income is calculated as net income before provision for credit losses and income tax expense, and adjusted pre-tax, pre-provision income is calculated as net income before provision for credit losses, income tax expense, and adjusted for certain other items, as applicable. These supplemental measures became more widely used by financial institutions as a measure of financial performance for comparability across financial institutions.


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2023		2022		2023		2022
Net income, as presented	$	9,787	$	14,267	$	34,903	$	46,088
Adjustment for (credit) provision for credit losses	(574)		2,764		1,531		4,034
Adjustment for income tax expense	2,236		3,645		8,653		11,654
Pre-tax, pre-provision income	11,449		20,676		45,087		61,776
Adjustment for net loss on sale of securities	5,335		—		5,335		9
Adjustment for SBA PPP loan income	(3)		(50)		(12)		(1,248)
Adjusted pre-tax, pre-provision income	$	16,781	$	20,626	$	50,410	$	60,537

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


	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2023			2022			2023			2022
Non-interest expense, as presented	$	26,207		$	27,091		$	79,515		$	79,856
Net interest income, as presented	$	32,584		$	37,813		$	99,554		$	110,712
Adjustment for the effect of tax-exempt income(1)	237			242			701			700
Non-interest income, as presented	5,072			9,954			25,048			30,920
Adjustment for net loss on sale of securities	5,335			—			5,335			9


Adjusted net interest income plus non-interest income	$	43,228		$	48,009		$	130,638		$	142,341
Ratio of non-interest expense to total revenues(2)	69.60		%	56.71		%	63.82		%	56.38		%
Efficiency ratio	60.63		%	56.43		%	60.87		%	56.10		%

(1) Assumed a 21% tax rate.

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

Return on Average Tangible Equity: Return on average tangible equity is the ratio of (i) net income, adjusted for (a) amortization of core deposit intangible assets and the tax impact of the adjustment 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 shareholder's return on tangible capital deployed in our business and is a common measure within the financial services industry.

Adjusted Return on Average Tangible Equity: Adjusted return on average tangible equity is the ratio of (i) adjusted net income (as defined in the table above) adjusted for (a) amortization of core deposit intangible assets and the tax impact of the adjustment and (b) goodwill impairment, as necessary, to (ii) average shareholders' equity, adjusted for average goodwill and core deposit intangible assets.


	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2023			2022			2023			2022
Return on Average Tangible Equity:
Net income, as presented	$	9,787		$	14,267		$	34,903		$	46,088
Adjustment for amortization of core deposit intangible assets	148			156			444			469
Tax impact of above adjustment(1)	(31)			(33)			(93)			(98)
Net income, adjusted for amortization of core deposit intangible assets	$	9,904		$	14,390		$	35,254		$	46,459
Average equity, as presented	$	470,750		$	452,815		$	466,563		$	478,420
Adjustment for average goodwill and core deposit intangible assets	(95,888)			(96,493)			(96,037)			(96,651)
Average tangible equity	$	374,862		$	356,322		$	370,526		$	381,769
Return on average equity	8.25		%	12.50		%	10.00		%	12.88		%
Return on average tangible equity	10.48		%	16.02		%	12.72		%	16.27		%
Adjusted Return on Average Tangible Equity:
Adjusted net income (see "Adjusted Net Income" table above)	$	14,002		$	14,267		$	40,570		$	46,095
Adjustment for amortization of core deposit intangible assets	148			156			444			469
Tax impact of above adjustment(1)	(31)			(33)			(93)			(98)
Adjusted net income, adjusted for amortization of core deposit intangible assets	$	14,119		$	14,390		$	40,921		$	46,466
Adjusted return on average tangible equity	14.94		%	16.02		%	14.77		%	16.27		%

(1) Assumed a 21% tax rate.

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


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2023		2022		2023		2022
Net interest income, as presented	$	32,584	$	37,813	$	99,554	$	110,712
Adjustment for the effect of tax-exempt income(1)	237		242		701		700
Net interest income (fully-taxable equivalent)	$	32,821	$	38,055	$	100,255	$	111,412

(1) Assumed a 21% tax rate.

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 a company's capital adequacy.


(Dollars in thousands, except number of shares, per share data and ratios)	September 30, 2023			December 31, 2022
Tangible Book Value Per Share:
Shareholders’ equity, as presented	$	463,298		$	451,278
Adjustment for goodwill and core deposit intangible assets	(95,816)			(96,260)
Tangible shareholders’ equity	$	367,482		$	355,018
Shares outstanding at period end	14,558,137			14,567,325
Book value per share	$	31.82		$	30.98
Tangible book value per share	$	25.24		$	24.37
Tangible Common Equity Ratio:
Total assets	$	5,779,675		$	5,671,850
Adjustment for goodwill and core deposit intangible assets	(95,816)			(96,260)
Tangible assets	$	5,683,859		$	5,575,590
Common equity ratio	8.02		%	7.96		%
Tangible common equity ratio	6.47		%	6.37		%

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 at a lower interest rate 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.


(Dollars in thousands)	September 30, 2023		December 31, 2022
Total deposits	$	4,678,406	$	4,826,929
Adjustment for certificates of deposit	(552,111)		(300,451)
Adjustment for brokered deposits	(133,885)		(181,253)
Core deposits	$	3,992,410	$	4,345,225

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 average deposits (excluding average brokered deposits, as disclosed on the Average Balance, Interest and Yield/Rate Analysis tables) less average certificates of deposit. Management believes core deposits is a useful measure to assess the Company's deposit base, including its potential volatility.


	Three Months Ended September 31,				Nine Months Ended September 30,
(Dollars in thousands)	2023		2022		2023		2022
Total average deposits(1)	$	4,483,614	$	4,531,019	$	4,476,668	$	4,431,837
Adjustment average certificates of deposit	(497,301)		(290,043)		(409,909)		(297,646)
Average core deposits	$	3,986,313	$	4,240,976	$	4,066,759	$	4,134,191

(1) Brokered deposits are excluded from total average deposits, as presented on the Average Balance, Interest and Yield/Rate analysis table.

CRITICAL ACCOUNTING POLICIES

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. In preparing the Company’s consolidated financial statements, management is required to make significant estimates and assumptions that affect assets, liabilities, revenues, and expenses reported. Actual results could differ materially 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 from those disclosed within its Annual Report on Form 10-K for the year ended December 31, 2022. Refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2022, 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 $5.8 billion in assets at September 30, 2023, 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 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 operates throughout Maine, with its primary markets and presence being throughout coastal and central Maine, and select areas of New Hampshire and Massachusetts. 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

The Company, and the broader banking industry, has now been operating in an inverted yield curve for over a year, driving a lower net interest margin, lower earnings, and lower profitability metrics, in comparison to the same periods last year. Additionally, in the first and second quarters of 2023, the banking industry dealt with a liquidity crisis as three well-known regional banks failed in fairly short order. The impact of these failings was felt by the banking industry as investors and depositors alike grew concerned with liquidity in the market as interest rates continued to rise. In response to these market dynamics the Company's short-term priorities shifted to deposit and net interest margin optimization, and to maintaining our strong credit quality position.

As of September 30, 2023, the Company's financial footing continued to be strong, supported by a diverse deposit base, a strong liquidity and capital position, and excellent asset quality. The following metrics highlight the Company's financial strength as of September 30, 2023:

•Uninsured deposits were 24% of total deposits and uninsured and uncollateralized1 deposits were 15% of total deposits, compared to 29% and 16%, respectively, as of December 31, 2022.

•Primary liquidity sources, which consists of cash, investment securities and FHLBB and FRB borrowing capacity, totaled $1.5 billion, which was approximately 1.4 times total uninsured deposits and 2.1 times total uninsured and uncollateralized deposits.

1 Uncollateralized deposits are customer deposit balances for which the Company has not pledged any of its assets, including investment securities, or provided any other type of guarantee.

•Annualized net charge-offs for the nine months ended September 30, 2023 were 0.03%, compared to 0.02% for the same period of 2022.

•Non-performing assets were 0.11% of total assets and past due loans were 0.09% of total loans, compared to 0.09% and 0.06%, respectively, as of December 31, 2022.

•Common equity ratio was 8.02% and tangible common equity ratio (non-GAAP) was 6.47%, compared to 7.96% and 6.37%, respectively, as of December 31, 2022.

•Common Equity Tier 1 risk-based capital ratio of 12.16% exceeded the minimum regulatory capital required for capital adequacy plus the capital conservation buffer by 5.16%.

Like many others across the banking industry, the Company's earnings have been greatly affected by the inverted yield curve, as deposit and other funding costs have risen at a faster pace than earning asset yields, which has resulted in net interest margin compression period-over-period. Our net interest margin for the nine months ended September 30, 2023 was 2.44%, compared to 2.86% for the same period of 2022, and for the third quarter of 2023 was 2.39%, compared to 2.88% for the third quarter of 2022. Through the nine months ended September 30, 2023, we have taken several actions to optimize the Company's net interest margin, including, but not limited to: (1) maintaining our disciplined approach to loan and deposit pricing, (2) utilizing interest rate swaps, (3) implementing various borrowing strategies, and (4) taking actions to adjust our balance sheet. Compared to the quarter ended September 30, 2022, these actions resulted in an improvement of the Company's net interest income at risk over a 12-month period in an up 200 basis points scenario, based on the Company's interest rate risk modeling, as discussed in "—Risk Management—Interest Rate Risk," below.

The Company's investment bond portfolio through investment cash flows, and the ability to pledge securities as collateral for funding continue to be primary sources of liquidity. As of September 30, 2023, the fair value of the Company's bond portfolio was $1.1 billion and was in a net unrealized loss position of $182.4 million, compared to a fair value of $1.2 billion and a net unrealized loss position of $141.5 million as of December 31, 2022. The net unrealized loss position as of each date reflects the increase in interest rates and was not reflective of perceived credit risk within the investment bond portfolio. The investment portfolio continues to be primarily made up of agency-backed MBS and CMO, but also contains corporate bonds and municipal securities as further described within "—Financial Condition—Investments." As of September 30, 2023, the corporate bond portfolio was comprised of 20 different companies, of which 18 were differing banks. The banks in the portfolio range from the largest U.S. banks to community banks. The largest exposure, with a book value of $6.7 million as of September 30, 2023, was to a global systemically important bank, or “G-SIB”. The weighted-average life and duration of our bond portfolio as of September 30, 2023, was 7.5 years and 5.7 years, respectively, compared to 7.8 years and 5.8 years, respectively, as of December 31, 2022.

In the third quarter of 2023, the Company took action to adjust the position of its balance sheet by selling $66.7 million of investments with a weighted-average yield of 2.31% at a pre-tax loss of $5.3 million. The Company reinvested $30.0 million of the proceeds into investments yielding 6.06% and the remaining proceeds will be used to reduce higher cost funding sources. The estimated earn-back period on tangible book value (non-GAAP) dilution from the loss on sale of investments is less than three years, and the Company anticipates that the repositioning adjustments made to the balance sheet will enhance future net interest margin and earnings.

Discussed below is further information on the Company's financial performance for the third quarter of 2023 and its current financial position.

Operating Results. Net income for the third quarter of 2023 was $9.8 million, a decrease of $4.5 million or 31%, compared to the third quarter of 2022, and diluted EPS decreased $0.30, or 31%, to $0.67 for the third quarter of 2023 compared to the same period last year. The Company's third quarter operating results include the impact from the sale of investment securities (described above). When adjusting net income for the loss on sale of securities, adjusted net income (non-GAAP) for the third quarter of 2023 was $14.0 million and adjusted EPS was $0.96, decreases of 2% and 1%, respectively, from the third quarter of 2022.

Net income for the nine months ended September 30, 2023 was $34.9 million, a decrease of $11.2 million or 24%, compared to the same period of 2022, and diluted EPS decreased $0.73, or 23%, to $2.39 compared to the same period of 2022. When adjusting net income for the loss on sale of securities and the write-off of a Signature Bank corporate bond during the first quarter of 2023, adjusted net income (non-GAAP) for the nine months ended September 30, 2023 was $40.6 million and adjusted EPS (non-GAAP) was $2.77, decreases of 12% and 11% from the same period in 2022.

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Return on average assets (annualized)	0.68	%	1.03	%	0.82	%	1.13	%
Adjusted return on average assets (annualized) (non-GAAP)	0.97	%	1.03	%	0.95	%	1.13	%
Return on average equity (annualized)	8.25	%	12.50	%	10.00	%	12.88	%
Adjusted return on average equity (annualized) (non-GAAP)	11.80	%	12.50	%	11.63	%	12.88	%
Return on average tangible equity (annualized) (non-GAAP)	10.48	%	16.02	%	12.72	%	16.27	%
Adjusted return on average tangible equity (annualized) (non-GAAP)	14.94	%	16.02	%	14.77	%	16.27	%
Ratio of non-interest expense to total revenues	69.60	%	56.71	%	63.82	%	56.38	%
Efficiency ratio (non-GAAP)	60.63	%	56.43	%	60.87	%	56.10	%
Overhead ratio (non-interest expense divided by average assets) (annualized)	1.83	%	1.96	%	1.86	%	1.95	%

Asset Quality. As of September 30, 2023 and December 31, 2022, the Company's credit quality metrics were strong with non-performing loans totaling 0.16% and 0.13% of total loans, respectively. We continue to monitor the Company's loan portfolio closely for any leading indicators of potential stress.

Shareholders' Equity. As of September 30, 2023, the Company's regulatory capital ratios were each well in excess of regulatory capital requirements.

The Company announced a cash dividend of $0.42 per share, payable on October 31, 2023, to shareholders of record on October 13, 2023, representing an annualized dividend yield of 5.95%, based on the Company's closing share price of $28.22, as reported by NASDAQ on September 29, 2023.

In January 2023, we announced a new share repurchase program was approved by the Company’s Board of Directors for up to 750,000 shares, or approximately 5% of total shares outstanding as of December 31, 2022, and the termination of our share repurchase program that was opened in 2022. The Company repurchased 65,692 shares of its outstanding common stock through the nine months ended September 30, 2023 at a weighted-average price of $30.44 per share. There were no repurchases made in the third quarter of 2023.

President and CEO Transition. During the third quarter, the Company announced the upcoming retirement of the Company’s President and CEO, Gregory Dufour, effective December 31, 2023. The Company also announced that Mr. Dufour will be succeeded by Simon Griffiths, Executive Vice – Head of Core Banking at Citizens Bank. Mr. Dufour will remain with the Company as an advisor for several months following his retirement to assist with the CEO transition.

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 ("revenue" is defined as the sum of net interest income and non-interest income). For the quarter ended September 30, 2023, net interest income was 87% of total revenues, compared to 79% for the quarter ended September 30, 2022. For the nine months ended September 30, 2023, net interest income was 80% of total revenues, compared to 78% for the same period of 2022. The increase in net interest income as a percentage of total revenue for the three and nine months ended September 30, 2023, compared to the same periods of 2022, reflects the decrease in non-interest income of $4.9 million and $5.9 million, respectively, between periods, primarily due to the $5.3 million pre-tax investment loss recognized in the third quarter of 2023 as the Company executed a balance sheet repositioning strategy. Refer to "—Non-Interest Income" for further details.

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 margin is calculated as net interest income on a fully-taxable equivalent basis (non-GAAP) as a percentage of average interest-earning assets.

Net Interest Income and Net Interest Margin. Net interest income on a fully-taxable equivalent basis for the quarter ended September 30, 2023 was $32.8 million, a decrease of $5.2 million, or 14%, compared to the third quarter of 2022. The decrease consisted of a $18.3 million increase in interest expense, partially offset by an increase in interest income on a fully-taxable equivalent basis of $13.1 million between periods. The sharp increase in interest expense and interest income between periods reflects the significant change in the interest rate environment between periods. The following discusses the drivers for the change in interest expense and interest income between periods:

•The increase in interest expense between periods was primarily the result of a 139 basis points increase in our average cost of funds to 1.93% for the third quarter of 2023. The Federal Funds Target Rate range at September 30, 2023 was 5.25% - 5.50%, compared to 3.00% - 3.25% at September 30, 2022.

Average deposit costs for the third quarter of 2023 were 1.67%, compared to 0.45% for the third quarter of 2022. The increase in average deposit costs between periods was driven by the change in the interest rate environment driving higher cost for deposit acquisition and retention, as well as a shift in deposit mix from lower cost deposit accounts, including checking and savings, to higher interest-bearing deposit accounts, such as money market and CDs.

Average borrowing costs grew to 3.70% for third quarter of 2023, compared to 1.38% for the third quarter of 2022, primarily due to the change in the interest rate environment. Average borrowings also increased between periods by $201.3 million, or 44%.

•The increase in interest income between periods was primarily driven by both interest-earning assets yield expansion of 83 basis points to 4.23% for the third quarter of 2023 and average interest-earning asset growth of $194.6 million, or 4%.

The Company's average loan yield for the third quarter of 2023 was 4.85%, compared to 3.91% for the third quarter of 2022. The increase was driven by the change in the interest rate environment between periods as new loans continue to be originated at current market rates, existing loan book continues to reprice, and older vintage loans at lower yields continue to run-off. In addition, in the first half of 2023, the Company executed five pay-fixed, receive-floating interest rate swaps, totaling $375.0 million of notional value on a designated pool of fixed rate residential real estate loans. The derivative transaction was designated as a “fair value hedge” under ASC 815, and was completed to reduce its near-term interest rate risk exposure to rising interest rates. For the third quarter of 2023, these interest rate swaps generated $1.4 million of interest income.

The Company's average investment yield for the third quarter of 2023 was 2.27%, compared to 2.02% for the third quarter of 2022. The increase in our average investment yield between periods reflects the balance sheet repositioning strategies the Company deployed in the fourth quarter of 2022 and third quarter of 2023 to sell lower yielding investment and reinvest the proceeds into higher yielding investments at current market rates and pay-down borrowings with any remaining proceeds. Refer to "—Non-Interest Income" for further details on the balance sheet repositioning strategy executed in the third quarter of 2023.

Average loan growth between periods was $287.5 million, or 8%, and was centered in residential real estate and commercial real estate each growing 12% and 7%, respectively.

Average investments decreased between periods by $117.6 million, or 8%. The decrease reflects the Company's strategy used consistently over the past year to redeploy cash flows on investment pay-downs to fund loan growth, as well as the sale of investment securities in the fourth quarter of 2022 and third quarter of 2023 as part of the Company's actions to adjust its balance sheet.

Net interest margin on a fully-taxable equivalent basis for the three months ended September 30, 2023 and 2022 was 2.39% and 2.88%, respectively.

For the nine months ended September 30, 2023, net interest income on a fully-taxable equivalent basis totaled $100.3 million, a decrease of $11.2 million, or 10%, compared to the same period in 2022. The decrease consisted of a $54.1 million increase in interest expense, partially offset by an increase in interest income on a fully-taxable equivalent basis of $43.0 million, or 35%, between periods. The sharp increase in interest expense and interest income between periods reflects the significant change in the interest rate environment between periods. The following discusses the drivers for the change in interest expense and interest income between periods:

•The increase in interest expense between periods was primarily driven by a 139 basis points increase in our average cost of funds to 1.74% for the nine months ended September 30, 2023. Average deposit costs increased 119 basis points between periods to 1.46% for the nine months ended September 30, 2023.

•The increase in interest income between periods was driven by both interest-earning assets yield expansion of 90 basis points to 4.09% for the nine months ended September 30, 2023, and average interest-earning asset growth of $258.5 million, or 5%. Between periods the Company's average loan yield expanded 94 basis points to 4.69% and its investment yield expanded 30 basis points to 2.22% for the nine months ended September 30, 2023.

For the nine months ended September 30, 2023, the Company executed five pay-fixed, receive-floating interest rate swaps, totaling $375.0 million of notional value on a designated pool of fixed rate residential real estate loans. The derivative transaction was designated as a “fair value hedge” under ASC 815, and was completed to reduce its near-term interest rate risk exposure to rising interest rates. For the nine months ended September 30, 2023, these interest rate swaps generated $3.1 million of interest income.

Net interest margin on a fully-taxable equivalent basis for the nine months ended September 30, 2023 and 2022 was 2.44% and 2.86%, respectively.

Quarterly Average Balance, Interest and Yield/Rate Analysis


	Three Months Ended
	September 30, 2023						September 30, 2022
(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	$	48,401	$	500	4.04	%	$	30,063	$	172	2.24	%
Investments - taxable	1,177,367		6,306		2.14	%	1,288,172		6,051		1.88	%
Investments - nontaxable(1)	102,872		947		3.68	%	109,661		1,001		3.65	%
Loans(2):
Commercial real estate	1,658,125		20,496		4.84	%	1,546,638		15,973		4.04	%
Commercial(1)	391,052		6,079		6.08	%	402,152		4,380		4.26	%
SBA PPP	439		3		2.40	%	1,254		50		15.67	%
Municipal(1)	18,888		210		4.41	%	22,574		171		3.01	%
Residential real estate	1,762,860		18,441		4.18	%	1,571,449		13,712		3.49	%
Consumer and home equity	252,357		4,924		7.74	%	252,145		3,313		5.21	%
Total loans	4,083,721		50,153		4.85	%	3,796,212		37,599		3.91	%
Total interest-earning assets	5,412,361		57,906		4.23	%	5,224,108		44,823		3.40	%
Cash and due from banks	75,633						52,693
Other assets	265,781						274,978
Less: ACL	(36,975)						(34,698)
Total assets	$	5,716,800					$	5,517,081
Liabilities & Shareholders' Equity
Deposits:
Non-interest checking	$	1,019,450	$	—	—	%	$	1,243,174	$	—	—	%
Interest checking	1,584,314		9,669		2.42	%	1,502,436		3,213		0.85	%
Savings	661,126		225		0.14	%	774,725		86		0.04	%
Money market	721,423		5,182		2.85	%	720,641		1,532		0.84	%
Certificates of deposit	497,301		3,828		3.05	%	290,043		326		0.45	%
Total deposits	4,483,614		18,904		1.67	%	4,531,019		5,157		0.45	%
Borrowings:
Brokered deposits	161,623		2,065		5.07	%	80,701		285		1.40	%
Customer repurchase agreements	193,297		822		1.69	%	228,495		328		0.57	%
Junior subordinated debentures	44,331		539		4.83	%	44,331		539		4.83	%
Other borrowings	263,705		2,755		4.14	%	108,084		459		1.68	%
Total borrowings	662,956		6,181		3.70	%	461,611		1,611		1.38	%
Total funding liabilities	5,146,570		25,085		1.93	%	4,992,630		6,768		0.54	%
Other liabilities	99,480						71,636
Shareholders' equity	470,750						452,815
Total liabilities & shareholders' equity	$	5,716,800					$	5,517,081
Net interest income (fully-taxable equivalent)			32,821						38,055
Less: fully-taxable equivalent adjustment			(237)						(242)
Net interest income			$	32,584					$	37,813
Net interest rate spread (fully-taxable equivalent)					2.30	%					2.86	%
Net interest margin (fully-taxable equivalent)					2.39	%					2.88	%

(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.

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


	Nine Months Ended
	September 30, 2023						September 30, 2022
(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	$	30,002	$	1,088	4.78	%	$	60,105	$	260	0.57	%
Investments - taxable	1,209,000		18,996		2.09	%	1,354,339		18,161		1.79	%
Investments - nontaxable(1)	104,518		2,878		3.67	%	112,526		2,942		3.49	%
Loans(2):
Commercial real estate	1,658,188		59,494		4.73	%	1,512,285		43,675		3.81	%
Commercial(1)	401,817		17,669		5.80	%	391,540		11,357		3.82	%
SBA PPP	514		12		3.08	%	9,138		1,248		18.01	%
Municipal(1)	17,467		524		4.01	%	18,837		446		3.17	%
Residential real estate	1,742,340		52,371		4.01	%	1,459,659		37,825		3.46	%
Consumer and home equity	253,137		14,118		7.46	%	240,041		8,255		4.60	%
Total loans	4,073,463		144,188		4.69	%	3,631,500		102,806		3.75	%
Total interest-earning assets	5,416,983		167,150		4.09	%	5,158,470		124,169		3.19	%
Cash and due from banks	61,290						50,100
Other assets	264,665						275,074
Less: ACL	(37,172)						(33,353)
Total assets	$	5,705,766					$	5,450,291
Liabilities & Shareholders' Equity
Deposits:
Non-interest checking	$	1,031,700	$	—	—	%	$	1,214,263	$	—	—	%
Interest checking	1,637,231		27,339		2.23	%	1,448,146		5,024		0.46	%
Savings	693,468		526		0.10	%	759,053		239		0.04	%
Money market	704,360		13,226		2.51	%	712,729		2,796		0.52	%
Certificates of deposit	409,909		7,799		2.54	%	297,646		988		0.44	%
Total deposits	4,476,668		48,890		1.46	%	4,431,837		9,047		0.27	%
Borrowings:
Brokered deposits	206,206		7,156		4.64	%	133,928		738		0.74	%
Customer repurchase agreements	189,532		2,010		1.42	%	220,026		682		0.41	%
Junior subordinated debentures	44,331		1,600		4.83	%	44,331		1,600		4.83	%
Other borrowings	237,546		7,239		4.07	%	65,595		690		1.41	%
Total borrowings	677,615		18,005		3.55	%	463,880		3,710		1.07	%
Total funding liabilities	5,154,283		66,895		1.74	%	4,895,717		12,757		0.35	%
Other liabilities	84,920						76,154
Shareholders' equity	466,563						478,420
Total liabilities & shareholders' equity	$	5,705,766					$	5,450,291
Net interest income (fully-taxable equivalent)			100,255						111,412
Less: fully-taxable equivalent adjustment			(701)						(700)
Net interest income			$	99,554					$	110,712
Net interest rate spread (fully-taxable equivalent)					2.35	%					2.84	%
Net interest margin (fully-taxable equivalent)					2.44	%					2.86	%

(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 September 30, 2023 vs. September 30, 2022						Nine Months Ended September 30, 2023 vs. September 30, 2022
	Increase (Decrease) Due to:				Net Increase (Decrease)		Increase (Decrease) Due to:				Net Increase (Decrease)
(In thousands)	Volume		Rate				Volume		Rate
Interest-earning assets:
Interest-bearing deposits in other banks and other interest-earning assets	$	159	$	169	$	328	$	(116)	$	944	$	828
Investments – taxable	(521)		776		255		(1,951)		2,786		835
Investments – nontaxable	(62)		8		(54)		(210)		146		(64)

Commercial real estate	1,157		3,366		4,523		4,271		10,923		15,194
Commercial	(107)		1,806		1,699		298		6,034		6,332
SBA PPP	(33)		(14)		(47)		(1,178)		(58)		(1,236)
Municipal	(28)		67		39		(32)		110		78
Residential real estate	1,665		3,064		4,729		7,208		7,942		15,150
Consumer and home equity	3		1,608		1,611		451		5,412		5,863
Total interest income (fully-taxable equivalent)	2,233		10,850		13,083		8,741		34,239		42,980
Interest-bearing liabilities:
Interest checking	175		6,281		6,456		651		21,664		22,315
Savings	(11)		150		139		(20)		307		287
Money market	2		3,648		3,650		(33)		10,463		10,430
Certificates of deposit	235		3,267		3,502		369		6,442		6,811
Brokered deposits	286		1,494		1,780		400		6,018		6,418
Customer repurchase agreements	(51)		545		494		(94)		1,422		1,328
Junior subordinated debentures	—		—		—		—		—		—
Other borrowings	660		1,636		2,296		1,813		4,736		6,549
Total interest expense	1,296		17,021		18,317		3,086		51,052		54,138
Net interest income (fully-taxable equivalent)	$	937	$	(6,171)	$	(5,234)	$	5,655	$	(16,813)	$	(11,158)

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


	Income Statement Location	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)		2023		2022		2023		2022
Loan fees (cost)	Interest income	$	241	$	(297)	$	(70)	$	1,006
Net fair value mark accretion from purchase accounting	Interest income and Interest expense	29		71		110		197
Recoveries on previously charged-off acquired loans	Interest income	31		20		68		189
Total		$	301	$	(206)	$	108	$	1,392

Provision for Credit Losses

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


	Three Months Ended September 30, 2023				Change				Nine Months Ended September 30, 2023				Change
(Dollars in thousands)	2023		2022		$		%		2023		2022		$		%
(Credit) provision for loan losses(1)	$	(456)	$	2,513	$	(2,969)	(118)	%	$	288	$	3,788	$	(3,500)	92	%
(Credit) provision for credit losses on off-balance sheet credit exposures(2)	(118)		251		(369)		(147)	%	(595)		246		(841)		(342)	%
Provision for HTM debt securities	—		—		—		—	%	1,838		—		1,838		N.M.
Provision for credit losses	$	(574)	$	2,764	$	(3,338)	(121)	%	$	1,531	$	4,034	$	(2,503)	(62)	%

(1) (Credit) provision for loan losses: The credit for loan losses for the three and nine months ended September 30, 2023, was driven by: (1) a 1% decrease in loans during the third quarter of 2023 and 1% loan growth for the nine months ended September 30, 2023, (2) total net loan charge-offs of $120,000, or 0.01% of average loans (annualized), and $803,000, or 0.03% of average loans (annualized), for the three and nine months ended September 30, 2023, and (3) further supported by strong asset quality metrics as of September 30, 2023, including non-performing loans of 0.16% of total loans and loans 30-89 days past due of 0.09% of total loans.

For the three and nine months ended September 30, 2022, a provision for credit losses on loans was recorded of $2.5 million and $3.8 million, respectively, and was driven by: (1) a softening overall economy and the continued increasing likelihood of an economic slowdown in the future, and (2) 4% loan growth for the quarter ended September 30, 2022 and 13% loan growth for the nine months of 2022, that offset (3) the release of $768,000 and $5.0 million for the three and nine months ended September 30, 2022, respectively, of additional reserves provided for certain commercial real estate loans at the onset of the COVID-19 pandemic due to the heightened credit risk at that time.

(2) (Credit) provision for credit losses on off-balance sheet credit exposures: The decrease in provisions for three and nine months ended September 30, 2023, compared to the same period of 2022, was driven by the decrease in unfunded commitments and credit lines during each period. At September 30, 2023 and December 31, 2022, total unfunded commitments and credit lines for which the Company carried an reserve for were $731.7 million and $810.8 million, respectively.

At September 30, 2023, the ACL on off-balance sheet credit exposures was $2.7 million, as compared to $3.3 million as of September 30, 2022.

(3) Provision for HTM debt securities: In the first quarter of 2023, the Company fully wrote-off of one Signature Bank corporate bond as Signature Bank failed. There were no necessary provisions recorded in the third quarter of 2023 or for the three and nine months ended September 30, 2022.

Non-Interest Income

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


	Three Months Ended September 30,						Change				Nine Months Ended September 30,						Change
(Dollars in thousands)	2023			2022			$		%		2023			2022			$		%
Debit card income	$	3,130		$	3,234		$	(104)	(3)	%	$	9,147		$	9,371		$	(224)	(2)	%
Service charges on deposit accounts	2,040			1,941			99		5	%	5,737			5,705			32		1	%
Income from fiduciary services	1,641			1,535			106		7	%	5,016			4,847			169		3	%
Brokerage and insurance commissions	1,217			1,003			214		21	%	3,462			3,269			193		6	%
Mortgage banking income, net(1)	583			635			(52)		(8)	%	1,889			3,186			(1,297)		(41)	%
Bank-owned life insurance	644			374			270		72	%	1,849			1,519			330		22	%

Net loss on sale of securities(2)	(5,335)			—			(5,335)		N.M.		(5,335)			(9)			(5,326)		N.M.
Other income	1,152			1,232			(80)		(6)	%	3,283			3,032			251		8	%
Total non-interest income	$	5,072		$	9,954		$	(4,882)	(49)	%	$	25,048		$	30,920		$	(5,872)	(19)	%
Non-interest income as a percentage of total revenues	13		%	21		%					20		%	22		%

(1) Mortgage banking income, net: The decrease for the nine months ended September 30, 2023, compared to the same period of 2022, was due to the decrease in net gains recognized on residential mortgage loan sales due to the change interest rate environment between periods as residential mortgages have increased sharply. For the nine months ended September 30, 2023, the Company sold $137.3 million, or 47%, of its residential mortgages at an average net gain of 1.33%, compared to $131.6 million, or 21%, at an average net gain of 2.49% for the nine months ended September 30, 2022. In response to the sharp increase in interest rates between periods, the Company shifted its strategy to sell more of its residential mortgages production by lowering its margins on residential mortgage sales.

(2) Net loss on sale of securities: In the third quarter of 2023, the Company took action to adjust its balance sheet by selling $66.7 million of investments with a weighted-average yield of 2.31% at a pre-tax loss of $5.3 million The Company expects these adjustments to improve future net interest margin, earnings and profitability metrics. The Company reinvested $30.0 million of the proceeds into investments yielding 6.06% and the remaining will be used to reduce higher cost funding alternatives.

Non-Interest Expense

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


	Three Months Ended September 30,					Change				Nine Months Ended September 30,						Change
(Dollars in thousands)	2023		2022			$		%		2023			2022			$		%
Salaries and employee benefits(1)	$	14,744	$	15,849		$	(1,105)	(7)	%	$	44,605		$	46,757		$	(2,152)	(5)	%
Furniture, equipment and data processing	3,382		3,305			77		2	%	9,772			9,639			133		1	%
Net occupancy costs	1,804		1,765			39		2	%	5,735			5,715			20		N.M.
Debit card expense(2)	1,318		1,210			108		9	%	3,781			3,410			371		11	%
Consulting and professional fees	897		814			83		10	%	3,327			3,114			213		7	%
Regulatory assessments(3)	861		575			286		50	%	2,574			1,745			829		48	%
Amortization of core deposit intangible assets	148		156			(8)		(5)	%	444			469			(25)		(5)	%
Other real estate owned and collection costs (recoveries), net	(34)		56			(90)		(161)	%	(25)			9			(34)		(378)	%

Other expenses	3,087		3,361			(274)		(8)	%	9,302			8,998			304		3	%
Total non-interest expense	$	26,207	$	27,091		$	(884)	(3)	%	$	79,515		$	79,856		$	(341)	—	%
Ratio of non-interest expense to total revenues	69.60%		56.71		%					63.82		%	56.38		%
Efficiency ratio (non-GAAP)	60.63%		56.43		%					60.87		%	56.10		%

(1) Salaries and employee benefits: The decrease for the three and nine months ended September 30, 2023, compared to the same periods in 2022, was primarily driven by lower salary costs and incentive accruals. Through the nine months ended September 30, 2023, the Company has managed salary-related costs closely in response to declining revenues year-over-year due to the interest rate environment and the broader macro-environment. Incentive compensation has decreased between periods due to the decrease in net income between periods.

(2) Debit card expense: The increase for both the three months and nine months ended September 30, 2023, compared to the same periods in 2022, reflects inflationary processing and support costs between periods.

(3) Regulatory assessments: The increase for both the three months and nine months ended September 30, 2023, compared to the same periods in 2022, was driven by the increase in FDIC assessments rates, effective January 1, 2023.

As the Company works through the CEO transition over the next several months, the Company anticipates elevated non-recurring costs as a result. The current estimate for related costs for year ended December 31, 2023 is approximately $900,000 and another $1.2 million for year ended December 31, 2024. Through the nine months ended September 30, 2023, the Company has recognized approximately $600,000 of these transition-related expenses, including legal and consulting fees, recruiter fees, and other equity-related costs.

On May 11, 2023, the FDIC released a proposed rule that would impose special assessments to recover the losses to the deposit insurance fund resulting from the FDIC’s use of the systemic risk exception to the least-cost resolution test under the Federal Deposit Insurance Act in connection with the recent failures by other banking institutions. Under the proposed rule, the first $5 billion of estimated uninsured deposits would be excluded from the assessment base for the special assessments. As a result, the Bank would not be subject to the special assessment if the rule is implemented as proposed. The effect of the proposed rule on the Company and the Bank, if any, will depend on the final form of the FDIC’s rulemaking.

FINANCIAL CONDITION

Cash and Cash Equivalents

Total cash and cash equivalents at September 30, 2023, were $211.5 million, compared to $75.4 million at December 31, 2022. The increase in cash of $136.1 million between periods was driven by an increase in cash collateral received from our derivative counterparties of $32.7 million and an increase in normal operating cash flows of $100.0 million, primarily due to timing of redeployment of the proceeds received from the sale of investment securities during the third quarter and timing of normal investment and loan cash flows. We continually monitor our cash levels as part of our liquidity risk management practices. Refer to the "—Liquidity" section for additional details.

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 September 30, 2023 and December 31, 2022, our investment portfolio consisted of MBS, CMO, municipal and corporate debt securities, FHLBB and FRB common stock, and mutual funds held in a rabbi trust for the executive and director nonqualified retirement plans. We designate our debt securities as AFS or HTM based on our intent and investment strategy and they are carried at fair value and amortized cost, respectively. Our FHLBB and FRB common stock is carried at cost, and our mutual funds are designated as trading securities and are carried at fair value.

During the third quarter of 2023, we sold $66.7 million of investment securities designated as AFS with a weighted-average yield of 2.31% in order to adjust the Company's balance sheet in response to the current interest rate environment. The sale of these securities resulted in a pre-tax loss of $5.3 million. We reinvested $30.0 million of the proceeds from the sale into primarily CMOs yielding 6.06%, and the remaining proceeds as of September 30, 2023 were held in cash due to timing of the transaction. Subsequent to September 30, 2023, the Company used the remaining proceeds to reduce borrowings.

In the second quarter of 2022, we transferred securities from AFS to HTM to help manage our capital position in a rising interest rate environment. The securities were reclassified at fair value at the time of the transfer, which was a non-cash transaction. At September 30, 2023, the net unrealized losses on the transferred securities reported within AOCI were $48.2 million, net of a deferred tax asset of $13.2 million, and the weighted-average life on these securities was 8.7 years. At December 31, 2022, the net unrealized losses on the transferred securities reported within AOCI were $52.2 million, net of a deferred tax asset of $14.3 million.

At September 30, 2023, the reported value of Company's total investments portfolio was $1.2 billion, a decrease of $101.5 million, or 8.1%, since December 31, 2022. This was driven by changes within our debt securities portfolio, including:

•Paydowns, calls and maturities of $75.9 million, sales proceeds of $61.3 million offset by purchases of $52.6 million, driven by the sale of securities as a result of our balance sheet repositioning in the third quarter of 2023.

•A net decrease in the fair value of the AFS debt securities portfolio of $14.9 million due to interest rate movements during the quarter.

•An increase of $1.7 million in FHLBB common stock due to increased borrowing levels during the first 9 months of 2023.

•The write-off a $1.8 million Signature Bank corporate bond as Signature Bank failed during the first quarter of 2023.

Our AFS debt securities portfolio, which comprised 51% and 55% of our investment portfolio at September 30, 2023 and December 31, 2022, was carried at fair value using Level 2 valuation techniques. Refer to Note 15 of the consolidated financial statements for further details on the Company's fair value techniques. Our HTM debt securities portfolio comprised 48% and 43% of our investment portfolio at September 30, 2023 and at December 31, 2022.

The book value of our debt securities as of September 30, 2023 and December 31, 2022, was $1.3 billion. Our debt securities portfolio has limited credit risk due to its composition, which includes securities backed by the U.S. government and government-sponsored agencies, and highly rated corporate and municipal bonds by nationally recognized rating agencies. The following table provides the make-up of the Company's investment portfolio as of September 30, 2023 and December 31, 2022, based on the book value of each security type as a percentage of total book value of the Company's debt securities:


(Dollars in thousands)	September 30, 2023		Percent of Total at September 30, 2023		December 31, 2022		Percent of Total at December 31, 2022
MBS - Agency-backed	$	829,640	66	%	$	916,250	68	%
CMO - Agency-backed	278,212		22	%	267,828		20	%
Municipal	98,843		8	%	105,656		8	%
Corporate	40,726		3	%	46,350		3	%
Other - Agency-backed	7,559		1	%	7,457		1	%
Total	$	1,254,980	100	%	$	1,343,541	100	%

We continually 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 the review of credit ratings. The overall mix of debt securities at September 30, 2023, compared to December 31, 2022, remains relatively unchanged and the Company expects it will continue to be well positioned to provide a stable source of cash flow. At September 30, 2023 and December 31, 2022, the duration of our debt investment securities portfolio, adjusting for calls when appropriate and consensus prepayment speeds, was 6.3 years and 5.8 years, respectively.

In the first quarter of 2023, we wrote-off a $1.8 million corporate bond issued by Signature Bank due to Signature Bank's failure. This corporate bond was designated as HTM and previously carried no ACL. We completed a review of our HTM and AFS investment portfolio as of September 30, 2023, and concluded that no ACL was warranted on any of the remaining bonds at this time. The fair value and book value of the Company's corporate bonds and municipal securities as of September 30, 2023 and December 31, 2022 was as follows:


	September 30, 2023						December 31, 2022
(Dollars in thousands)	Fair Value		Book Value		Net Unrealized (Loss) Gain		Fair Value		Book Value		Net Unrealized Loss
Municipal bonds	$	91,419	$	98,843	$	(7,424)	$	104,025	$	105,656	$	(1,631)
Corporate bonds	36,378		40,726		(4,348)		44,012		46,350		(2,338)
Total	$	127,797	$	139,569	$	(11,772)	$	148,037	$	152,006	$	(3,969)

At September 30, 2023, municipal bonds were 8% of the book value of the total bond portfolio. At September 30, 2023, all municipal bonds carried an investment-grade credit rating.

At September 30, 2023, corporate bonds were 3% of the book value of the total bond portfolio. At September 30, 2023, corporate bonds with a book value of $31.2 million, or 77% of the corporate bond portfolio, carried an investment-grade credit rating and the remaining $9.5 million of book value, or 23% of the corporate bond portfolio, were non-rated corporate bonds of community banks within our markets. As of September 30, 2023, the corporate bond portfolio was made up of 18 different companies, which included 16 different banks. The banks in the portfolio range from the largest U.S. banks to community banks, with 32% of our exposure as of September 30, 2023, being to global systemically important banks, or "G-SIBs." Since March 31, 2023, a limited number of our rated corporate bonds have been downgraded as a result of stress in the banking system, although all remain investment-grade as of September 30, 2023. We continue to monitor and analyze the performance of our corporate bond portfolio.

At September 30, 2023 and December 31, 2022, the Company did not carry an ACL on any of its corporate or municipal bonds.

Our 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 September 30, 2023 and December 31, 2022, our investment in FHLBB stock totaled $9.1 million and $7.3 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.

Loans

The Company provides loans primarily to customers located within our geographic market area. Our primary market continues to be Maine, making up 69% of the loan portfolio as of September 30, 2023 and December 31, 2022. Massachusetts and New Hampshire are our second and third largest markets that we serve, making up 15% and 10%, respectively, of our total loan portfolio as of September 30, 2023, and 15% and 9% as of December 31, 2022. As of September 30, 2023, our distribution channels included 56 branches within Maine, two locations in New Hampshire, including a branch in Portsmouth and a commercial loan production office in Manchester, a mortgage loan production office in Braintree, Massachusetts, and an online residential mortgage and small business digital loan platform.

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


							Change
(Dollars in thousands)	September 30, 2023			December 31, 2022			($)		(%)
Commercial real estate - non-owner-occupied	$	1,349,463		$	1,292,443		$	57,020	4	%
Commercial real estate - owner-occupied	303,825			332,494			(28,669)		(9)	%
Commercial	400,031			430,131			(30,100)		(7)	%
Residential real estate	1,752,401			1,700,266			52,135		3	%
Consumer and home equity	252,693			255,019			(2,326)		(1)	%
Total loans	$	4,058,413		$	4,010,353		$	48,060	1	%
Commercial Loan Portfolio	$	2,053,319		$	2,055,068		$	(1,749)	—	%
Retail Loan Portfolio	$	2,005,094		$	1,955,285		$	49,809	3	%
Commercial Portfolio Mix	51		%	51		%
Retail Portfolio Mix	49		%	49		%

For the nine months ended September 30, 2023, the Company held 53% of its funded residential mortgage production, which decreased from 79% for the same period of 2022.

At September 30, 2023, the non-residential building operators' industry (operators of commercial and industrial buildings, retail establishments, theaters, banks and insurance buildings) and lessors of residential buildings industry (lessors of buildings used as residences, such as single-family homes, apartments and town houses) concentrations were 33% and 28%, respectively, of our total commercial real estate portfolio and 13% and 12% of total loans. At December 31, 2022, the non-residential building operators' industry and lessors of residential buildings industry concentrations were 34% and 28%, respectively, of our total commercial real estate portfolio and 14% and 11% of total loans. At September 30, 2023, there were no other industry concentrations within our loan portfolio that exceeded 10% of total loans.

Through the nine months ended September 30, 2023, the banking industry has faced a heightened focus on commercial real estate and the office space sector specifically given the increase in vacant properties. As of September 30, 2023, the Company's commercial real estate office space loans totaled $203.0 million, or 5% of its total loans and 12% of its commercial real estate loan portfolio. In comparison, at December 31, 2022, commercial real estate office space loans totaled $207.5 million, or 5% of its total loans and 13% of its commercial real estate loan portfolio. As of September 30, 2023, all of the Company's commercial real estate office space loans were located in its primary markets — Maine, Massachusetts and New Hampshire. As of September 30, 2023, all of the Company's commercial real estate office space loan portfolio was performing and one loan, totaling $672,000, was past due 30-89 days.

Asset Quality

Our practice is to manage the Company's loan portfolio proactively so that we are able to effectively identify problem credits and trends early, assess and implement effective work-out strategies, and take charge-offs as promptly as practical. In addition, the Company continually reassesses its underwriting standards in response to credit risk posed by changes in economic conditions. The Company continues to dedicate significant resources to monitor and manage credit risk throughout our loan portfolio and includes management and board-level oversight as follows:

•The Credit Risk and Special Assets team and the Credit Risk Policy Committee, which is an internal management committee comprised of various executives and senior managers across business lines, including Accounting and Finance, Credit Underwriting, Credit Risk and Special Assets, Risk, and Commercial and Retail Banking, 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 ratings system.

•The Directors Credit Committee of the Board of Directors 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.

•The Audit Committee of the Board of Directors has approval authority and oversight responsibility for the ACL adequacy and methodology.

Non-Performing Assets. Non-performing assets include non-accrual loans, accruing loans 90 days or more past due, accruing TDRs prior to the Company's adoption ASU 2022-02, and property acquired through foreclosure or repossession. The following table sets forth the composition and amounts of our non-performing loans as of the dates indicated:


(Dollars in thousands)	September 30, 2023			December 31, 2022
Non-accrual loans:
Commercial real estate - non-owner-occupied	$	92		$	11
Commercial real estate - owner-occupied	—			46
Commercial	1,083			715
Residential real estate	2,775			1,733
Consumer and home equity	674			486
Total non-accrual loans	4,624			2,991

Accruing TDRs prior to ASU 2022-02 adoption not included above	1,997			2,114
Total non-performing loans	6,621			5,105
Other real estate owned	—			—
Total non-performing assets	$	6,621		$	5,105
Total loans, excluding loans held for sale	$	4,058,413		$	4,010,353
Total assets	$	5,779,675		$	5,671,850
ACL on loans	$	36,407		$	36,922
ACL on loans to non-accrual loans	787.35		%	1,234.44		%
Non-accrual loans to total loans	0.11		%	0.07		%
Non-performing loans to total loans	0.16		%	0.13		%
Non-performing assets to total assets	0.11		%	0.09		%

Potential Problem Loans. Potential problem loans consist of classified accruing commercial and commercial real estate loans that were 30-89 days past due. Such loans are characterized by weaknesses in the financial condition of borrowers or collateral deficiencies. Based on historical experience, the credit quality of some of these loans may improve due to changes in collateral values or the financial condition of the borrowers, while the credit quality of other loans may deteriorate, resulting in a loss. These loans are not included in the above analysis of non-accrual loans. At September 30, 2023 and December 31, 2022, loans classified as potential problem loans totaled $631,000 and $50,000, respectively.

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


(Dollars in thousands)	September 30, 2023			December 31, 2022
Accruing loans 30-89 days past due:
Commercial real estate - non-owner-occupied	$	46		$	267
Commercial real estate - owner-occupied	142			55
Commercial	2,260			801
Residential real estate	751			1,038
Consumer and home equity	603			391
Total	$	3,802		$	2,552
Total loans	$	4,058,413		$	4,010,353
Accruing loans 30-89 days past due to total loans	0.09		%	0.06		%

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


	At or For The Three Months Ended September 30,						At or For The Nine Months Ended September 30,						At or For The Year Ended December 31, 2022
(Dollars in thousands)	2023			2022			2023			2022
ACL on loans at the beginning of the period	$	36,983		$	34,244		$	36,922		$	33,256		$	33,256
(Credit) provision for loan losses	(456)			2,513			288			3,788			4,430
Net charge-offs (recoveries)1
Commercial real estate	41			(1)			39			(4)			(5)

Commercial	66			122			749			403			663
Residential real estate	(5)			49			(20)			65			66
Consumer and home equity	18			45			35			38			40
Total net charge-offs	120			215			803			502			764
ACL on loans at the end of the period	$	36,407		$	36,542		$	36,407		$	36,542		$	36,922
Components of ACL:
ACL on loans	$	36,407		$	36,542		$	36,407		$	36,542		$	36,922
ACL on off-balance sheet credit exposures	2,670			3,441			2,670			3,441			3,265
ACL at end of the period	$	39,077		$	39,983		$	39,077		$	39,983		$	40,187
Total loans, excluding loans held for sale	$	4,058,413		$	3,860,680		$	4,058,413		$	3,860,680		$	4,010,353
Average Loans	$	4,083,721		$	3,796,212		$	4,073,463		$	3,631,500		$	3,710,415
Net charge-offs to average loans (annualized)	0.01		%	0.02		%	0.03		%	0.02		%	0.02		%
(Credit) provision for loan losses (annualized) to average loans	(0.04)		%	0.26		%	0.01		%	0.21		%	0.12		%
ACL on loans to total loans	0.90		%	0.95		%	0.90		%	0.95		%	0.92		%
ACL on loans to non-performing loans	549.87		%	588.28		%	549.87		%	588.28		%	723.25		%
ACL on loans to net charge-offs (annualized)	7,584.79		%	4,249.07		%	3,400.40		%	5,459.46		%	4,832.72		%

(1) Additional information related to net charge-offs (recoveries) is presented in the following table for the periods indicated:


	For The Three Months Ended September 30,
(Dollars in thousands)	Total Charge-offs		Total Recoveries		Net Charge-Offs (Recoveries)		Average Loans		Ratio of Net Charge-Offs (Recoveries) to Average Loans
2023:
Commercial real estate	$	58	$	17	$	41	$	1,658,125	—	%
Commercial	255		189		66		410,379		0.02	%

Residential real estate	—		5		(5)		1,762,860		—	%
Consumer and home equity	32		14		18		252,357		0.01	%
Total	$	345	$	225	$	120	$	4,083,721	0.01	%
2022:
Commercial real estate	$	—	$	1	$	(1)	$	1,546,638	—	%
Commercial	183		61		122		425,980		0.03	%

Residential real estate	49		—		49		1,571,449		—	%
Consumer and home equity	46		1		45		252,145		0.02	%
Total	$	278	$	63	$	215	$	3,796,212	0.02	%

	For The Nine Months Ended September 30,
2023:
Commercial real estate	$	58	$	19	$	39	$	1,658,188	—	%
Commercial	1,101		352		749		419,798		0.18	%
Residential real estate	18		38		(20)		1,742,340		—	%
Consumer and home equity	63		28		35		253,137		0.01	%
Total	$	1,240	$	437	$	803	$	4,073,463	0.03	%
2022:
Commercial real estate	$	—	$	4	$	(4)	$	1,512,285	—	%
Commercial	744		341		403		419,515		0.10	%
Residential real estate	65		—		65		1,459,659		—	%
Consumer and home equity	130		92		38		240,041		0.02	%
Total	$	939	$	437	$	502	$	3,631,500	0.02	%

	For the Year Ended December 31,
2022:
Commercial real estate	$	—	$	5	$	(5)	$	1,532,225	—	%
Commercial	1,042		379		663		422,304		0.16	%

Residential real estate	66		—		66		1,511,985		—	%
Consumer and home equity	134		94		40		243,901		0.02	%
Total	$	1,242	$	478	$	764	$	3,710,415	0.02	%

ACL on Loans. There were no significant changes in our modeling methodology to determine the ACL on loans during the nine months ended September 30, 2023. The significant key assumptions used with the ACL on loans calculation at September 30, 2023 and December 31, 2022, 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 September 30, 2023 and December 31, 2022, the recorded ACL on loans was $36.4 million, or 0.90% to total loans, and $36.9 million, or 0.92% of total loans, respectively, and represented our best estimate. Our ACL on loans estimate as of each date incorporated the ongoing risk of a potential downturn over the next 12 to 24 months.

The overall global and national markets continue to be volatile and carry a high degree of uncertainty, and any changes to our forecast or qualitative factors subject our ACL estimate to a higher risk of fluctuation between periods.

We may adjust our assumptions to account for differences between expected and actual losses from period to period. A future change of our assumptions likely will 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 their effects on the Company's financial condition.

ACL on Off-Balance Sheet Credit Exposures. There were no significant changes in our modeling methodology to determine the ACL on off-balance sheet credit exposures during the nine months ended September 30, 2023. The model uses the credit loss factors for each segment calculated within the ACL on loans model described above. The ACL on off-balance sheet credit exposures as of September 30, 2023 and December 31, 2022, was $2.7 million and $3.3 million, respectively.

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.

ACL on HTM Securities. Each quarter the Company evaluates its investment portfolio for potential credit risk, and, in the first quarter of 2023, the Company fully wrote-off one $1.8 million corporate bond issued by Signature Bank that was designated as HTM. As of September 30, 2023, we have evaluated our HTM debt securities and we have not identified any further credit concerns. As of September 30, 2023 and December 31, 2022, there was no ACL recorded on HTM investments. Refer to "—Investments" and Note 3 of the consolidated financial statements for further discussion.

Liabilities

Deposits. At September 30, 2023, deposits totaled $4.7 billion, a decrease of $148.5 million, or 3%, since December 31, 2022. The interest rate environment for the nine months ended September 30, 2023, coupled with the well-publicized failures of three larger regional banks in the first and second quarter of 2023, has created a highly competitive landscape for deposits across our markets as depositors looked to deploy excess liquidity into higher yielding, interest-bearing deposit accounts, and to ensure that their deposits are properly safeguarded. We continue manage our deposits closely with a focus on maintaining and enhancing existing depositor relationships and developing new ones, while balancing the Company's overall funding cost and liquidity position. Another factor impacting deposits through the nine months ended September 30, 2023, was the decrease in average consumer deposit balances, primarily checking and savings accounts, which, in part, was likely due to depositors redeploying excess liquidity given the current interest rate environment as described above, but also likely reflects the shift in the overall financial position of the consumer as average checking and savings account deposit balances from the onset of the COVID-19 pandemic in 2020 through mid-year 2022 steadily increased before reaching its peak. As of September 30, 2023, the Company's average monthly consumer checking and savings account deposit balances have decreased 16%, compared to the average for the month of September 30, 2022, but still remain significantly higher than pre-pandemic.

The decrease in deposits through the nine months ended September 30, 2023, was primarily within checking and savings account balances, which were lower $302.4 million, or 10%, and $111.4 million, or 15%, respectively, as depositors shifted from lower yielding to higher yielding deposit products, such as money markets and CDs. For the nine months ended September 30, 2023, CD balances grew $251.7 million, or 84% and money market deposit balances grew $60.9 million, or 9%. Throughout the first nine months of 2023, the Company has used a mix of deposit product offerings and promotions to attract new deposits and retain existing deposits at lower rates than overnight borrowings. Over this same period, brokered deposits decreased $47.4 million, or 26%, as brokered CDs matured and were not replaced as we utilized other funding sources and strategies.

The Company's loan-to-deposit ratio was 87% at September 30, 2023, compared to 83% at December 31, 2022.

At September 30, 2023, the Company had no customer relationships that exceeded 10% of total deposits.

Uninsured and Uncollateralized Deposits. Total deposits that exceeded the FDIC deposit insurance limit of $250,000 were $1.1 billion, or 24% of total deposits, as of September 30, 2023, and $1.4 billion, or 29% of total deposits, as of December 31, 2022.

Total uninsured and uncollateralized deposits that exceeded the FDIC deposit insurance limit of $250,000 and were not secured by pledged assets or any other guarantee of the Company totaled $717.3 million, or 15% of total deposits, as of September 30, 2023 and $745.9 million, or 16% of total deposits, as of December 31, 2022.

The balance of CDs that exceeded the FDIC deposit insurance limit of $250,000 was $151.9 million, or 28% of CD balances, as of September 30, 2023, and $84.5 million, or 28% of CD balances, as of December 31, 2022. The total uninsured portion of these CDs was $86.8 million, or 16% and $62.5 million or 21% as of September 30, 2023 and December 31, 2022, respectively.

Borrowings. At September 30, 2023, total borrowings were $514.5 million, an increase of $205.0 million, or 66%, since December 31, 2022. The increase reflects the need for additional funding to support asset growth of 2% and a decrease in deposits of 3% during the nine months ended September 30, 2023. Included in total borrowings at September 30, 2023, was:

•Customer repurchase agreements totaling $210.1 million, an increase of $13.7 million, or 7%, since December 31, 2023.

•Borrowings from the BTFP totaling $135.0 million, which the Company entered into in May 2023 to manage borrowing costs while obtaining favorable prepayment terms. The BTFP, which is secured by the Company's investment securities at par, is at a fixed rate of 4.70% and scheduled to mature in May 2024. Under the program, the Company may prepay the BTFP borrowing at any time without penalty.

•Short-term FHLBB advances of $125.0 million, an increase of $75.0 million since December 31, 2022. The Company has entered into entered into derivatives to swap the cash flows the interest payments on these FHLBB advances.

Shareholders' Equity

Shareholders' equity at September 30, 2023, totaled $463.3 million, an increase of $12.0 million, or 3%, since December 31, 2022. The increase was driven by net income of $34.9 million for the nine months ended September 30, 2023, net of regular quarterly cash dividends of $18.4 million, and an decrease to AOCI of $4.3 million driven by a decrease in long-term interest rates between periods resulting in an improvement in valuation of the AFS bond portfolio.

On September 26, 2023, the Company announced a quarterly cash dividend to shareholders of $0.42 per share, payable on October 31, 2023 to shareholders of record as of October 13, 2023. As of September 30, 2023, the Company's annualized dividend yield was 5.95% based on Camden National's closing share price of $28.22, as reported by NASDAQ on September 30, 2023.

In January 2023, the Company's Board of Directors authorized the repurchase of up to 750,000 shares of the Company's common stock, representing approximately 5% of the Company's issued and outstanding shares of common stock as of December 31, 2022. During the nine months ended September 30, 2023, the Company repurchased 65,692 shares at a weighted average price of $30.44.

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


	At or For The Three Months Ended September 30,						At or For The Nine Months Ended September 30,						At or For The Year Ended December 31, 2022
	2023			2022			2023			2022
Financial Ratios
Average equity to average assets	8.23		%	8.21		%	8.18		%	8.78		%	8.51		%
Common equity ratio	8.02		%	7.76		%	8.02		%	7.76		%	7.96		%
Tangible common equity ratio (non-GAAP)	6.47		%	6.13		%	6.47		%	6.13		%	6.37		%
Dividend payout ratio	62.69		%	41.24		%	52.72		%	38.34		%	38.76		%
Per Share Data
Book value per share	$	31.82		$	29.59		$	31.82		$	29.59		$	30.98
Tangible book value per share (non-GAAP)	$	25.24		$	22.97		$	25.24		$	22.97		$	24.37
Dividends declared per share	$	0.42		$	0.40		$	1.26		$	1.20		$	1.62

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 and monitor liquidity in accordance with internal guidelines and all applicable regulatory requirements. Sources of funds that we utilize consist of deposits; borrowings from the FHLBB and other sources; cash flows from loans and investments; and cash flows from operations, including other contractual obligations and commitments.

During the first half of 2023, the banking industry experienced three high-profile bank failures, which led to an industry-wide increase in concerns related to liquidity, deposit outflows and eroding customer confidence in the banking system. Despite these developments and related recent volatility in the banking industry, our liquidity position continued to exceed our target levels and we believe we currently have appropriate liquidity available to respond to demands.

As of September 30, 2023, our primary liquidity sources available were as follows:


(In thousands)	Amount
Available primary liquidity:
Excess cash1	$	118,805
Unpledged investment securities	470,301
Over collateralized securities pledging position	57,658
FHLBB	720,009
Fed Discount Window	39,456
BTFP	27,874
Unsecured borrowing lines	104,872
Total available primary liquidity	$	1,538,975

(1) Excess cash represents cash held at the FRB that is above the minimum reserve requirement. At September 30, 2023 the minimum reserve requirement remains at zero.

Total available primary liquidity of $1.5 billion was 2.1 times uninsured and uncollateralized deposits as of September 30, 2023. Refer to "—Financial Condition—Liabilities—Uninsured and Uncollateralized Deposits" for further details.

In addition to the available primarily liquidity noted above, as of September 30, 2023, we may access additional funding through brokered deposits.

Although we believe that our level of liquidity is sufficient to meet current and future funding requirements, changes in current economic conditions, including consumer saving habits and the availability or access to the brokered deposit and wholesale repurchase markets, could significantly affect our liquidity position.

Deposits. Deposits continue to represent our primary source of funds. As of September 30, 2023 and December 31, 2022, total deposits, including brokered deposits, were $4.7 billion and $4.8 billion, respectively, which included money market deposits of $62.5 million and $73.5 million, respectively, from Camden National Wealth Management, a division of the Bank, which represent client funds. These funds fluctuate with changes in the portfolios of the clients of Camden National Wealth Management. Time deposits are generally considered to be more interest rate sensitive than other deposits and, therefore, more likely to be withdrawn to obtain higher yields elsewhere if available.

The following is a summary of the scheduled maturities of CDs (not including brokered CDs) as of September 30, 2023:


(In thousands)	CDs
1 year or less	$	500,570
> 1 year	51,541
Total	$	552,111

Brokered deposits totaled $133.9 million at September 30, 2023, and consisted of $65.5 million of brokered CDs and $68.4 million of brokered money market accounts. As of September 30, 2023, all brokered CDs are schedule to mature within the next 12 months. At September 30, 2023, we also have access to additional brokered deposits.

Borrowings. Borrowings are used to supplement deposits as a source of liquidity, which may include borrowings and advances from the FHLBB, federal funds and repurchase agreements. As of September 30, 2023, total borrowings were $514.5 million, compared to $309.5 million as of December 31, 2022. We secure borrowings from the FHLBB with qualified residential real estate loans, certain investment securities and certain other assets available to be pledged. As of September 30, 2023, the Company had $720.0 million in this borrowing capacity from the FHLBB. In the second quarter of 2023, the Company borrowed $135.0 million from the BTFP for a period of one year at a fixed rate of 4.70%. The BTFP, which is secured by the Company's investment securities at par, is scheduled to mature in May 2024, however, under the program the Company may prepay this borrowing at any time without penalty. The Company utilized the BTFP to manage borrowing costs while obtaining favorable prepayment terms. 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 three correspondent banks of $95.0 million, and with the FRB Discount Window of $39.5 million as of September 30, 2023. We also have access to the brokered deposit market and wholesale reverse repurchase transactions market. These sources are considered as liquidity alternatives in our contingent liquidity plan.

The following is a summary of the scheduled maturities of borrowings as of September 30, 2023:


(In thousands)	FHLBB Advances		BTFP		Customer Repurchase Agreements		Junior Subordinated Debentures		Total
1 year or less	$	125,000	$	135,000	$	210,140	$	—	$	470,140
> 1 year	—		—		—		44,331		44,331
Total	$	125,000	$	135,000	$	210,140	$	44,331	$	514,471

Loans. Contractual loan repayments also affect our liquidity position. Actual speed and timing of repayment may differ materially from contract terms due to prepayments or nonpayment.

The Company's unpledged residential mortgage loan portfolio is also a source of contingent liquidity as it could be sold in a reasonable time period, at fair value, on the secondary market. As of September 30, 2023, qualifying residential mortgage loans with a book value of $1.7 billion were pledged as collateral to the FHLBB.

The following table presents the contractual maturities of loans at the date indicated:


	September 30, 2023
(Dollars in thousands)	Due in 1 Year or Less		Due after 1 Year Through 5 Years		Due After 5 Years Through 15 Years		Due in More than 15 Years		Total		Percent of Total Loans
Maturity Distribution(1):
Fixed Rate:
Commercial real estate(2)	$	18,660	$	168,348	$	606,385	$	2,825	$	796,218	20	%
Commercial	5,766		95,250		78,569		411		179,996		4	%
Residential real estate	299		11,664		148,933		1,218,293		1,379,189		34	%
Consumer and home equity	2,221		12,121		21,667		162,436		198,445		5	%
Total fixed rate	26,946		287,383		855,554		1,383,965		2,553,848		63	%
Adjustable/Variable Rate:
Commercial real estate(2)	14,828		215,240		382,806		244,197		857,071		21	%
Commercial	46,197		117,439		47,300		9,098		220,034		6	%
Residential real estate	9		989		40,168		332,045		373,211		9	%
Consumer and home equity	51		2,361		11,821		40,016		54,249		1	%
Total adjustable/variable rate	61,085		336,029		482,095		625,356		1,504,565		37	%
Total loans	$	88,031	$	623,412	$	1,337,649	$	2,009,321	$	4,058,413	100	%

(1) Scheduled repayments are reported in the maturity category in which payment is due. Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less

(2) Commercial real estate loans includes non-owner-occupied and owner-occupied properties.

Additionally, we have active relationships with various secondary market investors that purchase residential mortgage loans we originate. In addition to managing our interest rate risk position and earnings through the sale of these loans, we are also able to manage our liquidity position through timely sales of residential mortgage loans to the secondary market.

Investments. We generally invest in amortizing MBS and CMO debt securities that return cash flow at an accelerated rate in comparison to other types of debt securities that are of a bullet structure. MBS and CMO debt security cash flow will vary

depending on the interest rate environment because borrowers may have the right to call or prepay obligations with or without

prepayment penalties. The rise in interest rates during 2022 and through the nine months ended September 30, 2023 resulted in slowing cash flows. As of September 30, 2023 and December 31, 2022, the Company's MBS and CMO debt securities portfolio totaled 88% of book value for both periods, respectively, of the Company's investment portfolio.

The Company's unpledged AFS investment portfolio is also a source of contingent liquidity as it could be sold in a reasonable time period, at fair value, on the secondary market, which was $470.3 million at September 30, 2023.

The following is a summary of the scheduled cash flows from our debt securities portfolio, including investments designated as AFS and HTM, as of September 30, 2023:


(In thousands)	Contractual Cash Flows(1)
1 year or less	$	104,067
> 1 year	1,034,897
Total	$	1,138,964

(1) Expected contractual cash flows could differ as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Other Liquidity Requirements. The Company generates cash flows from earnings through its normal course of business from earnings and, although not contractual, the Company has a history of paying a quarterly cash dividend to its shareholders and repurchasing its shares of common stock. For the nine months ended September 30, 2023, the Company reported net income of $34.9 million and paid cash dividends of $18.4 million to shareholders.

In addition, in the course of its normal operations the Company is party to several other contractual obligations not previously discussed, such as various lease agreements on a number of its branches. Renewal options within the various lease contracts, as applicable, were 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. At September 30, 2023, we had the following lease and other contractual obligations 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 or Less		> 1 Year
Operating leases	$	12,764	$	1,375	$	11,389
Finance leases	6,888		314		6,574






Other contractual obligations	5,865		5,865		—
Total	$	25,517	$	7,554	$	17,963

The Company's estimated lease liability for its various operating and finance leases was reported within other liabilities on our consolidated statements of condition.

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. Many of the commitments will expire without being drawn upon, and thus, the total amount does not necessarily represent future cash requirements. Refer to Note 7 of the consolidated financial statements for additional details.

We use derivative financial instruments for risk management purposes (primarily interest rate risk) and not for trading or speculative purposes. These contracts with our various counterparties may subject the Company to various cash flow requirements, which may include posting of cash as collateral (or other assets) for arrangements that the Company is in a liability position (i.e. “underwater”). Refer to Note 8 of the consolidated financial statements for further discussion of our derivatives and hedge instruments.

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 $463.3 million and $451.3 million at September 30, 2023 and December 31, 2022, respectively, which amounted to 8% of total assets for both periods. Refer to "—Financial Condition—Shareholders' Equity" for further discussion on shareholders' equity for the nine months ended September 30, 2023.

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 $18.4 million and $17.6 million for the nine months ended September 30, 2023 and 2022, respectively. The Company's Board of Directors approves cash dividends on a quarterly basis after careful analysis and consideration of various factors, including the following: (i) capital position relative to total assets, (ii) risk-based assets, (iii) total classified assets, (iv) economic conditions, (v) growth rates for total assets and total liabilities, (vi) earnings performance and projections and (vii) strategic initiatives and related capital requirements. All dividends declared and distributed by the Company will be in compliance with applicable state corporate law and regulatory requirements.

We are primarily dependent upon the payment of cash dividends by the Bank, our wholly-owned subsidiary, to service our commitments. We, as the sole shareholder of the Bank, are entitled to dividends, when and as declared by the Bank's Board of Directors from legally available funds. For the nine months ended September 30, 2023 and 2022, the Bank declared dividends payable to the Company in the amount of $18.0 million and $23.9 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 September 30, 2023 and December 31, 2022, 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.

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; 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, Chief Risk Officer, who is a member of the Executive Committee and reports directly to the Chief Executive Officer.

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, 2022. Please refer to Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2022 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 a static balance sheet, given a 200 basis point upward and downward shift in interest rates. 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 200 and 200 basis points scenarios, 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%.

The sensitivity analysis below does not represent a forecast and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions including, among others, the nature and timing of interest rate levels, yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits and reinvestment/replacement of asset and liability cash flows. While assumptions are developed based upon current economic and local market conditions, we cannot make any assurances as to the predictive nature of these assumptions, including how customer preferences or competitor influences might change.

As of September 30, 2023 and 2022, our net interest income sensitivity analysis reflected the following changes to net interest income, as compared to our modeled Year 1 Base 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	September 30, 2023		September 30, 2022
Year 1
+200 basis points	(1.26)	%	(2.82)	%
-200 basis points	2.15	%	1.56	%

Year 2
+200 basis points	15.08	%	8.34	%
-200 basis points	17.06	%	5.09	%

If rates remain at or near current levels, net interest income is projected to increase in year two of the simulation. Asset cash flows reprice and replace into the current higher rate environment at rates above current portfolio averages more than offsetting the pressure from funding costs replacing into higher rates, causing balance sheet spread to expand.

If rates increase 200 basis points, net interest income is projected to decrease slightly in the first year of the simulation as the funding base adjusts into the higher rate environment to a greater degree than asset yields increase. In the second year, net interest income is projected to increase as loan and investment yields continue to reprice/reset into higher yields and funding cost increases slow.

If rates decrease 200 basis points, net interest income is projected to increase slightly in the first year of the simulation as reductions in funding costs are able to more than offset near-term asset yield deterioration. In the second year, net interest income is projected to increase as asset yields are supported by fixed rates and floors while cost of funds reductions continue.

In addition to using our investments portfolio to manage liquidity risk, we also use it to manage our interest rate risk and provide a natural hedge to our interest risk exposure created by loans, deposits and borrowings. Refer to "—Financial Condition—Investments" for further details of the Company's investment portfolio, including the duration of the bond portfolio as of September 30, 2023 and December 31, 2022.

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 Note 8 of the consolidated financial statements for further discussion of these derivative instruments.

LIBOR transition

LIBOR was a benchmark interest rate for certain floating rate loans, deposits and borrowings, and off-balance sheet exposures of the Company. The publication of all U.S. Dollar LIBOR settings ceased to be provided or ceased to be representative as of July 2, 2023. The Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”), and its implementing regulations, were finalized in December 2022. The LIBOR Act and its implementing regulations established a process for replacing LIBOR on existing LIBOR contracts that did not provide for the use of a clearly defined or practicable replacement benchmark rate with a benchmark replacement based on SOFR. The Company no longer offers new contracts that reference

LIBOR and all legacy contracts that were indexed to U.S. Dollar LIBOR have been transitioned to SOFR-based or other alternative reference rates in accordance with the fallback provisions of the LIBOR Act.

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 Operating Officer and Chief Financial Officer & Principal Financial and Accounting Officer, regarding the effectiveness of the Company’s disclosure controls and procedures, as of the end of the last fiscal year. 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 Operating Officer and Chief Financial Officer & Principal Financial and 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 SEC’s rules and forms. We intend to continue to review and document our disclosure controls and procedures, including our internal controls and procedures for financial reporting, and we may from time to time make changes to the disclosure controls and procedures to enhance their effectiveness and to ensure that our systems evolve with our business.

There was no change in our 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, our 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, 2022, for discussion of these risks.

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

(a) None

(b) None


Issuer Purchases of Equity Securities
Period	Total number of shares (or units) purchased	Average price paid per share (or unit)		Total number of shares (or units) purchased as part of publicly announced plans or programs	Maximum number (or appropriate dollar value) of shares (or units) that may yet be purchased under the plans or programs (1)
July 1-31, 2023	—	$	—	—	684,308
August 1-31, 2023	—	—		—	684,308
September 1-30, 2023	—	—		—	684,308
Total	—	$	—	—	684,308

(1) In January 2023, the Company announced that the Board of Directors had authorized a common stock repurchase program for management to repurchase up to 750,000 shares. This program replaced the 2022 repurchase program and will terminate upon the earlier of (i) reaching the authorized share repurchase amount, (ii) vote by the Board of Directors to terminate the plan, or (iii) January 3, 2024.

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						Amended and Restated Articles of Incorporation of Camden National Corporation (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Commission on May 25, 2023.
3.2						Amended and Restated Bylaws of Camden National Corporation (incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the Commission on May 25, 2023).
10.1†*						T ransition Employment and Retention Agreement between Gregory A. Dufour, Camden National Corporation and Camden National Bank dated August 16, 2023.
10.2†*						Lett er A greement between Simon Griffith s, Camden National Bank and C amden National Corporation, dated August 1 4 , 2023.
31.1*						Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
31.2*						Certification of Chief Financial Officer, Principal Financial & Accounting Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
32.1**						Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**						Certification of Chief Financial Officer, Principal Financial & Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*						iXBRL (Inline eXtensible Business Reporting Language). The following materials from Camden National Corporation’s Quarterly Report on Form 10-Q for the period ended September 30, 2023, formatted in iXBRL: (i) Consolidated Statements of Condition - September 30, 2023 and December 31, 2022; (ii) Consolidated Statements of Income - Three and Nine Months Ended September 30, 2023 and 2022; (iii) Consolidated Statements of Comprehensive (Loss) Income - Three and Nine Months Ended September 30, 2023 and 2022; (iv) Consolidated Statements of Changes in Shareholders’ Equity - Three and Nine Months Ended September 30, 2023 and 2022; (v) Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2023 and 2022; 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						November 7, 2023
Gregory A. Dufour						Date
President and Chief Executive Officer (Principal Executive Officer)

/s/ Michael R. Archer						November 7, 2023
Michael R. Archer						Date
Chief Financial Officer and Principal Financial & Accounting Officer