UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 31,~~June 30, 2022

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

SECURITIES EXCHANGE ACT OF 1934

Commission File No. 0-28190

CAMDEN NATIONAL CORPORATION

(Exact name of registrant as specified in its charter)


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

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

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

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


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

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

Yes x No ¨

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

Yes x No ¨

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

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

Yes ☐ No ☒

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

Outstanding at ~~April~~July 29, 2022: Common stock (no par value) ~~14,656,487~~14,625,228 shares.

CAMDEN NATIONAL CORPORATION

FORM 10-Q FOR THE QUARTER ENDED ~~MARCH 31,~~JUNE 30, 2022

TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT


		PAGE
PART I. FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS

	Consolidated Statements of Condition (unaudited) - ~~March 31,~~June 30, 2022 and December 31, 2021	3

	Consolidated Statements of Income (unaudited) - Three and Six Months Ended ~~March 31,~~June 30, 2022 and 2021	4

	Consolidated Statements of Comprehensive (Loss) Income (unaudited) - Three and Six Months Ended ~~March 31,~~June 30, 2022 and 2021	5

	Consolidated Statements of Changes in Shareholders’ Equity (unaudited) - Three and Six Months Ended ~~March 31,~~June 30, 2022 and 2021	6

	Consolidated Statements of Cash Flows (unaudited) - ~~Three~~Six Months Ended ~~March 31,~~June 30, 2022 and 2021	7

	Notes to the Unaudited Consolidated Financial Statements	8

ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	4142

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	6871

ITEM 4.	CONTROLS AND PROCEDURES	6972

PART II. OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	7073

ITEM 1A.	RISK FACTORS	7073

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	7073

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	7073

ITEM 4.	MINE SAFETY DISCLOSURES	7073

ITEM 5.	OTHER INFORMATION	7073

ITEM 6.	EXHIBITS	7173

SIGNATURES		7275

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CONDITION

(unaudited)


(In thousands, except number of shares)	(In thousands, except number of shares)	March 31, 2022		December 31, 2021		(In thousands, except number of shares)	June 30, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Cash and due from banks	Cash and due from banks	$	53,875	$	38,902	Cash and due from banks	$	48,927	$	38,902
Interest-bearing deposits in other banks (including restricted cash)	Interest-bearing deposits in other banks (including restricted cash)	85,508		181,723		Interest-bearing deposits in other banks (including restricted cash)	27,496		181,723
Total cash, cash equivalents and restricted cash	Total cash, cash equivalents and restricted cash	139,383		220,625		Total cash, cash equivalents and restricted cash	76,423		220,625
Investments:	Investments:					Investments:
Trading securities	Trading securities	4,124		4,428		Trading securities	3,808		4,428
Available-for-sale securities, at fair value (amortized cost of $1,516,057 and $1,508,981, respectively)		1,421,809		1,507,486
Held-to-maturity securities, at amortized cost (fair value of $1,300 and $1,380, respectively)		1,290		1,291
Available-for-sale securities, at fair value (amortized cost of $864,600 and $1,508,981, respectively)						Available-for-sale securities, at fair value (amortized cost of $864,600 and $1,508,981, respectively)	788,123		1,507,486
Held-to-maturity securities, at amortized cost (fair value of $537,538 and $1,380, respectively)						Held-to-maturity securities, at amortized cost (fair value of $537,538 and $1,380, respectively)	546,520		1,291
Other investments	Other investments	10,187		10,280		Other investments	14,431		10,280
Total investments	Total investments	1,437,410		1,523,485		Total investments	1,352,882		1,523,485
Loans held for sale, at fair value (book value of $6,818 and $5,786, respectively)		6,705		5,815
Loans held for sale, at fair value (book value of $3,380 and $5,786, respectively)						Loans held for sale, at fair value (book value of $3,380 and $5,786, respectively)	3,340		5,815
Loans	Loans	3,534,218		3,431,474		Loans	3,724,227		3,431,474
Less: allowance for credit losses on loans	Less: allowance for credit losses on loans	(31,770)		(33,256)		Less: allowance for credit losses on loans	(34,244)		(33,256)
Net loans	Net loans	3,502,448		3,398,218		Net loans	3,689,983		3,398,218
Goodwill	Goodwill	94,697		94,697		Goodwill	94,697		94,697
Core deposit intangible assets	Core deposit intangible assets	2,032		2,188		Core deposit intangible assets	1,876		2,188
Bank-owned life insurance	Bank-owned life insurance	97,816		97,241		Bank-owned life insurance	98,386		97,241
Premises and equipment, net	Premises and equipment, net	37,226		37,775		Premises and equipment, net	36,876		37,775
Deferred tax assets	Deferred tax assets	36,131		19,210		Deferred tax assets	47,247		19,210
Other assets	Other assets	66,567		101,102		Other assets	64,786		101,102
Total assets	Total assets	$	5,420,415	$	5,500,356	Total assets	$	5,466,496	$	5,500,356
LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY					LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities	Liabilities					Liabilities
Deposits:	Deposits:					Deposits:
Non-interest checking	Non-interest checking	$	1,200,807	$	1,279,565	Non-interest checking	$	1,228,146	$	1,279,565
Interest checking	Interest checking	1,440,390		1,351,736		Interest checking	1,448,408		1,351,736
Savings and money market	Savings and money market	1,474,300		1,459,472		Savings and money market	1,470,720		1,459,472
Certificates of deposit	Certificates of deposit	299,865		309,648		Certificates of deposit	296,408		309,648
Brokered deposits	Brokered deposits	161,302		208,468		Brokered deposits	83,379		208,468
Total deposits	Total deposits	4,576,664		4,608,889		Total deposits	4,527,061		4,608,889
Short-term borrowings	Short-term borrowings	237,668		211,608		Short-term borrowings	371,502		211,608

Subordinated debentures	Subordinated debentures	44,331		44,331		Subordinated debentures	44,331		44,331
Accrued interest and other liabilities	Accrued interest and other liabilities	79,306		94,234		Accrued interest and other liabilities	77,221		94,234
Total liabilities	Total liabilities	4,937,969		4,959,062		Total liabilities	5,020,115		4,959,062
Commitments and Contingencies	Commitments and Contingencies	0		0		Commitments and Contingencies	0		0
Shareholders’ Equity	Shareholders’ Equity					Shareholders’ Equity
Common stock, no par value: authorized 40,000,000 shares, issued and outstanding 14,746,410 and 14,739,956 shares on March 31, 2022 and December 31, 2021, respectively		123,012		123,111
Common stock, no par value: authorized 40,000,000 shares, issued and outstanding 14,625,041 and 14,739,956 shares on June 30, 2022 and December 31, 2021, respectively						Common stock, no par value: authorized 40,000,000 shares, issued and outstanding 14,625,041 and 14,739,956 shares on June 30, 2022 and December 31, 2021, respectively	116,825		123,111
Retained earnings	Retained earnings	435,347		424,412		Retained earnings	444,522		424,412
Accumulated other comprehensive loss:
Net unrealized loss on available-for-sale debt securities, net of tax		(73,984)		(1,173)
Net unrealized gain (loss) on cash flow hedging derivative instruments, net of tax		1,166		(1,779)
Net unrecognized loss on postretirement plans, net of tax		(3,095)		(3,277)
Total accumulated other comprehensive loss		(75,913)		(6,229)

Accumulated other comprehensive loss						Accumulated other comprehensive loss	(114,966)		(6,229)
Total shareholders’ equity	Total shareholders’ equity	482,446		541,294		Total shareholders’ equity	446,381		541,294
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	5,420,415	$	5,500,356	Total liabilities and shareholders’ equity	$	5,466,496	$	5,500,356

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

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

Three Months Ended
March 31,
(In thousands, except number of shares and per share data) 2022 2021
Interest Income
Interest and fees on loans $ 32,035 $ 30,560
Taxable interest on investments 5,789 3,829
Nontaxable interest on investments 764 728
Dividend income 106 105
Other interest income 164 166
Total interest income 38,858 35,388
Interest Expense
Interest on deposits 1,833 2,063
Interest on borrowings 131 156
Interest on subordinated debentures 529 805
Total interest expense 2,493 3,024
Net interest income 36,365 32,364
Credit for credit losses (1,075) (1,956)
Net interest income after credit for credit losses 37,440 34,320
Non-Interest Income
Debit card income 2,924 2,736
Service charges on deposit accounts 1,833 1,539
Income from fiduciary services 1,631 1,526
Mortgage banking income, net 1,034 7,109
Brokerage and insurance commissions 994 953
Bank-owned life insurance 576 594
Other income 833 758
Total non-interest income 9,825 15,215
Non-Interest Expense
Salaries and employee benefits 15,506 14,522
Furniture, equipment and data processing 3,132 3,027
Net occupancy costs 2,144 1,951
Debit card expense 1,066 986
Consulting and professional fees 1,007 863
Regulatory assessments 655 503
Amortization of core deposit intangible assets 156 164
Other real estate owned and collection recoveries, net (85) (191)
Other expenses 2,628 3,074
Total non-interest expense 26,209 24,899
Income before income tax expense 21,056 24,636
Income Tax Expense 4,261 4,896
Net Income $ 16,795 $ 19,740
Per Share Data
Basic earnings per share $ 1.14 $ 1.32
Diluted earnings per share $ 1.13 $ 1.31
Weighted average number of common shares outstanding 14,741,271 14,916,387
Diluted weighted average number of common shares outstanding 14,822,332 14,994,534
Cash dividends declared per share $ 0.40 $ 0.36


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands, except number of shares and per share data)	2022		2021		2022		2021
Interest Income
Interest and fees on loans	$	33,121	$	30,865	$	65,156	$	61,425
Taxable interest on investments	5,850		4,376		11,639		8,205
Nontaxable interest on investments	770		763		1,534		1,491
Dividend income	106		102		212		207
Other interest income	183		160		347		326
Total interest income	40,030		36,266		78,888		71,654
Interest Expense
Interest on deposits	2,510		1,921		4,343		3,984
Interest on borrowings	454		176		585		332
Interest on subordinated debentures	532		640		1,061		1,445
Total interest expense	3,496		2,737		5,989		5,761
Net interest income	36,534		33,529		72,899		65,893
Provision (credit) for credit losses	2,345		(3,403)		1,270		(5,359)
Net interest income after provision (credit) for credit losses	34,189		36,932		71,629		71,252
Non-Interest Income
Debit card income	3,213		3,112		6,137		5,848
Service charges on deposit accounts	1,931		1,517		3,764		3,056
Income from fiduciary services	1,681		1,707		3,312		3,233
Mortgage banking income, net	1,517		2,598		2,551		9,707
Brokerage and insurance commissions	1,272		939		2,266		1,892
Bank-owned life insurance	569		591		1,145		1,185

Net loss on sale of securities	(9)		—		(9)		—
Other income	967		856		1,800		1,614
Total non-interest income	11,141		11,320		20,966		26,535
Non-Interest Expense
Salaries and employee benefits	15,402		15,318		30,908		29,840
Furniture, equipment and data processing	3,202		2,947		6,334		5,974
Net occupancy costs	1,806		1,805		3,950		3,756
Consulting and professional fees	1,293		997		2,300		1,860
Debit card expense	1,134		1,074		2,200		2,060
Regulatory assessments	515		487		1,170		990
Amortization of core deposit intangible assets	157		164		313		328
Other real estate owned and collection costs (recoveries), net	38		(25)		(47)		(216)
Other expenses	3,009		2,823		5,637		5,897
Total non-interest expense	26,556		25,590		52,765		50,489
Income before income tax expense	18,774		22,662		39,830		47,298
Income Tax Expense	3,748		4,519		8,009		9,415
Net Income	$	15,026	$	18,143	$	31,821	$	37,883
Per Share Data
Basic earnings per share	$	1.02	$	1.21	$	2.16	$	2.53
Diluted earnings per share	$	1.02	$	1.21	$	2.15	$	2.52
Cash dividends declared per share	$	0.40	$	0.36	$	0.80	$	0.72
Weighted average number of common shares outstanding	14,651,851		14,943,486		14,696,323		14,930,017
Diluted weighted average number of common shares outstanding	14,704,651		15,007,471		14,757,062		14,994,138

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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(unaudited)


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	(In thousands)	2022		2021			(In thousands)	2022		2021		2022		2021
Net Income	Net Income	$	16,795	$	19,740		Net Income	$	15,026	$	18,143	$	31,821	$	37,883
Other comprehensive loss:
Net change in unrealized gain on available-for-sale securities, net of tax		(72,811)		(17,509)
Net change in unrealized loss on cash flow hedging derivatives, net of tax		2,945		5,164
Other comprehensive (loss) income:							Other comprehensive (loss) income:
Net change in unrealized gain (loss) on debt securities, net of tax							Net change in unrealized gain (loss) on debt securities, net of tax	(42,053)		2,296		(114,864)		(15,213)
Net change in unrealized gain (loss) on cash flow hedging derivatives, net of tax							Net change in unrealized gain (loss) on cash flow hedging derivatives, net of tax	2,819		(2,364)		5,764		2,800
Net change in other comprehensive income for supplemental executive retirement plan and other postretirement benefit plan, net of tax	Net change in other comprehensive income for supplemental executive retirement plan and other postretirement benefit plan, net of tax	182		170			Net change in other comprehensive income for supplemental executive retirement plan and other postretirement benefit plan, net of tax	181		171		363		341
Other comprehensive loss		(69,684)		(12,175)
Other comprehensive (loss) income							Other comprehensive (loss) income	(39,053)		103		(108,737)		(12,072)
Comprehensive (Loss) Income	Comprehensive (Loss) Income	$	(52,889)	$	7,565		Comprehensive (Loss) Income	$	(24,027)	$	18,246	$	(76,916)	$	25,811

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

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(unaudited)


		Three Months Ended																Three Months Ended
		Common Stock			Retained Earnings				Accumulated Other Comprehensive Income (Loss)				Total Shareholders’ Equity					Common Stock				Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
(In thousands, except number of shares and per share data)	(In thousands, except number of shares and per share data)	Shares Outstanding	Amount								(In thousands, except number of shares and per share data)				Shares Outstanding				Amount
Balance at December 31, 2020		14,909,097	$	131,072			$	377,502			$	20,740				$	529,314
Balance at March 31, 2021															Balance at March 31, 2021			14,928,434		$	131,695		$	391,860		$	8,565		$	532,120
Net income	Net income	—	—		19,740				—				19,740		Net income			—		—		18,143			—			18,143
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—	—		—				(12,175)				(12,175)		Other comprehensive income, net of tax			—		—		—			103			103
Stock-based compensation expense	Stock-based compensation expense	—	703		—				—				703		Stock-based compensation expense			—		811		—			—			811
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings	Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings	19,337	(80)		—				—				(80)		Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings			22,633		(228)		—			—			(228)
Common stock repurchased		—	—		—				—				—

Cash dividends declared ($0.36 per share)	Cash dividends declared ($0.36 per share)	—	—		(5,382)				—				(5,382)		Cash dividends declared ($0.36 per share)			—		—		(5,401)			—			(5,401)
Balance at March 31, 2021		14,928,434	$	131,695	$	391,860			$	8,565			$	532,120
Balance at December 21, 2021		14,739,956	$	123,111	$	424,412			$	(6,229)			541,294
Balance at June 30, 2021															Balance at June 30, 2021			14,951,067		$	132,278	$	404,602		$	8,668		$	545,548
Balance at March 31, 2022															Balance at March 31, 2022			14,746,410		$	123,012	$	435,347		$	(75,913)		482,446
Net income	Net income	—	—		16,795				—				16,795		Net income			—		—		15,026			—			15,026
Other comprehensive income, net of tax		—	—		—				(69,684)				(69,684)
Other comprehensive loss, net of tax															Other comprehensive loss, net of tax			—		—		—			(39,053)			(39,053)
Stock-based compensation expense	Stock-based compensation expense	—	624		—				—				624		Stock-based compensation expense			—		893		—			—			893
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings	Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings	19,540	(114)		—				—				(114)		Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings			27,101		(276)		—			—			(276)
Common stock repurchased	Common stock repurchased	(13,086)	(609)		—				—				(609)		Common stock repurchased			(148,470)		(6,804)		—			—			(6,804)

Cash dividends declared ($0.40 per share)	Cash dividends declared ($0.40 per share)	—	—		(5,860)				—				(5,860)		Cash dividends declared ($0.40 per share)			—		—		(5,851)			—			(5,851)
Balance at March 31, 2022		14,746,410	$	123,012	$	435,347			$	(75,913)			$	482,446
Balance at June 30, 2022															Balance at June 30, 2022			14,625,041		$	116,825	$	444,522		$	(114,966)		$	446,381


	Six Months Ended
	Common Stock			Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
(In thousands, except number of shares and per share data)	Shares Outstanding	Amount
Balance at December 31, 2020	14,909,097	$	131,072	$	377,502	$	20,740	$	529,314
Net income	—	—		37,883		—		37,883
Other comprehensive loss, net of tax	—	—		—		(12,072)		(12,072)
Stock-based compensation expense	—	1,514		—		—		1,514
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings	41,970	(308)		—		—		(308)

Cash dividends declared ($0.72 per share)	—	—		(10,783)		—		(10,783)
Balance at June 30, 2021	14,951,067	$	132,278	$	404,602	$	8,668	$	545,548
Balance at December 31, 2021	14,739,956	$	123,111	$	424,412	$	(6,229)	$	541,294
Net income	—	—		31,821		—		31,821
Other comprehensive loss, net of tax	—	—		—		(108,737)		(108,737)
Stock-based compensation expense	—	1,517		—		—		1,517
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings	46,641	(390)		—		—		(390)
Common stock repurchased	(161,556)	(7,413)		—		—		(7,413)
Cash dividends declared ($0.80 per share)	—	—		(11,711)		—		(11,711)
Balance at June 30, 2022	14,625,041	$	116,825	$	444,522	$	(114,966)	$	446,381

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


		Three Months Ended March 31,					Six Months Ended June 30,
(In thousands)	(In thousands)	2022		2021		(In thousands)	2022		2021
Operating Activities	Operating Activities					Operating Activities
Net Income	Net Income	$	16,795	$	19,740	Net Income	$	31,821	$	37,883
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Originations of mortgage loans held for sale	Originations of mortgage loans held for sale	(47,671)		(174,370)		Originations of mortgage loans held for sale	(91,275)		(277,778)
Proceeds from the sale of mortgage loans	Proceeds from the sale of mortgage loans	47,771		198,799		Proceeds from the sale of mortgage loans	95,846		312,474
Gain on sale of mortgage loans, net of origination costs	Gain on sale of mortgage loans, net of origination costs	(1,132)		(6,173)		Gain on sale of mortgage loans, net of origination costs	(2,165)		(9,084)
Credit for credit losses		(1,075)		(1,956)
Provision (credit) for credit losses						Provision (credit) for credit losses	1,270		(5,359)
Depreciation and amortization expense	Depreciation and amortization expense	899		927		Depreciation and amortization expense	1,774		1,826
Investment securities amortization and accretion, net	Investment securities amortization and accretion, net	1,217		1,971		Investment securities amortization and accretion, net	2,166		3,733
Stock-based compensation expense	Stock-based compensation expense	624		703		Stock-based compensation expense	1,517		1,514
Amortization of core deposit intangible assets	Amortization of core deposit intangible assets	156		164		Amortization of core deposit intangible assets	313		328
Purchase accounting accretion, net	Purchase accounting accretion, net	(80)		(234)		Purchase accounting accretion, net	(126)		(435)

Net decrease in derivative collateral posted	Net decrease in derivative collateral posted	24,070		24,380		Net decrease in derivative collateral posted	30,470		22,090
Decrease in other assets	Decrease in other assets	998		591		Decrease in other assets	1,265		3,385
Increase (decrease) in other liabilities		178		(2,484)
Decrease in other liabilities						Decrease in other liabilities	(3,361)		(6,072)
Net cash provided by operating activities	Net cash provided by operating activities	42,750		62,058		Net cash provided by operating activities	69,515		84,505
Investing Activities	Investing Activities					Investing Activities
Proceeds from available-for-sale debt securities	Proceeds from available-for-sale debt securities	69,572		94,697		Proceeds from available-for-sale debt securities	130,634		175,036
Purchase of available-for-sale debt securities	Purchase of available-for-sale debt securities	(77,865)		(118,707)		Purchase of available-for-sale debt securities	(80,868)		(482,156)

Proceeds from paydowns of held-to-maturity securities						Proceeds from paydowns of held-to-maturity securities	371		—
Purchase of held-to-maturity securities						Purchase of held-to-maturity securities	(24,502)		—
Net increase in loans	Net increase in loans	(102,976)		(17,277)		Net increase in loans	(293,288)		(66,366)

Purchase of Federal Home Loan Bank stock	Purchase of Federal Home Loan Bank stock	(1,799)		—		Purchase of Federal Home Loan Bank stock	(14,840)		(12)
Proceeds from sale of Federal Home Loan Bank stock	Proceeds from sale of Federal Home Loan Bank stock	1,892		1,329		Proceeds from sale of Federal Home Loan Bank stock	10,689		1,329
Purchase of premises and equipment	Purchase of premises and equipment	(393)		(320)		Purchase of premises and equipment	(952)		(1,176)

Recoveries of previously charged-off loans	Recoveries of previously charged-off loans	62		51		Recoveries of previously charged-off loans	374		208
Proceeds from the sale of other real estate owned	Proceeds from the sale of other real estate owned	287		350		Proceeds from the sale of other real estate owned	287		465
Net cash used in investing activities	Net cash used in investing activities	(111,220)		(39,877)		Net cash used in investing activities	(272,095)		(372,672)
Financing Activities	Financing Activities					Financing Activities
Net (decrease) increase in deposits	Net (decrease) increase in deposits	(32,225)		206,386		Net (decrease) increase in deposits	(81,828)		288,870
Net proceeds from borrowings less than 90 days	Net proceeds from borrowings less than 90 days	26,060		23,969		Net proceeds from borrowings less than 90 days	159,894		7,974

Repayments of Federal Home Loan Bank long-term advances	Repayments of Federal Home Loan Bank long-term advances	—		(25,000)		Repayments of Federal Home Loan Bank long-term advances	—		(25,000)

Repayment of subordinated debt						Repayment of subordinated debt	—		(15,000)

Common stock repurchases	Common stock repurchases	(542)		(11)		Common stock repurchases	(7,413)		(11)
Exercise of stock options and issuance of restricted stock, net of repurchase for tax withholdings	Exercise of stock options and issuance of restricted stock, net of repurchase for tax withholdings	(114)		(80)		Exercise of stock options and issuance of restricted stock, net of repurchase for tax withholdings	(390)		(308)
Cash dividends paid on common stock	Cash dividends paid on common stock	(5,911)		(4,934)		Cash dividends paid on common stock	(11,805)		(10,323)
Finance lease payments	Finance lease payments	(40)		(38)		Finance lease payments	(80)		(76)
Net cash (used in) provided by financing activities		(12,772)		200,292
Net (decrease) increase in cash, cash equivalents and restricted cash		(81,242)		222,473
Net cash provided by financing activities						Net cash provided by financing activities	58,378		246,126
Net decrease in cash, cash equivalents and restricted cash						Net decrease in cash, cash equivalents and restricted cash	(144,202)		(42,041)
Cash, cash equivalents, and restricted cash at beginning of period	Cash, cash equivalents, and restricted cash at beginning of period	220,625		145,774		Cash, cash equivalents, and restricted cash at beginning of period	220,625		145,774
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	139,383	$	368,247	Cash, cash equivalents and restricted cash at end of period	$	76,423	$	103,733
Supplemental information	Supplemental information					Supplemental information
Transfer from available-for-sale securities to held-to-maturity securities1						Transfer from available-for-sale securities to held-to-maturity securities1	$	592,438	$	—
Interest paid	Interest paid	$	2,470	$	3,117	Interest paid	5,858		5,874
Income taxes paid	Income taxes paid	150		176		Income taxes paid	4,811		10,294

Unsettled common stock repurchase		67		—

Transfer from premises to other real estate owned	Transfer from premises to other real estate owned	—		204		Transfer from premises to other real estate owned	—		204

(1) During the three months ended June 30, 2022, the Company transferred securities from available-for-sale to held-to-maturity in a non-cash transaction. The amount of $592.4 million was the amortized cost basis of the securities as of the date of transfer. The fair value of the securities at the date of transfer was $520.3 million. The net pretax unrealized losses of $72.1 million was included in AOCI. Refer to Note 3 for further details.

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

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited consolidated interim financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures required by accounting principles generally accepted in the United States of America for complete presentation of financial statements. In the opinion of management, the consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the consolidated statements of condition of Camden National Corporation (the "Company") as of ~~March 31,~~June 30, 2022 and December 31, 2021, the consolidated statements of income for the three and six months ended ~~March 31,~~June 30, 2022 and 2021, the consolidated statements of comprehensive (loss) income for the three and six months ended ~~March 31,~~June 30, 2022 and 2021, the consolidated statements of changes in shareholders' equity for the three and six months ended ~~March 31,~~June 30, 2022 and 2021, and the consolidated statements of cash flows for the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021. The consolidated financial statements include the accounts of the Company and Camden National Bank (the "Bank"), a wholly-owned subsidiary of the Company (which includes the consolidated accounts of Healthcare Professional Funding Corporation ("HPFC") and Property A, Inc. as of and for the three and six months ended ~~March 31,~~June 30, 2022 and 2021). 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. ~~Such~~Any such reclassifications did not impact net income or shareholders' equity as previously reported. Net income reported for the three and six months ended ~~March 31,~~June 30, 2022, 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, 2021.

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

FRBB:

Federal Reserve Bank of Boston

ALCO:

Asset/Liability Committee

GAAP:

Generally accepted accounting principles in the United States

~~ALCO:~~ACL:

~~Asset/Liability Committee~~Allowance for credit losses

GDP:

Gross domestic product

~~ACL:~~AOCI:

~~Allowance for credit losses~~Accumulated other comprehensive income (loss)

HPFC:

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

~~AOCI:~~

~~Accumulated other comprehensive income (loss)~~

~~HTM:~~

~~Held-to-maturity~~

ASC:

Accounting Standards Codification

~~IRS:~~HTM:

~~Internal Revenue Service~~Held-to-maturity

ASU:

Accounting Standards Update

~~LGD:~~IRS:

~~Loss given default~~Internal Revenue Service

Bank:

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

~~LIBOR:~~LGD:

~~London Interbank Offered Rate~~Loss given default

BOLI:

Bank-owned life insurance

~~LTIP:~~LIBOR:

~~Long-Term Performance Share Plan~~London Interbank Offered Rate

Board ALCO:

Board of Directors' Asset/Liability Committee

~~Management ALCO:~~LTIP:

~~Management Asset/Liability Committee~~Long-Term Performance Share Plan

CARES Act:

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

~~MBS:~~Management ALCO:

~~Mortgage-backed security~~Management Asset/Liability Committee

CCTA:

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

~~MSPP:~~MBS:

~~Management Stock Purchase Plan~~Mortgage-backed security

CDs:

Certificate of deposits

~~N/A:~~MSPP:

~~Not applicable~~Management Stock Purchase Plan

CECL:

Current Expected Credit Losses

~~N.M.:~~N/A:

Not ~~meaningful~~applicable

Company:

Camden National Corporation

N.M.:

Not meaningful

CMO:

Collateralized mortgage obligation

OCC:

Office of the Comptroller of the Currency

~~CMO:~~CUSIP:

~~Collateralized mortgage obligation~~Committee on Uniform Securities Identification Procedures

OCI:

Other comprehensive income (loss)

~~CUSIP:~~DCRP:

~~Committee on Uniform Securities Identification Procedures~~Defined Contribution Retirement Plan

OREO:

Other real estate owned

~~DCRP:~~

~~Defined Contribution Retirement Plan~~

~~OTTI:~~

~~Other-than-temporary impairment~~

EPS:

Earnings per share

~~PD:~~OTTI:

~~Probability of default~~Other-than-temporary impairment

FASB:

Financial Accounting Standards Board

PD:

Probability of default

FDIC:

Federal Deposit Insurance Corporation

SBA:

U.S. Small Business Administration

~~FDIC:~~FHLB:

Federal ~~Deposit Insurance Corporation~~Home Loan Bank

SBA PPP:

U.S. Small Business Administration Paycheck Protection Program

~~FHLB:~~

~~Federal Home Loan Bank~~

~~SERP:~~

~~Supplemental executive retirement plans~~

FHLBB:

Federal Home Loan Bank of Boston

~~SOFR:~~SERP:

~~Secured Overnight Financing Rate~~Supplemental executive retirement plans

FHLMC:

Federal Home Loan Mortgage Corporation

~~TDR:~~SOFR:

~~Troubled-debt restructured loan~~Secured Overnight Financing Rate

FNMA:

Federal National Mortgage Association

TDR:

Troubled-debt restructured loan

FOMC:

Federal Open Market Committee

UBCT:

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

FRB:

Federal Reserve System Board of Governors

U.S.:

United States of America

~~FRBB:~~

~~Federal Reserve Bank of Boston~~

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS

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

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 ~~troubled debt restructuring~~TDRs and ~~write offs~~write-offs for entities ~~who~~that have adopted ASU 2016-13. ASU 2022-02 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the effect of ASU 2022-02 on its consolidated financial statements and does not anticipate a material impact upon adoption.

ASU No. 2022-01, Derivatives and Hedging (Topic 815): Fair Value ~~Hedging-~~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 ~~expands and~~ renames the ~~last-of-layer~~"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,~~, expands the scope~~ and provides additional guidance for entities that apply the portfolio layer method of hedge accounting in accordance with Topic 815. The amendment is effective for fiscal years beginning after December 15, 2022. The Company is currently evaluating the amendment and does not anticipate a material impact on its consolidated financial statements upon adoption of this guidance.

NOTE 3 – INVESTMENTS

Trading Securities

Trading securities are reported on the Company's consolidated statements of condition at fair value. As of ~~March 31,~~June 30, 2022 and December 31, 2021, the fair value of the Company's trading securities were ~~$4.1~~$3.8 million and $4.4 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)	(In thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value		(In thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
March 31, 2022
Obligations of U.S. government-sponsored enterprises		$	8,585	$	—	$	(915)	$	7,670
June 30, 2022										June 30, 2022
Obligations of states and political subdivisions	Obligations of states and political subdivisions	113,388		587		(2,019)		111,956		Obligations of states and political subdivisions	$	54,004	$	62	$	(320)	$	53,746
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	1,029,454		435		(69,051)		960,838		Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	642,019		91		(65,644)		576,466
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	341,998		145		(22,252)		319,891		Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	145,457		3		(8,890)		136,570
Subordinated corporate bonds	Subordinated corporate bonds	22,632		55		(1,233)		21,454		Subordinated corporate bonds	23,120		35		(1,814)		21,341
Total AFS debt securities	Total AFS debt securities	$	1,516,057	$	1,222	$	(95,470)	$	1,421,809	Total AFS debt securities	$	864,600	$	191	$	(76,668)	$	788,123
December 31, 2021	December 31, 2021									December 31, 2021
Obligations of U.S. government-sponsored enterprises	Obligations of U.S. government-sponsored enterprises	$	8,585	$	—	$	(241)	$	8,344	Obligations of U.S. government-sponsored enterprises	$	8,585	$	—	$	(241)	$	8,344
Obligations of states and political subdivisions	Obligations of states and political subdivisions	112,086		5,392		—		117,478		Obligations of states and political subdivisions	112,086		5,392		—		117,478
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	1,003,869		7,856		(11,468)		1,000,257		Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	1,003,869		7,856		(11,468)		1,000,257
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	361,781		2,835		(5,767)		358,849		Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	361,781		2,835		(5,767)		358,849
Subordinated corporate bonds	Subordinated corporate bonds	22,660		152		(254)		22,558		Subordinated corporate bonds	22,660		152		(254)		22,558
Total AFS debt securities	Total AFS debt securities	$	1,508,981	$	16,235	$	(17,730)	$	1,507,486	Total AFS debt securities	$	1,508,981	$	16,235	$	(17,730)	$	1,507,486

As of ~~March 31,~~June 30, 2022 and December 31, 2021, there was no allowance carried on AFS debt securities.

During 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 the transfer were $72.1 million, pre-tax, and were reported within AOCI. These unrealized losses will be amortized over the remaining life of the securities. At June 30, 2022, the net unrealized losses on the transferred securities reported within AOCI were $56.0 million, net of a deferred tax asset of $15.3 million.

The net unrealized losses on AFS debt securities reported within AOCI at ~~March 31,~~June 30, 2022, were ~~$74.0~~$60.0 million, net of a deferred tax asset of ~~$20.3~~$16.4 million. The net unrealized losses on AFS debt securities reported within AOCI at December 31, 2021, were $1.2 million, net of a deferred tax asset of $321,000.

~~For~~The following table details the ~~three months ended March 31, 2022 and 2021, the Company did not sell any~~Company's sales of AFS debt ~~securities.~~securities for the periods indicated below:


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2022		2021		2022		2021
Proceeds from sales of investments	$	8,723	$	—	$	8,723	$	—
Gross realized gains	13		—		13		—
Gross realized losses	(22)		—		(22)		—

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						Less Than 12 Months				12 Months or More				Total
(In thousands, except number of holdings)	(In thousands, except number of holdings)	Number of Holdings	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		(In thousands, except number of holdings)	Number of Holdings	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
March 31, 2022
Obligations of U.S. government-sponsored enterprises		4	$	3,033	$	(352)	$	4,637	$	(563)	$	7,670	$	(915)
June 30, 2022															June 30, 2022
Obligations of states and political subdivisions	Obligations of states and political subdivisions	30	46,149		(2,019)		—		—		46,149		(2,019)		Obligations of states and political subdivisions	78	$	39,703	$	(320)	$	—	$	—	$	39,703	$	(320)
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	215	819,454		(58,095)		99,504		(10,956)		$	918,958	(69,051)		Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	170	500,257		(53,944)		70,192		(11,700)		$	570,449	(65,644)
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	98	196,036		(10,751)		102,752		(11,501)		298,788		(22,252)		Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	76	99,345		(5,562)		34,506		(3,328)		133,851		(8,890)
Subordinated corporate bonds	Subordinated corporate bonds	12	19,433		(1,199)		966		(34)		20,399		(1,233)		Subordinated corporate bonds	11	15,453		(1,668)		1,853		(146)		17,306		(1,814)
Total AFS debt securities	Total AFS debt securities	359	$	1,084,105	$	(72,416)	$	207,859	$	(23,054)	$	1,291,964	$	(95,470)	Total AFS debt securities	335	$	654,758	$	(61,494)	$	106,551	$	(15,174)	$	761,309	$	(76,668)

December 31, 2021	December 31, 2021														December 31, 2021
Obligations of U.S. government-sponsored enterprises	Obligations of U.S. government-sponsored enterprises	4	$	8,344	$	(241)	$	—	$	—	$	8,344	$	(241)	Obligations of U.S. government-sponsored enterprises	4	$	8,344	$	(241)	$	—	$	—	$	8,344	$	(241)
Obligations of states and political subdivisions		—	—		—		—		—		—		—

Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	113	659,851		(8,999)		61,978		(2,469)		721,829		(11,468)		Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	113	659,851		(8,999)		61,978		(2,469)		721,829		(11,468)
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	56	191,456		(4,602)		38,117		(1,165)		229,573		(5,767)		Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	56	191,456		(4,602)		38,117		(1,165)		229,573		(5,767)
Subordinated corporate bonds	Subordinated corporate bonds	7	11,932		(232)		979		(22)		12,911		(254)		Subordinated corporate bonds	7	11,932		(232)		979		(22)		12,911		(254)
Total AFS debt securities	Total AFS debt securities	180	$	871,583	$	(14,074)	$	101,074	$	(3,656)	$	972,657	$	(17,730)	Total AFS debt securities	180	$	871,583	$	(14,074)	$	101,074	$	(3,656)	$	972,657	$	(17,730)

For the three and six months ended ~~March 31,~~June 30, 2022 and 2021, 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 not reflective of credit events. The issuers continue to make timely principal and interest payments on the bonds.

At ~~March 31,~~June 30, 2022 and December 31, 2021, total accrued interest receivable on AFS debt securities, which has been excluded from reported amortized cost basis on AFS debt securities, was ~~$3.6~~$1.9 million and $3.4 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 ~~March 31,~~June 30, 2022, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-related securities are shown in total, as their maturities are highly variable.


(In thousands)	(In thousands)	Amortized Cost		Fair Value		(In thousands)	Amortized Cost		Fair Value
Due in one year or less	Due in one year or less	$	1,217	$	1,227	Due in one year or less	$	1,217	$	1,222
Due after one year through five years	Due after one year through five years	8,625		8,560		Due after one year through five years	9,227		8,762
Due after five years through ten years	Due after five years through ten years	88,087		86,586		Due after five years through ten years	63,681		62,078
Due after ten years	Due after ten years	46,676		44,707		Due after ten years	2,999		3,025
Subtotal	Subtotal	144,605		141,080		Subtotal	77,124		75,087
Mortgage-related securities	Mortgage-related securities	1,371,452		1,280,729		Mortgage-related securities	787,476		713,036
Total	Total	$	1,516,057	$	1,421,809	Total	$	864,600	$	788,123

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)	(In thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value		(In thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
March 31, 2022
June 30, 2022										June 30, 2022
Obligations of U.S. government-sponsored enterprises										Obligations of U.S. government-sponsored enterprises	$	7,389	$	—	$	(158)	$	7,231
Obligations of states and political subdivisions	Obligations of states and political subdivisions	$	1,290	$	10	$	—	$	1,300	Obligations of states and political subdivisions	55,837		223		(816)		55,244
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises										Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	329,542		—		(5,529)		324,013
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises										Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	151,384		—		(2,593)		148,791
Subordinated corporate bonds										Subordinated corporate bonds	2,368		—		(109)		2,259
Total HTM debt securities	Total HTM debt securities	$	1,290	$	10	$	—	$	1,300	Total HTM debt securities	$	546,520	$	223	$	(9,205)	$	537,538
December 31, 2021	December 31, 2021									December 31, 2021
Obligations of states and political subdivisions	Obligations of states and political subdivisions	$	1,291	$	89	$	—	$	1,380	Obligations of states and political subdivisions	$	1,291	$	89	$	—	$	1,380
Total HTM debt securities	Total HTM debt securities	$	1,291	$	89	$	—	$	1,380	Total HTM debt securities	$	1,291	$	89	$	—	$	1,380

During the second quarter of 2022, the Company transferred securities with a fair value of $520.3 million from AFS to HTM.

As of ~~March 31,~~June 30, 2022, the Company's HTM debt securities portfolio was primarily comprised of holdings issued or guaranteed by U.S. government sponsored enterprises and municipal debt. Agency-backed and government-sponsored enterprise securities have a long 40 years of history with no credit losses, including during times of severe stress like the 2007-2008 financial crisis. 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. As of December

31, 2021, the Company’s HTM debt securities portfolio was made up of three investment grade municipal debt securities, of which two securities also carried credit enhancements. The HTM debt securities portfolio was comprised solely of high credit quality (rated AA or higher) state and municipal obligations. High credit quality state and municipal obligations have a history of zero to near-zero credit loss. As a result,Accordingly, the Company determined that the expected credit loss on its HTM portfolio was immaterial, and therefore, an allowance was not carried on its HTM debt securities at ~~March 31,~~June 30, 2022 or December 31, 2021.

As of ~~March 31,~~June 30, 2022 and December 31, 2021, none of the Company's HTM debt securities were past due or on non-accrual status. For the three and six months ended ~~March 31,~~June 30, 2022 and 2021, the Company did not recognize any interest income on non-accrual HTM debt securities. At ~~March 31,~~June 30, 2022 and December 31, 2021, total accrued interest receivable on HTM debt securities, which has been excluded from reported amortized cost basis on HTM debt securities, was ~~$8,000~~$1.4 million and $10,000, 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 HTM debt securities by contractual maturity at ~~March 31,~~June 30, 2022 are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


(In thousands)	(In thousands)	Amortized Cost		Fair Value		(In thousands)	Amortized Cost		Fair Value

Due in one year or less	Due in one year or less	$	—	$	—	Due in one year or less	$	—	$	—
Due after one year through five years	Due after one year through five years	866		875		Due after one year through five years	865		870
Due after five years through ten years	Due after five years through ten years	424		425		Due after five years through ten years	14,528		14,310
Due after ten years	Due after ten years	—		—		Due after ten years	50,201		49,554
Subtotal						Subtotal	65,594		64,734
Mortgage-related securities						Mortgage-related securities	480,926		472,804
Total	Total	$	1,290	$	1,300	Total	$	546,520	$	537,538

AFS and HTM Debt Securities Pledged

At ~~March 31,~~June 30, 2022 and December 31, 2021, AFS and HTM debt securities with an amortized cost of ~~$699.9~~$662.8 million and $640.1 million and estimated fair values of ~~$654.7~~$619.5 million and $641.2 million, respectively, were pledged to secure FHLBB advances, public deposits, and securities sold under agreements to repurchase and for other purposes required or permitted by law.

Other Investments

The Company's FHLBB and FRB common stock are reported at cost within other investments on the consolidated statements of condition. The Company evaluates these investments for impairment based on the ultimate recoverability of the par value. The Company did not record any impairment on its FHLBB and FRB stock for the three and six months ended ~~March 31,~~June 30, 2022 and 2021.

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)	(In thousands)	March 31, 2022		December 31, 2021		(In thousands)	June 30, 2022		December 31, 2021
FHLBB	FHLBB	$	4,813	$	4,906	FHLBB	$	9,057	$	4,906
FRB	FRB	5,374		5,374		FRB	5,374		5,374
Total other investments	Total other investments	$	10,187	$	10,280	Total other investments	$	14,431	$	10,280

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)	(In thousands)	March 31, 2022		December 31, 2021		(In thousands)	June 30, 2022		December 31, 2021
Commercial Loans:	Commercial Loans:					Commercial Loans:
Commercial real estate - non-owner-occupied	Commercial real estate - non-owner-occupied	$	1,181,622	$	1,178,185	Commercial real estate - non-owner-occupied	$	1,208,700	$	1,178,185
Commercial real estate - owner-occupied	Commercial real estate - owner-occupied	322,268		317,275		Commercial real estate - owner-occupied	324,214		317,275
Commercial	Commercial	403,352		363,695		Commercial	421,220		363,695
SBA PPP	SBA PPP	6,311		35,953		SBA PPP	2,509		35,953
Total commercial loans	Total commercial loans	1,913,553		1,895,108		Total commercial loans	1,956,643		1,895,108
Retail Loans:	Retail Loans:					Retail Loans:
Residential real estate	Residential real estate	1,392,199		1,306,447		Residential real estate	1,517,239		1,306,447
Home equity	Home equity	209,647		210,403		Home equity	230,865		210,403
Consumer	Consumer	18,819		19,516		Consumer	19,480		19,516
Total retail loans	Total retail loans	1,620,665		1,536,366		Total retail loans	1,767,584		1,536,366
Total loans	Total loans	$	3,534,218	$	3,431,474	Total loans	$	3,724,227	$	3,431,474

The loan balances for each portfolio segment presented above are net of their respective unamortized fair value mark discount on acquired loans and net of unamortized loan origination costs for the dates indicated:


(In thousands)	(In thousands)	March 31, 2022		December 31, 2021		(In thousands)	June 30, 2022		December 31, 2021
Net unamortized fair value mark discount on acquired loans	Net unamortized fair value mark discount on acquired loans	$	(513)	$	(593)	Net unamortized fair value mark discount on acquired loans	$	(467)	$	(593)
Net unamortized loan origination costs(1)	Net unamortized loan origination costs(1)	4,936		3,110		Net unamortized loan origination costs(1)	5,633		3,110
Total	Total	$	4,423	$	2,517	Total	$	5,166	$	2,517

(1) Net unamortized loan origination costs includes unrecognized origination fees for SBA PPP loans of ~~$220,000~~$67,000 and $1.2 million as of ~~March 31,~~June 30, 2022 and December 31, 2021, respectively.

The Company's lending activities are primarily conducted in Maine, but also include loan production offices in Massachusetts and New Hampshire. The Company originates single- and multi-family residential loans, commercial real estate loans, business loans, municipal loans and a variety of consumer loans. In addition, the Company makes loans for the construction of residential homes, multi-family properties and commercial real estate properties. The ability and willingness of borrowers to honor their repayment commitments is generally dependent on the level of overall economic activity within the geographic area and the general economy.

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. ~~The~~ SBA PPP ~~loan~~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.

For the year ended December 31, 2021, the Company originated 1,620 SBA PPP loans totaling $102.2 million to qualifying businesses across our markets in need of financial support due to the COVID-19 pandemic. Of these SBA PPP loans originated during the year ended December 31, 2021, 6919 loans totaling ~~$6.3~~$2.5 million remained outstanding as of ~~March 31,~~June 30, 2022.

For the year ended December 31, 2020, the Company originated 3,034 SBA PPP loans totaling $244.8 million. Of these SBA PPP loans originated during the year ended December 31, 2020, 12 loans totaling $16,000 remain outstanding as of March 31, 2022.

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 ~~March 31,~~June 30, 2022 and December 31, 2021, outstanding loans to certain officers, directors and their associated companies ~~was~~were less than 5% of the Company's shareholders' equity.

Loan Sales

For the three months ended ~~March 31,~~June 30, 2022 and 2021, the Company sold ~~$46.6~~$47.0 million and ~~$192.6~~$110.8 million, respectively, of residential mortgage loans on the secondary market, which resulted in gains on the sale of loans (net of costs) of ~~$1.1~~$1.0 million and ~~$6.2~~$2.9 million, respectively. For the six months ended June 30, 2022 and 2021, the Company sold $93.7 million and $303.4 million, respectively, of residential mortgage loans on the secondary market, which resulted in gains on the sale of loans (net of costs) of $2.2 million and $9.1 million, respectively.

At ~~March 31,~~June 30, 2022 and December 31, 2021, the Company had certain residential mortgage loans with a principal balance of ~~$6.8~~$3.4 million and $5.8 million, respectively, designated as held for sale. The Company has elected the fair value option of accounting for its loans held for sale, and at ~~March 31,~~June 30, 2022 and December 31, 2021, recorded an unrealized (loss) gain of ($~~113,000)~~40,000) and $29,000, respectively. For the three months ended ~~March 31,~~June 30, 2022 and 2021, the Company recorded an unrealized gain on loans held for sale recorded within mortgage banking income, net, on the Company's consolidated statements of income of $73,000 and $267,000, respectively. For the six months ended June 30, 2022 and 2021, the Company recorded an unrealized loss on loans held for sale recorded within mortgage banking income, net, on the Company's consolidated statements of income of ~~$142,000~~($69,000) and ~~$1.1 million,~~($804,000) respectively.

The Company has forward delivery commitments with a secondary market investor on each of its loans held for sale at ~~March 31,~~June 30, 2022 and December 31, 2021. 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 ~~March 31,~~June 30, 2022 and December 31, 2021, the Company's loan portfolio segments, as determined based on the unique risk characteristics of each, include the following:

Commercial Real Estate - Non-Owner-Occupied. Non-owner occupied commercial real estate loans are, in substance, all commercial real estate loans that are not categorized by the Company as owner-occupied commercial real estate loans. ~~Non-owner-occupied~~Non-

owner-occupied commercial estate loans are investment properties in which the primary source for repayment of the loan by the borrower is derived from rental income associated with the property or the proceeds of the sale, refinancing, or permanent refinancing of the property. Non-owner-occupied commercial real estate loans consist of mortgage loans to finance investments

in real property that may include, but are not limited to, multi-family residential, commercial/retail office space, industrial/warehouse space, hotels, assisted living facilities and other specific use properties. Also included within the non-owner-occupied commercial real estate loan segment are construction projects until they are completed. Commercial real estate loans are typically written with amortizing payment structures. Collateral values are determined based upon appraisals and evaluations in accordance with established policy guidelines. Maximum loan-to-value ratios at origination are governed by established policy and regulatory guidelines.

Commercial Real Estate - Owner-Occupied. Generally, owner-occupied commercial real estate loans are properties that are owned and operated by the borrower, and the primary source for repayment is the cash flow from the ongoing operations and activities conducted by the borrower's business. Owner-occupied commercial real estate loans consist of mortgage loans to finance investments in real property that may include, but are not limited to, commercial/retail office space, restaurants, educational and medical practice facilities and other specific use properties. Commercial real estate loans are typically written with amortizing payment structures. Collateral values are determined based upon appraisals and evaluations in accordance with established policy guidelines. Maximum loan-to-value ratios at origination are governed by established policy and regulatory guidelines.

Commercial. Commercial loans consist of revolving and term loan obligations extended to business and corporate enterprises for the purpose of financing working capital and/or capital investment. Collateral generally consists of pledges of business assets including, but not limited to, accounts receivable, inventory, plant and equipment, and/or real estate, if applicable. Commercial loans are primarily paid by the operating cash flow of the borrower. Commercial loans may be secured or unsecured.

SBA PPP. SBA PPP loans are unsecured, fully guaranteed commercial loans backed by the SBA, issued to qualifying small businesses as part of federal stimulus issued in response to the COVID-19 pandemic. Loans made under the program have terms of two or five years and are to be used by the borrower to offset certain payroll and other operating costs, such as rent and utilities. The loan and accrued interest, or a portion thereof, are eligible for forgiveness by the SBA should the qualifying small business meet certain conditions. SBA PPP loans were originated under the guidance of the SBA, which has been subject to change. Effective May 31, 2021, the SBA PPP loan program ended and the Company ceased originating loans under this program.

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, as reported under CECL, for the periods indicated:


		Commercial Real Estate																	Commercial Real Estate
(In thousands)	(In thousands)	Non-Owner-Occupied		Owner- Occupied		Commercial		SBA PPP		Residential Real Estate		Home Equity		Consumer		Total		(In thousands)	Non-Owner-Occupied		Owner- Occupied		Commercial		SBA PPP		Residential Real Estate		Home Equity		Consumer		Total
At or For The Three Months Ended March 31, 2022
At or For The Three Months Ended June 30, 2022																		At or For The Three Months Ended June 30, 2022

Beginning balance, December 21, 2021		$	18,834	$	2,539	$	4,183	$	19	$	6,133	$	1,469	$	79	$	33,256
Beginning balance, March 31, 2022																		Beginning balance, March 31, 2022	$	16,572	$	2,339	$	4,838	$	4	$	6,476	$	1,435	$	106	$	31,770
Loans charged off	Loans charged off	—		—		(245)		—		—		—		(67)		(312)		Loans charged off	—		—		(316)		—		(16)		—		(17)		(349)
Recoveries	Recoveries	1		2		57		—				—		2		62		Recoveries	—		—		223		—		—		86		3		312
(Credit) provision for loan losses	(Credit) provision for loan losses	(2,263)		(202)		843		(15)		343		(34)		92		(1,236)		(Credit) provision for loan losses	(362)		162		400		(3)		1,978		275		61		2,511
Ending balance, March 31, 2022		$	16,572	$	2,339	$	4,838	$	4	$	6,476	$	1,435	$	106	$	31,770

Ending balance, June 30, 2022																		Ending balance, June 30, 2022	$	16,210	$	2,501	$	5,145	$	1	$	8,438	$	1,796	$	153	$	34,244
At or For The Six Months Ended June 30, 2022																		At or For The Six Months Ended June 30, 2022
Beginning balance, December 31, 2021																		Beginning balance, December 31, 2021	$	18,834	$	2,539	$	4,183	$	19	$	6,133	$	1,469	$	79	$	33,256
Loans charged off																		Loans charged off	—		—		(561)		—		(16)		—		(84)		(661)
Recoveries																		Recoveries	1		2		280		—		—		86		5		374
(Credit) provision for loan losses																		(Credit) provision for loan losses	(2,625)		(40)		1,243		(18)		2,321		241		153		1,275
Ending balance, June 30, 2022																		Ending balance, June 30, 2022	$	16,210	$	2,501	$	5,145	$	1	$	8,438	$	1,796	$	153	$	34,244
At or For The Three Months Ended June 30, 2021																		At or For The Three Months Ended June 30, 2021
Beginning balance, March 31, 2021																		Beginning balance, March 31, 2021	$	22,473	$	2,548	$	5,170	$	87	$	3,093	$	2,176	$	228	$	35,775
Loans charged off																		Loans charged off	—		—		(259)		—		(35)		(107)		(19)		(420)
Recoveries																		Recoveries	—		3		67		—		70		—		17		157
(Credit) provision for loan losses																		(Credit) provision for loan losses	(2,896)		(35)		(636)		(21)		77		(4)		63		(3,452)
Ending balance, June 30, 2021																		Ending balance, June 30, 2021	$	19,577	$	2,516	$	4,342	$	66	$	3,205	$	2,065	$	289	$	32,060
At or For The Six Months Ended June 30, 2021																		At or For The Six Months Ended June 30, 2021
Beginning balance, December 31, 2020																		Beginning balance, December 31, 2020	$	21,778	$	2,832	$	6,703	$	69	$	3,474	$	2,616	$	393	$	37,865
Loans charged off																		Loans charged off	—		—		(406)		—		(88)		(145)		(68)		(707)
Recoveries																		Recoveries	—		5		110		—		70		—		23		208
(Credit) provision for loan losses																		(Credit) provision for loan losses	(2,201)		(321)		(2,065)		(3)		(251)		(406)		(59)		(5,306)
Ending balance, June 30, 2021																		Ending balance, June 30, 2021	$	19,577	$	2,516	$	4,342	$	66	$	3,205	$	2,065	$	289	$	32,060
At or For The Year Ended December 31, 2021	At or For The Year Ended December 31, 2021																	At or For The Year Ended December 31, 2021

Beginning balance, December 31, 2020	Beginning balance, December 31, 2020	$	21,778	$	2,832	$	6,703	$	69	$	3,474	$	2,616	$	393	$	37,865	Beginning balance, December 31, 2020	$	21,778	$	2,832	$	6,703	$	69	$	3,474	$	2,616	$	393	$	37,865
Loans charged off	Loans charged off	—		—		(799)		—		(92)		(162)		(111)		(1,164)		Loans charged off	—		—		(799)		—		(92)		(162)		(111)		(1,164)
Recoveries	Recoveries	—		9		220		—		107		4		32		372		Recoveries	—		9		220		—		107		4		32		372
(Credit) provision for loan losses	(Credit) provision for loan losses	(2,944)		(302)		(1,941)		(50)		2,644		(989)		(235)		(3,817)		(Credit) provision for loan losses	(2,944)		(302)		(1,941)		(50)		2,644		(989)		(235)		(3,817)
Ending balance, December 31, 2021	Ending balance, December 31, 2021	$	18,834	$	2,539	$	4,183	$	19	$	6,133	$	1,469	$	79	$	33,256	Ending balance, December 31, 2021	$	18,834	$	2,539	$	4,183	$	19	$	6,133	$	1,469	$	79	$	33,256

The ACL on loans ~~decreased $1.5~~increased $1.0 million during the ~~three~~six months ended ~~March 31,~~June 30, 2022, to ~~$31.8~~$34.2 million. The increase was driven by: (1) a softening overall economy and increasing likelihood of a forecasted recession, and (2) 9% loan growth during this period, that offset (3) a decrease ~~in the ACL on loans was primarily within the commercial real estate - non-owner-occupied loan segment driven by the release~~ of ~~$1.9~~$4.2 million of reserves that had been established for certain hospitality-related loans within the commercial real estate-non-owner occupied loan segment in response to the COVID-19 pandemic and the identified elevated credit risk itthe pandemic presented to these ~~loans. This~~loans at that time. As these loans meet certain predetermined credit metrics, the established reserve is released. As of June 30, 2022 and December 31, 2021, the allowance on these loans was ~~partially offset by provisions for loan losses provided for the commercial~~$768,000 and ~~residential real estate loan segments due to their strong loan growth for the three months ended March 31, 2022 of 11% and 7%,~~$5.0 million, respectively.

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 ~~March 31,~~June 30, 2022, the Company's total exposure to the lessors of nonresidential buildings' industry was ~~14%~~13% of total loans and ~~33%~~32% of total commercial real estate loans. There were no other industry exposures exceeding 10% of the Company's total loan portfolio as of ~~March 31,~~June 30, 2022.

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, are considered non-performing.

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


(In thousands)	(In thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total		(In thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
As of March 31, 2022
As of June 30, 2022																				As of June 30, 2022
Commercial real estate - non-owner-occupied	Commercial real estate - non-owner-occupied																			Commercial real estate - non-owner-occupied
Risk rating	Risk rating																			Risk rating
Pass (Grades 1-6)	Pass (Grades 1-6)	$	74,125	$	284,775	$	168,474	$	137,048	$	114,745	$	349,032	$	—	$	—	$	1,128,199	Pass (Grades 1-6)	$	211,579	$	277,547	$	160,694	$	131,091	$	112,844	$	276,717	$	—	$	—	$	1,170,472
Special mention (Grade 7)	Special mention (Grade 7)	—		170		7,427		279		116		7,173		—		—		15,165		Special mention (Grade 7)	—		169		7,551		273		81		480		—		—		8,554
Substandard (Grade 8)	Substandard (Grade 8)	—		138		1,463		214		9,840		26,603		—		—		38,258		Substandard (Grade 8)	—		134		1,408		210		8,156		19,766		—		—		29,674
Doubtful (Grade 9)	Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—		Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—
Total commercial real estate - non-owner-occupied	Total commercial real estate - non-owner-occupied	74,125		285,083		177,364		137,541		124,701		382,808		—		—		1,181,622		Total commercial real estate - non-owner-occupied	211,579		277,850		169,653		131,574		121,081		296,963		—		—		1,208,700
Commercial real estate - owner-occupied	Commercial real estate - owner-occupied																			Commercial real estate - owner-occupied
Risk rating	Risk rating																			Risk rating
Pass (Grades 1-6)	Pass (Grades 1-6)	24,431		84,414		30,518		46,348		41,889		86,341		—		—		313,941		Pass (Grades 1-6)	36,024		83,960		29,603		45,510		41,167		81,192		—		—		317,456
Special mention (Grade 7)	Special mention (Grade 7)	—		—		—		—		3,363		2,040		—		—		5,403		Special mention (Grade 7)	—		—		—		—		—		428		—		—		428
Substandard (Grade 8)	Substandard (Grade 8)	—		—		—		45		—		2,879		—		—		2,924		Substandard (Grade 8)	35		—		—		—		3,332		2,963		—		—		6,330
Doubtful (Grade 9)	Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—		Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—
Total commercial real estate - owner occupied	Total commercial real estate - owner occupied	24,431		84,414		30,518		46,393		45,252		91,260		—		—		322,268		Total commercial real estate - owner occupied	36,059		83,960		29,603		45,510		44,499		84,583		—		—		324,214
Commercial	Commercial																			Commercial
Risk rating	Risk rating																			Risk rating
Pass (Grades 1-6)	Pass (Grades 1-6)	32,660		83,095		41,233		41,933		22,172		37,822		104,222		34,552		397,689		Pass (Grades 1-6)	47,525		77,885		37,550		38,395		25,149		34,260		125,442		29,534		415,740
Special mention (Grade 7)	Special mention (Grade 7)	—		123		111		493		106		558		1,111		138		2,640		Special mention (Grade 7)	—		—		105		171		96		212		1,668		16		2,268
Substandard (Grade 8)	Substandard (Grade 8)	—		20		313		262		425		1,432		332		239		3,023		Substandard (Grade 8)	23		20		145		265		188		1,845		468		258		3,212
Doubtful (Grade 9)	Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—		Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—
Total commercial	Total commercial	32,660		83,238		41,657		42,688		22,703		39,812		105,665		34,929		403,352		Total commercial	47,548		77,905		37,800		38,831		25,433		36,317		127,578		29,808		421,220
SBA PPP	SBA PPP																			SBA PPP
Risk rating	Risk rating																			Risk rating
Pass (Grades 1-6)	Pass (Grades 1-6)	—		6,295		16		—		—		—		—		—		6,311		Pass (Grades 1-6)	—		2,507		2		—		—		—		—		—		2,509
Special mention (Grade 7)	Special mention (Grade 7)	—		—		—		—		—		—		—		—		—		Special mention (Grade 7)	—		—		—		—		—		—		—		—		—
Substandard (Grade 8)	Substandard (Grade 8)	—		—		—		—		—		—		—		—		—		Substandard (Grade 8)	—		—		—		—		—		—		—		—		—
Doubtful (Grade 9)	Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—		Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—
Total SBA PPP	Total SBA PPP	—		6,295		16		—		—		—		—		—		6,311		Total SBA PPP	—		2,507		2		—		—		—		—		—		2,509
Residential Real Estate	Residential Real Estate																			Residential Real Estate
Risk rating	Risk rating																			Risk rating
Pass (Grades 1-6)	Pass (Grades 1-6)	133,167		591,512		264,479		90,410		57,105		251,035		913		—		1,388,621		Pass (Grades 1-6)	294,790		591,023		256,977		83,952		54,798		231,980		383		—		1,513,903
Special mention (Grade 7)	Special mention (Grade 7)	—		—		—		—		—		227		—		—		227		Special mention (Grade 7)	—		—		—		—		—		224		—		—		224
Substandard (Grade 8)	Substandard (Grade 8)	—		—		—		—		63		3,288		—		—		3,351		Substandard (Grade 8)	—		—		—		—		61		3,051		—		—		3,112
Doubtful (Grade 9)	Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—		Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—
Total residential real estate	Total residential real estate	133,167		591,512		264,479		90,410		57,168		254,550		913		—		1,392,199		Total residential real estate	294,790		591,023		256,977		83,952		54,859		235,255		383		—		1,517,239
Home equity	Home equity																			Home equity
Risk rating	Risk rating																			Risk rating
Performing	Performing	2,802		722		427		5,630		9,469		11,548		165,756		12,148		208,502		Performing	18,517		706		349		5,217		8,719		10,437		174,348		11,831		230,124
Non-performing	Non-performing	—		—		—		—		40		191		724		190		1,145		Non-performing	—		—		—		—		—		187		367		187		741
Total home equity	Total home equity	2,802		722		427		5,630		9,509		11,739		166,480		12,338		209,647		Total home equity	18,517		706		349		5,217		8,719		10,624		174,715		12,018		230,865
Consumer	Consumer																			Consumer
Risk rating	Risk rating																			Risk rating
Performing	Performing	1,946		5,916		2,926		2,409		823		2,511		2,261		—		18,792		Performing	4,158		5,169		2,457		1,934		573		2,414		2,747		—		19,452
Non-performing	Non-performing	—		—		9		16		—		2		—		—		27		Non-performing	—		—		9		18		—		1		—		—		28
Total consumer	Total consumer	1,946		5,916		2,935		2,425		823		2,513		2,261		—		18,819		Total consumer	4,158		5,169		2,466		1,952		573		2,415		2,747		—		19,480
Total Loans	Total Loans	$	269,131	$	1,057,180	$	517,396	$	325,087	$	260,156	$	782,682	$	275,319	$	47,267	$	3,534,218	Total Loans	$	612,651	$	1,039,120	$	496,850	$	307,036	$	255,164	$	666,157	$	305,423	$	41,826	$	3,724,227


(In thousands)	(In thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total		(In thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
As of December 31, 2021	As of December 31, 2021																			As of December 31, 2021
Commercial real estate - non-owner-occupied	Commercial real estate - non-owner-occupied																			Commercial real estate - non-owner-occupied
Risk rating	Risk rating																			Risk rating
Pass (Grades 1-6)	Pass (Grades 1-6)	$	286,428	$	179,565	$	161,695	$	118,196	$	96,169	$	274,731	$	—	$	—	$	1,116,784	Pass (Grades 1-6)	$	286,428	$	179,565	$	161,695	$	118,196	$	96,169	$	274,731	$	—	$	—	$	1,116,784
Special mention (Grade 7)	Special mention (Grade 7)	171		7,266		286		119		4,294		10,590		—		—		22,726		Special mention (Grade 7)	171		7,266		286		119		4,294		10,590		—		—		22,726
Substandard (Grade 8)	Substandard (Grade 8)	350		1,518		217		9,942		391		26,257		—		—		38,675		Substandard (Grade 8)	350		1,518		217		9,942		391		26,257		—		—		38,675
Doubtful (Grade 9)	Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—		Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—
Total commercial real estate - non-owner-occupied	Total commercial real estate - non-owner-occupied	286,949		188,349		162,198		128,257		100,854		311,578		—		—		1,178,185		Total commercial real estate - non-owner-occupied	286,949		188,349		162,198		128,257		100,854		311,578		—		—		1,178,185
Commercial real estate - owner-occupied	Commercial real estate - owner-occupied																			Commercial real estate - owner-occupied
Risk rating	Risk rating																			Risk rating
Pass (Grades 1-6)	Pass (Grades 1-6)	91,328		39,082		31,409		43,786		46,466		56,682		—		—		308,753		Pass (Grades 1-6)	91,328		39,082		31,409		43,786		46,466		56,682		—		—		308,753
Special mention (Grade 7)	Special mention (Grade 7)	0		—		—		3,396		362		1,708		—		—		5,466		Special mention (Grade 7)	—		—		—		3,396		362		1,708		—		—		5,466
Substandard (Grade 8)	Substandard (Grade 8)	—		—		54		—		1,785		1,217		—		—		3,056		Substandard (Grade 8)	—		—		54		—		1,785		1,217		—		—		3,056
Doubtful (Grade 9)	Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—		Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—
Total commercial real estate - owner occupied	Total commercial real estate - owner occupied	91,328		39,082		31,463		47,182		48,613		59,607		—		—		317,275		Total commercial real estate - owner occupied	91,328		39,082		31,463		47,182		48,613		59,607		—		—		317,275
Commercial	Commercial																			Commercial
Risk rating	Risk rating																			Risk rating
Pass (Grades 1-6)	Pass (Grades 1-6)	91,102		43,757		44,925		23,895		13,818		27,743		80,775		31,586		357,601		Pass (Grades 1-6)	91,102		43,757		44,925		23,895		13,818		27,743		80,775		31,586		357,601
Special mention (Grade 7)	Special mention (Grade 7)	145		117		590		115		383		222		967		244		2,783		Special mention (Grade 7)	145		117		590		115		383		222		967		244		2,783
Substandard (Grade 8)	Substandard (Grade 8)	—		339		320		492		293		1,209		360		298		3,311		Substandard (Grade 8)	—		339		320		492		293		1,209		360		298		3,311
Doubtful (Grade 9)	Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—		Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—
Total commercial	Total commercial	91,247		44,213		45,835		24,502		14,494		29,174		82,102		32,128		363,695		Total commercial	91,247		44,213		45,835		24,502		14,494		29,174		82,102		32,128		363,695
SBA PPP	SBA PPP																			SBA PPP
Risk rating	Risk rating																			Risk rating
Pass (Grades 1-6)	Pass (Grades 1-6)	35,164		319		—		—		—		—		—		—		35,483		Pass (Grades 1-6)	35,164		319		—		—		—		—		—		—		35,483
Special mention (Grade 7)	Special mention (Grade 7)	470		—		—		—		—		—		—		—		470		Special mention (Grade 7)	470		—		—		—		—		—		—		—		470
Substandard (Grade 8)	Substandard (Grade 8)	—		—		—		—		—		—		—		—		—		Substandard (Grade 8)	—		—		—		—		—		—		—		—		—
Doubtful (Grade 9)	Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—		Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—
Total SBA PPP	Total SBA PPP	35,634		319		—		—		—		—		—		—		35,953		Total SBA PPP	35,634		319		—		—		—		—		—		—		35,953
Residential Real Estate	Residential Real Estate																			Residential Real Estate
Risk rating	Risk rating																			Risk rating
Pass (Grades 1-6)	Pass (Grades 1-6)	586,637		281,804		103,228		63,403		46,696		219,983		903		—		1,302,654		Pass (Grades 1-6)	586,637		281,804		103,228		63,403		46,696		219,983		903		—		1,302,654
Special mention (Grade 7)	Special mention (Grade 7)	—		—		—		—		—		230		—		—		230		Special mention (Grade 7)	—		—		—		—		—		230		—		—		230
Substandard (Grade 8)	Substandard (Grade 8)	—		—		—		—		—		3,563		—		—		3,563		Substandard (Grade 8)	—		—		—		—		—		3,563		—		—		3,563
Doubtful (Grade 9)	Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—		Doubtful (Grade 9)	—		—		—		—		—		—		—		—		—
Total residential real estate	Total residential real estate	586,637		281,804		103,228		63,403		46,696		223,776		903		—		1,306,447		Total residential real estate	586,637		281,804		103,228		63,403		46,696		223,776		903		—		1,306,447
Home equity	Home equity																			Home equity
Risk rating	Risk rating																			Risk rating
Performing	Performing	760		554		6,179		10,995		2,464		10,792		165,189		12,295		209,228		Performing	760		554		6,179		10,995		2,464		10,792		165,189		12,295		209,228
Non-performing	Non-performing	—		—		—		41		—		174		847		113		1,175		Non-performing	—		—		—		41		—		174		847		113		1,175
Total home equity	Total home equity	760		554		6,179		11,036		2,464		10,966		166,036		12,408		210,403		Total home equity	760		554		6,179		11,036		2,464		10,966		166,036		12,408		210,403
Consumer	Consumer																			Consumer
Risk rating	Risk rating																			Risk rating
Performing	Performing	6,860		3,523		3,089		1,051		548		2,014		2,399		—		19,484		Performing	6,860		3,523		3,089		1,051		548		2,014		2,399		—		19,484
Non-performing	Non-performing	—		9		21		—		—		2		—		—		32		Non-performing	—		9		21		—		—		2		—		—		32
Total consumer	Total consumer	6,860		3,532		3,110		1,051		548		2,016		2,399		—		19,516		Total consumer	6,860		3,532		3,110		1,051		548		2,016		2,399		—		19,516
Total Loans	Total Loans	$	1,099,415	$	557,853	$	352,013	$	275,431	$	213,669	$	637,117	$	251,440	$	44,536	$	3,431,474	Total Loans	$	1,099,415	$	557,853	$	352,013	$	275,431	$	213,669	$	637,117	$	251,440	$	44,536	$	3,431,474

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)	(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		(In thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loans Outstanding		Loans > 90 Days Past Due and Accruing
March 31, 2022
June 30, 2022																June 30, 2022
Commercial real estate - non-owner-occupied	Commercial real estate - non-owner-occupied	$	91	$	—	$	50	$	141	$	1,181,481	$	1,181,622	$	—	Commercial real estate - non-owner-occupied	$	92	$	—	$	49	$	141	$	1,208,559	$	1,208,700	$	—
Commercial real estate - owner-occupied	Commercial real estate - owner-occupied	—		—		133		133		322,135		322,268		0		Commercial real estate - owner-occupied	—		166		133		299		323,915		324,214		0
Commercial	Commercial	98		71		822		991		402,361		403,352		—		Commercial	325		20		643		988		420,232		421,220		—
SBA PPP	SBA PPP	—		1		—		1		6,310		6,311		—		SBA PPP	—		46		—		46		2,463		2,509		—
Residential real estate	Residential real estate	565		302		1,242		2,109		1,390,090		1,392,199		—		Residential real estate	1,123		61		945		2,129		1,515,110		1,517,239		—
Home equity	Home equity	320		148		412		880		208,767		209,647		—		Home equity	466		116		410		992		229,873		230,865		—
Consumer	Consumer	42		8		27		77		18,742		18,819		—		Consumer	51		13		27		91		19,389		19,480		—
Total	Total	$	1,116	$	530	$	2,686	$	4,332	$	3,529,886	$	3,534,218	$	—	Total	$	2,057	$	422	$	2,207	$	4,686	$	3,719,541	$	3,724,227	$	—
December 31, 2021	December 31, 2021															December 31, 2021
Commercial real estate - non-owner-occupied	Commercial real estate - non-owner-occupied	$	—	$	—	$	51	$	51	$	1,178,134	$	1,178,185	$	—	Commercial real estate - non-owner-occupied	$	—	$	—	$	51	$	51	$	1,178,134	$	1,178,185	$	—
Commercial real estate - owner-occupied	Commercial real estate - owner-occupied	47		—		133		180		317,095		317,275		—		Commercial real estate - owner-occupied	47		—		133		180		317,095		317,275		—
Commercial	Commercial	282		174		787		1,243		362,452		363,695		—		Commercial	282		174		787		1,243		362,452		363,695		—
SBA PPP	SBA PPP	—		68		—		68		35,885		35,953		—		SBA PPP	—		68		—		68		35,885		35,953		—
Residential real estate	Residential real estate	379		475		1,210		2,064		1,304,383		1,306,447		—		Residential real estate	379		475		1,210		2,064		1,304,383		1,306,447		—
Home equity	Home equity	456		50		445		951		209,452		210,403		—		Home equity	456		50		445		951		209,452		210,403		—
Consumer	Consumer	95		1		32		128		19,388		19,516		—		Consumer	95		1		32		128		19,388		19,516		—
Total	Total	$	1,259	$	768	$	2,658	$	4,685	$	3,426,789	$	3,431,474	$	—	Total	$	1,259	$	768	$	2,658	$	4,685	$	3,426,789	$	3,431,474	$	—

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


		March 31, 2022						December 31, 2021							June 30, 2022						December 31, 2021
(In thousands)	(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		(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	Commercial real estate - non-owner-occupied	$	38	$	12	$	50	$	38	$	13	$	51	Commercial real estate - non-owner-occupied	$	38	$	12	$	50	$	38	$	13	$	51
Commercial real estate - owner-occupied	Commercial real estate - owner-occupied	86		47		133		86		47		133		Commercial real estate - owner-occupied	85		47		132		86		47		133
Commercial	Commercial	948		97		1,045		785		44		829		Commercial	371		352		723		785		44		829
Residential real estate	Residential real estate	1,672		380		2,052		1,780		327		2,107		Residential real estate	1,463		368		1,831		1,780		327		2,107
Home equity	Home equity	1,036		109		1,145		1,064		111		1,175		Home equity	675		66		741		1,064		111		1,175
Consumer	Consumer	27		—		27		32		—		32		Consumer	28		—		28		32		—		32
Total	Total	$	3,807	$	645	$	4,452	$	3,785	$	542	$	4,327	Total	$	2,660	$	845	$	3,505	$	3,785	$	542	$	4,327

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


		March 31, 2022								December 31, 2021												June 30, 2022									December 31, 2021
		Collateral Type				Total Collateral -Dependent Non-Accrual Loans				Collateral Type							Total Collateral -Dependent Non-Accrual Loans					Collateral Type							Total Collateral -Dependent Non-Accrual Loans		Collateral Type				Total Collateral -Dependent Non-Accrual Loans
(In thousands)	(In thousands)	Real Estate		General Business Assets				Real Estate				General Business Assets				(In thousands)			Real Estate				General Business Assets				Real Estate				General Business Assets

Residential real estate	Residential real estate	$	329	—				$	329			$	268			—				$	268	Residential real estate		$	325			$		—	$	325	$	268	$	—	$	268
Home equity	Home equity	109		—		109				111				—			111		Home equity			—			—				—		111		—		111

Total	Total	$	438	$	—	$	438			$	379			$	—		$	379	Total			$	325		$	—			$	325	$	379	$	—	$	379

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 ~~$46,000~~$38,000 and ~~$76,000~~$67,000 for the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively. For the six months ended June 30, 2022 and 2021, 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 $85,000 and $143,000, 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 six months ended ~~March 31,~~June 30, 2022 and 2021. An immaterial amount of accrued interest on non-accrual loans was written-off during the three and six months ended ~~March 31,~~June 30, 2022 and 2021, by reversing interest income. At ~~March 31,~~June 30, 2022 and December 31, 2021, total accrued interest receivable on loans, which has been excluded from reported amortized cost basis on loans, was ~~$8.0~~$8.5 million and $7.8 million, respectively, and reported within other assets on the consolidated statements of condition. An allowance was not carried on the accrued interest receivable at either date.

TDRs

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

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


		Number of Contracts		Recorded Investment				Specific Reserve					Number of Contracts		Recorded Investment				Specific Reserve
(In thousands, except number of contracts)	(In thousands, except number of contracts)	March 31, 2022	December 31, 2021	March 31, 2022		December 31, 2021		March 31, 2022		December 31, 2021		(In thousands, except number of contracts)	June 30, 2022	December 31, 2021	June 30, 2022		December 31, 2021		June 30, 2022		December 31, 2021
Commercial real estate - owner-occupied	Commercial real estate - owner-occupied	1	1	$	118	$	118	$	45	$	43	Commercial real estate - owner-occupied	1	1	$	116	$	118	$	46	$	43
Commercial	Commercial	2	2	70		74		—		—		Commercial	2	2	66		74		—		—
Residential real estate	Residential real estate	19	19	2,303		2,341		332		$	348	Residential real estate	19	19	2,276		2,341		325		$	348
Consumer and home equity	Consumer and home equity	3	3	249		253		6		6		Consumer and home equity	3	3	251		253		6		6
Total	Total	25	25	$	2,740	$	2,786	$	383	$	397	Total	25	25	$	2,709	$	2,786	$	377	$	397

At ~~March 31,~~June 30, 2022, the Company had performing and non-performing TDRs with a recorded investment balance of $2.3 million and ~~$438,000,~~$393,000, respectively. At December 31, 2021, the Company had performing and non-performing TDRs with a recorded investment balance of $2.4 million and $394,000, respectively.

The following represents loan modifications that qualify as TDRs that occurred during the periods indicated:


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

(In thousands, except number of contracts)	(In thousands, except number of contracts)	2022	2021	2022		2021		2022		2021		2022		2021		(In thousands, except number of contracts)	2022	2021	2022		2021		2022		2021		2022		2021
For the Three Months Ended June 30:																For the Three Months Ended June 30:
Home equity:																Home equity:
Maturity concession																Maturity concession	—	1	$	—	$	144	$	—	$	143	$	—	$	6

For the Three Months Ended March 31:
Total																Total	—	1	$	—	$	144	$	—	$	143	$	—	$	6
For the Six Months Ended June 30:																For the Six Months Ended June 30:
Home equity:	Home equity:															Home equity:
Interest rate concession and payment deferral	Interest rate concession and payment deferral	—	1	$	—	$	159	$	—	$	170	$	—	$	56	Interest rate concession and payment deferral	—	1	$	—	$	159	$	—	$	170	$	—	$	56

Maturity concession																Maturity concession	—	1	—		144		—		143		—		6
Total	Total	—	1	$	—	$	159	$	—	$	170	$	—	$	56	Total	—	2	$	—	$	303	$	—	$	313	$	—	$	62

As of ~~March 31,~~June 30, 2022 and December 31, 2021, the Company did not have any material commitments to lend additional funds to borrowers with loans classified as TDRs.

For the three and six months ended ~~March 31,~~June 30, 2022 and 2021, no loans were modified as TDRs within the previous 12 months for which the borrower subsequently defaulted.

In-Process Foreclosure Proceedings

At ~~March 31,~~June 30, 2022 and December 31, 2021, the Company had ~~$1.2 million~~$607,000 and $888,000, 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. The carrying value of residential real estate and commercial loans pledged as collateral was $1.5 billion and $1.4 billion at ~~March 31,~~June 30, 2022 and December 31, 2021, 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. The Company did not have any long-term borrowings as of the dates indicated.


(In thousands)	(In thousands)	March 31, 2022		December 31, 2021		(In thousands)	June 30, 2022		December 31, 2021
Short-Term Borrowings:	Short-Term Borrowings:					Short-Term Borrowings:
Customer repurchase agreements	Customer repurchase agreements	$	237,668	$	211,608	Customer repurchase agreements	$	224,852	$	211,608

Overnight borrowings						Overnight borrowings	96,650		—
FHLBB borrowings						FHLBB borrowings	50,000		—

Total short-term borrowings	Total short-term borrowings	$	237,668	$	211,608	Total short-term borrowings	$	371,502	$	211,608

The Company's subordinated debentures were $44.3 million at both ~~March 31,~~June 30, 2022 and December 31, 2021. As of ~~March 31,~~June 30, 2022, the Company's subordinated debentures were comprised of two tranches of junior subordinated debentures. 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)	(In thousands)	March 31, 2022		December 31, 2021		(In thousands)	June 30, 2022		December 31, 2021
Customer Repurchase Agreements(1)(2):	Customer Repurchase Agreements(1)(2):					Customer Repurchase Agreements(1)(2):
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	$	127,988	$	120,846	Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	$	117,618	$	120,846
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	107,781		88,749		Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	107,234		88,749
Obligations of states and political subdivisions	Obligations of states and political subdivisions	1,899		2,013		Obligations of states and political subdivisions	—		2,013
Total	Total	$	237,668	$	211,608	Total	$	224,852	$	211,608

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

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

At ~~March 31,~~June 30, 2022 and December 31, 2021, certain customers held CDs totaling $616,000 and $728,000, 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)	(In thousands)	March 31, 2022		December 31, 2021		(In thousands)	June 30, 2022		December 31, 2021
Commitments to extend credit	Commitments to extend credit	$	888,975	$	834,533	Commitments to extend credit	$	881,631	$	834,533
Standby letters of credit	Standby letters of credit	6,785		7,952		Standby letters of credit	8,486		7,952
Total	Total	$	895,760	$	842,485	Total	$	890,117	$	842,485

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 ~~March 31,~~June 30, 2022 and December 31, 2021, the ACL on off-balance sheet credit exposures was ~~$3.4 million and~~ $3.2 ~~million, respectively.~~million. 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 ~~March 31,~~June 30, 2022 and 2021, the (credit) provision ~~(credit)~~ for credit losses on off-balance sheet credit exposures was ~~$161,000~~($166,000) and $49,000, respectively. For the six months ended June 30, 2022 and 2021, the credit for credit losses on off-balance sheet credit exposure was ($~~102,000), respectively.~~5,000) and ($53,000).

Legal Contingencies

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

Reserves are established for legal claims only when losses associated with the claims are judged to be probable, and the loss can be reasonably estimated. Assessments of litigation exposure are difficult because they involve inherently unpredictable factors including, but not limited to: whether the proceeding is in the early stages; whether damages are unspecified, unsupported, or uncertain; whether there is a potential for punitive or other pecuniary damages; whether the matter involves legal uncertainties, including novel issues of law; whether the matter involves multiple parties and/or jurisdictions; whether discovery has begun or is not complete; whether meaningful settlement discussions have commenced; and whether the lawsuit involves class allegations. In many lawsuits and arbitrations, it is not possible to determine whether a liability has been incurred or to estimate the ultimate or minimum amount of that liability until the case is close to resolution, in which case a reserve will not be recognized until that time. Assessments of class action litigation, which is generally more complex than other types of litigation, are particularly difficult, especially in the early stages of the proceeding when it is not known whether a class will be certified or how a potential class, if certified, will be defined. As a result, the Company may be unable to estimate reasonably possible losses with respect to every litigation matter it faces.

The Company did not have any material loss contingencies that were provided for and/or that are required to be disclosed as of ~~March 31,~~June 30, 2022 and December 31, 2021.

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 - Cash Flow Hedges of Interest Rate Risk

Interest Rate Contracts. The Company’s objectives in using interest rate derivatives are to add stability to interest income and expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed rate payments or the receipt of fixed rate amounts from a counterparty in exchange for the Company making variable-rate payments over the life of the agreements without exchange of the underlying notional amount. For the three and six months ended ~~March 31,~~June 30, 2022 and 2021, 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 ~~$256,000~~$1.8 million will be reclassified as a decrease to interest expense and an additional ~~$90,000~~$1.4 million will be reclassified as a decrease to interest income over the next 12 months.

Derivatives not Designated as Hedges

Customer Loan Swaps. Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.

Fixed Rate Mortgage Interest Rate Lock Commitments. As part of the origination process of a residential loan, the Company may enter into rate lock agreements with its borrower, which is considered an interest rate lock commitment. If the Company intends to sell the loan upon origination, it will account for the interest rate lock commitment as a derivative.

Forward Delivery Commitments. The Company typically enters into a forward delivery commitment with a secondary market investor, which has been approved by the Company within its normal governance process, at the onset of the loan origination process. The Company may enter into these arrangements with the secondary market investors on a "best effort" or "mandatory delivery" basis. The Company's normal practice is typically to enter into these arrangements on a "best effort" basis. The Company enters into these arrangements with the secondary market investors to manage its interest rate exposure. The Company accounts for the forward delivery commitment as a derivative upon origination of a loan identified as held for sale.

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						Derivative Assets					Derivative Liabilities
(In thousands)	(In thousands)	Notional Amount		Location	Fair Value		Notional Amount		Location	Fair Value		(In thousands)	Notional Amount		Location	Fair Value		Notional Amount		Location	Fair Value
March 31, 2022
June 30, 2022												June 30, 2022
Derivatives designated as hedging instruments:	Derivatives designated as hedging instruments:											Derivatives designated as hedging instruments:
Interest rate contracts(1)	Interest rate contracts(1)	$	110,000	Other assets	$	7,898	$	133,000	Accrued interest and other liabilities	$	6,426	Interest rate contracts(1)	$	110,000	Other assets	$	10,909	$	133,000	Accrued interest and other liabilities	$	5,836
Total derivatives designated as hedging instruments	Total derivatives designated as hedging instruments				$	7,898				$	6,426	Total derivatives designated as hedging instruments				$	10,909				$	5,836
Derivatives not designated as hedging instruments:	Derivatives not designated as hedging instruments:											Derivatives not designated as hedging instruments:
Customer loan swaps(1)	Customer loan swaps(1)	$	324,805	Other assets	$	7,843	$	324,805	Accrued interest and other liabilities	$	7,937	Customer loan swaps(1)	$	270,974	Other assets	$	7,272	$	270,974	Accrued interest and other liabilities	$	7,322
Risk participation agreements	Risk participation agreements	25,211		Other assets	—		53,294		Accrued interest and other liabilities	—		Risk participation agreements	22,055		Other assets	—		52,891		Accrued interest and other liabilities	—
Fixed Rate mortgage interest rate lock commitments	Fixed Rate mortgage interest rate lock commitments	10,167		Other assets	134		17,415		Accrued interest and other liabilities	313		Fixed Rate mortgage interest rate lock commitments	13,923		Other assets	170		6,583		Accrued interest and other liabilities	81
Forward delivery commitments	Forward delivery commitments	6,818		Other assets	246		—		Accrued interest and other liabilities	—		Forward delivery commitments	3,380		Other assets	91		—		Accrued interest and other liabilities	—
Total derivatives not designated as hedging instruments	Total derivatives not designated as hedging instruments				$	8,223				$	8,250	Total derivatives not designated as hedging instruments				$	7,533				$	7,403
December 31, 2021	December 31, 2021											December 31, 2021
Derivatives designated as hedging instruments:	Derivatives designated as hedging instruments:											Derivatives designated as hedging instruments:
Interest rate contracts(1)	Interest rate contracts(1)	$	160,000	Other assets	$	5,589	$	83,000	Accrued interest and other liabilities	$	7,872	Interest rate contracts(1)	$	160,000	Other assets	$	5,589	$	83,000	Accrued interest and other liabilities	$	7,872
Total derivatives designated as hedging instruments	Total derivatives designated as hedging instruments				$	5,589				$	7,872	Total derivatives designated as hedging instruments				$	5,589				$	7,872
Derivatives not designated as hedging instruments:	Derivatives not designated as hedging instruments:											Derivatives not designated as hedging instruments:
Customer loan swaps(1)	Customer loan swaps(1)	$	345,545	Other assets	$	19,297	$	345,545	Accrued interest and other liabilities	$	19,485	Customer loan swaps(1)	$	345,545	Other assets	$	19,297	$	345,545	Accrued interest and other liabilities	$	19,485
Risk participation agreements	Risk participation agreements	25,347		Other assets	—		53,704		Accrued interest and other liabilities	—		Risk participation agreements	25,347		Other assets	—		53,704		Accrued interest and other liabilities	—
Fixed rate mortgage interest rate lock commitments	Fixed rate mortgage interest rate lock commitments	20,437		Other assets	371		8,587		Accrued interest and other liabilities	91		Fixed rate mortgage interest rate lock commitments	20,437		Other assets	371		8,587		Accrued interest and other liabilities	91
Forward delivery commitments	Forward delivery commitments	3,882		Other assets	86		1,903		Accrued interest and other liabilities	6		Forward delivery commitments	3,882		Other assets	86		1,903		Accrued interest and other liabilities	6
Total derivatives not designated as hedging instruments	Total derivatives not designated as hedging instruments				$	19,754				$	19,582	Total derivatives not designated as hedging instruments				$	19,754				$	19,582

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

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


(Dollars in thousands)	(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		(Dollars in thousands)	Amount of Gain (Loss) Recognized in OCI on Derivative		Amount of Gain (Loss) Recognized in OCI Included Component		Amount of Gain (Loss) Recognized in OCI Excluded Component		Location of Gain (Loss) Recognized from AOCI into Income	Amount of Gain (Loss) Reclassified from AOCI into Income		Amount of Gain (Loss) Reclassified from AOCI into Income Included Component		Amount of Gain (Loss) Reclassified from AOCI into Income Excluded Component
Derivatives in Cash Flow Hedge Relationships:	Derivatives in Cash Flow Hedge Relationships:														Derivatives in Cash Flow Hedge Relationships:
For the Three Months Ended March 31, 2022
For the Three Months Ended June 30, 2022															For the Three Months Ended June 30, 2022
Interest rate contracts	Interest rate contracts	$	(3,011)	$	(3,011)	$	—	Interest and fees on loans	$	382	$	382	$	—	Interest rate contracts	$	(904)	$	(904)	$	—	Interest and fees on loans	$	237	$	237	$	—
Interest rate contracts	Interest rate contracts	3,488		3,488		—		Interest on deposits	(149)		(149)		—		Interest rate contracts	2,233		2,233		—		Interest on deposits	32		32		—

Interest rate contracts	Interest rate contracts	3,158		3,158		—		Interest on subordinated debentures	(351)		(351)		—		Interest rate contracts	2,259		2,259		—		Interest on subordinated debentures	(271)		(271)		—
Total	Total	$	3,635	$	3,635	$	—		$	(118)	$	(118)	$	—	Total	$	3,588	$	3,588	$	—		$	(2)	$	(2)	$	—

For the Three Months Ended March 31, 2021
For the Six Months Ended June 30, 2022															For the Six Months Ended June 30, 2022
Interest rate contracts	Interest rate contracts	$	(802)	$	(802)	$	—	Interest and fees on loans	$	392	$	392	$	—	Interest rate contracts	$	(3,915)	$	(3,915)	$	—	Interest and fees on loans	$	619	$	619	$	—
Interest rate contracts	Interest rate contracts	3,463		3,463		—		Interest on deposits	(156)		(156)		—		Interest rate contracts	5,721		5,721		—		Interest on deposits	(117)		(117)		—

Interest rate contracts	Interest rate contracts	$	3,731	3,731		0		Interest on subordinated debentures	(422)		(422)		0		Interest rate contracts	5,417		5,417		—		Interest on subordinated debentures	(622)		(622)		—
Total	Total	$	6,392	$	6,392	$	—		$	(186)	$	(186)	$	—	Total	$	7,223	$	7,223	$	—		$	(120)	$	(120)	$	—

For the Three Months Ended June 30, 2021															For the Three Months Ended June 30, 2021
Interest rate contracts															Interest rate contracts	$	66	$	66	$	—	Interest and fees on loans	$	403	$	403	$	—
Interest rate contracts															Interest rate contracts	(1,511)		(1,511)		—		Interest on deposits	(164)		(164)		—

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

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

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

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


		Location and Amount of Gain (Loss) Recognized in Income											Location and Amount of Gain (Loss) Recognized in Income
		Three Months Ended March 31,											Three Months Ended June 30,
		2022				2021							2022						2021
(Dollars in thousands)	(Dollars in thousands)	Interest and fees on loans		Interest on deposits		Interest on subordinated debentures		Interest and fees on loans		Interest on deposits				Interest on subordinated debentures		(Dollars in thousands)	Interest and fees on loans		Interest on deposits		Interest on subordinated debentures		Interest and fees on loans		Interest on deposits		Interest on subordinated debentures
Total presented on the consolidated statements of income in which the effects of cash flow hedges are recorded	Total presented on the consolidated statements of income in which the effects of cash flow hedges are recorded	$	32,035	$	1,833	$	529	$	30,560	$	2,063			$	805	Total presented on the consolidated statements of income in which the effects of cash flow hedges are recorded	$	33,121	$	2,510	$	532	$	30,865	$	1,921	$	640
Gain (loss) on cash flow hedging relationships	Gain (loss) on cash flow hedging relationships											Gain (loss) on cash flow hedging relationships
Interest rate contracts:	Interest rate contracts:											Interest rate contracts:
Amount of gain (loss) reclassified from AOCI into income	Amount of gain (loss) reclassified from AOCI into income	$	382	$	(149)	$	(351)	$	392	$	(156)			$	(422)	Amount of gain (loss) reclassified from AOCI into income	$	237	$	32	$	(271)	$	403	$	(164)	$	(431)
Amount of gain (loss) reclassified from AOCI into income - included component	Amount of gain (loss) reclassified from AOCI into income - included component	$	382	$	(149)	$	(351)	$	392	$	(156)			$	(422)	Amount of gain (loss) reclassified from AOCI into income - included component	$	237	$	32	$	(271)	$	403	$	(164)	$	(431)
Amount of gain (loss) reclassified from AOCI into income - excluded component	Amount of gain (loss) reclassified from AOCI into income - excluded component	$	—	$	—	$	—	$	—	$	—			$	—	Amount of gain (loss) reclassified from AOCI into income - excluded component	$	—	$	—	$	—	$	—	$	—	$	—


	Location and Amount of Gain (Loss) Recognized in Income
	Six Months Ended June 30,
	2022				2021
(Dollars in thousands)	Interest and fees on loans		Interest on deposits		Interest on subordinated debentures		Interest and fees on loans		Interest on deposits		Interest on subordinated debentures
Total presented on the consolidated statements of income in which the effects of cash flow hedges are recorded	$	65,156	$	4,343	$	1,061	$	61,425	$	3,984	$	1,445
Gain (loss) on cash flow hedging relationships
Interest rate contracts:
Amount of gain (loss) reclassified from AOCI into income	$	619	$	(117)	$	(622)	$	795	$	(320)	$	(853)
Amount of gain (loss) reclassified from AOCI into income - included component	$	619	$	(117)	$	(622)	$	795	$	(320)	$	(853)
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 Recognized in Income		Amount of Gain (Loss) Recognized in Income								Location of Gain (Loss) Recognized in Income		Amount of Gain (Loss) Recognized in Income
			Three Months Ended March 31,										Location of Gain (Loss) Recognized in Income			Three Months Ended June 30,							Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)		2022			2021										Location of Gain (Loss) Recognized in Income			2022				2021				2022				2021
Customer loan swaps	Customer loan swaps		Other expense			$	94			$	—									$	44			$	—			$	138			$	—
Fixed rate mortgage interest rate lock commitments	Fixed rate mortgage interest rate lock commitments		Mortgage banking income, net			(459)				945							Fixed rate mortgage interest rate lock commitments					268				(489)				(191)				456
Forward delivery commitments	Forward delivery commitments	Mortgage banking income, net		166				482							Forward delivery commitments			Mortgage banking income, net			(155)				(469)				11				13
Total	Total			$	(199)			$	1,427						Total					$	157			$	(958)			$	(42)			$	469

Credit Risk-Related Contingent Features

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

The Company has agreements with its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the

Company could also be declared in default on its derivative obligations. In addition, the Company also has agreements with certain of its derivative counterparties that contain a provision where if the Company fails to maintain its status as a well- capitalized institution, then the counterparty could terminate the derivative position(s) and the Company could be required to settle its obligations under the agreements.

As of ~~March 31,~~June 30, 2022 and December 31, 2021, 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 ~~$5.1~~$4.7 million and $26.1 million, respectively. As of ~~March 31,~~June 30, 2022 and December 31, 2021, the Company has minimum collateral posting thresholds with certain of its derivative counterparties and has posted cash collateral of ~~$7.2~~$1.8 million and $30.7 million, respectively. If the Company had breached any of these provisions at ~~March 31,~~June 30, 2022 or December 31, 2021, it could have been required to settle its obligations under the agreements at their termination value of ~~$5.1~~$4.7 million and $26.1 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													Gross Amount Not Offset in the Consolidated Statements of Condition
(In thousands)	(In thousands)	Gross Amount Recognized in the Consolidated Statements of Condition		Gross Amount Offset in the Consolidated Statements of Condition		Net Amount Presented in the Consolidated Statements of Condition		Financial Instruments Pledged (Received)(1)		Cash Collateral Pledged (Received)(1)		Net Amount		(In thousands)	Gross Amount Recognized in the Consolidated Statements of Condition		Gross Amount Offset in the Consolidated Statements of Condition		Net Amount Presented in the Consolidated Statements of Condition		Financial Instruments Pledged (Received)(1)		Cash Collateral Pledged (Received)(1)		Net Amount
March 31, 2022
June 30, 2022														June 30, 2022
Derivative assets:	Derivative assets:													Derivative assets:
Customer loan swaps - commercial customer(2)	Customer loan swaps - commercial customer(2)	$	7,843	$	—	$	7,843	$	—	$	—	$	7,843	Customer loan swaps - commercial customer(2)	$	7,272	$	—	$	7,272	$	—	$	—	$	7,272
Interest rate contracts(3)	Interest rate contracts(3)	7,898		—		7,898		—		(7,898)		—		Interest rate contracts(3)	10,909		—		10,909		—		(10,909)		—

Total	Total	$	15,741	$	—	$	15,741	$	—	$	(7,898)	$	7,843	Total	$	18,181	$	—	$	18,181	$	—	$	(10,909)	$	7,272
Derivative liabilities:	Derivative liabilities:													Derivative liabilities:
Customer loan swaps - dealer bank(3)	Customer loan swaps - dealer bank(3)	$	7,937	$	—	$	7,937	$	—	$	3,950	$	3,987	Customer loan swaps - dealer bank(3)	$	7,322	$	—	$	7,322	$	—	$	—	$	7,322
Interest rate contracts(3)	Interest rate contracts(3)	6,426		—		6,426		—		6,426		—		Interest rate contracts(3)	5,836		—		5,836		—		5,836		—

Total	Total	$	14,363	$	—	$	14,363	$	—	$	10,376	$	3,987	Total	$	13,158	$	—	$	13,158	$	—	$	5,836	$	7,322
Customer repurchase agreements	Customer repurchase agreements	$	237,668	$	—	$	237,668	$	237,668	$	—	$	—	Customer repurchase agreements	$	224,852	$	—	$	224,852	$	224,852	$	—	$	—
December 31, 2021	December 31, 2021													December 31, 2021
Derivative assets:	Derivative assets:													Derivative assets:
Customer loan swaps - commercial customer(2)	Customer loan swaps - commercial customer(2)	$	19,297	$	—	$	19,297	$	—	$	—	$	19,297	Customer loan swaps - commercial customer(2)	$	19,297	$	—	$	19,297	$	—	$	—	$	19,297
Interest rate contracts(3)	Interest rate contracts(3)	5,589		—		5,589		—		(5,529)		60		Interest rate contracts(3)	5,589		—		5,589		—		(5,529)		60

Total	Total	$	24,886	$	—	$	24,886	$	—	$	(5,529)	$	19,357	Total	$	24,886	$	—	$	24,886	$	—	$	(5,529)	$	19,357
Derivative liabilities:	Derivative liabilities:													Derivative liabilities:
Customer loan swaps - dealer bank(3)	Customer loan swaps - dealer bank(3)	$	19,485	$	—	19,485		$	—	$	19,485	$	—	Customer loan swaps - dealer bank(3)	$	19,485	$	—	19,485		$	—	$	19,485	$	—
Interest rate contracts(3)	Interest rate contracts(3)	7,872		—		7,872		—		6,603		1,269		Interest rate contracts(3)	7,872		—		7,872		—		6,603		1,269

Total	Total	$	27,357	$	—	$	27,357	$	—	$	26,088	$	1,269	Total	$	27,357	$	—	$	27,357	$	—	$	26,088	$	1,269
Customer repurchase agreements	Customer repurchase agreements	$	211,608	$	—	$	211,608	$	211,608	$	—	$	—	Customer repurchase agreements	$	211,608	$	—	$	211,608	$	211,608	$	—	$	—

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

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

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

NOTE 10 – REGULATORY CAPITAL REQUIREMENTS

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

The Company and Bank are required to maintain certain levels of capital based on risk-adjusted assets. These capital requirements represent quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Company and Bank's capital classification is also subject to qualitative judgments by our regulators about components, risk weightings and other factors. The quantitative measures established to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios of total capital, Tier 1 capital, and common equity Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets, or the leverage ratio. These 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 ~~March 31,~~June 30, 2022 and December 31, 2021, and the Bank's capital ratios met the requirements for it to be considered "well capitalized" under prompt corrective action provisions for each period. There were no changes to the Company or Bank's capital ratios that occurred subsequent to ~~March 31,~~June 30, 2022 that would change the Company or Bank's regulatory capital categorization. The following table presents the Company and Bank's regulatory capital ratios at the periods indicated:


		March 31, 2022				Minimum Regulatory Capital Required for Capital Adequacy plus Capital Conservation Buffer		Minimum Regulatory Provision to Be "Well Capitalized"			December 31, 2021					Minimum Regulatory Capital Required for Capital Adequacy plus Capital Conservation Buffer			Minimum Regulatory Provision To Be "Well Capitalized"			June 30, 2022				Minimum Regulatory Capital Required for Capital Adequacy plus Capital Conservation Buffer				Minimum Regulatory Provision to Be "Well Capitalized"				December 31, 2021							Minimum Regulatory Capital Required for Capital Adequacy plus Capital Conservation Buffer				Minimum Regulatory Provision To Be "Well Capitalized"
(Dollars in thousands)	(Dollars in thousands)	Amount		Ratio						Amount			Ratio					(Dollars in thousands)			Amount		Ratio						Amount					Ratio
Camden National Corporation:	Camden National Corporation:																					Camden National Corporation:
Total risk-based capital ratio	Total risk-based capital ratio	$	532,577	14.51	%	10.50	%	10.00	%		$	522,714		14.71	%	10.50	%		10.00	%	Total risk-based capital ratio	$	538,226	14.10	%		10.50		%		10.00		%		$	522,714		14.71		%		10.50		%		10.00		%
Tier 1 risk-based capital ratio	Tier 1 risk-based capital ratio	497,452		13.55	%	8.50	%	6.00	%		486,263			13.68	%	8.50	%		6.00	%	Tier 1 risk-based capital ratio	500,793		13.12	%	8.50		%		6.00		%		486,263			13.68		%		8.50		%		6.00		%
Common equity Tier 1 risk-based capital ratio(1)	Common equity Tier 1 risk-based capital ratio(1)	454,452		12.38	%	7.00	%	N/A			443,263			12.47	%	7.00	%		N/A		Common equity Tier 1 risk-based capital ratio(1)	457,793		11.99	%	7.00		%		N/A				443,263			12.47		%		7.00		%		N/A
Tier 1 leverage capital ratio(1)	Tier 1 leverage capital ratio(1)	497,452		9.30	%	4.00	%	N/A			486,263			8.92	%	4.00	%		N/A		Tier 1 leverage capital ratio(1)	500,793		9.25	%	4.00		%		N/A				486,263			8.92		%		4.00		%		N/A
Camden National Bank:	Camden National Bank:																				Camden National Bank:
Total risk-based capital ratio	Total risk-based capital ratio	$	496,376	13.56	%	10.50	%	10.00	%		$	488,070		13.78	%	10.50	%		10.00	%	Total risk-based capital ratio	$	506,550	13.30	%	10.50		%		10.00		%		$	488,070		13.78		%		10.50		%		10.00		%
Tier 1 risk-based capital ratio	Tier 1 risk-based capital ratio	461,251		12.60	%	8.50	%	8.00	%		451,620			12.75	%	8.50	%		8.00	%	Tier 1 risk-based capital ratio	469,117		12.32	%	8.50		%		8.00		%		451,620			12.75		%		8.50		%		8.00		%
Common equity Tier 1 risk-based capital ratio	Common equity Tier 1 risk-based capital ratio	461,251		12.60	%	7.00	%	6.50	%		451,620			12.75	%	7.00	%		6.50	%	Common equity Tier 1 risk-based capital ratio	469,117		12.32	%	7.00		%		6.50		%		451,620			12.75		%		7.00		%		6.50		%
Tier 1 leverage capital ratio	Tier 1 leverage capital ratio	461,251		8.65	%	4.00	%	5.00	%		451,620			8.31	%	4.00	%		5.00	%	Tier 1 leverage capital ratio	469,117		8.67	%	4.00		%		5.00		%		451,620			8.31		%		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, subject to certain limits, the debentures within its calculation of risk-based capital. At ~~March 31,~~June 30, 2022 and December 31, 2021, $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													For the Three Months Ended
		March 31, 2022						March 31, 2021							June 30, 2022						June 30, 2021
(In thousands)	(In thousands)	Pre-Tax Amount		Tax (Expense) Benefit		After-Tax Amount		Pre-Tax Amount		Tax (Expense) Benefit		After-Tax Amount		(In thousands)	Pre-Tax Amount		Tax (Expense) Benefit		After-Tax Amount		Pre-Tax Amount		Tax (Expense) Benefit		After-Tax Amount
AFS Debt Securities:
Debt Securities:														Debt Securities:
Change in fair value	Change in fair value	$	(92,753)	$	19,942	$	(72,811)	$	(22,305)	$	4,796	$	(17,509)	Change in fair value	$	(53,580)	$	11,520	$	(42,060)	$	2,925	$	(629)	$	2,296

Less: reclassification adjustment for net realized losses(1)														Less: reclassification adjustment for net realized losses(1)	(9)		2		(7)		—		—		—
Net change in fair value	Net change in fair value	(92,753)		19,942		(72,811)		(22,305)		4,796		(17,509)		Net change in fair value	(53,571)		11,518		(42,053)		2,925		(629)		2,296
Cash Flow Hedges:	Cash Flow Hedges:													Cash Flow Hedges:
Change in fair value	Change in fair value	3,635		(782)		2,853		6,392		(1,374)		5,018		Change in fair value	3,588		(771)		2,817		(3,203)		689		(2,514)
Less: reclassified AOCI loss into interest expense~~(1)~~(2)	Less: reclassified AOCI loss into interest expense~~(1)~~(2)	(500)		108		(392)		(578)		124		(454)		Less: reclassified AOCI loss into interest expense~~(1)~~(2)	(239)		51		(188)		(595)		128		(467)
Less: reclassified AOCI gain into interest income~~(2)~~(3)	Less: reclassified AOCI gain into interest income~~(2)~~(3)	382		(82)		300		392		(84)		308		Less: reclassified AOCI gain into interest income~~(2)~~(3)	237		(51)		186		403		(86)		317
Net change in fair value	Net change in fair value	3,753		(808)		2,945		6,578		(1,414)		5,164		Net change in fair value	3,590		(771)		2,819		(3,011)		647		(2,364)
Postretirement Plans:	Postretirement Plans:													Postretirement Plans:

Amortization of settlement recognition of net loss and prior service credit~~(3)~~(4)	Amortization of settlement recognition of net loss and prior service credit~~(3)~~(4)	232		(50)		182		218		(48)		170		Amortization of settlement recognition of net loss and prior service credit~~(3)~~(4)	231		(50)		181		217		(46)		171
Other comprehensive loss		$	(88,768)	$	19,084	$	(69,684)	$	(15,509)	$	3,334	$	(12,175)
Other comprehensive (loss) income														Other comprehensive (loss) income	$	(49,750)	$	10,697	$	(39,053)	$	131	$	(28)	$	103

(1) 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.

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

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

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


	For the Six Months Ended
	June 30, 2022						June 30, 2021
(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	$	(146,333)	$	31,462	$	(114,871)	$	(19,380)	$	4,167	$	(15,213)
Less: reclassification adjustment for net realized losses(1)	(9)		2		(7)		—		—		—
Net change in fair value	(146,324)		31,460		(114,864)		(19,380)		4,167		(15,213)
Cash Flow Hedges:
Change in fair value	7,223		(1,553)		5,670		3,189		(685)		2,504
Less: reclassified AOCI loss into interest expense(2)	(739)		159		(580)		(1,173)		252		(921)
Less: reclassified AOCI gain into interest income(3)	619		(133)		486		795		(170)		625
Net change in fair value	7,343		(1,579)		5,764		3,567		(767)		2,800
Postretirement Plans:



Amortization of settlement recognition of net loss and prior service credit(4)	463		(100)		363		435		(94)		341
Other comprehensive loss	$	(138,518)	$	29,781	$	(108,737)	$	(15,378)	$	3,306	$	(12,072)

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

(4) 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)	(In thousands)	Net Unrealized Gains (Losses) on AFS Debt Securities		Net Unrealized Losses (Gains) on Cash Flow Hedges		Defined Benefit Postretirement Plans		AOCI		(In thousands)	Net Unrealized Gains (Losses) on Debt Securities		Net Unrealized Losses (Gains) on Cash Flow Hedges		Defined Benefit Postretirement Plans		AOCI

At or For the Three Months Ended June 30, 2022										At or For the Three Months Ended June 30, 2022
Balance at March 31, 2022										Balance at March 31, 2022	$	(73,984)	$	1,166	$	(3,095)	$	(75,913)
Other comprehensive (loss) income before reclassifications										Other comprehensive (loss) income before reclassifications	(42,060)		2,817		185		(39,058)
Less: Amounts reclassified from AOCI										Less: Amounts reclassified from AOCI	(7)		(2)		4		(5)
Other comprehensive (loss) income										Other comprehensive (loss) income	(42,053)		2,819		181		(39,053)
Balance at June 30, 2022										Balance at June 30, 2022	$	(116,037)	$	3,985	$	(2,914)	$	(114,966)
At or For the Six Months Ended June 30, 2022										At or For the Six Months Ended June 30, 2022
Balance at December 31, 2021	Balance at December 31, 2021	$	(1,173)	$	(1,779)	$	(3,277)	$	(6,229)	Balance at December 31, 2021	$	(1,173)	$	(1,779)	$	(3,277)	$	(6,229)
Other comprehensive (loss) income before reclassifications	Other comprehensive (loss) income before reclassifications	(72,811)		2,853		187		(69,771)		Other comprehensive (loss) income before reclassifications	(114,871)		5,670		372		(108,829)
Less: Amounts reclassified from AOCI	Less: Amounts reclassified from AOCI	—		(92)		5		(87)		Less: Amounts reclassified from AOCI	(7)		(94)		9		(92)
Other comprehensive (loss) income	Other comprehensive (loss) income	(72,811)		2,945		182		(69,684)		Other comprehensive (loss) income	(114,864)		5,764		363		(108,737)
Balance at March 31, 2022		$	(73,984)	$	1,166	$	(3,095)	$	(75,913)
Balance at June 30, 2022										Balance at June 30, 2022	$	(116,037)	$	3,985	$	(2,914)	$	(114,966)
At or For the Three Months Ended June 30, 2021										At or For the Three Months Ended June 30, 2021

Balance at December 31, 2020		$	29,310	$	(4,626)	$	(3,944)	$	20,740
Balance at March 31, 2021										Balance at March 31, 2021	$	11,801	$	538	$	(3,774)	$	8,565
Other comprehensive (loss) income before reclassifications	Other comprehensive (loss) income before reclassifications	(17,509)		5,018		175		(12,316)		Other comprehensive (loss) income before reclassifications	2,296		(2,514)		175		(43)
Less: Amounts reclassified from AOCI	Less: Amounts reclassified from AOCI	—		(146)		5		(141)		Less: Amounts reclassified from AOCI	—		(150)		4		(146)
Other comprehensive income (loss)										Other comprehensive income (loss)	2,296		(2,364)		171		103
Balance at June 30, 2021										Balance at June 30, 2021	$	14,097	$	(1,826)	$	(3,603)	$	8,668
At or For the Six Months Ended June 30, 2021										At or For the Six Months Ended June 30, 2021
Balance at December 31, 2020										Balance at December 31, 2020	$	29,310	$	(4,626)	$	(3,944)	$	20,740
Other comprehensive income (loss) before reclassifications										Other comprehensive income (loss) before reclassifications	(15,213)		2,504		350		(12,359)
Less: Amounts reclassified from AOCI										Less: Amounts reclassified from AOCI	—		(296)		9		(287)
Other comprehensive (loss) income	Other comprehensive (loss) income	(17,509)		5,164		170		(12,175)		Other comprehensive (loss) income	(15,213)		2,800		341		(12,072)
Balance at March 31, 2021		$	11,801	$	538	$	(3,774)	$	8,565

Balance at June 30, 2021										Balance at June 30, 2021	$	14,097	$	(1,826)	$	(3,603)	$	8,668

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 March 31,								Location on Consolidated Statements of Income			Three Months Ended June 30,							Six Months Ended June 30,
(In thousands)	(In thousands)		2022			2021								Location on Consolidated Statements of Income			2022				2021				2022				2021
Debit card interchange income	Debit card interchange income		Debit card income			$	2,924			$	2,736				Debit card interchange income					$	3,213			$	3,112			$	6,137			$	5,848
Services charges on deposit accounts	Services charges on deposit accounts	Service charges on deposit accounts		1,833				1,539					Services charges on deposit accounts			Service charges on deposit accounts			1,931				1,517				3,764				3,056
Fiduciary services income	Fiduciary services income	Income from fiduciary services		1,631				1,526					Fiduciary services income		Income from fiduciary services			1,681				1,707				3,312				3,233
Investment program income	Investment program income	Brokerage and insurance commissions		994				953					Investment program income		Brokerage and insurance commissions			1,272				939				2,266				1,892
Other non-interest income	Other non-interest income	Other income		400				400					Other non-interest income		Other income			450				447				850				847
Total non-interest income within the scope of ASC 606	Total non-interest income within the scope of ASC 606			7,782				7,154					Total non-interest income within the scope of ASC 606					8,547				7,722				16,329				14,876
Total non-interest income not in scope of ASC 606	Total non-interest income not in scope of ASC 606			2,043				8,061					Total non-interest income not in scope of ASC 606					2,594				3,598				4,637				11,659
Total non-interest income	Total non-interest income			$	9,825			$	15,215				Total non-interest income					$	11,141			$	11,320			$	20,966			$	26,535

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

NOTE 13 – EMPLOYEE BENEFIT PLANS

The Company sponsors unfunded, non-qualified SERPs for certain officers and provides medical and life insurance to certain eligible retired employees.

The components of net periodic pension and postretirement benefit cost were as follow for the following periods:

Supplemental Executive Retirement Plan:


(In thousands)	(In thousands)	Location on Consolidated Statements of Income		Three Months Ended March 31,								(In thousands)	Location on Consolidated Statements of Income			Three Months Ended June 30,							Six Months Ended June 30,
Net periodic pension cost	Net periodic pension cost		2022			2021									Location on Consolidated Statements of Income			2022				2021				2022				2021
Service cost	Service cost		Salaries and employee benefits			$	133			$	126					Service cost					$	133			$	126			$	267			$	252
Interest cost	Interest cost	Other expenses		115				97						Interest cost			Other expenses			115				98				230				195
Recognized net actuarial loss	Recognized net actuarial loss	Other expenses		216				195						Recognized net actuarial loss		Other expenses			215				194				431				389
Total	Total			$	464			$	418					Total					$	463			$	418			$	928			$	836

Other Postretirement Benefit Plan:


(In thousands)	(In thousands)	Location on Consolidated Statements of Income		Three Months Ended March 31,								(In thousands)	Location on Consolidated Statements of Income			Three Months Ended June 30,							Six Months Ended June 30,
Net periodic postretirement benefit cost	Net periodic postretirement benefit cost		2022			2021									Location on Consolidated Statements of Income			2022				2021				2022				2021
Service cost	Service cost		Salaries and employee benefits			$	5			$	7					Service cost					$	5			$	6			$	10			$	13
Interest cost	Interest cost	Other expenses		28				26						Interest cost			Other expenses			28				25				56				51
Recognized net actuarial loss	Recognized net actuarial loss	Other expenses		22				29						Recognized net actuarial loss		Other expenses			22				29				44				58
Amortization of prior service credit	Amortization of prior service credit	Other expenses		(6)				(6)						Amortization of prior service credit		Other expenses			(6)				(6)				(12)				(12)
Total	Total			$	49			$	56					Total					$	49			$	54			$	98			$	110

NOTE 14 – EPS

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


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
(In thousands, except number of shares and per share data)	(In thousands, except number of shares and per share data)	2022		2021			(In thousands, except number of shares and per share data)	2022		2021		2022		2021
Net income	Net income	$	16,795	$	19,740		Net income	$	15,026	$	18,143	$	31,821	$	37,883
Dividends and undistributed earnings allocated to participating securities(1)	Dividends and undistributed earnings allocated to participating securities(1)	(43)		(53)			Dividends and undistributed earnings allocated to participating securities(1)	(40)		(51)		(83)		(105)
Net income available to common shareholders	Net income available to common shareholders	$	16,752	$	19,687		Net income available to common shareholders	$	14,986	$	18,092	$	31,738	$	37,778
Weighted-average common shares outstanding for basic EPS	Weighted-average common shares outstanding for basic EPS	14,741,271		14,916,387			Weighted-average common shares outstanding for basic EPS	14,651,851		14,943,486		14,696,323		14,930,017
Dilutive effect of stock-based awards(2)	Dilutive effect of stock-based awards(2)	81,061		78,147			Dilutive effect of stock-based awards(2)	52,800		63,985		60,739		64,121
Weighted-average common and potential common shares for diluted EPS	Weighted-average common and potential common shares for diluted EPS	14,822,332		14,994,534			Weighted-average common and potential common shares for diluted EPS	14,704,651		15,007,471		14,757,062		14,994,138
Earnings per common share:	Earnings per common share:						Earnings per common share:
Basic EPS	Basic EPS	$	1.14	$	1.32		Basic EPS	$	1.02	$	1.21	$	2.16	$	2.53
Diluted EPS	Diluted EPS	$	1.13	$	1.31		Diluted EPS	$	1.02	$	1.21	$	2.15	$	2.52
Awards excluded from the calculation of diluted EPS(3):	Awards excluded from the calculation of diluted EPS(3):						Awards excluded from the calculation of diluted EPS(3):

Performance-based awards	Performance-based awards	1,027		—			Performance-based awards	305		—		76		—
Stock options		—		1,000

(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: The fair value of trading securities is reported using market quoted prices and has been classified as Level 1 as such 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 ~~March 31,~~June 30, 2022 and December 31, 2021, 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.

3637

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


(In thousands)	(In thousands)	Fair Value		Readily Available Market Prices (Level 1)		Observable Market Data (Level 2)		Company Determined Fair Value (Level 3)		(In thousands)	Fair Value		Readily Available Market Prices (Level 1)		Observable Market Data (Level 2)		Company Determined Fair Value (Level 3)
March 31, 2022
June 30, 2022										June 30, 2022
Financial assets:	Financial assets:									Financial assets:
Trading securities	Trading securities	$	4,124	$	4,124	$	—	$	—	Trading securities	$	3,808	$	3,808	$	—	$	—
AFS debt securities:	AFS debt securities:									AFS debt securities:
Obligations of U.S. government-sponsored enterprises		7,670		—		7,670		—

Obligations of states and political subdivisions	Obligations of states and political subdivisions	111,956		—		111,956		—		Obligations of states and political subdivisions	53,746		—		53,746		—
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	960,838		—		960,838		—		Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	576,466		—		576,466		—
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	319,891		—		319,891		—		Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	136,570		—		136,570		—
Subordinated corporate bonds	Subordinated corporate bonds	21,454		—		21,454		—		Subordinated corporate bonds	21,341		—		21,341		—
Loans held for sale	Loans held for sale	6,705		—		6,705		—		Loans held for sale	3,340		—		3,340		—
Customer loan swaps	Customer loan swaps	7,843		—		7,843		—		Customer loan swaps	7,272		—		7,272		—
Interest rate contracts	Interest rate contracts	7,898		—		7,898		—		Interest rate contracts	10,909		—		10,909		—

Fixed rate mortgage interest rate lock commitments	Fixed rate mortgage interest rate lock commitments	134		—		134		—		Fixed rate mortgage interest rate lock commitments	170		—		170		—
Forward delivery commitments	Forward delivery commitments	246		—		246		—		Forward delivery commitments	91		—		91		—
Financial liabilities:	Financial liabilities:									Financial liabilities:
Trading securities	Trading securities	$	4,124	$	4,124	$	—	$	—	Trading securities	$	3,808	$	3,808	$	—	$	—

Customer loan swaps	Customer loan swaps	7,937		—		7,937		—		Customer loan swaps	7,322		—		7,322		—

Interest rate contracts	Interest rate contracts	6,426		—		6,426		—		Interest rate contracts	5,836		—		5,836		—
Fixed rate mortgage interest rate lock commitments	Fixed rate mortgage interest rate lock commitments	313		—		313		—		Fixed rate mortgage interest rate lock commitments	81		—		81		—

December 31, 2021	December 31, 2021									December 31, 2021
Financial assets:	Financial assets:									Financial assets:
Trading securities	Trading securities	$	4,428	$	4,428	$	—	$	—	Trading securities	$	4,428	$	4,428	$	—	$	—
AFS debt securities:	AFS debt securities:									AFS debt securities:
Obligations of U.S. government-sponsored enterprises	Obligations of U.S. government-sponsored enterprises	8,344		—		8,344		—		Obligations of U.S. government-sponsored enterprises	8,344		—		8,344		—
Obligations of states and political subdivisions	Obligations of states and political subdivisions	117,478		—		117,478		—		Obligations of states and political subdivisions	117,478		—		117,478		—
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	1,000,257		—		1,000,257		—		Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	1,000,257		—		1,000,257		—
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	358,849		—		358,849		—		Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	358,849		—		358,849		—
Subordinated corporate bonds	Subordinated corporate bonds	22,558		—		22,558		—		Subordinated corporate bonds	22,558		—		22,558		—
Loans held for sale	Loans held for sale	5,815		—		5,815		—		Loans held for sale	5,815		—		5,815		—
Customer loan swaps	Customer loan swaps	19,297		—		19,297		—		Customer loan swaps	19,297		—		19,297		—
Interest rate contracts	Interest rate contracts	5,589		—		5,589		—		Interest rate contracts	5,589		—		5,589		—

Fixed rate mortgage interest rate lock commitments	Fixed rate mortgage interest rate lock commitments	371		—		371		—		Fixed rate mortgage interest rate lock commitments	371		—		371		—
Forward delivery commitments	Forward delivery commitments	86		—		86		—		Forward delivery commitments	86		—		86		—
Financial liabilities:	Financial liabilities:									Financial liabilities:
Trading securities	Trading securities	$	4,428	$	4,428	$	—	$	—	Trading securities	$	4,428	$	4,428	$	—	$	—
Customer loan swaps	Customer loan swaps	19,485		—		19,485		—		Customer loan swaps	19,485		—		19,485		—
Interest rate contracts	Interest rate contracts	7,872		—		7,872		—		Interest rate contracts	7,872		—		7,872		—

Fixed rate mortgage interest rate lock commitments	Fixed rate mortgage interest rate lock commitments	91		—		91		—		Fixed rate mortgage interest rate lock commitments	91		—		91		—
Forward delivery commitments	Forward delivery commitments	6		—		6		—		Forward delivery commitments	6		—		6		—

The Company did not have any transfers between Level 1 and Level 2 of the fair value hierarchy during the ~~three~~six months ended ~~March 31,~~June 30, 2022. 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.

3738

Financial Instruments Recorded at Fair Value on a Nonrecurring Basis

The Company may be required, from time to time, to measure certain financial assets and financial liabilities at fair value on a nonrecurring basis in accordance with GAAP. These include assets that are measured at the lower of cost or market value that were recognized at fair value below cost at the end of the period.

Collateral-Dependent Loans: Expected credit losses on individually assessed loans deemed to be collateral dependent are valued based upon the lower of amortized cost of fair value of the underlying collateral less costs to sell. Management estimates the fair values of these assets using Level 2 inputs, such as the fair value of collateral based on independent third-party market approach appraisals for collateral-dependent loans, and Level 3 inputs where circumstances warrant an adjustment to the appraised value based on the age of the appraisal and/or comparable sales, condition of the collateral, and market conditions.

Servicing Assets: The Company accounts for mortgage servicing assets at cost, subject to impairment testing. When the carrying value of a tranche exceeds fair value, a valuation allowance is established to reduce the carrying cost to fair value. Fair value is based on a valuation model that calculates the present value of estimated net servicing income. The Company obtains a third-party valuation based upon loan level data including note rate, type and term of the underlying loans. The model utilizes two significant unobservable inputs, namely loan prepayment assumptions and the discount rate used, to calculate the fair value of each tranche, and, as such, the Company has classified the model within Level 3 of the fair value hierarchy.

Non-Financial Instruments Recorded at Fair Value on a Non-Recurring Basis

The Company has no non-financial assets or non-financial liabilities measured at fair value on a recurring basis. Non-financial assets measured at fair value on a non-recurring basis consist of OREO, goodwill and core deposit intangible assets.

OREO: OREO properties acquired through foreclosure or deed in lieu of foreclosure are recorded at net realizable value, which is the fair value of the real estate, less estimated costs to sell. Any write-down of the recorded investment in the related loan is charged to the ACL upon transfer to OREO. Upon acquisition of a property, a current appraisal is used or an internal valuation is prepared to substantiate fair value of the property. After foreclosure, management periodically, but at least annually, obtains updated valuations of the OREO properties and, if additional impairments are deemed necessary, the subsequent write-downs for declines in value are recorded through a valuation allowance and a provision for credit losses charged to other non-interest expense within the consolidated statements of income. As management considers appropriate, adjustments are made to the appraisal obtained for the OREO property to account for recent sales activity of comparable properties, changes in the condition of the property, and changes in market conditions. These adjustments are not observable in an active market and are classified as Level 3. At ~~March 31,~~June 30, 2022 and December 31, 2021, 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 ~~three~~six months ended ~~March 31,~~June 30, 2022, for which management believes it is more likely than not that goodwill is impaired.

Core Deposit Intangible Assets: The Company's core deposit intangible assets represent the estimated value of acquired customer relationships and are amortized over the estimated life of those relationships. Core deposit intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. There were no events or changes in circumstances for the ~~three~~six months ended ~~March 31,~~June 30, 2022, that indicated the carrying amount may not be recoverable.

3839

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


(In thousands)	(In thousands)	Fair Value		Readily Available Market Prices (Level 1)		Observable Market Data (Level 2)		Company Determined Fair Value (Level 3)		(In thousands)	Fair Value		Readily Available Market Prices (Level 1)		Observable Market Data (Level 2)		Company Determined Fair Value (Level 3)
March 31, 2022
June 30, 2022										June 30, 2022
Financial assets:	Financial assets:									Financial assets:
Collateral-dependent loans	Collateral-dependent loans	$	111	$	—	$	—	$	111	Collateral-dependent loans	$	70	$	—	$	—	$	70

December 31, 2021	December 31, 2021									December 31, 2021
Financial assets:	Financial assets:									Financial assets:
Collateral-dependent loans	Collateral-dependent loans	$	73	$	—	$	—	$	73	Collateral-dependent loans	$	73	$	—	$	—	$	73

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

(Dollars in thousands)

Fair Value

Valuation Methodology

Unobservable Input

Discount

(Dollars in thousands)

Fair Value

Valuation Methodology

Unobservable Input

Discount

March 31, 2022

June 30, 2022

Collateral-dependent loans:

Specifically reserved

Market approach appraisal of
collateral

Estimated selling costs

18%

Partially charged-off

Market approach appraisal of
collateral

Estimated selling costs

11%

Partially charged-off

Market approach appraisal of
collateral

Estimated selling costs

18%

December 31, 2021

Collateral-dependent loans

Specifically reserved

Market approach appraisal of collateral

Estimated selling costs

11%

Specifically reserved

Market approach appraisal of collateral

Estimated selling costs

11%

3940

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)			Carrying Amount		Fair Value		Readily Available Market Prices (Level 1)		Observable Market Prices (Level 2)		Company Determined Market Prices (Level 3)
March 31, 2022
June 30, 2022												June 30, 2022
Financial assets:	Financial assets:											Financial assets:
HTM debt securities	HTM debt securities	$	1,290	$	1,300	$	—	$	1,300	$	—	HTM debt securities	$	546,520	$	537,538	$	—	$	537,538	$	—
Commercial real estate loans(1)(2)	Commercial real estate loans(1)(2)	1,484,979		1,475,338		—		—		1,475,338		Commercial real estate loans(1)(2)	1,514,202		1,507,652		—		—		1,507,652
Commercial loans(2)	Commercial loans(2)	398,514		396,965		—		—		396,965		Commercial loans(2)	416,075		412,810		—		—		412,810
SBA PPP loans(2)	SBA PPP loans(2)	6,307		6,527		—		—		6,527		SBA PPP loans(2)	2,509		2,575		—		—		2,575
Residential real estate loans(2)	Residential real estate loans(2)	1,385,723		1,322,230		—		—		1,322,230		Residential real estate loans(2)	1,508,801		1,379,295		—		—		1,379,295
Home equity loans(2)	Home equity loans(2)	208,212		205,317		—		—		205,317		Home equity loans(2)	229,069		232,754		—		—		232,754
Consumer loans(2)	Consumer loans(2)	18,713		16,826		—		—		16,826		Consumer loans(2)	19,328		17,363		—		—		17,363
Servicing assets	Servicing assets	2,494		4,191		—		—		4,191		Servicing assets	2,486		4,349		—		—		4,349
Financial liabilities:	Financial liabilities:											Financial liabilities:
Time deposits	Time deposits	$	349,875	$	345,693	$	—	$	345,693	$	—	Time deposits	$	296,422	$	289,787	$	—	$	289,787	$	—
Short-term borrowings	Short-term borrowings	237,668		237,622		—		237,622		—		Short-term borrowings	371,502		371,254		—		371,254		—

Subordinated debentures	Subordinated debentures	44,331		32,805		—		32,805		—		Subordinated debentures	44,331		32,362		—		32,362		—
December 31, 2021	December 31, 2021											December 31, 2021
Financial assets:	Financial assets:											Financial assets:
HTM debt securities	HTM debt securities	$	1,291	$	1,380	$	—	$	1,380	$	—	HTM debt securities	$	1,291	$	1,380	$	—	$	1,380	$	—
Commercial real estate loans(1)(2)	Commercial real estate loans(1)(2)	1,474,087		1,435,794		—		—		1,435,794		Commercial real estate loans(1)(2)	1,474,087		1,435,794		—		—		1,435,794
Commercial loans(2)	Commercial loans(2)	359,512		356,463		—		—		356,463		Commercial loans(2)	359,512		356,463		—		—		356,463
SBA PPP loans(2)	SBA PPP loans(2)	35,934		37,133		—		—		37,133		SBA PPP loans(2)	35,934		37,133		—		—		37,133
Residential real estate loans(2)	Residential real estate loans(2)	1,300,314		1,297,592		—		—		1,297,592		Residential real estate loans(2)	1,300,314		1,297,592		—		—		1,297,592
Home equity loans(2)	Home equity loans(2)	208,934		205,920		—		—		208,934		Home equity loans(2)	208,934		205,920		—		—		208,934
Consumer loans(2)	Consumer loans(2)	19,437		17,551		—		—		17,551		Consumer loans(2)	19,437		17,551		—		—		17,551
Servicing assets	Servicing assets	2,471		3,310		—		—		3,310		Servicing assets	2,471		3,310		—		—		3,310
Financial liabilities:	Financial liabilities:											Financial liabilities:
Time deposits	Time deposits	$	409,668	$	409,264	$	—	$	409,264	$	—	Time deposits	$	409,668	$	409,264	$	—	$	409,264	$	—
Short-term borrowings	Short-term borrowings	211,608		211,586		—		211,586		—		Short-term borrowings	211,608		211,586		—		211,586		—

Subordinated debentures	Subordinated debentures	44,331		33,248		—		33,248		—		Subordinated debentures	44,331		33,248		—		33,248		—

(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.

4041

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

AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

The discussions set forth below and in the documents we incorporate by reference herein contain certain ~~statements that may be considered~~ forward-looking statements ~~under~~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;

•the impact of the war in Ukraine;

•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;

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

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

•the effects of civil unrest, international hostilities or other geopolitical events;

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

•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; and

•changes in accounting policies, practices and standards, as may be adopted by the regulatory agencies as well as the Financial Accounting Standards Board ("FASB"), and other accounting standard setters.

In addition, statements ~~about~~regarding the potential effects of the war in Ukraine, the COVID-19 pandemic and other notable national and global current events on the ~~Company's businesses~~Company’s business, financial condition, liquidity and results of operations ~~and financial conditions~~ may constitute forward-looking ~~statements. Such~~ statements ~~may include, but are not limited to, statements concerning:~~

•~~the continued effectiveness of our Pandemic Work Group;~~

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

•~~the continuing strength of our capital and liquidity positions;~~

•~~our continued ability to access sources of contingent liquidity; and~~

•~~the continuing strength of the asset quality in our lending portfolios;~~

~~These statements~~ are subject to the risk that the actual effects may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable

and in many cases beyond ~~our control, including~~ the scope and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on our customers, third parties and the Company.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, 2021, 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.

4243

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, return on average tangible equity; the efficiency ratio; net interest income (fully-taxable equivalent); earnings before income taxes and provision; earnings before income taxes, provision, and SBA PPP loan income; ~~total loans, excluding SBA PPP loans; ACL on loans to~~ total loans, excluding SBA PPP loans; adjusted yield on interest-earning assets and adjusted net interest margin (fully-taxable equivalent); tangible book value per share; tangible common equity ratio; and core deposits and average core deposits. 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.

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


		Three Months Ended March 31,						Three Months Ended June 30,					Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	2022			2021				(Dollars in thousands)	2022			2021			2022			2021
Net income, as presented	Net income, as presented	$	16,795		$	19,740			Net income, as presented	$	15,026		$	18,143		$	31,821		$	37,883
Add: amortization of core deposit intangible assets, net of tax(1)	Add: amortization of core deposit intangible assets, net of tax(1)	123			130				Add: amortization of core deposit intangible assets, net of tax(1)	124			130			247			259
Net income, adjusted for amortization of core deposit intangible assets	Net income, adjusted for amortization of core deposit intangible assets	$	16,918		$	19,870			Net income, adjusted for amortization of core deposit intangible assets	$	15,150		$	18,273		$	32,068		$	38,142
Average equity, as presented	Average equity, as presented	$	525,438		$	533,645			Average equity, as presented	$	457,804		$	538,947		$	491,434		$	536,311
Less: average goodwill and core deposit intangible assets	Less: average goodwill and core deposit intangible assets	(96,815)			(97,463)				Less: average goodwill and core deposit intangible assets	(96,648)			(97,292)			(96,731)			(97,377)
Average tangible equity	Average tangible equity	$	428,623		$	436,182			Average tangible equity	$	361,156		$	441,655		$	394,703		$	438,934
Return on average equity	Return on average equity	12.96		%	15.00		%		Return on average equity	13.16		%	13.50		%	13.06		%	14.24		%
Return on average tangible equity	Return on average tangible equity	16.01		%	18.47		%		Return on average tangible equity	16.83		%	16.60		%	16.38		%	17.52		%

(1) Assumed a 21% tax rate.

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


		Three Months Ended March 31,						Three Months Ended June 30,					Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	2022			2021				(Dollars in thousands)	2022			2021			2022			2021
Non-interest expense, as presented	Non-interest expense, as presented	$	26,209		$	24,899			Non-interest expense, as presented	$	26,556		$	25,590		$	52,765		$	50,489
Less: prepayment penalty on borrowings	Less: prepayment penalty on borrowings	—			(514)				Less: prepayment penalty on borrowings	—			—			—			(514)
Adjusted non-interest expense	Adjusted non-interest expense	$	26,209		$	24,385			Adjusted non-interest expense	$	26,556		$	25,590		$	52,765		$	49,975
Net interest income, as presented	Net interest income, as presented	$	36,365		$	32,364			Net interest income, as presented	$	36,534		$	33,529		$	72,899		$	65,893
Add: effect of tax-exempt income(1)	Add: effect of tax-exempt income(1)	226			271				Add: effect of tax-exempt income(1)	231			265			458			536
Non-interest income, as presented	Non-interest income, as presented	9,825			15,215				Non-interest income, as presented	11,141			11,320			20,966			26,535

Add: net loss on sale of securities									Add: net loss on sale of securities	9			—			9			—

Adjusted net interest income plus non-interest income	Adjusted net interest income plus non-interest income	$	46,416		$	47,850			Adjusted net interest income plus non-interest income	$	47,915		$	45,114		$	94,332		$	92,964
Ratio of non-interest expense to total revenues(2)	Ratio of non-interest expense to total revenues(2)	56.74		%	52.33		%		Ratio of non-interest expense to total revenues(2)	55.70		%	57.06		%	56.21		%	54.63		%
Efficiency ratio	Efficiency ratio	56.47		%	50.96		%		Efficiency ratio	55.42		%	56.72		%	55.94		%	53.76		%

(1) Assumed a 21% tax rate.

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

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


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	(In thousands)	2022		2021			(In thousands)	2022		2021		2022		2021
Net interest income, as presented	Net interest income, as presented	$	36,365	$	32,364		Net interest income, as presented	$	36,534	$	33,529	$	72,899	$	65,893
Add: effect of tax-exempt income(1)	Add: effect of tax-exempt income(1)	226		271			Add: effect of tax-exempt income(1)	231		265		458		536
Net interest income (fully-taxable equivalent)	Net interest income (fully-taxable equivalent)	$	36,591	$	32,635		Net interest income (fully-taxable equivalent)	$	36,765	$	33,794	$	73,357	$	66,429

(1) Assumed a 21% tax rate.

Earnings before Income Taxes and Provision, and Earnings before Income Taxes, Provision and SBA PPP Loan Income. Earnings before income taxes and provision, and earnings before income taxes, provision and SBA PPP loan income are each a supplemental measure of operating earnings and performance. Earnings before income taxes and provision is calculated as net income before provision for credit losses and income tax expense, and earnings before income taxes, provision and SBA PPP loan income is calculated as net income before provision for credit losses, income tax expense and SBA PPP loan income. These supplemental measures have become more widely used by financial institutions as a measure of financial performance for comparability across financial institutions due to the impact of the COVID-19 pandemic on the provision for credit losses, as well as the origination of SBA PPP loans in response to the COVID-19 pandemic that are not a recurring and sustainable source of revenues for financial institutions.


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	(In thousands)	2022		2021			(In thousands)	2022		2021		2022		2021
Net income, as presented	Net income, as presented	$	16,795	$	19,740		Net income, as presented	$	15,026	$	18,143	$	31,821	$	37,883
Add: income tax expense, as presented	Add: income tax expense, as presented	4,261		4,896			Add: income tax expense, as presented	3,748		4,519		8,009		9,415
Add: provision (credit) for credit losses, as presented	Add: provision (credit) for credit losses, as presented	(1,075)		(1,956)			Add: provision (credit) for credit losses, as presented	2,345		(3,403)		1,270		(5,359)
Earnings before income taxes and provision for credit losses	Earnings before income taxes and provision for credit losses	$	19,981	$	22,680		Earnings before income taxes and provision for credit losses	$	21,119	$	19,259	$	41,100	$	41,939
Less: SBA PPP loan income	Less: SBA PPP loan income	(1,033)		(1,877)			Less: SBA PPP loan income	(165)		(1,660)		(1,198)		(3,536)
Earnings before income taxes, provision for credit losses and SBA PPP Loan income	Earnings before income taxes, provision for credit losses and SBA PPP Loan income	$	18,948	$	20,803		Earnings before income taxes, provision for credit losses and SBA PPP Loan income	$	20,954	$	17,599	$	39,902	$	38,403

Adjusted Yield on Interest-Earning Assets. Adjusted yield on interest-earning assets normalizes the Company's reported yield on interest-earning assets for certain unusual, non-recurring items, including: (i) the impact of SBA PPP loans and (ii) excess cash/liquidity held by the Company, primarily due to Federal stimulus programs and changes in the FRB cash holding requirements for financial institutions both in response to COVID-19.


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021				2022		2021		2022		2021
Yield on interest-earning assets, as presented	Yield on interest-earning assets, as presented	3.07	%	3.15	%		Yield on interest-earning assets, as presented	3.11	%	3.06	%	3.09	%	3.10	%
Add: effect of excess liquidity on yield on interest-earning assets	Add: effect of excess liquidity on yield on interest-earning assets	0.04	%	0.10	%		Add: effect of excess liquidity on yield on interest-earning assets	0.02	%	0.12	%	0.03	%	0.11	%
Less: effect of SBA PPP loans on yield on interest-earning assets	Less: effect of SBA PPP loans on yield on interest-earning assets	(0.07)	%	(0.06)	%		Less: effect of SBA PPP loans on yield on interest-earning assets	(0.01)	%	(0.04)	%	(0.04)	%	(0.05)	%
Adjusted yield on interest-earning assets	Adjusted yield on interest-earning assets	3.04	%	3.19	%		Adjusted yield on interest-earning assets	3.12	%	3.14	%	3.08	%	3.16	%

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


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021				2022		2021		2022		2021
Net interest margin (fully-taxable equivalent), as presented	Net interest margin (fully-taxable equivalent), as presented	2.87	%	2.88	%		Net interest margin (fully-taxable equivalent), as presented	2.84	%	2.83	%	2.85	%	2.85	%
Add: effect of excess liquidity on net interest margin (fully-taxable equivalent)	Add: effect of excess liquidity on net interest margin (fully-taxable equivalent)	0.04	%	0.10	%		Add: effect of excess liquidity on net interest margin (fully-taxable equivalent)	0.02	%	0.11	%	0.03	%	0.10	%
Less: effect of SBA PPP loans on net interest margin (fully-taxable equivalent)	Less: effect of SBA PPP loans on net interest margin (fully-taxable equivalent)	(0.07)	%	(0.07)	%		Less: effect of SBA PPP loans on net interest margin (fully-taxable equivalent)	(0.01)	%	(0.05)	%	(0.03)	%	(0.05)	%
Adjusted net interest margin (fully-taxable equivalent)	Adjusted net interest margin (fully-taxable equivalent)	2.84	%	2.91	%		Adjusted net interest margin (fully-taxable equivalent)	2.85	%	2.89	%	2.85	%	2.90	%

4546

~~Allowance for Credit Losses (“ACL”) on Loans to Total Loans, excluding SBA PPP Loans.~~ ACL on loans to total loans, excluding SBA PPP loans, is calculated as (i) ACL on loans, adjusted for the ACL allocated to SBA PPP loans, to (ii) total loans, adjusted to exclude SBA PPP loans. SBA PPP loans were provided to qualifying businesses as part of the federal government stimulus package issued in response to the COVID-19 pandemic. These loans are fully-guaranteed by the SBA, and may even be forgiven in full or in part, and, thus, present little to no credit risk to the Company. By excluding the impact of the SBA PPP loans, the ratio attempts to be more comparable with prior periods and demonstrates the level of loan loss reserves established on the Company's loans originated as part of its ordinary operations and credit underwriting standards.

(In thousands) December 31,
2021 2020
Total Loans, excluding SBA PPP Loans:
Total loans, as presented $ 3,431,474 $ 3,219,822
Less: SBA PPP loans (35,953) (135,095)
Total loans, excluding SBA PPP loans $ 3,395,521 $ 3,084,727
ACL on Loans to Total Loans, excluding SBA PPP Loans:
ACL on loans, as presented $ 33,256 $ 37,865
Less: ACL on loans allocated to SBA PPP loans (18) (69)
Adjusted ACL on loans $ 33,238 $ 37,796
ACL on loans to total loans 0.97% 1.18%
ACL on loans to total loans, excluding SBA PPP loans 0.98% 1.23%

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.


(In thousands, except number of shares, per share data and ratios)	(In thousands, except number of shares, per share data and ratios)	March 31, 2022			December 31, 2021			(In thousands, except number of shares, per share data and ratios)	June 30, 2022			December 31, 2021
Tangible Book Value Per Share:	Tangible Book Value Per Share:							Tangible Book Value Per Share:
Shareholders’ equity, as presented	Shareholders’ equity, as presented	$	482,446		$	541,294		Shareholders’ equity, as presented	$	446,381		$	541,294
Less: goodwill and other intangible assets	Less: goodwill and other intangible assets	(96,729)			(96,885)			Less: goodwill and other intangible assets	(96,573)			(96,885)
Tangible shareholders’ equity	Tangible shareholders’ equity	$	385,717		$	444,409		Tangible shareholders’ equity	$	349,808		$	444,409
Shares outstanding at period end	Shares outstanding at period end	14,746,410			14,739,956			Shares outstanding at period end	14,625,041			14,739,956
Book value per share	Book value per share	$	32.72		$	36.72		Book value per share	$	30.52		$	36.72
Tangible book value per share	Tangible book value per share	$	26.16		$	30.15		Tangible book value per share	$	23.92		$	30.15
Tangible Common Equity Ratio:	Tangible Common Equity Ratio:							Tangible Common Equity Ratio:
Total assets	Total assets	$	5,420,415		$	5,500,356		Total assets	$	5,466,496		$	5,500,356
Less: goodwill and other intangible assets	Less: goodwill and other intangible assets	(96,729)			(96,885)			Less: goodwill and other intangible assets	(96,573)			(96,885)
Tangible assets	Tangible assets	$	5,323,686		$	5,403,471		Tangible assets	$	5,369,923		$	5,403,471
Common equity ratio	Common equity ratio	8.90		%	9.84		%	Common equity ratio	8.17		%	9.84		%
Tangible common equity ratio	Tangible common equity ratio	7.25		%	8.22		%	Tangible common equity ratio	6.51		%	8.22		%

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.


(In thousands)	(In thousands)	March 31, 2022		December 31, 2021		(In thousands)	June 30, 2022		December 31, 2021
Total deposits	Total deposits	$	4,576,664	$	4,608,889	Total deposits	$	4,527,061	$	4,608,889
Less: certificates of deposit	Less: certificates of deposit	(299,865)		(309,648)		Less: certificates of deposit	(296,408)		(309,648)
Less: brokered deposits	Less: brokered deposits	(161,302)		(208,468)		Less: brokered deposits	(83,379)		(208,468)
Core deposits	Core deposits	$	4,115,497	$	4,090,773	Core deposits	$	4,147,274	$	4,090,773

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


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	(In thousands)	2022		2021			(In thousands)	2022		2021		2022		2021
Total average deposits	Total average deposits	$	4,380,035	$	3,770,314		Total average deposits	$	4,382,798	$	3,984,113	$	4,381,424	$	3,877,803
Less: average certificates of deposit	Less: average certificates of deposit	(304,720)		(351,555)			Less: average certificates of deposit	(298,335)		(338,595)		(301,510)		(345,039)
Average core deposits	Average core deposits	$	4,075,315	$	3,418,759		Average core deposits	$	4,084,463	$	3,645,518	$	4,079,914	$	3,532,764

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


(In thousands)	(In thousands)	March 31, 2022		December 31, 2021		(In thousands)	June 30, 2022		December 31, 2021

Total loans, as presented	Total loans, as presented	$	3,534,218	$	3,431,474	Total loans, as presented	$	3,724,227	$	3,431,474
Less: SBA PPP loans	Less: SBA PPP loans	(6,311)		(35,953)		Less: SBA PPP loans	(2,509)		(35,953)
Total loans, excluding SBA PPP loans	Total loans, excluding SBA PPP loans	$	3,527,907	$	3,395,521	Total loans, excluding SBA PPP loans	$	3,721,718	$	3,395,521

CRITICAL ACCOUNTING POLICIES

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

There have been no material changes to the Company's critical accounting policies as disclosed within its Annual Report on Form 10-K for the year ended December 31, 2021. Refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2021, 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 $5.5 billion in assets at ~~March 31,~~June 30, 2022, incorporated under the laws of the State of Maine and headquartered in Camden, Maine. Camden National Bank (the "Bank"), a wholly-owned subsidiary of the Company, was founded in 1875. The Company was founded in 1984, went public in 1997 and is now registered with NASDAQ Global Market (“NASDAQ”) under the ticker symbol "CAC."

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

The Company 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

Operating Results. Net income for the ~~first~~second quarter of 2022 was ~~$16.8~~$15.0 million, a decrease of ~~$2.9~~$3.1 million, or ~~15%~~17%, compared to the ~~first~~second quarter of 2021, and diluted EPS decreased correspondingly ~~$0.18,~~$0.19, or ~~14%~~16%, to ~~$1.13~~$1.02 for the ~~first~~second quarter of 2022 compared to the same period last year. Earnings before income taxes and provision expense (non-GAAP) for the ~~first~~second quarter of 2022 ~~was $20.0~~were $21.0 million, ~~a decrease~~an increase of ~~$2.7~~$1.9 million, or ~~12%~~10%, between periods, and earnings before income taxes, provision expense and SBA PPP loan income ~~decreased $1.9~~(non-GAAP) increased $3.4 million, or 9%19%, between periods.

Revenues (defined as the sum of net interest income and non-interest income) for the ~~first~~second quarter of 2022 totaled ~~$46.2~~$47.7 million, ~~a decrease~~an increase of ~~$1.4~~$2.8 million, or 3%6%, compared to the ~~first~~second quarter of 2021.

•
Mortgage banking income decreased $6.1 million between periods as total residential mortgage activity slowed considerably coming off of record highs the past two years as mortgage rates have risen in anticipation of sharp Federal Fund Rate hikes in 2022 to curb inflationary pressures, combined with aggressive local market competition and low housing inventories. The combination of these factors created a challenging environment to drive salable residential mortgage activity resulting in sold loan production for the first quarter of 2022 of 23%. For the first quarter of 2021, our strategy was to sell the majority of its residential mortgage production and was successfully able to do so at that time given the market conditions. For the first quarter of 2021, we sold 66% of our residential mortgage production.

•Net interest income increased ~~$4.0~~$3.0 million, or 9%, between periods ~~partially offsetting the impact of lower mortgage banking income between periods. The increase was~~ driven by strong average interest-earning asset growth over the course of the year of ~~$562.5~~$402.9 million, or ~~12%~~8%. Average investments grew to $1.5 billion for the ~~first~~second quarter of 2022, up ~~43%~~19% over the ~~first~~second quarter of 2021 as the Company deployed its excess liquidity built-up from strong deposit growth into investments. Average ~~loan~~loans grew to ~~$3.5~~$3.6 billion, up 7%11% over the ~~first~~second quarter of 2021.

•Non-interest income decreased $179,000, or 2%, between periods led by lower mortgage banking income of $1.1 million, but partially offset by higher service charge fees and brokerage and insurance commissions. The decrease in mortgage banking activity reflects the change in the markets between periods, highlighted by the change in interest rates. During the second quarter of 2022, the Company sold 20% of its residential mortgage loan production, compared to 40% for the same period last year. In addition, the Company's residential mortgage production volumes through the first six months of 2022 have slowed commensurate with the overall industry.

A provision for credit losses of $2.3 million was reported for the second quarter of 2022, compared to a $3.4 million credit for credit losses (or "negative" provision expense) ~~of $1.1 million was reported~~ for the ~~first quarter of 2022, compared to a $2.0 million credit for credit losses for the first~~second quarter of 2021. ~~While~~This increase was driven by: (1) a softening overall economy, and (2) 5% loan growth ~~was strong for~~during the ~~first~~ quarter that offset (3) the release of ~~2022 at 3% (or 4% excluding SBA PPP loans (non-GAAP)), the Company released $1.9~~$2.4 million of additional reserves ~~that were previously established for~~on certain commercial real estate loans that ~~received~~were modified in 2020 due to the COVID-19 ~~modifications at~~pandemic.

Non-interest expense for the second quarter of 2022 was $26.6 million, an increase of $966,000, or 4%, over the second quarter of 2021 led by higher consulting and professional fees and data processing-related costs.

Net income for the six months ended June 30, 2022 was $31.8 million, a decrease of $6.1 million, or 16%, over the six

months ended June 30, 2021, and diluted EPS was $2.15 for the six months ended June 30, 2022, a decrease of $0.37, or 15%,

compared to the same period last year. Earnings before income taxes and provision expense (non-GAAP) for the six months ended June 30, 2022 were $41.1 million, a decrease of $839,000, or 2%, over the same period of 2021, and earnings before income taxes and provision expense and SBA PPA loan income (non-GAAP) for the six months ended June 30, 2022 increased $1.5 million, or 4%, between periods.

Net interest income for the first half of 2022 was $72.9 million, an increase of $7.0 million, or 11%, compared to the first

half of 2021. This increase was driven by average interest-earning assets growth of $482.2 million, or 10%.

Non-interest income for the first half of 2022 was $21.0 million, a decrease of $5.6 million, or 21%, compared to the same period in 2021. This decrease was due to the decrease in mortgage banking income of $7.2 million, or 74%, but was partially offset by higher service charge fees, brokerage and insurance commissions, and debit card income.

A provision for credit losses of $1.3 million was recorded for the first half of 2022, compared to a release of $5.4 million for the first half of 2021. This increase was primarily the result of a change in our economic outlook between periods. During the first half of 2021, reserves were released as expected credit losses during the onset of the COVID-19 pandemic ~~which offset provisions that would have otherwise been established~~in 2020 did not manifest. In the first half of 2022, our economic outlook softened as interest rates rose sharply and the likelihood of a result of the loan growth. As of March 31, 2022, there were $3.2 million of additional reserves provided for COVID-19 modifications which the Company anticipates will be released over the coming quarters.slowing economy increased.

Non-interest expense for the first ~~quarter~~half of 2022 ~~totaled $26.2~~was $52.8 million, an increase of ~~$1.3~~$2.3 million, or 5%, over the first ~~quarter~~half of 2021. ~~The~~This increase was ~~primarily driven~~led by an increase in ~~compensation-related expenses, which were 7% higher than~~salaries and employee benefits of 4% due to normal annual merit increases and an off-cycle wage increase for many of our employees in the ~~first~~fourth quarter of ~~2021. The increase was expected given the effect of normal merit cycles during this period,~~2021, as well ~~an off-cycle merit increase to address inflationary pressures for our employees~~as higher consulting and the competitive labor market which became effective in October 2021. We offset a portion of the impact of increasing wages by suspending the Company's profit sharing contribution to employees' 401(k) accounts, effective January 1, 2022.

professional fees and data processing-related costs.

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


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021				2022		2021		2022		2021
Return on average assets (annualized)	Return on average assets (annualized)	1.26	%	1.62	%		Return on average assets (annualized)	1.11	%	1.42	%	1.18	%	1.52	%
Return on average equity (annualized)	Return on average equity (annualized)	12.96	%	15.00	%		Return on average equity (annualized)	13.16	%	13.50	%	13.06	%	14.24	%
Return on average tangible equity (annualized) (non-GAAP)	Return on average tangible equity (annualized) (non-GAAP)	16.01	%	18.47	%		Return on average tangible equity (annualized) (non-GAAP)	16.83	%	16.60	%	16.38	%	17.52	%
Ratio of non-interest expense to total revenues	Ratio of non-interest expense to total revenues	56.74	%	52.33	%		Ratio of non-interest expense to total revenues	55.70	%	57.06	%	56.21	%	54.63	%
Efficiency ratio (non-GAAP)	Efficiency ratio (non-GAAP)	56.47	%	50.96	%		Efficiency ratio (non-GAAP)	55.42	%	56.72	%	55.94	%	53.76	%
Overhead ratio (non-interest expense divided by average assets) (annualized)	Overhead ratio (non-interest expense divided by average assets) (annualized)	1.93	%	2.02	%		Overhead ratio (non-interest expense divided by average assets) (annualized)	1.96	%	2.00	%	1.95	%	2.01	%

Asset Quality. As of ~~March 31,~~June 30, 2022, the Company's asset quality metrics remained very strong with non-performing assets of ~~0.12%~~0.11% of total assets and loans 30-89 days past due of ~~0.04%~~0.06% of total loans. In comparison, at December 31, 2021, non-performing assets were 0.13% of total assets, and loans 30-89 days past due were 0.04% of total loans.

~~Capital Position.~~Capital. AAs of June 30, 2022, the Company's regulatory capital ratios were each well in excess of regulatory capital requirements. Despite the Company's regulatory capital ratios remaining strong, a decrease in the market value of the AFS investment portfolio due to the ~~sharp rise~~increase in interest rates during the first ~~quarter~~half of 2022 ~~drove a decrease in shareholders'~~caused decreases across the common equity ~~for the period, and, correspondingly, a decrease in capital ratios, including: (1) shareholders' equity to total assets position decreased 94 basis points during the quarter to 8.90% and~~ratio, tangible common equity ratio (non-GAAP) ~~decreased 97 basis points to 7.25% at March 31, 2022; and (2)~~, book value per share ~~decreased 11% to $32.72~~ and tangible book value per share (non-GAAP) ~~decreased 13%~~over this period. During the second quarter of 2022, the Company transferred certain securities from AFS to ~~$26.16 at~~HTM to help preserve capital should interest rates continue to rise, and in doing so, $56.6 million of unrealized losses, net of tax, were isolated within capital and will amortize over the remaining life of the securities. The Company's non-regulatory capital ratios and book value as of the dates indicated were as follows:

•As of June 30, 2022, the Company's common equity ratio was 8.17% and its tangible common equity ratio (non-GAAP) was 6.51%, compared to 8.90% and 7.25% as of March 31, ~~2022. Despite the decrease in these ratios,~~2022, respectively, and 9.84% and 8.22% as of December 31, 2021, respectively.

•As of June 30, 2022, the Company's ~~capital position remains strong~~book value per share was $30.52 and its tangible book value per share (non-GAAP) was $23.92, compared to $32.72 and $26.16 as ~~evidenced by each~~ of ~~our regulatory capital ratios being well in excess of regulatory capital requirements at~~ March 31, ~~2022.~~2022, respectively, and $36.72 and $30.15 as of December 31, 2021, respectively.

In the first quarter of 2022, the Company initiated a new share repurchase program for up to 750,000 shares of its common stock, or approximately 5% of the Company's shares outstanding. This share repurchase program replaces the program that terminated in January 2021. ~~For the three months ended March 31, 2022, the~~The Company repurchased ~~13,086~~161,556 shares of its outstanding common stock through the first six months of 2022 at a weighted-average price of ~~$46.51~~$45.89 per ~~share.~~share, which included the repurchase of 148,470 shares at an average price of $45.83 per share in the second quarter of 2022.

RESULTS OF OPERATIONS

Net Interest Income and Net Interest Margin

Net interest income is the interest earned on loans, securities, and other interest-earning assets, adjusted for net loan fees, origination costs, and accretion or amortization of fair value marks on loans and/or CDs created in purchase accounting, less the interest paid on interest-bearing deposits and borrowings. Net interest income is our largest source of revenue ~~which~~("revenue" is defined as the sum of net interest income and non-interest ~~income.~~income). For the quarter ended ~~March 31,~~June 30, 2022, net interest income was ~~79%~~76% of total revenues, compared to ~~68%~~75% for the quarter ended ~~March 31,~~June 30, 2021. 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.

For the quarter ended ~~March 31,~~June 30, 2022, net interest income was $36.5 million, an increase of $3.0 million, or 9%, over the quarter ended June 30, 2021, and on a fully-taxable equivalent basis (non-GAAP), net interest income was $36.8 million, an increase of $3.0 million, or 9%, over the same period. Interest income on a fully-taxable equivalent basis ~~(non-GAAP) was $35.6 million, an increase of $4.0~~increased $3.7 million, or ~~12%~~10%, ~~compared~~over this period to $40.3 million for the quarter ended ~~March 31, 2021. The increase between periods was driven by a $3.4 million, or 10%, increase in interest income on a fully-taxable equivalent basis and a decrease in~~June 30, 2022, while interest expense ~~of $531,000,~~increased $759,000, or ~~18%.~~28%, to $3.5 million for the quarter ended June 30, 2022.

•The increase in interest income on a fully-taxable equivalent basis for the quarter ended June 30, 2022 over the same quarter last year was driven byby: (1) average interest-earning asset growth of ~~$562.5~~$402.9 million, or ~~12%~~8%, between periods, which included average loan growth of ~~$213.6~~$352.5 million, or 7%11%, ~~and~~ average investments growth of ~~$459.7~~$235.1 million, or ~~43%.~~19%, net of a decrease in interest-earning cash balances of $184.7 million, or 78%, partially offset by (2) lower SBA PPP loan income of $1.5 million. Our average loan growth between periods was concentrated in: (1) residential real estate, which grew ~~$264.3~~$364.1 million, or ~~24%~~33%, as, beginning in the second quarter of 2021, ~~the Company strategically~~we shifted our strategy to hold more ~~of its~~ residential mortgage ~~activity~~production within ~~its~~our loan portfolio, and (2) commercial real estate, which grew ~~$106.5~~$92.9 million, or 8%7%, (3) commercial loans, which grew $69.4 million, or 21%, offsetting ~~(3)~~(4) decreasing average SBA PPP loan balances of ~~$133.2~~$153.6 million as borrowers ~~take~~took advantage of loan forgiveness.

~~Average loan~~ Our investment growth between periods ~~offset~~was driven by our heavy investment activity throughout 2021, as we deployed our excess liquidity generated from the ~~impact of lower asset yields for the quarter ended March 31, 2022 of 3.07%, compared~~COVID-19 pandemic-related deposit surge, as stimulus monies were issued to ~~3.15% for the quarter ended March 31, 2021. The decrease in asset yields between periods reflects the low~~consumers and businesses, into investments to drive net interest ~~rate environment as new assets fund and existing assets reprice.~~income growth through higher yielding assets.

4950

~~Excluding SBA PPP loans, average loan balances grew 11%~~For the quarter ended June 30, 2022, our interest-earning asset yield was 3.11%, compared to 3.06% for the quarter ended June 30, 2021. This increase in our interest-earning asset yield reflects the shift in asset mix between periods as excess cash was deployed to fund strong loan growth over the past 12 months of 13% and into the investment portfolio. Also, between periods the interest rate environment significantly changed as the FOMC raised interest rates in an effort to curb inflation. For the quarter ended June 30, 2022, the average interest rate for 10-year U.S. Treasury was 2.93%, compared to 1.59% for the quarter ended June 30, 2021.

The increase in interest expense for the quarter ended June 30, 2022 over the same period last year was driven by the increase in interest rates between periods. Average deposit growth between periods of $398.7 million, or 10%, particularly average low-cost core deposits (non-GAAP) growth of $438.9 million, or 12%, negated some of the impact of higher interest rates increasing the Company's cost of funds 5 basis points between periods to 0.29% for the quarter ended June 30, 2022. For the quarter ended June 30, 2022, the average Effective Federal Funds Rate was 0.76%, compared to 0.07% for the quarter ended June 30, 2021.

For the quarter ended June 30, 2022, net interest margin was 2.84%, an increase of 1 basis point over the quarter ended June 30, 2021.

For the six months ended June 30, 2022, net interest income was $72.9 million, an increase of $7.0 million, or 11%, over the same period for 2021, and on a fully-taxable equivalent basis (non-GAAP) was $73.4 million, an increase of $6.9 million, or 10%, over the same period. Interest income on a fully-taxable equivalent basis increased $7.2 million, or 10%, over this period to $79.3 million for the six months ended June 30, 2022, while interest expense increased $228,000, or 4%, over this period to $6.0 million for the six months ended June 30, 2022.

The increase in interest income on a fully-taxable equivalent basis ~~increased $4.3~~for the six months ended June 30, 2022 over the same period last year was driven by: (1) average interest-earning asset growth of $482.2 million, or ~~13%.~~10%, between periods, which included average loan growth of $283.4 million, or 9%, average investments growth of $346.7 million, or 23%, net of a decrease in average interest-earning cash balances of $148.0 million, or 66%, partially offset by (2) lower SBA PPP loan income of $2.3 million. Our average loan growth between periods was concentrated in: (1) residential real estate, which grew $314.5 million, or 29%, as, beginning in the second quarter of 2021, we shifted our strategy to hold more residential mortgage production within our loan portfolio, and (2) commercial real estate, which grew $99.7 million, or 7%, (3) commercial loans, which grew $48.3 million, or 14%, offsetting (4) decreasing average SBA PPP loan balances of $143.4 million as borrowers took advantage of loan forgiveness. Our investment growth between periods was driven by our heavy investment activity throughout 2021 as we deployed our excess liquidity to drive net interest income growth through higher yielding assets.

•

For the six months ended June 30, 2022, our interest-earning asset yield was 3.09%, compared to 3.10% for the same period last year. This decrease in our interest-earning asset yield was driven by a lower average loan yield of 9 basis points between periods to 3.67% for the six months ended June 30, 2022. The primary drivers for the decrease in our average loan yield was the decrease in average loan yield for residential mortgages of 31 basis points and commercial of 33 basis points. Throughout 2021, customers actively refinanced residential and commercial loans to take advantage of the lower interest rate environment driving lower yielding new loan originations and compressing the average yield in these two loan segments.

The increase in interest expense for the six months ended June 30, 2022 over the same period last year was driven by the increase in average funding liabilities of $448.9 million, or 10%. Average deposits grew $503.6 million, or 13%, between periods and was driven by low-cost core deposits (non-GAAP) growth of $547.2 million, or 15%. Strong core deposit growth allowed for lower average borrowings of $54.8 million, or 11%, between periods, and the shift in funding mix provided for a decrease in funding costs of 81 basis ~~points~~point between periods to ~~0.21%~~0.25% for the ~~quarter~~six months ended ~~March 31,~~June 30, 2022. Over the period, average deposits grew $609.7 million, or 16%, while average borrowings decreased $93.6 million, or 18%. This change in funding mix, along with the ability to lower interest rates on more interest-rate sensitive products, such as money markets, CDs and brokered deposits, drove the decrease in funding costs between periods.

For the ~~quarter~~six months ended ~~March 31,~~June 30, 2022 and 2021, net interest margin ~~on a fully-taxable equivalent basis~~ was 2.87%, a decrease of 1 basis point compared to the quarter ended March 31, 2021. For the same period, the adjusted net interest margin on a fully-taxable equivalent basis (non-GAAP), which excludes the impact of SBA PPP loans and excess cash, for the quarter ended March 31, 2022, was 2.84%, compared to 2.91% for the quarter ended March 31, 2021.2.85%.

The following table presents average balances, interest income, interest expense, and the corresponding average yields earned and cost of funds, as well as net interest income, net interest rate spread and net interest margin on a fully-taxable basis for the followings periods:

5051

Quarterly Average Balance, Interest and Yield/Rate Analysis


		Three Months Ended													Three Months Ended
		March 31, 2022						March 31, 2021							June 30, 2022						June 30, 2021
(Dollars in thousands)	(Dollars in thousands)	Average Balance		Interest		Yield/Rate		Average Balance		Interest		Yield/Rate		(Dollars in thousands)	Average Balance		Interest		Yield/Rate		Average Balance		Interest		Yield/Rate
Assets	Assets													Assets
Interest-earning assets:	Interest-earning assets:													Interest-earning assets:
Interest-bearing deposits in other banks and other interest-earning assets	Interest-bearing deposits in other banks and other interest-earning assets	$	100,002	$	33	0.13	%	$	210,844	$	47	0.09	%	Interest-bearing deposits in other banks and other interest-earning assets	$	51,018	$	55	0.43	%	$	235,676	$	56	0.09	%
Investments - taxable	Investments - taxable	1,409,567		6,026		1.71	%	946,456		4,054		1.71	%	Investments - taxable	1,366,612		6,084		1.78	%	1,129,682		4,582		1.62	%
Investments - nontaxable(1)	Investments - nontaxable(1)	115,021		967		3.36	%	118,469		922		3.11	%	Investments - nontaxable(1)	112,954		975		3.45	%	114,811		965		3.36	%
Loans(2):	Loans(2):													Loans(2):
Commercial real estate	Commercial real estate	1,489,304		13,559		3.64	%	1,382,794		12,374		3.58	%	Commercial real estate	1,500,284		14,142		3.73	%	1,407,374		12,792		3.60	%
Commercial(1)	Commercial(1)	372,910		3,302		3.54	%	346,008		3,345		3.82	%	Commercial(1)	399,240		3,674		3.64	%	329,875		3,315		3.98	%
SBA PPP	SBA PPP	21,687		1,033		19.05	%	154,900		1,877		4.85	%	SBA PPP	4,696		165		13.88	%	158,258		1,660		4.15	%
Municipal(1)	Municipal(1)	15,221		130		3.46	%	24,133		198		3.33	%	Municipal(1)	18,633		145		3.13	%	26,137		212		3.26	%
Residential real estate	Residential real estate	1,347,427		11,652		3.46	%	1,083,101		10,078		3.72	%	Residential real estate	1,457,639		12,461		3.42	%	1,093,502		10,310		3.77	%
Consumer and home equity	Consumer and home equity	226,731		2,382		4.26	%	268,711		2,764		4.17	%	Consumer and home equity	240,967		2,560		4.26	%	253,825		2,639		4.17	%
Total loans	Total loans	3,473,280		32,058		3.70	%	3,259,647		30,636		3.76	%	Total loans	3,621,459		33,147		3.64	%	3,268,971		30,928		3.76	%
Total interest-earning assets	Total interest-earning assets	5,097,870		39,084		3.07	%	4,535,416		35,659		3.15	%	Total interest-earning assets	5,152,043		40,261		3.11	%	4,749,140		36,531		3.06	%
Cash and due from banks	Cash and due from banks	47,820						51,554						Cash and due from banks	49,733						53,048
Other assets	Other assets	308,524						388,345						Other assets	242,093						364,258
Less: ACL	Less: ACL	(33,111)						(37,926)						Less: ACL	(32,234)						(35,629)
Total assets	Total assets	$	5,421,103					$	4,937,389					Total assets	$	5,411,635					$	5,130,817
Liabilities & Shareholders' Equity	Liabilities & Shareholders' Equity													Liabilities & Shareholders' Equity
Deposits:	Deposits:													Deposits:
Non-interest checking	Non-interest checking	$	1,199,456	$	—	—	%	$	817,631	$	—	—	%	Non-interest checking	$	1,199,678	$	—	—	%	$	970,446	$	—	—	%
Interest checking	Interest checking	1,414,704		664		0.19	%	1,289,511		612		0.19	%	Interest checking	1,426,335		1,147		0.32	%	1,311,400		588		0.18	%
Savings	Savings	750,899		76		0.04	%	626,591		64		0.04	%	Savings	751,274		77		0.04	%	659,892		67		0.04	%
Money market	Money market	710,256		518		0.30	%	685,026		523		0.31	%	Money market	707,176		746		0.42	%	703,780		506		0.29	%
Certificates of deposit	Certificates of deposit	304,720		338		0.45	%	351,555		549		0.63	%	Certificates of deposit	298,335		324		0.44	%	338,595		449		0.53	%
Total deposits	Total deposits	4,380,035		1,596		0.15	%	3,770,314		1,748		0.19	%	Total deposits	4,382,798		2,294		0.21	%	3,984,113		1,610		0.16	%
Borrowings:	Borrowings:													Borrowings:
Brokered deposits	Brokered deposits	176,399		237		0.55	%	284,620		315		0.45	%	Brokered deposits	145,735		216		0.59	%	284,194		311		0.44	%
Customer repurchase agreements	Customer repurchase agreements	208,147		129		0.25	%	165,721		121		0.29	%	Customer repurchase agreements	223,212		224		0.40	%	184,663		176		0.38	%
Subordinated debentures	Subordinated debentures	44,331		529		4.84	%	59,331		805		5.50	%	Subordinated debentures	44,331		532		4.81	%	46,639		640		5.50	%
Other borrowings	Other borrowings	1,613		2		0.39	%	14,444		35		0.99	%	Other borrowings	85,917		230		1.07	%	—		—		—	%
Total borrowings	Total borrowings	430,490		897		0.85	%	524,116		1,276		0.99	%	Total borrowings	499,195		1,202		0.97	%	515,496		1,127		0.88	%
Total funding liabilities	Total funding liabilities	4,810,525		2,493		0.21	%	4,294,430		3,024		0.29	%	Total funding liabilities	4,881,993		3,496		0.29	%	4,499,609		2,737		0.24	%
Other liabilities	Other liabilities	85,140						109,314						Other liabilities	71,838						92,261
Shareholders' equity	Shareholders' equity	525,438						533,645						Shareholders' equity	457,804						538,947
Total liabilities & shareholders' equity	Total liabilities & shareholders' equity	$	5,421,103					$	4,937,389					Total liabilities & shareholders' equity	$	5,411,635					$	5,130,817
Net interest income (fully-taxable equivalent)	Net interest income (fully-taxable equivalent)			36,591						32,635				Net interest income (fully-taxable equivalent)			36,765						33,794
Less: fully-taxable equivalent adjustment	Less: fully-taxable equivalent adjustment			(226)						(271)				Less: fully-taxable equivalent adjustment			(231)						(265)
Net interest income	Net interest income			$	36,365					$	32,364			Net interest income			$	36,534					$	33,529
Net interest rate spread (fully-taxable equivalent)	Net interest rate spread (fully-taxable equivalent)					2.86	%					2.86	%	Net interest rate spread (fully-taxable equivalent)					2.82	%					2.82	%
Net interest margin (fully-taxable equivalent)	Net interest margin (fully-taxable equivalent)					2.87	%					2.88	%	Net interest margin (fully-taxable equivalent)					2.84	%					2.83	%
Adjusted net interest margin (fully-taxable equivalent) (non-GAAP)	Adjusted net interest margin (fully-taxable equivalent) (non-GAAP)					2.84	%					2.91	%	Adjusted net interest margin (fully-taxable equivalent) (non-GAAP)					2.85	%					2.89	%

(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.

5152

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


	Six Months Ended
	June 30, 2022						June 30, 2021
(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	$	75,375	$	88	0.23	%	$	223,329	$	102	0.09	%
Investments - taxable	1,387,971		12,110		1.74	%	1,038,575		8,636		1.66	%
Investments - nontaxable(1)	113,982		1,941		3.41	%	116,630		1,887		3.24	%
Loans(2):
Commercial real estate	1,494,824		27,702		3.69	%	1,395,152		25,166		3.59	%
Commercial(1)	386,147		6,976		3.59	%	337,897		6,662		3.92	%
SBA PPP	13,145		1,198		18.12	%	156,588		3,536		4.49	%
Municipal(1)	16,937		275		3.28	%	25,141		410		3.29	%
Residential real estate	1,402,838		24,114		3.44	%	1,088,330		20,388		3.75	%
Consumer and home equity	233,888		4,942		4.26	%	261,227		5,403		4.17	%
Total loans	3,547,779		65,207		3.67	%	3,264,335		61,565		3.76	%
Total interest-earning assets	5,125,107		79,346		3.09	%	4,642,869		72,190		3.10	%
Cash and due from banks	48,782						52,305
Other assets	275,124						376,234
Less: ALL	(32,670)						(36,771)
Total assets	$	5,416,343					$	5,034,637
Liabilities & Shareholders' Equity
Deposits:
Non-interest checking	$	1,199,567	$	—	—	%	$	894,460	$	—	—	%
Interest checking	1,420,552		1,810		0.26	%	1,300,516		1,200		0.19	%
Savings	751,087		153		0.04	%	643,333		130		0.04	%
Money market	708,708		1,264		0.36	%	694,455		1,029		0.30	%
Certificates of deposit	301,510		662		0.44	%	345,039		998		0.58	%
Total deposits	4,381,424		3,889		0.18	%	3,877,803		3,357		0.17	%
Borrowings:
Brokered deposits	160,982		454		0.57	%	284,406		627		0.44	%
Customer repurchase agreements	215,721		354		0.33	%	175,245		297		0.34	%
Subordinated debentures	44,331		1,061		4.83	%	52,950		1,445		5.50	%
Other borrowings	43,998		231		1.06	%	7,182		35		0.99	%
Total borrowings	465,032		2,100		0.91	%	519,783		2,404		0.93	%
Total funding liabilities	4,846,456		5,989		0.25	%	4,397,586		5,761		0.26	%
Other liabilities	78,453						100,740
Shareholders' equity	491,434						536,311
Total liabilities & shareholders' equity	$	5,416,343					$	5,034,637
Net interest income (fully-taxable equivalent)			73,357						66,429
Less: fully-taxable equivalent adjustment			(458)						(536)
Net interest income			$	72,899					$	65,893
Net interest rate spread (fully-taxable equivalent)					2.84	%					2.84	%
Net interest margin (fully-taxable equivalent)					2.85	%					2.85	%
Adjusted net interest margin (fully-taxable equivalent) (non-GAAP)					2.85	%					2.90	%

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

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

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


		Three Months Ended March 31, 2022 vs. March 31, 2021						Three Months Ended June 30, 2022 vs. June 30, 2021								Six Months Ended June 30, 2022 vs. June 30, 2021
		Increase (Decrease) Due to:				Net Increase (Decrease)				Increase (Decrease) Due to:						Net Increase (Decrease)			Increase (Decrease) Due to:								Net Increase (Decrease)
(In thousands)	(In thousands)	Volume		Rate					(In thousands)			Volume			Rate			Net Increase (Decrease)			Volume				Rate				Net Increase (Decrease)
Interest-earning assets:	Interest-earning assets:										Interest-earning assets:
Interest-bearing deposits in other banks and other interest-earning assets	Interest-bearing deposits in other banks and other interest-earning assets	$	(25)	$	11	$	(14)				Interest-bearing deposits in other banks and other interest-earning assets		$	(42)		$	41				$	(1)			$	(67)			$	53			$	(14)
Investments – taxable	Investments – taxable	1,980		(8)		1,972					Investments – taxable		960			542			1,502				2,900				574				3,474
Investments – nontaxable	Investments – nontaxable	(27)		72		45					Investments – nontaxable		(16)			26			10				(43)				97				54

Commercial real estate	Commercial real estate	953		232		1,185					Commercial real estate		845			505			1,350				1,799				737				2,536
Commercial	Commercial	259		(302)		(43)					Commercial		698			(339)			359				951				(637)				314
SBA PPP	SBA PPP	(1,614)		770		(844)					SBA PPP		(1,611)			116			(1,495)				(3,238)				900				(2,338)

Municipal	Municipal	(73)		5		(68)					Municipal		(61)			(6)			(67)				(134)				(1)				(135)
Residential real estate	Residential real estate	2,458		(884)		1,574					Residential real estate		3,432			(1,281)			2,151				5,897				(2,171)				3,726
Consumer and home equity	Consumer and home equity	(432)		50		(382)					Consumer and home equity		(134)			55			(79)				(565)				104				(461)
Total interest income (fully-taxable equivalent)	Total interest income (fully-taxable equivalent)	3,479		(54)		3,425					Total interest income (fully-taxable equivalent)		4,071			(341)			3,730				7,500				(344)				7,156
Interest-bearing liabilities:	Interest-bearing liabilities:										Interest-bearing liabilities:
Interest checking	Interest checking	59		(7)		52					Interest checking		52			507			559				113				497				610
Savings	Savings	12		—		12					Savings		9			1			10				21				2				23
Money market	Money market	19		(24)		(5)					Money market		2			238			240				21				214				235
Certificates of deposit	Certificates of deposit	(73)		(138)		(211)					Certificates of deposit		(53)			(72)			(125)				(125)				(211)				(336)
Brokered deposits	Brokered deposits	(120)		42		(78)					Brokered deposits		(152)			57			(95)				(269)				96				(173)
Customer repurchase agreements	Customer repurchase agreements	31		(23)		8					Customer repurchase agreements		37			11			48				69				(12)				57
Subordinated debentures	Subordinated debentures	(203)		(73)		(276)					Subordinated debentures		(32)			(76)			(108)				(235)				(149)				(384)
Other borrowings	Other borrowings	(31)		(2)		(33)					Other borrowings		230			—			230				181				15				196
Total interest expense	Total interest expense	(306)		(225)		(531)					Total interest expense		93			666			759				(224)				452				228
Net interest income (fully-taxable equivalent)	Net interest income (fully-taxable equivalent)	$	3,785	$	171	$	3,956				Net interest income (fully-taxable equivalent)		$	3,978		$	(1,007)		$	2,971			$	7,724			$	(796)			$	6,928

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


		Income Statement Location		Three Months Ended March 31,								Income Statement Location			Three Months Ended June 30,							Six Months Ended June 30,
(In thousands)	(In thousands)		2022			2021								Income Statement Location			2022				2021				2022				2021
Loan fees~~(1)~~	Loan fees~~(1)~~		Interest income			$	1,081			$	1,440				Loan fees~~(1)~~					$	222			$	1,253			$	1,303			$	2,693
Net fair value mark accretion from purchase accounting	Net fair value mark accretion from purchase accounting	Interest income and Interest expense		81				234					Net fair value mark accretion from purchase accounting			Interest income and Interest expense			46				192				126				425
Recoveries on previously charged-off acquired loans	Recoveries on previously charged-off acquired loans	Interest income		145				25					Recoveries on previously charged-off acquired loans		Interest income			24				108				169				133
Total	Total			$	1,307			$	1,699				Total					$	292			$	1,553			$	1,598			$	3,251

~~(1) As of March 31, 2022 and December 31, 2021, there were $220,000 and $1.2 million of SBA PPP loan origination fees yet to be recognized, respectively.~~

5254

~~Credit~~Provision (Credit) for Credit Losses

The ~~credit~~provision (credit) for credit losses ~~(i.e., "negative" provision for credit losses)~~ was made up of the following components for the periods indicated:
Three Months Ended
March 31, Change
(Dollars in thousands) 2022 2021 $ %
Credit for loan losses $ (1,236) $ (1,854) $ 618 (33) %
Provision (credit) for credit losses on off-balance sheet credit exposures 161 (102) 263 N.M.
Credit for credit losses $ (1,075) $ (1,956) $ 881 (45) %


	Three Months Ended June 30,				Change				Six Months Ended June 30,				Change
(Dollars in thousands)	2022		2021		$		%		2022		2021		$		%
Provision (credit) for loan losses	$	2,511	$	(3,452)	$	5,963	(173)	%	$	1,275	$	(5,306)	$	6,581	(124)	%
(Credit) provision for credit losses on off-balance sheet credit exposures	(166)		49		(215)		N.M.		(5)		(53)		48		N.M.
Provision (credit) for credit losses	$	2,345	$	(3,403)	$	5,748	(169)	%	$	1,270	$	(5,359)	$	6,629	(124)	%

For the ~~quarter~~three and six months ended ~~March 31,~~June 30, 2022, a ~~negative~~ provision for credit losses on loans was recorded ~~as $1.9~~of $2.5 million and $1.3 million, respectively. The provision for credit losses on loans for the three and six months ended June 30, 2022, was driven by: (1) a softening overall economy and the increasing likelihood of an economic slowdown, and (2) 5% loan growth for the quarter ended June 30, 2022 and 9% loan growth for the first half of 2022, that offset (3) the release of $2.4 and $4.3 million for the three and six months ended June 30, 2022, respectively, of additional reserves ~~that were established on~~provided for certain commercial real estate loans ~~in response to~~at the onset of the COVID-19 ~~modifications~~pandemic due to ~~their~~the heightened credit risk ~~were released, which more than offset~~at that time. For these loans, the ~~provision expense~~Company established certain credit metrics that would ~~have otherwise been required on $102.7 million, or 3%, loan growth during~~need to be met by the ~~quarter.~~borrower prior to releasing the reserve, including a debt service coverage ratio and consistent timely payments of full principal and interest as agreed.

For the ~~quarter~~three and six months ended ~~March 31,~~June 30, 2021, a ~~release~~credit for credit losses on loans of ~~provision for loan losses of $1.9~~$3.5 million and $5.3 million,

respectively, was ~~recorded, which~~recorded. These releases reflected an improvement in the Company's ~~overall asset quality strength~~macroeconomic outlook at that time and ~~an improvement in its macroeconomic outlook over its four quarter forecast period within its CECL model.~~the continued strength of the Company's credit quality.

~~Annualized net~~Net charge-offs for the ~~quarter~~three and six months ended ~~March 31,~~June 30, 2022 were $37,000 and ~~2021, were 0.03% of average loans~~$287,000, respectively, compared to $263,000 and $499,000 for ~~both periods.~~the three and six months ended June 30, 2021.

Non-Interest Income

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


		Three Months Ended March 31,						Change				Three Months Ended June 30,		Change						Six Months Ended June 30,				Change
(Dollars in thousands)	(Dollars in thousands)	2022			2021			$		%			(Dollars in thousands)	2022			2021			$		%		2022			2021			$		%
Mortgage banking income, net(1)		$	1,034		$	7,109		$	(6,075)	(85)	%
Debit card income	Debit card income	2,924			2,736			188		7	%		Debit card income	$	3,213		$	3,112		$	101	3	%	$	6,137		$	5,848		$	289	5	%
Service charges on deposit accounts(1)													Service charges on deposit accounts(1)	1,931			1,517			414		27	%	3,764			3,056			708		23	%
Income from fiduciary services	Income from fiduciary services	1,631			1,526			105		7	%		Income from fiduciary services	1,681			1,707			(26)		(2)	%	3,312			3,233			79		2	%
Service charges on deposit accounts		1,833			1,539			294		19	%
Mortgage banking income, net(2)													Mortgage banking income, net(2)	1,517			2,598			(1,081)		(42)	%	2,551			9,707			(7,156)		(74)	%
Brokerage and insurance commissions(3)	Brokerage and insurance commissions(3)	994			953			41		4	%		Brokerage and insurance commissions(3)	1,272			939			333		35	%	2,266			1,892			374		20	%
Bank-owned life insurance	Bank-owned life insurance	576			594			(18)		(3)	%		Bank-owned life insurance	569			591			(22)		(4)	%	1,145			1,185			(40)		(3)	%

Net loss on sale of securities													Net loss on sale of securities	(9)			—			(9)		N.M.		(9)			—			(9)		N.M.
Other income	Other income	833			758			75		10	%		Other income	967			856			111		13	%	1,800			1,614			186		12	%
Total non-interest income	Total non-interest income	$	9,825		$	15,215		$	(5,390)	(35)	%		Total non-interest income	$	11,141		$	11,320		$	(179)	(2)	%	$	20,966		$	26,535		$	(5,569)	(21)	%
Non-interest income as a percentage of total revenues	Non-interest income as a percentage of total revenues	21		%	32		%						Non-interest income as a percentage of total revenues	23		%	25		%					22		%	29		%

(1)Service charges on deposit accounts: The increase for the three and six months ended June 30, 2022, compared to the same periods of 2021, was driven by a decrease in overdraft fees in 2021 due to stimulus funds received by customers and an increase in deposit account fees.

(2) Mortgage banking income, net: The decrease ~~in mortgage banking income, net~~ for the ~~quarter~~three months ended ~~March 31,~~June 30, 2022, compared to the ~~quarter ended March 31,~~same period of 2021, was driven by ~~a decrease~~the change in ~~residential mortgage sales to~~ the ~~secondary market~~markets between ~~periods. For~~periods highlighted by the change in interest rates. During the second quarter ~~ended March 31,~~of 2022, the Company sold ~~$46.6~~$47.0 million, or ~~23%~~20%, of its residential mortgage loan production compared to ~~$192.6~~$110.8 million, or ~~66%~~40%, of its residential mortgage loan production for the second quarter ~~ended March 31,~~of 2021. ~~Residential~~Our markets saw

elevated housing demand through 2020 and 2021 largely in response to the COVID-19 pandemic. This activity, coupled with the low interest rate environment, drove record residential mortgage ~~activity was very strong~~production in 2021. The increase in interest rates through the first ~~quarter~~half of ~~2021 as~~2022, together with higher housing prices and operating in highly competitive markets, has slowed residential mortgage ~~interest rates were near record lows driving both purchase and refinance activity and the Company's strategy was to sell the majority of its~~ production ~~at that time. In~~through the first ~~quarter~~half of 2022 ~~interest rates increased sharply as~~and decreased the ~~market's interest rate expectations shifted driving higher residential mortgage interest. The combination~~amount of ~~higher interest rates, strong local market competition, low housing inventory and a shift in strategy between periods drove a decrease in~~ salable ~~volume~~production to the secondary market.

The decrease for the six months ended June 30, 2022, compared to the same period of 2021, was due to the decrease in residential mortgage loan sales, compared to June 30, 2021. For the six months ended June 30, 2022, the Company ~~anticipates~~sold $93.7 million, or 20%, of its residential mortgages, compared to $303.4 million, or 47%, for the ~~majority~~six months ended June 30, 2021. This decrease was driven by the decrease in residential mortgage production through the first six months of 2022 (for the reasons outlined above), which have slowed commensurate with the overall industry. Beginning in the second quarter of 2021, the Company shifted its strategy to hold more of its residential mortgage production ~~will be held~~within its portfolio.

(3) Brokerage and insurance commissions: The increase for the three and six months ended June 30, 2022, compared to the

same periods of 2021, was driven by an increase in ~~its loan portfolio over coming quarters.~~production across the sales team as well as an increase an annuity sales, as customers look to mitigate the impact of market volatility.

Non-Interest Expense

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


		Three Months Ended March 31,						Change				Three Months Ended June 30,		Change						Six Months Ended June 30,				Change
(Dollars in thousands)	(Dollars in thousands)	2022			2021			$		%			(Dollars in thousands)	2022			2021			$		%		2022			2021			$		%
Salaries and employee benefits(1)	Salaries and employee benefits(1)	$	15,506		$	14,522		$	984	7	%		Salaries and employee benefits(1)	$	15,402		$	15,318		$	84	1	%	$	30,908		$	29,840		$	1,068	4	%
Furniture, equipment and data processing(2)	Furniture, equipment and data processing(2)	3,132			3,027			105		3	%		Furniture, equipment and data processing(2)	3,202			2,947			255		9	%	6,334			5,974			360		6	%
Net occupancy costs	Net occupancy costs	2,144			1,951			193		10	%		Net occupancy costs	1,806			1,805			1		—	%	3,950			3,756			194		5	%
Consulting and professional fees(3)													Consulting and professional fees(3)	1,293			997			296		30	%	2,300			1,860			440		24	%
Debit card expense	Debit card expense	1,066			986			80		8	%		Debit card expense	1,134			1,074			60		6	%	2,200			2,060			140		7	%
Consulting and professional fees		1,007			863			144		17	%
Regulatory assessments	Regulatory assessments	655			503			152		30	%		Regulatory assessments	515			487			28		6	%	1,170			990			180		18	%
Amortization of core deposit intangible assets	Amortization of core deposit intangible assets	156			164			(8)		(5)	%		Amortization of core deposit intangible assets	157			164			(7)		(4)	%	313			328			(15)		(5)	%
Other real estate owned and collection (recoveries) costs, net		(85)			(191)			106		(55)	%
Other real estate owned and collection costs (recoveries), net													Other real estate owned and collection costs (recoveries), net	38			(25)			63		(252)	%	(47)			(216)			169		(78)	%

Other expenses~~(2)~~	Other expenses~~(2)~~	2,628			3,074			(446)		(15)	%		Other expenses~~(2)~~	3,009			2,823			186		7	%	5,637			5,897			(260)		(4)	%
Total non-interest expense	Total non-interest expense	$	26,209		$	24,899		$	1,310	5	%		Total non-interest expense	$	26,556		$	25,590		$	966	4	%	$	52,765		$	50,489		$	2,276	5	%
Ratio of non-interest expense to total revenues	Ratio of non-interest expense to total revenues	56.74		%	52.33		%						Ratio of non-interest expense to total revenues	55.70		%	57.06		%					56.21		%	54.63		%
Efficiency ratio (non-GAAP)	Efficiency ratio (non-GAAP)	56.47		%	50.96		%						Efficiency ratio (non-GAAP)	55.42		%	56.72		%					55.94		%	53.76		%

(1) Salaries and employee benefits: The increase for the ~~quarter~~six months ended ~~March 31,~~June 30, 2022, compared to the ~~quarter~~six months ended ~~March~~June 2021, was driven by higher salary costs of 11% due to normal merit cycles and an off-cycle merit increase in October 2021 to address inflationary pressures for our employees and the competitive labor market. Higher salary costs were partially offset by suspending the discretionary profit sharing plan for employees, effective January 1, 2022. These salary increases were offset by lower incentive accruals between periods.

(2) ~~Other expenses:~~ Furniture, equipment and data processing costs:The ~~decrease~~increase for the ~~quarter~~three and six months ended ~~March 31,~~June 30, 2022, compared to the ~~quarter ended March 31,~~same periods of 2021, was ~~primarily~~ driven by ~~a one-time prepayment penalty~~our continued investment in technology and data processing.

(3) Consulting and professional fees: The increase for the three and six months ended June 30, 2022, compared to the same periods of ~~$514,000 upon the termination of a long-term FHLBB borrowing.~~2021, was driven by an increase in directors' share-based compensation expense.

FINANCIAL CONDITION

Cash and Cash Equivalents

Total cash and cash equivalents at ~~March 31,~~June 30, 2022, were ~~$139.4~~$76.4 million, compared to $220.6 million at December 31, 2021. ~~The~~This decrease inwas due to the deployment of cash and cash equivalents' balances ~~of $81.2 million during the three months ended March 31, 2022, was driven by~~to support strong loan growth of ~~$102.7 million, or 3%, over this same period~~9% during the first six months of 2022. We continually monitor our cash levels as part of our liquidity risk management practices.

Investments

The Company utilizes the investment portfolio to manage liquidity, interest rate risk, and regulatory capital, as well as to take advantage of market conditions to generate returns without undue risk. At ~~March 31,~~June 30, 2022 and December 31, 2021, the Company’s investment portfolio generally consists of MBS, CMO, municipal and corporate debt securities, FHLBB and FRB common stock, and mutual funds held in a rabbi trust for its executive and director nonqualified retirement plans. We designate our debt securities as AFS or HTM based on our intent and investment strategy and they are carried at fair value or amortized cost, ~~respectively, our~~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 quarter ended June 30, 2022, we transferred 141 securities with a fair value of $520.3 million 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, a non-cash transaction. The unrealized losses on the AFS debt securities at the time of the transfer were $72.1 million, pre-tax, and were reported within AOCI. The weighted average life of the transferred securities as of the date of transfer was 8.8 years and the unrealized losses will be amortized over the remaining lives. At ~~March 31,~~June 30, 2022, the net unrealized losses on the transferred securities reported within AOCI were $56.0 million, net of a deferred tax asset of $15.3 million.

At June 30, 2022, the Company's investments portfolio totaled $1.4 billion, a decrease of ~~$86.1~~$170.6 million, or 6%11%, since December 31, 2021. ~~The decrease during the three months ended March 31, 2022~~This was driven by changes within our ~~AFS~~ debt securities portfolio, including:

•Purchases of $77.9 million of debt securities to offset anticipated quarterly cash flows. The weighted-average life of investments purchased during the three months ended March 31, 2022, was 5.5 years,

•~~Partially offsetting the purchases during the three months ended March 31, 2022 were (i) paydowns~~Paydowns, calls and ~~calls~~maturities of ~~$69.6~~$122.3 million and ~~(ii) a~~sales of $8.7 million;

•A net decrease in the fair value of the AFS debt securities portfolio of ~~$92.8~~$75.0 million as interest rates rose sharply during the first ~~quarter~~half of 2022 in anticipation of a tightening economic policy to curb inflationary pressures. As a result, the ~~10-year~~2-year U.S. Treasury increased 80219 basis points and the 10-year U.S. Treasury increased 146 basis points during the first ~~quarter~~half of 2022 to ~~2.32%~~2.92% and 2.98%, respectively, at

~~March 31,~~ June 30, 2022, causing bond prices to fall. The change in market interest rates was the primary driver of the increase in the weighted average life of our debt securities portfolio from 5.9 years at December 31, 2021 to ~~6.4~~6.6 years at ~~March 31,~~June 30, 2022;

•A decrease of $72.1 million due to the unrealized losses on the AFS securities that were transferred to HTM;

•Partially offset by purchases of $105.4 million of debt securities during the first half of 2022. The weighted-average life of investments purchased during this period 6.1 years.

Our debt securities designated as AFS, which comprised 58% and 99% of our investment portfolio at ~~March 31,~~June 30, 2022 and December 31, 2021, respectively, were carried at fair value using level 2 valuation techniques. Refer to Note 15 of the consolidated financial statements for further details on fair value. At ~~March 31,~~June 30, 2022 and December 31, 2021, investments were ~~27%~~25% and 28% of total assets, respectively. Our debt securities designated as HTM, comprised 40% at June 30, 2022 and were less than 1% at December 31, 2021. Our HTM debt securities were carried at amortized cost on the consolidated statements of condition.

The AFS and HTM debt securities portfolio has limited credit risk due to its composition, which includes highly-rated debt securities by nationally recognized rating agencies, and securities backed by the U.S. government and government-sponsored agencies. At ~~March 31,~~June 30, 2022 and December 31, 2021, these investments represented ~~92%~~90% of the investment portfolio. The majority of the municipal bonds, which represented 8% of the investment portfolio at ~~March 31,~~June 30, 2022 and December 31, 2021, had a credit rating of "AA" or higher.

Other investments on the consolidated statements of condition consist of FHLBB and FRB common stock. These investments are carried at cost. We are required to maintain a certain level of investment in FHLBB stock based on our level of FHLBB advances, and maintain a certain level of investment in FRB common stock based on the Bank's capital levels. As of ~~March 31,~~

June 30, 2022 and December 31, 2021, investment in FHLBB stock totaled ~~$4.8~~$9.1 million and $4.9 million, respectively, and our investment in FRB stock was $5.4 million at each date.

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.

AFS debt securities that are in an unrealized loss position are assessed to determine if an allowance should be recorded or if a write-down is required. We did not record any allowances or write-down any of our AFS debt securities in an unrealized loss position as of ~~March 31,~~June 30, 2022 or December 31, 2021. As noted above, the unrealized losses within our AFS debt securities as of ~~March 31,~~June 30, 2022 and December 31, 2021 were driven by changes in the interest rate environment and were not credit-related.

HTM debt securities are assessed to determine if an allowance should be recorded or if a write-down is required. WeBased on the portfolio of the HTM debt securities as of June 30, 2022 and December 31, 2021, we did not record any allowances or write-down any of ~~our~~the HTM debt securities, asRefer to "Note 3—Investments" for further discussion of ~~March 31, 2022 or December 31, 2021.~~the detail of the portfolio and our determination that the expected credit loss was immaterial.

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 review credit ratings. The overall mix of debt securities at ~~March 31,~~June 30, 2022, compared to December 31, 2021, remains relatively unchanged and the Company expects it will continue to be well positioned to provide a stable source of cash flow. At ~~March 31,~~June 30, 2022 and December 31, 2021, the duration of our debt investment securities portfolio, adjusting for calls when appropriate and consensus prepayment speeds, was ~~5.5~~5.8 years and 4.8 years, respectively. Similar to the weighted-average life of the investment portfolio, the duration of the investment portfolio primarily increased between periods due to the increase in interest rates during the first half of 2022.

Loans

The Company provides loans primarily to customers located within our geographic market area. Our primary market continues to be Maine, making up 71% and 72% of the loan portfolio as of ~~March 31,~~June 30, 2022 and December 31, 2021, respectively. Massachusetts and New Hampshire are our second and third largest markets that we serve, making up 14% and 9%, respectively, of our total loan portfolio as of ~~March 31,~~June 30, 2022 and December 31, 2021. ~~Our~~As of June 30, 2022, our distribution channels ~~include~~included 57 branches within Maine, a residential mortgage lending office in Massachusetts, a branch and commercial loan production office in New Hampshire, and online residential mortgage and small commercial loan platforms.

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


								Change											Change
(Dollars in thousands)	(Dollars in thousands)	March 31, 2022			December 31, 2021			($)		(%)		(Dollars in thousands)	June 30, 2022			December 31, 2021			($)		(%)
Commercial real estate - non-owner-occupied	Commercial real estate - non-owner-occupied	$	1,181,622		$	1,178,185		$	3,437	—	%	Commercial real estate - non-owner-occupied	$	1,208,700		$	1,178,185		$	30,515	3	%
Commercial real estate - owner-occupied	Commercial real estate - owner-occupied	322,268			317,275			4,993		2	%	Commercial real estate - owner-occupied	324,214			317,275			6,939		2	%
Commercial	Commercial	403,352			363,695			39,657		11	%	Commercial	421,220			363,695			57,525		16	%
SBA PPP	SBA PPP	6,311			35,953			(29,642)		(82)	%	SBA PPP	2,509			35,953			(33,444)		(93)	%
Residential real estate	Residential real estate	1,392,199			1,306,447			85,752		7	%	Residential real estate	1,517,239			1,306,447			210,792		16	%
Consumer and home equity	Consumer and home equity	228,466			229,919			(1,453)		(1)	%	Consumer and home equity	250,345			229,919			20,426		9	%
Total loans	Total loans	$	3,534,218		$	3,431,474		$	102,744	3	%	Total loans	$	3,724,227		$	3,431,474		$	292,753	9	%
Commercial Loan Portfolio	Commercial Loan Portfolio	$	1,913,553		$	1,895,108		$	18,445	1	%	Commercial Loan Portfolio	$	1,956,643		$	1,895,108		$	61,535	3	%
Retail Loan Portfolio	Retail Loan Portfolio	1,620,665			1,536,366			84,299		5	%	Retail Loan Portfolio	$	1,767,584		$	1,536,366		$	231,218	15	%
Commercial Portfolio Mix	Commercial Portfolio Mix	54		%	55		%					Commercial Portfolio Mix	53		%	55		%
Retail Portfolio Mix	Retail Portfolio Mix	46		%	45		%					Retail Portfolio Mix	47		%	45		%

~~The Company's loan growth for~~For the first ~~quarter of 2022 was primarily driven by residential real estate loan growth and commercial loan growth. During the first quarter~~half of 2022, the Company held ~~77%~~80% of its funded residential mortgage production, ~~compared~~which was higher than in recent years, primarily due to ~~67% for the fourth quarter of 2021. The increase in the percentage of residential mortgages held within the loan portfolio, compared to the fourth quarter of 2021, is the result of~~market conditions, such as local market ~~interest rates not keeping pace with secondary market expectations as local competition is strong, combined with a housing inventory shortage~~pricing and ~~slower refinance activity. The Company anticipates that this trend will continue and it will hold the majority of its residential~~jumbo mortgage production within its loan portfolio over the coming quarters. The Company's commercial loan growth for the first quarter was driven primarily by small business loans, reflective of its recent build-out of a dedicated small business team.demand.

Beginning in April 2020, the Company started funding SBA PPP loans issued to qualifying small businesses as part of the federal stimulus package issued due to the COVID-19 pandemic. Effective May 2021, the SBA PPP loan program ended and the Company ceased originating loans under this program. The decrease infor the first ~~quarter~~six months of 2022 was driven by borrower loans being forgiven under the terms of the program. As of ~~March 31,~~June 30, 2022 and December 31, 2021, there were ~~$220,000~~$67,000 and $1.2 million of SBA PPP loan origination fees yet to be recognized, respectively.

~~During~~Through the first ~~quarter~~half of 2022, ~~interest rates rose sharply in anticipation of~~ the ~~Federal Open Market Committee increasing~~FOMC increased the Federal Funds ~~interest rate this year~~Interest Rate sharply in an effort to curb ~~widespread~~ inflationary pressures. In doing so, there is a high likelihood the economy will slow which may have an impact on overall loan demand and slow the Company's loan growth moving forward.

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. In light of the current environment, management is monitoring the impact of the following on our borrowers: (1) the impact of rising interest rates, (2) ~~the continued impact of COVID-19, (3)~~ widespread inflationary pressures across the value chain, and ~~(4)~~(3) challenges across the labor market.

Management of the Company's credit risk includes management and board-level oversight as follows:

•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.

5759

Non-Performing Assets

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


(Dollars in thousands)	(Dollars in thousands)	March 31, 2022			December 31, 2021			(Dollars in thousands)	June 30, 2022			December 31, 2021
Non-accrual loans:	Non-accrual loans:							Non-accrual loans:
Commercial real estate - non-owner-occupied	Commercial real estate - non-owner-occupied	$	50		$	51		Commercial real estate - non-owner-occupied	$	50		$	51
Commercial real estate - owner-occupied	Commercial real estate - owner-occupied	133			133			Commercial real estate - owner-occupied	132			133
Commercial	Commercial	1,045			829			Commercial	723			829
Residential real estate	Residential real estate	2,052			2,107			Residential real estate	1,831			2,107
Consumer and home equity	Consumer and home equity	1,172			1,207			Consumer and home equity	769			1,207
Total non-accrual loans	Total non-accrual loans	4,452			4,327			Total non-accrual loans	3,505			4,327

Accruing TDRs not included above	Accruing TDRs not included above	2,303			2,392			Accruing TDRs not included above	2,316			2,392
Total non-performing loans	Total non-performing loans	6,755			6,719			Total non-performing loans	5,821			6,719
Other real estate owned	Other real estate owned	—			165			Other real estate owned	—			165
Total non-performing assets	Total non-performing assets	$	6,755		$	6,884		Total non-performing assets	$	5,821		$	6,884
Total loans, excluding loans held for sale	Total loans, excluding loans held for sale	$	3,534,218		$	3,431,474		Total loans, excluding loans held for sale	$	3,724,227		$	3,431,474
Total assets	Total assets	$	5,420,415		$	5,500,356		Total assets	$	5,466,496		$	5,500,356
ACL on loans	ACL on loans	$	31,770		$	33,256		ACL on loans	$	34,244		$	33,256
ACL on loans to non-accrual loans	ACL on loans to non-accrual loans	713.61		%	768.57		%	ACL on loans to non-accrual loans	977.00		%	768.57		%
Non-accrual loans to total loans	Non-accrual loans to total loans	0.13		%	0.13		%	Non-accrual loans to total loans	0.09		%	0.13		%
Non-performing loans to total loans	Non-performing loans to total loans	0.19		%	0.20		%	Non-performing loans to total loans	0.16		%	0.20		%
Non-performing assets to total assets	Non-performing assets to total assets	0.12		%	0.13		%	Non-performing assets to total assets	0.11		%	0.13		%

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 ~~March 31,~~June 30, 2022, loans classified as potential problem loans totaled ~~$97,000.~~$93,000.

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)	(Dollars in thousands)	March 31, 2022			December 31, 2021			(Dollars in thousands)	June 30, 2022			December 31, 2021
Accruing loans 30-89 days past due:	Accruing loans 30-89 days past due:							Accruing loans 30-89 days past due:
Commercial real estate - non-owner-occupied	Commercial real estate - non-owner-occupied	$	91		$	—		Commercial real estate - non-owner-occupied	$	92		$	—
Commercial real estate - owner-occupied	Commercial real estate - owner-occupied	—			47			Commercial real estate - owner-occupied	166			47
Commercial	Commercial	169			552			Commercial	422			552

Residential real estate	Residential real estate	575			400			Residential real estate	918			400
Consumer and home equity	Consumer and home equity	466			509			Consumer and home equity	577			509
Total	Total	$	1,301		$	1,508		Total	$	2,175		$	1,508
Total loans	Total loans	$	3,534,218		$	3,431,474		Total loans	$	3,724,227		$	3,431,474
Accruing loans 30-89 days past due to total loans	Accruing loans 30-89 days past due to total loans	0.04		%	0.04		%	Accruing loans 30-89 days past due to total loans	0.06		%	0.04		%

5860

ACL

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


		At or For The Three Months Ended March 31,						At or For The Year Ended December 31, 2021			At or For The Three Months Ended June 30,							At or For The Six Months Ended June 30,							At or For The Year Ended December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	2022			2021				(Dollars in thousands)				2022				2021				2022							At or For The Year Ended December 31, 2021
ACL on loans at the beginning of the period	ACL on loans at the beginning of the period	$	33,256		$	37,865			$	37,865		ACL on loans at the beginning of the period		$	31,770			$	35,775			$	33,256		$	37,865
Credit for loan losses		(1,236)			(1,854)				(3,817)
Provision (credit) for loan losses												Provision (credit) for loan losses		2,511				(3,452)				1,275			(5,306)				(3,817)
Net charge-offs (recoveries)1	Net charge-offs (recoveries)1											Net charge-offs (recoveries)1
Commercial real estate	Commercial real estate	(2)			(2)				(9)			Commercial real estate		—				(3)				(3)			(5)				(9)

Commercial	Commercial	189			104				579			Commercial		93				192				281			296				579

Residential real estate	Residential real estate	—			53				(15)			Residential real estate		16				(35)				16			18				(15)
Consumer and home equity	Consumer and home equity	63			81				237			Consumer and home equity		(72)				109				(7)			190				237

Total net charge-offs (recoveries)		250			236				792

ACL on loans at the end of the period	ACL on loans at the end of the period	$	31,770		$	35,775			$	33,256		ACL on loans at the end of the period		$	34,244			$	32,060			$	34,244		$	32,060			$	33,256
Components of ACL:	Components of ACL:											Components of ACL:
ACL on loans	ACL on loans	$	31,770		$	35,775			$	33,256		ACL on loans		$	34,244			$	32,060			$	34,244		$	32,060			$	33,256
ACL on off-balance sheet credit exposures	ACL on off-balance sheet credit exposures	3,355			2,466				3,195			ACL on off-balance sheet credit exposures		3,190				2,515				3,190			2,515				3,195
ACL at end of the period	ACL at end of the period	$	35,125		$	38,241			$	36,451		ACL at end of the period		$	37,434			$	34,575			$	37,434		$	34,575			$	36,451
Total loans, excluding loans held for sale	Total loans, excluding loans held for sale	$	3,534,218		$	3,237,046			$	3,431,474		Total loans, excluding loans held for sale		$	3,724,227			$	3,285,916			$	3,724,227		$	3,285,916			$	3,431,474
Average Loans	Average Loans	3,473,280			3,259,647				3,368,378			Average Loans		$	3,621,459			$	3,268,971			$	3,547,779		$	3,264,335			$	3,299.313
Net charge-offs to average loans	Net charge-offs to average loans	0.03		%	0.03		%		0.02		%	Net charge-offs to average loans		—		%		0.03		%		0.02		%	0.03		%		0.02		%
Credit for loan losses (annualized) to average loans		(0.14)		%	(0.23)		%		(0.11)		%
Provision (credit) for loan losses (annualized) to average loans												Provision (credit) for loan losses (annualized) to average loans		0.28		%		(0.42)		%		0.07		%	(0.33)		%		(0.12)		%
ACL on loans to total loans	ACL on loans to total loans	0.90		%	1.11		%		0.97		%	ACL on loans to total loans		0.92		%		0.98		%		0.92		%	0.98		%		0.97		%

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

5961


		For The Three Months Ended March 31,											For The Three Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	Total Charge-offs		Total Recoveries		Net Charge-Offs (Recoveries)		Average Loans		Ratio of Net Charge-Offs (Recoveries) to Average Loans		(Dollars in thousands)	Total Charge-offs		Total Recoveries		Net Charge-Offs (Recoveries)		Average Loans		Ratio of Net Charge-Offs (Recoveries) to Average Loans
2022:	2022:											2022:
Commercial real estate	Commercial real estate	$	—	$	2	$	(2)	1,489,304		—	%	Commercial real estate	$	—	$	—	$	—	$	1,500,284	—	%
Commercial	Commercial	246		57		189		372,910		0.05	%	Commercial	316		223		93		417,873		0.02	%
SBA PPP	SBA PPP	—		—		—		21,687		—	%	SBA PPP	—		—		—		4,696		—	%
Residential real estate	Residential real estate			—		—		1,347,427		—	%	Residential real estate	16		—		16		1,457,639		—	%
Consumer and home equity	Consumer and home equity	66		3		63		226,731		0.03	%	Consumer and home equity	17		89		(72)		240,967		(0.03)	%
Total	Total	$	312	$	62	$	250	$	3,458,059	0.01	%	Total	$	349	$	312	$	37	$	3,621,459	—	%
2021:	2021:											2021:
Commercial real estate	Commercial real estate	$	—	$	2	$	(2)	$	1,382,794	—	%	Commercial real estate	$	—	$	3	$	(3)	$	1,407,374	—	%
Commercial	Commercial	147		43		104		346,008		0.03	%	Commercial	259		67		192		356,012		0.05	%
SBA PPP	SBA PPP	—		—		—		154,900		—	%	SBA PPP	—		—		—		158,258		—	%
Residential real estate	Residential real estate	53		—		53		1,083,101		—	%	Residential real estate	35		70		(35)		1,093,502		—	%
Consumer and home equity	Consumer and home equity	87		6		81		268,711		0.03	%	Consumer and home equity	126		17		109		253,825		0.04	%
Total	Total	$	287	$	51	$	236	$	3,235,514	0.01	%	Total	$	420	$	157	$	263	$	3,268,971	0.01	%

		For the Year Ended December 31,											For The Six Months Ended June 30,
2021
2022:												2022:
Commercial real estate	Commercial real estate	$	—	$	9	$	(9)	$	1,412,884	—	%	Commercial real estate	$	—	$	3	$	(3)	$	1,494,824	—	%
Commercial	Commercial	799		220		579		361,256		0.16	%	Commercial	561		280		281		403,084		0.07	%
SBA PPP	SBA PPP	—		—		—		118,414		—	%	SBA PPP	—		—		—		13,145		—	%
Residential real estate	Residential real estate	92		107		(15)		1,156,698		—	%	Residential real estate	16		—		16		1,402,838		—	%
Consumer and home equity	Consumer and home equity	273		36		237		250,061		0.09	%	Consumer and home equity	84		91		(7)		233,888		—	%
Total	Total	$	1,164	$	372	$	792	$	3,299,313	0.02	%	Total	$	661	$	374	$	287	$	3,547,779	0.01	%
2021:												2021:
Commercial real estate												Commercial real estate	$	—	$	5	$	(5)	$	1,395,152	—	%
Commercial												Commercial	406		110		296		363,038		0.08	%
SBA PPP												SBA PPP	—		—		—		156,588		—	%
Residential real estate												Residential real estate	88		70		18		1,088,330		—	%
Consumer and home equity												Consumer and home equity	213		23		190		261,227		0.07	%
Total												Total	$	707	$	208	$	499	$	3,264,335	0.02	%

													For the Year Ended December 31,
2021:												2021:
Commercial real estate												Commercial real estate	$	—	$	9	$	(9)	$	1,412,884	—	%
Commercial												Commercial	799		220		579		361,256		0.16	%
SBA PPP												SBA PPP	—		—		—		118,414		—	%
Residential real estate												Residential real estate	92		107		(15)		1,156,698		—	%
Consumer and home equity												Consumer and home equity	273		36		237		250,061		0.09	%
Total												Total	$	1,164	$	372	$	792	$	3,299,313	0.02	%

ACL on Loans

There were no significant changes in our modeling methodology to determine the ACL on loans during the ~~three~~six months ended ~~March 31,~~June 30, 2022. The significant key assumptions used with the ACL on loans calculation at ~~March 31,~~June 30, 2022 and December 31, 2021, included: (i) Company-specific macroeconomic factors (i.e. loss drivers), (ii) our forecast period and reversion speed, (iii) prepayment speeds, and (iv) various qualitative factors.

As of ~~March 31,~~June 30, 2022 and December 31, 2021, the recorded ACL on loans was ~~$31.8~~$34.2 million and $33.3 million, respectively, and represented our best estimate. The ~~decrease~~increase in the ACL on loans between periods was primarily driven by loan growth and the economic outlook of a softening economy over the coming quarters, net of a release of ~~$1.9~~$4.3 million of ~~additional~~ reserves ~~established~~provided for certain ~~commercial real estate~~COVID modified loans ~~in response to COVID-19 modifications due to heightened~~deemed as "recovered". To be deemed "recovered" by the Company, the borrower must meet certain credit ~~risk. We had established certain~~ metrics, ~~that needed to be met prior to the release~~including a debt service coverage ratio and consistent timely payments of ~~these additional reserves,~~full principal and ~~in the first quarter of 2022, the first tranche of these loans met all required metrics and the associated additional reserves were released.~~interest as agreed to. Refer to "—Results of Operations—Provision for Credit Losses—Provision (Credit) for Loan Losses" for further discussion of the drivers ~~for~~of the change between periods. As of June 30, 2022, there were $768,000 of additional reserves remaining on these loans, and the Company believes these remaining reserves will be released over the coming quarters.

As of March 31, 2022, there were $3.2 million of additional reserves provided for certain commercial loans within the Company's ACL on loans that are subject to release upon certain metrics being met, and it is anticipated the Company will release the majority of these reserves over the coming quarters. However, theThe 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 ~~allowance~~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 three and six months ended ~~March 31,~~June 30, 2022. 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 ~~March~~June 30, 2022 and December 31, ~~2022,~~2021, was ~~$3.4 million, compared to~~ $3.2 million, ~~as of December 31, 2021.~~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 provision (credit) for credit losses on the consolidated statements of income.

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

Liabilities and Shareholders’ Equity

Deposits

At ~~March 31,~~June 30, 2022, deposits totaled ~~$4.6~~$4.5 billion, a decrease of ~~$32.2~~$81.8 million, or 1%2%, since December 31, 2021. The decrease in deposits during the ~~three months ended March 31,~~first half of 2022 was driven by a decrease in brokered deposits of $125.1 million as ~~short-term borrowings and core~~we used alternative borrowing sources to manage funding costs. Core deposits (non-GAAP) totaled $4.1 billion as of June 30, 2022, an increase of $56.5 million, or 1% since year end, driven by checking account growth of ~~1% supplemented our funding needs.~~$45.3 million, or 2%, during the period.

The Company's loan-to-deposit ratio was ~~77%~~82% at ~~March 31,~~June 30, 2022, compared to 74% at December 31, 2021.

Uninsured Deposits

Total deposits that exceed the FDIC deposit insurance limit of $250,000 were $1.2 billion at June 30, 2022 and $1.3 billion at ~~March 31, 2022 and~~ December 31, 2021. The Company has pledged assets as collateral covering certain deposits in the amount of ~~$354.0~~$323.7 million and $347.0 million at ~~March 31,~~June 30, 2022 and December 31, 2021, respectively.

The portion of time deposits that exceed the FDIC deposit insurance limit of $250,000, by time remaining until maturity, at ~~March 31,~~June 30, 2022, was $60.7 million. At ~~March 31,~~June 30, 2022, the Company does not have time deposits that are otherwise uninsured.

Borrowings

At ~~March 31,~~June 30, 2022, total borrowings were ~~$237.7~~$415.8 million, an increase of ~~$26.1~~$159.9 million, or ~~12%~~62%, since December 31, 2021. This increase was the result of a shift in alternative funding over this period from brokered deposits to more cost-effective overnight borrowings, as well as the need for additional funding to support loan growth during the first half of 2022.

Shareholders' Equity

Shareholders' equity at ~~March 31,~~June 30, 2022 totaled ~~$482.4~~$446.4 million, ~~compared to $541.3 million.~~a decrease of $94.9 million, or 18%, since December 31, 2021. The decrease in shareholders' equity ~~for~~over the ~~three months ended March 31,~~first half of 2022 was driven by a decrease in ~~AOCI~~the valuation of ~~$69.7~~our investments designated as AFS of $114.9 million, aswhich included a $58.9 million, net of tax, decrease in the ~~AFS~~ debt securities portfolio valuation ~~decreased~~ in response to the ~~share~~ increase in interest rates during the first quarter of 2022. This resulted in a decrease in: (1) the common equity ratio of 94 basis points to 8.90% at March 31, 2022, (2) the tangible common equity ratio (non-GAAP) of 97 basis points to 7.25% at March 31, 2022, (3) book value per share of 11% to $32.72 at March 31, 2022, and ~~(4) tangible book value per share (non-GAAP)~~net unrealized losses of ~~13%~~$56.0 million, net of tax, recorded as we transferred selected securities from AFS to ~~$26.16 at March 31, 2022.~~HTM to protect our capital position in the rising interest rate environment. As discussed further in "—Investments," management believes the decrease in shareholders' equity is temporary and does not believe that the decrease is ~~not~~ an indication of permanent losses. The Company and the Bank continue to be well-capitalized under the standards set by its regulators. Refer to Note 10 of the consolidated financial statements for further details.

On ~~March 29,~~June 28, 2022, the Company announced a quarterly cash dividend to shareholders of $0.40 per share, payable on ~~April~~July 29, 2022 to shareholders of record as of ~~April~~July 15, 2022. As of ~~March 31,~~June 30, 2022, the Company's annualized dividend yield was ~~3.40%~~3.63% based on Camden National's closing share price of ~~$47.04,~~$44.05, as reported by NASDAQ on ~~March 31,~~June 30, 2022.

In January 2022, 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, 2021. During the ~~three~~six months ended ~~March 31,~~June 30, 2022, the Company repurchased ~~13,086~~161,556 shares at a weighted average price of ~~$46.51~~$45.89 per share. ~~Subsequent to March 31, 2022, another 101,507 shares of the Company's common stock were purchased at a weighted average price of $46.77 through April 28, 2022.~~

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


		At or For The Three Months Ended March 31,						At or For The Year Ended December 31, 2021			At or For The Three Months Ended June 30,							At or For The Six Months Ended June 30,							At or For The Year Ended December 31, 2021
		2022			2021								2022				2021				2022							At or For The Year Ended December 31, 2021
Financial Ratios	Financial Ratios											Financial Ratios
Average equity to average assets	Average equity to average assets	9.69		%	10.81		%		10.33		%	Average equity to average assets		8.46		%		10.50		%		9.07		%	10.65		%		10.33		%
Common equity ratio	Common equity ratio	8.90		%	10.46		%		9.84		%	Common equity ratio		8.17		%		10.59		%		8.17		%	10.59		%		9.84		%
Tangible common equity ratio (non-GAAP)	Tangible common equity ratio (non-GAAP)	7.25		%	8.71		%		8.22		%	Tangible common equity ratio (non-GAAP)		6.51		%		8.87		%		6.51		%	8.87		%		8.22		%
Dividend payout ratio	Dividend payout ratio	35.09		%	27.27		%		32.03		%	Dividend payout ratio		39.22		%		29.75		%		37.04		%	28.46		%		32.03		%
Per Share Data	Per Share Data											Per Share Data
Book value per share	Book value per share	$	32.72		$	35.64			$	36.72		Book value per share		$	30.52			$	36.49			$	30.52		$	36.49			$	36.72
Tangible book value per share (non-GAAP)	Tangible book value per share (non-GAAP)	26.16			29.12				30.15			Tangible book value per share (non-GAAP)		$	23.92			$	29.99			$	23.92		$	29.99			$	30.15
Dividends declared per share	Dividends declared per share	0.40			0.36				1.48			Dividends declared per share		$	0.40			$	0.36			$	0.80		$	0.72			$	1.48

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. As of ~~March 31,~~June 30, 2022 and December 31, 2021, our level of liquidity exceeded target levels. We believe that we currently have appropriate liquidity available to respond to demands. 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.

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

Deposits. Deposits continue to represent our primary source of funds. As of ~~March 31,~~June 30, 2022 and December 31, 2021, total deposits, including brokered deposits, were ~~$4.6~~$4.5 billion, which included money market deposits of ~~$58.5~~$60.9 million and ~~$60.4~~$63.9 million, respectively, from Camden National Wealth Management, 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 as of ~~March 31,~~June 30, 2022:


(In thousands)	CDs
1 year or less	$	~~139,148~~123,192
> 1 year	~~160,717~~173,216
Total	$	~~299,865~~296,408

Borrowings. Borrowings are used to supplement deposits as a source of liquidity. In addition to borrowings and advances from the FHLBB, we utilize brokered deposits, purchase federal funds, and sell securities under agreements to repurchase. As of ~~March 31,~~June 30, 2022, total borrowings were ~~$282.0~~$415.8 million, compared to $255.9 million as of December 31, 2021. We secure borrowings from the FHLBB with qualified residential real estate loans, certain investment securities and certain other assets available to be pledged. Customer repurchase agreements are secured by mortgage-backed securities and government-sponsored enterprises. Through the Bank, we have available lines of credit with the FHLBB of $9.9 million, with a correspondent bank of $50.0 million, and with the FRB Discount Window of ~~$49.7~~$46.0 million as of ~~March 31,~~June 30, 2022. We also believe we have additional untapped access to the brokered deposit market, wholesale reverse repurchase transaction market, and the FRB discount window. 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 ~~March 31,~~June 30, 2022:


(In thousands)	(In thousands)	FHLBB Advances		Customer Repurchase Agreements		Subordinated Debentures		Total		(In thousands)	FHLBB Advances		Customer Repurchase Agreements		Subordinated Debentures		Total
1 year or less	1 year or less	$	—	$	237,668	$	—	$	237,668	1 year or less	$	146,650	$	224,852	$	—	$	371,502
> 1 year	> 1 year	—		—		44,331		44,331		> 1 year	—		—		44,331		44,331
Total	Total	$	—	$	237,668	$	44,331	$	281,999	Total	$	146,650	$	224,852	$	44,331	$	415,833

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. Specifically, in a rising interest rate environment prepayment speeds may slow, which then would decrease the pace in which we receive cash flow from loans. The Company's residential mortgage loan portfolio is also a significant source of contingent liquidity for the Company that could be accessed in a reasonable time period through the sale of loans on the secondary market, as needed. As of ~~March 31,~~June 30, 2022, book value of $1.5 billion of qualifying loans were pledged as collateral.

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


		March 31, 2022													June 30, 2022
(Dollars in thousands)	(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		(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):	Maturity Distribution(1):													Maturity Distribution(1):
Fixed Rate:	Fixed Rate:													Fixed Rate:
Commercial real estate(2)	Commercial real estate(2)	$	34,535	$	91,193	$	431,819	$	75,397	$	632,944	18	%	Commercial real estate(2)	$	13,566	$	157,768	$	542,753	$	2,263	$	716,350	19	%
Commercial	Commercial	7,493		94,030		84,356		10,995		196,874		5	%	Commercial	11,809		99,221		96,351		462		207,843		6	%
Residential real estate	Residential real estate	34,275		8,232		164,403		972,848		1,179,758		33	%	Residential real estate	244		9,314		180,935		1,082,000		1,272,493		34	%
Consumer and home equity	Consumer and home equity	6,601		11,955		21,979		157,277		197,812		6	%	Consumer and home equity	1,250		13,450		23,576		168,172		206,448		6	%
Total fixed rate	Total fixed rate	82,904		205,410		702,557		1,216,517		2,207,388		62	%	Total fixed rate	26,869		279,753		843,615		1,252,897		2,403,134		65	%
Variable Rate:	Variable Rate:													Variable Rate:
Commercial real estate(2)	Commercial real estate(2)	41,142		170,904		382,745		276,156		870,947		25	%	Commercial real estate(2)	10,435		143,942		413,843		248,344		816,564		22	%
Commercial	Commercial	36,755		116,674		38,942		20,419		212,790		6	%	Commercial	43,910		112,298		47,478		12,199		215,885		6	%
Residential real estate	Residential real estate	4,403		1,399		33,908		172,730		212,440		6	%	Residential real estate	23		800		39,282		204,642		244,747		6	%
Consumer and home equity	Consumer and home equity	1,579		3,125		9,665		16,284		30,653		1	%	Consumer and home equity	633		3,010		12,711		27,543		43,897		1	%
Total variable rate	Total variable rate	83,879		292,102		465,260		485,589		1,326,830		38	%	Total variable rate	55,001		260,050		513,314		492,728		1,321,093		35	%
Total loans	Total loans	$	166,783	$	497,512	$	1,167,817	$	1,702,106	$	3,534,218	100	%	Total loans	$	81,870	$	539,803	$	1,356,929	$	1,745,625	$	3,724,227	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. As of ~~March 31,~~June 30, 2022 and December 31, 2021, the Company's MBS and CMO debt securities portfolio totaled 90%, of the Company's investment portfolio. The investment portfolio is also a significant source of contingent liquidity for the Company that could be accessed in a reasonable time period through the sale of investments on the secondary market, if needed. For purposes of assessing our liquidity position, we only consider those investments designated as AFS. As of ~~March 31,~~June 30, 2022, ~~$768.4~~$465.5 million of our AFS debt securities, or ~~54.0%~~54%, ~~was~~were not pledged as ~~collateral.~~collateral, compared to $867.4 million, or 58%, as of December 31, 2021.

The following is a summary of the scheduled cash flows from our debt securities portfolio, including investments designated as AFS and HTM, as of ~~March 31,~~June 30, 2022:

(In thousands)

Contractual

Cash Flows(1)

1 year or less

~~196,859~~177,870

> 1 year

~~1,226,240~~1,233,250

Total

~~1,423,099~~1,411,120

(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.

InPrepayment speeds may slow in a rising interest rate environment, ~~prepayment speeds may slow,~~ which then would decrease the pace inwithin which we receive cash flow from our investments.

Other Liquidity Requirements. Through the Company's normal course of business it generates cash flows from earnings and, while not contractual, it has a history of paying a quarterly cash dividend to its shareholders and repurchasing its shares of common stock. For the ~~three~~six months ended ~~March 31,~~June 30, 2022, the Company reported ~~$16.8~~$31.8 million of net income, paid cash dividends of ~~$5.9~~$11.8 million to shareholders and repurchased shares of its common stock for ~~$542,000.~~$7.4 million.

Also through 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 ~~March 31,~~June 30, 2022, we had the following lease and other contractual obligations to make future payments under each of these contracts as follows:


(In thousands)	(In thousands)	Total Amount		Payments Due per Period				(In thousands)	Total Amount		Payments Due per Period
Contractual obligations and commitments	Contractual obligations and commitments	Committed		<1 Year		1 – 3 Years		Contractual obligations and commitments	Committed		<1 Year		1 – 3 Years
Operating leases	Operating leases	$	3,637	$	1,322	$	2,315	Operating leases	$	3,539	$	1,287	$	2,252
Finance leases	Finance leases	936		309		627		Finance leases	938		310		628

Other contractual obligations	Other contractual obligations	1,942		1,942		—		Other contractual obligations	1,812		1,812		—
Total	Total	$	6,515	$	3,573	$	2,942	Total	$	6,289	$	3,409	$	2,880

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 ~~$482.5~~$446.4 million and $541.3 million at ~~March 31,~~June 30, 2022 and December 31, 2021, respectively, which amounted to 9%8% and 10% of total assets, respectively. Refer to "— Financial Condition — Liabilities and

Shareholders' Equity" for discussion regarding the driver for the decrease in shareholders' equity for the ~~three~~six months ended ~~March 31,~~June 30, 2022.

Our principal cash requirement is the payment of dividends on our common stock, as and when declared by the Company's Board of Directors. We declared dividends to shareholders in the aggregate amount of ~~$5.9~~$11.7 million and ~~$5.4~~$10.8 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021, respectively. The Company's Board of Directors approves cash dividends on a quarterly basis after careful analysis and consideration of various factors, including the following: (i) capital position relative to total assets, (ii) risk-based assets, (iii) total classified assets, (iv) economic conditions, (v) growth rates for total assets and total liabilities, (vi) earnings performance and projections and (vii) strategic initiatives and related capital requirements. All dividends declared and distributed by the Company will be in compliance with applicable state corporate law and regulatory requirements.

We are primarily dependent upon the payment of cash dividends by the Bank, our wholly-owned subsidiary, to service our commitments. We, as the sole shareholder of the Bank, are entitled to dividends, when and as declared by the Bank's Board of Directors from legally available funds. For the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021, the Bank declared dividends payable to the Company in the amount of ~~$8.1~~$16.3 million and ~~$17.0~~$24.8 million, respectively. Under regulations prescribed by the OCC, the Bank may not declare dividends in excess of the Bank’s net income for the current year plus its retained net income for the prior two years without prior approval from the OCC. If we are required to use dividends from the Bank to service unforeseen commitments in the future, we may be required to reduce the dividends paid to our shareholders going forward.

Please refer to Note 10 of the consolidated financial statements for discussion and details of the Company and Bank's regulatory capital requirements. At ~~March 31,~~June 30, 2022 and December 31, 2021, 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; and strategic alignment and reputation. The Board of Directors has approved an Enterprise Risk Management ("ERM") Policy that addresses each category of risk. The direct oversight and responsibility for the Company's risk management program has been delegated to the Company's Executive Vice President of Risk Management, who is a member of the Executive Committee and reports directly to the Chief Executive Officer.

The spread of the COVID-19 pandemic has increased many of the risks we face, including our credit, operational, vendor and third party, and technology risks. In response to the COVID-19 pandemic, the Company formed the Pandemic Work Group in 2020 to develop and oversee the Company’s response. The Pandemic Work Group: (i) developed employee practices, policies and playbooks to address pandemic related issues; (ii) implemented monitoring of all federal, state and local actions, such as stay-at-home orders, masking mandates and others, so that the Company can comply with all legal requirements; (iii) completed risk assessments and proactive monitoring over critical vendors, along with enhanced cybersecurity monitoring and reporting; (iv) created ongoing assessment and monitoring over employee availability, safety, workloads and access to tools (including technology needed to work from home effectively); (v) oversaw the roll out of and continue to monitor the SBA PPP loan program and temporary loan relief programs; (vi) developed our branch network plan, including determination of which of our branches were to close in order to best allocate resources; (vii) developed a plan for, and oversaw the re-opening of our branches in June 2020, which included ensuring health and safety protocols and practices were in place for our employees and customers; and (viii) completed and implemented the Company's “return-to-office” strategy during the third quarter of 2021, which included certain employees returning to the office full-time, others through a hybrid model (i.e., work from home part-time and from one of the Company's physical locations part-time), and others working remotely full-time. The Company's Executive Committee re-assessed its use of a hybrid model for its employees during the first quarter of 2022 and, at this time, will continue to use such model and govern in accordance with the established policy. The Executive Committee will continue to monitor and assess the related policy and its practice periodically.

The Pandemic Work Group was established in response to the COVID-19 pandemic to oversee the Company’s response to the COVID-19 pandemic and its impact on the Company and its employees. These areas of oversight included, but were not limited to, employee practices and assessment of employee availability, safety and workload. Members of the Pandemic Work Group include the Company’s executive team and other members of senior management. Throughout the pandemic, the Pandemic Work Group, through the Company's executive team, ~~has~~ reported to the Board of Directors on related matters to assist

the Board of Directors with both its ongoing oversight of the Company’s response to COVID-19 as well as its management of all areas of risks the Company faces, which have been affected by the COVID-19 pandemic. As of ~~March 31,~~June 30, 2022, the Pandemic Work Group is meeting periodically as needed based on facts and circumstances, and updates the Board of Directors accordingly.

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, 2021. Please refer to Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2021 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 noa static balance sheet, ~~growth,~~ given a 200 basis point upward and downward shift in interest rates. Although our policy specifies a downward shift of 200 basis points, this would have resulted in negative rates as of ~~March 31,~~June 30, 2022 and 2021, as many deposit and funding rates were below 2.00%. In this case, a downward shift of 100 basis points was the only down scenario performed. A parallel and pro rata shift in rates over a 12-month period is assumed. Using this approach, we are able to produce simulation results that illustrate the effect that both a gradual change of rates and a “rate shock” have on earnings expectations. In the down 100 and 200 basis points 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%.

~~As of March 31, 2022 and 2021, our net interest income~~The sensitivity analysis reflected the following changes to net interest income assuming no balance sheet growth and a parallel shift in interest rates. All rate changes were “ramped” over the first 12-month period and then maintained at those levels over the remainder of the ALCO simulation horizon.

Estimated Changes In
Net Interest Income
Rate Change from Year 1 — Base March 31,
2022 March 31,
2021
Year 1
+200 basis points (0.79) % 2.61 %
-100 basis points (0.24) % (0.94) %
Year 2
+200 basis points 6.04 % 10.03 %
-100 basis points (1.91) % (9.80) %

~~The preceding 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 June 30, 2022 and 2021, our net interest income sensitivity analysis reflected the following changes to net interest income assuming no balance sheet growth and a parallel shift in interest rates. All rate changes were “ramped” over the first 12-month period and then maintained at those levels over the remainder of the ALCO simulation horizon.


	Estimated Changes In Net Interest Income
Rate Change from Year 1 — Base	June 30, 2022		June 30, 2021
Year 1
+200 basis points	(2.43)	%	0.81	%
-100 basis points	0.47	%	(1.27)	%

Year 2
+200 basis points	6.05	%	5.86	%
-100 basis points	3.50	%	(11.41)	%

If rates remain at or near current levels, net interest income is projected to increase over the next year. Asset cash flows reprice and replace into the current higher rate environment ~~more than offsetting the increases in~~at rates above current portfolio averages while funding costs remain largely unchanged, causing balance sheet spread to expand. If rates decrease 100 basis points, net interest income is projected to decrease as loans and investment cash flow reprice lower, prepayments increase and the ability to reduce cost of funds is limited. In the second year, net interest income is projected to further decrease as asset yields continue to drop and the cost of funds reductions are exhausted.

If rates increase 200 basis points, net interest income is projected to decrease ~~slightly~~ in the first year ~~due~~as the funding base adjusts into the higher rate environment to a greater degree than asset ~~yield improvements lagging funding cost increases.~~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 ~~lag.~~continually slow.

If rates decrease 100 basis points, net interest income is projected to increase slightly 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 further improve as asset yields are supported by fixed rates and floors while remaining cost of funds reductions are exhausted.

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 is a benchmark interest rate for certain floating rate loans, deposits and borrowings, and off-balance sheet exposures of the Company. The administrator of LIBOR has announced that the publication of the most commonly used U.S. Dollar LIBOR settings will cease to be provided or will cease to be representative after June 30, 2023. The publication of all other LIBOR settings ceased to be provided or ceased to be representative as of December 31, 2021. As such, the Company has an internal project team that is focused on an orderly transition from LIBOR to alternative reference rates. The markets for alternative rates are developing. The Company will continue to assess the use of alternative rates, including SOFR, and expects to transition to alternative rates as the markets and best practices further develop. As of ~~March 31,~~June 30, 2022, the Company has no LIBOR-based deposits.

6770

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.

6871

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.

6972

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, 2021, for discussion of these risks.

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

(a) None.

(b) None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS


Exhibit No.						Definition
3.1						Amendment to the Articles of Incorporation of Camden National Corporation (incorporated herein by reference to Exhibit 3.3 to the Company's Registration Statement on Form S-8 filed with the Commission on April 28, 2022 (File No. 333-264534)).
3.2						Camden National Corporation Amended and Restated Bylaws (incorporated herein by reference to Exhibit 3.4 to the Company's Registration Statement on Form S-8 filed with the Commission on April 28, 2022 (File No. 333-264534)).
~~10.1†~~10.1†						Camden National Corporation 2022 Equity and Incentive Plan (incorporated herein by reference to Exhibit 99.1 to the Company's Registration Statement on Form S-8 filed with the Commission on April 28, 2022 (File No. 333-264534)).
~~10.2†~~10.2†						Camden National Corporation Second Amended and Restated Long-Term Performance Share Program, effective as of April 26, 2022 (incorporated herein by reference to Exhibit 10.1 to the Company's Form 8-K filed with the Commission on April 28, 2022).
10.3*10.3†						Camden National Corporation Second Amended and Restated Management Stock Purchase Program, effective as of April 26, ~~2022.~~2022 (incorporated herein by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q filed with the Commission on May 5, 2022).
10.4*10.4†						Camden National Corporation Third Amended and Restated Defined Contribution Retirement Program, effective as of April 26, ~~2022.~~2022 (incorporated herein by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q filed with the Commission on May 5, 2022).
10.5*10.5†						Camden National Corporation Amended and Restated Independent Directors' Equity Compensation Program, effective as of April 26, ~~2022.~~2022 (incorporated herein by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q filed with the Commission on May 5, 2022).
10.6*10.6†						Form of Non-Executive Restricted Stock Award Agreement Under the 2022 Equity and Incentive ~~Plan.~~Plan (incorporated herein by reference to Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q filed with the Commission on May 5, 2022).
10.7*10.7†						Form of Executive Restricted Stock Award Agreement Under the 2022 Equity and Incentive ~~Plan.~~Plan (incorporated herein by reference to Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q filed with the Commission on May 5, 2022).
10.8*10.8†						Form of Restricted Stock Award Agreement Under the Second Amended and Restated Management Stock Purchase ~~Program.~~Program (incorporated herein by reference to Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q filed with the Commission on May 5, 2022).
10.9*10.9†						Form of Restricted Stock Unit Award Agreement for ~~Company~~Company Employees Under the 2022 Equity and Incentive ~~Plan.~~Plan (incorporated herein by reference to Exhibit 10.9 to the Company's Quarterly Report on Form 10-Q filed with the Commission on May 5, 2022).
10.10*10.10†						Form of Performance Share Unit award Agreement Under the Second Amended and Restated Long-Term Performance Share ~~Program.~~Program (incorporated herein by reference to Exhibit 10.10 to the Company's Quarterly Report on Form 10-Q filed with the Commission on May 5, 2022).
10.11*10.11†						Form of Incentive Stock Option Agreement Under the Camden National ~~Corporation~~Corporation 2022 Equity and Incentive Plan (incorporated herein by reference to Exhibit 10.11 to the Company's Quarterly Report on Form 10-Q filed with the Commission on May 5, 2022).
31.131.1						Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
31.231.2						Certification of Chief Financial Officer, Principal Financial & Accounting Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
32.132.1*						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.
32.232.2*						Certification of Chief Financial Officer, Principal Financial & Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*						iXBRL (Inline eXtensible Business Reporting Language). The following materials from Camden National Corporation’s Quarterly Report on Form 10-Q for the period ended ~~March 31,~~June 30, 2022, formatted in iXBRL: (i) Consolidated Statements of Condition - ~~March 31,~~June 30, 2022 and December 31, 2021; (ii) Consolidated Statements of Income - Three and Six Months Ended ~~March 31,~~June 30, 2022 and 2021; (iii) Consolidated Statements of Comprehensive (Loss) Income - Three and Six Months Ended ~~March 31,~~June 30, 2022 and 2021; (iv) Consolidated Statements of Changes in Shareholders’ Equity - Three and Six Months Ended ~~March 31,~~June 30, 2022 and 2021; (v) Consolidated Statements of Cash Flows - ~~Three~~Six Months Ended ~~March 31,~~June 30, 2022 and 2021; 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.

7174

SIGNATURES

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


CAMDEN NATIONAL CORPORATION
(Registrant)

/s/ Gregory A. Dufour						~~May 5,~~August 4, 2022
Gregory A. Dufour						Date
President and Chief Executive Officer (Principal Executive Officer)

/s/ Michael R. Archer						~~May 5,~~August 4, 2022
Michael R. Archer						Date
Chief Financial Officer and Principal Financial & Accounting Officer

7275


(In thousands)	December 31,
	2021		2020
Total Loans, excluding SBA PPP Loans:
Total loans, as presented	$	3,431,474	$	3,219,822
Less: SBA PPP loans	(35,953)		(135,095)
Total loans, excluding SBA PPP loans	$	3,395,521	$	3,084,727
ACL on Loans to Total Loans, excluding SBA PPP Loans:
ACL on loans, as presented	$	33,256	$	37,865
Less: ACL on loans allocated to SBA PPP loans	(18)		(69)
Adjusted ACL on loans	$	33,238	$	37,796
ACL on loans to total loans	0.97%		1.18%
ACL on loans to total loans, excluding SBA PPP loans	0.98%		1.23%