UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2022~~March 31, 2023

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

SECURITIES EXCHANGE ACT OF 1934

Commission File No. 0-28190

CAMDEN NATIONAL CORPORATION

(Exact name of registrant as specified in its charter)


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

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

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

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


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

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

Yes x No ¨

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

Yes x No ¨

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

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

Yes ☐ No ☒

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

Outstanding at ~~October~~April 28, ~~2022:~~2023: Common stock (no par value) ~~14,565,409~~14,592,804 shares.

CAMDEN NATIONAL CORPORATION

FORM 10-Q FOR THE QUARTER ENDED ~~SEPTEMBER 30, 2022~~MARCH 31, 2023

TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT


		PAGE
PART I. FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS

	Consolidated Statements of Condition (unaudited) - ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022	3

	Consolidated Statements of Income (unaudited) - Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	4

	Consolidated Statements of Comprehensive Income (Loss) ~~Income~~ (unaudited) - Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	5

	Consolidated Statements of Changes in Shareholders’ Equity (unaudited) - Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	6

	Consolidated Statements of Cash Flows (unaudited) - ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2023 and 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	43

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	7470

ITEM 4.	CONTROLS AND PROCEDURES	7571

PART II. OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	7672

ITEM 1A.	RISK FACTORS	7672

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	7672

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	7672

ITEM 4.	MINE SAFETY DISCLOSURES	7672

ITEM 5.	OTHER INFORMATION	7672

ITEM 6.	EXHIBITS	7673

SIGNATURES		7874

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)	September 30, 2022		December 31, 2021		(In thousands, except number of shares)	March 31, 2023		December 31, 2022
ASSETS	ASSETS					ASSETS
Cash and due from banks	Cash and due from banks	$	55,073	$	38,902	Cash and due from banks	$	53,867	$	50,566
Interest-bearing deposits in other banks (including restricted cash)	Interest-bearing deposits in other banks (including restricted cash)	26,939		181,723		Interest-bearing deposits in other banks (including restricted cash)	21,874		24,861
Total cash, cash equivalents and restricted cash	Total cash, cash equivalents and restricted cash	82,012		220,625		Total cash, cash equivalents and restricted cash	75,741		75,427
Investments:	Investments:					Investments:
Trading securities	Trading securities	3,727		4,428		Trading securities	3,971		3,990
Available-for-sale securities, at fair value (amortized cost of $833,888 and $1,508,981, respectively)		723,618		1,507,486
Held-to-maturity securities, at amortized cost (fair value of $491,759 and $1,380, respectively)		534,309		1,291
Available-for-sale securities, at fair value (amortized cost of $777,621 and $796,960, respectively)						Available-for-sale securities, at fair value (amortized cost of $777,621 and $796,960, respectively)	686,423		695,875
Held-to-maturity securities, at amortized cost (fair value of $510,999 and $506,193, respectively)						Held-to-maturity securities, at amortized cost (fair value of $510,999 and $506,193, respectively)	540,074		546,583
Other investments	Other investments	15,108		10,280		Other investments	19,414		12,713
Total investments	Total investments	1,276,762		1,523,485		Total investments	1,249,882		1,259,161
Loans held for sale, at fair value (book value of $4,863 and $5,786, respectively)		4,629		5,815
Loans held for sale, at fair value (book value of $4,539 and $5,259, respectively)						Loans held for sale, at fair value (book value of $4,539 and $5,259, respectively)	4,562		5,197
Loans	Loans	3,860,680		3,431,474		Loans	4,073,108		4,010,353
Less: allowance for credit losses on loans	Less: allowance for credit losses on loans	(36,542)		(33,256)		Less: allowance for credit losses on loans	(37,134)		(36,922)
Net loans	Net loans	3,824,138		3,398,218		Net loans	4,035,974		3,973,431
Goodwill	Goodwill	94,697		94,697		Goodwill	94,697		94,697
Core deposit intangible assets	Core deposit intangible assets	1,719		2,188		Core deposit intangible assets	1,415		1,563
Bank-owned life insurance	Bank-owned life insurance	98,760		97,241		Bank-owned life insurance	99,734		99,142
Premises and equipment, net	Premises and equipment, net	36,179		37,775		Premises and equipment, net	35,688		36,022
Deferred tax assets	Deferred tax assets	53,693		19,210		Deferred tax assets	47,281		50,217
Other assets	Other assets	79,135		101,102		Other assets	71,631		76,993
Total assets	Total assets	$	5,551,724	$	5,500,356	Total assets	$	5,716,605	$	5,671,850
LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY					LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities	Liabilities					Liabilities
Deposits:	Deposits:					Deposits:
Non-interest checking	Non-interest checking	$	1,245,137	$	1,279,565	Non-interest checking	$	1,047,491	$	1,141,753
Interest checking	Interest checking	1,460,571		1,351,736		Interest checking	1,609,330		1,763,850
Savings and money market	Savings and money market	1,493,518		1,459,472		Savings and money market	1,409,861		1,439,622
Certificates of deposit	Certificates of deposit	279,603		309,648		Certificates of deposit	360,103		300,451
Brokered deposits	Brokered deposits	89,775		208,468		Brokered deposits	215,949		181,253
Total deposits	Total deposits	4,568,604		4,608,889		Total deposits	4,642,734		4,826,929
Short-term borrowings	Short-term borrowings	421,101		211,608		Short-term borrowings	486,318		265,176

Subordinated debentures		44,331		44,331
Junior subordinated debentures						Junior subordinated debentures	44,331		44,331
Accrued interest and other liabilities	Accrued interest and other liabilities	86,681		94,234		Accrued interest and other liabilities	78,348		84,136
Total liabilities	Total liabilities	5,120,717		4,959,062		Total liabilities	5,251,731		5,220,572
Commitments and Contingencies
Commitments and Contingencies (Note 7)						Commitments and Contingencies (Note 7)
Shareholders’ Equity	Shareholders’ Equity					Shareholders’ Equity
Common stock, no par value: authorized 40,000,000 shares, issued and outstanding 14,563,828 and 14,739,956 shares on September 30, 2022 and December 31, 2021, respectively		114,536		123,111
Common stock, no par value: authorized 40,000,000 shares, issued and outstanding 14,587,906 and 14,567,325 on March 31, 2023 and December 31, 2022, respectively						Common stock, no par value: authorized 40,000,000 shares, issued and outstanding 14,587,906 and 14,567,325 on March 31, 2023 and December 31, 2022, respectively	115,590		115,069
Retained earnings	Retained earnings	452,927		424,412		Retained earnings	468,755		462,164

Accumulated other comprehensive loss	Accumulated other comprehensive loss	(136,456)		(6,229)		Accumulated other comprehensive loss	(119,471)		(125,955)
Total shareholders’ equity	Total shareholders’ equity	431,007		541,294		Total shareholders’ equity	464,874		451,278
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	5,551,724	$	5,500,356	Total liabilities and shareholders’ equity	$	5,716,605	$	5,671,850

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

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
(In thousands, except number of shares and per share data)	(In thousands, except number of shares and per share data)	2022		2021		2022		2021		(In thousands, except number of shares and per share data)	2023		2022
Interest Income	Interest Income									Interest Income
Interest and fees on loans	Interest and fees on loans	$	37,568	$	31,185	$	102,724	$	92,610	Interest and fees on loans	$	45,332	$	32,035
Taxable interest on investments	Taxable interest on investments	5,756		5,157		17,395		13,362		Taxable interest on investments	5,963		5,789
Nontaxable interest on investments	Nontaxable interest on investments	790		756		2,324		2,247		Nontaxable interest on investments	763		764
Dividend income	Dividend income	137		99		349		306		Dividend income	219		106
Other interest income	Other interest income	330		182		677		508		Other interest income	448		164
Total interest income	Total interest income	44,581		37,379		123,469		109,033		Total interest income	52,725		38,858
Interest Expense	Interest Expense									Interest Expense
Interest on deposits	Interest on deposits	5,442		1,973		9,785		5,957		Interest on deposits	15,832		1,833
Interest on borrowings	Interest on borrowings	787		122		1,372		454		Interest on borrowings	2,085		131
Interest on subordinated debentures		539		538		1,600		1,983
Interest on junior subordinated debentures										Interest on junior subordinated debentures	528		529
Total interest expense	Total interest expense	6,768		2,633		12,757		8,394		Total interest expense	18,445		2,493
Net interest income	Net interest income	37,813		34,746		110,712		100,639		Net interest income	34,280		36,365
Provision (credit) for credit losses	Provision (credit) for credit losses	2,764		939		4,034		(4,420)		Provision (credit) for credit losses	2,002		(1,075)
Net interest income after provision (credit) for credit losses	Net interest income after provision (credit) for credit losses	35,049		33,807		106,678		105,059		Net interest income after provision (credit) for credit losses	32,278		37,440
Non-Interest Income	Non-Interest Income									Non-Interest Income
Debit card income	Debit card income	3,234		3,278		9,371		9,126		Debit card income	2,938		2,924
Service charges on deposit accounts	Service charges on deposit accounts	1,941		1,744		5,705		4,800		Service charges on deposit accounts	1,762		1,833
Income from fiduciary services	Income from fiduciary services	1,535		1,627		4,847		4,860		Income from fiduciary services	1,600		1,631
Brokerage and insurance commissions	Brokerage and insurance commissions	1,003		993		3,269		2,885		Brokerage and insurance commissions	1,093		994
Mortgage banking income, net	Mortgage banking income, net	635		1,913		3,186		11,620		Mortgage banking income, net	716		1,034
Bank-owned life insurance	Bank-owned life insurance	374		589		1,519		1,774		Bank-owned life insurance	592		576

Net loss on sale of securities		—		—		(9)		—

Other income	Other income	1,232		955		3,032		2,569		Other income	1,165		833
Total non-interest income	Total non-interest income	9,954		11,099		30,920		37,634		Total non-interest income	9,866		9,825
Non-Interest Expense	Non-Interest Expense									Non-Interest Expense
Salaries and employee benefits	Salaries and employee benefits	15,849		15,902		46,757		45,742		Salaries and employee benefits	14,573		15,506
Furniture, equipment and data processing	Furniture, equipment and data processing	3,305		2,980		9,639		8,954		Furniture, equipment and data processing	3,211		3,132
Net occupancy costs	Net occupancy costs	1,765		1,813		5,715		5,569		Net occupancy costs	2,079		2,144
Debit card expense	Debit card expense	1,210		1,106		3,410		3,166		Debit card expense	1,201		1,066
Consulting and professional fees	Consulting and professional fees	814		792		3,114		2,652		Consulting and professional fees	1,055		1,007
Regulatory assessments	Regulatory assessments	575		522		1,745		1,512		Regulatory assessments	845		655
Amortization of core deposit intangible assets	Amortization of core deposit intangible assets	156		163		469		491		Amortization of core deposit intangible assets	148		156
Other real estate owned and collection costs (recoveries), net		56		60		9		(156)

Other expenses	Other expenses	3,361		2,925		8,998		8,822		Other expenses	3,053		2,543
Total non-interest expense	Total non-interest expense	27,091		26,263		79,856		76,752		Total non-interest expense	26,165		26,209
Income before income tax expense	Income before income tax expense	17,912		18,643		57,742		65,941		Income before income tax expense	15,979		21,056
Income Tax Expense	Income Tax Expense	3,645		4,003		11,654		13,418		Income Tax Expense	3,252		4,261
Net Income	Net Income	$	14,267	$	14,640	$	46,088	$	52,523	Net Income	$	12,727	$	16,795
Per Share Data	Per Share Data									Per Share Data
Basic earnings per share	Basic earnings per share	$	0.97	$	0.98	$	3.13	$	3.51	Basic earnings per share	$	0.87	$	1.14
Diluted earnings per share	Diluted earnings per share	$	0.97	$	0.97	$	3.12	$	3.49	Diluted earnings per share	$	0.87	$	1.13
Cash dividends declared per share	Cash dividends declared per share	$	0.40	$	0.36	$	1.20	$	1.08	Cash dividends declared per share	$	0.42	$	0.40
Weighted average number of common shares outstanding	Weighted average number of common shares outstanding	14,619,460		14,931,056		14,670,450		14,930,387		Weighted average number of common shares outstanding	14,573,122		14,741,271
Diluted weighted average number of common shares outstanding	Diluted weighted average number of common shares outstanding	14,675,332		14,999,013		14,728,349		14,996,541		Diluted weighted average number of common shares outstanding	14,631,542		14,822,332

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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) ~~INCOME~~

(unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
(In thousands)	(In thousands)	2022		2021		2022		2021		(In thousands)	2023		2022
Net Income	Net Income	$	14,267	$	14,640	$	46,088	$	52,523	Net Income	$	12,727	$	16,795
Other comprehensive loss:
Other comprehensive income (loss):										Other comprehensive income (loss):
Net change in unrealized loss on debt securities, net of tax	Net change in unrealized loss on debt securities, net of tax	(24,231)		(5,139)		(139,095)		(20,352)		Net change in unrealized loss on debt securities, net of tax	9,094		(72,811)
Net change in unrealized gain (loss) on cash flow hedging derivatives, net of tax		2,560		467		8,324		3,267
Net change in unrealized gain on cash flow hedging derivatives, net of tax										Net change in unrealized gain on cash flow hedging derivatives, net of tax	(2,605)		2,945
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	181		171		544		512		Net change in other comprehensive income for supplemental executive retirement plan and other postretirement benefit plan, net of tax	(5)		182
Other comprehensive loss		(21,490)		(4,501)		(130,227)		(16,573)
Comprehensive (Loss) Income		$	(7,223)	$	10,139	$	(84,139)	$	35,950
Other comprehensive income (loss)										Other comprehensive income (loss)	6,484		(69,684)
Comprehensive Income (Loss)										Comprehensive Income (Loss)	$	19,211	$	(52,889)

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

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(unaudited)


		Three Months Ended																Three Months Ended
		Common Stock			Retained Earnings				Accumulated Other Comprehensive Income (Loss)				Total Shareholders’ Equity					Common Stock				Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
(In thousands, except number of shares and per share data)	(In thousands, except number of shares and per share data)	Shares Outstanding	Amount								(In thousands, except number of shares and per share data)				Shares Outstanding				Amount
Balance at June 30, 2021		14,951,067	$	132,278			$	404,602			$	8,668				$	545,548
Balance at December 31, 2021															Balance at December 31, 2021			14,739,956		$	123,111		$	424,412		$	(6,229)		$	541,294
Net income	Net income	—	—		14,640				—				14,640		Net income			—		—		16,795			—			16,795
Other comprehensive loss, net of tax	Other comprehensive loss, net of tax	—	—		—				(4,501)				(4,501)		Other comprehensive loss, net of tax			—		—		—			(69,684)			(69,684)
Stock-based compensation expense	Stock-based compensation expense	—	493		—				—				493		Stock-based compensation expense			—		624		—			—			624
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings	Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings	4,762	67		—				—				67		Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings			19,540		(114)		—			—			(114)
Common stock repurchased	Common stock repurchased	(106,502)	(4,913)		—				—				(4,913)		Common stock repurchased			(13,086)		(609)		—			—			(609)
Cash dividends declared ($0.36 per share)		—	—		(5,350)				—				(5,350)
Balance at September 30, 2021		14,849,327	$	127,925	$	413,892			$	4,167			$	545,984
Balance at June 30, 2022		14,625,041	$	116,825	$	444,522			$	(114,966)			446,381
Cash dividends declared ($0.40 per share)															Cash dividends declared ($0.40 per share)			—		—		(5,860)			—			(5,860)
Balance at March 31, 2022															Balance at March 31, 2022			14,746,410		$	123,012	$	435,347		$	(75,913)		$	482,446
Balance at December 31, 2022															Balance at December 31, 2022			14,567,325		$	115,069	$	462,164		$	(125,955)		$	451,278
Net income	Net income	—	—		14,267				—				14,267		Net income			—		—		12,727			—			12,727
Other comprehensive loss, net of tax	Other comprehensive loss, net of tax	—	—		—				(21,490)				(21,490)		Other comprehensive loss, net of tax			—		—		—			6,484			6,484
Stock-based compensation expense	Stock-based compensation expense	—	522		—				—				522		Stock-based compensation expense			—		459		—			—			459
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings	Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings	2,476	16		—				—				16		Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings			20,581		62		—			—			62
Common stock repurchased		(63,689)	(2,827)		—				—				(2,827)

Cash dividends declared ($0.40 per share)		—	—		(5,862)				—				(5,862)
Balance at September 30, 2022		14,563,828	$	114,536	$	452,927			$	(136,456)			$	431,007

Cash dividends declared ($0.42 per share)															Cash dividends declared ($0.42 per share)			—		—		(6,136)			—			(6,136)
Balance at March 31, 2023															Balance at March 31, 2023			14,587,906		$	115,590	$	468,755		$	(119,471)		$	464,874

Nine Months Ended
Common Stock Retained
Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders’
Equity
(In thousands, except number of shares and per share data) Shares
Outstanding Amount
Balance at December 31, 2020 14,909,097 $ 131,072 $ 377,502 $ 20,740 $ 529,314
Net income — — 52,523 — 52,523
Other comprehensive loss, net of tax — — — (16,573) (16,573)
Stock-based compensation expense — 2,007 — — 2,007
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings 46,732 (241) — — (241)
Common stock repurchased (106,502) (4,913) — — (4,913)
Cash dividends declared ($1.08 per share) — — (16,133) — (16,133)
Balance at September 30, 2021 14,849,327 $ 127,925 $ 413,892 $ 4,167 $ 545,984
Balance at December 31, 2021 14,739,956 $ 123,111 $ 424,412 $ (6,229) $ 541,294
Net income — — 46,088 — 46,088
Other comprehensive loss, net of tax — — — (130,227) (130,227)
Stock-based compensation expense — 2,039 — — 2,039
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings 49,117 (374) — — (374)
Common stock repurchased (225,245) (10,240) — — (10,240)
Cash dividends declared ($1.20 per share) — — (17,573) — (17,573)
Balance at September 30, 2022 14,563,828 $ 114,536 $ 452,927 $ (136,456) $ 431,007

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


		Nine Months Ended September 30,					Three Months Ended March 31,
(In thousands)	(In thousands)	2022		2021		(In thousands)	2023		2022
Operating Activities	Operating Activities					Operating Activities
Net Income	Net Income	$	46,088	$	52,523	Net Income	$	12,727	$	16,795
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	(130,725)		(359,842)		Originations of mortgage loans held for sale	(34,397)		(47,671)
Proceeds from the sale of mortgage loans	Proceeds from the sale of mortgage loans	134,597		400,812		Proceeds from the sale of mortgage loans	35,501		47,771
Gain on sale of mortgage loans, net of origination costs	Gain on sale of mortgage loans, net of origination costs	(2,948)		(11,260)		Gain on sale of mortgage loans, net of origination costs	(384)		(1,132)
Provision (credit) for credit losses	Provision (credit) for credit losses	4,034		(4,420)		Provision (credit) for credit losses	2,002		(1,075)
Depreciation and amortization expense	Depreciation and amortization expense	2,638		2,779		Depreciation and amortization expense	815		899
Investment securities amortization and accretion, net	Investment securities amortization and accretion, net	3,118		5,238		Investment securities amortization and accretion, net	605		1,217
Stock-based compensation expense	Stock-based compensation expense	2,039		2,007		Stock-based compensation expense	459		624
Amortization of core deposit intangible assets	Amortization of core deposit intangible assets	469		491		Amortization of core deposit intangible assets	148		156
Purchase accounting accretion, net	Purchase accounting accretion, net	(197)		(589)		Purchase accounting accretion, net	(34)		(80)
Net gain on sale of premises and equipment		(204)		—

Net decrease in derivative collateral posted		30,470		25,090

Net (increase) decrease in derivative collateral posted						Net (increase) decrease in derivative collateral posted	(1,370)		24,070
(Increase) decrease in other assets	(Increase) decrease in other assets	(765)		2,827		(Increase) decrease in other assets	(189)		998
Decrease in other liabilities		(3,899)		(3,994)
(Decrease) increase in other liabilities						(Decrease) increase in other liabilities	(1,367)		178
Net cash provided by operating activities	Net cash provided by operating activities	84,715		111,662		Net cash provided by operating activities	14,516		42,750
Investing Activities	Investing Activities					Investing Activities
Proceeds from available-for-sale debt securities	Proceeds from available-for-sale debt securities	160,708		248,186		Proceeds from available-for-sale debt securities	18,888		69,572
Purchase of available-for-sale debt securities		(80,868)		(618,744)
Proceeds from paydowns of held-to-maturity securities		15,192		—
Purchase of held-to-maturity securities		(24,502)		—
Proceeds from sales, calls and maturities of available-for-sale debt securities						Proceeds from sales, calls and maturities of available-for-sale debt securities	—		(77,865)
Proceeds from maturities of held-to-maturity securities						Proceeds from maturities of held-to-maturity securities	6,216		—

Net increase in loans	Net increase in loans	(429,948)		(95,720)		Net increase in loans	(63,055)		(102,976)

Purchase of Federal Home Loan Bank stock	Purchase of Federal Home Loan Bank stock	(29,104)		(68)		Purchase of Federal Home Loan Bank stock	(13,591)		(1,799)
Proceeds from sale of Federal Home Loan Bank stock	Proceeds from sale of Federal Home Loan Bank stock	24,276		1,329		Proceeds from sale of Federal Home Loan Bank stock	6,890		1,892
Purchase of premises and equipment	Purchase of premises and equipment	(1,348)		(1,549)		Purchase of premises and equipment	(495)		(393)
Proceeds from the sale of premises and equipment		466		—

Recoveries of previously charged-off loans	Recoveries of previously charged-off loans	437		272		Recoveries of previously charged-off loans	107		62
Proceeds from the sale of other real estate owned	Proceeds from the sale of other real estate owned	287		465		Proceeds from the sale of other real estate owned	—		287
Net cash used in investing activities	Net cash used in investing activities	(364,404)		(465,829)		Net cash used in investing activities	(45,040)		(111,220)
Financing Activities	Financing Activities					Financing Activities
Net (decrease) increase in deposits		(40,285)		599,936
Net decrease in deposits						Net decrease in deposits	(184,195)		(32,225)
Net proceeds from borrowings less than 90 days	Net proceeds from borrowings less than 90 days	209,493		49,113		Net proceeds from borrowings less than 90 days	221,142		26,060

Repayments of Federal Home Loan Bank long-term advances		—		(25,000)
Repayment of subordinated debt		—		(15,000)

Common stock repurchases	Common stock repurchases	(9,968)		(4,924)		Common stock repurchases	—		(542)
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	(374)		(241)		Exercise of stock options and issuance of restricted stock, net of repurchase for tax withholdings	62		(114)
Cash dividends paid on common stock	Cash dividends paid on common stock	(17,671)		(15,721)		Cash dividends paid on common stock	(6,135)		(5,911)
Finance lease payments	Finance lease payments	(119)		(114)		Finance lease payments	(36)		(40)
Net cash provided by financing activities		141,076		588,049
Net (decrease) increase in cash, cash equivalents and restricted cash		(138,613)		233,882
Net cash provided (used in) by financing activities						Net cash provided (used in) by financing activities	30,838		(12,772)
Net increase (decrease) in cash, cash equivalents and restricted cash						Net increase (decrease) in cash, cash equivalents and restricted cash	314		(81,242)
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	75,427		220,625
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	82,012	$	379,656	Cash, cash equivalents and restricted cash at end of period	$	75,741	$	139,383
Supplemental information	Supplemental information					Supplemental information
Transfer from available-for-sale securities to held-to-maturity securities1		$	592,438	$	—

Interest paid	Interest paid	12,565		8,523		Interest paid	17,840		2,470
Income taxes paid	Income taxes paid	9,761		14,277		Income taxes paid	146		150
Cash dividends declared, not paid	Cash dividends declared, not paid	5,861		5,348		Cash dividends declared, not paid	6,135		5,908
Unsettled common stock repurchase	Unsettled common stock repurchase	272		—		Unsettled common stock repurchase	—		67
Transfer from premises to other real estate owned		—		204

(1) As of the date of transfer, the amortized cost basis of the debt securities was $592.4 million, fair value was $520.3 million and the net pre-tax unrealized losses included in AOCI was $72.1 million. 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 ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the consolidated statements of income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ the consolidated statements of comprehensive (loss) income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ the consolidated statements of changes in shareholders' equity for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ and the consolidated statements of cash flows for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022. The consolidated financial statements include the accounts of the Company and Camden National Bank (the "Bank"), a wholly-owned subsidiary of the Company (which includes the consolidated accounts of Healthcare Professional Funding Corporation ("HPFC") and Property A, Inc. ~~as of and for the three and nine months ended September 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. Any such reclassifications did not impact net income or shareholders' equity as previously reported. Net income reported for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, is not necessarily indicative of the results that may be expected for the full year. The information in this report should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

The acronyms, abbreviations and definitions identified below are used throughout this Form 10-Q, including Part I. "Financial Information" and Part II. "Management's Discussion and Analysis of Financial Condition and Results of Operations." The following is provided to aid the reader and provide a reference page when reviewing these sections of the Form 10-Q.

Acronym

Description

Acronym

Description

AFS:

Available-for-sale

FRBB:

Federal Reserve Bank of Boston

ALCO:

Asset/Liability Committee

GAAP:

Generally accepted accounting principles in the United States

ACL:

Allowance for credit losses

GDP:

Gross domestic product

AOCI:

Accumulated other comprehensive income (loss)

HPFC:

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

ASC:

Accounting Standards Codification

HTM:

Held-to-maturity

ASU:

Accounting Standards Update

IRS:

Internal Revenue Service

Bank:

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

LGD:

Loss given default

BOLI:

Bank-owned life insurance

LIBOR:

London Interbank Offered Rate

Board ALCO:

Board of Directors' Asset/Liability Committee

LTIP:

Long-Term Performance Share Plan

CARES Act:

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

Management ALCO:

Management Asset/Liability Committee

CCTA:

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

MBS:

Mortgage-backed security

CDs:

Certificate of deposits

MSPP:

Management Stock Purchase Plan

CECL:

Current Expected Credit Losses

N/A:

Not applicable

Company:

Camden National Corporation

N.M.:

Not meaningful

CMO:

Collateralized mortgage obligation

OCC:

Office of the Comptroller of the Currency

CUSIP:

Committee on Uniform Securities Identification Procedures

OCI:

Other comprehensive income (loss)

DCRP:

Defined Contribution Retirement Plan

OREO:

Other real estate owned

EPS:

Earnings per share

~~OTTI:~~PD:

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

FASB:

Financial Accounting Standards Board

~~PD:~~SBA:

~~Probability of default~~U.S. Small Business Administration

FDIC:

Federal Deposit Insurance Corporation

~~SBA:~~

~~U.S. Small Business Administration~~

~~FHLB:~~

~~Federal Home Loan Bank~~

SBA PPP:

U.S. Small Business Administration Paycheck Protection Program

FHLB:

Federal Home Loan Bank

SERP:

Supplemental executive retirement plans

FHLBB:

Federal Home Loan Bank of Boston

~~SERP:~~SOFR:

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

FHLMC:

Federal Home Loan Mortgage Corporation

~~SOFR:~~TDR:

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

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

FOMC:

Federal Open Market Committee

U.S.:

United States of America

FRB:

Federal Reserve System Board of Governors

~~U.S.:~~

~~United States of America~~

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS

The Company adopted and updated its accounting policies for the following ~~provides a brief description of recently issued~~ accounting ~~pronouncements~~standards that have ~~yet~~been applied 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 TDRs and write-offs for entities 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 itsCompany's interim consolidated financial statements ~~and does not anticipate a material impact upon adoption.~~for the three months ended March 31, 2023:

ASU No. 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method ("ASU 2022-01"). The FASB issued ASU 2022-01 to amend ASU 2017-12, which was adopted by the Company in 2018. This amendment renames the "last-of-layer" method to the "portfolio layer" method, permits non-repayable financial assets to be included in a closed portfolio hedged using the portfolio layer method, and provides additional guidance for entities that apply the portfolio layer method of hedge accounting in accordance with Topic 815. The ~~amendment~~Company adopted ASU 2022-01, as amended, effective January 1, 2023 and leveraged the "portfolio layer" method to enter into interest rate swaps to hedge fixed-rate residential mortgages during the three months ended March 31, 2023. There was no impact to the Company's consolidated financial statements upon adoption. Refer to Note 8 of the consolidated financial statements for further details.

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

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

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

ASU No. 2023-02, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method ("ASU 2023-02"). The FASB issued ASU 2023-02 to permit reporting entities to elect to account for tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. Under the proportional amortization method, the initial cost of the investment is amortized in proportion to the income tax credits or other tax benefits received. ASU 2023-02 is effective for ~~fiscal years~~interim and annual periods beginning after December 15, ~~2022. The~~2023. While the Company is currently evaluating, ~~the amendment and~~it does not ~~anticipate~~expect the adoption of ASU 2023-02 to have a material impact on its consolidated financial ~~statements upon adoption of this guidance.~~statements.

NOTE 3 – INVESTMENTS

Trading Securities

Trading securities are reported on the Company's consolidated statements of condition at fair value. As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the fair value of the Company's trading securities were ~~$3.7 million and $4.4 million, respectively.~~$4.0 million. 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
September 30, 2022
March 31, 2023										March 31, 2023
Obligations of states and political subdivisions	Obligations of states and political subdivisions	$	53,247	$	1	$	(1,774)	$	51,474	Obligations of states and political subdivisions	$	49,142	$	41	$	(132)	$	49,051
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises		622,660		65		(92,937)		529,788
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises		134,872		—		(13,061)		121,811
MBS issued or guaranteed by U.S. government-sponsored enterprises										MBS issued or guaranteed by U.S. government-sponsored enterprises	585,249		214		(77,632)		507,831
CMO issued or guaranteed by U.S. government-sponsored enterprises										CMO issued or guaranteed by U.S. government-sponsored enterprises	117,552		—		(11,319)		106,233
Subordinated corporate bonds	Subordinated corporate bonds	23,109		—		(2,564)		20,545		Subordinated corporate bonds	25,678		—		(2,370)		23,308
Total AFS debt securities	Total AFS debt securities	$	833,888	$	66	$	(110,336)	$	723,618	Total AFS debt securities	$	777,621	$	255	$	(91,453)	$	686,423
December 31, 2021
Obligations of U.S. government-sponsored enterprises		$	8,585	$	—	$	(241)	$	8,344
December 31, 2022										December 31, 2022

Obligations of states and political subdivisions	Obligations of states and political subdivisions	112,086		5,392		—		117,478		Obligations of states and political subdivisions	$	49,678	$	11	$	(463)	$	49,226
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		361,781		2,835		(5,767)		358,849
MBS issued or guaranteed by U.S. government-sponsored enterprises										MBS issued or guaranteed by U.S. government-sponsored enterprises	598,845		131		(84,957)		514,019
CMO issued or guaranteed by U.S. government-sponsored enterprises										CMO issued or guaranteed by U.S. government-sponsored enterprises	122,760		—		(13,413)		109,347
Subordinated corporate bonds	Subordinated corporate bonds	22,660		152		(254)		22,558		Subordinated corporate bonds	25,677		3		(2,397)		23,283
Total AFS debt securities	Total AFS debt securities	$	1,508,981	$	16,235	$	(17,730)	$	1,507,486	Total AFS debt securities	$	796,960	$	145	$	(101,230)	$	695,875

As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, there was no allowance carried on AFS debt securities.

In June of 2022, the Company transferred securities with a fair value of $520.3 million from AFS to HTM. The unrealized losses on the AFS debt securities at the time of transfer were $72.1 million, pre-tax, and were reported within AOCI. These unrealized losses are being amortized over the remaining life of the securities from AOCI into interest income on the consolidated statements of income. At ~~September 30, 2022,~~March 31, 2023 the net unrealized losses on the transferred securities reported within AOCI were ~~$53.7~~$50.9 million, net of a deferred tax asset of ~~$14.7~~$13.9 million and at December 31, 2022 were $52.2 million, net of a deferred tax asset of $14.3 million.

The net unrealized losses on AFS debt securities reported within AOCI (excluding the aforementioned securities transferred from AFS to HTM) at ~~September 30, 2022,~~March 31, 2023, were ~~$86.6~~$71.6 million, net of a deferred tax asset of ~~$23.7~~$19.6 million and at December 31, ~~2021~~2022 were ~~$1.2~~$79.4 million, net of a deferred tax asset of ~~$321,000.~~$21.7 million.

For the three months ended March 31, 2023 and 2022, the Company did not sell any AFS debt securities.

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

Three Months Ended
September 30, Nine Months Ended
September 30,
(In thousands) 2022 2021 2022 2021
Proceeds from sales of investments $ — $ — $ 8,723 $ —
Gross realized gains — — 13 —
Gross realized losses — — (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
(In thousands, except number of holdings) Number of
Holdings Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses
September 30, 2022
Obligations of states and political subdivisions 101 $ 51,026 $ (1,774) $ — $ — $ 51,026 $ (1,774)
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises 172 203,082 (24,432) 322,251 (68,505) 525,333 (92,937)
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises 76 83,532 (7,433) 38,279 (5,628) 121,811 (13,061)
Subordinated corporate bonds 13 9,071 (910) 11,474 (1,654) 20,545 (2,564)
Total AFS debt securities 362 $ 346,711 $ (34,549) $ 372,004 $ (75,787) $ 718,715 $ (110,336)
December 31, 2021
Obligations of U.S. government-sponsored enterprises 4 $ 8,344 $ (241) $ — $ — $ 8,344 $ (241)
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 56 191,456 (4,602) 38,117 (1,165) 229,573 (5,767)
Subordinated corporate bonds 7 11,932 (232) 979 (22) 12,911 (254)
Total AFS debt securities 180 $ 871,583 $ (14,074) $ 101,074 $ (3,656) $ 972,657 $ (17,730)


		Less Than 12 Months				12 Months or More				Total
(In thousands, except number of holdings)	Number of Holdings	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
March 31, 2023
Obligations of states and political subdivisions	54	$	19,151	$	(48)	$	10,384	$	(84)	$	29,535	$	(132)
MBS issued or guaranteed by U.S. government-sponsored enterprises	172	3,310		(80)		488,861		(77,552)		492,171		(77,632)
CMO issued or guaranteed by U.S. government-sponsored enterprises	62	2,506		(56)		103,727		(11,263)		106,233		(11,319)
Subordinated corporate bonds	14	6,179		(412)		17,129		(1,958)		23,308		(2,370)
Total AFS debt securities	302	$	31,146	$	(596)	$	620,101	$	(90,857)	$	651,247	$	(91,453)



December 31, 2022

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

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 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 were not reflective of credit ~~events, the issuers continue to make timely principal and interest payments on the bonds.~~events. Agency-backed and government-sponsored enterprise securities have a long ~~40 year~~ history with no credit losses, including during times of severe ~~stress like the 2007-2008 financial crisis.~~stress. The principal and interest payments on agency guaranteed debt is backed by the U.S. government. Government-sponsored enterprises similarly guarantee principal and interest payments and carry an implicit guarantee from the U.S. Department of the Treasury. Additionally, government-sponsored enterprise securities are exceptionally liquid, readily marketable, and provide a substantial amount of price transparency and price parity, indicating a perception of zero credit losses. AFS municipal debt holdings are comprised solely of high credit quality (rated A- or higher) state and municipal obligations. High credit quality state and municipal obligations have a history of zero to near-zero credit loss. Subordinated corporate bonds are primarily comprised of investment grade senior notes and senior subordinated notes of other financial institutions.

At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, total accrued interest receivable on AFS debt securities, which has been excluded from reported amortized cost basis on AFS debt securities, was $2.0 million and ~~$3.4~~$1.9 million, respectively, and was reported within other assets on the consolidated statements of condition. An allowance was not carried on the accrued interest receivable at either date.

The amortized cost and estimated fair values of the Company's AFS debt securities by contractual maturity at ~~September 30, 2022,~~March 31, 2023, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-related securities are shown in total, as their maturities are highly variable.

(In thousands) Amortized
Cost Fair
Value
Due in one year or less $ 501 $ 500
Due after one year through five years 15,785 14,033
Due after five years through ten years 60,070 57,486
Due after ten years — —
Subtotal 76,356 72,019
Mortgage-related securities 757,532 651,599
Total $ 833,888 $ 723,618


(In thousands)	Amortized Cost		Fair Value
Due in one year or less	$	1,002	$	1,003
Due after one year through five years	13,612		12,323
Due after five years through ten years	60,206		59,032
Due after ten years	—		—
Subtotal	74,820		72,358
Mortgage-related securities	702,801		614,065
Total	$	777,621	$	686,423

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(1)		Unrealized Gains		Unrealized Losses		Fair Value
September 30, 2022
March 31, 2023										March 31, 2023
Obligations of U.S. government-sponsored enterprises	Obligations of U.S. government-sponsored enterprises	$	7,422	$	—	$	(664)	$	6,758	Obligations of U.S. government-sponsored enterprises	$	7,491	$	—	$	(507)	$	6,984
Obligations of states and political subdivisions	Obligations of states and political subdivisions	55,908		—		(3,595)		52,313		Obligations of states and political subdivisions	56,049		1,683		(760)		56,972
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises		320,850		—		(27,067)		293,783
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises		147,753		—		(10,990)		136,763
MBS issued or guaranteed by U.S. government-sponsored enterprises										MBS issued or guaranteed by U.S. government-sponsored enterprises	314,589		—		(18,932)		295,657
CMO issued or guaranteed by U.S. government-sponsored enterprises										CMO issued or guaranteed by U.S. government-sponsored enterprises	143,030		—		(10,628)		132,402
Subordinated corporate bonds	Subordinated corporate bonds	2,376		—		(234)		2,142		Subordinated corporate bonds	18,915		607		(538)		18,984
Total HTM debt securities	Total HTM debt securities	$	534,309	$	—	$	(42,550)	$	491,759	Total HTM debt securities	$	540,074	$	2,290	$	(31,365)	$	510,999
December 31, 2021
December 31, 2022										December 31, 2022
Obligations of U.S. government-sponsored enterprises										Obligations of U.S. government-sponsored enterprises	$	7,457	$	—	$	(777)	$	6,680
Obligations of states and political subdivisions	Obligations of states and political subdivisions	$	1,291	$	89	$	—	$	1,380	Obligations of states and political subdivisions	55,978		431		(1,610)		54,799
MBS issued or guaranteed by U.S. government-sponsored enterprises										MBS issued or guaranteed by U.S. government-sponsored enterprises	317,406		—		(24,766)		292,640
CMO issued or guaranteed by U.S. government-sponsored enterprises										CMO issued or guaranteed by U.S. government-sponsored enterprises	145,069		—		(13,724)		131,345
Subordinated corporate bonds										Subordinated corporate bonds	20,673		332		(276)		20,729
Total HTM debt securities	Total HTM debt securities	$	1,291	$	89	$	—	$	1,380	Total HTM debt securities	$	546,583	$	763	$	(41,153)	$	506,193

~~In June~~(1) Amortized cost presented above includes unamortized unrealized losses for March 31, 2023 and December 31, 2022: $1.1 million in obligations of ~~2022, the Company transferred~~U.S. government-sponsored enterprises for both periods, $6.0 million and $6.1 million in obligations of state and political subdivisions, $37.4 million and $38.4 million in mortgage-backed securities, ~~with a fair value of $520.3~~$20.1 million ~~from AFS to HTM. See discussion above for details.~~and $20.7 million in collateralized mortgage obligations and $108,000 and $117,000 in subordinated corporate bonds.

As of September 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

1213

Agency-backed and government-sponsored enterprise securities have a long ~~40 year~~ history with no credit losses, including during times of severe ~~stress like the 2007-2008 financial crisis.~~stress. The principal and interest payments on ~~agency guaranteed~~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. AsSubordinated corporate bonds are primarily comprised of ~~December~~investment grade senior notes and senior subordinated notes of other financial institutions. For the three months ended March 31, ~~2021,~~2023 and 2022, the ~~Company’s~~Company recorded a provision for credit losses on its HTM debt securities portfolio of $1.8 million and $0, respectively. The provision for credit losses recorded during the three months ended March 31, 2023 was ~~made up~~due to the write-off of a Signature Bank subordinated corporate bond, which was designated as HTM and previously carried no ACL, as the bank failed during the quarter. Additionally, the Company wrote-off accrued interest receivable due from the Signature Bank subordinated corporate bond of $8,000 during the three ~~investment grade municipal~~months ended March 31, 2023, and it was recorded as a reversal of interest income on the consolidated statements of income. The Company did not write-off any accrued interest for the three months ended March 31, 2022.

The Company evaluated its HTM debt securities with an amortized cost as of ~~which two securities also carried credit enhancements. Accordingly, the Company~~March 31, 2023 and December 31, 2022, and determined that the expected credit loss on its HTM portfolio was immaterial, and therefore it did not carry an ~~allowance on its HTM debt securities~~ACL at ~~September 30, 2022 or December 31, 2021.~~either date.

As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, none of the Company's HTM debt securities were past due or on non-accrual status. For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ the Company did not recognize any interest income on non-accrual HTM debt securities. At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, total accrued interest receivable on HTM debt securities, which has been excluded from reported amortized cost basis on HTM debt securities, was ~~$1.4~~$1.5 million and ~~$10,000,~~$1.7 million, respectively, and was reported within other assets on the consolidated statements of condition. An allowance was not carried on the HTM debt securities accrued interest receivable at either date.

The amortized cost and estimated fair values of HTM debt securities by contractual maturity at ~~September 30, 2022~~March 31, 2023 are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-related securities are shown in total, as their maturities are highly variable.


(In thousands)	(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	864		845		Due after one year through five years	1,285		1,272
Due after five years through ten years	Due after five years through ten years	14,562		13,538		Due after five years through ten years	20,527		19,720
Due after ten years	Due after ten years	50,280		46,830		Due after ten years	60,643		61,947
Subtotal	Subtotal	65,706		61,213		Subtotal	82,455		82,939
Mortgage-related securities	Mortgage-related securities	468,603		430,546		Mortgage-related securities	457,619		428,060
Total	Total	$	534,309	$	491,759	Total	$	540,074	$	510,999

AFS and HTM Debt Securities Pledged

At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, AFS and HTM debt securities with an amortized cost of ~~$765.8~~$630.2 million and ~~$640.1~~$821.9 million and estimated fair values of ~~$673.6~~$560.3 million and ~~$641.2~~$726.5 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 nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022.

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


(In thousands)	(In thousands)	September 30, 2022		December 31, 2021		(In thousands)	March 31, 2023		December 31, 2022
FHLBB	FHLBB	$	9,734	$	4,906	FHLBB	$	14,040	$	7,339
FRB	FRB	5,374		5,374		FRB	5,374		5,374
Total other investments	Total other investments	$	15,108	$	10,280	Total other investments	$	19,414	$	12,713

NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES ON LOANS

Loans

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


(In thousands)	(In thousands)	September 30, 2022		December 31, 2021		(In thousands)	March 31, 2023		December 31, 2022
Commercial Loans:	Commercial Loans:					Commercial Loans:
Commercial real estate - non-owner-occupied	Commercial real estate - non-owner-occupied	$	1,229,102	$	1,178,185	Commercial real estate - non-owner-occupied	$	1,328,793	$	1,292,443
Commercial real estate - owner-occupied	Commercial real estate - owner-occupied	333,785		317,275		Commercial real estate - owner-occupied	337,824		332,494
Commercial	Commercial	423,325		363,695		Commercial	421,099		430,131
SBA PPP		685		35,953

Total commercial loans	Total commercial loans	1,986,897		1,895,108		Total commercial loans	2,087,716		2,055,068
Retail Loans:	Retail Loans:					Retail Loans:
Residential real estate	Residential real estate	1,619,409		1,306,447		Residential real estate	1,733,147		1,700,266
Home equity	Home equity	233,367		210,403		Home equity	232,512		234,428
Consumer	Consumer	21,007		19,516		Consumer	19,733		20,591
Total retail loans	Total retail loans	1,873,783		1,536,366		Total retail loans	1,985,392		1,955,285
Total loans	Total loans	$	3,860,680	$	3,431,474	Total loans	$	4,073,108	$	4,010,353

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

(In thousands) September 30,
2022 December 31,
2021
Net unamortized fair value mark discount on acquired loans $ (396) $ (593)
Net unamortized loan origination costs(1)
6,429 3,110
Total $ 6,033 $ 2,517

~~(1) Net unamortized loan origination costs includes unrecognized origination fees for SBA PPP loans of $20,000 and $1.2 million as of September 30, 2022 and December 31, 2021, respectively.~~


(In thousands)	March 31, 2023		December 31, 2022
Net unamortized fair value mark discount on acquired loans	$	(279)	$	(313)
Net unamortized loan origination costs	6,944		6,890
Total	$	6,665	$	6,577

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

SBA PPP Loans. Beginning in April 2020, the Company originated SBA PPP loans issued to qualifying businesses as part of the federal stimulus packages issued due to the COVID-19 pandemic. This program provided qualifying businesses a specialized, low-interest-rate loan by the U.S. Treasury Department and was administered by the SBA. SBA PPP loans provided borrower guarantees for lenders, as well as loan forgiveness incentives for borrowers that utilized the loan proceeds to cover employee compensation-related business operating costs, as well as certain other costs up to pre-established limits. Effective May 31, 2021, the SBA PPP loan program ended and the Company ceased originating loans under this program. At March 31, 2023 and December 31, 2022, five loans with a total principal balance of $583,000 and $648,000, respectively, remain outstanding and were presented in commercial loans.

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, 6 loans totaling $685,000 remained outstanding as of September 30, 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 ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, outstanding loans to certain officers, directors and their associated companies were less than 5% of the Company's shareholders' equity.

Loan Sales

For the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ the Company sold ~~$37.9~~$35.1 million and ~~$86.2~~$46.6 million, respectively, of residential mortgage loans on the secondary market, which resulted in gains on the sale of loans (net of costs) of ~~$783,000~~$384,000 and $2.2 million, respectively. For the nine months ended September 30, 2022 and 2021, the Company sold $131.6 million and $389.6 million, respectively, of residential mortgage loans on the secondary market, which resulted in gains on the sale of loans (net of costs) of $2.9 million and $11.3$1.1 million, respectively.

At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the Company had certain residential mortgage loans with a principal balance of ~~$4.9~~$4.5 million and ~~$5.8~~$5.3 million, respectively, designated as held for sale. The Company has elected the fair value option of accounting for its loans held for sale, and at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, recorded an unrealized gain (loss) ~~gain~~ of ~~($233,000)~~$23,000 and ~~$29,000,~~($62,000), respectively. For the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ the Company recorded an unrealized ~~loss~~gains on loans held for sale recorded within mortgage banking income, net, on the Company's consolidated statements of income of ~~$193,000~~$85,000 and $216,000, respectively. For the nine months ended September 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 $262,000 and $1.0 million$142,000, respectively.

The Company has forward delivery commitments with a secondary market investor on each of its loans held for sale at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022. Refer to Note 8 for further discussion of the Company's forward delivery commitments.

ACL on Loans

The Company manages its loan portfolio proactively to effectively identify problem credits and assess trends early, implement effective work-out strategies, and take charge-offs as promptly as practical. In addition, the Company continuously reassesses its underwriting standards in response to credit risk posed by changes in economic conditions. The Company monitors and manages credit risk through the following governance structure:

•The Credit Risk and Special Assets team and the Credit Risk Policy Committee, which is an internal management committee comprised of various executives and senior managers across business lines, including Accounting and Finance, Credit Underwriting, Credit Risk and Special Assets, Compliance, and Commercial and Retail Banking, oversee the Company's systems and procedures to monitor the credit quality of its loan portfolio, conduct a loan review program, and maintain the integrity of the loan rating system.

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

•The Directors' Credit Committee of the Board of Directors reviews large credit exposures, monitors external loan review reports, reviews the lending authority for individual loan officers when required, and has approval authority and responsibility for all matters regarding the loan policy and other credit-related policies, including reviewing and monitoring asset quality trends, and concentration levels.

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

Segmentation. For purposes of determining the ACL on loans, the Company disaggregates its loans into portfolio segments. Each portfolio segment possesses unique risk characteristics that are considered when determining the appropriate level of allowance. As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the Company's loan portfolio segments, as determined based on the unique risk characteristics of each, include the following:

Commercial Real Estate - Non-Owner-Occupied. Non-owner-occupied commercial real estate loans are, in substance, all commercial real estate loans that are not categorized by the Company as owner-occupied commercial real estate loans. Non-owner-occupied commercial estate loans are investment properties in which the primary source for repayment of the loan by the borrower is derived from rental income associated with the property or the proceeds of the sale, refinancing, or permanent refinancing of the property. Non-owner-occupied commercial real estate loans consist of mortgage loans to finance investments in real property that may include, but are not limited to, multi-family residential, commercial/retail office space, industrial/warehouse space, hotels, assisted living facilities and other specific use properties. 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.

1618

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

Commercial Real Estate
(In thousands) Non-Owner-Occupied Owner- Occupied Commercial SBA PPP Residential Real Estate Home Equity Consumer Total
At or For The Three Months Ended September 30, 2022
Beginning balance, June 30, 2022 $ 16,210 $ 2,501 $ 5,145 $ 1 $ 8,438 $ 1,796 $ 153 $ 34,244
Loans charged off — — (183) — (49) — (46) (278)
Recoveries 1 — 61 — — 1 — 63
Provision for loan losses 922 146 192 — 696 63 494 2,513
Ending balance, September 30, 2022 $ 17,133 $ 2,647 $ 5,215 $ 1 $ 9,085 $ 1,860 $ 601 $ 36,542
At or For The Nine Months Ended September 30, 2022
Beginning balance, December 31, 2021 $ 18,834 $ 2,539 $ 4,183 $ 19 $ 6,133 $ 1,469 $ 79 $ 33,256
Loans charged off — — (744) — (65) — (130) (939)
Recoveries 2 2 341 — — 87 5 437
(Credit) provision for loan losses (1,703) 106 1,435 (18) 3,017 304 647 3,788
Ending balance, September 30, 2022 $ 17,133 $ 2,647 $ 5,215 $ 1 $ 9,085 $ 1,860 $ 601 $ 36,542
At or For The Three Months Ended September 30, 2021
Beginning balance, June 30, 2021 $ 19,577 $ 2,516 $ 4,342 $ 66 $ 3,205 $ 2,065 $ 289 $ 32,060
Loans charged off — — (97) — (4) — (20) (121)
Recoveries — 2 49 — 2 4 7 64
Provision (credit) for loan losses 157 (214) 295 (23) 450 (231) (165) 269
Ending balance, September 30, 2021 $ 19,734 $ 2,304 $ 4,589 $ 43 $ 3,653 $ 1,838 $ 111 $ 32,272
At or For The Nine Months Ended September 30, 2021
Beginning balance, December 31, 2020 $ 21,778 $ 2,832 $ 6,703 $ 69 $ 3,474 $ 2,616 $ 393 $ 37,865
Loans charged off — — (503) — (92) (145) (88) (828)
Recoveries — 7 159 — 72 4 30 272
(Credit) provision for loan losses (2,044) (535) (1,770) (26) 199 (637) (224) (5,037)
Ending balance, September 30, 2021 $ 19,734 $ 2,304 $ 4,589 $ 43 $ 3,653 $ 1,838 $ 111 $ 32,272
At or For The Year Ended December 31, 2021
Beginning balance, December 31, 2020 $ 21,778 $ 2,832 $ 6,703 $ 69 $ 3,474 $ 2,616 $ 393 $ 37,865
Loans charged off — — (799) — (92) (162) (111) (1,164)
Recoveries — 9 220 — 107 4 32 372
(Credit) provision for loan losses (2,944) (302) (1,941) (50) 2,644 (989) (235) (3,817)
Ending balance, December 31, 2021 $ 18,834 $ 2,539 $ 4,183 $ 19 $ 6,133 $ 1,469 $ 79 $ 33,256


	Commercial Real Estate
(In thousands)	Non-Owner-Occupied		Owner- Occupied		Commercial		Residential Real Estate		Home Equity		Consumer		Total
At or For The Three Months Ended March 31, 2023

Beginning balance, December 31, 2022	$	17,296	$	2,362	$	5,446	$	9,089	$	2,225	$	504	$	36,922
Charge-offs	—		—		(312)		(18)		—		(4)		(334)
Recoveries	1		—		99		4		—		3		107
(Credit) provision for loan losses	(973)		108		(652)		1,737		215		4		439
Ending balance, March 31, 2023	$	16,324	$	2,470	$	4,581	$	10,812	$	2,440	$	507	$	37,134






At or For The Three Months Ended March 31, 2022
Beginning balance, December 31, 2021	$	18,834	$	2,539	$	4,202	$	6,133	$	1,469	$	79	$	33,256
Charge-offs	—		—		(245)		—		—		(67)		(312)
Recoveries	1		2		57		—		—		2		62
(Credit) provision for loan losses	(2,263)		(202)		843		343		(34)		92		(1,221)
Ending balance, March 31, 2022	$	16,572	$	2,339	$	4,857	$	6,476	$	1,435	$	106	$	31,785






At or For The Year Ended December 31, 2022
Beginning balance, December 31, 2021	$	18,834	$	2,539	$	4,202	$	6,133	$	1,469	$	79	$	33,256
Charge-offs	—		—		(1,042)		(66)		—		(134)		(1,242)
Recoveries	3		2		379		—		87		7		478
(Credit) provision for loan losses	(1,541)		(179)		1,907		3,022		669		552		4,430
Ending balance, December 31, 2022	$	17,296	$	2,362	$	5,446	$	9,089	$	2,225	$	504	$	36,922

The ACL on loans increased ~~$3.3 million~~$200,000 during the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, to ~~$36.5~~$37.1 million. The net increase was driven by: ~~(1) a~~an overall softening ~~overall~~ economy and the increasing likelihood of a recession and ~~(2) 13%~~2% loan growth during this period, which was primarily driven by residential real estate ~~commercial~~ and commercial real estate - non-owner-occupied, that offset (3) the release of $5.0 million of reserves 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 the pandemic presented to these loans at that time. As of September 30, 2022 and December 31, 2021, the ACL on loans for these previously modified hospitality-related loans was $0 and $5.0 million, respectively.non-owner-occupied.

Credit Concentrations

The Company focuses on maintaining a well-balanced and diversified loan portfolio. Despite such efforts, it is recognized that credit concentrations may occasionally emerge as a result of economic conditions, changes in local demand, natural loan growth and runoff. To identify credit concentrations effectively, all commercial and commercial real estate loans are assigned Standard Industrial Classification codes, North American Industry Classification System codes, and state and county codes. Shifts in portfolio concentrations are monitored. As of ~~September 30, 2022,~~March 31, 2023, the Company's total exposure to the lessors of nonresidential buildings' industry ~~was~~and lessors of residential buildings' industry were 13% and 12% of total loans and 32% and 28% of total commercial real estate ~~loans.~~loans, respectively. There were no other industry exposures exceeding 10% of the Company's total loan portfolio as of ~~September 30, 2022.~~March 31, 2023.

Credit Quality Indicators

To further identify loans with similar risk profiles, the Company categorizes each portfolio segment into classes by credit risk characteristic and applies a credit quality indicator to each portfolio segment. The indicators for commercial real estate - non-owner-occupied and owner-occupied, commercial and residential real estate portfolio segments are represented by Grades 1 through 10 as outlined below. In general, risk ratings are adjusted periodically throughout the year as updated analysis and review warrants. This process may include, but is not limited to, annual credit and loan reviews, periodic reviews of loan performance metrics, such as delinquency rates, and quarterly reviews of adversely risk rated loans. The Company uses the following definitions when assessing grades for the purpose of evaluating the risk and adequacy of the ACL on loans:

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

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

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

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

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

The Company periodically reassesses asset quality indicators to reflect appropriately the risk composition of the Company’s loan portfolio. Home equity and consumer loans are not individually risk rated, but rather analyzed as groups taking into account delinquency rates and other economic conditions which may affect the ability of borrowers to meet debt service requirements, including interest rates and energy costs. Performing loans include loans that are current and loans that are past due less than 90 days. Loans that are past due over 90 days and non-accrual loans, including TDRs prior to adoption of ASU 2022-02, are considered non-performing.

Based on the most recent analysis performed, the risk category of loans by portfolio segment by vintage was as follows as of the dates indicated:
(In thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans
Amortized Cost Basis Revolving Loans
Converted to Term Total
As of September 30, 2022
Commercial real estate - non-owner-occupied
Risk rating
Pass (Grades 1-6) $ 261,937 $ 275,295 $ 164,434 $ 126,764 $ 111,150 $ 259,205 $ — $ — $ 1,198,785
Special mention (Grade 7) — 168 368 266 78 327 — — 1,207
Substandard (Grade 8) — 131 1,356 207 7,998 19,418 — — 29,110
Doubtful (Grade 9) — — — — — — — — —
Total commercial real estate - non-owner-occupied 261,937 275,594 166,158 127,237 119,226 278,950 — — 1,229,102
Commercial real estate - owner-occupied
Risk rating
Pass (Grades 1-6) 52,250 82,599 28,982 24,000 40,311 75,807 — — 303,949
Special mention (Grade 7) — 2,076 — 19,991 — 422 — — 22,489
Substandard (Grade 8) 26 — — — 3,299 4,022 — — 7,347
Doubtful (Grade 9) — — — — — — — — —
Total commercial real estate - owner occupied 52,276 84,675 28,982 43,991 43,610 80,251 — — 333,785
Commercial
Risk rating
Pass (Grades 1-6) 57,184 73,885 35,048 35,969 23,346 28,931 132,833 29,911 417,107
Special mention (Grade 7) — — 99 154 83 200 1,089 14 1,639
Substandard (Grade 8) 17 19 139 238 725 1,598 1,211 632 4,579
Doubtful (Grade 9) — — — — — — — — —
Total commercial 57,201 73,904 35,286 36,361 24,154 30,729 135,133 30,557 423,325
SBA PPP
Risk rating
Pass (Grades 1-6) — 685 — — — — — — 685
Special mention (Grade 7) — — — — — — — — —
Substandard (Grade 8) — — — — — — — — —
Doubtful (Grade 9) — — — — — — — — —
Total SBA PPP — 685 — — — — — — 685
Residential Real Estate
Risk rating
Pass (Grades 1-6) 429,072 584,538 248,329 81,522 52,447 220,335 334 — 1,616,577
Special mention (Grade 7) — — — — 170 2,662 — — 2,832
Substandard (Grade 8) — — — — — — — — —
Doubtful (Grade 9) — — — — — — — — —
Total residential real estate 429,072 584,538 248,329 81,522 52,617 222,997 334 — 1,619,409
Home equity
Risk rating
Performing 22,801 698 346 5,003 8,193 9,403 174,615 11,720 232,779
Non-performing — — — — — 59 441 88 588
Total home equity 22,801 698 346 5,003 8,193 9,462 175,056 11,808 233,367
Consumer
Risk rating
Performing 6,797 4,510 2,017 1,522 434 2,447 3,279 — 21,006
Non-performing — — — — — 1 — — 1
Total consumer 6,797 4,510 2,017 1,522 434 2,448 3,279 — 21,007
Total Loans $ 830,084 $ 1,024,604 $ 481,118 $ 295,636 $ 248,234 $ 624,837 $ 313,802 $ 42,365 $ 3,860,680

1920


(In thousands)	(In thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total		(In thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
As of December 31, 2021
As of and for the period ended March 31, 2023																				As of and for the period ended March 31, 2023
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)	$	32,495	$	348,906	$	292,459	$	158,884	$	123,148	$	343,942	$	—	$	—	$	1,299,834
Special mention (Grade 7)	Special mention (Grade 7)	171		7,266		286		119		4,294		10,590		—		—		22,726		Special mention (Grade 7)	—		—		166		356		252		388		—		—		1,162
Substandard (Grade 8)	Substandard (Grade 8)	350		1,518		217		9,942		391		26,257		—		—		38,675		Substandard (Grade 8)	—		177		123		1,255		200		26,042		—		—		27,797
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	$	32,495	$	349,083	$	292,748	$	160,495	$	123,600	$	370,372	$	—	$	—	$	1,328,793
Gross charge-offs for the three months ended																				Gross charge-offs for the three months ended	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
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)	$	17,730	$	54,516	$	79,464	$	27,889	$	21,962	$	106,937	$	—	$	—	$	308,498
Special mention (Grade 7)	Special mention (Grade 7)	—		—		—		3,396		362		1,708		—		—		5,466		Special mention (Grade 7)	—		—		—		—		—		404		—		—		404
Substandard (Grade 8)	Substandard (Grade 8)	—		—		54		—		1,785		1,217		—		—		3,056		Substandard (Grade 8)	—		8		2,228		—		19,993		6,693		—		—		28,922
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	$	17,730	$	54,524	$	81,692	$	27,889	$	41,955	$	114,034	$	—	$	—	$	337,824
Gross charge-offs for the three months ended																				Gross charge-offs for the three months ended	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
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)	$	13,993	$	68,567	$	66,044	$	30,359	$	31,455	$	45,211	$	130,278	$	30,254	$	416,161
Special mention (Grade 7)	Special mention (Grade 7)	145		117		590		115		383		222		967		244		2,783		Special mention (Grade 7)	—		—		—		87		114		180		200		10		591
Substandard (Grade 8)	Substandard (Grade 8)	—		339		320		492		293		1,209		360		298		3,311		Substandard (Grade 8)	192		229		88		134		267		1,906		692		839		4,347
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	$	14,185	$	68,796	$	66,132	$	30,580	$	31,836	$	47,297	$	131,170	$	31,103	$	421,099
SBA PPP
Risk rating
Pass (Grades 1-6)		35,164		319		—		—		—		—		—		—		35,483
Special mention (Grade 7)		470		—		—		—		—		—		—		—		470
Substandard (Grade 8)		—		—		—		—		—		—		—		—		—
Doubtful (Grade 9)		—		—		—		—		—		—		—		—		—
Total SBA PPP		35,634		319		—		—		—		—		—		—		35,953
Gross charge-offs for the three months ended																				Gross charge-offs for the three months ended	$	—	$	—	$	51	$	9	$	—	$	172	$	20	$	60	$	312
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)	$	47,241	$	544,518	$	572,505	$	236,212	$	77,364	$	252,040	$	347	$	—	$	1,730,227
Special mention (Grade 7)	Special mention (Grade 7)	—		—		—		—		—		230		—		—		230		Special mention (Grade 7)	—		—		—		—		—		—		—		—		—
Substandard (Grade 8)	Substandard (Grade 8)	—		—		—		—		—		3,563		—		—		3,563		Substandard (Grade 8)	—		—		—		—		92		2,828		—		—		2,920
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	$	47,241	$	544,518	$	572,505	$	236,212	$	77,456	$	254,868	$	347	$	—	$	1,733,147
Gross charge-offs for the three months ended																				Gross charge-offs for the three months ended	$	—	$	—	$	—	$	—	$	—	$	18	$	—	$	—	$	18
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	$	3,926	$	25,674	$	564	$	338	$	4,655	$	15,125	$	170,075	$	11,717	$	232,074
Non-performing	Non-performing	—		—		—		41		—		174		847		113		1,175		Non-performing	—		—		—		—		—		12		347		79		438
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	$	3,926	$	25,674	$	564	$	338	$	4,655	$	15,137	$	170,422	$	11,796	$	232,512
Gross charge-offs for the three months ended																				Gross charge-offs for the three months ended	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
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	$	1,441	$	7,204	$	3,359	$	1,455	$	826	$	2,662	$	2,786	$	—	$	19,733
Non-performing	Non-performing	—		9		21		—		—		2		—		—		32		Non-performing	—		—		—		—		—		—		—		—		—
Total consumer	Total consumer	6,860		3,532		3,110		1,051		548		2,016		2,399		—		19,516		Total consumer	$	1,441	$	7,204	$	3,359	$	1,455	$	826	$	2,662	$	2,786	$	—	$	19,733
Total Loans		$	1,099,415	$	557,853	$	352,013	$	275,431	$	213,669	$	637,117	$	251,440	$	44,536	$	3,431,474
Gross charge-offs for the three months ended																				Gross charge-offs for the three months ended	$	—	$	—	$	—	$	—	$	—	$	4	$	—	$	—	$	4


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

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

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

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

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

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

2022

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
September 30, 2022
March 31, 2023																March 31, 2023
Commercial real estate - non-owner-occupied	Commercial real estate - non-owner-occupied	$	195	$	—	$	11	$	206	$	1,228,896	$	1,229,102	$	—	Commercial real estate - non-owner-occupied	$	34	$	—	$	10	$	44	$	1,328,749	$	1,328,793	$	—
Commercial real estate - owner-occupied	Commercial real estate - owner-occupied	—		—		47		47		333,738		333,785				Commercial real estate - owner-occupied	77		—		47		124		337,700		337,824
Commercial	Commercial	1,323		14		470		1,807		421,518		423,325		—		Commercial	965		79		465		1,509		419,590		421,099		—
SBA PPP		—		—		—		—		685		685		—
Residential real estate	Residential real estate	2,179		500		843		3,522		1,615,887		1,619,409		—		Residential real estate	283		194		459		936		1,732,211		1,733,147		—
Home equity	Home equity	620		210		327		1,157		232,210		233,367		—		Home equity	552		106		151		809		231,703		232,512		—
Consumer	Consumer	41		2		1		44		20,963		21,007		—		Consumer	32		29		—		61		19,672		19,733		—
Total	Total	$	4,358	$	726	$	1,699	$	6,783	$	3,853,897	$	3,860,680	$	—	Total	$	1,943	$	408	$	1,132	$	3,483	$	4,069,625	$	4,073,108	$	—
December 31, 2021
December 31, 2022																December 31, 2022
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	$	267	$	—	$	11	$	278	$	1,292,165	$	1,292,443	$	—
Commercial real estate - owner-occupied	Commercial real estate - owner-occupied	47		—		133		180		317,095		317,275		—		Commercial real estate - owner-occupied	55		—		47		102		332,392		332,494		—
Commercial	Commercial	282		174		787		1,243		362,452		363,695		—		Commercial	667		134		640		1,441		428,690		430,131		—
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	852		186		524		1,562		1,698,704		1,700,266		—
Home equity	Home equity	456		50		445		951		209,452		210,403		—		Home equity	357		—		171		528		233,900		234,428		—
Consumer	Consumer	95		1		32		128		19,388		19,516		—		Consumer	23		11		—		34		20,557		20,591		—
Total	Total	$	1,259	$	768	$	2,658	$	4,685	$	3,426,789	$	3,431,474	$	—	Total	$	2,221	$	331	$	1,393	$	3,945	$	4,006,408	$	4,010,353	$	—

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


		September 30, 2022						December 31, 2021							March 31, 2023						December 31, 2022
(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	$	15	$	11	$	26	$	38	$	13	$	51	Commercial real estate - non-owner-occupied	$	—	$	10	$	10	$	—	$	11	$	11
Commercial real estate - owner-occupied	Commercial real estate - owner-occupied	—		47		47		86		47		133		Commercial real estate - owner-occupied	—		47		47		—		46		46
Commercial	Commercial	201		340		541		785		44		829		Commercial	606		142		748		415		300		715
Residential real estate	Residential real estate	1,203		359		1,562		1,780		327		2,107		Residential real estate	1,359		356		1,715		1,314		419		1,733
Home equity	Home equity	522		66		588		1,064		111		1,175		Home equity	377		61		438		421		65		486
Consumer	Consumer	1		—		1		32		—		32		Consumer	—		—		—		—		—		—
Total	Total	$	1,942	$	823	$	2,765	$	3,785	$	542	$	4,327	Total	$	2,342	$	616	$	2,958	$	2,150	$	841	$	2,991

2123

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


		September 30, 2022								December 31, 2021													March 31, 2023									December 31, 2022
		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	$	321	$	—			$	321			$	268			$	—				$	268	Residential real estate		$	325			$		—	$	325	$	387	$	—	$	387
Home equity	Home equity	—		—		—				111				—				111		Home equity			—			—				—		—		—		—

Total	Total	$	321	$	—	$	321			$	379			$	—			$	379	Total			$	325		$	—			$	325	$	387	$	—	$	387

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

Interest income that would have been recognized if loans on non-accrual status had been current in accordance with their original terms is estimated to have been ~~$30,000~~$25,000 and ~~$59,000~~$46,000 for the three months ended ~~September 30,~~March 31, 2023 and 2022, and 2021, respectively. For the nine months ended September 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 $115,000 and $202,000, respectively.

The Company's policy is to reverse previously recorded interest income when a loan is placed on non-accrual. As a result, the Company did not record any interest income on its non-accruals for the three ~~or nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021. An immaterial amount of accrued interest on non-accrual loans was written-off during the three and nine months ended September 30, 2022 and 2021, by reversing interest income.~~2022. At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, total accrued interest receivable on loans, which has been excluded from reported amortized cost basis on loans, was ~~$8.9~~$11.0 million and ~~$7.8~~$10.3 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~~Loan Modifications for Borrowers Experiencing Financial Difficulty

~~The~~Effective January 1, 2023, the Company ~~takes a conservative approach with credit risk management~~adopted prospectively ASU No. 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and ~~remains focused on community lending~~Vintage Disclosures ("ASU 2022-02"). ASU 2022-02 provided guidance that eliminated the recognition and ~~reinvesting. The~~measurement of TDRs. Following the adoption of this guidance, the Company ~~works closely with~~evaluates all loan modifications made to borrowers experiencing ~~credit problems~~financial difficulty, according to ~~assist in~~the accounting guidance for loan ~~repayment~~refinancing and restructuring to determine whether such loan modification should be accounted for as a new loan or a continuation of the existing loan. Our loan modifications for borrowers experiencing financial difficulty are generally accounted for as a continuation of the existing loan.

We offer several types of loans and receivables modification programs to borrowers experiencing financial difficulty, primarily interest rate reductions and term ~~modifications.~~extensions. In such instances, we may modify loans and receivables with the intention to minimize future losses and improve collectability, while providing customers with temporary or permanent financial relief. There were no modified loans that required disclosure for the three months ended March 31, 2023.

Troubled Debt Restructuring Disclosures Prior to Adoption of ASU 2022-02

Prior to the Company's adoption of ASU 2022-02, which became effective for the Company on January 1, 2023, TDRs ~~consist~~consisted of loans where the Company, for economic or legal reasons related to the borrower’s financial difficulties, granted a concession to the borrower that it would not otherwise consider. TDRs typically ~~involve~~involved term modifications or a reduction of either interest or principal. Once such an obligation has been restructured, it will remain a TDR until paid in full, or until the loan is again restructured at current market rates and no concessions are granted.

The specific reserve allowance was determined by discounting the total expected future cash flows from the borrower at the original loan interest rate, or if the loan is currently collateral-dependent, using net realizable value, which was obtained through independent appraisals and internal evaluations. The following is a summary of TDRs prior to adoption of ASU 2022-02, by portfolio segment, and the associated specific reserve included within the ACL ~~for the dates indicated:~~as of December 31, 2022:


		Number of Contracts		Recorded Investment				Specific Reserve					Number of Contracts	Recorded Investment		Specific Reserve
(In thousands, except number of contracts)	(In thousands, except number of contracts)	September 30, 2022	December 31, 2021	September 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021		(In thousands, except number of contracts)	December 31, 2022	December 31, 2022		December 31, 2022
Commercial real estate - owner-occupied	Commercial real estate - owner-occupied	1	1	$	114	$	118	$	48	$	43	Commercial real estate - owner-occupied	1	$	113	$	50
Commercial	Commercial	1	2	58		74		—		—		Commercial	—	—		—
Residential real estate	Residential real estate	18	19	2,254		2,341		321		$	348	Residential real estate	18	2,208		$	307
Consumer and home equity	Consumer and home equity	3	3	246		253		7		6		Consumer and home equity	3	245		9
Total	Total	23	25	$	2,672	$	2,786	$	376	$	397	Total	22	$	2,566	$	366

At ~~September 30,~~December 31, 2022, the Company had performing and non-performing TDRs with a recorded investment balance of ~~$2.3~~$2.1 million and ~~$387,000, 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,~~$452,000, respectively.

The following represents loan modifications that qualify as TDRs as of December 31, 2022 that occurred during the ~~periods~~period indicated:

Number of Contracts Pre-Modification
Outstanding
Recorded Investment Post-Modification
Outstanding
Recorded Investment Specific Reserve
(In thousands, except number of contracts) 2022 2021 2022 2021 2022 2021 2022 2021
For the Three Months Ended September 30:
Home equity:
Maturity concession — 1 $ — $ 144 $ — $ 143 $ — $ 6
Total — 1 $ — $ 144 $ — $ 143 $ — $ 6
For the Nine Months Ended September 30:
Home equity:
Interest rate concession and payment deferral — 1 $ — $ 159 $ — $ 170 $ — $ 56
Maturity concession — 1 — 144 — 143 — 6
Total — 2 $ — $ 303 $ — $ 313 $ — $ 62

~~As of September 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.~~


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

(In thousands, except number of contracts)	December 31, 2022	December 31, 2022		December 31, 2022		December 31, 2022

Home equity:
Interest rate concession and payment deferral	—	$	—	$	—	$	—
Maturity concession	1	69		96		—
Total	1	$	69	$	96	$	—

For the ~~three and nine months~~year ended ~~September 30,~~December 31, 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 ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the Company had ~~$542,000~~$450,000 and ~~$888,000,~~$481,000, respectively, of consumer mortgage loans secured by residential real estate properties for which foreclosure proceedings were in process.

FHLB Advances

FHLB advances are those borrowings from the FHLBB greater than 90 days. FHLB advances are collateralized by a blanket lien on qualified collateral consisting primarily of loans with first mortgages secured by one- to four-family properties, certain commercial real estate loans, certain pledged investment securities and other qualified assets. The carrying value of residential real estate and commercial loans pledged as collateral was ~~$1.7 billion and $1.4~~$1.8 billion at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, 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)	September 30, 2022		December 31, 2021		(In thousands)	March 31, 2023		December 31, 2022
Short-Term Borrowings:	Short-Term Borrowings:					Short-Term Borrowings:
Customer repurchase agreements	Customer repurchase agreements	$	268,876	$	211,608	Customer repurchase agreements	$	196,918	$	196,451
Overnight borrowings	Overnight borrowings	102,225		—		Overnight borrowings	189,400		18,725
FHLBB borrowings	FHLBB borrowings	50,000		—		FHLBB borrowings	100,000		50,000

Total short-term borrowings	Total short-term borrowings	$	421,101	$	211,608	Total short-term borrowings	$	486,318	$	265,176

The Company's subordinated debentures were $44.3 million at both September 30, 2022 and December 31, 2021. As of September 30, 2022 and December 31, 2021, the Company's subordinated debentures were comprised ofCompany has two tranches of junior subordinated ~~debentures.~~debentures in the amount of $44.3 million as of March 31, 2023 and December 31, 2022. Refer to Note 10 of the consolidated financial statements for further details.

NOTE 6 – REPURCHASE AGREEMENTS

The Company can raise additional liquidity by entering into repurchase agreements at its discretion. In a security repurchase agreement transaction, the Company will generally sell a security, agreeing to repurchase either the same or a substantially identical security on a specified later date, at a greater price than the original sales price. The difference between the sale price and purchase price is the cost of the proceeds, which is recorded within interest on borrowings on the consolidated statements of income. The securities underlying the agreements are delivered to counterparties as collateral for the repurchase obligations. Because the securities are treated as collateral and the agreement does not qualify for a full transfer of effective control, the transactions do not meet the criteria to be classified as sales, and are therefore considered secured borrowing

transactions for accounting purposes. Payments on such borrowings are interest only until the scheduled repurchase date. In a repurchase agreement the Company is subject to the risk that the purchaser may default at maturity and not return the securities underlying the agreements. In order to minimize this potential risk, the Company either deals with established firms when entering into these transactions, or with customers whose agreements stipulate that the securities underlying the agreement are not delivered to the customer and instead are held in segregated safekeeping accounts by the Company's safekeeping agents.

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


(In thousands)	(In thousands)	September 30, 2022		December 31, 2021		(In thousands)	March 31, 2023		December 31, 2022
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	$	174,276	$	99,105
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	$	224,819	$	88,749	Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	22,642		94,328
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises		41,057		120,846
Obligations of states and political subdivisions	Obligations of states and political subdivisions	3,000		2,013		Obligations of states and political subdivisions	—		3,018
Total	Total	$	268,876	$	211,608	Total	$	196,918	$	196,451

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

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

At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, certain customers held CDs totaling ~~$616,000~~$617,000 and ~~$728,000,~~$616,000, respectively, that were collateralized by CMO and MBS securities that were overnight repurchase agreements.

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

NOTE 7 – COMMITMENTS AND CONTINGENCIES

Commitments

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

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


(In thousands)	(In thousands)	September 30, 2022		December 31, 2021		(In thousands)	March 31, 2023		December 31, 2022
Commitments to extend credit	Commitments to extend credit	$	876,757	$	834,533	Commitments to extend credit	$	779,402	$	817,772
Standby letters of credit	Standby letters of credit	4,689		7,952		Standby letters of credit	6,769		6,801
Total	Total	$	881,446	$	842,485	Total	$	786,171	$	824,573

The Company’s commitments to extend credit from its lending activities do not necessarily represent future cash requirements since certain of these instruments may expire without being funded and others may not be fully drawn upon.

These commitments are subject to the Company’s credit approval process, including an evaluation of the customer’s creditworthiness and related collateral requirements. Commitments generally have fixed expiration dates or other termination clauses.

Standby letters of credit are conditional commitments issued to guarantee the performance of a borrower to a third party. In the event of nonperformance by the borrower, the Company would be required to fund the commitment and would be entitled to the underlying collateral, if applicable, which generally consists of pledges of business assets including, but not limited to, accounts receivable, inventory, plant and equipment, and/or real estate. The maximum potential future payments are limited to the contractual amount of the commitment.

The Company establishes an ACL on off-balance sheet credit exposures on its contractual off-balance sheet commitments, except those that are unconditionally cancellable by the Company. As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the ACL on off-balance sheet credit exposures was ~~$3.4~~$3.0 million and ~~$3.2~~$3.3 million, respectively. The ACL on off-balance sheet credit exposure was presented within accrued interest and other liabilities on the consolidated statements of condition.

For the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ the (credit) provision for credit losses on off-balance sheet credit exposures was ~~$251,000~~($275,000) and ~~$670,000,~~$161,000, respectively. ~~For the nine months ended September 30, 2022 and 2021, the provision for credit losses on off-balance sheet credit exposure was $246,000 and $617,000.~~

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 ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

NOTE 8 – DERIVATIVES AND HEDGING

The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s credit derivatives result from loan participation arrangements, and therefore are not used to manage interest rate risk in the Company’s assets or liabilities.

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

Interest Rate ~~Contracts.~~Contracts - Cash Flow Hedges. The Company’s objectives in using interest rate derivatives are to add stability to interest income and expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed rate payments or the receipt of fixed rate amounts from a counterparty in exchange for the Company making variable-rate payments over the life of the agreements without exchange of the underlying notional amount. For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 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 ~~$2.8~~$2.5 million will be reclassified as a decrease to interest expense and an additional ~~$2.6~~$3.0 million will be reclassified as a decrease to interest income over the next 12 months.

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

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

Derivatives not Designated as Hedges

Customer Loan Swaps. Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions.

As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.

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

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

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

2629

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)		Notional Amount		Location	Fair Value		Notional Amount		Location	Fair Value
September 30, 2022
(Dollars in thousands)												(Dollars in thousands)	Notional Amount		Location	Fair Value		Notional Amount		Location	Fair Value
March 31, 2023												March 31, 2023
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	$	13,806	$	133,000	Accrued interest and other liabilities	$	5,459	Interest rate contracts(1)	$	60,000	Other assets	$	10,996	$	433,000	Accrued interest and other liabilities	$	6,859
Total derivatives designated as hedging instruments	Total derivatives designated as hedging instruments				$	13,806				$	5,459	Total derivatives designated as hedging instruments				$	10,996				$	6,859
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)	$	264,758	Other assets	$	16,112	$	264,758	Accrued interest and other liabilities	$	16,134	Customer loan swaps(1)	$	288,076	Other assets	$	11,479	$	288,076	Accrued interest and other liabilities	$	11,554
Risk participation agreements	Risk participation agreements	21,937		Other assets	—		44,741		Accrued interest and other liabilities	—		Risk participation agreements	21,696		Other assets	—		44,127		Accrued interest and other liabilities	—
Fixed rate mortgage interest rate lock commitments	Fixed rate mortgage interest rate lock commitments	2,400		Other assets	11		12,166		Accrued interest and other liabilities	395		Fixed rate mortgage interest rate lock commitments	6,883		Other assets	71		5,843		Accrued interest and other liabilities	43
Forward delivery commitments	Forward delivery commitments	4,863		Other assets	318		—		Accrued interest and other liabilities	—		Forward delivery commitments	2,887		Other assets	32		1,651		Accrued interest and other liabilities	14
Total derivatives not designated as hedging instruments	Total derivatives not designated as hedging instruments				$	16,441				$	16,529	Total derivatives not designated as hedging instruments				$	11,582				$	11,611
December 31, 2021
December 31, 2022												December 31, 2022
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)	$	110,000	Other assets	$	13,051	$	133,000	Accrued interest and other liabilities	$	5,515
Total derivatives designated as hedging instruments	Total derivatives designated as hedging instruments				$	5,589				$	7,872	Total derivatives designated as hedging instruments				$	13,051				$	5,515
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)	$	260,130	Other assets	$	14,802	$	345,545	Accrued interest and other liabilities	$	14,850
Risk participation agreements	Risk participation agreements	25,347		Other assets	—		53,704		Accrued interest and other liabilities	—		Risk participation agreements	21,818		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	4,493		Other assets	31		9,597		Accrued interest and other liabilities	87
Forward delivery commitments	Forward delivery commitments	3,882		Other assets	86		1,903		Accrued interest and other liabilities	6		Forward delivery commitments	5,259		Other assets	114		—		Accrued interest and other liabilities	—
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				$	14,947				$	14,937

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

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


Location in Consolidated Statements of Condition	Carrying Amount of Hedged Assets/(Liabilities)				Cumulative Fair Value Hedging Adjustment in the Carrying Amount of the Hedged Assets/(Liabilities)
(Dollars in thousands)	March 31, 2023		December 31, 2022		March 31, 2023		December 31, 2022
Loans(1)	$	301,552	$	—	$	(1,552)	$	—
Total	$	301,552	$	—	$	(1,552)	$	—

(1) These amounts include the amortized cost basis of closed portfolios of fixed rate assets used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolio anticipated to be outstanding for the designated hedged period. At March 31, 2023, the amortized cost basis of the closed portfolios used in these hedging relationships was $853.7 million and the amounts of the designated hedged items were $300.0 million.

2730

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

(Dollars in thousands) Amount of Gain (Loss) Recognized in OCI on Derivative Amount of Gain (Loss) Recognized in OCI Included Component Amount of Gain (Loss) Recognized in OCI Excluded Component Location of Gain (Loss) Recognized
from AOCI into Income Amount of Gain (Loss) Reclassified from AOCI into Income Amount of Gain (Loss) Reclassified from AOCI into Income Included Component Amount of Gain (Loss) Reclassified from AOCI into Income Excluded Component
Derivatives in Cash Flow Hedge Relationships:
For the Three Months Ended September 30, 2022
Interest rate contracts $ (1,798) $ (1,798) $ — Interest and fees on loans $ (121) $ (121) $ —
Interest rate contracts 146 146 — Interest on deposits 189 189 —
Interest rate contracts 2,544 2,544 — Interest on borrowings 185 185 —
Interest rate contracts 2,489 2,489 — Interest on subordinated debentures (133) (133) —
Total $ 3,381 $ 3,381 $ — $ 120 $ 120 $ —
For the Nine Months Ended September 30, 2022
Interest rate contracts $ (5,713) $ (5,713) $ — Interest and fees on loans $ 498 $ 498 $ —
Interest rate contracts 5,867 5,867 — Interest on deposits 72 72 —
Interest rate contracts 2,544 2,544 — Interest on borrowings 185 185 —
Interest rate contracts 7,906 7,906 — Interest on subordinated debentures (755) (755) —
Total $ 10,604 $ 10,604 $ — $ — $ — $ —
For the Three Months Ended September 30, 2021
Interest rate contracts $ 48 $ 48 $ — Interest and fees on loans $ 410 $ 410 $ —
Interest rate contracts 190 190 — Interest on deposits (170) (170) —
Interest rate contracts 228 228 Interest on subordinated debentures (369) (369)
Total $ 466 $ 466 $ — $ (129) $ (129) $ —
For the Nine Months Ended September 30, 2021
Interest rate contracts $ (688) $ (688) $ — Interest and fees on loans $ 1,205 $ 1,205 $ —
Interest rate contracts 2,142 2,142 — Interest on deposits (490) (490) —
Interest rate contracts 2,201 2,201 — Interest on subordinated debentures (1,222) (1,222) —
Total $ 3,655 $ 3,655 $ — $ (507) $ (507) $ —


(Dollars in thousands)	Amount of Gain (Loss) Recognized in OCI on Derivative		Amount of Gain (Loss) Recognized in OCI Included Component		Amount of Gain (Loss) Recognized in OCI Excluded Component		Location of Gain (Loss) Recognized from AOCI into Income	Amount of Gain (Loss) Reclassified from AOCI into Income		Amount of Gain (Loss) Reclassified from AOCI into Income Included Component		Amount of Gain (Loss) Reclassified from AOCI into Income Excluded Component
For the Three Months Ended March 31, 2023
Interest rate contracts	$	182	$	182	$	—	Interest and fees on loans	$	(717)	$	(717)	$	—
Interest rate contracts	(1)		(1)		—		Interest on deposits	306		306		—
Interest rate contracts	(796)		(796)		—		Interest on borrowings	487		487		—
Interest rate contracts	(934)		(934)		—		Interest on junior subordinated debentures	133		133		—
Total	$	(1,549)	$	(1,549)	$	—		$	209	$	209	$	—








For the Three Months Ended March 31, 2022
Interest rate contracts	$	(3,011)	$	(3,011)	$	—	Interest and fees on loans	$	382	$	382	$	—
Interest rate contracts	3,488		3,488		—		Interest on deposits	(149)		(149)		—

Interest rate contracts	3,158		3,158				Interest on junior subordinated debentures	(351)		(351)
Total	$	3,635	$	3,635	$	—		$	(118)	$	(118)	$	—

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


		Location and Amount of Gain (Loss) Recognized in Income																	Location and Amount of Gain (Loss) Recognized in Income
		Three Months Ended September 30,																	Three Months Ended March 31,
		2022								2021									2023								2022
(Dollars in thousands)	(Dollars in thousands)	Interest and fees on loans		Interest on deposits		Interest on borrowings		Interest on subordinated debentures		Interest and fees on loans		Interest on deposits		Interest on borrowings		Interest on subordinated debentures		(Dollars in thousands)	Interest and fees on loans		Interest on deposits		Interest on borrowings		Interest on junior subordinated debentures		Interest and fees on loans		Interest on deposits		Interest on junior 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	$	37,568	$	5,442	$	787	$	539	$	31,185	$	1,973	$	122	$	538	Total presented on the consolidated statements of income in which the effects of cash flow hedges are recorded	$	45,332	$	15,832	$	2,085	$	528	$	32,035	$	1,833	$	529
Gain (loss) on fair value hedging relationships																		Gain (loss) on fair value hedging relationships
Interest rate contracts:																		Interest rate contracts:
Hedged items																		Hedged items	$	1,552	$	—	$	—	$	—	$	—	$	—	$	—
Derivatives designated as hedging instruments																		Derivatives designated as hedging instruments	$	(1,077)	$	—	$	—	$	—	$	—	$	—	$	—
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	$	(121)	$	189	$	185	$	(133)	$	410	$	(170)	$	—	$	(369)	Amount of gain (loss) reclassified from AOCI into income	$	(717)	$	306	$	487	$	133	$	382	$	(149)	$	(351)
Amount of gain (loss) reclassified from AOCI into income - included component	Amount of gain (loss) reclassified from AOCI into income - included component	$	(121)	$	189	$	185	$	(133)	$	410	$	(170)	$	—	$	(369)	Amount of gain (loss) reclassified from AOCI into income - included component	$	(717)	$	306	$	487	$	133	$	382	$	(149)	$	(351)
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
Nine Months Ended
September 30,
2022 2021
(Dollars in thousands) Interest and fees on loans Interest on deposits Interest on borrowings Interest on subordinated debentures Interest and fees on loans Interest on deposits Interest on borrowings Interest on subordinated debentures
Total presented on the consolidated statements of income in which the effects of cash flow hedges are recorded $ 102,724 $ 9,785 $ 1,372 $ 1,600 $ 92,610 $ 5,957 $ 454 $ 1,983
Gain (loss) on cash flow hedging relationships
Interest rate contracts:
Amount of gain (loss) reclassified from AOCI into income $ 498 $ 72 $ 185 $ (755) $ 1,205 $ (490) $ — $ (1,222)
Amount of gain (loss) reclassified from AOCI into income - included component $ 498 $ 72 $ 185 $ (755) $ 1,205 $ (490) $ — $ (1,222)
Amount of gain (loss) reclassified from AOCI into income - excluded component $ — $ — $ — $ — $ — $ — $ — $ —

2931

The table below presents the effect of the Company's derivative financial instruments that are not designated as hedging instruments on the consolidated statements of income for the periods indicated:
Location of Gain (Loss) Recognized in Income Amount of Gain (Loss)
Recognized in Income
Three Months Ended
September 30, Nine Months Ended
September 30,
(Dollars in thousands) 2022 2021 2022 2021
Customer loan swaps Other expense $ 28 $ — $ 166 $ —
Fixed rate mortgage interest rate lock commitments Mortgage banking income, net (473) (434) (664) 22
Forward delivery commitments Mortgage banking income, net 227 65 238 78
Total $ (218) $ (369) $ (260) $ 100


	Location of Gain (Loss) Recognized in Income	Amount of Gain (Loss) Recognized in Income
		Three Months Ended March 31,
(Dollars in thousands)		2023		2022
Customer loan swaps	Other expense	$	(27)	$	94
Fixed rate mortgage interest rate lock commitments	Mortgage banking income, net	84		(459)
Forward delivery commitments	Mortgage banking income, net	(96)		166
Total		$	(39)	$	(199)

Credit Risk-Related Contingent Features

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

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

As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for non-performance risk, related to these agreements was ~~$16.1~~$11.6 million and ~~$26.1~~$14.8 million, respectively. As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the Company has minimum collateral posting thresholds with certain of its derivative counterparties and has posted cash collateral of $0 and ~~$30.7 million,~~$0, respectively. If the Company had breached any of these provisions at ~~September 30, 2022~~March 31, 2023 or December 31, ~~2021,~~2022, it could have been required to settle its obligations under the agreements at their termination value of ~~$16.1~~$11.6 million and ~~$26.1~~$14.8 million, respectively.

NOTE 9 – BALANCE SHEET OFFSETTING

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

3032

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)		Gross Amount Recognized in the Consolidated Statements of Condition		Gross Amount Offset in the Consolidated Statements of Condition		Net Amount Presented in the Consolidated Statements of Condition		Financial Instruments Pledged (Received)(1)		Cash Collateral Pledged (Received)(1)		Net Amount
September 30, 2022
Derivative assets:
Customer loan swaps - dealer bank(2)		$	16,112	$	—	$	16,112	$	—	$	—	$	16,112
Interest rate contracts(3)		13,806		—		13,806		—		(11,459)		2,347

Total		$	29,918	$	—	$	29,918	$	—	$	(11,459)	$	18,459
Derivative liabilities:
Customer loan swaps - commercial customer(3)		$	16,134	$	—	$	16,134	$	—	$	—	$	16,134
Interest rate contracts(3)		5,459		—		5,459		—		5,459		—

Total		$	21,593	$	—	$	21,593	$	—	$	5,459	$	16,134
Customer repurchase agreements		$	268,876	$	—	$	268,876	$	268,876	$	—	$	—
December 31, 2021
(Dollars in thousands)														(Dollars in thousands)	Gross Amount Recognized in the Consolidated Statements of Condition		Gross Amount Offset in the Consolidated Statements of Condition		Net Amount Presented in the Consolidated Statements of Condition		Financial Instruments Pledged (Received)(1)		Cash Collateral Pledged (Received)(1)		Net Amount
March 31, 2023														March 31, 2023
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)	$	11,479	$	—	$	11,479	$	—	$	—	$	11,479
Interest rate contracts(3)	Interest rate contracts(3)	5,589		—		5,589		—		(5,529)		60		Interest rate contracts(3)	10,996		—		10,996		—		(10,889)		107

Total	Total	$	24,886	$	—	$	24,886	$	—	$	(5,529)	$	19,357	Total	$	22,475	$	—	$	22,475	$	—	$	(10,889)	$	11,586
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)	$	11,554	$	—	$	11,554	$	—	$	—	$	11,554
Interest rate contracts(3)	Interest rate contracts(3)	7,872		—		7,872		—		6,603		1,269		Interest rate contracts(3)	6,859		—		6,859		—		6,859		—

Total	Total	$	27,357	$	—	$	27,357	$	—	$	26,088	$	1,269	Total	$	18,413	$	—	$	18,413	$	—	$	6,859	$	11,554
Customer repurchase agreements	Customer repurchase agreements	$	211,608	$	—	$	211,608	$	211,608	$	—	$	—	Customer repurchase agreements	$	196,918	$	—	$	196,918	$	196,918	$	—	$	—
December 31, 2022														December 31, 2022
Derivative assets:														Derivative assets:
Customer loan swaps - dealer bank(3)														Customer loan swaps - dealer bank(3)	$	14,802	$	—	$	14,802	$	—	$	—	$	14,802
Interest rate contracts(3)														Interest rate contracts(3)	13,051		—		13,051		—		(10,915)		2,136

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

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

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

(2) The Company manages its net exposure on its commercial customer loan swaps by obtaining collateral as part of the normal loan policy and underwriting practices. The Company does not post collateral to its commercial customers as part of its contract..

(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.~~

~~(3) The Company manages its net exposure on its commercial customer loan swaps by obtaining collateral as part of the normal loan policy and underwriting practices.~~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

3133

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

The Company and Bank's risk-based capital ratios exceeded regulatory requirements, including the capital conservation buffer, at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, and the Bank's capital ratios met the requirements for it to be considered "well capitalized" under prompt corrective action provisions for each period. There were no changes to the Company or Bank's capital ratios that occurred subsequent to ~~September 30, 2022~~March 31, 2023 that would change the Company or Bank's regulatory capital categorization. The following table presents the Company and Bank's regulatory capital ratios at the periods indicated:


		September 30, 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"			March 31, 2023				Minimum Regulatory Capital Required for Capital Adequacy plus Capital Conservation Buffer				Minimum Regulatory Provision to Be "Well Capitalized"				December 31, 2022							Minimum Regulatory Capital Required for Capital Adequacy plus Capital Conservation Buffer				Minimum Regulatory Provision to Be "Well Capitalized"
(Dollars in thousands)	(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	$	547,244	13.81	%	10.50	%	10.00	%		$	522,714		14.71	%	10.50	%		10.00	%	Total risk-based capital ratio	$	564,967	13.95	%		10.50		%		10.00		%		$	557,571		13.80		%		10.50		%		10.00		%
Tier 1 risk-based capital ratio	Tier 1 risk-based capital ratio	507,262		12.81	%	8.50	%	6.00	%		486,263			13.68	%	8.50	%		6.00	%	Tier 1 risk-based capital ratio	524,843		12.96	%	8.50		%		6.00		%		517,385			12.81		%		8.50		%		6.00		%
Common equity Tier 1 risk-based capital ratio(1)	Common equity Tier 1 risk-based capital ratio(1)	464,262		11.72	%	7.00	%	N/A			443,263			12.47	%	7.00	%		N/A		Common equity Tier 1 risk-based capital ratio(1)	481,843		11.90	%	7.00		%		N/A				474,385			11.74		%		7.00		%		N/A
Tier 1 leverage capital ratio(1)	Tier 1 leverage capital ratio(1)	507,262		9.24	%	4.00	%	N/A			486,263			8.92	%	4.00	%		N/A		Tier 1 leverage capital ratio(1)	524,843		9.24	%	4.00		%		N/A				517,385			9.22		%		4.00		%		N/A
Camden National Bank:	Camden National Bank:																				Camden National Bank:
Total risk-based capital ratio	Total risk-based capital ratio	$	516,673	13.07	%	10.50	%	10.00	%		$	488,070		13.78	%	10.50	%		10.00	%	Total risk-based capital ratio	$	532,658	13.18	%	10.50		%		10.00		%		$	525,346		13.03		%		10.50		%		10.00		%
Tier 1 risk-based capital ratio	Tier 1 risk-based capital ratio	476,691		12.06	%	8.50	%	8.00	%		451,620			12.75	%	8.50	%		8.00	%	Tier 1 risk-based capital ratio	492,534		12.19	%	8.50		%		8.00		%		485,160			12.03		%		8.50		%		8.00		%
Common equity Tier 1 risk-based capital ratio	Common equity Tier 1 risk-based capital ratio	476,691		12.06	%	7.00	%	6.50	%		451,620			12.75	%	7.00	%		6.50	%	Common equity Tier 1 risk-based capital ratio	492,534		12.19	%	7.00		%		6.50		%		485,160			12.03		%		7.00		%		6.50		%
Tier 1 leverage capital ratio	Tier 1 leverage capital ratio	476,691		8.69	%	4.00	%	5.00	%		451,620			8.31	%	4.00	%		5.00	%	Tier 1 leverage capital ratio	492,534		8.68	%	4.00		%		5.00		%		485,160			8.65		%		4.00		%		5.00		%

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

In 2006 and 2008, the Company issued $43.0 million of junior subordinated debentures in connection with the issuance of trust preferred securities. Although the junior subordinated debentures are recorded as liabilities on the Company's consolidated statements of condition, the Company is permitted, in accordance with applicable regulation, to include the debentures within its calculation of risk-based capital, subject to certain limits. At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, $43.0 million of the junior subordinated debentures were included in Tier 1 and Tier 2 capital for the Company.

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

3234

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
		September 30, 2022						September 30, 2021							March 31, 2023						March 31, 2022
(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
Debt Securities:	Debt Securities:													Debt Securities:
Change in fair value	Change in fair value	$	(28,432)	$	6,113	$	(22,319)	$	(6,546)	$	1,407	$	(5,139)	Change in fair value	$	9,885	$	(2,125)	$	7,760	$	(92,753)	$	19,942	$	(72,811)
Less: reclassification adjustment for amortization of securities transferred from AFS to HTM(1)	Less: reclassification adjustment for amortization of securities transferred from AFS to HTM(1)	2,436		(524)		1,912		—		—		—		Less: reclassification adjustment for amortization of securities transferred from AFS to HTM(1)	(1,699)		365		(1,334)		—		—		—

Net change in fair value	Net change in fair value	(30,868)		6,637		(24,231)		(6,546)		1,407		(5,139)		Net change in fair value	11,584		(2,490)		9,094		(92,753)		19,942		(72,811)
Cash Flow Hedges:	Cash Flow Hedges:													Cash Flow Hedges:
Change in fair value	Change in fair value	3,381		(727)		2,654		466		(100)		366		Change in fair value	(3,109)		668		(2,441)		3,635		(782)		2,853
Less: reclassified AOCI loss into interest expense(2)		241		(52)		189		(539)		116		(423)
Less: reclassified AOCI gain into interest income(3)		(121)		26		(95)		410		(88)		322
Less: reclassified AOCI gain (loss) into interest expense(2)														Less: reclassified AOCI gain (loss) into interest expense(2)	926		(199)		727		(500)		108		(392)
Less: reclassified AOCI (loss) gain into interest income(3)														Less: reclassified AOCI (loss) gain into interest income(3)	(717)		154		(563)		382		(82)		300
Net change in fair value	Net change in fair value	3,261		(701)		2,560		595		(128)		467		Net change in fair value	(3,318)		713		(2,605)		3,753		(808)		2,945
Postretirement Plans:	Postretirement Plans:													Postretirement Plans:

Amortization of settlement recognition of net loss and prior service credit(4)	Amortization of settlement recognition of net loss and prior service credit(4)	230		(49)		181		217		(46)		171		Amortization of settlement recognition of net loss and prior service credit(4)	(6)		1		(5)		232		(50)		182
Other comprehensive loss		$	(27,377)	$	5,887	$	(21,490)	$	(5,734)	$	1,233	$	(4,501)
Other comprehensive income (loss)														Other comprehensive income (loss)	$	8,260	$	(1,776)	$	6,484	$	(88,768)	$	19,084	$	(69,684)

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

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

(3) 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.

For the Nine Months Ended
September 30, 2022 September 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 $ (173,421) $ 37,286 $ (136,135) $ (25,926) $ 5,574 $ (20,352)
Less: reclassification adjustment for amortization of securities transferred from AFS to HTM(1)
3,780 (813) 2,967 — — —
Less: reclassification adjustment for net realized losses(2)
(9) 2 (7) — — —
Net change in fair value (177,192) 38,097 (139,095) (25,926) 5,574 (20,352)
Cash Flow Hedges:
Change in fair value 10,604 (2,280) 8,324 3,655 (785) 2,870
Less: reclassified AOCI loss into interest expense(3)
(498) 107 (391) (1,712) 368 (1,344)
Less: reclassified AOCI gain into interest income(4)
498 (107) 391 1,205 (258) 947
Net change in fair value 10,604 (2,280) 8,324 4,162 (895) 3,267
Postretirement Plans:
Amortization of settlement recognition of net loss and prior service credit(5)
693 (149) 544 652 (140) 512
Other comprehensive loss $ (165,895) $ 35,668 $ (130,227) $ (21,112) $ 4,539 $ (16,573)

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

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

~~(4) Reclassified into interest and fees on loans on the consolidated statements of income. Refer to Note 8 of the consolidated financial statements for further details.~~

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

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 Debt Securities		Net Unrealized Losses (Gains) on Cash Flow Hedges		Defined Benefit Postretirement Plans		AOCI		(In thousands)	Net Unrealized Gains (Losses) on Debt Securities(1)		Net Unrealized (Losses) Gains on Cash Flow Hedges(1)		Defined Benefit Postretirement Plans(1)		AOCI(1)
At or For the Three Months Ended September 30, 2022
Balance at June 30, 2022		$	(116,037)	$	3,985	$	(2,914)	$	(114,966)
Other comprehensive (loss) income before reclassifications		(22,319)		2,654		—		(19,665)

Balance at December 31, 2022										Balance at December 31, 2022	$	(131,539)	$	5,891	$	(307)	$	(125,955)
Other comprehensive income (loss) before reclassifications										Other comprehensive income (loss) before reclassifications	7,760		(2,441)		—		5,319
Less: Amounts reclassified from AOCI	Less: Amounts reclassified from AOCI	1,912		94		(181)		1,825		Less: Amounts reclassified from AOCI	(1,334)		164		5		(1,165)
Other comprehensive (loss) income		(24,231)		2,560		181		(21,490)
Balance at September 30, 2022		$	(140,268)	$	6,545	$	(2,733)	$	(136,456)
At or For the Nine Months Ended September 30, 2022
Other comprehensive income (loss)										Other comprehensive income (loss)	9,094		(2,605)		(5)		6,484
Balance at March 31, 2023										Balance at March 31, 2023	$	(122,445)	$	3,286	$	(312)	$	(119,471)

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	(136,135)		8,324		—		(127,811)		Other comprehensive (loss) income before reclassifications	(72,811)		2,853		—		(69,958)
Less: Amounts reclassified from AOCI	Less: Amounts reclassified from AOCI	2,960		—		(544)		2,416		Less: Amounts reclassified from AOCI	—		(92)		(182)		(274)
Other comprehensive (loss) income	Other comprehensive (loss) income	(139,095)		8,324		544		(130,227)		Other comprehensive (loss) income	(72,811)		2,945		182		(69,684)
Balance at September 30, 2022		$	(140,268)	$	6,545	$	(2,733)	$	(136,456)
At or For the Three Months Ended September 30, 2021
Balance at March 31, 2022										Balance at March 31, 2022	$	(73,984)	$	1,166	$	(3,095)	$	(75,913)

Balance at June 30, 2021		$	14,097	$	(1,826)	$	(3,603)	$	8,668
Other comprehensive (loss) income before reclassifications		(5,139)		366		—		(4,773)
Less: Amounts reclassified from AOCI		—		(101)		(171)		(272)
Other comprehensive (loss) income		(5,139)		467		171		(4,501)
Balance at September 30, 2021		$	8,958	$	(1,359)	$	(3,432)	$	4,167
At or For the Nine Months Ended September 30, 2021
Balance at December 31, 2020		$	29,310	$	(4,626)	$	(3,944)	$	20,740
Other comprehensive (loss) income before reclassifications		(20,352)		2,870		—		(17,482)
Less: Amounts reclassified from AOCI		—		(397)		(512)		(909)
Other comprehensive (loss) income		(20,352)		3,267		512		(16,573)
Balance at September 30, 2021		$	8,958	$	(1,359)	$	(3,432)	$	4,167

(1) All amounts are net of tax

NOTE 12 – REVENUE FROM CONTRACTS WITH CUSTOMERS

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

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


		Location on Consolidated Statements of Income		Three Months Ended September 30,								Nine Months Ended September 30,									Location on Consolidated Statements of Income		Three Months Ended March 31,
(In thousands)	(In thousands)		2022			2021				2022				2021		(In thousands)						2023			2022
Debit card interchange income	Debit card interchange income		Debit card income			$	3,234			$	3,278			$	9,371			$	9,126	Debit card interchange income		Debit card income			$	2,938			$	2,924
Services charges on deposit accounts	Services charges on deposit accounts	Service charges on deposit accounts		1,941				1,744				5,705				4,800		Services charges on deposit accounts			Service charges on deposit accounts		1,762				1,833
Fiduciary services income	Fiduciary services income	Income from fiduciary services		1,535				1,627				4,847				4,860		Fiduciary services income			Income from fiduciary services		1,600				1,631
Investment program income	Investment program income	Brokerage and insurance commissions		1,003				993				3,269				2,885		Investment program income			Brokerage and insurance commissions		1,093				994
Other non-interest income	Other non-interest income	Other income		509				521				1,360				1,368		Other non-interest income			Other income		422				400
Total non-interest income within the scope of ASC 606	Total non-interest income within the scope of ASC 606			8,222				8,163				24,552				23,039		Total non-interest income within the scope of ASC 606					7,815				7,782
Total non-interest income not in scope of ASC 606	Total non-interest income not in scope of ASC 606			1,732				2,936				6,368				14,595		Total non-interest income not in scope of ASC 606					2,051				2,043
Total non-interest income	Total non-interest income			$	9,954			$	11,099			$	30,920			$	37,634	Total non-interest income					$	9,866			$	9,825

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~~costs were as ~~follow~~follows for the following periods:

Supplemental Executive Retirement Plan:


(In thousands)	(In thousands)	Location on Consolidated Statements of Income		Three Months Ended September 30,								Nine Months Ended September 30,						(In thousands)			Location on Consolidated Statements of Income		Three Months Ended March 31,
Net periodic pension cost	Net periodic pension cost		2022			2021				2022				2021		Net periodic pension cost						2023			2022
Service cost	Service cost		Salaries and employee benefits			$	133			$	126			$	400			$	378	Service cost		Salaries and employee benefits			$	70			$	133
Interest cost	Interest cost	Other expenses		115				97				345				292		Interest cost			Other expenses		189				115
Recognized net actuarial loss	Recognized net actuarial loss	Other expenses		214				194				645				583		Recognized net actuarial loss			Other expenses		—				216
Total	Total			$	462			$	417			$	1,390			$	1,253	Total					$	259			$	464

Other Postretirement Benefit Plan:


(In thousands)	(In thousands)	Location on Consolidated Statements of Income		Three Months Ended September 30,								Nine Months Ended September 30,						(In thousands)			Location on Consolidated Statements of Income		Three Months Ended March 31,
Net periodic postretirement benefit cost	Net periodic postretirement benefit cost		2022			2021				2022				2021		Net periodic postretirement benefit cost						2023			2022
Service cost	Service cost		Salaries and employee benefits			$	5			$	7			$	15			$	20	Service cost		Salaries and employee benefits			$	3			$	5
Interest cost	Interest cost	Other expenses		28				26				84				77		Interest cost			Other expenses		40				28
Recognized net actuarial loss		Other expenses		22				29				66				87
Recognized net actuarial (gain) loss																		Recognized net actuarial (gain) loss			Other expenses		(1)				22
Amortization of prior service credit	Amortization of prior service credit	Other expenses		(6)				(6)				(18)				(18)		Amortization of prior service credit			Other expenses		(6)				(6)
Total	Total			$	49			$	56			$	147			$	166	Total					$	36			$	49

NOTE 14 – EPS

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
(In thousands, except number of shares and per share data)	(In thousands, except number of shares and per share data)	2022		2021		2022		2021		(In thousands, except number of shares and per share data)	2023		2022
Net income	Net income	$	14,267	$	14,640	$	46,088	$	52,523	Net income	$	12,727	$	16,795
Dividends and undistributed earnings allocated to participating securities(1)	Dividends and undistributed earnings allocated to participating securities(1)	(39)		(40)		(121)		(145)		Dividends and undistributed earnings allocated to participating securities(1)	(25)		(43)
Net income available to common shareholders	Net income available to common shareholders	$	14,228	$	14,600	$	45,967	$	52,378	Net income available to common shareholders	$	12,702	$	16,752
Weighted-average common shares outstanding for basic EPS	Weighted-average common shares outstanding for basic EPS	14,619,460		14,931,056		14,670,450		14,930,387		Weighted-average common shares outstanding for basic EPS	14,573,122		14,741,271
Dilutive effect of stock-based awards(2)	Dilutive effect of stock-based awards(2)	55,872		67,957		57,899		66,154		Dilutive effect of stock-based awards(2)	58,420		81,061
Weighted-average common and potential common shares for diluted EPS	Weighted-average common and potential common shares for diluted EPS	14,675,332		14,999,013		14,728,349		14,996,541		Weighted-average common and potential common shares for diluted EPS	14,631,542		14,822,332
Earnings per common share:	Earnings per common share:									Earnings per common share:
Basic EPS	Basic EPS	$	0.97	$	0.98	$	3.13	$	3.51	Basic EPS	$	0.87	$	1.14
Diluted EPS	Diluted EPS	$	0.97	$	0.97	$	3.12	$	3.49	Diluted EPS	$	0.87	$	1.13
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	3,903		3,382		—		—		Performance-based awards	1,141		1,027

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

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

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

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

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

NOTE 15 – FAIR VALUE MEASUREMENT AND DISCLOSURE

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

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

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

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

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

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

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

Financial Instruments Recorded at Fair Value on a Recurring Basis

Trading Securities and Deferred Compensation: The fair value of trading securities and deferred compensation is reported using market quoted prices and has been classified as Level 1 as such securities and underlying securities are actively traded and no valuation adjustments have been applied.

Debt Securities: The fair value of investments in debt securities is reported utilizing prices provided by an independent pricing service based on recent trading activity and other observable information including, but not limited to, dealer quotes, market spreads, cash flows, market interest rate curves, market consensus prepayment speeds, credit information, and the bond’s terms and conditions. The fair value of debt securities is classified as Level 2.

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

Derivatives: The fair value of interest rate swaps is determined using inputs that are observable in the market place obtained from third parties including yield curves, publicly available volatilities, and floating indexes and, accordingly, are classified as Level 2 inputs. The credit value adjustments associated with derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default. As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the credit valuation adjustment on the overall valuation of its derivative positions and was not significant to the overall valuation of its derivatives, and, thus, the Company's interest rate swaps were classified as Level 2.

The fair value of the Company's fixed rate interest rate lock commitments were determined using secondary market pricing for loans with similar structures, including term, rate and borrower credit quality, adjusted for the Company's pull-through rate estimate (i.e. estimate of loans within its loan pipeline that will ultimately complete the origination process and be funded). The Company has classified its fixed rate interest rate lock commitments as Level 2, as the quoted secondary market prices are the more significant input, and, although the Company's internal pull-through rate estimate is a Level 3 estimate, it is less significant to the ultimate valuation.

The fair value of the Company's forward delivery commitments is determined using secondary market pricing for loans with similar structures, including term, rate and borrower credit quality, and the locked and agreed to price with the secondary market investor. The Company has classified its fixed rate interest rate lock commitments as Level 2.

3839

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


(In thousands)	(In thousands)	Fair Value		Readily Available Market Prices (Level 1)		Observable Market Data (Level 2)		Company Determined Fair Value (Level 3)		(In thousands)	Fair Value		Readily Available Market Prices (Level 1)		Observable Market Data (Level 2)		Company Determined Fair Value (Level 3)
September 30, 2022
March 31, 2023										March 31, 2023
Financial assets:	Financial assets:									Financial assets:
Trading securities	Trading securities	$	3,727	$	3,727	$	—	$	—	Trading securities	$	3,971	$	3,971	$	—	$	—
AFS debt securities:	AFS debt securities:									AFS debt securities:

Obligations of states and political subdivisions	Obligations of states and political subdivisions	51,474		—		51,474		—		Obligations of states and political subdivisions	49,051		—		49,051		—
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	529,788		—		529,788		—		Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	507,831		—		507,831		—
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	121,811		—		121,811		—		Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	106,233		—		106,233		—
Subordinated corporate bonds	Subordinated corporate bonds	20,545		—		20,545		—		Subordinated corporate bonds	23,308		—		23,308		—
Loans held for sale	Loans held for sale	4,629		—		4,629		—		Loans held for sale	4,562		—		4,562		—
Customer loan swaps	Customer loan swaps	16,112		—		16,112		—		Customer loan swaps	11,479		—		11,479		—
Interest rate contracts	Interest rate contracts	13,806		—		13,806		—		Interest rate contracts	10,996		—		10,996		—

Fixed rate mortgage interest rate lock commitments	Fixed rate mortgage interest rate lock commitments	11		—		11		—		Fixed rate mortgage interest rate lock commitments	71		—		71		—
Forward delivery commitments	Forward delivery commitments	318		—		318		—		Forward delivery commitments	32		—		32		—
Financial liabilities:	Financial liabilities:									Financial liabilities:
Deferred compensation	Deferred compensation	$	3,727	$	3,727	$	—	$	—	Deferred compensation	$	3,971	$	3,971	$	—	$	—

Customer loan swaps	Customer loan swaps	16,134		—		16,134		—		Customer loan swaps	11,554		—		11,554		—

Interest rate contracts	Interest rate contracts	5,459		—		5,459		—		Interest rate contracts	6,859		—		6,859		—
Fixed rate mortgage interest rate lock commitments	Fixed rate mortgage interest rate lock commitments	395		—		395		—		Fixed rate mortgage interest rate lock commitments	43		—		43		—

December 31, 2021
Forward delivery commitments										Forward delivery commitments	14		—		14		—
December 31, 2022										December 31, 2022
Financial assets:	Financial assets:									Financial assets:
Trading securities	Trading securities	$	4,428	$	4,428	$	—	$	—	Trading securities	$	3,990	$	3,990	$	—	$	—
AFS debt securities:	AFS debt securities:									AFS debt securities:
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	49,226		—		49,226		—
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	514,019		—		514,019		—
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	109,347		—		109,347		—
Subordinated corporate bonds	Subordinated corporate bonds	22,558		—		22,558		—		Subordinated corporate bonds	23,283		—		23,283		—
Loans held for sale	Loans held for sale	5,815		—		5,815		—		Loans held for sale	5,197		—		5,197		—
Customer loan swaps	Customer loan swaps	19,297		—		19,297		—		Customer loan swaps	14,802		—		14,802		—
Interest rate contracts	Interest rate contracts	5,589		—		5,589		—		Interest rate contracts	13,051		—		13,051		—

Fixed rate mortgage interest rate lock commitments	Fixed rate mortgage interest rate lock commitments	371		—		371		—		Fixed rate mortgage interest rate lock commitments	31		—		31		—
Forward delivery commitments	Forward delivery commitments	86		—		86		—		Forward delivery commitments	114		—		114		—
Financial liabilities:	Financial liabilities:									Financial liabilities:
Deferred compensation	Deferred compensation	$	4,428	$	4,428	$	—	$	—	Deferred compensation	$	3,990	$	3,990	$	—	$	—
Customer loan swaps	Customer loan swaps	19,485		—		19,485		—		Customer loan swaps	14,850		—		14,850		—
Interest rate contracts	Interest rate contracts	7,872		—		7,872		—		Interest rate contracts	5,515		—		5,515		—

Fixed rate mortgage interest rate lock commitments	Fixed rate mortgage interest rate lock commitments	91		—		91		—		Fixed rate mortgage interest rate lock commitments	87		—		87		—
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 ~~nine~~three months ended ~~September 30, 2022.~~March 31, 2023. The Company’s policy for determining transfers between levels occurs at the end of the reporting period when circumstances in the underlying valuation criteria change and result in transfer between levels.

3940

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.~~GAAP, which may consist of collateral-dependent loans and servicing assets. These include assets that are measured at the lower of cost or market value that were recognized at fair value below cost at the end of the period. As of March 31, 2023 and March 31, 2022, the Company did not have any material financial instruments measured and reported at fair value.

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

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

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

The Company ~~has~~had no non-financial assets or non-financial liabilities measured at fair value on a ~~recurring basis.~~non-recurring basis as of March 31, 2023 and March 31, 2022. Non-financial assets measured at fair value on a non-recurring basis consist of OREO, goodwill and core deposit intangible assets.

OREO: OREO properties acquired through foreclosure or deed in lieu of foreclosure are recorded at net realizable value, which is the fair value of the real estate, less estimated costs to sell. Any write-down of the recorded investment in the related loan is charged to the ACL upon transfer to OREO. Upon acquisition of a property, a current appraisal is used or an internal valuation is prepared to substantiate fair value of the property. After foreclosure, management periodically, but at least annually, obtains updated valuations of the OREO properties and, if additional impairments are deemed necessary, the subsequent write-downs for declines in value are recorded through a valuation allowance and a provision for credit losses charged to other non-interest expense within the consolidated statements of income. As management considers appropriate, adjustments are made to the appraisal obtained for the OREO property to account for recent sales activity of comparable properties, changes in the condition of the property, and changes in market conditions. These adjustments are not observable in an active market and are classified as Level 3. At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the Company did not have any OREO properties.

Goodwill: Goodwill represents the excess cost of an acquisition over the fair value of the net assets acquired. The fair value of goodwill is estimated by utilizing several standard valuation techniques, including discounted cash flow analyses, bank merger multiples, and/or an estimation of the impact of business conditions and investor activities on the long-term value of the goodwill. Should an impairment occur, the associated goodwill is written-down to fair value and the impairment charge is recorded within non-interest expense in the consolidated statements of income. The Company conducts an annual impairment test of goodwill in the fourth quarter each year, or more frequently as necessary. There have been no indications or triggering events during the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, for which management believes it is more likely than not that goodwill is impaired.

Core Deposit Intangible Assets: The Company's core deposit intangible assets represent the estimated value of acquired customer relationships and are amortized over the estimated life of those relationships. Core deposit intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. There were no events or changes in circumstances for the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, that indicated the carrying amount may not be recoverable.

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

(In thousands) Fair
Value Readily
Available
Market
Prices
(Level 1) Observable
Market
Data
(Level 2) Company
Determined
Fair Value
(Level 3)
September 30, 2022
Financial assets:
Collateral-dependent loans $ 69 $ — $ — $ 69
December 31, 2021
Financial assets:
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
September 30, 2022
Collateral-dependent loans:
Partially charged-off $ 69 Market approach appraisal of
collateral Estimated selling costs 18%
December 31, 2021
Collateral-dependent loans
Specifically reserved $ 73 Market approach appraisal of collateral Estimated selling costs 11%

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


		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)
September 30, 2022
March 31, 2023												March 31, 2023
Financial assets:	Financial assets:											Financial assets:
HTM debt securities	HTM debt securities	$	534,309	$	491,759	$	—	$	491,759	$	—	HTM debt securities	$	540,074	$	510,999	$	—	$	510,999	$	—
Commercial real estate loans(1)(2)	Commercial real estate loans(1)(2)	1,543,107		1,517,911		—		—		1,517,911		Commercial real estate loans(1)(2)	1,647,823		1,586,974		—		—		1,586,974
Commercial loans(2)	Commercial loans(2)	418,110		412,670		—		—		412,670		Commercial loans(2)	416,518		405,429		—		—		404,847
SBA PPP loans(2)		684		704		—		—		704
Residential real estate loans(2)	Residential real estate loans(2)	1,610,324		1,424,504		—		—		1,424,504		Residential real estate loans(2)	1,722,335		1,509,387		—		—		1,509,387
Home equity loans(2)	Home equity loans(2)	231,507		238,723		—		—		238,723		Home equity loans(2)	230,072		228,821		—		—		228,821
Consumer loans(2)	Consumer loans(2)	20,406		18,277		—		—		18,277		Consumer loans(2)	19,226		16,993		—		—		16,993
Servicing assets	Servicing assets	2,470		4,466		—		—		4,466		Servicing assets	2,413		4,187		—		—		4,187
Financial liabilities:	Financial liabilities:											Financial liabilities:
Time deposits	Time deposits	$	279,603	$	270,794	$	—	$	270,794	$	—	Time deposits	$	360,103	$	351,795	$	—	$	351,795	$	—
Short-term borrowings	Short-term borrowings	421,101		420,608		—		420,608		—		Short-term borrowings	486,318		485,505		—		485,505		—

Subordinated debentures	Subordinated debentures	44,331		31,918		—		31,918		—		Subordinated debentures	44,331		31,918		—		31,918		—
December 31, 2021
December 31, 2022												December 31, 2022
Financial assets:	Financial assets:											Financial assets:
HTM debt securities	HTM debt securities	$	1,291	$	1,380	$	—	$	1,380	$	—	HTM debt securities	$	546,583	$	506,193	$	—	$	506,193	$	—
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)	1,605,279		1,550,379		—		—		1,550,379
Commercial loans(2)	Commercial loans(2)	359,512		356,463		—		—		356,463		Commercial loans(2)	424,685		414,353		—		—		414,353
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)	1,691,177		1,494,707		—		—		1,494,707
Home equity loans(2)	Home equity loans(2)	208,934		205,920		—		—		208,934		Home equity loans(2)	232,203		237,967		—		—		237,967
Consumer loans(2)	Consumer loans(2)	19,437		17,551		—		—		17,551		Consumer loans(2)	20,087		17,853		—		—		17,853
Servicing assets	Servicing assets	2,471		3,310		—		—		3,310		Servicing assets	2,458		4,412		—		—		4,412
Financial liabilities:	Financial liabilities:											Financial liabilities:
Time deposits	Time deposits	$	409,668	$	409,264	$	—	$	409,264	$	—	Time deposits	$	300,451	$	291,568	$	—	$	291,568	$	—
Short-term borrowings	Short-term borrowings	211,608		211,586		—		211,586		—		Short-term borrowings	265,176		264,779		—		264,779		—

Subordinated debentures	Subordinated debentures	44,331		33,248		—		33,248		—		Subordinated debentures	44,331		31,032		—		31,032		—

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

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

Excluded from the summary were financial instruments measured at fair value on a recurring and nonrecurring basis, as previously described.

The Company considers its financial instruments' current use to be the highest and best use of the instruments.

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

AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

The discussions set forth below and in the documents we incorporate by reference herein contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended, including certain plans, exceptions, goals, projections, and statements, which are subject to numerous risks, assumptions, and uncertainties. Forward-looking statements can be identified by the use of the words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “assume,” “plan,” “target,” “potential” or “goal” or future or conditional verbs such as “will,” “may,” “might,” “should,” “could” and other expressions which predict or indicate future events or trends and which do not relate to historical matters. Forward-looking statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult for the Company to predict. The actual results, performance or achievements of the Company may differ materially from what is reflected in such forward-looking statements

Forward-looking statements should not be relied on, because they involve known and unknown risks, uncertainties and other factors, some of which are beyond the control of the Company. These risks, uncertainties and other factors may cause the actual results, performance or achievements of the Company to be materially different from the anticipated future results, performance or achievements expressed or implied by the forward-looking statements.

The following factors, among others, could cause the Company’s financial performance to differ materially from the Company’s goals, plans, objectives, intentions, expectations and other forward-looking statements:

•the impact of the COVID-19 pandemic;

•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.~~setters;

•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;

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

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

•increases in deposit insurance assessments due to bank failures;

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

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

In addition, statements regarding the potential effects of the war in Ukraine, the COVID-19 pandemic and other notable national and global current events on the Company’s business, financial condition, liquidity and results of operations may constitute forward-looking statements and are subject to the risk that the actual effects may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable

and in many cases beyond the Company's control.

You should carefully review all of these factors, and be aware that there may be other factors that could cause differences, including the risk factors listed in our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, as updated by the Company's quarterly reports on Form 10-Q, including this report, and other filings with the Securities and Exchange Commission. Readers should carefully review the risk factors described therein and should not place undue reliance on our forward-looking statements.

These forward-looking statements were based on information, plans and estimates at the date of this report, and we undertake no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes, except to the extent required by applicable law or regulation.

NON-GAAP FINANCIAL MEASURES AND RECONCILIATION TO GAAP

In addition to evaluating the Company’s results of operations in accordance with GAAP, management supplements this evaluation with an analysis of certain non-GAAP financial measures, 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;~~ 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 shareholder's return on tangible capital deployed in our business and is a common measure within the financial services industry.


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended March 31,
(Dollars in thousands)	(Dollars in thousands)	2022			2021			2022			2021			(Dollars in thousands)	2023			2022
Net income, as presented	Net income, as presented	$	14,267		$	14,640		$	46,088		$	52,523		Net income, as presented	$	12,727		$	16,795
Add: amortization of core deposit intangible assets, net of tax(1)	Add: amortization of core deposit intangible assets, net of tax(1)	123			129			371			388			Add: amortization of core deposit intangible assets, net of tax(1)	117			123
Net income, adjusted for amortization of core deposit intangible assets	Net income, adjusted for amortization of core deposit intangible assets	$	14,390		$	14,769		$	46,459		$	52,911		Net income, adjusted for amortization of core deposit intangible assets	$	12,844		$	16,918
Average equity, as presented	Average equity, as presented	$	452,815		$	552,721		$	478,420		$	541,841		Average equity, as presented	$	462,651		$	525,438
Less: average goodwill and core deposit intangible assets	Less: average goodwill and core deposit intangible assets	(96,493)			(97,128)			(96,651)			(97,293)			Less: average goodwill and core deposit intangible assets	(96,191)			(96,815)
Average tangible equity	Average tangible equity	$	356,322		$	455,593		$	381,769		$	444,548		Average tangible equity	$	366,460		$	428,623
Return on average equity	Return on average equity	12.50		%	10.51		%	12.88		%	12.96		%	Return on average equity	11.16		%	12.96		%
Return on average tangible equity	Return on average tangible equity	16.02		%	12.86		%	16.27		%	15.91		%	Return on average tangible equity	14.21		%	16.01		%

(1) Assumed a 21% tax rate.

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


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended March 31,
(Dollars in thousands)	(Dollars in thousands)	2022			2021			2022			2021			(Dollars in thousands)	2023			2022
Non-interest expense, as presented	Non-interest expense, as presented	$	27,091		$	26,263		$	79,856		$	76,752		Non-interest expense, as presented	$	26,165		$	26,209
Less: prepayment penalty on borrowings		—			—			—			(514)
Adjusted non-interest expense		$	27,091		$	26,263		$	79,856		$	76,238
Net interest income, as presented	Net interest income, as presented	$	37,813		$	34,746		$	110,712		$	100,639		Net interest income, as presented	$	34,280		$	36,365
Add: effect of tax-exempt income(1)	Add: effect of tax-exempt income(1)	242			228			700			764			Add: effect of tax-exempt income(1)	229			226
Non-interest income, as presented	Non-interest income, as presented	9,954			11,099			30,920			37,634			Non-interest income, as presented	9,866			9,825
Add: net loss on sale of securities		—			—			9			—

Adjusted net interest income plus non-interest income	Adjusted net interest income plus non-interest income	$	48,009		$	46,073		$	142,341		$	139,037		Adjusted net interest income plus non-interest income	$	44,375		$	46,416
Ratio of non-interest expense to total revenues(2)	Ratio of non-interest expense to total revenues(2)	56.71		%	57.29		%	56.38		%	55.51		%	Ratio of non-interest expense to total revenues(2)	59.27		%	56.74		%
Efficiency ratio	Efficiency ratio	56.43		%	57.00		%	56.10		%	54.83		%	Efficiency ratio	58.96		%	56.47		%

(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 September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
(In thousands)	(In thousands)	2022		2021		2022		2021		(In thousands)	2023		2022
Net interest income, as presented	Net interest income, as presented	$	37,813	$	34,746	$	110,712	$	100,639	Net interest income, as presented	$	34,280	$	36,365
Add: effect of tax-exempt income(1)	Add: effect of tax-exempt income(1)	242		228		700		764		Add: effect of tax-exempt income(1)	229		226
Net interest income (fully-taxable equivalent)	Net interest income (fully-taxable equivalent)	$	38,055	$	34,974	$	111,412	$	101,403	Net interest income (fully-taxable equivalent)	$	34,509	$	36,591

(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 September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
(In thousands)	(In thousands)	2022		2021		2022		2021		(In thousands)	2023		2022
Net income, as presented	Net income, as presented	$	14,267	$	14,640	$	46,088	$	52,523	Net income, as presented	$	12,727	$	16,795
Add: income tax expense, as presented	Add: income tax expense, as presented	3,645		4,003		11,654		13,418		Add: income tax expense, as presented	3,252		4,261
Add: provision (credit) for credit losses, as presented	Add: provision (credit) for credit losses, as presented	2,764		939		4,034		(4,420)		Add: provision (credit) for credit losses, as presented	2,002		(1,075)
Earnings before income taxes and provision for credit losses	Earnings before income taxes and provision for credit losses	$	20,676	$	19,582	$	61,776	$	61,521	Earnings before income taxes and provision for credit losses	17,981		19,981
Less: SBA PPP loan income	Less: SBA PPP loan income	(50)		(1,951)		(1,248)		(5,487)		Less: SBA PPP loan income	(4)		(1,033)
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	$	20,626	$	17,631	$	60,528	$	56,034	Earnings before income taxes, provision for credit losses and SBA PPP Loan income	$	17,977	$	18,948

~~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
September 30, Nine Months Ended
September 30,
2022 2021 2022 2021
Yield on interest-earning assets, as presented 3.40 % 2.97 % 3.19 % 3.06 %
Add: effect of excess liquidity on yield on interest-earning assets — % 0.16 % 0.03 % 0.12 %
Less: effect of SBA PPP loans on yield on interest-earning assets (0.01) % (0.09) % (0.02) % (0.06) %
Adjusted yield on interest-earning assets 3.39 % 3.04 % 3.20 % 3.12 %

~~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
September 30, Nine Months Ended
September 30,
2022 2021 2022 2021
Net interest margin (fully-taxable equivalent), as presented 2.88 % 2.76 % 2.86 % 2.82 %
Add: effect of excess liquidity on net interest margin (fully-taxable equivalent) — % 0.15 % 0.02 % 0.12 %
Less: effect of SBA PPP loans on net interest margin (fully-taxable equivalent) — % (0.09) % (0.02) % (0.07) %
Adjusted net interest margin (fully-taxable equivalent) 2.88 % 2.82 % 2.86 % 2.87 %

4746

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)	September 30, 2022			December 31, 2021			(In thousands, except number of shares, per share data and ratios)	March 31, 2023			December 31, 2022
Tangible Book Value Per Share:	Tangible Book Value Per Share:							Tangible Book Value Per Share:
Shareholders’ equity, as presented	Shareholders’ equity, as presented	$	431,007		$	541,294		Shareholders’ equity, as presented	$	464,874		$	451,278
Less: goodwill and other intangible assets		(96,416)			(96,885)
Less: goodwill and core deposit intangible assets								Less: goodwill and core deposit intangible assets	(96,112)			(96,260)
Tangible shareholders’ equity	Tangible shareholders’ equity	$	334,591		$	444,409		Tangible shareholders’ equity	$	368,762		$	355,018
Shares outstanding at period end	Shares outstanding at period end	14,563,828			14,739,956			Shares outstanding at period end	14,587,906			14,567,325
Book value per share	Book value per share	$	29.59		$	36.72		Book value per share	$	31.87		$	30.98
Tangible book value per share	Tangible book value per share	$	22.97		$	30.15		Tangible book value per share	$	25.28		$	24.37
Tangible Common Equity Ratio:	Tangible Common Equity Ratio:							Tangible Common Equity Ratio:
Total assets	Total assets	$	5,551,724		$	5,500,356		Total assets	$	5,716,605		$	5,671,850
Less: goodwill and other intangible assets		(96,416)			(96,885)
Less: goodwill and core deposit intangible assets								Less: goodwill and core deposit intangible assets	(96,112)			(96,260)
Tangible assets	Tangible assets	$	5,455,308		$	5,403,471		Tangible assets	$	5,620,493		$	5,575,590
Common equity ratio	Common equity ratio	7.76		%	9.84		%	Common equity ratio	8.13		%	7.96		%
Tangible common equity ratio	Tangible common equity ratio	6.13		%	8.22		%	Tangible common equity ratio	6.56		%	6.37		%

Core Deposits. Core deposits are used by management to measure the portion of the Company's total deposits that management believes to be more stable and at a lower interest rate cost. The Company calculates core deposits as total deposits (as reported on the consolidated statements of condition) less certificates of deposit and brokered deposits. Management believes core deposits is a useful measure to assess the Company's deposit base, including its potential volatility.


(In thousands)	(In thousands)	September 30, 2022		December 31, 2021		(In thousands)	March 31, 2023		December 31, 2022
Total deposits	Total deposits	$	4,568,604	$	4,608,889	Total deposits	$	4,642,734	$	4,826,929
Less: certificates of deposit	Less: certificates of deposit	(279,603)		(309,648)		Less: certificates of deposit	(360,103)		(300,451)
Less: brokered deposits	Less: brokered deposits	(89,775)		(208,468)		Less: brokered deposits	(215,949)		(181,253)
Core deposits	Core deposits	$	4,199,226	$	4,090,773	Core deposits	$	4,066,682	$	4,345,225

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
(In thousands)	(In thousands)	2022		2021		2022		2021		(In thousands)	2023		2022
Total average deposits(1)	Total average deposits(1)	$	4,531,019	$	4,223,964	$	4,431,837	$	3,994,457	Total average deposits(1)	$	4,520,424	$	4,380,035
Less: average certificates of deposit	Less: average certificates of deposit	(290,043)		(327,802)		(297,646)		(339,230)		Less: average certificates of deposit	(320,209)		(304,720)
Average core deposits	Average core deposits	$	4,240,976	$	3,896,162	$	4,134,191	$	3,655,227	Average core deposits	$	4,200,215	$	4,075,315

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

4847

~~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) September 30,
2022 December 31,
2021
Total loans, as presented $ 3,860,680 $ 3,431,474
Less: SBA PPP loans (685) (35,953)
Total loans, excluding SBA PPP loans $ 3,859,995 $ 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 from our current estimates as a result of changing conditions and future events. Several estimates are particularly critical and are susceptible to significant near-term change, including (i) the ACL, including the ACL on loans, off-balance sheet credit exposures and investments; (ii) accounting for acquisitions and the subsequent review of goodwill and intangible assets generated in an acquisition for impairment; (iii) income taxes; and (iv) accounting for defined benefit and postretirement plans.

There have been no material changes to the Company's critical accounting policies from those disclosed within its Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. Refer to the Company's Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, for discussion of the Company's critical accounting policies.

Refer to Note 2 of the consolidated financial statements for discussion of accounting pronouncements issued but yet to be adopted and implemented.

GENERAL OVERVIEW

Camden National Corporation (hereafter referred to as “we,” “our,” “us,” or the “Company”) is a publicly-held bank holding company, with approximately ~~$5.6~~$5.7 billion in assets at ~~September 30, 2022,~~March 31, 2023, incorporated under the laws of the State of Maine and headquartered in Camden, Maine. Camden National Bank (the "Bank"), a wholly-owned subsidiary of the Company, was founded in 1875. The Company was founded in 1984, went public in 1997 and is 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

~~Third~~First Quarter Update. Throughout the ~~third~~first quarter of ~~2022, global and national markets were, again, challenged~~2023, the interest rate environment remained volatile, highlighted by the ~~dynamic~~10-year U.S Treasury ranging from 3.37% to 4.08% and ~~rapid shift~~averaging 3.65% for the quarter. The yield curve continues to be inverted, and for the first quarter of 2023 the average 3-month U.S. Treasury was 114 basis points higher than the average 10-year U.S. Treasury. The volatility in interest rates and prolonged inverted yield curve continues to be the result of rising interest rates in response to inflationary pressures in the ~~operating environment, continuing~~U.S., but were amplified further by the ~~trend from the beginning~~failing of two regional banks in March 2023, and concerns that additional banks could fail, which did subsequently occur on May 1, 2023. As a result of the ~~year. During~~turbulence in the ~~third~~banking industry in the first quarter of ~~2022,~~2023, the ~~FOMC raised~~focus across much of the ~~Federal Funds Rate a total of 1.50% through two 0.75% interest rate increases in July and September, which brought the Federal Funds Rate target interest rate range~~industry quickly transitioned from earnings to 3.00% - 3.25%. Through the first nine months of 2022, the Federal Funds Rate has increased in total 3.00% as it works to slow national inflation. Current expectations are for the FOMC to continue to increase interest through the end of 2022 and into 2023.financial position.

~~Through~~The Company's financial footing is strong based on firm fundamentals that are supported by a diverse deposit base, a strong liquidity position, excellent asset quality and regulatory capital that is well in excess of all required levels. The following are a few metrics that highlight the ~~first nine months~~Company's financial strength as of March 31, 2023:

•Uninsured and uncollateralized1 deposits were 15% of total deposits, compared to 16% as of December 31, 2022, which speaks to the diversification of our depositor base.

1 Uncollateralized deposits are customer deposit balances for which the Company has ~~seen the impact~~not pledged any of ~~the change in the interest rate environment and stock market directly within~~ its ~~own operations and financial results, not unlike~~assets, including investment securities, or provided any other ~~banks, including:~~type of guarantee.

4948

•~~The change~~Primary liquidity sources, which consists of cash, investment securities and FHLBB and FRB borrowing capacity, totaled $1.3 billion, which was approximately 1.9 times total uninsured and uncollateralized deposits.

•Annualized net charge-offs for the first quarter of 2023 were 0.02%, compared to 0.03% for the fourth quarter of 2022 and 0.02% for the first quarter of 2022.

•Non-performing assets were 0.09% of total assets and past due loans were 0.05% of total loans, compared to 0.09% and 0.06%, respectively, as of December 31, 2022.

•Equity to assets ratio was 8.13% and tangible common equity ratio (non-GAAP) was 6.56%, compared to 7.96% and 6.37%, respectively, as of December 31, 2022.

•Common Equity Tier 1 risk-based capital ratio was 11.90%, which exceeded the minimum regulatory capital required for capital adequacy plus the capital conservation buffer by 4.90%.

Like many others across the banking industry, the Company's earnings have been affected by the inverted yield curve, as deposit and funding costs have risen at a faster pace than our assets have repriced, which in turn has resulted in continued compression of our net interest margin. Our net interest margin for the first quarter of 2023 was 2.54%, compared to 2.76% for the fourth quarter of 2022 and 2.87% for the first quarter of 2022. We have taken, and continue to take, actions to manage net interest margin closely, including, but not limited to, disciplined loan and deposit pricing, as well as the utilization of interest rate ~~environment through the nine months ended September 30, 2022, compared~~swaps and brokered and retail CDs to ~~the same period last year~~reduce our exposure to rising short-term interest rates. The results of these actions can ~~been~~be seen in our interest rate risk position as of March 31, 2023, which is detailed in our interest rate risk modeling within "—Risk Management—Interest Rate Risk," as the Company's net interest income ~~and~~at risk over a 12-month period improved in an up 200 basis points scenario (based on our model as described). As of March 31, 2023, net interest ~~margin. Should interest rates continue~~income would decrease 2.24% in an up 200 basis point scenario, as compared to ~~drive higher, we anticipate this will likely impact overall growth nationally and within our markets and lead to slowing loan demand in coming periods.~~a decrease of 3.93% as of December 31, 2022.

•

The ~~effects~~Company's investment portfolio continues to be a primary source of liquidity through investment cash flows, as well as the ~~change in~~ability to pledge securities as collateral for funding. As of March 31, 2023, the interest rate environment across the same periods can also be seen on the Company's stockholders' equity (or capital). The sharp rise in interest rates through the nine months ended September 30, 2022, has led to a sharp decrease in the valuationfair value of the Company's bond portfolio was $1.2 billion and was in a net unrealized loss position of $122.0 million. We did not purchase any investments ~~portfolio. Those~~during the first quarter of 2023, as we used investment cash flows to fund incremental loan growth. The investment portfolio continues to be primarily made up of agency-backed MBS and CMO, but also contains subordinated corporate bonds ~~designated~~ and ~~accounted for~~municipal securities as ~~AFS are carried at fair value~~further described within "—Financial Condition—Investments." While the investment portfolio consists primarily of highly-rated securities, the Company did fully charge-off of a $1.8 million Signature Bank bond due to Signature Bank's failure in March 2023. As of March 31, 2023, we did not have any other exposures to failed banks. The weighted-average life and ~~the change in fair value between periods is accounted for in AOCI within shareholders' equity. As a result, the Company's stockholders' equity~~duration of our bond portfolio as of March 31, 2023, was 8.2 years and 5.7 years, respectively, compared to ~~total assets ratio has decreased from 9.84% at~~7.8 years and 5.8 years, respectively, as of December 31, ~~2021 to 7.76% at September 30, 2022, and its tangible common equity ratio (non-GAAP) has decreased from 8.22% at December 31, 2021 to 6.13% at September 30,~~ 2022. ~~The Company's regulatory capital ratios, as described in Note 10 of the consolidated financial statements, continue to be strong and well in excess of regulatory capital requirements.~~

•The growing risk of a near-term recession has been factored into the Company's ACL calculation through the first nine months of 2022 and has resulted in an increase to the ACL the last two quarters, including the third quarter of 2022, despite excellent credit quality across the Company's loan portfolio.

•~~Lower market-related revenues for the three and nine months ended September 30, 2022, compared to the same periods of 2021, including income from fiduciary services and BOLI.~~

Discussed below is further information on the Company's financial performance for the ~~third~~first quarter ~~and first nine months~~ of ~~2022,~~2023 and its current financial position.

Operating Results. Net income for the ~~third~~first quarter of ~~2022~~2023 was ~~$14.3~~$12.7 million, a decrease of ~~$373,000~~$4.1 million or 3%24%, compared to the ~~third quarter of 2021, and diluted EPS remained consistent at $0.97 for the third~~first quarter of 2022, and ~~2021. Earnings before income taxes and provision expense (non-GAAP)~~diluted EPS decreased $0.26, or 23%, to $0.87 for the ~~third~~first quarter of ~~2022 were $20.7 million, an increase of $1.1 million, or 6%, between periods, and earnings~~2023 compared to the same period last year. Earnings before income taxes, provision expense and SBA PPP loan income (non-GAAP) ~~increased $3.0~~for the first quarter of 2023 were $18.0 million, a decrease of $971,000, or ~~17%~~5%, between periods.

~~Revenues (defined as~~The key drivers of the ~~sum of~~decrease in net income between the quarter ended March 31, 2023 and 2022 included:

•A decrease in net interest income ~~and non-interest income) for the third quarter~~ of ~~2022 totaled $47.8 million, an increase of $1.9~~$2.1 million, or 4%6%, ~~compared to the third quarter of 2021.~~

•~~Net~~driven by a decrease in net interest ~~income increased $3.1 million, or 9%,~~margin between periods ~~driven by strong~~of 33 basis points, which more than offset the increase in average ~~interest-earning~~interest-earnings assets between periods of $221.6 million, or 4%, and net interest margin expansion of 12 basis points to 2.88% for the third quarter of 2022 due to the sharp rise in interest rates and change in mix of interest-earnings assets as lower yielding excess cash and investment cash flows were deployed to fund higher yielding loan growth.6%.

•Non-interest income decreased $1.1 million or 10%, between periods primarily led by lower mortgage banking income of $1.3 million. The decrease in mortgage banking income reflects the change in the markets between periods, highlighted by theAn increase in interest rates and slowing demand. Residential mortgage production decreased 30% between periods, and the Company sold 21% of mortgage production in the third quarter of 2022, compared to 33% for the third quarter of 2021.

A provision for credit losses of ~~$2.8~~$3.1 million between periods. For the first quarter of 2023, the Company recorded a provision of $2.0 million that was ~~reported for~~primarily driven by the ~~third~~full charge-off of a $1.8 million Signature Bank bond due to Signature Bank's failure in March 2023. For the first quarter of 2022, ~~compared to $939,000 reported for~~ the ~~third quarter of 2021. This increase was driven by the change in forecasted economic outlook for a softening overall economy and 16% loan growth over the last twelve months.~~

Non-interest expense for the third quarter of 2022 was $27.1 million, an increase of $828,000, or 3%, over the third quarter of 2021. The Company's GAAP efficiency ratio and non-GAAP efficiency ratio for the third quarter of 2022 was 56.71% and 56.43%, respectively, compared to 57.29% and 57.00% for the third quarter of 2021, respectively.

Net income for the nine months ended September 30, 2022 was $46.1 million, a decrease of $6.4 million, or 12%, over the nine months ended September 30, 2021, and diluted EPS was $3.12 for the nine months ended September 30, 2022, a decrease of $0.37, or 11%, compared to the same period last year. Earnings before income taxes andCompany recorded negative provision expense ~~(non-GAAP) for~~(or a credit) of $1.1 million as it released a portion of its ACL on loans it established in 2020 at the ~~nine months ended September 30, 2022 were $61.8 million, an increase~~onset of ~~$255,000 over~~ the same period of 2021, and earnings before income taxes and provision expense and SBA PPA loan income (non-GAAP) for the nine months ended September 30, 2022 increased $4.5 million, or 8%, between periods.COVID-19 pandemic.

5049

Net interest income for the first nine months of 2022 was $110.7 million, an increase of $10.1 million, or 10%, compared to the first nine months of 2021. This increase was driven by average interest-earning assets growth of $394.4 million, or 8%, along with the net interest margin expansion of 4 basis points to 2.86% for the nine months ended September 30, 2022.

Non-interest income for the first nine months of 2022 was $30.9 million, a decrease of $6.7 million, or 18%, compared to the same period in 2021. Mortgage banking income was the primary reason for the decrease between periods as revenues decreased $8.4 million, or 73%, as residential mortgage production decreased 25% between periods, and the Company sold 21% of its production through the first nine months of 2022, compared to 47% for the same period last year. Increases in other business lines partially offset the decrease in mortgage banking, including service charge fees, brokerage and insurance commissions, debit card income and other income due to the sale of property.

A provision for credit losses of $4.0 million was recorded for the first nine months of 2022, compared to a release of $4.4 million for the same period 2021. This increase was the result of a change in our economic outlook between periods as the risk of an economic slowdown has grown, as well as strong loan growth between periods of 16%. During the first nine months of 2021, reserves were released as expected credit losses during the onset of the COVID-19 pandemic in 2020 did not manifest and market conditions stabilized.

Non-interest expense for the first nine month of 2022 was $79.9 million, an increase of $3.1 million, or 4%, over the first nine months of 2021. The Company's GAAP efficiency ratio and non-GAAP efficiency ratio for the nine months ended September, 30 2022 was 56.38% and 56.10%, respectively, compared to 55.51% and 54.83% for the same period last year, respectively.

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
Return on average assets (annualized)	Return on average assets (annualized)	1.03	%	1.08	%	1.13	%	1.36	%	Return on average assets (annualized)	0.91	%	1.26	%
Return on average equity (annualized)	Return on average equity (annualized)	12.50	%	10.51	%	12.88	%	12.96	%	Return on average equity (annualized)	11.16	%	12.96	%
Return on average tangible equity (annualized) (non-GAAP)	Return on average tangible equity (annualized) (non-GAAP)	16.02	%	12.86	%	16.27	%	15.91	%	Return on average tangible equity (annualized) (non-GAAP)	14.21	%	16.01	%

Ratio of non-interest expense to total revenues										Ratio of non-interest expense to total revenues	59.27	%	56.74	%
Efficiency ratio (non-GAAP)										Efficiency ratio (non-GAAP)	58.96	%	56.47	%
Overhead ratio (non-interest expense divided by average assets) (annualized)	Overhead ratio (non-interest expense divided by average assets) (annualized)	1.96	%	1.95	%	1.95	%	1.99	%	Overhead ratio (non-interest expense divided by average assets) (annualized)	1.84	%	1.93	%

Asset Quality. As of ~~September 30,~~March 31, 2023 and December 31, 2022, the Company's ~~asset~~credit quality metrics remained ~~very~~ strong with non-performing ~~assets strengthening~~loans totaling 0.13%. We continue to ~~0.09%~~monitor the Company's loan portfolio closely for any leading indicators of ~~total assets, compared~~potential stress.

As previously noted, in the first quarter of 2023, we fully wrote-off a $1.8 million investment in a Signature Bank bond. Our corporate and municipal bond portfolio continues to ~~0.13%,~~be of high credit quality, and we have since re-evaluated these portfolios and do not see any further credit risk at ~~December 31, 2021.~~this time. As of ~~September 30, 2022, loans 30-89 days past due increased to 0.12% of total loans, compared to 0.04% at December~~March 31, ~~2021. The increase in past due loans during~~2023, there was no allowance or impairments recorded on the third quarter of 2022 was primarily within the residential mortgage loans portfolio and commercial real estate loans portfolio and was the result of a few large loans becoming delinquent. The Company does not view the increase in past due loans during the quarter as indicative of a larger trend.Company's investment portfolio.

Shareholders' Equity. As of ~~September 30, 2022,~~March 31, 2023, the Company's regulatory capital ratios were each well in excess of regulatory capital requirements. Despite the Company's regulatory capital ratios remaining strong, the continued decreases in the market value of the AFS investment portfolio due to the sharp rise in interest rates through the nine months ended September 30, 2022, caused decreases across the common equity ratio and tangible common equity ratio (non-GAAP), as well as book value per share and tangible book value per share (non-GAAP) over this period. The Company expects these decreases to be temporary and not reflective of underlying credit risk within the investment portfolio. The Company's non-regulatory capital ratios and book value as of the dates indicated were as follows:

•~~As of September 30, 2022,~~The Company announced a cash dividend of $0.42 per share, payable on April 28, 2023, to shareholders of record on April 14, 2023, representing an annualized dividend yield of 4.64%, based on the Company's ~~common equity ratio was 7.76% and its tangible common equity ratio (non-GAAP) was 6.13%, compared to 9.84% and 8.22%~~closing share price of $36.19, as ~~of December~~reported by NASDAQ on March 31, ~~2021, respectively.~~

•As of September 30, 2022, the Company's book value per share was $29.59 and its tangible book value per share (non-GAAP) was $22.97, compared to $36.72 and $30.15 as of December 31, 2021, respectively.2023.

In ~~the first quarter of 2022, the Company initiated~~January 2023, we announced a new share repurchase program was approved by the Company’s Board of Directors for up to 750,000 shares, ~~of its common stock,~~ or approximately 5% of total shares outstanding as of December 31, 2022, and the ~~Company's shares outstanding. This~~termination of our share repurchase program ~~replaces the program~~ that ~~terminated~~was opened in ~~January~~ 2022. The Company repurchased 225,245 shares of its outstanding common stock through the first nine months of 2022 at a weighted-average price of $45.46 per share, which included the repurchase of 63,689 shares at an average price of $44.38 per share in the third 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 ("revenue" is defined as the sum of net interest income and non-interest income). For the quarter ended ~~September 30, 2022,~~March 31, 2023, net interest income was ~~79%~~78% of total revenues, compared to ~~76%~~79% for the quarter ended ~~September 30, 2021.~~March 31, 2022. 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 September 30, 2022,~~Net interest margin is calculated as net interest income ~~was $37.8 million, an increase of $3.1 million, or 9%, over the quarter ended September 30, 2021, and~~ on a fully-taxable equivalent basis (non-GAAP)~~, net interest income was $38.1 million, an increase~~ as a percentage of ~~$3.1 million, or 9%, over the same period.~~average interest-earning assets.

Net Interest income on a fully-taxable equivalent basis increased $7.2 million, or 19%, over this period to $44.8 million for the quarter ended September 30, 2022, while interest expense increased $4.1 million, or 157%, to $6.8 million for the quarter ended September 30, 2022.

~~The increase in~~Income and Net Interest Margin.Net interest income on a fully-taxable equivalent basis for the quarter ended ~~September 30, 2022 over~~March 31, 2023 was $34.5 million, a decrease of $2.1 million, or 6%, compared to the same ~~quarter last year was driven by: (1) average interest-earning asset growth of $221.6 million, or 4%, between periods, which included average loan growth of $497.1 million, or 15%, net~~period in 2022. The decrease consisted of a ~~decrease in interest-earning cash balances of $274.5~~$16.0 million ~~or 90%, (2) the~~ increase in interest expense, which reflects the change in short-term interest ~~rate environment between periods driving a higher yield of 43 basis points~~rates between periods, partially offset by ~~(3) lower SBA PPP loan income of $1.9 million.~~

•Our average loan growth between periods was attributable to the growth of: (1) residential real estate, which grew $396.9 million, or 34%, reflecting our strategy to hold more residential mortgage production within our loan portfolio, (2) commercial real estate, which grew $136.4 million, or 10%, and (3) commercial loans, which grew $53.5 million, or 15%, offsetting (4) decreasing average SBA PPP loan balances of $104.5 million as the majority of borrowers took advantage of loan forgiveness.

•For the quarter ended September 30, 2022, our interest-earning asset yield increased to 3.40%, compared to 2.97% for the quarter ended September 30, 2021. This increase in our interest-earning asset yield was the result of: (1) the shift in asset mix between periods with excess cash being deployed to fund strong loan growth of 16% between periods, primarily in residential mortgages, and (2) the change in the interest rate environment through the first nine months of 2022 as the FOMC has sharply raised interest rates in an effort to curb high levels of inflation. For the quarter ended September 30, 2022, the average interest rate for 10-year U.S. Treasury was 3.10%, compared to 1.32% for the quarter ended September 30, 2021.

The increase in interest expense for the quarter ended September 30, 2022, over the same period last year was driven by an increase in the cost of funds as total funding liabilities increased 32 basis points between periods to 0.54% for the quarter ended September 30, 2022. Between periods, cost of deposits increased 30 basis points and cost of borrowings increased 62 basis points bringing each to 0.45% and 0.54% for the quarter ended September 30, 2022, respectively. The increase in the cost of deposits and borrowings between period was, too, driven by the sharp increase in interest rates between periods. Our growth in average deposits over the past twelve months of $307.1 million, or 7%, enabled the Company to fund its 5% interest-earning asset growth, or $221.6 million, between periods through lower cost deposits. Average deposit growth between periods was driven by average interest checking and savings balances increasing $255.8 million, or 21%, and $86.4 million, or 13%, respectively, which offset lower average CD balances of $37.8 million, or 12%, between periods. Average total borrowings decreased $54.2 million, or 11%, between periods due to the strong aforementioned average deposit growth. Within average total borrowings, average brokered deposit balances decreased $208.7 million, or 72%, and average other borrowings, which consisted of FHLBB overnight and short-term advances, increased $108.1 million between periods.

~~For the quarter ended September 30, 2022, net interest margin was 2.88%, an increase of 12 basis points over the quarter ended September 30, 2021.~~

For the nine months ended September 30, 2022, net interest income was $110.7 million, an increase of $10.1 million, or 10%, over the same period for 2021, and on a fully-taxable equivalent basis (non-GAAP) was $111.4 million, an increase of $10.0 million, or 10%, over the same period. Interest income on a fully-taxable equivalent basis increased $14.4 million, or 13%, over this period to $124.2 million for the nine months ended September 30, 2022, while interest expense increased $4.4 million, or 52%, over this period to $12.7 million for the nine months ended September 30, 2022.

~~The~~ increase in interest income on a fully-taxable equivalent basis of $13.9 million, or 36%, between periods.

Our net interest margin on a fully-taxable equivalent basis for the ~~nine months~~quarters ended ~~September 30,~~March 31, 2023 and 2022 was 2.54% and 2.87%, respectively.

•The increase in interest expense between periods was primarily the result of a 124basis points increase in our average cost of funds. The Federal Funds Target Rate range at March 31, 2023 was 4.75% - 5.00%, compared to 0.25% - 0.50% at March 31, 2022. From the start of the rising interest rate cycle (December 31, 2021), the Company has actively managed its funding costs and, in doing so, has held its total funding beta2 to 28% through March 31, 2023. More recently, the Company has seen its total funding cost beta rise at an accelerated pace due to the FOMC increasing interest rates 125 basis points in the fourth quarter of 2022 and another 50 basis points in the first quarter of 2023. The Company's total funding beta for the first quarter of 2023 was 56%.

The Company’s funding costs grew to 1.45% for first quarter of 2023, compared to 0.21% for the first quarter of 2022 as deposits costs increased 107 basis points over this period to 1.22% for the ~~same~~first quarter of 2023 and borrowing costs increased 228 basis points over this period ~~last year~~to 3.13% for the first quarter of 2023. As short-term interest rates continued to rise, depositors became more interest rate sensitive and deposit balances shifted from lower cost deposits, such as non-interest checking and savings, to higher cost deposits, such as interest checking and CDs.

•The increase in interest income between periods was driven ~~by: (1)~~by both interest-earning assets yield expansion and average interest-earning asset growth of $394.4 million, or 8%, between periods, which included average loan growth of $355.5 million, or 11%, average investments growth of $229.5 million, or 19%, offset by the decrease in average interest-earning cash balances of $190.6 million, or 76%, partially offset by (2) lower SBA PPP loan income of $4.2 million. Our average loan growth between periods was concentrated in: (1) residential real estate, which grew $342.3 million, or 31%, as, we continue the strategy to hold more residential mortgage loan production in our loan portfolio, (2) commercial real estate, which grew $112.1 million, or 8%, and (3) commercial loans, which grew $50.0 million, or 15%, offsetting (4) decreasing average SBA PPP loan balances of $130.3 million as the majority of borrowers took advantage of loan forgiveness programs, and (5) decrease average consumer loans of $15.0$311.7 million, or 6%. ~~Our investment growth between~~Between periods, ~~was~~our yield on interest-earning assets grew 85 basis points to 3.92% for the first quarter of 2023, driven by ~~our increased investment activity in 2021 as we deployed our low interest earning excess liquidity~~loan yield expansion of 80 basis points to ~~drive net interest income growth through higher yielding assets available at that time.~~

~~For the nine months ended September 30, 2022, our interest-earning asset yield was 3.19%, compared to 3.06%~~4.50% for the ~~same period last year. This increase in our interest-earning asset yield was driven by the increase in our average~~first quarter of 2023 and investment yield expansion of 1135 basis points ~~between periods~~ to ~~1.92%~~2.19% for the ~~nine months ended September 30, 2022. The average loan~~first quarter of 2023. over this same period. This increased yield ~~remained flat at 3.75% for~~reflects the nine months ended September 30, 2022 and 2021. This was driven by the by the decrease in average loan yield for residential mortgages of 21 basis points. Throughout 2021, customers actively refinanced residential loans to take advantage of the lower interest rate environment driving lower yielding new loan originations and compressing the average yield in the mortgage loan segments. This decrease in mortgage yield was offset by the increase in commercial real estate of 22 basis points with more variable rate loans that broke through the floor in 2022 as interest rates continued to rise in the nine months ended September 30, 2022.

The increase in interest expense for the nine months ended September 30, 2022, over the same period last year was driven by an increase in the cost of funds as total funding liabilities increased 10 basis points between periods to 0.35% for the nine months ended September 30, 2022. Between periods, the cost of deposits increased 10 basis points and the cost of borrowings increased 19 basis points bringing each to 0.27% and 0.35% for the nine months ended September 30, 2022, respectively. The increase in the cost of deposits and borrowings between period was driven by the sharp increase in interest rates between periods. ~~Our growth~~

Furthermore, in ~~average deposits between periods~~the first quarter of ~~$437.4 million, or 11%, enabled~~2023, the Company executed four pay-fixed, receive-floating interest rate swaps, totaling $300.0 million of notional value on a designated pool of fixed rate residential real estate loans. The derivative transaction was designated as a “fair value hedge” under ASC 815, and was completed to ~~fund~~reduce its 8% interest-earning asset growth, or $394.4 million, between periods through lower cost deposits. Average deposit growth between periods was driven by average core deposits (non-GAAP) growth of $479.0 million, or 13%, which offset lower average CD balances of $41.6 million, or 12%, between periods. Average total borrowings decreased $54.6 million, or 11%, between periods duenear-term interest rate risk exposure to the strong aforementioned average deposit growth. Within average total borrowings, average brokered deposit balances decreased $152.2 million, or 53%, and average other borrowings, which consisted of FHLBB overnight and short-term advances, increased $60.8 million between periods.

rising interest rates. For the ~~nine months ended September 30, 2022 net~~first quarter of 2023, the Company paid a weighted-average rate on these interest ~~margin increased 4 basis points to 2.86% over the nine months ended September 30, 2021.~~swaps of 3.65% and received Fed Funds Overnight Index Swap ("OIS") Rate, which generated $479,000 of interest income.

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

2 The total funding beta measures the change in total funding costs for the ~~followings periods:~~Company as compared to the change in the average Federal Funds Rate over the same period.

5351

Quarterly Average Balance, Interest and Yield/Rate Analysis


		Three Months Ended													Three Months Ended
		September 30, 2022						September 30, 2021							March 31, 2023						March 31, 2022
(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	$	30,063	$	172	2.24	%	$	304,594	$	96	0.12	%	Interest-bearing deposits in other banks and other interest-earning assets	$	26,018	$	253	3.89	%	$	100,002	$	33	0.13	%
Investments - taxable	Investments - taxable	1,288,172		6,051		1.88	%	1,284,851		5,341		1.66	%	Investments - taxable	1,237,351		6,377		2.06	%	1,409,567		6,026		1.71	%
Investments - nontaxable(1)	Investments - nontaxable(1)	109,661		1,001		3.65	%	114,033		958		3.36	%	Investments - nontaxable(1)	105,502		966		3.66	%	115,021		967		3.36	%
Loans(2):	Loans(2):													Loans(2):
Commercial real estate	Commercial real estate	1,546,638		15,973		4.04	%	1,410,201		12,934		3.59	%	Commercial real estate	1,646,005		18,959		4.61	%	1,489,304		13,559		3.64	%
Commercial(1)	Commercial(1)	402,152		4,380		4.26	%	348,619		3,201		3.59	%	Commercial(1)	409,112		5,615		5.49	%	372,910		3,302		3.54	%
SBA PPP	SBA PPP	1,254		50		15.67	%	105,742		1,950		7.22	%	SBA PPP	594		4		2.55	%	21,687		1,033		19.05	%
Municipal(1)	Municipal(1)	22,574		171		3.01	%	17,021		146		3.41	%	Municipal(1)	15,997		140		3.56	%	15,221		130		3.46	%
Residential real estate	Residential real estate	1,571,449		13,712		3.49	%	1,174,559		10,368		3.53	%	Residential real estate	1,715,192		16,200		3.78	%	1,347,427		11,652		3.46	%
Consumer and home equity	Consumer and home equity	252,145		3,313		5.21	%	242,921		2,613		4.27	%	Consumer and home equity	253,760		4,440		7.10	%	226,731		2,382		4.26	%
Total loans	Total loans	3,796,212		37,599		3.91	%	3,299,063		31,212		3.73	%	Total loans	4,040,660		45,358		4.50	%	3,473,280		32,058		3.70	%
Total interest-earning assets	Total interest-earning assets	5,224,108		44,823		3.40	%	5,002,541		37,607		2.97	%	Total interest-earning assets	5,409,531		52,954		3.92	%	5,097,870		39,084		3.07	%
Cash and due from banks	Cash and due from banks	52,693						53,095						Cash and due from banks	46,713						47,820
Other assets	Other assets	274,978						363,704						Other assets	268,550						308,524
Less: ACL	Less: ACL	(34,698)						(32,033)						Less: ACL	(37,127)						(33,111)
Total assets	Total assets	$	5,517,081					$	5,387,307					Total assets	$	5,687,667					$	5,421,103
Liabilities & Shareholders' Equity	Liabilities & Shareholders' Equity													Liabilities & Shareholders' Equity
Deposits:	Deposits:													Deposits:
Non-interest checking	Non-interest checking	$	1,243,174	$	—	—	%	$	1,251,492	$	—	—	%	Non-interest checking	$	1,076,469	$	—	—	%	$	1,199,456	$	—	—	%
Interest checking	Interest checking	1,502,436		3,213		0.85	%	1,246,634		643		0.20	%	Interest checking	1,689,862		8,341		2.00	%	1,414,704		664		0.19	%
Savings	Savings	774,725		86		0.04	%	688,331		71		0.04	%	Savings	734,804		137		0.08	%	750,899		76		0.04	%
Money market	Money market	720,641		1,532		0.84	%	709,705		520		0.29	%	Money market	699,080		3,785		2.20	%	710,256		518		0.30	%
Certificates of deposit	Certificates of deposit	290,043		326		0.45	%	327,802		408		0.49	%	Certificates of deposit	320,209		1,368		1.73	%	304,720		338		0.45	%
Total deposits	Total deposits	4,531,019		5,157		0.45	%	4,223,964		1,642		0.15	%	Total deposits	4,520,424		13,631		1.22	%	4,380,035		1,596		0.15	%
Borrowings:	Borrowings:													Borrowings:
Brokered deposits	Brokered deposits	80,701		285		1.40	%	289,374		331		0.45	%	Brokered deposits	220,559		2,201		4.05	%	176,399		237		0.55	%
Customer repurchase agreements	Customer repurchase agreements	228,495		328		0.57	%	182,114		122		0.26	%	Customer repurchase agreements	182,754		481		1.07	%	208,147		129		0.25	%
Subordinated debentures	Subordinated debentures	44,331		539		4.83	%	44,331		538		4.81	%	Subordinated debentures	44,331		528		4.83	%	44,331		529		4.84	%
Other borrowings	Other borrowings	108,084		459		1.68	%	—		—		—	%	Other borrowings	175,223		1,604		3.71	%	1,613		2		0.39	%
Total borrowings	Total borrowings	461,611		1,611		1.38	%	515,819		991		0.76	%	Total borrowings	622,867		4,814		3.13	%	430,490		897		0.85	%
Total funding liabilities	Total funding liabilities	4,992,630		6,768		0.54	%	4,739,783		2,633		0.22	%	Total funding liabilities	5,143,291		18,445		1.45	%	4,810,525		2,493		0.21	%
Other liabilities	Other liabilities	71,636						94,803						Other liabilities	81,725						85,140
Shareholders' equity	Shareholders' equity	452,815						552,721						Shareholders' equity	462,651						525,438
Total liabilities & shareholders' equity	Total liabilities & shareholders' equity	$	5,517,081					$	5,387,307					Total liabilities & shareholders' equity	$	5,687,667					$	5,421,103
Net interest income (fully-taxable equivalent)	Net interest income (fully-taxable equivalent)			38,055						34,974				Net interest income (fully-taxable equivalent)			34,509						36,591
Less: fully-taxable equivalent adjustment	Less: fully-taxable equivalent adjustment			(242)						(228)				Less: fully-taxable equivalent adjustment			(229)						(226)
Net interest income	Net interest income			$	37,813					$	34,746			Net interest income			$	34,280					$	36,365
Net interest rate spread (fully-taxable equivalent)	Net interest rate spread (fully-taxable equivalent)					2.86	%					2.75	%	Net interest rate spread (fully-taxable equivalent)					2.47	%					2.86	%
Net interest margin (fully-taxable equivalent)	Net interest margin (fully-taxable equivalent)					2.88	%					2.76	%	Net interest margin (fully-taxable equivalent)					2.54	%					2.87	%
Adjusted net interest margin (fully-taxable equivalent) (non-GAAP)						2.88	%					2.82	%

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

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

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

Nine Months Ended
September 30, 2022 September 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 $ 60,105 $ 260 0.57 % $ 250,715 $ 198 0.10 %
Investments - taxable 1,354,339 18,161 1.79 % 1,121,569 13,977 1.66 %
Investments - nontaxable(1)
112,526 2,942 3.49 % 115,755 2,845 3.28 %
Loans(2):
Commercial real estate 1,512,285 43,675 3.81 % 1,400,224 38,099 3.59 %
Commercial(1)
391,540 11,357 3.82 % 341,510 9,862 3.81 %
SBA PPP 9,138 1,248 18.01 % 139,453 5,487 5.19 %
Municipal(1)
18,837 446 3.17 % 22,404 557 3.32 %
Residential real estate 1,459,659 37,825 3.46 % 1,117,389 30,756 3.67 %
Consumer and home equity 240,041 8,255 4.60 % 255,058 8,016 4.20 %
Total loans 3,631,500 102,806 3.75 % 3,276,038 92,777 3.75 %
Total interest-earning assets 5,158,470 124,169 3.19 % 4,764,077 109,797 3.06 %
Cash and due from banks 50,100 52,571
Other assets 275,074 372,012
Less: ALL (33,353) (35,174)
Total assets $ 5,450,291 $ 5,153,486
Liabilities & Shareholders' Equity
Deposits:
Non-interest checking $ 1,214,263 $ — — % $ 1,014,778 $ — — %
Interest checking 1,448,146 5,024 0.46 % 1,282,358 1,843 0.19 %
Savings 759,053 239 0.04 % 658,497 201 0.04 %
Money market 712,729 2,796 0.52 % 699,594 1,548 0.30 %
Certificates of deposit 297,646 988 0.44 % 339,230 1,407 0.55 %
Total deposits 4,431,837 9,047 0.27 % 3,994,457 4,999 0.17 %
Borrowings:
Brokered deposits 133,928 738 0.74 % 286,080 958 0.45 %
Customer repurchase agreements 220,026 682 0.41 % 177,559 419 0.31 %
Subordinated debentures 44,331 1,600 4.83 % 50,045 1,983 5.30 %
Other borrowings 65,595 690 1.41 % 4,762 35 0.99 %
Total borrowings 463,880 3,710 1.07 % 518,446 3,395 0.88 %
Total funding liabilities 4,895,717 12,757 0.35 % 4,512,903 8,394 0.25 %
Other liabilities 76,154 98,742
Shareholders' equity 478,420 541,841
Total liabilities & shareholders' equity $ 5,450,291 $ 5,153,486
Net interest income (fully-taxable equivalent) 111,412 101,403
Less: fully-taxable equivalent adjustment (700) (764)
Net interest income $ 110,712 $ 100,639
Net interest rate spread (fully-taxable equivalent) 2.84 % 2.81 %
Net interest margin (fully-taxable equivalent) 2.86 % 2.82 %
Adjusted net interest margin (fully-taxable equivalent) (non-GAAP) 2.86 % 2.87 %

~~(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.~~

5552

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


		Three Months Ended September 30, 2022 vs. September 30, 2021							Nine Months Ended September 30, 2022 vs. September 30, 2021									Three Months Ended March 31, 2023 vs. March 31, 2022
		Increase (Decrease) Due to:				Net Increase (Decrease)			Increase (Decrease) Due to:						Net Increase (Decrease)			Increase (Decrease) Due to:				Net Increase (Decrease)
(In thousands)	(In thousands)	Volume		Rate				Volume			Rate			(In thousands)			Volume		Rate
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	$	(82)	$	158	$	76		$	(143)		$	205		$	62	Interest-bearing deposits in other banks and other interest-earning assets	$	(24)	$	244			$	220
Investments – taxable	Investments – taxable	14		696		710			2,898			1,286			4,184		Investments – taxable	(736)		1,087		351
Investments – nontaxable	Investments – nontaxable	(37)		80		43			(79)			176			97		Investments – nontaxable	(80)		79		(1)

Commercial real estate	Commercial real estate	1,252		1,787		3,039			3,051			2,525			5,576		Commercial real estate	1,469		3,546		5,015
Commercial	Commercial	491		688		1,179			1,445			50			1,495		Commercial	397		1,922		2,319
SBA PPP	SBA PPP	(1,928)		28		(1,900)			(5,129)			890			(4,239)		SBA PPP	(1,005)		(24)		(1,029)
Municipal	Municipal	48		(23)		25			(89)			(22)			(111)		Municipal	7		3		10
Residential real estate	Residential real estate	3,503		(159)		3,344			9,421			(2,352)			7,069		Residential real estate	3,080		1,847		4,927
Consumer and home equity	Consumer and home equity	99		601		700			(472)			711			239		Consumer and home equity	284		1,774		2,058
Total interest income (fully-taxable equivalent)	Total interest income (fully-taxable equivalent)	3,360		3,856		7,216			10,903			3,469			14,372		Total interest income (fully-taxable equivalent)	3,392		10,478		13,870
Interest-bearing liabilities:	Interest-bearing liabilities:																Interest-bearing liabilities:
Interest checking	Interest checking	129		2,441		2,570			236			2,945			3,181		Interest checking	129		7,548		7,677
Savings	Savings	9		6		15			30			8			38		Savings	(2)		63		61
Money market	Money market	8		1,004		1,012			29			1,219			1,248		Money market	(8)		3,275		3,267
Certificates of deposit	Certificates of deposit	(47)		(35)		(82)			(171)			(248)			(419)		Certificates of deposit	17		1,013		1,030
Brokered deposits	Brokered deposits	(237)		191		(46)			(512)			292			(220)		Brokered deposits	60		1,904		1,964
Customer repurchase agreements	Customer repurchase agreements	31		175		206			100			163			263		Customer repurchase agreements	(16)		368		352
Subordinated debentures		—		1		1			(227)			(156)			(383)
Junior subordinated debentures																	Junior subordinated debentures	—		(1)		(1)
Other borrowings	Other borrowings	459		—		459			450			205			655		Other borrowings	191		1,411		1,602
Total interest expense	Total interest expense	352		3,783		4,135			(65)			4,428			4,363		Total interest expense	371		15,581		15,952
Net interest income (fully-taxable equivalent)	Net interest income (fully-taxable equivalent)	$	3,008	$	73	$	3,081		$	10,968		$	(959)		$	10,009	Net interest income (fully-taxable equivalent)	$	3,021	$	(5,103)	$	(2,082)

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


		Income Statement Location		Three Months Ended September 30,								Nine Months Ended September 30,									Income Statement Location		Three Months Ended March 31,
(In thousands)	(In thousands)		2022			2021				2022				2021		(In thousands)						2023			2022
Loan (cost) fees	Loan (cost) fees		Interest income			$	(297)			$	1,744			$	1,006			$	4,437	Loan (cost) fees		Interest income			$	(467)			$	1,081
Net fair value mark accretion from purchase accounting	Net fair value mark accretion from purchase accounting	Interest income and Interest expense		71				154				197				579		Net fair value mark accretion from purchase accounting			Interest income and Interest expense		34				81
Recoveries on previously charged-off acquired loans	Recoveries on previously charged-off acquired loans	Interest income		20				24				189				157		Recoveries on previously charged-off acquired loans			Interest income		26				145
Total	Total			$	(206)			$	1,922			$	1,392			$	5,173	Total					$	(407)			$	1,307

5653

Provision (Credit) for Credit Losses

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


		Three Months Ended September 30,				Change				Nine Months Ended September 30,				Change					Three Months Ended March 31,				Change
(Dollars in thousands)	(Dollars in thousands)	2022		2021		$		%		2022		2021		$		%		(Dollars in thousands)	2023		2022		$		%
Provision (credit) for loan losses	Provision (credit) for loan losses	$	2,513	$	269	$	2,244	834	%	$	3,788	$	(5,037)	$	8,825	175	%	Provision (credit) for loan losses	$	439	$	(1,236)	$	1,675	(136)	%
Provision for credit losses on off-balance sheet credit exposures		251		670		(419)		(63)	%	246		617		(371)		(60)	%
(Credit) provision for credit losses on off-balance sheet credit exposures																		(Credit) provision for credit losses on off-balance sheet credit exposures	(276)		161		(437)		(271)	%
Provision for HTM debt securities																		Provision for HTM debt securities	1,839		—		1,839		—	%
Provision (credit) for credit losses	Provision (credit) for credit losses	$	2,764	$	939	$	1,825	194	%	$	4,034	$	(4,420)	$	8,454	(191)	%	Provision (credit) for credit losses	$	2,002	$	(1,075)	$	3,077	(286)	%

Provision for loan losses.For the ~~three and nine months~~quarter ended ~~September 30, 2022, a~~March 31, 2023, we recorded provision for ~~credit~~loan losses ~~on loans was recorded~~ of ~~$2.5 million and $3.8 million, respectively, and was driven by: (1) a softening overall economy and~~$439,000 due to the continued ~~increasing likelihood~~future uncertain macroeconomic conditions and outlook as a fear of ~~an economic slowdown~~a recession in the ~~future, and (2) 4%~~near term continues to grow. Partially offsetting the need for provisions was continued strong asset quality across the Company’s loan ~~growth~~portfolios with no immediate signs of deterioration, as highlighted by the following credit quality metrics: (i) net charge-offs of 0.02% of average loans (annualized) for the quarter ended ~~September 30, 2022~~March 31, 2023, (ii) non-performing assets of 0.09% of total assets as of March 31, 2023, and ~~13% loan growth~~(iii) and past due loans (30-89 days) of 0.05% of total loans as of March 31, 2023. The release of $1.2 million in provision for the ~~nine months~~first quarter of 2022 ~~that offset (3)~~was driven by the release of ~~$768,000 and $5.0 million for the three and nine months ended September 30, 2022, respectively, of additional~~qualitative reserves ~~provided~~ for certain commercial real estate loans that were established at the onset of the COVID-19 pandemic due to the heightened credit risk at that time. For these loans, the Company established certain credit metrics that would need to be met by the borrower prior to releasing the reserve, including a debt service coverage ratio and consistent timely payments of full principal and interest as agreed. As of September 30, 2022, there were no remaining commercial real estate loans carrying additional reserves due to COVID-19-related risks as they all were paid-off or met these criteria and are performing at or above pre-pandemic levels.pandemic.

~~For the three months ended September 30, 2021, a~~(Credit) provision for credit losses on ~~loans~~off-balance credit exposures. At March 31, 2023, the ACL on off-balance sheet credit exposures was $3.0 million, as compared to $3.4 million as of ~~$269,000~~March 31, 2022. The decrease was ~~recorded primarily due to loan growth~~driven by the decrease in ~~the third quarter 2021. For the nine months ended September 30 ,2021 the improvement in the Company's macroeconomic outlook and the continued strength~~unfunded commitments of ~~the Company's credit quality more than offset the loan growth that resulted in the credit for credit losses on loans of $5.0~~$110.1 million ~~recorded during this period.~~between periods.

~~Net charge-offs~~Provision for HTM debt securities. The provision for HTM debt securities was driven by the ~~three and nine months ended September 30, 2022 were $216,000 and $503,000, respectively, compared~~full write-off of one corporate bond invested in Signature Bank due to ~~$58,000 and $557,000 for~~its failure in the ~~three and nine months ended September 30, 2021.~~first quarter of 2023.

Non-Interest Income

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


		Three Months Ended September 30,						Change				Nine Months Ended September 30,						Change					Three Months Ended March 31,						Change
(Dollars in thousands)	(Dollars in thousands)	2022			2021			$		%		2022			2021			$		%		(Dollars in thousands)	2023			2022			$		%
Debit card income	Debit card income	$	3,234		$	3,278		$	(44)	(1)	%	$	9,371		$	9,126		$	245	3	%	Debit card income	$	2,938		$	2,924		$	14	—	%
Service charges on deposit accounts~~(1)~~	Service charges on deposit accounts~~(1)~~	1,941			1,744			197		11	%	5,705			4,800			905		19	%	Service charges on deposit accounts~~(1)~~	1,762			1,833			(71)		(4)	%
Income from fiduciary services	Income from fiduciary services	1,535			1,627			(92)		(6)	%	4,847			4,860			(13)		—	%	Income from fiduciary services	1,600			1,631			(31)		(2)	%
Brokerage and insurance commissions	Brokerage and insurance commissions	1,003			993			10		1	%	3,269			2,885			384		13	%	Brokerage and insurance commissions	1,093			994			99		10	%
Mortgage banking income, net~~(2)~~(1)	Mortgage banking income, net~~(2)~~(1)	635			1,913			(1,278)		(67)	%	3,186			11,620			(8,434)		(73)	%	Mortgage banking income, net~~(2)~~(1)	716			1,034			(318)		(31)	%
Bank-owned life insurance~~(3)~~	Bank-owned life insurance~~(3)~~	374			589			(215)		(37)	%	1,519			1,774			(255)		(14)	%	Bank-owned life insurance~~(3)~~	592			576			16		3	%

Net loss on sale of securities		—			—			—		—	%	(9)			—			(9)		N.M.

Other income~~(4)~~(2)	Other income~~(4)~~(2)	1,232			955			277		29	%	3,032			2,569			463		18	%	Other income~~(4)~~(2)	1,165			833			332		40	%
Total non-interest income	Total non-interest income	$	9,954		$	11,099		$	(1,145)	(10)	%	$	30,920		$	37,634		$	(6,714)	(18)	%	Total non-interest income	$	9,866		$	9,825		$	41	—	%
Non-interest income as a percentage of total revenues	Non-interest income as a percentage of total revenues	21		%	24		%					22		%	27		%					Non-interest income as a percentage of total revenues	22		%	21		%

(1)~~Service charges on deposit accounts:~~ The increase for the three and nine months ended September 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 due to program and product changes. In September 2022, the Company made certain non-sufficient funds and overdraft program changes to assist our customers and support their financial well-being. The changes are not expected to materially decrease revenues.

~~(2)~~ Mortgage banking income, net: The decrease for the three months ended ~~September 30, 2022,~~March 31, 2023, compared to the same period of ~~2021,~~2022, was driven by the change in the housing market between periods, highlighted by the ~~change~~shift in the interest ~~rates~~rate environment between ~~periods.~~periods that drove the decrease in mortgage production of 58% compared to the first quarter of 2022. During the ~~third~~first quarter of ~~2022,~~2023, the Company sold ~~$38.0~~$35.1 million, or ~~21%~~40%, of its residential mortgage loan production compared to ~~$86.2~~$46.6 million, or ~~33%~~24%, of its residential mortgage loan production for the ~~third~~first quarter of 2021. 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 production in 2021. The continued increase in interest rates through the first nine months of 2022, together with higher housing prices and operating in highly competitive markets, has slowed residential mortgage production through the first nine months of 2022 and decreased the amount of salable production to the secondary market.2022. As of ~~September 30, 2022,~~March 31, 2023, the Company's residential mortgage loan pipeline stood at ~~$113.4~~$45.5 million, compared to the ~~$194.9~~$121.4 million at ~~September 30, 2021,~~March 31, 2022, a decrease of ~~42%~~62%.

The decrease for the nine months ended September 30, 2022, compared to the same period of 2021, was due to the decrease in residential mortgage loan sales, compared to September 30, 2021. For the nine months ended September 30, 2022, the Company sold $131.6 million, or 21%, of its residential mortgages, compared to $389.6 million, or 47%, for the nine months ended September 30, 2021. This decrease was driven by the decrease in residential mortgage production through the first nine months of 2022 (for the reasons outlined above), which have slowed commensurate with the overall industry.

~~(3)~~ ~~Bank-owned life insurance~~: The decrease for the three and nine months ended September 30, 2022, compared to the same periods of 2021, was the result of underlying investments in one of the Company's BOLI contracts dropping below its stable value wrapper and, thus, a write down was recognized in the third quarter of 2022. A further decrease in the market value of these underlying investments within this contract may result in lower BOLI income in future periods.

~~(4)~~(2) Other income: The increase in other income for the ~~three months ended September 30, 2022 compared to the three months ended September 30, 2021 was driven by the sale~~first quarter of ~~a property in 2022. The increase for the nine months ended September 30, 2022,~~2023, compared to the same period ~~in 2021,~~last year, was ~~primarily~~ driven by ~~the sale~~an increase in customer loan swap fees of ~~the property, along with increased foreign exchange fees and credit card interchange fees during the first nine months of the year.~~$299,000.

Non-Interest Expense

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


		Three Months Ended September 30,						Change				Nine Months Ended September 30,						Change					Three Months Ended March 31,						Change
(Dollars in thousands)	(Dollars in thousands)	2022			2021			$		%		2022			2021			$		%		(Dollars in thousands)	2023			2022			$		%
Salaries and employee benefits(1)	Salaries and employee benefits(1)	$	15,849		$	15,902		$	(53)	—	%	$	46,757		$	45,742		$	1,015	2	%	Salaries and employee benefits(1)	$	14,573		$	15,506		$	(933)	(6)	%
Furniture, equipment and data processing~~(1)~~	Furniture, equipment and data processing~~(1)~~	3,305			2,980			325		11	%	9,639			8,954			685		8	%	Furniture, equipment and data processing~~(1)~~	3,211			3,132			79		3	%
Net occupancy costs	Net occupancy costs	1,765			1,813			(48)		(3)	%	5,715			5,569			146		3	%	Net occupancy costs	2,079			2,144			(65)		(3)	%
Debit card expense(2)	Debit card expense(2)	1,210			1,106			104		9	%	3,410			3,166			244		8	%	Debit card expense(2)	1,201			1,066			135		13	%
Consulting and professional fees~~(2)~~	Consulting and professional fees~~(2)~~	814			792			22		3	%	3,114			2,652			462		17	%	Consulting and professional fees~~(2)~~	1,055			1,007			48		5	%
Regulatory assessments(3)	Regulatory assessments(3)	575			522			53		10	%	1,745			1,512			233		15	%	Regulatory assessments(3)	845			655			190		29	%
Amortization of core deposit intangible assets	Amortization of core deposit intangible assets	156			163			(7)		(4)	%	469			491			(22)		(4)	%	Amortization of core deposit intangible assets	148			156			(8)		(5)	%
Other real estate owned and collection costs (recoveries), net		56			60			(4)		(7)	%	9			(156)			165		(106)	%

Other expenses(4)	Other expenses(4)	3,361			2,925			436		15	%	8,998			8,822			176		2	%	Other expenses(4)	3,053			2,543			510		20	%
Total non-interest expense	Total non-interest expense	$	27,091		$	26,263		$	828	3	%	$	79,856		$	76,752		$	3,104	4	%	Total non-interest expense	$	26,165		$	26,209		$	(44)	—	%
Ratio of non-interest expense to total revenues	Ratio of non-interest expense to total revenues	56.71		%	57.29		%					56.38		%	55.51		%					Ratio of non-interest expense to total revenues	59.27		%	56.74		%
Efficiency ratio (non-GAAP)	Efficiency ratio (non-GAAP)	56.43		%	57.00		%					56.10		%	54.83		%					Efficiency ratio (non-GAAP)	58.96		%	56.47		%

(1) ~~Furniture, equipment~~Salaries and ~~data processing costs:~~employee benefits: The decrease between periods was primarily driven by lower incentive accruals.

(2) Debit card expense: The increase ~~for the three and nine months ended September 30, 2022, compared to the same~~between periods ~~of 2021,~~ was driven by ~~increased demand for online banking and bill pay products along with our continued investment in technology and data processing.~~

~~(2)~~ ~~Consulting and professional fees:~~ The increase for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, was driven by an increase in consulting and compliance-related costs of $270,000 and director fees, including annual equity awards, of $207,000.higher per unit costs.

(3) Regulatory assessments: The increase ~~for the three and nine months ended September 30. 2022, compared to the same~~between periods ~~of 2021,~~ was driven by the increase in ~~quarterly~~ FDIC assessments ~~primarily due to asset growth. The FDIC has approved increased assessment~~ rates, effective January 1, ~~2023 that will drive increases to the Company's assessment expenses in~~ 2023.

(4) Other expenses: The increase ~~for the three months ended September 30, 2022, compared to the three months ended 2021,~~between periods was driven by an increase in external hiring costs of $234,000, and a change in the ~~increases in business travel costs due to limited travel in 2021 from~~credit valuation adjustment on the ~~pandemic, as well as increases in marketing costs to promote new initiatives and employee appreciation costs for in person events that were done virtually in 2021.~~Company's back-to-back loan swaps with its commercial customers of $123,000.

FINANCIAL CONDITION

Cash and Cash Equivalents

Total cash and cash equivalents at ~~September 30, 2022,~~March, 31 2023, were ~~$82.0~~$75.7 million, compared to ~~$220.6~~$75.4 million at December 31, ~~2021. This decrease was due to the deployment of cash and cash equivalents' balances to support strong loan growth of 13% during the first nine months of~~ 2022. We continually monitor our cash levels as part of our liquidity risk management practices. Refer to the "—Liquidity" section for additional details.

Investments

The Company utilizes the investment portfolio to manage liquidity, interest rate risk, and regulatory capital, as well as to take advantage of market conditions to generate returns without undue risk. At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the Company’s investment portfolio ~~generally~~ consisted 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 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~~In the second quarter ~~ended June 30,~~of 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, which was a non-cash transaction. ~~The~~At March 31, 2023, the net unrealized losses on the ~~AFS debt~~transferred securities ~~at the time of the transfer were $72.1 million, pre-tax, and were~~ reported within ~~AOCI. The weighted average~~AOCI were $50.9 million, net of a deferred tax asset of $13.9 million, and the weighted-average life ~~of the transferred~~on these securities ~~as of the date of transfer~~ was 8.8 ~~years and the unrealized losses will be amortized over the remaining lives.~~years. At ~~September 30,~~December 31, 2022, the net unrealized losses on the transferred securities reported within AOCI were ~~$53.7~~$52.2 million, net of a deferred tax asset of ~~$14.7 million and the weighted-average life on these securities was 8.8 years.~~$14.3 million.

At ~~September 30, 2022,~~March 31, 2023, the reported value of Company's total investments portfolio ~~totaled $1.3~~was $1.2 billion, a decrease of ~~$246.7~~$9.3 million, or ~~16%~~0.7%, since December 31, ~~2021.~~2022. This was driven by changes within our debt securities portfolio, including:

•Paydowns, calls and maturities of ~~$167.2 million and sales of $8.7~~$25.1 million;

•A net ~~decrease~~increase in the fair value of the AFS debt securities portfolio of ~~$108.7~~$9.9 million asdue to interest ~~rates rose sharply~~rate movements during the ~~first nine months of 2022 in anticipation of a tightening economic policy to curb inflationary pressures. As a result, the~~quarter. The 2-year U.S. Treasury ~~increased 349~~decreased 35 basis points and the 10-year U.S. Treasury ~~increased 231~~fell 40 basis points during the first ~~nine~~three months of ~~2022~~2023 to ~~4.22%~~4.06% and ~~3.83%~~3.48%, respectively, at ~~September 30, 2022,~~March 31, 2023, 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 7.0 years at September 30, 2022;rise.

•~~A decrease~~An increase of ~~$68.4~~$6.7 million in FHLBB common stock due to increased borrowing levels during the ~~unamortized unrealized losses on the AFS securities that were transferred to HTM in June~~first quarter of ~~2022;~~2023.

•~~Partially offset by purchases of $105.4~~At March 31, 2023, the Company wrote-off a $1.8 million ~~of debt securities~~Signature Bank bond as the bank failed during the first ~~nine months~~quarter of ~~2022. The weighted-average life of investments purchased during this period 6.1 years.~~2023.

Our AFS debt securities ~~designated as AFS,~~portfolio, which comprised ~~58% and 99%~~55% of our investment portfolio at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021, respectively, were~~2022, was carried at fair value using ~~level~~Level 2 valuation techniques. Refer to Note 15 of the consolidated financial statements for further details on the Company's fair value. At September 30, 2022 and December 31, 2021, investments were 23% and 28% of total assets, respectively. Our debt securities designated as HTM, comprised 40% at September 30, 2022 and were less than 1% at December 31, 2021.value techniques. Our HTM debt securities ~~were carried~~portfolio comprised 43% of our investment portfolio at ~~amortized cost on the consolidated statements of condition.~~March 31, 2023 and at December 31, 2022.

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


(Dollars in thousands)	Three Months Ended March 31, 2023		Percentage of Total
MBS - Agency Backed	$	877,688	66	%
CMO - Agency Backed	260,582		19	%
Municipal	105,191		8	%
Corporate Bonds	44,593		3	%
Other - Agency Backed	53,026		4	%
Total	$	1,341,080	100	%

We continually monitor and evaluate our investment portfolio to identify and assess risks within our portfolio, including but not limited to, the impact of the current interest rate environment and the related prepayment risk, and the review of credit ratings. The overall mix of debt securities at March 31, 2023, compared to December 31, 2022, remains relatively unchanged and the Company expects it will continue to be well positioned to provide a stable source of cash flow. At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021, these investments represented 90%~~2022, the duration of our debt investment securities portfolio, adjusting for calls when appropriate and consensus prepayment speeds, was 5.7 years and 5.8 years, respectively.

In the first quarter of 2023, we wrote-off a $1.8 million Signature Bank corporate bond as that bank failed during the quarter. This corporate bond was designated as HTM and previously carried no ACL. We completed a review of our HTM and AFS investment portfolio as of March 31, 2023, and concluded that no ACL was warranted on any of the ~~investment portfolio.~~remaining bonds at this time. The ~~majority~~fair value and book value of the Company's corporate bonds and municipal ~~bonds, which represented 9%~~securities as of ~~the investment portfolio at September 30, 2022~~March 31, 2023 and December 31, ~~2021, had a credit rating of "AA" or higher.~~2022 was as follows:

~~Other~~


	March 31, 2023						December 31, 2022
(Dollars in thousands)	Fair Value		Book Value		Net Unrealized (Loss) Gain		Fair Value		Book Value		Net Unrealized Loss
Corporate bonds	$	42,292	$	44,593	$	(2,301)	$	44,013	$	46,350	$	(2,337)
Municipal bonds	106,023		105,191		832		104,024		105,656		(1,632)
Total	$	148,315	$	149,784	$	(1,469)	$	148,037	$	152,006	$	(3,969)

At March 31, 2023, corporate bonds were approximately 3% of the book value of the total bond portfolio. At March 31, 2023, corporate bonds with a book value of $35.1 million, or 79% of the corporate bond portfolio, carried an investment-grade credit rating and the remaining $9.5 million of book value, or 21% of the corporate bond portfolio, were non-rated corporate

bonds of community banks within our markets. As of March 31, 2023, the corporate bond portfolio was made up of 20 different companies, which included 17 different banks. The banks in the portfolio range from the largest U.S. banks to community banks, with the largest exposure being to a global systemically important bank, or "G-SIB", with a book value of $6.7 million as of March 31, 2023. Since March 31, 2023, a limited number of the rated corporate bonds in the portfolio have been downgraded as a result of stress in the banking system, although all remain investment-grade. We will continue to monitor this portfolio.

At March 31, 2023, municipal bonds were approximately 8% of the book value of the total bond portfolio. At March 31, 2023, all municipal bonds carried an investment-grade credit rating.

At March 31, 2023 and December 31, 202, the Company did not carry an ACL on any of its corporate or municipal bonds.

Our other investments on the consolidated statements of condition consist of FHLBB and FRB common stock. These investments are carried at cost. We are required to maintain a certain level of investment in FHLBB stock based on our level of FHLBB advances, and maintain a certain level of investment in FRB common stock based on the Bank's capital levels. As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, our investment in FHLBB stock totaled ~~$9.7~~$14.0 million and ~~$4.9~~$7.3 million, respectively, and our investment in FRB stock was $5.4 million at each date.

~~Investments~~Our investments in mutual funds are designated as trading securities and carried at fair value. These investments are held within a rabbi trust and will be used for future payments associated with the Company’s Executive and Director Deferred Compensation Plan. These investments are carried at fair value using ~~level~~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 September 30, 2022 or December 31, 2021. As noted above, the unrealized losses within our AFS debt securities as of September 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. Based on the portfolio of the HTM debt securities as of September 30, 2022 and December 31, 2021, we did not record any allowances or write-down any of the HTM debt securities. Refer to ~~"Note 3—Investments"~~ ~~for further discussion of 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 the review of credit ratings. The overall mix of debt securities at September 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 September 30, 2022 and December 31, 2021, the duration of our debt investment securities portfolio, adjusting for calls when appropriate and consensus prepayment speeds, was 5.8 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 ~~70%~~69% and ~~72%~~70% of the loan portfolio as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. Massachusetts and New Hampshire are our second and third largest markets that we serve, making up 15% and 9%, of our total loan portfolio as of ~~September 30, 2022,~~March 31, 2023, respectively, and ~~14%~~15% and 9% as of December 31, ~~2021.~~2022. As of ~~September 30, 2022,~~March 31, 2023, our distribution channels included 57 branches within Maine, ~~a residential mortgage lending office~~two locations in ~~Massachusetts,~~New Hampshire, including a branch in Portsmouth and a commercial loan production office in ~~New Hampshire,~~Manchester, a mortgage loan production office in Braintree, Massachusetts, and an online residential mortgage and small ~~commercial~~business digital loan ~~platforms.~~platform.

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


								Change											Change
(Dollars in thousands)	(Dollars in thousands)	September 30, 2022			December 31, 2021			($)		(%)		(Dollars in thousands)	March 31, 2023			December 31, 2022			($)		(%)
Commercial real estate - non-owner-occupied	Commercial real estate - non-owner-occupied	$	1,229,102		$	1,178,185		$	50,917	4	%	Commercial real estate - non-owner-occupied	$	1,328,793		$	1,292,443		$	36,350	3	%
Commercial real estate - owner-occupied	Commercial real estate - owner-occupied	333,785			317,275			16,510		5	%	Commercial real estate - owner-occupied	337,824			332,494			5,330		2	%
Commercial	Commercial	423,325			363,695			59,630		16	%	Commercial	421,099			430,131			(9,032)		(2)	%
SBA PPP		685			35,953			(35,268)		(98)	%
Residential real estate	Residential real estate	1,619,409			1,306,447			312,962		24	%	Residential real estate	1,733,147			1,700,266			32,881		2	%
Consumer and home equity	Consumer and home equity	254,374			229,919			24,455		11	%	Consumer and home equity	252,245			255,019			(2,774)		(1)	%
Total loans	Total loans	$	3,860,680		$	3,431,474		$	429,206	13	%	Total loans	$	4,073,108		$	4,010,353		$	62,755	2	%
Commercial Loan Portfolio	Commercial Loan Portfolio	$	1,986,897		$	1,895,108		$	91,789	5	%	Commercial Loan Portfolio	$	2,087,716		$	2,055,068		$	32,648	2	%
Retail Loan Portfolio	Retail Loan Portfolio	$	1,873,783		$	1,536,366		$	337,417	22	%	Retail Loan Portfolio	$	1,985,392		$	1,955,285		$	30,107	2	%
Commercial Portfolio Mix	Commercial Portfolio Mix	51		%	55		%					Commercial Portfolio Mix	51		%	51		%
Retail Portfolio Mix	Retail Portfolio Mix	49		%	45		%					Retail Portfolio Mix	49		%	49		%

For the first ~~nine months~~quarter of ~~2022,~~2023, the Company held ~~79%~~60% of its funded residential mortgage production, which ~~was higher than~~decreased from 84% in the fourth quarter of 2022. The Company anticipates over the next several quarters it will continue to sell more residential mortgage production as a percentage of total production in comparison to more recent ~~years, primarily due~~periods in order to ~~market conditions, such as local market pricing and jumbo mortgage 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 for the first nine months of 2022 was driven by borrower loans being forgiven under the terms of the program. As of September 30, 2022 and December 31, 2021, there were $20,000 and $1.2 million of SBA PPP loan origination fees yet to be recognized, respectively.

Through the first nine months of 2022, the FOMC increased the Federal Funds Interest Rate sharply in an effort to curb inflationary pressures. In doing so, there is a high likelihood the economy will slow which may have an impact on overall loan demand and slowmanage the Company's ~~loan growth moving forward.~~

balance sheet in the current interest rate environment.

6157

At March 31, 2023 and December 31, 2022, the non-residential building operators' industry (operators of commercial and industrial buildings, retail establishments, theaters, banks and insurance buildings) and lessors of residential buildings industry (lessors of buildings used as residences, such as single-family homes, apartments and town houses) concentrations were 32% and 28% of our total commercial real estate portfolio and 13% and 12% of total loans, respectively. At March 31, 2023, there were no other industry concentrations within our loan portfolio that exceeded 10% of total loans.

During the first quarter of 2023, the banking industry faced a heightened focus on commercial real estate and the office space sector specifically given the increase in vacant properties. As of March 31, 2023, the Company's commercial portfolio, including commercial real estate and commercial loans, totaled $2.1 billion, of which office space totaled $207.2 million, or 5% of total loans and 20% of the commercial real estate investment portfolio. The Company's office space loans as of March 31, 2023, were located in its primary markets — Maine, Massachusetts and New Hampshire. As of March 31, 2023, the Company was not aware of any troubled credits within its office space portfolio, and it had no office space loans that were non-performing or 30-89 days past due.

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) rising interest rates, (2) widespread inflationary pressures,~~portfolio and ~~(3) challenges across the labor market.~~

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

•The Credit Risk and Special Assets team and the Credit Risk Policy Committee, which is an internal management committee comprised of various executives and senior managers across business lines, including Accounting and Finance, Credit Underwriting, Credit Risk and Special Assets, ~~Compliance,~~Risk, and Commercial and Retail Banking, oversee the Company's systems and procedures to monitor the credit quality of its loan portfolio, conduct a loan review program, and maintain the integrity of the loan ratings system.

•The Directors Credit Committee of the Board of Directors reviews large credit exposures, monitors external loan review reports, reviews the lending authority for individual loan officers when required, and has approval authority and responsibility for all matters regarding the loan policy and other credit-related policies, including reviewing and monitoring asset quality trends, and concentration levels.

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

Non-Performing ~~Assets~~

Assets.

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

(Dollars in thousands) September 30,
2022 December 31,
2021
Non-accrual loans:
Commercial real estate - non-owner-occupied $ 26 $ 51
Commercial real estate - owner-occupied 47 133
Commercial 541 829
Residential real estate 1,562 2,107
Consumer and home equity 589 1,207
Total non-accrual loans 2,765 4,327
Accruing TDRs not included above 2,285 2,392
Total non-performing loans 5,050 6,719
Other real estate owned — 165
Total non-performing assets $ 5,050 $ 6,884
Total loans, excluding loans held for sale $ 3,860,680 $ 3,431,474
Total assets $ 5,551,724 $ 5,500,356
ACL on loans $ 36,542 $ 33,256
ACL on loans to non-accrual loans 1,321.59 % 768.57 %
Non-accrual loans to total loans 0.07 % 0.13 %
Non-performing loans to total loans 0.13 % 0.20 %
Non-performing assets to total assets 0.09 % 0.13 %


(Dollars in thousands)	March 31, 2023			December 31, 2022
Non-accrual loans:
Commercial real estate - non-owner-occupied	$	10		$	11
Commercial real estate - owner-occupied	47			46
Commercial	748			715
Residential real estate	1,715			1,733
Consumer and home equity	438			486
Total non-accrual loans	2,958			2,991

Accruing TDRs prior to ASU 2022-02 adoption not included above	2,154			2,114
Total non-performing loans	5,112			5,105
Other real estate owned	—			—
Total non-performing assets	$	5,112		$	5,105
Total loans, excluding loans held for sale	$	4,073,108		$	4,010,353
Total assets	$	5,716,605		$	5,671,850
ACL on loans	$	37,134		$	36,922
ACL on loans to non-accrual loans	1,255.38		%	1,234.44		%
Non-accrual loans to total loans	0.07		%	0.07		%
Non-performing loans to total loans	0.13		%	0.13		%
Non-performing assets to total assets	0.09		%	0.09		%

Potential Problem ~~Loans~~

Loans.

Potential problem loans consist of classified accruing commercial and commercial real estate loans that were 30-89 days past due. Such loans are characterized by weaknesses in the financial condition of borrowers or collateral deficiencies. Based on historical experience, the credit quality of some of these loans may improve due to changes in collateral values or the financial condition of the borrowers, while the credit quality of other loans may deteriorate, resulting in a loss. These loans are not included in the above analysis of non-accrual loans. At ~~September 30, 2022,~~March 31, 2023, loans classified as potential problem loans totaled ~~$554,000.~~$65,000.

Past Due ~~Loans~~

Loans.

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

(Dollars in thousands) September 30,
2022 December 31,
2021
Accruing loans 30-89 days past due:
Commercial real estate - non-owner-occupied $ 195 $ —
Commercial real estate - owner-occupied — 47
Commercial 1,344 552
Residential real estate 2,326 400
Consumer and home equity 843 509
Total $ 4,708 $ 1,508
Total loans $ 3,860,680 $ 3,431,474
Accruing loans 30-89 days past due to total loans 0.12 % 0.04 %

~~ACL~~


(Dollars in thousands)	March 31, 2023			December 31, 2022
Accruing loans 30-89 days past due:
Commercial real estate - non-owner-occupied	$	34		$	267
Commercial real estate - owner-occupied	77			55
Commercial	1,030			801
Residential real estate	313			1,038
Consumer and home equity	684			391
Total	$	2,138		$	2,552
Total loans	$	4,073,108		$	4,010,353
Accruing loans 30-89 days past due to total loans	0.05		%	0.06		%

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

At or For The
Three Months Ended
September 30, At or For The
Nine Months Ended
September 30, At or For The
Year Ended
December 31, 2021
(Dollars in thousands) 2022 2021 2022 2021
ACL on loans at the beginning of the period $ 34,244 $ 32,060 $ 33,256 $ 37,865 $ 37,865
Provision (credit) for loan losses 2,513 269 3,788 (5,037) (3,817)
Net charge-offs (recoveries)1

Commercial real estate (1) (2) (4) (7) (9)
Commercial 122 48 403 344 579
Residential real estate 49 2 65 20 (15)
Consumer and home equity 45 9 38 199 237
ACL on loans at the end of the period $ 36,542 $ 32,272 $ 36,542 $ 32,272 $ 33,256
Components of ACL:
ACL on loans $ 36,542 $ 32,272 $ 36,542 $ 32,272 $ 33,256
ACL on off-balance sheet credit exposures 3,441 3,185 3,441 3,185 3,195
ACL at end of the period $ 39,983 $ 35,457 $ 39,983 $ 35,457 $ 36,451
Total loans, excluding loans held for sale $ 3,860,680 $ 3,315,303 $ 3,860,680 $ 3,315,303 $ 3,431,474
Average Loans $ 3,796,212 $ 3,299,063 $ 3,631,500 $ 3,276,038 $ 3,299.313
Net charge-offs to average loans 0.02 % 0.01 % 0.02 % 0.02 % 0.02 %
Provision (credit) for loan losses (annualized) to average loans 0.26 % 0.03 % 0.21 % (0.31) % (0.12) %
ACL on loans to total loans 0.95 % 0.97 % 0.95 % 0.97 % 0.97 %


	At or For The Three Months Ended March 31,						At or For The Year Ended December 31, 2022
(Dollars in thousands)	2023			2022
ACL on loans at the beginning of the period	$	36,922		$	33,256			$	33,256
Provision (credit) for loan losses	439			(1,236)				4,430
Net charge-offs (recoveries)1
Commercial real estate	(1)			(2)				(5)

Commercial	213			189				663
Residential real estate	14			—				66
Consumer and home equity	1			63				40










ACL on loans at the end of the period	$	37,134		$	31,770			$	36,922
Components of ACL:
ACL on loans	$	37,134		$	31,770			$	36,922
ACL on off-balance sheet credit exposures	2,990			3,355				3,265
ACL at end of the period	$	40,124		$	35,125			$	40,187
Total loans, excluding loans held for sale	$	4,073,108		$	3,534,218			$	4,010,353
Average Loans	$	4,040,660		$	3,473,280			$	3,710,415
Net charge-offs to average loans (annualized)	0.02		%	0.03		%		0.02		%
Provision (credit) for loan losses (annualized) to average loans	0.04		%	(0.14)		%		0.12		%
ACL on loans to total loans	0.91		%	0.90		%		0.92		%

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

For The Three Months Ended
September 30,
(Dollars in thousands) Total
Charge-offs Total
Recoveries Net
Charge-Offs (Recoveries) Average
Loans Ratio of Net Charge-Offs (Recoveries) to Average Loans
2022:
Commercial real estate $ — $ 1 $ (1) $ 1,546,638 — %
Commercial 183 61 122 424,726 0.03 %
SBA PPP — — — 1,254 — %
Residential real estate 49 — 49 1,571,449 — %
Consumer and home equity 46 1 45 252,145 0.02 %
Total $ 278 $ 63 $ 215 $ 3,796,212 0.01 %
2021:
Commercial real estate $ — $ 2 $ (2) $ 1,410,201 — %
Commercial 97 49 48 365,640 0.01 %
SBA PPP — — — 105,742 — %
Residential real estate 4 2 2 1,174,559 — %
Consumer and home equity 20 11 9 242,921 — %
Total $ 121 $ 64 $ 57 $ 3,299,063 — %
For The Nine Months Ended
September 30,
2022:
Commercial real estate $ — $ 4 $ (4) $ 1,512,285 — %
Commercial 744 341 403 410,377 0.10 %
SBA PPP — — — 9,138 — %
Residential real estate 65 — 65 1,459,659 — %
Consumer and home equity 130 92 38 240,041 0.02 %
Total $ 939 $ 437 $ 502 $ 3,631,500 0.01 %
2021:
Commercial real estate $ — $ 7 $ (7) $ 1,400,224 — %
Commercial 503 159 344 363,914 0.09 %
SBA PPP — — — 139,453 — %
Residential real estate 92 72 20 1,117,389 — %
Consumer and home equity 233 34 199 255,058 0.08 %
Total $ 828 $ 272 $ 556 $ 3,276,038 0.02 %
For the Year Ended
December 31,
2021:
Commercial real estate $ — $ 9 $ (9) $ 1,412,884 — %
Commercial 799 220 579 361,256 0.16 %
SBA PPP — — — 118,414 — %
Residential real estate 92 107 (15) 1,156,698 — %
Consumer and home equity 273 36 237 250,061 0.09 %
Total $ 1,164 $ 372 $ 792 $ 3,299,313 0.02 %


	For The Three Months Ended March 31,
(Dollars in thousands)	Total Charge-offs		Total Recoveries		Net Charge-Offs (Recoveries)		Average Loans		Ratio of Net Charge-Offs (Recoveries) to Average Loans (Annualized)
2023:
Commercial real estate	$	—	$	1	$	(1)	$	1,646,005	—	%
Commercial	312		99		213		425,703		0.20	%

Residential real estate	18		4		14		1,715,192		—	%
Consumer and home equity	4		3		1		253,760		—	%
Total	$	334	$	107	$	227	$	4,040,660	0.02	%
2022:
Commercial real estate	$	—	$	2	$	(2)	$	1,489,304	—	%
Commercial	246		57		189		394,597		0.19	%

Residential real estate	—		—		—		1,347,427		—	%
Consumer and home equity	66		3		63		226,731		0.11	%
Total	$	312	$	62	$	250	$	3,458,059	0.03	%

















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

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

6560

ACL on ~~Loans~~

Loans.

There were no significant changes in our modeling methodology to determine the ACL on loans during the ~~nine~~three months ended ~~September 30, 2022.~~March 31, 2023. The significant key assumptions used with the ACL on loans calculation at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, included: (i) Company-specific macroeconomic factors (i.e. loss drivers), (ii) our forecast period and reversion speed, (iii) prepayment speeds, and (iv) various qualitative factors.

As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the recorded ACL on loans was ~~$36.5~~$37.1 million and ~~$33.3~~$36.9 million, respectively, and represented our best estimate. The 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 the release of $5.0 million of reserves provided for certain COVID modified loans deemed as "recovered" or have been paid off. To have been deemed "recovered" by the Company, the borrower must have met certain credit metrics, including a debt service coverage ratio and consistent timely payments of full principal and interest under an agreed upon payment schedule. Refer to ~~"—Results of Operations—Provision for Credit Losses—Provision (Credit) for Loan Losses"~~ ~~for further discussion of the drivers of the change between periods. As of September 30, 2022, all COVID modified loans have been paid off or deemed fully "recovered".~~quarters.

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

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

ACL on Off-Balance Sheet Credit ~~Exposures~~

Exposures.

There were no significant changes in our modeling methodology to determine the ACL on off-balance sheet credit exposures during the three ~~and nine~~ months ended ~~September 30, 2022.~~March 31, 2023. The model uses the credit loss factors for each segment calculated within the ACL on loans model described above. The ACL on off-balance sheet credit exposures as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, was ~~$3.4~~$3.0 million and ~~$3.2~~$3.3 million, respectively.

The ACL on off-balance sheet credit exposures was presented within accrued interest and other liabilities on the consolidated statements of condition. Increases (decreases) to the ACL on off-balance sheet credit exposures were presented within 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~~ACL on HTM Securities.Each quarter the Company evaluates its investment portfolio for potential credit risk, and, ~~Shareholders’ Equity~~in the first quarter of 2023, the Company fully wrote-off one $1.8 million Signature Bank HTM corporate bond. Through our evaluation of our HTM security holdings there were no other credit concerns identified within our investment portfolio. As of March 31, 2023 and December 31, 2022, there was no ACL recorded on HTM investments. Refer to "—Investments" and Note 3 of the consolidated financial statements for further discussion.

~~Deposits~~

Liabilities

Deposits.

At ~~September 30, 2022,~~March 31, 2023, deposits totaled $4.6 billion, a decrease of ~~$40.3~~$184.2 million, or 1%4%, since December 31, ~~2021.~~2022. The decrease in deposits during the first ~~half~~quarter of ~~2022~~2023 was driven primarily by ~~a decrease~~one large municipal deposit relationship decreasing its interest checking balance by $122.4 million during the first quarter of 2023. The Company has the ability to move funds in ~~brokered~~and out of this deposit relationship when it is cost advantageous compared to other funding sources, such as FHLBB borrowings. Excluding the impact of this one large municipal deposit relationship, the Company's total deposits decreased $61.8 million, or 1%, during the first quarter of ~~$118.7 million as we used alternative borrowing sources to manage funding costs.~~ 2023.

Core deposits (non-GAAP) totaled ~~$4.2~~$4.1 billion as of ~~September 30, 2022, an increase~~March 31, 2023, a decrease of ~~$108.5~~$278.5 million, or 3%6%, since ~~year end, driven by checking account growth~~December 31, 2022. However, excluding the impact of ~~$74.4~~the one large municipal deposit relationship discussed above, core deposits decreased $156.1 million, or 3%4%, during the ~~period.~~first quarter of 2023. The decrease in core deposits was primarily the result of normal seasonal outflows combined with pricing pressures as depositors look for alternative products with higher interest rates in the current environment, such as certificates of deposit ("CD"), which increased $59.7 million, or 20%, during the first quarter of 2023.

The Company's loan-to-deposit ratio was ~~85%~~88% at ~~September 30, 2022,~~March 31, 2023, compared to ~~74%~~82% at December 31, ~~2021.~~2022.

At March 31, 2023, the Company had no customer relationships that exceeded 10% of total deposits.

6661

Uninsured ~~Deposits~~

and Uncollateralized Deposits.

Total deposits that ~~exceed~~exceeded the FDIC deposit insurance limit of $250,000 ~~were $1.2~~was $1.1 billion, ~~at September 30, 2022~~or 24% of total deposits, as of March 31, 2023 and ~~$1.3~~$1.4 billion, ator 29% of total deposits, as of December 31, ~~2021. The Company has pledged assets as collateral covering certain deposits in the amount of $314.2 million and $347.0 million at September 30, 2022 and December 31, 2021, respectively.~~2022.

~~The portion of time~~Total uninsured and uncollateralized deposits that ~~exceed~~exceeded the FDIC deposit insurance limit of $250,000 and were not secured by ~~time remaining until maturity, at September 30, 2022, was $57.7 million. At September 30, 2022,~~pledged assets or any other guarantee of the Company ~~does not have time~~totaled $691.5 million, or 15% of total deposits, ~~that are otherwise uninsured.~~as of March 31, 2023 and $754.9 million, or 16% of total deposits, as of December 31, 2022.

~~Borrowings~~The portion of CDs that exceeded the FDIC deposit insurance limit of $250,000 was $72.9 million, or 20% of CD balances, as of March 31, 2023 and $62.5 million, or 21% of CD balances, as of December 31, 2022.

Borrowings.At ~~September 30, 2022,~~March 31, 2023, total borrowings were ~~$465.4~~$530.6 million, an increase of ~~$209.5~~$221.1 million, or ~~82%~~71%, since December 31, ~~2021. This~~2022. The 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~~reflects the need for additional funding to support ~~loan~~asset growth of 1% and a decrease in deposits of 4% during the first ~~nine months~~quarter of ~~2022.~~2023. FHLBB overnight advances increased $170.7 million during the first quarter of 2023 to $189.4 million at March 31, 2023, and short-term FHLBB advances increased $50.0 million during the first quarter of 2023 to $100.0 million at March 31, 2023.

Shareholders' Equity

Shareholders' equity at ~~September 30, 2022~~March 31, 2023, totaled ~~$431.0~~$464.9 million, ~~a decrease~~an increase of ~~$110.3~~$13.6 million, or ~~20%~~3%, since December 31, ~~2021.~~2022. The ~~decrease in shareholders' equity over~~increase was driven by net income of $12.7 million for the first ~~nine months~~quarter of ~~2022 was~~2023, net of regular quarterly cash dividends of $6.1 million, and an increase AOCI of $6.5 million driven by a decrease in ~~the~~long-term interest rates between periods resulting in an improvement in valuation of our investments of $139.1 million, which included a $85.4 million, net of tax, decrease in the debt securities portfolio valuation designated as AFS in response to the increase in interest rates during 2022, and net unrealized losses of $53.7 million from the AFS to HTM transfer, net of tax. These net unrealized losses were recorded in the second quarter of 2022 as we transferred selected securities from AFS to 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 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.bond portfolio.

On ~~September 27, 2022,~~March 28, 2023, the Company announced a quarterly cash dividend to shareholders of ~~$0.40~~$0.42 per share, payable on ~~October 31, 2022~~April 28, 2023 to shareholders of record as of ~~October~~April 14, ~~2022.~~2023. As of ~~September 30, 2022,~~March 31, 2023, the Company's annualized dividend yield was ~~3.76%~~4.64% based on Camden National's closing share price of ~~$42.60,~~$36.19, as reported by NASDAQ on ~~September 30, 2022.~~March 31, 2023.

In January ~~2022,~~2023, the Company's Board of Directors authorized the repurchase of up to 750,000 shares of the Company's common stock, representing approximately 5% of the Company's issued and outstanding shares of common stock as of December 31, ~~2021.~~2022. During the ~~nine months~~first quarter ended ~~September 30, 2022,~~March 31, 2023, the Company ~~repurchased 225,245 shares at a weighted average price of $45.46 per share.~~did not repurchase any shares.

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


		At or For The Three Months Ended September 30,						At or For The Nine Months Ended September 30,						At or For The Year Ended December 31, 2021				At or For The Three Months Ended March 31,						At or For The Year Ended December 31, 2022
		2022			2021			2022			2021							2023			2022
Financial Ratios	Financial Ratios																Financial Ratios
Average equity to average assets	Average equity to average assets	8.21		%	10.26		%	8.78		%	10.51		%	10.33		%	Average equity to average assets	8.13		%	9.69		%		8.51		%
Common equity ratio	Common equity ratio	7.76		%	9.92		%	7.76		%	9.92		%	9.84		%	Common equity ratio	8.13		%	8.90		%		7.96		%
Tangible common equity ratio (non-GAAP)	Tangible common equity ratio (non-GAAP)	6.13		%	8.30		%	6.13		%	8.30		%	8.22		%	Tangible common equity ratio (non-GAAP)	6.56		%	7.25		%		6.37		%
Dividend payout ratio	Dividend payout ratio	41.24		%	36.73		%	38.34		%	30.77		%	32.03		%	Dividend payout ratio	48.28		%	35.09		%		38.76		%
Per Share Data	Per Share Data																Per Share Data
Book value per share	Book value per share	$	29.59		$	30.52		$	29.59		$	30.52		$	36.72		Book value per share	$	31.87		$	32.72			$	30.98
Tangible book value per share (non-GAAP)	Tangible book value per share (non-GAAP)	$	22.97		$	30.23		$	22.97		$	30.23		$	30.15		Tangible book value per share (non-GAAP)	$	25.28		$	26.16			$	24.37
Dividends declared per share	Dividends declared per share	$	0.40		$	0.36		$	1.20		$	1.08		$	1.48		Dividends declared per share	$	0.42		$	0.40			$	1.62

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

LIQUIDITY

Our liquidity needs require the availability of cash to meet the withdrawal demands of depositors and credit commitments to borrowers. Liquidity is defined as our ability to maintain availability of funds to meet customer needs, as well as to support our asset base. The primary objective of liquidity management is to maintain a balance between sources and uses of funds to meet our cash flow needs in the most economical and expedient manner. Due to the potential for unexpected fluctuations in both deposits and loans, active management of liquidity is necessary. We maintain various sources of funding and levels of liquid assets and monitor liquidity in accordance with internal guidelines and all applicable regulatory requirements. ~~As of September 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.

WeDuring the first quarter of 2023, the banking industry experienced two high-profile bank failures, followed by another on May 1, 2023, which led to an industry-wide increase in concerns related to liquidity, deposit outflows and eroding customer confidence in the banking system. Despite these developments and related recent volatility in the banking industry, our liquidity position continued to exceed our target levels and we believe we currently have appropriate liquidity available to respond to demands.

As of March 31, 2023, our primary liquidity sources available were as follows:


(In thousands)	Amount
Available primary liquidity:
Excess cash1	$	17,259
Unpledged investment securities	475,225
Unpledged municipal securities	94,967
Over collateralized securities pledging position	150,687
FHLBB borrowing capacity	446,478
Current Fed Discount Window availability	43,502
Unsecured borrowing lines	69,872
Total available primary liquidity	$	1,297,990

(1) Excess Cash represents cash held at the FRB that is above the minimum reserve requirement. At March 31, 2023 the minimum reserve requirement remains at zero.

Total available primary liquidity of $1.3 billion was 1.9 times uninsured and uncollateralized deposits as of March 31, 2023. Refer to "—Financial Condition—Liabilities—Uninsured and Uncollateralized Deposits" for further details.

In addition to the available primarily liquidity noted above, as of March 31, 2023, we may access additional funding through the brokered markets.

Subsequent to March 31, 2023, we are also now eligible to borrow up to $146.0 million from the Federal Reserve's Bank Term Funding Program ("BTFP"), which provides additional contingent liquidity through the pledging of certain qualifying securities and other assets. Advances can be requested under the BTFP until at least March 11, 2024, and may have a term of up to one year. The Company can borrow any time during the term and can repay the obligation at any time without penalty.

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

Deposits. Deposits continue to represent our primary source of funds. As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, total deposits, including brokered deposits, were $4.6 billion, which included money market deposits of ~~$61.5~~$72.6 million and ~~$63.9~~$73.5 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 ~~September 30, 2022:~~March 31, 2023:


(In thousands)	CDs
1 year or less	$	~~199,794~~133,263
> 1 year	~~79,809~~226,840
Total	$	~~279,603~~360,103

Brokered deposits totaled $215.9 million at March 31, 2023, and consisted of $143.4 million of brokered CDs and $72.5 million of brokered money market accounts. As of March 31, 2023, all brokered CDs are schedule to mature within the next 12 months. At March 31, 2023, we also have access to additional brokered deposits.

Borrowings. Borrowings are used to supplement deposits as a source of ~~liquidity. In addition to~~liquidity, which may include borrowings and advances from the FHLBB, ~~we utilize brokered deposits, purchase~~ federal funds and ~~sell securities under agreements to repurchase.~~repurchase agreements. As of ~~September 30, 2022,~~March 31, 2023, total borrowings were ~~$465.4~~$530.6 million, compared to ~~$255.9~~$309.5 million as of December 31, ~~2021.~~2022. We secure borrowings from the FHLBB with qualified residential real estate loans, certain investment securities and certain other assets available to be pledged. As of March 31, 2023, the Company had $446.5 million in this borrowing capacity from the FHLBB. Customer repurchase agreements are secured by mortgage-backed securities and ~~government-~~

~~sponsored~~government-sponsored enterprises. Through the Bank, we have available lines of credit with the FHLBB of $9.9 million, with a correspondent ~~bank~~banks of $50.0 million and $10.0 million, and with the FRB Discount Window of ~~$42.7~~$43.5 million as of ~~September 30, 2022.~~March 31, 2023. We also believe we have additional untapped access to the brokered deposit market and wholesale reverse repurchase ~~transaction market, and the FRB discount window.~~transactions market. These sources are considered as liquidity alternatives in our contingent liquidity plan.

As previously noted, subsequent to March 31, 2023, we added $146.0 million of borrowing capacity under the BTFP, which has not been utilized to date. The Company pledged securities to obtain such level of borrowing capacity.

The following is a summary of the scheduled maturities of borrowings as of ~~September 30, 2022:~~March 31, 2023:


(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	$	152,225	$	268,876	$	—	$	421,101	1 year or less	$	289,400	$	196,918	$	—	$	486,318
> 1 year	> 1 year	—		—		44,331		44,331		> 1 year	—		—		44,331		44,331
Total	Total	$	152,225	$	268,876	$	44,331	$	465,432	Total	$	289,400	$	196,918	$	44,331	$	530,649

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 unpledged residential mortgage loan portfolio is also a ~~significant~~ source of contingent liquidity ~~for the Company that~~as it could be ~~accessed~~sold in a reasonable time period, ~~through the sale of loans~~at fair value, on the secondary ~~market, as needed.~~market. As of ~~September~~ 30~~, 2022,~~March 31, 2023, qualifying residential mortgage loans with a book value of $~~1.7~~1.6 billion ~~of qualifying loans~~ were pledged as ~~collateral.~~collateral to the FHLBB.

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


		September 30, 2022													March 31, 2023
(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)	$	12,821	$	159,790	$	578,271	$	2,117	$	752,999	20	%	Commercial real estate(2)	$	17,884	$	184,365	$	597,129	$	2,070	$	801,448	20	%
Commercial	Commercial	13,277		96,326		97,645		453		207,701		5	%	Commercial	8,192		95,643		88,544		436		192,815		5	%
Residential real estate	Residential real estate	204		10,074		177,041		1,130,819		1,318,138		34	%	Residential real estate	251		10,106		168,556		1,174,591		1,353,504		33	%
Consumer and home equity	Consumer and home equity	1,327		14,317		24,089		168,401		208,134		5	%	Consumer and home equity	2,677		11,633		22,592		165,353		202,255		5	%
Total fixed rate	Total fixed rate	27,629		280,507		877,046		1,301,790		2,486,972		64	%	Total fixed rate	29,004		301,747		876,821		1,342,450		2,550,022		63	%
Variable Rate:
Adjustable Rate(3):														Adjustable Rate(3):
Commercial real estate(2)	Commercial real estate(2)	5,832		161,266		386,635		256,155		809,888		21	%	Commercial real estate(2)	6,070		188,060		410,220		260,819		865,169		21	%
Commercial	Commercial	45,459		114,493		45,466		10,891		216,309		6	%	Commercial	65,251		96,499		56,268		10,266		228,284		6	%
Residential real estate	Residential real estate	25		802		39,099		261,345		301,271		8	%	Residential real estate	28		957		39,009		339,649		379,643		9	%
Consumer and home equity	Consumer and home equity	484		2,729		12,020		31,007		46,240		1	%	Consumer and home equity	143		2,148		11,220		36,479		49,990		1	%
Total variable rate	Total variable rate	51,800		279,290		483,220		559,398		1,373,708		36	%	Total variable rate	71,492		287,664		516,717		647,213		1,523,086		37	%
Total loans	Total loans	$	79,429	$	559,797	$	1,360,266	$	1,861,188	$	3,860,680	100	%	Total loans	$	100,496	$	589,411	$	1,393,538	$	1,989,663	$	4,073,108	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.

(3) Includes floating rate loans.

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

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

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

prepayment penalties. The rise in interest rates during 2022 resulted in slowing cash flows. As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the Company's MBS and CMO debt securities portfolio totaled 88% ~~and 90%,~~of book value for both periods, respectively, of the Company's investment portfolio.

The Company's unpledged AFS investment portfolio is also a ~~significant~~ source of contingent liquidity ~~for the Company that~~as it could be ~~accessed~~sold in a reasonable time period, ~~through the sale of investments~~at fair value, on the secondary market, ~~if needed. For purposes of assessing our~~which was $338.2 million at March 31, 2023.

6965

liquidity position, we only consider those investments designated as AFS. As of September 30, 2022, $358.6 million of our AFS debt securities, or 43%, were not pledged as 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 ~~September 30, 2022:~~March 31, 2023:

(In thousands)

Contractual

Cash Flows(1)

1 year or less

~~148,827~~90,747

> 1 year

~~1,219,370~~1,135,745

Total

~~1,368,197~~1,226,492

(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.

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

Other Liquidity Requirements. ~~Through the Company's normal course of business it~~The Company generates cash flows from earnings through its normal course of business from earnings and, ~~while~~although not contractual, itthe Company has a history of paying a quarterly cash dividend to its shareholders and repurchasing its shares of common stock. For the ~~nine months~~first quarter ended ~~September 30, 2022,~~March 31, 2023, the Company reported ~~$46.1~~$12.7 million of net income and paid cash dividends of ~~$17.7~~$6.1 million to ~~shareholders and repurchased shares of its common stock for $10.0 million.~~shareholders.

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 ~~September 30, 2022,~~March 31, 2023, 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	$	3,598	$	1,318	$	2,280	Operating leases	$	3,659	$	1,360	$	2,299
Finance leases	Finance leases	941		311		630		Finance leases	945		312		633

Other contractual obligations	Other contractual obligations	6,954		6,954		—		Other contractual obligations	6,390		6,390		—
Total	Total	$	11,493	$	8,583	$	2,910	Total	$	10,994	$	8,062	$	2,932

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 ~~$431.0~~$464.9 million and ~~$541.3~~$451.3 million at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~

2022, respectively, which amounted to 8% ~~and 10%~~ of total assets ~~respectively.~~for both periods. Refer to "—Financial ~~Condition — Liabilities and~~ Condition—Shareholders' Equity" for discussion regarding the driver for the ~~decrease~~increase in shareholders' equity for the ~~nine~~three months ended ~~September 30, 2022.~~March 31, 2023.

Our principal cash requirement is the payment of dividends on our common stock, as and when declared by the Company's Board of Directors. We declared dividends to shareholders in the aggregate amount of ~~$17.6~~$6.1 million and ~~$16.1~~$5.9 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 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 ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ the Bank declared dividends payable to the Company in the amount of ~~$23.9~~$6.3 million and ~~$32.8~~$8.1 million, respectively. Under regulations prescribed by the OCC, the Bank may not declare dividends in excess of the Bank’s net income for the current year plus its retained net income for the prior two years without prior approval from the OCC. If we are required to use dividends from the Bank to service unforeseen commitments in the future, we may be required to reduce the dividends paid to our shareholders going forward.

Please refer to Note 10 of the consolidated financial statements for discussion and details of the Company and Bank's regulatory capital requirements. At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the Company and Bank exceeded all regulatory capital requirements, and the Bank continues to meet the capital requirements to be classified as "well capitalized" under applicable prompt corrective action provisions.

RISK MANAGEMENT

The Company’s Board of Directors and management have identified significant risk categories which affect the Company. The risk categories include: credit; liquidity; market; interest rate; capital; operational and technology, including cybersecurity; vendor and third party; people and compensation; compliance and legal; ~~and~~ strategic ~~alignment~~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, Enterprise Risk Management and Chief Risk Officer, who is a member of the Executive Committee and reports directly to the Chief Executive Officer.

~~The~~During 2020 and 2021, the spread of the COVID-19 pandemic ~~has~~ increased many of the risks that we ~~face,~~faced, including our credit, operational, vendor and third party, and technology risks. ~~In response~~Over the course of 2022, the Company largely experienced a return to a pre-pandemic environment, and experienced minimal business or operational disruption related to the ~~COVID-19 pandemic,~~pandemic. During 2022, the Company ~~formed the Pandemic Work Group~~reevaluated its “return-to-office” strategy that was implemented late in ~~2020~~2021 and determined to ~~develop and oversee the Company’s response. The Pandemic Work Group: (i) developed employee practices, policies and playbooks~~continue to ~~address pandemic related issues; (ii) implemented monitoring of all federal, state and local actions,~~operate under 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 neededstrategy, which requires certain employees to work from ~~home effectively); (v) oversaw~~ the ~~roll out of~~Company’s offices full-time, and ~~continue~~permits others employees 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, otherswork through a hybrid model (~~i.e.~~(i.e., work from home part-time and from one of the Company's physical locations part-time)~~, and others working~~ or to work remotely full-time. ~~The Company's Executive Committee re-assessed its use~~As of March 31, 2023, 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, reported to the Board of Directors on related matters to assist the Board of Directors with both its ongoing oversight~~majority of the Company’s ~~response to COVID-19 as well as its management of all areas of risks the~~non-branch employees were working under a hybrid or remote arrangement. The Company ~~faces, which have been affected by the COVID-19 pandemic. The Pandemic Work Group~~ continues to ~~meet periodically~~monitor, evaluate and address risks that may arise in connection with hybrid and remote work arrangements, such as ~~needed, based on current developments relating to the COVID-19 pandemic, and updates the Board of Directors accordingly.~~potential cybersecurity risks.

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.~~2022. Please refer to Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 for further details regarding the Company's risk management.

Interest rate risk

Interest rate risk represents the sensitivity of earnings to changes in market interest rates. As interest rates change, the interest income and expense streams associated with our financial instruments also change, thereby impacting net interest income, the primary component of our earnings. Board ALCO and Management ALCO utilize the results of a detailed and

dynamic simulation model to quantify the estimated exposure of net interest income to sustained interest rate changes. While Board ALCO and Management ALCO routinely monitor simulated net interest income sensitivity over a rolling two-year horizon, they also utilize additional tools to monitor potential longer-term interest rate risk.

The simulation model captures the impact of changing interest rates on the interest income received and interest expense paid on all interest-earning assets and interest-bearing liabilities reflected on our consolidated statements of condition, as well as for derivative financial instruments. This sensitivity analysis is compared to ALCO policy limits, which specify a maximum tolerance level for net interest income exposure over a one- and two-year horizon, assuming a static balance sheet, given a 200 basis point upward and downward shift in interest rates. Although our policy specifies a downward shift of 200 basis points, this would have resulted in negative rates as of ~~September 30, 2021,~~March 31, 2022, 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%.

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

As of ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ our net interest income sensitivity analysis reflected the following changes to net interest income, as compared to our modeled Year 1 Base net interest income, assuming no balance sheet growth and a parallel shift in interest rates. All rate changes were “ramped” over the first 12-month period and then maintained at those levels over the remainder of the ALCO simulation horizon.


		Estimated Changes In Net Interest Income					Estimated Changes In Net Interest Income
Rate Change from Year 1 — Base	Rate Change from Year 1 — Base	September 30, 2022		September 30, 2021		Rate Change from Year 1 — Base	March 31, 2023		March 31, 2022
Year 1	Year 1					Year 1
+200 basis points	+200 basis points	(2.82)	%	1.68	%	+200 basis points	(2.24)	%	(0.79)	%
-100 basis points	-100 basis points	N/A		(1.52)	%	-100 basis points	N/A		(0.24)	%
-200 basis points	-200 basis points	1.56	%	N/A		-200 basis points	1.87	%	N/A

Year 2	Year 2					Year 2
+200 basis points	+200 basis points	8.34	%	7.19	%	+200 basis points	13.52	%	6.04	%
-100 basis points	-100 basis points	N/A		(11.43)	%	-100 basis points	N/A		(1.91)	%
-200 basis points	-200 basis points	5.09	%	N/A		-200 basis points	10.96	%	N/A

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

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

If rates decrease 200 basis points, net interest income is projected to increase slightly in the first year of the simulation as reductions in funding costs are able to more than offset near-term asset yield deterioration. In the second year, net interest income is projected to ~~further improve~~increase, however to a lesser degree than the up 200 basis points scenario discussed above, as asset yields are supported by fixed rates and floors while ~~remaining~~ cost of funds reductions ~~are exhausted.~~continue at a slowing pace and begin to reach assumed floors.

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

Periodically, if deemed appropriate, we use back-to-back loan swaps, interest rate swaps, floors and caps, which are common derivative financial instruments, to hedge our interest rate risk position. The Board of Directors has approved hedging policy statements governing the use of these instruments. The Board and Management ALCO monitor derivative activities relative to their expectations and our hedging policies. Refer Note 8 of the consolidated financial statements for further discussion of these derivative instruments.

LIBOR 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. The Company is also currently assessing the applicability and scope of the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”), ~~which was enacted on March 15,~~and its implementing regulations, were finalized in December 2022. The LIBOR Act ~~establishes~~and its implementing regulations establish a process for replacing LIBOR on existing LIBOR contracts that do not provide for the use of a clearly defined or practicable replacement benchmark ~~rate. Under the LIBOR Act’s process for replacing LIBOR,~~rate with a benchmark replacement ~~identified by the Board of Governors of the Federal Reserve System that is~~ based on SOFR will replace LIBOR as the benchmark for such contracts. The final implementation of the LIBOR Act currently is uncertain, as the Federal Reserve has not yet issued final regulations that are necessary for the LIBOR Act’s administration.SOFR. As of ~~September 30, 2022,~~March 31, 2023, the Company has no LIBOR-based deposits.

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.

7470

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.

7571

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,~~2022, 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~~10.1						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 Third 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~~Long-Term Incentive†						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)). Program, effective as of March 31, 2023.
10.2†						Camden National Corporation ~~Second~~Third Amended and Restated ~~Long-Term Performance Share~~Management Stock Purchase Program, effective as of ~~April 26, 2022~~February 28, 2023 (incorporated herein by reference to Exhibit ~~10.1~~10.23 to the ~~Company's~~Company’s Annual Report on Form ~~8-K~~10-K filed with the Commission on ~~April 28, 2022)~~March 10, 2023).
10.3†*						Camden National Corporation ~~Second~~ Third Amended and Restated ~~Management Stock Purchase~~Defined Contribution Retirement Program, effective as of April 26, ~~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).~~2023.
10.4†						~~Camden National Corporation~~ Form of Restricted Stock Award Agreement Under the Third Amended and Restated ~~Defined Contribution Retirement~~Management Stock Purchase Program ~~effective as of April 26, 2022~~ (incorporated herein by reference to Exhibit ~~10.4~~10.24 to the ~~Company's Quarterly~~Company’s Annual Report on Form ~~10-Q~~10-K filed with the Commission on ~~May 5, 2022)~~March 10, 2023).
10.5†						Camden National Corporation Amended and Restated Independent Directors' Equity Compensation Program, effective as of April 26, 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~~†						Form of ~~Non-Executive~~ Restricted Stock Unit Award Agreement for Company Employees Under the 2022 Equity and Incentive Plan (incorporated herein by reference to Exhibit ~~10.6~~10.25 to the Company's ~~Quarterly~~Annual Report on Form ~~10-Q~~10-K filed with the Commission on ~~May 5, 2022).~~
~~10.7~~†						Form of Executive Restricted Stock Award Agreement Under the 2022 Equity and Incentive 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~~†						Form of Restricted Stock Award Agreement Under the Second Amended and Restated Management Stock Purchase 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~~†						Form of Restricted Stock Unit Award Agreement for Company Employees Under the 2022 Equity and Incentive 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~~†						Form of Performance Share Unit award Agreement Under the Second Amended and Restated Long-Term Performance Share 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~~†						Form of Incentive Stock Option Agreement Under the Camden National 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)March 10, 2023).
31.1*						Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
31.2*						Certification of Chief Financial Officer, Principal Financial & Accounting Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
32.1**						Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**						Certification of Chief Financial Officer, Principal Financial & Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*						iXBRL (Inline eXtensible Business Reporting Language). The following materials from Camden National Corporation’s Quarterly Report on Form 10-Q for the period ended ~~September 30, 2022,~~March 31, 2023, formatted in iXBRL: (i) Consolidated Statements of Condition - ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021;~~2022; (ii) Consolidated Statements of Income - Three ~~and Nine~~ Months Ended ~~September 30, 2022~~March 31, 2023 and ~~2021;~~2022; (iii) Consolidated Statements of Comprehensive (Loss) Income - Three ~~and Nine~~ Months Ended ~~September 30, 2022~~March 31, 2023 and ~~2021;~~2022; (iv) Consolidated Statements of Changes in Shareholders’ Equity - Three ~~and Nine~~ Months Ended ~~September 30, 2022~~March 31, 2023 and ~~2021;~~2022; (v) Consolidated Statements of Cash Flows - ~~Nine~~Three Months Ended ~~September 30, 2022~~March 31, 2023 and ~~2021;~~2022; and (vi) Notes to the Unaudited Consolidated Financial Statements.
104*						Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).
*						Filed herewith.
**						Furnished herewith.
†						Management contract or a compensatory plan or arrangement.

7773

SIGNATURES

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


CAMDEN NATIONAL CORPORATION
(Registrant)

/s/ Gregory A. Dufour						~~November 3, 2022~~May 9, 2023
Gregory A. Dufour						Date
President and Chief Executive Officer (Principal Executive Officer)

/s/ Michael R. Archer						~~November 3, 2022~~May 9, 2023
Michael R. Archer						Date
Chief Financial Officer and Principal Financial & Accounting Officer

7874


	Nine Months Ended
	Common Stock			Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
(In thousands, except number of shares and per share data)	Shares Outstanding	Amount
Balance at December 31, 2020	14,909,097	$	131,072	$	377,502	$	20,740	$	529,314
Net income	—	—		52,523		—		52,523
Other comprehensive loss, net of tax	—	—		—		(16,573)		(16,573)
Stock-based compensation expense	—	2,007		—		—		2,007
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings	46,732	(241)		—		—		(241)
Common stock repurchased	(106,502)	(4,913)		—		—		(4,913)
Cash dividends declared ($1.08 per share)	—	—		(16,133)		—		(16,133)
Balance at September 30, 2021	14,849,327	$	127,925	$	413,892	$	4,167	$	545,984
Balance at December 31, 2021	14,739,956	$	123,111	$	424,412	$	(6,229)	$	541,294
Net income	—	—		46,088		—		46,088
Other comprehensive loss, net of tax	—	—		—		(130,227)		(130,227)
Stock-based compensation expense	—	2,039		—		—		2,039
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings	49,117	(374)		—		—		(374)
Common stock repurchased	(225,245)	(10,240)		—		—		(10,240)
Cash dividends declared ($1.20 per share)	—	—		(17,573)		—		(17,573)
Balance at September 30, 2022	14,563,828	$	114,536	$	452,927	$	(136,456)	$	431,007


	For the Nine Months Ended
	September 30, 2022						September 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	$	(173,421)	$	37,286	$	(136,135)	$	(25,926)	$	5,574	$	(20,352)
Less: reclassification adjustment for amortization of securities transferred from AFS to HTM(1)	3,780		(813)		2,967		—		—		—
Less: reclassification adjustment for net realized losses(2)	(9)		2		(7)		—		—		—
Net change in fair value	(177,192)		38,097		(139,095)		(25,926)		5,574		(20,352)
Cash Flow Hedges:
Change in fair value	10,604		(2,280)		8,324		3,655		(785)		2,870
Less: reclassified AOCI loss into interest expense(3)	(498)		107		(391)		(1,712)		368		(1,344)
Less: reclassified AOCI gain into interest income(4)	498		(107)		391		1,205		(258)		947
Net change in fair value	10,604		(2,280)		8,324		4,162		(895)		3,267
Postretirement Plans:



Amortization of settlement recognition of net loss and prior service credit(5)	693		(149)		544		652		(140)		512
Other comprehensive loss	$	(165,895)	$	35,668	$	(130,227)	$	(21,112)	$	4,539	$	(16,573)