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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, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-28190
CAMDEN NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)

Maine | 01-0413282
(State or other jurisdiction of | (I.R.S. Employer
incorporation or organization) | Identification No.)
2 ELM STREET | CAMDEN | ME | 04843
(Address of principal executive offices) | (Zip Code)

Registrant's telephone number, including area code: (207) 236-8821
Securities registered pursuant to Section 12(b) of the Act:

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer | ☐ |  | Accelerated filer | ☒
Non-accelerated filer | ☐ |  | Smaller reporting company | ☐
|  |  | Emerging growth company | ☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date:
Outstanding at October 29, 2021: Common stock (no par value) 14,849,347 shares.

CAMDEN NATIONAL CORPORATION
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2021
TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT

|  | PAGE
PART I. FINANCIAL INFORMATION |
ITEM 1. | FINANCIAL STATEMENTS |
| Consolidated Statements of Condition (unaudited) - September 30, 2021 and December 31, 2020 | 3
| Consolidated Statements of Income (unaudited) - Three and Nine Months Ended September 30, 2021 and 2020 | 4
| Consolidated Statements of Comprehensive Income (unaudited) - Three and Nine Months Ended September 30, 2021 and 2020 | 5
| Consolidated Statements of Changes in Shareholders’ Equity (unaudited) - Three and Nine Months Ended September 30, 2021 and 2020 | 6
| Consolidated Statements of Cash Flows (unaudited) - Nine Months Ended September 30, 2021 and 2020 | 7
| Notes to the Unaudited Consolidated Financial Statements | 8
ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 44
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK | 72
ITEM 4. | CONTROLS AND PROCEDURES | 73
PART II. OTHER INFORMATION |
ITEM 1. | LEGAL PROCEEDINGS | 74
ITEM 1A. | RISK FACTORS | 74
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 74
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES | 74
ITEM 4. | MINE SAFETY DISCLOSURES | 74
ITEM 5. | OTHER INFORMATION | 74
ITEM 6. | EXHIBITS | 74
SIGNATURES | 75

2

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CONDITION
(unaudited)

(In thousands, except number of shares) |  | September 30, 2021 |  | December 31, 2020
ASSETS |  |  |  |
Cash and due from banks |  | $ | 55,665 |  |  | $ | 49,524 |
Interest-bearing deposits in other banks (including restricted cash) |  | 323,991 |  |  | 96,250 |
Total cash, cash equivalents and restricted cash |  | 379,656 |  |  | 145,774 |
Investments: |  |  |  |
Trading securities |  | 4,335 |  |  | 4,161 |
Available-for-sale securities, at fair value (book value of $1,443,800 and $1,078,474, respectively) |  | 1,455,210 |  |  | 1,115,813 |
Held-to-maturity securities, at amortized cost (fair value of $1,390 and $1,411, respectively) |  | 1,293 |  |  | 1,297 |
Other investments |  | 10,280 |  |  | 11,541 |
Total investments |  | 1,471,118 |  |  | 1,132,812 |
Loans held for sale, at fair value (book value of $10,789 and $40,499, respectively) |  | 10,826 |  |  | 41,557 |
Loans |  | 3,315,303 |  |  | 3,219,822 |
Less: allowance for credit losses on loans |  | (32,272) |  |  | (37,865) |
Net loans |  | 3,283,031 |  |  | 3,181,957 |
Goodwill |  | 94,697 |  |  | 94,697 |
Core deposit intangible assets |  | 2,352 |  |  | 2,843 |
Bank-owned life insurance |  | 96,651 |  |  | 94,877 |
Premises and equipment, net |  | 38,417 |  |  | 39,884 |
Deferred tax assets |  | 14,897 |  |  | 11,956 |
Other assets |  | 111,257 |  |  | 152,388 |
Total assets |  | $ | 5,502,902 |  |  | $ | 4,898,745 |
LIABILITIES AND SHAREHOLDERS’ EQUITY |  |  |  |
Liabilities |  |  |  |
Deposits: |  |  |  |
Non-interest checking |  | $ | 1,289,018 |  |  | $ | 792,550 |
Interest checking |  | 1,266,242 |  |  | 1,288,575 |
Savings and money market |  | 1,437,550 |  |  | 1,282,886 |
Certificates of deposit |  | 323,395 |  |  | 357,666 |
Brokered deposits |  | 288,975 |  |  | 283,567 |
Total deposits |  | 4,605,180 |  |  | 4,005,244 |
Short-term borrowings |  | 211,552 |  |  | 162,439 |
Long-term borrowings |  | — |  |  | 25,000 |
Subordinated debentures |  | 44,331 |  |  | 59,331 |
Accrued interest and other liabilities |  | 95,855 |  |  | 117,417 |
Total liabilities |  | 4,956,918 |  |  | 4,369,431 |
Commitments and Contingencies |  |  |  |
Shareholders’ Equity |  |  |  |
Common stock, no par value: authorized 40,000,000 shares, issued and outstanding 14,849,327 and 14,909,097 shares on September 30, 2021 and December 31, 2020, respectively |  | 127,925 |  |  | 131,072 |
Retained earnings |  | 413,892 |  |  | 377,502 |
Accumulated other comprehensive income: |  |  |  |
Net unrealized gain on available-for-sale debt securities, net of tax |  | 8,958 |  |  | 29,310 |
Net unrealized loss on cash flow hedging derivative instruments, net of tax |  | (1,359) |  |  | (4,626) |
Net unrecognized loss on postretirement plans, net of tax |  | (3,432) |  |  | (3,944) |
Total accumulated other comprehensive income |  | 4,167 |  |  | 20,740 |
Total shareholders’ equity |  | 545,984 |  |  | 529,314 |
Total liabilities and shareholders’ equity |  | $ | 5,502,902 |  |  | $ | 4,898,745 |

The accompanying notes are an integral part of these consolidated financial statements.
3

CONSOLIDATED STATEMENTS OF INCOME
(unaudited)

|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
(In thousands, except number of shares and per share data) |  | 2021 |  | 2020 |  | 2021 |  | 2020
Interest Income |  |  |  |  |  |  |  |
Interest and fees on loans |  | $ | 31,185 |  |  | $ | 33,025 |  |  | $ | 92,610 |  |  | $ | 100,190 |
Taxable interest on investments |  | 5,157 |  |  | 4,480 |  |  | 13,362 |  |  | 14,241 |
Nontaxable interest on investments |  | 756 |  |  | 823 |  |  | 2,247 |  |  | 2,438 |
Dividend income |  | 99 |  |  | 163 |  |  | 306 |  |  | 498 |
Other interest income |  | 182 |  |  | 176 |  |  | 508 |  |  | 691 |
Total interest income |  | 37,379 |  |  | 38,667 |  |  | 109,033 |  |  | 118,058 |
Interest Expense |  |  |  |  |  |  |  |
Interest on deposits |  | 1,973 |  |  | 2,899 |  |  | 5,957 |  |  | 12,953 |
Interest on borrowings |  | 122 |  |  | 394 |  |  | 454 |  |  | 1,591 |
Interest on subordinated debentures |  | 538 |  |  | 893 |  |  | 1,983 |  |  | 2,668 |
Total interest expense |  | 2,633 |  |  | 4,186 |  |  | 8,394 |  |  | 17,212 |
Net interest income |  | 34,746 |  |  | 34,481 |  |  | 100,639 |  |  | 100,846 |
Provision (credit) for credit losses |  | 939 |  |  | 987 |  |  | (4,420) |  |  | 12,160 |
Net interest income after provision (credit) for credit losses |  | 33,807 |  |  | 33,494 |  |  | 105,059 |  |  | 88,686 |
Non-Interest Income |  |  |  |  |  |  |  |
Mortgage banking income, net |  | 1,913 |  |  | 4,664 |  |  | 11,620 |  |  | 12,889 |
Debit card income |  | 3,278 |  |  | 2,627 |  |  | 9,126 |  |  | 7,159 |
Income from fiduciary services |  | 1,627 |  |  | 1,504 |  |  | 4,860 |  |  | 4,609 |
Service charges on deposit accounts |  | 1,744 |  |  | 1,606 |  |  | 4,800 |  |  | 4,955 |
Brokerage and insurance commissions |  | 993 |  |  | 755 |  |  | 2,885 |  |  | 2,034 |
Bank-owned life insurance |  | 589 |  |  | 615 |  |  | 1,774 |  |  | 1,918 |
Customer loan swap fees |  | — |  |  | 51 |  |  | — |  |  | 222 |
Other income |  | 955 |  |  | 874 |  |  | 2,569 |  |  | 2,373 |
Total non-interest income |  | 11,099 |  |  | 12,696 |  |  | 37,634 |  |  | 36,159 |
Non-Interest Expense |  |  |  |  |  |  |  |
Salaries and employee benefits |  | 15,902 |  |  | 13,739 |  |  | 45,742 |  |  | 41,693 |
Furniture, equipment and data processing |  | 2,980 |  |  | 3,076 |  |  | 8,954 |  |  | 8,576 |
Net occupancy costs |  | 1,813 |  |  | 1,785 |  |  | 5,569 |  |  | 5,785 |
Debit card expense |  | 1,106 |  |  | 972 |  |  | 3,166 |  |  | 2,784 |
Consulting and professional fees |  | 792 |  |  | 913 |  |  | 2,652 |  |  | 2,877 |
Regulatory assessments |  | 522 |  |  | 510 |  |  | 1,512 |  |  | 971 |
Amortization of core deposit intangible assets |  | 163 |  |  | 170 |  |  | 491 |  |  | 511 |
Other real estate owned and collection costs (recoveries), net |  | 60 |  |  | 71 |  |  | (156) |  |  | 270 |
Other expenses |  | 2,925 |  |  | 3,985 |  |  | 8,822 |  |  | 9,824 |
Total non-interest expense |  | 26,263 |  |  | 25,221 |  |  | 76,752 |  |  | 73,291 |
Income before income tax expense |  | 18,643 |  |  | 20,969 |  |  | 65,941 |  |  | 51,554 |
Income Tax Expense |  | 4,003 |  |  | 4,194 |  |  | 13,418 |  |  | 10,346 |
Net Income |  | $ | 14,640 |  |  | $ | 16,775 |  |  | $ | 52,523 |  |  | $ | 41,208 |
Per Share Data |  |  |  |  |  |  |  |
Basic earnings per share |  | $ | 0.98 |  |  | $ | 1.12 |  |  | $ | 3.51 |  |  | $ | 2.74 |
Diluted earnings per share |  | $ | 0.97 |  |  | $ | 1.11 |  |  | $ | 3.49 |  |  | $ | 2.73 |
Weighted average number of common shares outstanding |  | 14,931,056 |  |  | 14,961,465 |  |  | 14,930,387 |  |  | 15,008,004 |
Diluted weighted average number of common shares outstanding |  | 14,999,013 |  |  | 15,001,047 |  |  | 14,996,541 |  |  | 15,044,427 |
Cash dividends declared per share |  | $ | 0.36 |  |  | $ | 0.33 |  |  | $ | 1.08 |  |  | $ | 0.99 |

The accompanying notes are an integral part of these consolidated financial statements.
4

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)

|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
(In thousands) |  | 2021 |  | 2020 |  | 2021 |  | 2020
Net Income |  | $ | 14,640 |  |  | $ | 16,775 |  |  | $ | 52,523 |  |  | $ | 41,208 |
Other comprehensive (loss) income: |  |  |  |  |  |  |  |
Net change in unrealized gain on available-for-sale securities, net of tax |  | (5,139) |  |  | (586) |  |  | (20,352) |  |  | 25,474 |
Net change in unrealized loss on cash flow hedging derivatives, net of tax |  | 467 |  |  | 672 |  |  | 3,267 |  |  | (30) |
Net change in other comprehensive income for supplemental executive retirement plan and other postretirement benefit plan, net of tax |  | 171 |  |  | 133 |  |  | 512 |  |  | 399 |
Other comprehensive (loss) income |  | (4,501) |  |  | 219 |  |  | (16,573) |  |  | 25,843 |
Comprehensive Income |  | $ | 10,139 |  |  | $ | 16,994 |  |  | $ | 35,950 |  |  | $ | 67,051 |

The accompanying notes are an integral part of these consolidated financial statements.
5

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(unaudited)

|  | Three Months Ended
|  | Common Stock |  | Retained Earnings |  | Accumulated Other Comprehensive Income (Loss) |  | Total Shareholders’ Equity
(In thousands, except number of shares and per share data) |  | Shares Outstanding |  | Amount |  |  |
Balance at June 30, 2020 |  | 14,963,041 |  |  | $ | 131,981 |  |  | $ | 355,130 |  |  | $ | 19,356 |  |  | $ | 506,467 |
Net income |  | — |  |  | — |  |  | 16,775 |  |  | — |  |  | 16,775 |
Other comprehensive income, net of tax |  | — |  |  | — |  |  | — |  |  | 219 |  |  | 219 |
Stock-based compensation expense |  | — |  |  | 422 |  |  | — |  |  | — |  |  | 422 |
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings |  | 2,218 |  |  | (13) |  |  | — |  |  | — |  |  | (13) |
Common stock repurchased |  | (47,915) |  |  | (1,402) |  |  | — |  |  | — |  |  | (1,402) |
Cash dividends declared ($0.33 per share) |  | — |  |  | — |  |  | (4,946) |  |  | — |  |  | (4,946) |
Balance at September 30, 2020 |  | 14,917,344 |  |  | $ | 130,988 |  |  | $ | 366,959 |  |  | $ | 19,575 |  |  | $ | 517,522 |
Balance at June 30, 2021 |  | 14,951,067 |  |  | $ | 132,278 |  |  | $ | 404,602 |  |  | $ | 8,668 |  |  | $ | 545,548 |
Net income |  | — |  |  | — |  |  | 14,640 |  |  | — |  |  | 14,640 |
Other comprehensive income, net of tax |  | — |  |  | — |  |  | — |  |  | (4,501) |  |  | (4,501) |
Stock-based compensation expense |  | — |  |  | 493 |  |  | — |  |  | — |  |  | 493 |
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings |  | 4,762 |  |  | 67 |  |  | — |  |  | — |  |  | 67 |
Common stock repurchased |  | (106,502) |  |  | (4,913) |  |  | — |  |  | — |  |  | (4,913) |
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 |

|  | 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, 2019 |  | 15,144,719 |  |  | $ | 139,103 |  |  | $ | 340,580 |  |  | $ | (6,268) |  |  | $ | 473,415 |
Net income |  | — |  |  | — |  |  | 41,208 |  |  | — |  |  | 41,208 |
Other comprehensive income, net of tax |  | — |  |  | — |  |  | — |  |  | 25,843 |  |  | 25,843 |
Stock-based compensation expense |  | — |  |  | 1,373 |  |  | — |  |  | — |  |  | 1,373 |
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings |  | 37,571 |  |  | (113) |  |  | — |  |  | — |  |  | (113) |
Common stock repurchased |  | (264,946) |  |  | (9,375) |  |  | — |  |  | — |  |  | (9,375) |
Cash dividends declared ($0.99 per share) |  | — |  |  | — |  |  | (14,829) |  |  | — |  |  | (14,829) |
Balance at September 30, 2020 |  | 14,917,344 |  |  | $ | 130,988 |  |  | $ | 366,959 |  |  | $ | 19,575 |  |  | $ | 517,522 |
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 |

The accompanying notes are an integral part of these consolidated financial statements.
6

CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

|  | Nine Months Ended September 30,
(In thousands) |  | 2021 |  | 2020
Operating Activities |  |  |  |
Net Income |  | $ | 52,523 |  |  | $ | 41,208 |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |  |  |
Originations of mortgage loans held for sale |  | (359,842) |  |  | (475,131) |
Proceeds from the sale of mortgage loans |  | 400,812 |  |  | 460,130 |
Gain on sale of mortgage loans, net of origination costs |  | (11,260) |  |  | (10,385) |
(Credit) provision for credit losses |  | (4,420) |  |  | 12,160 |
Depreciation and amortization expense |  | 2,779 |  |  | 2,850 |
Investment securities amortization and accretion, net |  | 5,238 |  |  | 3,115 |
Stock-based compensation expense |  | 2,007 |  |  | 1,373 |
Amortization of core deposit intangible assets |  | 491 |  |  | 511 |
Purchase accounting accretion, net |  | (589) |  |  | (924) |
Net decrease (increase) in derivative collateral posted |  | 25,090 |  |  | (30,250) |
Decrease (increase) in other assets |  | 2,827 |  |  | (10,088) |
Decrease in other liabilities |  | (3,994) |  |  | (501) |
Net cash provided by (used in) by operating activities |  | 111,662 |  |  | (5,932) |
Investing Activities |  |  |  |
Proceeds from available-for-sale debt securities |  | 248,186 |  |  | 181,489 |
Purchase of available-for-sale debt securities |  | (618,744) |  |  | (341,100) |
Net increase in loans |  | (95,720) |  |  | (180,174) |
Purchase of Federal Home Loan Bank stock |  | (68) |  |  | (9,231) |
Proceeds from sale of Federal Home Loan Bank stock |  | 1,329 |  |  | 9,535 |
Purchase of premises and equipment |  | (1,549) |  |  | (2,591) |
Recoveries of previously charged-off loans |  | 272 |  |  | 352 |
Proceeds from the sale of other real estate owned |  | 465 |  |  | 110 |
Net cash used in investing activities |  | (465,829) |  |  | (341,610) |
Financing Activities |  |  |  |
Net increase in deposits |  | 599,936 |  |  | 686,314 |
Net proceeds from (repayments of) borrowings less than 90 days |  | 49,113 |  |  | (58,754) |
Proceeds from Federal Home Loan Bank long-term advances |  | — |  |  | 25,000 |
Repayments of Federal Home Loan Bank long-term advances |  | (25,000) |  |  | (10,000) |
Repayment of subordinated debt |  | (15,000) |  |  | — |
Common stock repurchases |  | (4,924) |  |  | (9,140) |
Exercise of stock options and issuance of restricted stock, net of repurchase for tax withholdings |  | (241) |  |  | (113) |
Cash dividends paid on common stock |  | (15,721) |  |  | (14,907) |
Finance lease payments |  | (114) |  |  | (105) |
Net cash provided by financing activities |  | 588,049 |  |  | 618,295 |
Net increase in cash, cash equivalents and restricted cash |  | 233,882 |  |  | 270,753 |
Cash, cash equivalents, and restricted cash at beginning of period |  | 145,774 |  |  | 75,636 |
Cash, cash equivalents and restricted cash at end of period |  | $ | 379,656 |  |  | $ | 346,389 |
Supplemental information |  |  |  |
Interest paid |  | $ | 8,523 |  |  | $ | 17,778 |
Income taxes paid |  | 14,277 |  |  | 10,689 |
Transfer from premises to other real estate owned |  | 204 |  |  | 24 |
Unsettled common stock repurchase |  | — |  |  | 235 |

The accompanying notes are an integral part of these consolidated financial statements.
7

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BASIS OF PRESENTATION
The accompanying unaudited consolidated interim financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures required by accounting principles generally accepted in the United States of America for complete presentation of financial statements. In the opinion of management, the consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the consolidated statements of condition of Camden National Corporation (the "Company") as of September 30, 2021 and December 31, 2020, the consolidated statements of income for the three and nine months ended September 30, 2021 and 2020, the consolidated statements of comprehensive income for the three and nine months ended September 30, 2021 and 2020, the consolidated statements of changes in shareholders' equity for the three and nine months ended September 30, 2021 and 2020, and the consolidated statements of cash flows for the nine months ended September 30, 2021 and 2020. The consolidated financial statements include the accounts of the Company and Camden National Bank (the "Bank"), a wholly-owned subsidiary of the Company (which includes the consolidated accounts of Healthcare Professional Funding Corporation ("HPFC") and Property A, Inc. as of and for the three and nine months ended September 30, 2021, and HPFC, Property A, Inc. and Property P, Inc. as of and for the three and nine months ended September 30, 2020). All intercompany accounts and transactions have been eliminated in consolidation. Assets held by the Bank in a fiduciary capacity, through Camden National Wealth Management, a division of the Bank, are not assets of the Company and, therefore, are not included in the consolidated statements of condition. The Company also owns 100% of the common stock of Camden Capital Trust A and Union Bankshares Capital Trust I. These entities are unconsolidated subsidiaries of the Company. Certain reclassifications have been made to prior period amounts to conform to the current period presentation. Such reclassifications did not impact net income or shareholders' equity as previously reported. Net income reported for the three and nine months ended September 30, 2021, is not necessarily indicative of the results that may be expected for the full year. The information in this report should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.
8

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

AFS: | Available-for-sale |  | FRBB: | Federal Reserve Bank of Boston
ALCO: | Asset/Liability Committee |  | GAAP: | Generally accepted accounting principles in the United States
ACL: | Allowance for credit losses |  | GDP: | Gross domestic product
AOCI: | Accumulated other comprehensive income (loss) |  | HPFC: | Healthcare Professional Funding Corporation, a wholly-owned subsidiary of Camden National Bank
ASC: | Accounting Standards Codification |  | HTM: | Held-to-maturity
ASU: | Accounting Standards Update |  | IRS: | Internal Revenue Service
Bank: | Camden National Bank, a wholly-owned subsidiary of Camden National Corporation |  | LGD: | Loss given default
BOLI: | Bank-owned life insurance |  | LIBOR: | London Interbank Offered Rate
Board ALCO: | Board of Directors' Asset/Liability Committee |  | LTIP: | Long-Term Performance Share Plan
CARES Act: | Coronavirus Aid, Relief, and Economic Security Act, signed into law in March 2020 in response to COVID-19 |  | Management ALCO: | Management Asset/Liability Committee
CCTA: | Camden Capital Trust A, an unconsolidated entity formed by Camden National Corporation |  | MBS: | Mortgage-backed security
CDs: | Certificate of deposits |  | MSPP: | Management Stock Purchase Plan
CECL: | Current Expected Credit Losses |  | N/A: | Not applicable
Company: | Camden National Corporation |  | N.M.: | Not meaningful
CMO: | Collateralized mortgage obligation |  | OCC: | Office of the Comptroller of the Currency
CUSIP: | Committee on Uniform Securities Identification Procedures |  | OCI: | Other comprehensive income (loss)
DCRP: | Defined Contribution Retirement Plan |  | OREO: | Other real estate owned
EPS: | Earnings per share |  | OTTI: | Other-than-temporary impairment
FASB: | Financial Accounting Standards Board |  | PD: | Probability of default
FDIC: | Federal Deposit Insurance Corporation |  | SBA: | U.S. Small Business Administration
FHLB: | Federal Home Loan Bank |  | SBA PPP: | U.S. Small Business Administration Paycheck Protection Program
FHLBB: | Federal Home Loan Bank of Boston |  | SERP: | Supplemental executive retirement plans
FHLMC: | Federal Home Loan Mortgage Corporation |  | TDR: | Troubled-debt restructured loan
FNMA: | Federal National Mortgage Association |  | UBCT: | Union Bankshares Capital Trust I, an unconsolidated entity formed by Union Bankshares Company that was subsequently acquired by Camden National Corporation
FRB: | Federal Reserve System Board of Governors |  | U.S.: | United States of America

9

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS
The Company adopted and updated its accounting policies for the following accounting standards that have been applied to the Company's interim consolidated financial statements for the three and nine months ended September 30, 2021:
ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"). The FASB issued ASU 2019-12 to simplify the accounting for income taxes by removing certain technical exceptions and by clarifying and amending certain areas. ASU 2019-12 is effective for interim and annual periods beginning after December 15, 2020, and as such the Company adopted effective January 1, 2021. There was no material impact on the Company's consolidated financial statements as a result of adopting ASU 2019-12.
ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform ("ASU 2020-04"), as amended by ASU No. 2021-01, Reference Rate Reform (Topic 848) Scope ("ASU 2021-01"). On March 12, 2020, the FASB issued ASU 2020-04, which was subsequently amended by ASU 2021-01. The FASB issued these updates to ease the burden in accounting for the effects of reference rate reform on financial reporting. ASU 2020-04 and ASU 2021-01 contain optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform. The Company adopted ASU 2020-04 and ASU 2021-01 effective January 1, 2021, and there was no material impact on the Company's consolidated financial statements as a result of adopting this guidance.
NOTE 3 – INVESTMENTS
Trading Securities
Trading securities are reported on the Company's consolidated statements of condition at fair value. As of September 30, 2021 and December 31, 2020, the fair value of the Company's trading securities were $4.3 million and $4.2 million, respectively. These securities are held in a rabbi trust account and invested in mutual funds. The trading securities will be used for future payments associated with the Company's Executive Deferred Compensation Plan and Director Deferred Compensation Plan.
10

AFS Debt Securities
AFS debt securities are reported on the Company's consolidated statements of condition at fair value. The following table summarizes the amortized cost, estimated fair value, and unrealized gains (losses) of AFS debt securities, as of the dates indicated:

(In thousands) |  | Amortized Cost |  | Unrealized Gains |  | Unrealized Losses |  | Fair Value
September 30, 2021 |  |  |  |  |  |  |  |
Obligations of U.S. government-sponsored enterprises |  | $ | 8,585 |  |  | $ | 1 |  |  | $ | (134) |  |  | $ | 8,452 |
Obligations of states and political subdivisions |  | 112,688 |  |  | 5,267 |  |  | (202) |  |  | 117,753 |
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises |  | 915,317 |  |  | 11,286 |  |  | (6,611) |  |  | 919,992 |
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises |  | 391,128 |  |  | 4,595 |  |  | (2,896) |  |  | 392,827 |
Subordinated corporate bonds |  | 16,082 |  |  | 205 |  |  | (101) |  |  | 16,186 |
Total AFS debt securities |  | $ | 1,443,800 |  |  | $ | 21,354 |  |  | $ | (9,944) |  |  | $ | 1,455,210 |
December 31, 2020 |  |  |  |  |  |  |  |
Obligations of states and political subdivisions |  | $ | 119,608 |  |  | $ | 7,627 |  |  | $ | (115) |  |  | $ | 127,120 |
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises |  | 547,396 |  |  | 19,796 |  |  | (574) |  |  | 566,618 |
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises |  | 399,937 |  |  | 10,652 |  |  | (135) |  |  | 410,454 |
Subordinated corporate bonds |  | 11,533 |  |  | 186 |  |  | (98) |  |  | 11,621 |
Total AFS debt securities |  | $ | 1,078,474 |  |  | $ | 38,261 |  |  | $ | (922) |  |  | $ | 1,115,813 |

As of September 30, 2021 and December 31, 2020, there was no allowance carried on AFS debt securities in accordance with ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13").
The net unrealized gains on AFS debt securities reported within AOCI at September 30, 2021, were $9.0 million, net of a deferred tax liability of $2.5 million. The net unrealized gains on AFS debt securities reported within AOCI at December 31, 2020, were $29.3 million, net of a deferred tax liability of $8.0 million.
For the three and nine months ended September 30, 2021 and 2020, the Company did not sell any AFS debt securities.
11

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

|  |  |  | Less Than 12 Months |  | 12 Months or More |  | Total
(In thousands, except number of holdings) |  | Number of Holdings |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses
September 30, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |
Obligations of U.S. government-sponsored enterprises |  | 3 |  |  | $ | 7,451 |  |  | $ | (134) |  |  | $ | — |  |  | $ | — |  |  | $ | 7,451 |  |  | $ | (134) |
Obligations of states and political subdivisions |  | 3 |  |  | 2,554 |  |  | (6) |  |  | 2,322 |  |  | (196) |  |  | 4,876 |  |  | (202) |
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises |  | 83 |  |  | 528,776 |  |  | (6,286) |  |  | 14,565 |  |  | (325) |  |  | $ | 543,341 |  |  | (6,611) |
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises |  | 44 |  |  | 180,559 |  |  | (2,664) |  |  | 13,241 |  |  | (232) |  |  | 193,800 |  |  | (2,896) |
Subordinated corporate bonds |  | 5 |  |  | 8,471 |  |  | (101) |  |  | — |  |  | — |  |  | 8,471 |  |  | (101) |
Total AFS debt securities |  | 138 |  |  | $ | 727,811 |  |  | $ | (9,191) |  |  | $ | 30,128 |  |  | $ | (753) |  |  | $ | 757,939 |  |  | $ | (9,944) |
December 31, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |
Obligations of states and political subdivisions |  | 1 |  |  | $ | 2,404 |  |  | $ | (115) |  |  | $ | — |  |  | $ | — |  |  | $ | 2,404 |  |  | $ | (115) |
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises |  | 15 |  |  | 61,222 |  |  | (568) |  |  | 980 |  |  | (6) |  |  | 62,202 |  |  | (574) |
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises |  | 9 |  |  | 39,107 |  |  | (135) |  |  | — |  |  | — |  |  | 39,107 |  |  | (135) |
Subordinated corporate bonds |  | 5 |  |  | 4,902 |  |  | (98) |  |  | — |  |  | — |  |  | 4,902 |  |  | (98) |
Total AFS debt securities |  | 30 |  |  | $ | 107,635 |  |  | $ | (916) |  |  | $ | 980 |  |  | $ | (6) |  |  | $ | 108,615 |  |  | $ | (922) |

For the three and nine months ended September 30, 2021 and 2020, the unrealized losses on Company's AFS debt securities have not been recognized within income because management does not intend to sell and it is not more-likely-than-not it will be required to sell any of the AFS debt securities before recovery of its amortized cost basis. Furthermore, the unrealized losses were due to changes in interest rates and other market conditions and not reflective of credit events. The issuers continue to make timely principal and interest payments on the bonds.
At September 30, 2021 and December 31, 2020, total accrued interest receivable on AFS debt securities, which has been excluded from reported amortized cost basis on AFS debt securities, was $3.5 million and $3.1 million, respectively, and was reported within other assets on the consolidated statements of condition. An allowance was not carried on the accrued interest receivable at either date.
The amortized cost and estimated fair values of the Company's AFS debt securities by contractual maturity at September 30, 2021, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-related securities are shown in total, as their maturities are highly variable.
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(In thousands) |  | Amortized Cost |  | Fair Value
Due in one year or less |  | $ | 3,726 |  |  | $ | 3,773 |
Due after one year through five years |  | 5,665 |  |  | 6,063 |
Due after five years through ten years |  | 78,395 |  |  | 81,078 |
Due after ten years |  | 49,569 |  |  | 51,477 |
Subtotal |  | 137,355 |  |  | 142,391 |
Mortgage-related securities |  | 1,306,445 |  |  | 1,312,819 |
Total |  | $ | 1,443,800 |  |  | $ | 1,455,210 |

HTM Debt Securities
HTM debt securities are reported on the Company's consolidated statements of condition at amortized cost. The following table summarizes the amortized cost, estimated fair value and unrealized gains (losses) of HTM debt securities as of the dates indicated:

(In thousands) |  | Amortized Cost |  | Unrealized Gains |  | Unrealized Losses |  | Fair Value
September 30, 2021 |  |  |  |  |  |  |  |
Obligations of states and political subdivisions |  | $ | 1,293 |  |  | $ | 97 |  |  | $ | — |  |  | $ | 1,390 |
Total HTM debt securities |  | $ | 1,293 |  |  | $ | 97 |  |  | $ | — |  |  | $ | 1,390 |
December 31, 2020 |  |  |  |  |  |  |  |
Obligations of states and political subdivisions |  | $ | 1,297 |  |  | $ | 114 |  |  | $ | — |  |  | $ | 1,411 |
Total HTM debt securities |  | $ | 1,297 |  |  | $ | 114 |  |  | $ | — |  |  | $ | 1,411 |

As of September 30, 2021 and December 31, 2020, the Company’s HTM debt securities portfolio was made up of three investment grade municipal debt securities, of which two securities also carried credit enhancements. The HTM debt securities portfolio was comprised solely of high credit quality (rated AA or higher) state and municipal obligations. High credit quality state and municipal obligations have a history of zero to near-zero credit loss. As a result, the Company determined that the expected credit loss on its HTM portfolio was immaterial, and therefore, an allowance was not carried on its HTM debt securities at September 30, 2021 or December 31, 2020.
As of September 30, 2021 and December 31, 2020, none of the Company's HTM debt securities were past due or on non-accrual status. For the three and nine months ended September 30, 2021 and 2020, the Company did not recognize any interest income on non-accrual HTM debt securities. At September 30, 2021 and December 31, 2020, total accrued interest receivable on HTM debt securities, which has been excluded from reported amortized cost basis on HTM debt securities, was $8,000 and $10,000, respectively, and was reported within other assets on the consolidated statements of condition. An allowance was not carried on the accrued interest receivable at either date.
The amortized cost and estimated fair values of HTM debt securities by contractual maturity at September 30, 2021 are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

(In thousands) |  | Amortized Cost |  | Fair Value
Due in one year or less |  | $ | — |  |  | $ | — |
Due after one year through five years |  | 868 |  |  | 927 |
Due after five years through ten years |  | 425 |  |  | 463 |
Due after ten years |  | — |  |  | — |
Total |  | $ | 1,293 |  |  | $ | 1,390 |

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AFS and HTM Debt Securities Pledged
At September 30, 2021 and December 31, 2020, AFS and HTM debt securities with an amortized cost of $720.4 million and $485.0 million and estimated fair values of $728.9 million and $507.1 million, respectively, were pledged to secure FHLBB advances, public deposits, and securities sold under agreements to repurchase and for other purposes required or permitted by law.
Other Investments
The Company's FHLBB and FRB common stock are reported at cost within other investments on the consolidated statements of condition. The Company evaluates these investments for impairment based on the ultimate recoverability of the par value. The Company did not record any impairment on its FHLBB and FRB stock for the three and nine months ended September 30, 2021 and 2020.
The following table summarizes the Company's investment in FHLBB stock and FRBB stock as presented within other investments on the consolidated statements of condition, as of the dates indicated:

(In thousands) |  | September 30, 2021 |  | December 31, 2020
FHLBB |  | $ | 4,906 |  |  | $ | 6,167 |
FRB |  | 5,374 |  |  | 5,374 |
Total other investments |  | $ | 10,280 |  |  | $ | 11,541 |

NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES ON LOANS
Loans
The composition of the Company’s loan portfolio, excluding residential loans held for sale, was as follows for the dates indicated:

(In thousands) |  | September 30, 2021 |  | December 31, 2020
Commercial Loans: |  |  |  |
Commercial real estate - non owner-occupied |  | $ | 1,128,560 |  |  | $ | 1,097,975 |
Commercial real estate - owner-occupied |  | 291,117 |  |  | 271,495 |
Commercial |  | 352,533 |  |  | 381,494 |
SBA PPP |  | 81,959 |  |  | 135,095 |
Total commercial loans |  | 1,854,169 |  |  | 1,886,059 |
Retail Loans: |  |  |  |
Residential real estate |  | 1,222,084 |  |  | 1,054,798 |
Home equity |  | 218,797 |  |  | 258,573 |
Consumer |  | 20,253 |  |  | 20,392 |
Total retail loans |  | 1,461,134 |  |  | 1,333,763 |
Total loans |  | $ | 3,315,303 |  |  | $ | 3,219,822 |

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

(In thousands) |  | September 30, 2021 |  | December 31, 2020
Net unamortized fair value mark discount on acquired loans |  | $ | (703) |  |  | $ | (1,291) |
Net unamortized loan origination costs(1) |  | 176 |  |  | 856 |
Total |  | $ | (527) |  |  | $ | (435) |

(1) Includes unamortized loan fees on SBA PPP loans of $3.7 million and $2.2 million as of September 30, 2021 and December 31, 2020, respectively.
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The Company's lending activities are primarily conducted in Maine, but also include loan production offices in Massachusetts and New Hampshire. The Company originates single- and multi-family residential loans, commercial real estate loans, business loans, municipal loans and a variety of consumer loans. In addition, the Company makes loans for the construction of residential homes, multi-family properties and commercial real estate properties. The ability and willingness of borrowers to honor their repayment commitments is generally dependent on the level of overall economic activity within the geographic area and the general economy.
Beginning in April 2020, the Company started funding SBA PPP loans issued to qualifying businesses as part of the federal stimulus package issued due to the COVID-19 pandemic. Effective May 31, 2021, the SBA PPP loan program ended and the Company is no longer originating loans under this program. For the nine months ended September 30, 2021, the Company originated 1,620 SBA PPP loans totaling $102.2 million to qualifying businesses across our markets in need of financial support due to the COVID-19 pandemic. Of these SBA PPP loans originated during 2021, 1,230 loans totaling $78.7 million remain outstanding as of September 30, 2021. For the year ended December 31, 2020, the Company originated 3,034 SBA PPP loans totaling $244.8 million. Of these SBA PPP loans originated during 2020, 120 loans totaling $3.2 million remain outstanding as of September 30, 2021. This program provided qualifying businesses a specialized low-interest loan by the U.S. Treasury Department and is administered by the SBA. The PPP provides borrower guarantees for lenders, as well as loan forgiveness incentives for borrowers that utilize the loan proceeds to cover employee compensation-related business operating costs, and certain other costs up to pre-established limits.
In the normal course of business, the Bank makes loans to certain officers, directors and their associated companies, under terms that are consistent with the Company's lending policies and regulatory requirements and that do not involve more than the normal risk of collectability or present other unfavorable features. At September 30, 2021 and December 31, 2020, outstanding loans to certain officers, directors and their associated companies was less than 5% of the Company's shareholders' equity.
Loan Sales
For the three months ended September 30, 2021 and 2020, the Company sold $86.2 million and $182.7 million, respectively, of residential mortgage loans on the secondary market, which resulted in gains on the sale of loans (net of costs) of $2.2 million and $4.3 million, respectively. For the nine months ended September 30, 2021 and 2020, the Company sold $389.6 million and $449.7 million, respectively, of residential mortgage loans on the secondary market which resulted in gains on the sale of loans (net of costs) of $11.3 million and $10.4 million.
At September 30, 2021 and December 31, 2020, the Company had certain residential mortgage loans with a principal balance of $10.8 million and $40.5 million, respectively, designated as held for sale. The Company has elected the fair value option of accounting for its loans held for sale, and at September 30, 2021 and December 31, 2020, recorded an unrealized gain of $37,000 and $1.1 million, respectively. For the three months ended September 30, 2021 and 2020, the Company recorded an unrealized loss on loans held for sale recorded within mortgage banking income, net, on the Company's consolidated statements of income of $216,000 and $47,000, respectively. For the nine months ended September 30, 2021 and 2020, the Company recorded an unrealized (loss) gain on loans held for sale recorded within mortgage banking income, net, on the Company's consolidated statements of income of ($1.0 million) and $695,000, respectively.
The Company has forward delivery commitments with a secondary market investor on each of its loans held for sale at September 30, 2021 and December 31, 2020. Refer to Note 8 for further discussion of the Company's forward delivery commitments.
ACL on Loans
Under CECL, effective January 1, 2020 but applied to interim reporting periods on or after October 1, 2020, the ACL on loans is management's estimate of expected credit losses within its loan portfolio as of each reporting date.
The Board of Directors monitors credit risk through: (i) the Directors' Credit Committee, which reviews large credit exposures, monitors external loan review reports, reviews the lending authority for individual loan officers when required, and has approval authority and responsibility for all matters regarding the loan policy and other credit-related policies, including reviewing and monitoring asset quality trends, and concentration levels; and (ii) the Audit Committee, which has approval authority and oversight responsibility for ACL adequacy and methodology.
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Credit Risk Administration and the Credit Risk Policy Committee oversee the Company's systems and procedures to monitor the credit quality of its loan portfolio, conduct a loan review program, and maintain the integrity of the loan rating system. The adequacy of the ACL, including the ACL on loans, is overseen by the Management Provision Committee, which is an internal management committee comprised of various Company executives and senior managers across business lines, including Accounting and Finance, Credit Risk, Compliance, and Commercial and Retail Banking. The Management Provision Committee is further supported by other management-level committees to ensure the adequacy of the ACL. The Management Provision Committee supports the oversight efforts of the director-level committees discussed in the paragraph above and the Board of Directors. The Company's practice is to manage its loan portfolio proactively such that management can identify problem credits early, assess and implement effective work-out strategies, and take charge-offs as promptly as practical. In addition, the Company continuously reassesses its underwriting standards in response to credit risk posed by changes in economic conditions.
For purposes of determining the ACL on loans, the Company disaggregates its loans into portfolio segments. Each portfolio segment possesses unique risk characteristics that are considered when determining the appropriate level of allowance. As of September 30, 2021, the Company's loan portfolio segments, as determined based on the unique risk characteristics of each, include the following:
Commercial Real Estate - Non Owner-Occupied. Non-owner occupied commercial real estate loans are, in substance, all commercial real estate loans that are not categorized by the Company as owner-occupied commercial real estate loans. Non owner-occupied commercial estate loans are investment properties in which the primary source for repayment of the loan by the borrower is derived from rental income associated with the property or the proceeds of the sale, refinancing, or permanent refinancing of the property. Non owner-occupied commercial real estate loans consist of mortgage loans to finance investments in real property that may include, but are not limited to, multi-family residential, commercial/retail office space, industrial/warehouse space, hotels, assisted living facilities and other specific use properties. Also included within the non owner-occupied commercial real estate loan segment are construction projects until they are completed. Commercial real estate loans are typically written with amortizing payment structures. Collateral values are determined based upon appraisals and evaluations in accordance with established policy guidelines. Maximum loan-to-value ratios at origination are governed by established policy and regulatory guidelines.
Commercial Real Estate - Owner-Occupied. Generally, owner-occupied commercial real estate loans are properties that are owned and operated by the borrower, and the primary source for repayment is the cash flow from the ongoing operations and activities conducted by the borrower's business. Owner-occupied commercial real estate loans consist of mortgage loans to finance investments in real property that may include, but are not limited to, commercial/retail office space, restaurants, educational and medical practice facilities and other specific use properties. Commercial real estate loans are typically written with amortizing payment structures. Collateral values are determined based upon appraisals and evaluations in accordance with established policy guidelines. Maximum loan-to-value ratios at origination are governed by established policy and regulatory guidelines.
Commercial. Commercial loans consist of revolving and term loan obligations extended to business and corporate enterprises for the purpose of financing working capital and/or capital investment. Collateral generally consists of pledges of business assets including, but not limited to, accounts receivable, inventory, plant and equipment, and/or real estate, if applicable. Commercial loans are primarily paid by the operating cash flow of the borrower. Commercial loans may be secured or unsecured.
SBA PPP. SBA PPP loans are unsecured, fully-guaranteed commercial loans backed by the SBA, issued to qualifying small businesses as part of federal stimulus issued in response to the COVID-19 pandemic. Loans made under the program during the year ended December 31, 2020 have terms of two or five years, and those made during the nine months ended September 30, 2021 have a term of five years. SBA PPP loans are to be used by the borrower to offset certain payroll and other operating costs, such as rent and utilities. The loan and accrued interest, or a portion thereof, is eligible for forgiveness by the SBA should the qualifying small business meet certain conditions. These loans were originated under the guidance of the SBA, which has been subject to change. Effective May 31, 2021, the SBA PPP loan program ended and the Company is no longer 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.
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Home Equity. Home equity loans and lines of credit are made to qualified individuals and are secured by senior or junior mortgage liens on owner-occupied one- to four-family homes, condominiums, or vacation homes. The home equity loan has a fixed rate and is billed as equal payments comprised of principal and interest. The home equity line of credit has a variable rate and is billed as interest-only payments during the draw period. At the end of the draw period, the home equity line of credit is billed as a percentage of the principal balance plus all accrued interest. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines.
Consumer. Consumer loan products include personal lines of credit and amortizing loans made to qualified individuals for various purposes such as education, auto loans, debt consolidation, personal expenses or overdraft protection. Borrower qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines. Consumer loans may be secured or unsecured.
The following table presents the activity in the ACL on loans, as reported under CECL, for the periods indicated:

|  | Commercial Real Estate |  |  |  |  |  |  |  |  |  |  |  |
(In thousands) |  | Non Owner-Occupied |  | Owner- Occupied |  | Commercial |  | SBA PPP |  | Residential Real Estate |  | Home Equity |  | Consumer |  | Total
At or For The Three Months Ended 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, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance, December 31, 2019 |  | $ | 10,924 |  |  | $ | 1,490 |  |  | $ | 3,985 |  |  | $ | — |  |  | $ | 5,842 |  |  | $ | 2,423 |  |  | $ | 507 |  |  | $ | 25,171 |
Impact of adopting CECL(1) |  | (668) |  |  | (90) |  |  | 1,548 |  |  | — |  |  | (1,129) |  |  | 792 |  |  | (220) |  |  | 233 |
Loans charged off |  | (82) |  |  | (21) |  |  | (1,130) |  |  | — |  |  | (121) |  |  | (317) |  |  | (167) |  |  | (1,838) |
Recoveries |  | 107 |  |  | 13 |  |  | 572 |  |  | — |  |  | 292 |  |  | 33 |  |  | 67 |  |  | 1,084 |
Provision (credit) for loan losses |  | 11,497 |  |  | 1,440 |  |  | 1,728 |  |  | 69 |  |  | (1,410) |  |  | (315) |  |  | 206 |  |  | 13,215 |
Ending balance, December 31, 2020 |  | $ | 21,778 |  |  | $ | 2,832 |  |  | $ | 6,703 |  |  | $ | 69 |  |  | $ | 3,474 |  |  | $ | 2,616 |  |  | $ | 393 |  |  | $ | 37,865 |

(1) The Company adopted ASU 2016-13, "CECL," effective January 1, 2020 but applied to reporting periods on or after October 1, 2020.
During the nine months ended September 30, 2021, there were no significant changes in our CECL modeling methodology to determine the ACL on loans at September 30, 2021. The significant key assumptions used with the ACL on loans calculation at September 30, 2021 and December 31, 2020, included: (i) Company-specific macroeconomic factors (i.e., loss drivers), (ii) our forecast period and reversion speed, (iii) prepayment speeds, and (iv) various qualitative factors.
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The ACL on loans, as presented and accounted for under the CECL methodology, decreased $5.6 million during the nine months ended September 30, 2021, to $32.3 million as of September 30, 2021. The decrease in the ACL on loans across all loan segments, with the exception of residential real estate, was driven by an overall improvement in management's forecast of macroeconomic factors over a one-year forecast period. Net loan growth of $167.3 million, or 16%, in the residential real estate loan segment during the during the nine months ended September 30, 2021, drove the increase in the ACL of $179,000 over this period, offsetting the impact of management's improved forecast of macroeconomic factors over the one-year forecast period.
The following table presents activity in the ACL on loans and select loan information by portfolio segment, under the incurred loss methodology, for the periods indicated:

(In thousands) |  | Commercial Real Estate(1) |  | Commercial |  | SBA PPP |  | Residential Real Estate |  | Home Equity |  | Consumer |  | Total
At or For The Three and Nine Months Ended September 30, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for the three months ended: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance |  | $ | 18,386 |  |  | $ | 4,849 |  |  | $ | 113 |  |  | $ | 8,603 |  |  | $ | 3,084 |  |  | $ | 504 |  |  | $ | 35,539 |
Loans charged off |  | (33) |  |  | (184) |  |  | — |  |  | (25) |  |  | (10) |  |  | (55) |  |  | (307) |
Recoveries |  | 3 |  |  | 139 |  |  | — |  |  | 4 |  |  | — |  |  | 36 |  |  | 182 |
Provision (credit) |  | 1,173 |  |  | (267) |  |  | 2 |  |  | 124 |  |  | (51) |  |  | 19 |  |  | 1,000 |
Ending balance |  | $ | 19,529 |  |  | $ | 4,537 |  |  | $ | 115 |  |  | $ | 8,706 |  |  | $ | 3,023 |  |  | $ | 504 |  |  | $ | 36,414 |
Allowance for the nine months ended: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance |  | $ | 12,414 |  |  | $ | 3,985 |  |  | $ | — |  |  | $ | 5,842 |  |  | $ | 2,423 |  |  | $ | 507 |  |  | $ | 25,171 |
Loans charged off |  | (104) |  |  | (857) |  |  | — |  |  | (121) |  |  | (61) |  |  | (138) |  |  | (1,281) |
Recoveries |  | 10 |  |  | 255 |  |  | — |  |  | 27 |  |  | 4 |  |  | 56 |  |  | 352 |
Provision |  | 7,209 |  |  | 1,154 |  |  | 115 |  |  | 2,958 |  |  | 657 |  |  | 79 |  |  | 12,172 |
Ending balance |  | $ | 19,529 |  |  | $ | 4,537 |  |  | $ | 115 |  |  | $ | 8,706 |  |  | $ | 3,023 |  |  | $ | 504 |  |  | $ | 36,414 |
Allowance balance attributable to loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment |  | $ | 36 |  |  | $ | — |  |  | $ | — |  |  | $ | 371 |  |  | $ | 87 |  |  | $ | — |  |  | $ | 494 |
Collectively evaluated for impairment |  | 19,493 |  |  | 4,537 |  |  | 115 |  |  | 8,335 |  |  | 2,936 |  |  | 504 |  |  | 35,920 |
Total ending allowance |  | $ | 19,529 |  |  | $ | 4,537 |  |  | $ | 115 |  |  | $ | 8,706 |  |  | $ | 3,023 |  |  | $ | 504 |  |  | $ | 36,414 |
Loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment |  | $ | 460 |  |  | $ | 171 |  |  | $ | — |  |  | $ | 3,128 |  |  | $ | 365 |  |  | $ | — |  |  | $ | 4,124 |
Collectively evaluated for impairment |  | 1,333,273 |  |  | 375,377 |  |  | 223,838 |  |  | 1,040,975 |  |  | 274,378 |  |  | 22,877 |  |  | 3,270,718 |
Total ending loans balance |  | $ | 1,333,733 |  |  | $ | 375,548 |  |  | $ | 223,838 |  |  | $ | 1,044,103 |  |  | $ | 274,743 |  |  | $ | 22,877 |  |  | $ | 3,274,842 |

(1) Includes both commercial real estate - non owner-occupied and owner-occupied loan segments.
The Company focuses on maintaining a well-balanced and diversified loan portfolio. Despite such efforts, it is recognized that credit concentrations may occasionally emerge as a result of economic conditions, changes in local demand, natural loan growth and runoff. To identify credit concentrations effectively, all commercial and commercial real estate loans are assigned Standard Industrial Classification codes, North American Industry Classification System codes, and state and county codes. Shifts in portfolio concentrations are monitored. As of September 30, 2021, the Company's total exposure to the lessors of nonresidential buildings' industry was 14% of total loans and 32% of total commercial real estate loans. There were no other industry exposures exceeding 10% of the Company's total loan portfolio as of September 30, 2021.
COVID-19 Loan Deferral Program
In response to the COVID-19 pandemic, the Company worked with businesses and consumers through the year ended 2020 to provide temporary debt payment relief that generally provided principal and/or interest payment deferrals for a period of 180 days or less. All loans that were granted temporary payment relief during the year ended 2020 complied with the terms of the CARES Act, which was signed into law in March 2020, and bank regulator guidance, a nd thus were not individually assessed, designated or accounted for as TDRs.
The Company did not issue or extend temporary debt relief to customers due to COVID-19 hardships during the nine months ended September 30, 2021. However, the Company may do so on case-by-case under bank regulator guidance or the Consolidated Appropriations Act of 2021, which extended the provisions within the CARES Act that provided TDR accounting relief to the earlier of: (i) December 31, 2021 or (ii) the date that is 60 days after the date the national emergency concerning the COVID-19 pandemic declared by the President on March 13, 2020 terminates.
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At September 30, 2021, the Company did not have any loans operating under temporary short-term payment deferral arrangements due to being impacted by the COVID-19 pandemic, compared to $26.5 million at December 31, 2020. The majority of these loans have returned to normal payment status or have since been fully repaid. Of those loans that were previously operating under a short-term deferral arrangement, $1.0 million were classified as non-accrual and $310,000 were 30-89 days past due as of September 30, 2021.
Credit Quality Indicators
To further identify loans with similar risk profiles, the Company categorizes each portfolio segment into classes by credit risk characteristic and applies a credit quality indicator to each portfolio segment. The indicators for commercial real estate - non owner-occupied and owner-occupied, commercial and residential real estate portfolio segments are represented by Grades 1 through 10 as outlined below. In general, risk ratings are adjusted periodically throughout the year as updated analysis and review warrants. This process may include, but is not limited to, annual credit and loan reviews, periodic reviews of loan performance metrics, such as delinquency rates, and quarterly reviews of adversely risk rated loans. The Company uses the following definitions when assessing grades for the purpose of evaluating the risk and adequacy of the ACL on loans:
•Grade 1 through 6 — Grades 1 through 6 represent groups of loans that are not subject to adverse criticism as defined in regulatory guidance. Loans in these groups exhibit characteristics that represent low to moderate risks, which is measured using a variety of credit risk criteria, such as cash flow coverage, debt service coverage, balance sheet leverage, liquidity, management experience, industry position, prevailing economic conditions, support from secondary sources of repayment and other credit factors that may be relevant to a specific loan. In general, these loans are supported by properly margined collateral and guarantees of principal parties.
•Grade 7 — Loans with potential weakness (Special Mention). Loans in this category are currently protected based on collateral and repayment capacity and do not constitute undesirable credit risk, but have potential weakness that may result in deterioration of the repayment process at some future date. This classification is used if a negative trend is evident in the obligor’s financial situation. Special mention loans do not sufficiently expose the Company to warrant adverse classification.
•Grade 8 — Loans with definite weakness (Substandard). Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or by collateral pledged. Borrowers experience difficulty in meeting debt repayment requirements. Deterioration is sufficient to cause the Company to look to the sale of collateral.
•Grade 9 — Loans with potential loss (Doubtful). Loans classified as doubtful have all the weaknesses inherent in the substandard grade with the added characteristic that the weaknesses make collection or liquidation of the loan in full highly questionable and improbable. The possibility of some loss is extremely high, but because of specific pending factors that may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined.
•Grade 10 — Loans with definite loss (Loss). Loans classified as loss are considered uncollectible. The loss classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the asset because recovery and collection time may be protracted.
Loans that were granted temporary debt relief due to the COVID-19 pandemic were not automatically downgraded into lower credit risk ratings.
The Company periodically reassesses asset quality indicators to reflect appropriately the risk composition of the Company’s loan portfolio. Home equity and consumer loans are not individually risk rated, but rather analyzed as groups taking into account delinquency rates and other economic conditions which may affect the ability of borrowers to meet debt service requirements, including interest rates and energy costs. Performing loans include loans that are current and loans that are past due less than 90 days. Loans that are past due over 90 days and non-accrual loans, including TDRs, are considered non-performing.
19

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

(In thousands) |  | 2021 |  | 2020 |  | 2019 |  | 2018 |  | 2017 |  | Prior |  | Revolving Loans Amortized Cost Basis |  | Revolving Loans Converted to Term |  | Total
As of September 30, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate - non owner-occupied |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass (Grades 1-6) |  | $ | 157,849 |  |  | $ | 193,303 |  |  | $ | 186,028 |  |  | $ | 122,607 |  |  | $ | 102,457 |  |  | $ | 302,680 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,064,924 |
Special mention (Grade 7) |  | — |  |  | 7,309 |  |  | 2,351 |  |  | 33 |  |  | 4,318 |  |  | 10,655 |  |  | — |  |  | — |  |  | 24,666 |
Substandard (Grade 8) |  | 212 |  |  | 1,688 |  |  | 220 |  |  | 10,028 |  |  | 394 |  |  | 26,428 |  |  | — |  |  | — |  |  | 38,970 |
Doubtful (Grade 9) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total commercial real estate - non owner-occupied |  | 158,061 |  |  | 202,300 |  |  | 188,599 |  |  | 132,668 |  |  | 107,169 |  |  | 339,763 |  |  | — |  |  | — |  |  | 1,128,560 |
Commercial real estate - owner-occupied |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass (Grades 1-6) |  | 61,023 |  |  | 34,052 |  |  | 32,078 |  |  | 45,469 |  |  | 47,963 |  |  | 62,421 |  |  | — |  |  | — |  |  | 283,006 |
Special mention (Grade 7) |  | — |  |  | — |  |  | — |  |  | 3,427 |  |  | — |  |  | 1,554 |  |  | — |  |  | — |  |  | 4,981 |
Substandard (Grade 8) |  | — |  |  | — |  |  | 63 |  |  | — |  |  | 1,808 |  |  | 1,259 |  |  | — |  |  | — |  |  | 3,130 |
Doubtful (Grade 9) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total commercial real estate - owner occupied |  | 61,023 |  |  | 34,052 |  |  | 32,141 |  |  | 48,896 |  |  | 49,771 |  |  | 65,234 |  |  | — |  |  | — |  |  | 291,117 |
Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass (Grades 1-6) |  | 60,833 |  |  | 47,710 |  |  | 50,233 |  |  | 26,459 |  |  | 15,094 |  |  | 32,082 |  |  | 83,456 |  |  | 31,621 |  |  | 347,488 |
Special mention (Grade 7) |  | — |  |  | 73 |  |  | 118 |  |  | 295 |  |  | 716 |  |  | 455 |  |  | 494 |  |  | 265 |  |  | 2,416 |
Substandard (Grade 8) |  | — |  |  | 280 |  |  | 347 |  |  | 298 |  |  | 113 |  |  | 1,282 |  |  | — |  |  | 309 |  |  | 2,629 |
Doubtful (Grade 9) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total commercial |  | 60,833 |  |  | 48,063 |  |  | 50,698 |  |  | 27,052 |  |  | 15,923 |  |  | 33,819 |  |  | 83,950 |  |  | 32,195 |  |  | 352,533 |
SBA PPP |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass (Grades 1-6) |  | 78,252 |  |  | 3,238 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 81,490 |
Special mention (Grade 7) |  | 469 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 469 |
Substandard (Grade 8) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Doubtful (Grade 9) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total SBA PPP |  | 78,721 |  |  | 3,238 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 81,959 |
Residential Real Estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass (Grades 1-6) |  | 430,952 |  |  | 303,375 |  |  | 119,118 |  |  | 73,832 |  |  | 49,827 |  |  | 239,596 |  |  | 892 |  |  | — |  |  | 1,217,592 |
Special mention (Grade 7) |  | — |  |  | — |  |  | — |  |  |  |  | — |  |  | 234 |  |  | — |  |  | — |  |  | 234 |
Substandard (Grade 8) |  | — |  |  | — |  |  | — |  |  | 142 |  |  | — |  |  | 4,116 |  |  | — |  |  | — |  |  | 4,258 |
Doubtful (Grade 9) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total residential real estate |  | 430,952 |  |  | 303,375 |  |  | 119,118 |  |  | 73,974 |  |  | 49,827 |  |  | 243,946 |  |  | 892 |  |  | — |  |  | 1,222,084 |
Home equity |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing |  | 553 |  |  | 559 |  |  | 7,060 |  |  | 12,368 |  |  | 2,678 |  |  | 12,429 |  |  | 168,441 |  |  | 13,308 |  |  | 217,396 |
Non-performing |  | — |  |  | — |  |  | — |  |  | 41 |  |  | — |  |  | 196 |  |  | 930 |  |  | 234 |  |  | 1,401 |
Total home equity |  | 553 |  |  | 559 |  |  | 7,060 |  |  | 12,409 |  |  | 2,678 |  |  | 12,625 |  |  | 169,371 |  |  | 13,542 |  |  | 218,797 |
Consumer |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing |  | 6,270 |  |  | 4,169 |  |  | 3,839 |  |  | 1,397 |  |  | 667 |  |  | 2,046 |  |  | 1,837 |  |  | — |  |  | 20,225 |
Non-performing |  | — |  |  | 9 |  |  | 16 |  |  | — |  |  | — |  |  | 3 |  |  | — |  |  | — |  |  | 28 |
Total consumer |  | 6,270 |  |  | 4,178 |  |  | 3,855 |  |  | 1,397 |  |  | 667 |  |  | 2,049 |  |  | 1,837 |  |  | — |  |  | 20,253 |
Total Loans |  | $ | 796,413 |  |  | $ | 595,765 |  |  | $ | 401,471 |  |  | $ | 296,396 |  |  | $ | 226,035 |  |  | $ | 697,436 |  |  | $ | 256,050 |  |  | $ | 45,737 |  |  | $ | 3,315,303 |

20

(In thousands) |  | 2020 |  | 2019 |  | 2018 |  | 2017 |  | 2016 |  | Prior |  | Revolving Loans Amortized Cost Basis |  | Revolving Loans Converted to Term |  | Total
As of December 31, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate - non owner-occupied |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass (Grades 1-6) |  | $ | 138,010 |  |  | $ | 224,148 |  |  | $ | 144,552 |  |  | $ | 119,409 |  |  | $ | 157,588 |  |  | $ | 264,253 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,047,960 |
Special mention (Grade 7) |  | 5,739 |  |  | — |  |  | — |  |  | 4,256 |  |  | 3,497 |  |  | 847 |  |  | — |  |  | — |  |  | 14,339 |
Substandard (Grade 8) |  | 24 |  |  | 125 |  |  | 2,070 |  |  | 405 |  |  | 1,522 |  |  | 31,530 |  |  | — |  |  | — |  |  | 35,676 |
Doubtful (Grade 9) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total commercial real estate - non owner-occupied |  | 143,773 |  |  | 224,273 |  |  | 146,622 |  |  | 124,070 |  |  | 162,607 |  |  | 296,630 |  |  | — |  |  | — |  |  | 1,097,975 |
Commercial real estate - owner-occupied |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass (Grades 1-6) |  | 35,948 |  |  | 29,217 |  |  | 48,312 |  |  | 47,065 |  |  | 25,507 |  |  | 76,098 |  |  | — |  |  | — |  |  | 262,147 |
Special mention (Grade 7) |  | — |  |  | — |  |  | 4,584 |  |  | — |  |  | — |  |  | 1,513 |  |  | — |  |  | — |  |  | 6,097 |
Substandard (Grade 8) |  | — |  |  | — |  |  | 891 |  |  | 462 |  |  | — |  |  | 1,898 |  |  | — |  |  | — |  |  | 3,251 |
Doubtful (Grade 9) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total commercial real estate - owner occupied |  | 35,948 |  |  | 29,217 |  |  | 53,787 |  |  | 47,527 |  |  | 25,507 |  |  | 79,509 |  |  | — |  |  | — |  |  | 271,495 |
Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass (Grades 1-6) |  | 53,966 |  |  | 72,863 |  |  | 40,688 |  |  | 25,478 |  |  | 15,788 |  |  | 51,869 |  |  | 72,425 |  |  | 37,026 |  |  | 370,103 |
Special mention (Grade 7) |  | — |  |  | 22 |  |  | 313 |  |  | 4,924 |  |  | 117 |  |  | 400 |  |  | — |  |  | 867 |  |  | 6,643 |
Substandard (Grade 8) |  | 187 |  |  | 1,012 |  |  | 211 |  |  | 51 |  |  | 42 |  |  | 2,081 |  |  | 65 |  |  | 1,099 |  |  | 4,748 |
Doubtful (Grade 9) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total commercial |  | 54,153 |  |  | 73,897 |  |  | 41,212 |  |  | 30,453 |  |  | 15,947 |  |  | 54,350 |  |  | 72,490 |  |  | 38,992 |  |  | 381,494 |
SBA PPP |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass (Grades 1-6) |  | 135,095 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 135,095 |
Special mention (Grade 7) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Substandard (Grade 8) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Doubtful (Grade 9) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total SBA PPP |  | 135,095 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 135,095 |
Residential Real Estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass (Grades 1-6) |  | 339,834 |  |  | 183,877 |  |  | 119,426 |  |  | 79,159 |  |  | 57,269 |  |  | 266,324 |  |  | 3,028 |  |  | — |  |  | 1,048,917 |
Special mention (Grade 7) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 398 |  |  | — |  |  | — |  |  | 398 |
Substandard (Grade 8) |  | — |  |  | — |  |  | 176 |  |  | 487 |  |  | — |  |  | 4,820 |  |  | — |  |  | — |  |  | 5,483 |
Doubtful (Grade 9) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total residential real estate |  | 339,834 |  |  | 183,877 |  |  | 119,602 |  |  | 79,646 |  |  | 57,269 |  |  | 271,542 |  |  | 3,028 |  |  | — |  |  | 1,054,798 |
Home equity |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing |  | 855 |  |  | 9,415 |  |  | 17,281 |  |  | 3,478 |  |  | 1,339 |  |  | 17,664 |  |  | 194,065 |  |  | 12,480 |  |  | 256,577 |
Non-performing |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 207 |  |  | 1,241 |  |  | 548 |  |  | 1,996 |
Total home equity |  | 855 |  |  | 9,415 |  |  | 17,281 |  |  | 3,478 |  |  | 1,339 |  |  | 17,871 |  |  | 195,306 |  |  | 13,028 |  |  | 258,573 |
Consumer |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing |  | 6,572 |  |  | 6,525 |  |  | 3,096 |  |  | 1,359 |  |  | 378 |  |  | 1,780 |  |  | 678 |  |  | — |  |  | 20,388 |
Non-performing |  | — |  |  | — |  |  | — |  |  | — |  |  | 4 |  |  | — |  |  | — |  |  | — |  |  | 4 |
Total consumer |  | 6,572 |  |  | 6,525 |  |  | 3,096 |  |  | 1,359 |  |  | 382 |  |  | 1,780 |  |  | 678 |  |  | — |  |  | 20,392 |
Total Loans |  | $ | 716,230 |  |  | $ | 527,204 |  |  | $ | 381,600 |  |  | $ | 286,533 |  |  | $ | 263,051 |  |  | $ | 721,682 |  |  | $ | 271,502 |  |  | $ | 52,020 |  |  | $ | 3,219,822 |

21

Past Due and Non-Accrual Loans
The Company closely monitors the performance of its loan portfolio. A loan is placed on non-accrual status when the financial condition of the borrower is deteriorating, payment in full of both principal and interest is not expected as scheduled, or principal or interest has been in default for 90 days or more. Exceptions may be made if the asset is secured by collateral sufficient to satisfy both the principal and accrued interest in full and collection is reasonably assured. When one loan to a borrower is placed on non-accrual status, all other loans to the borrower are re-evaluated to determine if they should also be placed on non-accrual status. All previously accrued and unpaid interest is reversed at this time. A loan will return to accrual status when collection of principal and interest is assured and the borrower has demonstrated timely payments of principal and interest for a reasonable period, generally at least six months. Unsecured loans, however, are not normally placed on non-accrual status because they are generally charged-off once their collectability is in doubt.
All loans that were granted temporary payment relief due to the COVID-19 pandemic were current with payments in accordance with the terms of the CARES Act and bank regulatory guidance at the time of initial relief. As of September 30, 2021, all loans that were once granted temporary debt relief and had outstanding principal balances have returned to regular payment status. As of December 31, 2020, the payment status for loans that continued to operate under a payment deferral arrangement were reported based on payment status at the time the deferral was granted to the borrower. Of those loans operating under a short-term deferral arrangement, $1.0 million were classified as non-accrual and $310,000 were 30-89 days past due as of September 30, 2021, compared to $457,000 and $1.2 million, respectively, as of December 31, 2020.
The following is a loan aging analysis by portfolio segment (including loans past due over 90 days and non-accrual loans) and loans past due over 90 days and accruing as of the following dates:

(In thousands) |  | 30-59 Days Past Due |  | 60-89 Days Past Due |  | 90 Days or Greater Past Due |  | Total Past Due |  | Current |  | Total Loans Outstanding |  | Loans > 90 Days Past Due and Accruing |  |
September 30, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate - non owner-occupied |  | $ | — |  |  | $ | — |  |  | $ | 52 |  |  | $ | 52 |  |  | $ | 1,128,508 |  |  | $ | 1,128,560 |  |  | $ | — |  |  |
Commercial real estate - owner-occupied |  | 86 |  |  | — |  |  | 47 |  |  | 133 |  |  | 290,984 |  |  | 291,117 |  |  |  |  |
Commercial |  | 557 |  |  | — |  |  | 813 |  |  | 1,370 |  |  | 351,163 |  |  | 352,533 |  |  | — |  |  |
SBA PPP |  | — |  |  | — |  |  | — |  |  | — |  |  | 81,959 |  |  | 81,959 |  |  | — |  |  |
Residential real estate |  | 1,056 |  |  | 240 |  |  | 1,158 |  |  | 2,454 |  |  | 1,219,630 |  |  | 1,222,084 |  |  | — |  |  |
Home equity |  | 369 |  |  | 30 |  |  | 894 |  |  | 1,293 |  |  | 217,504 |  |  | 218,797 |  |  | — |  |  |
Consumer |  | 45 |  |  | 8 |  |  | 28 |  |  | 81 |  |  | 20,172 |  |  | 20,253 |  |  | — |  |  |
Total |  | $ | 2,113 |  |  | $ | 278 |  |  | $ | 2,992 |  |  | $ | 5,383 |  |  | $ | 3,309,920 |  |  | $ | 3,315,303 |  |  | $ | — |  |  |
December 31, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate - non owner-occupied |  | $ | — |  |  | $ | 50 |  |  | $ | 173 |  |  | $ | 223 |  |  | $ | 1,097,752 |  |  | $ | 1,097,975 |  |  | $ | — |  |  |
Commercial real estate - owner-occupied |  | 99 |  |  | — |  |  | 47 |  |  | 146 |  |  | 271,349 |  |  | 271,495 |  |  | — |  |  |
Commercial |  | 430 |  |  | — |  |  | 857 |  |  | 1,287 |  |  | 380,207 |  |  | 381,494 |  |  | — |  |  |
SBA PPP |  | — |  |  | — |  |  | — |  |  | — |  |  | 135,095 |  |  | 135,095 |  |  | — |  |  |
Residential real estate |  | 1,406 |  |  | 1,103 |  |  | 2,535 |  |  | 5,044 |  |  | 1,049,754 |  |  | 1,054,798 |  |  | — |  |  |
Home equity |  | 335 |  |  | 173 |  |  | 1,416 |  |  | 1,924 |  |  | 256,649 |  |  | 258,573 |  |  | — |  |  |
Consumer |  | 92 |  |  | 67 |  |  | 4 |  |  | 163 |  |  | 20,229 |  |  | 20,392 |  |  | — |  |  |
Total |  | $ | 2,362 |  |  | $ | 1,393 |  |  | $ | 5,032 |  |  | $ | 8,787 |  |  | $ | 3,211,035 |  |  | $ | 3,219,822 |  |  | $ | — |  |  |

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

|  | September 30, 2021 |  | December 31, 2020
(In thousands) |  | Non-Accrual Loans With an Allowance |  | Non-Accrual Loans Without an Allowance |  | Total Non-Accrual Loans |  | Non-Accrual Loans With an Allowance |  | Non-Accrual Loans Without an Allowance |  | Total Non-Accrual Loans
Commercial real estate - non owner-occupied |  | $ | 59 |  |  | $ | 14 |  |  | $ | 73 |  |  | $ | 351 |  |  | $ | 15 |  |  | $ | 366 |
Commercial real estate - owner-occupied |  | 87 |  |  | 47 |  |  | 134 |  |  | 99 |  |  | 47 |  |  | 146 |
Commercial |  | 811 |  |  | 49 |  |  | 860 |  |  | 1,549 |  |  | 58 |  |  | 1,607 |
Residential real estate |  | 2,378 |  |  | 198 |  |  | 2,576 |  |  | 3,136 |  |  | 341 |  |  | 3,477 |
Home equity |  | 1,401 |  |  | — |  |  | 1,401 |  |  | 1,961 |  |  | 35 |  |  | 1,996 |
Consumer |  | 28 |  |  | — |  |  | 28 |  |  | 4 |  |  | — |  |  | 4 |
Total |  | $ | 4,764 |  |  | $ | 308 |  |  | $ | 5,072 |  |  | $ | 7,100 |  |  | $ | 496 |  |  | $ | 7,596 |

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

|  | September 30, 2021 |  | December 31, 2020
|  | Collateral Type |  | Total Collateral -Dependent Non-Accrual Loans |  | Collateral Type |  | Total Collateral -Dependent Non-Accrual Loans
(In thousands) |  | Real Estate |  | General Business Assets |  |  | Real Estate |  | General Business Assets |
Commercial |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 689 |  |  | $ | 689 |
Residential real estate |  | 131 |  |  | — |  |  | 131 |  |  | 248 |  |  | — |  |  | 248 |
Home equity |  | 88 |  |  | — |  |  | 88 |  |  | — |  |  | — |  |  | — |
Total |  | $ | 219 |  |  | $ | — |  |  | $ | 219 |  |  | $ | 248 |  |  | $ | 689 |  |  | $ | 937 |

Collateral-dependent loans are loans for which the repayment is expected to be provided substantially by the underlying collateral and there are no other available and reliable sources of repayment.
Interest income that would have been recognized if loans on non-accrual status had been current in accordance with their original terms is estimated to have been $59,000 and $85,000 for the three months ended September 30, 2021 and 2020, respectively. For the nine months ended September 30, 2021 and 2020, the interest income that is estimated to have been recognized if loans on non-accrual status had been current in accordance with their original terms was $202,000 and $251,000, 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, 2021 and 2020. An immaterial amount of accrued interest on non-accrual loans was written-off during the three and nine months ended September 30, 2021 and 2020, by reversing interest income. At September 30, 2021 and December 31, 2020, total accrued interest receivable on loans, which has been excluded from reported amortized cost basis on loans, was $8.0 million and $10.2 million, respectively, and reported within other assets on the consolidated statements of condition. An allowance was not carried on the accrued interest receivable at either date.
TDRs
The Company takes a conservative approach with credit risk management and remains focused on community lending and reinvesting. The Company works closely with borrowers experiencing credit problems to assist in loan repayment or term modifications. TDRs consist of loans where the Company, for economic or legal reasons related to the borrower’s financial difficulties, granted a concession to the borrower that it would not otherwise consider. TDRs typically involve term modifications or a reduction of either interest or principal. Once such an obligation has been restructured, it will remain a TDR until paid in full, or until the loan is again restructured at current market rates and no concessions are granted.
23

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

|  | Number of Contracts |  | Recorded Investment |  | Specific Reserve
(In thousands, except number of contracts) |  | September 30, 2021 |  | December 31, 2020 |  | September 30, 2021 |  | December 31, 2020 |  | September 30, 2021 |  | December 31, 2020
Commercial real estate - owner-occupied |  | 1 |  |  | 2 |  |  | $ | 120 |  |  | $ | 328 |  |  | $ | 42 |  |  | $ | 37 |
Commercial |  | 2 |  |  | 2 |  |  | 80 |  |  | 100 |  |  | — |  |  | — |
Residential real estate |  | 19 |  |  | 21 |  |  | 2,353 |  |  | 2,638 |  |  | 361 |  |  | 364 |
Consumer and home equity |  | 2 |  |  | — |  |  | 230 |  |  | — |  |  | 22 |  |  | — |
Total |  | 24 |  |  | 25 |  |  | $ | 2,783 |  |  | $ | 3,066 |  |  | $ | 425 |  |  | $ | 401 |

At September 30, 2021, the Company had performing and non-performing TDRs with a recorded investment balance of $2.6 million and $219,000, respectively. At December 31, 2020, the Company had performing and non-performing TDRs with a recorded investment balance of $2.8 million and $248,000, respectively.
The following represents loan modifications that qualify as TDRs that occurred during the periods indicated:

|  | Number of Contracts |  | Pre-Modification Outstanding Recorded Investment |  | Post-Modification Outstanding Recorded Investment |  | Specific Reserve
(In thousands, except number of contracts) |  | 2021 |  | 2020 |  | 2021 |  | 2020 |  | 2021 |  | 2020 |  | 2021 |  | 2020
For the 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 |  |  | $ | — |

There were no loan modifications that qualify as TDRs that occurred for the three months ended September 30, 2021 and 2020.
As of September 30, 2021 and December 31, 2020, the Company did not have any material commitments to lend additional funds to borrowers with loans classified as TDRs.
For the three and nine months ended September 30, 2021 and 2020, no loans were modified as TDRs within the previous 12 months for which the borrower subsequently defaulted.
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Impaired Loans
For periods prior to the adoption of CECL (i.e. periods before October 1, 2020), under the incurred loss methodology, impaired loans consisted of non-accrual loans and TDRs that were individually evaluated for impairment in accordance with the Company's policy. The following is a summary of impaired loan balances and the associated allowance by portfolio segment as of and for the periods indicated:

|  |  |  |  |  |  |  | For the Three Months Ended |  | For the Nine Months Ended
(In thousands) |  | Recorded Investment |  | Unpaid Principal Balance |  | Related Allowance |  | Average Recorded Investment |  | Interest Income Recognized |  | Average Recorded Investment |  | Interest Income Recognized
September 30, 2020: |  |  |  |  |  |  |  |  |  |  |  |  |  |
With an allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate |  | $ | 126 |  |  | $ | 126 |  |  | $ | 36 |  |  | $ | 127 |  |  | $ | 2 |  |  | $ | 127 |  |  | $ | 6 |
Commercial |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
SBA PPP |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Residential real estate |  | 2,394 |  |  | 2,394 |  |  | 371 |  |  | 2,349 |  |  | 33 |  |  | 2,328 |  |  | 79 |
Home equity |  | 316 |  |  | 316 |  |  | 87 |  |  | 317 |  |  | — |  |  | 318 |  |  | — |
Consumer |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Ending balance |  | 2,836 |  |  | 2,836 |  |  | 494 |  |  | 2,793 |  |  | 35 |  |  | 2,773 |  |  | 85 |
Without an allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate |  | 334 |  |  | 548 |  |  | — |  |  | 334 |  |  | 3 |  |  | 304 |  |  | 9 |
Commercial |  | 171 |  |  | 233 |  |  | — |  |  | 175 |  |  | 1 |  |  | 242 |  |  | 4 |
SBA PPP |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Residential real estate |  | 734 |  |  | 858 |  |  | — |  |  | 791 |  |  | 2 |  |  | 909 |  |  | 4 |
Home equity |  | 49 |  |  | 187 |  |  | — |  |  | 50 |  |  | — |  |  | 52 |  |  | — |
Consumer |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Ending balance |  | 1,288 |  |  | 1,826 |  |  | — |  |  | 1,350 |  |  | 6 |  |  | 1,507 |  |  | 17 |
Total impaired loans |  | $ | 4,124 |  |  | $ | 4,662 |  |  | $ | 494 |  |  | $ | 4,143 |  |  | $ | 41 |  |  | $ | 4,280 |  |  | $ | 102 |

In-Process Foreclosure Proceedings
At September 30, 2021 and December 31, 2020, the Company had $1.1 million and $1.5 million, respectively, of consumer mortgage loans secured by residential real estate properties for which foreclosure proceedings were in process.
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 $1.2 billion and $1.3 billion at September 30, 2021 and December 31, 2020, respectively.
Refer to Notes 3 and 6 of the consolidated financial statements for discussion of securities pledged as collateral.
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NOTE 5 – BORROWINGS
The following summarizes the Company's short-term and long-term borrowed funds as presented on the consolidated statements of condition as of the dates indicated:

(In thousands) |  | September 30, 2021 |  | December 31, 2020
Short-Term Borrowings: |  |  |  |
Customer repurchase agreements |  | $ | 211,552 |  |  | $ | 162,439 |
Total short-term borrowings |  | $ | 211,552 |  |  | $ | 162,439 |
Long-Term Borrowings: |  |  |  |
FHLBB borrowings |  | $ | — |  |  | $ | 25,000 |
Total long-term borrowings |  | $ | — |  |  | $ | 25,000 |

As of September 30, 2021 and December 31, 2020, the Company's subordinated debentures were $44.3 million and $59.3 million, respectively. On April 16, 2021, the Company exercised its call option on its $15.0 million of subordinated debentures, at par plus accrued interest. As of September 30, 2021, the Company's remaining subordinated debentures were comprised of two tranches of junior subordinated debentures. Refer to Note 10 of the consolidated financial statements for further details.
NOTE 6 – REPURCHASE AGREEMENTS
The Company can raise additional liquidity by entering into repurchase agreements at its discretion. In a security repurchase agreement transaction, the Company will generally sell a security, agreeing to repurchase either the same or a substantially identical security on a specified later date, at a greater price than the original sales price. The difference between the sale price and purchase price is the cost of the proceeds, which is recorded within interest on borrowings on the consolidated statements of income. The securities underlying the agreements are delivered to counterparties as collateral for the repurchase obligations. Since the securities are treated as collateral and the agreement does not qualify for a full transfer of effective control, the transactions do not meet the criteria to be classified as sales, and are therefore considered secured borrowing transactions for accounting purposes. Payments on such borrowings are interest only until the scheduled repurchase date. In a repurchase agreement the Company is subject to the risk that the purchaser may default at maturity and not return the securities underlying the agreements. In order to minimize this potential risk, the Company either deals with established firms when entering into these transactions, or with customers whose agreements stipulate that the securities underlying the agreement are not delivered to the customer and instead are held in segregated safekeeping accounts by the Company's safekeeping agents.
The table below sets forth information regarding the Company’s repurchase agreements accounted for as secured borrowings and types of collateral as of the dates indicated:

(In thousands) |  | September 30, 2021 |  | December 31, 2020
Customer Repurchase Agreements(1)(2): |  |  |  |
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises |  | $ | 151,405 |  |  | $ | 90,015 |
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises |  | 57,842 |  |  | 70,902 |
Obligations of states and political subdivisions |  | 2,305 |  |  | 1,522 |
Total |  | $ | 211,552 |  |  | $ | 162,439 |

(1) Presented within short-term borrowings on the consolidated statements of condition.
(2) All customer repurchase agreements mature continuously or overnight for the dates indicated.
At September 30, 2021 and December 31, 2020, certain customers held CDs totaling $1.0 million, that were collateralized by CMO and MBS securities that were overnight repurchase agreements.
Certain counterparties monitor collateral, and may request additional collateral to be posted from time to time.
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NOTE 7 – COMMITMENTS AND CONTINGENCIES
Commitments
In the normal course of business, the Company is a party to both on- and off-balance sheet financial instruments involving, to varying degrees, elements of credit risk and interest rate risk in addition to the amounts recognized in the consolidated statements of condition.
The following is a summary of the Company's contractual off-balance sheet commitments as of the dates indicated:

(In thousands) |  | September 30, 2021 |  | December 31, 2020
Commitments to extend credit |  | $ | 847,371 |  |  | $ | 723,986 |
Standby letters of credit |  | 7,476 |  |  | 4,735 |
Total |  | $ | 854,847 |  |  | $ | 728,721 |

The Company’s commitments to extend credit from its lending activities do not necessarily represent future cash requirements since certain of these instruments may expire without being funded and others may not be fully drawn upon. These commitments are subject to the Company’s credit approval process, including an evaluation of the customer’s creditworthiness and related collateral requirements. Commitments generally have fixed expiration dates or other termination clauses.
Standby letters of credit are conditional commitments issued to guarantee the performance of a borrower to a third party. In the event of nonperformance by the borrower, the Company would be required to fund the commitment and would be entitled to the underlying collateral, if applicable, which generally consists of pledges of business assets including, but not limited to, accounts receivable, inventory, plant and equipment, and/or real estate. The maximum potential future payments are limited to the contractual amount of the commitment.
The Company establishes an ACL on off-balance sheet credit exposures on its contractual off-balance sheet commitments, except those that are unconditionally cancellable by the Company. As of September 30, 2021 and December 31, 2020, the ACL on off-balance sheet credit exposures was $3.2 million and $2.6 million, respectively, and was presented within accrued interest and other liabilities on the consolidated statements of condition.
For the three months ended September 30, 2021 and 2020, the provision (credit) for credit losses on off-balance sheet credit exposures was $670,000 and ($13,000), respectively. For the nine months ended September 30, 2021 and 2020, the provision (credit) for credit losses on off-balance sheet credit exposures was $617,000 and ($12,000).
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.
27

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, 2021 and December 31, 2020.
NOTE 8 – DERIVATIVES AND HEDGING
The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.
Derivatives Designated as Hedging Instruments - Cash Flow Hedges of Interest Rate Risk
Interest Rate Contracts
The Company’s objectives in using interest rate derivatives are to add stability to interest income and expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed rate payments or the receipt of fixed rate amounts from a counterparty in exchange for the Company making variable-rate payments over the life of the agreements without exchange of the underlying notional amount. For the three and nine months ended September 30, 2021 and 2020, such derivatives were used to hedge the variable cash flows associated with existing variable-rate assets or liabilities or forecasted issuances of debt.
For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in AOCI and subsequently reclassified into interest expense or interest income in the same period(s) during which the hedged transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest expense or interest income as interest payments are made or received on the Company’s variable-rate liabilities or assets. The Company estimates that an additional $2.1 million will be reclassified as an increase to interest expense and an additional $1.6 million will be reclassified as an increase to interest income over the next 12 months.
Derivatives not Designated as Hedges
Customer Loan Swaps
Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.
Fixed Rate Mortgage Interest Rate Lock Commitments
As part of the origination process of a residential loan, the Company may enter into rate lock agreements with its borrower, which is considered an interest rate lock commitment. If the Company intends to sell the loan upon origination, it will account for the interest rate lock commitment as a derivative.
Forward Delivery Commitments
The Company typically enters into a forward delivery commitment with a secondary market investor, which has been approved by the Company within its normal governance process, at the onset of the loan origination process. The Company may enter into these arrangements with the secondary market investors on a "best effort" or "mandatory delivery" basis. The Company's normal practice is typically to enter into these arrangements on a "best effort" basis. The Company enters into these arrangements with the secondary market investors to manage its interest rate exposure. The Company accounts for the forward delivery commitment as a derivative upon origination of a loan identified as held for sale.
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The following table presents the fair value of the Company's derivative financial instruments as well as their classification on the consolidated statements of condition as of the dates indicated:

|  | Derivative Assets |  | Derivative Liabilities
(In thousands) |  | Notional Amount |  | Location |  | Fair Value |  | Notional Amount |  | Location |  | Fair Value
September 30, 2021 |  |  |  |  |  |  |  |  |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts(1) |  | $ | 160,000 |  |  | Other assets |  | $ | 6,849 |  |  | $ | 83,000 |  |  | Accrued interest and other liabilities |  | $ | 8,597 |
Total derivatives designated as hedging instruments |  |  |  |  |  | $ | 6,849 |  |  |  |  |  |  | $ | 8,597 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
Customer loan swaps(1) |  | $ | 347,921 |  |  | Other assets |  | $ | 24,045 |  |  | $ | 347,921 |  |  | Accrued interest and other liabilities |  | $ | 24,045 |
Fixed Rate mortgage interest rate lock commitments |  | 35,720 |  |  | Other assets |  | 498 |  |  | 15,302 |  |  | Accrued interest and other liabilities |  | 116 |
Forward delivery commitments |  | 8,492 |  |  | Other assets |  | 215 |  |  | 2,297 |  |  | Accrued interest and other liabilities |  | 22 |
Total derivatives not designated as hedging instruments |  |  |  |  |  | $ | 24,758 |  |  |  |  |  |  | $ | 24,183 |
December 31, 2020 |  |  |  |  |  |  |  |  |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  | $ | 110,000 |  |  | Other assets |  | $ | 5,731 |  |  | $ | 143,000 |  |  | Accrued interest and other liabilities |  | $ | 11,625 |
Total derivatives designated as hedging instruments |  |  |  |  |  | $ | 5,731 |  |  |  |  |  |  | $ | 11,625 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
Customer loan swaps |  | $ | 376,290 |  |  | Other assets |  | $ | 39,627 |  |  | $ | 376,290 |  |  | Accrued interest and other liabilities |  | $ | 39,627 |
Fixed rate mortgage interest rate lock commitments |  | 58,574 |  |  | Other assets |  | 608 |  |  | 28,346 |  |  | Accrued interest and other liabilities |  | 248 |
Forward delivery commitments |  | 24,951 |  |  | Other assets |  | 311 |  |  | 15,548 |  |  | Accrued interest and other liabilities |  | 196 |
Total derivatives not designated as hedging instruments |  |  |  |  |  | $ | 40,546 |  |  |  |  |  |  | $ | 40,071 |

(1) Reported fair values include accrued interest receivable and payable.
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The table below presents the effect of cash flow hedge accounting, before tax, on AOCI for the periods indicated:

(Dollars in thousands) |  | Amount of Gain (Loss) Recognized in OCI on Derivative |  | Amount of Gain (Loss) Recognized in OCI Included Component |  | Amount of Gain (Loss) Recognized in OCI Excluded Component | Location of Gain (Loss) Recognized from AOCI into Income |  | Amount of Gain (Loss) Reclassified from AOCI into Income |  | Amount of Gain (Loss) Reclassified from AOCI into Income Included Component |  | Amount of Gain (Loss) Reclassified from AOCI into Income Excluded Component
Derivatives in Cash Flow Hedge Relationships: |  |  |  |  |  |  |  |  |  |  |  |  |
For the Three Months Ended 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) |  |  | $ | — |
For the Three Months Ended September 30, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  | $ | (81) |  |  | $ | (81) |  |  | $ | — |  | Interest and fees on loans |  | $ | 311 |  |  | $ | 311 |  |  | $ | — |
Interest rate contracts |  | 140 |  |  | 140 |  |  | — |  | Interest on deposits |  | — |  |  | — |  |  | — |
Interest rate contracts |  | 197 |  |  | 197 |  |  | — |  | Interest on borrowings |  | (74) |  |  | (74) |  |  | — |
Interest rate contracts |  | 432 |  |  | 432 |  |  | — |  | Interest on subordinated debentures |  | (405) |  |  | (405) |  |  | — |
Total |  | $ | 688 |  |  | $ | 688 |  |  | $ | — |  |  |  | $ | (168) |  |  | $ | (168) |  |  | $ | — |
For the Nine Months Ended September 30, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  | $ | 5,844 |  |  | $ | 5,844 |  |  | $ | — |  | Interest and fees on loans |  | $ | 610 |  |  | $ | 610 |  |  | $ | — |
Interest rate contracts |  | (838) |  |  | (838) |  |  | — |  | Interest on deposits |  | (26) |  |  | (26) |  |  | — |
Interest rate contracts |  | (922) |  |  | (922) |  |  | — |  | Interest on borrowings |  | (22) |  |  | (22) |  |  | — |
Interest rate contracts |  | (4,502) |  |  | (4,502) |  |  | — |  | Interest on subordinated debentures |  | (942) |  |  | (942) |  |  | — |
Total |  | $ | (418) |  |  | $ | (418) |  |  | $ | — |  |  |  | $ | (380) |  |  | $ | (380) |  |  | $ | — |

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

|  | Location and Amount of Gain (Loss) Recognized in Income
|  | Three Months Ended September 30,
|  | 2021 |  | 2020
(Dollars in thousands) |  | Interest and fees on loans |  | Interest on deposits |  | Interest on borrowings |  | Interest on subordinated debentures |  | Interest and fees on loans |  | Interest on deposits |  | Interest on borrowings |  | Interest on subordinated debentures
Total presented on the consolidated statements of income in which the effects of cash flow hedges are recorded |  | $ | 31,185 |  |  | $ | 1,973 |  |  | $ | 122 |  |  | $ | 538 |  |  | $ | 33,025 |  |  | $ | 2,899 |  |  | $ | 394 |  |  | $ | 893 |
Gain (loss) on cash flow hedging relationships
Interest rate contracts:
Amount of gain (loss) reclassified from AOCI into income |  | $ | 410 |  |  | $ | (170) |  |  | $ | — |  |  | $ | (369) |  |  | $ | 311 |  |  | $ | — |  |  | $ | (74) |  |  | $ | (405) |
Amount of gain (loss) reclassified from AOCI into income - included component |  | $ | 410 |  |  | $ | (170) |  |  | $ | — |  |  | $ | (369) |  |  | $ | 311 |  |  | $ | — |  |  | $ | (74) |  |  | $ | (405) |
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,
|  | 2021 |  | 2020
(Dollars in thousands) |  | Interest and fees on loans |  | Interest on deposits |  | Interest on borrowings |  | Interest on subordinated debentures |  | Interest and fees on loans |  | Interest on deposits |  | Interest on borrowings |  | Interest on subordinated debentures
Total presented on the consolidated statements of income in which the effects of cash flow hedges are recorded |  | $ | 92,610 |  |  | $ | 5,957 |  |  | $ | 454 |  |  | $ | 1,983 |  |  | $ | 100,190 |  |  | $ | 12,953 |  |  | $ | 1,591 |  |  | $ | 2,668 |
Gain (loss) on cash flow hedging relationships
Interest rate contracts:
Amount of gain (loss) reclassified from AOCI into income |  | $ | 1,205 |  |  | $ | (490) |  |  | $ | — |  |  | $ | (1,222) |  |  | $ | 610 |  |  | $ | (26) |  |  | $ | (22) |  |  | $ | (942) |
Amount of gain (loss) reclassified from AOCI into income - included component |  | $ | 1,205 |  |  | $ | (490) |  |  | $ | — |  |  | $ | (1,222) |  |  | $ | 610 |  |  | $ | (26) |  |  | $ | (22) |  |  | $ | (942) |
Amount of gain (loss) reclassified from AOCI into income - excluded component |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |

The table below presents the effect of the Company's derivative financial instruments that are not designated as hedging instruments on the consolidated statements of income for the periods indicated:

|  | Location of Gain Recognized in Income |  | Amount of Gain (Loss) Recognized in Income
|  |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
(Dollars in thousands) |  |  | 2021 |  | 2020 |  | 2021 |  | 2020
Fixed rate mortgage interest rate lock commitments |  | Mortgage banking income, net |  | $ | (434) |  |  | $ | (386) |  |  | $ | 22 |  |  | $ | 110 |
Forward delivery commitments |  | Mortgage banking income, net |  | 65 |  |  | 123 |  |  | 78 |  |  | (33) |
Total |  |  |  | $ | (369) |  |  | $ | (263) |  |  | $ | 100 |  |  | $ | 77 |

Credit Risk-Related Contingent Features
By using derivatives, the Company is exposed to credit risk to the extent that counterparties to the derivative contracts do not perform as required. Should a counterparty fail to perform under the terms of a derivative contract, the Company’s credit exposure on interest rate swaps is limited to the net positive fair value and accrued interest of all swaps with each counterparty. The Company seeks to minimize counterparty credit risk through credit approvals, limits, monitoring procedures, and obtaining
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collateral, where appropriate. As such, management believes the risk of incurring credit losses on derivative contracts with institutional counterparties is remote.
The Company has agreements with its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. In addition, the Company also has agreements with certain of its derivative counterparties that contain a provision where if the Company fails to maintain its status as a well- capitalized institution, then the counterparty could terminate the derivative position(s) and the Company could be required to settle its obligations under the agreements.
As of September 30, 2021 and December 31, 2020, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for non-performance risk, related to these agreements was $31.1 million and $50.5 million, respectively. As of September 30, 2021 and December 31, 2020, the Company has minimum collateral posting thresholds with certain of its derivative counterparties and has posted cash collateral of $33.0 million and $57.5 million, respectively. If the Company had breached any of these provisions at September 30, 2021 or December 31, 2020, it could have been required to settle its obligations under the agreements at their termination value of $31.1 million and $50.5 million, respectively.
NOTE 9 – BALANCE SHEET OFFSETTING
The Company does not offset the carrying value for derivative instruments or repurchase agreements on the consolidated statements of condition. The Company does net the amount recognized for the right to reclaim cash collateral against the obligation to return cash collateral arising from instruments executed with the same counterparty under a master netting arrangement. Collateral legally required to be pledged or received is monitored and adjusted as necessary. Refer to Note 6 for further discussion of repurchase agreements and Note 8 for further discussion of derivative instruments.
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The following table presents the Company's derivative positions and repurchase agreements, and the potential effect of netting arrangements on its financial position, as of the dates indicated:

|  |  |  |  |  |  |  | Gross Amount Not Offset in the Consolidated Statements of Condition |  |
(In thousands) |  | Gross Amount Recognized in the Consolidated Statements of Condition |  | Gross Amount Offset in the Consolidated Statements of Condition |  | Net Amount Presented in the Consolidated Statements of Condition |  | Financial Instruments Pledged (Received)(1) |  | Cash Collateral Pledged (Received)(1) |  | Net Amount
September 30, 2021 |  |  |  |  |  |  |  |  |  |  |  |
Derivative assets: |  |  |  |  |  |  |  |  |  |  |  |
Customer loan swaps - commercial customer(2) |  | $ | 24,045 |  |  | $ | — |  |  | $ | 24,045 |  |  | $ | — |  |  | $ | — |  |  | $ | 24,045 |
Interest rate contracts(3) |  | 6,849 |  |  | — |  |  | 6,849 |  |  | — |  |  | (6,590) |  |  | 259 |
Total |  | $ | 30,894 |  |  | $ | — |  |  | $ | 30,894 |  |  | $ | — |  |  | $ | (6,590) |  |  | $ | 24,304 |
Derivative liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Customer loan swaps - dealer bank(3) |  | $ | 24,045 |  |  | $ | — |  |  | $ | 24,045 |  |  | $ | — |  |  | $ | 24,045 |  |  | $ | — |
Interest rate contracts(3) |  | 8,597 |  |  | — |  |  | 8,597 |  |  | — |  |  | 8,597 |  |  | — |
Total |  | $ | 32,642 |  |  | $ | — |  |  | $ | 32,642 |  |  | $ | — |  |  | $ | 32,642 |  |  | $ | — |
Customer repurchase agreements |  | $ | 211,552 |  |  | $ | — |  |  | $ | 211,552 |  |  | $ | 211,552 |  |  | $ | — |  |  | $ | — |
December 31, 2020 |  |  |  |  |  |  |  |  |  |  |  |
Derivative assets: |  |  |  |  |  |  |  |  |  |  |  |
Customer loan swaps - commercial customer(2) |  | $ | 39,627 |  |  | $ | — |  |  | $ | 39,627 |  |  | $ | — |  |  | $ | — |  |  | $ | 39,627 |
Interest rate contracts(3) |  | 5,731 |  |  | — |  |  | 5,731 |  |  | — |  |  | (5,595) |  |  | 136 |
Total |  | $ | 45,358 |  |  | $ | — |  |  | $ | 45,358 |  |  | $ | — |  |  | $ | (5,595) |  |  | $ | 39,763 |
Derivative liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Customer loan swaps - dealer bank(3) |  | $ | 39,627 |  |  | $ | — |  |  | $ | 39,627 |  |  | $ | — |  |  | $ | 39,627 |  |  | $ | — |
Interest rate contracts(3) |  | 11,625 |  |  | — |  |  | 11,625 |  |  | — |  |  | 11,625 |  |  | — |
Total |  | $ | 51,252 |  |  | $ | — |  |  | $ | 51,252 |  |  | $ | — |  |  | $ | 51,252 |  |  | $ | — |
Customer repurchase agreements |  | $ | 162,439 |  |  | $ | — |  |  | $ | 162,439 |  |  | $ | 162,439 |  |  | $ | — |  |  | $ | — |

(1) The amount presented was the lesser of the amount pledged (received) or the net amount presented in the consolidated statements of condition.
(2) The Company manages its net exposure on its commercial customer loan swaps by obtaining collateral as part of the normal loan policy and underwriting practices.
(3) Interest rate swap contracts were completed with the same dealer bank. The Company maintains a master netting arrangement and settles collateral requested or pledged on a net basis for all contracts.
NOTE 10 – REGULATORY CAPITAL REQUIREMENTS
The Company and Bank are subject to various regulatory capital requirements administered by the FRB and the OCC. Failure to meet minimum capital requirements can result in mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements.
The Company and Bank are required to maintain certain levels of capital based on risk-adjusted assets. These capital requirements represent quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Company and Bank's capital classification is also subject to qualitative judgments by our regulators about components, risk weightings and other factors. The quantitative measures established to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios of total capital, Tier 1 capital, and common equity Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets, or the leverage ratio. These guidelines apply to the Company on a consolidated basis.
Under the current guidelines, banking organizations must have a minimum total risk-based capital ratio of 8.0%, a minimum Tier 1 risk-based capital ratio of 6.0%, a minimum common equity Tier 1 risk-based capital ratio of 4.5%, and a minimum leverage ratio of 4.0% in order to be "adequately capitalized." In addition to these requirements, banking organizations must maintain a capital conservation buffer consisting of common Tier 1 equity in an amount above the minimum
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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, 2021 and December 31, 2020, and the Bank's capital ratios met the requirements for it to be considered "well capitalized" under prompt corrective action provisions for each period. There were no changes to the Company or Bank's capital ratios that occurred subsequent to September 30, 2021 that would change the Company or Bank's regulatory capital categorization. The following table presents the Company and Bank's regulatory capital ratios at the periods indicated:

|  | September 30, 2021 |  | Minimum Regulatory Capital Required for Capital Adequacy plus Capital Conservation Buffer |  | Minimum Regulatory Provision To Be "Well Capitalized" |  | December 31, 2020 |  | Minimum Regulatory Capital Required for Capital Adequacy plus Capital Conservation Buffer |  | Minimum Regulatory Provision To Be "Well Capitalized"
(Dollars in thousands) |  | Amount |  | Ratio |  |  |  | Amount |  | Ratio |  |
Camden National Corporation: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total risk-based capital ratio |  | $ | 515,656 |  |  | 15.06 | % |  | 10.50 | % |  | 10.00 | % |  | $ | 498,290 |  |  | 15.40 | % |  | 10.50 | % |  | 10.00 | %
Tier 1 risk-based capital ratio |  | 480,200 |  |  | 14.02 | % |  | 8.50 | % |  | 6.00 | % |  | 445,858 |  |  | 13.78 | % |  | 8.50 | % |  | 6.00 | %
Common equity Tier 1 risk-based capital ratio(1) |  | 437,200 |  |  | 12.77 | % |  | 7.00 | % |  | N/A |  | 402,858 |  |  | 12.45 | % |  | 7.00 | % |  | N/A
Tier 1 leverage capital ratio(1) |  | 480,200 |  |  | 9.13 | % |  | 4.00 | % |  | N/A |  | 445,858 |  |  | 9.13 | % |  | 4.00 | % |  | N/A
Camden National Bank: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total risk-based capital ratio |  | $ | 478,574 |  |  | 14.02 | % |  | 10.50 | % |  | 10.00 | % |  | $ | 460,611 |  |  | 14.28 | % |  | 10.50 | % |  | 10.00 | %
Tier 1 risk-based capital ratio |  | 443,118 |  |  | 12.98 | % |  | 8.50 | % |  | 8.00 | % |  | 420,294 |  |  | 13.03 | % |  | 8.50 | % |  | 8.00 | %
Common equity Tier 1 risk-based capital ratio |  | 443,118 |  |  | 12.98 | % |  | 7.00 | % |  | 6.50 | % |  | 420,294 |  |  | 13.03 | % |  | 7.00 | % |  | 6.50 | %
Tier 1 leverage capital ratio |  | 443,118 |  |  | 8.44 | % |  | 4.00 | % |  | 5.00 | % |  | 420,294 |  |  | 8.64 | % |  | 4.00 | % |  | 5.00 | %

(1) “Minimum Regulatory Provisions To Be ‘Well Capitalized’” are not formally defined under applicable banking regulations for bank holding companies.
In 2006 and 2008, the Company issued $43.0 million of junior subordinated debentures in connection with the issuance of trust preferred securities. Although the junior subordinated debentures are recorded as liabilities on the Company's consolidated statements of condition, the Company is permitted, in accordance with applicable regulation, to include, subject to certain limits, the debentures within its calculation of risk-based capital. At September 30, 2021 and December 31, 2020, $43.0 million of the junior subordinated debentures were included in Tier 1 and Tier 2 capital for the Company.
On April 16, 2021, the Company redeemed its $15.0 million of subordinated debentures in full, at par plus accrued and unpaid interest, and, thus, the subordinated debentures were no longer included as Tier 2 capital within the calculation of total risk-based capital at September 30, 2021. At December 31, 2020, $12.0 million, or 80%, of the subordinated debentures were included as Tier 2 capital within the calculation of the Company's total risk-based capital.
The Company and Bank's regulatory capital and risk-weighted assets fluctuate due to normal business, including profits and losses generated by the Company and Bank as well as changes to their asset mix. Of particular significance are changes within the Company and Bank's loan portfolio mix due to the differences in regulatory risk-weighting between retail and commercial loans. Furthermore, the Company and Bank's regulatory capital and risk-weighted assets are subject to change due to changes in GAAP and regulatory capital standards. The Company and Bank proactively monitor their regulatory capital and risk-weighted assets, and the impact of changes to their asset mix, and the impact of proposed and pending changes as a result of new and/or amended GAAP standards and regulatory changes.
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NOTE 11 – OTHER COMPREHENSIVE INCOME (LOSS)
The following tables present a reconciliation of the changes in the components of other comprehensive income and loss for the periods indicated, including the amount of tax (expense) benefit allocated to each component:

|  | For the Three Months Ended
|  | September 30, 2021 |  | September 30, 2020
(In thousands) |  | Pre-Tax Amount |  | Tax (Expense) Benefit |  | After-Tax Amount |  | Pre-Tax Amount |  | Tax (Expense) Benefit |  | After-Tax Amount
AFS Debt Securities: |  |  |  |  |  |  |  |  |  |  |  |
Change in fair value |  | $ | (6,546) |  |  | $ | 1,407 |  |  | $ | (5,139) |  |  | $ | (746) |  |  | $ | 160 |  |  | $ | (586) |
Net change in fair value |  | (6,546) |  |  | 1,407 |  |  | (5,139) |  |  | (746) |  |  | 160 |  |  | (586) |
Cash Flow Hedges: |  |  |  |  |  |  |  |  |  |  |  |
Change in fair value |  | 466 |  |  | (100) |  |  | 366 |  |  | 688 |  |  | (148) |  |  | 540 |
Less: reclassified AOCI loss into interest expense(1) |  | (539) |  |  | 116 |  |  | (423) |  |  | (479) |  |  | 103 |  |  | (376) |
Less: reclassified AOCI gain into interest income(2) |  | 410 |  |  | (88) |  |  | 322 |  |  | 311 |  |  | (67) |  |  | 244 |
Net change in fair value |  | 595 |  |  | (128) |  |  | 467 |  |  | 856 |  |  | (184) |  |  | 672 |
Postretirement Plans: |  |  |  |  |  |  |  |  |  |  |  |
Amortization of settlement recognition of net loss and prior service credit(3) |  | 217 |  |  | (46) |  |  | 171 |  |  | 169 |  |  | (36) |  |  | 133 |
Other comprehensive (loss) income |  | $ | (5,734) |  |  | $ | 1,233 |  |  | $ | (4,501) |  |  | $ | 279 |  |  | $ | (60) |  |  | $ | 219 |

(1) Reclassified into interest on deposits, borrowings and/or subordinated debentures on the consolidated statements of income. Refer to Note 8 of the consolidated financial statements for further details.
(2) Reclassified into interest and fees on loans on the consolidated statements of income. Refer to Note 8 of the consolidated financial statements for further details.
(3) Reclassified into other expenses on the consolidated statements of income. Refer to Note 13 of the consolidated financial statements for further details.

|  | For the Nine Months Ended
|  | September 30, 2021 |  | September 30, 2020
(In thousands) |  | Pre-Tax Amount |  | Tax (Expense) Benefit |  | After-Tax Amount |  | Pre-Tax Amount |  | Tax (Expense) Benefit |  | After-Tax Amount
AFS Debt Securities: |  |  |  |  |  |  |  |  |  |  |  |
Change in fair value |  | $ | (25,926) |  |  | $ | 5,574 |  |  | $ | (20,352) |  |  | $ | 32,451 |  |  | $ | (6,977) |  |  | $ | 25,474 |
Net change in fair value |  | (25,926) |  |  | 5,574 |  |  | (20,352) |  |  | 32,451 |  |  | (6,977) |  |  | 25,474 |
Cash Flow Hedges: |  |  |  |  |  |  |  |  |  |  |  |
Change in fair value |  | 3,655 |  |  | (785) |  |  | 2,870 |  |  | (418) |  |  | 90 |  |  | (328) |
Less: reclassified AOCI loss into interest expense(1) |  | (1,712) |  |  | 368 |  |  | (1,344) |  |  | (990) |  |  | 213 |  |  | (777) |
Less: reclassified AOCI gain into interest income(2) |  | 1,205 |  |  | (258) |  |  | 947 |  |  | 610 |  |  | (131) |  |  | 479 |
Net change in fair value |  | 4,162 |  |  | (895) |  |  | 3,267 |  |  | (38) |  |  | 8 |  |  | (30) |
Postretirement Plans: |  |  |  |  |  |  |  |  |  |  |  |
Amortization of settlement recognition of net loss and prior service credit(3) |  | 652 |  |  | (140) |  |  | 512 |  |  | 508 |  |  | (109) |  |  | 399 |
Other comprehensive (loss) income |  | $ | (21,112) |  |  | $ | 4,539 |  |  | $ | (16,573) |  |  | $ | 32,921 |  |  | $ | (7,078) |  |  | $ | 25,843 |

(1) Reclassified into interest on deposits, borrowings and/or subordinated debentures on the consolidated statements of income. Refer to Note 8 of the consolidated financial statements for further details.
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(2) Reclassified into interest and fees on loans on the consolidated statements of income. Refer to Note 8 of the consolidated financial statements for further details.
(3) Reclassified into other expenses on the consolidated statements of income. Refer to Note 13 of the consolidated financial statements for further details.
The following table presents the changes in each component of AOCI, after tax, for the periods indicated:

(In thousands) |  | Net Unrealized Gains (Losses) on AFS Debt Securities |  | Net Unrealized Losses (Gains) on Cash Flow Hedges |  | Defined Benefit Postretirement Plans |  | AOCI
At or For the Three Months Ended September 30, 2021 |  |  |  |  |  |  |  |
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 |
At or For the Three Months Ended September 30, 2020 |  |  |  |  |  |  |  |
Balance at June 30, 2020 |  | $ | 29,310 |  |  | $ | (6,750) |  |  | $ | (3,204) |  |  | $ | 19,356 |
Other comprehensive (loss) income before reclassifications |  | (586) |  |  | 540 |  |  | — |  |  | (46) |
Less: Amounts reclassified from AOCI |  | — |  |  | (132) |  |  | (133) |  |  | (265) |
Other comprehensive (loss) income |  | (586) |  |  | 672 |  |  | 133 |  |  | 219 |
Balance at September 30, 2020 |  | $ | 28,724 |  |  | $ | (6,078) |  |  | $ | (3,071) |  |  | $ | 19,575 |
At or For the Nine Months Ended September 30, 2020 |  |  |  |  |  |  |  |
Balance at December 31, 2019 |  | $ | 3,250 |  |  | $ | (6,048) |  |  | $ | (3,470) |  |  | $ | (6,268) |
Other comprehensive income (loss) before reclassifications |  | 25,474 |  |  | (328) |  |  | — |  |  | 25,146 |
Less: Amounts reclassified from AOCI |  | — |  |  | (298) |  |  | (399) |  |  | (697) |
Other comprehensive income (loss) |  | 25,474 |  |  | (30) |  |  | 399 |  |  | 25,843 |
Balance at September 30, 2020 |  | $ | 28,724 |  |  | $ | (6,078) |  |  | $ | (3,071) |  |  | $ | 19,575 |

NOTE 12 – REVENUE FROM CONTRACTS WITH CUSTOMERS
A portion of the Company's non-interest income is derived from contracts with customers, and, as such, the revenue recognized depicts the transfer of promised goods or services to its customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company considers the terms of the contract and all relevant facts and circumstances when applying this guidance.
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The Company has disaggregated its revenue from contracts with customers into categories based on the nature of the revenue. The categorization of revenues from contracts with customers that are within the scope of ASC 606 closely aligns with the presentation of revenue categories presented within non-interest income on the consolidated statements of income. The following table presents the revenue streams within the scope of ASC 606 for the periods indicated:

|  | Location on Consolidated Statements of Income |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
(In thousands) |  |  | 2021 |  | 2020 |  | 2021 |  | 2020
Debit card interchange income |  | Debit card income |  | $ | 3,278 |  |  | $ | 2,627 |  |  | $ | 9,126 |  |  | $ | 7,159 |
Services charges on deposit accounts |  | Service charges on deposit accounts |  | 1,744 |  |  | 1,606 |  |  | 4,800 |  |  | 4,955 |
Fiduciary services income |  | Income from fiduciary services |  | 1,627 |  |  | 1,504 |  |  | 4,860 |  |  | 4,609 |
Investment program income |  | Brokerage and insurance commissions |  | 993 |  |  | 755 |  |  | 2,885 |  |  | 2,034 |
Other non-interest income |  | Other income |  | 521 |  |  | 467 |  |  | 1,368 |  |  | 1,275 |
Total non-interest income within the scope of ASC 606 |  |  |  | 8,163 |  |  | 6,959 |  |  | 23,039 |  |  | 20,032 |
Total non-interest income not in scope of ASC 606 |  |  |  | 2,936 |  |  | 5,737 |  |  | 14,595 |  |  | 16,127 |
Total non-interest income |  |  |  | $ | 11,099 |  |  | $ | 12,696 |  |  | $ | 37,634 |  |  | $ | 36,159 |

In each of the revenue streams identified above, there were no significant judgments made in determining or allocating the transaction price, as the consideration and services are generally explicitly identified in the associated contracts.
NOTE 13 – EMPLOYEE BENEFIT PLANS
The Company sponsors unfunded, non-qualified SERPs for certain officers and provides medical and life insurance to certain eligible retired employees.
The components of net periodic pension and postretirement benefit cost were as follow for the following periods:
Supplemental Executive Retirement Plan:

(In thousands) |  | Location on Consolidated Statements of Income |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
Net periodic pension cost |  |  | 2021 |  | 2020 |  | 2021 |  | 2020
Service cost |  | Salaries and employee benefits |  | $ | 126 |  |  | $ | 116 |  |  | $ | 378 |  |  | $ | 348 |
Interest cost |  | Other expenses |  | 97 |  |  | 116 |  |  | 292 |  |  | 346 |
Recognized net actuarial loss |  | Other expenses |  | 194 |  |  | 155 |  |  | 583 |  |  | 467 |
Total |  |  |  | $ | 417 |  |  | $ | 387 |  |  | $ | 1,253 |  |  | $ | 1,161 |

Other Postretirement Benefit Plan:

(In thousands) |  | Location on Consolidated Statements of Income |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
Net periodic postretirement benefit cost |  |  | 2021 |  | 2020 |  | 2021 |  | 2020
Service cost |  | Salaries and employee benefits |  | $ | 7 |  |  | $ | 7 |  |  | $ | 20 |  |  | $ | 21 |
Interest cost |  | Other expenses |  | 26 |  |  | 31 |  |  | 77 |  |  | 92 |
Recognized net actuarial loss |  | Other expenses |  | 29 |  |  | 20 |  |  | 87 |  |  | 59 |
Amortization of prior service credit |  | Other expenses |  | (6) |  |  | (6) |  |  | (18) |  |  | (18) |
Total |  |  |  | $ | 56 |  |  | $ | 52 |  |  | $ | 166 |  |  | $ | 154 |

37

NOTE 14 – EPS
The following is an analysis of basic and diluted EPS, reflecting the application of the two-class method, as described below:

|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
(In thousands, except number of shares and per share data) |  | 2021 |  | 2020 |  | 2021 |  | 2020
Net income |  | $ | 14,640 |  |  | $ | 16,775 |  |  | $ | 52,523 |  |  | $ | 41,208 |
Dividends and undistributed earnings allocated to participating securities(1) |  | (40) |  |  | (47) |  |  | (145) |  |  | (101) |
Net income available to common shareholders |  | $ | 14,600 |  |  | $ | 16,728 |  |  | $ | 52,378 |  |  | $ | 41,107 |
Weighted-average common shares outstanding for basic EPS |  | 14,931,056 |  |  | 14,961,465 |  |  | 14,930,387 |  |  | 15,008,004 |
Dilutive effect of stock-based awards(2) |  | 67,957 |  |  | 39,582 |  |  | 66,154 |  |  | 36,423 |
Weighted-average common and potential common shares for diluted EPS |  | 14,999,013 |  |  | 15,001,047 |  |  | 14,996,541 |  |  | 15,044,427 |
Earnings per common share: |  |  |  |  |  |  |  |
Basic EPS |  | $ | 0.98 |  |  | $ | 1.12 |  |  | $ | 3.51 |  |  | $ | 2.74 |
Diluted EPS |  | $ | 0.97 |  |  | $ | 1.11 |  |  | $ | 3.49 |  |  | $ | 2.73 |
Awards excluded from the calculation of diluted EPS(3): |  |  |  |  |  |  |  |
MSPP |  | — |  |  | 6,345 |  |  | — |  |  | — |
Performance-based awards |  | 3,382 |  |  | 861 |  |  | — |  |  | 2,206 |
Stock options |  | — |  |  | 1,000 |  |  | — |  |  | 1,000 |

(1) Represents dividends paid and undistributed earnings allocated to nonvested stock-based awards that contain non-forfeitable rights to dividends.
(2) Represents the assumed dilutive effect of unexercised and/or unvested stock options, restricted shares, restricted share units and contingently issuable performance-based awards utilizing the treasury stock method.
(3) Represents stock-based awards not included in the computation of potential common shares for purposes of calculating diluted EPS as the exercise prices were greater than the average market price of the Company's common stock, and, therefore, are considered anti-dilutive.
Nonvested stock-based payment awards that contain non-forfeitable rights to dividends are participating securities and are included in the computation of EPS pursuant to the two-class method. The two-class method is an earnings allocation formula that determines EPS for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. Certain of the Company’s nonvested stock-based awards qualify as participating securities.
Net income is allocated between the common stock and participating securities pursuant to the two-class method. Basic EPS is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period, excluding participating nonvested stock-based awards. Diluted EPS is computed in a similar manner, except that the denominator includes the number of additional common shares that would have been outstanding if potentially dilutive common shares were issued using the treasury stock method.
NOTE 15 – FAIR VALUE MEASUREMENT AND DISCLOSURE
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined using quoted market prices. However, in many instances, quoted market prices are not available. In such instances, fair values are determined using various valuation techniques. Various assumptions and observable inputs must be relied upon in applying these techniques. GAAP establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.
GAAP permits an entity to choose to measure eligible financial instruments and other items at fair value. The Company has elected the fair value option for its loans held for sale. Electing the fair value option for loans held for sale enables the Company’s financial position to more clearly align with the economic value of the actively traded asset.
38

The fair value hierarchy for valuation of an asset or liability is as follows:
Level 1: Valuation is based upon unadjusted quoted prices in active markets for identical assets and liabilities that the entity has the ability to access as of the measurement date.
Level 2: Valuation is determined from quoted prices for similar assets or liabilities in active markets, from quoted prices for identical or similar instruments in markets that are not active or by model-based techniques in which all significant inputs are observable in the market.
Level 3: Valuation is derived from model-based and other techniques in which at least one significant input is unobservable and which may be based on the Company’s own estimates about the assumptions that market participants would use to value the asset or liability.
In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon model-based techniques incorporating various assumptions including interest rates, prepayment speeds and credit losses. Assets and liabilities valued using model-based techniques are classified as either Level 2 or Level 3, depending on the lowest level classification of an input that is considered significant to the overall valuation. A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.
Financial Instruments Recorded at Fair Value on a Recurring Basis
Trading Securities: The fair value of trading securities is reported using market quoted prices and has been classified as Level 1 as they are actively traded and no valuation adjustments have been applied.
Debt Securities: The fair value of investments in debt securities is reported utilizing prices provided by an independent pricing service based on recent trading activity and other observable information including, but not limited to, dealer quotes, market spreads, cash flows, market interest rate curves, market consensus prepayment speeds, credit information, and the bond’s terms and conditions. The fair value of debt securities is classified as Level 2.
Loans Held For Sale: The fair value of loans held for sale is determined on an individual loan basis using quoted secondary market prices and is classified as Level 2.
Derivatives: The fair value of interest rate swaps is determined using inputs that are observable in the market place obtained from third parties including yield curves, publicly available volatilities, and floating indexes and, accordingly, are classified as Level 2 inputs. The credit value adjustments associated with derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. As of September 30, 2021 and December 31, 2020, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives as sufficient collateral exists, mitigating the credit risk.
The fair value of the Company's fixed rate interest rate lock commitments were determined using secondary market pricing for loans with similar structures, including term, rate and borrower credit quality, adjusted for the Company's pull-through rate estimate (i.e. estimate of loans within its loan pipeline that will ultimately complete the origination process and be funded). The Company has classified its fixed rate interest rate lock commitments as Level 2, as the quoted secondary market prices are the more significant input, and, although the Company's internal pull-through rate estimate is a Level 3 estimate, it is less significant to the ultimate valuation.
The fair value of the Company's forward delivery commitments is determined using secondary market pricing for loans with similar structures, including term, rate and borrower credit quality, and the locked and agreed to price with the secondary market investor. The Company has classified its fixed rate interest rate lock commitments as Level 2.
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The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value, for the dates indicated:

(In thousands) |  | Fair Value |  | Readily Available Market Prices (Level 1) |  | Observable Market Data (Level 2) |  | Company Determined Fair Value (Level 3)
September 30, 2021 |  |  |  |  |  |  |  |
Financial assets: |  |  |  |  |  |  |  |
Trading securities |  | $ | 4,335 |  |  | $ | 4,335 |  |  | $ | — |  |  | $ | — |
AFS debt securities: |  |  |  |  |  |  |  |
Obligations of U.S. government-sponsored enterprises |  | 8,452 |  |  | — |  |  | 8,452 |  |  | — |
Obligations of states and political subdivisions |  | 117,753 |  |  | — |  |  | 117,753 |  |  | — |
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises |  | 919,992 |  |  | — |  |  | 919,992 |  |  | — |
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises |  | 392,827 |  |  | — |  |  | 392,827 |  |  | — |
Subordinated corporate bonds |  | 16,186 |  |  | — |  |  | 16,186 |  |  | — |
Loans held for sale |  | 10,826 |  |  | — |  |  | 10,826 |  |  | — |
Customer loan swaps |  | 24,045 |  |  | — |  |  | 24,045 |  |  | — |
Interest rate contracts |  | 6,849 |  |  | — |  |  | 6,849 |  |  | — |
Fixed rate mortgage interest rate lock commitments |  | 498 |  |  | — |  |  | 498 |  |  | — |
Forward delivery commitments |  | 215 |  |  | — |  |  | 215 |  |  | — |
Financial liabilities: |  |  |  |  |  |  |  |
Trading securities |  | $ | 4,335 |  |  | $ | 4,335 |  |  | $ | — |  |  | $ | — |
Customer loan swaps |  | 24,045 |  |  | — |  |  | 24,045 |  |  | — |
Interest rate contracts |  | 8,597 |  |  | — |  |  | 8,597 |  |  | — |
Fixed rate mortgage interest rate lock commitments |  | 116 |  |  | — |  |  | 116 |  |  | — |
Forward delivery commitments |  | 22 |  |  | — |  |  | 22 |  |  | — |
December 31, 2020 |  |  |  |  |  |  |  |
Financial assets: |  |  |  |  |  |  |  |
Trading securities |  | $ | 4,161 |  |  | $ | 4,161 |  |  | $ | — |  |  | $ | — |
AFS debt securities: |  |  |  |  |  |  |  |
Obligations of states and political subdivisions |  | 127,120 |  |  | — |  |  | 127,120 |  |  | — |
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises |  | 566,618 |  |  | — |  |  | 566,618 |  |  | — |
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises |  | 410,454 |  |  | — |  |  | 410,454 |  |  | — |
Subordinated corporate bonds |  | 11,621 |  |  | — |  |  | 11,621 |  |  | — |
Loans held for sale |  | 41,557 |  |  | — |  |  | 41,557 |  |  | — |
Customer loan swaps |  | 39,627 |  |  | — |  |  | 39,627 |  |  | — |
Interest rate contracts |  | 5,731 |  |  | — |  |  | 5,731 |  |  | — |
Fixed rate mortgage interest rate lock commitments |  | 608 |  |  | — |  |  | 608 |  |  | — |
Forward delivery commitments |  | 311 |  |  | — |  |  | 311 |  |  | — |
Financial liabilities: |  |  |  |  |  |  |  |
Trading securities |  | $ | 4,161 |  |  | $ | 4,161 |  |  | $ | — |  |  | $ | — |
Customer loan swaps |  | 39,627 |  |  | — |  |  | 39,627 |  |  | — |
Interest rate contracts |  | 11,625 |  |  | — |  |  | 11,625 |  |  | — |
Fixed rate mortgage interest rate lock commitments |  | 248 |  |  | — |  |  | 248 |  |  | — |
Forward delivery commitments |  | 196 |  |  | — |  |  | 196 |  |  | — |

The Company did not have any transfers between Level 1 and Level 2 of the fair value hierarchy during the nine months ended September 30, 2021. The Company’s policy for determining transfers between levels occurs at the end of the reporting period when circumstances in the underlying valuation criteria change and result in transfer between levels.
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Financial Instruments Recorded at Fair Value on a Nonrecurring Basis
The Company may be required, from time to time, to measure certain financial assets and financial liabilities at fair value on a nonrecurring basis in accordance with GAAP. These include assets that are measured at the lower of cost or market value that were recognized at fair value below cost at the end of the period.
Collateral-Dependent Loans: Expected credit losses on individually assessed loans deemed to be collateral dependent are valued based upon the lower of amortized cost of fair value of the underlying collateral less costs to sell. Management estimates the fair values of these assets using Level 2 inputs, such as the fair value of collateral based on independent third-party market approach appraisals for collateral-dependent loans, and Level 3 inputs where circumstances warrant an adjustment to the appraised value based on the age of the appraisal and/or comparable sales, condition of the collateral, and market conditions.
Servicing Assets: The Company accounts for mortgage servicing assets at cost, subject to impairment testing. When the carrying value of a tranche exceeds fair value, a valuation allowance is established to reduce the carrying cost to fair value. Fair value is based on a valuation model that calculates the present value of estimated net servicing income. The Company obtains a third-party valuation based upon loan level data including note rate, type and term of the underlying loans. The model utilizes two significant unobservable inputs, namely loan prepayment assumptions and the discount rate used, to calculate the fair value of each tranche, and, as such, the Company has classified the model within Level 3 of the fair value hierarchy.
Non-Financial Instruments Recorded at Fair Value on a Non-Recurring Basis
The Company has no non-financial assets or non-financial liabilities measured at fair value on a recurring basis. Non-financial assets measured at fair value on a non-recurring basis consist of OREO, goodwill and core deposit intangible assets.
OREO: OREO properties acquired through foreclosure or deed in lieu of foreclosure are recorded at net realizable value, which is the fair value of the real estate, less estimated costs to sell. Any write-down of the recorded investment in the related loan is charged to the ACL upon transfer to OREO. Upon acquisition of a property, a current appraisal is used or an internal valuation is prepared to substantiate fair value of the property. After foreclosure, management periodically, but at least annually, obtains updated valuations of the OREO properties and, if additional impairments are deemed necessary, the subsequent write-downs for declines in value are recorded through a valuation allowance and a provision for credit losses charged to other non-interest expense within the consolidated statements of income. As management considers appropriate, adjustments are made to the appraisal obtained for the OREO property to account for recent sales activity of comparable properties, changes in the condition of the property, and changes in market conditions. These adjustments are not observable in an active market and are classified as Level 3.
Goodwill: Goodwill represents the excess cost of an acquisition over the fair value of the net assets acquired. The fair value of goodwill is estimated by utilizing several standard valuation techniques, including discounted cash flow analyses, bank merger multiples, and/or an estimation of the impact of business conditions and investor activities on the long-term value of the goodwill. Should an impairment occur, the associated goodwill is written-down to fair value and the impairment charge is recorded within non-interest expense in the consolidated statements of income. The Company conducts an annual impairment test of goodwill in the fourth quarter each year, or more frequently as necessary. There have been no indications or triggering events during the nine months ended September 30, 2021, for which management believes it is more likely than not that goodwill is impaired.
Core Deposit Intangible Assets: The Company's core deposit intangible assets represent the estimated value of acquired customer relationships and are amortized over the estimated life of those relationships. Core deposit intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. There were no events or changes in circumstances for the nine months ended September 30, 2021, that indicated the carrying amount may not be recoverable.
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The table below highlights financial and non-financial assets measured and recorded at fair value on a non-recurring basis for the dates indicated:

(In thousands) |  | Fair Value |  | Readily Available Market Prices (Level 1) |  | Observable Market Data (Level 2) |  | Company Determined Fair Value (Level 3)
September 30, 2021 |  |  |  |  |  |  |  |
Financial assets: |  |  |  |  |  |  |  |
Collateral-dependent loans |  | $ | 74 |  |  | $ | — |  |  | $ | — |  |  | $ | 74 |
December 31, 2020 |  |  |  |  |  |  |  |
Financial assets: |  |  |  |  |  |  |  |
Servicing assets |  | $ | 1,010 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,010 |
Non-financial assets: |  |  |  |  |  |  |  |
OREO |  | $ | 236 |  |  | $ | — |  |  | $ | — |  |  | $ | 236 |

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

(Dollars in thousands) |  | Fair Value |  | Valuation Methodology |  | Unobservable Input |  | Discount |
September 30, 2021 |  |  |  |  |  |  |  |  |
Collateral-dependent loans: |  |  |  |  |  |  |  |  |
Specifically reserved |  | $ | 74 |  |  | Market approach appraisal of collateral |  | Estimated selling costs |  | 11% |
December 31, 2020 |  |  |  |  |  |  |  |  |
Servicing assets |  | $ | 1,010 |  |  | Discounted cash flow |  | Weighted-average constant prepayment rate |  | 19% |
|  |  |  |  |  | Weighted average discount rate |  | 10% |
OREO |  | $ | 236 |  |  | Market approach appraisal of collateral |  | Management adjustment of appraisal |  | 5% |
|  |  |  |  |  | Estimated selling cost |  | 11% |

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

(In thousands) |  | Carrying Amount |  | Fair Value |  | Readily Available Market Prices (Level 1) |  | Observable Market Prices (Level 2) |  | Company Determined Market Prices (Level 3)
September 30, 2021 |  |  |  |  |  |  |  |  |  |
Financial assets: |  |  |  |  |  |  |  |  |  |
HTM debt securities |  | $ | 1,293 |  |  | $ | 1,390 |  |  | $ | — |  |  | $ | 1,390 |  |  | $ | — |
Commercial real estate loans(1)(2) |  | 1,397,639 |  |  | 1,360,937 |  |  | — |  |  | — |  |  | 1,360,937 |
Commercial loans(2) |  | 347,944 |  |  | 345,341 |  |  | — |  |  | — |  |  | 345,341 |
SBA PPP loans(2) |  | 81,916 |  |  | 85,660 |  |  | — |  |  | — |  |  | 85,660 |
Residential real estate loans(2) |  | 1,218,431 |  |  | 1,225,153 |  |  | — |  |  | — |  |  | 1,225,153 |
Home equity loans(2) |  | 216,959 |  |  | 214,909 |  |  | — |  |  | — |  |  | 214,909 |
Consumer loans(2) |  | 20,142 |  |  | 18,234 |  |  | — |  |  | — |  |  | 18,234 |
Servicing assets |  | 2,495 |  |  | 3,215 |  |  | — |  |  | — |  |  | 3,215 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |
Time deposits |  | $ | 373,414 |  |  | $ | 374,316 |  |  | $ | — |  |  | $ | 374,316 |  |  | $ | — |
Short-term borrowings |  | 211,552 |  |  | 211,530 |  |  | — |  |  | 211,530 |  |  | — |
Subordinated debentures |  | 44,331 |  |  | 33,027 |  |  | — |  |  | 33,027 |  |  | — |
December 31, 2020 |  |  |  |  |  |  |  |  |  |
Financial assets: |  |  |  |  |  |  |  |  |  |
HTM debt securities |  | $ | 1,297 |  |  | $ | 1,411 |  |  | $ | — |  |  | $ | 1,411 |  |  | $ | — |
Commercial real estate loans(1)(2) |  | 1,344,860 |  |  | 1,307,132 |  |  | — |  |  | — |  |  | 1,307,132 |
Commercial loans(2) |  | 374,791 |  |  | 372,194 |  |  | — |  |  | — |  |  | 372,194 |
SBA PPP loans(2) |  | 135,026 |  |  | 137,209 |  |  |  |  |  |  | 137,209 |
Residential real estate loans(2) |  | 1,051,324 |  |  | 1,066,991 |  |  | — |  |  | — |  |  | 1,066,991 |
Home equity loans(2) |  | 255,957 |  |  | 253,276 |  |  | — |  |  | — |  |  | 253,276 |
Consumer loans(2) |  | 19,999 |  |  | 18,102 |  |  | — |  |  | — |  |  | 18,102 |
Servicing assets |  | 2,196 |  |  | 1,437 |  |  | — |  |  | — |  |  | 1,437 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |
Time deposits |  | $ | 457,694 |  |  | $ | 460,278 |  |  | $ | — |  |  | $ | 460,278 |  |  | $ | — |
Short-term borrowings |  | 162,439 |  |  | 162,420 |  |  | — |  |  | 162,420 |  |  | — |
Long-term borrowings |  | 25,000 |  |  | 25,442 |  |  | — |  |  | 25,442 |  |  | — |
Subordinated debentures |  | 59,331 |  |  | 46,475 |  |  | — |  |  | 46,475 |  |  | — |

(1) Commercial real estate loan includes non owner-occupied and owner-occupied properties.
(2) The presented carrying amount is net of the allocated ACL on loans.
Excluded from the summary were financial instruments measured at fair value on a recurring and nonrecurring basis, as previously described.
The Company considers its financial instruments' current use to be the highest and best use of the instruments.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
The discussions set forth below and in the documents we incorporate by reference herein contain certain statements that may be considered forward-looking statements under the Private Securities Litigation Reform Act of 1995, as amended, including certain plans, exceptions, goals, projections, and statements, which are subject to numerous risks, assumptions, and uncertainties. Forward-looking statements can be identified by the use of the words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “assume,” “plan,” “target,” or “goal” or future or conditional verbs such as “will,” “may,” “might,” “should,” “could” and other expressions which predict or indicate future events or trends and which do not relate to historical matters. Forward-looking statements should not be relied on, because they involve known and unknown risks, uncertainties and other factors, some of which are beyond the control of the Company. These risks, uncertainties and other factors may cause the actual results, performance or achievements of the Company to be materially different from the anticipated future results, performance or achievements expressed or implied by the forward-looking statements.
The following factors, among others, could cause the Company’s financial performance to differ materially from the Company’s goals, plans, objectives, intentions, expectations and other forward-looking statements:
•weakness in the United States economy in general and the regional and local economies within the New England region and Maine, which could result in a deterioration of credit quality, an increase in the allowance for credit losses or a reduced demand for the Company’s credit or fee-based products and services;
•changes in trade, monetary, and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System;
•inflation, interest rate, market, and monetary fluctuations;
•competitive pressures, including continued industry consolidation and the increased financial services provided by non-banks;
•volatility in the securities markets that could adversely affect the value or credit quality of the Company’s assets, impairment of goodwill, the availability and terms of funding necessary to meet the Company’s liquidity needs, and which could lead to impairment in the value of securities in the Company's investment portfolio;
•changes in information technology and other operational risks, including cybersecurity, that require increased capital spending;
•changes in consumer spending and savings habits;
•changes in tax, banking, securities and insurance laws and regulations; and
•changes in accounting policies, practices and standards, as may be adopted by the regulatory agencies as well as the Financial Accounting Standards Board ("FASB"), and other accounting standard setters.
In addition, statements about the potential effects of the COVID-19 pandemic on the Company's businesses and results of operations and financial conditions may constitute forward-looking statements. Such statements may include, but are not limited to, statements concerning:
•the continued effectiveness of our Pandemic Work Group;
•the continuing ability of our employees to work remotely;
•our continuing ability to staff our branches and keep our branches open;
•the continuing strength of our capital and liquidity positions;
•our continued ability to access sources of contingent liquidity;
•the continuing strength of the asset quality in our lending portfolios; and
•the potential effectiveness of relief measures and programs for customers affected by COVID-19.
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These statements are subject to the risk that the actual effects may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond our control, including the scope and duration of the pandemic, the spread of new variations of the COVID virus and the efficacy of vaccines against those variations, the adoption rate of COVID vaccines, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on our customers, third parties and the Company.
You should carefully review all of these factors, and be aware that there may be other factors that could cause differences, including the risk factors listed in our Annual Report on Form 10-K for the year ended December 31, 2020, as updated by the Company's quarterly reports on Form 10-Q, including this report, and other filings with the Securities and Exchange Commission. Readers should carefully review the risk factors described therein and should not place undue reliance on our forward-looking statements.
These forward-looking statements were based on information, plans and estimates at the date of this report, and we undertake no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes, except to the extent required by applicable law or regulation.
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NON-GAAP FINANCIAL MEASURES AND RECONCILIATION TO GAAP
In addition to evaluating the Company’s results of operations in accordance with GAAP, management supplements this evaluation with an analysis of certain non-GAAP financial measures, such as the return on average tangible equity; efficiency ratio; net interest income (fully-taxable equivalent); pre-tax, pre-provision earnings; adjusted yield on interest-earning assets and adjusted net interest margin (fully-taxable equivalent); tangible book value per share; tangible common equity ratio; core deposits and average core deposits; and total loans, excluding SBA PPP loans. These non-GAAP financial measures are utilized for purposes of measuring performance against the Company's peer group and other financial institutions, as well as for analyzing its internal performance. The Company also believes these non-GAAP financial measures help investors better understand the Company's operating performance and trends and allows for better performance comparisons to other banks. In addition, these non-GAAP financial measures remove the impact of unusual items that may obscure trends in the Company’s underlying performance. These disclosures should not be viewed as a substitute for GAAP operating results, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other financial institutions.
Return on Average Tangible Equity: Return on average tangible equity is the ratio of (i) net income, adjusted for (a) tax effected amortization of core deposit intangible assets and (b) goodwill impairment, as necessary, to (ii) average shareholders' equity, adjusted for average goodwill and core deposit intangible assets. This adjusted financial ratio reflects a shareholders' return on tangible capital deployed in our business and is a common measure within the financial services industry.

|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
(Dollars in thousands) |  | 2021 |  | 2020 |  | 2021 |  | 2020
Net income, as presented |  | $ | 14,640 |  |  | $ | 16,775 |  |  | $ | 52,523 |  |  | $ | 41,208 |
Add: amortization of core deposit intangible assets, net of tax(1) |  | 129 |  |  | 134 |  |  | 388 |  |  | 404 |
Net income, adjusted for amortization of core deposit intangible assets |  | $ | 14,769 |  |  | $ | 16,909 |  |  | $ | 52,911 |  |  | $ | 41,612 |
Average equity, as presented |  | $ | 552,721 |  |  | $ | 512,902 |  |  | $ | 541,841 |  |  | $ | 497,564 |
Less: average goodwill and core deposit intangible assets |  | (97,128) |  |  | (97,794) |  |  | (97,293) |  |  | (97,967) |
Average tangible equity |  | $ | 455,593 |  |  | $ | 415,108 |  |  | $ | 444,548 |  |  | $ | 399,597 |
Return on average equity |  | 10.51 | % |  | 13.01 | % |  | 12.96 | % |  | 11.06 | %
Return on average tangible equity |  | 12.86 | % |  | 16.21 | % |  | 15.91 | % |  | 13.91 | %

(1) Assumed a 21% tax rate.
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Efficiency Ratio. The efficiency ratio represents an approximate measure of the cost required for the Company to generate a dollar of revenue. This is a common measure within the financial services industry and is a key ratio for evaluating Company performance. The efficiency ratio is calculated as the ratio of (i) total non-interest expense, adjusted for certain operating expenses, as necessary, to (ii) net interest income on a tax equivalent basis plus total non-interest income, adjusted for certain other income items, as necessary.

|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
(Dollars in thousands) |  | 2021 |  | 2020 |  | 2021 |  | 2020
Non-interest expense, as presented |  | $ | 26,263 |  |  | $ | 25,221 |  |  | $ | 76,752 |  |  | $ | 73,291 |
Less: legal settlement |  | — |  |  | (1,200) |  |  | — |  |  | (1,200) |
Less: prepayment penalty on borrowings |  | — |  |  | — |  |  | (514) |  |  | — |
Adjusted non-interest expense |  | $ | 26,263 |  |  | $ | 24,021 |  |  | $ | 76,238 |  |  | $ | 72,091 |
Net interest income, as presented |  | $ | 34,746 |  |  | $ | 34,481 |  |  | $ | 100,639 |  |  | $ | 100,846 |
Add: effect of tax-exempt income(1) |  | 228 |  |  | 292 |  |  | 764 |  |  | 865 |
Non-interest income, as presented |  | 11,099 |  |  | 12,696 |  |  | 37,634 |  |  | 36,159 |
Adjusted net interest income plus non-interest income |  | $ | 46,073 |  |  | $ | 47,469 |  |  | $ | 139,037 |  |  | $ | 137,870 |
Ratio of non-interest expense to total revenues(2) |  | 57.29 | % |  | 53.46 | % |  | 55.51 | % |  | 53.50 | %
Efficiency ratio |  | 57.00 | % |  | 50.60 | % |  | 54.83 | % |  | 52.29 | %

(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,
(In thousands) |  | 2021 |  | 2020 |  | 2021 |  | 2020
Net interest income, as presented |  | $ | 34,746 |  |  | $ | 34,481 |  |  | $ | 100,639 |  |  | $ | 100,846 |
Add: effect of tax-exempt income(1) |  | 228 |  |  | 292 |  |  | 764 |  |  | 865 |
Net interest income (fully-taxable equivalent) |  | $ | 34,974 |  |  | $ | 34,773 |  |  | $ | 101,403 |  |  | $ | 101,711 |

(1) Assumed a 21% tax rate.
Pre-tax, Pre-provision Earnings. Pre-tax, pre-provision earnings is a supplemental measure of operating earnings and performance, and is calculated as net income before provision for credit losses and income tax expense. This supplemental measure has become more widely used by financial institutions as a measure of financial performance for comparability across financial institutions due to the impact of the COVID-19 pandemic on the provision for credit losses, as well as the differences in accounting methodology for the ACL across financial institutions.

|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
(In thousands) |  | 2021 |  | 2020 |  | 2021 |  | 2020
Net income, as presented |  | $ | 14,640 |  |  | $ | 16,775 |  |  | $ | 52,523 |  |  | $ | 41,208 |
Add (less): provision (credit) for credit losses |  | 939 |  |  | 987 |  |  | (4,420) |  |  | 12,160 |
Add: income tax expense |  | 4,003 |  |  | 4,194 |  |  | 13,418 |  |  | 10,346 |
Pre-tax, pre-provision earnings |  | $ | 19,582 |  |  | $ | 21,956 |  |  | $ | 61,521 |  |  | $ | 63,714 |

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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,
|  | 2021 |  | 2020 |  | 2021 |  | 2020
Yield on interest-earning assets, as presented |  | 2.97 | % |  | 3.37 | % |  | 3.06 | % |  | 3.59 | %
Add: effect of excess liquidity on yield on interest-earning assets |  | 0.16 | % |  | 0.10 | % |  | 0.12 | % |  | 0.06 | %
Less: effect of SBA PPP loans on yield on interest-earning assets |  | (0.09) | % |  | (0.04) | % |  | (0.06) | % |  | (0.01) | %
Adjusted yield on interest-earning assets |  | 3.04 | % |  | 3.43 | % |  | 3.12 | % |  | 3.64 | %

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,
|  | 2021 |  | 2020 |  | 2021 |  | 2020
Net interest margin (fully-taxable equivalent), as presented |  | 2.76 | % |  | 3.00 | % |  | 2.82 | % |  | 3.06 | %
Add: effect of excess liquidity on net interest margin (fully-taxable equivalent) |  | 0.15 | % |  | 0.10 | % |  | 0.12 | % |  | 0.06 | %
Less: effect of SBA PPP loans on net interest margin (fully-taxable equivalent) |  | (0.09) | % |  | (0.06) | % |  | (0.07) | % |  | (0.02) | %
Adjusted net interest margin (fully-taxable equivalent) |  | 2.82 | % |  | 3.04 | % |  | 2.87 | % |  | 3.10 | %

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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) |  | September 30, 2021 |  | December 31, 2020
Tangible Book Value Per Share: |  |  |  |
Shareholders’ equity, as presented |  | $ | 545,984 |  |  | $ | 529,314 |
Less: goodwill and other intangible assets |  | (97,049) |  |  | (97,540) |
Tangible shareholders’ equity |  | $ | 448,935 |  |  | $ | 431,774 |
Shares outstanding at period end |  | 14,849,327 |  |  | 14,909,097 |
Book value per share |  | $ | 36.77 |  |  | $ | 35.50 |
Tangible book value per share |  | $ | 30.23 |  |  | $ | 28.96 |
Tangible Common Equity Ratio: |  |  |  |
Total assets |  | $ | 5,502,902 |  |  | $ | 4,898,745 |
Less: goodwill and other intangible assets |  | (97,049) |  |  | (97,540) |
Tangible assets |  | $ | 5,405,853 |  |  | $ | 4,801,205 |
Common equity ratio |  | 9.92 | % |  | 10.81 | %
Tangible common equity ratio |  | 8.30 | % |  | 8.99 | %

Core Deposits. Core deposits are used by management to measure the portion of the Company's total deposits that management believes to be more stable and 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) |  | September 30, 2021 |  | December 31, 2020
Total deposits |  | $ | 4,605,180 |  |  | $ | 4,005,244 |
Less: certificates of deposit |  | (323,395) |  |  | (357,666) |
Less: brokered deposits |  | (288,975) |  |  | (283,567) |
Core deposits |  | $ | 3,992,810 |  |  | $ | 3,364,011 |

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

|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
(In thousands) |  | 2021 |  | 2020 |  | 2021 |  | 2020
Total average deposits |  | $ | 4,223,964 |  |  | $ | 3,794,434 |  |  | $ | 3,994,457 |  |  | $ | 3,609,355 |
Less: average certificates of deposit |  | (327,802) |  |  | (417,788) |  |  | (339,230) |  |  | (482,076) |
Average core deposits |  | $ | 3,896,162 |  |  | $ | 3,376,646 |  |  | $ | 3,655,227 |  |  | $ | 3,127,279 |

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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, 2021 |  | December 31, 2020
Total loans, as presented |  | $ | 3,315,303 |  |  | $ | 3,219,822 |
Less: SBA PPP loans |  | (81,959) |  |  | (135,095) |
Total loans, excluding SBA PPP loans |  | $ | 3,233,344 |  |  | $ | 3,084,727 |

CRITICAL ACCOUNTING POLICIES
Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. In preparing the Company’s consolidated financial statements, management is required to make significant estimates and assumptions that affect assets, liabilities, revenues, and expenses reported. Actual results could materially differ from our current estimates, as a result of changing conditions and future events. Several estimates are particularly critical and are susceptible to significant near-term change, including (i) the ACL, including the ACL on loans, off-balance sheet credit exposures and investments; (ii) accounting for acquisitions and the subsequent review of goodwill and intangible assets generated in an acquisition for impairment; (iii) income taxes; and (iv) accounting for defined benefit and postretirement plans.
There have been no material changes to the Company's critical accounting policies as disclosed within its Annual Report on Form 10-K for the year ended December 31, 2020. Refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2020, for discussion of the Company's critical accounting policies.
Refer to Note 2 of the consolidated financial statements for discussion of accounting pronouncements issued but yet to be adopted and implemented.
GENERAL OVERVIEW
Camden National Corporation (hereafter referred to as “we,” “our,” “us,” or the “Company”) is a publicly-held bank holding company, with approximately $5.5 billion in assets at September 30, 2021, incorporated under the laws of the State of Maine and headquartered in Camden, Maine. Camden National Bank (the "Bank"), a wholly-owned subsidiary of the Company, was founded in 1875. The Company was founded in 1984, went public in 1997 and is now registered with NASDAQ Global Market (“NASDAQ”) under the ticker symbol "CAC."
The primary business of the Company and the Bank is to attract deposits from, and to extend loans to, consumer, institutional, municipal, non-profit and commercial customers. The Company, through the Bank, provides a broad array of banking and other financial services, including wealth management and trust services, brokerage, investment advisory and insurance services, to consumer, business, non-profit and municipal customers.
The Company operates throughout Maine, with its primary markets and presence being throughout coastal and central Maine, and select areas of New Hampshire and Massachusetts. The Company and the Bank generally have effectively competed with other financial institutions by emphasizing customer service, highlighted by local decision-making, establishing long-term customer relationships, building customer loyalty and providing products and services designed to meet the needs of customers.
EXECUTIVE OVERVIEW
Operating Results. Net income for the third quarter of 2021 was $14.6 million, a decrease of $2.1 million, or 13%, compared to the third quarter of 2020, and diluted EPS decreased correspondingly $0.14, or 13%, to $0.97 for the third quarter of 2021 compared to the same period last year. Pre-tax, pre-provision earnings (non-GAAP) for the third quarter of 2021 was $19.6 million, a decrease of $2.4 million, or 11%.
The key earnings drivers between periods were:
•Mortgage banking income for the third quarter of 2021 was $1.9 million, a decrease of $2.8 million, or 59%, compared to the third quarter of 2020. The decrease is the result of a shift in the Company's strategy to hold more of its
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residential mortgage production within its loan portfolio in response to its interest rate risk and liquidity positions. As a results of the shift in strategy between periods, the Company sold 33% of its residential mortgage production during the third quarter of 2021, compared to 69% for the third quarter of 2020.
•Debit card income for the third quarter of 2021 was $3.3 million, an increase of $651,000, or 25%, over the third quarter of 2020. The increase in revenue was driven by an increase in customer spending as consumers and businesses received proceeds from various government stimulus programs.
•Salaries and employee benefit costs for the third quarter were $15.9 million, an increase of $2.2 million, or 16%, due to higher performance-based incentive accruals and wages.
•Other expenses for the third quarter of 2021 were $2.9 million, a decrease of $1.1 million, or 27%, as the Company accrued $1.2 million for a legal matter in the third quarter of 2020.
Net income for the nine months ended September 30, 2021 was $52.5 million, an increase of $11.3 million, or 27%, over the nine months ended September 30, 2020, and diluted EPS correspondingly increased $0.76, or 28%, to $3.49 for the nine months ended September 30, 2021, over the same period last year. Pre-tax, pre-provision earnings (non-GAAP) for the nine months ended September 30, 2021, were $61.5 million, a decrease of $2.2 million, or 3%, compared to the same period last year.
The key earnings drivers between periods included:
•A release of provision for credit losses of $4.4 million for the nine months ended September 30, 2021, compared to a $12.2 million provision charge for the nine months ended September 30, 2020. In response to the uncertainty surrounding the COVID-19 pandemic through the nine months ended September 30, 2020, the Company recorded significant provision expense to account for the unprecedented risk it presented. Since September 30, 2020, macroeconomic factors have improved considerably and the Company has not experienced credit quality deterioration. As a result, the Company has released a portion of the ACL established last year.
•Mortgage banking income for the nine months ended September 30, 2021, was $11.6 million, a decrease of $1.3 million, or 10%, compared to the same period last year. As noted above, in the first quarter of 2021, the Company shifted its strategy to hold more of its residential mortgage originations within its loan portfolio. For the nine months ended September 30, 2021, the Company sold 47% of its residential mortgage production, compared to 62% for the same period last year.
•Debit card income for the nine months ended September 30, 2021 was $9.1 million, an increase of $2.0 million, or 27%, compared to the same period last year.
•Salaries and employee benefit costs for the nine months ended September 30, 2021, were $45.7 million, an increase of $4.0 million, or 10%.
Other key financial metrics for the periods indicated were as follows:

|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2021 |  | 2020 |  | 2021 |  | 2020
Return on average assets |  | 1.08 | % |  | 1.34 | % |  | 1.36 | % |  | 1.15 | %
Return on average equity |  | 10.51 | % |  | 13.01 | % |  | 12.96 | % |  | 11.06 | %
Return on average tangible equity (non-GAAP) |  | 12.86 | % |  | 16.21 | % |  | 15.91 | % |  | 13.91 | %
Ratio of non-interest expense to total revenues |  | 57.29 | % |  | 53.46 | % |  | 55.51 | % |  | 53.50 | %
Efficiency ratio (non-GAAP) |  | 57.00 | % |  | 50.60 | % |  | 54.83 | % |  | 52.29 | %

Effective October 3, 2021, the Company provided a minimum 3% wage increase to all of its employees and increased its starting minimum wage $2 per hour to $17 per hour. The off-cycle wage adjustment was in response to the challenging job market and need to retain and attract talent. This off-cycle wage adjustment is not in replacement of the Company’s normal merit cycle in March each year. Beginning in 2022, the Company will suspend its profit sharing contribution to employees' 401(k) accounts to partially fund the impact of the off-cycle wage adjustment.
Asset Quality. As of September 30, 2021, the Company's asset quality metrics remained very strong with non-performing assets of 0.14% of total assets and loans 30-89 days past due of 0.06% of total loans. In comparison, at December 31, 2020, non-performing assets were 0.22% of total assets, and loans 30-89 days past due were 0.10% of total loans.
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Capital Position. As of September 30, 2021, the Company's capital position remained well in excess of regulatory capital requirements, including a total risk-based capital ratio of 15.06% and a tier 1 leverage ratio of 9.13%. The Company's shareholders' equity to total assets position and tangible common equity ratio (non-GAAP) was 9.92% and 8.30%, respectively, as of September 30, 2021, compared to 10.81% and 8.99% as of December 31, 2020.
On September 28, 2021, the Company announced a cash dividend to shareholders of $0.36 per share, payable on October 29, 2021 to shareholders of record as of October 15, 2021. As of September 30, 2021, the Company's annualized dividend yield was 3.01% based on its closing share price of $47.90, as reported by NASDAQ. As of September 30, 2021, the Company's book value per share grew 6% to $36.77 and its tangible book value per share (non-GAAP) grew 7% to $30.23 over the last twelve months.
In the first quarter of 2021, the Company initiated a new share repurchase program for up to 750,000 shares of its common stock, or approximately 5% of the Company's shares outstanding. This share repurchase program replaces the program that terminated in January 2021. For the three and nine months ended September 30, 2021, the Company repurchased 106,502 shares for $4.9 million.
RESULTS OF OPERATIONS
Net Interest Income and Net Interest Margin
Net interest income is the interest earned on loans, securities, and other interest-earning assets, adjusted for net loan fees, origination costs, and accretion or amortization of fair value marks on loans and/or CDs created in purchase accounting, less the interest paid on interest-bearing deposits and borrowings. Net interest income is our largest source of revenue, which is defined as the sum of net interest income and non-interest income. For the three and nine months ended September 30, 2021, net interest income was $34.7 million, or 76% of total revenues, and $100.6 million, or 73% of total revenues, respectively, compared to $34.5 million, or 73% of total revenues, and $100.8 million, or 74% of total revenues, for the three and nine months ended September 30, 2020, respectively. Net interest income is affected by several factors including, but not limited to, changes in interest rates, loan and deposit pricing strategies and competitive conditions, the volume and mix of interest-earning assets and liabilities, and the level of non-performing assets.
Net Interest Income
For the three months ended September 30, 2021, net interest income on a fully-taxable equivalent basis (non-GAAP) was $35.0 million, an increase of $201,000, or 1%, compared to the three months ended September 30, 2020. The increase was driven by a $1.6 million decrease in interest expense between periods that was partially offset by a decrease in interest income on a fully-taxable equivalent basis of $1.4 million between periods.
•The decrease in interest expense between periods was the result of a 16 basis point decrease in our average cost of funds driven by lower interest rates and the change in funding mix as average deposits grew $429.5 million, or 11%, led by average core deposits (non-GAAP) growth of $519.5 million, or 15%, reducing the need for more costly borrowings. As a result, average borrowings decreased $54.1 million, or 10%, between periods, which included: (1) prepayment during the first quarter of 2021 of a $25.0 million long-term borrowing contract with the FHLBB during that carried an interest rate of 0.98%, and (2) exercising our call option on the Company's $15.0 million of subordinated notes, which carried an interest rate of 5.50%, at par plus accrued interest, during the second quarter of 2021. Average deposit growth between periods was fueled by the various federal government stimulus programs issued in response to the COVID-19 pandemic.
•The decrease in interest income on a fully-taxable equivalent basis between periods was the result of a 40 basis point decrease in yield on average interest-earning assets driven by the lower interest rate environment, a decrease in SBA PPP interest income of $407,000, and a change in the mix of average interest-earning assets as higher yield average loan balances were replaced with lower interest-earning assets, including cash and investments. Average loans balances decreased $34.4 million, or 1%, between periods while average interest-earning cash and investment balances increased $458.9 million, or 37%.
For the nine months ended September 30, 2021, net interest income on a fully-taxable equivalent basis (non-GAAP) was $101.4 million, a decrease of $308,000, compared to the nine months ended September 30, 2020. The decrease was driven by a $9.1 million decrease in interest income on a fully-taxable equivalent basis between periods that was partially offset by a decrease in interest expense of $8.8 million between periods.
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•The decrease in interest income on a fully-taxable equivalent basis between periods was the result of a 53 basis point decrease in yield on average interest-earning assets driven by the lower interest rate environment and a change in the mix of average interest-earning assets as higher yield average loan balances were replaced with lower interest-earning assets, including cash and investments. Average loans balances increased $8.2 million between periods while average interest-earning cash and investment balances increased $365.4 million, or 33%. Across comparable periods, SBA PPP interest income increased $1.4 million, partially offsetting the impact of lower interest-earning asset yields.
•The decrease in interest expense between periods was the result of a 30 basis point decrease in our average cost of funds driven by lower interest rates and the change in funding mix as average deposits grew $385.1 million, or 11%, led by average core deposits (non-GAAP) growth of $527.9 million, or 17%, reducing the need for more costly borrowings. As a result, average borrowings decreased $52.6 million, or 9%, between periods. Average deposit growth between periods was fueled by the various federal government stimulus programs issued in response to the COVID-19 pandemic.
Net Interest Margin
For the three months ended September 30, 2021, net interest margin on a fully-taxable equivalent basis was 2.76%, a decrease of 24 basis points compared to the three months ended September 30, 2020. The Company's yield on average interest-earning assets compressed 40 basis points between periods to 2.97% for the three months ended September 30, 2021, while its cost of funds decreased 16 basis points between periods to 0.22% for the three months ended September 30, 2021.
The Company's adjusted net interest margin on a fully-taxable equivalent basis (non-GAAP), which excludes the impact of SBA PPP loans and excess cash, for the three months ended September 30, 2021, was 2.82%, compared to 3.04% for the three months ended September 30, 2020.
For the nine months ended September 30, 2021, net interest margin on a fully-taxable equivalent basis was 2.82%, a decrease of 24 basis points compared to the nine months ended September 30, 2020. The Company's yield on average interest-earning assets compressed 53 basis points between periods to 3.06% for the nine months ended September 30, 2021, while its cost of funds decreased 30 basis points between periods to 0.25% for the nine months ended September 30, 2021.
The Company's adjusted net interest margin on a fully-taxable equivalent basis (non-GAAP), which excludes the impact of SBA PPP loans and excess cash, for the nine months ended September 30, 2021, was 2.87%, compared to 3.10% for the nine months ended September 30, 2020.
The following table presents average balances, interest income, interest expense, and the corresponding average yields earned and cost of funds, as well as net interest income, net interest rate spread and net interest margin on a fully-taxable basis for the followings periods:
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Quarterly Average Balance, Interest and Yield/Rate Analysis

|  | Three Months Ended
|  | September 30, 2021 |  | September 30, 2020
(Dollars in thousands) |  | Average Balance |  | Interest |  | Yield/Rate |  | Average Balance |  | Interest |  | Yield/Rate
Assets |  |  |  |  |  |  |  |  |  |  |  |
Interest-earning assets: |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing deposits in other banks and other interest-earning assets |  | $ | 304,594 |  |  | $ | 96 |  |  | 0.12 | % |  | $ | 216,027 |  |  | $ | 48 |  |  | 0.09 | %
Investments - taxable |  | 1,284,851 |  |  | 5,341 |  |  | 1.66 | % |  | 906,374 |  |  | 4,771 |  |  | 2.11 | %
Investments - nontaxable(1) |  | 114,033 |  |  | 958 |  |  | 3.36 | % |  | 122,204 |  |  | 1,042 |  |  | 3.41 | %
Loans(2): |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate |  | 1,410,201 |  |  | 12,934 |  |  | 3.59 | % |  | 1,315,958 |  |  | 12,562 |  |  | 3.74 | %
Commercial(1) |  | 339,638 |  |  | 3,030 |  |  | 3.49 | % |  | 372,416 |  |  | 3,547 |  |  | 3.73 | %
SBA PPP |  | 105,742 |  |  | 1,950 |  |  | 7.22 | % |  | 221,672 |  |  | 2,357 |  |  | 4.16 | %
HPFC |  | 8,981 |  |  | 171 |  |  | 7.45 | % |  | 16,104 |  |  | 333 |  |  | 8.09 | %
Municipal(1) |  | 17,021 |  |  | 146 |  |  | 3.41 | % |  | 19,072 |  |  | 169 |  |  | 3.52 | %
Residential real estate |  | 1,174,559 |  |  | 10,368 |  |  | 3.53 | % |  | 1,083,052 |  |  | 10,822 |  |  | 4.00 | %
Consumer and home equity |  | 242,921 |  |  | 2,613 |  |  | 4.27 | % |  | 305,194 |  |  | 3,308 |  |  | 4.31 | %
Total loans |  | 3,299,063 |  |  | 31,212 |  |  | 3.73 | % |  | 3,333,468 |  |  | 33,098 |  |  | 3.92 | %
Total interest-earning assets |  | 5,002,541 |  |  | 37,607 |  |  | 2.97 | % |  | 4,578,073 |  |  | 38,959 |  |  | 3.37 | %
Cash and due from banks |  | 53,095 |  |  |  |  |  |  | 52,499 |  |  |  |  |
Other assets |  | 363,704 |  |  |  |  |  |  | 401,213 |  |  |  |  |
Less: ACL |  | (32,033) |  |  |  |  |  |  | (35,756) |  |  |  |  |
Total assets |  | $ | 5,387,307 |  |  |  |  |  |  | $ | 4,996,029 |  |  |  |  |
Liabilities & Shareholders' Equity |  |  |  |  |  |  |  |  |  |  |  |
Deposits: |  |  |  |  |  |  |  |  |  |  |  |
Non-interest checking |  | $ | 1,251,492 |  |  | $ | — |  |  | — | % |  | $ | 741,757 |  |  | $ | — |  |  | — | %
Interest checking |  | 1,246,634 |  |  | 643 |  |  | 0.20 | % |  | 1,339,389 |  |  | 881 |  |  | 0.26 | %
Savings |  | 688,331 |  |  | 71 |  |  | 0.04 | % |  | 557,718 |  |  | 79 |  |  | 0.06 | %
Money market |  | 709,705 |  |  | 520 |  |  | 0.29 | % |  | 737,782 |  |  | 652 |  |  | 0.35 | %
Certificates of deposit |  | 327,802 |  |  | 408 |  |  | 0.49 | % |  | 417,788 |  |  | 1,126 |  |  | 1.07 | %
Total deposits |  | 4,223,964 |  |  | 1,642 |  |  | 0.15 | % |  | 3,794,434 |  |  | 2,738 |  |  | 0.29 | %
Borrowings: |  |  |  |  |  |  |  |  |  |  |  |
Brokered deposits |  | 289,374 |  |  | 331 |  |  | 0.45 | % |  | 242,390 |  |  | 161 |  |  | 0.26 | %
Customer repurchase agreements |  | 182,114 |  |  | 122 |  |  | 0.26 | % |  | 194,937 |  |  | 207 |  |  | 0.42 | %
Subordinated debentures |  | 44,331 |  |  | 538 |  |  | 4.81 | % |  | 59,269 |  |  | 893 |  |  | 6.00 | %
Other borrowings |  | — |  |  | — |  |  | — | % |  | 73,370 |  |  | 187 |  |  | 1.02 | %
Total borrowings |  | 515,819 |  |  | 991 |  |  | 0.76 | % |  | 569,966 |  |  | 1,448 |  |  | 1.01 | %
Total funding liabilities |  | 4,739,783 |  |  | 2,633 |  |  | 0.22 | % |  | 4,364,400 |  |  | 4,186 |  |  | 0.38 | %
Other liabilities |  | 94,803 |  |  |  |  |  |  | 118,727 |  |  |  |  |
Shareholders' equity |  | 552,721 |  |  |  |  |  |  | 512,902 |  |  |  |  |
Total liabilities & shareholders' equity |  | $ | 5,387,307 |  |  |  |  |  |  | $ | 4,996,029 |  |  |  |  |
Net interest income (fully-taxable equivalent) |  |  |  | 34,974 |  |  |  |  |  |  | 34,773 |  |  |
Less: fully-taxable equivalent adjustment |  |  |  | (228) |  |  |  |  |  |  | (292) |  |  |
Net interest income |  |  |  | $ | 34,746 |  |  |  |  |  |  | $ | 34,481 |  |  |
Net interest rate spread (fully-taxable equivalent) |  |  |  |  |  | 2.75 | % |  |  |  |  |  | 2.99 | %
Net interest margin (fully-taxable equivalent) |  |  |  |  |  | 2.76 | % |  |  |  |  |  | 3.00 | %
Adjusted net interest margin (fully-taxable equivalent) (non-GAAP) |  |  |  |  |  | 2.82 | % |  |  |  |  |  | 3.04 | %

(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.
54

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

|  | Nine Months Ended
|  | September 30, 2021 |  | September 30, 2020
(Dollars in thousands) |  | Average Balance |  | Interest |  | Yield/Rate |  | Average Balance |  | Interest |  | Yield/Rate
Assets |  |  |  |  |  |  |  |  |  |  |  |
Interest-earning assets: |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing deposits in other banks and other interest-earning assets |  | $ | 250,715 |  |  | $ | 198 |  |  | 0.10 | % |  | $ | 150,383 |  |  | $ | 282 |  |  | 0.25 | %
Investments - taxable |  | 1,121,569 |  |  | 13,977 |  |  | 1.66 | % |  | 850,970 |  |  | 15,148 |  |  | 2.37 | %
Investments - nontaxable(1) |  | 115,755 |  |  | 2,845 |  |  | 3.28 | % |  | 121,284 |  |  | 3,086 |  |  | 3.39 | %
Loans(2): |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate |  | 1,400,224 |  |  | 38,099 |  |  | 3.59 | % |  | 1,297,364 |  |  | 38,816 |  |  | 3.93 | %
Commercial(1) |  | 330,755 |  |  | 9,196 |  |  | 3.67 | % |  | 397,754 |  |  | 11,848 |  |  | 3.91 | %
SBA PPP |  | 139,453 |  |  | 5,487 |  |  | 5.19 | % |  | 133,569 |  |  | 4,063 |  |  | 4.00 | %
HPFC |  | 10,755 |  |  | 666 |  |  | 8.16 | % |  | 18,026 |  |  | 1,150 |  |  | 8.38 | %
Municipal(1) |  | 22,404 |  |  | 557 |  |  | 3.32 | % |  | 18,545 |  |  | 500 |  |  | 3.60 | %
Residential real estate |  | 1,117,389 |  |  | 30,756 |  |  | 3.67 | % |  | 1,082,276 |  |  | 33,116 |  |  | 4.08 | %
Consumer and home equity |  | 255,058 |  |  | 8,016 |  |  | 4.20 | % |  | 320,273 |  |  | 10,914 |  |  | 4.55 | %
Total loans |  | 3,276,038 |  |  | 92,777 |  |  | 3.75 | % |  | 3,267,807 |  |  | 100,407 |  |  | 4.06 | %
Total interest-earning assets |  | 4,764,077 |  |  | 109,797 |  |  | 3.06 | % |  | 4,390,444 |  |  | 118,923 |  |  | 3.59 | %
Cash and due from banks |  | 52,571 |  |  |  |  |  |  | 48,397 |  |  |  |  |
Other assets |  | 372,012 |  |  |  |  |  |  | 376,857 |  |  |  |  |
Less: ALL |  | (35,174) |  |  |  |  |  |  | (29,633) |  |  |  |  |
Total assets |  | $ | 5,153,486 |  |  |  |  |  |  | $ | 4,786,065 |  |  |  |  |
Liabilities & Shareholders' Equity |  |  |  |  |  |  |  |  |  |  |  |
Deposits: |  |  |  |  |  |  |  |  |  |  |  |
Non-interest checking |  | $ | 1,014,778 |  |  | $ | — |  |  | — | % |  | $ | 645,640 |  |  | $ | — |  |  | — | %
Interest checking |  | 1,282,358 |  |  | 1,843 |  |  | 0.19 | % |  | 1,261,831 |  |  | 3,775 |  |  | 0.40 | %
Savings |  | 658,497 |  |  | 201 |  |  | 0.04 | % |  | 517,936 |  |  | 241 |  |  | 0.06 | %
Money market |  | 699,594 |  |  | 1,548 |  |  | 0.30 | % |  | 701,872 |  |  | 2,897 |  |  | 0.55 | %
Certificates of deposit |  | 339,230 |  |  | 1,407 |  |  | 0.55 | % |  | 482,076 |  |  | 4,921 |  |  | 1.36 | %
Total deposits |  | 3,994,457 |  |  | 4,999 |  |  | 0.17 | % |  | 3,609,355 |  |  | 11,834 |  |  | 0.44 | %
Borrowings: |  |  |  |  |  |  |  |  |  |  |  |
Brokered deposits |  | 286,080 |  |  | 958 |  |  | 0.45 | % |  | 228,483 |  |  | 1,119 |  |  | 0.65 | %
Customer repurchase agreements |  | 177,559 |  |  | 419 |  |  | 0.31 | % |  | 213,463 |  |  | 1,131 |  |  | 0.71 | %
Subordinated debentures |  | 50,045 |  |  | 1,983 |  |  | 5.30 | % |  | 59,195 |  |  | 2,668 |  |  | 6.02 | %
Other borrowings |  | 4,762 |  |  | 35 |  |  | 0.99 | % |  | 69,883 |  |  | 460 |  |  | 0.88 | %
Total borrowings |  | 518,446 |  |  | 3,395 |  |  | 0.88 | % |  | 571,024 |  |  | 5,378 |  |  | 1.26 | %
Total funding liabilities |  | 4,512,903 |  |  | 8,394 |  |  | 0.25 | % |  | 4,180,379 |  |  | 17,212 |  |  | 0.55 | %
Other liabilities |  | 98,742 |  |  |  |  |  |  | 108,122 |  |  |  |  |
Shareholders' equity |  | 541,841 |  |  |  |  |  |  | 497,564 |  |  |  |  |
Total liabilities & shareholders' equity |  | $ | 5,153,486 |  |  |  |  |  |  | $ | 4,786,065 |  |  |  |  |
Net interest income (fully-taxable equivalent) |  |  |  | 101,403 |  |  |  |  |  |  | 101,711 |  |  |
Less: fully-taxable equivalent adjustment |  |  |  | (764) |  |  |  |  |  |  | (865) |  |  |
Net interest income |  |  |  | $ | 100,639 |  |  |  |  |  |  | $ | 100,846 |  |  |
Net interest rate spread (fully-taxable equivalent) |  |  |  |  |  | 2.81 | % |  |  |  |  |  | 3.04 | %
Net interest margin (fully-taxable equivalent) |  |  |  |  |  | 2.82 | % |  |  |  |  |  | 3.06 | %
Adjusted net interest margin (fully-taxable equivalent) (non-GAAP) |  |  |  |  |  | 2.87 | % |  |  |  |  |  | 3.10 | %

(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.
55

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, 2021 vs. September 30, 2020 |  | Nine Months Ended September 30, 2021 vs. September 30, 2020
|  | Increase (Decrease) Due to: |  | Net Increase (Decrease) |  | Increase (Decrease) Due to: |  | Net Increase (Decrease)
(In thousands) |  | Volume |  | Rate |  |  | Volume |  | Rate |
Interest-earning assets: |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing deposits in other banks and other interest-earning assets |  | $ | 20 |  |  | $ | 28 |  |  | $ | 48 |  |  | $ | 188 |  |  | $ | (272) |  |  | $ | (84) |
Investments – taxable |  | 1,996 |  |  | (1,426) |  |  | 570 |  |  | 4,810 |  |  | (5,981) |  |  | (1,171) |
Investments – nontaxable |  | (70) |  |  | (14) |  |  | (84) |  |  | (141) |  |  | (100) |  |  | (241) |
Commercial real estate |  | 901 |  |  | (529) |  |  | 372 |  |  | 3,077 |  |  | (3,794) |  |  | (717) |
Commercial |  | (312) |  |  | (205) |  |  | (517) |  |  | (1,994) |  |  | (658) |  |  | (2,652) |
SBA PPP |  | (1,232) |  |  | 825 |  |  | (407) |  |  | 179 |  |  | 1,245 |  |  | 1,424 |
HPFC |  | (147) |  |  | (15) |  |  | (162) |  |  | (464) |  |  | (20) |  |  | (484) |
Municipal |  | (18) |  |  | (5) |  |  | (23) |  |  | 104 |  |  | (47) |  |  | 57 |
Residential real estate |  | 915 |  |  | (1,369) |  |  | (454) |  |  | 1,074 |  |  | (3,434) |  |  | (2,360) |
Consumer and home equity |  | (675) |  |  | (20) |  |  | (695) |  |  | (2,221) |  |  | (677) |  |  | (2,898) |
Total interest income (fully-taxable equivalent) |  | 1,378 |  |  | (2,730) |  |  | (1,352) |  |  | 4,612 |  |  | (13,738) |  |  | (9,126) |
Interest-bearing liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Interest checking |  | (61) |  |  | (177) |  |  | (238) |  |  | 61 |  |  | (1,993) |  |  | (1,932) |
Savings |  | 20 |  |  | (28) |  |  | (8) |  |  | 63 |  |  | (103) |  |  | (40) |
Money market |  | (25) |  |  | (107) |  |  | (132) |  |  | (9) |  |  | (1,340) |  |  | (1,349) |
Certificates of deposit |  | (242) |  |  | (476) |  |  | (718) |  |  | (1,454) |  |  | (2,060) |  |  | (3,514) |
Brokered deposits |  | 31 |  |  | 139 |  |  | 170 |  |  | 280 |  |  | (441) |  |  | (161) |
Customer repurchase agreements |  | (14) |  |  | (71) |  |  | (85) |  |  | (190) |  |  | (522) |  |  | (712) |
Subordinated debentures |  | (225) |  |  | (130) |  |  | (355) |  |  | (412) |  |  | (273) |  |  | (685) |
Other borrowings |  | (187) |  |  | — |  |  | (187) |  |  | (429) |  |  | 4 |  |  | (425) |
Total interest expense |  | (703) |  |  | (850) |  |  | (1,553) |  |  | (2,090) |  |  | (6,728) |  |  | (8,818) |
Net interest income (fully-taxable equivalent) |  | $ | 2,081 |  |  | $ | (1,880) |  |  | $ | 201 |  |  | $ | 6,702 |  |  | $ | (7,010) |  |  | $ | (308) |

56

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

|  | Income Statement Location |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
(In thousands) |  |  | 2021 |  | 2020 |  | 2021 |  | 2020
Loan fees(1) |  | Interest income |  | $ | 1,744 |  |  | $ | 1,682 |  |  | $ | 4,437 |  |  | $ | 3,019 |
Net fair value mark accretion from purchase accounting |  | Interest income and Interest expense |  | 154 |  |  | 308 |  |  | 579 |  |  | 940 |
Recoveries on previously charged-off acquired loans |  | Interest income |  | 24 |  |  | 145 |  |  | 157 |  |  | 200 |
Total |  |  |  | $ | 1,922 |  |  | $ | 2,135 |  |  | $ | 5,173 |  |  | $ | 4,159 |

(1) As of September 30, 2021 and December 31, 2020, there were $3.7 million and $2.2 million of SBA PPP loan origination fees yet to be recognized, respectively.
Provision for Credit Losses
Effective January 1, 2020, but applied to interim reporting periods on or after October 1, 2020, the Company adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), commonly referred to as "CECL," to account for the ACL. CECL requires the measurement of expected lifetime credit losses for financial assets measured at amortized cost, including loans and HTM debt investments, as well as certain off-balance sheet credit exposures. CECL requires that the ACL be calculated based on current expected credit losses over the remaining expected life of the financial asset and also considers expected changes in macroeconomic conditions. The provision (credit) for credit losses on the consolidated statements income for the three and nine months ended September 30, 2021, was calculated using the CECL methodology, whereas the provision for credit losses for the three and nine months ended September 30, 2020, was calculated using the incurred loss model, which relied on management's periodic assessment of the adequacy of the ACL.
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
(Dollars in thousands) |  | 2021 |  | 2020 |  | $ |  | % |  | 2021 |  | 2020 |  | $ |  | %
|  | CECL |  | (Incurred Loss) |  |  |  |  |  | CECL |  | (Incurred Loss) |  |  |  |
Provision (credit) for loan losses |  | $ | 269 |  |  | $ | 1,000 |  |  | $ | (731) |  |  | (73) | % |  | $ | (5,037) |  |  | $ | 12,172 |  |  | $ | (17,209) |  |  | (141) | %
Provision (credit) for credit losses on off-balance sheet credit exposures |  | 670 |  |  | (13) |  |  | 683 |  |  | N.M. |  | 617 |  |  | (12) |  |  | 629 |  |  | N.M.
Provision (credit) for credit losses |  | $ | 939 |  |  | $ | 987 |  |  | $ | (48) |  |  | (5) | % |  | $ | (4,420) |  |  | $ | 12,160 |  |  | $ | (16,580) |  |  | (136) | %

Provision (Credit) for Loan Losses
For the third quarter of 2021, a provision for loan losses of $269,000 was recorded to account for: (1) loan growth during the quarter of $29.4 million, or $73.5 million when adjusted to exclude SBA PPP loans, and (2) consideration of the Company's strong asset quality as of and for the three months ended September 30, 2021, and (3) overall improved economic conditions and the forecasted outlook. The residential real estate loan portfolio grew $101.2 million, or 9%, during the third quarter of 2021, reflective of the Company's shift in strategy to hold more of its residential mortgage production within its loan portfolio, while its other loan portfolios decreased during this period, including: (1) commercial, which decreased $14.6 million, (2) consumer and home equity, which decreased $8.9 million, and (3) commercial real estate, which decreased $4.2 million. As a result, $450,000 of provision expense was allocated to the residential real estate loan portfolio for the third quarter of 2021, while the other loan portfolios were allocated provision releases over the same period, with the exception of commercial for which $295,000 of provision expense was allocated despite the decrease in loan balances due to the change in the economic forecast for its related loss driver variables.
57

For the nine months ended September 30, 2021, a release of provision for loan losses of $5.0 million was recorded to account for: (1) the broad improvement in economic factors and the forecasted outlook compared to 2020 due to the COVID-19 pandemic, and (2) consideration of the Company's strong asset quality as of and for the nine months ended September 30, 2021. The release of provision for loan losses for the nine months ended September 30, 2021, was primarily within the commercial real estate and commercial loan portfolios and totaled $2.6 million and $1.8 million, respectively, as 98% of the provision for loan losses for the year ended 2020 were recorded to these two loan portfolios. The other loan portfolios had more modest provision releases over this same period, with the exception of the residential real estate loan portfolio as provision expense of $199,000 was recorded for the nine months ended September 30, 2021, primarily due to strong loan growth during this period of $167.3 million, or 16% .
The Company's provision for loan losses for the three and nine months ended September 30, 2020, reflected the impact of the COVID-19 pandemic and an elevated qualitative factor adjustment ("Q-factor"), primarily due to the uncertainty surrounding the impact on our loan portfolio at that time, under the incurred loss model.
For the three and nine months ended September 30, 2021, annualized net charge-offs were 0.01% and 0.02%, respectively, of average loans, compared to 0.01% and 0.04% of average loans for three and nine months ended September 30, 2020, respectively.
Provision (Credit) for Credit Losses on Off-balance Sheet Credit Exposures
For the third quarter of 2021, a provision for credit losses on off-balance sheet credit exposures of $670,000 was recorded to account for the increase in the Company's unfunded commitments, including its credit lines and loan pipeline, of $90.5 million during this period.
For the nine months ended September 30, 2021, a provision for credit losses on off-balance sheet credit exposures of $617,000 was recorded to account for the increase in the Company's unfunded commitments, including its credit lines and loan pipeline, of $135.3 million during this period, net of the impact improved economic conditions and future outlook as of September 30, 2021, compared to December 31, 2020.
For the three and nine months ended September 30, 2021, the credit for credit losses was $13,000 and $12,000, respectively.
Non-Interest Income
The following table presents the components of non-interest income for the periods indicated:

|  | Three Months Ended September 30, |  | Change |  | Nine Months Ended September 30, |  | Change
(Dollars in thousands) |  | 2021 |  | 2020 |  | $ |  | % |  | 2021 |  | 2020 |  | $ |  | %
Mortgage banking income, net(1) |  | $ | 1,913 |  |  | $ | 4,664 |  |  | $ | (2,751) |  |  | (59) | % |  | $ | 11,620 |  |  | $ | 12,889 |  |  | $ | (1,269) |  |  | (10) | %
Debit card income(2) |  | 3,278 |  |  | 2,627 |  |  | 651 |  |  | 25 | % |  | 9,126 |  |  | 7,159 |  |  | 1,967 |  |  | 27 | %
Income from fiduciary services |  | 1,627 |  |  | 1,504 |  |  | 123 |  |  | 8 | % |  | 4,860 |  |  | 4,609 |  |  | 251 |  |  | 5 | %
Service charges on deposit accounts |  | 1,744 |  |  | 1,606 |  |  | 138 |  |  | 9 | % |  | 4,800 |  |  | 4,955 |  |  | (155) |  |  | (3) | %
Brokerage and insurance commissions(3) |  | 993 |  |  | 755 |  |  | 238 |  |  | 32 | % |  | 2,885 |  |  | 2,034 |  |  | 851 |  |  | 42 | %
Bank-owned life insurance |  | 589 |  |  | 615 |  |  | (26) |  |  | (4) | % |  | 1,774 |  |  | 1,918 |  |  | (144) |  |  | (8) | %
Customer loan swap fees |  | — |  |  | 51 |  |  | (51) |  |  | (100) | % |  | — |  |  | 222 |  |  | (222) |  |  | (100) | %
Other income |  | 955 |  |  | 874 |  |  | 81 |  |  | 9 | % |  | 2,569 |  |  | 2,373 |  |  | 196 |  |  | 8 | %
Total non-interest income |  | $ | 11,099 |  |  | $ | 12,696 |  |  | $ | (1,597) |  |  | (13) | % |  | $ | 37,634 |  |  | $ | 36,159 |  |  | $ | 1,475 |  |  | 4 | %
Non-interest income as a percentage of total revenues |  | 24 | % |  | 27 | % |  |  |  |  |  | 27 | % |  | 26 | % |  |  |  |

(1) Mortgage banking income, net: The decrease in mortgage banking income, net for the three and nine months ended September 30, 2021, compared to the same periods of 2020 was driven by a shift in the Company's strategy to hold more residential mortgage loans within its portfolio. As a result of the shift in strategy, the Company sold $86.2 million, or 33% of its residential mortgage loan originations, of its residential mortgage production during the third quarter of 2021,
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compared to $182.7 million, or 69% of its residential mortgage loan originations, for the third quarter of 2020. For the nine months ended September 30, 2021, the Company sold $389.6 million, or 47% of its residential mortgage loan originations, compared to $449.7 million, or 62% for the nine months ended September 30, 2020.
(2) Debit card income: The increase for the three and nine months ended September 30, 2021, compared to the same periods of 2020 was driven by an increase in customer spending driven by federal government stimulus in response to the COVID-19 pandemic.
(3) Brokerage and insurance commissions: The increase for the three and nine months ended September 30, 2021, compared to the same periods of 2020 was driven by assets under administration growth of 27% over the last twelve months.
Non-Interest Expense
The following table presents the components of non-interest expense for the periods indicated:

|  | Three Months Ended September 30, |  | Change |  | Nine Months Ended September 30, |  | Change
(Dollars in thousands) |  | 2021 |  | 2020 |  | $ |  | % |  | 2021 |  | 2020 |  | $ |  | %
Salaries and employee benefits(1) |  | $ | 15,902 |  |  | $ | 13,739 |  |  | $ | 2,163 |  |  | 16 | % |  | $ | 45,742 |  |  | $ | 41,693 |  |  | $ | 4,049 |  |  | 10 | %
Furniture, equipment and data processing |  | 2,980 |  |  | 3,076 |  |  | (96) |  |  | (3) | % |  | 8,954 |  |  | 8,576 |  |  | 378 |  |  | 4 | %
Net occupancy costs |  | 1,813 |  |  | 1,785 |  |  | 28 |  |  | 2 | % |  | 5,569 |  |  | 5,785 |  |  | (216) |  |  | (4) | %
Debit card expense |  | 1,106 |  |  | 972 |  |  | 134 |  |  | 14 | % |  | 3,166 |  |  | 2,784 |  |  | 382 |  |  | 14 | %
Consulting and professional fees |  | 792 |  |  | 913 |  |  | (121) |  |  | (13) | % |  | 2,652 |  |  | 2,877 |  |  | (225) |  |  | (8) | %
Regulatory assessments(2) |  | 522 |  |  | 510 |  |  | 12 |  |  | 2 | % |  | 1,512 |  |  | 971 |  |  | 541 |  |  | 56 | %
Amortization of core deposit intangible assets |  | 163 |  |  | 170 |  |  | (7) |  |  | (4) | % |  | 491 |  |  | 511 |  |  | (20) |  |  | (4) | %
Other real estate owned and collection (recoveries) costs, net(3) |  | 60 |  |  | 71 |  |  | (11) |  |  | (15) | % |  | (156) |  |  | 270 |  |  | (426) |  |  | (158) | %
Other expenses(4) |  | 2,925 |  |  | 3,985 |  |  | (1,060) |  |  | (27) | % |  | 8,822 |  |  | 9,824 |  |  | (1,002) |  |  | (10) | %
Total non-interest expense |  | $ | 26,263 |  |  | $ | 25,221 |  |  | $ | 1,042 |  |  | 4 | % |  | $ | 76,752 |  |  | $ | 73,291 |  |  | $ | 3,461 |  |  | 5 | %
Ratio of non-interest expense to total revenues |  | 57.29 | % |  | 53.46 | % |  |  |  |  |  | 55.51 | % |  | 53.50 | % |  |  |  |
Efficiency ratio (non-GAAP) |  | 57.00 | % |  | 50.60 | % |  |  |  |  |  | 54.83 | % |  | 52.29 | % |  |  |  |

(1) Salaries and employee benefits: The increase for the three months ended September 30, 2021, compared to the same period of 2020 was driven by an increase in incentive compensation accruals of $1.2 million based on the Company's year-to-date performance to budget, and an increase in salaries and related payroll taxes of $512,000, primarily due to annual merit increases.
The increase for the nine months ended September 30, 2021, compared to the same period of 2020 was driven by an increase in incentive compensation accruals of $3.3 million based on year-to-date performance to budget, and was partially offset by lower insurance costs of $237,000 and a one-time employer tax credit of $329,000 in the first quarter of 2021.
(2) Regulatory assessments: The increase for the nine months ended September 30, 2021, compared to the same period of 2020 was driven by the receipt of the Small Bank Assessment Credit from the FDIC in the first and second quarters of 2020. The Company has no remaining Small Bank Assessment Credits, and its regulatory assessment costs for the first nine months of 2021 align with normal historical levels.
(3) Other real estate owned and collection (recoveries) costs, net: The decrease for the nine months ended September 30, 2021, compared to the same period of 2020 was primarily driven by the Company's recouping of $160,000 in costs previously incurred and the recording of total gains upon the sale of OREO properties of $190,000 during 2021. The remaining decrease is due to the Company' current asset quality position.
(4) Other expenses: The decrease for the three and nine months ended September 30, 2021, compared to the same periods of 2020 was primarily driven by a $1.2 million legal settlement in the third quarter of 2020 to avoid the burden and expense of litigation.
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FINANCIAL CONDITION
Cash and Cash Equivalents
Total cash and cash equivalents at September 30, 2021, were $379.7 million, compared to $145.8 million at December 31, 2020. The increase in cash and cash equivalents' balances of $233.9 million during the nine months ended September 30, 2021, was primarily driven by an increase in deposits of $599.9 million, or 15%, over this same period We continuously monitor our cash levels to ensure compliance with applicable regulatory requirements, including liquidity and FRB reserve requirements.
For the reserve maintenance period beginning March 26, 2020, the FRB eliminated the cash reserve requirement for all depository institutions in response to COVID-19, by effectively reducing the required reserve ratio against net transaction deposits above and in the low reserve tranche to 0%.
Investments
The Company utilizes the investment portfolio to manage liquidity, interest rate risk, and regulatory capital, as well as to take advantage of market conditions to generate returns without undue risk. At September 30, 2021 and December 31, 2020, the Company’s investment portfolio generally consists of MBS, CMO, municipal and corporate debt securities, FHLBB and FRB common stock, and mutual funds held in a rabbi trust for its executive and director nonqualified retirement plans. We designate our debt securities as AFS or HTM based on our intent and investment strategy and 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.
At September 30, 2021, the Company's investments portfolio totaled $1.5 billion, an increase of $338.3 million, or 30%, since December 31, 2020. The increase during the nine months ended September 30, 2021 was driven by changes within our AFS debt securities portfolio, including:
•Purchases of $618.7 million of debt securities in an effort to deploy excess liquidity that resulted from significant deposit growth since the onset of the COVID-19 pandemic (i.e. first half of the 2020 calendar year), including the most recent nine months, as consumers and businesses alike received proceeds from various government stimulus programs in response to the COVID-19 pandemic. The weighted-average life of investments purchased during the nine months ended September 30, 2021, was 5.8 years, in part driving the increase in the weighted-average life of our debt securities portfolio from 5.1 years at December 31, 2020 to 6.0 years at September 30, 2021.
•Partially offsetting the purchases during the nine months ended September 30, 2021 were (i) paydowns and calls of $248.2 million and (ii) a $25.9 million decrease in the fair value of certain securities, based on changes in market interest rates.
Our debt securities designated as AFS, which comprised 99% of our investment portfolio at September 30, 2021 and December 31, 2020, were carried at fair value using level 2 valuation techniques. Refer to Note 15 of the consolidated financial statements for further details on fair value. At September 30, 2021 and December 31, 2020, investments were 27% and 23% of total assets, respectively.
The AFS and HTM debt securities portfolio has limited credit risk due to its composition, which includes highly rated debt securities by nationally recognized rating agencies, and securities backed by the U.S. government and government-sponsored agencies. At September 30, 2021 and December 31, 2020, these investments represented 92% of the investment portfolio. The majority of the municipal bonds, which represented 8% of the investment portfolio at September 30, 2021 and December 31, 2020, had a credit rating of "AA" or higher.
The Company's "other investments" on the consolidated statements of condition consist of FHLBB and FRB common stock. These investments are carried at cost. We are required to maintain a certain level of investment in FHLBB stock based on our level of FHLBB advances, and maintain a certain level of investment in FRB common stock based on the Bank's capital levels. As of September 30, 2021 and December 31, 2020, investment in FHLBB stock totaled $4.9 million and $6.2 million, respectively, and our investment in FRB stock was $5.4 million at each date.
Our investments in mutual funds are designated as trading securities and carried at fair value. These investments are held within a rabbi trust and will be used for future payments associated with the Company’s Executive and Director Deferred
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Compensation Plan. These investments are carried at fair value using level 1 valuation techniques. Refer to Note 15 of the consolidated financial statements for further details on fair value.
Upon implementation of ASU 2016-13, effective January 1, 2020, but applied to reporting periods beginning on or after October 1, 2020, each reporting period our AFS debt securities that are in an unrealized loss position are assessed to determine if an allowance should be recorded or if a write-down is required. We did not record any allowances or write-down any of our AFS debt securities in an unrealized loss position as of September 30, 2021 or December 31, 2020.
Upon implementation of ASU 2016-13, effective January 1, 2020, but applied to reporting periods beginning on or after October 1, 2020, each reporting period our HTM debt securities are assessed to determine if an allowance should be recorded or if a write-down is required. We did not record any allowances or write-down any of our HTM debt securities as of September 30, 2021 or December 31, 2020.
We continuously monitor and evaluate our investment portfolio to identify and assess risks within our portfolio, including, but not limited to, the impact of the current interest rate environment and the related prepayment risk, and review credit ratings. The overall mix of debt securities at September 30, 2021, compared to December 31, 2020, remains relatively unchanged and well positioned to provide a stable source of cash flow. At September 30, 2021 and December 31, 2020, the duration of our debt investment securities portfolio, adjusting for calls when appropriate and consensus prepayment speeds, was 4.5 years and 3.9 years, respectively.
Loans
The Company provides loans primarily to customers located within our geographic market area. Our primary market continues to be Maine, making up 72% and 73% of the loan portfolio as of September 30, 2021 and December 31, 2020, respectively. Massachusetts and New Hampshire are our second and third largest markets that we serve, making up 13% and 9%, respectively, of our total loan portfolio as of September 30, 2021, compared to 13% and 8% as of December 31, 2020. Our distribution channels include 57 branches within Maine, a residential mortgage lending office in Massachusetts, a branch and commercial loan production office in New Hampshire, and online residential mortgage and small commercial loan platforms.
The following table sets forth the composition of our loan portfolio as of the dates indicated:

|  |  |  |  |  | Change
(Dollars in thousands) |  | September 30, 2021 |  | December 31, 2020 |  | ($) |  | (%)
Commercial real estate - non owner-occupied |  | $ | 1,128,560 |  |  | $ | 1,097,975 |  |  | $ | 30,585 |  |  | 3 | %
Commercial real estate - owner-occupied |  | 291,117 |  |  | 271,495 |  |  | 19,622 |  |  | 7 | %
Commercial |  | 352,533 |  |  | 381,494 |  |  | (28,961) |  |  | (8) | %
SBA PPP |  | 81,959 |  |  | 135,095 |  |  | (53,136) |  |  | (39) | %
Residential real estate |  | 1,222,084 |  |  | 1,054,798 |  |  | 167,286 |  |  | 16 | %
Consumer and home equity |  | 239,050 |  |  | 278,965 |  |  | (39,915) |  |  | (14) | %
Total loans |  | $ | 3,315,303 |  |  | $ | 3,219,822 |  |  | $ | 95,481 |  |  | 3 | %
Commercial Loan Portfolio |  | $ | 1,854,169 |  |  | $ | 1,886,059 |  |  | $ | (31,890) |  |  | (2) | %
Retail Loan Portfolio |  | 1,461,134 |  |  | 1,333,763 |  |  | 127,371 |  |  | 10 | %
Commercial Portfolio Mix |  | 56 | % |  | 59 | % |  |  |  |
Retail Portfolio Mix |  | 44 | % |  | 41 | % |  |  |  |

Beginning in April 2020, the Company started funding SBA PPP loans issued to qualifying small businesses as part of the federal stimulus package issued due to the COVID-19 pandemic. In the first quarter of 2021, the Company began originating SBA PPP loans again as a result of another round of federal stimulus that provided additional funding for the PPP program. Effective May 2021, the SBA PPP loan program ended and the Company no longer originated loans under this program. Under the terms of the SBA PPP, loans issued may be forgiven in part or in full should the borrower meet certain conditions. In this instance, the Company will seek payment for the forgivable portion of the loan from the SBA. Loans made under the SBA PPP may have terms of two or five years, are fully guaranteed by the SBA, and have a fixed rate of 1.0%. For originating the loans, the Company receives an origination fee, paid by the SBA, based on a tiered structure that is dependent on each individual loan size. These fees were capitalized as origination fees and earned over the life of the loan in accordance with the Company's
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policy. As of September 30, 2021 and December 31, 2020, there were $3.7 million and $2.2 million of SBA PPP loan origination fees yet to be recognized, respectively. As SBA PPP loans are forgiven, these loan balances will decrease and unearned fees will be recognized.
Asset Quality
Asset quality is of the upmost importance and continues to be of great focus to the Company, particularly in light of COVID-19 and its impact on our markets and economies. The Company continues to dedicate significant resources to monitor and manage credit risk throughout our loan portfolio.
The Board of Directors monitors credit risk through: (i) the Directors' Credit Committee, which reviews large credit exposures, monitors external loan review reports, reviews the lending authority for individual loan officers when required, and has approval authority and responsibility for all matters regarding the loan policy and other credit-related policies, including reviewing and monitoring asset quality trends, and concentration levels; and (ii) the Audit Committee, which has approval authority and oversight responsibility for ACL adequacy and methodology.
Credit Risk Administration and the Credit Risk Policy Committee oversee the Company's systems and procedures to monitor the credit quality of its loan portfolio, conduct a loan review program, and maintain the integrity of the loan rating system. The adequacy of the ACL is overseen by the Management Provision Committee, which is an internal management committee comprised of various Company executives and senior managers across business lines, including Accounting and Finance, Credit Risk, Compliance, and Commercial and Retail Banking. The Management Provision Committee is further supported by other management-level committees to ensure the adequacy of the ACL. The Management Provision Committee supports the oversight efforts of the director-level committees discussed in the paragraph above and the Board of Directors. The Company's practice is to manage the portfolio proactively such that management can identify problem credits early, assess and implement effective work-out strategies, and take charge-offs as promptly as practical.
In response to the COVID-19 pandemic, we worked directly with businesses and consumers through 2020 to provide temporary debt relief that generally provided principal and/or interest payment deferrals for a period of 180 days or less. For loans that received temporary debt relief, we provided such relief under the guidance of the CARES Act and bank regulatory guidance that enabled such qualifying loans to be exempted from assessment under TDR accounting guidance. All loans granted temporary debt relief met the TDR exemption criteria under authoritative guidance, and, therefore, were not individually assessed, designated or accounted for as a TDR. In addition, those loans that were granted temporary debt relief were not automatically downgraded into lower credit risk ratings. Lastly, in order to qualify for temporary debt relief, those loans were required to be current with terms of payments in accordance with the CARES Act and bank regulatory guidance at the time of relief. At December 31, 2020, the payment status of loans operating under a temporary payment deferral arrangement were reported based on payment status at the time the deferral was granted to the borrower.
At September 30, 2021, the Company had no loans operating under a short-term deferral arrangement granted in response to a COVID-19-related hardship, whereas at December 31, 2020, the amortized cost of loans operating under a short-term temporary debt relief program relating to COVID-19 hardships was $26.5 million. In late-December 2020, another stimulus package was signed into law to provide additional COVID-19 relief for businesses and consumers. This stimulus package permits the Company the opportunity to again provide temporary debt relief to borrowers impacted by COVID-19. Any further relief made by the Company would be done so on a case-by-case basis.
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Non-Performing Assets
Non-performing assets include non-accrual loans, accruing loans 90 days or more past due, accruing TDRs, and property acquired through foreclosure or repossession. The following table sets forth the make-up and amount of our non-performing assets as of the dates indicated:

(Dollars in thousands) |  | September 30, 2021 |  | December 31, 2020
Non-accrual loans: |  |  |  |
Commercial real estate - non owner-occupied |  | $ | 73 |  |  | $ | 366 |
Commercial real estate - owner-occupied |  | 134 |  |  | 146 |
Commercial |  | 860 |  |  | 1,607 |
Residential real estate |  | 2,576 |  |  | 3,477 |
Consumer and home equity |  | 1,429 |  |  | 2,000 |
Total non-accrual loans |  | 5,072 |  |  | 7,596 |
Accruing TDRs not included above |  | 2,564 |  |  | 2,818 |
Total non-performing loans |  | 7,636 |  |  | 10,414 |
Other real estate owned |  | 165 |  |  | 236 |
Total non-performing assets |  | $ | 7,801 |  |  | $ | 10,650 |
Non-accrual loans to total loans |  | 0.15 | % |  | 0.24 | %
Non-performing loans to total loans |  | 0.23 | % |  | 0.32 | %
ACL on loans to non-performing loans |  | 422.63 | % |  | 363.60 | %
Non-performing assets to total assets |  | 0.14 | % |  | 0.22 | %
ACL on loans to non-performing assets |  | 413.69 | % |  | 355.54 | %

As of September 30, 2021 and December 31, 2020, $1.0 million and $457,000 of loan balances that were previously operating under a short-term deferral arrangement were classified as non-accrual, respectively.
Potential Problem Loans
Potential problem loans consist of classified accruing commercial and commercial real estate loans that were between 30 and 89 days past due. Such loans are characterized by weaknesses in the financial condition of borrowers or collateral deficiencies. Based on historical experience, the credit quality of some of these loans may improve due to changes in collateral values or the financial condition of the borrowers, while the credit quality of other loans may deteriorate, resulting in a loss. These loans are not included in the above analysis of non-accrual loans. At September 30, 2021, no loans were classified as potential problem loans.
Past Due Loans
Past due loans consist of accruing loans that were between 30 and 89 days past due. The following table presents the recorded investment of past due loans as of the dates indicated:

(Dollars in thousands) |  | September 30, 2021 |  | December 31, 2020
Accruing loans 30-89 days past due: |  |  |  |
Commercial real estate - non owner-occupied |  | $ | — |  |  | $ | 50 |
Commercial |  | 557 |  |  | 430 |
Residential real estate |  | 1,195 |  |  | 2,297 |
Consumer and home equity |  | 386 |  |  | 440 |
Total |  | $ | 2,138 |  |  | $ | 3,217 |
Accruing loans 30-89 days past due to total loans |  | 0.06 | % |  | 0.10 | %

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As of September 30, 2021 and December 31, 2020, $310,000 and $1.2 million of loan balances that were previously operating under a short-term deferral arrangement, including deferrals granted in response to a COVID-19 hardship, were 30-89 days past due, respectively.
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, 2020
(Dollars in thousands) |  | 2021 |  | 2020 |  | 2021 |  | 2020 |
|  | (CECL) |  | (Incurred Loss) |  | (CECL) |  | (Incurred Loss) |  | (CECL)
ACL on loans at the beginning of the period |  | $ | 32,060 |  |  | $ | 35,539 |  |  | $ | 37,865 |  |  | $ | 25,171 |  |  | $ | 25,171 |
Impact of CECL adoption |  | — |  |  | — |  |  | — |  |  | — |  |  | 233 |
Provision (credit) for loan losses |  | 269 |  |  | 1,000 |  |  | (5,037) |  |  | 12,172 |  |  | 13,215 |
Charge-offs: |  |  |  |  |  |  |  |  |  |
Commercial real estate - non owner-occupied |  | — |  |  | 33 |  |  | — |  |  | 33 |  |  | 82 |
Commercial real estate - owner-occupied |  | — |  |  | — |  |  | — |  |  | 71 |  |  | 21 |
Commercial |  | 97 |  |  | 184 |  |  | 503 |  |  | 857 |  |  | 1,130 |
Residential real estate |  | 4 |  |  | 25 |  |  | 92 |  |  | 121 |  |  | 121 |
Consumer and home equity |  | 20 |  |  | 65 |  |  | 233 |  |  | 199 |  |  | 484 |
Total charge-offs |  | 121 |  |  | 307 |  |  | 828 |  |  | 1,281 |  |  | 1,838 |
Recoveries: |  |  |  |  |  |  |  |  |  |
Commercial real estate - non owner-occupied |  | — |  |  | — |  |  | — |  |  | 1 |  |  | 107 |
Commercial real estate - owner-occupied |  | 2 |  |  | 3 |  |  | 7 |  |  | 9 |  |  | 13 |
Commercial |  | 49 |  |  | 139 |  |  | 159 |  |  | 255 |  |  | 572 |
Residential real estate |  | 2 |  |  | 4 |  |  | 72 |  |  | 27 |  |  | 292 |
Consumer and home equity |  | 11 |  |  | 36 |  |  | 34 |  |  | 60 |  |  | 100 |
Total recoveries |  | 64 |  |  | 182 |  |  | 272 |  |  | 352 |  |  | 1,084 |
Net charge-offs |  | 57 |  |  | 125 |  |  | 556 |  |  | 929 |  |  | 754 |
ACL on loans at the end of the period |  | $ | 32,272 |  |  | $ | 36,414 |  |  | $ | 32,272 |  |  | $ | 36,414 |  |  | $ | 37,865 |
Components of ACL: |  |  |  |  |  |  |  |  |  |
ACL on loans |  | $ | 32,272 |  |  | $ | 36,414 |  |  | $ | 32,272 |  |  | $ | 36,414 |  |  | $ | 37,865 |
ACL on off-balance sheet credit exposures |  | 3,185 |  |  | 9 |  |  | 3,185 |  |  | 9 |  |  | 2,568 |
ACL at end of the period |  | $ | 35,457 |  |  | $ | 36,423 |  |  | $ | 35,457 |  |  | $ | 36,423 |  |  | $ | 40,433 |
Net charge-offs (annualized) to average loans |  | 0.01 | % |  | 0.01 | % |  | 0.02 | % |  | 0.40 | % |  | 0.02 | %
Provision (credit) for loan losses (annualized) to average loans |  | 0.03 | % |  | 0.12 | % |  | (0.31) | % |  | 0.50 | % |  | 0.40 | %
ACL on loans to total loans |  | 0.97 | % |  | 1.11 | % |  | 0.97 | % |  | 1.11 | % |  | 1.18 | %
ACL on loans to net charge-offs (annualized) |  | 14,154.39 | % |  | 7,282.80 | % |  | 4,353.24 | % |  | 2,939.77 | % |  | 5,021.88 | %

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ACL on Loans
There were no significant changes in our modeling methodology to determine the ACL on loans during the nine months ended September 30, 2021. The significant key assumptions used with the ACL on loans calculation at September 30, 2021 and December 31, 2020, included: (i) Company-specific macroeconomic factors (i.e. loss drivers), (ii) our forecast period and reversion speed, (iii) prepayment speeds, and (iv) various qualitative factors.
As of September 30, 2021 and December 31, 2020, the recorded ACL on loans was $32.3 million and $37.9 million, respectively, and represented our best estimate. The decrease in the ACL on loans between periods was primarily driven by an improvement in management's forecast of its macroeconomic factors over its one-year forecast period. Refer to "—Results of Operations—Provision for Credit Losses—Provision (Credit) for Loan Losses" for further discussion of the drivers for change 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 will likely alter the level of allowance required and may have a material impact on future results of operations and financial condition. The ACL on loans is reviewed periodically within a calendar quarter to assess trends in CECL key assumptions and asset quality, and consider their impact on the Company's financial condition.
ACL on Off-Balance Sheet Credit Exposures
There were no significant changes in our modeling methodology to determine the ACL on off-balance sheet credit exposures during the nine months ended September 30, 2021. 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, 2021, was $3.2 million, compared to $2.6 million as of December 31, 2020. Refer to "—Results of Operations—Provision for Credit Losses—Provision (Credit) for Credit Loss on Off-balance Sheet Credit Exposures" for further discussion of the drivers for change between periods.
The ACL on off-balance sheet credit exposures was presented within accrued interest and other liabilities on the consolidated statements of condition. Increases (decreases) to the ACL on off-balance sheet credit exposures were presented within provision (credit) for credit losses on the consolidated statements of income.
We may adjust our assumptions to account for differences between expected and actual losses from period to period. A future change to our assumptions will likely alter the level of allowance required and may have a material impact on future results of operations and financial condition.
Liabilities and Shareholders’ Equity
Deposits
At September 30, 2021, deposits totaled $4.6 billion, an increase of $599.9 million, or 15%, since December 31, 2020. The increase in deposits during the nine months ended September 30, 2021 was driven by an increase in core deposits (non-GAAP) of $628.8 million, or 19%. The increase was driven by seasonal inflows and another round of stimulus provided to businesses and consumers in response to the COVID-19 pandemic.
The Company's loan-to-deposit ratio was 72% at September 30, 2021, compared to 80% at December 31, 2020.
Borrowings
At September 30, 2021, total borrowings were $255.9 million, an increase of $9.1 million since December 31, 2020. During the first quarter of 2021, in light of its liquidity position, the Company terminated a $25.0 million long-term borrowing contract with the FHLBB under which advances had an interest rate of 0.98%, and incurred a one-time prepayment penalty of $514,000.
On April 16, 2021, the Company redeemed in full $15.0 million of subordinated notes that had a 5.50% interest rate, at a redemption price equal to the principal amount of the notes plus accrued and unpaid interest.
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Shareholders' Equity
On September 28, 2021, the Company announced a quarterly cash dividend to shareholders of $0.36 per share, payable on October 29, 2021 to shareholders of record as of October 15, 2021. As of September 30, 2021, the Company's annualized dividend yield was 3.01% based on Camden National's closing share price of $47.90, as reported by NASDAQ.
In the first quarter of 2021, the Company's Board of Directors authorized the purchase of up to 750,000 shares of our common stock, representing approximately 5.0% of the Company's issued and outstanding shares as of September 30, 2021. During the three and nine months ended September 30, 2021, the Company repurchased 106,502 shares at a weighted average price of $46.13 per share.
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, 2020
|  | 2021 |  | 2020 |  | 2021 |  | 2020 |
Financial Ratios |  |  |  |  |  |  |  |  |  |
Average equity to average assets |  | 10.26 | % |  | 10.27 | % |  | 10.51 | % |  | 10.40 | % |  | 10.39 | %
Common equity ratio |  | 9.92 | % |  | 10.04 | % |  | 9.92 | % |  | 10.04 | % |  | 10.81 | %
Tangible common equity ratio (non-GAAP) |  | 8.30 | % |  | 8.30 | % |  | 8.30 | % |  | 8.30 | % |  | 8.99 | %
Dividend payout ratio |  | 36.73 | % |  | 29.46 | % |  | 30.77 | % |  | 36.13 | % |  | 33.33 | %
Per Share Data |  |  |  |  |  |  |  |  |  |
Book value per share |  | $ | 36.77 |  |  | $ | 34.69 |  |  | $ | 36.77 |  |  | $ | 34.69 |  |  | $ | 35.50 |
Tangible book value per share (non-GAAP) |  | 30.23 |  |  | 28.14 |  |  | 30.23 |  |  | 28.14 |  |  | 28.96 |
Dividends declared per share |  | 0.36 |  |  | 0.33 |  |  | 1.08 |  |  | 0.99 |  |  | 1.32 |

Refer to "—Capital Resources" and Note 10 of the consolidated financial statements for further discussion of the Company and Bank's capital resources and regulatory capital requirements.
LIQUIDITY
Our liquidity needs require the availability of cash to meet the withdrawal demands of depositors and credit commitments to borrowers. Liquidity is defined as our ability to maintain availability of funds to meet customer needs, as well as to support our asset base. The primary objective of liquidity management is to maintain a balance between sources and uses of funds to meet our cash flow needs in the most economical and expedient manner. Due to the potential for unexpected fluctuations in both deposits and loans, active management of liquidity is necessary. We maintain various sources of funding and levels of liquid assets in excess of regulatory guidelines in order to satisfy their varied liquidity demands. We monitor liquidity in accordance with internal guidelines and all applicable regulatory requirements. As of September 30, 2021 and December 31, 2020, our level of liquidity exceeded target levels. We believe that we currently have appropriate liquidity available to respond to liquidity demands. Sources of funds that we utilize consist of deposits, borrowings from the FHLBB and other sources, cash flows from operations, prepayments and maturities of outstanding loans, investments and mortgage-backed securities and the sale of mortgage loans.
Deposits continue to represent our primary source of funds. For the nine months ended September 30, 2021, average deposits (excluding brokered deposits) of $4.0 billion increased $385.1 million, or 11%, compared to the same period last year. Average core deposits (non-GAAP) of $3.7 billion for the nine months ended September 30, 2021, increased $527.9 million, or 17%, compared to the same period a year ago. Included within our average money market deposits for the nine months ended September 30, 2021 and 2020, were $59.2 million and $85.3 million, respectively, of deposits from the Bank's wealth management department, Camden National Wealth Management, which represent client funds. These deposits fluctuate with changes in the portfolios of the clients of Camden National Wealth Management.
Borrowings are used to supplement deposits as a source of liquidity. In addition to borrowings and advances from the FHLBB, we utilize brokered deposits, purchase federal funds, and sell securities under agreements to repurchase. For the nine months ended September 30, 2021, average total borrowings (including brokered deposits) decreased $52.6 million, or 9%, to
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$518.4 million compared to the same period last year. We secure borrowings from the FHLBB with qualified residential real estate loans, certain investment securities and certain other assets available to be pledged. Customer repurchase agreements are secured by mortgage-backed securities and government-sponsored enterprises. Through the Bank, we have available lines of credit with the FHLBB of $9.9 million, with a correspondent bank of $50.0 million, and with the FRB Discount Window of $56.6 million as of September 30, 2021. The Company also has a $10.0 million line of credit with a correspondent bank that matures on December 17, 2021.
We believe our investment portfolio and residential loan portfolio provide a significant amount of contingent liquidity that could be accessed in a reasonable time period through sales of those portfolios. We also believe that we have additional untapped access to the brokered deposit market, the wholesale reverse repurchase transaction market and the FRB discount window. These sources are considered as liquidity alternatives in our contingent liquidity plan. We believe that our current level of liquidity is sufficient to meet current and future funding requirements; however, changes in economic conditions, including consumer saving habits and the availability or access to the national brokered deposit and wholesale repurchase markets, whether as a result of the COVID-19 pandemic or otherwise, could significantly impact our liquidity position.
CAPITAL RESOURCES
As part of our goal to operate a safe, sound and profitable financial organization, we are committed to maintaining a strong capital base. Shareholders’ equity totaled $546.0 million and $529.3 million at September 30, 2021 and December 31, 2020, respectively, which amounted to 10% and 11% of total assets, respectively. Refer to "— Financial Condition — Liabilities and Shareholders' Equity" for discussion regarding changes in shareholders' equity for the nine months ended September 30, 2021.
Our principal cash requirement is the payment of dividends on our common stock, as and when declared by the Company's Board of Directors. We declared dividends to shareholders in the aggregate amount of $16.1 million and $14.8 million for the nine months ended September 30, 2021 and 2020, respectively. The Company's Board of Directors approves cash dividends on a quarterly basis after careful analysis and consideration of various factors, including the following: (i) capital position relative to total assets, (ii) risk-based assets, (iii) total classified assets, (iv) economic conditions, (v) growth rates for total assets and total liabilities, (vi) earnings performance and projections and (vii) strategic initiatives and related capital requirements. All dividends declared and distributed by the Company will be in compliance with applicable state corporate law and regulatory requirements.
We are primarily dependent upon the payment of cash dividends by the Bank, our wholly-owned subsidiary, to service our commitments. We, as the sole shareholder of the Bank, are entitled to dividends, when and as declared by the Bank's Board of Directors from legally available funds. For the nine months ended September 30, 2021 and 2020, the Bank declared dividends payable to the Company in the amount of $32.8 million and $22.4 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, 2021 and December 31, 2020, the Company and Bank exceeded all regulatory capital requirements, and the Bank continues to meet the capital requirements to be classified as "well capitalized" under applicable prompt corrective action provisions.
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CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET COMMITMENTS
Off-Balance Sheet Financial Instruments
Credit Commitments and Standby Letters of Credit
In the normal course of business, we are a party to credit related financial instruments with off-balance sheet risk, which are not reflected in the consolidated statements of condition. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve varying degrees of credit risk in excess of the amount recognized in the consolidated statements of condition. We follow the same credit policies in making commitments to extend credit and conditional obligations as we do for on-balance sheet instruments, including requiring similar collateral or other security to support financial instruments with credit risk. Our exposure to credit loss in the event of nonperformance by the borrower is represented by the contractual amount of those instruments. Many of the commitments will expire without being drawn upon, and thus, the total amount does not necessarily represent future cash requirements. In the event of nonperformance by the borrower, we are entitled to underlying collateral, as applicable, which generally consists of pledges of business assets including, but not limited to, accounts receivable, inventory, plant and equipment, and/or real estate.
Refer to Note 7 of the consolidated financial statements for additional details.
Derivatives
We use derivative financial instruments for risk management purposes (primarily interest rate risk) and not for trading or speculative purposes. We control the credit risk of these instruments through collateral, credit approvals and monitoring procedures. Additionally, as part of our normal mortgage origination process, we provide the borrower with the option to lock their interest rate based on current market prices. During the period from commitment date to the loan closing date, we are subject to the risk of interest rate change. In an effort to mitigate such risk, we may enter into forward delivery sales commitments, typically on a "best effort" basis, with certain approved investors. We account for interest rate lock commitments on loans that will be held for sale as derivative instruments. Furthermore, we record a derivative for our "best effort" forward delivery commitments upon origination of a loan identified as held for sale. Should we enter into a forward delivery commitment on a mandatory delivery arrangement with an investor, we account for the forward delivery commitment as a derivative upon execution of the mandatory delivery contract.
Refer to Note 8 of the consolidated financial statements for additional details.
Hedge Instruments
From time to time, we may enter into derivative instruments as partial hedges against large fluctuations in interest rates. We may also enter into fixed rate interest rate swaps and floor instruments to partially hedge against potentially lower yields on the variable prime rate loan category in a declining rate environment. If interest rates were to decline, resulting in reduced income on the adjustable rate loans, there would be an increased income flow from the interest rate swap and floor instrument. We may also enter into interest rate swaps and cap instruments to partially hedge against increases in short-term borrowing rates. If interest rates were to rise, resulting in an increased interest cost, there would be an increased income flow from the interest rate swaps and cap instruments. These financial instruments are factored into our overall interest rate risk position. We regularly review the credit quality of the counterparty from which the instruments have been purchased.
Refer to Note 8 of the consolidated financial statements for additional details.
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At September 30, 2021, we had the following levels of off-balance sheet financial instruments:

(In thousands) |  | Total Amount |  | Commitment Expires in:
Off-Balance Sheet Financial Instruments |  | Committed |  | <1 Year |  | 1 – 3 Years |  | 3 – 5 Years |  | >5 Years
Commitments to extend credit |  | $ | 847,371 |  |  | $ | 465,081 |  |  | $ | 61,969 |  |  | $ | 10,933 |  |  | $ | 309,388 |
Standby letters of credit |  | 7,476 |  |  | 5,558 |  |  | 934 |  |  | 50 |  |  | 934 |
Customer loan swaps - notional value |  | 695,842 |  |  | 11,411 |  |  | 58,564 |  |  | 199,180 |  |  | 426,687 |
Interest rate contracts - notional value |  | 243,000 |  |  | — |  |  | 150,000 |  |  | — |  |  | 93,000 |
Fixed rate mortgage interest rate lock commitments - notional value |  | 51,022 |  |  | 51,022 |  |  | — |  |  | — |  |  | — |
Forward delivery commitments - notional value |  | 10,789 |  |  | 10,789 |  |  | — |  |  | — |  |  | — |
Total |  | $ | 1,855,500 |  |  | $ | 543,861 |  |  | $ | 271,467 |  |  | $ | 210,163 |  |  | $ | 830,009 |

Contractual Obligations and Commitments
We are a party to several contractual obligations through lease agreements on a number of branches. Renewal options within our various lease contracts, as applicable, are considered to determine the lease term and estimate the contractual obligation and commitment for the Company's operating and finance leases. Furthermore, certain lease contracts of the Company contain language that subject its rent payment to variability, such as those tied to an index or change in an index. As a result, the future contractual obligation and commitment may materially differ from that estimated and disclosed within the table below.
We enter into agreements routinely as part of our normal business to manage deposits and borrowings.
At September 30, 2021, we had an obligation and commitment to make future payments under each of these contracts as follows:

(In thousands) |  | Total Amount |  | Payments Due per Period
Contractual obligations and commitments |  | Committed |  | <1 Year |  | 1 – 3 Years |  | 3 – 5 Years |  | >5 Years
Operating leases |  | $ | 14,378 |  |  | $ | 1,371 |  |  | $ | 2,432 |  |  | $ | 1,845 |  |  | $ | 8,730 |
Finance leases |  | 7,507 |  |  | 308 |  |  | 624 |  |  | 580 |  |  | 5,995 |
Retail repurchase agreements |  | 211,552 |  |  | 211,552 |  |  | — |  |  | — |  |  | — |
Junior subordinated debentures |  | 44,331 |  |  | — |  |  | — |  |  | — |  |  | 44,331 |
Other contractual obligations |  | 2,413 |  |  | 2,413 |  |  | — |  |  | — |  |  | — |
Total |  | $ | 280,181 |  |  | $ | 215,644 |  |  | $ | 3,056 |  |  | $ | 2,425 |  |  | $ | 59,056 |

We have an obligation and commitment to repay all short- and long-term borrowings. These commitments and borrowings and the related payments are made during the normal course of business.
RISK MANAGEMENT
The Company’s Board of Directors and management have identified significant risk categories which affect the Company. The risk categories include: credit; liquidity; market; interest rate; capital; operational and technology, including cybersecurity; vendor and third party; people and compensation; compliance and legal; and strategic alignment and reputation. The Board of Directors has approved an Enterprise Risk Management ("ERM") Policy that addresses each category of risk. The direct oversight and responsibility for the Company's risk management program has been delegated to the Company's Executive Vice President of Risk Management, who is a member of the Executive Committee and reports directly to the Chief Executive Officer.
The spread of the COVID-19 pandemic has increased many of the risks we face, including our credit, operational, vendor and third party, and technology risks. In response to the COVID-19 pandemic, the Company formed the Pandemic Work Group in 2020 to develop and oversee the Company’s response. The Pandemic Work Group: (i) developed employee practices, policies and playbooks to address pandemic related issues; (ii) implemented monitoring of all federal, state and local actions (e.g., stay-at-home orders) so that the Company can comply with all legal requirements; (iii) completed risk assessments and
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proactive monitoring over critical vendors, along with enhanced cybersecurity monitoring and reporting; (iv) created ongoing assessment and monitoring over employee availability, safety, workloads and access to tools (including technology needed to work from home effectively); (v) initiated and monitored the temporary loan relief programs; (vi) oversaw the roll out of the SBA PPP loan program and continues to monitor; (vii) developed our branch network plan, including determinations of which branches should be closed in order to best allocate resources; and (viii) developed a plan for, and oversaw the re-opening of branches in June 2020, which included ensuring health and safety protocols and practices were in place for our employees and customers. During the third quarter of 2021, the Pandemic Work Group completed and implemented the Company's strategy to return its employees back to its locations safely in compliance with health officials' guidelines, along with enabling certain employees to work in a hybrid model (i.e. work from home part time and from one of our locations part time) and others to work fully remote. The Company's Executive Committee will monitor this strategy over the near term and re-evaluate its decision in early-2022.
The Pandemic Work Group continues to oversee areas of the Company’s response such as employee practices and assessment of employee availability, safety and workload. Members of the Pandemic Work Group include the Company’s executive team and other members of senior management. The Pandemic Work Group, through the Company's executive team, regularly reports to the Board of Directors to assist the Board of Directors with both its ongoing oversight of the Company’s response to COVID-19 as well as its management of all areas of risks the Company faces, which have been affected by the COVID-19 pandemic.
There have been no material changes to the Company's risk categories and risk management policies as described in Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2020. Please refer to Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2020 for further details regarding the Company's risk management.
Interest rate risk
Interest rate risk represents the sensitivity of earnings to changes in market interest rates. As interest rates change, the interest income and expense streams associated with our financial instruments also change, thereby impacting net interest income, the primary component of our earnings. Board ALCO and Management ALCO utilize the results of a detailed and dynamic simulation model to quantify the estimated exposure of net interest income to sustained interest rate changes. While Board ALCO and Management ALCO routinely monitor simulated net interest income sensitivity over a rolling two-year horizon, they also utilize additional tools to monitor potential longer-term interest rate risk.
The simulation model captures the impact of changing interest rates on the interest income received and interest expense paid on all interest-earning assets and interest-bearing liabilities reflected on our consolidated statements of condition, as well as for derivative financial instruments. This sensitivity analysis is compared to ALCO policy limits, which specify a maximum tolerance level for net interest income exposure over a one- and two-year horizon, assuming no balance sheet growth, given a 200 basis point upward and downward shift in interest rates. Although our policy specifies a downward shift of 200 basis points, this would have resulted in negative rates as of September 30, 2021 and 2020, 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 scenario, Federal Funds and Treasury yields are floored at 0.01% while Prime is floored at 3.00%. All other market rates are floored at the lesser of current levels or 0.25%.
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As of September 30, 2021 and 2020, our net interest income sensitivity analysis reflected the following changes to net interest income assuming no balance sheet growth and a parallel shift in interest rates. All rate changes were “ramped” over the first 12-month period and then maintained at those levels over the remainder of the ALCO simulation horizon.

|  | Estimated Changes In Net Interest Income
Rate Change from Year 1 — Base |  | September 30, 2021 |  | September 30, 2020
Year 1 |  |  |  |
+200 basis points |  | 1.68 | % |  | 1.57 | %
-100 basis points |  | (1.52) | % |  | 0.32 | %
Year 2 |  |  |  |
+200 basis points |  | 7.19 | % |  | 8.66 | %
-100 basis points |  | (11.43) | % |  | (5.46) | %

The preceding sensitivity analysis 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.
If rates remain at or near current levels, net interest income is projected to decrease over the next year. Asset cash flows reprice and replace into the low rate environment, and are more than offset by the positive impact of funding cost reductions, causing balance sheet spread to tighten. If rates decrease 100 basis points, net interest income is projected to continue to decrease as loans and investment cash flow reprice lower, prepayments increase and the ability to reduce cost of funds is limited. In the second year, net interest income is projected to decrease as asset yields continue to drop and the cost of funds reductions are exhausted. If rates increase 200 basis points, net interest income is projected to increase slightly in the first year due to asset yields outpacing funding cost increases. In the second year, net interest income is projected to continue to increase as loan and investment yields continue to reprice/reset into higher yields and funding cost increases lag.
Periodically, if deemed appropriate, we use back-to-back loan swaps, interest rate swaps, floors and caps, which are common derivative financial instruments, to hedge our interest rate risk position. The Board of Directors has approved hedging policy statements governing the use of these instruments. The Board and Management ALCO monitor derivative activities relative to their expectations and our hedging policies. Refer to "—Contractual Obligations and Off-Balance Sheet Commitments" and Note 8 of the consolidated financial statements for further discussion of these derivative instruments.
LIBOR is a benchmark interest rate for certain floating rate loans, deposits and borrowings, and off-balance sheet exposures of the Company. In 2017, the U.K. Financial Conduct Authority, which regulates LIBOR, announced that it will not compel panel banks to contribute to LIBOR after 2021. As such, we have an internal project team that is focused on an orderly transition from LIBOR to alternative reference rates. The markets for alternative rates are developing. We will continue to assess the use of alternative rates, and expect to transition to alternative rates as the markets and best practices develop.
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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.
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ITEM 4. CONTROLS AND PROCEDURES
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company’s management conducted an evaluation with the participation of the Company’s Chief Executive Officer and Chief Financial Officer (Principal Financial & Accounting Officer), regarding the effectiveness of the Company’s disclosure controls and procedures, as of the end of the last fiscal quarter covered by this report. In designing and evaluating the Company’s disclosure controls and procedures, the Company and its management recognize that any controls and procedures, no matter how well designed and operated, can provide only a reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating and implementing possible controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer (Principal Financial & Accounting Officer) concluded that they believe the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
Although a significant number of our employees worked from home as a result of the COVID-19 pandemic, we have concluded that these changes in work arrangements did not have a material effect on our internal controls over financial reporting during the third quarter of 2021. There was no change in the internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the normal course of business, the Company and its subsidiaries are subject to pending and threatened legal actions. Although the Company is not able to predict the outcome of such actions, after reviewing pending and threatened actions with counsel, management believes that based on the information currently available the outcome of such actions, individually or in the aggregate, will not have a material adverse effect on the Company’s consolidated financial position as a whole.
ITEM 1A. RISK FACTORS
There are a number of factors that may adversely affect the Company’s business, financial results or stock price. Refer to “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, for discussion of these risks.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) None.
(b) None.
(c) None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS

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

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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 4, 2021
Gregory A. Dufour |  | Date
President and Chief Executive Officer (Principal Executive Officer) |  |
/s/ Gregory A. White |  | November 4, 2021
Gregory A. White |  | Date
Chief Financial Officer and Principal Financial & Accounting Officer |  |

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