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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The discussion below focuses on the factors affecting our consolidated results of operations for the year ended

December 31, 2021, 2020 and 2019 and financial condition at December 31, 2021 and 2020 and, where appropriate, factors that may affect our future financial performance, unless stated otherwise. This discussion should be read in conjunction with the consolidated financial statements, notes to the consolidated financial statements and selected consolidated financial data.

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ACRONYMS AND ABBREVIATIONS

The acronyms and abbreviations identified below are used throughout Item 7. “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 this section of the Form 10-K:

Acronym Description Acronym Description

AFS: Available-for-sale FRBB: Federal Reserve Bank of Boston

ACL: Allowance for credit losses GDP: Gross domestic product

ASC: Accounting Standards Codification HTM: Held-to-maturity

ASU: Accounting Standards Update IRS: Internal Revenue Service

BOLI: Bank-owned life insurance LIBOR: London Interbank Offered Rate

CD: 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

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 ROU: Right-of-use

FHLB: Federal Home Loan Bank SBA: U.S. Small Business Administration

FNMA: Federal National Mortgage Association TDR: Troubled-debt restructured loan

FRB: Federal Reserve System Board of Governors U.S.: United States of America

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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 return on average tangible equity; the efficiency ratio; net interest income (fully-taxable equivalent); earnings before income taxes and provision; earnings before income taxes, provision, and SBA PPP loan income; total loans, excluding SBA PPP loans; ACL on loans to total loans, excluding SBA PPP loans; adjusted yield on interest-earning assets and adjusted net interest margin (fully-taxable equivalent); tangible book value per share; tangible common equity ratio; and core deposits and average core deposits. We utilize these non-GAAP financial measures for purposes of measuring our performance against our peer group and other financial institutions and analyzing our internal performance. We also believe these non-GAAP financial measures help investors better understand the Company’s operating performance and trends and allow 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 tax effected amortization of core deposit intangible assets and other adjustments, 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 performance measure within the financial services industry.

For the Year EndedDecember 31,

Add: amortization of intangible assets, net of tax(1) 517 539 557

Less: average goodwill and other intangible assets (97,211) (97,880) (98,570)

(1) Assumed a 21% income 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 used by financial institutions 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 to (ii) net interest income on a tax equivalent basis plus total non-interest income, adjusted for certain other income items, as necessary.

For the Year EndedDecember 31,

Less: legal settlement — (1,200) —

Less: prepayment fees on borrowings (514) — —

Add (Less): net loss (gain) on sale of securities — — 105

Ratio of non-interest expense to total revenues(2) 55.41 % 53.52 % 56.15 %

(1) Reported on a tax-equivalent basis using a 21% income 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 with the financial services industry and is used within the calculation of net interest margin on a fully-taxable equivalent basis.

For the Year EndedDecember 31,

(1) Reported on a tax-equivalent basis using a 21% income tax rate.

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

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For the Year EndedDecember 31,

Add: provision for credit losses, as presented (3,190) 12,418 2,861

Less: SBA PPP loan income (8,170) (7,750) —

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.

For the Year EndedDecember 31,

Yield on interest-earning assets, as presented 3.07 % 3.56 % 4.15 %

Adjusted yield on interest-earning assets 3.10 % 3.59 % 4.16 %

Adjusted Net Interest Margin (Fully-Taxable Equivalent). Adjusted net interest margin on a fully-taxable equivalent basis normalizes the Company's reported net interest margin on a fully-taxable equivalent basis for certain unusual, non-recurring items, including: (i) the impact of 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.

For the Year EndedDecember 31,

Adjusted net interest margin (fully-taxable equivalent) 2.87 % 3.10 % 3.16 %

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.

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

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(In thousands) December 31,

Total Loans, excluding SBA PPP Loans:

ACL on Loans to Total Loans, excluding SBA PPP Loans:

Less: ACL on loans allocated to SBA PPP loans (18) (69)

ACL on loans to total loans 0.97% 1.18%

ACL on loans to total loans, excluding SBA PPP loans 0.98% 1.23%

Tangible Book Value per Share and Tangible Common Equity Ratio. Tangible book value per share is the ratio of (i) shareholders’ equity less goodwill, premium on deposits and other acquisition-related intangibles to (ii) total common shares outstanding at period end. Tangible book value per share is a common measure within our industry when assessing the value of a company as it removes goodwill and other intangible assets generated within purchase accounting upon a business combination.

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 our industry to assess whether or not a company is highly leveraged.

(In thousands, except number of shares and per share data) December 31,

Tangible Book Value Per Share:

Less: goodwill and other intangible assets (96,885) (97,540)

Tangible book value per share $ 30.15 $ 28.96

Tangible Common Equity Ratio:

Less: goodwill and other intangibles (96,885) (97,540)

Tangible common equity ratio 8.22 % 8.99 %

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

December 31,

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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 table) less certificates of deposit. Management believes core deposits is a useful measure to assess the Company's deposit base, including its potential volatility.

For the Year EndedDecember 31,

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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.

Refer to Note 1 of the consolidated financial statements for additional details of the Company's accounting policies, including new accounting standards recently adopted.

Allowance for Credit Losses (“ACL”). Effective January 1, 2020, but applied to reporting periods on or after October 1, 2020, the Company adopted the new accounting standard for credit losses, ASU No. 2016-13, Financial Instruments - Credit Losses(Topic 326):Measurement of Credit Losses on Financial Instruments, as amended (“ASU 2016-13). This new accounting standard, commonly referred to as “CECL,” significantly changed our methodology for accounting for reserves on loans, unfunded off-balance sheet credit exposures, including certain unfunded loan commitments and standby guarantees, as well as introduced the consideration for an allowance on HTM debt investments. ASU 2016-13 replaced the “incurred loss” methodology used to establish an allowance on loans and off-balance sheet credit exposures, with an “expected loss” approach. Under CECL, the ACL at each reporting period serves as our best estimate of projected credit losses over the contractual life of certain assets, adjusted for expected prepayments, given an expectation of economic conditions and forecasts as of the valuation date.

The recorded ACL on loans and HTM debt investments is determined based on the amortized cost basis of the assets and may be determined at various levels, including homogeneous loan pools, individual credits with unique risk factors, and CUSIP. We have elected to use a discounted cash flow approach to calculate the ACL for each loan segment. Within the discounted cash flow model, a probability of default (“PD”) and loss given default (“LGD”) assumption is applied to calculate the expected loss for each loan segment. PD is the probability the asset will default within a given timeframe and LGD is the percentage of the assets not expected to be collected due to default. PD and LGD data may be derived using (1) internal historical default and loss experience, as well as from (2) external data there are not statistically meaningful loss events or internal loss data does not span a full economic cycle for a given loan segment.

CECL may create more volatility in our ACL, particularly our ACL on loans and ACL on off-balance sheet credit exposures. Under CECL, our ACL may increase or decrease period-to-period based on many factors, including, but not limited to: (i) macroeconomic forecasts and conditions; (ii) a change in the forecast period; (iii) a change in the reversion speed; (iv) a change in the prepayment speed assumption; (v) an increase or decrease in loan balances, including a changes in loan portfolio mix; (vi) credit quality of the loan portfolio; and (vii) various qualitative factors outlined in ASU 2016-13.

ASU 2016-13 also changed our methodology and accounting for credit losses within our investment portfolio designated as AFS. To the extent the fair value of a security designated as AFS is less than its amortized cost and we either (i) intend to sell the security or (ii) it is more-likely-than-not we will be required to sell the security before recovery of its amortized cost basis, then the investment is permanently impaired and the amortized cost basis is written down to fair value and a corresponding impairment charge is recorded within the consolidated statements of income. If neither of the above is true, but the fair value of the investment is below its amortized cost basis at the reporting date, then an allowance is established on the AFS investment for the portion of the impairment that is due to credit reasons (e.g. credit rating downgrades, past due receivables, and/or other macro- or micro-adverse trends). The allowance established on an AFS investment due to credit losses is limited to the amount the fair value of the investment is below its amortized cost basis as of the reporting date. If the fair value of the investment is below its amortized cost basis for non-credit-related reasons (e.g. interest rate environment), then the impairment continues to be recognized within shareholders' equity through AOCI, as it did prior to the adoption of ASU 2016-13.

ACL on Loans. We consider the ACL on loans to be a critical accounting policy given the uncertainty in evaluating the allowance required to cover management’s estimate of all expected credit losses over the expected contractual life of the loans in its portfolio. Determining the appropriateness of the allowance is a key management function that requires significant judgment and estimate by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the current loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowance in future periods. While our current evaluation indicates that the ACL at December 31, 2021 and 2020 was appropriate, the allowance may need to be increased under adversely different conditions or assumptions.

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The significant key assumptions used with the ACL calculation at December 31, 2021 using the CECL methodology, included:

•Macroeconomic factors (loss drivers): Macroeconomic factors are used within our discounted cash flow model to forecast the PD over the forecast period. As macroeconomic factor condition worsen, the PD increases, and the corresponding LGD increases, resulting in an increase in the ACL. We monitor and assess Maine unemployment, changes in Maine GDP, changes in National GDP, and changes in Maine's Housing Price Index at least annually to determine if these macroeconomic factors continue to be the most predictive indicator of losses within our loan portfolio. Macroeconomic factors used in the calculation of the ACL may change from time to time. In the fourth quarter of 2021, the Company reassessed its macroeconomic factors and, as a result, is no longer considering the changes in Maine’s Retail Sales in the calculation of the ACL as of December 31, 2021.

•Forecast Period and Reversion speed: ASU 2016-13 requires a company to use a reasonable and supportable forecast period in developing the ACL, which represents the time period that management believes it can reasonably forecast the identified loss drivers. Generally, the forecast period management believes to be reasonable and supportable is set annually and validated through an assessment of economic leading indicators. In periods of greater volatility and uncertainty, such as that seen across the global markets and economies, including the U.S., throughout 2021 and 2020 largely due to the ongoing COVID-19 pandemic, we are likely to use a shorter forecast period, whereas when markets, economies and various other factors are considered more stable and certain, we are likely to use a longer forecast period. Also, in times of greater uncertainty, we may consider a range of possible forecasts and evaluate the probability of each scenario. Generally, we expect our forecast period to range from one to three years. Once the reasonable and supportable forecast period is determined, ASU 2016-13 requires a company to revert its loss expectations to the long-run historical mean for the remainder of the contract life of the asset, adjusted for prepayments. In determining the length of time over which the reversion will take place (i.e. “reversion speed”), we consider such factors such as, but not limited to, historical loan loss experience over previous economic cycles, as well as where we believe we are within the current economic cycle.

At December 31, 2021 and 2020, we used a one-year forecast period and one-year reversion period for each loan segment.

•Prepayment speeds: Prepayment speeds are determined for each loan segment utilizing our own historical loan data, as well as consideration of current environmental factors. The prepayment speed assumption is utilized with the discounted cash flow model (i.e. the CECL model) to forecast expected cash flows over the contractual life of the loan, adjusted for expected prepayments. A higher prepayment speed assumption will drive a lower ACL, and vice versa.

•Qualitative factors: As within previous accounting guidance used for the “incurred loss” model, ASU 2016-13 requires companies to consider various qualitative factors that may impact expected credit losses. We continue to consider qualitative factors in determining and arriving at our ACL each reporting period.

As of December 31, 2021 and 2020, the recorded ACL was $33.3 million and $37.9 million, respectively, and represented our best estimate of expected credit losses within our loan portfolio as of each date. However, 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 is reviewed periodically within a calendar quarter to assess trends in the aforementioned key assumptions as well as asset quality within our loan portfolio, and we consider the impact of these trends on the ACL and the Company's financial condition, if any. The ACL is reviewed and approved on a quarterly basis by the Company's Audit Committee, and later reviewed and ratified by the Bank's Board of Directors.

Refer to “—Results of Operations—Provision for Credit Losses,” “—Financial Condition—Asset Quality,” and Note 3 of the consolidated financial statements for further discussion.

ACL on Off-Balance Sheet Credit Exposures. We consider the ACL on off-balance sheet credit exposures to be a critical accounting policy given the uncertainty in evaluating the level of the allowance required to cover management’s estimate of all expected credit losses on expected future loan fundings of, primarily, unfunded loan commitments for those that are not unconditionally cancellable by the Company. The expected credit loss factors for each loan segment calculated using the ACL on loans methodology described above, as well as within Note 1 of the consolidated financial statements, is used to calculate the ACL on off-balance sheet credit exposures for each applicable loan segment, and, thus, are subject to the same level of estimation risk and volatility previously described. In addition, one other key assumption is used to derive the ACL on off-balance sheet credit exposures and that is the expected funding rate. The expected funding rate is derived using historical loan-level data for credit line usage, and is applied to total off-balance sheet credit exposures at each reporting date, excluding any

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that are unconditionally cancellable by the Company, to determine the expected funding amount. As unfunded loan commitments are funded, the allowance migrates from that provided for off-balance sheet credit exposures to the ACL on loans. If the expected funding rate or any other key assumption used is not reasonable, then this could have an adverse impact on the total ACL upon funding.

As of December 31, 2021 and 2020, the recorded ACL on off-balance sheet credit exposures was $3.2 million and $2.6 million, respectively, and presented within accrued interest and other liabilities on the consolidated statements of condition. Increases (decreases) to the allowance are presented within provision (credit) for credit losses on the consolidated statements of income. The allowance at December 31, 2021 and 2020, represented our best estimate, however, 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. The ACL on off-balance sheet credit exposures is approved on a quarterly basis by the Company's Audit Committee, and later reviewed and ratified by the Bank's Board of Directors.

Refer to “—Results of Operations—Provision for Credit Losses,” “—Financial Condition—Asset Quality,” and Note 3 and 11 of the consolidated financial statements for further discussion.

ACL for HTM Debt Securities. The estimate of expected credit losses on our HTM investment portfolio is based on the expected cash flows of each individual CUSIP over its contractual life and considers historical credit loss information, current conditions and reasonable and supportable forecasts. Given the rarity of municipal defaults and losses, we utilize external third party loss forecast models as the sole source of municipal default and loss rates. Investment cash flows are modeled over a reasonable and supportable forecast period and then revert to the long-term average economic conditions on a straight line basis (similar to that of our ACL on loans policy). Management may exercise discretion to make adjustments based on various environmental factors.

At December 31, 2021 and 2020, the Company held three securities in its HTM portfolio with an amortized cost basis of $1.3 million and no allowance was carried given the immaterial nature of such securities. These investments are all investment-grade municipal securities and two of the three securities also carried credit enhancements. Should our HTM portfolio grow in size, change its mix and/or experience credit deterioration, an allowance may be recorded at that time.

Prior to 2020, the Company evaluated its HTM portfolio for OTTI. The Company did not record any OTTI for the year ended 2019.

Refer to “—Financial Condition—Investments” and Note 2 of the consolidated financial statements for further discussion.

ACL on AFS Debt Securities. We consider the ACL on AFS debt securities to be a critical accounting policy given the size of the investment portfolio and level of estimation used to determine the allowance, as appropriate. As of December 31, 2021 and 2020, the Company's AFS portfolio is entirely made up of assets that are fair valued using level 2 valuation techniques in accordance with ASC 820, Fair Value Measurement. We engage a third party pricing agency to assist with the valuation of such debt securities and the assets are carried at fair value at each reporting period. An allowance is recorded on an AFS debt security to the extent an event has occurred that suggests receipt of full contractual payments are at risk. When such an event has been identified, a discounted cash flow model is used to determine the expected losses due to credit risk, and an allowance is recorded to reduce the carrying value of the debt security by the calculated expected loss amount, limited to the amount by which the fair value of the debt security is below its amortized cost basis.

As further described within “—Financial Condition—Investments,” the Company's AFS portfolio, as of December 31, 2021 and 2020, was primarily consisted of plain-vanilla MBS and CMO debt securities issued or guaranteed by U.S. government-sponsored agencies, and, thus, presenting little to no credit risk. As of December 31, 2021 and 2020, the Company had not identified indications of credit risk and did not carry any allowance for credit losses on its AFS portfolio, nor did it record any permanent impairments during 2021 or 2020.

Prior to 2020, the Company evaluated its AFS portfolio for OTTI. The Company did not record any OTTI for the year ended 2019.

Refer to “—Financial Condition—Investments” and Note 2 of the consolidated financial statements for further discussion.

Purchase Price Allocation and Impairment of Goodwill and Identifiable Intangible Assets. We record all acquired assets and liabilities at fair value, which is an estimate determined by the use of internal valuation techniques. We also may engage external valuation services to assist with the valuation of material assets and liabilities acquired, including, but not limited to,

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loans, core deposit intangibles and/or other intangible assets, real estate and time deposits. As part of purchase accounting, we typically acquire goodwill and other intangible assets as part of the purchase price. These assets are subject to ongoing periodic impairment tests under differing accounting models. We did not acquire any other company or assets during 2021 or 2020.

Goodwill impairment evaluations are required to be performed at least annually, but may be required more frequently if certain conditions indicate a potential impairment may exist. Our policy is to perform the goodwill impairment analysis annually as of November 30th, or more frequently as warranted. The goodwill impairment evaluation is required to be performed at the reporting unit level. Effective January 1, 2020, accounting guidance no longer requires a company to determine the implied fair value of goodwill to measure impairment. Instead, goodwill is now impaired by the amount the book value of the reporting unit exceeds its fair value, and an impairment charge is recorded for the lesser of this amount or the amount to write-down goodwill to zero.

We may use a qualitative analysis to evaluate goodwill for impairment when it is believed that it is not more-likely-than-not that the fair value of the reporting unit is below its book value, or if a quantitative analysis was recently used to estimate the fair value of the reporting unit, and there are not any indications of events that would suggest such conclusions for impairment have changed. We performed our annual goodwill impairment assessment as of November 30, 2021 and 2020, using a qualitative analysis and concluded that it was not more-likely-than-not that goodwill was impaired. Furthermore, we performed an interim goodwill impairment assessment in the second quarter of 2020, in response to the turmoil in the global markets and economy spurred by COVID-19, including its impact on the Company's share price. At that time, a quantitative analysis, using various valuation techniques, including a discounted cash flow model and market valuation models, was used to assess the Company's goodwill for impairment. The Company did not recognize any impairment of goodwill in 2021 or 2020.

The Company's core deposit intangible assets have a finite life and are amortized over their estimated useful lives. Core deposit intangible assets are subject to impairment tests if events or circumstances indicate a possible inability to realize the carrying amount. Core deposit intangible assets are measured for impairment utilizing a cost recovery model. We did not identify any events or circumstances that occurred in 2021 or 2020 that would indicate that our core deposit intangible assets may be impaired and should be evaluated for such.

Refer to “—Financial Condition—Goodwill and Core Deposit Intangible Assets” and Note 4 of the consolidated financial statements for further discussion.

Income Taxes. We account for income taxes by deferring income taxes based on the estimated future tax effects of differences between the book and tax bases of assets and liabilities, considering the provisions of enacted tax laws. These differences result in deferred tax assets and liabilities, which are included in the consolidated statements of condition.

We must also assess the likelihood that any deferred tax assets will be recovered from future taxable income and establish a valuation allowance for those assets determined not likely to be recoverable. At December 31, 2021 and 2020, the Company carried deferred tax assets totaling $19.2 million and $12.0 million, respectively, and did not record any valuation allowance on these deferred tax assets. Although we determined a valuation allowance was not required for our deferred tax assets as of December 31, 2021 and 2020, there is no guarantee that these assets will be realized. To the extent a valuation allowance on the Company's deferred tax assets is recorded in future periods, a material charge to the Company's consolidated statements of income may result and reduce net income.

Judgment is required in determining the amount and timing of recognition of the resulting deferred tax assets and liabilities, including projections of future taxable income.

As of December 31, 2021, our federal and state income tax returns for 2020, 2019 and 2018 were open to audit by federal and various state authorities. If, as a result of an audit, we were to be assessed interest and penalties, the amounts would be recorded through other non-interest expense on the consolidated statements of income.

Refer to “—Results of Operations—Income Tax Expense” and Note 19 of the consolidated financial statements for further discussion.

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Defined Benefit and Postretirement Plans. We use a December 31stmeasurement date to determine the expenses for the Company's defined benefit and postretirement plans and related financial disclosure information. Postretirement plan expense is sensitive to changes in the number of eligible employees, changes in the discount rate, mortality rate, and other expected

rates, such as medical cost trends rates and salary scale assumptions. There are no new entrants to the Company's defined benefit and postretirement plans.

Refer to Note 18 of the consolidated financial statements for further discussion.

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EXECUTIVE OVERVIEW

2021 Overview. The Company reported record net income and diluted EPS for the year ended 2021 of $69.0 million and $4.60, respectively, in the face of continued challenges stemming from the COVID-19 pandemic. Interest rates remained at record low-levels throughout 2021, and the impact was seen by the Company, and more broadly across the industry, as our net interest margin compressed 25 basis points during the year to 2.84%. Like 2020, the record-setting residential mortgage activity spurred by the low interest rate environment carried forward throughout 2021 and we broke our previous residential mortgage originations record set in 2020. For the year ended 2021, we originated $1.1 billion in residential mortgages, an increase of 5% over 2020.

At the onset of the COVID-19 pandemic in 2020, our greatest concern (like many others across the industry) was credit risk. We proactively worked with our loan customers to provide temporary debt relief using the terms provided for under the CARES Act. In doing so, by mid-year 2020, we had granted temporary debt relief to many of our commercial and retail customers totaling over $600 million of loans. By December 31, 2020, this balance was reduced to $26.5 million (less than 1% of our loan portfolio), and, as of December 31, 2021, all of these loans had returned to contractual payment status. Our overall asset quality throughout the COVID-19 pandemic has remained very strong, highlighted by non-performing assets of 0.13% of total loans at December 31, 2021, compared to 0.22% at December 31, 2020; net charge-offs of 0.02% of average loans for the year ended December 31, 2021 and 2020; and loans 30-89 days past due of 0.04% of total loans at December 31, 2021, compared to 0.10% at December 31, 2021. Due to the strength of our loan portfolio, and improving macroeconomic conditions, our ACL on loans decreased from 1.18% of total loans at December 31, 2020 to 0.97% of total loans at December 31, 2021.

Our balance sheet continues to be a source of strength for the Company and enables us not only to be well-positioned to withstand the turbulent and volatile markets we have faced the last two years, but also positions us to capitalize on efficient organic growth moving forward.

•All of our regulatory capital ratios for the Company and Bank were well in excess of regulatory capital requirements at December 31, 2021, and our common equity ratio was 9.84% and tangible common equity ratio (non-GAAP) was 8.22% at December 31, 2021.

•Another solid year of deposit growth of 15% during 2021 resulted in a loan-to-deposit ratio of 74% at December 31, 2021, well below our historical norm.

•Our ACL to loans ratio of 0.97% at December 31, 2021 continues to be at an elevated-level compared to that seen pre-pandemic (0.81% at December 31, 2019).

During 2021, through the combination of cash dividends and share repurchases, the Company returned $31.2 million of capital to shareholders, which included the repurchase of 217,931 shares of its common stock at a weighted average price of $46.25 and cash dividends to shareholders of $1.48 per share, a 12% increase over 2020.

As we enter 2022, the FOMC has signaled its intent to raise short-term interest rates in an effort to combat inflation. The Company's interest rate risk position is asset sensitive, and should the FOMC increase short-term interest rates we expect that the Company's net interest margin and net interest income are likely to increase. However, we are cautious that if the yield curve should flatten, or worse invert, this could have a negative impact on overall market growth and on customer loan demand.

Operating Results. Net income for the year ended 2021 was $69.0 million, representing an increase of $9.5 million, or 16%, over 2020. Earnings before incomes taxes and provision for credit losses (non-GAAP) for the year ended 2021 was $83.5million, representing a decrease of $3.4 million, or 4%, compared to 2020.

The key drivers of the increase in net income between periods include:

•An increase in net interest income of $1.1 million, or 1%, driven by a lower interest expense of $9.8 million, more than offsetting the decrease in interest income of $8.7 million.

•A decrease in provision for credit losses of $15.6 million. For the year ended 2020, the Company reported provision expense of $12.4 million as it built-up its ACL in response to the onset of the COVID-19 pandemic. For the year ended 2021, the Company reported negative provision expense (or a credit) of $3.2 million as it released a portion of its ACL established in 2020 as markets improved and credit quality deterioration did not occur.

•A decrease in non-interest income of $755,000, or 1%, driven by lower mortgage banking income of $4.8 million, or 26%, as we shifted our strategy to hold more residential mortgages in our loan portfolio to manage our liquidity and interest rate risk position, partially offset by higher debit card income of $2.7 million, or 26%.

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•An increase in non-interest expense of $3.7 million, or 4%, primarily driven by higher salaries and employee benefits costs of $3.1 million, or 5%. Our ratio of non-interest expense to total revenue2 was 55.41% for 2021, compared to 53.52% for 2020, or on a non-GAAP-basis our efficiency ratio was 54.85% and 52.56% for the same periods, respectively.

Other key financial metrics between years included:

•Diluted EPS for the year ended 2021 was $4.60, an increase of $0.65, or 16%, over 2020.

•Return on average assets for the year ended 2021 was 1.31%, compared to 1.23% for 2020.

•Return on average equity for the year ended 2021 was 12.72%, compared to 11.81% for 2020.

•Return on average tangible equity (non-GAAP) for the year ended 2021 was 15.61%, compared to 14.79% for 2020.

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

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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, plus net loan fees, origination costs and fair value marks on loans and/or time deposits created in purchase accounting, less the interest paid on interest-bearing deposits and borrowings. Net interest income, which is our largest source of revenue, accounted for 73% of total revenues for both years ended 2021 and 2020. Net interest income is affected by factors including, but not limited to, changes in interest rates, loan and deposit pricing strategies and competitive conditions, loan prepayment speeds, the volume and mix of interest-earning assets and interest-bearing liabilities, and the level of non-performing assets.

Net Interest Income. Net interest income on a fully-taxable equivalent basis for the year ended 2021 was $138.4 million, an increase of $962,000, or 1%, over 2020. The increase was driven by a $9.8 million decrease in interest expense between periods that more than offset the decrease in interest income on a fully-taxable equivalent basis of $8.9 million between periods.

•The decrease in interest expense was the result of a 25 basis point decrease in our average cost of funds and strong average deposits growth of $430.0 million, or 12%, during 2021. In 2021, our funding costs benefited from a full year of record lower interest rates as the FOMC held the Federal Funding Rate at 0.00%-0.25% for all of 2021, having lowered it in early-2020 in response to the COVID-19 pandemic. In addition, our favorable deposit growth during 2021 led to a strong overall liquidity position, and allowed us to take actions to manage funding costs to help minimize the impact of lower interest-earning asset yields, including: (1) a decrease in average CD balances of $121.4 million, (2) the early termination of a $25.0 million long-term borrowing contract during the first quarter of 2021, and (3) the full redemption of the Company's $15.0 million subordinated notes during the second quarter of 2021, at par plus accrued interest.

•The decrease in interest income on a fully-taxable equivalent basis was the result of a 49 basis point decrease in our yield on average interest-earning assets during 2021, again, driven by the lower interest rate environment, but was partially offset by average interest-earning asset growth of $426.0 million, or 10%. Average investment balances for 2021 increased $308.9 million, or 31%, compared to 2020 and average loan balances for 2021 grew $27.9 million, compared to 2020. We increased our investment holdings during 2021 to manage the Company's excess liquidity that was driven by its strong deposits growth during 2021. The Company's loan growth was primarily within its commercial real estate loan portfolio and residential real estate loan portfolio, which increased 8% and 7%, respectively.

Net Interest Margin. Net interest margin is calculated as net interest income on a fully-taxable equivalent basis as a percentage of average interest-earning assets. Our net interest margin on a fully-taxable equivalent basis for 2021 and 2020 was 2.84% and 3.09%, respectively, and our adjusted net interest margin on a fully-taxable equivalent basis (non-GAAP) for the year ended 2021 was 2.87%, compared to 3.10% for 2020.

The following table presents, for the periods noted, average balances, interest income, interest expense, and the corresponding average yields earned and rates paid, as well as net interest income, net interest rate spread and net interest margin:

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Average Balance, Interest and Yield/Rate Analysis

For the Year Ended December 31,

ASSETS

Interest-earning assets:

Loans(3):

LIABILITIES & SHAREHOLDERS’ EQUITY

Deposits:

Borrowings:

Less: fully-taxable equivalent adjustment (988) (1,155) (1,029)

Net interest rate spread (fully-taxable equivalent) 2.83 % 3.07 % 3.10 %

Net interest margin (fully-taxable equivalent) 2.84 % 3.09 % 3.15 %

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(1) Reported average balances are calculated on a daily basis.

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

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

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

(In thousands) Volume Rate Volume Rate

Interest-earning assets:

Interest-bearing liabilities:

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Net interest income included the following for the periods indicated:

Income Statement Location For the Year EndedDecember 31,

Recoveries on previously charged-off acquired loans Interest income 226 258 216

(1) For the year ended 2021 and 2020, the Company recognized $6.9 million and $6.2 million of fees associated with SBA PPP loan originations. As of December 31, 2021, there were $1.2 million of SBA PPP loan origination fees yet to be recognized.

The Company's consolidated financial statements and the notes to the consolidated financial statements presented within have been prepared in accordance with GAAP, which requires the measurement of the financial position and operating results in terms of historical dollars and, in some cases, current fair values without considering changes in the relative purchasing power of money over time due to inflation. Unlike many industrial companies, substantially all of our assets and virtually all of our liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the general level of inflation. Over short periods of time, interest rates and the yield curve may not necessarily move in the same direction or in the same magnitude as inflation.

As of the date of this Annual Report on Form 10-K, the FOMC has signaled that there could be multiple short-term interest rate hikes during 2022 in an effort to curb inflationary pressures. The Company's interest rate risk position as of December 31, 2021 is asset sensitive, and if the FOMC increases the Federal Funding Rate one or more times during 2022 it is our expectation that net interest income is likely to increase as variable rate loans and deposits reprice, and new loans indexed to short-term interest rates are originated at higher yields.

Provision for Credit Losses

The Company adopted ASU 2016-13, commonly referred to as “CECL,” to account for the ACL, effective January 1, 2020. As such, ACL and provision for credit losses as of and for the years ended December 31, 2021 and 2020 were accounted for in accordance with the CECL standard. The ACL and provision for credit losses as of and for the year ended December 31, 2019 were accounted for under the incurred loss methodology. Refer to “—Critical Accounting Policies” and Note 1 of the consolidated financial statements for the Company's accounting and policies for the ACL.

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

For the Year EndedDecember 31, Change from2021 to 2020

(CECL) (CECL) (Incurred Loss)

Provision for loan losses. At the onset of the COVID-19 pandemic in 2020, we increased the Company's ACL on loans to account for the adverse impact the COVID-19 pandemic was anticipated to have on its loan portfolio, based on the various macroeconomic data trends and various qualitative considerations. For the year ended 2020, we recorded $13.2 million of provision expense to carry the ACL on loans at $37.9 million, or 1.18% of total loans, as of December 31, 2020. In 2021, we recorded a credit for loan losses of $3.8 million, which reflects (1) the shift in the macroeconomic conditions and outlook in as trends and market optimism improved in comparison to 2020, and (2) overall credit deterioration within the Company's loan portfolio did not materialize as anticipated due to COVID-19. Net charge-offs for the years ended December 31, 2021 and 2020 were 0.02% of average loans; non-performing assets were 0.13% of total assets as of December 31, 2021, compared to 0.22% as of December 31, 2020; and loans 30-89 days past were 0.04% of total loans as of December 31, 2021, compared to 0.10% as of December 31, 2020.

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Provision for credit losses on off-balance credit exposures. At December 31, 2021, the ACL on off-balance sheet credit exposures was $3.2 million, as compared to $2.6 million as of December 31, 2020. The increase was driven by elevated unfunded commitments of $104.1 million between periods, partially offset by a lower expected loss factor given the overall macroeconomic improvement between periods.

Non-Interest Income

The following table sets forth information regarding non-interest income for the periods indicated:

For the Year EndedDecember 31, Change from2021 to 2020

Net (loss) gain on sale of securities — — (105) — —

Non-interest income as a percentage of total revenues(1) 27 % 27 % 25 %

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

Mortgage banking income, net is generated through the sale of residential mortgage loans to secondary market investors and also includes income recognized upon the sale of a residential mortgages in which we maintain the servicing rights creating a mortgage servicing asset, net of related amortization of the capitalized mortgage servicing asset. Our current practice has been to sell the servicing rights for residential mortgages originated, except for certain third party relationships that require the Company to service the loan.

The decrease in mortgage banking income, net for 2021 compared to 2020, was driven by our change in strategy during the first half of 2021 as we shifted to sell less of our residential mortgage loan production in 2021, in order to hold more of it in our loan portfolio to manage our interest rate risk and overall liquidity position. We sold 44% of our residential mortgage production to the secondary market during 2021, compared to 61% during 2020 (or $154.1 million less between periods).

Debit card income represents theinterchange fees earned from debit card transactions of our business and consumer checking account customers, and the annual incentive bonus received from our network provider. The increase for 2021 over 2020 was driven by an increase in customer spend volume of 21% as our average customer spend increased likely driven by government stimulus over the past two years in response to the COVID-19 pandemic. The increase in customer spend volume also resulted in a larger annual incentive bonus from Visa of $740,975 for 2021, compared to $555,000 for 2020.

Service charges on deposit accounts represents the fees earned from providing various services to deposit customers, including overdraft and non-sufficient funds fees, normal fees for servicing deposit accounts, and cash management fees for business customers. Overdraft and non-sufficient fund fees totaled $4.7 million and $4.8 million for the years ended 2021 and 2020, respectively.

Income from fiduciary services represents the fees earned for investment advisory and trust services provided by Camden National Wealth Management. The fees earned are primarily a percentage of our clients' assets under management. Assets under management were $1.1 billion and $957.0 million as of December 31, 2021 and 2020, respectively.

Brokerage and insurance commissions represent the fees earned for brokerage services, investment advisory and insurance services provided by the Bank, doing business as Camden Financial Consultants. The increase for 2021 over 2020 was driven by fees for brokerage and advisory services, including assets under administration growth of $130.2 million, or 23%, during 2021 over 2020 to $704.1 million as of December 31, 2021.

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Bank-owned life insurance represents the change in cash surrender value of the Company's various BOLI policies in place for certain current and former officers of the Company and Bank. The change in cash surrender value reflects the performance of the underlying investments of the policies. The decrease in income for 2021 compared to 2020 was driven by the lower interest rate environment.

Customer loan swap fees represents fees earned from the counterparty upon execution of a back-to-back commercial loan swap with our customers. For the year ended 2021, we did not execute any back-to-back loan swaps with our customers given the interest rate environment and our overall interest rate risk position.

Net (loss) gain on sale of securities represents the realized (loss) gain upon sale of our debt investments. We did not sell any investment securities during the year ended 2021 or 2020.

Other Income includes third party merchant and credit card commissions, other miscellaneous fees and net gains on equity securities.

Non-Interest Expense

The following table sets forth information regarding non-interest expense for the periods indicated:

For the Year EndedDecember 31, Change from2021 to 2020

Amortization of core deposit intangible assets 655 682 705 (27) (4) %

Ratio of non-interest expense to total revenues 55.41 % 53.52 % 56.15 %

Salaries and employee benefits includes employee wages, commissions, incentives, equity compensation, employer-related taxes, insurance benefits, and other certain employee-related costs, net of direct employee-related costs incurred for loan originations. The increase in 2021 over 2020 was driven by: (i) an increase in wages and related taxes of 4% as we issued our normal annual merit in March 2021 and a second (off-cycle) merit increase in October 2021 where we provided all current employees with a 3% or more wage increase, with limited exceptions, and increased our starting minimum wage for new employees to $17 per hour. The off-cycle merit increase was in response to the tight labor market within our markets; and (ii) an increase in bonuses and incentives of $1.7 million, based on annual performance-to-budget.

Furniture, equipment and data processing includes depreciation expense of capitalized furniture, equipment and data-related costs, and ongoing system and other data processing costs, including outsourced solutions. The increase in 2021 over 2020 was driven by continued investments in technology, including information security-related investments.

Net occupancy costs include building and property costs associated with the operation of our branches, loan production offices and service centers, including, but not limited to, rent, depreciation, maintenance and related taxes, net of rental income earned from the lease of office space.

Consulting and professional fees include third party consulting services and other professional fees, such as audit and tax services, legal services, and Company and Bank director fees.

Debit card expense is the cost incurred for the generation of debit card income, including third party switch network provider fees and related data transmission costs, and plastic card costs for the generation of debit cards for checking account

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customers. Debit card expense increased 15% in 2021 compared to 2020, while debit card income increased 26% over this same period. Many of the costs associated with debit card expense are fixed per unit.

Regulatory assessments are the costs incurred and paid to various regulatory agencies, including the FDIC and OCC. Regulatory assessment fees are based on a number of factors, not limited to, asset growth, regulator risk assessment and positive or negative trends specific to the financial institution. The increase in 2021 over 2020 was driven by the receipt of the Small Bank Assessment Credit from the FDIC in the first and second quarters of 2020. We did not receive any further credits during 2021, and our regulatory assessment costs have returned to normal historical levels.

OREO and collection costs, net include the costs associated with OREO, collection and foreclosure efforts for the Company's loans. The decrease in 2021 compared to 2020 was primarily driven by the recovery of $160,000 of costs in 2020 that were expensed in 2020, a gain of $190,000 recognized in 2021 upon the sale of an OREO property, and a reflection of the Company's strong asset quality. Should asset quality metrics begin to deteriorate, the associated costs with OREO, collection and foreclosure efforts will likely increase.

Amortization of core deposit intangible assets represents the amortization expense on core deposit intangible assets.

Other expenses include employee-related costs, such as certain SERP and other postretirement benefits expenses; hiring, training, education, meeting and business travel costs; donations and marketing costs; postage, freight and courier costs; and other expenses.

Income Tax Expense

Income tax expense for the year ended 2021 and 2020 was $17.6 million and $14.9 million, respectively, which resulted in an effective income tax rate of 20.3% for the year ended 2021 and 20.0% for 2020. The increase in the Company's effective tax rate between periods was driven by an increase in its blended state income tax rate between periods. As the Company continues to expand its footprint outside of Maine its blended state tax rate has increased, and will continue to increase, because Maine's state tax rate for financial institutions is lower than other states in the region in which we operate.

The Company's effective income tax rate for the year ended 2021 of 20.3% was lower than our marginal tax rate of 22.2%, which includes our 21.0% federal income tax rate and 1.4% state income tax rate, net of federal tax benefit, primarily due to non-taxable interest income from municipal bonds and certain qualifying loans, non-taxable BOLI, and tax credits received on qualifying investments.

The Company's deferred tax assets were $19.2 million and $12.0 million at December 31, 2021 and 2020, respectively. We continuously monitor and assess the need for a valuation allowance on our deferred tax assets, and we determined that no valuation allowance was necessary as of December 31, 2021 and 2020.

Refer to Note 19 of the consolidated financial statements for further discussion of income taxes and related deferred tax assets and liabilities.

2020 Operating Results as Compared to 2019 Operating Results

The Company's net income for the year ended 2020 was $59.5 million, an increase of $2.3 million, or 4%, over 2019. Over the same period, diluted EPS increased $0.26, or 7%, to $3.95 per share for the year ended December 31, 2020. The Company's 2020 operating results compared to 2019 are summarized as follows:

Net Interest Income and Net Interest Margin. Net interest income on a fully-taxable equivalent basis for 2020 was $137.5 million, an increase of $8.8 million, or 7%, over 2019. The increase was largely driven by a $20 million, or 49%, decrease in interest expense due to the rate declines. Conversely, interest income on a fully-taxable equivalent basis declined by $11.2 million, or 7%, partially offsetting the increase in interest income. Average interest earning assets increased by $365.0 million, or 9%, which included average SBA PPP loans of $146.9 million, but produced a 59 basis point decline in our average yield on interest-earning assets between periods and reduced our average yield to 3.56% for the year ended December 31, 2020. Average funding liabilities increased by $353.0 million, or 9%, which was driven by average deposit growth of $432.9 million, or 13%, and produced a 53 basis point decline in our funding cost between periods to 0.49% for the year ended December 31, 2020.

Net interest margin on a fully-taxable equivalent basis declined by 6 basis points between periods to 3.09% for the year ended December 31, 2020, and, on an adjusted-basis (excluding SBA PPP loans and excess liquidity) (non-GAAP), our net interest margin on a full-taxable equivalent basis was 3.10% for the year ended 2020, compared to 3.16% for 2019.

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Provision for Credit Losses. The provision for credit losses for 2020 was $12.4 million, an increase of $9.6 million compared to 2019. The increase between periods was due to the COVID-19 pandemic and the inherent level of uncertainty within the markets and impact on the Company's loan portfolio at that time. Furthermore, the Company adopted the CECL during 2020, whereas the incurred loss methodology was used to account for the ACL for 2019.

Non-Interest Income. Non-interest income for 2020 was $50.5 million, and increased $8.4 million, or 20%, over 2019. The net increase was primarily driven by:

•An increase in mortgage banking income of $10.7 million, or 136%, between periods primarily due to an increase in residential mortgage loan originations of 79% driven by the decline in interest rates in 2020 in response to the onset of the COVID-19 pandemic.

•An increase in debit card income of $719,000, or 7%, between periods driven by an increase in customer spend volume of 11%.

•A decrease in service charges on deposit accounts of $1.7 million, or 20%, between periods driven by lower overdraft and non-sufficient funds fees due to elevated deposit balances across our customer base as a result of government-issued stimulus in response to COVID-19.

•A decrease in other income of $986,000, or 24%, between periods as we recognized a $928,000 unrealized gain on another bank stock in 2019. In 2020, the bank stock was redeemed and a realized gain of $38,000 was recognized.

Non-Interest Expense.Non-interest expense for 2020 was $100.0 million, an increase of $4.7 million, or 5%, over 2019. The net increase was driven by:

•An increase in salaries and employee benefits of $3.4 million, or 6%, between periods, primarily due to a 5% increase in wages and related taxes, a 10% increase in health insurance costs, and higher bonus and incentives of $1.3 million, based on annual performance-to-budget.

•An increase in furniture, equipment and data processing costs of $875,000, or 8%, between periods, driven by continued technology and data-related investments made throughout 2020, as well as an increase in online banking costs of $125,000 as the pace of customer migration to electronic banking channels accelerated in 2020 due to COVID-19 and its impact.

•An increase in net occupancy costs of $538,000, or 8%, between periods, driven by an increase in rent and rent-related expenses of $495,000 and an increase in office cleaning costs of $331,000 due to COVID-19, partially offset by lower utility costs of $289,000 as many of our employees worked remotely through much of 2020 due to COVID-19.

For 2020, our ratio of non-interest expense to total revenues was 53.52%, compared to 56.15% for 2019, and, on a non-GAAP basis, our efficiency ratio was 52.56% for 2020, compared to 55.77% for 2019.

Income Tax Expense. Income tax expense for 2020 was $14.9 million, with an effective tax rate of 20.0%, compared to $14.4 million for 2019, with an effective tax rate of 20.1%.

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FINANCIAL CONDITION

Cash and Cash Equivalents

Total cash and cash equivalents at December 31, 2021 were $220.6 million, compared to $145.8 million at December 31, 2020. The increase in cash and cash equivalents balances of $74.8 million between periods was primarily driven by an increase in deposits of $487 million, or 61%, during 2021, which was likely the result of additional government stimulus programs issued in 2021 in response to COVID-19. We continuously manage and monitor our cash levels to ensure compliance with applicable regulatory requirements, including liquidity and FRB reserve requirements.

In March 2020, the FRB reduced reserve requirement ratios to zero percent, effectively eliminating the cash reserve requirement for all depository institutions.

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 December 31, 2021 and 2020, the Company’s investment portfolio generally consisted of MBS, CMO, municipal and corporate debt securities, FHLBB and FRB common stock, and mutual funds held in a rabbi trust for purposes of Company executive and director nonqualified retirement plans. We designate our debt securities as AFS or HTM based on our intent and investment strategy 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 trading securities which are carried at fair value. At December 31, 2021 and 2020, total investments were 28% and 23% of total assets, respectively.

At December 31, 2021 and 2020, the Company's investments portfolio totaled $1.5 billion and $1.1 billion, respectively, representing an increase of $390.7 million, or 34%, for the year ended December 31, 2021. The increase was driven primarily by investments in our AFS debt securities portfolio, including:

•Purchase of $758.8 million of debt securities in an effort to deploy excess liquidity that resulted from significant

deposit growth over the past year as consumers and businesses received proceeds from various government stimulus programs in response to the COVID-19 pandemic. The weighted-average life of investments purchased during 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 5.9 years at December 31, 2021.

•Partially offsetting the purchases were (i) paydowns and calls of $321.6 million during 2021 and (ii) a $38.8 million decrease in the fair value of certain securities, based on changes in market interest rates as of December 31, 2021.

Our AFS debt securities portfolio, which comprised 99% of our investment portfolio at December 31, 2021 and 2020, was carried at fair value using level 2 valuation techniques. Refer to Notes 1 and 21 of the consolidated financial statements for further details on the Company's fair value techniques.

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 December 31, 2021 and 2020, these investments represented approximately 90% and 88%, respectively, of the investment portfolio. The majority of the municipal bonds, which represented 8% and 11% of the investment portfolio at December 31, 2021 and 2020, respectively, had a credit rating of “AA” or higher.

Our other investments on the consolidated statements of condition consist of FHLBB and FRB common stock. These investments are carried at cost. We are required to maintain a certain level of investment in FHLBB stock based on our level of FHLBB advances, and maintain a certain level of investment in FRB common stock based on the Bank's capital levels. As of December 31, 2021 and 2020, our investment in FHLBB stock totaled $4.9 million and $6.2 million, respectively, and our investment in FRB stock was $5.4 million.

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

Beginning in 2020, upon adoption of CECL, 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. As of and for the years ended December 31, 2021 and 2020, we did not record any allowances or write-down any of our AFS debt securities in an unrealized loss position. Refer

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to “—Critical Accounting Policies” and Note 1 of the consolidated financial statements for further discussion of our practices and policies, and refer to Note 2 of the consolidated financial statements for additional details of our assessment of the allowance for AFS investments as of and for the year ended December 31, 2021.

Beginning in 2020, upon adoption of CECL, each reporting period our HTM debt securities are assessed to determine if an allowance should be recorded or if a write-down is required. As of and for the years ended December 31, 2021 and 2020, we did not record any allowances or write-down any of our HTM debt securities as of December 31, 2021. Refer to “—Critical Accounting Policies” and Note 1 of the consolidated financial statements for further discussion of our practices and policies, and refer to Note 2 of the consolidated financial statements for additional details of our assessment of the allowance for HTM investments as of and for the year ended December 31, 2021.

The following table sets forth the carrying value of AFS and HTM debt securities along with the percentage distribution as of the dates indicated:

December 31,

Trading Securities (carried at fair value):

Total trading securities 4,428 — % 4,161 — %

AFS Debt Investments (carried at fair value):

Obligations of U.S. government-sponsored enterprises 8,344 — % — — %

HTM Debt Investments (carried at amortized cost):

Obligations of states and political subdivisions 1,291 — % 1,297 — %

Total HTM debt investments 1,291 — % 1,297 — %

Other Investments (carried at cost):

We continuously monitor and evaluate our investment securities portfolio to identify and assess risks within our portfolio, including, but not limited to, the impact of the current rate environment and the related prepayment risk, and review credit ratings. The overall mix of debt securities at December 31, 2021 compared to December 31, 2020 remains relatively unchanged and well positioned to provide a stable source of cash flow. The duration of our debt investment securities portfolio at December 31, 2021 was 4.8 years, compared to 3.9 years at December 31, 2020. We are currently investing in cash flowing debt securities with average lives in the 3-5 year part of the yield curve with limited extension risk in a rising interest rate environment.

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The following table presents the book value and fully-taxable equivalent weighted-average yields of debt investments by

contractual maturity and the book value of other investments, for the periods indicated. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay.

December 31,

Debt investments:

Other investments(2):

Mutual funds (fair value) $ 4,428 $ 4,161

(1) Weighted average is calculated by dividing the book value by the book value times tax yield.

(2) There is no scheduled maturity date.

Loans

The Company provides loans primarily to customers located within our geographic market area. Its primary markets continue to be in Maine, making up 72% and 73% of our loan portfolio as of December 31, 2021 and 2020, respectively. Massachusetts and New Hampshire are our second and third largest markets, making up 14% and 9%, respectively, of our total loan portfolio as of December 31, 2021, compared to 13% and 8%, respectively, as of December 31, 2020. As of December 31, 2021, our distribution channels include 57 branches within Maine; one residential mortgage lending office in Braintree, Massachusetts; two locations in New Hampshire, including a branch in Portsmouth and a commercial loan production office in Manchester; and an online residential mortgage and small commercial digital loan platform.

The most significant industry concentration within our loan portfolio at December 31, 2021 and 2020 was the non-residential building operators industry (operators of commercial and industrial buildings, retail establishments, theaters, banks and insurance buildings). At December 31, 2021 and 2020, the non-residential building operators' industry concentration was 32% of our total commercial real estate portfolio and 14% of total loans, respectively. At December 31, 2021, there were no other industry concentrations within our loan portfolio that exceeded 10% of total loans.

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

December 31,

Loan portfolio mix:

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

Commercial Real Estate - 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.

SBA PPP. SBA PPP loans are unsecured, fully-guaranteed commercial loans backed by the SBA, issued to qualifying small businesses as part of federal stimulus issued in response to the COVID-19 pandemic. Loans made under the program have terms of two or five years and are to be used by the borrower to offset certain payroll and other operating costs, such as rent and utilities. The loan and accrued interest, or a portion thereof, 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 consist of loans secured by one-to four-family properties, including for investment purposes. We generally retain in our portfolio adjustable rate mortgages, fixed rate mortgages with original terms of 30 years or less, and jumbo/non-conforming residential mortgages.

For the year ended 2021, we originated a record $1.1 billion of residential mortgage loans, an increase of 5% over 2020. In 2021, we sold 44% of our residential mortgage production to secondary market investors, compared to 61% for 2020. The historically low interest rate environment in 2020 carried into 2021 and drove strong purchase and refinance activity. Refinance activity was 47% of our residential mortgage originations for the year ended 2021, compared to 55% for 2020.

As part of our overall asset/liability management strategy, we sell residential mortgages we originate to secondary market participants to manage our interest rate risk position and generate non-interest income. Factors we consider in determining which loans to sell, include, but are not limited to, current and future outlook of the interest rate environment; loan terms, including loan size, interest rate, fixed or variable and maturity date; and estimated prepayment speed.

Consumer and Home Equity. Consumer and home equity loans are originated for a wide variety of purposes designed to meet the needs of our customers. Consumer loans include overdraft protection, automobile, boat, recreational vehicle, and mobile home loans, home equity loans and lines, and secured and unsecured personal loans.

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At December 31, 2021 and 2020, 27% and 35% of the consumer loan portfolio was unsecured, respectively, and 47% of the home equity portfolio was secured by junior lien positions as of each date.

Related Party Transactions

The Bank is permitted, in its normal course of business, to make loans to certain officers and directors of the Company and Bank under terms that are consistent with the Bank’s lending policies and regulatory requirements. In addition to extending loans to certain officers and directors of the Company and Bank on terms consistent with the Bank’s lending policies, federal banking regulations also require training, audit and examination of the adherence to this policy (also known as “Regulation O” requirements). Note 3 and Note 8 of the consolidated financial statements provide related party lending and deposit information, respectively. We have not entered into significant non-lending related party transactions.

Asset Quality

Asset quality continues to be of the upmost importance to the Company, and continues to be of great focus in light of COVID-19 and its impact on our markets and economies. Our practice is to manage the Company's loan portfolio proactively so that we are able to effectively identify problem credits and trends early, assess and implement effective work-out strategies, and take charge-offs as promptly as practical. In addition, the Company continuously reassesses its underwriting standards in response to credit risk posed by changes in economic conditions. The Company continues to dedicate significant resources to monitor and manage credit risk throughout our loan portfolio and includes management and board-level oversight as follows:

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

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

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

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

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, i.e., allsuch loans were current with terms of payment at the time of relief, and therefore were not individually assessed, designated or accounted for as TDRs. In addition, those loans that were granted temporary debt relief were not automatically downgraded into lower credit risk ratings. At December 31, 2020, the payment status of these loans operating under a temporary payment deferral arrangement were reported based on payment status at the time the deferral was granted to the borrower. In late-December 2020, another stimulus package (i.e. Consolidated Appropriations Act of 2021) was signed into law to provide additional COVID-19 relief for businesses and consumers under similar terms as those issued under the CARES Act, and, again, enabled the Company to provide temporary debt relief to borrowers impacted by COVID-19. The Consolidated Appropriations Act of 2021 expired on December 31, 2021 and the Company is no longer exempt from TDR accounting for COVID-19 hardships under the terms of the authoritative guidance.

As of December 31, 2021, the Company had no loans operating under a short-term deferral arrangement granted due to a COVID-19-related hardship, whereas at December 31, 2020, the amortized cost of loans operating under this program was $26.5 million, or 0.8% of loans. At this time, any additional temporary debt relief will be made 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 composition and amount of our non-performing loans as of the dates indicated:

December 31,

Non-accrual loans:

Commercial real estate - non-owner-occupied $ 51 $ 366

Commercial real estate - owner-occupied 133 146

SBA PPP — —

Accruing loans past due 90 days — —

Accruing TDRs (not included above) 2,392 2,818

Other real estate owned 165 236

ACL on loans to non-accrual loans 768.57 % 498.49 %

Non-accrual loans to total loans 7.19 % 7.44 %

Non-accrual loans to total loans 0.13 % 0.24 %

Non-performing loans to total loans 0.20 % 0.32 %

Non-performing assets to total assets 0.13 % 0.22 %

Generally, a loan is classified as non-accrual when interest and/or principal payments are 90 days past due or when management believes collecting all principal and interest owed is in doubt. All previously accrued but unpaid interest on non-accrual loans is reversed from interest income in the current period. Interest payments received on non-accrual loans are applied as a reduction of principal. A loan remains on non-accrual status until all principal and interest amounts contractually due are brought current, all future principal and interest payments are reasonably assured, and a consistent repayment record, generally six consecutive payments, has been demonstrated. At that time, we may reclassify the loan to performing. For loans that qualify as TDRs, we will classify the interest collected as interest income once the aforementioned criteria for non-accrual loans is met and demonstrated. However, loans classified as TDRs remain classified as such for the life of the loan, except in limited circumstances, when it is determined that the borrower is performing under the modified terms and (i) the loan is subsequently restructured and re-written in a new agreement at an interest rate greater than or equal to an acceptable market rate for a comparable new loan at the time of the restructuring, and (ii) there has been no principal forgiveness.

The following table highlights the interest income that would have been recognized if loans on non-accrual status had been current in accordance with their original terms (i.e., “foregone interest income”) and the interest income recognized on non-performing loans and performing TDRs for the periods indicated:

For the Year EndedDecember 31,

Potential Problem Loans. Potential problem loans consist of classified accruing commercial and commercial real estate loans that were 30-89 days past due. Such loans are characterized by weaknesses in the financial condition of our borrowers or collateral deficiencies. Based on historical experience, the credit quality of some of these loans may improve due to the

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financial condition of the borrowers or changes in collateral values, while the credit quality of other loans may deteriorate, resulting in some amount of loss. These loans are not included in the above analysis of non-accrual loans. At December 31, 2021, potential problem loans totaled $162,000.

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

December 31,

Loans 30-89 days past due:

Commercial real estate - non-owner-occupied $ — $ 50

Commercial real estate - owner-occupied 47 —

SBA PPP — —

Consumer and home equity 509 440

Loans 30-89 days past due to total loans 0.04 % 0.10 %

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

At or For the Year EndedDecember 31,

(CECL) (CECL) (Incurred Loss)

Impact of CECL adoption(1) — 233 —

Net charge-offs (recoveries)(2):

Commercial real estate (9) (17) 251

SBA PPP — — —

Components of ACL:

ACL on off-balance sheet credit exposures 3,195 2,568 21

Net charge-offs to average loans 0.02 % 0.02 % 0.08 %

Provision for loan losses to average loans (0.12) % 0.40 % 0.09 %

ACL on loans to total loans 0.97 % 1.18 % 0.81 %

(1) Effective January 1, 2020, the Company adopted ASU 2016-13, commonly referred to as “CECL.” Refer to “—Critical Accounting Policies” and Note 1 of the consolidated financial statements for further details.

(2) Additional information related to (credit) provision for loan losses and net (charge-offs) recoveries is presented in the following table for the periods indicated:

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For the Year EndedDecember 31,

Commercial real estate $ — $ 9 $ (9) $ 1,412,884 — %

(3) Effective January 1, 2020, the Company adopted ASU 2016-13, commonly referred to as “CECL.” Refer to “—Critical Accounting Policies” and Note 1 of the consolidated financial statements for further details.

The following table sets forth information concerning the allocation of the ACL on loans by loan categories at the dates indicated:

December 31,

Commercial real estate - non-owner-occupied $ 18,834 34 % $ 21,778 34 %

Commercial real estate - owner-occupied 2,539 9 % 2,832 8 %

There was no ACL on AFS or HTM debt securities as of December 31, 2021 or 2020.

Refer to “—Critical Accounting Policies” and Note 1 of the consolidated financial statements for further details of our CECL model macroeconomic factors (i.e. loss drivers), and refer to Note 3 of the consolidated financial statements for discussion of the risk characteristics for each portfolio segment considered when evaluating the ACL, as well as factors driving the change in the ACL on loans at December 31, 2021 compared to December 31, 2020.

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Goodwill and Core Deposit Intangible Assets

Upon completion of an acquisition the Company will likely generate goodwill and other intangible assets. Goodwill represents the price paid in excess of the fair value of acquired assets and liabilities. Through the acquisition of other financial institutions, core deposit intangible assets are recognized at the estimated fair value of the acquired non-maturity deposit customer relationships. Goodwill is reviewed for impairment as of November 30th annually, or more frequently as needed, and core deposit intangible assets are reviewed when a triggering event suggests such is necessary.

At December 31, 2021 and 2020, goodwill totaled $94.7 million. Through our annual impairment analysis performed as of November 30th each year, we determined goodwill was not impaired. Refer to “—Critical Accounting Policies” and Note 4 of the consolidated financial statements for further details of the testing performed.

At December 31, 2021 and 2020, core deposit intangible assets totaled $2.2 million and $2.8 million, respectively, and related amortization was $655,000, $682,000, and $705,000 for the years ended 2021, 2020 and 2019, respectively. There were no indications of potential risk of impairment of core deposit intangible assets for any of the aforementioned years.

Investment in BOLI

BOLI is presented in the consolidated statements of condition at its cash surrender value. Increases in BOLI’s cash surrender value are reported as a component of non-interest income in the consolidated statements of income.

BOLI was $97.2 million and $94.9 million at December 31, 2021 and 2020, respectively. The increase year-over-year reflects the increase in the cash surrender value. BOLI provides a means to mitigate increasing employee benefit costs. We expect to benefit from the BOLI contracts as a result of the tax-free growth in cash surrender value and death benefits that are expected to be generated over time. The largest risk to the BOLI program is credit risk of the insurance carriers. To mitigate this risk, annual financial condition reviews are completed on all carriers. BOLI is invested in the “general account” of quality insurance companies or in separate account products, 94% of our balances are with insurance carriers that had an A.M. Best rating of “B++” or better at December 31, 2021.

Deposits

The Company receives checking, savings and time deposits primarily from customers located within our geographic market area. Other forms of deposits include brokered deposits and deposits with the Certificate of Deposit Account Registry System (“CDARS”). Total deposits at December 31, 2021 were $4.6 billion, which included brokered deposits of $208.5 million. Total deposits at December 31, 2021 increased $603.6 million, or 15%, over December 31, 2020. The increase was primarily within core deposits (non-GAAP), which grew $726.8 million, or 22%, over this period, primarily due to additional government stimulus and programs provided to our depositors in response to the COVID-19 pandemic. Over the same period, CDs decreased $48 million, or 13%, as we continued to actively manage non-relationship deposits in an effort to lower our cost of funds.

At December 31, 2021, the Company had no customer relationships that exceeded 10% of total deposits.

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Average Deposits. The following table presents the average deposits and average interest rate paid for the periods indicated:

For the Year EndedDecember 31,

Deposits:

(1) Reported average balances are calculated on a daily basis.

Uninsured Deposits. Total deposits that exceed the FDIC deposit insurance limit of $250,000 at December 31, 2021 and 2020, were $1.3 billion and $1.4 billion, respectively. The Company has pledged assets as collateral covering certain deposits in the amount of $347.0 million and $322.0 million at December 31, 2021 and 2020, respectively.

The portion of time deposits that exceed the FDIC deposit insurance limit of $250,000, by time remaining until maturity, at December 31, 2021 was $61.4 million. At December 31, 2021, the Company does not have time deposits that are otherwise uninsured.

Borrowings and Advances

We utilize a variety of funding sources to manage our borrowings, including, but not limited to, FHLBB and correspondent bank overnight borrowings, FHLBB advances, customer and wholesale repurchase agreements, and subordinated debentures. We proactively monitor our borrowings through Management and Board ALCO as part of prudent balance sheet, earnings, and liquidity management. As part of our liquidity management, we use internal designations of “short-term” and “long-term” borrowings, and manage our borrowings within each designation:

•Short-term borrowings include, but are not limited to, FHLBB and correspondent bank overnight borrowings, FHLBB advances with maturity within one year of origination, and customer repurchase agreements.

•Long-term borrowings may include, but are not limited to, FHLBB advances with maturity greater than one year, wholesale repurchase agreements, and subordinated debentures.

At December 31, 2021, short-term borrowings were $211.6 million, representing an increase of $49.2 million, or 30%, since December 31, 2020. The increase in short-term borrowings was due to our deposit growth during 2020.

At December 31, 2021, long-term borrowings, including subordinated debentures, totaled $44.3 million, a decrease of $15 million, or 25%, since December 31, 2020. In 2020, we entered into a new long-term borrowing contract with the FHLBB for $25.0 million that matures in 2025, and in February 2021 we terminated this borrowing contract given excess liquidity levels and incurred a one-time prepayment penalty of $514,000.

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Short-Term Borrowings.The following table below provides certain information on our short-term borrowings at and for the period ended:

December 31,

FHLBB and correspondent bank overnight borrowings:

Balance outstanding at end of year $ — $ — $ 5,825

Maximum balance outstanding at any month end — 10,725 91,200

Weighted average interest rate for the year 0.40 % 1.37 % 2.20 %

Weighted average interest rate at end of year — % — % 1.85 %

FHLBB advances (less than one year):

Balance outstanding at end of year $ — $ — $ 25,000

Average daily balance outstanding — 27,381 3,850

Maximum balance outstanding at any month end — 50,000 25,000

Weighted average interest rate for the year — % 0.59 % 1.85 %

Weighted average interest rate at end of year — % — % 1.77 %

Customer repurchase agreements:

Weighted average interest rate for the year 0.31 % 0.64 % 1.25 %

Weighted average interest rate at end of year 0.25 % 0.34 % 1.21 %

Long-Term Borrowings. As of December 31, 2021 and 2020, the Company had $0 and $25.0 million of long-term borrowings. In light of the Company's liquidity position due to strong deposit growth during 2020 and 2021, in the first quarter of 2021, we 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.

Subordinated Debentures. In connection with the formation of CCTA and UBCT, and the issuance and sale of trust preferred securities to the public, we received and have outstanding at December 31, 2021 and 2020, junior subordinated debentures totaling $44.3 million.

As of December 31, 2021, the Company had no subordinated debentures outstanding. On April 16, 2021, we exercised our call option on the $15.0 million of subordinated debentures that was outstanding at December 31, 2021, at par plus accrued interest.

FHLBB Collateral. FHLBB short-term and long-term borrowings 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 $1.4 billion and $1.3 billion at December 31, 2021 and 2020, respectively. The carrying value of securities pledged as collateral at the FHLBB was $26,000 and $38,000 at December 31, 2021 and 2020, respectively.

Shareholders’ Equity

Total shareholders’ equity at December 31, 2021 was $541.3 million, which was an increase of $12 million, or 2%, since December 31, 2020. The increase was primarily driven by normal operating activities, including net income of $69.0 for the year ended 2021, net of: (1) a decrease in the fair value of the Company's AFS debt securities of $27.0, net of tax; (2) dividends declared of $22.1 million for the year ended 2021; and (3) repurchase of 217,931 shares of the Company's common stock for a total cost of $10.1 million

At December 31, 2021 and 2020, the Company and the Bank exceeded all regulatory capital guidelines, and, specifically, the Bank met the capital ratios necessary to be considered “well capitalized” under prompt corrective action provisions for each

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period. There were no changes to the Company or the Bank's capital that occurred subsequent to December 31, 2021 that would change the Company or Bank's regulatory capital categorization.

In January 2022, the Company's Board of Directors authorized the repurchase of up to 750,000 shares of the Company's common stock, representing approximately 5% of the Company's issued and outstanding shares of common stock as of December 31, 2021. This program replaces the 2021 program, which expired upon the announcement of the new program, and will continue until the earlier of: (1) authorized number of shares are repurchased, (2) the Company's Board of Directors terminates the program, or (3) January 3, 2023 (12 months from the announcement of the new program). Purchases under the new program may be made at the Company's discretion from time to time in the open market, through block trades or otherwise, and in privately negotiated transactions, subject to market conditions and other factors, and in accordance with applicable legal and regulatory requirements.

Refer to “—Capital Resources” and Note 14 of the consolidated financial statements for further discussion of the Company's capital position.

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

As of and For the Year EndedDecember 31,

Financial Ratios

Tangible common equity ratio (non-GAAP) 8.22 % 8.99 % 8.66 %

Per Share Data

Tangible book value per share (non-GAAP) $ 30.15 $ 28.96 $ 24.77

Dividends declared per share $ 1.48 $ 1.32 $ 1.23

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LIQUIDITY

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

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

Deposits. Deposits continue to represent our primary source of funds. For 2021, total deposits, including brokered deposits, were $4.6 billion, an increase of 15% over December 31, 2020. Total deposit growth during 2021 was driven by core deposits (non-GAAP) growth of $726.8 million, or 22%, which excludes CDs and brokered deposits. Included within money market deposits for 2021 and 2020 were $63.9 million and $59.8 million, respectively, of deposits from Camden National Wealth Management, which represent client funds. These deposits fluctuate with changes in the portfolios of the clients of Camden National Wealth Management. Time deposits are generally considered to be more interest rate sensitive than other deposits and, therefore, more likely to be withdrawn to obtain higher yields elsewhere if available.

The following is a summary of the scheduled maturities of CDs as of December 31, 2021:

(In thousands) CDs

Borrowings. Borrowings are used to supplement deposits as a source of liquidity. Our primary sources of borrowings are with the FHLBB and customer repurchase agreements, but may also include alternative sources such as various forms of subordinated debentures. For the year ended 2021, total borrowings increased $9.2 million, or 4%, to $255.9 million compared to the same period last year. Our practice is to secure borrowings from the FHLBB with qualified commercial and residential real estate loans, home equity loans and certain investment securities. At December 31, 2021, total borrowing capacity was $775.4 million. Customer repurchase agreements are secured by mortgage-backed securities and government-sponsored enterprises. Through the Bank, we also 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 $54.7 million as of December 31, 2021. Additionally, the Company also has a $10.0 million line of credit with a correspondent bank that matures on December 16, 2022. We also believe that we have additional untapped access to the brokered deposit market and wholesale reverse repurchase transaction market. These sources are considered as liquidity alternatives in our contingent liquidity plan.

The following is a summary of the scheduled maturities of borrowings as of December 31, 2021:

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Loans. Contractual loan repayments also affect our liquidity position. Actual speed and timing of repayment may differ materially from contract terms due to prepayments or nonpayment. The Company's residential mortgage loan portfolio is also a significant source of contingent liquidity for the Company that could be accessed in a reasonable time period through the sale of loans on the secondary market, as needed. As of December 31, 2021, book value of $1.4 billion of qualifying loans were pledged as collateral.

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

Maturity Distribution(1):

Fixed Rate:

Variable Rate:

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

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

Additionally, we have active relationships with various secondary market investors that purchase residential mortgage loans we originate. In addition to managing our interest rate risk position and earnings through the sale of these loans, we are also able to manage our liquidity position through timely sales of residential mortgage loans to the secondary market. For the year ended 2021, we sold 44% of our $1.1 billion of residential mortgage loan originations to the secondary market.

Investments. We generally invest in amortizing MBS and CMO debt securities that return cash flow at an accelerated rate in comparison to other types of debt securities that are of a bullet structure. As of December 31, 2021 and 2020, the Company's MBS and CMO debt securities portfolio totaled 90% and 87%, respectively, of the Company's investment portfolio. The investment portfolio is also a significant source of contingent liquidity for the Company that could be accessed in a reasonable time period through the sale of investments on the secondary market, if needed. As of December 31, 2021, $867.4 million of our AFS debt securities, or 57.5%, was designated as AFS and not pledged as collateral.

The following is a summary of the scheduled cash flows from our debt securities portfolio, including investments designated as AFS and HTM, as of December 31, 2021:

(In thousands) ContractualCash Flows(1)

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

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Other Liquidity Requirements. Through the Company's normal course of business it generates cash flows from earnings and, while not contractual, it has a history of paying a quarterly cash dividend to its shareholders and repurchasing its shares of common stock. For the year ended 2021, the Company reported $69.0 million of net income, paid cash dividends of $21.1 million to shareholders and repurchased shares of its common stock for $10.1 million.

Also through its normal operations, the Company is party to several other contractual obligations not previously discussed, such as various lease agreements on a number of its branches. Renewal options within the various lease contracts, as applicable, were considered to determine the lease term and estimate the contractual obligation and commitment for the Company's operating and finance leases. Furthermore, certain lease contracts of the Company contain language that subject its rent payment to variability, such as those tied to an index or change in an index. As a result, the future contractual obligation and commitment may materially differ from that estimated and disclosed within the table below. At December 31, 2021, we had the following lease and other contractual obligations to make future payments under each of these contracts as follows:

Total Amount Committed Payments Due Per Period

(In thousands) 1 Year or Less > 1 Year

Other contractual obligations 2,079 2,079 —

The Company's estimated lease liability for its various operating and finance leases was reported within other liabilities on our consolidated statements of condition. Please refer to Notes 1 and 6 of the consolidated financial statements for discussion and details of our leases.

In the normal course of business, we are a party to credit related financial instruments with off-balance sheet risk, which are not reflected in the consolidated statements of condition. These financial instruments include commitments to extend credit and standby letters of credit. Many of the commitments will expire without being drawn upon, and thus, the total amount does not necessarily represent future cash requirements. Refer to Note 11 of the consolidated financial statements for additional details.

We use derivative financial instruments for risk management purposes (primarily interest rate risk) and not for trading or speculative purposes. These contracts with our various counterparties may subject the Company to various cash flow requirements, which may include posting of cash as collateral (or other assets) for arrangements that the Company is in a liability position (i.e. “underwater”). Refer to Note 12 of the consolidated financial statements for further discussion of our derivatives and hedge instruments.

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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 $541.3 million and $529.3 million at December 31, 2021 and December 31, 2020, respectively, which amounted to 10% of total assets. Refer to “— Financial Condition — Shareholders' Equity” for discussion regarding changes in shareholders' equity since December 31, 2020.

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 $22.1 million, or $1.48 per share, $19.8 million, or $1.32 per share, and $18.9 million, or $1.23 per share, for the year ended December 31, 2021, 2020 and 2019, 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 regulatory requirements and state corporate law.

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 year ended December 31, 2021, 2020, and 2019, the Bank declared dividends payable to the Company in the amount of $41.7 million, $39.4 million, and $36.9 million, respectively. Under OCC regulations, the Bank generally may not declare a dividend in excess of the Bank’s undivided profits or, absent OCC approval, if the total amount of dividends declared by the Bank in any calendar year exceeds the total of the Bank's retained net income for the current year plus its retained net income for the prior two years. 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 14 of the consolidated financial statements for discussion and details of the Company and Bank's capital regulatory requirements. At December 31, 2021 and 2020, the Company and Bank met all regulatory capital requirements and the Bank continues to be classified as “well capitalized” under prompt corrective action provisions.

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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, Enterprise Risk Management and Chief Risk Officer, 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 has: (i) developed employee practices, policies and playbooks to address pandemic related issues; (ii) implemented monitoring of all federal, state and local actions, such as stay-at-home orders, masking mandates and others, so that the Company can comply with all legal requirements; (iii) completed risk assessments and proactive monitoring over critical vendors, along with enhanced cybersecurity monitoring and reporting; (iv) created ongoing assessment and monitoring over employee availability, safety, workloads and access to tools (including technology needed to work from home effectively); (v) oversaw the roll out of and continue to monitor the SBA PPP loan program and temporary loan relief programs; (vi) developed our branch network plan, including determination of which of our branches were to close in order to best allocate resources; (vii) developed a plan for, and oversaw the re-opening of our branches in June 2020, which included ensuring health and safety protocols and practices were in place for our employees and customers; and (viii) completed and implemented the Company's “return-to-office” strategy during the third quarter of 2021, which included certain employees returning to the office full-time, others through a hybrid model (i.e., work from home part-time and from one of the Company's physical locations part-time), and others working remotely full-time. The Company's Executive Committee continues to monitor this strategy and will continue to re-evaluate in 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 members of senior management. The Pandemic Work Group, through the Company's executive team, regularly reports to the Board of Directors to assist with its ongoing oversight of the Company’s response to COVID-19 and management of all areas of risks the Company faces, which have been affected by the COVID-19 pandemic.

The Company is, and may become, subject to other risks. Refer to Item 1A. Risk Factors for further description of the Company's material risks.

Credit Risk. Credit risk is the current and prospective risk to earnings or capital arising from an obligor's failure to meet the terms of any contract with the Company or otherwise to perform as agreed. It is found in all activities in which success depends on counterparty, issuer or borrower performance. It arises any time funds are extended, committed, invested or otherwise exposed through actual or implied contractual agreements, whether reflected on or off the Company's balance sheet. The Company makes various assumptions and judgments about the collectability of its loan portfolio, including the creditworthiness of its borrowers and counterparties and the value of the real estate and other assets serving as collateral for the repayment of loans. For further discussion regarding credit risk and the credit quality of the Company’s loan portfolio, refer to “—Financial Condition—Asset Quality” and Note 3 of the consolidated financial statements.

Liquidity Risk. Liquidity risk is the current and prospective risk to earnings or capital arising from the Company’s inability to meet its obligations when they come due, without incurring unacceptable losses. Liquidity risk includes the inability to manage unplanned decreases or changes in funding sources. Liquidity risk also arises from the failure to recognize or address changes in market conditions that affect the ability to liquidate assets quickly and with minimal loss in value. For further discussion regarding the Company's management of liquidity risk, refer to “—Liquidity” section.

Market Risk. Market riskis the risk of loss in a financial instrument arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates, commodity prices and equity prices. Our primary market risk exposure is interest rate risk. The ongoing monitoring and management of this risk is an important component of our asset and liability management process, which is governed by policies established by the Bank’s Board of Directors that are reviewed and approved annually. The Board ALCO delegates responsibility for carrying out the asset/liability management policies to Management ALCO. In this capacity, Management ALCO develops guidelines and strategies impacting our asset/liability management-related activities based upon estimated market risk sensitivity, policy limits and overall market interest rate levels and trends. Board ALCO meets on a quarterly basis to review strategies, policies, economic conditions and various activities as part of the management of these risks.

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Certain of the Company's revenues are asset-based and determined as a percentage of the value of a client's assets under management. Such values are affected by changes in financial markets, such as interest rate risk, equity prices, and foreign exchange rates, and, accordingly, declines in the financial market may negatively impact its revenue. At December 31, 2021, client assets under management by Camden National Wealth Management were $1.1 billion. It is estimated that a 1% increase or decrease in client assets under management would have resulted in an annualized increase or decrease in reported 2021 income from fiduciary services of $72,000.

Interest Rate Risk. Interest rate riskrepresents 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 December 31, 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%.

As of December 31, 2021, 2020 and 2019, 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 inNet Interest Income

As of December 31,

Year 1

Year 2

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 trend downward (assuming no balance sheet growth) as asset yields replace into lower assumed rates with limited opportunity for funding cost reductions. If rates decrease 100 basis points, net interest income is projected to decrease as loans reprice into lower yields and funding costs have limited capacity for reduction in the first year. In the second year, net interest income is projected to continue to decrease as loan and investment cash flow reprice into lower yields as prepayments increase while reduction in the cost of funds remains limited. If rates increase 200 basis points, net interest income is projected to increase in the first year due to the repricing of assets

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outpacing funding cost increases. In the second year, net interest income is projected to increase as loan and investment yields continue to reprice/reset into higher yields and the cost of funds lags.

Periodically, if deemed appropriate, we use 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. As of December 31, 2021, we had interest rate swap agreements with a total notional of $43.0 million related to our junior subordinated debentures, $100.0 million of notional interest swap agreements on variable rate loans to mitigate exposure to falling interest rates, $50.0 million of notional interest rate swap agreements on variable rate deposits to mitigate exposure to rising rates, $50.0 million of notional interest rate swap agreements on short term funding to mitigate exposure to rising rates, and $345.5 million of notional interest rate swap agreements related to commercial loan level derivative program with both our commercial customers and a corresponding swap dealer. The Board and Management ALCO monitor derivative activities relative to their expectations and our hedging policies.

LIBOR is a benchmark interest rate for certain floating rate loans, deposits and borrowings, and off-balance sheet exposures of the Company. The administrator of LIBOR has announced that the publication of the most commonly used U.S. Dollar LIBOR settings will cease to be provided or will cease to be representative after June 30, 2023. The publication of all other LIBOR settings ceased to be provided or ceased to be representative as of December 31, 2021. As such, the Company has an internal project team that is focused on an orderly transition from LIBOR to alternative reference rates. The markets for alternative rates are developing. The Company will continue to assess the use of alternative rates, including SOFR, and expects to transition to alternative rates as the markets and best practices further develop. Refer to Note 1 of the consolidated financial statements.

Capital Risk. Capital risk is the risk that an investor may lose all or part of the principal amount invested. The Company faces this risk as it manages its balance sheet and has investments or loans that may lose all or part of the principal amount the Company has invested, which can have an impact on shareholders' equity. The Company also faces capital risk in that the entity may lose value on components of its shareholders' equity. The regulatory environment mandates the Company and Bank maintain certain levels of capital. These capital levels can change based upon regulatory changes, which can then impact what the Company is able to accomplish from a strategic perspective. For further discussion regarding capital risk and management of this risk, refer to “—Capital Resources” and Note 14 of the consolidated financial statements.

Operational Risk. Operational riskis the current and prospective risk to earnings and capital arising from fraud, error and the inability to deliver products or services, maintain a competitive position and manage information. Risk is inherent in efforts to gain strategic advantage and in the failure to keep pace with changes in the financial services marketplace. Operational risk is evident in each product and service offered by the Company and encompasses product development and delivery, transaction processing, systems development, change management, complexity of products and services, human resource elements and the internal control environment. The risk that transactions may not be processed on time or correctly can have significant impact on the Bank’s reputation, which can result in compliance violations and fines, and/or other financial risks.

The Company manages operational risk through a series of internal programs, as well as through the assistance of third parties. These programs include various internal and external audit programs, internal committees to oversee compliance with programs and remedial actions, if necessary, and various documented policies, procedures and framework for addressing such risks.

Technology Risk, including Cybersecurity. Technology Risk is the risk offinancial loss, disruption or damage to the reputation of an organization resulting from the failure of its information technology systems, weak computing infrastructure, or a breach of information technology systems. Technology and cybersecurity risk could materialize in a variety of ways, such as unpatched or vulnerable computing systems, deliberate and unauthorized breaches of security to gain access to information systems, unintentional or accidental breaches of security, operational information technology risks due to factors such as poor system integrity, weak computing infrastructure and/or a weak Cybersecurity protection program.

Poorly managed technology and cybersecurity risk can leave an institution exposed to a variety of cyber crimes, with consequences ranging from data disruption to economic destitution. Reputation risk due to a technology and/or cybersecurity event can be significant to overcome depending on the severity of the event.

The Company manages technology and cybersecurity risks through its internal programs, as well as through the assistance of third parties. These programs include various internal and external audit programs, internal committees to oversee compliance with programs and remedial actions, if necessary, and various documented policies, procedures and framework for addressing such risks. Additionally, the Board actively oversees risks related to cybersecurity through various committees that are responsible for developing a comprehensive technology plan and monitoring and testing the Company's information

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security. The Company has also developed a Cybersecurity Incident Response Team (“CSIRT”) that is responsible for monitoring, detecting, responding to and reporting cybersecurity incidents. The CSIRT uses a variety of monitoring and testing techniques to protect the integrity of the Company's systems and the security of confidential information.

Vendor and Third Party Risk. Vendor and third party riskrepresents the risk related to outsourced activities and in certain situations includes reliance on vendors to deliver services on our behalf. The Company has many service partners and an increasing reliance on outsourced services, which places greater risk on the Company through these many partners. These relationships are controlled by contracts and service level agreements, but represent increasing risk to the Company.

The Company manages vendor and third party risk through its vendor management program, which includes robust due diligence and risk assessment prior to engaging a new vendor, annual review of certain vendors dependent on the services provided by the vendor and the risk the vendor may present to the Company through our reliance on its services.

People and Compensation Risk. People and compensation risk includes: (1) the risk of employee dishonesty, incompetence or error; (2) the risk of not having individuals with adequate training and experience to properly discharge their responsibilities; (3) the risk of not having sufficient depth of personnel to provide back up for critical functions; (4) the risk of lawsuit by employees alleging improper actions by or on behalf of the Company; (5) succession planning; and (6) compensation risk, which includes having compensation plans that effectively allow the Company to hire and keep the right talent, and properly designed compensation and incentive programs to promote ethical behavior and assure that excessive risk is not encouraged.

The Company manages people and compensation risk through annual risk assessments of various compensation and incentive plans, oversight by the Compensation Committee of the Board of Directors, the use of third party compensation consultants, and various insurance programs.

Compliance and Legal Risk. Compliance and legal riskis the current and prospective risk to earnings or capital arising from violations of, or nonconformance with, laws, rules, regulations, prescribed practices, internal policies and procedures, or ethical standards. This risk exposes the Company to fines, civil money penalties, payment of damages, and the voiding of contracts. Compliance risk can lead to diminished reputation, reduced franchise value, limited business opportunities, reduced expansion potential, and an inability to enforce contracts. Legal risk exists in generally all activity of the Company where there is any possibility that the Company will become subject to liability for improper actions.

The Company manages compliance and legal risk through various internal and external audit programs, use of third parties for consulting and legal support, ongoing compliance risk assessments, the ERM Committee and various insurance programs.

Strategic Alignment Risk. Strategic alignment riskis the current and prospective impact on earnings or capital arising from adverse business decisions, improper implementation of decisions, or lack of responsiveness to industry changes. This risk is a function of the compatibility of the Company's strategic goals, the business strategies developed to achieve those goals, the resources deployed against these goals, and the quality of implementation.

Reputation Risk. Reputation risk is the current and prospective impact on earnings and capital arising from negative public opinion. The reputation of financial services companies can be based on brand and trust, and the loss of brand or trust can negatively impact the Company's operations and financial results. Reputation risk exposure is present throughout the organization and our interactions with our various stakeholders, including, but not limited to, our customers, communities and investors.

The Company manages its strategic alignment and reputation risk through various internal policies and programs, including, but not limited to, the Company's core values, code of ethics policy, financial code of ethics policy, Audit Committee complaint policy, employee handbook, and other policies and programs, as well as through strategic planning and oversight by the Board of Directors.

RECENT ACCOUNTING PRONOUNCEMENTS

See “—Critical Accounting Policies” and Note 1 of the consolidated financial statements for details of recently issued accounting pronouncements and their expected impact on the consolidated financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

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Information required by this Item 7A is included in Item 7. “Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management.”

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Item 8. Financial Statements and Supplementary Data

CONSOLIDATED STATEMENTS OF CONDITION

December 31,

(In thousands, except number of shares) 2021 2020

ASSETS

Total cash, cash equivalents and restricted cash 220,625 145,774

Investments:

Less: allowance for credit losses on loans (33,256) (37,865)

Core deposit intangible assets 2,188 2,843

LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities

Deposits:

Long-term borrowings — 25,000

Commitments and contingencies

Shareholders’ Equity

Accumulated other comprehensive (loss) income:

Net unrecognized loss on postretirement plans, net of tax (3,277) (3,944)

Total accumulated other comprehensive (loss) income (6,229) 20,740

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

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CONSOLIDATED STATEMENTS OF INCOME

For the Year EndedDecember 31,

(In thousands, except number of shares and per share data) 2021 2020 2019

Interest Income

Interest Expense

Non-Interest Income

Net loss on sale of securities — — (105)

Non-Interest Expense

Amortization of core deposit intangible assets 655 682 705

Other real estate owned and collection (recoveries) costs, net (101) 382 480

Per Share Data

Diluted earnings per share $ 4.60 $ 3.95 $ 3.69

Cash dividends declared per share $ 1.48 $ 1.32 $ 1.23

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

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Year EndedDecember 31,

Other comprehensive (loss) income:

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

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Other comprehensive income, net of tax — — — 18,152 18,152

Stock-based compensation expense — 1,885 — — 1,885

Other comprehensive income, net of tax — — — 27,008 27,008

Stock-based compensation expense — 1,785 — — 1,785

Other comprehensive loss, net of tax — — — (26,969) (26,969)

Stock-based compensation expense — 2,381 — — 2,381

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

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CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Year EndedDecember 31,

Operating Activities

Investment securities amortization and accretion, net 6,722 4,803 2,997

Amortization of core deposit intangible assets 655 682 705

Purchase accounting accretion, net (699) (1,304) (1,483)

Net decrease (increase) in derivative collateral posted 26,700 (26,540) (26,240)

Increase (decrease) in other liabilities 43 2,568 (342)

Investing Activities

Purchase of Federal Home Loan Bank stock (68) (9,231) (13,688)

Proceeds from other investments — 1,712 —

Recoveries of previously charged-off loans 372 1,084 310

Proceeds from sale of other real estate owned 465 110 554

Financing Activities

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) — —

Net increase in cash, cash equivalents and restricted cash 74,851 70,138 8,637

Supplemental information

Transfer from premises to other real estate owned 204 24 —

Transfer from loans to other real estate owned — 236 543

Unsettled common stock repurchase — 11 —

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

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CAMDEN NATIONAL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Acronyms and Abbreviations.The acronyms and abbreviations identified below are used in the notes to the consolidated financial statements. The following is provided to aid the reader and provide a reference page when reviewing the notes to the consolidated financial statements.

Acronym Description Acronym Description

AFS: Available-for-sale FRBB: Federal Reserve Bank of Boston

ACL: Allowance for credit losses GDP: Gross domestic product

ASC: Accounting Standards Codification HTM: Held-to-maturity

ASU: Accounting Standards Update IRS: Internal Revenue Service

BOLI: Bank-owned life insurance LIBOR: London Interbank Offered Rate

CD: 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

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 ROU: Right-of-use

FHLB: Federal Home Loan Bank SBA: U.S. Small Business Administration

FNMA: Federal National Mortgage Association TDR: Troubled-debt restructured loan