What changed in this filing

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Item 1. Financial Statements

2021-08-06 compared with 2021-05-07 · 220 added, 182 removed, 1211 unchanged (25% of the section changed)

4 unchanged sentences

We have reviewed the accompanying interim consolidated financial information of The First Bancorp, Inc.

and Subsidiary as of March 31, 2021 and 2020 and for the three-month periods then ended.

and Subsidiary as of June 30, 2021 and 2020 and for the three-month and six-month periods then ended.

These financial statements are the responsibility of the Company's management.

6 unchanged sentences

Portland, Maine

August 6, 2021

Consolidated Balance Sheets (Unaudited)

1 unchanged sentence

and Subsidiary

2021 December 31, 2020 March 31,

2021 December 31, 2020 June 30,

Cash and cash equivalents $ 27,092,000 $ 26,212,000 $ 22,143,000

1 unchanged sentence

Securities available for sale 306,247,000 313,376,000 311,500,000

Securities to be held to maturity (fair value of $ 388,836,000 at March 31, 2021, $ 377,134,000 at December 31, 2020 and $ 349,248,000 at March 31, 2020)

Securities to be held to maturity (fair value of $ 383,454,000 at June 30, 2021, $ 377,134,000 at December 31, 2020 and $ 352,225,000 at June 30, 2020)

376,181,000 365,613,000 341,962,000

41 unchanged sentences

and Subsidiary

For the three months ended March 31,

For the six months ended June 30, For the quarter ended June 30,

2021 2020 2021 2020

Interest income

Interest and fees on loans (includes tax-exempt income of $ 290,000 YTD March 31, 2021 and $ 310,000 YTD March 31, 2020)

Interest and fees on loans (includes tax-exempt income of $ 577,000 YTD June 30, 2021 and $ 608,000 YTD June 30, 2020)

$ 29,959,000 $ 30,015,000 $ 14,840,000 $ 14,159,000

Interest on deposits with other banks 24,000 79,000 12,000 5,000

Interest and dividends on investments (includes tax-exempt income of $ 1,956,000 YTD March 31, 2021 and $ 1,841,000 YTD March 31, 2020)

Interest and dividends on investments (includes tax-exempt income of $ 3,894,000 YTD June 30, 2021 and $ 3,733,000 YTD June 30, 2020)

7,511,000 9,386,000 3,689,000 4,622,000

31 unchanged sentences

Net unrealized gain (loss) on cash flow hedging derivative instruments 2,849,000 ( 6,284,000 ) ( 620,000 ) ( 1,414,000 )

Other comprehensive loss ( 1,312,000 ) ( 629,000 )

Other comprehensive gain (loss) ( 950,000 ) ( 2,805,000 ) 362,000 ( 2,176,000 )

Comprehensive income $ 16,759,000 $ 10,259,000 $ 9,149,000 $ 4,393,000

23 unchanged sentences

Proceeds from sale of common stock 13,670 325,000 — — 325,000

Balance at March 31, 2020 10,921,206 $ 64,386,000 $ 147,904,000 $ 2,967,000 $ 215,257,000

Balance at June 30, 2020 10,933,428 $ 64,710,000 $ 151,083,000 $ 791,000 $ 216,584,000

Balance at December 31, 2020 10,950,289 $ 65,395,000 $ 158,359,000 $ ( 28,000 ) $ 223,726,000

10 unchanged sentences

Proceeds from sale of common stock 12,263 340,000 — — 340,000

Balance at March 31, 2021 10,983,258 $ 65,865,000 $ 163,659,000 $ ( 1,340,000 ) $ 228,184,000

Balance at June 30, 2021 10,987,680 $ 66,225,000 $ 168,908,000 $ ( 978,000 ) $ 234,155,000

See Report of Independent Registered Public Accounting Firm.

3 unchanged sentences

and Subsidiary

For the three months ended

March 31, 2021 March 31, 2020

For the six months ended

June 30, 2021 June 30, 2020

Cash flows from operating activities

9 unchanged sentences

Net amortization of premiums on investments 1,249,000 831,000

Net gain on sale of other real estate owned ( 98,000 ) —

Net (gain) loss on sale of other real estate owned ( 105,000 ) 29,000

Equity compensation expense 490,000 312,000

1 unchanged sentence

Net increase (decrease) in other liabilities ( 4,926,000 ) 11,264,000

Net loss on disposal of premises and equipment 1,000 —

Net (gain) loss on disposal of premises and equipment 2,000 ( 3,000 )

Amortization of investment in limited partnership 154,000 156,000

15 unchanged sentences

Cash flows from financing activities

Net increase (decrease) in demand, savings, and money market accounts 80,201,000 ( 26,813,000 )

Net increase in certificates of deposit 28,745,000 20,959,000

Net increase in demand, savings, and money market accounts 126,093,000 123,001,000

Net decrease in certificates of deposit ( 9,383,000 ) ( 33,346,000 )

Net increase (decrease) in short-term borrowings ( 33,386,000 ) 48,853,000

5 unchanged sentences

Net cash provided by financing activities 76,510,000 177,129,000

Net increase (decrease) in cash and cash equivalents ( 6,183,000 ) 6,684,000

Net increase in cash and cash equivalents 880,000 7,710,000

Cash and cash equivalents at beginning of period 26,212,000 14,433,000

Cash and cash equivalents at end of period $ 27,092,000 $ 22,143,000

For the three months ended

March 31, 2021 March 31, 2020

For the six months ended

June 30, 2021 June 30, 2020

Interest paid $ 6,282,000 $ 10,317,000

19 unchanged sentences

To curtail spread of the virus, governments at all levels encouraged social distancing and many imposed restrictions on travel and group meetings, and/or mandated shut-downs of all but essential businesses.

The introduction of vaccines has led to a gradual re-opening to date and planned future re-openings.

The pace of re-opening is at least partially dependent upon the distribution of vaccines, and varies across the United States.

Vaccination efforts have led to a general re-opening of the economy with few remaining restrictions.

The Company’s business, financial condition, and results of operations generally rely upon the ability of the Bank’s borrowers to repay their loans, the value of collateral underlying the Bank’s secured loans, and demand for loans and other products and services the Bank offers, which are highly dependent on the business environment in the Bank’s primary markets where it operates and in the United States as a whole.

1 unchanged sentence

In 2020, COVID-19 adversely impacted the tourism industry to a greater degree than other industries;

however, a forward-looking assessment of the continued impact cannot be completed with a high degree of certainty at this time.

In addition to loans, demand for other products and services could be impacted by COVID-19.

Depositors and other funding sources may be unwilling to renew certificates of deposit or other types of funding, or may only be willing to do so on terms, including higher interest rates, that are materially less favorable than the Bank has experienced in the recent past.

Certain fee based activities such as service charges, interchange revenues, and wealth management were negatively impacted initially and have since largely rebounded, but could once again be negatively impacted due to lower activity or market declines related to COVID-19.

early data and anecdotal evidence suggest a strong rebound in tourism in 2021, limited in some cases by available labor.

The highly transmissible Delta variant of COVID-19 has become the dominant strain with regional outbreaks occurring, though not in the Bank's primary market area to date.

The severity of these outbreaks could result in further disruption with an indeterminable impact on the Company's operating results.

Subsequent Events

Events occurring subsequent to March 31, 2021, have been evaluated as to their potential impact to the financial statements.

Events occurring subsequent to June 30, 2021, have been evaluated as to their potential impact to the financial statements.

Note 2 – Investment Securities

The following table summarizes the amortized cost and estimated fair value of investment securities at March 31, 2021:

The following table summarizes the amortized cost and estimated fair value of investment securities at June 30, 2021:

Cost Unrealized Gains Unrealized Losses Fair Value (Estimated)

34 unchanged sentences

$ 10,545,000 $ — $ — $ 10,545,000

The following table summarizes the amortized cost and estimated fair value of investment securities at March 31, 2020:

The following table summarizes the amortized cost and estimated fair value of investment securities at June 30, 2020:

Cost Unrealized Gains Unrealized Losses Fair Value (Estimated)

14 unchanged sentences

$ 10,545,000 $ — $ — $ 10,545,000

The following table summarizes the contractual maturities of investment securities at March 31, 2021:

The following table summarizes the contractual maturities of investment securities at June 30, 2021:

Securities available for sale Securities to be held to maturity

15 unchanged sentences

$ 307,036,000 $ 313,376,000 $ 365,613,000 $ 377,134,000

The following table summarizes the contractual maturities of investment securities at March 31, 2020:

The following table summarizes the contractual maturities of investment securities at June 30, 2020:

Securities available for sale Securities to be held to maturity

6 unchanged sentences

$ 302,513,000 $ 311,500,000 $ 341,962,000 $ 352,225,000

At March 31, 2021, securities with a fair value of $ 291,990,000 were pledged to secure public deposits, repurchase agreements, and for other purposes as required by law.

This compares to securities with a fair value of $ 297,326,000 as of December 31, 2020 and $ 208,376,000 at March 31, 2020, pledged for the same purposes.

At June 30, 2021, securities with a fair value of $ 291,913,000 were pledged to secure public deposits, repurchase agreements, and for other purposes as required by law.

This compares to securities with a fair value of $ 297,326,000 as of December 31, 2020 and $ 245,917,000 at June 30, 2020, pledged for the same purposes.

Gains and losses on the sale of securities are computed by subtracting the amortized cost at the time of sale from the security's selling price, net of accrued interest to be received.

The following table shows securities gains and losses for the three months ended March 31, 2021 and 2020:

For the three months ended March 31,

The following table shows securities gains and losses for the six months and quarters ended June 30, 2021 and 2020:

For the six months ended June 30, For the quarter ended June 30,

2021 2020 2021 2020

Proceeds from sales of securities $ 15,692,000 $ 79,469,000 $ 14,478,000 $ 10,849,000

3 unchanged sentences

Related income taxes $ 34,000 $ 248,000 $ 9,000 $ 90,000

Prior year sales included 28 municipal securities sold in the second quarter of 2020 that had been designated as Held to Maturity.

Proceeds from these sales totaled $ 8,600,000 against a cumulative book value of $ 8,313,000 resulting in a net realized gain of $ 268,000 .

The potential economic impact of COVID-19 was considered to be an isolated and unusual event that could not be reasonably anticipated as outlined in Accounting Standards Codification (ASC) Section 320-10-25.

Management conducted a review of its municipal bond portfolio in conjunction with risk mitigation efforts related to the onset of the COVID-19 virus;

the intent of the review was to identify investment exposures with lower relative credit ratings, locales with perceived above average economic risk, municipal entities with reliance upon sales tax or income tax revenue, or any combination of these factors.

Each of the sold positions met one or more of the criteria.

Management reviews securities with unrealized losses for other than temporary impairment.

As of March 31, 2021, there were 140 securities with unrealized losses held in the Company's portfolio.

As of June 30, 2021, there were 112 securities with unrealized losses held in the Company's portfolio.

These securities were temporarily impaired as a result of changes in interest rates reducing their fair value, of which 11 had been temporarily impaired for 12 months or more.

The Company has the ability and intent to hold its impaired securities until a recovery of their amortized cost, which may be at maturity.

Information regarding securities temporarily impaired as of March 31, 2021 is summarized below:

Information regarding securities temporarily impaired as of June 30, 2021 is summarized below:

Less than 12 months 12 months or more Total

15 unchanged sentences

$ 99,070,000 $ ( 1,062,000 ) $ 3,878,000 $ ( 88,000 ) $ 102,948,000 $ ( 1,150,000 )

As of March 31, 2020, there were 70 securities with unrealized losses held in the Company's portfolio.

As of June 30, 2020, there were 52 securities with unrealized losses held in the Company's portfolio.

These securities were temporarily impaired as a result of changes in interest rates reducing their fair value, of which 11 had been temporarily impaired for 12 months or more.

Information regarding securities temporarily impaired as of March 31, 2020 is summarized below:

Information regarding securities temporarily impaired as of June 30, 2020 is summarized below:

Less than 12 months 12 months or more Total

Fair Value (Estimated) Unrealized Losses Fair Value (Estimated) Unrealized Losses Fair Value (Estimated) Unrealized Losses

Government-sponsored agencies $ 7,988,000 $ ( 12,000 ) $ — $ — $ 7,988,000 $ ( 12,000 )

Mortgage-backed securities 28,116,000 ( 160,000 ) 4,771,000 ( 143,000 ) 32,887,000 ( 303,000 )

6 unchanged sentences

The amortization of the net unrealized loss reported in accumulated other comprehensive income (loss) will offset the effect on interest income of the discount for the transferred securities.

The remaining unamortized balance of the net unrealized losses for the securities transferred from available for sale to held to maturity was $ 124,000 , net of taxes, at March 31, 2021.

This compares to $ 133,000 and $ 174,000 , net of taxes, at December 31, 2020 and March 31, 2020, respectively.

The remaining unamortized balance of the net unrealized losses for the securities transferred from available for sale to held to maturity was $ 113,000 , net of taxes, at June 30, 2021.

This compares to $ 133,000 and $ 146,000 , net of taxes, at December 31, 2020 and June 30, 2020, respectively.

These securities were transferred as a part of the Company's overall investment and balance sheet strategies.

2 unchanged sentences

The Bank uses the FHLB for a portion of its wholesale funding needs.

As of March 31, 2021 and 2020, and December 31, 2020, the Bank's investment in FHLB stock totaled $ 9,068,000 , $ 8,957,000 and $ 9,508,000 , respectively.

As of June 30, 2021 and 2020, and December 31, 2020, the Bank's investment in FHLB stock totaled $ 7,802,000 , $ 9,508,000 and $ 9,508,000 , respectively.

FHLB stock is a non-marketable equity security and therefore is reported at cost, which equals par value.

The Company periodically evaluates its investment in FHLB stock for impairment based on, among other factors, the capital adequacy of the FHLB and its overall financial condition.

No impairment losses have been recorded through March 31, 2021.

No impairment losses have been recorded through June 30, 2021.

The Company will continue to monitor its investment in FHLB stock.

Note 3 – Loans

The following table shows the composition of the Company's loan portfolio as of March 31, 2021 and 2020 and at December 31, 2020:

March 31, 2021 December 31, 2020 March 31, 2020

The following table shows the composition of the Company's loan portfolio as of June 30, 2021 and 2020 and at December 31, 2020:

June 30, 2021 December 31, 2020 June 30, 2020

Real estate $ 527,415,000 33.2 % $ 442,121,000 29.9 % $ 397,155,000 27.4 %

7 unchanged sentences

Total $ 1,588,264,000 100.0 % $ 1,476,761,000 100.0 % $ 1,451,623,000 100.0 %

Loan balances include net deferred loan costs of $ 5,328,000 as of March 31, 2021, $ 6,931,000 as of December 31, 2020, and $ 7,551,000 as of March 31, 2020.

The decrease in net deferred loan costs year-over-year and year-to-date is attributable to unearned fees and deferred costs associated with PPP loans originated during 2020 and the first quarter 2021.

Pursuant to collateral agreements, qualifying first mortgage loans and commercial real estate loans, which totaled $ 362,271,000 at March 31, 2021, were used to collateralize borrowings from the FHLB.

This compares to qualifying loans which totaled $ 378,183,000 at December 31, 2020, and $ 401,555,000 at March 31, 2020.

In addition, commercial, construction and home equity loans totaling $ 275,993,000 at March 31, 2021, $ 259,599,000 at December 31, 2020, and $ 260,703,000 at March 31, 2020, were used to collateralize a standby line of credit at the Federal Reserve Bank of Boston.

Loan balances include net deferred loan costs of $ 5,447,000 as of June 30, 2021, $ 6,931,000 as of December 31, 2020, and $ 4,866,000 as of June 30, 2020.

The decrease in net deferred loan costs year-to-date is attributable to unearned fees and deferred costs associated with PPP loans originated in 2020 and during the first and second quarters of 2021.

Pursuant to collateral agreements, qualifying first mortgage loans and commercial real estate loans, which totaled $ 356,811,000 at June 30, 2021, were used to collateralize borrowings from the FHLB.

This compares to qualifying loans which totaled $ 378,183,000 at December 31, 2020, and $ 399,525,000 at June 30, 2020.

In addition, commercial, construction and home equity loans totaling $ 259,312,000 at June 30, 2021, $ 259,599,000 at December 31, 2020, and $ 264,343,000 at June 30, 2020, were used to collateralize a standby line of credit at the Federal Reserve Bank of Boston.

For all loan classes, loans over 30 days past due are considered delinquent.

Information on the past-due status of loans by class of financing receivable as of March 31, 2021, is presented in the following table:

Information on the past-due status of loans by class of financing receivable as of June 30, 2021, is presented in the following table:

Past Due 60-89 Days

13 unchanged sentences

Both the Interagency Statement and the CARES Act provided an exemption for qualified modifications from Troubled Debt Restructure (TDR) designation, which was extended by the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020.

The Company actively worked with borrowers impacted by the COVID-19 outbreak and as of March 31, 2021, a total of 1037 loan modification requests for interest-only payments or deferred payments had been completed in conformance with the Interagency Statement or CARES Act, representing $ 292,003,000 in loan balances, or approximately 20.0 % of the loan portfolio excluding PPP balances.

The Company actively worked with borrowers impacted by the COVID-19 outbreak and as of June 30, 2021, a total of 1,050 loan modification requests for interest-only payments or deferred payments had been completed in conformance with the Interagency Statement or CARES Act, representing $ 291,668,000 in loan balances, or approximately 19.0 % of the loan portfolio excluding PPP balances.

One of these modifications of de minimis amount has been classified as a Troubled Debt Restructure since being modified.

So long as modified terms are met, loans in an active modification are not included in past due loan totals and continue to accrue interest.

As of March 31, 2021, loans totaling $ 50.6 million, or 3.3 % of all loans, remained in either their original modification or a subsequent modification.

As of June 30, 2021, loans totaling $ 21,965,000 , or 1.4 % of all loans, remained in either their original modification or a subsequent modification.

Modification statuses by portfolio segment are summarized below:

17 unchanged sentences

Subsequent Modification 2 3 % 43,000 4 %

Still in Original Modification 2 3.0 % 27,000 2.0 %

Out of Modification 46 67 % 837,000 79 %

13 unchanged sentences

Total $ 2,916,000 $ 2,417,000 $ 4,389,000 $ 9,722,000 $ 1,467,039,000 $ 1,476,761,000 $ 1,505,000

Information on the past-due status of loans by class of financing receivable as of March 31, 2020, is presented in the following table:

Information on the past-due status of loans by class of financing receivable as of June 30, 2020, is presented in the following table:

Past Due 60-89 Days

15 unchanged sentences

As a general rule, a loan may be restored to accrual status when payments are current for a substantial period of time, generally six months, and repayment of the remaining contractual amounts is expected, or when it otherwise becomes well secured and in the process of collection.

Information on nonaccrual loans as of March 31, 2021 and 2020 and at December 31, 2020 is presented in the following table:

March 31, 2021 December 31, 2020 March 31, 2020

Information on nonaccrual loans as of June 30, 2021 and 2020 and at December 31, 2020 is presented in the following table:

June 30, 2021 December 31, 2020 June 30, 2020

Real estate $ 1,029,000 $ 543,000 $ 1,245,000

10 unchanged sentences

If the measure of an impaired loan is lower than the recorded investment in the loan and estimated selling costs, a specific reserve is established for the difference, or, in certain situations, if the measure of an impaired loan is lower than the recorded investment in the loan and estimated selling costs, the difference is written off.

A breakdown of impaired loans by class of financing receivable as of and for the period ended March 31, 2021 is presented in the following table:

For the three months ended March 31, 2021

Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Recognized Interest Income

A breakdown of impaired loans by class of financing receivable as of and for the period ended June 30, 2021 is presented in the following table:

For the six months ended June 30, 2021 For the quarter ended June 30, 2021

Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Recognized Interest Income Average Recorded Investment Recognized Interest Income

With No Related Allowance

59 unchanged sentences

$ 16,039,000 $ 17,842,000 $ 462,000 $ 21,088,000 $ 478,000

A breakdown of impaired loans by class of financing receivable as of and for the period ended March 31, 2020 is presented in the following table:

For the three months ended March 31, 2020

Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Recognized Interest Income

A breakdown of impaired loans by class of financing receivable as of and for the period ended June 30, 2020 is presented in the following table:

For the six months ended June 30, 2020 For the quarter ended June 30, 2020

Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Recognized Interest Income Average Recorded Investment Recognized Interest Income

With No Related Allowance

34 unchanged sentences

common concession types include maturity date extension, interest rate adjustments to below market pricing, and deferment of payments.

As of March 31, 2021, the Company had 73 loans with a balance of $ 11,306,000 that have been classified as TDRs.

This compares to 74 loans with a balance of $ 11,534,000 and 81 loans with a balance of $ 14,968,000 classified as TDRs as of December 31, 2020 and March 31, 2020, respectively.

The impairment carried as a specific reserve in the allowance for loan losses is calculated by present valuing the expected cash flows on the loan at the original interest rate, or, for collateral-dependent loans, using the fair value of the collateral less costs to sell.

The following table shows TDRs by class and the specific reserve as of March 31, 2021:

As of June 30, 2021, the Company had 72 loans with a balance of $ 10,782,000 that have been classified as TDRs.

This compares to 74 loans with a balance of $ 11,534,000 and 78 loans with a balance of $ 14,013,000 classified as TDRs as of December 31, 2020 and June 30, 2020, respectively.

The impairment carried as a specific reserve in the allowance for loan losses is determined by calculating the present value of the expected cash flows on the loan at the original interest rate, or, for collateral-dependent loans, using the fair value of the collateral less costs to sell.

The following table shows TDRs by class and the specific reserve as of June 30, 2021:

Number of Loans Balance Specific Reserves

19 unchanged sentences

74 $ 11,534,000 $ 369,000

The following table shows TDRs by class and the specific reserve as of March 31, 2020:

The following table shows TDRs by class and the specific reserve as of June 30, 2020:

Number of Loans Balance Specific Reserves

8 unchanged sentences

78 $ 14,013,000 $ 543,000

As of March 31, 2021, 11 of the loans classified as TDRs with a total balance of $ 1,017,000 were more than 30 days past due.

As of June 30, 2021, 11 of the loans classified as TDRs with a total balance of $ 737,000 were more than 30 days past due.

Of these loans, none had been placed on TDR status in the previous 12 months.

The following table shows these TDRs by class and the associated specific reserves included in the allowance for loan losses as of March 31, 2021:

The following table shows these TDRs by class and the associated specific reserves included in the allowance for loan losses as of June 30, 2021:

Number of Loans Balance Specific Reserves

8 unchanged sentences

11 $ 737,000 $ 117,000

As of March 31, 2020, 22 of the loans classified as TDRs with a total balance of $ 3,622,000 were more than 30 days past due.

As of June 30, 2020, 11 of the loans classified as TDRs with a total balance of $ 1,479,000 were more than 30 days past due.

Of these loans, one had been placed on TDR status in the previous 12 months.

The following table shows these TDRs by class and the associated specific reserves included in the allowance for loan losses as of March 31, 2020:

The following table shows these TDRs by class and the associated specific reserves included in the allowance for loan losses as of June 30, 2020:

Number of Loans Balance Specific Reserves

8 unchanged sentences

11 $ 1,479,000 $ 131,000

For the three months ended March 31, 2021, one loan was placed on TDR status.

The following table shows this TDR, by class and the associated specific reserve included in the allowance for loan losses as of March 31, 2021:

For the six months ended June 30, 2021, three loans were placed on TDR status.

The following table shows this TDR, by class and the associated specific reserve included in the allowance for loan losses as of June 30, 2021:

Number of Loans Pre-Modification

5 unchanged sentences

Municipal — — — —

Term 1 9,000 4,000 —

Construction — — — —

2 unchanged sentences

3 $ 350,000 $ 345,000 $ 261,000

For the three months ended March 31, 2020, two loans were placed on TDR status.

The following table shows these TDRs by class and associated specific reserves included in the allowance for loan losses as of March 31, 2020:

For the six months ended June 30, 2020, two loans were placed on TDR status.

The following table shows these TDRs by class and associated specific reserves included in the allowance for loan losses as of June 30, 2020:

Number of Loans Pre-Modification

10 unchanged sentences

2 $ 235,000 $ 188,000 $ —

As of March 31, 2021, Management is aware of six loans classified as TDRs that are involved in bankruptcy with an outstanding balance of $ 708,000 .

There were also 21 loans with an outstanding balance of $ 1,908,000 that were classified as TDRs and on non-accrual status, of which one loan with an outstanding balance of $ 92,000 was in the process of foreclosure.

For the quarter ended June 30, 2021, two loans were placed on TDR status.

The following table shows these TDRs by class and the associated specific reserves included in the allowance for loan losses as of June 30, 2021:

Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Specific Reserves

Real estate — $ — $ — $ —

Construction 1 80,000 80,000 —

Other — — — —

Municipal — — — —

Term 1 9,000 4,000 —

Construction — — — —

Home equity line of credit — — — —

Consumer — — — —

2 $ 89,000 $ 84,000 $ —

For the quarter June 30, 2020, no loans were placed on TDR status.

As of June 30, 2021, Management is aware of eight loans classified as TDRs that are involved in bankruptcy with an outstanding balance of $ 993,000 .

There were also 21 loans with an outstanding balance of $ 1,804,000 that were classified as TDRs and on non-accrual status, of which no loans were in the process of foreclosure.

Residential Mortgage Loans in Process of Foreclosure

As of March 31, 2021, there were 14 mortgage loans collateralized by residential real estate in the process of foreclosure with a total balance of $ 1,067,000 .

This compares to 15 mortgage loans collateralized by residential real estate in the process of foreclosure with a total balance of $ 2,284,000 as of March 31, 2020.

As of June 30, 2021, there were 12 mortgage loans collateralized by residential real estate in the process of foreclosure with a total balance of $ 912,000 .

This compares to 15 mortgage loans collateralized by residential real estate in the process of foreclosure with a total balance of $ 2,028,000 as of June 30, 2020.

Allowance for Loan Losses

19 unchanged sentences

(1) specific reserves for loans evaluated individually for impairment;

(2) general reserves for each portfolio segment based on historical loan loss experience, (3) qualitative reserves judgmentally adjusted for local and national economic conditions, concentrations, portfolio composition, volume and severity of delinquencies and nonaccrual loans, trends of criticized and classified loans, changes in credit policies and underwriting standards, credit administration practices, and other factors as applicable for each portfolio segment;

(2) general reserves for each portfolio segment based on historical loan loss experience;

(3) qualitative reserves judgmentally adjusted for local and national economic conditions, concentrations, portfolio composition, volume and severity of delinquencies and nonaccrual loans, trends of criticized and classified loans, changes in credit policies and underwriting standards, credit administration practices, and other factors as applicable for each portfolio segment;

and (4) unallocated reserves.

All outstanding loans are considered in evaluating the appropriateness of the allowance.

A breakdown of the allowance for loan losses as of March 31, 2021, December 31, 2020, and March 31, 2020, by class of financing receivable and allowance element, is presented in the following tables:

As of March 31, 2021 Specific Reserves on Loans Evaluated Individually for Impairment General Reserves on Loans Based on Historical Loss Experience Reserves for Qualitative Factors Unallocated

A breakdown of the allowance for loan losses as of June 30, 2021, December 31, 2020, and June 30, 2020, by class of financing receivable and allowance element, is presented in the following tables:

As of June 30, 2021 Specific Reserves on Loans Evaluated Individually for Impairment General Reserves on Loans Based on Historical Loss Experience Reserves for Qualitative Factors Unallocated

Reserves Total Reserves

21 unchanged sentences

$ 462,000 $ 1,862,000 $ 11,795,000 $ 2,134,000 $ 16,253,000

As of March 31, 2020 Specific Reserves on Loans Evaluated Individually for Impairment General Reserves on Loans Based on Historical Loss Experience Reserves for Qualitative Factors Unallocated

As of June 30, 2020 Specific Reserves on Loans Evaluated Individually for Impairment General Reserves on Loans Based on Historical Loss Experience Reserves for Qualitative Factors Unallocated

Reserves Total Reserves

21 unchanged sentences

these qualitative factors are also considered in connection with the unallocated portion of our allowance for loan losses.

The qualitative portion of the allowance for loan losses was 0.83 % of related loans as of March 31, 2021, compared to 0.80 % of related loans as of December 31, 2020.

The qualitative portion increased $ 796,000 between December 31, 2020 and March 31, 2021 due to a mix of factors.

The qualitative portion of the allowance for loan losses was 0.81 % of related loans as of June 30, 2021, compared to 0.80 % of related loans as of December 31, 2020.

The qualitative portion increased $ 1,135,000 between December 31, 2020 and June 30, 2021 due to a mix of factors.

These factors included changes in various macroeconomic measures used in the qualitative model, updated analysis of the loan portfolio in multiple stress scenarios, and performance of COVID-19 related loan modifications.

The unallocated component of the allowance totaled $ 1,027,000 at March 31, 2021, or 6.2 % of the total reserve.

The unallocated component of the allowance totaled $ 1,345,000 at June 30, 2021, or 7.9 % of the total reserve.

This compares to $ 2,134,000 or 13.1 % as of December 31, 2020.

Maintenance of an unallocated component reflects general imprecision related to portfolio growth along with lingering uncertainty regarding the potential impacts of COVID-19 on the loan portfolio.

The allowance for loan losses as a percent of total loans stood at 1.09 % as of March 31, 2021, 1.10 % at December 31, 2020 and 0.88 % as of March 31, 2020.

Commercial loans are comprised of three major classes, commercial real estate loans, commercial construction loans and other commercial loans.

The allowance for loan losses as a percent of total loans stood at 1.07 % as of June 30, 2021, 1.10 % at December 31, 2020 and 0.97 % as of June 30, 2020.

Commercial loans are comprised of three major classes;

commercial real estate loans, commercial construction loans, and other commercial loans.

Commercial real estate loans consist of mortgage loans to finance investments in real property such as multi-family residential, commercial/retail, office, industrial, hotels, educational, and other specific or mixed use properties.

14 unchanged sentences

Commercial loans may be secured or unsecured.

commercial loans also include loans made under the SBA PPP.

Other commercial loans also include loans made under the SBA PPP.

These loans are unsecured and carry a 100% guarantee from the SBA.

Municipal loans are comprised of loans to municipalities in Maine for capitalized expenditures, construction projects, or tax anticipation notes.

All municipal loans are considered general obligations of the municipality and are collateralized by the taxing ability of the municipality for repayment of debt.

Municipal loans are considered either general obligations of the issuer backed by the taxing ability of the municipality for repayment of debt, or revenue obligations backed by a pledge of the issuer's revenue, such as water & sewer usage fees.

Residential loans are comprised of two classes:

20 unchanged sentences

Consumer loans may be secured or unsecured.

Construction, land and land development loans, both commercial and residential, comprise a small portion of the portfolio, and at 36.6 % of capital are below the regulatory guidance limit of 100.0 % of capital at March 31, 2021.

Construction loans and non-owner-occupied commercial real estate loans are at 155.2 % of total capital, below the regulatory limit of 300.0 % of capital at March 31, 2021.

The process of establishing the allowance with respect to the commercial loan portfolio begins when a Loan Officer or Senior Officer (or designate) initially assigns each loan a risk rating, using established credit criteria.

Approximately 60 % of a trailing four quarter average gross commercial portfolio is subject to review and validation annually by an independent consulting firm.

Construction, land, and land development loans, both commercial and residential, comprise a small portion of the portfolio, and at 43.5 % of capital are below the regulatory guidance limit of 100.0 % of capital at June 30, 2021.

Construction loans and non-owner-occupied commercial real estate loans are at 171.1 % of total capital, below the regulatory limit of 300.0 % of capital at June 30, 2021.

The process of establishing the allowance with respect to the commercial loan portfolio begins when a Loan Officer or Senior Officer (or designee) initially assigns each loan a risk rating, using established credit criteria.

Approximately 60 % of commercial loan outstanding balances, excluding SBA PPP loans, are subject to review and validation annually by an independent consulting firm.

Additionally, commercial loan relationships with exposure greater than or equal to $500,000 are subject to review annually by the Company's internal credit review function.

20 unchanged sentences

The possibility of loss is high, but because of certain important and reasonably specific pending factors which may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined.

The following table summarizes the risk ratings for the Company's commercial real estate, commercial construction, commercial other, and municipal loans as of March 31, 2021:

The following table summarizes the risk ratings for the Company's commercial real estate, commercial construction, commercial other, and municipal loans as of June 30, 2021:

Real Estate Commercial

25 unchanged sentences

Total $ 442,121,000 $ 56,565,000 $ 285,015,000 $ 43,783,000 $ 827,484,000

The following table summarizes the risk ratings for the Company's commercial real estate, commercial construction, commercial other, and municipal loans as of March 31, 2020:

The following table summarizes the risk ratings for the Company's commercial real estate, commercial construction, commercial other, and municipal loans as of June 30, 2020:

Real Estate Commercial

28 unchanged sentences

This is subject to completion of a current assessment of the value of the collateral with any outstanding loan balance in excess of the fair value of the property, less costs to sell, written down or charged-off.

There were no changes to the Company's accounting policies or methodology used to estimate the allowance for loan losses during the three months ended March 31, 2021.

The following table presents allowance for loan losses activity by class for the three months ended March 31, 2021, and allowance for loan loss balances by class and related loan balances by class as of March 31, 2021:

There were no changes to the Company's accounting policies or methodology used to estimate the allowance for loan losses during the six months ended June 30, 2021.

The following table presents allowance for loan losses activity by class for the six months and quarter ended June 30, 2021, and allowance for loan loss balances by class and related loan balances by class as of June 30, 2021:

Commercial Municipal Residential Home Equity Line of Credit Consumer Unallocated Total

Real Estate Construction Other Term Construction

For the three months ended March 31, 2021

For the six months ended June 30, 2021

Beginning balance $ 5,178,000 $ 662,000 $ 3,438,000 $ 171,000 $ 2,579,000 $ 102,000 $ 1,211,000 $ 778,000 $ 2,134,000 $ 16,253,000

3 unchanged sentences

Ending balance $ 6,088,000 $ 750,000 $ 3,757,000 $ 187,000 $ 2,896,000 $ 160,000 $ 959,000 $ 892,000 $ 1,345,000 $ 17,034,000

Allowance for loan losses as of March 31, 2021

For the three months ended June 30, 2021

Beginning balance $ 5,741,000 $ 649,000 $ 4,080,000 $ 185,000 $ 2,962,000 $ 131,000 $ 947,000 $ 872,000 $ 1,027,000 $ 16,594,000

Charge offs — — 144,000 — 12,000 — — 44,000 — 200,000

Recoveries 30,000 — 2,000 — 3,000 — 47,000 33,000 — 115,000

Provision (credit) 317,000 101,000 ( 181,000 ) 2,000 ( 57,000 ) 29,000 ( 35,000 ) 31,000 318,000 525,000

Ending balance $ 6,088,000 $ 750,000 $ 3,757,000 $ 187,000 $ 2,896,000 $ 160,000 $ 959,000 $ 892,000 $ 1,345,000 $ 17,034,000

Allowance for loan losses as of June 30, 2021

Ending balance specifically evaluated for impairment $ 167,000 $ 19,000 $ 403,000 $ — $ 118,000 $ — $ — $ — $ — $ 707,000

Ending balance collectively evaluated for impairment $ 5,921,000 $ 731,000 $ 3,354,000 $ 187,000 $ 2,778,000 $ 160,000 $ 959,000 $ 892,000 $ 1,345,000 $ 16,327,000

Related loan balances as of March 31, 2021

Related loan balances as of June 30, 2021

Ending balance $ 527,415,000 $ 65,794,000 $ 298,747,000 $ 41,079,000 $ 523,344,000 $ 29,818,000 $ 77,709,000 $ 24,358,000 $ — $ 1,588,264,000

17 unchanged sentences

Ending balance collectively evaluated for impairment $ 439,092,000 $ 55,795,000 $ 283,236,000 $ 43,783,000 $ 512,656,000 $ 21,600,000 $ 78,711,000 $ 25,849,000 $ — $ 1,460,722,000

The following table presents allowance for loan losses activity by class for the three months ended March 31, 2020, and allowance for loan loss balances by class and related loan balances by class as of March 31, 2020:

The following table presents allowance for loan losses activity by class for the six months and quarter ended June 30, 2020, and allowance for loan loss balances by class and related loan balances by class as of June 30, 2020:

Commercial Municipal Residential Home Equity Line of Credit Consumer Unallocated Total

Real Estate Construction Other Term Construction

For the three months ended March 31, 2020

For the six months ended June 30, 2020

Beginning balance $ 3,742,000 $ 365,000 $ 3,329,000 $ 27,000 $ 1,024,000 $ 25,000 $ 1,078,000 $ 867,000 $ 1,182,000 $ 11,639,000

3 unchanged sentences

Ending balance $ 4,511,000 $ 524,000 $ 3,689,000 $ 110,000 $ 2,261,000 $ 64,000 $ 1,284,000 $ 658,000 $ 1,009,000 $ 14,110,000

Allowance for loan losses as of March 31, 2020

For the three months ended June 30, 2020

Beginning balance $ 3,862,000 $ 424,000 $ 2,427,000 $ 29,000 $ 1,226,000 $ 32,000 $ 1,012,000 $ 725,000 $ 2,121,000 $ 11,858,000

Charge offs — — 17,000 — 44,000 — — 101,000 — 162,000

Recoveries — — — — 16,000 — 18,000 30,000 — 64,000

Provision (credit) 649,000 100,000 1,279,000 81,000 1,063,000 32,000 254,000 4,000 ( 1,112,000 ) 2,350,000

Ending balance $ 4,511,000 $ 524,000 $ 3,689,000 $ 110,000 $ 2,261,000 $ 64,000 $ 1,284,000 $ 658,000 $ 1,009,000 $ 14,110,000

Allowance for loan losses as of June 30, 2020

Ending balance specifically evaluated for impairment $ 199,000 $ 20,000 $ 132,000 $ — $ 269,000 $ — $ 292,000 $ 5,000 $ — $ 917,000

Ending balance collectively evaluated for impairment $ 4,312,000 $ 504,000 $ 3,557,000 $ 110,000 $ 1,992,000 $ 64,000 $ 992,000 $ 653,000 $ 1,009,000 $ 13,193,000

Related loan balances as of March 31, 2020

Related loan balances as of June 30, 2020

Ending balance $ 397,155,000 $ 47,169,000 $ 327,967,000 $ 49,644,000 $ 499,693,000 $ 14,707,000 $ 87,019,000 $ 28,269,000 $ — $ 1,451,623,000

9 unchanged sentences

Other compensation under the 2020 Plan will qualify as performance-based for purposes of Section 162(m) of the Internal Revenue Code, and will satisfy NASDAQ guidelines relating to equity compensation.

As of March 31, 2021, 184,487 shares of restricted stock had been granted under the 2010 Plan and 40,439 shares under the 2020 Plan, of which 85,740 shares remain restricted as of March 31, 2021 as detailed in the following table:

As of June 30, 2021, 184,487 shares of restricted stock had been granted under the 2010 Plan and 40,439 shares under the 2020 Plan, of which 82,990 shares remain restricted as of June 30, 2021 as detailed in the following table:

Granted Vesting Term

9 unchanged sentences

2021 3.0 27,422 2.6

2021 3.0 27,422 2.8

The compensation cost related to these nonvested restricted stock grants is $ 2,230,000 and is recognized over the vesting terms of each grant.

In the three months ended March 31, 2021, $ 288,000 of expense was recognized for these restricted shares, leaving $ 1,252,000 in unrecognized expense as of March 31, 2021.

In the three months ended March 31, 2020, $ 150,000 of expense was recognized for restricted shares, leaving $ 797,000 in unrecognized expense as of March 31, 2020.

The compensation cost related to these non-vested restricted stock grants is $ 2,173,000 and is recognized over the vesting terms of each grant.

In the six months ended June 30, 2021, $ 490,000 of expense was recognized for these restricted shares, leaving $ 1,044,000 in unrecognized expense as of June 30, 2021.

In the six months ended June 30, 2020, $ 312,000 of expense was recognized for restricted shares, leaving $ 1,003,000 in unrecognized expense as of June 30, 2020.

Note 6 – Common Stock

Proceeds from sale of common stock totaled $ 182,000 and $ 163,000 for the three months ended March 31, 2021 and 2020, respectively.

Proceeds from sale of common stock totaled $ 340,000 and $ 325,000 for the six months ended June 30, 2021 and 2020, respectively.

Note 7 – Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share (EPS) for the three months ended March 31, 2021 and 2020:

The following table sets forth the computation of basic and diluted earnings per share (EPS) for the six months ended June 30, 2021 and 2020:

Income (Numerator) Shares (Denominator) Per-Share Amount

For the three months ended March 31, 2021

For the six months ended June 30, 2021

Net income as reported $ 17,709,000

3 unchanged sentences

Income available to common shareholders plus assumed conversions $ 17,709,000 10,980,291 $ 1.61

For the three months ended March 31, 2020

For the six months ended June 30, 2020

Net income as reported $ 13,064,000

3 unchanged sentences

Income available to common shareholders plus assumed conversions $ 13,064,000 10,921,507 $ 1.20

The following table sets forth the computation of basic and diluted earnings per share (EPS) for the quarters ended June 30, 2021 and 2020:

Income (Numerator) Shares (Denominator) Per-Share Amount

For the quarter ended June 30, 2021

Net income as reported $ 8,787,000

Income available to common shareholders 8,787,000 10,902,013 $ 0.81

Effect of dilutive securities:

restricted stock 84,685

Income available to common shareholders plus assumed conversions $ 8,787,000 10,986,698 $ 0.80

For the quarter ended June 30, 2020

Net income as reported $ 6,569,000

Income available to common shareholders 6,569,000 10,855,139 $ 0.61

Effect of dilutive securities:

restricted stock 73,522

Income available to common shareholders plus assumed conversions $ 6,569,000 10,928,661 $ 0.60

Note 8 – Employee Benefit Plans

3 unchanged sentences

Such contribution equaled 3.0 % of each eligible employee's compensation in 2020.

The Company adopted the safe harbor form of 401(k) plan for 2021 and will follow safe harbor guidelines when determining the level of discretionary contribution.

The expense related to the 401(k) plan was $ 217,000 and $ 255,000 for the three months ended March 31, 2021 and 2020, respectively.

The Company adopted the safe harbor form of 401(k) plan in 2020 and follows safe harbor guidelines when determining the level of discretionary contribution.

The expense related to the 401(k) plan was $ 405,000 and $ 453,000 for the six months ended June 30, 2021 and 2020, respectively.

Deferred Compensation and Supplemental Retirement Benefits

2 unchanged sentences

The costs for these benefits are recognized over the service periods of the participating officers in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 712 "Compensation – Nonretirement Postemployment Benefits".

The expense of these supplemental retirement benefits was $ 42,000 and $ 40,000 for the three months ended March 31, 2021 and 2020, respectively.

As of March 31, 2021, the associated accrued liability included in other liabilities in the balance sheet was $ 2,961,000 compared to $ 2,991,000 and $ 2,772,000 at December 31, 2020 and March 31, 2020, respectively.

Post-Retirement Benefit Plans

The Bank sponsors two post-retirement benefit plans.

One plan currently provides a subsidy for health insurance premiums to certain retired employees and a future subsidy for six active employees who were age 50 and over in 1996.

The expense of these supplemental retirement benefits was $ 84,000 and $ 79,000 for the six months ended June 30, 2021 and 2020, respectively.

As of June 30, 2021, the associated accrued liability included in other liabilities in the balance sheet was $ 2,932,000 compared to $ 2,991,000 and $ 2,764,000 at December 31, 2020 and June 30, 2020, respectively.

Postretirement Benefit Plans

The Bank sponsors two postretirement benefit plans.

One plan currently provides a subsidy for health insurance premiums to certain retired employees;

these subsidies are based on years of service and range between $ 40 and $ 1,200 per month per person.

The other plan provides life insurance coverage to certain retired employees and health insurance for retired directors.

None of these plans are pre-funded.

None of these plans are prefunded.

The Company utilizes FASB ASC Topic 712 to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its balance sheet and to recognize changes in the funded status in the year in which the changes occur through comprehensive income (loss).

The following table sets forth the accumulated postretirement benefit obligation and funded status:

At or for the three months ended March 31,

At or for the six months ended June 30,

Change in benefit obligation

8 unchanged sentences

The following table sets forth the net periodic pension cost:

For the three months ended March 31,

For the six months ended June 30, For the quarter ended June 30,

2021 2020 2021 2020

Components of net periodic benefit cost

2 unchanged sentences

Amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive income are as follows:

2021 December 31, 2020 March 31,

2021 December 31, 2020 June 30,

Unamortized net actuarial gain $ 35,000 $ 35,000 $ 31,000

3 unchanged sentences

The assumed health care cost trend rate is 7.00 %.

The measurement date for benefit obligations was as of year-end for prior years presented.

The measurement date for benefit obligations was as of

year-end for prior years presented.

The expected benefit payments for all of 2021 are $ 97,000 .

2 unchanged sentences

Note 9 - Other Comprehensive Income (Loss)

The following table summarizes activity in the unrealized gain or loss on available for sale securities included in other comprehensive income (loss) for the three months ended March 31, 2021 and 2020.

For the three months ended March 31,

The following table summarizes activity in the unrealized gain or loss on available for sale securities included in other comprehensive income (loss) for the six months and quarter ended June 30, 2021 and 2020.

For the six months ended June 30, For the quarter ended June 30,

2021 2020 2021 2020

Balance at beginning of period $ 5,009,000 $ 3,657,000 $ 1,556,000 $ 7,890,000

5 unchanged sentences

The reclassification of realized gains is included in the net securities gains line of the consolidated statements of income and comprehensive income and the tax effect is included in the income tax expense line of the same statement.

The following table summarizes activity in the unrealized loss on securities transferred from available for sale to held to maturity included in other comprehensive income (loss) for the three months ended March 31, 2021 and 2020.

For the three months ended March 31,

For the six months ended June 30, For the quarter ended June 30,

2021 2020 2021 2020

Balance at beginning of period $ ( 133,000 ) $ ( 182,000 ) $ ( 124,000 ) $ ( 174,000 )

3 unchanged sentences

Balance at end of period $ ( 113,000 ) $ ( 146,000 ) $ ( 113,000 ) $ ( 146,000 )

The following table presents the effect of the Company's derivative financial instruments included in other comprehensive income (loss) for the three months ended March 31, 2021 and 2020.

For the three months ended March 31,

The following table presents the effect of the Company's derivative financial instruments included in other comprehensive income (loss) for the six months and quarter ended June 30, 2021 and 2020.

For the six months ended June 30, For the quarter ended June 30,

2021 2020 2021 2020

Balance at beginning of period $ ( 4,932,000 ) $ 97,000 $ ( 1,463,000 ) $ ( 4,773,000 )

3 unchanged sentences

Balance at end of period $ ( 2,083,000 ) $ ( 6,187,000 ) $ ( 2,083,000 ) $ ( 6,187,000 )

The following table summarizes activity in the unrealized gain or loss on postretirement benefits included in other comprehensive income (loss) for the three months ended March 31, 2021 and 2020.

For the three months ended March 31,

The following table summarizes activity in the unrealized gain or loss on postretirement benefits included in other comprehensive income (loss) for the six months and quarter ended June 30, 2021 and 2020.

For the six months ended June 30, For the quarter ended June 30,

2021 2020 2021 2020

Unrecognized postretirement benefits at beginning of period $ 28,000 $ 24,000 $ 28,000 $ 24,000

15 unchanged sentences

The details of the interest rate swap agreements are as follows:

March 31, 2021 December 31, 2020 March 31, 2020

June 30, 2021 December 31, 2020 June 30, 2020

Effective Date Maturity Date Variable Index Received Fixed Rate Paid Presentation on Consolidated Balance Sheet Notional Amount Fair Value

22 unchanged sentences

Such loan level arrangements are not designated as hedges for accounting purposes, and are recorded at fair value in the Company’s consolidated balance sheet.

At March 31, 2021, there were six customer loan swap arrangements in place, detailed below:

March 31, 2021 December 31, 2020 March 31, 2020

At June 30, 2021, there were six customer loan swap arrangements in place, detailed below:

June 30, 2021 December 31, 2020 June 30, 2020

Presentation on Consolidated Balance Sheet Number of Positions Notional Amount Fair Value Number of Positions Notional Amount Fair Value Number of Positions Notional Amount Fair Value

9 unchanged sentences

The Bank's arrangement with its institutional counterparty requires it to post cash or other assets as collateral for its various loan swap contracts in a net liability position based on their fair values and the Bank's credit rating or receive cash collateral for contracts in a net asset position as requested.

At March 31, 2021, the Bank posted to the counterparty $ 4,850,000 of cash as collateral on its swap contracts.

At June 30, 2021, the Bank posted to the counterparty $ 5,100,000 of cash as collateral on its swap contracts.

The required amount to be pledged was $ 4,310,000 .

3 unchanged sentences

ARRC has issued a number of recommendations including the adoption of the Secured Overnight Financing Rate (SOFR) as a replacement for LIBOR.

The International Swap and Derivatives Association (ISDA), the organization that oversees and guides swap and derivatives markets and participants, continues to work on transitions and recently issued a voluntary fallback protocol for market participants.

The Company has formed a working group to address the change away from LIBOR.

Management intends to continue to monitor developments from ARRC and ISDA, along with guidance from US banking regulators, closely, and expects to pursue the steps ultimately recommended to provide for an orderly transition to a post-LIBOR environment.

Each of the interest rate swap contracts the Company has in place as of March 31, 2021 is tied to a LIBOR tenor expected to be published until June 2023.

Two contracts carrying a total notional value of $ 50 million are set to mature in 2021;

two additional contracts with a total notional value of $ 45 million mature prior to June 30, 2023, and an additional seven contracts with a total notional amount of $ 165 million have maturity dates beyond June 30, 2023.

The six customer loan swap contracts shown in the table immediately above have maturity dates of December 19, 2029, August 21, 2030, April 30, 2031, July 1, 2035, October 1, 2035 and April 1, 2039.

The International Swap and Derivatives Association (ISDA), the organization that oversees and guides swap and derivatives markets and participants, continues to work on transitions and has issued a voluntary fallback protocol for market participants.

The Company formed a working group to address the change away from LIBOR, which continues to monitor developments from ARRC and ISDA, along with guidance from US banking regulators, closely, and expects to pursue the steps ultimately recommended to provide for an orderly transition to a post-LIBOR environment.

Each of the interest rate swap contracts the Company has in place as of June 30, 2021 is tied to a LIBOR tenor expected to be published until June 2023.

Two contracts with a total notional value of $ 45 million mature prior to June 30, 2023, while an additional seven contracts with a total notional amount of $ 165 million have maturity dates beyond June 30, 2023.

The six customer loan swap contracts shown in the table immediately above have maturity dates of December 19, 2029, August 21, 2030, April 1, 2031, July 1, 2035, October 1, 2035 and October 1, 2039.

Note 11 – Mortgage Servicing Rights

3 unchanged sentences

The model utilizes several assumptions, the most significant of which is loan prepayments, calculated using a three-months moving average of weekly prepayment data published by the Public Securities Association (PSA) and modeled against the serviced loan portfolio, and the discount rate to discount future cash flows.

As of March 31, 2021, the prepayment assumption using the PSA model was 254, which translates into an anticipated prepayment rate of 15.24 %.

As of June 30, 2021, the prepayment assumption using the PSA model was 249, which translates into an anticipated prepayment rate of 11.95 %.

The discount rate is 9.00 %.

2 unchanged sentences

Amortization of mortgage servicing rights, as well as write-offs due to prepayments of the related mortgage loans, are recorded as a charge against mortgage servicing fee income.

For the three months ended March 31, 2021 and 2020, servicing rights capitalized totaled $ 328,000 and $ 129,000 , respectively.

Servicing rights amortized for the three-month periods ended March 31, 2021 and 2020 were $ 151,000 and $ 66,000 , respectively.

The fair value of servicing rights was $ 2,608,000 , $ 1,985,000 and $ 2,126,000 at March 31, 2021, December 31, 2020 and March 31, 2020, respectively.

The Bank serviced loans for others totaling $ 335,938,000 , $ 318,459,000 and $ 268,077,000 at March 31, 2021, December 31, 2020, and March 31, 2020, respectively.

The Bank recorded an impairment reserve as of March 31, 2021 and December 31, 2020 for strata with a fair value lower than cost.

There was no impairment reserve as of March 31, 2020.

For the six months ended June 30, 2021 and 2020, servicing rights capitalized totaled $ 646,000 and $ 464,000 , respectively.

Servicing rights amortized for the six-month periods ended June 30, 2021 and 2020 were $ 319,000 and 135,000 , respectively.

The fair value of servicing rights was $ 2,777,000 , $ 1,985,000 , and $ 1,777,000 at June 30, 2021, December 31, 2020 and June 30, 2020, respectively.

The Bank serviced loans for others totaling $ 348,862,000 , $ 318,459,000 , and $ 287,987,000 at June 30, 2021, December 31, 2020, and June 30, 2020, respectively.

The Bank recorded an impairment reserve as of June 30, 2021 and December 31, 2020 for strata with a fair value lower than cost.

There was no impairment reserve as of June 30, 2020.

Mortgage servicing rights are included in other assets and detailed in the following table:

2021 December 31,

2020 March 31,

2020 June 30,

Mortgage servicing rights $ 7,945,000 $ 7,299,000 $ 6,603,000

8 unchanged sentences

Note 13 - Certificates of Deposit

The following table represents the breakdown of certificates of deposit at March 31, 2021 and 2020, and at December 31, 2020:

March 31, 2021 December 31, 2020 March 31, 2020

The following table represents the breakdown of certificates of deposit at June 30, 2021 and 2020, and at December 31, 2020:

June 30, 2021 December 31, 2020 June 30, 2020

Certificates of deposit < $100,000 $ 226,924,000 $ 246,875,000 $ 269,353,000

54 unchanged sentences

The credit value adjustments associated with derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties.

As of March 31, 2021 and 2020, and December 31, 2020, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives due to collateral postings.

As of June 30, 2021 and 2020, and December 31, 2020, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives due to collateral postings.

Customer Loan Derivatives

12 unchanged sentences

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The following tables present the balances of assets and liabilities that were measured at fair value on a recurring basis as of March 31, 2021, December 31, 2020 and March 31, 2020.

At March 31, 2021

The following tables present the balances of assets and liabilities that were measured at fair value on a recurring basis as of June 30, 2021, December 31, 2020 and June 30, 2020.

At June 30, 2021

Level 1 Level 2 Level 3 Total

9 unchanged sentences

Total assets $ — $ 309,556,000 $ — $ 309,556,000

At March 31, 2021

At June 30, 2021

Level 1 Level 2 Level 3 Total

18 unchanged sentences

Total liabilities $ — $ 8,882,000 $ — $ 8,882,000

At March 31, 2020

At June 30, 2020

Level 1 Level 2 Level 3 Total

7 unchanged sentences

Total assets $ — $ 315,113,000 $ — $ 315,113,000

At March 31, 2020

At June 30, 2020

Level 1 Level 2 Level 3 Total

4 unchanged sentences

The following tables include assets measured at fair value on a nonrecurring basis that have had a fair value adjustment since their initial recognition.

Mortgage servicing rights are presented net of an impairment reserve of $ 92,000 at March 31, 2021 and $ 358,000 at December 31, 2020.

Other real estate owned is presented net of an allowance of $ 45,000 at both March 31, 2021 and December 31, 2020.

There was no allowance for other real estate owned at March 31, 2020.

Mortgage servicing rights are presented net of an impairment reserve of $ 93,000 at June 30, 2021 and $ 358,000 at December 31, 2020.

Other real estate owned is presented net of an allowance of $ 45,000 at December 31, 2020.

There was no allowance at June 30, 2021 or 2020.

Only collateral-dependent impaired loans with a related specific allowance for loan losses or a partial charge off are included in impaired loans for purposes of fair value disclosures.

Impaired loans below are presented net of specific allowances of $ 641,000 , $ 304,000 and $ 706,000 at March 31, 2021, December 31, 2020, and March 31, 2020, respectively.

At March 31, 2021

Impaired loans below are presented net of specific allowances of $ 473,000 , $ 304,000 and $ 623,000 at June 30, 2021, December 31, 2020, and June 30, 2020, respectively.

At June 30, 2021

Level 1 Level 2 Level 3 Total

9 unchanged sentences

Total assets $ — $ 3,687,000 $ — $ 3,687,000

At March 31, 2020

At June 30, 2020

Level 1 Level 2 Level 3 Total

15 unchanged sentences

Carrying value is used because the accounts have no stated maturity and the customer has the ability to withdraw funds immediately.

The carrying amount and estimated fair values for financial instruments as of March 31, 2021 were as follows:

The carrying amount and estimated fair values for financial instruments as of June 30, 2021 were as follows:

Carrying value Estimated fair value Level 1 Level 2 Level 3

41 unchanged sentences

Total borrowed funds 262,038,000 263,966,000 — 263,966,000 —

The carrying amount and estimated fair values for financial instruments as of March 31, 2020 were as follows:

The carrying amount and estimated fair values for financial instruments as of June 30, 2020 were as follows:

Carrying value Estimated fair value Level 1 Level 2 Level 3

35 unchanged sentences

The Bank is in the late stages of implementing this software and plans to run incurred loss and current expected credit loss models in parallel until adoption of ASU No.

In January 2017, the FASB issued ASU No.

2017-04, Intangibles - Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment.

The ASU was issued to reduce the cost and complexity of the goodwill impairment test.

To simplify the subsequent measurement of goodwill, step two of the goodwill impairment test was eliminated.

Instead, a Company will recognize an impairment of goodwill should the carrying value of a reporting unit exceed its fair value (i.e.

The ASU was effective for the Company on January 1, 2020 and will be applied prospectively.

Implementation of this ASU did not have a material effect on the Company's consolidated financial statements.

In August 2018, the FASB issued ASU No.

2018-14, Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans .

This ASU makes minor changes to the disclosure requirements for employers that sponsor defined benefit pension and/or other postretirement benefit plans.

ASU 2018-14 is effective for fiscal years ending after December 15, 2020;

early adoption is permitted.

As ASU 2018-14 only revises disclosure requirements, it did not have a material impact on the Company’s consolidated financial statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements