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Section 1: 10-Q (10-Q)

Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION 
Washington, D.C. 20549
FORM 10-Q
x       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
OR
¨       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No.      0-28190
CAMDEN NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
 
MAINE
01-0413282
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
 
 
2 ELM STREET, CAMDEN, ME
04843
(Address of principal executive offices)
(Zip Code)
 
Registrant's telephone number, including area code:  (207) 236-8821

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, without par value
CAC
The NASDAQ Stock Market LLC
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes x          No ¨
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
 
Yes x          No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer ¨
Accelerated filer x
Non-accelerated filer ¨
Smaller reporting company ¨
 
Emerging growth company ¨

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



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes ¨          No x
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date:
Outstanding at July 31, 2019:  Common stock (no par value) 15,409,281 shares.



CAMDEN NATIONAL CORPORATION

 FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2019
TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT
 
 
PAGE
PART I.  FINANCIAL INFORMATION
 
 
 
ITEM 1.
FINANCIAL STATEMENTS
 
 
 
 
 
Consolidated Statements of Condition (unaudited) - June 30, 2019 and December 31, 2018
 
 
 
 
Consolidated Statements of Income (unaudited) - Three and Six Months Ended June 30, 2019 and 2018
 
 
 
 
Consolidated Statements of Comprehensive Income (unaudited) - Three and Six Months Ended June 30, 2019 and 2018
 
 
 
 
Consolidated Statements of Changes in Shareholders’ Equity (unaudited) - Three and Six Months Ended June 30, 2019 and 2018
 
 
 
 
Consolidated Statements of Cash Flows (unaudited) - Six Months Ended June 30, 2019 and 2018
 
 
 
 
Notes to the Unaudited Consolidated Financial Statements
 
 
 
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 
 
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 
 
 
ITEM 4.
CONTROLS AND PROCEDURES
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
ITEM 1.
LEGAL PROCEEDINGS
 
 
 
ITEM 1A.
RISK FACTORS
 
 
 
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
 
 
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
 
 
 
ITEM 4.
MINE SAFETY DISCLOSURES
 
 
 
ITEM 5.
OTHER INFORMATION
 
 
 
ITEM 6.
EXHIBITS
 
 
 
SIGNATURES

2



PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CONDITION
(unaudited)
(In thousands, except number of shares)
 
June 30,
 2019
 
December 31,
 2018
ASSETS
 
 

 
 

Cash and due from banks
 
$
48,153

 
$
52,240

Interest-bearing deposits in other banks (including restricted cash)
 
38,083

 
14,759

Total cash, cash equivalents and restricted cash
 
86,236

 
66,999

Investments:
 
 

 
 

Available-for-sale securities, at fair value (book value of $915,099 and $933,399, respectively)
 
920,083

 
910,692

Held-to-maturity securities, at amortized cost (fair value of $1,335 and $1,291, respectively)
 
1,304

 
1,307

Other investments
 
11,713

 
14,679

Total investments
 
933,100

 
926,678

Loans held for sale, at fair value (book value of $13,088 and $4,314, respectively)
 
13,113

 
4,403

Loans
 
3,100,324

 
3,026,222

Less: allowance for loan losses
 
(26,163
)
 
(24,712
)
Net loans
 
3,074,161

 
3,001,510

Goodwill
 
94,697

 
94,697

Other intangible assets
 
3,877

 
4,230

Bank-owned life insurance
 
91,116

 
89,919

Premises and equipment, net
 
41,402

 
42,495

Deferred tax assets
 
16,836

 
23,053

Other assets
 
92,500

 
43,451

Total assets
 
$
4,447,038

 
$
4,297,435

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 

 
 

Liabilities
 
 

 
 

Deposits:
 
 

 
 

Non-interest checking
 
$
505,355

 
$
496,729

Interest checking
 
1,111,424

 
1,023,373

Savings and money market
 
1,074,094

 
1,137,356

Certificates of deposit
 
547,786

 
443,912

Brokered deposits
 
352,951

 
363,104

Total deposits
 
3,591,610

 
3,464,474

Short-term borrowings
 
241,647

 
270,868

Long-term borrowings
 
10,000

 
11,580

Subordinated debentures
 
58,991

 
59,067

Accrued interest and other liabilities
 
77,031

 
55,621

Total liabilities
 
3,979,279

 
3,861,610

Commitments and Contingencies
 


 


Shareholders’ Equity
 
 

 
 

Common stock, no par value: authorized 40,000,000 shares, issued and outstanding 15,457,480 and 15,591,914 on June 30, 2019 and December 31, 2018, respectively
 
151,801

 
158,215

Retained earnings
 
320,421

 
302,030

Accumulated other comprehensive loss:
 
 

 
 

Net unrealized gains (losses) on available-for-sale debt securities, net of tax
 
3,912

 
(17,826
)
Net unrealized losses on cash flow hedging derivative instruments, net of tax
 
(6,314
)
 
(4,437
)
Net unrecognized losses on postretirement plans, net of tax
 
(2,061
)
 
(2,157
)
Total accumulated other comprehensive loss
 
(4,463
)
 
(24,420
)
Total shareholders’ equity
 
467,759

 
435,825

Total liabilities and shareholders’ equity
 
$
4,447,038

 
$
4,297,435

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

3



CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(In thousands, except number of shares and per share data)
 
2019
 
2018
 
2019
 
2018
Interest Income
 
 

 
 

 
 
 
 
Interest and fees on loans
 
$
36,092

 
$
31,367

 
$
71,813

 
$
61,201

Taxable interest on investments
 
4,941

 
4,386

 
9,935

 
8,611

Nontaxable interest on investments
 
624

 
658

 
1,268

 
1,330

Dividend income
 
174

 
343

 
404

 
629

Other interest income
 
606

 
335

 
1,026

 
596

Total interest income
 
42,437

 
37,089

 
84,446

 
72,367

Interest Expense
 
 

 
 

 
 

 
 

Interest on deposits
 
9,156

 
4,459

 
17,579

 
8,208

Interest on borrowings
 
885

 
2,298

 
1,859

 
4,078

Interest on subordinated debentures
 
823

 
851

 
1,540

 
1,698

Total interest expense
 
10,864

 
7,608

 
20,978

 
13,984

Net interest income
 
31,573

 
29,481

 
63,468

 
58,383

Provision for credit losses
 
1,173

 
983

 
1,917

 
486

Net interest income after provision for credit losses
 
30,400

 
28,498

 
61,551

 
57,897

Non-Interest Income
 
 

 
 

 
 

 
 

Debit card income
 
2,281

 
2,126

 
4,291

 
4,055

Service charges on deposit accounts
 
2,209

 
2,069

 
4,232

 
4,036

Mortgage banking income, net
 
1,742

 
1,609

 
2,994

 
3,000

Income from fiduciary services
 
1,545

 
1,407

 
2,937

 
2,690

Brokerage and insurance commissions
 
732

 
685

 
1,317

 
1,335

Bank-owned life insurance
 
603

 
609

 
1,197

 
1,217

Customer loan swap fees
 
285

 
180

 
810

 
267

Net gain on sale of securities
 
27

 
31

 
27

 
31

Other income
 
613

 
785

 
1,621

 
1,674

Total non-interest income
 
10,037

 
9,501

 
19,426

 
18,305

Non-Interest Expense
 
 

 
 

 
 

 
 

Salaries and employee benefits
 
13,461

 
12,728

 
26,439

 
25,290

Furniture, equipment and data processing
 
2,723

 
2,549

 
5,403

 
5,135

Net occupancy costs
 
1,639

 
1,625

 
3,553

 
3,498

Consulting and professional fees
 
974

 
1,116

 
1,787

 
1,920

Debit card expense
 
883

 
776

 
1,706

 
1,506

Regulatory assessments
 
437

 
501

 
909

 
1,000

Amortization of intangible assets
 
176

 
181

 
352

 
362

Other real estate owned and collection costs, net
 
409

 
251

 
102

 
326

Other expenses
 
3,256

 
3,168

 
6,490

 
6,162

Total non-interest expense
 
23,958

 
22,895

 
46,741

 
45,199

Income before income tax expense
 
16,479

 
15,104

 
34,236

 
31,003

Income tax expense
 
3,275

 
2,887

 
6,759

 
5,966

Net Income
 
$
13,204

 
$
12,217

 
$
27,477

 
$
25,037

Per Share Data
 
 

 
 

 
 

 
 

Basic earnings per share
 
$
0.85

 
$
0.78

 
$
1.76

 
$
1.60

Diluted earnings per share
 
$
0.85

 
$
0.78

 
$
1.76

 
$
1.60

Weighted average number of common shares outstanding
 
15,519,827

 
15,572,848

 
15,555,770

 
15,557,500

Diluted weighted average number of common shares outstanding
 
15,559,760

 
15,629,779

 
15,595,654

 
15,615,038

Cash dividends declared per share
 
$
0.30

 
$
0.30

 
$
0.60

 
$
0.55




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

4



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(In thousands)
 
2019
 
2018
 
2019
 
2018
Net Income
 
$
13,204

 
$
12,217

 
$
27,477

 
$
25,037

Other comprehensive income (loss):
 
 
 
 

 
 
 
 
Net change in unrealized gains (losses) on available-for-sale securities:
 
 
 
 
 
 
 
 
Net change in unrealized gains (losses) on available-for-sale securities, net of tax of ($2,975), $847, ($5,960) and $3,971, respectively
 
10,860

 
(3,058
)
 
21,759

 
(14,460
)
Net reclassification adjustment for net gains included in net income, net of tax of $6, $7, $6 and $7, respectively(1)
 
(21
)
 
(24
)
 
(21
)
 
(24
)
Net change in unrealized gains (losses) on available-for-sale securities, net of tax
 
10,839

 
(3,082
)
 
21,738

 
(14,484
)
Net change in unrealized losses on cash flow hedging derivatives:
 
 
 
 
 
 
 
 
Net change in unrealized losses on cash flow hedging derivatives, net of tax of $330, ($123), $583 and ($430), respectively
 
(1,203
)
 
414

 
(2,128
)
 
1,570

Net reclassification adjustment for effective portion of cash flow hedges, net of tax of ($44), ($44), ($69) and ($105), respectively(2)
 
157

 
159

 
251

 
382

Net change in unrealized losses on cash flow hedging derivatives, net of tax
 
(1,046
)

573


(1,877
)

1,952

Reclassification of amortization of net unrecognized actuarial loss and prior service cost, net of tax of ($13), ($32), ($26) and ($63), respectively(3)
 
48

 
116

 
96

 
232

Other comprehensive income (loss)
 
9,841

 
(2,393
)
 
19,957

 
(12,300
)
Comprehensive Income
 
$
23,045

 
$
9,824

 
$
47,434

 
$
12,737

(1)
Reclassified into the consolidated statements of income within net gain on sale of securities.
(2)
Reclassified into the consolidated statements of income within interest and fees on loans, interest on borrowings and subordinated debentures.
(3)
Reclassified into the consolidated statements of income within salaries and employee benefits and other expenses.
 





























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

5



CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
 
Common Stock
 
Retained
Earnings
 
Accumulated
Other Comprehensive
Loss
 
Total Shareholders’
Equity
(In thousands, except number of shares and per share data)
 
Shares
Outstanding
 
Amount
 
 
 
Balance at March 31, 2018
 
15,565,868

 
$
156,860

 
$
275,841

 
$
(29,654
)
 
$
403,047

Net income
 

 

 
12,217

 

 
12,217

Other comprehensive loss, net of tax
 

 

 

 
(2,393
)
 
(2,393
)
Stock-based compensation expense
 

 
580

 

 

 
580

Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings
 
10,381

 
54

 

 

 
54

Cash dividends declared ($0.30 per share)
 

 

 
(4,686
)
 

 
(4,686
)
Balance at June 30, 2018
 
15,576,249

 
$
157,494

 
$
283,372

 
$
(32,047
)
 
$
408,819

Balance at March 31, 2019
 
15,560,565

 
$
156,152

 
$
311,870

 
$
(14,304
)
 
$
453,718

Net income
 

 

 
13,204

 

 
13,204

Other comprehensive income, net of tax
 

 

 

 
9,841

 
9,841

Stock-based compensation expense
 

 
477

 

 

 
477

Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings
 
8,136

 
(26
)
 

 

 
(26
)
Common stock repurchased
 
(111,221
)
 
(4,802
)
 

 

 
(4,802
)
Cash dividends declared ($0.30 per share)
 

 

 
(4,653
)
 

 
(4,653
)
Balance at June 30, 2019
 
15,457,480

 
$
151,801

 
$
320,421

 
$
(4,463
)
 
$
467,759


 
 
Six Months Ended
 
 
Common Stock
 
Retained
Earnings
 
Accumulated
Other Comprehensive
Loss
 
Total Shareholders’
Equity
(In thousands, except number of shares and per share data)
 
Shares
Outstanding
 
Amount
 
 
 
Balance at December 31, 2017
 
15,524,704

 
$
156,904

 
$
266,723

 
$
(20,214
)
 
$
403,413

Cumulative-effect adjustment — ASU 2016-01(1)
 

 

 
198

 
(198
)
 

Cumulative-effect adjustment — ASU 2017-12(2)
 

 

 

 
665

 
665

Net income
 

 

 
25,037

 

 
25,037

Other comprehensive loss, net of tax(1)
 

 

 

 
(12,300
)
 
(12,300
)
Stock-based compensation expense
 

 
1,011

 

 

 
1,011

Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings
 
51,545

 
(421
)
 

 

 
(421
)
Cash dividends declared ($0.55 per share)
 

 

 
(8,586
)
 

 
(8,586
)
Balance at June 30, 2018
 
15,576,249

 
$
157,494

 
$
283,372

 
$
(32,047
)
 
$
408,819

Balance at December 31, 2018
 
15,591,914

 
$
158,215

 
$
302,030

 
$
(24,420
)
 
$
435,825

Cumulative-effect adjustment — ASU 2016-02(3)
 

 

 
254

 

 
254

Net income
 

 

 
27,477

 

 
27,477

Other comprehensive income, net of tax
 

 

 

 
19,957

 
19,957

Stock-based compensation expense
 

 
935

 

 

 
935

Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings
 
32,344

 
(241
)
 

 

 
(241
)
Common stock repurchased
 
(166,778
)
 
(7,108
)
 

 

 
(7,108
)
Cash dividends declared ($0.60 per share)
 

 

 
(9,340
)
 

 
(9,340
)
Balance at June 30, 2019
 
15,457,480


$
151,801


$
320,421

 
$
(4,463
)
 
$
467,759

(1)
Effective January 1, 2018, the Company adopted ASU 2016-01, Income Statement - Financial Instruments. As a result of the adoption, the Company reclassified its unrealized gain on equity investments from accumulated other comprehensive loss to retained earnings.
(2)
Effective January 1, 2018, the Company adopted ASU 2017-12, Derivatives and Hedging. In conjunction with the adoption, the Company made the transition election to reclassify qualifying securities designated as held-to-maturity to available-for-sale.
(3)
Effective January 1, 2019, the Company adopted ASU 2016-02, Leases, on a modified-retrospective basis. Refer to Note 2 for further details.

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

6



CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
 
Six Months Ended
June 30,
(In thousands)
 
2019
 
2018
Operating Activities
 
 

 
 

Net Income
 
$
27,477

 
$
25,037

Adjustments to reconcile net income to net cash (used by) provided by operating activities:
 
 

 
 

Originations of mortgage loans held for sale
 
(86,351
)
 
(101,749
)
Proceeds from the sale of mortgage loans
 
79,575

 
99,778

Gain on sale of mortgage loans, net of origination costs
 
(1,998
)
 
(2,550
)
Provision for credit losses
 
1,917

 
486

Depreciation and amortization expense
 
1,901

 
1,907

Investment securities amortization and accretion, net
 
1,371

 
1,559

Stock-based compensation expense
 
935

 
1,011

Amortization of intangible assets
 
352

 
362

Purchase accounting accretion, net
 
(817
)
 
(1,031
)
Increase in other assets
 
(24,895
)
 
(3,699
)
(Decrease) increase in other liabilities
 
(5,774
)
 
10,065

Net cash (used by) provided by operating activities
 
(6,307
)
 
31,176

Investing Activities
 
 

 
 

Proceeds from sales and maturities of available-for-sale securities
 
115,715

 
73,264

Purchase of available-for-sale securities
 
(98,755
)
 
(100,615
)
Proceeds from maturities of held-to-maturity securities
 

 
750

Net increase in loans
 
(74,556
)
 
(85,274
)
Purchase of Federal Home Loan Bank stock
 
(3,656
)
 
(8,450
)
Proceeds from sale of Federal Home Loan Bank stock
 
6,706

 
6,550

Purchase of premises and equipment
 
(1,896
)
 
(1,695
)
Proceeds from the sale of premises and equipment
 

 
749

Proceeds from other investments
 

 
205

Recoveries of previously charged-off loans
 
133

 
199

Proceeds from the sale of other real estate owned
 
554

 

Net cash used by investing activities
 
(55,755
)
 
(114,317
)
Financing Activities
 
 
 
 

Net increase in deposits
 
127,169

 
55,703

Net (repayments of) proceeds from borrowings less than 90 days
 
(29,221
)
 
49,830

Common stock repurchase
 
(6,997
)
 

Exercise of stock options and issuance of restricted stock, net of repurchase for tax withholdings
 
(241
)
 
(421
)
Cash dividends paid on common stock
 
(9,358
)
 
(7,796
)
Finance lease payments
 
(53
)
 

Net cash provided by financing activities
 
81,299

 
97,316

Net increase in cash, cash equivalents and restricted cash
 
19,237

 
14,175

Cash, cash equivalents, and restricted cash at beginning of period
 
66,999

 
102,971

Cash, cash equivalents and restricted cash at end of period
 
$
86,236

 
$
117,146

Supplemental information
 
 

 
 

Interest paid
 
$
20,214

 
$
13,707

Income taxes paid
 
5,351

 
5,176

Unsettled common stock repurchase
 
111

 







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

7


NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 – BASIS OF PRESENTATION
 
The accompanying unaudited consolidated interim financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures required by accounting principles generally accepted in the United States of America for complete presentation of financial statements. In the opinion of management, the consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the consolidated statements of condition of Camden National Corporation (the "Company") as of June 30, 2019 and December 31, 2018, the consolidated statements of income for the three and six months ended June 30, 2019 and 2018, the consolidated statements of comprehensive income for the three and six months ended June 30, 2019 and 2018, the consolidated statements of changes in shareholders' equity for the three and six months ended June 30, 2019 and 2018, and the consolidated statements of cash flows for the six months ended June 30, 2019 and 2018. The consolidated financial statements include the accounts of the Company and Camden National Bank (the "Bank"), a wholly-owned subsidiary of the Company (which includes the consolidated accounts of Healthcare Professional Funding Corporation ("HPFC"), Property A, Inc. and Property P, Inc.). All intercompany accounts and transactions have been eliminated in consolidation. Assets held by the Bank in a fiduciary capacity, through Camden National Wealth Management, a division of the Bank, are not assets of the Company and, therefore, are not included in the consolidated statements of condition. The Company also owns 100% of the common stock of Camden Capital Trust A and Union Bankshares Capital Trust I; these entities are unconsolidated subsidiaries of the Company. Certain reclassifications have been made to prior period amounts to conform to the current period presentation. Such reclassifications did not impact net income or shareholders' equity as previously reported. Net income reported for the three and six months ended June 30, 2019, is not necessarily indicative of the results that may be expected for the full year. The information in this report should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.


8



The acronyms, abbreviations and definitions identified below are used throughout this Form 10-Q, including Part I. "Financial Information" and Part II. "Management's Discussion and Analysis of Financial Condition and Results of Operations." The following is provided to aid the reader and provide a reference page when reviewing these sections of the Form 10-Q.
AFS:
Available-for-sale
 
GAAP:
Generally accepted accounting principles in the United States
ALCO:
Asset/Liability Committee
 
HPFC:
Healthcare Professional Funding Corporation, a wholly-owned subsidiary of Camden National Bank
ALL:
Allowance for loan losses
 
HTM:
Held-to-maturity
AOCI:
Accumulated other comprehensive income (loss)
 
IRS:
Internal Revenue Service
ASC:
Accounting Standards Codification
 
LIBOR:
London Interbank Offered Rate
ASU:
Accounting Standards Update
 
LTIP:
Long-Term Performance Share Plan
Bank:
Camden National Bank, a wholly-owned subsidiary of Camden National Corporation
 
Management ALCO:
Management Asset/Liability Committee
BOLI:
Bank-owned life insurance
 
MBS:
Mortgage-backed security
Board ALCO:
Board of Directors' Asset/Liability Committee
 
MSPP:
Management Stock Purchase Plan
CCTA:
Camden Capital Trust A, an unconsolidated entity formed by Camden National Corporation
 
N.M.:
Not meaningful
CDs:
Certificate of deposits
 
OCC:
Office of the Comptroller of the Currency
Company:
Camden National Corporation
 
OCI:
Other comprehensive income (loss)
CMO:
Collateralized mortgage obligation
 
OREO:
Other real estate owned
DCRP:
Defined Contribution Retirement Plan
 
OTTI:
Other-than-temporary impairment
EPS:
Earnings per share
 
SERP:
Supplemental executive retirement plans
FASB:
Financial Accounting Standards Board
 
Tax Act:
Tax Cuts and Jobs Act of 2017, enacted on December 22, 2017
FDIC:
Federal Deposit Insurance Corporation
 
TDR:
Troubled-debt restructured loan
FHLB:
Federal Home Loan Bank
 
UBCT:
Union Bankshares Capital Trust I, an unconsolidated entity formed by Union Bankshares Company that was subsequently acquired by Camden National Corporation
FHLBB:
Federal Home Loan Bank of Boston
 
U.S.:
United States of America
FRB:
Federal Reserve System Board of Governors
 
2003 Plan:
2003 Stock Option and Incentive Plan
FRBB:
Federal Reserve Bank of Boston
 
2012 Plan:
2012 Equity and Incentive Plan

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Standards Adopted

The Company adopted the following accounting standards in 2019, and such standards have been accounted for and presented within the accompanying consolidated financial statements for the three and six months ended June 30, 2019 as follows:

ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"): In February 2016, the FASB issued ASU 2016-02 to increase transparency and comparability among organizations by recognizing lease assets and liabilities (including operating leases) on the balance sheet and disclosing key information about leasing arrangements. Prior lease accounting did not require the inclusion of operating leases in the balance sheet.

Effective January 1, 2019, the Company adopted ASU 2016-02, using the following practical expedients for transitional relief provided for within the subsequent issuance of ASU No. 2018-11, Leases (Topic 842): Targeted Improvements ("ASU 2018-11"):
An entity need not reassess whether any expired or existing contract is or contains leases.
An entity need not reassess the lease classification for any expired or existing leases.
An entity need not reassess initial direct costs for any existing leases.
An entity may elect to apply hindsight to leases that existed during the period from the beginning of the earliest period presented in the financial statements until the effective date.

9



A modified retrospective transition method, which allows companies to apply ASU 2016-02 at the date of adoption and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In conjunction with the adoption of Topic 842, the Company made the following accounting policy elections:
For leases with a term of 12 months or less, a right-of-use asset or lease liability will not be recognized on the consolidated statements of condition.
For non-real estate leased assets with individual undiscounted contractual cash flows of less than $500,000 over the reasonably certain term of the lease, a right-of-use asset or lease liability will not be recognized on the consolidated statements of condition as the lease is considered immaterial to the Company's financial statements.

The Company has completed its assessment and implementation process for ASU 2016-02 and recorded operating and finance lease right-of-use assets of $12.1 million and lease liabilities of $12.3 million on the consolidated statements of condition within other assets and other liabilities, respectively, on January 1, 2019. Because the modified-retrospective transition method was used, the Company did not revise prior period presentation on its consolidated statements of income. The adoption of the ASU did not have a material effect on the consolidated financial statements, which included a cumulative-effect adjustment of $254,000 to retained earnings on January 1, 2019. Refer to Note 5 for further details.

Accounting Standards Issued

The following are recently issued accounting pronouncements that have yet to be adopted by the Company:

ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), updated by ASU No. 2018-19, Financial Instruments - Credit Losses (Topic 326): Codification Improvements to Topic 326 ("ASU 2018-19"), and ASU No. 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief ("ASU 2019-05"). In June 2016, the FASB issued ASU 2016-13 to require timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years, for public companies. Early adoption is permitted for annual periods beginning after December 15, 2018, including interim periods within that fiscal year. The Company will adopt the guidance under a modified-retrospective approach, whereby a cumulative-effect adjustment will be made to retained earnings upon adoption. The Company will use a prospective transition approach for debt securities for which an OTTI had been recognized before the effective date, as applicable.

In May 2019, the FASB issued ASU 2019-05 to provide entities impacted by ASU 2016-13 with targeted transition relief upon adoption. ASU 2019-05 provided that for certain instruments within the scope of ASU 2016-13 the option to irrevocably elect the fair value option in accordance with Subtopic 825-10, Financial Instruments - Overall ("ASC 825"), applied on an instrument-by-instrument basis. The fair value option election does not apply to HTM debt securities. An entity that elects the fair value option is to apply the guidance in Subtopics 820-10, Fair Value Measurement - Overall, and ASC 825-10. The Company will not elect the fair value option upon adoption of ASU 2016-13.

While the Company continues to prepare for the adoption of ASU 2016-13 on January 1, 2020, it recognizes that changes to the consolidated financial statements upon adoption are imminent as the ASU requires:
A change in the Company's assessment of its ALL and allowance on unused commitments as it will transition from an incurred loss model to an expected loss model, which may result in an increase in the ALL upon adoption and may negatively impact the Company and Bank's regulatory capital ratios.
An allowance on the expected losses over the life of the Company's HTM investment securities to be recorded upon adoption, which may reduce the carrying value of these securities.
Changes to the considerations when assessing AFS debt securities for OTTI, including (i) no longer considering the amount of time a security has been in an unrealized loss position and (ii) no longer considering the historical and implied volatility of a security and recoveries or declines in the fair value after the balance sheet date, as well as the presentation of OTTI as an allowance rather than a permanent write-down of the debt security.
Changes to the disclosure requirements to reflect the transition from an incurred loss methodology to an expected credit loss methodology, as well as certain disclosures of credit quality indicators in relation to the amortized cost of financing receivables disaggregated by year of origination (or vintage).


10



In 2015, the Company began its preparation for ASU 2016-13, understanding the significance of the standard and its potential impact to its consolidated financial statements and the financial industry. While the Company continues to review, validate and refine its loss methodologies in accordance with ASU 2016-13, it has completed certain critical tasks and components as it prepares for adoption on January 1, 2020, such as the assessment and validation of critical data points. At this time, the Company does not have an estimated financial impact of adoption to its consolidated financial statements, but anticipates it will have an estimate of the financial impact in the fourth quarter of 2019. Any disclosure of an estimated financial impact made by the Company will be subject to various factors that may cause actual results to differ materially from the Company's estimates. These factors include, but are not limited to, (i) the economic outlook over the reasonable and supportable forecast period; (ii) changes in the make-up of the Company’s loan portfolio; and/or (iii) changes in the credit quality of individual loans or pools of loans within its portfolio upon adoption.

The Company continues to monitor and assess exposure drafts produced by the FASB pertaining to ASU 2016-13.

ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"): In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). ASU 2017-04 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, in accordance with ASU 2017-04, a Company will recognize an impairment of goodwill should the carrying value of a reporting unit exceed its fair value (i.e. step one). ASU 2017-04 will be effective for the Company on January 1, 2020 and will be applied prospectively. The Company does not expect the ASU to have a material impact on the consolidated financial statements upon adoption.

The Company continues to monitor and assess exposure drafts produced by the FASB pertaining to this topic.


11



NOTE 3 – INVESTMENTS

AFS and HTM Investments

The following table summarizes the amortized cost and estimated fair values of AFS and HTM investments, as of the dates indicated: 
(In thousands)
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
June 30, 2019
 
 

 
 

 
 

 
 

AFS Investments (carried at fair value):
 
 
 
 
 
 
 
 
Obligations of states and political subdivisions
 
$
87,223

 
$
1,932

 
$
(26
)
 
$
89,129

Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises
 
455,330

 
3,250

 
(2,203
)
 
456,377

Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises
 
351,149

 
3,940

 
(3,018
)
 
352,071

Subordinated corporate bonds
 
21,397

 
1,109

 

 
22,506

Total AFS investments
 
$
915,099

 
$
10,231

 
$
(5,247
)
 
$
920,083

HTM Investments (carried at amortized cost):
 
 
 
 
 
 
 
 
Obligations of states and political subdivisions
 
$
1,304

 
$
31

 
$

 
$
1,335

Total HTM investments
 
$
1,304

 
$
31

 
$

 
$
1,335

December 31, 2018
 
 

 
 

 
 

 
 

AFS Investments (carried at fair value):
 
 
 
 
 
 
 
 
Obligations of states and political subdivisions
 
$
94,430

 
$
216

 
$
(894
)
 
$
93,752

Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises
 
466,613

 
583

 
(13,524
)
 
453,672

Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises
 
351,958

 
1,007

 
(10,071
)
 
342,894

Subordinated corporate bonds
 
20,398

 
23

 
(47
)
 
20,374

Total AFS investments
 
$
933,399

 
$
1,829

 
$
(24,536
)
 
$
910,692

HTM Investments (carried at amortized cost):
 
 
 
 
 
 
 
 
Obligations of states and political subdivisions
 
$
1,307

 
$
8

 
$
(24
)
 
$
1,291

Total HTM investments
 
$
1,307

 
$
8

 
$
(24
)
 
$
1,291


Net unrealized gains on AFS investments reported within AOCI at June 30, 2019, were $3.9 million, net of a deferred tax liability of $1.1 million. Net unrealized losses on AFS investments reported within AOCI at December 31, 2018, were $17.8 million, net of a deferred tax benefit of $4.9 million.

For the six months ended June 30, 2019 and 2018, the Company purchased debt investments of $98.8 million and $100.6 million, respectively, all of which were designated as AFS investments.

Impaired AFS and HTM Investments:
Management periodically reviews the Company’s AFS and HTM investments to determine the cause, magnitude and duration of declines in the fair value of each security. Thorough evaluations of the causes of the unrealized losses are performed to determine whether the impairment is temporary or other-than-temporary in nature. Considerations such as the ability of the securities to meet cash flow requirements, levels of credit enhancements, risk of curtailment, and recoverability of invested amount over a reasonable period of time, and the length of time the security is in a loss position, for example, are applied in determining OTTI. Once a decline in value is determined to be other-than-temporary, the cost basis of the security is permanently reduced and a corresponding charge to earnings is recognized.
 

12



The following table presents the estimated fair values and gross unrealized losses on AFS and HTM investments that were in a continuous loss position at June 30, 2019 and December 31, 2018, by length of time that an individual security in each category has been in a continuous loss position:  
 
 
Less Than 12 Months
 
12 Months or More
 
Total
(In thousands)
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
June 30, 2019
 
 

 
 

 
 

 
 

 
 

 
 

AFS Investments:
 
 
 
 
 
 
 
 
 
 
 
 
Obligations of states and political subdivisions
 
$

 
$

 
$
4,051

 
$
(26
)
 
$
4,051

 
$
(26
)
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises
 

 

 
246,463

 
(2,203
)
 
246,463

 
(2,203
)
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises
 

 

 
136,876

 
(3,018
)
 
136,876

 
(3,018
)
Total AFS investments
 
$

 
$

 
$
387,390

 
$
(5,247
)
 
$
387,390

 
$
(5,247
)
December 31, 2018
 
 

 
 

 
 

 
 

 
 

 
 

AFS Investments:
 
 
 
 
 
 
 
 
 
 
 
 
Obligations of states and political subdivisions
 
$
36,218

 
$
(281
)
 
$
28,437

 
$
(613
)
 
$
64,655

 
$
(894
)
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises
 
46,459

 
(252
)
 
364,430

 
(13,272
)
 
410,889

 
(13,524
)
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises
 
5,956

 
(40
)
 
227,461

 
(10,031
)
 
233,417

 
(10,071
)
Subordinated corporate bonds
 
11,378

 
(26
)
 
966

 
(21
)
 
12,344

 
(47
)
Total AFS investments
 
$
100,011

 
$
(599
)
 
$
621,294

 
$
(23,937
)
 
$
721,305

 
$
(24,536
)
HTM Investments:
 
 
 
 
 
 
 
 
 
 
 
 
Obligations of states and political subdivisions
 
$
509

 
$
(5
)
 
$
411

 
$
(19
)
 
$
920

 
$
(24
)
Total HTM investments
 
$
509

 
$
(5
)
 
$
411

 
$
(19
)
 
$
920

 
$
(24
)

At June 30, 2019 and December 31, 2018, the Company held 125 and 302 total debt investments with a fair value of $387.4 million and $722.2 million that were in an unrealized loss position totaling $5.2 million and $24.6 million, respectively, that were considered temporary. Of these, MBS and CMOs with a fair value of $383.3 million and $591.9 million were in an unrealized loss position, and have been in an unrealized loss position for 12 months or more, totaling $5.2 million and $23.3 million at June 30, 2019 and December 31, 2018, respectively. The unrealized loss was reflective of current interest rates in excess of the yield received on debt investments and is not indicative of an overall change in credit quality or other factors. At June 30, 2019 and December 31, 2018, gross unrealized losses on the Company's AFS and HTM investments were 1% and 3%, respectively, of their respective fair values.

At June 30, 2019, the Company had the intent and ability to retain its debt investments in an unrealized loss position until the decline in value has recovered.


13



Sale of AFS Investments:
The following table details the Company's sales of AFS investments for the period indicated below:
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(In thousands)
 
2019
 
2018
 
2019
 
2018
Proceeds from sales of investments
 
$
45,826

 
$
9,898

 
$
45,826

 
$
9,898

Gross realized gains
 
371

 
31

 
371

 
31

Gross realized losses
 
(344
)
 

 
(344
)
 


For the three and six months ended June 30, 2019, the Company sold certain AFS investments with a total carrying value of $45.8 million and recorded a net gain of $27,000 within non-interest income in the consolidated statements of income. The Company had not previously recorded any OTTI on these securities sold.

For the three and six months ended June 30, 2018, the Company sold certain AFS investments with a total carrying value of $9.9 million and recorded a gain of $31,000 within non-interest income in the consolidated statements of income. The Company had not previously recorded any OTTI on these securities sold.

AFS and HTM Investments Pledged:
At June 30, 2019 and December 31, 2018, AFS and HTM investments with an amortized cost of $667.3 million and $734.1 million and estimated fair values of $670.5 million and $714.4 million, respectively, were pledged to secure FHLBB advances, public deposits, and securities sold under agreements to repurchase and for other purposes required or permitted by law.
 
Contractual Maturities:
The amortized cost and estimated fair values of the Company's AFS and HTM investments by contractual maturity at June 30, 2019, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. 
(In thousands)
 
Amortized
Cost
 
Fair
Value
AFS Investments
 
 
 
 
Due in one year or less
 
$

 
$

Due after one year through five years
 
69,611

 
69,758

Due after five years through ten years
 
231,573

 
234,217

Due after ten years
 
613,916

 
616,108

 
 
$
915,100

 
$
920,083

HTM Investments
 
 
 
 
Due in one year or less
 
$

 
$

Due after one year through five years
 

 

Due after five years through ten years
 
1,304

 
1,335

Due after ten years
 

 

 
 
$
1,304

 
$
1,335

 


14



Other Investments

The following table summarizes the cost and estimated fair values of the Company's investment in equity securities, FHLBB stock and FRBB stock as presented within other investments on the consolidated statements of condition, as of the dates indicated: 
(In thousands)
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value /
Carrying Value
June 30, 2019
 
 

 
 

 
 

 
 

Equity securities - bank stock (carried at fair value)
 
$
544

 
$
286

 
$

 
$
830

FHLBB (carried at cost)
 
5,509

 

 

 
5,509

FRB (carried at cost)
 
5,374

 

 

 
5,374

Total other investments
 
$
11,427

 
$
286

 
$

 
$
11,713

December 31, 2018
 
 

 
 

 
 

 
 

Equity securities - bank stock (carried at fair value)
 
$
544

 
$
202

 
$

 
$
746

FHLBB (carried at cost)
 
8,559

 

 

 
8,559

FRB (carried at cost)
 
5,374

 

 

 
5,374

Total other investments
 
$
14,477

 
$
202

 
$

 
$
14,679


For the three months ended June 30, 2019 and 2018, the Company recognized an unrealized (loss) gain of ($159,000) and $11,000, respectively, due to the change in fair value of its bank stock equity securities, which was presented within other income on the consolidated statements of income. For the six months ended June 30, 2019 and 2018, the Company recognized an unrealized gain (loss) of $84,000 and ($24,000), respectively, due to the change in fair value of its bank stock equity securities, which was presented within other income on the consolidated statements of income. For the six months ended June 30, 2018, a gain of $195,000 was recognized within other income on the consolidated statements of income upon sale of an investment.

The Company did not record any OTTI on its FHLBB and FRB stock for the three or six months ended June 30, 2019 and 2018.

NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES
 
The composition of the Company’s loan portfolio, excluding residential loans held for sale, was as follows for the dates indicated:
(In thousands)
 
June 30,
2019
 
December 31,
2018
Residential real estate
 
$
1,035,792

 
$
992,866

Commercial real estate
 
1,260,639

 
1,269,533

Commercial
 
428,676

 
381,780

Home equity
 
323,536

 
327,763

Consumer
 
23,665

 
20,624

HPFC
 
28,016

 
33,656

Total loans
 
$
3,100,324

 
$
3,026,222



15



The loan balances for each portfolio segment presented above are net of their respective unamortized fair value mark discount on acquired loans and net of unamortized loan origination costs for the dates indicated:
(In thousands)
 
June 30,
2019
 
December 31,
2018
Net unamortized fair value mark discount on acquired loans
 
$
3,240

 
$
3,936

Net unamortized loan origination costs
 
(2,586
)
 
(1,865
)
Total
 
$
654

 
$
2,071


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

In the normal course of business, the Bank makes loans to certain officers, directors and their associated companies, under terms that are consistent with the Company's lending policies and regulatory requirements and that do not involve more than the normal risk of collectability or present other unfavorable features At June 30, 2019 and December 31, 2018, outstanding loans to certain officers, directors and their associated companies was less than 5% of the Company's shareholders' equity.

The HPFC loan portfolio consists of niche commercial lending to the small business medical field, including dentists, optometrists and veterinarians across the U.S. The ability and willingness of borrowers to honor their repayment commitments is generally dependent on the success of the borrower's business. In 2016, the Company closed HPFC's operations and is no longer originating HPFC loans.

The ALL is management’s best estimate of the inherent risk of loss in the Company’s loan portfolio as of the consolidated statement of condition date. Management makes various assumptions and judgments about the collectability of the loan portfolio and provides an allowance for potential losses based on a number of factors including historical losses. If those assumptions are incorrect, the ALL may not be sufficient to cover losses and may cause an increase in the allowance in the future. Among the factors that could affect the Company’s ability to collect loans and require an increase to the allowance in the future are: (i) financial condition of borrowers; (ii) real estate market changes; (iii) state, regional, and national economic conditions; and (iv) a requirement by federal and state regulators to increase the provision for loan losses or recognize additional charge-offs.

There were no significant changes in the Company's ALL methodology during the six months ended June 30, 2019.

The Board of Directors monitors credit risk through the Directors' Loan Review Committee, which reviews large credit exposures, monitors the 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, concentration levels, and the ALL methodology. Credit Risk Administration and the Credit Risk Policy Committee oversee the Company's systems and procedures to monitor the credit quality of its loan portfolio, conduct a loan review program, maintain the integrity of the loan rating system, determine the adequacy of the ALL and support the oversight efforts of the Directors' Loan Review Committee and the Board of Directors. The Company's practice is to manage the portfolio proactively such that management can identify problem credits early, assess and implement effective work-out strategies, and take charge-offs as promptly as practical. In addition, the Company continuously reassesses its underwriting standards in response to credit risk posed by changes in economic conditions.

For purposes of determining the ALL, the Company disaggregates its loans into portfolio segments, which include residential real estate, commercial real estate, commercial, home equity, consumer and HPFC. Each portfolio segment possesses unique risk characteristics that are considered when determining the appropriate level of allowance. These risk characteristics unique to each portfolio segment include the following:

Residential Real Estate. Residential real estate loans held in the Company's loan portfolio are made to borrowers who demonstrate the ability to make scheduled payments with full consideration to underwriting factors. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines. Collateral consists of mortgage liens on one- to four-family residential properties, including for investment purposes.

16




Commercial Real Estate. 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, health care facilities and other specific use properties. Commercial real estate loans are typically written with amortizing payment structures. Collateral values are determined based upon appraisals and evaluations in accordance with established policy guidelines. Loan-to-value ratios at origination are governed by established policy and regulatory guidelines. Commercial real estate loans are primarily paid by the cash flow generated from the real property, such as operating leases, rents, or other operating cash flows from the borrower.

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

Home Equity. Home equity loans and lines are made to qualified individuals for legitimate purposes secured by senior or junior mortgage liens on owner-occupied one- to four-family homes, condominiums, or vacation homes. The home equity loan has a fixed rate and is billed as equal payments comprised of principal and interest. The home equity line of credit has a variable rate and is billed as interest-only payments during the draw period. At the end of the draw period, the home equity line of credit is billed as a percentage of the principal balance plus all accrued interest. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines.

Consumer. Consumer loan products include personal lines of credit and amortizing loans made to qualified individuals for various purposes such as education, auto loans, debt consolidation, personal expenses or overdraft protection. Borrower qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines. Consumer loans may be secured or unsecured.

HPFC. Prior to the Company's closing of HPFC's operations in 2016, it provided commercial lending to dentists, optometrists and veterinarians, many of which were start-up companies. HPFC's loan portfolio consists of term loan obligations extended for the purpose of financing working capital and/or purchase of equipment. Collateral consists of pledges of business assets including, but not limited to, accounts receivable, inventory, and/or equipment. These loans are primarily paid by the operating cash flow of the borrower and the original terms range from seven to ten years.

17



The following presents the activity in the ALL and select loan information by portfolio segment for the periods indicated:
(In thousands)
 
Residential
Real Estate
 
Commercial
Real Estate
 
Commercial
 
Home
Equity
 
Consumer
 
HPFC
 
Total
For The Three and Six Months Ended June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ALL for the three months ended:
 
 

 
 

 
 

 
 

 
 

 
 
 
 

Beginning balance
 
$
6,153

 
$
11,838

 
$
3,616

 
$
3,027

 
$
259

 
$
308

 
$
25,201

Loans charged off
 
(14
)
 

 
(217
)
 
(34
)
 
(6
)
 

 
(271
)
Recoveries
 
2

 
3

 
49

 

 
4

 

 
58

Provision (credit)(1)
 
108

 
311

 
659

 
(1
)
 
126

 
(28
)
 
1,175

Ending balance
 
$
6,249

 
$
12,152

 
$
4,107

 
$
2,992

 
$
383

 
$
280

 
$
26,163

ALL for the six months ended:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
6,071

 
$
11,654

 
$
3,620

 
$
2,796

 
$
234

 
$
337

 
$
24,712

Loans charged off
 
(25
)
 
(65
)
 
(453
)
 
(44
)
 
(20
)
 

 
(607
)
Recoveries
 
4

 
7

 
111

 

 
11

 

 
133

Provision (credit)(1)
 
199

 
556

 
829

 
240

 
158

 
(57
)
 
1,925

Ending balance
 
$
6,249

 
$
12,152

 
$
4,107

 
$
2,992

 
$
383

 
$
280

 
$
26,163

ALL balance attributable to loans:
 
 

 
 

 
 

 
 

 
 

 
 
 
 

Individually evaluated for impairment
 
$
524

 
$
27

 
$
322

 
$
310

 
$

 
$

 
$
1,183

Collectively evaluated for impairment
 
5,725

 
12,125

 
3,785

 
2,682

 
383

 
280

 
24,980

Total ending ALL
 
$
6,249

 
$
12,152

 
$
4,107

 
$
2,992

 
$
383

 
$
280

 
$
26,163

Loans:
 
 

 
 

 
 

 
 

 
 

 
 
 
 

Individually evaluated for impairment
 
$
4,472

 
$
409

 
$
675

 
$
887

 
$

 
$

 
$
6,443

Collectively evaluated for impairment
 
1,031,320

 
1,260,230

 
428,001

 
322,649

 
23,665

 
28,016

 
3,093,881

Total ending loans balance
 
$
1,035,792

 
$
1,260,639

 
$
428,676

 
$
323,536

 
$
23,665

 
$
28,016

 
$
3,100,324

For The Three and Six Months Ended June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ALL for the three months ended:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
5,497

 
$
10,286

 
$
4,126

 
$
2,427

 
$
230

 
$
424

 
$
22,990

Loans charged off
 
(85
)
 
(86
)
 
(127
)
 
(75
)
 
(16
)
 

 
(389
)
Recoveries
 
15

 
2

 
57

 
1

 
2

 

 
77

Provision (credit)(1)
 
352

 
108

 
247

 
263

 
44

 
(24
)
 
990

Ending balance
 
$
5,779

 
$
10,310

 
$
4,303

 
$
2,616

 
$
260

 
$
400

 
$
23,668

ALL for the six months ended:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
5,086

 
$
11,863

 
$
4,171

 
$
2,367

 
$
233

 
$