What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-10 compared with 2020-02-28 · 587 added, 429 removed, 1304 unchanged (44% of the section changed)

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The financial statements and supplementary data required by this item are presented in the order shown below:

Report of Independent Registered Public Accounting Firm — As of December 31, 2019 and 2018 and each of the three years in the period ended December 31, 2019

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 20 20 and 201 9

Consolidated Statements of Income for the years ended December 31, 20 20 , 201 9 and 20 18

Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017

Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2020, 2019 and 2018

Consolidated Statements of Shareholders’ Equity for the years ended December 31, 20 20 , 201 9 and 201 8

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In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated February 28, 2020 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

Basis for Opinion

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Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Qualitative Factor Adjustments to the Allowance for Loan Losses

As described in Notes 1 and 5 to the consolidated financial statements, the Company’s allowance for loan losses totaled $21.0 million as of December 31, 2020, which consists of a general reserve of $16.0 million and a specific reserve of $5.0 million.

Management estimates the allowance based on loan losses believed to be inherent in the Company’s loan portfolio, segmented by product type and risk classification, at the balance sheet date.

The Company’s allowance for loan losses consists of a general reserve, which management develops based on historical loss ratios from its data and, where appropriate, its peers’ data adjusted for qualitative factors not reflected in the historical loss experience as well as a specific reserve based on management’s identification of impaired loans.

Management considers several qualitative factors, both internal and external to the Company, including valuation of underlying collateral;

macro and local economic factors;

nature and volume of loan portfolio;

concentration of credit risk;

net charge-off trends and non-accrual trends, and past due and classified loan trends when determining the general reserve.

The adjustment for qualitative factors requires a significant amount of judgment by management and involves a high degree of estimation uncertainty.

We identified the qualitative factor component of the allowance for loan losses as a critical audit matter as auditing the underlying qualitative factors required significant auditor judgment as amounts determined by management rely on analysis that is highly subjective and includes significant estimation uncertainty.

Our audit procedures related to the qualitative factor component of the allowance for loan losses include the following, among others:

• We obtained an understanding of the relevant controls related to management’s qualitative factor adjustments to the allowance for loan losses and tested such controls for design and operating effectiveness including controls related to management’s establishment, review and approval of the qualitative factors and the completeness and accuracy of data used in determining the qualitative factors.

• We tested the completeness and accuracy of data used by management in determining qualitative factor adjustments by agreeing them to internal and external source data.

• We assessed the reasonableness of management’s qualitative factor adjustments, including macro and local economic factors, nature and volume of loan portfolio, concentration of credit risk, net charge-off trends and non-accrual trends, and past due and classified loan trends by agreeing them to internal and external source data, evaluating the magnitude and directional consistency of such adjustments with prior periods and data points, and evaluating the consistency of such changes in accordance with the Company’s loan policy.

• We tested management’s conclusions regarding the appropriateness of the qualitative factor adjustments and agreed the impact to the allowance for loan losses calculation.

/s/ RSM US LLP

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New Haven, Connecticut

February 28, 2020

March 10, 2021

Bankwell Financial Group, Inc.

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Held to maturity investment securities, at amortized cost (fair values of $ 20,032 and $ 18,307 at December 31, 2020 and 2019, respectively)

16,078 16,308

Total investment securities 106,890 100,865

Loans receivable (net of allowance for loan losses of $ 21,009 and $ 13,509 at December 31, 2020 and 2019, respectively)

1,601,672 1,588,840

Accrued interest receivable 6,579 5,959

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Bank-owned life insurance 42,651 41,683

Goodwill 2,589 2,589

Other intangible assets 76 214

Deferred income taxes, net 11,300 5,788

Other assets 42,770 22,196

Total assets $ 2,253,747 $ 1,882,182

LIABILITIES AND SHAREHOLDERS’ EQUITY

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Subordinated debentures ($ 25,500 face, less unamortized debt issuance costs of $ 242 and $ 293 at December 31, 2020 and 2019, respectively)

25,258 25,207

Accrued expenses and other liabilities 49,571 32,675

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10,000,000 shares authorized, 7,919,278 and 7,868,803 shares issued and outstanding at December 31, 2020 and 2019, respectively

121,338 120,589

Retained earnings 70,839 69,324

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Year Ended December 31,

2020 2019 2018

Interest and dividend income

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Noninterest income

Gains and fees from sales of loans

Service charges and fees

Bank owned life insurance 967 1,008 1,057

Service charges and fees 788 1,023 1,090

Gains and fees from sales of loans 43 1,791 984

Gain (loss) on sale of other real estate owned, net 19 ( 102 ) —

Net gain on sale of available for sale securities — 76 222

Loss on sale of other real estate owned, net

Other 1,067 1,448 547

Total noninterest income 2,884 5,244 3,900

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Director fees 1,214 863 1,044

Amortization of intangibles

FDIC insurance 791 74 779

Marketing 630 971 1,587

Other 2,571 2,766 2,324

Total noninterest expense 42,813 35,626 35,633

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Income tax expense 1,397 4,726 3,720

Net income $ 5,904 $ 18,216 $ 17,433

Earnings Per Common Share:

Basic $ 0.75 $ 2.32 $ 2.23

Diluted $ 0.75 $ 2.31 $ 2.21

Weighted Average Common Shares Outstanding:

Basic 7,728,328 7,757,355 7,722,175

Diluted 7,748,453 7,784,631 7,775,480

Dividends per common share $ 0.56 $ 0.52 $ 0.48

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Bankwell Financial Group, Inc.

Consolidated Statements of Comprehensive Income

Consolidated Statements of Comprehensive (Loss) Income

(In thousands)

Year Ended December 31,

2020 2019 2018

Net income $ 5,904 $ 18,216 $ 17,433

Other comprehensive (loss) income:

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Income tax (expense) benefit

( 539 ) ( 614 ) 390

Unrealized gains (losses) on securities, net of tax 1,816 2,307 ( 1,464 )

Unrealized (losses) gains on interest rate swaps:

Unrealized (losses) gains on interest rate swaps

Income tax benefit (expense)

Unrealized (losses) gains on interest rate swaps, net of tax

Total other comprehensive (loss) income, net of tax

Comprehensive income

Unrealized losses on interest rate swaps:

Unrealized losses on interest rate swaps ( 12,876 ) ( 11,121 ) ( 1,604 )

Income tax benefit 3,001 2,335 337

Unrealized losses on interest rate swaps, net of tax ( 9,875 ) ( 8,786 ) ( 1,267 )

Total other comprehensive loss, net of tax ( 8,059 ) ( 6,479 ) ( 2,731 )

Comprehensive (loss) income $ ( 2,155 ) $ 11,737 $ 14,702

See Notes to Consolidated Financial Statements

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(In thousands, except share data)

Shares Common

Stock Retained

Earnings Accumulated

Comprehensive

Income (Loss)

Income (Loss) Total

Balance at January 1, 2018 7,751,424 $ 118,301 $ 41,032 $ 1,694 $ 161,027

Other comprehensive income, net of tax

Net income — — 17,433 — 17,433

Other comprehensive loss, net of tax — — — ( 2,731 ) ( 2,731 )

Cash dividends declared ($ 0.48 per share)

— — ( 3,759 ) — ( 3,759 )

Stock-based compensation expense — 1,290 — — 1,290

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Stock options exercised 28,020 536 — — 536

Reclass adjustment resulting from tax law change

Balance at December 31, 2018 7,842,271 120,527 54,706 ( 1,037 ) 174,196

Net income — — 18,216 — 18,216

Other comprehensive loss, net of tax — — — ( 6,479 ) ( 6,479 )

Cash dividends declared ($ 0.52 per share)

— — ( 4,079 ) — ( 4,079 )

Stock-based compensation expense — 1,020 — — 1,020

Warrants exercised

Issuance of restricted stock 64,150 — — — —

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Stock options exercised 2,350 30 — — 30

Repurchase of common stock ( 34,168 ) ( 988 ) — — ( 988 )

ASU 2016-12 transition adjustment, net of tax

— — 481 — 481

Balance at December 31, 2019 7,868,803 120,589 69,324 ( 7,516 ) 182,397

Net income — — 5,904 — 5,904

Other comprehensive loss, net of tax — — — ( 8,059 ) ( 8,059 )

Cash dividends declared ($ 0.56 per share)

— — ( 4,389 ) — ( 4,389 )

Stock-based compensation expense — 1,770 — — 1,770

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Repurchase of common stock ( 58,499 ) ( 1,037 ) — — ( 1,037 )

ASU 2016-02 transition adjustment, net of tax

Balance at December 31, 2020 7,919,278 $ 121,338 $ 70,839 $ ( 15,575 ) $ 176,602

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Year Ended December 31,

2020 2019 2018

Cash flows from operating activities

Adjustments to reconcile net income to net cash provided by operating activities:

Net accretion of premiums and discounts on investment securities

Net income $ 5,904 $ 18,216 $ 17,433

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

Net amortization (accretion) of premiums and discounts on investment securities 95 ( 368 ) ( 54 )

Provision for loan losses 7,605 437 3,440

Provision for deferred income taxes

(Credit) provision for deferred income taxes ( 3,516 ) 276 1,284

Net gain on sales of available for sale securities — ( 76 ) ( 222 )

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Depreciation and amortization 3,276 3,377 1,732

Impairment of right-of-use asset 280 — —

Amortization of debt issuance costs 52 52 52

Increase in cash surrender value of bank-owned life insurance ( 967 ) ( 1,008 ) ( 1,057 )

Loan principal sold from loans originated for sale

Proceeds from sales of loans originated for sale

Gains and fees from sales of loans ( 43 ) ( 1,791 ) ( 984 )

Stock-based compensation 1,770 1,020 1,290

Net (accretion) amortization of purchase accounting adjustments

Net amortization of purchase accounting adjustments 138 76 239

Loss on sale of premises and equipment 35 10 44

Loss on sale and write-downs of other real estate owned, net

(Gain) loss on sale and write-downs of other real estate owned, net ( 19 ) 102 —

Write down of assets held for sale 1,652 — —

Net change in:

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Accrued interest receivable ( 620 ) 416 ( 465 )

Other assets ( 19,582 ) ( 12,883 ) ( 1,008 )

Accrued expenses and other liabilities 1,673 ( 799 ) ( 1,002 )

Net cash provided by operating activities

Net cash (used in) provided by operating activities ( 1,512 ) 6,631 19,977

Cash flows from investing activities

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Purchases of marketable equity securities ( 35 ) ( 43 ) ( 2,003 )

Purchase of held to maturity securities

Purchase of bank-owned life insurance

Net increase in loans ( 21,426 ) ( 3,359 ) ( 68,923 )

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Proceeds from sales of loans not originated for sale 2,307 27,301 9,964

Purchases of premises and equipment, net

Reduction (purchase) of Federal Home Loan Bank stock

Disposals (purchases) of premises and equipment, net 3,337 ( 645 ) ( 3,351 )

(Purchase) reduction of Federal Home Loan Bank stock ( 385 ) 635 1,073

Proceeds from sale of other real estate owned 199 1,115 —

Net cash provided by (used in) investing activities

Net cash (used in) provided by investing activities ( 21,944 ) 18,686 ( 74,612 )

See Notes to Consolidated Financial Statements

Bankwell Financial Group, Inc.

Consolidated Statements of Cash Flows - Continued

(In thousands)

Cash flows from financing activities

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Repurchase of common stock ( 1,037 ) ( 988 ) —

Net cash (used in) provided by financing activities

Net (decrease) increase in cash and cash equivalents

Net cash provided by (used in) financing activities 355,003 ( 25,378 ) 62,016

Net increase (decrease) in cash and cash equivalents 331,547 ( 61 ) 7,381

Cash and cash equivalents:

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Cash paid for:

Interest $ 23,044 $ 23,937 $ 18,662

Income taxes 4,030 2,893 3,685

Noncash investing and financing activities

Loans transferred to other real estate owned 180 1,217 —

Premises and equipment transferred to held for sale 4,265 — —

Net change in unrealized losses or gains on available-for-sale securities 2,355 2,921 ( 1,854 )

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Bankwell Financial Group, Inc.

is a bank holding company headquartered in New Canaan, Connecticut.

The Company offers a broad range of financial services through its banking subsidiary, Bankwell Bank (collectively the Company or the Bank).

In November 2013, the Bank acquired The Wilton Bank (“Wilton”), which added one branch and approximately $25.1 million in loans and $64.2 million in deposits.

In October 2014, the Bank acquired Quinnipiac Bank and Trust Company (“Quinnipiac”) which added two branches and approximately $97.8 million in loans and $100.6 million in deposits.

(the "Parent Corporation") is a bank holding company headquartered in New Canaan, Connecticut.

The Parent Corporation offers a broad range of financial services through its banking subsidiary, Bankwell Bank (the "Bank" and, collectively with the Parent Corporation and the Parent Corporation's subsidiaries, "we", "our", "us", or the "Company").

In November 2013, the Bank acquired The Wilton Bank and in October 2014, the Bank acquired Quinnipiac Bank and Trust Company.

The Bank is a Connecticut state chartered commercial bank, founded in 2002, whose deposits are insured under the Deposit Insurance Fund administered by the Federal Deposit Insurance Corporation (“FDIC”).

The Bank provides a full range of banking services to commercial and consumer customers, primarily concentrated in the New York metropolitan area and throughout Connecticut, with the majority of our loans in Fairfield and New Haven Counties, Connecticut, with branch locations in New Canaan, Stamford, Fairfield, Wilton, Norwalk, Hamden, Westport, Darien and North Haven Connecticut.

The Bank provides a full range of banking services to commercial and consumer customers, primarily concentrated in the New York metropolitan area and throughout Connecticut, with the majority of the Company's loans in Fairfield and New Haven Counties, Connecticut, with branch locations in New Canaan, Stamford, Fairfield, Wilton, Westport, Darien, Norwalk, and Hamden, Connecticut.

Many of the Company’s activities are with customers located in the New York Metropolitan area and throughout Fairfield and New Haven Counties and the surrounding region of Connecticut, and declines in property values in these areas could significantly impact the Company.

The Company has significant concentrations in commercial real estate loans.

Management does not believe they present any special risk.

The Company does not have any significant concentrations in any one industry or customer.

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The decision to restructure a loan, versus aggressively enforcing the collection of the loan, may benefit the Company by increasing the ultimate probability of collection.

Section 4013 of the CARES Act permits a financial institution to elect to suspend troubled debt restructuring accounting, in certain circumstances, beginning March 1, 2020 and ending on the earlier of January 1, 2022, or sixty days after the national emergency concerning COVID-19 terminates.

All short term loan modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any request for relief are not considered TDRs.

If a performing loan is restructured into a TDR it remains in performing status.

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TDR’s are reported as such for at least one year from the date of restructuring.

In years after the restructuring, troubled debt restructured loans are removed from this classification if the restructuring agreement specifies a market rate of interest equal to that which would be provided to a borrower with similar credit at the time of restructuring and the loan is not deemed to be impaired based on the modified terms.

In years after the restructuring, troubled debt restructured loans may be removed from this classification if the restructuring agreement specifies a market rate of interest equal to that which would be provided to a borrower with similar credit at the time of restructuring and the loan is not deemed to be impaired based on the modified terms.

Acquired Loans

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The general component covers non classified loans and is based on historical loss experience, including appropriate peer data, adjusted for qualitative factors.

Management considers several qualitative factors, both internal and external to the Company, including valuation of underlying collateral;

macro and local economic factors;

nature and volume of loan portfolio;

concentration of credit risk;

net charge-off trends and non-accrual trends, and past due and classified loan trends when determining the general reserve.

Management believes the allowance for loan losses is adequate.

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Goodwill is not amortized.

Goodwill and identifiable intangible assets are evaluated for impairment annually or whenever events or changes in circumstances

indicate the carrying value of these assets may not be recoverable.

Goodwill and identifiable intangible assets are evaluated for impairment annually or whenever events or changes in circumstances indicate the carrying value of these assets may not be recoverable.

When these assets are evaluated for impairment, if the carrying amount exceeds fair value, an impairment charge is recorded to income.

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Maintenance and repairs are expensed as incurred and improvements are capitalized.

Assets Held for Sale

Assets held for sale (excluding loans) consist of real estate properties that are expected to sell within a year.

The assets are reported at the lower of the carrying amount or fair value less costs to sell.

Depreciation is not recognized on any assets that are classified as held for sale.

The Company recognizes and measures it leases in accordance with ASC 842, " Leases" .

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The interest rate swap assets are presented in other assets and the interest rate swap liabilities are presented in accrued expenses and other liabilities in the consolidated balance sheets.

The hedge strategy converts the rate of interest on short-term rolling FHLB advances or Brokered CDs to long-term fixed interest rates, thereby protecting the Bank from interest rate variability.

The hedge strategy converts the contractually specified interest rate on short-term rolling FHLB advances or Brokered CDs to long-term fixed interest rates, thereby protecting the Bank from interest rate variability.

The Company does not offset derivative assets and derivative liabilities for financial statement presentation purposes.

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For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that will replace today’s “incurred loss” model and can result in the earlier recognition of credit losses.

For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice,

except that the losses will be recognized as an allowance.

For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except that the losses will be recognized as an allowance.

On July 17, 2019, the FASB proposed deferring the effective date of ASC 326 for smaller reporting companies as defined by the SEC.

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The Company does qualify to defer the adoption of this standard and has not yet adopted this standard.

Management is currently working with third party consultants and continues to evaluate the impact of its future adoption of this guidance on the Company’s financial statements.

Management continues to evaluate the impact of its future adoption of this guidance on the Company’s financial statements.

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

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On October 16, 2019, the FASB voted in favor of a proposal to defer the effective date of this standard in the same manner it is deferring the effective date of ASC 326.

The FASB issued ASU No.

2019-10, which officially delayed the adoption of this standard for smaller reporting companies until fiscal years beginning after December 15, 2022.

The Company does qualify to defer the adoption of this standard and has not yet adopted this standard.

The Company does not expect the application of this guidance to have a material impact on the Company’s financial statements.

Recently adopted accounting pronouncements

2018-13, Fair Value Measurement (Topic 820):

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The following disclosure requirements were removed from topic 820 for public entities:

(1) The amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy (2) The policy for timing of transfers between levels and (3) The valuation processes for Level 3 fair value measurements.

This update also modified and added disclosure requirements to Topic 820, including adding (1) The changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and (2) The range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

(1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy;

(2) the policy for timing of transfers between levels;

and (3) the valuation processes for Level 3 fair value measurements.

This update also modified and added disclosure requirements to Topic 820, including adding (1) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period;

and (2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

For certain unobservable inputs, an entity may disclose other quantitative information (such as the median or arithmetic average) in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements.

ASU 2018-13 will be effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods in the year of adoption.

Early adoption is permitted for any interim or annual period.

The Company does not expect the application of this guidance to have a material impact on the Company’s financial statements.

Recently adopted accounting pronouncements

2016-02, Leases (Topic 842):

The amendments in this ASU require lessees to recognize, on the balance sheet, assets and liabilities for the rights and obligations created by leases.

Accounting by lessors will remain largely unchanged.

In July 2018, the FASB issued a subsequent update which introduced a new transition method, under which an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

The guidance was effective for the Company on January 1, 2020.

The Company recognized $0.5 million as a cumulative-effect adjustment to the opening balance of retained earnings at the time of adoption on January 1, 2019.

In addition, the Company recorded a right-of-use-asset totaling $10.6 million and a lease liability totaling $10.6 million on the balance sheet for the Company's outstanding lease obligations on January 1, 2019.

The right-of-use-asset is disclosed within premises and equipment, net on the balance sheet and the lease liability is disclosed within accrued expenses and other liabilities on the balance sheet.

See Note 7 to our Consolidated Financial Statements for further information regarding leases.

2014-09 , Revenue from Contracts with Customers (Topic 606):

This ASU clarifies the principles for recognizing revenue.

The guidance notes that an entity should apply the following steps when recognizing revenue:

(i) identify the contract(s) with a customer;

(ii) identify the performance obligations in the contract;

(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

In 2016, the FASB issued further implementation guidance regarding revenue recognition.

This additional guidance included clarification on certain principal versus agent considerations within the implementation of the guidance as well as clarification related to identifying performance obligations and licensing.

The guidance also requires new qualitative and quantitative disclosures, including disaggregation of revenues and descriptions of performance obligations.

The guidance along

with its updates is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017.

The Company adopted the guidance on January 1, 2018 using the modified retrospective method.

In evaluating this standard, management has determined that the majority of revenue earned by the Company is from revenue streams not included in the scope of this standard and for in-scope revenue streams management determined that a cumulative effect adjustment to opening retained earnings as a result of adopting this standard is not needed.

The Company recognizes revenue from contracts with customers when it satisfies its performance obligations.

The Company’s performance obligations are generally satisfied as services are rendered and can either be satisfied at a point in time or over time.

Unsatisfied performance obligations at the report date are not material to our consolidated financial statements.

For the revenue that is within scope of Topic 606, the following is a description of principal activities from which the Company generates its revenue from contracts with customers.

Revenues for the Company in scope under Topic 606 include service charges and fees and gains or losses on the sale of foreclosed real estate.

Service charges and fees include revenue that is recognized at a point in time, including ATM fees, wire transfer fees, overdraft charge fees, and stop-payment and returned check fees.

Such revenue is derived from transactional information and is recognized as revenue immediately as the transactions occur or upon providing the service to complete the customer’s transaction.

In addition, service charges and fees include fee income earned on customer deposit accounts, that is recognized over a period of time, generally monthly, as services are performed and performance obligations are satisfied.

Generally, these services are cancellable with little to no notice needed.

The revenue generated from service charges and fees totaled $1.0 million and $1.1 million for years ended December 31, 2019 and 2018, respectively.

The loss recognized from the sale of other real estate owned was $0.1 million for the year ended December 31, 2019.

There was no income recognized from the gain or loss of foreclosed real estate for the year ended December 31, 2018.

The application of this guidance did not have a material impact on the Company's financial statements.

2020-04, Reference Rate Reform (Topic 848):

"Facilitation of the Effects of Reference Rate Reform on Financial Reporting." This ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022.

Optional expedients include that modifications of contracts should be accounted for by prospectively adjusting the effective interest rate and modifications of leases should be accounted for as a continuation of the existing contract with no reassessments of lease classification and discount rate or remeasurements of lease payments.

This ASU also provides many practical expedients for derivative accounting.

In addition, an entity may elect to sell and/or transfer held to maturity securities that reference a rate affected by the reference rate reform classified as held to maturity prior to January 1, 2020.

In particular, the Company made the following elections as it relates to hedging relationships;

(1) Option to not reassess a previous accounting determination (paragraph 848-20-35-2);

(2) Option to not dedesignate a hedging relationship due to a change in critical term (paragraph 848-20-35-3);

(3) Option to change the contractual terms of a hedging instrument, hedged item, or forecasted transaction and to not dedesignate a hedging relationship (paragraph 848-30-25-5);

(4) Adopt expedient ASC 848-50-25-2 to assert probability of the hedged interest regardless of any expected modification in terms related to reference rate reform;

and (5) To continue the method of assessing effectiveness as documented in the original hedge documentation and apply the expedient in ASC 848-50-35-17 so that the reference rate on the hypothetical derivative matches the reference rate on the hedging instrument.

For new hedging relationships designated subsequent to December 31, 2020, the Company elects to apply the expedient in ASC 848-50-25-11 to assume that the reference rate will not be replaced for the remainder of the hedging relationship.

The application of this guidance did not have a material impact on the Company's financial statements.

Shareholders’ Equity

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The Company's stock is traded on the NASDAQ stock market under the ticker symbol BWFG.

On October 1, 2014, the Company acquired Quinnipiac Bank and Trust Co.

and, in connection therewith, the Company issued 68,600 warrants to former Quinnipiac warrant holders in accordance with the merger agreement.

Each warrant was automatically converted into a warrant to purchase 0.56 shares of the Company’s common stock for an exercise price of $17.86 .

During the first quarter of 2018, all remaining warrants were exercised.

In connection with a 2014 acquisition and the associated merger agreement, the Company had issued warrants convertible to shares of common stock at a pre-determined price and exchange ratio.

The Company does not have any warrants outstanding as of December 31, 2020.

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On December 19, 2018, the Company's Board of Directors authorized a share repurchase program of up to 400,000 shares of the Company's Common Stock.

The Company intends to accomplish the share repurchases through open market transactions, though the Company could accomplish repurchases through other means, such as privately negotiated transactions.

The Company intends to accomplish the share repurchases through open market

transactions, though the Company could accomplish repurchases through other means, such as privately negotiated transactions.

The timing, price and volume of repurchases will be based on market conditions, relevant securities laws and other factors.

1 unchanged sentence

During the year ended December 31, 2020, the Company purchased 58,499 shares of its Common Stock at a weighted average price of $ 17.69 per share.

The Company did not repurchase any of its common stock for the year ended December 31, 2018 .

During the year ended December 31, 2019, the Company purchased 34,168 shares of its Common Stock at a weighted average price of $ 28.87 per share.

Goodwill and other intangible assets

Information on goodwill for the years ended December 31, 2020, 2019 and 2018 is as follows:

December 31, 2019

December 31, 2018

December 31, 2020 Year Ended

December 31, 2019 Year Ended

December 31, 2018

1 unchanged sentence

Balance, beginning of the period $ 2,589 $ 2,589 $ 2,589

Impairment — — —

Balance, end of the period $ 2,589 $ 2,589 $ 2,589

The Company tests for goodwill impairment annually as of June 30 th .

No impairment was required to be recorded on goodwill for 2019 , 2018 or 2017.

No impairment was required to be recorded on goodwill in 2020, 2019 or 2018.

The table below provides information regarding the carrying amounts and accumulated amortization of amortized intangible assets as of the dates set forth below.

1 unchanged sentence

Gross Intangible

Net Intangible

Asset Accumulated

Amortization Net Intangible

(In thousands)

6 unchanged sentences

December 31, 2020

Gross Unrealized

Cost Gross Unrealized Fair Value

(In thousands)

2 unchanged sentences

Less than one year $ 9,976 $ 172 $ — $ 10,148

Due from five through ten years 8,038 848 — 8,886

Due after ten years 55,560 2,284 — 57,844

Government and agency obligations 73,574 3,304 — 76,878

Corporate bonds

Due from one through five years 4,000 57 — 4,057

1 unchanged sentence

Due after ten years 1,500 7 — 1,507

Total Corporate bonds 11,500 227 — 11,727

Total available for sale securities $ 85,074 $ 3,531 $ — $ 88,605

7 unchanged sentences

December 31, 2019

Gross Unrealized

Cost Gross Unrealized Fair Value

(In thousands)

5 unchanged sentences

Due after ten years 60,902 879 — 61,781

State agency and municipal obligations

Due from one through five years

Due from five through ten years

Due after ten years

Corporate bonds

Due from one through five years

Total available for sale securities $ 81,263 $ 1,178 $ ( 2 ) $ 82,439

1 unchanged sentence

State agency and municipal obligations

Less than one year

Due after ten years $ 16,231 $ 1,991 $ — $ 18,222

Corporate bonds

Due from one through five years

Government-sponsored mortgage backed securities

1 unchanged sentence

Total held to maturity securities $ 16,308 $ 1,999 $ — $ 18,307

The gross realized gains on the sales of investment securities totaled $0.1 million for the year ended December 31, 2019 .

The gross realized losses on the sales of investment securities totaled $17.0 thousand for the year ended December 31, 2019 .

Total sales proceeds and calls of available for sale securities were $16.5 million for the year ended December 31, 2019 .

There were no sales of investment securities during the year ended December 31, 2020.

The gross realized gains on the sales of investment securities totaled $ 0.1 million for the year ended December 31, 2019.

The gross realized losses on the sales of investment securities totaled $ 17.0 thousand for the year ended December 31, 2019.

Total sales proceeds and calls of available for sale securities were $12.4 million for the year ended December 31, 2018 .

At December 31, 2020 and December 31, 2019, none of the Company's securities were pledged as collateral with the Federal Home Loan Bank ("FHLB") or any other institution.

1 unchanged sentence

At December 31, 2020, the Company held marketable equity securities with a fair value of $ 2.2 million and an amortized cost of $ 2.1 million.

At December 31, 2018 , the Company held marketable equity securities with a fair value and amortized cost of $2.0 million .

At December 31, 2019, the Company held marketable equity securities with a fair value of $ 2.1 million and an amortized cost of $ 2.0 million.

These securities represent an investment in mutual funds that have a primary objective to make investments for CRA purposes.

The following table provides information regarding investment securities with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2019 and 2018 :

There were two investment securities as of December 31, 2019, in which the fair value of the security was less than the amortized cost of the security.

There were no such investment securities as of December 31, 2020.

Length of Time in Continuous Unrealized Loss Position

Less Than 12 Months

12 Months or More

Less Than 12 Months 12 Months or More Total

Value Unrealized

(Dollars in thousands)

2 unchanged sentences

Total investment securities $ 99 $ ( 1 ) 1.01 % $ 998 $ ( 1 ) 0.13 % $ 1,097 $ ( 2 ) 0.21 %

December 31, 2018

Government and agency obligations

State agency and municipal

Corporate bonds

Total investment securities

There were two and twenty-five individual investment securities as of December 31, 2019 and December 31, 2018 , respectively, in which the fair value of the security was less than the amortized cost of the security.

Government and agency obligations owned are either direct obligations of the U.S.

Government or guaranteed by the U.S.

Government, therefore the contractual cash flows are guaranteed and as a result the securities in this portfolio are not considered other than temporarily impaired.

At December 31, 2019 , the Company has the intent and ability to retain its investment securities in an unrealized loss position until the decline in value has recovered or the security has matured.

Loans Receivable and Allowance for Loan Losses

The following table sets forth a summary of the loan portfolio at December 31, 2019 and 2018 :

December 31, 2019

December 31, 2018

The following table sets forth a summary of the loan portfolio at December 31, 2020 and December 31, 2019:

December 31, 2020 December 31, 2019

(In thousands)

Real estate loans:

Residential $ 113,557 $ 147,109

Commercial 1,148,383 1,128,614

Construction 87,007 98,583

1,348,947 1,374,306

Commercial business (1)

276,601 230,028

Consumer 79 150

Total loans 1,625,627 1,604,484

Allowance for loan losses ( 21,009 ) ( 13,509 )

2 unchanged sentences

Loans receivable, net $ 1,601,672 $ 1,588,840

(1) The December 31, 2020 balance includes $ 34.8 million of PPP loans made under the CARES Act.

Lending activities are conducted principally in the New York metropolitan area and throughout Connecticut, with the majority in Fairfield and New Haven Counties of Connecticut, and consist of commercial real estate loans, commercial business loans and, to a lesser degree, a variety of consumer loans.

35 unchanged sentences

Commercial business loans generally have higher interest rates and shorter terms than other loans, but they also have increased difficulty of loan monitoring and a higher risk of default since their repayment generally depends on the successful operation of the borrower’s business.

This segment also includes PPP loans made under the CARES Act to small businesses impacted by COVID-19, to cover payroll and other operating expenses.

Loans extended under the PPP are fully guaranteed by the U.S.

Small Business Administration ("SBA").

This portfolio segment includes loans secured by savings or certificate accounts, automobiles, as well as unsecured personal loans and overdraft lines of credit.

2 unchanged sentences

During the fourth quarter of 2018, the Company recognized a charge-off totaling $ 6.2 million attributable to one lending relationship, affecting the commercial real estate and commercial business segments.

The following tables set forth the activity in the Company’s allowance for loan losses for the years ended December 31, 2019 , 2018 and 2017 , by portfolio segment:

The following tables set forth the activity in the Company’s allowance for loan losses for the years ended December 31, 2020, December 31, 2019 and December 31, 2018, by portfolio segment:

Real Estate Commercial

Real Estate Construction Commercial

Business Consumer Total

(In thousands)

1 unchanged sentence

Beginning balance $ 730 $ 10,551 $ 324 $ 1,903 $ 1 $ 13,509

Provisions (Credits)

Charge-offs — — — ( 83 ) ( 40 ) ( 123 )

Recoveries — 15 — — 3 18

(Credits) Provisions ( 120 ) 5,859 ( 103 ) 1,933 36 7,605

Ending balance $ 610 $ 16,425 $ 221 $ 3,753 $ — $ 21,009

Real Estate Commercial

Real Estate Construction Commercial

Business Consumer Total

(In thousands)

1 unchanged sentence

Beginning balance $ 857 $ 11,562 $ 140 $ 2,902 $ 1 $ 15,462

(Credits) provisions

Charge-offs ( 875 ) ( 594 ) — ( 897 ) ( 75 ) ( 2,441 )

Recoveries — — — 19 32 51

Provisions (Credits) 748 ( 417 ) 184 ( 121 ) 43 437

Ending balance $ 730 $ 10,551 $ 324 $ 1,903 $ 1 $ 13,509

Real Estate Commercial

Real Estate Construction Commercial

Business Consumer Total

(In thousands)

1 unchanged sentence

Beginning balance $ 1,721 $ 12,777 $ 907 $ 3,498 $ 1 $ 18,904

Charge-offs ( 420 ) ( 5,614 ) — ( 815 ) ( 77 ) ( 6,926 )

Recoveries — 18 — 19 7 44

(Credits) provisions ( 444 ) 4,381 ( 767 ) 200 70 3,440

Ending balance $ 857 $ 11,562 $ 140 $ 2,902 $ 1 $ 15,462

Loans evaluated for impairment and the related allowance for loan losses as of December 31, 2019 and 2018 were as follows:

Loans evaluated for impairment and the related allowance for loan losses as of December 31, 2020 and December 31, 2019 were as follows:

Portfolio Allowance

(In thousands)

3 unchanged sentences

Commercial real estate 37,579 4,960

Construction 8,997 —

Commercial business 6,507 85

Subtotal 57,687 5,045

Loans collectively evaluated for impairment:

1 unchanged sentence

Commercial real estate 1,110,804 11,465

Construction 78,010 221

Commercial business 270,094 3,668

Consumer 79 —

Subtotal 1,567,940 15,964

Total $ 1,625,627 $ 21,009

As of December 31, 2020, of the $ 57.7 million of loans individually evaluated for impairment a total of $ 10.0 million of these loans were determined to not be impaired.

Portfolio Allowance

(In thousands)

4 unchanged sentences

Commercial business 4,330 134

Subtotal 22,553 506

Loans collectively evaluated for impairment:

1 unchanged sentence

Commercial real estate 1,114,411 10,179

Construction 98,583 324

Commercial business 225,698 1,769

Consumer 150 1

Subtotal 1,581,931 13,003

Total $ 1,604,484 $ 13,509

Credit quality indicators

11 unchanged sentences

Risk ratings are assigned as necessary to differentiate risk within the portfolio.

They are reviewed on an ongoing basis through the annual loan review process performed by Company personnel, normal renewal activity and the quarterly watchlist and watched asset report process.

They are reviewed on an ongoing basis through the annual loan review process performed by Company personnel, normal renewal activity and the quarterly Watch List and watched asset report process.

They are revised to reflect changes in the borrower's financial condition and outlook, debt service coverage capability, repayment performance, collateral value and coverage as well as other considerations.

In addition to internal review at multiple points, outsourced loan review opines on risk ratings with regard to the sample of loans their review covers.

The following tables present credit risk ratings by loan segment as of December 31, 2019 and 2018 :

The following tables present credit risk ratings by loan segment as of December 31, 2020 and December 31, 2019:

Commercial Credit Quality Indicators

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

Real Estate Construction Commercial

Business Total Commercial

Real Estate Construction Commercial

Business Total

(In thousands)

Pass $ 1,105,825 $ 78,010 $ 269,728 $ 1,453,563 $ 1,104,164 $ 98,583 $ 208,932 $ 1,411,679

Special mention 12,560 — 2,055 14,615 10,247 — 16,766 27,013

Substandard 29,998 8,997 3,247 42,242 14,203 — 854 15,057

Doubtful — — 1,571 1,571 — — 3,476 3,476

Loss — — — — — — — —

Total loans $ 1,148,383 $ 87,007 $ 276,601 $ 1,511,991 $ 1,128,614 $ 98,583 $ 230,028 $ 1,457,225

Residential and Consumer Credit Quality Indicators

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

Real Estate Consumer Total Residential

Real Estate Consumer Total

(In thousands)

Pass $ 108,953 $ 79 $ 109,032 $ 143,089 $ 150 $ 143,239

Special mention 713 — 713 — — —

Substandard 3,714 — 3,714 3,832 — 3,832

Doubtful 177 — 177 188 — 188

Loss — — — — — —

Total loans $ 113,557 $ 79 $ 113,636 $ 147,109 $ 150 $ 147,259

Loan portfolio aging analysis

2 unchanged sentences

When the loan is 30 days past due, the Company mails the borrower a letter reminding the borrower of the delinquency, and attempts to contact the borrower personally to determine the reason for the delinquency and ensure the borrower understands the terms of the loan.

If necessary, after the 90t h day of delinquency, the Company may take other appropriate legal action.

If necessary, after the 90th day of delinquency, the Company may take other appropriate legal action.

A summary report of all loans 30 days or more past due is provided to the Board of Directors of the Company periodically.

2 unchanged sentences

A loan is considered to be no longer delinquent when timely payments are made for a period of at least six months (one year for loans providing for quarterly or semi-annual payments) by the borrower in accordance with the contractual terms.

Loans that are granted payment deferrals under the CARES Act are not required to be reported as past due or placed on non-accrual status if the criteria under section 4013 of the CARES Act are met.

The following tables set forth certain information with respect to the Company's loan portfolio delinquencies by portfolio segment as of December 31, 2020 and December 31, 2019:

December 31, 2020

30–59 Days Past Due

60–89 Days Past Due

90 Days or Greater Past Due

Total Past Due

30–59 Days Past Due 60–89 Days Past Due 90 Days or Greater Past Due Total Past Due Current Total Loans

(In thousands)

2 unchanged sentences

Commercial real estate 1,305 193 2,541 4,039 1,144,344 1,148,383

Construction 8,997 — — 8,997 78,010 87,007

Commercial business 45 55 1,526 1,626 274,975 276,601

Consumer — — — — 79 79

Total loans $ 10,592 $ 248 $ 4,244 $ 15,084 $ 1,610,543 $ 1,625,627

December 31, 2019

30–59 Days Past Due

60–89 Days Past Due

90 Days or Greater Past Due

Total Past Due

30–59 Days Past Due 60–89 Days Past Due 90 Days or Greater Past Due Total Past Due Current Total Loans

(In thousands)

2 unchanged sentences

Commercial real estate 355 — 5,935 6,290 1,122,324 1,128,614

Construction 1,357 — — 1,357 97,226 98,583

Commercial business — — 3,455 3,455 226,573 230,028

There was one loan, totaling $3.4 million , delinquent greater than 90 days and still accruing interest as of December 31, 2019 .

The delinquency for this particular loan is a result of an administrative delay as the loan had matured in 2019 as opposed to delinquent payments.

There were no loans delinquent greater than 90 days and still accruing interest as of December 31, 2018 .

Consumer — — — — 150 150

Total loans $ 1,712 $ 943 $ 9,671 $ 12,326 $ 1,592,158 $ 1,604,484

There were no loans delinquent greater than 90 days and still accruing interest as of December 31, 2020 or December 31, 2019.

Loans on nonaccrual status

The following is a summary of nonaccrual loans by portfolio segment as of December 31, 2019 and 2018 :

The following is a summary of nonaccrual loans by portfolio segment as of December 31, 2020 and December 31, 2019:

(In thousands)

2 unchanged sentences

Commercial business 1,834 3,806

Construction 8,997 —

Total $ 33,416 $ 10,588

Interest income on loans that would have been recognized if loans on nonaccrual status had been current in accordance with their original terms for the years ended December 31, 2020, 2019 and 2018 was $ 0.8 million, $ 0.7 million and $ 1.1 million, respectively.

The amount of actual interest income recognized on these loans was $44 thousand , $11 thousand and $0.1 million for the years ended December 31, 2019 , 2018 and 2017, respectively.

At December 31, 2019 and 2018 , there were no commitments to lend additional funds to borrowers on nonaccrual status.

Nonaccrual loans with no specific reserve totaled $9.6 million and $11.5 million at December 31, 2019 and 2018 , respectively.

There was no interest income recognized on these loans for the year ended December 31, 2020.

There was $ 44 thousand and $ 11 thousand of interest income recognized for these loans for the years ended December 31, 2019 and 2018, respectively.

At December 31, 2020 and December 31, 2019, there were no commitments to lend additional funds to borrowers on nonaccrual status.

Nonaccrual loans with no specific reserve totaled $ 17.5 million and $ 9.6 million at December 31, 2020 and December 31, 2019, respectively.

Impaired loans

2 unchanged sentences

When the Company classifies a problem loan as impaired, it evaluates whether a specific valuation allowance is required for that portion of the loan that is estimated to be impaired.

The following tables summarize impaired loans by portfolio segment and the average carrying amount and interest income recognized on impaired loans by portfolio segment as of December 31, 2019 , 2018 and 2017 :

As of and for the Year Ended December 31, 2020

Amount Unpaid

Balance Associated

Allowance Average

Amount Interest

(In thousands)

2 unchanged sentences

Commercial real estate 8,964 9,282 — 9,246 149

Construction 8,997 8,997 — 8,997 —

Commercial business 1,899 2,512 — 1,971 19

6 unchanged sentences

As of and for the Year Ended December 31, 2019

Amount Unpaid

Balance Associated

Allowance Average

Amount Interest

(In thousands)

5 unchanged sentences

Impaired loans with a valuation allowance:

Residential real estate

Commercial real estate 5,632 5,647 372 5,682 25

Commercial business 415 417 134 441 9

2 unchanged sentences

As of and for the Year Ended December 31, 2018

Amount Unpaid

Balance Associated

Allowance Average

Amount Interest

(In thousands)

3 unchanged sentences

Commercial business 5,212 6,051 — 4,945 297

Consumer 3 3 — 4 —

Total impaired loans without a valuation allowance 16,118 22,858 — 21,568 423

2 unchanged sentences

Commercial real estate 943 945 133 684 25

Commercial business

Total impaired loans with a valuation allowance 2,957 2,999 366 2,733 25

11 unchanged sentences

Outstanding Recorded Investment

Number of Loans

Pre-Modification

Post-Modification

Number of Loans Pre-Modification Post-Modification

2020 2019 2018 2020 2019 2018 2020 2019 2018

(Dollars in thousands)

3 unchanged sentences

Commercial business — 2 1 — 465 608 — 465 608

At December 31, 2019 and December 31, 2018 , there were three nonaccrual loans identified as TDRs totaling $1.6 million and six nonaccrual loans identified as TDRs totaling $3.6 million , respectively.

The following table provides information on how loans were modified as a TDR for the years ended December 31, 2019 , 2018 and 2017.

Total — 4 5 $ — $ 5,397 $ 4,039 $ — $ 5,175 $ 4,027

At December 31, 2020 and December 31, 2019, there were three nonaccrual loans identified as TDRs totaling $ 1.4 million and three nonaccrual loans identified as TDRs totaling $ 1.6 million, respectively.

There were no loans modified in a troubled debt restructuring that re-defaulted during the year ended December 31, 2020.

Two loans previously modified as a TDR, in the amount of $ 1.3 million, re-defaulted during the year ended December 31, 2019.

The following table provides information on how loans were modified as a TDR for the years ended December 31, 2020, December 31, 2019 and 2018.

2020 2019 2018

(In thousands)

4 unchanged sentences

Rate and payment concession — 374 —

Two loans previously modified as a TDR, in the amount of $1.3 million re-defaulted during the year ended December 31, 2019 .

One loan previously modified as a TDR, in the amount of $2.0 million re-defaulted during the year ended December 31, 2018 .

Total $ — $ 5,175 $ 4,027

Section 4013 of the CARES Act provides relief from certain requirements under GAAP and permits a financial institution to elect to suspend troubled debt restructuring accounting, in certain circumstances, beginning March 1, 2020 and ending on the earlier of January 1, 2022, or sixty days after the national emergency concerning COVID-19 terminates.

All short term loan modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any request for relief are not considered TDRs.

As of December 31, 2020, the Company had active COVID-19 related deferrals totaling $ 29.4 million (excluding SBA loans, which are paid for 6 months by the SBA on behalf of borrowers).

The Company granted initial three month payment deferral periods and, in some instances, extended the initial payment deferral period.

This excludes SBA loans, which are mandated to receive an automatic six month deferral.

These deferrals are not considered troubled debt restructurings based on Section 4013 of the CARES Act and interagency guidance issued in March of 2020.

Premises and Equipment

At December 31, 2019 and 2018 , premises and equipment consisted of the following:

At December 31, 2020 and December 31, 2019, premises and equipment consisted of the following:

(In thousands)

Land $ 850 $ 2,300

Building 9,866 14,169

Right-of-use asset 8,591 10,084

1 unchanged sentence

Furniture and fixtures 2,954 2,505

Equipment 3,581 3,337

Automobiles 67 67

Premises and equipment, gross 31,327 37,801

Accumulated depreciation and amortization ( 9,565 ) ( 9,279 )

Premises and equipment, net $ 21,762 $ 28,522

For the years ended December 31, 2019 , 2018 and 2017 , depreciation and amortization expense related to premises and equipment totaled $3.4 million , $1.7 million and $1.5 million , respectively.

For the year ended December 31, 2019, depreciation and amortization expense includes amortization of the right-of-use-asset, totaling $1.4 million .

For the years ended December 31, 2020, December 31, 2019 and December 31, 2018, depreciation and amortization expense related to premises and equipment totaled $ 3.3 million, $ 3.4 million and $ 1.7 million, respectively.

For the years ended December 31, 2020 and December 31, 2019, depreciation and amortization expense includes amortization of the right-of-use-asset, totaling $ 1.4 million for each year.

For the year ended December 31, 2020, the right-of-use asset, totaling $ 8.6 million, includes an impairment charge of $ 0.3 million related to a one-time expense for office and branch consolidation recognized during the fourth quarter of 2020.

The impairment charge is included in occupancy and equipment expense on the consolidated statements of income.

For the year ended December 31, 2020, property totaling $ 4.3 million was transferred to assets held for sale.

Reference Note 8 for more detail.

Effective January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842).

As of December 31, 2019 , the Company leases real estate for ten branch offices under various operating lease agreements.

The branch leases have maturities which range from 2020 to 2030, some of which include options to extend the lease term.

As of December 31, 2020, the Company leases real estate for nine branch offices under various operating lease agreements.

The branch leases have maturities ranging from 2021 to 2030, some of which include options to extend the lease term.

The Company is not reasonably certain to exercise these renewal options, and as a result, these optional periods are not included in determining the lease term.

3 unchanged sentences

The Company utilized a weighted average discount rate of 6.0 % in determining the lease liability for its branch locations and a discount rate of 5.5 % for its land lease.

The total fixed operating lease costs were $2.0 million for the year ended December 31, 2019 .

The total variable operating lease costs were $0.1 million for the year ended December 31, 2019.

The total fixed operating lease costs were $ 2.3 million and $ 2.0 million for the years ended December 31, 2020 and December 31, 2019, respectively.

The total variable operating lease costs were $ 0.1 million for each of the years ended December 31, 2020 and December 31, 2019.

The right-of-use-asset, included in premises and equipment, net was $ 8.6 million as of December 31, 2020 and the corresponding lease liability, included in accrued expenses and other liabilities was $ 9.0 million as of December 31, 2020.

2 unchanged sentences

(In thousands)

Thereafter 17,226

Total $ 22,929

A reconciliation of the undiscounted cash flows in the maturity table above and the lease liability recognized in the consolidated balance sheet as of December 31, 2020, is shown below:

4 unchanged sentences

Lease liability $ 8,973

The components of other assets as of December 31, 2019 and 2018 are summarized below:

December 31, 2019

December 31, 2018

The components of other assets as of December 31, 2020 and December 31, 2019 are summarized below:

December 31, 2020 December 31, 2019

(In thousands)

3 unchanged sentences

Collateral posted related to interest rate swaps 28,205 13,450

Assets held for sale 2,613 —

Other 4,759 2,739

Total Other Assets $ 42,770 $ 22,196

1 unchanged sentence

The Company has a non-qualified deferred compensation plan for the Board of Directors that allows for the deferral of fees earned related to services rendered for the Company.

The deferred compensation balance increased $0.1 million for the year ended December 31, 2019 compared to the year ended December 31, 2018.

The increase was primarily driven by contributions to the plan.

The deferred compensation balance decreased $ 0.6 million for the year ended December 31, 2020 compared to the year ended December 31, 2019.

The decrease was primarily driven by contributions being more than offset by a decline in fair market value and withdrawals.

Loan servicing

2 unchanged sentences

Loans serviced for others are not included in the accompanying consolidated balance sheets.

The balance of loans serviced for others was $128.3 million and $122.4 million at December 31, 2019 and 2018 , respectively.

The balance of loans serviced for others was $ 109.4 million and $ 128.3 million at December 31, 2020 and December 31, 2019, respectively.

The risks inherent in servicing assets relate primarily to changes in the timing of prepayments that result from shifts in interest rates.

The significant assumptions used in the valuation at December 31, 2019 for servicing assets included a discount rate ranging from 10% to 11% and prepayment speed assumptions ranging from 3% to 19% .

The significant assumptions used in the valuation at December 31, 2020 for servicing assets included a discount rate of 10 % and prepayment speed assumptions ranging from 3 % to 16 %.

The significant assumptions used in the valuation at December 31, 2019 for servicing assets included a discount rate ranging from 10 % to 11 % and prepayment speed assumptions ranging from 3 % to 19 %.

The carrying value of loan servicing rights was $1.0 million and $0.9 million as of December 31, 2019 and 2018 , respectively.

The carrying value of loan servicing rights was $ 0.6 million and $ 1.0 million as of December 31, 2020 and December 31, 2019, respectively.

The following table presents the changes in carrying value for loan servicing assets:

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

(In thousands)

6 unchanged sentences

Balance at end of year $ 628 $ 978

Included in accrued expenses and other liabilities, as of December 31, 2019 and 2018 , respectively, are $63 thousand and $73 thousand for loan servicing liabilities related to loans serviced for others for which the Company does not receive a servicing fee.

As of December 31, 2018, the Company established a servicing asset valuation allowance in the amount of $0.2 million .

Prior to 2018, the Company was not required to have a servicing asset valuation allowance.

At December 31, 2019 and 2018 , deposits consisted of the following:

Included in accrued expenses and other liabilities as of December 31, 2020 and December 31, 2019, respectively, are $ 21 thousand and $ 63 thousand for loan servicing liabilities related to loans serviced for others for which the Company does not receive a servicing fee.

Assets held for sale

For the year ended December 31, 2020, the assets held for sale balance of $ 2.6 million consists of a Bank owned property that is currently being marketed for sale.

Upon the transfer to held for sale, the asset was written down to its fair market value, less costs to sell, and a charge of $ 1.7 million was recognized for the year ended December 31, 2020.

The impairment charge is included in occupancy and equipment expense on the consolidated statements of income.

The asset held for sale is included in other assets on the consolidated balance sheets.

At December 31, 2020 and December 31, 2019, deposits consisted of the following:

(In thousands)

1 unchanged sentence

Interest bearing accounts:

NOW 101,737 70,020

Money market 669,364 419,495

Savings 158,750 183,729

Time certificates of deposit 627,230 627,141

1 unchanged sentence

Total deposits $ 1,827,316 $ 1,491,903

Maturities of time certificates of deposit as of December 31, 2019 and 2018 are summarized below:

Maturities of time certificates of deposit as of December 31, 2020 and December 31, 2019 are summarized below:

(In thousands)

The aggregate amount of individual certificate accounts, including brokered deposits with balances of $250,000 or more, were approximately $307.1 million and $227.8 million at December 31, 2019 and 2018 , respectively.

Brokered certificate of deposits totaled $179.8 million and $91.8 million at December 31, 2019 and 2018 , respectively.

2020 $ — $ 430,361

2021 418,117 167,933

2022 50,425 28,515

2023 128,495 239

2024 30,160 93

Total $ 627,230 $ 627,141

The aggregate amount of individual certificate accounts, including brokered deposits with balances of $250,000 or more, were approximately $ 353.7 million and $ 307.1 million at December 31, 2020 and December 31, 2019, respectively.

Brokered certificate of deposits totaled $ 238.9 million and $ 179.8 million at December 31, 2020 and December 31, 2019, respectively.

Certificates of deposits from national listing services totaled $ 18.4 million at December 31, 2020 and $ 21.3 million at December 31, 2019.

2 unchanged sentences

Years Ended December 31,

2020 2019 2018

(In thousands)

NOW $ 141 $ 128 $ 157

Money market 4,071 7,139 6,431

Savings 1,368 2,968 1,649

Time certificates of deposit 12,600 14,463 10,714

1 unchanged sentence

Federal Home Loan Bank Advances and Other Borrowings

The following is a summary of FHLB advances with maturity dates and weighted average rates at December 31, 2019 and 2018 :

The following is a summary of FHLB advances with maturity dates and weighted average rates at December 31, 2020 and December 31, 2019:

December 31, 2020 December 31, 2019

(Dollars in thousands)

Year of Maturity:

2020 $ — — % $ 150,000 1.93 %

2021 175,000 1.84 — —

Total advances $ 175,000 1.84 % $ 150,000 1.93 %

$125 million of the above mentioned FHLB advances as of December 31, 2019 are subject to interest rate swap transactions, see note 18.

Interest expense on FHLB advances totaled $3.6 million , $3.9 million and $2.0 million for the years ended December 31, 2019 , 2018 and 2017 , respectively.

(1) The Company's FHLB borrowings are subject to longer term swap agreements and the weighted average rate reflects the all in swap rate under these long term swap agreements.

$ 175 million of the above mentioned FHLB advances as of December 31, 2020 were subject to interest rate swap transactions and $ 125 million of the above mentioned FHLB advances as of December 31, 2019 were subject to interest rate swap transactions, see Note 18.

Interest expense on FHLB advances, excluding related interest on swaps, totaled $ 1.3 million, $ 3.6 million and $ 3.9 million for the years ended December 31, 2020, December 31, 2019 and December 31, 2018, respectively.

The Bank has additional borrowing capacity at the FHLB up to a certain percentage of the value of qualified collateral.

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At December 31, 2020, the Bank had a secured letter of credit with the FHLB and unsecured lines of credit with Atlantic Community Bankers Bank, Zions Bank and Texas Capital Bank.

The total line of credit and the amount outstanding at December 31, 2019 is summarized below:

The total letter or line of credit and the amount outstanding at December 31, 2020 is summarized below:

December 31, 2020

Total Letter or Line of Credit

Total Outstanding

Total Letter or Line of Credit Total Outstanding

(In thousands)

FHLB $ 20,000 $ —

Atlantic Community Bankers Bank 12,000 —

Zions Bank 25,000 —

Texas Capital Bank 5,000 —

Total $ 62,000 $ —

Federal Home Loan Bank Stock

As a member of the FHLB, the Bank is required to maintain investments in their capital stock.

The Bank owned 74,740 shares and 81,096 shares at December 31, 2019 and 2018 , respectively.

The Bank owned 78,596 shares and 74,744 shares at December 31, 2020 and December 31, 2019, respectively.

There is no ready market or quoted market values for the stock and as such is classified as restricted stock.

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and (d) the liquidity position of the Federal Home Loan Bank.

Management evaluated the stock and concluded that the stock was not impaired as of December 31, 2019 or 2018 .

Management evaluated the stock and concluded that the stock was not impaired as of December 31, 2020 or December 31, 2019.

Subordinated Debentures

On August 19, 2015, the Company completed a private placement of $ 25.5 million in aggregate principal amount of fixed rate subordinated notes (the “Notes”) to certain institutional investors.

The Notes are non-callable for five years, have a stated maturity of August 15, 2025 , and bear interest at a quarterly pay fixed rate of 5.75% per annum to the maturity date or the early redemption date, August 2020 and annually thereafter.

The Notes are non-callable for five years , have a stated maturity of August 15, 2025, and bear interest at a quarterly pay fixed rate of 5.75 % per annum to the maturity date.

The Notes became callable, in part or in whole, beginning August 2020.

The Notes have been structured to qualify for the Company as Tier 2 capital under regulatory guidelines.

We used the net proceeds for general corporate purposes, which included maintaining liquidity at the holding company, providing equity capital to the Bank to fund balance sheet growth and the Company's working capital needs.

The Notes were assigned an investment grade rating of BBB by Kroll Bond Rating Agency, which was reaffirmed in the third quarter of 2019.

In the third quarter of 2020, the Notes were assigned an investment grade rating of BBB- by Kroll Bond Rating Agency.

The Company recognized $ 1.5 million in interest expense related to its subordinated debt for each of the years ended December 31, 2020, 2019, and 2018.

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Effective January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842).

As of December 31, 2019 , the Company leases real estate for ten branch offices under various operating lease agreements.

The branch leases have maturities which range from 2020 to 2030, some of which include options to extend the lease term.

As of December 31, 2020, the Company leases real estate for nine branch offices under various operating lease agreements.

The branch leases have maturities ranging from 2021 to 2030, some of which include options to extend the lease term.

In addition, the Company’s headquarter building is on land that is leased from the local municipality.

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Management believes that they control the credit risk of these financial instruments through credit approvals, credit limits, monitoring procedures and the receipt of collateral as deemed necessary.

Financial instruments whose contract amounts represented credit risk at December 31, 2019 and 2018 were as follows:

Financial instruments whose contract amounts represented credit risk at December 31, 2020 and December 31, 2019 were as follows:

(In thousands)

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Unused home equity lines of credit 5,029 6,284

$ 237,060 $ 189,742

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract or certain milestones in the case of construction loans or otherwise required collateral under borrowing base limits are met.

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These commitments subject the Company to potential exposure in excess of amounts recorded in the financial statements, and therefore, management maintains a specific reserve for unfunded credit commitments.

This reserve is reported as a component

of accrued expenses and other liabilities in the accompanying Consolidated Balance Sheets.

This reserve is reported as a component of accrued expenses and other liabilities in the accompanying Consolidated Balance Sheets.

The reserve for unfunded commitments totaled $ 90 thousand at December 31, 2020 and $ 120 thousand at December 31, 2019.

The components of income tax expense for the years ended December 31, 2019 , 2018 and 2017 consisted of:

As of December 31, 2020, the Bank had a remaining capital commitment of $ 2.8 million to a Small Business Investment Company ("SBIC").

This lending fund represents a related party business entity associated with one of the Company's Directors.

Contributions to this fund represent an equity investment for the Company.

In addition, as of December 31, 2020, the Bank had a commitment of $ 0.1 million, payable evenly over three years, to a non-profit business.

The components of income tax expense for the years ended December 31, 2020, December 31, 2019 and December 31, 2018 consisted of:

2020 2019 2018

(In thousands)

Current provision:

Federal $ 4,295 $ 4,137 $ 2,251

State 618 313 185

Total current 4,913 4,450 2,436

Deferred provision:

Deferred (credit) provision:

Federal ( 3,071 ) 276 1,284

State ( 445 ) — —

Total deferred ( 3,516 ) 276 1,284

Total income tax expense $ 1,397 $ 4,726 $ 3,720

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Income earned by a PIC is determined in accordance with the statutory requirements for a passive investment company and the dividends paid by the PIC to the Bank are not taxable income for Connecticut income tax purposes.

As a result of the formation of the PIC, the Bank no longer expects to be subject to Connecticut income taxes.

As a result of the formation of the PIC, the Bank is currently not subject to Connecticut income taxes.

State taxes are being recognized for income taxes on income earned in other states.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 was signed into law.

As a result, the corporate tax rate was reduced from 35% to 21% .

Companies were required to recognize the effect of tax law changes in the period of enactment in accordance with GAAP.

As result of the tax law changes the Company recognized a write-down of its deferred tax asset in the amount of $3.3 million for the year ended December 31, 2017 .

A reconciliation of the anticipated income tax expense, computed by applying the statutory federal income tax rate of 21% for the years ended December 31, 2019 and 2018 and 35% for the year ended December 31, 2017 to the income before income taxes, to the amount reported in the consolidated statements of income for the years ended December 31, 2019 , 2018 , and 2017 was as follows:

A reconciliation of the anticipated income tax expense, computed by applying the statutory federal income tax rate of 21% for the years ended December 31, 2020, December 31, 2019 and December 31, 2018 to the income before income taxes, to the amount reported in the consolidated statements of income for the years ended December 31, 2020, December 31, 2019, and December 31, 2018 was as follows:

2020 2019 2018

(In thousands)

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State tax expense, net of federal tax effect 174 223 99

Statutory rate reductions

Income exempt from tax ( 345 ) ( 368 ) ( 403 )

Benefits related to stock compensation

Stock compensation 101 ( 3 ) ( 68 )

Deferred director fees 2 ( 14 ) ( 100 )

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Income tax expense $ 1,397 $ 4,726 $ 3,720

At December 31, 2019 and 2018 , the components of deferred tax assets and liabilities were as follows:

At December 31, 2020 and December 31, 2019, the components of deferred tax assets and liabilities were as follows:

(In thousands)

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Unrealized loss on derivatives 5,246 2,245

Unrealized loss on available for sale securities

Lease liabilities 2,009 2,132

Other 1,311 302

Gross deferred tax assets 15,578 9,407

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Servicing rights 136 192

Purchase accounting adjustments

Unrealized gain on derivatives

Core deposit intangible 17 45

Depreciation 309 210

Unrealized gain on available for sale securities 786 247

Right-of-use-assets 1,986 2,117

Other 270 137

Gross deferred tax liabilities 4,278 3,619

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At December 31,

2020 2019 2018

(In thousands)

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Participants are immediately vested in their contributions and become fully vested in the Company’s contributions after completing five years of service.

The Company expensed $252 thousand , $265 thousand and $257 thousand related to the 401k Plan during the years ended December 31, 2019 , 2018 and 2017 , respectively.

The Company expensed $ 297 thousand, $ 252 thousand and $ 265 thousand related to the 401k Plan during the years ended December 31, 2020, December 31, 2019 and December 31, 2018, respectively.

Earnings Per Share ("EPS")

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For the Years Ended December 31,

2020 2019 2018

(In thousands, except per share data)

Net income $ 5,904 $ 18,216 $ 17,433

Dividends to participating securities (1)

( 70 ) ( 46 ) ( 51 )

Undistributed earnings allocated to participating securities (1)

( 23 ) ( 166 ) ( 178 )

Net income for earnings per share calculation $ 5,811 $ 18,004 $ 17,204

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The Company has stock options or unvested restricted stock outstanding under three equity award plans, which are collectively referred to as the “Plan.” The current plan under which any future issuances of equity awards will be made is the 2012 BNC Financial Group, Inc.

Stock Plan, or the “2012 Plan,” last amended on June 26, 2013.

Stock Plan, or the “2012 Plan,” as amended from time-to-time.

All equity awards made under the 2012 Plan are made by means of an award agreement, which contains the specific terms and conditions of the grant.

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The Company accounts for stock options based on the fair value at the date of grant and records an expense over the vesting period of such awards on a straight line basis.

There were no options granted during the years ended December 31, 2019 , 2018 or 2017 .

There were no options granted during the years ended December 31, 2020, December 31, 2019 or December 31, 2018.

A summary of the status of outstanding stock options at December 31, 2020 is presented below:

December 31, 2020

Shares Weighted

Options outstanding at beginning of period 16,680 $ 16.30

Exercised ( 1,500 ) 11.00

Options outstanding at end of period 15,180 16.82

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Intrinsic value is the amount by which the fair value of the underlying stock exceeds the exercise price of an option on the exercise date.

The total intrinsic value of stock options exercised during the years ended December 31, 2019 , 2018 and 2017 was $40.0 thousand , $0.4 million and $1.1 million, respectively.

The total intrinsic value of stock options exercised during the years ended December 31, 2020, December 31, 2019 and December 31, 2018 was $ 27.0 thousand, $ 40.0 thousand and $ 0.4 million, respectively.

The range of exercise prices for the 15,180 options exercisable at December 31, 2020 was $ 15.00 to $ 17.86 per share.

The weighted average remaining contractual life for these options was 1.7 years at December 31, 2020.

At December 31, 2019 , as all awarded options have vested, all of the outstanding options are exercisable, and the aggregate intrinsic value of these options was $0.2 million .

The following table summarizes information for options, all of which are both outstanding and exercisable, at December 31, 2019 :

Range of Exercise Prices

Contractual Life

Exercise Price

At December 31, 2020, all awarded options have vested, all of the outstanding options are exercisable, and the aggregate intrinsic value of these options was $ 41 thousand.

Restricted stock :

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December 31, 2020

Shares Weighted

Unvested at beginning of period 110,975 (1)

Granted 109,199 (2)

Vested ( 55,080 ) (3)

Forfeited ( 1,725 ) 31.37

Unvested at end of period 163,369 26.22

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(2) Includes 16,000 shares of performance based restricted stock.

(3) Includes 22,651 shares of performance based restricted stock.

The total fair value of restricted stock awards vested during the year ended December 31, 2020 was $ 1.2 million.

The Company’s restricted stock expense for the years ended December 31, 2019 , 2018 and 2017 was $1.0 million , $1.3 million and $0.9 million , respectively.

The Company’s restricted stock expense for the years ended December 31, 2020, December 31, 2019 and December 31, 2018 was $ 1.8 million, $ 1.0 million and $ 1.3 million, respectively.

At December 31, 2020, there was $ 3.3 million of unrecognized stock compensation expense for restricted stock, expected to be recognized over a weighted average period of 1.9 years.

Performance based restricted stock :

On February 20, 2018, the Company issued 11,250 shares of restricted stock with performance and service conditions pursuant to the Company's 2012 Stock Plan.

On March 18, 2019, the Company issued 7,500 shares of restricted stock with performance and service conditions pursuant to the Company’s 2012 Stock Plan.

On December 20, 2019, the Company issued 4,500 shares of restricted stock with performance and service conditions pursuant to the Company's 2012 Stock Plan.

The Company has 15,099 shares of performance based restricted stock outstanding as of December 31, 2020 pursuant to the Company’s 2012 Stock Plan.

The awards vest over a three year service period, provided certain performance metrics are met.

The share quantity, which can range between 0% and 200% , of the grant is dependent on the degree to which the performance metrics are met.

The share quantity that ultimately vests can range between 0 % and 200 % for the 5,499 shares of performance based restricted stock granted prior to December 31, 2019, which is dependent on the degree to which the performance metrics are met.

The Company records an expense over the vesting period based on (a) the probability that the performance metric will be met and (b) the fair market value of the Company’s stock at the date of the grant.

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Changes in fair value of the Company's derivatives are primarily driven by changes in interest rates and recognized in other comprehensive income.

The Company's current derivative positions will cause a decrease to other comprehensive income in a falling interest rate environment and an increase in a rising interest rate environment.

The Company’s total comprehensive income or loss for the years ended December 31, 2019 , 2018 and 2017 is reported in the Consolidated Statements of Comprehensive Income.

The following tables present the changes in accumulated other comprehensive (loss) income by component, net of tax for the years ended December 31, 2019 , 2018 and 2017 :

Company's current derivative positions will cause a decrease to other comprehensive income in a falling interest rate environment and an increase in a rising interest rate environment.

The Company’s total comprehensive income or loss for the years ended December 31, 2020, December 31, 2019 and December 31, 2018 is reported in the Consolidated Statements of Comprehensive Income.

The following tables present the changes in accumulated other comprehensive (loss) income by component, net of tax for the years ended December 31, 2020, December 31, 2019 and December 31, 2018:

Net Unrealized Gain

(Loss) on Available

for Sale Securities

Net Unrealized Gain

for Sale Securities Net Unrealized Gain

(Loss) on Interest

Rate Swaps Total

(In thousands)

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(Loss) on Available

for Sale Securities

Net Unrealized Gain

for Sale Securities Net Unrealized Gain

(Loss) on Interest

Rate Swaps Total

(In thousands)

Balance at December 31, 2018 $ ( 1,379 ) $ 342 $ ( 1,037 )

Other comprehensive loss before reclassifications, net of tax

Other comprehensive income (loss) before reclassifications, net of tax 2,367 ( 8,186 ) ( 5,819 )

Amounts reclassified from accumulated other comprehensive

income, net of tax ( 60 ) ( 600 ) ( 660 )

Net other comprehensive loss

Net other comprehensive income ( loss) 2,307 ( 8,786 ) ( 6,479 )

Balance at December 31, 2019 $ 928 $ ( 8,444 ) $ ( 7,516 )

1 unchanged sentence

(Loss) on Available

for Sale Securities

Net Unrealized Gain

for Sale Securities Net Unrealized Gain

(Loss) on Interest

Rate Swaps Total

(In thousands)

Balance at December 31, 2017 $ 85 $ 1,609 $ 1,694

Other comprehensive (loss) income before reclassifications, net of tax

Other comprehensive loss before reclassifications, net of tax ( 1,289 ) ( 722 ) ( 2,011 )

Amounts reclassified from accumulated other comprehensive income, net of tax ( 175 ) ( 545 ) ( 720 )

Net other comprehensive (loss) income

Amounts reclassified for tax rate change

Net other comprehensive loss ( 1,464 ) ( 1,267 ) ( 2,731 )

Balance at December 31, 2018 $ ( 1,379 ) $ 342 $ ( 1,037 )

1 unchanged sentence

Accumulated Other Comprehensive

Income (Loss) Components

For the Years Ended December 31,

Associated Line Item in the Consolidated

Income (Loss) Components For the Years Ended December 31, Associated Line Item in the Consolidated

Statements Of Income

2020 2019 2018

(In thousands)

Available-for-sale securities:

Unrealized gains on investments

Net gain on sale of available for sale securities

Income tax expense

Unrealized gains on investments $ — $ 76 $ 222 Net gain on sale of available for sale securities

Tax expense — ( 16 ) ( 47 ) Income tax expense

Net of tax $ — $ 60 $ 175

Unrealized (losses) gains on derivatives $ ( 2,094 ) $ 760 $ 690 Interest expense on borrowings

Tax benefit (expense) 488 ( 160 ) ( 145 ) Income tax expense

Net of tax $ ( 1,606 ) $ 600 $ 545

Derivative Instruments

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The Company does not use derivatives for speculative purposes.

As of December 31, 2019 , the Company was a party to seven interest rate swaps, designated as hedging instruments, to add stability to interest expense and to manage its exposure to interest rate movements.

The notional amount for each swap is $25 million and in each case, the Company has entered into pay-fixed LIBOR interest rate swaps to convert rolling 90 days Federal Home Loan Bank advances or brokered deposits.

In addition, as of December 31, 2019 , the Company was a party to two forward-starting interest rate swaps on probable future FHLB advances or brokered deposits.

As of December 31, 2019 , the Company entered into two interest rate swaps not designated as hedging instruments, to minimize interest rate risk exposure with loans to customers.

As of December 31, 2020, the Company was a party to nine interest rate swaps, designated as hedging instruments, to add stability to interest expense and to manage its exposure to the variability of the future cash flows attributable to the contractually specified interest rates.

The notional amount for each swap is $ 25 million and in each case, the Company has entered into pay-fixed interest rate swaps to convert rolling 90 days Federal Home Loan Bank advances or brokered deposits.

As of December 31, 2020, the Company is party to four interest rate swaps not designated as hedging instruments, to minimize interest rate risk exposure with loans to customers.

The Company accounts for all non-borrower related interest rate swaps as effective cash flow hedges.

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Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions.

As the interest rate

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

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

Interest rate swaps with a positive fair value are recorded as other assets and interest rate swaps with a negative fair value are recorded as other liabilities on the Consolidated Balance Sheets.

Information about derivative instruments for the years ended December 31, 2019 and 2018 were as follows:

Information about derivative instruments for the years ended December 31, 2020 and December 31, 2019 were as follows:

December 31, 2020:

Maturity Date

Original Notional

Amount Original

Maturity Maturity Date Received Paid Fair Value

(Dollars in thousands)

Derivatives designated as hedging instruments:

Interest rate swap

January 1, 2020

3-month USD LIBOR

Interest rate swap

August 26, 2020

3-month USD LIBOR

Interest rate swap

3-month USD LIBOR

Interest rate swap

3-month USD LIBOR

Interest rate swap

3-month USD LIBOR

Interest rate swap

January 1, 2034

3-month USD LIBOR

Interest rate swap

December 23, 2022

3-month USD LIBOR

Forward-starting interest rate swap (1)

January 1, 2035

3-month USD LIBOR

Forward-starting interest rate swap (1)

August 26, 2035

3-month USD LIBOR

Interest rate swap $ 25,000 5.0 years July 1, 2021 3-month USD LIBOR 1.22 % $ ( 128 )

Interest rate swap 25,000 3.0 years December 23, 2022 3-month USD LIBOR 1.28 % ( 541 )

Interest rate swap 25,000 7.0 years August 25, 2024 3-month USD LIBOR 2.04 % ( 1,622 )

Interest rate swap 25,000 7.0 years August 25, 2024 3-month USD LIBOR 2.04 % ( 1,618 )

Interest rate swap 25,000 5.0 years April 9, 2025 3-month USD LIBOR 0.55 % ( 224 )

Interest rate swap 25,000 5.0 years April 23, 2025 3-month USD LIBOR 0.54 % ( 212 )

Interest rate swap 25,000 15.0 years January 1, 2034 3-month USD LIBOR 3.01 % ( 6,086 )

Interest rate swap 25,000 15.0 years January 1, 2035 3-month USD LIBOR 3.03 % ( 6,445 )

Interest rate swap 25,000 15.0 years August 26, 2035 3-month USD LIBOR 3.05 % ( 6,691 )

$ 225,000 $ ( 23,567 )

Derivatives not designated as hedging instruments:

Interest rate swap

March 10, 2039

1-month USD LIBOR

Interest rate swap

March 10, 2039

1-month USD LIBOR

Interest rate swap $ 18,500 10.0 years March 10, 2030 1-month USD LIBOR 3.15 % $ ( 648 )

Interest rate swap 18,500 10.0 years March 10, 2030 1-month USD LIBOR 3.15 % 648

Interest rate swap 20,000 20.0 years March 10, 2039 1-month USD LIBOR 5.00 % ( 3,796 )

Interest rate swap 20,000 20.0 years March 10, 2039 1-month USD LIBOR 5.00 % 3,796

Total Derivatives $ 302,000 $ ( 23,567 )

(1) The effective date of the forward-starting interest rate swaps listed above are January 2, 2020 and August 26, 2020, respectively.

(2) Represents an interest rate swap with a commercial banking customer, which is offset by a derivative with a third party.

Accrued interest receivable related to interest rate swaps as of December 31, 2019 totaled $21.6 thousand and is excluded from the fair value presented in the table above.

(1) Represents interest rate swaps with commercial banking customers, which are offset by derivatives with a third party.

Accrued interest payable related to interest rate swaps as of December 31, 2020 totaled $ 0.6 million and is excluded from the fair value presented in the table above.

The fair value of interest rate swaps in a net liability position, including accrued interest, totaled $ 24.2 million as of December 31, 2020.

December 31, 2019:

Maturity Date

Original Notional

Amount Original

Maturity Maturity Date Received Paid Fair Value

(Dollars in thousands)

Derivatives designated as hedging instruments:

Interest rate swap

January 1, 2019

3-month USD LIBOR

Interest rate swap

January 1, 2020

3-month USD LIBOR

Interest rate swap

August 26, 2020

3-month USD LIBOR

Interest rate swap

3-month USD LIBOR

Interest rate swap

August 25, 2024

3-month USD LIBOR

Interest rate swap

August 25, 2024

3-month USD LIBOR

Forward-starting interest rate swap (1)

January 1, 2034

3-month USD LIBOR

Interest rate swap $ 25,000 5.0 years January 1, 2020 3-month USD LIBOR 1.83 % $ —

Interest rate swap 25,000 5.0 years August 26, 2020 3-month USD LIBOR 1.48 % 51

Interest rate swap 25,000 5.0 years July 1, 2021 3-month USD LIBOR 1.22 % 174

Interest rate swap 25,000 7.0 years August 25, 2024 3-month USD LIBOR 2.04 % ( 396 )

Interest rate swap 25,000 7.0 years August 25, 2024 3-month USD LIBOR 2.04 % ( 402 )

Interest rate swap 25,000 15.0 years January 1, 2034 3-month USD LIBOR 3.01 % ( 3,328 )

Interest rate swap 25,000 3.0 years December 23, 2022 3-month USD LIBOR 1.28 % 279

Forward-starting interest rate swap (1)

January 1, 2035

3-month USD LIBOR

25,000 15.0 years January 1, 2035 3-month USD LIBOR 3.03 % ( 3,557 )

Forward-starting interest rate swap (1)

August 26, 2035

3-month USD LIBOR

(1) The effective date of the forward-starting interest rate swaps listed above are January 2, 2019, January 2, 2020 and August 26, 2020,

respectively.

Accrued interest receivable related to interest rate swaps as of December 31, 2018 totaled $0.2 million and is excluded from the fair value presented in the table above.

25,000 15.0 years August 26, 2035 3-month USD LIBOR 3.05 % ( 3,512 )

$ 225,000 $ ( 10,691 )

Derivatives not designated as hedging instruments:

Interest rate swap $ 20,000 20.0 years March 20, 2039 1-month USD LIBOR 5.00 % $ ( 1,762 )

Interest rate swap 20,000 20.0 years March 20, 2039 1-month USD LIBOR 5.00 % 1,762

Total Derivatives $ 265,000 $ ( 10,691 )

(1) The effective date of the forward-starting interest rate swaps listed above are January 2, 2020 and August 26, 2020, respectively.

(2) Represents an interest rate swap with a commercial banking customer, which is offset by a derivative with a third party.

Accrued interest receivable related to interest rate swaps as of December 31, 2019 totaled $ 21.6 thousand and is excluded from the fair value presented in the table above.

The fair value of interest rate swaps including accrued interest totaled $ 10.7 million as of December 31, 2019.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.

Changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt.

The Company expects to reclassify $0.6 million as an increase to interest expense during the next 12 months.

The Company expects to recognize $ 3.7 million in interest expense related to interest rate swap agreements included in other comprehensive income during the next 12 months.

The Company assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged item or transaction.

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The Company's cash flow hedge positions consist of interest rate swap transactions as detailed in the table below:

Effective Date of

Hedging Relationship

Interest Rate Swap

Amount Effective Date of

Hedging Relationship Duration of

Interest Rate Swap Counterparty

(Dollars in thousands)

January 2, 2015

Bank of Montreal

August 26, 2015

Bank of Montreal

August 25, 2017

Bank of Montreal

August 25, 2017

FHN Financial Capital Markets

January 2, 2019

Bank of Montreal

December 27, 2019

Bank of Montreal

$ 25,000 July 1, 2016 5.0 years Bank of Montreal

25,000 August 25, 2017 7.0 years Bank of Montreal

25,000 August 25, 2017 7.0 years FHN Financial Capital Markets

25,000 January 2, 2019 15.0 years Bank of Montreal

25,000 December 27, 2019 3.0 years Bank of Montreal

25,000 January 2, 2020 15.0 years Bank of Montreal

25,000 April 15, 2020 5.0 years Goldman Sachs Bank USA

25,000 April 29, 2020 5.0 years Goldman Sachs Bank USA

25,000 August 26, 2020 15.0 years FHN Financial Capital Markets

This hedge strategy converts the rate of interest on short-term rolling FHLB advances or brokered deposits to long-term fixed interest rates, thereby protecting the Company from interest rate variability.

Changes in the consolidated statements of comprehensive income related to interest rate derivatives designated as hedges of cash flows were as follows for the years ended December 31, 2019 , 2018 and 2017:

December 31, 2019

December 31, 2018

December 31, 2017

Changes in the consolidated statements of comprehensive income (loss) related to interest rate derivatives designated as hedges of cash flows were as follows for the years ended December 31, 2020, December 31, 2019 and 2018:

December 31, 2020 December 31, 2019 December 31, 2018

(In thousands)

Interest rate swap on FHLB advances and brokered deposits:

Unrealized loss recognized in accumulated other comprehensive income

Income tax benefit on items recognized in accumulated other comprehensive income

Interest rate swaps designated as cash flow hedges:

Unrealized loss recognized in accumulated other comprehensive (loss) income before reclassifications $ ( 14,970 ) $ ( 10,361 ) $ ( 914 )

Amounts reclassified from accumulated other comprehensive income 2,094 ( 760 ) ( 690 )

Income tax benefit on items recognized in accumulated other comprehensive (loss) income 3,001 2,335 337

Other comprehensive loss $ ( 9,875 ) $ ( 8,786 ) $ ( 1,267 )

Amount recognized in interest expense on hedged FHLB advances and brokered deposits

The above unrealized gains and losses are reflective of market interest rates as of the respective balance sheet dates.

Generally, a lower interest rate environment will result in a negative impact to comprehensive income whereas a higher interest rate environment will result in a positive impact to comprehensive income.

The following tables summarize gross and net information about derivative instruments that are offset in the Consolidated Balance Sheets at December 31, 2019 and 2018 :

The following tables summarize gross and net information about derivative instruments that are offset in the Consolidated Balance Sheets at December 31, 2020 and December 31, 2019:

December 31, 2020

1 unchanged sentence

Gross Amounts Not Offset in the Consolidated Balance Sheets

Gross Amounts of Recognized Assets(1)

Gross Amounts Offset in the Statement of Financial Position

Net Amounts of Assets presented in the Statement of Financial Position

Financial Instruments

Cash Collateral Received

Gross Amounts of Recognized Assets(1) Gross Amounts Offset in the Statement of Financial Position Net Amounts of Assets presented in the Statement of Financial Position Financial Instruments Cash Collateral Received Net Amount

Derivative Assets $ 4,484 $ — $ 4,484 $ — $ — $ 4,484

3 unchanged sentences

Gross Amounts Not Offset in the Consolidated Balance Sheets

Gross Amounts of Recognized Liabilities(1)

Gross Amounts Offset in the Statement of Financial Position

Net Amounts of Liabilities presented in the Statement of Financial Position

Financial Instruments

Cash Collateral Posted(2)

Gross Amounts of Recognized Liabilities(1) Gross Amounts Offset in the Statement of Financial Position Net Amounts of Liabilities presented in the Statement of Financial Position Financial Instruments Cash Collateral Posted(2) Net Amount

Derivative Liabilities $ 28,673 $ — $ 28,673 $ — $ 28,205 $ 468

(1) Includes accrued interest payable totaling $ 662.0 thousand.

(2) Actual cash collateral posted totaled $13.5 million , total cash collateral posted in the above table represents the total value to net the derivative liabilities to $0 .

December 31, 2019

1 unchanged sentence

Gross Amounts Not Offset in the Consolidated Balance Sheets

Gross Amounts of Recognized Assets(1)

Gross Amounts Offset in the Statement of Financial Position

Net Amounts of Assets presented in the Statement of Financial Position

Financial Instruments

Cash Collateral Received

Derivative Assets $ 2,363 $ — $ 2,363 $ 591 $ — $ 1,772

(1) Includes accrued interest receivable totaling $0.2 million

In addition to cash collateral received the Company has also received investment securities as collateral with a fair market value of $1.2 million as of December 31, 2018.

(1) Includes accrued interest receivable totaling $ 97.1 thousand

December 31, 2019

1 unchanged sentence

Gross Amounts Not Offset in the Consolidated Balance Sheets

Gross Amounts of Recognized Assets

Gross Amounts Offset in the Statement of Financial Position

Net Amounts of Assets presented in the Statement of Financial Position

Financial Instruments

Cash Collateral Received

Gross Amounts of Recognized Assets Gross Amounts Offset in the Statement of Financial Position Net Amounts of Assets presented in the Statement of Financial Position Financial Instruments Cash Collateral Received Net Amount

Derivative Liabilities $ 13,032 $ — $ 13,032 $ 591 $ 12,441 $ —

(1) Includes accrued interest payable totaling $ 75.5 thousand.

(2) Actual cash collateral posted totaled $ 13.5 million, total cash collateral posted in the above table represents the total value to net the derivative liabilities to $ 0 .

Fair Value of Financial Instruments

14 unchanged sentences

Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk.

The carrying values, fair values and placement in the fair value hierarchy of the Company’s financial instruments at December 31, 2019 and 2018 were as follows:

The carrying values, fair values and placement in the fair value hierarchy of the Company’s financial instruments at December 31, 2020 and December 31, 2019 were as follows:

December 31, 2020

Value Level 1 Level 2 Level 3

(In thousands)

1 unchanged sentence

Cash and due from banks $ 405,340 $ 405,340 $ 405,340 $ — $ —

Federal funds sold 4,258 4,258 4,258 — —

Marketable equity securities 2,207 2,207 2,207 — —

3 unchanged sentences

Accrued interest receivable 6,579 6,579 — 6,579 —

FHLB stock 7,860 7,860 — 7,860 —

Servicing asset, net of valuation allowance 628 628 — — 628

Derivative asset 4,444 4,444 — 4,444 —

Assets held for sale 2,613 2,613 — — 2,613

Financial liabilities:

1 unchanged sentence

NOW and money market 771,101 771,101 — 771,101 —

Savings 158,750 158,750 — 158,750 —

Time deposits 627,230 631,891 — — 631,891

5 unchanged sentences

December 31, 2019

Value Level 1 Level 2 Level 3

(In thousands)

1 unchanged sentence

Cash and due from banks $ 78,051 $ 78,051 $ 78,051 $ — $ —

Federal funds sold

Marketable equity securities 2,118 2,118 2,118 — —

3 unchanged sentences

Accrued interest receivable 5,959 5,959 — 5,959 —

FHLB stock 7,475 7,475 — 7,475 —

Servicing asset, net of valuation allowance 978 978 — — 978

3 unchanged sentences

NOW and money market 489,515 489,515 — 489,515 —

Savings 183,729 183,729 — 183,729 —

Time deposits 627,141 632,436 — — 632,436

26 unchanged sentences

The Company also considers the creditworthiness of each counterparty for assets and the creditworthiness of the Company for liabilities.

Assets held for sale:

Assets held for sale (excluding loans) consist of real estate properties that are expected to sell within a year.

The assets are reported at the lower of the carrying amount or fair value less costs to sell.

The fair value represents the price that would be received to sell the asset (the exit price).

Servicing asset (liability):

8 unchanged sentences

Off-balance-sheet instruments:

Loan commitments on which the committed interest rate is less than the current market rate are insignificant at December 31, 2019 and 2018 .

Loan commitments on which the committed interest rate is less than the current market rate are insignificant at December 31, 2020 and December 31, 2019.

Fair Value Measurements

13 unchanged sentences

Financial instruments measured at fair value on a recurring basis

The following table details the financial instruments carried at fair value on a recurring basis at December 31, 2019 and 2018 , and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine the fair value.

The Company had no transfers into or out of Levels 1, 2 or 3 during the years ended December 31, 2019 and 2018 .

The following table details the financial instruments carried at fair value on a recurring basis at December 31, 2020 and December 31, 2019, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine the fair value.

The Company had no transfers into or out of Levels 1, 2 or 3 during the years ended December 31, 2020 and December 31, 2019.

Level 1 Level 2 Level 3

(In thousands)

3 unchanged sentences

Government and agency obligations 10,148 66,730 —

Corporate bonds — 11,727 —

Derivative asset — 4,444 —

4 unchanged sentences

Government and agency obligations 10,031 72,408 —

State agency and municipal obligations

Corporate bonds

Derivative asset — 2,266 —

8 unchanged sentences

The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves.

The Company also considers the creditworthiness of each counterparty for assets and the creditworthiness of the Company for liabilities.

The Company has determined that the majority of the inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy.

2 unchanged sentences

These include assets that are measured at the-lower-of-cost-or market that were recognized at fair value below cost at the end of the period as well as assets that are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment.

The following table details the financial instruments measured at fair value on a nonrecurring basis at December 31, 2019 and 2018 , and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine the fair value:

The following table details the financial instruments measured at fair value on a nonrecurring basis at December 31, 2020 and December 31, 2019, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine the fair value:

Level 1 Level 2 Level 3

(In thousands)

2 unchanged sentences

Servicing asset, net — — 607

Assets held for sale — — 2,613

December 31, 2019

1 unchanged sentence

Servicing asset, net — — 915

The following table presents information about quantitative inputs and assumptions for Level 3 financial instruments carried at fair value on a nonrecurring basis at December 31, 2019 and 2018 :

The following table presents information about quantitative inputs and assumptions for Level 3 financial instruments carried at fair value on a nonrecurring basis at December 31, 2020 and December 31, 2019:

Value Valuation

Methodology Unobservable

(Dollars in thousands)

December 31, 2020

Impaired loans

Discount to appraised value

Discounted cash flows

Discount rate

Servicing asset, net

Discounted cash flows

Discount rate

Impaired loans $ 20,703 Appraisals Discount to appraised value 8.00 – 33.00 %

21,958 Discounted cash flows Discount rate 3.00 – 12.00 %

Servicing asset, net $ 607 Discounted cash flows Discount rate 10.00 %

Prepayment rate 3.00 - 16.00 %

Assets held for sale $ 2,613 Sale & Income Approach Adjustment to valuation and cost to sell N/A

December 31, 2019

Impaired loans

Discount to appraised value

Discounted cash flows

Discount rate

Servicing asset, net

Discounted cash flows

Discount rate

Impaired loans $ 12,300 Appraisals Discount to appraised value 8.00 – 28.00 %

9,747 Discounted cash flows Discount rate 3.60 – 7.00 %

Servicing asset, net $ 915 Discounted cash flows Discount rate 10.00 - 11.00 %

Prepayment rate 3.00 - 19.00 %

13 unchanged sentences

The fair value of servicing assets and liabilities are not measured on an ongoing basis but are subject to fair value adjustments when and if the assets or liabilities are deemed to be impaired.

Assets held for sale:

Assets held for sale (excluding loans) consist of real estate properties that are expected to sell within a year.

The assets are reported at the lower of the carrying amount or fair value less costs to sell.

The fair value represents the price that would be received to sell the asset (the exit price).

Regulatory Matters

13 unchanged sentences

The Bank did exercise its opt-out option and will excludes the unrealized gain (loss) on investment securities component of accumulated other comprehensive income (loss) from regulatory capital.

The Basel III Capital Rules limit a banking organization’s capital distributions and certain discretionary bonus payments to executive officers if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity to risk weighted assets, in addition to the amount necessary to meet its minimum risk-based capital requirements described above.

As of January 1, 2019, the "capital conservation buffer" increased from 1.875% , to 2.5% .

The Basel III Capital Rules limit a banking organization’s capital distributions and certain discretionary bonus payments to executive officers if the banking organization does not hold a “capital conservation buffer” of 2.5 % in addition to the minimum risk based capital requirement.

The “capital conservation buffer” was phased in from January 1, 2016 to January 1, 2019, when the full capital conservation buffer became effective.

Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements.

2 unchanged sentences

The capital amounts and ratios for the Bank and the Company at December 31, 2020 were as follows:

Actual Capital

Minimum Regulatory Capital Required for Capital Adequacy plus Capital Conservation Buffer

Minimum Regulatory Capital to be Well Capitalized Under Prompt Corrective Action Provisions

Actual Capital Minimum Regulatory Capital Required for Capital Adequacy plus Capital Conservation Buffer Minimum Regulatory Capital to be Well Capitalized Under Prompt Corrective Action Provisions

Amount Ratio Amount Ratio Amount Ratio

(Dollars in thousands)

7 unchanged sentences

December 31, 2020

Common Equity Tier 1 Capital to Risk-Weighted Assets

Total Capital to Risk-Weighted Assets

Tier I Capital to Risk-Weighted Assets

Tier I Capital to Average Assets

Common Equity Tier 1 Capital to Risk-Weighted Assets 189,529 10.93 % 121,408 7.00 % N/A N/A

Total Capital to Risk-Weighted Assets 230,696 13.30 % 182,111 10.50 % N/A N/A

Tier I Capital to Risk-Weighted Assets 189,529 10.93 % 147,423 8.50 % N/A N/A

Tier I Capital to Average Assets 189,529 8.34 % 90,916 4.00 % N/A N/A

The capital amounts and ratios for the Bank and Company at December 31, 2019 were as follows:

Actual Capital

Minimum Regulatory Capital Required for Capital Adequacy plus Capital Conservation Buffer

Minimum Regulatory Capital to be Well Capitalized Under Prompt Corrective Action Provisions

Actual Capital Minimum Regulatory Capital Required for Capital Adequacy plus Capital Conservation Buffer Minimum Regulatory Capital to be Well Capitalized Under Prompt Corrective Action Provisions

Amount Ratio Amount Ratio Amount Ratio

(Dollars in thousands)

7 unchanged sentences

December 31, 2019

Common Equity Tier 1 Capital to Risk-Weighted Assets

Total Capital to Risk-Weighted Assets

Tier I Capital to Risk-Weighted Assets

Tier I Capital to Average Assets

Common Equity Tier 1 Capital to Risk-Weighted Assets 187,155 11.37 % 115,253 7.00 % N/A N/A

Total Capital to Risk-Weighted Assets 225,871 13.72 % 172,880 10.50 % N/A N/A

Tier I Capital to Risk-Weighted Assets 187,155 11.37 % 139,950 8.50 % N/A N/A

Tier I Capital to Average Assets 187,155 9.97 % 75,067 4.00 % N/A N/A

Regulatory restrictions on dividends

3 unchanged sentences

Reserve requirements on cash

The Bank is required to maintain a minimum reserve balance of $14.1 million and $16.8 million in the Federal Reserve Bank at December 31, 2019 and 2018 , respectively.

The Bank was not required to maintain a minimum reserve balance in the Federal Reserve Bank (FRB) at December 31, 2020 as the FRB has waived this requirement due to the COVID-19 pandemic.

The Bank was required to maintain a minimum reserve balance of $ 14.1 million in the Federal Reserve Bank at December 31, 2019.

This balance is maintained for clearing purposes in the ordinary course of business and does not represent restricted cash.

2 unchanged sentences

Such loans are transacted at terms including interest rates, similar to those available to unrelated customers.

Changes in loans outstanding to such related parties during the years ending December 31, 2019 and 2018 were as follows:

Changes in loans outstanding to such related parties during the years ending December 31, 2020 and December 31, 2019 were as follows:

(In thousands)

1 unchanged sentence

Additional loans 30,529 —

Repayments ( 3 ) ( 3,573 )

Effect of changes in related parties — ( 5,034 )

Balance, end of year $ 30,592 $ 66

Related party deposits aggregated approximately $45.9 million and $46.7 million at December 31, 2019 and 2018 , respectively.

During the years ended December 31, 2019 and 2018 , the Company paid approximately $26 thousand and $60 thousand , respectively, to related parties for services provided to the Company.

Related party deposits aggregated approximately $ 17.4 million and $ 45.9 million at December 31, 2020 and December 31, 2019, respectively.

During the years ended December 31, 2020 and December 31, 2019, the Company paid approximately $ 16 thousand and $ 26 thousand, respectively, to related parties for services provided to the Company.

The payments were primarily for consulting and legal services.

As of December 31, 2020, the Bank had a $ 0.2 million investment in a SBIC.

This SBIC represents a related party business entity associated with one of the Company's Directors.

Contributions to this fund represent an equity investment for the Company.

Parent Company Only Financial Statements

10 unchanged sentences

Deferred income taxes, net 205 187

Other assets 2,525 2,853

Total assets $ 204,164 $ 210,562

LIABILITIES AND SHAREHOLDERS’ EQUITY

5 unchanged sentences

Year Ended December 31,

2020 2019 2018

(In Thousands)

1 unchanged sentence

Dividend income from subsidiary 24,600 7,500 4,000

Income (loss) before equity in undistributed earnings of subsidiaries

Total income 24,616 7,517 4,015

Expenses 4,325 3,488 3,444

Income before equity in undistributed earnings of subsidiaries 20,291 4,029 571

Equity in undistributed earnings of subsidiaries ( 14,387 ) 14,187 16,862

Net Income $ 5,904 $ 18,216 $ 17,433

Condensed Statements of Cash Flows

For the Years Ended December 31,

2020 2019 2018

(In Thousands)

Cash flows from operating activities

Adjustments to reconcile net income to net cash used by operating activities:

Net income $ 5,904 $ 18,216 $ 17,433

Adjustments to reconcile net income to net cash provided by operating activities:

Equity in undistributed earnings 14,387 ( 14,187 ) ( 16,862 )

Decrease (increase) in other assets

(Increase) decrease in deferred income taxes, net

(Decrease) increase in other liabilities

Decrease in other assets 327 84 6,131

Increase in deferred income taxes, net ( 18 ) ( 57 ) ( 76 )

Decrease in other liabilities ( 654 ) ( 26 ) ( 1,296 )

Stock-based compensation 1,770 1,020 1,290

Amortization of debt issuance costs 52 52 52

Net cash provided by (used in) operating activities

Net cash provided by operating activities 21,768 5,102 6,672

Cash flows from investing activities

6 unchanged sentences

Net cash used in financing activities ( 5,410 ) ( 5,037 ) ( 2,823 )

Net increase (decrease) in cash and cash equivalents

Net increase in cash and cash equivalents 16,362 69 3,855

Cash and cash equivalents:

Beginning of year 6,418 6,349 2,494

End of year $ 22,780 $ 6,418 $ 6,349

Supplemental disclosures of cash flows information:

Cash paid for:

Interest — — —

Income taxes — — —

Quarterly Financial Information of Bankwell Financial Group, Inc.

The following tables present selected quarterly financial information (unaudited):

December 31, 2020

4th Quarter 3rd Quarter 2nd Quarter 1st Quarter

(Dollars in thousands, except per share amounts)

2 unchanged sentences

Net interest income 14,304 13,608 13,637 13,286

Provision (credit) for loan losses

Provision for loan losses 709 712 2,999 3,185

Total noninterest income 621 614 577 1,072

2 unchanged sentences

Income tax expense 177 790 279 151

Net income $ 336 $ 2,991 $ 1,214 $ 1,363

Earnings per common share:

Basic $ 0.04 $ 0.38 $ 0.16 $ 0.17

Diluted $ 0.04 $ 0.38 $ 0.16 $ 0.17

In the fourth quarter of 2020, the Company recognized a $ 3.9 million one-time charge recorded in noninterest expense for office consolidation, vendor contract termination and employee severance costs.

The office consolidation costs, which totaled $ 2.0 million as of December 31, 2020 primarily related to a $ 1.7 million write down of a Bank owned property that is currently being marketed for sale and an impairment charge of $ 0.3 million relating to a right of use asset on a leased property.

The Company expects the office consolidation process to be substantially complete by the end of the second quarter of 2021.

The vendor contract termination cost, which totaled $ 1.1 million as of December 31, 2020 was due to the retirement of a legacy online banking application, which will be replaced with an application to drive commercial deposit growth.

The vendor contract termination cost is expected to be paid prior to the end of the second quarter of 2021.

The vendor contract termination cost is included in data processing expense on the consolidated statements of income.

The employee severance costs, which totaled $ 0.8 million related to a Voluntary Early Retirement Incentive Plan offered to eligible employees and additional severance charges recognized during the fourth quarter of 2020.

A total of $ 24 thousand of employee severance costs has been paid as of December 31, 2020 and the remainder is expected to be paid prior to the end of the first quarter of 2021.

The employee severance costs are included in salaries and employee benefits expense on the consolidated statements of income.

December 31, 2019

4th Quarter 3rd Quarter 2nd Quarter 1st Quarter

(Dollars in thousands, except per share amounts)

2 unchanged sentences

Net interest income 12,882 13,011 13,595 14,273

Provision for loan losses

Provision (credit) for loan losses 310 773 ( 841 ) 195

Total noninterest income 1,048 1,552 1,336 1,308

2 unchanged sentences

Income tax expense 924 1,030 1,441 1,331

Net income $ 3,472 $ 4,088 $ 5,576 $ 5,080

Earnings per common share:

Basic $ 0.44 $ 0.52 $ 0.71 $ 0.65

Diluted $ 0.44 $ 0.52 $ 0.71 $ 0.65

Due to rounding, quarterly earnings per share may not sum to reported annual earnings per share.

During the fourth quarter of 2018, the Company recognized a $6.2 million charge-off attributable to one lending relationship.

Subsequent Events

The Company's Board of Directors declared a $0.14 per share cash dividend, payable February 24, 2020 to shareholders of record on February 14, 2020, representing an 8% increase when compared to the prior quarter's dividend.

The Company's Board of Directors declared a $ 0.14 per share cash dividend, payable February 25, 2021 to shareholders of record on February 15, 2021.

Subsequent to the year ended December 31, 2020, as of February 28, 2021, the Company purchased 65,626 shares of its Common Stock at a weighted average price of $ 21.66 per share.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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-K

Item 8. Financial Statements and Supplementary Data