What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-05-07 compared with 2020-11-04 · 229 added, 345 removed, 860 unchanged (40% of the section changed)

3 unchanged sentences

(In thousands, except share data)

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Cash and due from banks $ 351,194 $ 405,340

4 unchanged sentences

Available for sale investment securities, at fair value 83,218 88,605

Held to maturity investment securities, at amortized cost (fair values of $ 19,816 and $ 18,307 at September 30, 2020 and December 31, 2019, respectively)

Held to maturity investment securities, at amortized cost (fair values of $ 18,550 and $ 20,032 at March 31, 2021 and December 31, 2020, respectively)

16,225 16,078

Total investment securities 101,621 106,890

Loans receivable (net of allowance for loan losses of $ 20,372 at September 30, 2020 and $ 13,509 at December 31, 2019)

Loans receivable (net of allowance for loan losses of $ 20,545 at March 31, 2021 and $ 21,009 at December 31, 2020)

1,650,127 1,601,672

13 unchanged sentences

Advances from the Federal Home Loan Bank 125,000 175,000

Subordinated debentures ($ 25,500 face, less unamortized debt issuance costs of $ 255 and $ 293 at September 30, 2020 and December 31, 2019, respectively)

Subordinated debentures ($ 25,500 face, less unamortized debt issuance costs of $ 229 and $ 242 at March 31, 2021 and December 31, 2020, respectively)

25,271 25,258

4 unchanged sentences

Common stock, no par value;

10,000,000 shares authorized, 7,896,503 and 7,868,803 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

10,000,000 shares authorized, 7,908,630 and 7,919,278 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

120,398 121,338

7 unchanged sentences

(In thousands, except share data)

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Interest and dividend income

8 unchanged sentences

Net interest income 14,655 13,286

Provision for loan losses 712 773 6,896 127

(Credit) provision for loan losses ( 296 ) 3,185

Net interest income after provision for loan losses 14,951 10,101

Noninterest income

Gains and fees from sales of loans 513 —

Bank-owned life insurance 231 243

Service charges and fees 199 217

Gains and fees from sales of loans 27 703 27 1,409

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

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

Other 1,013 612

3 unchanged sentences

Occupancy and equipment 2,406 1,909

Data processing 529 505 1,558 1,568

Professional services 587 711

Director fees 301 235 883 639

Data processing 512 536

FDIC insurance 403 70

Director fees 317 295

Marketing ( 9 ) 162

Amortization of intangibles 18 19 54 57

Other 653 596

14 unchanged sentences

(In thousands)

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Net income $ 5,690 $ 1,363

17 unchanged sentences

Number of Outstanding Shares Common Stock Retained Earnings Accumulated Other Comprehensive Loss Total

Balance at June 30, 2020 7,887,503 $ 120,381 $ 69,712 $ ( 19,733 ) $ 170,360

Net income — — 2,991 — 2,991

Other comprehensive income, net of tax — — — 1,543 1,543

Cash dividends declared ($ 0.14 per share)

— — ( 1,100 ) — ( 1,100 )

Stock-based compensation expense — 473 — — 473

Issuance of restricted stock 9,000 — — — —

Balance at September 30, 2020 7,896,503 $ 120,854 $ 71,603 $ ( 18,190 ) $ 174,267

Number of Outstanding Shares Common Stock Retained Earnings Accumulated Other Comprehensive Loss Total

Balance at June 30, 2019 7,841,103 $ 120,064 $ 63,801 $ ( 6,925 ) $ 176,940

Net income — — 4,088 — 4,088

Other comprehensive loss, net of tax — — — ( 4,276 ) ( 4,276 )

Cash dividends declared ($ 0.13 per share)

— — ( 1,019 ) — ( 1,019 )

Stock-based compensation expense — 279 — — 279

Balance at September 30, 2019 7,841,103 $ 120,343 $ 66,870 $ ( 11,201 ) $ 176,012

See accompanying notes to consolidated financial statements (unaudited)

Bankwell Financial Group, Inc.

Consolidated Statements of Shareholders' Equity – (continued)

(In thousands, except share data)

Number of Outstanding Shares Common Stock Retained Earnings Accumulated Other Comprehensive Loss Total

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

Net income — — 5,690 — 5,690

Other comprehensive loss, net of tax — — — ( 10,674 ) ( 10,674 )

Other comprehensive income, net of tax — — — 7,702 7,702

Cash dividends declared ($ 0.14 per share)

5 unchanged sentences

Repurchase of common stock ( 65,626 ) ( 1,424 ) — — ( 1,424 )

Balance at September 30, 2020 7,896,503 $ 120,854 $ 71,603 $ ( 18,190 ) $ 174,267

Balance at March 31, 2021 7,908,630 $ 120,398 $ 75,418 $ ( 7,873 ) $ 187,943

Number of Outstanding Shares Common Stock Retained Earnings Accumulated Other Comprehensive Loss Total

5 unchanged sentences

Stock-based compensation expense — 385 — — 385

ASU 2016-02 transition adjustment, net of tax

— — 481 — 481

Forfeitures of restricted stock ( 1,425 ) — — — —

2 unchanged sentences

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

Balance at September 30, 2019 7,841,103 $ 120,343 $ 66,870 $ ( 11,201 ) $ 176,012

Balance at March 31, 2020 7,871,419 $ 119,953 $ 69,595 $ ( 19,334 ) $ 170,214

See accompanying notes to consolidated financial statements (unaudited)

2 unchanged sentences

(In thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities

Net income $ 5,690 $ 1,363

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

Net amortization (accretion) of premiums and discounts on investment securities 47 ( 375 )

Provision for loan losses 6,896 127

(Credit) provision for deferred income taxes ( 2,353 ) 330

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

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

Net amortization of premiums and discounts on investment securities 30 7

(Credit) provision for loan losses ( 296 ) 3,185

Provision (credit) for deferred income taxes 185 ( 866 )

Change in fair value of marketable equity securities 36 ( 39 )

6 unchanged sentences

Loss on sale of premises and equipment 6 —

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

Net change in:

3 unchanged sentences

Accrued expenses and other liabilities ( 181 ) ( 1,591 )

Net cash used in operating activities ( 8,495 ) ( 3,073 )

Net cash provided by (used in) operating activities 16,694 ( 16,842 )

Cash flows from investing activities

1 unchanged sentence

Proceeds from principal repayments on held to maturity securities 4,592 58

Net proceeds from sales and calls of available for sale securities 2,200 15,455

Net proceeds from calls of held to maturity securities — 3,900

Purchases of marketable equity securities ( 7 ) ( 132 )

Purchases of available for sale securities ( 17,636 ) ( 12,270 )

Net (increase) decrease in loans ( 20,452 ) 36,807

Purchase of held to maturity securities ( 4,736 ) —

Net increase in loans ( 47,756 ) ( 16,495 )

Loan principal sold from loans not originated for sale ( 3,967 ) —

1 unchanged sentence

Purchases of premises and equipment, net ( 2,646 ) ( 40 )

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

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

Net cash (used in) provided by investing activities ( 26,388 ) 54,049

Reduction of Federal Home Loan Bank stock 1,414 968

Net cash used in investing activities ( 44,297 ) ( 13,329 )

See accompanying notes to consolidated financial statements (unaudited)

2 unchanged sentences

(In thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from financing activities

5 unchanged sentences

Repurchase of common stock ( 1,424 ) ( 1,037 )

Net cash provided by (used in) financing activities 296,315 ( 45,979 )

Net increase in cash and cash equivalents 261,432 4,997

Net cash (used in) provided by financing activities ( 19,990 ) 162,116

Net (decrease) increase in cash and cash equivalents ( 47,593 ) 131,945

Cash and cash equivalents:

6 unchanged sentences

Noncash investing and financing activities:

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

Net change in unrealized gains or losses on available for sale securities ( 1,025 ) 2,224

1 unchanged sentence

Establishment of right-of-use asset and lease liability 9,775 103

ASU 2016-02 transition adjustment, net of tax

See accompanying notes to consolidated financial statements (unaudited)

3 unchanged sentences

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, 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 the Company's loans in Fairfield and New Haven Counties, Connecticut, with branch locations in New Canaan, Stamford, Fairfield, Wilton, Westport, Darien, Norwalk, Hamden and North Haven Connecticut.

The Company has committed to permanently close its North Haven branch as of December 31, 2020.

The Bank provides a range of services to customers primarily concentrated in Connecticut, with the majority of the Company's loans in Fairfield and New Haven Counties and some New York metro area counties.

In addition, the Bank pursues certain types of commercial lending opportunities in other markets outside our primary market, particularly where we have strong existing relationships.

The Bank operates branches in New Canaan, Stamford, Fairfield, Wilton, Westport, Darien, Norwalk, and Hamden Connecticut.

Principles of consolidation

6 unchanged sentences

Material estimates that are particularly susceptible to significant change in the near term relate to the allowance for loan losses, the valuation of derivative instruments, investment securities valuation, evaluation of investment securities for other than temporary impairment and deferred income taxes valuation.

In March 2020, the World Health Organization declared novel coronavirus disease 2019 ("COVID-19") as a global pandemic.

The COVID-19 pandemic has negatively impacted the global and U.S.

Many businesses in the U.S., including those in the markets we serve, were required to close, causing a significant increase in unemployment and loss of revenue for those businesses.

The COVID-19 pandemic influenced the assumptions and estimates used in the consolidated financial statements.

The COVID-19 pandemic had an adverse impact on our earnings, increasing the provision for loan losses when compared to the same period in 2019.

We are unable to estimate the full impact of COVID-19 on our business and operations at this time.

The extent of such impact will depend on future developments, which are highly uncertain, including when COVID-19 can be controlled and abated.

The pandemic could cause us to experience higher credit losses in our loan portfolio, impairment of our goodwill, reduced demand for our products and services, or other negative impacts on our financial position, results of operations, and prospects.

The COVID-19 pandemic has resulted in significant economic disruption affecting our business and the clients we serve.

As vaccination efforts have rapidly expanded, restrictions on businesses are being lifted and a return to more normal economic activity is expected.

However, a significant degree of uncertainty still exists concerning the ultimate duration and magnitude of the COVID-19 pandemic.

Given the ongoing and dynamic nature of the circumstances, it is still difficult to predict the full impact of the COVID-19 pandemic on our business.

The extent of such impact will depend on future developments, including but not limited to the continued roll-out of vaccinations, which play an important role as to when the coronavirus can be controlled and abated.

Basis of consolidated financial statement presentation

4 unchanged sentences

Significant concentrations of credit risk

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.

Many of the Company's activities are with customers located in Connecticut, with the majority of the Company's loans in Fairfield and New Haven Counties and some New York metro area counties, and declines in property values in these areas could significantly impact the Company.

The Company has significant concentrations in commercial real estate loans.

6 unchanged sentences

Reclassification

Certain prior period amounts have been reclassified to conform to the 2020 financial statement presentation.

These reclassifications only changed the reporting categories and did not affect the consolidated results of operations or consolidated financial position of the Company.

Certain prior period amounts may be reclassified to conform to the 2021 financial statement presentation.

These reclassifications only change the reporting categories and do not affect the consolidated results of operations or consolidated financial position of the Company.

Recent Events Concerning the Company’s Financial Position

Under the provisions of the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"), the Company is eligible for an employee retention credit subject to certain criteria.

In connection with the CARES Act, the Company adopted a policy to recognize the employee retention credit when earned and to recognize the credit as other noninterest income in the consolidated statements of income.

Accordingly, the Company recorded a $ 0.9 million employee retention credit during the three months ended March 31, 2021.

Recent accounting pronouncements

23 unchanged sentences

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) :

“Changes to the Disclosure Requirements for Fair Value Measurement.” The amendments in this update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement.

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.

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.

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

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

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

1 unchanged sentence

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.

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.

1 unchanged sentence

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.

Investment Securities

The amortized cost, gross unrealized gains and losses and fair value of available for sale and held to maturity securities at September 30, 2020 were as follows:

September 30, 2020

The amortized cost, gross unrealized gains and losses and fair value of available for sale and held to maturity securities at March 31, 2021 were as follows:

March 31, 2021

Amortized Cost Gross Unrealized Fair Value

2 unchanged sentences

Government and agency obligations

Due from one through five years $ 9,970 $ 219 $ — $ 10,189

Less than one year $ 9,982 $ 130 $ — $ 10,112

Due from five through ten years 7,993 572 — 8,565

19 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

5 unchanged sentences

Total held to maturity securities $ 16,078 $ 3,954 $ — $ 20,032

There were no sales of investment securities during the three or nine months ended September 30, 2020.

The gross realized gains on the sale of investment securities totaled $ 0.1 million for the nine months ended September 30, 2019.

There were no sales of investment securities during the three months ended September 30, 2019.

The gross realized losses on the sale of investment securities totaled $ 17.0 thousand for the nine months ended September 30, 2019.

At September 30, 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.

As of September 30, 2020 and December 31, 2019, the actual durations of the Company's available for sale securities were significantly shorter than the stated maturities.

As of September 30, 2020, the Company held marketable equity securities with a fair value of $ 2.2 million and an amortized cost of $ 2.1 million.

There were no sales of investment securities during the three months ended March 31, 2021 or 2020.

At March 31, 2021 and December 31, 2020, none of the Company's securities were pledged as collateral with the Federal Home Loan Bank ("FHLB") or any other institution.

As of March 31, 2021 and December 31, 2020, the actual durations of the Company's available for sale securities were significantly shorter than the stated maturities.

As of March 31, 2021, 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, 2020, the Company held marketable equity securities with a fair value of $ 2.2 million and an amortized cost of $ 2.1 million.

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

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 September 30, 2020.

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:

There were no investment securities as of December 31, 2020, in which the fair value of the security was less than the amortized cost of the security.

Length of Time in Continuous Unrealized Loss Position

5 unchanged sentences

(Dollars in thousands)

December 31, 2019

March 31, 2021

Government and agency obligations $ 8,710 $ ( 93 ) 1.05 % $ — $ — — % $ 8,710 $ ( 93 ) 1.05 %

Corporate bonds 5,959 ( 41 ) 0.68 — — — 5,959 ( 41 ) 0.68

State agency and municipal obligations 4,430 ( 264 ) 5.63 — — — 4,430 ( 264 ) 5.63

Total investment securities $ 19,099 $ ( 398 ) 2.04 % $ — $ — — % $ 19,099 $ ( 398 ) 2.04 %

There were six investment securities as of March 31, 2021, 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 unrealized losses in this portfolio are considered to be only temporarily impaired.

The Company continually monitors its state agency, municipal and corporate bond portfolios and at this time these portfolios have minimal default risk because state agency, municipal and corporate bonds are all rated investment grade or deemed to be of investment grade quality.

The Company has the intent and ability to retain its investment securities in an unrealized loss position at March 31, 2021 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 September 30, 2020 and December 31, 2019:

(In thousands) September 30, 2020 December 31, 2019

The following table sets forth a summary of the loan portfolio at March 31, 2021 and December 31, 2020:

(In thousands) March 31, 2021 December 31, 2020

Real estate loans:

9 unchanged sentences

Deferred loan origination fees, net ( 2,543 ) ( 2,946 )

Unamortized loan premiums — 2

Loans receivable, net $ 1,650,127 $ 1,601,672

(1) The September 30, 2020 balance includes $ 56.7 million of Paycheck Protection Program ("PPP") loans made under the Coronavirus Aid, Relief and Economic Security Act ("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.

(1) The March 31, 2021 and December 31, 2020 balance includes $ 19.2 million and $ 34.8 million, respectively, of Paycheck Protection Program ("PPP") loans made under the CARES Act.

Lending activities consist of commercial real estate loans, commercial business loans and, to a lesser degree, a variety of consumer loans.

Loans may also be granted for the construction of commercial properties.

40 unchanged sentences

Allowance for loan losses

The following tables set forth the activity in the Company’s allowance for loan losses for the three and nine months ended September 30, 2020 and 2019, by portfolio segment:

The allowance for loan losses as of September 30, 2020 totaled $ 20.4 million, an increase of $ 6.9 million when compared to December 31, 2019.

This increase in loan loss reserves is driven by management’s assessment of increased credit risk relating to economic disruption and uncertainty caused by the COVID-19 pandemic.

Residential Real Estate Commercial Real Estate Construction Commercial Business Consumer Total

(In thousands)

Three Months Ended September 30, 2020

Beginning balance $ 809 $ 14,409 $ 441 $ 4,003 $ — $ 19,662

Charge-offs — — — — ( 4 ) ( 4 )

Recoveries — — — — 2 2

(Credits) provisions ( 95 ) 491 ( 7 ) 321 2 712

Ending balance $ 714 $ 14,900 $ 434 $ 4,324 $ — $ 20,372

Residential Real Estate Commercial Real Estate Construction Commercial Business Consumer Total

(In thousands)

Three Months Ended September 30, 2019

Beginning balance $ 923 $ 9,910 $ 259 $ 2,797 $ 1 $ 13,890

Charge-offs ( 78 ) ( 594 ) — ( 748 ) ( 57 ) ( 1,477 )

Recoveries — — — 2 24 26

(Credits) provisions ( 54 ) 778 2 14 33 773

Ending balance $ 791 $ 10,094 $ 261 $ 2,065 $ 1 $ 13,212

The following tables set forth the activity in the Company’s allowance for loan losses for the three months ended March 31, 2021 and 2020, by portfolio segment:

Residential Real Estate Commercial Real Estate Construction Commercial Business Consumer Total

(In thousands)

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

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

5 unchanged sentences

(In thousands)

Nine Months Ended September 30, 2019

Three Months Ended March 31, 2020

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

1 unchanged sentence

Recoveries — — — 1 1 2

Provisions (credits) 809 ( 874 ) 121 29 42 127

Provisions 55 2,583 142 405 — 3,185

Ending balance $ 785 $ 13,134 $ 466 $ 2,301 $ — $ 16,686

Loans evaluated for impairment and the related allowance for loan losses as of September 30, 2020 and December 31, 2019 were as follows:

Loans evaluated for impairment and the related allowance for loan losses as of March 31, 2021 and December 31, 2020 were as follows:

Portfolio Allowance

(In thousands)

September 30, 2020

March 31, 2021

Loans individually evaluated for impairment:

1 unchanged sentence

Commercial real estate 38,975 5,518

Construction 8,997 —

Commercial business 6,280 94

8 unchanged sentences

Total $ 1,673,215 $ 20,545

As of March 31, 2021, $ 59.3 million of loans were individually evaluated for impairment and $ 3.2 million of these loans were determined not impaired.

Portfolio Allowance

4 unchanged sentences

Commercial real estate 37,579 4,960

Construction 8,997 —

Commercial business 6,507 85

8 unchanged sentences

Total $ 1,625,627 $ 21,009

As of December 31, 2020, $ 57.7 million of loans were individually evaluated for impairment and $ 10.0 million of these loans were determined not impaired.

Credit quality indicators

14 unchanged sentences

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 September 30, 2020 and December 31, 2019:

The following tables present credit risk ratings by loan segment as of March 31, 2021 and December 31, 2020:

Commercial Credit Quality Indicators

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Commercial Real Estate Construction Commercial Business Total Commercial Real Estate Construction Commercial Business Total

7 unchanged sentences

Residential and Consumer Credit Quality Indicators

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Residential Real Estate Consumer Total Residential Real Estate Consumer Total

16 unchanged sentences

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 is met.

The following tables set forth certain information with respect to the Company's loan portfolio delinquencies by portfolio segment as of September 30, 2020 and December 31, 2019:

September 30, 2020

As of March 31, 2021, $ 0.3 million of loans remained on active deferral under the CARES Act.

The following tables set forth certain information with respect to the Company's loan portfolio delinquencies by portfolio segment as of March 31, 2021 and December 31, 2020:

March 31, 2021

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

17 unchanged sentences

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

There were no loans delinquent greater than 90 days and still accruing interest as of September 30, 2020.

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 that particular loan was a result of an administrative delay, as the loan had matured in 2019, as opposed to delinquent payments.

There was one loan, totaling $ 2.7 million, delinquent greater than 90 days and still accruing interest as of March 31, 2021.

The delinquency for this particular loan is a result of an administrative delay in processing a loan modification.

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

Loans on nonaccrual status

The following is a summary of nonaccrual loans by portfolio segment as of September 30, 2020 and December 31, 2019:

September 30, 2020 December 31, 2019

The following is a summary of nonaccrual loans by portfolio segment as of March 31, 2021 and December 31, 2020:

March 31, 2021 December 31, 2020

(In thousands)

2 unchanged sentences

Commercial business 1,803 1,834

Construction 8,997 8,997

Total $ 31,366 $ 33,416

Nonaccrual loans totaled $ 10.2 million at September 30, 2020, of which $ 4.5 million is guaranteed by the SBA.

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 nine months ended September 30, 2020 and 2019 was $ 0.6 million and $ 0.5 million, respectively.

There was no interest income recognized on these loans for the nine months ended September 30, 2020 and $ 44 thousand of interest income was recognized on these loans for the nine months ended September 30, 2019.

At September 30, 2020 and December 31, 2019, there were no commitments to lend additional funds to any borrower on nonaccrual status.

Nonaccrual loans with no specific reserve totaled $ 9.3 million and $ 9.6 million at September 30, 2020 and December 31, 2019, respectively.

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 three months ended March 31, 2021 and 2020 was $ 0.4 million and $ 0.2 million, respectively.

There was no interest income recognized on these loans for the three months ended March 31, 2021 and 2020.

At March 31, 2021 and December 31, 2020, there were no commitments to lend additional funds to any borrower on nonaccrual status.

Nonaccrual loans with no specific reserve totaled $ 16.3 million and $ 17.5 million at March 31, 2021 and December 31, 2020, respectively, as these loans were deemed to be adequately collateralized.

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 asset that is estimated to be impaired.

The following table summarizes impaired loans by portfolio segment as of September 30, 2020 and December 31, 2019:

The following table summarizes impaired loans by portfolio segment as of March 31, 2021 and December 31, 2020:

Carrying Amount Unpaid Principal Balance Associated Allowance

September 30, 2020 December 31, 2019 September 30, 2020 December 31, 2019 September 30, 2020 December 31, 2019

(In thousands)

Impaired loans without a valuation allowance:

Residential real estate $ 4,016 $ 4,020 $ 4,219 $ 4,144 $ — $ —

Commercial real estate 7,312 8,571 7,648 8,859 — —

Commercial business 4,070 3,915 5,302 5,126 — —

Total impaired loans without a valuation allowance 15,398 16,506 17,169 18,129 — —

Impaired loans with a valuation allowance:

Commercial real estate $ 6,253 $ 5,632 $ 6,268 $ 5,647 $ 1,493 $ 372

Commercial business 30 415 30 417 30 134

Total impaired loans with a valuation allowance 6,283 6,047 6,298 6,064 1,523 506

Total impaired loans $ 21,681 $ 22,553 $ 23,467 $ 24,193 $ 1,523 $ 506

The following tables summarizes the average carrying amount of impaired loans and interest income recognized on impaired loans by portfolio segment for the three and nine months ended September 30, 2020 and 2019:

Average Carrying Amount Interest Income Recognized

Three Months Ended September 30, Three Months Ended September 30,

2020 2019 2020 2019

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

(In thousands)

2 unchanged sentences

Commercial real estate 7,854 8,964 8,254 9,282 — —

Construction 8,997 8,997 8,997 8,997 — —

Commercial business 1,798 1,899 2,421 2,512 — —

5 unchanged sentences

Total impaired loans $ 56,061 $ 47,706 $ 57,312 $ 48,870 $ 5,583 $ 5,045

The following table summarizes the average carrying amount of impaired loans and interest income recognized on impaired loans by portfolio segment for the three months ended March 31, 2021 and 2020:

Average Carrying Amount Interest Income Recognized

Nine Months Ended

September 30, Nine Months Ended

September 30,

Three Months Ended March 31, Three Months Ended March 31,

2021 2020 2021 2020

4 unchanged sentences

Commercial business 1,812 3,691 4 3

Construction 8,997 — — —

Total impaired loans without a valuation allowance 23,175 16,426 60 104

12 unchanged sentences

Nonaccrual classification may be removed if the borrower demonstrates compliance with the modified terms for a minimum of six months.

Loans classified as TDRs totaled $ 9.2 million at September 30, 2020 and $ 9.6 million at December 31, 2019.

The following table provides information on loans that were modified as TDRs during the nine months ended September 30, 2020 and 2019.

There were no loans modified as TDRs during the three months ended September 30, 2020 and September 30, 2019.

Loans classified as TDRs totaled $ 9.6 million at March 31, 2021 and $ 9.1 million at December 31, 2020.

The following table provides information on loans that were modified as TDRs during the three months ended March 31, 2021 and 2020.

There were no loans modified as TDRs during the three months ended March 31, 2020.

Number of Loans Pre-Modification Post-Modification

(Dollars in thousands) 2021 2020 2021 2020 2021 2020

Nine Months Ended September 30,

Three Months Ended March 31,

Residential real estate 1 — $ 631 $ — $ 631 $ —

Commercial business — 2 — 465 — 465

Total 1 — $ 631 $ — $ 631 $ —

At September 30, 2020 and December 31, 2019, there were three nonaccrual loans identified as TDRs totaling $ 1.5 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 nine months ended September 30, 2020.

There were two loans modified in a troubled debt restructuring that re-defaulted during the nine months ended September 30, 2019.

The total recorded investment in these loans was $ 1.3 million at September 30, 2019.

The following table provides information on how loans were modified as TDRs during the nine months ended September 30, 2020 and September 30, 2019.

There were no loans modified as TDRs during the three months ended September 30, 2020 and September 30, 2019.

Nine Months Ended September 30,

At March 31, 2021 and December 31, 2020, there were three nonaccrual loans identified as TDRs totaling $ 1.4 million and three nonaccrual loans identified as TDRs totaling $ 1.4 million, respectively.

There were no loans modified in a troubled debt restructuring that re-defaulted during the three months ended March 31, 2021 and March 31, 2020.

The following table provides information on how loans were modified as TDRs during the three months ended March 31, 2021 and March 31, 2020.

There were no loans modified as TDRs during the three months ended March 31, 2020.

Three Months Ended March 31,

(In thousands)

Maturity concession $ — $ 125

Rate and payment concession — 374

Payment concession $ 631 $ —

Total $ 631 $ —

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 December 31, 2020, or sixty days after the national emergency concerning COVID-19 terminates.

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 September 30, 2020, the Company has active COVID-19 related deferrals on 12 loans (excluding SBA loans, which are paid for 6 months by the SBA on behalf of borrowers) totaling $ 32.7 million.

In addition, the Company was evaluating 10 loans, totaling $ 31.3 million, for a second COVID-19 deferral term.

The Company has granted initial three month payment deferral periods and, in some instances, a second three month 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.

Also, the FASB has determined that the TDR guidance in the interagency statement is an appropriate application of ASC 310-40.

As such, all of the Company’s deferrals under the CARES Act are also considered in conformity with US GAAP as to their non-TDR classification.

Shareholders' Equity

The Company has 10,000,000 shares authorized and 7,896,503 shares issued and outstanding at September 30, 2020 and 10,000,000 shares authorized and 7,868,803 shares issued and outstanding at December 31, 2019.

The Company has 10,000,000 shares authorized and 7,908,630 shares issued and outstanding at March 31, 2021 and 10,000,000 shares authorized and 7,919,278 shares issued and outstanding at December 31, 2020.

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

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 September 30, 2020.

The Company’s shareholders are entitled to dividends when and if declared by the Board of Directors out of funds legally available.

7 unchanged sentences

The share repurchase plan does not obligate the Company to acquire any particular amount of Common Stock, and it may be modified or suspended at any time at the Company's discretion.

During the nine months ended September 30, 2020, the Company purchased 58,499 shares of its Common Stock at a weighted average price of $ 17.69 per share.

During the three months ended March 31, 2021, the Company purchased 65,626 shares of its Common Stock at a weighted average price of $ 21.66 per share.

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.

4 unchanged sentences

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 three and nine months ended September 30, 2020 and September 30, 2019 is reported in the Consolidated Statements of Comprehensive Income.

The following tables present the changes in accumulated other comprehensive income (loss) by component, net of tax for the three and nine months ended September 30, 2020 and September 30, 2019:

The Company’s total comprehensive income or loss for the three months ended March 31, 2021 and March 31, 2020 is reported in the Consolidated Statements of Comprehensive Income.

The following tables present the changes in accumulated other comprehensive income (loss) by component, net of tax for the three months ended March 31, 2021 and March 31, 2020:

Net Unrealized Gain (Loss) on Available for Sale Securities Net Unrealized Gain (Loss) on Interest Rate Swaps Total

(In thousands)

Balance at June 30, 2020 $ 3,076 $ ( 22,809 ) $ ( 19,733 )

Balance at December 31, 2020 $ 2,744 $ ( 18,319 ) $ ( 15,575 )

Other comprehensive (loss) income before reclassifications, net of tax ( 798 ) 7,783 6,985

Amounts reclassified from accumulated other comprehensive income, net of tax — 717 717

Net other comprehensive (loss) income ( 798 ) 8,500 7,702

Balance at September 30, 2020 $ 3,000 $ ( 21,190 ) $ ( 18,190 )

Net Unrealized Gain (Loss) on Available for Sale Securities Net Unrealized Gain (Loss) on Interest Rate Swaps Total

(In thousands)

Balance at June 30, 2019 $ 670 $ ( 7,595 ) $ ( 6,925 )

Other comprehensive income (loss) before reclassifications, net of tax 279 ( 4,555 ) ( 4,276 )

Net other comprehensive income (loss) 279 ( 4,555 ) ( 4,276 )

Balance at September 30, 2019 $ 949 $ ( 12,150 ) $ ( 11,201 )

Net Unrealized Gain (Loss) on Available for Sale Securities Net Unrealized Gain (Loss) on Interest Rate Swaps Total

(In thousands)

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

Other comprehensive income (loss) before reclassifications, net of tax 2,072 ( 12,746 ) ( 10,674 )

Net other comprehensive income (loss) 2,072 ( 12,746 ) ( 10,674 )

Balance at September 30, 2020 $ 3,000 $ ( 21,190 ) $ ( 18,190 )

Balance at March 31, 2021 $ 1,946 $ ( 9,819 ) $ ( 7,873 )

Net Unrealized Gain (Loss) on Available for Sale Securities Net Unrealized Gain (Loss) on Interest Rate Swaps Total

4 unchanged sentences

Net other comprehensive income (loss) 1,730 ( 13,548 ) ( 11,818 )

Balance at September 30, 2019 $ 949 $ ( 12,150 ) $ ( 11,201 )

Balance at March 31, 2020 $ 2,658 $ ( 21,992 ) $ ( 19,334 )

The following table provides information for the items reclassified from accumulated other comprehensive income or loss:

Accumulated Other Comprehensive Income Components Three Months Ended September 30, Nine Months Ended September 30, Associated Line Item in the Consolidated Statements of Income

2020 2019 2020 2019

Accumulated Other Comprehensive Income Components Three Months Ended March 31, Associated Line Item in the Consolidated Statements of Income

(In thousands)

Available for sale securities:

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

Tax expense — — — ( 16 ) Income tax expense

Unrealized (losses) gains on derivatives $ ( 922 ) $ ( 62 ) Interest expense on borrowings

Tax benefit (expense) 205 13 Income tax expense

Net of tax $ ( 717 ) $ ( 49 )

7 unchanged sentences

The following table is a reconciliation of earnings available to common shareholders and basic weighted average common shares outstanding to diluted weighted average common shares outstanding, reflecting the application of the two-class method:

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

(In thousands, except per share data)

3 unchanged sentences

Undistributed earnings allocated to participating securities (1)

( 32 ) ( 35 ) ( 34 ) ( 135 )

Net income for earnings per share calculation $ 5,574 $ 1,342

5 unchanged sentences

Diluted earnings per common share $ 0.71 $ 0.17

Awards excluded from the calculation of diluted EPS (3) :

Stock options 15 — — —

(1) Represents dividends paid and undistributed earnings allocated to unvested stock-based awards that contain non-forfeitable rights to dividends.

(2) Represents the effect of the assumed exercise of stock options and the vesting of restricted shares, as applicable, utilizing the treasury stock method.

(3) Represents stock-based awards not included in the computation of potential common shares for purpose of calculating diluted EPS as the exercise prices were greater than the average market price of the Company's common stock, and, therefore, are considered anti-dilutive.

Regulatory Matters

14 unchanged sentences

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.

As of September 30, 2020, the Bank and Company met all capital adequacy requirements to which they are subject.

As of March 31, 2021, the Bank and Company met all capital adequacy requirements to which they are subject.

There are no conditions or events since then that management believes have changed this conclusion.

The capital amounts and ratios for the Bank and the Company at September 30, 2020 and December 31, 2019 were as follows:

The capital amounts and ratios for the Bank and the Company at March 31, 2021 and December 31, 2020 were as follows:

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

2 unchanged sentences

Bankwell Bank

September 30, 2020

March 31, 2021

Common Equity Tier 1 Capital to Risk-Weighted Assets $ 198,353 11.02 % $ 125,966 7.00 % $ 116,968 6.50 %

3 unchanged sentences

Bankwell Financial Group, Inc.

September 30, 2020

March 31, 2021

Common Equity Tier 1 Capital to Risk-Weighted Assets $ 193,175 10.72 % $ 126,184 7.00 % N/A N/A

22 unchanged sentences

Reserve Requirements on Cash

The Bank was not required to maintain a minimum reserve balance in the Federal Reserve Bank (FRB) at September 30, 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.

At September 30, 2020 and December 31, 2019, deposits consisted of the following:

September 30,

The Bank was not required to maintain a minimum reserve balance in the Federal Reserve Bank (FRB) at March 31, 2021 or December 31, 2020 as the FRB has waived this requirement due to the COVID-19 pandemic.

At March 31, 2021 and December 31, 2020, deposits consisted of the following:

2021 December 31, 2020

8 unchanged sentences

Total deposits $ 1,859,808 $ 1,827,316

Maturities of time certificates of deposit as of September 30, 2020 and December 31, 2019 are summarized below:

September 30,

Maturities of time certificates of deposit as of March 31, 2021 and December 31, 2020 are summarized below:

2021 December 31, 2020

4 unchanged sentences

2024 32,716 30,160

2024 30,160 93

Total $ 543,961 $ 627,230

The aggregate amount of individual certificate accounts, including brokered deposits with balances of $250,000 or more, was approximately $ 419.3 million at September 30, 2020 and $ 307.1 million at December 31, 2019.

Brokered certificates of deposits totaled $ 296.0 million at September 30, 2020 and $ 179.8 million at December 31, 2019.

Certificates of deposits from national listing services totaled $ 23.8 million at September 30, 2020 and $ 21.3 million at December 31, 2019.

Brokered money market accounts totaled $ 28.7 million at September 30, 2020 and $ 39.9 million at December 31, 2019.

The following table summarizes interest expense by account type for the three and nine months ended September 30, 2020 and 2019:

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

The aggregate amount of individual certificate accounts, including brokered deposits with balances of $250,000 or more, was approximately $ 299.8 million at March 31, 2021 and $ 353.7 million at December 31, 2020.

Brokered certificates of deposits totaled $ 200.1 million at March 31, 2021 and $ 238.9 million at December 31, 2020.

Certificates of deposits from national listing services totaled $ 4.9 million at March 31, 2021 and $ 18.4 million at December 31, 2020.

Brokered money market accounts totaled $ 53.8 million at March 31, 2021 and $ 13.5 million at December 31, 2020.

The following table summarizes interest expense by account type for the three ended March 31, 2021 and 2020:

Three Months Ended March 31,

(In thousands)

8 unchanged sentences

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.

To date, all equity awards have been in the form of stock options or restricted stock.

At September 30, 2020, there were 633,025 shares reserved for future issuance under the 2012 Plan.

At March 31, 2021, there were 627,527 shares reserved for future issuance under the 2012 Plan.

Stock Options :

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 nine months ended September 30, 2020.

A summary of the status of outstanding stock options for the nine months ended September 30, 2020 is presented below:

Nine Months Ended September 30, 2020

There were no options granted during the three months ended March 31, 2021.

A summary of the status of outstanding stock options for the three months ended March 31, 2021 is presented below:

Three Months Ended March 31, 2021

Number of Shares Weighted Average Exercise Price

4 unchanged sentences

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 share options exercised during the nine months ended September 30, 2020 was $ 27 thousand.

The range of exercise prices for the 15,180 options exercisable at September 30, 2020 was $ 15.00 to $ 17.86 per share.

The weighted average remaining contractual life for these options was 2.0 years at September 30, 2020.

At September 30, 2020, as all awarded options have vested, all of the outstanding options are exercisable, and based on the September 30, 2020 closing market price of $ 14.15 , the outstanding options have no intrinsic value.

The total intrinsic value of share options exercised during the three months ended March 31, 2021 was $ 19 thousand.

The range of exercise prices for the 11,680 options exercisable at March 31, 2021 was $ 15.00 to $ 17.86 per share.

The weighted average remaining contractual life for these options was 1.9 years at March 31, 2021.

At March 31, 2021, as all awarded options have vested, all of the outstanding options are exercisable, and the aggregate intrinsic value of these options was $ 112 thousand.

Restricted Stock :

2 unchanged sentences

Restricted stock awards generally vest over one to five years .

The following table presents the activity for restricted stock for the nine months ended September 30, 2020:

Nine Months Ended September 30, 2020

The following table presents the activity for restricted stock for the three months ended March 31, 2021:

Three Months Ended March 31, 2021

Number of Shares Weighted Average Grant Date Fair Value

6 unchanged sentences

(2) Includes 17,563 shares of performance based restricted stock

The total fair value of restricted stock awards vested during the nine months ended September 30, 2020 was $ 0.6 million.

The Company's restricted stock expense for the nine months ended September 30, 2020 and September 30, 2019 was $ 1.3 million and $ 0.8 million, respectively.

At September 30, 2020, there was $ 3.4 million of unrecognized stock compensation expense for restricted stock, expected to be recognized over a weighted average period of 1.9 years.

The total fair value of restricted stock awards vested during the three months ended March 31, 2021 was $ 0.6 million.

The Company's restricted stock expense for the three months ended March 31, 2021 and March 31, 2020 was $ 0.4 million and $ 0.4 million, respectively.

At March 31, 2021, there was $ 3.9 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 :

The Company has 37,750 shares of performance based restricted stock outstanding as of September 30, 2020 pursuant to the Company’s 2012 Stock Plan.

The Company has 32,662 shares of performance based restricted stock outstanding as of March 31, 2021 pursuant to the Company’s 2012 Stock Plan.

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

The share quantity that ultimately vests can range between 0 % and 200 % for the 21,750 shares granted prior to December 31, 2019, which is dependent on the degree to which the performance metrics are met.

The share quantity that ultimately vests can range between 0 % and 200 %, 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.

2 unchanged sentences

The Company does not use derivatives for speculative purposes.

As of September 30, 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 interest rate movements.

As of March 31, 2021, 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 September 30, 2020, the Company entered into four interest rate swaps not designated as hedging instruments, to minimize interest rate risk exposure with loans to customers.

As of March 31, 2021, the Company entered into 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.

6 unchanged sentences

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 at September 30, 2020 and December 31, 2019 is as follows:

September 30, 2020:

(Dollars in thousands) Notional Amount Original Maturity Maturity Date Received Paid Fair Value Asset (Liability)

Information about derivative instruments at March 31, 2021 and December 31, 2020 is as follows:

As of March 31, 2021

Derivative Assets Derivative Liabilities

Notional Amount Balance Sheet Location Fair Value Notional Amount Balance Sheet Location Fair Value

(In thousands)

Derivatives designated as hedging instruments:

Interest rate swap $ 25,000 5.0 years July 1, 2021 3-month USD LIBOR 1.22 % $ ( 190 )

Interest rate swap 25,000 7.0 years August 25, 2024 3-month USD LIBOR 2.04 % ( 1,742 )

Interest rate swap 25,000 7.0 years August 25, 2024 3-month USD LIBOR 2.04 % ( 1,747 )

Interest rate swap 25,000 15.0 years January 1, 2034 3-month USD LIBOR 3.01 % ( 7,026 )

Interest rate swap 25,000 3.0 years December 23, 2022 3-month USD LIBOR 1.28 % ( 595 )

Interest rate swap 25,000 15.0 years January 1, 2035 3-month USD LIBOR 3.03 % ( 7,472 )

Interest rate swap 25,000 5.0 years April 9, 2025 3-month USD LIBOR 0.55 % ( 279 )

Interest rate swap 25,000 5.0 years April 23, 2025 3-month USD LIBOR 0.54 % ( 267 )

Interest rate swap 25,000 15.0 years August 26, 2035 3-month USD LIBOR 3.05 % ( 7,773 )

$ 225,000 $ ( 27,091 )

Interest rate swaps $ 50,000 Other assets $ 474 $ 175,000 Accrued expenses and other liabilities $ ( 13,107 )

Derivatives not designated as hedging instruments:

Interest rate swap $ 20,000 20.0 years March 10, 2039 1-month USD LIBOR 5.00 % $ ( 4,528 )

Interest rate swap 20,000 20.0 years March 10, 2039 1-month USD LIBOR 5.00 % 4,528

Interest rate swap 18,500 10.0 years March 10, 2030 1-month USD LIBOR 3.15 % ( 946 )

Interest rate swap 18,500 10.0 years March 10, 2030 1-month USD LIBOR 3.15 % 946

Total derivatives $ 302,000 $ ( 27,091 )

Interest rate swaps (1)

$ 38,500 Other assets $ 2,184 $ 38,500 Accrued expenses and other liabilities $ ( 2,184 )

(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 September 30, 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 $ 27.7 million as of September 30, 2020.

December 31, 2019:

(Dollars in thousands) Notional Amount Original Maturity Maturity Date Received Paid Fair Value Asset (Liability)

Accrued interest payable related to interest rate swaps as of March 31, 2021 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 $ 13.2 million as of March 31, 2021.

As of December 31, 2020

Derivative Assets Derivative Liabilities

Notional Amount Balance Sheet Location Fair Value Notional Amount Balance Sheet Location Fair Value

(In thousands)

Derivatives designated as hedging instruments:

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)

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

Forward-starting interest rate swap (1)

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

$ 225,000 $ ( 10,691 )

Interest rate swaps $ — Other assets $ — $ 225,000 Accrued expenses and other liabilities $ ( 23,567 )

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.

Interest rate swaps (1)

$ 38,500 Other assets $ 4,444 $ 38,500 Accrued expenses and other liabilities $ ( 4,444 )

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

Accrued interest receivable 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.

3 unchanged sentences

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.

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

The Company's cash flow hedge positions consist of interest rate swap transactions as detailed in the table below as of September 30, 2020:

Notional Amount Original Effective Date of Hedged Borrowing Duration of Borrowing Counterparty

(Dollars in thousands)

$ 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 (loss) related to interest rate derivatives designated as hedges of cash flows were as follows for the three and nine months ended September 30, 2020 and September 30, 2019:

Three Months Ended September 30, Nine Months Ended September 30,

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 three months ended March 31, 2021 and March 31, 2020:

Three Months Ended March 31,

(In thousands) 2021 2020

Interest rate swap on FHLB advances and brokered deposits:

Unrealized gains (losses) recognized in accumulated other comprehensive income (loss) $ 2,070 $ ( 5,766 ) $ ( 16,400 ) $ ( 15,811 )

Income tax (expense) benefit on items recognized in accumulated other comprehensive income (loss) ( 451 ) 1,211 3,654 3,319

Interest rate swaps designated as cash flow hedges:

Unrealized gain (loss) recognized in accumulated other comprehensive income before reclassifications $ 10,011 $ ( 17,488 )

Amounts reclassified from accumulated other comprehensive income 923 62

Income tax (expense) benefit on items recognized in accumulated other comprehensive income ( 2,434 ) 3,878

Other comprehensive income (loss) $ 8,500 $ ( 13,548 )

Amount recognized in interest expense on hedged FHLB advances and brokered deposits $ 1,010 $ 742 $ 2,844 $ 2,202

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 September 30, 2020 and December 31, 2019:

September 30, 2020

The following tables summarize gross and net information about derivative instruments that are offset in the Consolidated Balance Sheets at March 31, 2021 and December 31, 2020:

March 31, 2021

(In thousands)

2 unchanged sentences

Derivative Assets $ 2,643 $ — $ 2,643 $ — $ — $ 2,643

(1) Includes accrued interest receivable totaling $ 38.4 thousand.

September 30, 2020

(1) Includes accrued interest payable totaling $ 14.0 thousand.

March 31, 2021

(In thousands)

3 unchanged sentences

(1) Includes accrued interest payable totaling $ 575.9 thousand.

(2) Actual cash collateral posted totaled $ 33.7 million, total cash collateral posted in the above table represents the total value to net the derivative liabilities to $ 0 .

December 31, 2020

10 unchanged sentences

(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 .

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 September 30, 2020 and December 31, 2019 were as follows:

September 30, 2020

The carrying values, fair values and placement in the fair value hierarchy of the Company's financial instruments at March 31, 2021 and December 31, 2020 were as follows:

March 31, 2021

Carrying Value Fair Value Level 1 Level 2 Level 3

11 unchanged sentences

Derivative asset 2,658 2,658 — 2,658 —

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

Financial Liabilities:

13 unchanged sentences

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 — —

6 unchanged sentences

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

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

Financial Liabilities:

18 unchanged sentences

Level 3 held to maturity securities represent private placement municipal housing authority bonds for which no quoted market price is available.

The fair value for these securities is estimated using a discounted cash flow model, using discount rates ranging from 3.1 % to 3.5 % as of September 30, 2020 and 3.8 % to 4.1 % as of December 31, 2019.

The fair value for these securities is estimated using a discounted cash flow model, using discount rates ranging from 3.3 % to 4.7 % as of March 31, 2021 and 2.9 % to 3.3 % as of December 31, 2020.

These securities are CRA eligible investments.

7 unchanged sentences

The valuation of the Company’s interest rate swaps is obtained from a third-party pricing service and is determined using a discounted cash flow analysis on the expected cash flows of each derivative.

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 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.

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 September 30, 2020 and December 31, 2019.

Loan commitments on which the committed interest rate is less than the current market rate are insignificant at March 31, 2021 and December 31, 2020.

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 September 30, 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 nine months ended September 30, 2020 and for the year ended December 31, 2019.

The following table details the financial instruments carried at fair value on a recurring basis at March 31, 2021 and December 31, 2020, 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 three months ended March 31, 2021 and for the year ended December 31, 2020.

(In thousands) Level 1 Level 2 Level 3

September 30, 2020:

March 31, 2021:

Marketable equity securities $ 2,178 $ — $ —

8 unchanged sentences

Government and agency obligations 10,148 66,730 —

Corporate bonds — 11,727 —

Derivative asset — 4,444 —

11 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 September 30, 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 following table details the financial instruments measured at fair value on a nonrecurring basis at March 31, 2021 and December 31, 2020, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine the fair value:

(In thousands) Level 1 Level 2 Level 3

September 30, 2020:

March 31, 2021:

Impaired loans $ — $ — $ 50,478

3 unchanged sentences

Servicing asset, net — — 607

The following table presents information about quantitative inputs and assumptions for Level 3 financial instruments carried at fair value on a nonrecurring basis at September 30, 2020 and December 31, 2019:

Assets held for sale — — 2,613

The following table presents information about quantitative inputs and assumptions for Level 3 financial instruments carried at fair value on a nonrecurring basis at March 31, 2021 and December 31, 2020:

Fair Value Valuation Methodology Unobservable Input Range

(Dollars in thousands)

September 30, 2020:

March 31, 2021:

Impaired loans $ 22,651 Appraisals Discount to appraised value 8.00 %

7 unchanged sentences

Prepayment rate 3.00 - 16.00 %

Assets held for sale $ 2,613 Sale & income

approach Adjustment to

valuation and cost

(1) Servicing liabilities totaling $ 23 thousand were valued using a discount rate of 0.3 %.

5 unchanged sentences

Such amounts are generally based on the fair value of the underlying collateral supporting the loan.

Collateral is typically valued using appraisals or other indications of value based on recent comparable sales of similar properties or other assumptions.

Collateral is typically valued using appraisals

or other indications of value based on recent comparable sales of similar properties or other assumptions.

Estimates of fair value based on collateral are generally based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3.

4 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).

Subordinated debentures

5 unchanged sentences

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

The Company recognized $ 0.4 million in interest expense related to its subordinated debt for each of the three month periods ended September 30, 2020 and 2019.

The Company recognized $ 1.1 million in interest expense related to its subordinated debt for each of the nine month periods ended September 30, 2020 and 2019.

The Company recognized $ 0.4 million in interest expense related to its subordinated debt for each of the three month periods ended March 31, 2021 and 2020.

Subsequent Events

On October 28, 2020, the Company’s Board of Directors declared a $ 0.14 per share cash dividend, payable on November 23, 2020 to shareholders of record on November 13, 2020.

Subsequent to September 30, 2020, the Company has committed to permanently close its North Haven branch as of December 31, 2020.

In addition, the Company rolled out a Voluntary Early Retirement Incentive Plan.

On April 28, 2021, the Company’s Board of Directors declared a $ 0.14 per share cash dividend, payable on May 24, 2021 to shareholders of record on May 14, 2021.

Subsequent to March 31, 2021, the Company committed to retire $ 10.0 million of existing subordinated debt on May 15, 2021.

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

What changed 10-Q

Item 1. Financial Statements