What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-11-08 compared with 2021-08-06 · 119 added, 124 removed, 387 unchanged (39% of the section changed)

7 unchanged sentences

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

Through our wholly owned subsidiary, Bankwell Bank, or the Bank, we serve small and medium-sized businesses and retail customers primarily within an area encompassing approximately a 100 mile radius around our branch network.

Through our wholly owned subsidiary, Bankwell Bank, or the Bank, we serve small and medium-sized businesses and retail customers.

We have a history of building long-term customer relationships and attracting new customers through what we believe is our strong customer service and our ability to deliver a diverse product offering.

6 unchanged sentences

Executive Overview

We are focused on being the banking provider of choice in our highly attractive market area, and to serve as a locally based alternative to our larger competitors.

We are focused on being the banking provider of choice and to serve as an alternative to our larger competitors.

We aim to do this through:

15 unchanged sentences

Earnings and Performance Overview

For the three months ended June 30, 2021, we had net interest income of $16.6 million, an increase of $2.9 million or 21.6% when compared to the same period in 2020.

For the six months ended June 30, 2021, we had net interest income of $31.2 million, an increase of $4.3 million, or 16.0% when compared to the same period in 2020.

The increase in net interest income for the three and six months ended June 30, 2021 was primarily due to lower interest expense on deposits when compared to the same periods in 2020.

Noninterest income increased $0.9 million to $1.4 million for the three months ended June 30, 2021 compared to the same period in 2020.

Noninterest income increased $1.7 million to $3.4 million for the six months ended June 30, 2021 compared to the same period in 2020.

The increase in noninterest income was primarily a result of the resumption of SBA loan sales, resulting in $0.8 million of gains and fees from sales of loans for the three months ended June 30, 2021 and $1.3 million of gains and fees from sales of loans for the six months ended June 30, 2021.

Noninterest income for the six months ended June 30, 2021 also benefited from a one-time federal payroll tax credit for COVID-19 of $0.9 million.

For the three months ended September 30, 2021, we had net interest income of $17.7 million, an increase of $4.1 million or 30.2% when compared to the same period in 2020.

For the nine months ended September 30, 2021, we had net interest income of $49.0 million, an increase of $8.4 million, or 20.8% when compared to the same period in 2020.

The increase in net interest income for the three and nine months ended September 30, 2021 was primarily due to lower interest expense on deposits and an increase in interest and fees on loans due to loan growth when compared to the same periods in 2020.

Noninterest income increased $0.8 million to $1.4 million for the three months ended September 30, 2021 compared to the same period in 2020.

Noninterest income increased $2.6 million to $4.8 million for the nine months ended September 30, 2021 compared to the same period in 2020.

The increase in noninterest income was primarily a result of the resumption of loan sales.

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.

As of June 30, 2021, the Company has paid a total of $0.5 million in employee severance costs and a total of $1.1 million in vendor contract termination costs.

As of September 30, 2021, the Company has paid a total of $0.7 million in employee severance costs and a total of $1.1 million in vendor contract termination costs.

Reference the 2020 Form 10-K for further discussion on these charges.

Net income available to common shareholders was $6.2 million, or $0.79 per diluted share, and $1.2 million, or $0.16 per diluted share, for the three months ended June 30, 2021 and 2020, respectively.

Net income available to common shareholders was $11.9 million, or $1.50 per diluted share, and $2.6 million, or $0.33 per diluted share, for the six months ended June 30, 2021 and 2020, respectively.

The increase in net income was primarily impacted by the aforementioned increases in net interest income and noninterest income and a decrease in the provision for loan losses resulting from the absence of elevated reserves recognized in 2020 due to the impact of the COVID-19 pandemic and improving economic trends in 2021.

Returns on average stockholders' equity and average assets for the three months ended June 30, 2021 were 13.06% and 1.11%, respectively, compared to 2.82% and 0.23%, respectively, for the three months ended June 30, 2020.

Returns on average stockholders' equity and average assets for the six months ended June 30, 2021 were 12.87% and 1.07%, respectively, compared to 2.92% and 0.26%, respectively, for the six months ended June 30, 2020.

Net income available to common shareholders was $6.9 million, or $0.87 per diluted share, and $3.0 million, or $0.38 per diluted share, for the three months ended September 30, 2021 and 2020, respectively.

Net income available to common shareholders was $18.8 million, or $2.37 per diluted share, and $5.6 million, or $0.71 per diluted share, for the nine months ended September 30, 2021 and 2020, respectively.

The increase in net income was primarily impacted by the aforementioned increases in net interest income and noninterest income and a decrease in the provision for loan losses resulting from lower loan loss reserves in 2021 when compared to 2020, which saw a large increase in reserves due to the COVID-19 pandemic.

Returns on average stockholders' equity and average assets for the three months ended September 30, 2021 were 14.09% and 1.22%, respectively, compared to 6.87% and 0.55%, respectively, for the three months ended September 30, 2020.

Returns on average stockholders' equity and average assets for the nine months ended September 30, 2021 were 13.29% and 1.12%, respectively, compared to 4.23% and 0.36%, respectively, for the nine months ended September 30, 2020.

Results of Operations

7 unchanged sentences

Premium amortization and discount accretion are included in the respective interest income and interest expense amounts.

FTE net interest income for the three months ended June 30, 2021 and 2020 was $16.6 million and $13.7 million, respectively.

FTE net interest income for the six months ended June 30, 2021 and 2020 was $31.3 million and $27.0 million, respectively.

FTE interest income for the three months ended June 30, 2021 increased by $0.8 million, or 4.0%, to $20.1 million, compared to FTE interest income for the three months ended June 30, 2020.

FTE net interest income for the three months ended September 30, 2021 and 2020 was $17.8 million and $13.7 million, respectively.

FTE net interest income for the nine months ended September 30, 2021 and 2020 was $49.1 million and $40.7 million, respectively.

FTE interest income for the three months ended September 30, 2021 increased by $1.7 million, or 8.9%, to $20.7 million, compared to FTE interest income for the three months ended September 30, 2020.

FTE interest income for the nine months

ended September 30, 2021 increased by $1.1 million, or 1.9%, to $59.6 million, compared to FTE interest income for the nine months ended September 30, 2020.

This increase was due to commercial real estate and commercial business loan growth.

FTE interest income for the six months ended June 30, 2021 decreased by $0.6 million, or 1.4%, to $39.0 million, compared to FTE interest income for the six months ended June 30, 2020.

This decrease was due to lower loan yields as loans re-priced at lower interest rates throughout 2020 and lower yields on cash, partially offset by loan growth.

Interest expense for the three months ended June 30, 2021 decreased by $2.2 million, or 38.2%, compared to interest expense for the three months ended June 30, 2020.

Interest expense for the six months ended June 30, 2021 decreased by $4.9 million, or 38.9%, compared to interest expense for the six months ended June 30, 2020.

Interest expense for the three months ended September 30, 2021 decreased by $2.4 million, or 45.6%, compared to interest expense for the three months ended September 30, 2020.

Interest expense for the nine months ended September 30, 2021 decreased by $7.3 million, or 40.9%, compared to interest expense for the nine months ended September 30, 2020.

This decrease is due to lower interest rates on deposits.

The net interest margin increased by 31 basis points to 3.12% for the three months ended June 30, 2021, compared to the three months ended June 30, 2020 and the net interest margin increased by 4 basis points to 2.93% for the six months ended June 30, 2021, compared to the six months ended June 30, 2020.

The increase in net interest margin was primarily due to lower interest expense on deposits and a greater percentage of noninterest bearing deposits, partially offset by excess liquidity.

The net interest margin increased by 72 basis points to 3.39% for the three months ended September 30, 2021, compared to the three months ended September 30, 2020 and the net interest margin increased by 27 basis points to 3.08% for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020.

The increase in net interest margin was primarily due to lower interest expense on deposits and a greater percentage of noninterest bearing deposits.

In addition, the net interest margin for the three months ended September 30, 2021 was positively impacted by a reduction in excess liquidity when compared to the three months ended September 30, 2020.

Distribution of Assets, Liabilities and Stockholders’ Equity;

Interest Rates and Interest Differential

The following tables present the average balances and yields earned on interest earning assets and average balances and weighted average rates paid on our funding liabilities for the three and six months ended June 30, 2021 and 2020.

Three Months Ended June 30,

Three Months Ended September 30,

(Dollars in thousands) Average Balance Interest Yield / Rate (4)

6 unchanged sentences

Construction 88,728 845 3.73 94,984 1,029 4.24

110,780 1,036 3.70 100,282 1,101 4.34

Commercial business 314,484 3,707 4.61 322,066 3,329 4.04

25 unchanged sentences

(1) Average balances and yields for securities are based on amortized cost.

(2) Includes commercial and residential real estate construction.

(3) The adjustment for securities and loans taxable equivalency amounted to $50 thousand and $52 thousand for the three months ended June 30, 2021 and 2020, respectively.

(2) The adjustment for securities and loans taxable equivalency amounted to $51 thousand and $54 thousand for the three months ended September 30, 2021 and 2020, respectively.

(3) Annualized net interest income as a percentage of earning assets.

(4) Yields are calculated using the contractual day count convention for each respective product type.

Six Months Ended June 30,

Nine Months Ended September 30,

(Dollars in thousands) Average Balance Interest Yield / Rate (4)

6 unchanged sentences

Construction 97,828 2,769 3.73 98,539 3,350 4.47

102,459 1,916 3.72 100,338 2,316 4.57

Commercial business 302,019 10,495 4.58 289,959 10,017 4.54

25 unchanged sentences

(1) Average balances and yields for securities are based on amortized cost.

(2) Includes commercial and residential real estate construction.

(3) The adjustment for securities and loans taxable equivalency amounted to $100 thousand and $105 thousand for the six months ended June 30, 2021 and 2020, respectively.

(2) The adjustment for securities and loans taxable equivalency amounted to $151 thousand and $159 thousand for the nine months ended September 30, 2021 and 2020, respectively.

(3) Annualized net interest income as a percentage of earning assets.

7 unchanged sentences

Changes attributable to both volume and rate have been allocated proportionately based on the relationship of the absolute dollar amount of change in each.

Three Months Ended June 30, 2021 vs 2020

Increase (Decrease) Six Months Ended June 30, 2021 vs 2020

Three Months Ended September 30, 2021 vs 2020

Increase (Decrease) Nine Months Ended September 30, 2021 vs 2020

Increase (Decrease)

23 unchanged sentences

The provision for loan losses is charged against earnings in order to maintain our allowance for loan losses and reflects management’s best estimate of probable losses inherent in our loan portfolio as of the balance sheet date.

The credit for loan losses for the three months ended June 30, 2021 was $20.0 thousand compared to a provision for loan losses of $3.0 million for the three months ended June 30, 2020.

The credit for loan losses for the six months ended June 30, 2021 was $0.3 million compared to a provision for loan losses of $6.2 million for the six months ended June 30, 2020.

The decrease in the provision for loan losses for the three and six months ended June 30, 2021 was primarily due to the absence of elevated reserves recognized in 2020 due to the impact of the COVID-19 pandemic and improving economic trends in 2021.

The provision for loan losses for the three months ended September 30, 2021 was $0.1 million compared to a provision for loan losses of $0.7 million for the three months ended September 30, 2020.

The credit for loan losses for the nine months ended September 30, 2021 was $0.2 million compared to a provision for loan losses of $6.9 million for the nine months ended September 30, 2020.

The decrease in the provision for loan losses for the three and nine months ended September 30, 2021 was driven by lower loan loss reserves in 2021 when compared to 2020, which saw a large increase in reserves due to the COVID-19 pandemic.

Noninterest Income

Noninterest income is a component of our revenue and is comprised primarily of fees generated from deposit relationships with our customers, fees generated from sales and referrals of loans, income earned on bank-owned life insurance and gains on sales of investment securities.

The following tables compare noninterest income for the three and six months ended June 30, 2021 and 2020:

The following tables compare noninterest income for the three and nine months ended September 30, 2021 and 2020:

Three Months Ended

June 30, Change

September 30, Change

(Dollars in thousands) 2021 2020 $ %

Gains and fees from sales of loans $ 814 $ — $ 814 N/A

Gains and fees from sales of loans $ 924 $ 27 $ 897 3,322.2 %

Bank-owned life insurance 271 242 29 12.0

Service charges and fees 199 190 9 4.7

Gain on sale of other real estate owned, net — 19 (19) (100.0)

Other 43 136 (93) (68.4)

Total noninterest income $ 1,437 $ 614 $ 823 134.0 %

Six Months Ended

June 30, Change

Nine Months Ended

September 30, Change

(Dollars in thousands) 2021 2020 $ %

Gains and fees from sales of loans $ 1,327 $ — $ 1,327 N/A

Gains and fees from sales of loans $ 2,251 $ 27 $ 2,224 8,237.0 %

Bank-owned life insurance 753 726 27 3.7

Service charges and fees 615 578 37 6.4

Gain on sale of other real estate owned, net — 19 (19) (100.0)

Other 1,213 913 300 32.9

Total noninterest income $ 4,832 $ 2,263 $ 2,569 113.5 %

Noninterest income increased by $0.9 million to $1.4 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.

Noninterest income increased by $1.7 million to $3.4 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

The increase in noninterest income was driven by resumed SBA loan sales, totaling $0.8 million and $1.3 million for the three and six months ended June 30, 2021, respectively.

In addition, the increase in noninterest income for the six months ended June 30, 2021 was impacted by a one-time federal payroll tax credit for COVID-19 of $0.9 million.

Noninterest income increased by $0.8 million to $1.4 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020.

Noninterest income increased by $2.6 million to $4.8 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

The increase in noninterest income was driven by resumed loan sales, totaling $0.9 million and $2.3 million for the three and nine months ended September 30, 2021, respectively.

In addition, the increase in noninterest income for the nine months ended September 30, 2021 was impacted by a one-time federal payroll tax credit for COVID-19 of $0.9 million, partially offset by $0.4 million of non-recurring interest rate swap fees recognized during the nine months ended September 30, 2020.

Noninterest Expense

The following tables compare noninterest expense for the three and six months ended June 30, 2021 and 2020:

The following tables compare noninterest expense for the three and nine months ended September 30, 2021 and 2020:

Three Months Ended

June 30, Change

September 30, Change

(Dollars in thousands) 2021 2020 $ %

8 unchanged sentences

Total noninterest expense $ 10,370 $ 9,729 $ 641 6.6 %

Six Months Ended

June 30, Change

Nine Months Ended

September 30, Change

(Dollars in thousands) 2021 2020 $ %

8 unchanged sentences

Total noninterest expense $ 30,060 $ 29,110 $ 950 3.3 %

Noninterest expense increased by $0.3 million to $10.1 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.

The increase in noninterest expense was primarily driven by an increase in occupancy and equipment expense and data processing expense, partially offset by a decrease in salaries and employee benefits expense.

Noninterest expense increased by $0.3 million to $19.7 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

The increase in noninterest expense was primarily driven by an increase in occupancy and equipment expense, FDIC insurance expense, and data processing expense, partially offset by a decrease in salaries and employee benefits expense.

For the three months ended June 30, 2021 noninterest expense included $0.8 million of non-recurring items relating to office consolidation expenses ($0.4 million), COVID-19 cleaning protocols ($0.3 million) and the implementation of new online banking software ($0.1 million).

See below for more information on what specific areas of non-interest expense were impacted by these non-recurring items.

Occupancy and equipment expense totaled $3.3 million for the three months ended June 30, 2021, an increase of $1.0 million when compared to the same period in 2020.

Occupancy and equipment expense totaled $5.7 million for the six months ended June 30, 2021, an increase of $1.5 million when compared to the same period in 2020.

The increase in occupancy and equipment expense was primarily due to additional one-time charges of $0.4 million associated with office consolidation activity (previously disclosed in the fourth quarter of 2020) and an increase in lease expense resulting from the commencement of the lease on the Company's new headquarters building.

In addition, the increase in occupancy and equipment expense for the six months ended June 30, 2021 was due to additional cleaning costs associated with precautions taken to prevent the spread of COVID-19.

The additional cleaning protocols have been curtailed as of June 30, 2021.

Data processing expense totaled $0.8 million for the three months ended June 30, 2021, an increase of $0.3 million when compared to the same period in 2020.

Data processing expense totaled $1.3 million for the six months ended June 30, 2021, an increase of $0.3 million when compared to the same period in 2020.

Noninterest expense increased by $0.6 million to $10.4 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020.

The increase in noninterest expense was primarily driven by an increase in occupancy and equipment expense and other expense, partially offset by a decrease in salaries and employee benefits expense.

Noninterest expense increased by $1.0 million to $30.1 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

The increase in noninterest expense was primarily driven by an increase in occupancy and equipment expense, data processing expense, FDIC insurance expense and other expense, partially offset by a decrease in salaries and employee benefits expense.

Occupancy and equipment expense totaled $2.6 million for the quarter ended September 30, 2021, an increase of $0.3 million when compared to the same period in 2020.

Occupancy and equipment expense totaled $8.3 million for the nine months ended September 30, 2021, an increase of $1.9 million when compared to the same period in 2020.

The increase in occupancy and equipment expense was primarily due to additional one-time charges associated with office consolidation activity (previously disclosed in the fourth quarter of 2020) and an increase in lease expense resulting from the commencement of the lease on the Company's new headquarters building.

Data processing expense totaled $2.0 million for the nine months ended September 30, 2021, an increase of $0.4 million when compared to the same period in 2020.

The increase in data processing expense was primarily due to $0.4 million in costs associated with the conversion to a new online banking system implemented in the second quarter of 2021.

FDIC insurance expense totaled $0.7 million for the six months ended June 30, 2021, an increase of $0.4 million when compared to the same period in 2020.

The increase in FDIC insurance expense was due to the absence of available FDIC insurance credits recognized in the first quarter of 2020 and elevated expense due to liquidity driven balance sheet growth in 2021.

Salaries and employee benefits expense totaled $4.0 million for the three months ended June 30, 2021, a decrease of $1.3 million when compared to the same period in 2020.

Salaries and employee benefits expense totaled $8.7 million for the six months ended June 30, 2021, a decrease of $1.9 million when compared to the same period in 2020.

FDIC insurance expense totaled $1.0 million for the nine months ended September 30, 2021, an increase of $0.5 million when compared to the same period in 2020.

Salaries and employee benefits expense totaled $4.8 million for the quarter ended September 30, 2021, a decrease of $0.5 million when compared to the same period in 2020.

Salaries and employee benefits expense totaled $13.5 million for the nine months ended September 30, 2021, a decrease of $2.4 million when compared to the same period in 2020.

The decrease in salaries and employee benefits expense was primarily driven by a decrease in full time equivalent employees as a direct result of the Voluntary Early Retirement Incentive Plan offered to eligible employees and other employee actions taken during the fourth quarter of 2020.

Full time equivalent employees totaled 125 at June 30, 2021 compared to 152 for the same period in 2020.

Average full time equivalent employees totaled 124 for the six months ended June 30, 2021 compared to 154 for the same period in 2020.

Salaries and employee benefits expense was also favorably impacted as higher loan originations enabled the bank to defer a greater amount of expenses.

Finally, salaries and employee benefits expense also benefited by a one-time deferral of $0.3 million in costs associated with a new online banking system implemented in the second quarter of 2021, partially offsetting the increase in data processing expenses relating to the same project described above.

Income tax expense for the three months ended June 30, 2021 and 2020 totaled $1.8 million and $0.3 million, respectively.

The effective tax rates for the three months ended June 30, 2021 and 2020 were 22.0% and 18.7%, respectively.

Income tax expense for the six months ended June 30, 2021 and 2020 totaled $3.3 million and $0.4 million, respectively.

The effective tax rates for the six months ended June 30, 2021 and 2020 were 21.9% and 14.3%, respectively.

The increase in the effective tax rates was primarily attributable to the absence of a discrete benefit recognized in the first quarter of 2020, and to a lesser extent, other permanent differences.

Full time equivalent employees totaled 134 at September 30, 2021 compared to 142 for the same period in 2020.

Average full time equivalent employees totaled 127 for the nine months ended September 30, 2021 compared to 151 for the same period in 2020.

In addition, salaries and employee benefits expense also benefited by one-time deferrals of $0.6 million for the nine months ended September 30, 2021 in costs associated with a new online banking and other systems.

Income tax expense for the three months ended September 30, 2021 and 2020 totaled $1.8 million and $0.8 million, respectively.

The effective tax rates for the three months ended September 30, 2021 and 2020 were 20.8% and 20.9%, respectively.

Income tax expense for the nine months ended September 30, 2021 and 2020 totaled $5.1 million and $1.2 million, respectively.

The effective tax rates for the nine months ended September 30, 2021 and 2020 were 21.5% and 18.0%, respectively.

The increase in the effective tax rate for the nine months ended September 30, 2021 was primarily attributable to the absence of a discrete benefit recognized in the first quarter of 2020, and to a lesser extent, other permanent differences.

The impact of these items on the effective tax rate varies with changes in pre-tax income.

Financial Condition

At June 30, 2021 total assets were $2.3 billion, a $16.1 million, or a 0.7% increase compared to December 31, 2020.

The change in assets remained relatively flat as the increase in loans were offset by a decrease in excess liquidity.

Gross loans totaled $1.7 billion at June 30, 2021, an increase of $112.9 million compared to December 31, 2020.

Excluding PPP loans, gross loans increased by $139.8 million at June 30, 2021 when compared to December 31, 2020.

Deposits totaled $1.9 billion at June 30, 2021, compared to $1.8 billion at December 31, 2020.

Total shareholders’ equity at June 30, 2021 and December 31, 2020 was $190.8 million and $176.6 million, respectively.

The increase in shareholders' equity was primarily driven by (i) net income of $11.9 million for the six months ended June 30, 2021 and (ii) a $5.4 million favorable impact to accumulated other comprehensive income driven by fair value marks related to hedge positions involving interest rate swaps.

At September 30, 2021 total assets were $2.2 billion, a $27.1 million decrease, or 1.2%, compared to December 31, 2020.

The change in assets remained relatively flat as the decrease in excess liquidity was offset by an increase in loans.

Gross loans totaled $1.8 billion at September 30, 2021, an increase of $198.9 million compared to December 31, 2020.

Excluding PPP loans, gross loans increased by $232.1 million at September 30, 2021 when compared to December 31, 2020.

Deposits totaled $1.9 billion at September 30, 2021, compared to $1.8 billion at December 31, 2020.

Total shareholders’ equity at September 30, 2021 and December 31, 2020 was $196.2 million and $176.6 million, respectively.

The increase in shareholders' equity was primarily driven by (i) net income of $18.8 million for the nine months ended September 30, 2021 and (ii) a $6.2 million favorable impact to accumulated other comprehensive income driven by fair value marks related to hedge positions involving interest rate swaps.

The Company's interest rate swaps are used to hedge interest rate risk.

4 unchanged sentences

Our loan portfolio is the largest category of our earning assets.

Total loans before deferred loan fees and the allowance for loan losses were $1.74 billion at June 30, 2021 and $1.63 billion at December 31, 2020.

Total gross loans increased $112.9 million as of June 30, 2021 compared to the year ended December 31, 2020.

Total loans before deferred loan fees and the allowance for loan losses were $1.82 billion at September 30, 2021 and $1.63 billion at December 31, 2020.

Total gross loans increased $198.9 million as of September 30, 2021 compared to the year ended December 31, 2020.

The following table compares the composition of our loan portfolio for the dates indicated:

(In thousands) At June 30, 2021 At December 31, 2020 Change

(In thousands) At September 30, 2021 At December 31, 2020 Change

Real estate loans:

30 unchanged sentences

The following table presents nonperforming assets and additional asset quality data for the dates indicated:

(In thousands) At June 30, 2021 At December 31, 2020

(In thousands) At September 30, 2021 At December 31, 2020

Nonaccrual loans:

10 unchanged sentences

Total past due loans to total gross loans 1.69 % 0.93 %

Nonperforming assets totaled $27.3 million and represented 1.20% of total assets at June 30, 2021, compared to $33.4 million and 1.48% of total assets at December 31, 2020.

Nonaccrual loans totaled $27.3 million at June 30, 2021 and $33.4 million at December 31, 2020.

Nonperforming assets totaled $28.9 million and represented 1.30% of total assets at September 30, 2021, compared to $33.4 million and 1.48% of total assets at December 31, 2020.

Nonaccrual loans totaled $28.9 million at September 30, 2021 and $33.4 million at December 31, 2020.

The decrease in nonaccrual loans was partially a result of charge-offs primarily consisting of previously reserved commercial real estate exposure.

The Bank continues work-out activity on its nonaccrual loan population.

There was no other real estate owned at June 30, 2021 or December 31, 2020.

There was no other real estate owned at September 30, 2021 or December 31, 2020.

Allowance for Loan Losses

8 unchanged sentences

The following table presents the activity in our allowance for loan losses and related ratios for the dates indicated:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended

September 30, Nine Months Ended

September 30,

(Dollars in thousands) 2021 2020 2021 2020

8 unchanged sentences

Net charge-offs (3) (2) (4,024) (33)

(Credit) provision charged to earnings (20) 2,999 (316) 6,184

Provision (credit) charged to earnings 134 712 (182) 6,896

Balance at end of period $ 16,803 $ 20,372 $ 16,803 $ 20,372

1 unchanged sentence

Allowance for loan losses to total gross loans 0.92 % 1.25 % 0.92 % 1.25 %

At June 30, 2021, our allowance for loan losses was $16.7 million and represented 0.96% of total gross loans, compared to $21.0 million, or 1.29% of total gross loans, at December 31, 2020.

At September 30, 2021, our allowance for loan losses was $16.8 million and represented 0.92% of total gross loans, compared to $21.0 million, or 1.29% of total gross loans, at December 31, 2020.

The following table presents the allocation of the allowance for loan losses and the percentage of these loans to total loans for the dates indicated:

At June 30, 2021 At December 31, 2020

At September 30, 2021 At December 31, 2020

(Dollars in thousands) Amount Percent of Loan Portfolio Amount Percent of Loan Portfolio

5 unchanged sentences

Total allowance for loan losses $ 16,803 100.00 % $ 21,009 100.00 %

The allocation of the allowance for loan losses at June 30, 2021 reflects our assessment of credit risk and probable loss within each portfolio.

We believe that the level of the allowance for loan losses at June 30, 2021 is appropriate to cover probable losses.

The allocation of the allowance for loan losses at September 30, 2021 reflects our assessment of credit risk and probable loss within each portfolio.

We believe that the level of the allowance for loan losses at September 30, 2021 is appropriate to cover probable losses.

Reserve for Unfunded Commitments

4 unchanged sentences

Investment Securities

At June 30, 2021, the carrying value of our investment securities portfolio totaled $109.3 million and represented 4.8% of total assets, compared to $106.9 million, or 4.7% of total assets, at December 31, 2020.

The net unrealized gain position on our investment portfolio at June 30, 2021 was $5.7 million and included gross unrealized losses of $0.3 million.

At September 30, 2021, the carrying value of our investment securities portfolio totaled $105.9 million and represented 4.8% of total assets, compared to $106.9 million, or 4.7% of total assets, at December 31, 2020.

The net unrealized gain position on our investment portfolio at September 30, 2021 was $5.0 million and included gross unrealized losses of $0.4 million.

The net unrealized gain position on our investment portfolio at December 31, 2020 was $7.5 million and included no gross unrealized losses.

Deposit Activities and Other Sources of Funds

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

(Dollars in thousands) Amount Percent Amount Percent

5 unchanged sentences

Total deposits $ 1,882,823 100.00 % $ 1,827,316 100.00 %

Total deposits were $1.9 billion at June 30, 2021, an increase of $112.0 million, from the balance at December 31, 2020.

Brokered certificates of deposits totaled $200.1 million at June 30, 2021 and $238.9 million at December 31, 2020.

Certificates of deposits from national listing services totaled $1.1 million at June 30, 2021 and $18.4 million at December 31, 2020.

Brokered money market accounts totaled $104.0 million at June 30, 2021 and $13.5 million at December 31, 2020.

Brokered deposits represent brokered certificates of deposit, brokered money market accounts and one way buy Certificate of Deposit Account Registry Service (CDARS), and one way buy Insured Cash Sweep (ICS).

At June 30, 2021 and December 31, 2020, time deposits with a denomination of $100 thousand or more, including CDARS and brokered deposits, totaled $400.7 million and $519.8 million, respectively, maturing during the periods indicated in the table below:

(Dollars in thousands) June 30, 2021 December 31, 2020

Total deposits were $1.9 billion at September 30, 2021, an increase of $55.5 million, from the balance at December 31, 2020.

Brokered certificates of deposits totaled $200.1 million at September 30, 2021 and $238.9 million at December 31, 2020.

were no certificates of deposits from national listing services at September 30, 2021.

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

Brokered money market accounts totaled $104.0 million at September 30, 2021 and $13.5 million at December 31, 2020.

Brokered deposits represent brokered certificates of deposit, brokered money market accounts, one way buy Certificate of Deposit Account Registry Service (CDARS), and one way buy Insured Cash Sweep (ICS).

At September 30, 2021 and December 31, 2020, time deposits with a denomination of $100 thousand or more, including CDARS and brokered deposits, totaled $348.3 million and $519.8 million, respectively, maturing during the periods indicated in the table below:

(Dollars in thousands) September 30, 2021 December 31, 2020

Within 3 months $ 92,640 $ 141,784

4 unchanged sentences

We utilize advances from the Federal Home Loan Bank of Boston, or FHLB, as part of our overall funding strategy and to meet short-term liquidity needs, and to a lesser degree, manage interest rate risk arising from the difference in asset and liability maturities.

Total FHLB advances were $75.0 million and $175.0 million at June 30, 2021 and December 31, 2020, respectively.

Total FHLB advances were $80.0 million and $175.0 million at September 30, 2021 and December 31, 2020, respectively.

The decrease of $95.0 million, or 54.3%, primarily reflects the substitution of lower cost brokered deposits in lieu of FHLB advances totaling $75.0 million and a permanent reduction in wholesale funding totaling $20.0 million.

1 unchanged sentence

In accordance with agreements with the FHLB, the qualified collateral must be free and clear of liens, pledges and encumbrances.

At June 30, 2021, the Bank had pledged $778.3 million of eligible loans as collateral to support borrowing capacity at the FHLB of Boston.

As of June 30, 2021, the Bank had immediate availability to borrow an additional $411.5 million based on qualified collateral.

At September 30, 2021, the Bank had pledged $719.1 million of eligible loans as collateral to support borrowing capacity at the FHLB of Boston.

As of September 30, 2021, the Bank had immediate availability to borrow an additional $359.2 million based on qualified collateral.

Liquidity and Capital Resources

13 unchanged sentences

The Company anticipates that it will have sufficient funds available to meet its current loan and other commitments.

As of June 30, 2021, the Company had cash and cash equivalents of $301.9 million and available-for-sale securities of $91.0 million.

At June 30, 2021, outstanding commitments to originate loans totaled $85.7 million and undisbursed funds from approved lines of credit, home equity lines of credit and secured commercial lines of credit totaled $212.9 million.

As of September 30, 2021, the Company had cash and cash equivalents of $177.5 million and available-for-sale securities of $87.6 million.

At September 30, 2021, outstanding commitments to originate loans totaled $137.0 million and undisbursed funds from approved lines of credit, home equity lines of credit and secured commercial lines of credit totaled $268.3 million.

Capital Resources

Shareholders’ equity totaled $190.8 million as of June 30, 2021, an increase of $14.2 million compared to December 31, 2020, primarily a result of (i) net income of $11.9 million for the six months ended June 30, 2021 and (ii) a $5.4 million favorable impact to accumulated other comprehensive income driven by fair value marks related to hedge positions involving interest rate swaps.

Shareholders’ equity totaled $196.2 million as of September 30, 2021, an increase of $19.6 million compared to December 31, 2020, primarily a result of (i) net income of $18.8 million for the nine months ended September 30, 2021 and (ii) a $6.2 million favorable impact to accumulated other comprehensive income driven by fair value marks related to hedge positions involving interest rate swaps.

The Company's interest rate swaps are used to hedge interest rate risk.

1 unchanged sentence

The increase in Shareholders’ equity was partially offset by dividends paid of $3.6 million and common stock repurchases of $3.2 million.

As of June 30, 2021, the tangible common equity ratio and tangible book value per share were 8.30% and $24.40, respectively.

As of September 30, 2021, the tangible common equity ratio and tangible book value per share were 8.70% and $25.25, respectively.

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies.

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 financial statements.

At June 30, 2021, the Bank met all capital adequacy requirements to which it was subject and exceeded the regulatory minimum capital levels to be considered well-capitalized under the regulatory framework for prompt corrective action.

At June 30, 2021, the Bank’s ratio of Common Equity Tier 1 capital to risk-weighted assets was 10.95%, total capital to risk-weighted assets was 11.84%, Tier 1 capital to risk-weighted assets was 10.95% and Tier 1 capital to average assets was 9.19%.

At September 30, 2021, the Bank met all capital adequacy requirements to which it was subject and exceeded the regulatory minimum capital levels to be considered well-capitalized under the regulatory framework for prompt corrective action.

At September 30, 2021, the Bank’s ratio of Common Equity Tier 1 capital to risk-weighted assets was 10.59%, total capital to risk-weighted assets was 11.44%, Tier 1 capital to risk-weighted assets was 10.59% and Tier 1 capital to average assets was 9.61%.

In July 2013, the Federal Reserve published Basel III rules establishing a new comprehensive capital framework of U.S.

28 unchanged sentences

Per Company policy, the Bank should not be outside these limits for twelve consecutive months unless the Bank's forecasted capital ratios are considered to be "well capitalized".

As of June 30, 2021, the Bank has met all minimum regulatory capital requirements to be considered "well capitalized", reference footnote 7 to the consolidated financial statements for more detail.

The following tables set forth the estimated percentage change in our net interest income at risk over one-year simulation periods beginning June 30, 2021 and December 31, 2020:

As of September 30, 2021, the Bank has met all minimum regulatory capital requirements to be considered "well capitalized" (reference footnote 7 to the consolidated financial statements for more detail).

The following tables set forth the estimated percentage change in our net interest income at risk over one-year simulation periods beginning September 30, 2021 and December 31, 2020:

Parallel Ramp Estimated Percent Change in Net Interest Income

Rate Changes (basis points) June 30, 2021 December 31, 2020

Rate Changes (basis points) September 30, 2021 December 31, 2020

-100 (0.80) % 0.20 %

1 unchanged sentence

Parallel Shock Estimated Percent Change in Net Interest Income

Rate Changes (basis points) June 30, 2021 December 31, 2020

Rate Changes (basis points) September 30, 2021 December 31, 2020

-100 (1.50) % (0.30) %

2 unchanged sentences

+300 (6.40) (2.00)

The net interest income at risk simulation results indicate that, as of June 30, 2021, we remain liability sensitive.

The net interest income at risk simulation results indicate that, as of September 30, 2021, we remain liability sensitive.

The liability sensitivity is due to the fact that there are more liabilities than assets subject to repricing as market rates change.

10 unchanged sentences

Estimated Percent Change in Economic Value of Equity ("EVE")

Rate Changes (basis points) June 30, 2021 December 31, 2020

Rate Changes (basis points) September 30, 2021 December 31, 2020

-100 (25.20) % (47.30) %

7 unchanged sentences

In the minus 100 scenario above, the change in EVE of (25.2)% is outside of policy parameters, however, the Bank continues to be well-capitalized.

The result of this simulation was discussed with the ALCO committee and the Company has decided to not take any further action at this time as this scenario is deemed unlikely in the current interest rate environment.

The result of this simulation was discussed with the ALCO and the Company has decided to not take any further action at this time as this scenario is deemed unlikely in the current interest rate environment.

It should be noted that the static balance sheet assumption does not necessarily reflect our expectation for future balance sheet growth, which is a function of the business environment and customer behavior.

5 unchanged sentences

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 2. Management’s Discussion and Analysis