What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-03-08 compared with 2021-03-10 · 194 added, 357 removed, 1534 unchanged (26% of the section changed)

1 unchanged sentence

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

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets as of December 31, 2021 and 2020

Consolidated Statements of Income for the years ended December 31, 2021 and 2020

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

Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2021 and 2020

Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2021 and 2020

5 unchanged sentences

We have audited the accompanying consolidated balance sheets of Bankwell Financial Group, Inc.

and its subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes to the consolidated financial statements (collectively, the financial statements).

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

and its subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

34 unchanged sentences

We have served as the Company’s auditor since 2017.

New Haven, Connecticut

Hartford, Connecticut

March 8, 2022

27 unchanged sentences

Advances from the Federal Home Loan Bank 50,000 175,000

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

Subordinated debentures (face value of $ 35,000 and $ 25,500 at December 31, 2021 and 2020, respectively, less unamortized debt issuance costs of $ 559 and $ 242 at December 31, 2021 and 2020, respectively)

34,441 25,258

15 unchanged sentences

Year Ended December 31,

2020 2019 2018

Interest and dividend income

8 unchanged sentences

Net interest income 67,886 54,835

Provision for loan losses 7,605 437 3,440

Net interest income after provision for loan losses 47,230 53,324 52,886

(Credit) provision for loan losses ( 57 ) 7,605

Net interest income after (credit) provision for loan losses 67,943 47,230

Noninterest income

Gains and fees from sales of loans 2,692 43

Bank owned life insurance 1,023 967

Service charges and fees 872 788

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

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

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

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

Other 1,070 1,067

22 unchanged sentences

Bankwell Financial Group, Inc.

Consolidated Statements of Comprehensive (Loss) Income

Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

Year Ended December 31,

2020 2019 2018

Net income $ 26,586 $ 5,904

Other comprehensive (loss) income:

Unrealized gains (losses) on securities:

Unrealized holding gains (losses) on available for sale securities 2,355 2,997 ( 1,632 )

Other comprehensive income (loss):

Unrealized (losses) gains on securities:

Unrealized holding (losses) gains on available for sale securities ( 1,404 ) 2,355

Reclassification adjustment for gains realized in net income — —

Net change in unrealized gains (losses) 2,355 2,921 ( 1,854 )

Net change in unrealized (losses) gains ( 1,404 ) 2,355

Income tax benefit (expense) 311 ( 539 )

Unrealized (losses) gains on securities, net of tax ( 1,093 ) 1,816

Unrealized gains (losses) on interest rate swaps:

Unrealized gains (losses) on interest rate swaps 10,415 ( 12,876 )

Income tax (expense) benefit ( 2,308 ) 3,001

( 539 ) ( 614 ) 390

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

Unrealized losses on interest rate swaps:

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

Income tax benefit 3,001 2,335 337

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

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

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

Unrealized gains (losses) on interest rate swaps, net of tax 8,107 ( 9,875 )

Total other comprehensive income (loss), net of tax 7,014 ( 8,059 )

Comprehensive income (loss) $ 33,600 $ ( 2,155 )

See Notes to Consolidated Financial Statements

13 unchanged sentences

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

Warrants exercised 22,400 400 — — 400

Issuance of restricted stock 109,199 — — — —

1 unchanged sentence

Stock options exercised 1,500 16 — — 16

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

Net income — — 18,216 — 18,216

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

Cash dividends declared ($ 0.52 per share)

— — ( 4,079 ) — ( 4,079 )

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

Issuance of restricted stock 64,150 — — — —

Forfeitures of restricted stock ( 5,800 ) — — — —

Stock options exercised 2,350 30 — — 30

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

ASU 2016-12 transition adjustment, net of tax

— — 481 — 481

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

Net income — — 26,586 — 26,586

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

Other comprehensive income, net of tax — — — 7,014 7,014

Cash dividends declared ($ 0.64 per share)

11 unchanged sentences

Year Ended December 31,

2020 2019 2018

Cash flows from operating activities

Net income $ 26,586 $ 5,904

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

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

Provision for loan losses 7,605 437 3,440

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

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

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

Net amortization of premiums and discounts on investment securities 230 95

(Credit) provision for loan losses ( 57 ) 7,605

Provision (credit) for deferred income taxes 1,698 ( 3,516 )

Change in fair value of marketable equity securities 63 ( 54 )

2 unchanged sentences

Amortization of debt issuance costs 265 52

Change in valuation allowance of right-of-use asset ( 280 ) —

Increase in cash surrender value of bank-owned life insurance ( 1,023 ) ( 967 )

3 unchanged sentences

Loss on sale of premises and equipment 498 35

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

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

Write down of assets held for sale — 1,652

4 unchanged sentences

Accrued expenses and other liabilities ( 4,387 ) 1,673

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

Net cash provided by (used in) operating activities 34,558 ( 1,512 )

Cash flows from investing activities

2 unchanged sentences

Net proceeds from sales and calls of available for sale securities 10,000 2,200

Net proceeds from sales and calls of held to maturity securities — 4,900 —

Purchases of available for sale securities ( 28,834 ) ( 20,636 )

Purchases of marketable equity securities ( 24 ) ( 35 )

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

Purchases of bank-owned life insurance ( 5,500 ) —

Net increase in loans ( 273,304 ) ( 21,426 )

1 unchanged sentence

Proceeds from sales of loans not originated for sale 23,317 2,307

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

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

Disposals of premises and equipment, net 4,257 3,337

Reduction (purchase) of Federal Home Loan Bank stock 5,046 ( 385 )

Proceeds from sale of other real estate owned — 199

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

Net cash used in investing activities ( 270,025 ) ( 21,944 )

See Notes to Consolidated Financial Statements

6 unchanged sentences

Net change in FHLB advances ( 125,000 ) 25,000

Proceeds from exercise of warrants — — 400

Proceeds from exercise of options 53 16

Issuance of subordinated debt 34,418 —

Retirement of subordinated debt ( 25,500 ) —

Dividends paid on common stock ( 5,025 ) ( 4,389 )

Repurchase of common stock ( 5,077 ) ( 1,037 )

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

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

Net cash provided by financing activities 170,551 355,003

Net (decrease) increase in cash and cash equivalents ( 64,916 ) 331,547

Cash and cash equivalents:

11 unchanged sentences

Establishment of right-of-use-asset and lease liability 11,884 169

ASU 2016-02 transition adjustment, net of tax

See Notes to Consolidated Financial Statements

5 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, "we", "our", "us", or the "Company").

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

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

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

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

The Company has significant concentrations in commercial real estate loans.

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

The Bank provides a wide range of services to customers in our primary market, an area encompassing approximately a 100 mile radius around our branch network.

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

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

Many of the Company's activities are with customers located in Connecticut and New York, with the majority of the Company's loans in Connecticut and some New York metro area counties.

Declines in property values in these areas could significantly impact the Company.

The Company has a significant concentration in commercial real estate loans.

Principles of consolidation

152 unchanged sentences

Leasehold improvements are capitalized and amortized over the shorter of the terms of the related leases or the estimated economic lives of the improvements.

Capitalized software development costs are amortized on a straight-line basis over the estimated useful life of the software.

Depreciation and amortization is charged to operations using the straight-line method over the estimated useful lives of the related assets which range from three to thirty-nine years .

7 unchanged sentences

The Company leases real estate for its branch offices under various operating lease agreements.

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

The Company determines if an arrangement is a lease, or contains a lease, at inception of a contract and when the terms of an existing contract are changed.

73 unchanged sentences

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

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

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

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

15 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 results of operations or consolidated financial position.

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 accounting pronouncements

28 unchanged sentences

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):

16 unchanged sentences

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 December 31, 2020.

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

4 unchanged sentences

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

The Company intends to accomplish the share repurchases through open market

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

On October 27, 2021, the Company's Board of Directors authorized the repurchase of an additional 200,000 shares under its existing share repurchase program.

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

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

5 unchanged sentences

December 31, 2021 Year Ended

December 31, 2019 Year Ended

December 31, 2020

6 unchanged sentences

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

The remaining net intangible asset as of December 31, 2020 will be amortized over a period of approximately 2 years.

The intangible asset was fully amortized as of December 31, 2021.

Gross Intangible

6 unchanged sentences

Core deposit intangible $ 1,029 $ 953 $ 76

Amortization expense related to the core deposit intangible totaled $ 0.1 million for each of the years ended December 31, 2021 and 2020.

Investment Securities

5 unchanged sentences

Government and agency obligations

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

Due from one through five years $ 25,747 $ 3 $ ( 181 ) $ 25,569

Due from five through ten years 16,540 866 — 17,406

2 unchanged sentences

Corporate bonds

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

Due from five through ten years 13,000 429 ( 10 ) 13,419

15 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 year ended December 31, 2020.

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

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

There were no sales of investment securities during the years ended December 31, 2021 or December 31, 2020.

At December 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.

3 unchanged sentences

These securities represent an investment in mutual funds that have a primary 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 seven investment securities as of December 31, 2021, in which the fair value of the security was less than the amortized cost of the security.

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

8 unchanged sentences

Government and agency obligations $ 28,121 $ ( 239 ) 0.84 % $ — $ — — % $ 28,121 $ ( 239 ) 0.84 %

Corporate bonds 2,990 ( 10 ) 0.35 — — — 2,990 ( 10 ) 0.35

State agency and municipal obligations 4,443 ( 206 ) 4.44 — — — 4,443 ( 206 ) 4.44

Total investment securities $ 35,554 $ ( 455 ) 1.27 % $ — $ — — % $ 35,554 $ ( 455 ) 1.27 %

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

Government or guaranteed by the U.S.

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 corporate bond, state agency and municipal bond portfolios and at this time these portfolios have minimal default risk because corporate, state agency and municipal 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 December 31, 2021 until the decline in value has recovered or the security has matured.

Loans Receivable and Allowance for Loan Losses

13 unchanged sentences

Deferred loan origination fees, net ( 2,812 ) ( 2,946 )

Unamortized loan premiums — 2

Loans receivable, net $ 1,875,167 $ 1,601,672

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

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

(1) The December 31, 2021 and December 31, 2020 balance includes $ 0.2 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.

12 unchanged sentences

Credit quality of loans and the allowance for loan losses

Management segregates the loan portfolio into defined segments, which are used to develop and document a systematic method for determining its allowance for loan losses.

Management segregates the loan portfolio into defined segments, which are used to develop and document a systematic method for determining the Company's allowance for loan losses.

The portfolio segments are segregated based on loan types and the underlying risk factors present in each loan type.

7 unchanged sentences

Commercial Real Estate:

This portfolio segment includes loans secured by commercial real estate, multi-family dwellings and investor-owned one-to-four family dwellings.

This portfolio segment includes loans secured by commercial real estate, multi-family dwellings, owner-occupied commercial real estate and investor-owned one-to-four family dwellings.

Loans secured by commercial real estate generally have larger loan balances and more credit risk than owner occupied one-to-four family mortgage loans.

9 unchanged sentences

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

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

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

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

1 unchanged sentence

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

This type of loan entails greater risk than residential mortgage loans, particularly in the case of loans that are unsecured or secured by assets that depreciate rapidly.

In addition, there are loans to finance insurance premiums, secured by the cash surrender value of life insurance and marketable securities.

Allowance for loan losses

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

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

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

Real Estate Commercial

16 unchanged sentences

Recoveries — 15 — — 3 18

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

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

Real Estate Commercial

Real Estate Construction Commercial

Business Consumer Total

(In thousands)

For the Year Ended December 31, 2018

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

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

Recoveries — 18 — 19 7 44

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

18 unchanged sentences

Total $ 1,894,881 $ 16,902

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

Portfolio Allowance

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

Credit quality indicators

To measure credit risk for the loan portfolios, the Company employs a credit risk rating system.

This risk rating represents an assessed level of the loan’s risk based on the character and creditworthiness of the borrower/guarantor, the capacity of the borrower to adequately service the debt, any credit enhancements or additional sources of repayment, and the quality, value and coverage of the collateral, if any.

This risk rating represents an assessed level of the loan’s risk based on the character and creditworthiness of the borrower/guarantor, the capacity of the

borrower to adequately service the debt, any credit enhancements or additional sources of repayment, and the quality, value and coverage of the collateral, if any.

The objectives of the Company’s risk rating system are to provide the Board of Directors and senior management with an objective assessment of the overall quality of the loan portfolio, to promptly and accurately identify loans with well-defined credit weaknesses so that timely action can be taken to minimize a potential credit loss, to identify relevant trends affecting the collectability of the loan portfolio, to isolate potential problem areas and to provide essential information for determining the adequacy of the allowance for loan losses.

40 unchanged sentences

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

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

If necessary,

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

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

3 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 are met.

As of December 31, 2021, no 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 December 31, 2021 and December 31, 2020:

19 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 December 31, 2020 or December 31, 2019.

There were two loans, totaling $ 1.1 million, delinquent greater than 90 days and still accruing interest as of December 31, 2021.

The delinquencies for these particular loans was a result of an administrative delay.

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

Loans on nonaccrual status

6 unchanged sentences

Total $ 16,587 $ 33,416

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

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

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

Interest income on loans that would have been recognized if loans on nonaccrual status had been current in accordance with their original terms for the years ended December 31, 2021 and 2020 was $ 0.9 million and $ 0.8 million, respectively.

There was $ 62 thousand and no interest income recognized on these loans for the year ended December 31, 2021 and 2020, respectively.

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

4 unchanged sentences

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

The following tables summarize impaired loans by portfolio segment and the average carrying amount and interest income recognized on impaired loans by portfolio segment as of December 31, 2020, December 31, 2019 and December 31, 2018:

As of and for the Year Ended December 31, 2021

11 unchanged sentences

Impaired loans with a valuation allowance:

Commercial real estate 21,035 21,049 4,960 20,852 283

Commercial business 2,920 2,922 85 2,965 —

Total impaired loans with a valuation allowance 23,955 23,971 5,045 23,817 283

Total impaired loans $ 47,706 $ 48,870 $ 5,045 $ 48,016 $ 540

As of and for the Year Ended December 31, 2019

Amount Unpaid

Balance Associated

Allowance Average

Amount Interest

(In thousands)

Impaired loans without a valuation allowance:

Residential real estate 2,299 2,304 261 2,337 65

1 unchanged sentence

Commercial business 2,430 2,429 87 2,719 93

Total impaired loans without a valuation allowance 16,506 18,129 — 16,231 351

Impaired loans with a valuation allowance:

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

Commercial business 415 417 134 441 9

Total impaired loans with a valuation allowance 26,057 26,100 2,868 27,195 710

9 unchanged sentences

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

Construction 8,997 8,997 — 8,997 —

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

Consumer 3 3 — 4 —

Total impaired loans without a valuation allowance 23,751 24,899 — 24,199 257

Impaired loans with a valuation allowance:

Residential real estate 2,014 2,054 233 2,049 —

Commercial real estate 21,035 21,049 4,960 20,852 283

Commercial business 2,920 2,922 85 2,965 —

Total impaired loans with a valuation allowance 23,955 23,971 5,045 23,817 283

19 unchanged sentences

Total 5 — $ 16,865 $ — $ 16,989 $ —

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

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

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

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

2020 2019 2018

At December 31, 2021 and December 31, 2020, there were five nonaccrual loans identified as TDRs totaling $ 2.0 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 year ended December 31, 2021 or December 31, 2020.

The following table provides information on how loans were modified as a TDR for the years ended December 31, 2021 and December 31, 2020.

(In thousands)

Maturity Concession $ — $ 125 $ —

Maturity and payment concession — — 750

Maturity and rate concession — — 608

Rate concession $ 3,168 $ —

Maturity, rate and payment concession 13,057 —

Payment concession 764 —

Rate and payment concession — 374 —

Total $ 16,989 $ —

1 unchanged sentence

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

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

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

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

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

Premises and Equipment

6 unchanged sentences

Furniture and fixtures 2,517 2,954

Equipment 3,581 3,337

Equipment and software 3,700 3,581

Automobiles 67 67

2 unchanged sentences

Premises and equipment, net $ 25,588 $ 21,762

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

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

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

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

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

Reference Note 8 for more detail.

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

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

For the years ended December 31, 2021 and December 31, 2020, depreciation and amortization expense related to premises and equipment totaled $ 3.6 million and $ 3.3 million, respectively.

For the years ended December 31, 2021 and December 31, 2020, depreciation and amortization expense includes amortization of the right-of-use-asset, totaling $ 1.6 million and $ 1.4 million, respectively.

As of December 31, 2021, the Company leases real estate for eight branch offices under various operating lease agreements.

The branch leases have maturities ranging from 2022 to 2031, some of which include options to extend the lease term.

1 unchanged sentence

The weighted average remaining life of the lease term for these leases was 7.5 years as of December 31, 2021.

In addition, the Company’s headquarter building (included in premises and equipment) is on land that is leased from the local municipality.

As of December 31, 2020, the land lease has a remaining life of 79.7 years.

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

In addition, the Company’s new headquarter building (included in premises and equipment) has a remaining lease life of 9.8 years as of December 31, 2021.

The lease commencement date was March 15, 2021 for the Company's new headquarter building.

The Company utilized a weighted average discount rate of 5.5 % in determining the lease liability for its branch locations and a discount rate of 4.5 % for its headquarter building.

The total fixed operating lease costs were $ 3.0 million and $ 2.3 million for the years ended December 31, 2021 and December 31, 2020, respectively.

24 unchanged sentences

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

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

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

The deferred compensation balance increased $ 1.5 million for the year ended December 31, 2021 compared to the year ended December 31, 2020.

The increase was primarily driven by an appreciation in fair market value and participant contributions.

Loan servicing

5 unchanged sentences

The significant assumptions used in the valuation at December 31, 2021 for servicing assets included a discount rate of 10 % and prepayment speed assumptions ranging from 3 % to 17 %.

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

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

The carrying value of loan servicing rights was $ 0.8 million and $ 0.6 million as of December 31, 2021 and December 31, 2020, respectively.

11 unchanged sentences

Assets held for sale

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

For the year ended December 31, 2021, the assets held for sale balance of $ 2.3 million consists of a former Bank office building.

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

The asset was further impaired for the year ended December 31, 2021, and a charge of $ 0.3 million was recognized.

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

16 unchanged sentences

2024 110,449 30,160

2024 30,160 93

Total $ 457,258 $ 627,230

1 unchanged sentence

Brokered certificate of deposits totaled $ 249.4 million and $ 238.9 million at December 31, 2021 and December 31, 2020, respectively.

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

There were no certificates of deposits from national listing services at December 31, 2021.

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

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

1 unchanged sentence

Years Ended December 31,

2020 2019 2018

(In thousands)

14 unchanged sentences

$ 50 million of the above mentioned FHLB advances as of December 31, 2021 were subject to interest rate swap transactions and $ 175 million of the above mentioned FHLB advances as of December 31, 2020 were subject to interest rate swap transactions, see Note 18.

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

Interest expense on FHLB advances totaled $ 1.4 million and $ 3.1 million for the years ended December 31, 2021 and December 31, 2020, respectively.

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

25 unchanged sentences

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

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

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

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

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

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

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

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

On May 15, 2021, the Company repaid $ 10.0 million of the 2015 Notes and on November 15, 2021, the Company repaid the remaining $ 15.5 million of the 2015 Notes.

On October 14, 2021, the Company completed a private placement of a $ 35.0 million fixed-to-floating rate subordinated note (the “2021 Note”) to an institutional accredited investor.

The Company used the net proceeds to repay the 2015 Notes and intends to use the remaining proceeds for general corporate purposes.

The 2021 Note bears interest at a fixed rate of 3.25 % per year until October 14, 2026.

Thereafter, the interest rate will reset quarterly at a variable rate equal to the then current three-month term SOFR plus 233 basis points.

The 2021 Note has a stated maturity of October 15, 2031 and is non-callable for five years.

Beginning October 15, 2026, the Company may redeem the 2021 Note, in whole or in part, at its option.

The 2021 Note is not redeemable at the option of the holder.

The Company incurred certain costs associated with the issuance of its subordinated debt.

The Company capitalized these costs and they have been presented within subordinated debentures on the consolidated balance sheets.

At December 31, 2021 and 2020, unamortized debt issuance costs were $ 0.6 million and $ 0.2 million, respectively.

Debt issuance costs amortize over the expected life of the related debt.

For the years ended December 31, 2021 and 2020 the amortization expense for debt issuance costs were $ 0.3 million and $ 0.1 million, respectively, and were recognized as an increase to interest expense on borrowings within the consolidated statements of income.

The Company recognized $ 1.2 million and $ 1.5 million in interest expense related to its subordinated debt for the years ended December 31, 2021 and 2020, respectively.

Commitments and Contingencies

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

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

As of December 31, 2021, the Company leases real estate for eight branch offices under various operating lease agreements.

The branch leases have maturities ranging from 2022 to 2031, some of which include options to extend the lease term.

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

Reference Note 7 for further detail.

24 unchanged sentences

The reserve for unfunded commitments totaled $ 170 thousand at December 31, 2021 and $ 90 thousand at December 31, 2020.

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

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

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

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

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

2020 2019 2018

As of December 31, 2021, the Bank had a remaining capital commitment of $ 3.6 million to two Small Business Investment Companies ("SBIC").

One of these lending funds represents a related party business entity associated with one of the Company's Directors.

Contributions to these funds represent an equity investment for the Company.

In addition, as of December 31, 2021, the Bank had a commitment of $ 0.1 million, payable evenly over two years, to a non-profit business.

The components of income tax expense for the years ended December 31, 2021 and December 31, 2020 consisted of:

(In thousands)

3 unchanged sentences

Total current 5,576 4,913

Deferred (credit) provision:

Deferred provision (credit):

Federal 1,655 ( 3,071 )

8 unchanged sentences

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

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

2020 2019 2018

A reconciliation of the anticipated income tax expense, computed by applying the statutory federal income tax rate of 21% for the years ended December 31, 2021 and December 31, 2020 to the income before income taxes, to the amount reported in the consolidated statements of income for the years ended December 31, 2021 and December 31, 2020 was as follows:

(In thousands)

Income tax expense at statutory federal rate $ 7,111 $ 1,533

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

State tax expense 597 174

Income exempt from tax ( 366 ) ( 345 )

26 unchanged sentences

A valuation allowance against deferred tax assets is required if, based on the weight of available evidence, it is more-likely-than-not that some or all of the deferred tax assets will not be realized.

Management evaluated its remaining deferred tax assets and believes no valuation allowances are needed at December 31, 2020.

Management evaluated its remaining deferred tax assets and believes no valuation allowances were needed at December 31, 2021 or December 31, 2020.

At December 31, 2021, the Company had federal net operating loss carryovers of $ 1.9 million.

8 unchanged sentences

At December 31,

2020 2019 2018

(In thousands)

Balance, beginning of year $ 394 $ 269

Net additions (reductions) relating to potential liability with taxing authorities 125 76 ( 200 )

Net (reductions) additions relating to potential liability with taxing authorities ( 129 ) 125

Balance, end of year $ 265 $ 394

6 unchanged sentences

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

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

The Company expensed $ 275 thousand and $ 297 thousand related to the 401k Plan during the years ended December 31, 2021 and December 31, 2020, respectively.

Earnings Per Share ("EPS")

7 unchanged sentences

For the Years Ended December 31,

2020 2019 2018

(In thousands, except per share data)

22 unchanged sentences

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

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

There were no options granted during the years ended December 31, 2021 or December 31, 2020.

A summary of the status of outstanding stock options at December 31, 2021 is presented below:

6 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 stock options exercised during the years ended December 31, 2020, December 31, 2019 and December 31, 2018 was $ 27.0 thousand, $ 40.0 thousand and $ 0.4 million, respectively.

The total intrinsic value of stock options exercised during the years ended December 31, 2021 and December 31, 2020 was $ 19.0 thousand and $ 27.0 thousand, respectively.

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

The weighted average remaining contractual life for these options was 1.2 years at December 31, 2021.

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

At December 31, 2021, as all awarded options have vested, all of the outstanding options are exercisable, and the aggregate intrinsic value of these options was $ 181 thousand.

Restricted stock :

14 unchanged sentences

The total fair value of restricted stock awards vested during the year ended December 31, 2021 was $ 1.1 million.

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

The Company’s restricted stock expense for the years ended December 31, 2021 and December 31, 2020 was $ 1.8 million and $ 1.8 million, respectively.

At December 31, 2021, there was $ 3.2 million of unrecognized stock compensation expense for restricted stock, expected to be recognized over a weighted average period of 2.8 years.

2 unchanged sentences

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

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

The 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.

4 unchanged sentences

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

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

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

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

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

Net Unrealized Gain

5 unchanged sentences

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

Other comprehensive income (loss) before reclassifications, net of tax 1,816 ( 11,481 ) ( 9,665 )

Other comprehensive (loss) income before reclassifications, net of tax ( 1,093 ) 5,212 4,119

Amounts reclassified from accumulated other comprehensive income, net of tax — 2,895 2,895

Net other comprehensive income (loss) 1,816 ( 9,875 ) ( 8,059 )

Net other comprehensive (loss) income ( 1,093 ) 8,107 7,014

Balance at December 31, 2021 $ 1,651 $ ( 10,212 ) $ ( 8,561 )

11 unchanged sentences

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

Net Unrealized Gain

(Loss) on Available

for Sale Securities Net Unrealized Gain

(Loss) on Interest

Rate Swaps Total

(In thousands)

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

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

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

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

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

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

2 unchanged sentences

Statements Of Income

2020 2019 2018

(In thousands)

Available-for-sale securities:

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

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

Net of tax $ — $ 60 $ 175

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

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

Unrealized losses on derivatives $ ( 3,719 ) $ ( 2,094 ) Interest expense on borrowings

Tax benefit 824 488 Income tax expense

Net of tax $ ( 2,895 ) $ ( 1,606 )

2 unchanged sentences

The Company does not use derivatives for speculative purposes.

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

As of December 31, 2021, the Company was a party to eight 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.

8 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 for the years ended December 31, 2020 and December 31, 2019 were as follows:

December 31, 2020:

Original Notional

Amount Original

Maturity Maturity Date Received Paid Fair Value

(Dollars in thousands)

Information about derivative instruments for the years ended December 31, 2021 and December 31, 2020 is as follows:

As of December 31, 2021

Derivative Assets Derivative Liabilities

Original Notional Amount Balance Sheet Location Fair Value Original 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 % $ ( 128 )

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

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

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

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

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

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

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

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

$ 225,000 $ ( 23,567 )

Interest rate swaps $ 50,000 Other assets $ 1,043 $ 150,000 Accrued expenses and other liabilities $ ( 14,195 )

Derivatives not designated as hedging instruments:

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

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

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

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

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

Interest rate swaps (1)

$ 38,500 Other assets $ 2,585 $ 38,500 Accrued expenses and other liabilities $ ( 2,585 )

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

1 unchanged sentence

The fair value of interest rate swaps in a net liability position, including accrued interest, totaled $ 13.7 million as of December 31, 2021.

December 31, 2019:

Original Notional

Amount Original

Maturity Maturity Date Received Paid Fair Value

(Dollars in thousands)

As of December 31, 2020

Derivative Assets Derivative Liabilities

Original Notional Amount Balance Sheet Location Fair Value Original 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.

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

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

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

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

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

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

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

The Company expects to reclassify $ 2.9 million to interest expense during the next 12 months.

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

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:

Amount Effective Date of

Hedging Relationship Duration of

Interest Rate Swap 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 years ended December 31, 2020, December 31, 2019 and 2018:

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

December 31, 2021 December 31, 2020

(In thousands)

Interest rate swaps designated as cash flow hedges:

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

Unrealized income (loss) recognized in accumulated other comprehensive (loss) income before reclassifications $ 6,696 $ ( 14,970 )

Amounts reclassified from accumulated other comprehensive income 3,719 2,094

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

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

Income tax (expense) benefit on items recognized in accumulated other comprehensive (loss) income ( 2,308 ) 3,001

Other comprehensive income (loss) $ 8,107 $ ( 9,875 )

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

6 unchanged sentences

Derivative Assets $ 3,604 $ — $ 3,604 $ 217 $ — $ 3,387

(1) Includes accrued interest receivable totaling $ 40.0 thousand.

(1) Includes accrued interest payable totaling $ 24 thousand.

December 31, 2021

16 unchanged sentences

(1) Includes accrued interest payable totaling $ 662 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

45 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:

28 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

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

44 unchanged sentences

Government and agency obligations 10,148 66,730 —

Corporate bonds — 11,727 —

Derivative asset — 4,444 —

23 unchanged sentences

Servicing asset, net — — 607

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 December 31, 2021 and December 31, 2020:

13 unchanged sentences

Prepayment rate 3.00 - 16.00 %

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

(1) Servicing liabilities totaling $ 14 thousand were valued using a discount rate of 0.8 %.

19 unchanged sentences

banking organizations.

As of January 1, 2015, the Company and the Bank became subject to new capital rules set forth by the Federal Reserve, the FDIC and the other federal and state bank regulatory agencies.

The capital rules revise the banking agencies’ leverage and risk-based capital requirements and the method for calculating risk weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act (the Basel III Capital Rules).

The Basel III Capital Rules establish a minimum Common Equity Tier 1 capital requirement of 4.5 % of risk-weighted assets;

set the minimum leverage ratio at 4.0 % of total assets;

increased the minimum Tier 1 capital to risk-weighted assets requirement from 4.0 % to 6.0 %;

and retained the minimum total capital to risk weighted assets requirement at 8.0 %.

A “well-capitalized” institution must generally maintain capital ratios 100 to 200 basis points higher than the minimum guidelines.

The Basel III Capital Rules also change the risk weights assigned to certain assets.

The Basel III Capital Rules assigned a higher risk weight ( 150 %) to loans that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property.

The Basel III Capital Rules also alter the risk weighting for other assets, including marketable equity securities that are risk weighted generally at 300 %.

The Basel III Capital Rules require certain components of accumulated other comprehensive income (loss) to be included for purposes of calculating regulatory capital requirements unless a one-time opt-out is exercised.

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

The Basel III Capital Rules limit a banking organization’s capital distributions and certain discretionary bonus payments to executive officers if the banking organization does not hold a “capital conservation buffer” 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.

Under the current guidelines, banking organizations must have a minimum total risk-based capital ratio of 8.0 %, a minimum Tier 1 risk-based capital ratio of 6.0 %, a minimum common equity Tier 1 risk-based capital ratio of 4.5 %, and a minimum leverage ratio of 4.0 % in order to be "adequately capitalized." In addition to these requirements, banking organizations must maintain a capital conservation buffer consisting of common Tier 1 equity in an amount above the minimum risk-based capital requirements for “adequately capitalized” institutions equal to 2.5 % of total risk-weighted assets, resulting in a requirement for the Company and the Bank to effectively maintain common equity Tier 1, Tier 1 and total capital ratios of 7.0 %, 8.5 % and 10.5 %, respectively.

The Company and the Bank must maintain the capital conservation buffer to avoid restrictions on the ability to pay dividends, pay discretionary bonuses, or to engage in share repurchases.

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.

38 unchanged sentences

Reserve requirements on cash

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

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

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

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

Related Party Transactions

6 unchanged sentences

Repayments ( 5,176 ) ( 3 )

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

Balance, end of year $ 25,416 $ 30,592

2 unchanged sentences

The payments were primarily for consulting and legal services.

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

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

As of December 31, 2021, the Bank had a $ 0.8 million investment in a SBIC that represents a related party business entity associated with one of the Company's Directors.

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

20 unchanged sentences

Year Ended December 31,

2020 2019 2018

(In Thousands)

8 unchanged sentences

For the Years Ended December 31,

2020 2019 2018

(In Thousands)

3 unchanged sentences

Equity in undistributed earnings ( 31,035 ) 14,387

Decrease in other assets 327 84 6,131

(Increase) decrease in other assets ( 1,142 ) 327

Increase in deferred income taxes, net ( 127 ) ( 18 )

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

Increase (decrease) in other liabilities 1,487 ( 654 )

Stock-based compensation 1,834 1,770

Amortization of debt issuance costs 265 52

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

Net cash (used in) provided by operating activities ( 2,132 ) 21,768

Cash flows from investing activities

2 unchanged sentences

Cash flows from financing activities

Issuance of subordinated debt 34,418 —

Retirement of subordinated debt ( 25,500 ) —

Proceeds from exercise of options & warrants 53 16

1 unchanged sentence

Repurchase of common stock ( 5,077 ) ( 1,037 )

Capital contribution to Bank ( 10,000 ) —

Net cash used in financing activities ( 11,131 ) ( 5,410 )

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

Net (decrease) increase in cash and cash equivalents ( 13,260 ) 16,362

Cash and cash equivalents:

3 unchanged sentences

Cash paid for:

Interest — — —

Income taxes — —

Quarterly Financial Information of Bankwell Financial Group, Inc.

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

December 31, 2020

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

(Dollars in thousands, except per share amounts)

Total interest and dividend income $ 19,146 $ 18,922 $ 19,323 $ 20,096

Total interest expense 4,842 5,314 5,686 6,810

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

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

Total noninterest income 621 614 577 1,072

Total noninterest expense 13,703 9,729 9,722 9,659

Income before income tax expense 513 3,781 1,493 1,514

Income tax expense 177 790 279 151

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

Earnings per common share:

Basic $ 0.04 $ 0.38 $ 0.16 $ 0.17

Diluted $ 0.04 $ 0.38 $ 0.16 $ 0.17

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

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

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

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

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

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

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

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

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

December 31, 2019

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

(Dollars in thousands, except per share amounts)

Total interest and dividend income $ 19,933 $ 20,493 $ 21,046 $ 21,476

Total interest expense 7,051 7,482 7,451 7,203

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

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

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

Total noninterest expense 9,224 8,672 8,755 8,975

Income before income tax expense 4,396 5,118 7,017 6,411

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

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

Earnings per common share:

Basic $ 0.44 $ 0.52 $ 0.71 $ 0.65

Diluted $ 0.44 $ 0.52 $ 0.71 $ 0.65

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

Subsequent Events

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

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

The Company's Board of Directors declared a $ 0.20 per share cash dividend, payable February 24, 2022 to shareholders of record on February 14, 2022, representing an 11 % increase when compared to the prior quarter’s dividend.

Subsequent to the year ended December 31, 2021, as of March 7, 2022, the Company purchased 109,564 shares of its Common Stock at a weighted average price of $ 34.01 per share.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data