What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-05-10 compared with 2022-11-07 · 412 added, 358 removed, 819 unchanged (48% of the section changed)

3 unchanged sentences

(In thousands, except share data)

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Cash and due from banks $ 249,812 $ 344,925

4 unchanged sentences

Available for sale investment securities, at fair value 103,171 103,663

Held to maturity investment securities, at amortized cost (fair values of $ 14,641 and $ 18,445 at September 30, 2022 and December 31, 2021, respectively)

Held to maturity investment securities, at amortized cost (fair values of $ 15,881 and $ 15,435 at March 31, 2023 and December 31, 2022, respectively)

15,931 15,983

Total investment securities 121,130 121,634

Loans receivable (net of allowance for loan losses of $ 18,167 at September 30, 2022 and $ 16,902 at December 31, 2021)

Loans receivable (net of ACL-Loans of $ 27,998 at March 31, 2023 and $ 22,431 at December 31, 2022)

2,724,514 2,646,384

12 unchanged sentences

Advances from the Federal Home Loan Bank 90,000 90,000

Subordinated debentures (face value of $ 70,000 and $ 35,000 at September 30, 2022 and December 31, 2021, respectively, less unamortized debt issuance costs of $ 1,103 and $ 559 at September 30, 2022 and December 31, 2021, respectively)

Subordinated debentures (face value of $ 70,000 and $ 70,000 at March 31, 2023 and December 31, 2022, respectively, less unamortized debt issuance costs of $ 980 and $ 1,041 at March 31, 2023 and December 31, 2022, respectively)

69,020 68,959

4 unchanged sentences

Common stock, no par value;

10,000,000 shares authorized, 7,711,843 and 7,803,166 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively

10,000,000 shares authorized, 7,843,438 and 7,730,699 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

115,875 115,018

7 unchanged sentences

(In thousands, except share data)

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

2022 2021 2022 2021

Three Months Ended March 31,

Interest and dividend income

8 unchanged sentences

Net interest income 25,541 19,510

Provision (credit) for loan losses 2,381 134 1,165 ( 182 )

Net interest income after provision (credit) for loan losses 22,220 17,590 66,769 49,140

Provision for credit losses 826 229

Net interest income after provision for credit losses 24,715 19,281

Noninterest income

1 unchanged sentence

Service charges and fees 286 240

(Losses) gains and fees from sales of loans ( 15 ) 924 1,224 2,251

Gains and fees from sales of loans 931 631

Other 28 ( 173 )

24 unchanged sentences

(In thousands)

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

2022 2021 2022 2021

Three Months Ended March 31,

Net income $ 10,379 $ 8,212

Other comprehensive income:

Unrealized losses on securities:

Unrealized holding losses on available for sale securities ( 4,439 ) ( 411 ) ( 11,130 ) ( 743 )

Unrealized gains (losses) on securities:

Unrealized holding gains (losses) on available for sale securities 752 ( 4,767 )

Reclassification adjustment for gain realized in net income — —

Net change in unrealized losses ( 4,439 ) ( 411 ) ( 11,130 ) ( 743 )

Income tax benefit 992 92 2,486 162

Unrealized losses on securities, net of tax ( 3,447 ) ( 319 ) ( 8,644 ) ( 581 )

Unrealized gains on interest rate swaps:

Unrealized gains on interest rate swaps 3,737 1,436 21,897 8,671

Income tax expense ( 835 ) ( 321 ) ( 4,892 ) ( 1,918 )

Unrealized gains on interest rate swaps, net of tax 2,902 1,115 17,005 6,753

Net change in unrealized gains (losses) 752 ( 4,767 )

Income tax (expense) benefit ( 118 ) 1,064

Unrealized gains (losses) on securities, net of tax 634 ( 3,703 )

Unrealized (losses) gains on interest rate swaps:

Unrealized (losses) gains on interest rate swaps ( 1,981 ) 11,016

Income tax benefit (expense) 402 ( 2,461 )

Unrealized (losses) gains on interest rate swaps, net of tax ( 1,579 ) 8,555

Total other comprehensive (loss) income, net of tax ( 945 ) 4,852

2 unchanged sentences

Bankwell Financial Group, Inc.

Consolidated Statements of Shareholders' Equity – (unaudited)

(In thousands, except share data)

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

Balance at June 30, 2022 7,752,389 $ 115,599 $ 109,523 $ 345 $ 225,467

Net income — — 9,174 — 9,174

Other comprehensive loss, net of tax — — — ( 545 ) ( 545 )

Cash dividends declared ($ 0.20 per share)

— — ( 1,545 ) — ( 1,545 )

Stock-based compensation expense — 634 — — 634

Issuance of restricted stock 12,000 — — — —

Stock options exercised 1,000 18 — — 18

Repurchase of common stock ( 53,546 ) ( 1,703 ) — — ( 1,703 )

Balance at September 30, 2022 7,711,843 $ 114,548 $ 117,152 $ ( 200 ) $ 231,500

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

Balance at June 30, 2021 7,895,101 $ 120,451 $ 80,543 $ ( 10,199 ) $ 190,795

Net income — — 6,855 — 6,855

Other comprehensive income, net of tax — — — 796 796

Cash dividends declared ($ 0.18 per share)

— — ( 1,406 ) — ( 1,406 )

Stock-based compensation expense — 562 — — 562

Repurchase of common stock ( 52,277 ) ( 1,425 ) — — ( 1,425 )

Balance at September 30, 2021 7,842,824 $ 119,588 $ 85,992 $ ( 9,403 ) $ 196,177

See accompanying notes to consolidated financial statements (unaudited)

Bankwell Financial Group, Inc.

Consolidated Statements of Shareholders' Equity – (continued)

Consolidated Statements of Shareholders' Equity

(In thousands, except share data)

1 unchanged sentence

Balance at December 31, 2022 7,730,699 $ 115,018 $ 123,640 $ ( 189 ) $ 238,469

Cumulative effect of change in accounting principle (ASU No.

2016-13), net of tax — — ( 4,893 ) — ( 4,893 )

Balance as of January 1, 2023 as adjusted for changes in accounting principle 7,730,699 115,018 118,747 ( 189 ) 233,576

Net income — — 10,379 — 10,379

7 unchanged sentences

Repurchase of common stock — — — — —

Balance at September 30, 2022 7,711,843 $ 114,548 $ 117,152 $ ( 200 ) $ 231,500

Balance at March 31, 2023 7,843,438 $ 115,875 $ 127,566 $ ( 1,134 ) $ 242,307

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

9 unchanged sentences

Repurchase of common stock ( 112,829 ) ( 3,837 ) — — ( 3,837 )

Balance at September 30, 2021 7,842,824 $ 119,588 $ 85,992 $ ( 9,403 ) $ 196,177

Balance at March 31, 2022 7,761,338 $ 114,882 $ 99,047 $ ( 3,709 ) $ 210,220

See accompanying notes to consolidated financial statements (unaudited)

2 unchanged sentences

(In thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities

2 unchanged sentences

Net amortization of premiums and discounts on investment securities 18 90

Provision (credit) for loan losses 1,165 ( 182 )

(Credit) provision for deferred income taxes ( 441 ) 1,827

Provision for credit losses 826 229

Provision (credit) for deferred income taxes 472 ( 303 )

Change in fair value of marketable equity securities ( 28 ) 85

1 unchanged sentence

Amortization of debt issuance costs 62 30

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

Increase in cash surrender value of bank-owned life insurance ( 281 ) ( 260 )

1 unchanged sentence

Stock-based compensation 702 541

Amortization of intangibles — 28

(Gain) loss on sale of premises and equipment ( 51 ) 195

Net change in:

9 unchanged sentences

Purchases of available for sale securities — ( 16,241 )

Purchases of held to maturity securities ( 4,990 ) ( 4,736 )

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

Net increase in loans ( 94,960 ) ( 96,076 )

1 unchanged sentence

Purchases of premises and equipment, net ( 707 ) ( 825 )

(Purchase) reduction of Federal Home Loan Bank stock ( 2,225 ) 4,228

Purchases of Federal Home Loan Bank stock ( 18 ) ( 56 )

Net cash used in investing activities ( 81,694 ) ( 104,024 )

3 unchanged sentences

(In thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from financing activities

1 unchanged sentence

Net change in other deposits ( 114,677 ) 53,231

Net change in FHLB advances 40,000 ( 95,000 )

Issuance of subordinated debt 34,352 —

Repayment of subordinated debt — ( 10,000 )

Proceeds from exercise of options 155 30

1 unchanged sentence

Repurchase of common stock — ( 3,837 )

Net cash provided by (used in) financing activities 226,909 ( 56,280 )

Net cash (used in) provided by financing activities ( 3,916 ) 36,834

Net decrease in cash and cash equivalents ( 78,497 ) ( 45,189 )

15 unchanged sentences

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

The Parent Corporation offers a broad range of financial services through its banking subsidiary, Bankwell Bank (the "Bank" and, collectively with the Parent Corporation and the Parent Corporation's subsidiaries, the "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 commercial lending services through a variety of fixed and floating rate products in Connecticut and surrounding markets.

Such services are also provided to certain industries across several regions of the United States, primarily with borrowers with whom the Company has existing relationships.

The Bank provides a wide range of services to clients in our 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 market, particularly where we have strong relationships.

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

During the second quarter of 2022, the Company sold its Wilton branch building that was previously classified as held for sale.

On October 7, 2022, the Company closed the Wilton branch.

Principles of consolidation

5 unchanged sentences

Actual results could differ from those estimates.

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

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

Basis of consolidated financial statement presentation

4 unchanged sentences

Significant concentrations of credit risk

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

Many of the Company's activities are with clients 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.

The Company has a significant concentration in commercial real estate loans, with a growing percentage being owner-occupied, which present a lower risk profile.

Common share repurchases

9 unchanged sentences

Recently issued accounting pronouncements not yet adopted

2022-02, Financial Instruments—Credit Losses (Topic 326):

"Troubled Debt Restructurings and Vintage Disclosures.” This ASU eliminates the TDR recognition and measurement guidance and, instead, requires that an entity evaluate (consistent with the accounting for other loan modifications) whether a modification represents a new loan or a continuation of an existing loan.

In addition, this ASU enhances existing disclosure requirements and introduces new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty.

For public business entities, this ASU requires that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20.

Gross write-off information must be included in the vintage disclosures required for public business entities in accordance with paragraph 326-20-50-6, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination.

For entities that have adopted the amendments in update 2016-13, the amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

For entities that have not yet adopted the amendments in update 2016-13, the effective dates for the amendments in this update are the same as the effective dates in Update 2016-13.

The Company has not yet adopted this accounting standard as ASU 2016-13 has not been adopted.

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

2016-13, Financial Instruments—Credit Losses (Topic 326):

“Measurement of Credit Losses on Financial Instruments.” This ASU changes the impairment model for most financial assets and certain other instruments.

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

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

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

The FASB proposed a three year deferral for smaller reporting companies, with an effective date of January 1, 2023.

On October 16, 2019, the FASB voted in favor of finalizing its proposal to defer the effective date of this standard.

The FASB issued ASU No.

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

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

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

2022-06, Reference Rate Reform (Topic 848) :

“Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This ASU provides optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.

The objective of the guidance in Topic 848 is to provide temporary relief during the transition period.

The Board included a sunset provision within Topic 848 based on expectations of when the London Interbank Offered Rate (LIBOR) would cease being published.

At the time that Update 2020-04 was issued, the UK Financial Conduct Authority (FCA) had established its intent that it would no longer be necessary to persuade, or compel, banks to submit to LIBOR after December 31, 2021.

As a result, the sunset provision was set for December 31, 2022 (12 months after the expected cessation date of all currencies and tenors of LIBOR).

In March 2021, the FCA announced that the intended cessation date of the overnight 1, 3, 6, and 12 month tenors of USD LIBOR would be June 30, 2023, which is beyond the current sunset date of Topic 848.

As the current relief in Topic 848 may not cover a period of time during which a significant number of modifications may take place, the amendments in this Update defer the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.

Recently adopted accounting pronouncements

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

11 unchanged sentences

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

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

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

The Company has adopted ASU No.

2017-04 as of March 31, 2023 and it had no impact to the Company's financial statements.

2016-13, Financial Instruments—Credit Losses (Topic 326 "CECL"):

“Measurement of Credit Losses on Financial Instruments.” This ASU changes the impairment model for most financial assets and certain other instruments.

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

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

On November 15, 2019, the FASB issued ASU No.

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

In accordance with ASU No.

2019-10, on January 1, 2023, the Company adopted Topic 326.

Upon adoption of CECL, the Company recorded a one-time cumulative effect, pre-tax adjustment of $ 5.1 million to the allowance for credit loss - loans and a corresponding net of tax adjustment to beginning retained earnings.

The Company also recorded a one-time cumulative effect, pre-tax adjustment of $ 1.3 million to the allowance for credit losses - unfunded commitments (which is reflected in Accrued expenses and other liabilities on the Consolidated Balanc e Sheets) and a corresponding net of tax adjustment to beginning retained earnings.

These impacts are reflected in the Company's first quarter 2023 financial statements.

The future impact of CECL on the Company’s allowance for credit losses and provision (credit) for credit losses subsequent to the initial adoption will depend on refinements to key assumptions including forecasting and qualitative factors, as well as changes in the loan portfolio and economic conditions.

The Company measured its allowance under its incurred loan loss model as of December 31, 2022.

In addition, the Company also evaluated its held to maturity investment securities and available for sale investment securities upon the adoption of the standard on January 1, 2023.

The Held to maturity investment securities are related to housing authority bonds in the towns of New Canaan and Stamford, CT.

The Company determined these housing authority bonds have a remote risk of loss based on the historical performance of housing authority bonds and the strong credit ratings of both the towns of New Canaan and Stamford, CT.

The Available for

sale securities consist of government backed U.S.

Treasuries, Mortgage-Backed Securities, and Corporate Securities.

Treasuries and Mortgage-Backed Securities are guaranteed by the U.S.

Government and have a zero risk of loss.

The Corporate Securities include highly rated investment grade credits with minimal default risk.

As such, Management has concluded that no allowance for expected credit losses is required for the Held to maturity investment securities or the Available for sale investment securities upon adoption of the standard on January 1, 2023.

Change in Consolidated Statement of Conditions Tax Effected Change to Retained Earnings from Adoption of CECL

Total ACL- Loans $ 5,079 $ 1,167 $ 3,912

Total ACL-Unfunded Commitments 1,273 292 981

Total impact of CECL adoption $ 6,352 $ 1,459 $ 4,893

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

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

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

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

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

This ASU also provides many practical expedients for derivative accounting.

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

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

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

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

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

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

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

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

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

Investment Securities

The amortized cost, gross unrealized gains and losses and fair value of available for sale and held to maturity securities at September 30, 2022 were as follows:

September 30, 2022

The amortized cost, gross unrealized gains and losses and fair value of available for sale and held to maturity securities at March 31, 2023 were as follows:

March 31, 2023

Amortized Cost Gross Unrealized Fair Value

38 unchanged sentences

Total held to maturity securities $ 15,983 $ 316 $ ( 864 ) $ 15,435

There were no sales of investment securities during the nine months ended September 30, 2022 or 2021.

At September 30, 2022 and December 31, 2021, none of the Company's securities were pledged as collateral with the Federal Home Loan Bank ("FHLB") or any other institution.

As of September 30, 2022 and December 31, 2021, the actual durations of the Company's available for sale securities were significantly shorter than the stated maturities.

As of September 30, 2022, the Company held marketable equity securities with a fair value of $ 2.0 million and an amortized cost of $ 2.1 million.

There were no sales of investment securities during the three months ended March 31, 2023 or 2022.

At March 31, 2023 and December 31, 2022, none of the Company's securities were pledged as collateral with the Federal Home Loan Bank ("FHLB") or any other institution.

As of March 31, 2023 and December 31, 2022, the actual durations of the Company's available for sale securities were significantly shorter than the stated maturities.

As of March 31, 2023, the Company held marketable equity securities with a fair value of $ 2.0 million and an amortized cost of $ 2.1 million.

At December 31, 2022, the Company held marketable equity securities with a fair value of $ 2.0 million and an amortized cost of $ 2.1 million.

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

The following tables provide information regarding available for sale securities and held to maturity securities with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2022 and December 31, 2021:

Length of Time in Continuous Unrealized Loss Position

5 unchanged sentences

(Dollars in thousands)

September 30, 2022

March 31, 2023

Government and agency obligations $ 14,466 $ ( 92 ) 0.10 % $ 73,735 $ ( 5,814 ) 6.18 % $ 88,201 $ ( 5,906 ) 6.28 %

14 unchanged sentences

Total investment securities $ 70,669 $ ( 4,274 ) 3.46 % $ 43,189 $ ( 5,279 ) 4.28 % $ 113,858 $ ( 9,553 ) 7.74 %

There were thirty-five and seven available for sale securities or held to maturity securities as of September 30, 2022 and December 31, 2021, respectively, in which the fair value of the security was less than the amortized cost of the security.

There were thirty-six available for sale securities or held to maturity securities as of March 31, 2023 and December 31, 2022, respectively, in which the fair value of the security was less than the amortized cost of the security.

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

2 unchanged sentences

The corporate bonds are investments in subordinated debt of federally insured banks, the majority of which are callable after five years of origination.

The Company continually monitors its corporate bond, state agency and municipal bond portfolios and at this time these portfolios have minimal default risk because 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 September 30, 2022 until the decline in value has recovered or the security has matured.

Loans Receivable and Allowance for Loan Losses

The following table sets forth a summary of the loan portfolio at September 30, 2022 and December 31, 2021:

(In thousands) September 30, 2022 December 31, 2021

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 bond, 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 March 31, 2023 until the decline in value has recovered or the security has matured.

Loans Receivable and ACL-Loans

The following table sets forth a summary of the loan portfolio at March 31, 2023 and December 31, 2022:

(In thousands) March 31, 2023 December 31, 2022

Real estate loans:

7 unchanged sentences

Total loans 2,759,288 2,675,448

Allowance for loan losses ( 18,167 ) ( 16,902 )

ACL-Loans ( 27,998 ) ( 22,431 )

Deferred loan origination fees, net ( 6,776 ) ( 6,633 )

Loans receivable, net $ 2,724,514 $ 2,646,384

(1) The September 30, 2022 and December 31, 2021 balances include $ 36 thousand and $ 0.2 million, respectively, of Paycheck Protection Program ("PPP") loans made under the CARES Act.

(1) The March 31, 2023 and December 31, 2022 balances include $ 30 thousand and $ 33 thousand, respectively, of Paycheck Protection Program ("PPP") loans made under the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act").

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

3 unchanged sentences

The Company has established credit policies applicable to each type of lending activity in which it engages.

The Company evaluates the creditworthiness of each customer and extends credit of up to 80 % of the market value of the collateral, depending on the borrower's creditworthiness and the type of collateral.

The borrower’s ability to service the debt is monitored on an ongoing basis.

The Company evaluates the creditworthiness of each client and extends credit of up to 85 % of the market value of the collateral, depending on the client's creditworthiness and the type of collateral.

The client’s ability to service the debt is monitored on an ongoing basis.

Real estate is the primary form of collateral.

Other important forms of collateral are business assets, time deposits and marketable securities.

While collateral provides assurance as a secondary source of repayment, the Company ordinarily requires the primary source of repayment for commercial loans to be based on the borrower’s ability to generate continuing cash flows.

While collateral provides assurance as a secondary source of repayment, the Company ordinarily requires the primary source of repayment for commercial loans to be based on the client’s ability to generate continuing cash flows.

In the fourth quarter of 2017, management made the strategic decision to cease the origination of residential mortgage loans.

2 unchanged sentences

In certain situations, the amount may have exceeded 80 % LTV either with private mortgage insurance being required for that portion of the residential loan in excess of 80 % of the appraised value of the property or where secondary financing is provided by a housing authority program second mortgage, a community’s low/moderate income housing program, or a religious or civic organization.

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 the Company's allowance for loan losses.

Credit quality of loans and the Allowance for credit losses - Loans (ACL-Loans)

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

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

14 unchanged sentences

If the estimate of construction cost proves to be inaccurate, the Company may be required to advance additional funds beyond the amount originally committed in order to protect the value of the property.

Moreover, if the estimated value of the completed project proves to be inaccurate, the borrower may hold a property with a value that is insufficient to assure full repayment through sale or refinance.

Construction loans also expose the Company to the risks that improvements will not be completed on time in accordance with specifications and projected costs and that repayment will depend on the successful operation or sale of the properties, which may cause some borrowers to be unable to continue paying debt service, which exposes the Company to greater risk of non-payment and loss.

Moreover, if the estimated value of the completed project proves to be inaccurate, the client may hold a property with a value that is insufficient to assure full repayment through sale or refinance.

Construction loans also expose the Company to the risks that improvements will not be completed on time in accordance with specifications and projected costs and that repayment will depend on the successful operation or sale of the properties, which may cause some clients to be unable to continue paying debt service, which exposes the Company to greater risk of non-payment and loss.

Commercial Business:

This portfolio segment includes commercial business loans secured by assignments of corporate assets and personal guarantees of the business owners.

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 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.

Small Business Administration ("SBA").

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

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

Allowance for loan losses

The following tables set forth the activity in the Company’s allowance for loan losses for the three and nine months ended September 30, 2022 and 2021, by portfolio segment:

Residential Real Estate Commercial Real Estate Construction Commercial Business Consumer Total

(In thousands)

Three Months Ended September 30, 2022

Beginning balance $ 331 $ 11,480 $ 95 $ 3,802 $ 65 $ 15,773

Charge-offs — — — — ( 8 ) ( 8 )

Recoveries — — — 21 — 21

(Credits) provisions ( 159 ) 1,446 38 985 71 2,381

Ending balance $ 172 $ 12,926 $ 133 $ 4,808 $ 128 $ 18,167

Residential Real Estate Commercial Real Estate Construction Commercial Business Consumer Total

(In thousands)

Three Months Ended September 30, 2021

Beginning balance $ 318 $ 13,209 $ 133 $ 2,976 $ 36 $ 16,672

Charge-offs — — — — ( 15 ) ( 15 )

Recoveries — — — 11 1 12

Provisions (credits) 158 37 9 ( 84 ) 14 134

Ending balance $ 476 $ 13,246 $ 142 $ 2,903 $ 36 $ 16,803

The following tables set forth the activity in the Company’s ACL-Loans for the three months ended March 31, 2023 and 2022, by portfolio segment:

Residential Real Estate Commercial Real Estate Construction Commercial Business Consumer Total

(In thousands)

Nine Months Ended September 30, 2022

Beginning balance $ 504 $ 12,751 $ 4 $ 3,590 $ 53 $ 16,902

Three Months Ended March 31, 2023

Balance As of December 31, 2022 $ 163 $ 15,597 $ 311 $ 6,214 $ 146 $ 22,431

Day 1 effect of CECL 80 4,987 611 ( 1,125 ) 526 5,079

Balance as of January 1, 2023 as adjusted for changes in accounting principle 243 20,584 922 5,089 672 27,510

Charge-offs — — — ( 440 ) ( 12 ) ( 452 )

Recoveries — — — — 6 6

(Credits) provisions ( 332 ) 98 129 1,184 86 1,165

(Credit) provision for credit losses ( 36 ) ( 1,171 ) 148 1,944 49 934

Ending balance $ 207 $ 19,413 $ 1,070 $ 6,593 $ 715 $ 27,998

1 unchanged sentence

(In thousands)

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Beginning balance $ 504 $ 12,751 $ 4 $ 3,590 $ 53 $ 16,902

1 unchanged sentence

Recoveries — — — 13 1 14

(Credits) provisions ( 134 ) 798 ( 79 ) ( 826 ) 59 ( 182 )

(Credit) provision for credit losses ( 146 ) 690 52 ( 349 ) ( 18 ) 229

Ending balance $ 358 $ 13,441 $ 56 $ 3,254 $ 32 $ 17,141

Loans evaluated for impairment and the related allowance for loan losses as of September 30, 2022 and December 31, 2021 were as follows:

Portfolio Allowance

We evaluate whether a modification, extension or renewal of a loan is a current period origination in accordance with GAAP.

Generally, loans up for renewal are subject to a full credit evaluation before the renewal is granted and such loans are considered current period originations for purpose of the tables below.

The following tables present loans by origination and risk designation as of March 31, 2023 and December 31, 2022 (dollars in thousands):

Amortized Cost Balances by Origination Year

2023 2022 2021 2020 2019 Prior Total

Residential Real Estate Loans

Pass $ — $ — $ — $ — $ — $ 54,803 $ 54,803

Special Mention — — — — — 147 147

Substandard — — — — — 3,826 3,826

Doubtful — — — — — — —

Total Residential Real Estate Loans $ — $ — $ — $ — $ — $ 58,776 $ 58,776

Residential Real Estate charge-off

Current period net charge-offs $ — $ — $ — $ — $ — $ — $ —

Commercial Real Estate Loans

Pass $ 54,011 $ 793,547 $ 359,064 $ 105,991 $ 141,531 $ 483,273 $ 1,937,417

Special Mention — — — — — 1,095 1,095

Substandard — — 10,981 — — 13,363 24,344

Doubtful — — — — — 60 60

Total Commercial Real Estate Loans $ 54,011 $ 793,547 $ 370,045 $ 105,991 $ 141,531 $ 497,791 $ 1,962,916

Commercial Real Estate charge-off

Current period net charge-offs $ — $ — $ — $ — $ — $ — $ —

Construction Loans

Pass $ 8,936 $ 92,374 $ 20,582 $ 37,754 $ 8,008 $ — $ 167,654

Special Mention — — — — — — —

Substandard — — — — — 9,362 9,362

Doubtful — — — — — — —

Total Construction Loans $ 8,936 $ 92,374 $ 20,582 $ 37,754 $ 8,008 $ 9,362 $ 177,016

Construction charge-off

Current period net charge-offs $ — $ — $ — $ — $ — $ — $ —

Commercial Business Loans

Pass $ 53,578 $ 312,321 $ 111,242 $ 12,212 $ 11,799 $ 40,108 $ 541,260

Special Mention — — 253 — — — 253

Substandard — — — — — 2,192 2,192

Doubtful — — — — 1,328 208 1,536

Total Commercial Business Loans $ 53,578 $ 312,321 $ 111,495 $ 12,212 $ 13,127 $ 42,508 $ 545,241

Commercial Business charge-off

Current period net charge-offs $ ( 1 ) $ — $ — $ — $ 440 $ — $ 439

Consumer Loans

Pass $ 1,510 $ 16,507 $ — $ — $ 1 $ 44 $ 18,062

Special Mention — — — — — — —

Substandard — — — — — — —

Doubtful — — — — — — —

Total Consumer Loans $ 1,510 $ 16,507 $ — $ — $ 1 $ 44 $ 18,062

Consumer charge-off

Current period net charge-offs $ 7 $ — $ — $ — $ — $ — $ 7

Pass $ 118,035 $ 1,214,749 $ 490,888 $ 155,957 $ 161,339 $ 578,228 $ 2,719,196

Special Mention — — 253 — — 1,242 1,495

Substandard — — 10,981 — — 28,743 39,724

Doubtful — — — — 1,328 268 1,596

Total Loans $ 118,035 $ 1,214,749 $ 502,122 $ 155,957 $ 162,667 $ 608,481 $ 2,762,011

Total charge-off

Current period net charge-offs $ 6 $ — $ — $ — $ 440 $ — $ 446

Amortized Cost Balances by Origination Year

2022 2021 2020 2019 2018 Prior Total

Residential Real Estate Loans

Pass $ — $ — $ — $ — $ 145 $ 56,670 $ 56,815

Special Mention — — — — — 147 147

Substandard — — — — 40 3,819 3,859

Doubtful — — — — — — —

Total Residential Real Estate Loans $ — $ — $ — $ — $ 185 $ 60,636 $ 60,821

Residential Real Estate charge-off

Current period net charge-offs $ — $ — $ — $ — $ — $ — $ —

Commercial Real Estate Loans

Pass $ 793,594 $ 364,308 $ 102,569 $ 142,681 $ 80,424 $ 415,810 $ 1,899,386

Special Mention — — — — — 471 471

Substandard — 10,977 — — — 14,252 25,229

Doubtful — — — — — 67 67

Total Commercial Real Estate Loans $ 793,594 $ 375,285 $ 102,569 $ 142,681 $ 80,424 $ 430,600 $ 1,925,153

Commercial Real Estate charge-off

Current period net charge-offs $ ( 76 ) $ — $ — $ — $ — $ — $ ( 76 )

Construction Loans

Pass $ 85,559 $ 15,379 $ 36,766 $ 7,902 $ — $ — $ 145,606

Special Mention — — — — — — —

Substandard — — — — — 9,362 9,362

Doubtful — — — — — — —

Total Construction Loans $ 85,559 $ 15,379 $ 36,766 $ 7,902 $ — $ 9,362 $ 154,968

Construction charge-off

Current period net charge-offs $ — $ — $ — $ — $ — $ — $ —

Commercial Business Loans

Pass $ 326,881 $ 122,914 $ 13,048 $ 12,752 $ 7,066 $ 36,009 $ 518,670

Special Mention — — — — — — —

Substandard — — — 1,768 8 2,339 4,115

Doubtful — — — — — 215 215

Total Commercial Business Loans $ 326,881 $ 122,914 $ 13,048 $ 14,520 $ 7,074 $ 38,563 $ 523,000

Commercial Business charge-off

Current period net charge-offs $ ( 24 ) $ — $ — $ — $ — $ ( 11 ) $ ( 35 )

Consumer Loans

Pass $ 16,490 $ — $ — $ — $ — $ 45 $ 16,535

Special Mention — — — — — — —

Substandard — — — — — — —

Doubtful — — — — — — —

Total Consumer Loans $ 16,490 $ — $ — $ — $ — $ 45 $ 16,535

Consumer charge-off

Current period net charge-offs $ 18 $ — $ — $ — $ — $ 1 $ 19

Pass $ 1,222,524 $ 502,601 $ 152,383 $ 163,335 $ 87,635 $ 508,534 $ 2,637,012

Special Mention — — — — — 618 618

Substandard — 10,977 — 1,768 48 29,772 42,565

Doubtful — — — — — 282 282

Total Loans $ 1,222,524 $ 513,578 $ 152,383 $ 165,103 $ 87,683 $ 539,206 $ 2,680,477

Total charge-off

Current period net charge-offs $ ( 82 ) $ — $ — $ — $ — $ ( 10 ) $ ( 92 )

Loans evaluated for impairment and the related ACL-Loans as of March 31, 2023 and December 31, 2022 were as follows:

Portfolio ACL-Loans

(In thousands)

September 30, 2022

March 31, 2023

Loans individually evaluated for impairment:

12 unchanged sentences

Total $ 2,759,288 $ 27,998

Portfolio Allowance

Portfolio ACL-Loans

(In thousands)

17 unchanged sentences

This risk rating represents an assessed level of a 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.

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.

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 ACL-Loans.

The Company’s credit risk rating system has nine grades, with each grade corresponding to a progressively greater risk of default.

10 unchanged sentences

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

The following tables present credit risk ratings by loan segment as of September 30, 2022 and December 31, 2021:

The following tables present credit risk ratings by loan segment as of March 31, 2023 and December 31, 2022:

Commercial Credit Quality Indicators

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

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

7 unchanged sentences

Residential and Consumer Credit Quality Indicators

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Residential Real Estate Consumer Total Residential Real Estate Consumer Total

15 unchanged sentences

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

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

As of September 30, 2022, 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 September 30, 2022 and December 31, 2021:

September 30, 2022

The following tables set forth certain information with respect to the Company's loan portfolio delinquencies by portfolio segment as of March 31, 2023 and December 31, 2022:

March 31, 2023

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

17 unchanged sentences

Total loans $ 2,058 $ — $ 14,003 $ 16,061 $ 2,659,387 $ 2,675,448

There were no loans delinquent greater than 90 days and still accruing interest as of September 30, 2022.

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 were a result of an administrative delay.

There w ere no lo ans delinquent greater than 90 days and still accruing interest as of March 31, 2023 or December 31, 2022.

Loans on nonaccrual status

The following is a summary of nonaccrual loans by portfolio segment as of September 30, 2022 and December 31, 2021:

September 30, 2022 December 31, 2021

The following is a summary of nonaccrual loans by portfolio segment as of March 31, 2023 and December 31, 2022:

March 31, 2023 December 31, 2022

(In thousands)

4 unchanged sentences

Total $ 14,265 $ 16,441

Interest income on loans that would have been recognized if loans on nonaccrual status had been current in accordance with their original terms for the nine months ended September 30, 2022 and 2021 was $ 0.7 million and $ 0.9 million, respectively.

There was $ 0 thousand and $ 49 thousand of interest income recognized on these loans for the nine months ended September 30, 2022 and 2021, respectively.

At September 30, 2022 and December 31, 2021, there were no commitments to lend additional funds to any borrower on nonaccrual status.

Nonaccrual loans with no specific reserve totaled $ 14.9 million and $ 14.2 million at September 30, 2022 and December 31, 2021, respectively, as these loans were deemed to be adequately collateralized.

Impaired loans

An impaired loan is generally one for which it is probable, based on current information, that the Company will not collect all the amounts due in accordance with the contractual terms of the loan.

Impaired loans are individually evaluated for impairment.

Interest income on loans that would have been recognized if loans on nonaccrual status had been current in accordance with their original terms for the three months ended March 31, 2023 and 2022 was $ 3.2 million and $ 0.2 million, respectively.

At March 31, 2023 and December 31, 2022, there were no commitments to lend additional funds to any borrower on nonaccrual status.

Nonaccrual loans with no specific reserve totaled $ 14.3 million and $ 14.7 million at March 31, 2023 and December 31, 2022, respectively, as these loans were deemed to be adequately collateralized.

Individually evaluated loans

An individually evaluated loan is generally one for which it is probable, based on current information, that the Company will not collect all the amounts due in accordance with the contractual terms of the loan.

Individually evaluated loans are individually evaluated for impairment.

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

The following table summarizes impaired loans by portfolio segment as of September 30, 2022 and December 31, 2021:

Carrying Amount Unpaid Principal Balance Associated Allowance

September 30, 2022 December 31, 2021 September 30, 2022 December 31, 2021 September 30, 2022 December 31, 2021

The following table summarizes individually evaluated loans by portfolio segment as of March 31, 2023 and December 31, 2022:

Carrying Amount Unpaid Principal Balance Associated ACL-Loans

March 31, 2023 December 31, 2022 March 31, 2023 December 31, 2022 March 31, 2023 December 31, 2022

(In thousands)

Impaired loans without a valuation allowance:

Individually evaluated loans without a valuation allowance:

Residential real estate $ 3,811 $ 3,846 $ 4,085 $ 4,104 $ — $ —

2 unchanged sentences

Commercial business 2,386 2,551 2,629 2,793 — —

Total impaired loans without a valuation allowance 16,841 21,124 17,615 22,315 — —

Impaired loans with a valuation allowance:

Residential real estate $ — $ 2,299 $ — $ 2,304 $ — $ 261

Commercial real estate 24,401 21,328 24,440 21,367 871 2,520

Commercial business 2,000 2,430 2,000 2,429 44 87

Total impaired loans with a valuation allowance 26,401 26,057 26,440 26,100 915 2,868

Total impaired loans $ 43,242 $ 47,181 $ 44,055 $ 48,415 $ 915 $ 2,868

The following tables summarize the average carrying amount of impaired loans and interest income recognized on impaired loans by portfolio segment for the three and nine months ended September 30, 2022 and 2021:

Average Carrying Amount Interest Income Recognized

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

2022 2021 2022 2021

(In thousands)

Impaired loans without a valuation allowance:

Residential real estate $ 3,864 $ 3,058 $ 21 $ 13

Commercial real estate 1,082 10,153 — 72

Commercial business 2,585 1,987 6 5

Construction 9,382 8,997 — —

Total impaired loans without a valuation allowance 16,913 24,195 27 90

Impaired loans with a valuation allowance:

Total individually evaluated loans without a valuation allowance 17,491 18,561 18,178 19,387 — —

Individually evaluated loans with a valuation allowance:

Residential real estate $ — $ — $ — $ — $ — $ —

1 unchanged sentence

Commercial business 1,319 1,758 1,759 1,758 — 147

Total impaired loans with a valuation allowance 26,419 24,839 168 92

Total impaired loans $ 43,332 $ 49,034 $ 195 $ 182

Total individually evaluated loans with a valuation allowance 23,790 24,269 24,230 24,269 720 901

Total individually evaluated loans $ 41,281 $ 42,830 $ 42,408 $ 43,656 $ 720 $ 901

The following table summarizes the average carrying amount of individually evaluated loans and interest income recognized on individually evaluated loans by portfolio segment for the three months ended March 31, 2023 and 2022:

Average Carrying Amount Interest Income Recognized

Nine Months Ended

September 30, Nine Months Ended

September 30,

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

2023 2022 2023 2022

(In thousands)

Impaired loans without a valuation allowance:

Individually evaluated loans without a valuation allowance:

Residential real estate $ 3,830 $ 1,647 $ — $ —

2 unchanged sentences

Construction 9,382 9,093 — —

Total impaired loans without a valuation allowance 16,957 24,216 61 481

Impaired loans with a valuation allowance:

Total individually evaluated loans without a valuation allowance 17,519 20,076 64 75

Individually evaluated loans with a valuation allowance:

Residential real estate $ — $ 2,289 $ — $ 12

1 unchanged sentence

Commercial business 1,419 2,244 — 14

Total impaired loans with a valuation allowance 26,537 26,949 474 606

Total impaired loans $ 43,494 $ 51,165 $ 535 $ 1,087

Troubled debt restructurings ("TDRs")

Modifications to a loan are considered to be a troubled debt restructuring when both of the following conditions are met:

1) the borrower is experiencing financial difficulties and 2) the modification constitutes a concession that is not in line with market rates and/or terms.

Total individually evaluated loans with a valuation allowance 23,911 25,881 156 118

Total individually evaluated loans $ 41,430 $ 45,957 $ 220 $ 193

Loan Modifications

A loan will be considered modified when both of the following conditions are met:

1) the borrower is experiencing financial difficulties and 2) the modification constitutes a direct change in contractual cash flows.

Modified terms are dependent upon the financial position and needs of the individual borrower.

Troubled debt restructurings are classified as impaired loans.

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

If a nonperforming loan is restructured into a TDR, it continues to be carried in nonaccrual status.

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

Loans classified as TDRs totaled $ 22.3 million at September 30, 2022 and $ 25.8 million at December 31, 2021.

The following tables provide information on loans that were modified as TDRs during the periods indicated.

Number of Loans Pre-Modification Post-Modification

(Dollars in thousands) 2022 2021 2022 2021 2022 2021

Three Months Ended September 30,

Commercial real estate — 1 $ — $ 10,317 $ — $ 10,402

Total — 1 $ — $ 10,317 $ — $ 10,402

Loan modifications were $ 22.0 million and $ 22.2 million for March 31, 2023 and December 31, 2022, respectively.

The following table provides information on loans that were modified during the periods indicated.

Number of Loans Pre-Modification Post-Modification

(Dollars in thousands) 2023 2022 2023 2022 2023 2022

Nine Months Ended September 30,

Three Months Ended March 31,

Residential real estate — — $ — $ — $ — $ —

2 unchanged sentences

Total — — $ — $ — $ — $ —

At September 30, 2022 and December 31, 2021, there were six nonaccrual loans identified as TDRs totaling $ 2.5 million and five nonaccrual loans identified as TDRs totaling $ 2.0 million, respectively.

There were no loans modified in a troubled debt restructuring that re-defaulted during the nine months ended September 30, 2022 and September 30, 2021.

The following table provides information on how loans were modified as TDRs during the three and nine months ended September 30, 2022 and September 30, 2021.

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

2022 2021 2022 2021

The following table provides information on how loans were modified during the three months ended March 31, 2023 and March 31, 2022.

Three Months Ended March 31,

(In thousands)

3 unchanged sentences

Total $ — $ —

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

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

Allowance for credit losses (ACL)-Unfunded Commitments

As part of adoption of CECL, the Company has recorded ACL-Unfunded Commitments in A ccrued expenses and other liabilities .

The provision is recorded within the Provision for credit losses on the Company’s Consolidated Statements of Income.

The following table presents a rollforward of the ACL-Unfunded Commitments for the three months ended March 31, 2023 and March 31, 2022:

Three Months Ended March 31,

(In thousands)

Balance at Beginning of period $ 80 $ 170

Reversal of prior unfunded reserve ( 80 ) —

Day 1 effect of CECL 1,273 —

(Credit) for credit losses (unfunded commitments) 1

( 108 ) ( 135 )

Balance at end of period $ 1,165 $ 35

(1) In 2022, unfunded commitments was recorded as "Other" in noninterest expense.

Components of Provision for Credit Losses

The following table summarizes the Provision for credit losses for the three months ended March 31, 2023 and March 31, 2022:

Three Months Ended March 31,

(In thousands)

Provision for credit losses (loans) $ 934 $ 229

(Credit) for credit losses (unfunded commitments) 1

Provision for credit losses $ 826 $ 229

(1) In 2022, unfunded commitments was recorded as "Other" in noninterest expense.

Shareholders' Equity

The Company has 10,000,000 shares authorized and 7,711,843 shares issued and outstanding at September 30, 2022 and 10,000,000 shares authorized and 7,803,166 shares issued and outstanding at December 31, 2021.

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

The Company has 10,000,000 shares authorized and 7,843,438 shares issued and outstanding at March 31, 2023 and 10,000,000 shares authorized and 7,730,699 shares issued and outstanding at December 31, 2022.

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

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

6 unchanged sentences

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

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

During the nine months ended September 30, 2022, the Company purchased 166,375 shares of its Common Stock at a weighted average price of $ 33.30 per share.

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

During the three months ended March 31, 2023, the Company purchased no shares of its Common Stock .

During the year ended December 31, 2022, the Company purchased 166,375 shares of its Common Stock at a weighted average price of $ 33.30 per share.

1 unchanged sentence

Comprehensive income represents the sum of net income and items of other comprehensive income or loss, including net unrealized gains or losses on securities available for sale and net unrealized gains or losses on derivatives.

The Company's derivative instruments are utilized to manage economic risks, including interest rate risk.

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

The Company’s total comprehensive income or loss for the three and nine months ended September 30, 2022 and September 30, 2021 is reported in the Consolidated Statements of Comprehensive Income.

The following tables present the changes in accumulated other comprehensive income (loss) by component, net of tax for the three and nine months ended September 30, 2022 and September 30, 2021:

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

(In thousands)

Balance at June 30, 2022 $ ( 3,546 ) $ 3,891 $ 345

Other comprehensive (loss) income before reclassifications, net of tax ( 3,447 ) 3,095 ( 352 )

Amounts reclassified from accumulated other comprehensive income, net of tax — ( 193 ) ( 193 )

Net other comprehensive (loss) income ( 3,447 ) 2,902 ( 545 )

Balance at September 30, 2022 $ ( 6,993 ) $ 6,793 $ ( 200 )

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

(In thousands)

Balance at June 30, 2021 $ 2,482 $ ( 12,681 ) $ ( 10,199 )

Other comprehensive (loss) income before reclassifications, net of tax ( 319 ) 400 81

Amounts reclassified from accumulated other comprehensive income, net of tax — 715 715

Net other comprehensive (loss) income ( 319 ) 1,115 796

Balance at September 30, 2021 $ 2,163 $ ( 11,566 ) $ ( 9,403 )

The Company's de rivative instruments are utilized to manage economic risks, including interest rate risk.

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

The Company’s total compreh ensive income or loss for the three months ended March 31, 2023 and March 31, 2022 is reported in the Consolidated Statements of Comprehensive Income.

The following tables present the changes in accumulated other comprehensive income (loss) by component, net of tax for the three months ended March 31, 2023 and March 31, 2022:

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

4 unchanged sentences

Net other comprehensive (loss) income 634 ( 1,579 ) ( 945 )

Balance at September 30, 2022 $ ( 6,993 ) $ 6,793 $ ( 200 )

Balance at March 31, 2023 $ ( 6,116 ) $ 4,982 $ ( 1,134 )

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

4 unchanged sentences

Net other comprehensive (loss) income ( 3,703 ) 8,555 4,852

Balance at September 30, 2021 $ 2,163 $ ( 11,566 ) $ ( 9,403 )

Balance at March 31, 2022 $ ( 2,052 ) $ ( 1,657 ) $ ( 3,709 )

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

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

2022 2021 2022 2021

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

(In thousands)

11 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(In thousands, except per share data)

19 unchanged sentences

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

As of September 30, 2022, the Bank and Company met all capital adequacy requirements to which they are subject.

As of March 31, 2023, the Bank and Company met all capital adequacy requirements to which they are subject.

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

The capital amounts and ratios for the Bank and the Company at September 30, 2022 and December 31, 2021 were as follows:

The capital amounts and ratios for the Bank and the Company at March 31, 2023 and December 31, 2022 were as follows:

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

2 unchanged sentences

Bankwell Bank

September 30, 2022

March 31, 2023

Common Equity Tier 1 Capital to Risk-Weighted Assets $ 298,897 10.17 % $ 205,736 7.00 % $ 191,041 6.50 %

3 unchanged sentences

Bankwell Financial Group, Inc.

September 30, 2022

March 31, 2023

Common Equity Tier 1 Capital to Risk-Weighted Assets $ 240,296 8.18 % $ 205,736 7.00 % N/A N/A

22 unchanged sentences

Reserve Requirements on Cash

The Bank was not required to maintain a minimum reserve balance in the Federal Reserve Bank (FRB) at September 30, 2022 or December 31, 2021 as the FRB has waived this requirement due to the COVID-19 pandemic.

At September 30, 2022 and December 31, 2021, deposits consisted of the following:

September 30, 2022 December 31, 2021

The Bank was not required to maintain a minimum reserve balance in the Federal Reserve Bank (FRB) at March 31, 2023 or December 31, 2022 as the FRB has waived this requirement due to the COVID-19 pandemic.

At March 31, 2023 and December 31, 2022, deposits consisted of the following:

March 31, 2023 December 31, 2022

(In thousands)

7 unchanged sentences

Total deposits $ 2,798,308 $ 2,800,818

Maturities of time certificates of deposit as of September 30, 2022 and December 31, 2021 are summarized below:

September 30, 2022 December 31, 2021

Maturities of time certificates of deposit as of March 31, 2023 and December 31, 2022 are summarized below:

March 31, 2023 December 31, 2022

(In thousands)

2 unchanged sentences

2025 5,837 5,927

2025 7,802 33

Total $ 1,338,557 $ 1,226,390

The aggregate amount of individual certificate accounts, including brokered deposits with balances of $250,000 or more, was approximately $ 610.4 million at September 30, 2022 and $ 305.7 million at December 31, 2021.

Brokered certificates of deposits totaled $ 587.5 million at September 30, 2022 and $ 249.4 million at December 31, 2021.

There were no certificates of deposits from national listing services at September 30, 2022 or December 31, 2021.

Brokered money market accounts totaled $ 30.2 million at September 30, 2022 and $ 104.0 million at December 31, 2021.

The following table summarizes interest expense on deposits by account type for the three and nine months ended September 30, 2022 and 2021:

Three Months Ended

September 30, Nine Months Ended September 30,

2022 2021 2022 2021

The aggregate amount of individual certificate accounts, with balances of $250,000 or more, was $ 109.3 million at March 31, 2023 and $ 74.6 million at December 31, 2022.

The following table summarizes interest expense on deposits by account type for the three months ended March 31, 2023 and 2022:

Three Months Ended March 31,

(In thousands)

6 unchanged sentences

Equity award plans

The Company has stock options or unvested restricted stock outstanding under three equity award plans, which are collectively referred to as the “Plan”.

The Company has stock options or unvested restricted stock outstanding under three equity award plans, which are collectively referred to as the “Stock Plans”.

The current plan under which any future issuances of equity awards will be made is the 2022 Bankwell Financial Group, Inc.

2 unchanged sentences

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

At September 30, 2022, there were 470,169 shares reserved for future issuance under the 2022 Plan.

At March 31, 2023, there were 347,254 shares reserved for future issuance under the 2022 Plan.

Stock Options :

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

There were no options granted during the nine months ended September 30, 2022.

A summary of the status of outstanding stock options for the nine months ended September 30, 2022 is presented below:

Nine Months Ended September 30, 2022

There were no options granted during the three months ended March 31, 2023.

A summary of the status of outstanding stock options for the three months ended March 31, 2023 is presented below:

Three Months Ended March 31, 2023

Number of Shares Weighted Average Exercise Price

3 unchanged sentences

Options exercisable at end of period — —

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

The total intrinsic value of share options exercised during the nine months ended September 30, 2022 was $ 52 thousand.

The exercise price for the 8,680 options exercisable at September 30, 2022 was $ 17.86 per share.

The weighted average remaining contractual life for these options was 0.6 years at September 30, 2022.

At September 30, 2022, as all awarded options have vested, all of the outstanding options are exercisable, and the aggregate intrinsic value of these options was $ 98 thousand.

As of March 31, 2023, all awarded options have vested.

Restricted Stock :

2 unchanged sentences

Restricted stock awards generally vest over one to five years .

The following table presents the activity for restricted stock for the nine months ended September 30, 2022:

Nine Months Ended September 30, 2022

The following table presents the activity for restricted stock for the three months ended March 31, 2023:

Three Months Ended March 31, 2023

Number of Shares Weighted Average Grant Date Fair Value

7 unchanged sentences

(3) Includes 22,242 shares of performance based restricted stock

The total fair value of restricted stock awards vested during the nine months ended September 30, 2022 was $ 1.9 million.

The Company's restricted stock expense for the nine months ended September 30, 2022 and September 30, 2021 was $ 1.9 million and $ 1.4 million, respectively.

At September 30, 2022, there was $ 4.0 million of unrecognized stock compensation expense for restricted stock, expected to be recognized over a weighted average period of 1.7 years.

The total fair value of restricted stock awards vested during the three months ended March 31, 2023 was $ 2.1 million.

The Company's restricted stock expense for the three months ended March 31, 2023 and March 31, 2022 was $ 0.7 million and $ 0.5 million, respectively.

At March 31, 2023, there was $ 6.2 million of unrecognized stock compensation expense for restricted stock, expected to be recognized over a weighted average period of 1.8 years.

Performance Based Restricted Stock :

The Company has 41,569 shares of performance based restricted stock outstanding as of September 30, 2022 pursuant to the Company’s 2012 BNC Financial Group, Inc.

The Company has 43,567 shares of performance based restricted stock outstanding as of March 31, 2023 pursuant to the Company’s Stock Plans.

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

4 unchanged sentences

The Company does not use derivatives for speculative purposes.

As of September 30, 2022, the Company was a party to six 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.

The Company terminated two swaps with a total notional amount of $ 50 million during the three months ended June 30, 2022.

As of March 31, 2023, the Company was a party to five cash flow swaps, designated as hedging instruments, to add stability to interest expense and to manage its exposure to the variability of the future cash fl ows 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 cash flow swaps to convert rolling 90 days Federal Home Loan Bank advances or brokered deposits.

Cash flow swaps with a positive fair value are recorded as other assets and cash flow swaps with a negative fair value are recorded as other liabilities on the Consolidated Balance Sheets.

The Company terminated two cash flow swaps with a total notional amount of $ 50 million during the year ended December 31, 2022.

The underlying debt associated with the terminated swaps was kept in place.

The fair value of the terminated swaps totaled $ 158.1 thousand as of September 30, 2022.

The fair value of the terminated swaps totaled $ 151.3 thousand as of March 31, 2023.

The fair value of the terminated swaps will be reclassified from other comprehensive income to interest expense on a straight line basis over the original term of the hedging relationship.

As of September 30, 2022, the Company has four interest rate swaps not designated as hedging instruments, to minimize interest rate risk exposure with loans to customers.

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

The Company entered into one pay-fixed portfolio layer method fair value swap, designated as a hedging instrument, with a total notional amount of $ 150 million in the first quarter of 2023.

The Company is designating the fair value swap under the portfolio layer method (“PLM”).

Under this method, the hedged item is designated as a hedged layer of a closed portfolio of financial loans that is anticipated to remain outstanding for the designated hedged period.

Adjustments will be made to record the swap at fair value on the Consolidated Balance Sheets, with changes in fair value recognized in interest income.

The carrying value of the fair value swap on the Consolidated Balance Sheets will also be adjusted through interest income, based on changes in fair value attributable to changes in the hedged risk.

The following table represents the carrying value of the portfolio layer method hedged asset and the cumulative fair value hedging adjustment included in the carrying value of the hedged asset as of March 31, 2023 and December 31, 2022:

March 31, 2023 December 31, 2022

Carrying Value of Hedged Asset Hedged Asset

(In thousands)

Fixed Rate Asset (1)

$ 152,403 $ — $ 2,403 $ —

(1) These amounts include the amortized cost basis of closed portfolios of fixed rate loans used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolio anticipated to be outstanding for the designated hedged period.

As of March 31, 2023, the amortized cost basis of the closed portfolio used in this hedging relationship was $ 706.7 million, the cumulative basis adjustments associated with this hedging relationship was $ 2.4 million, and the amount of the designated hedged item was $ 150.0 million.

As of March 31, 2023, the Company has interest rate swaps not designated as hedging instruments, to minimize interest rate risk exposure with loans to clients.

The Company accounts for all non-client related interest rate swaps as either effective cash flow or fair value swaps.

None of the interest rate swap agreements contain any credit risk related contingent features.

A hedging instrument is expected at inception to be highly effective at offsetting changes in the hedged transactions attributable to the changes in the hedged risk.

Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain loan customers.

The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies.

Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain loan clients.

The Company executes interest rate swaps with commercial banking clients to facilitate their respective risk management strategies.

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

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

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

Information about derivative instruments at September 30, 2022 and December 31, 2021 is as follows:

As of September 30, 2022

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

Information about derivative instruments at March 31, 2023 and December 31, 2022 is as follows:

As of March 31, 2023

Derivative Assets Derivative Liabilities

2 unchanged sentences

Derivatives designated as hedging instruments:

Interest rate swaps $ 150,000 Other assets $ 8,587 $ — Accrued expenses and other liabilities $ —

Cash flow swaps $ 125,000 Other assets $ 6,314 $ — Accrued expenses and other liabilities $ —

Fair value swap $ 150,000 Other assets $ — $ — Accrued expenses and other liabilities $ 2,394

Derivatives not designated as hedging instruments:

Interest rate swaps (1)

Cash flow swaps (1)

$ 38,500 Other assets $ 3,234 $ 38,500 Accrued expenses and other liabilities $ 3,234

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

Accrued interest receivable related to interest rate swaps as of September 30, 2022 totaled $ 271.5 thousand and is excluded from the fair value presented in the table above.

The fair value of interest rate swaps in a net asset position, including accrued interest, totaled $ 8.9 million as of September 30, 2022.

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

Accrued interest receivable related to interest rate swaps as of March 31, 2023 totaled $ 0.7 million and is excluded from the fair value p resented in the table above.

The fair value of interest rate swaps in a net asset position, including accrued interest, totaled $ 7.0 million as of March 31, 2023.

The fair value of interest rate swaps in a net liability position, including accrued interest, totaled $ 2.4 million a s of March 31, 2023.

As of December 31, 2022

3 unchanged sentences

Derivatives designated as hedging instruments:

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

Cash flow swaps $ 125,000 Other assets $ 8,292 $ — Accrued expenses and other liabilities $ —

Derivatives not designated as hedging instruments:

1 unchanged sentence

$ 35,522 Other assets $ 4,207 $ 35,522 Accrued expenses and other liabilities $ 4,207

(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, 2021 totaled $ 0.6 million and is excluded from the fair value presented in the table above.

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

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.

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

Accrued interest receivable related to interest rate swaps as of December 31, 2022 totaled $ 0.5 million and is excluded from the fair value presented in the table above.

The fair value of interest rate swaps in a net asset position, including accrued interest, totaled $ 8.8 million as of December 31, 2022.

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

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

The Company expects to reclassify $ 3.9 million to reduce 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 Company assesses the cash flow swaps hedge 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 Company does not offset derivative assets and derivative liabilities for financial statement presentation purposes.

Changes in the consolidated statements of comprehensive income (loss) related to interest rate derivatives designated as hedges of cash flows were as follows for the three and nine months ended September 30, 2022 and September 30, 2021:

Three Months Ended

September 30, Nine Months Ended September 30,

The Company assesses the effectiveness of the fair value swap hedge with a regression analysis that compares the changes in forward curves to determine the value.

The effective portion of changes in the fair value of derivatives designated as fair value hedges is recorded through interest income.

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

Changes in the consolidated statements of comprehensive income (loss) related to interest rate derivatives designated as hedges of cash flows were as follows for the three months ended March 31, 2023 and March 31, 2022:

Three Months Ended March 31,

(In thousands) 2023 2022

2 unchanged sentences

Amounts reclassified from accumulated other comprehensive income ( 982 ) 842

Income tax (expense) benefit on items recognized in accumulated other comprehensive income ( 835 ) ( 321 ) ( 4,892 ) ( 1,918 )

Income tax benefit (expense) on items recognized in accumulated other comprehensive income 402 ( 2,461 )

Other comprehensive income (loss) $ ( 1,579 ) $ 8,555

1 unchanged sentence

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

The following tables summarize gross and net information about derivative instruments that are offset in the Consolidated Balance Sheets at September 30, 2022 and December 31, 2021:

September 30, 2022

The following table summarizes the effect of the fair value hedging relationship recognized in the consolidated statements of income for the three months ended March 31, 2023 and March 31, 2022:

Three Months Ended March 31,

(In thousands) 2023 2022

Gain (loss) on fair value hedging relationship:

Hedged asset $ 2,403 $ —

Fair value derivative designated as hedging instrument ( 2,353 ) —

Total gain recognized in the consolidated statements of income within interest and fees on loans $ 51 $ —

The following tables summarize gross and net information about derivative instruments that are offset in the Consolidated Balance Sheets at March 31, 2023 and December 31, 2022:

March 31, 2023

(In thousands)

Gross Amounts Not Offset in the Consolidated Balance Sheets

3 unchanged sentences

(1) Includes accrued interest receivable totaling $ 672 thousand.

September 30, 2022

March 31, 2023

(In thousands)

3 unchanged sentences

Derivative Liabilities $ 5,650 $ — $ 5,650 $ — $ — $ 5,650

(1) Includes accrued interest payable totaling $ 18 thousand.

(1) Includes net accrued interest payable totaling $ 22 thousand.

December 31, 2022

4 unchanged sentences

Derivative Assets $ 13,097 $ — $ 13,097 $ — $ 12,771 $ 326

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

(1) Includes accrued interest receivable totaling $ 599 thousand.

December 31, 2022

4 unchanged sentences

Derivative Liabilities $ 4,258 $ — $ 4,258 $ — $ — $ 4,258

(1) Includes accrued interest payable totaling $ 558 thousand.

(1) Includes no accrued interest.

Fair Value of Financial Instruments

14 unchanged sentences

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

The carrying values, fair values and placement in the fair value hierarchy of the Company's financial instruments at September 30, 2022 and December 31, 2021 were as follows:

September 30, 2022

The carrying values, fair values and placement in the fair value hierarchy of the Company's financial instruments at March 31, 2023 and December 31, 2022 were as follows:

March 31, 2023

Carrying Value Fair Value Level 1 Level 2 Level 3

11 unchanged sentences

Derivative asset 9,548 9,548 — 9,548 —

Assets held for sale — — — — —

Financial Liabilities:

66 unchanged sentences

Financial instruments measured at fair value on a recurring basis

The following table details the financial instruments carried at fair value on a recurring basis at September 30, 2022 and December 31, 2021, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine the fair value.

The Company had no transfers into or out of Levels 1, 2 or 3 during the nine months ended September 30, 2022 and for the year ended December 31, 2021.

The following table details the financial instruments carried at fair value on a recurring basis at March 31, 2023 and December 31, 2022, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine the fair value.

The Company had no transfers into or out of Levels 1, 2 or 3 during the three months ended March 31, 2023 and for the year ended December 31, 2022.

(In thousands) Level 1 Level 2 Level 3

September 30, 2022:

March 31, 2023:

Marketable equity securities $ 2,028 $ — $ —

22 unchanged sentences

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

The following table details the financial instruments measured at fair value on a nonrecurring basis at September 30, 2022 and December 31, 2021, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine the fair value:

The following table details the financial instruments measured at fair value on a nonrecurring basis at March 31, 2023 and December 31, 2022, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine the fair value:

(In thousands) Level 1 Level 2 Level 3

September 30, 2022:

Impaired loans $ — $ — $ 42,327

March 31, 2023:

Individually evaluated loans

$ — $ — $ 40,561

Servicing asset, net — — 874

December 31, 2022:

Impaired loans $ — $ — $ 44,313

Individually evaluated loans

$ — $ — $ 41,929

Servicing asset, net — — 723

Assets held for sale — — 2,268

The following table presents information about quantitative inputs and assumptions for Level 3 financial instruments carried at fair value on a nonrecurring basis at September 30, 2022 and December 31, 2021:

The following table presents information about quantitative inputs and assumptions for Level 3 financial instruments carried at fair value on a nonrecurring basis at March 31, 2023 and December 31, 2022:

Fair Value Valuation Methodology Unobservable Input Range

(Dollars in thousands)

September 30, 2022:

Impaired loans $ 17,795 Appraisals Discount to appraised value 8.00 %

March 31, 2023:

Individually evaluated loans

$ 17,182 Appraisals Discount to appraised value 8.00 %

23,379 Discounted cash flows Discount rate 3.00 - 6.00 %

2 unchanged sentences

December 31, 2022:

Impaired loans $ 18,548 Appraisals Discount to appraised value 8.00 %

Individually evaluated loans

$ 17,477 Appraisals Discount to appraised value 6.00 - 8.00 %

24,452 Discounted cash flows Discount rate 3.00 - 6.75 %

1 unchanged sentence

Prepayment rate 3.00 - 17.00 %

Assets held for sale $ 2,268 Sale & income

approach Adjustment to

valuation and cost

(1) Servicing liabilities totaling $ 1 thousand were valued using a discount rate of 3.5 %.

(1) Servicing liabilities totaling $ 0.4 thousand were valued using a discount rate o f 4.5 %.

(2) Servicing liabilities totaling $ 23 thousand were valued using a discount rate of 0.8 %.

Impaired loans :

Individually evaluated loans :

Loans are generally not recorded at fair value on a recurring basis.

Periodically, the Company records nonrecurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans.

Nonrecurring adjustments also include certain impairment amounts for collateral-dependent loans calculated in accordance with ASC 310-10 when establishing the allowance for credit losses.

Nonrecurring adjustments also include certain impairment amounts for collateral-dependent loans calculated in accordance with ASC 310-10 when establishing the ACL-Loans.

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

6 unchanged sentences

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

Assets held for sale:

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

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

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

Subordinated debentures

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

The 2015 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 2015 Notes became callable, in part or in whole, beginning August 2020.

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 for general corporate purposes.

The Company used the net proceeds to repay $ 15.5 million of outstanding subordinated debt and for general corporate purposes.

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

5 unchanged sentences

On August 19, 2022, the Company entered into a Subordinated Note Purchase Agreement with certain qualified institutional buyers, pursuant to which the Company issued and sold 6.0 % fixed-to-floating rate subordinated notes due 2032 (the “2022 Notes”) in the aggregate principal amount of $ 35.0 million.

The Company intends to use the net proceeds from the sale of the 2022 Notes for general corporate purposes.

The 2022 Notes will bear interest at a fixed rate of 6.0 % per year, from and including August 19, 2022 to, but excluding, September 1, 2027.

From and including September 1, 2027 to, but excluding the maturity date or early redemption date, the interest rate will reset quarterly at a variable rate equal to the then current three-month term SOFR plus 326 basis points.

The Company used the net proceeds from the sale of the 2022 Notes for general corporate purposes.

The 2022 Notes will bear interest at a fixed rate of 6.0 % per year until August 31, 2027.

Thereafter, the interest rate will reset quarterly at a variable rate equal to the then current three-month term SOFR plus 326 basis points.

The 2022 Notes have a stated maturity of September 1, 2032 and are non-callable for five years .

The Company may redeem the 2022 Notes, in whole or in part, at its option, on the fifth anniversary of the issue date or on any interest payment date thereafter.

Any redemption by the Company would be at a redemption price equal to 100 % of the principal amount of the 2022 Notes being redeemed, together with any accrued and unpaid interest on the 2022 Notes being redeemed to but excluding the date of redemption.

Beginning August 19, 2027, the Company may redeem the 2022 Notes, in whole or in part, at its option.

The 2022 Notes are not subject to redemption at the option of the holder.

2 unchanged sentences

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

At September 30, 2022 and December 31, 2021, unamortized debt issuance costs were $ 1.1 million and $ 0.6 million, respectively.

At March 31, 2023 and December 31, 2022, unamortized debt issuance costs were $ 1.0 million and $ 1.0 million, respectively.

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

For the three months ended September 30, 2022 and 2021 the amortization expense for debt issuance costs were $ 45 thousand and $ 8 thousand, respectively, and were recognized as an increase to interest expense on borrowings within the consolidated statements of income.

For the nine months ended September 30, 2022 and 2021 the amortization expense for debt issuance costs were $ 104 thousand and $ 116 thousand, respectively.

The Company recognized $ 0.5 million and $ 0.2 million in interest expense related to its subordinated debt for the three month periods ended September 30, 2022 and 2021, respectively.

The Company recognized $ 1.1 million and $ 0.9 million in interest expense related to its subordinated debt for the nine month periods ended September 30, 2022 and 2021, respectively.

For the three months ended March 31, 2023 and 2022 the amortization expense for debt issuance costs were $ 62 thousand and $ 30 thousand, respectively, and were recognized as an increase to interest expense on borrowings within the consolidated statements of income.

The Company recognized $ 0.8 million and $ 0.3 million in interest expense related to its subordinated debt for the three month periods ended March 31, 2023 and 2022, respectively.

Subsequent Events

On October 26, 2022, the Company’s Board of Directors declared a $ 0.20 per share cash dividend, payable on November 21, 2022 to shareholders of record on November 11, 2022.

On April 26, 2023, the Company’s Board of Directors declared a $ 0.20 per share cash dividend, payable on May 23, 2023 to shareholders of record on May 12, 2023.

On April 24, 2023, the Bank established a new retail branch located at 300 Atlantic Street, Stamford, CT.

This replaced the branch located at 612 Bedford Street, Stamford, CT, which closed on April 21, 2023.

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

What changed 10-Q

Item 1. Financial Statements