What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-03-12 compared with 2023-03-08 · 255 added, 181 removed, 754 unchanged (37% of the section changed)

12 unchanged sentences

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.

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

The following discussion and analysis presents our results of operations and financial condition on a consolidated basis.

3 unchanged sentences

Our largest expenses are interest on these deposits and salaries and related employee benefits.

We measure our performance primarily through our net interest margin, efficiency ratio, ratio of allowance for loan losses to total loans, return on average assets and return on average equity, among other metrics, while maintaining appropriate regulatory leverage and risk-based capital ratios.

We measure our performance primarily through our net interest margin, efficiency ratio, ratio of ACL-Loans to total loans, return on average assets and return on average equity, among other metrics, while maintaining appropriate regulatory leverage and risk-based capital ratios.

Selected Financial Data

48 unchanged sentences

1.53 % 0.51 % 0.68 % 1.48 % 0.56 %

Allowance for loan losses to nonperforming loans 136.43 % 101.90 % 62.87 % 127.59 % 109.80 %

Allowance for loan losses to total loans (d)

ACL-Loans to nonperforming loans 56.79 % 136.43 % 101.90 % 62.87 % 127.59 %

ACL-Loans to total loans (d)

1.03 % 0.84 % 0.89 % 1.29 % 0.84 %

21 unchanged sentences

(a) Excludes unvested restricted stock awards.

(b) This measure is not a measure recognized under GAAP and is therefore considered to be a non-GAAP financial measure.

(b) This measure is not a measure recognized under Generally Accepted Accounting Principles ("GAAP") and is therefore considered to be a non-GAAP financial measure.

See “Non-GAAP Financial Measures” for a description of this measure and a reconciliation of this measure to its most directly comparable GAAP measure.

18 unchanged sentences

We believe that the most directly comparable GAAP financial measure is total shareholders’ equity to total assets.

Tangible book value per share is defined as book value, excluding the impact of goodwill and other intangible assets, if any, divided by shares of our common stock outstanding.

Tangible book value per share is defined as book value, excluding the impact of goodwill and other intangible assets, if any, divided by shares of our common stock outstanding, excluding unvested restricted stock awards.

Total revenue is defined as the sum of net interest income before provision of loan losses and noninterest income.

59 unchanged sentences

Key Financial Measures

The primary measures we use to evaluate and manage our financial results are set forth in the table below.

The primary measures we use to evaluate and manage our financial results are set forth in the tables below.

Although we believe these measures are meaningful in evaluating our results and financial condition, they may not be directly comparable to similar measures used by other financial services companies and may not provide an appropriate basis to compare our results or financial condition to the results or financial condition of our competitors.

32 unchanged sentences

1.53 % 0.51 %

Allowance for loan losses to nonperforming loans 136.43 % 101.90 %

Allowance for loan losses to total loans (b)

ACL-Loans to nonperforming loans 56.79 % 136.43 %

ACL-Loans to total loans (b)

1.03 % 0.84 %

11 unchanged sentences

Actual results could differ from our current estimates, as a result of changing conditions and future events.

We believe that accounting estimates related to the measurement of the allowance for loan losses, the valuation of derivative instruments, investment securities and deferred income taxes, and the evaluation of investment securities for other than temporary impairment are particularly critical and susceptible to significant near-term change.

Allowance for Loan Losses

Determining an appropriate level of allowance for loan losses involves a high degree of judgment.

We use a methodology to systematically measure the amount of estimated loan loss exposure inherent in the loan portfolio for purposes of establishing a sufficient allowance for loan losses.

The methodology includes elements for specific reserves on impaired loans and loss allocations for non-impaired loans.

Loss allocations are identified for individual loans deemed to be impaired in accordance with GAAP.

Impaired loans are loans for which it is probable that the Bank will not be able to collect all amounts due according to the contractual terms of the loan agreements, including nonaccrual loans and all loans restructured in a troubled debt restructuring.

Impaired loans do not include large groups of smaller-balance homogeneous loans that are collectively evaluated for impairment.

Impairment is measured on a discounted cash flow method based upon the loan’s contractual effective interest rate, or at the loan’s observable market price, or if the loan is collateral dependent, at the fair value of the collateral less costs to sell.

For collateral dependent loans, management may adjust appraised values to reflect estimated market value declines or apply other discounts to appraised values for unobservable factors resulting from its knowledge of circumstances associated with the property.

Loss allocations for non-impaired loans are determined by portfolio segment and are based on the Bank’s and peer banks’ historical loss experiences over an economic cycle adjusted for qualitative factors.

Qualitative factors include, but are not limited to, lending policies and procedures, nature and volume of the portfolio, concentrations of credit, lending management and staff, volume and severity of problem loans, quality of review and rating systems, value of underlying collateral, current economic conditions, and competitive and regulatory issues.

We analyze historical loss experience over periods deemed to be relevant to the inherent risk of loss in loan portfolios as of the balance sheet date.

Loss allocations for non-impaired loans are based on an internal rating system and the application of loss allocation factors.

The loan rating system is described under the caption “Credit quality indicators” in Note 5 of the Notes to Consolidated Financial Statements.

The loan rating system and the related loss allocation factors take into consideration parameters including the borrower’s financial condition, the borrower’s performance with respect to loan terms, and the adequacy of collateral.

The loss allocation factors also take into account general and regional economic statistics, trends, and portfolio characteristics such as the age of the portfolio and the Bank’s experience with a particular loan product.

We periodically reassess and adjust the loss allocation factors used in the assignment of loss factors that we believe are not adequately presented in historical loss experience including trends in real estate values, changes in unemployment levels and increases in delinquency levels to appropriately reflect our analysis of migratory loss experience.

Because the methodology is partly based upon peer bank data and trends, current economic data as well as management’s judgment, factors may arise that result in different estimations.

Adversely different conditions or assumptions could lead to increases in the allowance.

In addition, various regulatory agencies periodically review the allowance for loans losses.

Such agencies may require additions to the allowance based on their judgments about information available to them at the time of their examination.

As of December 31, 2022, management believes that the allowance is adequate and consistent with asset quality and delinquency indicators.

The Financial Accounting Standards Board (“FASB”) has adopted a new accounting standard, CECL, effective for the Company as of January 1, 2023.

CECL will require the Bank to determine periodic estimates of lifetime expected credit losses on loans, other financial instruments and other commitments to extend credit and provide for the expected credit losses as allowances for credit losses.

This will change our current method of providing allowance for loan losses and require us to record an allowance for credit losses as of January 1, 2023 materially in excess of our existing allowance for loan losses.

CECL will also greatly increase the data we will need to collect and review to determine the appropriate level of the allowance for credit losses and will likely require larger allowances for credit losses going forward than our current methodology.

We believe that accounting estimates related to the measurement of the ACL-Loans, the valuation of derivative instruments, investment securities and deferred income taxes, and the evaluation of investment securities are particularly critical and susceptible to significant near-term change.

Allowance for Credit Losses-Loans ("ACL-Loans") and Allowance for Credit Losses-Unfunded commitments ("ACL-Unfunded commitments")

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments – Credit Losses (“ASC 326”), which requires the measurement of all expected credit losses for financial assets held at amortized cost to be based on historical experience, current condition, and reasonable and supportable forecasts.

The Company adopted this guidance effective January 1, 2023 and recorded a cumulative effect adjustment that increased the allowance for credit losses for loans and loan commitments by $ 6.4 million , increased deferred tax assets by $ 1.5 million , and decreased retained earnings by $ 4.9 million , net of tax.

The ACL-Loans is measured on each loan’s amortized cost basis, excluding interest receivable, and is initially recognized upon origination or purchase of the loan, and subsequently remeasured on a recurring basis.

The ACL-Loans is recognized as a contra-asset, and credit loss expense is recorded as a provision for loan losses in the consolidated statements of income.

Loan losses are charged off against the ACL-Loans when management believes the loan is uncollectible.

Subsequent recoveries, if any, are credited to the ACL-Loans.

Loans are normally placed on nonaccrual status if it is probable that the Company will be unable to collect the full payment of principal and interest when due according to the contractual terms of the loan agreement, or the loan is past due for a period of 90 days or more unless the obligation is well-secured and is in the process of collection.

The Company generally does not recognize an allowance for credit losses ("ACL") on accrued interest receivables, consistent with its policy to reverse interest income when interest is 90 days or more past due.

The Company also records an ACL-Unfunded commitments, which is based on the same assumptions as funded loans and also considers the probability of funding.

The ACL is recognized as a liability, and credit loss expense is recorded as a provision for unfunded loan commitments within the provision for credit losses in the Consolidated statements of income.

For collectively evaluated loans and related unfunded commitments, the Company utilizes software provided by a third party, which includes various models for forecasting expected credit losses, to calculate its ACL.

Management selected lifetime loss rate models, utilizing CRE, C&I, and Consumer specific models, to calculate the expected losses over the life of each loan based on exposure at default, loan attributes and reasonable, supportable economic forecasts.

The models selected by the Company in its ACL calculation rely upon historical losses from a broad cross section of U.S.

banks that also utilize the same third party for ACL calculations.

Management reviewed the third party’s analysis of the banks included in the models as part of their model development dataset and determined the Company’s loan portfolio composition by property type, balance distribution by loan age, and delinquency status are similar, which supports the use of these loss rate models.

The Company also noted the third party’s model development dataset has loan concentrations that are evenly distributed across the United States, while the Company’s portfolio is mainly concentrated in the Northeast.

Based on the disparate regional concentration, management determined that a select group of peer banks is necessary to scale the loss rate models to produce an ACL that is more representative of the Company’s loan portfolio.

This peer-based calibration, called a "peer scalar", utilizes the loss rates of a subset of peer banks to appropriately scale the initial model results.

These peers have been selected by the Company given their similar characteristics, such as loan portfolio composition and location, to better align the models’ results to the Company’s expected losses.

Key assumptions used in the models include portfolio segmentation, risk rating, forecasted economic scenarios, the peer scalar, and the expected utilization of unfunded commitments, among others.

Our loan portfolios are segmented by loan level attributes such as loan type, size, date of origination, and delinquency status to create homogenous loan pools.

Pool level metrics are calculated, and loss rates are subsequently applied to the pools as the loans have similar characteristics.

To account for economic uncertainty, the Company incorporates multiple economic scenarios in determining the ACL.

The scenarios include various projections based on variables such as Gross Domestic Product, interest rates, property price indices, and employment measures, among others.

The scenarios are probability-weighted based on available information at the time the calculation is conducted.

As part of our ongoing governance of ACL, scenario weightings and model parameters are reviewed periodically by management and are subject to change, as deemed appropriate.

The Company also considers qualitative adjustments to expected credit loss estimates for information not already captured in the quantitative loss estimation models.

Qualitative factor adjustments may increase or decrease management’s estimate of expected credit losses.

Qualitative loss factors are based on the Company’s judgment of market, changes in loan composition or concentrations, performance trends, regulatory changes, uncertainty of macroeconomic forecasts, and other asset specific risk characteristics.

When loans do not share risk characteristics with other financial assets they are evaluated individually.

Management applies its normal loan review procedures in making these judgments.

Individually evaluated loans consist of loans with credit quality indicators which are substandard or doubtful.

The Company also individually evaluates all insurance premium loans.

While insurance premium loans are considered consumer loans, the third-party Consumer ACL model is designed for unsecured lending, whereas these loans are secured.

To account for the fully secured structure of this type of loan, management determined each loan will be individually evaluated, regardless of the credit quality indicators.

These loans are evaluated based upon their collateral, which primarily consists of cash, cash surrender value life insurance, and in some cases real estate.

In determining the ACL-Loans for individually evaluated loans, the Company generally applies a discounted cash flow method for instruments that are individually assessed.

For collateral dependent financial assets where the Company has determined that foreclosure of the collateral is probable and where the borrower is experiencing financial difficulty, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date.

Fair value is generally calculated based on the value of the underlying collateral less an appraisal discount and the estimated cost to sell.

Loan modifications

In March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (ASU 326):

Troubled Debt Restructurings and Vintage Disclosures.

ASU 2022-02 eliminated the accounting guidance for TDRs by creditors while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty.

The Company adopted ASU 2022-02 effective January 1, 2023 and the impact was immaterial.

Derivative Instrument Valuation

3 unchanged sentences

The Company discontinues hedge accounting when it is determined that a derivative is not expected to be or has ceased to be highly effective as a hedge, and then reflects changes in fair value of the derivative in earnings after termination of the hedge relationship.

The Company has characterized all of its interest rate swaps that qualify under ASC Topic 815, as cash flow hedges.

The Company has interest rate swaps that qualify under ASC Topic 815, as cash flow hedges.

Cash flow hedges are used to minimize the variability in cash flows of assets or liabilities, or forecasted transactions caused by fluctuations in the contractually specified interest rates, and are recorded at fair value in other assets within the consolidated balance sheet.

Changes in the fair value of these cash flow hedges are initially recorded in accumulated other comprehensive income and subsequently reclassified into earnings when the forecasted transaction affects earnings.

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 designated the fair value swap under the portfolio layer method.

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 Company also has derivatives not designated as hedges.

9 unchanged sentences

Due to the judgments and uncertainties involved in the estimation process, the estimates could result in materially different results under different assumptions and conditions.

Evaluation of Investment Securities for Other Than Temporary Impairment

The Company evaluates investment securities within the Company’s available for sale and held to maturity portfolios for other-than-temporary impairment (“OTTI”), at least quarterly.

If the fair value of a debt security is below the amortized cost basis of the security, OTTI is required to be recognized if any of the following are met:

(1) the Company intends to sell the security;

(2) it is “more likely than not” that the Company will be required to sell the security before recovery of its amortized cost basis;

or (3) for debt securities, the present value of expected cash flows is not sufficient to recover the entire amortized cost basis.

For all impaired debt securities that are intended for sale, or more likely than not will be required to sell, the full amount of the loss is recognized as OTTI through earnings.

Credit related OTTI for all other impaired debt securities is recognized through earnings.

Non-credit related OTTI for such debt securities is recognized in other comprehensive income, net of applicable taxes.

Should actual factors and conditions differ materially from those expected by management, the actual realization of gains or losses on investment securities could differ materially from the amounts recorded in the financial statements.

Allowance for Credit Losses - Securities ("ACL-Securities")

Effective January 1, 2023, pursuant to ASU No.

2016-13, each quarter the Company individually evaluates the available for sale debt securities and held to maturity securities for impairment credit losses.

Available for sale securities include U.S.

Treasuries, mortgage-backed securities, and corporate bonds.

Treasuries and mortgaged-backed securities are guaranteed by the U.S.

Government and as a result, management has a zero loss expectation.

No ACL-Securities was recorded for these securities as of December 31, 2023.

For the corporate bond portfolio, the Company developed a metric which includes each issuer’s current credit ratings and key financial performance metrics to assess the underlying performance of each issuer.

The analysis of the issuers’ performance and the intent of the Company to retain these securities support the determination that there was no expected credit loss, and therefore, no ACL-Securities were recognized on the corporate bond portfolio as of December 31, 2023.

Of our held to maturity securities portfolio, one security’s fair value was less than its amortized cost as of December 31, 2023.

Since this is a highly rated state agency and municipal obligation, the Company's expectation of nonpayment of the amortized cost basis is zero.

No allowance for ALC-Securities was recorded for this security as of December 31, 2023.

Deferred Income Taxes

7 unchanged sentences

2023 Earnings Overview

Our net income for the year ended December 31, 2022 was $37.4 million, an increase of $10.8 million, or 40.8%, compared to the year ended December 31, 2021.

Our net income for the year ended December 31, 2023 was $36.7 million, a decrease of $0.8 million, or 2.0%, compared to the year ended December 31, 2022.

Diluted earnings per share was $4.67 for the year ended December 31, 2023, compared to diluted earnings per share of $4.79 for the year ended December 31, 2022.

Our returns on average shareholders' equity and average assets for the year ended December 31, 2023, were 14.55% and 1.13%, respectively, compared to 16.72% and 1.44%, respectively for the year ended December 31, 2022.

The increase in net income for 2022 compared to 2021 was primarily attributable to an increase in interest and fees on loans due to record loan growth and higher overall loan yields in 2022.

The increase in revenues was partially offset by the following:

an increase in interest expense;

a decrease in noninterest income driven by a reduction in loans sales and the absence of rental income in 2022 due to the disposition of the Company's former headquarter building in the fourth quarter of 2021.

Revenues in 2021 also included a one-time federal payroll tax credit for COVID-19 of $0.9 million recognized in the quarter ended March 31, 2021 which did not repeat in 2022.

In addition, the increase in net income was partially offset by an increase in the provision for loan losses due to loan growth and an increase in noninterest expense for the year ended December 31, 2022.

Net interest income for the year ended December 31, 2022 was $94.7 million, an increase of $26.9 million compared to the year ended December 31, 2021.

Our net interest margin increased 61 basis points to 3.78% for the year ended December 31, 2022 compared to the year ended December 31, 2021.

The increase in the net interest margin was due to an increase in overall loan yields, aided in part by elevated loan prepayment fees, partially offset by an increase in funding costs.

Revenues (net interest income plus noninterest income) for the year ended December 31, 2023 were $99.3 million, versus $97.8 million for the year ended December 31, 2022 .

The increase in revenues for the year ended 2023 was primarily attributable to increases in the gain on sales of loans and servicing charges and fees.

The increase was partially offset by a decrease in net interest income of $0.3 million.

N et income for the year ended December 31, 2023 was $36.7 million, versus $37.4 million for the year ended December 31, 2022.

The decrease in net income for the year ended December 31, 2023 was due to an increase in noninterest expense partially offset by the aforementioned increase in revenues and a decrease in the provision for loan losses.

Net interest income for the year ended December 31, 2023 was $94.5 million, a decrease of $0.3 million compared to the year ended December 31, 2022.

Our net interest margin decreased 80 basis points to 2.98% for the year ended December 31, 2023 compared to the year ended December 31, 2022.

The decrease in the net interest margin was due to an increase in funding costs partially offset by an increase in yields on earning assets.

Results of Operations

8 unchanged sentences

FTE net interest income for the years ended December 31, 2023 and 2022 was $94.7 million and $94.9 million, respectively.

FTE net interest income increased primarily due to loan growth and higher overall loan yields.

The increase in FTE net interest income was partially offset by an increase in interest expense.

FTE net interest income decreased primarily due to an increase in interest expense partially offset by an increase in interest income attributable to loan growth and higher overall loan yields.

FTE basis interest income for the year ended December 31, 2023 increased $70.3 million, or 59.5%, to $188.7 million compared to FTE basis interest income for the year ended December 31, 2022 due primarily to an increase in commercial real estate loans and commercial business loans.

3 unchanged sentences

The total yield in earnings assets increased to 5.86% at December 31, 2023, compared to 4.64% at December 31, 2022.

The increase in yield was primarily driven by higher yields on loans, as well as higher yields on our cash balances as a result of the overall increased rate environment for 2022.

Interest expense for the year ended December 31, 2022 increased by $9.7 million, or 72.0%, compared to interest expense for 2021 due to an increase in rates on interest bearing deposits.

The increase in yield was primarily driven by higher yields on loans, as well as higher yields on our cash balances as a result of the overall higher rate environment for 2023.

Interest expense for the year ended December 31, 2023 increased by $70.8 million, or 305.1%, compared to interest expense for the year ended December 31, 2022 due to an interest expense on deposits, resulting from an increase in rates paid on interest bearing deposits.

Distribution of Assets, Liabilities and Stockholders’ Equity;

Interest Rates and Interest Differential

The following table below presents the average balances and yields earned on interest-earning assets and average balances and weighted average rates paid on our funding liabilities for the years ended December 31, 2022 and 2021.

The following table presents the average balances and yields earned on interest-earning assets and average balances and weighted average rates paid on our funding liabilities for the years ended December 31, 2023 and 2022.

Years Ended December 31,

71 unchanged sentences

Provision for Loan Losses

The provision for loan losses is based on management’s periodic assessment of the adequacy of our allowance for loan losses which, in turn, is based on such interrelated factors as the composition of our loan portfolio and its inherent risk characteristics, the level of nonperforming loans and net charge-offs, both current and historic, local economic and credit conditions, the direction of real estate values, and regulatory guidelines.

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

The provision for loan losses for the year ended December 31, 2022 was $5.4 million compared to a $0.1 million credit for loan losses for the year ended December 31, 2021.

The increase i n the provision for loan losses was due to loan growth.

The provision for loan losses is based on management’s periodic assessment of the adequacy of our ACL-Loans which, in turn, is based on such interrelated factors as the composition of our loan portfolio and its inherent risk characteristics, the level of nonperforming loans and net charge-offs, both current and historic, local economic and credit conditions, the direction of real estate values, and regulatory guidelines.

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

The provision for loan losses for the year ended December 31, 2023 was $0.9 million compared to a $5.4 million provision for loan losses for the year ended December 31, 2022.

Noninterest Income

6 unchanged sentences

Service charges and fees 1,629 1,072 557 52

Other (337) 1,070 (1,407) (131)

Other 49 (337) 386 Favorable

Total noninterest income $ 4,842 $ 3,040 $ 1,802 59 %

Noninterest income decreased by $2.6 million to $3.0 million for the year ended December 31, 2022, compared to the year ended December 31, 2021.

The decrease in noninterest income was driven by a reduction in loan sales in 2022 compared to 2021.

Noninterest income also declined due to a one-time federal payroll tax credit for COVID-19 of $0.9 million recognized in the quarter ended March 31, 2021.

Lastly, a decrease in noninterest income was due to the absence of rental income of $0.7 million which was recognized in 2021 as a result of the disposition of the Company's former headquarter building.

Noninterest income increased by $1.8 million to $4.8 million for the year ended December 31, 2023, compared to the year ended December 31, 2022.

The increase for the year ended December 31, 2023 was mainly driven by an increase in gains on SBA loan sales and service charges and fees.

Noninterest Expense

12 unchanged sentences

Noninterest expense increased by $6.0 million, or 14%, to $50.4 million for the year ended December 31, 2023 compared to the year ended December 31, 2022.

The increase in noninterest expense was primarily driven by an increase in salaries and employee benefits expense, professional services expense, FDIC Insurance, and losses related to deposit accounts.

These increases were partially offset by a decrease in occupancy and equipment expense.

Salaries and employee benefits expense totaled $22.2 million for the year ended December 31, 2022, an increase of $3.9 million when compared to th e same period in 2021 .

The increase in salaries and employee benefits expense was driven by an increase in full time equivalent employees, as well as an increase in variable compensation as a result of the Bank's overall growth and improved performance.

Full time equivalent employees totaled 136 at December 31, 2022 compared to 126 for the same period in 2021 .

The increase in salaries and employee benefits expense was partially offset by higher loan originations, which enabled the Bank to defer a greater amount of expenses.

Professional services expense totaled $3.9 million for the year ended December 31, 2022 , an increase of $1.6 million when compared to the same period in 2021 .

The increase in professional services expense was primarily driven by consulting fees associated with various projects, including our core system conversion.

The increase in noninterest expense was primarily driven by an increase in FDIC insurance expense and salaries and employee benefits expense.

FDIC insurance expense totaled $4.2 million for the year ended December 31, 2023 , an increase of $2.5 million when compared to the same period in 2022 .

The higher FDIC insurance expense is attributed to the overall balance sheet growth and increased use of brokered deposits.

Other expense totaled $3.9 million for the year ended December 31, 2022 , an increase of $0.8 million .

The increase was mainly attributable to $0.6 million of deposit account losses, of which $0.3 million were two discreet events of identity theft perpetrated against the Bank's client s where the Bank reimbursed the impacted client s.

Occupancy and equipment expense totaled $8.3 million for the year ended December 31, 2022 , a decrease of $2.4 million when compared to the same period in 2021.

The decrease in occupancy and equipment expense was primarily driven by the curtailment of additional cleaning costs associated with precautions taken to prevent the spread of COVID-19 during the year ended December 31, 2021 .

In addition, the decrease in occupancy and equipment expense was impacted by a reduction in lease expense as a result of the branch closure in New Canaan, which occurred during the third quarter of 2021.

The higher FDIC insurance expense is attributed to the overall balance sheet growth and higher brokered deposit balances.

Salaries and employee benefits expense totaled $24.6 million for the year ended December 31, 2023, an increase of $2.4 million when compared to th e same period in 2022 .

The increase in salaries and employee benefits expense mainly driven by lower loan originations which lowers the amount of origination expenses the Bank is able to defer.

Income tax expense for the years ended December 31, 2023 and 2022 totaled $11.4 million and $10.6 million, respectively.

11 unchanged sentences

Deposits totaled $2.7 billion at December 31, 2023, compared to deposits of $2.8 billion at December 31, 2022.

Shareholders’ equity totaled $238.5 million as of December 31, 2022, an increase of $36.5 million com pared to December 31, 2021, primarily a result of (i) net income of $37.4 million for the year ended December 31, 2022 and (ii) an $8.4 million favorable impact to accumulated other comprehensive income driven by fair value marks related to hedge positions involving interest rate sw aps of $16.8 million, partially offset by fair value marks on the Company's investment portfolio of $8.4 million.

Shareholders’ equity totaled $265.8 million as of December 31, 2023, an increase of $27.3 million com pared to December 31, 2022, primarily a result of net income of $36.7 million for the year ended December 31, 2023 The increase was partially offset by the Day 1 CECL adoption impact of $4.9 million, dividends paid of $6.2 million, and a $1.5 million unfavorable impact to accumulated other comprehensive income.

The unfavorable impact to accumulated other comprehensive income was driven by fair value marks related to hedge positions involving interest rate swaps of $2.4 million partially offset by fair value marks on the Company's available for sale investment securities portfolio of $0.9 million.

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

The increase in Shareholders’ equity was partially offset by dividends paid of $6.2 million and common stock repurchases of $5.5 million .

Loan Portfolio

17 unchanged sentences

Residential real estate loans decreased by $9.7 million, or 15.9%, at December 31, 2023 compared to December 31, 2022 and amounted to $50.9 million, representing 2% of total loans at December 31, 2023 .

In the fourth quarter of 2017, management made the strategic decision to no longer originate residential mortgage loans.

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

Commercial real estate.

Commercial real estate loans were $1.9 billion and represented 72% of our total loan portfolio at December 31, 2023 , a net increase of $26.4 million, or 1.4%, from December 31, 2022.

Commercial real estate loan growth during this period largely reflects strong production from experienced relationship managers in the marketplace and their ability to source quality opportunities, and enhanced lending to existing clients.

Commercial real estate loans are secured by a variety of property types, including healthcare facilities, office buildings, retail facilities, commercial mixed use and multi-family dwellings.

The following table compares the composition of our commercial real estate loan portfolio by non-owner occupied and owner occupied loans at December 31, 2023 and December 31, 2022:

2023 2022 Change

Total % Total % Total

(Dollars in thousands)

Commercial real estate loans:

Non-owner occupied $ 1,228,126 63.08 % $ 1,224,470 63.73 % $ 3,656

Owner occupied 718,780 36.92 696,782 36.27 21,998

Total commercial real estate loans (1)

$ 1,946,906 100.00 % $ 1,921,252 100.00 % $ 25,654

(1) Excludes the positive fair value effect of the portfolio layer s wap of $742 thousand for Commercial Real Estate at December 31, 2023.

Construction.

Construction loans were $155.2 million at December 31 2022 , up $56.9 million, or 57.8%, from December 31, 2021.

Construction loans totaled $98.3 million at December 31, 2021.

Construction loans were $183.4 million at December 31 2023 , an increase of $28.2 million, or 18.2%, from December 31, 2022.

Commercial construction loans consist of commercial development projects, such as apartment buildings and condominiums, as well as office buildings, retail and other income producing properties and land loans.

Commercial business.

Commercial business loans were $520.4 million and represented 19% of our total loan portfolio at December 31, 2022 , a net increase of $169.5 million, or 48.3%, from December 31, 2021.

The increase in commercial business loans is a direct result of the Bank’s commitment to growing this portfolio.

Commercial business loans were $500.6 million and represented 18.4% of our total loan portfolio at December 31, 2023 , a net decrease of $19.9 million, or 3.8%, from December 31, 2022.

Commercial business loans primarily provide working capital, equipment financing, financing for leasehold improvements and financing for expansion and are generally secured by assignments of corporate assets, real estate and personal guarantees of the business owners.

Consumer loans.

Consumer loans were $36.0 million and represented 1.3% of our total loan portfolio as of December 31, 2023, an increase of $18.1 million, or 100.7%.

We do not expect our consumer loans to become a material component of our loan portfolio, as we do not engage in any material amount of consumer lending.

This portfolio segment includes loans to finance insurance premiums secured by the cash surrender value of life insurance and marketable securities, overdraft lines of credit, and unsecured personal loans to high net worth individuals.

Current environment

We evaluate the appropriateness of our underwriting standards in response to changes in national and regional economic conditions, including such matters as market interest rates, energy prices, trends in real estate values, and employment levels.

Based on our assessment of these matters, underwriting standards and credit monitoring activities are enhanced from time to time in response to changes in these conditions.

In response to the economic environment in 2023, the Company:

• increased and expanded its monitoring of our entire loan portfolio, with added focus on our commercial real estate loan portfolio,

• added resources in the Portfolio Management Department;

• expanded reporting to Directors' Loan Committee and the Board of Directors which includes:

◦ upcoming commercial real estate maturity schedule, including loan to value, debt service coverage ratio, occupancy, and commentary on expected refinance or payoff status, maturity by property type and owner occupied or non-owner-occupied status;

◦ individual loan level detail of the performance on our residential care portfolio and our insurance agency portfolio.

• expanded the scope of our third-party loan review from 60% of the loan portfolio to include all new and renewed loans originated since September 2022, all residential care loans, all commercial real estate loans secured by office properties where the loan balance is greater than one million dollars, and all loans with addresses in New York City;

• enhanced our covenant tracking and reporting to the Directors Loan Committee.

The following table compares the composition of our commercial real estate loan portfolio by property type, and collateral location as of December 31, 2023 :

Commercial Real Estate CT All Other NY NYC NJ FL OH PA All Other Total (1)

(Dollars in thousands)

Residential care (2)

$ — $ 43,072 $ 41,154 $ 22,382 $ 296,976 $ 80,221 $ 23,709 $ 127,901 $ 635,415

Retail 134,215 87,011 7,450 21,594 17,078 3,586 37,792 98,846 407,572

Multifamily 166,926 31,050 52,296 7,203 — — — — 257,475

Office 69,752 22,665 — 38,260 2,293 — — 60,073 193,043

Industrial / warehouse 74,446 14,445 20,048 17,138 2,798 — — 23,201 152,076

Mixed use 46,303 1,157 51,074 10,000 — — — — 108,534

Medical office 48,304 — 1,466 — — 4,919 3,900 20,145 78,734

1-4 family investment 13,967 13,528 1,936 2,809 17,420 — — — 49,660

All other (3)

20,344 20,578 23,475 — — — — — 64,397

$ 574,257 $ 233,506 $ 198,899 $ 119,386 $ 336,565 $ 88,726 $ 65,401 $ 330,166 $ 1,946,906

(1) Excludes the positive fair value effect of the portfolio layer swap of $742 thousand for Commercial Real Estate at December 31, 2023.

(2) Primarily consists of skilled nursing and assisted living facilities.

(3) Includes Special use, self storage, and land.

During 2023 , we conducted a detailed review of every general office loan in our portfolio.

As of December 31, 2023 , the Bank had $193.0 million of loans collateralized by offices, which represented 7.1% of the total loan portfolio.

Most of the properties in this portfolio are in suburban locations, including all t he New York State properties, which are all located in Westchester County.

96.9% of this portfolio was pass rated, and there were two relationships totaling $6.0 million on nonaccrual status.

We also performed an additional review of our multifamily exposure.

As of December 31, 2023, we had $257.5 million of loans collateralized by multifamily properties, which represented 9.5% of the total loan portfolio.

100% of the portfolio is pass rated.

These properties are all located in Connecticut, New York, or New Jersey, with t he majority in suburban locations.

Nine properties totaling $52.3 million, with an average balance of $5.8 million, are in New York City.

The following table presents an analysis of the commercial real estate portfolio's loan to value at origination and by property type as of December 31, 2023.

Commercial Real Estate Total CRE Portfolio (1)

Percentage of Total CRE Portfolio Loan to Value %

(Dollars in thousands)

Property Type

Residential care (2)

$ 635,415 32.6 % 67.8 %

Retail 407,572 20.9 63.6

Multifamily 257,475 13.2 61.4

Office 193,043 9.9 64.1

Industrial / warehouse 152,076 7.8 63.6

Mixed use 108,534 5.6 61.2

Medical office 78,734 4.0 66.2

1-4 family investment 49,660 2.6 58.2

All other 64,397 3.3 58.0

Total $ 1,946,906 100.0 % 64.4 %

(1) Excludes the positive fair value effect of the portfolio layer swap of $742 thousand for Commercial Real Estate at December 31, 2023.

(2) Primarily consists of skilled nursing and assisted living facilities.

The following table presents an analysis of the maturity of our commercial real estate, commercial construction and commercial business loan portfolios as of December 31, 2023.

December 31, 2023

Real Estate Commercial

Real Estate (1)

Construction Commercial

Business Total

(In thousands)

5 unchanged sentences

Total $ 1,946,906 $ 183,414 $ 500,390 $ 2,630,710

(1) Excludes the positive fair value effect of the portfolio layer swap of $742 thousand for Commercial Real Estate and $179 thousand for Commercial Business.

The following table presents an analysis of the interest rate sensitivity of our commercial real estate, commercial construction and commercial business loan portfolios due after one year as of December 31, 2023.

21 unchanged sentences

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.

In the fourth quarter of 2017 management made the strategic decision to no longer originate residential mortgage loans.

Commencing with the third quarter of 2019, the Company no longer offers home equity loans or lines of credit.

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

In the third quarter of 2019, the Company stopped offering home equity loans or lines of credit.

The Company’s policy for residential lending generally required that the amount of the loan may not exceed 80% of the original appraised value of the property.

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 ap praised 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 risk management involves a partnership between our relationship managers and our credit approval, portfolio management, credit administration and collections departments.

Disciplined underwriting, portfolio monitoring and early

problem recognition are important aspects of maintaining our high credit quality standards and low levels of nonperforming assets since our inception in 2002.

Credit risk management involves a partnership between our relationship managers and our credit approval, portfolio management, credit administration and collections staff.

Disciplined underwriting, portfolio monitoring and early problem recognition are import ant aspects of maintaining our high credit quality standards and low levels of nonperforming assets since our inception in 2002.

Acquired Loans .

Loans acquired in acquisitions are initially recorded at fair value with no carryover of the related allowance for credit losses.

Acquired loans that have evidence of deterioration in credit quality since origination and for which it is probable, at acquisition, that all contractually required payments will not be collected are initially recorded at fair value without recording an allowance for loan losses.

Determining the fair value of the loans is determined using market participant assumptions in estimating the amount and timing of principal and interest cash flows initially expected to be collected on the loans and discounting those cash flows at an appropriate market rate of interest.

Loans acqu ired in acquisitions are initially recorded at fair value with no carryover of the related allowance for credit losses.

The fair value of the loans is determined using market participant assumptions to estimate the amount and timing of principal and interest cash flows initially expected to be collected on the loans and discounting those cash flows at an appropriate market rate of interest.

Under the accounting model for acquired loans, the excess of cash flows expected to be collected over the carrying amount of the loans, referred to as the “accretable yield”, is accreted into interest income over the life of the loans.

2 unchanged sentences

The excess of the loans' contractually required payments over the cash flows expected to be collected is the nonaccretable difference.

As such, charge-offs on acquired loans are first applied to the nonaccretable difference and then to any allowance for loan losses recognized subsequent to the acquisition.

A decrease in expected cash flows in subsequent periods may indicate that the loan pool is impaired, which would require the establishment of an allowance for loan losses by a charge to the provision for loan losses.

As such, charge-offs on acquired loans are first applied to the nonaccretable difference and then to any ACL-Loans recognized subsequent to the acquisition.

A decrease in expected cash flows in subsequent periods may indicate that the loan pool is a credit loss, which would require the establishment of an ACL-Loans by a charge to the provision for loan losses.

Nonperforming Assets .

15 unchanged sentences

Total nonaccrual loans were $49.2 million as of December 31, 2023 .

Nonperforming assets as a percentage of total assets was 0.51% at December 31, 2022 , do wn from 0.68% a t December 31, 2021.

The allowance for loan losses at December 31, 2022 w as $22.4 million, representing 0.84% of total loans.

The $5.5 million increase in the allowance for loan losses at December 31, 2022 when compared to December 31, 2021 was primarily due to an increase in loan growth when compared to 2021.

Nonperforming assets as a percentage of total assets was 1.53% at December 31, 2023 , when com pared to 0.51% at December 31, 2022.

The ACL-Loans at December 31, 2023 was $27.9 million, representing 1.03% of total loans.

Nonaccrual Loans .

Loans greater than 90 days past due are generally put on nonaccrual status (excluding certain acquired credit impaired loans).

Loans greater than 90 days past due are generally put on nonaccrual status.

Loans are also placed on nonaccrual status when, in the opinion of management, full collection of principal and interest is doubtful.

Interest previously accrued, but uncollected, is reversed against current period income.

Subsequent payments are recognized on a cash basis or principal recapture basis depending on a number of factors including probability of collection and if impairment is identified.

Subsequent payments are recognized on a cash basis or principal recapture basis depending on a number of factors including probability of collection and if a credit loss is identified.

A nonaccrual loan is restored to accrual status when it is no longer delinquent and collectability of interest and principal is no longer in doubt.

6 unchanged sentences

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

Loans greater than 90 days

past due are generally put on nonaccrual status.

Loans greater than 90 days past due are generally put on nonaccrual status.

A nonaccrual loan is restored to accrual status when it is no longer delinquent and collectability of interest and principal is no longer in doubt.

17 unchanged sentences

Total loans $ 2,058 $ — $ 14,003 $ 16,061

Total past due loans totaled $16.1 million and represented 0.60% of total loans as of December 31, 2022, decreasing $16.6 million from De cember 31, 2021.

Th e decrease in past due loans primarily relates past due loans that have been since brought current as of December 31, 2022.

Troubled Debt Restructurings (TDR) .

Loans are considered restructured in a troubled debt restructuring when the borrower is experiencing financial difficulties and the Bank has granted concessions to a borrower due to the borrower’s financial condition that we otherwise would not have considered.

Total past due loans totaled $21.3 million and represented 0.78% of total loans as of December 31, 2023, increasing $5.2 million from De cember 31, 2022.

Modifications .

Loans are considered restructured when the borrower is experiencing financial difficulties and the Bank has granted concessions to a borrower due to the borrower’s financial condition that we otherwise would not have considered.

These concessions may include modifications of the terms of the debt such as reduction of the stated interest rate other than normal market rate adjustments, extension of maturity dates, or reduction of principal balance or accrued interest.

3 unchanged sentences

Accruing restructured loans are placed into nonaccrual status if and when the borrower fails to comply with the restructured terms and management deems it unlikely that the borrower will return to a status of compliance in the near term.

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

The following table presents information on troubled debt restructured loans:

There were no nonaccrual loans modified during the year ended December 31, 2023.

There were seven nonaccrual loans modified totaling $2.5 million during the year ended December 31, 2022.

The following table presents information on modified loans:

At December 31,

(In thousands)

Accruing troubled debt restructured loans:

Accruing modified loans:

Residential real estate $ 2,325 $ 1,694

1 unchanged sentence

Commercial business 2,060 2,147

Accruing troubled debt restructured loans 19,734 23,853

Nonaccrual troubled debt restructured loans:

Accruing modified loans 4,385 19,734

Nonaccrual modified loans:

Residential real estate $ 1,351 $ 2,113

Commercial real estate 10,606 —

Commercial business 104 367

Nonaccrual troubled debt restructured loans 2,480 1,967

Total troubled debt restructured loans $ 22,214 $ 25,820

As of December 31, 2022 and 2021, loans classified as troubled debt restructurings totaled $22.2 million and $25.8 million, respectively.

Nonaccrual modified loans 12,061 2,480

Total modified loans $ 16,446 $ 22,214

As of December 31, 2023 and 2022, loans classified as modified totaled $16.4 million and $22.2 million, respectively.

Potential Problem Loans .

6 unchanged sentences

We take a proactive approach with respect to the identification and resolution of problem loans.

Allowance for Loan Losses

We evaluate the adequacy of the allowance at least quarterly, and in determining our allowance for loan losses, we estimate losses on specific loans, or groups of loans, where the probable loss can be identified and reasonably determined.

The balance of our allowance for loan losses is based on internally assigned risk classifications of loans, the Bank’s and peer banks’ historical loss experience, changes in the nature of the loan portfolio, overall portfolio quality, industry concentrations, delinquency trends, current economic factors and the estimated impact of current economic conditions on certain historical loan loss rates.

See additional discussion regarding our allowance for loan losses under the caption “Critical Accounting Policies and Estimates.”

Allowance for Credit Losses - Loans ("ACL-Loans")

Our Board of Directors has adopted an Allowance for Credit Losses policy designed to provide management with a methodology for determining and documenting the allowance for credit losses for each reporting period.

We evaluate the adequacy of the ACL-Loans at least quarterly, and in determining our ACL-Loans, we estimate losses on specific loans, or groups of loans, where the probable loss can be identified and reasonably determined.

The balance of our ACL-Loans is based on internally assigned risk classifications of loans, the Bank’s and peer banks’ historical loss experience, changes in the nature of the loan portfolio, overall portfolio quality, industry concentrations, delinquency trends, current economic factors and the estimated impact of current economic conditions on certain historical loan loss rates.

See additional discussion regarding our Allowance for Credit Losses-Loans ("ACL-Loans") and Allowance for Credit Losses-Unfunded commitments ("ACL-Unfunded commitments") under the caption "Critical Accounting Policies and Estimates."

Our general practice is to identify problem credits early and recognize full or partial charge-offs as promptly as practicable when it is determined that it is probable that the loan will not be repaid according to its original contractual terms, including principal and interest.

Full or partial charge-offs on collateral dependent impaired loans are recognized when the collateral is deemed to be insufficient to support the carrying value of the loan.

Full or partial charge-offs on collateral dependent loans are recognized when the collateral is deemed to be insufficient to support the carrying value of the loan.

We do not recognize a recovery when an updated appraisal indicates a subsequent increase in value of the collateral.

2 unchanged sentences

Partially charged-off loans continue to be evaluated on a monthly basis and additional charge-offs or loan loss provisions may be recorded on the remaining loan balance based on the same criteria.

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

The following table presents the activity in our ACL-Loans and related ratios for the dates indicated:

At December 31,

1 unchanged sentence

Balance at beginning of period $ 22,431 $ 16,902

Day 1 CECL Adjustment on January 1, 2023 5,079 —

Residential real estate — —

9 unchanged sentences

Total recoveries 570 114

Net recoveries (charge-offs) 92 (4,050)

Provision (credit) charged to earnings 5,437 (57)

Net (charge-offs) recoveries (777) 92

Provision charged to earnings 1,213 5,437

Balance at end of period $ 27,946 $ 22,431

Net recoveries or charge-offs to average loans 0.03 % — %

Allowance for loan losses to total loans 0.84 % 0.89 %

At December 31, 2022, our allowance for loan losses was $22.4 million and represented 0.84% of total loans, compared to $16.9 million and 0.89% of total loans at December 31, 2021.

The decrease in the ratio of allowance for loan losses to total loans is due to charge-offs taken in the prior year against previously established loan loss reserves as a result of improving economic trends partially offset by an increase in loan growth.

For t he year ended December 31, 2022, the provision for loan losses totaled $5.4 million.

For the year ended December 31, 2021 the credit for loan losses totaled $0.1 million.

Net recoveries for the year ended December 31, 2022 were $0.1 million and represented 0.00% of average loans.

For the year ended December 31, 2021, net charge-offs were $4.1 million and represented 0.23% of average loans.

The carrying amount of total impaired loans at December 31, 2022 was $42.8 million.

This compares to a carrying amount of $47.2 million for total impaired loans at December 31, 2021.

The amount of allowance for loan losses related to impaired loans was $0.9 million and $2.9 million, respectively, at December 31, 2022 and 2021.

The following table presents the allocation of the allowance for loan losses and the percentage of the related loan segments to total loans:

ACL-Loans to total loans

1.03 % 0.84 %

At December 31, 2023, our ACL-Loans was $27.9 million and represented 1.03% of total loans, compared to $22.4 million, or 0.84% of total loans at December 31, 2022.

The increase relates to the CECL transition adjustment to retained earnings.

The increase in the ACL-Loans provision for credit losses was primarily driven by forward looking CECL macroeconomic factors.

The carrying amount of total individually evaluated loans at December 31, 2023 was $105.0 million .

This compares to a carrying amount of $42.8 million for total individually evaluated loans at December 31, 2022.

The amount of ACL-Loans related to individually evaluated loans was $1.0 million and $0.9 million, respectively, at December 31, 2023 and 2022.

The following table presents the allocation of the ACL-Loans, the ACL-Loans percentage, and the related loan segments to total loans percentage:

At December 31,

Amount Percent of

Portfolio Amount Percent of

ACL-Loans Amount ACL-Loans Percentage Loan Segment to Total Loans Percentage ACL-Loans Amount ACL-Loans Percentage Loan Segment to Total Loans Percentage

(Dollars in thousands)

4 unchanged sentences

Consumer 586 2.10 1.33 146 0.65 0.67

Total allowance for loan losses $ 22,431 100.00 % $ 16,902 100.00 %

The allocation of the allowance for loan losses at December 31, 2022 reflects our assessment of credit risk and probable loss within each portfolio.

We believe that the level of the allowance for loan losses at December 31, 2022 is appropriate to cover probable losses.

$ 27,946 100.00 % 100.00 % $ 22,431 100.00 % 100.00 %

The allocation of the ACL-Loans at December 31, 2023 reflects our assessment of credit risk and probable loss within each portfolio.

We believe that the level of the ACL-Loans at December 31, 2023 is appropriate to cover probable losses.

Investment Securities

20 unchanged sentences

At December 31, 2023, the carrying value of our investment securities portfolio totaled $127.6 million and represented 4% of total asse ts, compared to $121.6 million and 4% of total assets at December 31, 2022.

The increase of $13.2 million primarily reflects purchases of corporate bonds.

The increase of $6.0 million primarily reflects purchases of treasury bonds.

We purchase investment grade securities with a focus on liquidity, earnings and duration exposure.

T he net unrealized losses on our investment portfolio at December 31, 2023 was $7.5 million and included $0.8 million of gross unrealized gains.

The net unrealized gain position on our investment portfolio at December 31, 2021 was $4.5 million and included $0.5 million of gross unrealized losses.

All of our investment securities are rated investment grade or deemed to be of investment grade quality.

The net unrealized loss position on our investment portfolio at December 31, 2022 w as $9.2 mill ion and included $0.3 million of gross unrealized gains.

The following tables summarize the amortized cost and weighted average yield of securities in our investment securities portfolio as of December 31, 2023 and 2022, based on remaining period to contractual maturity.

37 unchanged sentences

Deposit Activities and Other Sources of Funds

Our sources of funds include deposits, brokered certificates of deposit, FHLB borrowings, subordinated debt and proceeds from the sales, maturities and payments of loans and investment securities.

Our sources of funds include deposits, including brokered deposits, FHLB borrowings, subordinated debt and proceeds from the sales, maturities and payments of loans and investment securities.

Total deposits represented 85% of our total assets at December 31, 2023.

While scheduled loan and securities repayments are a relatively stable sources of funds, loan and investment security prepayments and deposit inflows are influenced by prevailing interest rates and local economic conditions and are inherently uncertain.

While scheduled loan and securities repayments are relatively stable sources of funds, loan and securities prepayments and deposit inflows are influenced by prevailing interest rates and local economic conditions and are inherently uncertain.

We offer a wide variety of deposit products and rates to consumer and business clients consistent with FDIC regulations.

5 unchanged sentences

Reciprocal amounts of deposits are received from other participating banks that do the same with their client deposits, and, we also execute one-way buy transactions.

With the exception of reciprocal deposits, CDARS and ICS One-Way buy transactions are considered to be brokered deposits for bank regulatory purposes.

CDARS one-way and ICS one-way buy transactions are considered to be brokered deposits for bank regulatory purposes.

Time deposits may also be generated through the use of a listing service.

13 unchanged sentences

Total deposits $ 2,736,757 100.00 % 3.59 % $ 2,800,818 100.00 % 1.07 %

Total deposits were $2.8 billion at December 31, 2022, an increase of $676.8 million, or 32%, from December 31, 2021.

Brokered certificates of deposits ("Brokered CDs") totaled $976.5 million and $249.4 million at December 31, 2022 and December 31, 2021, respectively.

The increase in Brokered CDs was used to fund the significant loan growth during the second half of 2022, increasing $727.1 million compared to December 31, 2021.

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

Total deposits were $2.7 billion at December 31, 2023, a decrease of $64.1 million, or 2%, from December 31, 2022.

Brokered certificates of deposits ("Brokered CDs") to taled $860.5 million a nd $976.5 million at December 31, 2023 and December 31, 2022, respectively.

Brokered money market accounts totaled $91.4 million and $41.8 million at December 31, 2023 and 2022, respectively.

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

At December 31, 2022 and 2021, time deposits, including CDARS and brokered certificates of deposit, with a denomination of $100 thousand or more totaled $1.2 billion and $0.4 billion, respectively, maturing during the periods indicated in the table below:

There were no certificates of deposits from national listing services, one-way buy CDARS or one-way buy ICS at December 31, 2023 or December 31, 2022.

Brokered deposits are comprised of Brokered CDs, brokered money market accounts, one-way buy CDARS, and one-way buy ICS.

As of December 31, 2023, our FDIC insured deposits were $1,945.9 million, or 71% of total deposits.

Additionally, $110.0 million of deposits are insured by standby letters of credit with the Federal Home Loan Bank of Boston, or 4% of total deposits.

At December 31, 2023 and 2022, time deposits, including CDARS and Brokered CDs, with a denomination of $100 thousand or more totaled $1.2 billion and $1.2 billion, re spectively, maturing during the periods indicated in the table below:

At December 31,

11 unchanged sentences

We utilize advances from the FHLB as part of our overall funding strategy, to meet short-term liquidity needs and to manage interest rate risk arising from the difference in asset and liability maturities.

Total FHLB advances were $90.0 million at December 31, 2022 compared to $50.0 million at December 31, 2021.

Total FHLB advances were $90.0 million at December 31, 2023 and $90.0 million at December 31, 2022.

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

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

At December 31, 2022, the Bank had pledged $941.9 million of eligible loans as collateral to support borrowing capacity at the FHLB of Boston.

As of December 31, 2022, the Bank had immediate availability to borrow an addition al $402.2 million based on qualified collateral.

At December 31, 2023, the Bank had pled ged $927.1 million of eligible loans as collateral to support borrowing capacity at the FHLB of Boston.

As of December 31, 2023, the Bank had immediate availability to borrow an additional $344.4 million based on qualified collateral.

Advances from the FHLB include short-term advances with original maturity dates of one year or less.

The following table sets forth certain information concerning short-term FHLB advances as of and for the periods indicated in the following table:

The following table sets forth certain information concerning short-term FHLB advances as of and for the periods indicated:

Year Ended December 31,

6 unchanged sentences

(1) $50 million of the Company's FHLB borrowings are subject to longer term interest rate swap agreements and the weighted average rate reflects the "all-in" swap rate under these long interest rate term swap agreements.

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 the outstanding balance of subordinated debt issued in 2015 and for general corporate purposes.

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

1 unchanged sentence

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

Beginning October 15, 2026, the Company may redeem the

2021 Note, in whole or in part, at its option.

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

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

1 unchanged sentence

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 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 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.

3 unchanged sentences

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

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 designated the fair value swap under the portfolio layer method.

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.

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

9 unchanged sentences

Interest rate swaps $ 125,000 Other assets $ 5,240 $ — Accrued expenses and other liabilities $ —

Fair value swap $ 150,000 Other assets $ — $ — Accrued expenses and other liabilities $ 917

Derivatives not designated as hedging instruments:

24 unchanged sentences

We employ a stress testing methodology to estimate needs for contingent funding that could result from unexpected outflows of funds in excess of “business as usual” cash flows.

The Bank has established unsecured borrowing capacity with the Atlantic Community Bankers Bank (ACBB) (formerly Bankers’ Bank Northeast), Zion’s Bank and Texas Capital Bank and also maintains additional collateralized borrowing capacity with the FRB and the FHLB in excess of levels used in the ordinary course of business.

Our sources of liquidity include cash, unpledged investment securities, borrowings from the FRB, FHLB, lines of credit from ACBB, Zion's Bank and Texas Capital Bank, the brokered deposit market and national CD listing services.

The Bank has established unsecured borrowing capacity with the Pacific Coast Bank (PCBB), Atlantic Community Bankers Bank (ACBB), and Zion’s Bank and also maintains additional collateralized borrowing capacity with the Federal Reserve Bank of New York ("FRBNY") and the FHLB in excess of levels used in the ordinary course of business.

Our sources of liquidity include cash, unpledged investment securities, borrowings from the FRBNY, FHLB, lines of credit from PCBB, ACBB, and Zion's Bank, the brokered deposit market and national CD listing services.

Capital Resources

Shareholders’ equity totaled $238.5 million as of December 31, 2022, an increase of $36.5 million compared to December 31, 2021, primarily a result of (i) net income of $37.4 million for the year ended December 31, 2022 and (ii) an $8.4 million favorable impact to accumulated other comprehensive income driven by fair value marks related to hedge positions involving interest rate swap s of $16.8 million, partially offset b y fair value marks on the Company's investment portfolio of $8.4 million.

Shareholders’ equity totaled $265.8 million as of December 31, 2023, an increase of $27.3 million compared to December 31, 2022, primarily a result of (i) net income of $36.7 million for the year ended December 31, 2023 .

The increase was partially offset by the Day 1 CECL adoption of $4.9 million, dividends paid of $6.2 million, and a $1.5 million unfavorable impact to accumulated other comprehensive income.

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

The increase in Shareholders’ equity was partially offset by dividends paid of $6.2 million and common stock repurchases of $5.5 million.

As of December 31, 2023, the tangible common equity ratio and tangible book value per share were 8.19% and $34.50, respectively.

3 unchanged sentences

At December 31, 2023, the Bank’s ratio of total common equity

tier 1 capital to risk-weighted asse ts was 10.28%, total capital to risk-weighted assets was 11.07%, Tier 1 capital to risk-weighted assets was 10.28% and Tier 1 capital to average assets was 9.88%.

tier 1 capital to risk-weighted assets was 11.30%, total capital to risk-weighted assets was 12.32%, Tier 1 capital to risk-weighted assets was 11.30% and Tier 1 capital to average assets was 9.81%.

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

46 unchanged sentences

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

What changed 10-K

Item 7. Management’s Discussion and Analysis