What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-03-12 compared with 2023-03-08 · 529 added, 375 removed, 1384 unchanged (40% of the section changed)

12 unchanged sentences

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

and its subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements).

and its subsidiaries (the Company) as of December 31, 2023 and 2022 , the related consolidated statements of income, comprehensive income (loss), shareholders' equity, and cash flows for the years then ended and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022 , and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023 , based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 12, 2024 , expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

Change in accounting principle

As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for the recognition and measurement of credit losses in 2023 due to the adoption of Accounting Standard Codification Topic 326, Financial Instruments ‑ Credit Losses.

Basis for Opinion

1 unchanged sentence

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

1 unchanged sentence

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

3 unchanged sentences

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Qualitative Factor Adjustments to the Allowance for Loan Losses

As described in Notes 1 and 5 to the consolidated financial statements, the Company’s allowance for loan losses totaled $22.4 million as of December 31, 2022, which consists of a general reserve of $21.5 million and a specific reserve of $0.9 million.

Management estimates the allowance based on loan losses believed to be inherent in the Company’s loan portfolio, segmented by product type and risk classification, at the balance sheet date.

The Company’s allowance for loan losses consists of a general reserve, which management develops based on historical loss ratios from its data and, where appropriate, its peers’ data adjusted for qualitative factors not reflected in the historical loss experience as well as a specific reserve based on management’s identification of impaired loans.

Management considers several qualitative factors, both internal and external to the Company, including valuation of underlying collateral;

macro and local economic factors;

nature and volume of loan portfolio;

concentration of credit risk;

net charge-off trends and non-accrual trends, and past due and classified loan trends when determining the general reserve.

The adjustment for qualitative factors requires a significant amount of judgment by management and involves a high degree of estimation uncertainty.

We identified the qualitative factor component of the allowance for loan losses as a critical audit matter as auditing the underlying qualitative factors required significant auditor judgment as amounts determined by management rely on analysis that is highly subjective and includes significant estimation uncertainty.

Our audit procedures related to the qualitative factor component of the allowance for loan losses include the following, among others:

• We obtained an understanding of the relevant controls related to management’s qualitative factor adjustments to the allowance for loan losses and tested such controls for design and operating effectiveness including controls related to management’s establishment, review and approval of the qualitative factors and the completeness and accuracy of data used in determining the qualitative factors .

• We tested the completeness and accuracy of data used by management in determining qualitative factor adjustments by agreeing them to internal and external source data.

• We assessed the reasonableness of management’s qualitative factor adjustments by agreeing them to internal and external source data, evaluating the magnitude and directional consistency of such adjustments with prior periods and data points, and evaluating the consistency of such changes in accordance with the Company’s loan policy.

• We tested management’s conclusions regarding the appropriateness of the qualitative factor adjustments and agreed the impact to the allowance for loan losses calculation.

The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses on Loans and Unfunded Commitments

As described in Notes 1 and 5 to the consolidated financial statements, the Company’s allowance for credit losses for loans totaled $27.9 million as of December 31, 2023 , which consists of an allowance for collectively evaluated loans of $27.0 million and an allowance for individually evaluated loans of $0.9 million.

The Company’s allowance for credit losses for unfunded commitments totaled $0.9 million as of December 31, 2023 .

Management estimates the allowance based on credit losses believed to be in the Company’s loan portfolio over the life of its loans, segmented by portfolio and risk classification, at the balance sheet date.

The Company’s allowance for credit losses on loans consists of a component relating to collectively evaluated loans and a component relating to individually evaluated loans.

The allowance for collectively evaluated loans is derived from lifetime loss rate models that calculate expected losses over the life of each loan based on exposure at default, loan attributes, and reasonable, supportable economic forecasts, adjusted for qualitative adjustments considered by management.

The lifetime loss rate models rely upon historical losses from a broad cross section of U.S.

banks and management reviews the banks included in the loss rate models that determine the loss rates.

To further refine the expected losses, management selects a group of peer banks to scale the loss rate models to produce an allowance that is representative of the Company’s loan portfolio and geographic area (“peer scalar”).

The allowance for credit losses on unfunded commitments is based on the same assumptions as funded loans and also considers the expected utilization of unfunded commitments.

To account for economic uncertainty, the Company incorporates multiple economic scenarios in determining the allowance for credit losses.

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.

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

The measurement of expected credit losses is influenced by the Company’s judgment of market conditions, changes in loan composition or concentrations, performance trends, regulatory changes, uncertainty in macroeconomic forecasts, or other asset specific risk characteristics.

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

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.

We identified the selection of the models being used in determining the loss rates, peer bank determinations for scaling, forecasted economic scenarios, qualitative adjustments, and expected utilization of unfunded commitments components of the allowance for credit losses for loans and the allowance for credit losses on unfunded loan commitments (herein referred to as “the allowance”) as a critical audit matter because auditing the underlying assumptions in those components involved a high degree of complexity and auditor judgment given the high degree of subjectivity exercised by management in developing the allowance, which resulted in an increase in audit effort and the use of an internal economic specialist due to the impact these assumptions have on the accounting estimate.

Our audit procedures related to management’s selection of the models being used in determining the loss rates, peer bank determinations for scaling, forecasted economic scenarios, qualitative adjustments, and expected utilization of unfunded commitments components of the allowance included the following, among others:

– We obtained an understanding of the relevant controls related to management’s selection of the models being used in determining the loss rates, peer bank determinations for scaling, forecasted economic scenarios, qualitative adjustments, and expected utilization of unfunded commitments components of the allowance and tested such controls for design and operating effectiveness.

– We evaluated management’s judgments and assumptions used in the development of the qualitative factors for reasonableness, and tested the reliability of the underlying data on which these factors are based, by comparing information to source documents and external information sources.

– We tested management’s process and significant judgments in the selection of the models being used in determining the loss rates, peer bank determinations for scaling, forecasted economic scenarios, and expected utilization of unfunded commitments of the allowance for credit losses, which included:

• Evaluating the reasonableness of management’s judgments related to the establishment of the models being used in determining the loss rates and expected utilization of unfunded commitments and testing the completeness and accuracy of data used by management in determining inputs to the models by agreeing those inputs to internal information sources .

• Evaluating management’s considerations and data utilized as a basis for the peer bank determinations for scaling used in the loss rate models and testing the completeness and accuracy of the underlying data by tracing the data to independent sources.

• Evaluating management’s considerations and selection of forecasted economic scenarios and weightings, and testing the reasonableness of the underlying data, which included Gross Domestic Product, interest rates, property price indices, and employment measures , among others, by comparing these forecasts to external and internal information sources that were available to management, which included the use of an internal economic specialist.

• We obtained and assessed the reasonableness of model validations performed by a reputable third party evaluating the statistical documentation and process used by management in validating the models established by the vendor.

/s/ RSM US LLP

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Total investment securities 127,623 121,634

Loans receivable (net of allowance for loan losses of $ 22,431 and $ 16,902 at December 31, 2022 and 2021, respectively)

Loans receivable (net of ACL-Loans of $ 27,946 and $ 22,431 at December 31, 2023 and 2022, respectively)

2,685,301 2,646,384

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Net interest income 94,468 94,743

Provision (credit) provision for loan losses 5,437 ( 57 )

Net interest income after provision (credit) for loan losses 89,306 67,943

Provision for loan losses 866 5,437

Net interest income after provision for loan losses 93,602 89,306

Noninterest income

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Bankwell Financial Group, Inc.

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Comprehensive Income

(In thousands)

2 unchanged sentences

Other comprehensive income (loss):

Unrealized (losses) gains on securities:

Unrealized holding (losses) gains on available for sale securities ( 10,817 ) ( 1,404 )

Unrealized gains (losses) on securities:

Unrealized holding gains (losses) on available for sale securities 1,149 ( 10,817 )

Reclassification adjustment for gains realized in net income — —

Net change in unrealized (losses) gains ( 10,817 ) ( 1,404 )

Income tax benefit (expense) 2,416 311

Unrealized (losses) gains on securities, net of tax ( 8,401 ) ( 1,093 )

Unrealized gains (losses) on interest rate swaps:

Unrealized gains (losses) on interest rate swaps 21,598 10,415

Net change in unrealized gains (losses) 1,149 ( 10,817 )

Income tax (expense) benefit ( 209 ) 2,416

Unrealized gains (losses) on interest rate swaps, net of tax 16,773 8,107

Total other comprehensive income (loss), net of tax 8,372 7,014

Comprehensive income (loss) $ 45,801 $ 33,600

Unrealized gains (losses) on securities, net of tax 940 ( 8,401 )

Unrealized (losses) gains on interest rate swaps:

Unrealized (losses) gains on interest rate swaps ( 3,065 ) 21,598

Income tax benefit (expense) 650 ( 4,825 )

Unrealized (losses) gains on interest rate swaps, net of tax ( 2,415 ) 16,773

Total other comprehensive (loss) income, net of tax ( 1,475 ) 8,372

Comprehensive income $ 35,188 $ 45,801

See Notes to Consolidated Financial Statements

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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 — — 36,663 — 36,663

6 unchanged sentences

Stock options exercised 8,680 155 — — 155

Repurchase of common stock ( 166,375 ) ( 5,540 ) — — ( 5,540 )

Balance at December 31, 2023 7,882,616 $ 118,247 $ 149,169 $ ( 1,664 ) $ 265,752

8 unchanged sentences

Net amortization of premiums and discounts on investment securities 54 310

Provision (credit) for loan losses 5,437 ( 57 )

(Credit) provision for deferred income taxes ( 1,964 ) 1,699

Provision for loan losses 866 5,437

Credit for deferred income taxes ( 191 ) ( 1,964 )

Change in fair value of marketable equity securities ( 31 ) 212

1 unchanged sentence

Amortization of debt issuance costs 246 166

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

Increase in cash surrender value of bank-owned life insurance ( 1,192 ) ( 1,069 )

1 unchanged sentence

Stock-based compensation 3,074 2,362

Net amortization of purchase accounting adjustments — 76

(Gain) loss on sale of premises and equipment ( 20 ) 498

Loss (gain) on sale of premises and equipment 13 ( 20 )

Net change in:

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Proceeds from principal repayments on held to maturity securities 223 5,056

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

Purchases of available for sale securities ( 9,847 ) ( 32,212 )

1 unchanged sentence

Purchases of held to maturity securities ( 50 ) ( 4,990 )

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

Net increase in loans ( 65,942 ) ( 838,031 )

Loan principal sold from loans not originated for sale — ( 20,625 )

Proceeds from sales of loans not originated for sale 25,028 58,793

Disposals of premises and equipment, net ( 4,958 ) 4,257

(Purchase) reduction of Federal Home Loan Bank stock ( 2,402 ) 5,046

Purchases of premises and equipment, net ( 2,045 ) ( 4,958 )

(Purchase) of Federal Home Loan Bank stock ( 480 ) ( 2,402 )

Net cash used in investing activities ( 48,302 ) ( 811,161 )

9 unchanged sentences

Issuance of subordinated debt — 34,352

Retirement of subordinated debt — ( 25,500 )

Dividends paid on common stock ( 6,241 ) ( 6,189 )

Repurchase of common stock — ( 5,540 )

Net cash provided by financing activities 739,490 170,551

Net increase (decrease) in cash and cash equivalents 10,997 ( 64,916 )

Net cash (used in) provided by financing activities ( 70,147 ) 739,490

Net (decrease) increase in cash and cash equivalents ( 86,522 ) 10,997

Cash and cash equivalents:

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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.

Principles of Consolidation

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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, derivative instrument valuation, 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 ACL-Loans, derivative instrument valuation, investment securities valuation, ACL-Securities, and deferred income taxes valuation.

The Company has one reportable segment.

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Marketable equity securities are carried at fair value, with any changes in fair value reported in earnings.

Investment securities in the available for sale and held-to-maturity portfolios are reviewed quarterly for other-than-temporary impairment ("OTTI").

If the fair value of a debt security is below amortized cost, other-than-temporary impairment is deemed to exist if the present value of the expected future cash flows is less than the amortized cost basis of the security.

OTTI is required to be recognized regardless of the credit loss component if the Company intends to sell the security or if it is “more-likely-than-not” that the Company will be required to sell the security before recovery of its amortized cost basis.

credit loss component of an other-than-temporary impairment write-down is recorded in earnings, while the remaining portion of the impairment loss is recognized in other comprehensive income (loss), provided the Company does not intend to sell the underlying debt security and it is more-likely-than-not that the Company will not be required to sell the debt security prior to recovery.

In determining whether a credit loss exists and the period over which the fair value of the debt security is expected to recover, management considers the following factors:

the length of time and extent that fair value has been less than cost, the financial condition and near term prospects of the issuer, any external credit ratings, the level of excess cash flows generated from the underlying collateral supporting the principal and interest payments of the debt securities and the level of credit enhancement provided by the structure.

The sale of a held to maturity security within three months of its maturity date or after collection of at least 85% of the principal outstanding at the time the security was acquired is considered a maturity for purposes of classification and disclosure.

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When transfers of debt securities into the available for sale classification from the held to maturity classification occur, any unrealized holding gains or losses on the transfer date are recognized in other comprehensive income.

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.

Bank Owned Life Insurance

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Loans Receivable

Loans receivable that management has the ability and intent to hold for the foreseeable future or until maturity or payoff are stated at their current unpaid principal balances, net of the allowance for loan losses, charge-offs, recoveries, net deferred loan origination fees and unamortized loan premiums.

Loans receivable that management has the ability and intent to hold for the foreseeable future or until maturity or payoff are stated at their current unpaid principal balances, net of the ACL-Loans, charge-offs, recoveries, net deferred loan origination fees and unamortized loan premiums.

Past due or delinquency status for all loans is based on the number of days past due in accordance with its contractual payment terms.

A loan is considered impaired when it is probable that all contractual principal or interest payments due will not be collected in accordance with the terms of the loan agreement.

Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral, if the loan is collateral dependent.

The amount of impairment, if any, and any subsequent changes are recorded as adjustments to the allowance for loan losses.

Impaired loans also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties.

A loan is individually evaluated when it is probable that all contractual principal or interest payments due will not be collected in accordance with the terms of the loan agreement.

Individually evaluated loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral, if the loan is collateral dependent.

Credit losses, if any, and any subsequent changes are recorded as adjustments to the ACL-Loans.

Individually evaluated loans also include loans modified where concessions have been granted to borrowers experiencing financial difficulties.

These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.

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

Loans greater than 90 days past due are 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.

Management reviews all nonaccrual loans, other loans past due 90 days or more, and restructured loans for impairment.

In most cases, loan payments that are past due less than 90 days are considered minor collection delays and the related loans may not be impaired.

Consumer installment loans are considered to be pools of small balance homogeneous loans, which are collectively evaluated for impairment.

Modifications to a loan are considered to be a troubled debt restructuring (“TDR”) when two conditions are met:

Management reviews all nonaccrual loans, other loans past due 90 days or more, and restructured loans for credit losses.

In most cases, loan payments that are past due less than 90 days are considered minor collection delays and the related loans may not be individually evaluated.

Consumer installment loans are considered to be pools of small balance homogeneous loans, which are collectively evaluated for credit losses.

Modifications made to a loan are considered under ASU 2022-02 when two 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.

2 unchanged sentences

The decision to restructure a loan, versus aggressively enforcing the collection of the loan, may benefit the Company by increasing the ultimate probability of collection.

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.

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

If a nonperforming loan is restructured into a modification, 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.

TDR’s are reported as such for at least one year from the date of restructuring.

In years after the restructuring, troubled debt restructured loans may be removed from this classification if the restructuring agreement specifies a market rate of interest equal to that which would be provided to a borrower with similar credit at the time of restructuring and the loan is not deemed to be impaired based on the modified terms.

Modifications are reported as such for at least one year from the date of restructuring.

In years after the restructuring, loans may be removed from this classification if the restructuring agreement specifies a market rate of interest equal to that which would be provided to a borrower with similar credit at the time of restructuring and the loan is not deemed to be a credit loss based on the modified terms.

Acquired Loans

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

Determining the fair value of acquired loans involves 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.

For loans which meet the criteria stipulated in Accounting Standards Codification (“ASC”) 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality”, the Company recognizes an accretable yield, which is defined as the excess of all cash flows expected at acquisition over the initial fair value of the loan, as interest income on a level-yield basis over the expected remaining life of the loan.

The excess of the loan’s contractually required payments over the cash flows expected to be collected is the nonaccretable difference.

The nonaccretable difference is not recognized as an adjustment of yield, a loss accrual, or a valuation allowance.

After the initial acquisition, the Company continues to evaluate whether the timing and the amount of cash to be collected are reasonably estimated.

Subsequent significant increases in cash flows the Company expects to collect will first reduce previously recognized valuation allowance and then be reflected prospectively as an increase to the level yield.

Subsequent decreases in expected cash flows may result in the loan being considered impaired.

Interest income is not recognized to the extent that the net investment in the loan would increase to an amount greater than the estimated payoff amount.

For ASC 310-30 loans, the expected cash flows reflect anticipated prepayments, determined on a loan by loan basis, according to the anticipated collection plan of these loans.

Prepayments result in the recognition of the nonaccretable balance as current period yield.

Changes in prepayment assumptions may change the amount of interest income and principal expected to be collected.

The expected prepayments used to determine the accretable yield are consistent between the cash flows expected to be collected and projections of contractual cash flows so as to not affect the nonaccretable difference.

For loans that do not meet the ASC 310-30 criteria, the Company records interest income on a level yield basis using the contractually required cash flows.

The Company subjects loans that do not meet the ASC 310-30 criteria to ASC Topic 450, “Contingencies”, by collectively evaluating these loans for an allowance for loan loss, using the same methodology as loans originated by the Company.

Acquired loans that met the criteria for nonaccrual of interest prior to the acquisition are considered performing upon acquisition, regardless of whether the client is contractually delinquent, if the Company can reasonably estimate the timing and amount of the expected cash flows on such loans and if the Company expects to fully collect the new carrying value of the loans.

1 unchanged sentence

The Company has determined that it can reasonably estimate future cash flows on the Company’s current portfolio of acquired loans that are past due 90 days or more, and on which the Company is accruing interest and the Company expects to fully collect the carrying value of the loans.

Allowance For Loan Losses (ALLL)

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings.

Loan losses are charged against the allowance for loan losses when management believes the non-collectability of a loan balance is confirmed.

Subsequent recoveries, if any, are credited to the allowance for loan losses.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions.

This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance for loan losses consists of specific and general components.

The specific component relates to impaired loans that are classified as "doubtful", "substandard" or "special mention".

For these loans, an allowance is established when the discounted cash flows, collateral value or observable market price of the impaired loan is lower than the carrying value of that loan.

The general component covers non classified loans and is based on historical loss experience, including appropriate peer data, adjusted for qualitative factors.

Management considers several qualitative factors, both internal and external to the Company, including valuation of underlying collateral;

macro and local economic factors;

nature and volume of loan portfolio;

concentration of credit risk;

net charge-off trends and non-accrual trends, and past due and classified loan trends when determining the general reserve.

Management believes the allowance for loan losses is adequate.

While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions.

In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses.

Such agencies have the authority to require additions to the allowance or charge-offs based on the agencies’ judgments about information available to them at the time of their examination.

Reserve for Unfunded Commitments

The reserve for unfunded commitments provides for probable losses inherent with funding the unused portion of legal commitments to lend.

The unfunded reserve calculation includes factors that are consistent with the ALLL methodology for our loan portfolio as well as a draw down factor applied to the various commitments.

The reserve for unfunded commitments is included within other liabilities in the accompanying Consolidated Balance Sheets, and changes in the reserve are reported as a component of other expense in the accompanying Consolidated Statements of Income.

Commitments and Contingencies for further information.

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.

Interest and Fees on Loans

11 unchanged sentences

Goodwill and identifiable intangible assets are evaluated for impairment annually or whenever events or changes in circumstances indicate the carrying value of these assets may not be recoverable.

When these assets are

evaluated for impairment, if the carrying amount exceeds fair value, an impairment charge is recorded to income.

When these assets are evaluated for impairment, if the carrying amount exceeds fair value, an impairment charge is recorded to income.

The fair value is based on observable market prices, when practicable.

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The Company recognizes and measures it leases in accordance with ASC 842, " Leases" .

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

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

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

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The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

The Company has $ 500 thousand and $ 265 thousand of liabilities for uncertain tax positions at December 31, 2022 and 2021, respectively.

The Company has $ 1.0 million and $ 265 thousand of liabilities for uncertain tax positions at December 31, 2023 and 2022, respectively.

Where applicable, associated interest and penalties have also been recognized.

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

The Company has one pay-fixed portfolio layer method fair value swap, designated as a hedging instrument, with a total notional amount of $ 150 million.

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.

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Recent Accounting Pronouncements

The following section includes changes in accounting principles and potential effects of new accounting guidance and pronouncements.

The following section includes changes in accounting principles and potential effects of new accounting guidance and p ronouncements.

Recently issued accounting pronouncements not yet adopted

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 does qualify to de fer the adoption of this standard and has not yet adopted this standard.

On January 1, 2023, the Company adopted Topic 326.

Upon adoption of CECL, the Company will record a one-time cumulative effect, pre-tax adjustment in the range of $ 4.6 million to $ 5.6 million to the allowance for loan losses and a corresponding net of tax adjustment to beginning retained earnings.

The Company will also record a one-time cumulative effect, pre-tax adjustment in the range of $ 1.1 million to $ 1.4 million to the reserve for unfunded commitments (which is reflected in Accrued expenses and other liabilities on the Consolidated Balance Sheets) and a corresponding net of tax adjustment to beginning retained earnings.

These impacts will be 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 expense 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 current 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.

2023-09—Income Taxes (Topic 740):

"Improvements to Income Tax Disclosures":

The amendments in this update provide more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information.

For public business entities, the amendments in this update are effective for annual periods beginning after December 15, 2024.

The Company believes this ASU will not have a material impact on existing disclosures and will continue to monitor for SEC action, and plan accordingly for adoption.

2023-06, Disclosure Improvements:

“Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative”:

The amendments in this Update modify the disclosure or presentation requirements of a variety of Topics in the Codification.

Certain of the amendments represent clarifications to or technical corrections of the current requirements.

Because of the variety of Topics amended, a broad range of entities may be affected by one or more of those amendments.

The summary of the amendments applicable to the Company include:

Statement of Cash Flows - Requires an accounting policy disclosure in annual periods of where cash flows associated with derivative instruments and their related gains and losses are presented in the statement of cash flows.

Accounting Changes and Error Corrections - Requires that when there has been a change in the reporting entity, the entity disclose any material prior-period adjustment and the effect of the adjustment on retained earnings in interim financial statements.

Earnings Per Share - Requires disclosure of the methods used in the diluted earnings-per-share computation for each dilutive security and clarifies that certain disclosures should be made during interim periods.

Amends illustrative guidance to illustrate disclosure of the methods used in the diluted earnings-per-share computation.

Interim Reporting - Conforms to the amendments made to Topic 250 (Accounting Changes and Error Correction).

Commitments - Requires disclosure of assets mortgaged, pledged, or otherwise subject to lien and the obligations collateralized.

Debt - Requires disclosure of amounts and terms of unused lines of credit and unfunded commitments and the weighted-average interest rate on outstanding short-term borrowings.

Entities that are not public business entities are not required to provide information about the weighted-average interest rate.

Equity - Requires entities that issue preferred stock to disclose preference in involuntary liquidation if the liquidation preference is other than par or stated value.

Derivatives - Adds cross-reference to disclosure requirements related to where cash flows associated with derivative instruments and their related gains and losses are presented in the statement of cash flows in Topic 230.

Transfers and Servicing—Secured Borrowing and Collateral - Requires:

That accrued interest be included in the disclosure of liabilities incurred in securities borrowing or repurchase or resale transactions.

Separate presentation of the aggregate carrying amount of reverse repurchase agreements on the face of the balance sheet if that amount exceeds 10 percent of total assets.

Disclosure of the weighted-average interest rates of repurchase liabilities for public business entities.

Disclosure of amounts at risk with an individual counterparty if that amount exceeds more than 10 percent of shareholder’s equity.

Disclosure for reverse repurchase agreements that exceed 10 percent of total assets on whether there are any provisions in a reverse repurchase agreement to ensure that the market value of the underlying assets remains sufficient.

to protect against counterparty default and, if so, the nature of those provisions.

Financial Services - Requires that investment companies disclose the components of capital on the balance sheet.

For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited.

For all other

entities, the amendments will be effective two years later.

The amendments in this Update should be applied prospectively.

For all entities, if by June 30, 2027, the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the related amendment will be removed from the Codification and will not become effective for any entity.

The Company believes this ASU will not have a material impact on existing disclosures and will continue to monitor for SEC action, and plan accordingly for adoption.

Recently adopted accounting pronouncements

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

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The FASB issued ASU No.

2019-10, which officially

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

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

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

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

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 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.

In addition, the Company also evaluated its Held to maturity investment securities and Available for sale investment securities.

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

The Company determined these housing authority bonds had 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 consisted of government backed U.S.

Treasuries, Mortgage-Backed Securities, and Corporate Securities.

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

Government and had minimal risk of loss.

The Corporate Securities had minimal default risk.

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

The impact of the CECL adoption on January 1, 2023 was as follows:

(in thousands) 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

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

"Troubled Debt Restructurings and Vintage Disclosures" .

ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings (“TDRs”) in ASC 310-40, “Receivables - Troubled Debt Restructurings by Creditors” for entities that have adopted the current expected credit loss (“CECL”) model introduced by ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments” (ASU 2016-13”).

ASU 2022-02 also requires that public business entities disclose current-period gross charge-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, “Financial Instruments—Credit Losses—Measured at Amortized Cost”.

ASU 2022-02 is effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted.

The Company adopted ASU 2022-02 on January 1, 2023 and it did not have a material effect on the Company’s consolidated financial statements.

2022-06, Reference Rate Reform (Topic 848) ASU No.

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

4 unchanged sentences

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

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.

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 was beyond the original sunset date of Topic 848.

As the original 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 deferred 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.

The Company has adopted ASU No.

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

Shareholders’ Equity

11 unchanged sentences

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

D uring 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.

During the year ended December 31, 2023, the Company did not have any purchases of 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.

9 unchanged sentences

No impairment was required to be recorded on goodwill in 2023 or 2022.

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

The intangible asset was fully amortized as of December 31, 2022.

Gross Intangible

Asset Accumulated

Amortization Net Intangible

(In thousands)

December 31, 2022

Core deposit intangible $ — $ — $ —

December 31, 2021

Core deposit intangible $ 1,029 $ 1,029 $ —

Amortization expense related to the core deposit intangible totaled $ 0.1 million for the year ended December 31, 2021.

There were no amortization expenses related to core deposit intangibles for the year ended December 31, 2022.

Investment Securities

5 unchanged sentences

Government and agency obligations

Less than one year $ 9,836 $ — $ ( 52 ) $ 9,784

Due from one through five years 55,288 123 ( 2,680 ) 52,731

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

There w ere thirty-six investment securities as of December 31, 2022, in which the fair value of the security was less than the amortized cost of the s ecurity.

There were seven such investment securities as of December 31, 2021.

The following table provides information regarding investment securities with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2022:

There were thirty-four investment securities as of December 31, 2023, in which the fair value of the security was less than the amortized cost of the s ecurity.

There were thirty-six such investment securities as of December 31, 2022.

Length of Time in Continuous Unrealized Loss Position

18 unchanged sentences

Therefore, the contractual cash flows are guaranteed and as a result the unrealized losses in this portfolio are considered to be only temporarily impaired.

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

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

The Company monitors its corporate bond, state agency and municipal bond portfolios and considers them to have minimal default risk.

The Company has the intent and ability to retain its investment securities in an unrealized loss position at December 31, 2023 until the decline in value has recovered or the security has matured.

Loans Receivable and Allowance for Loan Losses

Loans Receivable and ACL-Loans

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

7 unchanged sentences

Commercial business 500,569 520,447

520,447 350,975

Consumer 36,045 17,963

Total loans 2,718,607 2,675,448

Allowance for loan losses ( 22,431 ) ( 16,902 )

ACL-Loans ( 27,946 ) ( 22,431 )

Deferred loan origination fees, net ( 5,360 ) ( 6,633 )

Loans receivable, net $ 2,685,301 $ 2,646,384

(1) The December 31, 2022 and December 31, 2021 balances include $ 33 thousand and $ 0.2 million, respectively, of Paycheck Protection Program ("PPP") loans made under the CARES Act.

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

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

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

2 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 client 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 80 % of the market value of the collateral, ( 85 % maximum for owner occupied commercial real estate), 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.

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

Commencing with third quarter of 2019, the Company no longer offers 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 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.

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.

The Company does not provide first or second lien consumer mortgage loans secured by residential properties but has a small legacy portfolio which continues to amortize, pay off due to the sale of the collateral, or refinance away from the Company.

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.

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Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the value of the property at completion of construction compared to the estimated cost (including interest) of construction and other assumptions.

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.

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.

3 unchanged sentences

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

This segment also includes 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 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 years ended December 31, 2022 and December 31, 2021, by portfolio segment:

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.

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

Real Estate Commercial

3 unchanged sentences

For the Year Ended December 31, 2023

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

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 — ( 824 ) — ( 440 ) ( 83 ) ( 1,347 )

12 unchanged sentences

Ending balance $ 163 $ 15,597 $ 311 $ 6,214 $ 146 $ 22,431

Loans evaluated for impairment and the related allowance for loan losses as of December 31, 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 December 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 $ — $ — $ — $ — $ — $ 47,314 $ 47,314

Special Mention — — — — — 140 140

Substandard — — — — — 3,728 3,728

Doubtful — — — — — — —

Total Residential Real Estate Loans $ — $ — $ — $ — $ — $ 51,182 $ 51,182

Residential Real Estate charge-off

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

Commercial Real Estate Loans

Pass $ 95,881 $ 755,352 $ 310,811 $ 113,554 $ 133,996 $ 429,695 $ 1,839,289

Special Mention 12,333 35,136 13,203 — 2,035 114 62,821

Substandard 18,525 — 19,039 — — 8,121 45,685

Doubtful — — — — — 4,272 4,272

Total Commercial Real Estate Loans $ 126,739 $ 790,488 $ 343,053 $ 113,554 $ 136,031 $ 442,202 $ 1,952,067

Commercial Real Estate charge-off

Current period net charge-offs $ — $ — $ 213 $ — $ — $ 611 $ 824

Construction Loans

Pass $ 39,627 $ 67,788 $ 41,156 $ 26,156 $ — $ — $ 174,727

Special Mention — — — — — — —

Substandard — — — — — 9,362 9,362

Doubtful — — — — — — —

Total Construction Loans $ 39,627 $ 67,788 $ 41,156 $ 26,156 $ — $ 9,362 $ 184,089

Construction charge-off

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

Commercial Business Loans

Pass $ 121,312 $ 234,997 $ 73,805 $ 9,291 $ 6,504 $ 32,293 $ 478,202

Special Mention — 3,395 1,009 — — — 4,404

Substandard 892 8,934 7,910 — — 2,092 19,828

Doubtful — — — — — 103 103

Total Commercial Business Loans $ 122,204 $ 247,326 $ 82,724 $ 9,291 $ 6,504 $ 34,488 $ 502,537

Commercial Business charge-off

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

Consumer Loans

Pass $ 10,126 $ 25,406 $ — $ — $ — $ 37 $ 35,569

Special Mention — — — — — — —

Substandard — — — — — — —

Doubtful — — — — — — —

Total Consumer Loans $ 10,126 $ 25,406 $ — $ — $ — $ 37 $ 35,569

Consumer charge-off

Current period net charge-offs $ 83 $ — $ — $ — $ — $ — $ 83

Pass $ 266,946 $ 1,083,543 $ 425,772 $ 149,001 $ 140,500 $ 509,339 $ 2,575,101

Special Mention 12,333 38,531 14,212 — 2,035 254 67,365

Substandard 19,417 8,934 26,949 — — 23,303 78,603

Doubtful — — — — — 4,375 4,375

Total Loans $ 298,696 $ 1,131,008 $ 466,933 $ 149,001 $ 142,535 $ 537,271 $ 2,725,444

Total charge-off

Current period net charge-offs $ 83 $ — $ 213 $ — $ 440 $ 611 $ 1,347

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 credit loss and the related ACL-Loans as of December 31, 2023 and December 31, 2022 were as follows:

Portfolio ACL-Loans

(In thousands)

December 31, 2023

Loans individually evaluated for impairment:

Loans individually evaluated for credit loss:

Residential real estate $ 3,711 $ —

2 unchanged sentences

Commercial business 19,848 —

Consumer 22,129 —

Subtotal 105,005 955

Loans collectively evaluated for impairment:

Loans collectively evaluated for credit loss:

Residential real estate $ 47,220 $ 149

5 unchanged sentences

Total $ 2,718,607 $ 27,946

Portfolio Allowance

Portfolio ACL-Loans

(In thousands)

December 31, 2022

Loans individually evaluated for impairment:

Loans individually evaluated for credit loss:

Residential real estate $ 3,846 $ —

3 unchanged sentences

Subtotal 42,830 901

Loans collectively evaluated for impairment:

Loans collectively evaluated for credit loss:

Residential real estate $ 56,742 $ 163

8 unchanged sentences

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

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.

44 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 are met.

As of December 31, 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 December 31, 2023 and December 31, 2022:

19 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 December 31, 2022.

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

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

There were no loans delinquent greater than 90 days and still accruing interest as of December 31, 2023 or December 31, 2022.

Loans on Nonaccrual Status

7 unchanged sentences

Interest income on loans that would have been recognized if loans on nonaccrual status had been current in accordance with their original terms for the years ended December 31, 2023 and 2022 w as $ 4.9 million and $ 0.8 million, respectively.

There w as no and $ 62 thousand interest income recognized on these loans for the year ended December 31, 2022 and 2021, respectively.

There w as no interest income recognized on these loans for the year ended December 31, 2023 and 2022, respectively.

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

Nonaccrual loans with no specific reserve totaled $ 14.7 million and $ 14.2 million at December 31, 2022 and December 31, 2021, respectively.

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.

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

The following tables summarize impaired loans by portfolio segment and the related average carrying amount and interest income recognized as of December 31, 2022 and December 31, 2021:

Nonaccrual loans with no specific reserve tot aled $ 48.3 million and $ 14.7 million at December 31, 2023 and December 31, 2022, respectively.

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 credit losses.

Beginning in the third quarter of 2023, the Company individually evaluated all insurance premium loans within the Consumer portfolio segment, irrespective of credit risk ratings.

T he following tables summarize individually evaluated loans by portfolio segment and the related average carrying amount and interest income recognized as of December 31, 2023 and December 31, 2022:

As of and for the Year Ended December 31, 2023

1 unchanged sentence

Balance Associated

Allowance Average

ACL-Loans Average

Amount Interest

(In thousands)

Impaired loans without a valuation allowance:

Individually evaluated loans without a valuation allowance:

Residential real estate $ 3,711 $ 4,022 $ — $ 3,781 $ 167

2 unchanged sentences

Commercial business 19,848 20,502 — 18,081 2,407

Total impaired loans without a valuation allowance 18,561 19,387 — 18,827 160

Impaired loans with a valuation allowance:

Consumer 22,129 22,129 — 20,132 1,144

Total individually evaluated loans without a valuation allowance 99,012 101,067 — 92,436 5,402

Individually evaluated loans with a valuation allowance:

Residential real estate — — — — —

1 unchanged sentence

Commercial business — — — — —

Total impaired loans with a valuation allowance 24,269 24,269 901 23,226 576

Total impaired loans $ 42,830 $ 43,656 $ 901 $ 42,053 $ 736

Total individually evaluated loans with a valuation allowance 5,993 6,017 955 6,082 234

Total individually evaluated loans $ 105,005 $ 107,084 $ 955 $ 98,518 $ 5,636

As of and for the Year Ended December 31, 2022

1 unchanged sentence

Balance Associated

Allowance Average

ACL-Loans Average

Amount Interest

(In thousands)

Impaired loans without a valuation allowance:

Individually evaluated loans without a valuation allowance:

Residential real estate $ 3,846 $ 4,104 $ — $ 3,921 $ 64

2 unchanged sentences

Commercial business 2,551 2,793 — 2,684 96

Total impaired loans without a valuation allowance 21,124 22,315 — 21,251 534

Impaired loans with a valuation allowance:

Total individually evaluated loans without a valuation allowance 18,561 19,387 — 18,827 160

Individually evaluated loans with a valuation allowance:

Residential real estate — — — — —

1 unchanged sentence

Commercial business 1,758 1,758 147 653 —

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

Total impaired loans $ 47,181 $ 48,415 $ 2,868 $ 48,446 $ 1,244

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 24,269 24,269 901 23,226 576

Total individually evaluated loans $ 42,830 $ 43,656 $ 901 $ 42,053 $ 736

Loan Modifications

A loan will be considered modified as defined by ASU 2022-02 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 for a significant period of time.

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 $ 22.2 million at December 31, 2022 and $ 25.8 million at December 31, 2021.

The following table provides information on loans that were modified as TDRs during the periods presented:

There wer e no n ew loan modifications reportable under ASU 2022-02 at December 31, 2023.

Information on loan modifications prior to the adoption of ASU 2022-02 is presented in accordance with the applicable accounting standards in effect at that time.

As of December 31, 2022, loan modifications to taled $ 22.2 million.

The following table provides information on loans that were modified during the periods presented:

Outstanding Recorded Investment

7 unchanged sentences

Total — 1 $ — $ 703 $ — $ 703

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.

There were no loans modified in a troubled debt restructuring that re-defaulted during the year ended December 31, 2022 or December 31, 2021.

The following table provides information on how loans were modified as a TDR for the years ended December 31, 2022 and December 31, 2021.

At December 31, 2023 there were no nonaccrual modified loans.

At December 31, 2022, there were seven nonaccrual modified loans which totaled $ 2.5 million.

There were no loans modified that re-defaulted during the years ended December 31, 2023 or December 31, 2022.

The following table provides information on how loans were modified for the years ended December 31, 2023 and December 31, 2022.

(In thousands)

3 unchanged sentences

Total $ — $ 703

Allowance for Credit Losses (ACL)-Unfunded Commitments

As part of the 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 years ended December 31, 2023 and December 31, 2022:

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

( 347 ) ( 90 )

Balance at end of period $ 926 $ 80

(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 years ended December 31, 2023 and December 31, 2022:

Provision for credit losses (loans) $ 1,213 $ 5,437

(Credit) for credit losses (unfunded commitments) 1

Provision for credit losses $ 866 $ 5,437

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

Premises and Equipment

7 unchanged sentences

Equipment and software 7,317 6,590

Automobiles — 67

Premises and equipment, gross 35,387 34,653

3 unchanged sentences

For the years ended December 31, 2023 and December 31, 2022, depreciation and amortization expense includes amortization of the right-of-use-asset, totaling $ 1.5 million and $ 1.5 million, respectively.

As of December 31, 2022, the Company leases real estate for eight branch offices under various operating lease agreements.

As of December 31, 2023, the Company leases real estate for eight branch locations and headquarter office under various operating lease agreements.

The branch leases have maturities ranging from 2028 to 2033, some of which include options to extend the lease term.

1 unchanged sentence

The weighted average remaining life of the lease term for these leases was 6.2 years as of December 31, 2023.

In addition, the Company’s new headquarter building (included in premises and equipment) has a remaining lease life of 8.8 years as of December 31, 2022.

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

The Company utilized a weighted average discount rate of 5.4 % in determining the lease liability for its branch locations and a discount rate of 4.5 % for its headquarter building.

The Company utilized a weighted average discount rate of 5.3 % in determining the lease liability for its branch locations and a discount rate of 4.5 % for its headquarter office.

The total fixed operating lease costs wer e $ 2.3 million and $ 2.5 million for the years ended December 31, 2023 and December 31, 2022, respectively.

The total variable operating lease costs were $ 0.1 million for each of the years ended December 31, 2022 and December 31, 2021.

The total variable operating lease costs were $ 0.2 million and $ 0.1 million for the years ended December 31, 2023 and December 31, 2022, respectively.

The right-of-use-asset, included in premises and equipment, net was $ 12.7 million as of December 31, 2023 and the corresponding lease liability, included in accrued expenses and other liabilities was $ 13.7 million as of December 31, 2023.

16 unchanged sentences

Derivative assets 8,819 12,499

Collateral posted related to interest rate swaps — 15,845

Assets held for sale — 2,268

Other 9,919 7,289

2 unchanged sentences

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

The deferred compensation balance decreased $ 1.2 million for the year ended December 31, 2022 compared to the year ended December 31, 2021.

The decrease was primarily driven by participant distributions.

The deferred compensation balance increased $ 0.3 million for the year ended December 31, 2023 compared to the year ended December 31, 2022.

Loan Servicing

6 unchanged sentences

The significant assumptions used in the valuation at December 31, 2022 for servicing assets included a discount rate of 10 % and prepayment speed assumptions ranging from 3 % to 17 %.

The carrying value of loan servicing rights was $ 0.7 million and $ 0.8 million as of December 31, 2022 and December 31, 2021, respectively.

The carrying value of loan servici ng rights was $ 0.9 million and $ 0.7 million as of December 31, 2023 and December 31, 2022, respectively.

The following table presents the changes in carrying value for loan servicing assets net of allowances:

4 unchanged sentences

Servicing rights capitalized 464 444

Servicing rights amortized ( 192 ) ( 149 )

Servicing rights disposed ( 186 ) ( 166 )

Servicing rights amortized or disposed ( 399 ) ( 378 )

Change in valuation allowance 58 ( 138 )

Balance at end of year $ 869 $ 746

Included in accrued expenses and other liabilities as of December 31, 2022 and December 31, 2021, respectively, are $ 23 thousand and $ 14 thousand for loan servicing liabilities related to loans serviced for others for which the Company does not receive a servicing fee.

Included in accrued expenses and other liabilities as of December 31, 2023 and December 31, 2022, respectively, are $ 4 thousand a nd $ 23 thousand for loan servicing liabilities related to loans serviced for others for which the Company does not receive a servicing fee.

Assets held for sale

For the year ended December 31, 2022, the Bank did not have any assets held for sale.

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

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

The asset held for sale is included in other assets on the consolidated balance sheets.

For the years ended December 31, 2023 and 2022, the Bank did not have any assets held for sale.

Assets held for sale are included in other assets on the consolidated balance sheets.

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

13 unchanged sentences

2025 318,961 5,927

2025 5,927 33

2028 and thereafter 16,213 —

Total $ 1,315,073 $ 1,226,390

The aggregate amount of individual certificate accounts, including brokered deposits with balances of $250,000 or more, were approximately $ 1,047.8 million and $ 305.7 million at December 31, 2022 and December 31, 2021, respectively.

Th e aggregate amount of individual certificate accounts, with balances of $250,000 or more, were approximately $ 151.6 million a nd $ 74.6 million at December 31, 2023 and December 31, 2022, respectively.

Brokered certificate of deposits totaled $ 860.5 million and $ 976.5 million at December 31, 2023 and December 31, 2022, respectively.

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

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

The following table summarizes interest expense by account type for the years ended December 31, 2022 and 2021:

There were no ce rtifi cates of deposits from national listing services, one-way buy CDARS or on-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.

The following table summarizes interest expense b y account type for the years ended December 31, 2023 and 2022:

Years Ended December 31,

13 unchanged sentences

Total advances $ 90,000 3.24 % $ 90,000 2.29 %

(1) $ 50 million of t he 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 term interest rate swap agreements.

$ 50 million of the above mentioned FHLB advances as of December 31, 2022 were subject to interest rate swap transactions and $ 50.0 million of the above mentioned FHLB advances as of December 31, 2021 were subject to interest rate swap transactions, see Note 18.

Interest expense on FHLB advances totaled $ 3.0 million and $ 1.7 million for the years ended December 31, 2023 and December 31, 2022, respectively.

2 unchanged sentences

At December 31, 2023, the Company had pledged eligible loans with a book value of $ 927.1 million as collateral to support borrowing capacity at the FHLB of Boston.

As of December 31, 2022, the Company has immediate availability to borrow an additional $ 402.2 million b ased on qualified collateral.

At December 31, 2022, the Bank had a secured borrowing line with the FRB, a letter of credit with the FHLB, and unsecured lines of credit with Atlantic Community Bankers Bank, Zions Bank and Texas Capital Bank.

The total borrowing line, letter, or line of credit and the amount outstanding at December 31, 2022 is summarized below:

As of December 31, 2023, the Company has immediate availability to borrow an additional $ 344.4 million based on q ualified collateral.

At December 31, 2023, the Bank had a secured borrowing line with the Federal Reserve Bank of New York ("FRBNY"), a letter of credit with the FHLB, and unsecured lines of credit with Zions Bank, Pacific Coast Bankers Bank ("PCBB"), and Atlantic Community Bankers Bank ("ACBB").

The total borrowing line, letter, or line of credit and the amount outstanding at December 31, 2023 are summarized below:

December 31, 2023

1 unchanged sentence

(In thousands)

FRB $ 731,157 $ —

FRBNY $ 824,251 $ —

FHLB 573,350 228,925

Atlantic Community Bankers Bank 12,000 —

Zions Bank 45,000 —

Texas Capital Bank 10,000 —

PCBB 38,000 —

ACBB 12,000 —

Total $ 1,492,601 $ 228,925

1 unchanged sentence

As a member of the FHLB, the Bank is required to maintain investments in their capital stock.

The B ank owned 52,158 shares and 28,140 shares at December 31, 2022 and December 31, 2021, respectively.

There is no ready market or quote d market values for the stock and as such is classified as restricted stock.

The Bank owned 56,957 shares and 52,158 shares at December 31, 2023 and December 31, 2022, respectively.

There is no ready market or quoted market values for the stock and as such is classified as restricted stock.

The shares have a par value of $ 100 and are carried on the consolidated balance sheets at cost, and evaluated for impairment, as the stock is only redeemable at par subject to the redemption practices of the FHLB.

6 unchanged sentences

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 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.

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 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.

5 unchanged sentences

For the years ended December 31, 2023 and 2022 the amortization expense for debt issuance co sts were $ 0.2 million and $ 0.2 million, respe ctively, and were recognized as an increase to interest expense on borrowings within the consolidated statements of income.

The Company recognized $ 1.9 million and $ 1.2 million in interest expense related to its subordinated debt for the years ended December 31, 2022 and 2021, respectively.

The Company recognized $ 3.2 million and $ 1.9 million in interest expense related to its subordinated debt for the years ended December 31, 2023 and 2022, respectivel y.

Commitments and Contingencies

As of December 31, 2022, the Company lease s real estate for eight br anch offices under various operating lease agreements.

The branch leases have maturities ranging from 2023 to 2031, some of which include options to extend the lease term.

As of December 31, 2023, the Company lease s real estate for eight br anch locations and headquarter office under various operating lease agreements.

The branch leases have maturiti es ranging from 2028 to 2033 , some of which include options to extend the lease term.

Reference Note 7 for further detail.

23 unchanged sentences

This reserve is reported as a component of accrued expenses and other liabilities in the accompanying Consolidated Balance Sheets.

The reserve for unfunded commitments totaled $ 80 thousand at December 31, 2022 and $ 170 thousand at December 31, 2021.

As of December 31, 2022, the Bank had a remaining capital co mmitment of $ 4.8 million to three Small Business Investment Companies ("SBIC").

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

The reserve for unfunded commitments tot aled $ 926 thousand a t December 31, 2023 and $ 80 thousand at December 31, 2022.

As of December 31, 2023, the Bank had a remaining capital commitment of $ 3.7 million to three Small Business Investment Companies ("SBIC") and a remaining capital commitment of $ 1.6 million in a private equity investment company.

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

28 unchanged sentences

Deferred tax assets:

Allowance for loan losses $ 5,158 $ 3,829

$ 6,837 $ 5,158

Net operating loss carryforwards 333 370

2 unchanged sentences

Start-up costs — 14

Unrealized loss on derivatives — 2,935

Unrealized loss on available for sale securities 1,732 1,941

7 unchanged sentences

Unrealized gain on derivatives 1,236 1,896

Unrealized gain on available for sale securities — 475

Right-of-use-assets 3,004 2,940

6 unchanged sentences

The losses will expire after 2032 and are subject to certain annual limitations which amount to $ 176 thousand per annum.

Management regularly analyzes their tax positions and at December 31, 2022 management has established a reserve for uncertain tax positions in conjunction with the Company's out of state lending activity.

The total reserve for uncertain tax positions totaled $ 500 thousand as of December 31, 2022.

As a result of management's analysis of the Company's tax position, a reserve has been established for uncertain tax positions in conjunction with the Company's out of state lending activity.

The total reserve for uncertain tax positions totaled $ 1.0 million as of December 31, 2023.

The tax years 2020 and subsequent are subject to examination by federal and state taxing authorities.

41 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 “Stock Plans.” Any future issuances of equity awards will be made under the 2022 Bankwell Financial Group, Inc.

The Company has unvested restricted stock outstanding under two equity award plans, which are collectively referred to as the “Stock Plans.” Any future issuances of equity awards will be made under the 2022 Bankwell Financial Group, Inc.

Stock Plan, or the “2022 Plan,” as amended from time-to-time.

All equity awards made under the 2022 Plan and prior equity award plans are made by means of an award agreement, which contains the specific terms and conditions of the grant.

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

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

At December 31, 2023, there were 308,076 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 years ended December 31, 2022 or December 31, 2021.

A summary of the status of outstanding stock options at December 31, 2022 is presented below:

December 31, 2022

Shares Weighted

Options outstanding at beginning of period 11,680 $ 17.37

Exercised ( 3,000 ) 15.95

Options outstanding at end of period 8,680 17.86

Options exercisable at end of period 8,680 17.86

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

The total intrinsic value of stock options exercised during the years ended December 31, 2022 and December 31, 2021 was $ 52.0 thousand and $ 19.0 thousand, respectively.

The exercise price for the 8,680 options exercisable at December 31, 2022 was $ 17.86 per share.

The weighted average remaining contractual life for these options was 0.4 years at December 31, 2022.

At December 31, 2022, as all awarded options have vested, all of the outstanding options are exercisable, and the aggregate intrinsic value of these options was $ 100 thousand.

Restricted stock :

Restricted stock provides grantees with rights to shares of common stock upon completion of a service period.

Restricted stock provides grantees with rights to shares of common stock upon completion of a service period and, with respect to a portion of some grants, achievement of certain performance metrics.

Shares of unvested restricted stock are considered participating securities.

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Unvested at end of period 254,328

(1) Includes 29,462 shares of performance based restricted stock.

(1) Incl udes 34,369 shares of performance based restricted stock.

(2) Includes 33,106 shares of performance based restricted stock.

(3) Includ es 20,198 s hares of performance based restricted stock.

(3) Includ es 28,774 shar es of performance based restricted stock.

(4) Includ es 5,586 shar es of performance based restricted stock.

The total fair value of restricted stock awards vested during the year ended December 31, 2023 was $ 3.0 million .

The Company’s restricted stock expense for the years ended December 31, 2022 and December 31, 2021 was $ 2.4 million and $ 1.8 million, respectively.

At December 31, 2022, there w as $ 4.1 million of unrecognized stock compensation expense for restricted stock, expected to be recognized over a weighted average period of 2.7 years.

The Co mpany’s restricted stock expense for the years ended December 31, 2023 and December 31, 2022 was $ 3.1 million and $ 2.4 million, respectively.

At December 31, 2023, there was $ 4.9 million of unrecognized stock compensation expense for restricted stock, expected to be recognized over a weighted average period of 1.6 years.

Performance based restricted stock :

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

The Company’s total comprehensive income or loss for

the years ended December 31, 2022 and December 31, 2021 is reported in the Consolidated Statements of Comprehensive Income.

The Company’s total comprehensive income or loss for the years ended December 31, 2023 and December 31, 2022 is reported in the Consolidated Statements of Comprehensive Income.

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

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Balance at December 31, 2022 $ ( 6,750 ) $ 6,561 $ ( 189 )

Other comprehensive (loss) income before reclassifications, net of tax ( 8,401 ) 16,607 8,206

Other comprehensive income (loss) before reclassifications, net of tax 940 1,205 2,145

Amounts reclassified from accumulated other comprehensive income, net of tax — ( 3,620 ) ( 3,620 )

Net other comprehensive (loss) income ( 8,401 ) 16,773 8,372

Net other comprehensive income (loss) 940 ( 2,415 ) ( 1,475 )

Balance at December 31, 2023 $ ( 5,810 ) $ 4,146 $ ( 1,664 )

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

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

Other comprehensive (loss) income before reclassifications, net of tax ( 8,401 ) 16,607 8,206

Amounts reclassified from accumulated other comprehensive

income, net of tax — 166 166

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

Net other comprehensive (loss) income ( 8,401 ) 16,773 8,372

Balance at December 31, 2022 $ ( 6,750 ) $ 6,561 $ ( 189 )

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The Company does not use derivatives for speculative purposes.

As of December 31, 2022, the Company was a par ty to five int erest 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 FHLB advances or brokered deposits.

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

As of December 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 - day FHLB 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.

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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 December 31, 2022, the Company has four interest rate swaps not designated as hedging instruments, to minimize interest rate risk exposure with loans to clients.

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 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 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 December 31, 2023 and December 31, 2022:

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

Carrying Value of Hedged Asset Hedged Items

(In thousands)

Fixed Rate Asset (1)

$ 150,915 $ — $ 915 $ —

(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 a mount of assets in the closed portfolio anticipated to be outstanding for the designated hedged period.

As of December 31, 2023, the amortized cost basis of the closed portfolio used in this hedging relationship was $ 611.5 million, the cumulative basis adjustments associated with this hedging relationships was $ 1.1 million , and the amount of the designated hedged item was $ 150.0 million.

As of December 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-borrower related interest rate swaps as effective cash flow hedges or fair value swaps.

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

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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:

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(1) Represents interest rate swaps with commercial banking clients, 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.

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 liability position, including accrued interest, totaled $ 8.8 million as of December 31, 2022.

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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 rec lassify $ 4.1 million t o interest income during the next 12 months.

The Company expects to reclassify $ 3.7 million to i nterest income 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.

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Interest rate swaps designated as cash flow hedges:

Unrealized income (loss) recognized in accumulated other comprehensive (loss) income before reclassifications $ 21,383 $ 6,696

Amounts reclassified from accumulated other comprehensive income 215 3,719

Income tax (expense) benefit on items recognized in accumulated other comprehensive (loss) income ( 4,825 ) ( 2,308 )

Other comprehensive income (loss) $ 16,773 $ 8,107

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

Unrealized income recognized in accumulated other comprehensive income before reclassifications $ 1,531 $ 21,383

Amounts reclassified from accumulated other comprehensive (loss) income ( 4,596 ) 215

Income tax benefit (expense) on items recognized in accumulated other comprehensive income (loss) 650 ( 4,825 )

Other comprehensive (loss) income $ ( 2,415 ) $ 16,773

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

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

The following table summarizes the effect of the fair value hedging relationship recognized in the Consolidated Statements of Income for the years ended December 31, 2023 and December 31, 2022:

(In thousands) 2023 2022

Gain (loss) on fair value hedging relationship:

Hedged Asset $ 915 $ —

Fair value derivative designated as hedging instrument 1,148 —

Total gain recognized in the consolidated statements of income within interest and fees on loans $ 2,063 $ —

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

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Derivative Liabilities $ 4,473 $ — $ 4,473 $ — $ — $ 4,473

(1) Includes no accrued interest.

(1) Includes net interest receivable totaling $ 23 thousand.

December 31, 2022

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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

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Derivative asset 8,819 8,819 — 8,819 —

Assets held for sale — — — — —

Financial liabilities:

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Derivative asset 12,499 12,499 — 12,499 —

Assets held for sale 2,268 2,268 — — 2,268

Financial liabilities:

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Level 1 investment securities include investments in a U.S.

treasury note and in marketable equity securities for which a quoted price is readily available in the market.

t reasury note and in marketable equity securities for which a quoted price is readily available in the market.

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

The fair value for these securities is estimated using a discounted cash flow model, using discount rates ranging from 4.9 % to 7.3 % a s of December 31, 2022 and 3.3 % to 4.6 % as of December 31, 2021.

The fair value for these securities is estimated using a discounted cash flow model, using discount rates ranging from 4.5 % to 6.9 % as of December 31, 2023 and 4.9 % to 7.3 % as of December 31, 2022.

These securities are CRA eligible investments.

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

Servicing asset (liability):

Servicing assets and liabilities do not trade in an active, open market with readily observable prices.

The Company estimates the fair value of servicing assets and liabilities using discounted cash flow models, incorporating numerous assumptions from the perspective of a market participant, including market discount rates.

The fair value of demand deposits, regular savings and certain money market deposits is the amount payable on demand at the reporting date.

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Contractual cash flows for the subordinated debt are reduced based on the estimated rates of default, the severity of losses to be incurred on a default, and the rates at which the subordinated debt is expected to prepay after the call date.

Servicing asset (liability):

Servicing assets and liabilities do not trade in an active, open market with readily observable prices.

Off-balance-sheet instruments:

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December 31, 2023

Impaired loans $ — $ — $ 41,929

Individually evaluated loans $ — $ — $ 104,050

Servicing asset, net — — 865

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December 31, 2022

Impaired loans $ — $ — $ 44,313

Individually evaluated loans $ — $ — $ 41,929

Servicing asset, net — — 723

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December 31, 2023

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

Individually evaluated loans $ 31,527 Appraisals Discount to appraised value 8.00 %

22,129 Appraisals, cash surrender value life insurance, securities, cash held as collateral Discounts to appraised value and securities value — - 8.00 %

50,394 Discounted cash flows Discount rate 3.38 – 10.75 %

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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 %

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

(1) Servicing liabilities tota ling $ 23 thousand were valued u sing a discount rate of 4.0 %.

(1) Servicing liabilities totaling $ 4 thousand were valued using a discount rate of 4.4 %.

Impaired loans :

(2) Servicing liabilities totaling $ 23 thousand were valued using a discount rate of 4.0 %.

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 credit loss amounts for collateral-dependent loans calculated in accordance with ASC 310-10 when establishing the allowance for credit losses.

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

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

For those loans where the primary source of repayment is cash flow from operations, adjustments include impairment amounts calculated based on the perceived collectability of interest payments on the basis of a discounted cash flow analysis utilizing a discount rate equivalent to the original note rate.

For those loans where the primary source of repayment is cash flow from operations, adjustments include credit losses calculated based on the perceived collectability of interest payments on the basis of a discounted cash flow analysis utilizing a discount rate equivalent to the original note rate.

Servicing assets and liabilities:

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

As of June 30, 2023, the Company no longer met the definition of a Small Bank Holding Company as the Company's assets exceeded $3 billion.

Effective March 31, 2024, the Company will be subject to the larger company capital requirements as set forth in the Economic Growth Act.

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.

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Common Equity Tier 1 Capital to Risk-Weighted Assets $ 321,432 11.30 % $ 199,047 7.00 % $ 184,829 6.50 %

Total Capital to Risk-Weighted Assets 317,437 11.07 % 301,177 10.50 % 286,836 10.00 %

Tier I Capital to Risk-Weighted Assets 321,432 11.30 % 241,700 8.50 % 227,482 8.00 %

Total Capital to Risk-Weighted Assets 350,303 12.32 % 298,571 10.50 % 284,353 10.00 %

Tier I Capital to Average Assets 321,432 9.81 % 131,110 4.00 % 163,888 5.00 %

Actual Capital Minimum Regulatory Capital Required for Capital Adequacy Minimum Regulatory Capital to be Well Capitalized Under Prompt Corrective Action Provisions

Amount Ratio Amount Ratio Amount Ratio

Bankwell Financial Group, Inc.

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Common Equity Tier 1 Capital to Risk-Weighted Assets $ 264,209 9.28 % $ 128,121 4.50 % N/A N/A

Total Capital to Risk-Weighted Assets 327,142 11.39 % 301,540 10.50 % N/A N/A

Tier I Capital to Risk-Weighted Assets 264,209 9.28 % 170,828 6.00 % N/A N/A

Total Capital to Risk-Weighted Assets 362,285 12.72 % 227,770 8.00 % N/A N/A

Tier I Capital to Average Assets 264,209 8.05 % 131,232 4.00 % N/A N/A

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Common Equity Tier 1 Capital to Risk-Weighted Assets $ 294,926 10.28 % $ 200,785 7.00 % $ 186,443 6.50 %

Total Capital to Risk-Weighted Assets 249,178 12.00 % 218,030 10.50 % 207,648 10.00 %

Tier I Capital to Risk-Weighted Assets 294,926 10.28 % 243,810 8.50 % 229,469 8.00 %

Total Capital to Risk-Weighted Assets 317,437 11.07 % 301,177 10.50 % 286,836 10.00 %

Tier I Capital to Average Assets 294,926 9.88 % 119,361 4.00 % 149,202 5.00 %

Actual Capital Minimum Regulatory Capital Required for Capital Adequacy Minimum Regulatory Capital to be Well Capitalized Under Prompt Corrective Action Provisions

Bankwell Financial Group, Inc.

Amount Ratio Amount Ratio Amount Ratio

December 31, 2022

Common Equity Tier 1 Capital to Risk-Weighted Assets $ 235,672 8.21 % $ 129,231 4.50 % N/A N/A

Total Capital to Risk-Weighted Assets 260,024 12.50 % 218,443 10.50 % N/A N/A

Tier I Capital to Risk-Weighted Assets 235,672 8.21 % 172,308 6.00 % N/A N/A

Total Capital to Risk-Weighted Assets 327,142 11.39 % 229,745 8.00 % N/A N/A

Tier I Capital to Average Assets 235,672 7.89 % 119,490 4.00 % N/A N/A

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Reserve Requirements on Cash

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

The Bank was not required to maintain a minimum reserve balance in the FRBNY at December 31, 2023 or December 31, 2022 as the Federal Reserve Bank has waived this requirement.

Related Party Transactions

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The payments were primarily for consulting and legal services.

As of December 31, 2022, the Bank had a $ 1.6 million invest ment in a SBIC that represents a related party business entity associated with one of the Company's Directors.

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

Parent Company Only Financial Statements

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Equity in undistributed earnings ( 43,619 ) ( 42,650 )

Decrease (increase) decrease in other assets 884 ( 1,142 )

(Increase) decrease in other assets ( 295 ) 884

Increase in deferred income taxes, net ( 15 ) ( 175 )

(Decrease) increase in other liabilities ( 770 ) 1,487

Increase (decrease) in other liabilities 727 ( 770 )

Stock-based compensation 3,074 2,362

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Capital contribution to Bank 12,000 ( 20,000 )

Net cash provided by (used in) financing activities 2,671 ( 11,131 )

Net decrease in cash and cash equivalents ( 85 ) ( 13,260 )

Net cash provided by financing activities 5,914 2,671

Net increase (decrease) in cash and cash equivalents 2,695 ( 85 )

Cash and cash equivalents:

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Cash paid for:

Interest 3,237 1,911

Income taxes — —

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The Company's Board of Directors declared a $ 0.20 per share cash dividend, payable February 23, 2024 to shareholders of record on February 13, 2024.

Effective March 1, 2023, the Bank received final regulatory approval to proceed with the opening of a retail branch located at 300 Atlantic Street, Stamford, CT.

This branch will replace the 612 Bedford Street, Stamford, CT location, which is scheduled to close in April 2023.

On January 24, 2024, Bankwell’s Board of Directors approved the promotion and appointment of Steve H.

Brunner as Executive Vice President, Chief Risk and Operations Officer.

On February 15, 2024, James M.

Garnett, Jr., director on the Company's Board of Directors passed away.

Garnett had been a member of the Company's Board since 2018 and Chair of the Audit Committee since 2022.

The Company is extremely grateful for Mr.

Garnett's dedication to the Company and his service as a director on the Company's Board of Directors.

Demos has been appointed the interim Audit Committee Chairman.

Demos has been a member of the Company's Audit Committee since 2022.

Subsequent to December 31, 2023 through March 11, 2024, the Company purchased 17,239 shares of its Common Stock at a weighted average price of $ 25.12 per share.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data