What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-08 compared with 2023-11-08 · 153 added, 199 removed, 302 unchanged (54% of the section changed)

28 unchanged sentences

Earnings and Performance Overview

For the three months ended September 30, 2023, net interest income was $22.7 million, a decrease of $1.9 million or 7.8% when compared to the same period in 2022.

For the nine months ended September 30, 2023, net interest income was $72.2 million, an increase of $4.3 million or 6% when compared to the same period in 2022.

The decrease in net interest income for the three months ended September 30, 2023 was primarily attributable to an increase in interest expense partially offset by an increase in interest on loans due to higher overall loan yields.

The increase in net interest income for the nine months ended September 30, 2023 was primarily attributable to an increase in interest and fees on loans due to loan growth and higher overall loan yields partially offset by an increase in interest expense.

Net income available to common shareholders was $9.8 million, or $1.25 per diluted share, and $9.2 million, or $1.18 per diluted share, for the three months ended September 30, 2023 and 2022, respectively.

Net income available to common shareholders was $28.1 million, or $3.58 per diluted share, and $29.4 million, or $3.75 per diluted share, for the nine months ended September 30, 2023 and 2022, respectively.

The increase in net income for the quarter ended 2023 was primarily due to the credit for credit losses, partially offset by an increase in noninterest expense, and the aforementioned decrease in revenues.

The decrease in net income for nine months ended 2023 was due to an increase in noninterest expense partially offset by the af orementioned increase in revenues.

Returns on average shareholders' equity and average assets for the three months ended September 30, 2023 were 15.19% and 1.19%, respectively, compared to 15.73% and 1.47%, respectively, for the three months ended September 30, 2022.

Returns on average shareholders' equity and average assets for the nine months ended September 30, 2023 were 15.16% and 1.16%, respectively, compared to 17.94% and 1.59%, respectively, for the nine months ended September 30, 2022.

Revenues (net interest income plus noninterest income) for the quarter ended March 31, 2024 were $22.1 million, versus $27.1 million for the quarter ended March 31, 2023.

The decrease in revenues for the quarter was attributable to an increase in interest expense and lower gains from loan sales partially offset by an increase in interest on loans, given higher loan yields and prepayment fees.

Net income available to common shareholders was $3.8 million, or $0.48 per diluted share, and $10.4 million, or $1.33 per diluted share, for the three months ended March 31, 2024 and 2023, respectively.

The decrease was primarily due to the aforementioned decrease in revenues and an increase in provision for credit losses.

Returns on average shareholders' equity and average assets for the three months ended March 31, 2024 were 5.59% and 0.47%, respectively, compared to 17.48% and 1.30%, respectively, for the three months ended March 31, 2023.

Results of Operations

7 unchanged sentences

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

FTE net interest income for the three months ended September 30, 2023 and 2022 was $22.7 million and $24.7 million, respectively.

FTE net interest income for the nine months ended September 30, 2023 and 2022 was $72.4 million and $68.1 million, respectively.

FTE interest in come for the three months ended September 30, 2023 increased by $18.6 million, or 62.5%, to $48.3 million, compared to FTE interest income for the three months ended September 30, 2022.

FTE interest income for the nine months ended September 30, 2023 increased by $60.7 million, or 77.3%, to $139.2 million, compared to FTE interest income for the nine months ended September 30, 2022.

This increase was due to an increase in interest and fees on loans due to loan growth and higher overall loan yields.

Interest expense for the three months ended September 30, 2023 increased by $20.5 million compared to interest expense for the three months ended September 30, 2022.

Interest expense for the nine months ended September 30, 2023 increased by $56.4 million compared to interest expense for the nine months ended September 30, 2022.

The increase in interest expense for the three and nine months ended September 30, 2023 was driven by an increase in interest expense on deposits, resulting from an increase in rates on interest bearing deposits.

FTE net interest income for the three months ended March 31, 2024 and 2023 was $21.2 million and $25.6 million, respectively.

FTE interest income for the three months ended March 31, 2024 increased by $4.0 million, or 9.0%, to $48.3 million, compared to FTE interest income for the three months ended March 31, 2023.

This increase was due to an increase in interest and fees on loans due to higher overall loan yields.

Interest expense for the three months ended March 31, 2024 increased by $8.4 million compared to interest expense for the three months ended March 31, 2023.

The increase in interest expense for the three months ended March 31, 2024 was driven by an increase in interest expense on deposits, resulting from an increase in rates on interest bearing deposits.

Distribution of Assets, Liabilities and Shareholders’ Equity;

Interest Rates and Interest Differential

The following table presents the average balances and yields earned on interest earning assets and average balances and weighted average rates paid on our funding liabilities for the three and nine months ended September 30, 2023 and 2022.

For the Quarter Ended

September 30, 2023 September 30, 2022

Balance Interest Yield/

Cash and Fed funds sold $ 265,115 $ 3,393 5.08 % $ 130,440 $ 747 2.27 %

Securities (1)

127,229 953 3.00 120,092 829 2.76

Commercial real estate 1,943,725 28,140 5.67 1,512,381 18,830 4.87

Residential real estate 53,966 671 4.97 62,915 586 3.72

Construction 209,154 3,908 7.31 116,256 1,512 5.09

Commercial business 539,185 10,394 7.54 431,917 7,058 6.39

Consumer 44,020 741 6.66 12,145 142 4.65

Total loans 2,790,050 43,854 6.15 2,135,614 28,128 5.15

Federal Home Loan Bank stock 5,696 115 8.13 5,021 31 2.51

Total earning assets 3,188,090 $ 48,315 5.93 % 2,391,167 $ 29,735 4.87 %

Other assets 78,089 89,173

Total assets $ 3,266,179 $ 2,480,340

Liabilities and shareholders' equity:

Interest bearing liabilities:

NOW $ 102,149 $ 47 0.18 % $ 119,593 $ 52 0.17 %

Money market 922,036 9,064 3.90 828,541 2,346 1.12

Savings 105,366 817 3.08 189,279 474 0.99

Time 1,322,074 13,861 4.16 557,243 1,220 0.87

Total interest bearing deposits 2,451,625 23,789 3.85 1,694,656 4,092 0.96

Borrowed Money 159,103 1,783 4.39 135,221 993 2.87

Total interest bearing liabilities 2,610,728 $ 25,572 3.89 % 1,829,877 $ 5,085 1.10 %

Noninterest bearing deposits 345,988 383,048

Other liabilities 54,136 36,037

Total liabilities 3,010,852 2,248,962

Shareholders' equity 255,327 231,378

Total liabilities and shareholders' equity $ 3,266,179 $ 2,480,340

Net interest income (2)

$ 22,743 $ 24,650

Interest rate spread 2.04 % 3.77 %

Net interest margin (3)

2.85 % 4.12 %

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

(2) The adjustment for securities and loans taxable equivalency amounted to $52 thousand and $49 thousand for the three months ended September 30, 2023 and 2022, respectively.

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

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

For the Nine Months Ended

September 30, 2023 September 30, 2022

March 31, 2024 March 31, 2023

Balance Interest Yield/

33 unchanged sentences

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

(2) The adjustment for securities and loans taxable equivalency amounted to $154 thousand and $148 thousand for the

nine months ended September 30, 2023 and 2022 , respectively.

(2) The adjustment for securities and loans taxable eq uivalency amounted to $51 thousand and $50 thousand for the three months ended March 31, 2024 and 2023, respectively.

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

7 unchanged sentences

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

Three Months Ended September 30, 2023 vs 2022

Increase (Decrease) Nine Months Ended September 30, 2023 vs 2022

Three Months Ended

March 31, 2024 vs 2023

Increase (Decrease)

(In thousands) Volume Rate Total Volume Rate Total

(In thousands) Volume Rate Total

Interest and dividend income:

10 unchanged sentences

Interest expense:

NOW (8) 2 (6) (32) 2 (30)

Money market (172) 2,932 2,760

5 unchanged sentences

Change in net interest income $ (577) $ (3,816) $ (4,393)

(Credit) provision for Credit Losses

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

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

The credit for credit losses for the three months ended September 30, 2023 was $1.6 million compared to a provision for credit losses of $2.4 million for the three months ended September 30, 2022.

The provision for credit losses for the nine months ended September 30, 2023 was $1.8 million compared to a credit for credit losses of $1.2 million for the nine months ended September 30, 2022.

The reduction for three months ended September 30, 2023 was primarily due to a revision in the CECL methodology given further refinement of the Company's loan portfolio segmentation for insurance premium loans.

The increase in provision for credit losses for the nine months ended September 30, 2023 was primarily driven by loan growth and forward looking CECL macroeconomic factors.

On January 1, 2023, the Company adopted ASC 326 Financial Instruments - Credit

Losses ("CECL").

Upon adoption of CECL, the Company recorded a one-time cumulative effect, pre-tax adjustment $5.1 million to the ACL-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 ACL-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.

Provision for Credit Losses

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

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

The provision for credit losses for the three months ended March 31, 2024 was $3.7 million compared to a provision for credit losses of $0.8 million for the three months ended March 31, 2023.

The increase in provision for credit losses for the three months ended March 31, 2024 was primarily driven by net charge-offs of $3.7 million.

Noninterest Income

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

The following tables compare noninterest income for the three and nine months ended September 30, 2023 and 2022:

The following tables compare noninterest income for the three months ended March 31, 2024 and 2023:

Three Months Ended

September 30, Change

(Dollars in thousands) 2023 2022 $ %

Gains (losses) and fees from sales of loans $ 237 $ (15) $ 252 Favorable

Bank-owned life insurance 303 271 32 11.8

Service charges and fees 294 240 54 22.5

Other (48) (94) 46 Favorable

Total noninterest income $ 786 $ 402 $ 384 95.5 %

Nine Months Ended

September 30, Change

March 31, Change

(Dollars in thousands) 2024 2023 $ %

2 unchanged sentences

Service charges and fees 304 286 18 6.3

Other 3 (237) 240 Favorable

Other (39) 28 (67) Unfavorable

Total noninterest income $ 915 $ 1,526 $ (611) (40.0) %

Noninterest income increased by $0.4 million to $0.8 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022.

Noninterest income increased by $1.2 million to $3.7 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

The increase in noninterest income was driven by an increase in SBA loan sales and increases in service charges and fees for the three and nine months ended 2023.

Noninterest income decreased by $0.6 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

The decrease in noninterest income was driven by lower gains from loan sales for the quarter ended March 31, 2024.

Noninterest Expense

The following table compares noninterest expense for the three and nine months ended September 30, 2023 and 2022:

The following table compares noninterest expense for the three months ended March 31, 2024 and 2023:

Three Months Ended

September 30, Change

(Dollars in thousands) 2023 2022 $ %

Salaries and employee benefits $ 6,036 $ 5,876 $ 160 2.7 %

Occupancy and equipment 2,146 2,035 111 5.5

Professional services 491 994 (503) (50.6)

Data processing 741 626 115 18.4

Director fees 362 325 37 11.4

FDIC insurance 1,026 255 771 302.4

Marketing 184 102 82 80.4

Other 1,219 818 401 49.0

Total noninterest expense $ 12,205 $ 11,031 $ 1,174 10.6 %

Nine Months Ended

September 30, Change

March 31, Change

(Dollars in thousands) 2024 2023 $ %

8 unchanged sentences

Total noninterest expense $ 13,297 $ 12,691 $ 606 4.8 %

Noninterest expense increased by $1.2 million to $12.2 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022.

Noninterest expense increased by $5.6 million to $37.5 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

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

FDIC insurance expense totaled $1.0 million for the three months ended September 30, 2023, an increase of $0.8 million when compared to the same period in 2022.

FDIC insurance expense totaled $3.1 million for the nine months ended September 30, 2023, an increase of $2.4 million when compared to the same period in 2022.

The increase in FDIC insurance expense is attributed to the balance sheet growth and composition as well as an increase in FDIC insurance rates.

Salaries and employee benefits expense totaled $18.5 million for the nine months ended September 30, 2023, an increase of $2.3 million when compared to the same period in 2022.

The increase in salaries and employee benefits expense was driven by an increase in average full time equivalent employees from 139 at September 30, 2023 compared to 131 for the same period in 2022.

In addition, salaries and employee benefits expense increased due to one-time severance costs.

Income tax expense for the three months ended September 30, 2023 and 2022 totaled $3.1 million and $2.4 million, respectively.

The effective tax rates for the three months ended September 30, 2023 and 2022 were 23.9% and 20.9%, respectively.

Income tax expense for the nine months ended September 30, 2023 and 2022 totaled $8.4 million and $8.0 million, respectively.

The effective tax rates for the nine months ended September 30, 2023 and 2022 were 23.1% and 21.3%, respectively.

Noninterest expense increased by $0.6 million to $13.3 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

The increase in noninterest expense was primarily driven by an increase in director fees related to timing of compensation and accelerated vestings in connection with the death of a director.

Income tax expense for the three mont hs ended March 31, 2024 and 2023 totaled $1.3 million and $3.2 million, respectively.

The effective tax rates for the three months ended March 31, 2024 and 2023 were 26.0% and 23.4%, respectively .

Financial Condition

Assets totaled $3.2 billion at September 30, 2023 a decrease of $2.7 million or 0.1% compared to December 31, 2022.

Gross loans totaled $2.8 billion at September 30, 2023, an increase of $94.7 million or 3.5% compared to December 31, 2022.

Deposits totaled $2.8 billion at September 30, 2023, a decrease of $32.2 million, or 1.1% compared to December 31, 2022.

Shareholders’ equity totaled $257.9 million as of September 30, 2023, an increase of $19.4 million compared to December 31, 2022, primarily a result of net income of $28.1 million for the nine months ended September 30, 2023.

The increase was partially offset by the Day 1 CECL adoption of $4.9 million, dividends paid of $4.7 million, and a $1.3 million unfavorable impact to accumulated other comprehensive income.

The unfavorable impact to accumulated other comprehensive income was driven by fair value marks on the Company's available for sale investment securities portfolio of $1.4 million partially offset by fair value marks related to hedge positions involving interest rate swaps of $0.1 million.

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

Assets totaled $3.2 billion at March 31, 2024 a decrease of $60.2 million or 1.9% compared to December 31, 2023.

Gross loans totaled $2.7 billion at March 31, 2024, a decrease of $39.0 million or 1.4% compared to December 31, 2023.

Deposits totaled $2.7 billion at March 31, 2024, a decrease of $63.2 million, or 2.3% compared to December 31, 2023.

Shareholders’ equity totaled $268.0 million as of March 31, 2024, an increase of $2.3 million compared to December 31, 2023, primarily a result of net income of $3.8 million for the three months ended March 31, 2024.

The increase was partially offset by dividends paid of $1.6 million and share repurchases of $0.9 million.

Loan Portfolio

2 unchanged sentences

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

Total loans before deferred loan fees and the ACL-Loans were $2.8 billion at September 30, 2023 and $2.7 billion at December 31, 2022.

Total gross loans increased $94.7 million as of September 30, 2023 compared to the year ended December 31, 2022.

Total loa ns before deferred loan fees and the ACL-Loans were $2.7 billion at March 31, 2024 and $2.7 billion at December 31, 2023.

Total gross loans decreased $39.0 million as of March 31, 2024 com pared to the year ended December 31, 2023.

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

(In thousands) At September 30, 2023 At December 31, 2022 Change

(In thousands) At March 31, 2024 At December 31, 2023 Change

Real estate loans:

6 unchanged sentences

Total loans $ 2,679,559 $ 2,718,607 $ (39,048)

The following table compares the composition of our commercial real estate loan portfolio by non-owner occupied and owner occupied loans at March 31, 2024 and December 31, 2023:

At March 31, 2024

At December 31, 2023 Change

Total % Total % Total

(Dollars in thousands)

Commercial real estate loans:

Non-owner occupied $ 1,231,250 63.85 % $ 1,228,126 63.08 % $ 3,124

Owner occupied 697,002 36.15 718,780 36.92 (21,778)

Total commercial real estate loans (1)

$ 1,928,252 100.00 % $ 1,946,906 100.00 % $ (18,654)

(1) Excludes the negative fair value effect of the portfolio layer swap of $616 thousand and the positive fair value effective of the portfolio layer swap of $742 thousand for C ommercial Real Estate at March 31, 2024 and December 31, 2023, respectively.

The following table compares the composition of our commercial real estate loan portfolio by property type, and collateral location as of March 31, 2024 :

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

(Dollars in thousands)

Residential care (2)

$ — $ 63,308 $ 40,957 $ 22,329 $ 281,792 $ 80,009 $ 23,558 $ 101,792 $ 613,745

Retail 130,915 86,345 7,450 19,563 17,078 3,549 34,817 97,021 396,738

Multifamily 174,548 31,050 52,201 7,181 — — — — 264,980

Office 66,507 22,786 — 38,190 2,279 — — 59,851 189,613

Industrial / warehouse 74,438 14,248 19,943 17,138 2,778 — — 23,046 151,591

Mixed use 41,669 1,147 50,803 10,000 — — — — 103,619

Medical office 47,966 — 1,453 — — 4,880 3,900 22,691 80,890

1-4 family investment 12,968 13,522 1,924 2,797 17,357 — — — 48,568

All other (3)

20,168 34,959 23,381 — — — — — 78,508

$ 569,179 $ 267,365 $ 198,112 $ 117,198 $ 321,284 $ 88,438 $ 62,275 $ 304,401 $ 1,928,252

(1) Excludes the negative fair value effect of the portfolio layer swap of $616 thousand for Comm ercial Real Estate at March 31, 2024 .

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

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

As of March 31, 2024, the Bank had $189.6 million of loans collateralized by offices, which represented 7.1% of the total loan portfolio.

Most of the properties in this portfolio are in suburban locations, with no properties located in New York City.

98.4% of this portfolio was pass rated, and there were two relationships totaling $3.1 million on nonaccrual status.

As of March 31, 2024, we had $265.0 million of loans collateralized by multifamily properties, which represented 9.9% of the total loan portfolio.

100% of the portfolio is pass rated and current.

These properties are all located in Connecticut, New York, or New Jersey, with eight properties, totaling $52.2 million, located in New York City.

78.5% of the New York City exposure is located in Brooklyn, 12.1% in Manhattan and the remaining 9.4% in Queens.

$16.3 million of the New York City exposure, or 0.6% of the total loan portfolio, have either rent stabilized or rent controlled units.

The following table presents an analysis of the commercial real estate portfolio's loan to value at origination and by property type as of March 31, 2024 .

Commercial Real Estate Total CRE Portfolio (1)

Percentage of Total CRE Portfolio Loan to Value %

(Dollars in thousands)

Property Type

Residential care (2)

$ 613,745 31.8 % 67.5 %

Retail 396,738 20.6 63.7

Multifamily 264,980 13.7 61.5

Office 189,613 9.8 64.0

Industrial / warehouse 151,591 7.9 63.2

Mixed use 103,619 5.4 60.9

Medical office 80,890 4.2 65.6

1-4 family investment 48,568 2.5 58.1

All other 78,508 4.1 53.2

Total $ 1,928,252 100.0 % 64.0 %

(1) Excludes the negative fair value effect of the portfolio layer swap of $616 thousand for Commercial Real Estate at March 31, 2024.

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

Asset Quality

14 unchanged sentences

The Company does not provide first or second 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 risk management involves a partnership between our relationship managers and our credit approval, portfolio management, credit administration and collections departments.

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

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

Disciplined underwriting, portfolio monitoring and early problem recognition are important aspects of maintaining our high credit quality standards.

Nonperforming assets .

1 unchanged sentence

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

(In thousands) At September 30, 2023 At December 31, 2022

(In thousands) At March 31, 2024 At December 31, 2023

Nonaccrual loans:

4 unchanged sentences

Construction 9,382 9,382

Consumer 7,917 —

Total nonaccrual loans 46,543 49,207

6 unchanged sentences

Total past due loans to total gross loans 1.44 % 0.78 %

Nonperforming assets totaled $28.0 million and represented 0.86% of total assets at September 30, 2023, compared to $16.4 million and 0.51% of total assets at December 31, 2022.

Nonaccrual loans totaled $28.0 million at September 30, 2023 and $16.4 million at December 31, 2022.

Nonaccrual loans increased primarily due to three distinct loans:

• One Consumer (insurance premium) loan of $7.9 million.

As of October 4, 2023, the loan balance has been reduced to $3.9 million.

The Bank holds collateral for the remaining balance, worth approximately two times the outstanding amount.

• Two Commercial business loans totaling $5.5 million, of which approximately 82% is guaranteed by the U.S.

Government (SBA).

There was no Other Real Estate Owned ("OREO") at September 30, 2023 or December 31, 2022.

We evaluate the adequacy of the ACL-Loans based on "forward looking" expected losses.

Management believes that the current ACL-Loans will be adequate to absorb credit losses on existing loans that may become uncollectible based on the evaluation of known and inherent risks in the loan portfolio.

The evaluation takes into consideration such factors as changes in the nature and size of the portfolio, overall portfolio quality and specific problem loans, and current economic conditions which may affect the borrowers’ ability to pay.

The evaluation also details historical losses by loan segment and the resulting credit loss rates which are projected for current loan total amounts.

Loss estimates for specified problem loans are also detailed.

All of the factors considered in the analysis of the adequacy of the ACL-Loans may be subject to change.

We estimate losses on specific loans, or groups of loans, where the probable loss can be identified and reasonably determined.

Nonaccrual loans totaled $46.5 million at March 31, 2024 and $49.2 million at December 31, 2023.

There was no Other Real Estate Owned ("OREO") at March 31, 2024 or December 31, 2023.

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

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

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

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

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

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

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

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

1 unchanged sentence

Charge-offs are recorded on a monthly basis, as incurred.

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

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

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

Three Months Ended

September 30, Nine Months Ended

September 30,

(Dollars in thousands) 2024 2023

2 unchanged sentences

Balance at beginning of period-Adjusted 27,946 27,510

Residential real estate (132) —

Commercial real estate (3,306) —

4 unchanged sentences

Commercial business 27 —

Consumer 20 — 35 1

Total recoveries 31 6

Net recoveries (charge-offs) 23 13 (405) 100

(Credit) provision for credit losses - loans (1,433) 2,381 2,179 1,165

Net (charge-offs) recoveries (3,653) (446)

Provision for credit losses - loans 3,698 934

Balance at end of period $ 27,991 $ 27,998

1 unchanged sentence

ACL-Loans to total gross loans 1.04 % 1.01 %

At September 30, 2023, our ACL-Loans was $29.3 million and represented 1.06% of total gross loans, compared to $22.4 million, or 0.84% of total gross loans, at December 31, 2022.

At March 31, 2024, our ACL-Loans was $28.0 million and represented 1.04% of total gross loans, compared to $27.9 million or 1.03% of total gross loans, at December 31, 2023.

The following table presents the allocation of the ACL-Loans balance and the related allocation percentage of these loans across the total loan portfolio:

At September 30, 2023 At December 31, 2022

(Dollars in thousands) ACL-Loans Loans as Percent of Total Loan Portfolio ACL-Loans Loans as Percent of Total Loan Portfolio

At March 31, 2024 At December 31, 2023

(Dollars in thousands) ACL-Loans Amount ACL-Loans Percentage Loan Segment to Total Loans Percentage ACL-Loans Amount ACL-Loans Percentage Loan Segment to Total Loans Percentage

Residential real estate $ 133 0.48 % 1.83 % $ 149 0.53 % 1.87 %

4 unchanged sentences

Total ACL-Loans $ 27,991 100.00 % 100.00 % $ 27,946 100.00 % 100.00 %

The allocation of the ACL-Loans at September 30, 2023 reflects our assessment of credit risk and probable loss within each portfolio.

We believe that the level of the ACL-Loans at September 30, 2023 is appropriate to cover probable losses.

The allocation of the ACL-Loans at March 31, 2024 reflects our assessment of credit risk and probable loss within each portfolio.

We believe that the level of the ACL-Loans at March 31, 2024 is appropriate to cover probable losses.

ACL- Unfunded Commitments

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Investment Securities

At September 30, 2023, the carrying value of our investment securities portfolio totaled $115.8 million and represented 3.6% of total assets, compared to $121.6 million, or 3.7% of total assets, at December 31, 2022.

The net unrealized loss position on our investment portfolio at September 30, 2023 was $12.2 million and included gross unrealized gains of $10.0 thousand.

At March 31, 2024, the carrying val ue of our investment securities portfolio totaled $126.2 million and represented 4.0% of total assets, compared to $127.6 million, or 4.0% of total assets, at December 31, 2023.

The net unrealized loss position on our investment portfolio at March 31, 2024 was $8.0 million and included gross unrealized gains of $0.5 million.

The net unrealized loss position on our investment portfolio at December 31, 2023 was $7.5 million and included gross unrealized gains of $0.8 million.

Deposit Activities and Other Sources of Funds

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

(Dollars in thousands) Amount Percent Amount Percent

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Total deposits $ 2,673,522 100.00 % $ 2,736,757 100.00 %

Total deposits were $2.8 billion at September 30, 2023, a decrease of $32.2 million, from the balance at December 31, 2022.

Brokered certificates of deposits totaled $911.1 million at September 30, 2023 and $976.5 million at December 31, 2022.

There were no certificates of deposits from national listing services at September 30, 2023 or December 31, 2022.

Brokered money market accounts totaled $40.2 million at September 30, 2023 and $50.1 million at December 31, 2022.

As of September 30, 2023, our FDIC insured deposits were $1,970.3 million, or 71% of total deposits.

Additionally, $118.8 million of deposits are insured by standby letters of credit with the Federal Home Loan Bank of Boston, or 4% of total deposits.

At September 30, 2023 and December 31, 2022, time deposits with a denomination of $100 thousand or more, including CDARS and brokered deposits, totaled $1,229.9 million and $1,157.2 million, respectively, maturing during the periods indicated in the table below:

(Dollars in thousands) September 30, 2023 December 31, 2022

Tota l deposits were $2.7 billion at March 31, 2024, a decrease of $63.2 million, from t he balance at December 31, 2023.

Brokered certificates of depo sits totaled $780.5 million at March 31, 2024 and $860.5 million at December 31, 2023, respectively.

Brokered money market accounts tota led $51.4 million at March 31, 2024 and $91.4 million at December 31, 2023, respectively.

There were no certificates of deposits from national listing services, one-way buy CDARS or one-way buy ICS at March 31, 2024 or December 31, 2023.

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

As of March 31, 2024, our FDIC insured deposits were $1,907.6 million, or 71% of total deposits.

Additionally, deposits totaling $110.6 million, or 4% of total deposits, are insured by standby letters of credit with the Federal Home Loan Bank of Boston.

At March 31, 2024 and December 31, 2023, time deposits with a denomination of $100 thousand or more, including CDARS and brokered deposits, totaled $1,164.0 million and $1,199.7 million, respectively, maturing during the periods indicated in the table below:

(Dollars in thousands) March 31, 2024 December 31, 2023

Within 3 months $ 535,280 $ 343,084

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

Total FHLB advances were $90.0 million at September 30, 2023 and December 31, 2022, respectively.

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

Total FHLB advances w ere $90.0 million at both March 31, 2024 and December 31, 2023.

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

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

At September 30, 2023, the Bank had pledged $956.0 million of eligi ble loans as collateral to support borrowing capacity at the FHLB of Boston.

As of September 30, 2023, the Bank had immediate availability to borrow an additional $362.1 million based on qualified collateral.

At September 30, 2023 , the Bank had a secured borrowing line with the FRB, 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 September 30, 2023 is summarized below:

September 30, 2023

At March 31, 2024, the Bank had pledged $843.8 million of eligible loans as collateral to support borrowing capacity at the FHLB.

As of March 31, 2024, the Bank had immediate availability to borrow an additional $327.8 million from the FHLB based on qualified collateral.

At March 31, 2024 , the Bank had a secured borrowing line with the FRB, 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 March 31, 2024 is summarized below:

March 31, 2024

Total Letter or Line of Credit Total Outstanding

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

The Bank has established unsecured borrowing capacity with Zions Bank, PCBB, and ACBB (formerly Bankers’ Bank Northeast).

The Bank also

maintains additional collateralized borrowing capacity with the FRB and the FHLB in excess of levels used in the ordinary course of business.

The Bank has established unsecured borrowing capacity with Zions Bank, PCBB, and ACBB.

The Bank also maintains additional collateralized borrowing capacity with the FRB and the FHLB in excess of levels used in the ordinary course of business.

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

Capital Resources

The increase was partially offset by the Day 1 CECL adoption of $4.9 million, dividends paid of $4.7 million, and a $1.3 million unfavorable impact to accumulated other comprehensive income.

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

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

The increase was partially offset by dividends paid of $1.6 million and share repurchases of $0.9 million.

The Bank and Company are subject to various regulatory capital requirements administered by the federal banking agencies.

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

At September 30, 2023, the Bank met all capital adequacy requirements to which it was subject and exceeded the regulatory minimum capital levels to be considered well-capitalized under the regulatory framework for prompt corrective action.

At September 30, 2023, the Bank’s ratio of Common Equity Tier 1 capital to risk-weighted assets was 10.82%, total capital to risk-weighted assets was 11.86%, Tier 1 capital to risk-weighted assets was 10.82% and Tier 1 capital to average assets was 9.60%.

At March 31, 2024, the Bank met all capital adequacy requirements to which it was subject and exceeded the regulatory minimum capital levels to be considered well-capitalized under the reg ulatory framework for prompt corrective action.

At March 31, 2024, the Bank’s ratio of Common Equity Tier 1 capital to risk-weighted assets was 11.60%, total capital to risk-weighted assets was 11.60%, Tier 1 capital to risk-weighted assets was 12.63% and Tier 1 capital to average assets was 10.09%.

At March 31, 2024, the Company met all capital adequacy requirements to which it was subject and exceeded the regulatory minimum capital levels to be considered well-capitalized under the reg ulatory framework for prompt corrective action.

At March 31, 2024, the Company’s ratio of Common Equity Tier 1 capital to risk-weighted assets was 9.47% , total capital to risk-weighted assets was 9.47% , Tier 1 capital to risk-weighted assets was 12.96% and Tier 1 capital to average assets was 8.28% .

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

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For the Parallel Ramp Scenarios, rate changes are ramped over a twelve-month horizon based upon a parallel yield curve shift and then maintained at those levels over the remainder of the simulation horizon.

Parallel Shock Scenarios assume instantaneous parallel movements in the yield curve compared to a flat yield curve scenario.

Parallel Shock Scenarios assume instantaneous parallel movements in the yield curve

compared to a flat yield curve scenario.

Simulation analysis involves projecting a future balance sheet structure and interest income and expense under the various rate scenarios.

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12% for a 200 basis point shift;

and 18% for a 300 basis point

and 18% for a 300 basis point shift.

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

As of September 30, 2023, the Bank has met all minimum regulatory capital requirements to be considered "well capitalized".

The following tables set forth the estimated percentage change in our net interest income at risk over one-year simulation periods beginning September 30, 2023 and December 31, 2022:

As of March 31, 2024, the Bank has met all minimum regulatory capital requirements to be considered "well capitalized".

The following tables set forth the estimated percentage change in our net interest income at risk over one-year simulation periods beginning March 31, 2024 and December 31, 2023:

Parallel Ramp Estimated Percent Change in Net Interest Income

Rate Changes (basis points) September 30, 2023 December 31, 2022

Rate Changes (basis points) March 31, 2024 December 31, 2023

-100 1.20 % 1.70 %

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Parallel Shock Estimated Percent Change in Net Interest Income

Rate Changes (basis points) September 30, 2023 December 31, 2022

Rate Changes (basis points) March 31, 2024 December 31, 2023

-100 1.90 % 3.60 %

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+300 (4.10) (8.10)

The net interest income at risk simulation results indicate that, as of September 30, 2023, we remain liability sensitive.

The net interest income at risk simulation results indicate that, as of March 31, 2024, we remain liability sensitive.

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

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

Rate Changes (basis points) September 30, 2023 December 31, 2022

Rate Changes (basis points) March 31, 2024 December 31, 2023

-100 1.90 % 2.70 %

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+300 (9.80) (12.60)

While ALCO reviews and updates simulation assumptions and also periodically back-tests the simulation results to ensure that the assumptions are reasonable and current, income simulation may not always prove to be an accurate indicator of interest rate risk or future net interest margin.

Over time, the repricing, maturity and prepayment characteristics of financial instruments and

the composition of our balance sheet may change to a different degree than estimated.

risk or future net interest margin.

Over time, the repricing, maturity and prepayment characteristics of financial instruments and the composition of our balance sheet may change to a different degree than estimated.

ALCO recognizes that deposit balances could shift into higher yielding alternatives as market rates change.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis