Bankwell Financial Group, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations This section presents management’s perspective on our financial condition and results of operations. The following discussion and analysis should be read in conjunction with the unaudited interim consolidated financial statements and related notes contained elsewhere in this report on Form 10-Q. To the extent that this discussion describes prior performance, the descriptions relate only to the periods listed, which may not be indicative of future financial outcomes. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause results to differ materially from management’s expectations. Factors that could cause such differences are discussed in the Company’s Form 10-K filed for the year ended December 31, 2023 in the sections titled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors.” We assume no obligation to update any of these forward-looking statements. General Bankwell Financial Group, Inc. is a bank holding company headquartered in New Canaan, Connecticut. Through our wholly-owned subsidiary, Bankwell Bank, or the Bank, we serve small and medium-sized businesses and retail clients. We have a history of building long-term client relationships and attracting new clients through what we believe is out superior service and our ability to deliver a diverse product offering. The following discussion and analysis presents our results of operations and financial condition on a consolidated basis. However, because we conduct all of our material business operations through the Bank, the discussion and analysis relates to activities primarily conducted at the Bank. We generate most of our revenue from interest on loans and investments and fee-based revenues. Our primary source of funding for our loans is deposits. Our largest expenses are interest on deposits and salaries and related employee benefits. We measure our performance primarily through our net interest margin, efficiency ratio, ratio of ACL-Loans to total loans, return on average assets and return on average equity, among other metrics, while maintaining appropriate regulatory leverage and risk-based capital ratios. Executive Overview We are focused on being the banking provider of choice and to serve as an alternative to our larger competitors. We aim to do this through: • Responsive, client-centric products and services; • Organic growth and strategic acquisitions when market opportunities present themselves; • Utilization of efficient and scalable infrastructure; and • Disciplined focus on risk management. Critical Accounting Policies and Estimates The discussion and analysis of our results of operations and financial condition are based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires us to make significant estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Actual results could differ from our current estimates, as a result of changing conditions and future events. We believe that accounting estimates related to the measurement of the ACL-Loans, the valuation of derivative instruments, investment securities and deferred income taxes, and the evaluation of investment securities for other than temporary impairment are particularly critical and susceptible to significant near-term change. 47 Earnings and Performance Overview 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 Net Interest Income Net interest income is the difference between interest earned on loans and securities and interest paid on deposits and other borrowings, and is the primary source of our operating income. Net interest income is affected by the level of interest rates, changes in interest rates and changes in the amount and composition of interest earning assets and interest bearing liabilities. Included in interest income are certain loan fees, such as deferred origination fees and late charges. We convert tax-exempt income to a fully taxable equivalent ("FTE") basis using the statutory federal income tax rate adjusted for applicable state income taxes net of the related federal tax benefit. The average balances are principally daily averages. Interest income on loans includes the effect of deferred loan fees and costs accounted for as yield adjustments. 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 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. 48 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 months ended March 31, 2024 and 2023. For the Quarter Ended March 31, 2024 March 31, 2023 Average Balance Interest Yield/ Rate (4) Average Balance Interest Yield/ Rate (4) Assets: Cash and Fed funds sold $ 292,662 $ 3,826 5.26 % $ 315,566 $ 3,568 4.59 % Securities (1) 134,737 1,060 3.15 129,881 956 2.49 Loans: Commercial real estate 1,922,413 28,643 5.89 1,918,551 25,585 5.33 Residential real estate 50,213 718 5.72 59,444 643 4.33 Construction 161,047 2,973 7.30 166,254 2,825 6.80 Commercial business 517,102 10,284 7.87 542,399 10,421 7.68 Consumer 39,964 707 7.12 18,536 249 5.45 Total loans 2,690,739 43,325 6.37 2,705,184 39,723 5.87 Federal Home Loan Bank stock 5,702 121 8.51 5,271 94 7.27 Total earning assets 3,123,840 $ 48,332 6.12 % 3,155,902 $ 44,341 5.62 % Other assets 90,905 84,063 Total assets $ 3,214,745 $ 3,239,965 Liabilities and shareholders' equity: Interest bearing liabilities: NOW $ 91,674 $ 39 0.17 % $ 92,918 $ 38 0.16 % Money market 883,851 9,146 4.16 907,739 6,385 2.85 Savings 92,972 714 3.09 136,333 727 2.16 Time 1,317,069 15,463 4.72 1,252,564 9,883 3.20 Total interest bearing deposits 2,385,566 25,362 4.28 2,389,554 17,033 2.89 Borrowed Money 159,226 1,772 4.48 161,202 1,717 4.26 Total interest bearing liabilities 2,544,792 $ 27,134 4.29 % 2,550,756 $ 18,750 2.98 % Noninterest bearing deposits 337,020 403,920 Other liabilities 62,356 44,406 Total liabilities 2,944,168 2,999,082 Shareholders' equity 270,577 240,883 Total liabilities and shareholders' equity $ 3,214,745 $ 3,239,965 Net interest income (2) $ 21,198 $ 25,591 Interest rate spread 1.83 % 2.64 % Net interest margin (3) 2.71 % 3.24 % (1) Average balances and yields for securities are based on amortized cost. (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. (4) Yields are calculated using the contractual day count convention for each respective product type. 49 Effect of changes in interest rates and volume of average earning assets and average interest bearing liabilities The following table shows the extent to which changes in interest rates and changes in the volume of average earning assets and average interest bearing liabilities have affected net interest income. For each category of earning assets and interest bearing liabilities, information is provided relating to: changes in volume (changes in average balances multiplied by the prior year’s average interest rates); changes in rates (changes in average interest rates multiplied by the prior year’s average balances); and the total change. 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 March 31, 2024 vs 2023 Increase (Decrease) (In thousands) Volume Rate Total Interest and dividend income: Cash and Fed funds sold $ (271) $ 530 $ 259 Securities 37 68 105 Loans: Commercial real estate 52 3,006 3,058 Residential real estate (110) 186 76 Construction (91) 238 147 Commercial business (494) 357 (137) Consumer 358 100 458 Total loans (285) 3,887 3,602 Federal Home Loan Bank stock 8 18 26 Total change in interest and dividend income (511) 4,503 3,992 Interest expense: Deposits: NOW (1) 3 2 Money market (172) 2,932 2,760 Savings (273) 261 (12) Time 533 5,047 5,580 Total deposits 87 8,243 8,330 Borrowed money (21) 76 55 Total change in interest expense 66 8,319 8,385 Change in net interest income $ (577) $ (3,816) $ (4,393) 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. 50 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 months ended March 31, 2024 and 2023: Three Months Ended March 31, Change (Dollars in thousands) 2024 2023 $ % Gains and fees from sales of loans $ 321 $ 931 $ (610) (65.5) % Bank-owned life insurance 329 281 48 17.1 Service charges and fees 304 286 18 6.3 Other (39) 28 (67) Unfavorable Total noninterest income $ 915 $ 1,526 $ (611) (40.0) % 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 months ended March 31, 2024 and 2023: Three Months Ended March 31, Change (Dollars in thousands) 2024 2023 $ % Salaries and employee benefits $ 6,291 $ 6,081 $ 210 3.5 % Occupancy and equipment 2,322 2,084 238 11.4 Professional services 1,065 1,322 (257) (19.4) Data processing 740 671 69 10.3 Director fees 900 392 508 129.6 FDIC insurance 930 1,062 (132) (12.4) Marketing 114 151 (37) (24.5) Other 935 928 7 0.8 Total noninterest expense $ 13,297 $ 12,691 $ 606 4.8 % 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 Taxes 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 Summary 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. 51 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 We originate commercial real estate loans, construction loans, commercial business loans and consumer loans in our market. We also pursue certain types of commercial lending opportunities outside our market, particularly where we have strong business relationships. Our loan portfolio is the largest category of our earning assets. 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 March 31, 2024 At December 31, 2023 Change Real estate loans: Residential $ 49,098 $ 50,931 $ (1,833) Commercial 1,927,636 1,947,648 (20,012) Construction 151,967 183,414 (31,447) 2,128,701 2,181,993 (53,292) Commercial business 508,912 500,569 8,343 Consumer 41,946 36,045 5,901 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. 52 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. 53 Asset Quality We actively manage asset quality through our underwriting practices and collection operations. Our Board of Directors monitors credit risk management. The Directors Loan Committee ("DLC") has primary oversight responsibility for the credit-granting function including approval authority for credit-granting policies, review of management’s credit-granting activities and approval of large exposure credit requests, as well as loan review and problem loan management and resolution. The committee reports the results of its respective oversight functions to our Board of Directors. In addition, our Board of Directors receives information concerning asset quality measurements and trends on a monthly basis. While we continue to adhere to prudent underwriting standards, our loan portfolio is not immune to potential negative consequences as a result of general economic weakness, such as a prolonged downturn in the housing market or commercial real estate market on a national scale. Decreases in real estate values could adversely affect the value of property used as collateral for loans. In addition, adverse changes in the economy could have a negative effect on the ability of borrowers to make scheduled loan payments, which would likely have an adverse impact on earnings. 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, (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 client’s ability to generate continuing cash flows. 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 teams. Disciplined underwriting, portfolio monitoring and early problem recognition are important aspects of maintaining our high credit quality standards. Nonperforming assets . Nonperforming assets include nonaccrual loans and property acquired through foreclosures or repossession. The following table presents nonperforming assets and additional asset quality data for the dates indicated: (In thousands) At March 31, 2024 At December 31, 2023 Nonaccrual loans: Real estate loans: Residential $ 1,237 $ 1,386 Commercial 19,083 23,009 Commercial business 16,841 15,430 Construction 9,382 9,382 Consumer — — Total nonaccrual loans 46,543 49,207 Other real estate owned — — Total nonperforming assets $ 46,543 $ 49,207 Nonperforming assets to total assets 1.48 % 1.53 % Nonaccrual loans to total gross loans 1.74 % 1.81 % ACL-loans as a % of total loans 1.04 % 1.03 % ACL-loans as a % of nonperforming loans 60.14 % 56.79 % Total past due loans to total gross loans 1.44 % 0.78 % 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. 54 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 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. Our charge-off policies, which comply with standards established by our banking regulators, are consistently applied from period to period. 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 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 March 31, (Dollars in thousands) 2024 2023 Balance at beginning of period $ 27,946 $ 22,431 CECL Day 1 Adjustment — 5,079 Balance at beginning of period-Adjusted 27,946 27,510 Charge-offs: Residential real estate (132) — Commercial real estate (3,306) — Commercial business (197) (440) Consumer (49) (12) Total charge-offs (3,684) (452) Recoveries: Commercial real estate — — Commercial business 27 — Consumer 4 6 Total recoveries 31 6 Net (charge-offs) recoveries (3,653) (446) Provision for credit losses - loans 3,698 934 Balance at end of period $ 27,991 $ 27,998 Net charge-offs to average loans 0.11 % 0.02 % ACL-Loans to total gross loans 1.04 % 1.01 % 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. 55 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 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 % Commercial real estate 21,666 77.40 71.94 20,950 74.97 71.64 Construction 1,543 5.51 5.67 1,699 6.08 6.75 Commercial business 4,078 14.57 18.99 4,562 16.32 18.41 Consumer 571 2.04 1.57 586 2.10 1.33 Total ACL-Loans $ 27,991 100.00 % 100.00 % $ 27,946 100.00 % 100.00 % 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 The ACL-Unfunded Commitments provision is based on "forward looking" losses inherent with funding the unused portion of legal commitments to lend. The reserve for unfunded credit commitments is included within other liabilities in the accompanying Consolidated Balance Sheets. Changes in the ACL-Unfunded Commitments are reported as a component of the Provision for credit losses in the accompanying Consolidated Statements of Income. Investment Securities 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 March 31, 2024 December 31, 2023 (Dollars in thousands) Amount Percent Amount Percent Noninterest bearing demand $ 376,248 14.07 % $ 346,172 12.65 % NOW 95,227 3.56 90,829 3.32 Money market 818,408 30.61 887,352 32.42 Savings 92,188 3.45 97,331 3.56 Time 1,291,451 48.31 1,315,073 48.05 Total deposits $ 2,673,522 100.00 % $ 2,736,757 100.00 % 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. 56 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 Maturing: Within 3 months $ 535,280 $ 343,084 After 3 but within 6 months 320,378 317,534 After 6 months but within 1 year 147,749 244,472 After 1 year 160,603 294,641 Total $ 1,164,010 $ 1,199,731 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 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 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 (Dollars in thousands) FRB $ 743,769 $ — FHLB 524,691 196,891 Zions Bank 45,000 — PCBB 38,000 — ACBB 12,000 — Total $ 1,363,460 $ 196,891 Liquidity and Capital Resources Liquidity Management Liquidity is defined as the ability to generate sufficient cash flows to meet all present and future funding requirements at reasonable costs. Our primary source of liquidity is deposits. While our generally preferred funding strategy is to attract and retain low cost deposits, our ability to do so is affected by competitive interest rates and terms in the marketplace. Other sources of funding include discretionary use of purchased liabilities (e.g., FHLB term advances and other borrowings), cash flows from our investment securities portfolios, loan sales, loan repayments and earnings. Investment securities designated as Available for sale may also be sold in response to short-term or long-term liquidity needs. The Bank’s liquidity positions are monitored daily by management. The Asset Liability Committee ("ALCO") establishes guidelines to ensure maintenance of prudent levels of liquidity. ALCO reports to the Company’s Board of Directors. 57 The Bank has a detailed liquidity funding policy and a contingency funding plan that provide for the prompt and comprehensive response to unexpected demands for liquidity. 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. 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 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. 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 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. The Company and the Bank must maintain the capital conservation buffer to avoid restrictions on the ability to pay dividends, pay discretionary bonuses, or to engage in share repurchases. Asset/Liability Management and Interest Rate Risk We measure interest rate risk using simulation analysis to calculate earnings and equity at risk. These risk measures are quantified using simulation software from one of the leading firms in the field of asset/liability modeling. Key assumptions relate to the behavior of interest rates and spreads, prepayment speeds and the run-off of deposits. From such simulations, interest rate risk, or IRR, is quantified and appropriate strategies are formulated and implemented. We model IRR by using two primary risk measurement techniques: simulation of net interest income and simulation of economic value of equity. These two measurements are complementary and provide both short-term and long-term risk profiles for the Company. Because both baseline simulations assume that our balance sheet will remain static over the simulation horizon, the results do not reflect adjustments in strategy that ALCO could implement in response to rate shifts. The simulation analyses are updated quarterly. We use a net interest income at risk simulation to measure the sensitivity of net interest income to changes in market rates. This simulation captures underlying product behaviors, such as asset and liability repricing dates, balloon dates, interest rate indices and spreads, rate caps and floors, as well as other behavioral attributes. The simulation of net interest income also requires a number of key assumptions such as: (i) prepayment projections for loans and securities that are projected under each interest rate scenario using internal and external mortgage analytics; (ii) new business loan rates that are based on recent new business origination experience; and (iii) deposit pricing assumptions for non-maturity deposits reflecting the Bank’s history, management judgment and core deposit studies. Combined, these assumptions can be inherently uncertain, and as a result, actual results may differ from simulation forecasts due to the timing, magnitude and frequency of interest rate changes, future business conditions, as well as unanticipated changes in management strategies. We use two sets of standard scenarios to measure net interest income at risk. 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 58 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. Internal policy regarding internal rate risk simulations currently specifies that for instantaneous parallel shifts of the yield curve, estimated net interest income at risk for the subsequent one-year period should not decline by more than: 6% for a 100 basis point shift; 12% for a 200 basis point shift; 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 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) March 31, 2024 December 31, 2023 -100 1.20 % 1.70 % +200 (2.20) (3.20) Parallel Shock Estimated Percent Change in Net Interest Income Rate Changes (basis points) March 31, 2024 December 31, 2023 -100 1.90 % 3.60 % +100 (1.20) (2.70) +200 (3.00) (5.80) +300 (4.10) (8.10) 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. We conduct an economic value of equity at risk simulation in tandem with net interest income simulations, to ascertain a longer term view of our interest rate risk position by capturing longer-term repricing risk and options risk embedded in the balance sheet. It measures the sensitivity of economic value of equity to changes in interest rates. The economic value of equity at risk simulation values only the current balance sheet and does not incorporate the growth assumptions used in one of the income simulations. As with the net interest income simulation, this simulation captures product characteristics such as loan resets, repricing terms, maturity dates, rate caps and floors. Key assumptions include loan prepayment speeds, deposit pricing elasticity and non-maturity deposit attrition rates. These assumptions can have significant impacts on valuation results as the assumptions remain in effect for the entire life of each asset and liability. All key assumptions are subject to a periodic review. Base case economic value of equity at risk is calculated by estimating the net present value of all future cash flows from existing assets and liabilities using current interest rates. The base case scenario assumes that future interest rates remain unchanged. The following table sets forth the estimated percentage change in our economic value of equity at risk, assuming various shifts in interest rates: Estimated Percent Change in Economic Value of Equity ("EVE") Rate Changes (basis points) March 31, 2024 December 31, 2023 -100 1.90 % 2.70 % +100 (2.80) (3.80) +200 (7.30) (9.40) +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 59 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. ALCO has modeled increased costs of deposits in the rising rate simulation scenarios presented above. It should be noted that the static balance sheet assumption does not necessarily reflect our expectation for future balance sheet growth, which is a function of the business environment and client behavior. Another significant simulation assumption is the sensitivity of core deposits to fluctuations in interest rates. Income simulation results assume that changes in both core savings deposit rates and balances are related to changes in short-term interest rates. Lastly, mortgage-backed securities and mortgage loans involve a level of risk that unforeseen changes in prepayment speeds may cause related cash flows to vary significantly in differing rate environments. Such changes could affect the level of reinvestment risk associated with cash flow from these instruments, as well as their market value. Changes in prepayment speeds could also increase or decrease the amortization of premium or accretion of discounts related to such instruments, thereby affecting interest income.