What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-06 compared with 2024-08-07 · 138 added, 139 removed, 408 unchanged (40% of the section changed)

28 unchanged sentences

Earnings and Performance Overview

Revenues (net interest income plus no ninterest income) for the three months ended June 30, 2024 were $21.9 million, versus $25.4 million for the quarter ended June 30, 2023.

Revenues for the six months ended June 30, 2024 were $44.0 million, versus $52.5 million for the six months ended June 30, 2023.

The decrease in revenues for the quarter and six months ended June 30, 2024 was attributable to an increase in interest expense on deposits and lower gains from loan sales partially offset by an increase in interest and fees on loans, given higher loan yields and prepayment fees.

Net income available to common shareholders was $1.1 million, or $0.14 per diluted share, and $8.0 million, or $1.02 per diluted share, for the three months ended June 30, 2024 and 2023, respectively.

Net income available to common shareholders was $4.9 million, or $0.62 per diluted share, and $18.4 million, or $2.34 per diluted share, for the six months ended June 30, 2024 and 2023, respectively.

The decrease in net income for the quarter and six months ended June 30, 2024 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 June 30, 2024 were 1.65% and 0.14%, respectively, compared to 12.91% and 0.99%, respectively, for the three months ended June 30, 2023.

Returns on average shareholders' equity and average assets for the six months ended June 30, 2024 were 3.61% and 0.31%, respectively, compared to 15.15% and 1.14%, respectively, for the six months ended June 30, 2023.

For the three months ended September 30, 2024, net interest income was $20.7 million, a decrease of $2.0 million or 8.7% when compared to the same period in 2023.

For the nine months ended September 30, 2024, net interest income was $63.1 million, a decrease of $9.1 million or 12.7% when compared to the same period in 2023.

The decrease in net interest income for the three and nine months ended September 30, 2024 was primarily attributable to an increase in interest expense partially offset by an increase in interest on loans due to higher overall loan yields.

Net income available to common shareholders was $1.9 million, or $0.24 per diluted share, and $9.8 million, or $1.25 per diluted share, for the three months ended September 30, 2024 and 2023, respectively.

Net income available to common shareholders was $6.8 million, or $0.86 per diluted share, and $28.1 million, or $3.58 per diluted share, for the nine months ended September 30, 2024 and 2023, respectively.

The decrease in net income for the three and nine months ended September 30, 2024 was primarily due to an increase in the provision for credit losses and an increase in interest expense.

This decrease was partially offset by an increase in interest on loans due to higher overall loan yields.

Returns on average shareholders' equity and average assets for the three months ended September 30, 2024 were 2.83% and 0.24%, respectively, compared to 15.19% and 1.19%, respectively, for the three months ended September 30, 2023.

Returns on average shareholders' equity and average assets for the nine months ended September 30, 2024 were 3.35% and 0.29%, respectively, compared to 15.16% and 1.16%, respectively, for the nine months ended September 30, 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 the difference between interest earned on loans, securities, and cash less 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.

4 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 June 30, 2024 and 2023 was $21.3 million and $24.1 million, respectively.

FTE net interest income for the six months ended June 30, 2024 and 2023 was $42.5 million and $49.6 million, respectiv ely.

FTE interest income for the three months ended June 30, 2024 increased by $1.1 million, or 2.3%, to $47.7 million, compared to FTE interest income for the three months ended June 30, 2023.

FTE interest income for the six months ended June 30, 2024 increased by $5.2 million, or 5.7%, to $96.1 million, co mpared to FTE interest income for the six months ended June 30, 2023.

FTE net interest income for the three months ended September 30, 2024 and 2023 was $20.8 million and $22.7 million, respectively.

FTE net interest income for the nine months ended September 30, 2024 and 2023 was $63.3 million and $72.4 million, respectively.

FTE interest income for the three months ended September 30, 2024 remained flat at $48.3 million, compared to FTE interest income for the three months ended September 30, 2023.

FTE interest income for the nine months ended September 30, 2024 increased by $5.2 million, or 3.7%, to $144.4 million, compared to FTE interest income for the nine months ended September 30, 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 June 30, 2024 increased by $3.9 million compared to interest expense for the three months ended June 30, 2023.

Interest expense for the six months ended June 30, 2024 increased by $12.3 million compared to interest expense for the six months ended June 30, 2023.

The increase in interest expense for the three and six months ended June 30, 2024 was driven by an increase in interest expense on deposits, resulting from an increase in rates on interest bearing deposits.

Interest expense for the three months ended September 30, 2024 increased by $1.9 million compared to interest expense for the three months ended September 30, 2023.

Interest expense for the nine months ended September 30, 2024 increased by $14.2 million compared to interest expense for the nine months ended September 30, 2023.

The increase in interest expense for the three and nine months ended September 30, 2024 was driven by an increase in rates on interest bearing deposits.

Distribution of Assets, Liabilities and Shareholders’ Equity;

Interest Rates and Interest Differential

The following tables present 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 six months ended June 30, 2024 and 2023.

For the Quarter Ended

June 30, 2024 June 30, 2023

September 30, 2024 September 30, 2023

Balance Interest Yield/

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

(2) The adjustment for securities and loans taxable eq uivalen cy amounted to $67 thousand and $5 1 thousand for the three months ended June 30, 2024 and 2023, respectively.

(2) The adjustment for securities and loans taxable equivalency amounted to $122 thousand and $52 thousand for the three months ended September 30, 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.

For the Six Months Ended

June 30, 2024 June 30, 2023

For the Nine Months Ended

September 30, 2024 September 30, 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 eq uival ency amounted to $118 thousand and $102 thousand for the six months ended June 30, 2024 and 2023, respectively.

(2) The adjustment for securities and loans taxable equivalency amounted to $239 thousand and $154 thousand for the

nine months ended September 30, 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 June 30, 2024 vs 2023

Increase (Decrease) Six Months Ended

June 30, 2024 vs 2023

Three Months Ended September 30, 2024 vs 2023

Increase (Decrease) Nine Months Ended September 30, 2024 vs 2023

Increase (Decrease)

20 unchanged sentences

Change in net interest income $ (1,466) $ (438) $ (1,904) $ (2,888) $ (6,166) $ (9,054)

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 June 30, 2024 was $8.2 million compared to a provision for credit losses of $2.6 million for the three months ended June 30, 2023.

The provision for credit losses for the for the six months ended June 30, 2024 was $11.9 million compared to a provision for credit losses of $3.4 million for the six months ended June 30, 2023.

The increase in the provision for credit losses for the quarter was primarily due to an additional $7.4 million in specific reserve for two loans.

Of the $7.4 million:

• $6.6 million is related to a specific reserve taken against an $8.7 million commercial business credit.

The credit had been previously reported as a non-performing loan as of the fourth quarter of 2023 and had previously carried a $0.4

million specific reserve.

The Company's estimated remaining exposure for the commercial business credit is $1.7 million.

• $0.8 million specific reserve was related to a construction loan.

The increase in provision for credit losses for the six months ended June 30, 2024 was primarily driven by aforementioned increase in specific reserves.

Provision (credit) for Credit Losses

The provision (credit) 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 (credit) 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 September 30, 2024 was $6.3 million compared to a credit for credit losses of $1.6 million for the three months ended September 30, 2023.

The provision for credit losses for the nine months ended September 30, 2024 was $18.2 million compared to a provision for credit losses of $1.8 million for the nine months ended September 30, 2023.

The increase in the provision for credit losses for the quarter was primarily due to a charge-off of $8.2 million.

The increase was partially offset by a $1.0 million recovery on a previously charged-off loan.

The increase in provision for credit losses for the nine months ended September 30, 2024 was primarily driven due to charge-offs of $20.1 million partially offset by recoveries of $1.3 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 six months ended June 30, 2024 and 2023:

The following tables compare noninterest income for the three and nine months ended September 30, 2024 and 2023:

Three Months Ended

June 30, Change

September 30, Change

(Dollars in thousands) 2024 2023 $ %

2 unchanged sentences

Service charges and fees 575 294 281 95.6

Other (190) 23 (213) Unfavorable

Other 102 (48) 150 Favorable

Total noninterest income $ 1,156 $ 786 $ 370 47.1 %

Six Months Ended

June 30, Change

Nine Months Ended

September 30, Change

(Dollars in thousands) 2024 2023 $ %

4 unchanged sentences

Total noninterest income $ 2,754 $ 3,713 $ (959) (25.8) %

Noninterest income decreased by $0.7 million for the three months ended June 30, 2024 compared to the three months ended June 30, 2023.

Noninterest income decreased by $1.3 million for the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

The decrease in noninterest income for the three and six months ended June 30, 2024 was driven by lower gains from loan sales.

Noninterest income increased by $0.4 million to $1.2 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

Noninterest income decreased by $1.0 million to $2.8 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

The increase in noninterest income was driven by an increase in service charges and fees for the three months ended 2024.

The decrease in noninterest income was driven by a decrease in SBA loan sales partially offset by an increase in service charges and fees for the nine months ended 2024.

Noninterest Expense

The following table compares noninterest expense for the three and six months ended June 30, 2024 and 2023:

The following tables compare noninterest expense for the three and nine months ended September 30, 2024 and 2023:

Three Months Ended

June 30, Change

September 30, Change

(Dollars in thousands) 2024 2023 $ %

8 unchanged sentences

Total noninterest expense $ 12,865 $ 12,205 $ 660 5.4 %

Six Months Ended

June 30, Change

Nine Months Ended

September 30, Change

(Dollars in thousands) 2024 2023 $ %

8 unchanged sentences

Total noninterest expense $ 38,407 $ 37,537 $ 870 2.3 %

Nonint erest expense decreased by $0.4 million to $12.2 million for the three months ended June 30, 2024 compared to the three months ended June 30, 2023.

The decrease in noninterest expense was primarily driven by a decrease in FDIC insurance costs mainly driven by a reduction in the Bank's brokered deposits.

Noninterest expense increased by $0.2 million to $25.5 million for the six months ended June 30, 2024 compared to the six months ended June 30, 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.

The increase was partially offset by a decrease in FDIC insurance costs mainly attributable by a reduction in the Bank's brokered deposits.

Income tax expense for the three mont hs ended June 30, 2024 and 2023 totaled $0.4 million and $2.2 million, respectively.

The effective tax rates for the three months ended June 30, 2024 and 2023 were 24.2% and 21.5%, respectively.

Income tax expense for the six months ended June 30, 2024 and 2023 totaled $1.7 million and $5.4 million, respectively.

The effective tax rates for the six months ended June 30, 2024 and 2023 were 25.5% and 22.6%, respectively.

Noninterest expense increased by $0.7 million to $12.9 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

Noninterest expense increased by $0.9 million to $38.4 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

The increase in noninterest expense was primarily driven by an increase in professional services for the three and nine months ended September 30, 2024.

Income tax expense for the three months ended September 30, 2024 and 2023 totaled $0.8 million and $3.1 million, respectively.

The effective tax rates for the three months ended September 30, 2024 and 2023 were 29.0% and 23.9%, respectively.

Income tax expense for the nine months ended September 30, 2024 and 2023 totaled $2.5 million and $8.4 million, respectively.

The effective tax rates for the nine months ended September 30, 2024 and 2023 were 26.6% and 23.1%, respectively.

Financial Condition

Assets totaled $3.1 billion at June 30, 2024 a decrease of $73.8 million or 2.3% compared to December 31, 2023.

Gross loans totaled $2.7 billion at June 30, 2024, a decrease of $61.4 million or 2.3% compared to December 31, 2023.

Deposits totaled $2.7 billion at June 30, 2024, a decrease of $74.4 million, or 2.7% compared to December 31, 2023.

Shareholders’ equity totaled $267.0 million as of June 30, 2024, an increase of $1.2 million compared to December 31, 2023, primarily a result of net income of $4.9 million for the six months ended June 30, 2024.

Assets totaled $3.2 billion at September 30, 2024 a decrease of $54.4 million or 1.7% compared to December 31, 2023.

Gross loans totaled $2.6 billion at September 30, 2024, a decrease of $95.4 million or 3.5% compared to December 31, 2023.

Deposits totaled $2.7 billion at September 30, 2024, a decrease of $48.6 million, or 1.8% compared to December 31, 2023.

Shareholders’ equity totaled $267.9 million as of September 30, 2024, an increase of $2.2 million compared to December 31, 2023, primarily a result of net income of $6.8 million for the nine months ended September 30, 2024.

The increase was partially offset by dividends paid of $4.7 million.

3 unchanged sentences

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

Total loans before deferred loan fees and the ACL-Loans were $2.7 billion at June 30, 2024 and $2.7 billion at December 31, 2023.

Total gross loans decreased $61.4 million as of June 30, 2024 compared to the year ended December 31, 2023.

Total loans before deferred loan fees and the ACL-Loans were $2.6 billion at September 30, 2024 and $2.7 billion at December 31, 2023.

Total gross loans decreased $95.4 million as of September 30, 2024 compared to the year ended December 31, 2023.

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

(In thousands) At June 30, 2024

At December 31, 2023

(In thousands) At September 30, 2024 At December 31, 2023 Change

Real estate loans:

6 unchanged sentences

Total loans $ 2,623,205 $ 2,718,607 $ (95,402)

The following table compares the composition of our commercial real estate loan portfolio by non-owner occupied and owner occupied loans at June 30, 2024 and December 31, 2023:

At June 30, 2024

The following table compares the composition of our commercial real estate loan portfolio by non-owner occupied and owner occupied loans at September 30, 2024 and December 31, 2023:

At September 30, 2024

At December 31, 2023

6 unchanged sentences

$ 1,886,742 100.0 % $ 1,946,906 100.0 % $ (60,164)

(1) Excl udes the negative fair value effect of the portfolio layer swap of $779 thousand and the positive fair value effective of the portfolio layer swap of $742 thousand for Commercial Real Estate at June 30, 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 June 30, 2024 :

(1) Excl udes the positive fair value effect of the portfolio layer swap of $1,200 thousand and the positive fair value effect of the portfolio layer swap of $742 thousand for Commercial Real Estate at September 30, 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 September 30, 2024:

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

12 unchanged sentences

$ 536,553 $ 257,184 $ 199,188 $ 98,241 $ 319,219 $ 87,617 $ 83,453 $ 305,287 $ 1,886,742

(1) Excludes the negative fair value effect of the portfolio layer swap of $779 thousand for Commercial Real Estate at June 30, 2024.

(1) Excludes the positive fair value effect of the portfolio layer swap of $1,200 thousand for Commercial Real Estate at September 30, 2024.

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

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

As of June 30, 2024, the Bank had $188.6 million of loans collateralized by offices, which represented 9.9% of the total loan portfolio.

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

91.0% of this portfolio was pass rated, and there were three relationships totaling $16.9 million on nonaccrual status.

As of June 30, 2024, we had $284.6 million of loans collateralized by multifamily properties, which represented 14.9% of the total loan portfolio.

100% of this portfolio is pass rated and current.

These properties are all located in Connecticut, New York, or New Jersey, with nine properties, totaling $51.8 million, located in New York City.

As of September 30, 2024, the Bank had $166.1 million of loans collateralized by offices, which represented 6.3% of the total loan portfolio.

Most of the properties in this portfolio are in suburban locations.

96.7% of this portfolio was pass rated, and there were two relationships totaling $5.5 million on nonaccrual status.

As of September 30, 2024, we had $284.6 million of loans collateralized by multifamily properties, which represented 10.9% of the total loan portfolio.

These properties are all located in Connecticut, New York, Pennsylvania, or New Jersey, with nine properties, totaling $51.7 million, located in New York City.

78.9% of the New York City exposure is located in Brooklyn, 11.6% in Manhattan and the remaining 9.5% in Queens.

The following table presents an analysis of the commercial real estate portfolio's loan to value at origination and by property type as of June 30, 2024 .

The following table presents an analysis of the commercial real estate portfolio's loan to value at origination and by property type as of September 30, 2024.

Commercial Real Estate Total CRE Portfolio (1)

12 unchanged sentences

All other (3)

62,964 3.3 62.1

Total $ 1,886,742 100.0 % 61.1 %

(1) Excludes the negative fair value effect of the portfolio layer swap of $779 thousand for Commercial Real Estate at June 30, 2024.

(1) Excludes the positive fair value effect of the portfolio layer swap of $1,200 thousand for Commercial Real Estate at September 30, 2024.

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

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

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 teams.

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

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.

Nonperforming assets .

1 unchanged sentence

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

(In thousands) At June 30, 2024

At December 31, 2023

(In thousands) At September 30, 2024 At December 31, 2023

Nonaccrual loans:

12 unchanged sentences

Total past due loans to total gross loans 2.48 % 0.78 %

Nonaccrual loans totaled $56.2 million at June 30, 2024 and $49.2 million at December 31, 2023.

The increase was primarily due to a $13.9 million commercial real estate non-owner occupied office loan put on nonaccrual during the six months ended June 30, 2024.

This loan represents a 16.5% participation in a $84.3 million club transaction.

The increase was partially offset by the payoff of two loans totaling $4.4 million and four loans that were partially charged-off for a total of $4.0 million during the six months ended June 30, 2024.

Of the $56.2 million total nonaccrual loans, $8.2 million, or 14.6%, are SBA-guaranteed.

There was no Other Real Estate Owned ("OREO") at June 30, 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.

Nonperforming assets totale d $65.5 million and represented 2.07% of total assets at September 30, 2024, compared to $49.2 million and 1.53% of total assets at December 31, 2023.

Nonaccrual loans totaled $65.5 million at September 30, 2024 and $49.2 million at December 31, 2023.

Nonaccrual loans were $56.2 million as of June 30, 2024.

The increase in nonaccrual loans compared to June 30, 2024 was primarily due to a $27.1 million 1 commercial real estate multi-family loan that was placed on nonaccrual in the third quarter of 2024.

The increase was partially offset by two loans that were partially charged-off for a total of $15.4 million and two loans that were paid off totaling $4.7 million in the third quarter of 2024.

As of November 6, 2024, the Company has a signed agreement for the sale of this loan at par value.

As of September 30, 2024, this loan comprises 1.03% of the 2.50% nonperforming loans as a percentage of total loans.

There was no Other Real Estate Owned ("OREO") at September 30, 2024 or December 31, 2023.

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.

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.

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.

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 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 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

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(Dollars in thousands) 2024 2023 2024 2023

6 unchanged sentences

Consumer (17) (32) (78) (69)

Construction (616) — (616) —

Total charge-offs (15,827) (32) (20,054) (508)

3 unchanged sentences

Consumer 1 20 18 35

Construction — — — —

Total recoveries 980 55 1,278 103

Net (charge-offs) recoveries (14,847) 23 (18,776) (405)

Provision for credit losses - loans 8,368 2,678 12,066 3,612

Provision (credit) for credit losses - loans 6,516 (1,433) 18,582 2,179

Balance at end of period $ 27,752 $ 29,284 $ 27,752 $ 29,284

1 unchanged sentence

ACL-Loans to total gross loans 1.06 % 1.06 % 1.06 % 1.06 %

At June 30, 2024, our ACL-Loans was $36.1 million and represented 1.36% of total gross loans, compared to $27.9 million or 1.03% of total gross loans, at December 31, 2023.

At September 30, 2024 , our ACL-Loans was $27.8 million and represented 1.06% 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:

June 30, 2024

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

At September 30, 2024 At December 31, 2023

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

Residential real estate $ 102 0.38 % 1.74 % $ 149 0.53 % 1.87 %

4 unchanged sentences

Total ACL-Loans $ 27,752 100.00 % 100.00 % $ 27,946 100.00 % 100.00 %

The allocation of the ACL-Loans at June 30, 2024 reflects our assessment of credit risk and probable loss within each portfolio.

We believe that the level of the ACL-Loans at June 30, 2024 is appropriate to cover probable losses.

The allocation of the ACL-Loans at September 30, 2024 reflects our assessment of credit risk and probable loss within each portfolio.

We believe that the level of the ACL-Loans at September 30, 2024 is appropriate to cover probable losses.

ACL- Unfunded Commitments

3 unchanged sentences

Investment Securities

At June 30, 2024, the carrying value of our investment securities portfolio totaled $138.0 million and represented 4.4% 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 June 30, 2024 was $6.7 million and included gross unrealized gains of $1.7 million.

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

At September 30, 2024, the carrying value of our investment securities portfolio totaled $145.9 million and represented 4.6% 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 September 30, 2024 was $2.4 million and included gross unrealized gains of $3.0 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

June 30, 2024

December 31, 2023

September 30, 2024 December 31, 2023

(Dollars in thousands) Amount Percent Amount Percent

5 unchanged sentences

Total deposits $ 2,688,171 100.00 % $ 2,736,757 100.00 %

Tota l deposits were $2.7 billion at June 30, 2024, a decrease of $74.4 million , from t he balance at December 31, 2023.

Brokered certificates of depo sits totaled $755.5 million at June 30, 2024 and $860.5 million at December 31, 2023, respectively.

Brokered money market accounts tota led $52.1 million at June 30, 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 June 30, 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 June 30, 2024, our FDIC insured deposits were $1,940.0 million, or 73% of total deposits.

Additionally, deposits totaling $89.2 million, or 3% of total deposits, are insured by standby letters of credit with the Federal Home Loan Bank of Boston.

At June 30, 2024 and December 31, 2023, time deposits with a denomination of $100 thousand or more, including CDARS and brokered deposits, totaled $1,161.8 million and $1,199.7 million, respectively, maturing during the periods indicated in the table below:

(Dollars in thousands) June 30, 2024

December 31, 2023

Total deposits were $2.7 billion at September 30, 2024, a decrease of $48.6 million, from the balance at December 31, 2023.

Brokered certificates of deposits totaled $730.6 million at September 30, 2024 and $860.5 million at December 31, 2023.

There were no certificates of deposits from national listing services at September 30, 2024 or December 31, 2023.

Brokered money market accounts totaled $52.9 million at September 30, 2024 and $91.4 million at December 31, 2023.

As of September 30, 2024, our FDIC insured deposits were $2.0 billion, or 75% of total deposits.

Additionally, $116.1 million of deposits, or 4% of total deposits, are insured by standby letters of credit with the Federal Home Loan Bank of Boston.

At September 30, 2024 and December 31, 2023, time deposits with a denomination of $100 thousand or more, including CDARS and brokered deposits, totaled $1.2 billion and $1.2 billion, respectively, maturing during the periods indicated in the table below:

(Dollars in thousands) September 30, 2024 December 31, 2023

Within 3 months $ 378,970 $ 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 w ere $90.0 million at both June 30, 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.

Total FHLB advances were $90.0 million at September 30, 2024 and December 31, 2023, respectively.

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

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

At June 30, 2024, the Bank had pledged $815.2 million of eligible loans as collateral to support borrowing capacity at the FHLB.

As of June 30, 2024, the Bank had immediate availability to borrow an additional $334.7 million from the FHLB based on qualified collateral.

At June 30, 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 June 30, 2024 is summarized below:

June 30, 2024

At September 30, 2024, the Bank had pledged $762.8 million of eligi ble loans as collateral to support borrowing capacity at the FHLB of Boston.

As of September 30, 2024, the Bank had immediate availability to borrow an additional $280.0 million based on qualified collateral.

At September 30, 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 September 30, 2024 is summarized below:

September 30, 2024

Total Letter or Line of Credit Total Outstanding

19 unchanged sentences

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.

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 dividends paid of $4.7 million.

1 unchanged sentence

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 June 30, 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 June 30, 2024, the Bank’s ratio of Common Equity Tier 1 capital to risk-weighted asset s was 11.67%, total capital to risk-weighted assets was 11.67%, Tier 1 capital to risk-weighted assets was 12.92% and Tier 1 capital to average assets was 10.17%.

At June 30, 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 th e regulatory framework for prompt corrective action.

At June 30, 2024, the Company’s ratio of Common Equity Tier 1 capital to risk-weighted assets was 9.56%, total capital to risk-weighted assets was 9.56%, Tier 1 capital to risk-weighted assets was 13.30% and Tier 1 capital to average assets was 8.34%.

At September 30, 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 regulatory framework for prompt corrective action.

At September 30, 2024, the Bank’s ratio of Common Equity Tier 1 capital to risk-weighted assets was 11.80%, total capital to risk-weighted assets was 12.83%, Tier 1 capital to risk-weighted assets was 11.80% and Tier 1 capital to average assets was 10.24%.

At September 30, 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 th e regulatory framework for prompt corrective action.

At September 30, 2024,

the Company’s ratio of Common Equity Tier 1 capital to risk-weighted assets was 9.70%, total capital to risk-weighted assets was 13.26%, Tier 1 capital to risk-weighted assets was 9.70% and Tier 1 capital to average assets was 8.44%.

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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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 June 30, 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 June 30, 2024 and December 31, 2023:

As of September 30, 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 September 30, 2024 and December 31, 2023:

Parallel Ramp Estimated Percent Change in Net Interest Income

Rate Changes (basis points) June 30, 2024 December 31, 2023

Rate Changes (basis points) September 30, 2024 December 31, 2023

-100 1.00 % 1.70 %

1 unchanged sentence

Parallel Shock Estimated Percent Change in Net Interest Income

Rate Changes (basis points) June 30, 2024 December 31, 2023

Rate Changes (basis points) September 30, 2024 December 31, 2023

-100 0.50 % 3.60 %

2 unchanged sentences

+300 (2.70) (8.10)

The net interest income at risk simulation results indicate that, as of June 30, 2024, we remain liability sensitive.

The net interest income at risk simulation results indicate that, as of September 30, 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.

10 unchanged sentences

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

Rate Changes (basis points) June 30, 2024 December 31, 2023

Rate Changes (basis points) September 30, 2024 December 31, 2023

-100 2.50 % 2.70 %

13 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis