What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-05 compared with 2024-03-12 · 115 added, 116 removed, 893 unchanged (21% of the section changed)

27 unchanged sentences

At or For the Years Ended December 31,

2023 2022 2021 2020 (g)

2024 2023 2022 2021 2020 (f)

(Dollars in thousands, except per share data)

3 unchanged sentences

Net interest income 83,282 94,468 94,743 67,886 54,835

Provision (credit) for loan losses 866 5,437 (57) 7,605 437

Net interest income after provision for loan losses 93,602 89,306 67,943 47,230 53,324

Provision (credit) for credit losses 22,620 866 5,437 (57) 7,605

Net interest income after provision for credit losses 60,662 93,602 89,306 67,943 47,230

Noninterest income 3,718 4,842 3,040 5,657 2,884

10 unchanged sentences

35.09 34.50 31.39 26.19 22.43

Dividend payout ratio (f)

Dividend payout ratio (b)(e)

65.04 % 17.13 % 16.70 % 19.05 % 74.67 %

4 unchanged sentences

Performance Ratios:

Return on average assets (c)

Return on average assets (b)

0.31 % 1.13 % 1.44 % 1.17 % 0.28 %

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Average shareholders’ equity to average assets 8.48 % 7.74 % 8.61 % 8.46 % 8.36 %

Net interest margin 2.98 % 3.78 % 3.17 % 2.77 % 3.03 %

Net interest margin (b)

2.70 % 2.98 % 3.78 % 3.17 % 2.77 %

Efficiency ratio (b)

1 unchanged sentence

Asset Quality Ratios:

Total past due loans to total loans (d)

Total past due loans to total loans (c)

1.63 % 0.78 % 0.60 % 1.72 % 0.93 %

Nonperforming loans to total loans (d)

Nonperforming loans to total loans (c)

1.97 % 1.81 % 0.61 % 0.88 % 2.06 %

Nonperforming assets to total assets (e)

Nonperforming assets to total assets (d)

1.88 % 1.53 % 0.51 % 0.68 % 1.48 %

ACL-Loans to nonperforming loans 54.45 % 56.79 % 136.43 % 101.90 % 62.87 %

ACL-Loans to total loans (d)

ACL-Loans to total loans (c)

1.07 % 1.03 % 0.84 % 0.89 % 1.29 %

Net charge-offs (recoveries) to average loans (d)

Net charge-offs (recoveries) to average loans (b)(g)

0.81 % 0.03 % — % 0.23 % 0.01 %

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Total assets $ 3,268,476 $ 3,215,482 $ 3,252,449 $ 2,456,264 $ 2,253,747

Gross portfolio loans (d)

Gross portfolio loans (c)

2,705,888 2,718,607 2,675,448 1,894,881 1,625,627

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

(d) Calculated using the principal amounts outstanding on loans.

(e) Nonperforming assets consist of nonperforming loans and other real estate owned.

(f) The dividend payout ratio is the dividends per share divided by diluted earnings per share.

(g) Performance ratios for the year ended December 31, 2020 were negatively impacted by incremental COVID-19 pandemic related loan loss reserves and a $3.9 million one-time charge related to office consolidation, vendor contract termination and employee severance costs recognized in the fourth quarter of 2020.

(d) Nonperforming assets consist of nonperforming loans and other real estate owned.

(e) The dividend payout ratio is the dividends per share divided by diluted earnings per share.

(f) Performance ratios for the year ended December 31, 2020 were negatively impacted by incremental COVID-19 pandemic related loan loss reserves and a $3.9 million one-time charge related to office consolidation, vendor contract termination and employee severance costs recognized in the fourth quarter of 2020.

(g) Return on average assets is calculated by dividing net income by average assets.

Return on average shareholders' equity is calculated by dividing net income by average shareholders' equity.

Net loan charge-offs as a percentage of average loans is calculated by dividing net loan (charge offs) recoveries by average total loans.

NON-GAAP FINANCIAL MEASURES

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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 and a community focus;

• Organic growth and strategic acquisitions when market opportunities present themselves;

• Utilization of efficient and scalable infrastructure;

• Disciplined focus on risk management.

We strive to be the preferred banking provider, offering a compelling alternative to larger institutions.

Our strategy rests on our competitive strengths:

• Strategic Market Reach:

While we serve our client base within 100 miles of our branch network, we also selectively pursue commercial banking opportunities beyond this radius, leveraging established business relationships and technology to support our clients’ growth.

• Experienced Leadership:

Our Executive Management Team brings a proven track record of success and deep industry expertise.

• Dedicated Board of Directors:

Our Board combines valuable expertise with close community ties, ensuring we understand and respond to local needs and are positioned to capitalize on market opportunities.

• Disciplined Risk Management:

We employ a robust and proactive risk management framework to safeguard assets, ensure regulatory compliance, and support sustainable growth.

• Strong Capital Position:

Our capital position has facilitated our growth and is integral to the execution of our business plan, and;

• Scalable Operating Platform:

Designed for efficiency and scalability, our platform supports our growth and provides a seamless customer experience.

Key Financial Measures

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87,000 99,310

Net interest income before provision for loan losses 94,468 94,743

Net interest income before provision for credit losses 83,282 94,468

Income before income tax expense 13,329 48,043

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3.60 % 14.55 %

Net interest margin 2.98 % 3.78 %

Net interest margin (c)

2.70 % 2.98 %

Efficiency ratio (c)

3 unchanged sentences

Net charge-offs to average loans (b)

0.81 % 0.03 %

Nonperforming assets to total assets (e)

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

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

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

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

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

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

Qualitative loss factors are based on the Company’s judgment of market, changes in loan composition or

concentrations, performance trends, regulatory changes, uncertainty of macroeconomic forecasts, and other asset specific risk characteristics.

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

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

The Company also individually evaluates all insurance premium loans.

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

The Company also individually evaluates all insurance premium loans as well as a cash-secured loan to an individual.

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

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

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

The Company entered into one pay-fixed portfolio layer method fair value swap, designated as a hedging instrument, with a total notional amount of $ 150 million in the first quarter of 2023.

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

The Company designated the fair value swap under the portfolio layer method.

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The Company’s private placement municipal housing authority bonds, classified as held to maturity, have no available quoted market price.

The fair value for these securities is estimated using a discounted cash flow model.

fair value for these securities is estimated using a discounted cash flow model.

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

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

Effective January 1, 2023, pursuant to ASU No.

Pursuant to ASU No.

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

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Our returns on average shareholders' equity and average assets for the year ended December 31, 2024, were 3.60% and 0.31%, respectively, compared to 14.55% and 1.13%, respectively for the year ended December 31, 2023.

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

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

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

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

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

Revenue s (net interest income plus noninterest income) for the year ended December 31, 2024 were $87.0 million, versus $99.3 million for the year ended December 31, 2023.

The decrease in revenues for the year ended December 31, 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 due to higher loan yields and prepayment fees.

Net income for the year ended December 31, 2024 was $9.8 million, versus $36.7 million for the year ended December 31, 2023.

The decrease in net income for the year ended December 31, 2024 was mainly due to an increase in provision for credit losses and the aforementioned decrease in revenues partially offset by a decrease in income tax expense.

Net interest income for the year ended December 31, 2024 was $83.3 million, a decrease of $11.2 million compared to the year ended December 31, 2023.

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

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

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

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

Average interest earning assets were $3.2 billion for the year ended December 31, 2023, increasing by $663.5 million, or 26.4%, from the year ended December 31, 2022.

The average balance of total loans increased $599.6 million, or 27.9%.

FTE net interest income for the years ended Dece mber 31, 2024 and 2023 was $83.7 million and $94.7 million, respectively.

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

FTE basi s interest income for the year ended December 31, 2024 increased $3.7 million, or 2.0%, to $192.4 million compared to FTE basis interest income for the year ended December 31, 2023 due primarily to an increase in commercial real estate loans.

Average interest earning assets were $3.1 billion for the year ended December 31, 2024, decreasing by $72.4 million, or 2.3%, from the year ended December 31, 2023.

The average balance of total loans decreased $79.2 million, or 2.9%.

The total average balance of securities for the year ended December 31, 2024 increased by $13.0 million, or 10.0, from the year ended December 31, 2023.

The total yield in earnings assets increased to 6.09% at December 31, 2024, compared to 5.86% at December 31, 2023.

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

The increase in earning asset yield was primarily driven by higher yields on loans, as well as higher yields on our cash and securities balances as a result of the overall higher interest rate environment in 2024.

Interest expense for the year ended December 31, 2024 increased by $14.7 million, or 15.7%, compared to interest expense for the year ended December 31, 2023 due to an interest expense on deposits, resulting from an increase in rates paid on interest bearing deposits.

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Change in net interest income $ (3,717) $ (7,293) $ (11,010)

Provision for Loan Losses

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

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

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

Provision for Credit Losses

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

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

The provision for credit losses for the year ended December 31, 2024 was $22.6 million compared to a $0.9 million provision for credit losses for the year ended December 31, 2023.

The increase in the provision for credit losses during the year was primarily due to net charge offs.

Noninterest Income

6 unchanged sentences

Service charges and fees 1,963 1,629 334 21

Other 49 (337) 386 Favorable

Other (124) 49 (173) Unfavorable

Total noninterest income $ 3,718 $ 4,842 $ (1,124) (23) %

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

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

Noninterest income decreased by $1.1 million to $3.7 million for the year ended December 31, 2024, compared to the year ended December 31, 2023.

The decrease for the year ended December 31, 2024 was mainly driven by a decrease in gains on SBA loan sales partially offset by an increase in service charges and fees.

Noninterest Expense

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Noninterest expense increased by $0.7 million, or 1.3%, to $51.1 million for the year ended December 31, 2024 compared to the year ended December 31, 2023.

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

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

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

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

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

The increase in noninterest expense was primarily driven by increases in professional services and occupancy and equipment costs, partially offset by decreases in salaries and employee benefits and FDIC insurance expense due to reduced brokered deposit balances.

Income tax expense for the years ended December 31, 2024 and 2023 totaled $3.6 million and $11.4 million, respectively.

The effective tax rates for the years ended December 31, 2024 and 2023, were 26.7% and 23.7%, respectively.

O ur net deferred tax asset at December 31, 2023 was $9.4 million, compared to $7.4 million at December 31, 2022.

Our net deferred tax asset at December 31, 2024 was $9.7 million, compared to $9.4 million at December 31, 2023.

On October 8, 2015, the Bank established a wholly-owned subsidiary, Bankwell Loan Servicing Group, Inc.

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Assets totaled $3.3 billion at December 31, 2024, compared to assets of $3.2 billion at December 31, 2023.

The increase in assets was primarily due to loan growth.

Gross loans totaled $2.7 billion at December 31, 2023, an increase of $43.2 million or 1.6% compared to December 31, 2022.

Gross loans totaled $2.7 billion at December 31, 2024, compared to gross loans of $2.7 billion at December 31, 2023.

Deposits totaled $2.8 billion at December 31, 2024, compared to deposits of $2.7 billion at December 31, 2023.

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

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

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

Shareholders’ equity totaled $270.5 million as of December 31, 2024, an increase of $4.8 million compared to December 31, 2023, primarily a result of net income of $9.8 million for the year ended December 31, 2024.

The increase was partially offset by dividends paid of $6.3 million.

Loan Portfolio

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Residential real estate loans decreased by $8.2 million, or 16.0%, at December 31, 2024 compared to December 31, 2023 and amounted to $42.8 million, representing 2% of total loans at December 31, 2024.

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

The Bank ceased originating residential mortgage loans in 2017.

Commercial real estate.

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

Commercial real estate loans were $1.9 billion and represented 70% of our total loan portfolio at December 31, 2024, a net decrease of $48.5 million, or 2.5%, from December 31, 2023.

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

8 unchanged sentences

$ 1,898,915 100.00 % $ 1,946,906 100.00 % $ (47,991)

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

(1) Excludes the positive fair value effect of the portfolio layer swap of $219 thousand and $742 thousand for Commercial Real Estate at December 31, 2024 and 2023, respectively.

Construction.

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

Construction loans were $173.6 million at December 31 2024, a decrease of $9.9 million, or 5.4%, from December 31, 2023.

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

Commercial business.

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

Commercial business loans were $515.1 million and represented 19.0% of our total loan portfolio at December 31, 2024, a net increase of $14.6 million, or 2.9%, from December 31, 2023.

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

Consumer loans.

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

Consumer loans wer e $75.3 million and represented 2.8% of our total loan portfolio as of December 31, 2024, an increase of $39.3 million, or 108.9%.

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

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

Current environment

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

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

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

• added resources in the Portfolio Management Department;

In response to the recent economic environment, the Company adopted expanded monitoring and reporting on our loan portfolio, including:

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

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

3 unchanged sentences

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

In addition to the enhancements made to monitoring and reporting, the Company has added resources to its Portfolio Management and Credit Departments.

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

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As of December 31, 2024 , the Bank had $160.4 million of loans collateralized by offices, which represented 5.9% of the total loan portfolio.

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

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

96.6% of this portfolio was pass rated, and there were two relationships totaling $5.5 million on nonaccrual status.

We also performed an additional review of our multifamily exposure.

W e also performed an additional review of our multifamily exposure.

As of December 31, 2024, we had $283.6 million of loans collateralized by multifamily properties, which represented 10.5% of the total loan portfolio.

100% of the portfolio is pass rated.

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

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

89.0% of the portfolio is pass rated, and there was one relationship totaling $27.1 million on nonaccrual status.

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

Nine properties totaling $51.6 million, with an average balance of $5.7 million, ar e in New York City.

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

Commercial Real Estate Total CRE Portfolio (1)

Percentage of Total CRE Portfolio Loan to Value %

Percentage of Total CRE Portfolio Loan to Value at Origination %

(Dollars in thousands)

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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 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.

In addition, adverse changes in the economy or in a borrower's business 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.

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

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

Disciplined underwriting, portfolio monitoring and early problem recognition, together with active management of any problem credits, are import ant aspects of maintaining our high credit quality standards.

Acquired Loans .

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

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

Nonperforming Assets .

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Total nonaccrual loans were $53.3 million as of December 31, 2024.

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

Nonperforming assets as a percentage of total assets was 1.88% at December 31, 2024, when compared to 1.53% at December 31, 2023.

The ACL-Loans at December 31, 2024 was $29.0 million, representing 1.07% of total loans.

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Total loans $ 6,763 $ 3,150 $ 11,365 $ 21,278

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

Total pa st due loans totaled $44.1 million and represented 1.63% of total loans as of December 31, 2024, increasing $22.8 million from December 31, 2023.

Modifications .

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

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

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

There were no nonaccrual loans modified during the years ended December 31, 2024 and 2023 .

The following table presents information on modified loans:

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We cannot predict the extent to which economic conditions or other factors may impact borrowers and the potential problem loans.

Accordingly, there can be no assurance that other loans will not become 90 days or more past due, be placed on nonaccrual, become restructured, or require increased allowance coverage and provision for loan losses.

Potential problem loans are assessed for loss exposure using the methods described in Note 5 to our Consolidated Financial Statements under the caption “Credit Quality Indicators”.

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Balance at end of period $ 29,007 $ 27,946

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

Net charge-offs or (recoveries) to average loans 0.81 % 0.03 %

ACL-Loans to total loans

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At December 31, 2024, our ACL-Loans was $29.0 million and represented 1.07% of total loans, compared to $27.9 million, or 1.03% of total loans at December 31, 2023.

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

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

The carrying amount of total individually evaluated loans at December 31, 2024 was $113.9 million.

This compares to a carrying amount of $105.0 million for total individually evaluated loans at December 31, 2023.

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

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

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Total securities held to maturity $ 36,553 $ 36,691 $ 15,817 $ 15,903

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

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

At December 31, 2024, the carrying value of our investment securities portfolio totaled $146.1 million and represented 4% of total assets, compared to $127.6 million and 4% of total assets at December 31, 2023.

The increase of $18.5 million primarily reflects purchases of held to maturity securities.

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

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

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

The net unrealized losses on our investment portfolio at December 31, 2024 was $4.9 million and included $1.3 million of gross unrealized gains.

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

The following tables summarize the amortized cost and weighted average yield of securities in our investment securities portfolio as of December 31, 2024 and 2023, based on remaining period to contractual maturity.

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Total deposits $ 2,787,570 100.00 % 4.27 % $ 2,736,757 100.00 % 3.59 %

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

Total deposits were $2.8 billion at December 31, 2024, an increase of $50.8 million, or 2%, from December 31, 2023.

Brokered certificates of deposits ("Brokered CDs") to taled $651.5 million a nd $860.5 million at December 31, 2024 and December 31, 2023, respectively.

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

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

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

At December 31, 2024, the Bank had pledged $742.6 million of eligible loans as collateral to support borrowing capacity at the FHLB of Boston.

As of December 31, 2024, the Bank had immediate availability to borrow an additional $266.1 million ba sed on qualified collateral.

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

7 unchanged sentences

3.91 % 3.24 %

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

(1) In 2023, $50 million of the Company's FHLB borrowings were subject to longer term interest rate swap agreements and the average rate reflects the "all-in" swap costs under these agreements.

On October 14, 2021, the Company completed a private placement of a $35.0 million fixed-to-floating rate subordinated note (the “2021 Note”) to an institutional accredited investor.

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

The Company entered into one pay-fixed portfolio layer method fair value swap, designated as a hedging instrument, with a total notional amount of $150 million in the first quarter of 2023.

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

The Company designated the fair value swap under the portfolio layer method.

22 unchanged sentences

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

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

Derivatives not designated as hedging instruments:

18 unchanged sentences

Shareholders’ equity totaled $270.5 million as of December 31, 2024, an increase of $4.8 million compared to December 31, 2023, primarily a result of (i) net income of $9.8 million for the year ended December 31, 2024.

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

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

The increase was partially offset by dividends paid of $6.3 million.

As of December 31, 2024, the tangible common equity ratio and tangible book value per share were 8.20% and $35.09, respectively.

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

The Bank and the Company are subject to various regulatory capital requirements administered by the fed eral 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 December 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 regulatory framework.

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

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

At December 31, 2024, the Bank’s ratio of total common equity tier 1 capital to risk-weighted assets was 11.64%, total capital to risk-weighted assets was 12.70%, Tier 1 capital to risk-weighted assets was 11.64% and Tier 1 capital to average assets was 10.09%.

At December 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 th e regulatory framework for prompt corrective action.

At December 31, 2024, the Company’s ratio of Common Equity Tier 1 capital to risk-weighted assets was 9.60%, total capital to risk-weighted assets was 13.14%, Tier 1 capital to risk-weighted assets was 9.60% and Tier 1 capital to average assets was 8.34%.

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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The Bank minimizes its exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures.

Commitments to extend credit t otaled $333.5 million and $561.0 million, respectively at December 31, 2023 and 2022.

The following table summarizes our commitments to e xtend credit as of the dates indicated.

Commitments to extend credit t otaled $453.5 million at December 31, 2024.

The following table summarizes our commitments to e xtend credit as of the date indicated.

Since commitments associated with letters of credit and commitments to extend credit may expire unused, the amounts shown do not necessarily reflect the actual future cash funding requirements.

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We manage our liquidity in light of the aggregate amounts of commitments to extend credit and outstanding standby letters of credit in effect from time to time to ensure that we will have adequate sources of liquidity to fund such commitments and honor drafts under such letters of credit.

As of December 31, 2023

Amount of Commitment Expiration per Period

Total Less Than

(in thousands)

Other Commitments:

Loan commitments $ 236,878 $ 169,358 $ 5,755 $ 58,319 $ 3,446

Undisbursed construction loans 93,653 — 39,863 7,045 46,745

Unused home equity lines of credit 2,952 — — — 2,952

Total other commitments $ 333,483 $ 169,358 $ 45,618 $ 65,364 $ 53,143

Loan pipeline, while not legally binding, represents the Company's future potential funding obligations which are currently in an advanced stage of underwriting and are subject to various conditions before disbursement.

Loans in the pipeline are typically short-term, usually within 90 days.

As of December 31, 2024

3 unchanged sentences

Other Commitments:

Loan pipeline $ 218,612 $ 218,612 $ — $ — $ —

Loan commitments $ 173,203 $ 105,043 $ 56,806 $ 250 $ 11,104

5 unchanged sentences

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

What changed 10-K

Item 7. Management’s Discussion and Analysis