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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2024

or

    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________to________

Commission File Number: 001-36448
Bankwell Financial Group, Inc.
(Exact Name of Registrant as specified in its Charter)
Connecticut20-8251355
(State or other jurisdiction of(I.R.S. Employer
Incorporation or organization)Identification No.)
258 Elm Street
New Canaan, Connecticut 06840
(203) 652-0166
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which
Registered
Common Stock, no par value per
share

BWFG
NASDAQ Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). þ Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

1


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes þ No

As of October 30, 2024, there were 7,858,573 shares of the registrant’s common stock outstanding.
2


Bankwell Financial Group, Inc.
Form 10-Q

Table of Contents
Certifications
3


PART 1 – FINANCIAL INFORMATION
Item 1. Financial Statements
Bankwell Financial Group, Inc.
Consolidated Balance Sheets - (unaudited)
(In thousands, except share data)
September 30, 2024December 31, 2023
ASSETS
Cash and due from banks$275,829 $267,521 
Federal funds sold15,508 1,636 
Cash and cash equivalents291,337 269,157 
Investment securities
Marketable equity securities, at fair value2,148 2,070 
Available for sale investment securities, at fair value108,866 109,736 
Held to maturity investment securities, at amortized cost (fair values of $37,125 and $15,903 at September 30, 2024 and December 31, 2023, respectively)
34,886 15,817 
Total investment securities145,900 127,623 
Loans receivable (net of ACL-Loans of $27,752 at September 30, 2024 and $27,946 at December 31, 2023)
2,591,551 2,685,301 
Accrued interest receivable14,714 14,863 
Federal Home Loan Bank stock, at cost5,655 5,696 
Premises and equipment, net24,780 27,018 
Bank-owned life insurance52,443 51,435 
Goodwill2,589 2,589 
Deferred income taxes, net9,300 9,383 
Other assets22,811 22,417 
Total assets$3,161,080 $3,215,482 
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest bearing deposits$295,552 $346,172 
Interest bearing deposits2,392,619 2,390,585 
Total deposits2,688,171 2,736,757 
Advances from the Federal Home Loan Bank90,000 90,000 
Subordinated debentures (face value of $70,000 and $70,000 at September 30, 2024 and December 31, 2023, respectively, less unamortized debt issuance costs of $611 and $795 at September 30, 2024 and December 31, 2023, respectively)
69,389 69,205 
Accrued expenses and other liabilities45,594 53,768 
Total liabilities2,893,154 2,949,730 
Commitments and contingencies
Shareholders' equity
Common stock, no par value; 10,000,000 shares authorized, 7,858,573 and 7,882,616 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively
118,429 118,247 
Retained earnings151,257 149,169 
Accumulated other comprehensive loss(1,760)(1,664)
Total shareholders' equity267,926 265,752 
Total liabilities and shareholders' equity$3,161,080 $3,215,482 

See accompanying notes to consolidated financial statements (unaudited)
4


Bankwell Financial Group, Inc.
Consolidated Statements of Income – (unaudited)
(In thousands, except share data)
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Interest and dividend income
Interest and fees on loans$43,596 $43,854 $129,981 $126,059 
Interest and dividends on securities1,390 1,016 3,710 3,018 
Interest on cash and cash equivalents3,205 3,393 10,460 9,983 
Total interest and dividend income48,191 48,263 144,151 139,060 
Interest expense
Interest expense on deposits25,579 23,789 75,618 61,599 
Interest expense on borrowings1,895 1,783 5,450 5,238 
Total interest expense27,474 25,572 81,068 66,837 
Net interest income20,717 22,691 63,083 72,223 
Provision (credit) for credit losses6,296 (1,579)18,162 1,826 
Net interest income after provision (credit) for credit losses14,421 24,270 44,921 70,397 
Noninterest income
Bank-owned life insurance346 303 1,008 876 
Service charges and fees575 294 1,374 941 
Gains and fees from sales of loans133 237 499 1,893 
Other102 (48)(127)3 
Total noninterest income1,156 786 2,754 3,713 
Noninterest expense
Salaries and employee benefits6,223 6,036 18,690 18,507 
Occupancy and equipment2,334 2,146 6,894 6,434 
Professional services1,142 491 3,196 2,505 
Data processing851 741 2,346 2,141 
Director fees292 362 1,498 1,207 
FDIC insurance853 1,026 2,488 3,138 
Marketing73 184 277 512 
Other1,097 1,219 3,018 3,093 
Total noninterest expense12,865 12,205 38,407 37,537 
Income before income tax expense2,712 12,851 9,268 36,573 
Income tax expense786 3,074 2,461 8,434 
Net income$1,926 $9,777 $6,807 $28,139 
Earnings Per Common Share:
Basic$0.24 $1.25 $0.86 $3.61 
Diluted$0.24 $1.25 $0.86 $3.58 
Weighted Average Common Shares Outstanding:
Basic7,715,040 7,598,230 7,708,768 7,582,272 
Diluted7,720,895 7,633,934 7,731,454 7,646,837 
Dividends per common share$0.20 $0.20 $0.60 $0.60 

See accompanying notes to consolidated financial statements (unaudited)
5


Bankwell Financial Group, Inc.
Consolidated Statements of Comprehensive Income (Loss) – (unaudited)
(In thousands)
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Net income$1,926 $9,777 $6,807 $28,139 
Other comprehensive income:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) on available for sale securities2,684 (752)2,866 (1,941)
Reclassification adjustment for gains realized in net income    
Net change in unrealized gains (losses)2,684 (752)2,866 (1,941)
Income tax (expense) benefit(634)173 (628)501 
Unrealized gains (losses) on securities, net of tax2,050 (579)2,238 (1,440)
Unrealized (losses) gains on interest rate swaps:
Unrealized (losses) gains on interest rate swaps(2,429)1,001 (3,012)205 
Income tax benefit (expense)575 (230)678 (100)
Unrealized (losses) gains on interest rate swaps, net of tax(1,854)771 (2,334)105 
Total other comprehensive income (loss), net of tax196 192 (96)(1,335)
Comprehensive income$2,122 $9,969 $6,711 $26,804 

See accompanying notes to consolidated financial statements (unaudited)
6


Bankwell Financial Group, Inc.
Consolidated Statements of Shareholders' Equity - (unaudited)
(In thousands, except share data)

Number of Outstanding SharesCommon StockRetained EarningsAccumulated Other Comprehensive (Loss) IncomeTotal
Balance at June 30, 20247,866,499 $118,037 $150,895 $(1,956)$266,976 
Net income— — 1,926 — 1,926 
Other comprehensive income, net of tax— — — 196 196 
Cash dividends declared ($0.20 per share)
— — (1,564)— (1,564)
Stock-based compensation expense— 623 — — 623 
Forfeitures of restricted stock(1,562)— — — — 
Issuance of restricted stock3,306 — — — — 
Repurchase of common stock(9,670)(231)— — (231)
Balance at September 30, 20247,858,573 $118,429 $151,257 $(1,760)$267,926 

Number of Outstanding SharesCommon StockRetained EarningsAccumulated Other Comprehensive (Loss) IncomeTotal
Balance at June 30, 20237,829,950 $116,541 $133,988 $(1,716)$248,813 
Net income— — 9,777 — 9,777 
Other comprehensive income, net of tax— — — 192 192 
Cash dividends declared ($0.20 per share)
— — (1,560)— (1,560)
Stock-based compensation expense— 640 — — 640 
Issuance of restricted stock11,666 — — — — 
Repurchase of common stock— — — — — 
Balance at September 30, 20237,841,616 $117,181 $142,205 $(1,524)$257,862 

See accompanying notes to consolidated financial statements (unaudited)




7



Number of Outstanding SharesCommon StockRetained EarningsAccumulated Other Comprehensive (Loss) IncomeTotal
Balance at December 31, 20237,882,616 $118,247 $149,169 $(1,664)$265,752 
Net income— — 6,807 — 6,807 
Other comprehensive (loss), net of tax— — — (96)(96)
Cash dividends declared ($0.60 per share)
— — (4,719)— (4,719)
Stock-based compensation expense— 2,319 — — 2,319 
Forfeitures of restricted stock(4,262)— — — — 
Issuance of restricted stock66,209 — — — — 
Stock options exercised— — — — — 
Repurchase of common stock(85,990)(2,137)— — (2,137)
Balance at September 30, 20247,858,573 $118,429 $151,257 $(1,760)$267,926 
Number of Outstanding SharesCommon StockRetained EarningsAccumulated Other Comprehensive (Loss) IncomeTotal
Balance at December 31, 20227,730,699 $115,018 $123,640 $(189)$238,469 
Cumulative effect of change in accounting principle (ASU No. 2016-13), net of tax— — (4,893)— $(4,893)
Balance as of January 1, 2023 as adjusted
for changes in accounting principle
7,730,699 115,018 118,747 (189)$233,576 
Net income— — 28,139 — 28,139 
Other comprehensive (loss), net of tax— — — (1,335)(1,335)
Cash dividends declared ($0.60 per share)
— — (4,681)— (4,681)
Stock-based compensation expense— 2,008 — — 2,008 
Forfeitures of restricted stock(15,438)— — — — 
Issuance of restricted stock117,675 — — — — 
Stock options exercised8,680 155 — — 155 
Repurchase of common stock— — — — — 
Balance at September 30, 20237,841,616 $117,181 $142,205 $(1,524)$257,862 


See accompanying notes to consolidated financial statements (unaudited)
8


Bankwell Financial Group, Inc.
Consolidated Statements of Cash Flows – (unaudited)
(In thousands)
Nine Months Ended September 30,
20242023
Cash flows from operating activities
Net income$6,807 $28,139 
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization of premiums and discounts on investment securities131 51 
Provision for credit losses18,162 1,826 
Provision (credit) for deferred income taxes132 (114)
Change in fair value of marketable equity securities(33)49 
Depreciation and amortization2,805 2,683 
Amortization of debt issuance costs185 185 
Increase in cash surrender value of bank-owned life insurance(1,008)(876)
Gains and fees from sales of loans(499)(1,893)
Stock-based compensation2,319 2,008 
Loss on sale of premises and equipment 13 
Net change in:
Deferred loan fees(1,458)(1,048)
Accrued interest receivable148 (2,579)
Other assets(4,097)(3,206)
Accrued expenses and other liabilities(7,973)7,216 
Net cash provided by operating activities15,621 32,454 
Cash flows from investing activities
Proceeds from principal repayments on available for sale securities3,743 3,758 
Proceeds from principal repayments on held to maturity securities82 153 
Purchases of marketable equity securities(46)(37)
Purchases of held to maturity securities(19,289)(50)
Net decrease (increase) in loans73,376 (118,992)
Proceeds from sales of loans not originated for sale4,662 24,127 
Purchases of premises and equipment, net(567)(1,799)
Reduction (purchases) of Federal Home Loan Bank stock41 (480)
Net cash provided by (used in) investing activities62,002 (93,320)

See accompanying notes to consolidated financial statements (unaudited)
9


Bankwell Financial Group, Inc.
Consolidated Statements of Cash Flows - (unaudited) (Continued)
(In thousands)
Nine Months Ended September 30,
20242023
Cash flows from financing activities
Net change in time certificates of deposit$76,044 $112,899 
Net change in other deposits(124,631)(145,091)
Proceeds from exercise of options 155 
Dividends paid on common stock(4,719)(4,681)
Repurchase of common stock(2,137) 
Net cash used in financing activities(55,443)(36,718)
Net increase (decrease) in cash and cash equivalents22,180 (97,584)
Cash and cash equivalents:
Beginning of year269,157 355,679 
End of period$291,337 $258,095 
Supplemental disclosures of cash flows information:
Cash paid for:
Interest$82,911 $55,145 
Income taxes5,274 10,470 
Noncash investing and financing activities:
Net change in unrealized gains or losses on available for sale securities2,866 (1,941)
Net change in unrealized gains or losses on interest rate swaps(3,012)205 
Establishment of right-of-use asset and lease liability 597 
Transfer of loans from held-for-investment to held-for-sale4,163 22,234 

See accompanying notes to consolidated financial statements (unaudited)
10



1. Nature of Operations and Summary of Significant Accounting Policies

Bankwell Financial Group, Inc. (the "Parent Corporation") is a bank holding company headquartered in New Canaan, Connecticut. The Parent Corporation offers a broad range of financial services through its banking subsidiary, Bankwell Bank (the "Bank" and, collectively with the Parent Corporation and the Parent Corporation's subsidiaries, "we", "our", "us", or the "Company").

The Bank is a Connecticut state chartered commercial bank, founded in 2002, whose deposits are insured under the Deposit Insurance Fund administered by the Federal Deposit Insurance Corporation (“FDIC”). The Bank provides a wide range of services to clients in our market, an area encompassing approximately a 100 mile radius around our branch network. In addition, the Bank pursues certain types of commercial lending opportunities outside our market, particularly where we have strong business relationships. The Bank operates branches in New Canaan, Stamford, Fairfield, Westport, Darien, Norwalk, and Hamden, Connecticut.

Principles of consolidation

The consolidated financial statements include the accounts of the Company and the Bank, including its wholly owned passive investment company subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of estimates

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”) and general practices within the banking industry. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities as of the date of the consolidated balance sheet, and revenue and expenses for the period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the allowance for credit losses, the valuation of derivative instruments, investment securities valuation, evaluation of investment securities for other than temporary impairment and deferred income taxes valuation.

Segments

The Company has one reportable segment. All of the Company’s activities are interrelated, and each activity is dependent and assessed based on how each of the activities of the Company supports the others. For example, lending is dependent upon the ability of the Company to fund itself with deposits and borrowings while managing the interest rate and credit risk. Accordingly, all significant operating decisions are based upon analysis of the Company as one segment or unit.

Basis of consolidated financial statement presentation

The unaudited consolidated financial statements presented herein have been prepared pursuant to the rules of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q and Rule 10-01 of Regulation S-X and do not include all of the information and note disclosures required by GAAP. In the opinion of management, all adjustments (consisting of normal recurring adjustments) and disclosures considered necessary for the fair presentation of the accompanying unaudited interim consolidated financial statements have been included. Interim results are not necessarily reflective of the results that may be expected for the year ending December 31, 2024. The accompanying unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included on Form 10-K for the year ended December 31, 2023.

Significant concentrations of credit risk

Many of the Company's activities are with clients located in Connecticut and New York, with the majority of the Company's commercial real estate investor loans in Connecticut and some New York metro area counties. Declines in property values in these areas could significantly impact the Company. The Company has a significant concentration in commercial real estate loans, with a growing percentage being owner-occupied, which present a lower risk profile.

ACL-Loans and Allowance for Credit Losses-Unfunded Commitments ("ACL-Unfunded Commitments")

The ACL-Loans is measured on each loan’s amortized cost basis, excluding interest receivable, and is initially recognized upon origination or purchase of the loan, and subsequently remeasured on a recurring basis. The ACL-Loans is recognized as a contra-asset, and credit loss expense is recorded as a provision for loan losses in the consolidated statements of income. Loan
11


losses are charged off against the ACL-Loans when management believes the loan is uncollectible. Subsequent recoveries, if any, are credited to the ACL-Loans. Loans are normally placed on nonaccrual status if it is probable that the Company will be unable to collect the full payment of principal and interest when due according to the contractual terms of the loan agreement, or the loan is past due for a period of 90 days or more unless the obligation is well-secured and is in the process of collection. The Company generally does not recognize an allowance for credit losses ("ACL") on accrued interest receivables, consistent with its policy to reverse interest income when interest is 90 days or more past due.

The Company also records an ACL-Unfunded commitments, which is based on the same assumptions as funded loans and also
considers the probability of funding. The ACL is recognized as a liability, and credit loss expense is recorded as a provision for
unfunded loan commitments within the provision for credit losses in the Consolidated statements of income.

For collectively evaluated loans and related unfunded commitments, the Company utilizes software provided by a third party, which includes various models for forecasting expected credit losses, to calculate its ACL. Management selected lifetime loss rate models, utilizing CRE, C&I, and Consumer specific models, to calculate the expected losses over the life of each loan based on exposure at default, loan attributes and reasonable, supportable economic forecasts. The models selected by the Company in its ACL calculation rely upon historical losses from a broad cross section of U.S. banks that also utilize the same third party for ACL calculations. Management reviewed the third party’s analysis of the banks included in the models as part of their model development dataset and determined the Company’s loan portfolio composition by property type, balance distribution by loan age, and delinquency status are similar, which supports the use of these loss rate models. The Company also noted the third party’s model development dataset has loan concentrations that are evenly distributed across the United States, while the Company’s portfolio is mainly concentrated in the Northeast. Based on the disparate regional concentration, management determined that a select group of peer banks is necessary to scale the loss rate models to produce an ACL that is more representative of the Company’s loan portfolio. This peer-based calibration, called a "scalar", utilizes the loss rates of a subset of peer banks to appropriately scale the initial model results. These peers have been selected by the Company given their similar characteristics, such as loan portfolio composition and location, to better align the models’ results to the Company’s expected losses.

Key assumptions used in the models include portfolio segmentation, risk rating, forecasted economic scenarios, the peer scalar, and the expected utilization of unfunded commitments, among others. Our loan portfolios are segmented by loan level attributes such as loan type, size, date of origination, and delinquency status to create homogenous loan pools. Pool level metrics are calculated, and loss rates are subsequently applied to the pools as the loans have similar characteristics.

To account for economic uncertainty, the Company incorporates multiple economic scenarios in determining the ACL. The scenarios include various projections based on variables such as Gross Domestic Product, interest rates, property price indices, and employment measures, among others. The scenarios are probability-weighted based on available information at the time the calculation is conducted. As part of our ongoing governance of ACL, scenario weightings and model parameters are reviewed periodically by management and are subject to change, as deemed appropriate.

The Company also considers qualitative adjustments to expected credit loss estimates for information not already captured in the quantitative loss estimation models. Qualitative factor adjustments may increase or decrease management’s estimate of expected credit losses. Qualitative loss factors are based on the Company’s judgment of market, changes in loan composition or concentrations, performance trends, regulatory changes, uncertainty of macroeconomic forecasts, and other asset specific risk characteristics.

When loans do not share risk characteristics with other financial assets they are evaluated individually. Management applies its normal loan review procedures in making these judgments. Individually evaluated loans consist of loans with credit quality indicators which are substandard or doubtful. The Company also individually evaluates all insurance premium loans. While insurance premium loans are considered consumer loans, the third-party Consumer ACL model is designed for unsecured lending, whereas these loans are secured. To account for the fully secured structure of this type of loan, management determined each loan will be individually evaluated, regardless of the credit quality indicators. These loans are evaluated based upon their collateral, which primarily consists of cash, cash surrender value life insurance, and in some cases real estate. In determining the ACL-Loans for individually evaluated loans, the Company generally applies a discounted cash flow method for instruments that are individually assessed. For collateral dependent financial assets where the Company has determined that foreclosure of the collateral is probable and where the borrower is experiencing financial difficulty, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date. Fair value is generally calculated based on the value of the underlying collateral less an appraisal discount and the estimated cost to sell.
12


ACL-Securities

The Company individually evaluates the available for sale debt securities and held to maturity securities for impairment credit losses. Available for sale securities include U.S. Treasuries, mortgage-backed securities, and corporate bonds. U.S. Treasuries and mortgaged-backed securities are guaranteed by the U.S. Government and as a result, management has a zero loss expectation. No ACL-Securities was recorded for these securities as of September 30, 2024. For the corporate bond portfolio, the Company developed a metric that includes each issuer’s current credit ratings and key financial performance metrics to assess the underlying performance of each issuer. The analysis of the issuers’ performance and the intent of the Company to retain these securities support the determination that there is no expected credit loss, and therefore, no ACL-Securities was recognized on the corporate bond portfolio as of September 30, 2024. Of our held to maturity securities portfolio, one security’s fair value was less than its amortized cost as of September 30, 2024. Since this is a highly rated state agency and municipal obligation, the Company's expectation of nonpayment of the amortized cost basis is zero. No allowance for ACL-Securities was recorded for this security as of September 30, 2024.

Common share repurchases

The Company is incorporated in the state of Connecticut. Connecticut law does not provide for treasury shares, rather shares repurchased by the Company constitute authorized, but unissued shares. GAAP states that accounting for treasury stock shall conform to state law. Therefore, the cost of shares repurchased by the Company has been allocated to common stock balances.

Reclassification

Certain prior period amounts may be reclassified to conform to the 2024 financial statement presentation. These reclassifications only change the reporting categories and do not affect the consolidated results of operations or consolidated financial position of the Company.

Recent accounting pronouncements

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

Recently issued accounting pronouncements not yet adopted

ASU No. 2023-09—Income Taxes (Topic 740): "Improvements to Income Tax Disclosures": The amendments in this update provide more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. For public business entities, the amendments in this update are effective for annual periods beginning after December 15, 2024. The Company believes this ASU will not have a material impact on existing disclosures and will continue to monitor for SEC action, and plan accordingly for adoption.

ASU No. 2023-06, Disclosure Improvements: “Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative”: The amendments in this Update modify the disclosure or presentation requirements of a variety of Topics in the Codification. Certain of the amendments represent clarifications to or technical corrections of the current requirements. Because of the variety of Topics amended, a broad range of entities may be affected by one or more of those amendments. The summary of the amendments applicable to the Company include:

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

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

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

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

Commitments - Requires disclosure of assets mortgaged, pledged, or otherwise subject to lien and the obligations collateralized.
13



Debt - Requires disclosure of amounts and terms of unused lines of credit and unfunded commitments and the weighted-average interest rate on outstanding short-term borrowings. Entities that are not public business entities are not required to provide information about the weighted-average interest rate.

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

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

Transfers and Servicing—Secured Borrowing and Collateral - Requires:

a. That accrued interest be included in the disclosure of liabilities incurred in securities borrowing or repurchase or resale transactions.
b. Separate presentation of the aggregate carrying amount of reverse repurchase agreements on the face of the balance sheet if that amount exceeds 10 percent of total assets.
c. Disclosure of the weighted-average interest rates of repurchase liabilities for public business entities.
d. Disclosure of amounts at risk with an individual counterparty if that amount exceeds more than 10 percent of shareholder’s equity.
e. Disclosure for reverse repurchase agreements that exceed 10 percent of total assets on whether there are any provisions in a reverse repurchase agreement to ensure that the market value of the underlying assets remains sufficient. to protect against counterparty default and, if so, the nature of those provisions.

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

For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. For all other entities, the amendments will be effective two years later. The amendments in this Update should be applied prospectively. For all entities, if by June 30, 2027, the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the related amendment will be removed from the Codification and will not become effective for any entity. The Company believes this ASU will not have a material impact on existing disclosures and will continue to monitor for SEC action, and plan accordingly for adoption.





14


2. Investment Securities

The amortized cost, gross unrealized gains and losses and fair value of available for sale and held to maturity securities at September 30, 2024 were as follows:
September 30, 2024
Amortized CostGross UnrealizedFair Value
GainsLosses
(In thousands)
Available for sale securities:
U.S. Government and agency obligations
Less than one year$24,972 $ $(165)$24,807 
Due from one through five years47,551 112 (1,818)45,845 
Due from five through ten years16,925  (670)16,255 
Due after ten years7,092  (600)6,492 
Total U.S. Government and agency obligations96,540 112 (3,253)93,399 
Corporate bonds
Due from five through ten years15,500  (1,173)14,327 
Due after ten years1,500  (360)1,140 
Total corporate bonds17,000  (1,533)15,467 
Total available for sale securities$113,540 $112 $(4,786)$108,866 
Held to maturity securities:
State agency and municipal obligations
Due from one through five years$5,383 $49 $ $5,432 
Due from five through ten years2,819 30  2,849 
Due after ten years26,655 2,846 (687)28,814 
Government-sponsored mortgage backed securities
No contractual maturity29 1  30 
Total held to maturity securities$34,886 $2,926 $(687)$37,125 
    
15


The amortized cost, gross unrealized gains and losses and fair value of available for sale and held to maturity securities at December 31, 2023 were as follows:
December 31, 2023
Amortized CostGross UnrealizedFair Value
GainsLosses
(In thousands)
Available for sale securities:
U.S. Government and agency obligations
Less than one year$9,836 $ $(52)$9,784 
Due from one through five years55,288 123 (2,680)52,731 
Due from five through ten years27,229  (1,630)25,599 
Due after ten years7,923  (811)7,112 
Total U.S. Government and agency obligations100,276 123 (5,173)95,226 
Corporate bonds
Due from five through ten years15,500  (2,028)13,472 
Due after ten years1,500  (462)1,038 
Total corporate bonds17,000  (2,490)14,510 
Total available for sale securities$117,276 $123 $(7,663)$109,736 
Held to maturity securities:
State agency and municipal obligations
Due after ten years$15,785 $716 $(631)$15,870 
Government-sponsored mortgage backed securities
No contractual maturity32 1  33 
Total held to maturity securities$15,817 $717 $(631)$15,903 

There were no sales of investment securities during the nine months ended September 30, 2024 or 2023.

At September 30, 2024 and December 31, 2023, none of the Company's securities were pledged as collateral with the Federal Home Loan Bank ("FHLB") or any other institution.

As of September 30, 2024 and December 31, 2023, the actual durations of the Company's available for sale securities were significantly shorter than the stated maturities.

As of September 30, 2024, the Company held marketable equity securities with a fair value of $2.1 million and an amortized cost of $2.2 million. At December 31, 2023, the Company held marketable equity securities with a fair value of $2.1 million and an amortized cost of $2.2 million. These securities represent an investment in mutual funds that have an objective to make investments for Community Reinvestment Act ("CRA") purposes.


16


The following tables provide information regarding available for sale securities and held to maturity securities with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2024 and December 31, 2023:

Length of Time in Continuous Unrealized Loss Position
Less Than 12 Months12 Months or MoreTotal
Fair ValueUnrealized
Loss
Percent
Decline from
Amortized Cost
Fair ValueUnrealized
Loss
Percent
Decline from
Amortized Cost
Fair ValueUnrealized
Loss
Percent
Decline from
Amortized Cost
(Dollars in thousands)
September 30, 2024
U.S. Government and agency obligations$ $  %$83,369 $(3,253)3.75 %$83,369 $(3,253)3.75 %
Corporate bonds   15,467 (1,533)9.02 15,467 (1,533)9.02 
State agency and municipal obligations3,319 (10)0.29 3,978 (677)14.55 7,297 (687)8.60 
Total investment securities$3,319 $(10)0.29 %$102,814 $(5,463)27.32 %$106,133 $(5,473)4.90 %


Length of Time in Continuous Unrealized Loss Position
Less Than 12 Months12 Months or MoreTotal
Fair ValueUnrealized
Loss
Percent
Decline from
Amortized Cost
Fair ValueUnrealized
Loss
Percent
Decline from
Amortized Cost
Fair ValueUnrealized
Loss
Percent
Decline from
Amortized Cost
(Dollars in thousands)
December 31, 2023
U.S. Government and agency obligations$ $  %$85,243 $(5,173)5.72 %$85,243 $(5,173)5.72 %
Corporate bonds   14,510 (2,490)14.65 14,510 (2,490)14.65 
State agency and municipal obligations   4,076 (631)13.41 4,076 (631)13.41 
Total investment securities$ $  %$103,829 $(8,294)7.40 %$103,829 $(8,294)7.40 %
There were thirty-five and thirty-four available for sale securities or held to maturity securities as of September 30, 2024 and December 31, 2023, respectively, in which the fair value of the security was less than the amortized cost of the security.

The U.S. Government and agency obligations owned are either direct obligations of the U.S. Government or guaranteed by the U.S. Government. Therefore, the contractual cash flows are guaranteed and as a result the unrealized losses in this portfolio are considered to be only temporarily impaired.

The corporate bonds are investments in subordinated debt of federally insured banks, the majority of which are callable after five years of origination. The Company monitors its corporate bond, state agency and municipal bond portfolios and considers them to have minimal default risk.

The Company has the intent and ability to retain its investment securities in an unrealized loss position at September 30, 2024 until the decline in value has recovered or the security has matured.


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3. Loans Receivable and ACL-Loans

The following table sets forth a summary of the loan portfolio at September 30, 2024 and December 31, 2023:
(In thousands)September 30, 2024December 31, 2023
Real estate loans:
Residential$45,553 $50,931 
Commercial1,887,942 1,947,648 
Construction160,292 183,414 
2,093,787 2,181,993 
Commercial business490,292 500,569 
Consumer39,126 36,045 
Total loans2,623,205 2,718,607 
ACL-Loans(27,752)(27,946)
Deferred loan origination fees, net(3,902)(5,360)
Loans receivable, net$2,591,551 $2,685,301 

Lending activities primarily consist of commercial real estate loans, commercial business loans and, to a lesser degree, consumer loans. Loans may also be granted for the construction of commercial properties. The majority of commercial mortgage loans are collateralized by first or second mortgages on real estate.

Risk management

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 lien residential 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.


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Credit quality of loans and the Allowance for Credit Losses - Loans (ACL-Loans)

Management segregates the loan portfolio into defined segments, which are used to develop and document a systematic method for determining the Company's ACL-Loans. The portfolio segments are segregated based on loan types and the underlying risk factors present in each loan type. Such risk factors are periodically reviewed by management and revised as deemed appropriate.

The Company's loan portfolio is segregated into the following portfolio segments:

Residential Real Estate: This portfolio segment consists of first mortgage loans secured by one-to-four family owner occupied residential properties for personal use located in the Company's market area. This segment also includes home equity loans and home equity lines of credit secured by owner occupied one-to-four family residential properties. Loans of this type were written at a combined maximum of 80% of the appraised value of the property and the Company requires a first or second lien position on the property. These loans can be affected by economic conditions and the values of the underlying properties.

Commercial Real Estate: This portfolio segment includes loans secured by commercial real estate, multi-family dwellings, owner-occupied commercial real estate and investor-owned one-to-four family dwellings. Loans secured by commercial real estate generally have larger loan balances and more credit risk than owner occupied one-to-four family mortgage loans.

Construction: This portfolio segment includes commercial construction loans for commercial development projects, including apartment buildings and condominiums, as well as office buildings, retail and other income producing properties and land loans, which are loans made with land as collateral. Construction and land development financing generally involves greater credit risk than long-term financing on improved, owner-occupied or leased real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the value of the property at completion of construction compared to the estimated cost (including interest) of construction and other assumptions. If the estimate of construction cost proves to be inaccurate, the Company may be required to advance additional funds beyond the amount originally committed in order to protect the value of the property. Moreover, if the estimated value of the completed project proves to be inaccurate, the client may hold a property with a value that is insufficient to assure full repayment through sale or refinance. Construction loans also expose the Company to the risks that improvements will not be completed on time in accordance with specifications and projected costs and that repayment will depend on the successful operation or sale of the properties, which may cause some clients to be unable to continue paying debt service, which exposes the Company to greater risk of non-payment and loss.

Commercial Business: This portfolio segment includes commercial business loans secured by assignments of corporate assets and personal guarantees of the business owners. Commercial business loans generally have higher interest rates and shorter terms than other loans, and their repayment generally depends on the successful operation of the client’s business.

Consumer: This portfolio segment includes loans secured by savings or certificate accounts, as well as unsecured personal loans and overdraft lines of credit. In addition, there are loans to finance insurance premiums, secured primarily by the cash surrender value of life insurance and marketable securities.



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ACL-Loans

The following tables set forth the activity in the Company’s ACL-Loans for the three and nine months ended September 30, 2024 and 2023, by portfolio segment:    
Residential Real EstateCommercial Real EstateConstructionCommercial BusinessConsumerTotal
(In thousands)
Three Months Ended September 30, 2024
Beginning balance$123 $22,473 $2,272 $10,647 $568 $36,083 
Charge-offs (8,184)(616)(7,010)(17)(15,827)
Recoveries 1,013  (34)1 980 
(Credit) provision for credit losses(21)6,676 (51)(83)(5)6,516 
Ending balance$102 $21,978 $1,605 $3,520 $547 $27,752 

Residential Real EstateCommercial Real EstateConstructionCommercial BusinessConsumerTotal
(In thousands)
Three Months Ended September 30, 2023
Beginning balance$190 $19,948 $1,798 $6,788 $1,970 $30,694 
Charge-offs    (32)(32)
Recoveries   35 20 55 
(Credit) provision for credit losses(29)788 (183)(639)(1,370)(1,433)
Ending balance$161 $20,736 $1,615 $6,184 $588 $29,284 

Residential Real EstateCommercial Real EstateConstructionCommercial BusinessConsumerTotal
(In thousands)
Nine Months Ended September 30, 2024
Beginning balance$149 $20,950 $1,699 $4,562 $586 $27,946 
Charge-offs(141)(12,012)(616)(7,207)(78)(20,054)
Recoveries141 1,126  (7)18 1,278 
(Credit) provision for credit losses(47)11,914