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What changed in Bankwell Financial Group, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Bankwell Financial Group, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+433 added−446 removedSource: 10-K (2024-03-12) vs 10-K (2023-03-08)

Top changes in Bankwell Financial Group, Inc.'s 2023 10-K

433 paragraphs added · 446 removed · 333 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

132 edited+32 added−33 removed129 unchanged
Biggest changeThe new capital rules revise the banking agencies’ leverage and risk-based capital requirements and the method for calculating risk weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act (the Basel III Capital Rules). 12 The Basel III Capital Rules establish a new minimum common equity Tier 1 capital requirement of 4.5% of risk-weighted assets; set the minimum leverage ratio at 4% of total assets; increased the minimum Tier 1 capital to risk-weighted assets requirement from 4% to 6%; and retained the minimum total capital to risk weighted assets requirement at 8.0%.
Biggest changeThe revised capital rules aligned the banking agencies’ leverage and risk-based capital requirements and the method for calculating risk weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act (the Basel III Capital Rules).
On October 1, 2014, we acquired Quinnipiac Bank and Trust Company, which was merged into Bankwell Bank. With the efforts of our strong executive management team, we continued our growth and maintained a strong track record of performance.
On October 1, 2014, we acquired Quinnipiac Bank and Trust Company, which was merged into Bankwell Bank. With the efforts of our executive management team, we continued our growth and maintained a strong track record of performance.
Insurance of Deposit Accounts. Deposit accounts at the Bank are insured by the Deposit Insurance Fund, generally up to a maximum of $250,000 per separately insured depositor. The FDIC assesses insured depository institutions to maintain the Deposit Insurance Fund. No institution may pay a dividend if in default of its deposit insurance assessment.
Deposit accounts at the Bank are insured by the Deposit Insurance Fund, generally up to a maximum of $250,000 per separately insured depositor. The FDIC assesses insured depository institutions to maintain the Deposit Insurance Fund. No institution may pay a dividend if in default of its deposit insurance assessment.
The Bank Secrecy Act, or the BSA, provides, in part, for the facilitation of information sharing among governmental entities and financial institutions for the purpose of combating terrorism and money laundering by enhancing anti-money laundering and financial transparency laws, as well as enhanced information collection tools and enforcement mechanics for the U.S. government, including: (1) requiring standards for verifying client identification information at account opening; (2) rules to promote cooperation among financial institutions, regulators, and law enforcement entities in identifying parties that may be involved in terrorism or money laundering; (3) reports filed with the Treasury Department’s Financial Crimes Enforcement Network of transactions exceeding $10,000 in currency; (4) filing suspicious activities reports by financial institutions regarding suspected client money laundering, terrorism financing, or other violations of U.S. laws and regulations; and (5) requiring enhanced due diligence requirements for financial institutions that administer, maintain, or manage private bank accounts or correspondent accounts for non-U.S. persons.
The Bank Secrecy Act, or the BSA, provides, in part, for the facilitation of information sharing among governmental entities and financial institutions for the purpose of combating terrorism and money laundering by enhancing anti-money laundering and financial transparency laws, as well as enhanced information collection tools and enforcement mechanics for the U.S. government, including: (1) requiring standards for verifying client identification information at account opening; (2) rules to promote cooperation among financial institutions, regulators, and law enforcement entities in identifying parties that may be involved in terrorism or money laundering; (3) reports filed with the Treasury Department’s Financial Crimes Enforcement Network ("FinCEN") of transactions exceeding $10,000 in currency; (4) filing suspicious activities reports by financial institutions regarding suspected client money laundering, terrorism financing, or other violations of U.S. laws and regulations; and (5) requiring enhanced due diligence requirements for financial institutions that administer, maintain, or manage private bank accounts or correspondent accounts for non-U.S. persons.
The Dodd-Frank Act made many other changes to banking regulations including authorizing depository institutions, for the first time, to pay interest on business checking accounts, requiring originators of securitized loans to retain a percentage of the risk for transferred loans, establishing regulatory rate-setting for certain debit card interchange fees, establishing a number of reforms for mortgage originations, requiring bank holding companies and banks to be “well capitalized” and “well managed” in order to acquire banks located outside of their home state, requiring any bank holding company electing to be treated as a financial holding company to be “well capitalized” and “well managed” and authorizing national and state banks to establish de novo branches in any state that would permit a bank chartered in that state to open a branch at that location.
The Dodd-Frank Act made many changes to banking regulations including authorizing depository institutions, for the first time, to pay interest on business checking accounts, requiring originators of securitized loans to retain a percentage of the risk for transferred loans, establishing regulatory rate-setting for certain debit card interchange fees, establishing a number of reforms for mortgage originations, requiring bank holding companies and banks to be “well capitalized” and “well managed” in order to acquire banks located outside of their home state, requiring any bank holding company electing to be treated as a financial holding company to be “well capitalized” and “well managed” and authorizing national and state banks to establish de novo branches in any state that would permit a bank chartered in that state to open a branch at that location.
In addition to the regulations above, the Bank’s deposit operations are subject to other federal laws applicable to depository accounts, such as the: • Truth-In-Savings Act, requiring certain disclosures for consumer deposit accounts; • Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; • Electronic Fund Transfer Act and Regulation E issued by the Consumer Financial Protection Bureau to implement that act, which govern electronic deposits to and withdrawals from deposit accounts and clients’ rights and liabilities arising from the use of automated teller machines and other electronic banking services; and • Rules and regulations of the various federal banking agencies charged with the responsibility of implementing these federal laws.
In addition to the regulations discussed above, the Bank’s deposit operations are subject to other federal laws applicable to depository accounts, such as the: • Truth-In-Savings Act, requiring certain disclosures for consumer deposit accounts; • Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; • Electronic Fund Transfer Act and Regulation E issued by the Consumer Financial Protection Bureau to implement that act, which govern electronic deposits to and withdrawals from deposit accounts and clients’ rights and liabilities arising from the use of automated teller machines and other electronic banking services; and • Rules and regulations of the various federal banking agencies charged with the responsibility of implementing these federal laws.
Among other things, the USA PATRIOT Act requires all financial institutions, including us, to institute and maintain a risk-based anti-money laundering compliance program that includes a client identification program, provides for information sharing with law enforcement and between certain financial institutions by means of an exemption from the privacy provisions of the GLBA, prohibits U.S. banks and broker-dealers from maintaining accounts with foreign “shell” banks, establishes due diligence and enhanced due diligence requirements for certain foreign correspondent banking and foreign private banking accounts and imposes additional record keeping requirements for certain 16 correspondent banking arrangements.
Among other things, the USA PATRIOT Act requires all financial institutions, including us, to institute and maintain a risk-based anti-money laundering compliance program that includes a client identification program, provides for information sharing with law enforcement and between certain financial institutions by means of an exemption from the privacy provisions of the GLBA, prohibits U.S. banks and broker-dealers from maintaining accounts with foreign “shell” banks, establishes due diligence and enhanced due diligence requirements for certain foreign correspondent banking and foreign private banking accounts and imposes additional record keeping requirements for certain correspondent banking arrangements.
The banking agencies have broad enforcement power over bank holding companies and banks, including the authority, among other things, to enjoin “unsafe or unsound” practices, require affirmative action to correct any violation or practice, issue administrative orders that can be judicially enforced, direct increases in capital, direct the sale of subsidiaries or other assets, limit dividends and distributions, restrict growth, assess civil money penalties, 8 remove officers and directors, and, with respect to banks, terminate deposit insurance or place the bank into conservatorship or receivership.
The banking agencies have broad enforcement power over bank holding companies and banks, including the authority, among other things, to enjoin “unsafe or unsound” practices, require affirmative action to correct any violation or practice, issue administrative orders that can be judicially enforced, direct increases in capital, direct the sale of subsidiaries or other assets, limit dividends and distributions, restrict growth, assess civil money penalties, remove officers and directors, and, with respect to banks, terminate deposit insurance or place the bank into conservatorship or receivership.
Our employees’ desire for active community involvement enables us to sponsor numerous local community events and initiatives. The Company is committed to the overall well-being of our team members, offering competitive health and welfare benefits. Company Website and Availability of Securities and Exchange Commission Filings Information regarding the Company is available through the Investor Relations link at www.mybankwell.com.
Our employees’ desire for active community involvement enables us to sponsor numerous local community events and initiatives. The Company is committed to the overall well-being of our team members, offering competitive health and welfare benefits. 3 Company Website and Availability of Securities and Exchange Commission Filings Information regarding the Company is available through the Investor Relations link at www.mybankwell.com.
The new excise tax is effective as of January 1, 2023 and generally applies to any US corporation whose stock is traded on an established securities market and that repurchases more than $1 million of stock over the course of a tax year. 17 The Company and the Bank are not currently under audit with respect to their federal tax returns.
The new excise tax is effective as of January 1, 2023 and generally applies to any US corporation whose stock is traded on an established securities market and that repurchases more than $1 million of stock over the course of a tax year. The Company and the Bank are not currently under audit with respect to their federal tax returns.
The Basel III Capital Rules also alter the risk weighting for other assets, including marketable equity securities that are risk weighted generally at 300%. The Basel III Capital Rules require certain components of accumulated other comprehensive income (loss) to be included for purposes of calculating regulatory capital requirements unless a one-time opt-out is exercised.
The Basel III Capital Rules also alter the risk weighting for other assets, including marketable equity securities that are risk weighted generally at 300%. The 12 Basel III Capital Rules require certain components of accumulated other comprehensive income (loss) to be included for purposes of calculating regulatory capital requirements unless a one-time opt-out is exercised.
The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge at 3 www.sec.gov and at www.mybankwell.com under the Investor Relations link.
The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge at www.sec.gov and at www.mybankwell.com under the Investor Relations link.
Connecticut law requires the Connecticut Department of Banking to consider, but not be limited to, a bank’s record of performance under the Connecticut CRA in considering any application by the Bank to establish a branch or other deposit-taking facility, to relocate an office or to merge or consolidate with or acquire the assets and assume the liabilities of any other banking institution.
Connecticut law requires the 14 Connecticut Department of Banking to consider, but not be limited to, a bank’s record of performance under the Connecticut CRA in considering any application by the Bank to establish a branch or other deposit-taking facility, to relocate an office or to merge or consolidate with or acquire the assets and assume the liabilities of any other banking institution.
The 2022 Notes have been structured to qualify for the Company as Tier 2 capital under regulatory guidelines. Risk Management We place significant emphasis on risk mitigation as an integral component of our organizational culture. We believe that our emphasis on risk management is manifested in our historically solid asset quality statistics.
The 2022 Notes have been structured to qualify for the Company as Tier 2 capital under regulatory guidelines. 8 Risk Management We place significant emphasis on risk mitigation as an integral component of our organizational culture. We believe that our emphasis on risk management is manifested in our historically solid asset quality statistics.
The Consumer Financial Protection Bureau has examination and enforcement authority over all banks and savings associations with more than $10 billion in assets. Banks and savings associations with $10 billion or less in assets will continue to be examined for compliance with federal consumer protection and fair lending laws by their applicable primary federal bank regulators.
The Consumer Financial Protection Bureau has examination and enforcement authority over all banks and savings associations with more than $10 billion in assets. Banks and savings associations with $10 billion or less in assets will continue to be examined for compliance with federal consumer protection and 9 fair lending laws by their applicable primary federal bank regulators.
The capital conservation buffer is in addition to the minimum risk-based capital requirement. The FDIC may further limit a bank’s ability to pay dividends. Moreover, the federal agencies have issued policy statements that provide that insured banks should generally only pay dividends out of current operating earnings. Powers .
The capital conservation buffer is in addition to the minimum risk-based capital requirement. The FDIC may further limit a bank’s ability to pay dividends. Moreover, the federal agencies have issued policy statements that provide that insured banks should generally only pay dividends out of current operating earnings. 10 Powers .
Any change in such laws, rules or regulations, whether by the Connecticut Department of Banking, the FDIC or the Federal Reserve Board could have a material adverse impact on the financial markets in general, and our operations and activities, financial condition, results of operations, growth plans and future prospects specifically.
Any change in such laws, rules or regulations, whether by the Connecticut Department of Banking, the FDIC or the Federal Reserve Board ("FRB") could have a material adverse impact on the financial markets in general, and our operations and activities, financial condition, results of operations, growth plans and future prospects specifically.
Beginning January 1, 2016, the Basel III Capital Rules limit the 10 amount of dividends the Bank can pay if its capital ratios are below the threshold levels of the capital conservation buffer established by the rules. The full capital conservation buffer of 2.5% (as a percentage of risk-weighted assets) became effective as of January 1, 2019.
Beginning January 1, 2016, the Basel III Capital Rules limit the amount of dividends the Bank can pay if its capital ratios are below the threshold levels of the capital conservation buffer established by the rules. The full capital conservation buffer of 2.5% (as a percentage of risk-weighted assets) became effective as of January 1, 2019.
Construction and development loans are generally made with a term of one to two years and interest is paid monthly. The ratio of the loan principal to the value of the collateral, as established by independent appraisal, typically will not exceed industry standards.
Construction and development loans are generally made with a term of one to two years and interest is paid monthly. The ratio of the loan principal to the value of the collateral, as established by independent appraisal, will not exceed industry standards.
Under the CRA, as implemented by FDIC regulations, a bank has a continuing and affirmative obligation, consistent with its safe and sound operation, to help meet the credit needs of its entire community, 14 including low and moderate income neighborhoods.
Under the CRA, as implemented by FDIC regulations, a bank has a continuing and affirmative obligation, consistent with its safe and sound operation, to help meet the credit needs of its entire community, including low and moderate income neighborhoods.
The quality of the commercial borrower’s management and its ability both to properly evaluate 5 changes in the supply and demand characteristics affecting its markets for products and services and to effectively respond to such changes are significant factors in a commercial borrower’s creditworthiness.
The quality of the commercial borrower’s management and its ability both to properly evaluate changes in the supply and demand characteristics affecting its markets for products and services and to effectively respond to such changes are significant factors in a commercial borrower’s creditworthiness.
The FDIC is required, with certain exceptions, to appoint a receiver or conservator for an insured state non- 13 member bank if that bank was “critically under-capitalized” on average during the calendar quarter beginning 270 days after the date on which the institution became “critically under-capitalized.” The FDIC may also appoint itself as conservator or receiver for an insured state non-member institution under specific circumstances on the basis of the institution’s financial condition or upon the occurrence of other events, including: (1) insolvency; (2) substantial dissipation of assets or earnings through violations of law or unsafe or unsound practices; (3) existence of an unsafe or unsound condition to transact business; and (4) insufficient capital, or the incurring of losses that will deplete substantially all of the institution’s capital with no reasonable prospect of replenishment without federal assistance.
The FDIC is required, with certain exceptions, to appoint a receiver or conservator for an insured state non-member bank if that bank was “critically under-capitalized” on average during the calendar quarter beginning 270 days after the date on which the institution became “critically under-capitalized.” The FDIC may also appoint itself as conservator or receiver for an insured state non-member institution under specific circumstances on the basis of the institution’s financial condition or upon the occurrence of other events, including: (1) insolvency; (2) substantial dissipation of assets or earnings through violations of law or unsafe or unsound practices; (3) existence of an unsafe or unsound condition to transact business; and (4) insufficient capital, or the incurring of losses that will deplete substantially all of the institution’s capital with no reasonable prospect of replenishment without federal assistance. 13 Insurance of Deposit Accounts.
The investment policy is reviewed annually by our Board of Directors. Overall investment goals are established by our Board of Directors, Chief Financial Officer and our asset/liability management committee, or ALCO. Our Board of Directors has delegated the responsibility of monitoring our investment activities to ALCO.
The investment policy is reviewed annually by our Board of Directors. Overall investment goals are established by our Board of Directors, Chief Financial Officer and our Asset Liability Committee, or ALCO. Our Board of Directors has delegated the responsibility of monitoring our investment activities to ALCO.
We cannot predict the nature or impact of future changes in monetary and fiscal policies. Taxation Federal Taxation General: We are subject to federal income taxation in the same general manner as other corporations, with limited exceptions.
We cannot predict the nature or impact of future changes in monetary and fiscal policies. 17 Taxation Federal Taxation General: We are subject to federal income taxation in the same general manner as other corporations, with limited exceptions.
In addition, we believe that our strong capital position and extensive ownership, coupled with a highly respected and experienced executive management team and board of directors, give us credibility with our clients and potential clients.
In addition, we believe that our strong capital position and extensive inside ownership, coupled with a highly respected and experienced executive management team and board of directors, give us credibility with our clients and potential clients.
State taxes are being recognized for income taxes on income earned in other states. The Company and the Bank are not currently under audit with respect to their state tax returns.
State taxes are being recognized for income taxes on income earned in other states. The Company and the Bank are not currently under audit with respect to their state tax returns. 18
Although our consumer real estate loan portfolio presents lower levels of risk than our commercial, commercial real estate and construction loan portfolios, we are exposed to risk based on fluctuations in the value of the real estate collateral securing the loan, as well as changes in the borrower’s financial condition, which could be affected by numerous factors, including divorce, job loss, illness or other personal hardship.
Although our residential real estate loan portfolio presents lower levels of risk than our commercial real estate and construction loan portfolios, we are exposed to risk based on fluctuations in the value of the real estate collateral securing the loan, as well as changes in the borrower’s financial condition, which could be affected by numerous factors, including divorce, job loss, illness or other personal hardship.
We believe that our scalable infrastructure provides us with an efficient operating platform from which to grow in the near term, while continuing to deliver our high-quality service, which will enhance our ability to grow and increase our returns. • Disciplined Focus on Risk Management. Effective risk management is a key component of our strong corporate culture.
We believe that our scalable infrastructure provides us with an efficient operating platform from which to grow in the near term, while continuing to deliver our high-quality service, which will further enhance our ability to grow and increase our returns. • Disciplined Focus on Risk Management. Effective risk management is a key component of our corporate culture.
We seek to achieve an appropriate balance between prudent and disciplined underwriting on the one hand and flexibility in our decision-making and responsiveness to our clients on the other hand.
We seek an appropriate balance between prudent and disciplined underwriting on the one hand and flexibility in our decision-making and responsiveness to our clients on the other hand.
The list of activities permitted by the Federal Reserve Board includes, among other things: (1) operating a savings institution, mortgage company, finance company, credit card company or factoring company; (2) performing certain data processing operations; (3) providing certain investment and financial advice; (4) underwriting and acting as an insurance agent for certain types of credit-related insurance; (5) leasing property on a full-payout, non-operating basis; (6) selling money orders, travelers’ checks and United States savings bonds; (7) real estate and personal property appraising; (8) providing tax planning and preparation services; (9) financing and investing in certain community development activities; and (10) subject to certain limitations, providing securities brokerage services for clients.
The list of activities permitted by the FRB includes, among other things: (1) operating a savings institution, mortgage company, finance company, credit card company or factoring company; (2) performing certain data processing operations; (3) providing certain investment and financial advice; (4) underwriting and acting as an insurance agent for certain types of credit-related insurance; (5) leasing property on a full-payout, non-operating basis; (6) selling money orders, travelers’ checks and United States savings bonds; (7) real estate and personal property appraising; (8) providing tax planning and preparation services; (9) financing and investing in certain community development activities; and (10) subject to certain limitations, providing securities brokerage services for clients.
With certain limited exceptions, loans to any one obligor under this statutory authority may not exceed 15% and fully secured loans may not exceed an additional 10% of a bank’s equity capital and allowance for loan losses. Dividends. The Bank may pay cash dividends out of its net profits.
With certain limited exceptions, loans to any one obligor under this statutory authority may not exceed 15% and fully secured loans may not exceed an additional 10% of a bank’s equity capital and allowance for credit losses. Dividends. The Bank may pay cash dividends out of its net profits.
We believe that our credit approval process provides for thorough underwriting and efficient decision making. Credit risk management. Credit risk management involves a partnership between our relationship managers and our credit approval, credit administration, portfolio management and collections departments. Portfolio monitoring and early problem recognition are an important aspect of maintaining our high credit quality standards.
We believe that our credit approval process provides for thorough underwriting and efficient decision making. Credit risk management. Credit risk management involves a partnership between our relationship managers and our credit approval, credit administration, portfolio management and collections personnel. Portfolio monitoring and early problem recognition are an important aspect of maintaining our high credit quality standards.
We are also exposed to risk based on the ability of the construction loan borrower to refinance the debt or sell the property upon completion of the project, which may be affected by changes in market trends since the time that we funded the construction loan. Commercial business loans.
We are also exposed to risk based on the ability of the construction loan borrower to refinance the debt or sell the property upon completion of the project, which may be affected by changes in market trends including rates, since the time that we funded the construction loan. Commercial business loans.
Connecticut taxable income is multiplied by the state tax rate (7.5% f or the fiscal years ending December 31, 2022 and 2021) to arrive at Connecticut income tax. We are also subject to state income tax in other states as a result of loan originations made in other states.
Connecticut taxable income is multiplied by the state tax rate (7.5% f or the fiscal years ending December 31, 2023 and 2022) to arrive at Connecticut income tax. We are also subject to state income tax in other states as a result of loan originations made in other states.
This review includes an evaluation of the market conditions, the property’s or company’s trends, the borrower and guarantor status, the level of reserves required and loan accrual status. Additionally, we have an independent, third-party loan review performed semi-annually, which includes the accuracy of our loan risk ratings and our credit administration functions.
This review includes an evaluation of the market conditions, the property’s or company’s trends, the borrower and guarantor status, the level of reserves required and loan accrual status. Additionally, we have an independent, third-party loan review performed, which includes the accuracy of our loan risk ratings and our credit administration functions.
We use our strong risk management process to monitor our existing loan and investment securities portfolios, support operational decision-making and improve our ability to generate earning assets with strong credit quality. To maintain our strong credit quality, we use a comprehensive underwriting process and we seek to maintain a diversified loan portfolio and a conservative investment securities portfolio.
We use robust risk management processes to monitor our existing loan and investment securities portfolios, support operational decision-making and improve our ability to generate earning assets with strong credit quality. To maintain our strong credit quality, we use a comprehensive underwriting process and we seek to maintain a diversified loan portfolio and a conservative investment securities portfolio.
Dodd-Frank Wall Street Reform and Consumer Protection Act The Dodd-Frank Act, which was enacted in 2008, has significantly changed the current bank regulatory structure and continues to affect the lending and investment activities and general operations of depository institutions and their holding companies.
Dodd-Frank Act The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), which was enacted in 2010, has significantly changed the current bank regulatory structure and continues to affect the lending and investment activities and general operations of depository institutions and their holding companies.
Federal Reserve System. The Federal Reserve Board regulations require depository institutions to maintain noninterest earning reserves against their transaction accounts (primarily NOW and regular checking accounts). The Federal Reserve Board regulations are adjusted annually and generally provide that reserves be maintained against aggregate transaction accounts.
Federal Reserve System. The FRB regulations require depository institutions to maintain noninterest earning reserves against their transaction accounts (primarily NOW and regular checking accounts). The FRB regulations are adjusted annually and generally provide that reserves be maintained against aggregate transaction accounts.
In addition, the Economic Growth Act includes regulatory relief for community banks regarding regulatory examination cycles, call reports, the Volcker Rule, mortgage disclosures and risk weights for certain high-risk commercial real estate loans.
In addition, the Economic Growth Act includes regulatory relief for community banks regarding regulatory examination cycles, call reports, the so-called Volcker Rule, mortgage disclosures and risk weights for certain high-risk commercial real estate loans.
Important factors that may cause actual results to differ materially from those contemplated by these forward-looking statements include, but are not limited to, those disclosed under “Risk Factors” in Part I Item 1A as well as the following factors: • Disruptions to economic conditions, the financial and labor markets and workplace operating environments; • Local, regional and national business or economic conditions may differ from those expected; • Credit risk and resulting losses in our loan portfolio; • Our allowance for loan losses may not be adequate to absorb loan losses; • Changes in real estate values could also increase our credit risk; • Changes in our executive management team; • Inability to successfully execute our executive management team’s strategic initiatives; • Our ability to successfully execute our growth initiatives such as branch openings and acquisitions; • Volatility and direction of market interest rates; • Increased competition within our market which may limit our growth and profitability; • Economic, market, operational, liquidity, credit and interest rate risks associated with our business; • The effects of and changes in trade, monetary and fiscal policies and laws, including the Federal Reserve Board’s interest rate policies; • Changes in accounting policies and practices, as may be adopted by regulatory agencies, the Public Company Accounting Oversight Board or the Financial Accounting Standards Board; • Changes in law and regulatory requirements (including those concerning taxes, banking, securities and insurance); and • Further government intervention in the U.S. financial system.
Important factors that may cause actual results to differ materially from those contemplated by these forward-looking statements include, but are not limited to, those disclosed under “Risk Factors” in Part I Item 1A as well as the following factors: • Disruptions to economic conditions, the financial and labor markets and workplace operating environments; • Local, regional and national business or economic conditions may differ from those expected; • Credit risk and resulting losses in our loan portfolio; • Our Allowance for Credit Losses-Loans (“ACL-Loans”) may not be adequate to absorb loan losses; • Changes in real estate values could also increase our credit risk; • Changes in our executive management team; • Our ability to successfully execute our strategic initiatives; • Volatility and direction of market interest rates; • Increased competition within our market which may limit our growth and profitability; • Economic, market, operational, liquidity, credit and interest rate risks associated with our business; • The effects of and changes in trade, monetary and fiscal policies and laws, including the Federal Reserve Board’s interest rate policies; • Changes in accounting policies and practices, as may be adopted by regulatory agencies, the Public Company Accounting Oversight Board or the Financial Accounting Standards Board; • Changes in law and regulatory requirements (including those concerning taxes, banking, securities and insurance); and • Further government intervention in the U.S. financial system.
A “well-capitalized” institution must generally maintain capital ratios 200 basis points higher than the minimum guidelines. The Basel III Capital Rules also change the risk weights assigned to certain assets.
A “well-capitalized” institution must generally maintain capital ratios 200 basis points higher than the minimum guidelines. The Basel III Capital Rules also changed the risk weights assigned to certain assets.
The Connecticut Department of Banking’s enforcement authority includes cease and desist orders, fines, receivership, conservatorship, removal of officers and directors, emergency closures, dissolution and liquidation. Federal Bank Holding Company Regulation General. As a bank holding company, we are subject to comprehensive regulation and regular examinations by the Federal Reserve Board.
The Connecticut Department of Banking’s enforcement authority includes cease and desist orders, fines, receivership, conservatorship, removal of officers and directors, emergency closures, dissolution and liquidation. Federal Bank Holding Company Regulation General. As a bank holding company, we are subject to comprehensive regulation and regular examinations by the FRB.
Our executive management team is comprised of seasoned professionals with significant banking experience, a history of high performance at financial institutio ns and success in identifying, acquiring and integrating financial institutions. Our executive management team includes Christopher R. Gruseke, President and Chief Executive Officer (since 2015), Christine A.
Our executive management team is comprised of seasoned professionals with significant banking experience, a history of high performance at financial institutio ns and success in identifying, acquiring and integrating financial institutions. Our executive management team includes Christopher R. Gruseke, President and Chief Executive Officer (since 2015), Steven H.
In order to develop a workforce that aligns with our corporate values, we regularly sponsor local community events so that our employees can better integrate themselves in our communities. We believe that our employees’ well-being and professional development is fostered by our outreach to the communities we serve.
In order to develop a workforce that aligns with our corpo rate values, we regularly sponsor local community events so that our employees can better integrate themselves in our communities. We believe that our employees’ well-being and professional development is fostered by our outreach to the communities we serve.
Under federal law, transactions between depository institutions and their affiliates are governed by Sections 23A and 23B of the Federal Reserve Act, or FRA, and the Federal Reserve Board’s Regulation W.
Under federal law, transactions between depository institutions and their affiliates are governed by Sections 23A and 23B of the Federal Reserve Act, or FRA, and the FRB’s Regulation W.
A bank holding company must obtain Federal Reserve Board approval before: (1) acquiring, directly or indirectly, ownership or control of any voting securities of another bank or bank holding company if, after such acquisition, it would own or control more than 5% of such securities (unless it already owns or controls the majority of such securities); (2) acquiring all or substantially all of the assets of another bank or bank holding company; or (3) merging or consolidating with another bank holding company.
A bank holding company must obtain FRB approval before: (1) acquiring, directly or indirectly, ownership or control of any voting securities of another bank or bank holding company if, after such acquisition, it would own or control more than 5% of such securities (unless it already owns or controls the majority of such securities); (2) acquiring all or substantially all of the assets of another bank or bank holding company; or (3) merging or consolidating with another bank holding company.
Bank holding companies are required to give the Federal Reserve Board prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the consolidated net worth of the bank holding company.
Bank holding companies are required to give the FRB prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the consolidated net worth of the bank holding company.
The monetary policies of the Federal Reserve Board affect the levels of bank loans, investments and deposits through its control over the issuance of U.S. government securities, its regulation of the discount rate applicable to member banks and its influence over reserve requirements to which member banks are subject.
The monetary policies of the FRB affect the levels of bank loans, investments and deposits through its control over the issuance of U.S. government securities, its regulation of the discount rate applicable to member banks and its influence over reserve requirements to which member banks are subject.
The GLBA also permits the Federal Reserve Board and the Treasury Department to authorize additional activities for financial holding companies if they are “financial in nature” or “incidental” to financial activities. A bank holding company may become a financial holding company if each of its subsidiary banks is well capitalized, well managed, and has at least a “satisfactory” CRA rating.
The GLBA also permits the FRB and the Treasury Department to authorize additional activities for financial holding companies if they are “financial in nature” or “incidental” to financial activities. A bank holding company may become a financial holding company if each of its subsidiary banks is well capitalized, well managed, and has at least a “satisfactory” CRA rating.
All of our employees are able to participate in regular educational seminars run by outside parties, including but not limited to regulatory agencies and the American Bankers Association. The Bank also participates in the American Bankers Association, Stonier School of Banking.
All of our emplo yees are able to participate in regular educational seminars run by outside parties, including but not limited to regulatory agencies and the American Bankers Association. The Bank also participates in the American Bankers Association, Stonier School of Banking.
As discussed above, the Federal Reserve Board’s Small Bank Holding Company Policy Statement includes provisions regulating stock redemptions by companies subject to that policy statement, including when such notice requirements apply. Federal Bank Regulation Safety and Soundness.
As discussed above, the FRB’s Small Bank Holding Company Policy Statement includes provisions regulating stock redemptions by companies subject to that policy statement, including when such notice requirements apply. Federal Bank Regulation Safety and Soundness.
In general, enforcement actions may be initiated for violations of law and regulations and unsafe or unsound practices. Under Federal Reserve Board policy which has been codified by the Dodd-Frank Act, a bank holding company must serve as a source of strength for its subsidiary bank.
In general, enforcement actions may be initiated for violations of law and regulations and unsafe or unsound practices. Under FRB policy which has been codified by the Dodd-Frank Act, a bank holding company must serve as a source of strength for its subsidiary bank.
Risk management with respect to our lending philosophy focuses, among other things, on structuring credits to provide for multiple sources of repayment, coupled with strong underwriting by experienced relationship managers, lending and credit management.
Risk management with respect to our lending philosophy focuses, among other things, on structuring credi ts to provide for multiple sources of repayment, coupled with strong underwriting by experienced relationship managers, lending and credit management.
Our focus is on building a franchise with meaningful market share and consistent revenue growth complemented by operational efficiencies that we believe will produce attractive risk-adjusted returns for our shareholders.
We believe our focus on building a franchise with meaningful market share and consistent revenue growth complemented by operational and technological efficiencies will produce attractive risk-adjusted returns for our shareholders.
The Connecticut Department of Banking conducts periodic examinations of Connecticut chartered banks. The FDIC also regulates many of the areas regulated by the Connecticut Department of Banking, and federal law may limit some of the authority provided to Connecticut chartered banks by Connecticut law. Lending Activities. Connecticut banking laws grant banks broad lending authority.
The FDIC also regulates many of the areas regulated by the Connecticut Department of Banking, and federal law may limit some of the authority provided to Connecticut chartered banks by Connecticut law. Lending Activities. Connecticut banking laws grant banks broad lending authority.
The Federal Reserve Board’s monetary policies have had, and are likely to continue to have, an important impact on the operating results of commercial banks through its power to implement national monetary policy in order, among other things, to curb inflation or combat a recession.
The FRB’s monetary policies have had, and are likely to continue to have, an important impact on the operating results of commercial banks through its power to implement national monetary policy in order, among other things, to curb inflation or combat a recession.
This notification requirement does not apply to any bank holding company that (i) meets the well capitalized standard for commercial banks, (ii) is “well managed” within the meaning of the Federal Reserve Board regulations and (iii) is not subject to any unresolved supervisory issues.
This notification requirement does not apply to any bank holding company that (i) meets the well capitalized standard for commercial banks, (ii) is “well managed” within the meaning of the FRB regulations and (iii) is not subject to any unresolved supervisory issues.
Commercial lending products include owner-occupied commercial real estate loans, commercial real estate investment loans, commercial loans (such as business term loans, equipment financing and lines of credit) to small and medium-sized businesses and real estate construction and development loans.
Commercial lending products include owner-occupied commercial real estate loans, commercial real estate investment loans, commercial loans (such as business term loans, equipment finan cing and lines of credit) to small and medium-sized businesses and real estate construction and development loans.
The Federal Reserve Board also has extensive enforcement authority over bank holding companies, including, among other things, the ability to assess civil money penalties, to issue cease and desist or removal orders and to require that a bank holding company divest subsidiaries (including its bank subsidiaries).
The FRB also has extensive enforcement authority over bank holding companies, including, among other things, the ability to assess civil money penalties, to issue cease and desist or removal orders and to require that a bank holding company divest subsidiaries (including its bank subsidiaries).
Net Operating Loss Carryovers: For the years ended 2017 and prior a corporation may carry back net operating losses generated in such years to the preceding two taxable years and forward to the succeeding 20 taxable years.
Net Operating Loss Carryovers: For the years ended 2017 and prior, a corporation may carryback net operating losses generated in such years to the preceding two taxable years and forward to the succeeding 20 taxable years.
The Federal Reserve Board has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the Federal Reserve Board’s view that a bank holding company should pay cash dividends only to the extent that the Bank Holding Company’s net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with the Bank Holding Company’s capital needs, asset quality and overall financial condition.
The FRB has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the FRB’s view that a bank holding company should pay cash dividends only to the extent that the Bank Holding Company’s net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with the Bank Holding Company’s capital needs, asset quality and overall financial condition.
The Bank did exercise its opt-out option and will exclude the unrealized gain (loss) on investment securities component of accumulated other comprehensive income (loss) from regulatory capital.
The Bank did exercise its opt-out option and excludes the unrealized gain (loss) on investment securities component of accumulated other comprehensive income (loss) from regulatory capital.
A financial holding company must provide notice to the Federal Reserve Board within 30 days after commencing activities previously determined by statute or by the Federal Reserve Board and Department of the Treasury to be permissible. We have not submitted notice to the Federal Reserve Board of intent to be deemed a financial holding company.
A financial holding company must provide notice to the FRB within 30 days after commencing activities previously determined by statute or by the FRB and Department of the Treasury to be permissible. We have not submitted notice to the FRB of intent to be deemed a financial holding company.
The Federal Reserve Board may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe or unsound practice or would violate any law, regulation, Federal Reserve Board order or any condition imposed by, or written agreement with, the Federal Reserve Board.
The FRB may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe or unsound practice or would violate any law, regulation, FRB order or any condition imposed by, or written agreement with, the FRB.
The principal exceptions to these prohibitions involve certain non-bank activities which, by statute or by Federal Reserve Board regulation or order, have been identified as activities closely related to the business of banking or managing or controlling banks.
The principal exceptions to these prohibitions involve certain non-bank activities which, by statute or by FRB regulation or order, have been identified as activities closely related to the business of banking or managing or controlling banks.
Business Strategy We are focused on being the banking provider of choice in our highly attractive market areas through: • Responsive, Client-Centric Products and Services and a Community Focus. We offer a broad array of products and services which we customize to allow us to focus on building long-term relationships with our clients through high-quality, responsive and personal service.
Business Strategy We are focused on being the banking provider of choice in our highly attractive market area through: • Responsive, Client-Centric Products and Services and a Community Focus. We offer a broad array of customized products and services which allows us to focus on building long-term relationships with our clients through high-quality, responsive and personal service.
The CARES Act temporarily - and retroactively - modified the net operating loss rules to permit carryback of net operating losses generated in 2018, 2019 and 2020 for five years. A corporation may elect to waive the carryback period and only carry these net operating losses forward to future years.
The Coronavirus Aid, Relief, and Economic Security Act ("CARES") temporarily - and retroactively - modified the net operating loss rules to permit carryback of net operating losses generated in 2018, 2019 and 2020 for five years. A corporation may elect to waive the carryback period and only carry these net operating losses forward to future years.
The five-year carryback provision of the CARES Act is not available for losses generated in 2021 and subsequent years. At December 31, 2022, we had $1.8 million of net operating loss carryforwards for federal income tax purposes. The carryovers were transferred to the Company upon the merger with The Wilton Bank in 2014.
The five-year carryback provision of the CARES Act is not available for losses generated in 2021 and subsequent years. At December 31, 2023, w e had $1.6 million of net operating loss carryforwards for federal income tax purposes. The carryovers were transferred to the Company upon the merger with The Wilton Bank in 2014.
We provide banking technology, including remote deposit capture, Internet banking and mobile banking, to offer our clients maximum flexibility and to create a scalable platform to accommodate our future growth aspirations. We believe that our advanced technology combined with responsive and personal service provides our clients with an exceptional banking experience.
We provide banking technology, including online account opening, mobile and internet banking, and remote deposit capture to offer our clients maximum flexibility and to create a scalable platform to accommodate our future grow th aspirations. We believe that our advanced technology combined with responsive and personal service provides our clients with an exceptional banking experience.
A relationship in this instance is defined as loans made to different entities but with a shared borrower principal(s). For individual loans and loans dependent on the operation of a business, limits are set so as not to exceed the statutory maximum of 15% of unimpaired capital and allowance for loan losses.
A relationship in this instance is defined as loans made to different entities but with a shared borrower principal(s). For individual loans and loans dependent on the operation of a b usiness, limits are set so as not to exceed the statutory maximum of 15% of equity capital and allowance for credit losses.
Our commercial loan portfolio presents a higher risk than our consumer real estate and consumer loan portfolios. Consumer loans. As of December 31, 2022, our consumer loans represented less than 1% of our total loan portfolio.
Our commercial loan portfolio presents a higher risk than our consumer real estate and consumer loan portfolios. Consumer loans. As of December 31, 2023, our consumer loans represented 1.3% of our total loan portfolio.
Under this policy, the Federal Reserve Board may require, and has required in the past, a bank holding company to contribute additional capital to an under-capitalized subsidiary bank.
Under this policy, the FRB may require, and has required in the past, a bank holding company to contribute additional capital to an under-capitalized subsidiary bank.
The Federal Reserve Board also indicated that it would be inappropriate for a bank holding company experiencing serious financial problems to borrow funds to pay dividends. As discussed above, the Federal Reserve Board’s Small Bank 11 Holding Company Policy Statement includes provisions regulating the payment of dividends by companies subject to that policy statement.
The FRB also indicated that it would be inappropriate for a bank holding company experiencing serious financial problems to borrow funds to pay dividends. As discussed above, the FRB’s Small Bank Holding Company Policy Statement includes provisions regulating the payment of dividends by companies subject to that policy statement.
We do not expect to compete with large institutions for the primary banking relationships of large corporations.
We do not e xpect to compete with large institutions for the primary banking relationships of large corporations.
We focus our lending activities on loans that we originate to borrowers located in our market or with whom the Bank’s senior management has long-standing relationships. We have established an informal, internal lending limit to one relationship of up to 40% of unimpaired capital and allowance for loan losses, if secured by commercial real estate.
We focus our lending activities on loans that we originate to borrowers located in our market or with whom the Bank’s senior management has long-standing relationships. We have established an internal lending guideline to one relationship of up to 30% of equity capital and allowance for credit losses, if secured by commercial real estate.
We believe that the Bank has been and will continue to be in compliance with each of the standards as they have been adopted by the FDICIA. Capital Requirements. The Federal Reserve Board monitors our capital adequacy, on a consolidated basis, and the FDIC and Connecticut Department of Banking monitor the capital adequacy of the Bank.
We believe that the Bank has been and will continue to be in compliance with each of the standards as they have been established by the FDICIA. Capital Requirements. The FRB monitors the Company's capital adequacy, on a consolidated basis, and the FDIC and Connecticut Department of Banking monitor the capital adequacy of the Bank.
We believe this gives us a competitive advantage over larger institutions that are not as nimble. Total loans before deferred loan fees and the allowance for loan losses were $2.7 billion at December 31, 2022. The following table summarizes the composition of our loan portfolio for the dates indicated.
We believe this gives us a competitive advantage over larger institutions that are not as nimble. 4 Total loans before deferred loan fees and the ACL-Loans were $2.7 billion at December 31, 2023. The following tables summarize the composition of our loan portfolio for the dates indicated.
We continually upgrade our operating infrastructure, particularly in the areas of technology, data processing, and compliance.
We continually invest in our operating infrastructure, particularly in the areas of technology, data processing, risk management, and compliance.
The Company’s existing governance and organizational structure incorporates a substantial risk management component through the following: • The retention of an independent accounting firm (separate from the Company’s auditors) that performs internal audit reviews; • The utilization of a Directors Loan Committee and ALCO, both comprised of directors of the Company; • Outsourcing of our asset/liability calculations to a reputable third party, including a quarterly assessment of interest rate risk, reviewed and validated by ALCO; • A Risk Management Steering Committee which is chaired by our Chief Risk Officer.
The Company’s existing governance and organizational structure incorporates a substantial risk management component through the following: • The retention of an independent firm (separate from the Company’s auditors) that performs internal audit reviews; • Oversight of various risk components by committees comprised of directors of the Company, including Directors' Loan Committee (credit), ALCO (asset and liability), Audit Committee (regulatory and compliance), and Technology Committee (information security and cybersecurity); • Outsourcing of our asset/liability calculations to a reputable third party, including a quarterly assessment of interest rate risk, reviewed and validated by ALCO; • A Risk Management Steering Committee which is chaired by our Chief Risk and Operations Officer.
For individual loans and loans dependent on the operation of a business, limits are set so as not to exceed the statutory maximum of 15% of unimpaired capital and allowance for loan losses. Our top 20 borrowing relationships range in exposure from $49.0 million to $127.5 million an d are monitored on an on-going basis. Loan approval process.
For individual loans and loans dependent on the operation of a business, limits are set so as not to exceed the statutory maximum of 15% of equity capital and allowance for credit losses. Our top 20 borrowing relationships range in exposure fro m $43.0 million to $92.0 million and are monitored on an on-going basis. Loan approval process.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAcquisition activities could be material to our business and involve a number of risks, including the following: • Incurring time and expense associated with identifying and evaluating potential acquisitions and negotiating potential transactions, resulting in our attention being diverted from the operation of our existing business; • Using inaccurate estimates and judgments to evaluate credit, operations, management and market risks with respect to the target institution or assets; • Intense competition from other banking organizations and other inquirers for acquisitions; • Potential exposure to unknown or contingent liabilities of banks and businesses we acquire; • The time and expense required to integrate the operations and employees of the combined businesses; • Experiencing higher operating expenses relative to operating income from the new operations; • Creating an adverse short-term effect on our results of operations; • Losing key employees and clients as a result of an acquisition that is poorly received; • Significant problems relating to the conversion of the financial and client data of the entity; • Inconsistencies in standards, controls, procedures and policies that adversely affect our ability to maintain relationships with clients, depositors and employees or to achieve the anticipated benefits of the acquisition; or • Risks of impairment to goodwill or other than temporary impairment.
Biggest changeAcquisition activities could be material to our business and involve a number of risks and challenges, including but not limited to: • Incurring time and expense associated with identifying and evaluating potential acquisitions and negotiating potential transactions, resulting in our attention being diverted from the operation of our existing business; • Encountering competition for acquisitions from financial institutions and other entities with similar business strategies that have greater financial resources, relevant experience and more employees; • Obtaining regulatory approvals with respect to acquisitions, and ensuring that we will not become subject to regulatory actions in the future that could restrict our growth; • Using inaccurate estimates and judgments to evaluate credit, operations, management and market risks with respect to the target institution or assets; • Potential exposure to unknown or contingent liabilities of banks and businesses we acquire; • The time and expense required to integrate the operations and employees of the combined businesses; • Inconsistencies in standards, controls, procedures and policies that adversely affect our ability to maintain relationships with clients, depositors and employees or to achieve the anticipated benefits of the acquisition; or • Risks of impairment to goodwill or other than temporary impairment.
Threats to data security, including unauthorized access and cyber-attacks, rapidly emerge and change, exposing us to additional costs for protection or remediation and competing time constraints to secure our data in accordance with client expectations, statutory and regulatory privacy and other requirements.
Threats to data security, including unauthorized access and cyber-attacks, rapidly emerge and change, exposing us to additional costs for protection or remediation and competing time constraints to secure our data in accordance with client expectations and statutory and regulatory privacy and other requirements.
If, as a result of an examination, a regulatory agency were to determine that our 25 financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any of our operations had become unsatisfactory, or that we were in violation of any law or regulation, it may take a number of different remedial actions as it deems appropriate.
If, as a result of an examination, a regulatory agency were to determine that our financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any of our operations had become unsatisfactory, or that we were in violation of any law or regulation, it may take a number of different remedial actions as it deems appropriate.
Based upon our current capital levels and our informal, internal limit on loans, the amount we may lend both in the aggregate and to any one borrower is significantly less than that of many of our competitors and may discourage potential borrowers who have credit needs in excess of our lending limit from doing business with us.
Based upon our current capital levels and our internal limit on loans, the amount we may lend both in the aggregate and to any one borrower is significantly less than that of many of our competitors and may discourage potential borrowers who have credit needs in excess of our lending limit from doing business with us.
Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, and our stock price. New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure. Item 1B.
Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, and our stock price. New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure. 27 Item 1B.
If a decision is made not to complete a specific 26 acquisition transaction, the costs incurred up to that point for the proposed transaction likely would not be recoverable. Furthermore, even if an agreement is reached relating to a specific target institution, we may fail to consummate the transaction for any number of reasons, including those beyond our control.
If a decision is made not to complete a specific acquisition transaction, the costs incurred up to that point for the proposed transaction likely would not be recoverable. Furthermore, even if an agreement is reached relating to a specific target institution, we may fail to consummate the transaction for any number of reasons, including those beyond our control.
During the construction phase, a number of factors can result in delays and cost overruns. If estimates of value are inaccurate or if actual 19 construction costs exceed estimates, the value of the property securing the loan may be insufficient to ensure full repayment when completed through a permanent loan or by sale of collateral.
During the construction phase, a number of factors can result in delays and cost overruns. If estimates of value are inaccurate or if actual construction costs exceed estimates, the value of the property securing the loan may be insufficient to ensure full repayment when completed through a permanent loan or by sale of collateral.
As a result, the global business community has increased its political and social awareness surrounding the issue, and the United States has entered into international agreements in an attempt to reduce global temperatures, such as reentering the Paris Agreement. Further, the U.S.
As a result, the global business community has increased its political and social awareness surrounding the issue, and the United States has entered into international agreements in an attempt to reduce global temperatures, such as the Paris Agreement. Further, U.S.
If any of this 23 information is intentionally or negligently misrepresented and such misrepresentation is not detected prior to loan funding, the value of the loan may be significantly lower than expected.
If any of this information is intentionally or negligently misrepresented and such misrepresentation is not detected prior to loan funding, the value of the loan may be significantly lower than expected.
In addition, asset values may be impaired, in the future due to factors we cannot predict, including significant deterioration in economic conditions and further declines in collateral values and credit quality indicators. Any of these events could adversely affect the financial condition, liquidity, capital position and value of any institutions that we acquire and of the Bank as a whole.
In addition, asset values may be impaired in the future due to factors we cannot predict, including significant deterioration in economic conditions and further declines in collateral values and credit quality indicators. Any of these events could adversely affect the financial condition, liquidity, capital position and value of any institutions that we acquire and of the Company as a whole.
Unauthorized access, cyber-crime and other threats to data security may require significant resources, harm our reputation, and adversely affect our business. We necessarily collect, use and hold personal and financial information concerning individuals and businesses with which we have a banking relationship.
Unauthorized access, cyber-crime, artificial intelligence, and other threats to data security may require significant resources, harm our reputation, and adversely affect our business. We necessarily collect, use and hold personal and financial information concerning individuals and businesses with which we have a banking relationship.
Our systems and those of our third-party vendors may also become vulnerable to damage or disruption due to circumstances beyond our or their control, such as from catastrophic events, power anomalies or outages, natural disasters, network failures, and viruses and malware.
Our systems and those of our third-party providers may also become vulnerable to damage or disruption due to circumstances beyond our or their control, such as from catastrophic events, power anomalies or outages, natural disasters, network failures, and viruses and malware.
Lack of seasoning of our loan portfolio could increase risk of credit defaults in the future. As a result of our growth over the past recent years, a large portion of loans in our loan portfolio and of our lending relationships are of relatively recent origin.
Lack of seasoning of our loan portfolio could increase risk of credit defaults in the future. As a result of our growth in recent years, a large portion of loans in our loan portfolio and of our lending relationships are of relatively recent origin.
Further, any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on our business, financial condition, results of operations and future prospects. In addition, an increase in interest rates could also have a negative impact on our results of operations by reducing the ability of borrowers to repay their current loan obligations.
Further, any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on our business, financial condition, results of operations and future prospects. In addition, increased interest rates could also have a negative impact on our results of operations by reducing the ability of borrowers to repay their current loan obligations.
Declines in home prices and/or weak general economic conditions may result in increases in delinquencies and losses in the loan portfolios and other assets of financial institutions that we may acquire in amounts that exceed our initial forecasts developed during the due diligence investigation prior to acquiring those institutions.
Declines in real estate prices and/or weak general economic conditions may result in increases in delinquencies and losses in the loan portfolios and other assets of financial institutions that we may acquire in amounts that exceed our initial forecasts developed during the due diligence investigation prior to acquiring those institutions.
Our inability to overcome these risks could have an adverse effect on our profitability, return on equity and return on assets, our ability to implement our business strategy and enhance shareholder value, which, in turn, could have a material adverse effect on our business, financial condition, results of operations and prospects.
Our inability to overcome these risks could have an adverse effect on our profitability, return on equity and return on assets, our ability to grow and enhance shareholder value, which, in turn, could have a material adverse effect on our business, financial condition, results of operations and prospects.
Our business depends on the successful and uninterrupted functioning of our information technology and telecommunications systems and third-party servicers. The failure of these systems, or the termination of a third-party software license or service agreement on which any of these systems is based, could interrupt our operations.
Our business depends on the successful and uninterrupted functioning of our information technology and telecommunications systems and third-party servicers. The failure of these systems (including cyber attacks), or the termination of a third-party software license or service agreement on which any of these systems is based, could interrupt our operations.
The occurrence of any failures, interruptions or security breaches, including cyber-attacks of our information systems could damage our reputation, result in the loss of business, subject us to increased regulatory scrutiny or to civil litigation and possible financial liability, any of which could have an adverse effect on our results of operation and financial condition.
The occurrence of any failures, interruptions, or security breaches, including cyber-attacks of our information systems and those of our third-party providers could damage our reputation, result in the loss of business, subject us to increased regulatory scrutiny or to civil litigation and possible financial liability, any of which could have an adverse effect on our results of operation and financial condition.
Even if we conduct extensive due diligence on a target institution with which we combine, this diligence may not reveal all material issues that may affect a particular target institution, and factors outside the control of the target institution and outside of our control may later arise.
Even if we conduct extensive due diligence on a target institution, this diligence may not reveal all material issues that may affect a particular target institution, and factors outside the control of the target institution and outside of our control may later arise.
If we are required to re-value the collateral securing a loan to satisfy the debt during a period of reduced real estate values or to increase our allowance for loan losses, our profitability could be adversely affected, which could have a material adverse effect on our business, financial condition, results of operations and prospects.
If we are required to re-value the collateral securing a loan to satisfy the debt during a period of reduced real estate values or to increase our ACL-Loans, our profitability could be adversely affected, which could have a material adverse effect on our business, financial condition, results of operations and prospects.
If actual charge-offs in future periods exceed the amounts allocated to our allowance for loan losses, we may need additional provision for loan losses to restore the adequacy of our allowance for loan losses.
If actual charge-offs in future periods exceed the amounts allocated to our ACL-Loans, we may need additional provision for loan losses to restore the adequacy of our ACL-Loans.
Any of these factors, among others, could cause other-than-temporary impairments and realized and/or unrealized losses in future periods and declines in other comprehensive income, which could materially and adversely affect our business, results of operations, financial condition and prospects.
Any of these factors, among others, could cause credit losses and realized and/or unrealized losses in future periods and declines in other comprehensive income, which could materially and adversely affect our business, results of operations, financial condition and prospects.
In addition, our regulators, as an integral part of their examination process, review our loans and the adequacy of our allowance for loan losses and may direct us to make additions to our allowance for loan losses based on their judgments about information available to them at the time of their examination.
In addition, our regulators, as an integral part of their examination process, review our loans and the adequacy of our ACL-Loans and may direct us to make additions to our ACL-Loans based on their judgments about information available to them at the time of their examination.
Inaccurate management assumptions, continuing deterioration of economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require us to increase our allowance for loan losses.
Inaccurate management assumptions, continuing deterioration of economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require us to increase our ACL-Loans.
Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the U.S. Federal Reserve Board ("FRB").
Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the FRB.
Our allowance for loan losses may not be adequate to absorb losses inherent in our loan portfolio, which could have a material adverse effect on our financial condition and results of operations. We maintain an allowance for loan losses to provide for losses inherent in our loan portfolio.
Our ACL-Loans may not be adequate to absorb losses inherent in our loan portfolio, which could have a material adverse effect on our financial condition and results of operations. We maintain an Allowance for Credit Losses for Loans ("ACL-Loans") to provide for losses inherent in our loan portfolio. Maintaining an adequate ACL-Loans is critical to our financial results and condition.
These circumstances could not only result in increased loan defaults, foreclosures and charge-offs, but also necessitate further increases to our allowance for loan losses, each of which could have a material adverse effect on our business, results of operations, financial condition and future prospects. Strong competition could reduce our profits and slow growth.
These circumstances could not only result in increased loan defaults, foreclosures and charge-offs, but also necessitate further increases to our ACL-Loans, each of which could have a material adverse effect on our business, results of operations, financial condition and future prospects. Strong competition could reduce our profits and slow growth. Competition in the financial services industry is strong.
We cannot provide assurance that we have detected or will detect all misrepresented information in our loan originations, however, we have controls and processes designed to help us identify misrepresented information in our loan origination operations.
We cannot provide assurance that we have detected or will detect all misrepresented information in our loan originations, however, we have controls and processes designed to help us identify misrepresented information in our loan origination operations, including human oversight of AI activity.
Competition in the financial services industry is strong. Numerous commercial banks, savings banks and savings associations maintain offices or are headquartered in or near our market area. Commercial banks, savings banks, savings associations, money market funds, mortgage brokers, finance companies, credit unions, insurance companies, investment firms 20 and private lenders compete with us for various segments of our business.
Numerous commercial banks, savings banks and savings associations maintain offices or are headquartered in or near our market area. Commercial banks, savings banks, savings associations, money market funds, mortgage brokers, finance companies, credit unions, insurance companies, investment firms and private lenders compete with us for various segments of our business.
As a result of an investment or acquisition transaction, we may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on our financial condition and results of operations, which could cause you to lose some or all of your investment. 22 We must conduct due diligence investigations of target institutions we intend to acquire.
As a result of an investment or acquisition transaction, we may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on our financial condition and results of operations, which could cause you to lose some or all of your investment.
The determination of the 18 appropriate level of the allowance for loan losses is inherently highly subjective and requires us to make significant estimates of and assumptions regarding current credit risks and future trends, all of which may undergo material changes.
The determination of the appropriate level of the ACL-Loans is inherently highly subjective and requires us to make significant estimates of and assumptions regarding current credit risks and future trends, all of which may undergo material changes.
A decline in real estate values c ould impair the value of our collateral and our ability to sell the collateral upon any foreclosure, which would likely require us to increase our provision for loan losses.
A decline in real estate values c ould impair the value of our collateral and our ability to sell the 20 collateral upon any foreclosure, which would likely require us to increase our ACL-Loans.
We are subject to extensive regulation and supervision that governs almost all aspects of our operations. As a registered bank holding company, we are subject to supervision, regulation and examination by the Federal Reserve.
Banking is highly regulated under federal and state law. We are subject to extensive regulation and supervision that governs almost all aspects of our operations. As a registered bank holding company, we are subject to supervision, regulation and examination by the Federal Reserve.
In addition, economic conditions in foreign countries, including uncertainty over the stability of the euro currency, could affect the stability of global financial markets, which could hinder U.S. economic growth.
In addition, economic conditions in foreign countries could affect the stability of global financial markets, which could hinder U.S. economic growth.
General Risk Factors Resources could be expended in considering or evaluating potential acquisitions that are not consummated, which could materially and adversely affect subsequent attempts to locate and acquire or merge with another business.
Any of these results could materially and adversely affect our business, financial condition, results of operations and prospects. General Risk Factors Resources could be expended in considering or evaluating potential acquisitions that are not consummated, which could materially and adversely affect subsequent attempts to locate and acquire or merge with another business.
In addition, charges of this nature may cause us to violate net worth or other covenants to which we may be subject as a result of assuming preexisting debt held by a target institution or by virtue of our obtaining debt financing. Our lending limit may restrict our growth and prevent us from effectively implementing our business strategy.
In addition, charges of this nature may cause us to violate net worth or other covenants to which we may be subject as a result of assuming preexisting debt held by a target institution or by virtue of our obtaining debt financing.
If we are unable to compete effectively for loans from our target clients, we may not be able to effectively implement our business strategy, which could have a material adverse effect on our business, financial condition, results of operations and future prospects.
If we are unable to compete effectively for loans from our target clients, we may not be able to effectively implement our business strategy, which could have a material adverse effect on our business, financial condition, results of operations and future prospects. A prolonged downturn in the real estate market could result in losses and adversely affect our profitability.
The unexpected loss of services of any of our key employees could have an adverse impact on us because of their skills, knowledge of our market, years of industry experience and the difficulty of promptly finding qualified replacement employees.
We believe that retaining the services and skills of our executive management team is important to our success. The unexpected loss of services of any of our key employees could have an adverse impact on us because of their skills, knowledge of our market, years of industry experience and the difficulty of promptly finding qualified replacement employees.
If we are required to materially increase our level of allowance for loan losses for any reason, such increase could have a material adverse effect on our business, financial condition, results of operations and future prospects.
If we are required to materially increase our level of ACL-Loans for any reason, such increase could have a material adverse effect on our business, financial condition, results of operations and future prospects. Our concentration of large loans to certain borrowers may increase our credit risk.
If any of our key employees should become unavailable for any reason, we may be unable to identify and hire qualified candidates on acceptable terms, which could cause a material adverse effect on our business, financial condition, results of operations and future prospects. The fair value of our investment securities can fluctuate due to factors outside of our control.
If any of our key employees should become unavailable for any reason, we may be unable to identify and hire qualified candidates on acceptable terms, which could cause a material adverse effect on our business, financial condition, results of operations and future prospects. We may not be able to execute our strategic plan.
If any one of these borrowers becomes unable to repay a loan obligation(s) for any reason, our nonperforming loans and our allowance for loan losses could increase significantly, which could adversely and materially affect our business, financial condition and results of operations.
If any one of these borrowers becomes unable to repay a loan obligation(s) for any reason, our nonperforming loans and our ACL-Loans could increase significantly, which could adversely and materially affect our business, financial condition and results of operations. 19 Our commercial real estate loan, commercial loan and construction loan portfolios expose us to potentially elevated risks.
A breach of our security that results in unauthorized access to our data could expose us to a disruption or challenges relating to our daily operations as well as to data loss, litigation, damages, fines and penalties, significant increases in compliance costs, and reputational damage, any of which could have a material adverse effect on our business, results of operations, financial condition and future prospects.
A breach of our security, or that of any of our third-party providers, which results in unauthorized access to our data could expose us to a disruption or challenges relating to our daily operations as well as to data loss, litigation, damages, fines and penalties, significant increases in compliance costs, and reputational damage, any of which could have a material adverse effect on our business, results of operations, financial condition and future prospects. 22 We are subject to losses due to fraudulent and negligent acts on the part of loan applicants, our clients, vendors, bad actors, and/or our employees.
If our policies, procedures and systems are deemed deficient, we would be subject to liability, including fines and regulatory actions, which may include restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including our acquisition plans.
If our policies, procedures and systems are deemed deficient, we would be subject to liability, including fines and regulatory actions, which may include restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including our acquisition plans. 26 Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us.
The process for determining whether impairment of a security is other-than-temporary usually requires complex, subjective judgments about the future financial performance and liquidity of the issuer and any collateral underlying the security in order to assess the probability of receiving all contractual principal and interest payments on the security.
The process for determining whether credit losses of a security usually requires complex, subjective judgments about the future financial performance and liquidity of the issuer and any collateral underlying the security in order to assess the probability of receiving all contractual principal and interest payments on the security. We are subject to environmental liability risk associated with our lending activities.
In addition to other typical risks related to any loan, such as deterioration of the collateral securing the loans, this high concentration of borrowers presents a risk to our lending operations.
As of December 31, 2023, our five largest relationships ranged in exposure from approximately $85.0 million to $92.0 million. In addition to other typical risks related to any loan, such as deterioration of the collateral securing the loans, this high concentration of borrowers presents a risk to our lending operations.
The Bank’s regular assessments are determined by its risk classification, which is based on its regulatory capital levels and the level of supervisory concern that it poses.
The deposits of the Bank are insured by the FDIC up to legal limits and, consequently, subject it to the payment of FDIC deposit insurance assessments. The Bank’s regular assessments are determined by its risk classification, which is based on its regulatory capital levels and the level of supervisory concern that it poses.
Intensive due diligence is time consuming and expensive due to the operations, accounting, finance and legal professionals who must be involved in the due diligence process.
We must conduct due diligence investigations of target institutions we intend to acquire. Intensive due diligence is time consuming and expensive due to the operations, accounting, finance and legal professionals who must be involved.
Risks Applicable to the Regulation of our Industry We operate in a highly regulated environment, which could have a material and adverse impact on our operations and activities, financial condition, results of operations, growth plans and future prospects. Banking is highly regulated under federal and state law.
Any future bank failure events may adversely impact the Bank’s future operating results and financial condition, including capital and liquidity. Risks Applicable to the Regulation of our Industry We operate in a highly regulated environment, which could have a material and adverse impact on our operations and activities, financial condition, results of operations, growth plans and future prospects.
Maintaining an adequate allowance for loan losses is critical to our financial results and condition. The level of our allowance for loan losses reflects management’s continuing evaluation of general economic conditions, diversification and seasoning of the loan portfolio, historic loss experience, identified credit problems, delinquency levels and adequacy of collateral.
The level of our ACL-Loans reflects management’s continuing evaluation of general economic conditions, diversification and seasoning of the loan portfolio, historic loss experience, identified credit problems, delinquency levels and adequacy of collateral.
It is difficult or impossible to defend against every risk being posed by changing technologies, as well as criminal intent on committing cyber-crime. Increasing sophistication of cyber-criminals and terrorists make keeping up with new threats difficult and could result in a breach. Controls employed by our information technology department and our other employees and vendors could prove 21 inadequate.
It is difficult or impossible to defend against every risk being posed by changing technologies, including the deployment of artificial intelligence ("AI") as well as criminals intent on committing cyber-crime. The increasing sophistication of cyber-criminals and terrorists make keeping pace with new threats difficult and could result in a breach.
Some institutions we may acquire may have distressed assets and there can be no assurance that we would be able to realize the value we predict from these assets or that we would make sufficient provision for future losses in the value of, or accurately estimate the future write downs taken in respect of, these assets.
Further, if we experience difficulties with the integration process, the anticipated benefits of the investment or acquisition transaction may not be realized fully or at all or may take longer to realize than expected. 23 Some institutions we may acquire may have distressed assets and there can be no assurance that we would be able to realize the value we predict from these assets or that we would make sufficient provision for future losses in the value of, or accurately estimate the future write downs taken in respect of, these assets.
We rely on communication and information systems to conduct business. Potential failures, interruptions or breaches in system security could result in disruptions or failures in our key systems, such as general ledger, deposit or loan systems.
Potential failures, interruptions or breaches in system security could result in disruptions or failures in our key systems, such as general ledger, deposit or loan systems as well as online banking.
Federal and state regulators periodically examine our business and we may be required to remediate adverse examination findings. The Federal Reserve, the FDIC and the Connecticut Department of Banking periodically examine our business, including our compliance with laws and regulations.
The Federal Reserve, the FDIC and the Connecticut Department of Banking periodically examine our business, including our compliance with laws and regulations.
When we originate loans, we rely heavily upon information supplied by third parties, including the information contained in the loan application, property appraisal, title information and employment and income documentation.
When we originate loans, we rely heavily upon information supplied by third parties, including the information contained in the loan application, property appraisal, title information and employment and income documentation. Additionally, the current and potential future utilization of AI by the Company in support of loan origination could create additional risk for misrepresented information.
These loans typically involve repayment dependent upon income generated, or expected to be generated, by the property securing the loan in amounts sufficient to cover operating expenses and debt service.
Our loan portfolio includes non-owner-occupied commercial real estate loans for individuals and businesses for various purposes, which are secured by commercial properties. These loans typically involve repayment dependent upon income generated, or expected to be generated, by the property securing the loan in amounts sufficient to cover operating expenses and debt service.
Accordingly, the pandemic and related dynamics could materially and adversely affect our business, operations, operating results, financial condition, liquidity or capital levels. Climate change and related legislative and regulatory initiatives may materially affect the Company’s business and results of operations. The effects of climate change continue to create an alarming level of concern for the state of the global environment.
Any significant environmental liabilities could cause a material adverse effect on our business, financial condition, results of operations and future prospects. 24 Climate change and related legislative and regulatory initiatives may materially affect the Company’s business and results of operations. The effects of climate change continue to create an alarming level of concern for the state of the global environment.
If our reputation is negatively affected by the actions of our employees, or otherwise, our business and, therefore, our operating results may be materially adversely affected. We may not be able to execute our executive management team’s growth strategy.
If our reputation is negatively affected by the actions of our employees, or otherwise, our business and, therefore, our operating results may be materially adversely affected. 21 We are dependent on our executive management team and other key employees, and we could be adversely affected by the unexpected loss of their services.
If repurchase and indemnity demands increase and such demands are valid claims and are in excess of our provision for potential losses, our liquidity, results of operations and financial condition may be adversely affected. We are subject to losses due to fraudulent and negligent acts on the part of loan applicants, our clients, vendors, bad actors, and/or our employees.
If repurchase and indemnity demands increase and such demands are valid claims and are in excess of our provision for potential losses, our liquidity, results of operations and financial condition may be adversely affected. The fair value of our investment securities can fluctuate due to factors outside of our control.
Further, any new laws, rules and regulations, could make compliance more difficult or expensive. All of these laws and regulations, and the supervisory framework applicable to our industry, could have a material adverse impact on our operations and activities, financial condition, results of operations, growth plans and future prospects.
All of these laws and regulations, and the supervisory framework applicable to our industry, could have a material adverse impact on our operations and activities, financial condition, results of operations, growth plans and future prospects. 25 Federal and state regulators periodically examine our business and we may be required to remediate adverse examination findings.
If defaults increase, we could experience an increase in delinquencies and charge-offs and we may be required to increase our allowance for loan losses, which could have a material adverse effect on our business, financial condition, results of operations and prospects. A prolonged downturn in the real estate market could result in losses and adversely affect our profitability.
If defaults increase, we could experience an increase in delinquencies and charge-offs and we may be required to increase our ACL-Loans, which could have a material adverse effect on our business, financial condition, results of operations and prospects. Our lending limit may restrict our growth and prevent us from effectively implementing our business strategy.
We are dependent on our executive management team and other key employees and we could be adversely affected by the unexpected loss of their services. We are led by an experienced executive management team and our operating strategy focuses on providing products and services through long-term relationship managers.
We are led by an experienced executive management team and our operating strategy focuses on providing products and services through long-term relationship managers. Accordingly, our success depends in large part on the performance of our key employees, as well as on our ability to attract, motivate and retain highly qualified senior and middle management.
To mitigate this risk, we maintain effective policies and internal controls along with ongoing employee training to identify and prevent such incidents. We are subject to environmental liability risk associated with our lending activities. In the course of our business, we may purchase real estate, or we may foreclose on and take title to real estate.
To mitigate this risk, we maintain effective policies and internal controls along with ongoing employee training to identify and prevent such incidents. We may be unsuccessful in identifying and completing the acquisition of whole financial institutions or related lines of business.
Any regulatory action against us could have a material adverse effect on our business, results of operations, financial condition and future prospects. The Bank’s FDIC deposit insurance premiums and assessments may increase. The deposits of the Bank are insured by the FDIC up to legal limits and, consequently, subject it to the payment of FDIC deposit insurance assessments.
Any regulatory action against us could have a material adverse effect on our business, results of operations, financial condition and future prospects.
We could also experience a breach due to intentional or negligent conduct on the part of employees or other internal sources, software bugs or other technical malfunctions, or other causes. As a result of any of these threats, our client accounts may become vulnerable to account takeover schemes or cyber-fraud.
Controls employed by our information technology department and our other employees and third-party providers could prove inadequate. We could also experience a breach due to intentional or negligent conduct on the part of employees or other internal sources, software bugs or other technical malfunctions, or other causes.
Accordingly, our success depends in large part on the performance of our key employees, as well as on our ability to attract, motivate and retain highly qualified senior and middle management. Competition for employees is intense, and the process of identifying qualified candidates with the combination of skills and attributes required to execute our business plan may be lengthy.
Competition for employees is intense, and the process of identifying qualified candidates with the combination of skills and attributes required to execute our business plan may be lengthy. The general economic conditions plus other factors have made it more difficult to retain employees and to attract new employees.
As a result, we could be subject to environmental liabilities with respect to these properties.
In the course of our business, we may purchase real estate, or we may foreclose on and take title to real estate. As a result, we could be subject to environmental liabilities with respect to these properties.
Removed
The implementation of Current Expected Credit Loss (“CECL”), which will require us to increase our allowance for loan losses, could have a material adverse effect on our financial condition and results of operation. The Financial Accounting Standards Board (“FASB”) has adopted a new accounting standard, CECL, effective for the Company as of January 1, 2023.
Added
During the 2022-2023 cycle, the FRB increased the target range for the federal funds rate 11 times to slow inflation but has held such rates steady at 5.25%-5.50% since July 2023, citing several factors, including reduced inflationary pressure and steady job and wage growth.
Removed
CECL will require financial institutions to determine periodic estimates of lifetime expected credit losses on loans, other financial instruments and other commitments to extend credit and provide for the expected credit losses as allowances for credit losses.
Added
As part of our strategic plan, we pursue initiatives focused on the organic development and growth of our franchise. Our initiatives focus on delivering superior service to our clients, coupling technology with our deep client relationships. Our ability to execute these initiatives requires investment in resources as well as hiring and retaining skilled employees.
Removed
This will change our current method of providing allowance for loan losses that are probable and require us to record an allowance for credit losses as of January 1, 2023 materially in excess of our existing allowance for loan losses.
Added
Our success will depend on the ability of our management team to manage multiple, concurrent initiatives designed to improve our operational systems and expand our product offerings. Our inability to execute on these initiatives may negatively impact our ability to attract new client relationships, maintain existing client relationships and may adversely impact our operating results.
Removed
CECL will also greatly increase the data we will need to collect and review to determine the appropriate level of the allowance for credit losses.
Added
Failure or disruption of the operating systems and technologies we use, including those of third parties, could adversely affect our business. We rely on communication and information systems to conduct business, many of which are provided by third-party providers.
Removed
Although we expect the Bank and the Company will continue to meet all applicable capital adequacy requirements following recording of the impact of adoption to shareholders’ equity, future provisioning for expected credit losses under CECL may have a material adverse effect on our financial condition and results of operations.
Added
Furthermore, we may not be able to ensure all our third-party providers have appropriate controls in place to protect themselves and our information in the event of a cyber-attack.
Removed
Our concentration of large loans to certain borrowers may increase our credit risk. A majority of our loans have been made to a small number of borrowers, resulting in a high concentration of loans to certain borrowers. As of December 31, 2022, our five largest relationships ranged in exposure from approximately $83.7 million to $127.5 million.
Added
As a result of any of these threats, our client accounts may become vulnerable to account takeover schemes or cyber-fraud.
Removed
Our commercial real estate loan, commercial loan and construction loan portfolios expose us to risks that may be greater than the risks related to our other mortgage loans. Our loan portfolio includes non-owner-occupied commercial real estate loans for individuals and businesses for various purposes, which are secured by commercial properties.
Added
In addition to pursuing organic growth, we may consider the acquisition of whole financial institutions or related lines of business to achieve desired growth. There are numerous execution risks with acquisitions, and we cannot assure you that we will be successful in such pursuits. We may consider acquisition opportunities that we believe complement our activities and can enhance our profitability.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe leases for our facilities have terms expiring at dates ranging from 2023 to 2031, although certain of the leases contain options to extend beyond these dates. We own the Hamden branch office. We believe that our current facilities are adequate for our current level of operations.
Biggest changeWe also lease office space for each of our branch offices in New Canaan, Stamford, Norwalk, Fairfield, Darien, and Westport, Connecticut. The leases for our facilities have terms expiring at dates rangin g from 2028 to 2033, although certain of the leases contain options to extend beyond these dates. We own the Hamden branch office.
Each lease is at market rate based on similar properties in the applicable market area. Management continually evaluates its branch and other office locations for opportunities to maximize cost savings while meeting our growth needs and the needs of our clients.
We believe that our current facilities are adequate for our current level of operations. Each lease is at market rate based on similar properties in the applicable market area. Management continually evaluates its branch and other office locations for opportunities to maximize cost savings while meeting our growth needs and the needs of our clients.
Our branch office locations are as follows: Branch Address Owned or Leased Cherry Street 156 Cherry Street New Canaan, CT 06840 Lease (expires 2031) Bedford 612 Bedford Street Stamford, CT 06901 Lease (expires April 2023) (1) High Ridge 1095 High Ridge Road Stamford, CT 06905 Lease (expires 2028) Black Rock 2220 Black Rock Turnpike Fairfield, CT 06825 Lease (expires 2024) Sasco Hill One Sasco Hill Road Fairfield, CT 06824 Lease (expires 2031) Norwalk 370 Westport Avenue Norwalk, CT 06851 Lease (expires 2029) Hamden 2704 Dixwell Avenue Hamden, CT 06518 Own Westport 100 Post Road East Westport, CT 06880 Lease (expires 2028) Darien 1065 Post Road Darien, CT 06820 Lease (expires 2028) (1) Effective March 1, 2023, the Bank received final regulatory approval to proceed with the opening of a retail branch located at 300 Atlantic Street, Stamford, CT.
Our branch office locations are as follows: Branch Address Owned or Leased Cherry Street 156 Cherry Street New Canaan, CT 06840 Lease (expires 2031) Atlantic Street 300 Atlantic Street Stamford, CT 06901 Lease (expires 2033) High Ridge 1095 High Ridge Road Stamford, CT 06905 Lease (expires 2028) Black Rock 2220 Black Rock Turnpike Fairfield, CT 06825 Lease (expires 2029) Sasco Hill One Sasco Hill Road Fairfield, CT 06824 Lease (expires 2031) Norwalk 370 Westport Avenue Norwalk, CT 06851 Lease (expires 2029) Hamden 2704 Dixwell Avenue Hamden, CT 06518 Own Westport 100 Post Road East Westport, CT 06880 Lease (expires 2028) Darien 1065 Post Road Darien, CT 06820 Lease (expires 2028)
Item 2. Properties The Bank’s headquarter building is located at 258 Elm Street in New Canaan, Connecticut. The property is leased by us until 2031. In December 2021, the Bank sold the property located at 220 Elm Street in New Canaan, Connecticut, which was previously used for our executive management offices.
Item 2. Properties The Bank’s headquarter building is located at 258 Elm Street in New Canaan, Connecticut. The property is leased by us until 2031. On April 24, 2023, the Bank established a new retail branch located at 300 Atlantic Street, Stamford, CT. This replaced the branch located at 612 Bedford Street, Stamford, CT, which closed on April 21, 2023.
Removed
During the second quarter of 2022, the Company sold its Wilton branch building that was previously classified as held for sale. On October 7, 2022, the Company closed the Wilton branch. 27 We also lease office space for each of our branch offices in New Canaan, Stamford, Norwalk, Fairfield, Darien, and Westport, Connecticut.
Removed
This branch will replace the 612 Bedford Street, Stamford, CT location, which is scheduled to close in April 2023.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed1 unchanged
Biggest changeItem 4. Mine Safety Disclosures Not applicable. 28 PART II
Biggest changeItem 4. Mine Safety Disclosures Not applicable. 29 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe Company’s shareholders are entitled to dividends when and if declared by the Board of Directors, out of funds legally available. The ability of the Company to pay dividends depends, in part, on the ability of the Bank to pay dividends to the Company.
Biggest changeThis number does not reflect the number of persons or en tities holding stock in nominee name through banks, brokerage firms or other nominees. The Company’s shareholders are entitled to dividends when and if declared by the Board of Directors, out of funds legally available.
Issuer Purchases of Equity Securities Period Total Number of Shares (or Units) Purchased Average Price Paid per Share (or Unit) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (1) October 1, 2022 - October 31, 2022 — $ — — 150,188 November 1, 2022 - November 30, 2022 — — — 150,188 December 1, 2022 - December 31, 2022 — — — 150,188 Total — $ — — 150,188 (1) On December 19, 2018, the Company’s Board of Directors authorized a share repurchase program of up to 400,000 shares of the Company’s Common Stock.
Issuer Purchases of Equity Securities Period Total Number of Shares (or Units) Purchased Average Price Paid per Share (or Unit) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (1) October 1, 2023 - October 31, 2023 — $ — — 150,188 November 1, 2023 - November 30, 2023 — — — 150,188 December 1, 2023 - December 31, 2023 — — — 150,188 Total — $ — — 150,188 (1) On December 19, 2018, the Company’s Board of Directors authorized a share repurchase program of up to 400,000 shares of the Company’s Common Stock.
The share repurchase plan does not obligate the Company to acquire any particular amount of Common Stock, and it may be modified or suspended at any time at the Company's discretion. On October 27, 2021, the Company's Board of Directors authorized the repurchase of an additional 200,000 shares under its existing share repurchase program. Item 6. [Reserved] 29
The share repurchase plan does not obligate the Company to acquire any particular amount of Common Stock, and it may be modified or suspended at any time at the Company's discretion. On October 27, 2021, the Company's Board of Directors authorized the repurchase of an additional 200,000 shares under its existing share repurchase program.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company’s Common Stock has traded on the NASDAQ Global Market under the Symbol “BWFG” since the completion of its initial public offering on May 15, 2014.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company’s Common Stock has traded on the Nasdaq Global Market under the Symbol “BWFG” since the completion of its initial public offering on May 15, 2014. There were approx imately 251 shareholders of record of BWFG Common Stock as of December 31, 2023.
In accordance with Connecticut statutes, regulatory approval is required for the Bank to pay dividends in excess of the Bank’s profits retained in the current year plus retained profits from the previous two years. The Bank is also prohibited from paying dividends that would reduce its capital ratios below minimum regulatory requirements.
The ability of the Company to pay dividends depends, in part, on the ability of the Bank to pay dividends to the Company. In accordance with Connecticut statutes, regulatory approval is required for the Bank to pay dividends in excess of the Bank’s profits retained in the current year plus retained profits from the previous two years.
Issuer Purchases of Equity Securities The following table includes information with respect to repurchases of the Company’s Common Stock during the three‑month period ended December 31, 2022 under the Company’s share repurchase program.
The Bank is also prohibited from paying dividends that would reduce its capital ratios below minimum regulatory requirements. Issuer Purchases of Equity Securities The following table includes information with respect to repurchases of the Company’s Common Stock during the three‑month period ended December 31, 2023 under the Company’s share repurchase program.
Removed
There were approximate ly 263 sh areholders of record of BWFG Common Stock as of December 31, 2022. This number does not reflect the number of persons or entities holding stock in nominee name through banks, brokerage firms or other nominees.
Added
Subsequent to December 31, 2023 through March 11, 2024, the Company purchased 17,239 shares of its Common Stock at a weighted average price of $25.12 per share. Item 6. [Reserved] 30

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

117 edited+54 added−50 removed81 unchanged
Biggest changeYou should read the following selected statistical and financial data in conjunction with the more detailed information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes that we have presented elsewhere in this Annual Report. 30 Selected Financial Data At or For the Years Ended December 31, 2022 2021 2020 (g) 2019 2018 (Dollars in thousands, except per share data) Statements of Income: Interest income $ 117,945 $ 81,376 $ 77,487 $ 82,948 $ 80,064 Interest expense 23,202 13,490 22,652 29,187 23,738 Net interest income 94,743 67,886 54,835 53,761 56,326 Provision (credit) for loan losses 5,437 (57) 7,605 437 3,440 Net interest income after provision for loan losses 89,306 67,943 47,230 53,324 52,886 Noninterest income 3,040 5,657 2,884 5,244 3,900 Noninterest expense 44,363 39,739 42,813 35,626 35,633 Income before income tax 47,983 33,861 7,301 22,942 21,153 Income tax expense 10,554 7,275 1,397 4,726 3,720 Net income 37,429 26,586 5,904 18,216 17,433 Per Share Data: Basic earnings per share $ 4.84 $ 3.38 $ 0.75 $ 2.32 $ 2.23 Diluted earnings per share $ 4.79 $ 3.36 $ 0.75 $ 2.31 $ 2.21 Book value per share (end of period) (a) 31.73 26.53 22.77 23.51 22.43 Tangible book value per share (end of period) (a)(b) 31.39 26.19 22.43 23.15 22.06 Dividend payout ratio (f) 16.70 % 19.05 % 74.67 % 22.51 % 21.72 % Shares outstanding (end of period) (a) 7,516,699 7,612,807 7,755,909 7,757,828 7,764,647 Weighted average shares outstanding–basic 7,563,363 7,706,407 7,728,328 7,757,355 7,722,175 Weighted average shares outstanding–diluted 7,640,218 7,761,811 7,748,453 7,784,631 7,775,480 Performance Ratios: Return on average assets (c) 1.44 % 1.17 % 0.28 % 0.97 % 0.94 % Return on average common shareholders’ equity (b) 16.72 % 13.86 % 3.35 % 10.20 % 10.19 % Average shareholders’ equity to average assets 8.61 % 8.46 % 8.36 % 9.53 % 9.24 % Net interest margin 3.78 % 3.17 % 2.77 % 3.03 % 3.18 % Efficiency ratio (b) 45.4 % 53.9 % 73.9 % 60.2 % 59.2 % Asset Quality Ratios: Total past due loans to total loans (d) 0.60 % 1.72 % 0.93 % 0.77 % 0.78 % Nonperforming loans to total loans (d) 0.61 % 0.88 % 2.06 % 0.66 % 0.88 % Nonperforming assets to total assets (e) 0.51 % 0.68 % 1.48 % 0.56 % 0.75 % Allowance for loan losses to nonperforming loans 136.43 % 101.90 % 62.87 % 127.59 % 109.80 % Allowance for loan losses to total loans (d) 0.84 % 0.89 % 1.29 % 0.84 % 0.96 % Net charge-offs (recoveries) to average loans (d) — % 0.23 % 0.01 % 0.15 % 0.44 % Statements of Financial Condition: Total assets $ 3,252,449 $ 2,456,264 $ 2,253,747 $ 1,882,182 $ 1,873,665 Gross portfolio loans (d) 2,675,448 1,894,881 1,625,627 1,604,484 1,604,726 Investment securities 121,634 108,409 106,890 100,865 116,584 Deposits 2,800,818 2,123,998 1,827,316 1,491,903 1,502,244 FHLB borrowings 90,000 50,000 175,000 150,000 160,000 Subordinated debt 68,959 34,441 25,258 25,207 25,155 Total equity 238,469 201,987 176,602 182,397 174,196 Capital Ratios: Tier 1 capital to average assets Bankwell Bank 9.88 % 9.94 % 8.44 % 10.99 % 10.14 % Tier 1 capital to risk-weighted assets Bankwell Bank 10.28 % 11.18 % 11.06 % 12.53 % 11.56 % Total capital to risk-weighted assets Bankwell Bank 11.07 % 12.00 % 12.28 % 13.35 % 12.50 % Total shareholders’ equity to total assets 7.33 % 8.22 % 7.84 % 9.69 % 9.30 % Tangible common equity ratio (b) 7.26 % 8.13 % 7.73 % 9.56 % 9.16 % 31 (a) Excludes unvested restricted stock awards.
Biggest changeYou should read the following selected statistical and financial data in conjunction with the more detailed information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes that we have presented elsewhere in this Annual Report. 31 Selected Financial Data At or For the Years Ended December 31, 2023 2022 2021 2020 (g) 2019 (Dollars in thousands, except per share data) Statements of Income: Interest income $ 188,454 $ 117,945 $ 81,376 $ 77,487 $ 82,948 Interest expense 93,986 23,202 13,490 22,652 29,187 Net interest income 94,468 94,743 67,886 54,835 53,761 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 Noninterest income 4,842 3,040 5,657 2,884 5,244 Noninterest expense 50,401 44,363 39,739 42,813 35,626 Income before income tax 48,043 47,983 33,861 7,301 22,942 Income tax expense 11,380 10,554 7,275 1,397 4,726 Net income 36,663 37,429 26,586 5,904 18,216 Per Share Data: Basic earnings per share $ 4.71 $ 4.84 $ 3.38 $ 0.75 $ 2.32 Diluted earnings per share $ 4.67 $ 4.79 $ 3.36 $ 0.75 $ 2.31 Book value per share (end of period) (a) 34.84 31.73 26.53 22.77 23.51 Tangible book value per share (end of period) (a)(b) 34.50 31.39 26.19 22.43 23.15 Dividend payout ratio (f) 17.13 % 16.70 % 19.05 % 74.67 % 22.51 % Shares outstanding (end of period) (a) 7,628,288 7,516,699 7,612,807 7,755,909 7,757,828 Weighted average shares outstanding–basic 7,587,768 7,563,363 7,706,407 7,728,328 7,757,355 Weighted average shares outstanding–diluted 7,647,411 7,640,218 7,761,811 7,748,453 7,784,631 Performance Ratios: Return on average assets (c) 1.13 % 1.44 % 1.17 % 0.28 % 0.97 % Return on average common shareholders’ equity (b) 14.55 % 16.72 % 13.86 % 3.35 % 10.20 % Average shareholders’ equity to average assets 7.74 % 8.61 % 8.46 % 8.36 % 9.53 % Net interest margin 2.98 % 3.78 % 3.17 % 2.77 % 3.03 % Efficiency ratio (b) 50.8 % 45.4 % 53.9 % 73.9 % 60.2 % Asset Quality Ratios: Total past due loans to total loans (d) 0.78 % 0.60 % 1.72 % 0.93 % 0.77 % Nonperforming loans to total loans (d) 1.81 % 0.61 % 0.88 % 2.06 % 0.66 % Nonperforming assets to total assets (e) 1.53 % 0.51 % 0.68 % 1.48 % 0.56 % ACL-Loans to nonperforming loans 56.79 % 136.43 % 101.90 % 62.87 % 127.59 % ACL-Loans to total loans (d) 1.03 % 0.84 % 0.89 % 1.29 % 0.84 % Net charge-offs (recoveries) to average loans (d) 0.03 % — % 0.23 % 0.01 % 0.15 % Statements of Financial Condition: Total assets $ 3,215,482 $ 3,252,449 $ 2,456,264 $ 2,253,747 $ 1,882,182 Gross portfolio loans (d) 2,718,607 2,675,448 1,894,881 1,625,627 1,604,484 Investment securities 127,623 121,634 108,409 106,890 100,865 Deposits 2,736,757 2,800,818 2,123,998 1,827,316 1,491,903 FHLB borrowings 90,000 90,000 50,000 175,000 150,000 Subordinated debt 69,205 68,959 34,441 25,258 25,207 Total equity 265,752 238,469 201,987 176,602 182,397 Capital Ratios: Tier 1 capital to average assets Bankwell Bank 9.81 % 9.88 % 9.94 % 8.44 % 10.99 % Tier 1 capital to risk-weighted assets Bankwell Bank 11.30 % 10.28 % 11.18 % 11.06 % 12.53 % Total capital to risk-weighted assets Bankwell Bank 12.32 % 11.07 % 12.00 % 12.28 % 13.35 % Total shareholders’ equity to total assets 8.26 % 7.33 % 8.22 % 7.84 % 9.69 % Tangible common equity ratio (b) 8.19 % 7.26 % 8.13 % 7.73 % 9.56 % 32 (a) Excludes unvested restricted stock awards.
In addition, the Bank pursues certain types of commercial lending opportunities outside our market, particularly where we have strong relationships. The Bank operates branches in New Canaan, Stamford, Fairfield, Westport, Darien, Norwalk, and Hamden, Connecticut. The following discussion and analysis presents our results of operations and financial condition on a consolidated basis.
In addition, the Bank pursues certain types of commercial lending opportunities outside our market, particularly where we have strong relationships. The Bank operates nine branches in New Canaan, Stamford, Fairfield, Westport, Darien, Norwalk, and Hamden, Connecticut. The following discussion and analysis presents our results of operations and financial condition on a consolidated basis.
Reciprocal amounts of deposits are received from other participating banks that do the same with their client deposits, and, we also execute one-way buy transactions. With the exception of reciprocal deposits, CDARS and ICS One-Way buy transactions are considered to be brokered deposits for bank regulatory purposes. Time deposits may also be generated through the use of a listing service.
Reciprocal amounts of deposits are received from other participating banks that do the same with their client deposits, and, we also execute one-way buy transactions. CDARS one-way and ICS one-way buy transactions are considered to be brokered deposits for bank regulatory purposes. Time deposits may also be generated through the use of a listing service.
If necessary, after the 90th day of delinquency, the Company may take other appropriate legal action. A summary report of all loans 30 days or more past due is provided to the Board of Directors of the Company periodically. Loans greater than 90 days 45 past due are generally put on nonaccrual status.
If necessary, after the 90th day of delinquency, the Company may take other appropriate legal action. A summary report of all loans 30 days or more past due is provided to the Board of Directors of the Company periodically. Loans greater than 90 days past due are generally put on nonaccrual status.
Full or partial charge-offs on collateral dependent impaired 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.
Full or partial charge-offs on collateral dependent loans are recognized when the collateral is deemed to be insufficient to support the carrying value of the loan. We do not recognize a recovery when an updated appraisal indicates a subsequent increase in value of the collateral.
Our Board of Directors monitors credit risk management. The Directors Loan Committee ("DLC") has primary oversight responsibility for the credit-granting function including approval authority for credit-granting policies, review of management’s credit-granting activities and approval of large exposure credit requests, as well as loan review and problem loan management and resolution.
Our Board of Directors monitors credit risk management. The Directors' Loan Committee ("DLC") has primary oversight responsibility for the credit-granting function including approval authority for credit-granting policies, review of management’s credit-granting activities and approval of large exposure credit requests, as well as loan review and problem loan management and resolution.
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.
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.
Members are required to own capital stock of the FHLB, and borrowings are collateralized by qualifying assets not otherwise pledged. The maximum amount of credit that the FHLB will extend varies from time to time, depending on its policies and the amount of qualifying collateral the member can pledge. The Bank had satisfied its collateral requirement at December 31, 2022.
Members are required to own capital stock of the FHLB, and borrowings are collateralized by qualifying assets not otherwise pledged. The maximum amount of credit that the FHLB will extend varies from time to time, depending on its policies and the amount of qualifying collateral the member can pledge. The Bank had satisfied its collateral requirement at December 31, 2023.
The Company and the Bank must maintain the capital conservation buffer to avoid restrictions on the ability to pay dividends, pay discretionary bonuses, or to engage in share repurchases. Contractual Obligations The following table summarizes our contractual obligations to make future payments as of December 31, 2022. Payments for borrowings do not include interest.
The Company and the Bank must maintain the capital conservation buffer to avoid restrictions on the ability to pay dividends, pay discretionary bonuses, or to engage in share repurchases. Contractual Obligations The following table summarizes our contractual obligations to make future payments as of December 31, 2023. Payments for borrowings do not include interest.
While scheduled loan and securities repayments are a relatively stable sources of funds, loan and investment security prepayments and deposit inflows are influenced by prevailing interest rates and local economic conditions and are inherently uncertain. Deposits We offer a wide variety of deposit products and rates to consumer and business clients consistent with FDIC regulations.
While scheduled loan and securities repayments are relatively stable sources of funds, loan and securities prepayments and deposit inflows are influenced by prevailing interest rates and local economic conditions and are inherently uncertain. Deposits We offer a wide variety of deposit products and rates to consumer and business clients consistent with FDIC regulations.
(4) Yields are calculated using the contractual day count convention for each respective product type. 39 Effect of changes in interest rates and volume of average earning assets and average interest-bearing liabilities The following table shows the extent to which changes in interest rates and changes in the volume of average earning assets and average interest-bearing liabilities have affected net interest income.
(4) Yields are calculated using the contractual day count convention for each respective product type. 41 Effect of changes in interest rates and volume of average earning assets and average interest-bearing liabilities The following table shows the extent to which changes in interest rates and changes in the volume of average earning assets and average interest-bearing liabilities have affected net interest income.
The selected consolidated balance sheet data as of December 31, 2022 and 2021 and the selected consolidated statement of income data for the years ended December 31, 2022 and 2021 have been derived mainly from our audited consolidated financial statements and related notes that we have included elsewhere in this Annual Report.
The selected consolidated balance sheet data as of December 31, 2023 and 2022 and the selected consolidated statement of income data for the years ended December 31, 2023 and 2022 have been derived mainly from our audited consolidated financial statements and related notes that we have included elsewhere in this Annual Report.
(e) Nonperforming assets consist of nonperforming loans and other real estate owned. 35 Critical Accounting Policies and Estimates The discussion and analysis of our results of operations and financial condition are based on our consolidated financial statements, which have been prepared in accordance with GAAP.
(e) Nonperforming assets consist of nonperforming loans and other real estate owned. 36 Critical Accounting Policies and Estimates The discussion and analysis of our results of operations and financial condition are based on our consolidated financial statements, which have been prepared in accordance with GAAP.
The selected consolidated balance sheet data as of December 31, 2020, 2019, and 2018 and the selected consolidated statement of income data for the years ended December 31, 2020, 2019, and 2018 has been derived mainly from audited consolidated financial statements that are not presented in this Annual Report.
The selected consolidated balance sheet data as of December 31, 2021, 2020, and 2019 and the selected consolidated statement of income data for the years ended December 31, 2021, 2020, and 2019 has been derived mainly from audited consolidated financial statements that are not presented in this Annual Report.
We evaluate the appropriateness of our underwriting standards in response to changes in national and regional economic conditions, including such matters as market interest rates, energy prices, trends in real estate values, and employment levels.
Current environment We evaluate the appropriateness of our underwriting standards in response to changes in national and regional economic conditions, including such matters as market interest rates, energy prices, trends in real estate values, and employment levels.
At December 31, 2022, 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 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.
Tangible book value per share is defined as book value, excluding the impact of goodwill and other intangible assets, if any, divided by shares of our common stock outstanding. Total revenue is defined as the sum of net interest income before provision of loan losses and noninterest income.
Tangible book value per share is defined as book value, excluding the impact of goodwill and other intangible assets, if any, divided by shares of our common stock outstanding, excluding unvested restricted stock awards. Total revenue is defined as the sum of net interest income before provision of loan losses and noninterest income.
See Note 13 to our Consolidated Financial Statements for further information regarding income taxes. Financial Condition Summary Assets totaled $3.3 billion at December 31, 2022, compared to assets of $2.5 billion at December 31, 2021. The increase in assets was primarily due to loan growth.
See Note 13 to our Consolidated Financial Statements for further information regarding income taxes. Financial Condition Summary Assets totaled $3.2 billion at December 31, 2023, compared to assets of $3.3 billion at December 31, 2022. The increase in assets was primarily due to loan growth.
(2) The adjustment for securities and loans taxable equivalency was $200 thousand and $201 thousand, respectively, for the years ended December 31, 2022 and 2021. Tax exempt income was converted to a fully taxable equivalent basis at a 20 percent tax rate for 2022 and 2021. (3) Net interest inco me as a percentage of total earning assets.
(2) The adjustment for securities and loans taxable equivalency was $207 thousand and $201 thousand, respectively, for the years ended December 31, 2023 and 2022. Tax exempt income was converted to a fully taxable equivalent basis at a 20 percent tax rate for 2023 and 2022. (3) Net interest inco me as a percentage of total earning assets.
We utilize advances from the FHLB as part of our overall funding strategy, to meet short-term liquidity needs and to manage interest rate risk arising from the difference in asset and liability maturities. Total FHLB advances were $90.0 million at December 31, 2022 compared to $50.0 million at December 31, 2021.
We utilize advances from the FHLB as part of our overall funding strategy, to meet short-term liquidity needs and to manage interest rate risk arising from the difference in asset and liability maturities. Total FHLB advances were $90.0 million at December 31, 2023 and $90.0 million at December 31, 2022.
The balance of our allowance for loan losses 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.
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.
(b) This measure is not a measure recognized under GAAP and is therefore considered to be a non-GAAP financial measure. See “Non-GAAP Financial Measures” for a description of this measure and a reconciliation of this measure to its most directly comparable GAAP measure. (c) Calculated based on net income before preferred stock dividend.
(b) This measure is not a measure recognized under Generally Accepted Accounting Principles ("GAAP") and is therefore considered to be a non-GAAP financial measure. See “Non-GAAP Financial Measures” for a description of this measure and a reconciliation of this measure to its most directly comparable GAAP measure. (c) Calculated based on net income before preferred stock dividend.
Key Financial Measures The primary measures we use to evaluate and manage our financial results are set forth in the table below.
Key Financial Measures The primary measures we use to evaluate and manage our financial results are set forth in the tables below.
The provision for loan losses is charged against earnings in order to maintain our allowance for loan losses and reflects management’s best estimate of probable losses inherent in our loan portfolio at the balance sheet date.
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.
Our largest expenses are interest on these deposits and salaries and related employee benefits. We measure our performance primarily through our net interest margin, efficiency ratio, ratio of allowance for loan losses to total loans, return on average assets and return on average equity, among other metrics, while maintaining appropriate regulatory leverage and risk-based capital ratios.
Our largest expenses are interest on these deposits and salaries and related employee benefits. We measure our performance primarily through our net interest margin, efficiency ratio, ratio of ACL-Loans to total loans, return on average assets and return on average equity, among other metrics, while maintaining appropriate regulatory leverage and risk-based capital ratios.
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 increased rate environment for 2022.
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.
Determining the fair value of the loans is determined using market participant assumptions in estimating the amount and timing of principal and interest cash flows initially expected to be collected on the loans and discounting those cash flows at an appropriate market rate of interest.
The fair value of the loans is determined using market participant assumptions to estimate the amount and timing of principal and interest cash flows initially expected to be collected on the loans and discounting those cash flows at an appropriate market rate of interest.
Allowance for Loan Losses We evaluate the adequacy of the allowance at least quarterly, and in determining our allowance for loan losses, we estimate losses on specific loans, or groups of loans, where the probable loss can be identified and reasonably determined.
We evaluate the adequacy of the ACL-Loans at least quarterly, and in determining our ACL-Loans, we estimate losses on specific loans, or groups of loans, where the probable loss can be identified and reasonably determined.
The effective tax rates for the years ended December 31, 2022 and 2021, were 22.0% and 21.5%, respectively. O ur net deferred tax asset at December 31, 2022 was $7.4 million, compared to $7.6 million at December 31, 2021. On October 8, 2015, the Bank established a wholly-owned subsidiary, Bankwell Loan Servicing Group, Inc. (a Passive Investment Company “PIC”).
The effective tax rates for the years ended December 31, 2023 and 2022, were 23.7% and 22.0%, respectively. O ur net deferred tax asset at December 31, 2023 was $9.4 million, compared to $7.4 million at December 31, 2022. On October 8, 2015, the Bank established a wholly-owned subsidiary, Bankwell Loan Servicing Group, Inc. (a Passive Investment Company “PIC”).
The following table compares noninterest income for the years ended December 31, 2022 and 2021.
The following table compares noninterest income for the years ended December 31, 2023 and 2022.
A decrease in expected cash flows in subsequent periods may indicate that the loan pool is impaired, which would require the establishment of an allowance for loan losses by a charge to the provision for loan losses. Nonperforming Assets . Nonperforming assets include nonaccrual loans and property acquired through foreclosures or repossession.
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. 48 Nonperforming Assets . Nonperforming assets include nonaccrual loans and property acquired through foreclosures or repossession.
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 $561.0 million and $396.9 million, respectively at December 31, 2022 and 2021. The following table summarizes our commitments to e xtend credit as of the dates indicated.
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.
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 44 problem recognition are important aspects of maintaining our high credit quality standards and low levels of nonperforming assets since our inception in 2002. Acquired Loans .
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. Acquired Loans .
We believe that the level of the allowance for loan losses at December 31, 2022 is appropriate to cover probable losses. Investment Securities We manage our investment securities portfolio to provide a readily available source of liquidity for balance sheet management, to generate interest income and to implement interest rate risk management strategies.
We believe that the level of the ACL-Loans at December 31, 2023 is appropriate to cover probable losses. Investment Securities We manage our investment securities portfolio to provide a readily available source of liquidity for balance sheet management, to generate interest income and to implement interest rate risk management strategies.
See additional discussion regarding our allowance for loan losses under the caption “Critical Accounting Policies and Estimates.” 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.
See additional discussion regarding our Allowance for Credit Losses-Loans ("ACL-Loans") and Allowance for Credit Losses-Unfunded commitments ("ACL-Unfunded commitments") under the caption "Critical Accounting Policies and Estimates." 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.
The following table sets forth certain information concerning short-term FHLB advances as of and for the periods indicated in the following table: Year Ended December 31, 2022 2021 (Dollars in thousands) Average amount outstanding during the period $ 71,740 $ 78,370 Amount outstanding at end of period 90,000 50,000 Highest month end balance during the period 130,000 125,000 Weighted average interest rate at end of period (1) 2.29 % 1.81 % (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.
The following table sets forth certain information concerning short-term FHLB advances as of and for the periods indicated: Year Ended December 31, 2023 2022 (Dollars in thousands) Average amount outstanding during the period $ 91,589 $ 71,740 Amount outstanding at end of period 90,000 90,000 Highest month end balance during the period 100,000 130,000 Weighted average interest rate at end of period (1) 3.24 % 2.29 % (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.
The amortized cost and fair value of investment securities as of the dates indicated are presented in the following table: At December 31, 2022 2021 Amortized Cost Fair Value Amortized Cost Fair Value (In thousands) Marketable equity securities $ 2,138 $ 1,988 $ 2,107 $ 2,168 Securities available for sale: U.S.
The amortized cost and fair value of investment securities as of the dates indicated are presented in the following table: At December 31, 2023 2022 Amortized Cost Fair Value Amortized Cost Fair Value (In thousands) Marketable equity securities $ 2,202 $ 2,070 $ 2,138 $ 1,988 Securities available for sale: U.S.
Loans are considered restructured in a troubled debt restructuring when the borrower is experiencing financial difficulties and the Bank has granted concessions to a borrower due to the borrower’s financial condition that we otherwise would not have considered.
Modifications . Loans are considered restructured when the borrower is experiencing financial difficulties and the Bank has granted concessions to a borrower due to the borrower’s financial condition that we otherwise would not have considered.
Our sources of liquidity include cash, unpledged investment securities, borrowings from the FRB, FHLB, lines of credit from ACBB, Zion's Bank and Texas Capital Bank, the brokered deposit market and national CD listing services.
Our sources of liquidity include cash, unpledged investment securities, borrowings from the FRBNY, FHLB, lines of credit from PCBB, ACBB, and Zion's Bank, the brokered deposit market and national CD listing services.
Due Within 1 Year Due 1–5 Years Due 5–10 Years Due After 10 Years or No Contractual Maturity At December 31, 2022 Amortized Cost Yield Amortized Cost Yield Amortized Cost Yield Amortized Cost Yield (Dollars in thousands) Marketable equity securities $ — — % $ — — % $ — — % $ 2,138 2.20 % Securities available for sale: U.S.
Due Within 1 Year Due 1–5 Years Due 5–10 Years Due After 10 Years or No Contractual Maturity At December 31, 2023 Amortized Cost Yield Amortized Cost Yield Amortized Cost Yield Amortized Cost Yield (Dollars in thousands) Marketable equity securities $ — — % $ — — % $ — — % $ 2,202 2.19 % Securities available for sale: U.S.
Deposit Activities and Other Sources of Funds Our sources of funds include deposits, brokered certificates of deposit, FHLB borrowings, subordinated debt and proceeds from the sales, maturities and payments of loans and investment securities. Total deposits represented 86% of our total assets at December 31, 2022.
Deposit Activities and Other Sources of Funds Our sources of funds include deposits, including brokered deposits, FHLB borrowings, subordinated debt and proceeds from the sales, maturities and payments of loans and investment securities. Total deposits represented 85% of our total assets at December 31, 2023.
The information provided below presents a reconciliation of each of our non-GAAP financial measures to the most directly comparable GAAP financial measure. 32 Years Ended December 31, 2022 2021 2020 2019 2018 (Dollars in thousands, except per share data) Efficiency Ratio Noninterest expense $ 44,363 $ 39,739 $ 42,813 $ 35,626 $ 35,633 Less: other real estate owned expenses — — 6 37 — Less: Amortization of intangibles — 76 138 75 92 Adjusted noninterest expense (numerator) $ 44,363 $ 39,663 $ 42,669 $ 35,514 $ 35,541 Net interest income $ 94,743 $ 67,886 $ 54,835 $ 53,761 $ 56,326 Noninterest income 3,040 5,657 2,884 5,244 3,900 Adjustments for: gains/(losses) on sales of securities — — — 76 222 Adjustments for: gains/(losses) on sale of other real estate owned — — 19 (102) — Adjusted operating revenue (denominator) $ 97,783 $ 73,543 $ 57,700 $ 59,031 $ 60,004 Efficiency ratio 45.4 % 53.9 % 73.9 % 60.2 % 59.2 % Tangible Common Equity and Tangible Common Equity/Tangible Assets Total shareholders’ equity $ 238,469 $ 201,987 $ 176,602 $ 182,397 $ 174,196 Less: preferred stock — — — — — Common shareholders’ equity 238,469 201,987 176,602 182,397 174,196 Less: Intangible assets 2,589 2,589 2,665 2,803 2,879 Tangible Common shareholders’ equity $ 235,880 $ 199,398 $ 173,937 $ 179,594 $ 171,317 Total assets $ 3,252,449 $ 2,456,264 $ 2,253,747 $ 1,882,182 $ 1,873,665 Less: Intangible assets 2,589 2,589 2,665 2,803 2,879 Tangible assets $ 3,249,860 $ 2,453,675 $ 2,251,082 $ 1,879,379 $ 1,870,786 Tangible common shareholders’ equity to tangible assets 7.26 % 8.13 % 7.73 % 9.56 % 9.16 % Tangible Book Value per Share Total shareholders’ equity $ 238,469 $ 201,987 $ 176,602 $ 182,397 $ 174,196 Less: preferred stock — — — — — Common shareholders’ equity 238,469 201,987 176,602 182,397 174,196 Less: Intangible assets 2,589 2,589 2,665 2,803 2,879 Tangible common shareholders’ equity $ 235,880 $ 199,398 $ 173,937 $ 179,594 $ 171,317 Common shares issued 7,730,699 7,803,166 7,919,278 7,868,803 7,842,271 Less: shares of unvested restricted stock 214,000 190,359 163,369 110,975 77,624 Common shares outstanding 7,516,699 7,612,807 7,755,909 7,757,828 7,764,647 Book value per share $ 31.73 $ 26.53 $ 22.77 $ 23.51 $ 22.43 Less: effects of intangible assets 0.34 0.34 0.34 0.36 0.37 Tangible Book Value per Common Share $ 31.39 $ 26.19 $ 22.43 $ 23.15 $ 22.06 Total Revenue Net interest income $ 94,743 $ 67,886 $ 54,835 $ 53,761 $ 56,326 Add: noninterest income 3,040 5,657 2,884 5,244 3,900 Total Revenue $ 97,783 $ 73,543 $ 57,719 $ 59,005 $ 60,226 Noninterest income as a percentage of total revenue 3.11 % 7.69 % 5.00 % 8.89 % 6.48 % Return on Average Common Shareholders’ Equity Net Income Attributable to Common Shareholders $ 37,429 $ 26,586 $ 5,904 $ 18,216 $ 17,433 Total average shareholders’ equity $ 223,874 $ 191,808 $ 176,489 $ 178,510 $ 171,024 Less: average preferred stock — — — — — Average Common Shareholders’ Equity 223,874 191,808 176,489 178,510 171,024 Return on Average Common Shareholders’ Equity 16.72 % 13.86 % 3.35 % 10.20 % 10.19 % 33 Executive Overview We are focused on being the banking provider of choice and to serve as an alternative to our larger competitors.
The information provided below presents a reconciliation of each of our non-GAAP financial measures to the most directly comparable GAAP financial measure. 33 Years Ended December 31, 2023 2022 2021 2020 2019 (Dollars in thousands, except per share data) Efficiency Ratio Noninterest expense $ 50,401 $ 44,363 $ 39,739 $ 42,813 $ 35,626 Less: other real estate owned expenses — — — 6 37 Less: Amortization of intangibles — — 76 138 75 Adjusted noninterest expense (numerator) $ 50,401 $ 44,363 $ 39,663 $ 42,669 $ 35,514 Net interest income $ 94,468 $ 94,743 $ 67,886 $ 54,835 $ 53,761 Noninterest income 4,842 3,040 5,657 2,884 5,244 Adjustments for: gains/(losses) on sales of securities — — — — 76 Adjustments for: gains/(losses) on sale of other real estate owned — — — 19 (102) Adjusted operating revenue (denominator) $ 99,310 $ 97,783 $ 73,543 $ 57,700 $ 59,031 Efficiency ratio 50.8 % 45.4 % 53.9 % 73.9 % 60.2 % Tangible Common Equity and Tangible Common Equity/Tangible Assets Total shareholders’ equity $ 265,752 $ 238,469 $ 201,987 $ 176,602 $ 182,397 Less: preferred stock — — — — — Common shareholders’ equity 265,752 238,469 201,987 176,602 182,397 Less: Intangible assets 2,589 2,589 2,589 2,665 2,803 Tangible Common shareholders’ equity $ 263,163 $ 235,880 $ 199,398 $ 173,937 $ 179,594 Total assets $ 3,215,482 $ 3,252,449 $ 2,456,264 $ 2,253,747 $ 1,882,182 Less: Intangible assets 2,589 2,589 2,589 2,665 2,803 Tangible assets $ 3,212,893 $ 3,249,860 $ 2,453,675 $ 2,251,082 $ 1,879,379 Tangible common shareholders’ equity to tangible assets 8.19 % 7.26 % 8.13 % 7.73 % 9.56 % Tangible Book Value per Share Total shareholders’ equity $ 265,752 $ 238,469 $ 201,987 $ 176,602 $ 182,397 Less: preferred stock — — — — — Common shareholders’ equity 265,752 238,469 201,987 176,602 182,397 Less: Intangible assets 2,589 2,589 2,589 2,665 2,803 Tangible common shareholders’ equity $ 263,163 $ 235,880 $ 199,398 $ 173,937 $ 179,594 Common shares issued 7,882,616 7,730,699 7,803,166 7,919,278 7,868,803 Less: shares of unvested restricted stock 254,328 214,000 190,359 163,369 110,975 Common shares outstanding 7,628,288 7,516,699 7,612,807 7,755,909 7,757,828 Book value per share $ 34.84 $ 31.73 $ 26.53 $ 22.77 $ 23.51 Less: effects of intangible assets 0.34 0.34 0.34 0.34 0.36 Tangible Book Value per Common Share $ 34.50 $ 31.39 $ 26.19 $ 22.43 $ 23.15 Total Revenue Net interest income $ 94,468 $ 94,743 $ 67,886 $ 54,835 $ 53,761 Add: noninterest income 4,842 3,040 5,657 2,884 5,244 Total Revenue $ 99,310 $ 97,783 $ 73,543 $ 57,719 $ 59,005 Noninterest income as a percentage of total revenue 4.88 % 3.11 % 7.69 % 5.00 % 8.89 % Return on Average Common Shareholders’ Equity Net Income Attributable to Common Shareholders $ 36,663 $ 37,429 $ 26,586 $ 5,904 $ 18,216 Total average shareholders’ equity $ 252,061 $ 223,874 $ 191,808 $ 176,489 $ 178,510 Less: average preferred stock — — — — — Average Common Shareholders’ Equity $ 252,061 $ 223,874 $ 191,808 $ 176,489 $ 178,510 Return on Average Common Shareholders’ Equity 14.55 % 16.72 % 13.86 % 3.35 % 10.20 % 34 Executive Overview We are focused on being the banking provider of choice and to serve as an alternative to our larger competitors.
Gross loans totaled $2.7 billion at December 31, 2022, an increase of $780.6 million or 41.2% compared to December 31, 2021. Deposits totaled $2.8 billion at December 31, 2022, compared to deposits of $2.1 billion at December 31, 2021.
Gross loans totaled $2.7 billion at December 31, 2023, an increase of $43.2 million or 1.6% compared to December 31, 2022. Deposits totaled $2.7 billion at December 31, 2023, compared to deposits of $2.8 billion at December 31, 2022.
Our returns on average shareholders' equity and average assets for the year ended December 31, 2022, were 16.72% and 1.44%, respectively, compared to 13.86% and 1.17%, respectively for the year ended December 31, 2021.
Our returns on average shareholders' equity and average assets for the year ended December 31, 2023, were 14.55% and 1.13%, respectively, compared to 16.72% and 1.44%, respectively for the year ended December 31, 2022.
As such, charge-offs on acquired loans are first applied to the nonaccretable difference and then to any allowance for loan losses recognized subsequent to the acquisition.
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.
Acquired loans that have evidence of deterioration in credit quality since origination and for which it is probable, at acquisition, that all contractually required payments will not be collected are initially recorded at fair value without recording an allowance for loan losses.
Loans acqu ired in acquisitions are initially recorded at fair value with no carryover of the related allowance for credit losses. Acquired loans that have evidence of deterioration in credit quality since origination and for which it is probable, at acquisition, that all contractually required payments will not be collected are initially recorded at fair value without recording an ACL-Loans.
Information about derivative instruments at December 31, 2022 and 2021 was as follows: As of December 31, 2022 Derivative Assets Derivative Liabilities Original Notional Amount Balance Sheet Location Fair Value Original Notional Amount Balance Sheet Location Fair Value (In thousands) Derivatives designated as hedging instruments: Interest rate swaps $ 125,000 Other assets $ 8,292 $ — Accrued expenses and other liabilities $ — Derivatives not designated as hedging instruments: Interest rate swaps (1) $ 38,500 Other assets $ 4,207 $ 38,500 Accrued expenses and other liabilities $ (4,207) (1) Represents interest rate swaps with commercial banking clients, which are offset by derivatives with a third party. 53 As of December 31, 2021 Derivative Assets Derivative Liabilities Original Notional Amount Balance Sheet Location Fair Value Original Notional Amount Balance Sheet Location Fair Value (In thousands) Derivatives designated as hedging instruments: Interest rate swaps $ 50,000 Other assets $ 1,043 $ 150,000 Accrued expenses and other liabilities $ (14,195) Derivatives not designated as hedging instruments: Interest rate swaps (1) $ 38,500 Other assets $ 2,585 $ 38,500 Accrued expenses and other liabilities $ (2,585) (1) Represents interest rate swaps with commercial banking clients, which are offset by derivatives with a third party.
Information about derivative instruments at December 31, 2023 and 2022 was as follows: As of December 31, 2023 Derivative Assets Derivative Liabilities Original Notional Amount Balance Sheet Location Fair Value Original Notional Amount Balance Sheet Location Fair Value (In thousands) Derivatives designated as hedging instruments: Interest rate swaps $ 125,000 Other assets $ 5,240 $ — Accrued expenses and other liabilities $ — Fair value swap $ 150,000 Other assets $ — $ — Accrued expenses and other liabilities $ 917 Derivatives not designated as hedging instruments: Interest rate swaps (1) $ 38,500 Other assets $ 3,579 $ 38,500 Accrued expenses and other liabilities $ 3,579 (1) Represents interest rate swaps with commercial banking clients, which are offset by derivatives with a third party. 57 As of December 31, 2022 Derivative Assets Derivative Liabilities Original Notional Amount Balance Sheet Location Fair Value Original Notional Amount Balance Sheet Location Fair Value (In thousands) Derivatives designated as hedging instruments: Interest rate swaps $ 125,000 Other assets $ 8,292 $ — Accrued expenses and other liabilities $ — Derivatives not designated as hedging instruments: Interest rate swaps (1) $ 38,500 Other assets $ 4,207 $ 38,500 Accrued expenses and other liabilities $ 4,207 (1) Represents interest rate swaps with commercial banking clients, which are offset by derivatives with a third party.
Diluted earnings per share was $4.79 for the year ended December 31, 2022, compared to diluted earnings per share of $3.36 for the year ended December 31, 2021.
Diluted earnings per share was $4.67 for the year ended December 31, 2023, compared to diluted earnings per share of $4.79 for the year ended December 31, 2022.
We also pursue certain types of commercial lending opportunities outside our market, particularly where we have strong business relationships. Our loan portfolio is the largest category of our earnings assets.
Loan Portfolio We originate commercial real estate loans, construction loans, commercial business loans and consumer loans in our market. We also pursue certain types of commercial lending opportunities outside our market, particularly where we have strong business relationships. Our loan portfolio is the largest category of our earnings assets.
Commercial real estate loans were $1.9 billion and represented 72% of our total loan portfolio at December 31, 2022 , a net increase of $564.5 million, or 41.6%, from December 31, 2021.
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.
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.
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.
The Bank is 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.
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.
Cash flow hedges are used to minimize the variability in cash flows of assets or liabilities, or forecasted transactions caused by fluctuations in the contractually specified interest rates, and are recorded at fair value in other assets within the consolidated balance sheet.
The Company has interest rate swaps that qualify under ASC Topic 815, as cash flow hedges. Cash flow hedges are used to minimize the variability in cash flows of assets or liabilities, or forecasted transactions caused by fluctuations in the contractually specified interest rates, and are recorded at fair value in other assets within the consolidated balance sheet.
The increase of $13.2 million primarily reflects purchases of corporate bonds. 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, 2022 was $9.2 million and included $0.3 million of gross unrealized gains.
The increase of $6.0 million primarily reflects purchases of treasury bonds. 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 Company executes interest rate swaps with commercial banking clients to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions.
Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions.
Interest expense for the year ended December 31, 2022 increased by $9.7 million, or 72.0%, compared to interest expense for 2021 due to an increase in rates on interest bearing deposits. 38 Distribution of Assets, Liabilities and Stockholders’ Equity; Interest Rates and Interest Differential The following table below presents the average balances and yields earned on interest-earning assets and average balances and weighted average rates paid on our funding liabilities for the years ended December 31, 2022 and 2021.
Interest expense for the year ended December 31, 2023 increased by $70.8 million, or 305.1%, compared to interest expense for the year ended December 31, 2022 due to an interest expense on deposits, resulting from an increase in rates paid on interest bearing deposits. 40 Distribution of Assets, Liabilities and Stockholders’ Equity; Interest Rates and Interest Differential The following table presents the average balances and yields earned on interest-earning assets and average balances and weighted average rates paid on our funding liabilities for the years ended December 31, 2023 and 2022.
In addition, the increase in net income was partially offset by an increase in the provision for loan losses due to loan growth and an increase in noninterest expense 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.
We believe that accounting estimates related to the measurement of the allowance for loan losses, the valuation of derivative instruments, investment securities and deferred income taxes, and the evaluation of investment securities for other than temporary impairment are particularly critical and susceptible to significant near-term change.
We believe that accounting estimates related to the measurement of the ACL-Loans, the valuation of derivative instruments, investment securities and deferred income taxes, and the evaluation of investment securities are particularly critical and susceptible to significant near-term change.
The following table presents nonperforming assets and additional asset quality data for the dates indicated: At December 31, 2022 2021 (Dollars in thousands) Nonaccrual loans: Real estate loans: Residential $ 2,152 $ 2,380 Commercial 2,781 3,482 Commercial business 2,126 1,728 Construction 9,382 8,997 Total nonaccrual loans 16,441 16,587 Property acquired through foreclosure or repossession, net — — Total nonperforming assets $ 16,441 $ 16,587 Nonperforming assets to total assets 0.51 % 0.68 % Nonperforming loans to total loans 0.61 % 0.88 % Total nonaccrual loans were $16.4 million as of December 31, 2022 .
The following table presents nonperforming assets and additional asset quality data for the dates indicated: At December 31, 2023 2022 (Dollars in thousands) Nonaccrual loans: Real estate loans: Residential $ 1,386 $ 2,152 Commercial 23,009 2,781 Commercial business 15,430 2,126 Construction 9,382 9,382 Total nonaccrual loans 49,207 16,441 Property acquired through foreclosure or repossession, net — — Total nonperforming assets $ 49,207 $ 16,441 Nonperforming assets to total assets 1.53 % 0.51 % Nonperforming loans to total loans 1.81 % 0.61 % Total nonaccrual loans were $49.2 million as of December 31, 2023 .
Key Financial Measures (a) At or For the Years Ended December 31, 2022 2021 (Dollars in thousands, except per share data) Selected balance sheet measures: Total assets $ 3,252,449 $ 2,456,264 Gross portfolio loans 2,675,448 1,894,881 Deposits 2,800,818 2,123,998 FHLB borrowings 90,000 50,000 Subordinated debt 68,959 34,441 Total equity 238,469 201,987 Selected statement of income measures: Total revenue (c) 97,783 73,543 Net interest income before provision for loan losses 94,743 67,886 Income before income tax expense 47,983 33,861 Net income 37,429 26,586 Basic earnings per share $ 4.84 $ 3.38 Diluted earnings per share $ 4.79 $ 3.36 34 Key Financial Measures (a) At or For the Years Ended December 31, 2022 2021 Other financial measures and ratios: Return on average assets 1.44 % 1.17 % Return on average common shareholders’ equity (c) 16.72 % 13.86 % Net interest margin 3.78 % 3.17 % Efficiency ratio (c) 45.4 % 53.9 % Tangible book value per share (end of period) (c)(d) $ 31.39 $ 26.19 Net charge-offs to average loans (b) — % 0.23 % Nonperforming assets to total assets (e) 0.51 % 0.68 % Allowance for loan losses to nonperforming loans 136.43 % 101.90 % Allowance for loan losses to total loans (b) 0.84 % 0.89 % (a) We derived the selected balance sheet measures as of December 31, 2022 and 2021 and the selected statement of income measures for the years ended December 31, 2022 and 2021 from our audited consolidated financial statements included elsewhere in this annual report.
Key Financial Measures (a) At or For the Years Ended December 31, 2023 2022 (Dollars in thousands, except per share data) Selected balance sheet measures: Total assets $ 3,215,482 $ 3,252,449 Gross portfolio loans 2,718,607 2,675,448 Deposits 2,736,757 2,800,818 FHLB borrowings 90,000 90,000 Subordinated debt 69,205 68,959 Total equity 265,752 238,469 Selected statement of income measures: Total revenue (c) 99,310 97,783 Net interest income before provision for loan losses 94,468 94,743 Income before income tax expense 48,043 47,983 Net income 36,663 37,429 Basic earnings per share $ 4.71 $ 4.84 Diluted earnings per share $ 4.67 $ 4.79 Key Financial Measures (a) At or For the Years Ended December 31, 2023 2022 Other financial measures and ratios: Return on average assets 1.13 % 1.44 % Return on average common shareholders’ equity (c) 14.55 % 16.72 % Net interest margin 2.98 % 3.78 % Efficiency ratio (c) 50.8 % 45.4 % Tangible book value per share (end of period) (c)(d) $ 34.50 $ 31.39 Net charge-offs to average loans (b) 0.03 % — % Nonperforming assets to total assets (e) 1.53 % 0.51 % ACL-Loans to nonperforming loans 56.79 % 136.43 % ACL-Loans to total loans (b) 1.03 % 0.84 % 35 (a) We derived the selected balance sheet measures as of December 31, 2023 and 2022 and the selected statement of income measures for the years ended December 31, 2023 and 2022 from our audited consolidated financial statements included elsewhere in this annual report.
The total average balance of securities for the year ended December 31, 2022 increased by $15.0 million, or 14.5%, from the year ended December 31, 2021. The total yield in earnings assets increased to 4.64% at December 31, 2022, compared to 3.75% at December 31, 2021.
The total average balance of securities for the year ended December 31, 2023 increased by $11.2 million, or 9.4%, from the year ended December 31, 2022. The total yield in earnings assets increased to 5.86% at December 31, 2023, compared to 4.64% at December 31, 2022.
Partially charged-off loans continue to be evaluated on a monthly basis and additional charge-offs or loan loss provisions may be recorded on the remaining loan balance based on the same criteria. 47 The following table presents the activity in our allowance for loan losses and related ratios for the dates indicated: At December 31, 2022 2021 (Dollars in thousands) Balance at beginning of period $ 16,902 $ 21,009 Charge-offs: Residential real estate — — Commercial real estate — (3,977) Construction — — Commercial business — (77) Consumer (22) (39) Total charge-offs (22) (4,093) Recoveries: Residential real estate — — Commercial real estate 76 — Commercial Business 34 30 Consumer 4 13 Total recoveries 114 43 Net recoveries (charge-offs) 92 (4,050) Provision (credit) charged to earnings 5,437 (57) Balance at end of period $ 22,431 $ 16,902 Net recoveries or charge-offs to average loans — % 0.23 % Allowance for loan losses to total loans 0.84 % 0.89 % At December 31, 2022, our allowance for loan losses was $22.4 million and represented 0.84% of total loans, compared to $16.9 million and 0.89% of total loans at December 31, 2021.
Partially charged-off loans continue to be evaluated on a monthly basis and additional charge-offs or loan loss provisions may be recorded on the remaining loan balance based on the same criteria. 51 The following table presents the activity in our ACL-Loans and related ratios for the dates indicated: At December 31, 2023 2022 (Dollars in thousands) Balance at beginning of period $ 22,431 $ 16,902 Day 1 CECL Adjustment on January 1, 2023 5,079 — Charge-offs: Residential real estate — — Commercial real estate (824) — Construction — — Commercial business (440) — Consumer (83) (22) Total charge-offs (1,347) (22) Recoveries: Residential real estate — — Commercial real estate — 76 Commercial business 531 34 Consumer 39 4 Total recoveries 570 114 Net (charge-offs) recoveries (777) 92 Provision charged to earnings 1,213 5,437 Balance at end of period $ 27,946 $ 22,431 Net recoveries or charge-offs to average loans 0.03 % — % ACL-Loans to total loans 1.03 % 0.84 % At December 31, 2023, our ACL-Loans was $27.9 million and represented 1.03% of total loans, compared to $22.4 million, or 0.84% of total loans at December 31, 2022.
The carrying amount of total impaired loans at December 31, 2022 was $42.8 million. This compares to a carrying amount of $47.2 million for total impaired loans at December 31, 2021.
This compares to a carrying amount of $42.8 million for total individually evaluated loans at December 31, 2022.
When a loan is 15 days past due, the Company sends the borrower a late notice. The Company attempts to contact the borrower by phone if the delinquency is not corrected promptly after the notice has been sent.
The Company attempts to contact the borrower by phone if the delinquency is not corrected promptly after the notice has been sent.
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, 2022 and 2021 was $94.9 million and $68.1 million, respectively. FTE net interest income increased primarily due to loan growth and higher overall loan yields.
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.
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. 55 As of December 31, 2022 Amount of Commitment Expiration per Period Total Less Than 1 Year 1–3 Years 4–5 Years After 5 Years (in thousands) Other Commitments: Loan commitments $ 376,512 $ 262,758 $ 29,433 $ 79,046 $ 5,275 Undisbursed construction loans 180,768 32,708 46,777 44,187 57,096 Unused home equity lines of credit 3,684 10 — — 3,674 Total other commitments $ 560,964 $ 295,476 $ 76,210 $ 123,233 $ 66,045 As of December 31, 2021 Amount of Commitment Expiration per Period Total Less Than 1 Year 1–3 Years 4–5 Years After 5 Years (in thousands) Other Commitments: Loan commitments $ 266,915 $ 191,066 $ 36,348 $ 22,036 $ 17,465 Undisbursed construction loans 125,700 13,312 43,129 45,364 23,895 Unused home equity lines of credit 4,254 200 10 — 4,044 Total other commitments $ 396,869 $ 204,578 $ 79,487 $ 67,400 $ 45,404 Recently Issued Accounting Pronouncements See Note 1 to our Consolidated Financial Statements for details of recently issued accounting pronouncements and their expected impact on our financial statements.
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. 59 As of December 31, 2023 Amount of Commitment Expiration per Period Total Less Than 1 Year 1–3 Years 4–5 Years After 5 Years (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 As of December 31, 2022 Amount of Commitment Expiration per Period Total Less Than 1 Year 1–3 Years 4–5 Years After 5 Years (in thousands) Other Commitments: Loan commitments $ 376,512 $ 262,758 $ 29,433 $ 79,046 $ 5,275 Undisbursed construction loans 180,768 32,708 46,777 44,187 57,096 Unused home equity lines of credit 3,684 10 — — 3,674 Total other commitments $ 560,964 $ 295,476 $ 76,210 $ 123,233 $ 66,045 Recently Issued Accounting Pronouncements See Note 1 to our Consolidated Financial Statements for details of recently issued accounting pronouncements and their expected impact on our financial statements.
The increase i n the provision for loan losses was due to loan growth. 40 Noninterest Income Noninterest income is a component of our revenue and is comprised primarily of fees generated from loan and deposit relationships with our clients, fees generated from sales and referrals of loans, income earned on bank owned life insurance and gains on sales of investment securities.
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. 42 Noninterest Income Noninterest income is a component of our revenue and is comprised primarily of fees generated from loan and deposit relationships with our clients, fees generated from sales and referrals of loans, income earned on bank owned life insurance and gains on sales of investment securities.
FTE basis interest income for the year ended December 31, 2022 increased $36.6 million, or 44.8%, to $118.1 million compared to FTE basis interest income for the year ended December 31, 2021 due primarily to an increase in commercial real estate loans and commercial business loans.
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 $2.5 billion for the year ended December 31, 2022, increasing by $367.6 million, or 17.1%, from the year ended December 31, 2021. The average balance of total loans increased $408.8 million, or 23.4%.
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%.
The Bank has established unsecured borrowing capacity with the Atlantic Community Bankers Bank (ACBB) (formerly Bankers’ Bank Northeast), Zion’s Bank and Texas Capital Bank and also maintains additional collateralized borrowing capacity with the FRB and the FHLB in excess of levels used in the ordinary course of business.
The Bank has established unsecured borrowing capacity with the Pacific Coast Bank (PCBB), Atlantic Community Bankers Bank (ACBB), and Zion’s Bank and also maintains additional collateralized borrowing capacity with the Federal Reserve Bank of New York ("FRBNY") and the FHLB in excess of levels used in the ordinary course of business.
The Company used the net proceeds to repay the 2015 Notes and for general corporate purposes. The 2021 Note bears interest at a fixed rate of 3.25% per year until October 14, 2026. Thereafter, the interest rate will reset quarterly at a variable rate equal to the then current three-month term SOFR plus 233 basis points.
The 2021 Note bears interest at a fixed rate of 3.25% per year until October 14, 2026. Thereafter, the interest rate will reset quarterly at a variable rate equal to the then current three-month term SOFR plus 233 basis points. The 2021 Note has a stated maturity of October 15, 2031 and is non-callable for five years.
Residential real estate loans decreased by $19.4 million, or 24.3%, at December 31, 2022 compared to December 31, 2021 and amounted to $60.6 million, representing 2% of total loans at December 31, 2022 . In the fourth quarter of 2017, management made the strategic decision to no longer originate residential mortgage loans. Commercial real estate.
Residential real estate loans decreased by $9.7 million, or 15.9%, at December 31, 2023 compared to December 31, 2022 and amounted to $50.9 million, representing 2% of total loans at December 31, 2023 . In the fourth quarter of 2017, management made the strategic decision to cease originating residential mortgage loans. Commercial real estate.
Construction loans were $155.2 million at December 31 2022 , up $56.9 million, or 57.8%, from December 31, 2021. Construction loans totaled $98.3 million at December 31, 2021. 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.
Construction. Construction loans were $183.4 million at December 31 2023 , an increase of $28.2 million, or 18.2%, from December 31, 2022. 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.
Loans are also placed on nonaccrual status when, in the opinion of management, full collection of principal and interest is doubtful. Interest previously accrued, but uncollected, is reversed against current period income. Subsequent payments are recognized on a cash basis or principal recapture basis depending on a number of factors including probability of collection and if impairment is identified.
Loans are also placed on nonaccrual status when, in the opinion of management, full collection of principal and interest is doubtful. Interest previously accrued, but uncollected, is reversed against current period income.
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. Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain loan clients.
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.
Government and agency obligations 95,352 88,425 73,571 75,189 Corporate bonds 17,000 15,238 14,500 15,009 Total securities available for sale $ 112,352 $ 103,663 $ 88,071 $ 90,198 Securities held to maturity: State agency and municipal obligations $ 15,947 $ 15,398 $ 15,998 $ 18,393 Government mortgage-backed securities 36 37 45 52 Total securities held to maturity $ 15,983 $ 15,435 $ 16,043 $ 18,445 At December 31, 2022, the carrying value of our investment securities portfolio totaled $121.6 million and represented 4% of total asse ts, compared to $108.4 million and 4% of total assets at December 31, 2021.
Government and agency obligations 100,276 95,226 95,352 88,425 Corporate bonds 17,000 14,510 17,000 15,238 Total securities available for sale $ 117,276 $ 109,736 $ 112,352 $ 103,663 Securities held to maturity: State agency and municipal obligations $ 15,785 $ 15,870 $ 15,947 $ 15,398 Government mortgage-backed securities 32 33 36 37 Total securities held to maturity $ 15,817 $ 15,903 $ 15,983 $ 15,435 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 amount of allowance for loan losses related to impaired loans was $0.9 million and $2.9 million, respectively, at December 31, 2022 and 2021. 48 The following table presents the allocation of the allowance for loan losses and the percentage of the related loan segments to total loans: At December 31, 2022 2021 Amount Percent of Loan Portfolio Amount Percent of Loan Portfolio (Dollars in thousands) Residential real estate $ 163 2.27 % $ 504 4.22 % Commercial real estate 15,597 71.81 12,751 71.60 Construction 311 5.80 4 5.19 Commercial business 6,214 19.45 3,590 18.52 Consumer 146 0.67 53 0.47 Total allowance for loan losses $ 22,431 100.00 % $ 16,902 100.00 % The allocation of the allowance for loan losses at December 31, 2022 reflects our assessment of credit risk and probable loss within each portfolio.
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. 52 The following table presents the allocation of the ACL-Loans, the ACL-Loans percentage, and the related loan segments to total loans percentage: At December 31, 2023 2022 ACL-Loans Amount ACL-Loans Percentage Loan Segment to Total Loans Percentage ACL-Loans Amount ACL-Loans Percentage Loan Segment to Total Loans Percentage (Dollars in thousands) Residential real estate $ 149 0.53 % 1.87 % $ 163 0.73 % 2.27 % Commercial real estate 20,950 74.97 71.64 15,597 69.53 71.81 Construction 1,699 6.08 6.75 311 1.39 5.80 Commercial business 4,562 16.32 18.41 6,214 27.70 19.45 Consumer 586 2.10 1.33 146 0.65 0.67 Total $ 27,946 100.00 % 100.00 % $ 22,431 100.00 % 100.00 % The allocation of the ACL-Loans at December 31, 2023 reflects our assessment of credit risk and probable loss within each portfolio.
At December 31, 2022, the Bank’s ratio of total common equity 54 tier 1 capital to risk-weighted asse ts was 10.28%, total capital to risk-weighted assets was 11.07%, Tier 1 capital to risk-weighted assets was 10.28% and Tier 1 capital to average assets was 9.88%.
At December 31, 2023, the Bank’s ratio of total common equity 58 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, 2022, the Bank had pledged $941.9 million of eligible loans as collateral to support borrowing capacity at the FHLB of Boston. As of December 31, 2022, the Bank had immediate availability to borrow an addition al $402.2 million based on qualified collateral.
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.
Salaries and employee benefits expense totaled $22.2 million for the year ended December 31, 2022, an increase of $3.9 million when compared to th e same period in 2021 .
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 .

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThe following tables set forth the estimated percentage change in our net interest income at risk over one-year simulation periods beginning December 31, 2022 and 2021: Parallel Ramp Estimated Percent Change in Net Interest Income At December 31, Rate Changes (basis points) 2022 2021 (100) 2.20 % (0.80) % 200 (4.80) (2.20) Parallel Shock Estimated Percent Change in Net Interest Income At December 31, Rate Changes (basis points) 2022 2021 (100) 2.20 % (1.70) % 100 (2.70) (1.00) 200 (6.00) (1.90) 300 (8.90) (2.40) The net interest income at risk simulation results indicate that, as of December 31, 2022, we remain liability sensitive.
Biggest changeThe following tables set forth the estimated percentage change in our net interest income at risk over one-year simulation periods beginning December 31, 2023 and 2022: Parallel Ramp Estimated Percent Change in Net Interest Income At December 31, Rate Changes (basis points) 2023 2022 (100) 1.70 % 2.20 % 200 (3.20) (4.80) Parallel Shock Estimated Percent Change in Net Interest Income At December 31, Rate Changes (basis points) 2023 2022 (100) 3.60 % 2.20 % 100 (2.70) (2.70) 200 (5.80) (6.00) 300 (8.10) (8.90) The net interest income at risk simulation results indicate that, as of December 31, 2023, we remain liability sensitive.
The simulation of net interest income also requires a number of key assumptions such as: (i) prepayment projections for loans and securities that are projected under each interest rate scenario using internal and external mortgage analytics; (ii) new business loan rates that are based on recent new business origination experience; and (iii) deposit pricing assumptions for non-maturity deposits reflecting the Bank’s history, management judgment and core deposit studies.
The simulation of net interest income also requires a number of key assumptions such as: (i) prepayment projections for loans and securities that are projected under each interest rate scenario using internal and external analytics; (ii) new business loan rates that are based on recent new business origination experience; and (iii) deposit pricing assumptions for non-maturity deposits reflecting the Bank’s history, management judgment and core deposit studies.
Internal policy regarding internal rate risk simulations currently specifies that for instantaneous parallel shifts of the yield curve, estimated net interest income at risk for the subsequent one-year period 56 should not decline by more than: 6% for a 100 basis point shift; 12% for a 200 basis point shift; and 18% for a 300 basis point shift.
Internal policy regarding internal rate risk simulations currently specifies that for instantaneous parallel shifts of the yield curve, estimated net interest income at risk for the subsequent one-year period 60 should not decline by more than: 6% for a 100 basis point shift; 12% for a 200 basis point shift; and 18% for a 300 basis point shift.
Per Company policy, the Bank should not be outside these limits for twelve consecutive months unless the Bank's forecasted capital ratios are considered to be "well capitalized". As of December 31, 2021, the Bank has met all minimum regulatory capital requirements to be considered "well capitalized".
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 December 31, 2023, the Bank has met all minimum regulatory capital requirements to be considered "well capitalized".
Over time, the repricing, maturity and prepayment characteristics of financial instruments and the composition of our balance sheet may change to a different degree than estimated. ALCO recognizes that deposit balances could shift into higher yielding alternatives as market rates change. ALCO has modeled increased costs of deposits in the rising rate simulation scenarios presented above.
Over time, the repricing, maturity and prepayment characteristics of financial instruments 61 and the composition of our balance sheet may change to a different d egree than estimated. ALCO recognizes that deposit balances could shift into higher yielding alternatives as market rates change. ALCO has modeled increased costs of deposits in the rising rate simulation scenarios presented above.
Inflation and related increases in interest rates generally decrease the market value of investments and loans held and may adversely affect liquidity, earnings and shareholders’ equity. 58
Inflation and related increases in interest rates generally decrease the market value of investments and loans held and may adversely affect liquidity, earnings and shareholders’ equity. 62
The following table sets forth the estimated percentage change in our economic value of equity at risk, assuming various shifts in interest rates: Parallel Shock Estimated Percent Change in Economic Value of Equity At December 31, Rate Changes (basis points) 2022 2021 (100) 2.30 % (21.40) % 100 (3.90) 3.10 200 (9.30) 3.60 300 (14.00) 4.50 While ALCO reviews and updates simulation assumptions and also periodically back-tests the simulation results to ensure that the assumptions are reasonable and current, income simulation may not always prove to be an accurate indicator of interest 57 rate risk or future net interest margin.
The following table sets forth the estimated percentage change in our economic value of equity at risk, assuming various shifts in interest rates: Parallel Shock Estimated Percent Change in Economic Value of Equity At December 31, Rate Changes (basis points) 2023 2022 (100) 2.70 % 2.30 % 100 (3.80) (3.90) 200 (9.40) (9.30) 300 (12.60) (14.00) While ALCO reviews and updates simulation assumptions and also periodically back-tests the simulation results to ensure that the assumptions are reasonable and current, income simulation may not always prove to be an accurate indicator of interest rate risk or future net interest margin.

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