As of ~~October~~July 31, ~~2017,~~2022, there were ~~7,717,345~~7,763,389 shares of the registrant’s common stock outstanding.

Bankwell Financial Group, Inc.

Form 10-Q

Table of Contents


PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)			34
Consolidated Balance Sheets as of ~~September 30, 2017~~June 3 0 , 2022 and December 31, ~~2016~~2021			34
Consolidated Statements of Income for the three and ~~nine~~six months ended ~~September 30, 2017~~June 3 0 , 2022 and ~~2016~~2021			45
Consolidated Statements of Comprehensive Income (Loss) for the three and ~~nine~~six months ended ~~September 30, 2017~~June 3 0 , 2022 and ~~2016~~2021			56
Consolidated Statements of Shareholders’ Equity for the ~~nine~~ three and six months ended ~~September 30, 2017~~June 3 0 , 2022 and ~~2016~~2021			67
Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September 30, 2017~~June 3 0 , 2022 and ~~2016~~2021			79
Notes to Consolidated Financial Statements			911

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			5042

Item 3. Quantitative and Qualitative Disclosures About Market Risk			6657

Item 4. Controls and Procedures			6657

PART II – OTHER INFORMATION

Item 1. Legal Proceedings			6757

Item 1A. Risk Factors			6757

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			6758

Item 3. Defaults Upon Senior Securities			6758

Item 4. Mine Safety Disclosures			6758

Item 5. Other Information			6758

Item 6. Exhibits			6759

Signatures			6859

			2
Certifications

PART 1 – FINANCIAL INFORMATION

Item 1. Financial Statements

Bankwell Financial Group, Inc.

Consolidated Balance Sheets - (unaudited)

(~~Dollars in~~In thousands, except share data)

September 30, December 31,
2017 2016

ASSETS
Cash and due from banks $ 85,329 $ 96,026
Federal funds sold 11,117 329
Cash and cash equivalents 96,446 96,355

Available for sale investment securities, at fair value 86,272 87,751
Held to maturity investment securities, at amortized cost 23,573 16,859
Loans held for sale 785 254
Loans receivable (net of allowance for loan losses of $19,564 at
September 30, 2017 and $17,982 at December 31, 2016) 1,500,574 1,343,895
Foreclosed real estate 222 272
Accrued interest receivable 5,344 4,958
Federal Home Loan Bank stock, at cost 9,351 7,943
Premises and equipment, net 17,509 17,835
Bank-owned life insurance 39,329 33,448
Goodwill 2,589 2,589
Other intangible assets 407 501
Deferred income taxes, net 8,834 9,085
Other assets 13,703 7,174
Total assets $ 1,804,938 $ 1,628,919

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest bearing deposits $ 162,790 $ 187,593
Interest bearing deposits 1,247,001 1,101,444
Total deposits 1,409,791 1,289,037

Advances from the Federal Home Loan Bank 195,000 160,000
Subordinated debentures 25,090 25,051
Accrued expenses and other liabilities 16,740 8,936
Total liabilities 1,646,621 1,483,024

Commitments and Contingencies

Shareholders' equity
Common stock, no par value; 10,000,000 shares authorized, 7,705,975 and 7,620,663 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively 117,289 115,353
Retained earnings 39,777 29,652
Accumulated other comprehensive income 1,251 890
Total shareholders' equity 158,317 145,895

Total liabilities and shareholders' equity $ 1,804,938 $ 1,628,919


	June 30, 2022		December 31, 2021
ASSETS
Cash and due from banks	$	149,522	$	291,598
Federal funds sold	21,505		53,084
Cash and cash equivalents	171,027		344,682

Investment securities
Marketable equity securities, at fair value	2,126		2,168
Available for sale investment securities, at fair value	94,907		90,198
Held to maturity investment securities, at amortized cost (fair values of $15,511 and $18,445 at June 30, 2022 and December 31, 2021, respectively)	15,917		16,043
Total investment securities	112,950		108,409

Loans receivable (net of allowance for loan losses of $15,773 at June 30, 2022 and $16,902 at December 31, 2021)	2,036,626		1,875,167

Accrued interest receivable	8,047		7,512
Federal Home Loan Bank stock, at cost	5,064		2,814
Premises and equipment, net	27,768		25,588
Bank-owned life insurance	49,699		49,174
Goodwill	2,589		2,589

Deferred income taxes, net	4,768		7,621
Other assets	17,014		32,708
Total assets	$	2,435,552	$	2,456,264
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest bearing deposits	$	372,584	$	398,956
Interest bearing deposits	1,660,941		1,725,042
Total deposits	2,033,525		2,123,998

Advances from the Federal Home Loan Bank	105,000		50,000
Subordinated debentures (face value of $35,000 and $35,000 at June 30, 2022 and December 31, 2021, respectively, less unamortized debt issuance costs of $500 and $559 at June 30, 2022 and December 31, 2021, respectively)	34,500		34,441
Accrued expenses and other liabilities	37,060		45,838
Total liabilities	2,210,085		2,254,277
Commitments and contingencies	0		0
Shareholders' equity
Common stock, no par value; 10,000,000 shares authorized, 7,752,389 and 7,803,166 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively	115,599		118,148
Retained earnings	109,523		92,400
Accumulated other comprehensive income (loss)	345		(8,561)
Total shareholders' equity	225,467		201,987

Total liabilities and shareholders' equity	$	2,435,552	$	2,456,264

See accompanying notes to consolidated financial statements (unaudited)

Bankwell Financial Group, Inc.

Consolidated Statements of Income – (unaudited)

(~~Dollars in~~In thousands, except ~~per~~ share ~~amounts)~~

Three Months Ended
September 30,
Nine Months Ended
September 30,

2017 2016 2017 2016

Interest and dividend income
Interest and fees on loans $ 17,175 $ 14,914 $ 49,348 $ 42,167
Interest and dividends on securities 934 688 2,623 2,083
Interest on cash and cash equivalents 239 31 501 98
Total interest income 18,348 15,633 52,472 44,348

Interest expense
Interest expense on deposits 3,416 2,160 9,092 5,862
Interest on borrowings 1,071 946 2,930 2,682
Total interest expense 4,487 3,106 12,022 8,544

Net interest income 13,861 12,527 40,450 35,804

Provision for loan losses 398 1,219 1,836 3,166

Net interest income after provision for loan losses 13,463 11,308 38,614 32,638

Noninterest income
Bank owned life insurance 295 174 881 522
Service charges and fees 254 241 755 721
Gains and fees from sales of loans 36 163 559 387
Gain on sale of foreclosed real estate, net - - - 128
Net gain on sale of available for sale securities - - 165 92
Other 239 172 728 425
Total noninterest income 824 750 3,088 2,275

Noninterest expense
Salaries and employee benefits 3,952 3,839 11,681 11,324
Occupancy and equipment 1,449 1,435 4,580 4,235
Professional services 680 521 1,615 1,257
Data processing 621 417 1,467 1,201
Marketing 295 242 872 644
FDIC insurance 265 177 891 514
Director fees 207 198 683 636
Amortization of intangibles 31 39 93 119
Foreclosed real estate 3 47 70 149
Other 626 566 1,992 1,697
Total noninterest expense 8,129 7,481 23,944 21,776

Income before income tax expense 6,158 4,577 17,758 13,137
Income tax expense 1,895 1,437 6,024 4,110
Net income $ 4,263 $ 3,140 $ 11,734 $ 9,027

Earnings Per Common Share:
Basic $ 0.55 $ 0.42 $ 1.53 $ 1.20
Diluted 0.55 0.41 1.51 1.19

Weighted Average Common Shares Outstanding:
Basic 7,587,471 7,397,067 7,554,739 7,388,364
Diluted 7,670,258 7,488,752 7,652,355 7,459,283
Dividends per common share $ 0.07 $ 0.05 $ 0.21 $ 0.15

data)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Interest and dividend income
Interest and fees on loans	$	25,141	$	19,266	$	46,569	$	37,166
Interest and dividends on securities	774		736		1,494		1,505
Interest on cash and cash equivalents	449		90		603		198
Total interest and dividend income	26,364		20,092		48,666		38,869

Interest expense
Interest expense on deposits	1,983		2,744		4,189		5,858
Interest expense on borrowings	558		769		1,144		1,777
Total interest expense	2,541		3,513		5,333		7,635

Net interest income	23,823		16,579		43,333		31,234

Credit for loan losses	(1,445)		(20)		(1,216)		(316)

Net interest income after credit for loan losses	25,268		16,599		44,549		31,550

Noninterest income
Gains and fees from sales of loans	608		814		1,239		1,327
Bank-owned life insurance	265		251		525		482
Service charges and fees	249		217		489		416


Other	30		158		(143)		1,170
Total noninterest income	1,152		1,440		2,110		3,395

Noninterest expense
Salaries and employee benefits	5,433		3,960		10,373		8,729
Occupancy and equipment	2,193		3,250		4,343		5,656
Professional services	1,000		547		1,981		1,134
Data processing	689		833		1,343		1,345
Director fees	339		327		691		644
FDIC insurance	262		300		485		703
Marketing	107		140		152		131
Other	913		695		1,493		1,348
Total noninterest expense	10,936		10,052		20,861		19,690
Income before income tax expense	15,484		7,987		25,798		15,255
Income tax expense	3,462		1,759		5,564		3,338
Net income	$	12,022	$	6,228	$	20,234	$	11,917

Earnings Per Common Share:
Basic	$	1.56	$	0.79	$	2.61	$	1.51
Diluted	$	1.55	$	0.79	$	2.58	$	1.50

Weighted Average Common Shares Outstanding:
Basic	7,556,645		7,722,481		7,596,639		7,744,368
Diluted	7,614,243		7,768,026		7,683,305		7,792,600
Dividends per common share	$	0.20	$	0.14	$	0.40	$	0.28

See accompanying notes to consolidated financial statements (unaudited)

Bankwell Financial Group, Inc.

Consolidated Statements of Comprehensive Income (Loss) – (unaudited)

(In thousands)

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016

Net income $ 4,263 $ 3,140 $ 11,734 $ 9,027
Other comprehensive income (loss):
Unrealized gain (loss) on securities:
Unrealized holding gain (loss) on available for sale securities 25 (371 ) 478 986
Reclassification adjustment for gain realized in net income - - (165 ) (92 )
Net change in unrealized gain (loss) 25 (371 ) 313 894
Income tax (expense) benefit (9 ) 130 (110 ) (313 )
Unrealized gain (loss) on securities, net of tax 16 (241 ) 203 581
Unrealized gain (loss) on interest rate swaps:
Unrealized gain (loss) on interest rate swaps designated as cash flow hedges 327 904 243 (1,147 )
Income tax (expense) benefit (114 ) (316 ) (85 ) 402
Unrealized gain (loss) on interest rate swaps, net of tax 213 588 158 (745 )
Total other comprehensive income (loss), net of tax 229 347 361 (164 )
Comprehensive income $ 4,492 $ 3,487 $ 12,095 $ 8,863


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net income	$	12,022	$	6,228	$	20,234	$	11,917
Other comprehensive income:
Unrealized (losses) gains on securities:
Unrealized holding (losses) gains on available for sale securities	(1,924)		693		(6,691)		(332)
Reclassification adjustment for gain realized in net income	—		—		—		—
Net change in unrealized (losses) gains	(1,924)		693		(6,691)		(332)
Income tax benefit (expense)	430		(157)		1,494		70
Unrealized (losses) gains on securities, net of tax	(1,494)		536		(5,197)		(262)
Unrealized gains (losses) on interest rate swaps:
Unrealized gains (losses) on interest rate swaps	7,144		(3,699)		18,160		7,235
Income tax (expense) benefit	(1,596)		837		(4,057)		(1,597)
Unrealized gains (losses) on interest rate swaps, net of tax	5,548		(2,862)		14,103		5,638
Total other comprehensive income (loss), net of tax	4,054		(2,326)		8,906		5,376
Comprehensive income	$	16,076	$	3,902	$	29,140	$	17,293

See accompanying notes to consolidated financial statements (unaudited)

Bankwell Financial Group, Inc.

Consolidated Statements of Shareholders' Equity – (unaudited)

(In thousands, except share data)

Common Stock Accumulated
Other
Shares
Outstanding Amount Retained
Earnings Comprehensive
Income (Loss) Total
Balance at December 31, 2016 7,620,663 $ 115,353 $ 29,652 $ 890 $ 145,895
Net income - - 11,734 - 11,734
Other comprehensive income, net of tax - - - 361 361
Cash dividends declared ($0.21 per share) - - (1,609 ) - (1,609 )
Stock-based compensation expense - 671 - - 671
Forfeitures of restricted stock (15,549 ) - - - -
Issuance of restricted stock 30,250 - - - -
Warrants exercised 30,800 550 - - 550
Stock options exercised 39,811 715 - - 715
Balance at September 30, 2017 7,705,975 $ 117,289 $ 39,777 $ 1,251 $ 158,317

Common Stock Accumulated
Other
Shares
Outstanding Amount Retained
Earnings Comprehensive
Income (Loss) Total
Balance at December 31, 2015 7,516,291 $ 112,579 $ 18,963 $ 227 $ 131,769
Net income - - 9,027 - 9,027
Other comprehensive loss, net of tax - - - (164 ) (164 )
Cash dividends declared ($0.15 per share) - - (1,131 ) - (1,131 )
Stock-based compensation expense - 788 - - 788
Forfeitures of restricted stock (683 ) - - - -
Issuance of restricted stock 29,300 - - - -
Stock options exercised 17,600 283 - - 283
Balance at September 30, 2016 7,562,508 $ 113,650 $ 26,859 $ 63 $ 140,572


	Number of Outstanding Shares	Common Stock		Retained Earnings		Accumulated Other Comprehensive (Loss) Income		Total
Balance at March 31, 2022	7,761,338	$	114,882	$	99,047	$	(3,709)	$	210,220
Net income	—	—		12,022		—		12,022
Other comprehensive income, net of tax	—	—		—		4,054		4,054
Cash dividends declared ($0.20 per share)	—	—		(1,546)		—		(1,546)
Stock-based compensation expense	—	717		—		—		717
Forfeitures of restricted stock	(9,449)	—		—		—		—

Issuance of restricted stock	500	—		—		—		—


Balance at June 30, 2022	7,752,389	$	115,599	$	109,523	$	345	$	225,467


	Number of Outstanding Shares	Common Stock		Retained Earnings		Accumulated Other Comprehensive Loss		Total
Balance at March 31, 2021	7,908,630	$	120,398	$	75,418	$	(7,873)	$	187,943
Net income	—	—		6,228		—		6,228
Other comprehensive loss, net of tax	—	—		—		(2,326)		(2,326)
Cash dividends declared ($0.14 per share)	—	—		(1,103)		—		(1,103)
Stock-based compensation expense	—	424		—		—		424



Repurchase of common stock	(13,529)	(371)		—		—		(371)
Balance at June 30, 2021	7,895,101	$	120,451	$	80,543	$	(10,199)	$	190,795

See accompanying notes to consolidated financial statements (unaudited)

Bankwell Financial Group, Inc.

Consolidated Statements of ~~Cash Flows~~Shareholders' Equity – ~~(unaudited)~~

(continued)

(In ~~thousands)~~

Nine Months Ended
September 30,
2017 2016
Cash flows from operating activities
Net income $ 11,734 $ 9,027
Adjustments to reconcile net income to net cash provided by operating activities:
Net (accretion) amortization of premiums and discounts on investment securities (22 ) 493
Provision for loan losses 1,836 3,166
Provision for (benefit from) deferred taxes 56 (1,448 )
Net gain on sales of available for sale securities (165 ) (92 )
Depreciation and amortization 1,034 1,305
Increase in cash surrender value of bank-owned life insurance (881 ) (522 )
Loan principal sold (16,161 ) (6,214 )
Proceeds from sales of loans 16,189 6,201
Net gain on sales of loans (559 ) (387 )
Stock-based compensation 671 788
Net accretion of purchase accounting adjustments (67 ) (107 )
Gain on sale and write-downs of foreclosed real estate 50 25
Amortization of debt issuance costs 39 39
Net change in:
Deferred loan fees (655 ) 316
Accrued interest receivable (386 ) (428 )
Other assets (6,101 ) (2,130 )
Accrued expenses and other liabilities 7,804 1,374
Net cash provided by operating activities 14,416 11,406

Cash flows from investing activities
Proceeds from principal repayments on available for sale securities 3,452 734
Proceeds from principal repayments on held to maturity securities 146 155
Net proceeds from sales and calls of available for sale securities 52,810 8,813
Purchases of available for sale securities (54,290 ) (51,228 )
Purchases of held to maturity securities (6,852 ) (6,834 )
Purchase of bank-owned life insurance (5,000 ) -
Net increase in loans (157,901 ) (178,861 )
Purchases of premises and equipment (708 ) (456 )
Purchase of Federal Home Loan Bank stock (1,408 ) (1,390 )
Proceeds from sale of foreclosed real estate - 951
Net cash used by investing activities (169,751 ) (228,116 )

thousands, except share data)


	Number of Outstanding Shares	Common Stock		Retained Earnings		Accumulated Other Comprehensive (Loss) Income		Total
Balance at December 31, 2021	7,803,166	$	118,148	$	92,400	$	(8,561)	$	201,987
Net income	—	—		20,234		—		20,234
Other comprehensive income, net of tax	—	—		—		8,906		8,906
Cash dividends declared ($0.40 per share)	—	—		(3,111)		—		(3,111)
Stock-based compensation expense	—	1,258		—		—		1,258
Forfeitures of restricted stock	(9,449)	—		—		—		—
Issuance of restricted stock	69,501	—		—		—		—
Stock options exercised	2,000	30		—		—		30
Repurchase of common stock	(112,829)	(3,837)		—		—		(3,837)
Balance at June 30, 2022	7,752,389	$	115,599	$	109,523	$	345	$	225,467


	Number of Outstanding Shares	Common Stock		Retained Earnings		Accumulated Other Comprehensive Loss		Total
Balance at December 31, 2020	7,919,278	$	121,338	$	70,839	$	(15,575)	$	176,602
Net income	—	—		11,917		—		11,917
Other comprehensive income, net of tax	—	—		—		5,376		5,376
Cash dividends declared ($0.28 per share)	—	—		(2,213)		—		(2,213)
Stock-based compensation expense	—	856		—		—		856
Forfeitures of restricted stock	(150)	—		—		—		—
Issuance of restricted stock	51,628	—		—		—		—
Stock options exercised	3,500	53		—		—		53
Repurchase of common stock	(79,155)	(1,796)		—		—		(1,796)
Balance at June 30, 2021	7,895,101	$	120,451	$	80,543	$	(10,199)	$	190,795

See accompanying notes to consolidated financial statements (unaudited)

Bankwell Financial Group, Inc.

Consolidated Statements of Cash Flows-~~(Continued)~~

– (unaudited)

(In thousands)

Nine Months Ended
September 30,
2017 2016
Cash flows from financing activities
Net change in time certificates of deposit $ 45,215 $ 157,904
Net change in other deposits 75,555 12,145
Net change in FHLB advances 35,000 55,000
Proceeds from exercise of warrants 550 -
Proceeds from exercise of options 715 283
Dividends paid on common stock (1,609 ) (1,131 )
Net cash provided by financing activities 155,426 224,201
Net increase in cash and cash equivalents 91 7,491
Cash and cash equivalents:
Beginning of year 96,355 88,597
End of period $ 96,446 $ 96,088
Supplemental disclosures of cash flows information:
Cash paid for:
Interest $ 11,798 $ 8,429
Income taxes 6,215 6,379
Supplemental disclosures of non-cash investing activities:
Net change in unrealized gains on available-for-sale securities 313 893


	Six Months Ended June 30,
	2022		2021
Cash flows from operating activities
Net income	$	20,234	$	11,917
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization of premiums and discounts on investment securities	171		93
Credit for loan losses	(1,216)		(316)
Provision for deferred income taxes	642		1,566

Change in fair value of marketable equity securities	55		28
Depreciation and amortization	1,590		1,833
Amortization of debt issuance costs	59		108
Change in valuation allowance of right-of-use asset	—		(29)
Increase in cash surrender value of bank-owned life insurance	(525)		(482)


Gains and fees from sales of loans	(1,239)		(1,327)
Stock-based compensation	1,258		856
Amortization of intangibles	—		18
(Gain) loss on sale of premises and equipment	(51)		6

Net change in:
Deferred loan fees	1,385		(399)
Accrued interest receivable	(535)		(82)
Other assets	19,182		5,909
Accrued expenses and other liabilities	5,542		(1,365)
Net cash provided by operating activities	46,552		18,334

Cash flows from investing activities
Proceeds from principal repayments on available for sale securities	4,666		8,840
Proceeds from principal repayments on held to maturity securities	130		4,653


Purchases of marketable equity securities	(13)		(13)
Purchases of available for sale securities	(16,241)		(11,648)
Purchases of held to maturity securities	—		(4,736)
Purchases of bank-owned life insurance	—		(5,500)
Net increase in loans	(171,810)		(127,267)

Proceeds from sales of loans not originated for sale	11,421		11,707
Purchases of premises and equipment, net	(3,719)		(4,127)
(Purchase) reduction of Federal Home Loan Bank stock	(2,250)		4,016

Net cash used in investing activities	(177,816)		(124,075)

See accompanying notes to consolidated financial statements (unaudited)

Bankwell Financial Group, Inc.

Consolidated Statements of Cash Flows - (Continued)

(In thousands)


	Six Months Ended June 30,
	2022		2021
Cash flows from financing activities
Net change in time certificates of deposit	$	18,852	$	(140,985)
Net change in other deposits	(109,325)		252,971
Net change in FHLB advances	55,000		(100,000)

Repayment of subordinated debt	—		(10,000)
Proceeds from exercise of options	30		53
Dividends paid on common stock	(3,111)		(2,213)
Repurchase of common stock	(3,837)		(1,796)
Net cash used in financing activities	(42,391)		(1,970)
Net decrease in cash and cash equivalents	(173,655)		(107,711)
Cash and cash equivalents:
Beginning of year	344,682		409,598
End of period	$	171,027	$	301,887
Supplemental disclosures of cash flows information:
Cash paid for:
Interest	$	5,799	$	3,497
Income taxes	5,837		2,938
Noncash investing and financing activities:

Net change in unrealized gains or losses on available for sale securities	(6,691)		(332)
Net change in unrealized gains or losses on interest rate swaps	18,160		7,235
Establishment of right-of-use asset and lease liability	—		9,837
Transfer of loans from held-for-investment to held-for-sale	10,182		10,380

See accompanying notes to consolidated financial statements (unaudited)

1. Nature of Operations and Summary of Significant Accounting Policies

Bankwell Financial Group, Inc. (the ~~“Company” or “Bankwell”~~"Parent Corporation") is a bank holding company headquartered in New Canaan, Connecticut. The ~~Company~~Parent Corporation offers a broad range of financial services through its banking subsidiary, Bankwell Bank (the ~~“Bank”~~"Bank" and, collectively with the Parent Corporation and the Parent Corporation's subsidiaries, the "Company"). The Bank was originally chartered as two separate banks, The Bank of New Canaan (“BNC”) and The Bank of Fairfield (“TBF”). In September 2013, BNC and TBF were merged and rebranded as “Bankwell Bank.” In November 2013, the Bank acquired The Wilton Bank (“Wilton”), which added one branch and approximately $25.1 million in loans and $64.2 million in deposits. In October 2014, the Bank acquired Quinnipiac Bank and Trust Company (“Quinnipiac”) which added two branches and approximately $97.8 million in loans and $100.6 million in deposits.

On May 15, 2014, the Company priced 2,702,703 common shares in its initial public offering (“IPO”) at $18.00 per share and Bankwell common shares began trading on the Nasdaq Stock Market. The Company issued a total of 2,702,703 common shares in its IPO, which closed on May 20, 2014. The net proceeds from the IPO were approximately $44.7 million, after deducting the underwriting discount of approximately $2.5 million and approximately $1.3 million of expenses.

The Bank is a Connecticut state chartered commercial bank, founded in 2002, whose deposits are insured under the Deposit Insurance Fund administered by the Federal Deposit Insurance Corporation (“FDIC”). The Bank provides commercial lending services through a ~~full range~~variety of ~~banking~~fixed and floating rate products in Connecticut and surrounding markets. Such services are also provided to ~~commercial and consumer customers,~~certain industries across several regions of the United States, primarily ~~concentrated in~~with borrowers with whom the ~~New York metropolitan area and throughout Connecticut, with the majority of our loans in Fairfield and New Haven Counties, Connecticut, with branch locations~~Company has existing relationships. The Bank operates branches in New Canaan, Stamford, Fairfield, Wilton, Westport, Darien, Norwalk, and Hamden, ~~and North Haven,~~ Connecticut.

During the second quarter of 2022, the Company sold its Wilton branch building that was previously classified as held for sale. On July 8, 2022, the Company announced that it will be closing the Wilton branch effective October 7, 2022. All regulatory notices have been filed as it relates to the closure of the Wilton branch.

Principles of consolidation

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

Use of estimates

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

Basis of consolidated financial statement presentation

The unaudited consolidated financial statements presented herein have been prepared pursuant to the rules of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q and Rule ~~10-1~~10-01 of Regulation S-X and do not include all of the information and note disclosures required by GAAP. In the opinion of management, all adjustments (consisting of normal recurring adjustments) and disclosures considered necessary for the fair presentation of the accompanying unaudited interim consolidated financial statements have been included. Interim results are not necessarily reflective of the results that may be expected for the year ending December 31, ~~2017.~~2022. The accompanying unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included on Form 10-K for the year ended December 31, ~~2016.~~

2021.

Significant concentrations of credit risk

~~Most~~

Many of the Company's activities are with customers located ~~within the~~in Connecticut and New York, ~~metropolitan area and throughout Connecticut,~~ with the majority of ~~our~~the Company's loans in ~~Fairfield and New Haven Counties,~~ Connecticut and ~~declines~~some New York metro area counties. Declines in property values in these areas could significantly impact the Company. The Company has a significant ~~concentrations~~concentration in commercial real estate loans. ~~Management~~

Common Share Repurchases

The Company is incorporated in the state of Connecticut. Connecticut law does not ~~believe they present any special risk. The~~provide for treasury shares, rather shares repurchased by the Company ~~does not have any significant concentrations in any one industry or customer.~~

constitute authorized, but unissued shares. GAAP states that accounting for treasury stock shall conform to state law. Therefore, the cost of shares repurchased by the Company has been allocated to common stock balances.

Reclassification

Certain prior period amounts ~~have been~~may be reclassified to conform to the ~~2017~~2022 financial statement presentation. These reclassifications only ~~changed~~change the reporting categories and ~~did~~do not affect the consolidated results of operations or consolidated financial ~~position.~~

~~Subsequent Events~~

~~In accordance with FASB ASC 855, “Subsequent Events,” Bankwell has evaluated all events or transactions occurring after September 30, 2017,~~position of the balance sheet date, and noted that there have been no such events or transactions that would require recognition or disclosure in the consolidated financial statements as of and for the quarter ended September 30, 2017.

Company.

Recent accounting pronouncements

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

Recently issued accounting pronouncements not yet adopted

ASU No. ~~2014-09 – Revenue from Contracts with Customers~~2022-02, Financial Instruments—Credit Losses (Topic ~~606)~~~~. The~~326): "Troubled Debt Restructurings and Vintage Disclosures.” This ASU ~~establishes a single comprehensive model for~~eliminates the TDR recognition and measurement guidance and, instead, requires that an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled, and will supersede nearly all existing revenue recognition guidance, to clarify and converge revenue recognition principles under US GAAP and IFRS. The update outlines five steps to recognizing revenue: (i) identify the contractsevaluate (consistent with the ~~customer; (ii) identify~~accounting for other loan modifications) whether a modification represents a new loan or a continuation of an existing loan. In addition, this ASU enhances existing disclosure requirements and introduces new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. For public business entities, this ASU requires that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases within the ~~separate performance obligations~~scope of Subtopic 326-20. Gross write-off information must be included in the ~~contract; (iii) determine~~vintage disclosures required for public business entities in accordance with paragraph 326-20-50-6, which requires that an entity disclose the ~~transaction price; (iv) allocate~~amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. For entities that have adopted the transaction price to the separate performance obligations; (v) recognize revenue when each performance obligation is satisfied. The update requires more comprehensive disclosures, relating to quantitative and qualitative information for amounts, timing, the nature and uncertainty of revenue, and cash flows arising from contracts with customers, which will mainly impact construction and high-tech industries. The most significant potential impact to banking entities relates to less prescriptive derecognition requirements on the sale of OREO property. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. The amendments in ~~ASU 2015-14 defer~~update 2016-13, the ~~effective date of ASU 2014-09 for all entities by one year. Accordingly, the~~ amendments in this update are effective for ~~annual and interim periods~~fiscal years beginning after December 15, ~~2017. Early adoption is permitted~~2022, including interim periods within those fiscal years. For entities that have not yet adopted the amendments in update 2016-13, the effective dates for ~~annual and interim reporting periods beginning after December 15, 2016. An entity may elect either a full retrospective or a modified retrospective application.~~the amendments in this update are the same as the effective dates in Update 2016-13. The Company ~~does~~has not ~~expect~~yet adopted this accounting standard as ASU 2016-13 has not been adopted. Management continues to evaluate the ~~application~~impact of its future adoption of this guidance ~~to have a material impact on the Company's financial statements.~~

~~ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10): “Recognition and Measurement of Financial Assets and Financial Liabilities.”~~The ASU has been issued to improve the recognition and measurement of financial instruments by requiring 1) equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; 2) separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; 3) the use of the exit price notion when measuring fair value of financial instruments for disclosure purposes; and 4) separate presentation by the reporting organization in other comprehensive income for the portion of the total change in the fair value of a liability resulting from the change in the instrument-specific credit risk (also referred to as “own credit”) when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. The standard is effective for the Company beginning on January 1, 2018. The Company does not expect the application of this guidance to have a material impact on the Company’s financial statements.

~~ASU 2016-02, Leases (Topic 842).~~The amendments in this ASU require lessees to recognize, on the balance sheet, assets and liabilities for the rights and obligations created by leases. Accounting by lessors will remain largely unchanged. The guidance will be effective for the Company, on January 1, 2019, with early adoption permitted. Adoption will require a modified retrospective transition where the lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented. The Company does not expect the application of this guidance to have a material impact on the Company’s financial statements.

~~ASU 2016-09, Compensation Stock – Compensation (Topic 718): “Improvements to Employee Share Based Payment Accounting.”~~This ASU changes how companies account for certain aspects of share based payments to employees. Entities will be required to recognize all excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) as income tax expense or benefit in the income statement and the tax effects of exercised or vested awards will be treated as discrete items in the reporting period in which they occur. This ASU also simplifies several other aspects of accounting for share-based payments including; classification of excess tax benefits on the statement of cash flows; forfeitures; statutory tax withholding requirements; classification of awards and; classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax-withholding purposes. The amendments in this update were effective for the Company on January 1, 2017 and interim periods within that annual period. The application of this guidance did not have a material impact on the Company’s financial statements.

ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): ~~Measurement~~“Measurement of Credit Losses on Financial Instruments.~~The~~” This ASU changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new ~~forward-looking~~forward looking “expected loss” model that will replace today’s “incurred loss” model and can result in the earlier recognition of credit losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except that the losses will be recognized as an allowance. On July 17, 2019, the FASB proposed deferring the effective date of ASC 326 for smaller reporting companies as defined by the SEC. The ~~amendments in this update will be~~FASB proposed a three year deferral for smaller reporting companies, with an effective ~~for the Company on~~date of January 1, ~~2020, including interim periods within that fiscal year. Early~~2023. On October 16, 2019, the FASB voted in favor of finalizing its proposal to defer the effective date of this standard. The FASB issued ASU No. 2019-10, which officially delayed the adoption ~~is permitted as~~ of ~~the~~this standard for smaller reporting companies until fiscal years beginning after December 15, ~~2018, including interim periods within those fiscal years.~~2022. The Company qualifies to defer the adoption of this standard and has not yet adopted this standard. Management ~~is currently evaluating~~continues to evaluate the impact of its ~~pending~~future adoption of this guidance on the Company’s financial statements.

~~ASU No. 2016-15, Statement of Cash Flows (Topic 230): “Classification of Certain Cash Receipts and Cash Payments.”~~This ASU changes how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. The amendments address the classification of the following eight items in the statement of cash flows; debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions and separately identifiable cash flows and application of the Predominance Principle. The amendments in this update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company does not expect the application of this guidance to have a material impact on the Company’s financial statements.

~~ASU No. 2016-18, Statement of Cash Flows (Topic 230): “Restricted Cash”~~ This ASU provide guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows. The amendments in this Update require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company does not expect the application of this guidance to have a material impact on the Company’s financial statements.

ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): ~~Simplifying~~“Simplifying the Test for Goodwill ~~Impairment:~~Impairment.” This ASU simplifies the test for goodwill impairment by eliminating ~~step~~Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity was required to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this ~~Update,~~update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, this ASU also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. Therefore, the same impairment assessment applies to all reporting units. An entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. On October 16, 2019, the FASB voted in favor of a proposal to defer the effective date of this standard in the same manner it is deferring the effective date of ASC 326. The ~~amendments will be effective~~FASB issued ASU No. 2019-10, which officially delayed the adoption of this standard for ~~the Company for its annual or any interim goodwill impairment tests in~~smaller reporting companies until fiscal years beginning after December 15, ~~2019. Early~~2022. The Company qualifies to defer the adoption ~~is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.~~of this standard and has not yet adopted this standard. The Company does not expect the application of this guidance to have a material impact on the Company’s financial statements.

~~ASU No. 2017-08, Receivables – Nonrefundable Fees and Other Costs (subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities:~~The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The amendments will be effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company does not expect the application of this guidance to have a material impact on the Company’s financial statements.

~~ASU No. 2017-09, Compensation – Stock Compensation (Topic 718):~~ The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, early adoption is permitted. The Company does not expect the application of this guidance to have a material impact on the Company’s financial statements.

~~ASU No. 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities (Topic 815):~~ The purpose of this updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. ASU 2017-12 is effective for public business entities for fiscal years beginning after December 15, 2018, with early adoption, including adoption in an interim period, permitted. ASU 2017-12 requires a modified retrospective transition method in which the Company will recognize the cumulative effect of the change on the opening balance of each affected component of equity in the statement of financial position as of the date of adoption. The Company does not expect the application of this guidance to have a material impact on the Company’s financial statements.

2. Investment Securities

The amortized cost, gross unrealized gains and losses and fair value of available for sale and held to maturity securities at ~~September~~June 30, ~~2017~~2022 were as follows:

September 30, 2017
Amortized Gross Unrealized Fair
Cost Gains Losses Value
(In thousands)
Available for sale securities:
U.S. Government and agency obligations
Due from one through five years $ 12,994 $ 72 $ (20 ) $ 13,046
Due after ten years 51,333 379 (24 ) 51,688
64,327 451 (44 ) 64,734

State agency and municipal obligations
Due from one through five years 2,866 113 - 2,979
Due from five through ten years 7,380 300 - 7,680
Due after ten years 1,646 41 (30 ) 1,657
11,892 454 (30 ) 12,316

Corporate bonds
Due in less than one year 2,004 12 - 2,016
Due from one through five years 7,104 102 - 7,206
9,108 114 - 9,222
Total available for sale securities $ 85,327 $ 1,019 $ (74 ) $ 86,272

Held to maturity securities:

State agency and municipal obligations
Due in less than one year $ 2,135 $ - $ - $ 2,135
Due from one through five years 3,876 - - 3,876
Due after ten years 16,440 - - 16,440
22,451 - - 22,451

Corporate bonds
Due from one through five years 1,000 - (13 ) 987

Government-sponsored mortgage backed securities
No contractual maturity 122 12 - 134
Total held to maturity securities $ 23,573 $ 12 $ (13 ) $ 23,572


	June 30, 2022
	Amortized Cost		Gross Unrealized				Fair Value
			Gains		Losses
	(In thousands)
Available for sale securities:
U.S. Government and agency obligations

Due from one through five years	$	40,885	$	—	$	(2,570)	$	38,315
Due from five through ten years	32,106		—		(752)		31,354
Due after ten years	10,980		—		(694)		10,286
Total U.S. Government and agency obligations	83,971		—		(4,016)		79,955

Corporate bonds

Due from five through ten years	14,000		—		(520)		13,480
Due after ten years	1,500		—		(28)		1,472
Total corporate bonds	15,500		—		(548)		14,952

Total available for sale securities	$	99,471	$	—	$	(4,564)	$	94,907

Held to maturity securities:
State agency and municipal obligations
Due after ten years	$	15,878	$	550	$	(959)	$	15,469

Government-sponsored mortgage backed securities
No contractual maturity	39		3		—		42
Total held to maturity securities	$	15,917	$	553	$	(959)	$	15,511

The amortized cost, gross unrealized gains and losses and fair value of available for sale and held to maturity securities at December 31, ~~2016~~2021 were as follows:

December 31, 2016
Amortized Gross Unrealized Fair
Cost Gains Losses Value
(In thousands)
Available for sale securities:
U.S. Government and agency obligations
Due from one through five years $ 62,357 $ 295 $ (49 ) $ 62,603
Due after ten years 100 - (5 ) 95
62,457 295 (54 ) 62,698

State agency and municipal obligations
Due from one through five years 827 24 (3 ) 848
Due from five through ten years 8,045 189 (1 ) 8,233
Due after ten years 5,623 178 (119 ) 5,682
14,495 391 (123 ) 14,763

Corporate bonds
Due in less than one year 2,022 56 - 2,078
Due from one through five years 8,145 67 - 8,212
10,167 123 - 10,290
Total available for sale securities $ 87,119 $ 809 $ (177 ) $ 87,751

Held to maturity securities:
State agency and municipal obligations
Due from one through five years $ 2,135 $ - $ - $ 2,135
Due after ten years 13,575 - - 13,575
15,710 - - 15,710

Corporate bonds
Due from one through five years 1,000 - (23 ) 977

Government-sponsored mortgage backed securities
No contractual maturity 149 15 - 164
Total held to maturity securities $ 16,859 $ 15 $ (23 ) $ 16,851

~~The gross realized gains on the sale~~


	December 31, 2021
	Amortized Cost		Gross Unrealized				Fair Value
			Gains		Losses
	(In thousands)
Available for sale securities:
U.S. Government and agency obligations

Due from one through five years	$	25,747	$	3	$	(181)	$	25,569
Due from five through ten years	16,540		866		—		17,406
Due after ten years	31,284		988		(58)		32,214
Total U.S. Government and agency obligations	73,571		1,857		(239)		75,189
Corporate bonds


Due from five through ten years	13,000		429		(10)		13,419
Due after ten years	1,500		90		—		1,590
Total corporate bonds	14,500		519		(10)		15,009

Total available for sale securities	$	88,071	$	2,376	$	(249)	$	90,198

Held to maturity securities:
State agency and municipal obligations
Due after ten years	$	15,998	$	2,601	$	(206)	$	18,393

Government-sponsored mortgage backed securities
No contractual maturity	45		7		—		52
Total held to maturity securities	$	16,043	$	2,608	$	(206)	$	18,445

There were no sales of investment securities ~~totaled $0 and $165 thousand for~~during the ~~three and nine~~six months ended ~~September~~June 30, ~~2017, respectively. Total sales proceeds totaled $0~~2022 or 2021.

At June 30, 2022 and $49.6 million for three and nine months ended September 30, 2017, respectively. There were no gross realized losses on the sale of investment securities for the three and nine months ended September 30, 2017. The gross realized gains on the sale of investment securities totaled $0 and $98 thousand for the three and nine months ended September 30, 2016, respectively. The gross realized losses on the sale of investment securities totaled $0 and $6 thousand for the three and nine months ended September 30, 2016, respectively. Total sales proceeds totaled $0 and $3.8 million for the three and nine months ended September 30, 2016, respectively.

~~At September 30, 2017 there were no securities pledged as collateral with the FHLB. At~~ December 31, ~~2016,~~2021, none of the Company's securities ~~with approximate fair values of $60.0 million~~ were pledged as collateral with the ~~FHLB.~~

Federal Home Loan Bank ("FHLB") or any other institution.

As of June 30, 2022 and December 31, 2021, the actual durations of the Company's available for sale securities were significantly shorter than the stated maturities.

As of June 30, 2022, the Company held marketable equity securities with a fair value of $2.1 million and an amortized cost of $2.1 million. At December 31, 2021, the Company held marketable equity securities with a fair value of $2.2 million and an amortized cost of $2.1 million. These securities represent an investment in mutual funds that have an objective to make investments for CRA purposes.

The following ~~table provides~~tables provide information regarding ~~investment~~available for sale securities and held to maturity securities with unrealized losses, aggregated by investment category and length of time that individual securities ~~had~~have been in a continuous unrealized loss position at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016:~~

Length of Time in Continuous Unrealized Loss Position
Less Than 12 Months 12 Months or More Total
Fair Value Unrealized
Loss Percent
Decline from
Amortized Cost Fair Value Unrealized
Loss Percent
Decline from
Amortized Cost Fair Value Unrealized
Loss Percent
Decline from
Amortized Cost
(In thousands)
September 30, 2017
U.S. Government and agency obligations $ 5,303 $ (23 ) 0.42 % $ 2,078 $ (21 ) 1.00 % $ 7,381 $ (44 ) 0.59 %
State agency and municipal obligations 604 (29 ) 4.55 % 29 (1 ) 4.22 % 633 (30 ) 4.53 %
Corporate bonds - - - 977 (13 ) 1.25 % 977 (13 ) 1.25 %
Total investment securities $ 5,907 $ (52 ) 0.86 % $ 3,084 $ (35 ) 1.11 % $ 8,991 $ (87 ) 0.95 %

December 31, 2016
U.S. Government and agency obligations $ 3,045 $ (54 ) 1.74 % $ - $ - - $ 3,045 $ (54 ) 1.74 %
State agency and municipal obligations 2,756 (123 ) 4.29 % - - - 2,756 (123 ) 4.29 %
Corporate bonds 978 (23 ) 2.25 % - - - 978 (23 ) 2.25 %
Total investment securities $ 6,779 $ (200 ) 2.86 % $ - $ - - $ 6,779 $ (200 ) 2.86 %

2021:


	Length of Time in Continuous Unrealized Loss Position
	Less Than 12 Months						12 Months or More						Total
	Fair Value		Unrealized Loss		Percent Decline from Amortized Cost		Fair Value		Unrealized Loss		Percent Decline from Amortized Cost		Fair Value		Unrealized Loss		Percent Decline from Amortized Cost
	(Dollars in thousands)

June 30, 2022
U.S. Government and agency obligations	$	79,955	$	(4,016)	4.78	%	$	—	$	—	—	%	$	79,955	$	(4,016)	4.78	%
Corporate bonds	14,952		(548)		3.53		—		—		—		14,952		(548)		3.53
State agency and municipal obligations	6,392		(119)		1.82		3,777		(840)		18.20		10,169		(959)		8.62
Total investment securities	$	101,299	$	(4,683)	4.42	%	$	3,777	$	(840)	18.20	%	$	105,076	$	(5,523)	4.99	%


	Length of Time in Continuous Unrealized Loss Position
	Less Than 12 Months						12 Months or More						Total
	Fair Value		Unrealized Loss		Percent Decline from Amortized Cost		Fair Value		Unrealized Loss		Percent Decline from Amortized Cost		Fair Value		Unrealized Loss		Percent Decline from Amortized Cost
	(Dollars in thousands)

December 31, 2021
U.S. Government and agency obligations	$	28,121	$	(239)	0.84	%	$	—	$	—	—	%	$	28,121	$	(239)	0.84	%
Corporate bonds	2,990		(10)		0.35		—		—		—		2,990		(10)		0.35
State agency and municipal obligations	4,443		(206)		4.44		—		—		—		4,443		(206)		4.44
Total investment securities	$	35,554	$	(455)	1.27	%	$	—	$	—	—	%	$	35,554	$	(455)	1.27	%

There were ~~ten~~NaN and ~~eleven investment~~7 available for sale securities or held to maturity securities as of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively, in which the fair value of the security was less than the amortized cost of the security.

The U.S. Government and agency obligations owned are either direct obligations of the U.S. Government or guaranteed by the U.S. Government, therefore the contractual cash flows are guaranteed and as a result the unrealized losses in this portfolio are ~~not~~ considered ~~other than~~to be only temporarily impaired.

The Company continually monitors its corporate bond, state agency ~~municipal~~ and ~~corporate~~municipal bond portfolios and at this time these portfolios have minimal default risk because state agency ~~municipal~~ and ~~corporate~~municipal bonds are all rated ~~above~~ investment grade ~~and as a result the unrealized losses in this portfolio are not considered other than temporarily impaired.~~

or deemed to be of investment grade quality.

The Company has the intent and ability to retain its investment securities in an unrealized loss position at ~~September~~June 30, ~~2017~~2022 until the decline in value has ~~recovered.~~

recovered or the security has matured.

3. Loans Receivable and Allowance for Loan Losses

Loans acquired in connection with the Wilton acquisition in November 2013 and the Quinnipiac acquisition in October 2014 are referred to as “acquired” loans as a result of the manner in which they are accounted for, which was at fair value at the date of acquisition. All other loans are referred to as “originated” loans. Accordingly, selected credit quality disclosures that follow are presented separately for the originated loan portfolio and the acquired loan portfolio.

The following table sets forth a summary of the loan portfolio at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016:~~

September 30, 2017 December 31, 2016
(In thousands) Originated Acquired Total Originated Acquired Total

Real estate loans:
Residential $ 176,599 $ 2,349 $ 178,948 $ 178,549 $ 2,761 $ 181,310
Commercial 905,061 37,837 942,898 802,156 43,166 845,322
Construction 114,464 107 114,571 107,329 112 107,441
Home equity 8,428 5,472 13,900 8,549 5,870 14,419
1,204,552 45,765 1,250,317 1,096,583 51,909 1,148,492

Commercial business 256,519 15,986 272,505 198,456 17,458 215,914
Consumer 553 171 724 672 861 1,533
Total loans 1,461,624 61,922 1,523,546 1,295,711 70,228 1,365,939

Allowance for loan losses (19,437 ) (127 ) (19,564 ) (17,883 ) (99 ) (17,982 )
Deferred loan origination fees, net (3,416 ) - (3,416 ) (4,071 ) - (4,071 )
Unamortized loan premiums 8 - 8 9 - 9
Loans receivable, net $ 1,438,779 $ 61,795 $ 1,500,574 $ 1,273,766 $ 70,129 $ 1,343,895

2021:


(In thousands)	June 30, 2022		December 31, 2021
Real estate loans:
Residential	$	64,253	$	79,987
Commercial	1,499,364		1,356,709
Construction	111,422		98,341
	1,675,039		1,535,037

Commercial business (1)	372,361		350,975

Consumer	9,196		8,869
Total loans	2,056,596		1,894,881

Allowance for loan losses	(15,773)		(16,902)
Deferred loan origination fees, net	(4,197)		(2,812)

Loans receivable, net	$	2,036,626	$	1,875,167

(1) The June 30, 2022 and December 31, 2021 balances include $39 thousand and $0.2 million, respectively, of Paycheck Protection Program ("PPP") loans made under the CARES Act.

Lending activities ~~are conducted principally in the New York metropolitan area and throughout Connecticut, with the majority of our loans in Fairfield and New Haven Counties, Connecticut, and~~ consist of ~~residential and~~ commercial real estate loans, commercial business loans and, to a lesser degree, a variety of consumer loans. Loans may also be granted for the construction of ~~residential homes and~~ commercial properties. ~~All residential and~~The majority of commercial mortgage loans are ~~typically~~ collateralized by first or second mortgages on real estate.

~~Certain acquired loans were determined to have evidence of credit deterioration at the acquisition date. Such loans are accounted for in accordance with ASC 310-30.~~

~~The following table summarizes activity in the accretable yields for the acquired loan portfolio that falls under the purview of ASC 310-30:~~

Three Months Ended September 30, Nine Months Ended September 30,
(In thousands) 2017 2016 2017 2016
Balance at beginning of period $ 607 $ 733 $ 666 $ 871
Accretion (27 ) (36 ) (86 ) (123 )
Other (a) - - - (51 )
Balance at end of period $ 580 $ 697 $ 580 $ 697

~~Represents changes in cash flows expected to be collected due to loan sales or payoffs.~~

Risk management

The Company has established credit policies applicable to each type of lending activity in which it engages. The Company evaluates the creditworthiness of each customer and extends credit of up to 80% of the market value of the collateral, depending on the ~~borrowers’~~borrower's creditworthiness and the type of collateral. The borrower’s ability to service the debt is monitored on an ongoing basis. Real estate is the primary form of collateral. Other important forms of collateral are business assets, time deposits and marketable securities. While collateral provides assurance as a secondary source of repayment, the Company ordinarily requires the primary source of repayment for commercial loans to be based on the borrower’s ability to generate continuing cash flows. In the fourth quarter of 2017, management made the strategic decision to cease the origination of residential mortgage loans. At the beginning of the third quarter 2019, the Company no longer offered home equity loans or lines of credit. The Company’s policy for residential lending ~~allows~~generally required that ~~generally,~~ the amount of the loan may not exceed 80% of the original appraised value of the property. In certain situations, the amount may ~~exceed~~have exceeded 80% LTV either with private mortgage insurance being required for that portion of the residential loan in excess of 80% of the appraised value of the property or where secondary financing is provided by a housing authority program second mortgage, a community’s low/moderate income housing program, or a religious or civic organization. ~~Private mortgage insurance may be required for that portion of the residential first mortgage loan in excess of 80% of the appraised value of the property.~~

Credit quality of loans and the allowance for loan losses

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

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

Residential Real Estate:This portfolio segment consists ~~of the origination~~ of first mortgage loans secured by one-to-four family owner occupied residential properties for personal use located in ~~our~~the Company's market area.

This segment also includes home equity loans and home equity lines of credit secured by owner occupied one-to-four family residential properties. Loans of this type were written at a combined maximum of 80% of the appraised value of the property and the Company requires a first or second lien position on the property. These loans can be affected by economic conditions and the values of the underlying properties.

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

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

~~Home Equity:~~This portfolio segment primarily includes home equity loans and home equity lines of credit secured by owner occupied one-to-four family residential properties. Loans of this type are written at a combined maximum of 80% of the appraised value of the property and the Company requires a first or second lien position on the property. These loans can be affected by economic conditions and the values of the underlying properties.

Commercial Business:This portfolio segment includes commercial business loans secured by assignments of corporate assets and personal guarantees of the business owners. Commercial business loans generally have higher interest rates and shorter terms than other loans, but they also have increased difficulty of loan monitoring and a higher risk of default since their repayment generally depends on the successful operation of the borrower’s business.

This segment also includes Paycheck Protection Program ("PPP") loans made under the CARES Act to small businesses impacted by COVID-19, to cover payroll and other operating expenses. Loans extended under the PPP are fully guaranteed by the U.S. Small Business Administration ("SBA").

Consumer:This portfolio segment includes loans secured by savings or certificate accounts, or automobiles, as well as unsecured personal loans and overdraft lines of credit. ~~This type~~In addition, there are loans to finance insurance premiums, secured primarily by the cash surrender value of ~~loan entails greater risk than residential mortgage loans, particularly in the case of loans that are unsecured or secured by assets that depreciate rapidly.~~

life insurance and marketable securities.

Allowance for loan losses

The following tables set forth the activity in the Company’s allowance for loan losses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016,~~2021, by portfolio segment:

Residential
Real Estate Commercial
Real Estate Construction Home
Equity Commercial
Business Consumer Total
(In thousands)
Three Months Ended September 30, 2017
Originated
Beginning balance $ 1,465 $ 9,687 $ 2,268 $ 168 $ 5,474 $ 347 $ 19,409
Charge-offs - - - - (366 ) (10 ) (376 )
Recoveries - - - - 4 2 6
Provisions (14 ) 15 (75 ) (6 ) 469 9 398
Ending balance $ 1,451 $ 9,702 $ 2,193 $ 162 $ 5,581 $ 348 $ 19,437

Acquired
Beginning balance $ - $ 8 $ - $ - $ 90 $ 29 $ 127
Charge-offs - - - - - - -
Recoveries - - - - - - -
Provisions - - - - 25 (25 ) -
Ending balance $ - $ 8 $ - $ - $ 115 $ 4 $ 127

Total
Beginning balance $ 1,465 $ 9,695 $ 2,268 $ 168 $ 5,564 $ 376 $ 19,536
Charge-offs - - - - (366 ) (10 ) (376 )
Recoveries - - - - 4 2 6
Provisions (14 ) 15 (75 ) (6 ) 494 (16 ) 398
Ending balance $ 1,451 $ 9,710 $ 2,193 $ 162 $ 5,696 $ 352 $ 19,564

Residential
Real Estate Commercial
Real Estate Construction Home
Equity Commercial
Business Consumer Total
(In thousands)
Three Months Ended September 30, 2016
Originated
Beginning balance $ 1,484 $ 8,625 $ 1,920 $ 179 $ 3,792 $ 39 $ 16,039
Charge-offs - - - - (59 ) (2 ) (61 )
Recoveries - - - - - 2 2
Provisions (4 ) 472 159 (9 ) 306 311 1,235
Ending balance $ 1,480 $ 9,097 $ 2,079 $ 170 $ 4,039 $ 350 $ 17,215

Acquired
Beginning balance $ - $ 23 $ - $ 11 $ 24 $ 3 $ 61
Charge-offs - - - - (10 ) - (10 )
Recoveries - - - - - - -
Provisions - 6 - (11 ) (11 ) - (16 )
Ending balance $ - $ 29 $ - $ - $ 3 $ 3 $ 35

Total
Beginning balance $ 1,484 $ 8,648 $ 1,920 $ 190 $ 3,816 $ 42 $ 16,100
Charge-offs - - - - (69 ) (2 ) (71 )
Recoveries - - - - - 2 2
Provisions (4 ) 478 159 (20 ) 295 311 1,219
Ending balance $ 1,480 $ 9,126 $ 2,079 $ 170 $ 4,042 $ 353 $ 17,250


	Residential Real Estate		Commercial Real Estate		Construction		Commercial Business		Consumer		Total
	(In thousands)
Three Months Ended June 30, 2022
Beginning balance	$	358	$	13,441	$	56	$	3,254	$	32	$	17,141
Charge-offs	—		—		—		—		—		—
Recoveries	—		77		—		—		—		77
(Credits) provisions	(27)		(2,038)		39		548		33		(1,445)
Ending balance	$	331	$	11,480	$	95	$	3,802	$	65	$	15,773

Residential
Real Estate Commercial
Real Estate Construction Home
Equity Commercial
Business Consumer Total
(In thousands)
Nine Months Ended September 30, 2017
Originated
Beginning balance $ 1,498 $ 9,534 $ 2,105 $ 156 $ 4,240 $ 350 $ 17,883
Charge-offs - - - - (366 ) (26 ) (392 )
Recoveries 146 - - - 4 3 153
Provisions (193 ) 168 88 6 1,703 21 1,793
Ending balance $ 1,451 $ 9,702 $ 2,193 $ 162 $ 5,581 $ 348 $ 19,437

Acquired
Beginning balance $ - $ 29 $ - $ - $ 43 $ 27 $ 99
Charge-offs - - - - - (15 ) (15 )
Recoveries - - - - - - -
Provisions - (21 ) - - 72 (8 ) 43
Ending balance $ - $ 8 $ - $ - $ 115 $ 4 $ 127

Total
Beginning balance $ 1,498 $ 9,563 $ 2,105 $ 156 $ 4,283 $ 377 $ 17,982
Charge-offs - - - - (366 ) (41 ) (407 )
Recoveries 146 - - - 4 3 153
Provisions (193 ) 147 88 6 1,775 13 1,836
Ending balance $ 1,451 $ 9,710 $ 2,193 $ 162 $ 5,696 $ 352 $ 19,564

Residential
Real Estate Commercial
Real Estate Construction Home
Equity Commercial
Business Consumer Total
(In thousands)
Nine Months Ended September 30, 2016
Originated
Beginning balance $ 1,444 $ 7,693 $ 1,504 $ 174 $ 3,310 $ 3 $ 14,128
Charge-offs - - - - (59 ) (10 ) (69 )
Recoveries - - - - - 7 7
Provisions 36 1,404 575 (4 ) 788 350 3,149
Ending balance $ 1,480 $ 9,097 $ 2,079 $ 170 $ 4,039 $ 350 $ 17,215

Acquired
Beginning balance $ - $ 12 $ - $ - $ 24 $ 5 $ 41
Charge-offs - - (7 ) - (10 ) (6 ) (23 )
Recoveries - - - - - - -
Provisions - 17 7 - (11 ) 4 17
Ending balance $ - $ 29 $ - $ - $ 3 $ 3 $ 35

Total
Beginning balance $ 1,444 $ 7,705 $ 1,504 $ 174 $ 3,334 $ 8 $ 14,169
Charge-offs - - (7 ) - (69 ) (16 ) (92 )
Recoveries - - - - - 7 7
Provisions 36 1,421 582 (4 ) 777 354 3,166
Ending balance $ 1,480 $ 9,126 $ 2,079 $ 170 $ 4,042 $ 353 $ 17,250


	Residential Real Estate		Commercial Real Estate		Construction		Commercial Business		Consumer		Total
	(In thousands)
Three Months Ended June 30, 2021
Beginning balance	$	501	$	16,259	$	297	$	3,452	$	36	$	20,545
Charge-offs	—		(3,814)		—		(51)		(4)		(3,869)
Recoveries	—		—		—		16		—		16
(Credits) provisions	(183)		764		(164)		(441)		4		(20)
Ending balance	$	318	$	13,209	$	133	$	2,976	$	36	$	16,672


	Residential Real Estate		Commercial Real Estate		Construction		Commercial Business		Consumer		Total
	(In thousands)
Six Months Ended June 30, 2022
Beginning balance	$	504	$	12,751	$	4	$	3,590	$	53	$	16,902
Charge-offs	—		—		—		—		(4)		(4)
Recoveries	—		77		—		13		1		91
(Credits) provisions	(173)		(1,348)		91		199		15		(1,216)
Ending balance	$	331	$	11,480	$	95	$	3,802	$	65	$	15,773


	Residential Real Estate		Commercial Real Estate		Construction		Commercial Business		Consumer		Total
	(In thousands)
Six Months Ended June 30, 2021
Beginning balance	$	610	$	16,425	$	221	$	3,753	$	—	$	21,009
Charge-offs	—		(3,977)		—		(51)		(18)		(4,046)
Recoveries	—		—		—		16		9		25
(Credits) provisions	(292)		761		(88)		(742)		45		(316)
Ending balance	$	318	$	13,209	$	133	$	2,976	$	36	$	16,672

Loans evaluated for impairment and the related allowance for loan losses as of June 30, 2022 and December 31, 2021 were as follows:


	Portfolio		Allowance
	(In thousands)
June 30, 2022
Loans individually evaluated for impairment:
Residential real estate	$	3,882	$	170
Commercial real estate	25,547		929
Construction	9,382		—
Commercial business	2,984		84

Subtotal	41,795		1,183
Loans collectively evaluated for impairment:
Residential real estate	60,371		161
Commercial real estate	1,473,817		10,551
Construction	102,040		95
Commercial business	369,377		3,718
Consumer	9,196		65
Subtotal	2,014,801		14,590

Total	$	2,056,596	$	15,773


	Portfolio		Allowance
	(In thousands)
December 31, 2021
Loans individually evaluated for impairment:
Residential real estate	$	4,150	$	261
Commercial real estate	29,666		2,520
Construction	8,997		—
Commercial business	4,368		87

Subtotal	47,181		2,868
Loans collectively evaluated for impairment:
Residential real estate	75,837		243
Commercial real estate	1,327,043		10,231
Construction	89,344		4
Commercial business	346,607		3,503
Consumer	8,869		53
Subtotal	1,847,700		14,034

Total	$	1,894,881	$	16,902

Credit quality indicators

To measure credit risk for the loan portfolios, the Company employs a credit risk rating system. This risk rating represents an assessed level of a loan’s risk based on the character and creditworthiness of the borrower/guarantor, the capacity of the borrower to adequately service the debt, any credit enhancements or additional sources of repayment, and the quality, value and coverage of the collateral, if any.

The ~~following tables~~objectives of the Company’s risk rating system are to provide the Board of Directors and senior management with an objective assessment of the overall quality of the loan portfolio, to promptly and accurately identify loans with well-defined

credit weaknesses so that timely action can be taken to minimize a ~~summary, by~~potential credit loss, to identify relevant trends affecting the collectability of the loan portfolio, ~~segment~~to isolate potential problem areas and ~~impairment methodology,~~to provide essential information for determining the adequacy of the allowance for loan ~~losses~~losses. The Company’s credit risk rating system has nine grades, with each grade corresponding to a progressively greater risk of default. Risk ratings of (1) through (5) are "pass" categories and ~~related portfolio balances at September 30, 2017 and December 31, 2016:~~

Originated Loans Acquired Loans Total
Portfolio Allowance Portfolio Allowance Portfolio Allowance
(In thousands)
September 30, 2017
Loans individually evaluated for impairment:
Residential real estate $ 2,005 $ - $ - $ - $ 2,005 $ -
Commercial real estate 6,561 - 1,150 8 7,711 8
Home equity 245 - 448 - 693 -
Commercial business 3,391 4 743 115 4,134 119
Consumer 341 341 4 4 345 345
Subtotal 12,543 345 2,345 127 14,888 472
Loans collectively evaluated for impairment:
Residential real estate 174,594 1,451 2,349 - 176,943 1,451
Commercial real estate 898,500 9,702 36,687 - 935,187 9,702
Construction 114,464 2,193 107 - 114,571 2,193
Home equity 8,183 162 5,024 - 13,207 162
Commercial business 253,128 5,577 15,243 - 268,371 5,577
Consumer 212 7 167 - 379 7
Subtotal 1,449,081 19,092 59,577 - 1,508,658 19,092

Total $ 1,461,624 $ 19,437 $ 61,922 $ 127 $ 1,523,546 $ 19,564

Originated Loans Acquired Loans Total
Portfolio Allowance Portfolio Allowance Portfolio Allowance
(In thousands)
December 31, 2016
Loans individually evaluated for impairment:
Residential real estate $ 969 $ - $ - $ - $ 969 $ -
Commercial real estate 774 1 144 7 918 8
Home equity 259 - 453 - 712 -
Commercial business 920 5 962 37 1,882 42
Consumer 341 341 27 27 368 368
Subtotal 3,263 347 1,586 71 4,849 418
Loans collectively evaluated for impairment:
Residential real estate 177,580 1,498 2,761 - 180,341 1,498
Commercial real estate 801,382 9,533 43,022 22 844,404 9,555
Construction 107,329 2,105 112 - 107,441 2,105
Home equity 8,290 156 5,417 - 13,707 156
Commercial business 197,536 4,235 16,496 6 214,032 4,241
Consumer 331 9 834 - 1,165 9
Subtotal 1,292,448 17,536 68,642 28 1,361,090 17,564

Total $ 1,295,711 $ 17,883 $ 70,228 $ 99 $ 1,365,939 $ 17,982

~~Credit quality indicators~~

~~The Company's policies provide for the classification~~risk ratings of ~~loans into the following categories: pass, special mention, substandard, doubtful and loss. Consistent with regulatory guidelines, loans that~~(6) through (9) are ~~considered to be of lesser quality are classified~~criticized asset categories as ~~substandard, doubtful, or loss assets. A loan is considered substandard if it is inadequately protected~~defined by the ~~current net worth and paying capacity~~regulatory agencies.

A “special mention” (6) credit has a potential weakness which, if uncorrected, may result in a deterioration of the ~~obligor~~repayment prospects or inadequately protect the Company’s credit position at some time in the future. “Substandard” (7) loans are credits that have a well-defined weakness or weaknesses that jeopardize the full repayment of the collateral pledged, if any. Substandard loans include those loans characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Loans classified as doubtful havedebt. An asset rated “doubtful” (8) has all of the weaknesses inherent in ~~those classified~~a substandard ~~with the added characteristic that the weaknesses present~~asset and which, in addition, make collection or liquidation in full ~~on the basis of currently~~highly questionable and improbable when considering existing facts, conditions, and ~~values, highly questionable and improbable.~~values. Loans classified as ~~loss~~“loss” (9) are ~~those~~ considered uncollectible and of such little value that their continuance as ~~loans~~bankable assets is not warranted. ~~Loans~~This classification does not mean that ~~do not expose~~ the ~~Company to risk sufficient to warrant classification in one of the aforementioned categories, but which possess potential weaknesses that deserve close attention, are designated as special mention.~~

~~Loans that are considered to be impaired are analyzed to determine whether a loss is possible and if so, a calculation is performed to determine the possible loss amount. If~~loan has absolutely no recovery or salvage value; rather, it is ~~determined that~~not practical or desirable to defer writing-off this asset even though partial recovery may be made in the ~~loss amount is $0, no reserve is held against~~future.

Risk ratings are assigned as necessary to differentiate risk within the ~~asset. If a loss is calculated, then a specific reserve for that~~portfolio. They are reviewed on an ongoing basis through the annual loan review process performed by Company personnel, normal renewal activity and the quarterly watchlist and watched asset ~~is allocated.~~

report process. They are revised to reflect changes in the borrower's financial condition and outlook, debt service coverage capability, repayment performance, collateral value and coverage, as well as other considerations. In addition to internal review at multiple points, outsourced loan review opines on risk ratings with regard to the sample of loans their review covers.

The following tables ~~are a summary~~present credit risk ratings by loan segment as of ~~the loan portfolio quality indicators by portfolio segment at September~~June 30, ~~2017~~2022 and December 31, ~~2016:~~

Commercial Credit Quality Indicators
At September 30, 2017 At December 31, 2016
Commercial
Real Estate Construction Commercial
Business Total Commercial
Real Estate Construction Commercial
Business Total
(In thousands)
Originated loans:
Pass $ 887,857 $ 114,464 $ 252,422 $ 1,254,743 $ 797,249 $ 107,329 $ 196,436 $ 1,101,014
Special mention 16,213 - 2,533 18,746 4,605 - 115 4,720
Substandard 991 - 1,564 2,555 302 - 1,905 2,207
Doubtful - - - - - - - -
Loss - - - - - - - -
Total originated loans 905,061 114,464 256,519 1,276,044 802,156 107,329 198,456 1,107,941
Acquired loans:
Pass 36,577 107 15,242 51,926 41,582 112 16,836 58,530
Special mention 110 - 293 403 1,584 - 86 1,670
Substandard 1,150 - 395 1,545 - - 536 536
Doubtful - - 56 56 - - - -
Loss - - - - - - - -
Total acquired loans 37,837 107 15,986 53,930 43,166 112 17,458 60,736
Total loans:
Pass 924,434 114,571 267,664 1,306,669 838,831 107,441 213,272 1,159,544
Special mention 16,323 - 2,826 19,149 6,189 - 201 6,390
Substandard 2,141 - 1,959 4,100 302 - 2,441 2,743
Doubtful - - 56 56 - - - -
Loss - - - - - - - -
Total loans $ 942,898 $ 114,571 $ 272,505 $ 1,329,974 $ 845,322 $ 107,441 $ 215,914 $ 1,168,677

2021:


	Commercial Credit Quality Indicators
	June 30, 2022								December 31, 2021
	Commercial Real Estate		Construction		Commercial Business		Total		Commercial Real Estate		Construction		Commercial Business		Total
	(In thousands)
Pass	$	1,455,062	$	102,040	$	367,923	$	1,925,025	$	1,307,992	$	89,344	$	345,153	$	1,742,489
Special Mention	18,755		—		1,454		20,209		19,051		—		1,454		20,505
Substandard	25,466		9,382		2,369		37,217		29,255		8,997		2,847		41,099
Doubtful	81		—		615		696		411		—		1,521		1,932
Loss	—		—		—		—		—		—		—		—
Total loans	$	1,499,364	$	111,422	$	372,361	$	1,983,147	$	1,356,709	$	98,341	$	350,975	$	1,806,025

Residential and Consumer Credit Quality Indicators
At September 30, 2017 At December 31, 2016
Residential
Real Estate Home Equity Consumer Total Residential
Real Estate Home Equity Consumer Total
(In thousands)
Originated loans:
Pass $ 174,595 $ 8,183 $ 159 $ 182,937 $ 176,961 $ 8,291 $ 331 $ 185,583
Special mention 1,035 61 - 1,096 147 69 - 216
Substandard 969 184 - 1,153 1,441 189 - 1,630
Doubtful - - - - - - - -
Loss - - 394 394 - - 341 341
Total originated loans 176,599 8,428 553 185,580 178,549 8,549 672 187,770
Acquired loans:
Pass 2,349 5,024 167 7,540 2,229 5,417 835 8,481
Special mention - - - - 49 - - 49
Substandard - 448 - 448 483 453 2 938
Doubtful - - 4 4 - - - -
Loss - - - - - - 24 24
Total acquired loans 2,349 5,472 171 7,992 2,761 5,870 861 9,492
Total loans:
Pass 176,944 13,207 326 190,477 179,190 13,708 1,166 194,064
Special mention 1,035 61 - 1,096 196 69 - 265
Substandard 969 632 - 1,601 1,924 642 2 2,568
Doubtful - - 4 4 - - - -
Loss - - 394 394 - - 365 365
Total loans $ 178,948 $ 13,900 $ 724 $ 193,572 $ 181,310 $ 14,419 $ 1,533 $ 197,262


	Residential and Consumer Credit Quality Indicators
	June 30, 2022						December 31, 2021
	Residential Real Estate		Consumer		Total		Residential Real Estate		Consumer		Total
	(In thousands)
Pass	$	60,226	$	9,196	$	69,422	$	75,692	$	8,869	$	84,561
Special Mention	145		—		145		145		—		145
Substandard	3,882		—		3,882		3,975		—		3,975
Doubtful	—		—		—		175		—		175
Loss	—		—		—		—		—		—
Total loans	$	64,253	$	9,196	$	73,449	$	79,987	$	8,869	$	88,856

Loan portfolio aging analysis

When a loan is 15 days past due, the Company sends the borrower a late notice. The Company ~~also contacts~~attempts to contact the borrower by phone if the delinquency is not corrected promptly after the notice has been sent.

When the loan is 30 days past due, the Company mails the borrower a letter reminding the borrower of the delinquency, and attempts to contact the borrower personally to determine the reason for the delinquency and ensure the borrower understands the terms of the loan. If necessary, ~~subsequent delinquency notices are issued and the account will be monitored on a regular basis thereafter. By~~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~~Board of ~~directors~~Directors of the Company ~~each month.~~periodically. Loans greater than 90 days past due are generally put on nonaccrual status. A nonaccrual loan is restored to accrual status when it is no longer delinquent and collectability of interest and principal is no longer in doubt. A loan is considered to be no longer delinquent when timely payments are made for a period of at least six months (one year for loans providing for quarterly or semi-annual payments) by the borrower in accordance with the contractual terms.

Loans that are granted payment deferrals under the CARES Act are not required to be reported as past due or placed on non-accrual status if the criteria under section 4013 of the CARES Act is met. As of June 30, 2022, no loans remained on active deferral under the CARES Act.

The following tables set forth certain information with respect to ~~our~~the Company's loan portfolio delinquencies by portfolio segment ~~and amount~~ as of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016:~~

As of September 30, 2017
31-60 Days
Past Due 61-90 Days
Past Due Greater
Than 90
Days Total Past
Due Current Total Loans
(In thousands)
Originated Loans
Real estate loans:
Residential real estate $ 502 $ - $ 969 $ 1,471 $ 175,128 $ 176,599
Commercial real estate - 5,570 - 5,570 899,491 905,061
Construction - - - - 114,464 114,464
Home equity 381 - - 381 8,047 8,428
Commercial business 25 69 - 94 256,425 256,519
Consumer - - - - 553 553
Total originated loans 908 5,639 969 7,516 1,454,108 1,461,624
Acquired Loans
Real estate loans:
Residential real estate 157 - - 157 2,192 2,349
Commercial real estate 90 - 634 724 37,113 37,837
Construction - - - - 107 107
Home equity 124 - 355 479 4,993 5,472
Commercial business 293 106 179 578 15,408 15,986
Consumer 2 - 4 6 165 171
Total acquired loans 666 106 1,172 1,944 59,978 61,922
Total loans $ 1,574 $ 5,745 $ 2,141 $ 9,460 $ 1,514,086 $ 1,523,546

2021:


	June 30, 2022
	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loans
	(In thousands)
Real estate loans:
Residential real estate	$	920	$	—	$	132	$	1,052	$	63,201	$	64,253
Commercial real estate	973		10,622		2,681		14,276		1,485,088		1,499,364
Construction	—		—		9,382		9,382		102,040		111,422
Commercial business	2,036		1,454		552		4,042		368,319		372,361
Consumer	—		—		—		—		9,196		9,196
Total loans	$	3,929	$	12,076	$	12,747	$	28,752	$	2,027,844	$	2,056,596

As of December 31, 2016
31-60 Days
Past Due 61-90 Days
Past Due Greater
Than 90
Days Total Past
Due Current Total Loans
(In thousands)
Originated Loans
Real estate loans:
Residential real estate $ - $ - $ 969 $ 969 $ 177,580 $ 178,549
Commercial real estate 147 1,848 302 2,297 799,859 802,156
Construction - - - - 107,329 107,329
Home equity - 173 - 173 8,376 8,549
Commercial business - - 378 378 198,078 198,456
Consumer - - - - 672 672
Total originated loans 147 2,021 1,649 3,817 1,291,894 1,295,711
Acquired Loans
Real estate loans:
Residential real estate - - - - 2,761 2,761
Commercial real estate 866 722 143 1,731 41,435 43,166
Construction - - - - 112 112
Home equity - - 453 453 5,417 5,870
Commercial business 99 249 - 348 17,110 17,458
Consumer 6 - - 6 855 861
Total acquired loans 971 971 596 2,538 67,690 70,228
Total loans $ 1,118 $ 2,992 $ 2,245 $ 6,355 $ 1,359,584 $ 1,365,939


	December 31, 2021
	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loans
	(In thousands)
Real estate loans:
Residential real estate	$	873	$	—	$	878	$	1,751	$	78,236	$	79,987
Commercial real estate	2,186		10,500		4,244		16,930		1,339,779		1,356,709
Construction	—		—		8,997		8,997		89,344		98,341
Commercial business	1,995		1,483		1,469		4,947		346,028		350,975
Consumer	—		3		—		3		8,866		8,869
Total loans	$	5,054	$	11,986	$	15,588	$	32,628	$	1,862,253	$	1,894,881

There were no0 loans delinquent greater than 90 days and still accruing interest as of ~~September~~June 30, ~~2017~~2022. There were 2 loans, totaling $1.1 million, delinquent greater than 90 days and still accruing interest as of December 31, ~~2016.~~

2021. The delinquencies for these particular loans were a result of an administrative delay.

Loans on nonaccrual status

The following is a summary of nonaccrual loans by portfolio segment as of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016:~~

September 30, December 31,
2017 2016
(In thousands)
Residential real estate $ 969 $ 969
Commercial real estate 1,757 446
Home equity 632 643
Commercial business 537 538
Consumer 346 341
Total $ 4,241 $ 2,937

2021:


	June 30, 2022		December 31, 2021
	(In thousands)
Residential real estate	$	2,161	$	2,380
Commercial real estate	2,955		3,482
Commercial business	787		1,728
Construction	9,382		8,997
Total	$	15,285	$	16,587

Interest income on loans that would have been recognized if loans on nonaccrual status had been current in accordance with their original terms for the six months ended June 30, 2022 and 2021 was $0.4 million and $0.7 million, respectively. There was no interest income recognized on these loans for the six months ended June 30, 2022 and 2021.

At ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, there were no commitments to lend additional funds to any borrower on nonaccrual status.

Nonaccrual loans with no specific reserve totaled $13.4 million and $14.2 million at June 30, 2022 and December 31, 2021, respectively, as these loans were deemed to be adequately collateralized.

Impaired loans

An impaired loan is generally is one for which it is probable, based on current information, that the Company will not collect all the amounts due ~~under~~in accordance with the contractual terms of the loan. ~~Loans~~Impaired loans are individually evaluated for impairment. When the Company classifies a problem loan as impaired, it ~~provides~~evaluates whether a specific valuation allowance is required for that portion of the asset that is ~~deemed uncollectible.~~

estimated to be impaired.

The following table summarizes impaired loans by portfolio segment as of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016:~~

Carrying Amount Unpaid Principal Balance Associated Allowance
September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016
(In thousands)
Originated
Impaired loans without a valuation allowance:
Residential real estate $ 2,005 $ 969 $ 2,005 $ 969 $ - $ -
Commercial real estate 6,561 651 6,573 651 - -
Home equity 245 259 261 269 - -
Commercial business 3,071 551 3,322 584 - -
Total impaired loans without a valuation allowance 11,882 2,430 12,161 2,473 - -

Impaired loans with a valuation allowance:
Commercial real estate - 123 - 123 - 1
Commercial business 320 369 320 369 4 5
Consumer 341 341 341 341 341 341
Total impaired loans with a valuation allowance 661 833 661 833 345 347
Total originated impaired loans $ 12,543 $ 3,263 $ 12,822 $ 3,306 $ 345 $ 347

Acquired
Impaired loans without a valuation allowance:
Commercial real estate $ 1,006 $ - $ 1,051 $ - $ - $ -
Home equity 448 453 462 462 - -
Commercial business 255 572 283 593 - -
Total impaired loans without a valuation allowance 1,709 1,025 1,796 1,055 - -

Impaired loans with a valuation allowance:
Commercial Real Estate 144 144 144 144 8 7
Commercial business 488 390 492 390 115 37
Consumer 4 27 4 27 4 27
Total impaired loans with a valuation allowance 636 561 640 561 127 71
Total acquired impaired loans $ 2,345 $ 1,586 $ 2,436 $ 1,616 $ 127 $ 71

Total $ 14,888 $ 4,849 $ 15,258 $ 4,922 $ 472 $ 418

2021:


	Carrying Amount				Unpaid Principal Balance				Associated Allowance
	June 30, 2022		December 31, 2021		June 30, 2022		December 31, 2021		June 30, 2022		December 31, 2021
	(In thousands)
Impaired loans without a valuation allowance:
Residential real estate	$	2,161	$	1,851	$	2,382	$	2,038	$	—	$	—
Commercial real estate	1,109		8,338		1,401		8,698		—		—
Construction	9,382		8,997		9,382		8,997		—		—
Commercial business	984		1,938		1,347		2,582		—		—

Total impaired loans without a valuation allowance	13,636		21,124		14,512		22,315		—		—

Impaired loans with a valuation allowance:
Residential real estate	$	1,721	$	2,299	$	1,721	$	2,304	$	170	$	261
Commercial real estate	24,438		21,328		24,477		21,367		929		2,520

Commercial business	2,000		2,430		2,000		2,429		84		87
Total impaired loans with a valuation allowance	28,159		26,057		28,198		26,100		1,183		2,868
Total impaired loans	$	41,795	$	47,181	$	42,710	$	48,415	$	1,183	$	2,868

The following ~~table summarizes~~tables summarize the average ~~recorded investment balance~~carrying amount of impaired loans and interest income recognized on impaired loans by portfolio segment for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016:~~

Average Recorded Investment Interest Income Recognized
For the Three Months Ended For the Three Months Ended
September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
(In thousands)
Originated
Impaired loans without a valuation allowance:
Residential real estate $ 2,006 $ 969 $ - $ -
Commercial real estate 6,566 3,211 92 52
Home equity 246 264 - 1
Commercial business 3,465 207 17 6
Total impaired loans without a valuation allowance 12,283 4,651 109 59

Impaired loans with a valuation allowance:
Commercial real estate - 487 - 6
Commercial business 328 407 5 6
Consumer 341 343 - -
Total impaired loans with a valuation allowance 669 1,237 5 12
Total originated impaired loans $ 12,952 $ 5,888 $ 114 $ 71

Acquired
Impaired loans without a valuation allowance:
Commercial real estate $ 1,013 $ 425 $ - $ -
Home equity 449 455 - -
Commercial business 265 878 3 10
Total impaired loans without a valuation allowance 1,727 1,758 3 10

Impaired loans with a valuation allowance:
Commercial real estate 144 144 - -
Home equity - - - -
Commercial business 495 353 6 4
Consumer 4 3 - -
Total impaired loans with a valuation allowance 643 500 6 4
Total acquired impaired loans $ 2,370 $ 2,258 $ 9 $ 14

Total $ 15,322 $ 8,146 $ 123 $ 85

2021:


	Average Carrying Amount				Interest Income Recognized
	Three Months Ended June 30,				Three Months Ended June 30,
	2022		2021		2022		2021
	(In thousands)
Impaired loans without a valuation allowance:
Residential real estate	$	2,174	$	4,163	$	—	$	22
Commercial real estate	1,158		10,911		—		68
Commercial business	1,002		4,667		5		7
Construction	9,382		8,997		—		—

Total impaired loans without a valuation allowance	13,716		28,738		5		97
Impaired loans with a valuation allowance:
Residential real estate	$	1,729	$	—	$	12	$	—
Commercial real estate	24,457		22,827		139		225

Commercial business	2,000		120		13		1

Total impaired loans with a valuation allowance	28,186		22,947		164		226
Total impaired loans	$	41,902	$	51,685	$	169	$	323

Average Recorded Investment Interest Income Recognized
For the Nine Months Ended For the Nine Months Ended
September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
(In thousands)
Originated
Impaired loans without a valuation allowance:
Residential real estate $ 2,007 $ 969 $ - $ -
Commercial real estate 6,627 3,217 105 77
Home equity 252 270 - 2
Commercial business 3,808 216 25 10
Total impaired loans without a valuation allowance 12,694 4,672 130 89

Impaired loans with a valuation allowance:
Commercial real estate - 496 - 18
Commercial business 361 431 14 17
Consumer 341 343 - -
Total impaired loans with a valuation allowance 702 1,270 14 35
Total originated impaired loans $ 13,396 $ 5,942 $ 144 $ 124

Acquired
Impaired loans without a valuation allowance:
Commercial real estate $ 1,048 $ 442 $ 10 $ -
Home equity 453 457 - 3
Commercial business 304 914 8 32
Total impaired loans without a valuation allowance 1,805 1,813 18 35

Impaired loans with a valuation allowance:
Commercial real estate 144 144 - -
Commercial business 671 361 7 16
Consumer 4 3 - 1
Total impaired loans with a valuation allowance 819 508 7 17
Total acquired impaired loans $ 2,624 $ 2,321 $ 25 $ 52

Total $ 16,020 $ 8,263 $ 169 $ 176


	Average Carrying Amount				Interest Income Recognized
	Six Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(In thousands)
Impaired loans without a valuation allowance:
Residential real estate	$	2,182	$	4,180	$	—	$	43
Commercial real estate	1,213		11,008		—		362
Commercial business	1,020		4,687		10		67
Construction	9,217		8,997		—		—

Total impaired loans without a valuation allowance	13,632		28,872		10		472
Impaired loans with a valuation allowance:
Residential real estate	$	1,737	$	—	$	24	$	—
Commercial real estate	24,450		23,249		278		428
Commercial business	2,139		124		27		3


Total impaired loans with a valuation allowance	28,326		23,373		329		431
Total impaired loans	$	41,958	$	52,245	$	339	$	903

Troubled debt restructurings ~~(TDRs)~~

("TDRs")

Modifications to a loan are considered to be a troubled debt restructuring when ~~one or~~ both of the following conditions isare met: 1) the borrower is experiencing financial difficulties ~~and/or~~and 2) the modification constitutes a concession that is not in line with market rates and/or terms. Modified terms are dependent upon the financial position and needs of the individual borrower. Troubled debt restructurings are classified as impaired loans.

If a performing loan is restructured into a TDR, it remains in performing status. If a nonperforming loan is restructured into a TDR, it continues to be carried in nonaccrual status. Nonaccrual classification may be removed if the borrower demonstrates compliance with the modified terms for a minimum of six ~~months and there is a reasonable expectation that payments will continue.~~

~~The recorded investment in~~months.

Loans classified as TDRs ~~was $4.6 million and $1.4~~totaled $22.3 million at ~~September~~June 30, ~~2017~~2022 and $25.8 million at December 31, ~~2016, respectively.~~

2021. The following tables ~~present~~provide information on loans ~~whose terms~~that were modified as TDRs during the periods ~~presented:~~

Outstanding Recorded Investment
Number of Loans Pre-Modification Post-Modification
(Dollars in thousands) 2017 2016 2017 2016 2017 2016
Three Months Ended September 30,
Residential real estate 1 - $ 1,925 $ - $ 1,925 $ -
Commercial business 1 1 60 65 60 65
Total 2 1 $ 1,985 $ 65 $ 1,985 $ 65

Outstanding Recorded Investment
Number of Loans Pre-Modification Post-Modification
(Dollars in thousands) 2017 2016 2017 2016 2017 2016
Nine Months Ended September 30,
Residential real estate 2 - $ 2,965 $ - $ 2,965 $ -
Commercial business 3 3 405 324 405 324
Total 5 3 $ 3,370 $ 324 $ 3,370 $ 324

~~All TDRs at September~~indicated.



	Number of Loans		Pre-Modification				Post-Modification
(Dollars in thousands)	2022	2021	2022		2021		2022		2021
Three Months Ended June 30,
Residential real estate	1	1	$	703	$	132	$	703	$	132
Commercial business	—	1	—		2,567		—		2,655
Commercial real estate	—	1	—		3,217		—		3,168
Total	1	3	$	703	$	5,916	$	703	$	5,955



	Number of Loans		Pre-Modification				Post-Modification
(Dollars in thousands)	2022	2021	2022		2021		2022		2021
Six Months Ended June 30,
Residential real estate	1	2	$	703	$	764	$	703	$	764
Commercial business	—	1	—		2,567		—		2,655
Commercial real estate	—	1	—		3,217		—		3,168
Total	1	4	$	703	$	6,548	$	703	$	6,587

At June 30, ~~2017~~2022 and December 31, ~~2016~~2021, there were ~~performing~~6 nonaccrual loans identified as TDRs totaling $2.6 million and 5 nonaccrual loans identified as TDRs totaling $2.0 million, respectively.

There were no loans modified in ~~compliance with their modified terms, except for two non-accrual loans totaling $384 thousand at September~~a troubled debt restructuring that re-defaulted during the six months ended June 30, ~~2017~~2022 and ~~one non-accrual loan totaling $66 thousand at December 31, 2016.~~

June 30, 2021.

The following table provides information on how loans were modified as ~~a TDR~~TDRs during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016.~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands) (In thousands)
Payment concession $ 1,925 $ - $ 2,029 $ -
Maturity concession 60 65 301 324
Rate and payment concession - - 1,040 -
Total $ 1,985 $ 65 $ 3,370 $ 324

~~There were no loans modified in~~June 30, 2021.


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(In thousands)
Payment concession	$	703	$	132	$	703	$	764

Maturity, rate and payment concession	—		2,655		—		2,655

Rate concession	—		3,168		—		3,168
Total	$	703	$	5,955	$	703	$	6,587

Section 4013 of the CARES Act provides relief from certain requirements under GAAP and permits a financial institution to elect to suspend troubled debt restructuring accounting, in certain circumstances, beginning March 1, 2020 and ending on the earlier of January 1, 2022, or sixty days after the national emergency concerning COVID-19 terminates. All short term loan modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any request for ~~which there was a payment default during the three and nine months ended September 30, 2017 and 2016, respectively.~~

relief are not considered TDRs.

4. Shareholders' Equity

Common ~~stock~~

~~On May 15, 2014, the~~Stock

The Company ~~priced 2,702,703 common~~has 10,000,000 shares ~~in its initial public offering (“IPO”)~~authorized and 7,752,389 shares issued and outstanding at ~~$18.00 per share~~June 30, 2022 and ~~Bankwell common~~10,000,000 shares ~~began trading~~authorized and 7,803,166 shares issued and outstanding at December 31, 2021. The Company's stock is traded on the ~~Nasdaq Stock Market. The Company issued a total of 2,702,703 common shares in its IPO, which closed on May 20, 2014. The net proceeds from~~NASDAQ stock market under the ~~IPO were approximately $44.7 million, after deducting the underwriting discount of approximately $2.5 million and approximately $1.3 million of expenses.~~

ticker symbol BWFG.

~~Prior to the public offering, the Company issued shares in various offerings.~~

~~Warrants~~

As a result of the acquisition of Quinnipiac on October 1, 2014 the Company issued 68,600 warrants to former Quinnipiac warrant holders in accordance with the merger agreement. Each warrant was automatically converted into a warrant to purchase 0.56 shares of the Company’s common stock for an exercise price of $17.86. A total of 42,000 warrants have been exercised as of September 30, 2017. The warrants expire on March 6, 2018.

Dividends

The Company’s shareholders are entitled to dividends when and if declared by the ~~board~~Board of ~~directors,~~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.~~Parent Corporation. In accordance with Connecticut statutes, regulatory approval is required 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.

Issuer Purchases of Equity Securities

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 and, on October 27, 2021, the Company’ Board of Directors authorized the repurchase of an additional 200,000 shares under its share repurchase program. The Company ~~did~~intends to accomplish the share repurchases through open market transactions, though the Company could accomplish repurchases through other means, such as privately negotiated transactions. The timing, price and volume of repurchases will be based on market conditions, relevant securities laws and other factors. The share repurchase plan does not ~~repurchase~~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. During the six months ended June 30, 2022, the Company purchased 112,829 shares of its ~~common stock during 2017 or 2016.~~

Common Stock at a weighted average price of $34.01 per share. During the year ended December 31, 2021, the Company purchased 190,770 shares of its Common Stock at a weighted average price of $26.62 per share.

5. Comprehensive Income

Comprehensive income represents the sum of net income and items of other comprehensive income or loss, including net unrealized gains or losses on securities available for sale and net unrealized gains or losses on derivatives. The Company's derivative instruments are utilized to manage economic risks, including interest rate risk. Changes in fair value of the Company's derivatives ~~accounted for as cash flow hedges.~~are primarily driven by changes in interest rates and recognized in other comprehensive income. The Company's current derivative positions will cause a decrease to other comprehensive income in a falling interest rate environment and an increase in a rising interest rate environment. The Company’s total comprehensive income or loss for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~June 30, 2021 is reported in the Consolidated Statements of Comprehensive Income.

The following tables present the changes in accumulated other comprehensive income (loss) by component, net of tax for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016:~~

Net Unrealized Gain Net Unrealized Gain
(Loss) on Available (Loss) on Interest
for Sale Securities Rate Swap Total
(In thousands)
Balance at June 30, 2017 $ 596 $ 426 $ 1,022
Other comprehensive income before reclassifications, net of tax 16 213 229
Amounts reclassified from accumulated other comprehensive income - - -
Net other comprehensive (loss) income 16 213 229
Balance at September 30, 2017 $ 612 $ 639 $ 1,251

June 30, 2021:

Net Unrealized Gain Net Unrealized Gain
(Loss) on Available (Loss) on Interest
for Sale Securities Rate Swap Total
(In thousands)
Balance at June 30, 2016 $ 1,227 $ (1,511 ) $ (284 )
Other comprehensive income (loss) before reclassifications, net of tax (241 ) 588 347
Amounts reclassified from accumulated other comprehensive income - - -
Net other comprehensive income (loss) (241 ) 588 347
Balance at September 30, 2016 $ 986 $ (923 ) $ 63

Net Unrealized Gain Net Unrealized Gain
(Loss) on Available (Loss) on Interest
for Sale Securities Rate Swap Total
(In thousands)
Balance at December 31, 2016 $ 409 $ 481 $ 890
Other comprehensive income before reclassifications, net of tax 368 158 526
Amounts reclassified from accumulated other comprehensive income (165 ) - (165 )
Net other comprehensive (loss) income 203 158 361
Balance at September 30, 2017 $ 612 $ 639 $ 1,251

Net Unrealized Gain Net Unrealized Gain
(Loss) on Available (Loss) on Interest
for Sale Securities Rate Swap Total
(In thousands)
Balance at December 31, 2015 $ 405 $ (178 ) $ 227
Other comprehensive income (loss) before reclassifications, net of tax 673 (745 ) (72 )
Amounts reclassified from accumulated other comprehensive income (92 ) - (92 )
Net other comprehensive income (loss) 581 (745 ) (164 )
Balance at September 30, 2016 $ 986 $ (923 ) $ 63


	Net Unrealized Gain (Loss) on Available for Sale Securities		Net Unrealized Gain (Loss) on Interest Rate Swaps		Total
	(In thousands)
Balance at March 31, 2022	$	(2,052)	$	(1,657)	$	(3,709)
Other comprehensive (loss) income before reclassifications, net of tax	(1,494)		5,212		3,718
Amounts reclassified from accumulated other comprehensive income, net of tax	—		336		336
Net other comprehensive (loss) income	(1,494)		5,548		4,054
Balance at June 30, 2022	$	(3,546)	$	3,891	$	345


	Net Unrealized Gain (Loss) on Available for Sale Securities		Net Unrealized Gain (Loss) on Interest Rate Swaps		Total
	(In thousands)
Balance at March 31, 2021	$	1,946	$	(9,819)	$	(7,873)
Other comprehensive income (loss) before reclassifications, net of tax	536		(3,599)		(3,063)
Amounts reclassified from accumulated other comprehensive income, net of tax	—		737		737
Net other comprehensive income (loss)	536		(2,862)		(2,326)
Balance at June 30, 2021	$	2,482	$	(12,681)	$	(10,199)


	Net Unrealized Gain (Loss) on Available for Sale Securities		Net Unrealized Gain (Loss) on Interest Rate Swaps		Total
	(In thousands)
Balance at December 31, 2021	$	1,651	$	(10,212)	$	(8,561)
Other comprehensive (loss) income before reclassifications, net of tax	(5,197)		13,112		7,915
Amounts reclassified from accumulated other comprehensive income, net of tax	—		991		991
Net other comprehensive (loss) income	(5,197)		14,103		8,906
Balance at June 30, 2022	$	(3,546)	$	3,891	$	345


	Net Unrealized Gain (Loss) on Available for Sale Securities		Net Unrealized Gain (Loss) on Interest Rate Swaps		Total
	(In thousands)
Balance at December 31, 2020	$	2,744	$	(18,319)	$	(15,575)
Other comprehensive (loss) income before reclassifications, net of tax	(262)		4,177		3,915
Amounts reclassified from accumulated other comprehensive income, net of tax	—		1,461		1,461
Net other comprehensive (loss) income	(262)		5,638		5,376
Balance at June 30, 2021	$	2,482	$	(12,681)	$	(10,199)

The following table provides information for the items reclassified from accumulated other comprehensive income or loss:


Accumulated Other Comprehensive Income Components	Three Months Ended June 30,				Six Months Ended June 30,				Associated Line Item in the Consolidated Statements of Income
	2022		2021		2022		2021
	(In thousands)




Derivatives:
Unrealized losses on derivatives	$	(433)	$	(953)	$	(1,276)	$	(1,875)	Interest expense on borrowings
Tax benefit	97		216		285		414		Income tax expense
Net of tax	$	(336)	$	(737)	$	(991)	$	(1,461)

16. Earnings per ~~Share~~

share ("EPS")

Unvested restricted stock awards that contain non-forfeitable rights to dividends are participating securities and are included in the computation of EPS pursuant to the two-class method. The two-class method is an earnings allocation formula that determines EPS for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. The Company’s unvested restricted stock awards qualify as participating securities.

Net income is allocated between the common stock and participating securities pursuant to the two-class method. Basic EPS is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period, excluding participating unvested restricted stock awards.

Diluted EPS is computed in a similar manner, except that the denominator includes the number of additional common shares that would have been outstanding if potentially dilutive common shares were issued using the treasury stock method.

The following table is a reconciliation of earnings available to common shareholders and basic weighted average common shares outstanding to diluted weighted average common shares outstanding, reflecting the application of the two-class method:

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands, except per share data) (In thousands, except per share data)
Net income $ 4,263 $ 3,140 $ 11,734 $ 9,027
Dividends to participating securities⁽¹⁾ (7 ) (6 ) (21 ) (18 )

Undistributed earnings allocated to participating securities⁽¹⁾ (47 ) (56 ) (134 ) (155 )
Net income for earnings per share calculation $ 4,209 $ 3,078 $ 11,579 $ 8,854

Weighted average shares outstanding, basic 7,587 7,397 7,555 7,388
Effect of dilutive equity-based awards⁽²⁾ 83 92 98 71
Weighted average shares outstanding, diluted 7,670 7,489 7,653 7,459
Net earnings per common share:
Basic earnings per common share $ 0.55 $ 0.42 $ 1.53 $ 1.20
Diluted earnings per common share 0.55 0.41 1.51 1.19


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(In thousands, except per share data)
Net income	$	12,022	$	6,228	$	20,234	$	11,917
Dividends to participating securities(1)	(33)		(22)		(68)		(44)
Undistributed earnings allocated to participating securities(1)	(224)		(99)		(371)		(189)
Net income for earnings per share calculation	$	11,765	$	6,107	$	19,795	$	11,684

Weighted average shares outstanding, basic	7,557		7,722		7,597		7,744
Effect of dilutive equity-based awards(2)	57		46		86		49
Weighted average shares outstanding, diluted	7,614		7,768		7,683		7,793
Net earnings per common share:
Basic earnings per common share	$	1.56	$	0.79	$	2.61	$	1.51
Diluted earnings per common share	$	1.55	$	0.79	$	2.58	$	1.50

(1) Represents dividends paid and undistributed earnings allocated to unvested stock-based awards that contain non-forfeitable rights to dividends.

(2) Represents the effect of the assumed exercise of stock options ~~and warrants~~ and the vesting of restricted shares, as applicable, utilizing the treasury stock method.

7. Regulatory Matters

The Federal Reserve, the FDIC and the other federal and state bank regulatory agencies establish regulatory capital guidelines for U.S. banking organizations.

Under the current guidelines, banking organizations must have a minimum total risk-based capital ratio of ~~January~~8.0%, a minimum Tier 1 ~~2015,~~risk-based capital ratio of 6.0%, a minimum Common Equity Tier 1 risk-based capital ratio of 4.5%, and a minimum leverage ratio of 4.0% in order to be "adequately capitalized." In addition to these requirements, banking organizations must maintain a capital conservation buffer consisting of common equity in an amount above the minimum risk-based capital requirements for “adequately capitalized” institutions equal to 2.5% of total risk-weighted assets, resulting in a requirement for the Company and the Bank ~~became subject~~ to ~~new~~effectively maintain Common Equity Tier 1, Tier 1 and total capital ~~rules set forth by the Federal Reserve, the FDIC~~ratios of 7.0%, 8.5% and 10.5%, respectively. The Company and the ~~other federal and state bank regulatory agencies. The~~Bank must maintain the 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).

The Basel III Capital Rules establish a 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%. A “well-capitalized” institution must generally maintain capital ratios 100-200 basis points higher than the minimum guidelines.

The Basel III Capital Rules also change the risk weights assigned to certain assets. The Basel III Capital Rules assigned a higher risk weight (150%) to loans that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. 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 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 Basel III Capital Rules limit a banking organization’s capital distributions and certain discretionary bonus payments to executive officers if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of regulatory risk based capital ratios in addition to the amount necessary to meet its minimum risk-based capital requirements. The required minimum conservation buffer ~~began~~ to ~~be phased~~avoid restrictions on the ability to pay dividends, pay discretionary bonuses, or to engage in ~~incrementally, starting at 0.625% on January 1, 2016, increased to 1.25% on January 1, 2017, and will continue to increase to 1.875% on January 1, 2018 and 2.5% on January 1, 2019.~~

share repurchases.

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 consolidated financial statements.

~~Management believes, as~~

As of ~~September~~June 30, ~~2017,~~2022, the Bank and Company ~~meet~~met all capital adequacy requirements to which they are ~~subject and satisfies the criteria for a “well capitalized” institution.~~subject. There are no conditions or events since then that management believes have changed this conclusion.

The capital amounts and ratios for the Bank and the Company at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016~~2021 were as follows:

To be Well
Capitalized Under
For Capital Prompt Corrective
Actual Capital Adequacy Purposes Action Provisions
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
Bankwell Bank
September 30, 2017
Common Equity Tier 1 Capital to Risk-Weighted Assets $ 171,908 10.94 % $ 70,691 4.50 % $ 102,109 6.50 %
Total Capital to Risk-Weighted Assets 191,472 12.19 % 125,673 8.00 % 157,091 10.00 %
Tier I Capital to Risk-Weighted Assets 171,908 10.94 % 94,255 6.00 % 125,673 8.00 %
Tier I Capital to Average Assets 171,908 9.78 % 70,338 4.00 % 87,923 5.00 %

Bankwell Financial Group, Inc.
September 30, 2017
Common Equity Tier 1 Capital to Risk-Weighted Assets $ 153,475 9.74 % $ 70,892 4.50 % N/A N/A
Total Capital to Risk-Weighted Assets 198,129 12.58 % 126,030 8.00 % N/A N/A
Tier I Capital to Risk-Weighted Assets 153,475 9.74 % 94,522 6.00 % N/A N/A
Tier I Capital to Average Assets 153,475 8.69 % 70,630 4.00 % N/A N/A


					Minimum Regulatory Capital Required for Capital Adequacy plus Capital Conservation Buffer				Minimum Regulatory Capital to be Well Capitalized Under Prompt Corrective Action Provisions
	Actual Capital
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
Bankwell Bank
June 30, 2022
Common Equity Tier 1 Capital to Risk-Weighted Assets	$	249,640	11.10	%	$	157,430	7.00	%	$	146,185	6.50	%
Total Capital to Risk-Weighted Assets	265,473		11.80	%	236,145		10.50	%	224,900		10.00	%
Tier I Capital to Risk-Weighted Assets	249,640		11.10	%	191,165		8.50	%	179,920		8.00	%
Tier I Capital to Average Assets	249,640		10.15	%	98,354		4.00	%	122,942		5.00	%

Bankwell Financial Group, Inc.
June 30, 2022
Common Equity Tier 1 Capital to Risk-Weighted Assets	$	221,981	9.86	%	$	157,633	7.00	%	N/A		N/A
Total Capital to Risk-Weighted Assets	272,314		12.09	%	236,450		10.50	%	N/A		N/A
Tier I Capital to Risk-Weighted Assets	221,981		9.86	%	191,412		8.50	%	N/A		N/A
Tier I Capital to Average Assets	221,981		9.03	%	98,346		4.00	%	N/A		N/A

To be Well
Capitalized Under
For Capital Prompt Corrective
Actual Capital Adequacy Purposes Action Provisions
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
Bankwell Bank
December 31, 2016
Common Equity Tier 1 Capital to Risk-Weighted Assets $ 157,604 11.59 % $ 61,168 4.50 % $ 88,353 6.50 %
Total Capital to Risk-Weighted Assets 174,610 12.85 % 108,742 8.00 % 135,928 10.00 %
Tier I Capital to Risk-Weighted Assets 157,604 11.59 % 81,557 6.00 % 108,742 8.00 %
Tier I Capital to Average Assets 157,604 10.10 % 62,428 4.00 % 78,035 5.00 %

Bankwell Financial Group, Inc.
December 31, 2016
Common Equity Tier 1 Capital to Risk-Weighted Assets $ 141,338 10.39 % $ 61,231 4.50 % N/A N/A
Total Capital to Risk-Weighted Assets 184,371 13.55 % 108,855 8.00 % N/A N/A
Tier I Capital to Risk-Weighted Assets 141,338 10.39 % 81,641 6.00 % N/A N/A
Tier I Capital to Average Assets 141,338 9.06 % 62,415 4.00 % N/A N/A


					Minimum Regulatory Capital Required for Capital Adequacy plus Capital Conservation Buffer				Minimum Regulatory Capital to be Well Capitalized Under Prompt Corrective Action Provisions
	Actual Capital
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
Bankwell Bank
December 31, 2021
Common Equity Tier 1 Capital to Risk-Weighted Assets	$	232,106	11.18	%	$	145,353	7.00	%	$	134,971	6.50	%
Total Capital to Risk-Weighted Assets	249,178		12.00	%	218,030		10.50	%	207,648		10.00	%
Tier I Capital to Risk-Weighted Assets	232,106		11.18	%	176,500		8.50	%	166,118		8.00	%
Tier I Capital to Average Assets	232,106		9.94	%	93,392		4.00	%	116,740		5.00	%

Bankwell Financial Group, Inc.
December 31, 2021
Common Equity Tier 1 Capital to Risk-Weighted Assets	$	207,393	9.97	%	$	145,629	7.00	%	N/A		N/A
Total Capital to Risk-Weighted Assets	260,024		12.50	%	218,443		10.50	%	N/A		N/A
Tier I Capital to Risk-Weighted Assets	207,393		9.97	%	176,835		8.50	%	N/A		N/A
Tier I Capital to Average Assets	207,393		8.87	%	93,534		4.00	%	N/A		N/A

Regulatory Restrictions on ~~dividends~~

Dividends

The ability of the Company to pay dividends depends, in part, on the ability of the Bank to pay dividends to the ~~Company.~~Parent Corporation. In accordance with Connecticut statutes, regulatory approval is required 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.

Reserve Requirements on Cash

The Bank was not required to maintain a minimum reserve balance in the Federal Reserve Bank (FRB) at June 30, 2022 or December 31, 2021 as the FRB has waived this requirement due to the COVID-19 pandemic.

8. Deposits

At June 30, 2022 and December 31, 2021, deposits consisted of the following:


	June 30, 2022		December 31, 2021
	(In thousands)
Noninterest bearing demand deposit accounts	$	372,584	$	398,956
Interest bearing accounts:
NOW	155,026		119,479
Money market	833,730		954,674
Savings	196,075		193,631
Time certificates of deposit	476,110		457,258
Total interest bearing accounts	1,660,941		1,725,042
Total deposits	$	2,033,525	$	2,123,998

Maturities of time certificates of deposit as of June 30, 2022 and December 31, 2021 are summarized below:


	June 30, 2022		December 31, 2021
	(In thousands)
2022	$	140,991	$	167,147
2023	213,743		179,520
2024	113,338		110,449
2025	7,873		33
2026	109		109
2027	56		—
Total	$	476,110	$	457,258

The aggregate amount of individual certificate accounts, including brokered deposits with balances of $250,000 or more, was approximately $346.4 million at June 30, 2022 and $305.7 million at December 31, 2021.

Brokered certificates of deposits totaled $299.4 million at June 30, 2022 and $249.4 million at December 31, 2021. There were no certificates of deposits from national listing services at June 30, 2022 or December 31, 2021. Brokered money market accounts totaled $50.0 million at June 30, 2022 and $104.0 million at December 31, 2021.

The following table summarizes interest expense on deposits by account type for the three and six months ended June 30, 2022 and 2021:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(In thousands)
NOW	$	59	$	54	$	106	$	97
Money market	1,146		941		2,326		1,891
Savings	103		92		204		217
Time certificates of deposits	675		1,657		1,553		3,653
Total interest expense on deposits	$	1,983	$	2,744	$	4,189	$	5,858

9. Stock-Based Compensation

Equity award plans

The Company has ~~five~~stock options or unvested restricted stock outstanding under 3 equity award plans, which are collectively referred to as the “Plan”. The current plan under which any future issuances of equity awards will be made is the ~~2012 BNC~~2022 Bankwell Financial Group, Inc. Stock Plan, or the ~~“2012 Plan,” amended on June 26, 2013.~~“2022 Plan”. All equity awards made under the ~~2012~~2022 Plan are made by means of an award agreement, which contains the specific terms and conditions of the grant. To date, all equity awards have been in the form of ~~share~~stock options or restricted stock. At ~~September~~June 30, ~~2017,~~2022, there were ~~472,584~~482,169 shares reserved for future issuance under the ~~2012~~2022 Plan.

Stock ~~Options:~~Options: The Company accounts for stock options based on the fair value at the date of grant and records ~~option related~~an expense over the vesting period of such awards on a straight line basis. ~~All stock options have been fully expensed as of December 31, 2016.~~

There were no options granted during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~

2022.

A summary of the status of outstanding ~~share~~stock options ~~as of and~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 is presented below:

Nine Months Ended
September 30, 2017
Weighted
Number Average
of Exercise
Shares Price

Options outstanding at beginning of period 120,988 $ 18.58
Exercised (39,811 ) 17.96
Forfeited (200 ) 15.00
Options outstanding at end of period 80,977 18.89

Options exercisable at end of period 80,977 18.89


	Six Months Ended June 30, 2022
	Number of Shares	Weighted Average Exercise Price
Options outstanding at beginning of period	11,680	$	17.37
Exercised	(2,000)	15.00
Options outstanding at end of period	9,680	17.86

Options exercisable at end of period	9,680	17.86

Intrinsic value is the amount by which the fair value of the underlying stock exceeds the exercise price of an option on the exercise date. The total intrinsic value of share options exercised during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 was ~~$570~~$39 thousand.

The exercise price for the 9,680 options exercisable at June 30, 2022 was $17.86 per share. The weighted average remaining contractual life for these options was 0.9 years at June 30, 2022. At June 30, 2022, as all awarded options have vested, all of the outstanding options are exercisable, and the aggregate intrinsic value of these options was $128 thousand.

Restricted ~~Stock:~~Stock: Restricted stock provides grantees with rights to shares of common stock upon completion of a service period. Shares of unvested restricted stock are considered participating securities. Restricted stock awards generally vest over one to five years.

The following table presents the activity for restricted stock for the ~~nine~~six months ended ~~September~~June 30, ~~2017:~~

Nine Months Ended
September 30, 2017

Weighted
Number Average
of Grant Date
Shares Fair Value

Unvested at beginning of period 96,594 $ 19.80
Granted 30,250 32.95
Vested (14,807 ) 19.80
Forfeited (15,549 ) 20.41
Unvested at end of period 96,488 23.86

2022:


	Six Months Ended June 30, 2022
	Number of Shares		Weighted Average Grant Date Fair Value
Unvested at beginning of period	190,359	(1)	$	24.57
Granted	69,501	(2)	34.24
Vested	(54,667)	(3)	24.17
Forfeited	(9,449)		29.05
Unvested at end of period	195,744		27.89

(1) Includes 29,462 shares of performance based restricted stock

(2) Includes 20,905 shares of performance based restricted stock

(3) Includes 13,798 shares of performance based restricted stock

The total fair value of restricted stock awards vested during the six months ended June 30, 2022 was $1.8 million.

The Company's restricted stock expense for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~June 30, 2021 was ~~$671 thousand~~$1.3 million and ~~$781 thousand,~~$0.9 million, respectively.

~~Market Conditions Restricted Stock~~~~: On December 9, 2014 the Company issued~~ At June 30, 2022, there was $4.1 million of unrecognized stock compensation expense for restricted stock, ~~with market and service conditions~~expected to be recognized over a weighted average period of 1.7 years.

Performance Based Restricted Stock: The Company has 36,569 shares of performance based restricted stock outstanding as of June 30, 2022 pursuant to the Company’s 2012 BNC Financial Group, Inc. Stock Plan. ~~At the time of the grant, the maximum number of shares that can vest was 49,400.~~ The actual number of shares to be vested was based on market criteria over a five-year period ending on December 1, 2019 based on the Company's stock price being at or above $25.00, $27.00 and $29.00 per share over a 60-day consecutive period. These shares may have vested over a period from December 1, 2017 to December 1, 2019 based on meeting the price targets. In addition, the grantees must have been employed with the Company on the vesting date to receive the shares. The Company determined the fair value of these market condition awards in accordance with ASC 718 Stock Compensation using the Monte Carlo simulation model deemed appropriate for this type of grant. The grant date fair value for these grants was $11.63 for the awards that vest at the $25 stock price, $10.30 for the awards that vest at the $27 stock price and $9.10 for the awards that vest at the $29 stock price. The grant date fair value for the Company’s stock was $18.99 per share.

In January 2016 the Company modified the market conditions restricted stock grant. The total shares originally granted for the $29.00 price target have been modified to a time based restricted stock grant. The shares will vest over a ~~four~~three year service period, ~~with~~provided certain performance metrics are met. The share quantity that ultimately vests can range between 0% and 200%, which is dependent on the ~~first installment having vested on December 1, 2016 and~~degree to which the ~~remaining shares to vest on each annual anniversary thereafter. In addition,~~performance metrics are met. The Company records an expense over the ~~shares originally granted for the $25.00 and $27.00 price targets have been modified. These shares vest over a~~vesting period ~~from the date of the modification to December 1, 2019~~ based on ~~meeting~~(a) the ~~price targets. The price targets~~probability that the performance metric will be met ~~when the 30 day average stock price meets or exceeds the price targets. The Company determined~~and (b) the fair market value of the ~~modified awards for~~Company’s stock at the ~~$25.00 and $27.00 price targets in accordance with ASC 718 Stock Compensation using~~date of the ~~Monte Carlo simulation model deemed appropriate for this type of modification.~~ grant.

10. Derivative Instruments

The Company ~~expensed an incremental cost~~manages economic risks, including interest rate, liquidity, and credit risk, by managing the amount, sources, and duration of its funding along with the use of interest rate derivative financial instruments, namely interest rate swaps. The Company does not use derivatives for speculative purposes. As of June 30, 2022, the Company was a party to 6 interest rate swaps, designated as hedging instruments, to add stability to interest expense and to manage its exposure to the variability of the future cash flows attributable to the contractually specified interest rates. The notional amount for each swap is $25 million and in each case, the Company has entered into pay-fixed interest rate swaps to convert rolling 90 days Federal Home Loan Bank advances or brokered deposits. The Company terminated 2 swaps with a total notional amount of $50 million during the three months ended June 30, 2022. The underlying debt associated with the terminated swaps was kept in place. The fair value of the terminated swaps totaled $161.8 thousand as of June 30, 2022. The fair value of the terminated swaps will be reclassified from other comprehensive income to interest expense on a straight line basis over the original term of the hedging relationship. As of June 30, 2022, the Company has 4 interest rate swaps not designated as hedging instruments, to minimize interest rate risk exposure with loans to customers.

The Company accounts for all non-borrower related interest rate swaps as effective cash flow hedges. None of the interest rate swap agreements contain any credit risk related contingent features. A hedging instrument is expected at inception to be highly effective at offsetting changes in the hedged transactions attributable to the changes in the hedged risk.

Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain loan customers. The Company executes interest rate swaps with commercial banking customers 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. As the interest rate derivatives associated with this ~~modification of $2.19 for~~program do not meet the awards that vest at the $25 stock price, $2.03 for the awards that vest at the $27 stock price and $13.66 for the awards that were modified to a time based grant. The shares granted for the $25.00 and $27.00 price targets fully vestedstrict hedge accounting requirements, changes in the ~~fourth quarter~~fair value of ~~2016 based~~both the customer derivatives and the offsetting derivatives are recognized directly in earnings.

Interest rate swaps with a positive fair value are recorded as other assets and interest rate swaps with a negative fair value are recorded as other liabilities on ~~meeting~~ the ~~vesting terms of the grant.~~

~~As of September 30, 2017 the Company had no outstanding market conditions restricted stock.~~

~~9. Derivative Instruments~~

Consolidated Balance Sheets.

Information about derivative instruments at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016~~2021 is as follows:

~~September~~


	As of June 30, 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	$	150,000	Other assets	$	4,846	$	—	Accrued expenses and other liabilities	$	—

Derivatives not designated as hedging instruments:
Interest rate swaps(1)	$	38,500	Other assets	$	2,461	$	38,500	Accrued expenses and other liabilities	$	(2,461)

(1) Represents interest rate swaps with commercial banking customers, which are offset by derivatives with a third party.

Accrued interest payable related to interest rate swaps as of June 30, ~~2017:~~

(Dollars in thousands) Notional
Amount Original
Maturity Received Paid Fair Value
Asset
(Liability)

Cash flow hedge:
Interest rate swap on FHLB advance $ 25,000 4.7 years 3-month USD LIBOR 1.62 % $ (8 )
Interest rate swap on FHLB advance 25,000 5.0 years 3-month USD LIBOR 1.83 % (51 )
Interest rate swap on FHLB advance 25,000 5.0 years 3-month USD LIBOR 1.48 % 238
Interest rate swap on FHLB advance 25,000 5.0 years 3-month USD LIBOR 1.22 % 607
Interest rate swap on FHLB advance 25,000 7.0 years 3-month USD LIBOR 2.04 % 101
Interest rate swap on FHLB advance 25,000 7.0 years 3-month USD LIBOR 2.04 % 93
$ 150,000 $ 980

2022 totaled $1.9 thousand and is excluded from the fair value presented in the table above. The fair value of interest rate swaps in a net asset position, including accrued interest, totaled $4.8 million as of June 30, 2022.


	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 customers, which are offset by derivatives with a third party.

Accrued interest payable related to interest rate swaps as of December 31, ~~2016:~~

(Dollars in thousands) Notional
Amount Original
Maturity Received Paid Fair Value
Asset
(Liability)

Cash flow hedge:
Interest rate swap on FHLB advance $ 25,000 4.7 years 3-month USD LIBOR 1.62 % $ (91 )
Interest rate swap on FHLB advance 25,000 5.0 years 3-month USD LIBOR 1.83 % (138 )
Interest rate swap on FHLB advance 25,000 5.0 years 3-month USD LIBOR 1.48 % 249
Interest rate swap on FHLB advance 25,000 5.0 years 3-month USD LIBOR 1.22 % 717
$ 100,000 $ 737

2021 totaled $0.6 million and is excluded from the fair value presented in the table above. The fair value of interest rate swaps in a net liability position, including accrued interest, totaled $13.7 million as of December 31, 2021.

The effective portion of ~~unrealized~~ changes in the fair value of derivatives ~~accounted for~~designated and that qualify as cash flow hedges is ~~reported~~recorded in accumulated other comprehensive income and is subsequently reclassified tointo earnings in the ~~same~~ period ~~or periods during which~~that the hedged forecasted transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. The ~~Bank~~Company expects to reclassify $2.0 million to interest expense during the next 12 months.

The Company assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged item or transaction. The ~~ineffective portion of changes in the fair value of the derivatives is recognized directly in earnings. The interest rate swap assets are presented in other~~Company does not offset derivative assets and ~~the interest rate swap~~derivative liabilities ~~are presented in accrued expenses and other liabilities in the consolidated balance sheets.~~

~~The Bank's cash flow hedge positions are all forward starting interest rate swap transactions. The Bank entered into the following forward starting interest rate swap transactions:~~

(Dollars in thousands) Notional
Amount Original Effective
Date of Hedged
Borrowing Duration of
Borrowing Counterparty
Type of borrowing:
FHLB 90-day advance $ 25,000 April 1, 2014 4.7 years Bank of Montreal
FHLB 90-day advance $ 25,000 January 2, 2015 5.0 years Bank of Montreal
FHLB 90-day advance $ 25,000 August 26, 2015 5.0 years Bank of Montreal
FHLB 90-day advance $ 25,000 July 1, 2016 5.0 years Bank of Montreal
FHLB 90-day advance $ 25,000 August 25, 2017 7.0 years Bank of Montreal
FHLB 90-day advance $ 25,000 August 25, 2017 7.0 years FTN Financial Capital Markets

~~This hedge strategy converts the floating rate of interest on certain FHLB advances to fixed interest rates, thereby protecting the Bank from floating interest rate variability.~~

for financial statement presentation purposes.

Changes in the consolidated statements of comprehensive income (loss) related to interest rate derivatives designated as hedges of cash flows were as follows for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016:~~

Three Months Ended September 30, Nine Months Ended September 30,
(In thousands) 2017 2016 2017 2016

Interest rate swap on FHLB advance:
Unrealized gains (losses) recognized in accumulated other comprehensive income $ 327 $ 904 $ 243 $ (1,147 )
Income tax (expense) benefit on items recognized in accumulated other comprehensive income (114 ) (316 ) (85 ) 402
Other comprehensive income (loss) $ 213 $ 588 $ 158 $ (745 )
Interest expense recognized on hedged FHLB advance $ 489 $ 386 $ 1,258 $ 999

~~10.~~June 30, 2021:


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2022		2021		2022		2021
Interest rate swaps designated as cash flow hedges:
Unrealized gain (loss) recognized in accumulated other comprehensive income before reclassifications	$	6,711	$	(4,652)	$	16,885	$	5,360
Amounts reclassified from accumulated other comprehensive income	433		953		1,275		1,875
Income tax (expense) benefit on items recognized in accumulated other comprehensive income	(1,596)		837		(4,057)		(1,597)
Other comprehensive income (loss)	$	5,548	$	(2,862)	$	14,103	$	5,638

The above unrealized gains and losses are reflective of market interest rates as of the respective balance sheet dates. Generally, a lower interest rate environment will result in a negative impact to comprehensive income whereas a higher interest rate environment will result in a positive impact to comprehensive income.

The following tables summarize gross and net information about derivative instruments that are offset in the Consolidated Balance Sheets at June 30, 2022 and December 31, 2021:


	June 30, 2022
	(In thousands)
							Gross Amounts Not Offset in the Consolidated Balance Sheets
	Gross Amounts of Recognized Assets(1)		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Assets presented in the Statement of Financial Position		Financial Instruments		Cash Collateral Received(2)		Net Amount
Derivative Assets	$	7,291	$	—	$	7,291	$	—	$	7,291	$	—

(1) Includes accrued interest payable totaling $16 thousand.

(2) Actual cash collateral received totaled $8.3 million, total cash collateral received in the above table represents the total value to net the derivative assets to $0.


	June 30, 2022
	(In thousands)
							Gross Amounts Not Offset in the Consolidated Balance Sheets
	Gross Amounts of Recognized Liabilities(1)		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Liabilities presented in the Statement of Financial Position		Financial Instruments		Cash Collateral Posted		Net Amount
Derivative Liabilities	$	2,447	$	—	$	2,447	$	—	$	—	$	2,447

(1) Includes accrued interest receivable totaling $14 thousand.


	December 31, 2021
	(In thousands)
							Gross Amounts Not Offset in the Consolidated Balance Sheets
	Gross Amounts of Recognized Assets(1)		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Assets presented in the Statement of Financial Position		Financial Instruments		Cash Collateral Received		Net Amount
Derivative Assets	$	3,604	$	—	$	3,604	$	217	$	—	$	3,387

(1) Includes accrued interest payable totaling $24 thousand.


	December 31, 2021
	(In thousands)
							Gross Amounts Not Offset in the Consolidated Balance Sheets
	Gross Amounts of Recognized Liabilities(1)		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Liabilities presented in the Statement of Financial Position		Financial Instruments		Cash Collateral Posted		Net Amount
Derivative Liabilities	$	17,338	$	—	$	17,338	$	217	$	15,845	$	1,276

(1) Includes accrued interest payable totaling $558 thousand.

11. Fair Value of Financial Instruments

GAAP requires disclosure of fair value information about financial instruments, whether or not recognized in the ~~statement of condition,~~Consolidated Balance Sheets, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rates and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparisons to independent markets and, in many cases, could not be realized in immediate settlement of the instrument.

Management uses its best judgment in estimating the fair value of the ~~Company's~~Company’s financial instruments; however, there are inherent ~~weaknesses~~limitations in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates presented herein are not necessarily indicative of the amounts the Company could have realized in a sales ~~transaction at either September 30, 2017 or December 31, 2016.~~transaction. The estimated fair value amounts have been measured as of the respective period-ends, and have not been reevaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period-end.

The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair values of the Company’s financial instruments will change when interest rate levels change and that change may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk.

The carrying values, fair values and placement in the fair value hierarchy of the Company's financial instruments at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016~~2021 were as follows:

September 30, 2017
Carrying Fair
Value Value Level 1 Level 2 Level 3
(In thousands)
Financial Assets:
Cash and due from banks $ 85,329 $ 85,329 $ 85,329 $ - $ -
Federal funds sold 11,117 11,117 11,117 - -
Available for sale securities 86,272 86,272 - 86,272 -
Held to maturity securities 23,573 23,572 - 23,572 -
Loans held for sale 785 785 - 785 -
Loans receivable, net 1,500,574 1,493,385 - - 1,493,385
Accrued interest receivable 5,344 5,344 - 5,344 -
FHLB stock 9,351 9,351 - 9,351 -
Servicing asset 599 599 - - 599
Derivative asset 1,039 1,039 - 1,039 -

Financial Liabilities:
Demand deposits $ 162,790 $ 162,790 $ - $ 162,790 $ -
NOW and money market 512,471 512,471 - 512,471 -
Savings 87,469 87,469 - 87,469 -
Time deposits 647,061 679,525 - - 679,525
Accrued interest payable 1,061 1,061 - 1,061 -
Advances from the FHLB 195,000 195,149 - - 195,149
Subordinated debentures 25,090 25,720 - - 25,720
Servicing liability 388 388 - - 388
Derivative liability 59 59 - 59 -


	June 30, 2022
	Carrying Value		Fair Value		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash and due from banks	$	149,522	$	149,522	$	149,522	$	—	$	—
Federal funds sold	21,505		21,505		21,505		—		—
Marketable equity securities	2,126		2,126		2,126		—		—
Available for sale securities	94,907		94,907		38,315		56,592		—
Held to maturity securities	15,917		15,511		—		42		15,469
Loans receivable, net	2,036,626		2,007,466		—		—		2,007,466

Accrued interest receivable	8,047		8,047		—		8,047		—
FHLB stock	5,064		5,064		—		5,064		—
Servicing asset, net of valuation allowance	964		964		—		—		964
Derivative asset	7,307		7,307		—		7,307		—


Financial Liabilities:
Noninterest bearing deposits	$	372,584	$	372,584	$	—	$	372,584	$	—
NOW and money market	988,756		988,756		—		988,756		—
Savings	196,075		196,075		—		196,075		—
Time deposits	476,110		469,285		—		—		469,285
Accrued interest payable	768		768		—		768		—
Advances from the FHLB	105,000		104,983		—		—		104,983
Subordinated debentures	34,500		31,603		—		—		31,603
Servicing liability	7		7		—		—		7
Derivative liability	2,461		2,461		—		2,461		—

December 31, 2016
Carrying Fair
Value Value Level 1 Level 2 Level 3
(In thousands)
Financial Assets:
Cash and due from banks $ 96,026 $ 96,026 $ 96,026 $ - $ -
Federal funds sold 329 329 329 - -
Available for sale securities 87,751 87,751 - 87,751 -
Held to maturity securities 16,859 16,851 - 16,851 -
Loans held for sale 254 254 - 254 -
Loans receivable, net 1,343,895 1,339,055 - - 1,339,055
Accrued interest receivable 4,958 4,958 - 4,958 -
FHLB stock 7,943 7,943 - 7,943 -
Derivative asset 966 966 - 966 -

Financial Liabilities:
Demand deposits $ 187,593 $ 187,593 $ - $ 187,593 $ -
NOW and money market 402,982 402,982 - 402,982 -
Savings 96,601 96,601 - 96,601 -
Time deposits 601,861 603,456 - - 603,456
Accrued interest payable 837 837 - 837 -
Advances from the FHLB 160,000 160,118 - - 160,118
Subordinated debentures 25,051 25,645 - - 25,645
Derivative liability 229 229 - 229 -


	December 31, 2021
	Carrying Value		Fair Value		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash and due from banks	$	291,598	$	291,598	$	291,598	$	—	$	—
Federal funds sold	53,084		53,084		53,084		—		—
Marketable equity securities	2,168		2,168		2,168		—		—
Available for sale securities	90,198		90,198		25,569		64,629		—
Held to maturity securities	16,043		18,445		—		52		18,393
Loans receivable, net	1,875,167		1,858,661		—		—		1,858,661
Accrued interest receivable	7,512		7,512		—		7,512		—
FHLB stock	2,814		2,814		—		2,814		—
Servicing asset, net of valuation allowance	818		818		—		—		818
Derivative asset	3,628		3,628		—		3,628		—
Assets held for sale	2,268		2,268		—		—		2,268

Financial Liabilities:
Noninterest bearing deposits	$	398,956	$	398,956	$	—	$	398,956	$	—
NOW and money market	1,074,153		1,074,153		—		1,074,153		—
Savings	193,631		193,631		—		193,631		—
Time deposits	457,258		457,759		—		—		457,759
Accrued interest payable	1,234		1,234		—		1,234		—
Advances from the FHLB	50,000		49,996		—		—		49,996
Subordinated debentures	34,441		34,509		—		—		34,509
Servicing liability	14		14		—		—		14
Derivative liability	16,780		16,780		—		16,780		—

The following methods and assumptions were used by management in estimating the fair value of its financial instruments:

~~Cash~~

Marketable equity securities and ~~due from banks, federal funds sold, accrued interest receivable and accrued interest payable:~~~~The carrying amount is a reasonable estimate of fair value.~~

~~Available~~available for sale ~~and held to maturity~~ securities: Fair values are based on quoted market prices or dealer quotes, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

~~FHLB stock:~~The ~~carrying value of FHLB stock approximates fair value based on the most recent redemption provisions~~majority of the ~~FHLB.~~

~~Loans held~~available for ~~sale:~~ ~~The fair value is based upon prevailing market~~sale securities are considered to be Level 2 as other observable inputs are utilized, such as quoted prices for similar ~~loans.~~

~~Loans receivable~~~~: For variable rate loans~~securities. Level 1 investment securities include investments in U.S. treasury notes and in marketable equity securities for which ~~reprice frequently and have no significant change~~a quoted price is readily available in ~~credit risk, fair values are based on carrying values. The fair value of fixed rate loans are estimated by discounting~~ the ~~future cash flows using the rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.~~

market.

Derivative asset (liability):The valuation of the Company’s interest rate swaps is obtained from a third-party pricing service and is determined using a discounted cash flow analysis on the expected cash flows of each derivative. The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves. The ~~Bank~~Company also considers the creditworthiness of ~~the~~each counterparty for assets and the creditworthiness of the ~~Bank~~Company for liabilities.

Assets held for sale: Assets held for sale (excluding loans) consist of real estate properties that are expected to sell within a year. The assets are reported at the lower of the carrying amount or fair value less costs to sell. The fair value represents the price that would be received to sell the asset (the exit price).

Servicing ~~Asset~~asset (liability):Servicing assets and liabilities do not trade in an active, open market with readily observable prices. The Company estimates the fair value of servicing assets and liabilities using discounted cash flow models, incorporating numerous assumptions from the perspective of a market participant, including market discount rates.

~~Deposits:~~ The fair value of demand deposits, regular savings and certain money market deposits is the amount payable on demand at the reporting date. The fair value of certificates of deposit and other time deposits is estimated using a discounted cash flow calculation that applies interest rates currently being offered for deposits of similar remaining maturities to a schedule of aggregated expected maturities on such deposits.

~~Borrowings and Subordinated Debentures:~~The fair value of the Company’s borrowings and subordinated debentures is estimated using a discounted cash flow calculation that applies discount rates currently offered based on similar maturities. The Bank also considers its own creditworthiness in determining the fair value of its borrowings and subordinated debt.

~~11.~~

12. Fair Value Measurements

The Company is required to account for certain assets ~~and liabilities~~ at fair value on a recurring or non-recurring basis. ~~As discussed in Note 1, the~~The Company determines fair value in accordance with GAAP, which defines fair value and establishes a framework for measuring fair value. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair values:

~~Level 1 —~~	~~Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.~~

~~Level 2 —~~	~~Significant other observable inputs other than Level 1 prices such as quoted prices for similar as~~s~~ets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.~~

~~Level 3 —~~	~~Significant unobservable inputs that reflect a company's own assumptions about the assumptions that market participants would use in pricing an asset or liability.~~

Level 1 — Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2 — Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Valuation techniques based on unobservable inputs are highly subjective and require judgments regarding significant matters such as the amount and timing of future cash flows and the selection of discount rates that may appropriately reflect market and credit risks. Changes in these judgments often have a material impact on the fair value estimates. In addition, since these estimates are as of a specific point in time they are susceptible to material near-term changes.

Financial instruments measured at fair value on a recurring basis

The following ~~tables detail~~table details the financial instruments carried at fair value on a recurring basis at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine the fair value. The Company had no transfers into or out of Levels 1, 2 or 3 during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and for the year ended December 31, ~~2016.~~

Fair Value
(In thousands) Level 1 Level 2 Level 3
September 30, 2017:
Available for sale investment securities:
U.S. Government and agency obligations $ - $ 64,734 $ -
State agency and municipal obligations - 12,316 -
Corporate bonds - 9,222 -
Derivative asset, net - 980 -

December 31, 2016:
Available for sale investment securities:
U.S. Government and agency obligations $ - $ 62,698 $ -
State agency and municipal obligations - 14,763 -
Corporate bonds - 10,290 -
Derivative asset, net - 737 -

~~Available~~2021.

Fair Value
(In thousands) Level 1 Level 2 Level 3
June 30, 2022:
Marketable equity securities $ 2,126 $ — $ —
Available for sale investment securities:
U.S. Government and agency obligations 38,315 41,640 —
Corporate bonds — 14,952 —
Derivative asset — 7,307 —
Derivative liability — 2,461 —
December 31, 2021:
Marketable equity securities $ 2,168 $ — $ —
Available for sale investment securities:
U.S. Government and agency obligations 25,569 49,620 —
Corporate bonds — 15,009 —
Derivative asset — 3,628 —
Derivative liability — 16,780 —

Marketable equity securities and available for sale investment ~~securities~~:securities: The fair value of the ~~Company's~~Company’s investment securities ~~are~~is estimated by using pricing models or quoted prices of securities with similar characteristics (i.e., matrix pricing) and ~~are~~is classified within Level 1 or Level 2 of the valuation hierarchy.

The pricing is primarily sourced from third-party pricing services overseen by management.

Derivative ~~Assets~~assets and liabilities: The Company’s derivative assets and liabilities consist of transactions as part of management’s strategy to manage interest rate risk. The valuation of the Company’s interest rate swaps is obtained from a third-party pricing service and is determined using a discounted cash flow analysis on the expected cash flows of each derivative. The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves. The Company has determined that the majority of the inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy.

Financial instruments measured at fair value on a nonrecurring basis

Certain assets and liabilities are measured at fair value on a non-recurring basis in accordance with GAAP. These include assets that are measured at ~~the-lower-of-cost-or-market~~the lower-of-cost-or-market that were recognized at fair value below cost at the end of the period as well as assets that are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment.

The following table details the financial instruments ~~carried~~measured at fair value on a nonrecurring basis at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine the fair value:

Fair Value
(In thousands) Level 1 Level 2 Level 3
September 30, 2017:
Impaired loans $ - $ - $ 14,888
Foreclosed real estate - - 222

December 31, 2016:
Impaired loans $ - $ - $ 4,849
Foreclosed real estate - - 272


	Fair Value
(In thousands)	Level 1		Level 2		Level 3
June 30, 2022:
Impaired loans	$	—	$	—	$	40,612

Servicing asset, net	—		—		957


December 31, 2021:
Impaired loans	$	—	$	—	$	44,313
Servicing asset, net	—		—		804
Assets held for sale	—		—		2,268

The following table presents information about quantitative inputs and assumptions for Level 3 financial instruments carried at fair value on a nonrecurring basis at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016:~~

(Dollars in thousands) Fair Value Valuation
Methodology Unobservable Input Range
September 30, 2017:

Impaired loans $ 8,076 Appraisals Discount to appraised value 8.00 - 18.40%
6,812 Discounted cash flows Discount rate 3.00 - 6.25%
$ 14,888

Foreclosed real estate $ 222 Appraisals Discount to appraised value 68%

December 31, 2016:

Impaired loans $ 2,127 Appraisals Discount to appraised value 8.00 - 28.00%
2,722 Discounted cash flows Discount rate 4.25 - 6.25%
$ 4,849

Foreclosed real estate $ 272 Appraisals Discount to appraised value 20%

2021:

Fair Value Valuation Methodology Unobservable Input Range
(Dollars in thousands)
June 30, 2022:
Impaired loans $ 15,801 Appraisals Discount to appraised value 8.00%
24,811 Discounted cash flows Discount rate 3.00 - 6.50%
$ 40,612
Servicing asset, net $ 957 Discounted cash flows Discount rate
10.00%(1)
Prepayment rate 3.00 - 17.00%
December 31, 2021:
Impaired loans $ 18,548 Appraisals Discount to appraised value 8.00%
25,765 Discounted cash flows Discount rate 3.00 - 6.75%
$ 44,313
Servicing asset, net $ 804 Discounted cash flows Discount rate
10.00%(2)
Prepayment rate 3.00 - 17.00%
Assets held for sale $ 2,268 Sale & income
approach Adjustment to
valuation and cost
to sell N/A

(1) Servicing liabilities totaling $7 thousand were valued using a discount rate of 2.7%.

(2) Servicing liabilities totaling $14 thousand were valued using a discount rate of 0.8%.

Impaired ~~loans:~~loans: Loans are generally not recorded at fair value on a recurring basis. Periodically, the Company records nonrecurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Nonrecurring adjustments also include certain impairment amounts for collateral-dependent loans calculated in accordance with ASC 310-10 when establishing the allowance for credit losses. Such amounts are generally based on the fair value of the underlying collateral supporting the loan. Collateral is typically valued using appraisals or other indications of value based on recent comparable sales of similar properties or other assumptions. Estimates of fair value based on collateral are generally based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3. For those loans where the primary source of repayment is cash flow from operations, adjustments include impairment amounts calculated based on the perceived collectability of interest payments on the basis of a discounted cash flow analysis utilizing a discount rate equivalent to the original note rate.

~~Foreclosed real estate:~~

Servicing assets and liabilities: When loans are sold, on a servicing retained basis, servicing rights are initially recorded at fair value. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized. The ~~Company classifies property acquired through foreclosure or acceptance~~fair value of ~~deed-in-lieu of foreclosure as foreclosed real estate~~servicing assets and ~~repossessed assets in its financial statements. Upon foreclosure, the property securing the loan is written down~~liabilities are not measured on an ongoing basis but are subject to fair value ~~less selling costs.~~adjustments when and if the assets or liabilities are deemed to be impaired.

Assets held for sale: Assets held for sale (excluding loans) consist of real estate properties that are expected to sell within a year. The write-down is based upon differences between the appraised value and the book value. Appraisals are based on observable market data such as comparable sales, however assumptions made in determining comparability are unobservable and therefore these assets are ~~classified as Level 3 within~~reported at the ~~valuation hierarchy.~~

~~12.~~lower of the carrying amount or fair value less costs to sell. The fair value represents the price that would be received to sell the asset (the exit price).

13. Subordinated debentures

On August 19, 2015, the Company completed a private placement of $25.5 million in aggregate principal amount of fixed rate subordinated notes (the ~~“Notes”~~“2015 Notes”) to certain institutional investors. The 2015 Notes ~~are~~were non-callable for five years, ~~have~~had a stated maturity of August 15, 2025, and ~~bear~~bore interest at a quarterly pay fixed rate of 5.75% per annum to the maturity ~~date~~date. The 2015 Notes became callable, in part or in whole, beginning August 2020. On May 15, 2021, the ~~early redemption date.~~

Company repaid $10.0 million of the 2015 Notes and on November 15, 2021, the Company repaid the remaining $15.5 million of the 2015 Notes.

On October 14, 2021, the Company completed a private placement of a $35.0 million fixed-to-floating rate subordinated note (the “2021 Note”) to an institutional accredited investor. The Company used the net proceeds to repay the 2015 Notes ~~have~~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 has a stated maturity of October 15, 2031 and is non-callable for five years. Beginning October 15, 2026, the Company may redeem the 2021 Note, in whole or in part, at its option. The 2021 Note is not redeemable at the option of the holder. The 2021 Note has been structured to qualify for the Company as Tier 2 capital under regulatory guidelines. We used the net proceeds for general corporate purposes, which included maintaining liquidity at the holding company, providing equity capital to the Bank to fund balance sheet growth and our working capital needs. The Notes were assigned an investment grade rating of BBB by Kroll Bond Rating Agency, which was reaffirmed in the third quarter of 2017.

~~13. Income Taxes~~

The Company ~~is subject to federal and state income taxes at~~incurred certain costs associated with the ~~statutory rates and makes several adjustments to arrive at the effective tax rate.~~issuance of its subordinated debt. The Company ~~adjusts for non-deductible meals~~capitalized these costs and ~~entertainment, interest earned~~they have been presented within subordinated debentures on ~~municipal bonds, income earned on our investment in bank owned~~the consolidated balance sheets. At June 30, 2022 and December 31, 2021, unamortized debt issuance costs were $0.5 million and $0.6 million, respectively. Debt issuance costs amortize over the expected life ~~insurance, windfall tax benefits resulting from restricted stock vesting and reductions in Connecticut state income tax from~~of the ~~establishment of a passive investment company.~~

~~Income tax expense for~~related debt. For the three months ended ~~September~~June 30, ~~2017~~2022 and ~~2016 totaled $1.9~~2021 the amortization expense for debt issuance costs were $29 thousand and $95 thousand, respectively, and were recognized as an increase to interest expense on borrowings within the consolidated statements of income. For the six months ended June 30, 2022 and 2021 the amortization expense for debt issuance costs were $59 thousand and $108 thousand, respectively.

The Company recognized $0.3 million and ~~$1.4~~$0.3 million ~~respectively. The effective tax rates~~in interest expense related to its subordinated debt for the three ~~months~~month periods ended ~~September~~June 30, ~~2017~~2022 and ~~2016 were 30.8%,~~2021, respectively. The Company recognized $0.6 million and ~~31.4%, respectively. Income tax~~$0.7 million in interest expense related to its subordinated debt for the ~~nine months~~six month periods ended ~~September~~June 30, ~~2017~~2022 and ~~2016 totaled $6.0 million and $4.1 million,~~2021, respectively. ~~The effective tax rates for~~

14. Subsequent Events

On July 27, 2022, the ~~nine months ended September 30, 2017 and 2016 were 33.9%, and 31.3%, respectively. The increase in the effective tax rate for the nine months ended September 30, 2017 is driven by adjustments related~~Company’s Board of Directors declared a $0.20 per share cash dividend, payable on August 25, 2022 to ~~additional income tax expense resulting from treatment~~shareholders of ~~acquisition related items~~record on ~~prior years’ tax returns and increased out of state lending.~~

August 15, 2022.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section presents management’s perspective on our financial condition and results of operations. The following discussion and analysis should be read in conjunction with the unaudited interim consolidated financial statements and related notes contained elsewhere in this report on Form 10-Q. To the extent that this discussion describes prior performance, the descriptions relate only to the periods listed, which may not be indicative of future financial outcomes. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause results to differ materially from management’s expectations. Factors that could cause such differences are discussed in the Company’s Form 10-K filed for the year ended December 31, ~~2016~~2021 in the sections titled “Cautionary Note Regarding Forward-Looking Statements” and “Risk ~~Factors”~~Factors.” We assume no obligation to update any of these forward-looking statements.

General

Bankwell Financial Group, Inc. is a bank holding company headquartered in New Canaan, Connecticut. Through our wholly owned subsidiary, Bankwell Bank, or the Bank, we serve small and medium-sized businesses and retail ~~customers in the New York metropolitan area and throughout Connecticut, with the majority of our loans in Fairfield and New Haven Counties, Connecticut.~~customers. We have a history of building long-term customer relationships and attracting new customers through what we believe is our strong customer service and our ability to deliver a diverse product offering.

The following discussion and analysis presents our results of operations and financial condition on a consolidated basis. However, because we conduct all of our material business operations through the Bank, the discussion and analysis relates to activities primarily conducted at the Bank.

We generate most of our revenue from interest on loans and investments and fee-based revenues. Our primary source of funding for our loans is deposits. Our largest expenses are interest on ~~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.

Executive Overview

We are focused on being the banking provider of choice and to serve as an alternative to our larger competitors. We aim to do this through:

•Responsive, customer-centric products and services and a community focus;

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

•Utilization of efficient and scalable infrastructure; and

•Disciplined focus on risk management.

Critical Accounting Policies and Estimates

The discussion and analysis of our results of operations and financial condition are based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires us to make significant estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from our current estimates, as a result of changing conditions and future events.

We believe that accounting estimates related to the ~~initial~~ measurement of ~~goodwill and intangible assets and subsequent impairment analyses,~~ the allowance for loan losses, ~~stock-based compensation,~~the valuation of derivative ~~instrument valuation,~~instruments, investment securities ~~valuation,~~and deferred income taxes, and the evaluation of investment securities for other than temporary impairment ~~and deferred income taxes valuation~~ are particularly critical and susceptible to significant near-term change. ~~These accounting estimates are discussed further~~

Earnings and Performance Overview

For the three months ended June 30, 2022, net interest income was $23.8 million, an increase of $7.2 million or 43.7% when compared to the same period in 2021. For the six months ended June 30, 2022, net interest income was $43.3 million, an increase of $12.1 million or 38.7% when compared to the same period in 2021. The increase in net interest income for the three and six months ended June 30, 2022 was primarily due to an increase in interest and fees on loans due to loan growth and higher overall loan yields and from lower interest expense on deposits. The increase in loan yields was aided by loan prepayment fees, which totaled $1.8 million for the quarter ended June 30, 2022, compared to $0.8 million for the quarter ended June 30, 2021.

Noninterest income decreased $0.3 million to $1.2 million for the three months ended June 30, 2022 compared to the same period in 2021. Noninterest income decreased $1.3 million to $2.1 million for the six months ended June 30, 2022 compared to the same period in 2021. The decrease in noninterest income was driven by a reduction in loan sales for the three and six months ended June 30, 2022 when compared to the same periods in the ~~Company’s Form 10-K filed~~prior year. Loan sales decreased $0.2 million and $0.1 million for the ~~year~~three and six months ended ~~December 31, 2016.~~

~~Executive Overview~~

~~We are focused on being~~June 30, 2022, respectively. In addition, noninterest income declined due to the ~~“Hometown” bank~~absence of rental income recognized during the three and ~~the banking provider of choice in our highly attractive market area, and to serve~~six months ended June 30, 2021, as a ~~locally based alternative~~result of the disposition of the Company's former headquarters building. Noninterest income also declined for the six months ended June 30, 2022 due to ~~our larger competitors. We aim to do this through:~~

~~responsive, customer-centric products and services and a community focus;~~

~~strategic acquisitions;~~

~~utilization of efficient and scalable infrastructure;~~

~~disciplined focus on risk management; and~~

~~organic growth.~~

~~On November 5, 2013 we completed the merger~~a one-time federal payroll tax credit for COVID-19 of ~~Wilton Bank into Bankwell Bank. The Wilton Bank had one branch located in Wilton, Connecticut.~~

On May 15, 2014, Bankwell Financial Group, Inc. priced 2,702,703 common shares in its IPO at $18.00 per share and Bankwell common shares began trading on the Nasdaq Stock Market. The net proceeds from the IPO were approximately $44.7$0.9 million after deducting the underwriting discount of approximately $2.5 million and approximately $1.3 million of expenses. We used the net proceeds for general corporate purposes, which included maintaining liquidity at the holding company, providing equity capital to the Bank to fund balance sheet growth, our working capital needs, and funding acquisitions of branches and whole financial institutions in or around our existing market that furthered our objectives.

~~On October 1, 2014 Quinnipiac Bank and Trust (“Quinnipiac”) merged with and into Bankwell Bank. Quinnipiac had one branch located in Hamden, Connecticut and a second branch located~~recognized in the ~~neighboring town of North Haven, Connecticut.~~

On August 19, 2015 the Company completed a private placement of $25.5 million in aggregate principal amount of fixed rated subordinated notes (the “Notes”) to certain institutional investors. The Notes are non-callable for five years, have a stated maturity of August 15, 2025, and bear interest at a quarterly pay fixed rate of 5.75% per year to the maturity date or the early redemption date.

On November 20, 2015 the Company redeemed $10.98 million (10,980 shares) of preferred stock issued pursuant to the United States Department of Treasury (“Treasury”) under the Small Business Lending Fund Program (the “SBLF”). The shares were redeemed at their liquidation value of $1,000 per share plus accrued dividends through November 20, 2015. The redemption was approved by the Company’s primary federal regulator and was funded with the Company’s surplus capital. With this redemption, the Company has redeemed all of its outstanding SBLF stock.

On January 25, 2017 the Company’s Board of Directors declared a $0.07 per share cash dividend, payable February 27, 2017 to shareholders of record on February 17, 2017. On April 26, 2017 the Company’s Board of Directors declared a $0.07 per share cash dividend, payable May 26, 2017 to shareholders of record on May 16, 2017. On July 26, 2017 the Company’s Board of Directors declared a $0.07 per share cash dividend, payable August 25, 2017 to shareholders of record on August 15, 2017.

~~Earnings Overview~~

three months ended March 31, 2021.

Net income available to common shareholders was ~~$4.3~~$12.0 million, or ~~$0.55~~$1.55 per diluted share, and ~~$3.1~~$6.2 million, or ~~$0.41~~$0.79 per diluted share, for the three months ended ~~September~~June 30, ~~2017~~2022 and ~~2016,~~2021, respectively. Net income available to common shareholders was $20.2 million, or $2.58 per diluted share, and $11.9 million, or $1.50 per diluted share, for the six months ended June 30, 2022 and 2021, respectively. The increase in net income was primarily impacted by the aforementioned increases in net interest income and a decrease in the provision for loan losses primarily driven by the release of specific reserves on impaired loans that showed improved performance or paid off, partially offset by a decrease in the aforementioned noninterest income.

Returns on average shareholders' equity and average assets for the three months ended ~~September~~June 30, ~~2017~~2022 were ~~10.78%~~22.09% and ~~0.96%~~1.96%, respectively, compared to ~~8.96%~~13.06% and ~~0.85%~~1.11%, respectively, for the three months ended ~~September~~June 30, ~~2016.~~

Net income available to common shareholders was $11.7 million, or $1.51 per diluted share, and $9.0 million, or $1.19 per diluted share, for the nine months ended September 30, 2017 and 2016, respectively.2021. Returns on average shareholders' equity and average assets for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 were ~~10.27%~~19.16% and ~~0.92%~~1.65%, respectively, compared to ~~8.84%~~12.87% and ~~0.85%~~1.07%, respectively, for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~

For the three months ended September 30, 2017, we had net interest income of $13.9 million, an increase of $1.3 million, or 10.7%, over the three months ended September 30, 2016. Our net interest margin (fully taxable equivalent basis) for the three months ended September 30, 2017 and 2016 was 3.30% and 3.57%, respectively. We experienced an increase in our non-interest income, which totaled $824 thousand for the three months ended September 30, 2017 representing 5.6% of our total revenue, up from $750 thousand, or 5.6% of total revenue, for the three months ended September 30, 2016.

For the nine months ended September 30, 2017, we had net interest income of $40.5 million, an increase of $4.6 million, or 13.0%, over the nine months ended September 30, 2016. Our net interest margin (fully taxable equivalent basis) for the nine months ended September 30, 2017 and 2016 was 3.32% and 3.54%, respectively. We experienced an increase in our non-interest income, which totaled 3.1 million for the nine months ended September 30, 2017 representing 7.1% of our total revenue, up from $2.3 million, or 6.0% of total revenue, for the nine months ended September 30, 2016.

2021.

Results of Operations

Net Interest Income

Net interest income is the difference between interest earned on loans and securities and interest paid on deposits and other borrowings, and is the primary source of our operating income. Net interest income is affected by the level of interest rates, changes in interest rates and changes in the amount and composition of ~~interest-earning~~interest earning assets and ~~interest-bearing~~interest bearing liabilities. Included in interest income are certain loan fees, such as deferred origination fees and late ~~charges and~~charges. We convert tax-exempt income to a fully taxable equivalent ("FTE") basis using the statutory federal income tax rate adjusted for applicable state income taxes net of the related federal tax benefit. The average balances are principally daily averages. Interest income on loans includes the effect of deferred loan fees and costs accounted for as yield adjustments. Premium amortization and discount accretion are included in the respective interest income and interest expense amounts. The following tables and discussion present net interest income on a fully taxable equivalent, or FTE basis, by adjusting income and yields on tax-exempt loans and securities to be comparable to taxable loans and securities. We convert tax-exempt income to a FTE basis using the statutory federal income tax rate adjusted for applicable state income taxes net of the related federal tax benefit. The average balances are principally daily averages.

FTE net interest income for the three months ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021 was ~~$14.0~~$23.9 million and ~~$12.7~~$16.6 million, respectively. FTE net interest income for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021 was ~~$40.9~~$43.4 million and ~~$36.2~~$31.3 million, respectively. Net interest income was favorably impacted by higher average balances, offset by lower margins. Our net interest margin decreased 27 basis points to 3.30% for the three months ended September 30, 2017, compared to the three months ended September 30, 2016 and decreased 22 basis points to 3.32% for the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016. The decrease in the net interest margin was primarily due to higher rates on interest bearing deposits driven by rate increases to remain competitive in the market place.

FTE ~~basis~~ interest income for the three months ended ~~September~~June 30, ~~2017~~2022 increased by ~~$2.7~~$6.3 million, or ~~17.4%~~31.1%, to ~~$18.5~~$26.4 million, compared to FTE ~~basis~~ interest income for the three months ended ~~September~~June 30, 2016 due primarily to loan growth in our commercial real estate and commercial business portfolios. Average interest-earning assets were $1.7 billion for the three months ended September 30, 2017, up by $279.9 million or 19.7% compared to the three months ended September 30, 2016. The average yield on interest earning assets declined slightly from 4.34% for the three months ended September 30, 2016 to 4.26% for the three months ended September 30, 2017 due mainly to lower yields on commercial real estate and commercial business loans.

2021. FTE ~~basis~~ interest income for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 increased by ~~$8.1~~$9.8 million, or ~~18.2%~~25.1%, to ~~$52.9~~$48.8 million, compared to FTE ~~basis~~ interest income for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2021. This increase was due ~~primarily~~to an increase in interest and fees on loans due to loan growth and higher overall loan yields. The increase in ~~our commercial real estate and commercial business portfolios. Average interest-earning assets were $1.6 billion~~loan yields was aided by loan prepayment fees, which totaled $1.8 million for the ~~nine months~~quarter ended ~~September~~June 30, ~~2017, up by $275.3 million or 20.2%~~2022, compared to ~~the nine months ended September 30, 2016. The average yield on interest earning assets declined slightly from 4.31%~~$0.8 million for the ~~nine months~~quarter ended ~~September~~June 30, ~~2017 to 4.25% for the nine months ended September 30, 2017 due mainly to lower yields on commercial real estate and commercial business loans.~~

2021.

Interest expense for the three months ended ~~September~~June 30, ~~2017, increased~~2022 decreased by ~~$1.4~~$1.0 million, or ~~44.4%~~27.7%, compared to interest expense for the three months ended ~~September~~June 30, 2016 due to a $272.0 million increase in the average balances of interest-bearing liabilities due to higher average balances in money market accounts, time accounts and savings accounts, and increased rates on deposits, primarily due to increased rates on certificates of deposits and money market accounts to remain competitive in the market place.

2021. Interest expense for the ~~nine~~six months ended ~~September~~June 30, ~~2017, increased~~2022 decreased by ~~$3.5~~$2.3 million, or ~~40.7%~~30.2%, compared to interest expense for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2021. This decrease was due to ~~a $262.2 million~~lower interest rates on deposits.

The net interest margin increased by 89 basis points to 4.01% for the three months ended June 30, 2022, compared to the three months ended June 30, 2021 and the net interest margin increased by 72 basis points to 3.65% for the six months ended June 30, 2022, compared to the six months ended June 30, 2021. The increase in the ~~average balances of interest-bearing liabilities~~net interest margin was due to ~~higher average balances~~lower interest expense from a decrease in ~~money market accounts, time accounts and borrowed money, and increased~~ rates on interest bearing deposits, ~~primarily due to increased rates on certificates of deposits~~elevated loan prepayment fees, and ~~money market accounts to remain competitive~~an increase in ~~the market place.~~

overall loan yields.

Distribution of Assets, Liabilities and ~~Stockholders’~~Shareholders’ Equity; Interest Rates and Interest Differential

The following tables present the average balances and yields earned on ~~interest-earning~~interest earning assets and average balances and weighted average rates paid on our funding liabilities for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016.~~

Three Months Ended September 30,
2017 2016
Average Yield / Average Yield /
(Dollars in thousands) Balance Interest Rate Balance Interest Rate
Assets:
Cash and Fed funds sold $ 83,086 $ 239 1.14 % $ 28,305 $ 29 0.41 %
Securities (1) 112,066 1,014 3.62 98,480 762 3.09
Loans:
Commercial real estate 927,114 10,613 4.48 788,911 9,324 4.62
Residential real estate 179,428 1,597 3.56 178,106 1,600 3.59
Construction (2) 106,373 1,305 4.80 107,197 1,230 4.49
Commercial business 268,408 3,476 5.07 195,881 2,584 5.16
Home equity 14,150 172 4.83 14,706 156 4.23
Consumer 1,149 10 3.53 1,467 20 5.51
Total loans 1,496,622 17,173 4.49 1,286,268 14,914 4.54
Federal Home Loan Bank stock 8,544 85 3.96 7,400 65 3.51
Total earning assets 1,700,318 18,511 4.26 % 1,420,453 15,770 4.34 %
Other assets 69,253 56,762
Total assets $ 1,769,571 $ 1,477,215

Liabilities and shareholders' equity:
Interest -bearing liabilities:
NOW $ 58,625 19 0.13 % $ 53,515 16 0.12 %
Money market 432,753 993 0.91 330,263 484 0.58
Savings 100,197 189 0.75 62,689 63 0.40
Time 645,317 2,215 1.36 540,823 1,597 1.17
Total interest-bearing deposits 1,236,892 3,416 1.10 987,290 2,160 0.87
Borrowed money �� 193,734 1,071 2.16 171,385 946 2.16
Total interest bearing liabilities 1,430,626 4,487 1.24 % 1,158,675 3,106 1.07 %
Noninterest-bearing deposits 164,565 170,500
Other liabilities 17,528 8,591
Total Liabilities 1,612,719 1,337,766
Shareholders' equity 156,852 139,449

Total liabilities and shareholders' equity $ 1,769,571 $ 1,477,215
Net interest income (3) $ 14,024 $ 12,664
Interest rate spread 3.02 % 3.27 %
Net interest margin (4) 3.30 % 3.57 %

2021.


	Three Months Ended June 30,
	2022						2021

(Dollars in thousands)	Average Balance		Interest		Yield / Rate (4)		Average Balance		Interest		Yield / Rate (4)
Assets:
Cash and Fed funds sold	$	247,013	$	449	0.73	%	$	336,073	$	90	0.11	%
Securities (1)	118,534		809		2.73		103,297		761		2.95
Loans:
Commercial real estate	1,443,239		17,278		4.74		1,163,134		13,678		4.65
Residential real estate	66,460		553		3.33		105,975		958		3.62
Construction	106,285		1,938		7.21		110,780		1,036		3.70
Commercial business	393,318		5,327		5.36		296,613		3,506		4.68
Consumer	5,298		45		3.43		8,851		88		3.98
Total loans	2,014,600		25,141		4.94		1,685,353		19,266		4.52
Federal Home Loan Bank stock	3,263		15		1.79		4,219		25		2.34
Total earning assets	2,383,410		$	26,414	4.38	%	2,128,942		$	20,142	3.74	%
Other assets	79,380						117,334
Total assets	$	2,462,790					$	2,246,276

Liabilities and shareholders' equity:
Interest bearing liabilities:
NOW	$	136,414	$	59	0.17	%	$	118,806	$	54	0.18	%
Money market	931,101		1,146		0.49		782,079		941		0.48
Savings	198,304		103		0.21		168,870		92		0.22
Time	451,508		675		0.60		538,915		1,657		1.23
Total interest bearing deposits	1,717,327		1,983		0.46		1,608,670		2,744		0.68
Borrowed money	85,092		558		2.59		101,586		769		3.00
Total interest bearing liabilities	1,802,419		$	2,541	0.57	%	1,710,256		$	3,513	0.82	%
Noninterest bearing deposits	407,890						298,467
Other liabilities	34,231						46,329
Total Liabilities	2,244,540						2,055,052
Shareholders' equity	218,250						191,224

Total liabilities and shareholders' equity	$	2,462,790					$	2,246,276
Net interest income (2)			$	23,873					$	16,629
Interest rate spread					3.81	%					2.92	%
Net interest margin (3)					4.01	%					3.12	%

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

(2)The adjustment for securities and loans taxable equivalency amounted to $50 thousand and $50 thousand for the three months ended June 30, 2022 and 2021, respectively.

(3)Annualized net interest income as a percentage of earning assets.

(4)Yields are calculated using the contractual day count convention for each respective product type.

~~(1)~~

~~Average balances and yields for securities are based on amortized cost.~~

~~(2)~~

~~Includes commercial and residential real estate construction.~~

~~(3)~~

~~The adjustment for securities and loans taxable equivalency amounted to $163 thousand and $137 thousand, respectively, for the three months ended September 30, 2017 and 2016.~~

~~(4)~~

~~Annualized net interest income as a percentage of earning assets.~~

Nine Months Ended September 30,
2017 2016
Average Yield / Average Yield /
(Dollars in thousands) Balance Interest Rate Balance Interest Rate
Assets:
Cash and Fed funds sold $ 79,333 $ 502 0.85 % $ 30,559 $ 94 0.41 %
Securities (1) 106,622 2,822 3.53 102,107 2,321 3.03
Loans:
Commercial real estate 893,962 30,527 4.50 755,026 26,446 4.60
Residential real estate 180,347 4,835 3.57 178,699 4,807 3.59
Construction (2) 107,136 3,853 4.74 96,635 3,298 4.48
Commercial business 249,718 9,607 5.07 178,453 7,082 5.21
Home equity 14,156 490 4.63 15,206 468 4.11
Consumer 1,387 35 3.40 1,707 66 5.14
Total loans 1,446,706 49,347 4.50 1,225,726 42,167 4.52
Federal Home Loan Bank stock 8,198 244 3.97 7,173 184 3.43
Total earning assets 1,640,859 52,915 4.25 % 1,365,565 44,766 4.31 %
Other assets 63,527 55,145
Total assets $ 1,704,386 $ 1,420,710

Liabilities and shareholders' equity:
Interest -bearing liabilities:
NOW $ 58,096 65 0.15 % $ 55,742 87 0.21 %
Money market 387,162 2,329 0.80 319,289 1,331 0.56
Savings 108,304 591 0.73 71,243 214 0.40
Time 628,521 6,107 1.30 502,177 4,230 1.13
Total interest-bearing deposits 1,182,083 9,092 1.03 948,451 5,862 0.83
Borrowed money 186,844 2,930 2.07 158,247 2,682 2.23
Total interest bearing liabilities 1,368,927 12,022 1.17 % 1,106,698 8,544 1.03 %
Noninterest-bearing deposits 168,778 170,088
Other liabilities 13,960 7,479
Total Liabilities 1,551,665 1,284,265
Shareholders' equity 152,721 136,445
Total liabilities and shareholders' equity $ 1,704,386 $ 1,420,710
Net interest income (3) $ 40,893 $ 36,222
Interest rate spread 3.08 % 3.28 %
Net interest margin (4) 3.32 % 3.54 %


	Six Months Ended June 30,
	2022						2021

(Dollars in thousands)	Average Balance		Interest		Yield / Rate (4)		Average Balance		Interest		Yield / Rate (4)
Assets:
Cash and Fed funds sold	$	296,239	$	603	0.41	%	$	368,779	$	198	0.11	%
Securities (1)	115,452		1,563		2.71		102,252		1,549		3.03
Loans:
Commercial real estate	1,393,836		32,273		4.61		1,146,258		26,354		4.57
Residential real estate	70,125		1,224		3.49		109,003		1,996		3.66
Construction	104,176		2,971		5.67		102,459		1,916		3.72
Commercial business	388,249		9,954		5.10		295,682		6,763		4.55
Consumer	5,666		147		5.25		6,956		137		3.96
Total loans	1,962,052		46,569		4.72		1,660,358		37,166		4.45
Federal Home Loan Bank stock	3,051		29		1.94		5,356		56		2.11
Total earning assets	2,376,794		$	48,764	4.08	%	2,136,745		$	38,969	3.64	%
Other assets	89,866						115,718
Total assets	$	2,466,660					$	2,252,463

Liabilities and shareholders' equity:
Interest bearing liabilities:
NOW	$	124,361	$	106	0.17	%	$	109,990	$	97	0.18	%
Money market	950,131		2,326		0.49		759,435		1,891		0.50
Savings	196,400		204		0.21		164,630		217		0.27
Time	452,676		1,553		0.69		574,876		3,653		1.28
Total interest bearing deposits	1,723,568		4,189		0.49		1,608,931		5,858		0.73
Borrowed money	84,770		1,144		2.68		126,886		1,777		2.79
Total interest bearing liabilities	1,808,338		$	5,333	0.59	%	1,735,817		$	7,635	0.89	%
Noninterest bearing deposits	406,707						284,226
Other liabilities	38,683						45,756
Total Liabilities	2,253,728						2,065,799
Shareholders' equity	212,932						186,664

Total liabilities and shareholders' equity	$	2,466,660					$	2,252,463
Net interest income (2)			$	43,431					$	31,334
Interest rate spread					3.49	%					2.75	%
Net interest margin (3)					3.65	%					2.93	%

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

(2)The adjustment for securities and loans taxable equivalency amounted to $98 thousand and $100 thousand for the six months ended June 30, 2022 and 2021, respectively.

(3)Annualized net interest income as a percentage of earning assets.

(4)Yields are calculated using the contractual day count convention for each respective product type.

~~(1)~~

~~Average balances and yields for securities are based on amortized cost.~~

~~(2)~~

~~Includes commercial and residential real estate construction.~~

~~(3)~~

~~The adjustment for securities and loans taxable equivalency amounted to $443 thousand and $418 thousand, respectively, for the nine months ended September 30, 2017 and 2016.~~

~~(4)~~

~~Annualized net interest income as a percentage of earning assets.~~

Effect of changes in interest rates and volume of average earning assets and average ~~interest-bearing~~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~~interest bearing liabilities have affected net interest income. For each category of earning assets and ~~interest-bearing~~interest bearing liabilities, information is provided relating to: changes in volume (changes in average balances multiplied by the prior year’s average interest rates); changes in rates (changes in average interest rates multiplied by the prior year’s average balances); and the total change. Changes attributable to both volume and rate have been allocated proportionately based on the relationship of the absolute dollar amount of change in each.

Three Months Ended Nine Months Ended
September 30, 2017 vs 2016 September 30, 2017 vs 2016
Increase (Decrease) Increase (Decrease)
(In thousands) Volume Rate Total Volume Rate Total
Interest and dividend income:
Cash and Fed funds sold $ 109 $ 101 $ 210 $ 245 $ 163 $ 408
Securities 113 139 252 106 395 501
Loans:
Commercial real estate 1,590 (301 ) 1,289 4,773 (692 ) 4,081
Residential real estate 11 (14 ) (3 ) 44 (16 ) 28
Construction (9 ) 84 75 372 183 555
Commercial business 940 (48 ) 892 2,758 (233 ) 2,525
Home equity (6 ) 22 16 (34 ) 56 22
Consumer (4 ) (6 ) (10 ) (11 ) (20 ) (31 )
Total loans 2,522 (263 ) 2,259 7,902 (722 ) 7,180
Federal Home Loan Bank stock 11 9 20 29 31 60
Total change in interest and dividend income 2,755 (14 ) 2,741 8,282 (133 ) 8,149
Interest expense:
Deposits:
NOW 2 1 3 3 (25 ) (22 )
Money market 180 328 508 324 674 998
Savings 51 74 125 147 229 376
Time 335 283 618 1,166 711 1,877
Total deposits 568 686 1,254 1,640 1,589 3,229
Borrowed money 125 - 125 460 (212 ) 248
Total change in interest expense 693 686 1,379 2,100 1,377 3,477
Change in net interest income $ 2,062 $ (700 ) $ 1,362 $ 6,182 $ (1,510 ) $ 4,672

Three Months Ended June 30, 2022 vs 2021
Increase (Decrease) Six Months Ended June 30, 2022 vs 2021
Increase (Decrease)
(In thousands) Volume Rate Total Volume Rate Total
Interest and dividend income:
Cash and Fed funds sold $ (30) $ 389 $ 359 $ (46) $ 451 $ 405
Securities 107 (59) 48 188 (174) 14
Loans:
Commercial real estate 3,349 251 3,600 5,731 188 5,919
Residential real estate (334) (71) (405) (683) (89) (772)
Construction (44) 946 902 33 1,022 1,055
Commercial business 1,257 564 1,821 2,299 892 3,191
Consumer (32) (11) (43) (29) 39 10
Total loans 4,196 1,679 5,875 7,351 2,052 9,403
Federal Home Loan Bank stock (5) (5) (10) (23) (4) (27)
Total change in interest and dividend income 4,268 2,004 6,272 7,470 2,325 9,795
Interest expense:
Deposits:
NOW 8 (3) 5 12 (3) 9
Money market 183 22 205 467 (32) 435
Savings 15 (4) 11 38 (51) (13)
Time (236) (746) (982) (664) (1,436) (2,100)
Total deposits (30) (731) (761) (147) (1,522) (1,669)
Borrowed money (116) (95) (211) (571) (62) (633)
Total change in interest expense (146) (826) (972) (718) (1,584) (2,302)
Change in net interest income $ 4,414 $ 2,830 $ 7,244 $ 8,188 $ 3,909 $ 12,097

Provision for Loan Losses

The provision for loan losses is based on management’s periodic assessment of the adequacy of ~~the~~our allowance for loan losses which, in turn, is based on ~~such~~ interrelated factors such as the composition of ~~the~~our loan portfolio and its inherent risk characteristics, the level of nonperforming loans and net charge-offs, both current and historic, local economic and credit conditions, the direction of real estate values, and regulatory guidelines. The provision for loan losses is charged against earnings in order to maintain our allowance for loan losses and reflects management’s best estimate of probable losses inherent in our loan portfolio atas of the balance sheet date.

Under accounting standards for business combinations, acquired loans are recorded at fair value with no loan loss allowance on the date of acquisition. A provision for loan losses will be recorded for the emergence of new probable and estimable losses on acquired loans which were not impaired as of the acquisition date.

The ~~provision~~credit for loan losses for the three months ended ~~September~~June 30, ~~2017~~2022 was ~~$398 thousand~~$1.4 million compared to a credit for loan losses of $20.0 thousand for the three months ended June 30, 2021. The credit for loan losses for the six months ended June 30, 2022 was $1.2 million compared to a credit for loan losses of $0.3 million for the six months ended June 30, 2021. The decrease in the provision for loan losses for the three and six months ended ~~September~~June 30, ~~2016. The provision for loan losses for~~2022 was primarily driven by the nine months ended September 30, 2017 was $1.8 million compared to $3.2 million provision for loan losses for the nine months ended September 30, 2016. For further information, see sections titled Asset Qualityrelease of specific reserves on impaired loans that showed improved performance or paid off.

Noninterest Income

Noninterest income is a component of our revenue and ~~Allowance for Loan Losses.~~

~~Noninterest Income~~

is comprised primarily of fees generated from deposit relationships with our customers, fees generated from sales and referrals of loans, income earned on bank-owned life insurance and gains on sales of investment securities.

The following tables compare noninterest income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016:~~

Three Months Ended
September 30, Change
(Dollars in thousands) 2017 2016 $ %
Bank owned life insurance $ 295 $ 174 $ 121 70 %
Service charges and fees 254 241 13 5
Gains and fees from sales of loans 36 163 (127 ) (78 )
Other 239 172 67 39
Total noninterest income $ 824 $ 750 $ 74 10 %

2021:


	Three Months Ended June 30,				Change
(Dollars in thousands)	2022		2021		$		%
Gains and fees from sales of loans	$	608	$	814	$	(206)	(25.3)	%
Bank-owned life insurance	265		251		14		5.6
Service charges and fees	249		217		32		14.7


Other	30		158		(128)		(81.0)
Total noninterest income	$	1,152	$	1,440	$	(288)	(20.0)	%


	Six Months Ended June 30,				Change
(Dollars in thousands)	2022		2021		$		%
Gains and fees from sales of loans	$	1,239	$	1,327	$	(88)	(6.6)	%
Bank-owned life insurance	525		482		43		8.9
Service charges and fees	489		416		73		17.5


Other	(143)		1,170		(1,313)		(112.2)
Total noninterest income	$	2,110	$	3,395	$	(1,285)	(37.8)	%

Noninterest income ~~increased $74 thousand or 10%~~decreased by $0.3 million to ~~$824 thousand~~$1.2 million for the three months ended ~~September~~June 30, ~~2017~~2022 compared to the three months ended ~~September~~June 30, ~~2016.~~ 2021. Noninterest income decreased by $1.3 million to $2.1 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

The ~~increase~~decrease in noninterest income was ~~primarily~~ driven by ~~income earned from our additional purchases of Bank Owned Life Insurance~~a reduction in loan sales for the three and ~~rental income earned from~~six months ended June 30, 2022 when compared to the ~~headquarters building acquired~~same periods in the ~~fourth quarter of 2016.~~

Nine Months Ended
September 30, Change
(Dollars in thousands) 2017 2016 $ %
Bank owned life insurance $ 881 $ 522 $ 359 69 %
Service charges and fees 755 721 34 5
Gains and fees from sales of loans 559 387 172 44
Gain on sale of foreclosed real estate, net - 128 (128 ) (100 )
Net gain on sale of available for sale securities 165 92 73 79
Other 728 425 303 71
Total noninterest income $ 3,088 $ 2,275 $ 813 36 %

~~Noninterest income increased $813 thousand or 36% to $3.1~~prior year. Loan sales decreased $0.2 million and $0.1 million for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017 compared~~2022, respectively. In addition, noninterest income declined due to the ~~nine~~absence of rental income recognized during the three and six months ended ~~September~~June 30, ~~2016. The increase in noninterest~~2021, as a result of the disposition of the Company's former headquarters building. Noninterest income ~~was primarily driven by income earned from our additional purchases~~also declined for the six months ended June 30, 2022 due to a one-time federal payroll tax credit for COVID-19 of ~~Bank Owned Life Insurance and rental income earned from the headquarters building acquired~~$0.9 million recognized in the ~~fourth~~ quarter ~~of 2016.~~

ended March 31, 2021.

Noninterest Expense

The following tables compare noninterest expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022 and ~~2016:~~

Three Months Ended
September 30, Change
(Dollars in thousands) 2017 2016 $ %
Salaries and employee benefits $ 3,952 $ 3,839 $ 113 3 %
Occupancy and equipment 1,449 1,435 14 1
Professional services 680 521 159 31
Data processing 621 417 204 49
Marketing 295 242 53 22
FDIC insurance 265 177 88 50
Director fees 207 198 9 5
Amortization of intangibles 31 39 (8 ) (21 )
Foreclosed real estate 3 47 (44 ) (94 )
Other 626 566 60 11
Total noninterest expense $ 8,129 $ 7,481 $ 648 9 %

2021:


	Three Months Ended June 30,				Change
(Dollars in thousands)	2022		2021		$		%
Salaries and employee benefits	$	5,433	$	3,960	$	1,473	37.2	%
Occupancy and equipment	2,193		3,250		(1,057)		(32.5)
Professional services	1,000		547		453		82.8
Data processing	689		833		(144)		(17.3)
Director fees	339		327		12		3.7
FDIC insurance	262		300		(38)		(12.7)
Marketing	107		140		(33)		(23.6)
Other	913		695		218		31.4
Total noninterest expense	$	10,936	$	10,052	$	884	8.8	%


	Six Months Ended June 30,				Change
(Dollars in thousands)	2022		2021		$		%
Salaries and employee benefits	$	10,373	$	8,729	$	1,644	18.8	%
Occupancy and equipment	4,343		5,656		(1,313)		(23.2)
Professional services	1,981		1,134		847		74.7
Data processing	1,343		1,345		(2)		(0.1)
Director fees	691		644		47		7.3
FDIC insurance	485		703		(218)		(31.0)
Marketing	152		131		21		16.0
Other	1,493		1,348		145		10.8
Total noninterest expense	$	20,861	$	19,690	$	1,171	5.9	%

Noninterest expense increased ~~$648 thousand or 9%~~by $0.9 million to $10.9 million for the three months ended ~~September~~June 30, ~~2017~~2022 compared to the three months ended ~~September~~June 30, 2016. The increase was primarily driven by an increase in professional services due to increased fees paid for internal and external audit, and consulting services and increases in data processing to support the overall growth of the business.

Nine Months Ended
September 30, Change
(Dollars in thousands) 2017 2016 $ %
Salaries and employee benefits $ 11,681 $ 11,324 $ 357 3 %
Occupancy and equipment 4,580 4,235 345 8
Professional services 1,615 1,257 358 28
Data processing 1,467 1,201 266 22
FDIC insurance 891 514 377 73
Marketing 872 644 228 35
Director fees 683 636 47 7
Amortization of intangibles 93 119 (26 ) (22 )
Foreclosed real estate 70 149 (79 ) (53 )
Other 1,992 1,697 295 17
Total noninterest expense $ 23,944 $ 21,776 $ 2,168 10 %

2021. Noninterest expense increased ~~$2.2~~by $1.2 million ~~or 10%~~to $20.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2021. The increase in noninterest expense was primarily driven by an increase in salaries and employee benefits expense and professional services expense, partially offset by a decrease in occupancy and equipment ~~expenses~~expense.

Salaries and ~~professional services.~~employee benefits expense totaled $5.4 million for the quarter ended June 30, 2022, an increase of $1.5 million when compared to the same period in 2021. Salaries and employee benefits expense totaled $10.4 million for the six months ended June 30, 2022, an increase of $1.6 million when compared to the same period in 2021. The increase in salaries and employee benefits expense was primarily driven by an increase in full time equivalent employees. Full time equivalent employees totaled 132 at June 30, 2022 compared to 125 for the same period in 2021. Average full time equivalent employees totaled ~~132 at September~~128 for the six months ended June 30, ~~2017~~2022 compared to 124 ~~at September 30, 2016.~~for the same period in 2021. The increase in ~~occupancy~~salaries and ~~equipment expenses~~employee benefits expense was also impacted by an increase in variable compensation accruals as a result of the Bank's overall improved performance. The increase in salaries and employee benefits expense was partially offset by increased expense deferrals driven by ~~increases~~higher loan originations.

Professional services expense totaled $1.0 million for the quarter ended June 30, 2022, an increase of $0.5 million when compared to the same period in ~~IT related expenses, one time charges relating~~2021. Professional services expense totaled $2.0 million for the six months ended June 30, 2022, an increase of $0.8 million when compared to ~~back office consolidation activity and maintenance costs for our headquarters building acquired~~the same period in ~~the fourth quarter of 2016.~~2021. The increase in professional services expense was primarily driven by ~~increased~~consulting fees ~~paid~~associated with various projects, including our core system conversion.

Occupancy and equipment expense totaled $2.2 million for ~~internal~~the quarter ended June 30, 2022, a decrease of $1.1 million when compared to the same period in 2021. Occupancy and ~~external audit,~~equipment expense totaled $4.3 million for the six months ended June 30, 2022, a decrease of $1.3 million when compared to the same period in 2021. The decrease in occupancy and ~~consulting services~~equipment expense was primarily driven by the curtailment of additional cleaning costs associated with precautions taken to ~~support~~prevent the ~~overall growth~~spread of COVID-19 during the ~~business.~~

six months ended June 30, 2021.

Income ~~Tax Expense~~

Taxes

Income tax expense for the three months ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021 totaled ~~$1.9~~$3.5 million and ~~$1.4~~$1.8 million, respectively. The effective tax rates for the three months ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021 were ~~30.8%,~~22.4% and ~~31.4%~~22.0%, respectively. Income tax expense for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021 totaled ~~$6.0~~$5.6 million and ~~$4.1~~$3.3 million, respectively. The effective tax rates for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021 were ~~33.9%~~21.6% and 21.9%, respectively.

Financial Condition

Summary

At June 30, 2022 total assets were $2.4 billion, a $20.7 million, or 0.8% decrease, compared to December 31, 2021. The decrease in assets was primarily due to a decrease in deposits while excess liquidity funded additional loan growth. Gross loans totaled $2.1 billion at June 30, 2022, an increase of $161.7 million compared to December 31, 2021. Deposits totaled $2.0 billion at June 30, 2022, compared to $2.1 billion at December 31, 2021.

Total shareholders’ equity at June 30, 2022 and ~~31.3%,~~December 31, 2021 was $225.5 million and $202.0 million, respectively. The increase in ~~the effective tax rate~~shareholders' equity was primarily driven by (i) net income of $20.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017 is~~2022 and (ii) an $8.9 million favorable impact to accumulated other comprehensive income driven by ~~adjustments~~fair value marks related to ~~additional income tax expense resulting from treatment~~hedge positions involving interest rate swaps, partially offset by fair value marks on the Company's investment portfolio. The Company's interest rate swaps are used to hedge interest rate risk. The increase in Shareholders’ equity was partially offset by dividends paid of ~~acquisition related items on prior years’ tax returns and increased out of state lending.~~

~~Financial Condition~~

~~Summary~~

At September 30, 2017, total assets were $1.8 billion, a $176.0 million, or 10.8%, increase over December 31, 2016. Total loans and deposits were $1.5 billion and $1.4 billion, respectively at September 30, 2017. Our credit quality remained strong, with nonperforming assets to total assets of 0.25% and the allowance for loan losses to total loans was 1.28%. Total shareholders’ equity at September 30, 2017 and December 31, 2016 was $158.3$3.1 million and ~~$145.9 million, respectively. Tangible book value was $20.41 per share at September 30, 2017 compared to $18.98 per share at December 31, 2016.~~

common stock repurchases of $3.8 million.

Loan Portfolio

We originate commercial ~~and residential~~ real estate loans, including construction loans, commercial business loans ~~home equity~~ and other consumer loans. Lending activities are primarily conducted within our market of the New York metropolitan area and throughout Connecticut, with the majority of our loans in Fairfield and New Haven Counties, Connecticut. Our loan portfolio is the largest category of our earning assets. Loans acquired in connection with the Wilton acquisition in November 2013 and the Quinnipiac acquisition in October 2014 are referred to as “acquired” loans as a result of the manner in which they are accounted for. All other loans are referred to as “originated” loans. Accordingly, selected disclosures that follow are presented separately for the originated loan portfolio and the acquired loan portfolio.

Total loans before deferred loan fees and the allowance for loan losses were ~~$1.5~~$2.06 billion at ~~September~~June 30, ~~2017, up by $157.6 million, or 11.5%, from~~2022 and $1.89 billion at December 31, ~~2016. Commercial real estate~~2021. Total gross loans ~~have experienced~~increased $161.7 million as of June 30, 2022 compared to the ~~most significant growth, up by $97.6 million.~~

year ended December 31, 2021.

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

September 30, 2017 December 31, 2016 Change
(In thousands) Originated Acquired Total Originated Acquired Total ($) (%)
Real estate loans:
Residential $ 176,599 $ 2,349 $ 178,948 $ 178,549 $ 2,761 $ 181,310 $ (2,362 ) -1 %
Commercial 905,061 37,837 942,898 802,156 43,166 845,322 97,576 12 %
Construction 114,464 107 114,571 107,329 112 107,441 7,130 7 %
Home equity 8,428 5,472 13,900 8,549 5,870 14,419 (519 ) -4 %
1,204,552 45,765 1,250,317 1,096,583 51,909 1,148,492 101,825 9 %
Commercial business 256,519 15,986 272,505 198,456 17,458 215,914 56,591 26 %
Consumer 553 171 724 672 861 1,533 (809 ) -53 %
Total loans $ 1,461,624 $ 61,922 $ 1,523,546 $ 1,295,711 $ 70,228 $ 1,365,939 $ 157,607 12 %

(In thousands) At June 30, 2022 At December 31, 2021 Change
Real estate loans:
Residential $ 64,253 $ 79,987 $ (15,734)
Commercial 1,499,364 1,356,709 142,655
Construction 111,422 98,341 13,081
1,675,039 1,535,037 140,002
Commercial business 372,361 350,975 21,386
Consumer 9,196 8,869 327
Total loans $ 2,056,596 $ 1,894,881 $ 161,715

Asset Quality

~~Asset~~

We actively manage asset quality ~~metrics remained strong~~ through our underwriting practices and collection operations. Our Board of Directors monitors credit risk management. The Directors Loan Committee ("DLC") has primary oversight responsibility for the credit-granting function including approval authority for credit-granting policies, review of management’s credit-granting activities and approval of large exposure credit requests, as well as loan review and problem loan management and resolution. The committee reports the results of its respective oversight functions to our Board of Directors. In addition, our Board of Directors receives information concerning asset quality measurements and trends on a monthly basis. While we continue to adhere to prudent underwriting standards, our loan portfolio is not immune to potential negative consequences as a result of general economic weakness, such as a prolonged downturn in the housing market on a national scale. Decreases in real estate values could adversely affect the value of property used as collateral for loans. In addition, adverse changes in the economy could have a negative effect on the ability of borrowers to make scheduled loan payments, which would likely have an adverse impact on earnings.

The Company has established credit policies applicable to each type of lending activity in which it engages. The Company evaluates the creditworthiness of each customer and extends credit of up to 80% of the market value of the collateral, depending on the borrower's creditworthiness and the type of collateral. The borrower’s ability to service the debt is monitored on an ongoing basis. Real estate is the primary form of collateral. Other important forms of collateral are business assets, time deposits and marketable securities. While collateral provides assurance as a secondary source of repayment, the Company ordinarily requires the primary source of repayment for commercial loans, to be based on the borrower’s ability to generate continuing cash flows. In the fourth quarter of 2017 management made the strategic decision to no longer originate residential mortgage loans. As of the beginning of the third quarter of ~~2017.~~2019, the Company no longer offered home equity loans or lines of credit. The Company’s policy for residential lending generally required that the amount of the loan may not exceed 80% of the original appraised value of the property. In certain situations, the amount may have exceeded 80% LTV either with private mortgage insurance being required for that portion of the residential loan in excess of 80% of the appraised value of the property or where secondary financing is provided by a housing authority program second mortgage, a community’s low/moderate income housing program, or a religious or civic organization.

Credit risk management involves a partnership between our relationship managers and our credit approval, portfolio management, credit administration and collections personnel. Disciplined underwriting, portfolio monitoring and early problem recognition are important aspects of maintaining our high credit quality standards and low levels of nonperforming assets since our inception in 2002.

Nonperforming assets. Nonperforming assets ~~totaled $4.5 million~~include nonaccrual loans and represented 0.25% of total assets at September 30, 2017, compared to $3.2 million and 0.20% of total assets at December 31, 2016. Nonaccrual loans totaled $4.2 million at September 30, 2017, an increase of $1.3 million compared to December 31, 2016. The balance of foreclosed real estate totaled $222 thousand at September 30, 2017 and $272 thousand at December 31, 2016.

property acquired through foreclosures or repossession. The following table presents nonperforming assets and additional asset quality data for the dates indicated:

At September 30, 2017 At December 31, 2016
(In thousands) Originated Acquired Total Originated Acquired Total
Nonaccrual loans:
Real estate loans:
Residential $ 969 $ - $ 969 $ 969 $ - $ 969
Commercial 607 1,150 1,757 302 144 446
Home equity 184 448 632 190 453 643
Consumer 341 5 346 341 - 341
Commercial business 112 425 537 378 160 538
Total non accrual loans 2,213 2,028 4,241 2,180 757 2,937
Property acquired through foreclosure or repossession, net - 222 222 - 272 272
Total nonperforming assets $ 2,213 $ 2,250 $ 4,463 $ 2,180 $ 1,029 $ 3,209

Nonperforming assets to total assets 0.12 % 0.12 % 0.25 % 0.13 % 0.06 % 0.20 %
Nonaccrual loans to total loans 0.15 % 3.28 % 0.28 % 0.17 % 1.08 % 0.22 %
Total past due loans to total loans 0.51 % 3.14 % 0.62 % 0.29 % 3.61 % 0.47 %

(In thousands) At June 30, 2022 At December 31, 2021
Nonaccrual loans:
Real estate loans:
Residential $ 2,161 $ 2,380
Commercial 2,955 3,482
Commercial business 787 1,728
Construction 9,382 8,997
Total nonaccrual loans 15,285 16,587
Other real estate owned — —
Total nonperforming assets $ 15,285 $ 16,587
Nonperforming assets to total assets 0.63 % 0.68 %
Nonaccrual loans to total gross loans 0.74 % 0.88 %
Total past due loans to total gross loans 1.40 % 1.72 %

Nonperforming assets totaled $15.3 million and represented 0.63% of total assets at June 30, 2022, compared to $16.6 million and 0.68% of total assets at December 31, 2021. Nonaccrual loans totaled $15.3 million at June 30, 2022 and $16.6 million at December 31, 2021. There was no other real estate owned at June 30, 2022 or December 31, 2021.

Past due loans decreased to $28.8 million, or 1.40% of total loans, as of June 30, 2022, compared to $32.6 million, or 1.72% of total loans, as of December 31, 2021. As of June 30, 2022, past due loans include one $10.5 million commercial real estate loan, representing 0.51% of total loans, that had reached maturity and is in active negotiations to be refinanced.

Allowance for Loan Losses

Establishing an appropriate level of allowance for loan losses, or the allowance, involves a high degree of judgment. We use a methodology to systematically measure the amount of estimated loan loss exposure inherent in our loan portfolio for purposes of establishing a sufficient allowance for loan losses.

We evaluate the adequacy of the allowance for loan losses at least ~~quarterly. Our~~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. The balance of our allowance for loan losses is ~~our best estimate~~based on internally assigned risk classifications of loans, the Bank’s and peer banks’ historical loss experience, changes in the nature of the ~~probable loan losses inherent in our~~ loan portfolio, overall portfolio quality, industry concentrations, delinquency trends, current economic factors and the estimated impact of current economic conditions on certain historical loan loss rates.

Our general practice is to identify problem credits early and recognize full or partial charge-offs as promptly as practicable when it is determined that it is probable that the loan will not be repaid according to its original contractual terms, including principal and interest. Full or partial charge-offs on collateral dependent impaired loans are recognized when the collateral is deemed to be insufficient to support the carrying value of the ~~balance sheet date. The allowance is increased by provisions charged to earnings and by recoveries of amounts previously charged off, and is reduced by charge-offs on loans.~~

~~At September 30, 2017, our allowance for loan losses was $19.6 million and represented 1.28% of total loans, compared to $18.0 million, or 1.32% of total loans, at December 31, 2016. The net~~loan. We do not recognize a recovery when an updated appraisal indicates a subsequent increase in value of the ~~allowance primarily reflects~~collateral.

Our charge-off policies, which comply with standards established by our banking regulators, are consistently applied from period to period. Charge-offs are recorded on a ~~provision of $1.8 million for~~monthly basis, as incurred. 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 ~~nine months ended September 30, 2017.~~

remaining loan balance based on the same criteria.

The following ~~tables present~~table presents the activity in our allowance for loan losses and related ratios for the dates ~~indicated,~~indicated:


	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2022			2021			2022			2021
Balance at beginning of period	$	17,141		$	20,545		$	16,902		$	21,009
Charge-offs:

Commercial real estate	—			(3,814)			—			(3,977)
Commercial business	—			(51)			—			(51)
Consumer	—			(4)			(4)			(18)
Total charge-offs	—			(3,869)			(4)			(4,046)
Recoveries:
Commercial real estate	77			—			77			—
Commercial business	—			16			13			16
Consumer	—			—			1			9
Total recoveries	77			16			91			25
Net recoveries (charge-offs)	77			(3,853)			87			(4,021)
Credit charged to earnings	(1,445)			(20)			(1,216)			(316)
Balance at end of period	$	15,773		$	16,672		$	15,773		$	16,672
Net charge-offs to average loans	—		%	0.23		%	—		%	0.24		%
Allowance for loan losses to total gross loans	0.77		%	0.96		%	0.77		%	0.96		%

At June 30, 2022, our allowance for loan losses was $15.8 million and ~~include both originated and acquired allowance activity:~~

Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in thousands) 2017 2016 2017 2016
Balance at beginning of period $ 19,536 $ 16,100 $ 17,982 $ 14,169
Charge-offs:
Construction - - - (7 )
Commercial business (366 ) (69 ) (366 ) (69 )
Consumer (10 ) (2 ) (41 ) (16 )
Total charge-offs (376 ) (71 ) (407 ) (92 )
Recoveries:
Residential real estate - - 146 -
Commercial business 4 - 4 -
Consumer 2 2 3 7
Total recoveries 6 2 153 7
Net recoveries (charge-offs) (370 ) (69 ) (254 ) (85 )
Provision charged to earnings 398 1,219 1,836 3,166
Balance at end of period $ 19,564 $ 17,250 $ 19,564 $ 17,250
Net charge-offs (recoveries) to average loans 0.02 % 0.01 % 0.02 % 0.01 %
Allowance for loan losses to total loans 1.28 % 1.30 % 1.28 % 1.30 %

represented 0.77% of total gross loans, compared to $16.9 million, or 0.89% of total gross loans, at December 31, 2021.

The following ~~tables present~~table presents the allocation of the allowance for loan losses and the percentage of these loans to total loans for the dates indicated:

At September 30, At December 31,
2017 2016
(Dollars in thousands) Amount Percent of
Loan
Portfolio Amount Percent of
Loan
Portfolio
Residential real estate $ 1,451 11.74 % $ 1,646 13.27 %
Commercial real estate 9,710 61.89 9,415 61.89
Construction 2,193 7.52 2,105 7.87
Home equity 162 0.91 156 1.05
Commercial business 5,696 17.89 4,283 15.81
Consumer 352 0.05 377 0.11
Total allowance for loan losses $ 19,564 100.00 % $ 17,982 100.00 %


	At June 30, 2022				At December 31, 2021
(Dollars in thousands)	Amount		Percent of Loan Portfolio		Amount		Percent of Loan Portfolio
Residential real estate	$	331	3.12	%	$	504	4.22	%
Commercial real estate	11,480		72.91		12,751		71.60
Construction	95		5.42		4		5.19
Commercial business	3,802		18.10		3,590		18.52
Consumer	65		0.45		53		0.47
Total allowance for loan losses	$	15,773	100.00	%	$	16,902	100.00	%

The allocation of the allowance for loan losses at ~~September~~June 30, ~~2017~~2022 reflects our assessment of credit risk and probable loss within each portfolio. We believe that the level of the allowance for loan losses at ~~September~~June 30, ~~2017~~2022 is appropriate to cover probable losses.

Reserve for Unfunded Commitments

The reserve for unfunded commitments provides for probable losses inherent with funding the unused portion of legal commitments to lend. The unfunded reserve calculation is primarily based on our ~~ALLL~~allowance for loan loss methodology for funded loans, adjusted for utilization expectations. The reserve for unfunded credit commitments is included within other liabilities in the accompanying Consolidated Balance ~~Sheets, and changes~~Sheets. Changes in the reserve are reported as a component of other noninterest expense in the accompanying Consolidated Statements of Income.

~~Servicing Assets and Liabilities~~

In the second quarter of 2017 the Company established a servicing asset totaling $0.5 million and a servicing liability totaling $0.4 million resulting from various prior year loan sales and participations for which servicing was retained by the Bank. As a result of establishing the servicing asset and liability the Company recorded interest income in the pre-tax amount of $0.1 million related to the acceleration of deferred fee income and noninterest income in the pre-tax amount of $0.1 million.

Investment Securities

At ~~September~~June 30, ~~2017,~~2022, the carrying value of our investment securities portfolio totaled ~~$109.8~~$113.0 million and represented ~~6.1%~~4.6% of total assets, compared to ~~$104.6~~$108.4 million, ~~and represented 6.4%~~or 4.4% of total assets, at December 31, ~~2016.~~ 2021.

The ~~increase~~net unrealized loss position on our investment portfolio at June 30, 2022 was $5.0 million and included gross unrealized losses of ~~$5.2 million primarily reflects purchases. We purchase investment grade securities with a focus on earnings and duration exposure.~~

$5.5 million. The net unrealized gain position on our investment portfolio at ~~September 30, 2017 and~~ December 31, ~~2016~~2021 was ~~$944 thousand and $624 thousand, respectively~~$4.5 million and included gross unrealized losses of ~~$87 thousand~~$0.5 million.

Deposit Activities and $200 thousand, respectively. The gross unrealized losses were concentrated in U.S. Government and agency obligations and state agency and municipal obligations. The Company continually monitors its U.S. Government, state agency, municipal and corporate bond portfolios and at this time these portfolios have minimal default risk because U.S. Government and agency obligations owned are either direct obligations of the U.S. Government or guaranteed by the U.S. Government, therefore the contractual cash flows are guaranteed and all investment securities are rated above investment grade.

Other Sources of Funds


	June 30, 2022				December 31, 2021
(Dollars in thousands)	Amount		Percent		Amount		Percent
Noninterest bearing demand	$	372,584	18.32	%	$	398,956	18.78	%
NOW	155,026		7.63		119,479		5.62
Money market	833,730		41.00		954,674		44.95
Savings	196,075		9.64		193,631		9.12
Time	476,110		23.41		457,258		21.53
Total deposits	$	2,033,525	100.00	%	$	2,123,998	100.00	%

Total deposits were ~~$1.4~~$2.0 billion at ~~September~~June 30, ~~2017, an increase~~2022, a decrease of ~~$120.8~~$90.5 million, from the balance at December 31, ~~2016~~2021. The decrease in deposits is primarily ~~reflecting increases~~a result of seasonal fluctuations in several municipal and commercial deposit relationships.

Brokered certificates of deposits totaled $299.4 million at June 30, 2022 and ~~money market accounts. Certificates of deposit increased $45.2 million from $601.9~~$249.4 million at December 31, ~~2016 to $647.1~~2021. There were no certificates of deposits from national listing services at June 30, 2022 or December 31, 2021. Brokered money market accounts totaled $50.0 million at ~~September~~June 30, ~~2017. Money markets increased $104.4 million from $349.1~~2022 and $104.0 million at December 31, ~~2016 to $453.6 million at September 30, 2017.~~2021. Brokered deposits ~~totaled $71.5 million at September 30, 2017 and $58.2 million at December 31, 2016 and~~ represent brokered certificates of deposit, brokered money market accounts, one way buy Certificate of Deposit Account Registry Service (CDARS), and one way buy Insured Cash Sweep (ICS).

At June 30, 2022 and December 31, 2021, time deposits with a denomination of $100 thousand or more, including CDARS and ~~reciprocal~~other brokered deposits, ~~for customers that desire FDIC protection. Brokered deposits are utilized as an additional source of funding.~~

totaled $418.5 million and $391.2 million, respectively, maturing during the periods indicated in the table below:


(Dollars in thousands)	June 30, 2022		December 31, 2021
Maturing:
Within 3 months	$	113,511	$	80,417
After 3 but within 6 months	12,158		21,935
After 6 months but within 1 year	37,560		25,625
After 1 year	255,235		263,216
Total	$	418,464	$	391,193

We utilize advances from the Federal Home Loan Bank of Boston, or FHLB, as part of our overall funding strategy and to meet short-term liquidity ~~needs.~~needs, and to a lesser degree, manage interest rate risk arising from the difference in asset and liability maturities. Total FHLB advances were ~~$195.0~~$105.0 million and ~~$160.0~~$50.0 million at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively.

The ~~increase~~Bank has additional borrowing capacity at the FHLB up to a certain percentage of ~~$35.0~~the value of qualified collateral. In accordance with agreements with the FHLB, the qualified collateral must be free and clear of liens, pledges and encumbrances. At June 30, 2022, the Bank had pledged $731.9 million ~~or 21.9% reflects normal operating fluctuation in our borrowings.~~

of eligible loans as collateral to support borrowing capacity at the FHLB of Boston. As of June 30, 2022, the Bank had immediate availability to borrow an additional $286.0 million based on qualified collateral.

Liquidity

~~The Company is required to maintain levels of liquid assets sufficient to ensure the Company’s safe~~ and ~~sound operation.~~ Capital Resources

Liquidity Management

Liquidity is defined as the ability to generate sufficient cash flows to meet all present and future funding requirements at reasonable costs. Our primary source of liquidity is deposits. While our generally preferred funding strategy is to attract and retain low cost deposits, our ability to do so is affected by competitive interest rates and terms in the marketplace. Other sources of funding include discretionary use of purchased liabilities (e.g., FHLB term advances and other ~~borrowings,~~borrowings), cash flows from our investment securities portfolios, loan sales, loan repayments and earnings. Investment securities designated as ~~available-for-sale~~available for sale may also be sold in response to short-term or long-term liquidity needs.

The Bank’s liquidity positions are monitored daily by management. The Asset Liability Committee ("ALCO") establishes guidelines to ensure maintenance of prudent levels of liquidity. ALCO reports to the Company’s Board of Directors.

The Bank has a detailed liquidity funding policy and a contingency funding plan that provide for the prompt and comprehensive response to unexpected demands for liquidity. We employ a stress testing methodology to estimate needs for contingent funding that could result from unexpected outflows of funds in excess of “business as usual” cash flows. The Bank has established unsecured borrowing capacity with the Atlantic Community Bankers Bank ("ACBB"), Zion’s Bank and Texas Capital Bank and also maintains additional collateralized borrowing capacity with the FHLB in excess of levels used in the ordinary course of business. Our sources of liquidity include cash, unpledged investment securities, borrowings from the FHLB, lines of credit from ACBB, Zion’s Bank and Texas Capital Bank, the brokered deposit market and national CD listing services.

The Company anticipates that it will have sufficient funds available to meet its current loan and other commitments. As of ~~September~~June 30, ~~2017,~~2022, the Company had cash and cash equivalents of ~~$96.4~~$171.0 million and available-for-sale securities of ~~$86.3~~$94.9 million. At ~~September~~June 30, ~~2017,~~2022, outstanding commitments to originate loans totaled ~~$53.7~~$181.2 million and undisbursed funds from approved lines of credit, home equity lines of credit and secured commercial lines of credit totaled ~~$146.8~~$336.6 million. Time deposits scheduled to mature in one year or less at September 30, 2017 totaled $368.3 million. The Company’s deposit flow history has been that a significant portion of such deposits remain with the Company.

Capital Resources

~~Total~~

Shareholders’ equity totaled $225.5 million as of June 30, 2022, an increase of $23.5 million compared to December 31, 2021, primarily a result of (i) net income of $20.2 million for the six months ended June 30, 2022 and (ii) an $8.9 million favorable impact to accumulated other comprehensive income driven by fair value marks related to hedge positions involving interest rate swaps, partially offset by fair value marks on the Company's investment portfolio. The Company's interest rate swaps are used

to hedge interest rate risk. The increase in shareholders’ equity was ~~$158.3~~partially offset by dividends paid of $3.1 million ~~at September~~and common stock repurchases of $3.8 million. As of June 30, ~~2017 compared to $145.9 million at December 31, 2016. The increase of $12.4 million primarily reflected net income of $11.7 million for~~2022, the ~~nine months ended September 30, 2017. The~~tangible common equity ratio ~~of total equity to total assets was 8.77% at September 30, 2017, which compares to 8.96% at December 31, 2016.~~

and fully diluted tangible book value per share were 9.16% and $28.75, respectively.

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. At ~~September~~June 30, ~~2017,~~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 for prompt corrective action. At ~~September~~June 30, ~~2017,~~2022, the Bank’s ratio of ~~total common equity tier~~Common Equity Tier 1 capital to risk-weighted assets was ~~10.94%~~11.10%, total capital to risk-weighted assets was ~~12.19%~~11.80%, Tier 1 capital to risk-weighted assets was ~~10.94%~~11.10% and Tier 1 capital to average assets was ~~9.78%~~10.15%.

In July 2013, the Federal Reserve published Basel III rules establishing a new comprehensive capital framework of U.S. banking organizations. Under the rules, effective January 1, 2015 for the Company and Bank, the minimum capital ratios became a) 4.5% ~~“Common~~Common Equity Tier 1”1 to risk-weighted assets, b) 6.0% Tier 1 capital to risk weighted assets and c) 8.0% total capital to risk-weighted assets. In addition, the new regulations imposed certain limitations on dividends, share buy-backs, discretionary payments on Tier 1 instruments and discretionary bonuses to executive officers if the banking organization does not ~~maintain~~hold a ~~capital~~“capital conservation ~~buffer for regulatory risk based capital ratios in an amount greater than~~buffer” consisting of 2.5% of ~~its risk-weighted~~common equity to risk weighted assets, in addition to the ~~amount needed~~amounts necessary to meet ~~its~~the minimum risk-based capital requirements ~~phased in over a 5 year period until January 1, 2019. The conservation buffer will be phased in incrementally, starting at 0.625% on January 1, 2016~~described above.

Asset/Liability Management and increased to 1.25% on January 1, 2017, 1.875% on January 1, 2018 and 2.5% on January 1, 2019. Accordingly, while these rules started to be phased in on January 1, 2015 (and the capital conservation buffer on January 1, 2016), the Company believes it is well positioned to meet the requirements as they become effective.

Interest Rate ~~Sensitivity Analysis~~

Risk

We measure interest rate risk using simulation analysis to calculate earnings and equity at risk. These risk measures are quantified using simulation software from one of the leading firms in the field of asset/liability modeling. Key assumptions relate to the behavior of interest rates and spreads, prepayment speeds and the run-off of deposits. From such simulations, interest rate risk, or IRR, is quantified and appropriate strategies are formulated and implemented. We model IRR by using two primary risk measurement techniques: simulation of net interest income and simulation of economic value of equity. These two measurements are complementary and provide both short-term and long-term risk profiles for the Company. Because both ~~base line~~baseline simulations assume that our balance sheet will remain static over the simulation horizon, the results do not reflect adjustments in strategy that ALCO could implement in response to rate shifts. The simulation analyses are updated ~~quarterly based on data obtained one month prior to quarter end. The Company believes the one month lag has no material impact to the sensitivities presented.~~

quarterly.

We use a net interest income at risk simulation to measure the sensitivity of net interest income to changes in market rates. This simulation captures underlying product behaviors, such as asset and liability repricing dates, balloon dates, interest rate indices and spreads, rate caps and floors, as well as other behavioral attributes. The simulation of net interest income also requires a number of key assumptions such as: (i) prepayment projections for loans and securities that are projected under each interest rate scenario using internal and external mortgage analytics; (ii) new business loan rates that are based on recent new business origination experience; and (iii) deposit pricing assumptions ~~that are based on Office of the Comptroller of the Currency, or OCC, guidelines~~ for non-maturity deposits reflecting the Bank’s limited history, management judgment and core deposit studies. Combined, these assumptions can be inherently uncertain, and as a result, actual results may differ from simulation forecasts due to the timing, magnitude and frequency of interest rate changes, future business conditions, as well as unanticipated changes in management strategies.

We use two sets of standard scenarios to measure net interest income at risk. For the ~~“core” scenario,~~Parallel Ramp Scenarios, rate changes are ramped over a twelve-month horizon based upon a parallel yield curve shift and then maintained at those levels over the remainder of the simulation horizon. Parallel ~~shock scenarios~~Shock Scenarios assume instantaneous parallel movements in the yield curve compared to a flat yield curve scenario. Simulation analysis involves projecting a future balance sheet structure and interest income and expense under the various rate scenarios. Internal policy regarding internal rate risk simulations currently specifies that for instantaneous parallel shifts of the yield curve, estimated net interest income at risk for the subsequent one-year period should not decline by more than: 6% for a 100 basis point shift; 12% for a 200 basis point shift; and 18% for a 300 basis point shift.

Per Company policy, the Bank should not be outside these limits for twelve consecutive months unless the Bank's forecasted capital ratios are considered to be "well capitalized". As of June 30, 2022, the Bank met all minimum regulatory capital requirements to be considered "well capitalized" (reference footnote 7 to the consolidated financial statements for more detail).

The following tables set forth the estimated percentage change in our net interest income at risk over one-year simulation periods beginning ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016:~~

Parallel Ramp Estimated Percent Change
in Net Interest Income
September 30, December 31,
Rate Changes (basis points) 2017 2016
-100 (2.05 )% (1.60 )%
+200 (3.44 ) (2.23 )

2021:


Parallel Ramp	Estimated Percent Change in Net Interest Income

Rate Changes (basis points)	June 30, 2022		December 31, 2021
-100	(1.80)	%	(0.80)	%
+200	(4.00)		(2.20)

Parallel Shock Estimated Percent Change
in Net Interest Income
September 30, December 31,
Rate Changes (basis points) 2017 2016
-100 (4.74 )% (3.36 )%
+100 (2.49 ) (1.86 )
+200 (5.53 ) (4.13 )
+300 (8.83 ) (6.78 )


Parallel Shock	Estimated Percent Change in Net Interest Income

Rate Changes (basis points)	June 30, 2022		December 31, 2021
-100	(4.20)	%	(1.70)	%
+100	(2.70)		(1.00)
+200	(5.70)		(1.90)
+300	(8.50)		(2.40)

The net interest income at risk simulation results indicate that, as of ~~September~~June 30, ~~2017,~~2022, we remain liability sensitive. The liability sensitivity is due to the fact that there are more liabilities than assets subject to repricing as market rates change.

We conduct an economic value of equity at risk simulation in tandem with net interest income simulations, to ascertain a longer term view of our interest rate risk position by capturing longer-term ~~re-pricing~~repricing risk and options risk embedded in the balance sheet. It measures the sensitivity of economic value of equity to changes in interest rates. ~~Economic~~The economic value of equity at risk simulation values only the current balance sheet and does not incorporate the growth assumptions used in one of the income simulations. As with the net interest income simulation, this simulation captures product characteristics such as loan resets, repricing terms, maturity dates, rate caps and floors. Key assumptions include loan prepayment speeds, deposit pricing elasticity and non-maturity deposit attrition rates. These assumptions can have significant impacts on valuation results as the assumptions remain in effect for the entire life of each asset and liability. All key assumptions are subject to a periodic review.

Base case economic value of equity at risk is calculated by estimating the net present value of all future cash flows from existing assets and liabilities using current interest rates. The base case scenario assumes that future interest rates remain unchanged.

The following table sets forth the estimated percentage change in our economic value of equity at risk, assuming various shifts in interest rates:

Estimated Percent Change
in Economic Value of Equity
September 30, December 31,
Rate Changes (basis points) 2017 2016
-100 (2.80 )% 0.00 %
+100 (9.60 ) (9.90 )
+200 (21.90 ) (21.70 )
+300 (31.70 ) (31.30 )


	Estimated Percent Change in Economic Value of Equity ("EVE")
Rate Changes (basis points)	June 30, 2022		December 31, 2021
-100	(7.70)	%	(21.40)	%
+100	(1.90)		3.10
+200	(5.10)		3.60
+300	(8.20)		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 rate risk or future net interest margin. Over time, the repricing, maturity and prepayment characteristics of financial instruments and the composition of our balance sheet may change to a different degree than estimated. ~~Due to the low current level of market interest rates, the banking industry has experienced relatively strong growth in low-cost FDIC insured core savings deposits over the past several years.~~ ALCO recognizes that ~~a portion of these increased levels of low-cost~~deposit balances could shift into higher yielding alternatives ~~in the future, particularly if interest~~as market rates ~~rise and as confidence in financial markets strengthens, and~~change. ALCO has modeled increased ~~amounts~~costs of ~~deposit shifts out of these low-cost categories into higher-cost alternatives~~deposits in the rising rate simulation scenarios presented above.

It should be noted that the static balance sheet assumption does not necessarily reflect our expectation for future balance sheet growth, which is a function of the business environment and customer behavior. Another significant simulation assumption is the sensitivity of core ~~savings~~ deposits to fluctuations in interest rates. Income simulation results assume that changes in both core savings deposit rates and balances are related to changes in short-term interest rates. Lastly, mortgage-backed securities and mortgage loans involve a level of risk that unforeseen changes in prepayment speeds may cause related cash flows to vary significantly in differing rate environments. Such changes could affect the level of reinvestment risk associated with cash flow from these instruments, as well as their market value. Changes in prepayment speeds could also increase or decrease the amortization of premium or accretion of discounts related to such instruments, thereby affecting interest income.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk Management

Interest rate risk management is our primary market risk. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Asset/Liability Management and Interest Rate ~~Sensitivity Analysis”~~Risk” herein for a discussion of our management of our interest rate risk.

Impact of Inflation

Our financial statements and related data contained in this quarterly report have been prepared in accordance with GAAP, which requires the measure of financial position and operating results in terms of historic dollars, without considering changes in the relative purchasing power of money over time due to inflation.

Inflation ~~Risk Management~~

~~Inflation has an important impact~~generally increases the costs of funds and operating overhead, and to the extent loans and other assets bear variable rates, the yields on such assets. Unlike the assets and liabilities of most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant effect on the ~~growth~~performance of ~~total assets in the banking industry and causes~~ a ~~need to increase equity capital higher~~financial institution than ~~normal levels in order to maintain an appropriate equity-to-assets ratio. We cope with~~ the effects of general levels of inflation. In addition, inflation ~~by managing our~~affects a financial institution’s cost of goods and services purchased, the cost of salaries and benefits, occupancy expense and similar items. Inflation and related increases in interest ~~rate sensitivity position through our asset/liability management program,~~rates generally decrease the market value of investments and ~~by periodically adjusting our pricing of services~~loans held and ~~banking products to take into consideration current costs.~~

may adversely affect liquidity, earnings and shareholders’ equity.

Item 4. Controls and Procedures

~~(a)~~

~~Evaluation of disclosure controls and procedures:~~

(a) Evaluation of disclosure controls and procedures:

The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period reported on in this report, the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiary) required to be included in the Company’s periodic SEC filings.

~~(b)~~

~~Change in internal controls:~~

(b) Change in internal controls:

There has been no change in the Company’s internal ~~controls~~control over financial reporting during the quarter ended June 30, 2022 that has materially affected, or is reasonably likely to affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

The Company and the Bank are periodically involved in various legal proceedings as normal incident to their businesses. In the opinion of management, no material loss is expected from any such pending lawsuit.

Item 1A. Risk Factors

There have been no material changes in risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2021, filed with the SEC.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~None.~~

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 June 30, 2022 under the Company’s share repurchase program.


	Issuer Purchases of Equity Securities
Period	(a) Total Number of Shares (or Units) Purchased	(b) Average Price Paid per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs(1)
April 1, 2022 - April 30, 2022	—	$	—	—	203,734
May 1, 2022 - May 31, 2022	—	—		—	203,734
June 1, 2022 - June 30, 2022	—	—		—	203,734
Total	—	$	—	—	203,734

(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 Company may repurchase shares in open market transactions or by other means, such as privately negotiated transactions. The timing, price and volume of repurchases will be based on market conditions, relevant securities laws and other factors. 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 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits

The following exhibits are filed herewith:

~~31.1~~
10.1	2022 Bankwell Financial Group, Inc. Stock Plan

10.2	First Amendment to Agreement dated as of July 30, 2022, amending Agreement dated as of February 5, 2020 by and among Bankwell Financial Group, Inc. and Lawrence B. Seidman

31.1	Certification of Christopher R. Gruseke pursuant to Rule 13a-14(a)

31.2		Certification of Penko Ivanov pursuant to Rule 13a-14(a)

32		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101		The following materials from Bankwell Financial Group, Inc.’s Quarterly Report on Form 10-Q for the period ended ~~September~~June 30, ~~2017,~~2022, formatted in Inline eXtensible Business Reporting Language (XBRL): (i) Consolidated ~~Statements of Financial Condition;~~Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Comprehensive ~~Income;~~Income (Loss); (iv) Consolidated Statements of Shareholders’ Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements.

			67
104			Cover Page Interactive Data File (formatting in Inline XBRL and contained in Exhibit 101)

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

~~Connecticut~~	~~20-8251355~~
Connecticut		20-8251355
(State or other jurisdiction of		(I.R.S. Employer
Incorporation or organization)		Identification No.)


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, no par value per share	BWFG	NASDAQ Global Market

	September 30,		December 31,
	2017		2016

ASSETS
Cash and due from banks	$	85,329	$	96,026
Federal funds sold		11,117		329
Cash and cash equivalents		96,446		96,355

Available for sale investment securities, at fair value		86,272		87,751
Held to maturity investment securities, at amortized cost		23,573		16,859
Loans held for sale		785		254
Loans receivable (net of allowance for loan losses of $19,564 at
September 30, 2017 and $17,982 at December 31, 2016)		1,500,574		1,343,895
Foreclosed real estate		222		272
Accrued interest receivable		5,344		4,958
Federal Home Loan Bank stock, at cost		9,351		7,943
Premises and equipment, net		17,509		17,835
Bank-owned life insurance		39,329		33,448
Goodwill		2,589		2,589
Other intangible assets		407		501
Deferred income taxes, net		8,834		9,085
Other assets		13,703		7,174
Total assets	$	1,804,938	$	1,628,919

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest bearing deposits	$	162,790	$	187,593
Interest bearing deposits		1,247,001		1,101,444
Total deposits		1,409,791		1,289,037

Advances from the Federal Home Loan Bank		195,000		160,000
Subordinated debentures		25,090		25,051
Accrued expenses and other liabilities		16,740		8,936
Total liabilities		1,646,621		1,483,024

Commitments and Contingencies

Shareholders' equity
Common stock, no par value; 10,000,000 shares authorized, 7,705,975 and 7,620,663 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively		117,289		115,353
Retained earnings		39,777		29,652
Accumulated other comprehensive income		1,251		890
Total shareholders' equity		158,317		145,895

Total liabilities and shareholders' equity	$	1,804,938	$	1,628,919

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016

Interest and dividend income
Interest and fees on loans	$	17,175	$	14,914	$	49,348	$	42,167
Interest and dividends on securities		934		688		2,623		2,083
Interest on cash and cash equivalents		239		31		501		98
Total interest income		18,348		15,633		52,472		44,348

Interest expense
Interest expense on deposits		3,416		2,160		9,092		5,862
Interest on borrowings		1,071		946		2,930		2,682
Total interest expense		4,487		3,106		12,022		8,544

Net interest income		13,861		12,527		40,450		35,804

Provision for loan losses		398		1,219		1,836		3,166

Net interest income after provision for loan losses		13,463		11,308		38,614		32,638

Noninterest income
Bank owned life insurance		295		174		881		522
Service charges and fees		254		241		755		721
Gains and fees from sales of loans		36		163		559		387
Gain on sale of foreclosed real estate, net		-		-		-		128
Net gain on sale of available for sale securities		-		-		165		92
Other		239		172		728		425
Total noninterest income		824		750		3,088		2,275

Noninterest expense
Salaries and employee benefits		3,952		3,839		11,681		11,324
Occupancy and equipment		1,449		1,435		4,580		4,235
Professional services		680		521		1,615		1,257
Data processing		621		417		1,467		1,201
Marketing		295		242		872		644
FDIC insurance		265		177		891		514
Director fees		207		198		683		636
Amortization of intangibles		31		39		93		119
Foreclosed real estate		3		47		70		149
Other		626		566		1,992		1,697
Total noninterest expense		8,129		7,481		23,944		21,776

Income before income tax expense		6,158		4,577		17,758		13,137
Income tax expense		1,895		1,437		6,024		4,110
Net income	$	4,263	$	3,140	$	11,734	$	9,027

Earnings Per Common Share:
Basic	$	0.55	$	0.42	$	1.53	$	1.20
Diluted		0.55		0.41		1.51		1.19

Weighted Average Common Shares Outstanding:
Basic		7,587,471		7,397,067		7,554,739		7,388,364
Diluted		7,670,258		7,488,752		7,652,355		7,459,283
Dividends per common share	$	0.07	$	0.05	$	0.21	$	0.15

	Common Stock								Accumulated Other
	Shares Outstanding			Amount		Retained Earnings			Comprehensive Income (Loss)		Total
Balance at December 31, 2016		7,620,663		$	115,353	$	29,652		$	890	$	145,895
Net income		-			-		11,734			-		11,734
Other comprehensive income, net of tax		-			-		-			361		361
Cash dividends declared ($0.21 per share)		-			-		(1,609	)		-		(1,609	)
Stock-based compensation expense		-			671		-			-		671
Forfeitures of restricted stock		(15,549	)		-		-			-		-
Issuance of restricted stock		30,250			-		-			-		-
Warrants exercised		30,800			550		-			-		550
Stock options exercised		39,811			715		-			-		715
Balance at September 30, 2017		7,705,975		$	117,289	$	39,777		$	1,251	$	158,317

	September 30, 2017
	Amortized		Gross Unrealized					Fair
	Cost		Gains		Losses			Value
	(In thousands)
Available for sale securities:
U.S. Government and agency obligations
Due from one through five years	$	12,994	$	72	$	(20	)	$	13,046
Due after ten years		51,333		379		(24	)		51,688
		64,327		451		(44	)		64,734

State agency and municipal obligations
Due from one through five years		2,866		113		-			2,979
Due from five through ten years		7,380		300		-			7,680
Due after ten years		1,646		41		(30	)		1,657
		11,892		454		(30	)		12,316

Corporate bonds
Due in less than one year		2,004		12		-			2,016
Due from one through five years		7,104		102		-			7,206
		9,108		114		-			9,222
Total available for sale securities	$	85,327	$	1,019	$	(74	)	$	86,272

Held to maturity securities:

State agency and municipal obligations
Due in less than one year	$	2,135	$	-	$	-		$	2,135
Due from one through five years		3,876		-		-			3,876
Due after ten years		16,440		-		-			16,440
		22,451		-		-			22,451

Corporate bonds
Due from one through five years		1,000		-		(13	)		987

Government-sponsored mortgage backed securities
No contractual maturity		122		12		-			134
Total held to maturity securities	$	23,573	$	12	$	(13	)	$	23,572

	December 31, 2016
	Amortized		Gross Unrealized					Fair
	Cost		Gains		Losses			Value
	(In thousands)
Available for sale securities:
U.S. Government and agency obligations
Due from one through five years	$	62,357	$	295	$	(49	)	$	62,603
Due after ten years		100		-		(5	)		95
		62,457		295		(54	)		62,698

State agency and municipal obligations
Due from one through five years		827		24		(3	)		848
Due from five through ten years		8,045		189		(1	)		8,233
Due after ten years		5,623		178		(119	)		5,682
		14,495		391		(123	)		14,763

Corporate bonds
Due in less than one year		2,022		56		-			2,078
Due from one through five years		8,145		67		-			8,212
		10,167		123		-			10,290
Total available for sale securities	$	87,119	$	809	$	(177	)	$	87,751

Held to maturity securities:
State agency and municipal obligations
Due from one through five years	$	2,135	$	-	$	-		$	2,135
Due after ten years		13,575		-		-			13,575
		15,710		-		-			15,710

Corporate bonds
Due from one through five years		1,000		-		(23	)		977

Government-sponsored mortgage backed securities
No contractual maturity		149		15		-			164
Total held to maturity securities	$	16,859	$	15	$	(23	)	$	16,851

	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2017			2016			2017			2016
Balance at beginning of period	$	607		$	733		$	666		$	871
Accretion		(27	)		(36	)		(86	)		(123	)
Other (a)		-			-			-			(51	)
Balance at end of period	$	580		$	697		$	580		$	697

	Residential Real Estate			Commercial Real Estate		Construction			Home Equity			Commercial Business			Consumer			Total
	(In thousands)
Three Months Ended September 30, 2017
Originated
Beginning balance	$	1,465		$	9,687	$	2,268		$	168		$	5,474		$	347		$	19,409
Charge-offs		-			-		-			-			(366	)		(10	)		(376	)
Recoveries		-			-		-			-			4			2			6
Provisions		(14	)		15		(75	)		(6	)		469			9			398
Ending balance	$	1,451		$	9,702	$	2,193		$	162		$	5,581		$	348		$	19,437

Acquired
Beginning balance	$	-		$	8	$	-		$	-		$	90		$	29		$	127
Charge-offs		-			-		-			-			-			-			-
Recoveries		-			-		-			-			-			-			-
Provisions		-			-		-			-			25			(25	)		-
Ending balance	$	-		$	8	$	-		$	-		$	115		$	4		$	127

Total
Beginning balance	$	1,465		$	9,695	$	2,268		$	168		$	5,564		$	376		$	19,536
Charge-offs		-			-		-			-			(366	)		(10	)		(376	)
Recoveries		-			-		-			-			4			2			6
Provisions		(14	)		15		(75	)		(6	)		494			(16	)		398
Ending balance	$	1,451		$	9,710	$	2,193		$	162		$	5,696		$	352		$	19,564

	Originated Loans				Acquired Loans				Total
	Portfolio		Allowance		Portfolio		Allowance		Portfolio		Allowance
	(In thousands)
September 30, 2017
Loans individually evaluated for impairment:
Residential real estate	$	2,005	$	-	$	-	$	-	$	2,005	$	-
Commercial real estate		6,561		-		1,150		8		7,711		8
Home equity		245		-		448		-		693		-
Commercial business		3,391		4		743		115		4,134		119
Consumer		341		341		4		4		345		345
Subtotal		12,543		345		2,345		127		14,888		472
Loans collectively evaluated for impairment:
Residential real estate		174,594		1,451		2,349		-		176,943		1,451
Commercial real estate		898,500		9,702		36,687		-		935,187		9,702
Construction		114,464		2,193		107		-		114,571		2,193
Home equity		8,183		162		5,024		-		13,207		162
Commercial business		253,128		5,577		15,243		-		268,371		5,577
Consumer		212		7		167		-		379		7
Subtotal		1,449,081		19,092		59,577		-		1,508,658		19,092

Total	$	1,461,624	$	19,437	$	61,922	$	127	$	1,523,546	$	19,564

	Commercial Credit Quality Indicators
	At September 30, 2017								At December 31, 2016
	Commercial Real Estate		Construction		Commercial Business		Total		Commercial Real Estate		Construction		Commercial Business		Total
	(In thousands)
Originated loans:
Pass	$	887,857	$	114,464	$	252,422	$	1,254,743	$	797,249	$	107,329	$	196,436	$	1,101,014
Special mention		16,213		-		2,533		18,746		4,605		-		115		4,720
Substandard		991		-		1,564		2,555		302		-		1,905		2,207
Doubtful		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-
Total originated loans		905,061		114,464		256,519		1,276,044		802,156		107,329		198,456		1,107,941
Acquired loans:
Pass		36,577		107		15,242		51,926		41,582		112		16,836		58,530
Special mention		110		-		293		403		1,584		-		86		1,670
Substandard		1,150		-		395		1,545		-		-		536		536
Doubtful		-		-		56		56		-		-		-		-
Loss		-		-		-		-		-		-		-		-
Total acquired loans		37,837		107		15,986		53,930		43,166		112		17,458		60,736
Total loans:
Pass		924,434		114,571		267,664		1,306,669		838,831		107,441		213,272		1,159,544
Special mention		16,323		-		2,826		19,149		6,189		-		201		6,390
Substandard		2,141		-		1,959		4,100		302		-		2,441		2,743
Doubtful		-		-		56		56		-		-		-		-
Loss		-		-		-		-		-		-		-		-
Total loans	$	942,898	$	114,571	$	272,505	$	1,329,974	$	845,322	$	107,441	$	215,914	$	1,168,677

	As of September 30, 2017
	31-60 Days Past Due		61-90 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans
	(In thousands)
Originated Loans
Real estate loans:
Residential real estate	$	502	$	-	$	969	$	1,471	$	175,128	$	176,599
Commercial real estate		-		5,570		-		5,570		899,491		905,061
Construction		-		-		-		-		114,464		114,464
Home equity		381		-		-		381		8,047		8,428
Commercial business		25		69		-		94		256,425		256,519
Consumer		-		-		-		-		553		553
Total originated loans		908		5,639		969		7,516		1,454,108		1,461,624
Acquired Loans
Real estate loans:
Residential real estate		157		-		-		157		2,192		2,349
Commercial real estate		90		-		634		724		37,113		37,837
Construction		-		-		-		-		107		107
Home equity		124		-		355		479		4,993		5,472
Commercial business		293		106		179		578		15,408		15,986
Consumer		2		-		4		6		165		171
Total acquired loans		666		106		1,172		1,944		59,978		61,922
Total loans	$	1,574	$	5,745	$	2,141	$	9,460	$	1,514,086	$	1,523,546

	As of December 31, 2016
	31-60 Days Past Due		61-90 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans
	(In thousands)
Originated Loans
Real estate loans:
Residential real estate	$	-	$	-	$	969	$	969	$	177,580	$	178,549
Commercial real estate		147		1,848		302		2,297		799,859		802,156
Construction		-		-		-		-		107,329		107,329
Home equity		-		173		-		173		8,376		8,549
Commercial business		-		-		378		378		198,078		198,456
Consumer		-		-		-		-		672		672
Total originated loans		147		2,021		1,649		3,817		1,291,894		1,295,711
Acquired Loans
Real estate loans:
Residential real estate		-		-		-		-		2,761		2,761
Commercial real estate		866		722		143		1,731		41,435		43,166
Construction		-		-		-		-		112		112
Home equity		-		-		453		453		5,417		5,870
Commercial business		99		249		-		348		17,110		17,458
Consumer		6		-		-		6		855		861
Total acquired loans		971		971		596		2,538		67,690		70,228
Total loans	$	1,118	$	2,992	$	2,245	$	6,355	$	1,359,584	$	1,365,939

	Average Recorded Investment				Interest Income Recognized
	For the Three Months Ended				For the Three Months Ended
	September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016
	(In thousands)
Originated
Impaired loans without a valuation allowance:
Residential real estate	$	2,006	$	969	$	-	$	-
Commercial real estate		6,566		3,211		92		52
Home equity		246		264		-		1
Commercial business		3,465		207		17		6
Total impaired loans without a valuation allowance		12,283		4,651		109		59

Impaired loans with a valuation allowance:
Commercial real estate		-		487		-		6
Commercial business		328		407		5		6
Consumer		341		343		-		-
Total impaired loans with a valuation allowance		669		1,237		5		12
Total originated impaired loans	$	12,952	$	5,888	$	114	$	71

Acquired
Impaired loans without a valuation allowance:
Commercial real estate	$	1,013	$	425	$	-	$	-
Home equity		449		455		-		-
Commercial business		265		878		3		10
Total impaired loans without a valuation allowance		1,727		1,758		3		10

Impaired loans with a valuation allowance:
Commercial real estate		144		144		-		-
Home equity		-		-		-		-
Commercial business		495		353		6		4
Consumer		4		3		-		-
Total impaired loans with a valuation allowance		643		500		6		4
Total acquired impaired loans	$	2,370	$	2,258	$	9	$	14

Total	$	15,322	$	8,146	$	123	$	85

	Average Recorded Investment				Interest Income Recognized
	For the Nine Months Ended				For the Nine Months Ended
	September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016
	(In thousands)
Originated
Impaired loans without a valuation allowance:
Residential real estate	$	2,007	$	969	$	-	$	-
Commercial real estate		6,627		3,217		105		77
Home equity		252		270		-		2
Commercial business		3,808		216		25		10
Total impaired loans without a valuation allowance		12,694		4,672		130		89

Impaired loans with a valuation allowance:
Commercial real estate		-		496		-		18
Commercial business		361		431		14		17
Consumer		341		343		-		-
Total impaired loans with a valuation allowance		702		1,270		14		35
Total originated impaired loans	$	13,396	$	5,942	$	144	$	124

Acquired
Impaired loans without a valuation allowance:
Commercial real estate	$	1,048	$	442	$	10	$	-
Home equity		453		457		-		3
Commercial business		304		914		8		32
Total impaired loans without a valuation allowance		1,805		1,813		18		35

Impaired loans with a valuation allowance:
Commercial real estate		144		144		-		-
Commercial business		671		361		7		16
Consumer		4		3		-		1
Total impaired loans with a valuation allowance		819		508		7		17
Total acquired impaired loans	$	2,624	$	2,321	$	25	$	52

Total	$	16,020	$	8,263	$	169	$	176

					Outstanding Recorded Investment
	Number of Loans				Pre-Modification				Post-Modification
(Dollars in thousands)	2017		2016		2017		2016		2017		2016
Three Months Ended September 30,
Residential real estate		1		-	$	1,925	$	-	$	1,925	$	-
Commercial business		1		1		60		65		60		65
Total		2		1	$	1,985	$	65	$	1,985	$	65

	Net Unrealized Gain		Net Unrealized Gain
	(Loss) on Available		(Loss) on Interest
	for Sale Securities		Rate Swap		Total
	(In thousands)
Balance at June 30, 2017	$	596	$	426	$	1,022
Other comprehensive income before reclassifications, net of tax		16		213		229
Amounts reclassified from accumulated other comprehensive income		-		-		-
Net other comprehensive (loss) income		16		213		229
Balance at September 30, 2017	$	612	$	639	$	1,251

											To be Well
											Capitalized Under
						For Capital					Prompt Corrective
	Actual Capital					Adequacy Purposes					Action Provisions
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
Bankwell Bank
September 30, 2017
Common Equity Tier 1 Capital to Risk-Weighted Assets	$	171,908		10.94	%	$	70,691		4.50	%	$	102,109		6.50	%
Total Capital to Risk-Weighted Assets		191,472		12.19	%		125,673		8.00	%		157,091		10.00	%
Tier I Capital to Risk-Weighted Assets		171,908		10.94	%		94,255		6.00	%		125,673		8.00	%
Tier I Capital to Average Assets		171,908		9.78	%		70,338		4.00	%		87,923		5.00	%

Bankwell Financial Group, Inc.
September 30, 2017
Common Equity Tier 1 Capital to Risk-Weighted Assets	$	153,475		9.74	%	$	70,892		4.50	%		N/A		N/A
Total Capital to Risk-Weighted Assets		198,129		12.58	%		126,030		8.00	%		N/A		N/A
Tier I Capital to Risk-Weighted Assets		153,475		9.74	%		94,522		6.00	%		N/A		N/A
Tier I Capital to Average Assets		153,475		8.69	%		70,630		4.00	%		N/A		N/A

	Nine Months Ended September 30, 2017
				Weighted
	Number			Average
	of			Exercise
	Shares			Price

Options outstanding at beginning of period		120,988		$	18.58
Exercised		(39,811	)		17.96
Forfeited		(200	)		15.00
Options outstanding at end of period		80,977			18.89

Options exercisable at end of period		80,977			18.89

(Dollars in thousands)	Notional Amount		Original Maturity	Received	Paid			Fair Value Asset (Liability)

Cash flow hedge:
Interest rate swap on FHLB advance	$	25,000	4.7 years	3-month USD LIBOR		1.62	%	$	(8	)
Interest rate swap on FHLB advance		25,000	5.0 years	3-month USD LIBOR		1.83	%		(51	)
Interest rate swap on FHLB advance		25,000	5.0 years	3-month USD LIBOR		1.48	%		238
Interest rate swap on FHLB advance		25,000	5.0 years	3-month USD LIBOR		1.22	%		607
Interest rate swap on FHLB advance		25,000	7.0 years	3-month USD LIBOR		2.04	%		101
Interest rate swap on FHLB advance		25,000	7.0 years	3-month USD LIBOR		2.04	%		93
	$	150,000						$	980

(Dollars in thousands)	Notional Amount		Original Effective Date of Hedged Borrowing	Duration of Borrowing	Counterparty
Type of borrowing:
FHLB 90-day advance	$	25,000	April 1, 2014	4.7 years	Bank of Montreal
FHLB 90-day advance	$	25,000	January 2, 2015	5.0 years	Bank of Montreal
FHLB 90-day advance	$	25,000	August 26, 2015	5.0 years	Bank of Montreal
FHLB 90-day advance	$	25,000	July 1, 2016	5.0 years	Bank of Montreal
FHLB 90-day advance	$	25,000	August 25, 2017	7.0 years	Bank of Montreal
FHLB 90-day advance	$	25,000	August 25, 2017	7.0 years	FTN Financial Capital Markets

	September 30, 2017
	Carrying		Fair
	Value		Value		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash and due from banks	$	85,329	$	85,329	$	85,329	$	-	$	-
Federal funds sold		11,117		11,117		11,117		-		-
Available for sale securities		86,272		86,272		-		86,272		-
Held to maturity securities		23,573		23,572		-		23,572		-
Loans held for sale		785		785		-		785		-
Loans receivable, net		1,500,574		1,493,385		-		-		1,493,385
Accrued interest receivable		5,344		5,344		-		5,344		-
FHLB stock		9,351		9,351		-		9,351		-
Servicing asset		599		599		-		-		599
Derivative asset		1,039		1,039		-		1,039		-

Financial Liabilities:
Demand deposits	$	162,790	$	162,790	$	-	$	162,790	$	-
NOW and money market		512,471		512,471		-		512,471		-
Savings		87,469		87,469		-		87,469		-
Time deposits		647,061		679,525		-		-		679,525
Accrued interest payable		1,061		1,061		-		1,061		-
Advances from the FHLB		195,000		195,149		-		-		195,149
Subordinated debentures		25,090		25,720		-		-		25,720
Servicing liability		388		388		-		-		388
Derivative liability		59		59		-		59		-

(Dollars in thousands)	Fair Value		Valuation Methodology	Unobservable Input	Range
September 30, 2017:

Impaired loans	$	8,076	Appraisals	Discount to appraised value	8.00 - 18.40%
		6,812	Discounted cash flows	Discount rate	3.00 - 6.25%
	$	14,888

Foreclosed real estate	$	222	Appraisals	Discount to appraised value	68%

December 31, 2016:

Impaired loans	$	2,127	Appraisals	Discount to appraised value	8.00 - 28.00%
		2,722	Discounted cash flows	Discount rate	4.25 - 6.25%
	$	4,849

Foreclosed real estate	$	272	Appraisals	Discount to appraised value	20%


	Fair Value		Valuation Methodology	Unobservable Input	Range
	(Dollars in thousands)
June 30, 2022:
Impaired loans	$	15,801	Appraisals	Discount to appraised value	8.00%
	24,811		Discounted cash flows	Discount rate	3.00 - 6.50%
	$	40,612



Servicing asset, net	$	957	Discounted cash flows	Discount rate	10.00%(1)
				Prepayment rate	3.00 - 17.00%

December 31, 2021:
Impaired loans	$	18,548	Appraisals	Discount to appraised value	8.00%
	25,765		Discounted cash flows	Discount rate	3.00 - 6.75%
	$	44,313

Servicing asset, net	$	804	Discounted cash flows	Discount rate	10.00%(2)
				Prepayment rate	3.00 - 17.00%

Assets held for sale	$	2,268	Sale & income approach	Adjustment to valuation and cost to sell	N/A

	Three Months Ended									Nine Months Ended
	September 30, 2017 vs 2016									September 30, 2017 vs 2016
	Increase (Decrease)									Increase (Decrease)
(In thousands)	Volume			Rate			Total			Volume			Rate			Total
Interest and dividend income:
Cash and Fed funds sold	$	109		$	101		$	210		$	245		$	163		$	408
Securities		113			139			252			106			395			501
Loans:
Commercial real estate		1,590			(301	)		1,289			4,773			(692	)		4,081
Residential real estate		11			(14	)		(3	)		44			(16	)		28
Construction		(9	)		84			75			372			183			555
Commercial business		940			(48	)		892			2,758			(233	)		2,525
Home equity		(6	)		22			16			(34	)		56			22
Consumer		(4	)		(6	)		(10	)		(11	)		(20	)		(31	)
Total loans		2,522			(263	)		2,259			7,902			(722	)		7,180
Federal Home Loan Bank stock		11			9			20			29			31			60
Total change in interest and dividend income		2,755			(14	)		2,741			8,282			(133	)		8,149
Interest expense:
Deposits:
NOW		2			1			3			3			(25	)		(22	)
Money market		180			328			508			324			674			998
Savings		51			74			125			147			229			376
Time		335			283			618			1,166			711			1,877
Total deposits		568			686			1,254			1,640			1,589			3,229
Borrowed money		125			-			125			460			(212	)		248
Total change in interest expense		693			686			1,379			2,100			1,377			3,477
Change in net interest income	$	2,062		$	(700	)	$	1,362		$	6,182		$	(1,510	)	$	4,672


	Three Months Ended June 30, 2022 vs 2021 Increase (Decrease)						Six Months Ended June 30, 2022 vs 2021 Increase (Decrease)
(In thousands)	Volume		Rate		Total		Volume		Rate		Total
Interest and dividend income:
Cash and Fed funds sold	$	(30)	$	389	$	359	$	(46)	$	451	$	405
Securities	107		(59)		48		188		(174)		14
Loans:
Commercial real estate	3,349		251		3,600		5,731		188		5,919
Residential real estate	(334)		(71)		(405)		(683)		(89)		(772)
Construction	(44)		946		902		33		1,022		1,055
Commercial business	1,257		564		1,821		2,299		892		3,191
Consumer	(32)		(11)		(43)		(29)		39		10
Total loans	4,196		1,679		5,875		7,351		2,052		9,403
Federal Home Loan Bank stock	(5)		(5)		(10)		(23)		(4)		(27)
Total change in interest and dividend income	4,268		2,004		6,272		7,470		2,325		9,795
Interest expense:
Deposits:
NOW	8		(3)		5		12		(3)		9
Money market	183		22		205		467		(32)		435
Savings	15		(4)		11		38		(51)		(13)
Time	(236)		(746)		(982)		(664)		(1,436)		(2,100)
Total deposits	(30)		(731)		(761)		(147)		(1,522)		(1,669)
Borrowed money	(116)		(95)		(211)		(571)		(62)		(633)
Total change in interest expense	(146)		(826)		(972)		(718)		(1,584)		(2,302)
Change in net interest income	$	4,414	$	2,830	$	7,244	$	8,188	$	3,909	$	12,097

	At September 30,					At December 31,
	2017					2016
(Dollars in thousands)	Amount		Percent of Loan Portfolio			Amount		Percent of Loan Portfolio
Residential real estate	$	1,451		11.74	%	$	1,646		13.27	%
Commercial real estate		9,710		61.89			9,415		61.89
Construction		2,193		7.52			2,105		7.87
Home equity		162		0.91			156		1.05
Commercial business		5,696		17.89			4,283		15.81
Consumer		352		0.05			377		0.11
Total allowance for loan losses	$	19,564		100.00	%	$	17,982		100.00	%

Parallel Ramp	Estimated Percent Change
	in Net Interest Income
	September 30,			December 31,
Rate Changes (basis points)	2017			2016
-100		(2.05	)%		(1.60	)%
+200		(3.44	)		(2.23	)

	Estimated Percent Change
	in Economic Value of Equity
	September 30,			December 31,
Rate Changes (basis points)	2017			2016
-100		(2.80	)%		0.00	%
+100		(9.60	)		(9.90	)
+200		(21.90	)		(21.70	)
+300		(31.70	)		(31.30	)

Bankwell Financial Group, Inc.

Date: August 8, 2022

~~Date: November 9, 2017~~

/s/ Christopher R. Gruseke

Christopher R. Gruseke

President and Chief Executive Officer