UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2024
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________to________
Commission File Number: 001-36448
Bankwell Financial Group, Inc.
(Exact Name of Registrant as specified in its Charter)
Connecticut
(State or other jurisdiction of
incorporation or organization)
20-8251355
(I.R.S. Employer
Identification No.)
258 Elm Street
New Canaan, Connecticut 06840
(203) 652-0166
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which
Registered
Common Stock, no par value per
share
BWFG
NASDAQ Global Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). ☒ Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
¨
Accelerated filer
☑
Non-accelerated filer
¨
Smaller reporting company
☑
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by
the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the
registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2024 based on the closing price of
the common stock as reported on the NASDAQ Global Market: $163,276,474.
As of February 28, 2025, there were 7,907,311 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive proxy statement for its Annual Meeting of Shareholders, expected to be filed pursuant to
Regulation 14A within 120 days after the end of the 2024 fiscal year, are incorporated by reference into Part III of this report on
form 10-K.
Bankwell Financial Group, Inc.
Form 10-K
Table of Contents
PART I
Item 1.
Business .......................................................................................................................................................
1
Item 1A.
Risk Factors ..................................................................................................................................................
18
Item 1B.
Unresolved Staff Comments ........................................................................................................................
27
Item 1C
Cybersecurity ...............................................................................................................................................
30
Item 2.
Properties .....................................................................................................................................................
29
Item 3.
Legal Proceedings ........................................................................................................................................
29
Item 4.
Mine Safety Disclosures ..............................................................................................................................
29
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities ......................................................................................................................................................
30
Item 6.
[Reserved] ....................................................................................................................................................
30
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations ......................
31
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk .....................................................................
60
Item 8.
Financial Statements and Supplementary Data ............................................................................................
63
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ......................
119
Item 9A.
Controls and Procedures ..............................................................................................................................
120
Item 9B.
Other Information .........................................................................................................................................
121
Item 9C.
Disclosure Regarding Foreign Jurisdictions That Prevent Inspection .........................................................
122
PART III
Item 10.
Directors, Executive Officers and Corporate Governance ...........................................................................
123
Item 11.
Executive Compensation ..............................................................................................................................
123
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ....
123
Item 13.
Certain Relationships and Related Transactions, and Director Independence .............................................
123
Item 14.
Principal Accountant Fees and Services ......................................................................................................
123
PART IV
Item 15.
Exhibits, Financial Statement Schedules .....................................................................................................
124
Item 16.
Form 10-K Summary ...................................................................................................................................
126
Signatures .....................................................................................................................................................
127
BANKWELL FINANCIAL GROUP, INC.
FORM 10-K
PART 1
Item 1.
Business
Cautionary Note Regarding Forward-Looking Statements
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, or the
Securities Act, and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act. These statements are often, but
not always, made with the words or phrases such as “may,” “should,” “believe,” “likely result in,” “expect,” “would,”
“intend,” “could,” “predict,” “potential,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “plan,” “projection,” and
“outlook” or the negative version of those words or other similar words of a forward-looking nature. These forward-looking
statements are not historical facts, and are based on current expectations, estimates and projections about our industry,
management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain
and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future
performance and are subject to risks, assumptions, uncertainties and other factors that could cause the actual results to differ
materially from those contemplated by these forward-looking statements. Important factors that may cause actual results to
differ materially from those contemplated by these forward-looking statements include, but are not limited to, those disclosed
under “Risk Factors” in Part I Item 1A as well as the following factors:
•
Disruptions to economic conditions, the financial and labor markets and workplace operating environments;
•
Local, regional and national business or economic conditions may differ from those expected;
•
Credit risk and resulting losses in our loan portfolio;
•
Our Allowance for Credit Losses-Loans (“ACL-Loans”) may not be adequate to absorb loan losses;
•
Changes in real estate values could also increase our credit risk;
•
Changes in our executive management team;
•
Our ability to successfully execute our strategic initiatives;
•
Volatility and direction of market interest rates;
•
Increased competition within our market which may limit our growth and profitability;
•
Economic, market, operational, liquidity, credit and interest rate risks associated with our business;
•
The effects of and changes in trade, monetary and fiscal policies and laws, including the Federal Reserve Board’s
interest rate policies;
•
Changes in accounting policies and practices, as may be adopted by regulatory agencies, the Public Company
Accounting Oversight Board or the Financial Accounting Standards Board;
•
Changes in law and regulatory requirements (including those concerning taxes, banking, securities and insurance);
and
•
Further government intervention in the U.S. financial system.
The foregoing factors should not be construed as exhaustive. If one or more events related to these or other risks or
uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what
we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking
statement speaks only as of the date on which it is made, and we do not undertake any obligation to publicly update or review
any forward-looking statement, whether as a result of new information, future developments or otherwise. New factors emerge
from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each
factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements.
1
General
Bankwell Financial Group, Inc. (the "Parent Corporation") is a bank holding company, headquartered in New Canaan,
Connecticut and offers a broad range of financial services through its banking subsidiary, Bankwell Bank (the "Bank" and,
collectively with the Parent Corporation and the Parent Corporation's subsidiaries, "we", "our", "us", or the "Company"), a
Connecticut state chartered non-member bank founded in 2002. The Bank provides a wide range of services to clients in our
market, an area encompassing approximately a 100 mile radius around our branch network. In addition, the Bank pursues
certain types of commercial banking opportunities outside our market, particularly where we have strong relationships. The
Bank operates nine branches in New Canaan, Stamford, Fairfield, Westport, Darien, Norwalk, and Hamden, Connecticut. As of
December 31, 2024, on a consolidated basis, we had total assets of approximately $3.3 billion, net loans of approximately $2.7
billion, total deposits of approximately $2.8 billion, and shareholders’ equity of approximately $270.5 million.
We are focused on being the banking provider of choice and to serve as an alternative to our larger competitors. We have a
history of building long-term client relationships and attracting new clients through what we believe is our superior service and
our ability to deliver a diverse product offering. In addition, we believe that our strong capital position and extensive inside
ownership, coupled with a highly respected and experienced executive management team and board of directors, give us
credibility with our clients and potential clients. We believe our focus on building a franchise with meaningful market share and
consistent revenue growth complemented by operational and technological efficiencies will produce attractive risk-adjusted
returns for our shareholders.
Our History and Growth
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”). On November 5, 2013, we
acquired The Wilton Bank, which was merged into Bankwell Bank. On October 1, 2014, we acquired Quinnipiac Bank and
Trust Company, which was merged into Bankwell Bank.
While 2024 presented certain financial challenges, our executive management team remained steadfast in their efforts,
allowing us to maintain a degree of growth and a solid foundation of financial stability. Over the four year period from
December 31, 2020 through December 31, 2024, we grew total assets from $2.3 billion to $3.3 billion, gross loans outstanding
from $1.6 billion to $2.7 billion and deposits from $1.8 billion to $2.8 billion. We attribute this growth to our ongoing
commitment to providing exceptional client service as well as prudent financial management.
Business Strategy
We are focused on being the banking provider of choice in our highly attractive market area through:
•
Client-Focused Growth and Community Engagement. We prioritize building long-term client relationships by
offering customized products and services coupled with responsive, personalized service. This focus on the entire
client experience fosters trust, leading to long-term partnerships and organic growth. Our commitment extends to the
communities we serve, where we actively participate in local organizations through volunteerism and sponsorships.
This engagement strengthens our community presence and facilitates client relationships, reducing the need for
extensive advertising.
•
Investing in Scalable Infrastructure for Future Growth. We strategically invest in our technology, data processing,
risk management, and compliance infrastructure to enhance efficiency, profitability, and scalability. This investment
provides a robust operating platform that supports current performance and enables future growth while ensuring we
continue to deliver high-quality service and maximize stakeholder returns.
•
Disciplined Risk Management Framework. Effective risk management is a key component of our corporate culture.
We employ comprehensive processes to monitor our loan and investment portfolios, inform operational decisions, and
drive the generation of high-quality earning assets. Our disciplined approach includes rigorous underwriting, loan
portfolio diversification, and a conservative investment strategy. Board-approved policies, reviewed annually, define
approval authorities. Furthermore, we address evolving risks, including cybersecurity, regulatory compliance
(including BSA/AML), and third-party risk management, through a dedicated Board Risk Committee and a senior
management Risk Management Committee, as well as internal review procedures focused on anti-money laundering
and consumer compliance requirements.
•
Strategic Acquisitions. To complement our organic growth, we focus on strategic acquisitions in or around our
existing market that further our objectives. We believe there are banking institutions that continue to face credit
challenges, capital constraints and liquidity issues. Some lack the scale and management expertise to manage the
increasing regulatory burden and will likely need to partner with an institution like ours. As we evaluate potential
2
acquisitions, we will seek those that provide meaningful financial benefits, long-term organic growth opportunities and
expense reductions, without compromising our risk profile.
Our Competitive Strengths
We believe that we are especially well-positioned to create value for our shareholders as a result of the following
competitive strengths:
•
Strategic Market Reach. We serve a diverse client base within a 100-mile radius of our branch network, offering a
comprehensive suite of banking services. We also selectively pursue commercial banking opportunities outside this
market, leveraging established business relationships and expanding our reach through technology. This approach
allows us to support our clients’ growth and maintain valuable relationships beyond our geographic footprint.
•
Experienced Leadership. Our executive management team is comprised of seasoned professionals with significant
banking experience, a history of high performance at financial institutions and success in identifying, acquiring and
integrating financial institutions. Our executive management team includes Christopher R. Gruseke, Chief Executive
Officer (since 2015), Matthew McNeill, President (as of January 22, 2025) and Chief Banking Officer (since 2020),
Steven H. Brunner, Executive Vice President, Chief Risk Officer (since 2024), Christine A. Chivily, Executive Vice
President, Chief Credit Officer (since 2013), Ryan J. Hildebrand, Executive Vice President, Chief Innovation Officer
(since 2023), and Courtney E. Sacchetti, Executive Vice President, Chief Financial Officer (since 2023).
•
Dedicated Board of Directors. Our Board of Directors consists of experienced business leaders who understand the
need for banks that focus on serving the financial needs of their clients. Their significant common stock ownership
aligns their interests with those of our shareholders, and their combined expertise and relationships position us to
capitalize on market opportunities.
•
Disciplined Risk Management. We prioritize disciplined risk management, embedding it in our corporate culture. Our
robust processes monitor loan and investment portfolios, inform operational decisions, and support the generation of
high-quality earning assets. We employ comprehensive underwriting, portfolio diversification, and a conservative
investment strategy. Oversight includes Board-approved policies, a Board-level Risk Committee, and a senior
management Risk Management Committee, along with internal reviews for compliance and anti-money laundering.
•
Strong Capital Position. At December 31, 2024, we had a 8.20% tangible common equity ratio, and the Bank had a
10.09% tier 1 leverage ratio, a 11.64% tier 1 risk-based ratio, and an 12.70% total capital to risk-weighted assets ratio.
We believe that our ability to attract and generate capital has facilitated our growth and is an integral component to the
execution of our business plan.
•
Scalable Operating Platform. Our scalable operating platform empowers us to deliver an exceptional banking
experience. We offer a full suite of banking technology, including online account opening through our Bankwell
Direct channel, mobile and internet banking, and remote deposit capture, providing clients with maximum flexibility
and convenience. This robust technology infrastructure also provides a foundation for future growth, ensuring we can
continue to meet evolving client needs.
Human Capital Resources
At December 31, 2024, we employed a total of 144 full-time equivalent employees. It is through our team, and their ties to
the communities, that we are able to dutifully support the communities we serve. Working within, and giving back to, our local
partners is the hallmark of who we are, and we believe that the strength and commitment of our workforce to our communities
is what sets us apart from other banks. We have long been committed to comprehensive and competitive compensation and
benefits programs as we recognize that we operate in an intensely competitive environment for talent.
We invest in our employees’ future by sponsoring and prioritizing continued education throughout the Company’s
employee ranks. All of our employees are able to participate in regular educational seminars run by outside parties, including
but not limited to regulatory agencies and the American Bankers Association. The Bank also participates in the American
Bankers Association, Stonier School of Banking.
In order to develop a workforce that aligns with our corporate values, we regularly sponsor local community events so that
our employees can better integrate themselves in our communities. We believe that our employees’ well-being and professional
development is fostered by our outreach to the communities we serve. Our employees’ desire for active community
involvement enables us to sponsor numerous local community events and initiatives.
The Company is committed to the overall well-being of our team members, offering competitive health and welfare
benefits.
3
Company Website and Availability of Securities and Exchange Commission Filings
Information regarding the Company is available through the Investor Relations site link at https://
investor.mybankwell.com. The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and any amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
are available free of charge at www.sec.gov and at www.mybankwell.com under the Investor Relations link. Information on the
website is not incorporated by reference and is not a part of this annual report on Form 10-K.
Competition
The financial services industry is highly competitive. We compete with commercial banks, savings banks, savings
associations, money market funds, mortgage brokers, finance companies, credit unions, insurance companies, investment firms
and private lenders in various components of our business. Many of these competitors have more assets, capital and higher
lending limits, and more resources than we do, enabling them to conduct more intensive and broader-based promotional efforts
to reach both commercial and individual clients. Competition for deposit products can depend heavily on pricing because of the
ease with which clients can transfer deposits from one institution to another. To further enhance our competitive position, we
launched online account opening, via our Bankwell Direct channel, providing a more convenient and accessible way for clients
to join our Bank.
While many competitors possess greater scale and resources, our strategy focuses on areas where we excel: serving small
to medium-sized businesses and professionals. We leverage deep local market knowledge and established relationships
cultivated by our management and board of directors to build strong client connections. Our personalized service, local
decision-making, and specialized industry expertise differentiate us from larger institutions and resonate strongly within our
target market. We do not seek to compete directly for the primary banking relationships of large corporations, instead
concentrating on providing superior service and tailored solutions to our core client base.
Lending Activities
General. Our primary lending focus is to serve commercial and middle-market businesses and not-for-profit
organizations with a variety of financial products and services, while maintaining strong and disciplined credit policies and
procedures. We offer a wide array of commercial lending products to serve the needs of our clients. Commercial lending
products include owner-occupied commercial real estate loans, commercial real estate investment loans, commercial loans
(such as business term loans, equipment financing and lines of credit) to small and medium-sized businesses and real estate
construction and development loans. We focus our lending activities on loans that we originate to borrowers located in our
market or with whom the Bank’s senior management has long-standing relationships. We have established an internal lending
guideline to one relationship of up to 30% of equity capital and allowance for credit losses, if secured by commercial real estate.
A relationship in this instance is defined as loans made to different entities but with a shared borrower principal(s). For
individual loans and loans dependent on the operation of a business, limits are set so as not to exceed the statutory maximum of
15% of equity capital and allowance for credit losses.
We market our lending products and services to qualified borrowers through conveniently located banking offices,
relationship networks and high touch personal service. Our business development and marketing strategy is primarily focused
on small to medium-sized businesses. Our relationship managers actively solicit business from companies entering our market
areas as well as established businesses operating within the communities we serve. We attract new lending clients through
professional service, relationship networks, competitive pricing and innovative structure, including the utilization of federal and
state tax incentives and lending programs such as the SBA loan programs. Our efficient approval structure and local decision-
making allow us to provide smart, proficient underwriting and timely decisions on new loan requests. This agility provides a
competitive advantage over larger institutions.
4
Total loans before deferred loan fees and the ACL-Loans were $2.7 billion at December 31, 2024. The following tables
summarize the composition of our loan portfolio for the dates indicated.
At December 31,
2024
2023
2022
2021
2020
(In thousands)
Real estate loans:
Residential ................. $
42,766 $
50,931 $
60,588 $
79,987 $
113,557
Commercial ...............
1,899,134
1,947,648
1,921,252
1,356,709
1,148,383
Construction ..............
173,555
183,414
155,198
98,341
87,007
2,115,455
2,181,993
2,137,038
1,535,037
1,348,947
Commercial business ...
515,125
500,569
520,447
350,975
276,601
Consumer .....................
75,308
36,045
17,963
8,869
79
Total loans ............ $
2,705,888 $
2,718,607 $
2,675,448 $
1,894,881 $
1,625,627
At December 31,
Percent of Loan Portfolio
2024
2023
2022
2021
2020
Real estate loans:
Residential .................
1.58 %
1.87 %
2.27 %
4.22 %
6.99 %
Commercial ...............
70.19
71.64
71.81
71.60
70.64
Construction ..............
6.41
6.75
5.80
5.19
5.35
78.18
80.26
79.88
81.01
82.98
Commercial business ...
19.04
18.41
19.45
18.52
17.02
Consumer ..................
2.78
1.33
0.67
0.47
—
Total loans .................
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
Residential real estate loans. In the fourth quarter of 2017, management made the strategic decision to cease originating
residential mortgage loans. In the third quarter of 2019, the Company stopped offering home equity loans or lines of credit.
Prior to these decisions, we offered first lien one-to-four family mortgage loans, as well as home equity lines of credit, in each
case primarily on owner-occupied primary residences. Although our residential real estate loan portfolio presents lower levels
of risk than our commercial real estate and construction loan portfolios, we are exposed to risk based on fluctuations in the
value of the real estate collateral securing the loan, as well as changes in the borrower’s financial condition, which could be
affected by numerous factors, including divorce, job loss, illness or other personal hardship. The rising rate environment may
also pose a risk in our residential adjustable rate mortgages and home equity lines of credit portfolios as borrowers' rates reset at
increased levels.
Commercial real estate loans. We offer real estate loans for owner-occupied commercial properties as well as
commercial property owned by real estate investors. Loans that are secured by owner-occupied commercial real estate primarily
collateralized by operating cash flows are also included in this loan category throughout this document. Commercial real estate
loan terms generally are limited to ten years or less, although payments may be structured on a longer amortization basis of
twenty to thirty years. The interest rates on our commercial real estate loans may be fixed or adjustable, although rates typically
are not fixed for a period exceeding five to ten years. We generally charge an origination fee for these loans. We often require
personal guarantees from the principal owner of the business or real estate supported by a review of the principal owner's
personal financial statements. Risks associated with commercial real estate loans include increases in interest rates, fluctuations
in the value of real estate, the overall strength of the economy, new job creation trends, tenant vacancy rates, property use
trends, business sector changes, environmental contamination, and the quality of the borrower’s management. We make efforts
to limit our risk by analyzing the borrower's cash flow and collateral value as well as all of the sponsors’ investment activities.
The real estate securing our existing commercial real estate loans includes a wide variety of property types, such as owner-
occupied offices/warehouses/production facilities, healthcare facilities, office buildings, industrial, mixed-use residential/
commercial, retail centers and multifamily properties. Our commercial real estate loan portfolio presents a higher risk than our
residential real estate and consumer loan portfolios.
5
Construction loans. Our construction portfolio includes loans to small and medium-sized businesses to construct owner-
used properties, loans to developers of commercial real estate investment properties and residential developments. Construction
and development loans are generally made with a term of one to two years and interest is paid monthly. The ratio of the loan
principal to the value of the collateral, as established by independent appraisal, will not exceed industry standards. Loan
proceeds are disbursed based on the percentage of completion and only after the project has been inspected by an experienced
construction lender or third-party inspector. Risks associated with construction loans include fluctuations in the value of real
estate, project completion risk, leasing risk and change in market trends as well as interest rate risk in a volatile or rising risk
environment. We are also exposed to risk based on the ability of the construction loan borrower to refinance the debt or sell the
property upon completion of the project, which may be affected by changes in market trends including rates, since the time that
we funded the construction loan.
Commercial business loans. We offer a wide range of commercial loans, including business term loans, equipment
financing and lines of credit. Our target commercial loan market is small to medium-sized businesses, including retail and
professional establishments. The terms of these loans vary by purpose and by type of underlying collateral. The commercial
loans primarily are underwritten on the basis of the borrower’s ability to service the loan from cash flow. We make loans
secured by accounts receivable or inventory, principal typically is repaid as the assets securing the loan are converted into cash,
and for loans secured with other types of collateral, principal is fully or partially amortized during the loan term with any
balloon amount due at maturity. The quality of the commercial borrower’s management and its ability both to properly evaluate
changes in the supply and demand characteristics affecting its markets for products and services and to effectively respond to
such changes are significant factors in a commercial borrower’s creditworthiness. From time-to-time, we also make equipment
loans with conservative margins, generally for a term of ten years or less, supported by the useful life of the equipment, at fixed
or variable rates, with the loan fully amortizing over the term. Loans to support working capital typically have terms not
exceeding two years and usually are secured by accounts receivable, inventory and/or personal guarantees of the principals of
the business and at times by the commercial real estate of the borrower. Risks associated with our commercial loan portfolio
include those related to the strength of the borrower’s business, which may be affected not only by local, regional and national
market conditions, but also changes in the borrower’s management and other factors beyond the borrower’s control; those
related to fluctuations in value of any collateral securing the loan; and those related to terms of the commercial loan, which may
include balloon payments that must be refinanced or paid off at the end of the term of the loan or mid-term interest rate resets,
possibly at increased interest rates. Our commercial loan portfolio presents a higher risk than our residential real estate and
consumer loan portfolios.
Consumer loans. As of December 31, 2024, our consumer loans represented 2.8% of our total loan portfolio. We do not
expect our consumer loan portfolio to become a material component of our total loan portfolio as we do not engage in any
material amount of consumer lending. Our consumer loans, which are underwritten primarily based on the borrower’s financial
condition and contain both secured and unsecured credits, expose us to risk based on changes in the borrower’s financial
condition, which could be affected by numerous factors, including those discussed above. Rising interest rates may also impact
the risk profile of this segment of the portfolio. This portfolio segment includes loans to finance insurance premiums secured by
the cash surrender value of life insurance and marketable securities, overdraft lines of credit, and personal loans to high net
worth individuals.
Credit Policy and Procedures
General. We adhere to what we believe are disciplined underwriting standards, but also remain cognizant of the need to
serve the credit needs of our clients by offering flexible loan solutions in a responsive and timely manner. We also seek to
maintain a diversified loan portfolio across client, product and industry types. However, our lending policies do not provide for
any loans that are highly speculative, subprime, or that have high loan-to-value ratios. These components, together with active
credit management, are the foundation of our credit culture, which we believe is critical to enhancing the long-term value of our
organization to our clients, employees, shareholders and communities.
We have a service-driven, relationship-based, business-focused credit culture, rather than a price-driven, transaction-based
culture. Accordingly, substantially all of our loans are made to borrowers either located or operating in our market or with
whom we have ongoing relationships across various product lines. Loans secured by properties located in out-of-market areas
that we have made are generally to borrowers who are well-known to us. These borrowers typically have strong deposit
relationships with the Bank as well.
Credit concentrations. In connection with the management of our credit portfolio, we actively manage the composition of
our loan portfolio, including credit concentrations. We monitor borrower and loan product concentrations continuously which
are reviewed with senior management and the Board on at least a quarterly basis. Loan product concentrations are reviewed
annually in conjunction with the portfolio’s credit quality and the business plan for the coming year. All concentrations are
monitored by our Chief Credit Officer and our Directors' Loan Committee.
We have also established an internal lending guideline to one relationship of up to 30% of risk-based capital and allowance
for credit losses, if secured by commercial real estate. This limit is inside the regulatory limit of 50%. A relationship in this
6
instance is defined as loans made to different entities but with a shared borrower principal(s). For individual loans and loans
dependent on the operation of a business, limits are set so as not to exceed the statutory maximum of 15% of equity capital and
allowance for credit losses. Our top 20 borrowing relationships range in exposure from $48.1 million to $94.0 million and are
monitored on an on-going basis.
Loan approval process. We seek an appropriate balance between prudent and disciplined underwriting on the one hand
and flexibility in our decision-making and responsiveness to our clients on the other hand. Our credit approval policies have a
tiered approval process, with larger exposures referred to different levels of management and the Directors’ Loan Committee, as
appropriate, based on the size and type of the loan. Smaller exposures are approved under a three-signature system. These
authorities are periodically reviewed and updated by our Board of Directors. We believe that our credit approval process
provides for thorough underwriting and efficient decision making.
Credit risk management. Credit risk management involves a partnership between our relationship managers and our
credit approval, credit administration, portfolio management and collections personnel. Portfolio monitoring and early problem
recognition are an important aspect of maintaining our high credit quality standards. Past due reports are reviewed on an
ongoing basis and insurance and tax payment monitoring is in place.
It is our policy to review amortizing commercial loans in excess of $1 million on an annual basis, or more frequently
through the receipt of interim and annual financial statements and borrowing base certificates depending on loan structure and
covenants. Our policies require rapid notification of delinquency and prompt initiation of collection actions. Relationship
managers, portfolio managers, credit administrators and senior management proactively support collection activities in order to
maximize accountability and efficiency.
As part of these annual review procedures, we analyze recent financial statements of the collateral property, business and/
or borrower to determine the current level of occupancy, revenues and expenses and to investigate any deterioration in the value
of the real estate collateral or in the borrower’s or company’s financial condition. Upon completion, we confirm or change the
risk rating assigned to each loan. Relationship managers and portfolio managers are encouraged to bring potential credit issues
to the attention of our Chief Credit Officer immediately upon any sign of deterioration in the performance of the borrower. We
maintain a list of loans that receive additional attention if we believe there may be a potential credit risk via our Watch List
report.
Loans that are upgraded or downgraded are reviewed by our Chief Credit Officer or designee, while Watch List loans
undergo a detailed quarterly analysis prepared by the relationship manager or portfolio manager and reviewed by management.
This review includes an evaluation of the market conditions, the property’s or company’s trends, the borrower and guarantor
status, the level of reserves required and loan accrual status. Additionally, we have an independent, third-party loan review
performed, which includes the accuracy of our loan risk ratings and our credit administration functions. Finally, we perform an
annual stress test of our commercial loan portfolio, in which we evaluate the impact on the portfolio of declining economic
conditions, including lower values and decline in net operating income which may result from lower rental rates, lower
occupancy rates and higher interest rates. Management reviews these reports and presents them to our loan committees. These
asset review procedures provide management with additional information for assessing our asset quality.
Bankwell’s response to the current economic environment’s impact on commercial real estate. Given our concentration of
loans secured by commercial real estate and current economic conditions, including factors such as elevated interest rates and
changing demand for office space, management has adopted the following:
•
increased and expanded our monitoring of our entire loan portfolio, with added focus on our commercial real estate
loan portfolio,
•
expanded reporting to Directors' Loan Committee and the Board of Directors which includes:
◦
upcoming commercial real estate maturity schedule, including loan to value, debt service coverage ratio,
occupancy, and commentary on expected refinance or payoff status, maturity by property type and owner
occupied or non-owner-occupied status; and
◦
individual loan level detail of the performance on our residential care portfolio and our insurance agency
portfolio and
•
enhanced our covenant tracking and reporting to the Directors Loan Committee.
In addition to the enhancements made to monitoring and reporting, the Company has added resources to its Portfolio
Management and Credit Departments.
Investment Activities
Our investment portfolio’s primary purpose is to provide adequate liquidity necessary to meet any reasonable decline in
deposits and any anticipated increase in the loan portfolio. The majority of these securities are classified as available for sale.
The portfolio’s secondary purpose is to generate adequate earnings to provide and contribute to stable income and to generate a
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profitable return while minimizing risk. Additionally, our investment portfolio may be used to provide adequate collateral for
various regulatory or statutory requirements and to manage our interest rate risk. We invest in a variety of high-grade securities,
including government agency securities, government guaranteed mortgage-backed securities, highly rated corporate bonds and
municipal securities. We regularly evaluate the composition of our portfolio as changes occur with respect to the interest rate
yield curve. Although we may sell investment securities from time to time to take advantage of changes in interest rate spreads,
it is our policy not to sell investment securities unless we can reinvest the proceeds at a similar or higher spread, so as not to
take gains to the detriment of future income.
The investment policy is reviewed annually by our Board of Directors. Overall investment goals are established by our
Board of Directors, Chief Financial Officer and our Asset Liability Committee, or ALCO. Our Board of Directors has delegated
the responsibility of monitoring our investment activities to ALCO. Day-to-day activities pertaining to the investment portfolio
are conducted within our accounting department under the supervision of our Chief Financial Officer.
Deposits
Deposits are our primary source of funds to support our income-earning assets. We offer traditional depository products,
including checking, savings, money market and certificates of deposit with a variety of rates. Deposits at the Bank are insured
by the FDIC up to statutory limits. We gather deposits through our network of deposit-taking branch offices, online account
opening through our Bankwell Direct channel, and have attracted significant transaction account business through our
relationship-based approach.
Borrowed Funds
The Bank is a member of the Federal Home Loan Bank of Boston (FHLB), which is part of a twelve district Federal Home
Loan Bank System. Members are required to own capital stock of the FHLB, and borrowings are collateralized by qualifying
assets not otherwise pledged. The maximum amount of credit that the FHLB will extend varies from time to time, depending on
its policies and the amount of qualifying collateral the member can pledge. We utilize advances from the FHLB as part of our
overall funding strategy to meet short-term liquidity needs and, to a lesser degree, manage interest rate risk arising from the
difference in asset and liability maturities.
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 outstanding
balance of subordinated debt issued in 2015 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.
On August 19, 2022, the Company entered into a Subordinated Note Purchase Agreement with certain qualified
institutional buyers, pursuant to which the Company issued and sold 6.0% fixed-to-floating rate subordinated notes due 2032
(the “2022 Notes”) in the aggregate principal amount of $35.0 million. The Company used the net proceeds from the sale of the
2022 Notes for general corporate purposes.
The 2022 Notes bear interest at a fixed rate of 6.0% per year until August 31, 2027. Thereafter, the interest rate will reset
quarterly at a variable rate equal to the then current three-month term SOFR plus 326 basis points. The 2022 Notes have a
stated maturity of September 1, 2032 and are non-callable for five years. Beginning August 19, 2027, the Company may
redeem the 2022 Notes, in whole or in part, at its option. The 2022 Notes are not subject to redemption at the option of the
holder. The 2022 Notes have been structured to qualify for the Company as Tier 2 capital under regulatory guidelines.
Risk Management
We place significant emphasis on risk mitigation as an integral component of our organizational culture. The Company’s
existing governance and organizational structure incorporates a substantial risk management component through the following:
•
A Risk Committee comprised of directors of the Company charged with oversight of the Company’s overall enterprise
risk management framework, policies, procedures and controls, including operational and information security and
cybersecurity risks and compliance programs;
•
Oversight of various risk components by committees comprised of directors of the Company, including Directors'
Loan Committee (credit), ALCO (asset and liability), and Audit Committee (financial);
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•
A Risk Management Committee comprised of senior management, which provides risk management oversight and is
chaired by our Chief Risk Officer, who has direct accountability to the Board Risk Committee;
•
Operational Risk and Compliance Working Groups, comprised of senior management, to identify, assess, manage, and
mitigate operational risks across the Company. The groups enhance the Company’s operational risk and compliance
framework by ensuring compliance with regulatory requirements, evidence risk performance relative to the
Company’s risk appetite, and promote a culture of risk awareness;
•
The retention of an independent firm (separate from the Company’s external auditors) that performs internal audit
functions; and
•
Outsourcing of our asset/liability calculations to a reputable third party, including a quarterly assessment of interest
rate risk, reviewed and validated by ALCO.
Risk management with respect to our lending philosophy focuses, among other things, on structuring credits to provide for
multiple sources of repayment, coupled with strong underwriting by experienced relationship managers, lending and credit
management. We perform quarterly reviews of criticized loans and criticized asset action plans for those borrowers who display
deteriorating financial conditions in order to monitor those relationships and implement corrective measures on a timely basis to
minimize losses. In addition, we perform an annual stress test of our commercial loan portfolio, in which we evaluate the
impact on the portfolio of declining property values and lower net operating incomes as a result of economic conditions,
including lower rental rates and lower occupancy rates. The stress test focuses on the cash flow and valuation of the properties
or businesses.
Additionally, the Company maintains a robust liquidity risk management framework, primarily through our Contingency
Funding Plan (“CFP”). The CFP is designed to ensure our ability to meet our financial obligations under both normal and
stressed conditions. A critical component of the CFP is liquidity stress testing, which involves simulating various adverse
market and idiosyncratic scenarios. These scenarios include, but are not limited to, significant deposit outflows, disruptions in
wholesale funding markets, and severe economic downturns. The results of these stress tests are used to assess the adequacy of
our liquidity and to identify potential vulnerabilities. Stress tests are conducted quarterly and reported to ALCO but may also be
run on an ad-hoc basis when market conditions change.
Supervision and Regulation
General
The Bank is subject to extensive regulation by the Connecticut Department of Banking, as its chartering agency, and by
the FDIC, as its deposit insurer. The Bank’s deposits are insured up to applicable limits by the FDIC through the Deposit
Insurance Fund. The Bank is required to file reports with, and is periodically examined by, the FDIC and the Connecticut
Department of Banking concerning its activities and financial condition and must obtain regulatory approvals prior to entering
into certain transactions, such as mergers with, or acquisitions of, other financial institutions.
The primary goals of the bank regulatory system are to maintain a safe and sound banking system and to facilitate the
conduct of sound monetary policy. This system is intended primarily for the protection of the Deposit Insurance Fund and bank
depositors, rather than our shareholders and creditors. The banking agencies have broad enforcement power over bank holding
companies and banks, including the authority, among other things, to enjoin “unsafe or unsound” practices, require affirmative
action to correct any violation or practice, issue administrative orders that can be judicially enforced, direct increases in capital,
direct the sale of subsidiaries or other assets, limit dividends and distributions, restrict growth, assess civil money penalties,
remove officers and directors, and, with respect to banks, terminate deposit insurance or place the bank into conservatorship or
receivership. In general, these enforcement actions may be initiated for violations of laws and regulations or unsafe or unsound
practices.
The following discussion is a summary of the material laws, rules and regulations applicable to our operations, but does
not purport to be a complete summary of all applicable laws, rules and regulations. These laws, rules and regulations may
change from time to time and the regulatory agencies often have broad discretion in interpreting them. Any change in such
laws, rules or regulations, whether by the Connecticut Department of Banking, the FDIC or the Federal Reserve Board ("FRB")
could have a material adverse impact on the financial markets in general, and our operations and activities, financial condition,
results of operations, growth plans and future prospects specifically.
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Dodd-Frank Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), enacted in 2010, significantly
changed the existing bank regulatory structure, affecting the lending and investment activities and general operations of
depository institutions and their holding companies.
The Dodd-Frank Act made many changes to banking regulations, including authorizing depository institutions to pay
interest on business checking accounts, requiring originators of securitized loans to retain a percentage of the risk for transferred
loans, establishing regulatory rate-setting for certain debit card interchange fees, requiring bank holding companies and banks
to be “well capitalized” and “well managed” in order to acquire banks located outside of their home state, requiring any bank
holding company electing to be treated as a financial holding company to be “well capitalized” and “well managed,” and
authorizing national and state banks to establish de novo branches in any state that would permit a bank chartered in that state to
open a branch at that location.
The Dodd-Frank Act also created the Consumer Financial Protection Bureau with extensive powers to implement and
enforce consumer protection laws, having examination and enforcement authority over all banks and savings associations with
more than $10 billion in assets. Banks and savings associations with $10 billion or less in assets will be examined for
compliance with federal consumer protection and fair lending laws by their applicable primary federal bank regulators. The
Dodd-Frank Act also gives state attorneys general certain authority to enforce applicable federal consumer protection laws.
Economic Growth Act
The Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Economic Growth Act”), enacted in May
2018, repealed or modified several provisions of the Dodd-Frank Act. In addition, the Economic Growth Act includes
regulatory relief for community banks regarding regulatory examination cycles, call reports, the so-called "Volcker Rule",
mortgage disclosures and risk weights for certain high-risk commercial real estate loans.
The Economic Growth Act provides insured depository institutions and their affiliates with less than $10 billion in total
consolidated assets and limited trading activities with an exemption from the Dodd-Frank Act’s “Volcker Rule,” which
generally restricts certain banking entities such as the Company and the Bank from engaging in proprietary trading activities
and entering into certain relationships with hedge funds and private-equity funds. In July 2019, the FDIC, along with several
other banking agencies, adopted final rules to implement the exemption contemplated by the Economic Growth Act.
The Economic Growth Act has eased certain reporting and debt requirements for banks under $3 billion, as detailed in its
Small Bank Holding Company Policy Statement. As of June 30, 2023, the Company no longer met the definition of a Small
Bank Holding Company as the Company's assets exceeded $3 billion. Effective March 31, 2024, the Company became subject
to the larger company capital requirements as set forth in the Economic Growth Act.
The Economic Growth Act required the federal banking agencies to promulgate regulations permitting insured depository
institutions that have less than $5 billion in total consolidated assets (and satisfy other conditions) to use short-form reports of
condition (i.e. call reports) for the first and third quarters of each year.
Connecticut Banking Laws and Supervision
Connecticut Department of Banking. The Connecticut Department of Banking regulates the internal organization as well
as the deposit, lending and investment activities of state-chartered banks, including the Bank. The approval of the Connecticut
Department of Banking is required for, among other things, the establishment of branch offices and business combination
transactions. The Connecticut Department of Banking conducts periodic examinations of Connecticut chartered banks. The
FDIC also regulates many of the areas regulated by the Connecticut Department of Banking, and federal law may limit some of
the authority provided to Connecticut chartered banks by Connecticut law.
Lending Activities. Connecticut banking laws grant banks broad lending authority. With certain limited exceptions, loans
to any one obligor under this statutory authority may not exceed 15% and fully secured loans may not exceed an additional 10%
of a bank’s equity capital and allowance for credit losses.
Dividends. The Bank may pay cash dividends out of its net profits. For purposes of this restriction, “net profits”
represents the remainder of all earnings from current operations. Further, the total amount of all dividends declared by a bank in
any year may not exceed the sum of a bank’s net profits for the year in question combined with its retained net profits from the
preceding two years. Federal law also prevents an institution from paying dividends or making other capital distributions that, if
by doing so, would cause it to become “under-capitalized”. Beginning January 1, 2016, the Basel III Capital Rules limit the
amount of dividends the Bank can pay if its capital ratios are below the threshold levels of the capital conservation buffer
established by the rules. The full capital conservation buffer of 2.5% (as a percentage of risk-weighted assets) became effective
as of January 1, 2019. The capital conservation buffer is in addition to the minimum risk-based capital requirement. The FDIC
may further limit a bank’s ability to pay dividends. Moreover, the federal agencies have issued policy statements that provide
that insured banks should generally only pay dividends out of current operating earnings.
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Powers. Connecticut banking law authorizes Connecticut chartered banks to transact a "general banking business" and
"all such incidental powers as are necessary thereto". With the prior approval of the Connecticut Department of Banking,
Connecticut banks are also authorized to engage in activities that are closely related to the business of banking, are convenient
and useful to the business of banking, are reasonably related to the operation of a Connecticut bank, are financial in nature or
that are permitted under the Bank Holding Company Act or the Home Owners’ Loan Act, both federal statutes, or the
regulations promulgated as a result of those federal statutes. Connecticut banks are also authorized to engage in any activity
permitted for certain federally chartered institutions, as well as for certain out-of-state institutions, upon filing a notice with the
Connecticut Department of Banking unless the Connecticut Department of Banking disapproves the activity.
Assessments. Connecticut banks are required to pay annual assessments to the Connecticut Department of Banking to
fund the Connecticut Department of Banking’s operations. The general assessments are paid pro-rata based upon a bank’s asset
size.
Enforcement. Under Connecticut law, the Connecticut Department of Banking has extensive enforcement authority over
Connecticut banks and, under certain circumstances, affiliated parties, insiders, and agents. The Connecticut Department of
Banking’s enforcement authority includes cease and desist orders, fines, receivership, conservatorship, removal of officers and
directors, emergency closures, dissolution and liquidation.
Federal Bank Holding Company Regulation
General. As a bank holding company, we are subject to comprehensive regulation and regular examinations by the FRB.
The FRB also has extensive enforcement authority over bank holding companies, including, among other things, the ability to
assess civil money penalties, to issue cease and desist or removal orders and to require that a bank holding company divest
subsidiaries (including its bank subsidiaries). In general, enforcement actions may be initiated for violations of law and
regulations and unsafe or unsound practices.
Under FRB policy which has been codified by the Dodd-Frank Act, a bank holding company must serve as a source of
strength for its subsidiary bank. Under this policy, the FRB may require, and has required in the past, a bank holding company
to contribute additional capital to an under-capitalized subsidiary bank. A bank holding company must obtain FRB approval
before: (1) acquiring, directly or indirectly, ownership or control of any voting securities of another bank or bank holding
company if, after such acquisition, it would own or control more than 5% of such securities (unless it already owns or controls
the majority of such securities); (2) acquiring all or substantially all of the assets of another bank or bank holding company; or
(3) merging or consolidating with another bank holding company. Under Connecticut banking law, no person may acquire
beneficial ownership of more than 10% of any class of voting securities of a Connecticut chartered bank, or any bank holding
company of such a bank, without prior notification of, and lack of disapproval by, the Connecticut Department of Banking.
The Bank Holding Company Act also prohibits a bank holding company, with certain exceptions, from acquiring direct or
indirect ownership or control of more than 5% of the voting shares of any company which is not a bank or bank holding
company, or from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, or
providing services for its subsidiaries. The principal exceptions to these prohibitions involve certain non-bank activities which,
by statute or by FRB regulation or order, have been identified as activities closely related to the business of banking or
managing or controlling banks.
Dividends. The FRB has issued a policy statement on the payment of cash dividends by bank holding companies, which
expresses the FRB’s view that a bank holding company should pay cash dividends only to the extent that the Bank Holding
Company’s net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is
consistent with the Bank Holding Company’s capital needs, asset quality and overall financial condition. The FRB also
indicated that it would be inappropriate for a bank holding company experiencing serious financial problems to borrow funds to
pay dividends.
Substantially all of our income is derived from, and the principal source of our liquidity is, dividends from the Bank. The
ability of the Bank to pay dividends to us is also restricted by federal and state laws, regulations and policies. The Bank may
pay cash dividends out of its net profits. For purposes of this restriction, “net profits” represents the remainder of all earnings
from current operations. Further, the total amount of all dividends declared by a bank in any year may not exceed the sum of a
bank’s net profits for the past two fiscal years, plus the portion of the year in which the dividend is paid.
Under federal law, the Bank may not pay any dividend to the holding company if the Bank is under-capitalized or the
payment of the dividend would cause it to become under-capitalized. The Basel III Capital Rules limit the amount of dividends
the Bank can pay to us if its capital ratios are below the full capital conservation buffer of 2.5% (as a percentage of risk-
weighted assets). The capital conservation buffer is in addition to the minimum risk-based capital requirement. The FDIC may
further restrict the payment of dividends by requiring the Bank to maintain a higher level of capital than would otherwise be
required for it to be adequately capitalized for regulatory purposes. Moreover, if, in the opinion of the FDIC, the Bank is
engaged in an unsafe or unsound practice (which could include the payment of dividends), the FDIC may require, generally
11
after notice and hearing, it to cease such practice. The FDIC has indicated that paying dividends that deplete a depository
institution’s capital base to an inadequate level would be an unsafe banking practice. The FDIC has also issued policy
statements providing that insured depository institutions generally should pay dividends only out of current operating earnings.
Redemption. Bank holding companies are required to give the FRB prior written notice of any purchase or redemption of
its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net
consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the
consolidated net worth of the bank holding company. The FRB may disapprove such a purchase or redemption if it determines
that the proposal would constitute an unsafe or unsound practice or would violate any law, regulation, FRB order or any
condition imposed by, or written agreement with, the FRB. This notification requirement does not apply to any bank holding
company that (i) meets the well capitalized standard for commercial banks, (ii) is “well managed” within the meaning of the
FRB regulations and (iii) is not subject to any unresolved supervisory issues.
Federal Bank Regulation
Safety and Soundness. The federal banking agencies, including the FDIC, have implemented rules and guidelines
concerning standards for safety and soundness required pursuant to Section 39 of the Federal Deposit Insurance Corporation
Improvement Act, or FDICIA. In general, the standards relate to (1) operational and managerial matters; (2) asset quality and
earnings; and (3) compensation. The operational and managerial standards cover (a) internal controls and information systems,
(b) internal audit systems, (c) loan documentation, (d) credit underwriting, (e) interest rate exposure, (f) asset growth, and
(g) compensation, fees and benefits. Under the asset quality and earnings standards, the Bank is required to establish and
maintain systems to (i) identify problem assets and prevent deterioration in those assets, and (ii) evaluate and monitor earnings
and ensure that earnings are sufficient to maintain adequate capital reserves. Finally, the compensation standard states that
compensation will be considered excessive if it is unreasonable or disproportionate to the services actually performed by the
individual being compensated. If an insured state-chartered bank fails to meet any of the standards promulgated by regulation,
then such institution will be required to submit a plan within 30 days to the FDIC specifying the steps it will take to correct the
deficiency. In the event that an insured state-chartered bank fails to submit or fails in any material respect to implement a
compliance plan within the time allowed by the federal banking agency, Section 39 of the FDICIA provides that the FDIC must
order the institution to correct the deficiency and may (1) restrict asset growth; (2) require the bank to increase its ratio of
tangible equity to assets; (3) restrict the rates of interest that the bank may pay; or (4) take any other action that would better
carry out the purpose of prompt corrective action. We believe that the Bank has been and will continue to be in compliance with
each of the standards as they have been established by the FDICIA.
Capital Requirements. The FRB monitors the Company's capital adequacy, on a consolidated basis, and the FDIC and
Connecticut Department of Banking monitor the capital adequacy of the Bank.
The Federal Reserve, the FDIC and the other federal and state bank regulatory agencies establish regulatory capital
guidelines for U.S. banking organizations.
As of January 1, 2015, the Company and the Bank became subject to new capital rules set forth by the Federal Reserve,
the FDIC and the other federal and state bank regulatory agencies. The revised capital rules aligned the banking agencies’
leverage and risk-based capital requirements and the method for calculating risk weighted assets to make them consistent with
agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act
(the Basel III Capital Rules).
The Basel III Capital Rules established 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 200 basis points higher than the minimum guidelines.
The Basel III Capital Rules also changed 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 excludes 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” of 2.5% in addition to the minimum
risk based capital requirement.
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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.
Transactions with Affiliates. Under federal law, transactions between depository institutions and their affiliates are
governed by Sections 23A and 23B of the Federal Reserve Act, or FRA, and the FRB’s Regulation W. In a holding company
context, at a minimum, the parent holding company of a bank and any companies which are controlled by such parent holding
company are considered an affiliate of the bank. Generally, Section 23A limits the extent to which the bank or its subsidiaries
may engage in “covered transactions” with any one affiliate to 10% of such bank’s capital stock and surplus, and places an
aggregate limit on all such transactions with all affiliates at 20% of capital stock and surplus. The term “covered transaction”
includes, among other things, the making of loans or other extensions of credit to an affiliate and the purchase of assets from an
affiliate. Section 23A also establishes specific collateral requirements for loans or extensions of credit to an affiliate, or the
issuance of guarantees, acceptance, or letter of credit on behalf of an affiliate. Section 23B requires that covered transactions
and a broad list of other specified transactions be on terms substantially the same, or no less favorable, to the bank or its
subsidiary as similar transactions with non-affiliates. The Dodd-Frank Act has expanded the definition of covered transactions
and increased the timing and other aspects of the collateral requirements associated with covered transactions, including an
expansion of the covered transactions to include credit exposures related to derivatives, repurchase agreements and securities
lending arrangements and an increase in the amount of time for which collateral requirements regarding covered transactions
must be satisfied.
Loans to Insiders. Further, the FRA places restrictions on extensions of credit that can be made by a depository institution
to its directors, executive officers, and principal shareholders (or insiders) and to the insiders of its affiliates. Many of those
restrictions also apply to the "related interests" of those insiders. For example, a bank is generally not permitted to extend credit
to any insider of the bank, or insider of an affiliate, if the extension, when aggregated with all other outstanding extensions of
credit to those insiders and their related interests, exceeds the bank's total unimpaired capital and unimpaired surplus.
Extensions of credit to those insiders, and their related interests, that exceed certain specified amounts must receive the prior
approval of the board of directors. Further, extensions of credit to insiders and their related interests must be made on terms
substantially the same as offered in comparable transactions to other non-insiders, subject to an exception of extensions of
credit made under a benefit or compensation program that is widely available to the depository institution’s employees that does
not give preference to the insider over the employees. The FRA places additional limitations on extensions of credit to
executive officers. In addition to enhancing restrictions on insider transactions, the Dodd-Frank Act increased the types of
transactions with insiders subject to restrictions, including certain asset sales with insiders.
Enforcement. The FDIC has extensive enforcement authority over insured banks, including the Bank. This enforcement
authority includes, among other things, the ability to assess civil money penalties, issue cease and desist orders and remove
directors and officers. In general, these enforcement actions may be initiated in response to violations of laws and regulations
and unsafe or unsound practices.
The FDIC has authority under federal law to appoint a conservator or receiver for an insured bank under limited
circumstances. The FDIC is required, with certain exceptions, to appoint a receiver or conservator for an insured state non-
member bank if that bank was “critically under-capitalized” on average during the calendar quarter beginning 270 days after the
date on which the institution became “critically under-capitalized.” The FDIC may also appoint itself as conservator or receiver
for an insured state non-member institution under specific circumstances on the basis of the institution’s financial condition or
upon the occurrence of other events, including: (1) insolvency; (2) substantial dissipation of assets or earnings through
violations of law or unsafe or unsound practices; (3) existence of an unsafe or unsound condition to transact business; and
(4) insufficient capital, or the incurring of losses that will deplete substantially all of the institution’s capital with no reasonable
prospect of replenishment without federal assistance.
Insurance of Deposit Accounts. Deposit accounts at the Bank are insured by the Deposit Insurance Fund, generally up to
a maximum of $250,000 per separately insured depositor. The FDIC assesses insured depository institutions to maintain the
Deposit Insurance Fund. No institution may pay a dividend if in default of its deposit insurance assessment.
Under the FDIC’s risk-based assessment system, insured depository institutions are assigned to a risk category based on
supervisory evaluations, regulatory capital levels and other factors. A depository institution’s assessment rate depends upon the
category to which it is assigned and certain adjustments specified by the FDIC, with less risky institutions paying lower
assessments. Subject to certain adjustments, the range of assessment rates is now between 1.5 to 30 basis points of the
assessment base.
The Dodd-Frank Act set the required minimum reserve ratio to 1.35 percent. If the reserve ratio falls below 1.35 percent or
is expected to so fall within 6 months, the FDIC generally must adopt a restoration plan to restore the Deposit Insurance Fund
reserve ratio to at least 1.35 percent within 8 years. For both 2024 and 2023, the FDIC has exercised that discretion by
establishing a 2% designated fund reserve ratio as a long-range minimum target for setting assessment rates.
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A material increase in FDIC insurance premiums would likely have an adverse effect on the operating expenses and results
of operations of the Bank. Management cannot predict what FDIC insurance assessment rates will be in the future.
Insurance of deposits may be terminated by the FDIC upon a finding that a depository institution has engaged in unsafe or
unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation,
rule, order or condition imposed by the FDIC. We are not aware of any current practice, condition or violation that might lead
to termination of the Bank’s deposit insurance.
Deposit Operations. In addition to the regulations discussed above, the Bank’s deposit operations are subject to other
federal laws applicable to depository accounts, such as the:
•
Truth-In-Savings Act, requiring certain disclosures for consumer deposit accounts;
•
Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and
prescribes procedures for complying with administrative subpoenas of financial records;
•
Electronic Fund Transfer Act and Regulation E issued by the Consumer Financial Protection Bureau to implement that
act, which govern electronic deposits to and withdrawals from deposit accounts and clients’ rights and liabilities
arising from the use of automated teller machines and other electronic banking services; and
•
Rules and regulations of the various federal banking agencies charged with the responsibility of implementing these
federal laws.
Federal Reserve System. The FRB regulations require depository institutions to maintain noninterest earning reserves
against their transaction accounts (primarily NOW and regular checking accounts). The FRB regulations are adjusted annually
and generally provide that reserves be maintained against aggregate transaction accounts. However, effective March 26, 2020,
the FRB eliminated its reserve requirement ratio, in light of the shift to an ample reserves regime.
Federal Home Loan Bank of Boston (FHLB). The Bank is a member of the FHLB, which is one of the regional Federal
Home Loan Banks composing the Federal Home Loan Bank System. Each Federal Home Loan Bank serves as a central credit
facility primarily for its member institutions. The Bank, as a member of the FHLB, is required to acquire and hold shares of
capital stock in the FHLB.
Community Reinvestment Act (CRA). Under the CRA, as implemented by FDIC regulations, a bank has a continuing and
affirmative obligation, consistent with its safe and sound operation, to help meet the credit needs of its entire community,
including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for
financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are
best suited to its particular community. The CRA does require the FDIC, in connection with its examination of a bank, to assess
the bank’s record of meeting the credit needs of its community and to take such record into account in its evaluation of certain
applications by such bank, including applications to acquire branches and other financial institutions. The CRA requires the
FDIC to provide a written evaluation of a bank’s CRA performance utilizing a four-tiered descriptive rating system. In
particular, the system focuses on three tests:
•
A lending test, to evaluate the bank’s record of making loans in its assessment areas;
•
An investment test, to evaluate the bank’s record of investing in community development projects, affordable housing,
and programs benefiting low or moderate income individuals and businesses; and
•
A service test, to evaluate the bank’s delivery of services through its branches, ATMs, and other offices.
Connecticut has its own statutory counterpart to the CRA which is applicable to the Bank. The Connecticut version of
CRA is generally similar to the federal version, but utilizes a five-tiered descriptive rating system. Connecticut law requires the
Connecticut Department of Banking to consider, but not be limited to, a bank’s record of performance under the Connecticut
CRA in considering any application by the Bank to establish a branch or other deposit-taking facility, to relocate an office or to
merge or consolidate with or acquire the assets and assume the liabilities of any other banking institution. In our most recent
evaluation, the Bank received a CRA rating of “satisfactory”.
On October 24, 2023, the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal
Reserve System, and the Federal Deposit Insurance Corporation released the final rule to strengthen and modernize their
regulations implementing the CRA. The final rule revises the CRA regulations to better achieve the CRA’s core purpose of
encouraging banks to help meet the credit needs of their local communities. It also adapts to changes in the banking industry,
including the expanded role of mobile and online banking; provides greater clarity and consistency in the application of CRA
regulations; tailors performance standards, data collection, and reporting requirements to account for differences in bank size,
business model, and local conditions; promotes transparency and public engagement; confirms that CRA and fair lending
responsibilities are mutually reinforcing; and promotes a consistent regulatory approach that applies to banks regulated by all
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three agencies. The final rule took effect on April 1, 2024, with staggered compliance dates of January 1, 2026, and January 1,
2027.
Consumer Protection and Fair Lending Regulations. We are subject to a variety of federal and Connecticut statutes and
regulations that are intended to protect consumers and prohibit discrimination in the granting of credit. These statutes and
regulations provide for a range of sanctions for non-compliance with their terms, including imposition of administrative fines
and remedial orders, and referral to the Attorney General for prosecution of a civil action for actual and punitive damages and
injunctive relief. Certain of these statutes authorize private individual and class action lawsuits and the award of actual,
statutory and punitive damages and attorneys’ fees for certain types of violations.
At the federal level, these laws include, among others, the following:
•
Federal Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers (Connecticut chartered
banks are generally exempt from the Federal Truth-in-Lending Act, but are otherwise subject to a substantially similar
state Truth-in-Lending Act administered and enforced by the Connecticut Department of Banking);
•
Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public
and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing
needs of the community it serves;
•
Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, color, religion or other prohibited factors
in extending credit;
•
Fair Credit Reporting Act of 1978, governing the use of consumer credit reports and the provision of information to
credit reporting agencies;
•
Fair Debt Collection Practices Act, governing the manner in which consumer debts may be collected by collection
agencies;
•
Real Estate Settlement Procedures Act, governing closing costs and settlement procedures and disclosures to
consumers related thereto;
•
Service members Civil Relief Act of 2004, governing the repayment terms of, and property rights underlying, secured
obligations of persons in military service; and
•
Rules and regulations of the various federal agencies charged with the responsibility of implementing these federal
laws.
Additional Considerations
Regulatory Enforcement Authority. Federal banking agencies have substantial enforcement authority over the financial
institutions that they regulate including, among other things, the ability to assess civil money penalties, to issue cease-and-desist
or removal orders and to initiate injunctive actions against banking organizations and institution-affiliated parties, as defined. In
general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices.
Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with
regulatory authorities. Except under certain circumstances, federal law requires public disclosure of final enforcement actions
by the federal banking agencies.
Incentive Compensation Guidance. The federal banking agencies have released comprehensive guidance on incentive
compensation policies focused on ensuring that financial institutions’ incentive compensation policies do not undermine the
safety and soundness of those institutions by encouraging excessive risk taking. The incentive compensation guidance sets
expectations for financial institutions concerning their incentive compensation arrangements and related risk management,
control and governance processes. All employees that have the ability to materially affect the risk profile of a financial
institution, either individually or as part of a group, are covered by the guidance. The guidance is based upon three core
concepts: (1) balanced risk-taking incentives; (2) effective controls and risk management compatibility; and (3) strong corporate
governance. Deficiencies in compensation practices that are identified may be incorporated into the institution’s supervisory
ratings, which can affect the organization’s ability to take certain actions, including the ability to make acquisitions or take
other actions. Enforcement actions by the institution’s primary federal banking agency may be initiated if the institution’s
incentive compensation programs pose a risk to the safety and soundness of the organization.
Federal Securities Laws. As a public company, we also file reports with the SEC and are subject to its regulatory
authority, as well as the disclosure and regulatory requirements of the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended, with respect to our securities, financial reporting and certain governance matters. Because
our securities are listed on the Nasdaq Global Market (“Nasdaq”), we are subject to Nasdaq's rules for listed companies,
including rules relating to corporate governance.
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Financial Modernization. The Gramm-Leach-Bliley Act, or the GLBA, permits greater affiliation among banks,
securities firms, insurance companies, and other companies under a type of financial services company known as a “financial
holding company”. A financial holding company essentially is a bank holding company with significantly expanded powers.
Financial holding companies are authorized by statute to engage in a number of financial activities previously impermissible for
bank holding companies, including securities underwriting, dealing and market making; sponsoring mutual funds and
investment companies; insurance underwriting and agency; and merchant banking activities. The GLBA also permits the FRB
and the Treasury Department to authorize additional activities for financial holding companies if they are “financial in nature”
or “incidental” to financial activities. A bank holding company may become a financial holding company if each of its
subsidiary banks is well capitalized, well managed, and has at least a “satisfactory” CRA rating. A financial holding company
must provide notice to the FRB within 30 days after commencing activities previously determined by statute or by the FRB and
Department of the Treasury to be permissible.
Privacy Requirements. Under the GLBA, all financial institutions are required to establish policies and procedures to
restrict the sharing of non-public client data with non-affiliated parties and to protect client data from unauthorized access. In
addition, the Fair Credit Reporting Act of 1970, or FCRA, includes many provisions concerning national credit reporting
standards and permits consumers, including clients of the Bank, to opt out of information-sharing for marketing purposes
among affiliated companies. The Fair and Accurate Credit Transactions Act of 2004 amended certain provisions of the FCRA
and requires banks and other financial institutions to notify their clients if they report negative information about them to a
credit bureau or if they are granted credit on terms less favorable than those generally available. The Bank currently has a
privacy protection policy in place and believes such policy is in compliance with the regulations.
The Bank Secrecy Act and Related Anti-Money Laundering and Anti-Terrorist Financing Legislation. The Bank Secrecy
Act, or the BSA, provides, in part, for the facilitation of information sharing among governmental entities and financial
institutions for the purpose of combating terrorism and money laundering by enhancing anti-money laundering and financial
transparency laws, as well as enhanced information collection tools and enforcement mechanics for the U.S. government,
including: (1) requiring standards for verifying client identification information at account opening; (2) rules to promote
cooperation among financial institutions, regulators, and law enforcement entities in identifying parties that may be involved in
terrorism or money laundering; (3) reports filed with the Treasury Department’s Financial Crimes Enforcement Network
("FinCEN") of transactions exceeding $10,000 in currency; (4) filing suspicious activities reports by financial institutions
regarding suspected client money laundering, terrorism financing, or other violations of U.S. laws and regulations; and
(5) requiring enhanced due diligence requirements for financial institutions that administer, maintain, or manage private bank
accounts or correspondent accounts for non-U.S. persons.
Title III of the USA PATRIOT Act of 2001 amended the BSA and incorporates anti-terrorist financing provisions into the
requirements of the BSA and its implementing regulations. Among other things, the USA PATRIOT Act requires all financial
institutions, including us, to institute and maintain a risk-based anti-money laundering compliance program that includes a
client identification program, provides for information sharing with law enforcement and between certain financial institutions
by means of an exemption from the privacy provisions of the GLBA, prohibits U.S. banks and broker-dealers from maintaining
accounts with foreign “shell” banks, establishes due diligence and enhanced due diligence requirements for certain foreign
correspondent banking and foreign private banking accounts and imposes additional record keeping requirements for certain
correspondent banking arrangements. The USA PATRIOT Act also grants broad authority to the Secretary of the Treasury to
take actions to combat money laundering, and federal bank regulators are required to evaluate the effectiveness of an applicant
in combating money laundering in determining whether to approve any application submitted by a financial institution.
On January 1, 2021, Congress passed the Corporate Transparency Act (the “CTA”) as part of the National Defense
Authorization Act, which enacted the most significant overhaul of the anti-money laundering laws since the USA PATRIOT
Act. The CTA aims to eliminate the use of shell companies that facilitate the laundering of criminal proceeds and, for that
purpose, directs FinCEN to establish and maintain a national registry of beneficial ownership information for certain corporate
and other business entities. The CTA required reporting companies subject the CTA to provide specific information with
respect to 25% beneficial owner(s) at the time of formation (or by December 31, 2024 for entities existing on January 1, 2024)
and upon a change in ownership. Non-compliance with FinCEN regulations promulgated under the CTA may result in civil
fines as well as criminal penalties. Numerous lawsuits were filed in federal courts during 2024 seeking to block enforcement of
the CTA, with some courts granting nationwide injunctions, all of which were eventually stayed or lifted. On February 20,
2025, after the last outstanding injunction was lifted, FINCen extended the original CTA filing deadline for existing reporting
companies to March 21, 2025. However, on February 27, 2025, FINCen announced that it will not be enforcing the March 21st
deadline and will instead issue a new “interim final rule” by March 21, 2025 that could change timelines and reporting
requirements. On March 2, 2025, the Treasury Department announced that it will not be enforcing the CTA against U.S.
citizens or domestic reporting companies and that it would be issuing a proposed rule that will narrow the scope of the CTA
filing requirements to foreign reporting companies only.
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On September 29, 2022, FinCEN finalized the first of three proposed rules to implement changes to the beneficial
ownership requirements and related amendments set forth in the CTA (the “BOI Reporting Rule”). The BOI Reporting Rule,
which became effective on January 1, 2024, prescribes which corporate entities created in or registered to do business in the
U.S. will be required to report beneficial ownership information (“BOI”) directly to FinCEN. On December 21, 2023, FinCEN
issued a final rule, effective on February 20, 2024, (the “Access Rule”), which prescribes the circumstances under which BOI
reported to the FinCEN registry may be disclosed to various government agencies and to financial institutions using BOI to
facilitate compliance with regulatory customer due diligence requirements and how BOI must be protected. Under the Access
Rule, FinCEN may disclose BOI to a financial institution to facilitate compliance with customer due diligence requirements
under applicable law, provided the relevant reporting company has consented to such disclosure. The Access Rule requires
financial institutions that obtain BOI from FinCEN to develop and implement administrative, technical, and physical safeguards
reasonably designed to protect the information, but provides that such institutions will be able to satisfy this requirement by
apply to BOI the same security and information handling procedures the use to protect customer’s nonpublic personal
information in compliance with the GBLA. On December 21, 2023, federal and state bank regulators issued an Interagency
Statement that states that the Access Rule does not create a new regulatory requirement for banks to access BOI from the CTA
registry, create a supervisory expectation that they do so or necessitate changes to BSA/AML compliance programs designed to
comply with the existing Customer Due Diligence rule (the “current CDD Rule”) and other existing BSA requirements, such as
customer identification program requirements and suspicious activity reporting. FinCEN stated that it plans to issue a third rule,
which has not yet been proposed, that is expected to revise the current CDD Rule to bring it into conformity with the CTA as
well as reduce any burdens on financial institutions and legal entity customers that are, in light of the CTA, unnecessary or
duplicative.
On June 28, 2024, FinCEN announced a proposed rule to strengthen and modernize financial institutions’ anti-money
laundering and countering the financing of terrorism (AML/CFT) programs. While financial institutions have long maintained
AML/CFT programs under existing regulations, this proposed rule would amend those regulations to explicitly require that
such programs be effective, risk-based, and reasonably designed with certain minimum components, including a mandatory risk
assessment process and also require financial institutions to review government-wide AML/CFT priorities and incorporate
them, as appropriate, into their risk-based programs. The proposed rule is intended to encourage financial institutions to
modernize their AML/CFT programs where appropriate to responsibly innovate, while still managing illicit finance risks.
The Office of Foreign Assets Control, or OFAC, which is a division of the Treasury Department, is responsible for helping
to ensure that U.S. entities do not engage in transactions with “enemies” of the United States, as defined by various Executive
Orders and Acts of Congress. OFAC maintains lists of names of persons and organizations suspected of aiding, harboring or
engaging in money laundering, terrorist acts, and other crimes. If the Bank finds a name on any transaction, account or wire
transfer that is on an OFAC list, the Bank must freeze such account, file a suspicious activity report and notify OFAC. We have
established policies and procedures to ensure compliance with the federal anti-laundering and combating terrorism provisions.
Proposed Legislation and Regulatory Action. New statutes, regulations and guidance are regularly proposed that contain
wide-ranging potential changes to the statutes, regulations and competitive relationships of financial institutions operating and
doing business in the United States. We cannot predict whether or in what form any proposed regulation or statute will be
adopted or the extent to which our business may be affected by any new regulation or statute.
Effect of Governmental Monetary Policies. Our earnings will be affected by domestic economic conditions and the
monetary and fiscal policies of the U.S. government and its agencies. The FRB’s monetary policies have had, and are likely to
continue to have, an important impact on the operating results of commercial banks through its power to implement national
monetary policy in order, among other things, to curb inflation or combat a recession. The monetary policies of the FRB affect
the levels of bank loans, investments and deposits through its control over the issuance of U.S. government securities, its
regulation of the discount rate applicable to member banks and its influence over reserve requirements to which member banks
are subject. We cannot predict the nature or impact of future changes in monetary and fiscal policies.
Taxation
Federal Taxation
General: We are subject to federal income taxation in the same general manner as other corporations, with limited
exceptions. The following discussion of federal taxation is intended only to summarize certain pertinent federal income tax
matters and is not a comprehensive description of the tax rules applicable to us.
Method of Accounting: For Federal income tax purposes, we report income and expenses on the accrual method of
accounting and use tax year ending December 31 for filing federal income tax returns.
Alternative Minimum Tax: The Internal Revenue Code of 1986, as amended (the “Code”), imposes an alternative
minimum tax (“AMT”) at a rate of 20.0% on a base of regular taxable income plus certain tax preferences which we refer to as
“alternative minimum taxable income.” The AMT is payable to the extent such alternative minimum taxable income is in
17
excess of an exemption amount and the AMT exceeds the regular income tax. Net operating losses can offset no more than
90.0% of alternative minimum taxable income. Certain AMT payments may be used as credits against regular tax liabilities in
future years. We have not been subject to the AMT and have no such amounts available as credits for carryover.
Net Operating Loss Carryovers: For the years ended 2017 and prior, a corporation may carryback net operating losses
generated in such years to the preceding two taxable years and forward to the succeeding 20 taxable years. Under the Tax Cuts
and Jobs Act enacted in December 2017, a corporation may not carryback net operating losses arising in tax years after 2017,
but may carryforward such losses indefinitely; however, the net operating loss deduction in a given year is limited to 80% of
taxable income. The Coronavirus Aid, Relief, and Economic Security Act ("CARES") temporarily - and retroactively -
modified the net operating loss rules to permit carryback of net operating losses generated in 2018, 2019 and 2020 for five
years. A corporation may elect to waive the carryback period and only carry these net operating losses forward to future years.
The five-year carryback provision of the CARES Act is not available for losses generated in 2021 and subsequent years. At
December 31, 2024, we had $1.4 million of net operating loss carryforwards for federal income tax purposes. The carryovers
were transferred to the Company upon the merger with The Wilton Bank in 2014.
Corporate Dividends-Received Deduction: The Company may exclude from its income 100.0% of dividends received
from the Bank as a member of the same affiliated group of corporations. The corporate dividends received deduction is 80.0%
in the case of dividends received from corporations with which a corporate recipient does not file a consolidated tax return, and
corporations which own less than 20.0% of the stock of a corporation distributing a dividend may deduct only 70.0% of
dividends received or accrued on their behalf.
Excise Tax on Stock Repurchases, The Inflation Reduction Act of 2022 (“IRA”) imposes a 1% excise tax on the aggregate
fair market value of stock repurchased by certain corporations during the taxable year, subject to adjustments. The excise tax
generally applies to any US corporation whose stock is traded on an established securities market and that repurchases more
than $1 million of stock over the course of a tax year.
The Company and the Bank are not currently under audit with respect to their federal tax returns.
State Taxation
We are subject to the Connecticut corporation business tax. The Connecticut corporation business tax is based on the
federal taxable income before net operating loss and special deductions and makes certain modifications to federal taxable
income to arrive at Connecticut taxable income. Connecticut taxable income is multiplied by the state tax rate (7.5% for the
fiscal years ending December 31, 2024 and 2023) to arrive at Connecticut income tax. In addition to Connecticut state income
tax, we are subject to income tax in other states due to business activities conducted therein, including the employment of
personnel and the origination of loans.
In October 2015, the Company created Bankwell Loan Servicing Group, Inc., a Passive Investment Company (“PIC”)
organized for state income tax purposes. The PIC is a wholly-owned subsidiary of the Bank operating in accordance with
Connecticut statutes. The PIC’s activities are limited in scope to holding and managing loans that are collateralized by real
estate. Income earned by a PIC is determined in accordance with the statutory requirements for a passive investment company
and the dividends paid by the PIC to the Bank are not taxable income for Connecticut income tax purposes. As a result of the
formation of the PIC, the Bank no longer expects to be subject to Connecticut income taxes. State taxes are being recognized
for income taxes on income earned in other states.
The Company and the Bank are not currently under audit with respect to their state tax returns.
Item 1A.
Risk Factors
Risks Relating to Our Business
As a business operating in the financial services industry, our business and operations may be adversely affected in
numerous and complex ways by weak economic conditions.
Our businesses and operations, which primarily consist of lending money to clients in the form of loans, borrowing money
from clients in the form of deposits and investing in securities, are sensitive to general business and economic conditions in the
United States and to a lesser degree secondary effects of global geopolitical events. If the U.S. economy weakens, our growth
and profitability from our lending, deposit and investment operations could be constrained. Uncertainty about the federal fiscal
policymaking process, the medium-term and long-term fiscal outlook of the federal government, and future tax rates is a
concern for businesses, consumers and investors in the United States. In addition, economic conditions in foreign countries
could affect the stability of global financial markets, which could hinder U.S. economic growth. Weak economic conditions are
characterized by deflation, fluctuations in debt and equity capital markets, a lack of liquidity and/or depressed prices in the
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secondary market for mortgage loans, increased delinquencies on mortgage, consumer and commercial loans, residential and
commercial real estate price declines and lower home sales and commercial activity. All of these factors are detrimental to our
business, and the interplay between these factors can be complex and unpredictable. Our business is also significantly affected
by monetary and related policies of the U.S. federal government and its agencies. Changes in any of these policies are
influenced by macroeconomic conditions and other factors that are beyond our control. Adverse economic conditions and
government policy responses to such conditions could have a material adverse effect on our business, financial condition,
results of operations and prospects.
We may not be able to adequately measure and limit our credit risk, which could lead to unexpected losses.
The business of lending is inherently risky, including risks that the principal of or interest on any loan will not be repaid
timely or at all or that the value of any collateral supporting the loan will be insufficient to cover our outstanding exposure.
These risks may be affected by the strength of the borrower’s business sector and local, regional and national market and
economic conditions. Our risk management practices, such as monitoring the concentration of our loans within specific
industries and our credit approval practices, may not adequately reduce credit risk, and our credit administrators, policies and
procedures may not adequately adapt to changes in economic or any other conditions affecting clients and the quality of the
loan portfolio. Finally, many of our loans are made to middle-market businesses that may be less able to withstand competitive,
economic and financial pressures than larger borrowers. A failure to effectively measure and limit the credit risk associated with
our loan portfolio could have a material adverse effect on our business, financial condition, results of operations and future
prospects.
Our ACL-Loans may not be adequate to absorb losses inherent in our loan portfolio, which could have a material adverse
effect on our financial condition and results of operations.
We maintain an Allowance for Credit Losses for Loans ("ACL-Loans") to provide for losses inherent in our loan portfolio.
Maintaining an adequate ACL-Loans is critical to our financial results and condition. The level of our ACL-Loans reflects
management’s continuing evaluation of general economic conditions, diversification and seasoning of the loan portfolio,
historic loss experience, identified credit problems, delinquency levels and adequacy of collateral. The determination of the
appropriate level of the ACL-Loans is inherently highly subjective and requires us to make significant estimates of and
assumptions regarding current credit risks and future trends, all of which may undergo material changes. Inaccurate
management assumptions, continuing deterioration of economic conditions affecting borrowers, new information regarding
existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require
us to increase our ACL-Loans. In addition, our regulators, as an integral part of their examination process, review our loans
and the adequacy of our ACL-Loans and may direct us to make additions to our ACL-Loans based on their judgments about
information available to them at the time of their examination. If actual charge-offs in future periods exceed the amounts
allocated to our ACL-Loans, we may need additional provision for credit losses to restore the adequacy of our ACL-Loans. If
we are required to materially increase our level of ACL-Loans for any reason, such increase could have a material adverse
effect on our business, financial condition, results of operations and future prospects.
Our concentration of large loans to certain borrowers may increase our credit risk.
As of December 31, 2024, our five largest relationships ranged in exposure from approximately $80.0 million to
$94.0 million. In addition to other typical risks related to any loan, such as deterioration of the collateral securing the loans, this
high concentration of borrowers presents a risk to our lending operations. If any one of these borrowers becomes unable to
repay a loan obligation(s) for any reason, our nonperforming loans and our ACL-Loans could increase significantly, which
could adversely and materially affect our business, financial condition and results of operations.
Our commercial real estate loan, commercial loan and construction loan portfolios expose us to potentially elevated risks.
Our loan portfolio includes non-owner-occupied commercial real estate loans for individuals and businesses for various
purposes, which are secured by commercial properties. These loans typically involve repayment dependent upon income
generated, or expected to be generated, by the property securing the loan in amounts sufficient to cover operating expenses and
debt service. Commercial real estate loans may be affected to a greater extent than residential loans by adverse conditions in
real estate markets or the economy because commercial real estate borrowers’ ability to repay their loans depends on successful
leasing of their properties, in addition to the factors affecting residential real estate borrowers. These loans also involve greater
risk because they generally are not fully amortizing over the loan period, but have a balloon payment due at maturity. A
borrower’s ability to make a balloon payment typically will depend on being able to either refinance the loan or sell the
underlying property in a timely manner.
These loans expose a lender to greater credit risk than loans secured by residential real estate because the collateral
securing these loans typically cannot be liquidated as easily as residential real estate. Non-owner-occupied commercial real
estate loans generally involve relatively large balances to single borrowers or related groups of borrowers. Accordingly, charge-
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offs on non-owner occupied commercial real estate loans may be larger on a per loan basis than those incurred with our
residential or consumer loan portfolios.
Commercial loans are typically based on the borrowers’ ability to repay the loans from the cash flow of their businesses.
These loans may involve greater risk because the availability of funds to repay each loan depends substantially on the success
of the business itself. In addition, the assets securing the loans have the following characteristics: (a) they depreciate over time,
(b) they are difficult to appraise and liquidate, and (c) they fluctuate in value based on the success of the business.
Risk of loss on a construction loan depends largely upon whether our initial estimate of the property’s value at completion
of construction equals or exceeds the cost of the property construction (including interest), the availability of permanent takeout
financing, the completion of the project and/or the builder’s ability to ultimately lease or sell the property. During the
construction phase, a number of factors can result in delays and cost overruns. If estimates of value are inaccurate or if actual
construction costs exceed estimates, the value of the property securing the loan may be insufficient to ensure full repayment
when completed through a permanent loan or by sale of collateral.
Our underwriting, review and monitoring cannot eliminate all of the risks related to these loans. Unexpected deterioration
in the credit quality of our commercial real estate loan, commercial loan or construction loan portfolios would require us to
increase our provision for credit losses, which would reduce our profitability and could have a material adverse effect on our
business, financial condition, results of operations and future prospects.
Lack of seasoning of our loan portfolio could increase risk of credit defaults in the future.
As a result of our growth in recent years, a large portion of loans in our loan portfolio and of our lending relationships are
of relatively recent origin. In general, loans do not begin to show signs of credit deterioration or default until they have been
outstanding for some period of time, a process referred to as “seasoning.” As a result, a portfolio of older loans will usually
behave more predictably than a newer portfolio. Because a large portion of our portfolio is relatively new, the current level of
delinquencies and defaults may not represent the level that may prevail as the portfolio becomes more seasoned and may not
serve as a reliable basis for predicting the health and nature of our loan portfolio, including net charge-offs and the ratio of
nonperforming assets in the future. Our limited experience with these loans does not provide us with a significant payment
history pattern with which to judge future collectability. As a result, it may be difficult to predict the future performance of our
loan portfolio. If defaults increase, we could experience an increase in delinquencies and charge-offs and we may be required to
increase our ACL-Loans, which could have a material adverse effect on our business, financial condition, results of operations
and prospects.
Our lending limit may restrict our growth and prevent us from effectively implementing our business strategy.
We are limited in the amount we can loan to a single borrower by the amount of our capital. Based upon our current capital
levels and our internal limit on loans, the amount we may lend both in the aggregate and to any one borrower is significantly
less than that of many of our competitors and may discourage potential borrowers who have credit needs in excess of our
lending limit from doing business with us. We accommodate larger loans by selling participations in those loans to other
financial institutions, but this strategy may not always be available. If we are unable to compete effectively for loans from our
target clients, we may not be able to effectively implement our business strategy, which could have a material adverse effect on
our business, financial condition, results of operations and future prospects.
A prolonged downturn in the real estate market could result in losses and adversely affect our profitability.
A high percentage our loan portfolio is comprised of commercial real estate loans. The sale of real estate collateral in each
case provides an alternate source of repayment in the event of default by the borrower and may deteriorate in value during the
time the credit is extended. A decline in real estate values could impair the value of our collateral and our ability to sell the
collateral upon any foreclosure, which would likely require us to increase our ACL-Loans. In the event of a default with respect
to any of these loans, the amounts we receive upon sale of the collateral may be insufficient to recover the outstanding principal
and interest on the loan. If we are required to re-value the collateral securing a loan to satisfy the debt during a period of
reduced real estate values or to increase our ACL-Loans, our profitability could be adversely affected, which could have a
material adverse effect on our business, financial condition, results of operations and prospects.
We are subject to interest rate risk that could negatively impact our profitability.
Our profitability, like that of most financial institutions, depends to a large extent on our net interest income, which is the
difference between our interest income on interest-earning assets, such as loans and investment securities, and our interest
expense on interest bearing liabilities, such as deposits and borrowings.
Interest rates are highly sensitive to numerous factors that are beyond our control, including general economic conditions
and policies of various governmental and regulatory agencies, most notably the FRB through the Federal Open Market
Committee. Beginning in 2022, the FRB initiated an aggressive monetary tightening cycle to combat rising inflation, resulting
in a significant and rapid increase in the federal funds rate. This tightening cycle culminated in the target federal funds rate
20
range reaching a high of 5.25%-5.50%. While the FRB subsequently decreased the target range by 100 basis points in 2024,
citing factors such as moderating inflationary pressures and continued job and wage growth, the cumulative effect of the prior
increases continued to shape the interest rate environment.
Changes in monetary policy, particularly changes in interest rates, influence the interest we earn on loans and securities,
the interest we pay on deposits and borrowings, and our ability to originate loans and attract deposits. Furthermore, such
changes affect the fair value of our financial assets and liabilities, as well as the average duration of our assets. If interest rates
paid on deposits and other borrowings increase faster than the interest rates we receive on loans and other investments, our net
interest income, and consequently our net income, could be adversely affected. Periods of market volatility and instability may
increase our funding costs and negatively affect our market risk mitigation strategies. Any substantial, unexpected, or
prolonged change in market interest rates could have a material adverse effect on our business, financial condition, results of
operations, and future prospects.
In addition, increased interest rates could also have a negative impact on our results of operations by reducing the ability of
borrowers to repay their current loan obligations. These circumstances could not only result in increased loan defaults,
foreclosures and charge-offs, but also necessitate further increases to our ACL-Loans, each of which could have a material
adverse effect on our business, results of operations, financial condition and future prospects.
Strong competition could reduce our profits and slow growth.
Competition in the financial services industry is strong. Numerous commercial banks, savings banks and savings
associations maintain offices or are headquartered in or near our market area. Commercial banks, savings banks, savings
associations, money market funds, mortgage brokers, finance companies, credit unions, insurance companies, investment firms
and private lenders compete with us for various components of our business. These competitors often have far greater resources
than we do and are able to conduct more intensive and broader based promotional efforts to reach both commercial and
individual clients.
Our ability to compete successfully will depend on a number of factors, including, among other things:
•
Our ability to build and maintain long-term client relationships while ensuring high ethical standards and safe and
sound banking practices;
•
The scope, relevance, and pricing of products and services that we offer;
•
Client satisfaction with our products and personalized services;
•
Industry and general economic trends; and
•
Our ability to keep pace with technological advances and to invest in new technology.
Increased competition could require us to increase the rates we pay on deposits or lower the rates we offer on loans, which
could reduce our profitability. Our failure to compete effectively could cause us to lose market share and could have a material
adverse effect on our business, financial condition, results of operations and future prospects.
Our ability to maintain our reputation is critical to the success of our business.
Our reputation is one of the most valuable components of our business. We strive to conduct our business in a manner that
enhances our reputation. This is done, in part, by recruiting, hiring and retaining employees who share our core values of
delivering superior service to our clients, caring about our clients and associates, and being an integral part of the communities
we serve. If our reputation is negatively affected by the actions of our employees, or otherwise, our business and, therefore, our
operating results may be materially adversely affected.
21
We are dependent on our executive management team and other key employees, and we could be adversely affected by the
unexpected loss of their services.
We are led by an experienced executive management team and our operating strategy focuses on providing products and
services through long-term relationship managers. Accordingly, our success depends in large part on the performance of our
key employees, as well as on our ability to attract, motivate and retain highly qualified senior and middle management.
Competition for employees is intense, and the process of identifying qualified candidates with the combination of skills and
attributes required to execute our business plan may be lengthy. The general economic conditions plus other factors have made
it more difficult to retain employees and to attract new employees. We believe that retaining the services and skills of our
executive management team is important to our success. The unexpected loss of services of any of our key employees could
have an adverse impact on us because of their skills, knowledge of our market, years of industry experience and the difficulty of
promptly finding qualified replacement employees. If any of our key employees should become unavailable for any reason, we
may be unable to identify and hire qualified candidates on acceptable terms, which could cause a material adverse effect on our
business, financial condition, results of operations and future prospects.
We may not be able to execute our strategic plan.
As part of our strategic plan, we pursue initiatives focused on the organic development and growth of our franchise. Our
initiatives focus on delivering superior service to our clients, coupling technology with our deep client relationships. Our ability
to execute these initiatives requires investment in resources as well as hiring and retaining skilled employees. Our success will
depend on the ability of our management team to manage multiple, concurrent initiatives designed to improve our operational
systems and expand our product offerings. Our inability to execute on these initiatives may negatively impact our ability to
attract new client relationships, maintain existing client relationships and may adversely impact our operating results.
Failure or disruption of the operating systems and technologies we use, including those of third parties, could adversely
affect our business.
We rely on communication and information systems to conduct business, many of which are provided by third-party
providers. Potential failures, interruptions or breaches in system security could result in disruptions or failures in our key
systems, such as general ledger, deposit or loan systems as well as online banking, including our online account opening
channel, Bankwell Direct. The risk of electronic fraudulent activity within the financial services industry, especially in the
commercial banking sector due to cyber criminals targeting bank accounts and other client information is on the rise. We have
developed policies and procedures aimed at preventing and limiting the effect of failure, interruption or security breaches,
including cyber-attacks of information systems; however, there can be no assurance that these incidences will not occur, or if
they do occur, that they will be appropriately addressed. Furthermore, we may not be able to ensure all our third-party providers
have appropriate controls in place to protect themselves and our information in the event of a cyber-attack. The occurrence of
any failures, interruptions, or security breaches, including cyber-attacks of our information systems and those of our third-party
providers could damage our reputation, result in the loss of business, subject us to increased regulatory scrutiny or to civil
litigation and possible financial liability, any of which could have an adverse effect on our results of operation and financial
condition.
Unauthorized access, cyber-crime, and other threats to data security, including those posed by artificial intelligence, may
require significant resources, harm our reputation, and adversely affect our business.
We necessarily collect, use and hold personal and financial information concerning individuals and businesses with which
we have a banking relationship. Threats to data security, including unauthorized access and cyber-attacks, rapidly emerge and
change, exposing us to additional costs for protection or remediation and competing time constraints to secure our data in
accordance with client expectations and statutory and regulatory privacy and other requirements. It is difficult or impossible to
defend against every risk being posed by changing technologies, including the deployment of artificial intelligence ("AI") as
well as criminals intent on committing cyber-crime. The increasing sophistication of cyber-criminals and terrorists make
keeping pace with new threats difficult and could result in a breach. Controls employed by our information technology
department and our other employees and third-party providers could prove inadequate. We could also experience a breach due
to intentional or negligent conduct on the part of employees or other internal sources, software bugs or other technical
malfunctions, or other causes. As a result of any of these threats, our client accounts may become vulnerable to account
takeover schemes or cyber-fraud. Our systems and those of our third-party providers may also become vulnerable to damage or
disruption due to circumstances beyond our or their control, such as from catastrophic events, power anomalies or outages,
natural disasters, network failures, and viruses and malware.
A breach of our security, or that of any of our third-party providers, which results in unauthorized access to our data could
expose us to a disruption or challenges relating to our daily operations as well as to data loss, litigation, damages, fines and
penalties, significant increases in compliance costs, and reputational damage, any of which could have a material adverse effect
on our business, results of operations, financial condition and future prospects.
22
We are subject to losses due to fraudulent and negligent acts on the part of loan applicants, our clients, vendors, bad actors,
and/or our employees.
When we originate loans, we rely heavily upon information supplied by third parties, including the information contained
in the loan application, property appraisal, title information and employment and income documentation. Additionally, the
current and potential future utilization of AI by the Company in support of loan origination could create additional risk for
misrepresented information. If any of this information is intentionally or negligently misrepresented and such misrepresentation
is not detected prior to loan funding, the value of the loan may be significantly lower than expected. Whether a
misrepresentation is made by the loan applicant, our clients, vendors, bad actors, and/or one of our employees, we generally
bear the risk of loss associated with the misrepresentation. A loan subject to a material misrepresentation is typically unsaleable
or subject to repurchase if it is sold prior to detection of the misrepresentation, and the persons and entities involved are often
difficult to locate and it is often difficult to collect any monetary losses that we have suffered from them. We cannot provide
assurance that we have detected or will detect all misrepresented information in our loan originations, however, we have
controls and processes designed to help us identify misrepresented information in our loan origination operations, including
human oversight of AI activity.
As a financial institution, we are inherently exposed to risk in the form of theft and other fraudulent activities by clients,
vendors, bad actors, and/or employees targeting the Bank or our clients. These activities can manifest in many forms, including
check fraud, electronic fraud, wire fraud, phishing, social engineering, and other dishonest acts. The increasing sophistication of
fraudulent activity could damage our reputation, result in the loss of business, subject us to increased regulatory scrutiny or to
civil litigation and possible financial liability. Any of these outcomes could have an adverse effect on our results of operation
and financial condition. To mitigate these risks, we maintain effective policies and internal controls, leverage technology, and
provide ongoing employee training focused on identifying and preventing such incidents.
We may be unsuccessful in identifying and completing the acquisition of whole financial institutions or related lines of
business.
In addition to pursuing organic growth, we may consider the acquisition of whole financial institutions or related lines of
business to achieve desired growth. There are numerous execution risks with acquisitions, and we cannot assure you that we
will be successful in such pursuits.
We may consider acquisition opportunities that we believe complement our activities and can enhance our profitability.
Acquisition activities could be material to our business and involve a number of risks and challenges, including but not limited
to:
•
Incurring time and expense associated with identifying and evaluating potential acquisitions and negotiating potential
transactions, resulting in our attention being diverted from the operation of our existing business;
•
Encountering competition for acquisitions from financial institutions and other entities with similar business strategies
that have greater financial resources, relevant experience and more employees;
•
Obtaining regulatory approvals with respect to acquisitions, and ensuring that we will not become subject to regulatory
actions in the future that could restrict our growth;
•
Using inaccurate estimates and judgments to evaluate credit, operations, management and market risks with respect to
the target institution or assets;
•
Potential exposure to unknown or contingent liabilities of banks and businesses we acquire;
•
The time and expense required to integrate the operations and employees of the combined businesses;
•
Inconsistencies in standards, controls, procedures and policies that adversely affect our ability to maintain relationships
with clients, depositors and employees or to achieve the anticipated benefits of the acquisition; or
•
Risks of impairment to goodwill or other than temporary impairment.
Depending on the condition of any institution or assets or liabilities that we may acquire, that acquisition may, at least in
the near term, adversely affect our capital and earnings and, if not successfully integrated with our organization, may continue
to have such effects over a longer period. We may not be successful in overcoming these risks or any other problems
encountered in connection with pending or potential acquisitions, and any acquisition we may consider will be subject to prior
regulatory approval. Our inability to overcome these risks could have an adverse effect on our profitability, return on equity and
return on assets, our ability to grow and enhance shareholder value, which, in turn, could have a material adverse effect on our
business, financial condition, results of operations and prospects. Further, if we experience difficulties with the integration
process, the anticipated benefits of the investment or acquisition transaction may not be realized fully or at all or may take
longer to realize than expected.
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Some institutions we may acquire may have distressed assets and there can be no assurance that we would be able to realize
the value we predict from these assets or that we would make sufficient provision for future losses in the value of, or
accurately estimate the future write downs taken in respect of, these assets.
Declines in real estate prices and/or weak general economic conditions may result in increases in delinquencies and losses
in the loan portfolios and other assets of financial institutions that we may acquire in amounts that exceed our initial forecasts
developed during the due diligence investigation prior to acquiring those institutions. In addition, asset values may be impaired
in the future due to factors we cannot predict, including significant deterioration in economic conditions and further declines in
collateral values and credit quality indicators. Any of these events could adversely affect the financial condition, liquidity,
capital position and value of any institutions that we acquire and of the Company as a whole.
As a result of an investment or acquisition transaction, we may be required to take write-downs or write-offs, restructuring
and impairment or other charges that could have a significant negative effect on our financial condition and results of
operations, which could cause you to lose some or all of your investment.
We must conduct due diligence investigations of target institutions we intend to acquire. Intensive due diligence is time
consuming and expensive due to the operations, accounting, finance and legal professionals who must be involved. Even if we
conduct extensive due diligence on a target institution, this diligence may not reveal all material issues that may affect a
particular target institution, and factors outside the control of the target institution and outside of our control may later arise. If,
during our diligence process, we fail to identify issues specific to a target institution or the environment in which the target
institution operates, we may be forced to later write down or write off assets, restructure our operations, or incur impairment or
other charges that could result in our reporting losses. These charges may also occur if we are not successful in integrating and
managing the operations of the target institution with which we combine. In addition, charges of this nature may cause us to
violate net worth or other covenants to which we may be subject as a result of assuming preexisting debt held by a target
institution or by virtue of our obtaining debt financing.
We may be required to repurchase mortgage loans or indemnify buyers against losses in some circumstances, which could
harm liquidity, results of operations and financial condition.
When mortgage loans are sold, whether as whole loans or pursuant to a securitization, we are required to make customary
representations and warranties to purchasers, guarantors and insurers, including government-sponsored entities, about the
mortgage loans and the manner in which they were originated. Whole loan sale agreements require us to repurchase or
substitute mortgage loans, or indemnify buyers against losses, in the event we breach these representations or warranties. In
addition, we may be required to repurchase mortgage loans as a result of early payment default of the borrower on a mortgage
loan. If repurchase and indemnity demands increase and such demands are valid claims and are in excess of our provision for
potential losses, our liquidity, results of operations and financial condition may be adversely affected.
The fair value of our investment securities can fluctuate due to factors outside of our control.
Factors beyond our control can significantly influence the fair value of securities in our portfolio and can cause potential
adverse changes to the fair value of these securities. These factors include, but are not limited to, rating agency actions with
respect to individual securities, defaults by the issuer or with respect to the underlying securities, changes in market interest
rates, and continued instability in the capital markets. Any of these factors, among others, could cause credit losses and realized
and/or unrealized losses in future periods and declines in other comprehensive income, which could materially and adversely
affect our business, results of operations, financial condition and prospects. The process for determining whether credit losses
of a security usually requires complex, subjective judgments about the future financial performance and liquidity of the issuer
and any collateral underlying the security in order to assess the probability of receiving all contractual principal and interest
payments on the security.
We are subject to environmental liability risk associated with our lending activities.
In the course of our business, we may purchase real estate, or we may foreclose on and take title to real estate. As a result,
we could be subject to environmental liabilities with respect to these properties. We may be held liable to a governmental entity
or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection
with environmental contamination or may be required to investigate or clean up hazardous or toxic substances or chemical
releases at a property. The costs associated with investigation or remediation activities could be substantial. In addition, if we
are the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on
damages and costs resulting from environmental contamination emanating from the property. Any significant environmental
liabilities could cause a material adverse effect on our business, financial condition, results of operations and future prospects.
24
Climate change and related legislative and regulatory initiatives may materially affect the Company’s business and results of
operations.
The effects of climate change continue to create an alarming level of concern for the state of the global environment. As a
result, the global business community has increased its political and social awareness surrounding the issue. Further, U.S.
Congress, state legislatures and federal and state regulatory agencies continue to propose numerous initiatives to supplement the
global effort to combat climate change. The lack of empirical data surrounding the credit and other financial risks posed by
climate change render it impossible to predict how specifically climate change may impact our financial condition and results of
operations; however, the physical effects of climate change may also directly impact us. Specifically, unpredictable and more
frequent weather disasters may adversely impact the value of real property securing the loans in our portfolios. Additionally, if
insurance obtained by our borrowers is insufficient to cover any losses sustained to the collateral, or if insurance coverage is
otherwise unavailable to our borrowers, the collateral securing our loans may be negatively impacted by climate change, which
could impact our financial condition and results of operations. Further, the effects of climate change may negatively impact
regional and local economic activity, which could lead to an adverse effect on our clients and impact the communities in which
we operate. Overall, climate change, its effects and the resulting, unknown impact could have a material adverse effect on our
financial condition and results of operations.
Adverse developments affecting the financial services industry, such as bank failures, may adversely affect the Bank’s
results of operations and financial condition, including capital and liquidity.
Bank failures may have a profound impact on the national, regional, and local business environment in which the Bank
operates. Although we were not directly affected by the bank failures which occurred in 2023, the speed and ability of
depositors to withdraw their funds from these and other financial institutions contributed to the broader volatility in the banking
sector observed during the year. In response to these failures and the resulting market reaction, various agencies of the U.S.
government took steps to protect depositors and bolster banks’ liquidity, but it is uncertain that these or any other potential
future actions will be sufficient to reduce the risk of future bank failures or significant depositor withdrawals. Any future bank
failure events may adversely impact the Bank’s future operating results and financial condition, including capital and liquidity.
Risks Applicable to the Regulation of our Industry
We operate in a highly regulated environment, which could have a material and adverse impact on our operations and
activities, financial condition, results of operations, growth plans and future prospects.
Banking is highly regulated under federal and state law. We are subject to extensive regulation and supervision that
governs almost all aspects of our operations. As a registered bank holding company, we are subject to supervision, regulation
and examination by the Federal Reserve. As a commercial bank chartered under the laws of Connecticut, the Bank is subject to
supervision, regulation and examination by the State of Connecticut Department of Banking and the FDIC.
The primary goals of the bank regulatory system are to maintain a safe and sound banking system and to facilitate the
conduct of sound monetary policy. This system is intended primarily for the protection of the FDIC’s Deposit Insurance Fund
and bank depositors, rather than our shareholders and creditors. The banking agencies have broad enforcement power over bank
holding companies and banks, including the authority, among other things, to enjoin “unsafe or unsound” practices, require
affirmative action to correct any violation or practice, issue administrative orders that can be judicially enforced, direct
increases in capital, direct the sale of subsidiaries or other assets, limit dividends and distributions, restrict growth, assess civil
monetary penalties, remove officers and directors, and, with respect to banks, terminate our charter, terminate our deposit
insurance or place the Bank into conservatorship or receivership. In general, these enforcement actions may be initiated for
violations of laws and regulations or unsafe or unsound practices.
Compliance with the myriad of laws and regulations applicable to our organization can be difficult and costly. In addition,
these laws, regulations and policies are subject to continual review by governmental authorities, and changes to these laws,
regulations and policies, including changes in interpretation or implementation of these laws, regulations and policies, could
affect us in substantial and unpredictable ways and often impose additional compliance costs. Further, any new laws, rules and
regulations, could make compliance more complex or expensive. All of these laws and regulations, and the supervisory
framework applicable to our industry, could have a material adverse impact on our operations and activities, financial condition,
results of operations, growth plans and future prospects.
25
Federal and state regulators periodically examine our business and we may be required to remediate adverse examination
findings.
The Federal Reserve, the FDIC and the Connecticut Department of Banking periodically examine our business, including
our compliance with laws and regulations. If, as a result of an examination, a regulatory agency were to determine that our
financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any of our
operations had become unsatisfactory, or that we were in violation of any law or regulation, it may take a number of different
remedial actions as it deems appropriate. These actions include the power to enjoin “unsafe or unsound” practices, to require
affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be
judicially enforced, to direct an increase in our capital, to restrict our growth, to assess civil monetary penalties against our
officers or directors, to remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is
an imminent risk of loss to depositors, to terminate our deposit insurance and place us into receivership or conservatorship. Any
regulatory action against us could have a material adverse effect on our business, results of operations, financial condition and
future prospects.
The Bank’s FDIC deposit insurance premiums and assessments may increase.
The deposits of the Bank are insured by the FDIC up to legal limits and, consequently, subject it to the payment of FDIC
deposit insurance assessments. The Bank’s regular assessments are determined by its risk classification, which is based on its
regulatory capital levels and the level of supervisory concern that it poses. Any future special assessments, increases in
assessment rates or required prepayments in FDIC insurance premiums could reduce our profitability or limit our ability to
pursue certain business opportunities, which could materially and adversely affect our business, financial condition, results of
operations and prospects.
The Bank is subject to further reporting requirements under FDIC regulations.
We are subject to reporting requirements under the rules of the FDIC, including a requirement for management to prepare
a report that contains an assessment by management of the Bank’s effectiveness of internal control structure and procedures for
financial reporting as of the end of such fiscal year. In addition, we are required to obtain an independent public accountant’s
attestation report concerning our internal control structure over financial reporting. The rules for management to assess the
Bank’s internal controls over financial reporting are complex, and require significant documentation, testing and possible
remediation. The effort to comply with regulatory requirements relating to internal controls causes us to incur increased
expenses and diverts management’s time and other internal resources. If the Bank cannot favorably assess the effectiveness of
its internal controls over financial reporting, or if its independent registered public accounting firm is unable to provide an
unqualified attestation report on the Bank’s internal controls, the price of our common stock as well as investor confidence
could be adversely affected and we may be subject to additional regulatory scrutiny.
We are subject to numerous laws designed to protect consumers, including the Community Reinvestment Act, or CRA, and
fair lending laws, and failure to comply with these laws could lead to a wide variety of sanctions.
Various laws impose nondiscriminatory lending requirements on financial institutions, including the CRA, the Equal
Credit Opportunity Act and the Fair Housing Act. A successful regulatory challenge to an institution’s performance under the
CRA or fair lending laws and regulations could result in a wide variety of sanctions, including damages and civil money
penalties, injunctive relief, restrictions on mergers and acquisitions activity, restrictions on expansion, and restrictions on
entering new business lines. Private parties may also have the ability to challenge an institution’s performance under fair
lending laws in private class action litigation. Such actions could have a material adverse effect on our business, financial
condition, results of operations and prospects.
We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering
statutes and regulations.
Financial institutions are required to institute and maintain an effective anti-money laundering program and file suspicious
activity and currency transaction reports as appropriate under The Bank Secrecy Act, The USA PATRIOT ACT of 2001 and
certain other laws and regulations. Significant civil penalties can be assessed by a variety of regulators and governmental
agencies for violations of these laws and regulations. If our policies, procedures and systems are deemed deficient, we would be
subject to liability, including fines and regulatory actions, which may include restrictions on our ability to pay dividends and the
necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including our acquisition plans.
Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have
serious reputational consequences for us. Any of these results could materially and adversely affect our business, financial
condition, results of operations and prospects.
26
General Risk Factors
Resources could be expended in considering or evaluating potential acquisitions that are not consummated, which could
materially and adversely affect subsequent attempts to locate and acquire or merge with another business.
We anticipate that the process of identifying and investigating institutions for potential acquisitions and the negotiation,
drafting and execution of relevant agreements, disclosure documents and other instruments will require substantial management
time and attention and substantial costs for accountants, attorneys and others. If a decision is made not to complete a specific
acquisition transaction, the costs incurred up to that point for the proposed transaction likely would not be recoverable.
Furthermore, even if an agreement is reached relating to a specific target institution, we may fail to consummate the transaction
for any number of reasons, including those beyond our control. Any such event will result in a loss to us of the related costs
incurred, which could materially and adversely affect subsequent attempts to locate and acquire or merge with another
institution.
We may be adversely affected by the soundness of other financial institutions.
Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness
of other financial institutions. Financial services companies are interrelated as a result of trading, clearing, counterparty, and
other relationships. We have exposure to different industries and counterparties, and through transactions with counterparties in
the financial services industry, including broker-dealers, commercial banks, investment banks, and other financial
intermediaries. Further, our private banking channel relies on relationships with a number of other financial institutions for
referrals. As a result, declines in the financial condition of, or even rumors or questions about, one or more financial
institutions, financial service companies or the financial services industry generally, may lead to market-wide liquidity, asset
quality or other problems and could lead to losses or defaults by us or by other institutions. These problems, losses or defaults
could have a material adverse effect on our business, financial condition, results of operations and future prospects.
We rely on third parties to provide key components of our business infrastructure, and failure of these parties to perform for
any reason could disrupt our operations.
Our business depends on the successful and uninterrupted functioning of our information technology and
telecommunications systems and third-party servicers. The failure of these systems (including cyber attacks), or the termination
of a third-party software license or service agreement on which any of these systems is based, could interrupt our operations.
Because our information technology and telecommunications systems interface with and depend on third-party systems, we
could experience service denials if demand for such services exceeds capacity or such third-party systems fail or experience
interruptions. If significant, sustained or repeated, a system failure or service denial could compromise our ability to operate
effectively, damage our reputation, result in a loss of client business, and subject us to additional regulatory scrutiny and
possible financial liability, any of which could have a material adverse effect on our business, financial condition, results of
operations and prospects.
We may incur impairment to goodwill.
We test our goodwill for impairment at least annually. Significant negative industry or economic trends, reduced estimates
of future cash flows or disruptions to our business, could indicate that goodwill might be impaired. Our valuation methodology
for assessing impairment requires management to make judgments and assumptions based on historical experience and to rely
on projections of future operating performance. Projections of future operating results and cash flows may vary significantly
from actual results. Additionally, if our analysis results in impairment to our goodwill, we would be required to record a non-
cash charge to earnings in our financial statements during the period in which such impairment is determined to exist. Any such
charge could have a material adverse effect on our results of operations.
Increasing scrutiny and evolving expectations from clients, regulators, investors, and other stakeholders with respect to our
environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks.
Companies are facing increasing scrutiny from clients, regulators, investors, and other stakeholders related to their
environmental, social and governance (“ESG”) practices and disclosure. Investor advocacy groups, investment funds and
influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and
safety, diversity, labor conditions and human rights. Increased ESG related compliance costs could result in increases to our
overall operational costs. Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and
standards could negatively impact our reputation, ability to do business with certain partners, and our stock price. New
government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and
voluntary reporting, diligence, and disclosure.
Item 1B.
Unresolved Staff Comments
Not applicable.
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Item 1C.
Cybersecurity
Cybersecurity Risk Management and Strategy
The Company’s risk management program for cybersecurity is integrated into our risk management and general
compliance programs and processes. Our cybersecurity program utilizes a layered, defense-in-depth strategy to identify and
mitigate cybersecurity threats. Our Information Security Officer ("ISO") is responsible for the day-to-day management of the
Company’s global information security program, which includes defining policies and procedures to safeguard our information
systems and data, conducting vulnerability, threat and third-party information security assessments, information security event
management (i.e., responding to ransomware and other cyber-attacks, business continuity and recovery), evaluating external
cyber intelligence, supporting industry cybersecurity efforts and working with governmental agencies. The information security
team also develops training for employees to support adherence to the Company’s policies and procedures, along with
increasing awareness of cyber-related risk. The personnel training includes, but is not limited to, mandatory onboarding
training, phishing simulations with automated remediation training, table-top incident response exercises, and educational
intranet posting and email campaigns.
The Company leverages the U.S. Department of Commerce’s National Institute of Standards and Technology
Cybersecurity Framework ("the NIST Framework") as the foundation of its global information security program. The NIST
Framework provides standards, guidelines, and practices for organizations to better manage and reduce cybersecurity risk and is
designed to foster risk and cybersecurity management communications amongst both internal and external organizational
stakeholders. The Company’s ISO works with independent, third-party consultants to assess the maturity of the Company’s
cybersecurity program within the NIST Framework and to develop strategic areas of focus for the Company’s program
commensurate with the Company’s business objectives.
As part of the Company’s information security program, we leverage both internal and external assessments and
partnerships with industry leaders to help approach information security company-wide. Additionally, we maintain a
comprehensive program that defines standards for the planning, sourcing, management, and oversight of third-party
relationships and third-party access to our system, facilities, and/or confidential or proprietary data.
Cybersecurity incidents may create risk to the Company that may impact its reputation, financial performance, ability to
operate safely or at all, and the value of its intellectual property. Like most corporations, the Company is the target of industrial
espionage, including cyberattacks, from time to time. The Company has determined that these incidents have resulted, and
could result in the future, in unauthorized parties gaining access to certain confidential business information. However, to date,
the Company has not experienced any known cybersecurity incidents that have materially affected the Company, including the
Company's results of operations and financial condition, changes in the competitive environment, business operations and
strategy. Although management does not believe that the Company has experienced any material losses to date related to
cybersecurity incidents, there can be no assurance that the Company will not suffer such losses in the future. For more
information on potential risk related to cybersecurity incidents, including intellectual property theft and operational disruption,
please see “Item 1A – Risk Factors” of this report.
Cybersecurity Governance
The Audit Committee and Risk Committee of the Board of Directors provide oversight of Company cybersecurity risks.
The Risk Committee conducts a minimum of one cybersecurity program update per year, including a review of capital spend,
budget, and staffing, as well as periodic reports on cybersecurity threats, awareness training, and key risk indicators related to
the Company’s progress on risk mitigation activities. Annually, the Audit Committee reviews and recommends to the Board
approval of management's recommendations on cybersecurity insurance. The Risk Committee reviews the Company’s oversight
related to cybersecurity risks, to ensure that Board oversight of such risks remains appropriate and that risks are appropriately
managed.
The Company’s Chief Information Officer ("CIO") oversees the Company’s information technology programs and
investments. The Company’s CIO has over 20 years of information technology experience, including ten years in various
information technology leadership roles. Our CIO holds a Bachelor of Science in Information Technology. The Company’s
Chief Security Officer ("CSO") reports to the Chief Risk Officer and oversees the Company’s information security programs.
The CSO possesses over 20 years of Information Security and Technology experience.
Our Risk Management Committee, which includes the Company’s Chief Risk Officer (Chair), Director of Risk
Management and CSO, assesses and monitors the effectiveness of the Company’s cybersecurity risk management program. The
Company’s internal audit function also performs independent reviews and validation of the program, including policies and
procedures as determined by their annual risk assessment.
28
Both the CIO and CSO regularly report to the Board's Risk Committee on the Company’s identification, prevention,
detection, mitigation and remediation of cybersecurity risks and incidents. In 2024, the Risk Committee reviewed the
Company’s cybersecurity program and maturity assessment, provided regular oversight of cybersecurity risks, with
cybersecurity discussions and dashboard reviews of key performance indicators and risks during the course of the year. With
respect to specific incidents, the Company leverages an incident response framework to elevate and evaluate specific incidents
to the CIO and CSO, along with the Company’s senior leadership, including the finance, compliance, and legal functions. In the
event of a potentially material cybersecurity incident, the Risk Committee would be immediately notified and briefed.
In January 2025, the Company hired a Chief Technology Officer ("CTO"), who oversees the Company’s information
technology programs and investments. The CTO now encompasses the responsibilities previously held by the Chief
Information Officer.
Item 2.
Properties
The Bank’s headquarter building is located at 258 Elm Street in New Canaan, Connecticut. The property is leased by us
until 2031.
We also lease office space for each of our branch offices in New Canaan, Stamford, Norwalk, Fairfield, Darien, and
Westport, Connecticut. The leases for our facilities have terms expiring at dates ranging from 2028 to 2033, although certain of
the leases contain options to extend beyond these dates. We own the Hamden branch office. We believe that our current
facilities are adequate for our current level of operations. Each lease is at market rate based on similar properties in the
applicable market area. Management continually evaluates its branch and other office locations for opportunities to maximize
cost savings while meeting our growth needs and the needs of our clients.
Our branch office locations are as follows:
Branch
Address
Owned or Leased
Cherry Street
156 Cherry Street New Canaan, CT 06840
Lease (expires 2031)
Atlantic Street
300 Atlantic Street Stamford, CT 06901
Lease (expires 2033)
High Ridge
1095 High Ridge Road Stamford, CT 06905
Lease (expires 2028)
Black Rock
2220 Black Rock Turnpike Fairfield, CT 06825
Lease (expires 2029)
Sasco Hill
One Sasco Hill Road Fairfield, CT 06824
Lease (expires 2031)
Norwalk
370 Westport Avenue Norwalk, CT 06851
Lease (expires 2029)
Hamden
2704 Dixwell Avenue Hamden, CT 06518
Own
Westport
100 Post Road East Westport, CT 06880
Lease (expires 2028)
Darien
1065 Post Road Darien, CT 06820
Lease (expires 2028)
Item 3.
Legal Proceedings
From time to time we are a party to various litigation matters incidental to the conduct of our business. We are not
presently party to any legal proceedings the resolution of which we believe would have a material adverse effect on our
business, future prospects, financial condition, liquidity, results of operation, cash flows or capital levels.
Item 4.
Mine Safety Disclosures
Not applicable.
29
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
The Company’s Common Stock has traded on the Nasdaq Global Market under the Symbol “BWFG” since the completion
of its initial public offering on May 15, 2014.
There were approximately 241 shareholders of record of BWFG Common Stock as of December 31, 2024. This number
does not reflect the number of persons or entities holding stock in nominee name through banks, brokerage firms or other
nominees.
The Company’s shareholders are entitled to dividends when and if declared by the Board of Directors, out of funds legally
available. The ability of the Company to pay dividends depends, in part, on the ability of the Bank to pay dividends to the
Company. In accordance with Connecticut statutes, regulatory approval is required for the Bank to pay dividends in excess of
the Bank’s profits retained in the current year plus retained profits from the previous two years. The Bank is also prohibited
from paying dividends that would reduce its capital ratios below minimum regulatory requirements.
Issuer Purchases of Equity Securities
The following table includes information with respect to repurchases of the Company’s Common Stock during the
three-month period ended December 31, 2024 under the Company’s share repurchase program.
Issuer Purchases of Equity Securities
Period
Total Number
of Shares (or
Units)
Purchased
Average Price
Paid per Share
(or Unit)
Total Number
of Shares (or
Units)
Purchased as
Part of Publicly
Announced
Plans or
Programs
Maximum
Number (or
Approximate
Dollar Value) of
Shares (or Units)
that May Yet Be
Purchased Under
the Plans or
Programs(1)
October 1, 2024 - October 31, 2024 ..............
— $
—
—
250,000
November 1, 2024 - November 30, 2024 ......
—
—
—
250,000
December 1, 2024 - December 31, 2024 ......
—
—
—
250,000
Total ...........................................................
— $
—
—
250,000
(1) On December 19, 2018, the Company’s Board of Directors authorized a share repurchase program ("Prior Plan") of up to
400,000 shares of the Company’s Common Stock. On October 27, 2021, the Company's Board of Directors authorized the
repurchase of an additional 200,000 shares under the Prior Plan. To date, the Company has purchased 535,802 shares of the
Company’s common stock pursuant to the Prior Plan.
On October 28, 2024, the Company announced that on October 23, 2024, its Board of Directors authorized a share repurchase
plan ("New Plan"). Under the terms of the New Plan, the Company is authorized to purchase up to 250,000 shares of its
outstanding common stock. In connection with the authorization of the New Plan, the Company terminated the Prior Plan.
The Company intends to accomplish the share repurchases through open market transactions, although 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 (such as 10b-18 and 10b5-1 rules under the Securities
Exchange Act of 1934) and other factors. The New 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. The Company expects to fund
any repurchases from cash on hand.
Subsequent to December 31, 2024 through March 4, 2025, the Company purchased 16,920 shares of its Common Stock at a
weighted average price of $31.15.
Item 6.
[Reserved]
30
Item 7.
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 consolidated financial statements and related notes contained
elsewhere in this annual report. 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 sections titled
“Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors”. We assume no obligation to update any of
these forward-looking statements.
General
Bankwell Financial Group, Inc. (the "Parent Corporation") is a bank holding company headquartered in New Canaan,
Connecticut. The Parent Corporation offers a broad range of financial services through its banking subsidiary, Bankwell Bank
(the "Bank" and, collectively with the Parent Corporation and the Parent Corporation's subsidiaries, "we", "our", "us", or the
"Company").
The Bank is a Connecticut state chartered commercial bank, founded in 2002, whose deposits are insured under the
Deposit Insurance Fund administered by the Federal Deposit Insurance Corporation (“FDIC”). The Bank provides a wide range
of services to clients in our market, an area encompassing approximately a 100 mile radius around our branch network. In
addition, the Bank pursues certain types of commercial lending opportunities outside our market, particularly where we have
strong relationships. The Bank operates nine branches in New Canaan, Stamford, Fairfield, Westport, Darien, Norwalk, and
Hamden, Connecticut.
The following discussion and analysis presents our results of operations and financial condition on a consolidated basis.
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 ACL-Loans to total loans,
return on average assets and return on average equity, among other metrics, while maintaining appropriate regulatory leverage
and risk-based capital ratios.
Selected Financial Data
The following table sets forth selected consolidated financial data as of the dates and for the periods presented. The
selected consolidated balance sheet data as of December 31, 2024 and 2023 and the selected consolidated statement of income
data for the years ended December 31, 2024 and 2023 have been derived mainly from our audited consolidated financial
statements and related notes that we have included elsewhere in this Annual Report. The selected consolidated balance sheet
data as of December 31, 2022, 2021, and 2020 and the selected consolidated statement of income data for the years ended
December 31, 2022, 2021, and 2020 has been derived mainly from audited consolidated financial statements that are not
presented in this Annual Report.
The selected historical consolidated financial data as of any date and for any period are not necessarily indicative of the
results that may be achieved as of any future date or for any future period. You should read the following selected statistical and
financial data in conjunction with the more detailed information contained in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and our consolidated financial statements and the related notes that we have
presented elsewhere in this Annual Report.
31
Selected Financial Data
At or For the Years Ended December 31,
2024
2023
2022
2021
2020(f)
(Dollars in thousands, except per share data)
Statements of Income:
Interest income ......................................................................................... $
191,994
$
188,454
$
117,945
$
81,376
$
77,487
Interest expense ........................................................................................
108,712
93,986
23,202
13,490
22,652
Net interest income ..................................................................................
83,282
94,468
94,743
67,886
54,835
Provision (credit) for credit losses ...........................................................
22,620
866
5,437
(57)
7,605
Net interest income after provision for credit losses ...............................
60,662
93,602
89,306
67,943
47,230
Noninterest income ..................................................................................
3,718
4,842
3,040
5,657
2,884
Noninterest expense .................................................................................
51,051
50,401
44,363
39,739
42,813
Income before income tax ........................................................................
13,329
48,043
47,983
33,861
7,301
Income tax expense ..................................................................................
3,559
11,380
10,554
7,275
1,397
Net income ...............................................................................................
9,770
36,663
37,429
26,586
5,904
Per Share Data:
Basic earnings per share ........................................................................... $
1.24
$
4.71
$
4.84
$
3.38
$
0.75
Diluted earnings per share ....................................................................... $
1.23
$
4.67
$
4.79
$
3.36
$
0.75
Book value per share (end of period)(a)
....................................................
35.43
34.84
31.73
26.53
22.77
Tangible book value per share (end of period)(a)(b) ..................................
35.09
34.50
31.39
26.19
22.43
Dividend payout ratio(b)(e) ........................................................................
65.04 %
17.13 %
16.70 %
19.05 %
74.67 %
Shares outstanding (end of period)(a) ....................................................... 7,635,998
7,628,288
7,516,699
7,612,807
7,755,909
Weighted average shares outstanding–basic ............................................ 7,710,076
7,587,768
7,563,363
7,706,407
7,728,328
Weighted average shares outstanding–diluted ......................................... 7,737,952
7,647,411
7,640,218
7,761,811
7,748,453
Performance Ratios:
Return on average assets(b)
.......................................................................
0.31 %
1.13 %
1.44 %
1.17 %
0.28 %
Return on average common shareholders’ equity(b)
.................................
3.60 %
14.55 %
16.72 %
13.86 %
3.35 %
Average shareholders’ equity to average assets .......................................
8.48 %
7.74 %
8.61 %
8.46 %
8.36 %
Net interest margin(b)
................................................................................
2.70 %
2.98 %
3.78 %
3.17 %
2.77 %
Efficiency ratio(b) .....................................................................................
57.9 %
50.8 %
45.4 %
53.9 %
73.9 %
Asset Quality Ratios:
Total past due loans to total loans(c)
.........................................................
1.63 %
0.78 %
0.60 %
1.72 %
0.93 %
Nonperforming loans to total loans(c)
.......................................................
1.97 %
1.81 %
0.61 %
0.88 %
2.06 %
Nonperforming assets to total assets(d)
.....................................................
1.88 %
1.53 %
0.51 %
0.68 %
1.48 %
ACL-Loans to nonperforming loans ........................................................
54.45 %
56.79 %
136.43 %
101.90 %
62.87 %
ACL-Loans to total loans(c)
......................................................................
1.07 %
1.03 %
0.84 %
0.89 %
1.29 %
Net charge-offs (recoveries) to average loans(b)(g) ...................................
0.81 %
0.03 %
— %
0.23 %
0.01 %
Statements of Financial Condition:
Total assets ............................................................................................... $ 3,268,476
$ 3,215,482
$ 3,252,449
$ 2,456,264
$ 2,253,747
Gross portfolio loans(c)
............................................................................. 2,705,888
2,718,607
2,675,448
1,894,881
1,625,627
Investment securities ................................................................................
146,099
127,623
121,634
108,409
106,890
Deposits .................................................................................................... 2,787,570
2,736,757
2,800,818
2,123,998
1,827,316
FHLB borrowings ....................................................................................
90,000
90,000
90,000
50,000
175,000
Subordinated debt ....................................................................................
69,451
69,205
68,959
34,441
25,258
Total equity ..............................................................................................
270,520
265,752
238,469
201,987
176,602
Capital Ratios:
Tier 1 capital to average assets
Bankwell Bank .....................................................................................
10.09 %
9.81 %
9.88 %
9.94 %
8.44 %
Tier 1 capital to risk-weighted assets
Bankwell Bank .....................................................................................
11.64 %
11.30 %
10.28 %
11.18 %
11.06 %
Total capital to risk-weighted assets
Bankwell Bank .....................................................................................
12.70 %
12.32 %
11.07 %
12.00 %
12.28 %
Total shareholders’ equity to total assets
8.28 %
8.26 %
7.33 %
8.22 %
7.84 %
Tangible common equity ratio(b)
..............................................................
8.20 %
8.19 %
7.26 %
8.13 %
7.73 %
32
(a) Excludes unvested restricted stock awards.
(b) This measure is not a measure recognized under Generally Accepted Accounting Principles ("GAAP") and is therefore
considered to be a non-GAAP financial measure. See “Non-GAAP Financial Measures” for a description of this
measure and a reconciliation of this measure to its most directly comparable GAAP measure.
(c) Calculated using the principal amounts outstanding on loans.
(d) Nonperforming assets consist of nonperforming loans and other real estate owned.
(e) The dividend payout ratio is the dividends per share divided by diluted earnings per share.
(f)
Performance ratios for the year ended December 31, 2020 were negatively impacted by incremental COVID-19
pandemic related loan loss reserves and a $3.9 million one-time charge related to office consolidation, vendor contract
termination and employee severance costs recognized in the fourth quarter of 2020.
(g) Return on average assets is calculated by dividing net income by average assets. Return on average shareholders'
equity is calculated by dividing net income by average shareholders' equity. Net loan charge-offs as a percentage of
average loans is calculated by dividing net loan (charge offs) recoveries by average total loans.
NON-GAAP FINANCIAL MEASURES
We identify “efficiency ratio”, “tangible common equity ratio”, “tangible book value per share”, “total revenue” and
“return on average common shareholders’ equity” as “non-GAAP financial measures.” In accordance with the SEC’s rules, we
classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or
is subject to adjustments that have the effect of excluding or including amounts, that are included or excluded, as the case may
be, in the most directly comparable measure calculated and presented in accordance with generally accepted accounting
principles as in effect from time to time in the United States in our statements of income, balance sheet or statements of cash
flows. Non-GAAP financial measures do not include operating and other statistical measures or ratios or statistical measures
calculated using exclusively either financial measures calculated in accordance with GAAP, operating measures or other
measures that are not non-GAAP financial measures or both.
The non-GAAP financial measures that we discuss in this annual report should not be considered in isolation or as a
substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the
manner in which we calculate the non-GAAP financial measures that we discuss in this annual report may differ from that of
other companies reporting measures with similar names. You should understand how such other banking organizations
calculate their financial measures similar or with names similar to the non-GAAP financial measures we have discussed in this
annual report when comparing such non-GAAP financial measures.
Efficiency ratio is defined as non-interest expenses, less merger and acquisition related expenses, other real estate owned
expenses and amortization of intangible assets, divided by our operating revenue, which is equal to net interest income plus
non-interest income excluding gains and losses on sales of securities and gains and losses on other real estate owned. In our
judgment, the adjustments made to operating revenue allow investors and analysts to better assess our operating expenses in
relation to our core operating revenue by removing the volatility that is associated with certain one-time items and other discrete
items that are unrelated to our core business.
Tangible common equity is defined as total shareholders’ equity, excluding preferred stock, less goodwill and other
intangible assets. We believe that this measure is important to many investors in the marketplace who are interested in changes
from period to period in common shareholders’ equity exclusive of changes in intangible assets. Goodwill, an intangible asset
that is recorded in a purchase business combination, has the effect of increasing both common equity and assets while not
increasing our tangible common equity or tangible assets.
Tangible common equity ratio is defined as the ratio of tangible common equity divided by total assets less goodwill and
other intangible assets. We believe that this measure is important to many investors in the marketplace who are interested in
relative changes from period to period in common equity and total assets, each exclusive of changes in intangible assets. We
believe that the most directly comparable GAAP financial measure is total shareholders’ equity to total assets.
Tangible book value per share is defined as book value, excluding the impact of goodwill and other intangible assets, if
any, divided by shares of our common stock outstanding, excluding unvested restricted stock awards.
Total revenue is defined as the sum of net interest income before provision of loan losses and noninterest income.
Return on average common shareholders’ equity is defined as net income attributable to common shareholders divided by
total average shareholders’ equity less average preferred stock, if any.
33
The information provided below presents a reconciliation of each of our non-GAAP financial measures to the most
directly comparable GAAP financial measure.
Years Ended December 31,
2024
2023
2022
2021
2020
(Dollars in thousands, except per share data)
Efficiency Ratio
Noninterest expense ....................................................................................... $
51,051
$
50,401
$
44,363
$
39,739
$
42,813
Less: other real estate owned expenses ..........................................................
707
—
—
—
6
Less: Amortization of intangibles ..................................................................
—
—
—
76
138
Adjusted noninterest expense (numerator) ..................................................... $
50,344
$
50,401
$
44,363
$
39,663
$
42,669
Net interest income ......................................................................................... $
83,282
$
94,468
$
94,743
$
67,886
$
54,835
Noninterest income ........................................................................................
3,718
4,842
3,040
5,657
2,884
Adjustments for: gains/(losses) on sales of securities ....................................
—
—
—
—
—
Adjustments for: gains/(losses) on sale of other real estate owned ................
—
—
—
—
19
Adjusted operating revenue (denominator) .................................................... $
87,000
$
99,310
$
97,783
$
73,543
$
57,700
Efficiency ratio ...............................................................................................
57.9 %
50.8 %
45.4 %
53.9 %
73.9 %
Tangible Common Equity and
Tangible Common Equity/Tangible Assets
Total shareholders’ equity .............................................................................. $ 270,520
$ 265,752
$ 238,469
$ 201,987
$ 176,602
Less: preferred stock ......................................................................................
—
—
—
—
—
Common shareholders’ equity .......................................................................
270,520
265,752
238,469
201,987
176,602
Less: Intangible assets ....................................................................................
2,589
2,589
2,589
2,589
2,665
Tangible Common shareholders’ equity ........................................................ $ 267,931
$ 263,163
$ 235,880
$ 199,398
$ 173,937
Total assets ..................................................................................................... $ 3,268,476
$ 3,215,482
$ 3,252,449
$ 2,456,264
$ 2,253,747
Less: Intangible assets ....................................................................................
2,589
2,589
2,589
2,589
2,665
Tangible assets ............................................................................................... $ 3,265,887
$ 3,212,893
$ 3,249,860
$ 2,453,675
$ 2,251,082
Tangible common shareholders’ equity to tangible assets ............................
8.20 %
8.19 %
7.26 %
8.13 %
7.73 %
Tangible Book Value per Share
Total shareholders’ equity ............................................................................. $ 270,520
$ 265,752
$ 238,469
$ 201,987
$ 176,602
Less: preferred stock ......................................................................................
—
—
—
—
—
Common shareholders’ equity .......................................................................
270,520
265,752
238,469
201,987
176,602
Less: Intangible assets ....................................................................................
2,589
2,589
2,589
2,589
2,665
Tangible common shareholders’ equity ......................................................... $ 267,931
$ 263,163
$ 235,880
$ 199,398
$ 173,937
Common shares issued ................................................................................... 7,859,873
7,882,616
7,730,699
7,803,166
7,919,278
Less: shares of unvested restricted stock ........................................................
223,875
254,328
214,000
190,359
163,369
Common shares outstanding .......................................................................... 7,635,998
7,628,288
7,516,699
7,612,807
7,755,909
Book value per share ...................................................................................... $
35.43
$
34.84
$
31.73
$
26.53
$
22.77
Less: effects of intangible assets ....................................................................
0.34
0.34
0.34
0.34
0.34
Tangible Book Value per Common Share ...................................................... $
35.09
$
34.50
$
31.39
$
26.19
$
22.43
Total Revenue
Net interest income ......................................................................................... $
83,282
$
94,468
$
94,743
$
67,886
$
54,835
Add: noninterest income ................................................................................
3,718
4,842
3,040
5,657
2,884
Total Revenue ................................................................................................. $
87,000
$
99,310
$
97,783
$
73,543
$
57,719
Noninterest income as a percentage of total revenue ....................................
4.27 %
4.88 %
3.11 %
7.69 %
5.00 %
Return on Average Common Shareholders’ Equity
Net Income Attributable to Common Shareholders ....................................... $
9,770
$
36,663
$
37,429
$
26,586
$
5,904
Total average shareholders’ equity ................................................................ $ 271,200
$ 252,061
$ 223,874
$ 191,808
$ 176,489
Less: average preferred stock .........................................................................
—
—
—
—
—
Average Common Shareholders’ Equity ........................................................ $ 271,200
$ 252,061
$ 223,874
$ 191,808
$ 176,489
Return on Average Common Shareholders’ Equity .......................................
3.60 %
14.55 %
16.72 %
13.86 %
3.35 %
34
Executive Overview
We strive to be the preferred banking provider, offering a compelling alternative to larger institutions. Our strategy rests
on our competitive strengths:
•
Strategic Market Reach: While we serve our client base within 100 miles of our branch network, we also selectively
pursue commercial banking opportunities beyond this radius, leveraging established business relationships and
technology to support our clients’ growth.
•
Experienced Leadership: Our Executive Management Team brings a proven track record of success and deep industry
expertise.
•
Dedicated Board of Directors: Our Board combines valuable expertise with close community ties, ensuring we
understand and respond to local needs and are positioned to capitalize on market opportunities.
•
Disciplined Risk Management: We employ a robust and proactive risk management framework to safeguard assets,
ensure regulatory compliance, and support sustainable growth.
•
Strong Capital Position: Our capital position has facilitated our growth and is integral to the execution of our business
plan, and;
•
Scalable Operating Platform: Designed for efficiency and scalability, our platform supports our growth and provides a
seamless customer experience.
Key Financial Measures
The primary measures we use to evaluate and manage our financial results are set forth in the tables below. Although we
believe these measures are meaningful in evaluating our results and financial condition, they may not be directly comparable to
similar measures used by other financial services companies and may not provide an appropriate basis to compare our results or
financial condition to the results or financial condition of our competitors. The following tables set forth the key financial
measures we use to evaluate the success of our business and our financial position and operating performance.
Key Financial Measures(a)
At or For the Years Ended
December 31,
2024
2023
(Dollars in thousands, except per
share data)
Selected balance sheet measures:
Total assets .................................................................................................................................. $
3,268,476 $
3,215,482
Gross portfolio loans ...................................................................................................................
2,705,888
2,718,607
Deposits .......................................................................................................................................
2,787,570
2,736,757
FHLB borrowings ........................................................................................................................
90,000
90,000
Subordinated debt ........................................................................................................................
69,451
69,205
Total equity ..................................................................................................................................
270,520
265,752
Selected statement of income measures:
Total revenue(c)
............................................................................................................................
87,000
99,310
Net interest income before provision for credit losses ................................................................
83,282
94,468
Income before income tax expense .............................................................................................
13,329
48,043
Net income ...................................................................................................................................
9,770
36,663
Basic earnings per share .............................................................................................................. $
1.24 $
4.71
Diluted earnings per share ........................................................................................................... $
1.23 $
4.67
35
Key Financial Measures(a)
At or For the Years Ended
December 31,
2024
2023
Other financial measures and ratios:
Return on average assets ..............................................................................................................
0.31 %
1.13 %
Return on average common shareholders’ equity(c) .....................................................................
3.60 %
14.55 %
Net interest margin(c)
...................................................................................................................
2.70 %
2.98 %
Efficiency ratio(c)
.........................................................................................................................
57.9 %
50.8 %
Tangible book value per share (end of period)(c)(d) ....................................................................... $
35.09
$
34.50
Net charge-offs to average loans(b)
..............................................................................................
0.81 %
0.03 %
Nonperforming assets to total assets(e)
.........................................................................................
1.88 %
1.53 %
ACL-Loans to nonperforming loans ............................................................................................
54.45 %
56.79 %
ACL-Loans to total loans(b)
.........................................................................................................
1.07 %
1.03 %
(a) We derived the selected balance sheet measures as of December 31, 2024 and 2023 and the selected statement of
income measures for the years ended December 31, 2024 and 2023 from our audited consolidated financial statements
included elsewhere in this annual report. Average balances have been computed using daily averages. Our historical
results may not be indicative of our results for any future period.
(b) Calculated using the principal amounts outstanding on loans.
(c) This measure is not a measure recognized under GAAP and is therefore considered to be a non-GAAP financial
measure. See “Non-GAAP Financial Measures” for a description of this measure and a reconciliation of this measure
to its most directly comparable GAAP measure.
(d) Excludes unvested restricted stock awards.
(e) Nonperforming assets consist of nonperforming loans and other real estate owned.
36
Critical Accounting Policies and Estimates
The discussion and analysis of our results of operations and financial condition are based on our consolidated financial
statements, which have been prepared in accordance with GAAP. The 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 measurement of the ACL-Loans, the valuation of derivative
instruments, investment securities and deferred income taxes, and the evaluation of investment securities are particularly critical
and susceptible to significant near-term change.
Allowance for Credit Losses-Loans ("ACL-Loans") and Allowance for Credit Losses-Unfunded commitments ("ACL-Unfunded
commitments")
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (“ASC 326”), which requires the
measurement of all expected credit losses for financial assets held at amortized cost to be based on historical experience, current
condition, and reasonable and supportable forecasts. The Company adopted this guidance effective January 1, 2023 and
recorded a cumulative effect adjustment that increased the allowance for credit losses for loans and loan commitments by $6.4
million, increased deferred tax assets by $1.5 million, and decreased retained earnings by $4.9 million, net of tax.
The ACL-Loans is measured on each loan’s amortized cost basis, excluding interest receivable, and is initially recognized
upon origination or purchase of the loan, and subsequently remeasured on a recurring basis. The ACL-Loans is recognized as a
contra-asset, and credit loss expense is recorded as a provision for credit losses in the consolidated statements of income. Loan
losses are charged off against the ACL-Loans when management believes the loan is uncollectible. Subsequent recoveries, if
any, are credited to the ACL-Loans. Loans are normally placed on nonaccrual status if it is probable that the Company will be
unable to collect the full payment of principal and interest when due according to the contractual terms of the loan agreement,
or the loan is past due for a period of 90 days or more unless the obligation is well-secured and is in the process of collection.
The Company generally does not recognize an allowance for credit losses ("ACL") on accrued interest receivables, consistent
with its policy to reverse interest income when interest is 90 days or more past due.
The Company also records an ACL-Unfunded commitments, which is based on the same assumptions as funded loans and
also considers the probability of funding. The ACL is recognized as a liability, and credit loss expense is recorded as a
provision for unfunded loan commitments within the provision for credit losses in the Consolidated statements of income.
For collectively evaluated loans and related unfunded commitments, the Company utilizes software provided by a third
party, which includes various models for forecasting expected credit losses, to calculate its ACL. Management selected lifetime
loss rate models, utilizing CRE, C&I, and Consumer specific models, to calculate the expected losses over the life of each loan
based on exposure at default, loan attributes and reasonable, supportable economic forecasts. The models selected by the
Company in its ACL calculation rely upon historical losses from a broad cross section of U.S. banks that also utilize the same
third party for ACL calculations. Management reviewed the third party’s analysis of the banks included in the models as part of
their model development dataset and determined the Company’s loan portfolio composition by property type, balance
distribution by loan age, and delinquency status are similar, which supports the use of these loss rate models. The Company
also noted the third party’s model development dataset has loan concentrations that are evenly distributed across the United
States, while the Company’s portfolio is mainly concentrated in the Northeast. Based on the disparate regional concentration,
management determined that a select group of peer banks is necessary to scale the loss rate models to produce an ACL that is
more representative of the Company’s loan portfolio. This peer-based calibration, called a "peer scalar", utilizes the loss rates
of a subset of peer banks to appropriately scale the initial model results. These peers have been selected by the Company given
their similar characteristics, such as loan portfolio composition and location, to better align the models’ results to the
Company’s expected losses.
Key assumptions used in the models include portfolio segmentation, risk rating, forecasted economic scenarios, the peer
scalar, and the expected utilization of unfunded commitments, among others. Our loan portfolios are segmented by loan level
attributes such as loan type, size, date of origination, and delinquency status to create homogenous loan pools. Pool level
metrics are calculated, and loss rates are subsequently applied to the pools as the loans have similar characteristics.
To account for economic uncertainty, the Company incorporates multiple economic scenarios in determining the ACL. The
scenarios include various projections based on variables such as Gross Domestic Product, interest rates, property price indices,
and employment measures, among others. The scenarios are probability-weighted based on available information at the time the
calculation is conducted. As part of our ongoing governance of ACL, scenario weightings and model parameters are reviewed
periodically by management and are subject to change, as deemed appropriate.
The Company also considers qualitative adjustments to expected credit loss estimates for information not already captured
in the quantitative loss estimation models. Qualitative factor adjustments may increase or decrease management’s estimate of
expected credit losses. Qualitative loss factors are based on the Company’s judgment of market, changes in loan composition or
37
concentrations, performance trends, regulatory changes, uncertainty of macroeconomic forecasts, and other asset specific risk
characteristics.
When loans do not share risk characteristics with other financial assets they are evaluated individually. Management
applies its normal loan review procedures in making these judgments. Individually evaluated loans consist of loans with credit
quality indicators which are substandard or doubtful. The Company also individually evaluates all insurance premium loans as
well as a cash-secured loan to an individual. While these loans are considered consumer loans, the third-party Consumer ACL
model is designed for unsecured lending, whereas these loans are secured. To account for the fully secured structure of this type
of loan, management determined each loan will be individually evaluated, regardless of the credit quality indicators. These
loans are evaluated based upon their collateral, which primarily consists of cash, cash surrender value life insurance, and in
some cases real estate. In determining the ACL-Loans for individually evaluated loans, the Company generally applies a
discounted cash flow method for instruments that are individually assessed. For collateral dependent financial assets where the
Company has determined that foreclosure of the collateral is probable and where the borrower is experiencing financial
difficulty, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of
the asset as of the measurement date. Fair value is generally calculated based on the value of the underlying collateral less an
appraisal discount and the estimated cost to sell.
Loan modifications
In March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (ASU 326): Troubled Debt
Restructurings and Vintage Disclosures. ASU 2022-02 eliminated the accounting guidance for TDRs by creditors while
enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing
financial difficulty. The Company adopted ASU 2022-02 effective January 1, 2023 and the impact was immaterial.
Derivative Instrument Valuation
The Company enters into interest rate swap agreements as part of the Company’s interest rate risk management strategy.
Management applies the hedge accounting provisions of Accounting Standards Codification (“ASC”) Topic 815, "Hedge
Accounting, and formally documents at inception all relationships between hedging instruments and hedged items, as well as its
risk management objectives and strategies for undertaking the various hedges. Additionally, the Company assesses whether the
derivative used in its hedging transaction is expected to be and has been highly effective in offsetting changes in the fair value
or cash flows of the hedged item. The Company discontinues hedge accounting when it is determined that a derivative is not
expected to be or has ceased to be highly effective as a hedge, and then reflects changes in fair value of the derivative in
earnings after termination of the hedge relationship.
The Company has interest rate swaps that qualify under ASC Topic 815, as cash flow hedges. Cash flow hedges are used
to minimize the variability in cash flows of assets or liabilities, or forecasted transactions caused by fluctuations in the
contractually specified interest rates, and are recorded at fair value in other assets within the consolidated balance sheet.
Changes in the fair value of these cash flow hedges are initially recorded in accumulated other comprehensive income and
subsequently reclassified into earnings when the forecasted transaction affects earnings.
The Company has one pay-fixed portfolio layer method fair value swap, designated as a hedging instrument, with a total
notional amount of $150 million. The Company designated the fair value swap under the portfolio layer method. Under this
method, the hedged item is designated as a hedged layer of a closed portfolio of financial loans that is anticipated to remain
outstanding for the designated hedged period. Adjustments will be made to record the swap at fair value on the Consolidated
Balance Sheets, with changes in fair value recognized in interest income. The carrying value of the fair value swap on the
Consolidated Balance Sheets will also be adjusted through interest income, based on changes in fair value attributable to
changes in the hedged risk.
The Company also has derivatives not designated as hedges. Derivatives not designated as hedges are not speculative and
result from a service the Company provides to certain loan clients. The Company executes interest rate swaps with commercial
banking clients to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by
offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure
resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge
accounting requirements, changes in the fair value of both the client derivatives and the offsetting derivatives are recognized
directly in earnings.
Investment Securities Valuation
Fair values of the Company’s investment securities 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. The Company’s
private placement municipal housing authority bonds, classified as held to maturity, have no available quoted market price. The
38
fair value for these securities is estimated using a discounted cash flow model. Due to the judgments and uncertainties involved
in the estimation process, the estimates could result in materially different results under different assumptions and conditions.
Allowance for Credit Losses - Securities ("ACL-Securities")
Pursuant to ASU No. 2016-13, each quarter the Company individually evaluates the available for sale debt securities and
held to maturity securities for impairment credit losses. Available for sale securities include U.S. Treasuries, mortgage-backed
securities, and corporate bonds. U.S. Treasuries and mortgaged-backed securities are guaranteed by the U.S. Government and
as a result, management has a zero loss expectation. No ACL-Securities was recorded for these securities as of December 31,
2024. For the corporate bond portfolio, the Company developed a metric which includes each issuer’s current credit ratings and
key financial performance metrics to assess the underlying performance of each issuer. The analysis of the issuers’ performance
and the intent of the Company to retain these securities support the determination that there was no expected credit loss, and
therefore, no ACL-Securities were recognized on the corporate bond portfolio as of December 31, 2024. Of our held to maturity
securities portfolio, one security’s fair value was less than its amortized cost as of December 31, 2024. Since this is a highly
rated state agency and municipal obligation, the Company's expectation of nonpayment of the amortized cost basis is zero. No
allowance for ALC-Securities was recorded for this security as of December 31, 2024.
Deferred Income Taxes
In accordance with ASC Topic 740, “Income Taxes,” certain aspects of accounting for income taxes require significant
management judgment, including assessing the realizability of Deferred Tax Assets (DTAs). Such judgments are subjective and
involve estimates and assumptions about matters that are inherently uncertain. Should actual factors and conditions differ
materially from those used by management, the actual realization of DTAs could differ materially from the amounts recorded in
the Consolidated Financial Statements and the accompanying Notes thereto.
DTAs generally represent items for which a benefit has been recognized for financial accounting purposes that cannot be
realized for tax purposes until a future period. The realization of DTAs depends upon future sources of taxable income.
Valuation allowances are established for those DTAs determined not likely to be realized based on management’s judgment.
Earnings and Performance Overview
2024 Earnings Overview
Our net income for the year ended December 31, 2024 was $9.8 million, a decrease of $26.9 million, or 73.4%, compared
to the year ended December 31, 2023. Diluted earnings per share was $1.23 for the year ended December 31, 2024, compared
to diluted earnings per share of $4.67 for the year ended December 31, 2023. Our returns on average shareholders' equity and
average assets for the year ended December 31, 2024, were 3.60% and 0.31%, respectively, compared to 14.55% and 1.13%,
respectively for the year ended December 31, 2023.
Revenues (net interest income plus noninterest income) for the year ended December 31, 2024 were $87.0 million, versus
$99.3 million for the year ended December 31, 2023. The decrease in revenues for the year ended December 31, 2024 was
attributable to an increase in interest expense on deposits and lower gains from loan sales, partially offset by an increase in
interest and fees on loans due to higher loan yields and prepayment fees.
Net income for the year ended December 31, 2024 was $9.8 million, versus $36.7 million for the year ended
December 31, 2023. The decrease in net income for the year ended December 31, 2024 was mainly due to an increase in
provision for credit losses and the aforementioned decrease in revenues partially offset by a decrease in income tax expense.
Net interest income for the year ended December 31, 2024 was $83.3 million, a decrease of $11.2 million compared to the
year ended December 31, 2023. Our net interest margin decreased 28 basis points to 2.70% for the year ended December 31,
2024 compared to the year ended December 31, 2023. The decrease in the net interest margin was due to an increase in funding
costs partially offset by an increase in yields on earning assets.
39
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 assets and interest-bearing liabilities.
Included in interest income are certain loan fees, such as deferred origination fees and late charges. We convert tax-exempt
income to a Fully Taxed 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.
FTE net interest income for the years ended December 31, 2024 and 2023 was $83.7 million and $94.7 million,
respectively. FTE net interest income decreased primarily due to an increase in interest expense partially offset by an increase
in interest income attributable to higher loan yields.
FTE basis interest income for the year ended December 31, 2024 increased $3.7 million, or 2.0%, to $192.4 million
compared to FTE basis interest income for the year ended December 31, 2023 due primarily to an increase in commercial real
estate loans. Average interest earning assets were $3.1 billion for the year ended December 31, 2024, decreasing by
$72.4 million, or 2.3%, from the year ended December 31, 2023. The average balance of total loans decreased $79.2 million, or
2.9%. The total average balance of securities for the year ended December 31, 2024 increased by $13.0 million, or 10.0, from
the year ended December 31, 2023. The total yield in earnings assets increased to 6.09% at December 31, 2024, compared to
5.86% at December 31, 2023. The increase in earning asset yield was primarily driven by higher yields on loans, as well as
higher yields on our cash and securities balances as a result of the overall higher interest rate environment in 2024.
Interest expense for the year ended December 31, 2024 increased by $14.7 million, or 15.7%, compared to interest expense
for the year ended December 31, 2023 due to an interest expense on deposits, resulting from an increase in rates paid on interest
bearing deposits.
40
Distribution of Assets, Liabilities and Stockholders’ Equity; Interest Rates and Interest Differential
The following table presents the average balances and yields earned on interest-earning assets and average balances and
weighted average rates paid on our funding liabilities for the years ended December 31, 2024 and 2023.
Years Ended December 31,
2024
2023
Average
Balance
Interest
Yield/
Rate(4)
Average
Balance
Interest
Yield/
Rate(4)
(Dollars in thousands)
Assets:
Cash and fed funds sold ............................................ $
283,353
$
13,970
4.93 % $
289,582
$
14,147
4.89 %
Securities(1)
................................................................
142,744
5,098
3.57
129,785
3,906
3.01
Loans:
Commercial real estate ........................................... 1,905,973
112,804
5.82
1,932,627
109,110
5.57
Residential real estate .............................................
47,767
2,978
6.23
55,607
2,751
4.95
Construction ...........................................................
162,180
12,197
7.40
195,773
14,268
7.19
Commercial business ..............................................
514,800
42,006
8.03
533,736
41,406
7.65
Consumer ...............................................................
41,869
2,847
6.80
34,022
2,646
7.77
Total loans ......................................................... 2,672,589
172,832
6.36
2,751,765
170,181
6.10
Federal Home Loan Bank stock ................................
5,666
477
8.41
5,570
427
7.68
Total earning assets ................................................ 3,104,352
$
192,377
6.09 % 3,176,702
$
188,661
5.86 %
Other assets ...............................................................
92,885
79,571
Total assets ............................................................. $ 3,197,237
$ 3,256,273
Liabilities and shareholders’ equity:
Interest bearing liabilities:
NOW ...................................................................... $
96,091
$
175
0.18 % $
97,203
$
170
0.17 %
Money market ........................................................
851,283
34,767
4.08
906,354
32,901
3.63
Savings ...................................................................
90,587
2,785
3.07
113,260
3,163
2.79
Time ....................................................................... 1,335,680
63,531
4.76
1,303,915
50,672
3.89
Total interest bearing deposits ........................... 2,373,641
101,258
4.27
2,420,732
86,906
3.59
Borrowed money .......................................................
159,320
7,454
4.68
160,661
7,080
4.35
Total interest bearing liabilities .............................. 2,532,961
$
108,712
4.29 % 2,581,393
$
93,986
3.64 %
Noninterest bearing deposits .....................................
332,611
368,926
Other liabilities ..........................................................
60,464
53,893
Total liabilities ........................................................ 2,926,036
3,004,212
Shareholders’ equity ..................................................
271,201
252,061
Total liabilities and shareholders’ equity ............... $ 3,197,237
$ 3,256,273
Net interest income(2)
.................................................
$
83,665
$
94,675
Interest rate spread ....................................................
1.80 %
2.22 %
Net interest margin(3)
.................................................
2.70 %
2.98 %
(1)
Average balances and yields for securities are based on amortized cost.
(2)
The adjustment for securities and loans taxable equivalency was $383 thousand and $207 thousand, respectively, for the years ended December 31, 2024
and 2023. Tax exempt income was converted to a fully taxable equivalent basis at a 20 percent tax rate for 2024 and 2023.
(3)
Net interest income as a percentage of total earning assets.
(4)
Yields are calculated using the contractual day count convention for each respective product type.
41
Effect of changes in interest rates and volume of average earning assets and average interest-bearing liabilities
The following table shows the extent to which changes in interest rates and changes in the volume of average earning
assets and average interest-bearing liabilities have affected net interest income. For each category of earning assets and 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.
Year Ended
December 31, 2024 vs 2023
Increase (Decrease)
Volume
Rate
Total
(In thousands)
Interest and dividend income:
Cash and fed funds sold .................................................................................................. $
(306) $
129 $
(177)
Securities .........................................................................................................................
415
776
1,191
Loans:
Commercial real estate ...............................................................................................
(1,521)
5,214
3,693
Residential real estate .................................................................................................
(423)
650
227
Construction ...............................................................................................................
(2,508)
438
(2,070)
Commercial business ..................................................................................................
(1,499)
2,098
599
Consumer ....................................................................................................................
560
(358)
202
Total loans ..............................................................................................................
(5,391)
8,042
2,651
Federal Home Loan Bank stock ......................................................................................
8
42
50
Total change in interest and dividend income ............................................................ $
(5,274) $
8,989 $
3,715
Interest expense:
Deposits:
NOW ........................................................................................................................... $
(2) $
8 $
6
Money market .............................................................................................................
(2,081)
3,946
1,865
Savings .......................................................................................................................
(676)
298
(378)
Time ............................................................................................................................
1,262
11,597
12,859
Total deposits .........................................................................................................
(1,497)
15,849
14,352
Borrowed money .............................................................................................................
(60)
433
373
Total change in interest expense .................................................................................
(1,557)
16,282
14,725
Change in net interest income ......................................................................................... $
(3,717) $
(7,293) $ (11,010)
Provision for Credit Losses
The provision for credit losses is based on management’s periodic assessment of the adequacy of our ACL-Loans which,
in turn, is based on such interrelated factors as the composition of our loan portfolio and its inherent risk characteristics, the
level of nonperforming loans and net charge-offs, both current and historic, local economic and credit conditions, the direction
of real estate values, and regulatory guidelines. The provision for credit losses is charged against earnings in order to maintain
our ACL-Loans and reflects management’s best estimate of probable losses inherent in our loan portfolio at the balance sheet
date.
The provision for credit losses for the year ended December 31, 2024 was $22.6 million compared to a $0.9
million provision for credit losses for the year ended December 31, 2023. The increase in the provision for credit losses during
the year was primarily due to net charge offs.
42
Noninterest Income
Noninterest income is a component of our revenue and is comprised primarily of fees generated from loan and deposit
relationships with our clients, fees generated from sales and referrals of loans, income earned on bank owned life insurance and
gains on sales of investment securities. The following table compares noninterest income for the years ended December 31,
2024 and 2023.
Years Ended
December 31,
Change
2024
2023
$
%
(Dollars in thousands)
Gains and fees from sales of loans ............................................................. $
523 $
1,972 $
(1,449)
(73) %
Bank owned life insurance .........................................................................
1,356
1,192
164
14
Service charges and fees .............................................................................
1,963
1,629
334
21
Other ...........................................................................................................
(124)
49
(173) Unfavorable
Total noninterest income .......................................................................... $
3,718 $
4,842 $
(1,124)
(23) %
Noninterest income decreased by $1.1 million to $3.7 million for the year ended December 31, 2024, compared to the year
ended December 31, 2023. The decrease for the year ended December 31, 2024 was mainly driven by a decrease in gains on
SBA loan sales partially offset by an increase in service charges and fees.
Noninterest Expense
The following table compares noninterest expense for the years ended December 31, 2024 and 2023.
Years Ended
December 31,
Change
2024
2023
$
%
(Dollars in thousands)
Salaries and employee benefits ..................................................................... $
23,746 $
24,595 $
(849)
(3) %
Occupancy and equipment ............................................................................
9,494
8,665
829
10
Data processing .............................................................................................
3,251
2,888
363
13
Professional services .....................................................................................
4,482
3,538
944
27
Director fees ..................................................................................................
1,840
1,812
28
2
FDIC insurance .............................................................................................
3,350
4,164
(814)
(20)
Marketing ......................................................................................................
452
651
(199)
(31)
Other .............................................................................................................
4,436
4,088
348
9
Total noninterest expense ........................................................................... $
51,051 $
50,401 $
650
1 %
Noninterest expense increased by $0.7 million, or 1.3%, to $51.1 million for the year ended December 31, 2024 compared
to the year ended December 31, 2023. The increase in noninterest expense was primarily driven by increases in professional
services and occupancy and equipment costs, partially offset by decreases in salaries and employee benefits and FDIC
insurance expense due to reduced brokered deposit balances.
Income Taxes
Income tax expense for the years ended December 31, 2024 and 2023 totaled $3.6 million and $11.4 million, respectively.
The effective tax rates for the years ended December 31, 2024 and 2023, were 26.7% and 23.7%, respectively.
Our net deferred tax asset at December 31, 2024 was $9.7 million, compared to $9.4 million at December 31, 2023.
On October 8, 2015, the Bank established a wholly-owned subsidiary, Bankwell Loan Servicing Group, Inc. (a Passive
Investment Company “PIC”). The PIC was organized in accordance with Connecticut statutes to hold and manage certain loans
that are collateralized by real estate. Income earned by the PIC is exempt from Connecticut income tax and any dividends paid
by the PIC to the Bank are not taxable income for Connecticut income tax purposes. See Note 13 to our Consolidated Financial
Statements for further information regarding income taxes.
43
Financial Condition
Summary
Assets totaled $3.3 billion at December 31, 2024, compared to assets of $3.2 billion at December 31, 2023. Gross loans
totaled $2.7 billion at December 31, 2024, compared to gross loans of $2.7 billion at December 31, 2023. Deposits totaled $2.8
billion at December 31, 2024, compared to deposits of $2.7 billion at December 31, 2023.
Shareholders’ equity totaled $270.5 million as of December 31, 2024, an increase of $4.8 million compared to December
31, 2023, primarily a result of net income of $9.8 million for the year ended December 31, 2024. The increase was partially
offset by dividends paid of $6.3 million.
Loan Portfolio
We originate commercial real estate loans, construction loans, commercial business loans and consumer loans in our
market. We also pursue certain types of commercial lending opportunities outside our market, particularly where we have
strong business relationships. Our loan portfolio is the largest category of our earnings assets.
The following table compares the composition of our loan portfolio for the dates indicated:
2024
2023
Change
Total
%
Total
%
Total
(Dollars in thousands)
Real estate loans:
Residential ....................................................... $
42,766
1.58 % $
50,931
1.87 % $
(8,165)
Commercial .....................................................
1,899,134
70.19
1,947,648
71.64
(48,514)
Construction ....................................................
173,555
6.41
183,414
6.75
(9,859)
2,115,455
78.18
2,181,993
80.26
(66,538)
Commercial business .........................................
515,125
19.04
500,569
18.41
14,556
Consumer ...........................................................
75,308
2.78
36,045
1.33
39,263
Total loans ....................................................... $ 2,705,888
100.00 % $ 2,718,607
100.00 % $
(12,719)
Primary loan categories
Residential real estate. Residential real estate loans decreased by $8.2 million, or 16.0%, at December 31, 2024
compared to December 31, 2023 and amounted to $42.8 million, representing 2% of total loans at December 31, 2024. The
Bank ceased originating residential mortgage loans in 2017.
Commercial real estate. Commercial real estate loans were $1.9 billion and represented 70% of our total loan portfolio at
December 31, 2024, a net decrease of $48.5 million, or 2.5%, from December 31, 2023. Commercial real estate loans are
secured by a variety of property types, including healthcare facilities, office buildings, retail facilities, commercial mixed use
and multi-family dwellings.
The following table compares the composition of our commercial real estate loan portfolio by non-owner occupied and
owner occupied loans at December 31, 2024 and December 31, 2023:
2024
2023
Change
Total
%
Total
%
Total
(Dollars in thousands)
Commercial real estate loans:
Non-owner occupied ....................................... $ 1,174,712
61.86 % $ 1,228,126
63.08 % $
(53,414)
Owner occupied ...............................................
724,203
38.14
718,780
36.92
5,423
Total commercial real estate loans(1)
............... $ 1,898,915
100.00 % $ 1,946,906
100.00 % $
(47,991)
(1) Excludes the positive fair value effect of the portfolio layer swap of $219 thousand and $742 thousand for Commercial Real Estate at December 31,
2024 and 2023, respectively.
Construction. Construction loans were $173.6 million at December 31 2024, a decrease of $9.9 million, or 5.4%, from
December 31, 2023. Commercial construction loans consist of commercial development projects, such as apartment buildings
and condominiums, as well as office buildings, retail and other income producing properties and land loans.
44
Commercial business. Commercial business loans were $515.1 million and represented 19.0% of our total loan portfolio
at December 31, 2024, a net increase of $14.6 million, or 2.9%, from December 31, 2023. Commercial business loans primarily
provide working capital, equipment financing, financing for leasehold improvements and financing for expansion and are
generally secured by assignments of corporate assets, real estate and personal guarantees of the business owners.
Consumer loans. Consumer loans were $75.3 million and represented 2.8% of our total loan portfolio as of December
31, 2024, an increase of $39.3 million, or 108.9%. We do not expect our consumer loans to become a material component of
our loan portfolio, as we do not engage in any material amount of consumer lending. This portfolio segment includes loans to
finance insurance premiums secured by the cash surrender value of life insurance and marketable securities, overdraft lines of
credit, and personal loans to high net worth individuals.
Current environment
We evaluate the appropriateness of our underwriting standards in response to changes in national and regional economic
conditions, including such matters as market interest rates, energy prices, trends in real estate values, and employment levels.
Based on our assessment of these matters, underwriting standards and credit monitoring activities are enhanced from time to
time in response to changes in these conditions. In response to the recent economic environment, the Company adopted
expanded monitoring and reporting on our loan portfolio, including:
•
increased and expanded our monitoring of our entire loan portfolio, with added focus on our commercial real estate
loan portfolio,
•
expanded reporting to Directors' Loan Committee and the Board of Directors which includes:
◦
upcoming commercial real estate maturity schedule, including loan to value, debt service coverage ratio,
occupancy, and commentary on expected refinance or payoff status, maturity by property type and owner
occupied or non-owner-occupied status; and
◦
individual loan level detail of the performance on our residential care portfolio and our insurance agency
portfolio.
•
expanded the scope of our third-party loan review from 60% of the loan portfolio to include all new and renewed loans
originated since September 2022, all residential care loans, all commercial real estate loans secured by office
properties where the loan balance is greater than one million dollars, and all loans with addresses in New York City;
and
•
enhanced our covenant tracking and reporting to the Directors Loan Committee.
In addition to the enhancements made to monitoring and reporting, the Company has added resources to its Portfolio
Management and Credit Departments.
45
The following table compares the composition of our commercial real estate loan portfolio by property type, and collateral
location as of December 31, 2024:
Commercial
Real Estate
CT
All Other
NY
NYC
NJ
FL
OH
PA
All Other
Total(1)
(Dollars in thousands)
Residential
care(2)
.............. $
— $ 78,974 $ 58,366 $ 10,170 $ 298,857 $ 78,971 $ 22,959 $ 124,163 $ 672,460
Retail .............. 103,450
83,648
7,372
19,375
12,765
3,435
34,280
89,185
353,510
Multifamily .... 171,952
31,050
51,628
7,116
—
—
21,883
—
283,629
Office .............
56,972
10,232
2,987
29,532
2,235
—
—
58,451
160,409
Industrial /
warehouse .......
69,024
14,188
19,625
17,045
2,717
—
—
15,357
137,956
Mixed use .......
39,207
1,117
49,962
—
—
—
—
—
90,286
Medical office
43,332
12,260
1,411
—
—
4,794
3,900
20,271
85,968
1-4 family
investment ......
11,776
14,151
1,886
2,139
17,168
—
—
—
47,120
All other(3)
......
19,659
22,396
23,097
—
—
—
—
2,425
67,577
$ 515,372 $ 268,016 $ 216,334 $ 85,377 $ 333,742 $ 87,200 $ 83,022 $ 309,852 $ 1,898,915
(1) Excludes the positive fair value effect of the portfolio layer swap of $219 thousand for Commercial Real Estate at December 31, 2024.
(2) Primarily consists of skilled nursing and assisted living facilities.
(3) Includes Special use, self storage, and land.
During 2024, we conducted a detailed review of every general office loan in our portfolio. As of December 31, 2024, the
Bank had $160.4 million of loans collateralized by offices, which represented 5.9% of the total loan portfolio. Most of the
properties in this portfolio are in suburban locations. 96.6% of this portfolio was pass rated, and there were two relationships
totaling $5.5 million on nonaccrual status. We also performed an additional review of our multifamily exposure. As of
December 31, 2024, we had $283.6 million of loans collateralized by multifamily properties, which represented 10.5% of the
total loan portfolio. 89.0% of the portfolio is pass rated, and there was one relationship totaling $27.1 million on nonaccrual
status. These properties are all located in Connecticut, New York, New Jersey, or Pennsylvania, with the majority in suburban
locations. Nine properties totaling $51.6 million, with an average balance of $5.7 million, are in New York City.
46
The following table presents an analysis of the commercial real estate portfolio's loan to value at origination and by
property type as of December 31, 2024.
Commercial Real Estate
Total CRE
Portfolio(1)
Percentage of
Total CRE
Portfolio
Loan to Value
at Origination
%
(Dollars in thousands)
Property Type
Residential care(2)
.............................................................................................. $
672,460
35.4 %
66.6 %
Retail ..................................................................................................................
353,510
18.6
63.5
Multifamily ........................................................................................................
283,629
14.9
62.1
Office .................................................................................................................
160,409
8.4
63.7
Industrial / warehouse ........................................................................................
137,956
7.3
63.3
Mixed use ..........................................................................................................
90,286
4.8
62.7
Medical office ....................................................................................................
85,968
4.5
63.3
1-4 family investment ........................................................................................
47,120
2.5
57.7
All other .............................................................................................................
67,577
3.6
53.4
Total ................................................................................................................... $ 1,898,915
100.0 %
63.9 %
(1) Excludes the positive fair value effect of the portfolio layer swap of $219 thousand for Commercial Real Estate at December 31, 2024.
(2) Primarily consists of skilled nursing and assisted living facilities.
The following table presents an analysis of the maturity of our commercial real estate, commercial construction and
commercial business loan portfolios as of December 31, 2024.
December 31, 2024
Commercial
Real Estate(1)
Commercial
Construction
Commercial
Business(1)
Total
(In thousands)
Amounts due:
One year or less .......................................................................... $
797,594 $
109,429 $
206,116 $ 1,113,139
After one year:
One to five years ...................................................................
843,500
36,199
155,473
1,035,172
Over five years ......................................................................
257,821
27,927
153,497
439,245
Total due after one year .........................................................
1,101,321
64,126
308,970
1,474,417
Total ......................................................................................... $ 1,898,915 $
173,555 $
515,086 $ 2,587,556
(1) Excludes the positive fair value effect of the portfolio layer swap of $219 thousand for Commercial Real Estate and $39 thousand for Commercial Business.
47
The following table presents an analysis of the interest rate sensitivity of our commercial real estate, commercial
construction and commercial business loan portfolios due after one year as of December 31, 2024.
December 31, 2024
Adjustable
Interest Rate
Fixed Interest
Rate
Total
(In thousands)
Commercial real estate ................................................................................................ $
159,463 $
941,858 $ 1,101,321
Commercial construction ............................................................................................
43,468
20,658
64,126
Commercial business ...................................................................................................
181,819
127,151
308,970
Total loans due after one year ................................................................................... $
384,750 $ 1,089,667 $ 1,474,417
Asset Quality
We actively manage asset quality 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 real estate market on a regional or national scale, or extreme climate
events. Decreases in real estate values could adversely affect the value of property used as collateral for loans. In addition,
adverse changes in the economy or in a borrower's business could have a negative effect on the ability of borrowers to make
scheduled loan payments, which would likely have an adverse impact on earnings.
The Company has established credit policies applicable to each type of lending activity in which it engages. The Company
evaluates the creditworthiness of each client 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 cease originating residential mortgage loans. In the
third quarter of 2019, the Company stopped offering 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 staff. Disciplined underwriting, portfolio monitoring and early problem
recognition, together with active management of any problem credits, are important aspects of maintaining our high credit
quality standards.
Acquired Loans. Loans acquired in acquisitions are initially recorded at fair value with no carryover of the related
allowance for credit losses. Acquired loans that have evidence of deterioration in credit quality since origination and for which
it is probable, at acquisition, that all contractually required payments will not be collected are initially recorded at fair value
without recording an ACL-Loans. The fair value of the loans is determined using market participant assumptions to estimate the
amount and timing of principal and interest cash flows initially expected to be collected on the loans and discounting those cash
flows at an appropriate market rate of interest.
Under the accounting model for acquired loans, the excess of cash flows expected to be collected over the carrying amount
of the loans, referred to as the “accretable yield”, is accreted into interest income over the life of the loans. Accordingly,
acquired loans are not subject to classification as nonaccrual in the same manner as originated loans. Rather, acquired loans are
considered to be accruing loans because their interest income relates to the accretable yield recognized and not to contractual
interest payments. The excess of the loans' contractually required payments over the cash flows expected to be collected is the
nonaccretable difference. As such, charge-offs on acquired loans are first applied to the nonaccretable difference and then to
any ACL-Loans recognized subsequent to the acquisition. A decrease in expected cash flows in subsequent periods may
indicate that the loan pool is a credit loss, which would require the establishment of an ACL-Loans by a charge to the provision
for credit losses.
48
Nonperforming Assets. Nonperforming assets include nonaccrual loans and property acquired through foreclosures or
repossession. The following table presents nonperforming assets and additional asset quality data for the dates indicated:
At December 31,
2024
2023
(Dollars in thousands)
Nonaccrual loans:
Real estate loans:
Residential .................................................................................................................................... $
791
$
1,386
Commercial ...................................................................................................................................
44,814
23,009
Commercial business .......................................................................................................................
7,672
15,430
Construction ....................................................................................................................................
—
9,382
Total nonaccrual loans ..................................................................................................................
53,277
49,207
Property acquired through foreclosure or repossession, net ............................................................
8,299
—
Total nonperforming assets ........................................................................................................... $
61,576
$
49,207
Nonperforming assets to total assets ...............................................................................................
1.88 %
1.53 %
Nonperforming loans to total loans .................................................................................................
1.97 %
1.81 %
Total nonaccrual loans were $53.3 million as of December 31, 2024. Nonperforming assets as a percentage of total assets
was 1.88% at December 31, 2024, when compared to 1.53% at December 31, 2023. The ACL-Loans at December 31, 2024 was
$29.0 million, representing 1.07% of total loans.
Nonaccrual Loans. Loans greater than 90 days past due are generally put on nonaccrual status. Loans are also placed on
nonaccrual status when, in the opinion of management, full collection of principal and interest is doubtful. Interest previously
accrued, but uncollected, is reversed against current period income. Subsequent payments are recognized on a cash basis or
principal recapture basis depending on a number of factors including probability of collection and if a credit loss is identified. 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. At December 31, 2024 and 2023, there were no commitments to lend additional funds to any borrower on
nonaccrual status.
Past Due Loans. When a loan is 15 days past due, the Company sends the borrower a late notice. The Company attempts
to contact the borrower by phone if the delinquency is not corrected promptly after the notice has been sent. 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, after the 90th day of delinquency, the Company may take other appropriate legal action. A summary report of all
loans 30 days or more past due is provided to the Board of Directors of the Company periodically. Loans greater than 90 days
past due are generally put on nonaccrual status. 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.
49
The following table presents past due loans as of December 31, 2024 and 2023:
30–59 Days
Past Due
60–89 Days
Past Due
90 Days or
Greater Past
Due
Total Past Due
(In thousands)
As of December 31, 2024
Residential real estate ................................................................ $
130 $
226 $
652 $
1,008
Commercial real estate ..............................................................
359
—
35,585
35,944
Construction ..............................................................................
—
—
—
—
Commercial business .................................................................
4
11
7,143
7,158
Consumer ..................................................................................
—
—
—
—
Total loans ............................................................................ $
493 $
237 $
43,380 $
44,110
As of December 31, 2023
Residential real estate ................................................................ $
— $
1,220 $
132 $
1,352
Commercial real estate ..............................................................
195
282
1,851
2,328
Construction ..............................................................................
—
—
9,382
9,382
Commercial business .................................................................
6,568
1,648
—
8,216
Consumer ..................................................................................
—
—
—
—
Total loans ............................................................................ $
6,763 $
3,150 $
11,365 $
21,278
Total past due loans totaled $44.1 million and represented 1.63% of total loans as of December 31, 2024, increasing $22.8
million from December 31, 2023.
Modifications. Loans are considered restructured when the borrower is experiencing financial difficulties and the Bank
has granted concessions to a borrower due to the borrower’s financial condition that we otherwise would not have considered.
These concessions may include modifications of the terms of the debt such as reduction of the stated interest rate other than
normal market rate adjustments, extension of maturity dates, or reduction of principal balance or accrued interest. The decision
to restructure a loan, rather than aggressively enforcing the collection of the loan, may benefit us by increasing the ultimate
probability of collection.
Restructured loans are classified as accruing or nonaccruing based on management’s assessment of the collectability of the
loan. Loans which are already on nonaccrual status at the time of the restructuring generally remain on nonaccrual status for
approximately six months before management considers such loans for return to accruing status. Accruing restructured loans
are placed into nonaccrual status if and when the borrower fails to comply with the restructured terms and management deems it
unlikely that the borrower will return to a status of compliance in the near term. There were no nonaccrual loans modified
during the years ended December 31, 2024 and 2023.
50
The following table presents information on modified loans:
At December 31,
2024
2023
(In thousands)
Accruing modified loans:
Residential real estate ............................................................................................................... $
2,261 $
2,325
Commercial real estate .............................................................................................................
—
—
Commercial business ................................................................................................................
—
2,060
Accruing modified loans ......................................................................................................
2,261
4,385
Nonaccrual modified loans:
Residential real estate ............................................................................................................... $
652 $
1,351
Commercial real estate .............................................................................................................
9,217
10,606
Commercial business ................................................................................................................
54
104
Nonaccrual modified loans ..................................................................................................
9,923
12,061
Total modified loans ........................................................................................................ $
12,184 $
16,446
As of December 31, 2024 and 2023, loans classified as modified totaled $12.2 million and $16.4 million, respectively.
Potential Problem Loans. We classify certain loans as “special mention”, “substandard”, or “doubtful”, based on criteria
consistent with guidelines provided by our banking regulators. Potential problem loans represent loans that are currently
performing, but for which known information about possible credit problems of the related borrowers causes management to
have doubts as to the ability of such borrowers to comply with the present loan repayment terms and which may result in
disclosure of such loans as nonperforming at some time in the future. We cannot predict the extent to which economic
conditions or other factors may impact borrowers and the potential problem loans. Accordingly, there can be no assurance that
other loans will not become 90 days or more past due, be placed on nonaccrual, become restructured, or require increased
allowance coverage and provision for credit losses. Potential problem loans are assessed for loss exposure using the methods
described in Note 5 to our Consolidated Financial Statements under the caption “Credit Quality Indicators”.
We expect the levels of nonperforming assets and potential problem loans to fluctuate in response to changing economic
and market conditions, and the relative sizes of the respective loan portfolios, along with our degree of success in resolving
problem assets. We take a proactive approach with respect to the identification and resolution of problem loans.
Allowance for Credit Losses - Loans ("ACL-Loans")
Our Board of Directors has adopted an Allowance for Credit Losses policy designed to provide management with a
methodology for determining and documenting the allowance for credit losses for each reporting period. We evaluate the
adequacy of the ACL-Loans at least quarterly, and in determining our ACL-Loans, we estimate losses on specific loans, or
groups of loans, where the probable loss can be identified and reasonably determined. The balance of our ACL-Loans is based
on internally assigned risk classifications of loans, the Bank’s and peer banks’ historical loss experience, changes in the nature
of the loan portfolio, overall portfolio quality, industry concentrations, delinquency trends, current economic factors and the
estimated impact of current economic conditions on certain historical loan loss rates. See additional discussion regarding our
Allowance for Credit Losses-Loans ("ACL-Loans") and Allowance for Credit Losses-Unfunded commitments ("ACL-
Unfunded commitments") under the caption "Critical Accounting Policies and Estimates."
Our general practice is to identify problem credits early and recognize full or partial charge-offs as promptly as practicable
when it is determined that it is probable that the loan will not be repaid according to its original contractual terms, including
principal and interest. Full or partial charge-offs on collateral dependent loans are recognized when the collateral is deemed to
be insufficient to support the carrying value of the loan. We do not recognize a recovery when an updated appraisal indicates a
subsequent increase in value of the collateral.
Our 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 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 remaining loan balance based on
the same criteria.
51
The following table presents the activity in our ACL-Loans and related ratios for the dates indicated:
At December 31,
2024
2023
(Dollars in thousands)
Balance at beginning of period .................................................................................................... $
27,946
$
22,431
Day 1 CECL Adjustment on January 1, 2023 .............................................................................
—
5,079
Charge-offs:
Residential real estate ...............................................................................................................
(141)
—
Commercial real estate .............................................................................................................
(13,111)
(824)
Construction ..............................................................................................................................
(1,771)
—
Commercial business ................................................................................................................
(7,909)
(440)
Consumer ..................................................................................................................................
(84)
(83)
Total charge-offs ..................................................................................................................
(23,016)
(1,347)
Recoveries:
Residential real estate ...............................................................................................................
141
—
Commercial real estate .............................................................................................................
1,126
—
Commercial business ................................................................................................................
(3)
531
Consumer ..................................................................................................................................
23
39
Total recoveries ....................................................................................................................
1,287
570
Net (charge-offs) recoveries ........................................................................................................
(21,729)
(777)
Provision charged to earnings .....................................................................................................
22,790
1,213
Balance at end of period .............................................................................................................. $
29,007
$
27,946
Net charge-offs or (recoveries) to average loans .........................................................................
0.81 %
0.03 %
ACL-Loans to total loans ...................................................................................
1.07 %
1.03 %
At December 31, 2024, our ACL-Loans was $29.0 million and represented 1.07% of total loans, compared to $27.9
million, or 1.03% of total loans at December 31, 2023.
The carrying amount of total individually evaluated loans at December 31, 2024 was $113.9 million. This compares to a
carrying amount of $105.0 million for total individually evaluated loans at December 31, 2023.
52
The following table presents the allocation of the ACL-Loans, the ACL-Loans percentage, and the related loan segments
to total loans percentage:
At December 31,
2024
2023
ACL-Loans
Amount
ACL-Loans
Percentage
Loan Segment
to Total Loans
Percentage
ACL-Loans
Amount
ACL-Loans
Percentage
Loan Segment
to Total Loans
Percentage
(Dollars in thousands)
Residential real estate ................. $
94
0.32 %
1.58 % $
149
0.53 %
1.87 %
Commercial real estate ...............
21,838
75.29
70.19
20,950
74.97
71.64
Construction ...............................
2,059
7.10
6.41
1,699
6.08
6.75
Commercial business .................
4,070
14.03
19.04
4,562
16.32
18.41
Consumer ...................................
946
3.26
2.78
586
2.10
1.33
Total ................................. $
29,007
100.00 %
100.00 % $
27,946
100.00 %
100.00 %
The allocation of the ACL-Loans at December 31, 2024 reflects our assessment of credit risk and probable loss within
each portfolio. We believe that the level of the ACL-Loans at December 31, 2024 is appropriate to cover probable losses.
Investment Securities
We manage our investment securities portfolio to provide a readily available source of liquidity for balance sheet
management, to generate interest income and to implement interest rate risk management strategies. Investments are designated
as either marketable equity, available for sale, held to maturity or trading securities at the time of purchase. We do not currently
maintain a portfolio of trading securities. Investment securities available for sale may be sold in response to changes in market
conditions, prepayment risk, rate fluctuations, liquidity, or capital requirements. Investment securities available for sale are
reported at fair value, with any unrealized gains and losses excluded from earnings and reported as a separate component of
shareholders’ equity, net of tax, until realized. Investment securities held to maturity are reported at amortized cost. Marketable
equity securities are reported at fair value, with any changes in fair value recognized in earnings.
The amortized cost and fair value of investment securities as of the dates indicated are presented in the following table:
At December 31,
2024
2023
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
(In thousands)
Marketable equity securities ........................................................................ $
2,264 $
2,118 $
2,202 $
2,070
Securities available for sale:
U.S. Government and agency obligations .................................................
95,443
91,582
100,276
95,226
Corporate bonds ........................................................................................
17,000
15,846
17,000
14,510
Total securities available for sale .......................................................... $ 112,443 $ 107,428 $ 117,276 $ 109,736
Securities held to maturity:
State agency and municipal obligations ....................................................
36,525
36,662 $
15,785 $
15,870
Government mortgage-backed securities ..................................................
28
29
32
33
Total securities held to maturity ........................................................... $
36,553 $
36,691 $
15,817 $
15,903
At December 31, 2024, the carrying value of our investment securities portfolio totaled $146.1 million and represented 4%
of total assets, compared to $127.6 million and 4% of total assets at December 31, 2023. The increase of $18.5 million
primarily reflects purchases of held to maturity securities. We purchase investment grade securities with a focus on liquidity,
earnings and duration exposure.
The net unrealized losses on our investment portfolio at December 31, 2024 was $4.9 million and included $1.3 million of
gross unrealized gains. The net unrealized loss position on our investment portfolio at December 31, 2023 was $7.5 million and
included $0.8 million of gross unrealized gains.
53
The following tables summarize the amortized cost and weighted average yield of securities in our investment securities
portfolio as of December 31, 2024 and 2023, based on remaining period to contractual maturity. Information for mortgage-
backed securities is based on the final contractual maturity dates without considering repayments and prepayments.
Due Within 1 Year
Due 1–5 Years
Due 5–10 Years
Due After 10 Years or No
Contractual Maturity
At December 31, 2024
Amortized
Cost
Yield
Amortized
Cost
Yield
Amortized
Cost
Yield
Amortized
Cost
Yield
(Dollars in thousands)
Marketable equity securities ....... $
—
— % $
—
— % $
—
— % $
2,264
2.19 %
Securities available for sale:
U.S. Government and agency
obligations ...............................
24,920
3.39
47,541
2.03
16,038
2.53
6,944
2.10
Corporate bonds .......................
—
—
—
15,500
4.18
1,500
4.50
Total securities available
for sale ................................ $ 24,920
3.39 % $ 47,541
2.03 % $ 31,538
3.34 % $
8,444
2.53 %
Securities held to maturity:
State agency and municipal
obligations ............................... $
6,820
7.08 % $
—
— % $
2,808
4.73 % $ 26,897
6.07 %
Government mortgage-backed
securities ..................................
—
—
—
—
—
—
28
5.46
Total securities held to
maturity ............................... $
6,820
7.08 % $
—
— % $
2,808
4.73 % $ 26,925
6.07 %
Due Within 1 Year
Due 1–5 Years
Due 5–10 Years
Due After 10 Years or No
Contractual Maturity
At December 31, 2023
Amortized
Cost
Yield
Amortized
Cost
Yield
Amortized
Cost
Yield
Amortized
Cost
Yield
(Dollars in thousands)
Marketable equity securities ....... $
—
— % $
—
— % $
—
— % $
2,202
2.19 %
Securities available for sale:
U.S. Government and agency
obligations ...............................
9,836
4.27
55,288
2.15
27,229
2.62
7,923
1.87
Corporate bonds .......................
—
—
—
—
15,500
4.18
1,500
4.50
Total securities available
for sale ................................ $
9,836
— % $ 55,288
1.99 % $ 42,729
3.18 % $
9,423
2.28 %
Securities held to maturity:
State agency and municipal
obligations ............................... $
—
— % $
—
— % $
—
— %
15,785
5.09 %
Government mortgage-backed
securities ..................................
—
—
—
—
—
—
32
5.43
Total securities held to
maturity ............................... $
—
— % $
—
— % $
—
— % $ 15,817
5.09 %
54
Bank Owned Life Insurance ("BOLI")
BOLI amounted to $52.8 million as of December 31, 2024. The purchase of life insurance policies results in an income-
earning asset on our consolidated balance sheet that provides monthly tax-free income to us. We expect to benefit from the
BOLI contracts as a result of the tax-free growth in cash surrender value and death benefits that are expected to be generated
over time. BOLI is included in our Consolidated Balance Sheets at its cash surrender value. Increases in the cash surrender
value are reported as a component of noninterest income in our Consolidated Statements of Income.
Deposit Activities and Other Sources of Funds
Our sources of funds include deposits, including brokered deposits, FHLB borrowings, subordinated debt and proceeds
from the sales, maturities and payments of loans and investment securities.
Total deposits represented 85% of our total assets at December 31, 2024. While scheduled loan and securities repayments
are relatively stable sources of funds, loan and securities prepayments and deposit inflows are influenced by prevailing interest
rates and local economic conditions and are inherently uncertain.
Deposits
We offer a wide variety of deposit products and rates to consumer and business clients consistent with FDIC regulations.
Our executive management team meets regularly to determine pricing and marketing initiatives. In addition to being an
important source of funding for us, deposits also provide an ongoing stream of fee revenue.
We participate in the Certificate of Deposit Account Registry Service ("CDARS") and Insured Cash Sweep Service
("ICS") programs. We use CDARS and ICS to place client funds into certificate of deposit accounts and money market
accounts, respectively, into other participating banks. These transactions occur in amounts that are less than FDIC insurance
limits to ensure that deposit clients are eligible for FDIC insurance on the full amount of their deposits. Reciprocal amounts of
deposits are received from other participating banks that do the same with their client deposits, and, we also execute one-way
buy transactions. CDARS one-way and ICS one-way buy transactions are considered to be brokered deposits for bank
regulatory purposes.
Time deposits may also be generated through the use of a listing service. We subscribe to a listing service, accessible to
financial institutions, in which we may advertise our time deposit rates. Interested financial institutions then contact us directly
to acquire a time certificate of deposit. There is no third party brokerage service involved in this transaction.
The following table sets forth the composition of our deposits for the dates indicated:
At December 31,
2024
2023
Amount
Percent
Weighted
Average
Rate
Amount
Percent
Weighted
Average
Rate
(Dollars in thousands)
Noninterest-bearing demand ............................. $ 321,875
11.54 %
— % $ 346,172
12.65 %
— %
NOW .................................................................
105,090
3.77
0.18
90,829
3.32
0.17
Money market ...................................................
899,413
32.27
4.08
887,352
32.42
3.63
Savings ..............................................................
90,220
3.24
3.07
97,331
3.56
2.79
Time .................................................................. 1,370,972
49.18
4.76
1,315,073
48.05
3.89
Total deposits ................................................. $ 2,787,570
100.00 %
4.27 % $ 2,736,757
100.00 %
3.59 %
Total deposits were $2.8 billion at December 31, 2024, an increase of $50.8 million, or 2%, from December 31, 2023.
Brokered certificates of deposits ("Brokered CDs") totaled $651.5 million and $860.5 million at December 31, 2024 and
December 31, 2023, respectively. Brokered money market accounts totaled $53.5 million and $91.4 million at December 31,
2024 and 2023, respectively. There were no certificates of deposits from national listing services, one-way buy CDARS or one-
way buy ICS at December 31, 2024 or December 31, 2023. Brokered deposits are comprised of Brokered CDs, brokered money
market accounts, one-way buy CDARS, and one-way buy ICS.
As of December 31, 2024, our FDIC insured deposits were $2,008.2 million, or 72% of total deposits. Additionally,
$117.1 million of deposits are insured by standby letters of credit with the Federal Home Loan Bank of Boston, or 4% of total
deposits.
55
At December 31, 2024 and 2023, time deposits, including CDARS and Brokered CDs, with a denomination of
$100 thousand or more totaled $1.2 billion and $1.2 billion, respectively, maturing during the periods indicated in the table
below:
At December 31,
2024
2023
(In thousands)
Maturing:
Within 3 months ................................................................................................................................... $ 421,808 $ 317,534
After 3 but within 6 months .................................................................................................................
326,115
244,472
After 6 months but within 1 year .........................................................................................................
419,098
294,641
After 1 year ...........................................................................................................................................
19,429
343,084
Total ........................................................................................................................................................ $ 1,186,450 $ 1,199,731
Federal Home Loan Bank Advances and Other Borrowings
The Bank is a member of the FHLB, which is part of a twelve district Federal Home Loan Bank System. Members are
required to own capital stock of the FHLB, and borrowings are collateralized by qualifying assets not otherwise pledged. The
maximum amount of credit that the FHLB will extend varies from time to time, depending on its policies and the amount of
qualifying collateral the member can pledge. The Bank had satisfied its collateral requirement at December 31, 2024.
We utilize advances from the FHLB as part of our overall funding strategy, to meet short-term liquidity needs and to
manage interest rate risk arising from the difference in asset and liability maturities. Total FHLB advances were $90.0 million
at December 31, 2024 and $90.0 million at December 31, 2023.
The Bank has additional borrowing capacity at the FHLB up to a certain percentage of the value of qualified collateral. In
accordance with agreements with the FHLB, the qualified collateral must be free and clear of liens, pledges and encumbrances.
At December 31, 2024, the Bank had pledged $742.6 million of eligible loans as collateral to support borrowing capacity at the
FHLB of Boston. As of December 31, 2024, the Bank had immediate availability to borrow an additional $266.1 million based
on qualified collateral.
Advances from the FHLB include short-term advances with original maturity dates of one year or less. The following table
sets forth certain information concerning short-term FHLB advances as of and for the periods indicated:
Year Ended December 31,
2024
2023
(Dollars in thousands)
Average amount outstanding during the period .................................................................... $
90,000
$
91,589
Amount outstanding at end of period ....................................................................................
90,000
90,000
Highest month end balance during the period ......................................................................
90,000
100,000
Weighted average interest rate at end of period(1)
.................................................................
3.91 %
3.24 %
(1) In 2023, $50 million of the Company's FHLB borrowings were subject to longer term interest rate swap agreements
and the average rate reflects the "all-in" swap costs under these agreements.
On October 14, 2021, the Company completed a private placement of a $35.0 million fixed-to-floating rate subordinated
note (the “2021 Note”) to an institutional accredited investor. The Company used the net proceeds to repay the outstanding
balance of subordinated debt issued in 2015 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.
On August 19, 2022, the Company entered into a Subordinated Note Purchase Agreement with certain qualified
institutional buyers, pursuant to which the Company issued and sold 6.0% fixed-to-floating rate subordinated notes due 2032
(the “2022 Notes”) in the aggregate principal amount of $35.0 million. The Company used the net proceeds from the sale of the
2022 Notes for general corporate purposes.
56
The 2022 Notes bear interest at a fixed rate of 6.0% per year until August 31, 2027. Thereafter, the interest rate will reset
quarterly at a variable rate equal to the then current three-month term SOFR plus 326 basis points. The 2022 Notes have a
stated maturity of September 1, 2032 and are non-callable for five years. Beginning August 19, 2027, the Company may
redeem the 2022 Notes, in whole or in part, at its option. The 2022 Notes are not subject to redemption at the option of the
holder. The 2022 Notes have been structured to qualify for the Company as Tier 2 capital under regulatory guidelines.
Derivative Instruments
The Company uses interest rate swap instruments to fix the interest rate on short-term FHLB borrowings or brokered
deposits, all of which are designated as cash flow hedges. The hedge strategy converts the rate of interest on short-term rolling
FHLB advances or brokered deposits to long-term fixed interest rates, thereby protecting the Bank from interest rate variability
in the contractually specified interest rates.
The Company has one pay-fixed portfolio layer method fair value swap, designated as a hedging instrument, with a total
notional amount of $150 million. The Company designated the fair value swap under the portfolio layer method. Under this
method, the hedged item is designated as a hedged layer of a closed portfolio of financial loans that is anticipated to remain
outstanding for the designated hedged period.
Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain loan
clients. The Company executes interest rate swaps with commercial banking clients to facilitate their respective risk
management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company
executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the
interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair
value of both the client derivatives and the offsetting derivatives are recognized directly in earnings. Information about
derivative instruments at December 31, 2024 and 2023 was as follows:
As of December 31, 2024
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 ........ $
75,000 Other assets ........
$
3,259 $
—
Accrued
expenses and
other liabilities ...
$
—
Fair value swap ............ $
— Other assets ........
$
— $
150,000
Accrued
expenses and
other liabilities ...
$
259
Derivatives not
designated as hedging
instruments:
Interest rate swaps(1)
..... $
38,500 Other assets ........
$
4,213 $
38,500
Accrued
expenses and
other liabilities ...
$
4,213
(1) Represents interest rate swaps with commercial banking clients, which are offset by derivatives with a third party.
57
As of December 31, 2023
Derivative Assets
Derivative Liabilities
Original
Notional
Amount
Balance Sheet
Location
Fair
Value
Original
Notional
Amount
Balance Sheet
Location
Fair
Value
(In thousands)
Derivatives designated
as hedging instruments:
Interest rate swaps ........ $
125,000 Other assets ........
$
5,240 $
—
Accrued
expenses and
other liabilities ...
$
—
Fair value swap ............ $
— Other assets ........
$
— $
150,000
Accrued
expenses and
other liabilities ...
$
917
Derivatives not
designated as hedging
instruments:
Interest rate swaps(1)
..... $
38,500 Other assets ........
$
3,579 $
38,500
Accrued
expenses and
other liabilities ...
$
3,579
(1) Represents interest rate swaps with commercial banking clients, which are offset by derivatives with a third party.
Liquidity and 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), cash flows from
our investment securities portfolios, loan sales, loan repayments and earnings. Investment securities designated as available for
sale may also be sold in response to short-term or long-term liquidity needs.
The Bank’s liquidity position is monitored daily by management. The Asset Liability Committee, or 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 Pacific Coast Bank (PCBB), Atlantic Community Bankers Bank
(ACBB), and Zion’s Bank and also maintains additional collateralized borrowing capacity with the Federal Reserve Bank of
New York ("FRBNY") and the FHLB in excess of levels used in the ordinary course of business. Our sources of liquidity
include cash, unpledged investment securities, borrowings from the FRBNY, FHLB, lines of credit from PCBB, ACBB, and
Zion's Bank, the brokered deposit market and national CD listing services.
Capital Resources
Shareholders’ equity totaled $270.5 million as of December 31, 2024, an increase of $4.8 million compared to December
31, 2023, primarily a result of (i) net income of $9.8 million for the year ended December 31, 2024. The increase was partially
offset by dividends paid of $6.3 million. As of December 31, 2024, the tangible common equity ratio and tangible book value
per share were 8.20% and $35.09, respectively.
The Bank and the Company are 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
December 31, 2024, the Bank met all capital adequacy requirements to which it was subject and exceeded the regulatory
minimum capital levels to be considered well-capitalized under the regulatory framework. At December 31, 2024, the Bank’s
ratio of total common equity tier 1 capital to risk-weighted assets was 11.64%, total capital to risk-weighted assets was 12.70%,
Tier 1 capital to risk-weighted assets was 11.64% and Tier 1 capital to average assets was 10.09%. At December 31, 2024, the
58
Company 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 December 31, 2024, the
Company’s ratio of Common Equity Tier 1 capital to risk-weighted assets was 9.60%, total capital to risk-weighted assets was
13.14%, Tier 1 capital to risk-weighted assets was 9.60% and Tier 1 capital to average assets was 8.34%.
Under the current guidelines, banking organizations must have a minimum total risk-based capital ratio of 8.0%, a
minimum Tier 1 risk-based capital ratio of 6.0%, a minimum common equity Tier 1 risk-based capital ratio of 4.5%, and a
minimum leverage ratio of 4.0% in order to be "adequately capitalized." In addition to these requirements, banking
organizations must maintain a capital conservation buffer consisting of common Tier 1 equity in an amount above the minimum
risk-based capital requirements for “adequately capitalized” institutions equal to 2.5% of total risk-weighted assets, resulting in
a requirement for the Company and the Bank to effectively maintain common equity Tier 1, Tier 1 and total capital ratios of
7.0%, 8.5% and 10.5%, respectively. The Company and the Bank must maintain the capital conservation buffer to avoid
restrictions on the ability to pay dividends, pay discretionary bonuses, or to engage in share repurchases.
Contractual Obligations
The following table summarizes our contractual obligations to make future payments as of December 31, 2024. Payments
for borrowings do not include interest. Payments related to leases are based on actual payments specified in the underlying
contracts.
Payments Due by Period
Total
Less Than
1 Year
1–3
Years
4–5
Years
After
5 Years
(in thousands)
Contractual Obligations:
FHLB advances ................................................................... $
90,000 $
90,000 $
— $
— $
—
Subordinated debt ................................................................
70,000
—
—
—
70,000
Operating lease agreements .................................................
14,216
2,375
4,702
4,081
3,058
Time deposits with stated maturity dates ............................ 1,370,972 1,348,808
5,917
6,222
10,025
Total contractual obligations ........................................... $ 1,545,188 $ 1,441,183 $
10,619 $
10,303 $
83,083
Off-Balance Sheet Arrangements
In the normal course of business, we are a party to financial instruments with off-balance sheet risk to meet the financing
needs of our clients. These financial instruments include commitments to extend credit and involve, to varying degrees,
elements of credit and interest rate risk in excess of the amounts recognized in the financial statements. The contractual
amounts of these instruments reflect the extent of involvement we have in particular classes of financial instruments.
We enter into contractual commitments to extend credit, normally with fixed expiration dates or termination clauses, at
specified rates and for specific purposes. Substantially all of the Bank’s commitments to extend credit are contingent upon
clients maintaining specific credit standards at the time of loan funding. The Bank minimizes its exposure to loss under these
commitments by subjecting them to credit approval and monitoring procedures.
Commitments to extend credit totaled $453.5 million at December 31, 2024. The following table summarizes our
commitments to extend credit as of the date indicated. Since commitments associated with letters of credit and commitments to
extend credit may expire unused, the amounts shown do not necessarily reflect the actual future cash funding requirements. In
addition, borrowers may be required to meet certain performance requirements to continue to draw on these commitments. We
manage our liquidity in light of the aggregate amounts of commitments to extend credit and outstanding standby letters of credit
in effect from time to time to ensure that we will have adequate sources of liquidity to fund such commitments and honor drafts
under such letters of credit.
Loan pipeline, while not legally binding, represents the Company's future potential funding obligations which are currently
in an advanced stage of underwriting and are subject to various conditions before disbursement. Loans in the pipeline are
typically short-term, usually within 90 days.
59
As of December 31, 2024
Amount of Commitment Expiration per Period
Total
Less Than
1 Year
1–3
Years
4–5
Years
After
5 Years
(in thousands)
Other Commitments:
Loan pipeline ....................................................................... $ 218,612 $ 218,612 $
— $
— $
—
Loan commitments .............................................................. $ 173,203 $ 105,043 $
56,806 $
250 $
11,104
Undisbursed construction loans ...........................................
59,355
11,663
36,806
3,859
7,027
Unused home equity lines of credit .....................................
2,331
—
—
—
2,331
Total other commitments ................................................ $ 453,501 $ 335,318 $
93,612 $
4,109 $
20,462
Recently Issued Accounting Pronouncements
See Note 1 to our Consolidated Financial Statements for details of recently issued accounting pronouncements and their
expected impact on our financial statements.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Asset/Liability Management and Interest Rate 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
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.
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 analytics; (ii) new business loan rates that are based on recent new business
origination experience; and (iii) deposit pricing assumptions for non-maturity deposits reflecting the Bank’s history,
management judgment and core deposit studies. 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 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 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 December 31, 2024, the Bank has met all minimum
regulatory capital requirements to be considered "well capitalized".
The following tables set forth the estimated percentage change in our net interest income at risk over one-year simulation
periods beginning December 31, 2024 and 2023:
60
Parallel Ramp
Estimated Percent Change
in Net Interest Income
At December 31,
Rate Changes (basis points)
2024
2023
(100) .......................................................................................................................................................
0.40 %
1.70 %
200 ..........................................................................................................................................................
(1.00)
(3.20)
Parallel Shock
Estimated Percent Change
in Net Interest Income
At December 31,
Rate Changes (basis points)
2024
2023
(100) .......................................................................................................................................................
(1.00) %
3.60 %
100 ..........................................................................................................................................................
0.60
(2.70)
200 ..........................................................................................................................................................
0.80
(5.80)
300 ..........................................................................................................................................................
1.40
(8.10)
The net interest income at risk simulation results indicate that, as of December 31, 2024, we remain liability sensitive. The
liability sensitivity is due to the fact that there are more liabilities than assets subject to repricing as market rates change.
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 risk and options risk embedded in the
balance sheet. It measures the sensitivity of economic value of equity to changes in interest rates. 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:
Parallel Shock
Estimated Percent Change
in Economic Value of Equity
At December 31,
Rate Changes (basis points)
2024
2023
(100) .......................................................................................................................................................
0.40 %
2.70 %
100 ..........................................................................................................................................................
(1.30)
(3.80)
200 ..........................................................................................................................................................
(3.60)
(9.40)
300 ..........................................................................................................................................................
(4.70)
(12.60)
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. ALCO recognizes that deposit
balances could shift into higher yielding alternatives as market rates change. ALCO has modeled increased costs of deposits in
the rising rate simulation scenarios presented above.
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 client behavior. Another significant simulation assumption is
the sensitivity of core 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
61
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.
Impact of Inflation
Our financial statements and related data contained in this annual report have been prepared in accordance with GAAP,
which require 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 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 fluctuate accordingly. 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 performance of a financial institution than the effects of general levels of inflation. In addition,
inflation 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 rates generally decrease the market value of investments
and loans held and may adversely affect liquidity, earnings and shareholders’ equity.
62
Item 8.
Financial Statements and Supplementary Data
The financial statements and supplementary data required by this item are presented in the order shown below:
Report of Independent Registered Public Accounting Firm (PCAOB ID: 49)
Consolidated Balance Sheets as of December 31, 2024 and 2023
Consolidated Statements of Income for the years ended December 31, 2024 and 2023
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2024 and 2023
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2024 and 2023
Consolidated Statements of Cash Flows for the years ended December 31, 2024 and 2023
Notes to Consolidated Financial Statements
63
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Bankwell Financial Group, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Bankwell Financial Group, Inc. and its subsidiaries (the
Company) as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income (loss),
shareholders' equity, and cash flows for the years then ended and the related notes to the consolidated financial statements
(collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for the
years then ended, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in
Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
in 2013, and our report dated March 5, 2025, expressed an unqualified opinion on the effectiveness of the Company's internal
control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole,
and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on
the accounts or disclosures to which it relates.
Allowance for Credit Losses on Loans
As described in Notes 1 and 5 to the consolidated financial statements, the Company’s allowance for credit losses for loans
totaled $29 million as of December 31, 2024, which consists of an allowance for collectively evaluated loans of $29 million and
no allowance for individually evaluated loans. Management estimates the allowance based on credit losses believed to be in the
Company’s loan portfolio over the life of its loans, segmented by portfolio and risk classification, at the balance sheet date. The
Company’s allowance for credit losses on loans consists of a component relating to collectively evaluated loans and a
component relating to individually evaluated loans. The allowance for collectively evaluated loans is derived from lifetime loss
rate models that calculate expected losses over the life of each loan based on exposure at default, loan attributes, and
reasonable, supportable economic forecasts, adjusted for qualitative adjustments considered by management. The lifetime loss
rate models rely upon historical losses from a broad cross section of U.S. banks and management reviews the banks included in
the loss rate models that determine the loss rates. To further refine the expected losses, management selects a group of peer
banks to scale the loss rate models to produce an allowance that is representative of the Company’s loan portfolio and
geographic area (“peer scalar”).
To account for economic uncertainty, the Company incorporates multiple economic scenarios in determining the allowance for
credit losses. The scenarios include various projections based on variables such as Gross Domestic Product, interest rates,
property price indices, and employment measures, among others. The scenarios are probability-weighted based on available
information at the time the calculation is conducted.
Management considers qualitative adjustments to expected credit loss estimates for information not already captured in the
quantitative loss estimation models. The measurement of expected credit losses is influenced by the Company’s judgment of
64
market conditions, changes in loan composition or concentrations, performance trends, regulatory changes, uncertainty in
macroeconomic forecasts, or other asset specific risk characteristics.
Key assumptions used in the models include portfolio segmentation, risk rating, forecasted economic scenarios, the peer scalar,
and qualitative adjustments, among others. Loan portfolios are segmented by loan level attributes such as loan type, size, date of
origination, and delinquency status to create homogenous loan pools. Pool level metrics are calculated, and loss rates are
subsequently applied to the pools as the loans have similar characteristics.
We identified the peer bank determinations for scaling, forecasted economic scenarios, and qualitative adjustment components
of the allowance for credit losses for loans (herein referred to as “the allowance”) as a critical audit matter because auditing the
underlying assumptions in those components involved a high degree of complexity and auditor judgment given the high degree
of subjectivity exercised by management in developing the allowance, which resulted in an increase in audit effort due to the
impact these assumptions have on the accounting estimate. Additionally, we used an internal economic specialist to assist in
auditing the reasonable and supportable forecast based on the subjectivity and complexity involved with determining that
assumption.
Our audit procedures related to management’s selection of the models being used in determining the peer bank determinations
for scaling, forecasted economic scenarios, and qualitative adjustment components of the allowance included the following,
among others:
–
We obtained an understanding of the relevant controls related to management’s selection of the peer bank
determinations for scaling, forecasted economic scenarios, and qualitative adjustment components of the allowance
and tested such controls for design and operating effectiveness.
–
We evaluated management’s judgments and assumptions used in the development of the qualitative factors for
reasonableness and tested the reliability of the underlying data on which these factors are based, by comparing
information to source documents and external information sources.
–
We tested management’s process and significant judgments in the selection of the peer bank determinations for scaling
and forecasted economic scenarios of the allowance for credit losses, which included:
•
Evaluating management’s considerations and data utilized as a basis for the peer bank determinations for
scaling used in the loss rate models and testing the completeness and accuracy of the underlying data by
tracing the data to independent sources.
•
Evaluating management’s considerations and selection of forecasted economic scenarios and testing the
reasonableness of the underlying data, which included Gross Domestic Product, interest rates, property price
indices, and employment measures, among others, by comparing these forecasts to external and internal
information sources that were available to management, which included the use of an internal economic
specialist.
•
Evaluating the reasonableness of management’s weighting of selected forecasted economic scenarios by
considering the consistency with available external market data.
/s/ RSM US LLP
We have served as the Company’s auditor since 2017.
Hartford, Connecticut
March 5, 2025
65
Bankwell Financial Group, Inc.
Consolidated Balance Sheets
(In thousands, except share data)
December 31,
2024
2023
ASSETS
Cash and due from banks .......................................................................................................... $
293,552 $
267,521
Federal funds sold .....................................................................................................................
13,972
1,636
Cash and cash equivalents .................................................................................................
307,524 $
269,157
Investment securities
Marketable equity securities, at fair value ...........................................................................
2,118
2,070
Available for sale investment securities, at fair value ..........................................................
107,428
109,736
Held to maturity investment securities, at amortized cost (fair values of $36,691 and $15,903
at December 31, 2024 and 2023, respectively) ...........................................................................
36,553
15,817
Total investment securities ................................................................................................
146,099
127,623
Loans receivable (net of ACL-Loans of $29,007 and $27,946 at December 31, 2024 and
2023, respectively) ..................................................................................................
2,672,959
2,685,301
Other real estate owned ............................................................................................................
8,299
—
Accrued interest receivable ......................................................................................................
14,535
14,863
Federal Home Loan Bank stock, at cost ...................................................................................
5,655
5,696
Premises and equipment, net ....................................................................................................
23,856
27,018
Bank-owned life insurance .......................................................................................................
52,791
51,435
Goodwill ...................................................................................................................................
2,589
2,589
Deferred income taxes, net .......................................................................................................
9,742
9,383
Other assets ...............................................................................................................................
24,427
22,417
Total assets .......................................................................................................................... $
3,268,476 $
3,215,482
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits
Noninterest bearing deposits ................................................................................................ $
321,875 $
346,172
Interest bearing deposits .......................................................................................................
2,465,695
2,390,585
Total deposits ....................................................................................................................
2,787,570
2,736,757
Advances from the Federal Home Loan Bank .........................................................................
90,000
90,000
Subordinated debentures (face value of $70,000 and $70,000 at December 31, 2024 and
2023, respectively, less unamortized debt issuance costs of $549 and $795 at December 31,
2024 and 2023, respectively) ......................................................................................................
69,451
69,205
Accrued expenses and other liabilities .....................................................................................
50,935
53,768
Total liabilities ................................................................................................................
2,997,956
2,949,730
Commitments and contingencies (Note 12)
Shareholders’ equity
Common stock, no par value; 10,000,000 shares authorized, 7,859,873 and 7,882,616 shares
issued and outstanding at December 31, 2024 and 2023, respectively .......................................
119,108
118,247
Retained earnings .................................................................................................................
152,656
149,169
Accumulated other comprehensive loss ...............................................................................
(1,244)
(1,664)
Total shareholders’ equity ............................................................................................
270,520
265,752
Total liabilities and shareholders’ equity .................................................................... $
3,268,476 $
3,215,482
See Notes to Consolidated Financial Statements
66
Bankwell Financial Group, Inc.
Consolidated Statements of Income
(In thousands, except share data)
Year Ended December 31,
2024
2023
Interest and dividend income
Interest and fees on loans ............................................................................................................ $
172,832 $
170,181
Interest and dividends on securities .............................................................................................
5,192
4,126
Interest on cash and cash equivalents ..........................................................................................
13,970
14,147
Total interest and dividend income ......................................................................................
191,994
188,454
Interest expense
Interest expense on deposits ........................................................................................................
101,258
86,906
Interest expense on borrowings ...................................................................................................
7,454
7,080
Total interest expense ...........................................................................................................
108,712
93,986
Net interest income ....................................................................................................................
83,282
94,468
Provision for credit losses .........................................................................................................
22,620
866
Net interest income after provision for credit losses ..............................................................
60,662
93,602
Noninterest income
Gains and fees from sales of loans ..............................................................................................
523
1,972
Bank owned life insurance ..........................................................................................................
1,356
1,192
Service charges and fees ..............................................................................................................
1,963
1,629
Other ............................................................................................................................................
(124)
49
Total noninterest income ......................................................................................................
3,718
4,842
Noninterest expense
Salaries and employee benefits ...................................................................................................
23,746
24,595
Occupancy and equipment ..........................................................................................................
9,494
8,665
Data processing ...........................................................................................................................
3,251
2,888
Professional services ...................................................................................................................
4,482
3,538
Director fees ................................................................................................................................
1,840
1,812
FDIC insurance ...........................................................................................................................
3,350
4,164
Marketing ....................................................................................................................................
452
651
Other ............................................................................................................................................
4,436
4,088
Total noninterest expense .....................................................................................................
51,051
50,401
Income before income tax expense ...........................................................................................
13,329
48,043
Income tax expense ....................................................................................................................
3,559
11,380
Net income .................................................................................................................................. $
9,770 $
36,663
Earnings Per Common Share:
Basic ......................................................................................................................................... $
1.24 $
4.71
Diluted ...................................................................................................................................... $
1.23 $
4.67
Weighted Average Common Shares Outstanding:
Basic .........................................................................................................................................
7,710,076
7,587,768
Diluted ......................................................................................................................................
7,737,952
7,647,411
Dividends per common share ...................................................................................................... $
0.80 $
0.80
See Notes to Consolidated Financial Statements
67
Bankwell Financial Group, Inc.
Consolidated Statements of Comprehensive Income
(In thousands)
Year Ended December 31,
2024
2023
Net income .................................................................................................................................. $
9,770 $
36,663
Other comprehensive income:
Unrealized gains on securities:
Unrealized holding gains on available for sale securities ....................................................
2,525
1,149
Reclassification adjustment for gains realized in net income ..............................................
—
—
Net change in unrealized gains ............................................................................................
2,525
1,149
Income tax expense .............................................................................................................
(547)
(209)
Unrealized gains on securities, net of tax ........................................................................
1,978
940
Unrealized (losses) on interest rate swaps:
Unrealized (losses) on interest rate swaps ...........................................................................
(1,995)
(3,065)
Income tax benefit ...............................................................................................................
437
650
Unrealized (losses) on interest rate swaps, net of tax ......................................................
(1,558)
(2,415)
Total other comprehensive income (loss), net of tax ................................................................
420
(1,475)
Comprehensive income ................................................................................................. $
10,190 $
35,188
See Notes to Consolidated Financial Statements
68
Bankwell Financial Group, Inc.
Consolidated Statements of Shareholders’ Equity
(In thousands, except share data)
Number of
Outstanding
Shares
Common
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Balance at December 31, 2022 .....................
7,730,699 $
115,018 $
123,640 $
(189) $
238,469
Balance as of January 1, 2023 as adjusted
for changes in accounting principle ..............
—
—
(4,893)
—
(4,893)
Balance as of January 1, 2023 as adjusted
for changes in accounting principle ..............
7,730,699
115,018
118,747
(189)
233,576
Net income ....................................................
—
—
36,663
—
36,663
Other comprehensive income, net of tax ......
—
—
—
(1,475)
(1,475)
Cash dividends declared ($0.80 per share) ...
—
—
(6,241)
—
(6,241)
Stock-based compensation expense ..............
—
3,074
—
—
3,074
Issuance of restricted stock ...........................
158,675
—
—
—
—
Forfeitures of restricted stock .......................
(15,438)
—
—
—
—
Stock options exercised .................................
8,680
155
—
—
155
Repurchase of common stock .......................
—
—
—
—
—
Balance at December 31, 2023 .....................
7,882,616
118,247
149,169
(1,664)
265,752
Net income ....................................................
—
—
9,770
—
9,770
Other comprehensive income, net of tax ......
—
—
—
420
420
Cash dividends declared ($0.80 per share) ...
—
—
(6,283)
—
(6,283)
Stock-based compensation expense ..............
—
2,998
—
—
2,998
Issuance of restricted stock ...........................
67,509
—
—
—
—
Forfeitures of restricted stock .......................
(4,262)
—
—
—
—
Stock options exercised .................................
—
—
—
—
—
Repurchase of common stock .......................
(85,990)
(2,137)
—
—
(2,137)
Balance at December 31, 2024 .....................
7,859,873 $
119,108 $
152,656 $
(1,244) $
270,520
See Notes to Consolidated Financial Statements
69
Bankwell Financial Group, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Year Ended December 31,
2024
2023
Cash flows from operating activities
Net income ................................................................................................................................................ $
9,770
$
36,663
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization of premiums and discounts on investment securities ...............................................
148
54
Provision for credit losses ....................................................................................................................
22,620
866
Credit for deferred income taxes ..........................................................................................................
(469)
(191)
Change in fair value of marketable equity securities ...........................................................................
13
(31)
Depreciation and amortization .............................................................................................................
3,775
3,623
Amortization of debt issuance costs ....................................................................................................
246
246
Increase in cash surrender value of bank-owned life insurance...........................................................
(1,356)
(1,192)
Gains and fees from sales of loans .......................................................................................................
(523)
(1,972)
Stock-based compensation ...................................................................................................................
2,998
3,074
Loss on sale of premises and equipment ..............................................................................................
—
13
Net change in:
Deferred loan fees ...........................................................................................................................
(1,437)
(1,431)
Accrued interest receivable .............................................................................................................
328
(1,793)
Other assets .....................................................................................................................................
(3,359)
(2,941)
Accrued expenses and other liabilities ............................................................................................
(2,818)
(3,061)
Net cash provided by operating activities ................................................................................
29,936
31,927
Cash flows from investing activities
Proceeds from principal repayments on available for sale securities .......................................................
4,813
4,862
Proceeds from principal repayments on held to maturity securities .........................................................
263
223
Net proceeds from sales and calls of available for sale securities ............................................................
10,000
—
Purchases of available for sale securities ..................................................................................................
(10,000)
(9,847)
Purchases of marketable equity securities ................................................................................................
(62)
(51)
Purchases of held to maturity securities ....................................................................................................
(21,125)
(50)
Net increase in loans .................................................................................................................................
(22,189)
(65,942)
Proceeds from sales of loans not originated for sale .................................................................................
4,911
25,028
Purchases of premises and equipment, net ...............................................................................................
(613)
(2,045)
Proceeds (purchases) of Federal Home Loan Bank stock ........................................................................
41
(480)
Net cash used in investing activities .........................................................................................
(33,961)
(48,302)
See Notes to Consolidated Financial Statements
70
Bankwell Financial Group, Inc.
Consolidated Statements of Cash Flows - Continued
(In thousands)
Cash flows from financing activities
Net change in time certificates of deposit ................................................................................................. $
56,786
$
88,683
Net change in other deposits .....................................................................................................................
(5,974)
(152,744)
Proceeds from exercise of options ............................................................................................................
—
155
Dividends paid on common stock .............................................................................................................
(6,283)
(6,241)
Repurchase of common stock ...................................................................................................................
(2,137)
—
Net cash provided by (used in) financing activities ...................................................................
42,392
(70,147)
Net increase (decrease) in cash and cash equivalents ................................................................
38,367
(86,522)
Cash and cash equivalents:
Beginning of year ......................................................................................................................................
269,157
355,679
End of period ............................................................................................................................................. $
307,524
$
269,157
Supplemental disclosures of cash flows information:
Cash paid for:
Interest .................................................................................................................................................... $
108,713
$
86,042
Income taxes ...........................................................................................................................................
5,378
12,102
Noncash investing and financing activities
Loans transferred to other real estate owned .......................................................................................... $
(8,299) $
—
Net change in unrealized losses or gains on available-for-sale securities ..............................................
2,525
1,149
Net change in unrealized losses or gains on interest rate swaps ............................................................
(2,025)
(3,065)
Establishment of right-of-use-asset and lease liability ...........................................................................
—
1,410
Transfer of Loans from held for-investment to held-for-sale .................................................................
4,387
23,058
See Notes to Consolidated Financial Statements
71
Bankwell Financial Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Nature of Operations and Summary of Significant Accounting Policies
Bankwell Financial Group, Inc. (the "Parent Corporation") is a bank holding company headquartered in New Canaan,
Connecticut. The Parent Corporation offers a broad range of financial services through its banking subsidiary, Bankwell Bank
(the "Bank" and, collectively with the Parent Corporation and the Parent Corporation's subsidiaries, "we", "our", "us", or the
"Company").
The Bank is a Connecticut state chartered commercial bank, founded in 2002, whose deposits are insured under the
Deposit Insurance Fund administered by the Federal Deposit Insurance Corporation (“FDIC”). The Bank provides a wide range
of services to clients in our market, an area encompassing approximately a 100 mile radius around our branch network. In
addition, the Bank pursues certain types of commercial banking opportunities outside our market, particularly where we have
strong relationships. The Bank operates nine branches in New Canaan, Stamford, Fairfield, Westport, Darien, Norwalk, and
Hamden, Connecticut.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and the Bank, including its wholly owned
passive investment company subsidiary. All significant intercompany accounts and transactions have been eliminated in
consolidation.
Use of Estimates
The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United
States of America (“GAAP”) and general practices within the banking industry. In preparing the consolidated financial
statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities,
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 ACL-Loans, derivative instrument valuation, investment securities valuation, ACL-
Securities, and deferred income taxes valuation.
Segments
The Company has one reportable segment. All of the Company’s activities are interrelated, and each activity is dependent
and assessed based on how each of the activities of the Company supports the others. For example, lending is dependent upon
the ability of the Company to fund itself with deposits and borrowings while managing the interest rate and credit risk.
Accordingly, all significant operating decisions are based upon analysis of the Company as one segment or unit.
The Chief Executive Officer (CEO), acting as the Chief Operating Decision Maker (CODM), determines the Company's
one reportable segment. This determination is based on information about the Company's banking operations, its primary
business, and the level of detail provided to the CODM for performance review. Similar operating performance, products and
services, and customer bases allow for aggregation of business components into this one segment. The CODM evaluates
financial performance by reviewing the consolidated financial results of the Company, analyzing factors such as revenue
streams, significant expenses, and capital levels, as well as budget-to-actual results. Consolidated net income and related
performance metrics are also used to benchmark the Company’s performance against competitors. The analysis of the
Company’s results, including benchmarking, informs performance assessment and compensation decisions. The banking
operations generate revenue through loans, investments, and deposits, while significant expenses include interest expense, the
provision for credit losses, and salaries and employee benefits. All operations are domestic.
Basis of Consolidated Financial Statement Presentation
The consolidated financial statements have been prepared in accordance with GAAP and general practices within the
banking industry. Such policies have been followed on a consistent basis.
Cash and Cash Equivalents and Statement of Cash Flows
Cash and due from banks and federal funds sold are recognized as cash equivalents in the consolidated statements of cash
flows. Federal funds sold generally mature in one day. For purposes of reporting cash flows, all highly liquid debt instruments
purchased with an original maturity of three months or less are considered to be cash equivalents. Cash flows from loans and
deposits are reported net. The balances of cash and due from banks and federal funds sold, at times, may exceed federally
insured limits. The Company has not experienced any losses from such concentrations.
72
Investment Securities
Management determines the appropriate classifications of investment securities at the date individual investment securities
are acquired, and the appropriateness of such classifications is reaffirmed at each balance sheet date. The Company’s
investments are categorized as marketable equity, available for sale or held to maturity securities. Held to maturity investments
are carried at amortized cost. Available for sale securities are carried at fair value, with unrealized gains and losses excluded
from earnings and reported in other comprehensive income (loss) as a separate component of capital, net of estimated income
taxes. Marketable equity securities are carried at fair value, with any changes in fair value reported in earnings.
The sale of a held to maturity security within three months of its maturity date or after collection of at least 85% of the
principal outstanding at the time the security was acquired is considered a maturity for purposes of classification and disclosure.
Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the
securities. Gains or losses on the sales of securities are recognized at trade date utilizing the specific identification method.
Transfers of debt securities into the held to maturity classification from the available for sale classification are made at fair
value on the date of transfer. The unrealized holding gain or loss on the date of transfer is retained in accumulated other
comprehensive income and in the carrying value of the held to maturity securities. Such amounts are amortized over the
remaining contractual lives of the securities. When transfers of debt securities into the available for sale classification from the
held to maturity classification occur, any unrealized holding gains or losses on the transfer date are recognized in other
comprehensive income.
Allowance for Credit Losses - Securities ("ACL-Securities")
Pursuant to ASU No. 2016-13, each quarter the Company individually evaluates the available for sale debt securities and
held to maturity securities for impairment credit losses. Available for sale securities include U.S. Treasuries, mortgage-backed
securities, and corporate bonds. U.S. Treasuries and mortgaged-backed securities are guaranteed by the U.S. Government and
as a result, management has a zero loss expectation. No ACL-Securities was recorded for these securities as of December 31,
2024. For the corporate bond portfolio, the Company developed a metric which includes each issuer’s current credit ratings and
key financial performance metrics to assess the underlying performance of each issuer. The analysis of the issuers’ performance
and the intent of the Company to retain these securities support the determination that there was no expected credit loss, and
therefore, no ACL-Securities were recognized on the corporate bond portfolio as of December 31, 2024. Of our held to maturity
securities portfolio, one security’s fair value was less than its amortized cost as of December 31, 2024. Since this is a highly
rated state agency and municipal obligation, the Company's expectation of nonpayment of the amortized cost basis is zero. No
allowance for ACL-Securities was recorded for this security as of December 31, 2024.
Bank Owned Life Insurance
The investment in bank owned life insurance (“BOLI”) represents the cash surrender value of life insurance policies on the
lives of certain Bank employees who have provided positive consent allowing the Bank to be the beneficiary of such policies.
Increases in the cash value of the policies, as well as insurance proceeds received, are recorded in noninterest income, and are
not subject to income taxes. The financial strength of the insurance carrier is reviewed prior to the purchase of BOLI and
annually thereafter.
Federal Home Loan Bank Stock
Federal Home Loan Bank of Boston (“FHLB”) stock is a non-marketable equity security that is carried at cost. There are
no quoted market prices for this security and the security is not liquid. The Company can sell these securities back to the FHLB
at par.
Loans Held For Sale
Loans held for sale are those loans which management has the intent to sell in the foreseeable future, and are carried at the
lower of aggregate cost or market value. Net unrealized losses, if any, are recognized by a valuation allowance through a charge
to noninterest income. Realized gains and losses on the sale of loans are recognized on the trade date and are determined by the
difference between the sale proceeds and the carrying value of the loans.
Loans may be sold with servicing rights released or retained. At the time of the sale, management records a servicing asset
for the value of any retained servicing rights, which represents the present value of the differential between the contractual
servicing fee and adequate compensation, defined as the fee a sub-servicer would require to assume the role of servicer, after
considering the estimated effects of prepayments.
Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over
transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, put presumptively
beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership, (2) the transferee obtains the right
(free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the
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transferor does not maintain effective control over the transferred assets through either (a) an agreement that both entitles and
obligates the transferor to repurchase or redeem the assets before maturity or (b) the ability to unilaterally cause the holder to
return specific assets, other than through a cleanup call.
Loans Receivable
Loans receivable that management has the ability and intent to hold for the foreseeable future or until maturity or payoff
are stated at their current unpaid principal balances, net of the ACL-Loans, charge-offs, recoveries, net deferred loan origination
fees and unamortized loan premiums.
Past due or delinquency status for all loans is based on the number of days past due in accordance with its contractual
payment terms.
A loan is individually evaluated when it is probable that all contractual principal or interest payments due will not be
collected in accordance with the terms of the loan agreement. Individually evaluated loans are measured based on the present
value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s
observable market price or the fair value of the collateral, if the loan is collateral dependent. Credit losses, if any, and any
subsequent changes are recorded as adjustments to the ACL-Loans.
Individually evaluated loans also include loans modified where concessions have been granted to borrowers experiencing
financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions,
forgiveness of principal, forbearance or other actions intended to maximize collection.
Loans greater than 90 days past due are put on nonaccrual status. Loans are also placed on nonaccrual status when, in the
opinion of management, full collection of principal and interest is doubtful. Interest previously accrued, but uncollected, is
reversed against current period income. Subsequent payments are recognized on a cash basis or principal recapture basis
depending on a number of factors including probability of collection and if a credit loss is identified. 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.
Management reviews all nonaccrual loans, other loans past due 90 days or more, and restructured loans for credit losses. In
most cases, loan payments that are past due less than 90 days are considered minor collection delays and the related loans may
not be individually evaluated. Consumer installment loans are considered to be pools of small balance homogeneous loans,
which are collectively evaluated for credit losses.
Modifications made to a loan are considered under ASC 2022-02 when two conditions are met: 1) the borrower is
experiencing financial difficulties 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. Debt may be bifurcated
with separate terms for each tranche of the restructured debt. The decision to restructure a loan, versus aggressively enforcing
the collection of the loan, may benefit the Company by increasing the ultimate probability of collection.
If a performing loan is restructured into a modification it remains in performing status. If a nonperforming loan is
restructured into a modification, 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. Modifications are reported as such
for at least one year from the date of restructuring. In years after the restructuring, loans may be removed from this
classification if the restructuring agreement specifies a market rate of interest equal to that which would be provided to a
borrower with similar credit at the time of restructuring and the loan is not deemed to be a credit loss based on the modified
terms.
Acquired Loans
Acquired loans that met the criteria for nonaccrual of interest prior to the acquisition are considered performing upon
acquisition, regardless of whether the client is contractually delinquent, if the Company can reasonably estimate the timing and
amount of the expected cash flows on such loans and if the Company expects to fully collect the new carrying value of the
loans. As such, the Company may no longer consider the loan to be nonaccrual or nonperforming and may accrue interest on
these loans, including the impact of any accretable yield. The Company has determined that it can reasonably estimate future
cash flows on the Company’s current portfolio of acquired loans that are past due 90 days or more, and on which the Company
is accruing interest and the Company expects to fully collect the carrying value of the loans.
Allowance for Credit Losses-Loans ("ACL-Loans") and Allowance for Credit Losses-Unfunded commitments ("ACL-
Unfunded commitments")
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (“ASC 326”), which requires the
measurement of all expected credit losses for financial assets held at amortized cost to be based on historical experience, current
condition, and reasonable and supportable forecasts. The Company adopted this guidance effective January 1, 2023 and
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recorded a cumulative effect adjustment that increased the allowance for credit losses for loans and loan commitments by $6.4
million, increased deferred tax assets by $1.5 million, and decreased retained earnings by $4.9 million, net of tax.
The ACL-Loans is measured on each loan’s amortized cost basis, excluding interest receivable, and is initially recognized
upon origination or purchase of the loan, and subsequently remeasured on a recurring basis. The ACL-Loans is recognized as a
contra-asset, and credit loss expense is recorded as a provision for credit losses in the consolidated statements of income. Loan
losses are charged off against the ACL-Loans when management believes the loan is uncollectible. Subsequent recoveries, if
any, are credited to the ACL-Loans. Loans are normally placed on nonaccrual status if it is probable that the Company will be
unable to collect the full payment of principal and interest when due according to the contractual terms of the loan agreement,
or the loan is past due for a period of 90 days or more unless the obligation is well-secured and is in the process of collection.
The Company generally does not recognize an allowance for credit losses ("ACL") on accrued interest receivables, consistent
with its policy to reverse interest income when interest is 90 days or more past due.
The Company also records an ACL-Unfunded commitments, which is based on the same assumptions as funded loans and
also considers the probability of funding. The ACL is recognized as a liability, and credit loss expense is recorded as a
provision for unfunded loan commitments within the provision for credit losses in the Consolidated statements of income.
For collectively evaluated loans and related unfunded commitments, the Company utilizes software provided by a third
party, which includes various models for forecasting expected credit losses, to calculate its ACL. Management selected lifetime
loss rate models, utilizing CRE, C&I, and Consumer specific models, to calculate the expected losses over the life of each loan
based on exposure at default, loan attributes, and reasonable, supportable economic forecasts. The models selected by the
Company in its ACL calculation rely upon historical losses from a broad cross section of U.S. banks that also utilize the same
third party for ACL calculations. Management reviewed the third party’s analysis of the banks included in the models as part of
their model development dataset and determined the Company’s loan portfolio composition by property type, balance
distribution by loan age, and delinquency status are similar, which supports the use of these loss rate models. The Company
also noted the third party’s model development dataset has loan concentrations that are evenly distributed across the United
States, while the Company’s portfolio is mainly concentrated in the Northeast. Based on the disparate regional concentration,
management determined that a select group of peer banks is necessary to scale the loss rate models to produce an ACL that is
more representative of the Company’s loan portfolio. This peer-based calibration, called a "scalar", utilizes the loss rates of a
subset of peer banks to appropriately scale the initial model results. These peers have been selected by the Company given their
similar characteristics, such as loan portfolio composition and location, to better align the models’ results to the Company’s
expected losses.
Key assumptions used in the models include portfolio segmentation, risk rating, forecasted economic scenarios, the peer
scalar, and the expected utilization of unfunded commitments, among others. Our loan portfolios are segmented by loan level
attributes such as loan type, size, date of origination, and delinquency status to create homogenous loan pools. Pool level
metrics are calculated, and loss rates are subsequently applied to the pools as the loans have similar characteristics.
To account for economic uncertainty, the Company incorporates multiple economic scenarios in determining the ACL. The
scenarios include various projections based on variables such as Gross Domestic Product, interest rates, property price indices,
and employment measures, among others. The scenarios are probability-weighted based on available information at the time the
calculation is conducted. As part of our ongoing governance of ACL, scenario weightings and model parameters are reviewed
periodically by management and are subject to change, as deemed appropriate.
The Company also considers qualitative adjustments to expected credit loss estimates for information not already captured
in the quantitative loss estimation models. Qualitative factor adjustments may increase or decrease management’s estimate of
expected credit losses. Qualitative loss factors are based on the Company’s judgment of market, changes in loan composition or
concentrations, performance trends, regulatory changes, uncertainty of macroeconomic forecasts, and other asset specific risk
characteristics.
When loans do not share risk characteristics with other financial assets, they are evaluated individually. Management
applies its normal loan review procedures in making these judgments. Individually evaluated loans consist of loans with credit
quality indicators which are substandard or doubtful. The Company also individually evaluates all insurance premium loans as
well as a cash-secured loan to an individual. While these loans are considered consumer loans, the third-party Consumer ACL
model is designed for unsecured lending, whereas these loans are secured. To account for the fully secured structure of this type
of loan, management determined each loan will be individually evaluated, regardless of the credit quality indicators. These
loans are evaluated based upon their collateral, which primarily consists of cash, cash surrender value life insurance, and in
some cases real estate. In determining the ACL-Loans for individually evaluated loans, the Company generally applies a
discounted cash flow method for instruments that are individually assessed. For collateral dependent financial assets where the
Company has determined that foreclosure of the collateral is probable and where the borrower is experiencing financial
difficulty, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of
the asset as of the measurement date. Fair value is generally calculated based on the value of the underlying collateral less an
appraisal discount and the estimated cost to sell.
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Loan modifications
In March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (ASU 326): Troubled Debt
Restructurings and Vintage Disclosures. ASU 2022-02 eliminated the accounting guidance for TDRs by creditors while
enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing
financial difficulty. The Company adopted ASU 2022-02 effective January 1, 2023 and the impact was immaterial.
Interest and Fees on Loans
Interest on loans is accrued and included in income based on contractual rates applied to principal amounts outstanding.
Accrual of interest is discontinued when loan payments are 90 days or more past due, based on contractual terms, or when, in
the judgment of management, collectability of the loan or loan interest becomes uncertain. When interest accrual is
discontinued, all unpaid accrued interest is reversed against interest income. Subsequent recognition of income occurs only to
the extent payment is received subject to management’s assessment of the collectability of the remaining interest and principal.
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.
Loan origination fees, net of direct loan origination costs, are deferred and amortized as an adjustment to the loan’s yield
generally over the contractual life of the loan, utilizing the interest method.
Goodwill and Intangibles
Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in a business
combination. Intangible assets are assets acquired in a business combination that lack physical substance but can be
distinguished from goodwill because the intangible asset is capable of being sold or exchanged on its own or in combination
with related contracts, assets or liabilities. Intangible assets are amortized on a straight-line or accelerated basis over estimated
lives. Goodwill is not amortized. Goodwill and identifiable intangible assets are evaluated for impairment annually or whenever
events or changes in circumstances indicate the carrying value of these assets may not be recoverable. When these assets are
evaluated for impairment, if the carrying amount exceeds fair value, an impairment charge is recorded to income. The fair value
is based on observable market prices, when practicable. Other valuation techniques may be used when market prices are
unavailable, including estimated discounted cash flows. This type of analysis contains uncertainties because it requires
management to make assumptions and to apply judgment to estimate industry economic factors and the profitability of future
business strategies. In the event of future changes in fair value, the Company may be exposed to an impairment charge that
could be material.
Other Real Estate Owned
Assets acquired through deed in lieu or loan foreclosure are initially recorded at fair value less costs to sell when acquired,
establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to
sell. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating costs after
acquisition are expensed.
Premises and Equipment
Premises and equipment are stated at cost, net of accumulated depreciation and amortization. Leasehold improvements are
capitalized and amortized over the shorter of the terms of the related leases or the estimated economic lives of the
improvements. Capitalized software development costs are amortized on a straight-line basis over the estimated useful life of
the software. Depreciation and amortization is charged to operations using the straight-line method over the estimated useful
lives of the related assets which range from three to thirty-nine years. Gains and losses on dispositions are recognized upon
realization. Maintenance and repairs are expensed as incurred and improvements are capitalized.
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. Depreciation is not recognized on any assets that are
classified as held for sale.
Leases
The Company recognizes and measures it leases in accordance with ASC 842, "Leases". The Company leases real estate
for its branch and headquarter offices under various operating lease agreements. The Company determines if an arrangement is
a lease, or contains a lease, at inception of a contract and when the terms of an existing contract are changed. The Company
recognizes a lease liability and right-of-use-asset (ROUA) at the commencement date of the lease. The lease liability is initially
and subsequently recognized based on the present value of its future lease payments. The discount rate is the implicit rate if it's
readily determinable or otherwise the Company uses its incremental borrowing rate. The implicit rates of our leases are not
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readily determinable and accordingly, we use our incremental borrowing rate based on the information available at the
commencement date for all leases. The ROUA is subsequently measured throughout the lease term at the amount of the
remeasured lease liability (i.e., present value of the remaining lease payments), plus any unamortized initial direct costs, plus
(minus) any prepaid (accrued) lease payments, less the unamortized balance of any lease incentives received, and any
impairment recognized. Lease cost for lease payments is recognized on a straight-line basis over the lease term. The ROUA is
included in premises and equipment, net and the lease liability is included in accrued expenses and other liabilities on the
consolidated balance sheets.
Impairment of Long-Lived Assets
Long-lived assets, including premises and equipment, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. If impairment is indicated by that review,
the asset is written down to its estimated fair value through a charge to noninterest expense.
Servicing Rights
When loans are sold on a servicing retained basis, servicing rights are initially recorded at fair value with the income
statement effect recorded in noninterest income. All classes of servicing assets are subsequently measured using the
amortization method, which requires servicing rights to be amortized into noninterest income in proportion to, and over the
period of, the life of the underlying loans.
Servicing rights are evaluated for impairment based upon the fair value of the rights as compared to the carrying amount.
Any impairment is reported as a valuation allowance, to the extent that fair value is less than the carrying amount. If the
Company later determines that all or a portion of the impairment no longer exists, a reduction of the allowance may be recorded
as an increase to income. Changes in the valuation allowance are reported in other income on the consolidated statements of
income. The fair values of servicing rights are subject to fluctuations as a result of changes in estimated and actual prepayment
speeds and default rates and losses.
Loans serviced for others are not included in the accompanying consolidated balance sheets.
Servicing fee income, which is included in service charges and fees on the income statement, is recorded for fees earned
for servicing loans. Fees earned for servicing loans are based on a contractual percentage of the outstanding principal amount of
the loan and are recorded as income when earned. The amortization of servicing rights is recorded in noninterest income.
Income Taxes
The Company recognizes income taxes under the asset and liability method. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more-likely-than-not that all or some portion of the deferred tax assets will not be realized.
In the ordinary course of business there is inherent uncertainty in quantifying the Company’s income tax positions. Income
tax positions and recorded tax benefits assessed for all years are subject to examination based upon management’s evaluation of
the facts, circumstances, and information available at the reporting date. For those tax positions where it is more-likely-than-not
that a tax benefit will be sustained, we have determined the amount of the tax benefit to be recognized by estimating the largest
amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority
that has full knowledge of all relevant information. The portion of the benefits associated with tax positions taken that exceeds
the amount measured as described above is reflected as a liability for unrecognized tax benefits along with any associated
interest and penalties that would be payable to the taxing authorities upon examination. The Company has $1.6 million and $1.0
million of liabilities for uncertain tax positions at December 31, 2024 and 2023, respectively. Where applicable, associated
interest and penalties have also been recognized. We recognize accrued interest and penalties related to unrecognized tax
benefits as a component of income tax expense.
Advertising Costs
Advertising costs are expensed as incurred.
Stock Compensation
The Company measures and recognizes compensation cost relating to share-based payment transactions based on the
grant-date fair value of the equity instruments issued. The fair value of time-based restricted stock is recorded based on the
grant date fair value of the Company’s common stock. For performance based grants, the Company records an expense over the
vesting period based on (a) the probability that the performance metric will be met and (b) the fair market value of the
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Company’s stock at the date of the grant. The fair value of stock options is determined using the Black-Scholes Option Pricing
model. Stock-based compensation costs are recognized over the requisite service period for the awards. Compensation expense
reflects the number of awards expected to vest and is adjusted based on awards that ultimately vest. The Company recognizes
forfeitures as they occur.
Earnings Per Share
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.
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 accounted for as cash
flow hedges. The Company’s total comprehensive income or loss for the years ended December 31, 2024 and 2023 is reported
in the Consolidated Statements of Comprehensive Income.
Fair Values of Financial Instruments
The Company uses fair value measurements to record fair value adjustments to certain assets and to determine fair value
disclosures. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However,
in certain instances, there are no quoted market prices for certain assets or liabilities. 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 rate and estimates of future cash flows. Accordingly, the
fair value estimates may not be realized in an immediate settlement of the asset or liability.
Fair value measurements focus on exit prices in an orderly transaction (that is, not a forced liquidation or distressed sale)
between market participants at the measurement date under current market conditions. If there has been a significant decrease in
the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation
techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at
the measurement date under current market conditions depends on the facts and circumstances and requires the use of
significant judgment.
Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are
inherent weaknesses 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
December 31, 2024 or December 31, 2023. 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.
Derivative Instruments
The effective portion of unrealized changes in the fair value of derivatives accounted for as cash flow hedges is reported in
other comprehensive income and subsequently reclassified to earnings in the same period or periods during which the hedged
forecasted transaction affects earnings. The Bank 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 interest rate swap assets are presented in other assets and the interest rate swap liabilities are presented in
accrued expenses and other liabilities in the consolidated balance sheets. The hedge strategy converts the contractually specified
interest rate on short-term rolling FHLB advances or brokered deposits to long-term fixed interest rates, thereby protecting the
Bank from interest rate variability. The Company does not offset derivative assets and derivative liabilities for financial
statement presentation purposes.
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The Company has one pay-fixed portfolio layer method fair value swap, designated as a hedging instrument, with a total
notional amount of $150 million. The Company designated the fair value swap under the portfolio layer method. Under this
method, the hedged item is designated as a hedged layer of a closed portfolio of financial loans that is anticipated to remain
outstanding for the designated hedged period. Adjustments will be made to record the swap at fair value on the Consolidated
Balance Sheets, with changes in fair value recognized in interest income. The carrying value of the fair value swap on the
Consolidated Balance Sheets will also be adjusted through interest income, based on changes in fair value attributable to
changes in the hedged risk.
The Company also has derivatives not designated as hedges. Derivatives not designated as hedges are not speculative and
result from a service the Company provides to certain loan clients. The Company executes interest rate swaps with commercial
banking clients to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by
offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net interest risk
exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict
hedge accounting requirements, changes in the fair value of both the client derivatives and the offsetting derivatives are
recognized directly in earnings.
Related Party Transactions
Directors and officers of the Company and their affiliates have been clients of and have had transactions with the
Company, and it is expected that such persons will continue to have such transactions in the future. Management believes that
all deposit accounts, loans, services and commitments comprising such transactions were made in the ordinary course of
business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable
transactions with other clients who are not directors or officers. In the opinion of management, the transactions with related
parties did not involve more than normal risks of collectability, nor favored treatment or terms, nor present other unfavorable
features. Note 22 contains details regarding related party transactions.
Common Share Repurchases
The Company is incorporated in the state of Connecticut. Connecticut law does not provide for treasury shares, rather
shares repurchased by the Company constitute authorized, but unissued shares. GAAP states that accounting for treasury stock
shall conform to state law. Therefore, the cost of shares repurchased by the Company has been allocated to common stock
balances.
Reclassification
Certain prior period amounts may be reclassified to conform to the 2024 financial statement presentation. These
reclassifications only change the reporting categories and do not affect the consolidated results of operations or consolidated
financial position of the Company.
Recent Accounting Pronouncements
The following section includes changes in accounting principles and potential effects of new accounting guidance and
pronouncements.
Recently issued accounting pronouncements not yet adopted
ASU No. 2024-03—Income Statement: "Reporting Comprehensive Income - Expense Disaggregation Disclosures": The
amendments in this update is to improve the disclosures about a public business entity’s expenses and address requests from
investors for more detailed information about the types of expenses (including employee compensation, depreciation,
amortization, and depletion) in commonly presented expense captions. The amendments in this update are effective for annual
periods beginning after December 15, 2026. ASU No. 2025-01—Income Statement: "Reporting Comprehensive Income -
Expense Disaggregation Disclosures": Following the issuance of Update 2024-03, this amendment clarifies the initial effective
date for entities that do not have an annual reporting period that ends on December 31 (referred to as non-calendar year-end
entities). The amendment is effective for public business entities for annual reporting periods beginning after December 15,
2026. The Company believes this ASU will not have a material impact on existing disclosures and will continue to monitor for
SEC action, and plan accordingly for adoption.
ASU No. 2023-09—Income Taxes (Topic 740): "Improvements to Income Tax Disclosures": The amendments in this
update provide more transparency about income tax information through improvements to income tax disclosures primarily
related to the rate reconciliation and income taxes paid information. For public business entities, the amendments in this update
are effective for annual periods beginning after December 15, 2024. The Company believes this ASU will not have a material
impact on existing disclosures and will continue to monitor for SEC action, and plan accordingly for adoption.
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Recently issued accounting pronouncements that have been adopted
ASU No. 2023-07—Segment Reporting: "Improvements to Reportable Segment Disclosures": The amendment requires a
public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief
operating decision maker (CODM) and included within each reported measure of segment profit or loss. For public business
entities, the amendments in this update are effective for annual periods beginning after December 15, 2023. The Company has
adopted this ASU in December 2024 and it did not have a material impact on existing disclosures.
ASU No. 2023-06, Disclosure Improvements: “Codification Amendments in Response to the SEC’s Disclosure Update and
Simplification Initiative”: The amendments in this Update modify the disclosure or presentation requirements of a variety of
Topics in the Codification. Certain of the amendments represent clarifications to or technical corrections of the current
requirements. Because of the variety of Topics amended, a broad range of entities may be affected by one or more of those
amendments. The summary of the amendments applicable to the Company include:
Statement of Cash Flows - Requires an accounting policy disclosure in annual periods of where cash flows associated with
derivative instruments and their related gains and losses are presented in the statement of cash flows.
Accounting Changes and Error Corrections - Requires that when there has been a change in the reporting entity, the entity
disclose any material prior-period adjustment and the effect of the adjustment on retained earnings in interim financial
statements.
Earnings Per Share - Requires disclosure of the methods used in the diluted earnings-per-share computation for each
dilutive security and clarifies that certain disclosures should be made during interim periods. Amends illustrative guidance to
illustrate disclosure of the methods used in the diluted earnings-per-share computation.
Interim Reporting - Conforms to the amendments made to Topic 250 (Accounting Changes and Error Correction).
Commitments - Requires disclosure of assets mortgaged, pledged, or otherwise subject to lien and the obligations
collateralized.
Debt - Requires disclosure of amounts and terms of unused lines of credit and unfunded commitments and the weighted-
average interest rate on outstanding short-term borrowings. Entities that are not public business entities are not required to
provide information about the weighted-average interest rate.
Equity - Requires entities that issue preferred stock to disclose preference in involuntary liquidation if the liquidation
preference is other than par or stated value.
Derivatives - Adds cross-reference to disclosure requirements related to where cash flows associated with derivative
instruments and their related gains and losses are presented in the statement of cash flows in Topic 230.
Transfers and Servicing—Secured Borrowing and Collateral - Requires:
a. That accrued interest be included in the disclosure of liabilities incurred in securities borrowing or repurchase or
resale transactions.
b. Separate presentation of the aggregate carrying amount of reverse repurchase agreements on the face of the balance
sheet if that amount exceeds 10 percent of total assets.
c. Disclosure of the weighted-average interest rates of repurchase liabilities for public business entities.
d. Disclosure of amounts at risk with an individual counterparty if that amount exceeds more than 10 percent of
shareholder’s equity.
e. Disclosure for reverse repurchase agreements that exceed 10 percent of total assets on whether there are any
provisions in a reverse repurchase agreement to ensure that the market value of the underlying assets remains sufficient. to
protect against counterparty default and, if so, the nature of those provisions.
Financial Services - Requires that investment companies disclose the components of capital on the balance sheet.
For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial
statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to
contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC’s removal of that
related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. For all other
entities, the amendments will be effective two years later. The amendments in this Update should be applied prospectively. For
all entities, if by June 30, 2027, the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K,
the pending content of the related amendment will be removed from the Codification and will not become effective for any
entity. The Company has adopted this ASU in December 2024 and it did not have a material impact on existing disclosures.
80
2.
Shareholders’ Equity
Common Stock
The Company has 10,000,000 shares authorized and 7,859,873 shares issued and outstanding at December 31, 2024 and
10,000,000 shares authorized and 7,882,616 shares issued and outstanding at December 31, 2023. The Company's stock is
traded on the Nasdaq stock market under the ticker symbol BWFG.
Dividends
The Company’s shareholders are entitled to dividends when and if declared by the Board of Directors, out of funds legally
available. The ability of the Company to pay dividends depends, in part, on the ability of the Bank to pay dividends to the
Company. 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 ("Prior Plan") of up to
400,000 shares of the Company's Common Stock. On October 27, 2021, the Company's Board of Directors authorized the
repurchase of an additional 200,000 shares under the Prior Plan. During the year ended December 31, 2024, the Company
purchased 85,990 shares of its Common Stock at a weighted average of $24.82 per share. During the year ended December 31,
2023, the Company did not have any purchases of shares of its common stock. To date, the Company has purchased 535,802
shares of the Company’s common stock pursuant to the Prior Plan.
On October 28, 2024, the Company announced that on October 23, 2024, its Board of Directors authorized a share
repurchase plan ("New Plan"). Under the terms of the New Plan, the Company is authorized to buy back up to 250,000 shares
of its outstanding common stock. In connection with the authorization of the New Plan, the Company terminated the Prior Plan.
The Company 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
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.
3. Goodwill and Other Intangible Assets
Information on goodwill for the years ended December 31, 2024 and 2023 is as follows:
Year Ended
December 31, 2024
Year Ended
December 31, 2023
(In thousands)
Balance, beginning of the period ............................................................................... $
2,589 $
2,589
Impairment .................................................................................................................
—
—
Balance, end of the period ......................................................................................... $
2,589 $
2,589
The Company tests for goodwill impairment annually as of June 30th. No impairment was required to be recorded on
goodwill in 2024 or 2023.
81
4. Investment Securities
The amortized cost, gross unrealized gains and losses and fair values of available for sale and held to maturity securities
segregated by contractual maturity at December 31, 2024 were as follows:
December 31, 2024
Amortized
Cost
Gross Unrealized
Fair Value
Gains
Losses
(In thousands)
Available for sale securities:
U.S. Government and agency obligations
Less than one year ...................................................... $
24,920 $
66 $
(92) $
24,894
Due from one through five years ................................
47,541
—
(2,117)
45,424
Due from five through ten years ................................
16,038
—
(906)
15,132
Due after ten years ......................................................
6,944
—
(812)
6,132
Total U.S. Government and agency obligations ....
95,443
66
(3,927)
91,582
Corporate bonds
Due from five through ten years ................................
15,500
—
(929)
14,571
Due after ten years ......................................................
1,500
—
(225)
1,275
Total Corporate bonds ...........................................
17,000
—
(1,154)
15,846
Total available for sale securities ....................... $
112,443 $
66 $
(5,081) $
107,428
Held to maturity securities:
State agency and municipal obligations
Less than one year ...................................................... $
6,820 $
37 $
— $
6,857
Due from five through ten years ................................
2,808
—
(77)
2,731
Due after ten years ......................................................
26,897
1,190
(1,013)
27,074
Total State agency and municipal obligations .......
36,525
1,227
(1,090)
36,662
Government-sponsored mortgage backed securities
No contractual maturity ................................................
28
1
—
29
Total held to maturity securities ................................ $
36,553 $
1,228 $
(1,090) $
36,691
82
The amortized cost, gross unrealized gains and losses and fair values of available for sale and held to maturity securities
segregated by contractual maturity at December 31, 2023 were as follows:
December 31, 2023
Amortized
Cost
Gross Unrealized
Fair Value
Gains
Losses
(In thousands)
Available for sale securities:
U.S. Government and agency obligations
Less than one year ..................................................................... $
9,836 $
— $
(52) $
9,784
Due from one through five years ...............................................
55,288
123
(2,680)
52,731
Due from five through ten years ...............................................
27,229
—
(1,630)
25,599
Due after ten years .....................................................................
7,923
—
(811)
7,112
Total U.S. Government and agency obligations ...................
100,276
123
(5,173)
95,226
Corporate bonds
Due from five through ten years ...............................................
15,500
—
(2,028)
13,472
Due after ten years .....................................................................
1,500
—
(462)
1,038
Total corporate bonds ...........................................................
17,000
—
(2,490)
14,510
Total available for sale securities ...................................... $
117,276 $
123 $
(7,663) $
109,736
Held to maturity securities:
State agency and municipal obligations
Due after ten years ..................................................................... $
15,785 $
716 $
(631) $
15,870
Government-sponsored mortgage backed securities
No contractual maturity .............................................................
32
1
—
33
Total held to maturity securities ....................................... $
15,817 $
717 $
(631) $
15,903
There were no sales of investment securities during the years ended December 31, 2024 or December 31, 2023.
At December 31, 2024 and December 31, 2023, none of the Company's securities were pledged as collateral with the
Federal Home Loan Bank ("FHLB") or any other institution.
As of December 31, 2024, the actual duration of the Company's available for sale securities were significantly shorter than
the notional maturities.
At December 31, 2024, the Company held marketable equity securities with a fair value of $2.1 million and an amortized
cost of $2.3 million. At December 31, 2023, the Company held marketable equity securities with a fair value of $2.1 million
and an amortized cost of $2.2 million. These securities represent an investment in mutual funds that have a primary objective to
make investments for CRA purposes.
There were thirty-seven investment securities as of December 31, 2024, in which the fair value of the security was less
than the amortized cost of the security. There were thirty-four such investment securities as of December 31, 2023.
83
The following table provides information regarding investment securities with unrealized losses, aggregated by investment
category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2024
and 2023:
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, 2024
U.S. Government and
agency obligations ...... $
— $
—
— % $ 81,579 $ (3,927)
4.59 % $ 81,579 $ (3,927)
4.59 %
Corporate bonds .........
—
—
— %
15,846
(1,154)
6.79 %
15,846
(1,154)
6.79 %
State agency and
municipal
obligations ..................
7,361
(254)
(3.33) %
3,802
(836)
18.03 %
11,163
(1,090)
8.89 %
Total investment
securities ................. $
7,361 $
(254)
(3.33) % $ 101,227 $ (5,917)
5.52 % $ 108,588 $ (6,171)
5.38 %
December 31, 2023
U.S. Government and
agency obligations ...... $
— $
—
— % $ 85,243 $ (5,173)
5.72 % $ 85,243 $ (5,173)
5.72 %
Corporate bonds .........
—
—
— %
14,510
(2,490)
14.65 %
14,510
(2,490)
14.65 %
State agency and
municipal obligations .
—
—
— %
4,076
(631)
13.41 %
4,076
(631)
13.41 %
Total investment
securities .................. $
— $
—
— % $ 103,829 $ (8,294)
7.40 % $ 103,829 $ (8,294)
7.40 %
The U.S. Government and agency obligations owned are either direct obligations of the U.S. Government or guaranteed by
the U.S. Government. Therefore, the contractual cash flows are guaranteed and as a result the unrealized losses in this portfolio
are considered to be only temporarily impaired.
The corporate bonds are investments in subordinated debt of federally insured banks, the majority of which are callable
after five years of origination. The Company monitors its corporate bond, state agency and municipal bond portfolios and
considers them to have minimal default risk.
The Company has the intent and ability to retain its investment securities in an unrealized loss position at December 31,
2024 until the decline in value has recovered or the security has matured.
84
5.
Loans Receivable and ACL-Loans
The following table sets forth a summary of the loan portfolio at December 31, 2024 and December 31, 2023:
December 31, 2024
December 31, 2023
(In thousands)
Real estate loans:
Residential .............................................................................................. $
42,766 $
50,931
Commercial .............................................................................................
1,899,134
1,947,648
Construction ............................................................................................
173,555
183,414
2,115,455
2,181,993
Commercial business .................................................................................
515,125
500,569
Consumer ...................................................................................................
75,308
36,045
Total loans ..........................................................................................
2,705,888
2,718,607
ACL-Loans ................................................................................................
(29,007)
(27,946)
Deferred loan origination fees, net ............................................................
(3,922)
(5,360)
Loans receivable, net ..................................................................... $
2,672,959 $
2,685,301
Lending activities consist of 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 commercial properties. The majority of commercial
mortgage loans are collateralized by first or second mortgages on real estate.
Risk Management
The Company has established credit policies applicable to each type of lending activity in which it engages. The Company
evaluates the creditworthiness of each client and extends credit of up to 80% of the market value of the collateral, (85%
maximum for owner occupied commercial real estate), depending on the client's creditworthiness and the type of collateral.
The client’s ability to service the debt is monitored on an ongoing basis. Real estate is the primary form of collateral. Other
important forms of collateral are business assets, time deposits and marketable securities. While collateral provides assurance as
a secondary source of repayment, the Company ordinarily requires the primary source of repayment for commercial loans to be
based on the client’s ability to generate continuing cash flows. The Company does not provide first or second lien consumer
mortgage loans secured by residential properties but has a small legacy portfolio which continues to amortize, pay off due to the
sale of the collateral, or refinance away from the Company.
Credit Quality of Loans and the Allowance for Credit Losses-Loans (ACL-Loans)
Management segregates the loan portfolio into defined segments, which are used to develop and document a systematic
method for determining the Company's ACL-Loans. The portfolio segments are segregated based on loan types and the
underlying risk factors present in each loan type. Such risk factors are periodically reviewed by management and revised as
deemed appropriate.
The Company’s loan portfolio is segregated into the following portfolio segments:
Residential Real Estate: This portfolio segment consists of first mortgage loans secured by one-to-four family owner
occupied residential properties for personal use located in the Company's market area. This segment also includes home equity
loans and home equity lines of credit secured by owner occupied one-to-four family residential properties. Loans of this type
were written at a combined maximum of 80% of the appraised value of the property and the Company requires a first or second
lien position on the property. These loans can be affected by economic conditions and the values of the underlying properties.
Commercial Real Estate: This portfolio segment includes loans secured by commercial real estate, multi-family
dwellings, owner-occupied commercial real estate and investor-owned one-to-four family dwellings. Loans secured by
commercial real estate generally have larger loan balances and more credit risk than owner occupied one-to-four family
mortgage loans.
Construction: This portfolio segment includes commercial construction loans for commercial development projects,
including apartment buildings and condominiums, as well as office buildings, retail and other income producing properties and
land loans, which are loans made with land as collateral. Construction and land development financing generally involves
greater credit risk than long-term financing on improved, owner-occupied or leased real estate. Risk of loss on a construction
loan depends largely upon the accuracy of the initial estimate of the value of the property at completion of construction
compared to the estimated cost (including interest) of construction and other assumptions. If the estimate of construction cost
proves to be inaccurate, the Company may be required to advance additional funds beyond the amount originally committed in
85
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 paying debt service, which exposes the Company to greater risk of non-payment and loss.
Commercial Business: This portfolio segment includes commercial business loans secured by assignments of corporate
assets and personal guarantees of the business owners. Commercial business loans generally have higher interest rates and
shorter terms than other loans, 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.
Consumer: This portfolio segment includes loans to finance insurance premiums secured by the cash surrender value of
life insurance and marketable securities, overdraft lines of credit, and personal loans to high net worth individuals.
ACL-Loans
The following tables set forth the activity in the Company’s ACL-Loans for the years ended December 31, 2024 and
December 31, 2023, by portfolio segment:
Residential
Real Estate
Commercial
Real Estate
Construction
Commercial
Business
Consumer
Total
(In thousands)
For the Year Ended December 31, 2024
Beginning balance .................... $
149 $
20,950 $
1,699 $
4,562 $
586 $
27,946
Charge-offs ............................
(141)
(13,111)
(1,771)
(7,909)
(84)
(23,016)
Recoveries ..............................
141
1,126
—
(3)
23
1,287
(Credits) provisions ................
(55)
12,873
2,131
7,420
421
22,790
Ending balance ......................... $
94 $
21,838 $
2,059 $
4,070 $
946 $
29,007
Residential
Real Estate
Commercial
Real Estate
Construction
Commercial
Business
Consumer
Total
(In thousands)
For the Year Ended December 31, 2023
Balance as of December 31,
2022 .......................................... $
163 $
15,597 $
311 $
6,214 $
146 $
22,431
Day 1 effect of CECL ............
80
4,987
611
(1,125)
526
5,079
Balance as of January 1, 2023
as adjusted for changes in
accounting principle .................
243
20,584
922
5,089
672
27,510
Charge-offs ............................
—
(824)
—
(440)
(83)
(1,347)
Recoveries ..............................
—
—
—
531
39
570
(Credits) provisions ................
(94)
1,190
777
(618)
(42)
1,213
Ending balance ......................... $
149 $
20,950 $
1,699 $
4,562 $
586 $
27,946
We evaluate whether a modification, extension or renewal of a loan is a current period origination in accordance with GAAP.
Generally, loans up for renewal are subject to a full credit evaluation before the renewal is granted and such loans are
considered current period originations for purpose of the tables below. The following tables present loans by origination and
risk designation as of December 31, 2024 and December 31, 2023 (dollars in thousands):
86
Term Loans
Amortized Cost Balances by Origination Year
2024
2023
2022
2021
2020
Prior
Total
Residential Real Estate Loans
Pass ..................................................... $
—
$
—
$
—
$
—
$
—
$
39,560
$
39,560
Special Mention ..................................
—
—
—
—
—
366
366
Substandard ........................................
—
—
—
—
—
3,069
3,069
Doubtful .............................................
—
—
—
—
—
—
—
Total Residential Real Estate
Loans ................................................. $
—
$
—
$
—
$
—
$
—
$
42,995
$
42,995
Residential Real Estate charge-off
Current period charge-offs ................. $
—
$
—
$
—
$
—
$
—
$
141
$
141
Commercial Real Estate Loans
Pass ..................................................... $
162,303
$
101,201
$
680,359
$
241,000
$
95,277
$
486,897
$
1,767,037
Special Mention ..................................
—
18,357
43,286
29,792
—
1,982
93,417
Substandard ........................................
—
—
27,081
9,194
5,488
1,610
43,373
Doubtful .............................................
—
—
—
—
—
1,400
1,400
Total Commercial Real Estate
Loans ................................................. $
162,303
$
119,558
$
750,726
$
279,986
$
100,765
$
491,889
$
1,905,227
Commercial Real Estate charge-off
Current period charge-offs ................. $
—
$
—
$
—
$
522
$
8,184
$
4,405
$
13,111
Construction Loans
Pass ..................................................... $
10,086
$
47,301
$
63,476
$
53,529
$
—
$
—
$
174,392
Special Mention ..................................
—
—
—
—
—
—
—
Substandard ........................................
—
—
—
—
—
—
—
Doubtful .............................................
—
—
—
—
—
—
—
Total Construction Loans ................ $
10,086
$
47,301
$
63,476
$
53,529
$
—
$
—
$
174,392
Construction charge-off
Current period charge-offs ................. $
—
$
—
$
—
$
—
$
—
$
1,771
$
1,771
Commercial Business Loans
Pass ..................................................... $
143,267
$
98,718
$
179,999
$
49,351
$
5,708
$
26,413
$
503,456
Special Mention ..................................
—
665
3,454
1,949
—
20
6,088
Substandard ........................................
133
344
224
6,983
—
—
7,684
Doubtful .............................................
—
—
—
—
—
53
53
Total Commercial Business Loans .. $
143,400
$
99,727
$
183,677
$
58,283
$
5,708
$
26,486
$
517,281
Commercial Business charge-off
Current period charge-offs ................. $
—
$
—
$
7,664
$
245
$
—
$
—
$
7,909
Consumer Loans
Pass ..................................................... $
32,295
$
9,051
$
33,369
$
—
$
—
$
49
$
74,764
Special Mention ..................................
—
—
—
—
—
—
—
Substandard ........................................
—
—
—
—
—
—
—
Doubtful .............................................
—
—
—
—
—
—
—
Total Consumer Loans ..................... $
32,295
$
9,051
$
33,369
$
—
$
—
$
49
$
74,764
Consumer charge-off
Current period charge-offs ................. $
28
$
—
$
—
$
56
$
—
$
—
$
84
Total Loans
Pass ..................................................... $
347,951
$
256,271
$
957,203
$
343,880
$
100,985
$
552,919
$
2,559,209
Special Mention ..................................
—
19,022
46,740
31,741
—
2,368
99,871
Substandard ........................................
133
344
27,305
16,177
5,488
4,679
54,126
Doubtful .............................................
—
—
—
—
—
1,453
1,453
Total Loans ....................................... $
348,084
$
275,637
$ 1,031,248
$
391,798
$
106,473
$
561,419
$
2,714,659
Total charge-off
Current period charge-offs ................. $
28
$
—
$
7,664
$
823
$
8,184
$
6,317
$
23,016
87
Term Loans
Amortized Cost Balances by Origination Year
2023
2022
2021
2020
2019
Prior
Total
Residential Real Estate Loans
Pass ..................................................... $
—
$
—
$
—
$
—
$
—
$
47,314
$
47,314
Special Mention ..................................
—
—
—
—
—
140
140
Substandard ........................................
—
—
—
—
—
3,728
3,728
Doubtful ..............................................
—
—
—
—
—
—
—
Total Residential Real Estate
Loans .................................................. $
—
$
—
$
—
$
—
$
—
$
51,182
$
51,182
Residential Real Estate charge-off
Current period charge-offs .................. $
—
$
—
$
—
$
—
$
—
$
—
$
—
Commercial Real Estate Loans
Pass ..................................................... $
95,881
$
755,352
$
310,811
$
113,554
$
133,996
$
429,695
$ 1,839,289
Special Mention ..................................
12,333
35,136
13,203
—
2,035
114
62,821
Substandard ........................................
18,525
—
16,923
—
—
8,121
43,569
Doubtful ..............................................
—
—
2,116
—
—
4,272
6,388
Total Commercial Real Estate
Loans .................................................. $
126,739
$
790,488
$
343,053
$
113,554
$
136,031
$
442,202
$ 1,952,067
Commercial Real Estate charge-off
Current period charge-offs .................. $
—
$
—
$
213
$
—
$
—
$
611
$
824
Construction Loans
Pass ..................................................... $
39,627
$
67,788
$
41,156
$
26,156
$
—
$
—
$
174,727
Special Mention ..................................
—
—
—
—
—
—
—
Substandard ........................................
—
—
—
—
—
9,362
9,362
Doubtful ..............................................
—
—
—
—
—
—
—
Total Construction Loans ................ $
39,627
$
67,788
$
41,156
$
26,156
$
—
$
9,362
$
184,089
Construction charge-off
Current period charge-offs .................. $
—
$
—
$
—
$
—
$
—
$
—
$
—
Commercial Business Loans
Pass ..................................................... $
121,312
$
234,997
$
73,805
$
9,291
$
6,504
$
32,293
$
478,202
Special Mention ..................................
—
3,395
1,009
—
—
—
4,404
Substandard ........................................
892
8,934
7,910
—
—
2,092
19,828
Doubtful ..............................................
—
—
—
—
—
103
103
Total Commercial Business Loans .. $
122,204
$
247,326
$
82,724
$
9,291
$
6,504
$
34,488
$
502,537
Commercial Business charge-off
Current period charge-offs .................. $
—
$
—
$
—
$
—
$
440
$
—
$
440
Consumer Loans
Pass ..................................................... $
10,126
$
25,406
$
—
$
—
$
—
$
37
$
35,569
Special Mention ..................................
—
—
—
—
—
—
—
Substandard ........................................
—
—
—
—
—
—
—
Doubtful ..............................................
—
—
—
—
—
—
—
Total Consumer Loans ..................... $
10,126
$
25,406
$
—
$
—
$
—
$
37
$
35,569
Consumer charge-off
Current period charge-offs .................. $
83
$
—
$
—
$
—
$
—
$
—
$
83
Total Loans
Pass ..................................................... $
266,946
$ 1,083,543
$
425,772
$
149,001
$
140,500
$
509,339
$ 2,575,101
Special Mention ..................................
12,333
38,531
14,212
—
2,035
254
67,365
Substandard ........................................
19,417
8,934
24,833
—
—
23,303
76,487
Doubtful ..............................................
—
—
2,116
—
—
4,375
6,491
Total Loans ........................................ $
298,696
$ 1,131,008
$
466,933
$
149,001
$
142,535
$
537,271
$ 2,725,444
Total charge-off
Current period charge-offs .................. $
83
$
—
$
213
$
—
$
440
$
611
$
1,347
88
Loans evaluated for credit loss and the related ACL-Loans as of December 31, 2024 and December 31, 2023 were as
follows:
Portfolio
ACL-Loans
(In thousands)
December 31, 2024
Loans individually evaluated for credit loss:
Residential real estate .................................................................................................................. $
3,052 $
—
Commercial real estate ................................................................................................................
44,814
—
Construction ................................................................................................................................
—
—
Commercial business ..................................................................................................................
7,672
—
Consumer ....................................................................................................................................
58,363
—
Subtotal .....................................................................................................................................
113,901
—
Loans collectively evaluated for credit loss:
Residential real estate .................................................................................................................. $
39,714 $
94
Commercial real estate ................................................................................................................
1,854,320
21,838
Construction ................................................................................................................................
173,555
2,059
Commercial business ..................................................................................................................
507,453
4,070
Consumer ....................................................................................................................................
16,945
946
Subtotal .....................................................................................................................................
2,591,987
29,007
Total ......................................................................................................................................... $
2,705,888 $
29,007
Portfolio
ACL-Loans
(In thousands)
December 31, 2023
Loans individually evaluated for credit loss:
Residential real estate .................................................................................................................. $
3,711 $
—
Commercial real estate ................................................................................................................
49,935
955
Construction ................................................................................................................................
9,382
—
Commercial business ..................................................................................................................
19,848
—
Consumer ....................................................................................................................................
22,129
—
Subtotal .....................................................................................................................................
105,005
955
Loans collectively evaluated for credit loss:
Residential real estate .................................................................................................................. $
47,220 $
149
Commercial real estate ................................................................................................................
1,897,713
19,995
Construction ................................................................................................................................
174,032
1,699
Commercial business ..................................................................................................................
480,721
4,562
Consumer ....................................................................................................................................
13,916
586
Subtotal .....................................................................................................................................
2,613,602
26,991
Total ......................................................................................................................................... $
2,718,607 $
27,946
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 the 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.
89
The 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 potential credit loss, to identify relevant trends affecting the
collectability of the loan portfolio, to isolate potential problem areas and to provide essential information for determining the
adequacy of the ACL-Loans. 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 risk ratings of (6) through (9) are
criticized asset categories as defined by the regulatory agencies.
A “special mention” (6) credit has a potential weakness which, if uncorrected, may result in a deterioration of the
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 debt. An asset rated
“doubtful” (8) has all the weaknesses inherent in a substandard asset and which, in addition, make collection or liquidation in
full highly questionable and improbable, when considering existing facts, conditions, and values. Loans classified as
“loss” (9) are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This
classification does not mean that the loan has absolutely no recovery or salvage value; rather, it is not practical or desirable to
defer writing-off this asset even though partial recovery may be made in the future.
Risk ratings are assigned as necessary to differentiate risk within the portfolio. They are reviewed on an ongoing basis
through the annual loan review process performed by Company employees, normal renewal activity and the quarterly Watch
List and watched asset 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 present credit risk ratings by loan segment as of December 31, 2024 and December 31, 2023:
Commercial Credit Quality Indicators
December 31, 2024
December 31, 2023
Commercial
Real Estate
Construction
Commercial
Business
Total
Commercial
Real Estate
Construction
Commercial
Business
Total
(In thousands)
Pass ............................ $ 1,767,482
$
173,555
$
501,432
$ 2,442,469
$ 1,835,136
$
174,032
$
476,358
$ 2,485,526
Special mention ..........
86,838
—
6,020
92,858
62,577
—
4,362
66,939
Substandard ................
43,413
—
7,619
51,032
43,542
9,382
19,745
72,669
Doubtful .....................
1,401
—
54
1,455
6,393
—
104
6,497
Loss ............................
—
—
—
—
—
—
—
—
Total loans ............ $ 1,899,134
$
173,555
$
515,125
$ 2,587,814
$ 1,947,648
$
183,414
$
500,569
$ 2,631,631
Residential and Consumer Credit Quality Indicators
December 31, 2024
December 31, 2023
Residential
Real Estate
Consumer
Total
Residential
Real Estate
Consumer
Total
(In thousands)
Pass .................................................... $
39,359
$
75,308
$
114,667
$
47,082
$
36,045
$
83,127
Special mention ..................................
356
—
356
138
—
138
Substandard ........................................
3,051
—
3,051
3,711
—
3,711
Doubtful .............................................
—
—
—
—
—
—
Loss ....................................................
—
—
—
—
—
—
Total loans .................................... $
42,766
$
75,308
$
118,074
$
50,931
$
36,045
$
86,976
Loan Portfolio Aging Analysis
When a loan is 15 days past due, the Company sends the borrower a late notice. The Company attempts to contact the
borrower by phone if the delinquency is not corrected promptly after the notice has been sent. 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,
after the 90th day of delinquency, the Company may take other appropriate legal action. A summary report of all loans 30 days
or more past due is provided to the Board of Directors of the Company periodically. Loans greater than 90 days past due are
generally put on nonaccrual status. 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.
90
The following tables set forth certain information with respect to the Company's loan portfolio delinquencies by portfolio
segment as of December 31, 2024 and December 31, 2023:
December 31, 2024
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 ............ $
130 $
226 $
652 $
1,008 $
41,758 $
42,766
Commercial real estate ...........
359
—
35,585
35,944
1,863,190
1,899,134
Construction ...........................
—
—
—
—
173,555
173,555
Commercial business ................
4
11
7,143
7,158
507,967
515,125
Consumer ..................................
—
—
—
—
75,308
75,308
Total loans ......................... $
493 $
237 $
43,380 $
44,110 $ 2,661,778 $ 2,705,888
December 31, 2023
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 ............ $
— $
1,220 $
132 $
1,352 $
49,579 $
50,931
Commercial real estate ...........
195
282
1,851
2,328
1,945,320
1,947,648
Construction ...........................
—
—
9,382
9,382
174,032
183,414
Commercial business ................
6,568
1,648
—
8,216
492,353
500,569
Consumer ..................................
—
—
—
—
36,045
36,045
Total loans ......................... $
6,763 $
3,150 $
11,365 $
21,278 $ 2,697,329 $ 2,718,607
There were no loans delinquent greater than 90 days and still accruing interest as of December 31, 2024 or December 31,
2023.
Loans on Nonaccrual Status
The following is a summary of nonaccrual loans by portfolio segment as of December 31, 2024 and December 31, 2023:
December 31,
2024
2023
(In thousands)
Residential real estate .......................................................................................................................... $
791 $
1,386
Commercial real estate ........................................................................................................................
44,814
23,009
Commercial business ..........................................................................................................................
7,672
15,430
Construction ........................................................................................................................................
—
9,382
Total .................................................................................................................................................. $
53,277 $
49,207
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 years ended December 31, 2024 and 2023 was $1.9 million and $4.9 million, respectively.
There was no interest income recognized on these loans for the year ended December 31, 2024 and 2023, respectively.
At December 31, 2024 and December 31, 2023, there were no commitments to lend additional funds to borrowers on
nonaccrual status. Nonaccrual loans with no specific reserve totaled $53.3 million and $48.3 million at December 31, 2024 and
December 31, 2023, respectively.
91
Individually evaluated loans
An individually evaluated loan is generally one for which it is probable, based on current information, that the Company
will not collect all the amounts due in accordance with the contractual terms of the loan. Individually evaluated loans are
individually evaluated for credit losses.
Within the Consumer portfolio segment, the Company individually evaluated all insurance premium loans as well as a
cash-secured loan to an individual, regardless of credit risk rating.
The following tables summarize individually evaluated loans by portfolio segment and the related average carrying
amount and interest income recognized as of December 31, 2024 and December 31, 2023:
As of and for the Year Ended December 31, 2024
Carrying
Amount
Unpaid
Principal
Balance
Associated
ACL-Loans
Average
Carrying
Amount
Interest
Income
Recognized
(In thousands)
Individually evaluated loans without a valuation
allowance:
Residential real estate ................................................... $
3,052 $
3,332 $
— $
3,536 $
195
Commercial real estate .................................................
44,814
55,936
—
52,316
1,718
Construction .................................................................
—
—
—
7,716
—
Commercial business ....................................................
7,672
8,782
—
14,179
793
Consumer .....................................................................
58,363
58,363
—
28,852
1,289
Total individually evaluated loans without a
valuation allowance ...................................................
113,901
126,413
—
106,599
3,995
Individually evaluated loans with a valuation
allowance:
Residential real estate ...................................................
—
—
—
—
—
Commercial real estate .................................................
—
—
—
—
—
Commercial business ....................................................
—
—
—
—
—
Total individually evaluated loans with a valuation
allowance ...................................................................
—
—
—
—
—
Total individually evaluated loans ........................ $
113,901 $
126,413 $
— $
106,599 $
3,995
92
As of and for the Year Ended December 31, 2023
Carrying
Amount
Unpaid
Principal
Balance
Associated
ACL-Loans
Average
Carrying
Amount
Interest
Income
Recognized
(In thousands)
Individually evaluated loans without a valuation
allowance:
Residential real estate ................................................... $
3,711 $
4,022 $
— $
3,781 $
167
Commercial real estate .................................................
43,942
45,032
—
41,060
1,684
Construction .................................................................
9,382
9,382
—
9,382
—
Commercial business ....................................................
19,848
20,502
—
18,081
2,407
Consumer .....................................................................
22,129
22,129
—
20,132
1,144
Total individually evaluated loans without a
valuation allowance ...................................................
99,012
101,067
—
92,436
5,402
Individually evaluated loans with a valuation
allowance:
Residential real estate ...................................................
—
—
—
—
—
Commercial real estate .................................................
5,993
6,017
955
6,082
234
Commercial business ....................................................
—
—
—
—
—
Total individually evaluated loans with a valuation
allowance ...................................................................
5,993
6,017
955
6,082
234
Total individually evaluated loans ........................ $
105,005 $
107,084 $
955 $
98,518 $
5,636
Loan Modifications
A loan will be considered modified as defined by ASU 2022-02 when both of the following conditions are met: 1) the
borrower is experiencing financial difficulties and 2) the modification constitutes a direct change in contractual cash flows for a
significant period of time. Modified terms are dependent upon the financial position and needs of the individual borrower.
There were no new loan modifications reportable under ASU 2022-02 at December 31, 2024 and December 31, 2023.
There were no nonaccrual modified loans at December 31, 2024 and December 31, 2023. There were no loans modified that
re-defaulted during the years ended December 31, 2024 or December 31, 2023.
Allowance for Credit Losses (ACL)-Unfunded Commitments
As part of CECL, the Company has recorded ACL-Unfunded Commitments in Accrued expenses and other liabilities. The
provision is recorded within the Provision for credit losses on the Company’s Consolidated Statements of Income. The
following table presents a rollforward of the ACL-Unfunded Commitments for the years ended December 31, 2024 and
December 31, 2023:
December 31,
2024
2023
Balance at Beginning of period ......................................................................................... $
926 $
80
Reversal of prior unfunded reserve ...................................................................................
—
(80)
Day 1 effect of CECL ........................................................................................................
—
1,273
(Credit) for credit losses (unfunded commitments) ...........................................................
(170)
(347)
Balance at end of period .................................................................................................... $
756 $
926
93
Components of Provision for Credit Losses
The following table summarizes the Provision for credit losses for the years ended December 31, 2024 and December
31, 2023:
December 31,
2024
2023
Provision for credit losses (loans) ........................................................................................ $
22,790 $
1,213
(Credit) for credit losses (unfunded commitments) .............................................................
(170)
(347)
Provision for credit losses .................................................................................................... $
22,620 $
866
6. Premises and Equipment
At December 31, 2024 and December 31, 2023, premises and equipment consisted of the following:
December 31,
2024
2023
(In thousands)
Land .................................................................................................................................................... $
850 $
850
Building ...............................................................................................................................................
5,057
5,057
Right-of-use asset ................................................................................................................................
11,071
12,685
Leasehold improvements ....................................................................................................................
6,692
6,543
Furniture and fixtures ..........................................................................................................................
2,935
2,935
Equipment and software ......................................................................................................................
7,781
7,317
Premises and equipment, gross ........................................................................................................
34,386
35,387
Accumulated depreciation and amortization .......................................................................................
(10,530)
(8,369)
Premises and equipment, net ............................................................................................................ $
23,856 $
27,018
For the years ended December 31, 2024 and December 31, 2023, depreciation and amortization expense related to
premises and equipment totaled $2.2 million and $2.1 million, respectively. For the years ended December 31, 2024 and
December 31, 2023, depreciation and amortization expense includes amortization of the right-of-use-asset, totaling $1.6 million
and $1.5 million, respectively.
7.
Leases
As of December 31, 2024, the Company leases real estate for eight branch locations and headquarter office under various
operating lease agreements. The branch leases have maturities ranging from 2028 to 2033, some of which include options to
extend the lease term. The Company is not reasonably certain to exercise these renewal options, and as a result, these optional
periods are not included in determining the lease term. The weighted average remaining life of the lease term for these leases
was 5.5 years as of December 31, 2024.
The Company utilized a weighted average discount rate of 5.2% in determining the lease liability for its branch locations
and a discount rate of 4.5% for its headquarter office.
The total fixed operating lease costs were $2.2 million and $2.3 million for the years ended December 31, 2024 and
December 31, 2023, respectively. The total variable operating lease costs were $0.2 million and $0.2 million for the years ended
December 31, 2024 and December 31, 2023, respectively. The right-of-use-asset, included in premises and equipment, net was
$11.1 million as of December 31, 2024 and the corresponding lease liability, included in accrued expenses and other liabilities
was $12.0 million as of December 31, 2024.
94
Future minimum lease payments as of December 31, 2024 are as follows:
December 31, 2024
(In thousands)
2025 ......................................................................................................................................................... $
2,375
2026 .........................................................................................................................................................
2,368
2027 .........................................................................................................................................................
2,334
2028 .........................................................................................................................................................
2,144
2029 .........................................................................................................................................................
1,937
Thereafter .................................................................................................................................................
3,058
Total ...................................................................................................................................................... $
14,216
A reconciliation of the undiscounted cash flows in the maturity table above and the lease liability recognized in the
consolidated balance sheet as of December 31, 2024, is shown below:
December 31, 2024
(In thousands)
Undiscounted cash flows ......................................................................................................................... $
14,216
Discount effect of cash flows ...................................................................................................................
(2,169)
Lease liability ........................................................................................................................................ $
12,047
8.
Other Assets
The components of other assets as of December 31, 2024 and December 31, 2023 are summarized below:
December 31,
2024
December 31,
2023
(In thousands)
Deferred compensation ....................................................................................................................... $
3,087 $
2,810
Servicing assets, net of valuation allowance .......................................................................................
558
869
Derivative assets ..................................................................................................................................
7,472
8,819
Other ....................................................................................................................................................
13,310
9,919
Total other assets .............................................................................................................................. $
24,427 $
22,417
Deferred Compensation
The Company has a non-qualified deferred compensation plan for the Board of Directors that allows for the deferral of
fees earned related to services rendered for the Company. The deferred compensation balance increased $0.3 million for the
year ended December 31, 2024 compared to the year ended December 31, 2023.
Loan Servicing
The Bank sells loans in the secondary market and retains the right to service many of these loans. The Bank earns fees for
the servicing provided. Loans serviced for others are not included in the accompanying consolidated balance sheets. The
balance of loans serviced for others was $186.9 million and $187.0 million at December 31, 2024 and December 31, 2023,
respectively. The risks inherent in servicing assets relate primarily to changes in the timing of prepayments that result from
shifts in interest rates. The significant assumptions used in the valuation at December 31, 2024 for servicing assets included a
discount rate of 10% and prepayment speed assumptions ranging from 3% to 18%. The significant assumptions used in the
valuation at December 31, 2023 for servicing assets included a discount rate of 10% and prepayment speed assumptions
ranging from 3% to 17%.
The carrying value of loan servicing rights was $0.6 million and $0.9 million as of December 31, 2024 and December 31,
2023, respectively.
95
The following table presents the changes in carrying value for loan servicing assets net of allowances:
December 31,
2024
December 31,
2023
(In thousands)
Loan servicing rights:
Balance at beginning of year .......................................................................................................... $
869 $
746
Servicing rights capitalized ............................................................................................................
89
464
Servicing rights amortized or disposed ..........................................................................................
(481)
(399)
Change in valuation allowance .......................................................................................................
81
58
Balance at end of year .................................................................................................................... $
558 $
869
Assets held for sale
For the years ended December 31, 2024 and 2023, the Bank did not have any assets held for sale. Assets held for sale are
included in other assets on the consolidated balance sheets.
9.
Deposits
At December 31, 2024 and December 31, 2023, deposits consisted of the following:
December 31,
2024
2023
(In thousands)
Noninterest bearing demand deposit accounts .................................................................................... $
321,875 $
346,172
Interest bearing accounts: ....................................................................................................................
NOW ................................................................................................................................................
105,090
90,829
Money market ...................................................................................................................................
899,413
887,352
Savings .............................................................................................................................................
90,220
97,331
Time certificates of deposit .............................................................................................................. 1,370,972 1,315,073
Total interest bearing accounts .................................................................................................... 2,465,695 2,390,585
Total deposits ............................................................................................................................... $ 2,787,570 $ 2,736,757
Maturities of time certificates of deposit as of December 31, 2024 and December 31, 2023 are summarized below:
December 31,
2024
2023
(In thousands)
2024 ..................................................................................................................................................... $
— $
979,807
2025 ..................................................................................................................................................... 1,348,808
318,961
2026 .....................................................................................................................................................
4,887
24
2027 .....................................................................................................................................................
1,030
68
2028 .....................................................................................................................................................
6,222
6,215
2029 and thereafter ..............................................................................................................................
10,025
9,998
Total .................................................................................................................................................. $ 1,370,972 $ 1,315,073
The aggregate amount of individual certificate accounts, with balances of $250,000 or more, were approximately $232.6
million and $151.6 million at December 31, 2024 and December 31, 2023, respectively.
Brokered certificate of deposits totaled $651.5 million and $860.5 million at December 31, 2024 and December 31, 2023,
respectively. Brokered money market accounts totaled $53.5 million and $91.4 million at December 31, 2024 and 2023,
respectively. There were no certificates of deposits from national listing services, one-way buy CDARS or on-way buy ICS at
December 31, 2024 or December 31, 2023. Brokered deposits are comprised of Brokered CDs, brokered money market
accounts, one-way buy CDARS, and one-way buy ICS.
The following table summarizes interest expense by account type for the years ended December 31, 2024 and 2023:
96
Years Ended December 31,
2024
2023
(In thousands)
NOW ........................................................................................................................................... $
175 $
170
Money market .............................................................................................................................
34,767
32,901
Savings ........................................................................................................................................
2,785
3,163
Time certificates of deposit .........................................................................................................
63,531
50,672
Total interest expense on deposits ............................................................................................ $
101,258 $
86,906
10. Federal Home Loan Bank Advances and Other Borrowings
The following is a summary of FHLB advances with maturity dates and weighted average rates at December 31, 2024 and
December 31, 2023:
December 31, 2024
December 31, 2023
Amount
Due
Weighted
Average
Rate
Amount
Due
Weighted
Average
Rate(1)
(Dollars in thousands)
Year of Maturity:
2024 ............................................................................. $
—
— % $
90,000
3.24 %
2025 .............................................................................
90,000
3.91
—
—
Total advances ........................................................... $
90,000
3.91 % $
90,000
3.24 %
(1) In 2023, $50 million of the Company's FHLB borrowings were subject to longer term interest rate swap agreements
and the average rate reflects the "all-in" swap costs under these agreements.
Interest expense on FHLB advances totaled $3.6 million and $3.0 million for the years ended December 31, 2024 and
December 31, 2023, respectively.
The Bank has additional borrowing capacity at the FHLB up to a certain percentage of the value of qualified collateral. In
accordance with agreements with the FHLB, the qualified collateral must be free and clear of liens, pledges and encumbrances.
At December 31, 2024, the Company had pledged eligible loans with a book value of $742.6 million as collateral to support
borrowing capacity at the FHLB of Boston. As of December 31, 2024, the Company has immediate availability to borrow an
additional $266.1 million based on qualified collateral.
At December 31, 2024, the Bank had a secured borrowing line with the Federal Reserve Bank of New York ("FRBNY"), a
letter of credit with the FHLB, and unsecured lines of credit with Zions Bank, Pacific Coast Bankers Bank ("PCBB"), and
Atlantic Community Bankers Bank ("ACBB"). The total borrowing line, letter, or line of credit and the amount outstanding at
December 31, 2024 are summarized below:
December 31, 2024
Total Letter or Line of
Credit
Total Outstanding
(In thousands)
FRBNY ........................................................................................................... $
726,829 $
—
FHLB ..............................................................................................................
465,932
199,824
Zions Bank ......................................................................................................
45,000
—
PCBB ..............................................................................................................
38,000
—
ACBB ..............................................................................................................
12,000
—
Total .............................................................................................................. $
1,287,761 $
199,824
Federal Home Loan Bank Stock
As a member of the FHLB, the Bank is required to maintain investments in their capital stock. The Bank owned 56,545
shares and 56,957 shares at December 31, 2024 and December 31, 2023, respectively. There is no active market or quoted
market values for the stock and as such is classified as restricted stock. The shares have a par value of $100 and are carried on
97
the consolidated balance sheets at cost, and evaluated for impairment, as the stock is only redeemable at par subject to the
redemption practices of the FHLB.
The determination of whether the par value will ultimately be recovered is influenced by criteria such as the following: (a)
the significance of the decline in net assets of the FHLB as compared to the capital stock amount and the length of time this
situation has persisted; (b) commitments by the FHLB to make payments required by law or regulation and the level of such
payments in relation to the operating performance; (c) the impact of legislative and regulatory changes on the client base of the
FHLB; and (d) the liquidity position of the FHLB.
Management evaluated the stock and concluded that the stock was not impaired as of December 31, 2024 or December 31,
2023.
11. Subordinated Debentures
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 outstanding
balance of subordinated debt issued in 2015 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.
On August 19, 2022, the Company entered into a Subordinated Note Purchase Agreement with certain qualified
institutional buyers, pursuant to which the Company issued and sold 6.0% fixed-to-floating rate subordinated notes due 2032
(the “2022 Notes”) in the aggregate principal amount of $35.0 million. The Company used the net proceeds from the sale of the
2022 Notes for general corporate purposes.
The 2022 Notes bear interest at a fixed rate of 6.0% per year until August 31, 2027. Thereafter, the interest rate will reset
quarterly at a variable rate equal to the then current three-month term SOFR plus 326 basis points. The 2022 Notes have a
stated maturity of September 1, 2032 and are non-callable for five years. Beginning August 19, 2027, the Company may
redeem the 2022 Notes, in whole or in part, at its option. The 2022 Notes are not subject to redemption at the option of the
holder. The 2022 Notes have been structured to qualify for the Company as Tier 2 capital under regulatory guidelines.
The Company incurred certain costs associated with the issuance of its subordinated debt. The Company capitalized these
costs and they have been presented within subordinated debentures on the consolidated balance sheets. At December 31, 2024
and 2023, unamortized debt issuance costs were $0.5 million and $0.8 million, respectively. Debt issuance costs amortize over
the expected life of the related debt. For the years ended December 31, 2024 and 2023 the amortization expense for debt
issuance costs were $0.2 million and $0.2 million, respectively, and were recognized as an increase to interest expense on
borrowings within the consolidated statements of income.
The Company recognized $3.2 million and $3.2 million in interest expense related to its subordinated debt for the years
ended December 31, 2024 and 2023, respectively.
98
12. Commitments and Contingencies
Leases
As of December 31, 2024, the Company leases real estate for eight branch locations and headquarter office under various
operating lease agreements. The branch leases have maturities ranging from 2028 to 2033, some of which include options to
extend the lease term. Reference Note 7 for further detail.
Legal Matters
The Company is involved in various legal proceedings which have arisen in the normal course of business. Management
believes that resolution of these matters will not have a material effect on the Company’s financial condition or results of
operations.
Off-Balance Sheet Instruments
In the normal course of business, the Company is a party to financial instruments with off-balance sheet risk to meet the
financing needs of its clients. These financial instruments include commitments to extend credit and involve, to varying
degrees, elements of credit and interest rate risk in excess of the amounts recognized in the financial statements. The contractual
amounts of these instruments reflect the extent of involvement the Company has in particular classes of financial instruments.
The contractual amounts of commitments to extend credit represent the amounts of potential accounting loss should the
contract be fully drawn upon, the clients default, and the value of any existing collateral becomes worthless. Management uses
the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments and
evaluates each client’s creditworthiness on a case-by-case basis. Management believes that they control the credit risk of these
financial instruments through credit approvals, credit limits, monitoring procedures and the receipt of collateral as deemed
necessary.
Financial instruments whose contract amounts represented credit risk at December 31, 2024 was as follows:
December 31,
2024
(In thousands)
Commitments to extend credit:
Loan pipeline ............................................................................................................................................................ $
218,612
Loan commitments ...................................................................................................................................................
173,203
Undisbursed construction loans ................................................................................................................................
59,355
Unused home equity lines of credit ..........................................................................................................................
2,331
$
453,501
Loan pipeline, while not legally binding, represents the Company's future potential funding obligations which are currently
in an advanced stage of underwriting and are subject to various conditions before disbursement. Loans in the pipeline are
typically short-term, usually within 90 days.
Loan commitments, undisbursed construction loans, and unused home equity lines of credit are agreements to lend to a
client as long as there is no violation of any condition established in the contract or certain milestones in the case of
construction loans or otherwise required collateral under borrowing base limits are met. They generally have fixed expiration
dates or other termination clauses and may require payment of a fee by the borrower. Since these commitments could expire
without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of
collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation
of the counter party. Collateral held varies, but may include residential and commercial property, deposits and securities.
These commitments subject the Company to potential exposure in excess of amounts recorded in the financial statements,
and therefore, management maintains a specific reserve for unfunded credit commitments. This reserve is reported as a
component of accrued expenses and other liabilities in the accompanying Consolidated Balance Sheets. The reserve for
unfunded commitments totaled $755 thousand at December 31, 2024.
As of December 31, 2024, the Bank had a remaining capital commitment of $4.6 million to three Small Business
Investment Companies ("SBIC") and a remaining capital commitment of $1.8 million in a private equity investment company.
Contributions to these funds represent equity investments for the Company.
99
13. Income Taxes
The components of income tax expense for the years ended December 31, 2024 and December 31, 2023 consisted of:
December 31,
2024
2023
(In thousands)
Current provision:
Federal ............................................................................................................................................... $
2,640 $
9,201
State ...................................................................................................................................................
1,388
2,370
Total current .................................................................................................................................
4,028
11,571
Deferred (credit) provision:
Federal ...............................................................................................................................................
(285)
199
State ...................................................................................................................................................
(184)
(390)
Total deferred ...............................................................................................................................
(469)
(191)
Total income tax expense ......................................................................................................... $
3,559 $
11,380
In October 2015, the Company created Bankwell Loan Servicing Group, Inc., a Passive Investment Company (“PIC”)
organized for state income tax purposes. The PIC is a wholly-owned subsidiary of the Bank operating in accordance with
Connecticut statutes. The PIC’s activities are limited in scope to holding and managing loans that are collateralized by real
estate. Income earned by a PIC is determined in accordance with the statutory requirements for a passive investment company
and the dividends paid by the PIC to the Bank are not taxable income for Connecticut income tax purposes. As a result of the
formation of the PIC, the Bank is currently not subject to Connecticut income taxes. State taxes are being recognized for
income taxes on income earned in other states.
A reconciliation of the anticipated income tax expense, computed by applying the statutory federal income tax rate of 21%
for the years ended December 31, 2024 and December 31, 2023 to the income before income taxes, to the amount reported in
the consolidated statements of income for the years ended December 31, 2024 and December 31, 2023 was as follows:
December 31,
2024
2023
(In thousands)
Income tax expense at statutory federal rate ........................................................................................ $
2,799 $
10,089
State tax expense ..................................................................................................................................
1,205
1,980
Income exempt from tax ......................................................................................................................
(428)
(236)
Stock compensation .............................................................................................................................
43
(57)
Deferred director fees ..........................................................................................................................
(6)
—
Other items, net ....................................................................................................................................
(54)
(396)
Income tax expense ...................................................................................................................... $
3,559 $
11,380
100
At December 31, 2024 and December 31, 2023, the components of deferred tax assets and liabilities were as follows:
December 31,
2024
2023
(In thousands)
Deferred tax assets:
ACL-Loans ................................................................................................................ $
7,406 $
6,837
Net operating loss carryforwards .....................................................................................................
296
333
Deferred fees ....................................................................................................................................
2,055
2,529
Deferred director fees .......................................................................................................................
495
434
Unrealized loss on available for sale securities ................................................................................
1,185
1,732
Lease liabilities .................................................................................................................................
2,998
3,233
Other .................................................................................................................................................
1,255
1,363
Gross deferred tax assets ..............................................................................................................
15,690
16,461
Deferred tax liabilities:
Deferred expenses ............................................................................................................................
1,079
1,260
Servicing rights .................................................................................................................................
139
205
Depreciation .....................................................................................................................................
1,079
1,373
Unrealized gain on derivatives .........................................................................................................
799
1,236
Right-of-use-assets ...........................................................................................................................
2,755
3,004
Other .................................................................................................................................................
97
—
Gross deferred tax liabilities ........................................................................................................
5,948
7,078
Net deferred tax asset .............................................................................................................. $
9,742 $
9,383
A valuation allowance against deferred tax assets is required if, based on the weight of available evidence, it is more-
likely-than-not that some or all of the deferred tax assets will not be realized. Management evaluated its remaining deferred tax
assets and believes no valuation allowances were needed at December 31, 2024 or December 31, 2023.
At December 31, 2024, the Company had federal net operating loss carryovers of $1.4 million. The carryovers were
transferred to the Company upon the merger with The Wilton Bank. The losses will expire after 2032 and are subject to certain
annual limitations which amount to $176 thousand per annum.
As a result of management's analysis of the Company's tax position, a reserve has been established for uncertain tax
positions in conjunction with the Company's out of state lending activity. The total reserve for uncertain tax positions totaled
$1.6 million as of December 31, 2024. The tax years 2021 and subsequent are subject to examination by federal and state taxing
authorities. The statute of limitations has expired on the years before 2021. No examinations are currently in process.
The following table reflects a reconciliation of the beginning and ending balances of the Company’s uncertain tax
positions:
At December 31,
2024
2023
(In thousands)
Balance, beginning of year .................................................................................................................. $
1,045 $
500
Net additions (reductions) relating to potential liability with taxing authorities .................................
600
545
Balance, end of year .......................................................................................................................... $
1,645 $
1,045
101
14. 401(K) Profit Sharing Plan
The Company’s employees are eligible to participate in The Bankwell Financial Group, Inc. and its Subsidiaries and
Affiliates 401(k) Plan (the “401k Plan”). The 401k Plan covers substantially all employees who are at least 21 years of age.
Under the terms of the 401k Plan, participants can contribute up to a certain percentage of their compensation, subject to federal
limitations. The Company matches eligible contributions and may make discretionary matching and/or profit sharing
contributions. Participants are immediately vested in their contributions and become fully vested in the Company’s
contributions after completing five years of service. The Company expensed $338 thousand and $287 thousand related to the
401k Plan during the years ended December 31, 2024 and December 31, 2023, respectively.
15. Earnings Per 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 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:
For the Years Ended December 31,
2024
2023
(In thousands, except per share data)
Net income .................................................................................................................................. $
9,770 $
36,663
Dividends to participating securities(1)
........................................................................................
(156)
(164)
Undistributed earnings allocated to participating securities(1)
.....................................................
(87)
(794)
Net income for earnings per share calculation ............................................................................ $
9,527 $
35,705
Weighted average shares outstanding, basic ...............................................................................
7,710
7,588
Effect of dilutive equity-based awards(2)
.....................................................................................
28
60
Weighted average shares outstanding, diluted ............................................................................
7,738
7,648
Net earnings per common share:
Basic earnings per common share ............................................................................................ $
1.24 $
4.71
Diluted earnings per common share ......................................................................................... $
1.23 $
4.67
(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.
16. Stock Based Compensation
Equity award plans
The Company has unvested restricted stock outstanding under two equity award plans, which are collectively referred to as
the “Stock Plans.” Any future issuances of equity awards will be made under the 2022 Bankwell Financial Group, Inc. Stock
Plan, or the “2022 Plan,” as amended from time-to-time. All equity awards made under the 2022 Plan and prior equity award
plans 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 restricted stock. At December 31, 2024, there were 274,289 shares reserved for future
issuance under the 2022 Plan.
102
Restricted stock: Restricted stock provides grantees with rights to shares of common stock upon completion of a service
period and, with respect to a portion of some grants, achievement of certain performance metrics. 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 year ended December 31, 2024:
December 31, 2024
Number of
Shares
Weighted
Average
Grant Date
Fair Value
Unvested at beginning of period ................................................................................................
254,328 (1) $
29.58
Granted ....................................................................................................................................
67,509 (2) $
24.94
Vested ......................................................................................................................................
(93,700) (3) $
26.67
Forfeited ..................................................................................................................................
(4,262)
$
26.18
Unvested at end of period ..........................................................................................................
223,875
(1) Includes 33,115 shares of performance based restricted stock.
(2) Includes 18,598 shares of performance based restricted stock.
(3) Includes 16,527 shares of performance based restricted stock.
The total fair value of restricted stock awards vested during the year ended December 31, 2024 was $2.5 million.
The Company’s restricted stock expense for the years ended December 31, 2024 and December 31, 2023 was $3.0 million
and $3.1 million, respectively. At December 31, 2024, there was $3.1 million of unrecognized stock compensation expense for
restricted stock, expected to be recognized over a weighted average period of 2.4 years.
Performance based restricted stock: The Company has 35,186 shares of performance based restricted stock outstanding
as of December 31, 2024 pursuant to the Company’s Stock Plans. The awards vest over a three year service period, provided
certain performance metrics are met. The share quantity that ultimately vests can range between 0% and 200%, which is
dependent on the degree to which the performance metrics are met. The Company records an expense over the vesting period
based on (a) the probability that the performance metric will be met and (b) the fair market value of the Company’s stock at the
date of the grant.
17. 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 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 years ended December 31, 2024 and December 31, 2023 is reported in the Consolidated Statements of Comprehensive
Income.
The following tables present the changes in accumulated other comprehensive (loss) income by component, net of tax for
the years ended December 31, 2024 and December 31, 2023:
Net Unrealized
Gain
(Loss) on
Available
for Sale
Securities
Net Unrealized
Gain
(Loss) on Interest
Rate Swaps
Total
(In thousands)
Balance at December 31, 2023 ........................................................................ $
(5,810) $
4,146 $
(1,664)
Other comprehensive income (loss) before reclassifications, net of tax .........
1,978
1,722
3,700
Amounts reclassified from accumulated other comprehensive income, net
of tax ................................................................................................................
—
(3,280)
(3,280)
Net other comprehensive income (loss) ..........................................................
1,978
(1,558)
420
Balance at December 31, 2024 ........................................................................ $
(3,832) $
2,588 $
(1,244)
103
Net Unrealized
Gain
(Loss) on
Available
for Sale
Securities
Net Unrealized
Gain
(Loss) on Interest
Rate Swaps
Total
(In thousands)
Balance at December 31, 2022 ........................................................................ $
(6,750) $
6,561 $
(189)
Other comprehensive income (loss) before reclassifications, net of tax .........
940
1,205
2,145
Amounts reclassified from accumulated other comprehensive
income, net of tax ............................................................................................
—
(3,620)
(3,620)
Net other comprehensive income (loss) ..........................................................
940
(2,415)
(1,475)
Balance at December 31, 2023 ........................................................................ $
(5,810) $
4,146 $
(1,664)
The following table provides information for the items reclassified from accumulated other comprehensive income or loss:
Accumulated Other Comprehensive
Income (Loss) Components
For the Years Ended
December 31,
Associated Line Item in the Consolidated
Statements Of Income
2024
2023
(In thousands)
Derivatives:
Unrealized gains (losses) on derivatives ....................
$ 4,295 $ 4,596 Interest expense on borrowings
Tax benefit .................................................................
(1,015)
(976) Income tax expense
Net of tax .................................................................
$ 3,280 $ 3,620
18. Derivative Instruments
The Company 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 December 31, 2024, the Company was a party to three cash
flow 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 cash flow swaps to convert rolling 90-day brokered
deposits. Cash flow swaps with a positive fair value are recorded as other assets and cash flow swaps with a negative fair value
are recorded as other liabilities on the Consolidated Balance Sheets.
The Company terminated two cash flow swaps with a total notional amount of $50 million during the year ended
December 31, 2022. The underlying debt associated with the terminated swaps was kept in place. The fair value of the
terminated swaps totaled $127.6 thousand as of December 31, 2024. 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.
The Company has one pay-fixed portfolio layer method fair value swap, designated as a hedging instrument, with a total
notional amount of $150 million. The Company designated the fair value swap under the portfolio layer method. Under this
method, the hedged item is designated as a hedged layer of a closed portfolio of financial loans that is anticipated to remain
outstanding for the designated hedged period. Adjustments will be made to record the swap at fair value on the Consolidated
Balance Sheets, with changes in fair value recognized in interest income. The carrying value of the fair value swap on the
Consolidated Balance Sheets will also be adjusted through interest income, based on changes in fair value attributable to
changes in the hedged risk.
104
The following table represents the carrying value of the portfolio layer method hedged asset and the cumulative fair value
hedging adjustment included in the carrying value of the hedged asset as of December 31, 2024 and December 31, 2023:
December 31, 2024
December 31, 2023
December 31, 2024
December 31, 2023
Carrying Value of Hedged Asset
Hedged Items
(In thousands)
Fixed Rate Asset (1)
.............................. $
150,250 $
150,915 $
(665) $
915
(1) These amounts include the amortized cost basis of closed portfolios of fixed rate loans used to designate hedging relationships in which the hedged item is
the stated amount of assets in the closed portfolio anticipated to be outstanding for the designated hedged period. As of December 31, 2024, the amortized cost
basis of the closed portfolio used in this hedging relationship was $529.6 million, the cumulative basis adjustments associated with this hedging relationships
was $2.1 million, and the amount of the designated hedged item was $150.0 million.
As of December 31, 2024, the Company has interest rate swaps not designated as hedging instruments, to minimize
interest rate risk exposure with loans to clients.
The Company accounts for all non-borrower related interest rate swaps as effective cash flow hedges or fair value swaps.
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
clients. The Company executes interest rate swaps with commercial banking clients to facilitate their respective risk
management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company
executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the
interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair
value of both the client 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 the Consolidated Balance Sheets.
Information about derivative instruments for the years ended December 31, 2024 and December 31, 2023 is as follows:
As of December 31, 2024
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 ........ $
75,000 Other assets ........
$
3,259 $
—
Accrued
expenses and
other liabilities ...
$
—
Fair value swap ............ $
— Other assets ........
$
— $
150,000
Accrued
expenses and
other liabilities ...
$
259
Derivatives not
designated as hedging
instruments:
Interest rate swaps(1)
..... $
38,500 Other assets ........
$
4,213 $
38,500
Accrued
expenses and
other liabilities ...
$
4,213
(1) Represents interest rate swaps with commercial banking clients, which are offset by derivatives with a third party.
105
Accrued interest receivable related to interest rate swaps as of December 31, 2024 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 asset position, including accrued
interest, totaled $3.7 million as of December 31, 2024.
As of December 31, 2023
Derivative Assets
Derivative Liabilities
Original
Notional
Amount
Balance Sheet
Location
Fair
Value
Original
Notional
Amount
Balance Sheet
Location
Fair
Value
(In thousands)
Derivatives designated
as hedging instruments:
Interest rate swaps ........ $
125,000 Other assets ........
$
5,240 $
—
Accrued
expenses and
other liabilities ...
$
—
Fair value swap
Derivatives not
designated as hedging
instruments: .................. $
— Other assets ........
$
— $
150,000
Accrued
expenses and
other liabilities ...
$
917
Interest rate swaps(1)
..... $
38,500 Other assets ........
$
3,579 $
38,500
Accrued
expenses and
other liabilities ...
$
3,579
(1) Represents interest rate swaps with commercial banking clients, which are offset by derivatives with a third party.
Accrued interest receivable related to interest rate swaps as of December 31, 2023 totaled $0.8 million 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 $6.0 million as of December 31, 2023.
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded
in accumulated other comprehensive income and is subsequently reclassified into earnings in the period 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 Company
expects to reclassify $0.9 million to interest income 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 Company does
not offset derivative assets and derivative liabilities 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 years ended December 31, 2024 and December 31, 2023:
December 31,
2024
December 31,
2023
(In thousands)
Interest rate swaps designated as cash flow hedges:
Unrealized income recognized in accumulated other comprehensive income before
reclassifications ............................................................................................................................... $
2,300 $
1,531
Amounts reclassified from accumulated other comprehensive (loss) income ................................
(4,295)
(4,596)
Income tax benefit (expense) on items recognized in accumulated other comprehensive income
(loss) ................................................................................................................................................
437
650
Other comprehensive (loss) income ................................................................................................ $
(1,558) $
(2,415)
The unrealized gains and losses set forth in the above table 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.
106
The following table summarizes the effect of the fair value hedging relationship recognized in the Consolidated Statements
of Income for the years ended December 31, 2024 and December 31, 2023:
December 31,
(In thousands)
2024
2023
Gain (loss) on fair value hedging relationship:
Hedged asset ............................................................................................................................... $
(665) $
915
Fair value derivative designated as hedging instrument .............................................................
2,084
1,148
Total gain recognized in the consolidated statements of income within interest and fees
on loans ...................................................................................................................................... $
1,419 $
2,063
The following tables summarize gross and net information about derivative instruments that are offset in the Consolidated
Balance Sheets at December 31, 2024 and December 31, 2023:
December 31, 2024
(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 ................. $
8,040 $
— $
8,040 $
234 $
7,806 $
—
(1) Includes accrued interest receivable totaling $568 thousand.
December 31, 2024
(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 ........... $
4,502 $
— $
4,502 $
233 $
— $
4,269
(1) Includes net interest payable totaling $30 thousand.
December 31, 2023
(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 ................ $
9,583 $
— $
9,583 $
— $
8,599 $
984
(1) Includes accrued interest receivable totaling $764 thousand.
107
December 31, 2023
(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
Liabilities .......... $
4,473 $
— $
4,473 $
— $
— $
4,473
(1) Includes net interest receivable totaling $23 thousand.
19. Fair Value of Financial Instruments
GAAP requires disclosure of fair value information about financial instruments, whether or not recognized in the
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 financial instruments; however, there are
inherent 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. 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.
108
The carrying values, fair values and placement in the fair value hierarchy of the Company’s financial instruments at
December 31, 2024 and December 31, 2023 were as follows:
December 31, 2024
Carrying
Value
Fair
Value
Level 1
Level 2
Level 3
(In thousands)
Financial assets:
Cash and due from banks ........................................... $
293,552 $
293,552 $
293,552 $
— $
—
Federal funds sold ......................................................
13,972
13,972
13,972
—
—
Marketable equity securities ......................................
2,118
2,118
2,118
—
—
Available for sale securities .......................................
107,428
107,428
63,557
43,871
—
Held to maturity securities .........................................
36,553
36,691
—
29
36,662
Loans receivable, net ................................................. 2,672,959 2,637,922
—
— 2,637,922
Accrued interest receivable .......................................
14,535
14,535
—
14,535
—
FHLB stock ................................................................
5,655
5,655
—
5,655
—
Servicing asset, net of valuation allowance ...............
558
558
—
—
558
Derivative asset ..........................................................
7,472
7,472
—
7,472
—
Other real estate owned .............................................
8,299
8,299
—
—
8,299
Financial liabilities:
Noninterest bearing deposits ..................................... $
321,875 $
321,875 $
— $
321,875 $
—
NOW and money market ........................................... 1,004,503 1,004,503
— 1,004,503
—
Savings .......................................................................
90,220
90,220
—
90,220
—
Time deposits ............................................................. 1,370,972 1,374,309
—
— 1,374,309
Accrued interest payable ...........................................
13,737
13,737
—
13,737
—
Advances from the FHLB ..........................................
90,000
90,045
—
—
90,045
Subordinated debentures ............................................
69,451
66,167
—
—
66,167
Servicing liability ......................................................
—
—
—
—
—
Derivative liability .....................................................
4,472
4,472
—
4,472
—
109
December 31, 2023
Carrying
Value
Fair
Value
Level 1
Level 2
Level 3
(In thousands)
Financial assets:
Cash and due from banks ........................................... $
267,521 $
267,521 $
267,521 $
— $
—
Federal funds sold ......................................................
1,636
1,636
1,636
—
—
Marketable equity securities ......................................
2,070
2,070
2,070
—
—
Available for sale securities .......................................
109,736
109,736
62,514
47,222
—
Held to maturity securities .........................................
15,817
15,903
—
33
15,870
Loans receivable, net ................................................. 2,685,301 2,659,667
—
— 2,659,667
Accrued interest receivable .......................................
14,863
14,863
—
14,863
—
FHLB stock ................................................................
5,696
5,696
—
5,696
—
Servicing asset, net of valuation allowance ...............
869
869
—
—
869
Derivative asset ..........................................................
8,819
8,819
—
8,819
—
Financial liabilities:
Noninterest bearing deposits ..................................... $
346,172 $
346,172 $
— $
346,172 $
—
NOW and money market ...........................................
978,181
978,181
—
978,181
—
Savings .......................................................................
97,331
97,331
—
97,331
—
Time deposits ............................................................. 1,315,073 1,315,223
—
— 1,315,223
Accrued interest payable ...........................................
14,595
14,595
—
14,595
—
Advances from the FHLB ..........................................
90,000
90,012
—
—
90,012
Subordinated debentures ............................................
69,205
63,060
—
—
63,060
Servicing liability ......................................................
4
4
—
—
4
Derivative liability .....................................................
4,496
4,496
—
4,496
—
The following methods and assumptions were used by management in estimating the fair value of its financial instruments:
Cash and due from banks, federal funds sold, accrued interest receivable and accrued interest payable: The carrying
amount is a reasonable estimate of fair value.
Marketable equity securities, available for sale securities 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. The majority of the available for sale securities are considered to be Level 2 as other observable
inputs are utilized, such as quoted prices for similar securities. Level 1 investment securities include investments in a U.S.
treasury note and in marketable equity securities for which a quoted price is readily available in the market. Level 3 held to
maturity securities represent private placement municipal housing authority bonds for which no quoted market price is
available. The fair value for these securities is estimated using a discounted cash flow model, using discount rates ranging from
5.3% to 7.2% as of December 31, 2024 and 4.5% to 6.9% as of December 31, 2023. These securities are CRA eligible
investments.
FHLB stock: The carrying value of FHLB stock approximates fair value based on the most recent redemption provisions
of the FHLB.
Loans receivable: For variable rate loans which reprice frequently and have no significant change 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.
The fair value methodology includes prepayment, default and loss severity assumptions applied by type of loan. The fair value
estimate of the loans includes an expected credit loss.
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 Company also considers the creditworthiness of each counterparty for assets and the creditworthiness of the
Company for liabilities.
110
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
Company also considers its own creditworthiness in determining the fair value of its borrowings and subordinated debt.
Contractual cash flows for the subordinated debt are reduced based on the estimated rates of default, the severity of losses to be
incurred on a default, and the rates at which the subordinated debt is expected to prepay after the call date.
Servicing 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.
Off-balance-sheet instruments: Loan commitments on which the committed interest rate is less than the current market
rate are insignificant at December 31, 2024 and December 31, 2023.
Other Real Estate Owned ("OREO"): OREO is held at the lower of cost or fair value and is measured at fair value when
recorded below cost. The fair value of OREO is calculated using independent appraisals or internal valuation methods, less
estimated selling costs, and may consider available pricing guides, auction results, price opinions, and other factors that are not
observable in an active market when determining fair value. Accordingly, OREO are classified within Level 3 of the fair value
hierarchy. At December 31, 2024, the fair value of OREO was $8.3 million. At December 31, 2023, the Company did not have
OREO.
20. Fair Value Measurements
The Company is required to account for certain assets at fair value on a recurring or non-recurring basis. As discussed in
Note 1, 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 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.
111
Financial Instruments Measured at Fair Value on a Recurring Basis
The following table details the financial instruments carried at fair value on a recurring basis at December 31, 2024 and
December 31, 2023, 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 years ended December 31, 2024 and
December 31, 2023.
Fair Value
Level 1
Level 2
Level 3
(In thousands)
December 31, 2024
Marketable equity securities ..................................................................................... $
2,118 $
— $
—
Available for sale investment securities:
U.S. Government and agency obligations ............................................................
63,557
28,025
—
Corporate bonds ...................................................................................................
—
15,846
—
Derivative asset .........................................................................................................
—
7,472
—
Derivative liability ....................................................................................................
—
4,472
—
December 31, 2023
Marketable equity securities ..................................................................................... $
2,070 $
— $
—
Available for sale investment securities:
U.S. Government and agency obligations ............................................................
62,514
32,712
—
Corporate bonds ...................................................................................................
—
14,510
—
Derivative asset .........................................................................................................
—
8,819
—
Derivative liability ....................................................................................................
—
4,496
—
Marketable equity securities and available for sale securities: The fair value of the Company’s investment securities is
estimated by using pricing models or quoted prices of securities with similar characteristics (i.e. matrix pricing) and 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 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 also considers the creditworthiness of each counterparty for assets and the
creditworthiness of the Company for liabilities. 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 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.
112
The following table details the financial instruments measured at fair value on a nonrecurring basis at December 31, 2024
and December 31, 2023, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine
the fair value:
Fair Value
Level 1
Level 2
Level 3
(In thousands)
December 31, 2024
Individually evaluated loans ..................................................................... $
— $
— $
113,901
Servicing asset, net ...................................................................................
—
—
558
December 31, 2023
Individually evaluated loans .................................................................... $
— $
— $
104,050
Servicing asset, net ...................................................................................
—
—
865
The following table presents information about quantitative inputs and assumptions for Level 3 financial instruments
carried at fair value on a nonrecurring basis at December 31, 2024 and December 31, 2023:
Fair
Value
Valuation
Methodology
Unobservable
Input
Range
(Dollars in thousands)
December 31, 2024
Individually evaluated loans ............ $
45,203 Appraisals
Discount to
appraised value .....
8.00%
58,363
Appraisals, cash
surrender value
life insurance,
securities, cash
held as collateral
Discounts to
appraised value
and securities
value .....................
0.00 - 8.00%
10,335
Discounted cash
flows
Discount rate .........
3.38–10.25%
$
113,901
Servicing asset, net .......................... $
558
Discounted cash
flows
Discount rate .........
10.00%
Prepayment rate ....
3.00 - 18.00%
December 31, 2023
Individually evaluated loans ............ $
31,527 Appraisals
Discount to
appraised value .....
6.00 - 8.00%
22,129
Appraisals, cash
surrender value
life insurance,
securities, cash
held as collateral
Discounts to
appraised value
and securities
value .....................
0.00 - 8.00%
50,394
Discounted cash
flows
Discount rate .........
3.38–10.75%
$
104,050
Servicing asset, net .......................... $
865
Discounted cash
flows
Discount rate .........
10.00 %
Prepayment rate ....
3.00-17.00%
Individually evaluated 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 credit loss amounts for
113
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 credit losses 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.
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 fair value of servicing assets and liabilities are not measured on an ongoing basis but are subject to
fair value 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 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).
21. 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 8.0%, a
minimum Tier 1 risk-based capital ratio of 6.0%, a minimum common equity Tier 1 risk-based capital ratio of 4.5%, and a
minimum leverage ratio of 4.0% in order to be "adequately capitalized." In addition to these requirements, banking
organizations must maintain a capital conservation buffer consisting of common Tier 1 equity in an amount above the minimum
risk-based capital requirements for “adequately capitalized” institutions equal to 2.5% of total risk-weighted assets, resulting in
a requirement for the Company and the Bank to effectively maintain common equity Tier 1, Tier 1 and total capital ratios of
7.0%, 8.5% and 10.5%, respectively. The Company and the Bank must maintain the capital conservation buffer to avoid
restrictions on the ability to pay dividends, pay discretionary bonuses, or to engage in share repurchases.
As of June 30, 2023, the Company no longer met the definition of a Small Bank Holding Company as the Company's
assets exceeded $3 billion. Effective March 31, 2024, the Company became subject to the larger company capital requirements
as set forth in the Economic Growth Act.
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.
As of December 31, 2024, the Bank and Company met all capital adequacy requirements to which they are subject. There
are no conditions or events since then that management believes have changed this conclusion.
114
The capital amounts and ratios for the Bank and the Company at December 31, 2024 were as follows:
Actual Capital
Minimum Regulatory
Capital Required for Capital
Adequacy plus Capital
Conservation Buffer
Minimum Regulatory
Capital to be Well
Capitalized Under Prompt
Corrective Action Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in thousands)
Bankwell Bank
December 31, 2024
Common Equity Tier 1 Capital to Risk-
Weighted Assets ............................................. $ 325,296
11.64 % $ 195,690
7.00 % $ 181,712
6.50 %
Tier I Capital to Risk-Weighted Assets .........
325,296
11.64 %
237,623
8.50 %
223,645
8.00 %
Total Capital to Risk-Weighted Assets ..........
355,058
12.70 %
293,535
10.50 %
279,557
10.00 %
Tier I Capital to Average Assets ....................
325,296
10.09 %
128,998
4.00 %
161,248
5.00 %
Actual Capital
Minimum Regulatory
Capital Required for Capital
Adequacy
Minimum Regulatory
Capital to be Well
Capitalized Under Prompt
Corrective Action Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
Bankwell Financial Group, Inc.
December 31, 2024
Common Equity Tier 1 Capital to Risk-
Weighted Assets ............................................. $ 268,733
9.60 % $ 126,030
4.50 % $ 182,043
6.50 %
Tier I Capital to Risk-Weighted Assets .........
268,733
9.60 %
168,040
6.00 %
224,053
8.00 %
Total Capital to Risk-Weighted Assets ..........
367,946
13.14 %
224,053
8.00 %
280,066
10.00 %
Tier I Capital to Average Assets ....................
268,733
8.34 %
128,943
4.00 %
161,179
5.00 %
115
The capital amounts and ratios for the Bank and Company at December 31, 2023 were as follows:
Actual Capital
Minimum Regulatory
Capital Required for Capital
Adequacy plus Capital
Conservation Buffer
Minimum Regulatory
Capital to be Well
Capitalized Under Prompt
Corrective Action Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in thousands)
Bankwell Bank
December 31, 2023
Common Equity Tier 1 Capital to Risk-
Weighted Assets ............................................. $ 321,432
11.30 % $ 199,047
7.00 % $ 184,829
6.50 %
Tier I Capital to Risk-Weighted Assets .........
321,432
11.30 %
241,700
8.50 %
227,482
8.00 %
Total Capital to Risk-Weighted Assets ..........
350,303
12.32 %
298,571
10.50 %
284,353
10.00 %
Tier I Capital to Average Assets ....................
321,432
9.81 %
131,110
4.00 %
163,888
5.00 %
Actual Capital
Minimum Regulatory
Capital Required for Capital
Adequacy
Minimum Regulatory
Capital to be Well
Capitalized Under Prompt
Corrective Action Provisions
Bankwell Financial Group, Inc.
Amount
Ratio
Amount
Ratio
Amount
Ratio
December 31, 2023
Common Equity Tier 1 Capital to Risk-
Weighted Assets ............................................. $ 264,209
9.28 % $ 128,121
4.50 %
N/A
N/A
Tier I Capital to Risk-Weighted Assets .........
264,209
9.28 %
170,828
6.00 %
N/A
N/A
Total Capital to Risk-Weighted Assets ..........
362,285
12.72 %
227,770
8.00 %
N/A
N/A
Tier I Capital to Average Assets ....................
264,209
8.05 %
131,232
4.00 %
N/A
N/A
Regulatory Restrictions on Dividends
The ability of the Company to pay dividends depends, in part, on the ability of the Bank to pay dividends to the Company.
In accordance with Connecticut statutes, regulatory approval is required 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 FRBNY at December 31, 2024 or December 31,
2023 as the FRBNY has waived this requirement.
22. Related Party Transactions
In the normal course of business, the Company may grant loans to executive officers, directors and members of their
immediate families, as defined, and to entities in which these individuals have more than a 10% equity ownership. Such loans
are transacted at terms including interest rates, similar to those available to unrelated clients.
There were no related party loans outstanding during the years ending December 31, 2024 and December 31, 2023.
Related party deposits aggregated approximately $53.3 million and $34.7 million at December 31, 2024 and December 31,
2023, respectively.
During the year ended December 31, 2024, the Company had no payments to related parties for services provided to the
Company. During the year ended December 31, 2023, the Company paid approximately $5 thousand to related parties for
services provided to the Company. The payments were primarily for consulting and legal services.
116
23. Parent Corporation Only Financial Statements
Bankwell Financial Group, Inc., the Parent Corporation, operates its wholly-owned subsidiary, Bankwell Bank. The
earnings of this subsidiary are recognized by the Parent Corporation using the equity method of accounting. Accordingly,
earnings are recorded as increases in the Parent Corporation’s investment in the subsidiary and dividends paid reduce the
investment in the subsidiary.
Condensed financial statements of the Parent Corporation only are as follows:
Condensed Statements of Financial Condition
At December 31,
2024
2023
(In Thousands)
ASSETS
Cash and due from banks ................................................................................................................. $
11,818 $
12,130
Investment in subsidiary ...................................................................................................................
327,083
322,975
Deferred income taxes, net ...............................................................................................................
581
522
Other assets .......................................................................................................................................
4,513
3,078
Total assets ....................................................................................................................................... $
343,995 $
338,705
LIABILITIES AND SHAREHOLDERS’ EQUITY
Subordinated debentures .................................................................................................................. $
69,451 $
69,205
Accrued expenses and other liabilities .............................................................................................
4,024
3,748
Shareholders’ equity .........................................................................................................................
270,520
265,752
Total liabilities and shareholders’ equity ......................................................................................... $
343,995 $
338,705
Condensed Statements of Income
Year Ended December 31,
2024
2023
(In Thousands)
Interest income ..................................................................................................................................... $
29 $
28
Dividend income from subsidiary .......................................................................................................
—
—
Total income ........................................................................................................................................
29
28
Expenses ..............................................................................................................................................
7,447
6,984
Income before equity in undistributed earnings of subsidiaries ..........................................................
(7,418)
(6,956)
Equity in undistributed earnings of subsidiaries ..................................................................................
17,188
43,619
Net Income ........................................................................................................................................... $
9,770 $
36,663
117
Condensed Statements of Cash Flows
For the Years Ended
December 31,
2024
2023
(In Thousands)
Cash flows from operating activities
Net income ........................................................................................................................................ $
9,770 $
36,663
Adjustments to reconcile net income to net cash used in operating activities:
Equity in undistributed earnings .......................................................................................................
(17,188)
(43,619)
(Increase) decrease in other assets ....................................................................................................
(1,435)
(295)
Increase in deferred income taxes, net ..............................................................................................
(59)
(15)
Increase (decrease) in other liabilities ...............................................................................................
276
727
Stock-based compensation ................................................................................................................
2,998
3,074
Amortization of debt issuance costs ..................................................................................................
246
246
Net cash used in operating activities .........................................................................................
(5,392)
(3,219)
Cash flows from investing activities
Decrease in premises and equipment, net .........................................................................................
—
—
Net cash provided by investing activities ..................................................................................
—
—
Cash flows from financing activities
Issuance of subordinated debt ...........................................................................................................
—
—
Retirement of subordinated debt .......................................................................................................
—
—
Proceeds from exercise of options ....................................................................................................
—
155
Dividends paid on common stock .....................................................................................................
(6,283)
(6,241)
Repurchase of common stock ...........................................................................................................
(2,137)
—
Capital contribution from Bank ........................................................................................................
13,500
12,000
Net cash provided by financing activities .................................................................................
5,080
5,914
Net (decrease) increase in cash and cash equivalents ..............................................................
(312)
2,695
Cash and cash equivalents:
Beginning of year ..............................................................................................................................
12,130
9,435
End of year ........................................................................................................................................ $
11,818 $
12,130
Supplemental disclosures of cash flows information:
Cash paid for:
Interest ..........................................................................................................................................
3,238
3,237
Income taxes .................................................................................................................................
—
—
118
24. Subsequent Events
The Parent Corporation's Board of Directors declared a $0.20 per share cash dividend, payable February 21, 2025 to
shareholders of record on February 11, 2025.
On January 22, 2025, Matthew McNeill was elected to President of the Bank and the Parent Corporation. Mr. McNeill
joined the Company in 2020 as Executive Vice President and Chief Banking Officer.
On January 24, 2025, the Company sold a property that it had acquired in the fourth quarter of 2024 that it held as an
Other Real Estate Owned (“OREO”) asset as of December 31, 2024. The OREO asset had previously secured a non-performing
construction loan and was acquired by the Company out of the borrower’s bankruptcy for $8.3 million. The Company received
net proceeds from the sale of such OREO in the amount of $8.3 million.
On January 31, 2025, the Company closed the sale of a $27.1 million multifamily commercial real estate loan that it had
put on nonperforming status during the third quarter of 2024. The Company received the full principal amount as well as all
past due interest and late fees.
As of December 31, 2024, the Company's nonperforming assets as a percentage of total assets was 1.88%. Included in the
1.88% are the two disposed assets, totaling $35.4 million, or 108 basis points.
Subsequent to December 31, 2024 through March 4, 2025, the Company purchased 16,920 shares of its Common Stock at
a weighted average price of $31.15.
119
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Controls and Procedures
Disclosure Controls and Procedures
Under the supervision and with the participation of the Company’s management, including the Chief Executive Officer
and Chief Financial Officer, the Company has evaluated the effectiveness of the design and operation of Bankwell’s disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended)
as of the end of the period covered by this report. Based upon that evaluation, management, including the Chief Executive
Officer and Chief Financial Officer, concluded that Bankwell’s disclosure controls and procedures were effective as of the end
of the period covered by this report.
Internal Control over Financial Reporting
Bankwell’s management has issued a report on its assessment of the effectiveness of the Company’s internal control over
financial reporting as of December 31, 2024. As of December 31, 2024, senior management concluded that Bankwell
maintained effective internal control over financial reporting.
There were no changes made in the Company's internal control over financial reporting that occurred during the fiscal
quarter ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s
internal control over financial reporting. The report of the Company's management follows.
Management’s Report on Internal Control over Financial Reporting
The management of Bankwell Financial Group and its Subsidiaries is responsible for establishing and maintaining
adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as
amended). The Company’s internal control over financial reporting is a process designed under the supervision of its Chief
Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31,
2024 based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
Based on management’s assessment, management concluded that, as of December 31, 2024, the Company’s internal
control over financial reporting was effective based on criteria established in Internal Control-Integrated Framework (2013)
issued by COSO.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of the effectiveness to future periods are subject to the risk that the controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
The Company's independent registered public accounting firm, RSM US LLP, has audited the effectiveness of the
Company's internal control over financial reporting as of December 31, 2024, as stated in their audit report appearing below.
120
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Bankwell Financial Group, Inc.
Opinion on the Internal Control Over Financial Reporting
We have audited Bankwell Financial Group, Inc.'s (the Company) internal control over financial reporting as of December 31,
2024, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2024 and 2023, the related consolidated
statements of income, comprehensive income (loss), shareholders' equity, and cash flows for the years then ended, and the
related notes to the consolidated financial statements and our report dated March 5, 2025 expressed an unqualified opinion.
Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on
Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ RSM US LLP
Hartford, Connecticut
March 5, 2025
121
Item 9B.
Other Information
Officer and Director Trading Arrangements
The Company maintains a Directors’ Deferred Compensation Plan (the “DCP”), pursuant to which all (but not less than all)
retainer fees and any meeting fees (or other cash compensation) payable to a participating director for service on the Board of
Directors is deferred. An election to participate in the DCP is effective for calendar year following the election and each
subsequent calendar year until the director revokes the election, which revocation will be effective for the following calendar
year. Amounts deferred under the DCP are credited to a book account and deemed invested in the Company’s common stock.
The DCP is indirectly funded by the Company through a so-called “Rabbi Trust,” which is administered by an independent
third party trustee. The Company deposits deferred amounts into the Rabbi Trust, which funds are invested in our common
stock through open market purchases by the trustee, which purchases are intended to satisfy the affirmative defense of Rule
10b5-1(c) under the Securities Exchange Act of 1934. A director’s deferred compensation is paid in our common stock
following retirement, except under certain specified circumstances that permit earlier payment, including a severe financial
hardship resulting from illness or accident, loss of property or other similar extraordinary and unforeseeable circumstances. In
the fourth quarter of 2023, directors Eric J. Dale, Jeffrey R. Dunne, Carl M. Porto, and Lawrence B. Seidman, elected to
participate, and continue to participate in the DCP.
Item 9C.
Disclosure Regarding Foreign Jurisdictions That Prevent Inspection
Not Applicable.
122
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
The Company responds to this item by incorporating herein by reference the material responsive to such item in the
Company’s definitive proxy statement for its 2025 Annual Meeting of Shareholders, to be filed with the Securities and
Exchange Commission (the "Commission") no later than April 30, 2025.
Item 11.
Executive Compensation
The Company responds to this item by incorporating herein by reference the material responsive to such item in the
Company’s definitive proxy statement for its 2025 Annual Meeting of Shareholders, to be filed with the Commission no later
than April 30, 2025.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The Company responds to this item by incorporating herein by reference the material responsive to such item in the
Company’s definitive proxy statement for its 2025 Annual Meeting of Shareholders, to be filed with the Commission no later
than April 30, 2025.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The Company responds to this item by incorporating herein by reference the material responsive to such item in the
Company’s definitive proxy statement for its 2025 Annual Meeting of Shareholders, to be filed with the Commission no later
than April 30, 2025.
Item 14.
Principal Accountant Fees and Services
The Company responds to this item by incorporating herein by reference the material responsive to such item in the
Company’s definitive proxy statement for its 2025 Annual Meeting of Shareholders, to be filed with the Commission no later
than April 30, 2025.
123
PART IV
Item 15.
Exhibits, Financial Statement Schedules
(A)(1) FINANCIAL STATEMENTS
The following consolidated financial statements of the Company are included in Item 8 of this report:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets - As of December 31, 2024 and 2023
Consolidated Statements of Income - For the years ended December 31, 2024 and 2023
Consolidated Statements of Comprehensive Income (Loss) - For the years ended December 31, 2024 and 2023
Consolidated Statements of Shareholders' Equity - For the years ended December 31, 2024 and 2023
Consolidated Statements of Cash Flows - For the years ended December 31, 2024 and 2023
Notes to Consolidated Financial Statements
(A)(2) FINANCIAL STATEMENT SCHEDULES
Certain schedules to the consolidated financial statements have been omitted if they were not required by Article 9 of
Regulation S-X or if, under the related instructions, they were inapplicable, or the information was contained elsewhere herein.
(A)(3) EXHIBITS
The exhibits listed in the Exhibit Index in this Form 10-K are filed herewith or are incorporated herein by reference to other
SEC filings.
124
Exhibit Index
Number
Description
Exhibit 3.1
Certificate of Incorporation as amended to date (1)
Exhibit 3.2
Amended and Restated Bylaws (11)
Exhibit 4.1
Description of the Registrant's Common Stock(5)
Exhibit 10.1†
Employment Agreement of Christopher R. Gruseke dated June 1, 2016 (3)
Exhibit 10.2†
2012 BNC Financial Group, Inc. Stock Plan (1)
Exhibit 10.3†
Amendment to the 2012 BNC Financial Group, Inc. Stock Plan (1)
Exhibit 10.4†
BNC Financial Group, Inc. and Affiliates Deferred Compensation Plan for Directors, January 23, 2008(1)
as amended by the Bankwell Financial Group, Inc. and Affiliates Amended and Restated Deferred
Compensation Plan for Directors and Related Investment Policy Statement (9)
Exhibit 10.5†
Form of Director Indemnification Agreement (2)
Exhibit 10.6†
Form of Executive Officer Indemnification Agreement (2)
Exhibit 10.7†
Employment Agreement of Christine Chivily (4)
Exhibit 10.8
Agreement dated February 5, 2020 between Lawrence B. Seidman and Bankwell Financial Group, Inc.(5)
Exhibit 10.9
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. (7) As further amended by
Amendment to February 5, 2020 Agreement dates as of December 19, 2024(12)
Exhibit 10.10†
Employment Agreement of Matthew McNeill (6)
Exhibit 10.11†
2018 Bankwell Financial Group, Inc. Long-Term Incentive Plan (6)
Exhibit 10.12†
2022 Bankwell Financial Group, Inc. Stock Plan (7)
Exhibit 10.13†
Employment Agreement of Courtney E. Sacchetti (8)
Exhibit 19
Insider Trading Policy
Exhibit 21.1
Subsidiaries of the Registrant (1)
Exhibit 23.1
Consent of RSM US LLP
Exhibit 31.1
Certification of Christopher R. Gruseke Pursuant to Rule 13a-14(a)
Exhibit 31.2
Certification of Courtney Sacchetti pursuant to Rule 13a-14(a)
Exhibit 32
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 97
Clawback Policy(10)
101
The following materials from Bankwell Financial Group, Inc.’s Annual Report on Form 10-K for the
period ended December 31, 2024, formatted in Inline eXtensible Business Reporting Language (XBRL):
(i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of
Comprehensive Income; (iv) Consolidated Statements of Shareholders’ Equity; (v) Consolidated
Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
†
Management contract or compensatory plan or arrangement.
(1) Filed as part of the Registrant’s Registration Statement on Form S-1 filed on April 4, 2014.
(2) Filed as part of the Registrant’s Amendment No. 1 to Registration Statement on Form S-1 filed on May 5, 2014.
(3) Filed as part of the Registrant’s December 31, 2016 Form 10-K.
(4) Filed as part of the Registrant's June 30, 2018 Form 10-Q.
(5) Filed as part of the Registrant's December 31, 2019 Form 10-K.
(6) Filed as part of the Registrant's December 31, 2020 Form 10-K.
(7) Filed as an Exhibit to Registrant's June 30, 2022 Form 10-Q.
(8) Filed as part of the Registrant's December 31, 2022 Form 10-K.
(9) Filed as an Exhibit to Registrant's September 30, 2023 Form 10-Q.
(10) Filed as an Exhibit to Registrant's December 31, 2023 Form 10-K.
125
(11) Filed as an Exhibit to Registrant's July 25, 2024 Form 8-K.
(12) Filed as an Exhibit to Registrant's December 23, 2024 Form 8-K.
Item 16.
Form 10-K Summary
None.
126
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BANKWELL FINANCIAL GROUP, INC.
By: /s/ Christopher R. Gruseke
Christopher R. Gruseke
Chief Executive Officer
Dated: March 5, 2025
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature & Title
Date
/s/ Christopher R. Gruseke
March 5, 2025
Christopher R. Gruseke
Chief Executive Officer and a Director
(principal executive officer)
/s/ Courtney E. Sacchetti
March 5, 2025
Courtney E. Sacchetti
Executive Vice President & Chief Financial Officer
(principal financial officer)
/s/ Angelo G. Fusaro
March 5, 2025
Angelo G. Fusaro
Senior Vice President & Principal Accounting Officer
/s/ Eric J. Dale
March 5, 2025
Eric J. Dale
Director
/s/ Darryl Demos
March 5, 2025
Darryl Demos
Director
/s/ Blake S. Drexler
March 5, 2025
Blake S. Drexler
Director
/s/ Jeffrey R. Dunne
March 5, 2025
Jeffrey R. Dunne
Director
/s/ Anahaita N. Kotval
March 5, 2025
Anahaita N. Kotval
Director
/s/ Todd Lampert
March 5, 2025
Todd Lampert
Director
/s/ Kevin D. Leitão
March 5, 2025
Kevin D. Leitão
Director
/s/ Carl M. Porto
March 5, 2025
Carl M. Porto
Director
/s/ Lawrence B. Seidman
March 5, 2025
Lawrence B. Seidman
Director
127