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, ~~2023~~2024

☐ 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, ~~2023~~2024 based on the closing price of the common stock as reported on the NASDAQ Global Market: ~~153~~$163,~~557~~276,~~479~~474.

As of February 2928, ~~2024~~2025, there were 7,~~937~~907,~~477~~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 ~~2023~~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	2827
	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	~~120~~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	~~125~~126
		Signatures	~~126~~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.

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 ~~lending~~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, ~~2023~~2024, on a consolidated basis, we had total assets of approximately $3.23 billion, net loans of approximately $2.7 billion, total deposits of approximately $2.78 billion, and shareholders’ equity of approximately $~~265~~270.85 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.

~~With~~While ~~the~~2024 ~~efforts~~presented ofcertain financial challenges, our executive management team remained steadfast in their efforts, weallowing ~~continued~~us ~~our~~to maintain a degree of growth and ~~maintained~~ a ~~strong~~solid ~~track~~foundation ~~record~~ of ~~performance~~financial stability. ~~From~~Over the four year period from December 31, ~~2019~~2020 through December 31, ~~2023~~2024, ~~our~~we grew total assets ~~grew~~ from $12.93 billion to $3.23 billion;, ~~our~~ gross loans outstanding ~~grew~~ from $1.6 billion to $2.7 billion and ~~our~~ deposits ~~grew~~ from $1.58 billion to $2.78 billion. We ~~believe~~attribute this growth ~~is attributable~~ to our ~~ability~~ongoing commitment to ~~provide~~providing exceptional client service toas ~~our~~well ~~clients~~as ~~and~~prudent ~~our~~ financial ~~stability~~management.

Business Strategy

We are focused on being the banking provider of choice in our highly attractive market area through:

•~~Responsive,~~ Client-~~Centric~~Focused ~~Products~~Growth and ~~Services and a~~ Community ~~Focus~~Engagement. We ~~offer~~prioritize abuilding ~~broad~~long-term ~~array~~client ofrelationships by offering customized products and services ~~which~~coupled ~~allows us to focus on building long-term relationships~~ with ~~our clients through high-quality~~responsive, ~~responsive~~personalized ~~and personal~~ service. ByThis ~~focusing~~focus on the entire client ~~relationship,~~experience wefosters ~~build the~~ trust ~~of our clients~~, ~~which~~leading ~~leads~~ to long-term ~~relationships~~partnerships and ~~generates our~~ organic growth. InOur ~~addition,~~commitment weextends ~~are committed~~ to ~~meeting~~ the ~~needs of the~~ communities ~~that~~ we serve., ~~Our~~where ~~employees~~we ~~are~~actively ~~involved~~participate in ~~many~~local ~~civic and community~~ organizations, ~~which we support~~ through volunteerism and sponsorships. AsThis aengagement ~~result,~~strengthens ~~clients and potential clients within~~ our ~~market~~community ~~know~~presence ~~about us~~ and ~~frequently~~facilitates ~~interact~~client ~~with~~relationships, ~~our~~reducing ~~employees~~the ~~which~~need ~~allows~~for ~~us to develop long-term client relationships without~~ extensive advertising.

•~~Utilization~~Investing ofin ~~Efficient and~~ Scalable Infrastructure~~. We~~ ~~employ~~for aFuture ~~systematic and calculated approach to increasing our profitability and improving our efficiencies through the use of technology~~Growth. We ~~continually~~strategically invest in our ~~operating infrastructure, particularly in the areas of~~ technology, data processing, risk management, and compliance. Weinfrastructure ~~believe~~to ~~that~~enhance ~~our~~efficiency, ~~scalable~~profitability, ~~infrastructure~~and ~~provides~~scalability. usThis ~~with~~investment anprovides ~~efficient~~a robust operating platform ~~from~~that ~~which~~supports tocurrent ~~grow~~performance inand ~~the~~enables ~~near~~future ~~term,~~growth while ~~continuing~~ensuring we continue to deliver ~~our~~ high-quality service, ~~which will further enhance our ability to grow~~ and ~~increase~~maximize ~~our~~stakeholder returns.

•Disciplined ~~Focus on~~ Risk Management Framework. Effective risk management is a key component of our corporate culture. We ~~use~~employ ~~robust~~comprehensive ~~risk management~~ processes to monitor our ~~existing~~ loan and investment ~~securities~~ portfolios, ~~support~~inform operational ~~decision-making~~decisions, and ~~improve~~drive ~~our~~the ~~ability~~generation toof ~~generate~~high-quality earning assets ~~with strong credit quality~~. ToOur ~~maintain~~disciplined ~~our~~approach ~~strong~~includes ~~credit~~rigorous ~~quality~~underwriting, ~~we use a comprehensive underwriting process and we seek to maintain a diversified~~ loan portfolio diversification, and a conservative investment ~~securities portfolio~~strategy. Board-approved policies ~~contain approval authorities~~, asreviewed ~~appropriate~~annually, ~~and~~define ~~are~~approval ~~reviewed at least annually~~authorities. ~~Additional~~Furthermore, ~~risk~~we ~~management~~address ~~processes~~evolving ~~focus on the expanding~~ risks, ~~associated~~including ~~with~~ cybersecurity, regulatory compliance (including BSA/AML), and third -party risk management., Wethrough ~~have~~ a ~~Risk~~dedicated ~~Management~~Board ~~Steering~~Risk Committee ~~comprised~~and ofa senior management ~~and~~Risk ~~other~~Management ~~members~~Committee, ofas ~~management~~well ~~tasked~~as ~~with the review and assessment of risks and mitigants throughout the Bank on an ongoing basis. Additionally,~~ internal review procedures ~~are~~focused ~~performed~~on ~~regarding~~ 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

~~•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 acquisitions, we~~ will ~~continue to~~ 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:

•~~Our~~Strategic Market Reach. ~~The~~We ~~Bank~~serve ~~provides~~ a ~~wide~~diverse ~~range~~client ofbase ~~services~~within ~~to clients in our market, an area encompassing approximately~~ a 100 -mile radius ~~around~~of our branch network., Inoffering ~~addition,~~a ~~the~~comprehensive ~~Bank~~suite ~~pursues~~of ~~certain~~banking ~~types~~services. ofWe also selectively pursue commercial ~~lending~~banking opportunities outside ~~our~~this market, ~~particularly~~leveraging ~~where~~established ~~we have strong~~ business relationships. ~~Our~~and ~~goal~~expanding ~~is to support~~ our ~~clients~~reach asthrough ~~they~~technology. ~~grow,~~This ~~and~~approach ~~with~~allows ~~advances~~us into ~~technology,~~support weour ~~are~~clients’ ~~able~~growth ~~to service~~ and maintain ~~business~~valuable relationships beyond our ~~market~~geographic footprint.

•Experienced ~~and Respected Executive Management Team with a Proven and Successful Track Record~~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 ~~Executive~~Banking Officer (since ~~2015~~2020), Steven H. Brunner, Executive Vice President, Chief Risk ~~and Operations~~ Officer (since ~~January 24,~~ 2024), Christine A. Chivily, Executive Vice President, Chief Credit Officer (since 2013), Ryan J. Hildebrand, Executive Vice President, Chief Innovation Officer (since ~~July 26,~~ 2023), ~~Matthew McNeill, Executive Vice President, Chief Banking Officer (since 2020),~~ and Courtney E. Sacchetti, Executive Vice President, Chief Financial Officer (since ~~January 1,~~ 2023).

•Dedicated Board of Directors ~~with Close Community Ties~~. Our Board of Directors isconsists ~~comprised~~ of aexperienced ~~group of~~ business leaders who understand the need for banks that focus on serving the financial needs of their clients. Their ~~The~~significant ~~interests~~common ofstock ~~our~~ownership ~~executive~~aligns ~~management~~their ~~team~~interests ~~and directors are aligned~~ with those of our shareholders, ~~through common stock ownership. By capitalizing on the business relationships~~ and ~~close~~their ~~community~~combined ~~ties~~expertise ~~of our executive management team~~ and ~~directors,~~relationships weposition ~~are~~us ~~positioned~~ to ~~take~~capitalize ~~advantage~~on ofmarket opportunities ~~present in our market~~.

•~~Strong~~Disciplined ~~Capital~~Risk ~~Position~~Management. At We ~~December~~prioritize ~~31,~~disciplined ~~2023~~risk management, weembedding ~~had~~it ain ~~7.26%~~our ~~tangible~~corporate ~~common~~culture. ~~equity~~Our ~~ratio,~~robust ~~and~~processes ~~the~~monitor ~~Bank~~loan ~~had~~and ainvestment ~~9.81%~~portfolios, ~~tier~~inform 1operational ~~leverage ratio~~decisions, aand ~~11.30%~~support ~~tier~~the 1generation ~~risk~~of high-~~based~~quality ~~ratio,~~earning ~~and~~assets. anWe ~~12.32%~~employ ~~total~~comprehensive ~~capital~~underwriting, toportfolio ~~risk-weighted~~diversification, ~~assets~~and ~~ratio.~~a Weconservative ~~believe~~investment ~~that~~strategy. ~~our~~Oversight ~~ability~~includes toBoard-approved ~~attract~~policies, ~~and~~a ~~generate~~Board-level ~~capital~~Risk ~~has~~Committee, ~~facilitated~~and ~~our~~a ~~growth~~senior ~~and~~management isRisk anManagement ~~integral~~Committee, ~~component~~along towith ~~the~~internal ~~execution~~reviews offor ~~our~~compliance ~~business~~and ~~plan~~anti-money laundering.

•~~Scalable~~Strong ~~Operating~~Capital ~~Platform~~Position. WeAt ~~provide~~December ~~banking~~31, ~~technology~~2024, ~~including~~we ~~online~~had ~~account~~a ~~opening,~~8.20% ~~mobile~~tangible ~~and~~common ~~internet~~equity ~~banking~~ratio, and ~~remote~~the ~~deposit~~Bank ~~capture~~had toa ~~offer~~10.09% ~~our~~tier ~~clients~~1 ~~maximum~~leverage ~~flexibility~~ratio, ~~and~~a to11.64% ~~create~~tier a1 ~~scalable~~risk-based ~~platform~~ratio, toand ~~accommodate~~an ~~our~~12.70% ~~future~~total ~~growth~~capital ~~aspirations~~to risk-weighted assets ratio. We believe that our ~~advanced~~ability ~~technology~~to ~~combined~~attract ~~with responsive~~ and ~~personal~~generate ~~service~~capital ~~provides~~has facilitated our ~~clients~~growth ~~with~~and is an ~~exceptional~~integral ~~banking~~component ~~experience~~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, ~~2023~~2024, we employed a total of ~~126~~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 ~~environments~~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.

Company Website and Availability of Securities and Exchange Commission Filings

Information regarding the Company is available through the Investor Relations site link at ~~www~~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 ~~segments~~components of our business. Many of these competitors have more assets, capital and higher lending limits, and more resources than we do, ~~and~~enabling ~~may~~them ~~be able~~ 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.

WeWhile ~~focus~~many competitors possess greater scale and resources, our ~~marketing~~strategy ~~efforts~~focuses on areas where we excel: serving small to medium-sized businesses and professionals. We ~~attract~~leverage ~~these~~deep ~~clients~~local ~~based~~market onknowledge ~~relationships~~ and ~~contacts~~established ~~that~~relationships cultivated by our management and ~~our~~board ~~Board~~ of ~~Directors~~directors ~~have~~to ~~within~~build ~~and~~strong ~~beyond~~client ~~the market area~~connections. WeOur dopersonalized ~~not~~service, ~~expect~~local todecision-making, ~~compete~~and ~~with~~specialized ~~large~~industry ~~institutions~~expertise ~~for~~differentiate ~~the~~us ~~primary~~from ~~banking~~larger ~~relationships~~institutions ofand ~~large~~resonate ~~corporations.~~strongly ~~Many~~within of our ~~larger~~target ~~commercial~~market. ~~bank~~We ~~competitors have greater name recognition and offer certain services that we~~ do not; ~~however,~~seek weto ~~believe~~compete ~~that~~directly ~~our~~for ~~presence~~the inprimary ~~our~~banking ~~market~~relationships ~~area~~of ~~and~~large ~~focused~~corporations, ~~industry~~instead ~~sectors~~concentrating ~~with~~on ~~attention to~~ providing superior service isand ~~instrumental~~tailored solutions to our ~~success~~core client base.

We emphasize personalized banking services and the advantage of local decision-making in our banking businesses, and this emphasis has been well received by the public in our market area.

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. WeOur ~~target our~~ business development and marketing strategy is primarily focused on small to medium-sized businesses. Our relationship managers actively solicit ~~the~~ business offrom companies entering our market areas as well as ~~long-standing~~established businesses operating inwithin the communities we serve. We ~~seek to~~ attract new lending clients through professional service, relationship networks, competitive pricing and innovative structure, including the utilization of federal and state tax incentives. Weand ~~pride~~lending ~~ourselves~~programs onsuch ~~smart,~~as ~~proficient~~the ~~underwriting~~SBA ~~and~~loan ~~timely~~programs. ~~decision~~Our ~~making~~efficient ~~for~~approval ~~new~~structure ~~loan~~and ~~requests~~local ~~due~~decision-making allow us to ~~our~~provide ~~efficient~~smart, ~~approval~~proficient ~~structure~~underwriting and ~~local~~timely ~~decision-making.~~decisions Weon ~~believe~~new ~~this~~loan ~~gives~~requests. usThis agility provides a competitive advantage over larger institutions ~~that are not as nimble~~.

Total loans before deferred loan fees and the ACL-Loans were $2.7 billion at December 31, ~~2023~~2024. The following tables summarize the composition of our loan portfolio for the dates indicated.

	At December 31,
	2023		2022		2021		2020		2019
	2024		2023		2022		2021		2020
	(In thousands)
Real estate loans:
Residential	$	5042,~~931~~766	$	6050,~~588~~931	$	7960,~~987~~588	$	~~113~~79,~~557~~987	$	~~147~~113,~~109~~557
Commercial	1,~~947~~899,~~648~~134		1,~~921~~947,~~252~~648		1,~~356~~921,~~709~~252		1,~~148~~356,~~383~~709		1,~~128~~148,~~614~~383
Construction	~~183~~173,~~414~~555		~~155~~183,~~198~~414		98155,~~341~~198		8798,~~007~~341		9887,~~583~~007
	2,181,993		2,137,038		1,535,037		1,348,947		1,374,306
	2,115,455		2,181,993		2,137,038		1,535,037		1,348,947
Commercial business	~~500~~515,~~569~~125		~~520~~500,~~447~~569		~~350~~520,~~975~~447		~~276~~350,~~601~~975		~~230~~276,~~028~~601
Consumer	3675,~~045~~308		1736,~~963~~045		817,~~869~~963		798,869		~~150~~79
Total loans	$	2,~~718~~705,~~607~~888	$	2,~~675~~718,~~448~~607	$	12,~~894~~675,~~881~~448	$	1,~~625~~894,~~627~~881	$	1,~~604~~625,~~484~~627

	At December 31,
	Percent of Loan Portfolio
	2023		2022		2021		2020		2019
	2024		2023		2022		2021		2020
Real estate loans:
Residential	1.8758	%	21.2787	%	42.2227	%	64.9922	%	96.1799	%
Commercial	7170.6419		71.8164		71.6081		7071.6460		70.3464
Construction	6.7541		56.8075		5.1980		5.3519		65.1435
	80.26		79.88		81.01		82.98		85.65
	78.18		80.26		79.88		81.01		82.98
Commercial business	1819.4104		1918.4541		1819.5245		1718.0252		1417.3402
Consumer	12.3378		01.6733		0.4767		—0.47		~~0.01~~—
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 ~~having been made~~, 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.

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 ~~consumer~~residential real estate and consumer loan portfolios.

Consumer loans. As of December 31, ~~2023~~2024, our consumer loans represented 12.38% 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, ~~subject~~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 ~~unsecured~~ 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 ~~equity~~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

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 $4348.01 million to $9294.0 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.

~~Response~~Bankwell’s response to the current economic environment’s impact on commercial real estate. InGiven ~~response~~our toconcentration ~~the~~of loans secured by commercial real estate and current economic ~~environment~~conditions, inincluding ~~2023~~factors such as elevated interest rates and changing demand for office space, management has adopted the ~~Company~~following:

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

•added resources in the Portfolio Management Department;

•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

•~~expanded~~enhanced ~~the scope of~~ our ~~third-party~~covenant ~~loan~~tracking ~~review~~and ~~from~~reporting ~~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~~Directors ~~balance~~Loan ~~is greater than one million dollars, and all loans with addresses in New York City;~~Committee.

~~•enhanced~~In ~~our~~addition ~~covenant~~to ~~tracking~~the enhancements made to monitoring and reporting, the Company has added resources to ~~the~~its ~~Directors~~Portfolio ~~Loan~~Management ~~Committee;~~and Credit Departments.

•conducted a detailed review of every general office loan in our portfolio. As of December 31, 2023, the Bank had $193.0 million of loans collateralized by offices, which represented 7.1% of the total loan portfolio. Most of the properties in this portfolio are in suburban locations, including all the New York State properties, which are all located

in Westchester County. 96.9% of this portfolio was pass rated, and there were two relationships totaling $6.0 million on nonaccrual status; and

•performed an additional review of our multifamily exposure. As of December 31, 2023, we had $257.5 million of loans collateralized by multifamily properties, which represented 9.5% of the total loan portfolio. 100% of the portfolio is pass rated. These properties are all located in Connecticut, New York, or New Jersey, with the majority in suburban locations. Nine properties totaling $52.3 million, with an average balance of $5.8 million, are in New York City.

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 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.

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. ~~We believe that our emphasis on risk management is manifested in our historically solid asset quality statistics.~~ The Company’s existing governance and organizational structure incorporates a substantial risk management component through the following:

•~~The~~A ~~retention~~Risk Committee comprised of andirectors ~~independent~~of ~~firm~~the ~~(separate~~Company ~~from~~charged with oversight of the Company’s ~~auditors)~~overall ~~that~~enterprise ~~performs~~risk ~~internal~~management ~~audit~~framework, ~~reviews~~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), ~~Audit Committee (regulatory~~ and ~~compliance),~~Audit ~~and Technology~~ Committee (~~information security and cybersecurity~~financial);

~~•Outsourcing of our asset/liability calculations to a reputable third party, including a quarterly assessment of interest rate risk, reviewed and validated by ALCO;~~8

•A Risk Management ~~Steering~~ Committee comprised of senior management, which provides risk management oversight and is chaired by our Chief Risk ~~and~~Officer, ~~Operations~~who ~~Officer.~~has direct accountability to the Board Risk Committee;

•Operational Risk ~~management~~and ~~with~~Compliance ~~respect~~Working toGroups, ~~our~~comprised ~~lending~~of ~~philosophy~~senior ~~focuses~~management, ~~among~~to ~~other things~~identify, ~~on structuring credits to provide for multiple sources of repayment~~assess, ~~coupled with strong underwriting by experienced relationship managers~~manage, ~~lending~~ and ~~credit~~mitigate ~~management.~~operational Werisks ~~perform~~across ~~quarterly~~the 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 lossesCompany. InThe ~~addition,~~groups weenhance ~~perform an annual stress test of our commercial loan portfolio, in which we evaluate~~ the ~~impact~~Company’s onoperational ~~the~~risk ~~portfolio of declining property values~~ and ~~lower~~compliance ~~net~~framework ~~operating~~by ~~incomes~~ensuring ascompliance awith ~~result~~regulatory ~~of economic conditions~~requirements, ~~including~~evidence ~~lower~~risk ~~rental~~performance ~~rates~~relative ~~and~~to ~~lower occupancy rates. The stress test focuses only on~~ the ~~cash~~Company’s ~~flow~~risk ~~and valuation of the properties or businesses and ignores the liquidity~~appetite, ~~net worth~~ and ~~cash~~promote ~~flow~~a culture of ~~any~~risk ~~guarantors related to the credits.~~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.

Dodd-Frank Act

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), which was enacted in 2010, has significantly changed the current bank regulatory structure and continues to affect the lending and investment activities and general operations of depository institutions and their holding companies.

The Dodd-Frank Act created the Consumer Financial Protection Bureau with extensive powers to implement and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad rulemaking authority for a wide range of consumer protection laws that apply to all banks and savings associations including, among other things, the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Consumer Financial Protection Bureau has examination and enforcement authority over all banks and savings associations with more than $10 billion in assets. Banks and savings associations with $10 billion or less in assets will continue to be examined for compliance with federal consumer protection and

~~fair lending laws by their applicable primary federal bank regulators. The~~ Dodd-Frank Act ~~also gives state attorneys general certain authority to enforce applicable federal consumer protection laws.~~

The Dodd-Frank ~~Act~~Wall ~~made~~Street ~~many~~Reform ~~changes~~and toConsumer ~~banking~~Protection ~~regulations~~Act ~~including authorizing depository institutions, for~~ (the ~~first~~"Dodd-Frank ~~time~~Act"), toenacted ~~pay~~in ~~interest on business checking accounts~~2010, ~~requiring~~significantly ~~originators~~changed ~~of securitized loans to retain a percentage of~~ the ~~risk~~existing ~~for~~bank ~~transferred loans, establishing~~ regulatory ~~rate-setting for certain debit card interchange fees~~structure, ~~establishing~~affecting athe ~~number~~lending ofand ~~reforms~~investment ~~for~~activities ~~mortgage originations, requiring bank holding companies~~ and ~~banks~~general tooperations beof ~~“well~~depository ~~capitalized”~~institutions 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 locationcompanies.

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”), ~~which was~~ 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 ~~increased~~has ~~the~~eased ~~consolidated~~certain ~~assets~~reporting ~~threshold~~and ~~from~~debt $1requirements ~~billion to $3 billion~~ for ~~insured~~banks ~~depository~~under ~~institutions that qualify for an 18-month on-site exam cycle. Consistent with this statutory amendment, in August 2018, the federal banking agencies increased, from~~ $~~1 billion to $~~3 billion, ~~the~~as ~~total~~detailed ~~asset~~in threshold under which an agency may apply an 18-month examination cycle for qualified institutions that have an "outstanding" or "good" composite rating. In addition, the FRB raised the asset threshold under its Small Bank Holding Company Policy Statement. Bank and savings and loan holding companies with total assets up to $3 billion are permitted to have debt levels higher than would be permitted for larger holding companies, provided that such companies meet certain other conditions such as not engaging in significant nonbanking activities and not having a material amount of debt or equity securities outstanding that are registered with the Securities and Exchange Commission. 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 ~~will~~became be 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. ~~On June 17, 2019, the federal banking agencies issued final rules to implement those streamlined reporting requirements.~~

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.

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. The list of activities permitted by the FRB includes, among other things: (1) operating a savings institution, mortgage company, finance company, credit card company or factoring company; (2) performing certain data processing operations; (3) providing certain investment and financial advice; (4) underwriting and acting as an insurance agent for certain types of credit-related insurance; (5) leasing property on a full-payout, non-operating basis; (6) selling money orders, travelers’ checks and United States savings bonds; (7) real estate and personal property appraising; (8) providing tax planning and preparation services; (9) financing and investing in certain community development activities; and (10) subject to certain limitations, providing securities brokerage services for clients.

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. ~~As discussed above, the FRB’s Small Bank Holding Company Policy Statement includes provisions regulating the payment of dividends by companies subject to that policy statement.~~

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 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. As discussed above, the FRB’s Small Bank Holding Company Policy Statement includes provisions regulating stock redemptions by companies subject to that policy statement, including when such notice requirements apply.

Federal Bank Regulation

Safety and Soundness. 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 ~~new~~ minimum common equity Tier 1 capital requirement of 4.5% of risk-weighted assets; set the minimum leverage ratio at 4% of total assets; increased the minimum Tier 1 capital to risk-weighted assets requirement from 4% to 6%; and retained the minimum total capital to risk weighted assets requirement at 8.0%. 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.

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.

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.

Liquidity. We are required to maintain a sufficient amount of liquid assets to ensure our safe and sound operation.

The final Basel III framework also requires banks and bank holding companies to measure their liquidity against specific liquidity tests. Although similar in some respects to liquidity measures historically applied by banks and banking agencies for management and supervisory purposes, the Basel III framework requires specific liquidity tests by rule.

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 ~~2023~~2024 and ~~2022~~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.

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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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.

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.

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. We have not submitted notice to the FRB of intent to be deemed a financial holding company. However, we are not precluded from submitting a notice in the future should we wish to engage in activities only permitted to financial holding companies.15

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.

~~purpose~~On September 29, ~~directs~~2022, FinCEN tofinalized ~~establish~~the ~~and~~first ~~maintain~~of athree ~~national~~proposed ~~registry~~rules ofto implement changes to the beneficial ownership ~~information~~requirements ~~for~~and ~~corporate~~related ~~entities~~amendments ~~(generally,~~set ~~subject~~forth toin ~~certain~~the ~~exemptions,~~CTA ~~any~~(the ~~corporation,~~“BOI ~~limited~~Reporting ~~liability~~Rule”). The ~~company,~~BOI orReporting ~~other~~Rule, ~~similar~~which ~~entity~~became ~~with~~effective 20on orJanuary ~~fewer~~1, ~~employees~~2024, ~~and~~prescribes ~~annual~~which ~~gross~~corporate ~~income~~entities ofcreated $5in ~~million~~ or ~~less).~~registered ~~Reporting~~to ~~companies~~do ~~subject~~business toin the ~~CTA~~U.S. ~~are~~will be required to ~~provide~~report ~~specific~~beneficial ownership information ~~with~~(“BOI”) ~~respect~~directly to ~~beneficial~~FinCEN. On ~~owner(s)~~December -21, ~~defined~~2023, asFinCEN anissued ~~individual~~a ~~who~~final rule, ~~directly~~effective oron ~~indirectly~~February 20, ~~exercises~~2024, ~~substantial~~(the ~~control~~“Access ~~over~~Rule”), which prescribes the ~~entity~~circumstances orunder ~~owns~~which orBOI ~~controls~~reported ~~not~~to ~~less~~the ~~than~~FinCEN ~~25%~~registry ofmay ~~the~~be ~~ownership~~disclosed ~~interests~~to ofvarious ~~the~~government ~~entity~~agencies -and atto ~~the~~financial ~~time~~institutions ofusing ~~formation~~BOI ~~(or~~to byfacilitate ~~December~~compliance ~~31,~~with ~~2024~~regulatory ~~for~~customer ~~existing~~due ~~entities)~~diligence requirements and ~~upon~~how aBOI ~~change~~must inbe ~~ownership~~protected. Under ~~Non-~~the Access Rule, FinCEN may disclose BOI to a financial institution to facilitate compliance with ~~FinCEN~~customer ~~regulations~~due ~~promulgated~~diligence requirements under ~~the~~applicable ~~CTA~~law, ~~may~~provided ~~result~~the inrelevant ~~civil~~reporting ~~fines~~company ashas ~~well~~consented asto ~~criminal~~such ~~penalties~~disclosure. On ~~March~~The 1,Access ~~2024,~~Rule anrequires ~~Alabama~~financial ~~federal~~institutions ~~court~~that ~~ruled~~obtain BOI from FinCEN to develop and implement administrative, intechnical, aand ~~lawsuit~~physical ~~brought~~safeguards byreasonably ~~the~~designed ~~National~~to ~~Small~~protect ~~Business~~the ~~Association~~information, but provides that such institutions will be able to satisfy this requirement by apply to BOI the ~~CTA~~same ~~was~~security ~~unconstitutional~~and ~~because~~information ithandling ~~exceeds~~procedures the ~~Constitution~~use to protect customer’s ~~limits~~nonpublic onpersonal ~~Congress’~~information ~~power~~in compliance with the GBLA. On December 21, 2023, federal and ~~enjoined~~state bank regulators issued an Interagency Statement that states that the ~~government~~Access ~~from~~Rule ~~enforcing~~does not create a new regulatory requirement for banks to access BOI from the CTA ~~against~~registry, create a supervisory expectation that they do so or necessitate changes to BSA/AML compliance programs designed to comply with the ~~named~~existing ~~plaintiffs~~Customer Due Diligence rule (the “current CDD Rule”) and other existing BSA requirements, such as customer identification program requirements and suspicious activity reporting. ~~The~~FinCEN ~~Department~~stated ofthat ~~Justice~~it plans to issue a third rule, which has not yet been proposed, that is expected to ~~appeal~~revise the ~~decision.~~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 ~~September~~June 2928, 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~~announced ~~21, 2023, FinCEN issued~~ a ~~final~~proposed rule, ~~effective on February 20, 2024, (the “Access Rule”), which prescribes the circumstances under which BOI reported~~ to ~~the~~strengthen ~~FinCEN registry may be disclosed to various government agencies~~ and tomodernize financial institutions’ ~~using~~anti-money ~~BOI~~laundering ~~to facilitate compliance with regulatory customer due diligence requirements~~ and ~~how~~countering ~~BOI must be protected. Under~~ the ~~Access~~financing ~~Rule,~~of ~~FinCEN~~terrorism ~~may~~(AML/CFT) ~~disclose~~programs. ~~BOI~~While ~~to a~~ financial ~~institution~~institutions tohave ~~facilitate~~long ~~compliance~~maintained ~~with~~AML/CFT ~~customer~~programs ~~due diligence requirements~~ under ~~applicable~~existing ~~law~~regulations, ~~provided~~this ~~the~~proposed ~~relevant~~rule ~~reporting~~would ~~company~~amend ~~has~~those ~~consented~~regulations to ~~such~~explicitly ~~disclosure.~~require ~~The Access Rule requires financial institutions~~ that ~~obtain~~such ~~BOI~~programs ~~from~~be ~~FinCEN to develop and implement administrative~~effective, ~~technical~~risk-based, and ~~physical safeguards~~ reasonably designed towith ~~protect~~certain ~~the~~minimum ~~information~~components, ~~but~~including ~~provides~~a ~~that~~mandatory ~~such~~risk ~~institutions~~assessment ~~will~~process ~~be able to satisfy this requirement by apply to BOI the same security~~ and ~~information~~also ~~handling~~require ~~procedures~~financial ~~the~~institutions ~~use~~ to ~~protect~~review ~~customer’s~~government-wide 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 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/CFT ~~compliance~~priorities ~~programs designed to comply with the existing Customer Due Diligence rule (the “current CDD Rule”)~~ and ~~other~~incorporate ~~existing BSA requirements~~them, ~~such~~ as ~~customer~~appropriate, ~~identification~~into ~~program~~their ~~requirements~~risk-based ~~and suspicious activity reporting~~programs. ~~FinCEN~~ ~~plans~~The toproposed ~~issue a third~~ rule, ~~which has not yet been proposed, that~~ is ~~expected~~intended to ~~revise~~encourage ~~the~~financial ~~current~~institutions ~~CDD Rule~~ to ~~bring~~modernize ittheir ~~into~~AML/CFT ~~conformity~~programs ~~with~~where ~~the~~appropriate ~~CTA~~to asresponsibly ~~well as reduce any burdens on financial institutions and legal entity customers that are~~innovate, inwhile ~~light~~still ofmanaging ~~the~~illicit ~~CTA,~~finance ~~unnecessary or duplicative~~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 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, 2023, we had $1.6 million of net operating loss carryforwards for federal income tax purposes. The carryovers were transferred to the Company upon the merger with The Wilton Bank in 2014.17

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 ~~new~~ excise tax ~~is effective as of January 1, 2023 and~~ generally applies to any US corporation whose stock is traded on an established securities market and that repurchases more than $1 million of stock over the course of a tax year.

The Company and the Bank are not currently under audit with respect to their federal tax returns.

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, ~~2023~~2024 and ~~2022~~2023) to arrive at Connecticut income tax. WeIn ~~are~~addition ~~also~~to Connecticut state income tax, we are subject to ~~state~~ income tax in other states asdue ato ~~result~~business activities conducted therein, including the employment of ~~loan~~personnel ~~originations~~and ~~made~~the inorigination ~~other~~of ~~states~~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 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.

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 ~~loan~~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, ~~2023~~2024, our five largest relationships ranged in exposure from approximately $8580.0 million to $9294.0 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-~~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.~~

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 ~~loan~~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.

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 ~~many~~numerous factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies ~~and~~, inmost ~~particular,~~notably the FRB. ~~During~~through the ~~2022-2023~~Federal ~~cycle,~~Open ~~the~~Market ~~FRB~~Committee. ~~increased~~Beginning ~~the~~in ~~target~~2022, ~~range~~the ~~for~~FRB ~~the~~initiated ~~federal~~an ~~funds~~aggressive ~~rate~~monetary 11tightening ~~times~~cycle to ~~slow~~combat rising inflation, ~~but~~resulting ~~has~~in ~~held~~a ~~such~~significant ~~rates~~and ~~steady~~rapid atincrease ~~5.25%-5.50%~~in ~~since~~the ~~July~~federal ~~2023,~~funds ~~citing~~rate. ~~several~~This ~~factors,~~tightening ~~including~~cycle ~~reduced~~culminated ~~inflationary~~in ~~pressure~~the ~~and~~target ~~steady~~federal ~~job~~funds ~~and~~rate ~~wage growth.~~

Changes in monetary policy, including changes in interest rates, influences not only the interest we receive on loans and securities and the interest we pay on deposits and borrowings, but such changes could also affect our ability to originate loans and obtain deposits, the fair value of our financial assets and liabilities, and the average duration of our assets. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, our net interest income, and therefore net income, could be adversely affected. A prolonged period of extremely volatile and unstable market conditions may increase our funding costs and negatively affect market risk mitigation strategies. Further, any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on our business, financial condition, results of operations and future prospects.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 ~~segments~~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.

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, ~~artificial intelligence,~~ 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.

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. ~~Such~~These ~~activity~~activities ~~may~~can ~~take~~manifest in many forms, including check fraud, electronic fraud, wire fraud, phishing, social engineering, and other dishonest acts. The increasing sophistication of fraudulent activity ~~from possible perpetrators~~ 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~~Any of ~~which~~these outcomes could have an adverse effect on our results of operation and financial condition. To mitigate ~~this~~these ~~risk~~risks, we maintain effective policies and internal controls, ~~along~~leverage ~~with~~technology, and provide ongoing employee training tofocused ~~identify~~on identifying and ~~prevent~~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.

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.

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~~, and the United States has entered into international agreements in an attempt to reduce global temperatures, such as the Paris Agreement~~. 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. Similar and even more expansive initiatives are expected under the current administration, including potentially increasing supervisory expectations with respect to banks’ risk management practices, accounting for the effects of climate change in stress testing scenarios and systemic risk assessments, revising expectations for credit portfolio concentrations based on climate-related factors and encouraging investment by banks in climate-related initiatives and lending to communities disproportionately impacted by the effects of 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.

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.

Pursuant to the Economic Relief Act, the Federal Reserve Board raised the asset threshold under its Small Bank Holding Company Policy Statement from $1 billion to $3 billion for bank or savings and loan holding companies are permitted to have debt levels higher than would be permitted for larger holding companies, provided that such companies meet certain other conditions such as not engaging in significant nonbanking activities. 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 will be subject to the larger company capital requirements as set forth in the Economic Growth Act.

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 ~~cause~~causes us to incur increased expenses and adiverts ~~diversion of~~ 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.

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.

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.

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 ~~Technology~~Risk Committee of the Board of Directors provide oversight of Company cybersecurity risks. The ~~Technology~~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 ~~Technology~~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 ~~nine~~ten years in various information technology leadership roles. Our CIO holds a Bachelor of Science in Information Technology. The Company’s ~~ISO~~Chief Security Officer ("CSO") reports to the Chief Risk ~~and Operations~~ Officer and oversees the Company’s information security programs. The ~~Company’s~~CSO ~~ISO~~ possesses over 20 years of Information Security and Technology experience. The ISO holds a Bachelor of Science in Computer Systems Engineering, an MBA, and a Master of Science in Information Security and Assurance, as well as multiple industry certifications including CISSP, CISM, CISA, CRISC, CDPSE, PMP, among others.

Our Risk Management ~~Steering~~ Committee, which includes the Company’s Chief Risk ~~and Operations~~ Officer (Chair), ~~CIO~~Director of Risk Management and ~~ISO~~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.

Both the CIO and CSO regularly report to the Board's Risk Committee on the Company’s ~~internal~~identification, ~~audit~~prevention, ~~function~~detection, ~~also~~mitigation ~~performs~~and ~~independent~~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 ~~validation~~risks during the course of the ~~program~~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 ~~policies~~the finance, compliance, and ~~procedures~~legal asfunctions. ~~determined~~In bythe ~~their~~event ~~annual~~of ~~risk~~a ~~assessment~~potentially material cybersecurity incident, the Risk Committee would be immediately notified and briefed.

~~Both~~In ~~the~~January ~~CIO and ISO regularly report to the Technology Committee on the Company’s identification~~2025, ~~prevention, detection, mitigation and remediation of cybersecurity risks and incidents. In 2023,~~ the ~~Board reviewed the~~ Company’s ~~cybersecurity~~hired ~~program~~a ~~and~~Chief ~~maturity assessment, while the~~ Technology ~~Committee~~Officer ~~and Audit Committee provided regular oversight of cybersecurity risks~~("CTO"), ~~with~~who ~~cybersecurity~~oversees ~~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 ISO, along with the Company~~’s ~~senior~~information ~~leadership,~~technology ~~including~~programs ~~the finance, compliance,~~ and ~~legal functions~~investments. InThe ~~the~~CTO ~~event~~now ofencompasses athe ~~potentially~~responsibilities ~~material~~previously ~~cybersecurity~~held ~~incident,~~by the ~~Technology~~Chief ~~Committee~~Information ~~and Audit Committee would be immediately notified and briefed~~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. On April 24, 2023, the Bank established a new retail branch located at 300 Atlantic Street, Stamford, CT. This replaced the branch located at 612 Bedford Street, Stamford, CT, which closed on April 21, 2023.

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.

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 ~~251~~241 shareholders of record of BWFG Common Stock as of December 31, ~~2023~~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, ~~2023~~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, 2023 - October 31, 2023	—	$	—	—	150,188
October 1, 2024 - October 31, 2024	—	$	—	—	250,000
November 1, 2023 - November 30, 2023	—	—		—	150,188
November 1, 2024 - November 30, 2024	—	—		—	250,000
December 1, 2023 - December 31, 2023	—	—		—	150,188
December 1, 2024 - December 31, 2024	—	—		—	250,000
Total	—	$	—	—	~~150~~250,~~188~~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. ~~The~~On ~~Company~~October ~~may repurchase shares in open market transactions or by other means~~27, ~~such as privately negotiated transactions. The timing~~2021, ~~price~~the ~~and~~Company's ~~volume~~Board of ~~repurchases~~Directors ~~will~~authorized bethe ~~based~~repurchase onof ~~market~~an ~~conditions~~additional 200,000 ~~relevant~~shares ~~securities~~under ~~laws~~the ~~and~~Prior ~~other factors~~Plan. ~~The~~To ~~share~~date, ~~repurchase plan does not obligate~~ the Company tohas ~~acquire~~purchased ~~any~~535,802 ~~particular~~shares ~~amount~~ of ~~Common Stock, and it may be modified or suspended at any time at~~ the Company'’s ~~discretion.~~common Onstock ~~October~~pursuant ~~27,~~to ~~2021,~~ the ~~Company's~~Prior ~~Board of Directors authorized the repurchase of an additional 200,000 shares under its existing share repurchase program~~Plan.

~~Subsequent~~On toOctober ~~December~~28, 312024, ~~2023~~the ~~through~~Company ~~March 11~~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 ~~purchased~~is 17authorized to purchase up to 250,~~239~~000 shares of its ~~Common~~outstanding ~~Stock~~common atstock. aIn ~~weighted~~connection ~~average~~with ~~price~~the authorization of ~~$25.12~~the ~~per~~New ~~share~~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]

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, ~~2023~~2024 and ~~2022~~2023 and the selected consolidated statement of income data for the years ended December 31, ~~2023~~2024 and ~~2022~~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, ~~2021~~2022, ~~2020~~2021, and ~~2019~~2020 and the selected consolidated statement of income data for the years ended December 31, ~~2021~~2022, ~~2020~~2021, and ~~2019~~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.

Selected Financial Data

	At or For the Years Ended December 31,
	2023			2022			2021			2020(g)			2019
	2024			2023			2022			2021			2020(f)
	(Dollars in thousands, except per share data)
Statements of Income:
Interest income	$	~~188~~191,~~454~~994		$	~~117~~188,~~945~~454		$	81117,~~376~~945		$	7781,~~487~~376		$	8277,~~948~~487
Interest expense	93108,~~986~~712			2393,~~202~~986			1323,~~490~~202			2213,~~652~~490			2922,~~187~~652
Net interest income	9483,~~468~~282			94,~~743~~468			6794,~~886~~743			5467,~~835~~886			5354,~~761~~835
Provision (credit) for loan losses	866			5,437			(57)			7,605			437
Provision (credit) for credit losses	22,620			866			5,437			(57)			7,605
Net interest income after provision for loan losses	93,602			89,306			67,943			47,230			53,324
Net interest income after provision for credit losses	60,662			93,602			89,306			67,943			47,230
Noninterest income	43,~~842~~718			34,~~040~~842			53,~~657~~040			25,~~884~~657			52,~~244~~884
Noninterest expense	5051,~~401~~051			4450,~~363~~401			3944,~~739~~363			4239,~~813~~739			3542,~~626~~813
Income before income tax	4813,~~043~~329			4748,~~983~~043			3347,~~861~~983			733,~~301~~861			227,~~942~~301
Income tax expense	113,~~380~~559			1011,~~554~~380			710,~~275~~554			17,~~397~~275			41,~~726~~397
Net income	369,~~663~~770			3736,~~429~~663			2637,~~586~~429			526,~~904~~586			185,~~216~~904
Per Share Data:
Basic earnings per share	$	41.7124		$	4.8471		$	34.3884		$	03.7538		$	20.3275
Diluted earnings per share	$	41.6723		$	4.7967		$	34.3679		$	03.7536		$	20.3175
Book value per share (end of period)(a)	3435.8443			3134.7384			2631.5373			2226.7753			2322.5177
Tangible book value per share (end of period)(a)(b)	3435.5009			3134.3950			2631.1939			2226.4319			2322.1543
Dividend payout ratio(f)	17.13		%	16.70		%	19.05		%	74.67		%	22.51		%
Dividend payout ratio(b)(e)	65.04		%	17.13		%	16.70		%	19.05		%	74.67		%
Shares outstanding (end of period)(a)	7,~~628~~635,~~288~~998			7,~~516~~628,~~699~~288			7,~~612~~516,~~807~~699			7,~~755~~612,~~909~~807			7,~~757~~755,~~828~~909
Weighted average shares outstanding–basic	7,~~587~~710,~~768~~076			7,~~563~~587,~~363~~768			7,~~706~~563,~~407~~363			7,~~728~~706,~~328~~407			7,~~757~~728,~~355~~328
Weighted average shares outstanding–diluted	7,~~647~~737,~~411~~952			7,~~640~~647,~~218~~411			7,~~761~~640,~~811~~218			7,~~748~~761,~~453~~811			7,~~784~~748,~~631~~453
Performance Ratios:
Return on average assets(c)	1.13		%	1.44		%	1.17		%	0.28		%	0.97		%
Return on average assets(b)	0.31		%	1.13		%	1.44		%	1.17		%	0.28		%
Return on average common shareholders’ equity(b)	143.5560		%	1614.7255		%	1316.8672		%	313.3586		%	103.2035		%
Average shareholders’ equity to average assets	78.7448		%	87.6174		%	8.4661		%	8.3646		%	98.5336		%
Net interest margin	2.98		%	3.78		%	3.17		%	2.77		%	3.03		%
Net interest margin(b)	2.70		%	2.98		%	3.78		%	3.17		%	2.77		%
Efficiency ratio(b)	5057.89		%	4550.48		%	5345.94		%	7353.9		%	6073.29		%
Asset Quality Ratios:
Total past due loans to total loans(d)	0.78		%	0.60		%	1.72		%	0.93		%	0.77		%
Total past due loans to total loans(c)	1.63		%	0.78		%	0.60		%	1.72		%	0.93		%
Nonperforming loans to total loans(d)	1.81		%	0.61		%	0.88		%	2.06		%	0.66		%
Nonperforming loans to total loans(c)	1.97		%	1.81		%	0.61		%	0.88		%	2.06		%
Nonperforming assets to total assets(e)	1.53		%	0.51		%	0.68		%	1.48		%	0.56		%
Nonperforming assets to total assets(d)	1.88		%	1.53		%	0.51		%	0.68		%	1.48		%
ACL-Loans to nonperforming loans	5654.7945		%	~~136~~56.4379		%	~~101~~136.9043		%	62101.8790		%	~~127~~62.5987		%
ACL-Loans to total loans(d)	1.03		%	0.84		%	0.89		%	1.29		%	0.84		%
ACL-Loans to total loans(c)	1.07		%	1.03		%	0.84		%	0.89		%	1.29		%
Net charge-offs (recoveries) to average loans(d)	0.03		%	—		%	0.23		%	0.01		%	0.15		%
Net charge-offs (recoveries) to average loans(b)(g)	0.81		%	0.03		%	—		%	0.23		%	0.01		%
Statements of Financial Condition:
Total assets	$	3,~~215~~268,~~482~~476		$	3,~~252~~215,~~449~~482		$	23,~~456~~252,~~264~~449		$	2,~~253~~456,~~747~~264		$	12,~~882~~253,~~182~~747
Gross portfolio loans(d)	2,718,607			2,675,448			1,894,881			1,625,627			1,604,484
Gross portfolio loans(c)	2,705,888			2,718,607			2,675,448			1,894,881			1,625,627
Investment securities	~~127~~146,~~623~~099			~~121~~127,~~634~~623			~~108~~121,~~409~~634			~~106~~108,~~890~~409			~~100~~106,~~865~~890
Deposits	2,~~736~~787,~~757~~570			2,~~800~~736,~~818~~757			2,~~123~~800,~~998~~818			12,~~827~~123,~~316~~998			1,~~491~~827,~~903~~316
FHLB borrowings	90,000			90,000			5090,000			~~175~~50,000			~~150~~175,000
Subordinated debt	69,~~205~~451			6869,~~959~~205			3468,~~441~~959			2534,~~258~~441			25,~~207~~258
Total equity	~~265~~270,~~752~~520			~~238~~265,~~469~~752			~~201~~238,~~987~~469			~~176~~201,~~602~~987			~~182~~176,~~397~~602
Capital Ratios:
Tier 1 capital to average assets
Bankwell Bank	910.8109		%	9.8881		%	9.9488		%	89.4494		%	108.9944		%
Tier 1 capital to risk-weighted assets
Bankwell Bank	11.3064		%	1011.2830		%	1110.1828		%	11.0618		%	1211.5306		%
Total capital to risk-weighted assets
Bankwell Bank	12.3270		%	1112.0732		%	1211.0007		%	12.2800		%	1312.3528		%
Total shareholders’ equity to total assets	8.2628		%	78.3326		%	87.2233		%	78.8422		%	97.6984		%
Tangible common equity ratio(b)	8.1920		%	78.2619		%	87.1326		%	78.7313		%	97.5673		%

(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 ~~based~~using onthe ~~net~~principal ~~income~~amounts ~~before~~outstanding ~~preferred~~on ~~stock dividend~~loans.

(d)~~Calculated~~Nonperforming ~~using~~assets ~~the~~consist ~~principal~~of ~~amounts~~nonperforming ~~outstanding~~loans onand ~~loans~~other real estate owned.

(e)~~Nonperforming~~The ~~assets~~dividend ~~consist~~payout ofratio ~~nonperforming~~is ~~loans~~the ~~and~~dividends ~~other~~per ~~real~~share ~~estate~~divided ~~owned~~by diluted earnings per share.

(f)~~The~~Performance ~~dividend~~ratios ~~payout~~for ~~ratio~~the isyear ~~the~~ended ~~dividends~~December ~~per~~31, ~~share~~2020 ~~divided~~were negatively impacted by ~~diluted~~incremental ~~earnings~~COVID-19 ~~per~~pandemic ~~share~~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)~~Performance~~Return ~~ratios~~on ~~for~~average ~~the~~assets ~~year~~is ~~ended~~calculated ~~December~~by ~~31,~~dividing ~~2020~~net ~~were~~income ~~negatively~~by ~~impacted~~average byassets. ~~incremental~~Return ~~COVID-19~~on ~~pandemic~~average ~~related~~shareholders' ~~loan~~equity ~~loss~~is ~~reserves~~calculated ~~and~~by adividing $3net income by average shareholders' equity.9 ~~million~~Net ~~one-time~~loan charge-offs ~~related~~as toa ~~office~~percentage ~~consolidation,~~of ~~vendor~~average ~~contract~~loans ~~termination~~is ~~and~~calculated ~~employee~~by ~~severance~~dividing ~~costs~~net ~~recognized~~loan in(charge ~~the~~offs) ~~fourth~~recoveries ~~quarter~~by ofaverage ~~2020~~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.

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,
	2023			2022			2021			2020			2019
	(Dollars in thousands, except per share data)
Efficiency Ratio
Noninterest expense	$	50,401		$	44,363		$	39,739		$	42,813		$	35,626
Less: other real estate owned expenses	—			—			—			6			37
Less: Amortization of intangibles	—			—			76			138			75
Adjusted noninterest expense (numerator)	$	50,401		$	44,363		$	39,663		$	42,669		$	35,514
Net interest income	$	94,468		$	94,743		$	67,886		$	54,835		$	53,761
Noninterest income	4,842			3,040			5,657			2,884			5,244
Adjustments for: gains/(losses) on sales of securities	—			—			—			—			76
Adjustments for: gains/(losses) on sale of other real estate owned	—			—			—			19			(102)
Adjusted operating revenue (denominator)	$	99,310		$	97,783		$	73,543		$	57,700		$	59,031
Efficiency ratio	50.8		%	45.4		%	53.9		%	73.9		%	60.2		%
Tangible Common Equity andTangible Common Equity/Tangible Assets
Total shareholders’ equity	$	265,752		$	238,469		$	201,987		$	176,602		$	182,397
Less: preferred stock	—			—			—			—			—
Common shareholders’ equity	265,752			238,469			201,987			176,602			182,397
Less: Intangible assets	2,589			2,589			2,589			2,665			2,803
Tangible Common shareholders’ equity	$	263,163		$	235,880		$	199,398		$	173,937		$	179,594
Total assets	$	3,215,482		$	3,252,449		$	2,456,264		$	2,253,747		$	1,882,182
Less: Intangible assets	2,589			2,589			2,589			2,665			2,803
Tangible assets	$	3,212,893		$	3,249,860		$	2,453,675		$	2,251,082		$	1,879,379
Tangible common shareholders’ equity to tangible assets	8.19		%	7.26		%	8.13		%	7.73		%	9.56		%
Tangible Book Value per Share
Total shareholders’ equity	$	265,752		$	238,469		$	201,987		$	176,602		$	182,397
Less: preferred stock	—			—			—			—			—
Common shareholders’ equity	265,752			238,469			201,987			176,602			182,397
Less: Intangible assets	2,589			2,589			2,589			2,665			2,803
Tangible common shareholders’ equity	$	263,163		$	235,880		$	199,398		$	173,937		$	179,594
Common shares issued	7,882,616			7,730,699			7,803,166			7,919,278			7,868,803
Less: shares of unvested restricted stock	254,328			214,000			190,359			163,369			110,975
Common shares outstanding	7,628,288			7,516,699			7,612,807			7,755,909			7,757,828
Book value per share	$	34.84		$	31.73		$	26.53		$	22.77		$	23.51
Less: effects of intangible assets	0.34			0.34			0.34			0.34			0.36
Tangible Book Value per Common Share	$	34.50		$	31.39		$	26.19		$	22.43		$	23.15
Total Revenue
Net interest income	$	94,468		$	94,743		$	67,886		$	54,835		$	53,761
Add: noninterest income	4,842			3,040			5,657			2,884			5,244
Total Revenue	$	99,310		$	97,783		$	73,543		$	57,719		$	59,005
Noninterest income as a percentage of total revenue	4.88		%	3.11		%	7.69		%	5.00		%	8.89		%
Return on Average Common Shareholders’ Equity
Net Income Attributable to Common Shareholders	$	36,663		$	37,429		$	26,586		$	5,904		$	18,216
Total average shareholders’ equity	$	252,061		$	223,874		$	191,808		$	176,489		$	178,510
Less: average preferred stock	—			—			—			—			—
Average Common Shareholders’ Equity	$	252,061		$	223,874		$	191,808		$	176,489		$	178,510
Return on Average Common Shareholders’ Equity	14.55		%	16.72		%	13.86		%	3.35		%	10.20		%

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		%

Executive Overview

We ~~are~~strive ~~focused~~to onbe ~~being~~ the preferred banking provider, ofoffering ~~choice~~a ~~and~~compelling ~~to serve as an~~ alternative to ~~our~~ larger ~~competitors~~institutions. WeOur ~~aim~~strategy torests doon ~~this~~our ~~through~~competitive strengths:

•~~Responsive,~~Strategic Market Reach: While we serve our client~~-centric~~ ~~products~~base ~~and~~within ~~services~~100 miles of our branch network, we also selectively pursue commercial banking opportunities beyond this radius, leveraging established business relationships and atechnology ~~community~~to ~~focus;~~support our clients’ growth.

•~~Organic~~Experienced ~~growth~~Leadership: ~~and~~Our ~~strategic~~Executive ~~acquisitions~~Management ~~when~~Team ~~market~~brings ~~opportunities~~a ~~present~~proven ~~themselves;~~track record of success and deep industry expertise.

•~~Utilization~~Dedicated Board of ~~efficient~~Directors: Our Board combines valuable expertise with close community ties, ensuring we understand and ~~scalable~~respond ~~infrastructure;~~to local needs and are positioned to capitalize on market opportunities.

•Disciplined ~~focus~~Risk onManagement: 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,
	2023		2022
	2024		2023
	(Dollars in thousands, except per share data)
Selected balance sheet measures:
Total assets	$	3,~~215~~268,~~482~~476	$	3,~~252~~215,~~449~~482
Gross portfolio loans	2,~~718~~705,~~607~~888		2,~~675~~718,~~448~~607
Deposits	2,~~736~~787,~~757~~570		2,~~800~~736,~~818~~757
FHLB borrowings	90,000		90,000
Subordinated debt	69,~~205~~451		6869,~~959~~205
Total equity	~~265~~270,~~752~~520		~~238~~265,~~469~~752
Selected statement of income measures:
Total revenue(c)	9987,~~310~~000		9799,~~783~~310
Net interest income before provision for loan losses	94,468		94,743
Net interest income before provision for credit losses	83,282		94,468
Income before income tax expense	4813,~~043~~329		4748,~~983~~043
Net income	369,~~663~~770		3736,~~429~~663
Basic earnings per share	$	41.7124	$	4.8471
Diluted earnings per share	$	41.6723	$	4.7967

	Key Financial Measures(a)
	At or For the Years Ended December 31,
	2023			2022
Other financial measures and ratios:
Return on average assets	1.13		%	1.44		%
Return on average common shareholders’ equity(c)	14.55		%	16.72		%
Net interest margin	2.98		%	3.78		%
Efficiency ratio(c)	50.8		%	45.4		%
Tangible book value per share (end of period)(c)(d)	$	34.50		$	31.39
Net charge-offs to average loans(b)	0.03		%	—		%
Nonperforming assets to total assets(e)	1.53		%	0.51		%
ACL-Loans to nonperforming loans	56.79		%	136.43		%
ACL-Loans to total loans(b)	1.03		%	0.84		%

(a)We derived the selected balance sheet measures as of December 31, 2023 and 2022 and the selected statement of income measures for the years ended December 31, 2023 and 2022 from our audited consolidated financial statements included elsewhere in this annual report. Average balances have been computed using daily averages. Our historical results may not be indicative of our results for any future period.


	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.

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

When loans do not share risk characteristics with other financial assets they are evaluated individually. Management applies its normal loan review procedures in making these judgments. Individually evaluated loans consist of loans with credit quality indicators which are substandard or doubtful. The Company also individually evaluates all insurance premium loans. While insurance premium loans are considered consumer loansconcentrations, ~~the~~performance ~~third-party Consumer ACL model is designed for unsecured lending~~trends, ~~whereas~~regulatory ~~these loans are secured. To account for the fully secured structure of this type of loan~~changes, ~~management~~uncertainty ~~determined each loan will be individually evaluated, regardless~~ of ~~the~~macroeconomic ~~credit quality indicators. These loans are evaluated based upon their collateral~~forecasts, ~~which primarily consists of cash, cash surrender value life insurance,~~ and inother 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 asspecific ofrisk ~~the measurement date~~characteristics. ~~Fair value is generally calculated based on the value of the underlying collateral less an appraisal discount and the estimated cost to sell.~~

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

fair value for these securities is estimated using a discounted cash flow model. Due to the judgments and uncertainties involved in the estimation process, the estimates could result in materially different results under different assumptions and conditions.

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

~~Effective~~Pursuant ~~January 1, 2023, 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, ~~2023~~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, ~~2023~~2024. Of our held to maturity securities portfolio, one security’s fair value was less than its amortized cost as of December 31, ~~2023~~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, ~~2023~~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

~~2023~~2024 Earnings Overview

Our net income for the year ended December 31, ~~2023~~2024 was $369.78 million, a decrease of $026.89 million, or 273.04%, compared to the year ended December 31, ~~2022~~2023. Diluted earnings per share was $41.6723 for the year ended December 31, ~~2023~~2024, compared to diluted earnings per share of $4.7967 for the year ended December 31, ~~2022~~2023. Our returns on average shareholders' equity and average assets for the year ended December 31, ~~2023~~2024, were 143.5560% and 10.1331%, respectively, compared to 1614.7255% and 1.4413%, respectively for the year ended December 31, ~~2022~~2023.

Revenues (net interest income plus noninterest income) for the year ended December 31, ~~2023~~2024 were $9987.30 million, versus $9799.83 million for the year ended December 31, ~~2022~~2023. The ~~increase~~decrease in revenues for the year ended ~~2023~~December ~~was~~31, ~~primarily~~2024 was attributable to ~~increases~~an increase in ~~the~~interest ~~gain~~expense on ~~sales~~deposits ~~of loans~~ and ~~servicing~~lower ~~charges~~gains ~~and~~from ~~fees.~~loan ~~The~~sales, ~~increase was~~ partially offset by aan ~~decrease~~increase in ~~net~~ interest ~~income~~and offees ~~$0.3~~on ~~million~~loans due to higher loan yields and prepayment fees.

Net income for the year ended December 31, ~~2023~~2024 was $369.78 million, versus $3736.47 million for the year ended December 31, ~~2022~~2023. The decrease in net income for the year ended December 31, ~~2023~~2024 was mainly due to an increase in ~~noninterest~~provision ~~expense~~for ~~partially~~credit ~~offset~~losses byand the aforementioned ~~increase~~decrease in revenues ~~and~~partially offset by a decrease in ~~the~~income ~~provision~~tax ~~for loan losses~~expense.

Net interest income for the year ended December 31, ~~2023~~2024 was $9483.53 million, a decrease of $011.32 million compared to the year ended December 31, ~~2022~~2023. Our net interest margin decreased 8028 basis points to 2.9870% for the year ended December 31, ~~2023~~2024 compared to the year ended December 31, ~~2022~~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.

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, ~~2023~~2024 and ~~2022~~2023 was $9483.7 million and $94.97 million, respectively. FTE net interest income decreased primarily due to an increase in interest expense partially offset by an increase in interest income attributable to ~~loan growth and~~ higher ~~overall~~ loan yields.

FTE basis interest income for the year ended December 31, ~~2023~~2024 increased $~~70.~~3.7 million, or 592.50%, to $~~188~~192.74 million compared to FTE basis interest income for the year ended December 31, ~~2022~~2023 due primarily to an increase in commercial real estate loans ~~and commercial business loans~~. Average interest earning assets were $3.21 billion for the year ended December 31, ~~2023~~2024, ~~increasing~~decreasing by $~~663~~72.54 million, or 262.43%, from the year ended December 31, ~~2022~~2023. The average balance of total loans ~~increased~~decreased $~~599~~79.62 million, or 272.9%. The total average balance of securities for the year ended December 31, ~~2023~~2024 increased by $1113.20 million, or 910.4%0, from the year ended December 31, ~~2022~~2023. The total yield in earnings assets increased to 56.8609% at December 31, ~~2023~~2024, compared to 45.6486% at December 31, ~~2022~~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 ~~for~~in ~~2023~~2024.

Interest expense for the year ended December 31, ~~2023~~2024 increased by $7014.87 million, or ~~305~~15.17%, compared to interest expense for the year ended December 31, ~~2022~~2023 due to an interest expense on deposits, resulting from an increase in rates paid on interest bearing deposits.

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

The following table presents the average balances and yields earned on interest-earning assets and average balances and weighted average rates paid on our funding liabilities for the years ended December 31, ~~2023~~2024 and ~~2022~~2023.

Years Ended December 31,

2023

2022

2024

2023

AverageBalance

Interest

Yield/Rate(4)

AverageBalance

Interest

Yield/Rate(4)

(Dollars in thousands)

Assets:

Cash and fed funds sold

~~289~~283,~~582~~353

1413,~~147~~970

4.8993

~~238~~289,~~233~~582

314,~~500~~147

14.4789

Securities(1)

~~129~~142,~~785~~744

35,~~906~~098

3.0157

~~118~~129,~~591~~785

3,~~280~~906

23.7701

Loans:

Commercial real estate

1,~~932~~905,~~627~~973

~~109~~112,~~110~~804

5.5782

1,~~532~~932,~~971~~627

76109,~~103~~110

45.9057

Residential real estate

5547,~~607~~767

2,~~751~~978

46.9523

6655,~~028~~607

2,~~408~~751

34.6595

Construction

~~195~~162,~~773~~180

1412,~~268~~197

7.1940

~~115~~195,~~902~~773

614,~~666~~268

57.6719

Commercial business

~~533~~514,~~736~~800

4142,~~406~~006

78.6503

~~427~~533,~~178~~736

2541,~~561~~406

57.9065

Consumer

3441,~~022~~869

2,~~646~~847

76.7780

1034,~~121~~022

~~504~~2,646

47.9877

Total loans

2,~~751~~672,~~765~~589

~~170~~172,~~181~~832

6.1036

2,~~152~~751,~~200~~765

~~111~~170,~~242~~181

56.10

Federal Home Loan Bank stock

5,~~570~~666

~~427~~477

78.6841

45,~~132~~570

~~124~~427

37.0068

Total earning assets

3,~~176~~104,~~702~~352

~~188~~192,~~661~~377

56.8609

23,~~513~~176,~~156~~702

~~118~~188,~~146~~661

45.6486

Other assets

7992,~~571~~885

8679,~~485~~571

Total assets

3,~~256~~197,~~273~~237

23,~~599~~256,~~641~~273

Liabilities and shareholders’ equity:

Interest bearing liabilities:

NOW

9796,~~203~~091

~~170~~175

0.1718

~~118~~97,~~837~~203

~~203~~170

0.17

Money market

~~906~~851,~~354~~283

3234,~~901~~767

34.6308

~~891~~906,~~095~~354

832,~~830~~901

03.9963

Savings

~~113~~90,~~260~~587

32,~~163~~785

23.7907

~~188~~113,~~186~~260

13,~~259~~163

02.6779

Time

1,~~303~~335,~~915~~680

5063,~~672~~531

34.8976

~~617~~1,~~480~~303,915

950,~~072~~672

13.4789

Total interest bearing deposits

2,~~420~~373,~~732~~641

86101,~~906~~258

34.5927

12,~~815~~420,~~598~~732

1986,~~364~~906

13.0759

Borrowed money

~~160~~159,~~661~~320

7,~~080~~454

4.3568

~~118~~160,~~960~~661

37,~~838~~080

34.1835

Total interest bearing liabilities

2,~~581~~532,~~393~~961

93108,~~986~~712

34.6429

12,~~934~~581,~~558~~393

2393,~~202~~986

13.2064

Noninterest bearing deposits

~~368~~332,~~926~~611

~~401~~368,~~005~~926

Other liabilities

5360,~~893~~464

4053,~~204~~893

Total liabilities

32,~~004~~926,~~212~~036

23,~~375~~004,~~767~~212

Shareholders’ equity

~~252~~271,~~061~~201

~~223~~252,~~874~~061

Total liabilities and shareholders’ equity

3,~~256~~197,~~273~~237

23,~~599~~256,~~641~~273

Net interest income(2)

9483,~~675~~665

94,~~944~~675

Interest rate spread

21.2280

32.4422

Net interest margin(3)

2.9870

32.7898

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

(2)The adjustment for securities and loans taxable equivalency was $~~207~~383 thousand and $~~201~~207 thousand, respectively, for the years ended December 31, ~~2023~~2024 and ~~2022~~2023. Tax exempt income was converted to a fully taxable equivalent basis at a 20 percent tax rate for ~~2023~~2024 and ~~2022~~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.

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 EndedDecember 31, 2023 vs 2022Increase (Decrease)

Year EndedDecember 31, 2024 vs 2023Increase (Decrease)

Volume

Rate

Total

(In thousands)

Interest and dividend income:

Cash and fed funds sold

~~903~~(306)

~~9,744~~129

~~10,647~~(177)

Securities

~~323~~415

~~303~~776

~~626~~1,191

Loans:

Commercial real estate

21(1,~~624~~521)

115,~~384~~214

333,~~008~~693

Residential real estate

(~~422~~423)

~~764~~650

~~342~~227

Construction

5(2,~~466~~508)

~~2,136~~438

7(2,~~602~~070)

Commercial business

7(1,~~228~~499)

82,~~617~~098

~~15,845~~599

Consumer

~~1,730~~560

~~410~~(358)

~~2,140~~202

Total loans

35(5,~~626~~391)

238,~~311~~042

582,~~937~~651

Federal Home Loan Bank stock

568

~~248~~42

~~304~~50

Total change in interest and dividend income

36(5,~~908~~274)

338,~~606~~989

703,~~514~~715

Interest expense:

Deposits:

NOW

(382)

~~(34)~~6

Money market

~~153~~(2,081)

233,~~918~~946

241,~~071~~865

Savings

(~~679~~676)

~~2,583~~298

~~1,904~~(378)

Time

161,~~775~~262

2411,~~825~~597

4112,~~600~~859

Total deposits

16(1,~~211~~497)

5115,~~330~~849

6714,~~541~~352

Borrowed money

~~1,583~~(60)

~~1,659~~433

~~3,242~~373

Total change in interest expense

17(1,~~794~~557)

5216,~~989~~282

7014,~~783~~725

Change in net interest income

19(3,~~114~~717)

(197,~~383~~293)

(~~269~~11,010)

Provision for ~~Loan~~Credit Losses

The provision for ~~loan~~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 ~~loan~~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 ~~loan~~credit losses for the year ended December 31, ~~2023~~2024 was $022.96 million compared to a $50.49 million provision for ~~loan~~credit losses for the year ended December 31, ~~2022~~2023. The increase in the provision for credit losses during the year was primarily due to net charge offs.

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, ~~2023~~2024 and ~~2022~~2023.

	Years EndedDecember 31,				Change
	2023		2022			$		%
	2024		2023			$		%
	(Dollars in thousands)
Gains and fees from sales of loans	$	~~1,972~~523	$	1,~~236~~972		$	~~736~~(1,449)	60(73)	%
Bank owned life insurance	1,~~192~~356		1,~~069~~192			~~123~~164		1214
Service charges and fees	1,~~629~~963		1,~~072~~629			~~557~~334		5221
Other	49(124)		~~(337)~~49			~~386~~(173)		~~Favorable~~Unfavorable
Total noninterest income	$	43,~~842~~718	$	34,~~040~~842		$	(1,~~802~~124)	59(23)	%

Noninterest income ~~increased~~decreased by $1.81 million to $43.87 million for the year ended December 31, ~~2023~~2024, compared to the year ended December 31, ~~2022~~2023. The ~~increase~~decrease for the year ended December 31, ~~2023~~2024 was mainly driven by ana ~~increase~~decrease in gains on SBA loan sales ~~and~~partially offset by an increase in service charges and fees.

Noninterest Expense

The following table compares noninterest expense for the years ended December 31, ~~2023~~2024 and ~~2022~~2023.

Years EndedDecember 31,

Change

2023

2022

2024

2023

(Dollars in thousands)

Salaries and employee benefits

2423,~~595~~746

2224,~~237~~595

~~2,358~~(849)

11(3)

Occupancy and equipment

89,~~665~~494

8,~~297~~665

~~368~~829

410

Data processing

23,~~888~~251

2,~~632~~888

~~256~~363

1013

Professional services

34,~~538~~482

3,~~887~~538

~~(349)~~944

~~(9)~~27

Director fees

1,~~812~~840

1,~~394~~812

~~418~~28

302

FDIC insurance

43,~~164~~350

14,~~638~~164

~~2,526~~(814)

~~154~~(20)

Marketing

~~651~~452

~~366~~651

~~285~~(199)

78(31)

Other

4,~~088~~436

34,~~912~~088

~~176~~348

Total noninterest expense

5051,~~401~~051

4450,~~363~~401

~~6,038~~650

141

Noninterest expense increased by $6.0.7 million, or 141.3%, to $5051.41 million for the year ended December 31, ~~2023~~2024 compared to the year ended December 31, ~~2022~~2023. The increase in noninterest expense was primarily driven by anincreases ~~increase~~ in ~~FDIC~~professional ~~insurance~~services ~~expense~~and occupancy and equipment costs, partially offset by decreases in salaries and employee benefits and FDIC insurance expense. due to reduced brokered deposit balances.

FDIC insurance expense totaled $4.2 million for the year ended December 31, 2023, an increase of $2.5 million when compared to the same period in 2022. The higher FDIC insurance expense is attributed to the overall balance sheet growth and higher brokered deposit balances.

Salaries and employee benefits expense totaled $24.6 million for the year ended December 31, 2023, an increase of $2.4 million when compared to the same period in 2022. The increase in salaries and employee benefits expense mainly driven by lower loan originations which lowers the amount of origination expenses the Bank is able to defer.

Income Taxes

Income tax expense for the years ended December 31, ~~2023~~2024 and ~~2022~~2023 totaled $113.46 million and $1011.64 million, respectively. The effective tax rates for the years ended December 31, ~~2023~~2024 and ~~2022~~2023, were 2326.7% and 2223.07%, respectively.

Our net deferred tax asset at December 31, ~~2023~~2024 was $9.47 million, compared to $79.4 million at December 31, ~~2022~~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.

Financial Condition

Summary

Assets totaled $3.23 billion at December 31, ~~2023~~2024, compared to assets of $3.32 billion at December 31, ~~2022~~2023. ~~The increase in assets was primarily due to loan growth.~~ Gross loans totaled $2.7 billion at December 31, ~~2023~~2024, ancompared ~~increase~~to gross loans of $~~43.~~2 ~~million or 1~~.6%7 ~~compared~~billion toat December 31, ~~2022~~2023. Deposits totaled $2.78 billion at December 31, ~~2023~~2024, compared to deposits of $2.87 billion at December 31, ~~2022~~2023.

Shareholders’ equity totaled $~~265~~270.85 million as of December 31, ~~2023~~2024, an increase of $274.38 million compared to December 31, ~~2022~~2023, primarily a result of net income of $369.78 million for the year ended December 31, ~~2023~~2024. The increase was partially offset by ~~the Day 1 CECL adoption impact of $4.9 million,~~ dividends paid of $6.23 million~~, and a $1~~.5 million unfavorable impact to accumulated other comprehensive income. The unfavorable impact to accumulated other comprehensive income was driven by fair value marks related to hedge positions involving interest rate swaps of $2.4 million partially offset by fair value marks on the Company's available for sale investment securities portfolio of $0.9 million. The Company's interest rate swaps are used to hedge interest rate risk.

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:

	2023				2022				Change
	2024				2023				Change
	Total		%		Total		%		Total
	(Dollars in thousands)
Real estate loans:
Residential	$	5042,~~931~~766	1.8758	%	$	6050,~~588~~931	21.2787	%	$	(98,~~657~~165)
Commercial	1,~~947~~899,~~648~~134		7170.6419		1,~~921~~947,~~252~~648		71.8164		26(48,~~396~~514)
Construction	~~183~~173,~~414~~555		6.7541		~~155~~183,~~198~~414		56.8075		28(9,~~216~~859)
	2,181,993		80.26		2,137,038		79.88		44,955
	2,115,455		78.18		2,181,993		80.26		(66,538)
Commercial business	~~500~~515,~~569~~125		1819.4104		~~520~~500,~~447~~569		1918.4541		~~(19~~14,~~878)~~556
Consumer	3675,~~045~~308		12.3378		1736,~~963~~045		01.6733		1839,~~082~~263
Total loans	$	2,~~718~~705,~~607~~888	100.00	%	$	2,~~675~~718,~~448~~607	100.00	%	$	43(12,~~159~~719)

Primary loan categories

Residential real estate. Residential real estate loans decreased by $98.72 million, or 1516.90%, at December 31, ~~2023~~2024 compared to December 31, ~~2022~~2023 and amounted to $5042.98 million, representing 2% of total loans at December 31, ~~2023~~2024. InThe ~~the~~Bank ~~fourth~~ceased ~~quarter of 2017, management made the strategic decision to cease~~ originating residential mortgage loans in 2017.

Commercial real estate. Commercial real estate loans were $1.9 billion and represented 7270% of our total loan portfolio at December 31, ~~2023~~2024, a net ~~increase~~decrease of $2648.45 million, or 12.45%, from December 31, ~~2022~~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.

~~The~~Commercial ~~following~~business. Commercial ~~table~~business ~~compares~~loans ~~the~~were ~~composition~~$515.1 ofmillion ~~our~~and ~~commercial~~represented ~~real~~19.0% ~~estate~~of our total loan portfolio byat ~~non-owner~~December 31, ~~occupied~~2024, ~~and~~a ~~owner~~net ~~occupied~~increase ~~loans~~of at$14.6 million, or 2.9%, from December 31, 2023. Commercial business loans primarily provide working capital, equipment financing, financing for leasehold improvements and ~~December~~financing 31for expansion and are generally secured by assignments of corporate assets, ~~2022:~~real estate and personal guarantees of the business owners.

	2023				2022				Change
	Total		%		Total		%		Total
	(Dollars in thousands)
Commercial real estate loans:
Non-owner occupied	$	1,228,126	63.08	%	$	1,224,470	63.73	%	$	3,656
Owner occupied	718,780		36.92		696,782		36.27		21,998
Total commercial real estate loans(1)	$	1,946,906	100.00	%	$	1,921,252	100.00	%	$	25,654

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.

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

Construction. Construction loans were $183.4 million at December 31 2023, an increase of $28.2 million, or 18.2%, from December 31, 2022. Commercial construction loans consist of commercial development projects, such as apartment buildings and condominiums, as well as office buildings, retail and other income producing properties and land loans.

Commercial business. Commercial business loans were $500.6 million and represented 18.4% of our total loan portfolio at December 31, 2023, a net decrease of $19.9 million, or 3.8%, from December 31, 2022. Commercial business loans primarily provide working capital, equipment financing, financing for leasehold improvements and financing for expansion and are generally secured by assignments of corporate assets, real estate and personal guarantees of the business owners.

Consumer loans. Consumer loans were $36.0 million and represented 1.3% of our total loan portfolio as of December 31, 2023, an increase of $18.1 million, or 100.7%. We do not expect our consumer loans to become a material component of our loan portfolio, as we do not engage in any material amount of consumer lending. This portfolio segment includes loans to finance insurance premiums secured by the cash surrender value of life insurance and marketable securities, overdraft lines of credit, and unsecured personal loans to high net worth individuals.

Current environment

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 ~~in 2023~~, the Company adopted expanded monitoring and reporting on our loan portfolio, including:

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

•added resources in the Portfolio Management Department;

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

◦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.

The following table compares the composition of our commercial real estate loan portfolio by property type, and collateral location as of December 31, ~~2023~~2024:

Commercial Real Estate

All Other NY

NYC

All Other

Total(1)

(Dollars in thousands)

Residential care(2)

—

4378,~~072~~974

4158,~~154~~366

2210,~~382~~170

~~296~~298,~~976~~857

8078,~~221~~971

2322,~~709~~959

~~127~~124,~~901~~163

~~635~~672,~~415~~460

Retail

~~134~~103,~~215~~450

8783,~~011~~648

7,~~450~~372

2119,~~594~~375

1712,~~078~~765

3,~~586~~435

3734,~~792~~280

9889,~~846~~185

~~407~~353,~~572~~510

Multifamily

~~166~~171,~~926~~952

31,050

5251,~~296~~628

7,~~203~~116

—

—21,883

—

~~257~~283,~~475~~629

Office

6956,~~752~~972

2210,~~665~~232

—2,987

3829,~~260~~532

2,~~293~~235

—

6058,~~073~~451

~~193~~160,~~043~~409

Industrial / warehouse

7469,~~446~~024

14,~~445~~188

2019,~~048~~625

17,~~138~~045

2,~~798~~717

—

2315,~~201~~357

~~152~~137,~~076~~956

Mixed use

4639,~~303~~207

1,~~157~~117

5149,~~074~~962

~~10,000~~—

—

~~108~~90,~~534~~286

Medical office

4843,~~304~~332

—12,260

1,~~466~~411

—

4,~~919~~794

3,900

20,~~145~~271

7885,~~734~~968

1-4 family investment

1311,~~967~~776

1314,~~528~~151

1,~~936~~886

2,~~809~~139

17,~~420~~168

—

4947,~~660~~120

All other(3)

2019,~~344~~659

2022,~~578~~396

23,~~475~~097

—

—2,425

6467,~~397~~577

~~574~~515,~~257~~372

~~233~~268,~~506~~016

~~198~~216,~~899~~334

~~119~~85,~~386~~377

~~336~~333,~~565~~742

8887,~~726~~200

6583,~~401~~022

~~330~~309,~~166~~852

1,~~946~~898,~~906~~915

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

(2) Primarily consists of skilled nursing and assisted living facilities.

(3) Includes Special use, self storage, and land.

During ~~2023~~2024, we conducted a detailed review of every general office loan in our portfolio. As of December 31, ~~2023~~2024, the Bank had $~~193~~160.04 million of loans collateralized by offices, which represented 75.19% of the total loan portfolio. Most of the properties in this portfolio are in suburban locations~~, including all the New York State properties, which are all located in Westchester County~~. 96.96% of this portfolio was pass rated, and there were two relationships totaling $65.05 million on nonaccrual status. We also performed an additional review of our multifamily exposure. As of December 31, ~~2023~~2024, we had $~~257~~283.56 million of loans collateralized by multifamily properties, which represented 910.5% of the total loan portfolio. ~~100~~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, or New Jersey, or Pennsylvania, with the majority in suburban locations. Nine properties totaling $5251.36 million, with an average balance of $5.87 million, are in New York City.

The following table presents an analysis of the commercial real estate portfolio's loan to value at origination and by property type as of December 31, ~~2023~~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)	$	~~635~~672,~~415~~460	3235.64	%	6766.86	%
Retail	~~407~~353,~~572~~510		2018.96		63.65
Multifamily	~~257~~283,~~475~~629		1314.29		6162.41
Office	~~193~~160,~~043~~409		98.94		6463.17
Industrial / warehouse	~~152~~137,~~076~~956		7.83		63.63
Mixed use	~~108~~90,~~534~~286		54.68		6162.27
Medical office	7885,~~734~~968		4.05		6663.23
1-4 family investment	4947,~~660~~120		2.65		5857.27
All other	6467,~~397~~577		3.36		5853.04
Total	$	1,~~946~~898,~~906~~915	100.0	%	6463.49	%

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

December 31, 2023

December 31, 2024

CommercialReal Estate(1)

CommercialConstruction

CommercialBusiness(1)

Total

(In thousands)

Amounts due:

One year or less

~~313~~797,~~136~~594

64109,~~099~~429

~~163~~206,~~385~~116

~~540~~1,~~620~~113,139

After one year:

One to five years

1843,~~281,385~~500

~~105~~36,~~709~~199

~~204~~155,~~650~~473

1,~~591~~035,~~744~~172

Over five years

~~352~~257,~~385~~821

1327,~~606~~927

~~132~~153,~~355~~497

~~498~~439,~~346~~245

Total due after one year

1,~~633~~101,~~770~~321

~~119~~64,~~315~~126

~~337~~308,~~005~~970

21,~~090~~474,~~090~~417

Total

1,~~946~~898,~~906~~915

~~183~~173,~~414~~555

~~500~~515,~~390~~086

2,~~630~~587,~~710~~556

(1) Excludes the positive fair value effect of the portfolio layer swap of $~~742~~219 thousand for Commercial Real Estate and $~~179~~39 thousand for Commercial Business.

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, ~~2023~~2024.

December 31, 2023

December 31, 2024

AdjustableInterest Rate

Fixed InterestRate

Total

(In thousands)

Commercial real estate

~~170~~159,~~090~~463

1941,~~463,680~~858

1,~~633~~101,~~770~~321

Commercial construction

6843,~~976~~468

5020,~~339~~658

~~119~~64,~~315~~126

Commercial business

~~168~~181,~~672~~819

~~168~~127,~~333~~151

~~337~~308,~~005~~970

Total loans due after one year

~~407~~384,~~738~~750

1,~~682~~089,~~352~~667

21,~~090~~474,~~090~~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 ~~and low levels of nonperforming assets since our inception in 2002~~.

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 ~~loan~~credit losses.

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,
	2023			2022
	2024			2023
	(Dollars in thousands)
Nonaccrual loans:
Real estate loans:
Residential	$	~~1,386~~791		$	21,~~152~~386
Commercial	2344,~~009~~814			223,~~781~~009
Commercial business	157,~~430~~672			215,~~126~~430
Construction	~~9,382~~—			9,382
Total nonaccrual loans	4953,~~207~~277			1649,~~441~~207
Property acquired through foreclosure or repossession, net	—8,299			—
Total nonperforming assets	$	4961,~~207~~576		$	1649,~~441~~207
Nonperforming assets to total assets	1.5388		%	01.5153		%
Nonperforming loans to total loans	1.8197		%	01.6181		%

Total nonaccrual loans were $4953.23 million as of December 31, ~~2023~~2024. Nonperforming assets as a percentage of total assets was 1.5388% at December 31, ~~2023~~2024, when compared to 01.5153% at December 31, ~~2022~~2023. The ACL-Loans at December 31, ~~2023~~2024 was $2729.90 million, representing 1.0307% 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, ~~2023~~2024 and ~~2022~~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.

The following table presents past due loans as of December 31, ~~2023~~2024 and ~~2022~~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
As of December 31, 2022
Residential real estate	$	1,969	$	—	$	171	$	2,140
Commercial real estate	66		—		2,540		2,606
Construction	—		—		9,382		9,382
Commercial business	23		—		1,910		1,933
Consumer	—		—		—		—
Total loans	$	2,058	$	—	$	14,003	$	16,061

Total past due loans totaled $2144.31 million and represented 01.7863% of total loans as of December 31, ~~2023~~2024, increasing $522.28 million from December 31, ~~2022~~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 ~~year~~years ended December 31, ~~2023. There~~2024 ~~were~~and ~~seven nonaccrual loans modified totaling $2~~2023.~~5 million during the year ended December 31, 2022.~~

The following table presents information on modified loans:

At December 31,

2023

2022

2024

2023

(In thousands)

Accruing modified loans:

Residential real estate

2,~~325~~261

12,~~694~~325

Commercial real estate

—

~~15,893~~—

Commercial business

~~2,060~~—

2,~~147~~060

Accruing modified loans

42,~~385~~261

194,~~734~~385

Nonaccrual modified loans:

Residential real estate

~~1,351~~652

21,~~113~~351

Commercial real estate

109,~~606~~217

—10,606

Commercial business

~~104~~54

~~367~~104

Nonaccrual modified loans

129,~~061~~923

212,~~480~~061

Total modified loans

1612,~~446~~184

2216,~~214~~446

As of December 31, ~~2023~~2024 and ~~2022~~2023, loans classified as modified totaled $1612.42 million and $2216.24 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 ~~loan~~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.

The following table presents the activity in our ACL-Loans and related ratios for the dates indicated:

	At December 31,
	2023			2022
	2024			2023
	(Dollars in thousands)
Balance at beginning of period	$	2227,~~431~~946		$	1622,~~902~~431
Day 1 CECL Adjustment on January 1, 2023	~~5,079~~—			—5,079
Charge-offs:
Residential real estate	—(141)			—
Commercial real estate	(~~824~~13,111)			—(824)
Construction	—(1,771)			—
Commercial business	(~~440~~7,909)			—(440)
Consumer	(8384)			(2283)
Total charge-offs	(123,~~347~~016)			(221,347)
Recoveries:
Residential real estate	—141			—
Commercial real estate	—1,126			76—
Commercial business	~~531~~(3)			34531
Consumer	3923			439
Total recoveries	~~570~~1,287			~~114~~570
Net (charge-offs) recoveries	(~~777~~21,729)			92(777)
Provision charged to earnings	122,~~213~~790			51,~~437~~213
Balance at end of period	$	2729,~~946~~007		$	2227,~~431~~946
Net recoveries or charge-offs to average loans	0.03		%	—		%
Net charge-offs or (recoveries) to average loans	0.81		%	0.03		%
ACL-Loans to total loans	1.0307		%	01.8403		%

At December 31, ~~2023~~2024, our ACL-Loans was $2729.90 million and represented 1.0307% of total loans, compared to $2227.49 million, or 01.8403% of total loans at December 31, ~~2022~~2023. The increase relates to the CECL transition adjustment to retained earnings. The increase in the ACL-Loans provision for credit losses was primarily driven by forward looking CECL macroeconomic factors.

The carrying amount of total individually evaluated loans at December 31, ~~2023~~2024 was $~~105~~113.09 million. This compares to a carrying amount of $42105.80 million for total individually evaluated loans at December 31, ~~2022. The amount of ACL-Loans related to individually evaluated loans was $1.0 million and $0.9 million, respectively, at December 31,~~ 2023 ~~and 2022~~.

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

	At December 31,
	2023						2022
	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	$	~~149~~94	0.5332	%	1.8758	%	$	~~163~~149	0.7353	%	21.2787	%
Commercial real estate	2021,~~950~~838		7475.9729		7170.6419		1520,~~597~~950		6974.5397		71.8164
Construction	12,~~699~~059		67.0810		6.7541		~~311~~1,699		16.3908		56.8075
Commercial business	4,~~562~~070		1614.3203		1819.4104		64,~~214~~562		2716.7032		1918.4541
Consumer	~~586~~946		23.1026		12.3378		~~146~~586		02.6510		01.6733
Total	$	2729,~~946~~007	100.00	%	100.00	%	$	2227,~~431~~946	100.00	%	100.00	%

The allocation of the ACL-Loans at December 31, ~~2023~~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, ~~2023~~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,
	2023				2022
	2024				2023
	AmortizedCost		FairValue		AmortizedCost		FairValue
	(In thousands)
Marketable equity securities	$	2,~~202~~264	$	2,~~070~~118	$	2,~~138~~202	$	12,~~988~~070
Securities available for sale:
U.S. Government and agency obligations	~~100~~95,~~276~~443		9591,~~226~~582		95100,~~352~~276		8895,~~425~~226
Corporate bonds	17,000		1415,~~510~~846		17,000		1514,~~238~~510
Total securities available for sale	$	~~117~~112,~~276~~443	$	~~109~~107,~~736~~428	$	~~112~~117,~~352~~276	$	~~103~~109,~~663~~736
Securities held to maturity:
State agency and municipal obligations	$36,525	~~15,785~~	$36,662	~~15,870~~	$	15,~~947~~785	$	15,~~398~~870
Government mortgage-backed securities	3228		3329		3632		3733
Total securities held to maturity	$	1536,~~817~~553	$	1536,~~903~~691	$	15,~~983~~817	$	15,~~435~~903

At December 31, ~~2023~~2024, the carrying value of our investment securities portfolio totaled $~~127~~146.61 million and represented 4% of total assets, compared to $~~121~~127.6 million and 4% of total assets at December 31, ~~2022~~2023. The increase of $618.05 million primarily reflects purchases of ~~treasury~~held ~~bonds~~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, ~~2023~~2024 was $74.5 9 million and included $01.83 million of gross unrealized gains. The net unrealized loss position on our investment portfolio at December 31, ~~2022~~2023 was $97.25 million and included $0.38 million of gross unrealized gains.

The following tables summarize the amortized cost and weighted average yield of securities in our investment securities portfolio as of December 31, 2024 and 2023, based on remaining period to contractual maturity. 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, 2023	AmortizedCost		Yield		AmortizedCost		Yield		AmortizedCost		Yield		AmortizedCost		Yield
At December 31, 2024	AmortizedCost		Yield		AmortizedCost		Yield		AmortizedCost		Yield		AmortizedCost		Yield
	(Dollars in thousands)
Marketable equity securities	$	—	—	%	$	—	—	%	$	—	—	%	$	2,~~202~~264	2.19	%
Securities available for sale:
U.S. Government and agency obligations	924,~~836~~920		43.2739		5547,~~288~~541		2.1503		2716,~~229~~038		2.6253		76,~~923~~944		12.8710
Corporate bonds	—		—				—		15,500		4.18		1,500		4.50
Total securities available for sale	$	924,~~836~~920	43.2739	%	$	5547,~~288~~541	2.1503	%	$	4231,~~729~~538	3.1834	%	$	98,~~423~~444	2.2853	%
Securities held to maturity:
State agency and municipal obligations	$	—6,820	—7.08	%	$	—	—	%	$	—2,808	—4.73	%	$	1526,~~785~~897	56.0907	%
Government mortgage-backed securities	—		—		—		—		—		—		3228		5.4346
Total securities held to maturity	$	—6,820	—7.08	%	$	—	—	%	$	—2,808	—4.73	%	$	1526,~~817~~925	56.0907	%

	Due Within 1 Year				Due 1–5 Years				Due 5–10 Years				Due After 10 Years or No Contractual Maturity
At December 31, 2022	AmortizedCost		Yield		AmortizedCost		Yield		AmortizedCost		Yield		AmortizedCost		Yield
At December 31, 2023	AmortizedCost		Yield		AmortizedCost		Yield		AmortizedCost		Yield		AmortizedCost		Yield
	(Dollars in thousands)
Marketable equity securities	$	—	—	%	$	—	—	%	$	—	—	%	$	2,~~138~~202	2.2019	%
Securities available for sale:
U.S. Government and agency obligations	—9,836		—4.27		55,~~262~~288		12.9915		3127,~~527~~229		2.6162		87,~~563~~923		01.3987
Corporate bonds	—		—		—		—		15,500		4.18		1,500		4.50
Total securities available for sale	$	—9,836	—	%	$	55,~~262~~288	1.99	%	$	4742,~~027~~729	3.1218	%	$	109,~~063~~423	2.2428	%
Securities held to maturity:
State agency and municipal obligations	$	—	—	%	$	—	—	%	$	—	—	%	15,~~947~~785		5.09	%
Government mortgage-backed securities	—		—		—		—		—		—		~~15,983~~32		5.43
Total securities held to maturity	$	—	—	%	$	—	—	%	$	—	—	%	$	3115,~~930~~817	5.09	%

Bank Owned Life Insurance ("BOLI")

BOLI amounted to $5152.48 million as of December 31, ~~2023~~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, ~~2023~~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,
	2023						2022
	2024						2023
	Amount		Percent		WeightedAverageRate		Amount		Percent		WeightedAverageRate
	(Dollars in thousands)
Noninterest-bearing demand	$	~~346~~321,~~172~~875	1211.6554	%	—	%	$	~~404~~346,~~559~~172	1412.4465	%	—	%
NOW	90105,~~829~~090		3.3277		0.1718		~~104~~90,~~057~~829		3.7232		0.17
Money market	~~887~~899,~~352~~413		32.4227		34.6308		~~913~~887,~~868~~352		32.6342		03.9963
Savings	9790,~~331~~220		3.5624		23.7907		~~151~~97,~~944~~331		53.4256		02.6779
Time	1,~~315~~370,~~073~~972		4849.0518		34.8976		1,~~226~~315,~~390~~073		4348.7905		13.4789
Total deposits	$	2,~~736~~787,~~757~~570	100.00	%	34.5927	%	$	2,~~800~~736,~~818~~757	100.00	%	13.0759	%

Total deposits were $2.78 billion at December 31, ~~2023~~2024, aan ~~decrease~~increase of $6450.18 million, or 2%, from December 31, ~~2022~~2023.

Brokered certificates of deposits ("Brokered CDs") totaled $~~860~~651.5 million and $~~976~~860.5 million at December 31, ~~2023~~2024 and December 31, ~~2022~~2023, respectively. Brokered money market accounts totaled $9153.45 million and $4191.84 million at December 31, ~~2023~~2024 and ~~2022~~2023, respectively. There were no certificates of deposits from national listing services, one-way buy CDARS or one-way buy ICS at December 31, ~~2023~~2024 or December 31, ~~2022~~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, ~~2023~~2024, our FDIC insured deposits were $12,~~945~~008.92 million, or 7172% of total deposits. Additionally, $~~110~~117.01 million of deposits are insured by standby letters of credit with the Federal Home Loan Bank of Boston, or 4% of total deposits.

At December 31, ~~2023~~2024 and ~~2022~~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,
	2023		2022
	2024		2023
	(In thousands)
Maturing:
Within 3 months	$	~~343~~421,~~084~~808	$	~~251~~317,~~036~~534
After 3 but within 6 months	~~317~~326,~~534~~115		~~252~~244,~~673~~472
After 6 months but within 1 year	~~244~~419,~~472~~098		~~530~~294,~~400~~641
After 1 year	~~294~~19,~~641~~429		~~123~~343,~~130~~084
Total	$	1,~~199~~186,~~731~~450	$	1,~~157~~199,~~239~~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, ~~2023~~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, ~~2023~~2024 and $90.0 million at December 31, ~~2022~~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, ~~2023~~2024, the Bank had pledged $~~927~~742.16 million of eligible loans as collateral to support borrowing capacity at the FHLB of Boston. As of December 31, ~~2023~~2024, the Bank had immediate availability to borrow an additional $~~344~~266.41 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,
	2023			2022
	2024			2023
	(Dollars in thousands)
Average amount outstanding during the period	$	9190,~~589~~000		$	7191,~~740~~589
Amount outstanding at end of period	90,000			90,000
Highest month end balance during the period	~~100~~90,000			~~130~~100,000
Weighted average interest rate at end of period(1)	3.2491		%	23.2924		%

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

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.

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, ~~2023~~2024 and ~~2022~~2023 was as follows:

As of December 31, 2023

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

~~125~~75,000

Other assets

53,~~240~~259

—

Accrued expenses and other liabilities

—

Fair value swap

~~150,000~~—

Other assets

—

—150,000

Accrued expenses and other liabilities

~~917~~259

Derivatives not designated as hedging instruments:

Interest rate swaps(1)

38,500

Other assets

34,~~579~~213

38,500

Accrued expenses and other liabilities

34,~~579~~213

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

	As of December 31, 2022
	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	$	85,~~292~~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	$	43,~~207~~579	$	38,500	Accrued expenses and other liabilities	$	43,~~207~~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 $~~265~~270.85 million as of December 31, ~~2023~~2024, an increase of $274.38 million compared to December 31, ~~2022~~2023, primarily a result of (i) net income of $369.78 million for the year ended December 31, ~~2023~~2024. The increase was partially offset by ~~the Day 1 CECL adoption of $4.9 million,~~ dividends paid of $6.23 million~~, and a $1~~.5 million unfavorable impact to accumulated other comprehensive income. The unfavorable impact to accumulated other comprehensive income was driven by fair value marks related to hedge positions involving interest rate swaps of $2.4 million partially offset by fair value marks on the Company's available for sale investment securities portfolio of $0.9 million. The Company's interest rate swaps are used to hedge interest rate risk. As of December 31, ~~2023~~2024, the tangible common equity ratio and tangible book value per share were 8.1920% and $3435.5009, respectively.

The Bank isand 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, ~~2023~~2024, the Bank met all capital adequacy requirements to which it was subject and exceeded the regulatory minimum capital levels to be considered well-capitalized under the regulatory framework. At December 31, ~~2023~~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

~~tier~~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 119.3060%, total capital to risk-weighted assets was 1213.3214%, Tier 1 capital to risk-weighted assets was 119.3060% and Tier 1 capital to average assets was 98.8134%.

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 Than1 Year		1–3Years		4–5Years		After5 Years
	(in thousands)
Contractual Obligations:
FHLB advances	$	90,000	$	90,000	$	—	$	—	$	—
Subordinated debt	70,000		—		—		—		70,000
Operating lease agreements	1614,~~400~~216		2,~~336~~375		4,~~632~~702		4,~~447~~081		43,~~985~~058
Time deposits with stated maturity dates	1,~~315~~370,~~073~~972		~~979~~1,~~807~~348,808		~~318~~5,~~985~~917		6,~~283~~222		910,~~998~~025
Total contractual obligations	$	1,~~491~~545,~~473~~188	$	1,~~072~~441,~~143~~183	$	~~323~~10,~~617~~619	$	10,~~730~~303	$	8483,~~983~~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 $~~333~~453.5 million ~~and $561.0 million, respectively~~ at December 31, ~~2023 and 2022~~2024. The following table summarizes our commitments to extend credit as of the ~~dates~~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.

As of December 31, 2024

	Amount of Commitment Expiration per Period
	Total		Less Than1 Year		1–3Years		4–5Years		After5 Years
	(in thousands)
Other Commitments:
Loan commitments	$	236,878	$	169,358	$	5,755	$	58,319	$	3,446
Loan pipeline	$	218,612	$	218,612	$	—	$	—	$	—
Undisbursed construction loans	93,653		—		39,863		7,045		46,745
Loan commitments	$	173,203	$	105,043	$	56,806	$	250	$	11,104
Unused home equity lines of credit	2,952		—		—		—		2,952
Undisbursed construction loans	59,355		11,663		36,806		3,859		7,027
Total other commitments	$	333,483	$	169,358	$	45,618	$	65,364	$	53,143
Unused home equity lines of credit	2,331		—		—		—		2,331
Total other commitments	$	453,501	$	335,318	$	93,612	$	4,109	$	20,462

As of December 31, 2022

	Amount of Commitment Expiration per Period
	Total		Less Than1 Year		1–3Years		4–5Years		After5 Years
	(in thousands)
Other Commitments:
Loan commitments	$	376,512	$	262,758	$	29,433	$	79,046	$	5,275
Undisbursed construction loans	180,768		32,708		46,777		44,187		57,096
Unused home equity lines of credit	3,684		10		—		—		3,674
Total other commitments	$	560,964	$	295,476	$	76,210	$	123,233	$	66,045

Recently Issued Accounting Pronouncements

See Note 1 to our Consolidated Financial Statements for details of recently issued accounting pronouncements and their expected impact on our financial statements.

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:

Parallel Ramp

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, 2023, the Bank has met all minimum regulatory capital requirements to be considered "well capitalized".


	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

The following tables set forth the estimated percentage change in our net interest income at risk over one-year simulation periods beginning December 31, 2023 and 2022:


	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)

	Estimated Percent Changein Net Interest Income
	At December 31,
Rate Changes (basis points)	2023		2022
(100)	1.70	%	2.20	%
200	(3.20)		(4.80)

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.

	Estimated Percent Changein Net Interest Income
	At December 31,
Rate Changes (basis points)	2023		2022
(100)	3.60	%	2.20	%
100	(2.70)		(2.70)
200	(5.80)		(6.00)
300	(8.10)		(8.90)

The net interest income at risk simulation results indicate that, as of December 31, 2023, we remain liability sensitive. The 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 Changein Economic Value of Equity
	At December 31,
Rate Changes (basis points)	~~2023~~2024		~~2022~~2023
(100)	20.7040	%	2.3070	%
100	(31.8030)		(3.9080)
200	(93.4060)		(9.3040)
300	(124.6070)		(1412.0060)

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.

~~and~~mortgage ~~the~~loans ~~composition~~involve a level of ~~our~~risk ~~balance~~that ~~sheet~~unforeseen changes in prepayment speeds may ~~change~~cause related cash flows to avary ~~different~~significantly ~~degree~~in ~~than~~differing ~~estimated~~rate environments. ~~ALCO~~Such ~~recognizes~~changes ~~that~~could ~~deposit~~affect ~~balances~~the ~~could~~level ~~shift~~of ~~into~~reinvestment ~~higher~~risk ~~yielding~~associated ~~alternatives~~with cash flow from these instruments, as ~~market~~well ~~rates~~as ~~change~~their market value. ~~ALCO~~Changes ~~has~~in ~~modeled~~prepayment ~~increased~~speeds ~~costs~~could ofalso ~~deposits~~increase inor decrease the ~~rising~~amortization ~~rate~~of ~~simulation~~premium ~~scenarios~~or ~~presented~~accretion ~~above.~~of discounts related to such instruments, thereby affecting interest income.

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 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.

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, ~~2023~~2024 and ~~2022~~2023

Consolidated Statements of Income for the years ended December 31, ~~2023~~2024 and ~~2022~~2023

Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, ~~2023~~2024 and ~~2022~~2023

Consolidated Statements of Shareholders’ Equity for the years ended December 31, ~~2023~~2024 and ~~2022~~2023

Consolidated Statements of Cash Flows for the years ended December 31, ~~2023~~2024 and ~~2022~~2023

Notes to Consolidated Financial Statements

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, ~~2023~~2024 and ~~2022~~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, ~~2023~~2024 and ~~2022~~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, ~~2023~~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 125, ~~2024~~2025, expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

Change in accounting principle

As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for the recognition and measurement of credit losses in 2023 due to the adoption of Accounting Standard Codification Topic 326, Financial Instruments ‑ Credit Losses.

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 ~~of the board of directors~~ 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 athe 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 ~~and Unfunded Commitments~~

As described in Notes 1 and 5 to the consolidated financial statements, the Company’s allowance for credit losses for loans totaled $~~27.9~~29 million as of December 31, ~~2023~~2024, which consists of an allowance for collectively evaluated loans of $~~27.0~~29 million and anno allowance for individually evaluated loans ~~of $0~~.~~9 million. The Company’s allowance for credit losses for unfunded commitments totaled $0.9 million as of December 31, 2023.~~ 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”). ~~The allowance for credit losses on unfunded commitments is based on the same assumptions as funded loans and also considers the expected utilization of unfunded commitments.~~

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

~~property~~market ~~price indices~~conditions, ~~and~~changes ~~employment~~in ~~measures,~~loan ~~among~~composition ~~others.~~or ~~The~~concentrations, ~~scenarios~~performance ~~are~~trends, ~~probability-weighted~~regulatory ~~based~~changes, onuncertainty ~~available~~in ~~information~~macroeconomic atforecasts, ~~the~~or ~~time~~other ~~the~~asset ~~calculation~~specific isrisk ~~conducted~~characteristics.

~~Management~~Key ~~considers~~assumptions ~~qualitative~~used ~~adjustments~~in tothe ~~expected~~models ~~credit~~include ~~loss~~portfolio ~~estimates~~segmentation, ~~for~~risk ~~information~~rating, ~~not~~forecasted ~~already~~economic ~~captured~~scenarios, in the ~~quantitative~~peer ~~loss~~scalar, ~~estimation~~and ~~models~~qualitative adjustments, among others. ~~The~~Loan ~~measurement~~portfolios ofare ~~expected~~segmented ~~credit~~by ~~losses~~loan islevel ~~influenced~~attributes bysuch ~~the~~as ~~Company’s~~loan ~~judgment~~type, ofsize, ~~market~~date ~~conditions~~of origination, ~~changes~~and indelinquency status to create homogenous loan ~~composition~~pools. orPool ~~concentrations,~~level ~~performance~~metrics ~~trends~~are calculated, ~~regulatory~~and ~~changes,~~loss ~~uncertainty~~rates inare ~~macroeconomic~~subsequently ~~forecasts,~~applied orto ~~other~~the ~~asset~~pools ~~specific~~as ~~risk~~the loans have similar characteristics.

~~Key~~We ~~assumptions~~identified ~~used in~~ the ~~models~~peer ~~include~~bank ~~portfolio~~determinations ~~segmentation,~~for ~~the peer scalar~~scaling, forecasted economic scenarios, and qualitative ~~adjustments,~~adjustment ~~and~~components of the ~~expected~~allowance ~~utilization~~for ofcredit ~~unfunded~~losses ~~commitments,~~for ~~among~~loans ~~others.~~(herein ~~Loan~~referred ~~portfolios~~to ~~are~~as ~~segmented~~“the byallowance”) ~~loan~~as ~~level~~a ~~attributes~~critical ~~such~~audit asmatter ~~loan~~because ~~type,~~auditing ~~size,~~the ~~date~~underlying assumptions in those components involved a high degree of ~~origination,~~complexity and ~~delinquency~~auditor ~~status~~judgment given the high degree of subjectivity exercised by management in developing the allowance, which resulted in an increase in audit effort due to ~~create~~the ~~homogenous~~impact ~~loan~~these ~~pools.~~assumptions ~~Pool~~have ~~level~~on ~~metrics~~the ~~are~~accounting ~~calculated~~estimate. Additionally, ~~and~~we ~~loss~~used ~~rates~~an ~~are~~internal ~~subsequently~~economic ~~applied~~specialist to assist in auditing the ~~pools~~reasonable asand supportable forecast based on the ~~loans~~subjectivity ~~have~~and ~~similar~~complexity ~~characteristics~~involved with determining that assumption.

WeOur ~~identified~~audit ~~the~~procedures related to management’s selection of the models being used in determining the ~~loss rates,~~ peer bank determinations for scaling, forecasted economic scenarios, ~~qualitative adjustments,~~ and ~~expected~~qualitative ~~utilization~~adjustment ~~of unfunded commitments~~ components of the allowance ~~for~~included ~~credit losses for loans and~~ the allowance for credit losses on unfunded loan commitments (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 allowancefollowing, ~~which~~among ~~resulted in an increase in audit effort and the use of an internal economic specialist due to the impact these assumptions have on the accounting estimate.~~others:

~~Our~~–We ~~audit~~obtained ~~procedures~~an understanding of the relevant controls related to management’s selection of the ~~models being used in determining the loss rates,~~ peer bank determinations for scaling, forecasted economic scenarios, ~~qualitative adjustments,~~ and ~~expected~~qualitative ~~utilization~~adjustment ~~of unfunded commitments~~ components of the allowance ~~included~~and ~~the~~tested ~~following,~~such ~~among~~controls ~~others:~~for design and operating effectiveness.

–We ~~obtained~~evaluated ~~an understanding of the relevant controls related to~~ management’s ~~selection~~judgments ofand ~~the~~assumptions ~~models being~~ used in ~~determining~~ the ~~loss~~development ~~rates,~~of ~~peer~~the ~~bank~~qualitative ~~determinations~~factors for ~~scaling,~~reasonableness ~~forecasted~~and ~~economic~~tested ~~scenarios,~~the ~~qualitative~~reliability ~~adjustments,~~of ~~and~~the ~~expected~~underlying ~~utilization~~data ofon ~~unfunded~~which ~~commitments~~these ~~components~~factors ofare ~~the~~based, ~~allowance~~by ~~and~~comparing ~~tested~~information ~~such~~to ~~controls~~source ~~for~~documents ~~design~~ and ~~operating~~external ~~effectiveness~~information sources.

–We ~~evaluated~~tested management’s ~~judgments~~process and ~~assumptions~~significant ~~used~~judgments in the ~~development~~selection of the ~~qualitative~~peer ~~factors~~bank determinations for ~~reasonableness,~~scaling and ~~tested~~forecasted ~~the~~economic ~~reliability~~scenarios of the ~~underlying~~allowance ~~data~~for oncredit ~~which these factors are based~~losses, bywhich ~~comparing~~included: ~~information to source documents and external information sources.~~

–We tested management’s process and significant judgments in the selection of the models being used in determining the loss rates, peer bank determinations for scaling, forecasted economic scenarios, and expected utilization of unfunded commitments of the allowance for credit losses, which included:

•Evaluating the reasonableness of management’s judgments related to the establishment of the models being used in determining the loss rates and expected utilization of unfunded commitments and testing the completeness and accuracy of data used by management in determining inputs to the models by agreeing those inputs to internal information sources.

•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 ~~weightings, 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.

•WeEvaluating ~~obtained and assessed~~ the reasonableness of ~~model~~management’s ~~validations~~weighting ~~performed~~of byselected aforecasted ~~reputable~~economic ~~third~~scenarios ~~party evaluating the statistical documentation and process used~~ by ~~management~~considering ~~in validating~~ the ~~models~~consistency ~~established~~with byavailable ~~the~~external ~~vendor~~market data.

/s/ RSM US LLP

We have served as the Company’s auditor since 2017.

Hartford, Connecticut

March 125, ~~2024~~2025

Bankwell Financial Group, Inc.

Consolidated Balance Sheets

(In thousands, except share data)

	December 31,
	2023		2022
	2024		2023
ASSETS
Cash and due from banks	$	~~267~~293,~~521~~552	$	~~344~~267,~~925~~521
Federal funds sold	113,~~636~~972		101,~~754~~636
Cash and cash equivalents	~~269~~307,~~157~~524		$	~~355~~269,~~679~~157
Investment securities
Marketable equity securities, at fair value	2,~~070~~118		12,~~988~~070
Available for sale investment securities, at fair value	~~109~~107,~~736~~428		~~103~~109,~~663~~736
Held to maturity investment securities, at amortized cost (fair values of $15,903 and $15,435 at December 31, 2023 and 2022, respectively)	15,817		15,983
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	~~127~~146,~~623~~099		~~121~~127,~~634~~623
Loans receivable (net of ACL-Loans of $27,946 and $22,431 at December 31, 2023 and 2022, respectively)	2,685,301		2,646,384
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
Accrued interest receivable	14,863		13,070
Other real estate owned	8,299		—
Federal Home Loan Bank stock, at cost	5,696		5,216
Accrued interest receivable	14,535		14,863
Premises and equipment, net	27,018		27,199
Federal Home Loan Bank stock, at cost	5,655		5,696
Bank-owned life insurance	51,435		50,243
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,~~383~~742		79,~~422~~383
Other assets	2224,~~417~~427		2322,~~013~~417
Total assets	$	3,~~215~~268,~~482~~476	$	3,~~252~~215,~~449~~482
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits
Noninterest bearing deposits	$	~~346~~321,~~172~~875	$	~~404~~346,~~559~~172
Interest bearing deposits	2,~~390~~465,~~585~~695		2,~~396~~390,~~259~~585
Total deposits	2,~~736~~787,~~757~~570		2,~~800~~736,~~818~~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, 2023 and 2022, respectively, less unamortized debt issuance costs of $795 and $1,041 at December 31, 2023 and 2022, respectively)	69,205		68,959
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	5350,~~768~~935		5453,~~203~~768
Total liabilities	2,~~949~~997,~~730~~956		32,~~013~~949,~~980~~730
Commitments and contingencies (Note 12)
Shareholders’ equity
Common stock, no par value; 10,000,000 shares authorized, 7,882,616 and 7,730,699 shares issued and outstanding at December 31, 2023 and 2022, respectively	118,247		115,018
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	~~149~~152,~~169~~656		~~123~~149,~~640~~169
Accumulated other comprehensive loss	(1,~~664~~244)		(~~189~~1,664)
Total shareholders’ equity	~~265~~270,~~752~~520		~~238~~265,~~469~~752
Total liabilities and shareholders’ equity	$	3,~~215~~268,~~482~~476	$	3,~~252~~215,~~449~~482

See Notes to Consolidated Financial Statements

Bankwell Financial Group, Inc.

Consolidated Statements of Income

(In thousands, except share data)

Year Ended December 31,

2023

2022

2024

2023

Interest and dividend income

Interest and fees on loans

~~170~~172,~~181~~832

~~111~~170,~~242~~181

Interest and dividends on securities

45,~~126~~192

34,~~203~~126

Interest on cash and cash equivalents

1413,~~147~~970

314,~~500~~147

Total interest and dividend income

~~188~~191,~~454~~994

~~117~~188,~~945~~454

Interest expense

Interest expense on deposits

86101,~~906~~258

1986,~~364~~906

Interest expense on borrowings

7,~~080~~454

37,~~838~~080

Total interest expense

93108,~~986~~712

2393,~~202~~986

Net interest income

9483,~~468~~282

94,~~743~~468

Provision for loan losses

866

5,437

Provision for credit losses

22,620

866

Net interest income after provision for loan losses

93,602

89,306

Net interest income after provision for credit losses

60,662

93,602

Noninterest income

Gains and fees from sales of loans

~~1,972~~523

1,~~236~~972

Bank owned life insurance

1,~~192~~356

1,~~069~~192

Service charges and fees

1,~~629~~963

1,~~072~~629

Other

49(124)

~~(337)~~49

Total noninterest income

43,~~842~~718

34,~~040~~842

Noninterest expense

Salaries and employee benefits

2423,~~595~~746

2224,~~237~~595

Occupancy and equipment

89,~~665~~494

8,~~297~~

Filing Compare · Bankwell Financial Group, Inc.