PART I – FINANCIAL INFORMATION [Item 1. Financial Statements (unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) This section presents the unaudited consolidated financial statements, including balance sheets, income statements, and cash flows, with detailed notes [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets%20as%20of%20June%2030%2C%202025%20and%20December%2031%2C%202024) The consolidated balance sheets show a slight decrease in total assets and deposits, while shareholders' equity increased by **4.72%** | Metric (In thousands) | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :-------------------- | :------------ | :---------------- | :--------- | :--------- | | Total assets | $3,236,593 | $3,268,476 | $(31,883) | -0.98% | | Loans receivable (net of ACL-Loans) | $2,635,742 | $2,672,959 | $(37,217) | -1.39% | | Total deposits | $2,759,281 | $2,787,570 | $(28,289) | -1.01% | | Total shareholders' equity | $283,290 | $270,520 | $12,770 | 4.72% | [Consolidated Statements of Income](index=5&type=section&id=Consolidated%20Statements%20of%20Income%20for%20the%20three%20and%20six%20months%20ended%20June%2030%2C%202025%20and%202024) Net income significantly increased for both periods, driven by higher net interest income and a credit for credit losses | Metric (In thousands, except share data) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change (YoY) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (YoY) | | :--------------------------------------- | :--------------------------- | :--------------------------- | :----------- | :--------------------------- | :--------------------------- | :----------- | | Total interest and dividend income | $48,649 | $47,679 | 2.03% | $97,126 | $95,960 | 1.21% | | Total interest expense | $24,713 | $26,460 | -6.59% | $51,124 | $53,594 | -4.61% | | Net interest income | $23,936 | $21,219 | 12.80% | $46,002 | $42,366 | 8.58% | | (Credit) provision for credit losses | $(411) | $8,183 | -105.02% | $52 | $11,866 | -99.56% | | Total noninterest income | $2,012 | $683 | 194.58% | $3,517 | $1,598 | 120.09% | | Total noninterest expense | $14,546 | $12,245 | 18.80% | $28,687 | $25,542 | 12.31% | | Net income | $9,088 | $1,118 | 712.88% | $15,976 | $4,881 | 227.31% | | Basic EPS | $1.16 | $0.14 | 728.57% | $2.04 | $0.62 | 229.03% | | Diluted EPS | $1.15 | $0.14 | 721.43% | $2.03 | $0.62 | 227.42% | | Dividends per common share | $0.20 | $0.20 | 0.00% | $0.40 | $0.40 | 0.00% | [Consolidated Statements of Comprehensive Income (Loss)](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)%20for%20the%20three%20and%20six%20months%20ended%20June%2030%2C%202025%20and%202024) Comprehensive income saw substantial growth for both periods, primarily due to a significant increase in net income | Metric (In thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change (YoY) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (YoY) | | :-------------------- | :--------------------------- | :--------------------------- | :----------- | :--------------------------- | :--------------------------- | :----------- | | Net income | $9,088 | $1,118 | 712.88% | $15,976 | $4,881 | 227.31% | | Total other comprehensive income (loss), net of tax | $293 | $(237) | -223.63% | $341 | $(292) | -216.78% | | Comprehensive income | $9,381 | $881 | 964.93% | $16,317 | $4,589 | 255.57% | [Consolidated Statements of Shareholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Shareholders'%20Equity%20for%20the%20three%20and%20six%20months%20ended%20June%2030%2C%202025%20and%202024) Shareholders' equity increased by **$12.8 million**, primarily due to net income, partially offset by dividends and share repurchases | Metric (In thousands) | Balance at Dec 31, 2024 | Balance at Jun 30, 2025 | Change ($) | Change (%) | | :-------------------- | :---------------------- | :---------------------- | :--------- | :--------- | | Common Stock | $119,108 | $118,698 | $(410) | -0.34% | | Retained Earnings | $152,656 | $165,495 | $12,839 | 8.41% | | Accumulated other comprehensive loss | $(1,244) | $(903) | $341 | -27.41% | | Total Shareholders' Equity | $270,520 | $283,290 | $12,770 | 4.72% | - For the six months ended June 30, 2025, net income contributed **$15,976 thousand** to retained earnings, while cash dividends declared reduced it by **$3,137 thousand**[11](index=11&type=chunk) - Stock-based compensation expense increased common stock by **$924 thousand**, and repurchase of common stock decreased it by **$1,334 thousand**[11](index=11&type=chunk) [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20six%20months%20ended%20June%2030%2C%202025%20and%202024) Net cash from operating activities decreased, while investing activities increased, resulting in a net increase in cash and cash equivalents | Metric (In thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (YoY) | | :-------------------- | :--------------------------- | :--------------------------- | :----------- | | Net cash provided by operating activities | $10,396 | $16,178 | -35.74% | | Net cash provided by investing activities | $52,304 | $45,488 | 14.98% | | Net cash used in financing activities | $(47,760) | $(79,443) | -39.88% | | Net increase (decrease) in cash and cash equivalents | $14,940 | $(17,777) | -184.04% | | Cash and cash equivalents, End of period | $322,464 | $251,380 | 28.28% | [Notes to Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations of accounting policies, estimates, and specific financial instrument disclosures [1. Nature of Operations and Summary of Significant Accounting Policies](index=11&type=section&id=1.%20Nature%20of%20Operations%20and%20Summary%20of%20Significant%20Accounting%20Policies) The Company operates as a bank holding company, adhering to GAAP with significant estimates for ACL-Loans and derivatives, and adopted ASU No. 2023-06 - Bankwell Financial Group, Inc. is a bank holding company headquartered in New Canaan, Connecticut, operating through its subsidiary, Bankwell Bank, a Connecticut state chartered commercial bank[14](index=14&type=chunk)[15](index=15&type=chunk) - The Company has one reportable segment, with all activities interrelated and assessed based on mutual support, and the CEO acts as the Chief Operating Decision Maker (CODM)[18](index=18&type=chunk)[19](index=19&type=chunk) - Material estimates susceptible to significant near-term change include **ACL-Loans**, derivative instrument valuation, investment securities valuation, Allowance for Credit Losses-Securities, and deferred income taxes valuation[17](index=17&type=chunk) - The Company adopted ASU No. 2023-06 in December 2024, which did not have a material impact on existing disclosures, and is monitoring ASU No. 2024-03 and ASU No. 2023-09 for future adoption[34](index=34&type=chunk)[35](index=35&type=chunk)[45](index=45&type=chunk) [2. Investment Securities](index=15&type=section&id=2.%20Investment%20Securities) The investment securities portfolio totaled **$142.6 million** with a net unrealized loss of **$1.8 million**, primarily in U.S. Government obligations | Metric (In thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Total investment securities | $142,552 | $146,099 | | Total available for sale securities (Fair Value) | $103,930 | $107,428 | | Total held to maturity securities (Fair Value) | $37,764 | $36,691 | | Unrealized Losses (In thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------- | :------------ | :---------------- | | U.S. Government and agency obligations | $(2,471) | $(3,927) | | Corporate bonds | $(779) | $(1,154) | | State agency and municipal obligations | $(371) | $(1,090) | | Total investment securities | $(3,621) | $(6,171) | - The Company considers unrealized losses in U.S. Government and agency obligations to be temporarily impaired due to guaranteed contractual cash flows and monitors corporate bonds and state agency/municipal bonds for minimal default risk[51](index=51&type=chunk)[52](index=52&type=chunk) - The Company has the intent and ability to retain its investment securities in an unrealized loss position at June 30, 2025, until the decline in value has recovered or the security has matured[52](index=52&type=chunk) [3. Loans Receivable and ACL-Loans](index=18&type=section&id=3.%20Loans%20Receivable%20and%20ACL-Loans) The Company's loan portfolio decreased slightly to **$2.67 billion**, with ACL-Loans increasing to **$29.26 million**, while nonaccrual loans significantly decreased to **$23.88 million** due to a loan sale | Loan Type (In thousands) | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :----------------------- | :------------ | :---------------- | :--------- | :--------- | | Real estate loans: | | | | | | Residential | $34,978 | $42,766 | $(7,788) | -18.21% | | Commercial | $1,802,224 | $1,899,134 | $(96,910) | -5.10% | | Construction | $203,758 | $173,555 | $30,203 | 17.40% | | Commercial business | $559,221 | $515,125 | $44,096 | 8.56% | | Consumer | $68,801 | $75,308 | $(6,507) | -8.64% | | Total loans | $2,668,982 | $2,705,888 | $(36,906) | -1.36% | | ACL-Loans Activity (In thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Beginning balance | $29,485 | $27,991 | $29,007 | $27,946 | | Net recoveries (charge-offs) | $102 | $(276) | $42 | $(3,929) | | (Credit) provision for credit losses - loans | $(331) | $8,368 | $207 | $12,066 | | Ending balance | $29,256 | $36,083 | $29,256 | $36,083 | | Asset Quality Metric | June 30, 2025 | December 31, 2024 | | :------------------- | :------------ | :---------------- | | Nonaccrual loans | $23,875 | $53,277 | | Total nonperforming assets | $25,159 | $61,576 | | Nonperforming assets to total assets | 0.78% | 1.88% | | Nonaccrual loans to total loans | 0.89% | 1.97% | | ACL-loans as a % of total loans | 1.10% | 1.07% | | ACL-loans as a % of nonperforming loans | 122.54% | 54.45% | - The significant decrease in nonaccrual loans and total nonperforming assets was primarily due to the sale of a **$27.1 million** multifamily commercial real estate loan on nonperforming status at par value in Q1 2025[216](index=216&type=chunk) [4. Shareholders' Equity](index=32&type=section&id=4.%20Shareholders'%20Equity) Common stock outstanding increased slightly, and a new share repurchase plan authorized **250,000 shares**, with **14,626 shares** repurchased in April 2025 | Metric | June 30, 2025 | December 31, 2024 | | :----- | :------------ | :---------------- | | Shares authorized | 10,000,000 | 10,000,000 | | Shares issued and outstanding | 7,873,387 | 7,859,873 | - The Company's Board of Directors authorized a new share repurchase plan on October 23, 2024, allowing for the repurchase of up to **250,000 shares** of outstanding common stock, terminating the prior plan[92](index=92&type=chunk)[257](index=257&type=chunk) Share Repurchase Activity (3 Months Ended June 30, 2025) | Share Repurchase Activity (3 Months Ended June 30, 2025) | | :------------------------------------------------------- | | Total Number of Shares Purchased: 14,626 | | Average Price Paid per Share: $28.86 | | Maximum Number of Shares that May Yet Be Purchased: 205,450 | [5. Comprehensive Income](index=32&type=section&id=5.%20Comprehensive%20Income) Comprehensive income includes net income and OCI components, with net OCI at **$341 thousand** for the six months, a significant improvement from the prior year | Metric (In thousands, net of tax) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (YoY) | | :-------------------------------- | :--------------------------- | :--------------------------- | :----------- | | Net Unrealized Gain (Loss) on Available for Sale Securities | $1,420 | $188 | 655.32% | | Net Unrealized Gain (Loss) on Interest Rate Swaps | $(1,079) | $(480) | -124.79% | | Net other comprehensive income (loss) | $341 | $(292) | -216.78% | - The Company uses derivative instruments, specifically interest rate swaps, to manage economic risks, including interest rate risk, and does not use them for speculative purposes[94](index=94&type=chunk)[120](index=120&type=chunk) - Amounts reclassified from accumulated other comprehensive loss related to derivatives (unrealized gains on derivatives) were **$610 thousand** for the six months ended June 30, 2025, reducing interest expense on borrowings[96](index=96&type=chunk) [6. Earnings per share ("EPS")](index=34&type=section&id=6.%20Earnings%20per%20share%20(%22EPS%22)) EPS is calculated using the two-class method, with basic EPS at **$2.04** and diluted EPS at **$2.03** for the six months, significantly higher year-over-year - Unvested restricted stock awards with non-forfeitable dividend rights are considered participating securities and are included in EPS computation using the two-class method[97](index=97&type=chunk) | Metric (In thousands, except per share data) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------------------------------- | :--------------------------- | :--------------------------- | | Net income | $15,976 | $4,881 | | Net income for earnings per share calculation | $15,788 | $4,750 | | Weighted average shares outstanding, basic | 7,724,143 | 7,705,598 | | Weighted average shares outstanding, diluted | 7,795,820 | 7,721,880 | | Basic earnings per common share | $2.04 | $0.62 | | Diluted earnings per common share | $2.03 | $0.62 | [7. Regulatory Matters](index=35&type=section&id=7.%20Regulatory%20Matters) Both the Bank and Company met all capital adequacy requirements, exceeding "well-capitalized" thresholds, and are subject to larger company capital requirements - As of June 30, 2025, both Bankwell Bank and Bankwell Financial Group, Inc. met all capital adequacy requirements and exceeded the regulatory minimum capital levels to be considered "well-capitalized"[104](index=104&type=chunk)[235](index=235&type=chunk) Capital Ratios (June 30, 2025) | Capital Ratios (June 30, 2025) | Bankwell Bank (Actual) | Bankwell Financial Group, Inc. (Actual) | | :----------------------------- | :--------------------- | :-------------------------------------- | | Common Equity Tier 1 Capital to Risk Weighted Assets | 12.20% | 10.18% | | Tier I Capital to Risk-Weighted Assets | 12.20% | 10.18% | | Total Capital to Risk-Weighted Assets | 13.28% | 13.78% | | Tier I Capital to Average Assets | 10.57% | 8.81% | - The Company became subject to larger company capital requirements effective March 31, 2024, and must maintain a capital conservation buffer of **2.5%** of total risk-weighted assets to avoid restrictions on capital distributions[103](index=103&type=chunk)[102](index=102&type=chunk)[237](index=237&type=chunk) [8. Deposits](index=38&type=section&id=8.%20Deposits) Total deposits decreased by **$28.3 million** to **$2.76 billion**, with brokered deposits totaling **$623.9 million** as a significant funding component | Deposit Type (In thousands) | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :-------------------------- | :------------ | :---------------- | :--------- | :--------- | | Noninterest bearing deposits | $397,195 | $321,875 | $75,320 | 23.40% | | Interest bearing deposits | $2,362,086 | $2,465,695 | $(103,609) | -4.20% | | Total deposits | $2,759,281 | $2,787,570 | $(28,289) | -1.01% | Brokered Deposits (In thousands) | Brokered Deposits (In thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------- | :------------ | :---------------- | | Brokered certificates of deposits | $570,200 | $651,500 | | Brokered money market accounts | $53,700 | $53,500 | | Certificates of deposits from national listing services | $68,400 | $109,100 | Interest Expense on Deposits (In thousands) | Interest Expense on Deposits (In thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total interest expense on deposits | $23,083 | $24,677 | $47,855 | $50,039 | [9. Stock-Based Compensation](index=39&type=section&id=9.%20Stock-Based%20Compensation) The Company operates under the 2022 Stock Plan, with **300,856 shares** reserved, and recognized **$0.9 million** in restricted stock expense - The Company has **300,856 shares** reserved for future issuance under the 2022 Bankwell Financial Group, Inc. Stock Plan[114](index=114&type=chunk) Restricted Stock Activity (6 Months Ended June 30, 2025) | Restricted Stock Activity (6 Months Ended June 30, 2025) | | :------------------------------------------------------- | | Unvested at beginning of period: 223,875 shares | | Granted: 72,774 shares | | Vested: (96,838) shares | | Forfeited: (14,710) shares | | Unvested at end of period: 185,101 shares | - Restricted stock expense for the six months ended June 30, 2025, was **$0.9 million**, with **$4.2 million** of unrecognized stock compensation expense remaining, expected to be recognized over a weighted average period of **1.4 years**[118](index=118&type=chunk) [10. Derivative Instruments](index=39&type=section&id=10.%20Derivative%20Instruments) The Company uses interest rate derivatives, including cash flow and fair value swaps, to manage interest rate risk, not for speculation - The Company uses interest rate derivative financial instruments (interest rate swaps) to manage economic risks, including interest rate risk, and does not use them for speculative purposes[120](index=120&type=chunk) - As of June 30, 2025, the Company was party to one cash flow swap with a notional amount of **$25 million** and one pay-fixed portfolio layer method fair value swap with a total notional amount of **$150 million**, both designated as hedging instruments[120](index=120&type=chunk)[121](index=121&type=chunk) Derivative Type (In thousands) | Derivative Type (In thousands) | Notional Amount (June 30, 2025) | Fair Value (June 30, 2025) | | :----------------------------- | :------------------------------ | :------------------------- | | Interest rate swap (cash flow hedge) | $25,000 | $1,854 (asset) | | Fair value swap | $150,000 | $242 (liability) | | Interest rate swaps (not designated as hedging instruments) | $38,500 | $3,169 (asset) / $3,169 (liability) | - Derivatives not designated as hedges are used to offset client-related interest rate swaps, minimizing the Company's net risk exposure, with changes in fair value recognized directly in earnings[125](index=125&type=chunk) [11. Fair Value of Financial Instruments](index=44&type=section&id=11.%20Fair%20Value%20of%20Financial%20Instruments) Fair value information for financial instruments is disclosed using GAAP's hierarchy, with Level 3 inputs for held-to-maturity securities and loans receivable - The Company estimates fair values for financial instruments using GAAP, which defines fair value as the exit price in an orderly transaction between market participants[140](index=140&type=chunk)[154](index=154&type=chunk) - Fair value hierarchy levels are: Level 1 (quoted prices in active markets), Level 2 (significant other observable inputs), and Level 3 (significant unobservable inputs reflecting company assumptions)[156](index=156&type=chunk) Financial Instrument (In thousands) | Financial Instrument (In thousands) | Carrying Value (June 30, 2025) | Fair Value (June 30, 2025) | Level 1 | Level 2 | Level 3 | | :---------------------------------- | :----------------------------- | :------------------------- | :------ | :------ | :------ | | Financial Assets: | | | | | | | Cash and due from banks | $313,998 | $313,998 | $313,998 | — | — | | Available for sale securities | $103,930 | $103,930 | $64,223 | $39,707 | — | | Held to maturity securities | $36,434 | $37,764 | — | — | $37,764 | | Loans receivable, net | $2,635,742 | $2,630,786 | — | — | $2,630,786 | | Derivative asset | $5,024 | $5,024 | — | $5,024 | — | | Financial Liabilities: | | | | | | | Noninterest bearing deposits | $397,195 | $397,195 | — | $397,195 | — | | Time deposits | $1,276,998 | $1,277,723 | — | — | $1,277,723 | | Advances from the FHLB | $75,000 | $74,958 | — | — | $74,958 | | Subordinated debentures | $69,574 | $66,826 | — | — | $66,826 | | Derivative liability | $3,411 | $3,411 | — | $3,411 | — | - Fair value for held-to-maturity securities (Level 3) is estimated using a discounted cash flow model with discount rates ranging from **4.2% to 6.6%** at June 30, 2025[145](index=145&type=chunk) - The fair value of loans receivable (Level 3) is estimated by discounting future cash flows using rates for similar loans, incorporating prepayment, default, and loss severity assumptions, and includes an expected credit loss[147](index=147&type=chunk) [12. Fair Value Measurements](index=47&type=section&id=12.%20Fair%20Value%20Measurements) The Company measures financial instruments at fair value, with recurring measurements mostly Level 1 or 2, and non-recurring predominantly Level 3 due to unobservable inputs Financial Instrument (In thousands) | Financial Instrument (In thousands) | Level 1 (June 30, 2025) | Level 2 (June 30, 2025) | Level 3 (June 30, 2025) | | :---------------------------------- | :---------------------- | :---------------------- | :---------------------- | | Marketable equity securities | $2,188 | — | — | | Available for sale investment securities: | | | | | U.S. Government and agency obligations | $64,223 | $26,486 | — | | Corporate bonds | — | $13,221 | — | | Derivative asset | — | $5,024 | — | | Derivative liability | — | $3,411 | — | Financial Instrument (In thousands) | Financial Instrument (In thousands) | Level 1 (June 30, 2025) | Level 2 (June 30, 2025) | Level 3 (June 30, 2025) | | :---------------------------------- | :---------------------- | :---------------------- | :---------------------- | | Individually evaluated loans | — | — | $63,857 | | Servicing asset, net | — | — | $671 | - Individually evaluated loans and servicing assets are measured at fair value on a non-recurring basis, primarily classified as Level 3 due to reliance on unobservable inputs like appraisals, cash surrender value, and discounted cash flow models[161](index=161&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk) - For Level 3 individually evaluated loans, unobservable inputs include discounts to appraised value (**0%-8.00%**) and discount rates (**3.38%-7.91%**) for discounted cash flows[161](index=161&type=chunk) [13. Subordinated debentures](index=50&type=section&id=13.%20Subordinated%20debentures) The Company has two **$35.0 million** subordinated debentures, both non-callable for five years and qualifying as Tier 2 capital - The Company has two subordinated debentures: a **$35.0 million** 2021 Note (fixed **3.25%** until Oct 2026, then SOFR + **233 bps**) and a **$35.0 million** 2022 Note (fixed **6.0%** until Aug 2027, then SOFR + **326 bps**)[164](index=164&type=chunk)[165](index=165&type=chunk)[166](index=166&type=chunk)[167](index=167&type=chunk) - Both notes are non-callable for five years from issuance and have been structured to qualify as Tier 2 capital under regulatory guidelines[165](index=165&type=chunk)[167](index=167&type=chunk) Metric (In thousands) | Metric (In thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Unamortized debt issuance costs | $426 | $549 | Interest Expense (In thousands) | Interest Expense (In thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Interest expense related to subordinated debt | $800 | $800 | $1,600 | $1,600 | | Amortization expense for debt issuance costs | $62 | $62 | $123 | $123 | [14. Subsequent Events](index=50&type=section&id=14.%20Subsequent%20Events) Subsequent events include the signing of the "One Big Beautiful Bill Act" and the declaration of a **$0.20** per share cash dividend - On July 4, 2025, President Trump signed the "One Big Beautiful Bill Act" into law, which includes changes to federal tax law allowing for more favorable deductibility of certain business expenses starting in 2025[170](index=170&type=chunk) - On July 28, 2025, the Company's Board of Directors declared a **$0.20** per share cash dividend, payable on August 22, 2025, to shareholders of record on August 11, 2025[171](index=171&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=51&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the Company's financial performance, highlighting improved net income and EPS, changes in net interest income, asset quality, liquidity, and capital resources [General](index=51&type=section&id=General) Bankwell Financial Group operates as a bank holding company, generating revenue from loans and investments, primarily funded by deposits - Bankwell Financial Group, Inc. is a bank holding company serving small and medium-sized businesses and retail clients primarily through its subsidiary, Bankwell Bank, in Connecticut[173](index=173&type=chunk) - The Company generates most of its revenue from interest on loans and investments and fee-based revenues, with primary funding from deposits and largest expenses being interest on deposits and salaries[175](index=175&type=chunk) [Executive Overview](index=51&type=section&id=Executive%20Overview) The Company focuses on client-centric products, organic growth, strategic acquisitions, efficient infrastructure, and disciplined risk management - The Company focuses on being a banking provider of choice by offering client-centric products and services, pursuing organic growth and strategic acquisitions, utilizing efficient infrastructure, and maintaining a disciplined focus on risk management[176](index=176&type=chunk)[177](index=177&type=chunk) [Critical Accounting Policies and Estimates](index=51&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Critical accounting estimates include ACL-Loans, valuation of derivative instruments, investment securities, and deferred income taxes - Critical accounting estimates susceptible to significant near-term change include the measurement of the Allowance for Credit Losses-Loans (ACL-Loans), valuation of derivative instruments, investment securities, deferred income taxes, and evaluation of investment securities for other than temporary impairment[176](index=176&type=chunk) [Earnings and Performance Overview](index=52&type=section&id=Earnings%20and%20Performance%20Overview) Revenues and net income significantly increased, driven by lower interest expense on deposits, higher interest income, and gains from loan sales | Metric (In millions, except per share data) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change (YoY) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (YoY) | | :------------------------------------------ | :--------------------------- | :--------------------------- | :----------- | :--------------------------- | :--------------------------- | :----------- | | Revenues | $25.9 | $21.9 | 18.26% | $49.5 | $44.0 | 12.50% | | Net income available to common shareholders | $9.1 | $1.1 | 727.27% | $16.0 | $4.9 | 226.53% | | Diluted EPS | $1.15 | $0.14 | 721.43% | $2.03 | $0.62 | 227.42% | | Return on average shareholders' equity | 12.98% | 1.65% | 686.67% | 11.59% | 3.61% | 221.05% | | Return on average assets | 1.14% | 0.14% | 714.29% | 1.00% | 0.31% | 222.58% | - The increase in revenues for both periods was driven by a decrease in interest expense on deposits, higher interest income, and higher gains from loan sales[178](index=178&type=chunk) - The increase in net income for both periods was primarily due to the aforementioned increase in revenues and a decrease in the provision for credit losses[179](index=179&type=chunk) [Results of Operations](index=52&type=section&id=Results%20of%20Operations) This section details changes in net interest income, credit loss provisions, noninterest income, noninterest expense, and income taxes [Net Interest Income](index=52&type=section&id=Net%20Interest%20Income) Net interest income significantly increased due to higher loan yields and decreased interest expense on deposits, improving interest rate spread and net interest margin | Metric (In millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change (YoY) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (YoY) | | :------------------- | :--------------------------- | :--------------------------- | :----------- | :--------------------------- | :--------------------------- | :----------- | | FTE net interest income | $24.1 | $21.3 | 13.15% | $46.3 | $42.5 | 8.94% | | FTE interest income | $48.8 | $47.8 | 2.09% | $97.4 | $96.1 | 1.35% | | Interest expense | $24.7 | $26.5 | -6.79% | $51.1 | $53.6 | -4.66% | | Interest rate spread | 2.27% | 1.82% | 24.73% | 2.14% | 1.83% | 16.94% | | Net interest margin | 3.10% | 2.75% | 12.73% | 2.95% | 2.73% | 8.06% | - The increase in FTE interest income was due to higher overall loan yields, while the decrease in interest expense was driven by lower rates on interest-bearing deposits and an improved deposit mix[183](index=183&type=chunk)[184](index=184&type=chunk) Change in Net Interest Income (In thousands) | Change in Net Interest Income (In thousands) | 3 Months Ended June 30, 2025 vs 2024 | 6 Months Ended June 30, 2025 vs 2024 | | :------------------------------------------- | :----------------------------------- | :----------------------------------- | | Change in interest and dividend income | $1,045 | $1,331 | | Change in interest expense | $(1,748) | $(2,471) | | Change in net interest income | $2,793 | $3,802 | [(Credit) Provision for Credit Losses](index=55&type=section&id=(Credit)%20Provision%20for%20Credit%20Losses) The Company recorded a credit for credit losses of **$0.4 million** for the quarter, a significant improvement from the prior year's provision | Metric (In millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | (Credit) provision for credit losses | $(0.4) | $8.2 | $0.1 | $11.9 | - The (credit) provision for credit losses is based on management's periodic assessment of the adequacy of ACL-Loans and ACL-Unfunded Commitments, considering factors like loan portfolio composition, nonperforming loans, economic conditions, and real estate values[193](index=193&type=chunk) [Noninterest Income](index=56&type=section&id=Noninterest%20Income) Noninterest income substantially increased, driven primarily by higher gains from loan sales, alongside increases in service charges and BOLI income Noninterest Income (In thousands) | Noninterest Income (In thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change ($) | Change (%) | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Gains and fees from sales of loans | $1,080 | $45 | $1,035 | Favorable | | Bank-owned life insurance | $352 | $333 | $19 | 5.7% | | Service charges and fees | $674 | $495 | $179 | 36.2% | | Other | $(94) | $(190) | $96 | Favorable | | Total noninterest income | $2,012 | $683 | $1,329 | Favorable | Noninterest Income (In thousands) | Noninterest Income (In thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change ($) | Change (%) | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Gains and fees from sales of loans | $1,522 | $366 | $1,156 | Favorable | | Bank-owned life insurance | $696 | $662 | $34 | 5.1% | | Service charges and fees | $1,276 | $799 | $477 | 59.7% | | Other | $23 | $(229) | $252 | Favorable | | Total noninterest income | $3,517 | $1,598 | $1,919 | Favorable | - The increase in noninterest income for both periods was primarily driven by higher gains from loan sales[196](index=196&type=chunk) [Noninterest Expense](index=57&type=section&id=Noninterest%20Expense) Noninterest expense increased due to higher salaries and employee benefits from new hires, and increased professional services costs related to new initiatives Noninterest Expense (In thousands) | Noninterest Expense (In thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change ($) | Change (%) | | :--------------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Salaries and employee benefits | $7,521 | $6,176 | $1,345 | 21.8% | | Occupancy and equipment | $2,505 | $2,238 | $267 | 11.9% | | Professional services | $1,632 | $989 | $643 | 65.0% | | Data processing | $712 | $755 | $(43) | -5.7% | | Director fees | $333 | $306 | $27 | 8.8% | | FDIC insurance | $684 | $705 | $(21) | -3.0% | | Marketing | $218 | $90 | $128 | 142.2% | | Other | $941 | $986 | $(45) | -4.6% | | Total noninterest expense | $14,546 | $12,245 | $2,301 | 18.8% | Noninterest Expense (In thousands) | Noninterest Expense (In thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change ($) | Change (%) | | :--------------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Salaries and employee benefits | $14,573 | $12,467 | $2,106 | 16.9% | | Occupancy and equipment | $5,080 | $4,561 | $519 | 11.4% | | Professional services | $3,161 | $2,054 | $1,107 | 53.9% | | Data processing | $1,597 | $1,495 | $102 | 6.8% | | Director fees | $681 | $1,206 | $(525) | -43.5% | | FDIC insurance | $1,463 | $1,635 | $(172) | -10.5% | | Marketing | $360 | $203 | $157 | 77.3% | | Other | $1,772 | $1,921 | $(149) | -7.8% | | Total noninterest expense | $28,687 | $25,542 | $3,145 | 12.3% | - The increase in noninterest expense was primarily driven by higher salaries and employee benefits due to additional new hires, and increased professional services costs related to new initiatives including recruiting[198](index=198&type=chunk) [Income Taxes](index=57&type=section&id=Income%20Taxes) Income tax expense increased to **$2.7 million** for the quarter and **$4.8 million** for the six months, with an effective tax rate of **23.1%** | Metric (In millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Income tax expense | $2.7 | $0.4 | $4.8 | $1.7 | | Effective tax rate | 23.1% | 24.2% | 23.1% | 25.5% | [Financial Condition](index=57&type=section&id=Financial%20Condition) This section analyzes changes in total assets, loan portfolio, asset quality, allowance for credit losses, investment securities, and deposit activities [Summary](index=57&type=section&id=Summary) Total assets decreased by **$31.9 million**, while shareholders' equity increased by **$12.8 million**, driven by net income | Metric (In millions) | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :------------------- | :------------ | :---------------- | :--------- | :--------- | | Total assets | $3.2 | $3.3 | $(0.03) | -0.97% | | Gross loans | $2.7 | $2.7 | $(0.04) | -1.48% | | Total deposits | $2.8 | $2.8 | $(0.03) | -1.07% | | Shareholders' equity | $283.3 | $270.5 | $12.8 | 4.73% | - The increase in shareholders' equity was primarily a result of net income of **$16.0 million** for the six months ended June 30, 2025, partially offset by dividends paid of **$3.1 million** and share repurchases of **$1.3 million**[201](index=201&type=chunk) [Loan Portfolio](index=58&type=section&id=Loan%20Portfolio) The total gross loan portfolio decreased to **$2.67 billion**, with commercial real estate loans seeing the largest decrease, while construction and business loans increased | Loan Type (In thousands) | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :----------------------- | :------------ | :---------------- | :--------- | :--------- | | Real estate loans: | | | | | | Residential | $34,978 | $42,766 | $(7,788) | -18.21% | | Commercial | $1,802,224 | $1,899,134 | $(96,910) | -5.10% | | Construction | $203,758 | $173,555 | $30,203 | 17.40% | | Commercial business | $559,221 | $515,125 | $44,096 | 8.56% | | Consumer | $68,801 | $75,308 | $(6,507) | -8.64% | | Total loans | $2,668,982 | $2,705,888 | $(36,906) | -1.36% | Commercial Real Estate Loans (In thousands) | Commercial Real Estate Loans (In thousands) | June 30, 2025 | % of Total | December 31, 2024 | % of Total | | :------------------------------------------ | :------------ | :--------- | :---------------- | :--------- | | Non-owner occupied | $1,077,313 | 59.78% | $1,174,712 | 61.86% | | Owner occupied | $724,701 | 40.22% | $724,203 | 38.14% | | Total commercial real estate loans | $1,802,014 | 100.00% | $1,898,915 | 100.00% | Commercial Real Estate Property Type (June 30, 2025) | Commercial Real Estate Property Type (June 30, 2025) | | :--------------------------------------------------- | | Residential care: $650,844 (36.1% of CRE portfolio) | | Retail: $323,123 (17.9% of CRE portfolio) | | Multifamily: $244,778 (13.6% of CRE portfolio) | | Office: $149,687 (8.3% of CRE portfolio) | | Industrial / warehouse: $139,811 (7.8% of CRE portfolio) | - The average loan-to-value (LTV) for the total commercial real estate portfolio at origination was **63.3%** as of June 30, 2025[209](index=209&type=chunk) [Asset Quality](index=60&type=section&id=Asset%20Quality) Nonperforming assets significantly decreased to **$25.16 million**, primarily due to a reduction in nonaccrual commercial real estate loans and an OREO property sale - The Company employs a credit risk rating system with nine grades to assess loan risk, ranging from "pass" categories (1-5) to criticized asset categories (6-9), which are reviewed on an ongoing basis[69](index=69&type=chunk)[70](index=70&type=chunk)[72](index=72&type=chunk)[213](index=213&type=chunk) Credit Risk Ratings (In thousands) | Credit Risk Ratings (In thousands) | June 30, 2025 | December 31, 2024 | | :--------------------------------- | :------------ | :---------------- | | Pass | $2,522,889 | $2,557,136 | | Special Mention | $119,989 | $93,214 | | Substandard | $26,078 | $54,083 | | Doubtful | $26 | $1,455 | | Loss | — | — | Nonperforming Assets (In thousands) | Nonperforming Assets (In thousands) | June 30, 2025 | December 31, 2024 | | :---------------------------------- | :------------ | :---------------- | | Total nonaccrual loans | $23,875 | $53,277 | | Other real estate owned | $1,284 | $8,299 | | Total nonperforming assets | $25,159 | $61,576 | | Nonperforming assets to total assets | 0.78% | 1.88% | | Nonaccrual loans to total loans | 0.89% | 1.97% | | ACL-loans as a % of nonperforming loans | 122.54% | 54.45% | - The decrease in nonaccrual loans was largely due to the sale of a **$27.1 million** multifamily commercial real estate loan in Q1 2025[216](index=216&type=chunk) - The reduction in OREO was due to the sale of a property acquired in Q4 2024, with a new industrial property added in Q2 2025[217](index=217&type=chunk) [Allowance for Credit Losses - Loans ("ACL-Loans")](index=61&type=section&id=Allowance%20for%20Credit%20Losses%20-%20Loans%20(%22ACL-Loans%22)) ACL-Loans increased to **$29.3 million**, representing **1.10%** of total gross loans, with a credit provision of **$0.331 million** for the quarter ACL-Loans (In thousands) | ACL-Loans (In thousands) | June 30, 2025 | December 31, 2024 | | :----------------------- | :------------ | :---------------- | | Balance at end of period | $29,256 | $29,007 | | ACL-Loans to total loans | 1.10% | 1.07% | (Credit) Provision for Credit Losses - Loans (In thousands) | (Credit) Provision for Credit Losses - Loans (In thousands) | 3 Months Ended June 30, 2025 | 6 Months Ended June 30, 2025 | | :---------------------------------------------------------- | :--------------------------- | :--------------------------- | | (Credit) provision for credit losses - loans | $(331) | $207 | ACL-Loans Allocation (June 30, 2025) | ACL-Loans Allocation (June 30, 2025) | | :----------------------------------- | | Commercial real estate: $19,292 (66.0% of total ACL-Loans) | | Commercial business: $5,526 (18.9% of total ACL-Loans) | | Construction: $2,904 (9.9% of total ACL-Loans) | | Consumer: $1,469 (5.0% of total ACL-Loans) | | Residential real estate: $65 (0.2% of total ACL-Loans) | [ACL- Unfunded Commitments](index=62&type=section&id=ACL-%20Unfunded%20Commitments) The ACL-Unfunded Commitments decreased to **$602 thousand**, reflecting a credit for credit losses of **$(154) thousand** for the six-month period ACL-Unfunded Commitments (In thousands) | ACL-Unfunded Commitments (In thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------------- | :--------------------------- | :--------------------------- | | Balance at beginning of period | $756 | $926 | | (Credit) for credit losses (unfunded commitments) | $(154) | $(200) | | Balance at end of period | $602 | $726 | - The ACL-Unfunded Commitments provision is based on forward-looking losses inherent with funding the unused portion of legal commitments to lend[223](index=223&type=chunk) [Investment Securities](index=63&type=section&id=Investment%20Securities) The investment securities portfolio decreased to **$142.6 million**, with the net unrealized loss position improving to **$1.8 million** Metric (In millions) | Metric (In millions) | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :------------------- | :------------ | :---------------- | :--------- | :--------- | | Carrying value of investment securities | $142.6 | $146.1 | $(3.5) | -2.40% | | % of total assets | 4.4% | 4.5% | -0.1% | -2.22% | Unrealized Position (In millions) | Unrealized Position (In millions) | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Net unrealized loss position | $(1.8) | $(4.9) | | Gross unrealized gains | $1.8 | $1.3 | [Deposit Activities and Other Sources of Funds](index=63&type=section&id=Deposit%20Activities%20and%20Other%20Sources%20of%20Funds) Total deposits decreased to **$2.76 billion**, with brokered deposits totaling **$623.9 million**, and significant additional borrowing capacity maintained Deposit Type (In thousands) | Deposit Type (In thousands) | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :-------------------------- | :------------ | :---------------- | :--------- | :--------- | | Noninterest bearing demand | $397,195 | $321,875 | $75,320 | 23.40% | | NOW | $118,019 | $105,090 | $12,929 | 12.30% | | Money market | $875,457 | $899,413 | $(23,956) | -2.66% | | Savings | $91,612 | $90,220 | $1,392 | 1.54% | | Time | $1,276,998 | $1,370,972 | $(93,974) | -6.85% | | Total deposits | $2,759,281 | $2,787,570 | $(28,289) | -1.01% | - Brokered certificates of deposits totaled **$570.2 million** and brokered money market accounts totaled **$53.7 million** at June 30, 2025[227](index=227&type=chunk) - As of June 30, 2025, FDIC insured deposits were **$1,903.8 million** (**69%** of total deposits), and an additional **$120.0 million** (**4%**) were secured by standby letters of credit with the Federal Home Loan Bank of Boston[228](index=228&type=chunk) Borrowing Capacity (In thousands, June 30, 2025) | Borrowing Capacity (In thousands, June 30, 2025) | | :----------------------------------------------- | | Total FHLB advances: $75,000 | | Immediate availability from FHLB: $329,600 | | Total Letter or Line of Credit (FRB, FHLB, Zions, PCBB, ACBB): $1,265,830 | | Total Outstanding (FHLB): $184,726 | [Liquidity and Capital Resources](index=64&type=section&id=Liquidity%20and%20Capital%20Resources) Shareholders' equity increased to **$283.3 million**, and both the Bank and Company met all regulatory capital adequacy requirements, exceeding well-capitalized thresholds - Shareholders' equity totaled **$283.3 million** as of June 30, 2025, an increase of **$12.8 million** compared to December 31, 2024, primarily a result of net income of **$16.0 million**, partially offset by dividends and share repurchases[234](index=234&type=chunk) - Both the Bank and the Company met all regulatory capital adequacy requirements as of June 30, 2025, and exceeded the minimum capital levels to be considered well-capitalized[235](index=235&type=chunk) - Primary sources of liquidity include deposits, purchased liabilities (FHLB advances), cash flows from investment securities, loan sales, and loan repayments[231](index=231&type=chunk)[232](index=232&type=chunk)[233](index=233&type=chunk) - Liquidity positions are monitored daily, and stress testing is employed to estimate contingent funding needs[233](index=233&type=chunk) [Asset/Liability Management and Interest Rate Risk](index=65&type=section&id=Asset%2FLiability%20Management%20and%20Interest%20Rate%20Risk) The Company manages interest rate risk using NII and EVE at risk simulations, remaining liability sensitive with policy limits for NII declines - The Company measures interest rate risk (IRR) using simulation analysis to calculate earnings and equity at risk, employing net interest income (NII) at risk and economic value of equity (EVE) at risk simulations[238](index=238&type=chunk) Estimated Percent Change in Net Interest Income (Parallel Shock) | Estimated Percent Change in Net Interest Income (Parallel Shock) | | :--------------------------------------------------------------- | | Rate Changes (basis points): | | -100: (3.90)% | | +100: 3.70% | | +200: 7.00% | | +300: 10.70% | - As of June 30, 2025, the net interest income at risk simulation results indicate that the Company remains liability sensitive, meaning there are more liabilities than assets subject to repricing as market rates change[242](index=242&type=chunk) - Internal policy 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[240](index=240&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=67&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The Company's primary market risk is interest rate risk, with inflation also impacting funding costs, investment values, and overall financial performance [Interest Rate Risk Management](index=67&type=section&id=Interest%20Rate%20Risk%20Management) Interest rate risk management is the Company's primary market risk, with detailed strategies discussed in the MD&A section - Interest rate risk management is the Company's primary market risk, with details discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations – Asset/Liability Management and Interest Rate Risk"[247](index=247&type=chunk) [Impact of Inflation](index=67&type=section&id=Impact%20of%20Inflation) Inflation increases funding and operating costs, and can adversely affect investment values, liquidity, earnings, and shareholders' equity - Inflation generally increases the costs of funds and operating overhead, and affects yields on variable-rate assets[249](index=249&type=chunk) - Interest rates generally have a more significant effect on the performance of a financial institution than general levels of inflation[249](index=249&type=chunk) - Inflation and related increases in interest rates can decrease the market value of investments and loans, and adversely affect liquidity, earnings, and shareholders' equity[249](index=249&type=chunk) [Item 4. Controls and Procedures](index=67&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control over financial reporting [Evaluation of disclosure controls and procedures](index=67&type=section&id=Evaluation%20of%20disclosure%20controls%20and%20procedures) The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025 - The Company's Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2025, the Company's disclosure controls and procedures are effective in timely alerting them to material information required in SEC filings[250](index=250&type=chunk) [Change in internal controls](index=67&type=section&id=Change%20in%20internal%20controls) No material changes occurred in the Company's internal control over financial reporting during the quarter ended June 30, 2025 - There has been no change in the Company's internal control over financial reporting during the quarter ended June 30, 2025, that has materially affected, or is reasonably likely to affect, the Company's internal control over financial reporting[251](index=251&type=chunk) PART II – OTHER INFORMATION [Item 1. Legal Proceedings](index=68&type=section&id=Item%201.%20Legal%20Proceedings) The Company and Bank are routinely involved in legal proceedings, with management anticipating no material losses from pending lawsuits - The Company and the Bank are periodically involved in various legal proceedings as a normal incident to their businesses, and management expects no material loss from any such pending lawsuit[252](index=252&type=chunk) [Item 1A. Risk Factors](index=68&type=section&id=Item%201A.%20Risk%20Factors) No material changes were reported to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for 2024 - There were no material changes in risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2024[253](index=253&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=68&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) A new share repurchase plan authorized **250,000 shares**, with **14,626 shares** repurchased in April 2025 at an average price of **$28.86** - On October 23, 2024, the Board of Directors authorized a new share repurchase plan for up to **250,000 shares** of outstanding common stock, terminating the prior plan[257](index=257&type=chunk) Share Repurchase Activity (3 Months Ended June 30, 2025) | Share Repurchase Activity (3 Months Ended June 30, 2025) | | :------------------------------------------------------- | | Total Number of Shares Purchased: 14,626 | | Average Price Paid per Share: $28.86 | | Maximum Number of Shares that May Yet Be Purchased: 205,450 | - Repurchases are intended to be accomplished through open market transactions and may be modified or suspended at any time at the Company's discretion, funded from cash on hand[258](index=258&type=chunk) [Item 3. Defaults Upon Senior Securities](index=69&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities were reported for the period - No defaults upon senior securities were reported[259](index=259&type=chunk) [Item 4. Mine Safety Disclosures](index=69&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) No mine safety disclosures were reported for the period - No mine safety disclosures were reported[260](index=260&type=chunk) [Item 5. Other Information](index=69&type=section&id=Item%205.%20Other%20Information) No other information was reported for the period - No other information was reported[261](index=261&type=chunk) [Item 6. Exhibits](index=69&type=section&id=Item%206.%20Exhibits) This section lists filed exhibits, including CEO and CFO certifications and XBRL formatted financial statements - Exhibits filed include certifications from Christopher R. Gruseke (CEO) and Courtney E. Sacchetti (CFO) pursuant to Rule 13a-14(a) and Section 906 of the Sarbanes-Oxley Act of 2002[262](index=262&type=chunk) - The financial statements (Consolidated Balance Sheets, Statements of Income, Comprehensive Income (Loss), Shareholders' Equity, Cash Flows, and Notes) are filed in Inline eXtensible Business Reporting Language (XBRL) format[262](index=262&type=chunk) [Signatures](index=69&type=section&id=Signatures) The report is duly signed on August 6, 2025, by the Chief Executive Officer and Chief Financial Officer - The report is signed by Christopher R. Gruseke, Chief Executive Officer, and Courtney E. Sacchetti, Executive Vice President and Chief Financial Officer, on August 6, 2025[263](index=263&type=chunk) [Certifications](index=69&type=section&id=Certifications) This section indicates the presence of required certifications, which are detailed in the Exhibits section

Group 1 - Net interest margin is a crucial financial metric for community banks, serving as a primary driver for profits [1] - Banks strive to maximize interest income from loans while managing risk effectively [1] Group 2 - The article emphasizes the belief in the efficiency of financial markets, suggesting that most stocks reflect their true current value [1] - Profitable opportunities in individual stocks are often found in those that are less followed by average investors or do not accurately represent existing market opportunities [1]

Financial Data and Key Metrics Changes - The company reported GAAP fully diluted earnings of $1.15 per share, up 32% from the first quarter, driven by significant net interest margin expansion and increased contributions from SBA loan sales [6][11] - Pre-provision net revenue (PPNR) increased by 21% to $11,400,000 or $1.46 per share, with PPNR return on average assets rising to 143 basis points from 118 basis points in the previous quarter [11] - Net interest margin (NIM) improved to 310 basis points, a 29 basis point increase from the linked quarter, attributed to decreasing funding costs [11][12] Business Line Data and Key Metrics Changes - The SBA business is expected to deliver material growth to noninterest income, with SBA loan originations totaling $12,000,000 for the quarter, bringing year-to-date originations to $22,000,000 [7][13] - Noninterest income increased by 34% to $2,000,000, largely due to $1,100,000 from SBA gain on sale income [13] - Total noninterest expense rose modestly to $14,500,000, primarily due to increased salaries and employee benefits, reflecting ongoing investments in banking teams and risk functions [13][14] Market Data and Key Metrics Changes - Noninterest bearing deposits grew by $48,000,000 during the quarter, with a year-to-date increase of $75,000,000 or 23% since year-end [8][9] - The bank's funding profile improved with a significant reduction in brokered deposits, which have been decreased by over $400,000,000 from their peak [18] Company Strategy and Development Direction - The company is focused on expanding its SBA platform, attracting talented deposit teams, and investing in risk and technology platforms to prepare for technological evolution [16][17] - The strategic initiatives aim to improve asset quality, with nonperforming loans dropping significantly from $65,000,000 to just under $24,000,000 [18] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about credit trends, expecting continued progress in reducing nonperforming assets (NPAs) [9][14] - The company anticipates continued margin expansion into 2026, driven by the contributions of new deposit teams and improved funding costs [9][12] Other Important Information - The company repurchased 14,626 shares at a weighted average price of $28.86 per share during the quarter, with 205,000 shares remaining on the authorization [15] - The consolidated common equity Tier one ratio increased to 10.17% from 10.04% in the prior quarter, indicating a well-capitalized and liquid balance sheet [15] Q&A Session Summary Question: Long-term target for DDAs to deposits - Management does not have a hard target but aims to expand the percentage and reduce the wholesale funding ratio [21][22][23] Question: Future of brokered deposits - Management expects brokered deposits to continue decreasing but acknowledges it will depend on market opportunities [24][25] Question: Update on health care customers - There are no significant concerns regarding new legislation affecting health care customers, and the health care book remains profitable [27] Question: Potential of new deposit teams - The new teams have significant potential based on their previous business volumes, but actual production is yet to materialize [32][33][34] Question: Timeline for resolution of nonperforming loans - One nonperforming loan is expected to resolve in the next couple of quarters, while another may take longer due to its complexity [40] Question: Impact of potential Fed rate cuts on margin - Management anticipates a potential 5 to 10 basis point increase in NIM even without rate cuts, based on current repricing opportunities [41][44] Question: Expense guidance for the back half of the year - Expenses are expected to remain relatively flat at around $15,000,000 per quarter in the second half of the year [49]

Financial Data and Key Metrics Changes - The company reported GAAP fully diluted earnings of $1.15 per share, up 32% from the first quarter, driven by significant net interest margin expansion and increased contributions from SBA loan sales [6][11] - Pre-provision net revenue (PPNR) increased by 21% to $11,400,000 or $1.46 per share, with PPNR return on average assets rising to 143 basis points from 118 basis points in the previous quarter [11] - The net interest margin (NIM) improved to 310 basis points, a 29 basis point increase from the linked quarter, attributed to decreasing funding costs [11][12] Business Line Data and Key Metrics Changes - The SBA business is expected to deliver material growth to noninterest income, with SBA loan originations totaling $12,000,000 for the quarter, bringing year-to-date originations to $22,000,000 [7][13] - Noninterest income increased by 34% to $2,000,000, largely due to $1,100,000 from SBA gain on sale income [13] - Total noninterest expense rose modestly to $14,500,000, primarily due to increased salaries and employee benefits, reflecting ongoing investments in banking teams and risk functions [13][14] Market Data and Key Metrics Changes - Noninterest bearing deposits grew by $48,000,000 during the quarter, with a year-to-date increase of $75,000,000 or 23% since year-end [8] - The bank's funding profile improved with a significant reduction in brokered deposits, which have been decreased by over $400,000,000 from their peak [18] Company Strategy and Development Direction - The company is focused on expanding its SBA platform, attracting talented deposit teams, and investing in risk and technology platforms to prepare for technological evolution [16][19] - The management emphasized the importance of improving asset quality, with nonperforming loans dropping significantly from $65,000,000 to just under $24,000,000 [17] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about continued margin expansion into 2026, driven by the growth of noninterest bearing deposits and improved credit trends [8][12] - The company anticipates continued improvement in profitability and efficiency ratios, despite increasing noninterest expense guidance [14][19] Other Important Information - The company repurchased 14,626 shares at a weighted average price of $28.86 per share during the quarter, with 205,000 shares remaining on its authorization [15] Q&A Session Summary Question: What is the long-term target for DDAs to deposits? - Management indicated there is no hard target but aims to expand the percentage and reduce the wholesale funding ratio [21][23] Question: Should brokered deposits continue to decrease? - Management expects brokered deposits to decrease over time but acknowledges it will depend on market opportunities and deposit gathering efforts [24][25] Question: Update on health care customers? - Management reported that health care borrowers are not significantly impacted by new legislation, maintaining a positive outlook on the health care book [27] Question: Potential of new deposit teams? - Management highlighted the potential of new teams, noting their previous success in generating significant business, but emphasized that actual production will take time to materialize [32][34] Question: Timeline for resolution of nonperforming loans? - Management expects one nonperforming loan to be resolved in the next couple of months, while another may take longer due to its complexity [41] Question: Impact of a potential Fed rate cut on margin? - Management indicated that a 25 basis point cut would likely have a delayed impact on margins, but they remain optimistic about NIM improvements based on current repricing strategies [42][45]

Financial Performance - The company reported a Return on Average Assets of 1.14%, a 28 basis points increase compared to the last quarter[7] - Net Interest Margin was reported at 3.10%, a 29 basis points expansion from the last quarter due to an improved funding profile[7] - Fully diluted Earnings Per Share (EPS) reached $1.15, a 32% increase compared to the last quarter, driven by improved net interest margin and increased non-interest income[8] - Pre-Provision Net Revenue (PPNR) was $11.4 million, or $1.46 per share, a 21% increase compared to the last quarter[8] - Non-interest income grew by $0.5 million, or 34%, compared to the last quarter, driven by $1.1 million gains realized on SBA Loan sales[7] Balance Sheet and Capital - Loan balances increased by $24 million compared to the last quarter, based on $170 million of funded originations[8] - Non-performing assets (NPAs) improved to 0.78% of total assets[7] - Non-interest bearing deposits grew by $48 million from existing channels[7] - Tangible book value was $35.65, up $1.09 compared to the last quarter and up $2.04 compared to the prior year quarter[8] - The Consolidated CET1 ratio was 10.17%, and the Bank Total Capital ratio was 13.28%[8] Deposit and Funding - Deposit costs improved to 3.40%, a 20 basis points decrease compared to the last quarter, with a June 2025 'exit' rate of 3.28%[8] - The company experienced $48 million growth in non-interest bearing deposits compared to the last quarter, and $75 million year-to-date[8]

[Second Quarter 2025 Operating Results and Highlights](index=1&type=section&id=Second_Quarter_2025_Operating_Results_and_Highlights) The company reported strong Q2 2025 results, driven by significant growth in net income, a notable expansion in net interest margin, and an improved efficiency ratio Q2 2025 vs Q1 2025 Performance | Metric | Q2 2025 | Q1 2025 | | :--- | :--- | :--- | | GAAP Net Income | $9.1 million | $6.9 million | | Diluted EPS | $1.15 | $0.87 | - The Board of Directors declared a **$0.20 per share cash dividend**, payable on August 22, 2025, to shareholders of record on August 11, 2025[1](index=1&type=chunk) - The **net interest margin (NIM) increased to 3.10%**, up 29 basis points from the first quarter, primarily due to reduced deposit costs[2](index=2&type=chunk)[7](index=7&type=chunk) - The **efficiency ratio improved to 56.1%** for Q2 2025, down from 59.9% in Q1 2025, indicating better operational leverage[7](index=7&type=chunk) - **Return on average assets (ROA) increased to 1.14%** for the quarter, demonstrating improved profitability[2](index=2&type=chunk) [CEO Commentary and 2025 Outlook](index=1&type=section&id=CEO_Commentary_and_2025_Outlook) The CEO highlighted accelerating positive trends and updated the 2025 guidance, raising the net interest income forecast while increasing expense guidance for personnel investments Updated 2025 Full-Year Guidance | Metric | Updated Guidance | Notes | | :--- | :--- | :--- | | Net Interest Income | $97 – $98 million | Increased | | Noninterest Income | $7 - $8 million | Reiterated | | Noninterest Expense | $58 - $59 million | Increased due to investments in people | - The company has hired **five new deposit-focused private banking teams** during the year to enhance deposit gathering capabilities, with contributions expected to boost deposit growth later in 2025 and more significantly in 2026[3](index=3&type=chunk)[7](index=7&type=chunk) - The SBA lending business is on a path to achieve further scale and profitability, contributing **$1.5 million in non-interest income year-to-date** and **$1.1 million in loan sale gains in Q2 2025**[2](index=2&type=chunk)[7](index=7&type=chunk) [Financial Performance Analysis](index=2&type=section&id=Financial_Performance_Analysis) The company's Q2 2025 financial performance was marked by strong revenue growth and margin expansion, with a substantial increase in pre-tax, pre-provision net revenue Quarterly Revenue and PPNR (in thousands) | Metric | Q2 2025 | Q1 2025 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $25,948 | $23,571 | 10.1% | | PPNR | $11,402 | $9,430 | 20.9% | [Key Performance Indicators (KPIs)](index=2&type=section&id=Key_Performance_Indicators_KPIs) Key performance indicators showed broad improvement in Q2 2025, including profitability, net interest margin, and tangible book value per share Key Performance Indicators Trend | KPI | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | :--- | | Return on average assets (ROA) | 1.14 % | 0.86 % | 0.14 % | | Return on average equity (ROE) | 12.98 % | 10.16 % | 1.65 % | | Net interest margin (NIM) | 3.10 % | 2.81 % | 2.75 % | | Efficiency Ratio | 56.1 % | 59.9 % | 45.6 % | | Fully diluted tangible book value per share | $35.65 | $34.56 | $33.61 | [Income Statement Analysis](index=8&type=section&id=Income_Statement_Analysis) The Q2 2025 income statement shows a substantial net income increase, driven by higher net interest and noninterest income and a credit for credit losses Consolidated Income Statement Highlights (in thousands) | Line Item | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Net Interest Income | $23,936 | $22,066 | $21,219 | | (Credit) Provision for Credit Losses | $(411) | $463 | $8,183 | | Total Noninterest Income | $2,012 | $1,505 | $683 | | Total Noninterest Expense | $14,546 | $14,141 | $12,245 | | Net Income | $9,088 | $6,888 | $1,118 | [Asset Quality and Credit](index=3&type=section&id=Asset_Quality_and_Credit) Asset quality continued to improve in Q2 2025, with lower nonperforming assets and a stronger allowance for credit losses coverage ratio Asset Quality Metrics | Metric | June 30, 2025 | March 31, 2025 | | :--- | :--- | :--- | | Nonperforming assets as a % of total assets | 0.78% | 0.83% | | Nonperforming loans as a % of total loans | 0.89% | 1.00% | | ACL-loans as a % of nonperforming loans | 122.54% | 111.76% | | Total nonperforming loans (in thousands) | $23,875 | $26,383 | - The **Allowance for Credit Losses - Loans (ACL-Loans) stood at $29.3 million** as of June 30, 2025, representing 1.10% of total loans[12](index=12&type=chunk) - The company recorded a **net credit for credit losses of $0.3 million** for the quarter, reflecting the improvement in overall credit quality and a decrease in nonperforming loans[13](index=13&type=chunk)[15](index=15&type=chunk) [Financial Condition and Capital Management](index=5&type=section&id=Financial_Condition_and_Capital_Management) The company maintained a strong balance sheet with total assets of $3.2 billion, an improved deposit mix, and robust 'well capitalized' regulatory capital ratios - The deposit mix improved, with **noninterest-bearing demand deposits increasing by 23.4% year-to-date**, while brokered deposits decreased by 11.5% and time deposits fell by 6.9% since year-end 2024[16](index=16&type=chunk)[18](index=18&type=chunk) Loan Portfolio Composition Change (YTD % Change) | Loan Category | YTD % Change | | :--- | :--- | | Construction | 17.4% | | Commercial Business | 8.6% | | Commercial Real Estate | (5.1)% | | Residential Real Estate | (18.2)% | - The Bank's regulatory capital ratios remain well above 'well capitalized' levels, with a **total risk-based capital ratio of 13.28%** and a **common-equity tier 1 capital ratio of 12.20%**[19](index=19&type=chunk) - The company **repurchased 14,626 shares** at a weighted average price of $28.86 per share during the second quarter[19](index=19&type=chunk) [Reconciliation of GAAP to Non-GAAP Measures](index=9&type=section&id=Reconciliation_of_GAAP_to_Non-GAAP_Measures) This section provides detailed reconciliations for non-GAAP financial measures, including tangible book value and the net interest margin on a fully tax-equivalent basis [Tangible Book Value Reconciliation](index=9&type=section&id=Tangible_Book_Value_Reconciliation) The company's tangible common equity ratio and fully diluted tangible book value per common share both increased during Q2 2025 Tangible Book Value per Share Calculation | Metric | June 30, 2025 | March 31, 2025 | | :--- | :--- | :--- | | Tangible common shareholders' equity (in thousands) | $280,701 | $272,625 | | Common shares issued and outstanding | 7,873,387 | 7,888,013 | | **Fully Diluted Tangible Book Value per Common Share** | **$35.65** | **$34.56** | [Net Interest Margin (NIM) Analysis](index=11&type=section&id=Net_Interest_Margin_NIM_Analysis) The fully tax-equivalent net interest margin expanded to 3.10% in Q2 2025, driven by a significant year-over-year decrease in the cost of interest-bearing liabilities Quarterly Net Interest Margin Analysis (Q2 2025 vs Q2 2024) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Yield on Earning Assets | 6.22% | 6.11% | | Cost of Interest-Bearing Liabilities | 3.95% | 4.29% | | **Net Interest Spread** | **2.27%** | **1.82%** | | **Net Interest Margin** | **3.10%** | **2.75%** | - The **cost of total interest-bearing deposits decreased to 3.90%** in Q2 2025 from 4.27% in Q2 2024, with a notable reduction in the cost of time deposits[31](index=31&type=chunk)

Group 1 - Bankwell Financial Group, Inc. announced a strategic partnership with Crux Analytics to enhance its business banking services [1] - The partnership aims to provide Bankwell customers with enhanced personalization and proactive service [1] Group 2 - The article emphasizes the belief in the efficiency of financial markets, suggesting that most stocks reflect their real current value [1] - It highlights that the best investment opportunities often arise from stocks that are less widely followed or do not accurately reflect market opportunities [1]

PART I – FINANCIAL INFORMATION [Item 1. Financial Statements (unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20%28unaudited%29) This section presents the unaudited consolidated financial statements for Q1 2025, encompassing balance sheets, income, and cash flow statements, along with detailed notes [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) Total assets decreased to **$3.18 billion** as of March 31, 2025, from **$3.27 billion**, primarily due to reduced loans receivable, with liabilities also declining Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total Assets** | **$3,183,893** | **$3,268,476** | | Loans receivable, net | $2,611,495 | $2,672,959 | | Total investment securities | $135,963 | $146,099 | | Cash and cash equivalents | $304,928 | $307,524 | | **Total Liabilities** | **$2,908,679** | **$2,997,956** | | Total deposits | $2,750,445 | $2,787,570 | | Advances from the FHLB | $40,000 | $90,000 | | **Total Shareholders' Equity** | **$275,214** | **$270,520** | [Consolidated Statements of Income](index=5&type=section&id=Consolidated%20Statements%20of%20Income) Net income for Q1 2025 significantly increased to **$6.89 million** from **$3.76 million**, driven by higher net interest income and a substantial decrease in the provision for credit losses Consolidated Income Statement Highlights (in thousands, except per share data) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Interest Income | $22,066 | $21,147 | | Provision for credit losses | $463 | $3,683 | | Noninterest Income | $1,505 | $915 | | Noninterest Expense | $14,141 | $13,297 | | **Net Income** | **$6,888** | **$3,763** | | **Diluted EPS** | **$0.87** | **$0.48** | [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations of accounting policies and financial data, covering operations, credit risk, ACL methodology, and portfolio composition - The company operates as a single reportable segment, with the CEO as the Chief Operating Decision Maker (CODM), assessing all activities as a single unit[19](index=19&type=chunk)[20](index=20&type=chunk) - The company has a significant concentration of credit risk in commercial real estate loans located in Connecticut and the New York metro area[22](index=22&type=chunk) - The Allowance for Credit Losses (ACL) is calculated using a third-party software model, which is calibrated using a "peer scalar" to better reflect the Company's specific loan portfolio characteristics and regional concentration in the Northeast[25](index=25&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=47&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management analyzes Q1 2025 financial performance, noting increased net income, decreased total assets, and improved asset quality, while maintaining strong capital and liquidity - Revenues (net interest income plus noninterest income) for Q1 2025 were **$23.6 million**, up from **$22.1 million** in Q1 2024, driven by decreased interest expense and increased fee income[177](index=177&type=chunk) - The provision for credit losses was significantly lower at **$0.5 million** for Q1 2025 compared to **$3.7 million** for Q1 2024[189](index=189&type=chunk) - Total assets decreased by **$84.6 million (2.6%)** to **$3.2 billion** at March 31, 2025, compared to year-end 2024, while gross loans decreased by **$61.0 million (2.3%)**[194](index=194&type=chunk) - Nonperforming assets decreased to **$26.4 million (0.83% of total assets)** at March 31, 2025, from **$61.6 million (1.88% of total assets)** at December 31, 2024, primarily due to the sale of a **$27.1 million** nonperforming commercial real estate loan[210](index=210&type=chunk) [Results of Operations](index=48&type=section&id=Results%20of%20Operations) Net income for Q1 2025 increased to **$6.9 million**, primarily due to higher net interest income and a significant reduction in the provision for credit losses, despite increased noninterest expenses Net Interest Income Analysis (Q1 2025 vs Q1 2024) | Component | Change | Reason | | :--- | :--- | :--- | | **Net Interest Income** | **+$1.0M** | Increased loan yields and lower deposit interest expense | | Interest Income | +$0.3M | Higher overall loan yields | | Interest Expense | -$0.7M | Decrease in rates on interest-bearing deposits | Noninterest Income and Expense Changes (Q1 2025 vs Q1 2024, in thousands) | Category | Q1 2025 | Q1 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | **Noninterest Income** | **$1,505** | **$915** | **$590** | **64.5%** | | Service charges and fees | $602 | $304 | $298 | 98.0% | | **Noninterest Expense** | **$14,141** | **$13,297** | **$844** | **6.3%** | | Salaries and employee benefits | $7,052 | $6,291 | $761 | 12.1% | | Professional services | $1,529 | $1,065 | $464 | 43.6% | [Financial Condition](index=51&type=section&id=Financial%20Condition) Total assets decreased to **$3.2 billion** as of March 31, 2025, with a **2.3%** reduction in the loan portfolio, while asset quality improved and nonaccrual loans dropped significantly Loan Portfolio Composition (in thousands) | Loan Type | March 31, 2025 | Dec 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Commercial Real Estate | $1,810,923 | $1,899,134 | ($88,211) | | Construction | $188,339 | $173,555 | $14,784 | | Commercial Business | $529,000 | $515,125 | $13,875 | | **Total Loans** | **$2,644,903** | **$2,705,888** | **($60,985)** | Asset Quality Metrics | Metric | March 31, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Nonperforming assets to total assets | 0.83% | 1.88% | | Nonaccrual loans to total gross loans | 1.00% | 1.97% | | ACL-Loans as a % of total loans | 1.11% | 1.07% | - The commercial real estate portfolio includes **$160.4 million** in office loans (**8.9% of total loans**) and **$253.6 million** in multifamily loans (**9.6% of total loans**), with **96.6%** of the office portfolio pass-rated[201](index=201&type=chunk) [Liquidity and Capital Resources](index=58&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity, primarily from deposits and FHLB access, and both the Bank and Company exceed all regulatory capital requirements to be considered 'well-capitalized' - As of March 31, 2025, the Bank had immediate availability to borrow an additional **$373.1 million** from the FHLB[224](index=224&type=chunk) Bank Capital Ratios (as of March 31, 2025) | Ratio | Actual | Well-Capitalized Minimum | | :--- | :--- | :--- | | Common Equity Tier 1 Capital Ratio | 12.10% | 6.50% | | Tier 1 Capital Ratio | 12.10% | 8.00% | | Total Capital Ratio | 13.21% | 10.00% | | Tier 1 Leverage Ratio | 10.14% | 5.00% | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=61&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Interest rate risk is the company's primary market risk, with inflation affecting operating costs but interest rates having a more significant impact on performance - The company's primary market risk is interest rate risk, which is managed through asset/liability strategies[240](index=240&type=chunk) - Inflation affects the company's operating costs and the value of its monetary assets and liabilities, but interest rates are considered to have a more significant impact on performance[242](index=242&type=chunk) [Item 4. Controls and Procedures](index=61&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective as of March 31, 2025, with no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures are effective as of the end of the reporting period[243](index=243&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to affect, these controls[244](index=244&type=chunk) PART II – OTHER INFORMATION [Item 1. Legal Proceedings](index=62&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings, but management anticipates no material loss from pending lawsuits - In the opinion of management, no material loss is expected from any pending lawsuits[245](index=245&type=chunk) [Item 1A. Risk Factors](index=62&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2024 were reported - No material changes in risk factors were reported for the period[246](index=246&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=62&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased **29,924** shares of common stock during Q1 2025 under a new plan authorized in October 2024 for up to **250,000** shares Issuer Purchases of Equity Securities (Q1 2025) | Period | Shares Purchased | Average Price Paid | | :--- | :--- | :--- | | Jan 2025 | 0 | $ - | | Feb 2025 | 10,628 | $31.15 | | Mar 2025 | 19,296 | $30.08 | | **Total** | **29,924** | **$30.46** | - A new share repurchase plan for up to **250,000 shares** was authorized on October 23, 2024, terminating the prior plan, with **220,076 shares** remaining available for repurchase under the new plan as of March 31, 2025[249](index=249&type=chunk)[248](index=248&type=chunk) - Subsequent to March 31, 2025, the Company purchased an additional **14,626 shares** at a weighted average price of **$28.86 per share**[251](index=251&type=chunk) [Item 3. Defaults Upon Senior Securities](index=62&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) None reported - None[252](index=252&type=chunk) [Item 4. Mine Safety Disclosures](index=63&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Not applicable - None[253](index=253&type=chunk) [Item 5. Other Information](index=63&type=section&id=Item%205.%20Other%20Information) None reported - None[254](index=254&type=chunk) [Item 6. Exhibits](index=63&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and financial statements formatted in Inline XBRL - Exhibits filed include CEO and CFO certifications (**31.1, 31.2, 32**) and financial data in Inline XBRL format (**101, 104**)[255](index=255&type=chunk)

Financial Performance - Fully diluted EPS reached $0.87, an increase of 81% compared to the previous year's quarter, driven by improved net interest margin and lower provision expense[9] - PPNR increased by 11% compared to the last quarter, reaching $9.4 million, or $1.22 per share[9] - Net Interest Income was $22.1 million, benefiting from a 12 bps decrease in deposit costs compared to the last quarter[9] - Non-interest income increased by 56% compared to the last quarter, driven by $442 thousand of SBA gain-on-sale in Q1[9] Balance Sheet & Capital - The NPA ratio decreased by 105 basis points to 0.83% due to dispositions of $27.1 million in CRE Multifamily NPL and $8.3 million in OREO assets[8] - Brokered deposits decreased by $81 million compared to the last quarter, while core deposits increased by $43 million, including $28 million growth in non-interest bearing deposits[8] - Tangible book value increased by $0.47 compared to the last quarter and $0.99 compared to the previous year's quarter, reaching $34.56[9] - Consolidated CET1 ratio was 10.04%, and the Bank Total Capital ratio was 13.22%[9] Loan Portfolio - Loan balances decreased by $61 million compared to the last quarter, negatively impacted by elevated payoffs[9] - Non-performing loans decreased to 1% of total loans[29] - CRE concentration decreased to 362%[27]

Financial Data and Key Metrics Changes - The company reported GAAP fully diluted earnings per share of $0.87, which represents a 135% increase compared to the fourth quarter and an 81% increase year-over-year [6] - Pre-provision net revenue for the first quarter was $9.4 million, or $1.22 per share, an 11% increase from the previous quarter [12] - The net interest margin for the quarter was 281 basis points, a 21 basis point increase from the linked quarter [12] Business Line Data and Key Metrics Changes - SBA originations grew to $10 million in the first quarter, with gain on sale margins exceeding 10% [9] - Noninterest income increased by 56% to $1.5 million, driven largely by SBA gain on sale income [16] - The first quarter provision expense was $463,000, significantly lower than $4.5 million in the prior quarter [18] Market Data and Key Metrics Changes - Core deposits grew by $43 million, including $28 million in noninterest-bearing deposits, while broker deposits declined by $81 million [10] - The company expects low single-digit loan growth for the full year despite a slower first quarter [9] Company Strategy and Development Direction - The company successfully disposed of two nonperforming credits, which reduced nonperforming assets as a percentage of total assets to 83 basis points [7] - The management emphasized the importance of attracting talented professionals and has added two deposit teams in the New York Metro Area [20] - The company plans to continue expanding its net interest margin and reaffirmed its net interest income guidance for the full year 2025 of $93 million to $95 million [16] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the SBA gain on sale activity accelerating in Q2 2025 [9] - The management noted that credit trends were benign and highlighted the company's strong balance sheet and liquidity [19] - The company is cautious about potential changes in the SBA environment that could impact growth [52][54] Other Important Information - The company repurchased 29,924 shares at a weighted average price of $30.46 during the quarter, with 220,000 shares remaining on its authorization [19] - The efficiency ratio for the quarter was 59.9%, with expectations for improvement as net interest margin expands [18] Q&A Session Summary Question: Update on new teams and their focus - The focus of the new teams is primarily on deposits, with some loans mixed in, and both teams have prior books over $100 million [26] Question: Update on loan pipeline and growth outlook - The company still expects low single-digit growth, with a robust pipeline despite some unexpected payoffs in Q1 [30][31] Question: Core loan yield for the quarter - The core loan yield for the quarter was approximately 6.40%, reflecting a 10 basis point expansion over the fourth quarter [38] Question: Thoughts on interest-bearing costs and margin - Timing issues affected the interest-bearing costs, with some callable brokered CDs called in Q1 leading to a one-time drag [41][42] Question: Expectations for SBA originations and fee income - Originations were better than expected, with the strongest quarter anticipated in Q4 2025 [50] Question: Share repurchase strategy - The company aims to balance share repurchases with the need to build consolidated CET1 capital, currently at 11% [72]