Bankwell Financial Group(BWFG) - 2025 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) This section presents the unaudited consolidated financial statements, including balance sheets, income statements, and cash flows, with detailed notes Consolidated Balance Sheets 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 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) 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 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] - Stock-based compensation expense increased common stock by $924 thousand, and repurchase of common stock decreased it by $1,334 thousand[11] Consolidated Statements of Cash Flows 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 This section provides detailed explanations of accounting policies, estimates, and specific financial instrument disclosures 1. Nature of Operations and Summary of Significant Accounting Policies 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][15] - 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][19] - 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] - 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][35][45] 2. Investment Securities 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][52] - 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] 3. Loans Receivable and ACL-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] 4. Shareholders' Equity 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][257] 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 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][120] - 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] 6. Earnings per share ("EPS") 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] | 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 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][235] 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][102][237] 8. Deposits 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 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] 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] 10. Derivative Instruments 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] - 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][121] 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] 11. Fair Value of Financial Instruments 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][154] - 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] 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] - 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] 12. Fair Value Measurements 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][162][163] - 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] 13. Subordinated debentures 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][165][166][167] - Both notes are non-callable for five years from issuance and have been structured to qualify as Tier 2 capital under regulatory guidelines[165][167] 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 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] - 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] - 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] Executive Overview 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][177] Critical Accounting Policies and Estimates 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] Earnings and Performance Overview 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] - 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] Results of Operations This section details changes in net interest income, credit loss provisions, noninterest income, noninterest expense, and income taxes Net Interest Income 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][184] 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 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 | $11.9 | - The (credit) provision for credit losses is based on management's periodic assessment of the adequacy of ACL-Loans and ACL-Unfunded Commitments, considering factors like loan portfolio composition, nonperforming loans, economic conditions, and real estate values[193] Noninterest Income Noninterest income substantially increased, driven primarily by higher gains from loan sales, alongside increases in service charges and BOLI income Noninterest Income (In thousands) | Noninterest Income (In thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change ($) | 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 | $1,919 | Favorable | - The increase in noninterest income for both periods was primarily driven by higher gains from loan sales[196] Noninterest Expense Noninterest expense increased due to higher salaries and employee benefits from new hires, and increased professional services costs related to new initiatives Noninterest Expense (In thousands) | Noninterest Expense (In thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change ($) | 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] Income Taxes 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 This section analyzes changes in total assets, loan portfolio, asset quality, allowance for credit losses, investment securities, and deposit activities 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] Loan Portfolio 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] Asset Quality 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][70][72][213] 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] - 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] Allowance for Credit Losses - Loans ("ACL-Loans") 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 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] Investment Securities 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 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] - 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] 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 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] - 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] - Primary sources of liquidity include deposits, purchased liabilities (FHLB advances), cash flows from investment securities, loan sales, and loan repayments[231][232][233] - Liquidity positions are monitored daily, and stress testing is employed to estimate contingent funding needs[233] Asset/Liability Management and Interest Rate Risk 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] 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] - 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] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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 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] Impact of Inflation 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] - Interest rates generally have a more significant effect on the performance of a financial institution than general levels of inflation[249] - 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] Item 4. Controls and Procedures 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 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] Change in internal controls 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] PART II – OTHER INFORMATION Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] 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] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported for the period - No defaults upon senior securities were reported[259] Item 4. Mine Safety Disclosures No mine safety disclosures were reported for the period - No mine safety disclosures were reported[260] Item 5. Other Information No other information was reported for the period - No other information was reported[261] Item 6. Exhibits 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] - 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] 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] Certifications This section indicates the presence of required certifications, which are detailed in the Exhibits section