BWFG Bankwell Financial Group, Inc. - 10-K

Item 1A.    Risk Factors

Risks Relating to Our Business

As a business operating in the financial services industry, our business and operations may be adversely affected in numerous and complex ways by weak economic conditions.

Our business, which primarily consist of extending credit to clients through loans, borrowing money from clients in the form of deposits and investing in securities, is sensitive to general business and economic conditions in the United States and, to a lesser extent, to secondary effects of global geopolitical events. A weakening of the U.S. economy could constrain our growth and profitability across our lending, deposit and investment activities. Businesses, consumers, and investors in the United States face ongoing uncertainty related to federal fiscal policymaking, the medium- and long-term fiscal outlook of the federal government, the impact of tariffs, and future tax rates. In addition, adverse economic conditions in foreign countries could disrupt global financial markets and negatively affect U.S. economic growth. Weak economic conditions may be characterized by deflationary pressures; volatility in in debt and equity markets; reduced liquidity; depressed prices in the secondary market for mortgage loans; increased delinquencies on mortgage, consumer and commercial loans; declines in residential and commercial real estate values; and lower levels of home sales and commercial activity. These factors, individually or in combination, could adversely affect our business, and their interaction may be complex and difficult to predict. Our business is also significantly affected by monetary and related policies of the U.S. federal government and its agencies. Changes in any of these policies are influenced by macroeconomic conditions and other factors beyond our control. Adverse economic conditions, together with government policy responses to those conditions, could have a material adverse effect on our business, financial condition, results of operations and prospects.

We may not be able to adequately measure and limit our credit risk, which could lead to unexpected losses.

Lending activities are inherently subject to credit risk, including the risk that borrowers may be unable or unwilling to repay principal or interest when due, or that collateral securing a loan may be insufficient to cover our exposure. These risks may be influenced by conditions affecting borrowers’ industries and by local, regional, and national economic trends. While we employ various risk management practices, including credit approval standards and ongoing monitoring of industry and portfolio concentrations, these measures may not be effective in mitigating credit risk under all circumstances. Our credit policies, procedures and administration may not fully adapt to changes in economic conditions or other factors affecting borrower creditworthiness and overall portfolio quality. Finally, many of our loans are made to middle-market businesses, which may be more vulnerable to competitive, economic and financial pressures than larger borrowers. A failure to effectively identify, measure and manage credit risk within our loan portfolio could have a material adverse effect on our business, financial condition, results of operations and future prospects.

Our ACL-Loans may not be adequate to absorb losses inherent in our loan portfolio, which could have a material adverse effect on our financial condition and results of operations.

We maintain an Allowance for Credit Losses for Loans ("ACL-Loans") to provide for losses inherent in our loan portfolio. Maintaining an adequate ACL-Loans is critical to our financial results and condition. The level of our ACL-Loans reflects management’s continuing evaluation of general economic conditions, diversification and seasoning of the loan portfolio, historic loss experience, identified credit problems, delinquency levels and adequacy of collateral. The determination of the appropriate level of the ACL-Loans is inherently highly subjective and requires us to make significant estimates of and assumptions regarding current credit risks and future trends, all of which may undergo material changes. Inaccurate management assumptions, continuing deterioration of economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require us to increase our ACL-Loans. In addition, our regulators, as an integral part of their examination process, review our loans and the adequacy of our ACL-Loans and may direct us to make additions to our ACL-Loans based on their judgments about information available to them at the time of their examination. If actual charge-offs in future periods exceed the amounts allocated to our ACL-Loans, we may need additional provision for credit losses to restore the adequacy of our ACL-Loans. If we are required to materially increase our level of ACL-Loans for any reason, such increase could have a material adverse effect on our business, financial condition, results of operations and future prospects.

Our concentration of large loans to certain borrowers may increase our credit risk.

As of December 31, 2025, our five largest relationships ranged in exposure from approximately $91.9 million to $111.5 million. In addition to other typical risks related to any loan, such as deterioration of the collateral securing the loans, this high concentration of borrowers presents a risk to our lending operations. If any one of these borrowers becomes unable to repay a loan obligation(s) for any reason, our nonperforming loans and our ACL-Loans could increase significantly, which could adversely and materially affect our business, financial condition and results of operations.

Our commercial real estate loan, commercial loan and construction loan portfolios expose us to potentially elevated risks.

Our loan portfolio includes non-owner-occupied commercial real estate loans to individuals and businesses for various purposes, secured by commercial properties. Repayment of these loans typically depends on the income generated, or expected to be generated, by the underlying property in amounts sufficient to cover operating expenses and debt service. As a result, these loans may be more adversely affected by downturns in real estate markets or broader economic conditions than residential real estate loans, as these borrowers’ ability to repay their loans depends on successful leasing of their properties, in addition to the factors affecting residential real estate borrowers. These loans also involve greater risk because they generally are not fully amortizing over the loan term and typically require a balloon payment at maturity. A borrower’s ability to make a balloon payment typically is dependent on the ability to refinance the loan or sell the underlying property in a timely manner, which may be constrained by adverse market or credit conditions.

These loans expose a lender to increased credit risk because the collateral securing them is generally less liquid than residential real estate. Non-owner-occupied commercial real estate loans generally involve larger balances to individual borrowers or related groups of borrowers, which may result in higher charge-offs on a per loan basis compared to residential or consumer loan portfolios.

The repayment of our commercial loans is primarily dependent on the cash flows generated by borrowers’ business operations. Accordingly, repayment is substantially influenced by the financial performance and ongoing viability of those businesses. The assets securing the loans have the following characteristics: (a) they depreciate over time, (b) they are difficult to appraise and liquidate, and (c) they fluctuate in value based on the success of the business.

The risk of loss associated with construction loans depends in large part on the accuracy of our initial estimates of a project’s value upon completion, the successful and timely completion of construction, the availability of permanent takeout financing, and the borrower’s ability to lease or sell the property. Construction projects are subject to delays, cost overruns, and other risks beyond the borrower’s or our control. If actual costs exceed estimates or projected values are not realized, the value of the property securing the loan may be insufficient to ensure full repayment through refinancing or sale of the property.

Although we employ underwriting standards, credit review processes, and ongoing monitoring, these practices cannot eliminate all risks associated with commercial real estate, commercial, and construction lending. Unexpected deterioration in the credit quality of these loan portfolios could require increased provisions for credit losses, reduce profitability, and have a material adverse effect on our business, financial condition, results of operations and future prospects.

Lack of seasoning of our loan portfolio could increase risk of credit defaults in the future.

As a result of our growth in recent years, a large portion of our loan portfolio and lending relationships are of relatively recent origin. Loans generally do not exhibit signs of credit deterioration or default until they have been outstanding for a period of time, a process commonly referred to as “seasoning.” Accordingly, a more seasoned loan portfolio of older loans will usually behave more predictably than a newer portfolio. Because a large portion of our portfolio is relatively new, current delinquency and default levels may not be indicative of future credit performance as the portfolio becomes more seasoned. As a result, these metrics may not provide a reliable basis for predicting future trends in asset quality, including net charge-offs and nonperforming assets. In addition, our limited operating history with our portfolio reduces the availability of historical payment patterns on which to assess future collectability. As a result, it may be difficult to predict the future performance of our loan portfolio. If credit performance deteriorates as the portfolio seasons, we could experience higher delinquencies and charge-offs and may be required to increase our ACL-Loans, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

Our lending limit may restrict our growth and prevent us from effectively implementing our business strategy.

Our lending capacity is constrained by our capital levels and applicable lending limits, which restrict the amount we may lend both in the aggregate and to any single borrower. As a result, the maximum loan amounts we can offer may be significantly lower than those available from many of our competitors. These limitations may discourage potential borrowers with credit needs that exceed our lending limits from doing business with us. We seek to accommodate larger credit needs by selling participations in loans to other financial institutions; however, this strategy may not be available or feasible in all circumstances. If we are unable to compete effectively for loans among our target clients due to these constraints, we may be unable to successfully execute our business strategy, which could have a material adverse effect on our business, financial condition, results of operations and future prospects.

A prolonged downturn in the real estate market could result in losses and adversely affect our profitability.

A significant portion of our loan portfolio consists of commercial real estate loans. While the underlying real estate collateral may provide an alternative source of repayment in the event of borrower default, the value of such collateral may decline during the term of the loan. A deterioration in real estate values could impair the value of our collateral and our ability to recover outstanding balances through foreclosure or sale. In the event of default, proceeds from the sale of the collateral may be insufficient to fully recover the outstanding principal and accrued interest on these loans. In addition, if declining real estate values require us to re-evaluate collateral values or increase our ACL-Loans, our profitability could be adversely affected. Any such impact could have a material adverse effect on our business, financial condition, results of operations and prospects.

We are subject to interest rate risk that could negatively impact our profitability.

Our profitability, like that of most financial institutions, depends primarily on our net interest income, which is the difference between our interest income on interest-earning assets, such as loans and investment securities, and our interest expense on interest bearing liabilities, such as deposits and borrowings.

Changes in interest rates and in the monetary policy actions of the FRB may materially and adversely affect our net interest income, profitability, and overall financial condition. Interest rates are influenced by a broad range of factors beyond our control, including general economic conditions, inflationary trends, fiscal policy, and actions taken by the FRB through the Federal Open Market Committee (FOMC). Following the significant monetary tightening cycle that began in 2022, the FRB raised the federal funds rate to a peak range of 5.25%–5.50%. In response to moderating inflation and a softening labor market, the FRB subsequently reduced the target range throughout 2024 and 2025, ending 2025 at 3.50%–3.75%. These changes, including both prior rate increases and subsequent rate cuts, continue to influence market interest rates, funding costs, loan demand, and the yields available on interest‑earning assets.

Fluctuations in interest rates directly influence the rates we earn on loans and securities, the rates we pay on deposits and borrowings, and the fair value and duration of our financial assets and liabilities. If interest rates on deposits and other funding sources rise faster than the rates we earn on loans and investments, our net interest income and overall earnings could decline. Periods of heightened rate volatility or instability may also increase funding costs, pressure our net interest margin, and negatively impact asset‑liability management strategies. Any substantial, unexpected, or prolonged shift in interest rates could have a material adverse effect on our business, financial condition, results of operations, and future prospects.

In addition, increased interest rates could also have a negative impact on our results of operations by reducing the ability of borrowers to repay their current loan obligations. These circumstances could not only result in increased loan defaults, foreclosures and charge-offs, but also necessitate further increases to our ACL-Loans, each of which could have a material adverse effect on our business, results of operations, financial condition and future prospects.

Strong competition could reduce our profits and slow growth.

Competition in the financial services industry is strong. Numerous commercial banks, savings banks and savings associations maintain offices or are headquartered in or near our market area. Commercial banks, savings banks, savings associations, money market funds, mortgage brokers, finance companies, credit unions, insurance companies, investment firms and private lenders compete with us for various components of our business. These competitors often have far greater resources than we do and are able to conduct more intensive and broader based promotional efforts to reach both commercial and individual clients.

Our ability to compete successfully will depend on a number of factors, including, among other things:

• Our ability to build and maintain long-term client relationships while ensuring high ethical standards and safe and sound banking practices;

• The scope, relevance, and pricing of products and services that we offer;

• Client satisfaction with our products and personalized services;

• Industry and general economic trends; and

• Our ability to keep pace with technological advances and to invest in new technology.

Increased competition could require us to increase the rates we pay on deposits or lower the rates we offer on loans, which could reduce our profitability. Our failure to compete effectively could cause us to lose market share and could have a material adverse effect on our business, financial condition, results of operations and future prospects.

Our ability to maintain our reputation is critical to the success of our business.

Our reputation is one of the most valuable components of our business. We strive to conduct our business in a manner that enhances our reputation. This is done, in part, by recruiting, hiring and retaining employees who share our core values of delivering superior service to our clients, caring about our clients and associates, and being an integral part of the communities we serve. If our reputation is negatively affected by the actions of our employees, or otherwise, our business and, therefore, our operating results may be materially adversely affected.

We are dependent on our executive management team and other key employees, and we could be adversely affected by the unexpected loss of their services.

We are led by an experienced executive management team and our operating strategy focuses on providing products and services through long-term relationship managers. Accordingly, our success depends in large part on the performance of our key employees, as well as on our ability to attract, motivate and retain highly qualified senior and middle management. Competition for employees is intense, and the process of identifying qualified candidates with the combination of skills and attributes required to execute our business plan may be lengthy. The general economic conditions plus other factors have made it more difficult to retain employees and to attract new employees. We believe that retaining the services and skills of our executive management team is important to our success. The unexpected loss of services of any of our key employees could have an adverse impact on us because of their skills, knowledge of our market, years of industry experience and the difficulty of promptly finding qualified replacement employees. If any of our key employees should become unavailable for any reason, we may be unable to identify and hire qualified candidates on acceptable terms, which could cause a material adverse effect on our business, financial condition, results of operations and future prospects.

We may not be able to execute our strategic plan.

Our strategic plan includes initiatives designed to support the organic development and growth of our franchise. These initiatives focus on delivering superior service to our clients, coupling technology with our deep client relationships. Execution of this strategy requires investment in resources, systems and human capital. Our success depends on management’s ability to effectively manage and execute multiple, concurrent initiatives intended to enhance operational capabilities and expand our product offerings. Any inability to successfully execute these initiatives could negatively impact client acquisition and retention and may adversely impact our operating results.

Failure or disruption of the operating systems and technologies we use, including those of third parties, could adversely affect our business.

We rely on communication and information systems, many of which are provided by third-party providers, to conduct our business. Failures, interruptions or security breaches involving these systems could disrupt critical operations, including our general ledger, deposit and loan systems, and digital banking platforms, including our online account opening channel, Bankwell Direct. The risk of electronic fraudulent activity within the financial services industry, particularly in the commercial banking sector, continues to increase as cyber criminals target bank systems and client information. While we have implemented policies and procedures designed to prevent and mitigate the effects of system failures, interruptions, and security breaches, including cyber-attacks, there can be no assurance that such events will not occur or that, if they do occur, they will be effectively addressed. In addition, we may not be able to ensure that all third-party service providers maintain adequate controls to protect their systems and our information in the event of a cyber-attack. Any failure, interruption, or security breach involving our systems or those of our third-party providers could harm our reputation, result in the loss of business, increase regulatory scrutiny, or expose us to civil litigation or financial liability, any of which could have an adverse effect on our results of operation and financial condition.

Unauthorized access, cyber-crime, and other threats to data security, including those posed by artificial intelligence, may require significant resources, harm our reputation, and adversely affect our business.

We collect, use, and maintain personal and financial information relating to individuals and businesses with whom we have banking relationships. Threats to data security, such as unauthorized access, cyber-attacks, and other evolving risks, are rapidly changing and may expose us to increased costs for prevention, detection, and remediation, as well as competing demands on our resources to protect data in accordance with client expectations and applicable statutory and regulatory requirements. It is difficult, and in some cases impossible, to anticipate or defend against every risk arising from advancing technologies, including the use of artificial intelligence ("AI"), and from increasingly sophisticated cyber-criminals and other

malicious actors. The complexity and frequency of cyber threats make it challenging to keep pace with new attack methods and may result in a security breach. The controls implemented by our information technology systems, employees, and third-party service providers may be insufficient or fail. We may also experience security incidents resulting from intentional or negligent acts by employees or other internal parties, software defects or technical failures, or other unforeseen causes. As a result, client accounts could become vulnerable to account takeover schemes, cyber-fraud, or other unauthorized activity. In addition, our systems and those of our third-party providers may be subject to damage or disruption from events beyond our or their control, including natural disasters, power interruptions, network failures, catastrophic events, or the introduction of viruses or malware.

A breach of our security, or that of any of our third-party providers, resulting in unauthorized access to data could disrupt our operations and lead to data loss, litigation, regulatory enforcement actions, fines and penalties, increased compliance costs, and reputational harm. Any of these consequences could have a material adverse effect on our business, results of operations, financial condition and future prospects.

We are subject to losses due to fraudulent and negligent acts on the part of loan applicants, our clients, vendors, bad actors, and/or our employees.

When originating loans, we rely extensively on information provided by third parties, including the loan applications, property appraisals, title reports and income documentation. In addition, our current and potential future use of AI to support loan origination processes may introduce additional risk of inaccurate, incomplete, or misrepresented information. If such information is intentionally or negligently misrepresented and the misstatement is not identified prior to loan funding, the value of the loan may be materially less than anticipated. Regardless of whether a misrepresentation is made by a loan applicant, client, vendor, third-party service provider, bad actor, or employee, we generally bear the associated risk of loss. Loans subject to material misrepresentations are typically unsalable or may be subject to repurchase obligations if sold prior to the discovery of the misrepresentation. In addition, the individuals or entities responsible for such misrepresentations are often difficult to locate, and recovery of resulting losses may be limited or unsuccessful. While we maintain controls and processes designed to identify misrepresented information in our loan origination activities, including human oversight of AI-supported processes, we cannot provide assurance that all misrepresentations will be detected.

As a financial institution, we are also inherently exposed to risks associated with theft, fraud and other dishonest or illegal activities by clients, vendors, bad actors, and/or employees targeting the Bank or our clients. These activities may take many forms, including check fraud, electronic and wire fraud, phishing, social engineering, and other schemes. The increasing sophistication and frequency of fraudulent activity could result in financial losses, reputational harm, loss of business, heightened regulatory scrutiny, civil litigation, or other liabilities. Any of these outcomes could have an adverse effect on our results of operation and financial condition. To mitigate these risks, we maintain policies and internal controls, utilize technology-based monitoring tools, and provide ongoing employee training designed to identify, prevent, and respond to fraudulent activity; however, these measures may not be effective in preventing all losses.

We may be unsuccessful in identifying and completing the acquisition of whole financial institutions or related lines of business.

In addition to organic growth, we may pursue acquisitions of financial institutions or related businesses to support our strategic objectives. Acquisitions involve significant execution risk, and we cannot assure that we will identify suitable opportunities or successfully complete or integrate any transaction. Acquisition activities may require substantial management time and expense, divert attention from our existing operations, and subject us to competitive pressures, regulatory approvals, and potential regulatory actions.

Acquisitions also involve risks related to valuation, due diligence, integration, and the assumption of unknown or contingent liabilities. Difficulties integrating operations, systems, personnel, and controls, or inconsistencies in policies and procedures, could adversely affect client relationships and limit our ability to achieve anticipated benefits. Depending on the condition of the acquired institution or assets, an acquisition may adversely affect our capital, earnings, or goodwill and could result in impairment charges.

If we are unable to successfully manage these risks or realize the expected benefits of an acquisition in a timely manner, our profitability, growth, and shareholder value could be adversely affected, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.

Some institutions we may acquire may have distressed assets and there can be no assurance that we would be able to realize the value we predict from these assets or that we would make sufficient provision for future losses in the value of, or accurately estimate the future write downs taken in respect of, these assets.

Declines in real estate prices and/or weak general economic conditions may result in increases in delinquencies and losses in the loan portfolios and other assets of financial institutions that we may acquire in amounts that exceed our initial forecasts developed during the due diligence investigation prior to acquiring those institutions. In addition, asset values may be impaired in the future due to factors we cannot predict, including significant deterioration in economic conditions and further declines in collateral values and credit quality indicators. Any of these events could adversely affect the financial condition, liquidity, capital position and value of any institutions that we acquire and of the Company as a whole.

As a result of an investment or acquisition transaction, we may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on our financial condition and results of operations, which could cause you to lose some or all of your investment.

We conduct due diligence investigations of institutions we may acquire; however, these reviews are time‑consuming, costly, and may not identify all material risks. Despite extensive due diligence, issues related to a target institution, its operations, or its operating environment may not be discovered or may arise after completion of an acquisition. If such issues are identified after an acquisition, or if we are unable to successfully integrate and manage the acquired operations, we may be required to write down or write off assets, restructure operations, or record impairment or other charges, which could result in reported losses. In addition, such charges or integration challenges could adversely affect our capital or cause us to violate financial covenants associated with assumed or newly incurred debt. Any of these outcomes could adversely affect our financial condition and results of operations.

We may be required to repurchase mortgage loans or indemnify buyers against losses in some circumstances, which could harm liquidity, results of operations and financial condition.

When mortgage loans are sold, whether as whole loans or pursuant to a securitization, we are required to make customary representations and warranties to purchasers, guarantors and insurers, including government-sponsored entities, about the mortgage loans and the manner in which they were originated. Whole loan sale agreements require us to repurchase or substitute mortgage loans, or indemnify buyers against losses, in the event we breach these representations or warranties. In addition, we may be required to repurchase mortgage loans as a result of early payment default of the borrower on a mortgage loan. If repurchase and indemnity demands increase and such demands are valid claims and are in excess of our provision for potential losses, our liquidity, results of operations and financial condition may be adversely affected.

The fair value of our investment securities can fluctuate due to factors outside of our control.

Factors beyond our control can significantly influence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of these securities. These factors include, but are not limited to, rating agency actions with respect to individual securities, defaults by the issuer or with respect to the underlying securities, changes in market interest rates, and continued instability in the capital markets. Any of these factors, among others, could cause credit losses and realized and/or unrealized losses in future periods and declines in other comprehensive income, which could materially and adversely affect our business, results of operations, financial condition and prospects. The process for determining whether credit losses of a security usually requires complex, subjective judgments about the future financial performance and liquidity of the issuer and any collateral underlying the security in order to assess the probability of receiving all contractual principal and interest payments on the security.

We are subject to environmental liability risk associated with our lending activities.

In the course of our business, we may purchase real estate, or we may foreclose on and take title to real estate. As a result, we could be subject to environmental liabilities with respect to these properties. We may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination or may be required to investigate or clean up hazardous or toxic substances or chemical releases at a property. The costs associated with investigation or remediation activities could be substantial. In addition, if we are the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. Any significant environmental liabilities could cause a material adverse effect on our business, financial condition, results of operations and future prospects.

Climate change and related legislative and regulatory initiatives may materially affect the Company’s business and results of operations.

Climate change and related regulatory, political, and market responses may present risks to our business, financial condition, and results of operations. The lack of reliable historical data makes it difficult to predict the extent to which climate‑related risks may affect us; however, the physical effects of climate change, including more frequent or severe weather

events, may adversely impact the value of real property securing loans in our portfolio. If borrower insurance coverage is insufficient or unavailable to cover climate‑related losses, the value of our collateral may be reduced.

In addition, climate change may negatively affect regional and local economic conditions, which could adversely impact our clients and the communities we serve. Collectively, these factors could have a material adverse effect on our financial condition and results of operations.

Adverse developments affecting the financial services industry, such as bank failures, may adversely affect the Bank’s results of operations and financial condition, including capital and liquidity.

Bank failures may adversely affect the national, regional, and local business environment in which the Bank operates. Although we were not directly impacted by the bank failures that occurred in 2023, the speed and ability of depositors to withdraw their funds from these and other financial institutions contributed to the broader volatility across the banking sector. While U.S. government agencies took actions to support depositor confidence and bank liquidity, it is uncertain whether these or any future measures will be sufficient to prevent future bank failures or significant deposit outflows. Any future bank failures or related market disruptions may adversely impact the Bank’s future operating results and financial condition, including capital and liquidity.

Risks Applicable to the Regulation of our Industry

We operate in a highly regulated environment, which could have a material and adverse impact on our operations and activities, financial condition, results of operations, growth plans and future prospects.

Banking is highly regulated under federal and state law. We are subject to extensive regulation and supervision that governs almost all aspects of our operations. As a registered bank holding company, we are subject to supervision, regulation and examination by the FRB. As a commercial bank chartered under the laws of Connecticut, the Bank is subject to supervision, regulation and examination by the CT DOB and the FDIC. The Bank is also subject to regulation by the NY DFS in connection with its New York operations.

The primary goals of the bank regulatory system are to maintain a safe and sound banking system and to facilitate the conduct of sound monetary policy. This system is intended primarily for the protection of the FDIC’s Deposit Insurance Fund and bank depositors, rather than our shareholders and creditors. The banking agencies have broad enforcement power over bank holding companies and banks, including the authority, among other things, to enjoin “unsafe or unsound” practices, require affirmative action to correct any violation or practice, issue administrative orders that can be judicially enforced, direct increases in capital, direct the sale of subsidiaries or other assets, limit dividends and distributions, restrict growth, assess civil monetary penalties, remove officers and directors, and, with respect to banks, terminate our charter, terminate our deposit insurance or place the Bank into conservatorship or receivership. In general, these enforcement actions may be initiated for violations of laws and regulations or unsafe or unsound practices.

Compliance with the myriad of laws and regulations applicable to our organization can be difficult and costly. In addition, these laws, regulations and policies are subject to continual review by governmental authorities, and changes to these laws, regulations and policies, including changes in interpretation or implementation of these laws, regulations and policies, could affect us in substantial and unpredictable ways and often impose additional compliance costs. Further, any new laws, rules and regulations, could make compliance more complex or expensive. All of these laws and regulations, and the supervisory framework applicable to our industry, could have a material adverse impact on our operations and activities, financial condition, results of operations, growth plans and future prospects.

Federal and state regulators periodically examine our business and we may be required to remediate adverse examination findings.

The FRB, the FDIC and the CT DOB periodically examine our business, including our compliance with laws and regulations. If, as a result of an examination, a regulatory agency were to determine that our financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any of our operations had become unsatisfactory, or that we were in violation of any law or regulation, it may take a number of different remedial actions as it deems appropriate. These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to assess civil monetary penalties against our officers or directors, to remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate our deposit insurance and place us into receivership or conservatorship. Any regulatory action against us could have a material adverse effect on our business, results of operations, financial condition and future prospects.

The Bank’s FDIC deposit insurance premiums and assessments may increase.

The deposits of the Bank are insured by the FDIC up to legal limits and, consequently, subject it to the payment of FDIC deposit insurance assessments. The Bank’s regular assessments are determined by its risk classification, which is based on its regulatory capital levels and the level of supervisory concern that it poses. Any future special assessments, increases in assessment rates or required prepayments in FDIC insurance premiums could reduce our profitability or limit our ability to pursue certain business opportunities, which could materially and adversely affect our business, financial condition, results of operations and prospects.

The Bank is subject to further reporting requirements under FDIC regulations.

We are subject to reporting requirements under the rules of the FDIC, including a requirement for management to prepare a report that contains an assessment by management of the Bank’s effectiveness of internal control structure and procedures for financial reporting as of the end of such fiscal year. In addition, we are required to obtain an independent public accountant’s attestation report concerning our internal control structure over financial reporting. The rules for management to assess the Bank’s internal controls over financial reporting are complex, and require significant documentation, testing and possible remediation. The effort to comply with regulatory requirements relating to internal controls causes us to incur increased expenses and diverts management’s time and other internal resources. If the Bank cannot favorably assess the effectiveness of its internal controls over financial reporting, or if its independent registered public accounting firm is unable to provide an unqualified attestation report on the Bank’s internal controls, the price of our common stock as well as investor confidence could be adversely affected and we may be subject to additional regulatory scrutiny.

We are subject to numerous laws designed to protect consumers, including the Community Reinvestment Act, or CRA, and fair lending laws, and failure to comply with these laws could lead to a wide variety of sanctions.

Various laws impose nondiscriminatory lending requirements on financial institutions, including the CRA, the Equal Credit Opportunity Act and the Fair Housing Act. A successful regulatory challenge to an institution’s performance under the CRA or fair lending laws and regulations could result in a wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions activity, restrictions on expansion, and restrictions on entering new business lines. Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation. Such actions could have a material adverse effect on our business, financial condition, results of operations and prospects.

We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.

Financial institutions are required to institute and maintain an effective anti-money laundering program and file suspicious activity and currency transaction reports as appropriate under The Bank Secrecy Act, The USA PATRIOT ACT of 2001 and certain other laws and regulations. Significant civil penalties can be assessed by a variety of regulators and governmental agencies for violations of these laws and regulations. If our policies, procedures and systems are deemed deficient, we would be subject to liability, including fines and regulatory actions, which may include restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including our acquisition plans. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us. Any of these results could materially and adversely affect our business, financial condition, results of operations and prospects.

We face a risk of disruptions and may be impacted by U.S. Government shutdowns.

A U.S. government shutdown may materially disrupt our operations that rely on programs administered by the U.S. Small Business Administration (“SBA”). During such shutdowns, the SBA suspends non-essential activities, including the administrative support associated with our origination of new 7(a) loans. Even lenders with delegated authority are unable to process new applications or finalize disbursements during this period. These disruptions may adversely affect our ability to originate, service, and sell SBA-guaranteed loans, and may also impact the processing of guarantee payment requests.

Furthermore, upon the resumption of government operations, the SBA will likely experience a backlog of applications, which could be significant and may lead to extended processing times and further delays. These delays could impair our financial performance, increase credit risk exposure, and negatively affect our relationships with borrowers and lending partners.

Additionally, suspension of other federally-funded programs, such as Section 8 housing vouchers and contracts, may have an impact on borrower cash flows, which could, in turn, affect the Company's loan payments. The Company's exposure to such programs is very limited.

General Risk Factors

Resources could be expended in considering or evaluating potential acquisitions that are not consummated, which could materially and adversely affect subsequent attempts to locate and acquire or merge with another business.

We anticipate that the process of identifying and investigating institutions for potential acquisitions and the negotiation, drafting and execution of relevant agreements, disclosure documents and other instruments will require substantial management time and attention and substantial costs for accountants, attorneys and others. If a decision is made not to complete a specific acquisition transaction, the costs incurred up to that point for the proposed transaction likely would not be recoverable. Furthermore, even if an agreement is reached relating to a specific target institution, we may fail to consummate the transaction for any number of reasons, including those beyond our control. Any such event will result in a loss to us of the related costs incurred, which could materially and adversely affect subsequent attempts to locate and acquire or merge with another institution.

We may be adversely affected by the soundness of other financial institutions.

Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services companies are interrelated as a result of trading, clearing, counterparty, and other relationships. We have exposure to different industries and counterparties, and through transactions with counterparties in the financial services industry, including broker-dealers, commercial banks, investment banks, and other financial intermediaries. Further, our private banking channel relies on relationships with a number of other financial institutions for referrals. As a result, declines in the financial condition of, or even rumors or questions about, one or more financial institutions, financial service companies or the financial services industry generally, may lead to market-wide liquidity, asset quality or other problems and could lead to losses or defaults by us or by other institutions. These problems, losses or defaults could have a material adverse effect on our business, financial condition, results of operations and future prospects.

We rely on third parties to provide key components of our business infrastructure, and failure of these parties to perform for any reason could disrupt our operations.

Our business depends on the successful and uninterrupted functioning of our information technology and telecommunications systems and third-party servicers. The failure of these systems (including cyber attacks), or the termination of a third-party software license or service agreement on which any of these systems is based, could interrupt our operations. Because our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such services exceeds capacity or such third-party systems fail or experience interruptions. If significant, sustained or repeated, a system failure or service denial could compromise our ability to operate effectively, damage our reputation, result in a loss of client business, and subject us to additional regulatory scrutiny and possible financial liability, any of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

We may incur impairment to goodwill.

We test our goodwill for impairment at least annually. Significant negative industry or economic trends, reduced estimates of future cash flows or disruptions to our business, could indicate that goodwill might be impaired. Our valuation methodology for assessing impairment requires management to make judgments and assumptions based on historical experience and to rely on projections of future operating performance. Projections of future operating results and cash flows may vary significantly from actual results. Additionally, if our analysis results in impairment to our goodwill, we would be required to record a non-cash charge to earnings in our financial statements during the period in which such impairment is determined to exist. Any such charge could have a material adverse effect on our results of operations.

The evolving and often conflicting political and regulatory landscape related to environmental, social, and governance (“ESG”) practices creates uncertainty and compliance challenges that may increase our costs and expose us to new or additional risks.

Companies face divergent and changing federal, state, and local regulatory approaches towards ESG, further affected by shifts in governmental priorities, which create uncertainty regarding enforcement priorities and compliance expectations. This dynamic and sometimes conflicting landscape complicates compliance, strategic planning, and operational decision‑making, and may increase legal, compliance, and operational costs, divert management attention, and heighten the risk of non‑compliance. In addition, heightened scrutiny from investors and other stakeholders regarding ESG matters creates reputational risk regardless of our approach, which could adversely affect our business, financial condition, and results of operations.

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

General

Bankwell Financial Group, Inc. (the "Parent Corporation") is a bank holding company headquartered in New Canaan, Connecticut. The Parent Corporation offers a broad range of financial services through its banking subsidiary, Bankwell Bank (the "Bank" and, collectively with the Parent Corporation and the Parent Corporation's subsidiaries, "we", "our", "us", or the "Company").

The Bank is a Connecticut state chartered commercial bank, founded in 2002, whose deposits are insured under the Deposit Insurance Fund administered by the Federal Deposit Insurance Corporation (“FDIC”). The Bank provides a wide range of services to clients in our market, an area encompassing approximately a 100 mile radius around our branch network. In addition, the Bank pursues certain types of commercial lending opportunities outside our market, particularly where we have strong relationships. The Bank operates full-service branches in New Canaan, Stamford, Fairfield, Westport, Darien, Norwalk, and Hamden, Connecticut. The Bank also operates in a limited service Domestic Representative Office in New Canaan, Connecticut and in Garden City, New York. During 2025, the Bank received regulatory approval from the FDIC, the CT DOB, and the NY DFS to establish a new full-service branch in Brooklyn, New York, which opened during the first quarter of 2026.

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

We generate most of our revenue from interest on loans and investments and fee-based revenues. Our primary source of funding for our loans is deposits. Our largest expenses are interest on these deposits and salaries and related employee benefits. We measure our performance primarily through our net interest margin, efficiency ratio, ratio of ACL-Loans to total loans, return on average assets and return on average equity, among other metrics, while maintaining appropriate regulatory leverage and risk-based capital ratios.

Selected Financial Data

The following table sets forth selected consolidated financial data as of the dates and for the periods presented. The selected consolidated balance sheet data as of December 31, 2025 and 2024 and the selected consolidated statement of income data for the years ended December 31, 2025 and 2024 have been derived mainly from our audited consolidated financial statements and related notes that we have included elsewhere in this Annual Report. The selected consolidated balance sheet data as of December 31, 2023, 2022, and 2021 and the selected consolidated statement of income data for the years ended December 31, 2023, 2022, and 2021 has been derived mainly from audited consolidated financial statements that are not presented in this Annual Report.

The selected historical consolidated financial data as of any date and for any period are not necessarily indicative of the results that may be achieved as of any future date or for any future period. You should read the following selected statistical and financial data in conjunction with the more detailed information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes that we have presented elsewhere in this Annual Report.

Selected Financial Data

At or For the Years Ended December 31,

(Dollars in thousands, except per share data)

Statements of Income:

Interest income

Interest expense

Net interest income

Provision (credit) for credit losses

Net interest income after provision for credit losses

Noninterest income

Noninterest expense

Income before income tax

Income tax expense

Net income

Per Share Data:

Basic earnings per share

Diluted earnings per share

Book value per share (end of period) (a)

Tangible book value per share (end of period) (a)(b)

Dividend payout ratio (b)(e)

Shares outstanding (end of period) (a)

Weighted average shares outstanding–basic

Weighted average shares outstanding–diluted

Performance Ratios:

Return on average assets (b)(f)

Return on average common shareholders’ equity (b)(f)

Average shareholders’ equity to average assets (b)(f)

Net interest margin (b)(f)

Efficiency ratio (b)

Asset Quality Ratios:

Total past due loans to total loans (c)

Nonperforming loans to total loans (c)

Nonperforming assets to total assets (d)

ACL-Loans to nonperforming loans

ACL-Loans to total loans (c)

Net (recoveries) charge-offs to average loans (b)(f)

Statements of Financial Condition:

Total assets

Gross portfolio loans (c)

Investment securities

Deposits

FHLB borrowings

Subordinated debt

Total equity

Capital Ratios:

Tier 1 capital to average assets

Bankwell Bank

Tier 1 capital to risk-weighted assets

Bankwell Bank

Total capital to risk-weighted assets

Bankwell Bank

Total shareholders’ equity to total assets

Tangible common equity ratio (b)

(a) Excludes unvested restricted stock awards.

(b) This measure is not a measure recognized under Generally Accepted Accounting Principles ("GAAP") and is therefore considered to be a non-GAAP financial measure. See “Non-GAAP Financial Measures” for a description of this measure and a reconciliation of this measure to its most directly comparable GAAP measure.

(c) Calculated using the principal amounts outstanding on loans.

(d) Nonperforming assets consist of nonperforming loans and other real estate owned.

(e) The dividend payout ratio is the dividends per share divided by diluted earnings per share.

(f) Return on average assets is calculated by dividing net income by average assets. Return on average common shareholders' equity is calculated by dividing net income by average shareholders' equity. Average shareholders' equity to average assets is calculated by dividing average shareholders' equity by average assets. Net interest margin is calculated by dividing net interest income (interest income minus interest expense) by average earning assets. Net loan charge-offs as a percentage of average loans is calculated by dividing net loan (charge offs) recoveries by average total loans.

NON-GAAP FINANCIAL MEASURES

We identify “efficiency ratio”, “net interest margin”, “tangible common equity ratio”, “tangible book value per share”, “total revenue”, “return on average assets”, and “return on average common shareholders’ equity” as “non-GAAP financial measures.” In accordance with the SEC’s rules, we classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, that are included or excluded, as the case may be, in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles as in effect from time to time in the United States in our statements of income, balance sheet or statements of cash flows. Non-GAAP financial measures do not include operating and other statistical measures or ratios or statistical measures calculated using exclusively either financial measures calculated in accordance with GAAP, operating measures or other measures that are not non-GAAP financial measures or both.

The non-GAAP financial measures that we discuss in this annual report should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in which we calculate the non-GAAP financial measures that we discuss in this annual report may differ from that of other companies reporting measures with similar names. You should understand how such other banking organizations calculate their financial measures similar or with names similar to the non-GAAP financial measures we have discussed in this annual report when comparing such non-GAAP financial measures.

Efficiency ratio is defined as non-interest expenses, less merger and acquisition related expenses, other real estate owned expenses and amortization of intangible assets, divided by our operating revenue, which is equal to net interest income plus non-interest income excluding gains and losses on sales of securities and gains and losses on other real estate owned. In our judgment, the adjustments made to operating revenue allow investors and analysts to better assess our operating expenses in relation to our core operating revenue by removing the volatility that is associated with certain one-time items and other discrete items that are unrelated to our core business.

Tangible common equity is defined as total shareholders’ equity, excluding preferred stock, less goodwill and other intangible assets. We believe that this measure is important to many investors in the marketplace who are interested in changes from period to period in common shareholders’ equity exclusive of changes in intangible assets. Goodwill, an intangible asset that is recorded in a purchase business combination, has the effect of increasing both common equity and assets while not increasing our tangible common equity or tangible assets.

Tangible common equity ratio is defined as the ratio of tangible common equity divided by total assets less goodwill and other intangible assets. We believe that this measure is important to many investors in the marketplace who are interested in relative changes from period to period in common equity and total assets, each exclusive of changes in intangible assets. We believe that the most directly comparable GAAP financial measure is total shareholders’ equity to total assets.

Tangible book value per share is defined as book value, excluding the impact of goodwill and other intangible assets, if any, divided by shares of our common stock outstanding, excluding unvested restricted stock awards.

Total revenue is defined as the sum of net interest income before provision of loan losses and noninterest income.

Return on average common shareholders’ equity is defined as net income attributable to common shareholders divided by total average shareholders’ equity less average preferred stock, if any.

The information provided below presents a reconciliation of each of our non-GAAP financial measures to the most directly comparable GAAP financial measure.

Years Ended December 31,

(Dollars in thousands, except per share data)

Efficiency Ratio

Noninterest expense

Less: other real estate owned expenses

Less: Amortization of intangibles

Adjusted noninterest expense (numerator)

Net interest income

Noninterest income

Adjustments for: gains/(losses) on sales of securities

Adjustments for: gains/(losses) on sale of other real estate owned

Adjusted operating revenue (denominator)

Efficiency ratio

Tangible Common Equity and

Tangible Common Equity/Tangible Assets

Total shareholders’ equity

Less: preferred stock

Common shareholders’ equity

Less: Intangible assets

Tangible Common shareholders’ equity

Total assets

Less: Intangible assets

Tangible assets

Tangible common shareholders’ equity to tangible assets

Tangible Book Value per Share

Total shareholders’ equity

Less: preferred stock

Common shareholders’ equity

Less: Intangible assets

Tangible common shareholders’ equity

Common shares issued

Less: shares of unvested restricted stock

Common shares outstanding

Book value per share

Less: effects of intangible assets

Tangible Book Value per Common Share

Total Revenue

Net interest income

Add: noninterest income

Total Revenue

Noninterest income as a percentage of total revenue

Return on Average Common Shareholders’ Equity

Net Income Attributable to Common Shareholders

Total average shareholders’ equity

Less: average preferred stock

Average Common Shareholders’ Equity

Return on Average Common Shareholders’ Equity

Executive Overview

We strive to be the preferred banking provider, offering a compelling alternative to larger institutions. Our strategy rests on our competitive strengths:

• Strategic Market Reach: While we serve our client base within 100 miles of our branch network, we also selectively pursue commercial banking opportunities beyond this radius, leveraging established business relationships and technology to support our clients’ growth.

• Experienced Leadership: Our Executive Management Team brings a proven track record of success and deep industry expertise.

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

• Disciplined Risk Management: We employ a robust and proactive risk management framework to safeguard assets, ensure regulatory compliance, and support sustainable growth.

• Strong Capital Position: Our capital position has facilitated our growth and is integral to the execution of our business plan, and;

• Scalable Operating Platform: Designed for efficiency and scalability, our platform supports our growth and provides a seamless customer experience.

Key Financial Measures

The primary measures we use to evaluate and manage our financial results are set forth in the tables below. Although we believe these measures are meaningful in evaluating our results and financial condition, they may not be directly comparable to similar measures used by other financial services companies and may not provide an appropriate basis to compare our results or financial condition to the results or financial condition of our competitors. The following tables set forth the key financial measures we use to evaluate the success of our business and our financial position and operating performance.

Key Financial Measures (a)

At or For the Years Ended December 31,

(Dollars in thousands, except per share data)

Selected balance sheet measures:

Total assets

Gross portfolio loans

Deposits

FHLB borrowings

Subordinated debt

Total equity

Selected statement of income measures:

Total revenue (b)

Net interest income before provision for credit losses

Income before income tax expense

Net income

Basic earnings per share

Diluted earnings per share

Key Financial Measures (a)

At or For the Years Ended December 31,

Other financial measures and ratios:

Return on average assets

Return on average common shareholders’ equity (b)

Net interest margin (b)

Efficiency ratio (b)

Tangible book value per share (end of period) (b)(d)

Net (recoveries) charge-offs to average loans (c)

Nonperforming assets to total assets (e)

ACL-Loans to nonperforming loans

ACL-Loans to total loans (c)

(a) We derived the selected balance sheet measures as of December 31, 2025 and 2024 and the selected statement of income measures for the years ended December 31, 2025 and 2024 from our audited consolidated financial statements included elsewhere in this annual report. Average balances have been computed using daily averages. Our historical results may not be indicative of our results for any future period.

(b) This measure is not a measure recognized under GAAP and is therefore considered to be a non-GAAP financial measure. See “Non-GAAP Financial Measures” for a description of this measure and a reconciliation of this measure to its most directly comparable GAAP measure.

(c) Calculated using the principal amounts outstanding on loans.

(d) Excludes unvested restricted stock awards.

(e) Nonperforming assets consist of nonperforming loans and other real estate owned.

Critical Accounting Policies and Estimates

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

We believe that accounting estimates related to the measurement of the ACL-Loans, the valuation of derivative instruments, investment securities, and deferred income taxes are particularly critical and susceptible to significant near-term change.

Allowance for Credit Losses-Loans ("ACL-Loans") and Allowance for Credit Losses-Unfunded commitments ("ACL-Unfunded commitments")

The ACL-Loans is measured on each loan’s amortized cost basis, excluding interest receivable, and is initially recognized upon origination or purchase of the loan, and subsequently remeasured on a recurring basis. The ACL-Loans is recognized as a contra-asset, and credit loss expense is recorded as a provision for credit losses in the consolidated statements of income. Loan losses are charged off against the ACL-Loans when management believes the loan is uncollectible. Subsequent recoveries, if any, are credited to the ACL-Loans. Loans are normally placed on nonaccrual status if it is probable that the Company will be unable to collect the full payment of principal and interest when due according to the contractual terms of the loan agreement, or the loan is past due for a period of 90 days or more unless the obligation is well-secured and is in the process of collection. The Company generally does not recognize an allowance for credit losses ("ACL") on accrued interest receivables, consistent with its policy to reverse interest income when interest is 90 days or more past due.

The Company also records an ACL-Unfunded commitments, which is based on the same assumptions as funded loans and also considers the probability of funding. This ACL is recognized as a liability, and credit loss expense is recorded as a provision for unfunded loan commitments within the provision for credit losses in the Consolidated statements of income.

For collectively evaluated loans and related unfunded commitments, the Company uses third‑party software that incorporates multiple models to estimate expected credit losses in calculating the ACL.

For collectively evaluated loans and related unfunded commitments, the Company uses third-party software that incorporates multiple models to estimate expected credit losses in calculating the ACL. Management selected lifetime loss rate models, utilizing CRE, C&I, and Consumer specific models, to calculate the expected losses over the life of each loan based on exposure at default, loan attributes and reasonable, supportable economic forecasts. The models selected by the Company in its ACL calculation rely upon historical losses from a broad cross section of U.S. banks that also utilize the same third party for ACL calculations. Management reviewed the third party’s analysis of the banks included in the models as part of their model development dataset and determined the Company’s loan portfolio composition by property type, balance distribution by loan age, and delinquency status are similar, which supports the use of these loss rate models. The Company also noted the third party’s model development dataset has loan concentrations that are evenly distributed across the United States, while the Company’s portfolio is mainly concentrated in the Northeast. Based on the disparate regional concentration, management determined that a select group of peer banks is necessary to scale the loss rate models to produce an ACL that is more representative of the Company’s loan portfolio. This peer-based calibration, called a "peer scalar", utilizes the loss rates of a subset of peer banks to appropriately scale the initial model results. These peers have been selected by the Company given their similar characteristics, such as loan portfolio composition and location, to better align the models’ results to the Company’s expected losses.

Key assumptions used in the models include portfolio segmentation, risk rating, forecasted economic scenarios, the peer scalar, and the expected utilization of unfunded commitments, among others. Our loan portfolios are segmented by loan level attributes such as loan type, size, date of origination, and delinquency status to create homogenous loan pools. Pool level metrics are calculated, and loss rates are subsequently applied to the pools as the loans have similar characteristics.

To account for economic uncertainty, the Company incorporates multiple economic scenarios in determining the ACL. The scenarios include various projections based on variables such as Gross Domestic Product, interest rates, property price indices, and employment measures, among others. The scenarios are probability-weighted based on available information at the time the calculation is conducted. As part of our ongoing governance of ACL, scenario weightings and model parameters are reviewed periodically by management and are subject to change, as deemed appropriate.

The Company also considers qualitative adjustments to expected credit loss estimates for information not already captured in the quantitative loss estimation models. Qualitative factor adjustments may increase or decrease management’s estimate of expected credit losses. Qualitative loss factors are based on the Company’s judgment of market, changes in loan composition or concentrations, performance trends, regulatory changes, uncertainty of macroeconomic forecasts, and other asset specific risk characteristics.

Individually evaluated loans consist of loans with credit quality indicators which are substandard or doubtful. Additionally, when loans do not share risk characteristics with other financial assets they are also evaluated individually. Management applies its normal loan review procedures in making these judgments. The Company individually evaluates all insurance premium

loans as well as cash-secured loans to individuals. While these loans are considered consumer loans, the third-party Consumer ACL model is designed for unsecured lending, whereas these loans are secured. To account for the fully secured structure of these loan types, management determined each loan will be individually evaluated, regardless of the credit quality indicators. These loans are evaluated based upon their collateral, which primarily consists of cash, cash surrender value life insurance, and in some cases real estate. In determining the ACL-Loans for individually evaluated loans, the Company generally applies a discounted cash flow method for instruments that are individually assessed. For collateral dependent financial assets where the Company has determined that foreclosure of the collateral is probable and where the borrower is experiencing financial difficulty, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date. Fair value is generally calculated based on the value of the underlying collateral less an appraisal discount and the estimated cost to sell.

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

Pursuant to ASC 326, the Company individually evaluates the available for sale debt securities and held to maturity securities for impairment credit losses quarterly. Available for sale securities include U.S. Treasuries, mortgage-backed securities, and corporate bonds. U.S. Treasuries and mortgaged-backed securities are guaranteed by the U.S. Government and as a result, management has a zero loss expectation. No ACL-Securities was recorded for these securities as of December 31, 2025. For the corporate bond portfolio, the Company developed a metric which includes each issuer’s current credit ratings and key financial performance metrics to assess the underlying performance of each issuer. The analysis of the issuers’ performance and the intent of the Company to retain these securities support the determination that there was no expected credit loss, and therefore, no ACL-Securities were recognized on the corporate bond portfolio as of December 31, 2025. Of our held to maturity securities portfolio, four securities' fair values were less than their respective amortized costs as of December 31, 2025. Since these are highly rated state agency and municipal obligations, the Company's expectation of nonpayment of the amortized cost basis is zero. No allowance for ACL-Securities was recorded for these securities as of December 31, 2025.

Earnings and Performance Overview

2025 Earnings Overview

Our net income for the year ended December 31, 2025 was $35.2 million, an increase of $25.4 million, or 260.3%, compared to the year ended December 31, 2024. Diluted earnings per share was $4.45 for the year ended December 31, 2025, compared to diluted earnings per share of $1.23 for the year ended December 31, 2024. Our returns on average shareholders' equity and average assets for the year ended December 31, 2025, were 12.32% and 1.09%, respectively, compared to 3.60% and 0.31%, respectively for the year ended December 31, 2024. Net income for the year ended December 31, 2025 was $35.2 million, versus $9.8 million for the year ended December 31, 2024. The increase in net income for the year ended December 31, 2025 was primarily due to the aforementioned increase in revenues, a decrease in provision for credit losses, partially offset by an increase in income tax expense.

Revenues (net interest income plus noninterest income) for the year ended December 31, 2025 were $108.3 million, versus $87.0 million for the year ended December 31, 2024. The increase in revenues for the year ended December 31, 2025 was attributable to increased earning asset yields, a decrease in interest expense on deposits, and higher gains from loan sales.

Net interest income for the year ended December 31, 2025 was $98.9 million, an increase of $15.7 million compared to the year ended December 31, 2024. Our net interest margin increased 46 basis points to 3.16% for the year ended December 31, 2025 compared to the year ended December 31, 2024. The increase in the net interest margin was due to an increase in yields on loans and a decrease in funding costs.

Results of Operations

Net Interest Income

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

FTE net interest income for the years ended December 31, 2025 and 2024 was $99.5 million and $83.7 million, respectively. FTE net interest income increased due to a decrease in interest expense and an increase in interest income attributable to higher loan yields.

FTE basis interest income for the year ended December 31, 2025 increased $6.5 million, or 3.37%, to $198.9 million compared to FTE basis interest income for the year ended December 31, 2024, due primarily to an increase in commercial real estate loans. Average interest earning assets were $3.1 billion for the year ended December 31, 2025, increasing by $40.4 million, or 1.30%, from the year ended December 31, 2024.

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

The following table presents the average balances and yields earned on interest-earning assets and average balances and weighted average rates paid on our funding liabilities for the years ended December 31, 2025 and 2024.

Years Ended December 31,

Average

Balance

Interest

Yield/

Rate (4)

Average

Balance

Interest

Yield/

Rate (4)

(Dollars in thousands)

Assets:

Cash and fed funds sold

Securities (1)

Loans:

Commercial real estate

Residential real estate

Construction

Commercial business

Consumer

Total loans

Federal Home Loan Bank stock

Total earning assets

Other assets

Total assets

Liabilities and shareholders’ equity:

Interest bearing liabilities:

NOW

Money market

Savings

Time

Total interest bearing deposits

Borrowed money

Total interest bearing liabilities

Noninterest bearing deposits

Other liabilities

Total liabilities

Shareholders’ equity

Total liabilities and shareholders’ equity

Net interest income (2)

Interest rate spread

Net interest margin (3)

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

(2) The adjustment for securities and loans taxable equival ency was $539 thous and and $383 thousand, respectively, for the years ended December 31, 2025 and 2024. Tax exempt income was converted to a fully taxable equivalent basis at a 20 percent tax rate for 2025 and 2024.

(3) Net interest inco me as a percentage of total earning assets.

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

Effect of changes in interest rates and volume of average earning assets and average interest-bearing liabilities

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

Year Ended

December 31, 2025 vs 2024

Increase (Decrease)

Volume

Rate

Total

(In thousands)

Interest and dividend income:

Cash and fed funds sold

Securities

Loans:

Commercial real estate

Residential real estate

Construction

Commercial business

Consumer

Total loans

Federal Home Loan Bank stock

Total change in interest and dividend income

Interest expense:

Deposits:

NOW

Money market

Savings

Time

Total deposits

Borrowed money

Total change in interest expense

Change in net interest income

Provision for Credit Losses

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

The provision for credit losses for the year ended December 31, 2025 was $1.0 million compared to a $22.6 million provision for credit losses for the year ended December 31, 2024. The decrease in the provision for credit losses during the year was primarily due to net charge offs taken during the year ended December 31, 2024.

Noninterest Income

Noninterest income is a component of our revenue and is comprised primarily of fees generated from loan and deposit relationships with our clients, fees generated from sales and referrals of loans, income earned on bank owned life insurance and gains on sales of investment securities. The following table compares noninterest income for the years ended December 31, 2025 and 2024.

Years Ended

December 31,

Change

(Dollars in thousands)

Gains and fees from sales of loans

Favorable

Bank owned life insurance

Service charges and fees

Other

Favorable

Total noninterest income

Favorable

Noninterest income increased by $5.7 million to $9.4 million for the year ended December 31, 2025, compared to the year ended December 31, 2024. The increase for the year ended December 31, 2025 was mainly driven by higher gains from SBA loan sales.

Noninterest Expense

The following table compares noninterest expense for the years ended December 31, 2025 and 2024.

Years Ended

December 31,

Change

(Dollars in thousands)

Salaries and employee benefits

Occupancy and equipment

Data processing

Professional services

Director fees

FDIC insurance

Marketing

Other

Total noninterest expense

Noninterest expense increased by $7.7 million, or 15.2%, to $58.8 million for the year ended December 31, 2025 compared to the year ended December 31, 2024. The increase in noninterest expense was primarily attributable to an increase in salaries and employee benefits resulting from incremental new hires in support of strategic initiatives. Additionally, professional services increased, reflecting higher recruiting costs aligned with these initiatives.

Income Taxes

Income tax expense for the years ended December 31, 2025 and 2024 totaled $13.3 million and $3.6 million, respectively. The effective tax rates for the years ended December 31, 2025 and 2024, were 27.4% and 26.7%, respectively.

Our net deferred tax assets at December 31, 2025 was $11.4 million, compared to $9.7 million at December 31, 2024.

On October 8, 2015, the Bank established a wholly-owned subsidiary, Bankwell Loan Servicing Group, Inc., which serves as a Passive Investment Company (“PIC”). The PIC is organized in accordance with Connecticut statutes to hold and manage certain loans that are collateralized by real estate. Income earned by the PIC is exempt from Connecticut income tax and any dividends paid by the PIC to the Bank are not taxable income for Connecticut income tax purposes.

Financial Condition

Summary

Assets totaled $3.4 billion at December 31, 2025, compared to assets of $3.3 billion at December 31, 2024. Gross loans totaled $2.8 billion at December 31, 2025, compared to gross loans of $2.7 billion at December 31, 2024. Deposits totaled $2.8 billion at December 31, 2025, compared to deposits of $2.8 billion at December 31, 2024.

Shareholders’ equity totaled $301.5 million as of December 31, 2025, an increase of $31.0 million compared to December 31, 2024, primarily a result of net income of $35.2 million for the year ended December 31, 2025. The increase was partially offset by dividends paid of $6.3 million.

Loan Portfolio

We originate commercial real estate loans, construction loans, commercial business loans and consumer loans in our market. We also pursue certain types of commercial lending opportunities outside our market, particularly where we have strong business relationships. Our loan portfolio is the largest category of our earnings assets.

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

Change

Total

Total

Total

(Dollars in thousands)

Real estate loans:

Residential

Commercial

Construction

Commercial business

Consumer

Total loans

Primary loan categories

Residential real estate .   Residential real estate loans decreased by $9.6 million, or 22.5%, at December 31, 2025 compared to December 31, 2024 and amounted to $33.1 million, representing 1.2% of total loans at December 31, 2025. The Bank ceased originating residential mortgage loans in 2017.

Commercial real estate.    Commercial real estate loans were $1.9 billion and represented 68.0% of our total loan portfolio at December 31, 2025, an increase of $31.8 million, or 1.7%, from December 31, 2024. Commercial real estate loans are secured by a variety of property types, including healthcare facilities, office buildings, retail facilities, commercial mixed use and multi-family dwellings.

The following table compares the composition of our commercial real estate loan portfolio by non-owner occupied and owner occupied loans at December 31, 2025 and December 31, 2024:

Change

Total

Total

Total

(Dollars in thousands)

Commercial real estate loans:

Non-owner occupied

Owner occupied

Total commercial real estate loans (1)

(1) Excludes the positive fair value effect of the portfolio layer swap of $135 thousand and $219 thousand for Commercial Real Estate at December 31, 2025 and 2024, respectively.

Construction.    Construction loans were $153.8 million at December 31 2025, a decrease of $19.8 million, or 11.4%, from December 31, 2024. Commercial construction loans consist of commercial development projects, such as apartment buildings and condominiums, as well as office buildings, retail and other income producing properties and land loans.

Commercial business.    Commercial business loans were $645.3 million and represented 22.7% of our total loan portfolio at December 31, 2025, an increase of $130.2 million, or 25.3%, from December 31, 2024. Commercial business loans primarily provide working capital, equipment financing, financing for leasehold improvements and financing for expansion and are generally secured by assignments of corporate assets, real estate and personal guarantees of the business owners.

Consumer loans. Consumer loans were $76.9 million and represented 2.7% of our total loan portfolio as of December 31, 2025, an increase of $1.5 million, or 2.1%. We do not expect our consumer loans to become a material component of our loan portfolio, as we do not engage in any material amount of consumer lending. This portfolio segment includes loans to finance insurance premiums secured by the cash surrender value of life insurance and marketable securities, overdraft lines of credit, and personal loans to high net worth individuals.

The following table compares the composition of our commercial real estate loan portfolio by property type, and collateral location as of December 31, 2025 :

Commercial Real Estate

All Other NY

NYC

All Other

Total (1)

(Dollars in thousands)

Residential care (2)

Retail

Multifamily

Office

Industrial / warehouse

Mixed use

Medical office

1-4 family investment

All other (3)

(1) Excludes the positive fair value effect of the portfolio layer swap of $135 thousand for Commercial Real Estate at December 31, 2025.

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

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

As of December 31, 2025, the Bank had $163.0 million of loans collateralized by offices, which represented 8.4% of the total loan portfolio. Most of the properties in this portfolio are in suburban locations. 91.0% of this portfolio was pass rated, and there was one relationship totaling $5.3 million on nonaccrual status.

As of December 31, 2025, we had $267.8 million of loans collateralized by multifamily properties, which represented 9.4% of the total loan portfolio. 78.2% of the portfolio is pass rated and current; these properties are all located in Connecticut, New York, New Jersey, or Pennsylvania, with the majority in suburban locations, with eight properties totaling $49.8 million located in New York City. 78.3% of the New York City exposure is located in Brooklyn, 11.9% in Manhattan, and the remaining 9.8% in Queens.

The following table presents an analysis of the commercial real estate portfolio's loan to value at origination and by property type as of December 31, 2025.

Commercial Real Estate

Total CRE Portfolio (1)

Percentage of Total CRE Portfolio

Loan to Value at Origination %

(Dollars in thousands)

Property Type

Residential care (2)

Retail

Multifamily

Office

Industrial / warehouse

Mixed use

Medical office

1-4 family investment

All other

Total

(1) Excludes the positive fair value effect of the portfolio layer swap of $135 thousand for Commercial Real Estate at December 31, 2025.

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

The following table presents an analysis of the maturity of our commercial real estate, commercial construction and commercial business loan portfolios as of December 31, 2025.

December 31, 2025

Commercial

Real Estate (1)

Commercial

Construction

Commercial

Business (1)

Total

(In thousands)

Amounts due:

One year or less

After one year:

One to five years

Over five years

Total due after one year

Total

(1) Excludes the positive fair value effect of the portfolio layer swap of $135 thousand for Commercial Real Estate and $20 thousand for Commercial Business.

The following table presents an analysis of the interest rate sensitivity of our commercial real estate, commercial construction and commercial business loan portfolios due after one year as of December 31, 2025.

December 31, 2025

Adjustable

Interest Rate

Fixed Interest

Rate

Total

(In thousands)

Commercial real estate

Commercial construction

Commercial business

Total loans due after one year

Asset Quality

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

The Company has established credit policies applicable to each type of lending activity in which it engages. The Company evaluates the creditworthiness of each client and extends credit o f up to 80% of the market value of the collateral, depending on the borrower's creditworthiness and the type of collateral. The borrower’s ability to service the debt is monitored on an ongoing basis. Real estate is the primary form of collateral. Other important forms of collateral are business assets, time deposits and marketable securities. While collateral provides assurance as a secondary source of repayment, the Company ordinarily requires the primary source of repayment for commercial loans, to be based on the borrower’s ability to generate continuing cash flows. Management discontinued residential mortgage loan originations in 2017 and ceased offering home equity loans and lines of credit in 2019. The Company’s policy for residential lending generally required that the amount of the loan may not exceed 80% of the original appraised value of the property. In certain situations, the amount may have exceeded 80% LTV either with private mortgage insurance being required for that portion of the residential loan in excess of 80% of the ap praised value of the property or where secondary financing is provided by a housing authority program second mortgage, a community’s low/moderate income housing program, or a religious or civic organization.

Credit quality indicators. The Company measures credit risk within its loan portfolios through the use of a credit risk rating system. The risk rating reflects management’s assessment of a loan’s overall risk, considering the character and creditworthiness of the borrower and any guarantor, the borrower’s capacity to service the debt, the availability of credit enhancements or other sources of repayment, and the quality, value, and coverage of collateral, if applicable. The following table presents credit risk ratings as of December 31, 2025, and December 31, 2024:

Credit Risk Ratings

At December 31,

(Dollars in thousands)

Pass

Special Mention (1)

Substandard

Doubtful

Loss

Total loans

(1) 100.0% and 99.6% of Risk Rated 6 loans are current on payments, 99.3% and 93.0% are guaranteed by ultra-high net worth sponsors as of December 31, 2025 and December 31, 2024, respectively.

Credit risk management involves a partnership between our relationship managers and our credit approval, portfolio management, credit administration and collections staff. Disciplined underwriting, portfolio monitoring and early problem recognition, together with active management of any problem credits, are import ant aspects of maintaining our high credit quality standards.

Acquired Loans .   Loans acqu ired in acquisitions are initially recorded at fair value with no carryover of the related allowance for credit losses. Acquired loans that have evidence of deterioration in credit quality since origination and for which it is probable, at acquisition, that all contractually required payments will not be collected are initially recorded at fair value without recording an ACL-Loans. The fair value of the loans is determined by using market participant assumptions to estimate the amount and timing of principal and interest cash flows initially expected to be collected on the loans and discounting those cash flows at an appropriate market rate of interest.

Under the accounting model for acquired loans, the excess of cash flows expected to be collected over the carrying amount of the loans, referred to as the “accretable yield”, is accreted into interest income over the life of the loans. Accordingly, acquired loans are not subject to classification as nonaccrual in the same manner as originated loans. Rather, acquired loans are considered to be accruing loans because their interest income relates to the accretable yield recognized and not to contractual interest payments. The excess of the loans' contractually required payments over the cash flows expected to be collected is the nonaccretable difference. As such, charge-offs on acquired loans are first applied to the nonaccretable difference and then to any ACL-Loans recognized subsequent to the acquisition. A decrease in expected cash flows in subsequent periods may indicate that the loan pool is a credit loss, which would require the establishment of an ACL-Loans by a charge to the provision for credit losses.

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

At December 31,

(Dollars in thousands)

Nonaccrual loans:

Real estate loans:

Residential

Commercial

Commercial business

Construction

Total nonaccrual loans

Property acquired through foreclosure or repossession, net

Total nonperforming assets

Nonperforming assets to total assets

Nonperforming loans to total loans

Total nonaccrual loans were $16.3 million as of December 31, 2025. Nonperforming assets as a percentage of total assets was 0.49% at December 31, 2025, when compared to 1.88% at December 31, 2024. The ACL-Loans at December 31, 2025 was $30.7 million, representing 1.08% of total loans.

Nonaccrual Loans . Loans greater than 90 days past due are generally put on nonaccrual status. Loans are also placed on nonaccrual status when, in the opinion of management, full collection of principal and interest is doubtful. Interest previously accrued, but uncollected, is reversed against current period income. Subsequent payments are recognized on a cash basis or principal recapture basis depending on a number of factors including probability of collection and if a credit loss is identified. A nonaccrual loan is restored to accrual status when it is no longer delinquent and collectability of interest and principal is no longer in doubt. At December 31, 2025 and 2024, there were no commitments to lend additional funds to any borrower on nonaccrual status.

Past Due Loans . When a loan is 15 days past due, the Company sends the borrower a late notice. The Company attempts to contact the borrower by phone if the delinquency is not corrected promptly after the notice has been sent. When the loan is 30 days past due, the Company mails the borrower a letter reminding the borrower of the delinquency, and attempts to contact the borrower personally to determine the reason for the delinquency and ensure the borrower understands the terms of the loan. If necessary, after the 90th day of delinquency, the Company may take other appropriate legal action. A summary report of all loans 30 days or more past due is provided to the Board of Directors of the Company periodically. Loans greater than 90 days past due are generally put on nonaccrual status. A nonaccrual loan is restored to accrual status when it is no longer delinquent

and collectability of interest and principal is no longer in doubt. A loan is considered to be no longer delinquent when timely payments are made for a period of at least six months (one year for loans providing for quarterly or semi-annual payments) by the borrower in accordance with the contractual terms.

The following table presents past due loans as of December 31, 2025 and 2024:

30–59 Days Past Due

60–89 Days Past Due

90 Days or Greater Past Due

Total Past Due

(In thousands)

As of December 31, 2025

Residential real estate

Commercial real estate

Construction

Commercial business

Consumer

Total loans

As of December 31, 2024

Residential real estate

Commercial real estate

Construction

Commercial business

Consumer

Total loans

Total pa st due loans totaled $8.9 million and represented 0.31% of total loans as of December 31, 2025, decreasing $35.2 million from December 31, 2024.

Modifications .   Loans are considered modified when the borrower is experiencing financial difficulties and the Bank has granted concessions to a borrower due to the borrower’s financial condition that we otherwise would not have considered. These concessions may include modifications of the terms of the debt such as reduction of the stated interest rate other than normal market rate adjustments, extension of maturity dates, or reduction of principal balance or accrued interest. The decision to modify a loan, rather than aggressively enforcing the collection of the loan, may benefit us by increasing the ultimate probability of collection.

Modified loans are classified as accruing or nonaccruing based on management’s assessment of the collectability of the loan. Loans which are already on nonaccrual status at the time of the modifying generally remain on nonaccrual status for approximately six months before management considers such loans for return to accruing status. Accruing modified loans are placed into nonaccrual status if and when the borrower fails to comply with the modified terms and management deems it unlikely that the borrower will return to a status of compliance in the near term. There were no nonaccrual loans modified during the years ended December 31, 2025 and 2024 .

The following table presents information on modified loans:

At December 31,

(In thousands)

Accruing modified loans:

Residential real estate

Commercial real estate

Commercial business

Accruing modified loans

Nonaccrual modified loans:

Residential real estate

Commercial real estate

Commercial business

Nonaccrual modified loans

Total modified loans

As of December 31, 2025 and 2024, loans classified as modified totaled $11.6 million and $12.2 million, respectively.

Potential Problem Loans .   We classify certain loans as “special mention”, “substandard”, or “doubtful”, based on criteria consistent with guidelines provided by our banking regulators. Potential problem loans represent loans that are currently performing, but for which known information about possible credit problems of the related borrowers causes management to have doubts as to the ability of such borrowers to comply with the present loan repayment terms and which may result in disclosure of such loans as nonperforming at some time in the future. We cannot predict the extent to which economic conditions or other factors may impact borrowers and the potential problem loans. Accordingly, there can be no assurance that other loans will not become 90 days or more past due, be placed on nonaccrual, become modified, or require increased allowance coverage and provision for credit losses. Potential problem loans are assessed for loss exposure using the methods described in Note 5 to our Consolidated Financial Statements under the caption “Credit Quality Indicators”.

We expect the levels of nonperforming assets and potential problem loans to fluctuate in response to changing economic and market conditions, and the relative sizes of the respective loan portfolios, along with our degree of success in resolving problem assets. We take a proactive approach with respect to the identification and resolution of problem loans.

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

Our Board of Directors has adopted an Allowance for Credit Losses policy designed to provide management with a methodology for determining and documenting the allowance for credit losses for each reporting period. We evaluate the adequacy of the ACL-Loans at least quarterly, and in determining our ACL-Loans, we estimate losses on specific loans, or groups of loans, where the probable loss can be identified and reasonably determined. The balance of our ACL-Loans is based on internally assigned risk classifications of loans, the Bank’s and peer banks’ historical loss experience, changes in the nature of the loan portfolio, overall portfolio quality, industry concentrations, delinquency trends, current economic factors and the estimated impact of current economic conditions on certain historical loan loss rates. See additional discussion regarding our Allowance for Credit Losses-Loans ("ACL-Loans") and Allowance for Credit Losses-Unfunded commitments ("ACL-Unfunded commitments") under the caption "Critical Accounting Policies and Estimates."

Our general practice is to identify problem credits early and recognize full or partial charge-offs as promptly as practicable when it is determined that it is probable that the loan will not be repaid according to its original contractual terms, including principal and interest. Full or partial charge-offs on collateral dependent loans are recognized when the collateral is deemed to be insufficient to support the carrying value of the loan. We do not recognize a recovery when an updated appraisal indicates a subsequent increase in value of the collateral.

Our charge-off policies, which comply with standards established by our banking regulators, are consistently applied from period to period. Charge-offs are recorded on a monthly basis, as incurred. Partially charged-off loans continue to be evaluated on a monthly basis and additional charge-offs or loan loss provisions may be recorded on the remaining loan balance based on the same criteria.

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

At December 31,

(Dollars in thousands)

Balance at beginning of period

Charge-offs:

Residential real estate

Commercial real estate

Construction

Commercial business

Consumer

Total charge-offs

Recoveries:

Residential real estate

Commercial real estate

Commercial business

Consumer

Total recoveries

Net (charge-offs) recoveries

Provision charged to earnings

Balance at end of period

Net (recoveries) or charge-offs to average loans

ACL-Loans to total loans

At December 31, 2025, our ACL-Loans was $30.7 million and represented 1.08% of total loans, compared to $29.0 million, or 1.07% of total loans at December 31, 2024.

The carrying amount of total individually evaluated loans at December 31, 2025 was $78.9 million. This compares to a carrying amount of $113.9 million for total individually evaluated loans at December 31, 2024.

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

At December 31,

ACL-Loans Amount

ACL-Loans Percentage

Loan Segment to Total Loans Percentage

ACL-Loans Amount

ACL-Loans Percentage

Loan Segment to Total Loans Percentage

(Dollars in thousands)

Residential real estate

Commercial real estate

Construction

Commercial business

Consumer

Total

The allocation of the ACL-Loans at December 31, 2025 reflects our assessment of credit risk and probable loss within each portfolio. We believe that the level of the ACL-Loans at December 31, 2025 is appropriate to cover probable losses.

Investment Securities

We manage our investment securities portfolio to provide a readily available source of liquidity for balance sheet management, to generate interest income and to implement interest rate risk management strategies. Investments are designated as either marketable equity, available for sale, held to maturity or trading securities at the time of purchase. We do not currently maintain a portfolio of trading securities. Investment securities available for sale may be sold in response to changes in market conditions, prepayment risk, rate fluctuations, liquidity, or capital requirements. Investment securities available for sale are reported at fair value, with any unrealized gains and losses excluded from earnings and reported as a separate component of shareholders’ equity, net of tax, until realized. Investment securities held to maturity are reported at amortized cost. Marketable equity securities are reported at fair value, with any changes in fair value recognized in earnings.

The amortized cost and fair value of investment securities as of the dates indicated are presented in the following table:

At December 31,

Amortized

Cost

Fair

Value

Amortized

Cost

Fair

Value

(In thousands)

Marketable equity securities

Securities available for sale:

U.S. Government and agency obligations

Corporate bonds

Total securities available for sale

Securities held to maturity:

State agency and municipal obligations

Government mortgage-backed securities

Total securities held to maturity

At December 31, 2025, the carrying value of our investment securities portfolio totaled $192.1 million and represented 6% of total assets, compared to $146.1 million and 4% of total assets at December 31, 2024. The increase of $46.0 million primarily reflects purchases of available for sale securities. We purchase investment grade securities with a focus on liquidity, earnings and duration exposure.

The net unrealized losses on our investment portfolio at December 31, 2025 was $0.7 million and included $2.0 million of gross unrealized gains. The net unrealized loss position on our investment portfolio at December 31, 2024 was $4.9 million and included $1.3 million of gross unrealized gains.

The following tables summarize the amortized cost and weighted average yield of securities in our investment securities portfolio as of December 31, 2025 and 2024, based on remaining period to contractual maturity. Information for mortgage-backed securities is based on the final contractual maturity dates without considering repayments and prepayments.

Due Within 1 Year

Due 1–5 Years

Due 5–10 Years

Due After 10 Years or No Contractual Maturity

At December 31, 2025

Amortized

Cost

Yield

Amortized

Cost

Yield

Amortized

Cost

Yield

Amortized

Cost

Yield

(Dollars in thousands)

Marketable equity securities

Securities available for sale:

U.S. Government and agency obligations

Corporate bonds

Total securities available for sale

Securities held to maturity:

State agency and municipal obligations

Government mortgage-backed securities

Total securities held to maturity

Due Within 1 Year

Due 1–5 Years

Due 5–10 Years

Due After 10 Years or No Contractual Maturity

At December 31, 2024

Amortized

Cost

Yield

Amortized

Cost

Yield

Amortized

Cost

Yield

Amortized

Cost

Yield

(Dollars in thousands)

Marketable equity securities

Securities available for sale:

U.S. Government and agency obligations

Corporate bonds

Total securities available for sale

Securities held to maturity:

State agency and municipal obligations

Government mortgage-backed securities

Total securities held to maturity

Bank Owned Life Insurance ("BOLI")

BOLI amounted to $54.2 million as of December 31, 2025. The purchase of life insurance policies results in an income-earning asset on our consolidated balance sheet that provides monthly tax-free income to us. We expect to benefit from the BOLI contracts as a result of the tax-free growth in cash surrender value and death benefits that are expected to be generated over time. BOLI is included in our Consolidated Balance Sheets at its cash surrender value. Increases in the cash surrender value are reported as a component of noninterest income in our Consolidated Statements of Income.

Deposit Activities and Other Sources of Funds

Our sources of funds include deposits, including brokered deposits, FHLB borrowings, subordinated debt and proceeds from the sales, maturities and payments of loans and investment securities.

Total deposits represented 84% of our total assets at December 31, 2025. While scheduled loan and securities repayments are relatively stable sources of funds, loan and securities prepayments and deposit inflows are influenced by prevailing interest rates and local economic conditions and are inherently uncertain.

Deposits

We offer a wide variety of deposit products and rates to consumer and business clients consistent with FDIC regulations. Our executive management team meets regularly to determine pricing and marketing initiatives. In addition to being an important source of funding for us, deposits also provide an ongoing stream of fee revenue.

We participate in the Certificate of Deposit Account Registry Service ("CDARS") and Insured Cash Sweep Service ("ICS") programs. We use CDARS and ICS to place client funds into certificate of deposit accounts and money market accounts, respectively, into other participating banks. These transactions occur in amounts that are less than FDIC insurance limits to ensure that deposit clients are eligible for FDIC insurance on the full amount of their deposits. Reciprocal amounts of deposits are received from other participating banks that do the same with their client deposits, and we also execute one-way buy transactions. CDARS one-way and ICS one-way buy transactions are considered to be brokered deposits for bank regulatory purposes.

Time deposits may also be generated through the use of listing services. We utilize both consumer‑facing listing platforms, which allow depositors to view our advertised time‑deposit rates and open a time certificate of deposit via Bankwell Direct, as well as listing services used by financial institutions. Interested financial institutions will contact us directly to acquire a time certificate of deposit. There is no third party brokerage service involved in these transactions.

The following table sets forth the composition of our deposits for the dates indicated:

At December 31,

Amount

Percent

Weighted

Average

Rate

Amount

Percent

Weighted

Average

Rate

(Dollars in thousands)

Noninterest-bearing demand

NOW

Money market

Savings

Time

Total deposits

Total deposits were $2.8 billion at December 31, 2025, an increase of $41.9 million, or 1.5%, from December 31, 2024.

Brokered certificates of deposits ("Brokered CDs") totaled $505.0 million and $651.5 million at December 31, 2025 and December 31, 2024, respectively. Brokered money market accounts totaled $53.7 million and $53.5 million at December 31, 2025 and 2024, respectively. Certificates of deposits from national listing services were $42.3 million and $109.1 million as of December 31, 2025 and December 31, 2024, respectively. There were no certificates of deposits from one-way buy CDARS or one-way buy ICS at December 31, 2025 or December 31, 2024. Brokered deposits are comprised of Brokered CDs, brokered money market accounts, one-way buy CDARS, and one-way buy ICS.

As of December 31, 2025, our FDIC insured deposits were $1.9 billion, or 68% of total deposits. Additionally, $78.6 million of deposits are insured by standby letters of credit with the Federal Home Loan Bank of Boston, or 3% of total deposits.

At December 31, 2025 and 2024, time deposits, including CDARS and Brokered CDs, with a denomination of $100 thousand or more totaled $1.1 billion and $1.2 billion, re spectively, maturing during the periods indicated in the table below:

At December 31,

(In thousands)

Maturing:

Within 3 months

After 3 but within 6 months

After 6 months but within 1 year

After 1 year

Total

Federal Home Loan Bank Advances and Other Borrowings

The Bank is a member of the FHLB, which is part of the Federal Home Loan Bank System. Members are required to own capital stock of the FHLB, and borrowings are collateralized by qualifying assets not otherwise pledged. The maximum amount of credit that the FHLB will extend varies from time to time, depending on its policies and the amount of qualifying collateral the member can pledge. The Bank had satisfied its collateral requirement at December 31, 2025.

We utilize advances from the FHLB as part of our overall funding strategy, to meet short-term liquidity needs and to manage interest rate risk arising from the difference in asset and liability maturities. Total FHLB advances were $110.0 million at December 31, 2025 and $90.0 million at December 31, 2024.

The Bank has additional borrowing capacity at the FHLB up to a certain percentage of the value of qualified collateral. In accordance with agreements with the FHLB, the qualified collateral must be free and clear of liens, pledges and encumbrances. At December 31, 2025, the Bank had pledged $847.6 million of eligible loans and investment securities as collateral to support borrowing capacity at the FHLB of Boston. As of December 31, 2025, the Bank had immediate availability to borrow an additional $426.0 million ba sed on qualified collateral.

Advances from the FHLB include short-term advances with original maturity dates of one year or less. The following table sets forth certain information concerning short-term FHLB advances as of and for the periods indicated:

Year Ended December 31,

(Dollars in thousands)

Average amount outstanding during the period

Amount outstanding at end of period

Highest month end balance during the period

Weighted average interest rate at end of period

On October 14, 2021, the Company completed a private placement of a $35.0 million fixed-to-floating rate subordinated note (the “2021 Note”) to an institutional accredited investor. The Company used the net proceeds to repay the outstanding balance of subordinated debt issued in 2015 and for general corporate purposes.

The 2021 Note bears interest at a fixed rate of 3.25% per year until October 14, 2026. Thereafter, the interest rate will reset quarterly at a variable rate equal to the then current three-month term SOFR plus 233 basis points. The 2021 Note has a stated maturity of October 15, 2031 and is non-callable for five years. Beginning October 15, 2026, the Company may redeem the 2021 Note, in whole or in part, at its option. The 2021 Note is not redeemable at the option of the holder. The 2021 Note has been structured to qualify for the Company as Tier 2 capital under regulatory guidelines.

On August 19, 2022, the Company entered into a Subordinated Note Purchase Agreement with certain qualified institutional buyers, pursuant to which the Company issued and sold 6.0% fixed-to-floating rate subordinated notes due 2032 (the “2022 Notes”) in the aggregate principal amount of $35.0 million. The Company used the net proceeds from the sale of the 2022 Notes for general corporate purposes.

The 2022 Notes bear interest at a fixed rate of 6.0% per year until August 31, 2027. Thereafter, the interest rate will reset quarterly at a variable rate equal to the then current three-month term SOFR plus 326 basis points. The 2022 Notes have a stated maturity of September 1, 2032 and are non-callable for five years. Beginning August 19, 2027, the Company may redeem the 2022 Notes, in whole or in part, at its option. The 2022 Notes are not subject to redemption at the option of the holder. The 2022 Notes have been structured to qualify for the Company as Tier 2 capital under regulatory guidelines.

Derivative Instruments

The Company uses interest rate swap instruments to fix the interest rate on short-term FHLB borrowings or brokered deposits, all of which are designated as cash flow hedges. The hedge strategy converts the rate of interest on short-term rolling FHLB advances or brokered deposits to long-term fixed interest rates, thereby protecting the Bank from interest rate variability in the contractually specified interest rates.

The Company has one pay-fixed portfolio layer method fair value swap, designated as a hedging instrument, with a total notional amount of $150 million. The Company designated the fair value swap under the portfolio layer method. Under this method, the hedged item is designated as a hedged layer of a closed portfolio of financial loans that is anticipated to remain outstanding for the designated hedged period.

Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain loan clients. The Company executes interest rate swaps with commercial banking clients to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the client derivatives and the offsetting derivatives are recognized directly in earnings. Information about derivative instruments at December 31, 2025 and 2024 was as follows:

As of December 31, 2025

Derivative Assets

Derivative Liabilities

Original Notional Amount

Balance Sheet Location

Fair Value

Original Notional Amount

Balance Sheet Location

Fair Value

(In thousands)

Derivatives designated as hedging instruments:

Interest rate swap

Other assets

Accrued expenses and other liabilities

Fair value swap

Other assets

Accrued expenses and other liabilities

Derivatives not designated as hedging instruments:

Interest rate swaps (1)

Other assets

Accrued expenses and other liabilities

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

As of December 31, 2024

Derivative Assets

Derivative Liabilities

Original Notional Amount

Balance Sheet Location

Fair Value

Original Notional Amount

Balance Sheet Location

Fair Value

(In thousands)

Derivatives designated as hedging instruments:

Interest rate swaps

Other assets

Accrued expenses and other liabilities

Fair value swap

Other assets

Accrued expenses and other liabilities

Derivatives not designated as hedging instruments:

Interest rate swaps (1)

Other assets

Accrued expenses and other liabilities

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

Liquidity and Capital Resources

Liquidity Management

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

The Bank’s liquidity position is monitored daily by management. The Asset Liability Committee, or ALCO, establishes guidelines to ensure maintenance of prudent levels of liquidity. ALCO reports to the Company’s Board of Directors.

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

Capital Resources

Shareholders’ equity totaled $301.5 million as of December 31, 2025, an increase of $31.0 million compared to December 31, 2024, primarily a result of net income of $35.2 million for the year ended December 31, 2025. The increase was partially offset by dividends paid of $6.3 million. As of December 31, 2025, the tangible common equity ratio and tangible book value per share were 8.90% and $38.85, respectively.

The Bank and the Company are subject to various regulatory capital requirements administered by the fed eral banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. At December 31, 2025, the Bank met all capital adequacy requirements to which it was subject and exceeded the regulatory minimum capital levels to be considered well-capitalized under the regulatory framework. At December 31, 2025, the Bank’s ratio of total common equity Tier 1 capital to risk-weighted assets was 11.87%, total capital to risk-weighted assets was 12.94%, Tier 1 capital to risk-weighted assets was 11.87% and Tier 1 capital to average assets was 10.56%. At December 31,

2025, the Company met all capital adequacy requirements to which it was subject and exceeded the regulatory minimum capital levels to be considered well-capitalized under th e regulatory framework. At December 31, 2025, the Company’s ratio of Common Equity Tier 1 capital to risk-wei ghted assets was 10.23%, total capital to risk-weighted assets was 13.69%, Tier 1 capital to risk-weighted assets was 10.23% and Tier 1 capital to average assets was 9.11%.

Under the current guidelines, banking organizations must have a minimum total risk-based capital ratio of 8.0%, a minimum Tier 1 risk-based capital ratio of 6.0%, a minimum common equity Tier 1 risk-based capital ratio of 4.5%, and a minimum Tier 1 capital to average assets ratio of 4.0% in order to be "adequately capitalized." In addition to these requirements, banking organizations must maintain a capital conservation buffer consisting of common Tier 1 equity in an amount above the minimum risk-based capital requirements for “adequately capitalized” institutions equal to 2.5% of total risk-weighted assets, resulting in a requirement for the Company and the Bank to effectively maintain common equity Tier 1, Tier 1 and total capital ratios of 7.0%, 8.5% and 10.5%, respectively. The Company and the Bank must maintain the capital conservation buffer to avoid restrictions on the ability to pay dividends, pay discretionary bonuses, or to engage in share repurchases.

Contractual Obligations

The following table summarizes our contractual obligations to make future payments as of December 31, 2025. Payments for borrowings do not include interest. Payments related to leases are based on actual payments specified in the underlying contracts.

Payments Due by Period

Total

Less Than

1 Year

Years

Years

After

5 Years

(in thousands)

Contractual Obligations:

FHLB advances

Subordinated debt

Operating lease agreements

Time deposits with stated maturity dates

Total contractual obligations

Off-Balance Sheet Arrangements

In the normal course of business, we are a party to financial instruments with off-balance sheet risk to meet the financing needs of our clients. These financial instruments include commitments to extend credit and involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the financial statements. The contractual amounts of these instruments reflect the extent of involvement we have in particular classes of financial instruments.

We enter into contractual commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Substantially all of the Bank’s commitments to extend credit are contingent upon clients maintaining specific credit standards at the time of loan funding. The Bank minimizes its exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures.

Commitments to extend credit t otaled $520.6 million at December 31, 2025. The following table summarizes our commitments to e xtend credit as of the date indicated. Since commitments associated with letters of credit and commitments to extend credit may expire unused, the amounts shown do not necessarily reflect the actual future cash funding requirements. In addition, borrowers may be required to meet certain performance requirements to continue to draw on these commitments. We manage our liquidity in light of the aggregate amounts of commitments to extend credit and outstanding standby letters of credit in effect from time to time to ensure that we will have adequate sources of liquidity to fund such commitments and honor drafts under such letters of credit.

Loan pipeline, while not legally binding, represents the Company's future potential funding obligations which are currently in an advanced stage of underwriting and are subject to various conditions before disbursement. Loans in the pipeline are typically short-term, usually within 90 days.

As of December 31, 2025

Amount of Commitment Expiration per Period

Total

Less Than

1 Year

Years

Years

After

5 Years

(in thousands)

Other Commitments:

Loan pipeline

Loan commitments

Undisbursed construction loans

Unused home equity lines of credit

Total other commitments

Recently Issued Accounting Pronouncements

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