What changed in this filing

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Item 1. Business

2022-03-08 compared with 2021-03-10 · 100 added, 113 removed, 554 unchanged (28% of the section changed)

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Important factors that may cause actual results to differ materially from those contemplated by these forward-looking statements include, but are not limited to, those disclosed under “Risk Factors” in Part I Item 1A as well as the following factors:

• The length, severity, magnitude, and duration of the COVID-19 pandemic and the direct and indirect impact of such pandemic, including its impact on the Company’s financial condition and business operations;

• The length, severity, magnitude, and duration of the COVID-19 pandemic (including the outbreak of COVID-19 variants) and the direct and indirect impact of such pandemic, including its impact on the Company’s financial condition and business operations;

• Local, regional and national business or economic conditions may differ from those expected;

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(the "Parent Corporation") is a bank holding company, headquartered in New Canaan, Connecticut and offers a broad range of financial services through its banking subsidiary, Bankwell Bank (the "Bank" and, collectively with the Parent Corporation and the Parent Corporation's subsidiaries, "we", "our", "us", or the "Company"), a Connecticut state chartered non-member bank founded in 2002.

Our primary market is the New York metropolitan area, including Fairfield and New Haven Counties, Connecticut, which we serve from our main banking office located in New Canaan, Connecticut and ten other branch offices located throughout the Fairfield and New Haven Counties area.

The Bank provides a wide range of services to customers in our primary 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 primary market, particularly where we have strong relationships.

The Bank operates branches in New Canaan, Stamford, Fairfield, Wilton, Westport, Darien, Norwalk, and Hamden, Connecticut.

As of December 31, 2021, on a consolidated basis, we had total assets of approximately $2.5 billion, net loans of approximately $1.9 billion, total deposits of approximately $2.1 billion, and shareholders’ equity of approximately $202.0 million.

We are committed to being the premier “Hometown” bank in Fairfield and New Haven Counties and surrounding areas.

We are focused on being the banking provider of choice and to serve as an alternative to our larger competitors.

We believe that our market exhibits attractive demographic attributes and presents competitive dynamics, thereby offering long-term opportunities for growth.

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Our History and Growth

Bankwell Bank was originally chartered as two separate banks, The Bank of New Canaan (including a separate division, Stamford First Bank) and The Bank of Fairfield, which were subsequently merged and rebranded as “Bankwell Bank.” It was chartered with a commitment to building the premier community bank in the markets we serve.

We began operations in April 2002 with an initial capitalization of $8.6 million.

The Bank is a Connecticut state chartered commercial bank, founded in 2002, whose deposits are insured under the Deposit Insurance Fund administered by the Federal Deposit Insurance Corporation (“FDIC”).

On November 5, 2013, we acquired The Wilton Bank, which was merged into Bankwell Bank.

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Business Strategy

We are focused on being the “Hometown” bank and banking provider of choice in our highly attractive market areas through:

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

• Responsive, Customer-Centric Products and Services and a Community Focus.

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Effective risk management is a key component of our strong corporate culture.

We use our strong risk management process to monitor our existing loan and investment securities portfolios,

support operational decision-making and improve our ability to generate earning assets with strong credit quality.

To maintain our strong credit quality, we use a comprehensive underwriting process and we seek to maintain a diversified loan portfolio and a conservative investment securities portfolio.

We use our strong risk management process to monitor our existing loan and investment securities portfolios, support operational decision-making and improve our ability to generate earning assets with strong credit quality.

maintain our strong credit quality, we use a comprehensive underwriting process and we seek to maintain a diversified loan portfolio and a conservative investment securities portfolio.

Board-approved policies contain approval authorities, as appropriate, and are reviewed at least annually.

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• Our Market.

Our current market is defined as the New York metropolitan area, including Fairfield and New Haven Counties, Connecticut.

Our current market is defined as an area encompassing approximately a 100 mile radius around our branch network.

This market area includes numerous affluent suburban communities of professionals who work and commute into New York City, approximately 50 miles from our headquarters, and many small to mid-sized businesses which support these communities.

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Gruseke, President and Chief Executive Officer (since 2015), Christine A.

Chivily, Executive Vice President, Chief Risk and Credit Officer (since 2013), Penko Ivanov, Executive Vice President, Chief Financial Officer (since 2016), Laura Waitz, Executive Vice President, Chief of Staff (since 2017), and Matthew McNeill, Executive Vice President, Chief Banking Officer (since 2020).

Chivily, Executive Vice President, Chief Risk and Credit Officer (since 2013), Penko Ivanov, Executive Vice President, Chief Financial Officer (since 2016), Laura Waitz, Executive Vice President, Chief Operating Officer (since 2017), and Matthew McNeill, Executive Vice President, Chief Banking Officer (since 2020).

• Dedicated Board of Directors with Strong Community Involvement.

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Human Capital Resources

We are committed to investing in our employees.

Our significant accomplishments are a direct result of the collaboration, determination, initiative, and integrity of our team of dedicated professionals.

Our employees embrace our values to exceed expectations.

Our performance management program recognizes and rewards superior performance based on objective and consistent measurements.

At December 31, 2020, we had a total of 125 full-time equivalent employees.

None of our employees are subject to a collective bargaining agreement.

At December 31, 2021, we employed a total of 124 full-time equivalent employees in Connecticut.

It is through our team, and their ties to the communities, that we are able to dutifully support the communities we serve.

Working within, and giving back to, our local partners is the hallmark of a true community bank, and we believe that the strength and commitment of our workforce to our communities is what sets us apart from other banks.

We have long been committed to comprehensive and competitive compensation and benefits programs as we recognize that we operate in intensely competitive environments for talent.

We invest in our employees’ future by sponsoring and prioritizing continued education throughout the Company’s employee ranks.

All of our employees are able to participate in regular educational seminars run by outside parties, including but not limited to regulatory agencies and the American Bankers Association.

The Bank also participates in the American Bankers Association, Stonier School of Banking.

In order to develop a workforce that aligns with our corporate values, we regularly sponsor local community events so that our employees can better integrate themselves in our communities.

We believe that our employees’ well-being and professional development is fostered by our outreach to the communities we serve.

Our employees’ desire for active community involvement enables us to sponsor numerous local community events and initiatives.

The Company is committed to the overall well-being of our team members.

In the COVID-19 pandemic, we worked to implement state and local directives regarding public health.

We provided for remote working where possible.

We continue to

monitor the COVID-19 pandemic including both federal and state guidance, making adjustments as necessary to support employees and our clients.

Company Website and Availability of Securities and Exchange Commission Filings

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

We derive a majority of our business from our local market area which includes our primary market area of the New York metropolitan area, including Fairfield and New Haven Counties, Connecticut.

We derive a majority of our business from our local market area.

Lending Activities

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Commercial lending products include owner-occupied commercial real estate loans, commercial real estate investment loans, commercial loans (such as business term loans, equipment financing and lines of credit) to small and medium-sized businesses and real estate construction and development loans.

We focus our lending activities on loans that we originate to borrowers located in our market.

We focus our lending activities on loans that we originate to borrowers located in our market or with whom the Bank’s senior management has long-standing relationships.

We have established an informal, internal lending limit to one relationship of up to 40% of unimpaired capital and allowance for loan losses, if secured by commercial real estate.

A relationship in this instance is defined as loans made to different entities but with a shared borrower principal(s).

For individual loans, limits are set so as not to exceed the statutory maximum of 15% of unimpaired capital and allowance for loan losses.

For individual loans and loans dependent on the operation of a business, limits are set so as not to exceed the statutory maximum of 15% of unimpaired capital and allowance for loan losses.

We market our lending products and services to qualified borrowers through conveniently located banking offices, relationship networks and high touch personal service.

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Construction loans.

Our construction portfolio includes loans to small and medium-sized businesses to construct owner-used properties, loans to developers of commercial real estate investment properties and residential developments and, to a lesser extent, loans to individual clients for construction of single family homes in our market.

lesser extent, loans to individual clients for construction of single family homes in our market.

Construction and development loans are generally made with a term of one to two years and interest is paid monthly.

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The commercial loans primarily are underwritten on the basis of the borrower’s ability to service the loan from cash flow.

We make loans

secured by accounts receivable or inventory, principal typically is repaid as the assets securing the loan are converted into cash, and for loans secured with other types of collateral, principal is fully or partially amortized during the loan term with any balloon amount due at maturity.

We make loans secured by accounts receivable or inventory, principal typically is repaid as the assets securing the loan are converted into cash, and for loans secured with other types of collateral, principal is fully or partially amortized during the loan term with any balloon amount due at maturity.

The quality of the commercial borrower’s management and its ability both to properly evaluate changes in the supply and demand characteristics affecting its markets for products and services and to effectively respond to such changes are significant factors in a commercial borrower’s creditworthiness.

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As of December 31, 2021, our consumer loans represented less than 1% of our total loan portfolio.

While consumer loans may not remain below 1% of our portfolio, we do not expect our consumer loans to become a material component of our loan portfolio at any time in the near future.

Although we do not engage in any material amount of consumer lending, our consumer loans, which are underwritten primarily based on the borrower’s financial condition and, in many cases, are unsecured credits, subject us to risk based on changes in the borrower’s financial condition, which could be affected by numerous factors, including those discussed above.

While consumer loans may not remain below 1% of our portfolio, we do not expect our consumer loans to become a material component of our loan portfolio in the near future.

Although we do not engage in any material amount of consumer lending, our consumer loans, which are underwritten primarily based on the borrower’s financial condition and, contain both secured and unsecured credits, subject us to risk based on changes in the borrower’s financial condition, which could be affected by numerous factors, including those discussed above.

Credit Policy and Procedures

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In connection with the management of our credit portfolio, we actively manage the composition of our loan portfolio, including credit concentrations.

We monitor borrower and loan product concentrations on at least a quarterly basis.

We monitor borrower and loan product concentrations continuously and review with senior management and the Board on at least a quarterly basis.

Loan product concentrations are reviewed annually in conjunction with the portfolio’s credit quality and the business plan for the coming year.

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A relationship in this instance is defined as loans made to different entities but with a shared borrower principal(s).

For individual loans, limits are set so as not to exceed the statutory maximum of 15% of unimpaired capital and allowance for loan losses.

For individual loans and loans dependent on the operation of a business, limits are set so as not to exceed the statutory maximum of

15% of unimpaired capital and allowance for loan losses.

Our top 20 borrowing relationships range in exposure from $19.8 million to $93.3 million and are monitored on an on-going basis.

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We seek to achieve an appropriate balance between prudent and disciplined underwriting on the one hand and flexibility in our decision-making and responsiveness to our customers on the other hand.

Our credit approval policies have a tiered approval process, with larger exposures referred to the Bank’s Internal Loan Committee and the Directors’ Loan Committee, as appropriate, based on the size of the loan.

Our credit approval policies have a tiered approval process, with larger exposures referred to different levels of management and the Directors’ Loan Committee, as appropriate, based on the size and type of the loan.

Smaller exposures are approved under a three-signature system.

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Past due reports are reviewed on an ongoing basis and insurance and tax payment monitoring is in place.

Our evaluation and compensation program for our

relationship managers includes significant goals that we believe motivate the relationship managers to focus on high quality credit consistent with our strategic focus on asset quality.

For 2020, it was our policy to review amortizing commercial loans in excess of $1 million on an annual basis, or more frequently through the receipt of interim and annual financial statements and borrowing base certificates depending on loan structure and covenants.

Our evaluation and compensation program for our relationship managers includes significant goals that we believe motivate the relationship managers to focus on high quality credit consistent with our strategic focus on asset quality.

It is our policy to review amortizing commercial loans in excess of $1 million on an annual basis, or more frequently through the receipt of interim and annual financial statements and borrowing base certificates depending on loan structure and covenants.

Our policies require rapid notification of delinquency and prompt initiation of collection actions.

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As part of these annual review procedures, we analyze recent financial statements of the collateral property, business and/or borrower to determine the current level of occupancy, revenues and expenses and to investigate any deterioration in the value of the real estate collateral or in the borrower’s or company’s financial condition.

Upon completion, we update, confirm or change the risk rating assigned to each loan.

Upon completion, we confirm or change the risk rating assigned to each loan.

Relationship managers and portfolio managers are encouraged to bring potential credit issues to the attention of our Chief Risk and Credit Officer immediately upon any sign of deterioration in the performance of the borrower.

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On August 19, 2015, the Company completed a private placement of $25.5 million in aggregate principal amount of fixed rate subordinated notes (the “2015 Notes”) to certain institutional investors.

The Notes are non-callable for five years, have a stated maturity of August 15, 2025, and bear interest at a quarterly pay fixed rate of 5.75% per annum to the maturity date.

became callable, in part or in whole, beginning August 2020.

The Notes have been structured to qualify for the Company as Tier 2 capital under regulatory guidelines.

We used the net proceeds for general corporate purposes, which included maintaining liquidity at the holding company, providing equity capital to the Bank to fund balance sheet growth and our working capital needs.

The 2015 Notes were non-callable for five years, had a stated maturity of August 15, 2025, and bore interest at a quarterly pay fixed rate of 5.75% per annum to the maturity date.

The 2015 Notes became callable, in part or in whole, beginning August 2020.

On May 15, 2021, the Company retired $10.0 million of the 2015 Notes and redeemed the remaining $15.5 million of the 2015 Notes on November 15, 2021.

On October 14, 2021, the Company issued and sold to an institutional accredited investor a fixed-to-floating rate subordinated note (the “Note”) in the principal amount of $35.0 million.

The note is structured to qualify for the Company as Tier 2 capital under regulatory guidelines.

The Company used the net proceeds from the sale of the Note for general corporate purposes, including, but not limited to, the repayment of $15.5 million of the 2015 Notes.

The Note will bear interest at a fixed rate of 3.25% per year, from and including October 14, 2021 to, but excluding, October 15, 2026.

From and including October 15, 2026 to, but excluding the maturity date or early redemption date, the interest rate will reset quarterly at a variable rate equal to the then current three-month term SOFR (as defined in the Note) plus 233 basis points.

The Note provides that the interest rate during the applicable floating rate period may be determined based on a rate other than the three-month term SOFR under certain circumstances.

The Note has a stated maturity of October 15, 2031.

Prior to October 15, 2026, the Company may redeem the Note only under certain limited circumstances.

On or after October 15, 2026, the Company may redeem the Note, in whole or in part, at its option, on any interest payment date.

The Note is not subject to redemption at the option of the holder.

The Note is not subject to any sinking fund and is not convertible into or exchangeable for any other securities or assets of the Company or any of its subsidiaries.

Enterprise Risk Management

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The Bank’s deposits are insured up to applicable limits by the FDIC through the Deposit Insurance Fund.

The Bank is required to file reports with, and is periodically examined by, the FDIC and the Connecticut Department of Banking concerning its activities and financial condition and must obtain regulatory approvals prior to entering into certain transactions, such as mergers with, or acquisitions of, other financial institutions.

The Bank is required to file reports with, and is periodically examined by, the FDIC and the Connecticut

Department of Banking concerning its activities and financial condition and must obtain regulatory approvals prior to entering into certain transactions, such as mergers with, or acquisitions of, other financial institutions.

The primary goals of the bank regulatory system are to maintain a safe and sound banking system and to facilitate the conduct of sound monetary policy.

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Dodd-Frank Wall Street Reform and Consumer Protection Act

The Dodd-Frank Act has significantly changed the current bank regulatory structure and continues to affect the lending and investment activities and general operations of depository institutions and their holding companies.

The Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Economic Growth Act”), which was enacted in May 2018, repealed or modified several provisions of the Dodd-Frank Act.

Certain key provisions of the Economic Growth Act and its implementing regulations are discussed below.

The Dodd-Frank Act, which was enacted in 2008, has significantly changed the current bank regulatory structure and continues to affect the lending and investment activities and general operations of depository institutions and their holding companies.

The Dodd-Frank Act created the Consumer Financial Protection Bureau with extensive powers to implement and enforce consumer protection laws.

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The Consumer Financial Protection Bureau has examination and enforcement authority over all banks and savings associations with more than $10 billion in assets.

Banks and savings associations with $10 billion or less in assets will continue to be examined for compliance with federal consumer protection and

fair lending laws by their applicable primary federal bank regulators.

Banks and savings associations with $10 billion or less in assets will continue to be examined for compliance with federal consumer protection and fair lending laws by their applicable primary federal bank regulators.

The Dodd-Frank Act also gives state attorneys general certain authority to enforce applicable federal consumer protection laws.

The Dodd-Frank Act made many other changes to banking regulations including authorizing depository institutions, for the first time, to pay interest on business checking accounts, requiring originators of securitized loans to retain a percentage of the risk for transferred loans, establishing regulatory rate-setting for certain debit card interchange fees, establishing a number of reforms for mortgage originations, requiring bank holding companies and banks to be “well capitalized” and “well managed” in order to acquire banks located outside of their home state, requiring any bank holding company electing to be treated as a financial holding company to be “well capitalized” and “well managed” and authorizing national and state banks to establish de novo branches in any state that would permit a bank chartered in that state to open a branch at that location.

The Dodd-Frank Act also broadened the base for the FDIC insurance assessments.

The FDIC was required to promulgate rules revising its assessment system so that insurance assessments are based on the average consolidated total assets less tangible equity capital of an insured depository institution instead of deposits.

That rule took effect April 1, 2011.

The Dodd-Frank Act also permanently increased the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2008.

The Dodd-Frank Act increased shareholder influence over boards of directors by requiring companies to give shareholders a nonbinding vote on executive compensation and so-called “golden parachute” payments, and by authorizing the SEC to promulgate rules that would allow shareholders to nominate and solicit votes for their own candidates using a company’s proxy materials.

Much of the rulemaking under the Dodd-Frank Act has been completed.

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Economic Growth Act

The Economic Growth Act provides community banks with relief from certain regulatory requirements, including some imposed by the Dodd-Frank Act.

The Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Economic Growth Act”), which was enacted in May 2018, repealed or modified several provisions of the Dodd-Frank Act.

In addition, the Economic Growth Act includes regulatory relief for community banks regarding regulatory examination cycles, call reports, the Volcker Rule, mortgage disclosures and risk weights for certain high-risk commercial real estate loans.

Among other things, Section 201 of the Economic Growth Act required the federal banking agencies to develop regulations establishing a “community bank leverage ratio” for banks and holding companies with less than $10 billion in consolidated assets and a qualifying risk profile.

The final rule, which became effective on January 1, 2020, provides certain qualifying institutions with an optional, simpler method to measure capital adequacy.

The final rule, which became effective on January 1, 2020, provides certain

qualifying institutions with an optional, simpler method to measure capital adequacy.

Under the rule, banks and bank holding companies that have less than $10 billion in total consolidated assets and meet other qualifying criteria, including a leverage ratio (equal to tier 1 capital divided by average total consolidated assets) of greater than 9 percent, off-balance sheet exposures of 25% or less of total consolidated assets and trading assets plus trading liabilities of 5% or less of total consolidated assets, are eligible to opt into the community bank leverage ratio ("CBLR") framework.

Qualifying organizations that elect to use the CBLR framework, and that maintain a leverage ratio greater than 9 percent, will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the banking agencies' capital rules.

Qualifying organizations will also be deemed to have met the "well capitalized" ratio requirements for purposes of Section 38 of the Federal Deposit Insurance Act.

The final rules include a two-quarter grace period during which a qualifying community banking organization that temporarily fails to meet any of the qualifying criteria, including the greater-than-9% leverage capital ratio requirement, is generally still deemed "well capitalized" so long as the banking organization maintains a leverage capital ratio greater than 8%.

A banking organization that fails to maintain a leverage capital ratio greater than 8% is not permitted to use the grace period and must comply with the generally applicable requirements under the Basel III rules and file the appropriate regulatory reports.

We do not have any immediate plans to elect to use the CBLR framework but may make such an election in the future.

The Economic Growth Act provides insured depository institutions and their affiliates with less than $10 billion in total consolidated assets and limited trading activities with an exemption from the Dodd-Frank Act’s “Volcker Rule” (which generally restricts certain banking entities such as the Company and the Bank from engaging in proprietary trading activities and entering into certain relationships with hedge funds and private-equity funds).

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In addition to the consolidated assets limit, a covered bank holding company may not be engaged in significant non-banking and off-balance sheet activities and may not have a material amount of debt or equity securities outstanding (other than trust preferred securities) that are registered with the SEC.

The Policy also excludes covered bank holding companies from the minimum capital requirements of the Dodd-Frank Act.

The Federal Reserve Board retains the authority to exclude any bank holding company from the Policy if such action is warranted for supervisory purposes.

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In addition, the Federal Reserve Board expects that bank holding companies will retire all debt within 25 years of being incurred and reduce their debt to equity ratio to 30:1 or less within 12 years of incurring the debt.

The Policy also directs that each depository institution subsidiary of a covered

bank holding company remain well-capitalized.

The Policy also directs that each depository institution subsidiary of a covered bank holding company remain well-capitalized.

On August 28, 2018, the Federal Reserve Board issued an interim final rule regarding revisions to the Policy prompted by the Economic Growth Act.

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In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020 to provide national emergency economic relief measures.

Many of the CARES Act’s programs are dependent upon the direct involvement of U.S.

financial institutions, such as Bankwell Bank, and have been implemented through rules and guidance adopted by federal departments and agencies, including the U.S.

Department of Treasury, the Federal Reserve and other federal banking agencies, including those with direct supervisory jurisdiction over Bankwell Bank.

Furthermore, as the ongoing COVID-19 pandemic evolves, federal regulatory authorities continue to issue additional guidance with respect to the implementation, lifecycle, and eligibility requirements for the various CARES Act programs as well as industry-specific recovery procedures for COVID-19.

The CARES Act had several provisions relevant to financial institutions, including:

• Allowing institutions not to characterize loan modifications relating to the COVID-19 pandemic as a troubled debt restructuring and also allowing them to suspend the corresponding impairment determination for accounting purposes;

• Temporarily reducing the community bank leverage ratio alternative available to institutions of less than $10 billion of assets to 8%;

• The establishment of the Paycheck Protection Program (“PPP”), a specialized low-interest forgivable loan program funded by the U.S.

Treasury Department and administered through the SBA’s 7(a) loan guaranty program to support businesses affected by the COVID-19 pandemic;

• The ability of a borrower of a federally-backed mortgage loan (VA, FHA, USDA, Freddie Mac and Fannie Mae) experiencing financial hardship due, directly or indirectly, to the COVID-19 pandemic, to request forbearance from

paying their mortgage by submitting a request to the borrower’s servicer affirming their financial hardship during the COVID-19 emergency.

As the ongoing COVID-19 pandemic evolves, federal regulatory authorities continue to issue additional guidance with respect to the implementation, lifecycle, and eligibility requirements for the various CARES Act programs as well as industry-specific recovery procedures for COVID-19.

It is possible that Congress will enact supplementary COVID-19 response legislation, including amendments to the CARES Act or new bills comparable in scope to the CARES Act.

The Company continues to assess the impact of the CARES Act and other statutes, regulations and supervisory guidance related to the COVID-19 pandemic.

Paycheck Protection Program ("PPP").

Section 1102 of the CARES Act created the PPP, a program administered by the U.S.

Small Business Administration (“SBA”) to provide loans to small businesses for payroll and other basic expenses during the COVID-19 pandemic.

Bankwell Bank has participated in the PPP as a lender.

These loans are eligible to be forgiven if certain conditions are satisfied and are fully guaranteed by the SBA.

Additionally, loan payments will also be deferred for an initial period of time, the precise length of which depends upon when the borrower submits a forgiveness application to the SBA.

Payment of a PPP loan would only be required if the SBA denies forgiveness in whole or in part or if the borrower fails to file a forgiveness application within the required timeframe.

The PPP commenced on April 3, 2020 and was available to qualified borrowers through August 8, 2020.

No collateral or personal guarantees were required.

On December 27, 2020, the President signed into law omnibus federal spending and economic stimulus legislation titled the “Consolidated Appropriations Act” (the “CAA”) that included the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the “HHSB Act”).

Among other things, the HHSB Act renewed the PPP, allocating $284.45 billion in PPP loan funding for new first-time borrowers and for existing PPP borrowers who qualify for a so-called “second draw” loan.

The SBA and U.S.

Department of Treasury have issued numerous regulations, procedures and guidelines to help implement the PPP, and they are likely to continue to do so as the program evolves and matures into the forgiveness and repayment phase.

Lending under the program is currently scheduled to end on March 31, 2021.

However, participating lenders, including Bankwell Bank, will continue to be active in helping borrowers to process forgiveness applications and in servicing loans that are not forgiven in whole or in part.

As a participating lender in the PPP, Bankwell Bank continues to monitor legislative, regulatory, and supervisory developments related thereto, including the most recent changes implemented by the HHSB Act.

Guidance on Non-TDR Loan Modifications due to COVID-19 .

On March 22, 2020, a statement was issued by our banking regulators and titled the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” (the “Interagency Statement”) that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of COVID-19.

Additionally, Section 4013 of the CARES Act further provides that a qualified loan modification is exempt by law from classification as a TDR as defined by GAAP, from the period beginning March 1, 2020 until the earlier of December 31, 2020 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 outbreak declared by the President of the United States under the National Emergencies Act terminates.

Section 541 of the CAA extends this relief to the earlier of January 1, 2022 or 60 days after the national emergency termination date.

The Interagency Statement was subsequently revised in April 2020 to clarify the interaction of the original guidance with Section 4013 of the CARES Act, as well as setting forth the banking regulators’ views on consumer protection considerations.

Main Street Lending Program .

The CARES Act encouraged the Federal Reserve, in coordination with the Secretary of the Treasury, to establish or implement various programs to help midsize businesses, nonprofits, and municipalities.

2020, the Federal Reserve proposed the creation of the Main Street Lending Program to implement certain of these recommendations.

The Federal Reserve ceased purchasing loans under the program as of January 8, 2021.

Connecticut Banking Laws and Supervision

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A bank holding company must obtain Federal Reserve Board approval before:

(1) acquiring, directly or indirectly, ownership or control of any voting securities of another bank or bank holding company if, after such acquisition, it would own or control more than 5% of such securities (unless it already owns or controls the majority of such securities);

(1) acquiring, directly or indirectly, ownership or control of any

voting securities of another bank or bank holding company if, after such acquisition, it would own or control more than 5% of such securities (unless it already owns or controls the majority of such securities);

(2) acquiring all or substantially all of the assets of another bank or bank holding company;

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Under the asset quality and earnings standards, the Bank is required to establish and maintain systems to (i) identify problem assets and prevent deterioration in those assets, and (ii) evaluate and monitor earnings and ensure that earnings are sufficient to maintain adequate capital reserves.

Finally, the compensation standard states that compensation will be considered excessive if it is unreasonable or disproportionate to the services actually performed by the

individual being compensated.

Finally, the compensation standard states that compensation will be considered excessive if it is unreasonable or disproportionate to the services actually performed by the individual being compensated.

If an insured state-chartered bank fails to meet any of the standards promulgated by regulation, then such institution will be required to submit a plan within 30 days to the FDIC specifying the steps it will take to correct the deficiency.

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Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements.

As discussed above, the Economic Growth Act provided simplified capital measurement rules for qualified community banks and holding companies with less than $10 billion in total consolidated assets and with limited trading activities.

The federal banking agencies have issued final regulations to implement this optional, simplified framework for institutions that satisfy certain qualifying criteria, including a "community bank leverage ratio" of greater than 9 percent.

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

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In a holding company context, at a minimum, the parent holding company of a bank and any companies which are controlled by such parent holding company are considered an affiliate of the bank.

Generally, Section 23A limits the extent to which the bank or its subsidiaries may engage in “covered transactions” with any one affiliate to 10% of such bank’s capital stock and surplus, and places an aggregate limit on all such transactions with all affiliates at 20% of capital stock and surplus.

Generally, Section 23A limits the extent to which the bank or its subsidiaries may engage in “covered transactions” with any one affiliate to 10% of such bank’s capital stock and surplus,

and places an aggregate limit on all such transactions with all affiliates at 20% of capital stock and surplus.

The term “covered transaction” includes, among other things, the making of loans or other extensions of credit to an affiliate and the purchase of assets from an affiliate.

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Section 23B requires that covered transactions and a broad list of other specified transactions be on terms substantially the same, or no less favorable, to the bank or its subsidiary as similar transactions with non-affiliates.

The Dodd-Frank Act has expanded the definition of

covered transactions and increased the timing and other aspects of the collateral requirements associated with covered transactions, including an expansion of the covered transactions to include credit exposures related to derivatives, repurchase agreements and securities lending arrangements and an increase in the amount of time for which collateral requirements regarding covered transactions must be satisfied.

The Dodd-Frank Act has expanded the definition of covered transactions and increased the timing and other aspects of the collateral requirements associated with covered transactions, including an expansion of the covered transactions to include credit exposures related to derivatives, repurchase agreements and securities lending arrangements and an increase in the amount of time for which collateral requirements regarding covered transactions must be satisfied.

Loans to Insiders.

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A depository institution’s assessment rate depends upon the category to which it is assigned and certain adjustments specified by the FDIC, with less risky institutions paying lower assessments.

On February 7, 2011, as required by the Dodd-Frank Act, the FDIC published a final rule to revise the deposit insurance assessment system.

The rule, which took effect April 1, 2011, changed the assessment base used for calculating deposit insurance assessments from deposits to average consolidated total assets less average tangible equity capital.

Since the new base is larger than the previous base, the FDIC also lowered assessment rates so that the rule would not significantly alter the total amount of revenue collected from the industry.

Subject to certain adjustments, the range of assessment rates is now between 1.5 to 30 basis points of the assessment base.

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The Federal Reserve Board regulations require depository institutions to maintain noninterest earning reserves against their transaction accounts (primarily NOW and regular checking accounts).

The Federal Reserve Board regulations generally require that reserves be maintained against aggregate transaction accounts.

The Bank is in compliance with these requirements.

The Federal Reserve Board regulations are adjusted annually and generally provide that reserves be maintained against aggregate transaction accounts.

However, effective March 26, 2020, the Federal Reserve Board reduced reserve requirement ratios to zero percent, in light of the shift to an ample reserves regime.

This action eliminates the need for thousands of depository institutions to maintain balances in accounts at Reserve Banks to satisfy reserve requirements, thereby freeing up liquidity in the banking system to support lending to households and businesses.

The Bank is in compliance with reserve requirements.

Federal Home Loan Bank of Boston (FHLB).

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Enforcement actions by the institution’s primary federal banking agency may be initiated if the institution’s incentive compensation programs pose a risk to the safety and soundness of the organization.

In addition, the Basel III Capital Rules limit discretionary bonus payments to the Bank’s executive officers if its capital ratios are below the threshold levels of the capital conservation buffer of 2.5% (as a percentage of risk-weighted assets) established by the rules.

The capital conservation buffer is in addition to the minimum risk-based capital requirement.

Sarbanes-Oxley Act of 2002.

The Sarbanes-Oxley Act of 2002 generally established a comprehensive framework to modernize and reform the oversight of public company auditing, improve the quality and transparency of financial reporting by those companies and strengthen the independence of auditors.

Among other things, the legislation (1) created the Public Company Accounting Oversight Board, which is empowered to set auditing, quality control and ethics standards, to inspect registered public accounting firms, to conduct investigations and to take disciplinary actions, subject to SEC oversight and review;

(2) strengthened auditor independence from corporate management by, among other things, limiting the scope of consulting services that auditors can offer their public company audit clients;

(3) heightened the responsibility of public company directors and senior managers for the quality of the financial reporting and disclosure made by their companies;

(4) adopted a number of provisions to deter wrongdoing by corporate management;

(5) imposed a number of new corporate disclosure requirements;

(6) adopted provisions which generally seek to limit and expose to public view possible conflicts of interest affecting securities analysts;

and (7) imposed a range of new criminal penalties for fraud and other wrongful acts, as well as extended the period during which certain types of lawsuits can be brought against a company or its insiders.

The Sarbanes-Oxley Act applies generally to all companies that file or are required to file periodic reports with the SEC under the Exchange Act.

Federal Securities Laws.

As a public company, we also file reports with the SEC and are subject to its regulatory authority, as well as the disclosure and regulatory requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, with respect to our securities, financial reporting and certain governance matters.

Because our securities are listed on the Nasdaq Global Market (“Nasdaq”), we are subject to Nasdaq's rules for listed companies, including rules relating to corporate governance.

Financial Modernization.

The Gramm-Leach-Bliley Act, or the GLBA, permits greater affiliation among banks, securities firms, insurance companies, and other companies under a type of financial services company known as a “financial

holding company”.

A financial holding company essentially is a bank holding company with significantly expanded powers.

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A financial holding company must provide notice to the Federal Reserve Board within 30 days after commencing activities previously determined by statute or by the Federal Reserve Board and Department of the Treasury to be permissible.

We have not submitted notice to the Federal Reserve Board of intent to be deemed a financial holding company.

not submitted notice to the Federal Reserve Board of intent to be deemed a financial holding company.

However, we are not precluded from submitting a notice in the future should we wish to engage in activities only permitted to financial holding companies.

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The Federal Reserve Board’s monetary policies have had, and are likely to continue to have, an important impact on the operating results of commercial banks through its power to implement national monetary policy in order, among other things, to curb inflation or combat a recession.

policies of the Federal Reserve Board affect the levels of bank loans, investments and deposits through its control over the issuance of U.S.

The monetary policies of the Federal Reserve Board affect the levels of bank loans, investments and deposits through its control over the issuance of U.S.

government securities, its regulation of the discount rate applicable to member banks and its influence over reserve requirements to which member banks are subject.

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Net Operating Loss Carryovers:

For the years ended 2018 and prior a corporation may carry back generated net operating losses to the preceding two taxable years and forward to the succeeding 20 taxable years.

For net operating losses arising in tax years after 2018, a corporation may not carryback the net operating loss but may carryforward such losses indefinitely, however the net operating loss deduction in a given year is limited to 80% of taxable income.

For the years ended 2017 and prior a corporation may carry back net operating losses generated in such years to the preceding two taxable years and forward to the succeeding 20 taxable years.

Under the Tax Cuts and Jobs Act enacted in December 2017, a corporation may not carryback net operating losses arising in tax years after 2017, but may carryforward such losses indefinitely;

however, the net operating loss deduction in a given year is limited to 80% of taxable income.

The CARES Act temporarily - and retroactively - modified the net operating loss rules to permit carryback of net operating losses generated in 2018, 2019 and 2020 for five years.

A corporation may elect to waive the carryback period and only carry these net operating losses forward to future years.

The five-year carryback provision of the CARES Act is not available for losses generated in 2021 and subsequent years.

At December 31, 2021, we had $1.9 million of net operating loss carryforwards for federal income tax purposes.

The carryovers were transferred to the Company upon the merger with The Wilton Bank.

The carryovers were transferred to the Company upon the merger with The Wilton Bank in 2014.

Corporate Dividends-Received Deduction:

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business