What changed in this filing

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Item 1. Business

2025-03-05 compared with 2024-03-12 · 117 added, 136 removed, 519 unchanged (33% of the section changed)

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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.

In addition, the Bank pursues certain types of commercial banking opportunities outside our market, particularly where we have strong relationships.

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

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On October 1, 2014, we acquired Quinnipiac Bank and Trust Company, which was merged into Bankwell Bank.

With the efforts of our executive management team, we continued our growth and maintained a strong track record of performance.

From December 31, 2019 through December 31, 2023, our total assets grew from $1.9 billion to $3.2 billion;

our gross loans outstanding grew from $1.6 billion to $2.7 billion and our deposits grew from $1.5 billion to $2.7 billion.

We believe this growth is attributable to our ability to provide exceptional service to our clients and our financial stability.

While 2024 presented certain financial challenges, our executive management team remained steadfast in their efforts, allowing us to maintain a degree of growth and a solid foundation of financial stability.

Over the four year period from December 31, 2020 through December 31, 2024, we grew total assets from $2.3 billion to $3.3 billion, gross loans outstanding from $1.6 billion to $2.7 billion and deposits from $1.8 billion to $2.8 billion.

We attribute this growth to our ongoing commitment to providing exceptional client service as well as prudent financial management.

Business Strategy

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

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

We offer a broad array of customized products and services which allows us to focus on building long-term relationships with our clients through high-quality, responsive and personal service.

By focusing on the entire client relationship, we build the trust of our clients, which leads to long-term relationships and generates our organic growth.

In addition, we are committed to meeting the needs of the communities that we serve.

Our employees are involved in many civic and community organizations, which we support through volunteerism and sponsorships.

As a result, clients and potential clients within our market know about us and frequently interact with our employees which allows us to develop long-term client relationships without extensive advertising.

• Utilization of Efficient and Scalable Infrastructure.

We employ a systematic and calculated approach to increasing our profitability and improving our efficiencies through the use of technology.

We continually invest in our operating infrastructure, particularly in the areas of technology, data processing, risk management, and compliance.

We believe that our scalable infrastructure provides us with an efficient operating platform from which to grow in the near term, while continuing to deliver our high-quality service, which will further enhance our ability to grow and increase our returns.

• Disciplined Focus on Risk Management.

• Client-Focused Growth and Community Engagement.

We prioritize building long-term client relationships by offering customized products and services coupled with responsive, personalized service.

This focus on the entire client experience fosters trust, leading to long-term partnerships and organic growth.

Our commitment extends to the communities we serve, where we actively participate in local organizations through volunteerism and sponsorships.

This engagement strengthens our community presence and facilitates client relationships, reducing the need for extensive advertising.

• Investing in Scalable Infrastructure for Future Growth.

We strategically invest in our technology, data processing, risk management, and compliance infrastructure to enhance efficiency, profitability, and scalability.

This investment provides a robust operating platform that supports current performance and enables future growth while ensuring we continue to deliver high-quality service and maximize stakeholder returns.

• Disciplined Risk Management Framework .

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

We use robust risk management processes 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.

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

Additio nal risk management processes focus on the expanding risks associated with cybersecurity, regulatory compliance including BSA/AML and third party risk manageme nt.

We have a Risk Management Steering Committee comprised of senior management and other members of management tasked with the review and assessment of risks and mitigants throughout the Bank on an ongoing basis.

Additionally, internal review procedures are performed regarding anti-money laundering and consumer compliance requirements.

We employ comprehensive processes to monitor our loan and investment portfolios, inform operational decisions, and drive the generation of high-quality earning assets.

Our disciplined approach includes rigorous underwriting, loan portfolio diversification, and a conservative investment strategy.

Board-approved policies, reviewed annually, define approval authorities.

Furthermore, we address evolving risks, including cybersecurity, regulatory compliance (including BSA/AML), and third-party risk management, through a dedicated Board Risk Committee and a senior management Risk Management Committee, as well as internal review procedures focused on anti-money laundering and consumer compliance requirements.

• Strategic Acquisitions.

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Some lack the scale and management expertise to manage the increasing regulatory burden and will likely need to partner with an institution like ours.

As we evaluate potential acquisitions, we will continue to seek those that provide meaningful financial benefits, long-term organic growth opportunities and expense reductions, without compromising our risk profile.

As we evaluate potential

acquisitions, we will seek those that provide meaningful financial benefits, long-term organic growth opportunities and expense reductions, without compromising our risk profile.

Our Competitive Strengths

We believe that we are especially well-positioned to create value for our shareholders as a result of the following competitive strengths:

• Our Market.

The Bank provides a wide range of services to client s 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 business relationships.

Our goal is to support our clients as they grow, and with advances in technology, we are able to service and maintain business relationships beyond our market.

• Experienced and Respected Executive Management Team with a Proven and Successful Track Record.

• Strategic Market Reach.

We serve a diverse client base within a 100-mile radius of our branch network, offering a comprehensive suite of banking services.

We also selectively pursue commercial banking opportunities outside this market, leveraging established business relationships and expanding our reach through technology.

This approach allows us to support our clients’ growth and maintain valuable relationships beyond our geographic footprint.

• Experienced Leadership.

Our executive management team is comprised of seasoned professionals with significant banking experience, a history of high performance at financial institutio ns and success in identifying, acquiring and integrating financial institutions.

Our executive management team includes Christopher R.

Gruseke, President and Chief Executive Officer (since 2015), Steven H.

Brunner, Executive Vice President, Chief Risk and Operations Officer (since January 24, 2024), Christine A.

Chivily, Executive Vice President, Chief Credit Officer (since 2013), Ryan Hildebrand, Executive Vice President, Chief Innovation Officer (since July 26, 2023), Matthew McNeill, Executive Vice President, Chief Banking Officer (since 2020), and Courtney E.

Sacchetti, Executive Vice President, Chief Financial Officer (since January 1, 2023).

• Dedicated Board of Directors with Close Community Ties.

Our Board of Directors is comprised of a group of business leaders who understand the need for banks that focus on serving the financial needs of their client s.

The interests of our executive management team and directors are aligned with those of our shareholders through common stock ownership.

By capitalizing on the business relationships and c lose community ties of our executive management team and directors, we are positioned to take advantage of opportunities present in our market.

• Strong Capit al Position.

Gruseke, Chief Executive Officer (since 2015), Matthew McNeill, President (as of January 22, 2025) and Chief Banking Officer (since 2020), Steven H.

Brunner, Executive Vice President, Chief Risk Officer (since 2024), Christine A.

Chivily, Executive Vice President, Chief Credit Officer (since 2013), Ryan J.

Hildebrand, Executive Vice President, Chief Innovation Officer (since 2023), and Courtney E.

Sacchetti, Executive Vice President, Chief Financial Officer (since 2023).

• Dedicated Board of Directors.

Our Board of Directors consists of experienced business leaders who understand the need for banks that focus on serving the financial needs of their clients.

Their significant common stock ownership aligns their interests with those of our shareholders, and their combined expertise and relationships position us to capitalize on market opportunities.

• Disciplined Risk Management.

We prioritize disciplined risk management, embedding it in our corporate culture.

Our robust processes monitor loan and investment portfolios, inform operational decisions, and support the generation of high-quality earning assets.

We employ comprehensive underwriting, portfolio diversification, and a conservative investment strategy.

Oversight includes Board-approved policies, a Board-level Risk Committee, and a senior management Risk Management Committee, along with internal reviews for compliance and anti-money laundering.

• Strong Capital Position.

At December 31, 2024, we had a 8.20% tangible common equity ratio, and the Bank had a 10.09% tier 1 leverage ratio, a 11.64% tier 1 risk-based ratio, and an 12.70% total capital to risk-weighted assets ratio.

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• Scalable Operating Platform.

We provide banking technology, including online account opening, mobile and internet banking, and remote deposit capture to offer our clients maximum flexibility and to create a scalable platform to accommodate our future grow th aspirations.

We believe that our advanced technology combined with responsive and personal service provides our clients with an exceptional banking experience.

Our scalable operating platform empowers us to deliver an exceptional banking experience.

We offer a full suite of banking technology, including online account opening through our Bankwell Direct channel, mobile and internet banking, and remote deposit capture, providing clients with maximum flexibility and convenience.

This robust technology infrastructure also provides a foundation for future growth, ensuring we can continue to meet evolving client needs.

Human Capital Resources

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

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

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

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

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Company Website and Availability of Securities and Exchange Commission Filings

Information regarding the Company is available through the Investor Relations link at www.mybankwell.com.

Information regarding the Company is available through the Investor Relations site link at https://investor.mybankwell.com.

The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge at www.sec.gov and at www.mybankwell.com under the Investor Relations link.

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The financial services industry is highly competitive.

We compete with commercial banks, savings banks, savings associations, money market funds, mortgage brokers, finance companies, credit unions, insurance companies, investment firms and private lenders in various segments of our business.

Many of these competitors have more assets, capital and higher lending limits, and more resources than we do and may be able to conduct more intensive and broader-based promotional efforts to reach both commercial and individual clients.

Many of these competitors have more assets, capital and higher lending limits, and more resources than we do, enabling them to conduct more intensive and broader-based promotional efforts to reach both commercial and individual clients.

Competition for deposit products can depend heavily on pricing because of the ease with which clients can transfer deposits from one institution to another.

We focus our marketing efforts on small to medium-sized businesses and professionals.

We attract these clients based on relationships and contacts that our management and our Board of Directors have within and beyond the market area.

We do not e xpect to compete with large institutions for the primary banking relationships of large corporations.

Many of our larger commercial bank competitors have greater name recognition and offer certain services that we do not;

however, we believe that our presence in our market area and focused industry sectors with attention to providing superior service is instrumental to our success.

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.

To further enhance our competitive position, we launched online account opening, via our Bankwell Direct channel, providing a more convenient and accessible way for clients to join our Bank.

While many competitors possess greater scale and resources, our strategy focuses on areas where we excel:

serving small to medium-sized businesses and professionals.

We leverage deep local market knowledge and established relationships cultivated by our management and board of directors to build strong client connections.

Our personalized service, local decision-making, and specialized industry expertise differentiate us from larger institutions and resonate strongly within our target market.

We do not seek to compete directly for the primary banking relationships of large corporations, instead concentrating on providing superior service and tailored solutions to our core client base.

Lending Activities

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

We target our business development and marketing strategy primarily on small to medium-sized businesses.

Our relationship managers actively solicit the business of companies entering our market areas as well as long-standing businesses operating in the communities we serve.

We seek to attract new lending clients through professional service, relationship networks, competitive pricing and innovative structure, including the utilization of federal and state tax incentives.

We pride ourselves on smart, proficient underwriting and timely decision making for new loan requests due to our efficient approval structure and local decision-making.

We believe this gives us a competitive advantage over larger institutions that are not as nimble.

Our business development and marketing strategy is primarily focused on small to medium-sized businesses.

Our relationship managers actively solicit business from companies entering our market areas as well as established businesses operating within the communities we serve.

We attract new lending clients through professional service, relationship networks, competitive pricing and innovative structure, including the utilization of federal and state tax incentives and lending programs such as the SBA loan programs.

Our efficient approval structure and local decision-making allow us to provide smart, proficient underwriting and timely decisions on new loan requests.

This agility provides a competitive advantage over larger institutions.

Total loans before deferred loan fees and the ACL-Loans were $2.7 billion at December 31, 2024.

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In the third quarter of 2019, the Company stopped offering home equity loans or lines of credit.

Prior to these decisions having been made, we offered first lien one-to-four family mortgage loans, as well as home equity lines of credit, in each case primarily on owner-occupied primary residences.

Prior to these decisions, we offered first lien one-to-four family mortgage loans, as well as home equity lines of credit, in each case primarily on owner-occupied primary residences.

Although our residential real estate loan portfolio presents lower levels of risk than our commercial real estate and construction loan portfolios, we are exposed to risk based on fluctuations in the value of the real estate collateral securing the loan, as well as changes in the borrower’s financial condition, which could be affected by numerous factors, including divorce, job loss, illness or other personal hardship.

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and those related to terms of the commercial loan, which may include balloon payments that must be refinanced or paid off at the end of the term of the loan or mid-term interest rate resets, possi bly at increased interest rates.

Our commercial loan portfolio presents a higher risk than our consumer real estate and consumer loan portfolios.

Our commercial loan portfolio presents a higher risk than our residential real estate and consumer loan portfolios.

Consumer loans.

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We do not expect our consumer loan portfolio to become a material component of our total loan portfolio as we do not engage in any material amount of consumer lending.

Our cons umer 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.

Our cons umer loans, which are underwritten primarily based on the borrower’s financial condition and contain both secured and unsecured credits, expose us to risk based on changes in the borrower’s financial condition, which could be affected by numerous factors, including those discussed above.

Rising interest rates may also impact the risk profile of this segment of the portfolio.

This portfolio segment includes loans to finance insurance premiums secured by the cash surrender value of life insurance and marketable securities, overdraft lines of credit, and unsecured personal loans to high net worth individuals.

Credit Policy an d Procedures

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All concentrations are monitored by our Chief Credit Officer and our Directors' Loan Committee.

We have also established an internal lending guideline to one relationship of up to 30% of equity capital and allowance for credit losses, if secured by commercial real estate.

We have also established an internal lending guideline to one relationship of up to 30% of risk-based capital and allowance for credit losses, if secured by commercial real estate.

This limit is inside the regulatory limit of 50%.

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

Our top 20 borrowing relationships range in exposure fro m $43.0 million to $92.0 million and are monitored on an on-going basis.

Our top 20 borrowing relationships range in exposure from $48.1 million to $94.0 million and are monitored on an on-going basis.

Loan approval process.

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We maintain a list of loans that receive additional attention if we believe there may be a potential credit risk via our Watch List report.

Loans that are upgraded or downgraded are reviewed by our Chief Credit Officer, while Watch List loans undergo a detailed quarterly analysis prepared by the relationship manager or portfolio manager and reviewed by management.

Loans that are upgraded or downgraded are reviewed by our Chief Credit Officer or designee, while Watch List loans undergo a detailed quarterly analysis prepared by the relationship manager or portfolio manager and reviewed by management.

This review includes an evaluation of the market conditions, the property’s or company’s trends, the borrower and guarantor status, the level of reserves required and loan accrual status.

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These asset review procedures provide management with additional information for assessing our asset quality.

Response to the current environment on commercial real estate.

In response to the economic environment in 2023, the Company:

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

• added resources in the Portfolio Management Department;

Bankwell’s response to the current economic environment’s impact on commercial real estate .

Given our concentration of loans secured by commercial real estate and current economic conditions, including factors such as elevated interest rates and changing demand for office space, management has adopted the following:

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

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

◦ upcoming commercial real estate maturity schedule, including loan to value, debt service coverage ratio, occupancy, and commentary on expected refinance or payoff status, maturity by property type and owner occupied or non-owner-occupied status;

◦ individual loan level detail of the performance on our residential care portfolio and our insurance agency portfolio.

• expanded the scope of our third-party loan review from 60% of the loan portfolio to include all new and renewed loans originated since September 2022, all residential care loans, all commercial real estate loans secured by office properties where the loan balance is greater than one million dollars, and all loans with addresses in New York City;

◦ individual loan level detail of the performance on our residential care portfolio and our insurance agency portfolio and

• enhanced our covenant tracking and reporting to the Directors Loan Committee.

• conducted a detailed review of every general office loan in our portfolio.

As of December 31, 2023, the Bank had $193.0 million of loans collateralized by offices, which represented 7.1% of the total loan portfolio.

Most of the properties in this portfolio are in suburban locations, including all the New York State properties, which are all located

in Westchester County.

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

• performed an additional review of our multifamily exposure.

As of December 31, 2023 , we had $257.5 million of loans collateralized by multifamily properties, which represented 9.5% of the total loan portfolio.

100% of the portfolio is pass rated.

These properties are all located in Connecticut, New York, or New Jers ey, with the majority in suburban locations.

Nine properties totaling $52.3 million, with an average balance of $5.8 million, are in New York City.

In addition to the enhancements made to monitoring and reporting, the Company has added resources to its Portfolio Management and Credit Departments.

Investment Activities

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The majority of these securities are classified as available for sale.

The portfolio’s secondary purpose is to generate adequate earnings to provide and contribute to stable income and to generate a profitable return while minimizing risk.

The portfolio’s secondary purpose is to generate adequate earnings to provide and contribute to stable income and to generate a

profitable return while minimizing risk.

Additionally, our investment portfolio may be used to provide adequate collateral for various regulatory or statutory requirements and to manage our interest rate risk.

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Deposits at the Bank are insured by the FDIC up to statutory limits.

We gather deposits through our network of deposit-taking branch offices, online account opening, and have attracted significant transaction account business through our relationship-based approach.

We gather deposits through our network of deposit-taking branch offices, online account opening through our Bankwell Direct channel, and have attracted significant transaction account business through our relationship-based approach.

Borrowed Funds

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We place significant emphasis on risk mitigation as an integral component of our organizational culture.

We believe that our emphasis on risk management is manifested in our historically solid asset quality statistics.

The Company’s existing governance and organizational structure incorporates a substantial risk management component through the following:

• The retention of an independent firm (separate from the Company’s auditors) that performs internal audit reviews;

• Oversight of various risk components by committees comprised of directors of the Company, including Directors' Loan Committee (credit), ALCO (asset and liability), Audit Committee (regulatory and compliance), and Technology Committee (information security and cybersecurity);

• A Risk Committee comprised of directors of the Company charged with oversight of the Company’s overall enterprise risk management framework, policies, procedures and controls, including operational and information security and cybersecurity risks and compliance programs;

• Oversight of various risk components by committees comprised of directors of the Company, including Directors' Loan Committee (credit), ALCO (asset and liability), and Audit Committee (financial);

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

• Operational Risk and Compliance Working Groups, comprised of senior management, to identify, assess, manage, and mitigate operational risks across the Company.

The groups enhance the Company’s operational risk and compliance framework by ensuring compliance with regulatory requirements, evidence risk performance relative to the Company’s risk appetite, and promote a culture of risk awareness;

• The retention of an independent firm (separate from the Company’s external auditors) that performs internal audit functions;

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

• A Risk Management Steering Committee which is chaired by our Chief Risk and Operations Officer.

Risk management with respect to our lending philosophy focuses, among other things, on structuring credi ts to provide for multiple sources of repayment, coupled with strong underwriting by experienced relationship managers, lending and credit management.

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In addition, we perform an annual stress test of our commercial loan portfolio, in which we evaluate the impact on the portfolio of declining property values and lower net operating incomes as a result of economic conditions, including lower rental rates and lower occupancy rates.

The stress test focuses only on the cash flow and valuation of the properties or businesses and ignores the liquidity, net worth and cash flow of any guarantors related to the credits.

The stress test focuses on the cash flow and valuation of the properties or businesses.

Additionally, the Company maintains a robust liquidity risk management framework, primarily through our Contingency Funding Plan (“CFP”).

The CFP is designed to ensure our ability to meet our financial obligations under both normal and stressed conditions.

A critical component of the CFP is liquidity stress testing, which involves simulating various adverse market and idiosyncratic scenarios.

These scenarios include, but are not limited to, significant deposit outflows, disruptions in wholesale funding markets, and severe economic downturns.

The results of these stress tests are used to assess the adequacy of our liquidity and to identify potential vulnerabilities.

Stress tests are conducted quarterly and reported to ALCO but may also be run on an ad-hoc basis when market conditions change.

Supervision and Regulation

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Dodd-Frank Act

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

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

The Consumer Financial Protection Bureau has broad rulemaking authority for a wide range of consumer protection laws that apply to all banks and savings associations including, among other things, the authority to prohibit “unfair, deceptive or abusive” acts and practices.

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

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

fair lending laws by their applicable primary federal bank regulators.

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

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

The Dodd-Frank Act also created the Consumer Financial Protection Bureau with extensive powers to implement and enforce consumer protection laws, having examination and enforcement authority over all banks and savings associations with more than $10 billion in assets.

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

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

The Dodd-Frank Act made many 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.

Economic Growth Act

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

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

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

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In July 2019, the FDIC, along with several other banking agencies, adopted final rules to implement the exemption contemplated by the Economic Growth Act.

The Economic Growth Act increased the consolidated assets threshold from $1 billion to $3 billion for insured depository institutions that qualify for an 18-month on-site exam cycle.

Consistent with this statutory amendment, in August 2018, the federal banking agencies increased, from $1 billion to $3 billion, the total asset threshold under which an agency may apply an 18-month examination cycle for qualified institutions that have an "outstanding" or "good" composite rating.

In addition, the FRB raised the asset threshold under its Small Bank Holding Company Policy Statement.

Bank and savings and loan holding companies with total assets up to $3 billion are permitted to have debt levels higher than would be permitted for larger holding companies, provided that such companies meet certain other conditions such as not engaging in significant nonbanking activities and not having a material amount of debt or equity securities outstanding that are registered with the Securities and Exchange Commission.

The Economic Growth Act has eased certain reporting and debt requirements for banks under $3 billion, as detailed in its Small Bank Holding Company Policy Statement.

As of June 30, 2023, the Company no longer met the definition of a Small Bank Holding Company as the Company's assets exceeded $3 billion.

Effective March 31, 2024, the Company will be subject to the larger company capital requirements as set forth in the Economic Growth Act.

Effective March 31, 2024, the Company became subject to the larger company capital requirements as set forth in the Economic Growth Act.

The Economic Growth Act required the federal banking agencies to promulgate regulations permitting insured depository institutions that have less than $5 billion in total consolidated assets (and satisfy other conditions) to use short-form reports of condition (i.e.

call reports) for the first and third quarters of each year.

On June 17, 2019, the federal banking agencies issued final rules to implement those streamlined reporting requirements.

Connecticut Banking Laws and Supervision

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The principal exceptions to these prohibitions involve certain non-bank activities which, by statute or by FRB regulation or order, have been identified as activities closely related to the business of banking or managing or controlling banks.

The list of activities permitted by the FRB includes, among other things:

(1) operating a savings institution, mortgage company, finance company, credit card company or factoring company;

(2) performing certain data processing operations;

(3) providing certain investment and financial advice;

(4) underwriting and acting as an insurance agent for certain types of credit-related insurance;

(5) leasing property on a full-payout, non-operating basis;

(6) selling money orders, travelers’ checks and United States savings bonds;

(7) real estate and personal property appraising;

(8) providing tax planning and preparation services;

(9) financing and investing in certain community development activities;

and (10) subject to certain limitations, providing securities brokerage services for clients.

The FRB has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the FRB’s view that a bank holding company should pay cash dividends only to the extent that the Bank Holding Company’s net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with the Bank Holding Company’s capital needs, asset quality and overall financial condition.

The FRB also indicated that it would be inappropriate for a bank holding company experiencing serious financial problems to borrow funds to pay dividends.

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

Substantially all of our income is derived from, and the principal source of our liquidity is, dividends from the Bank.

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The FDIC may further restrict the payment of dividends by requiring the Bank to maintain a higher level of capital than would otherwise be required for it to be adequately capitalized for regulatory purposes.

Moreover, if, in the opinion of the FDIC, the Bank is engaged in an unsafe or unsound practice (which could include the payment of dividends), the FDIC may require, generally after notice and hearing, it to cease such practice.

Moreover, if, in the opinion of the FDIC, the Bank is engaged in an unsafe or unsound practice (which could include the payment of dividends), the FDIC may require, generally

after notice and hearing, it to cease such practice.

The FDIC has indicated that paying dividends that deplete a depository institution’s capital base to an inadequate level would be an unsafe banking practice.

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This notification requirement does not apply to any bank holding company that (i) meets the well capitalized standard for commercial banks, (ii) is “well managed” within the meaning of the FRB regulations and (iii) is not subject to any unresolved supervisory issues.

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

Federal Bank Regulation

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The revised capital rules aligned the banking agencies’ leverage and risk-based capital requirements and the method for calculating risk weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act (the Basel III Capital Rules).

The Basel III Capital Rules established a new minimum common equity Tier 1 capital requirement of 4.5% of risk-weighted assets;

The Basel III Capital Rules established a minimum common equity Tier 1 capital requirement of 4.5% of risk-weighted assets;

set the minimum leverage ratio at 4% of total assets;

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The Basel III Capital Rules also alter the risk weighting for other assets, including marketable equity securities that are risk weighted generally at 300%.

Basel III Capital Rules require certain components of accumulated other comprehensive income (loss) to be included for purposes of calculating regulatory capital requirements unless a one-time opt-out is exercised.

The Basel III Capital Rules require certain components of accumulated other comprehensive income (loss) to be included for purposes of calculating regulatory capital requirements unless a one-time opt-out is exercised.

The Bank did exercise its opt-out option and excludes the unrealized gain (loss) on investment securities component of accumulated other comprehensive income (loss) from regulatory capital.

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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.

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

The final Basel III framework also requires banks and bank holding companies to measure their liquidity against specific liquidity tests.

Although similar in some respects to liquidity measures historically applied by banks and banking agencies for management and supervisory purposes, the Basel III framework requires specific liquidity tests by rule.

Transactions with Affiliates.

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The Connecticut version of CRA is generally similar to the federal version, but utilizes a five-tiered descriptive rating system.

Connecticut law requires the

Connecticut Department of Banking to consider, but not be limited to, a bank’s record of performance under the Connecticut CRA in considering any application by the Bank to establish a branch or other deposit-taking facility, to relocate an office or to merge or consolidate with or acquire the assets and assume the liabilities of any other banking institution.

Connecticut law requires the Connecticut Department of Banking to consider, but not be limited to, a bank’s record of performance under the Connecticut CRA in considering any application by the Bank to establish a branch or other deposit-taking facility, to relocate an office or to merge or consolidate with or acquire the assets and assume the liabilities of any other banking institution.

In our most recent evaluation, the Bank received a CRA rating of “satisfactory”.

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promotes transparency and public engagement;

confirms that CRA and fair lending responsibilities are mutually reinforcing;

and promotes a consistent regulatory approach that applies to banks regulated by all three agencies.

The final rule takes effect on April 1, 2024, with staggered compliance dates of January 1, 2026, and January 1, 2027.

confirms that CRA and fair lending respo nsibilities are mutually reinforcing;

and promotes a consistent regulatory approach that applies to banks regulated by all

three agencies.

The final rule took effect on April 1, 2024, with staggered compliance dates of January 1, 2026, and January 1, 2027.

Consumer Protection and Fair Lending Regulations.

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The incentive compensation guidance sets expectations for financial institutions concerning their incentive compensation arrangements and related risk management, control and governance processes.

All employees that have the ability to materially affect the risk profile of a financial

institution, either individually or as part of a group, are covered by the guidance.

All employees that have the ability to materially affect the risk profile of a financial institution, either individually or as part of a group, are covered by the guidance.

The guidance is based upon three core concepts:

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

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

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

Privacy Requirements.

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On January 1, 2021, Congress passed the Corporate Transparency Act (the “CTA”) as part of the National Defense Authorization Act, which enacted the most significant overhaul of the anti-money laundering laws since the USA PATRIOT Act.

The CTA aims to eliminate the use of shell companies that facilitate the laundering of criminal proceeds and, for that

purpose, directs FinCEN to establish and maintain a national registry of beneficial ownership information for corporate entities (generally, subject to certain exemptions, any corporation, limited liability company, or other similar entity with 20 or fewer employees and annual gross income of $5 million or less).

Reporting companies subject to the CTA are required to provide specific information with respect to beneficial owner(s) - defined as an individual who, directly or indirectly, exercises substantial control over the entity or owns or controls not less than 25% of the ownership interests of the entity - at the time of formation (or by December 31, 2024 for existing entities) and upon a change in ownership.

The CTA aims to eliminate the use of shell companies that facilitate the laundering of criminal proceeds and, for that purpose, directs FinCEN to establish and maintain a national registry of beneficial ownership information for certain corporate and other business entities.

The CTA required reporting companies subject the CTA to provide specific information with respect to 25% beneficial owner(s) at the time of formation (or by December 31, 2024 for entities existing on January 1, 2024) and upon a change in ownership.

Non-compliance with FinCEN regulations promulgated under the CTA may result in civil fines as well as criminal penalties.

On March 1, 2024, an Alabama federal court ruled, in a lawsuit brought by the National Small Business Association, that the CTA was unconstitutional because it exceeds the Constitution’s limits on Congress’ power and enjoined the government from enforcing the CTA against the named plaintiffs.

The Department of Justice is expected to appeal the decision.

Numerous lawsuits were filed in federal courts during 2024 seeking to block enforcement of the CTA, with some courts granting nationwide injunctions, all of which were eventually stayed or lifted.

On February 20, 2025, after the last outstanding injunction was lifted, FINCen extended the original CTA filing deadline for existing reporting companies to March 21, 2025.

However, on February 27, 2025, FINCen announced that it will not be enforcing the March 21st deadline and will instead issue a new “interim final rule” by March 21, 2025 that could change timelines and reporting requirements.

On March 2, 2025, the Treasury Department announced that it will not be enforcing the CTA against U.S.

citizens or domestic reporting companies and that it would be issuing a proposed rule that will narrow the scope of the CTA filing requirements to foreign reporting companies only.

On September 29, 2022, FinCEN finalized the first of three proposed rules to implement changes to the beneficial ownership requirements and related amendments set forth in the CTA (the “BOI Reporting Rule”).

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The Access Rule requires financial institutions that obtain BOI from FinCEN to develop and implement administrative, technical, and physical safeguards reasonably designed to protect the information, but provides that such institutions will be able to satisfy this requirement by apply to BOI the same security and information handling procedures the use to protect customer’s nonpublic personal information in compliance with the GBLA.

On December 21, 2023, federal and state bank regulators issued an Interagency Statement that states that the Access does not create a new regulatory requirement for banks to access BOI from the CTA registry, create a supervisory expectation that they do so or necessitate changes to BSA/AML compliance programs designed to comply with the existing Customer Due Diligence rule (the “current CDD Rule”) and other existing BSA requirements, such as customer identification program requirements and suspicious activity reporting.

FinCEN plans to issue a third rule, which has not yet been proposed, that is expected to revise the current CDD Rule to bring it into conformity with the CTA as well as reduce any burdens on financial institutions and legal entity customers that are, in light of the CTA, unnecessary or duplicative.

On December 21, 2023, federal and state bank regulators issued an Interagency Statement that states that the Access Rule does not create a new regulatory requirement for banks to access BOI from the CTA registry, create a supervisory expectation that they do so or necessitate changes to BSA/AML compliance programs designed to comply with the existing Customer Due Diligence rule (the “current CDD Rule”) and other existing BSA requirements, such as customer identification program requirements and suspicious activity reporting.

FinCEN stated that it plans to issue a third rule, which has not yet been proposed, that is expected to revise the current CDD Rule to bring it into conformity with the CTA as well as reduce any burdens on financial institutions and legal entity customers that are, in light of the CTA, unnecessary or duplicative.

On June 28, 2024, FinCEN announced a proposed rule to strengthen and modernize financial institutions’ anti-money laundering and countering the financing of terrorism (AML/CFT) programs.

While financial institutions have long maintained AML/CFT programs under existing regulations, this proposed rule would amend those regulations to explicitly require that such programs be effective, risk-based, and reasonably designed with certain minimum components, including a mandatory risk assessment process and also require financial institutions to review government-wide AML/CFT priorities and incorporate them, as appropriate, into their risk-based programs.

The proposed rule is intended to encourage financial institutions to modernize their AML/CFT programs where appropriate to responsibly innovate, while still managing illicit finance risks.

The Office of Foreign Assets Control, or OFAC, which is a division of the Treasury Department, is responsible for helping to ensure that U.S.

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Alternative Minimum Tax:

The Internal Revenue Code of 1986, as amended (the “Code”), imposes an alternative minimum tax (“AMT”) at a rate of 20.0% on a base of regular taxable income plus certain tax preferences which we refer to as “alternative minimum taxable income.” The AMT is payable to the extent such alternative minimum taxable income is in excess of an exemption amount and the AMT exceeds the regular income tax.

excess of an exemption amount and the AMT exceeds the regular income tax.

Net operating losses can offset no more than 90.0% of alternative minimum taxable income.

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Excise Tax on Stock Repurchases, The Inflation Reduction Act of 2022 (“IRA”) imposes a 1% excise tax on the aggregate fair market value of stock repurchased by certain corporations during the taxable year, subject to adjustments.

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

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

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

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Connecticut taxable income is multiplied by the state tax rate (7.5% f or the fiscal years ending December 31, 2024 and 2023) to arrive at Connecticut income tax.

We are also subject to state income tax in other states as a result of loan originations made in other states.

In addition to Connecticut state income tax, we are subject to income tax in other states due to business activities conducted therein, including the employment of personnel and the origination of loans.

In October 2015, the Company created Bankwell Loan Servicing Group, Inc., a Passive Investment Company (“PIC”) organized for state income tax purposes.

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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