Bankwell Financial Group, Inc. 10-Q

Item 1. Financial Statements Bankwell Financial Group, Inc. Consolidated Balance Sheets - (unaudited) (In thousands, except share data) March 31, 2025 December 31, 2024 ASSETS Cash and due from banks $ 292,006 $ 293,552 Federal funds sold 12,922 13,972 Cash and cash equivalents 304,928 307,524 Investment securities Marketable equity securities, at fair value 2,164 2,118 Available for sale investment securities, at fair value 97,321 107,428 Held to maturity investment securities, at amortized cost (fair values of $ 36,763 and $ 36,691 at March 31, 2025 and December 31, 2024, respectively) 36,478 36,553 Total investment securities 135,963 146,099 Loans receivable (net of ACL-Loans of $ 29,485 at March 31, 2025 and $ 29,007 at December 31, 2024, respectively) 2,611,495 2,672,959 Other real estate owned — 8,299 Accrued interest receivable 15,409 14,535 Federal Home Loan Bank stock, at cost 3,583 5,655 Premises and equipment, net 22,978 23,856 Bank-owned life insurance 53,136 52,791 Goodwill 2,589 2,589 Deferred income taxes, net 9,551 9,742 Other assets 24,261 24,427 Total assets $ 3,183,893 $ 3,268,476 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Deposits Noninterest bearing deposits $ 349,525 $ 321,875 Interest bearing deposits 2,400,920 2,465,695 Total deposits 2,750,445 2,787,570 Advances from the Federal Home Loan Bank 40,000 90,000 Subordinated debentures (face value of $ 70,000 and $ 70,000 at March 31, 2025 and December 31, 2024, respectively, less unamortized debt issuance costs of $ 487 and $ 549 at March 31, 2025 and December 31, 2024, respectively) 69,513 69,451 Accrued expenses and other liabilities 48,721 50,935 Total liabilities 2,908,679 2,997,956 Commitments and contingencies Shareholders' equity Common stock, no par value; 10,000,000 shares authorized, 7,888,013 and 7,859,873 shares issued and outstanding at March 31, 2025 and December 31, 2024, respectively 118,439 119,108 Retained earnings 157,971 152,656 Accumulated other comprehensive loss ( 1,196 ) ( 1,244 ) Total shareholders' equity 275,214 270,520 Total liabilities and shareholders' equity $ 3,183,893 $ 3,268,476 See accompanying notes to consolidated financial statements (unaudited) 4 Bankwell Financial Group, Inc. Consolidated Statements of Income – (unaudited) (In thousands, except share data) Three Months Ended March 31, 2025 2024 Interest and dividend income Interest and fees on loans $ 43,475 $ 43,325 Interest and dividends on securities 1,445 1,130 Interest on cash and cash equivalents 3,557 3,826 Total interest and dividend income 48,477 48,281 Interest expense Interest expense on deposits 24,772 25,362 Interest expense on borrowings 1,639 1,772 Total interest expense 26,411 27,134 Net interest income 22,066 21,147 Provision for credit losses 463 3,683 Net interest income after provision for credit losses 21,603 17,464 Noninterest income Bank-owned life insurance 344 329 Service charges and fees 602 304 Gains and fees from sales of loans 442 321 Other 117 ( 39 ) Total noninterest income 1,505 915 Noninterest expense Salaries and employee benefits 7,052 6,291 Occupancy and equipment 2,575 2,322 Professional services 1,529 1,065 Data processing 885 740 Director fees 348 900 FDIC insurance 779 930 Marketing 142 114 Other 831 935 Total noninterest expense 14,141 13,297 Income before income tax expense 8,967 5,082 Income tax expense 2,079 1,319 Net income $ 6,888 $ 3,763 Earnings Per Common Share: Basic $ 0.88 $ 0.48 Diluted $ 0.87 $ 0.48 Weighted Average Common Shares Outstanding: Basic 7,670,224 7,663,521 Diluted 7,740,521 7,687,679 Dividends per common share $ 0.20 $ 0.20 See accompanying notes to consolidated financial statements (unaudited) 5 Bankwell Financial Group, Inc. Consolidated Statements of Comprehensive Income (Loss) – (unaudited) (In thousands) Three Months Ended March 31, 2025 2024 Net income $ 6,888 $ 3,763 Other comprehensive income: Unrealized gains (losses) on securities: Unrealized holding gains (losses) on available for sale securities 1,197 ( 218 ) Reclassification adjustment for gains realized in net income — — Net change in unrealized gains (losses) 1,197 ( 218 ) Income tax (expense) benefit ( 283 ) 102 Unrealized gains (losses) on securities, net of tax 914 ( 116 ) Unrealized (losses) gains on interest rate swaps: Unrealized (losses) gains on interest rate swaps ( 1,134 ) 125 Income tax benefit (expense) 268 ( 64 ) Unrealized (losses) gains on interest rate swaps, net of tax ( 866 ) 61 Total other comprehensive income (loss), net of tax 48 ( 55 ) Comprehensive income $ 6,936 $ 3,708 See accompanying notes to consolidated financial statements (unaudited) 6 Bankwell Financial Group, Inc. Consolidated Statements of Shareholders' Equity - (unaudited) (In thousands, except share data) Number of Outstanding Shares Common Stock Retained Earnings Accumulated Other Comprehensive (Loss) Income Total Balance at December 31, 2024 7,859,873 $ 119,108 $ 152,656 $ ( 1,244 ) $ 270,520 Net income — — 6,888 — 6,888 Other comprehensive income, net of tax — — — 48 48 Cash dividends declared ($ 0.20 per share) — — ( 1,573 ) — ( 1,573 ) Stock-based compensation expense — 243 — — 243 Forfeitures of restricted stock ( 14,710 ) — — — — Issuance of restricted stock 72,774 — — — — Repurchase of common stock ( 29,924 ) ( 912 ) — — ( 912 ) Balance at March 31, 2025 7,888,013 $ 118,439 $ 157,971 $ ( 1,196 ) $ 275,214 Number of Outstanding Shares Common Stock Retained Earnings Accumulated Other Comprehensive (Loss) Income Total Balance at December 31, 2023 7,882,616 $ 118,247 $ 149,169 $ ( 1,664 ) $ 265,752 Net income — — 3,763 — 3,763 Other comprehensive (loss), net of tax — — — ( 55 ) ( 55 ) Cash dividends declared ($ 0.20 per share) — — ( 1,582 ) — ( 1,582 ) Stock-based compensation expense — 1,074 — — 1,074 Forfeitures of restricted stock ( 100 ) — — — — Issuance of restricted stock 61,844 — — — — Repurchase of common stock ( 36,180 ) ( 920 ) — — ( 920 ) Balance at March 31, 2024 7,908,180 $ 118,401 $ 151,350 $ ( 1,719 ) $ 268,032 See accompanying notes to consolidated financial statements (unaudited) 7 Bankwell Financial Group, Inc. Consolidated Statements of Cash Flows – (unaudited) (In thousands) Three Months Ended March 31, 2025 2024 Cash flows from operating activities Net income $ 6,888 $ 3,763 Adjustments to reconcile net income to net cash provided by operating activities: Net amortization of premiums and discounts on investment securities 30 ( 5 ) Provision for credit losses 463 3,683 Credit for deferred income taxes 176 282 Change in fair value of marketable equity securities ( 31 ) 16 Depreciation and amortization 974 940 Amortization of debt issuance costs 62 62 Increase in cash surrender value of bank-owned life insurance ( 344 ) ( 329 ) Gains and fees from sales of loans ( 442 ) ( 321 ) Stock-based compensation 243 1,074 Changes in other real estate owned, net 103 — Net change in: Deferred loan fees 1 ( 478 ) Accrued interest receivable ( 874 ) ( 242 ) Other assets ( 1,685 ) ( 356 ) Accrued expenses and other liabilities ( 1,639 ) 940 Net cash provided by operating activities 3,925 9,029 Cash flows from investing activities Proceeds from principal repayments on available for sale securities 1,259 1,105 Proceeds from principal repayments on held to maturity securities 61 80 Net proceeds from maturities of available for sale securities 10,000 — Net proceeds from sales of held to maturity securities 28 — Purchases of marketable equity securities ( 16 ) ( 15 ) Net decrease in loans 57,468 30,931 Proceeds from sales of loans not originated for sale 4,119 3,119 Purchases of premises and equipment, net ( 97 ) ( 83 ) Purchases of Federal Home Loan Bank stock 2,072 41 Proceeds from the sale of other real estate owned 8,195 — Net cash provided by investing activities 83,089 35,178 See accompanying notes to consolidated financial statements (unaudited) 8 Bankwell Financial Group, Inc. Consolidated Statements of Cash Flows - (unaudited) (Continued) (In thousands) Three Months Ended March 31, 2025 2024 Cash flows from financing activities Net change in time certificates of deposit $ ( 75,326 ) $ ( 23,622 ) Net change in other deposits 38,201 ( 39,613 ) Net change in FHLB advances ( 50,000 ) — Dividends paid on common stock ( 1,573 ) ( 1,582 ) Repurchase of common stock ( 912 ) ( 920 ) Net cash (used in) financing activities ( 89,610 ) ( 65,737 ) Net decrease in cash and cash equivalents ( 2,596 ) ( 21,530 ) Cash and cash equivalents: Beginning of year 307,524 269,157 End of period $ 304,928 $ 247,627 Supplemental disclosures of cash flows information: Cash paid for: Interest $ 26,411 $ 26,691 Income taxes 515 426 Noncash investing and financing activities: Net change in unrealized gains or losses on available for sale securities 1,197 ( 218 ) Net change in unrealized gains or losses on interest rate swaps ( 1,134 ) 125 Transfer of loans from held-for-investment to held-for-sale 3,677 2,797 See accompanying notes to consolidated financial statements (unaudited) 9 1. Nature of Operations and Summary of Significant Accounting Policies Bankwell Financial Group, Inc. (the "Parent Corporation") is a bank holding company headquartered in New Canaan, Connecticut. The Parent Corporation offers a broad range of financial services through its banking subsidiary, Bankwell Bank (the "Bank" and, collectively with the Parent Corporation and the Parent Corporation's subsidiaries, "we", "our", "us", or the "Company"). The Bank is a Connecticut state chartered commercial bank, founded in 2002, whose deposits are insured under the Deposit Insurance Fund administered by the Federal Deposit Insurance Corporation (“FDIC”). The Bank provides a wide range of services to clients in our market, an area encompassing approximately a 100 mile radius around our branch network. In addition, the Bank pursues certain types of commercial lending opportunities outside our market, particularly where we have strong business relationships. The Bank operates branches in New Canaan, Stamford, Fairfield, Westport, Darien, Norwalk, and Hamden, Connecticut. Principles of Consolidation The consolidated financial statements include the accounts of the Company and the Bank, including its wholly owned passive investment company subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”) and general practices within the banking industry. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities as of the date of the consolidated balance sheet and revenue and expenses for the period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near-term relate to the Allowance for Credit Losses-Loans ("ACL-Loans"), derivative instrument valuation, investment securities valuation, Allowance for Credit Losses-Securities, and deferred income taxes valuation. Segments The Company has one reportable segment. All of the Company’s activities are interrelated, and each activity is dependent and assessed based on how each of the activities of the Company supports the others. For example, lending is dependent upon the ability of the Company to fund itself with deposits and borrowings while managing the interest rate and credit risk. Accordingly, all significant operating decisions are based upon analysis of the Company as one segment or unit. The Chief Executive Officer (CEO), acting as the Chief Operating Decision Maker (CODM), determines the Company's one reportable segment. This determination is based on information about the Company's banking operations, its primary business, and the level of detail provided to the CODM for performance review. Similar operating performance, products and services, and customer bases allow for aggregation of business components into this one segment. The CODM evaluates financial performance by reviewing the consolidated financial results of the Company, analyzing factors such as revenue streams, significant expenses, and capital levels, as well as budget-to-actual results. Consolidated net income and related performance metrics are also used to benchmark the Company’s performance against competitors. The analysis of the Company’s results, including benchmarking, informs performance assessment and compensation decisions. The banking operations generate revenue through loans, investments, and deposits, while significant expenses include interest expense, the provision for credit losses, and salaries and employee benefits. All operations are domestic. Basis of Consolidated Financial Statement Presentation The unaudited consolidated financial statements presented herein have been prepared pursuant to the rules of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q and Rule 10-01 of Regulation S-X and do not include all of the information and note disclosures required by GAAP. In the opinion of management, all adjustments (consisting of normal recurring adjustments) and disclosures considered necessary for the fair presentation of the accompanying unaudited interim consolidated financial statements have been included. Interim results are not necessarily reflective of the results that may be expected for the year ending December 31, 2025. The accompanying unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included on Form 10-K for the year ended December 31, 2024. 10 Significant Concentrations of Credit Risk Many of the Company's activities are with clients located in Connecticut and New York, with the majority of the Company's commercial real estate investor loans in Connecticut and some New York metro area counties. Declines in property values in these areas could significantly impact the Company. The Company has a significant concentration in commercial real estate loans, with a growing percentage being owner-occupied, which present a lower risk profile. ACL-Loans and Allowance for Credit Losses-Unfunded Commitments ("ACL-Unfunded Commitments") The ACL-Loans is measured on each loan’s amortized cost basis, excluding interest receivable, and is initially recognized upon origination or purchase of the loan, and subsequently remeasured on a recurring basis. The ACL-Loans is recognized as a contra-asset, and credit loss expense is recorded as a provision for loan losses in the consolidated statements of income. Loan losses are charged off against the ACL-Loans when management believes the loan is uncollectible. Subsequent recoveries, if any, are credited to the ACL-Loans. Loans are normally placed on nonaccrual status if it is probable that the Company will be unable to collect the full payment of principal and interest when due according to the contractual terms of the loan agreement, or the loan is past due for a period of 90 days or more unless the obligation is well-secured and is in the process of collection. The Company generally does not recognize an allowance for credit losses ("ACL") on accrued interest receivables, consistent with its policy to reverse interest income when interest is 90 days or more past due. The Company also records an ACL-Unfunded commitments, which is based on the same assumptions as funded loans and also considers the probability of funding. The ACL is recognized as a liability, and credit loss expense is recorded as a provision for unfunded loan commitments within the provision for credit losses in the Consolidated statements of income. For collectively evaluated loans and related unfunded commitments, the Company utilizes software provided by a third party, which includes various models for forecasting expected credit losses, to calculate its ACL. Management selected lifetime loss rate models, utilizing CRE, C&I, and Consumer specific models, to calculate the expected losses over the life of each loan based on exposure at default, loan attributes and reasonable, supportable economic forecasts. The models selected by the Company in its ACL calculation rely upon historical losses from a broad cross section of U.S. banks that also utilize the same third party for ACL calculations. Management reviewed the third party’s analysis of the banks included in the models as part of their model development dataset and determined the Company’s loan portfolio composition by property type, balance distribution by loan age, and delinquency status are similar, which supports the use of these loss rate models. The Company also noted the third party’s model development dataset has loan concentrations that are evenly distributed across the United States, while the Company’s portfolio is mainly concentrated in the Northeast. Based on the disparate regional concentration, management determined that a select group of peer banks is necessary to scale the loss rate models to produce an ACL that is more representative of the Company’s loan portfolio. This peer-based calibration, called a "peer scalar", utilizes the loss rates of a subset of peer banks to appropriately scale the initial model results. These peers have been selected by the Company given their similar characteristics, such as loan portfolio composition and location, to better align the models’ results to the Company’s expected losses. Key assumptions used in the models include portfolio segmentation, risk rating, forecasted economic scenarios, the peer scalar, and the expected utilization of unfunded commitments, among others. Our loan portfolios are segmented by loan level attributes such as loan type, size, date of origination, and delinquency status to create homogenous loan pools. Pool level metrics are calculated, and loss rates are subsequently applied to the pools as the loans have similar characteristics. To account for economic uncertainty, the Company incorporates multiple economic scenarios in determining the ACL. The scenarios include various projections based on variables such as Gross Domestic Product, interest rates, property price indices, and employment measures, among others. The scenarios are probability-weighted based on available information at the time the calculation is conducted. As part of our ongoing governance of ACL, scenario weightings and model parameters are reviewed periodically by management and are subject to change, as deemed appropriate. The Company also considers qualitative adjustments to expected credit loss estimates for information not already captured in the quantitative loss estimation models. Qualitative factor adjustments may increase or decrease management’s estimate of expected credit losses. Qualitative loss factors are based on the Company’s judgment of market, changes in loan composition or concentrations, performance trends, regulatory changes, uncertainty of macroeconomic forecasts, and other asset specific risk characteristics. When loans do not share risk characteristics with other financial assets they are evaluated individually. Management applies its normal loan review procedures in making these judgments. Individually evaluated loans consist of loans with credit quality indicators which are substandard or doubtful. The Company also individually evaluates all insurance premium loans. While insurance premium loans are considered consumer loans, the third-party Consumer ACL model is designed for unsecured lending, whereas these loans are secured. To account for the fully secured structure of this type of loan, management determined each loan will be individually evaluated, regardless of the credit quality indicators. These loans are evaluated based 11 upon their collateral, which primarily consists of cash, cash surrender value life insurance, and in some cases real estate. In determining the ACL-Loans for individually evaluated loans, the Company generally applies a discounted cash flow method for instruments that are individually assessed. For collateral dependent financial assets where the Company has determined that foreclosure of the collateral is probable and where the borrower is experiencing financial difficulty, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date. Fair value is generally calculated based on the value of the underlying collateral less an appraisal discount and the estimated cost to sell. ACL-Securities The Company individually evaluates the available for sale debt securities and held to maturity securities for impairment credit losses. Available for sale securities include U.S. Treasuries, mortgage-backed securities, and corporate bonds. U.S. Treasuries and mortgaged-backed securities are guaranteed by the U.S. Government and as a result, management has a zero loss expectation. No ACL-Securities was recorded for these securities as of March 31, 2025. For the corporate bond portfolio, the Company developed a metric that includes each issuer’s current credit ratings and key financial performance metrics to assess the underlying performance of each issuer. The analysis of the issuers’ performance and the intent of the Company to retain these securities support the determination that there is no expected credit loss, and therefore, no ACL-Securities were recognized on the corporate bond portfolio as of March 31, 2025. Of our held to maturity securities portfolio, five security’s fair value was less than its amortized cost as of March 31, 2025. Since this is a highly rated state agency and municipal obligation, the Company's expectation of nonpayment of the amortized cost basis is zero. No allowance for ALC-Securities was recorded for this security as of March 31, 2025. Common Share Repurchases The Company is incorporated in the state of Connecticut. Connecticut law does not provide for treasury shares, rather shares repurchased by the Company constitute authorized, but unissued shares. GAAP states that accounting for treasury stock shall conform to state law. Therefore, the cost of shares repurchased by the Company has been allocated to common stock balances. Reclassification Certain prior period amounts may be reclassified to conform to the 2025 financial statement presentation. These reclassifications only change the reporting categories and do not affect the consolidated results of operations or consolidated financial position of the Company. Recent Accounting Pronouncements The following section includes changes in accounting principles and potential effects of new accounting guidance and pronouncements. Recently issued accounting pronouncements not yet adopted ASU No. 2024-03— Income Statement: "Reporting Comprehensive Income - Expense Disaggregation Disclosures" : The amendments in this update is to improve the disclosures about a public business entity’s expenses and address requests from investors for more detailed information about the types of expenses (including employee compensation, depreciation, amortization, and depletion) in commonly presented expense captions. The amendments in this update are effective for annual periods beginning after December 15, 2026. ASU No. 2025-01—Income Statement: "Reporting Comprehensive Income - Expense Disaggregation Disclosures": Following the issuance of Update 2024-03, this amendment clarifies the initial effective date for entities that do not have an annual reporting period that ends on December 31 (referred to as non-calendar year-end entities). The amendment is effective for public business entities for annual reporting periods beginning after December 15, 2026. The Company believes this ASU will not have a material impact on existing disclosures and will continue to monitor for SEC action, and plan accordingly for adoption. ASU No. 2023-09— Income Taxes (Topic 740): "Improvements to Income Tax Disclosures": The amendments in this update provide more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. For public business entities, the amendments in this update are effective for annual periods beginning after December 15, 2024. The Company believes this ASU will not have a material impact on existing disclosures and will continue to monitor for SEC action, and plan accordingly for adoption. 12 Recently issued accounting pronouncements that have been adopted ASU No. 2023-07— Segment Reporting: "Improvements to Reportable Segment Disclosures": The amendment requires a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and included within each reported measure of segment profit or loss. For public business entities, the amendments in this update are effective for annual periods beginning after December 15, 2023. The Company has adopted this ASU in December 2024 and it did not have a material impact on existing disclosures . ASU No. 2023-06—Disclosure Improvements: “Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative”: The amendments in this update modify the disclosure or presentation requirements of a variety of Topics in the Codification. Certain of the amendments represent clarifications to or technical corrections of the current requirements. Because of the variety of Topics amended, a broad range of entities may be affected by one or more of those amendments. The summary of the amendments applicable to the Company include: Statement of Cash Flows - Requires an accounting policy disclosure in annual periods of where cash flows associated with derivative instruments and their related gains and losses are presented in the statement of cash flows. Accounting Changes and Error Corrections - Requires that when there has been a change in the reporting entity, the entity disclose any material prior-period adjustment and the effect of the adjustment on retained earnings in interim financial statements. Earnings Per Share - Requires disclosure of the methods used in the diluted earnings-per-share computation for each dilutive security and clarifies that certain disclosures should be made during interim periods. Amends illustrative guidance to illustrate disclosure of the methods used in the diluted earnings-per-share computation. Interim Reporting - Conforms to the amendments made to Topic 250 (Accounting Changes and Error Correction). Commitments - Requires disclosure of assets mortgaged, pledged, or otherwise subject to lien and the obligations collateralized. Debt - Requires disclosure of amounts and terms of unused lines of credit and unfunded commitments and the weighted-average interest rate on outstanding short-term borrowings. Entities that are not public business entities are not required to provide information about the weighted-average interest rate. Equity - Requires entities that issue preferred stock to disclose preference in involuntary liquidation if the liquidation preference is other than par or stated value. Derivatives - Adds cross-reference to disclosure requirements related to where cash flows associated with derivative instruments and their related gains and losses are presented in the statement of cash flows in Topic 230. Transfers and Servicing—Secured Borrowing and Collateral - Requires: a. That accrued interest be included in the disclosure of liabilities incurred in securities borrowing or repurchase or resale transactions. b. Separate presentation of the aggregate carrying amount of reverse repurchase agreements on the face of the balance sheet if that amount exceeds 10 percent of total assets. c. Disclosure of the weighted-average interest rates of repurchase liabilities for public business entities. d. Disclosure of amounts at risk with an individual counterparty if that amount exceeds more than 10 percent of shareholder’s equity. e. Disclosure for reverse repurchase agreements that exceed 10 percent of total assets on whether there are any provisions in a reverse repurchase agreement to ensure that the market value of the underlying assets remains sufficient. to protect against counterparty default and, if so, the nature of those provisions. Financial Services - Requires that investment companies disclose the components of capital on the balance sheet. For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. For all other entities, the amendments will be effective two years later. The amendments in this update are to be applied prospectively. For all entities, if 13 by June 30, 2027, the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the related amendment will be removed from the Codification and will not become effective for any entity. The Company believes this ASU will not have a material impact on existing disclosures and will continue to monitor for SEC action, and plan accordingly for adoption. 2. Investment Securities The amortized cost, gross unrealized gains and losses and fair value of available for sale and held to maturity securities at March 31, 2025 were as follows: March 31, 2025 Amortized Cost Gross Unrealized Fair Value Gains Losses (In thousands) Available for sale securities: U.S. Government and agency obligations Less than one year $ 14,934 $ 46 $ ( 20 ) $ 14,960 Due from one through five years 47,449 23 ( 1,634 ) 45,838 Due from five through ten years 15,138 — ( 666 ) 14,472 Due after ten years 6,617 — ( 648 ) 5,969 Total U.S. Government and agency obligations 84,138 69 ( 2,968 ) 81,239 Corporate bonds Due from five through ten years 15,500 — ( 731 ) 14,769 Due after ten years 1,500 — ( 187 ) 1,313 Total corporate bonds 17,000 — ( 918 ) 16,082 Total available for sale securities $ 101,138 $ 69 $ ( 3,886 ) $ 97,321 Held to maturity securities: State agency and municipal obligations Less than one year $ 6,831 $ 39 $ — $ 6,870 Due from five through ten years 2,797 — ( 6 ) 2,791 Due after ten years 26,850 1,258 ( 1,006 ) 27,102 Total State agency and municipal obligations 36,478 1,297 ( 1,012 ) 36,763 Government-sponsored mortgage backed securities No contractual maturity — — — — Total held to maturity securities $ 36,478 $ 1,297 $ ( 1,012 ) $ 36,763 14 The amortized cost, gross unrealized gains and losses and fair value of available for sale and held to maturity securities at December 31, 2024 were as follows: December 31, 2024 Amortized Cost Gross Unrealized Fair Value Gains Losses (In thousands) Available for sale securities: U.S. Government and agency obligations Less than one year $ 24,920 $ 66 $ ( 92 ) $ 24,894 Due from one through five years 47,541 — ( 2,117 ) 45,424 Due from five through ten years 16,038 — ( 906 ) 15,132 Due after ten years 6,944 — ( 812 ) 6,132 Total U.S. Government and agency obligations 95,443 66 ( 3,927 ) 91,582 Corporate bonds Due from five through ten years 15,500 — ( 929 ) 14,571 Due after ten years 1,500 — ( 225 ) 1,275 Total corporate bonds 17,000 — ( 1,154 ) 15,846 Total available for sale securities $ 112,443 $ 66 $ ( 5,081 ) $ 107,428 Held to maturity securities: State agency and municipal obligations Less than one year $ 6,820 $ 37 $ — $ 6,857 Due from one through five years 2,808 — ( 77 ) 2,731 Due after ten years 26,897 1,190 ( 1,013 ) 27,074 Total State agency and municipal obligations 36,525 1,227 ( 1,090 ) 36,662 Government-sponsored mortgage backed securities No contractual maturity 28 1 — 29 Total held to maturity securities $ 36,553 $ 1,228 $ ( 1,090 ) $ 36,691 There was one sale of investment securities during the three months ended March 31, 2025. There were no sales of investment securities during the three months March 31, 2024. At March 31, 2025 and December 31, 2024, none of the Company's securities were pledged as collateral with the Federal Home Loan Bank ("FHLB") or any other institution. As of March 31, 2025 and December 31, 2024, the actual durations of the Company's available for sale securities were significantly shorter than the stated maturities. As of March 31, 2025, the Company held marketab le equity securities with a fair value of $ 2.2 million and an amortized cost of $ 2.3 million. At December 31, 2024, the Company held marketable equity securities with a fair value of $ 2.1 million and an amortized cost of $ 2.3 million. These securities represent an investment in mutual funds that have an objective to make investments for Community Reinvestment Act ("CRA") purposes. 15 The following tables provide information regarding available for sale securities and held to maturity securities with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2025 and December 31, 2024: Length of Time in Continuous Unrealized Loss Position Less Than 12 Months 12 Months or More Total Fair Value Unrealized Loss Percent Decline from Amortized Cost Fair Value Unrealized Loss Percent Decline from Amortized Cost Fair Value Unrealized Loss Percent Decline from Amortized Cost (Dollars in thousands) March 31, 2025 U.S. Government and agency obligations $ — $ — — % $ 61,214 $ ( 2,968 ) 4.62 % $ 61,214 $ ( 2,968 ) 4.62 % Corporate bonds — — — 16,082 ( 918 ) 5.40 16,082 ( 918 ) 5.40 State agency and municipal obligations 5,882 ( 223 ) 3.66 3,830 ( 789 ) 17.08 9,712 ( 1,012 ) 9.44 Total investment securities $ 5,882 $ ( 223 ) 3.66 % $ 81,126 $ ( 4,675 ) 5.45 % $ 87,008 $ ( 4,898 ) 5.33 % Length of Time in Continuous Unrealized Loss Position Less Than 12 Months 12 Months or More Total Fair Value Unrealized Loss Percent Decline from Amortized Cost Fair Value Unrealized Loss Percent Decline from Amortized Cost Fair Value Unrealized Loss Percent Decline from Amortized Cost (Dollars in thousands) December 31, 2024 U.S. Government and agency obligations $ — $ — — % $ 81,579 $ ( 3,927 ) 4.59 % $ 81,579 $ ( 3,927 ) 4.59 % Corporate bonds — — — 15,846 ( 1,154 ) 6.79 15,846 ( 1,154 ) 6.79 State agency and municipal obligations 7,361 ( 254 ) 3.33 3,802 ( 836 ) 18.03 11,163 ( 1,090 ) 8.89 Total investment securities $ 7,361 $ ( 254 ) 3.33 % $ 101,227 $ ( 5,917 ) 5.52 % $ 108,588 $ ( 6,171 ) 5.38 % There were thirty-four and thirty-seven available for sale securities or held to maturity securities as of March 31, 2025 and December 31, 2024, respectively, in which the fair value of the security was less than the amortized cost of the security. The U.S. Government and agency obligations owned are either direct obligations of the U.S. Government or guaranteed by the U.S. Government. Therefore, the contractual cash flows are guaranteed and as a result the unrealized losses in this portfolio are considered to be only temporarily impaired. The corporate bonds are investments in subordinated debt of federally insured banks, the majority of which are callable after five years o f origination. The Company monitors its corporate bond, state agency and municipal bond portfolios and considers them to have minimal default risk. The Company has the intent and ability to retain its investment securities in an unrealized loss position at March 31, 2025 until the decline in value has recovered or the security has matured. 16 3. Loans Receivable and ACL-Loans The following table sets forth a summary of the loan portfolio at March 31, 2025 and December 31, 2024: (In thousands) March 31, 2025 December 31, 2024 Real estate loans: Residential $ 40,089 $ 42,766 Commercial 1,810,923 1,899,134 Construction 188,339 173,555 2,039,351 2,115,455 Commercial business 529,000 515,125 Consumer 76,552 75,308 Total loans 2,644,903 2,705,888 ACL-Loans ( 29,485 ) ( 29,007 ) Deferred loan origination fees, net ( 3,923 ) ( 3,922 ) Loans receivable, net $ 2,611,495 $ 2,672,959 Lending activities primarily consist of commercial real estate loans, commercial business loans and, to a lesser degree, consumer loans. Loans may also be granted for the construction of income producing properties. The majority of commercial mortgage loans are collateralized by first or second mortgages on real estate. Risk management The Company has established credit policies applicable to each type of lending activity in which it engages. The Company evaluates the creditworthiness of each client and extends credit of up to 80 % of the market value of the collateral, ( 85 % maximum for owner occupied commercial real estate), depending on the client's creditworthiness and the type of collateral. The client’s ability to service the debt is monitored on an ongoing basis. Real estate is the primary form of collateral. Other important forms of collateral are business assets, time deposits and marketable securities. While collateral provides assurance as a secondary source of repayment, the Company ordinarily requires the primary source of repayment for commercial loans to be based on the client’s ability to generate continuing cash flows. The Company does not provide first or second lien consumer mortgage loans secured by residential properties but has a small legacy portfolio which continues to amortize, pay off due to the sale of the collateral, or refinance away from the Company. Credit quality of loans and the ACL-Loans Management segregates the loan portfolio into defined segments, which are used to develop and document a systematic method for determining the Company's ACL-Loans. The portfolio segments are segregated based on loan types and the underlying risk factors present in each loan type. Such risk factors are periodically reviewed by management and revised as deemed appropriate. 17 The Company's loan portfolio is segregated into the following portfolio segments: Residential Real Estate: This portfolio segment consists of first mortgage loans secured by one-to-four family owner occupied residential properties for personal use located in the Company's market area. This segment also includes home equity loans and home equity lines of credit secured by owner occupied one-to-four family residential properties. Loans of this type were written at a combined maximum of 80 % of the appraised value of the property and the Company requires a first or second lien position on the property. These loans can be affected by economic conditions and the values of the underlying properties. Commercial Real Estate: This portfolio segment includes loans secured by commercial real estate, multi-family dwellings, owner-occupied commercial real estate and investor-owned one-to-four family dwellings. Loans secured by commercial real estate generally have larger loan balances and more credit risk than owner occupied one-to-four family mortgage loans. Construction: This portfolio segment includes commercial construction loans for commercial development projects, including apartment buildings and condominiums, as well as office buildings, retail and other income producing properties and land loans, which are loans made with land as collateral. Construction and land development financing generally involves greater credit risk than long-term financing on improved, owner-occupied or leased real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the value of the property at completion of construction compared to the estimated cost (including interest) of construction and other assumptions. If the estimate of construction cost proves to be inaccurate, the Company may be required to advance additional funds beyond the amount originally committed in order to protect the value of the property. Moreover, if the estimated value of the completed project proves to be inaccurate, the client may hold a property with a value that is insufficient to assure full repayment through sale or refinance. Construction loans also expose the Company to the risks that improvements will not be completed on time in accordance with specifications and projected costs and that repayment will depend on the successful operation or sale of the properties, which may cause some clients to be unable to continue paying debt service, which exposes the Company to greater risk of non-payment and loss. Commercial Business: This portfolio segment includes commercial business loans secured by assignments of corporate assets and personal guarantees of the business owners. Commercial business loans generally have higher interest rates and shorter terms than other loans, and their repayment generally depends on the successful operation of the client’s business. Consumer: This portfolio segment includes loans to finance insurance premiums secured by the cash surrender value of life insurance and marketable securities, overdraft lines of credit, and personal loans to high net worth individuals. 18 ACL-Loans The following tables set forth the activity in the Company’s ACL-Loans for the three months ended March 31, 2025 and 2024, by portfolio segment: Residential Real Estate Commercial Real Estate Construction Commercial Business Consumer Total (In thousands) Three Months Ended March 31, 2025 Beginning balance $ 94 $ 21,838 $ 2,059 $ 4,070 $ 946 $ 29,007 Charge-offs — ( 67 ) — — ( 33 ) ( 100 ) Recoveries — — — 4 36 40 Provision (credit) for credit losses ( 7 ) ( 1,209 ) 157 1,170 427 538 Ending balance $ 87 $ 20,562 $ 2,216 $ 5,244 $ 1,376 $ 29,485 Residential Real Estate Commercial Real Estate Construction Commercial Business Consumer Total (In thousands) Three Months Ended March 31, 2024 Beginning Balance $ 149 $ 20,950 $ 1,699 $ 4,562 $ 586 $ 27,946 Charge-offs ( 132 ) ( 3,306 ) — ( 197 ) ( 49 ) ( 3,684 ) Recoveries — — — 27 4 31 Provision (credit) for credit losses 116 4,022 ( 156 ) ( 314 ) 30 3,698 Ending balance $ 133 $ 21,666 $ 1,543 $ 4,078 $ 571 $ 27,991 We evaluate whether a modification, extension or renewal of a loan is a current period origination in accordance with GAAP. Generally, loans up for renewal are subject to a full credit evaluation before the renewal is granted and such loans are considered current period originations for purpose of the tables below. The following tables present loans by origination and risk designation as of March 31, 2025 and December 31, 2024 (dollars in thousands): 19 Term Loans Amortized Cost Balances by Origination Year as of March 31, 2025 2025 2024 2023 2022 2021 Prior Total Residential Real Estate Loans Pass $ — $ — $ — $ — $ — $ 36,910 $ 36,910 Special Mention — — — — — 302 302 Substandard — — — — — 3,072 3,072 Doubtful — — — — — — — Total Residential Real Estate Loans $ — $ — $ — $ — $ — $ 40,284 $ 40,284 Residential Real Estate charge-off Current period charge-offs $ — $ — $ — $ — $ — $ — $ — Commercial Real Estate Loans Pass $ 32,293 $ 130,025 $ 116,020 $ 585,298 $ 230,700 $ 569,711 $ 1,664,047 Special Mention — 21,845 — 100,171 10,582 2,184 134,782 Substandard — — — 588 8,852 7,099 16,539 Doubtful — — — — — 1,392 1,392 Total Commercial Real Estate Loans $ 32,293 $ 151,870 $ 116,020 $ 686,057 $ 250,134 $ 580,386 $ 1,816,760 Commercial Real Estate charge-off Current period charge-offs $ — $ — $ — $ — $ 67 $ — $ 67 Construction Loans Pass $ 21,825 $ 17,356 $ 48,592 $ 34,976 $ 47,150 $ — $ 169,899 Special Mention — — — 19,353 — — 19,353 Substandard — — — — — — — Doubtful — — — — — — — Total Construction Loans $ 21,825 $ 17,356 $ 48,592 $ 54,329 $ 47,150 $ — $ 189,252 Construction charge-off Current period charge-offs $ — $ — $ — $ — $ — $ — $ — Commercial Business Loans Pass $ 64,632 $ 109,768 $ 94,680 $ 172,267 $ 43,837 $ 27,038 $ 512,222 Special Mention — 896 — 7,751 2,105 230 10,982 Substandard — 126 325 224 6,975 — 7,650 Doubtful — — — — — 42 42 Total Commercial Business Loans $ 64,632 $ 110,790 $ 95,005 $ 180,242 $ 52,917 $ 27,310 $ 530,896 Commercial Business charge-off Current period charge-offs $ — $ — $ — $ — $ — $ — $ — Consumer Loans Pass $ 9,667 $ 21,077 $ 9,060 $ 35,944 $ — $ 37 $ 75,785 Special Mention — — — — — — — Substandard — — — — — — — Doubtful — — — — — — — Total Consumer Loans $ 9,667 $ 21,077 $ 9,060 $ 35,944 $ — $ 37 $ 75,785 Consumer charge-off Current period charge-offs $ 33 $ — $ — $ — $ — $ — $ 33 Total Loans Pass $ 128,417 $ 278,226 $ 268,352 $ 828,485 $ 321,687 $ 633,696 $ 2,458,863 Special Mention — 22,741 — 127,275 12,687 2,716 165,419 Substandard — 126 325 812 15,827 10,171 27,261 Doubtful — — — — — 1,434 1,434 Total Loans $ 128,417 $ 301,093 $ 268,677 $ 956,572 $ 350,201 $ 648,017 $ 2,652,977 Total charge-off Current period charge-offs $ 33 $ — $ — $ — $ 67 $ — $ 100 20 Term Loans Amortized Cost Balances by Origination Year as of December 31, 2024 2024 2023 2022 2021 2020 Prior Total Residential Real Estate Loans Pass $ — $ — $ — $ — $ — $ 39,560 $ 39,560 Special Mention — — — — — 366 366 Substandard — — — — — 3,069 3,069 Doubtful — — — — — — — Total Residential Real Estate Loans $ — $ — $ — $ — $ — $ 42,995 $ 42,995 Residential Real Estate charge-off Current period charge-offs $ — $ — $ — $ — $ — $ 141 $ 141 Commercial Real Estate Loans Pass $ 162,303 $ 101,201 $ 680,359 $ 241,000 $ 95,277 $ 486,897 $ 1,767,037 Special Mention — 18,357 43,286 29,792 — 1,982 93,417 Substandard — — 27,081 9,194 5,488 1,610 43,373 Doubtful — — — — — 1,400 1,400 Total Commercial Real Estate Loans $ 162,303 $ 119,558 $ 750,726 $ 279,986 $ 100,765 $ 491,889 $ 1,905,227 Commercial Real Estate charge-off Current period charge-offs $ — $ — $ — $ 522 $ 8,184 $ 4,405 $ 13,111 Construction Loans Pass $ 10,086 $ 47,301 $ 63,476 $ 53,529 $ — $ — $ 174,392 Special Mention — — — — — — — Substandard — — — — — — — Doubtful — — — — — — — Total Construction Loans $ 10,086 $ 47,301 $ 63,476 $ 53,529 $ — $ — $ 174,392 Construction charge-off Current period charge-offs $ — $ — $ — $ — $ — $ 1,771 $ 1,771 Commercial Business Loans Pass $ 143,267 $ 98,718 $ 179,999 $ 49,351 $ 5,708 $ 26,413 $ 503,456 Special Mention — 665 3,454 1,949 — 20 6,088 Substandard 133 344 224 6,983 — — 7,684 Doubtful — — — — — 53 53 Total Commercial Business Loans $ 143,400 $ 99,727 $ 183,677 $ 58,283 $ 5,708 $ 26,486 $ 517,281 Commercial Business charge-off Current period charge-offs $ — $ — $ 7,664 $ 245 $ — $ — $ 7,909 Consumer Loans Pass $ 32,295 $ 9,051 $ 33,369 $ — $ — $ 49 $ 74,764 Special Mention — — — — — — — Substandard — — — — — — — Doubtful — — — — — — — Total Consumer Loans $ 32,295 $ 9,051 $ 33,369 $ — $ — $ 49 $ 74,764 Consumer charge-off Current period charge-offs $ 28 $ — $ — $ 56 $ — $ — $ 84 Total Loans Pass $ 347,951 $ 256,271 $ 957,203 $ 343,880 $ 100,985 $ 552,919 $ 2,559,209 Special Mention — 19,022 46,740 31,741 — 2,368 99,871 Substandard 133 344 27,305 16,177 5,488 4,679 54,126 Doubtful — — — — — 1,453 1,453 Total Loans $ 348,084 $ 275,637 $ 1,031,248 $ 391,798 $ 106,473 $ 561,419 $ 2,714,659 Total charge-off Current period charge-offs $ 28 $ — $ 7,664 $ 823 $ 8,184 $ 6,317 $ 23,016 21 Loans evaluated for impairment and the related ACL-Loans as of March 31, 2025 and December 31, 2024 were as follows: Portfolio ACL-Loans (In thousands) March 31, 2025 Loans individually evaluated for impairment: Residential real estate $ 3,056 $ — Commercial real estate 17,945 — Construction — — Commercial business 7,626 — Consumer 45,961 — Subtotal 74,588 — Loans collectively evaluated for impairment: Residential real estate 37,033 87 Commercial real estate 1,792,978 20,562 Construction 188,339 2,216 Commercial business 521,374 5,244 Consumer 30,591 1,376 Subtotal 2,570,315 29,485 Total $ 2,644,903 $ 29,485 Portfolio ACL-Loans (In thousands) December 31, 2024 Loans individually evaluated for impairment: Residential real estate $ 3,052 $ — Commercial real estate 44,814 — Construction — — Commercial business 7,672 — Consumer 58,363 — Subtotal 113,901 — Loans collectively evaluated for impairment: Residential real estate 39,714 94 Commercial real estate 1,854,320 21,838 Construction 173,555 2,059 Commercial business 507,453 4,070 Consumer 16,945 946 Subtotal 2,591,987 29,007 Total $ 2,705,888 $ 29,007 Credit quality indicators To measure credit risk for the loan portfolios, the Company employs a credit risk rating system. This risk rating represents an assessed level of a loan’s risk based on the character and creditworthiness of the borrower/guarantor, the capacity of the borrower to adequately service the debt, any credit enhancements or additional sources of repayment, and the quality, value and coverage of the collateral, if any. 22 The objectives of the Company’s risk rating system are to provide the Board of Directors and senior management with an objective assessment of the overall quality of the loan portfolio, to promptly and accurately identify loans with well-defined credit weaknesses so that timely action can be taken to minimize a potential credit loss, to identify relevant trends affecting the collectability of the loan portfolio, to isolate potential problem areas and to provide essential information for determining the adequacy of the ACL-Loans. The Company’s credit risk rating system has nine grades, with each grade corresponding to a progressively greater risk of default or non-payment. Risk ratings of (1) through (5) are "pass" categories and risk ratings of (6) through (9) are criticized asset categories as defined by the regulatory agencies. A “special mention” (6) loan has a potential weakness which, if uncorrected, may result in a deterioration of the repayment prospects or inadequately protect the Company’s credit position at some time in the future. “Substandard” (7) loans have a well-defined weakness or weaknesses that jeopardize the full repayment of the debt. A loan rated “doubtful” (8) has all the weaknesses inherent in a substandard loan and which, in addition, make collection or liquidation in full highly questionable and improbable when considering existing facts, conditions, and values. Loans classified as “loss” (9) are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value; rather, it is not practical or desirable to defer charging off this asset even though partial recovery may be made in the future. Risk ratings are assigned as necessary to differentiate risk within the portfolio. They are reviewed on an ongoing basis through the annual loan review process performed by Company personnel, normal renewal activity, monthly delinquency monitoring, and the quarterly watchlist and watched asset report process. They are revised to reflect changes in the borrower's financial condition and outlook, debt service coverage capability, repayment performance, collateral value and coverage, as well as other considerations. In addition to internal review at multiple points, outsourced loan review opines on risk ratings with regard to the sample of loans their review covers. The following tables present credit risk ratings by loan segment as of March 31, 2025 and December 31, 2024: Commercial Credit Quality Indicators March 31, 2025 December 31, 2024 Commercial Real Estate Construction Commercial Business Total Commercial Real Estate Construction Commercial Business Total (In thousands) Pass $ 1,659,164 $ 169,105 $ 511,560 $ 2,339,829 $ 1,767,482 $ 173,555 $ 501,432 $ 2,442,469 Special Mention 133,813 19,234 9,814 162,861 86,838 — 6,020 92,858 Substandard 16,552 — 7,584 24,136 43,413 — 7,619 51,032 Doubtful 1,394 — 42 1,436 1,401 — 54 1,455 Loss — — — — — — — — Total loans $ 1,810,923 $ 188,339 $ 529,000 $ 2,528,262 $ 1,899,134 $ 173,555 $ 515,125 $ 2,587,814 Residential and Consumer Credit Quality Indicators March 31, 2025 December 31, 2024 Residential Real Estate Consumer Total Residential Real Estate Consumer Total (In thousands) Pass $ 36,736 $ 76,552 $ 113,288 $ 39,359 $ 75,308 $ 114,667 Special Mention 297 — 297 356 — 356 Substandard 3,056 — 3,056 3,051 — 3,051 Doubtful — — — — — — Loss — — — — — — Total loans $ 40,089 $ 76,552 $ 116,641 $ 42,766 $ 75,308 $ 118,074 23 Loan portfolio aging analysis When a loan is 15 days past due, the Company sends the borrower a late notice. The Company attempts to contact the borrower by phone if the delinquency is not corrected promptly after the notice has been sent. When the loan is 30 days past due, the Company mails the borrower a letter reminding the borrower of the delinquency and attempts to contact the borrower personally to determine the reason for the delinquency and ensure the borrower understands the terms of the loan. If necessary, after the 90th day of delinquency, the Company may take other appropriate legal action. A summary report of all loans 30 days or more past due is provided to the Board of Directors of the Company periodically. Loans greater than 90 days past due are generally put on nonaccrual status. A nonaccrual loan is restored to accrual status when it is no longer delinquent and collectability of interest and principal is no longer in doubt. A loan is considered to be no longer delinquent when timely payments are made for a period of at least six months (one year for loans providing for quarterly or semi-annual payments) by the borrower in accordance with the contractual terms. The following tables set forth certain information with respect to the Company's loan portfolio delinquencies by portfolio segment as of March 31, 2025 and December 31, 2024: March 31, 2025 30-59 Days Past Due 60-89 Days Past Due 90 Days or Greater Past Due Total Past Due Current Total Loans (In thousands) Real estate loans: Residential real estate $ 1,090 $ — $ 51 $ 1,141 $ 38,948 $ 40,089 Commercial real estate 9,885 65 8,484 18,434 1,792,489 1,810,923 Construction — — — — 188,339 188,339 Commercial business 1,772 — 7,135 8,907 520,093 529,000 Consumer — — — — 76,552 76,552 Total loans $ 12,747 $ 65 $ 15,670 $ 28,482 $ 2,616,421 $ 2,644,903 December 31, 2024 30-59 Days Past Due 60-89 Days Past Due 90 Days or Greater Past Due Total Past Due Current Total Loans (In thousands) Real estate loans: Residential real estate $ 130 $ 226 $ 652 $ 1,008 $ 41,758 $ 42,766 Commercial real estate 359 — 35,585 35,944 1,863,190 1,899,134 Construction — — — — 173,555 173,555 Commercial business 4 11 7,143 7,158 507,967 515,125 Consumer — — — — 75,308 75,308 Total loans $ 493 $ 237 $ 43,380 $ 44,110 $ 2,661,778 $ 2,705,888 There w ere no lo ans delinquent greater than 90 days and still accruing interest as of March 31, 2025 or December 31, 2024. 24 Loans on nonaccrual status The following is a summary of nonaccrual loans by portfolio segment as of March 31, 2025 and December 31, 2024: March 31, 2025 December 31, 2024 (In thousands) Residential real estate $ 812 $ 791 Commercial real estate 17,945 44,814 Commercial business 7,626 7,672 Construction — — Consumer — — Total $ 26,383 $ 53,277 Interest income on loans that would have been recognized if loans on nonaccrual status had been current in accordance with their original terms for the three months ended March 31, 2025 and 2024 was $ 0.6 million and $ 0.9 million, respectively. At March 31, 2025 and December 31, 2024, there were no commitments to lend additional funds to any borrower on nonaccrual status. Nonaccrual loans with no specific reserve totaled $ 26.4 million and $ 53.3 million at March 31, 2025 and December 31, 2024, respectively, as these loans were deemed to be adequately collateralized. Individually evaluated loans An individually evaluated loan is generally one for which it is probable, based on current information, that the Company will not collect all the amounts due in accordance with the contractual terms of the loan. Individually evaluated loans are individually evaluated for credit losses. Within the Consumer portfolio segment, the Company individually evaluated all insurance premium loans as well as a cash-secured loan to an individual, regardless of credit risk rating. 25 The following table summarizes individually evaluated loans by portfolio segment as of March 31, 2025 and December 31, 2024. Carrying Amount Unpaid Principal Balance Associated ACL-Loans March 31, 2025 December 31, 2024 March 31, 2025 December 31, 2024 March 31, 2025 December 31, 2024 (In thousands) Individually evaluated loans without a valuation allowance: Residential real estate $ 3,056 $ 3,052 $ 3,391 $ 3,332 $ — $ — Commercial real estate 17,945 44,814 29,178 55,936 — — Construction — — — — — — Commercial business 7,626 7,672 8,755 8,782 — — Consumer 45,961 58,363 45,961 58,363 — — Total individually evaluated loans without a valuation allowance 74,588 113,901 87,285 126,413 — — Individually evaluated loans with a valuation allowance: Residential real estate $ — $ — $ — $ — $ — $ — Commercial real estate — — — — — — Construction — — — — — — Commercial business — — — — — — Consumer — — — — — — Total individually evaluated loans with a valuation allowance — — — — — — Total individually evaluated loans $ 74,588 $ 113,901 $ 87,285 $ 126,413 $ — $ — 26 The following table summarizes the average carrying amount of individually evaluated loans and interest income recognized on individually evaluated loans by portfolio segment for the three months ended March 31, 2025 and 2024: Average Carrying Amount Interest Income Recognized Three Months Ended March 31, Three Months Ended March 31, 2025 2024 2025 2024 (In thousands) Individually evaluated loans without a valuation allowance: Residential real estate $ 3,071 $ 3,556 $ 64 $ 44 Commercial real estate 18,161 48,322 48 553 Commercial business 7,643 13,001 20 402 Construction — 9,382 — — Consumer 54,249 25,523 569 336 Total individually evaluated loans without a valuation allowance 83,124 99,784 701 1,335 Individually evaluated loans with a valuation allowance: Residential real estate $ — $ — $ — $ — Commercial real estate — — — — Commercial business — 8,698 — 161 Construction — — — — Consumer — — — — Total individually evaluated loans with a valuation allowance — 8,698 — 161 Total individually evaluated loans $ 83,124 $ 108,482 $ 701 $ 1,496 Loan Modifications A loan will be considered modified as defined by ASU 326 when both of the following conditions are met: 1) the borrower is experiencing financial difficulties and 2) the modification constitutes a direct change in contractual cash flows for a significant period of time. Modified terms are dependent upon the financial position and needs of the individual borrower. There were no new loan modifications reportable under ASU 326 at March 31, 2025 and December 31, 2024. There were no nonaccrual modified loans at March 31, 2025 and December 31, 2024. There were no loans modified that re-defaulted during at March 31, 2025 and December 31, 2024. 27 Allowance for credit losses (ACL)-Unfunded Commitments As part of CECL, the Company has recorded ACL-Unfunded Commitments in A ccrued expenses and other liabilities . The provision is recorded within the Provision for credit losses on the Company’s Consolidated Statements of Income. The following table presents a roll forward of the ACL-Unfunded Commitments for the three months ended March 31, 2025 and March 31, 2024: Three Months Ended March 31, 2025 2024 (In thousands) Balance at beginning of period $ 756 $ 926 (Credit) for credit losses (unfunded commitments) ( 75 ) ( 15 ) Balance at end of period $ 681 $ 911 Components of Provision for Credit Losses The following table summarizes the Provision for credit losses for the three months ended March 31, 2025 and March 31, 2024: Three Months Ended March 31, 2025 2024 (In thousands) Provision for credit losses (loans) $ 538 $ 3,698 (Credit) for credit losses (unfunded commitments) ( 75 ) ( 15 ) Provision for credit losses $ 463 $ 3,683 28 4. Shareholders' Equity Common Stock The Company has 10,000,000 shares authoriz ed and 7,888,013 shares issued and outstanding at March 31, 2025 and 10,000,000 shares authorized and 7,859,873 shares issued and outstanding at December 31, 2024. The Company's stock is traded on the Nasdaq Global Market under the ticker symbol BWFG. Dividends The Company’s shareholders are entitled to dividends when and if declared by the Board of Directors out of funds legally available. The ability of the Company to pay dividends depends, in part, on the ability of the Bank to pay dividends to the Parent Corporation. In accordance with Connecticut statutes, regulatory approval is required to pay dividends in excess of the Bank’s profits retained in the current year plus retained profits from the previous two years. The Bank is also prohibited from paying dividends that would reduce its capital ratios below minimum regulatory requirements. Issuer Purchases of Equity Securities On December 19, 2018, the Company's Board of Directors authorized a share repurchase program ("Prior Plan") of up to 400,000 shares of the Company's Common Stock. On October 27, 2021, the Company's Board of Directors authorized the repurchase of an additional 200,000 shares under the Prior Plan. During the year ended December 31, 2024, the Company purchased 85,990 shares of its Common Stock at a weighted average of $ 24.82 per share. To date, the Company has purchased 535,802 shares of the Company's common stock pursuant to the Prior Plan. On October 28, 2024, the Company announced that on October 23, 2024, its Board of Directors authorized a share repurchase plan ("New Plan"). Under the terms of the New Plan, the Company is authorized to buy back up to 250,000 shares of its outstanding common stock. In connection with the authorization of the New Plan, the Company terminated the Prior Plan. The Company intends to accomplish the share repurchases through open market transactions, though the Company could accomplish repurchases through other means, such as privately negotiated transactions. The timing, price and volume of repurchases will be based on market conditions, relevant securities laws, and other factors. The share repurchase plan does not obligate the Company to acquire any particular amount of Common Stock, and it may be modified or suspended at any time at the Company's discretion. During the three months ended March 31, 2025, the Company purchased 29,924 shares of its Common Stock at a weighted average of $ 30.46 per share. 5. Comprehensive Income Comprehensive income represents the sum of net income and items of other comprehensive income or loss, including net unrealized gains or losses on securities available for sale and net unrealized gains or losses on derivatives. The Company's de rivative instruments are utilized to manage economic risks, including interest rate risk. Changes in fair value of the Company's cash flow swap derivatives are primarily driven by changes in interest rates and recognized in other comprehensive income. The Company’s total compreh ensive income or loss for the three March 31, 2025 and March 31, 2024 is reported in the Consolidated Statements of Comprehensive Income. 29 The following tables present the changes in accumulated other comprehensive (loss) income by component, net of tax for the three months ended March 31, 2025 and March 31, 2024: Net Unrealized Gain (Loss) on Available for Sale Securities Net Unrealized Gain (Loss) on Interest Rate Swaps Total (In thousands) Balance at December 31, 2024 $ ( 3,832 ) $ 2,588 $ ( 1,244 ) Other comprehensive income (loss) before reclassifications, net of tax 914 ( 399 ) 515 Amounts reclassified from accumulated other comprehensive income, net of tax — ( 467 ) ( 467 ) Net other comprehensive income (loss) 914 ( 866 ) 48 Balance at March 31, 2025 $ ( 2,918 ) $ 1,722 $ ( 1,196 ) Net Unrealized Gain (Loss) on Available for Sale Securities Net Unrealized Gain (Loss) on Interest Rate Swaps Total (In thousands) Balance at December 31, 2023 $ ( 5,810 ) $ 4,146 $ ( 1,664 ) Other comprehensive (loss) income before reclassifications, net of tax ( 116 ) 664 548 Amounts reclassified from accumulated other comprehensive income, net of tax — ( 603 ) ( 603 ) Net other comprehensive (loss) income ( 116 ) 61 ( 55 ) Balance at March 31, 2024 $ ( 5,926 ) $ 4,207 $ ( 1,719 ) The following table provides information for the items reclassified from accumulated other comprehensive income or loss: Accumulated Other Comprehensive Income Components Three Months Ended March 31, Associated Line Item in the Consolidated Statements of Income 2025 2024 (In thousands) Derivatives: Unrealized gains (losses) on derivatives $ 612 $ 1,257 Interest expense on borrowings Tax (expense) benefit ( 145 ) ( 654 ) Income tax expense Net of tax $ 467 $ 603 6. Earnings per share ("EPS") Unvested restricted stock awards that contain non-forfeitable rights to dividends are participating securities and are included in the computation of EPS pursuant to the two-class method. The two-class method is an earnings allocation formula that determines EPS for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. The Company’s unvested restricted stock awards qualify as participating securities. Net income is allocated between the common stock and participating securities pursuant to the two-class method. Basic EPS is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period, excluding participating unvested restricted stock awards. Diluted EPS is computed in a similar manner, except that the denominator includes the number of additional common shares that would have been outstanding if potentially dilutive common shares were issued using the treasury stock method. 30 The following table is a reconciliation of earnings available to common shareholders and basic weighted average common shares outstanding to diluted weighted average common shares outstanding, reflecting the application of the two-class method: Three Months Ended March 31, 2025 2024 (In thousands, except per share data) Net income $ 6,888 $ 3,763 Dividends to participating securities (1) ( 26 ) ( 40 ) Undistributed earnings allocated to participating securities (1) ( 111 ) ( 66 ) Net income for earnings per share calculation $ 6,751 $ 3,657 Weighted average shares outstanding, basic 7,670,224 7,663,521 Effect of dilutive equity-based awards (2) 70,297 24,158 Weighted average shares outstanding, diluted 7,740,521 7,687,679 Net earnings per common share: Basic earnings per common share $ 0.88 $ 0.48 Diluted earnings per common share $ 0.87 $ 0.48 (1) Represents dividends paid and undistributed earnings allocated to unvested stock-based awards that contain non-forfeitable rights to dividends. (2) Represents the effect of the assumed exercise of stock options and the vesting of restricted shares, as applicable, utilizing the treasury stock method. 7. Regulatory Matters The Federal Reserve, the FDIC and other federal and state bank regulatory agencies establish regulatory capital guidelines for U.S. banking organizations. Under the current guidelines, banking organizations must have a minimum total risk-based capital ratio of 8.0 %, a minimum Tier 1 risk-based capital ratio of 6.0 %, a minimum Common Equity Tier 1 risk-based capital ratio of 4.5 %, and a minimum leverage ratio of 4.0 % in order to be "adequately capitalized." In addition to these requirements, banking organizations must maintain a capital conservation buffer consisting of common equity in an amount above the minimum risk-based capital requirements for “adequately capitalized” institutions equal to 2.5 % of total risk-weighted assets, resulting in a requirement for the Bank to effectively maintain Common Equity Tier 1, Tier 1 and total capital ratios of 7.0 %, 8.5 % and 10.5 %, respectively. The Bank must maintain the capital conservation buffer to avoid restrictions on the ability to pay dividends, pay discretionary bonuses, or to engage in share repurchases. 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 became subject to the larger company capital requirements as set forth in the Economic Growth Act. 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 of March 31, 2025, the Bank and Company met all capital adequacy requirements to which they are subject. There are no conditions or events since then that management believes have changed this conclusion. 31 The capital amounts and ratios for the Bank and the Company at March 31, 2025 and December 31, 2024 were as follows: Minimum Regulatory Capital Required for Capital Adequacy plus Capital Conservation Buffer Minimum Regulatory Capital to be Well Capitalized Under Prompt Corrective Action Provisions Actual Capital (Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio Bankwell Bank March 31, 2025 Common Equity Tier 1 Capital to Risk-Weighted Assets $ 328,924 12.10 % $ 190,241 7.00 % $ 176,653 6.50 % Tier I Capital to Risk-Weighted Assets 328,924 12.10 % 231,007 8.50 % 217,419 8.00 % Total Capital to Risk-Weighted Assets 359,089 13.21 % 285,362 10.50 % 271,773 10.00 % Tier I Capital to Average Assets 328,924 10.14 % 129,695 4.00 % 162,119 5.00 % Minimum Regulatory Capital Required for Capital Adequacy Minimum Regulatory Capital to be Well Capitalized Under Prompt Corrective Action Provisions Actual Capital Amount Ratio Amount Ratio Amount Ratio Bankwell Financial Group, Inc. March 31, 2025 Common Equity Tier 1 Capital to Risk-Weighted Assets $ 273,322 10.04 % $ 122,516 4.50 % $ 176,968 6.50 % Tier I Capital to Risk-Weighted Assets 273,322 10.04 % 163,355 6.00 % 217,807 8.00 % Total Capital to Risk-Weighted Assets 373,000 13.70 % 217,807 8.00 % 272,259 10.00 % Tier I Capital to Average Assets 273,322 8.41 % 129,988 4.00 % 162,485 5.00 % 32 Minimum Regulatory Capital Required for Capital Adequacy plus Capital Conservation Buffer Minimum Regulatory Capital to be Well Capitalized Under Prompt Corrective Action Provisions Actual Capital (Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio Bankwell Bank December 31, 2024 Common Equity Tier 1 Capital to Risk-Weighted Assets $ 325,296 11.64 % $ 195,690 7.00 % $ 181,712 6.50 % Tier I Capital to Risk-Weighted Assets 325,296 11.64 % 237,623 8.50 % 223,645 8.00 % Total Capital to Risk-Weighted Assets 355,058 12.70 % 296,535 10.50 % 279,557 10.00 % Tier I Capital to Average Assets 325,296 10.09 % 128,998 4.00 % 161,248 5.00 % Minimum Regulatory Capital Required for Capital Adequacy Minimum Regulatory Capital to be Well Capitalized Under Prompt Corrective Action Provisions Actual Capital Amount Ratio Amount Ratio Amount Ratio Bankwell Financial Group, Inc. December 31, 2024 Common Equity Tier 1 Capital to Risk-Weighted Assets $ 268,733 9.60 % $ 126,030 4.50 % $ 182,043 6.50 % Tier I Capital to Risk-Weighted Assets 268,733 9.60 % 168,040 6.00 % 224,053 8.00 % Total Capital to Risk-Weighted Assets 367,946 13.14 % 224,053 8.00 % 280,066 10.00 % Tier I Capital to Average Assets 268,733 8.34 % 128,943 4.00 % 161,179 5.00 % Regulatory Restrictions on Dividends The ability of the Company to pay dividends depends, in part, on the ability of the Bank to pay dividends to the Parent Corporation. In accordance with Connecticut statutes, regulatory approval is required to pay dividends in excess of the Bank’s profits retained in the current year plus retained profits from the previous two years. The Bank is also prohibited from paying dividends that would reduce its capital ratios below minimum regulatory requirements. Reserve Requirements on Cash The Bank was not required to maintain a minimum reserve balance in the Federal Reserve Bank (FRB) at March 31, 2025 or December 31, 2024. 33 8. Deposits At March 31, 2025 and December 31, 2024, deposits consisted of the following: March 31, 2025 December 31, 2024 (In thousands) Noninterest bearing demand deposit accounts $ 349,525 $ 321,875 Interest bearing accounts: NOW 112,695 105,090 Money market 900,352 899,413 Savings 91,378 90,220 Time certificates of deposit 1,296,495 1,370,972 Total interest bearing accounts 2,400,920 2,465,695 Total deposits $ 2,750,445 $ 2,787,570 Maturities of time certificates of deposit as of March 31, 2025 and December 31, 2024 are summarized below: March 31, 2025 December 31, 2024 (In thousands) 2024 $ — $ 1,348,808 2025 1,049,046 4,887 2026 245,764 1,030 2027 1,109 6,222 After 2028 576 10,025 Total $ 1,296,495 $ 1,370,972 The aggregate amount of individual certificate accounts, with balances of $250,000 or more, was approximately $ 228.0 million at March 31, 2025 and $ 232.6 million at December 31, 2024. Brokered certificates of deposits totaled $ 570.3 million at March 31, 2025 and $ 651.5 million at December 31, 2024, respectively. Brokered money market accounts totaled $ 54.1 million at March 31, 2025 and $ 53.5 million at December 31, 2024, respectively. Certificate of deposits from national listing services were $ 109.5 million and $ 109.1 million as of March 31, 2025 and December 31, 2024, respectively. There were no one-way buy Certificate of Deposit Account Registry Service ("CDARS") or one-way buy Insured Cash Sweep Service ("ICS") at March 31, 2025 or December 31, 2024. Brokered deposits are comprised of Brokered CDs, brokered money market accounts, one-way buy CDARS, and one-way buy ICS. The following table summarizes interest expense on deposits by account type for the three months ended March 31, 2025 and 2024: Three Months Ended March 31, 2025 2024 (In thousands) NOW $ 109 $ 39 Money market 8,521 9,146 Savings 658 714 Time certificates of deposits 15,484 15,463 Total interest expense on deposits $ 24,772 $ 25,362 34 9. Stock-Based Compensation Equity award plans The Company has unvested restricted stock outstanding under two equity award plans, which are collectively referred to as the “Stock Plans”. The current plan under which any future issuances of equity awards will be made is the 2022 Bankwell Financial Group, Inc. Stock Plan, or the “2022 Plan”. All equity awards made under the 2022 Plan are made by means of an award agreement, which contains the specific terms and conditions of the grant. To date, all equity awards have been in the form of stock options or restricted stock. At March 31, 2025, there were 300,856 shares reserved for future issuance under the 2022 Plan. Restricted Stock : Restricted stock provides grantees with rights to shares of common stock upon completion of a service period. Shares of unvested restricted stock are considered participating securities. Restricted stock awards generally vest over one to five years . The following table presents the activity for restricted stock for the three months ended March 31, 2025: Three Months Ended March 31, 2025 Number of Shares Weighted Average Grant Date Fair Value Unvested at beginning of period 223,875 (1) $ 28.50 Granted 72,774 (2) 32.66 Vested ( 96,714 ) (3) 32.40 Forfeited ( 14,710 ) 32.56 Unvested at end of period 185,225 (1) Inclu des 35,186 shares of performan ce based restricted stock. (2) Includes 34,271 shares of p erformance based restricted stock. (3) Includes 4,136 shares of performance based restricted stock. The total fair value of restricted stock awards vested during the three months ended March 31, 2025 was $ 3.1 million . The Company's restricted stock expense for the three months ended March 31, 2025 and March 31, 2024 was $ 0.2 million and $ 1.1 million, respectively. At March 31, 2025, there was $ 4.9 million of unrecognized stock compensation expe nse for restricted stock, expected to be recognized over a weighted average period of 1.5 years . Performance Based Restricted Stock : The Company has 53,255 shares of performance based restricted stock outstanding as of March 31, 2025 pursuant to the Company’s Stock Plans. The awards generally vest over a three year service period, provided certain performance metrics are met. The share quantity that ultimately vests can range between 0 % and 200 %, which is dependent on the degree to which the performance metrics are met. The Company records an expense over the vesting period based on (a) the probability that the performance metrics will be met and (b) the fair market value of the Company’s stock at the date of the grant. 10. Derivative Instruments The Company manages economic risks, including interest rate, liquidity, and credit risk, by managing the amount, sources, and duration of its funding along with the use of interest rate derivative financial instruments, namely interest rate swaps. The Company does not use derivatives for speculative purposes. As of March 31, 2025, the Company was a party to three cash flow swaps, designated as hedging instruments, to add stability to interest expense and to manage its exposure to the variability of the future cash fl ows attributable to the contractually specified interest rates. The notional amount for each swap is $ 25 million and in each case, the Company has entered into pay-fixed cash flow swaps to convert rolling 90 - day Federal Home Loan Bank advances or brokered deposits. Cash flow swaps with a positive fair value are recorded as other assets and cash flow swaps with a negative fair value are recorded as other liabilities on the Consolidated Balance Sheets. 35 The Company terminated two cash flow swaps with a total notional amount of $ 50 million during the year ended December 31, 2022. The underlying debt associated with the terminated swaps was kept in place. The fair value of the terminated swaps totaled $ 124.2 thousand as of March 31, 2025. The fair value of the terminated swaps will be reclassified from other comprehensive income to interest expense on a straight-line basis over the original term of the hedging relationship. The Company entered into one pay-fixed portfolio layer method fair value swap, designated as a hedging instrument, with a total notional amount of $ 150 million in the first quarter of 2023. The Company designated the fair value swap under the portfolio layer method (“PLM”). Under this method, the hedged item is designated as a hedged layer of a closed portfolio of financial loans that is anticipated to remain outstanding for the designated hedged period. Adjustments will be made to record the swap at fair value on the Consolidated Balance Sheets, with changes in fair value recognized in interest income. The carrying value of the fair value swap on the Consolidated Balance Sheets will also be adjusted through interest income, based on changes in fair value attributable to changes in the hedged risk. The following table represents the carrying value of the portfolio layer method hedged asset and the cumulative fair value hedging adjustment included in the carrying value of the hedged asset as of March 31, 2025 and December 31, 2024: March 31, 2025 December 31, 2024 March 31, 2025 December 31, 2024 Carrying Value of Hedged Asset Hedged Items (In thousands) Fixed Rate Asset (1) $ 150,392 $ 150,250 $ 142 $ ( 665 ) (1) These amounts include the amortized cost basis of closed portfolios of fixed rate loans used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolio anticipated to be outstanding for the designated hedged period. As of March 31, 2025 and December 31, 2024, the amortized cost basis of the closed portfolio used in this hedging relationship was $ 514.7 million and $ 529.6 million , the cumulative basis adjustments associated with this hedging relationships was $ 0.1 million and $ 2.1 million, respectively. As of March 31, 2025 and December 31, 2024, t he amount of the designated hedged item was $ 150.0 million, respectively. As of March 31, 2025, the Company has interest rate swaps not designated as hedging instruments, to minimize interest rate risk exposure with loans to clients. The Company accounts for all non-client related interest rate swaps as either effective cash flow or fair value swaps. None of the interest rate swap agreements contain any credit risk related contingent features. A hedging instrument is expected at inception to be highly effective at offsetting changes in the hedged transactions attributable to the changes in the hedged risk. Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain loan clients. The Company executes interest rate swaps with commercial banking clients to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the client derivatives and the offsetting derivatives are recognized directly in earnings. 36 Information about derivative instruments at March 31, 2025 and December 31, 2024 is as follows: As of March 31, 2025 Derivative Assets Derivative Liabilities Original Notional Amount Balance Sheet Location Fair Value Original Notional Amount Balance Sheet Location Fair Value (In thousands) Derivatives designated as hedging instruments: Interest rate swaps $ 75,000 Other assets $ 2,128 $ — Accrued expenses and other liabilities $ — Fair value swap $ — Other assets $ — $ 150,000 Accrued expenses and other liabilities $ 402 Derivatives not designated as hedging instruments: Interest rate swaps (1) $ 38,500 Other assets $ 3,491 $ 38,500 Accrued expenses and other liabilities $ 3,491 (1) Represents interest rate swaps with commercial banking clients, which are offset by derivatives with a third party. Accru ed interest receivables related to interest rate swaps as of March 31, 2025 totaled $ 0.5 million and is excluded from the fair value presented in the table above. The fair value of interest rate swaps in a net asset position, including accrued interest, totaled $ 2.3 million as of March 31, 2025. 37 As of December 31, 2024 Derivative Assets Derivative Liabilities Original Notional Amount Balance Sheet Location Fair Value Original Notional Amount Balance Sheet Location Fair Value (In thousands) Derivatives designated as hedging instruments: Interest rate swaps $ 75,000 Other assets $ 3,259 $ — Accrued expenses and other liabilities $ — Fair value swap $ — Other assets $ — $ 150,000 Accrued expenses and other liabilities $ 259 Derivatives not designated as hedging instruments: Interest rate swaps (1) $ 38,500 Other assets $ 4,213 $ 38,500 Accrued expenses and other liabilities $ 4,213 (1) Represents interest rate swaps with commercial banking clients, which are offset by derivatives with a third party. Accrued interest receivables related to interest rate swaps as of December 31, 2024 totaled $ 0.6 million and is excluded from the fair value presented in the table above. The fair value of interest rate swaps in a net asset position, including accrued interest, totaled $ 3.7 million as of December 31, 2024. The effective portion of changes in the fair value of derivatives designated as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. The Company expects to reclassify $ 0.4 million to reduce interest expense during the next 12 months. The Company assesses the cash flow swaps hedge effectiveness of each hedging relationship by comparing the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged item or transaction. The Company does not offset derivative assets and derivative liabilities for financial statement presentation purposes. The Company assesses the effectiveness of the fair value swap hedge with a regression analysis that compares the changes in forward curves to determine the value. The effective portion of changes in the fair value of derivatives designated as fair value hedges is recorded through interest income. The Company does not offset derivative assets and derivative liabilities for financial statement presentation purposes. Changes in the consolidated statements of comprehensive income (loss) related to interest rate derivatives designated as hedges of cash flows were as follows for the three months ended March 31, 2025 and March 31, 2024: Three Months Ended March 31, (In thousands) 2025 2024 Interest rate swaps designated as cash flow hedges: Unrealized (loss) gain recognized in accumulated other comprehensive income before reclassifications $ ( 522 ) $ 1,382 Amounts reclassified from accumulated other comprehensive (loss) income ( 612 ) ( 1,257 ) Income tax benefit (expense) on items recognized in accumulated other comprehensive income 268 ( 64 ) Other comprehensive (loss) income $ ( 866 ) $ 61 38 The above unrealized gains and losses are reflective of market interest rates as of the respective balance sheet dates. Generally, a lower interest rate environment will result in a negative impact to comprehensive income whereas a higher interest rate environment will result in a positive impact to comprehensive income. The following table summarizes the effect of the fair value hedging relationship recognized in the consolidated statements of income for the three months ended March 31, 2025 and March 31, 2024: Three Months Ended March 31, (In thousands) 2025 2024 Gain (loss) on fair value hedging relationship: Hedged asset $ 142 $ ( 1,668 ) Fair value derivative designated as hedging instrument ( 98 ) 840 Total gain (loss) recognized in the consolidated statements of income within interest and fees on loans $ 44 $ ( 828 ) The following tables summarize gross and net information about derivative instruments that are offset in the Consolidated Balance Sheets at March 31, 2025 and December 31, 2024: March 31, 2025 (In thousands) Gross Amounts Not Offset in the Consolidated Balance Sheets Gross Amounts of Recognized Assets (1) Gross Amounts Offset in the Statement of Financial Position Net Amounts of Assets presented in the Statement of Financial Position Financial Instruments Cash Collateral Received Net Amount Derivative assets $ 6,136 $ — $ 6,136 $ 392 $ 5,744 $ — (1) Includes accru ed interest receivable totaling $ 517 thousand . March 31, 2025 (In thousands) Gross Amounts Not Offset in the Consolidated Balance Sheets Gross Amounts of Recognized Liabilities (1) Gross Amounts Offset in the Statement of Financial Position Net Amounts of Liabilities presented in the Statement of Financial Position Financial Instruments Cash Collateral Posted Net Amount Derivative liabilities $ 3,934 $ — $ 3,934 $ 392 $ — $ 3,542 (1) Includes net ac crued interest payable totaling $ 41 thousand . 39 December 31, 2024 (In thousands) Gross Amounts Not Offset in the Consolidated Balance Sheets Gross Amounts of Recognized Assets (1) Gross Amounts Offset in the Statement of Financial Position Net Amounts of Assets presented in the Statement of Financial Position Financial Instruments Cash Collateral Received Net Amount Derivative assets $ 8,040 $ — $ 8,040 $ 234 $ 7,806 $ — (1) Includes accrued interest receivable totaling $ 568 thousand. December 31, 2024 (In thousands) Gross Amounts Not Offset in the Consolidated Balance Sheets Gross Amounts of Recognized Liabilities (1) Gross Amounts Offset in the Statement of Financial Position Net Amounts of Liabilities presented in the Statement of Financial Position Financial Instruments Cash Collateral Posted Net Amount Derivative liabilities $ 4,502 $ — $ 4,502 $ 233 $ — $ 4,269 (1) Includes net interest payable totaling $ 30 thousand. 11. Fair Value of Financial Instruments GAAP requires disclosure of fair value information about financial instruments, whether or not recognized in the Consolidated Balance Sheets, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rates and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparisons to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent limitations in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates presented herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction. The estimated fair value amounts have been measured as of the respective period-ends, and have not been reevaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period-end. The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair values of the Company’s financial instruments will change when interest rate levels change and that change may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk. 40 The carrying values, fair values and placement in the fair value hierarchy of the Company's financial instruments at March 31, 2025 and December 31, 2024 were as follows: March 31, 2025 Carrying Value Fair Value Level 1 Level 2 Level 3 (In thousands) Financial Assets: Cash and due from banks $ 292,006 $ 292,006 $ 292,006 $ — $ — Federal funds sold 12,922 12,922 12,922 — — Marketable equity securities 2,164 2,164 2,164 — — Available for sale securities 97,321 97,321 53,967 43,354 — Held to maturity securities 36,478 36,763 — — 36,763 Loans receivable, net 2,611,495 2,602,340 — — 2,602,340 Accrued interest receivable 15,409 15,409 — 15,409 — FHLB stock 3,583 3,583 — 3,583 — Servicing asset, net of valuation allowance 615 615 — — 615 Derivative asset 5,618 5,618 — 5,618 — Other real estate owned — — — — — Financial Liabilities: Noninterest bearing deposits $ 349,525 $ 349,525 $ — $ 349,525 $ — NOW and money market 1,013,047 1,013,047 — 1,013,047 — Savings 91,378 91,378 — 91,378 — Time deposits 1,296,495 1,298,789 — — 1,298,789 Accrued interest payable 13,411 13,411 — 13,411 — Advances from the FHLB 40,000 40,002 — — 40,002 Subordinated debentures 69,513 65,849 — — 65,849 Servicing liability — — — — — Derivative liability 3,892 3,892 — 3,892 — 41 December 31, 2024 Carrying Value Fair Value Level 1 Level 2 Level 3 (In thousands) Financial Assets: Cash and due from banks $ 293,552 $ 293,552 $ 293,552 $ — $ — Federal funds sold 13,972 13,972 13,972 — — Marketable equity securities 2,118 2,118 2,118 — — Available for sale securities 107,428 107,428 63,557 43,871 — Held to maturity securities 36,553 36,691 — 29 36,662 Loans receivable, net 2,672,959 2,637,922 — — 2,637,922 Accrued interest receivable 14,535 14,535 — 14,535 — FHLB stock 5,655 5,655 — 5,655 — Servicing asset, net of valuation allowance 558 558 — — 558 Derivative asset 7,472 7,472 — 7,472 — Other real estate owned 8,299 8,299 — — 8,299 Financial Liabilities: Noninterest bearing deposits $ 321,875 $ 321,875 $ — $ 321,875 $ — NOW and money market 1,004,503 1,004,503 — 1,004,503 — Savings 90,220 90,220 — 90,220 — Time deposits 1,370,972 1,374,309 — — 1,374,309 Accrued interest payable 13,737 13,737 — 13,737 — Advances from the FHLB 90,000 90,045 — — 90,045 Subordinated debentures 69,451 66,167 — — 66,167 Servicing liability — — — — — Derivative liability 4,472 4,472 — 4,472 — The following methods and assumptions were used by management in estimating the fair value of its financial instruments: Cash and due from banks, federal funds sold, accrued interest receivable and accrued interest payable: The carrying amount is a reasonable estimate of fair value. Marketable equity securities and available for sale securities: Fair values are based on quoted market prices or dealer quotes, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. The majority of the available for sale securities are considered to be Level 2 as other observable inputs are utilized, such as quoted prices for similar securities. Level 1 investment securities include investments in U.S. Treasury notes and in marketable equity securities for which a quoted price is readily available in the market. Level 3 held to maturity securities represent private placement municipal housing authority bonds for which no quoted market price is available. FHLB stock: The carrying value of FHLB stock approximates fair value based on the most recent redemption provisions of the FHLB. Loans receivable: For variable rate loans which reprice frequently and have no significant change in credit risk, fair values are based on carrying values. The fair value of fixed rate loans are estimated by discounting the future cash flows using the rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The fair value methodology includes prepayment, default and loss severity assumptions applied by type of loan. The fair value estimate of the loans includes an expected credit loss. 42 Derivative asset (liability): The valuation of the Company’s interest rate swaps is obtained from a third-party pricing service and is determined using a discounte d cash flow analysis on the expected cash flows of each derivative. The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves. The Company also considers the creditworthiness of each counterparty for assets and the creditworthiness of the Company for liabilities. Deposits: The fair value of demand deposits, regular savings and certain money market deposits is the amount payable on demand at the reporting date. The fair value of certificates of deposit and other time deposits is estimated using a discounted cash flow calculation that applies interest rates currently being offered for deposits of similar remaining maturities to a schedule of aggregated expected maturities on such deposits. Borrowings and subordinated debentures: The fair value of the Company’s borrowings and subordinated debentures is estimated using a discounted cash flow calculation that applies discount rates currently offered based on similar maturities. The Company also considers its own creditworthiness in determining the fair value of its borrowings and subordinated debt. Contractual cash flows for the subordinated debt are reduced based on the estimated rates of default, the severity of losses to be incurred on a default, and the rates at which the subordinated debt is expected to prepay after the call date. Servicing asset (liability): Servicing assets and liabilities do not trade in an active, open market with readily observable prices. The Company estimates the fair value of servicing assets and liabilities using discounted cash flow models, incorporating numerous assumptions from the perspective of a market participant, including market discount rates. Off-balance-sheet instruments: Loan commitments on which the committed interest rate is less than the current market rate are insignificant at March 31, 2025 and December 31, 2024 . Other Real Estate Owned ("OREO"): OREO is held at the lower of cost or fair value and is measured at fair value when recorded below cost. The fair value of OREO is calculated using independent appraisals or internal valuation methods, less estimated selling costs, and may consider available pricing guides, auction results, price opinions, and other factors that are not observable in an active market when determining fair value. Accordingly, OREO are classified within Level 3 of the fair value hierarchy. At March 31, 2025, there was no fair value of OREO. At December 31, 2024, the fair value of OREO was $ 8.3 million. 12. Fair Value Measurements The Company is required to account for certain assets at fair value on a recurring or non-recurring basis. The Company determines fair value in accordance with GAAP, which defines fair value and establishes a framework for measuring fair value. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair values: Level 1 — Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. Level 2 — Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3 — Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. Valuation techniques based on unobservable inputs are highly subjective and require judgments regarding significant matters such as the amount and timing of future cash flows and the selection of discount rates that may appropriately reflect market and credit risks. Changes in these judgments often have a material impact on the fair value estimates. In addition, since these estimates are as of a specific point in time they are susceptible to material near-term changes. 43 Financial instruments measured at fair value on a recurring basis The following table details the financial instruments carried at fair value on a recurring basis at March 31, 2025 and December 31, 2024, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine the fair value. The Company had no transfers into or out of Levels 1, 2 or 3 during the three months ended March 31, 2025 and for the year ended December 31, 2024. Fair Value (In thousands) Level 1 Level 2 Level 3 March 31, 2025: Marketable equity securities $ 2,164 $ — $ — Available for sale investment securities: U.S. Government and agency obligations 53,967 27,272 — Corporate bonds — 16,082 — Derivative asset — 5,618 — Derivative liability — 3,892 — December 31, 2024: Marketable equity securities $ 2,118 $ — $ — Available for sale investment securities: U.S. Government and agency obligations 63,557 28,025 — Corporate bonds — 15,846 — Derivative asset — 7,472 — Derivative liability — 4,472 — Marketable equity securities and available for sale investment securities: The fair value of the Company’s investment securities is estimated by using pricing models or quoted prices of securities with similar characteristics (i.e., matrix pricing) and is classified within Level 1 or Level 2 of the valuation hierarchy. The pricing is primarily sourced from third-party pricing services overseen by management. Derivative assets and liabilities: The Company’s derivative assets and liabilities consist of transactions as part of management’s strategy to manage interest rate risk. The valuation of the Company’s interest rate swaps is obtained from a third-party pricing service and is determined using a discounted cash flow analysis on the expected cash flows of each derivative. The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves. The Company has determined that the majority of the inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy. Financial instruments measured at fair value on a nonrecurring basis Certain assets and liabilities are measured at fair value on a non-recurring basis in accordance with GAAP. These include assets that are measured at the lower-of-cost-or-market that were recognized at fair value below cost at the end of the period as well as assets that are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment. 44 The following table details the financial instruments measured at fair value on a nonrecurring basis at March 31, 2025 and December 31, 2024, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine the fair value: Fair Value (In thousands) Level 1 Level 2 Level 3 March 31, 2025: Individually evaluated loans $ — $ — $ 74,588 Servicing asset, net — — 615 December 31, 2024: Individually evaluated loans $ — $ — $ 113,901 Servicing asset, net — — 558 The following table presents information about quantitative inputs and assumptions for Level 3 financial instruments carried at fair value on a nonrecurring basis at March 31, 2025 and December 31, 2024: Fair Value Valuation Methodology Unobservable Input Range (Dollars in thousands) March 31, 2025: Individually evaluated loans $ 18,393 Appraisals Discount to appraised value 2.00 - 8.00 % 45,961 Appraisals, cash surrender value life insurance, securities, cash held as collateral Discounts to appraised value and securities value 0.00 % - 8.00 % 10,234 Discounted cash flows Discount rate 3.38 - 10.25 % $ 74,588 Servicing asset, net $ 615 Discounted cash flows Discount rate 10.00 % Prepayment rate 3.00 - 18.00 % December 31, 2024: Individually evaluated loans $ 45,203 Appraisals Discount to appraised value 8.00 % 58,363 Appraisals, cash surrender value life insurance, securities, cash held as collateral Discounts to appraised value and securities value 0.00 % - 8.00 % 10,335 Discounted cash flows Discount rate 3.38 - 10.25 % $ 113,901 Servicing asset, net $ 558 Discounted cash flows Discount rate 10.00 % Prepayment rate 3.00 - 18.00 % Individually evaluated loans : Loans are generally not recorded at fair value on a recurring basis. Periodically, the Company records nonrecurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Nonrecurring adjustments also include certain impairment amounts for collateral-dependent loans calculated in accordance with ASC 310-10 when establishing the ACL-Loans. Such amounts are generally based on the fair value of the underlying collateral supporting the loan. Collateral is typically valued using appraisals or other 45 indications of value based on recent comparable sales of similar properties or other assumptions. Estimates of fair value based on collateral are generally based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3. For those loans where the primary source of repayment is cash flow from operations, adjustments include impairment amounts calculated based on the perceived collectability of interest payments on the basis of a discounted cash flow analysis utilizing a discount rate equivalent to the original note rate. Servicing assets and liabilities: When loans are sold, on a servicing retained basis, servicing rights are initially recorded at fair value. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized. The fair value of servicing assets and liabilities are not measured on an ongoing basis but are subject to fair value adjustments when and if the assets or liabilities are deemed to be impaired. 13. Subordinated debentures On October 14, 2021, the Company completed a private placement of a $ 35.0 million fixed-to-floating rate subordinated note (the “2021 Note”) to an institutional accredited investor. The Company used the net proceeds to repay the outstanding balance of subordinated debt issued in 2015 and for general corporate purposes. The 2021 Note bears interest at a fixed rate of 3.25 % per year until October 14, 2026. Thereafter, the interest rate will reset quarterly at a variable rate equal to the then current three-month term SOFR plus 233 basis points. The 2021 Note has a stated maturity of October 15, 2031 and is non-callable for five years . Beginning October 15, 2026, the Company may redeem the 2021 Note, in whole or in part, at its option. The 2021 Note is not redeemable at the option of the holder. The 2021 Note has been structured to qualify for the Company as Tier 2 capital under regulatory guidelines. On August 19, 2022, the Company entered into a Subordinated Note Purchase Agreement with certain qualified institutional buyers, pursuant to which the Company issued and sold 6.0 % fixed-to-floating rate subordinated notes due 2032 (the “2022 Notes”) in the aggregate principal amount of $ 35.0 million. The Company used the net proceeds from the sale of the 2022 Notes for general corporate purposes. The 2022 Notes bear interest at a fixed rate of 6.0 % per year until August 31, 2027. Thereafter, the interest rate will reset quarterly at a variable rate equal to the then current three-month term SOFR plus 326 basis points. The 2022 Notes have a stated maturity of September 1, 2032 and are non-callable for five years . Beginning August 19, 2027, the Company may redeem the 2022 Notes, in whole or in part, at its option. The 2022 Notes are not subject to redemption at the option of the holder. The 2022 Notes have been structured to qualify for the Company as Tier 2 capital under regulatory guidelines. The Company incurred certain costs associated with the issuance of its subordinated debt. The Company capitalized these costs and they have been presented within subordinated debentures on the consolidated balance sheets. At March 31, 2025 and December 31, 2024, unamortized debt issuance costs were $ 0.5 million and $ 0.5 million, resp ectively. Debt issuance costs amortize over the expected life of the related debt. For the three months ended March 31, 2025 and 2024 the amortization expense for debt issuance costs were $ 62 thousand and $ 62 thousand, respectively, and were recognized as an increase to interest expense on borrowings within the Consolidated Statements of Income. The Co mpany recognized $ 0.8 million and $ 0.8 million in interest expense related to its subordinated debt for the three-month periods ended March 31, 2025 and 2024, respectively. 14. Subsequent Events On April 23, 2025, the Company’s Board of Directors declared a $ 0.20 per share cash dividend, payable on May 20, 2025, to shareholders of record on May 9, 2025. Subsequent to March 31, 2025, the C ompany purchased 14,626 shares at a weighted average price of $ 28.86 per sh are. On May 1, 2025, the Bank signed a lease for a property located at 557 and 559 86th Street, Brooklyn, New York. 46