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Item 7. Management’s Discussion and Analysis

2026-03-04 compared with 2025-03-05 · 111 added, 153 removed, 855 unchanged (24% of the section changed)

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

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

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

The Bank also operates in a limited service Domestic Representative Office in New Canaan, Connecticut and in Garden City, New York.

During 2025, the Bank received regulatory approval from the FDIC, the CT DOB, and the NY DFS to establish a new full-service branch in Brooklyn, New York, which opened during the first quarter of 2026.

The following discussion and analysis presents our results of operations and financial condition on a consolidated basis.

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At or For the Years Ended December 31,

2024 2023 2022 2021 2020 (f)

2025 2024 2023 2022 2021

(Dollars in thousands, except per share data)

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Performance Ratios:

Return on average assets (b)

Return on average assets (b)(f)

1.09 % 0.31 % 1.13 % 1.44 % 1.17 %

Return on average common shareholders’ equity (b)

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

12.32 % 3.60 % 14.55 % 16.72 % 13.86 %

Average shareholders’ equity to average assets 8.48 % 7.74 % 8.61 % 8.46 % 8.36 %

Net interest margin (b)

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

8.82 % 8.48 % 7.74 % 8.61 % 8.46 %

Net interest margin (b)(f)

3.16 % 2.70 % 2.98 % 3.78 % 3.17 %

Efficiency ratio (b)

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1.08 % 1.07 % 1.03 % 0.84 % 0.89 %

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

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

(0.01) % 0.81 % 0.03 % — % 0.23 %

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

(f) Performance ratios for the year ended December 31, 2020 were negatively impacted by incremental COVID-19 pandemic related loan loss reserves and a $3.9 million one-time charge related to office consolidation, vendor contract termination and employee severance costs recognized in the fourth quarter of 2020.

(g) Return on average assets is calculated by dividing net income by average assets.

Return on average shareholders' equity is calculated by dividing net income by average shareholders' equity.

(f) Return on average assets is calculated by dividing net income by average assets.

Return on average common shareholders' equity is calculated by dividing net income by average shareholders' equity.

Average shareholders' equity to average assets is calculated by dividing average shareholders' equity by average assets.

Net interest margin is calculated by dividing net interest income (interest income minus interest expense) by average earning assets.

Net loan charge-offs as a percentage of average loans is calculated by dividing net loan (charge offs) recoveries by average total loans.

NON-GAAP FINANCIAL MEASURES

We identify “efficiency ratio”, “tangible common equity ratio”, “tangible book value per share”, “total revenue” and “return on average common shareholders’ equity” as “non-GAAP financial measures.” In accordance with the SEC’s rules, we classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, that are included or excluded, as the case may be, in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles as in effect from time to time in the United States in our statements of income, balance sheet or statements of cash flows.

We identify “efficiency ratio”, “net interest margin”, “tangible common equity ratio”, “tangible book value per share”, “total revenue”, “return on average assets”, and “return on average common shareholders’ equity” as “non-GAAP financial measures.” In accordance with the SEC’s rules, we classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, that are included or excluded, as the case may be, in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles as in effect from time to time in the United States in our statements of income, balance sheet or statements of cash flows.

Non-GAAP financial measures do not include operating and other statistical measures or ratios or statistical measures calculated using exclusively either financial measures calculated in accordance with GAAP, operating measures or other measures that are not non-GAAP financial measures or both.

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Selected statement of income measures:

Total revenue (c)

Total revenue (b)

108,323 87,000

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Return on average assets 1.09 % 0.31 %

Return on average common shareholders’ equity (c)

Return on average common shareholders’ equity (b)

12.32 % 3.60 %

Net interest margin (c)

Net interest margin (b)

3.16 % 2.70 %

Efficiency ratio (c)

Efficiency ratio (b)

54.1 % 57.9 %

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

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

$ 38.85 $ 35.09

Net charge-offs to average loans (b)

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

(0.01) % 0.81 %

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ACL-Loans to nonperforming loans 188.33 % 54.45 %

ACL-Loans to total loans (b)

ACL-Loans to total loans (c)

1.08 % 1.07 %

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Our historical results may not be indicative of our results for any future period.

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

(b) This measure is not a measure recognized under GAAP and is therefore considered to be a non-GAAP financial measure.

See “Non-GAAP Financial Measures” for a description of this measure and a reconciliation of this measure to its most directly comparable GAAP measure.

(d) Excludes unvested restricted stock awards.

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Actual results could differ from our current estimates, as a result of changing conditions and future events.

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

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

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

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments – Credit Losses (“ASC 326”), which requires the measurement of all expected credit losses for financial assets held at amortized cost to be based on historical experience, current condition, and reasonable and supportable forecasts.

The Company adopted this guidance effective January 1, 2023 and recorded a cumulative effect adjustment that increased the allowance for credit losses for loans and loan commitments by $6.4 million , increased deferred tax assets by $1.5 million , and decreased retained earnings by $4.9 million , net of tax.

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.

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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.

This ACL is recognized as a liability, and credit loss expense is recorded as a provision for unfunded loan commitments within the provision for credit losses in the Consolidated statements of income.

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

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

Management selected lifetime loss rate models, utilizing CRE, C&I, and Consumer specific models, to calculate the expected losses over the life of each loan based on exposure at default, loan attributes and reasonable, supportable economic forecasts.

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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.

Qualitative loss factors are based on the Company’s judgment of market, changes in loan composition or concentrations, performance trends, regulatory changes, uncertainty of macroeconomic forecasts, and other asset specific risk characteristics.

Individually evaluated loans consist of loans with credit quality indicators which are substandard or doubtful.

The Company also individually evaluates all insurance premium loans as well as a cash-secured loan to an individual.

Additionally, when loans do not share risk characteristics with other financial assets they are also evaluated individually.

Management applies its normal loan review procedures in making these judgments.

The Company individually evaluates all insurance premium

loans as well as cash-secured loans to individuals.

While these loans are considered consumer loans, the third-party Consumer ACL model is designed for unsecured lending, whereas these loans are secured.

To account for the fully secured structure of this type of loan, management determined each loan will be individually evaluated, regardless of the credit quality indicators.

To account for the fully secured structure of these loan types, management determined each loan will be individually evaluated, regardless of the credit quality indicators.

These loans are evaluated based upon their collateral, which primarily consists of cash, cash surrender value life insurance, and in some cases real estate.

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Fair value is generally calculated based on the value of the underlying collateral less an appraisal discount and the estimated cost to sell.

Loan modifications

In March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (ASU 326):

Troubled Debt Restructurings and Vintage Disclosures.

ASU 2022-02 eliminated the accounting guidance for TDRs by creditors while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty.

The Company adopted ASU 2022-02 effective January 1, 2023 and the impact was immaterial.

Derivative Instrument Valuation

The Company enters into interest rate swap agreements as part of the Company’s interest rate risk management strategy.

Management applies the hedge accounting provisions of Accounting Standards Codification (“ASC”) Topic 815, "Hedge Accounting , and formally documents at inception all relationships between hedging instruments and hedged items, as well as its risk management objectives and strategies for undertaking the various hedges.

Additionally, the Company assesses whether the derivative used in its hedging transaction is expected to be and has been highly effective in offsetting changes in the fair value or cash flows of the hedged item.

The Company discontinues hedge accounting when it is determined that a derivative is not expected to be or has ceased to be highly effective as a hedge, and then reflects changes in fair value of the derivative in earnings after termination of the hedge relationship.

The Company has interest rate swaps that qualify under ASC Topic 815, as cash flow hedges.

Cash flow hedges are used to minimize the variability in cash flows of assets or liabilities, or forecasted transactions caused by fluctuations in the contractually specified interest rates, and are recorded at fair value in other assets within the consolidated balance sheet.

Changes in the fair value of these cash flow hedges are initially recorded in accumulated other comprehensive income and subsequently reclassified into earnings when the forecasted transaction affects earnings.

The Company has one pay-fixed portfolio layer method fair value swap, designated as a hedging instrument, with a total notional amount of $150 million.

The Company designated the fair value swap under the portfolio layer method.

Under this method, the hedged item is designated as a hedged layer of a closed portfolio of financial loans that is anticipated to remain outstanding for the designated hedged period.

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 Company also has derivatives not designated as hedges.

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.

Investment Securities Valuation

Fair values of the Company’s investment securities 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 Company’s private placement municipal housing authority bonds, classified as held to maturity, have no available quoted market price.

fair value for these securities is estimated using a discounted cash flow model.

Due to the judgments and uncertainties involved in the estimation process, the estimates could result in materially different results under different assumptions and conditions.

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

Pursuant to ASU No.

2016-13, each quarter the Company individually evaluates the available for sale debt securities and held to maturity securities for impairment credit losses.

Pursuant to ASC 326, the Company individually evaluates the available for sale debt securities and held to maturity securities for impairment credit losses quarterly.

Available for sale securities include U.S.

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The analysis of the issuers’ performance and the intent of the Company to retain these securities support the determination that there was no expected credit loss, and therefore, no ACL-Securities were recognized on the corporate bond portfolio as of December 31, 2025.

Of our held to maturity securities portfolio, one security’s fair value was less than its amortized cost as of December 31, 2024.

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 December 31, 2024.

Deferred Income Taxes

In accordance with ASC Topic 740, “ Income Taxes ,” certain aspects of accounting for income taxes require significant management judgment, including assessing the realizability of Deferred Tax Assets (DTAs).

Such judgments are subjective and involve estimates and assumptions about matters that are inherently uncertain.

Should actual factors and conditions differ materially from those used by management, the actual realization of DTAs could differ materially from the amounts recorded in the Consolidated Financial Statements and the accompanying Notes thereto.

DTAs generally represent items for which a benefit has been recognized for financial accounting purposes that cannot be realized for tax purposes until a future period.

The realization of DTAs depends upon future sources of taxable income.

Valuation allowances are established for those DTAs determined not likely to be realized based on management’s judgment.

Of our held to maturity securities portfolio, four securities' fair values were less than their respective amortized costs as of December 31, 2025.

Since these are highly rated state agency and municipal obligations, the Company's expectation of nonpayment of the amortized cost basis is zero.

No allowance for ACL-Securities was recorded for these securities as of December 31, 2025.

Earnings and Performance Overview

2025 Earnings Overview

Our net income for the year ended December 31, 2024 was $9.8 million, a decrease of $26.9 million, or 73.4%, compared to the year ended December 31, 2023.

Our net income for the year ended December 31, 2025 was $35.2 million, an increase of $25.4 million, or 260.3%, compared to the year ended December 31, 2024.

Diluted earnings per share was $4.45 for the year ended December 31, 2025, compared to diluted earnings per share of $1.23 for the year ended December 31, 2024.

Our returns on average shareholders' equity and average assets for the year ended December 31, 2025, were 12.32% and 1.09%, respectively, compared to 3.60% and 0.31%, respectively for the year ended December 31, 2024.

Revenue s (net interest income plus noninterest income) for the year ended December 31, 2024 were $87.0 million, versus $99.3 million for the year ended December 31, 2023.

The decrease in revenues for the year ended December 31, 2024 was attributable to an increase in interest expense on deposits and lower gains from loan sales, partially offset by an increase in interest and fees on loans due to higher loan yields and prepayment fees.

Net income for the year ended December 31, 2025 was $35.2 million, versus $9.8 million for the year ended December 31, 2024.

The decrease in net income for the year ended December 31, 2024 was mainly due to an increase in provision for credit losses and the aforementioned decrease in revenues partially offset by a decrease in income tax expense.

Net interest income for the year ended December 31, 2024 was $83.3 million, a decrease of $11.2 million compared to the year ended December 31, 2023.

Our net interest margin decreased 28 basis points to 2.70% for the year ended December 31, 2024 compared to the year ended December 31, 2023.

The decrease in the net interest margin was due to an increase in funding costs partially offset by an increase in yields on earning assets.

The increase in net income for the year ended December 31, 2025 was primarily due to the aforementioned increase in revenues, a decrease in provision for credit losses, partially offset by an increase in income tax expense.

Revenues (net interest income plus noninterest income) for the year ended December 31, 2025 were $108.3 million, versus $87.0 million for the year ended December 31, 2024.

The increase in revenues for the year ended December 31, 2025 was attributable to increased earning asset yields, a decrease in interest expense on deposits, and higher gains from loan sales.

Net interest income for the year ended December 31, 2025 was $98.9 million, an increase of $15.7 million compared to the year ended December 31, 2024.

Our net interest margin increased 46 basis points to 3.16% for the year ended December 31, 2025 compared to the year ended December 31, 2024.

The increase in the net interest margin was due to an increase in yields on loans and a decrease in funding costs.

Results of Operations

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Premium amortization and discount accretion are included in the res pective interest income and interest expense amounts.

FTE net interest income for the years ended Dece mber 31, 2024 and 2023 was $83.7 million and $94.7 million, respectively.

FTE net interest income decreased primarily due to an increase in interest expense partially offset by an increase in interest income attributable to higher loan yields.

FTE basi s interest income for the year ended December 31, 2024 increased $3.7 million, or 2.0%, to $192.4 million compared to FTE basis interest income for the year ended December 31, 2023 due primarily to an increase in commercial real estate loans.

Average interest earning assets were $3.1 billion for the year ended December 31, 2024, decreasing by $72.4 million, or 2.3%, from the year ended December 31, 2023.

The average balance of total loans decreased $79.2 million, or 2.9%.

The total average balance of securities for the year ended December 31, 2024 increased by $13.0 million, or 10.0, from the year ended December 31, 2023.

The total yield in earnings assets increased to 6.09% at December 31, 2024, compared to 5.86% at December 31, 2023.

The increase in earning asset yield was primarily driven by higher yields on loans, as well as higher yields on our cash and securities balances as a result of the overall higher interest rate environment in 2024.

Interest expense for the year ended December 31, 2024 increased by $14.7 million, or 15.7%, compared to interest expense for the year ended December 31, 2023 due to an interest expense on deposits, resulting from an increase in rates paid on interest bearing deposits.

FTE net interest income for the years ended December 31, 2025 and 2024 was $99.5 million and $83.7 million, respectively.

FTE net interest income increased due to a decrease in interest expense and an increase in interest income attributable to higher loan yields.

FTE basis interest income for the year ended December 31, 2025 increased $6.5 million, or 3.37%, to $198.9 million compared to FTE basis interest income for the year ended December 31, 2024, due primarily to an increase in commercial real estate loans.

Average interest earning assets were $3.1 billion for the year ended December 31, 2025, increasing by $40.4 million, or 1.30%, from the year ended December 31, 2024.

Distribution of Assets, Liabilities and Stockholders’ Equity;

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

(2) The adjustment for securities and loans taxable equivalency was $383 thousand and $207 thousand, respectively, for the years ended December 31, 2024 and 2023.

(2) The adjustment for securities and loans taxable equival ency was $539 thous and and $383 thousand, respectively, for the years ended December 31, 2025 and 2024.

Tax exempt income was converted to a fully taxable equivalent basis at a 20 percent tax rate for 2025 and 2024.

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The provision for credit losses for the year ended December 31, 2025 was $1.0 million compared to a $22.6 million provision for credit losses for the year ended December 31, 2024.

The increase in the provision for credit losses during the year was primarily due to net charge offs.

The decrease in the provision for credit losses during the year was primarily due to net charge offs taken during the year ended December 31, 2024.

Noninterest Income

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(Dollars in thousands)

Gains and fees from sales of loans $ 523 $ 1,972 $ (1,449) (73) %

Gains and fees from sales of loans $ 5,078 $ 523 $ 4,555 Favorable

Bank owned life insurance 1,416 1,356 60 4.4

Service charges and fees 2,826 1,963 863 44.0

Other (124) 49 (173) Unfavorable

Total noninterest income $ 3,718 $ 4,842 $ (1,124) (23) %

Noninterest income decreased by $1.1 million to $3.7 million for the year ended December 31, 2024, compared to the year ended December 31, 2023.

The decrease for the year ended December 31, 2024 was mainly driven by a decrease in gains on SBA loan sales partially offset by an increase in service charges and fees.

Other 68 (124) 192 Favorable

Total noninterest income $ 9,388 $ 3,718 $ 5,670 Favorable

Noninterest income increased by $5.7 million to $9.4 million for the year ended December 31, 2025, compared to the year ended December 31, 2024.

The increase for the year ended December 31, 2025 was mainly driven by higher gains from SBA loan sales.

Noninterest Expense

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Noninterest expense increased by $7.7 million, or 15.2%, to $58.8 million for the year ended December 31, 2025 compared to the year ended December 31, 2024.

The increase in noninterest expense was primarily driven by increases in professional services and occupancy and equipment costs, partially offset by decreases in salaries and employee benefits and FDIC insurance expense due to reduced brokered deposit balances.

The increase in noninterest expense was primarily attributable to an increase in salaries and employee benefits resulting from incremental new hires in support of strategic initiatives.

Additionally, professional services increased, reflecting higher recruiting costs aligned with these initiatives.

Income tax expense for the years ended December 31, 2025 and 2024 totaled $13.3 million and $3.6 million, respectively.

The effective tax rates for the years ended December 31, 2025 and 2024, were 27.4% and 26.7%, respectively.

Our net deferred tax asset at December 31, 2024 was $9.7 million, compared to $9.4 million at December 31, 2023.

On October 8, 2015, the Bank established a wholly-owned subsidiary, Bankwell Loan Servicing Group, Inc.

(a Passive Investment Company “PIC”).

The PIC was organized in accordance with Connecticut statutes to hold and manage certain loans that are collateralized by real estate.

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

On October 8, 2015, the Bank established a wholly-owned subsidiary, Bankwell Loan Servicing Group, Inc., which serves as a Passive Investment Company (“PIC”).

The PIC is organized in accordance with Connecticut statutes to hold and manage certain loans that are collateralized by real estate.

Income earned by the PIC is exempt from Connecticut income tax and any dividends paid by the PIC to the Bank are not taxable income for Connecticut income tax purposes.

See Note 13 to our Consolidated Financial Statements for further information regarding income taxes.

Financial Condition

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Commercial real estate.

Commercial real estate loans were $1.9 billion and represented 70% of our total loan portfolio at December 31, 2024, a net decrease of $48.5 million, or 2.5%, from December 31, 2023.

Commercial real estate loans were $1.9 billion and represented 68.0% of our total loan portfolio at December 31, 2025, an increase of $31.8 million, or 1.7%, from December 31, 2024.

Commercial real estate loans are secured by a variety of property types, including healthcare facilities, office buildings, retail facilities, commercial mixed use and multi-family dwellings.

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Commercial business.

Commercial business loans were $515.1 million and represented 19.0% of our total loan portfolio at December 31, 2024, a net increase of $14.6 million, or 2.9%, from December 31, 2023.

Commercial business loans were $645.3 million and represented 22.7% of our total loan portfolio at December 31, 2025, an increase of $130.2 million, or 25.3%, from December 31, 2024.

Commercial business loans primarily provide working capital, equipment financing, financing for leasehold improvements and financing for expansion and are generally secured by assignments of corporate assets, real estate and personal guarantees of the business owners.

Consumer loans.

Consumer loans wer e $75.3 million and represented 2.8% of our total loan portfolio as of December 31, 2024, an increase of $39.3 million, or 108.9%.

Consumer loans were $76.9 million and represented 2.7% of our total loan portfolio as of December 31, 2025, an increase of $1.5 million, or 2.1%.

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

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

Current environment

We evaluate the appropriateness of our underwriting standards in response to changes in national and regional economic conditions, including such matters as market interest rates, energy prices, trends in real estate values, and employment levels.

Based on our assessment of these matters, underwriting standards and credit monitoring activities are enhanced from time to time in response to changes in these conditions.

In response to the recent economic environment, the Company adopted expanded monitoring and reporting on our loan portfolio, including:

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

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

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

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

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

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

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

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

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

During 2024 , we conducted a detailed review of every general office loan in our portfolio.

As of December 31, 2025, the Bank had $163.0 million of loans collateralized by offices, which represented 8.4% of the total loan portfolio.

Most of the properties in this portfolio are in suburban locations.

96.6% of this portfolio was pass rated, and there were two relationships totaling $5.5 million on nonaccrual status.

W e also performed an additional review of our multifamily exposure.

91.0% of this portfolio was pass rated, and there was one relationship totaling $5.3 million on nonaccrual status.

As of December 31, 2025, we had $267.8 million of loans collateralized by multifamily properties, which represented 9.4% of the total loan portfolio.

89.0% of the portfolio is pass rated, and there was one relationship totaling $27.1 million on nonaccrual status.

These properties are all located in Connecticut, New York, New Jersey, or Pennsylvania, with t he majority in sub urban locations.

Nine properties totaling $51.6 million, with an average balance of $5.7 million, ar e in New York City.

78.2% of the portfolio is pass rated and current;

these properties are all located in Connecticut, New York, New Jersey, or Pennsylvania, with the majority in suburban locations, with eight properties totaling $49.8 million located in New York City.

78.3% of the New York City exposure is located in Brooklyn, 11.9% in Manhattan, and the remaining 9.8% in Queens.

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

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While collateral provides assurance as a secondary source of repayment, the Company ordinarily requires the primary source of repayment for commercial loans, to be based on the borrower’s ability to generate continuing cash flows.

In the fourth quarter of 2017 management made the strategic decision to cease originating residential mortgage loans.

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

Management discontinued residential mortgage loan originations in 2017 and ceased offering home equity loans and lines of credit in 2019.

The Company’s policy for residential lending generally required that the amount of the loan may not exceed 80% of the original appraised value of the property.

In certain situations, the amount may have exceeded 80% LTV either with private mortgage insurance being required for that portion of the residential loan in excess of 80% of the ap praised value of the property or where secondary financing is provided by a housing authority program second mortgage, a community’s low/moderate income housing program, or a religious or civic organization.

Credit quality indicators.

The Company measures credit risk within its loan portfolios through the use of a credit risk rating system.

The risk rating reflects management’s assessment of a loan’s overall risk, considering the character and creditworthiness of the borrower and any guarantor, the borrower’s capacity to service the debt, the availability of credit enhancements or other sources of repayment, and the quality, value, and coverage of collateral, if applicable.

The following table presents credit risk ratings as of December 31, 2025, and December 31, 2024:

Credit Risk Ratings

At December 31,

(Dollars in thousands)

Pass $ 2,711,179 $ 2,557,136

Special Mention (1)

80,429 93,214

Substandard 48,464 54,083

Doubtful — 1,455

Total loans $ 2,840,072 $ 2,705,888

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

Credit risk management involves a partnership between our relationship managers and our credit approval, portfolio management, credit administration and collections staff.

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Acquired loans that have evidence of deterioration in credit quality since origination and for which it is probable, at acquisition, that all contractually required payments will not be collected are initially recorded at fair value without recording an ACL-Loans.

The fair value of the loans is determined using market participant assumptions to estimate the amount and timing of principal and interest cash flows initially expected to be collected on the loans and discounting those cash flows at an appropriate market rate of interest.

The fair value of the loans is determined by using market participant assumptions to estimate the amount and timing of principal and interest cash flows initially expected to be collected on the loans and discounting those cash flows at an appropriate market rate of interest.

Under the accounting model for acquired loans, the excess of cash flows expected to be collected over the carrying amount of the loans, referred to as the “accretable yield”, is accreted into interest income over the life of the loans.

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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 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.

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Total loans $ 493 $ 237 $ 43,380 $ 44,110

Total pa st due loans totaled $44.1 million and represented 1.63% of total loans as of December 31, 2024, increasing $22.8 million from December 31, 2023.

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

Modifications .

Loans are considered restructured when the borrower is experiencing financial difficulties and the Bank has granted concessions to a borrower due to the borrower’s financial condition that we otherwise would not have considered.

Loans are considered modified when the borrower is experiencing financial difficulties and the Bank has granted concessions to a borrower due to the borrower’s financial condition that we otherwise would not have considered.

These concessions may include modifications of the terms of the debt such as reduction of the stated interest rate other than normal market rate adjustments, extension of maturity dates, or reduction of principal balance or accrued interest.

The decision to restructure a loan, rather than aggressively enforcing the collection of the loan, may benefit us by increasing the ultimate probability of collection.

Restructured loans are classified as accruing or nonaccruing based on management’s assessment of the collectability of the loan.

Loans which are already on nonaccrual status at the time of the restructuring generally remain on nonaccrual status for approximately six months before management considers such loans for return to accruing status.

Accruing restructured loans are placed into nonaccrual status if and when the borrower fails to comply with the restructured terms and management deems it unlikely that the borrower will return to a status of compliance in the near term.

The decision to modify a loan, rather than aggressively enforcing the collection of the loan, may benefit us by increasing the ultimate probability of collection.

Modified loans are classified as accruing or nonaccruing based on management’s assessment of the collectability of the loan.

Loans which are already on nonaccrual status at the time of the modifying generally remain on nonaccrual status for approximately six months before management considers such loans for return to accruing status.

Accruing modified loans are placed into nonaccrual status if and when the borrower fails to comply with the modified terms and management deems it unlikely that the borrower will return to a status of compliance in the near term.

There were no nonaccrual loans modified during the years ended December 31, 2025 and 2024 .

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We cannot predict the extent to which economic conditions or other factors may impact borrowers and the potential problem loans.

Accordingly, there can be no assurance that other loans will not become 90 days or more past due, be placed on nonaccrual, become restructured, or require increased allowance coverage and provision for credit losses.

Accordingly, there can be no assurance that other loans will not become 90 days or more past due, be placed on nonaccrual, become modified, or require increased allowance coverage and provision for credit losses.

Potential problem loans are assessed for loss exposure using the methods described in Note 5 to our Consolidated Financial Statements under the caption “Credit Quality Indicators”.

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Balance at beginning of period $ 29,007 $ 27,946

Day 1 CECL Adjustment on January 1, 2023 — 5,079

Residential real estate — (141)

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Balance at end of period $ 30,705 $ 29,007

Net charge-offs or (recoveries) to average loans 0.81 % 0.03 %

Net (recoveries) or charge-offs to average loans (0.01) % 0.81 %

ACL-Loans to total loans

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At December 31, 2025, the carrying value of our investment securities portfolio totaled $192.1 million and represented 6% of total assets, compared to $146.1 million and 4% of total assets at December 31, 2024.

The increase of $18.5 million primarily reflects purchases of held to maturity securities.

The increase of $46.0 million primarily reflects purchases of available for sale securities.

We purchase investment grade securities with a focus on liquidity, earnings and duration exposure.

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CDARS one-way and ICS one-way buy transactions are considered to be brokered deposits for bank regulatory purposes.

Time deposits may also be generated through the use of a listing service.

We subscribe to a listing service, accessible to financial institutions, in which we may advertise our time deposit rates.

Interested financial institutions then contact us directly to acquire a time certificate of deposit.

There is no third party brokerage service involved in this transaction.

Time deposits may also be generated through the use of listing services.

We utilize both consumer‑facing listing platforms, which allow depositors to view our advertised time‑deposit rates and open a time certificate of deposit via Bankwell Direct, as well as listing services used by financial institutions.

Interested financial institutions will contact us directly to acquire a time certificate of deposit.

There is no third party brokerage service involved in these transactions.

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

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

Brokered certificates of deposits ("Brokered CDs") to taled $651.5 million a nd $860.5 million at December 31, 2024 and December 31, 2023, respectively.

Brokered certificates of deposits ("Brokered CDs") totaled $505.0 million and $651.5 million at December 31, 2025 and December 31, 2024, respectively.

Brokered money market accounts totaled $53.7 million and $53.5 million at December 31, 2025 and 2024, respectively.

There were no certificates of deposits from national listing services, one-way buy CDARS or one-way buy ICS at December 31, 2024 or December 31, 2023.

Certificates of deposits from national listing services were $42.3 million and $109.1 million as of December 31, 2025 and December 31, 2024, respectively.

There were no certificates of deposits from one-way buy CDARS or one-way buy ICS at December 31, 2025 or December 31, 2024.

Brokered deposits are comprised of Brokered CDs, brokered money market accounts, one-way buy CDARS, and one-way buy ICS.

As of December 31, 2024, our FDIC insured deposits were $2,008.2 million, or 72% of total deposits.

As of December 31, 2025, our FDIC insured deposits were $1.9 billion, or 68% of total deposits.

Additionally, $78.6 million of deposits are insured by standby letters of credit with the Federal Home Loan Bank of Boston, or 3% of total deposits.

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Federal Home Loan Bank Advances and Other Borrowings

The Bank is a member of the FHLB, which is part of a twelve district Federal Home Loan Bank System.

The Bank is a member of the FHLB, which is part of the Federal Home Loan Bank System.

Members are required to own capital stock of the FHLB, and borrowings are collateralized by qualifying assets not otherwise pledged.

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In accordance with agreements with the FHLB, the qualified collateral must be free and clear of liens, pledges and encumbrances.

At December 31, 2024, the Bank had pledged $742.6 million of eligible loans as collateral to support borrowing capacity at the FHLB of Boston.

At December 31, 2025, the Bank had pledged $847.6 million of eligible loans and investment securities as collateral to support borrowing capacity at the FHLB of Boston.

As of December 31, 2025, the Bank had immediate availability to borrow an additional $426.0 million ba sed on qualified collateral.

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Weighted average interest rate at end of period 4.42 % 3.91 %

3.91 % 3.24 %

(1) In 2023, $50 million of the Company's FHLB borrowings were subject to longer term interest rate swap agreements and the average rate reflects the "all-in" swap costs under these agreements.

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.

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Derivatives designated as hedging instruments:

Interest rate swaps $ 75,000 Other assets $ 3,259 $ — Accrued expenses and other liabilities $ —

Interest rate swap $ 25,000 Other assets $ 1,925 $ — Accrued expenses and other liabilities $ —

Fair value swap $ — Other assets $ — $ 150,000 Accrued expenses and other liabilities $ 156

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Capital Resources

Shareholders’ equity totaled $270.5 million as of December 31, 2024, an increase of $4.8 million compared to December 31, 2023, primarily a result of (i) net income of $9.8 million for the year ended December 31, 2024.

Shareholders’ equity totaled $301.5 million as of December 31, 2025, an increase of $31.0 million compared to December 31, 2024, primarily a result of net income of $35.2 million for the year ended December 31, 2025.

The increase was partially offset by dividends paid of $6.3 million.

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At December 31, 2025, the Bank’s ratio of total common equity Tier 1 capital to risk-weighted assets was 11.87%, total capital to risk-weighted assets was 12.94%, Tier 1 capital to risk-weighted assets was 11.87% and Tier 1 capital to average assets was 10.56%.

At December 31, 2024, the

Company met all capital adequacy requirements to which it was subject and exceeded the regulatory minimum capital levels to be considered well-capitalized under th e regulatory framework for prompt corrective action.

At December 31, 2024, the Company’s ratio of Common Equity Tier 1 capital to risk-weighted assets was 9.60%, total capital to risk-weighted assets was 13.14%, Tier 1 capital to risk-weighted assets was 9.60% and Tier 1 capital to average assets was 8.34%.

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 Tier 1 equity in an amount above the minimum risk-based capital requirements for “adequately capitalized” institutions equal to 2.5% of total risk-weighted assets, resulting in a requirement for the Company and the Bank to effectively maintain common equity Tier 1, Tier 1 and total capital ratios of 7.0%, 8.5% and 10.5%, respectively.

At December 31,

2025, the Company met all capital adequacy requirements to which it was subject and exceeded the regulatory minimum capital levels to be considered well-capitalized under th e regulatory framework.

At December 31, 2025, the Company’s ratio of Common Equity Tier 1 capital to risk-wei ghted assets was 10.23%, total capital to risk-weighted assets was 13.69%, Tier 1 capital to risk-weighted assets was 10.23% and Tier 1 capital to average assets was 9.11%.

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

The Company and the Bank must maintain the capital conservation buffer to avoid restrictions on the ability to pay dividends, pay discretionary bonuses, or to engage in share repurchases.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis