Bankwell Financial Group Inc.
11/05/2025 | Press release | Distributed by Public on 11/05/2025 12:29
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
This section presents management's perspective on our financial condition and results of operations. The following discussion and analysis should be read in conjunction with the unaudited interim consolidated financial statements and related notes contained elsewhere in this report on Form 10-Q. To the extent that this discussion describes prior performance, the descriptions relate only to the periods listed, which may not be indicative of future financial outcomes. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause results to differ materially from management's expectations. Factors that could cause such differences are discussed in the Company's Form 10-K filed for the year ended December 31, 2024 in the sections titled "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors." We assume no obligation to update any of these forward-looking statements.
General
Bankwell Financial Group, Inc. is a bank holding company headquartered in New Canaan, Connecticut. Through our wholly-owned subsidiary, Bankwell Bank, or the Bank, we serve small and medium-sized businesses and retail clients. We have a history of building long-term client relationships and attracting new clients through what we believe is out superior service and our ability to deliver a diverse product offering.
The following discussion and analysis presents our results of operations and financial condition on a consolidated basis. However, because we conduct all of our material business operations through the Bank, the discussion and analysis relates to activities primarily conducted at the Bank.
We generate most of our revenue from interest on loans and investments and fee-based revenues. Our primary source of funding for our loans is deposits. Our largest expenses are interest on deposits and salaries and related employee benefits. We measure our performance primarily through our net interest margin, efficiency ratio, ratio of ACL-Loans to total loans, return on average assets and return on average equity, among other metrics, while maintaining appropriate regulatory leverage and risk-based capital ratios.
Executive Overview
We are focused on being the banking provider of choice and serving as an alternative to our larger competitors. We aim to do this through:
•Responsive, client-centric products and services;
•Organic growth and strategic acquisitions when market opportunities present themselves;
•Utilization of efficient and scalable infrastructure; and
•Disciplined focus on risk management.
Critical Accounting Policies and Estimates
The discussion and analysis of our results of operations and financial condition are based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires us to make significant estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Actual results could differ from our current estimates, as a result of changing conditions and future events. We believe that accounting estimates related to the measurement of the ACL-Loans, the valuation of derivative instruments, investment securities and deferred income taxes, and the evaluation of ACL-Securities are particularly critical and susceptible to significant near-term change.
Earnings and Performance Overview
Revenues (net interest income plus noninterest income) for the three months ended September 30, 2025 were $28.5 million, versus $21.9 million for the quarter ended September 30, 2024. Revenues for the nine months ended September 30, 2025 were $78.0 million, versus $65.8 million for the nine months ended September 30, 2024. The increase in revenues for the quarter and nines months ended September 30, 2025 was attributable to increased earning asset yields, a decrease in interest expense on deposits, and higher gains from loan sales.
Net income available to common shareholders was $10.1 million, or $1.27 per diluted share, and $1.9 million, or $0.24 per diluted share, for the three months ended September 30, 2025 and 2024, respectively. Net income available to common shareholders was $26.1 million, or $3.29 per diluted share, and $6.8 million, or $0.86 per diluted share, for the nine months ended September 30, 2025 and 2024, respectively. The increase in net income for the quarter and nine months ended September 30, 2025 was primarily due to the aforementioned increase in revenues and a decrease in provision for credit losses.
Returns on average shareholders' equity and average assets for the three months ended September 30, 2025 were 13.84% and 1.24%, respectively, compared to 2.83% and 0.24%, respectively, for the three months ended September 30, 2024. Returns on average shareholders' equity and average assets for the nine months ended September 30, 2025 were 12.37% and 1.08%, respectively, compared to 3.35% and 0.29%, respectively, for the nine months ended September 30, 2024.
Results of Operations
Net Interest Income
Net interest income is the difference between interest earned on loans and securities and interest paid on deposits and other borrowings, and is the primary source of our operating income. Net interest income is affected by the level of interest rates, changes in interest rates and changes in the amount and composition of interest earning assets and interest bearing liabilities. Included in interest income are certain loan fees, such as deferred origination fees and late charges. We convert tax-exempt income to a fully taxable equivalent ("FTE") basis using the statutory federal income tax rate adjusted for applicable state income taxes net of the related federal tax benefit. The average balances are principally daily averages. Interest income on loans includes the effect of deferred loan fees and costs accounted for as yield adjustments. Premium amortization and discount accretion are included in the respective interest income and interest expense amounts.
FTE net interest income for the three months ended September 30, 2025 and 2024 was $26.1 million and $20.8 million, respectively. FTE net interest income for the nine months ended September 30, 2025 and 2024 was $72.4 million and $63.3 million, respectively.
FTE interest income for the three months ended September 30, 2025 increased by $2.4 million, or 5.0%, to $50.7 million, compared to FTE interest income for the three months ended September 30, 2024. FTE interest income for the nine months ended September 30, 2025 increased by $3.8 million, or 2.6%, to $148.1 million, compared to FTE interest income for the nine months ended September 30, 2024. This increase was due to an increase in interest and fees on loans due to higher overall loan yields.
Interest expense for the three months ended September 30, 2025 decreased by $2.9 million compared to interest expense for the three months ended September 30, 2024. Interest expense for the nine months ended September 30, 2025 decreased by $5.3 million compared to interest expense for the nine months ended September 30, 2024. The decrease in interest expense for the three and nine months ended September 30, 2025 was driven by a decrease in interest expense on deposits, resulting from a decrease in rates on interest bearing deposits and improved deposit mix.
Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rates and Interest Differential
The following tables present the average balances and yields earned on interest earning assets and average balances and weighted average rates paid on our funding liabilities for the three and nine months ended September 30, 2025 and 2024.
| For the Quarter Ended | |||||||||||||||||||||||||||||||||||
| September 30, 2025 | September 30, 2024 | ||||||||||||||||||||||||||||||||||
|
Average Balance |
Interest |
Yield/
Rate (4)
|
Average Balance |
Interest |
Yield/
Rate (4)
|
||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||
| Cash and Fed funds sold | $ | 278,698 | $ | 2,853 | 4.06 | % | $ | 253,664 | $ | 3,205 | 5.03 | % | |||||||||||||||||||||||
|
Securities(1)
|
142,677 | 1,463 | 4.10 | 147,431 | 1,390 | 3.78 | |||||||||||||||||||||||||||||
| Loans: | |||||||||||||||||||||||||||||||||||
| Commercial real estate | 1,856,645 | 29,662 | 6.25 | 1,905,506 | 28,288 | 5.81 | |||||||||||||||||||||||||||||
| Residential real estate | 34,518 | 510 | 5.91 | 47,481 | 736 | 6.20 | |||||||||||||||||||||||||||||
| Construction | 173,380 | 3,536 | 7.98 | 156,273 | 3,070 | 7.69 | |||||||||||||||||||||||||||||
| Commercial business | 572,187 | 11,634 | 7.96 | 512,507 | 10,783 | 8.23 | |||||||||||||||||||||||||||||
| Consumer | 63,627 | 986 | 6.15 | 41,845 | 719 | 6.84 | |||||||||||||||||||||||||||||
| Total loans | 2,700,357 | 46,328 | 6.71 | 2,663,612 | 43,596 | 6.40 | |||||||||||||||||||||||||||||
| Federal Home Loan Bank stock | 6,942 | 89 | 5.11 | 5,655 | 122 | 8.32 | |||||||||||||||||||||||||||||
| Total earning assets | 3,128,674 | $ | 50,733 | 6.34 | % | 3,070,362 | $ | 48,313 | 6.16 | % | |||||||||||||||||||||||||
| Other assets | 98,547 | 90,410 | |||||||||||||||||||||||||||||||||
| Total assets | $ | 3,227,221 | $ | 3,160,772 | |||||||||||||||||||||||||||||||
| Liabilities and shareholders' equity: | |||||||||||||||||||||||||||||||||||
| Interest bearing liabilities: | |||||||||||||||||||||||||||||||||||
| NOW | $ | 99,087 | $ | 124 | 0.50 | % | $ | 94,958 | $ | 44 | 0.18 | % | |||||||||||||||||||||||
| Money market | 883,440 | 8,479 | 3.81 | 832,430 | 8,597 | 4.11 | |||||||||||||||||||||||||||||
| Savings | 94,290 | 700 | 2.95 | 89,463 | 692 | 3.07 | |||||||||||||||||||||||||||||
| Time | 1,253,878 | 13,282 | 4.20 | 1,347,857 | 16,246 | 4.79 | |||||||||||||||||||||||||||||
| Total interest bearing deposits | 2,330,695 | 22,585 | 3.84 | 2,364,708 | 25,579 | 4.30 | |||||||||||||||||||||||||||||
| Borrowed Money | 169,867 | 2,020 | 4.72 | 159,349 | 1,895 | 4.73 | |||||||||||||||||||||||||||||
| Total interest bearing liabilities | 2,500,562 | $ | 24,605 | 3.90 | % | 2,524,057 | $ | 27,474 | 4.33 | % | |||||||||||||||||||||||||
| Noninterest bearing deposits | 383,153 | 303,213 | |||||||||||||||||||||||||||||||||
| Other liabilities | 54,507 | 62,602 | |||||||||||||||||||||||||||||||||
| Total liabilities | 2,938,222 | 2,889,872 | |||||||||||||||||||||||||||||||||
| Shareholders' equity | 288,999 | 270,900 | |||||||||||||||||||||||||||||||||
| Total liabilities and shareholders' equity | $ | 3,227,221 | $ | 3,160,772 | |||||||||||||||||||||||||||||||
|
Net interest income(2)
|
$ | 26,128 | $ | 20,839 | |||||||||||||||||||||||||||||||
| Interest rate spread | 2.44 | % | 1.83 | % | |||||||||||||||||||||||||||||||
|
Net interest margin(3)
|
3.34 | % | 2.72 | % | |||||||||||||||||||||||||||||||
(1)Average balances and yields for securities are based on amortized cost.
(2)The adjustment for securities and loans taxable equivalency amounted to $141 thousand and $122 thousand for the three months ended September 30, 2025 and 2024, respectively.
(3)Annualized net interest income as a percentage of earning assets.
(4)Yields are calculated using the contractual day count convention for each respective product type.
| For the Nine Months Ended | |||||||||||||||||||||||||||||||||||
| September 30, 2025 | September 30, 2024 | ||||||||||||||||||||||||||||||||||
|
Average Balance |
Interest |
Yield/
Rate (4)
|
Average Balance |
Interest |
Yield/
Rate (4)
|
||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||
| Cash and Fed funds sold | $ | 307,737 | $ | 9,453 | 4.11 | % | $ | 273,138 | $ | 10,460 | 5.12 | % | |||||||||||||||||||||||
|
Securities(1)
|
147,571 | 4,474 | 4.04 | 139,871 | 3,592 | 3.42 | |||||||||||||||||||||||||||||
| Loans: | |||||||||||||||||||||||||||||||||||
| Commercial real estate | 1,830,934 | 85,371 | 6.15 | 1,909,390 | 84,582 | 5.82 | |||||||||||||||||||||||||||||
| Residential real estate | 37,838 | 1,740 | 6.13 | 48,912 | 2,226 | 6.07 | |||||||||||||||||||||||||||||
| Construction | 182,857 | 10,856 | 7.83 | 158,884 | 8,913 | 7.37 | |||||||||||||||||||||||||||||
| Commercial business | 546,700 | 32,839 | 7.92 | 517,880 | 32,097 | 8.14 | |||||||||||||||||||||||||||||
| Consumer | 72,350 | 3,125 | 5.78 | 41,383 | 2,163 | 6.98 | |||||||||||||||||||||||||||||
| Total loans | 2,670,679 | 133,931 | 6.61 | 2,676,449 | 129,981 | 6.38 | |||||||||||||||||||||||||||||
| Federal Home Loan Bank stock | 5,522 | 286 | 6.90 | 5,670 | 357 | 8.43 | |||||||||||||||||||||||||||||
| Total earning assets | 3,131,509 | $ | 148,144 | 6.24 | % | 3,095,128 | $ | 144,390 | 6.13 | % | |||||||||||||||||||||||||
| Other assets | 92,451 | 92,249 | |||||||||||||||||||||||||||||||||
| Total assets | $ | 3,223,960 | $ | 3,187,377 | |||||||||||||||||||||||||||||||
| Liabilities and shareholders' equity: | |||||||||||||||||||||||||||||||||||
| Interest bearing liabilities: | |||||||||||||||||||||||||||||||||||
| NOW | $ | 102,129 | $ | 311 | 0.41 | % | $ | 97,970 | $ | 133 | 0.18 | % | |||||||||||||||||||||||
| Money market | 891,823 | 25,579 | 3.83 | 849,860 | 26,294 | 4.13 | |||||||||||||||||||||||||||||
| Savings | 91,313 | 2,025 | 2.97 | 91,135 | 2,093 | 3.07 | |||||||||||||||||||||||||||||
| Time | 1,301,450 | 42,525 | 4.37 | 1,319,031 | 47,098 | 4.77 | |||||||||||||||||||||||||||||
| Total interest bearing deposits | 2,386,715 | 70,440 | 3.95 | 2,357,996 | 75,618 | 4.28 | |||||||||||||||||||||||||||||
| Borrowed Money | 147,519 | 5,288 | 4.79 | 159,288 | 5,450 | 4.57 | |||||||||||||||||||||||||||||
| Total interest bearing liabilities | 2,534,234 | $ | 75,728 | 4.00 | % | 2,517,284 | $ | 81,068 | 4.30 | % | |||||||||||||||||||||||||
| Noninterest bearing deposits | 356,705 | 336,129 | |||||||||||||||||||||||||||||||||
| Other liabilities | 51,354 | 62,631 | |||||||||||||||||||||||||||||||||
| Total liabilities | 2,942,293 | 2,916,044 | |||||||||||||||||||||||||||||||||
| Shareholders' equity | 281,667 | 271,333 | |||||||||||||||||||||||||||||||||
| Total liabilities and shareholders' equity | $ | 3,223,960 | $ | 3,187,377 | |||||||||||||||||||||||||||||||
|
Net interest income(2)
|
$ | 72,416 | $ | 63,322 | |||||||||||||||||||||||||||||||
| Interest rate spread | 2.24 | % | 1.83 | % | |||||||||||||||||||||||||||||||
|
Net interest margin(3)
|
3.08 | % | 2.73 | % | |||||||||||||||||||||||||||||||
(1)Average balances and yields for securities are based on amortized cost.
(2)The adjustment for securities and loans taxable equivalency amounted to $427 thousand and $239 thousand for the nine months ended September 30, 2025 and 2024, respectively.
(3)Annualized net interest income as a percentage of earning assets.
(4)Yields are calculated using the contractual day count convention for each respective product type.
Effect of changes in interest rates and volume of average earning assets and average interest bearing liabilities
The following table shows the extent to which changes in interest rates and changes in the volume of average earning assets and average interest bearing liabilities have affected net interest income. For each category of earning assets and interest bearing liabilities, information is provided relating to: changes in volume (changes in average balances multiplied by the prior year's average interest rates); changes in rates (changes in average interest rates multiplied by the prior year's average balances); and the total change. Changes attributable to both volume and rate have been allocated proportionately based on the relationship of the absolute dollar amount of change in each.
|
Three Months Ended September 30, 2025 vs 2024 Increase (Decrease) |
Nine Months Ended September 30, 2025 vs 2024 Increase (Decrease) |
||||||||||||||||||||||||||||||||||
| (In thousands) | Volume | Rate | Total | Volume | Rate | Total | |||||||||||||||||||||||||||||
| Interest and dividend income: | |||||||||||||||||||||||||||||||||||
| Cash and Fed funds sold | $ | 297 | $ | (649) | $ | (352) | $ | 1,227 | $ | (2,234) | $ | (1,007) | |||||||||||||||||||||||
| Securities | (46) | 117 | 71 | 206 | 677 | 883 | |||||||||||||||||||||||||||||
| Loans: | |||||||||||||||||||||||||||||||||||
| Commercial real estate | (739) | 2,113 | 1,374 | (3,558) | 4,347 | 789 | |||||||||||||||||||||||||||||
| Residential real estate | (193) | (33) | (226) | (509) | 23 | (486) | |||||||||||||||||||||||||||||
| Construction | 345 | 121 | 466 | 1,403 | 539 | 1,942 | |||||||||||||||||||||||||||||
| Commercial business | 1,223 | (372) | 851 | 1,754 | (1,012) | 742 | |||||||||||||||||||||||||||||
| Consumer | 345 | (77) | 268 | 1,399 | (434) | 965 | |||||||||||||||||||||||||||||
| Total loans | 981 | 1,752 | 2,733 | 489 | 3,463 | 3,952 | |||||||||||||||||||||||||||||
| Federal Home Loan Bank stock | 23 | (52) | (29) | (9) | (64) | (73) | |||||||||||||||||||||||||||||
| Total change in interest and dividend income | 1,255 | 1,168 | 2,423 | 1,913 | 1,842 | 3,755 | |||||||||||||||||||||||||||||
| Interest expense: | |||||||||||||||||||||||||||||||||||
| Deposits: | |||||||||||||||||||||||||||||||||||
| NOW | 2 | 79 | 81 | 6 | 173 | 179 | |||||||||||||||||||||||||||||
| Money market | 511 | (628) | (117) | 1,264 | (1,980) | (716) | |||||||||||||||||||||||||||||
| Savings | 36 | (27) | 9 | 4 | (72) | (68) | |||||||||||||||||||||||||||||
| Time | (1,088) | (1,876) | (2,964) | (622) | (3,950) | (4,572) | |||||||||||||||||||||||||||||
| Total deposits | (539) | (2,452) | (2,991) | 652 | (5,829) | (5,177) | |||||||||||||||||||||||||||||
| Borrowed money | 125 | - | 125 | (417) | 255 | (162) | |||||||||||||||||||||||||||||
| Total change in interest expense | (414) | (2,452) | (2,866) | 235 | (5,574) | (5,339) | |||||||||||||||||||||||||||||
| Change in net interest income | $ | 1,669 | $ | 3,620 | $ | 5,289 | $ | 1,678 | $ | 7,416 | $ | 9,094 | |||||||||||||||||||||||
Provision for Credit Losses
The provision for credit losses is based on management's periodic assessment of the adequacy of our ACL-Loans and ACL-Unfunded Commitments which, in turn, is based on interrelated factors such as the composition of our loan portfolio and its inherent risk characteristics, the level of nonperforming loans and net charge-offs, both current and historic, local economic and credit conditions, the direction of real estate values, and regulatory guidelines. The provision for credit losses is charged against earnings in order to maintain our ACL-Loans and ACL-Unfunded Commitments and reflects management's best estimate of probable losses inherent in our loan portfolio as of the balance sheet date.
The credit for credit losses for the three months ended September 30, 2025 was $0.4 million compared to a provision for credit losses of $6.3 million for the three months ended September 30, 2024. The provision for credit losses for the nine months ended September 30, 2025 was $0.4 million compared to a provision for credit losses of $18.2 million for the nine months ended September 30, 2024. The reduction in the credit for credit losses was primarily driven by charge-offs recorded during the three- and nine-month periods of the prior year.
Noninterest Income
Noninterest income is a component of our revenue and is comprised primarily of fees generated from deposit relationships with our clients, fees generated from sales and referrals of loans, and income earned on bank-owned life insurance.
The following tables compare noninterest income for the three and nine months ended September 30, 2025 and 2024:
|
Three Months Ended September 30, |
Change | ||||||||||||||||||||||
| (Dollars in thousands) | 2025 | 2024 | $ | % | |||||||||||||||||||
| Gains and fees from sales of loans | $ | 1,372 | $ | 133 | $ | 1,239 | Favorable | ||||||||||||||||
| Bank-owned life insurance | 359 | 346 | 13 | 3.8 | |||||||||||||||||||
| Service charges and fees | 779 | 575 | 204 | 35.5 | |||||||||||||||||||
| Other | (15) | 102 | (117) | Unfavorable | |||||||||||||||||||
| Total noninterest income | $ | 2,495 | $ | 1,156 | $ | 1,339 | Favorable | ||||||||||||||||
|
Nine Months Ended September 30, |
Change | ||||||||||||||||||||||
| (Dollars in thousands) | 2025 | 2024 | $ | % | |||||||||||||||||||
| Gains and fees from sales of loans | $ | 2,894 | $ | 499 | $ | 2,395 | Favorable | ||||||||||||||||
| Bank-owned life insurance | 1,055 | 1,008 | 47 | 4.7 | |||||||||||||||||||
| Service charges and fees | 2,055 | 1,374 | 681 | 49.6 | |||||||||||||||||||
| Other | 8 | (127) | 135 | Favorable | |||||||||||||||||||
| Total noninterest income | $ | 6,012 | $ | 2,754 | $ | 3,258 | Favorable | ||||||||||||||||
Noninterest income increased by $1.3 million for the three months ended September 30, 2025 compared to the three months ended September 30, 2024. Noninterest income increased by $3.3 million for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. The increase in noninterest income for the three and nine months ended September 30, 2025 was driven by higher gains from SBA loan sales.
Noninterest Expense
The following tables compare noninterest expense for the three and nine months ended September 30, 2025 and 2024:
|
Three Months Ended September 30, |
Change | ||||||||||||||||||||||
| (Dollars in thousands) | 2025 | 2024 | $ | % | |||||||||||||||||||
| Salaries and employee benefits | $ | 7,995 | $ | 6,223 | $ | 1,772 | 28.5 | % | |||||||||||||||
| Occupancy and equipment | 2,469 | 2,334 | 135 | 5.8 | |||||||||||||||||||
| Professional services | 1,412 | 1,142 | 270 | 23.6 | |||||||||||||||||||
| Data processing | 633 | 851 | (218) | (25.6) | |||||||||||||||||||
| Director fees | 333 | 292 | 41 | 14.0 | |||||||||||||||||||
| FDIC insurance | 610 | 853 | (243) | (28.5) | |||||||||||||||||||
| Marketing | 140 | 73 | 67 | 91.8 | |||||||||||||||||||
| Other | 1,039 | 1,097 | (58) | (5.3) | |||||||||||||||||||
| Total noninterest expense | $ | 14,631 | $ | 12,865 | $ | 1,766 | 13.7 | % | |||||||||||||||
|
Nine Months Ended September 30, |
Change | ||||||||||||||||||||||
| (Dollars in thousands) | 2025 | 2024 | $ | % | |||||||||||||||||||
| Salaries and employee benefits | $ | 22,568 | $ | 18,690 | $ | 3,878 | 20.7 | % | |||||||||||||||
| Occupancy and equipment | 7,549 | 6,894 | 655 | 9.5 | |||||||||||||||||||
| Professional services | 4,573 | 3,196 | 1,377 | 43.1 | |||||||||||||||||||
| Data processing | 2,230 | 2,346 | (116) | (4.9) | |||||||||||||||||||
| Director fees | 1,014 | 1,498 | (484) | (32.3) | |||||||||||||||||||
| FDIC insurance | 2,073 | 2,488 | (415) | (16.7) | |||||||||||||||||||
| Marketing | 500 | 277 | 223 | 80.5 | |||||||||||||||||||
| Other | 2,811 | 3,018 | (207) | (6.9) | |||||||||||||||||||
| Total noninterest expense | $ | 43,318 | $ | 38,407 | $ | 4,911 | 12.8 | % | |||||||||||||||
Noninterest expense increased by $1.8 million to $14.6 million for the three months ended September 30, 2025 compared to the three months ended September 30, 2024. Noninterest expense increased by $4.9 million to $43.3 million for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. The increase in noninterest expense was primarily driven by an increase in salaries and employee benefits mainly related to incremental new hires aligned with strategic initiatives. Additionally, professional services increased as a result of increased recruiting costs aligned with strategic initiatives.
Income Taxes
Income tax expense for the three months ended September 30, 2025 and 2024 totaled $3.4 million and $0.8 million, respectively. The effective tax rates for the three months ended September 30, 2025 and 2024 were 25.2% and 29.0%, respectively. Income tax expense for the nine months ended September 30, 2025 and 2024 totaled $8.2 million and $2.5 million, respectively. The effective tax rates for the nine months ended September 30, 2025 and 2024 were 23.9% and 26.6%, respectively.
Financial Condition
Summary
Assets totaled $3.2 billion at September 30, 2025 a decrease of $24.5 million or 0.7% compared to December 31, 2024. Gross loans totaled $2.7 billion at September 30, 2025, an increase of $12.3 million or 0.5% compared to December 31, 2024. Deposits totaled $2.8 billion at September 30, 2025, a decrease of $30.2 million, or 1.1% compared to December 31, 2024.
Shareholders' equity totaled $292.8 million as of September 30, 2025, an increase of $22.3 million compared to December 31, 2024, primarily a result of net income of $26.1 million for the nine months ended September 30, 2025. The increase was partially offset by dividends paid of $4.7 million.
Loan Portfolio
We originate commercial real estate loans, construction loans, commercial business loans and consumer loans in our market. We also pursue certain types of commercial lending opportunities outside our market, particularly where we have strong business relationships. Our loan portfolio is the largest category of our earning assets.
Total loans before deferred loan fees and the ACL-Loans were $2.7 billion at September 30, 2025 and $2.7 billion at December 31, 2024. Total gross loans increased $12.3 million as of September 30, 2025 compared to the year ended December 31, 2024.
The following table compares the composition of our loan portfolio for the dates indicated:
| (In thousands) |
At September 30, 2025
|
At December 31, 2024
|
Change | ||||||||||||||
| Real estate loans: | |||||||||||||||||
| Residential | $ | 33,625 | $ | 42,766 | $ | (9,141) | |||||||||||
| Commercial | 1,897,896 | 1,899,134 | (1,238) | ||||||||||||||
| Construction | 170,888 | 173,555 | (2,667) | ||||||||||||||
| 2,102,409 | 2,115,455 | (13,046) | |||||||||||||||
| Commercial business | 552,682 | 515,125 | 37,557 | ||||||||||||||
| Consumer | 63,098 | 75,308 | (12,210) | ||||||||||||||
| Total loans | $ | 2,718,189 | $ | 2,705,888 | $ | 12,301 | |||||||||||
The following table compares the composition of our commercial real estate loan portfolio by non-owner occupied and owner occupied loans at September 30, 2025and December 31, 2024:
|
At September 30, 2025
|
At December 31, 2024
|
Change | |||||||||||||||||||||||||||
| Total | % | Total | % | Total | |||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||
| Commercial real estate loans: | |||||||||||||||||||||||||||||
| Non-owner occupied | $ | 1,123,192 | 59.19 | % | $ | 1,174,712 | 61.86 | % | $ | (51,520) | |||||||||||||||||||
| Owner occupied | 774,484 | 40.81 | 724,203 | 38.14 | 50,281 | ||||||||||||||||||||||||
|
Total commercial real estate loans(1)
|
$ | 1,897,676 | 100.00 | % | $ | 1,898,915 | 100.00 | % | $ | (1,239) | |||||||||||||||||||
(1) Excludes the positive fair value effect of the portfolio layer swap of $220 thousand and the positive fair value effective of the portfolio layer swap of $219 thousand for Commercial Real Estate at September 30, 2025 and December 31, 2024, respectively.
The following table compares the composition of our commercial real estate loan portfolio by property type, and collateral location as of September 30, 2025:
| Commercial Real Estate | CT | All Other NY | NYC | NJ | FL | OH | PA | All Other |
Total(1)
|
||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Residential care(2)
|
$ | - | $ | 48,440 | $ | 57,779 | $ | 4,800 | $ | 246,319 | $ | 96,273 | $ | 22,356 | $ | 260,534 | $ | 736,501 | |||||||||||||||||||||||||||||||||||
| Retail | 94,891 | 72,612 | 7,269 | 15,486 | 8,399 | 3,344 | 33,300 | 90,057 | 325,358 | ||||||||||||||||||||||||||||||||||||||||||||
| Multifamily | 164,085 | 22,571 | 49,937 | 7,046 | - | - | 20,645 | - | 264,284 | ||||||||||||||||||||||||||||||||||||||||||||
| Office | 41,930 | 10,080 | 2,956 | 29,109 | 2,189 | - | - | 58,215 | 144,479 | ||||||||||||||||||||||||||||||||||||||||||||
| Industrial / warehouse | 63,964 | 19,233 | 18,818 | 16,827 | 2,654 | - | - | 10,832 | 132,328 | ||||||||||||||||||||||||||||||||||||||||||||
| Mixed use | 53,083 | 20,398 | 45,384 | - | - | - | - | - | 118,865 | ||||||||||||||||||||||||||||||||||||||||||||
| Medical office | 32,844 | 12,065 | 1,367 | - | - | 4,705 | 3,900 | 18,746 | 73,627 | ||||||||||||||||||||||||||||||||||||||||||||
| 1-4 family investment | 11,020 | 1,580 | 1,847 | 2,101 | 16,963 | - | - | - | 33,511 | ||||||||||||||||||||||||||||||||||||||||||||
|
All other(3)
|
19,576 | 26,345 | 22,802 | - | - | - | - | - | 68,723 | ||||||||||||||||||||||||||||||||||||||||||||
| $ | 481,393 | $ | 233,324 | $ | 208,159 | $ | 75,369 | $ | 276,524 | $ | 104,322 | $ | 80,201 | $ | 438,384 | $ | 1,897,676 | ||||||||||||||||||||||||||||||||||||
(1) Excludes the positive fair value effect of the portfolio layer swap of $220 thousand for Commercial Real Estate at September 30, 2025.
(2) Primarily consists of skilled nursing and assisted living facilities.
(3) Includes Special use, self storage, and land.
As of September 30, 2025, the Bank had $144.5 million of loans collateralized by offices, which represented 7.6% of the total loan portfolio. Most of the properties in this portfolio are in suburban locations. 95.1% of this portfolio was pass rated, and there was one relationship totaling $5.4 million on nonaccrual status. As of September 30, 2025, the Bank had $264.3 million of loans collateralized by multifamily properties, which represented 9.7% of the total loan portfolio. 89.5% of this portfolio is pass rated and current; these properties are all located in Connecticut, New York, or New Jersey, with eight properties, totaling $49.9 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 September 30, 2025.
| Commercial Real Estate |
Total CRE Portfolio(1)
|
Percentage of Total CRE Portfolio | Original Loan to Value % | ||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
| Property Type | |||||||||||||||||
|
Residential care(2)
|
$ | 736,501 | 38.8 | % | 63.0 | % | |||||||||||
| Retail | 325,358 | 13.9 | 62.9 | ||||||||||||||
| Multifamily | 264,284 | 13.9 | 62.3 | ||||||||||||||
| Office | 144,479 | 7.6 | 63.9 | ||||||||||||||
| Industrial / warehouse | 132,328 | 7.0 | 64.1 | ||||||||||||||
| Mixed use | 118,865 | 6.3 | 58.2 | ||||||||||||||
| Medical office | 73,627 | 3.9 | 62.1 | ||||||||||||||
| 1-4 family investment | 33,511 | 1.8 | 61.1 | ||||||||||||||
| All other | 68,723 | 3.6 | 53.4 | ||||||||||||||
| Total | $ | 1,897,676 | 100.0 | % | 62.3 | % | |||||||||||
(1) Excludes the positive fair value effect of the portfolio layer swap of $220 thousand for Commercial Real Estate at September 30, 2025.
(2) Primarily consists of skilled nursing and assisted living facilities.
Asset Quality
We actively manage asset quality through our underwriting practices and collection operations. Our Board of Directors monitors credit risk management. The Directors Loan Committee ("DLC") has primary oversight responsibility for the credit-granting function including approval authority for credit-granting policies, review of management's credit-granting activities and approval of large exposure credit requests, as well as loan review and problem loan management and resolution. The committee reports the results of its respective oversight functions to our Board of Directors. In addition, our Board of Directors receives information concerning asset quality measurements and trends on a monthly basis. While we continue to adhere to prudent underwriting standards, our loan portfolio is not immune to potential negative consequences as a result of general economic weakness, such as a prolonged downturn in the housing market or commercial real estate market on a national scale. Decreases in real estate values could adversely affect the value of property used as collateral for loans. In addition, adverse changes in the economy could have a negative effect on the ability of borrowers to make scheduled loan payments, which would likely have an adverse impact on earnings.
The Company has established credit policies applicable to each type of lending activity in which it engages. The Company evaluates the creditworthiness of each client and extends credit 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 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 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. The following table presents credit risk ratings as of September 30, 2025and December 31, 2024:
| Credit Risk Ratings | |||||||||||
|
September 30, 2025
|
December 31, 2024
|
||||||||||
| (In thousands) | |||||||||||
| Pass | $ | 2,609,200 | $ | 2,557,136 | |||||||
|
Special Mention(1)
|
89,630 | 93,214 | |||||||||
| Substandard | 19,359 | 54,083 | |||||||||
| Doubtful | - | 1,455 | |||||||||
| Loss | - | - | |||||||||
| Total loans | $ | 2,718,189 | $ | 2,705,888 | |||||||
(1) 99.9% and 99.6% of Risk Rated 6 loans are current on payments, 97.7% and 93.0% are guaranteed by ultra-high net worth sponsors as of September 30, 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 teams. Disciplined underwriting, portfolio monitoring and early problem recognition are important aspects of maintaining our high credit quality standards.
Nonperforming assets. Nonperforming assets include nonaccrual loans and property acquired through foreclosures or repossession. The following table presents nonperforming assets and additional asset quality data for the dates indicated:
| (In thousands) |
At September 30, 2025
|
At December 31, 2024
|
|||||||||
| Nonaccrual loans: | |||||||||||
| Real estate loans: | |||||||||||
| Residential | $ | 570 | $ | 791 | |||||||
| Commercial | 14,667 | 44,814 | |||||||||
| Commercial business | 1,729 | 7,672 | |||||||||
| Construction | - | - | |||||||||
| Consumer | - | - | |||||||||
| Total nonaccrual loans | 16,966 | 53,277 | |||||||||
| Other real estate owned | 1,284 | 8,299 | |||||||||
| Total nonperforming assets | $ | 18,250 | $ | 61,576 | |||||||
| Nonperforming assets to total assets | 0.56 | % | 1.88 | % | |||||||
| Nonaccrual loans to total loans | 0.62 | % | 1.97 | % | |||||||
| ACL-loans as a % of total loans | 1.10 | % | 1.07 | % | |||||||
| ACL-loans as a % of nonperforming loans | 176.73 | % | 54.45 | % | |||||||
| Total past due loans to total loans | 0.76 | % | 1.63 | % | |||||||
Nonaccrual loans totaled $17.0 million at September 30, 2025 and $53.3 million at December 31, 2024. In the first quarter of 2025, the Company sold a $27.1 million multifamily commercial real estate loan on nonperforming status at par value.
There was $1.3 million Other Real Estate Owned ("OREO") at September 30, 2025 and $8.3 million of OREO at December 31, 2024. During the first quarter of 2025, the Company sold a property that it had acquired during the fourth quarter of 2024 and held as an OREO asset. The OREO asset had previously secured a non-performing construction loan. The Company received net proceeds from the sale of such OREO in the amount of $8.3 million. In the second quarter of 2025, the Company took title to an industrial property, resulting in an OREO asset of $1.3 million. Efforts to market the property for sale are ongoing.
Allowance for Credit Losses - Loans ("ACL-Loans")
Our Board of Directors has adopted an Allowance for Credit Losses policy designed to provide management with a methodology for determining and documenting the allowance for credit losses for each reporting period. We evaluate the adequacy of the ACL-Loans at least quarterly, and in determining our ACL-Loans, we estimate losses on specific loans, or groups of loans, where the probable loss can be identified and reasonably determined. The balance of our ACL-Loans is based on internally assigned risk classifications of loans, the Bank's and peer banks' historical loss experience, changes in the nature of the loan portfolio, overall portfolio quality, industry concentrations, delinquency trends, current economic factors and the estimated impact of current economic conditions on certain historical loan loss rates.
Our general practice is to identify problem credits early and recognize full or partial charge-offs as promptly as practicable when it is determined that it is probable that the loan will not be repaid according to its original contractual terms, including principal and interest. Full or partial charge-offs on collateral dependent loans are recognized when the collateral is deemed to be insufficient to support the carrying value of the loan. We do not recognize a recovery when an updated appraisal indicates a subsequent increase in value of the collateral.
Our charge-off policies, which comply with standards established by our banking regulators, are consistently applied from period to period. Charge-offs are recorded on a monthly basis, as incurred. Partially charged-off loans continue to be evaluated on a monthly basis and additional charge-offs or provisions for credit losses may be recorded on the remaining loan balance based on the same criteria.
The following table presents the activity in our ACL-Loans and related ratios for the dates indicated:
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||||||||||||
| (Dollars in thousands) | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||
| Balance at beginning of period | $ | 29,256 | $ | 36,083 | $ | 29,007 | $ | 27,946 | |||||||||||||||
| Charge-offs: | |||||||||||||||||||||||
| Residential real estate | - | - | - | (141) | |||||||||||||||||||
| Commercial real estate | - | (8,184) | (67) | (12,012) | |||||||||||||||||||
| Commercial business | (14) | (7,010) | (29) | (7,207) | |||||||||||||||||||
| Consumer | (46) | (17) | (84) | (78) | |||||||||||||||||||
| Construction | - | (616) | - | (616) | |||||||||||||||||||
| Total charge-offs | (60) | (15,827) | (180) | (20,054) | |||||||||||||||||||
| Recoveries: | |||||||||||||||||||||||
| Residential real estate | - | - | - | 141 | |||||||||||||||||||
| Commercial real estate | 270 | 1,013 | 270 | 1,126 | |||||||||||||||||||
| Commercial business | 86 | (34) | 202 | (7) | |||||||||||||||||||
| Consumer | 12 | 1 | 58 | 18 | |||||||||||||||||||
| Construction | - | - | - | - | |||||||||||||||||||
| Total recoveries | 368 | 980 | 530 | 1,278 | |||||||||||||||||||
| Net recoveries (charge-offs) | 308 | (14,847) | 350 | (18,776) | |||||||||||||||||||
| (Credit) provision for credit losses - loans | 420 | 6,516 | 627 | 18,582 | |||||||||||||||||||
| Balance at end of period | $ | 29,984 | $ | 27,752 | $ | 29,984 | $ | 27,752 | |||||||||||||||
| Net (recoveries) charge-offs to average loans | (0.01) | % | 0.56 | % | (0.01) | % | 0.70 | % | |||||||||||||||
| ACL-Loans to total loans | 1.10 | % | 1.06 | % | 1.10 | % | 1.06 | % | |||||||||||||||
At September 30, 2025, our ACL-Loans was $30.0 million and represented 1.10% of total gross loans, compared to $29.0 million or 1.07% of total gross loans, at December 31, 2024.
The following table presents the allocation of the ACL-Loans balance and the related allocation percentage of these loans across the total loan portfolio:
|
September 30, 2025
|
December 31, 2024
|
||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ACL-Loans Amount | ACL-Loans Percentage | Loan Segment to Total Loans Percentage | ACL-Loans Amount | ACL-Loans Percentage | Loan Segment to Total Loans Percentage | |||||||||||||||||||||||||||||
| Residential real estate | $ | 58 | 0.2 | % | 1.3 | % | $ | 94 | 0.3 | % | 1.6 | % | |||||||||||||||||||||||
| Commercial real estate | 20,338 | 67.8 | 69.8 | 21,838 | 75.3 | 70.2 | |||||||||||||||||||||||||||||
| Construction | 2,548 | 8.5 | 6.3 | 2,059 | 7.1 | 6.4 | |||||||||||||||||||||||||||||
| Commercial business | 5,772 | 19.3 | 20.3 | 4,070 | 14.0 | 19.0 | |||||||||||||||||||||||||||||
| Consumer | 1,268 | 4.2 | 2.3 | 946 | 3.3 | 2.8 | |||||||||||||||||||||||||||||
| Total ACL-Loans | $ | 29,984 | 100.0 | % | 100.0 | % | $ | 29,007 | 100.0 | % | 100.0 | % | |||||||||||||||||||||||
The allocation of the ACL-Loans at September 30, 2025 reflects our assessment of credit risk and probable loss within each portfolio. We believe that the level of the ACL-Loans at September 30, 2025 is appropriate to cover probable losses.
ACL- Unfunded Commitments
The ACL-Unfunded Commitments provision is based on "forward looking" losses inherent with funding the unused portion of legal commitments to lend. The reserve for unfunded credit commitments is included within other liabilities in the accompanying Consolidated Balance Sheets. Changes in the ACL-Unfunded Commitments are reported as a component of the Provision for credit losses in the accompanying Consolidated Statements of Income.
Investment Securities
At September 30, 2025, the carrying value of our investment securities portfolio totaled $128.2 million and represented 4.0% of total assets, compared to $146.1 million, or 4.5% of total assets, at December 31, 2024.
The net unrealized loss position on our investment portfolio at September 30, 2025 was $1.3 million and included gross unrealized gains of $1.7 million. The net unrealized loss position on our investment portfolio at December 31, 2024 was $4.9 million and included gross unrealized gains of $1.3 million.
Deposit Activities and Other Sources of Funds
|
September 30, 2025
|
December 31, 2024
|
||||||||||||||||||||||
| (Dollars in thousands) | Amount | Percent | Amount | Percent | |||||||||||||||||||
| Noninterest bearing demand | $ | 397,408 | 14.4 | % | $ | 321,875 | 11.5 | % | |||||||||||||||
| NOW | 84,736 | 3.1 | 105,090 | 3.8 | |||||||||||||||||||
| Money market | 897,387 | 32.5 | 899,413 | 32.3 | |||||||||||||||||||
| Savings | 95,242 | 3.5 | 90,220 | 3.2 | |||||||||||||||||||
| Time | 1,282,642 | 46.5 | 1,370,972 | 49.2 | |||||||||||||||||||
| Total deposits | $ | 2,757,415 | 100.0 | % | $ | 2,787,570 | 100.0 | % | |||||||||||||||
Total deposits were $2.8 billion at September 30, 2025, a decrease of $30.2 million, from the balance at December 31, 2024.
Brokered certificates of deposits totaled $555.0 million at September 30, 2025 and $651.5 million at December 31, 2024, respectively. Brokered money market accounts totaled $53.7 million at September 30, 2025and $53.5 millionat December 31, 2024, respectively. Certificates of deposits from national listing services were$54.6 millionand $109.1 million as of September 30, 2025 and December 31, 2024, respectively. There were no one-way buy CDARS or one-way buy ICS at September 30, 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 September 30, 2025, our FDIC insured deposits were $1,974.7 million, or 72% of total deposits. Additionally, deposits totaling $78.3 million, or 3% of total deposits, are secured by standby letters of credit with the Federal Home Loan Bank of Boston.
At September 30, 2025 and December 31, 2024, time deposits with a denomination of $100 thousand or more, including CDARS and brokered deposits, totaled $1.1 billion and $1.2 billion, respectively, maturing during the periods indicated in the table below:
| (Dollars in thousands) |
September 30, 2025
|
December 31, 2024
|
|||||||||
| Maturing: | |||||||||||
| Within 3 months | $ | 303,528 | $ | 421,808 | |||||||
| After 3 but within 6 months | 293,393 | 326,115 | |||||||||
| After 6 months but within 1 year | 502,320 | 419,098 | |||||||||
| After 1 year | 3,804 | 19,429 | |||||||||
| Total | $ | 1,103,045 | $ | 1,186,450 | |||||||
We utilize advances from the Federal Home Loan Bank of Boston, or FHLB, as part of our overall funding strategy and to meet short-term liquidity needs, and to a lesser degree, manage interest rate risk arising from the difference in asset and liability maturities. Total FHLB advances were $75.0 million and $90.0 millionat September 30, 2025 and December 31, 2024, respectively.
The Bank has additional borrowing capacity at the FHLB up to a certain percentage of the value of qualified collateral. In accordance with agreements with the FHLB, the qualified collateral must be free and clear of liens, pledges and encumbrances. At September 30, 2025, the Bank had pledged $716.6 million of eligible loans as collateral to support borrowing capacity at the FHLB. As of September 30, 2025, the Bank had immediate availability to borrow an additional $312.5 million from the FHLB based on qualified collateral.
At September 30, 2025, the Bank had a secured borrowing line with the FRB, a letter of credit with the FHLB, and unsecured lines of credit with Zions Bank, Pacific Coast Bankers Bank ("PCBB"), and Atlantic Community Bankers Bank ("ACBB"). The total borrowing line, letter, or line of credit and the amount outstanding at September 30, 2025is summarized below:
| September 30, 2025 | |||||||||||
| Total Letter or Line of Credit | Total Outstanding | ||||||||||
| (Dollars in thousands) | |||||||||||
| FRB | $ | 670,606 | $ | - | |||||||
| FHLB | 458,254 | 145,726 | |||||||||
| Zions Bank | 45,000 | - | |||||||||
| PCBB | 38,000 | - | |||||||||
| ACBB | 12,000 | - | |||||||||
| Total | $ | 1,223,860 | $ | 145,726 | |||||||
Liquidity and Capital Resources
Liquidity Management
Liquidity is defined as the ability to generate sufficient cash flows to meet all present and future funding requirements at reasonable costs. Our primary source of liquidity is deposits. While our generally preferred funding strategy is to attract and retain low cost deposits, our ability to do so is affected by competitive interest rates and terms in the marketplace. Other sources of funding include discretionary use of purchased liabilities (e.g., FHLB term advances and other borrowings), cash flows from our investment securities portfolios, loan sales, loan repayments and earnings. Investment securities designated as Available for sale may also be sold in response to short-term or long-term liquidity needs.
The Bank's liquidity positions are monitored daily by management. The Asset Liability Committee ("ALCO") establishes guidelines to ensure maintenance of prudent levels of liquidity. ALCO reports to the Company's Board of Directors.
The Bank has a detailed liquidity funding policy and a contingency funding plan that provide for the prompt and comprehensive response to unexpected demands for liquidity. We employ a stress testing methodology to estimate needs for contingent funding that could result from unexpected outflows of funds in excess of "business as usual" cash flows. The Bank has established unsecured borrowing capacity with Zions Bank, PCBB, and ACBB. The Bank also maintains additional collateralized borrowing capacity with the FRB and the FHLB in excess of levels used in the ordinary course of business. Our sources of liquidity include cash, unpledged investment securities, borrowings from the FRB, FHLB, lines of credit from Zions Bank, PCBB, and ACBB, the brokered deposit market and national CD listing services.
Capital Resources
Shareholders' equity totaled $292.8 million as of September 30, 2025, an increase of $22.3 million compared to December 31, 2024, primarily a result of net income of $26.1 million for the nine months ended September 30, 2025. The increase was partially offset by dividends paid of $4.7 million.
The Bank and Company are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. At September 30,
2025, the Bank met all capital adequacy requirements to which it was subject and exceeded the regulatory minimum capital levels to be considered well-capitalized under the regulatory framework for prompt corrective action. At September 30, 2025, the Bank's ratio of Common Equity Tier 1 capital to risk-weighted assets was 12.39%, total capital to risk-weighted assets was 12.39%, Tier 1 capital to risk-weighted assets was 13.48% and Tier 1 capital to average assets was 10.71%. At September 30, 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 the regulatory framework for prompt corrective action. At September 30, 2025, the Company's ratio of Common Equity Tier 1 capital to risk-weighted assets was 10.39%, total capital to risk-weighted assets was 10.39%, Tier 1 capital to risk-weighted assets was 13.98% and Tier 1 capital to average assets was 8.99%.
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. 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.
Asset/Liability Management and Interest Rate Risk
We measure interest rate risk using simulation analysis to calculate earnings and equity at risk. These risk measures are quantified using simulation software from one of the leading firms in the field of asset/liability modeling. Key assumptions relate to the behavior of interest rates and spreads, prepayment speeds and the run-off of deposits. From such simulations, interest rate risk, or IRR, is quantified and appropriate strategies are formulated and implemented. We model IRR by using two primary risk measurement techniques: simulation of net interest income and simulation of economic value of equity. These two measurements are complementary and provide both short-term and long-term risk profiles for the Company. Because both baseline simulations assume that our balance sheet will remain static over the simulation horizon, the results do not reflect adjustments in strategy that ALCO could implement in response to rate shifts. The simulation analyses are updated quarterly.
We use a net interest income at risk simulation to measure the sensitivity of net interest income to changes in market rates. This simulation captures underlying product behaviors, such as asset and liability repricing dates, balloon dates, interest rate indices and spreads, rate caps and floors, as well as other behavioral attributes. The simulation of net interest income also requires a number of key assumptions such as: (i) prepayment projections for loans and securities that are projected under each interest rate scenario using internal and external mortgage analytics; (ii) new business loan rates that are based on recent new business origination experience; and (iii) deposit pricing assumptions for non-maturity deposits reflecting the Bank's history, management judgment and core deposit studies. Combined, these assumptions can be inherently uncertain, and as a result, actual results may differ from simulation forecasts due to the timing, magnitude and frequency of interest rate changes, future business conditions, as well as unanticipated changes in management strategies.
We use two sets of standard scenarios to measure net interest income at risk. For the Parallel Ramp Scenarios, rate changes are ramped over a twelve-month horizon based upon a parallel yield curve shift and then maintained at those levels over the remainder of the simulation horizon. Parallel Shock Scenarios assume instantaneous parallel movements in the yield curve compared to a flat yield curve scenario. Simulation analysis involves projecting a future balance sheet structure and interest income and expense under the various rate scenarios. Internal policy regarding internal rate risk simulations currently specifies that for instantaneous parallel shifts of the yield curve, estimated net interest income at risk for the subsequent one-year period should not decline by more than: 6% for a 100 basis point shift; 12% for a 200 basis point shift; and 18% for a 300 basis point shift. Per Company policy, the Bank should not be outside these limits for twelve consecutive months unless the Bank's forecasted capital ratios are considered to be "well capitalized". As of September 30, 2025, the Bank has met all minimum regulatory capital requirements to be considered "well capitalized".
The following tables set forth the estimated percentage change in our net interest income at risk over one-year simulation periods beginning September 30, 2025 and December 31, 2024:
| Parallel Ramp | Estimated Percent Change in Net Interest Income | ||||||||||
| Rate Changes (basis points) | September 30, 2025 | December 31, 2024 | |||||||||
| Year 1 from Year 1 Base | |||||||||||
| -100 | (0.70) | % | 0.40 | % | |||||||
| +200 | 1.40 | % | (1.00) | % | |||||||
| Parallel Shock | Estimated Percent Change in Net Interest Income | ||||||||||
| Rate Changes (basis points) | September 30, 2025 | December 31, 2024 | |||||||||
| Year 1 from Year 1 Base | |||||||||||
| -100 | (3.20) | % | (1.00) | % | |||||||
| +100 | 3.40 | % | 0.60 | % | |||||||
| +200 | 6.60 | % | 0.80 | % | |||||||
| +300 | 10.10 | % | 1.40 | % | |||||||
The net interest income simulation model attempts to measure the change in net interest income over the next one-year period, and over the next two year period on a cumulative basis, assuming certain changes in the general level of interest rates.
Based on our model, which was run as of September 30, 2025, we estimated that over the next one-year period a 200 basis-point parallel ramp increase of interest rates would increase our net interest income by 1.40%, while a 100 basis-point parallel ramp decrease of interest rates would decrease net interest income by 0.70%. As of December 31, 2024, we estimated that over the next one-year period a 200 basis-point parallel ramp increase of interest rates would decrease our net interest income by 1.00%, while a 100 basis-point parallel ramp decrease of interest rates would increase net interest income by 0.40%. Based on our model, which was run as of September 30, 2025, we estimated that over the next two years, on a cumulative basis, a 200 basis-point parallel ramp increase of interest rates would increase our net interest income by 5.50%, while a 100 basis-point parallel ramp decrease in interest rates would increase net interest income by 7.60%. As of December 31, 2024, we estimated that over the next two years, on a cumulative basis, a 200 basis-point parallel ramp increase of interest rates would decrease our net interest income by 2.90%, while a 100 basis-point parallel ramp decrease in interest rates would increase net interest income by 12.80%. The change in sensitivity between September 30, 2025 and December 31, 2024 was impacted by an increase in variable-rate loans.
We conduct an economic value of equity at risk simulation in tandem with net interest income simulations, to ascertain a longer term view of our interest rate risk position by capturing longer-term repricing risk and options risk embedded in the balance sheet. It measures the sensitivity of economic value of equity to changes in interest rates. The economic value of equity at risk simulation values only the current balance sheet and does not incorporate the growth assumptions used in one of the income simulations. As with the net interest income simulation, this simulation captures product characteristics such as loan resets, repricing terms, maturity dates, rate caps and floors. Key assumptions include loan prepayment speeds, deposit pricing elasticity and non-maturity deposit attrition rates. These assumptions can have significant impacts on valuation results as the assumptions remain in effect for the entire life of each asset and liability. All key assumptions are subject to a periodic review.
Base case economic value of equity at risk is calculated by estimating the net present value of all future cash flows from existing assets and liabilities using current interest rates. The base case scenario assumes that future interest rates remain unchanged.
The following table sets forth the estimated percentage change in our economic value of equity at risk, assuming various shifts in interest rates:
| Estimated Percent Change in Economic Value of Equity ("EVE") | |||||||||||
| Rate Changes (basis points) | September 30, 2025 | December 31, 2024 | |||||||||
| -100 | (0.10) | % | 0.40 | % | |||||||
| +100 | (0.50) | % | (1.30) | % | |||||||
| +200 | (1.70) | % | (3.60) | % | |||||||
| +300 | (2.30) | % | (4.70) | % | |||||||
While ALCO reviews and updates simulation assumptions and also periodically back-tests the simulation results to ensure that the assumptions are reasonable and current, income simulation may not always prove to be an accurate indicator of interest rate risk or future net interest margin. Over time, the repricing, maturity and prepayment characteristics of financial instruments and the composition of our balance sheet may change to a different degree than estimated. ALCO recognizes that deposit balances could shift into higher yielding alternatives as market rates change. ALCO has modeled increased costs of deposits in the rising rate simulation scenarios presented above.
It should be noted that the static balance sheet assumption does not necessarily reflect our expectation for future balance sheet growth, which is a function of the business environment and client behavior. Another significant simulation assumption is the sensitivity of core deposits to fluctuations in interest rates. Income simulation results assume that changes in both core savings deposit rates and balances are related to changes in short-term interest rates. Lastly, mortgage-backed securities and mortgage loans involve a level of risk that unforeseen changes in prepayment speeds may cause related cash flows to vary significantly in differing rate environments. Such changes could affect the level of reinvestment risk associated with cash flow from these instruments, as well as their market value. Changes in prepayment speeds could also increase or decrease the amortization of premium or accretion of discounts related to such instruments, thereby affecting interest income. Accordingly, although the above measurements provide an indication of the Company's interest rate risk exposure at a particular point in time, such measurements are not intended to provide a precise forecast of the effect of changes in market interest rates.
Bankwell Financial Group Inc. published this content on November 05, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on November 05, 2025 at 18:29 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]