Bankwell Financial Group, Inc. (BWFG) Business

Item 1.    Business

Cautionary Note Regarding Forward-Looking Statements

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act. These statements are often, but not always, made with the words or phrases such as “may,” “should,” “believe,” “likely result in,” “expect,” “would,” “intend,” “could,” “predict,” “potential,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “plan,” “projection,” and “outlook” or the negative version of those words or other similar words of a forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, uncertainties and other factors that could cause the actual results to differ materially from those contemplated by these forward-looking statements. Important factors that may cause actual results to differ materially from those contemplated by these forward-looking statements include, but are not limited to, those disclosed under “Risk Factors” in Part I Item 1A as well as the following factors:

•Disruptions to economic conditions, the financial and labor markets and workplace operating environments;

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

•Credit risk and resulting losses in our loan portfolio;

•Our Allowance for Credit Losses-Loans (“ACL-Loans”) may not be adequate to absorb loan losses;

•Changes in real estate values could increase our credit risk;

•Changes in our executive management team;

•Our ability to successfully execute our strategic initiatives;

•Volatility and direction of market interest rates;

•Increased competition within our market which may limit our growth and profitability;

•Economic, market, operational, liquidity, credit and interest rate risks associated with our business;

•The effects of changes in trade, monetary and fiscal policies and laws, including the Federal Reserve Board’s interest rate policies;

•Changes in accounting policies and practices, as may be adopted by regulatory agencies, the Public Company Accounting Oversight Board or the Financial Accounting Standards Board;

•Changes in law and regulatory requirements (including those concerning taxes, banking, securities and insurance); and

•Further government intervention in the U.S. financial system.

The foregoing factors should not be construed as exhaustive. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

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General

Bankwell Financial Group, Inc. (the "Parent Corporation") is a bank holding company, headquartered in New Canaan, Connecticut and offers a broad range of financial services through its banking subsidiary, Bankwell Bank (the "Bank" and, collectively with the Parent Corporation and the Parent Corporation's subsidiaries, "we", "our", "us", or the "Company"), a Connecticut state chartered bank founded in 2002. The Bank provides a wide range of services to clients in our market, an area encompassing approximately a 100 mile radius around our branch network. In addition, the Bank pursues certain types of commercial banking opportunities outside our market, particularly where we have strong relationships. The Bank operates nine full-service branches in New Canaan, Stamford, Fairfield, Westport, Darien, Norwalk, and Hamden, Connecticut. In December 2025, the Bank received regulatory approvals from the Federal Deposit Insurance Corporation (“FDIC”), the Connecticut Department of Banking (“CT DOB”), and the New York Department of Financial Services (“NY DFS”) to establish a new, full-service branch located in Brooklyn, New York which opened during the first quarter of 2026. Additionally, the Bank operates limited-service Domestic Representative Offices in New Canaan, Connecticut and Garden City, New York. As of December 31, 2025, on a consolidated basis, we had total assets of approximately $3.4 billion, net loans of approximately $2.8 billion, total deposits of approximately $2.8 billion, and shareholders’ equity of approximately $301.5 million.

We seek to be the banking provider of choice by offering a compelling alternative to larger competitors. We have a history of building long-term client relationships and attracting new clients through what we believe is superior service and a diverse product offering. We believe our strong capital position, meaningful inside ownership, and highly respected and experienced executive management team and board of directors enhance our credibility with both existing clients and prospective clients. We believe our strategy of building a franchise with meaningful market share, consistent revenue growth and ongoing operational and technological efficiencies will produce attractive risk-adjusted returns for our shareholders.

Our History and Growth

The Bank is a Connecticut state chartered commercial bank, founded in 2002, whose deposits are insured under the Deposit Insurance Fund administered by the FDIC. On November 5, 2013, we acquired The Wilton Bank, which was merged into Bankwell Bank. On October 1, 2014, we acquired Quinnipiac Bank and Trust Company, which was merged into Bankwell Bank.

Over the four year period from December 31, 2021 through December 31, 2025, we grew total assets from $2.5 billion to $3.4 billion, gross loans outstanding from $1.9 billion to $2.8 billion and deposits from $2.1 billion to $2.8 billion. We attribute this growth to our ongoing commitment to providing exceptional client service as well as prudent financial management.

Business Strategy

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

•Client-Focused Growth and Community Engagement. We prioritize building long-term client relationships by offering customized products and services coupled with responsive, personalized service. This focus on the entire client experience fosters trust, leading to long-term partnerships and organic growth. Our commitment extends to the communities we serve, where we actively participate in local organizations through volunteerism and sponsorships. This engagement strengthens our community presence and facilitates client relationships, reducing the need for extensive advertising.

•Investing in Scalable Infrastructure for Future Growth. We strategically invest in our technology, data processing, risk management, and compliance infrastructure to enhance efficiency, profitability, and scalability. This investment provides a robust operating platform that supports current performance and enables future growth while ensuring we continue to deliver high-quality service and maximize stakeholder returns.

•Disciplined Risk Management Framework. Effective risk management is a key component of our corporate culture. We employ comprehensive processes to monitor our loan and investment portfolios, inform operational decisions, and drive the generation of high-quality earning assets. Our disciplined approach includes rigorous underwriting, loan portfolio diversification, and a conservative investment strategy. Board-approved policies, reviewed annually, define approval authorities. Furthermore, we address evolving risks, including cybersecurity, regulatory compliance (including BSA/AML), and third-party risk management, through a dedicated Board Risk Committee and a senior management Risk Management Committee, as well as internal review procedures focused on anti-money laundering and consumer compliance requirements.

•Strategic Acquisitions.   To complement our organic growth, we pursue strategic acquisitions in or adjacent to our existing market that further our objectives. We believe there are banking institutions that continue to face credit challenges, capital constraints, and liquidity pressures. Some also lack the scale and management expertise necessary

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to address an increasingly complex regulatory environment and may ultimately seek to partner with an institution such as ours. As we evaluate potential acquisitions, we seek opportunities that deliver meaningful financial benefits, support long-term organic growth, and generate expense efficiencies, without compromising our risk profile.

Our Competitive Strengths

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

•Strategic Market Reach.   We serve a diverse client base within a 100-mile radius of our branch network, offering a comprehensive suite of banking services. We also selectively pursue commercial banking opportunities outside this market, leveraging established business relationships and expanding our reach through technology. This approach allows us to support our clients’ growth and maintain valuable relationships beyond our geographic footprint.

•Experienced Leadership.   Our executive management team is comprised of seasoned professionals with significant banking experience, a history of high performance at financial institutions and success in identifying, acquiring and integrating financial institutions. Our executive management team includes Christopher R. Gruseke, Chief Executive Officer (since 2015), Matthew McNeill, President (as of January 22, 2025) and Chief Banking Officer (since 2020), Steven H. Brunner, Executive Vice President, Chief Risk Officer (since 2024), Christine A. Chivily, Executive Vice President, Chief Credit Officer (since 2013), Ryan J. Hildebrand, Executive Vice President, Chief Innovation Officer (since 2023), and Courtney E. Sacchetti, Executive Vice President, Chief Financial Officer (since 2023).

•Dedicated Board of Directors.   Our Board of Directors consists of experienced business leaders who understand the need for banks that focus on serving the financial needs of their clients. Their significant common stock ownership aligns their interests with those of our shareholders, and their combined expertise and relationships position us to capitalize on market opportunities.

•Disciplined Risk Management. We prioritize disciplined risk management, embedding it in our corporate culture. Our robust processes monitor loan and investment portfolios, inform operational decisions, and support the generation of high-quality earning assets. We employ comprehensive underwriting, portfolio diversification, and a conservative investment strategy. Oversight includes Board-approved policies, a Board-level Risk Committee, and a senior management Risk Management Committee, along with internal reviews for compliance and anti-money laundering.

•Strong Capital Position.   At December 31, 2025, we had an 8.90% tangible common equity ratio, and the Bank had a 10.56% Tier 1 capital to average assets ratio, a 11.87% Tier 1 capital ratio, and a 12.94% total capital to risk-weighted assets ratio. We believe that our ability to attract and generate capital has facilitated our growth and is an integral component to the execution of our business plan.

•Scalable Operating Platform.   Our scalable operating platform empowers us to deliver an exceptional banking experience. We offer a full suite of banking technology, including online account opening through our Bankwell Direct channel, mobile and internet banking, and remote deposit capture, providing clients with maximum flexibility and convenience. This robust technology infrastructure also provides a foundation for future growth, ensuring we can continue to meet evolving client needs.

Human Capital Resources

At December 31, 2025, we employed a total of 167 full-time equivalent employees. It is through our team, and their ties to the communities, that we are able to dutifully support the communities we serve. Working within, and giving back to, our local partners is the hallmark of who we are, and we believe that the strength and commitment of our workforce to our communities is what sets us apart from other banks. We have long been committed to comprehensive and competitive compensation and benefits programs as we recognize that we operate in an intensely competitive environment for talent.

We invest in our employees’ future by sponsoring and prioritizing continued education throughout the Company’s employee ranks. All of our employees are able to participate in regular educational seminars run by outside parties, including but not limited to regulatory agencies and the American Bankers Association.

To foster a workforce that reflects our corporate values, we regularly sponsor local community events that encourage meaningful employee engagement within the communities we serve. We believe our employees’ well‑being and professional development are strengthened through this community involvement, and their commitment to giving back enables us to support a wide range of community events and initiatives.

The Company is committed to the overall well-being of our team members, offering competitive health and welfare benefits.

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Company Website and Availability of Securities and Exchange Commission Filings

Information regarding the Company is available through the Investor Relations site link at https://investor.mybankwell.com. The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge at www.sec.gov and at www.mybankwell.com under the Investor Relations link. Information on the website is not incorporated by reference and is not a part of this annual report on Form 10-K.

Competition

The financial services industry is highly competitive. We compete with commercial banks, savings banks, savings associations, money market funds, mortgage brokers, finance companies, credit unions, insurance companies, investment firms and private lenders in various components of our business. Many of these competitors have more assets, capital and higher lending limits, and more resources than we do, enabling them to conduct more intensive and broader-based promotional efforts to reach both commercial and individual clients. Competition for deposit products can depend heavily on pricing because of the ease with which clients can transfer deposits from one institution to another. To enhance our competitive position, we offer online account opening, via our Bankwell Direct channel, providing a convenient and accessible way for clients to join our Bank.

Although many competitors have greater scale and resources, our strategy focuses on serving small to medium‑sized businesses and professionals, where we have distinct strengths. Deep local market knowledge and established relationships cultivated by our management and board of directors support strong client connections. Our personalized service, local decision-making, and specialized industry expertise differentiate us from larger institutions and resonate strongly within our target market. We do not compete for primary banking relationships with large corporations, instead prioritizing tailored solutions and high quality service for our core clients.

Lending Activities

General.   Our primary lending focus is to serve commercial and middle-market businesses and not-for-profit organizations with a variety of financial products and services, while maintaining strong and disciplined credit policies and procedures. We offer a wide array of commercial lending products to serve the needs of our clients. Commercial lending products include owner-occupied commercial real estate loans, commercial real estate investment loans, commercial loans (such as business term loans, equipment financing and lines of credit) to small and medium-sized businesses and real estate construction and development loans. We focus our lending activities on loans that we originate to borrowers located in our market or with whom the Bank’s senior management has long-standing relationships. We have established an internal lending guideline to one relationship of up to 30% of equity capital and allowance for credit losses, if secured by commercial real estate. A relationship in this instance is defined as loans made to different entities but with a shared borrower principal(s). For individual loans and loans dependent on the operation of a business, limits are set so as not to exceed the statutory maximum of 15% of equity capital and allowance for credit losses.

We market our lending products and services to qualified borrowers through conveniently located banking offices, relationship networks and high touch personal service. Our business development and marketing efforts are primarily directed toward small to medium-sized businesses. Relationship managers actively pursue opportunities with companies entering our market areas as well as established businesses within the communities we serve. We attract new lending clients through professional service, relationship networks, competitive pricing and innovative structure, including the use of federal and state tax incentives and lending programs such as the SBA loan programs. Our efficient approval process and local decision-making allow us to provide smart, proficient underwriting and timely decisions on new loan requests. This agility provides a competitive advantage over larger institutions.

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Total loans before deferred loan fees and the ACL-Loans were $2.8 billion at December 31, 2025. The following tables summarize the composition of our loan portfolio for the dates indicated.

Residential real estate loans. In 2017, management made the strategic decision to cease originating residential mortgage loans. In 2019, the Company stopped offering home equity loans or lines of credit. Prior to these decisions, we offered first lien one-to-four family mortgage loans, as well as home equity lines of credit, in each case primarily on owner-occupied primary residences. Although our residential real estate loan portfolio presents lower levels of risk than our commercial real estate and construction loan portfolios, we are exposed to risk based on fluctuations in the value of the real estate collateral securing the loan, as well as changes in the borrower’s financial condition, which could be affected by numerous factors, including divorce, job loss, illness or other personal hardship. A rising rate environment may also pose a risk in our residential adjustable rate mortgages and home equity lines of credit portfolios as borrowers' rates reset at increased levels.

Commercial real estate loans. We offer real estate loans for owner-occupied commercial properties as well as commercial property owned by real estate investors. Loans that are secured by owner-occupied commercial real estate primarily collateralized by operating cash flows are also included in this loan category throughout this document. Commercial real estate loan terms generally are limited to ten years or less, although payments may be structured on a longer amortization basis of twenty to thirty years. The interest rates on our commercial real estate loans may be fixed or adjustable, although rates typically are not fixed for a period exceeding five to ten years. We generally charge an origination fee for these loans. We often require personal guarantees from the principal owner of the business or real estate supported by a review of the principal owner's personal financial statements. Risks associated with commercial real estate loans include increases in interest rates, fluctuations in the value of real estate, the overall strength of the economy, new job creation trends, tenant vacancy rates, property use trends, business sector changes, environmental contamination, and the quality of the borrower’s management. We make efforts to limit our risk by analyzing the borrower's cash flow and collateral value as well as all of the sponsors’ investment activities. The real estate securing our existing commercial real estate loans includes a wide variety of property types, such as owner-occupied offices/warehouses/production facilities, healthcare facilities, office buildings, industrial, mixed-use residential/commercial, retail centers and multifamily properties. Our commercial real estate loan portfolio presents a higher risk than our residential real estate and consumer loan portfolios.

Construction loans. Our construction portfolio includes loans to small and medium-sized businesses to construct owner-used properties, loans to developers of commercial real estate investment properties and residential developments. Construction

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and development loans are generally made with a term of one to two years and interest is paid monthly. The ratio of the loan principal to the value of the collateral, as established by independent appraisal, will not exceed industry standards. Loan proceeds are disbursed based on the percentage of completion and only after the project has been inspected by an experienced construction lender or third-party inspector. Risks associated with construction loans include fluctuations in the value of real estate, project completion risk, leasing risk and change in market trends as well as interest rate risk in a volatile or rising rate environment. We are also exposed to risk based on the ability of the construction loan borrower to refinance the debt or sell the property upon completion of the project, which may be affected by changes in market trends including rates, since the time that we funded the construction loan.

Commercial business loans. We offer a wide range of commercial loans, including business term loans, equipment financing and lines of credit. Our target commercial loan market is small to medium-sized businesses, including retail and professional establishments. The terms of these loans vary by purpose and by type of underlying collateral. The commercial loans primarily are underwritten on the basis of the borrower’s ability to service the loan from cash flow. We make loans secured by accounts receivable or inventory, principal typically is repaid as the assets securing the loan are converted into cash, and for loans secured with other types of collateral, principal is fully or partially amortized during the loan term with any balloon amount due at maturity. The quality of the commercial borrower’s management and its ability both to properly evaluate changes in the supply and demand characteristics affecting its markets for products and services and to effectively respond to such changes are significant factors in a commercial borrower’s creditworthiness. From time-to-time, we also make equipment loans with conservative margins, generally for a term of ten years or less, supported by the useful life of the equipment, at fixed or variable rates, with the loan fully amortizing over the term. Loans to support working capital typically have terms not exceeding two years and usually are secured by accounts receivable, inventory and/or personal guarantees of the principals of the business and at times by the commercial real estate of the borrower. Risks associated with our commercial loan portfolio include those related to the strength of the borrower’s business, which may be affected not only by local, regional and national market conditions, but also changes in the borrower’s management and other factors beyond the borrower’s control; those related to fluctuations in value of any collateral securing the loan; and those related to terms of the commercial loan, which may include balloon payments that must be refinanced or paid off at the end of the term of the loan or mid-term interest rate resets, possibly at increased interest rates. Our commercial loan portfolio presents a higher risk than our residential real estate and consumer loan portfolios.

Consumer loans. As of December 31, 2025, our consumer loans represented 2.7% of our total loan portfolio. We do not expect our consumer loan portfolio to become a material component of our total loan portfolio as we do not engage in any material amount of consumer lending. Our consumer loans, which are underwritten primarily based on the borrower’s financial condition and contain both secured and unsecured credits, expose us to risk based on changes in the borrower’s financial condition, which could be affected by numerous factors, including those discussed above. Rising interest rates may also impact the risk profile of this segment of the portfolio. This portfolio segment includes loans to finance insurance premiums secured by the cash surrender value of life insurance and marketable securities, overdraft lines of credit, and personal loans to high net worth individuals.

Credit Policy and Procedures

General.   We adhere to what we believe are disciplined underwriting standards but also remain cognizant of the need to serve the credit needs of our clients by offering flexible loan solutions in a responsive and timely manner. We seek to maintain a diversified loan portfolio across client, product and industry types; however, our lending policies do not provide for any loans that are highly speculative, subprime, or that have high loan-to-value ratios. These components, together with active credit management, are the foundation of our credit culture, which we believe is critical to enhancing the long-term value of our organization to our clients, employees, shareholders and communities.

We have a service-driven, relationship-based, business-focused credit culture, rather than a price-driven, transaction-based culture. Accordingly, substantially all our loans are made to borrowers either located or operating in our market or with whom we have ongoing relationships across various product lines. Loans secured by properties located in out-of-market areas that we have made are generally to borrowers who are well-known to us. These borrowers typically have strong deposit relationships with the Bank as well.

Credit concentrations.   In connection with the management of our credit portfolio, we actively manage the composition of our loan portfolio, including credit concentrations. We continuously monitor borrower and loan product concentrations, which are reviewed with senior management and the Board at least a quarterly. Loan product concentrations are also reviewed annually in conjunction with the portfolio’s credit quality and the business plan for the coming year. All concentrations are monitored by our Chief Credit Officer and our Directors' Loan Committee.

We have established an internal lending guideline limiting exposure to a single relationship to no more than 30% of risk-based capital plus the allowance for credit losses, if secured by commercial real estate. This limit is within the regulatory limit of 50%. In this instance, a relationship is defined as loans made to different entities but with a shared borrower principal(s). For individual loans and loans dependent on the operation of a business, limits are set so as not to exceed the statutory maximum of

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15% of equity capital plus the allowance for credit losses. Our top 20 borrowing relationships range in exposure from $49.7 million to $111.5 million and are monitored on an on-going basis.

Loan approval process.   We seek an appropriate balance between prudent and disciplined underwriting and flexibility in our decision-making and responsiveness to our clients. Our credit approval policies have a tiered approval process, with larger exposures referred to different levels of management and the Directors’ Loan Committee, as appropriate, based on the size and type of the loan. Smaller exposures are approved under a three-signature system. These authorities are periodically reviewed and updated by our Board of Directors. We believe that our credit approval process provides for thorough underwriting and efficient decision making.

Credit risk management.   Credit risk management involves a partnership between our relationship managers and our credit approval, credit administration, portfolio management and collections personnel. Portfolio monitoring and early problem recognition are an important aspect of maintaining our high credit quality standards. Past due reports are reviewed on an ongoing basis and insurance and tax payment monitoring is in place.

It is our policy to review amortizing commercial loans in excess of $1 million on an annual basis, or more frequently through the receipt of interim and annual financial statements and borrowing base certificates depending on loan structure and covenants. Our policies require rapid notification of delinquency and prompt initiation of collection actions. Relationship managers, portfolio managers, credit administrators and senior management proactively support collection activities in order to maximize accountability and efficiency.

As part of this annual review, we analyze recent financial statements of the collateral property, business and/or borrower to determine the current level of occupancy, revenues and expenses and to investigate any deterioration in the value of the real estate collateral or in the borrower’s or company’s financial condition. Upon completion, we confirm or change the risk rating assigned to each loan. Relationship managers and portfolio managers are encouraged to bring potential credit issues to the attention of our Chief Credit Officer immediately upon any sign of deterioration in the performance of the borrower. We maintain a list of loans that receive additional attention if we believe there may be a potential credit risk via our Watch List report.

Loans that are upgraded or downgraded are reviewed by our Chief Credit Officer or designee, while Watch List loans undergo a detailed quarterly analysis prepared by the relationship manager or portfolio manager and reviewed by management. This review includes an evaluation of the market conditions, the property’s or company’s trends, the borrower and guarantor status, the level of reserves required and loan accrual status. Additionally, we have an independent, third-party loan review performed, which includes an assessment of the accuracy of our loan risk ratings and our credit administration functions. Finally, we perform an annual stress test of our commercial loan portfolio, in which we evaluate the impact on the portfolio of declining economic conditions, including lower property values and decline in net operating income which may result from lower rental rates, lower occupancy rates and higher interest rates. Management reviews these reports and presents them to our Directors' Loan Committee. These asset review procedures provide management with additional information for assessing our asset quality.

Investment Activities

Our investment portfolio’s primary purpose is to provide adequate liquidity necessary to meet any reasonable decline in deposits and any anticipated increase in the loan portfolio. The majority of these securities are classified as available for sale. The portfolio’s secondary purpose is to generate adequate earnings to provide and contribute to stable income and to generate a profitable return while minimizing risk. Additionally, our investment portfolio may be used to provide adequate collateral for various regulatory or statutory requirements and to manage our interest rate risk. We invest in a variety of high-grade securities, including government agency securities, government guaranteed mortgage-backed securities, highly rated corporate bonds and municipal securities. We regularly evaluate the composition of our portfolio as changes occur with respect to the interest rate yield curve. Although we may sell investment securities from time to time to take advantage of changes in interest rate spreads, it is our policy not to sell investment securities unless we can reinvest the proceeds at a similar or higher spread, so as not to take gains to the detriment of future income.

The investment policy is reviewed annually by our Board of Directors. Overall investment goals are established by our Board of Directors, Chief Financial Officer and our Asset Liability Committee, or ALCO. Our Board of Directors has delegated the responsibility of monitoring our investment activities to ALCO. Day-to-day activities pertaining to the investment portfolio are conducted within our accounting department under the supervision of our Chief Financial Officer.

Deposits

Deposits are our primary source of funds to support our income-earning assets. We offer traditional depository products, including checking, savings, money market and certificates of deposit with a variety of rates. Deposits at the Bank are insured by the FDIC up to statutory limits. The Company sources deposits through its branch network and through online account

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opening via Bankwell Direct and continues to generate meaningful transaction account balances by emphasizing a relationship‑driven service model.

Borrowed Funds

The Bank is a member of the Federal Home Loan Bank of Boston (FHLB), which is part of a twelve district 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. The maximum amount of credit that the FHLB will extend varies from time to time, depending on its policies and the amount of qualifying collateral the member can pledge. We utilize advances from the FHLB as part of our overall funding strategy to meet short-term liquidity needs and, to a lesser degree, manage interest rate risk arising from the difference in asset and liability maturities.

On October 14, 2021, the Company completed a private placement of a $35.0 million fixed-to-floating rate subordinated note (the “2021 Note”) to an institutional accredited investor. The Company used the net proceeds to repay the outstanding balance of subordinated debt issued in 2015 and for general corporate purposes.

The 2021 Note bears interest at a fixed rate of 3.25% per year until October 14, 2026. Thereafter, the interest rate will reset quarterly at a variable rate equal to the then current three-month term SOFR plus 233 basis points. The 2021 Note has a stated maturity of October 15, 2031 and is non-callable for five years. Beginning October 15, 2026, the Company may redeem the 2021 Note, in whole or in part, at its option. The 2021 Note is not redeemable at the option of the holder. The 2021 Note has been structured to qualify for the Company as Tier 2 capital under regulatory guidelines.

On August 19, 2022, the Company entered into a Subordinated Note Purchase Agreement with certain qualified institutional buyers, pursuant to which the Company issued and sold 6.0% fixed-to-floating rate subordinated notes due 2032 (the “2022 Notes”) in the aggregate principal amount of $35.0 million. The Company used the net proceeds from the sale of the 2022 Notes for general corporate purposes.

The 2022 Notes bear interest at a fixed rate of 6.0% per year until August 31, 2027. Thereafter, the interest rate will reset quarterly at a variable rate equal to the then current three-month term SOFR plus 326 basis points. The 2022 Notes have a stated maturity of September 1, 2032 and are non-callable for five years. Beginning August 19, 2027, the Company may redeem the 2022 Notes, in whole or in part, at its option. The 2022 Notes are not subject to redemption at the option of the holder. The 2022 Notes have been structured to qualify for the Company as Tier 2 capital under regulatory guidelines.

Risk Management

We place significant emphasis on risk mitigation as an integral component of our organizational culture. The Company’s existing governance and organizational structure incorporates a substantial risk management component through the following:

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

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

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

•Operational Risk and Compliance Working Groups, comprised of senior management, oversee the identification, assessment, management, and mitigation of operational and compliance risks across the Company. The groups enhance the Company’s operational risk and compliance framework by ensuring compliance with regulatory requirements, verifying risk performance relative to the Company’s risk appetite, and promoting a culture of risk awareness;

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

•Use of a reputable independent third party to perform asset/liability calculations, including a quarterly assessment of interest rate risk, reviewed and validated by ALCO; and

•Use of a reputable independent third party to perform loan review and portfolio stress testing, including an annual review of loan risk ratings and ACL coverage under various stress scenarios.

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With respect to our lending philosophy, our risk management approach emphasizes structuring credits with multiple sources of repayment, supported by strong underwriting conducted by experienced relationship managers, credit analysts, and lending and credit management. We conduct quarterly reviews of criticized loans, including the development and monitoring of criticized asset action plans for borrowers exhibiting deteriorating financial conditions, to enable timely corrective actions and minimize potential losses. In addition, we perform an annual stress test of our commercial loan portfolio to assess the potential impact of adverse economic conditions. This analysis evaluates the effects of declining property values and reductions in net operating income resulting from factors such as lower rental rates, decreased occupancy levels, and rising interest rates. The stress test focuses on the cash flow and valuation of the underlying properties or businesses, as well as the impact of various interest rate increase scenarios.

Additionally, the Company maintains a robust liquidity risk management framework, anchored by its Contingency Funding Plan (“CFP”). The CFP is designed to ensure the Company’s ability to meet financial obligations under both normal and stressed conditions. A critical component of the CFP is liquidity stress testing, which involves modeling a range of adverse market‑wide and institution‑specific scenarios, including significant deposit outflows, disruptions in wholesale funding markets, and severe economic downturns. The results of these stress tests are used to evaluate the adequacy of liquidity resources and to identify potential vulnerabilities. Liquidity stress testing is conducted quarterly and reported to ALCO, and may also be performed on an ad-hoc basis in response to changing market conditions.

Supervision and Regulation

General

The Bank is subject to extensive regulation by the CT DOB, as its chartering agency and by the FDIC, as its deposit insurer. Additionally, the Bank will also be subject to the supervision of the NY DFS, as it pertains to any New York-based branches. The Bank’s deposits are insured up to applicable limits by the FDIC through the Deposit Insurance Fund. The Bank is required to file reports with, and is periodically examined by, the FDIC and the CT DOB concerning its activities and financial condition and must obtain regulatory approvals prior to entering into certain transactions, such as mergers with, or acquisitions of, other financial institutions.

The primary goals of the bank regulatory system are to maintain a safe and sound banking system and to facilitate the conduct of sound monetary policy. This system is intended primarily for the protection of the Deposit Insurance Fund and bank depositors, rather than shareholders and creditors. The banking agencies have broad enforcement power over bank holding companies and banks, including the authority, among other things, to enjoin “unsafe or unsound” practices, require affirmative action to correct any violation or practice, issue administrative orders that can be judicially enforced, direct increases in capital, direct the sale of subsidiaries or other assets, limit dividends and distributions, restrict growth, assess civil money penalties, remove officers and directors, and, with respect to banks, terminate deposit insurance or place the bank into conservatorship or receivership. In general, these enforcement actions may be initiated as a consequence of violations of laws and regulations or unsafe or unsound practices.

The following discussion is a summary of the material laws, rules and regulations applicable to our operations, but does not purport to be a complete summary of all applicable laws, rules and regulations. These laws, rules and regulations may change, and the regulatory agencies often have broad discretion in interpreting them. Any change in such laws, rules or regulations, whether by the CT DOB, the NY DFS, the FDIC or the Federal Reserve Board ("FRB"), could have a material adverse impact on the financial markets in general, and our operations and activities, financial condition, results of operations, growth plans and future prospects specifically.

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Dodd-Frank Act

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act") implemented significant changes to the regulation and supervision of financial institutions. While many of its provisions are primarily directed at larger, systemically important institutions, certain requirements apply to smaller banks, including enhanced consumer protection standards, capital and risk management expectations, and compliance with regulations promulgated by the Consumer Financial Protection Bureau, which are enforced through their primary federal regulators. Institutions with less than $10 billion in assets, including the Bank, are exempt from certain provisions of the Dodd‑Frank Act, such as debit card interchange fee caps and heightened stress testing requirements, and generally have limited compliance obligations under the Volcker Rule, which restricts proprietary trading and certain investments in hedge funds and private equity funds.

Economic Growth Act

The Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (the “Economic Growth Act”) provided targeted regulatory relief to community banks by tailoring certain requirements imposed by the Dodd Frank Act, impacting regulatory examination cycles, call reports, the Volcker Rule, mortgage disclosures and risk weights for certain high-risk commercial real estate loans.

The Economic Growth Act provides insured depository institutions and their affiliates with less than $10 billion in total consolidated assets and limited trading activities with an exemption from the Dodd-Frank Act’s Volcker Rule, which generally restricts certain banking entities such as the Company and the Bank from engaging in proprietary trading activities and entering into certain relationships with hedge funds and private-equity funds. In 2019, the FDIC, along with several other banking agencies, adopted final rules to implement the exemption contemplated by the Economic Growth Act.

The Economic Growth Act provides certain reporting and capital relief for bank holding companies with total assets under $3 billion, as outlined in the Small Bank Holding Company Policy Statement. As of June 30, 2023, the Company exceeded this threshold and no longer qualified for this treatment. Beginning March 31, 2024, the Company became subject to the capital requirements applicable to larger bank holding companies, as set forth in the Economic Growth Act.

The Economic Growth Act also requires the federal banking agencies to allow insured depository institutions that have less than $5 billion in total consolidated assets (and satisfy other conditions) to use short-form reports of condition (i.e. call reports) for the first and third quarters of each year.

Connecticut Banking Laws and Supervision

Connecticut Department of Banking.   The CT DOB regulates the internal organization as well as the deposit, lending and investment activities of state-chartered banks, including the Bank. The approval of the CT DOB is required for, among other things, the establishment of branch offices and business combination transactions. The CT DOB conducts periodic examinations of Connecticut chartered banks. The FDIC also regulates many of the areas regulated by the CT DOB, and federal law may limit some of the authority provided to Connecticut chartered banks by Connecticut law.

Lending Activities.   Connecticut banking laws grant banks broad lending authority. With certain limited exceptions, loans to any one obligor under this statutory authority may not exceed 15% and fully secured loans may not exceed an additional 10% of a bank’s equity capital and allowance for credit losses.

Dividends.   Substantially all the Company's income is derived from, and the principal source of our liquidity is, dividends from the Bank. The ability of the Bank to pay dividends is also restricted by federal and state laws, regulations and policies. Under Connecticut law, the Bank may pay cash dividends out of its net profits. For purposes of this restriction, “net profits” represents the remainder of all earnings from current operations. Further, the total amount of all dividends declared by a bank in any year may not exceed the sum of a bank’s net profits for the past two fiscal years, plus the portion of the year in which the dividend is paid. The ability of the Bank and the Company to pay dividends is also restricted by federal laws, regulations and policies (See “Federal Bank Holding Company Regulation – Dividends”).

Powers.   Connecticut banking law authorizes Connecticut chartered banks to transact a "general banking business" and "all such incidental powers as are necessary thereto". With the prior approval of the CT DOB, Connecticut banks are also authorized to engage in activities that are closely related to the business of banking, are convenient and useful to the business of banking, are reasonably related to the operation of a Connecticut bank, are financial in nature or that are permitted under the Bank Holding Company Act or the Home Owners’ Loan Act, both federal statutes, or the regulations promulgated as a result of those federal statutes. Connecticut banks are also authorized to engage in any activity permitted for certain federally chartered institutions, as well as for certain out-of-state institutions, upon filing a notice with the CT DOB unless the CT DOB does not approve the activity.

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Assessments.   Connecticut banks are required to pay annual assessments to the Connecticut Department of Banking to fund the Connecticut Department of Banking’s operations. The general assessments are paid pro-rata based upon a bank’s asset size.

Ownership. Under Connecticut banking law, no person may acquire beneficial ownership of more than 10% of any class of voting securities of a Connecticut chartered bank, or any bank holding company of such a bank, without prior notification of, and lack of disapproval by, the CT DOB.

Enforcement.   Under Connecticut law, the CT DOB has extensive enforcement authority over Connecticut banks and, under certain circumstances, affiliated parties, insiders, and agents. The CT DOB's enforcement authority includes cease and desist orders, fines, receivership, conservatorship, removal of officers and directors, emergency closures, dissolution and liquidation.

Federal Bank Holding Company Regulation

General.   As a bank holding company, we are subject to comprehensive regulation and regular examinations by the FRB. The FRB also has extensive enforcement authority over bank holding companies, including, among other things, the ability to assess civil money penalties, to issue cease and desist or removal orders and to require that a bank holding company divest subsidiaries (including its bank subsidiaries). In general, enforcement actions may be initiated for violations of law and regulations and unsafe or unsound practices.

Under FRB policy, which has been codified by the Dodd-Frank Act, a bank holding company must serve as a source of strength for its subsidiary bank. The FRB may require a bank holding company to contribute additional capital to an under-capitalized subsidiary bank. A bank holding company must obtain FRB approval before: (1) acquiring, directly or indirectly, ownership or control of any voting securities of another bank or bank holding company if, after such acquisition, it would own or control more than 5% of such securities (unless it already owns or controls the majority of such securities); (2) acquiring all or substantially all of the assets of another bank or bank holding company; or (3) merging or consolidating with another bank holding company.

The Bank Holding Company Act also prohibits a bank holding company, with certain exceptions, from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company which is not a bank or bank holding company, or from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, or providing services for its subsidiaries. The principal exceptions to these prohibitions involve certain non-bank activities which, by statute or by FRB regulation or order, have been identified as activities closely related to the business of banking or managing or controlling banks.

Dividends.   The FRB has issued a policy statement regarding the payment of cash dividends by bank holding companies, which states a bank holding company should distribute cash dividends only when the bank holding company’s net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with the bank holding company’s capital needs, asset quality and overall financial condition. The FRB also indicated that it would be inappropriate for a bank holding company experiencing serious financial problems to borrow funds to pay dividends.

Under federal law, the Bank may not pay any dividend to the Company or make other capital distributions if the Bank is under-capitalized or if by doing so, would cause it to become under-capitalized. Basel III Capital Rules limit the amount of dividends the Bank can pay if its capital ratios are below the full capital conservation buffer of 2.5% (as a percentage of risk-weighted assets). The capital conservation buffer is in addition to the minimum risk-based capital requirement. The FDIC may further restrict the payment of dividends by requiring the Bank to maintain a higher level of capital than would otherwise be required for it to be adequately capitalized for regulatory purposes. Moreover, if, in the opinion of the FDIC, the Bank is engaged in an unsafe or unsound practice (which could include the payment of dividends), the FDIC may require it to cease such practice, generally after notice and hearing. The FDIC has indicated that paying dividends that deplete a depository institution’s capital base to an inadequate level would be an unsafe banking practice. The FDIC has also issued policy statements providing that insured depository institutions generally should pay dividends only out of current operating earnings.

Redemption.   Bank holding companies are required to give the FRB prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the consolidated net worth of the bank holding company. The FRB may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe or unsound practice or would violate any law, regulation, FRB order or any condition imposed by, or written agreement with, the FRB. This notification requirement does not apply to any bank holding company that (i) meets the well capitalized standard for commercial banks, (ii) is “well managed” within the meaning of the FRB regulations and (iii) is not subject to any unresolved supervisory issues.

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Other Federal and State Bank Regulation

Safety and Soundness.   The federal banking agencies, including the FDIC, have implemented rules and guidelines concerning standards for safety and soundness required pursuant to Section 39 of the Federal Deposit Insurance Corporation Improvement Act, or FDICIA. In general, the standards relate to (1) operational and managerial matters; (2) asset quality and earnings; and (3) compensation. The operational and managerial standards cover (a) internal controls and information systems, (b) internal audit systems, (c) loan documentation, (d) credit underwriting, (e) interest rate exposure, (f) asset growth, and (g) compensation, fees and benefits. Under the asset quality and earnings standards, the Bank is required to establish and maintain systems to (i) identify problem assets and prevent deterioration in those assets, and (ii) evaluate and monitor earnings and ensure that earnings are sufficient to maintain adequate capital reserves. Finally, the compensation standard states that compensation will be considered excessive if it is unreasonable or disproportionate to the services actually performed by the individual being compensated. If an insured state-chartered bank fails to meet any of the standards promulgated by regulation, then such institution will be required to submit a plan within 30 days to the FDIC specifying the steps it will take to correct the deficiency. In the event that an insured state-chartered bank fails to submit or fails in any material respect to implement a compliance plan within the time allowed by the federal banking agency, Section 39 of the FDICIA provides that the FDIC must order the institution to correct the deficiency and may (1) restrict asset growth; (2) require the bank to increase its ratio of tangible equity to assets; (3) restrict the rates of interest that the bank may pay; or (4) take any other action that would better carry out the purpose of prompt corrective action. We believe that the Bank has been and will continue to be in compliance with each of the standards as they have been established by the FDICIA.

Capital Requirements.   The FRB monitors the Company's capital adequacy, on a consolidated basis, and the FDIC and CT DOB monitor the capital adequacy of the Bank.

The FRB, the FDIC and the other federal and state bank regulatory agencies establish regulatory capital guidelines for U.S. banking organizations.

Since January 1, 2015, the Company and the Bank have been subject to revised capital rules set forth by the FRB, the FDIC and the other federal and state bank regulatory agencies. The revised capital rules aligned the banking agencies’ leverage and risk-based capital requirements, including the calculation of risk weighted assets, to align with agreements that were reached by the Basel Committee on Banking Supervision and with certain provisions of the Dodd-Frank Act (the Basel III Capital Rules).

The Basel III Capital Rules established a minimum common equity Tier 1 capital requirement of 4.5% of risk-weighted assets; set the minimum Tier 1 capital to average assets ratio at 4% of total assets; increased the minimum Tier 1 capital to risk-weighted assets requirement from 4% to 6%; and retained the minimum total capital to risk weighted assets requirement at 8.0%. A “well-capitalized” institution must generally maintain capital ratios 200 basis points higher than the minimum guidelines.

The Basel III Capital Rules also changed the risk weights assigned to certain assets. The Basel III Capital Rules assigned a higher risk weight (150%) to loans that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The Basel III Capital Rules also alter the risk weighting for other assets, including marketable equity securities that are risk weighted generally at 300%. The Basel III Capital Rules require certain components of accumulated other comprehensive income (loss) to be included for purposes of calculating regulatory capital requirements unless a one-time opt-out is exercised. The Bank did exercise its opt-out option and excludes the unrealized gain (loss) on investment securities component of accumulated other comprehensive income (loss) from regulatory capital.

The Basel III Capital Rules limit a banking organization’s capital distributions and certain discretionary bonus payments to executive officers if the banking organization does not hold a “capital conservation buffer” of 2.5% in addition to the minimum risk based capital requirement.

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

Transactions with Affiliates.   Transactions between a bank and its affiliates are subject to Sections 23A and 23B of the Federal Reserve Act (“FRA”) and the Federal Reserve’s Regulation W. In a holding company context, at a minimum, the parent holding company of a bank and any companies which are controlled by such parent holding company are considered an affiliate of the bank. Generally, Section 23A restricts the amount and types of “covered transactions” a bank may engage in with affiliates, including extensions of credit, investments in affiliate securities, asset purchases, and certain guarantees, by imposing quantitative limits generally capped at 10% of capital stock and surplus for any single affiliate and 20% in the aggregate, and by requiring such transactions to be secured by eligible collateral. The term “covered transaction” includes, among other things, the making of loans or other extensions of credit to an affiliate and the purchase of assets from an affiliate. Section 23A also establishes specific collateral requirements for loans or extensions of credit to an affiliate, or the issuance of guarantees,

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acceptance, or letter of credit on behalf of an affiliate. Section 23B requires that most transactions between a bank and its affiliates be conducted on terms and conditions that are substantially the same as, or at least as favorable to the bank as, those prevailing for comparable transactions with non‑affiliated parties, thereby enforcing an arm’s‑length standard. The Dodd-Frank Act has expanded the definition of covered transactions and increased the timing and other aspects of the collateral requirements associated with covered transactions, including an expansion of the covered transactions to include credit exposures related to derivatives, repurchase agreements and securities lending arrangements and an increase in the amount of time for which collateral requirements regarding covered transactions must be satisfied.

Loans to Insiders.   The FRA places restrictions on extensions of credit that can be made by a depository institution to its directors, executive officers, and principal shareholders (or insiders) and to the insiders of its affiliates. Many of those restrictions also apply to the "related interests" of those insiders. For example, a bank is generally not permitted to extend credit to any insider of the bank, or insider of an affiliate, if the extension, when aggregated with all other outstanding extensions of credit to those insiders and their related interests, exceeds the bank's total unimpaired capital and unimpaired surplus. Extensions of credit to those insiders, and their related interests, that exceed certain specified amounts must receive the prior approval of the board of directors. Further, extensions of credit to insiders and their related interests must be made on terms substantially the same as offered in comparable transactions to other non-insiders, subject to an exception of extensions of credit made under a benefit or compensation program that is widely available to the depository institution’s employees that does not give preference to the insider over the employees. The FRA places additional limitations on extensions of credit to executive officers. In addition to enhancing restrictions on insider transactions, the Dodd-Frank Act increased the types of transactions with insiders subject to restrictions, including certain asset sales with insiders.

Enforcement.   The FDIC has extensive enforcement authority over insured banks, including the Bank. This enforcement authority includes, among other things, the ability to assess civil money penalties, issue cease and desist orders and remove directors and officers. In general, these enforcement actions may be initiated in response to violations of laws and regulations and unsafe or unsound practices.

The FDIC has authority under federal law to appoint a conservator or receiver for an insured bank under limited circumstances. The FDIC is required, with certain exceptions, to appoint a receiver or conservator for an insured state non-member bank if that bank was “critically under-capitalized” on average during the calendar quarter beginning 270 days after the date on which the institution became “critically under-capitalized.” The FDIC may also appoint itself as conservator or receiver for an insured state non-member institution under specific circumstances on the basis of the institution’s financial condition or upon the occurrence of other events, including: (1) insolvency; (2) substantial dissipation of assets or earnings through violations of law or unsafe or unsound practices; (3) existence of an unsafe or unsound condition to transact business; and (4) insufficient capital, or the incurring of losses that will deplete substantially all of the institution’s capital with no reasonable prospect of replenishment without federal assistance.

Insurance of Deposit Accounts.   Deposit accounts at the Bank are insured by the Deposit Insurance Fund, generally up to a maximum of $250,000 per separately insured depositor. The FDIC assesses insured depository institutions to maintain the Deposit Insurance Fund. No institution may pay a dividend if in default of its deposit insurance assessment.

Under the FDIC’s risk-based assessment system, insured depository institutions are assigned to a risk category based on supervisory evaluations, regulatory capital levels and other factors. A depository institution’s assessment rate depends upon the category to which it is assigned and certain adjustments specified by the FDIC, with less risky institutions paying lower assessments. Subject to certain adjustments, the range of assessment rates is now between 2.5 to 42 basis points of the assessment base.

The Dodd-Frank Act set the required minimum reserve ratio to 1.35 percent of estimated insured deposits. If the reserve ratio falls below 1.35 percent or is expected to do so within 6 months, the FDIC generally must adopt a restoration plan to restore the Deposit Insurance Fund reserve ratio to at least 1.35 percent within 8 years. For 2025, the FDIC has exercised that discretion by establishing a 2% designated fund reserve ratio as a long-range minimum target for setting assessment rates.

A material increase in FDIC insurance premiums would likely have an adverse effect on the operating expenses and results of operations of the Bank. Management cannot predict what FDIC insurance assessment rates will be in the future.

Insurance of deposits may be terminated by the FDIC upon a finding that a depository institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. We are not aware of any current practice, condition or violation that might lead to termination of the Bank’s deposit insurance.

Federal Reserve System.  FRB regulations historically required depository institutions to maintain noninterest‑earning reserve balances against transaction accounts, primarily NOW and regular checking accounts. While reserve requirements were subject to annual adjustment and generally applied to aggregate transaction accounts, effective March 26, 2020, the FRB eliminated reserve requirement ratios as part of its transition to an ample reserves regime.

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Federal Home Loan Bank of Boston (FHLB).   The Bank is a member of the FHLB, which is one of the regional Federal Home Loan Banks composing the Federal Home Loan Bank System. Each Federal Home Loan Bank serves as a central credit facility primarily for its member institutions. The Bank, as a member of the FHLB, is required to acquire and hold shares of capital stock in the FHLB.

Community Reinvestment Act (CRA).   Under the CRA, as implemented by FDIC regulations, a bank has a continuing and affirmative obligation, consistent with its safe and sound operation, to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for banks nor does it limit a bank's discretion to develop the types of products and services that it believes are best suited to its particular community. The CRA does require the FDIC, in connection with its examination of a bank, to assess the bank’s record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such bank, including applications to acquire branches and other financial institutions. The CRA requires the FDIC to provide a written evaluation of a bank’s CRA performance utilizing a four-tiered descriptive rating system. In particular, the system focuses on three tests:

•A lending test, to evaluate the bank’s record of making loans in its assessment areas;

•An investment test, to evaluate the bank’s record of investing in community development projects, affordable housing, and programs benefiting low or moderate income individuals and businesses; and

•A service test, to evaluate the bank’s delivery of services through its branches, ATMs, and other offices.

Connecticut has its own statutory counterpart to the CRA which is applicable to the Bank. The Connecticut version of CRA is generally similar to the federal version, but utilizes a five-tiered descriptive rating system. Connecticut law requires the CT DOB to consider, but not be limited to, a bank’s record of performance under the Connecticut CRA in considering any application by the Bank to establish a branch or other deposit-taking facility, to relocate an office or to merge or consolidate with or acquire the assets and assume the liabilities of any other banking institution. Bankwell was rated “Satisfactory” by both the FDIC and the Connecticut Department in their most recent concurrent Community Reinvestment Act (CRA) Performance Evaluations.

On October 24, 2023, the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (collectively “the agencies”) released a final rule containing sweeping changes to the CRA regulations (the “2023 rule”). The 2023 rule was intended to modernize and strengthen regulations implementing the CRA but was strongly opposed and subject to legal challenges. In March 2024, the U.S. District Court for the Northern District of Texas enjoined the agencies from enforcing the 2023 rule while the litigation was pending. On July 18, 2025, the agencies issued a proposal to rescind the 2023 rule and reinstate the prior CRA framework. The 2023 rule is currently subject to legal action and the agencies continue to apply the 1995 CRA regulations.

Fair Lending, Equal Credit Opportunity Act (ECOA) and Section 1071. Fair Lending laws, including the Fair Housing Act, ECOA, and its implementing regulation, Regulation B, prohibit discrimination in any aspect of a credit transaction. Section 1071 of the Dodd-Frank Act amended ECOA to require banks to collect and report small business loan application data to the Consumer Financial Protection Bureau (CFPB). Regulation B was amended on March 30, 2023, creating a complex reporting framework requiring banks to report more than 22 data points on each small business loan application. Legal challenges ensued. After two extensions of the compliance date, on November 13, 2025, the CFPB issued a Notice of Proposed Rulemaking to make major changes to the 2023 rule including increasing coverage thresholds and removing certain required data points. The proposal also extended the compliance date to January 1, 2028, with a new first filing deadline of June 1, 2029. Comments were due on December 15, 2025.

Consumer Protection. We are subject to a variety of federal, Connecticut and New York statutes and regulations that are intended to protect consumers in providing bank deposit and loan products and services. These statutes and regulations provide for a range of sanctions for non-compliance with their terms, including imposition of administrative fines and remedial orders, and referral to the Attorney General for prosecution of a civil action for actual and punitive damages and injunctive relief. Certain of these statutes authorize private individual and class action lawsuits and the award of actual, statutory and punitive damages and attorneys’ fees for certain types of violations.

At the federal level, these laws include, but are not limited to the following:

•Truth in Savings Act which establishes disclosure requirements so that consumers may make informed decisions about depository accounts;

•Expedited Funds Availability Act which specifies availability schedules within which banks must make funds available for withdrawal, sets forth rules concerning responsibilities of paying and returning banks; and contains

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provisions related to requirements substitute checks must meet to be the legal equivalent of a paper check during check processing;

•Electronic Funds Transfer Act which protects consumers engaging in electronic funds transfers and provides an error resolution framework; regulates overdraft fees; and governs consumer remittances from the United States to foreign countries;

•Equal Credit Opportunity Act and Fair Housing Act, which prohibits discrimination based on race, color, religion or other prohibited factors in extending credit;

•Fair Debt Collection Practices Act, which governs the way consumer debts may be collected by collection agencies;

•Flood Disaster Protection Act which prohibits banks from making, increasing, renewing, or extending a loan secured by improved real estate located in a Special Flood Hazard Area unless the property securing the loan is covered by flood insurance;

•Service members Civil Relief Act of 2004 and the Military Lending Act, which governs the repayment terms of, and property rights underlying, secured obligations of persons in military service;

Although the Bank does not engage in consumer lending, the following regulations are also monitored: Federal Truth in Lending Act; the Home Mortgage Disclosure Act; the Fair Credit Reporting Act; the SAFE Act; and the Real Estate Settlement Procedures Act and rules and regulations of the various federal agencies charged with the responsibility of implementing these federal laws.

Additional Considerations

Regulatory Enforcement Authority.   Federal banking agencies have substantial enforcement authority over the financial institutions that they regulate including, among other things, the ability to assess civil money penalties, to issue cease-and-desist or removal orders and to initiate injunctive actions against banking organizations and institution-affiliated parties, as defined. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with regulatory authorities. Except under certain circumstances, federal law requires public disclosure of final enforcement actions by the federal banking agencies.

Incentive Compensation Guidance.   The federal banking agencies have issued comprehensive guidance addressing incentive compensation policies designed to prevent compensation arrangements from encouraging excessive risk‑taking that could undermine the safety and soundness of financial institutions. The guidance sets expectations for financial institutions concerning their incentive compensation arrangements and related risk management, control and governance processes. All employees that have the ability to materially affect the risk profile of a financial institution, either individually or as part of a group, are covered by the guidance. The guidance is based upon three core concepts: (1) balanced risk-taking incentives; (2) effective controls and risk management compatibility; and (3) strong corporate governance. Deficiencies in compensation practices that are identified may be incorporated into the institution’s supervisory ratings, which can affect the organization’s ability to take certain actions, including the ability to make acquisitions or take other actions. Enforcement actions by the institution’s primary federal banking agency may be initiated if the institution’s incentive compensation programs pose a risk to the safety and soundness of the organization.

Federal Securities Laws. As a public company, we also file reports with the Securities and Exchange Commission “SEC” and are subject to its regulatory authority, as well as the disclosure and regulatory requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, with respect to our securities, financial reporting and certain governance matters. Because our securities are listed on the Nasdaq Global Market (“Nasdaq”), we are subject to Nasdaq's rules for listed companies, including rules relating to corporate governance.

Financial Modernization.   The Gramm-Leach-Bliley Act, or the GLBA, permits greater affiliation among banks, securities firms, insurance companies, and other companies under a type of financial services company known as a “financial holding company”. A financial holding company essentially is a bank holding company with significantly expanded powers. Financial holding companies are authorized by statute to engage in a number of financial activities previously impermissible for bank holding companies, including securities underwriting, dealing and market making; sponsoring mutual funds and investment companies; insurance underwriting and agency; and merchant banking activities. The GLBA also permits the FRB and the Treasury Department to authorize additional activities for financial holding companies if they are “financial in nature” or “incidental” to financial activities. A bank holding company may become a financial holding company if each of its subsidiary banks is well capitalized, well managed, and has at least a “satisfactory” CRA rating. A financial holding company

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

Privacy of Consumer Information. The Bank is subject to a myriad of state and federal regulations governing the privacy of consumer and customer personal information. Federal requirements include but are not limited to: GLBA and its implementing regulation, Regulation P, which requires financial institutions to establish policies and procedures to restrict the sharing of non-public client data with non-affiliated parties and to protect client data from unauthorized access; the Fair Credit Reporting Act (FCRA), which addresses national credit reporting standards and permits consumers to opt out of information-sharing for marketing purposes among affiliated companies; the Fair and Accurate Credit Transactions Act (FACT Act) which amended certain provisions of the FCRA and requires banks and other financial institutions to notify their clients if they report negative information about them to a credit bureau; and the Right to Financial Privacy Act which establishes specific procedures that federal government authorities must follow in order to obtain information from a financial institution about a customer’s financial records. Other applicable privacy laws include the Children’s Online Privacy Protection Act (COPPA), the Controlling the Assault of Non-Solicited Pornography and Marketing Act (CAN-SPAM), and the Telephone Consumer Protection Act. The Bank maintains a Board-approved Privacy Policy which facilitates compliance.

The Bank Secrecy Act and Related Anti-Money Laundering and Anti-Terrorist Financing Legislation.   The Bank Secrecy Act, or the BSA, provides, in part, for the facilitation of information sharing among governmental entities and financial institutions for the purpose of combating terrorism and money laundering by enhancing anti-money laundering and financial transparency laws, as well as enhanced information collection tools and enforcement mechanics for the U.S. government, including: (1) requiring standards for verifying client identification information at account opening; (2) rules to promote cooperation among financial institutions, regulators, and law enforcement entities in identifying parties that may be involved in terrorism or money laundering; (3) reports filed with the Treasury Department’s Financial Crimes Enforcement Network ("FinCEN") of transactions exceeding $10,000 in currency; (4) filing suspicious activities reports by financial institutions regarding suspected client money laundering, terrorism financing, or other violations of U.S. laws and regulations; and (5) requiring enhanced due diligence requirements for financial institutions that administer, maintain, or manage private bank accounts or correspondent accounts for non-U.S. persons.

Title III of the USA PATRIOT Act of 2001 amended the BSA and incorporates anti-terrorist financing provisions into the requirements of the BSA and its implementing regulations. Among other things, the USA PATRIOT Act requires all financial institutions, to institute and maintain a risk-based anti-money laundering compliance program that includes a client identification program, provides for information sharing with law enforcement and between certain financial institutions by means of an exemption from the privacy provisions of the GLBA, prohibits U.S. banks and broker-dealers from maintaining accounts with foreign “shell” banks, establishes due diligence and enhanced due diligence requirements for certain foreign correspondent banking and foreign private banking accounts and imposes additional record keeping requirements for certain correspondent banking arrangements. The USA PATRIOT Act also grants broad authority to the Secretary of the Treasury to take actions to combat money laundering, and federal bank regulators are required to evaluate the effectiveness of an applicant in combating money laundering in determining whether to approve any application submitted by a financial institution.

On January 1, 2021, Congress passed the Corporate Transparency Act (the “CTA”) as part of the National Defense Authorization Act, which enacted the most significant overhaul of the anti-money laundering laws since the USA PATRIOT Act. The CTA aims to eliminate the use of shell companies that facilitate the laundering of criminal proceeds and, for that purpose, directs FinCEN to establish and maintain a national registry of beneficial ownership information for certain corporate and other business entities. Compliance involves identifying company details, beneficial owners (those with significant control or ownership), and, for new entities, company applicants, with updates required for changes. Numerous lawsuits were filed in federal courts during 2024 seeking to block enforcement of the CTA, with some courts granting nationwide injunctions, all of which were eventually stayed or lifted. However, on March 2, 2025, the Treasury Department announced that it will not be enforcing the CTA against U.S. citizens or domestic reporting companies and that it would be issuing a proposed rule that will narrow the scope of the CTA filing requirements to foreign reporting companies only. On March 21, 2025, FinCEN issued new an interim final rule that removes the requirement for U.S. entities to report beneficial ownership information under the CTA.

On June 28, 2024, FinCEN announced a proposed rule to strengthen and modernize financial institutions’ anti-money laundering and countering the financing of terrorism (AML/CFT) programs. While financial institutions have long maintained AML/CFT programs under existing regulations, this proposed rule would amend those regulations to explicitly require that such programs be effective, risk-based, and reasonably designed with certain minimum components, including a mandatory risk assessment process and also require financial institutions to review government-wide AML/CFT priorities and incorporate them, as appropriate, into their risk-based programs. The June 2024 proposed rule was not finalized in its original form; instead, FinCEN issued a separate Final Rule in August 2024 for Investment Advisers, delaying its effective date to January 1, 2028, and reopened it for revisions, with a related Customer Identification Program (CIP) rule also pending. Recent developments signal continued recalibration of BSA reporting requirements. On October 9, 2025, FinCEN issued guidance in the form of Suspicious Activity Report (SAR) FAQs clarifying several long‑debated expectations largely harmonizing practice with

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existing regulations. On October 21, 2025, the Streamlining Transaction Reporting and Ensuring Anti-Money Laundering Improvements for a New Era (STREAMLINE) Act was introduced, a legislative effort aimed at simplifying BSA reporting. On February 13, 2026, FinCEN issued an order (FIN-2026-R001) granting exceptive relief to covered financial institutions from the long-standing requirement to identify and verify the beneficial owners of legal entity customers at each new account opening. Inconsistencies between state and federal laws persist regarding the provision of banking services to Marijuana Related Businesses (MRBs).

The Office of Foreign Assets Control, or OFAC, which is a division of the Treasury Department, is responsible for helping to ensure that U.S. entities do not engage in transactions with “enemies” of the United States, as defined by various Executive Orders and Acts of Congress. OFAC maintains lists of names of persons and organizations suspected of aiding, harboring or engaging in money laundering, terrorist acts, and other crimes. If the Bank finds a name on any transaction, account or wire transfer that is on an OFAC list, the Bank must freeze such account, file a suspicious activity report and notify OFAC. We have established policies and procedures to ensure compliance with the federal anti-laundering and combating terrorism provisions.

Proposed Legislation and Regulatory Action.   New statutes, regulations and guidance are regularly proposed that contain wide-ranging potential changes to the statutes, regulations and competitive relationships of financial institutions operating and doing business in the United States. We cannot predict whether or in what form any proposed regulation or statute will be adopted or the extent to which our business may be affected by any new regulation or statute.

Effect of Governmental Monetary Policies.   Our earnings will be affected by domestic economic conditions and the monetary and fiscal policies of the U.S. government and its agencies. The FRB’s monetary policies have had, and are likely to continue to have, an important impact on the operating results of commercial banks through its power to implement national monetary policy in order, among other things, to curb inflation or combat a recession. The monetary policies of the FRB affect the levels of bank loans, investments and deposits through its control over the issuance of U.S. government securities, its regulation of the discount rate applicable to member banks and its influence over reserve requirements to which member banks are subject. We cannot predict the nature or impact of future changes in monetary and fiscal policies.

Taxation

Federal Taxation

General:   We are subject to federal income taxation in the same general manner as other corporations, with limited exceptions. The following discussion of federal taxation is intended only to summarize certain pertinent federal income tax matters and is not a comprehensive description of the tax rules applicable to us.

Method of Accounting:   For Federal income tax purposes, we report income and expenses on the accrual method of accounting and use tax year ending December 31 for filing federal income tax returns.

Net Operating Loss Carryovers: At December 31, 2025, we had $1.2 million of net operating loss carryforwards for federal income tax purposes. The federal net operating losses will expire in 2032. The use of these carryforwards is subject to annual limitations.

Corporate Dividends-Received Deduction:   The Company may exclude from its income 100.0% of dividends received from the Bank as a member of the same affiliated group of corporations.

Excise Tax on Stock Repurchases: The Inflation Reduction Act of 2022 (“IRA”) imposes a 1% excise tax on the aggregate fair market value of stock repurchased by certain corporations during the taxable year, subject to adjustments. The excise tax generally applies to any US corporation whose stock is traded on an established securities market and that repurchases more than $1 million of stock over the course of a tax year.

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

State Taxation

We are subject to the Connecticut corporation business tax. The Connecticut corporation business tax is based on the federal taxable income before net operating loss and special deductions and makes certain modifications to federal taxable income to arrive at Connecticut taxable income. Connecticut taxable income is multiplied by the state tax rate (7.5% for the fiscal years ending December 31, 2025 and 2024) to arrive at Connecticut income tax. In addition to Connecticut state income tax, we are subject to income tax in other states due to business activities conducted therein, including the employment of personnel and the origination of loans.

In October 2015, the Company created Bankwell Loan Servicing Group, Inc., a Passive Investment Company (“PIC”) organized for state income tax purposes. The PIC is a wholly-owned subsidiary of the Bank operating in accordance with Connecticut statutes. The PIC’s activities are limited in scope to holding and managing loans that are collateralized by real estate. Income earned by the PIC is determined in accordance with the statutory requirements for a passive investment company

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and the dividends paid by the PIC to the Bank are not taxable income for Connecticut income tax purposes. As a result of the formation of the PIC, the Bank does not expect to be subject to Connecticut income taxes. State taxes are being recognized for income taxes on income earned in other states.

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