Bankwell Financial Group, Inc.BWFG
Bankwell Financial Group, Inc. Fair Value Disclosure
Fair Value of Financial Instruments
GAAP requires disclosure of fair value information about financial instruments, whether or not recognized in the Consolidated Balance Sheets, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rates and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparisons to independent markets and, in many cases, could not be realized in immediate settlement of the instrument.
Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent limitations in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates presented herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction. The estimated fair value amounts have been measured as of the respective period-ends, and have not been reevaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period-end.
The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair values of the Company’s financial instruments will change when interest rate levels change and that change may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors
who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk.
The carrying values, fair values and placement in the fair value hierarchy of the Company’s financial instruments at December 31, 2025 and December 31, 2024 were as follows:
| December 31, 2025 | |||||||||||||||||||||||||||||
| Carrying Value | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||
| Financial assets: | |||||||||||||||||||||||||||||
| Cash and due from banks | $ | 214,567 | $ | 214,567 | $ | 214,567 | $ | — | $ | — | |||||||||||||||||||
| Federal funds sold | 10,354 | 10,354 | 10,354 | — | — | ||||||||||||||||||||||||
| Marketable equity securities | 2,248 | 2,248 | 2,248 | — | — | ||||||||||||||||||||||||
| Available for sale securities | 160,409 | 160,409 | 74,668 | 85,741 | — | ||||||||||||||||||||||||
| Held to maturity securities | 29,465 | 31,045 | — | — | 31,045 | ||||||||||||||||||||||||
| Loans receivable, net | 2,804,441 | 2,811,784 | — | — | 2,811,784 | ||||||||||||||||||||||||
| Accrued interest receivable | 16,143 | 16,143 | — | 16,143 | — | ||||||||||||||||||||||||
| FHLB stock | 6,207 | 6,207 | — | 6,207 | — | ||||||||||||||||||||||||
| Servicing assets, net of valuation allowance | 1,035 | 1,035 | — | — | 1,035 | ||||||||||||||||||||||||
| Derivative assets | 4,970 | 4,970 | — | 4,970 | — | ||||||||||||||||||||||||
| Other real estate owned | — | — | — | — | — | ||||||||||||||||||||||||
| Financial liabilities: | |||||||||||||||||||||||||||||
| Noninterest bearing deposits | $ | 403,652 | $ | 403,652 | $ | — | $ | 403,652 | $ | — | |||||||||||||||||||
| NOW and money market | 1,098,049 | 1,098,049 | — | 1,098,049 | — | ||||||||||||||||||||||||
| Savings | 97,418 | 97,418 | — | 97,418 | — | ||||||||||||||||||||||||
| Time deposits | 1,230,362 | 1,232,581 | — | — | 1,232,581 | ||||||||||||||||||||||||
| Accrued interest payable | 9,019 | 9,019 | — | 9,019 | — | ||||||||||||||||||||||||
| Advances from the FHLB | 110,000 | 110,008 | — | — | 110,008 | ||||||||||||||||||||||||
| Subordinated debentures | 69,697 | 70,075 | — | — | 70,075 | ||||||||||||||||||||||||
| Servicing liabilities | — | — | — | — | — | ||||||||||||||||||||||||
| Derivative liabilities | 3,201 | 3,201 | — | 3,201 | — | ||||||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||||||||
| Carrying Value | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||
| Financial assets: | |||||||||||||||||||||||||||||
| Cash and due from banks | $ | 293,552 | $ | 293,552 | $ | 293,552 | $ | — | $ | — | |||||||||||||||||||
| Federal funds sold | 13,972 | 13,972 | 13,972 | — | — | ||||||||||||||||||||||||
| Marketable equity securities | 2,118 | 2,118 | 2,118 | — | — | ||||||||||||||||||||||||
| Available for sale securities | 107,428 | 107,428 | 63,557 | 43,871 | — | ||||||||||||||||||||||||
| Held to maturity securities | 36,553 | 36,691 | — | 29 | 36,662 | ||||||||||||||||||||||||
| Loans receivable, net | 2,672,959 | 2,637,922 | — | — | 2,637,922 | ||||||||||||||||||||||||
| Accrued interest receivable | 14,535 | 14,535 | — | 14,535 | — | ||||||||||||||||||||||||
| FHLB stock | 5,655 | 5,655 | — | 5,655 | — | ||||||||||||||||||||||||
| Servicing assets, net of valuation allowance | 558 | 558 | — | — | 558 | ||||||||||||||||||||||||
| Derivative assets | 7,472 | 7,472 | — | 7,472 | — | ||||||||||||||||||||||||
| Other real estate owned | 8,299 | 8,299 | — | — | 8,299 | ||||||||||||||||||||||||
| Financial liabilities: | |||||||||||||||||||||||||||||
| Noninterest bearing deposits | $ | 321,875 | $ | 321,875 | $ | — | $ | 321,875 | $ | — | |||||||||||||||||||
| NOW and money market | 1,004,503 | 1,004,503 | — | 1,004,503 | — | ||||||||||||||||||||||||
| Savings | 90,220 | 90,220 | — | 90,220 | — | ||||||||||||||||||||||||
| Time deposits | 1,370,972 | 1,374,309 | — | — | 1,374,309 | ||||||||||||||||||||||||
| Accrued interest payable | 13,737 | 13,737 | — | 13,737 | — | ||||||||||||||||||||||||
| Advances from the FHLB | 90,000 | 90,045 | — | — | 90,045 | ||||||||||||||||||||||||
| Subordinated debentures | 69,451 | 66,167 | — | — | 66,167 | ||||||||||||||||||||||||
| Servicing liabilities | — | — | — | — | — | ||||||||||||||||||||||||
| Derivative liabilities | 4,472 | 4,472 | — | 4,472 | — | ||||||||||||||||||||||||
The following methods and assumptions were used by management in estimating the fair value of its financial instruments:
Cash and due from banks, federal funds sold, accrued interest receivable and accrued interest payable: The carrying amount is a reasonable estimate of fair value.
Marketable equity securities, available for sale securities and held to maturity securities: Fair values are based on quoted market prices or dealer quotes, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. The majority of the available for sale securities are considered to be Level 2 as other observable inputs are utilized, such as quoted prices for similar securities. Level 1 investment securities include investments in a U.S. treasury note and in marketable equity securities for which a quoted price is readily available in the market. Level 3 held to maturity securities represent private placement municipal housing authority bonds for which no quoted market price is available. The fair value for these securities is estimated using a discounted cash flow model, using discount rates ranging from 4.1% to 6.4% as of December 31, 2025 and 5.3% to 7.2% as of December 31, 2024. These securities are CRA eligible investments.
FHLB stock: The carrying value of FHLB stock approximates fair value based on the most recent redemption provisions of the FHLB.
Loans receivable: For variable rate loans which reprice frequently and have no significant change in credit risk, fair values are based on carrying values. The fair value of fixed rate loans are estimated by discounting the future cash flows using the rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The fair value methodology includes prepayment, default and loss severity assumptions applied by type of loan. The fair value estimate of the loans includes an expected credit loss.
Derivative assets (liabilities): The valuation of the Company’s interest rate swaps is obtained from a third-party pricing service and is determined using a discounted cash flow analysis on the expected cash flows of each derivative. The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves. The Company also considers the creditworthiness of each counterparty for assets and the creditworthiness of the Company for liabilities.
Deposits: The fair value of demand deposits, regular savings and certain money market deposits is the amount payable on demand at the reporting date. The fair value of certificates of deposit and other time deposits is estimated using a discounted cash flow calculation that applies interest rates currently being offered for deposits of similar remaining maturities to a schedule of aggregated expected maturities on such deposits.
Borrowings and subordinated debentures: The fair value of the Company’s borrowings and subordinated debentures is estimated using a discounted cash flow calculation that applies discount rates currently offered based on similar maturities. The Company also considers its own creditworthiness in determining the fair value of its borrowings and subordinated debt. Contractual cash flows for the subordinated debt are reduced based on the estimated rates of default, the severity of losses to be incurred on a default, and the rates at which the subordinated debt is expected to prepay after the call date.
Servicing assets (liabilities): Servicing assets and liabilities do not trade in an active, open market with readily observable prices. The Company estimates the fair value of servicing assets and liabilities using discounted cash flow models, incorporating numerous assumptions from the perspective of a market participant, including market discount rates.
Off-balance-sheet instruments: Loan commitments on which the committed interest rate is less than the current market rate are insignificant at December 31, 2025 and December 31, 2024.
Other Real Estate Owned ("OREO"): OREO is held at the lower of cost or fair value and is measured at fair value when recorded below cost. The fair value of OREO is calculated using independent appraisals or internal valuation methods, less estimated selling costs, and may consider available pricing guides, auction results, price opinions, and other factors that are not observable in an active market when determining fair value. Accordingly, OREO are classified within Level 3 of the fair value hierarchy. At December 31, 2025, there was no OREO. At December 31, 2024, the fair value of OREO was $8.3 million.Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 4, 2026 | Showing above |
| 2024 | Mar 5, 2025 | |
| 2023 | Mar 12, 2024 | |
| 2022 | Mar 8, 2023 | |
| 2021 | Mar 8, 2022 | |
| 2020 | Mar 10, 2021 | |
| 2019 | Feb 28, 2020 | |
| 2018 | Mar 4, 2019 | |
| 2017 | Mar 30, 2018 | |
| 2016 | Mar 16, 2017 | |
| 2015 | Mar 15, 2016 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.