Bankwell Financial Group, Inc.BWFG

Bankwell Financial Group, Inc. Income Taxes Disclosure

10-KFiled Mar 4, 20263 min read
Income Taxes
The components of income tax expense for the years ended December 31, 2025 and December 31, 2024 consisted of:
December 31,
20252024
(In thousands)
Current provision:
Federal$10,387 $2,640 
State4,731 1,388 
Total current15,118 4,028 
Deferred (credit) provision:
Federal(1,531)(285)
State(290)(184)
Total deferred (credit) provision(1,821)(469)
Total income tax expense$13,297 $3,559 
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 a PIC is determined in accordance with the statutory requirements for a passive investment company 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 is currently not subject to Connecticut income taxes. State taxes are being recognized for income taxes on income earned in other states.
A reconciliation of the anticipated income tax expense, computed by applying the statutory federal income tax rate of 21% for the years ended December 31, 2025 and December 31, 2024 to the income before income taxes, to the amount reported in the consolidated statements of income for the years ended December 31, 2025 and December 31, 2024 was as follows:
December 31,
2025
(In thousands)
Income tax expense at statutory federal rate$10,191 21.0 %
State tax expense, net of federal income tax benefit (1)
2,561 5.3 %
Nontaxable or nondeductible items:
Other, net (2)
(587)(1.2)%
Changes in unrecognized tax benefits 947 2.0 %
Other adjustments185 0.4 %
Income tax expense$13,297 27.4 %
(1) State taxes in Florida and New York consisted of the majority (greater than 50%) of the tax effect.
(2) Includes nondeductible expenses, shortfalls, and windfalls.


December 31,
2024
(In thousands)
Income tax expense at statutory federal rate$2,799 
State tax expense, net of federal income tax benefit1,205 
Nontaxable or nondeductible items:
Other, net(428)
Other adjustments(17)
Income tax expense$3,559 
At December 31, 2025 and December 31, 2024, the components of deferred tax assets and liabilities were as follows:
December 31,
20252024
(In thousands)
Deferred tax assets:
ACL-Loans
$7,370 $7,406 
Net operating loss carryforwards259 296 
Deferred fees2,329 2,055 
Deferred director fees553 495 
Unrealized loss on available for sale securities557 1,185 
Lease liabilities2,628 2,998 
Other2,422 1,255 
Gross deferred tax assets16,118 15,690 
Deferred tax liabilities:
Deferred expenses1,119 1,079 
Servicing rights248 139 
Depreciation623 1,079 
Unrealized gain on derivatives378 799 
Right-of-use-assets2,394 2,755 
Other— 97 
Gross deferred tax liabilities4,762 5,948 
Net deferred tax assets$11,356 $9,742 
A valuation allowance against deferred tax assets is required if, based on the weight of available evidence, it is more-likely-than-not that some or all of the deferred tax assets will not be realized. Management evaluated its remaining deferred tax assets and believes no valuation allowances were needed at December 31, 2025 or December 31, 2024.
At December 31, 2025, the Company had federal net operating loss carryovers of $1.2 million. The carryovers were transferred to the Company upon the merger with The Wilton Bank. The losses will expire after 2032 and are limited to $176 thousand per annum.
As a result of management's analysis of the Company's tax position, a reserve has been established for uncertain tax positions in conjunction with the Company's out of state lending activity. The total reserve for uncertain tax positions totaled $1.7 million as of December 31, 2025. The tax years 2022 and subsequent are subject to examination by federal and state taxing authorities. The statute of limitations has expired on the years before 2022. No examinations are currently in process.
The following table reflects a reconciliation of the beginning and ending balances of the Company’s uncertain tax positions:
At December 31,
20252024
(In thousands)
Balance, beginning of year$1,645 $1,045 
Additions relating to potential liability with taxing authorities1,296 600 
(Reductions) relating to potential liability with taxing authorities(1,256)— 
Balance, end of year$1,685 $1,645 
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Historical Timeline

Fiscal YearFiled
2025Mar 4, 2026Showing above
2024Mar 5, 2025
2023Mar 12, 2024

About Income Taxes Disclosures

The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.

Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.

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