Company: BWFG
Filing Date: 2025-03-05
Form Type: 10-K
Source: 0001505732-25-000052
Chunk: 62

Company: Bankwell Financial Group, Inc.
Filing Date: 2025-03-05
Form: 10-K
Item: Item 1A
Chunk 62
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 our business, financial condition, results of operations and future prospects.

A prolonged downturn in the real estate market could result in losses and adversely affect our profitability.

A high percentage our loan portfolio is comprised of commercial real estate loans. The sale of real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower and may deteriorate in value during the time the credit is extended. A decline in real estate values could impair the value of our collateral and our ability to sell the collateral upon any foreclosure, which would likely require us to increase our ACL-Loans. In the event of a default with respect to any of these loans, the amounts we receive upon sale of the collateral may be insufficient to recover the outstanding principal and interest on the loan. If we are required to re-value the collateral securing a loan to satisfy the debt during a period of reduced real estate values or to increase our ACL-Loans, our profitability could be adversely affected, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

We are subject to interest rate risk that could negatively impact our profitability.

Our profitability, like that of most financial institutions, depends to a large extent on our net interest income, which is the difference between our interest income on interest-earning assets, such as loans and investment securities, and our interest expense on interest bearing liabilities, such as deposits and borrowings.

Interest rates are highly sensitive to numerous factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies, most notably the FRB through the Federal Open Market Committee. Beginning in 2022, the FRB initiated an aggressive monetary tightening cycle to combat rising inflation, resulting in a significant and rapid increase in the federal funds rate. This tightening cycle culminated in the target federal funds rate 

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range reaching a high of 5.25%-5.50%. While the FRB subsequently decreased the target range by 100 basis points in 2024, citing factors such as moderating inflationary pressures and continued job and wage growth, the cumulative effect of the prior increases continued to shape the interest rate environment.  

Changes in monetary policy, particularly changes in interest rates, influence the interest we earn on loans and securities, the interest we pay on deposits and borrowings, and our ability to originate loans and attract deposits.  Furthermore, such changes affect the fair value of our financial assets and liabilities, as well as the average duration of our assets.  If interest rates paid on