Bankwell (BWFG) Q1 2026 Earnings Transcript

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DATE

Thursday, April 23, 2026 at 9 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Christopher R. Gruseke
• Chief Financial Officer — Courtney E. Sacchetti
• President & Chief Banking Officer — Matthew J. McNeill

TAKEAWAYS

• Net Income -- $11.3 million, or $1.41 per share, attributable to positive loan production, fee income, and core deposit growth.
• Loan Originations -- $190 million in total originations, including $34 million from SBA loans, driving net loan growth of $27 million.
• Core Deposit Growth -- $113 million sequential increase, with $39 million from low-cost deposits and $24 million from analyzed checking balances (an 8% increase).
• Deposit Cost -- Declined by 5 basis points from the prior quarter to 310 basis points, exiting March at approximately 298 basis points.
• Brokered Deposit and FHLB Borrowing Reduction -- Decreased by $95 million combined; brokered deposits have dropped by $513 million since end of 2022—a 50% decline.
• Net Interest Margin (NIM) -- 328 basis points, reflecting modest sequential pressures from repricing but partly offset by lower deposit costs; normalized NIM variance would have been 5 basis points.
• Repricing of Time Deposits -- $300 million in CDs repriced 44 basis points lower during the quarter, delivering a projected $1.2 million annualized benefit; $1.1 billion slated for repricing over the next year with average rate reduction of 14 basis points and incremental $1.6 million annualized benefit.
• Variable-Rate Loan Mix -- Increased from just over 20% at the start of 2025 to 42% at quarter end.
• Noninterest Income -- $3.3 million, including $2.4 million in SBA gain-on-sale income, with guidance raised to $12 million-$13 million for the year.
• Return on Average Assets and ROATCE -- 1.35% and 15%, respectively.
• Pre-Provision Net Revenue -- $13.3 million, or 1.6% of average assets, with impact from $1 million in seasonal noninterest expense.
• Noninterest Expense -- $16.9 million, largely due to annual first quarter costs related to employee compensation and services; guidance for the year remains $64 million-$65 million.
• Efficiency Ratio -- 55.8% for the quarter, reflecting seasonal expense impacts.
• Provision for Credit Losses -- $1 million release, driven by loan growth and CECL model factors.
• Credit Quality and Nonperforming Assets -- Nonperforming assets increased to 0.56% of total assets, but coverage of nonperforming loans remains at approximately 155%.
• Capital Ratios -- Tangible common equity at 9.17% and consolidated common equity tier 1 ratio of about 10.5%.
• Share Repurchases -- 3,317 shares were repurchased at an average price of $45.32.
• Strategic Initiatives -- Opened first full-service branch in Bay Ridge, Brooklyn, New York, with a focus on deposit growth rather than lending.

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RISKS

• President & Chief Banking Officer McNeill said the increase in nonperforming assets was due to a tenant leaving a commercial real estate property, noting, "the sponsor was not able to make the payment."
• Management described deposit competition as "very competitive," which may present future pressure on funding costs despite recent improvements.

SUMMARY

Management highlighted a consistent execution of strategic funding mix improvements and credit discipline. The SBA loan platform generated recurring fee income and supported rising noninterest income guidance, while significant progress continued in lowering wholesale funding reliance. The growing concentration of variable-rate loans and favorable repricing outlook for deposits signal further balance sheet resilience. Guidance affirms incremental margin improvement for the remainder of the year, supported by both core deposit flows and time deposit repricing.

• Management stated, "We are focused on bringing in low-cost deposits to bring down our funding cost, which is probably the most competitive area."
• While the CRE concentration ratio has declined by roughly 40 basis points over the year, management does not set a specific 300% target and expects the diversified loan mix trend to continue.
• Share repurchases will remain opportunistic and subordinate to capital ratio objectives, particularly as "our goal is still to get to 11% on the consolidated CET1 ratio at Holdco."
• There is visibility into near-term resolution of recent nonperforming commercial real estate credits, which could lower nonperforming asset ratios over coming quarters.

INDUSTRY GLOSSARY

• SBA: Refers to loans originated under the U.S. Small Business Administration program, providing government-backed lending for small businesses.
• CECL: Current Expected Credit Loss, an accounting standard that requires banks to estimate the expected lifetime losses of loans and recognize them in advance.
• CRE Concentration Ratio: A regulatory ratio measuring commercial real estate exposure as a percentage of total capital, monitored for risk management.
• FHLB: Federal Home Loan Bank, a system of regional banks providing liquidity to member institutions.
• PPNR: Pre-Provision Net Revenue, calculated as net revenue before credit loss provisions, reflecting core profitability.
• CET1 Ratio: Common Equity Tier 1 capital ratio, a key regulatory metric of bank capital strength, calculated as CET1 capital divided by risk-weighted assets.

Full Conference Call Transcript

Christopher R. Gruseke: Thanks, Courtney. Welcome, and thank you to everyone for joining Bankwell Financial Group, Inc.'s quarterly earnings call. This morning, I am joined by Courtney E. Sacchetti, our Chief Financial Officer, and Matthew J. McNeill, our President and Chief Banking Officer. We appreciate your interest in our performance, and I am excited by this opportunity to discuss our results with you. We have delivered a solid start to 2026 with strong earnings, continued balance sheet improvement, and continued progress on our strategic priorities. For the first quarter, we reported GAAP net income of $11.3 million, or $1.41 per share.

These results were supported by solid loan production, strong fee income from our SBA platform, lower funding costs, meaningful core deposit growth, and ongoing balance sheet optimization, including reduced reliance on wholesale funding and continued progress on building a more interest rate neutral balance sheet. Loan growth remained positive during the quarter with $190 million of originations, including $34 million of SBA production, resulting in net loan growth of $27 million. On an annualized basis, this level of growth is consistent with our previously communicated guidance of 4% to 5% for the full year, and our pipeline remains strong. Importantly, this growth is supported by strong core deposit inflows.

Core deposits increased by $113 million sequentially, with $39 million coming from low-cost deposits. Included in that $39 million is $24 million of growth in analyzed checking balances, for an 8% increase on the quarter. In addition to funding our loan growth, we reduced brokered deposit balances and Federal Home Loan Bank borrowings by a combined $95 million, further improving our funding mix. Since our peak at the end of 2022, we have successfully reduced our brokered deposits by $513 million, a 50% decline. The net interest margin was 328 basis points, reflecting modest pressure from asset repricing, as floating-rate loans reset lower, and an unfavorable day-count impact relative to the prior quarter.

These factors were partially offset by continued improvement in deposit costs, which declined 5 basis points sequentially to 310 basis points. Noninterest income remained a meaningful contributor to results, totaling $3.3 million, which includes $2.4 million of SBA gain-on-sale income. Our SBA division continues to be an important part of our diversified revenue strategy and a meaningful source of recurring fee income. Credit quality remains healthy with expectations of further improvement. While nonperforming assets increased modestly to 56 basis points of total assets, we have visibility into the resolution of several credits over the coming quarters. Overall asset quality metrics remain well within our internal expectations, and reserve coverage levels remain appropriate.

Finally, we are excited to have opened our first full-service branch in New York during the quarter, located in Bay Ridge, Brooklyn. The branch is home to an experienced private banking team that joined Bankwell Financial Group, Inc. in 2025, and the addition of this location enables the team to deliver Bankwell Financial Group, Inc.'s full suite of commercial and private client banking services on the ground in New York. I will now turn the call back to Courtney E. Sacchetti to walk through the financial results in more detail.

Courtney E. Sacchetti: Thanks, Christopher. Starting with the income statement, net interest income totaled $26.9 million for the first quarter and was largely unchanged compared to the prior quarter. Net interest margin declined modestly to 328 basis points, driven primarily by the repricing of floating-rate loans in a lower-rate environment and an unfavorable day-count impact. On a day-count normalized basis, the sequential NIM variance would have been approximately 5 basis points. These headwinds were partially offset by continued improvement in deposit costs. Total deposit costs declined to 310 basis points, down 5 basis points from the fourth quarter, and the bank exited March with a deposit cost exit rate of approximately 298 basis points.

During the first quarter, we successfully repriced approximately $300 million of time deposits 44 basis points lower, generating an expected annualized benefit of $1.2 million. In addition, over the next 12 months, approximately $1.1 billion of time deposits are expected to reprice favorably with an average rate reduction of 14 basis points. This repricing is anticipated to deliver an incremental annualized benefit of roughly $1.6 million, or about 5 basis points of net interest margin. With respect to rate-sensitive assets, we have strategically increased the proportion of variable-rate loans from just over 20% at the start of 2025 to approximately 42% at quarter end.

Additional detail on asset and liability repricing as well as rate sensitivity is provided on Page 8 of the investor presentation. Profitability remained solid in the quarter with return on average assets of 1.35% and return on average tangible common equity of 15%. As deposit repricing continues to flow through the balance sheet and interest rate sensitivity moderates, we expect incremental margin improvement over the balance of 2026, affirming our full-year net interest income guidance of $111 million to $112 million. Noninterest income totaled $3.3 million for the quarter, reflecting $2.4 million of gains on SBA loan sales and continued growth in service fee income driven by an expanding commercial client base.

Based on our first quarter results, we are raising our full-year noninterest income guidance to $12 million to $13 million. Our pre-provision net revenue for the quarter was $13.3 million, or 1.6% of average assets, compared to 1.8% in the prior quarter. Our PPNR was impacted by approximately $1 million in annual noninterest expense typically incurred in the first quarter, elevating total noninterest expense to $16.9 million for the quarter. These annual costs are primarily related to employee compensation and certain services. Despite these seasonal expenses, our underlying noninterest expense run rate remains consistent with our prior guidance of $64 million to $65 million. The efficiency ratio for the quarter was 55.8%, which reflects the seasonality of first quarter expenses.

Our provision for credit losses was a release of $1 million for the quarter, driven by the net impact of loan growth and economic factors embedded in our CECL model. The allowance for credit losses ended the quarter at 1.03% of total loans, with coverage of nonperforming loans at approximately 155%. From a capital and liquidity standpoint, the balance sheet remains strong. Total assets ended the quarter at $3.4 billion. Deposits totaled $2.9 billion, and both the bank and holding company remain well capitalized. Tangible common equity was 9.17%, and our consolidated common equity tier 1 ratio was approximately 10.5%. We repurchased 3,317 shares during the quarter at an average price of $45.32 per share.

Now I will turn the call back to Christopher for closing remarks.

Christopher R. Gruseke: Thanks, Courtney. In 2024, we laid out a plan to improve our funding mix, continue to grow our loan book in a disciplined manner, maintain strong credit quality, and build diversified sources of revenue. We have also committed to continue to invest in our tech-forward platform while managing expenses. We are truly gratified by the results achieved through the planning and hard work done by our team, and we thank them for their dedication. We will continue to execute on our strategic goals and look forward to sharing the results of our continuous growth and evolution with all of our stakeholders in the quarters ahead.

We thank our longtime customers for their continued support and welcome the many new customers who have helped us to grow our business. We also appreciate the continued support and interest from our shareholders and the investment community. We will now open the call for questions.

Operator: And from KBW, our first question comes from the line of Mark Shutley. Please go ahead.

Analyst: Good morning. I appreciate the detail on the CDs and how much of that is coming due. I think you said that is a 5 basis point benefit to the margin. In this current rate environment, now that it is seemingly more flat, are you seeing more competition on the deposit side? I am trying to get a sense for how much the overall interest-bearing deposit costs can be worked down. Thanks.

Christopher R. Gruseke: First of all, the numbers we put out on CDs expected to roll are based on market rates as of today. That implies no further cuts; as deposits roll to current market levels, that is what the impact would be. That addresses the first part of your question.

Matthew J. McNeill: As far as deposit competition, it is very competitive out there. We are focused on bringing in low-cost deposits to bring down our funding cost, which is probably the most competitive area. However, we are finding success and have been able to substantially grow core deposits in the quarter.

Christopher R. Gruseke: It is competitive. Net loan growth was approximately 2% quarter over quarter, but core loan growth was substantially higher. On deposits, core deposits grew by $113 million; roughly 25% to 30% of that was low-cost, including about $24 million of growth in analyzed checking. With the balance that did not result in loan growth, we paid down more expensive borrowings. We are happy with the deposit result despite the competitive environment, and the mix improved. In our deposit mix.

Matthew J. McNeill: Yes.

Analyst: Thanks, appreciate it. Switching gears, SBA was strong in the quarter, and it looks like originations are tracking higher. I think you previously talked about $100 million of originations for the year. Is there any change to that, and where does SBA fit into the overall fee guide? Thanks.

Matthew J. McNeill: We are having success with SBA. We have a really strong team. We could definitely originate more SBA loans, but we are choosing to keep the volume generally where it is. We are not increasing the $100 million we put out as how we were thinking about fee income, although other fees are coming in higher as well. That is the reason for the increase in the fee guidance.

Christopher R. Gruseke: If we wanted to do more, we could. We are about two years into this and have been measured in our approach.

Analyst: Got it, appreciate it. That is it for me. Thanks for taking my questions.

Christopher R. Gruseke: Thank you. Thanks, Mark.

Matthew J. McNeill: Operator?

Courtney E. Sacchetti: Operator, we are ready for the next question.

Operator: Apologies. Our next question is from the line of—go ahead.

Courtney E. Sacchetti: Feddie, are you there?

Feddie Justin Strickland: Yes, sorry, I did not hear the name either. No worries. I wanted to start by asking about the Brooklyn office. Does that serve as a home base for some of the deposit-gathering teams in the city, and how much lending do you think you will do out of that office?

Matthew J. McNeill: I think we will do a modest amount of lending out of the office, Feddie. It was not the primary reason to open the office. It was definitely a deposit play, which has already taken off and been robust. In the 10 months leading up to the branch opening, the team was very active, and we have had good success there. Lending is not a core part of the strategy there; however, we do think that some loans will come out of it. We have been lending in and around NYC since the bank’s inception, so it really should not change a whole lot in terms of the geography where we are lending.

Christopher R. Gruseke: We do not have a plan to add branches just to enter markets or to make sure we have more branches. We hired the people first. This is a very experienced private client group that has been together for years and has already had material and significant impact on our organization. If what they needed was a branch to assist in their platform, then we could build a branch. We happen to love Brooklyn—I was born there—but we were not going out of our way to enter that market. We were following our deposit team and their needs.

Feddie Justin Strickland: Got it, that is helpful. Switching gears to CRE concentration, given the current trend line, is it possible we could see that dip below 300% by year-end or maybe early next year? Based on what is currently in the pipeline and capital build, do you feel like you are in a range where you are pretty comfortable and not as worried about crossing that 300% threshold?

Christopher R. Gruseke: We do not have 300% as a target. We are seeing a more diversified loan mix. It is conceivable, but it is not the plan. Over the last year, we have come down roughly 40 basis points from about 375%.

Matthew J. McNeill: We are happy where it is. We can live with it, and I suspect over time we will get down there. Whether it is year-end or not, I do not know. It has been a trend for a while, and we are seeing a better flow of C&I deals. We have not done much office, etc. I think it will naturally get there, but it is not a particular goal. I would not be surprised to see it come down another 10 to 20 basis points over the course of the year.

Feddie Justin Strickland: Got it. And then on the credit side, it looked like the modest increase in nonaccruals was CRE-driven. I apologize if I missed it in the opening remarks—can you speak a little more about what drove the increase there and what you might expect on resolution?

Matthew J. McNeill: The increase was due to a tenant leaving a building; the sponsor was not able to make the payment. There is equity in the deal. We think we will be able to work with them to dispose of the real estate and be paid there. As you heard in Christopher’s comments, we have visibility into resolution of several of the credits that are on our NPAs, and we expect those to happen in the next couple of quarters, with meaningful resolution and a much lower NPA number.

Feddie Justin Strickland: Perfect. Thanks for taking my question.

Operator: From Raymond James, your next question comes from the line of Steve Moss.

Analyst: It is Chase on for Steve. Hey, guys. On loan pricing, can you tell me where new origination yields are coming in these days?

Courtney E. Sacchetti: For the first quarter, our average rate was 7.5%.

Analyst: I appreciate that. And just one more for me. I saw you enabled the buyback this quarter. Can you tell us what would bring you more into that market?

Christopher R. Gruseke: I am sorry, can you repeat that? I heard buybacks and then it cut out.

Analyst: Yes, I saw you enabled the buybacks. Could you tell us what would bring you more into that market?

Matthew J. McNeill: We look at the price daily when we are not in blackout. We have a plan in place. I expect the number to grow over the course of the year, but you would have to look at our consolidated CET1 ratio, and we are still trying to grow that. If levels hold, and given the amount of stock that we issued, I would not be surprised to see us, over the course of the year, nibble some back. But our goal is still to get to 11% on the consolidated CET1 ratio at Holdco, not necessarily by year-end.

Analyst: Alright, I appreciate all the color. All my questions have been answered. Thank you.

Matthew J. McNeill: Okay.

Operator: With no further questions, this does conclude today’s conference call. You may now disconnect.

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