Bankwell Financial Group Q1 2026 Earnings Call - Strategic Deposit Rebalancing and SBA Strength

Tina, Conference Operator: Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Bankwell Financial Group, Inc.’s first quarter 2026 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question and answer session. To ask a question, simply press star one on your telephone keypad. To withdraw your question, press star one again. It is now my pleasure to turn the call over to Courtney E. Sacchetti, Executive Vice President and Chief Financial Officer. You may begin.

Courtney E. Sacchetti, Executive Vice President and Chief Financial Officer, Bankwell Financial Group, Inc.: Thank you. Good morning, everyone. Welcome to Bankwell’s first quarter 2026 earnings conference call. To access the call over the internet and review the presentation materials that we will reference on the call, please visit our website at investor.bankwellfinancialgroup.com and go to the Events and Presentations tab for supporting materials. Our first quarter earnings release is also available on our website. Our remarks today may contain forward-looking statements and may refer to non-GAAP financial measures. All participants should refer to our SEC filings, including those found on Forms 8-K, 10-Q, and 10-K, for a complete discussion of forward-looking statements and any factors that could cause actual results to differ from those statements. Now I will turn the call over to Chris Gruseke, Bankwell’s Chief Executive Officer.

Chris Gruseke, Chief Executive Officer, Bankwell Financial Group, Inc.: Thanks, Courtney. Welcome, and thank you to everyone for joining Bankwell’s quarterly earnings call. This morning, I’m joined by Courtney Sacchetti, our Chief Financial Officer, and Matt McNeill, our President and Chief Banking Officer. We appreciate your interest in our performance, and I’m excited by this opportunity to discuss our results with you. We’ve 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%-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’ve also reduced broker deposit balances and Federal Home Loan Banks borrowings by a combined $95 million, further improving our funding mix. Since our peak at the end of 2022, we’ve successfully reduced our broker deposits by $513 million for 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. Non-interest 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 non-performing 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 client banking team that joined Bankwell in 2025, and the addition of this location enables the team to deliver Bankwell’s full suite of commercial and private client banking services on the ground in New York. I’ll now turn the call back to Courtney to walk through the financial results in more detail.

Courtney E. Sacchetti, Executive Vice President and Chief Financial Officer, Bankwell Financial Group, Inc.: Thanks, Chris. 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 five basis points. These headwinds were partially offset by continued improvement in deposit costs. Total deposit costs declined to 310 basis points, down five 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 five basis points of net interest margin. With respect to rate-sensitive assets, we’ve 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 eight of the investor presentation. Profitability remained solid in the quarter with return on average assets of 1.35% and a 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-$112 million. Non-interest 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 non-interest income guidance to $12 million-$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 non-interest expense typically incurred in the first quarter, elevating total non-interest expense to $16.9 million for the quarter.

These annual costs are primarily related to employee compensation and certain professional services. Despite these seasonal expenses, our underlying non-interest expense run rate remains consistent with our prior guidance of $64 million-$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 non-performing 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 10.58%.

We repurchased 3,317 shares during the quarter at an average price of $45.32 per share. Now, I’ll turn the call back to Chris for closing remarks.

Chris Gruseke, Chief Executive Officer, Bankwell Financial Group, Inc.: 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’ve 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’ll 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.

Now, operator, we’re ready to open the line for questions.

Tina, Conference Operator: As a reminder, to ask a question, simply press star one on your telephone keypad. From KBW, our first question comes from the line of Mark Shetley. Please go ahead.

Mark Shetley, Analyst, KBW: Hey, good morning.

Chris Gruseke, Chief Executive Officer, Bankwell Financial Group, Inc.: Good morning.

Mark Shetley, Analyst, KBW: Appreciate the detail on the CDs and how much of that’s come and due. I think you said that’s a 5 basis point benefit to the margin. I’m just curious, in this current rate environment now that it’s seemingly more flat, are you seeing more competition on the deposit side? Because I’m just trying to get a sense for how much the overall interest-bearing deposit costs can be worked out. Thanks.

Chris Gruseke, Chief Executive Officer, Bankwell Financial Group, Inc.: First of all, the first part of that answer is the numbers that we put in that’s expected to roll with CDs is based on market on the day that as of today’s market. It implies no further cuts or any term deposits. If they roll to current, that’s what the impact would be. That was the first part of your question.

Matt McNeill, President and Chief Banking Officer, Bankwell Financial Group, Inc.: This is Matt. As far as the deposit competition, it’s very competitive out there for deposits. We’re focused on bringing in low-cost deposits to bring down our funding costs, which is probably the most competitive area. However, we’re finding success and have been able to substantially grow core deposits in the quarter.

Chris Gruseke, Chief Executive Officer, Bankwell Financial Group, Inc.: Right. Obviously it’s competitive and net loan growth was approximately 2% quarter-over-quarter, but core loan growth was substantially higher. It was something like 7%, and how, Courtney?

Courtney E. Sacchetti, Executive Vice President and Chief Financial Officer, Bankwell Financial Group, Inc.: Core deposit growth.

Chris Gruseke, Chief Executive Officer, Bankwell Financial Group, Inc.: Deposit growth was.

Courtney E. Sacchetti, Executive Vice President and Chief Financial Officer, Bankwell Financial Group, Inc.: $113 million.

Chris Gruseke, Chief Executive Officer, Bankwell Financial Group, Inc.: $113 million. About $30 million of that was non-interest-bearing or low cost, so almost 30%, 25%-30% of what we brought in this quarter. With the balance that didn’t result in growth, we paid down more expensive borrowings. We’re happy with the deposit result despite the competitive environment.

Courtney E. Sacchetti, Executive Vice President and Chief Financial Officer, Bankwell Financial Group, Inc.: Improved mix in our deposit.

Chris Gruseke, Chief Executive Officer, Bankwell Financial Group, Inc.: Yes.

Courtney E. Sacchetti, Executive Vice President and Chief Financial Officer, Bankwell Financial Group, Inc.: Hopefully for the quarter.

Chris Gruseke, Chief Executive Officer, Bankwell Financial Group, Inc.: Yes.

Mark Shetley, Analyst, KBW: Okay, thanks. Appreciate it. Maybe switching gears really quick. SBA was strong in the quarter, and looks like originations are tracking higher than, I think you previously talked about $100 million in originations for the quarter. I’m just trying to get a sense of where you think, if there’s any change to that and where SBA fits into the overall fee guide. Thanks.

Chris Gruseke, Chief Executive Officer, Bankwell Financial Group, Inc.: Yeah, we are having success with the SBA. We have a really strong team. We could definitely originate more SBA loans. We’re choosing to keep the volume kind of level where it’s at. We’re not increasing our $100 million that 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. If we wanted to do more, we could, is the answer. Similarly, as we’re two years into this, we’re going in measured.

Mark Shetley, Analyst, KBW: Got it. Appreciate it. That’s it for me. Thanks for taking my questions.

Chris Gruseke, Chief Executive Officer, Bankwell Financial Group, Inc.: Thank you.

Mark.

Operator.

Feddie, Analyst: Operator, we’re ready for the next question.

Tina, Conference Operator: Apologies. Our next question is from the line of. Go ahead.

Courtney E. Sacchetti, Executive Vice President and Chief Financial Officer, Bankwell Financial Group, Inc.: Feddie, are you there? Yes. Sorry, I didn’t hear the name, so my apologies on that. No.

Chris Gruseke, Chief Executive Officer, Bankwell Financial Group, Inc.: Me either. Sorry.

Courtney E. Sacchetti, Executive Vice President and Chief Financial Officer, Bankwell Financial Group, Inc.: You’re up, Feddie. All right, perfect. No worries. It’s all good. I wanted to start by asking about the Brooklyn office. Does that sort of serve as a home base for some of the deposit gathering teams that are in the city? I was just curious, how much lending do you think you will do out of that office?

Chris Gruseke, Chief Executive Officer, Bankwell Financial Group, Inc.: I think we’ll do a modest amount of lending out of the office, Feddie. It wasn’t the primary reason to open the office. It was definitely a deposit play, which is already taken off and been robust just in the 10 months leading up to the branch opening. The team was very active and we’ve had good success there. Lending isn’t a part of the strategy there. However, we do think that some loans will come out of it. But we’ve been lending in and around NYC since the existence of the bank, so it really shouldn’t change a whole lot as far as the geography where we’re lending.

Feddie, I think we’ve said this before. This is Chris. We don’t have a plan to go and try to find branches in particular markets or make sure we have more branches. We hired the people first. This is a very experienced private client group that’s been together for years, has already had material and significant impact on our organization. If what they needed is a branch to assist in their platform, then we could build a branch. We happen to love Brooklyn. I was born there. We weren’t going out of our way to enter that market. We were following our deposit team and their needs.

Feddie, Analyst: Got it. That’s helpful. Just 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, just based on what’s currently in the pipeline and capital build and what have you? Or do you feel like you’re kind of in a range where you’re pretty comfortable, you’re not as worried about crossing that 300% threshold?

Chris Gruseke, Chief Executive Officer, Bankwell Financial Group, Inc.: I’m sorry, is that the CRE concentration question?

Feddie, Analyst: Yes.

Chris Gruseke, Chief Executive Officer, Bankwell Financial Group, Inc.: We don’t have 300 as a target. We’re seeing a more diversified loan mix. It’s conceivable, but it’s not the plan. You could look at the trend. Over the last year, we’ve come down 10, no more, 3.75-4.0 basis points. We are happy where it is. I guess we could live with it, but I suspect over time we’ll get down there. Whether it’s year-end or not, I don’t know, but it’s been a consistent trend for a while, and we’re seeing a better flow of C&I deals, and we haven’t done much office, et cetera. I think it’ll naturally kind of get there, but it’s not a particular goal. I wouldn’t be surprised if it came down another 10-20 basis points over the course of the year.

Feddie, Analyst: Just on the credit side, it looked like the modest increase in non-accruals there was CRE driven. I apologize if I missed it in the opening remarks. Can you speak a little bit more on maybe what drove the increase there and what you might expect on resolution of those?

Chris Gruseke, Chief Executive Officer, Bankwell Financial Group, Inc.: Yeah. The increase was just a tenant left the building, sponsors not able to make the payment. There’s equity in the deal. We think that we’ll be able to work with them to dispose of the real estate and be paid there. In Chris’s comments, you heard that there is some visibility into resolution to several of the credits that are on our NPAs, and we expect those to happen in the next couple of quarters and have some meaningful resolution and a much lower NPA number.

Feddie, Analyst: Perfect. Thanks for taking my question.

Tina, Conference Operator: From Raymond James, your next question comes from the line of Steve Moss. Please go ahead.

Chase, Analyst, Raymond James: Hey, guys. Good morning. It’s Chase on for Steve.

Chris Gruseke, Chief Executive Officer, Bankwell Financial Group, Inc.: Good morning, Chase.

Chase, Analyst, Raymond James: Hey, guys. On loan pricing, can you tell me where new origination yields are coming on at these days?

Courtney E. Sacchetti, Executive Vice President and Chief Financial Officer, Bankwell Financial Group, Inc.: For the first quarter, our average rate was 7.5%.

Chase, Analyst, Raymond James: I appreciate that. Just one more from me. I saw that you guys nibbled at buybacks this quarter. Can you tell us what would bring you more into that market?

Chris Gruseke, Chief Executive Officer, Bankwell Financial Group, Inc.: I’m sorry, can you repeat that? I heard buybacks and then it cut out.

Chase, Analyst, Raymond James: Yeah. I saw you nibbled at buybacks. Could you tell us what would bring you more into that market?

Chris Gruseke, Chief Executive Officer, Bankwell Financial Group, Inc.: We look at the price quarterly or daily when we’re not in blackout. We had a plan in place. I expect the number to grow over the course of the year. You’d have to look at our consolidated CET1 ratio. We are still trying to grow that. At the levels we have gotten to the last couple of days and the amount of stock that we issued, I wouldn’t be surprised to see us, over the course of the year, nibble some back. Our goal is still to get to 11%, not necessarily by year-end, on the CET1 ratio at the holdco.

Chase, Analyst, Raymond James: All right, guys. I appreciate all the color. I have the questions that have been answered. Thank you, guys.

Chris Gruseke, Chief Executive Officer, Bankwell Financial Group, Inc.: Okay.

Tina, Conference Operator: With no further questions in queue, thank you. This does conclude today’s conference call. You may now disconnect.