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Date

Monday, July 28, 2025, at 11 a.m. ET

Call participants

  • Chief Executive Officer — Chris Gruseke
  • Chief Financial Officer — Courtney Sacchetti
  • President and Chief Banking Officer — Matt McNeill

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Takeaways

  • EPS (GAAP Fully Diluted): $1.15 in GAAP fully diluted earnings per share for Q2 2025, representing a 32% increase from the previous quarter, driven by net interest margin expansion and higher SBA loan sales.
  • Pre-provision Net Revenue: Pre-provision net revenue was $11.4 million for Q2 2025, or $1.46 per share in pre-provision net revenue (PPNR), pre-provision net revenue increased 21% compared to Q1 2025, with PPNR return on average assets rising to 143 basis points from 118 basis points in Q1 2025.
  • Net Interest Margin (NIM): Net interest margin was 3.10% for Q2 2025, up 29 basis points from Q1 2025, benefiting from lower funding costs and improved asset yields.
  • Deposit Cost: 3.46% for Q2 2025, down 20 basis points from Q1 2025 and 41 basis points from the high of 3.87% in Q3 2024; The June 2025 exit rate on deposit costs decreased further to 3.28%.
  • Loan Portfolio Yield: 6.58% average loan portfolio yield for Q2 2025, rising four basis points over the last quarter, with new originations yielding above 8% in Q2 2025 due to a greater C&I and SBA loan mix.
  • Loan Origination and Payoff: $170 million in originations in Q2 2025 and $150 million in payoffs for Q2 2025, producing $24 million in sequential loan growth; year-to-date SBA originations reached $22 million as of Q2 2025.
  • Deposit Growth: Noninterest-bearing deposits increased by $48 million during Q2 2025 and by $75 million year-to-date, or 23% since year-end, excluding contributions from new deposit teams.
  • Guidance Update: Net interest income forecast (GAAP) raised to $97 million-$98 million for full year 2025; noninterest income guidance maintained at $7 million-$8 million for fiscal 2025; noninterest expense guidance increased to $58 million-$59 million for full year 2025, due to team and platform investments.
  • Noninterest Income: $2 million noninterest income for Q2 2025, up 34% compared to Q1 2025, driven by $1.1 million in SBA gain on sale income (an increase of $600,000) in Q2 2025.
  • Noninterest Expense and Efficiency: Expenses grew from $14.1 million to $14.5 million sequentially in Q2 2025, primarily from higher compensation; efficiency ratio improved to 56.1% from 59.9% in Q1 2025 due to revenue gains.
  • Credit Metrics: Nonperforming assets (NPAs) declined by $1.2 million in Q2 2025, with a $411,000 loan provision release reflecting favorable qualitative trends; Nonperforming loans (GAAP) decreased from $65 million in Q3 2024 to under $24 million (89 basis points of total loans) in Q2 2025.
  • Capital and Liquidity: Total assets increased slightly to $3.2 billion as of Q2 2025; consolidated common equity Tier 1 ratio climbed to 10.17% from 10.04% sequentially.
  • Strategic Hires: Five private client deposit teams hired year-to-date, with contributions from these teams yet to materially impact reported deposit figures.
  • CRE Concentration: Commercial real estate exposure reduced to 349% of total risk-based capital from 382% at mid-2024, marking the lowest level in ten years.
  • Brokered Deposits: Balance reduced by over $400 million from its peak in brokered deposits, replaced by lower-cost core deposits.
  • Share Repurchases: 14,626 shares bought at a weighted average price of $28.86 during Q2 2025, with 205,000 shares remaining authorized for repurchase as of Q2 2025.

Summary

Bankwell Financial Group(BWFG -0.23%) delivered sequential improvements in net interest margin, pre-provision net revenue, and noninterest income for Q2 2025, primarily driven by expanding net interest margin and growth in noninterest income, including SBA gain on sale income. Management upgraded full-year 2025 guidance for net interest income and reiterated expectations for accelerating SBA gain on sale revenues over the remainder of 2025. The company reported total noninterest expense guidance rising above prior expectations, increasing full-year 2025 guidance to $58 million to $59 million, attributing the increase to necessary investments in human capital and technology. Asset quality improved further in Q2 2025, with notable declines in nonperforming loans and commercial real estate concentration, while capital ratios advanced over the period. Share repurchases continued, and new deposit teams were brought on, positioning the bank for ongoing liability-sensitive margin gains without yet reflecting their full impact in deposit balances.

  • CEO Gruseke noted, "our balance sheet remains liability sensitive, we anticipate continued margin expansion into 2026."
  • Chief Banking Officer McNeill explained that, for a major NPA, "We think it could refinance away from us in a relatively short period of two quarters (as discussed during Q2 2025)." but another large exposure "going to take a little bit longer to unfold."
  • Chief Financial Officer Sacchetti clarified that expenses should "stay relatively flat" following team hires and related compensation adjustments.
  • Management described commercial and SBA loan pipelines as "strong" for Q2 2025, indicating anticipated growth momentum on both fronts.
  • SBA originations and gain-on-sale income increased substantially in Q2 2025, with management expecting these trends to further accelerate in coming quarters.

Industry glossary

  • PPNR (Pre-provision Net Revenue): Earnings before provisions for loan losses and taxes, used to assess core bank operating performance.
  • CRE (Commercial Real Estate): Loans secured by income-producing real property, a significant segment in regional bank portfolios.
  • SBA (Small Business Administration) Platform: Lending and servicing operations related to U.S. SBA-guaranteed loans, often offering higher yields and noninterest income potential.
  • Noninterest-bearing Deposits: Deposit accounts that pay no interest, providing banks with low-cost, stable funding.
  • Efficiency Ratio: Noninterest expense divided by the sum of net interest income and noninterest income, used to gauge cost efficiency.

Full Conference Call Transcript

Chris Gruseke: Welcome and thanks to everyone for joining our second quarter earnings call. This morning, I'm joined by Courtney Sacchetti, our Chief Financial Officer, and Matt McNeill, our President and Chief Banking Officer. I'm happy to announce our second quarter results, which demonstrate improved performance trends in virtually every aspect of our business, as our investments in people and technology have continued to bear fruit. The company's net interest margin continues to expand. Our SBA business is on pace to deliver material growth to noninterest income, and credit trends continue to improve with further improvement expected in the quarters ahead.

Additionally, with our first quarter results, we had previously announced the addition of two deposit teams in the New York City Metro Area. We've added two more teams during the second quarter, and another team in July, bringing our growth in private client teams to five during this fiscal year. We look forward to the potential improvements to our deposit base as we welcome these talented professionals to the Bankwell team. Our financial results for the second quarter include GAAP fully diluted earnings of $1.15 per share, which were up 32% relative to the first quarter, a result of significant net interest margin expansion and increased contributions from SBA loan sales.

Bankwell had another robust quarter of originations, funding $170 million in new loans, resulting in $24 million in linked-quarter growth. Loan payoffs were $150 million during the second quarter, down from the first quarter's $200 million but still elevated to where we'd expect them to be on a normalized basis. We funded $12 million in SBA loans during the quarter, bringing our year-to-date SBA originations to $22 million. Our pipeline for both commercial and SBA loans remained strong, and although total loan balances were down slightly compared to year-end 2024, we reiterate our original guidance of low single-digit loan growth for the full year.

The bank's funding profile continues to improve as we've grown our noninterest-bearing deposits and repriced our time deposits meaningfully lower. Noninterest-bearing deposits grew by $48 million during the quarter, for a year-to-date increase of $75 million or 23% since year-end. It's noteworthy that this increase in noninterest-bearing balances does not yet reflect the impact of our new team's expected contributions as they begin to open accounts on behalf of new customers. As these teams bring in low and no-cost deposits, our balance sheet remains liability sensitive, we anticipate continued margin expansion into 2026.

Chris Gruseke: We are constructive on the direction of credit. Positive migration trends continue, and we expect continued progress toward reduction in NPAs in the quarters ahead. Further details regarding NPAs can be found on Slide 21 of our Investor presentation. Now to discuss our financial results in greater detail, I'll turn it over to Courtney, our Chief Financial Officer.

Courtney Sacchetti: Thank you, Chris. Our second quarter pre-provision net revenue of $11.4 million, $1.46 per share, increased 21% relative to the first quarter, with the PPNR return on average assets increasing to 143 basis points versus 118 basis points in the first quarter. We had strong improvement in our net interest margin, the second quarter reported NIM of 310 basis points, a 29 basis point increase relative to the linked quarter. Net interest margin expansion is a result of our decreasing funding costs, which fell another 20 basis points versus the linked quarter to 3.46%. This is down 41 basis points from our high of 3.87% in the third quarter of 2024.

In addition to realizing lower rates on rolling time deposits, we have reduced pricing by approximately 23 basis points on $1 billion of non-maturity interest-bearing deposits since the end of 2024. We've achieved this by lowering rates on key money market and savings products and adjusting pricing, a trend that continues as our June exit rate on deposit costs was 3.28%. We continue to see our earning asset yields expand as well, with the average loan portfolio yield increasing four basis points to 6.58% in the second quarter compared to the first quarter. Our new loan originations continued to yield over 8%, benefiting from a more diversified loan mix, including C&I and SBA loans.

Given the strong results in the first half of the year and our anticipated margin expansion over the balance of 2025, we will update our net interest income guidance for full year 2025 to a range of $97 million to $98 million. This guidance assumes no further actions by the Fed for the balance of this year. Noninterest income of $2 million increased 34% versus the linked quarter, largely driven by $1.1 million of SBA gain on sale income, an increase of $600,000 over the last quarter.

We reiterate our full-year 2025 guidance for noninterest income of $7 million to $8 million and, as Chris mentioned, expect SBA gain on sale activity to continue to accelerate over the balance of 2025. On a linked-quarter basis, our total noninterest expense is up modestly from $14.1 million to $14.5 million, primarily due to increased salaries and employee benefits. This increase reflects our continued investment in growing our banking teams, SBA platform, and supporting risk functions, all aimed at generating revenue and improving efficiency. Despite the $400,000 increase, our efficiency ratio fell to 56.1% in the second quarter compared to 59.9% last quarter, a result of our expanding net interest margin and growth in noninterest income.

Given the incremental investments made and associated costs beyond our initial guidance, we are increasing our full year 2025 guidance for noninterest expense to $58 million to $59 million. Importantly, despite the higher expense guidance, our long-term view of driving operating leverage remains unchanged. We expect our efficiency ratio to continue improving over the coming quarters as our profitability continues to expand. We anticipate moderation in our noninterest expense to total asset ratio as our balance sheet grows. Switching to credit, second-quarter trends were positive, with a small net recovery, a decrease in criticized and classified loan balances, and a $1.2 million reduction in nonperforming assets.

We had a release of our loan provision in the second quarter of $411,000. This is mainly attributable to our qualitative factors related to loan composition. A few final thoughts on our financial condition: our balance sheet remains well-capitalized and liquid. Total assets of $3.2 billion are up slightly versus the linked quarter. Holding company and bank both saw expanding capital ratios during the second quarter, our consolidated common equity Tier 1 ratio now at 10.17% versus 10.04% in the prior quarter. We repurchased 14,626 shares at a weighted average price of $28.86 per share during the quarter ended June 30, 2025, and have 205,000 shares remaining on our authorization.

I'd like to now turn it back over to Chris for his closing remarks.

Chris Gruseke: Thanks, Courtney. To wrap things up, the last several quarters have been a time of material progress at the company. I want to emphasize how gratified we are to see the results of careful planning translate into excellent performance. We continue to execute on key strategic initiatives, including building out our SBA platform, attracting talented deposit teams, and making the necessary investments in our risk and technology platforms to ensure that the company is prepared for an era of technological evolution and innovation. None of these achievements would have been possible without the dedication and commitment of so many team members.

On behalf of our board of directors and our shareholders, I'd like to commend the team on a job well done. To reiterate some of the milestones we've achieved, we have meaningfully improved our asset quality with nonperforming loans dropping from a peak of $65 million in the third quarter of 2024 to just under $24 million this quarter, or 89 basis points of total loans. Concurrently, we've reduced our CRE exposure as a percentage of total risk-based capital to 349%, down from 382% at the midpoint of 2024. This represents our lowest concentration in ten years. We've reduced our broker deposits by over $400 million from their peak and have replaced them with lower-cost core deposits.

Our growing SBA platform has shown considerable progress in the first six months of this year, and recent additions to our private client groups are expected to further improve our deposit portfolio. Finally, our performance has continued to improve with our net interest margin now reaching 310 basis points and our return on average assets hitting 114 basis points. As much as we've accomplished over the past year, we remain excited about the bank's future and expect continued improvement in our profitability moving forward. This concludes our prepared remarks. Operator, will you please begin the question and answer session?

Operator: At this time, if you would like to ask a question, press star, then the number one on your telephone keypad. To withdraw your question, simply press star 1 again. We will pause for just a moment to compile the Q&A roster. Your first question comes from Betty Strickland with Hovde Group. Please go ahead.

Betty Strickland: Hey. Good morning. Great to see the DDA growth in the quarter, and it sounds like you have some more stuff in the pipeline. Do you have a longer-term target in terms of DDAs to deposits? I think you're at about 14% today.

Chris Gruseke: Good morning, Fadi. Thanks for the question. We don't have a hard target in mind. We clearly are looking to expand that percentage. We want to make sure that we bring the wholesale funding ratio down. We probably watch that, you know, we just certainly watch that closely. But I think it's safe to say that given the investments we're making, people we're bringing on, the way we've restructured our own teams internally over the past year with the platform that we put in place, that we're looking to meaningfully expand it. I'd be hesitant to put a number on it, and we're going to be reporting on it regularly.

But it's the reason that we're making these plans and these investments.

Betty Strickland: Got it. And then just should we expect the level of broker deposits to continue grinding lower in the future quarters? Or do you think maybe we see that level off depending on the attractiveness of the rates of the broker versus retail?

Chris Gruseke: I think it really depends. We've made a very meaningful dent in it. We brought it down by about half. And from here on in, it's a function of what comes in the door. We certainly want to be back in a mode of growing the loan book. And as deposits come in, then the question becomes, you know, is it certainly won't be dollar for dollar, I would expect. Pay down broker with new money, and then it becomes an art form of how much loan growth and what are market rates. But since we've taken them down by half, we're not looking to be as dramatic, I'd say, and it depends on the market opportunities.

But the number will get lower over time. It's really a function of the performance we're going to get in our deposit gathering efforts. Got it.

Betty Strickland: Thanks for that, Chris. And just if I could squeeze in one more for Matt. If you could just give a little bit of an update on what you're hearing from your health care customers, anything incrementally different?

Matt McNeill: No. There was some concern around new legislation with the big focus on Medicaid cuts. From the research that we've done and some third parties, it appears that our borrowers are not really impacted by the new legislation. So in the near term, we're feeling really good with the health care book and continue to see the book be a profitable source of business here at Bankwell, not only on the loan side but the fee and the deposit side.

Betty Strickland: Alright. Great. That's it for me. Thanks for taking my questions.

Chris Gruseke: Thanks, Betty.

Operator: Your next question comes from the line of Steve Moss with Raymond James. Please go ahead.

Steve Moss: Hi. Good morning.

Chris Gruseke: Good morning. Is this actually Steve?

Steve Moss: It is. Yes, Chris. How are you doing? Well, thank you. How about you?

Chris Gruseke: I'm doing pretty good. Maybe just, you know, on the deposit side here following up, you know, with the five teams now that you've hired, you know, with the new three teams in particular, just kind of wondering if you could size up the book of business and how you know, how we could think about that total potential here in the next twelve to twenty-four months?

Chris Gruseke: Well, you said the word potential, and I think that's the right way to think about the teams. You know, largely new to the company. So actual production is not driving the growth that we've seen in core deposits. Those are actually the deposit gains that we've been working on over the past several years. But the potential as we, you know, spoke to the folks that comprise these teams, all of the teams had, you know, multiple tens of millions of business, hundreds of million dollars in their books of business in prior organizations, and now it's, you know, how can we make that translate into deposits on our balance sheet?

You know, we've been thinking about this for a while. We successful. Including the ability to, you know, open new relationships, new accounts, in, you know, same day, next day, which, you know, has been a stumbling block in some organizations. So we think that, you know, our planning is going to pay off in the translation of new deposits, but, you know, they're so new to the organization. It's really we're waiting for those results to materialize. And, Steve, that one-day account opening is very important for us. And keeping our reputation with new customers and with new team members is important.

So any additions that we make going forward, we will absolutely have in mind, you know, what's the right pace because we want everybody to have the right experience. And once again, I mean, as Matt said, there are hundreds of millions of dollars from former organizations. I don't know that we're not going to feel comfortable putting a number on what comes over and what that translates to at this point because it's so early in the game. But certainly, we would not be making these investments if we were not expecting significant numbers, and we'll be reporting on it regularly.

So more data as the quarters unfold, but we're very constructive on it, and the experience we've had, we feel like we've hired the right people and we're getting incoming calls. I should say that too.

Steve Moss: Appreciate that color there. And then on credit here, just wondering, you kind of hinted, Chris, at resolution stuff over time here. Just curious, you know, what that timeline could look like, you know, the third or fourth quarter, or might some of the stuff stretch into 2026? Any help would be helpful. Are you specifically talking about the couple of non-performers we got left?

Chris Gruseke: Correct.

Steve Moss: Especially if you're bigger ones. Yes.

Chris Gruseke: Yeah. We have those two. So we've got one on the side of page, and I'll hand it over to you, Matt.

Matt McNeill: Sure. Page 21 has some detail there. Loan 1, which is a retail building in Suburban Westchester. We feel pretty good about that one. We think it could refinance away from us in a relatively shorter amount of two quarters. You know, that's going to depend on execution on other banks. So I can't be certain of timing there, but we feel like that one is going away from us in the next several months. So, more to come there. Loan two, not as hopeful that'll be resolved anytime soon. That's a multi-bank participation. You know, there's a common sponsor that has, you know, more trouble other than this one loan.

So, I think that one's going to take a little bit longer to unfold.

Steve Moss: Okay. Appreciate that. And then, you know, on the margin here in terms of being liability sensitive, just kind of curious what do you guys think a 25 basis point cut by the Fed would imply for would do your margin?

Chris Gruseke: Well, at this point, it wouldn't like, when you the question, but that would be a 2026 event in terms of margin. And if it happens at this point in the year, we feel its impact later, but according Yeah. So, you know, I still you know, we

Courtney Sacchetti: We were very successful with repricing our CDs in the first half of the year, about $750 million on average, 80 basis points lower. We still have more room to go with the remainder of our rolling off brokered in time. But, you know, a further rate cut, I would say, you know, even without a rate cut right now, probably another, you know, five to 10 basis points on NIM just on where rates are today. So us being able to reprice our time deposits down even further, offset by our variable rate loans. Probably another 10 basis points on top of that.

But, yeah, we are very optimistic as far as where we think our NIM will end up at the end of this year, just given what we have to reprice in our existing book without rate cuts.

Steve Moss: Great. Well, I really appreciate all the color here. Thank you very much. Nice quarter.

Chris Gruseke: Okay. Thanks so much.

Operator: Your final question comes from the line of David Conrad with KBW. Please go ahead.

David Conrad: Yeah. Good morning. Nice quarter.

Chris Gruseke: Good morning, David. Thank you.

David Conrad: Most of my questions, if not all, have been asked and answered, so appreciate that. But just maybe one on expenses. I think the guidance implies maybe $30 million in the back half. With all the teams kind of just hired, you know, does the progression maybe go up to $15 million a quarter flat, or should it will it build kind of throughout the year?

Courtney Sacchetti: It should stay relatively flat. I mean, I think that's a fair assumption. The $15 million. We've done some investment in the first half of this year. And we've added teams in the second quarter, and we're starting to adjust for our compensation structure as those teams have come on, so we anticipate it to level off in the back half.

David Conrad: Got it. Thank you.

Chris Gruseke: Thanks, David.

Operator: Ladies and gentlemen, this will conclude today's call. We thank you all for joining. You may now disconnect.