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DATE
Thursday, January 29, 2026 at 11 a.m. ET
CALL PARTICIPANTS
- Chief Executive Officer — Christopher R. Gruseke
- Chief Financial Officer — Courtney E. Sacchetti
- President and Chief Banking Officer — Matthew J. McNeill
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TAKEAWAYS
- GAAP Net Income -- $9.1 million for the quarter, or $1.15 per share, including a $1.5 million one-time income tax adjustment.
- Operating Net Income -- $10.7 million, or $1.36 per share, excluding the $1.5 million tax expense.
- Net Interest Income -- $26.9 million for the period, supported by deposit cost reductions.
- Non-Interest Income -- $3.4 million for the quarter, up 35% over the prior quarter, with $2.2 million from SBA gain on sale income.
- Net Interest Margin -- 3.40%, up six basis points sequentially, reflecting a 15 basis point decline in deposit costs to 3.15%.
- Loan Production -- $240 million funded in the quarter, $758 million for the year, with net loan growth of $122 million for the quarter and $134 million, or 5%, for the year.
- Floating Rate Loan Exposure -- 38% of total loans at period end, up from 23% the previous year.
- Low-Cost Deposit Growth -- Average balances up $22 million, or 5% sequentially, and $86 million, or 21% year over year.
- SBA Originations -- $24 million in the quarter, totaling $68 million for the year; SBA sales generated $2.2 million in quarterly gains and $5.1 million for the year.
- Nonperforming Assets Ratio -- 49 basis points of total assets, down from 56 basis points prior quarter, driven by sale of a $1.3 million OREO property and a $400,000 SBA guarantee collection.
- Efficiency Ratio -- 50.8% for the quarter, improved from 51.4% previously.
- Capital Ratios -- Estimated consolidated common equity Tier 1 ratio at 10.2% and bank total capital ratio at 12.9%.
- Total Assets -- $3.4 billion, up 3.6% over the previous quarter.
- Tangible Book Value Per Share -- $37.84, reflecting 11% growth over the prior year.
- Allowance for Credit Losses -- 108 basis points of total loans; coverage of nonperforming loans at 188%.
- Deposit Repricing Outlook -- $1.2 billion in time deposits scheduled to reprice over the next twelve months, with an anticipated annualized benefit of approximately $4 million and 12 basis points to net interest margin.
- 2026 Guidance -- Projected loan growth of 4%-5%, net interest income of $111-$112 million, non-interest income of $11-$12 million, and total non-interest expense of $64-$65 million.
- Headcount -- Increased more than 10% during 2025, from approximately 145 to 170 full-time equivalents.
- Low-Cost Deposit Definition -- Includes non-interest-bearing accounts plus NOW accounts with rates of 0.50% or less.
- Operating Return Metrics -- Operating return on average assets was 1.29% (versus reported 1.11%), and operating return on average tangible common equity was 14.32% (versus reported 12.31%).
SUMMARY
Management indicated a constructive credit quality outlook, citing steady improvement in nonperforming assets alongside capital strength. Strategic emphasis included disciplined deposit cost control, with $1.2 billion of time deposits targeted for near-term repricing to support margins. Float loan growth was attributed to intentional portfolio repositioning toward floating rate products, which management expects to support net interest income stability. Investment in personnel and technology was characterized as foundational to scalability, with further increases projected for operating expense. Full-year non-interest income composition shifted substantially, with SBA division contributions now representing a significant share of total revenue.
- President and Chief Banking Officer Matthew J. McNeill noted the current loan pipeline is "sixty forty C and I," emphasizing a focus on commercial and industrial lending over investor real estate.
- Chief Financial Officer Courtney E. Sacchetti explained non-interest income's jump to 11.4% of revenue from 4.6% the prior year, predominantly as a result of SBA gain on sale income.
- Management projected 2026 SBA originations "about a 100" million in dollar terms to achieve non-interest income guidance, compared to $68 million in 2025.
- No current spread compression was observed in loan origination coupons, despite competitive market offers, according to Sacchetti.
- Headcount growth and process investments were identified as the primary drivers of the forecast increase in non-interest expense for 2026.
- The effective tax rate for 2025 was temporarily elevated to 27.4% due to one-time state income tax adjustments; a normalized rate near 25% is expected going forward.
- Leadership stated, "if there's a number we want to get to, we can get to it," referring to loan growth targets enabled by sufficient demand and capital management.
- Further growth in low-cost deposits is anticipated, with management aiming to repeat or exceed recent gains, though no explicit target was provided.
INDUSTRY GLOSSARY
- SBA Division: A business unit specializing in originating and selling loans guaranteed by the U.S. Small Business Administration.
- OREO Property: Real estate assets acquired by the bank via foreclosure or other means, not classified as loans or securities.
- NOW Accounts: Negotiable Order of Withdrawal accounts, interest-bearing deposit accounts commonly used by businesses and individuals.
- FIN 48 Reserve: A liability established for uncertain tax positions under FASB Interpretation No. 48.
Full Conference Call Transcript
Christopher R. Gruseke: Welcome, and thank you to everyone for joining Bankwell Financial Group, Inc.'s quarterly earnings call. This morning, I'm joined by Courtney E. Sacchetti, our Chief Financial Officer, and Matthew J. McNeill, our President and Chief Banking Officer. Appreciate your interest in our performance and this opportunity to discuss our results with you. Our fourth quarter GAAP net income was $9.1 million or $1.15 per share, which includes a $1.5 million one-time adjustment to the income tax provision associated with various state tax filings and changes in estimated tax positions. This adjustment relates to both current and prior year tax estimates. Excluding this one-time adjustment, operating income for the quarter was $10.7 million or $1.36 per share on an operating basis.
A reconciliation of GAAP operating results is included in our materials, and we encourage you to review both metrics together. Courtney will walk you through these results in more detail in a moment. Pre-provision net revenue return on average assets was 180 basis points for the quarter, an increase of 10 basis points from the prior quarter and a 75 basis point increase over 2024. This improvement reflects continued expansion of our net interest margin as well as strong growth in non-interest income, driven primarily by our SBA division. We also made further progress in reducing our asset balances during the quarter and maintain a constructive outlook on credit quality heading into 2026.
While our net interest margin has continued to expand this quarter, as we've previously signaled, the pace of that expansion has moderated. This is a result of our intentional increased exposure to floating rate loans. We ended 2025 with floating rate loans comprising 38% of our total loan portfolio, compared to 23% at the end of 2024. On the funding side, we've taken advantage of the lower rate environment to raise $1.2 billion of time deposits this year and have also reduced rates on key non-maturity interest-bearing deposits. In addition, the mix of our deposits continues to improve. Average low-cost deposit balances increased by $22 million or 5% over the prior quarter and by $86 million or 21% versus 2024.
As we note in our investor presentation, low-cost deposits include non-interest-bearing accounts plus NOW accounts with a deposit rate of 50 basis points or less. Loan production remained strong in the fourth quarter. We funded $240 million of new loans, bringing total funded originations for the year to $758 million. Net loan growth for the quarter was $122 million, and for the full year, we generated $134 million of net loan growth or 5% annual loan growth. With the end of the government shutdown and the reopening of the SBA in November, our SBA division was able to fully resume both originations and sales.
As a result, gains on sale increased to $2.2 million for the quarter, bringing full-year realized gains to $5.1 million. SBA originations totaled $24 million in the fourth quarter, resulting in $68 million of total originations for the year. As SBA activity has normalized post-government shutdown, we anticipate this business will remain a meaningful and growing contributor to our diversified revenue base and overall profitability. Credit trends in the portfolio continue to improve. Nonperforming assets as a percentage of total assets fell to 49 basis points compared to 56 basis points last quarter. This improvement was driven by the sale of a $1.3 million OREO property and the collection of $400,000 on an SBA guarantee.
Finally, our efficiency ratio improved to 50.8% this quarter compared with 51.4% in the prior quarter, underscoring the operating leverage created by faster revenue growth relative to expenses. I'll now turn it over to Courtney for a more detailed review of our financial results.
Courtney E. Sacchetti: Thanks, Chris. We closed the year on a strong note, delivering fourth quarter GAAP net income of $9.1 million and a reported EPS of $1.15. Pre-provision net revenue for the quarter totaled $14.9 million or 180 basis points of average assets. Net interest income reached $26.9 million, while non-interest income increased to $3.4 million, driven by $2.2 million of SBA gain on sale income. Fourth quarter net loan growth of $122 million brought full-year loan growth to $134 million, representing 5% growth over year-end 2024. For the full year, we originated more than $900 million of loans, including approximately $68 million of SBA originations. Net interest margin expanded to 340 basis points, up six basis points from the prior quarter.
The improvement was driven by a 15 basis point reduction in deposit costs, which declined to 3.15%. These funding benefits more than offset pressure on asset yields, which contracted 11 basis points in the quarter to 6.23% as certain rate-sensitive assets reset lower. Since late September, we responded to the Fed's 75 basis points of rate cuts by adjusting our deposit pricing. We lowered offered time deposit rates by 50 basis points, priced approximately $250 million of index deposits at a 100% beta, and reduced rates on roughly $700 million of non-maturity deposits by an average of 22 basis points. As a result, we exited 2025 with a total deposit cost of 3.08%.
We expect $1.2 billion in time deposits to reprice favorably over the next twelve months, with an average rate reduction of 32 basis points. This repricing is anticipated to provide an annualized incremental benefit of roughly $4 million, about 12 basis points of net interest margin. These estimates do not incorporate the impact of any other future rate changes. Additional detail on our balance sheet repricing and rate-sensitive assets and liabilities can be found on Page 10 of our investor presentation. Non-interest income of $3.4 million, an increase of 35% versus the linked quarter, was largely driven by $2.2 million of SBA gain on sale income, representing an approximate $800,000 increase quarter over quarter.
As shown on page 13 of our investor presentation, non-interest income now represents 11.4% of total revenue compared to 4.6% in 2024. Asset quality continued to improve during the quarter. We've reduced nonperforming assets by $1.9 million, bringing the NPA to assets ratio down to 49 basis points. We recorded modest net recoveries and a provision for credit losses of approximately $600,000. Our allowance for credit losses stands at 108 basis points of total loans, while coverage of nonperforming loans increased to 188%. Our financial position remains strong. Our balance sheet remains well-capitalized and liquid, with total assets of $3.4 billion, up 3.6% versus the linked quarter.
The holding company and bank remain well-capitalized, with our estimated consolidated common equity Tier 1 ratio now at 10.2% and bank total capital ratio of 12.9%. Our tangible book value per share also increased, reaching $37.84, representing 11% growth over 2024. As previously noted, we recorded approximately $1.5 million of non-recurring income tax expense this quarter. This reflects an $855,000 expense related to a true-up of prior year's state tax estimates based on final return filing. It also includes a $692,000 P&L impact related to an addition to our FIN 48 reserve for uncertain tax positions driven by a change in estimate and the company's expanded state-level footprint.
These adjustments represent a one-time true-up to certain current and prior period estimates. Our 27.4% effective tax rate for full-year 2025 reflects this one-time expense. On a go-forward basis, we would expect our effective tax rate to be approximately 25%. Finally, in addition to fourth quarter operating net income of $10.7 million or $1.36 per share, we delivered an operating return on average assets of 1.29%, versus our reported 1.11%, and an operating return on average tangible common equity of 14.32% versus our reported 12.31%. Now I'll turn the call back to Chris.
Christopher R. Gruseke: Thank you, Courtney. 2025 was a year where our team demonstrated the ability to execute and make meaningful progress across every dimension of our strategy. We entered the year with a clear set of priorities: strengthen credit, improve the funding mix, build non-interest income, generate high-quality growth, and embrace an innovative mindset as we continue to invest in our people and in technology. I'm pleased to say that we delivered on each of these priorities. Nonperforming assets ended the year at 49 basis points of total assets. We've continued to improve the profile of our funding base, reducing our dependence on higher-cost sources and growing our relationship-driven lower-cost deposits.
Our focus on building diversified recurring sources of revenue is bearing fruit with the successful growth of our SBA division. And despite a year of heightened prepayment, we ended 2025 with year-over-year loan growth of approximately 5%. Finally, we continue to invest in the people, technology, and capabilities that will carry us forward. We've strengthened our teams both in key client-facing and operational roles, and we're seeing the benefits of those investments. While making these investments, we've also increased scalability. We believe the work done throughout 2025 sets us up for even better results in the coming year and are providing the following guidance. For 2026, we expect loan growth of 4% to 5%.
We anticipate net interest income in the range of $111 to $112 million. We also expect non-interest income to increase to approximately $11 million to $12 million. We estimate total non-interest expense of $64 million to $65 million, which incorporates a prudent level of ongoing investment in our people, infrastructure, and operational capabilities. Before we open the line for questions, I'd like to thank our entire team for their commitment and professionalism throughout the year. Their work has allowed Bankwell Financial Group, Inc. to finish 2025 in a position of strength to enter 2026 with confidence for an even better year ahead. Operator, we're ready for questions.
Tina: At this time, I would like to remind everyone to ask a question. Simply press 1 on your telephone keypad. And our first question comes from the line of Feddie Justin Strickland with Hub Group. Please go ahead.
Feddie Justin Strickland: Hey. Good morning. Just wanted to start on loan growth. Great to see you're expecting a pickup there in '26. Think it's a little bit above what I have previously modeled. Can you talk about the extent to which payoffs versus new originations drive the net new growth number?
Christopher R. Gruseke: Yes, Feddie. This is Chris. It was pretty lumpy during the year, we were paying catch up as you know. And now we're primed for that sort of payoff. I'll let some more detail on that.
Matthew J. McNeill: Exactly that, Feddie. You know, the volume of payoffs in '25, especially in the first part of '25, was somewhat unexpected. Change the way that we were thinking about our were able to catch up quarter. Now that we're you know, the new normal is anticipating that runoff back to be able balance sheet a little earlier in the year. Just, you know, build pipeline. To, you know, anticipate, you know, more volume.
Christopher R. Gruseke: Yeah. Feddie, I'd just add to that. And not take away from the question time. I think what we've shown is that if there's a number we want to get to, we can get to it. It was a matter of priming the pump. And we can generate we have enough demand for loans that we can get to a number when we're ready for it. So within the constraints of capital, etcetera, obvious.
Feddie Justin Strickland: Okay. Great. And I apologize if this is in your answer. It was a little choppy on my end, but just wanted to ask what the makeup in the loan pipeline was today as well. Are you looking for a segregation between, like, C and I and investor?
Matthew J. McNeill: It's C and I heavy. Let's say it's sixty forty C and I. You know, we've steadily brought down investor created capital over the past, you know, several years. You know, we anticipate, you know, continuing to be strong C and I real estate originators in 2026.
Feddie Justin Strickland: Got it. That's it for me. I'll step back in the queue. Thanks for taking my questions.
Christopher R. Gruseke: Thanks, Feddie.
Tina: Your next question comes from the line of David Joseph Konrad with KBW. Please go ahead.
David Joseph Konrad: Yes, thanks. Good morning. A couple of quick questions. One, what do you expect the low-cost deposit growth to be this coming year? I don't think we've got a number on guidance.
Christopher R. Gruseke: It's for that. We obviously expect steady improvement. We've hired people. We've got our own teams. We're making headway. So I don't think we're gonna guide you a number, but don't what we have for the what was our number for the year?
Courtney E. Sacchetti: Well, if you look at, just looking to the right page, but page eight of our investor presentation, our average low-cost deposits grew 5% from last quarter, but 21% from the '24 on an average basis. So we were able to put up a good growth on an average basis for the year over year. I mean, we certainly like to repeat that again.
Christopher R. Gruseke: Right. But it seems also very likely without pay the loan growth.
Matthew J. McNeill: I'd say the loan growth I think the way we're looking at is loan growth is a function of deposit growth plus, you know, how capital ratios. So the you know? And then, of course, you know, with more deposit growth, we could pay down brokered.
Courtney E. Sacchetti: Correct. I'll point out, David, that the 5% of low-cost deposit growth is on an average basis for the year. So it's very likely that this is a conservative growth number.
David Joseph Konrad: Got it. Okay. And then on the fee income side, kind of with the SBA kind of dominating the number. Just wondered should we think about in the guide for the total year any seasonality of that quarter to quarter? How should we base that out?
Christopher R. Gruseke: I think that we'll see smooth production throughout the year, and we would unless there's a government shutdown.
Courtney E. Sacchetti: Or a government shutdown. Yeah.
David Joseph Konrad: Right. Right. Okay. Appreciate it.
Tina: Our final question comes from the line of Stephen M. Moss with Raymond James. Please go ahead.
Stephen M. Moss: Good morning. Maybe just following up on the SBA stuff. On the SBA stuff here, in terms of just what are your thoughts and I apologize if I missed this, for originations in SBA in 2026?
Courtney E. Sacchetti: I think the way the math works out is to achieve our non-interest income number to it's about a 100 SBA.
Stephen M. Moss: Okay. And we No. Okay. We finished 2025 with 60 and that this was the real the first full year of the SBA division. Functional. So we think hundreds vary.
Courtney E. Sacchetti: I think 25,000,000 in final quarter. Right?
Christopher R. Gruseke: Yeah. 20 yeah. Just under 25. So $5.20.
Stephen M. Moss: 25,000,000, it was down a quarter of 2,025. Correct.
Stephen M. Moss: Okay. Just wanted to temperature check that, but appreciate that. And then in terms of the outlook here, just kind of curious what you expect to be the drivers on expense growth here in 'twenty six?
Christopher R. Gruseke: The people and processes. I mean, we've definitely added, you know, across the bank, you know, in client and non-client facing. As we said on the call, our headcount went up by more than 10% last year. From about a 145 to a 170. FTE in the expenses that you see that we've guided to. We have some further growth in that. And I just point out that, you know, we're aware that we that we put out a larger expense number, but we want we want know, shareholders and you all to have you know, complete transparency as to what we're doing.
But the number the guide on revenue and, you know, income and profitability has these numbers baked in. So, you know, our approach is not well, if you can if you build it, they will come. We're making these investments while we're putting up you know, operating ROA for the quarter is a 129 basis points in the guidance. We have out there probably gets you depending on what you use for allowance. You know? Somewhere north of one twenty. Yep. Next year. So, we're we're making the investments, but our profitability is growing.
Stephen M. Moss: Right. Okay. Appreciate that color there. And just in it's just what you we have a strong opinion that if you don't invest, stay current. You're out of business. So we want to make sure that we're always ready for the future.
Stephen M. Moss: Right. No. Definitely, definitely appreciate that dynamic. And I guess the other thing in terms of just kind of loan pricing here, you know, curious you know, how are, you know, new origination coupons holding up these days? If there's been any spread compression just any color you can give on that front.
Courtney E. Sacchetti: No recent spread compression. You know, we generate a reasonable amount of floating rate loans. As indices fall, the, you know, the origination coupon on a floating rate loan goes down and you know, we price our fixed rate primarily off of treasury. So as those fall, you know, the coupons down, but the credit spread itself we have seen people requesting and showing us offers at other FIs with lower credit spreads, but we typically are able to keep our due to loan demand, we're spreads in time.
Stephen M. Moss: Okay. Great. I appreciate all the color here. Nice quarter. Thank you.
Christopher R. Gruseke: Thanks, Steve.
Tina: With no further questions in queue, this does conclude today's conference call. Thank you for participating. You may now disconnect.