What Bankwell Financial Group (BWFG) Said on Its Q3 Earnings Call

Key Points

• Record earnings and stronger outlook: Third-quarter GAAP net income reached $12.7 million, or $1.58 per share, while adjusted operating net income was $15 million excluding core-conversion costs. Bankwell raised its full-year net interest and noninterest income guidance, helped by margin expansion and strong SBA activity.
• Improved lending and credit performance: Net interest margin expanded 13 basis points to 3.71%, loan originations totaled about $222 million, and management maintained its 5%–7% full-year loan-growth target. Credit metrics improved after the sale of the bank’s largest legacy problem loan, with nonperforming assets falling to 20 basis points of total assets.
• Core conversion will create near-term costs: Bankwell expects its new core banking platform to be completed in the second half of 2027, with $400,000–$500,000 in quarterly conversion expenses over the next four quarters. Management expects greater flexibility and scalability but does not anticipate a material reduction in its 2027 operating expense run rate.

Bankwell Financial Group NASDAQ: BWFG reported record third-quarter net income as expanding net interest margin, strong SBA loan-sale gains and an improvement in credit metrics outweighed expenses tied to its planned core banking system conversion.

GAAP net income totaled $12.7 million, or $1.58 per share, compared with $12.4 million, or $1.52 per share, in the second quarter. The results included $3 million in pre-tax core conversion expenses, primarily related to terminating existing provider contracts. Excluding those charges, operating net income was $15 million, or $1.86 per share.

“The third quarter was one of real progress for Bankwell,” Chief Executive Officer Chris Gruseke said, citing continued margin expansion, resolution of the company’s largest legacy problem credit, record SBA activity and the planned technology conversion.

Margin Expansion and Lending Activity

Net interest income rose to $31.4 million from $29.5 million in the prior quarter. Net interest margin increased 13 basis points to 3.71%, its third consecutive quarterly expansion. Chief Financial Officer Courtney Sacchetti said earning-asset yields increased 8 basis points to 6.34%, while loan yields rose 6 basis points to 6.72%.

New loan pricing remained favorable, with 2026 originations yielding about 90 basis points more than loans rolling off, according to Sacchetti. The company originated about $222 million of loans during the quarter, including $30 million in SBA loans, producing net loan growth of $23 million. Year-to-date loan growth was $143 million, or 5%.

Management maintained its full-year loan growth outlook of 5% to 7%. During the question-and-answer session, Gruseke said loan payoffs and paydowns had slowed somewhat from last year but remained healthy, requiring continued originations to replace runoff. He said the lending pipeline remained strong.

Bankwell said approximately $1.3 billion, or 44%, of its loans are floating rate. Sacchetti said the higher floating-rate loan mix, along with a reduced reliance on time deposits, has lowered the company’s sensitivity to movements in short-term interest rates.

Management expects a further 25-basis-point increase in rates to have a broadly neutral effect on earnings over the next four quarters. Sacchetti said approximately $1.6 billion of assets would reprice immediately, while $600 million of fixed-rate loans are expected to roll off at rates that can be repriced higher. Those benefits would be offset by higher funding costs, including higher retail CD rates, brokered CDs and Federal Home Loan Bank borrowings.

Deposits and SBA Income

Core deposits declined by less than 1% from the second quarter but increased $340 million, or 18%, from a year earlier. Core deposits represented 76% of total deposits, up from 69% a year ago. Deposits totaled $3 billion at quarter-end.

President and Chief Banking Officer Matt McNeill characterized the quarterly decline in demand deposit account balances as seasonal, saying the company was not losing customers and continued to add new ones. Noninterest-bearing and low-cost NOW balances represented 19% of total deposits, compared with 15% at the end of 2024.

Noninterest income rose 21% during the quarter to $4 million, led by a record $2.8 million in SBA gain-on-sale income. Through the first nine months of 2026, SBA gains totaled $7.6 million, compared with $2.9 million in the same period of 2025. Service charges and fees increased to $951,000.

McNeill said the SBA team’s pipeline remained “very robust” and that management expects continued progress into 2027. Gruseke said the bank intends to grow the business at a moderate pace rather than pursue rapid expansion.

Credit Improvement and Capital

Credit results included a $1.3 million benefit to earnings, driven by net recoveries. Bankwell sold a COVID-era retail commercial real estate loan in Westchester County, New York, previously its largest nonperforming asset. The sale resulted in a $2.5 million recovery of amounts previously charged off and helped produce net recoveries of $1.4 million for the quarter.

Nonperforming loans declined to $7.1 million, and nonperforming assets fell to 20 basis points of total assets. The primary remaining nonperforming component was a suburban New Jersey office participation with a carrying value of $4.3 million after a $600,000 charge-off in the quarter. The company has charged off about 64% of that loan’s original balance.

The allowance for credit losses remained at 1.03% of total loans, while allowance coverage of nonperforming loans increased to 431%.

Total assets were $3.6 billion, and shareholders’ equity increased to $334.1 million. Tangible book value per share rose $1.34 during the quarter to $41.59 and was up $3.75 since the start of the year. Tangible common equity to tangible assets increased to 9.33%.

Core Conversion and Updated Outlook

Bankwell plans to complete its core conversion in the second half of 2027. The company expects conversion-related expenses of about $400,000 to $500,000 per quarter over the next four quarters, primarily for third-party consulting, temporary staffing and implementation work. Management said the $3 million expense recorded in the third quarter was largely driven by one-time contract termination costs.

Gruseke said the new platform is expected to improve flexibility, scalability and the ability to add products and technology features more quickly. While he said the new platform could produce savings on an “apples-to-apples” basis, he does not expect a material effect on the company’s 2027 operating expense run rate because Bankwell expects to add capabilities and features.

For the full year, Bankwell raised its net interest income outlook to $119 million to $121 million from $115 million to $117 million. It also increased its noninterest income outlook to $14 million to $15 million from $12 million to $13 million, reflecting SBA performance. Excluding core conversion costs, the company maintained its full-year noninterest expense outlook of $65 million to $67 million.

About Bankwell Financial Group (NASDAQ:BWFG)

Bankwell Financial Group, Inc is a bank holding company headquartered in New Canaan, Connecticut, and serves as the parent company of Bankwell Bank. Bankwell Bank provides commercial, business and personal banking services, with branch locations primarily across Fairfield and New Haven counties in Connecticut, along with a New York presence.

The company’s deposit offerings include checking, savings and money market accounts, as well as certificates of deposit, all supported by an online and mobile banking platform for convenient account access.

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