Bankwell Raises NII Outlook as Margin Expands
Net interest margin widened 30 bps QoQ to 3.58% as deposit costs fell.
Bankwell Financial Group (BWFG), the commercial-bank holding company, expanded net interest margin by 30 bps QoQ to 3.58%, reversing the prior quarter’s 12-bps contraction. A 16-bps decline in total deposit cost to 2.94% outweighed an 11-bps increase in earning-asset yield, lifting net interest income 9.7% QoQ and 23.3% YoY to $29.5 million.
The margin improvement followed another quarter of core deposit growth and reduced dependence on wholesale funding. Core deposits increased $128 million QoQ, including $72 million from noninterest-bearing and NOW accounts, while wholesale funding declined $43.7 million and its share of funding fell to 16.3% from 18.1%. Total deposits reached $3.00 billion, up 8.7% YoY, as noninterest-bearing demand deposits rose 18.8% and time deposits declined 12.2%.
Loan production also accelerated. Gross loans increased $93.1 million, or 3.2% QoQ, to $3.0 billion as $268.2 million of originations exceeded runoff, compared with $27.1 million of growth in the first quarter. Period-end loans rose 10.9% YoY, led by 28.0% growth in commercial-business loans and 10.4% growth in commercial real estate, while construction and residential balances declined.
Fee income remained concentrated in Small Business Administration loan sales. SBA gains totaled $2.4 million, roughly unchanged QoQ and more than double the year-earlier level, supporting quarterly noninterest income of $3.3 million. Noninterest expense declined 9.7% QoQ to $15.3 million as seasonal compensation costs receded, improving the efficiency ratio by 830 bps to 47.5%.
Credit costs normalized as balance-sheet growth required additional reserves. Bankwell recorded a $1.2 million total provision after releasing $1.0 million in the first quarter, with the $1.0 million loan provision driven primarily by volume. The loan allowance increased to $30.6 million, or 1.03% of loans. Nonperforming loans declined $3.2 million QoQ to $15.9 million, and the annualized net charge-off rate remained effectively zero.
Capital ratios moved unevenly as loans expanded. The bank’s CET1 ratio declined 31 bps QoQ to 11.66%, and total risk-based capital fell 30 bps to 12.70%. The leverage ratio edged up 4 bps to 10.36%, while tangible common equity as a share of tangible assets increased 7 bps to 9.24%.
Management now expects 2026 net interest income of $115 million to $117 million, above its initial $111 million to $112 million range, and raised loan-growth guidance to 5% to 7% from 4% to 5%. It also lifted its noninterest-expense forecast to $65 million to $67 million to fund talent and infrastructure, while expecting higher revenue to prevent deterioration in the full-year efficiency ratio.