Bankwell Financial Group (BWFG) Q3 2026 earnings review
Bankwell raises its full-year profit plan, while deposits slip
Bankwell Financial Group, a commercial bank in Connecticut, earned record profit as wider lending spreads and a loan recovery outweighed software switching costs. Revenue rose 24% from a year ago, and profit per share excluding one-offs climbed 48% even after a $3 million charge to exit old technology contracts. Chief executive Christopher Gruseke lifted the full-year outlook for both net interest income and fee income.
| Revenue | $35.3M +24% from a year ago |
|---|---|
| Profit per share, excluding one-offs | $1.86 +48% from a year ago |
| Net interest margin | 3.71% +0.13 percentage points from last quarter |
| Full-year net interest income outlook | Raised $4M middle of the range: 21% growth |
⚖️ Verdict: 🟢 Bullish
The story got better because loan yields and small-business loan sales pushed the full-year revenue plan higher, while a pandemic-era loan sale cut nonperforming assets in half. Two cautions tempered the beat: customer deposits slipped, forcing the bank to add $95 million in short-term borrowings, and early-warning watch-list loans rose by $26 million.
The question now is whether the bank can keep expanding its profit margin now that maturing time deposits carry rates near current market levels. If new loan yields and checking accounts keep rising, the margin holds up; if funding costs creep higher and staff expenses stay elevated, profit growth slows to the pace of the loan book. Fourth-quarter deposit costs and the 2027 expense plan will decide.
🐂 Bull Case
Wider Lending Spreads Lifted the Full-Year Plan
Bankwell is a commercial bank based in Connecticut. Its main profit engine is net interest income, the difference between what it earns on loans and what it pays on deposits. That spread widened again in the third quarter, because new loans carried higher rates while deposit costs barely moved. Chief executive Christopher Gruseke raised the full-year net interest income outlook by $4 million at the middle of the range.
- Net interest margin (lending profit as a share of interest-earning assets): 3.71%, up 0.13 percentage points from last quarter
- Net interest income: $31.4 million, up 20.7% from a year ago by our math
- Efficiency ratio, excluding one-offs (operating costs as a share of revenue): 47.5%, down 3.9 percentage points from a year ago
The wider margin matters because it paid for higher staff costs and still kept the bank's underlying cost-to-income ratio at 47.5%. New loans made this year yield 7.38% on average, about 0.9 percentage points more than the loans being paid off. That loan repricing now carries the margin, because older certificates of deposit have mostly finished resetting to lower rates.
What to watch: fourth-quarter net interest margin against this quarter's 3.71%. A flat or lower reading would confirm that deposit cost savings have ended and future profit growth must come from adding more loans.
Small-Business Loan Sales Drove Another Outlook Raise
The bank originates government-backed loans for small businesses through the Small Business Administration (SBA) and sells the guaranteed portions to investors for a fee. Gruseke raised the full-year noninterest income forecast by $2 million, to $14–15 million, "reflecting continued strength in our SBA platform". Noninterest income rose 58.6% from a year ago to $4.0 million, with SBA loan sales providing $2.8 million of that total.
This fee stream diversifies the lender away from pure interest spread. Noninterest income reached 11.2% of total revenue, up from 8.8% a year ago. Because third-quarter fee income beat the quarterly pace implied by the prior outlook by 34.6% by our math, the full-year raise simply catches the plan up to what the SBA desk is already producing.
What to watch: quarterly SBA loan originations, which were $30.1 million in the third quarter. A drop below $25 million would cut directly into fee revenue because loan sale gains make up 71% of noninterest income.
A Pandemic-Era Loan Sale Cut Bad Assets in Half
For two years the Connecticut lender has worked to clear problem loans from its books. In the third quarter, nonperforming loans — loans where the borrower is not making scheduled payments — dropped by $8.7 million to $7.1 million, "primarily reflecting the note sale of a suburban retail CRE loan in Westchester County, NY, that had been modified during the COVID-19 pandemic".
The sale also produced a $2.5 million recovery on commercial real estate (CRE) loans previously written down. That recovery allowed the bank to record a $1.3 million credit to its loan-loss provision, which boosted pre-tax profit. Problem assets now sit at 0.20% of total assets, down from 0.46% in June, and the reserve for bad loans covers 431% of remaining nonperforming loans.
What to watch: the quarterly loan-loss provision in the fourth quarter. Without another large loan recovery, the bank will return to setting aside money for new loans, which will create a sequential headwind for net income.
🐻 Bear Case
Deposits Dipped and Short-Term Borrowings Jumped
Bankwell highlights its multi-year shift toward core customer deposits, which rose 18% from a year ago to $2.25 billion. Yet in the third quarter total deposits shrank by $32.9 million, and core deposits slipped by $20 million. Noninterest-bearing checking accounts — the bank's free funding — fell by $18.9 million from June to $453.1 million.
To fund $22.9 million of loan growth and build cash while deposits declined, the company borrowed from the Federal Home Loan Bank, increasing those advances from $30 million to $125 million. At the same time, the presentation notes "maturing time deposits carrying rates at or below current market levels". The average deposit cost was 2.92% in the quarter, but the September exit rate ticked up to 2.94%.
What to watch: fourth-quarter core deposit balances and the average cost of interest-bearing deposits. Another drop in checking accounts or a rise in deposit costs above 2.94% would squeeze the net interest margin from the funding side.
Staff Costs Rose Faster Than Revenue
Operating expenses are climbing even before counting the software conversion charge. Salaries and employee benefits rose 19.4% from the second quarter to $10.4 million, which the release attributed to "ongoing investments in talent to support growth". As a share of revenue, staff compensation rose by 2.9 percentage points from last quarter and 1.3 percentage points from a year ago, to 29.3%.
Gruseke kept the full-year operating expense outlook at $65–67 million, excluding conversion costs. By our math, that range leaves $17.1 million of operating expenses for the fourth quarter at the middle of the range, up from $16.8 million in the third quarter and $15.3 million in the second. As deposit repricing slows, a $17 million quarterly cost base leaves less room for profit growth.
What to watch: full-year 2027 operating expense plans when fourth-quarter results arrive. If annual expense growth stays above 10% while revenue growth slows toward loan growth, the efficiency ratio will worsen.
Watch-List Loans and Healthcare Concentration
While nonperforming loans fell, the bank's early-warning credit bucket grew. Loans rated "Special Mention" — credits that have potential weaknesses but are still paying on time — rose from $67 million in June to $93 million, or 3.1% of total loans. Meanwhile, the bank's total loan reserve stayed flat at 1.03% of loans, and detail on recent commercial real estate vintages awaits the quarterly filing.
Concentration in healthcare also grew. Combined healthcare loans — commercial mortgages and business lines, mostly for skilled nursing facilities — reached $1.12 billion, or 37.4% of total loans by our math, up from $1.09 billion in June. The company notes that 90% of Special Mention loans carry guarantees from wealthy sponsors and all skilled nursing loans have recourse, but over a third of the loan book faces government reimbursement risk.
What to watch: Special Mention and Substandard loan balances in the fourth quarter. A move in Special Mention loans above $100 million or migration into Substandard would require higher loan-loss provisions.
👓 Other Themes
Software Switch Brings a $3 Million Charge
Bankwell is replacing its core banking software "to expand capabilities, improve efficiency and scalability, and support future growth". Third-quarter expenses included $3.0 million for this project, "primarily consisting of termination fees" to exit old vendor contracts. That charge pushed the reported efficiency ratio to 56.1%, versus 47.5% excluding one-offs. The company said future quarters will carry further implementation costs, though without the contract exit fees.
Floating-Rate Loans Buffer Against Interest Rate Moves
Over the past two years the bank reshaped its balance sheet so that "earnings are less exposed to the direction of future Fed moves". Floating-rate loans now make up 44% of the portfolio, or about $1.3 billion, up from 23% at the end of 2024. Time deposits dropped from 49% of deposits to 36% over the same span, matching rate-sensitive loans against rate-sensitive funding.
💲 Other KPIs
Total loans grew $22.9 million in the quarter, slowing from $93.1 million added in the second quarter despite $222 million of new loan originations. Year-to-date loan growth reached $142.6 million, or 5.0%, and loans are up 9.7% from a year ago. Commercial business loans led the expansion, rising 31.5% from last year to $726.6 million.
Tangible book value per share — the bank's net physical net worth per share — rose 3.3% from last quarter and 12.9% from a year ago. Retained profit drove the gain because the bank kept its quarterly dividend at $0.20 per share and bought back no shares. Consolidated common equity tier 1 capital rose 0.22 percentage points from June to an estimated 10.80%.
🔮 Guidance
Raised. The middle of the range moved up $4 million, pointing to 21.3% growth for the full year by our math. That leaves $32.2 million for the fourth quarter at the middle of the range, up from $31.4 million in the third quarter and up 19.6% from a year ago. It is the second raise this year, following a $4.5 million increase last quarter.
Raised. Management lifted the target by $2 million at the middle of the range, which calls for 54.5% growth for the year by our math. That implies $3.9 million of fee income in the fourth quarter, flat with the third quarter's $4.0 million and up 16.1% from a year ago. It is the second raise this year: +$1 million in Q1, held in Q2, and +$2 million now.
Unchanged. The plan keeps full-year loan growth at 5% to 7%. With loans already up 5.0% through September, the bank has reached the bottom of its range with one quarter left. By our math, the 6% middle of the range implies $27.8 million of net new loans in the fourth quarter, similar to the $22.9 million added in the third quarter.
Unchanged. The outlook holds underlying operating costs at $65–67 million, excluding the $3.0 million third-quarter software conversion charge, or 12.3% growth for the year by our math. After $48.9 million of operating expenses in the first nine months, the middle of the range implies $17.1 million for the fourth quarter, up from $16.8 million this quarter and up 10.3% from a year ago.
❓ Key Questions
How much more will the core software switch cost?
Bankwell booked $3.0 million of conversion costs in the third quarter, mostly contract termination fees, and said implementation costs will continue. Management has not given the total dollar budget or completion date for the project.
Did the bank redeem its 2021 subordinated debt in October?
Subordinated debt stood at $69.9 million on September 30. A $35 million note carrying a 3.25% fixed rate was scheduled to reset to a much higher floating rate on October 14 and became callable on October 15, but the release did not mention it.
What caused Special Mention loans to jump by $26 million?
Early-warning Special Mention loans rose from $67 million in June to $93 million in September even as nonperforming loans fell. Investors need to know whether those downgrades came from the skilled nursing portfolio or the 2024 commercial real estate vintage.
Why did customer deposits shrink and borrowings quadruple?
Total deposits fell $32.9 million in the quarter, including a $18.9 million drop in free checking accounts, while Federal Home Loan Bank borrowings rose from $30 million to $125 million. Was the outflow seasonal, or did customers move cash for higher yields?