Q2 2026 Bankwell Financial Group Inc Earnings Call

July 23, 2026

Speaker #1: Hello everyone. Thank you for joining us, and welcome to the Bankwell Financial Group Q2 2026 earnings call. After today's prepared remarks, we will host a Q&A session.

Operator: Hello, everyone. Thank you for joining us, and welcome to the Bankwell Financial Group Q2 2026 Earnings Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Courtney Sacchetti, Executive Vice President and Chief Financial Officer. Courtney, please go ahead.

Speaker #1: If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again. I will now hand the conference over to Courtney Sacchetti, Executive Vice President and Chief Financial Officer.

Speaker #1: Courtney, please go ahead.

Speaker #2: Thank you. Good morning, everyone. Welcome to Bankwell's Q2 2026 earnings conference call. To access the call over the internet, and review the presentation materials that we will reference on the call, please visit our website at investor.mybankwell.com and go to the Events and Presentations tab for supporting materials.

Courtney Sacchetti: Thank you. Good morning, everyone. Welcome to Bankwell's Q2 2026 Earnings Conference Call. To access the call over the internet and review the presentation materials that we will reference on the call, please visit our website at investor.mybankwell.com and go to the Events and Presentations tab for supporting materials. Our Q2 earnings release is also available on our website. Our remarks today may contain forward-looking statements and may refer to non-GAAP financial measures. All participants should refer to our SEC filings, including those found on Forms 8-K, 10-Q, and 10-K, for a complete discussion of forward-looking statements and any factors that could cause actual results to differ from those statements. Now I will turn the call over to Chris Gruseke, Bankwell's Chief Executive Officer.

Speaker #2: Our Q2 earnings release is also available on our website. Our remarks today may contain forward-looking statements and may refer to non-GAAP financial measures. All participants should refer to our SEC filings including those found on Forms 8K, 10Q, and 10K for a complete discussion of forward-looking statements and any factors that could cause actual results to differ from those statements.

Speaker #2: And now, I will turn the call over to Chris Groseke, Bankwell's Chief Executive Officer.

Speaker #1: Thanks, Courtney. Welcome, and thank you to everyone for joining Bankwell's quarterly earnings call. This morning I'm joined by Courtney Sacchetti, our CFO, and Matt McNeill, our President and Chief Banking Officer.

Chris Gruseke: Thanks, Courtney. Welcome, and thank you to everyone for joining Bankwell's quarterly earnings call. This morning I'm joined by Courtney Sacchetti, our CFO, and Matt McNeill, our President and Chief Banking Officer. Thank you for your continued interest in Bankwell and for the chance to share our Q2 results with you. Q2 marked another period of strong execution with meaningful margin expansion, robust core deposit and loan growth, and continued progress on our strategic priorities, including the continued success of our SBA division. For Q2, we reported GAAP net income of $12.4 million, or $1.52 per share, compared to $11.3 million, or $1.41 per share for Q1. Loan growth accelerated this quarter, with balances growing by $93 million or by 3.2% sequentially. Gross loans stood at $3 billion at quarter end as new originations continue to outpace portfolio runoff.

Speaker #1: Thank you for your continued interest in Bankwell, and for the chance to share our Q2 results with you. Q2 marked another period of strong execution, with meaningful margin expansion, robust core deposit and loan growth, and continued progress on our strategic priorities, including the continued success of our SBA division.

Speaker #1: For the Q2, we reported GAAP net income of $12.4 million or $1.52 per share compared to $11.3 million or $1.41 per share for Q1.

Speaker #1: Loan growth accelerated this quarter with balances growing by $93 million or by $3.2% sequentially. Gross loans stood at $3 billion at Q2 end, as new originations continue to outpace portfolio runoff.

Speaker #1: Core deposits increased by $128 million during the quarter. Importantly, this includes $72 million of growth in non-interest-bearing and NOW accounts. Growth in non-interest-bearing deposits included approximately $44 million in increased analyzed checking balances.

Chris Gruseke: Core deposits increased by $128 million during the quarter. Importantly, this includes $72 million of growth in non-interest-bearing and NOW accounts. Growth in non-interest-bearing deposits included approximately $44 million in increased analyzed checking balances. On a year-to-date basis, analyzed checking has grown by approximately $68 million, or roughly 17%. In addition to funding loan growth, our strong performance in growing core deposits has enabled us to reduce wholesale funding by $44 million this quarter. Since its peak at the end of 2022, we've now reduced brokered balances by $520 million, or by roughly 51%. This continued progress is a result of strong execution across the entire franchise as we continue to strengthen our funding base and deepen client relationships. Compared to the same quarter in the prior year, core deposits have grown by $356 million or by 19%.

Speaker #1: On a year-to-date basis, analyzed checking has grown by approximately $68 million, or roughly 17%. In addition to funding loan growth, our strong performance in growing core deposits has enabled us to reduce wholesale funding by $44 million this quarter.

Speaker #1: Since its peak at the end of 2022, we've now reduced brokered balances by $520 million, or by roughly 51%. This continued progress is a result of strong execution across the entire franchise as we continue to strengthen our funding base and deepen client relationships.

Speaker #1: Compared to Q2 in the prior year, core deposits have grown by $356 million, or 19%. The net interest margin was 358 basis points, an expansion of 30 basis points from the prior quarter.

Chris Gruseke: The net interest margin was 358 basis points, an expansion of 30 basis points from the prior quarter, driven by favorable repricing dynamics on both sides of the balance sheet. Courtney will walk through those details in a couple of minutes. Non-interest income remained a meaningful contributor to our results, totaling $3.3 million for the quarter. This was led by our SBA division, which contributed $2.4 million of gain on sale income. For H1 of this year, SBA loan sale gains were $4.8 million compared to $1.5 million in H1 2025. This business remains an important and growing part of diversifying our revenue stream. Credit quality continues to improve. Total non-performing loans decreased by $3.2 million to $15.9 million, and non-performing assets as a percentage of total assets declined by 10 basis points to 46 basis points.

Speaker #1: Driven by favorable repricing dynamics on both sides of the balance sheet. Courtney will walk through those details in a couple of minutes. Non-interest income remained a meaningful contributor to our results, totaling $3.3 million for the quarter.

Speaker #1: This was led by our SBA division, which contributed $2.4 million of gain on sale income. For the first half of this year, SBA loan sale gains were $4.8 million, compared to $1.5 million in the first half of 2025.

Speaker #1: This business remains an important and growing part of diversifying our revenue stream. Credit quality continues to improve, total non-performing loans decreased by 3.2 million dollars to 15.9 million dollars, and non-performing assets as a percentage of total assets declined by 10 basis points to 46 basis points.

Speaker #1: Reserve coverage of non-performing loans strengthened to approximately 193%. As stewards of our shareholders' capital, our primary focus has always been to maximize tangible book value per share while balancing the risks of running our business.

Chris Gruseke: Reserve coverage of non-performing loans strengthened to approximately 193%. As stewards of our shareholders' capital, our primary focus has always been to maximize tangible book value per share while balancing the risks of running our business. We've added $2.41 to tangible book value per share in H1 2026 to reach $40.25 per share. I'll now turn the call back to Courtney to walk through the financial results in more detail.

Speaker #1: We've added $2.41 to tangible book value per share in the first half of 2026 to reach $40.25 per share. I'll now turn the call back to Courtney to walk through the financial results in more detail.

Speaker #2: Thanks, Chris. Profitability for the quarter was outstanding, return on average assets was 1.46%, and return on average tangible common equity was 15.61%. Pre-provision net revenue rose 31.4% to 17.5 million dollars or 2.07% of average assets.

Courtney Sacchetti: Thanks, Chris. Profitability for the quarter was outstanding. Return on average assets was 1.46%, and return on average tangible common equity was 15.61%. Pre-provision net revenue rose 31.4% to $17.5 million, or 2.07% of average assets, up from $13.3 million last quarter, driven by higher net interest income and improved efficiency. Net interest income totaled $29.5 million, up from $26.9 million in the prior quarter. Net interest margin expanded 30 basis points to 3.58%, driven by favorable repricing. Deposit cost improved 16 basis points to 2.94%, while our earning asset yields rose 11 basis points to 6.26% as new loan production at an average rate of 7.16% continued to outpace runoff. Non-interest income totaled $3.3 million for the quarter, including $2.4 million of gains on SBA loan sales.

Speaker #2: Up from $13.3 million last quarter, driven by higher net interest income and improved efficiency. Net interest income totaled $29.5 million, up from $26.9 million in the prior quarter.

Speaker #2: Net interest margin expanded 30 basis points to 3.58%, driven by favorable repricing. Deposit cost improved 16 basis points to 2.94% while our earning asset yields rose 11 basis points to 6.26%, as new loan production at an average rate of 7.16% continued to outpace runoff.

Speaker #2: Non-interest income totaled $3.3 million for the quarter, including $2.4 million of gains on SBA loan sales. Non-interest expense fell to $15.3 million from $16.9 million, primarily due to lower salaries and benefits, as the first quarter carried seasonal compensation costs.

Courtney Sacchetti: Non-interest expense fell to $15.3 million from $16.9 million, primarily on lower salaries and benefits as the first quarter carried seasonal compensation costs. Operating leverage continued to build, as evidenced by this quarter's 47.5% efficiency ratio, bringing the year-to-date ratio to 51.4%. Provision for credit losses was $1.2 million, driven by loan growth. The allowance ended the quarter at 1.03% of total loans, with non-performing loan coverage of approximately 193%. The balance sheet remains strong. Total assets ended the quarter at $3.5 billion and deposits at $3 billion. Shareholders' equity grew to $323.5 million. As Chris commented, our fully diluted tangible book value per share rose to $40.25. Both the Bankwell and the holdco remain well capitalized, with the Bankwell's Total Capital Ratio of 12.7%, common equity tier one ratio of 11.66%, and a leverage ratio of 10.36%.

Speaker #2: Operating leverage continued to build, as evidenced by this quarter's 47.5% efficiency ratio bringing the year-to-date ratio to 51.4%. Provision for credit losses was 1.2 million dollars, driven by loan growth.

Speaker #2: The allowance end of the quarter at 1.03% of total loans with non-performing loan coverage of approximately 193%. The balance sheet remained strong. Total assets end of the quarter at 3.5 billion dollars and deposits at 3 billion dollars.

Speaker #2: Shareholders' equity grew to 323.5 million dollars and, as Chris commented, our fully diluted tangible book value per share rose to $40.25. Both the bank and the holding company remain well capitalized, with the bank's total capital ratio of 12.7%, common equity Tier 1 ratio of 11.66%, and a leverage ratio of 10.36%.

Speaker #2: Finally, we repriced 0.6 billion dollars of time deposits in the first half of the year at a 36 basis point improvement, representing an annualized benefit of 2.3 million dollars.

Courtney Sacchetti: Finally, we repriced $0.6 billion of time deposits in H1 of the year at a 36 basis point improvement, representing an annualized benefit of $2.3 million. Looking ahead, that benefit will diminish as much of our higher cost time deposits have already been repriced, and the remaining maturities carry rates closer to current market levels. As that benefit moderates, we are increasingly positioned towards a more rate-neutral balance sheet. Approximately 43%, or $1.3 billion of our loans are now floating rate, nearly double the 23% we carried at the end of 2024. This increase in floating rate assets provides a more balanced sensitivity across a range of rate scenarios. In the immediate term, we're modestly asset-sensitive. Roughly $1.6 billion of loans and cash reprice right away, while $250 million of Federal funds index deposits move with them.

Speaker #2: Looking ahead, that benefit will diminish as much of our higher cost time deposits have already been repriced and the remaining maturities carry rates closer to current market levels.

Speaker #2: As that benefit moderates, we are increasingly positioned towards a more rate-neutral balance sheet. Approximately 43%, or $1.3 billion, of our loans are now floating rate—nearly double the 23% we carried at the end of 2024.

Speaker #2: This increase in floating rate assets provides a more balanced sensitivity across a range of rate scenarios. In the immediate term, we're modestly asset sensitive—roughly $1.6 billion of loans and cash reprice right away, while $250 million of Fed funds-indexed deposits move with them.

Speaker #2: Over the following 12 months, that gap narrows towards neutral, as 1.1 billion dollars of time deposits mature and reprice, and our core non-maturity deposits gradually adjust.

Courtney Sacchetti: Over the following 12 months, that gap narrows towards neutral as $1.1 billion of time deposits mature and reprice, and our core non-maturity deposits gradually adjust. That's the financial picture for the quarter. I'll turn it back to Chris for closing remarks.

Speaker #2: That's the financial picture for the quarter, I'll turn it back to Chris for closing remarks.

Speaker #1: Thanks, Courtney. Our second quarter results demonstrate the earnings power of the franchise we've been building deliberately over time. In our investor presentation for Q3 2024, we laid out plans to invest in our deposit franchise, pay down wholesale funding, increase non-interest income, and grow our consolidated Tier 1 capital ratio.

Chris Gruseke: Thanks, Courtney. Our Q2 results demonstrate the earnings power of the franchise we've been building deliberately over time. In our investor presentation for Q3 of 2024, we laid out plans to invest in our deposit franchise, pay down wholesale funding, increase non-interest income, and grow our consolidated Tier 1 capital ratio. We committed to invest in the people and technologies necessary for the company's ongoing success and to do so in a manner which would increase our operating leverage. Halfway through 2026, we're excited to have seen so many of our aspirations realized. Given our H1 performance and the momentum we're carrying into H2 of the year, we're pleased to increase our full year guidance across several measures. We now expect loan growth of 5% to 7%, and we are raising our full year net interest income outlook to a range of $115 to $117 million.

Speaker #1: We committed to investing in the people and technologies necessary for the company's ongoing success, and to doing so in a manner that would increase our operating leverage.

Speaker #1: Halfway through 2026, we're excited to have seen so many of our aspirations realized. Given our first half performance and the momentum we're carrying into the second half of the year, we're pleased to increase our full-year guidance across several measures.

Speaker #1: We now expect loan growth of 5 to 7 percent, and we are raising our full-year net interest income outlook to a range of $115 to $117 million.

Speaker #1: We affirm our previous full-year guidance of $12 to $13 million for non-interest income. Given our momentum this year, we are making targeted investments in talent and infrastructure to support continued growth.

Chris Gruseke: We affirm our previous full year guidance of $12 to $13 million for non-interest income. Given our momentum this year, we are making targeted investments in talent and infrastructure to support continued growth and to compensate appropriately our teams for the strong performance they've delivered. Accordingly, we're raising our full year non-interest expense guide to $65 to $67 million. With our updated revenue guidance, we expect no negative impact to our efficiency ratio from our increased expense guide. None of the progress we've achieved can happen without the people behind it. I especially want to recognize our team whose dedication and efforts are what turn our strategy into results, our customers who place their trust in us, and the shareholders who share our long-term vision. We're grateful to all of you and remain focused on delivering peer leading results in the quarters to come.

Speaker #1: And to compensate appropriately, our teams for the strong performance they've delivered. Accordingly, we're raising our full-year non-interest expense guide to 65 to 67 million dollars.

Speaker #1: With our updated revenue guidance, we expect no negative impact to our efficiency ratio from our increased expense guidance. None of the progress we've achieved can happen without the people behind it.

Speaker #1: I especially want to recognize our team, whose dedication and efforts are what turn our strategy into results; our customers, who place their trust in us; and the shareholders, who share our long-term vision.

Speaker #1: We're grateful to all of you and remain focused on delivering peer-leading results in the quarters to come. Now, operator, we are ready to open the line for questions.

Chris Gruseke: Now, operator, we are ready to open the line for questions.

Speaker #3: We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand.

Operator: We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Feddie Strickland with Hovde Group. Freddie, your line is open. Please go ahead.

Speaker #3: To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality.

Speaker #3: If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Freddie Strickland with Hovdi Group.

Speaker #3: Freddie, your line is open. Please go ahead.

Feddie Strickland: Hey. Good morning, everybody. Just wanted to start off really on the loan growth here. I was just wondering if you could talk a little bit about what's changed to drive the higher loan growth, and is that future growth still predominantly C&I driven like this quarter?

Speaker #4: Hey. Good morning, everybody. Just, you know, wanted to start off, you know, really on the loan growth here. I was just wondering if you could talk a little bit about, you know, what's changed to drive the higher loan growth, and is that future growth still predominantly C&I driven like this quarter?

Speaker #1: Yeah, good morning, Freddie. Hi. Hand that to Matt. Really, the loan growth is a function of us, you know, raising our projections on assumptions on runoff.

Chris Gruseke: Yeah. Good morning, Freddie. Hi. I am going to hand that to Matt.

Matt McNeill: Really, the loan growth is a function of us raising our projections on assumptions on runoff. We had a lot of loans refinance away from us or leave the bank last year.

Matt McNeill: Really, the loan growth is a function of us raising our projections on assumptions on runoff. We had a lot of loans refinance away from us or leave the bank last year. It impacted our ability to grow the loan book early in the year. We looked at those assumptions and raised them. We've kept them raised through the H1 of this year. That's really been the change. Just originating more loans to fill the expected runoff.

Speaker #1: We had, you know, a lot of loans refinance away from us or leave the bank last year. That impacted, you know, our ability to grow the loan book early in the year.

Matt McNeill: It impacted our ability to grow the loan book early in the year. We looked at those assumptions and raised them. We've kept them raised through the H1 of this year. That's really been the change. Just originating more loans to fill the expected runoff.

Speaker #1: We looked at those assumptions and raised them. We've kept them raised through the first half of this year, and that's really been the change.

Speaker #1: We're just originating more loans to fill the expected runoff.

Feddie Strickland: Is that driven by increased activity from existing customers or reaching out to new customers? I guess I'm just trying to get a sense for maybe whether sentiment had improved or anything else just as the originations increase.

Speaker #4: And is any of that, you know, is that driven by, you know, increased activity from existing customers or reaching out to new customers? I guess I'm just trying to get a sense for, you know, maybe whether sentiment improved or anything else, just as the originations increase.

Matt McNeill: We're very relationship-driven. We don't bring on large quantities of new customers. We're really focused on deepening relationships with existing customers and rinse and repeat asset classes. It's really driven by deepening relationships with our existing customers. That's across all the healthcare, goes into investor CRE, C&I, all the places we originate.

Speaker #1: We're very relationship-driven. We don't bring on large quantities of new customers. We're really focused on deepening relationships with existing customers and, rinse and repeat, you know, asset classes.

Speaker #1: So you know, it's really driven by, you know, deepening relationships with our existing customers. That's across all the healthcare, you know, goes into investor careers, C&I, all the places we originate.

Speaker #5: So Freddie, it's more art than science. It's managing the flows. And when you have a field for what the prepayments should be, and then we look forward the next quarter, we can prime the pump and, you know, price and speak accordingly to manage the flows.

Chris Gruseke: Today, it's more art than science. It's managing the flows. When you have a feel for what the prepayment should be, then we look forward the next quarter, we can prime the pump and price and speak accordingly to manage the flows.

Speaker #4: All right, great. That's super helpful, thank you. And switching to the other side of the balance sheet—you’ve made really good progress in reducing the brokered funding over the past couple of quarters.

Feddie Strickland: All right, great. That's super helpful. Thank you. In switching to the other side of the balance sheet, you made really good progress in reducing the brokered funding over the past couple quarters. I think we're down to about 17% or so of deposits. How should we think about that brokered number over time, over the next year or so? Do you think you could get that sub 10% in the next 12 months? Or is it just kind of too hard to tell at this point?

Speaker #4: I think we're down to about 17 percent or so of deposits. How should we think about that brokered number over time, over the next year or so?

Speaker #4: Do you think you could get that sub-10 in the next 12 months, or is it just kind of too hard to tell at this point?

Speaker #5: It's not too hard to tell. I think sub-10 would sound aggressive. I think it'll come down naturally over time, because we are, you know, still trying to build consolidated capital.

Chris Gruseke: It's not too hard to tell. I think sub 10% would sound aggressive. I think it'll come down naturally over time because we are still trying to build consolidated capital at the holdco. While we're on this kind of trajectory, and the way it's gone these last several quarters, it feels just like organically we're generating more deposits than the amount of loans that we would want to book while still growing capital. I'd expect to see it kind of drift down over time as that plays out. We don't have a target in mind.

Speaker #5: At the Holdco, so while we're on this kind of trajectory, you know, and the way it's gone the last several quarters, it feels just like an organically we're generating more deposits than the amount of, you know, loans that we would want a book while still growing capital.

Speaker #5: So, I would expect to see it kind of drift down over time as that plays out. We don't have a target in mind.

Speaker #4: Understood. And last quick question from me, just should we expect a slight grind higher in the margin if the yield curve stays where it is, just given you still got above portfolio yields and new production and maybe it sounds like flattish deposit costs with, you know, some of the time deposit tailwind going away?

Feddie Strickland: Understood. Last quick question from me, just should we expect a slight grind higher in the margin if the yield curve stays where it is, just given you've still got above portfolio yields and new production, and maybe it sounds like flattish deposit costs with some of the time deposits tailwind going away?

Speaker #6: Hey, Freddie, it's Courtney. Yes, I would expect our margin to expand a little bit more into the third quarter. Our third quarter, we still have some room left in our time deposits in the third quarter.

Courtney Sacchetti: Hey, Feddie, it's Courtney. Yes, I would expect our margin to expand a little bit more into Q3. We still have some room left in our time deposits in Q3. It's really Q4 and beyond where we start to see the runoff kind of matching current market rates. We do expect a margin expansion given no other changes.

Speaker #6: It's really fourth quarter and beyond where we start to see, you know, the runoff kind of matching current market rates. So we do expect a margin expansion given no other changes.

Feddie Strickland: Understood. I appreciate it, Chris, Courtney, and Matt. Impressive quarter. I'll step back.

Speaker #4: Understood. I appreciate it, Chris, Courtney, Matt, and impressive quarter. I'll step back.

Speaker #5: Thanks, Freddie.

Chris Gruseke: Thanks, Feddie.

Courtney Sacchetti: Thanks, Feddie.

Speaker #6: Thanks, Freddie.

Speaker #3: Your next question comes from the line of Mark Shutley with KBW. Mark, your line is open.

Operator: Your next question comes from the line of Mark Shutley with KBW. Mark, your line is open.

Mark Shutley: Hey, thanks. Good morning.

Speaker #7: Hey, thanks. Good morning.

Speaker #1: Good morning, Mark.

Chris Gruseke: Good morning, Mark.

Speaker #7: Hey. So I was surprised to see the expense guide move up after expense control was really strong in the quarter. I know you talked about, you know, compensation drifting higher.

Mark Shutley: Hey. I was surprised to see the expense guide move up after expense control was really strong in the quarter. I know you talked about compensation drifting higher. I just was wondering if you could talk through any other puts and takes there. Thanks.

Speaker #7: I just was wondering if you could talk through any other puts and takes there. Thanks.

Speaker #5: Yeah. So, you know, with that specifics of what comprises it, in the earnings release, we I think as well just now, we said that despite increasing the guide, you know, if you have numbers worked up based on our revenue guidance prior and now current, that we would not expect that to impact the efficiency ratio in a negative manner.

Chris Gruseke: Without specifics of what comprises it, in the earnings release we offer, I think as well just now, we said that despite increasing the guide, if you have numbers worked up based on our revenue guidance prior and now current, that we would not expect that to impact the efficiency ratio in a negative manner. We are really talking about scale. As you have a year that is going well and doing better, we run a meritocratic incentive plan. If people do better, we want them to get paid. That is a good part of the increase. As well, we have been investing in technology and processes and bringing on additional people, but the scale is working for us. I think early in the year, we talked about expenses and said if we are adding expenses, it is because we are making more money and we are going to return the expense.

Speaker #5: So we're talking about we're really talking about scale. And as you have a year that's going well and doing better, you know, we're pretty we run a meritocratic incentive plan.

Speaker #5: And if people do better, we want them to get paid. So that's I mean, that's a good part of the increase, as well. You know, we have been investing in technology and processes and bringing on additional people, but the scale's working for us.

Speaker #5: So we wouldn't I think early in the year we talked about expenses and said if we're adding expenses it's because we're making more money and we're going to return the expense.

Speaker #6: So and Chris, I will just add to that is that our guidance from the last the last time we gave guidance, if you did a rough calculation of what that efficiency ratio would be, it was a range of 52.8 percent to 51.2 percent.

Courtney Sacchetti: Chris, I will just add to that is that our guidance from the last time we gave guidance, if you did a rough calculation of what that efficiency ratio would be, it was a range of 52.8% to 51.2%. This new guidance keeps that high end. It is exactly 52.8% and lowers the best case scenario to 50%. It is in line with, from an efficiency ratio perspective, it actually is improved.

Speaker #6: This new guidance keeps that high end. It's exactly 52.8 and lowers the best-case scenario to 50 percent. So it is in line with from an efficiency ratio perspective.

Speaker #6: It actually is improved.

Speaker #7: Okay, great. That's helpful. And then maybe shifting over to credit, you know, MPAs improved. Again, I was wondering if you could update us on sort of that remaining non-performer bucket and then should we expect reserves to be relatively stable from here through the year?

Mark Shutley: Okay, great. That is helpful. Then maybe shifting over to credit. NPA has improved again. I was wondering if you could update us on sort of that remaining non-performer bucket, and should we expect reserves to be relatively stable from here through the year? Thank you.

Speaker #7: Thank you.

Matt McNeill: Our outlook on the remaining non-performing loans is good. We see some path to reducing that number even further in the coming quarters. I will let Courtney comment on the reserve.

Speaker #1: Our outlook on the remaining non-performing loans is good. You know, we see some task to, you know, reducing that number even further in the coming quarters.

Speaker #1: I'll let Courtney comment on the reserve.

Speaker #6: We've taken the write-downs as appropriate. You know, we don't really carry a lot of specific reserves specifically on our real estate portfolio. So we feel it's marked appropriately based on the information we have.

Courtney Sacchetti: We've taken the write-downs as appropriate. We don't really carry a lot of specific reserves specifically on our real estate portfolio. We feel it's marked appropriately based on the information we have.

Speaker #7: Okay, great. That's it from me. Thanks for taking my questions.

Mark Shutley: Okay, great. That's it for me. Thanks for taking my questions.

Speaker #3: Your next question comes from the line of Steve Moss with Raymond James. Steve, please go ahead.

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

Speaker #4: Good morning. Maybe just starting with just the SBA business here, you know, I, you know, you guys didn't change your guide on non-interest income.

Steve Moss: Good morning. Maybe just starting with just the SBA business here. You guys didn't change your guide on non-interest income, it's definitely trending strong, I realize probably nitpicking a little bit, just kind of curious on any updated thoughts you have there.

Speaker #4: But it's definitely turning strong, and I realize I'm probably nitpicking a little bit, but just kind of curious on any updated thoughts you have there.

Speaker #5: I'm sorry, Steve, you broke up a little bit. Could you repeat that question?

Matt McNeill: I'm sorry, Steve, you broke up a little bit. Could you repeat that question?

Chris Gruseke: I'm sorry, Steve, you broke up a little bit. Could you repeat that question?

Speaker #4: No problem. Sorry.

Steve Moss: No problem. Sorry.

Speaker #5: Sorry about that.

Matt McNeill: Sorry about that.

Chris Gruseke: Sorry about that.

Steve Moss: No worries. Seems to be my phone today for some reason. On the SBA business here, gains have been trending fairly strong. I realize you guys didn't change the non-interest income guide, just kind of curious here in terms of the business activity there and maybe if there's just some upside you want to see another quarter of trends before taking things up there.

Speaker #4: On the SBA, there's no worries. Steve, see my phone today for some reason. On the SBA, business here, you know, gains have been trending fairly strong.

Speaker #4: I realize you guys didn't change the non-interest income guide, but I'm just kind of curious here in terms of the business activity there, and maybe if there's just some upside you want to see another quarter of trends before.

Speaker #4: Taking things up there.

Matt McNeill: We intentionally are keeping our SBA production controlled. We're still retaining a portion of non-SBA-guaranteed portions of those loans. For risk management purposes, we're going slow and steady. We don't anticipate raising our origination targets there to try to keep up with the other side of the business. It's really risk management, the new division. We've only-

Speaker #5: We are intentionally keeping our SBA production controlled; you know, we're still retaining a portion of the non-SBA guaranteed portions of those loans.

Speaker #5: So, you know, for risk management purposes, we're going slow and steady. We don't anticipate raising our origination targets there to try to keep up with the other side of the business.

Speaker #5: You know, it's really risk management. New division. You know, we've only. Been after it for about two and a half years, although we've been originating SBA for more than 10.

Steve Moss: Okay

Matt McNeill: been after it for about two and a half years, although we've been originating SBA for more than 10. This new division is just two and a half years old.

Speaker #5: This new division is just two and a half years old.

Speaker #4: Okay. Appreciate that color there. And then the other thing here, just in terms of the healthcare business, just kind of curious, you know, you just talk about the trends you're seeing.

Steve Moss: Okay. Appreciate that color there. The other thing here, just in terms of the healthcare business, just kind of curious. Can you just talk about the trends you're seeing? How are businesses faring? I know there were some challenges called six to 12 months ago in terms of the ability to refinance the permanent market and get revenues to where they wanted to be. Just curious on that aspect of things and also the competitive landscape for lending into that market.

Speaker #4: You know, how are businesses faring? I know there were some challenges called out 6 to 12 months ago in terms of the ability to refinance the permanent market and get revenues to where they wanted to be. I'm just curious on that aspect of things, and also the competitive landscape for lending into that market.

Matt McNeill: We're very particular about the states where we originate for senior housing particularly. Those headwinds are largely behind the industry. The places where we originate, we're seeing a lot of strength in cash flows. We're seeing growth in revenue, expenses being controlled. The expense control is largely due to having enough labor to operate the facilities and not having to go to agency. All of those headwinds seem to be behind the operators for now in the states where we're originating our business. We think this is a very good time to be in the business. Other banks have now come to that conclusion as well, the lending activity amongst other banks and non-bank lenders is up. Many people have come back to the market. It is more competitive.

Speaker #5: We're very particular about the states where we originate. For, you know, senior housing particularly, which is where those headwinds are largely behind the industry.

Speaker #5: The places where we originate, you know, we're seeing a lot of strength in cash flows. We're seeing growth in revenue, you know, and expenses are being controlled.

Speaker #5: You know, the expense control is largely due to having enough labor to operate the facilities and not having to go to agencies. So all of those headwinds seem to be behind the operators for now and the states where we're originating.

Speaker #5: Our business and, you know, we we think this is a very good time to be in the business. Other banks have now come to that conclusion as well.

Speaker #5: And so the lending activity amongst the, you know, other banks and non-bank lenders. So many people have come back to the market. So it is more competitive.

Speaker #5: We're fortunate in the fact that, you know, we're you know, our customers come to us for our strong execution. That hasn't changed. And, you know, we still have, you know, as much access as we want to the market.

Matt McNeill: We're fortunate in the fact that our customers come to us for our strong execution. That hasn't changed, we still have as much access as we want to the market.

Speaker #4: Okay. And just in terms of pricing, is it incrementally more competitive or kind of, you know, spread time kind of materially? Just kind of curious there.

Steve Moss: Okay. Just in terms of pricing, is it incrementally more competitive or kind of spread tightening materially? Just kind of curious there.

Matt McNeill: We don't often compete on price. Like I said, execution is the strong driver of our value creation for our clients. We keep our spread where they are, that hasn't been a problem for us.

Speaker #5: We're we don't often compete on price. You know, like I said, execution is the strong driver of our value creation for our clients. And so we're we keep our spreads, you know, where they are.

Speaker #5: And that hasn't been a problem for us.

Speaker #4: Okay, great. I appreciate that. That's all the questions I have for now, and thank you very much. Nice quarter here.

Steve Moss: Okay, great. I appreciate that. The rest of my questions have been asked and answered here, thanks very much. Nice quarter here.

Speaker #5: Thank you.

Matt McNeill: Thank you.

Courtney Sacchetti: Thank you.

Speaker #1: Thanks, Steve.

Courtney Sacchetti: Thanks, Steve.

Chris Gruseke: Thanks, Steve.

Speaker #3: We also have a follow-up from Freddie Strickland of Hofdi Group. Freddie, your line is open. Please go ahead.

Operator: We also have a follow-up from Feddie Strickland of Hovde Group. Freddie, your line is open. Please go ahead.

Speaker #6: Hey, just two quick follow-ups. One on expenses. Totally understand, you know, compensating folks for good production. But, you know, as I think through the back half '26, I know you haven't given '27 guidance, but if we see the expenses step up in the back half on maybe some incentive comp, you know, should I expect that to carry through into '27, or is that kind of a one-time thing until we get through to '27?

Feddie Strickland: Hey. Just two quick follow-ups. One on expenses. Totally understand compensating folks for good production. As I think through the H2 2026, I know you haven't given 2027 guidance, but if we see the expenses step up in the H2 on maybe some incentive comp, should I expect that to carry through into 2027, or is that kind of a one-time thing until we get through to 2027? A long-winded way of asking, could we maybe see expenses step down a little bit in the Q1 2027 after maybe a little bit higher expenses in the H2 of the year, or is this more salary related?

Speaker #6: A long-winded way of asking, you know, could we maybe see expenses step down a little bit in the first quarter of '27 after maybe a little bit higher expenses in the back half of the year?

Speaker #6: Or is this more salary-related? I would think it's more salary-related. I would think that our run rate will tick up as long as our production continues on the path that it's on, right?

Courtney Sacchetti: I would think it's more salary related. I would think that our run rate will tick up as long as our production continues on the path that it's on. Right? Again, as we perform well, the company will compensate accordingly. The expectation would be the run rate would start to tick up.

Speaker #6: So again, as we perform well, the company will compensate accordingly. So the expectation would be the expense rate would start to the run rate would start to tick up.

Speaker #5: And that would be correlated with performance. So it would come back to that number will grow to reflect comp incentive performance, but the only way that's going to happen is if the top line is growing and profitability metrics continue to increase.

Chris Gruseke: That would be correlated with performance.

Feddie Strickland: Yeah.

Chris Gruseke: We'll come back to that number will grow to reflect comp incentive performance. The only way that's going to happen is if the top line is growing and profitability metrics continue to increase. We don't want to be in the business, and won't be in the business of increasing expenses and decreasing our efficiency ratio. Just want to be clear, this is about scale.

Speaker #5: So we don't want to be in the business and won't be in the business of increasing expenses and decreasing our efficiency ratio. Just want to be clear.

Speaker #5: This is about scale.

Feddie Strickland: Understood. At the end of the day, it just sounds like I should really pay attention to efficiency really more than anything. Because if you've got increased revenue, you may have some increased expenses just to make sure you're compensating folks.

Speaker #4: Understood. So, at the end of the day, it just sounds like I should really pay attention to efficiency, really more than anything. Because if you've got increased revenue, you may have some increased expenses just to make sure you're compensating folks.

Speaker #6: Yes.

Chris Gruseke: Yes. Right now we agree with that. Yes.

Speaker #5: Right now, we would agree with that. Yes.

Speaker #4: Okay. And one more from me, just, you know, in terms of overall profitability, 15% profit, you know, 146 ROA really strong. You know, is a 140-ish, you know, 135, 140-ish ROA a good go-forward number for you guys?

Feddie Strickland: Okay. One more from me. Just in terms of overall profitability, 15% profit, 146 ROA, really strong. Is a 140-ish, 135, 140-ish ROA a good go-forward number for you guys? I know you haven't given formal guidance on those profitability metrics, but I'm just trying to think through whether this quarter's profitability carries forward or kind of what you expect in terms of those metrics.

Speaker #4: I know you haven't given formal guidance on those profitability metrics, but just trying to think through whether this quarter's profitability carries forward or kind of what you expect.

Speaker #4: In terms of those metrics.

Chris Gruseke: Well, I think with a little bit of math, I'm not trying to be cute, Sacchetti. I think if we lay out the expenses and non-interest income and the revenue guidance that we've given, you can kind of get to the numbers pretty close. Yeah, we're not surprised that they increased this quarter, and we see no reason for them to decrease, unless the world changes.

Speaker #5: Well, with the I think with a little with a little bit of math, and I'm not trying to be cute, Freddie, I think if we lay out the expenses and not interesting and the revenue guidance that we've given, you can kind of get to the numbers pretty close.

Speaker #5: And yeah, we're not surprised that they increased this quarter. And we see new we see no reason for them to decrease, you know, unless the world changes.

Feddie Strickland: Fair enough. Thanks for taking my follow-ups. I appreciate it.

Speaker #4: Fair enough. Thanks for taking my follow-ups. I appreciate it.

Speaker #5: Thank you very much.

Chris Gruseke: Thank you very much.

Operator: There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.

Q2 2026 Bankwell Financial Group Inc Earnings Call

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