Bankwell Financial's Q2 2025: Navigating Contradictions in Loan Growth, Deposit Strategy, and Fed Rate Impact

Deposit funds and loan growth outlook, loans growth strategy and deposit mix, impact of Fed rate changes on NIM, and deposit growth strategy are the key contradictions discussed in Bankwell Financial Group, Inc.'s latest 2025Q2 earnings call.



Margin Expansion and Funding Cost Reduction:
- Bankwell Financial Group's net interest margin increased to 310 basis points in Q2 2025, up 29 basis points from the previous quarter.
- This expansion was driven by a decrease in funding costs, with deposit costs falling to 3.28%, and an increase in earning asset yields, with the average loan portfolio yield rising to 6.58%.
- The company has successfully repriced time deposits, reducing them by 80 basis points on average, and reduced pricing by 23 basis points on $1 billion of non-maturity interest-bearing deposits.

SBA Loan Growth and Noninterest Income Increase:
- Bankwell originated $12 million in SBA loans during Q2, bringing the year-to-date total to $22 million.
- Noninterest income increased by 34% in Q2, largely due to SBA gain-on-sale income of $1.1 million.
- The growth in SBA loans and associated income is expected to continue, with SBA gain-on-sale activity anticipated to accelerate in the second half of 2025.

Improved Credit Quality and Asset Quality:
- Bankwell reported a small net recovery in credit, with a reduction in criticized and classified loan balances and a decrease in nonperforming assets by $1.2 million.
- Nonperforming loans dropped from a peak of $65 million in Q3 2024 to $23.8 million in Q2 2025, representing 89 basis points of total loans.
- The improvement in credit quality is attributed to positive migration trends and a strategic reduction in commercial real estate (CRE) exposure, which is now at 349% of total risk-based capital.

Deposit Growth and Funding Profile Enhancement:
- Noninterest-bearing deposits increased by $48 million in Q2 and $75 million year-to-date, marking a 23% increase since year-end.
- This growth is attributed to the bank's efforts to expand its deposit base through the addition of five new private client teams, expected to further improve the deposit portfolio.
- The increase in noninterest-bearing balances is aimed at facilitating continued margin expansion into 2026 as the balance sheet remains liability-sensitive.