KBRA Affirms and Publishes Ratings for Bankwell Financial Group, Inc.

KBRA affirms and publishes the senior unsecured debt rating of BBB-, the subordinated debt rating of BB+, and the short-term debt rating of K3 for New Canaan, Connecticut based Bankwell Financial Group, Inc. (NASDAQ: BWFG) (“Bankwell” or “the company”). Additionally, KBRA affirms and publishes the deposit and senior unsecured debt ratings of BBB, the subordinated debt rating of BBB-, and the short-term deposit and debt ratings of K3 for lead bank subsidiary, Bankwell Bank (“the bank”). The Outlook for all long-term ratings is Stable. On August 4, 2015, KBRA assigned a senior unsecured debt rating of BBB+, subordinated debt rating of BBB, and short-term debt rating of K2. KBRA, also, assigned the deposit and senior unsecured debt ratings of A-, the subordinated debt rating of BBB+, and the short-term deposit and debt ratings of K2 for lead bank subsidiary, Bankwell Bank.

Key Credit Considerations

The ratings are primarily constrained by Bankwell’s historically below-peer risk-based capital ratios, reflecting considerable balance sheet expansion during 2021-2022 when RWA growth far exceeded internal capital generation. Capital accretion stalled in 2024, as NIM compression and elevated credit costs stemming from pandemic-era loan issues curtailed retained earnings. Positively, earnings have improved, with 2Q26 ROA increasing to 1.46% supported by NIM expansion of 89 bps since 2024 to 3.58% for 2Q26 following lower deposit costs and reduced wholesale funding. Earnings have also been upheld by the company’s strong operating leverage (48% efficiency ratio), despite investment in personnel and technology. As such, the recovery in earnings, paired with controlled loan growth, has supported the CET1 ratio improving to 10.6% as of 2Q26, though continues to materially lag higher rated medians. We would positively view continued improvement towards the company’s stated objective of CET1 >11% by YE26, particularly given the elevated investor CRE concentration (332% of RBC). Asset quality metrics continue to improve following the 2024 “clean up” as certain vintage CRE credits spiked NPAs to 2.1% of assets in 3Q24 with elevated charge-offs. With the majority of legacy nonperforming assets now resolved, remaining problem assets are concentrated in three long-standing CRE relationships, including suburban office and retail exposures that management continues to actively work toward resolution. Additionally, charge-off activity appears to have normalized to pre-2024 levels. While CRE concentration remains somewhat elevated, management remains focused on reducing this over time with growth in C&I and the continued rebuild of capital metrics. With respect to the funding profile, management has focused on growing core deposits with 12% growth through 1H26 including $111 million in low-cost deposits, allowing management to reduce brokered deposits down to 17% at 2Q26 from 37% in 2022. As such, the cost of deposits has decreased 90 bps since the peak to 2.94% for 2Q26. While we favorably view the improvement in the funding mix, we acknowledge that overall deposit costs remain elevated, and the deposit base is still focused in higher-cost products, with NIB deposits comprising a modest 16% of total deposits.

Rating Sensitivities

Rebuilding and sustaining core capital measures closer to peer averages for the next rating category higher, an improved funding profile, and normalization of credit metrics driving improved and stable earnings are key factors necessary for positive rating momentum to occur. Continued credit deterioration, or a meaningful reduction in profitability, could pressure the ratings.

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Methodology