BWFG Q4 2025: Low-Cost Deposits Surge 21%, Fueling Margin and Loan Expansion
BWFG’s fourth quarter showcased a decisive shift toward a lower-cost funding base and robust loan origination, underpinning both margin expansion and credit improvement. Non-interest income surged as SBA, small business lending, activity rebounded, while disciplined deposit repricing locked in funding cost tailwinds for 2026. Strategic investments in people and technology are set to continue, positioning the bank for sustainable, high-quality growth and operating leverage.
Summary
- Deposit Mix Transformation: Low-cost deposits jumped 21% YoY, improving funding resilience and margin outlook.
- SBA Revenue Engine: Non-interest income doubled its share of revenue, anchored by normalized SBA gain-on-sale activity.
- 2026 Setup: Investments in talent and tech are calibrated to drive scalable growth and operational efficiency.
Performance Analysis
BWFG closed 2025 with clear momentum in both top-line and operational performance. Net interest margin (NIM) expanded to 3.40%, up six basis points from the prior quarter, driven by a focused reduction in deposit costs and a shift toward floating rate loans, now 38% of the portfolio. Non-interest income, at $3.4 million, rose 35% sequentially, reflecting the rebound in SBA gain-on-sale income post-government shutdown. SBA originations hit $24 million in the quarter, bringing annual originations to $68 million as the division resumed full activity.
Loan production remained robust, with $240 million in new loans funded in Q4 and net loan growth of $122 million for the quarter, resulting in 5% annual loan growth. Asset quality continued to improve, with non-performing assets declining to 49 basis points of total assets. The efficiency ratio improved to 50.8%, demonstrating operating leverage as revenue growth outpaced expenses. Tangible book value per share increased 11% over the year, reflecting both earnings growth and disciplined capital management.
- Funding Cost Discipline: Deposit repricing initiatives lowered total deposit costs to 3.08%, with $1.2 billion in time deposits set for further repricing in 2026.
- Revenue Diversification: Non-interest income now constitutes 11.4% of total revenue, up from 4.6% a year ago, driven by SBA gains.
- Credit Quality Gains: Non-performing asset ratio improved by 7 basis points QoQ, aided by asset sales and recoveries.
The combination of margin expansion, diversified revenue, and improved credit metrics positions BWFG for continued profitable growth as it enters 2026.
Executive Commentary
"We entered the year with a clear set of priorities. Strengthen credit, improve the funding mix, build non-interest income, generate high-quality growth, and embrace an innovative mindset as we continue to invest in our people and in technology. I'm pleased to say that we delivered on each of these priorities."
Chris, President & CEO
"Net interest margin expanded to 340 basis points, up six basis points from the prior quarter. The improvement was driven by a 15 basis point reduction in deposit costs which declined to 3.15%. These funding benefits more than offset pressure on asset yields, which contracted 11 basis points in the quarter to 6.23%, as certain rate-sensitive assets reset lower."
Courtney, Chief Financial Officer
Strategic Positioning
1. Funding Base Optimization
BWFG’s strategic shift toward low-cost, relationship-driven deposits is reshaping its funding profile. Average low-cost deposit balances rose 21% YoY, providing a stable foundation for loan growth and margin expansion. The bank proactively repriced $1.2 billion in time deposits and reduced rates on non-maturity deposits, locking in a structural funding advantage as interest rates decline.
2. SBA Division as Growth Catalyst
The SBA division, launched in late 2024, has rapidly become a core earnings driver. Q4 saw $2.2 million in gain-on-sale income, with full-year SBA originations at $68 million. Management expects normalized SBA activity to remain a meaningful contributor, targeting approximately $100 million in originations for 2026, which would further diversify revenue and reduce reliance on spread income.
3. Credit and Asset Quality Enhancement
Credit quality metrics continue to improve, with non-performing assets down to 49 basis points of total assets. The bank’s allowance for credit losses stands at 108 basis points of loans, and coverage of non-performing loans increased to 188%. Asset sales and recoveries, particularly in the SBA portfolio, have contributed to this positive trend, positioning the bank defensively for any macro headwinds.
4. Investment in Scalability and Talent
BWFG increased headcount by over 10% in 2025 and continues to invest in technology and operational capabilities. These investments are intended to support scalable growth, enhance client service, and maintain operational efficiency as the business grows. Management emphasized that expense growth is deliberate and matched by rising profitability, not speculative expansion.
Key Considerations
This quarter’s results reflect a bank methodically executing on balance sheet, revenue, and operational priorities. The following considerations are central to BWFG’s forward trajectory:
Key Considerations:
- Deposit Mix Leverage: The 21% YoY increase in low-cost deposits provides margin resilience and the ability to support loan growth without relying on higher-cost funding sources.
- SBA Division Scale: Normalized SBA activity is now a material revenue stream, with management targeting further growth and stability in this business line.
- Expense Control with Intentional Investment: Headcount and technology investments are calibrated to support growth, with efficiency ratio improvements demonstrating operating leverage.
- Credit Risk Vigilance: Continued reduction in non-performing assets and robust loan loss reserves position the bank for potential economic volatility.
Risks
Key risks include potential volatility in SBA activity due to government shutdowns, competitive pressure on loan pricing, and the challenge of sustaining low-cost deposit growth as rates fall. Management’s guidance assumes stable credit trends and continued success in deposit gathering, but any deterioration in credit or funding mix could impact margins and profitability. Regulatory changes, especially around SBA lending, also remain a watchpoint.
Forward Outlook
For Q1 2026, BWFG guided to:
- Loan growth of 4% to 5%
- Net interest income between $111 million and $112 million
- Non-interest income of $11 million to $12 million
- Total non-interest expense of $64 million to $65 million
For full-year 2026, management expects:
- Effective tax rate stabilizing at approximately 25%
- Continued improvement in efficiency ratio and operating leverage
Management highlighted several factors that will shape results:
- Further repricing of $1.2 billion in time deposits, expected to reduce funding costs and add 12 basis points to NIM
- Ongoing investments in talent and technology to support growth and client service
Takeaways
BWFG’s Q4 2025 results underscore a business model increasingly driven by funding mix optimization, diversified revenue, and operational discipline.
- Funding Advantage: The surge in low-cost deposits and proactive deposit repricing provide a sustainable margin tailwind into 2026.
- Revenue Diversification: The SBA division’s normalization and growth are transforming the bank’s earnings mix, reducing reliance on spread income.
- Scalable Growth Setup: Investments in people and technology are matched with margin and revenue growth, setting the stage for continued efficiency gains and profitable expansion.
Conclusion
BWFG enters 2026 with a funding base, revenue mix, and operational platform that support scalable, high-quality growth. The bank’s disciplined execution on deposit strategy, SBA expansion, and credit management provides a strong foundation for navigating rate cycles and competitive pressures. Investors should watch for sustained deposit growth, SBA volume execution, and the impact of ongoing technology investments as key markers of future performance.
Industry Read-Through
BWFG’s results highlight a broader trend among regional banks: the critical importance of deposit mix optimization and non-interest income diversification as rate cycles shift. The rapid scaling of SBA lending and proactive deposit repricing are likely to be mirrored by peers seeking margin stability and growth. The bank’s approach to deliberate expense growth tied to scalable investments, rather than speculative expansion, sets a template for peers balancing operational efficiency with innovation. Competitive loan pricing and the sustainability of low-cost deposit growth will remain central industry themes as the rate environment evolves.