Ladies and gentlemen, thank you for standing by, and welcome to the Bankwell Financial Group First Quarter 2025 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, press star, followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star, followed by the number 1. I will now hand today's call over to Courtney Cicchetti, Chief Financial Officer. You may begin. Thank you.

Good morning, everyone. Welcome to Bankwell's first quarter 2025 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 first quarter 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. Thank you. And now I will turn the call over to Chris Grisecki, Bankwell's Chief Executive Officer.

Thanks, Courtney. Welcome, and thanks to everyone for joining Bankville's first quarter earnings call. This morning, I'm joined by Courtney Cicchetti, our Chief Financial Officer, and Matt McNeil, our President and Chief Banking Officer. We appreciate your interest in our performance and this opportunity to discuss our results with you. On today's call, we'll provide updates about our financial and operating performance for the first quarter. Our financial results for the quarter include gap-fully diluted earnings per share of $0.87, cents, which were up 135% relative to the fourth quarter and 81% versus the first quarter of 2024. Earnings benefited from a lower, more normalized provision expense, an expanding net interest margin, an increased contribution from SBA gain on sale, and some modest share buyback activity. We were pleased with the progress made this quarter on several strategic initiatives, which we've been discussing with shareholders since the third quarter of 2024. In late January, we successfully disposed of two previously identified non-performing An $8.3 million Oreo asset, which was sold at book value, and a $27.1 million multifamily loan, which was sold at par. Collectively, these dispositions drove non-performing assets as a percentage of total assets 105 basis points lower sequentially, finishing the quarter at 83 basis points. Further details regarding NPAs can be found on slide 11 of our investor presentation. Regarding loan growth, elevated payoff activity of $200 million offset strong origination activity of $130 million funded during the first quarter, resulting in a modest reduction in net balances versus year-end 24. SBA originations grew during the first quarter to $10 million, and gain-on-sale margins were just over 10%. We remain optimistic about SBA gain-on-sale activity accelerating throughout 2025. Commercial loan pipelines, including SBA activity, continue to be active, and despite a slower first quarter, we still expect low single-digit loan growth for the full year. On the liability side of the balance sheet, we had another positive quarter of paying down broker deposits, which declined $81 million relative to the fourth quarter, while core deposits grew $43 million, including $28 million of growth in non-interest-bearing deposits. Over the last 12 months, we've now reduced broker deposits by $207 million, while growing core deposits by $244 million. Our balance sheet remains liability sensitive, with additional margin expansion expected in 2025, as maturing term deposits repriced to lower current rates. Now to discuss our financial results in greater detail, I'll turn it back to Courtney.

Thank you, Chris. Our first quarter pre-provision net revenue of $9.4 million are $1.22 per share, increased 11% relative to the fourth quarter, with the PPNR return on average assets increasing to 118 basis points versus 105 basis points in the fourth quarter. Reported net interest margin for the quarter of 281 basis points represents a 21 basis point increase relative to the length quarter, which includes a one-time net nine basis point benefit resulting from the collection of accrued interest on a disposition of one of our large non-performing loans, which was partially offset by accelerated fees on called brokered CD. Core net interest margin expansion of 12 basis points primarily benefited from a continued decrease in our total cost of funds, which fell another 12 basis points versus the linked quarter to 3.60%. That linked quarter reduction follows a nine basis point reduction in the fourth quarter. As we note in the earnings release, our March 2025 cost of funds was 352, reflecting incremental benefit from recent cost reductions on market rate deposits. We expect impact from these updates to carry into the second quarter. On slide eight, we continue to highlight our term deposit maturity schedule, which shows $1.2 billion of time deposits maturing in the next 12 months, $719 million of retail CDs repricing at an average of 22 basis points lower, and $495 million of brokered CDs repricing at an average of 53 basis points lower, both based on current rates. Also, we anticipate more than half a billion dollars in loans to reprice or mature over the same time period, which could further benefit margin by an additional 15 to 20 basis points on an annualized basis. Considering the various inputs to margin, we expect continued expansion over the balance of 2025 and can reaffirm our net interest income guidance for full year 2025 of $93 to $95 million. This guidance assumes no further actions by the Fed for the balance of this year. Non-interest income of $1.5 million increased 56% versus the Lynx quarter, largely driven by $424,000 of SBA gain-on-sale income. As Chris stated earlier, we expect SBA volume to continue to build in 2025, with a full-year estimate of approximately $50 million of origination. The linked quarter increase in total non-interest expense to $14.1 million was primarily driven by higher salaries and benefits, partially attributable to timing events related to incentive in both periods, as well as increased headcounts. Additionally, we saw an increase in initiative-related costs and professional service fees. These increases are partly offset by a reduction to OREO expense incurred at the end of 2024. Our efficiency ratio for the quarter was 59.9% and increase over the prior quarter. As our net interest margin continues to expand and non-interest income grows, we anticipate this ratio to improve. We reiterate our full year 2025 guidance for both non-interest income and non-interest expense of $7 to $8 million and $56 to $57 million, respectively. The first quarter's provision expense was $463,000 compared to $4.5 million in the prior quarter. First quarter credit trends were benign. Finally, a few thoughts on our financial condition. Our balance sheet remains well capitalized and liquid, with total assets of $3.2 billion, down slightly versus the linked quarter. We repurchased 29,924 shares at a weighted average price of $30.46 per share during the quarter ended March 31st and have 220,000 shares remaining on our authorization. I'd like to now turn it back over to Chris for his closing remarks.

Thanks, Courtney. Before we conclude today's call, I'd like to comment on our continued ability to attract talented professionals to our organization. In April, we added two deposit teams in the New York metro area. These teams with seven FTEs have already begun the process of onboarding new customers. With continued disruption in the market for experienced talent, we'll continue to selectively add professionals who can help us achieve our strategic goals. We believe that our strong balance sheet, an experienced and nimble management team, and our customer-first business model make Bankwell an attractive platform for additional deposit teams. During the first quarter, we also hired a new chief technology officer, Brian Merritt. Brian's considerable experience in banking technology, product development, and system architecture will enable us to lean into the rapidly evolving technology landscape. As we conclude, I want to thank the entire Bankwell team. Their excellent effort and dedication have been instrumental to the evolution of this company. This concludes our prepared remarks, Operator.

Will you please begin the question and answer session? at this time if you'd like to ask a question press star followed by the number one on your telephone keypad if you'd like to withdraw your question press star followed by the number one we'll pause for just a moment to compile the q a roster your first question is from the line of chris o'connell with kbw hey good morning good morning chris uh just hoping to start off on the new teams and maybe, you know, whether, you know, there'll be more, you know, deposit or loan focused

or some, you know, mix of both. And then just maybe, you know, growth contribution, you know, thoughts around growth contribution over time or how big their, you know, prior books were.

Sure. Hey, Chris, it's Matt. I think that, you know, we're in the first couple of weeks of them joining the bank the focus is definitely on deposits certainly there'll be some loans mixed in more more deposits than loans you know the the books of business were quite large for both teams you know both both books of business over a hundred million lots of non-interest bearing you know we're hopeful that those will translate into a lot of migration to bank wealth but as I said you know we're in the early days of uh of them onboarding with the bank so uh you know more to come got it thanks matt um and then just hoping you know i apologize if i missed you know any items

in the prepared remarks uh signed on a little late but you know i was just hoping to get an update on the loan pipeline um you know what you guys are seeing from here um i think last quarter you know the 2025 growth is uh you know three to five percent um does the slower start to the year um eat into that at all uh and yeah just any update on the growth outlook so we it somewhere in the remarks uh chris i i definitely had mentioned uh we we still think we'll get low single digits and it's a matter of timing.

You want to ask that maybe pipeline?

Okay, sorry. Yeah, I'll just add, Chris, that there were some lumpy payoffs in the first quarter that were that weren't really originally budgeted. So, you know, there was no way to to scramble and, you know, increase the pipeline to make up for those. We don't anticipate that that's going to be the case going forward and the pipeline's robust and you know we we had we had plenty of closings and fundings in the in the first quarter just the amount of unanticipated payoffs were were so much higher than our than our fundings great and uh where's the uh where's the pipeline uh yield at uh it's it's whole it's holding strong it's it's in that you know uh high sixes low sevens depending on the asset and matt i'll just add to that our our 1q25 um vintage

is uh the yield average was 817. great yeah yeah very great um and just on um you know because i know that there is a non-accrual interest you know recovery you know within the loans this quarter do you have like an exit uh loan portfolio yield or march i don't know when the recovery I guess when the recoveries are realized but you know either a March yield or an exit yield on just or core loan yield for the quarter?

So Chris that would be about 640. I know it's a 654 in our release so excluding that it would be 640 which is about a 10-bit expansion over the fourth quarter.

Great thanks. um and then just you know continuing on the margin i uh i guess i was a little surprised you know while the margin you know expansion was great um that given the amount of cds that were maturing in in the first quarter um that the interest bearing cost you know it didn't come down a bit more uh just you know any thoughts around that or i don't know if the cds were maturing late in the quarter, if it was timing? Yeah, I guess anything on just, you know, the progress on the interest-sparing costs?

I'd say a little bit of timing. I will note that we did have some, we called the last of our callable brokered CDs in the first quarter and had to accelerate fees, you know, pull them forward when we called those. So, that was a little bit of a a one-time drag. It was a two-bip impact on NIM, about a two-bip impact on our cost of deposits. You know, we were able to reprice our time. Gosh, everything that was maturing in the first quarter, you know, our CD balances remained relatively flat quarter over quarter and 95 basis points lower than what it was coming off at. So, you know, we felt pretty good about that. So, I think maybe just a little bit of timing and a little bit of one-time expense.

Okay, got it. Chris, I'd add to that that in terms of, you know, what the numbers will be when we talked about net interest income, we were factoring zero Fed cuts into that guidance.

Okay, great. Super helpful. And And did you guys have – did you guys give us a spot margin for March or no, or do you I did not give a spot margin for March.

We did give the spot deposit cost of $352.

Okay. And just, you know, with the NAI guide unchanged, you know, I don't think it was, you know, quite official guidance, but, you know, the full year NIM kind of hanging around in that 290 to 3% range, you know, still feels good absent any rate cuts?

Yes.

Great. Right. And on the fee income side, you know, great start on, you know, the SBA, you know, gain on sale and originations there. How's the pipeline, you know, have you guys started better than you expected? You know, how do you see, you know, the cadence, you know, moving on throughout the year?

Yeah, originations were better than we had predicted. You know, we had kind of backed into a number and, you know, it builds over time. We expect our best quarter to be in the fourth quarter. We still expect the fourth quarter originations to be the strongest quarter, you know, as we're continuing to build, you know, in the SBA division itself. You know, we've only added one video so far uh plan is to add two before the end of the year and uh yeah we expect the the originations to continue to build at it um and just you know get given you know the strong start is there you know do you do you know do you put a decent probability on the chance you can you know eke out um you know fees that are end up you know above the seven to million dollar range uh in kind of an upside scenario i think the other side of that uh probability is there are a lot of changes happening at the sba right now uh you know there's been a couple of rule changes to just since the start of the year so we're we're we're looking at that with you know we're tempering our expectations on some sort of material out performance just because Because there seem to be changes that are undergoing at the SBA, and we're not sure how that's going to affect us in the future. Right now, the changes that have been implemented and announced are not going to hamper our growth in the SBA, but just thinking about what may come as things are changing, evolving rapidly at the SBA.

Well, we'd add to that. It's not so much that things are changing rapidly in the SBA, is that things in general are changing and with any kind of policy. So we're not going to stand here and predict what can happen in Washington for the next six months, given the last four weeks.

Yeah, understood. So, and then on the expense side, you know, I get the guidance on change. I I mean, over the course of the year, do you think that the professional fees that have come up over the past, you know, couple of quarters, that that eventually, you know, shifts into, you know, the compensation line or elsewhere, you know, within the expense base? Or is that kind of, you know, is this, you know, more or less kind of, you know, where you guys think you'll be for the next few quarters?

So, you know, I do think, you know, we did reference on the call, if you heard that, you know, it's related to our initiative. So in our professional services line, we've got legal expense, you know, non-deal related legal expense, consulting costs, recruiting costs. So yes, some of those costs are one-time investments that will shift into, you know, the employee expense line, be it through recruiting, you know, key talent or, you know, implementing new technology that may be software related or other expense related items. But yes, we don't anticipate it to continue to remain an elevated level, but again, there will be potential lumpiness as we explore, you know, different initiatives.

But we are referring to the $57 million number.

Yeah. Yeah.

Great.

And, you know, obviously, you know, great job in the credit this quarter, you know, with the, you know, loan and Oreo sales and getting everything off the books You know, now that you guys have, you know, offloaded a good portion, you know, of the MPAs that you had on, you know, how do you feel about, you know, the remaining, you know, two loans, you know, that you highlight making up kind of the majority of the remainder here? Any updates on either of those?

No material updates. The retail property that's highlighted there will probably have an update on our next call. That one should undergo some sort of, you know, either retenanting or refinance at some point in the next 90 days. We should have an update then. And then the office building in New Jersey, you know, we did take a, you know, we wrote down about two-thirds of the loan already. It's in receivership. We're now in control of the cash flows as a bank group, and the litigation against the guarantor is proceeding. but no no real material update just you know marching forward with a little bit more control over the cash flow which is which is good for us and we'll see how things progress in the next couple of quarters and then in those 88 basis points of mpas there's about 17 basis points correct me if that's not right courtney of uh fully guaranteed portions of sba loans Yes, it's 83 of ours is the total, and 17 is guaranteed.

Thank you, 83.

Perfect. And I saw, you know, that there, you know, a little bit of movement, I guess, in the risk ratings this quarter. You know, some standard coming down, you know, a little bit of uptake in special mention. I guess, you know, specific migration between the two, or any color around, you know, movement. Yeah, go ahead.

We're cracking up a little bit. I think, Chris, you were asking about the increase in special mention basically?

Yeah, I think any of the net migration and risk ratings would be great.

Yeah, so the risk rating migration primarily happened from past credit to special mention. We did put a footnote there. We're confident in these loans. These are primarily healthcare loans that did not hit their proformas, and they're backed by ultra-high net worth sponsors with plenty of liquidity. They're also performing loans. They're current.

It's good that they'll return to a past status over the next couple of quarters. and then you know lastly uh how are you guys thinking about you know the sherry purchases came in you know a little better than what i was expecting this quarter do you expect to keep kind of plugging along on the plan here uh through you know especially kind of given you know what the market's done yeah given where we are you know as i've said in the past it's more an art form than it is a science.

Obviously, at these levels, frankly, we'd like to buy back more, right? But the fact of the matter is we also need to build consolidated CET1, so we'll participate as we're able to, but we are seeking to grow consolidated CET1 to 11 percent or north over a couple of years, so we have to balance that at the same time. um okay great that's all i have appreciate the time thanks for taking my questions great thanks so much chris thanks chris as a reminder to ask a question press star one on your telephone keypad at this time there are no further audio questions i want to hand the call back over to presenters for closing remarks thanks so much for participating in the call today um we executed according to what we said we would do in the last couple of quarters Things look cleaner and more straightforward on the credit side. The two assets we've been talking about have been removed. The SBA business, I'm sorry, is up and running. Margin continues to expand, so we are confident in the path going forward. Thanks for taking the time to listen today.

This concludes today's call. Thank you for joining. You may now disconnect your line.