Hello and thank you for standing by. My name is Tiffany and I will be your conference operator today. At this time, I would like to welcome everyone to the Bankwell Financial Group Inc. second 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, simply press star, then the number one on your telephone keypad. I would now like to turn the call over to Bankwell's Chief Financial Officer, Courtney Sacchetti. Courtney, please go ahead.

Thank you. Good morning, everyone. Welcome to Bankwell's second 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 second 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 and now i will turn the call over to chris persecki bankwell's chief executive officer thanks courtney welcome and thanks to everyone for joining our second quarter earnings call this morning i'm joined by courtney secchetti our chief financial officer and matt mcneil our president and chief banking officer i'm happy to announce our second quarter results which demonstrate improved performance trends in in virtually every aspect of our business as our investments in people and technology have continued to bear fruit. The company's net interest margin continues to expand. Our SBA business is on pace to deliver material growth to non-interest income and credit trends continue to improve with further improvement expected in the quarters ahead. Additionally, with our first quarter results, we have previously announced the addition of two deposit teams in the New York City metro area. We've added two more teams during the second quarter and another team in July, bringing our growth in private client teams to five during this fiscal year. We look forward to the potential improvements to our deposit base as we welcome these talented professionals to the Bankwell team. Our financial results for the second quarter include GAAP fully diluted earnings of $1.15 per share, which were up 32% relative to the first quarter, a result of significant net interest margin expansion and increased contributions from SBA loan sales. Banco had another robust quarter of originations, funding $170 million in new loans, resulting in $24 million in linked quarter growth. Loan payoffs were $150 million during the second quarter, down from the first quarter's $200 million, but still elevated to where we'd expect them to be on a normalized basis. We funded $12 million in SBA loans during the quarter, bringing our year-to-date SBA originations to $22 million. Our pipeline for both commercial and SBA loans remains strong, and although total loan balances are down slightly compared to year-end 2024, we reiterate our original guidance of low single-digit loan growth for the full year. The bank's funding profile continues to improve as we've grown our non-interest-bearing deposits and repriced our time deposits meaningfully lower. Non-interest sparing deposits grew by $48 million during the quarter, for a year-to-date increase of $75 million, or 23%, since year-end. It's noteworthy that this increase in non-interest sparing balances does not yet reflect the impact of our new team's expected contributions as they begin to open accounts on behalf of new customers. As these teams bring in low and no-cost deposits and our balance sheet remains liability-sensitive, we anticipate continued margin expansion into 2026. We are constructive on the direction of credit. Positive migration trends continue, and we expect continued progress toward reduction in NPAs in the quarters ahead. Further details regarding NPAs can be found on slide 21 of our investor presentation. Now, to discuss our financial results in greater detail, I'll turn it over to Courtney, our Chief Financial Officer.

Thank you, Chris. Our second quarter pre-provisioned net revenue of $11.4 million, or $1.46 per share, increased 21% relative to the first quarter, with the PPNR return on average assets increasing to 143 basis points versus 118 basis points in the first quarter. We had strong improvement in our net interest margin, with a second quarter reported NIM of 310 basis points, a 29 basis point increase relative to the linked quarter. Our net interest margin expansion is a result of our decreasing funding costs, which fell another 20 basis points versus the linked quarter, to 3.46 percent. This is down 41 basis points from our high of 3.87 percent in the third quarter of 2024. In addition to realizing lower rates on rolling time deposits, we have reduced pricing by approximately 23 basis points on $1 billion of non-maturity interest-bearing deposits since the end of 2024. We've achieved this by lowering rates on key money market and savings products and adjusting exception pricing, a trend that continues as our June exit rate on deposit costs was 3.28%. We continue to see our earning asset yields expand as well, with the average loan portfolio yield increasing four basis points to 6.58% in the second quarter when compared to the first quarter. Our new loan originations continued to yield over 8%, benefiting from a more diversified loan mix including C&I and SBA loans. Given the strong results in the first half of the year and our anticipated margin expansion over the balance of 2025, we will update our net interest income guidance for full year 2025 to a range of $97 to $98 million. This guidance assumes no further actions by the Fed for the balance of this year. Non-interest income of $2 million increased 34% versus the linked quarter, largely driven by $1.1 million of SBA gain-on-sale income, an increase of $0.6 million over the last quarter. We reiterate our full year 2025 guidance for non-interest income of $7 to $8 million, and as Chris mentioned, expect SBA gain-on-sale activity to continue to accelerate over the balance of 2025. On a linked quarter basis, our total non-interest expense is up modestly from $14.1 million to $14.5 million, primarily due to increased salaries and employee benefits. This increase reflects our continued investment in growing our banking team's SBA platform and supporting risk functions, all aimed at generating revenue and improving efficiency. Despite the $0.4 million increase, our efficiency ratio fell to 56.1% in the second quarter compared to 59.9% last quarter, a result of our expanding net interest margin and growth in non-interest income. Given the incremental investments made and associated costs beyond our initial guidance, we are increasing our full-year 2025 guidance for non-interest expense to $58 to $59 million. Importantly, despite the higher expense guidance, our long-term view of driving operating leverage remains unchanged. We expect our efficiency ratio to continue improving over the coming quarters as our profitability continues to expand. We anticipate moderation in our non-interest expense to total asset ratio as our balance sheet grows. Switching to credit, second quarter trends were positive with a small net recovery, a decrease in criticized and classified loan balances, and a $1.2 million reduction in non-performing assets. We had a release of our loan provision in the second quarter of $411,000. This is mainly attributable to our qualitative factors related to loan composition. A few final thoughts on our financial conditions. Our balance sheet remains wealth capitalized and liquid with total assets of 3.2 billion dollars up slightly versus the linked quarter. The holding company and bank both saw expanding capital ratios during the second quarter with our consolidated common equity tier one ratio now at 10.17% versus 10.04% in the prior quarter. We repurchased 14,626 shares at a weighted average price of $28.86 per share during the quarter ended June 30, 2025, and have 205,000 shares remaining on our authorization. I'd like to now turn it back over to Chris for his closing remarks.

Thanks, Courtney. To wrap things up, the last several quarters have been a time of material progress at the company i want to emphasize how gratified we are to see the results of careful planning translate into excellent performance we continue to execute on key strategic initiatives including building out our sba platform attracting talented deposit teams and making the necessary investments in our risk and technology platforms to ensure that the company is prepared for an era of technological evolution and innovation None of these achievements would have been possible without the dedication and commitment of so many team members. On behalf of our Board of Directors and our shareholders, I'd like to commend the team on a job well done. To reiterate some of the milestones we've achieved, we have meaningfully improved our asset quality with non-performing loans dropping from a peak of $65 million in the third quarter 2024 to just under $24 million this quarter, or 89 basis points of total loans. Concurrently, we've reduced our CRE exposure as a percentage of total risk-based capital to 349%, down from 382% at the midpoint of 2024. This represents our lowest concentration in 10 years. We've reduced our broker deposits by over $400 million from their peak and have replaced them with lower-cost core deposits. Our growing SBA platform has shown considerable progress in the first six months of this year, and recent additions to our private client groups are expected to further improve our deposit portfolio. Finally, our performance has continued to improve with our net interest margin now reaching 310 basis points and our return on average assets hitting 114 basis points. As much as we've accomplished over the past year, we remain excited about the bank's future and expect continued improvement in our profitability moving forward.

This concludes our prepared remarks operator will you please begin the question and answer session at this time if you would like to ask a question press star then the number one on your telephone keypad to withdraw your question simply press star one again we will pause for just a moment to compile the q a roster your first question comes from betty strickland with hovde group please go ahead hey good morning You know, great to see the DDA growth in the quarter, and it sounds like you have some more stuff on the pipeline.

Do you have a longer-term target in terms of DDAs to deposits? I think you're at about 14% today.

Morning, Fatty. Thanks for the question. We don't have a hard target in mind. We clearly are looking to expand that percentage. We want to make sure that we bring the wholesale funding ratio down. We probably watch that. You know, we just certainly watch that closely. But I think it's safe to say that given the investments we're making, people we're bringing on, the way we've restructured our own teams internally over the past year, with the platform that we put in place that we're looking to meaningfully expand it, I'd be hesitant to put a number on it, and we're going to be reporting on it regularly. But it's the reason that we're making these plans and these investments.

And then just should we expect the level of broker deposits to continue grinding lower in the future quarters? Or do you think maybe we see that level off just depending on the attractiveness of the rates of the broker versus retail?

I think it really depends. We've made a very meaningful dent in it. We brought it down by about half. And from here on in, it's a function of what comes in the door. We certainly want to be back in a mode of growing the loan book. and as deposits come in then the question becomes you know is it dull it certainly won't be dollar for dollar I would expect pay down broker with new money and then it becomes an art form of how much loan growth and what what a what are market rates but since we've taken them down by half we're not looking to be as dramatic I'd say and it depends on the market opportunities but number will get lower over time it's really a function of you know the performance we're going to get in our deposit gathering efforts thanks for that chris and just if i could squeeze in

one more for for matt uh if you could just give a little bit of an update on what you're hearing from your health care customers um anything incrementally different um no there was some concern around um new legislation uh with the big focus on medicaid cuts uh you know from the research that we've done in some third parties, it appears that our borrowers are not really impacted by the by the new legislation. So in the in the near term, we're feeling really good with the healthcare book and, you know, continue to see the book be a profitable source of business here at Bankwell, not only on the loan side, but the fee and the deposit side.

All right, great. That's for me. Thanks for taking my questions. Thanks, Betty.

Your next question comes from the line of Steve Moss with Raymond James. Please go ahead.

Good morning.

Is this actually Steve?

It is. Yes, Chris. How are you doing?

Well, thank you. How about you?

I'm doing pretty good.

Maybe just, you know, on the deposit side here, following up, you know, with the five teams now you've hired you know with the new three teams in particular just kind of wondering if you could size up uh the book of business and how you know how we could think about that total potential here over the next 12 to 24 months well you said the word potential and i think that's the right way to think about the teams um you know largely new to the to the company so actual production is is not driving the the growth that we've seen in core deposits those are actually the deposits that we've been working on over the past several years, but the potential, as we spoke to the folks that comprise these teams, all of the teams had multiple tens of millions of businesses, hundreds of million dollars in their books of business and prior organizations, and now it's how can we make that translate into deposits on our balance you know we've been thinking about this for a while we successful including the ability to you know open new relationships uh new accounts and you know same day next day which you know it's been a stumbling uh block in some organizations so we think that you know our planning is going

to pay off in the in the translation of new deposits but you know they're so new to the organization it's it's really we're waiting for those results to materialize and steve that one One day account opening is very important for us and keeping our reputation with new customers and with new team members is important. So any additions that we make going forward, we will absolutely have in mind, you know, what's the right pace because we want everybody to have the right experience. And once again, I mean, as Matt said, there are hundreds of billions of dollars from inform organizations. I don't know that we're not going to feel comfortable putting a number on what comes over and what what what that translates to at this point because it's so early in the game but um certainly we would not be making these investments if we were not expecting significant numbers and we'll be reporting on it regularly so more data as the quarters unfold but we're very constructive on it and the experience we've had uh we feel like we've hired the right people and and we're getting incoming calls i should say that too okay appreciate that color there And then on credit here, just wondering, you kind of hinted, Chris, at resolution on stuff over time here.

Just curious, you know, what that timeline could look like, you know, the third or fourth quarter, or might some of the stuff stretch into 2026?

Are you specifically talking about the couple of non-performers we've got left?

Correct. Especially the two bigger ones, yes.

Yeah, we have those two. So we've got one we cited page and I'll hand it over to you, Matt. Sure.

Page 21 has some detail there. Loan One, which is a retail building in suburban West Chester, we feel pretty good about that one. We think it could refinance away from us in a relatively short amount of time. You know, that's going to depend on execution on other banks, so I can't be certain of timing there, but we feel like that one is going away from us in the next several months. So, more to come there. Loan 2, not as hopeful that that'll be resolved anytime soon. That's a multi-bank participation. You know, there's a common sponsor that has, you know, more trouble other than this one loan. So I think that one's going to take a little bit longer to unfold. Okay, appreciate that.

And then, you know, on the margin here in terms of, you know, being liability sensitive, just kind of curious, you know, what do you guys think a 25 base point cut by the Fed would imply for, would do your margin?

Well, at this point, it would not let Courtney answer the question, but that would be a 2026 event in terms of margin. And if it happens at this point in the year, we feel its impact later, but, Courtney.

Yeah, so, you know, I still think, you know, we were very successful with repricing our CDs in the first half of the year, you know, about $750 million on average, 80 basis points lower. We still have more room to go with the remainder of our rolling off brokered in time. But, you know, a further rate cut, I would say, you know, even without a rate cut right now, probably another, you know, five to ten basis points on NIM just on where rates are today. So us being able to reprice our time deposits down even further, offset by our variable rate loans, you know, probably another ten basis points on top of that.

But yeah, we are very optimistic as far as where we think our NIM will end up at the end of this year just given what we have to reprice in our existing boat without rate cuts great i really appreciate all the color here thank you very much nice quarter okay thanks so much your final question comes from the line of david conrad with kbw please go ahead yeah good morning uh nice quarter um good morning david thank you um most of my questions if not all have been asked and answered so appreciate that but just uh maybe one on expenses um i think the guidance implies maybe 30 million in the back half um with all the teams kind of just hired you know does the progression

maybe go up to 15 million a quarter flat or should it will it build kind of throughout the year stay relatively flat i mean i think that's a fair assumption the 15 million um you know we we've done some investment in the first half of this year uh and you know we we've added teams in the second quarter and we're starting to adjust.

Got it. Thank you. Thanks David.

Ladies and gentlemen, this will conclude today's call. We thank you all for joining. You may now disconnect.