Bankwell Financial Group, Inc. Q3 FY2024 earnings call

• Innovation and entrepreneurial culture: Emphasized size and agility as competitive advantages, with a branch light model and relatively flat employee base. $3.2 billion bank has $25 million of assets per FTE. - Credit update: $8.2 million charge-off on an office loan, unique to portfolio; office exposure reduced to $166 million (6% of portfolio) with credit enhancements; NPLs had one multifamily loan downgraded, but anticipation of full recovery; residential care portfolio credit trends improved with four criticized loans upgraded. - Deposit base: Progress with Bankwell Direct online deposit channel, reducing broker deposits by $168 million; working on technology solutions for deposit product offerings. - Strategic initiatives: Launched Bankwell Direct pilot, Connecticut small business growth loan program, and Spire business banking digital suite; hired SBA lending leadership and invested in technology partnerships for small business lending.

GAAP fully diluted earnings per share for the third quarter was $0.24, negatively impacted by an $8.2 million charge-off against an office loan. Reported net interest margin for the third quarter was 272 basis points, a 3 basis point reduction relative to the linked quarter. Non-interest income was $1.2 million, slightly higher than the linked quarter due to higher SBA gain on sale revenue and improved service charges. Pre provision net revenue was $9 million, down slightly quarter-over-quarter. The deposit base has seen improvement with $168 million reduction in broker deposits through Bankwell Direct initiative. Revenue contribution: pre provision net revenue was 113 basis points of PPNR return on average assets, non-interest income contributed $1.2 million.

• Anticipate margin expansion into 2025 as term deposits reprice; $1.3 billion of time deposits maturing in next 12 months expected to reprice lower, saving $3.35 million annually and expanding margin by ~11 basis points. - $500 million in loans expected to reprice or mature over next year, potentially benefiting NIM by 15-20 basis points annually. - Expect stable asset base and improved profitability to grow regulatory capital position, including consolidated CET1 ratio, even with share buybacks. - Focus on efficiency, balancing growth and strategic investments against organizational size.

• $8.2 million charge-off against an office loan, though confident in collecting remaining balance; potential negative credit trends if not managed. - Impact of market conditions on loan portfolios, especially with office loans and potential credit quality issues. - Uncertainty in interest rate movements affecting NIM and deposit costs.

Q: What's the level of pure floating rate loans in the portfolio?

A: Still about 20%.

Q: Good go forward tax rate?

A: Tax rate was high this quarter due to uncertain tax position entry, but aiming for a more normal income profile with 24.5% tax rate.