Bankwell Financial Group, Inc. Q4 FY2024 earnings call

• No credit deterioration occurred during the quarter, and the team remains optimistic about the loan portfolio's performance in 2025. • Disposed of a nonperforming C&I loan with a $1.7 million book balance, charging off $700,000. Took possession of a nonperforming construction loan, charged off $1.2 million, transferred it to OREO, and subsequent to year-end, signed purchase agreements for OREO assets reducing the nonperforming asset ratio by 25 and 83 basis points. • Commercial real estate pre-concentration decreased to 375% of total risk-based capital at year-end 2024 from 397% in 2023 and 425% in 2022. • The Bankwell Direct product grew by $39 million to $136 million, while broker deposits fell $78 million. Core deposits grew $169 million, and total deposit costs decreased by 9 basis points. • 2024 achievements included reducing broker deposits by $247 million year-over-year, maintaining an efficient noninterest expense to asset ratio at 162 basis points, and starting the SBA lending division in December 2024.

Pre-provision net revenue was $7.9 million, down quarter-over-quarter, representing 98 basis points of PPNR return on average assets. Reported net interest margin for the fourth quarter was 260 basis points, a 12 basis point reduction from the linked quarter. Approximately 10 basis points of this reduction was due to lower loan fees ($1 million vs. $1.8 million in the third quarter). The quarter's NIM was also impacted by an elevated cash position, with average cash balances $60 million higher than the prior quarter, contributing a 5 basis point drag. Deposit costs decreased by 9 basis points, with core deposits growing by $169 million. Noninterest income was $964,000, down due to reduced SBA gain on sale fees. Provision expense was $4.5 million, down from $6.3 million in the prior quarter, with $3 million in net charge-offs. Total assets stood at $3.3 billion, with the balance sheet well capitalized and liquid.

• Anticipate modest loan growth of 3% to 5% in 2025, with net interest income ranging $93 million to $95 million. • Expect noninterest income to grow to $7 million to $8 million in 2025, doubling 2024's performance due to the growing SBA lending division. • Total noninterest expense is estimated to be $56 million to $57 million in 2025, including investment in growth initiatives. • Expect margin to expand in 2025 as term deposits reprice; $1.3 billion of time deposits mature in the next 12 months, saving $4.4 million annualized and 14 basis points of margin expansion, with $0.5 billion in loans reprice or mature potentially adding 15-20 basis points.

• Potential issues with remaining nonperforming loans, such as the New Jersey Club Deal loan involving multiple banks and ongoing legal processes. • Uncertainty around the timing and full impact of remaining nonperforming assets, though management is optimistic about their resolution.

Q: What are you seeing on the loan side in terms of pipeline and new origination yields?

A: Originations are right around 7%, maybe a little higher, pricing off treasury or short term entities.

Q: How does growth in the portfolio look with CRE concentration?

A: The mix of C&I increasing, CRE concentration steadily declining, growth tied to the CET1 ratio goal to move towards 11% by 2027.

Q: Talk about fee outlook and SBA lending ramp?

A: The SBA lending division started in December 2024, expect noninterest income to grow to $7-8 million in 2025, doubling 2024's performance.

Q: Timing of pending nonperforming/OREO sales?

A: The larger $27 million credit had a slight change in circumstance with the buyer bringing in a partner, expected to close in coming weeks; the second asset may close next week.

Q: Tax rate going forward?

A: Confident with a 24.5% tax rate, adjusting for 2023 tax adjustment, 2024 tax rate comes out to ~24.5%