Bankwell Financial Group, Inc. Q1 FY2025 earnings call

• Successfully disposed of $8.3 million OREO asset and $27.1 million multifamily loan, reducing nonperforming assets to 83 basis points.
• SBA originations at $10 million with gain on sale margins over 10%, expecting SBA volume to build in 2025 with $50 million origination estimate.
• Broke down broker deposits by $81 million and grew core deposits by $43 million in the first quarter.
• Hired two deposit teams in the New York Metro Area and a new Chief Technology Officer.
• Pre-provision net revenue increased 11% QoQ, net interest margin up 21 basis points, noninterest income up 56% QoQ.

Pre-provision net revenue for the first quarter was $9.4 million, or $1.22 per share, increasing 11% relative to the fourth quarter. The reported net interest margin for the quarter was 281 basis points, a 21 basis point increase relative to the linked quarter. Noninterest income was $1.5 million, up 56% versus the linked quarter, largely driven by $424,000 of SBA gain on sale income. The first quarter provision expense was $463,000 compared to $4.5 million in the prior quarter. Loan growth was affected by elevated payoff activity of $200 million offsetting strong origination activity of $130 million, resulting in a modest reduction in net balances. SBA originations grew to $10 million in the first quarter with gain on sale margins just over 10%. On the liability side, broker deposits declined $81 million while core deposits grew $43 million.

• Reaffirmed net interest income guidance for full year 2025 of $93 million to $95 million, assuming no further Fed actions.
• Full year 2025 guidance for noninterest income is $7 million to $8 million and noninterest expense is $56 million to $57 million.
• Anticipates continued margin expansion over the balance of 2025 with $1.2 billion of time deposits maturing in the next twelve months.

• Potential impact of Federal Reserve actions on net interest margin guidance.
• Changes in Small Business Administration (SBA) rules could affect SBA origination volume and gain on sale income.
• Lumpiness in professional service fees and initiative-related costs may impact expense levels.

Q: Hoping to get an update on the loan pipeline and growth outlook A: Still expect low single digits loan growth, with lumpy payoffs in Q1 not reflective of future, pipeline is robust with high sixes to low sevens yield Q: Thoughts on margin expansion and interest-bearing costs A: A bit of timing with callable brokered CDs accelerating fees, but core net interest margin expanded 12 basis points, cost of funds at 3.52% in March Q: Update on SBA fee income pipeline and cadence A: Originations better than expected, expect strongest quarter in Q4, plan to add two BDOs by end of year, but SBA rule changes may temper outperformance expectations Q: Thoughts on share repurchases and CET1 capital A: Balance between share repurchases and growing consolidated CET1, currently participating as able while seeking to grow CET1 to over 11%