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Operator: 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 speakers’ remarks, there will be a question and answer session. If you would like to withdraw your question, press star followed by the number one. I will now hand today’s call over to Courtney Sacchetti, Chief Financial Officer. You may begin.

Courtney Sacchetti: Thank you. Good morning, everyone. Welcome to Bankwell Financial Group’s first quarter 2025 earnings conference call. To access the call over the Internet and review the presentation material 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 8-Ks, 10-Q, and 10-Ks, 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 Gruseke, Bankwell’s Chief Executive Officer.

Chris Gruseke: Thanks, Courtney. Welcome, and thanks to everyone for joining Bankwell Financial Group’s first quarter earnings call. This morning, I’m joined by Courtney Sacchetti, our Chief Financial Officer, and Matt McNeill, 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 GAAP fully diluted earnings per share of $0.87, which were up 135% relative to the fourth quarter and 81% year-over-year. 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 nonperforming credits: 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 nonperforming 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 2024.

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 Q2 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 at 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 noninterest-bearing deposits. Over the last twelve 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 Q2 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.

Courtney Sacchetti: Thank you, Chris. Our first quarter pre-provision net revenue of $9.4 million, or $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 linked 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 nonperforming loans, which was partially offset by accelerated fees on called brokered CDs. 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 3.6%.

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 3.52%, reflecting incremental benefit from recent cost reductions on market rate deposits. We expect the impact from these updates to carry into the second quarter.

Chris Gruseke: On Slide eight,

Courtney Sacchetti: we continue to highlight our term deposit maturity schedule, which shows $1.2 billion of time deposits maturing in the next twelve 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 million to $95 million.

This guidance assumes no further actions by the Fed for the balance of this year. Noninterest income of $1.5 million increased 56% versus the linked 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 noninterest 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 headcount. 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%, an increase over the prior quarter. As our net interest margin continues to expand and noninterest income grows, we anticipate this ratio to improve. We reiterate our full year 2025 guidance for both noninterest income and noninterest expense of $7 million to $8 million and $56 million 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 31, and have 220,000 shares remaining on our authorization.

I’d like to now turn it back over to Chris for his closing remarks.

Chris Gruseke: 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, experienced and nimble management team, and our customer-first business model make Bankwell Financial Group 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 Financial Group 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?

Operator: At this time, if you would like to ask a question, press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star followed by the number one. Your first question is from the line of Christopher O’Connell with KBW.

Christopher O’Connell: Hey. Good morning. Good morning, Chris. I was 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 mix of both, and then just maybe you know, growth contribution thoughts around growth contribution over time? Or how big their you know, prior books were?

Chris Gruseke: 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 deposits than loans. You know, the books of business were quite large for both teams. You know, both books of business over a hundred million, lots of noninterest bearing. We’re hopeful that those will translate into a lot of migration to Bankwell Financial Group, as I said, you know, we’re in the early days of them onboarding with the bank. So, more to come.

Christopher O’Connell: Got it. Thanks, Matt. And then just hoping you know, I apologize if I missed any items in the prepared remarks. Signed on a little late. But, you know, I was just hoping to get an update on the loan pipeline you know, what you guys are seeing from here. I think last quarter, you know, the 2025 growth was you know, 3 to 5%. It’s a slower start to the year, eat into that at all. And, yeah, just any update on the growth outlook.

Chris Gruseke: So we it somewhere in the remarks, Chris, I definitely had mentioned, we still think we’ll get low single digits and it’s a matter of timing. Matt, you wanna ask to maybe pipeline?

Matt McNeill: Okay. Sorry. Yeah. I’ll just add, Chris, that, there were some lumpy payoffs in the first quarter that were that weren’t real originally budgeted. So, you know, there was no way to scramble and, you know, increase the pipeline to make up for those. We don’t anticipate that that’s gonna be the case going forward. And the pipeline’s robust, and, you know, we had plenty of closings and fundings in the first quarter just the amount of unanticipated payoffs were so much higher than our fundings.

Christopher O’Connell: Great. And where’s the pipeline yield at?

Matt McNeill: It’s holding strong. It’s in that, you know, high sixes, low sevens depending on the asset.

Courtney Sacchetti: And, Matt, I’ll just add to that our Q1 2025 vintage is the yield average was 8.17%.

Christopher O’Connell: Right.

Chris Gruseke: Yeah.

Christopher O’Connell: Yeah. Very great. And just on you know, because I know that there is a nonaccrual interest recovery you know, within the loans this quarter. Do you have, like, an exit loan portfolio yield or March I don’t I don’t know when the recovery 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?

Courtney Sacchetti: So, Chris, that would be about 6.40%. I know it’s 6.54% in release. So excluding that, it would be 6.40%, which is about a 10 basis point expansion over the fourth quarter.

Christopher O’Connell: Great. Thanks. And then just, you know, continuing on the margin, I guess I was a little surprised, you know, while the margin expansion was great, that given the amount of CDs that were maturing in the first quarter, that the interest-bearing cost you know, did not come down a bit more. It just, you know, any thoughts around that? Or I don’t know if this CDs were maturing late in the quarter, if it was timing.

Chris Gruseke: Yeah. I guess anything on just, you know, the progress on the interest-bearing costs.

Courtney Sacchetti: 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 one-time drag. It was a two basis point impact on NIM. About two basis point 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 ninety ninety-five 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.

Chris Gruseke: 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 we’re factoring zero Fed cuts into that guidance.

Christopher O’Connell: Okay. Great. Super helpful. And did you guys have did you guys give us a spot margin for March or no? Or do you have it?

Courtney Sacchetti: I did not give a spot margin for March. We did give the spot deposit cost of 3.52%.

Christopher O’Connell: Okay. Got it. And just what you know, the NII guide unchanged. You know, I don’t think it was, you know, quite official guidance, but you know, the full year NIM kind of paying around in that 2.90% to 3% range know, still feels good absent any, rate cuts?

Courtney Sacchetti: Yes.

Christopher O’Connell: Great. And on the on the fee income side, you know, a great start on on, you know, the SBA know, gain on sale and and originations there. How’s the pipeline have 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?

Matt McNeill: Yeah. Originations were better than we had predicted. You know, we we had kinda 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 in the SBA division itself. You know, we’ve only added one BDO so far. Plan is to add two before the end of the year. And, yeah, we expect the originations to continue to build.

Christopher O’Connell: Got it. And just, you know, given, you know, the strong start is there you know, do you do you know, do you put a decent probability on the chance that you can, you know, eke out you know, fees that are end up you know, above the $7 to $8 million range. In kind of an upside scenario?

Matt McNeill: I think the other side of that probability is there are a lot of changes happening at the SBA right now. You know, there’s been a couple of rule changes just since the start of the year. So we’re we’re we’re looking at that with you know, we’re we’re tempering our expectations on some sort of material outperformance just because there seem to be changes that are undergoing at the SBA, and we 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 to hamper our growth in the SBA, but, just thinking about what may may come as, you know, things are changing evolving rapidly at the SBA.

Chris Gruseke: Well, we’d add to that. I can’t say nothing it’s not so much that things are changing rapidly in the SBA. It’s that things in general are changing, and with any kind of policy. So it’s not gonna stand here and predict what can happen in Washington for the next six months given the last four weeks?

Christopher O’Connell: Yeah. Understood. So and then on the expense side, you know, the you know, I got the guidance on I mean, over the course of the year, do you think that the professional fees that have come up over the past couple of quarters that that eventually you know, shifts into you know, the compensation line or elsewhere. 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 for the next few quarters?

Courtney Sacchetti: 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 initiatives. So in our professional service line, we’ve got legal expense, you know, nondeal related legal expense, consulting costs, recruiting costs, So, yes, some of those costs are one-time investments that will shift into 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.

Chris Gruseke: But we are reaffirming the $57 million number.

Courtney Sacchetti: Yeah.

Christopher O’Connell: 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. And keeping charge-offs super low. You know, now that you guys have you know, offloaded a good portion you know, of the NPAs that you had on, 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?

Matt McNeill: No material updates. The retail property that’s highlighted there will probably have an update in our on our next call. That one should undergo some sort of you know, either a retenanting or refinance. At some point in the next ninety days, so 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. More control over the cash flow, which is just good for us, and, we’ll see how things progress in the next couple of quarters.

Chris Gruseke: And this is Chris, Chris. And then in those 88 basis points, of NPAs, there’s about 17 basis points. Correct me if that’s not right, Courtney. Of fully guaranteed portions of SBA loans.

Courtney Sacchetti: Yes. It’s 83 of our is the total, and 17 is guaranteed.

Christopher O’Connell: Thank you. 83. Perfect. And I saw, you know, that there you know, a little bit of movement, I guess, in in the risk ratings this quarter. Some say they’re coming down. A little bit of uptick in special mention. I guess, you know, choosing the migration between the two, or or any color around you know, the movement?

Courtney Sacchetti: Yeah. Good. We’re cracking up a little bit. I think, Chris, you’re asking about the increase in special mention, basically?

Christopher O’Connell: Yeah. Just any any of the kind of net migration risk ratings would be great.

Courtney Sacchetti: 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, health care loans. That did not hit their pro formas. And they’re backed by ultra high net worth sponsors with plenty of liquidity. They’re also performing loans. They’re current. And, you know, we feel good that they’ll return to a past status know, over the next couple of quarters.

Christopher O’Connell: Got it. And then, you know, lastly, how how are you guys thinking about you know, the share repurchases came in, you know, a little better than what I was expecting this quarter. Do you expect to keep kinda plugging along on the plan here? Through you know, especially kind of given know, what the market’s done?

Chris Gruseke: 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, we I mean, frankly, we’d like to buy back more. Right? But the fact of the matter is we also need to build consolidated CET one. So, you know, we’ll participate as we’re able to, but we are seeking to grow consolidated CET one. It’s 11% or north over a couple years. So it we have to balance that at the same time.

Christopher O’Connell: Got it. Thanks, Chris. Okay. Great. That’s all I had. Appreciate the time. Thanks for taking my questions.

Chris Gruseke: Great. Thanks so much, Chris.

Christopher O’Connell: Thanks, Chris.

Operator: As a reminder to ask a question, press 1 on your telephone keypad. At this time, there are no further audio questions. I will now hand the call back over to presenters for closing remarks.

Courtney Sacchetti: Okay. Thanks so much for participating in the call today. 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.