Bankwell Financial Group Q4 2024 Earnings Report

Old Dominion Freight Line EPS Results

• Actual EPS: $0.32
• Consensus EPS: $0.65
• Beat/Miss: Missed by -$0.33
• One Year Ago EPS: N/A

Old Dominion Freight Line Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $22.13 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Old Dominion Freight Line Announcement Details

• Quarter: Q4 2024
• Date: 1/22/2025
• Time: After Market Closes
• Conference Call Date: Thursday, January 23, 2025
• Conference Call Time: 10:00AM ET

Old Dominion Freight Line (NASDAQ:ODFL) operates as a less-than-truckload motor carrier in the United States and North America. The company offers regional, inter-regional, and national less-than-truckload services, as well as expedited transportation. It also provides various value-added services, including container drayage, truckload brokerage, and supply chain consulting. As of December 31, 2023, it owned and operated 10,791 tractors, 31,233 linehaul trailers, and 15,181 pickup and delivery trailers; 46 fleet maintenance centers; and 257 service centers. Old Dominion Freight Line, Inc. was founded in 1934 and is headquartered in Thomasville, North Carolina.

Old Dominion Freight Line Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Good morning, ladies and gentlemen, and thank you for standing by. My name is Kelvin, and I will be your conference operator today. At this time, I would like to welcome everyone to the Banquo Financial Group 4th Quarter 2024 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.

[Operator]

Thank you. I would now like to turn the call over to Courtney Zekedi, Executive Vice President and Chief Financial Officer. Please go ahead.

[Courtney Sacchetti, Executive VP & CFO at Bankwell Financial Group]

Thank you. Good morning, everyone. Welcome to Bankroll's Q4 2024 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.

[Courtney Sacchetti, Executive VP & CFO at Bankwell Financial Group]

Our Q4 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 Bersecki, Bankroll's Chief Executive Officer.

[Christopher Gruseke, CEO at Bankwell Financial Group]

Thanks, Courtney. Welcome and thanks to everyone for joining BankWell's 4th quarter earnings call. This morning, I'm joined by Courtney Cicchetti, our Chief Financial Officer and Matt MacNeil, our President and Chief Banking Officer. On behalf of our Board of Directors, I'd like to congratulate Matt on his recent promotion to President of BankWell Financial Group and its subsidiary, BankWell Bank. We appreciate your interest in our performance and this opportunity to discuss our results with you.

[Christopher Gruseke, CEO at Bankwell Financial Group]

On today's call, we will provide updates about our financial and operating performance for the Q4, including the status of several non performing loans, we've previously disclosed over the course of 20242023. It's important to note that during the quarter we saw no credit deterioration and we continue to be optimistic regarding the performance of our loan portfolio in 2025. Our financial results in the 4th quarter included GAAP fully diluted earnings per share of $0.32 which were impacted by $3,000,000 of net charge offs. The charge offs primarily consisted of 2 non performing assets. First, we fully disposed of a non performing C and I loan with a book balance of $1,700,000 The initial write down on this credit was announced in an 8 ks filing in July 2024.

[Christopher Gruseke, CEO at Bankwell Financial Group]

The $700,000 charge off on this loan and the sale of certain assets finalizes the disposition of this non performing asset. 2nd, we took possession of a non performing construction loan during the Q4, transferred the property to OREO and charged off $1,200,000 which resulted in a carrying value of $8,300,000 This loan went into non accrual status in the early days of the COVID pandemic and has been working its way through the legal system. Subsequent to December 31, 2024, we signed a purchase and sale agreement for this OREO asset for the full $8,300,000 book value. The impact of the sale will reduce the non performing asset ratio by 25 basis points. Also subsequent to December 31, 2024, we signed a purchase and sale agreement for our largest non performing loan of $27,100,000 at par value, which upon sale will further reduce the non performing asset ratio by 83 basis points.

[Christopher Gruseke, CEO at Bankwell Financial Group]

Both sales should have a neutral impact to future net income. Further details regarding NPAs can be found on Slide 11 of our investor presentation. Regarding commercial real estate, we continue to reduce our CRE concentration, which stands at 3 75% of total risk based capital at year end 2024 versus 3 97% at year end 2023 and 4 25% at year end 2022. On the liability side of the balance sheet, I'm pleased with the continued strides the bank has made to improve the quality and diversity of the deposit base. We had another productive quarter of growth within our bank well direct product, which grew by $39,000,000 over the 3rd quarter, bringing total outstanding balances to $136,000,000 while broker deposits fell another $78,000,000 on a linked quarter basis.

[Christopher Gruseke, CEO at Bankwell Financial Group]

Overall, core deposits grew by $169,000,000 in the 4th quarter, while simultaneously reducing our total deposit costs by 9 basis points compared to the 3rd quarter. With a liability sensitive balance sheet, we remain well positioned for a normalized yield curve. Now to discuss our financial results in greater detail, I'll turn it over to our Chief Financial Officer, Courtney Sacchetti.

[Courtney Sacchetti, Executive VP & CFO at Bankwell Financial Group]

Thank you, Chris. Our pre provision net revenue of $7,900,000 was down quarter over quarter, representing 98 basis points of PP and R return on average assets. Reported net interest margin for the 4th quarter was 2 60 basis points, a 12 basis point reduction relative to the linked quarter. Approximately 10 basis points of that linked quarter reduction was a function of lower loan fees, which were $1,000,000 relative to the $1,800,000 in the 3rd quarter. While this quarter's loan fees were lower than average for us, we would note that loan fees can vary from quarter to quarter.

[Courtney Sacchetti, Executive VP & CFO at Bankwell Financial Group]

Our full year 2024 loan fees of $6,000,000 compares to $5,900,000 in 2023 with a quarterly average of approximately $1,500,000 Also contributing to our lower NIM was our elevated cash position during the quarter. Our average cash balances were approximately $60,000,000 higher than the prior quarter, which contributed to a 5 basis point drag on NIM had that cash been otherwise deployed. As Chris mentioned, we had a 9 basis point improvement on our deposit costs compared to last quarter as we're having favorable movement with our time and money market pricing. And despite the 4th quarter results, we expect margin to expand in 2025 as our term deposits continue to reprice. More specifically, we have $1,300,000,000 of time deposits maturing in the next 12 months, $714,000,000 of retail CDs repricing at an average of 22 basis points lower and $560,000,000 of brokered CDs repricing at an average 49 basis points lower, both based on current rates.

[Courtney Sacchetti, Executive VP & CFO at Bankwell Financial Group]

All else equal, we expect to save a total of $4,400,000 on an annualized basis from this repricing activity, which equates to an approximate $0.44 pickup in earnings per share and about 14 basis points of margin expansion. This assumes no benefit to non maturity deposits or any additional cuts in Fed funds, even though we expect to modestly lower our current rates further in the Q1 of 2025. Also, we anticipate $500,000,000 in loans to reprice or mature over the same period, which could further benefit margin by an additional 15 to 20 basis points on an annualized basis. Non interest income of $964,000 was down compared to the linked quarter, mainly due to a reduction in SBA gain on sale fees. The linked quarter increase in total non interest expense to $13,200,000 included one time OREO expenses of approximately $700,000 but also was impacted by elevated occupancy costs, data processing and professional services, partly offset by a reduction in salaries and employee benefits.

[Courtney Sacchetti, Executive VP & CFO at Bankwell Financial Group]

We've remained steadfast in our goal to maintain a stable non interest expense to total asset ratio, which continues to operate at approximately 170 basis points or better. The 4th quarter's provision expense was $4,500,000 compared to $6,300,000 in the prior quarter. The 4th quarter's expense include $3,000,000 of net charge offs previously discussed by Chris. 4th quarter credit trends were benign and include no credit deterioration. Finally, a few thoughts on our financial condition.

[Courtney Sacchetti, Executive VP & CFO at Bankwell Financial Group]

Our balance sheet remains well capitalized in liquid with total assets of $3,300,000,000 up modestly versus the linked quarter. We did not repurchase any shares during the Q4, but have 250,000 shares remaining on our authorization as of year end 2024. I'll now hand it back to Chris for his closing remarks.

[Christopher Gruseke, CEO at Bankwell Financial Group]

Thank you, Courtney. Before we conclude today's call, I'd like to comment on some of BankWell's 2024 achievements as well as our expectations for 2025. Despite the disappointing financial performance due to credit, 2024 was a productive year for the company. We've made excellent progress on several initiatives that lay the groundwork for improved financial performance in 2025 and beyond. First, we've significantly reduced our exposure to broker deposits, which decreased by $247,000,000 year over year.

[Christopher Gruseke, CEO at Bankwell Financial Group]

Approximately half of this decrease is due to the successful launch of BankWell Direct. 2nd, while we've made significant investments in human capital, especially in the important areas of technology and risk management, we've maintained an efficient platform holding the non interest expense to asset ratio at 162 basis points for 2024 versus 155 basis points in 2023. 3rd, we've successfully laid the foundation for an SBA lending division having started originating SBA loans in December of 2024. Looking ahead to our outlook for 2025, we anticipate modest loan growth of 3% to 5% with net interest income growing to the range of $93,000,000 to $95,000,000 Additionally, we expect 2025 non interest income to grow to $7,000,000 to $8,000,000 roughly doubling 20 24's performance as a result of our growing SBA lending division. We estimate total non interest expense of approximately $56,000,000 to $57,000,000 in the coming year inclusive of a healthy degree of ongoing investment in previously discussed growth initiatives.

[Christopher Gruseke, CEO at Bankwell Financial Group]

Overall, we are quite optimistic for improved financial performance at BankWell in 2025. To close, I'd like to thank all of our teammates here at BankWell, whose outstanding effort and dedication have made the evolution of our company possible. This concludes our prepared remarks. Operator, will you please begin the question and answer session?

[Operator]

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from the line of Chris O'Connell of KBW. Please go ahead.

[Christopher O'Connell, Director - Equity Research at Keefe, Bruyette & Woods (KBW)]

Hey, good morning.

[Christopher Gruseke, CEO at Bankwell Financial Group]

Good morning, Chris.

[Christopher O'Connell, Director - Equity Research at Keefe, Bruyette & Woods (KBW)]

And congratulations, Matt, on the promotion. So just wanted to start off, I guess, with what you guys are seeing on the loan side in terms of the pipeline and kind of what the new origination yields are coming on at? I guess start there please.

[Matthew McNeill, Executive VP & Chief Banking Officer at Bankwell Financial Group]

So Chris, we price everything off of whatever kind of the duration of either a treasury or short term indices. Things are kind of flat right now. We're seeing most originations right around 7%, maybe a little bit higher.

[Christopher O'Connell, Director - Equity Research at Keefe, Bruyette & Woods (KBW)]

Okay. Got it. And then as far as the growth that you guys are seeing in the portfolio in the demand near term, I know you guys are kind of moderating to flattish low, air growth environment right now until the CRE concentration ratio comes down. Is that still the case as we get into the back half of twenty twenty five, do you think?

[Christopher Gruseke, CEO at Bankwell Financial Group]

This is Chris, Chris. So I would say as because of the mix, which is increasingly more C and I than CRE that kind of takes care of itself over time and you can see the steady decline we've had in CRE concentration. The growth number really is an estimate is a function of our CET1 ratio. So that's our goal is to get that up towards 11, 11 over sometime in 27 and moving towards there. So it's not about CRE, it's really just working to grow the CET1 ratio.

[Courtney Sacchetti, Executive VP & CFO at Bankwell Financial Group]

On a consolidated basis?

[Christopher Gruseke, CEO at Bankwell Financial Group]

Yes, yes, yes, Wholesale, right.

[Christopher O'Connell, Director - Equity Research at Keefe, Bruyette & Woods (KBW)]

Okay, got it. And I guess on that front, how do you guys kind of stack rank your prioritization in terms of getting to that ratio versus opportunistically using the buyback over the course of 2025?

[Christopher Gruseke, CEO at Bankwell Financial Group]

So it's more art than science. It depends on the trade off of how profitable the growth is versus the stock buyback and where the stock is trading. So it's the mix of all of those variables. I would expect to see stock buybacks on the magnitude of what we had this year according

[Courtney Sacchetti, Executive VP & CFO at Bankwell Financial Group]

86,000 shares we repurchased. Right.

[Christopher Gruseke, CEO at Bankwell Financial Group]

But the impact of

[Courtney Sacchetti, Executive VP & CFO at Bankwell Financial Group]

Oh, okay.

[Courtney Sacchetti, Executive VP & CFO at Bankwell Financial Group]

Sure. Dollars 1,000,000 of buybacks of capital is about 3.5 basis points on our capital ratio. So it's not really a significant impact to buy back 100,000 shares at $30 a share.

[Christopher Gruseke, CEO at Bankwell Financial Group]

Yes. That's 10 basis points for instance on capital. So we have the ability to do both, but with the longer term goal and knowledge that it's appropriate to think the Holdco's CET1. And then it's a function of what is the stock price and how wide are yields and what's the right time to do it, but I think we'll see both.

[Christopher O'Connell, Director - Equity Research at Keefe, Bruyette & Woods (KBW)]

Okay. Thank you. And then I guess on the fee outlook, I mean, obviously, very strong doubling year over year more or less. Can you talk about, I guess, the pace of the ramp that you expect on the SBA side?

[Christopher Gruseke, CEO at Bankwell Financial Group]

Yes, absolutely. So we spent a lot of time this year preparing for the actual originations. We needed to get the infrastructure in place. I mean, we had done SBA historically here, but larger loans and smaller volume. And so now we're using technology to enable smaller loans and we have first put in the right infrastructure for technology and risk.

[Christopher Gruseke, CEO at Bankwell Financial Group]

And there was a Q4 announcement when we announced the Head of SBBA Lending Division, Michael Johnson. We're ready and have actually started originating loans in the SBA division. And Matt can talk about how targets and flow.

[Matthew McNeill, Executive VP & Chief Banking Officer at Bankwell Financial Group]

So over time, Chris, we definitely expect more originations in the Q4 than the first. There will be originations in the Q1. Those have already happened. We expect to see VA loan sales in the Q1. And the implied number there in our fees is about $50,000,000 of originations over the whole of 20 25.

[Matthew McNeill, Executive VP & Chief Banking Officer at Bankwell Financial Group]

So I wouldn't be surprised to see 3 quarters of that coming in the second half.

[Christopher O'Connell, Director - Equity Research at Keefe, Bruyette & Woods (KBW)]

Okay. That's helpful. And then on the NII guidance and kind of the overall margin here, I guess I was surprised to see the margin down quarter over quarter. And I know that there was the it sounds like some impact on the loan fees. But I guess I thought that the deposit costs would be coming down a little bit more aggressively here.

[Christopher O'Connell, Director - Equity Research at Keefe, Bruyette & Woods (KBW)]

But certainly, the NII guide with not too much balance sheet growth implies kind of a ramp pretty well above just the 14 basis points that you guys are getting from the CD portfolio. Can you talk about the rest of the portfolio outside of those CDs and kind of what you guys are seeing in having in terms of customer conversations around the cost there?

[Christopher Gruseke, CEO at Bankwell Financial Group]

Yes. Chris, let me just start off. So regarding the decrease, as Courtney has said, we can put finer points on it, the word decrease fees, but part of the drop is the timing part of the anticipated decrease in cost of funds is the timing of when the CDs are rolling over. So we have a roll schedule in the investor presentation and Courtney has gone through in pretty much detail and we'll continue to put a number on that. I know you want other parts as well.

[Christopher Gruseke, CEO at Bankwell Financial Group]

So I'm just starting off by saying that it's not only the fees, it's what was maturing in that quarter and what's maturing ahead. And the quarter ahead, we can see with great granularity what's maturing and what the market price is. So those are real numbers. Courtney, you want to add to that and then maybe Maggie can talk about this.

[Courtney Sacchetti, Executive VP & CFO at Bankwell Financial Group]

Yes. And I think, Chris, you hit it on the head a little. Our 260 NIM for the quarter, I would not use that as my launching off point to figure out my Q1 NIM in 2025, a more normalized NIM accounting for fees and more efficient deployment of cash in that low 270s. I can see our NIM expanding to the higher 270s in the Q1. You can see we have our highest retail CDs maturing, at a rate of $520,000,000 and almost like call that a third at least maturing in the Q1 that we'll be able to reprice down.

[Courtney Sacchetti, Executive VP & CFO at Bankwell Financial Group]

And we alluded to a little bit more on some modest price cuts. And so the $460,000,000 is our current rate on our CD offering today, but we anticipate to have that lower, in the Q1.

[Christopher O'Connell, Director - Equity Research at Keefe, Bruyette & Woods (KBW)]

Okay. Yes. That is very helpful. And then I guess just if you have the December margin?

[Courtney Sacchetti, Executive VP & CFO at Bankwell Financial Group]

Actually, Chris, I'll have to follow back up with you. I don't know that I have that readily available.

[Christopher O'Connell, Director - Equity Research at Keefe, Bruyette & Woods (KBW)]

Okay. But regardless, it sounds like starting off with like a $270,000,000 handle and give or take and kind of moving up from there is appropriate?

[Courtney Sacchetti, Executive VP & CFO at Bankwell Financial Group]

Yes. That's what I would expect. Yes. So for the full year, I would again, as a function of our time deposits reprice and our loans reprice, I would expect that NIM to approach closer. And I think you probably are backing into this number closer to a 3 NIM for the year in the 290s range.

[Christopher Gruseke, CEO at Bankwell Financial Group]

And Chris, do you want to add to that that number that Courtney just gave that assumes no further action by the Fed. That's just what's built into the system for us.

[Christopher O'Connell, Director - Equity Research at Keefe, Bruyette & Woods (KBW)]

Great. Yes. Super helpful. I guess just on that front, maybe if you guys can talk about what each 25 basis point if that move might do to the margin? I know that there's the immediate quarterly impact is a little bit dependent on what's maturing from a CD or borrowing standpoint that quarter, but maybe over the course of a 12 month period?

[Christopher Gruseke, CEO at Bankwell Financial Group]

So over the course of the year, we'd have to break it down. Obviously, the term deposits are going to reprice when they're going to reprice, but now at a lower rate. So I would anticipate the 25 basis point move on term deposits just would be

[Christopher Gruseke, CEO at Bankwell Financial Group]

lower

[Christopher Gruseke, CEO at Bankwell Financial Group]

when they actually mature. And then we have a number of deposits that are tied to certain levels that would automatically move with Fed. And then of course, non maturity deposits would expect pretty significant beta on those as well for every 25 basis we're probably going to drop some rates just in the upcoming weeks. So I don't know that we have a breakout of what percentage of those are actually tied to deposits Courtney to I don't know, on maturity deposits? Yes.

[Christopher Gruseke, CEO at Bankwell Financial Group]

That will

[Christopher Gruseke, CEO at Bankwell Financial Group]

come down precisely 25 basis points.

[Courtney Sacchetti, Executive VP & CFO at Bankwell Financial Group]

If I say, but I have about $1,000,000,000 of non maturity deposits, I would say 20% of that is tied.

[Christopher Gruseke, CEO at Bankwell Financial Group]

25% would get the full beta.

[Courtney Sacchetti, Executive VP & CFO at Bankwell Financial Group]

Yes. 20%. And then the others are we have exception pricing that we may adjust here and there, but our offered rates would be on the balance of that.

[Christopher Gruseke, CEO at Bankwell Financial Group]

Right. So for 25 basis points on the deposits that aren't specifically tied to funds, but they would be greater than 50%. I mean, do you have a better number than that, Matt?

[Matthew McNeill, Executive VP & Chief Banking Officer at Bankwell Financial Group]

Yes. I think we've reached a point now with falling rates and our particular construction of our non not the time to buy will be in the probably 50 to 75 beta if that's probably closer to 75. 75.

[Christopher O'Connell, Director - Equity Research at Keefe, Bruyette & Woods (KBW)]

Okay. Very helpful. And then on the expense guidance, obviously, a bit of a pickup or ramp from 2024 as you guys are putting in a bunch of kind of initiatives and have the SBA ramp. How should we think about the cadence? Is that coming up to a pretty good starting run rate right at the beginning of the year?

[Christopher O'Connell, Director - Equity Research at Keefe, Bruyette & Woods (KBW)]

Or is it going to ramp over the course of 2025 as you guys are inputting these initiatives and having some of these departments or SBA kind of ramping up over the course of the year as well?

[Christopher Gruseke, CEO at Bankwell Financial Group]

So at a high level, Chris, the numbers that we're increasing include a host of positions. So when we show that number ticking up next year, that's with a steady dose of investment in primarily people. And that's still getting around that 170 basis point of asset, ruminant as expense. And that's a number of people, which we can go through sort of people for you. And that it's a function of when the right people come, but it's over the course of the year.

[Christopher Gruseke, CEO at Bankwell Financial Group]

We can speak some of the positions, give you an idea. But we're pretty excited that we've been able to maintain the expenses we have, adding a lot of talent. And anything above and beyond that, I mean, the amount we're spending that we've guided to sets us up very well for the future. So this isn't going to be a $2,000,000 to $3,000,000 increase every year. We're making investments that we think get us to scale and greater efficiency.

[Christopher Gruseke, CEO at Bankwell Financial Group]

But can we put some more meat on the bones as to type of positions and numbers and to get to that increase?

[Courtney Sacchetti, Executive VP & CFO at Bankwell Financial Group]

Sure. We've been adding, heads obviously we've been talking a lot about the SBA platform. So in our estimates for the year, we're adding new originators and support staff for those folks from a credit and risk perspective, more risk function folks, some commercial deposit gatherer people. So there's a good number of heads that are budgeted that aren't here today that we will be building up over time. I will also note, Chris, as you know, our Q1 expenses historically are higher than our other quarters just given, some one time annual costs that we have related to our audit expenses for the year and some true ups on taxes on our incentive plan.

[Courtney Sacchetti, Executive VP & CFO at Bankwell Financial Group]

So 1Q always has a couple of anomalies. Great.

[Christopher O'Connell, Director - Equity Research at Keefe, Bruyette & Woods (KBW)]

Yes, understood. And then on the credit side, obviously a lot of cleanups here in the Q4 and I guess trending into the beginning of 2025, but seems to be yielding a bit of a cleaner run rate after that. Can you talk about the timing of the 2 pending nonperformingoreo sales? I mean, I guess, I had thought that the one had got signed towards the tail end of October, the larger $27,000,000 credit. Did that just get pushed a little bit in terms of timing?

[Christopher O'Connell, Director - Equity Research at Keefe, Bruyette & Woods (KBW)]

Or was there any change in circumstance?

[Matthew McNeill, Executive VP & Chief Banking Officer at Bankwell Financial Group]

There was a slight change in circumstance. The buyer of that credit card has some support actually and brought in a partner. They have since signed a purchase that if all things are go off as planned would close in the coming weeks. We're feeling good about that sale happening.

[Christopher Gruseke, CEO at Bankwell Financial Group]

Matt, can I interrupt you for a second? The signature in prior quarter was not a definitive purchase and sale.

[Matthew McNeill, Executive VP & Chief Banking Officer at Bankwell Financial Group]

No, it was a LOI. A letter

[Matthew McNeill, Executive VP & Chief Banking Officer at Bankwell Financial Group]

of intent at the time, Chris. So the situation

[Matthew McNeill, Executive VP & Chief Banking Officer at Bankwell Financial Group]

is addressed.

[Christopher O'Connell, Director - Equity Research at Keefe, Bruyette & Woods (KBW)]

Okay. Okay.

[Christopher Gruseke, CEO at Bankwell Financial Group]

And then sorry, Matt.

[Christopher O'Connell, Director - Equity Research at Keefe, Bruyette & Woods (KBW)]

And then the second I guess, this timing on the second one?

[Matthew McNeill, Executive VP & Chief Banking Officer at Bankwell Financial Group]

The timing on the second one is perhaps even sooner next week maybe. So we're pretty confident that we have earnest money transactions that are going to be able

[Matthew McNeill, Executive VP & Chief Banking Officer at Bankwell Financial Group]

to get the

[Matthew McNeill, Executive VP & Chief Banking Officer at Bankwell Financial Group]

right amount of money that we're going to be able to get the right amount of money that we're going to be able to get the right amount of money that we're going to be able to go forward. We're pretty confident that

[Christopher Gruseke, CEO at Bankwell Financial Group]

they're And Chris, the second one is the loan that began its journey in the very, very beginning. This is a construction loan that began in the beginning of COVID and it's just playing out its final chapter share.

[Christopher O'Connell, Director - Equity Research at Keefe, Bruyette & Woods (KBW)]

Okay. Got it.

[Christopher Gruseke, CEO at Bankwell Financial Group]

And the So the good

[Christopher Gruseke, CEO at Bankwell Financial Group]

news from our standpoint is we feel like we're putting this stuff to bed, starting the year with a clean slate, eventually get NPAs down by over 100 basis points just on these couple of loans and with a good outlook for 2024.

[Christopher O'Connell, Director - Equity Research at Keefe, Bruyette & Woods (KBW)]

Yes. And as I understand it, based on some of the commentary in the release of the deck that you don't expect any additional charge offs related to these credits with the pending sales. And is there any potential chance of recoveries with the one at par? I can't remember if there if it had any specific against it?

[Matthew McNeill, Executive VP & Chief Banking Officer at Bankwell Financial Group]

We never reserved against it or took any charges against that asset.

[Matthew McNeill, Executive VP & Chief Banking Officer at Bankwell Financial Group]

Cost of the cash flow

[Matthew McNeill, Executive VP & Chief Banking Officer at Bankwell Financial Group]

came off the part amount, correct. And then we can talk a little bit about the construction loan. Still pending in the courts?

[Matthew McNeill, Executive VP & Chief Banking Officer at Bankwell Financial Group]

Correct. So we acquired the collateral for the construction loan that became the OREO through the bankruptcy of the borrower. We still have an action against personal guarantors in Connecticut now that bankruptcy is discharged. And so we're moving forward.

[Christopher O'Connell, Director - Equity Research at Keefe, Bruyette & Woods (KBW)]

Great. And then just on the that obviously cleans up the vast majority of the non performers here. But the 2 other notable ones remaining, if you could just provide an update on those, I think in the deck labeled under loan 2 and loan 3 with 1 of them set to mature next quarter?

[Matthew McNeill, Executive VP & Chief Banking Officer at Bankwell Financial Group]

Sure. So loan 2 was a COVID impacted loan. They had a tenant move out on the 1st day of their lease, which coincided with March of 2020. It's been vacant for a period of time. All of the time up until now they do have leases here.

[Matthew McNeill, Executive VP & Chief Banking Officer at Bankwell Financial Group]

We have taken various charge offs about $4,500,000 and we think that at maturity they'll be able to refinance away from that is the request to the borrower now. So I think that that one gets cleaned up. We believe that there's still value there for the sponsors to protect. And it looks as they have the opportunity to fully lease out the building here right as

[Christopher Gruseke, CEO at Bankwell Financial Group]

this And those write downs occurred along the way?

[Matthew McNeill, Executive VP & Chief Banking Officer at Bankwell Financial Group]

Correct. The majority of that was taken in the 1st or Q2 of 2020 when the tenant moved down.

[Christopher O'Connell, Director - Equity Research at Keefe, Bruyette & Woods (KBW)]

Okay, great.

[Matthew McNeill, Executive VP & Chief Banking Officer at Bankwell Financial Group]

Yes. Loan 3, this is a $84,000,000 club deal with some various regional banks. Sponsor hasn't been cooperative to this point. We do have a receiver in place. So now we can see all of the cash that's coming through the property.

[Matthew McNeill, Executive VP & Chief Banking Officer at Bankwell Financial Group]

It's quite a large property. We're hopeful that not only that this value, this balance that we have remaining is the correct carrying value, but we're there may be a chance for a recovery at some point, able to see cash flow on the property.

[Christopher O'Connell, Director - Equity Research at Keefe, Bruyette & Woods (KBW)]

Okay, got it. So safe to say that probably is going to be more of like a multi quarter issue to work out?

[Matthew McNeill, Executive VP & Chief Banking Officer at Bankwell Financial Group]

I would believe so. There's yes, it's obviously more complicated with several banks in the work out.

[Matthew McNeill, Executive VP & Chief Banking Officer at Bankwell Financial Group]

And Chris, that loan has already had over $8,000,000 in charges taken against it.

[Christopher O'Connell, Director - Equity Research at Keefe, Bruyette & Woods (KBW)]

Yes, understood. Got it. Okay, great. And then more generally as you guys are looking ahead towards 2025, I think you guys don't have a very large office portfolio, but obviously an area of focus. And there's about I think it's 56% or $90,000,000 of it matures next year.

[Christopher O'Connell, Director - Equity Research at Keefe, Bruyette & Woods (KBW)]

Have you guys have come into the year and reviewed the portfolio? How do you guys feel about those upcoming maturities?

[Christopher Gruseke, CEO at Bankwell Financial Group]

Yes. I think you're probably referring you're referring to Page 12 of the investor presentation. There's a chart on that.

[Matthew McNeill, Executive VP & Chief Banking Officer at Bankwell Financial Group]

So other than the New Jersey club deal that we just talked about, the remaining 13, you'll see there's 13 loans in that. The remaining 13 are cash flow positive and pass rated. So we're feeling good about those. Some of those have already had a rise in interest rate if we've given them a year or 2 extension on their previously matured loan. They've come up to a market rate and they're still cash flowing.

[Matthew McNeill, Executive VP & Chief Banking Officer at Bankwell Financial Group]

So we're feeling pretty positive about our remaining office balance.

[Christopher Gruseke, CEO at Bankwell Financial Group]

And Chris, I'd note that the $90,000,000 of the $160,000,000 is maturing in 2025 in office and that's because we essentially stopped doing office after 2020. We made some exceptions, but the balances then drop off because there's not going to be any left.

[Christopher O'Connell, Director - Equity Research at Keefe, Bruyette & Woods (KBW)]

Yes. Got it. Okay, great. And then I guess just last one for me is, what's a good tax rate going forward?

[Courtney Sacchetti, Executive VP & CFO at Bankwell Financial Group]

Yes. So obviously our tax rate was a little elevated in the Q4. We had an adjustment based on our 2023 taxes that we pushed through. So we're confident comfortable with the 24.5%, 25% tax rate. If you push that adjustment back into our 2023 numbers, our 24% tax rate, I think comes out to exactly 24.5% or 24.6%.

[Christopher O'Connell, Director - Equity Research at Keefe, Bruyette & Woods (KBW)]

Great. Thanks for taking all my questions. Appreciate the time.

[Christopher Gruseke, CEO at Bankwell Financial Group]

Chris? Thank you, Chris.

[Operator]

There are no further questions at this time. With that, ladies and gentlemen, that concludes your conference call. We thank you for participating and ask that you please disconnect your lines.

Participants

Analysts

• Courtney Sacchetti, Executive VP & CFO at Bankwell Financial Group
• Christopher Gruseke, CEO at Bankwell Financial Group
• Christopher O'Connell, Director - Equity Research at Keefe, Bruyette & Woods (KBW)
• Matthew McNeill, Executive VP & Chief Banking Officer at Bankwell Financial Group