Bankwell Financial Group Q1 2025 Earnings Call Transcript

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April 24, 2025

There are 7 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Bankwell Financial Group First Quarter twenty twenty five 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. I will now hand today's call over to Courtney Cicchetti, Chief Financial Officer. You may begin.

Speaker 1

Thank you. Good morning, everyone. Welcome to Bankwell's first quarter twenty twenty five 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. Our first quarter earnings release is also available on our website.

Speaker 1

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 eight 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 Grisecki, Bankwell's Chief Executive Officer.

Speaker 2

Thanks, Courtney. Welcome, and thanks to everyone for joining Bankwell's first quarter earnings call. This morning, I'm joined by Courtney Sicchetti, our Chief Financial Officer and Matt McNeil, 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.

Speaker 2

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% versus the first quarter of twenty twenty four. 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 twenty twenty four. In late January, we successfully disposed of two previously identified nonperforming credits, an $8,300,000 OREO asset, which was sold at book value and a $27,100,000 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.

Speaker 2

Further details regarding NPAs can be found on Slide 11 of our investor presentation. Regarding loan growth, elevated payoff activity of $200,000,000 offset strong origination activity of $130,000,000 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 October and gain on sale margins were just over 10%. We remain optimistic about SBA gain on sale activity accelerating throughout 2025. Commercial loan pipelines, including SBA activity, continue to be active.

Speaker 2

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 of paying down brokered deposits, which declined $81,000,000 relative to the fourth quarter, while core deposits grew $43,000,000 including $28,000,000 of growth in non interest bearing deposits. Over the last twelve months, we've now reduced broker deposits by $2.00 $7,000,000 while growing core deposits by $244,000,000 Our balance sheet remains liability sensitive with additional margin expansion expected in 2025 as maturing term deposits reprice to lower current rates. Now to discuss our financial results in greater detail, I'll turn it back to Courtney.

Speaker 1

Thank you, Chris. Our first quarter pre provision net revenue of $9,400,000 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 two eighty one 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 collection of accrued interest on a disposition of one of our large non performing 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.

Speaker 1

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 impact from these updates to carry into the second quarter. On Slide eight, we continue to highlight our term deposit maturity schedule, which shows 1,200,000,000 of time deposits maturing in the next twelve months. Dollars seven nineteen million of retail CDs repricing at an average of 22 basis points lower and $495,000,000 of brokered CDs repricing at an average of 53 basis points lower, both based on current rates. Also, we anticipate more than $05,000,000,000 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.

Speaker 1

Considering the various inputs to margin, we expect continued expansion over the balance of 2025 and reaffirm our net interest income guidance for full year 2025 of 93,000,000 to $95,000,000 This guidance assumes no further actions by the Fed for the balance of this year. Non interest income of 1,500,000 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 $50,000,000 of origination. The linked quarter increase in total non interest expense to $14,100,000 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.

Speaker 1

These increases are partly offset by a reduction to OREO expense incurred at the end of twenty twenty four. 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 non interest income and non interest expense of 7,000,000 to $8,000,000 and 56,000,000 to $57,000,000 respectively. The first quarter's provision expense was $463,000 compared to $4,500,000 in the prior quarter.

Speaker 1

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 $3,200,000,000 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.

Speaker 2

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.

Speaker 2

We believe that our strong balance sheet and experienced and nimble management team and our customer first business model make Bankwell 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 team. Their excellent effort and dedication have been instrumental to the evolution of this company.

Speaker 2

This concludes our prepared remarks, operator. Will you please begin the question and answer session?

Operator

Your first question is from the line of Chris O'Connell with KBW.

Speaker 3

Hey, good morning.

Speaker 2

Good morning, Chris.

Speaker 3

I was just hoping to start off on the new teams, and maybe whether there'll be more deposit or loan focused or some mix of both. And then just maybe growth contribution, thoughts around growth contribution over time or how big their prior books were?

Speaker 4

Sure. Hey, Chris, it's Matt. I think that we're 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 more deposits than loans.

Speaker 4

The books of business were quite large for both teams. Both books of business over $100,000,000 lots of non interest bearing. We're hopeful that those will translate into a lot of migration to BankWell. But as I said, we're in the early days of them onboarding with the bank, so more to come.

Speaker 5

Got it. Thanks, Matt.

Speaker 3

And then just hoping I apologize if I missed you know, 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, three to 5%. Is this a slower start to the year? Eat into that

Speaker 5

at all? And, yeah, just any update on on the growth outlook.

Speaker 6

So we somewhere in the remarks, Chris, I I definitely had mentioned, we we still think we'll get low single digits,

Speaker 2

and it's a matter of timing.

Speaker 6

Scott, you wanna ask to maybe the pipeline? Okay. Sorry.

Speaker 4

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 to scramble and increase the pipeline to make up for those. We don't anticipate that that's going to be the case going forward. And the pipeline is robust.

Speaker 4

And we had plenty of closings and fundings in the first quarter, just the amount of unanticipated payoffs were were so much higher than our than our fundings.

Speaker 3

Great. And, where is the, where is the pipeline, yield at?

Speaker 4

It's it's hold it's holding strong. It's it's in that, you know, high sixes, low sevens depending on the asset.

Speaker 1

And, Matt, I'll just add to that our our 01/2025 vintage is, the yield average was eight seventeen.

Speaker 3

Great. Yeah. Yeah. Very great. And just on on you know, because I know that there is a non accrual interest, you know, recovery, you know, within the loans this quarter.

Speaker 3

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 either a March yield or an exit yield on just or core loan yield for the quarter?

Speaker 1

So, Chris, that would be about $6.40. I I know it's $6.54 in our release. So excluding that, it would be $6.40, which is about a 10 bit expansion over the fourth quarter.

Speaker 3

Great. Thanks. And then just, you know, continuing on the margin, I guess I was a little surprised, you know, while the margin, you know, expansion was great, that given the amount of CDs that were maturing in in the first quarter, that the interest bearing cost, you know, didn't come down a bit more. Just, you know, any thoughts around that? Or I don't know if the CDs were maturing late in the quarter, if it was timing.

Speaker 5

Yeah. I guess anything on just, you know,

Speaker 3

the the progress on on the interest bearing costs.

Speaker 1

I 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 when we called those. So that was a little bit of a onetime drag. It was a two bp impact on NIM, about two bp impact on our cost of deposits. We were able to reprice our time.

Speaker 1

Gosh, everything that was maturing in the first quarter, 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 we felt pretty good about that. So I think maybe just a little bit of timing and a little bit of one one time expense.

Speaker 2

Okay. Got it. Chris, I'd

Speaker 6

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.

Speaker 3

Okay. Great. Super helpful. And did you guys have, did you guys give us, a a spot margin for March or no? Or do you have it?

Speaker 1

I did not give a spot margin for March. We did give the the the spot deposit cost of $3.52

Speaker 5

Okay. Got

Speaker 3

it. And just with the NII guide unchanged, you know, I don't think it was, you know, official guidance, but, you know, the full year NIM kind of hanging around in that 2.9 to 3% range, you know, still feels good absent any, rate cuts?

Speaker 5

Yes.

Speaker 3

Great. And on the fee income side, a great start on the SBA gain on sale and originations there. How's the pipeline have you guys started better than you expected? How do you see the cadence moving on throughout the year?

Speaker 4

Yes. Originations were better than we had predicted. We had kind of backed into a number and it builds over time. We expect our best quarter to be in the fourth quarter. We still expect fourth quarter originations to be the strongest quarter as we're continuing to build in the SBA division itself.

Speaker 4

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.

Speaker 2

Got it.

Speaker 3

Just given the strong start, is there do you put a decent probability on the chance that you can eke out fees that end up above the 7,000,000 to $8,000,000 range in kind of an upside scenario?

Speaker 4

I think the other side of that probability is there are a lot of changes happening at the SBA right now. There's been a couple of rule changes just since the start of the year. So we're looking at that with 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'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 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.

Speaker 6

Well, we'd add to that. Hopefully, Tyler. Can say 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

Speaker 2

we're not gonna stand here and predict what can happen in Washington for the next six months given the last four weeks.

Speaker 3

Yeah. Understood. So, and then on the expense side, you know, the you know, I got the guidance unchanged. I mean, over the course of the year, do you think that the professional fees that have come up over the past, you know, couple of quarters that that eventually, you know, shifts into, the compensation line or elsewhere within the expense base? Or is that kind of is this more or less kind of where you guys think you'll be for the next few quarters?

Speaker 1

So, you know, I 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 services line, we've got legal expense, you know, non deal related legal expense, consulting costs, recruiting cost. So, yes, some of those costs are one time investments that will shift into, you 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 different initiatives.

Speaker 6

But but we are re referring the $57,000,000 number.

Speaker 1

Yeah.

Speaker 5

Yeah.

Speaker 3

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. Now that you guys have offloaded a good portion of the NPAs that you had on, how do you feel about the remaining two loans that you highlight making up kind of the majority of the remainder here. Any updates on either of those?

Speaker 4

No. No. No material updates. The the retail property that's highlighted there, we'll 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.

Speaker 4

And then the office building in New Jersey, we did take a we wrote down about two thirds of the loan already. It's in receivership. We're we're now in control of the cash flows as a bank group, and litigation against the guarantor is proceeding. But no no real material update, just, you know, marching forward with a little bit 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.

Speaker 6

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.

Speaker 1

Yes. It's 83 of our is the total and 17 is guaranteed.

Speaker 6

Thank you. 83. Perfect.

Speaker 3

And I saw, you know, that

Speaker 5

bit of movement, I guess, in in in the risk ratings this quarter. You know, some saying they're coming down, you know, a little bit of uptick in special mention. I guess, you know, is this migration between the two or or any color around, you know, movement?

Speaker 6

Yeah. Go ahead. We're cracking up a little bit. I think, Chris, you were asking about the increase in special mention, basically?

Speaker 5

Yeah. Just any of the kind of net migration risk ratings would be great.

Speaker 4

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.

Speaker 4

They're also performing loans. They're current, and, you know, we we feel good that they'll return to a a past status, you know, over the next couple of quarters.

Speaker 3

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 kind of plugging along on the plan here through, you know, especially kind of given, you know, what the market's done?

Speaker 6

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.

Speaker 6

So, you know, we'll we'll we'll participate as we're able to, but we we are seeking to grow consolidated CET one It's 11% or north over a couple of years. So we have to balance that at the same time.

Speaker 2

Got it. Thanks, Chris.

Speaker 3

Okay, great. That's all I had. Appreciate the time. Thanks for taking my questions.

Speaker 6

Great. Thanks so much, Chris.

Speaker 1

Thanks, Chris.

Operator

At this time, there are no further audio questions. I will now hand the call back over to presenters for closing remarks.

Speaker 6

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. And the two assets we've been talking about have been removed.

Speaker 6

The SMB the SBA business, I'm sorry, is up and running. Margin continues to expand. So we we are confident in the path going forward. Thanks for taking the time to listen today.

Operator

This concludes today's call. Thank you for joining. You may now disconnect your lines.

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Earnings Conference Call
Bankwell Financial Group Q1 2025
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