Bankwell Financial Group(BWFG) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Q4 GAAP net income was $9.1 million, or $1.15 per share, including a $1.5 million one-time tax adjustment; operating income was $10.7 million, or $1.36 per share [3][4] - Pre-provision net revenue return on average assets was 180 basis points, up 10 basis points from the prior quarter and 75 basis points from Q4 2024 [4][9] - Net interest margin expanded to 340 basis points, a 6 basis point increase from the prior quarter [9][10] - Efficiency ratio improved to 50.8%, compared to 51.4% in the prior quarter [8] Business Line Data and Key Metrics Changes - Net loan growth for Q4 was $122 million, with full-year growth of $134 million, representing 5% annual growth [7][9] - Non-interest income increased to $3.4 million, driven by $2.2 million of SBA gain on sale income, a 35% increase from the linked quarter [11] - SBA originations totaled $24 million in Q4, contributing to $68 million of total originations for the year [7][9] Market Data and Key Metrics Changes - Floating-rate loans comprised 38% of the total loan portfolio, up from 23% at the end of 2024 [5] - Average low-cost deposit balances increased by $22 million, or 5%, over the prior quarter and by $86 million, or 21%, versus Q4 2024 [5][9] Company Strategy and Development Direction - The company aims to strengthen credit, improve funding mix, build non-interest income, and invest in technology and people [15][16] - The focus on diversified recurring revenue sources is yielding positive results, particularly in the SBA division [15] - The company anticipates loan growth of 4%-5% and expects net interest income to be in the range of $111 million-$112 million for 2026 [16] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's position heading into 2026, highlighting improvements in credit quality and funding mix [15][16] - The company expects to continue benefiting from a favorable repricing of time deposits over the next 12 months [10][12] Other Important Information - The allowance for credit losses stands at 108 basis points of total loans, with coverage of non-performing loans increasing to 188% [11][12] - The effective tax rate for the full year 2025 was 27.4%, influenced by a one-time tax expense [14] Q&A Session Summary Question: Loan growth expectations for 2026 - Management indicated that loan growth is expected to pick up in 2026, driven by a balance of payoffs and new originations [19][21] Question: Composition of the loan pipeline - The loan pipeline is currently 60% commercial and industrial (C&I) loans, with a focus on maintaining strong C&I real estate originations [25] Question: Expectations for low-cost deposit growth - While no specific guidance was provided, management expects steady improvement in low-cost deposits, which grew 5% from the previous quarter [29][31] Question: SBA originations outlook for 2026 - Management anticipates significant growth in SBA originations, aiming for around $100 million to achieve non-interest income targets [39][43] Question: Drivers of expense growth in 2026 - Expense growth is expected to be driven by investments in people and processes, with a headcount increase of over 10% in the past year [49][52]