Bankwell Financial Group, Inc. (NASDAQ:BWFG) Q3 2024 Earnings Call Transcript

Bankwell Financial Group, Inc. (NASDAQ:BWFG) Q3 2024 Earnings Call Transcript October 29, 2024

Operator: Good morning. My name is Audra and I will be your conference operator today. At this time, I would like to welcome everyone to the Bankwell Financial Group Inc. Third Quarter 2024 Earnings Call. Today’s conference is being recorded. 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 Instructions] At this time, I would like to turn the conference over to Courtney Sacchetti, CFO. Please go ahead.

Courtney Sacchetti: Thank you. Good morning, everyone. Welcome to Bankwell’s third quarter 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 material. Our third 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-K 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, our President and CEO.

Chris Gruseke : Thanks, Courtney. Welcome, and thanks to everyone joining Bankwell’s first earnings conference call. This morning, I’m joined by Courtney Sacchetti, our Chief Financial Officer Matt McNeill, our Chief Banking Officer and Ryan Hildebrand, our Chief Innovation 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 the financial and operating performance for the third quarter, including a thorough credit update. Before taking questions, we’ll also take a few minutes to update you on some strategic initiatives that our team has made significant progress on over the last several quarters. We pride ourselves on our ability to be nimble and efficient and I believe the team here has made great strides that will differentiate us from peer banks in the quarters years to come.

Our financial results for the third quarter included GAAP fully diluted earnings per share of $0.24 which were negatively impacted by an $8.2 million charge-off against an office loan, reducing the third quarter quarter’s EPS by approximately $0.79. We first reported this loss in an 8-K filed on October 11. The loan was made against the Class A office space in Florham Park, New Jersey. Having written off 60% of the loan balance and considering the location and quality of the office space, we’re confident in our ability to collect the remaining balance. Matt will discuss credit in further detail in just a minute, but I’d like to note that we don’t believe our two recent charge offs are indicative of any negative credit trend on a go forward basis.

On the liability side of the balance sheet, we’re pleased with continued strides we’ve made to improve the quality and diversity of the deposit base. We’ve made excellent headway with the rollout of Bankwell Direct, our online deposit channel and we’re working on technology solutions to enhance our deposit product offerings. These initiatives have helped us pay down broker deposits by $168 million at the beginning of the year. With a liability sensitive balance sheet, we remain well positioned for future rate cuts by the Fed. Courtney will provide a further look at how lower rates should benefit the company’s earnings in the quarters ahead. At this point, I’ll hand it over to Matt McNeill to provide some additional details regarding credit quality and the $8.2 million charge off we’ve recently disclosed.

Matt McNeill : Thank you, Chris. We are disappointed that the Florham Park office loan in which we were a $13.7 million participant in an $84 million club deal deteriorated to the point of requiring an $8.2 million charge off. Fortunately, this loan is unique to our portfolio and that we have no other exposure to this sponsor and no other office loans in which we are participants. Of additional note, this loan originated prior to the COVID-19 pandemic thus prior to the bank’s amended risk tolerance regarding the office market. Greater detail can be found on Slide 12 of our investor presentation. I’d like to highlight several points regarding our remaining office portfolio. We have reduced our office exposure to $166 million or approximately 6% of the portfolio.

The majority of the office portfolio has credit enhancements such as personal recourse, owner occupancy, a credit tenant or a GSA tenant, only $7 million of the portfolio does not have these enhancements. As of September 30, 2024, our ACL against our office portfolio was approximately 16%. The bank has conducted a granular lease by lease review of the entirety of our $166 million office portfolio and has not identified any loan where we would expect to take a material negative impact. Turning to NPLs. We had one multifamily loan downgraded in the third quarter, which is included in the 250 basis points of non-performing loans. We anticipate a full recovery on the $27 million balance as we have an agreement to sell the loan at par. The sale of this loan would have a 103 basis point positive impact on the non-performing loan ratio, bringing the pro-forma to approximately 147 basis points, assuming no other changes.

See Slide 10. Meanwhile, the credit trends in our residential care portfolio continue to improve. We have had four criticized loans receive risk rating upgrades during the third quarter. Two special mention relationships were upgraded to pass totaling $14 million, two substandard relationships were upgraded to special mention totaling $28 million. Now to discuss our financial results in greater detail, I will turn it over to our Chief Financial Officer Courtney Sacchetti.

Courtney Sacchetti: Thank you, Matt. Our pre provision net revenue of $9 million was down slightly quarter-over-quarter, representing 113 basis points of PPNR return on average assets. Reported net interest margin for the third quarter was 272 basis points, a 3 basis point reduction relative to the linked quarter. While we had a few headwinds impacting NIM during the quarter related to non-performing loans and one-time costs related to calling brokered CDs, we expect our NIM to expand into 2025 as our term deposits reprice. As Chris indicated, our balance sheet is well positioned for lower short-term rates and a more normalized yield curve. More specifically, we have $1.3 billion of time deposits maturing in the next 12 months, which on average would reprice approximately 26 basis points lower based on current rates.

All else equal, we would expect to save a total of $3.35 million on an annualized basis from this repricing activity. This would equate to an approximate $0.33 pickup in earnings per share and about 11 basis points of margin expansion, which to be clear, assumes no benefit to non-maturity deposits and no additional cuts in Fed funds. Further, we anticipate $500 million in loans to reprice or mature over the same period. Given current rates, NIM could further benefit by an additional 15 basis points to 20 basis points on an annualized basis. Non-interest income of $1.2 million benefited slightly from higher SBA gain on sale revenue and improved trends in service charges relative to linked quarter. The linked quarter increase in total non-interest expense to $12.9 million was mainly due to strategic investments, although we remain steadfast in our goal to maintain a relatively stable non-interest expense to total asset ratio, which continues to operate at approximately 160 basis points.

The significant increase in provision to $6.3 million was generally a function of the previously disclosed $8.2 million charge off. We also had a $1 million recovery on the sale of a previously disclosed non-performing office loan. Finally, a few thoughts on our financial condition. Our balance sheet remains well capitalized and liquid with total assets of $3.2 billion stable versus the linked quarter in prior year quarter. During the third quarter, we repurchased an additional 9,670 shares of Bankwell stock at an average price of $23.86. And as noted in our earnings release, our board has authorized a new 250,000 share repurchase program. I’ll now hand it back to Chris.

Chris Gruseke : Thanks, Courtney. We’ve now concluded the first part of today’s call. Before moving on to some Q&A, I’d like to spend a few additional minutes discussing our vision for the future. You can follow along on the webcast beginning on Slide 14. We’ve discussed our company’s potential for significant earnings growth due to our balance sheet positioning and the possibility of further rate cuts by the Fed, but we’ve also been investing in our own internal catalysts for growth. Looking ahead, there are three broad areas of focus where we feel Bankwell is well positioned to grow profitability and to differentiate ourselves from other banks. First, we’ll continue to embrace innovation and to foster an entrepreneurial culture.

Size and agility are a competitive advantage for us. Our $3.2 billion bank is delivering results with a branch light model. Although our business has grown in scale and profitability, the bank’s employee base has remained relatively flat over these last few years. With our current headcount of approximately 140 team members, this translates to about $25 million of assets per FTE. Relatively unhindered by legacy issues, our entrepreneurial management team can embrace innovation to improve our processes, improve the quality and diversity of our deposit base and explore new business lines. We’ll focus on opportunities where we can compete on expertise and relationships instead of price. In particular, we’ll continue to deploy technology with precision.

This separates us from the community banking industry at large for whom innovation simply means catching up. For most of those banks, innovation will prove to be too tall a hurdle. Technology and talent will be our keys to differentiation and staying several steps ahead of the pack. Next, with innovation comes change management. We’ll continue to invest in appropriate risk management both in infrastructure and in people. Over the last few quarters, we’ve already made excellent strides, strengthening our risk team and adding capabilities for program and project management. Our current level of operating expenses already includes expenditures on talent and technology to enable continued innovation. We have a proven track record as a very efficient operator and we believe that as we work with innovative technologies, we’ll be able to continue this efficiency while maintaining best-in-class risk and change management protocols.

Last, we aim to provide all our clients with an elite customer experience. As Matt will discuss, our bank is built upon meaningful customer relationships in lending and business verticals, where we’ve provided significant value via our industry expertise and our reputation for outstanding execution. In the ultra-competitive banking industry, we’ll need to be even better to ensure continued success. We’ve already initiated a new customer experience program, adding seasoned managers with significant experience on innovative platforms. Team members have been participating in workshops meant to enhance and foster a client centric culture that results in an elite customer experience. With this foundation, we’ll continuously look to implement innovative solution for our clients.

Whether it’s working on new partnerships to empower the largely underserved small business community or creating a bespoke deposit product for commercial customers, we’ll always be prepared to have our clients bank well. With these three foundational elements in mind, I’ll now invite Matt and Ryan to share some specific examples of our growth strategy and practice.

Matt McNeill: Bankwell has had great success over the past several years transforming into a full service commercial bank. We have done the work to build out our infrastructure and have made significant strides digitizing our products and interfaces. We now have well established lending verticals in residential care and insurance agency financing. We are currently developing a lineup of digital products for small business to drive our SBA loan production. Each of these verticals provides diverse lending opportunities, fee income and deposits. For example, Slides 15 and 16 walk through the lifecycle and economics of a residential care loan. We rely on our deep client relationships to originate high quality skilled nursing and assisted living bridge loans, which typically are owner operated.

At origination, the bank provides operating accounts for the facility, an accounts receivable line of credit, and a lockbox for the accounts receivable payments. Additionally, the bank receives the rights to the economics gained when the loan is eventually refinanced with HUD. We designed the operating accounts, BlockBox and the line of credit to comply with the eventual HUD financing. This allows the borrower to easily transition to a HUD mortgage and leave all the other banking services at the bank. Over time, deposit balances and fee income build as more bridge loans are refinanced at HUD and are replaced with new originations. Although the bank has been in the Small Business Administration’s preferred lender program for over a decade, we have begun to reimagine our place in business banking.

Small business banking is the last large banking segment that is not dominated by money centered banks or fintechs. The fractured nature of the business banking market has created large gaps in the availability of lending and provided few innovative financial tools to help owners manage their business. The SBA provides many resources, including government backed loans to small businesses. However, the loans are difficult to access and require the entrepreneur to engage in a cumbersome time consuming application and closing process. We believe there is an inflection point now to utilize new technologies to reduce friction between small businesses and access to SBA backed loans. To help us drive this initiative, we have hired top tier proven SBA lending leadership, invested in technology partnerships, and strengthened our small business lending, credit, risk and compliance infrastructure.

To create a successful SBA lending vertical, we will require more thoughtful technology interfaces than what is currently available in the market. Ryan Hildebrand will now discuss how this and other journeys will be traveled at Bankwell.

Ryan Hildebrand : Thank you, Matt. As Bankwell’s Chief Innovation Officer, I’m excited to share our recent innovations and strategic initiatives for growth and efficiency. Before discussing our actions, I’d like to provide context and share our guiding themes for how Bankwell have used this defining moment. The last four years have been turbulent with the pandemic, PPP, rise of digital, remote work, crypto scandals, rapidly rising interest rates, regional bank failures and rapid advances in artificial intelligence. The next four years might not have as many storylines, but what is abundantly clear is we are in a new technology world. The concept of digital transformation is vital and its meaning is rapidly changing. Banks serve as custodians of client data and financial products, both driven by technology and people.

With generative AI, products that traditionally required years of development can now be launched in just a weekend. Bankers can work more quickly and possibly with greater precision aided by Gen-AI as their assistant. In the past, the banking sector hasn’t kept pace with other industries in its adoption of new technologies and most innovations were a function of scale. But now with today’s tools, anyone can take on a role of a technology developer, which means there’s no longer a need for massive engineering teams. Organizations that embrace agility and adaptability are positioned to gain a significant strategic edge. We feel that nurturing a culture of technology and innovation is critical and Bankwell is excited to be one of the banks leading the way in this journey.

Our team is crucial. We’ve doubled our efforts to invest in existing talent and add strategic roles. We have an exciting story that tracks others to our vision. Many of our team members have thrived in larger institutions and are now enjoying greater freedom to do meaningful work at Bankwell. Hiring has expanded beyond Southern Connecticut based on need. Risk management is priority number one for us. We continue to invest in talent and technology there. We have refined our third party risk management process from vendor intake all the way up to adding key board members well versed in technology bank risk. We’ve also added top tier talent around security and compliance. With no immediate plans to enter the banking as a service market in the coming quarters, we are well positioned for opportunities in embedded lending and banking.

We believe that we need to be nimble and flexible. This allows us to jump on opportunities that others might not be able to take. Mind you, there are a lot out there. Along those same lines, launching pilots are keys to success without putting all of our eggs in just a few baskets. You’ll hear about some successful pilots shortly. Prioritization of the client is an important theme. As we work to build bespoke products for them that you will hear about in 2025. We have also hired a Chief Customer Experience Officer with strong fintech and fintech Bank experience. We do more with less. Our strategy centers on efficient technology investment for maximum returns. As an example, we spent $4 million in the first nine months of the year on technology, much less than the industry average of 10% of revenue.

As to this quarter, we concentrated on executing our strategy and discovered several expansion opportunities to enhance our growth. I want to draw your attention to five key launches that occurred this quarter, showcased in the next few slides. First, we relaunched the Bankwell brand with a more modern look, but still core to the appearance our clients are used to. We also refreshed the mybankwell.com client site and will update our investor website in the coming weeks. These visual changes may seem superficial at a glance, but they reinforce our commitment to existing assets, including employees and bring the Bank’s brand into alignment with its modern product offerings. Second, this quarter we launched our Bankwell Direct pilot, a national consumer digital bank aimed at acquiring new clients and reducing brokered deposit concentration.

Our marketing efforts led to $97 million in growth in our customer base. The average deposit was $60,000 costing just 11 basis points in marketing costs versus the industry standard of 100 basis points. This pilot is an example of how our digital strategy allows us to grow and test new deposit offerings without affecting our local branches. Third, we proudly launched our Connecticut small business growth loan program in August. This initiative supports Connecticut’s vibrant small business community, providing them with a boost of capital to thrive and grow. The program is a flat $10,000 9.75% five year loan with an easy monthly payment of $215 for working capital. We’ve already begun seeing very positive responses from local business owners, which speaks volumes about the demand for the straightforward product.

We partnered with an AI company, Costco, to scale its products by using Gen-AI to help potential borrowers quickly check their credit eligibility. Our offering features a five-minute digital application and can close loans in one day. Serving as a client acquisition relationship management tool, it also ensures we meet Community Reinvestment Act requirements. Moreover, it’s a starter loan that integrates into our larger SBA program, helping clients transition into more complex relationships with Bankwell. In September 2024, we partnered with Lendio, an online small business marketplace that has financed over 400,000 borrowers in 13 years. This collaboration improves our ability to serve small businesses by using Lendio’s platform to simplify the SBA lending process, providing clients with a more efficient way to access funding and boosting our growth in the small business loan market.

Finally, I’m also excited to reveal that we launched a pilot for our new business banking digital suite, a sub-brand of Bankwell called Spire in October 2024. This product is designed with the needs of modern businesses in mind, offering competitive features and a user friendly experience that can help businesses manage their finances more effectively. We believe Spire will help our lending clients run their businesses faster and more efficiently. These five launches represent our commitment to providing innovative and accessible financial services to communities we are now serving. We are optimistic about their impact on our growth and are dedicated to seeking new opportunities to serve existing and new clients better. Thank you for your time.

Over to you, Courtney, to take us home.

Courtney Sacchetti : Thanks, Ryan. Given the strategic updates we discussed with you today, we wanted to provide some high level thoughts about our financial outlook and tie things back to our earnings performance. Looking ahead to 2025, we expect to hold total assets stable as most of the growth initiatives Matt and Ryan have discussed today will be opportunities for us to remix our assets and liabilities with a focus on driving improved profitability, expanding our non-interest income and further reducing broker deposits. As noted previously, we anticipate more meaningful margin expansion into 2025 as short term rates move lower, which will be a function of lower deposit costs, largely due to the significant amount of CD maturities we have on our balance sheet over the next 12 months.

We expect a stable asset base and improved profitability to grow our regulatory capital position, including our consolidated CET1 ratio, even if we continue to utilize our buyback authorization in the near-term. Finally, our focus on efficiency is unchanged, and we continue to balance our growth and strategic investments against our organizational size and scope.

Chris Gruseke : Thanks, Courtney. We appreciate everyone joining us today for our first earnings call. While the third quarter credit performance wasn’t where we’d like it to be, we remain quite optimistic about our future. I’d also especially like to thank all of our teammates at Bankwell, whose excellent effort and dedication have made the continuous evolution of our company possible. We’ve now concluded our prepared remarks. Operator, will you please begin the question-and-answer session?

Operator: We will now begin the question-and-answer session. [Operator Instructions] We’ll take our first question from Christopher O’Connell at KBW.

Q&A Session

Christopher O’Connell: So just wanted to start off, I guess, with the balance sheet and appreciate the long-term margin commentary going into next year on the CDs and the loan repricing. As far as what the loan repricing is about $500 million over the course of the next year, what’s roughly the average rates that those are coming off at?

Chris Gruseke : Yes. Go ahead, Courtney.

Courtney Sacchetti: Well, approximately in the mid-6s at this point is what we’re going to be repricing.

Christopher O’Connell : And then I was wondering if you had the either the spot margin for September or the spot cost of deposits for September?

Courtney Sacchetti: Actually, I don’t have that in front of me because we’ve had some unusual items that happened. I think I referenced calling of the broker CD. So we’ve had some fees that we’ve had to accelerate in there. So it’s kind of a skewed number. But I did review your estimate for the fourth quarter regarding I believe you have a 2.70 NIM for the fourth quarter. I would say that’s in line with what we were expecting.

Chris Gruseke : This is Chris Gruseke. On your first question, I believe you’re asking what the roll off rate was on loans that are maturing over the next 12 months, correct?

Christopher O’Connell : Correct.

Chris Gruseke : So we can add some color as to what they would roll to, I think, given today’s rate because the odd comments we made were based on today’s yield curve.

Matt McNeill : Chris, it’s Matt. We expect that $500 million to reprice higher than the $6.5 billion I think our yield in 2024 had an eight handle on it. So it’s probably a little less than that but we think there’s some room to go up higher above that 6.5 number.

Christopher O’Connell : And I guess just appreciate the comments on going into the Q4 margin so far outside of the CD portfolio with the initial 50 basis points of fed funds cuts. Maybe you guys can just provide a little bit of color about any moves that you made or reductions on the rest of the non-maturity deposit portfolio so far?

Courtney Sacchetti: Yes, sure. We’ve made some adjustments on some of our exception pricing that we have. So we’ve probably repriced, let’s say about $175 million in line with fed funds. So we’ve reduced their pricing approximately 50 basis points as well. So that’s all non-maturity. We did that at the time of the rate cut.

Chris Gruseke : Right. That wouldn’t have been priced into this quarter’s results fully yet.

Courtney Sacchetti: Correct. Because it would have been mid-September.

Christopher O’Connell : And so thinking about the forward, the new initiatives and the mix on forward loan growth in terms of the Lendio and the Costco partnerships on the small business side, what should we be expecting in terms of either dollar amount or contribution to kind of gross percentage loan growth going forward? And over the course of the next year or so it sounds like, the net loan growth is going to be relatively stable. How should we be thinking about the level of pay downs versus originations going forward?

Ryan Hildebrand : We think we can keep the balance sheet relatively flat. There may be some modest growth. I don’t think it’ll be attributable to SBA as we’ll look to sell those guaranteed portions. So 75% of those loans would go off the balance sheet. And the reason that that’s attractive is for the capital build that helps with so relatively flat to modest growth but not necessarily attributable to SBA.

Christopher O’Connell : The mix of the origination or growth going forward versus where you guys expect to have the loans falling off I guess to offset that.

Matt McNeill : I believe that we’ll continue to expand our C&I lending and owner occupied lending. We’ll probably deemphasize investor CRE. We’ve obviously not been very active in the office market for a while now. So that’s that — is that — does that answer your question, Chris? Is that what you’re driving towards is, how those larger buckets will line up with the balance sheet.

Christopher O’Connell : Yes, that’s it.

Chris Gruseke : And then Chris, in second half of the year, I would think that we’d see SBA originations picking up. But keep in mind we’re going to be selling the vast majority of those off. So we won’t have growth there, but that will be — that’ll begin in the second half of the year to add to net interest income.

Christopher O’Connell : And then longer term, I think you guys mentioned continued — new authorization continue to use some buyback here and there near-term. Do you have any kind of long-term targets on the capital side either from the CET1 perspective or overall CRE concentration?

Chris Gruseke : Yes. So not necessarily on CRE, but if you look at the consolidated CET1 position, which I believe is currently around 9.5% — 9.70% by the end of ‘26, we probably want to see that north of 11% somewhere. We have some maturing subject, repricing subject in ‘26 and ‘27, but there’s enough, I think there’s enough wiggle room and depending it’s going to be more of an art than a science depending on where the stock is and what impact we have buying it back versus what is the growth opportunity versus we’re committed to a capital build. But certainly at these — when we’re trading below book, we’re going to be looking at what that trade up will be.

Christopher O’Connell : And then on the expense side, obviously, you guys are juggling a lot of initiatives here and trying to do that in the most efficient way possible. It sounds like on the whole though based on the commentary around expenses to average assets keeping relatively stable and the growth outlook relatively stable that outlook into next year should be kind of modestly upward on the expense side, but not an outsized pickup even with these initiatives relative to historical levels. Is that fair?

Courtney Sacchetti: Yes, I would agree with that, Chris. I looked at your estimate, I think of $55 million, $250,000 for next year and that’s like [166] as average assets in your model, which again it does have some investments there, but any investment that we make will be tied to revenue producing initiatives. So we may see a slight uptick in that OpEx to assets ratio but we’ll be generating revenue.

Chris Gruseke : Chris, this is Chris Gruseke again. And we did want to underline the point in our prepared remarks today that much of the investment and expenditure for the things we’re looking to grow into next year has already been made. We reconfigured positions and added different talent and invested in different systems. A lot of that is already in the run rate. And so we wanted to really make sure that we told the world that there’s not a lot of extra expenses coming. Now if we had an opportunity to spend some money that is directly tied to revenue, then sure that number could go up modestly but any increase that would be ahistorical for us would mean that the efficiency ratio is coming up because there will be more revenue I’m sorry, down, better because we haven’t increased revenue with that expenditure.

Courtney Sacchetti: Yes. And I would just add that as we have in prior years, we’ve given I think a little bit more guidance on the 4Q call. So we’re in the middle of our budgeting cycle now. So when we regroup again in January on the fourth quarter and we’ll have a better outlook for you for next year.

Christopher O’Connell : And then just I mean it sounds like the resolution is more or less in hand, but any color around what happened to make the $27 million multifamily go NPL? And why it was able to be, I guess, taken off at a pretty attractive sale at par?

Chris Gruseke : So we’ve been in the works selling that loan. There was a fire at the property that made one of the buildings inhabitable for a period of time. Insurance proceeds were received. Sponsor has been a little bit uncooperative, so we made the decision to market the loan instead of relatively low LTV. So it was an attractive buy for someone who was in the market for that type of property.

Christopher O’Connell : And then as far as —

Chris Gruseke : Sorry, you go first.

Christopher O’Connell : Go ahead, Chris.

Chris Gruseke : So I was going to add, you had mentioned a couple of few initiatives that we have on tap for next year, but I think it’s worth adding a comment or two from our side that there may be three, four, five, six different initiatives but that doesn’t mean we’ll go whole hog into all of them because I think part of the business plan is to be ready to be flexible and feed the ones that are working and pull back on the ones that may not look so good. And I think Ryan can maybe add a little bit to that.

Ryan Hildebrand: Sure. Ryan Hildebrand here. Really excited about the opportunity going into 2025 to really be able to increase on the small business SBA side. Fee income and deposits are really the square name of the game on this. Also thinking about how do we increase more deposits that are non-brokered and also thinking about lower cost, if not non-interest bearing deposits with some of the initiatives on the innovation side. So more to share in 2025 on that, but we’re really excited about kind of the next steps as well as increasing efficiency of being able to lower expenses using technology and looking at some of the opportunities there is something that I’m focused on.

Christopher O’Connell : And then, yes, maybe just on the Bankwell Direct, I mean, what do you guys have any targets for where that could get to in the first year? And I guess how you see managing those deposit costs as you get kind of further a lot along in this cutting cycle?

Ryan Hildebrand : I’d say it’s really a lever for us when we stood it up quickly to be able to have that ready to figure out as rates dropped. It’s something that we’re really focused on. I think it’s obviously we want to pay down as much brokerage as possible. We don’t necessarily want to pay it down, if it’s too expensive. So we’re really paying real close attention to markets. We think there’s a lot of opportunity locally as well. So it’s really thinking about how do we move forward with that lever and then being able to add additional levers to it. But I wouldn’t say that we have strict targets yet. It’s something that we’ll pull together when we go to budget period here.

Chris Gruseke : The important part of that, Chris, this is Chris Gruseke again, was our ability to stand it up quickly and understand that once we got it up and running, we had a lever that could meaningfully add to deposit flow when we needed it to. And then you can ratchet your rates back and slow it down. So it’s up to us what we want the flow to look like.

Courtney Sacchetti: And I will point out I think at [930], it was less than 4% of our total deposit. So it’s not an overly large concentration.

Christopher O’Connell : And then thinking about go forward in the trend of where the reserve could be over time. Based on kind of the loan mix that you guys are putting on now versus the historical mix of the portfolio, I guess, where do you guys see the reserve to loan in kind of a normal economic environment trending to longer term?

Chris Gruseke : Yes. So the mix, as stated before, deemphasizing investor free, paying a lot more attention to C&I businesses, looking to keep the residential care portfolio around the level that it’s at, if not modestly higher. I think we have a limit of around 300% of capital on health care. So we don’t think that we’re going to raise that limit but those loans just stay up there and then really turning the focus to SBA. That’s really where the lending focus in ’25 is going to be. We want to build a respectable SBA department and have that really be the focus being one of the pillars of non-interest income production going forward.

Christopher O’Connell : And then last couple for me. Just do you guys have the — just a reminder on what the level of kind of pure floating rate loans are in the portfolio right now?

Courtney Sacchetti: It’s still pretty consistent about 20%.

Christopher O’Connell : And then last one for me. Just what’s a good go forward tax rate?

Courtney Sacchetti: Our tax rate was a little high this quarter and that’s really a function of our [1048] — our uncertain tax position entry, that’s kind of a fixed rate. And obviously, our income is a lot lower. So as a percentage, it kind of skews the effective tax rate. But I think 24.5% is what we are striving for when you kind of have a more normal income profile. We’ve had a couple of down quarters.

Operator: And that concludes our Q&A session and today’s conference call. I would like to thank everyone for your participation. You may now disconnect.