Bankwell Financial Group Reports Record Year-End Operating Results and Declares a 71% Increase to the First Quarter Dividend

Bankwell Financial Group, Inc. (NASDAQ: BWFG) reported GAAP net income of $2.1 million or $0.27 per share for the fourth quarter of 2017, versus $3.3 million or $0.43 per share for the same period in 2016 and GAAP net income of $13.8 million or $1.78 per share for the year ended 2017, versus $12.4 million or $1.62 per share for the year ended 2016.

The Company's Board of Directors declared a $0.12 per share cash dividend, payable March 8, 2018 to shareholders of record on February 26, 2018, representing a 71% increase when compared to the last quarter’s dividend.

The reported GAAP net income for the quarter and the full year was impacted by several one-time, non-recurring items, the most significant of which was the tax reform of 2017. The impact of all items are outlined in the table below and discussed in more detail that follows. The discussion and analysis otherwise contained in our earnings release is entirely based on reported GAAP measures and corresponding GAAP net income unless otherwise noted.

As result of the tax law changes enacted in late 2017, the Company recognized a write-down of its deferred tax asset in the amount of $3.3 million or $0.42 per share. In addition, in late 2017 the Company recognized an after tax charge of $0.2 million or $0.02 per share due to a minimal workforce reduction. These charges were partially offset by a reduction in the allowance for loan losses stemming from an update to its methodology and underlying loan loss assumptions, incorporating the most recent industry and product loss trends. This resulted in a non-recurring, after tax $0.9 million or $0.11 per share reduction in the reserve. In addition, the Company recognized an after tax benefit of $0.6 million and $0.7 million or $0.07 per share and $0.08 per share, for the quarter ended and year ended 2017, respectively, as a result of refining the model assumptions used in calculating a servicing asset relating to loans in which the Company retains the servicing rights and liabilities. Adjusting net income for these items would result in core net income (non-GAAP) of $4.1 million or $0.53 for the quarter ended December 31, 2017 and $15.7 million or $2.03 for the year ended December 31, 2017.

Notes Bankwell Financial Group President and CEO, Christopher R. Gruseke:

“2017 was another record year for Bankwell. In an increasingly volatile interest rate environment, we continue to improve our operating efficiencies and we vigilantly adhere to disciplined pricing on both sides of the balance sheet. The 2017 tax reform represents a unique opportunity for the bank and its shareholders. It will allow us to reward our shareholders, invest in the company’s growth initiatives and infrastructure, while giving back to the communities we serve.”

Fourth Quarter and Year Ended 2017 Highlights:

• Total revenue (net interest income plus non-interest income) reached $59.0 million for the year ended 2017 compared to $51.8 million for the year ended 2016.
• Tax equivalent net interest margin was 3.30% for the year ended 2017.
• Total non-interest income was $4.6 million for the year ended 2017, which is 8% of total revenue.
• The efficiency ratio was 55.1% and 54.9% for the fourth quarter and year ended 2017, respectively, compared to 55.6% and 56.5% for the fourth quarter and year ended 2016, respectively.
• The tangible common equity ratio and tangible book value per share was 8.81% and $20.59, respectively.
• Total gross loans exceeded $1.5 billion and total assets reached $1.8 billion.
• The allowance for loan losses was $18.9 million and represents 1.23% of total loans.
• Nonperforming assets represented 0.31% of total assets.
• Investment securities totaled $113.8 million and represent 6% of total assets.
• Total deposits reached $1.4 billion for the year ended 2017, an increase of $109.4 million or 8.5% compared to the year ended 2016.

Earnings

Net income for the quarter ended December 31, 2017 was $2.1 million, a decrease of 37% compared to the quarter ended December 31, 2016. Net income for the year ended December 31, 2017 was $13.8 million, an increase of 12% compared to the year ended December 31, 2016. The decline in net income was primarily a result of the aforementioned non-recurring items, the greatest component of which was the DTA write down as a result of the 2017 tax reform.

Revenues (net interest income plus non-interest income) for the quarter ended December 31, 2017 were $15.5 million, an increase of 13% compared to the quarter ended December 31, 2016. Revenues for the year ended December 31, 2017 were $59.0 million, an increase of 14% compared to the year ended December 31, 2016. Net interest income for the quarter ended December 31, 2017 was $13.9 million, an increase of 5% compared to the quarter ended December 31, 2016. Net interest income for the year ended December 31, 2017 was $54.4 million, an increase of 11% compared to the year ended December 31, 2016. The growth in revenues and net interest income were driven by continued earning asset growth.

Basic and diluted earnings per share for the quarter ended December 31, 2017 were both $0.27 compared to $0.44 and $0.43 basic and diluted earnings per share for the quarter ended December 31, 2016. Basic and diluted earnings per share for the year ended December 31, 2017 was $1.80 and $1.78, respectively, compared to $1.64 and $1.62 earnings per share, respectively, for the year ended December 31, 2016.

The Company’s efficiency ratios for the quarters ended December 31, 2017 and December 31, 2016 were 55.1% and 55.6%, respectively. The Company’s efficiency ratios for the year ended December 31, 2017 and December 31, 2016 were 54.9% and 56.5%, respectively.

Noninterest Income and Expense

Noninterest income increased $1.1 million to $1.5 million for the three months ended December 31, 2017 compared to the three months ended December 31, 2016. Noninterest income increased $2.0 million to $4.6 million for the year ended December 31, 2017 compared to the year ended December 31, 2016. The increase in noninterest income was primarily driven by income earned from the Company’s additional purchases of Bank Owned Life Insurance, an increase in the gains and fees from the sales of loans and rental income earned from the headquarters building acquired in the fourth quarter of 2016.

Noninterest expense increased $811 thousand or 10% for the three months ended December 31, 2017 compared to the three months ended December 31, 2016. The increase was primarily driven by an increase in salaries and employee benefits and other expenses related to growth and strategic initiatives. The increase in salaries and employee benefits was driven by an increase in full time equivalent employees. Full time equivalent employees totaled 139 at December 31, 2017 compared to 126 at December 31, 2016.

Noninterest expense increased $3.0 million or 10% for the year ended December 31, 2017 compared to the year ended December 31, 2016. The increase was primarily driven by an increase in salaries and employee benefits, occupancy and equipment expenses, professional services and other expenses related to growth and strategic initiatives. The increase in salaries and employee benefits was driven by an increase in full time equivalent employees. Average full time equivalent employees totaled 134 at December 31, 2017 compared to 125 at December 31, 2016. The increase in occupancy and equipment expenses was driven by increases in IT related expenses, one time charges relating to back office consolidation activity and maintenance costs for our headquarters building acquired in the fourth quarter of 2016. The increase in professional services was driven by increased fees paid for internal and external audit, and consulting services to support the overall growth of the business.

Financial Condition

Assets totaled $1.8 billion at December 31, 2017, an increase of 10% compared to assets of $1.6 billion at December 31, 2016. This increase reflects strong organic loan growth. Total gross loans exceeded $1.5 billion at December 31, 2017, an increase of 13% compared to December 31, 2016, driven by growth in commercial real estate loans of $125.8 million and commercial business loans of $60.4 million. Deposits increased to $1.4 billion compared to $1.3 billion at December 31, 2016, an increase of 9% over December 31, 2016.

Asset Quality

Asset quality remained strong at December 31, 2017. Non-performing assets as a percentage of total assets was 0.31% at December 31, 2017, up from 0.20% at December 31, 2016. The allowance for loan losses at December 31, 2017 was $18.9 million, representing 1.23% of total loans.

Capital

Shareholders’ equity totaled $161.0 million as of December 31, 2017, an increase of $15.1 million compared to December 31, 2016, primarily a result of net income for the year ended December 31, 2017 of $13.8 million. As of December 31, 2017, the tangible common equity ratio and tangible book value per share were 8.81% and $20.59, respectively.

About Bankwell Financial Group

Bankwell is a commercial bank that serves the banking and lending needs of residents and businesses throughout Fairfield and New Haven Counties, CT. For more information about this press release, interested parties may contact Christopher R. Gruseke, President and Chief Executive Officer or Penko Ivanov, Executive Vice President and Chief Financial Officer of Bankwell Financial Group at (203) 652-0166.

For more information, visit www.mybankwell.com.

This press release may contain certain forward-looking statements about the Company. Forward-looking statements include statements regarding anticipated future events and can be identified by the fact that they do not relate strictly to historical or current facts. They often include words such as “believe,” “expect,” “anticipate,” “estimate,” and “intend” or future or conditional verbs such as “will,” “would,” “should,” “could,” or “may.” Forward-looking statements, by their nature, are subject to risks and uncertainties. Certain factors that could cause actual results to differ materially from expected results include increased competitive pressures, changes in the interest rate environment, general economic conditions or conditions within the securities markets, and legislative and regulatory changes that could adversely affect the business in which the Company and its subsidiaries are engaged.

Non-GAAP Financial Measures

In addition to evaluating the Company's financial performance in accordance with U.S. generally accepted accounting principles ("GAAP"), management may evaluate certain non-GAAP financial measures, such as the efficiency ratio. A computation and reconciliation of certain non-GAAP financial measures used for these purposes is contained in the accompanying Reconciliation of GAAP to Non-GAAP Measures tables. We believe that providing certain non-GAAP financial measures provides investors with information useful in understanding our financial performance, our performance trends and financial position. For example, the Company believes that the efficiency ratio is useful in the assessment of financial performance, including non-interest expense control. The Company believes that tangible common equity and tangible book value per share is useful to evaluate the relative strength of the Company's capital position. The Company believes that providing a reconciliation from GAAP net income to core net income is useful for comparative analysis to prior periods given the presence of non-recurring items. We utilize these measures for internal planning and forecasting purposes. These non-GAAP financial measures should not be considered a substitute for GAAP basis measures and results, and we strongly encourage investors to review our consolidated financial statements in their entirety and not to rely on any single financial measure.