Bankwell Financial Group Reports Operating Results for the Fourth Quarter and Declares an Increase to the First Quarter Dividend

Bankwell Financial Group, Inc. (NASDAQ: BWFG) reported GAAP net income of $3.5 million or $0.44 per share for the fourth quarter of 2019, versus $3.3 million or $0.41 per share for the same period in 2018 and GAAP net income of $18.2 million or $2.31 per share for the year ended 2019, versus $17.4 million or $2.21 per share for the year ended 2018.

The Company's Board of Directors declared a $0.14 per share cash dividend, payable February 24, 2020 to shareholders of record on February 14, 2020, representing an 8% increase when compared to the prior quarter’s dividend.

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

"We finished the year with excellent momentum, growing loan balances $40 million during the fourth quarter on originations of $92 million. We are particularly pleased at the results of our investment in Bankwell’s Treasury Management (“TM”) business. New non-interest bearing deposits from TM grew by 31% during 2019. Importantly, we begin 2020 with our cost of deposits down approximately 20 basis points from the peak in Q2, and expect a further 10-15 basis point reduction this year based on currently prevailing interest rates."

Fourth Quarter and Year Ended 2019 Highlights:

• Fourth quarter diluted earnings per share were $0.44, an increase of 7% compared to the fourth quarter of 2018.
• Total gross loans were $1.6 billion at December 31, 2019 and grew at an annualized rate of 10% during the quarter.
• Return on average assets for the year ended December 31, 2019 totaled 0.97% compared to 0.94% for the same period in 2018.
• Total deposits were $1.5 billion at December 31, 2019 and grew at an annualized rate of 6% during the quarter.
• Noninterest bearing deposits totaled $191.5 million for the year ended December 31, 2019, up 7% when compared to the third quarter of 2019.
• The allowance for loan losses was $13.5 million and represents 0.84% of total loans.
• Investment securities totaled $100.9 million and represent 5% of total assets.
• Total noninterest income was $5.2 million for the year ended December 31, 2019, or 9% of total revenue.
• The tangible common equity ratio and tangible book value per share, as of December 31, 2019, were 9.56% and $23.15, respectively.
• The efficiency ratio was 60.2% for the year ended December 31, 2019.
• Tax equivalent net interest margin was 3.03% for the year ended December 31, 2019.

Earnings and Performance

Revenues (net interest income plus noninterest income) for the quarter ended December 31, 2019 were $13.9 million, versus $15.1 million for the quarter ended December 31, 2018. The decrease in revenues was attributable to a decline in fee income from loan prepayment activity during the quarter ended December 31, 2019 when compared to the same period in 2018. The decrease in revenues was partially offset by an increase in gains and fees from the sales of loans.

Revenues for the year ended December 31, 2019 were $59.0 million, versus $60.2 million for the year ended December 31, 2018. The decrease in revenues was primarily due to an increase in the cost of interest bearing deposits when compared to the same period in 2018. The decrease in revenues was partially offset by fees recognized from elevated loan prepayments, an increase in gains and fees from the sales of loans, and an increase in fees associated with loan related interest rate swaps. Loan prepayment fees totaled $2.7 million for the year ended December 31, 2019 compared to $1.3 million for the same period in 2018.

Net income for the quarter ended December 31, 2019 was $3.5 million, versus $3.3 million for the quarter ended December 31, 2018. Net income for the year ended December 31, 2019 was $18.2 million, versus $17.4 million for the year ended December 31, 2018. The increase in net income was largely driven by a decline in loan charge-offs in 2019 when compared to 2018, resulting in a lower loan loss provision.

Basic and diluted earnings per share were each $0.44 for the quarter ended December 31, 2019 compared to basic and diluted earnings per share of $0.42 and $0.41, respectively, for the quarter ended December 31, 2018. Basic and diluted earnings per share were $2.32 and $2.31, respectively, for the year ended December 31, 2019 compared to basic and diluted earnings per share of $2.23 and $2.21, respectively, for the year ended December 31, 2018.

The Company’s efficiency ratio for the quarters ended December 31, 2019 and December 31, 2018 was 66.1% and 58.2%, respectively. The Company's efficiency ratio for the years ended December 31, 2019 and December 31, 2018 was 60.2% and 59.2%, respectively. The increases in the efficiency ratio were primarily a result of decreased revenues when compared to the quarter and year ended December 31, 2018. Additionally, increased noninterest expense for the quarter ended December 31, 2019 when compared to the same period in 2018 also contributed to an increase in the quarter end efficiency ratio.

The net interest margin (fully taxable equivalent basis) for the quarters ended December 31, 2019 and 2018 was 2.92% and 3.20%, respectively. The net interest margin for the years ended December 31, 2019 and 2018 was 3.03% and 3.18%, respectively. The decrease in the net interest margin for the quarter ended December 31, 2019 compared to the same period in 2018 was due to a decline in fee income from loan prepayment activity. The decrease in the net interest margin for the year ended December 31, 2019 compared to the same period in 2018 was due to higher rates on interest bearing deposits. For the year ended December 31, 2019, the decline in the net interest margin was partially offset by incremental fees from loan prepayments.

Financial Condition

Total assets, gross loans and deposits remained relatively flat for the period ended December 31, 2019 when compared to the same period in 2018, totaling $1.9 billion, $1.6 billion and $1.5 billion, respectively. However, gross loans grew at an annualized rate of 10% during the fourth quarter of 2019 when compared to the third quarter of 2019. In addition, deposits grew at an annualized rate of 6% during the fourth quarter of 2019 when compared to the third quarter of 2019, which includes strong growth in noninterest bearing deposits.

Capital

Shareholders’ equity totaled $182.4 million as of December 31, 2019, an increase of $8.2 million compared to December 31, 2018, primarily a result of net income for the year ended December 31, 2019 of $18.2 million. The increase was partially offset by a $6.5 million unfavorable impact to accumulated other comprehensive income driven by fair value marks related to hedge positions involving interest rate swaps, as well as dividends paid of $4.1 million and common stock repurchases of $1.0 million. The marks on the interest rate swaps are driven by lower long term market interest rates in 2019 when compared to 2018. The Company's interest rate swaps are primarily used to hedge interest rate risk in relation to its funding sources. The Company's current derivative positions will cause a decrease to other comprehensive income in a falling interest rate environment and an increase in a rising interest rate environment. As of December 31, 2019, the tangible common equity ratio and tangible book value per share were 9.56% and $23.15, respectively.

About Bankwell Financial Group

Bankwell is a commercial bank that serves the banking needs of residents and businesses throughout Fairfield and New Haven Counties, Connecticut. 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 noninterest expense control. The Company believes that tangible common equity and tangible book value per share are useful to evaluate the relative strength of the Company's capital position. 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.

1. Efficiency ratio is defined as noninterest expense, less other real estate owned expenses and amortization of intangible assets, divided by our operating revenue, which is equal to net interest income plus noninterest income excluding gains and losses on sales of securities and gains and losses on other real estate owned. In our judgment, the adjustments made to operating revenue allow investors and analysts to better assess our operating expenses in relation to our core operating revenue by removing the volatility that is associated with certain one-time items and other discrete items that are unrelated to our core business.
2. Represents Bank ratios. Current period capital ratios are preliminary subject to finalization of the FDIC Call Report.
3. Excludes unvested restricted shares of 110,975, 88,473, 94,598, 99,061, and 77,624 as of December 31, 2019, September 30, 2019, June 30, 2019, March 31, 2019, and December 31, 2018, respectively.

Nonperforming assets as a percentage of total assets was 0.56% at December 31, 2019, down from 0.75% at December 31, 2018. The allowance for loan losses at December 31, 2019 was $13.5 million, representing 0.84% of total loans. The Company continues to work on the resolution of the previously disclosed large nonperforming lending relationship. Progress to date has been in line with the Company's estimates and, during the fourth quarter of 2019, a claim has been submitted to the Small Business Administration ("SBA") to recover the remaining balance of $1.9 million, representing 10 basis points of the total nonperforming assets to total assets ratio of 0.56%. During the third quarter of 2019, the Company sold its other real estate owned ("OREO") property for a loss of $0.1 million. The Company does not have any OREO as of December 31, 2019.

Noninterest income increased by $0.4 million, or 74%, to $1.0 million for the quarter ended December 31, 2019 compared to the quarter ended December 31, 2018. The increase in noninterest income was primarily a result of a $0.2 million increase in gains and fees from the sales of loans, driven by a higher volume of loans sold for the quarter ended December 31, 2019 compared to the same period in 2018.

Noninterest expense increased by $0.4 million, or 5%, to $9.2 million for the quarter ended December 31, 2019 compared to the quarter ended December 31, 2018. The increase in noninterest expense was primarily driven by increases in salaries and employee benefits and occupancy and equipment expense. Salaries and employee benefits totaled $5.2 million for the quarter ended December 31, 2019 compared to $4.5 million for the same period in 2018, an increase of $0.7 million. The increase in salaries and employee benefits was primarily driven by an increase in full time equivalent employees and a reduction in deferred loan origination costs. Full time equivalent employees totaled 157 at December 31, 2019 compared to 140 at December 31, 2018. Occupancy and equipment expense increased by $0.3 million for the quarter ended December 31, 2019 compared to the same period in 2018 as a result of the Company's additional investment in technology. The increase in noninterest expense was primarily offset by a $0.2 million decrease in professional services and a $0.2 million decrease in marketing expenses.

Noninterest income increased by $1.3 million, or 34%, for the year ended December 31, 2019 compared to the year ended December 31, 2018. The increase in noninterest income was primarily a result of a $0.8 million increase in gains and fees from sales of loans and a $0.9 million increase in other income. The increase in gains and fees from sales of loans was driven by a higher volume of loans sold for the year ended December 31, 2019 compared to the same period in 2018. The increase in other income was mainly attributable to loan related interest rate swap fees.

Noninterest expense remained flat, totaling $35.6 million for the years ended December 31, 2019 and 2018. Salaries and employee benefits totaled $19.4 million for the year ended December 31, 2019 compared to $19.0 million for the same period in 2018, an increase of $0.5 million. The increase in salaries and employee benefits was primarily driven by an increase in full time equivalent employees and a reduction in deferred loan origination costs. Average full time equivalent employees totaled 150 in 2019 compared to 144 in 2018. Occupancy and equipment expense increased by $0.8 million for the year ended December 31, 2019 compared to the same period in 2018. This increase was primarily associated with a full year of expenses from the prior year's branch expansion and additional investment in technology. FDIC insurance expense decreased by $0.7 million for the year ended December 31, 2019 compared to the same period in 2018 driven by a credit received during the quarter ended September 30, 2019.