Bankwell Financial Group Reports Operating Results for the Fourth Quarter and Full Year 2020; Declares First Quarter Dividend

NEW CANAAN, Conn.–(BUSINESS WIRE)–Bankwell Financial Group, Inc. (NASDAQ: BWFG) reported GAAP net income of $0.3 million, or $0.04 per share, for the fourth quarter of 2020, versus $3.5 million, or $0.44 per share, for the same period in 2019.

The Company’s Board of Directors declared a $0.14 per share cash dividend, payable February 25, 2021 to shareholders of record on February 15, 2021.

We recommend reading this earnings release in conjunction with the Fourth Quarter 2020 Investor Presentation, located at https://investor.mybankwell.com/Presentations and included as an exhibit to our January 27, 2021 Current Report on Form 8-K.

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

“The Company made excellent progress this year despite the adversities presented by the Pandemic. Core deposits increased by 43% year over year and, importantly, non-interest bearing deposits grew by over 41%. COVID-19 deferrals have declined to account for less than 2% of the loan portfolio. After a thorough review of each COVID-impacted loan, the Company has taken swift action to reclassify $25.6 million as non-performing. These loans are collateralized and carry adequate reserves. The Company’s outlook for the coming year is increasingly optimistic. Our recently disclosed efficiency initiatives will bolster profitability in 2021 and beyond, and loan originations for the first quarter are tracking to be one our strongest efforts ever.”

Fourth Quarter 2020 Highlights:

• Recognized a $3.9 million one-time charge for office consolidation, contract termination and employee severance costs in the fourth quarter of 2020.
• The allowance for loan losses was $21.0 million and represents 1.29% of total loans (1.32% excluding Paycheck Protection Program (“PPP”) loans) as of December 31, 2020, compared to an allowance for loan losses of $13.5 million, representing 0.84% of total loans as of December 31, 2019. The increase in the allowance for loan losses was primarily due to incremental loan loss reserves for increased credit risk relating to economic disruption and uncertainty caused by the COVID-19 pandemic.
• PPP loans totaled $34.8 million at December 31, 2020.
• Less than 2% of the loan portfolio remains on COVID-19 deferral.
• Total deposits were $1.8 billion at December 31, 2020 compared to $1.5 billion at December 31, 2019, reflecting successful commercial core deposit gathering efforts, as well as a temporary increase in deposits to expand on-balance sheet liquidity during the COVID-19 pandemic.
• Noninterest bearing deposits increased 41% to a new high of $270.2 million at December 31, 2020, when compared to December 31, 2019.
• The Bank’s loan-to-deposit ratio was 87.9% at December 31, 2020, reflecting the above-mentioned increase in deposits.
• Total gross loans were $1.6 billion at December 31, 2020.
• Investment securities totaled $106.9 million and represent 5% of total assets.
• The tangible common equity ratio, as of December 31, 2020, decreased to 7.73% when compared to December 31, 2019. The decrease was primarily driven by mark-to-market activity on long dated interest rate swaps, as well as increased liquidity and corresponding balance sheet growth.
• Tangible book value per share as of December 31, 2020 was $22.43.

Earnings and Performance

Revenues (net interest income plus noninterest income) for the quarter ended December 31, 2020 were $14.9 million, versus $13.9 million for the quarter ended December 31, 2019. Revenues for the year ended December 31, 2020 were $57.7 million, versus $59.0 million for the year ended December 31, 2019. For the year ended December 31, 2020, the decrease in revenues was attributable to the absence of SBA loan sales, when compared to the same period in 2019. The decrease in revenues was also driven by lower loan yields as loans are re-priced in the current low interest rate environment. The decrease in revenues was partially offset by a decline in interest expense, driven by lower interest rates on deposits when compared to the same period in 2019. The change in revenues for the quarter ended December 31, 2020 was driven by the same factors except that the decline in interest expense outweighed the absence of SBA loan sales and lower yields on loans.

Net income for the quarter ended December 31, 2020 was $0.3 million, versus $3.5 million for the quarter ended December 31, 2019. Net income for the year ended December 31, 2020 was $5.9 million, versus $18.2 million for the year ended December 31, 2019. The decrease in net income for the quarter and year ended December 31, 2020, when compared to the same periods in 2019, were impacted by a $3.9 million one-time charge for office consolidation, contract termination and employee severance costs in the fourth quarter of 2020. The decrease in net income for the year ended December 31, 2020, when compared to the same period in 2019, was also due to an increase in the provision for loan losses due to the COVID-19 pandemic. The provision for loan losses totaled $7.6 million for the year ended December 31, 2020, consisting of COVID-19 related reserves of $9.0 million, partially offset due to changes in portfolio mix and growth.

Basic and diluted earnings per share were each $0.04 for the quarter ended December 31, 2020 compared to basic and diluted earnings per share of $0.44 each for the quarter ended December 31, 2019. Basic and diluted earnings per share were each $0.75 for the year ended December 31, 2020 compared to basic and diluted earnings per share of $2.32 and $2.31, respectively, for the year ended December 31, 2019.

The net interest margin (fully taxable equivalent basis) for the quarters ended December 31, 2020 and December 31, 2019 was 2.66% and 2.92%, respectively. The net interest margin for the year ended December 31, 2020 and December 31, 2019 was 2.77% and 3.03%, respectively. The decrease in net interest margin for the quarter and year ended December 31, 2020, when compared to the same periods in 2019, was primarily due to excess liquidity resulting from successful commercial core deposit gathering efforts as well as a temporary increase in other deposits to expand on-balance sheet liquidity during the COVID-19 pandemic.

Financial Condition

Assets totaled $2.3 billion at December 31, 2020, compared to assets of $1.9 billion at December 31, 2019. The increase in assets is primarily due to an increase in cash and cash equivalents in part to maintain a higher level of liquidity during the COVID-19 pandemic. Gross loans totaled $1.6 billion at December 31, 2020, an increase of $21.1 million compared to December 31, 2019. Excluding PPP loans, gross loans decreased by $13.7 million at December 31, 2020 when compared to December 31, 2019. Deposits totaled $1.8 billion at December 31, 2020, compared to deposits of $1.5 billion at December 31, 2019. The increase in deposits was a result of successful commercial core deposit gathering efforts and a temporary increase in deposits during the COVID-19 pandemic, as described above.

Capital

Shareholders’ equity totaled $176.6 million as of December 31, 2020, a decrease of $5.8 million compared to December 31, 2019, primarily a result of an $8.1 million unfavorable impact to accumulated other comprehensive loss driven by fair value marks related to hedge positions involving interest rate swaps, as well as dividends paid of $4.4 million and common stock repurchases of $1.0 million. The decrease was partially offset by net income for the year ended December 31, 2020 of $5.9 million. The marks on the interest rate swaps are driven by lower long term market interest rates in 2020 when compared to 2019. The Company’s interest rate swaps are used to hedge interest rate risk. The Company’s current interest rate swap positions will cause a decrease to other comprehensive income in a falling interest rate environment and an increase in a rising interest rate environment.

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, but are not limited to, increased competitive pressures, changes in the interest rate environment, general economic conditions or conditions within the securities markets, uncertain impacts of, or additional changes in, monetary, fiscal or tax policy to address the impact of COVID-19, prolonged measures to contain the spread of COVID-19 or premature easing of such containment measures, either of which could further exacerbate the effects on the Company’s business and results of operations, 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.