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

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 http://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.

BANKWELL FINANCIAL GROUP, INC.
C
ONSOLIDATED BALANCE SHEETS (unaudited)
(Dollars in thousands)

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

December 31,
2019

ASSETS

Cash and due from banks

$

405,340

$

333,103

$

201,380

$

203,569

$

78,051

Federal funds sold

4,258

6,380

5,886

6,427

Cash and cash equivalents

409,598

339,483

207,266

209,996

78,051

Investment securities

Marketable equity securities, at fair value

2,207

2,203

2,195

2,289

2,118

Available for sale investment securities, at fair value

88,605

90,563

82,220

82,342

82,439

Held to maturity investment securities, at amortized cost

16,078

16,138

16,196

16,252

16,308

Total investment securities

106,890

108,904

100,611

100,883

100,865

Loans receivable (net of allowance for loan losses of $21,009, $20,372, $19,662, $16,686, and $13,509 at December 31, 2020, September 30, 2020, June 30, 2020, March 31, 2020, and December 31, 2019, respectively)

1,601,672

1,600,776

1,590,995

1,602,146

1,588,840

Other real estate owned

180

Accrued interest receivable

6,579

7,294

6,774

5,867

5,959

Federal Home Loan Bank stock, at cost

7,860

7,860

7,835

6,507

7,475

Premises and equipment, net

21,762

26,616

27,177

27,835

28,522

Bank-owned life insurance

42,651

42,409

42,167

41,926

41,683

Goodwill

2,589

2,589

2,589

2,589

2,589

Other intangible assets

76

160

178

196

214

Deferred income taxes, net

11,300

11,149

11,352

10,009

5,788

Other assets

42,770

45,782

46,511

45,671

22,196

Total assets

$

2,253,747

$

2,193,022

$

2,043,635

$

2,053,625

$

1,882,182

LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities

Deposits

Noninterest bearing deposits

$

270,235

$

234,848

$

214,789

$

168,448

$

191,518

Interest bearing deposits

1,557,081

1,532,680

1,405,175

1,512,684

1,300,385

Total deposits

1,827,316

1,767,528

1,619,964

1,681,132

1,491,903

Advances from the Federal Home Loan Bank

175,000

175,000

175,000

125,000

150,000

Subordinated debentures

25,258

25,245

25,233

25,220

25,207

Accrued expenses and other liabilities

49,571

50,982

53,078

52,059

32,675

Total liabilities

2,077,145

2,018,755

1,873,275

1,883,411

1,699,785

Shareholders’ equity

Common stock, no par value

121,338

120,854

120,381

119,953

120,589

Retained earnings

70,839

71,603

69,712

69,595

69,324

Accumulated other comprehensive loss

(15,575)

(18,190)

(19,733)

(19,334)

(7,516)

Total shareholders’ equity

176,602

174,267

170,360

170,214

182,397

Total liabilities and shareholders’ equity

$

2,253,747

$

2,193,022

$

2,043,635

$

2,053,625

$

1,882,182

BANKWELL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(Dollars in thousands, except share data)

For the Quarter Ended

For the Year Ended

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

December 31,
2019

December 31,
2020

December 31,
2019

Interest and dividend income

Interest and fees on loans

$

18,194

$

18,027

$

18,459

$

18,985

$

18,648

$

73,665

$

77,339

Interest and dividends on securities

835

799

778

825

858

3,237

3,750

Interest on cash and cash equivalents

117

96

86

286

427

585

1,859

Total interest and dividend income

19,146

18,922

19,323

20,096

19,933

77,487

82,948

Interest expense

Interest expense on deposits

3,557

4,104

4,810

5,709

5,948

18,180

24,698

Interest expense on borrowings

1,285

1,210

876

1,101

1,103

4,472

4,489

Total interest expense

4,842

5,314

5,686

6,810

7,051

22,652

29,187

Net interest income

14,304

13,608

13,637

13,286

12,882

54,835

53,761

Provision for loan losses

709

712

2,999

3,185

310

7,605

437

Net interest income after provision for loan losses

13,595

12,896

10,638

10,101

12,572

47,230

53,324

Noninterest income

Bank owned life insurance

241

242

241

243

250

967

1,008

Service charges and fees

210

190

171

217

247

788

1,023

Gains and fees from sales of loans

16

27

382

43

1,791

Gain (loss) on sale of other real estate owned, net

19

19

(102)

Net gain on sale of available for sale securities

76

Other

154

136

165

612

169

1,067

1,448

Total noninterest income

621

614

577

1,072

1,048

2,884

5,244

Noninterest expense

Salaries and employee benefits

5,453

5,295

5,227

5,380

5,162

21,355

19,434

Occupancy and equipment

4,516

2,266

2,235

1,909

1,928

10,926

7,594

Data processing

1,658

529

493

536

499

3,216

2,067

Professional services

591

374

434

711

402

2,110

1,857

Director fees

331

301

287

295

224

1,214

863

FDIC insurance

262

176

283

70

791

74

Marketing

118

151

199

162

220

630

971

Other

774

637

564

596

789

2,571

2,766

Total noninterest expense

13,703

9,729

9,722

9,659

9,224

42,813

35,626

Income before income tax expense

513

3,781

1,493

1,514

4,396

7,301

22,942

Income tax expense

177

790

279

151

924

1,397

4,726

Net income

$

336

$

2,991

$

1,214

$

1,363

$

3,472

$

5,904

$

18,216

Earnings Per Common Share:

Basic

$

0.04

$

0.38

$

0.16

$

0.17

$

0.44

$

0.75

$

2.32

Diluted

$

0.04

$

0.38

$

0.16

$

0.17

$

0.44

$

0.75

$

2.31

Weighted Average Common Shares Outstanding:

Basic

7,726,926

7,721,247

7,715,094

7,750,135

7,745,227

7,728,328

7,757,355

Diluted

7,728,206

7,721,459

7,715,295

7,778,762

7,773,780

7,748,453

7,784,631

Dividends per common share

$

0.14

$

0.14

$

0.14

$

0.14

$

0.13

$

0.56

$

0.52

BANKWELL FINANCIAL GROUP, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (unaudited)

For the Quarter Ended

For the Year Ended

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

December 31,
2019

December 31,
2020

December 31,
2019

Performance ratios:

Return on average assets(1)

0.06

%

0.55

%

0.23

%

0.29

%

0.73

%

0.28

%

0.97

%

Return on average stockholders' equity(1)

0.75

%

6.87

%

2.82

%

3.03

%

7.68

%

3.35

%

10.20

%

Return on average tangible common equity(1)

0.76

%

6.98

%

2.86

%

3.07

%

7.80

%

3.40

%

10.37

%

Net interest margin

2.66

%

2.67

%

2.81

%

2.98

%

2.92

%

2.77

%

3.03

%

Efficiency ratio(2)

91.2

%

68.4

%

68.2

%

67.1

%

66.1

%

73.9

%

60.2

%

Net loan charge-offs as a % of average loans

%

%

%

%

%

0.01

%

0.15

%

Dividend payout ratio(3)

350.00

%

36.84

%

87.50

%

82.35

%

29.55

%

74.67

%

22.51

%

  1. 2020 performance ratios are negatively impacted by incremental COVID-19 pandemic related loan loss reserves and the $3.9 million one-time charge related to office consolidation, contract termination and employee severance costs recognized in the fourth quarter of 2020.
  2. 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.
  3. The dividend payout ratio is calculated by dividing dividends per share by earnings per share.

As of

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

December 31,
2019

Capital ratios:

Total Common Equity Tier 1 Capital to Risk-Weighted Assets(1)

11.06

%

12.36

%

12.44

%

12.14

%

12.53

%

Total Capital to Risk-Weighted Assets(1)

12.28

%

13.57

%

13.63

%

13.13

%

13.35

%

Tier I Capital to Risk-Weighted Assets(1)

11.06

%

12.36

%

12.44

%

12.14

%

12.53

%

Tier I Capital to Average Assets(1)

8.44

%

9.58

%

9.93

%

10.84

%

10.99

%

Tangible common equity to tangible assets

7.73

%

7.83

%

8.21

%

8.16

%

9.56

%

Tangible book value per common share(2)

$

22.43

$

22.20

$

21.70

$

21.69

$

23.15

  1. Represents Bank ratios. Current period capital ratios are preliminary subject to finalization of the FDIC Call Report.
  2. Excludes unvested restricted shares of 163,369, 170,083, 165,708, 154,012, and 110,975 as of December 31, 2020, September 30, 2020, June 30, 2020, March 31, 2020, and December 31, 2019, respectively.

BANKWELL FINANCIAL GROUP, INC.
ASSET QUALITY (unaudited)
(Dollars in thousands)

For the Quarter Ended

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

December 31,
2019

Allowance for loan losses:

Balance at beginning of period

$

20,372

$

19,662

$

16,686

$

13,509

$

13,212

Charge-offs:

Commercial business

(75)

(8)

(13)

Consumer

(11)

(4)

(23)

(2)

(5)

Total charge-offs

(86)

(4)

(23)

(10)

(18)

Recoveries:

Commercial business

14

1

1

Consumer

2

1

4

Total recoveries

14

2

2

5

Net loan charge-offs

(72)

(2)

(23)

(8)

(13)

Provision for loan losses

709

712

2,999

3,185

310

Balance at end of period

$

21,009

$

20,372

$

19,662

$

16,686

$

13,509

As of

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

December 31,
2019

Asset quality:

Nonaccrual loans

Residential real estate

$

1,492

$

1,596

$

1,622

$

1,532

$

1,560

Commercial real estate

21,093

4,812

5,172

5,339

5,222

Commercial business

1,834

3,760

3,783

3,783

3,806

Construction

8,997

Total nonaccrual loans

33,416

10,168

10,577

10,654

10,588

Other real estate owned

180

Total nonperforming assets

$

33,416

$

10,168

$

10,757

$

10,654

$

10,588

Nonperforming loans as a % of total loans

2.06

%

0.63

%

0.66

%

0.66

%

0.66

%

Nonperforming assets as a % of total assets

1.48

%

0.46

%

0.53

%

0.52

%

0.56

%

Allowance for loan losses as a % of total loans

1.29

%

1.25

%

1.22

%

1.03

%

0.84

%

Allowance for loan losses as a % of nonperforming loans

62.87

%

200.35

%

185.89

%

156.62

%

127.59

%

Total nonaccrual loans were $33.4 million as of December 31, 2020, of which $2.6 million are guaranteed by the Small Business Administration (SBA). The Company individually analyzed all existing COVID-19 deferrals and COVID-19 impacted loans for collectability and impairment as of December 31, 2020, resulting in a $25.6 million increase to the nonperforming loan population which are adequately reserved. Nonperforming assets as a percentage of total assets was 1.48% at December 31, 2020, up from 0.56% at December 31, 2019. The allowance for loan losses at December 31, 2020 was $21.0 million, representing 1.29% of total loans. The $7.5 million increase in the allowance for loan losses at December 31, 2020 when compared to December 31, 2019 was primarily due to incremental loan loss reserves for increased credit risk relating to economic disruption and uncertainty caused by the COVID-19 pandemic.

BANKWELL FINANCIAL GROUP, INC.
LOAN & DEPOSIT PORTFOLIO (unaudited)
(Dollars in thousands)

Period End Loan Composition

December 31,
2020

September 30,
2020

December 31,
2019

Current QTD % Change

YTD % Change

Residential Real Estate

$

113,557

$

120,531

$

147,109

(5.8)

%

(22.8)

%

Commercial Real Estate(1)

1,148,383

1,105,862

1,128,614

3.8

1.8

Construction

87,007

96,508

98,583

(9.8)

(11.7)

Total Real Estate Loans

1,348,947

1,322,901

1,374,306

2.0

(1.8)

Commercial Business

276,601

301,747

230,028

(8.3)

20.2

Consumer

79

78

150

1.3

(47.3)

Total Loans

$

1,625,627

$

1,624,726

$

1,604,484

0.1

%

1.3

%

  1. Includes owner occupied commercial real estate.
Period End Deposit Composition

December 31,
2020

September 30,
2020

December 31,
2019

Current QTD % Change

YTD % Change

Noninterest bearing demand

$

270,235

$

234,848

$

191,518

15.1

%

41.1

%

NOW

101,737

90,776

70,020

12.1

45.3

Money Market

669,364

561,101

419,495

19.3

59.6

Savings

158,750

164,590

183,729

(3.5)

(13.6)

Time

627,230

716,213

627,141

(12.4)

Total Deposits

$

1,827,316

$

1,767,528

$

1,491,903

3.4

%

22.5

%

Total deposits were $1.8 billion at December 31, 2020 compared to $1.5 billion at December 31, 2019, an increase of $0.3 billion, or 22.5%. The increase in total deposits was a result of 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.

BANKWELL FINANCIAL GROUP, INC.
NONINTEREST INCOME (unaudited)
(Dollars in thousands)

For the Quarter Ended

Noninterest income

December 31,
2020

September 30,
2020

December 31,
2019

Dec 20 vs. Sep 20 % Change

Dec 20 vs. Dec 19 % Change

Bank owned life insurance

$

241

$

242

$

250

(0.4)

%

(3.6)

%

Service charges and fees

210

190

247

10.5

(15.0)

Gains and fees from sales of loans

16

27

382

(40.7)

(95.8)

Gain on sale of other real estate owned, net

19

(100.0)

N/A

Other

154

136

169

13.2

(8.9)

Total noninterest income

$

621

$

614

$

1,048

1.1

%

(40.7)

%

For the Year Ended

Noninterest income

December 31,
2020

December 31,
2019

% Change

Bank owned life insurance

$

967

$

1,008

(4.1)

%

Service charges and fees

788

1,023

(23.0)

Gains and fees from sales of loans

43

1,791

(97.6)

Gain (loss) on sale of other real estate owned, net

19

(102)

(118.6)

Net gain on sale of available for sale securities

76

(100.0)

Other

1,067

1,448

(26.3)

Total noninterest income

$

2,884

$

5,244

(45.0)

%

Noninterest income decreased by $0.4 million to $0.6 million for the quarter ended December 31, 2020 compared to the quarter ended December 31, 2019. Noninterest income decreased by $2.4 million to $2.9 million for the year ended December 31, 2020, compared to the year ended December 31, 2019.

The decrease in noninterest income was primarily a result of the absence of gains and fees from SBA loan sales for the quarter and year ended December 31, 2020, when compared to the same periods in 2019. In addition, for the year ended December 31, 2020 the decrease in noninterest income was also driven by certain waived service charges and fees on depository accounts as a courtesy to customers during the COVID-19 pandemic. The decrease in other noninterest income for the year ended December 31, 2020 was primarily a result of a decline in loan related interest rate swap fees in 2020, when compared to the same period in 2019.

BANKWELL FINANCIAL GROUP, INC.
NONINTEREST EXPENSE (unaudited)
(Dollars in thousands)

For the Quarter Ended

Noninterest expense

December 31,
2020

September 30,
2020

December 31,
2019

Dec 20 vs. Sep 20 % Change

Dec 20 vs. Dec 19 % Change

Salaries and employee benefits

$

5,453

$

5,295

$

5,162

3.0

%

5.6

%

Occupancy and equipment

4,516

2,266

1,928

99.3

134.2

Data processing

1,658

529

499

213.4

232.3

Professional services

591

374

402

58.0

47.0

Director fees

331

301

224

10.0

47.8

FDIC insurance

262

176

48.9

N/A

Marketing

118

151

220

(21.9)

(46.4)

Other

774

637

789

21.5

(1.9)

Total noninterest expense

$

13,703

$

9,729

$

9,224

40.8

%

48.6

%

For the Year Ended

Noninterest expense

December 31,
2020

December 31,
2019

% Change

Salaries and employee benefits

$

21,355

$

19,434

9.9

%

Occupancy and equipment

10,926

7,594

43.9

Data processing

3,216

2,067

55.6

Professional services

2,110

1,857

13.6

Director fees

1,214

863

40.7

FDIC insurance

791

74

968.9

Marketing

630

971

(35.1)

Other

2,571

2,766

(7.0)

Total noninterest expense

$

42,813

$

35,626

20.2

%

Noninterest expense increased by $4.5 million, or 48.6%, to $13.7 million for the quarter ended December 31, 2020 compared to the quarter ended December 31, 2019. Noninterest expense increased by $7.2 million, or 20.2%, to $42.8 million for the year ended December 31, 2020 compared to the year ended December 31, 2019. The increase in noninterest expense was primarily driven by $3.9 million in one-time charges recognized during the fourth quarter of 2020. These one-time charges impacted salaries and employee benefits, occupancy and equipment expense and data processing expense.

Salaries and employee benefits totaled $5.5 million for the quarter ended December 31, 2020, an increase of $0.3 million when compared to the same period in 2019. Salaries and employee benefits totaled $21.4 million for the year ended December 31, 2020, an increase of $1.9 million when compared to the same period in 2019. The increase in salaries and employee benefits was primarily driven by a $0.8 million expense for the Voluntary Early Retirement Incentive Plan offered to eligible employees and additional severance charges recognized during the fourth quarter of 2020. The increase in salaries and employee benefits was also driven by normal annual salary increases and key hires in support of growth initiatives, partially offset by a reduction in overall headcount.

Occupancy and equipment expense totaled $4.5 million for the quarter ended December 31, 2020, an increase of $2.6 million when compared to the same period in 2019. Occupancy and equipment expense totaled $10.9 million for the year ended December 31, 2020, an increase of $3.3 million when compared to the same period in 2019. The increase in occupancy and equipment expense was primarily due to a $2.0 million one-time expense related to office and branch consolidation recognized during the fourth quarter of 2020. In addition, the increase in occupancy and equipment expense was due to additional cleaning costs associated with precautions taken to prevent the spread of COVID-19.

Data processing expense totaled $1.7 million for the quarter ended December 31, 2020, an increase of $1.2 million when compared to the same period in 2019. Data processing expense totaled $3.2 million for the year ended December 31, 2020, an increase of $1.1 million when compared to the same period in 2019. The increase in data processing expense was primarily driven by a $1.1 million one-time charge related to early termination fees payable to a legacy technology vendor.

BANKWELL FINANCIAL GROUP, INC.
RECONCILIATION OF GAAP TO NON-GAAP MEASURES (unaudited)
(Dollars in thousands, except share data)

As of

Computation of Tangible Common Equity to Tangible Assets

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

December 31,
2019

Total Equity

$

176,602

$

174,267

$

170,360

$

170,214

$

182,397

Less:

Goodwill

2,589

2,589

2,589

2,589

2,589

Other intangibles

76

160

178

196

214

Tangible Common Equity

$

173,937

$

171,518

$

167,593

$

167,429

$

179,594

Total Assets

$

2,253,747

$

2,193,022

$

2,043,635

$

2,053,625

$

1,882,182

Less:

Goodwill

2,589

2,589

2,589

2,589

2,589

Other intangibles

76

160

178

196

214

Tangible Assets

$

2,251,082

$

2,190,273

$

2,040,868

$

2,050,840

$

1,879,379

Tangible Common Equity to Tangible Assets

7.73

%

7.83

%

8.21

%

8.16

%

9.56

%

As of

Computation of Tangible Book Value per Common Share

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

December 31,
2019

Total shareholders' equity

$

176,602

$

174,267

$

170,360

$

170,214

$

182,397

Less:

Preferred stock

Common shareholders' equity

$

176,602

$

174,267

$

170,360

$

170,214

$

182,397

Less:

Goodwill

2,589

2,589

2,589

2,589

2,589

Other intangibles

76

160

178

196

214

Tangible common shareholders' equity

$

173,937

$

171,518

$

167,593

$

167,429

$

179,594

Common shares

7,919,278

7,896,503

7,887,503

7,871,419

7,868,803

Less:

Shares of unvested restricted stock

163,369

170,083

165,708

154,012

110,975

Common shares less unvested restricted stock

7,755,909

7,726,420

7,721,795

7,717,407

7,757,828

Book value per share

$

22.77

$

22.55

$

22.06

$

22.06

$

23.51

Less:

Effects of intangible assets

$

0.34

$

0.36

$

0.36

$

0.36

$

0.36

Tangible Book Value per Common Share

$

22.43

$

22.20

$

21.70

$

21.69

$

23.15

BANKWELL FINANCIAL GROUP, INC.
RECONCILIATION OF GAAP TO NON-GAAP MEASURES (unaudited) - Continued
(Dollars in thousands)

For the Quarter Ended

For the Year Ended

Computation of Efficiency Ratio

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

December 31,
2019

December 31,
2020

December 31,
2019

Noninterest expense

$

13,703

$

9,729

$

9,722

$

9,659

$

9,224

$

42,813

$

35,626

Less:

Amortization of intangible assets

84

18

18

18

18

138

75

Other real estate owned expenses

6

6

37

Adjusted noninterest expense

$

13,619

$

9,711

$

9,698

$

9,641

$

9,206

$

42,669

$

35,514

Net interest income

$

14,304

$

13,608

$

13,637

$

13,286

$

12,882

$

54,835

$

53,761

Noninterest income

621

614

577

1,072

1,048

2,884

5,244

Less:

Net gain on sale of available for sale securities

76

Gain (loss) on sale of other real estate owned, net

19

19

(102)

Operating revenue

$

14,925

$

14,203

$

14,214

$

14,358

$

13,930

$

57,700

$

59,031

Efficiency ratio

91.2

%

68.4

%

68.2

%

67.1

%

66.1

%

73.9

%

60.2

%

For the Quarter Ended

For the Year Ended

Computation of Return on Average Tangible Common Equity

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

December 31,
2019

December 31,
2020

December 31,
2019

Net Income Attributable to Common Shareholders

$

336

$

2,991

$

1,214

$

1,363

$

3,472

$

5,904

$

18,216

Total average shareholders' equity

$

178,439

$

173,162

$

173,289

$

181,127

$

179,312

$

176,489

$

178,510

Less:

Average Goodwill

2,589

2,589

2,589

2,589

2,589

2,589

2,589

Average Other intangibles

153

172

190

208

226

180

254

Average tangible common equity

$

175,697

$

170,401

$

170,510

$

178,330

$

176,497

$

173,720

$

175,667

Annualized Return on Average Tangible Common Equity

0.76

%

6.98

%

2.86

%

3.07

%

7.80

%

3.40

%

10.37

%

BANKWELL FINANCIAL GROUP, INC.
NET INTEREST MARGIN ANALYSIS ON A FULLY TAX EQUIVALENT BASIS - QTD (unaudited)
(Dollars in thousands)

For the Quarter Ended

December 31, 2020

December 31, 2019

Average
Balance

Interest

Yield/

Rate (5)

Average
Balance

Interest

Yield/

Rate (5)

Assets:

Cash and Fed funds sold

$

424,327

$

117

0.11

%

$

90,007

$

427

1.88

%

Securities(1)

105,422

814

3.09

102,696

804

3.13

Loans:

Commercial real estate

1,096,912

12,753

4.55

1,084,311

12,646

4.56

Residential real estate

115,104

1,009

3.51

153,752

1,475

3.84

Construction(2)

93,909

910

3.79

88,864

1,126

4.96

Commercial business

311,995

3,520

4.41

245,822

3,397

5.41

Consumer

96

2

7.41

210

4

7.09

Total loans

1,618,016

18,194

4.40

1,572,959

18,648

4.64

Federal Home Loan Bank stock

7,859

74

3.75

7,474

108

5.73

Total earning assets

2,155,624

$

19,199

3.48

%

1,773,136

$

19,987

4.41

%

Other assets

123,435

102,582

Total assets

$

2,279,059

$

1,875,718

Liabilities and shareholders' equity:

Interest bearing liabilities:

NOW

$

93,126

$

42

0.18

%

$

63,385

$

27

0.17

%

Money market

644,685

858

0.53

418,682

1,571

1.49

Savings

168,307

164

0.39

181,910

717

1.56

Time

686,827

2,493

1.44

633,166

3,633

2.28

Total interest bearing deposits

1,592,945

3,557

0.89

1,297,143

5,948

1.82

Borrowed Money

200,250

1,285

2.51

175,198

1,103

2.46

Total interest bearing liabilities

1,793,195

$

4,842

1.07

%

1,472,341

$

7,051

1.90

%

Noninterest bearing deposits

255,843

187,997

Other liabilities

51,582

36,068

Total liabilities

2,100,620

1,696,406

Shareholders' equity

178,439

179,312

Total liabilities and shareholders' equity

$

2,279,059

$

1,875,718

Net interest income(3)

$

14,357

$

12,936

Interest rate spread

2.41

%

2.51

%

Net interest margin(4)

2.66

%

2.92

%

  1. Average balances and yields for securities are based on amortized cost.
  2. Includes commercial and residential real estate construction.
  3. The adjustment for securities and loans taxable equivalency amounted to $53 thousand and $54 thousand for the quarters ended December 31, 2020 and 2019, respectively.
  4. Annualized net interest income as a percentage of earning assets.
  5. Yields are calculated using the contractual day count convention for each respective product type.

BANKWELL FINANCIAL GROUP, INC.
NET INTEREST MARGIN ANALYSIS ON A FULLY TAX EQUIVALENT BASIS - YTD (unaudited)
(Dollars in thousands)

For the Year Ended

December 31, 2020

December 31, 2019

Average Balance

Interest

Yield/ Rate (5)

Average Balance

Interest

Yield/ Rate (5)

Assets:

Cash and Fed funds sold

$

261,689

$

585

0.22

%

$

85,678

$

1,859

2.17

%

Securities(1)

98,938

3,103

3.14

112,336

3,526

3.14

Loans:

Commercial real estate

1,095,367

51,218

4.60

1,067,290

50,818

4.70

Residential real estate

129,585

4,645

3.58

165,384

6,367

3.85

Construction(2)

97,230

4,262

4.31

85,591

4,538

5.23

Commercial business

295,662

13,530

4.50

255,779

15,599

6.01

Consumer

121

10

8.00

258

17

6.70

Total loans

1,617,965

73,665

4.48

1,574,302

77,339

4.85

Federal Home Loan Bank stock

7,625

346

4.53

7,502

473

6.31

Total earning assets

1,986,217

$

77,699

3.85

%

1,779,818

$

83,197

4.61

%

Other assets

125,261

92,663

Total assets

$

2,111,478

$

1,872,481

Liabilities and shareholders' equity:

Interest bearing liabilities:

NOW

$

80,805

$

141

0.17

%

$

62,254

$

128

0.21

%

Money market

516,527

4,071

0.79

439,867

7,139

1.62

Savings

169,763

1,368

0.81

177,854

2,968

1.67

Time

712,461

12,600

1.77

637,515

14,463

2.27

Total interest bearing deposits

1,479,556

18,180

1.23

1,317,490

24,698

1.87

Borrowed Money

190,463

4,472

2.31

175,267

4,489

2.53

Total interest bearing liabilities

1,670,019

$

22,652

1.36

%

1,492,757

$

29,187

1.96

%

Noninterest bearing deposits

215,073

172,192

Other liabilities

49,897

29,022

Total liabilities

1,934,989

1,693,971

Shareholders' equity

176,489

178,510

Total liabilities and shareholders' equity

$

2,111,478

$

1,872,481

Net interest income(3)

$

55,047

$

54,010

Interest rate spread

2.49

%

2.65

%

Net interest margin(4)

2.77

%

3.03

%

  1. Average balances and yields for securities are based on amortized cost.
  2. Includes commercial and residential real estate construction.
  3. The adjustment for securities and loans taxable equivalency amounted to $212 thousand and $249 thousand for the years ended December 31, 2020 and 2019, respectively.
  4. Annualized net interest income as a percentage of earning assets.
  5. Yields are calculated using the contractual day count convention for each respective product type.

Contacts:

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

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