Bankwell Financial Group Reports First Quarter Net Income of $4.6 Million or $0.59 Per Share, Representing 24% Year over Year Growth and Declares Second Quarter Dividend

Bankwell Financial Group, Inc. (NASDAQ:BWFG) reported GAAP net income of $4.6 million or $0.59 per share for the first quarter of 2018, versus $3.7 million or $0.48 per share for the same period in 2017.

The Company's Board of Directors declared a $0.12 per share cash dividend, payable May 25, 2018 to shareholders of record on May 15, 2018.

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

"We are happy to announce year over year earnings growth of 24% for the first quarter of 2018. Acknowledging that the lower corporate tax rate played a significant role, Bankwell nevertheless achieved solid organic growth in the face of a more competitive lending environment and several non-recurring charges.”

"The heightened volatility experienced across the capital markets during the first quarter acted as a headwind against the lending environment in general. Further, while too many banking institutions have seemingly demonstrated how recent tax cuts will impact their business models, Bankwell chose not to participate in a race to the bottom in lending spreads. We will continue our disciplined practice toward lending rates as we have never chosen to compete on price. Thus far, our pipeline suggests improved volume at more favorable spreads for the second quarter.”

"We note that our efficiency ratio took an uncharacteristic increase this quarter versus Q1’17. Several factors contributed to this increase: 1) non-recurring expenses, such as a $363 thousand increase in professional fees, as well as approximately $300 thousand in loan origination costs, which could not be deferred due to lower loan volume, 2) forgone interest income on approximately $14 million in new non-performing loans (see below), and 3) planned investment in people and infrastructure, primarily geared toward deposit gathering activities.”

"The first quarter also saw an addition of approximately $14 million in non-performing loans due to two recently impaired commercial loans with balances of approximately $10 million and $4 million, respectively. We are in the process of evaluating the various pathways to repayment on these credits and will provide an update in our next quarterly release.”

"Finally, the next quarter will also see three new Bankwell branches open within our footprint in Fairfield County, CT. We are excited to bring the Bankwell brand to these towns and expect those new customers will agree with their neighboring communities who have just voted Bankwell the "#1 Bank in Fairfield County for Customer Service.”

First Quarter 2018 Highlights:

• First quarter total revenue (net interest income plus non-interest income) was $15.0 million versus $14.2 million in the same period last year, a 6% increase.
• First quarter diluted earnings per share were $0.59, an increase of 23% compared to the first quarter of 2017.
• Return on average assets reached 1.03% for the quarter ended March 31, 2018 compared to 0.93% for the quarter ended March 31, 2017.
• Return on average tangible common equity reached 11.56% in the first quarter of 2018 compared to 10.33% for the quarter ended March 31, 2017.
• The tangible book value per common share at March 31, 2018 was $21.12, a 9% increase over March 31, 2017.
• Tax equivalent net interest margin was 3.15% for the first quarter of 2018.
• Total gross loans approached $1.6 billion for the first quarter of 2018.
• Total assets surpassed $1.8 billion and grew at an annualized rate of 8% during the first quarter of 2018.
• Total deposits exceeded $1.4 billion and grew at an annualized rate of 8% during the first quarter of 2018.
• The allowance for loan losses was $18.8 million and represents 1.21% of total loans.
• Investment securities totaled $120.6 million and represent 7% of total assets.

Earnings

Net income for the quarter ended March 31, 2018 was $4.6 million, an increase of 24% compared to the quarter ended March 31, 2017. Revenues (net interest income plus non-interest income) for the quarter ended March 31, 2018 were $15.0 million, an increase of 6% compared to the quarter ended March 31, 2017. Net interest income for the quarter ended March 31, 2018 was $13.7 million, an increase of 6% compared to the quarter ended March 31, 2017. The increase in net income was driven by an increase in interest and fees on loans and from a reduction in the corporate tax rate from 35% to 21% resulting from 2017 tax reform. The increase in interest and fees on loans was a result of commercial real estate and commercial business loan growth as compared to March 31, 2017.

Basic and diluted earnings per share were each $0.59 for the quarter ended March 31, 2018 compared to $0.49 and $0.48, respectively, for the quarter ended March 31, 2017.

The Company’s efficiency ratio for the quarters ended March 31, 2018 and March 31, 2017 were 62.0% and 58.3%, respectively. The increase in the efficiency ratio was driven by an increase in noninterest expense. The temporary increase in noninterest expense reflected a nonrecurring increase in audit related expenses and a ramp up of costs associated with the opening of three new branch locations, which are expected to open in the second quarter of 2018.

Noninterest Income and Expense

Noninterest income increased $67 thousand or 5% to $1.3 million for the three months ended March 31, 2018 compared to the three months ended March 31, 2017. The increase in noninterest income was primarily driven by an increase in gains and fees from the sales of loans and a net gain on the sale of available for sale securities. Gain and fees from the sale of loans totaled $370 thousand for the quarter ended March 31, 2018 compared to $324 thousand for the same period in 2017, an increase of $46 thousand. The net gain on the sale of available for sale securities totaled $222 thousand for the quarter ended March 31, 2018 compared to a net gain on the sale of available for sale securities of $165 thousand for the same period in 2017.

Noninterest expense increased $969 thousand or 12% for the three months ended March 31, 2018 compared to the three months ended March 31, 2017. The increase was primarily driven by an increase in salaries and employee benefits and an increase in professional services. Salaries and employee benefits totaled $5.0 million for the quarter ended March 31, 2018 compared to $3.9 million for the same period in 2017, an increase of $1.1 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 resulting from lower loan volume. The increase in full time equivalent employees is in line with year over year business growth and to a lesser degree, buildup of staffing for the three new branch locations expected to open in the second quarter of 2018. Full time equivalent employees totaled 144 at March 31, 2018 compared to 127 at March 31, 2017. Professional services totaled $775 thousand for the quarter ended March 31, 2018 compared to $412 thousand for the same period in 2017, an increase of $363 thousand. The increase in professional services was primarily driven by increases in audit related expenses.

Financial Condition

Assets totaled $1.83 billion at March 31, 2018, an annualized increase of 8% compared to assets of $1.80 billion at December 31, 2017. Total gross loans were $1.6 billion at March 31, 2018, an increase of $13.4 million compared to December 31, 2017, driven by disciplined growth in commercial real estate loans. Deposits increased to $1.43 billion, an annualized increase of 8% over December 31, 2017.

Asset Quality

Non-performing assets as a percentage of total assets was 1.14% at March 31, 2018, up from 0.31% at December 31, 2017. The increase in non-performing assets is primarily driven by two recently impaired commercial real estate loans. The allowance for loan losses was $18.8 million, representing 1.21% of total loans and $18.9 million, representing 1.23% of total loans at March 31, 2018 and December 31, 2017, respectively.

Capital

Shareholders’ equity totaled $165.9 million as of March 31, 2018, an increase of $4.9 million compared to December 31, 2017, primarily a result of net income for the quarter ended March 31, 2018 of $4.6 million. As of March 31, 2018, the tangible common equity ratio and tangible book value per share were 8.92% and $21.12, 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 table. 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. 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.

* All metrics, as of December 31, 2017, measuring return were significantly impacted by certain non-recurring items, including $3.3 million for a write-down of our deferred tax asset resulting from tax reform, ($0.9) million for a change in loan reserve methodology, ($0.6) million resulting from income recognized from servicing assets and $0.2 million resulting from charges due to reductions in workforce. Excluding the non-recurring items, the company's return on average assets, return on average stockholders' equity and return on average tangible common equity would have been approximately 0.90%, 10.05% and 10.24% for the quarter ended December 31, 2017.

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