Bankwell Financial Group Reports Record Quarterly Net Income of $4.9 Million or $0.62 Per Share for the Third Quarter and Declares Fourth Quarter Dividend

Bankwell Financial Group, Inc. BWFG reported GAAP net income of $4.9 million or $0.62 per share for the third quarter of 2018, versus $4.3 million or $0.55 per share for the same period in 2017.

The Company's Board of Directors declared a $0.12 per share cash dividend, payable November 26, 2018 to shareholders of record on November 16, 2018.

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

"Thanks to the Bankwell team for another strong performance. Our third quarter ROAA and ROATCE were 1.04% and 11.32%, respectively. Loan growth for the third quarter was somewhat muted by payoffs and pre-payments, still, loans have grown year-to-date at an annualized rate of approximately 6%. We look forward to a solid finish to the year."

Third Quarter 2018 Highlights:

• Third quarter diluted earnings per share were $0.62, an increase of 13% compared to the third quarter of 2017.
• Return on average assets reached 1.04% for the quarter ended September 30, 2018 compared to 0.96% for the quarter ended September 30, 2017.
• Return on average tangible common equity reached 11.32% in the third quarter of 2018 compared to 10.99% for the quarter ended September 30, 2017.
• The tangible book value per common share at September 30, 2018 was $22.20, a 9% increase over September 30, 2017.
• Third quarter total revenue (net interest income plus non-interest income) was $15.1 million versus $14.7 million in the same period last year, a 3% increase.
• The third quarter efficiency ratio totaled 58.6%.
• The third quarter noninterest income totaled $0.9 million compared to $0.8 million for the third quarter of 2017.
• Tax equivalent net interest margin was 3.21% for the third quarter of 2018.
• Total gross loans exceeded $1.6 billion for the third quarter of 2018.
• Total assets approached $1.9 billion.
• Total deposits approached $1.5 billion and grew at an annualized rate of 8% during the third quarter of 2018.
• The allowance for loan losses was $19.3 million and represents 1.20% of total loans.
• Investment securities totaled $115.9 million and represent 6% of total assets.

Earnings

Net income for the quarter ended September 30, 2018 was $4.9 million, an increase of 14% compared to the quarter ended September 30, 2017. Net income for the nine months ended September 30, 2018 was $14.2 million, an increase of 21% compared to the nine months ended September 30, 2017. Revenues (net interest income plus non-interest income) for the quarter ended September 30, 2018 were $15.1 million, an increase of 3% compared to the quarter ended September 30, 2017. Revenues for the nine months ended September 30, 2018 were $45.2 million, an increase of 4% compared to the nine months ended September 30, 2017. Net interest income for the quarter ended September 30, 2018 was $14.2 million, an increase of 3% compared to the quarter ended September 30, 2017. Net interest income for the nine months ended September 30, 2018 was $41.9 million, an increase of 3% compared to the nine months ended September 30, 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 the 2017 tax reform, offset by increases in interest expense and noninterest expense. The increase in interest and fees on loans was a result of commercial real estate and commercial business loan growth as compared to September 30, 2017.

Basic and diluted earnings per share were each $0.62 for the quarter ended September 30, 2018 compared to $0.55 for the quarter ended September 30, 2017. Basic and diluted earnings per share were $1.81 and $1.80, respectively, for the nine months ended September 30, 2018 compared to $1.53 and $1.51, respectively, for the nine months ended September 30, 2017.

The Company's efficiency ratio for the quarters ended September 30, 2018 and September 30, 2017 was 58.6% and 55.1%, respectively. The Company's efficiency ratio for the nine months ended September 30, 2018 and September 30, 2017 was 59.6% and 54.8%, respectively. The increase in the efficiency ratio was driven by an increase in noninterest expense associated with the opening of three new branches during the second quarter of 2018 as well as a number of non-recurring expenses previously disclosed in the first quarter 2018 earnings release.

Noninterest Income and Expense

Noninterest income increased $35 thousand or 4% to $0.9 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017. Noninterest income increased $211 thousand or 7% to $3.3 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The increase in noninterest income was primarily driven by an increase in gains and fees from the sales of loans. Gains and fees from the sales of loans totaled $150 thousand for the quarter ended September 30, 2018 compared to $36 thousand for the same period in 2017, an increase of $114 thousand. Gains and fees from the sales of loans totaled $835 thousand for the nine months ended September 30, 2018 compared to $559 thousand for the same period in 2017, an increase of $276 thousand.

Noninterest expense increased $0.7 million or 9% for the three months ended September 30, 2018 compared to the three months ended September 30, 2017. Noninterest expense increased $2.9 million or 12% for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The increase was primarily driven by an increase in salaries and employee benefits and an increase in occupancy and equipment expense. Salaries and employee benefits totaled $4.9 million for the quarter ended September 30, 2018 compared to $4.0 million for the same period in 2017, an increase of $0.9 million. Salaries and employee benefits totaled $14.5 million for the nine months ended September 30, 2018 compared to $11.7 million for the same period in 2017, an increase of $2.8 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 as a result of lower loan volume. The increase in full time equivalent employees is in line with year over year business growth and driven by staffing for the three new branch locations, opened during the second quarter of 2018. Average full time equivalent employees totaled 144 at September 30, 2018 compared to 132 at September 30, 2017. Occupancy and equipment expense totaled $1.8 million for the quarter ended September 30, 2018 compared to $1.4 million for the same period in 2017, an increase of $0.4 million. Occupancy and equipment expense totaled $5.1 million for the nine months ended September 30, 2018 compared to $4.6 million for the same period in 2017, an increase of $0.5 million. The increase in occupancy and equipment expense was primarily driven by expenditures associated with the opening of the new branch locations and improvements of existing infrastructure.

Financial Condition

Assets totaled $1.9 billion at September 30, 2018, an annualized increase of 7% compared to assets of $1.8 billion at December 31, 2017. Total gross loans were $1.6 billion at September 30, 2018, an increase of $64.6 million compared to December 31, 2017, driven by disciplined growth in commercial loans. Deposits increased to $1.5 billion, an annualized increase of 9% over December 31, 2017.

Asset Quality

Non-performing assets as a percentage of total assets was 1.17% at September 30, 2018, up from 0.31% at December 31, 2017. The increase in non-performing assets is primarily driven by one impaired commercial loan relationship, previously discussed in the second quarter 2018 Earnings Release. The allowance for loan losses was $19.3 million, representing 1.20% of total loans and $18.9 million, representing 1.23% of total loans at September 30, 2018 and December 31, 2017, respectively. The Bank's general allowance for loan losses provides a 288% coverage of non-performing assets for which there is no specific reserve as of September 30, 2018.

Capital

Shareholders' equity totaled $174.8 million as of September 30, 2018, an increase of $13.7 million compared to December 31, 2017, primarily a result of net income for the nine months ended September 30, 2018 of $14.2 million and equity from stock transactions totaling $1.9 million, offset by dividends paid of $2.8 million. As of September 30, 2018, the tangible common equity ratio and tangible book value per share were 9.13% and $22.20, 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.