Bankwell Financial Group, Inc. (NASDAQ: BWFG) reported GAAP net income of $10.4 million, or $1.33 per share for the first quarter of 2023, versus $8.2 million, or $1.04 per share, for the same period in 2022.

The Company's Board of Directors declared a $0.20 per share cash dividend, payable May 23, 2023 to shareholders of record on May 12, 2023.

We recommend reading this earnings release in conjunction with the First Quarter 2023 Investor Presentation, located at http://investor.mybankwell.com/Presentations and included as an exhibit to our April 26, 2023 Current Report on Form 8-K.

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

"Bankwell delivered excellent results this quarter. Against the backdrop of a turbulent banking environment, we have maintained strong capital and liquidity levels. Our disciplined risk management practices have maintained outstanding credit quality and have protected the Bank's capital against rising interest rates. We have previously acknowledged and planned for the current environment of increased pressure on deposit costs, and can reiterate prior guidance for a year over year decline in Net Interest Income of approximately 10% for fiscal year 2023."

First Quarter 2023 Highlights:

• Total gross loans were $2.8 billion, growing $83.8 million, or 3.1%, compared to December 31, 2022.
• Deposits of $2.8 billion for the quarter ended March 31, 2023, unchanged from December 31, 2022.
• FDIC-insured deposits totaled $2.0 billion and represent 70.3% of total deposits as of March 31, 2023.
• As of March 31, 2023, the Bank has $1.5 billion immediately available liquidity, comprised of cash, AFS securities and borrowing capacity with the FHLB of Boston and FRB.
• Immediately available liquidity provides 200% coverage of uninsured deposits.
• Average yield on 2023 funded loans was 7.53% for the quarter ended March 31, 2023.
• Return on average assets was 1.30% for the quarter ended March 31, 2023.
• Return on average shareholders' equity was 17.48% for the quarter ended March 31, 2023.
• The net interest margin was 3.24% for the quarter ended March 31, 2023.
• The efficiency ratio was 46.9% for the quarter ended March 31, 2023.
• Investment securities totaled $121.1 million and represent 3.7% of total assets, with HTM securities totaling $15.9 million, or 0.5% of total assets.
• CECL adopted on January 1, 2023, resulting in a $5.1 million increase to the ACL-Loans and a $1.3 million adjustment to the ACL-Unfunded Commitments.

Earnings and Performance

Revenues (net interest income plus noninterest income) for the quarter ended March 31, 2023 were $27.1 million, versus $20.5 million for the quarter ended March 31, 2022. The increase in revenues was primarily attributable to an increase in interest and fees on loans due to loan growth and higher overall loan yields¹ for the quarter ended March 31, 2023 and an increase in noninterest income mainly driven by additional SBA loan sales. The increase in revenues was partially offset by an increase in interest expense.

Net income for the quarter ended March 31, 2023 was $10.4 million, versus $8.2 million for the quarter ended March 31, 2022. The increase in net income was a direct result of the aforementioned increases in revenues. In addition, the increase in net income was partially offset by an increase in the provision for credit losses and an increase in noninterest expense for the quarter ended March 31, 2023.

Basic and diluted earnings per share were $1.34 and $1.33, respectively, for the quarter ended March 31, 2023 compared to basic and diluted earnings per share of $1.05 and $1.04, respectively, for the quarter ended March 31, 2022.

The net interest margin (fully taxable equivalent basis) for the quarters ended March 31, 2023 and March 31, 2022 was 3.24% and 3.30%, respectively. The decrease in the net interest margin was due to an increase in funding costs partially offset by an increase in overall loan yields.

Allowance for Credit Losses

Provision for credit losses was $826 thousand for the quarter ended March 31, 2023, bringing the ACL-Loans as a percentage of total loans to 1.01%. Provision for credit losses was $4.3 million for the quarter ended December 31, 2022. The decrease in the provision for credit losses is attributable to lower loan growth.

On January 1, 2023, the Company adopted ASC 326 Financial Instruments - Credit Losses ("CECL"). Upon adoption of CECL, the Company recorded a one-time cumulative effect, pre-tax adjustment $5.1 million to the ACL-Loans and a corresponding net of tax adjustment to beginning retained earnings. The Company also recorded a one-time cumulative effect, pre-tax adjustment of $1.3 million to the ACL-Unfunded Commitments (which is reflected in Accrued expenses and other liabilities on the Consolidated Balance Sheets) and a corresponding net of tax adjustment to beginning retained earnings.

Financial Condition

Assets totaled $3.25 billion at March 31, 2023 and remained flat compared to December 31, 2022. Gross loans totaled $2.8 billion at March 31, 2023, an increase of $83.8 million or 3.1% compared to December 31, 2022. Deposits totaled $2.8 billion at March 31, 2023, and remained flat compared to December 31, 2022.

Capital

Shareholders’ equity totaled $242.3 million as of March 31, 2023, an increase of $3.8 million compared to December 31, 2022, primarily a result of net income of $10.4 million for the quarter ended March 31, 2023. The increase was partially offset by the Day 1 CECL adoption of $4.9 million, dividends paid of $1.6 million, and a $0.9 million unfavorable impact to accumulated other comprehensive income. The unfavorable impact to accumulated other comprehensive income was driven by fair value marks on the Company's Available for sale investment securities portfolio of $6.1 million partially offset by fair value marks related to hedge positions involving interest rate swaps of $5.0 million. The Company's interest rate swaps are used to hedge interest rate risk.

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 Courtney E. Sacchetti, 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 banking industry or 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, tangible assets, tangible common equity to tangible assets, tangible common shareholders' equity, fully diluted tangible book value per common share, adjusted noninterest expense, operating revenue, efficiency ratio, average tangible common equity, annualized return on average tangible common equity, return on average assets, return on average shareholders' equity, and the dividend payout ratio are useful to evaluate the relative strength of the Company's performance and 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.

Total nonaccrual loans decreased $2.2 million to $14.3 million as of March 31, 2023 when compared to December 31, 2022. Nonperforming assets as a percentage of total assets decreased to 0.44% at March 31, 2023, down from 0.51% at December 31, 2022. The ACL-Loans at March 31, 2023 was $28.0 million, representing 1.01% of total loans.

Past due loans increased to $26.1 million, or 0.94% of total loans, as of March 31, 2023, compared to $16.1 million, or 0.60% of total loans, as of December 31, 2022. Of the March 31, 2023 past due loans, $10.0 million of loans were between 31 - 33 days past due and have subsequently become current. As of April 19, 2023, past due loans were $18.6 million or 0.67% of total loans.

Gross loans totaled $2.8 billion at March 31, 2023, an increase of $83.8 million or 3.1% compared to December 31, 2022.

Total deposits were $2.8 billion at March 31, 2023, a decrease of $2.5 million, or 0.1%, when compared to December 31, 2022.

Noninterest income increased by $0.6 million to $1.5 million for the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022. The increase in noninterest income was driven by an increase in SBA loan sales during the first quarter of 2023.

Noninterest expense increased by $2.8 million to $12.7 million for the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022. The increase in noninterest expense was primarily driven by an increase in salaries and employee benefits expense, professional services expense, and FDIC insurance.

Salaries and employee benefits expense totaled $6.1 million for the quarter ended March 31, 2023, an increase of $1.1 million when compared to the same period in 2022. The increase in salaries and employee benefits expense was driven by an increase in full time equivalent employees, with full time equivalent employees totaling 135 at March 31, 2023 compared to 126 for the same period in 2022. The increase in salaries and employee benefits expense was also due to lower loan originations, which reduced the amount of the Bank's ability to defer expenses.

Professional services expense totaled $1.3 million for the quarter ended March 31, 2023, an increase of $0.3 million when compared to the same period in 2022. The increase in professional services expense was primarily driven by consulting fees.

FDIC insurance expense totaled $1.1 million for the quarter ended March 31, 2023, an increase of $0.8 million when compared to the same period in 2022. The increase in FDIC insurance expense is attributed to the overall balance sheet growth, increased use of brokered deposits, and an increase in FDIC insurance rates.

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