Bankwell Financial Group, Inc. (NASDAQ:BWFG) reported GAAP net income of $5.7 million, or $0.71 per share, for the first quarter of 2021, versus $1.4 million, or $0.17 per share, for the same period in 2020. Pre-tax, pre-provision net revenue ("PPNR")¹ grew 48% to $7.0 million compared to the same period in 2020. Results include a $0.9 million one-time federal payroll tax credit for small businesses impacted by COVID-19².

The Company's Board of Directors declared a $0.14 per share cash dividend, payable May 24, 2021 to shareholders of record on May 14, 2021.

We recommend reading this earnings release in conjunction with the First Quarter 2021 Investor Presentation, located at http://investor.mybankwell.com/Presentations and included as an exhibit to our April 28, 2021 Current Report on Form 8-K.

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

"I am pleased to announce Bankwell’s financial results for the first quarter of 2021. Our team made meaningful progress in virtually all aspects of our business. Loans grew by 4% on originations of $158 million and we continue to generate quality C&I business. Core commercial deposits grew by 8.6%, or $63 million as we steadily improve both the mix and the cost of our deposits. We have also successfully implemented many of our previously announced expense reduction initiatives. The cumulative impact of the multiple successes we’ve experienced was to grow pre-tax, pre-provision net revenue by 48% versus the previous year’s first quarter and to deliver a return on average equity of 12.67%. Importantly, we look to further improving profitability as the year proceeds.

"I’d like to thank all of my colleagues who have worked tirelessly to achieve these results amidst such challenging circumstances. On behalf of everyone at Bankwell, I also wish to acknowledge our gratitude for all of our health care workers and scientists who have persevered in an effort to bring our health crisis to an end."

First Quarter 2021 Highlights:

• PPNR of $7.0 million ($6.1 million excluding the one-time payroll tax credit), a 48% increase compared to the same period in 2020.
• Return on average assets was 1.02% and return on average equity was 12.67%.
• Resumption of SBA loan sales with gains of $0.5 million compared to no sales for the quarter ended March 31, 2020.
• Total gross loans were $1.7 billion, growing $63.2 million, or 4%, compared to December 31, 2020, excluding PPP loans.
• Total deposits were $1.9 billion compared to $1.8 billion at December 31, 2020.
• Noninterest bearing deposits increased by $112.5 million to 15% of total deposits compared to 10% at March 31, 2020.
• The cost of deposits decreased approximately 10 basis points to 0.67% when compared to the quarter ended December 31, 2020.
• The Bank's loan-to-deposit ratio was 89.0%, reflecting the above-mentioned increase in deposits.
• Investment securities totaled $101.6 million and represent 5% of total assets.
• Tangible book value per share rose to $23.99 compared to $22.43 at December 31, 2020, benefiting from strong operating performance and favorable marks on interest rate swaps used to hedge interest rate risk.
• Shares issued and outstanding were 7,908,630, reflecting repurchases of 65,626 shares of common stock at a weighted average price of $21.66 during the quarter ended March 31, 2021.
• Subsequent to March 31, 2021, the Company committed to retire $10 million of existing subordinated debt on May 15, 2021.

Earnings and Performance

Revenues (net interest income plus noninterest income) for the quarter ended March 31, 2021 were $16.6 million, versus $14.4 million for the quarter ended March 31, 2020. The increase was primarily attributable to lower interest expense on deposits, partially offset by a decrease in interest and fees on loans. Revenues also benefited from the aforementioned one-time federal payroll tax credit for COVID-19 and from the resumption of SBA loan sales.

Net income for the quarter ended March 31, 2021 was $5.7 million, versus $1.4 million for the quarter ended March 31, 2020. The increase in net income was impacted by the aforementioned increases in revenues.

Basic and diluted earnings per share were $0.72 and $0.71, respectively, for the quarter ended March 31, 2021 compared to basic and diluted earnings per share of $0.17 each for the quarter ended March 31, 2020.

The net interest margin (fully taxable equivalent basis) for the quarters ended March 31, 2021 and March 31, 2020 was 2.74% and 2.98%, respectively. The decrease in net interest margin was primarily due to excess liquidity.

Financial Condition

Assets totaled $2.2 billion at March 31, 2021, compared to assets of $2.3 billion at December 31, 2020. The decrease in assets is primarily due to a decrease in excess liquidity, partially offset by an increase in loans. Gross loans totaled $1.7 billion at March 31, 2021, an increase of $47.6 million compared to December 31, 2020. Excluding PPP loans, gross loans increased by $63.2 million at March 31, 2021 when compared to December 31, 2020. Deposits totaled $1.9 billion at March 31, 2021, compared to deposits of $1.8 billion at December 31, 2020.

Capital

Shareholders’ equity totaled $187.9 million as of March 31, 2021, an increase of $11.3 million compared to December 31, 2020, primarily a result of (i) a $7.7 million favorable impact to accumulated other comprehensive income driven by fair value marks related to hedge positions involving interest rate swaps and (ii) net income for the quarter ended March 31, 2021 of $5.7 million. 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. The increase in Shareholders’ equity was partially offset by dividends paid of $1.1 million and common stock repurchases of $1.4 million.

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, 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.

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¹ Pre-tax, pre-provision net revenue is a non-GAAP metric and excludes provision for loan losses and income tax expense.

² The payroll tax credit is part of the Employee Retention Credit (“ERC”) program under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”).

Total nonaccrual loans declined $2.1 million to $31.4 million as of March 31, 2021 when compared to December 31, 2020. The Company individually analyzed all existing COVID-19 deferrals and COVID-19 impacted loans for collectability and impairment as of March 31, 2021. Nonperforming assets as a percentage of total assets was 1.40% at March 31, 2021, down from 1.48% at December 31, 2020. The allowance for loan losses at March 31, 2021 was $20.5 million, representing 1.23% of total loans.

Gross loans totaled $1.7 billion at March 31, 2021, an increase of $47.6 million compared to December 31, 2020. Excluding PPP loans, gross loans increased by $63.2 million, or 4%, at March 31, 2021 when compared to December 31, 2020.

Total deposits were $1.9 billion at March 31, 2021, compared to $1.8 billion at December 31, 2020, an increase of $32.5 million, or 1.8%.

Noninterest income increased by $0.9 million to $2.0 million for the quarter ended March 31, 2021 compared to the quarter ended March 31, 2020.

The increase in noninterest income was driven by resumed SBA loan sales, totaling $0.5 million for the quarter ended March 31, 2021. In addition, the increase was impacted by a one-time federal payroll tax credit for COVID-19 of $0.9 million, partially offset by $0.4 million of non-recurring interest rate swap fees recognized in the quarter ended March 31, 2020.

Noninterest expense declined slightly, from $9.7 million for the quarter ended March 31, 2020, to $9.6 million for the quarter ended March 31, 2021. The decrease in noninterest expense was primarily driven by a decline in salaries and employee benefits and marketing expense, partially offset by an increase in occupancy and equipment expense and FDIC insurance expense. The decrease in noninterest expense for the quarter ended March 31, 2021 when compared to the quarter ended December 31, 2020 was primarily due to $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 $4.8 million for the quarter ended March 31, 2021, a decrease of $0.6 million when compared to the same period in 2020. The decrease in salaries and employee benefits was primarily driven by a decrease in full time equivalent employees as a direct result of the Voluntary Early Retirement Incentive Plan offered to eligible employees and other employee actions taken during the fourth quarter of 2020. Full time equivalent employees totaled 123 at March 31, 2021 compared to 154 for the same period in 2020. Salaries and employee benefits were also favorably impacted as higher loan originations enabled the bank to defer a greater amount of expenses.

Occupancy and equipment expense totaled $2.4 million for the quarter ended March 31, 2021, an increase of $0.5 million when compared to the same period in 2020. The increase in occupancy and equipment expense was primarily due to additional cleaning costs associated with precautions taken to prevent the spread of COVID-19.

FDIC insurance expense totaled $0.4 million for the quarter ended March 31, 2021, an increase of $0.3 million when compared to the same period in 2020. The increase in FDIC insurance expense was due to the application of available FDIC insurance credits in the first quarter of 2020.

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