Bankwell Financial Group, Inc. (NASDAQ: BWFG) reported GAAP net income of $8.0 million, or $1.02 per share for the second quarter of 2023, versus $12.0 million, or $1.55 per share, for the same period in 2022.

The Company's Board of Directors declared a $0.20 per share cash dividend, payable August 24, 2023 to shareholders of record on August 14, 2023.

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

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

"Against the headwinds of an inverted yield curve, the Company generated a 0.99% Return on Average Assets and a 12.91% Return on Average Shareholders' Equity this quarter. As we look to the second half of the year, we can revise our prior guidance upward regarding full year 2023 Net Interest Income (“NII”). Prior guidance had indicated a year-over-year decrease to NII of approximately 10%. We can now guide to a 5-6% decline for 2023 NII versus 2022 performance.

Future margin compression can be expected as the Federal Reserve holds short term rates higher for longer than earlier market consensus, however, our operational efficiency and increasing loan yields will provide a cushion against the uncertain policy backdrop. The Company’s year to date non-interest expense was 1.58% of average assets year for the six-month period ending June 30, 2023, while the average loan yield for the same period stood at 5.95%. The average yield on loans originated thus far in 2023 was 7.38%.

Capital and liquidity positions are strong, and we are confident in the credit quality of the loan book.

Please see the Company's recent Press Release regarding the Company’s newly appointed Executive Vice President and Chief Innovation Officer, Ryan Hildebrand. We are delighted to have Ryan join the management team."

Second Quarter 2023 Highlights:

• Total gross loans were $2.8 billion, growing $98.2 million, or 3.7%, compared to December 31, 2022.
• Deposits of $2.8 billion for the quarter ended June 30, 2023, decreasing $12.0 million, or 0.4% from December 31, 2022.
• Non-brokered deposits were $1.8 billion as of June 30, 2023, up by $48 million, or an increase of 2.7% from March 31, 2023; as of July 25, 2023, non-brokered deposits increased an additional $57 million since June 30, 2023.
• FDIC-insured deposits totaled $2.0 billion and represent 71.2% of total deposits as of June 30, 2023.
• As of June 30, 2023, the Bank has $1.7 billion immediately available liquidity, comprised of cash, AFS securities and borrowing capacity with the FHLB of Boston and FRB.
• Immediately available liquidity provides more than two times coverage of uninsured deposits.
• Average yield on 2023 funded loans was 7.38% as of June 30, 2023.
• Return on average assets was 0.99% for the quarter ended June 30, 2023.
• Return on average shareholders' equity was 12.91% for the quarter ended June 30, 2023.
• The net interest margin was 3.07% for the quarter ended June 30, 2023.
• The efficiency ratio was 49.8% for the quarter ended June 30, 2023.
• Investment securities totaled $117.8 million and represent 3.6% of total assets, with HTM securities totaling $15.9 million, or 0.5% of total assets.

Earnings and Performance

Revenues (net interest income plus noninterest income) for the quarter ended June 30, 2023 were $25.4 million, versus $25.0 million and for the quarter ended June 30, 2022. Revenues for the six months ended June 30, 2023 were $52.5 million, versus $45.4 million for the six months ended June 30, 2022. The increase in revenues for the quarter and six months ended 2023 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 June 30, 2023. The increase in revenues was partially offset by an increase in interest expense.

Net income for the quarter ended June 30, 2023 was $8.0 million, versus $12.0 million for the quarter ended June 30, 2022. Net income for the six months ended June 30, 2023 was $18.4 million, versus $20.2 million for the six months ended June 30, 2022. The decrease in net income for the quarter and six months ended 2023 was primarily due to an increase in the provision for credit losses and an increase in noninterest expense, primarily due to increased FDIC insurance expense, and an increase in salary and employee benefits expense, mainly due to severance costs. The decrease was partially offset by a direct result of the aforementioned increases in revenues.

Basic and diluted earnings per share were $1.02 and $1.02, respectively, for the quarter ended June 30, 2023 compared to basic and diluted earnings per share of $1.56 and $1.55, respectively, for the quarter ended June 30, 2022. Basic and diluted earnings per share were $2.36 and $2.34, respectively, for the six months ended June 30, 2023 compared to basic and diluted earnings per share of $2.61 and $2.58, respectively, for the six months ended June 30, 2022.

The net interest margin (fully taxable equivalent basis) for the quarters ended June 30, 2023 and June 30, 2022 was 3.07% and 4.01%, respectively. The net interest margin (fully taxable equivalent basis) for the six months ended June 30, 2023 and June 30, 2022 was 3.15% and 3.65%, 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 (ACL)

Provision for credit losses was $2.6 million for the quarter ended June 30, 2023, bringing the ACL-Loans as a percentage of total loans to 1.11%. Provision for credit losses was $0.8 million for the quarter ended March 31, 2023. The increase in the provision for credit losses is mainly attributable to forward looking CECL macroeconomic factors.

Financial Condition

Assets totaled $3.3 billion at June 30, 2023 and remained flat compared to December 31, 2022. Gross loans totaled $2.8 billion at June 30, 2023, an increase of $98.2 million or 3.7% compared to December 31, 2022. Deposits totaled $2.8 billion at June 30, 2023, and remained flat compared to December 31, 2022.

Capital

Shareholders’ equity totaled $248.8 million as of June 30, 2023, an increase of $10.3 million compared to December 31, 2022, primarily a result of net income of $18.4 million for the six months ended June 30, 2023. The increase was partially offset by the Day 1 CECL adoption of $4.9 million, dividends paid of $3.1 million, and a $1.5 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 $0.9 million and fair value marks related to hedge positions involving interest rate swaps of $0.7 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 $0.9 million to $15.5 million as of June 30, 2023 when compared to December 31, 2022. Nonperforming assets as a percentage of total assets decreased to 0.48% at June 30, 2023, down from 0.51% at December 31, 2022. The ACL-Loans at June 30, 2023 was $30.7 million, representing 1.11% of total loans.

Past due loans increased to $36.0 million, or 1.30% of total loans, as of June 30, 2023, compared to $16.1 million, or 0.60% of total loans, as of December 31, 2022. Of the June 30, 2023 past due loans, $9.3 million of loans were between 31 - 33 days past due and have subsequently become current.

Gross loans totaled $2.8 billion at June 30, 2023, an increase of $98.2 million or 3.7% compared to December 31, 2022.

Total deposits were $2.8 billion at June 30, 2023, a decrease of $12.0 million, or 0.4%, when compared to December 31, 2022.

Noninterest income increased by $0.2 million to $1.4 million for the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022. Noninterest income increased by $0.8 million to $2.9 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022. The increase in noninterest income was driven by an increase in SBA loan sales and increases in service charges and fees for the quarter and six months ended 2023.

Noninterest expense increased by $1.7 million to $12.6 million for the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022. Noninterest expense increased by $4.5 million to $25.3 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022. The increase in noninterest expense was primarily driven by an increase in salaries and employee benefits expense and FDIC insurance expense.

Salaries and employee benefits expense totaled $6.4 million for the quarter ended June 30, 2023, an increase of $1.0 million when compared to the same period in 2022. Salaries and employee benefits expense totaled $12.5 million for the six months ended June 30, 2023, an increase of $2.1 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 141 at June 30, 2023 compared to 132 for the same period in 2022. The increase in salaries and employee benefits expense was also due to one-time severance costs and lower loan originations, which reduces the Bank's ability to defer expenses.

FDIC insurance expense totaled $1.1 million for the quarter ended June 30, 2023, an increase of $0.8 million when compared to the same period in 2022. FDIC insurance expense totaled $2.1 million for the six months ended June 30, 2023, an increase of $1.6 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.