Bankwell Financial Group Reports Operating Results for the Third Quarter With Strong Core Deposit Growth

Rhea-AI Summary

Bankwell Financial Group (NASDAQ:BWFG) reported third-quarter 2020 GAAP net income of $3.0 million, down from $4.1 million in Q3 2019. Earnings per share were $0.38 compared to $0.52 for the same period last year. The Board declared a $0.14 per share cash dividend. Notably, loans under COVID-19-related deferrals decreased from 22% to under 4%. Despite a rise in total deposits to $1.8 billion, revenues fell to $14.2 million, attributed to lower loan yields and the absence of SBA loan sales. The allowance for loan losses increased to $20.4 million, reflecting heightened credit risk amidst the pandemic.

Positive

• Total deposits increased to $1.8 billion from $1.5 billion year-over-year.
• Core business accounts rose by $176 million year to date, with non-interest bearing deposits up 23%.
• Loans on COVID-19 deferrals decreased to under 4%, down from approximately 22%.
• Tangible book value per share grew to $22.20.

Negative

• Net income decreased to $3.0 million from $4.1 million year-over-year.
• Revenues declined to $14.2 million from $14.6 million in Q3 2019.
• Increase in allowance for loan losses to $20.4 million from $13.5 million due to COVID-19 impacts.
• Net interest margin fell to 2.67% from 2.96% year-over-year.

NEW CANAAN, Conn.--(BUSINESS WIRE)--Bankwell Financial Group, Inc. (NASDAQ:BWFG) reported GAAP net income of $3.0 million, or $0.38 per share, for the third quarter of 2020, versus $4.1 million, or $0.52 per share, for the same period in 2019.

The Company's Board of Directors declared a $0.14 per share cash dividend, payable November 23, 2020 to shareholders of record on November 13, 2020.

We recommend reading this earnings release in conjunction with the Third Quarter 2020 Investor Presentation, located at http://investor.mybankwell.com/Presentations and included as an exhibit to our October 28, 2020 Current Report on Form 8-K.

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

"I am grateful for the commitment and dedication of our team as we have made steady progress in the midst of the ongoing pandemic. Our balance sheet remains strong and credit metrics continue to improve. Loans on COVID-19-related deferrals have decreased from approximately 22% of outstanding loans to under 4% today. On the deposit front, we have increased core business accounts by $176 million year to date, including a 23% increase in non-interest bearing deposits. We have also continued to diversify our loan origination mix as the fourth quarter pipeline is comprised mostly of C&I loans."

"Having begun planning for the year ahead, we are committed to continue expense management with a goal of improving our operating expense run rate by 3-5% by the end of 2021."

Third Quarter 2020 Highlights:

• The allowance for loan losses was $20.4 million and represents 1.25% of total loans (1.30% excluding Paycheck Protection Program (“PPP”) loans) as of September 30, 2020, compared to an allowance for loan losses of $13.5 million, representing 0.84% of total loans as of December 31, 2019. The increase in the allowance for loan losses was primarily due to incremental loan loss reserves for increased credit risk relating to economic disruption and uncertainty caused by the COVID-19 pandemic.
• PPP loans totaled $56.7 million at September 30, 2020. As of October 20, 2020 approximately $11.3 million of PPP loans have completed applications for loan forgiveness and a majority of these applications have been submitted to the SBA.
• Less than 4% of the loan portfolio remains on COVID-19 deferral.
• Total deposits were $1.8 billion at September 30, 2020 compared to $1.5 billion at December 31, 2019, reflecting successful commercial core deposit gathering efforts, as well as a temporary increase in short term time deposits to expand on-balance sheet liquidity during the COVID-19 pandemic.
• Noninterest bearing deposits increased 23% when compared to December 31, 2019, totaling $234.8 million, a new high.
• The loan-to-deposit ratio for the Bank was 91.6% at September 30, 2020, reflecting the above-mentioned increase in deposits.
• Total gross loans were $1.6 billion at September 30, 2020, increasing slightly when compared to December 31, 2019.
• Investment securities totaled $108.9 million and represent 5% of total assets.
• Total noninterest income was $0.6 million for the quarter ended September 30, 2020, or 4% of total revenue.
• The tangible common equity ratio, as of September 30, 2020, decreased to 7.83%, as capital growth from earnings was more than offset by increased liquidity and corresponding balance sheet growth.
• Tangible book value per share, as of September 30, 2020, grew to $22.20.
• Subsequent to the third quarter, as part of the Company's ongoing operational review, the Company has committed to permanently close its North Haven, CT branch as of December 31, 2020 and rolled out a Voluntary Early Retirement Incentive Program.

Earnings and Performance

Revenues (net interest income plus noninterest income) for the quarter ended September 30, 2020 were $14.2 million, versus $14.6 million for the quarter ended September 30, 2019. Revenues for the nine months ended September 30, 2020 were $42.8 million, versus $45.1 million for the nine months ended September 30, 2019. The decrease in revenues was attributable to a decline in income from loan prepayments and the absence of SBA loan sales during the quarter and nine month periods ended September 30, 2020 when compared to the same periods in 2019. The decrease in revenues was also driven by lower loan yields as loans are re-priced in the current low interest rate environment. The decrease in revenues was partially offset by a decline in interest expense, driven by lower interest rates on deposits when compared to the same periods in 2019.

Net income for the quarter ended September 30, 2020 was $3.0 million, versus $4.1 million for the quarter ended September 30, 2019. Net income for the nine months ended September 30, 2020 was $5.6 million, versus $14.7 million for the nine months ended September 30, 2019. The decrease in net income for the quarter ended September 30, 2020 when compared to the same period in 2019 was primarily driven by an increase in noninterest expense. The decrease in net income for the nine month period ended September 30, 2020 when compared to the same period in 2019 was due to an increase in the provision for loan losses due to the COVID-19 pandemic and, to a lesser degree, an increase in noninterest expense. The provision for loan losses related to the COVID-19 pandemic totaled $7.9 million for the nine months ended September 30, 2020.

Basic and diluted earnings per share were each $0.38 for the quarter ended September 30, 2020 compared to basic and diluted earnings per share of $0.52 each for the quarter ended September 30, 2019. Basic and diluted earnings per share were each $0.71 for the nine months ended September 30, 2020 compared to basic and diluted earnings per share of $1.88 and $1.87, respectively, for the nine months ended September 30, 2019.

The net interest margin (fully taxable equivalent basis) for the quarters ended September 30, 2020 and September 30, 2019 was 2.67% and 2.96%, respectively. The net interest margin for the nine months ended September 30, 2020 and September 30, 2019 was 2.81% and 3.07%, respectively. The decrease in net interest margin for the quarter and nine month periods ended September 30, 2020, when compared to the same periods in 2019, was primarily due to excess cash held at low interest rates to maintain a higher level of liquidity during the COVID-19 pandemic. Excluding the impact of additional liquidity and PPP loans, the net interest margin would increase approximately 27 basis points and 23 basis points for the three and nine months ended September 30, 2020, respectively.

Financial Condition

Assets totaled $2.2 billion at September 30, 2020, compared to assets of $1.9 billion at December 31, 2019. The increase in assets is primarily due to an increase in cash and cash equivalents in order to maintain a higher level of liquidity during the COVID-19 pandemic. Gross loans totaled $1.6 billion at September 30, 2020, an increase of $20.2 million compared to December 31, 2019. Excluding PPP loans, gross loans decreased by $36.5 million at September 30, 2020 when compared to December 31, 2019. Deposits totaled $1.8 billion at September 30, 2020, compared to deposits of $1.5 billion at December 31, 2019. The increase in deposits was a result of successful commercial core deposit gathering efforts through Treasury Management, Business Development, and Lending channels, as well as a temporary increase in short term time deposits to expand on-balance sheet liquidity during the COVID-19 pandemic.

Capital

Shareholders’ equity totaled $174.3 million as of September 30, 2020, a decrease of $8.1 million compared to December 31, 2019, primarily a result of a $10.7 million unfavorable impact to accumulated other comprehensive loss driven by fair value marks related to hedge positions involving interest rate swaps, as well as dividends paid of $3.3 million and common stock repurchases of $1.0 million. The decrease was partially offset by net income for the nine months ended September 30, 2020 of $5.6 million. The marks on the interest rate swaps are driven by lower long term market interest rates in 2020 when compared to 2019. 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.

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.

BANKWELL FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS (unaudited)
(Dollars in thousands)
		September 30, 2020				June 30, 2020				March 31, 2020				December 31, 2019				September 30, 2019
ASSETS
Cash and due from banks		$	333,103			$	201,380			$	203,569			$	78,051			$	83,109
Federal funds sold		6,380				5,886				6,427				—				—
Cash and cash equivalents		339,483				207,266				209,996				78,051				83,109
Investment securities
Marketable equity securities, at fair value		2,203				2,195				2,289				2,118				2,120
Available for sale investment securities, at fair value		90,563				82,220				82,342				82,439				86,017
Held to maturity investment securities, at amortized cost		16,138				16,196				16,252				16,308				17,365
Total investment securities		108,904				100,611				100,883				100,865				105,502
Loans receivable (net of allowance for loan losses of $20,372, $19,662, $16,686, $13,509, and $13,212 at September 30, 2020, June 30, 2020, March 31, 2020, December 31, 2019, and September 30, 2019, respectively)		1,600,776				1,590,995				1,602,146				1,588,840				1,548,988
Other real estate owned		—				180				—				—				—
Accrued interest receivable		7,294				6,774				5,867				5,959				5,916
Federal Home Loan Bank stock, at cost		7,860				7,835				6,507				7,475				7,475
Premises and equipment, net		26,616				27,177				27,835				28,522				28,892
Bank-owned life insurance		42,409				42,167				41,926				41,683				41,433
Goodwill		2,589				2,589				2,589				2,589				2,589
Other intangible assets		160				178				196				214				232
Deferred income taxes, net		11,149				11,352				10,009				5,788				6,591
Other assets		45,782				46,511				45,671				22,196				27,815
Total assets		$	2,193,022			$	2,043,635			$	2,053,625			$	1,882,182			$	1,858,542
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits
Noninterest bearing deposits		$	234,848			$	214,789			$	168,448			$	191,518			$	178,733
Interest bearing deposits		1,532,680				1,405,175				1,512,684				1,300,385				1,291,551
Total deposits		1,767,528				1,619,964				1,681,132				1,491,903				1,470,284
Advances from the Federal Home Loan Bank		175,000				175,000				125,000				150,000				150,000
Subordinated debentures		25,245				25,233				25,220				25,207				25,194
Accrued expenses and other liabilities		50,982				53,078				52,059				32,675				37,052
Total liabilities		2,018,755				1,873,275				1,883,411				1,699,785				1,682,530
Shareholders’ equity
Common stock, no par value		120,854				120,381				119,953				120,589				120,343
Retained earnings		71,603				69,712				69,595				69,324				66,870
Accumulated other comprehensive loss		(18,190		)		(19,733		)		(19,334		)		(7,516		)		(11,201		)
Total shareholders’ equity		174,267				170,360				170,214				182,397				176,012
Total liabilities and shareholders’ equity		$	2,193,022			$	2,043,635			$	2,053,625			$	1,882,182			$	1,858,542

BANKWELL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(Dollars in thousands, except share data)
		For the Quarter Ended																				For the Nine Months Ended
		September 30, 2020				June 30, 2020				March 31, 2020				December 31, 2019				September 30, 2019				September 30, 2020				September 30, 2019
Interest and dividend income
Interest and fees on loans		$	18,027			$	18,459			$	18,985			$	18,648			$	19,055			$	55,471			$	58,691
Interest and dividends on securities		799				778				825				858				903				2,402				2,892
Interest on cash and cash equivalents		96				86				286				427				535				468				1,432
Total interest and dividend income		18,922				19,323				20,096				19,933				20,493				58,341				63,015
Interest expense
Interest expense on deposits		4,104				4,810				5,709				5,948				6,331				14,623				18,750
Interest expense on borrowings		1,210				876				1,101				1,103				1,151				3,187				3,386
Total interest expense		5,314				5,686				6,810				7,051				7,482				17,810				22,136
Net interest income		13,608				13,637				13,286				12,882				13,011				40,531				40,879
Provision for loan losses		712				2,999				3,185				310				773				6,896				127
Net interest income after provision for loan losses		12,896				10,638				10,101				12,572				12,238				33,635				40,752
Noninterest income
Bank owned life insurance		242				241				243				250				255				726				758
Service charges and fees		190				171				217				247				264				578				776
Gains and fees from sales of loans		27				—				—				382				703				27				1,409
Gain (loss) on sale of other real estate owned, net		19				—				—				—				(102		)		19				(102		)
Net gain on sale of available for sale securities		—				—				—				—				—				—				76
Other		136				165				612				169				432				913				1,279
Total noninterest income		614				577				1,072				1,048				1,552				2,263				4,196
Noninterest expense
Salaries and employee benefits		5,295				5,227				5,380				5,162				4,881				15,902				14,272
Occupancy and equipment		2,266				2,235				1,909				1,928				1,946				6,410				5,666
Data processing		529				493				536				499				505				1,558				1,568
Professional services		374				434				711				402				346				1,519				1,455
Director fees		301				287				295				224				235				883				639
FDIC insurance		176				283				70				—				(125		)		529				74
Marketing		151				199				162				220				210				512				751
Amortization of intangibles		18				18				18				18				19				54				57
Other		619				546				578				771				655				1,743				1,920
Total noninterest expense		9,729				9,722				9,659				9,224				8,672				29,110				26,402
Income before income tax expense		3,781				1,493				1,514				4,396				5,118				6,788				18,546
Income tax expense		790				279				151				924				1,030				1,220				3,802
Net income		$	2,991			$	1,214			$	1,363			$	3,472			$	4,088			$	5,568			$	14,744
Earnings Per Common Share:
Basic		$	0.38			$	0.16			$	0.17			$	0.44			$	0.52			$	0.71			$	1.88
Diluted		$	0.38			$	0.16			$	0.17			$	0.44			$	0.52			$	0.71			$	1.87
Weighted Average Common Shares Outstanding:
Basic		7,721,247				7,715,094				7,750,135				7,745,227				7,750,490				7,728,798				7,761,441
Diluted		7,721,459				7,715,295				7,778,762				7,773,780				7,766,485				7,749,199				7,788,839
Dividends per common share		$	0.14			$	0.14			$	0.14			$	0.13			$	0.13			$	0.42			$	0.39

BANKWELL FINANCIAL GROUP, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (unaudited)
		For the Quarter Ended															For the Nine Months Ended
		September 30, 2020			June 30, 2020			March 31, 2020			December 31, 2019			September 30, 2019			September 30, 2020			September 30, 2019
Performance ratios:
Return on average assets(1)		0.55	%		0.23	%		0.29	%		0.73	%		0.87	%		0.36	%		1.05	%
Return on average stockholders' equity(1)		6.87	%		2.82	%		3.03	%		7.68	%		9.12	%		4.23	%		11.06	%
Return on average tangible common equity(1)		6.98	%		2.86	%		3.07	%		7.80	%		9.26	%		4.30	%		11.24	%
Net interest margin		2.67	%		2.81	%		2.98	%		2.92	%		2.96	%		2.81	%		3.07	%
Efficiency ratio(2)		68.4	%		68.2	%		67.1	%		66.1	%		58.9	%		67.9	%		58.3	%
Net loan charge-offs as a % of average loans		—	%		—	%		—	%		—	%		0.09	%		—	%		0.15	%
Dividend payout ratio(3)		36.84	%		87.50	%		82.35	%		29.55	%		25.00	%		59.15	%		20.86	%

(1) 2020 performance ratios are negatively impacted by incremental COVID-19 pandemic related loan loss reserves, totaling $7.9 million for the nine months ended September 30, 2020.

(2) Efficiency ratio is defined as noninterest expense, less other real estate owned expenses and amortization of intangible assets, divided by our operating revenue, which is equal to net interest income plus noninterest income excluding gains and losses on sales of securities and gains and losses on other real estate owned. In our judgment, the adjustments made to operating revenue allow investors and analysts to better assess our operating expenses in relation to our core operating revenue by removing the volatility that is associated with certain one-time items and other discrete items that are unrelated to our core business.

(3) The dividend payout ratio is calculated by dividing dividends per share by earnings per share.

		As of
		September 30, 2020				June 30, 2020				March 31, 2020				December 31, 2019				September 30, 2019
Capital ratios:
Total Common Equity Tier 1 Capital to Risk-Weighted Assets(1)		12.36		%		12.44		%		12.14		%		12.53		%		12.65		%
Total Capital to Risk-Weighted Assets(1)		13.57		%		13.63		%		13.13		%		13.35		%		13.47		%
Tier I Capital to Risk-Weighted Assets(1)		12.36		%		12.44		%		12.14		%		12.53		%		12.65		%
Tier I Capital to Average Assets(1)		9.58		%		9.93		%		10.84		%		10.99		%		10.88		%
Tangible common equity to tangible assets		7.83		%		8.21		%		8.16		%		9.56		%		9.33		%
Tangible book value per common share(2)		$	22.20			$	21.70			$	21.69			$	23.15			$	22.34

(1) Represents Bank ratios. Current period capital ratios are preliminary subject to finalization of the FDIC Call Report.

(2) Excludes unvested restricted shares of 170,083, 165,708, 154,012, 110,975, and 88,473 as of September 30, 2020, June 30, 2020, March 31, 2020, December 31, 2019, and September 30, 2019, respectively.

BANKWELL FINANCIAL GROUP, INC.
ASSET QUALITY (unaudited)
(Dollars in thousands)
		For the Quarter Ended
		September 30, 2020				June 30, 2020				March 31, 2020				December 31, 2019				September 30, 2019
Allowance for loan losses:
Balance at beginning of period		$	19,662			$	16,686			$	13,509			$	13,212			$	13,890
Charge-offs:
Residential real estate		—				—				—				—				(78		)
Commercial real estate		—				—				—				—				(594		)
Commercial business		—				—				(8		)		(13		)		(748		)
Consumer		(4		)		(23		)		(2		)		(5		)		(57		)
Total charge-offs		(4		)		(23		)		(10		)		(18		)		(1,477		)
Recoveries:
Commercial business		—				—				1				1				2
Consumer		2				—				1				4				24
Total recoveries		2				—				2				5				26
Net loan charge-offs		(2		)		(23		)		(8		)		(13		)		(1,451		)
Provision for loan losses		712				2,999				3,185				310				773
Balance at end of period		$	20,372			$	19,662			$	16,686			$	13,509			$	13,212

		As of
		September 30, 2020				June 30, 2020				March 31, 2020				December 31, 2019				September 30, 2019
Asset quality:
Nonaccrual loans
Residential real estate		$	1,596			$	1,622			$	1,532			$	1,560			$	1,583
Commercial real estate		4,812				5,172				5,339				5,222				5,332
Commercial business		3,760				3,783				3,783				3,806				2,963
Total nonaccrual loans		10,168				10,577				10,654				10,588				9,878
Other real estate owned		—				180				—				—				—
Total nonperforming assets		$	10,168			$	10,757			$	10,654			$	10,588			$	9,878
Nonperforming loans as a % of total loans		0.63		%		0.66		%		0.66		%		0.66		%		0.63		%
Nonperforming assets as a % of total assets		0.46		%		0.53		%		0.52		%		0.56		%		0.53		%
Allowance for loan losses as a % of total loans		1.25		%		1.22		%		1.03		%		0.84		%		0.84		%
Allowance for loan losses as a % of nonperforming loans		200.35		%		185.89		%		156.62		%		127.59		%		133.75		%

Total nonaccrual loans were $10.2 million as of September 30, 2020, of which $4.5 million are guaranteed by the Small Business Administration (SBA). Nonperforming assets as a percentage of total assets was 0.46% at September 30, 2020, down from 0.56% at December 31, 2019. The allowance for loan losses at September 30, 2020 was $20.4 million, representing 1.25% of total loans. The $6.9 million increase in the allowance for loan losses at September 30, 2020 when compared to December 31, 2019 was primarily due to incremental loan loss reserves for increased credit risk relating to economic disruption and uncertainty caused by the COVID-19 pandemic.

BANKWELL FINANCIAL GROUP, INC.
LOAN & DEPOSIT PORTFOLIO (unaudited)
(Dollars in thousands)
Period End Loan Composition		September 30, 2020				June 30, 2020				December 31, 2019				Current QTD % Change			YTD % Change
Residential Real Estate		$	120,531			$	128,683			$	147,109			(6.3	)%		(18.1	)%
Commercial Real Estate(1)		1,105,862				1,110,562				1,128,614				(0.4	)		(2.0	)
Construction		96,508				94,523				98,583				2.1			(2.1	)
Total Real Estate Loans		1,322,901				1,333,768				1,374,306				(0.8	)		(3.7	)
Commercial Business		301,747				280,811				230,028				7.5			31.2
Consumer		78				87				150				(10.3	)		(48.0	)
Total Loans		$	1,624,726			$	1,614,666			$	1,604,484			0.6	%		1.3	%
(1) Includes owner occupied commercial real estate.

Period End Deposit Composition		September 30, 2020				June 30, 2020				December 31, 2019				Current QTD % Change			YTD % Change
Noninterest bearing demand		$	234,848			$	214,789			$	191,518			9.3	%		22.6	%
NOW		90,776				87,239				70,020				4.1			29.6
Money Market		561,101				482,462				419,495				16.3			33.8
Savings		164,590				162,891				183,729				1.0			(10.4	)
Time		716,213				672,583				627,141				6.5			14.2
Total Deposits		$	1,767,528			$	1,619,964			$	1,491,903			9.1	%		18.5	%

Total deposits were $1.8 billion at September 30, 2020 compared to $1.5 billion at December 31, 2019, an increase of $0.3 billion, or 18.5%. The increase in total deposits was a result of successful commercial core deposit gathering efforts, as well as a temporary increase in short term time deposits to expand on-balance sheet liquidity during the COVID-19 pandemic.

BANKWELL FINANCIAL GROUP, INC.
NONINTEREST INCOME (unaudited)
(Dollars in thousands)
		For the Quarter Ended
Noninterest income		September 30, 2020				June 30, 2020				September 30, 2019				Sep 20 vs. June 20 % Change			Sep 20 vs. Sep 19 % Change
Bank owned life insurance		$	242			$	241			$	255			0.4	%		(5.1	)%
Service charges and fees		190				171				264				11.1			(28.0	)
Gains and fees from sales of loans		27				—				703				N/A			(96.2	)
Gain (loss) on sale of other real estate owned, net		19				—				(102		)		N/A			(118.6	)
Other		136				165				432				(17.6	)		(68.5	)
Total noninterest income		$	614			$	577			$	1,552			6.4	%		(60.4	)%

	For the Nine Months Ended
Noninterest income	September 30, 2020				September 30, 2019				% Change
Bank owned life insurance	$	726			$	758			(4.2	)%
Service charges and fees	578				776				(25.5	)
Gains and fees from sales of loans	27				1,409				(98.1	)
Gain (loss) on sale of other real estate owned, net	19				(102		)		(118.6	)
Net gain on sale of available for sale securities	—				76				(100.0	)
Other	913				1,279				(28.6	)
Total noninterest income	$	2,263			$	4,196			(46.1	)%

Noninterest income decreased by $0.9 million to $0.6 million for the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019. Noninterest income decreased by $1.9 million to $2.3 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

The decrease in noninterest income was primarily a result of the absence of gains and fees from the sales of SBA loans for the quarter and nine months ended September 30, 2020 compared to the same periods in 2019. To a lesser degree, the decrease in noninterest income was also driven by certain waived service charges and fees on depository accounts as a courtesy to customers during the COVID-19 pandemic. The decrease in other noninterest income was primarily a result of loan related interest rate swap fees recognized in 2019.

BANKWELL FINANCIAL GROUP, INC.
NONINTEREST EXPENSE (unaudited)
(Dollars in thousands)
		For the Quarter Ended
Noninterest expense		September 30, 2020				June 30, 2020				September 30, 2019				Sep 20 vs. June 20 % Change			Sep 20 vs. Sep 19 % Change
Salaries and employee benefits		$	5,295			$	5,227			$	4,881			1.3	%		8.5	%
Occupancy and equipment		2,266				2,235				1,946				1.4			16.4
Data processing		529				493				505				7.3			4.8
Professional services		374				434				346				(13.8	)		8.1
Director fees		301				287				235				4.9			28.1
FDIC insurance		176				283				(125		)		(37.8	)		(240.8	)
Marketing		151				199				210				(24.1	)		(28.1	)
Amortization of intangibles		18				18				19				—			(5.3	)
Other		619				546				655				13.4			(5.5	)
Total noninterest expense		$	9,729			$	9,722			$	8,672			0.1	%		12.2	%

	For the Nine Months Ended
Noninterest expense	September 30, 2020				September 30, 2019				% Change
Salaries and employee benefits	$	15,902			$	14,272			11.4	%
Occupancy and equipment	6,410				5,666				13.1
Data processing	1,558				1,568				(0.6	)
Professional services	1,519				1,455				4.4
Director fees	883				639				38.2
FDIC insurance	529				74				614.9
Marketing	512				751				(31.8	)
Amortization of intangibles	54				57				(5.3	)
Other	1,743				1,920				(9.2	)
Total noninterest expense	$	29,110			$	26,402			10.3	%

Noninterest expense increased by $1.1 million, or 12.2%, to $9.7 million for the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019. Noninterest expense increased by $2.7 million, or 10.3%, to $29.1 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. The increase in noninterest expense was primarily driven by an increase in salaries and employee benefits, occupancy and equipment expense and FDIC insurance expense.

Salaries and employee benefits totaled $5.3 million for the quarter ended September 30, 2020, an increase of $0.4 million when compared to the same period in 2019. Salaries and employee benefits totaled $15.9 million for the nine months ended September 30, 2020, an increase of $1.6 million when compared to the same period in 2019. The increase in salaries and employee benefits was primarily driven by normal annual salary increases, additional hires in support of growth initiatives and expanded employee benefits to assist employees impacted by the COVID-19 pandemic.

Occupancy and equipment expense totaled $2.3 million for the quarter ended September 30, 2020, an increase of $0.3 million when compared to the same period in 2019. Occupancy and equipment expense totaled $6.4 million for the nine months ended September 30, 2020, an increase of $0.7 million when compared to the same period in 2019. 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 $0.2 million for the quarter ended September 30, 2020, an increase of $0.3 million when compared to the same period in 2019. FDIC insurance expense totaled $0.5 million for the nine months ended September 30, 2020, an increase of $0.5 million when compared to the same period in 2019. The increase in FDIC insurance expense was primarily driven by a credit received during the quarter ended September 30, 2019.

BANKWELL FINANCIAL GROUP, INC.
RECONCILIATION OF GAAP TO NON-GAAP MEASURES (unaudited)
(Dollars in thousands, except share data)
		As of
Computation of Tangible Common Equity to Tangible Assets		September 30, 2020				June 30, 2020				March 31, 2020				December 31, 2019				September 30, 2019
Total Equity		$	174,267			$	170,360			$	170,214			$	182,397			$	176,012
Less:
Goodwill		2,589				2,589				2,589				2,589				2,589
Other intangibles		160				178				196				214				232
Tangible Common Equity		$	171,518			$	167,593			$	167,429			$	179,594			$	173,191
Total Assets		$	2,193,022			$	2,043,635			$	2,053,625			$	1,882,182			$	1,858,542
Less:
Goodwill		2,589				2,589				2,589				2,589				2,589
Other intangibles		160				178				196				214				232
Tangible Assets		$	2,190,273			$	2,040,868			$	2,050,840			$	1,879,379			$	1,855,721
Tangible Common Equity to Tangible Assets		7.83		%		8.21		%		8.16		%		9.56		%		9.33		%

	As of
Computation of Tangible Book Value per Common Share	September 30, 2020				June 30, 2020				March 31, 2020				December 31, 2019				September 30, 2019
Total shareholders' equity	$	174,267			$	170,360			$	170,214			$	182,397			$	176,012
Less:
Preferred stock	—				—				—				—				—
Common shareholders' equity	$	174,267			$	170,360			$	170,214			$	182,397			$	176,012
Less:
Goodwill	2,589				2,589				2,589				2,589				2,589
Other intangibles	160				178				196				214				232
Tangible common shareholders' equity	$	171,518			$	167,593			$	167,429			$	179,594			$	173,191
Common shares	7,896,503				7,887,503				7,871,419				7,868,803				7,841,103
Less:
Shares of unvested restricted stock	170,083				165,708				154,012				110,975				88,473
Common shares less unvested restricted stock	7,726,420				7,721,795				7,717,407				7,757,828				7,752,630
Book value per share	$	22.55			$	22.06			$	22.06			$	23.51			$	22.70
Less:
Effects of intangible assets	$	0.36			$	0.36			$	0.36			$	0.36			$	0.36
Tangible Book Value per Common Share	$	22.20			$	21.70			$	21.69			$	23.15			$	22.34

BANKWELL FINANCIAL GROUP, INC.
RECONCILIATION OF GAAP TO NON-GAAP MEASURES (unaudited) - Continued
(Dollars in thousands)
		For the Quarter Ended																				For the Nine Months Ended
Computation of Efficiency Ratio		September 30, 2020				June 30, 2020				March 31, 2020				December 31, 2019				September 30, 2019				September 30, 2020				September 30, 2019
Noninterest expense		$	9,729			$	9,722			$	9,659			$	9,224			$	8,672			$	29,110			$	26,402
Less:
Amortization of intangible assets		18				18				18				18				19				54				57
Other real estate owned expenses		—				6				—				—				13				6				37
Adjusted noninterest expense		$	9,711			$	9,698			$	9,641			$	9,206			$	8,640			$	29,050			$	26,308
Net interest income		$	13,608			$	13,637			$	13,286			$	12,882			$	13,011			$	40,531			$	40,879
Noninterest income		614				577				1,072				1,048				1,552				2,263				4,196
Less:
Net gain on sale of available for sale securities		—				—				—				—				—				—				76
Gain (loss) on sale of other real estate owned, net		19				—				—				—				(102		)		19				(102		)
Operating revenue		$	14,203			$	14,214			$	14,358			$	13,930			$	14,665			$	42,775			$	45,101
Efficiency ratio		68.4		%		68.2		%		67.1		%		66.1		%		58.9		%		67.9		%		58.3		%

		For the Quarter Ended																				For the Nine Months Ended
Computation of Return on Average Tangible Common Equity		September 30, 2020				June 30, 2020				March 31, 2020				December 31, 2019				September 30, 2019				September 30, 2020				September 30, 2019
Net Income Attributable to Common Shareholders		$	2,991			$	1,214			$	1,363			$	3,472			$	4,088			$	5,568			$	14,744
Total average shareholders' equity		$	173,162			$	173,289			$	181,127			$	179,312			$	177,916			$	175,838			$	178,237
Less:
Average Goodwill		2,589				2,589				2,589				2,589				2,589				2,589				2,589
Average Other intangibles		172				190				208				226				244				190				264
Average tangible common equity		$	170,401			$	170,510			$	178,330			$	176,497			$	175,083			$	173,059			$	175,384
Annualized Return on Average Tangible Common Equity		6.98		%		2.86		%		3.07		%		7.80		%		9.26		%		4.30		%		11.24		%

BANKWELL FINANCIAL GROUP, INC.
NET INTEREST MARGIN ANALYSIS ON A FULLY TAX EQUIVALENT BASIS - QTD (unaudited)
(Dollars in thousands)
		For the Quarter Ended
		September 30, 2020											September 30, 2019
		Average Balance				Interest				Yield/ Rate (5)			Average Balance				Interest				Yield/ Rate (5)
Assets:
Cash and Fed funds sold		$	312,078			$	96			0.12	%		$	86,967			$	535			2.44	%
Securities(1)		96,448				776				3.22			109,247				845				3.09
Loans:
Commercial real estate		1,087,765				12,570				4.52			1,066,256				12,590				4.62
Residential real estate		125,069				1,097				3.51			161,312				1,559				3.87
Construction(2)		94,984				1,029				4.24			86,342				1,141				5.17
Commercial business		322,066				3,329				4.04			248,116				3,761				5.93
Consumer		121				2				7.37			229				4				6.93
Total loans		1,630,005				18,027				4.33			1,562,255				19,055				4.77
Federal Home Loan Bank stock		7,835				77				3.91			7,474				113				6.02
Total earning assets		2,046,366				$	18,976			3.63	%		1,765,943				$	20,548			4.55	%
Other assets		132,617											103,742
Total assets		$	2,178,983										$	1,869,685
Liabilities and shareholders' equity:
Interest bearing liabilities:
NOW		$	87,890			$	40			0.18	%		$	62,444			$	26			0.17	%
Money market		517,638				859				0.66			423,638				1,739				1.63
Savings		163,135				237				0.58			174,587				740				1.68
Time		757,176				2,968				1.56			644,536				3,826				2.36
Total interest bearing deposits		1,525,839				4,104				1.07			1,305,205				6,331				1.92
Borrowed Money		200,237				1,210				2.36			175,185				1,151				2.57
Total interest bearing liabilities		1,726,076				$	5,314			1.22	%		1,480,390				$	7,482			2.01	%
Noninterest bearing deposits		226,473											177,922
Other liabilities		53,272											33,457
Total liabilities		2,005,821											1,691,769
Shareholders' equity		173,162											177,916
Total liabilities and shareholders' equity		$	2,178,983										$	1,869,685
Net interest income(3)						$	13,662										$	13,066
Interest rate spread										2.41	%										2.54	%
Net interest margin(4)										2.67	%										2.96	%

(1) Average balances and yields for securities are based on amortized cost.

(2) Includes commercial and residential real estate construction.

(3) The adjustment for securities and loans taxable equivalency amounted to $54 thousand and $55 thousand for the quarters ended September 30, 2020 and 2019, respectively.

(4) Annualized net interest income as a percentage of earning assets.

(5) Yields are calculated using the contractual day count convention for each respective product type.

BANKWELL FINANCIAL GROUP, INC.
NET INTEREST MARGIN ANALYSIS ON A FULLY TAX EQUIVALENT BASIS - YTD (unaudited)
(Dollars in thousands)
		For the Nine Months Ended
		September 30, 2020											September 30, 2019
		Average Balance				Interest				Yield/ Rate (5)			Average Balance				Interest				Yield/ Rate (5)
Assets:
Cash and Fed funds sold		$	207,058			$	468			0.30	%		$	84,212			$	1,432			2.27	%
Securities(1)		96,761				2,289				3.15			115,586				2,722				3.14
Loans:
Commercial real estate		1,094,956				38,460				4.61			1,061,536				38,176				4.74
Residential real estate		134,369				3,636				3.61			169,297				4,892				3.85
Construction(2)		98,539				3,350				4.47			84,487				3,412				5.33
Commercial business		289,959				10,017				4.54			259,154				12,198				6.21
Consumer		130				8				8.15			274				13				6.60
Total loans		1,617,953				55,471				4.50			1,574,748				58,691				4.91
Federal Home Loan Bank stock		7,547				272				4.81			7,512				365				6.49
Total earning assets		1,929,319				$	58,500			3.98	%		1,782,058				$	63,210			4.68	%
Other assets		125,957											89,332
Total assets		$	2,055,276										$	1,871,390
Liabilities and shareholders' equity:
Interest bearing liabilities:
NOW		$	76,661			$	99			0.17	%		$	61,872			$	101			0.22	%
Money market		473,485				3,213				0.91			447,008				5,567				1.67
Savings		170,262				1,204				0.94			176,491				2,252				1.71
Time		721,051				10,107				1.87			638,978				10,830				2.27
Total interest bearing deposits		1,441,459				14,623				1.36			1,324,349				18,750				1.89
Borrowed Money		187,177				3,187				2.24			175,290				3,386				2.55
Total interest bearing liabilities		1,628,636				$	17,810			1.46	%		1,499,639				$	22,136			1.97	%
Noninterest bearing deposits		201,384											166,864
Other liabilities		49,418											26,650
Total liabilities		1,879,438											1,693,153
Shareholders' equity		175,838											178,237
Total liabilities and shareholders' equity		$	2,055,276										$	1,871,390
Net interest income(3)						$	40,690										$	41,074
Interest rate spread										2.52	%										2.71	%
Net interest margin(4)										2.81	%										3.07	%

(1) Average balances and yields for securities are based on amortized cost.

(2) Includes commercial and residential real estate construction.

(3) The adjustment for securities and loans taxable equivalency amounted to $159 thousand and $195 thousand for the nine months ended September 30, 2020 and 2019, respectively.

(4) Annualized net interest income as a percentage of earning assets.

(5) Yields are calculated using the contractual day count convention for each respective product type.