Bankwell Financial Group 3Q19 Investor Presentation
Safe Harbor This presentation 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,” “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. 2
3Q19 Highlights
3Q19 Highlights • Reported Net Income of $4.1 million, or $0.52 earnings per share • Improved deposit pricing and mix: • Reduced rates on key Consumer and Business deposit products • Realized growth in non-interest bearing accounts from successful Treasury Management efforts • Reduced reliance on Wholesale funding to 20.9% of our balance sheet1 • Capitalizing on our Liability-sensitive balance sheet • Flat quarter over quarter loan balance • Maintained pricing discipline on originations • Prepayments continue, although at a slower pace than previous quarters • The orderly resolution of the “Quarry Loans”2 continues according to plan; SBA Guarantee claim submitted; collection pending • The Company’s Board of Directors declared 4Q19 dividend of $0.13 per share 1 Wholesale ratio includes Brokered deposits, National Listing Service CDs (NLS) and FHLB Borrowings; calculated on Bank balances (not consolidated) 2 See BWFG’s 4Q’18 Earnings Release and related Investor Presentation for “Quarry Loans” background 4
Funding Cost Bankwell poised to take advantage of favorable landscape • Fed cut target Fed Funds rates three times in 2019, a total reduction of 75 basis points • Bankwell’s liability-sensitive balance sheet well positioned to capture benefits of reduced short-term rates Potential impact of incremental price reductions on key products’ • Lowered rates on key Consumer and Business September 30th deposit balances Incremental Estimated deposit products late in the third quarter Price Reduction EPS Benefit -5 bps ~ $0.02 • Expanded Treasury Management is driving -10 bps ~ $0.05 non-interest bearing deposit growth -15 bps ~ $0.07 Net interest margin (NIM) approaching inflection point, full benefit from funding cost decrease still to be realized 5
Funding Mix 3Q19 Deposit Mix Wholesale Funding Trends 2 $1.9B 30.00% 1.8 12.2% $1.6B 1.6 25.00% 1.4 1.2 24.9% 1 20.00% 0.8 20.9% 0.6 15.00% 87.8% 0.4 0.2 0 10.00% 2016 3Q19 Non Int Bearing Int Bearing Assets Wholesale Ratio 1 • Core Deposits ended at a record high • Successful asset growth while of $1.23 billion shrinking reliance on wholesale • Treasury Management balances grew funding to $95 million, a 19% annualized rate 1 Wholesale ratio includes Brokered deposits, National Listing Service CDs (NLS) and FHLB Borrowings; calculated on Bank balances (not consolidated) 6
Loan Pricing Trends Dollars in millions Total Loan Portfolio $1,800 4.61% 5.00% 4.38% 4.48% 4.64% 4.50% $1,700 $1,605 4.00% $1,600 $1,543 $1,564 3.50% $1,500 3.00% $1,400 $1,366 2.50% 2.00% $1,300 1.50% $1,200 1.00% $1,100 0.50% $1,000 0.00% 2016 2017 2018 3Q19 Gross Loan Balance Portfolio Yield 1 • Bankwell committed to disciplined loan pricing to defend portfolio yield • 2019 originations yields in line with overall portfolio yield • Bankwell’s relatively small variable rate portfolio impacted by yield curve movement • 2019 5 and 10 Year average UST yields decreased by ~65bps versus 20182 1 Weighted average yield based on active loans as of 12-31-16, 12-31-17, 12-31-18 & 9-30-19, respectively 2 Comparing averages of daily values for 2019 (through 9-30-19) and the full year of 2018 7
Impact of Hedging on Tangible Book Value • Bankwell actively manages interest rate risk related to its funding sources with interest rate swaps • The interest rate swaps are marked to market each quarter, with the unrealized gains or losses recognized in other comprehensive income • In 2019, falling long term interest rates1 have increased the unrealized loss positions on Bankwell’s interest rate swaps, negatively impacting TBV by $1.61 / share • As long term rates rise, the impact to other comprehensive income is reversed Tangible Book Value (TBV) Per Share Walk Bankwell’s current $1.87 interest rate swaps will cause decreases to other $0.41 $22.06 $0.39 $22.34 comprehensive income $1.61 in a falling rate environment and increases in a rising rate environment 2018 Net Income Dividends Int Rate Swaps All Other 3Q19 1 Based on the September 30th Treasury Yield Curve values 8
3Q19 Performance
3Q19 Results Quarter Year to Date • Net Income $4.1 million $14.7 million Profitability • Return on Average Assets 0.87% 1.05% • Return on Average Equity 9.12% 11.06% • $1.6 billion of gross loans Balance Sheet • $1.5 billion of deposits • $12 million of assets per employee • Dividend of $0.13 per share paid Tier 1 Leverage 10.88% Capital • $22.34 Tangible Book Value CET1 / RWA 12.65% Total Capital / RWA 13.47% • Considered “Well Capitalized”1 1 Ratios presented represent Bank ratios 10
3Q Consolidated Statement of Income 1 Dollars in millions 2019 2018 QoQ Notes Total Interest Income $20.5 $20.5 $0.0 Net Interest Income Total Interest Expense $7.5 $6.3 $1.2 • 2019 Interest Income supported by incremental fees from loan Net Interest Income $13.0 $14.2 $(1.2) prepayments Provision for Loan Losses $0.8 $0.3 $0.5 • Rising deposit costs reflected in Interest Expense Net Interest Income after Provision $12.2 $13.9 $(1.7) Non Interest Income Non Interest Income $1.6 $0.9 $0.7 • Increased loan sales in 2019 Non Interest Expense $8.7 $8.9 $(0.2) Non Interest Expense Pre-Tax Income $5.1 $5.9 $(0.8) • Received credit from the FDIC Income Tax Expense $1.0 $1.1 $0.0 insurance fund Reported Net Income $4.1 $4.9 $(0.8) EPS $0.52 $0.62 $(0.10) 1 Variances are rounded based on actual whole dollar amounts 11
3Q YTD Consolidated Statement of Income 1 Dollars in millions 2019 2018 QoQ Notes Total Interest Income $63.0 $58.5 $4.5 Net Interest Income Total Interest Expense $22.1 $16.7 $5.5 • Higher average earning assets year over year along with Net Interest Income $40.9 $41.9 $(1.0) incremental fees from loan prepayments Provision for Loan Losses $0.1 $0.6 $(0.5) • Rising deposit costs more than offset Interest Income growth Net Interest Income after Provision $40.8 $41.2 $(0.5) Non Interest Income • Increased loan sales in 2019 Non Interest Income $4.2 $3.3 $0.9 • Fees related to loan-related Non Interest Expense $26.4 $26.8 $(0.4) Swaps Non Interest Expense Pre-Tax Income $18.5 $17.7 $(0.9) • Lower marketing expenses (2018 included elevated spend due to Income Tax Expense $3.8 $3.5 $0.3 new branch activity) Reported Net Income $14.7 $14.2 $0.6 • Received credit from the FDIC insurance fund EPS $1.87 $1.80 $0.07 1 Variances are rounded based on actual whole dollar amounts 12
3Q Consolidated Balance Sheet 1 Dollars in millions 3Q19 4Q18 V Notes Cash & Cash Equivalents $83 $78 $5 All Other Assets Investment Securities $106 $117 $(11) • Change in lease accounting standards Loans Receivable, net $1,549 $1,587 $(38) now requires on balance sheet recognition of All Other Assets $121 $92 $29 leases Total Assets $1,859 $1,874 $(15) Total Deposits Total Deposits $1,470 $1,502 $(32) • Wholesale deposits down $37 million, year to date FHLB Advances & Other Borrowings $175 $185 $(10) Other Liabilities Other Liabilities $37 $12 $25 • Change in lease accounting standards Total Liabilities $1,683 $1,699 $(17) now requires on balance sheet recognition of Equity $176 $174 $2 leases Total Liabilities & Equity $1,859 $1,874 $(15) 1 Variances are rounded based on actual whole dollar amounts 13
Financial Performance Trends Net Income Revenue • Deposit cost pressure on NIM $59.0 $60.2 subsiding in 3Q given reductions in Retail deposit $51.8 $46.3 pricing as well as lower $45.1 Wholesale balances $34.7 • 2019 NIM is benefitting from approximately $2.2 million in fees associated with elevated loan prepayments Dollars in millions $17.4 $14.7 $12.4 $13.8 • The 2019 Efficiency Ratio is $9.0 $4.6 58.3%, in part benefitting from increased revenue due to loan 2014 2015 2016 2017 2018 3Q19 prepayments as well as YTD continued disciplined expense management EPS $0.78 $1.21 $1.62 $1.78 1 $2.21 $1.87 Efficiency • Non-Interest Expense as a Ratio 68.7% 62.3% 56.5% 54.9% 59.2% 58.3% percentage of Average Assets is NIM 3.84% 3.77% 3.54% 3.30% 3.18% 3.07% 1.89% Non Interest Exp / Assets 2.94% 2.42% 2.03% 1.88% 1.93% 1.89% 1 4Q’17 EPS reduced by $0.26 due to the impact of the Tax Cut and Jobs Act passed in December 2017 along with several other smaller items; on a “core” basis, 2017 EPS is $2.03, please refer to BWFG’s 4Q’17 Earnings Release for further detail 14
Loan Trends Dollars in millions Loan Volume Prepayments $424 Quarter 2017 2018 2019 $400 $402 1Q $24 $7 $53 2Q $25 $33 $71 $321 $307 $306 $308 3Q $11 $17 $27 4Q $29 $62 Total $89 $119 $151 $220 $211 Avg / Qtr $22 $30 $50 $147 • Healthy 2019 originations in a competitive environment • Elevated prepayments beginning in 4Q18 • A review of prepayments since 2015 2016 2017 2018 3Q19 YTD 4Q18 indicates ~75% not related to loan refinancings Originations Fundings 15
Portfolio Metrics
Financial Snapshot Dollars in thousands, except per share data 2014 2015 2016 20171 2018 3Q19 YTD Total assets $1,099,531 $1,330,372 $1,628,919 $1,796,607 $1,873,665 $1,858,542 Net loans $915,981 $1,129,748 $1,343,895 $1,520,879 $1,586,775 $1,548,988 Loans to deposits 110.7% 109.1% 105.6% 110.1% 106.4% 105.9% Efficiency ratio 68.7% 62.3% 56.5% 54.9% 59.2% 58.3% Non interest expense / Avg. assets 2.94% 2.42% 2.03% 1.88% 1.93% 1.89% Net interest margin 3.84% 3.77% 3.54% 3.30% 3.18% 3.07% Total capital to risk weighted assets 13.55% 13.39% 12.85% 12.19% 12.50% 13.47% Return on average equity 5.13% 6.76% 8.94% 8.93% 10.19% 11.06% Tangible book value per share $16.35 $17.43 $18.98 $20.59 $22.06 $22.34 Net interest income $31,660 $42,788 $49,092 $54,364 $56,326 $40,879 Net income $4,568 $9,030 $12,350 $13,830 $17,433 $14,744 EPS (fully diluted) $0.78 $1.21 $1.62 $1.78 $2.21 $1.87 1 Values are based on reported earnings / performance, which were impacted primarily as a result of the Tax Cut and Jobs Act passed in December 2017 along with several other smaller items. Please refer to BWFG’s 4Q’17 Earnings Release for further detail 17
Loan Portfolio Dollars in millions $1,605 $1,800 $1,543 $1,564 $65 $1,600 $1,366 $153 $1,400 $1,148 $156 $1,200 $930 $1,000 $800 $941 $600 $400 $90 $159 $200 $0 2014 2015 2016 2017 2018 3Q19 Residential Mortgages/Consumer (CAGR -4%) Construction (CAGR 8%) Commercial Mortgage (CAGR 20%) Commercial Mortgage Owner Occupied (CAGR 4%) Commercial & Industrial (CAGR 9%) Commercial Lines of Credit (CAGR 7%) 18
Asset Quality NPAs to Total Assets 0.75% reported 0.53% reported 0.39% 0.38% 0.31% 0.20% 0.38% 0.43% 2014 2015 2016 2017 2018 3Q19 For the respective reporting periods, values above the dotted boxes include the Quarry Loans, the values in the solid boxes exclude the Quarry Loans • 2018 increase of NPAs primarily attributable to the Quarry Loans1 • NPAs ended 3Q19 at $9.9 million, down from a high of $23.3 million in 2Q18 • $1.9 million of 3Q19 NPAs pertain to the Quarry Loans; balance represents the SBA guaranteed portion • Excluding the Quarry Loans, Bankwell’s remaining NPAs are $8.0 million, or 43 basis points of total assets, in line with historical performance NPAs approaching historical norms 1 See BWFG’s 4Q’18 Earnings Release and related Investor Presentation for “Quarry Loans” background 19
Loan Portfolio Consumer Loans / Other 0.66% Commercial Const. Residential 5.75% • Portfolio oversight 9.53% provided by team of 13 skilled credit analysts and portfolio managers, most C&I with > 20 years’ 13.95% experience • Concentration actively managed, with no single relationship representing CRE Owner more than 5.4% of total Occupied loan volume at September 10.35% 30th, 2019 CRE Investor 59.78% 20
CRE Loan Portfolio 1 Dollars in millions Special Use Industrial 3.27% Warehouse Retail Composition $ % 9.71% Retail2 $190 59.27% Mixed Use Grocery $73 22.92% 10.58% Retail Pharmacy $30 9.35% 29.23% Gas / Auto Services $14 4.25% Restaurant $13 4.21% MultiFamily 11.71% Total Retail $321 100.00% • Average deal size is $2.1MM Residential 2.79% Office Composition $ % Other Office (primarily suburban) $224 71.14% 3.96% Office Medical $89 28.19% 28.74% Condo $2 0.67% • Property Type mix continues to show well diversified exposure Total Office $315 100.00% • Average deal size is $2.2MM • ~ 50% of all CRE loans have recourse3, non recourse loans generally require lower LTV and higher DSC 1 Includes Owner Occupied CRE, does not include Construction 2 Comprised primarily of neighborhood and convenience centers, typically characterized by: size up to 125,000 sq. ft.; convenience and service oriented 21 3 Based on dollar volume
CRE Loan Portfolio 1 Geography Distribution CRE to Risk Based Capital Ratio GA MS 480% 1.53% 471% 1.59% 465% NC All Other 1.67% 9.28% 440% PA 1.81% NY 12.59% CT 71.53% 2016 2017 2018 3Q19 • Proven track record as CRE Lender with strong risk management practices in place • Continued focus in primary market of the tri-state area • CRE Retail loans have an average LTV of less than (CT/NY/NJ) but maintaining diversification by following 60% and an average DSCR of at least 1.6x strongest customers to growth markets • No significant exposure to any one retailer and no • 2 Of the CT-based loans, 62% are in Fairfield County exposure to bankrupt retailers 1 Includes Owner Occupied CRE, does not include Construction 2 Based on dollar volume 22
Deposits Dollars in millions $1,502 $1,470 $1,600 $1,398 $1,289 $1,400 $643 $1,200 $1,047 $1,000 $835 $800 $411 $600 $176 $400 $239 $200 $0 2014 2015 2016 2017 2018 3Q19 Checking Savings Money Market Time Deposits 3Q19 Wholesale Ratio down to 20.9% 23
Bankwell Overview
Bankwell’s Milestones Named a “ Top 100 Best $1.9 Performing Community Bank of 2016”1 2016 2019 Founded third bank, 5 Year Stamford First Bank, anniversary of a division of The BWFG on Bank of New Canaan $1.1 2018 NASAQ Opened 3 new Holding Company 2010 branches in formed (BNC 2014 Fairfield Financial Group) County Founded 2007 Bankwell acquires Bankwell stock price The Bank of 2013 Quinnipiac Bank & grew 53% since May Trust Company 2 New Canaan The banks merge 2014 IPO 2002 into “Bankwell”; $0.2 Acquires The 2008 Wilton Bank Founded second Assets bank, The Bank ($B) of Fairfield 1 Bankwell was named one of the “Top 100 Best Performing Community Banks of 2016” between $1 billion and $10 billion in assets nationwide based on certain metrics for the year ended December 31, 2016 by S&P Global Market Intelligence 25 2 as of September 30th, 2019
Bankwell Profile Company Overview NASDAQ: BWFG • Connecticut-based $1.9 billion bank, with focus on CRE and C&I lending • 12 existing branches in Fairfield & New Haven Counties • Excluding the 3 branches opened in 2Q18, BWFG has $159 million deposits per branch; highest in Fairfield & New Haven Counties1 • Our core market of Fairfield County (the Bridgeport-Stamford-Norwalk MSA) is the premier Connecticut location, highlighted by: + Most affluent MSA in the Nation in per capita + Headquarters of 9 Fortune 500 companies4 personal income (PCPI)2 + Home to the two largest hedge funds in the + 4 of the top 25 wealthiest towns in the U.S.3 U.S.5 1 Source: S&P Global Market Intelligence’s Branch Competitors & Pricing Report as of 6/30/19, excluding global money center banks (tickers BAC, WFC, JPM, TD & C) 2 Source: Bureau of Economic Analysis’ Metropolitan Area Table, contained within the Local Area Personal Income, 2017 news release 11/15/18 3 Source: Bloomberg: These Are the Wealthiest Towns in The U.S., 2/13/19 26 4 Source: Fortune.com: 2019 Fortune 500 5 Source: Business Insider: The 10 Biggest Hedge Funds in the U.S., 5/18/18
Why Bankwell? • Proven track record of quality loan originations Growth • Tangible Book Value growth of 37% since 2014 IPO • Operates in premiere markets • Strong credit culture; prudent, conservative credit standards Risk • Historically low NPLs / NPAs with low charge-offs Management • Diverse product experience in CRE, C&I, Residential & Consumer • Bankwell stock price grew 53% since May 2014 IPO1 Performance • Strong Net Income growth; quarterly dividends paid since 4Q’15 • Capital ratios put BWFG well above “well capitalized” • Performance-driven, highly experienced Management Team Management • Strong BOD comprised of a broad cross-section of Subject Matter Experts • ~16% “Insider Ownership” of the Bank1,2 Outperformed KBW Regional Banking Index by 10% since ‘14 IPO1 1 as of September 30th, 2019 2 Insider Ownership defined as current BWFG Board Members and Executive Management team 27
Management Team Years Name Experience Selected Professional Biography Christopher Gruseke 25+ • Founding investor of Bankwell’s precursor, Bank of New Canaan, member of BoD and ALCO President & CEO Committee 2009 to 2012 (since 2015) • 20 year Investment Banking career focused on financial institutions, securitizations and interest rate risk management • Management positions include Chief Operating Officer of Greenwich Capital Markets Penko Ivanov 25+ • Previous CFO roles with Darien Rowayton Bank & Doral Bank’s US Operations EVP & CFO • Proven track record in building, improving and overseeing all areas of Finance, including (since 2016) Controllership, SOX, Treasury, FP&A, as well as internal and external reporting functions • Prior experience includes 8 years with GE Capital in various finance roles Heidi S. DeWyngaert 30+ • Previously at Webster Bank, managing the Fairfield County Commercial Real Estate group EVP & Chief Lending Officer • 10 years as Vice President for CRE at First Union National Bank (since 2004) Christine A. Chivily 30+ • Previously a Risk Manager for CRE and C&I at Peoples United Bank EVP & Chief Risk & Credit • SVP/Senior Credit Officer at RBS Greenwich Capital Markets (11 years); Director - Northeast Officer Region, Multifamily at Freddie Mac (5 years); Manager, Loan Servicing - Distressed Assets at M&T (since 2013) Bank Laura J. Waitz 30+ • Previously Senior Managing Director, Global Head of Human Resources at The Blackstone Group (9 EVP & Chief of Staff years) (since 2017) • Also at Citi Alternative Investments as MD & Global Head of Compensation & at Deutsche Bank as Head of Compensation (Americas) & as Global Compensation Mgr. for Private Equity & Investment Bank Experienced management team with a diverse, non-community banking background 28
Thank You & Questions