ANNUAL REPORT 2013
220 Elm Street, New Canaan, CT 06840
Bankwell Bank is a member of the FDIC and an Equal Housing Lender. This statement has not been
reviewed for accuracy or relevance by the Federal Deposit Insurance Corporation.
FOUR LIKE-MINDED BANKS CAME TOGETHER TO CREATE
A HIGH-PERFORMING COMMUNITY BANK THAT ENABLES
PEOPLE, BUSINESSES AND COMMUNITIES TO THRIVE.
88149_Bankwell_BC_FC.indd 1
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Bankwell was formed with a simple
idea – to build on the legacies of
four hometown banks and to
create a single institution that
excels at serving the financial needs
of customers and local businesses.
Our name represents our unwavering
commitment to forge creative,
stronger-than-ever ties with our
customers, employees, shareholders
and communities…so that everyone
can bank well.
Corporate Information
Shareholders
For help in transferring ownership, address changes, or lost or stolen stock certificates, please contact:
Registrar and Transfer Company
10 Commerce Drive, Cranford, NJ 07016-3572
(800) 368-5948
www.rtco.com
Stock Symbols
BWFG – Common Stock – Initial Offering
Stock Quotes
Keefe, Bruyette & Woods, Inc.
Kristen Ryan, Assistant Vice President
787 Seventh Avenue, 4th Floor, New York, NY 10019
(212) 887-8901
Shareholder Contact
Bankwell Financial Group, Inc.
Ms. Peyton R. Patterson or Mr. Ernest J. Verrico, Sr.
220 Elm Street, New Canaan, CT 06840
(203) 652-0166
Independent Auditors
Whittlesey & Hadley, PC
280 Trumbull Street, Hartford, CT 06103
Locations
Bankwell Financial Group, Inc.
Executive Office, 220 Elm Street, Suite 100
New Canaan, CT 06840
203-652-0166
Loan Production Office
855 Main Street, Suite 700, Bridgeport, CT 06604
(203) 683-6363
Contents
Letter from the CEO . . . . . . . . . . . . . . . . . . . . . . . . .1
Executive Management Team . . . . . . . . . . . . . . . . 3
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . 4
2013 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
A New Brand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Our Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Independent Auditors Report . . . . . . . . . . . . . . . 13
Corporate Information. . . . . . . . Inside back cover
Fairfield
One Sasco Hill
Fairfield CT
06824
(203) 659-7600
2220 Black Rock Tnpk
Fairfield, CT
06825
(203) 659-7610
New Canaan
208 Elm Street
New Canaan, CT
06840
(203) 972-3838
156 Cherry Street
New Canaan, CT
06840
(203) 966-7080
Stamford
Wilton
612 Bedford Street
Stamford, CT
06901
(203) 391-5777
47 Old Ridgefield Rd
Wilton, CT
06897
(203) 762-2265
This annual report may include forward-looking statements by the Company that are within the protection of the Private Securities Litigation Reform Act of 1995. Such statements are
based upon the current beliefs and expectations of our management and are subject to signifi cant risks and uncertainties that could cause our actual results to differ materially from
those set forth in such forward-looking statements. Forward-looking statements can be identifi ed by the fact that they do not relate strictly to historical or current facts. Words such as
“believes,” “anticipates,” “expects,” “intends,” “plans,” “estimates,” “targeted” and similar expressions, and future or conditional verbs, such as “will,” “would,” “should,” “could” or “may”
are intended to identify forward-looking statements but are not the only means to identify these statements. Factors that could cause differences in actual results may be beyond our
control —Any forward-looking statements made by or on behalf of us in this report speak only as of its date, and we do not undertake to update forward-looking statements to refl ect the
impact of circumstances or events that arise after that date.
88149_Bankwell_IFC_IBC.indd 1
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To our Valued Shareholders,
The year 2013 was a defining and highly productive one for Bankwell, as we
unleashed our earnings potential and made great strides toward our goals for
growth. We merged our two banks, The Bank of New Canaan and The Bank of
Fairfield, completed our first acquisition, and launched our new brand – Bankwell.
We excelled in virtually all aspects of our business in 2013, and I am pleased
to report that the Company ended the year with record earnings. Net income
increased by $4 million to $5.2 million – a record high – and a 325% increase over
net income of $1.2 million at the end of 2012. At year end, assets totaled $780
million, a 28% increase over December 31, 2012; total loans were $632 million, a
$102 million increase year-over-year; and deposits grew by 43% to $662 million,
up $199 million year-over-year. Along with strong loan growth, our credit quality
remained an industry standout.
We continued to invest in our people and our capabilities in 2013. We
launched several new business lines, Bankwell Investment Services, and a new
suite of Cash Management services. To make banking more convenient for our
customers, we were pleased to introduce Mobile Banking, so now you can bank
anywhere with us.
In November, we completed our first acquisition, adding The Wilton Bank
to the Bankwell family. A natural complement to our footprint, The Wilton Bank
brought immediate accretion to our earnings stream. As I write this letter,
we recently announced a definitive agreement to acquire Quinnipiac Bank &
Trust Company. With their excellent reputation, Quinnipiac Bank & Trust will
provide a strong foundation upon which to build our presence in the surround-
ing New Haven markets.
We attribute this growth to an overwhelming response to the Bank’s
commitment to provide a private-banking style experience, combined with
technology know-how. Bankwell is positioned to succeed. We have the product
depth and technology of the big banks, complemented with the personal service
of a neighborhood bank.
We have been fortunate to have had the guidance and support of two
outstanding Boards of Directors over the last five years, each comprised of
local business and community leaders. When we merged our banks in Septem-
ber, we consolidated those boards to create one Bankwell board. I would like
to take this opportunity to extend my gratitude to all of the board members
Continued >
“We excelled in virtually
all aspects of our business
in 2013, and I am pleased
to report that the Company
ended the year with
record earnings.”
Peyton R. Patterson
88149_Bankwell_AR2013_interior.indd 1
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Annual Report 2013
1
“We are very excited that
SNL Financial named
Bankwell Financial Group
one of its top performing
community banks in
2013, ranked #34 of 100
banks nationwide.”
who served tirelessly during their tenure on our former boards, and also to
recognize three Bankwell Financial Group board members who are retiring. We
have been especially fortunate to have Merrill Jay Forgotson, Brock Saxe and
Hugh Halsell as longstanding key constituents of our organization. They will be
missed both personally and professionally.
On April 4, 2014, we filed an S-1 Registration Statement with the Securities
Peyton R. Patterson
and Exchange Commission. The S-1 is for the Company’s initial public offering (IPO).
Although Bankwell is currently owned by several hundred shareholders, it has
never been a “public company” with its securities registered and regular reporting
to the SEC. That will change with the IPO. We plan to complete the IPO by the end
of May, and expect the process to result in new capital and a broader shareholder
base to support our strategic growth plan.
We enter 2014 with continued momentum and energy to make the Company
increasingly profitable and successful, as well as relevant to the customers and
communities we serve. The response to Bankwell has been very encouraging, and
it inspires us to ensure that our current customers continue to bank well. With
the launch of our new brand and our integration complete, we are focused on
performance and growth. We are very excited about the opportunities that lie
ahead, including future expansion into new markets and creating value for our
shareholders.
I’d like to personally thank our Bankwell employees and directors for the
successes of 2013. Very importantly, I’d also like to thank all of the shareholders
of Bankwell Financial Group.
Sincerely,
Peyton R. Patterson
President and Chief Executive Officer
2
Bankwell Financial Group, Inc.
88149_Bankwell_AR2013_interior.indd 2
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Peyton R. Patterson (center) with Michele Johnson, Ernest J. Verrico, Gail E.D. Brathwaite, Heidi DeWyngaert, Diane Knetzger, and Christine Chivily (left to right)
Bankwell Financial Group
Executive Management Team
Peyton R. Patterson
President & Chief Executive Officer
Ernest J. Verrico, Sr.
Executive Vice President,
Chief Financial Officer,
Assistant Corporate Secretary
Gail E.D. Brathwaite
Executive Vice President,
Chief Operating Officer
Michele Johnson
Vice President,
Chief Risk Officer
Heidi S. DeWyngaert
Executive Vice President,
Chief Lending Officer
Diane Knetzger
Senior Vice President,
Director of Marketing
Christine Chivily
Vice President,
Interim Chief Credit Officer
88149_Bankwell_AR2013_interior.indd 3
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Annual Report 2013
3
Bankwell Financial Group Financial Highlights
(dollars in 000’s except per share data)
STATEMENT OF CONDITION
Total assets
Gross portfolio loans
Investment securities
Deposits
Borrowings
Total equity
STATEMENT OF INCOME AND EXPENSE
2013
December 31,
2011
2012
2010
2009
$779,618
$610,016
$477,355
$395,708
$328,160
632,012
530,050
369,294
288,425
257,268
42,413
46,412
94,972
58,152
34,060
661,545
462,081
367,115
309,137
244,215
44,000
69,485
91,000
58,000
44,000
46,000
51,534
49,188
40,354
35,695
Interest and dividend income
$28,092
$24,397
$20,587
$16,877
$13,950
Interest expense
Net interest income
Provision for loan losses
Noninterest income
Noninterest expenses
Income (loss) before income tax or benefit
Net income (loss)
Basic earnings (loss) per common share
Diluted earnings (loss) per common share
FINANCIAL RATIOS
Tier I capital (1)
Bankwell Bank
The Bank of New Canaan
The Bank of Fairfield
Tier I risk-based capital (1)
Bankwell Bank
The Bank of New Canaan
The Bank of Fairfield
Total risk-based capital (1)
Bankwell Bank
The Bank of New Canaan
The Bank of Fairfield
Net interest margin, tax equivalent basis
Return on average assets
Return on average equity
Allowance for loan losses to total loans
Nonperforming assets to total assets
2,765
3,192
2,870
3,209
3,651
25,327
21,205
17,717
13,668
10,299
585
4,722
22,119
7,345
5,161
1.46
1.44
1,821
345
1,049
1,134
1,311
1,695
1,741
896
17,858
14,601
13,331
10,555
1,871
1,214
0.39
0.38
3,201
2,204
0.72
0.71
721
507
0.10
0.09
(1,101)
(830)
(0.51)
(0.50)
7.91%
-
-
-
-
-
-
7.88%
8.39%
8.71%
8.15%
8.48%
11.30%
13.25%
16.54%
9.49%
-
-
-
-
-
-
9.09%
10.80%
11.07%
13.66%
11.86%
16.41%
12.24%
22.46%
10.74%
-
-
-
-
-
-
3.94%
0.77%
8.17%
1.33%
0.23%
10.34%
12.05%
4.11%
0.22%
2.40%
1.50%
0.81%
12.33%
14.91%
4.27%
0.50%
5.03%
1.74%
0.78%
13.12%
17.10%
4.12%
0.14%
1.33%
1.87%
0.57%
13.50%
23.26%
3.73%
-0.29%
-2.47%
1.70%
0.75%
(1) Represents bank ratios. During 2013, The Bank of New Canaan and The Bank of Fairfield were merged into Bankwell Bank.
4
Bankwell Financial Group, Inc.
88149_Bankwell_AR2013_interior.indd 4
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2013 Overview
Financial Results
2013 was a transformational year for Bankwell, as we continued our high-growth
organic strategy and completed our first acquisition of The Wilton Bank. Bankwell
Financial Group ended the year with assets totaling $780 million, a 28% increase
over December 31, 2012, and an increase in net income of 325% year-over-year,
to $5.2 million, versus $1.2 million at the end of 2012.
We continued to demonstrate strong revenue growth, which totaled $30.0
million at year-end 2013, up $8.4 million or 39% over revenue of $21.6 million at
year-end 2012. At December 31, 2013, non-interest income represented 16% of
total revenue, versus 2% at the end of the previous year, the increase a result
of gains on sales of loans, depositor service charge income and The Wilton Bank
acquisition. Our net interest margin remained an industry standout at 3.94%.
We maintained our momentum of strong loan growth in 2013, which totaled
Net Income Increased 325%
$5,161
$2,204
s
d
n
a
s
u
o
h
t
n
i
s
r
a
l
l
o
D
$1,214
2011
2012
2013
$632 million at year-end – a $102 million or 19% increase over December 31,
Revenues Increased 39%
2012. Superior credit quality remained a benchmark of our performance in 2013,
with NPAs at a year-end low of .23%. Maintaining strong credit quality and
consistent underwriting standards are at the heart of what sets us apart from our
competitors. Our vigilance for underwriting, combined with rigorous account
monitoring throughout the economic cycle, make us one of the nation’s top
financial institutions for credit quality.
In addition to our focus on Commercial Real Estate, we strengthened our
commitment to Commercial and Industrial lending during 2013. We hired two
new C&I lenders and implemented a full SBA lending program to include provid-
ing 504 and 7A loans.
s
d
n
a
s
u
o
h
t
n
i
s
r
a
l
l
o
D
$30,049
$21,550
$18,851
Deposit growth was strong, as deposits increased 43% to $662 million at
2011
2012
2013
December 31, 2013, up $199 million year-over-year. This growth was the result
of strong performance in each of the markets we serve, as well as The Wilton
Net interest income
Fee income
Bank acquisition. We attribute this success to an overwhelming response to the
Net Interest Margin vs. Peers*
Bank’s commitment to provide a private-banking style experience, technology
3.94%
know-how and active support in our communities.
Rigorous expense management is, of course, the other part of the earnings
formula. Last year we reduced non-interest expenses for the year, exclusive
of merger expenses related to the acquisition of The Wilton Bank. Our efficiency
ratio for 2013 was 75.72%, down from 82.76% in 2012.
Capital Growth
To continue our strategic growth, whether organic or through acquisition, we
need sufficient capital to fund our expansion. On April 4, 2014, we filed an S-1
Registration Statement with the Securities and Exchange Commission. The S-1
is for the Company’s initial public offering (IPO). Although Bankwell is currently
owned by several hundred shareholders, it has never been a “public company”
with its securities registered, and regular reporting to the SEC. That will change
3.49%
3.59%
Bankwell – 12/31/13
Regional Peers
High Performing Peers
*Source: Thomson Reuters Bank Insight, 2014
Regional Peer Group includes all publicly traded banks and
bank holding companies with total assets between $200
million and $1 billion as of 9/30/2013 headquartered
in the states of CT, MA, NJ, NY and RI. Regional High
Performing peer groups include those members of
the Regional Peer Group that also fell within the 75th
percentile in terms of return on average equity for the
nine months ended 9/30/2013.
Annual Report 2013
5
Loan Growth vs. Peers*
19.24%
with the IPO. We plan to complete the IPO by the end of May, and expect the
process to result in new capital and a broader shareholder base to support our
strategic growth plan. (This Report is not an offering of the IPO shares).
$662
maximize efficiencies within our organization.
Focus on Profitable Growth
Since 2002, The Bank of New Canaan, The Bank of Fairfield and Stamford First
Bank have been serving the banking and borrowing needs of individuals and
businesses in Fairfield County. Our legacy as the gold standard of community
banks has earned us a ranking of the “#1 Community Bank in Connecticut” by
the Commercial Record. In September 2013, our banks merged to become the
holding company Bankwell Financial Group and one bank – Bankwell. We believe
this was an important step to create a consistent brand across our six branch
locations; leverage our resources, including our $9.1 million lending limit; and
In November, we completed our acquisition of The Wilton Bank, a like-mind-
ed community bank contiguous to our market area. The Wilton Bank merger was
immediately accretive to earnings. On April 1, 2014, we announced a defini-
tive agreement to merge with Quinnipiac Bank & Trust Company in Hamden,
Connecticut. This acquisition will serve as the foundation for our expansion into
New Haven County.
In early 2014, we relocated our Fairfield branches to two brand new locations
that provide customers with enhanced facilities, improved parking and drive-
up convenience. In August, we plan to open a branch on Westport Avenue in
Norwalk, and we project that we will add an additional branch in Fairfield County
in the fourth quarter of 2014.
Investing in Our Franchise
People and Capabilities
Fairfield County is a highly competitive marketplace and every day we are up
against some of the largest banks in the country as well as small community
banks. It is a dynamic growth area for small to medium sized businesses. That
being said, we rank in the top ten for deposit share in each market we serve, and
rose to a position of 13th from 17th overall in Fairfield County as reported in the
FDIC’s annual market share report.
2013 was a year in which we made significant investments in both our people
and capabilities. We launched a new platform of online services for individuals and
businesses, which includes mobile banking and a full suite of cash management
services to help businesses efficiently manage their finances and maximize cash
flow. We also upgraded to a new core system.
To complement our full range of deposit products and services, we launched
Bankwell Investment Services in October 2013, with an investment services firm,
6.99%
6.63%
Bankwell – 12/31/13
Regional Peers
High Performing Peers
Record Deposit Growth
$462
$367
s
n
o
i
l
l
i
m
n
i
s
r
a
l
l
o
D
2011
2012
2013
Checking
Savings
Money Market
Time Deposits
NPAs/Total Assets vs. Peers*
1.66%
1.67%
0.23%
Bankwell – 12/31/13
Regional Peers
High Performing Peers
*Source: Thomson Reuters Bank Insight, 2014
Regional Peer Group includes all publicly traded banks and
bank holding companies with total assets between $200
million and $1 billion as of 9/30/2013 headquartered
in the states of CT, MA, NJ, NY and RI. Regional High
Performing peer groups include those members of
the Regional Peer Group that also fell within the 75th
percentile in terms of return on average equity for the
nine months ended 9/30/2013.
6
Bankwell Financial Group, Inc.
Kingston Wealth Management Group, LLC, and a broker/dealer, Investacorp,
Inc. Our two new Financial Consultants provide local consumers and businesses
with a diverse offering of insurance products, portfolio and wealth management
services and more.
Investing in our franchise is an important element of “building a better bank”
for our customers and employees. Our team is one of the best in banking and they
are why we will continue to deliver on the promise of this institution.
In every aspect of our
business, we have made
managing risk an enterprise-
wide effort and the bedrock
of our culture.
Community Commitment
As a community bank, we have a shared stake in the local economy, business
environment and overall quality of life. We see how community involvement is
not only good for the community but also good for business. We have seen the
difference that one institution can make – in a child’s life, for a family, across a
neighborhood and more.
To say we are a community bank is saying that the people who work here
live in the same cities and towns as our customers. It means that the bankers who
evaluate and make a decision about a loan application will know firsthand where
that business is located. And it means that we understand how the local economy,
business environment and overall quality of life impacts individuals and small
businesses alike.
You see the evidence of our commitment to community in how we make
decisions, in our nimbleness and responsiveness and how we conduct ourselves
every day. We give practical and meaningful support to organizations across our
marketplace.
Our connection to our communities puts both our resources and imagina-
tion to work. We begin with friendly, private banking style service, local decision
making and a genuine and tangible commitment to our communities. Our commu-
nities trust this commitment to be accountable and generous in supporting local
development and social programs that can enhance the quality of life in our
neighborhoods.
Bankwell is that kind of institution. We have big goals and big ideas to
achieve them. When we find a situation in which we can make a difference,
we find several ways to help. Bankwell is committed to nurture and support
organizations that serve the people of Connecticut, and we are actively
involved in mentoring, volunteering or providing financial support to more than
120 organizations.
Top: Shelly Hirn, Director of Cash Management
Services (left) and Branch Manager Elizabeth
Buzzeo with Chris West of West Construction
Center: Bankwell Investment Services Financial
Consultants Louis J. Czerwinski (left) and
Stephen Greenhut
Bottom: Top performers Bob Hagan, Vicky
Maccaro and Jeff Ruden are recognized for
their accomplishments in 2013.
Annual Report 2013
7
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Thriving Assets:
Our People and our New Brand
In 2013, we combined our banks – The Bank of New Canaan,
The Bank of Fairfield and Stamford First Bank – and acquired a
neighboring bank, The Wilton Bank. As we brought these four entities
together, we thought long and hard about how we wanted to position
ourselves for the future. We wanted a brand that reflected our core
values, highlighted our differentiation, and provided a platform for
growth and expansion. We want to be a bank where our custom-
ers, staff and communities prosper and consistently have a positive
banking experience – where they can bank well.
The name Bankwell was introduced across all our markets in early Septem-
ber 2013, including advertising and direct communication with customers during
the period of integration, and new signage and interiors at our branch and
ATM sites. We worked closely with our communities and municipal officials to
reassure them that our community character and commitments would be
strengthened by our merger. At the heart of our new identity is a tagline that
sums up what we want customers to experience…
Bank smart, bank local, bank well.
We think we will succeed and grow as a leading community bank because our
focus is on the human dimension of the banking relationship.
Employee pride in “living the brand”
Our employees played a key role in developing the Bankwell brand, and we recog-
nized that it is their pride and enthusiasm that delivers on our brand promise each
day. To generate awareness and align employees with our vision, we established
the “Well Done” awards for those employees who stand out for their excellence
in living the brand. We believe that the quality of our team and the seamless
delivery of our products and services are the best way to leverage our strengths
and communicate our new brand.
8
Bankwell Financial Group, Inc.
How a local
company found
their niche…
and the taste
of success!
“Being able to work so closely
with a bank that really
understands our needs for
our business – as well as share
our vision for the company –
is extremely important to us.”
Debra Ponzek and Greg Addonizio
Co-owners, Aux Délices
Aux Délices is the brainchild of husband and wife team Greg Addonizio and Debra
Ponzek. The couple opened their first store in Riverside, Connecticut in 1995, and
the opening was warmly welcomed by a clientele seeking finely crafted special-
ty foods and freshly baked desserts. “Greg and I really love the idea of making
peoples’ lives easier by providing healthy convenient food for our customers to
take home,” said Debra. Following the success of the Riverside store, Debra and
Greg established a second location in downtown Greenwich in 2000, a Darien
shop in 2004, and a Westport location in 2012.
Aux Délices has had their business checking account with Bankwell for
years, and Bankwell has also provided financing and a line of credit for Greg and
Debra to expand their franchise over the years, most recently to support their
expansion into Westport. “Being able to work so closely with a bank that really
understands our needs for our business – as well as share our vision for the com-
pany – is extremely important to us,” says Debra.
“Greg and I look forward to continuing our partnership with Bankwell. With
their history of supporting local entrepreneurial businesses, we are confident
they will strengthen our business in the years to come. “
88149_Bankwell_AR2013_interior.indd 9
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Annual Report 2013
9
Helping a new
customer take his
business to the
next level.
“It was extremely refreshing
to find a local banker who
understands entrepreneurs and
middle-market business owners.”
Jeff Begoon
President, Elvex
Elvex Corporation is a leading designer and manufacturer of quality safety equip-
ment solutions, headquartered in Bethel, Connecticut. For 35 years, the company
has provided a broad range of safety products including safety eyewear, head, face,
hearing protection as well as a full line of chain saw protective clothing to millions
of workers in a variety of businesses that include mining, construction, forestry,
chemical, manufacturing, and more. Elvex products are sold by hundreds of distrib-
utors in the United States and distributed in 60 countries throughout the world.
Elvex president, Jeff Begoon acquired 50% of Elvex in 2010, and he was
looking for a bank to work with him to acquire the balance of the company in
2012. He put the credit facility out to bid with some major money center banks and
also with Bankwell, who he had heard was “very user-friendly, and quite flexible.”
“After outlining the company situation and basic terms of the loans we were
seeking with the bank president and senior lending officer,” Jeff says, “we all
agreed that the bank would be a perfect fit for Elvex. After verifying the financial
information and company operations during an expedited due diligence period,
the bank agreed to provide the financing for the acquisition.”
“It was extremely refreshing to find a local banker who understands entrepre-
neurs and middle-market business owners,” says Jeff, “If there is any way a bank
can simplify or streamline the lending process, it basically makes the choice easy.
It’s great to have a local banker who understands and believes in what you are
doing and invests in you to help you move the company forward.”
10 Bankwell Financial Group, Inc.
88149_Bankwell_AR2013_interior.indd 10
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We’ve made it our
business to invest
in the power of
education.
“We came to Bankwell
looking for a checking
account, and we got a
financial, strategic and
community partner.”
In 2009, Clif McFeely founded Future 5 and began to attract supporters and
volunteers who all shared a simple vision: that all of Stamford’s high school students
should be connected to their full life’s potential, regardless of income or family
circumstances. Future 5’s mission connects these students to a better educa-
tion and career path, as well as a life-altering network of ongoing support. The
Future 5 program strengthens a student’s self-esteem through character-building
workshops, college and job preparation programs, and one-on-one coaching, so
that students develop the motivation and a game-plan for achievement in school
and life.
“We came to Bankwell looking for a checking account, and we got a financial,
strategic and community partner,” notes McFeely. “In the beginning, Bankwell pro-
vided mentoring and financial support. Then Bankwell hired one of our students,
who has thrived as a result of the career opportunity the bank provided and is now
pursuing an Associate’s Degree at Norwalk Community College. Most recently,
Bankwell has aligned with Future 5 as a strategic partner, helping us plan for our
next phase of growth.”
In the words of McFeely, “When I look around at what we’ve built, I see an
excitement for learning and growth that is electric. I can feel the students’ excite-
ment. Being able to offer such a wide range of opportunities to our students is
Clif McFeely
Founder and CEO, Future 5
an amazing gift, and I am appreciative to all our supporters in the community for
helping it grow.”
Annual Report 2013
11
88149_Bankwell_AR2013_interior.indd 11
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Bankwell Financial Group
Board of Directors
Blake Drexler
Chairman
Partner
Five Mile Ventures
Rowayton, CT
James Fieber
Vice Chairman
Managing Member
Fieber Group, LLC
Managing Partner
FIEBRO Acquisitions, LLC
New Canaan, CT
Frederick Afragola
Chairman Emeritus
Founder
Frame Advisors
New Canaan, CT
George Bauer
Retired
Wilton, CT
Richard Castiglioni
Partner
Diserio Martin
O’Connor and
Castiglioni, LLP
Stamford, CT
Eric Dale
Partner
Robinson & Cole, LLP
Stamford, CT
Mark Fitzgibbon
Principal/Director
of Research
Sandler O’Neill &
Partners, LP
New York, NY
William J. Fitzpatrick, III
Member
Fitzpatrick, Fray &
Bologna, LLC
Fairfield, CT
Daniel S. Jones
President
NewsBank, Inc.
New Canaan, CT
Carl R. Kuehner
Chairman & Chief
Executive Officer
Building and Land
Technology Corp.
Norwalk, CT
Todd H. Lampert
Managing Member
Lampert, Toohey &
Rucci, LLC
Managing Member
Main Street Group, LLC
New Canaan, CT
Victor Liss
Retired
Stratford, CT
Peyton R. Patterson
President & Chief
Executive Officer
Bankwell Financial Group
We extend a heartfelt thanks to our recently retired Directors
Hugh Halsell
Brotherhood & Higley
Real Estate
New Canaan, CT
Merrill Jay Forgotson
Retired
Westport, CT
T. Brock Saxe
Chairman
Tombrock Corporation
New Canaan, CT
12
Bankwell Financial Group, Inc.
88149_Bankwell_AR2013_interior.indd 12
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REPORT OF INDEPENDENT AUDITORS
To The Board of Directors and Stockholders
Bankwell Financial Group, Inc.
New Canaan, Connecticut
Report on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Bankwell Financial Group, Inc. and
subsidiaries as of December 31, 2013 and 2012, and the related consolidated statements of income,
comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended
December 31, 2013, and the related notes to the consolidated financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with accounting principles generally accepted in the United States of America;
this includes the design, implementation, and maintenance of internal control relevant to the preparation
and fair presentation of financial statements that are free from material misstatement, whether due to
fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial statements. The procedures selected depend on the auditor's judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the entity's preparation
and fair presentation of the financial statements in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's
internal control. Accordingly, we express no such opinion. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of significant accounting estimates
made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects the financial position of Bankwell Financial Group, Inc. and subsidiaries at December 31, 2013
and 2012, and the results of its operations and its cash flows for the each of the three years in the period
ended December 31, 2013 in accordance with accounting principles generally accepted in the United
States of America.
Hartford, Connecticut
March 25, 2014
88149_Bankwell_Financials.indd 13
4/23/14 6:46 PM
Annual Report 2013
13
CONSOLIDATED BALANCE SHEETS
December 31, 2013 and 2012
(Dollars in thousands, except share data)
ASSETS
Cash and due from banks (Note 3)
Held to maturity investment securities, at amortized cost (Note 6)
Available for sale investment securities, at fair value (Note 6)
Loans held for sale
Loans receivable (net of allowance for loan losses of $8,382 and
$7,941 at December 31, 2013 and 2012, respectively) (Notes 7 and 18)
Foreclosed real estate
Accrued interest receivable
Federal Home Loan Bank stock, at cost (Note 10)
Premises and equipment, net (Note 8)
Bank-owned life insurance
Other intangible assets
Deferred income taxes, net (Note 12)
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits (Note 9)
Noninterest bearing deposits
Interest bearing deposits
Total deposits
Advances from the Federal Home Loan Bank (Note 10)
Accrued expenses and other liabilities
Total liabilities
Commitments and contingencies (Note 11)
Stockholders' equity (Notes 2, 14 and 17)
Preferred stock, senior noncumulative perpetual, Series C, no par;
10,980 shares issued at December 31, 2013 and 2012,
respectively; liquidation value of $1,000 per share
Common stock, no par value; 10,000,000 shares authorized,
3,876,393 and 2,846,700 shares issued
at December 31, 2013 and 2012, respectively
Retained earnings
Accumulated other comprehensive income - net unrealized
gains on available for sale securities, net of taxes
Total stockholders' equity
December 31,
2013
2012
$
82,013
13,816
28,597
100
$
28,927
5,354
41,058
-
621,830
829
2,360
4,834
7,060
10,031
481
5,845
1,822
779,618
$
520,792
962
2,109
4,442
2,518
-
-
2,798
1,056
610,016
$
$
118,618
542,927
661,545
$
78,120
383,961
462,081
44,000
4,588
710,133
91,000
5,401
558,482
10,980
10,980
52,105
5,976
424
69,485
38,117
926
1,511
51,534
Total liabilities and stockholders' equity
$
779,618
$
610,016
14 Bankwell Financial Group, Inc.
See notes to consolidated financial statements.
88149_Bankwell_Financials.indd 14
4/23/14 6:46 PM
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 2013, 2012 and 2011
(Dollars in thousands, except per share amounts)
Interest income
Interest and fees on loans
Interest and dividends on securities
Interest on cash and cash equivalents
Total interest income
Interest expense
Interest expense on deposits
Interest on Federal Home Loan Bank advances
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Noninterest income
Gains and fees from sales of loans
Gain on bargain purchase
Net gain (loss) on sale of available for sale securities
Service charges and fees
Gain on sale of foreclosed real estate, net
Other
Total noninterest income
Noninterest expense
Salaries and employee benefits
Occupancy and equipment
Professional services
Data processing
Marketing
Merger and acquisition related expenses
FDIC insurance
Director fees
Amortization of intangibles
Foreclosed real estate
Other
Total noninterest expense
Income before income tax expense
Income tax expense
Net income
Preferred stock dividends
December 31,
2013
2012
2011
$
26,599
1,409
84
28,092
$
22,329
2,033
35
24,397
$
17,621
2,919
47
20,587
2,233
532
2,765
25,327
585
24,742
2,020
1,333
648
495
63
163
4,722
11,565
3,707
1,595
1,333
928
908
333
304
18
7
1,421
22,119
7,345
2,184
2,367
825
3,192
21,205
1,821
19,384
18
-
(18)
345
-
-
345
9,426
3,004
1,546
1,202
333
-
365
366
-
9
1,607
17,858
1,871
657
2,023
847
2,870
17,717
1,049
16,668
547
-
250
337
-
-
1,134
8,506
2,428
715
865
342
-
472
288
-
-
985
14,601
3,201
997
$
5,161
$
1,214
$
2,204
(111)
(132)
(206)
Net income attributable to common stockholders
$
5,050
$
1,082
$
1,998
Earnings per common share - basic
Earnings per common share - diluted
$
1.46
1.44
$
0.39
0.38
$
0.72
0.71
See notes to consolidated financial statements.
Annual Report 2013
15
88149_Bankwell_Financials.indd 15
4/23/14 6:46 PM
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended December 31, 2013, 2012 and 2011
(In thousands)
December 31,
2012
2013
2011
Net income
$
5,161
$
1,214
$
2,204
Net unrealized holding (loss) gain on available for sale securities
during the period
Reclassification adjustment for (gain) loss realized in income
Net change in unrealized (loss) gain
Tax effect
Other comprehensive income
(1,129)
(648)
(1,777)
690
(1,087)
1,130
18
1,148
(447)
701
1,272
(250)
1,022
(397)
625
Total comprehensive income
$
4,074
$
1,915
$
2,829
16 Bankwell Financial Group, Inc.
See notes to consolidated financial statements.
88149_Bankwell_Financials.indd 16
4/23/14 6:46 PM
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For Years Ended December 31, 2013, 2012 and 2011
(In thousands)
Preferred
Stock
Common
Stock
$
5,037
-
-
10,980
(4,797)
(240)
-
-
-
$
37,286
-
-
-
-
-
-
250
18
Retained
Earnings
(Accumulated
Deficit)
Accumulated
Other
Comprehensive
Income (Loss)
$
(2,154)
2,204
-
-
-
-
(206)
-
-
$
185
-
625
-
-
-
-
-
-
10,980
-
-
-
-
10,980
-
-
-
-
-
-
37,554
-
-
-
563
38,117
-
-
-
343
467
13,178
(156)
1,214
-
(132)
-
926
5,161
-
(111)
-
-
-
810
-
701
-
-
1,511
-
(1,087)
-
-
-
-
Total
$
40,354
2,204
625
10,980
(4,797)
(240)
(206)
250
18
49,188
1,214
701
(132)
563
51,534
5,161
(1,087)
(111)
343
467
13,178
Balance at January 1, 2011
Net income
Other comprehensive income, net of tax
Issuance of Series C preferred stock
Redemption of Series A preferred stock
Redemption of Series B preferred stock
Preferred stock dividends
Stock based compensation expense
Capital from exercise of stock options
Balance at December 31, 2011
Net income
Other comprehensive income, net of tax
Preferred stock dividends
Stock based compensation expense
Balance at December 31, 2012
Net income
Other comprehensive loss, net of tax
Preferred stock dividends
Stock based compensation expense
Capital from exercise of stock options
Capital from private placement
Balance at December 31, 2013
$
10,980
$
52,105
$
5,976
$
424
$
69,485
See notes to consolidated financial statements.
Annual Report 2013
17
88149_Bankwell_Financials.indd 17
4/23/14 6:46 PM
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Years Ended December 31, 2013, 2012 and 2011
(In thousands)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash provided
by operating activities:
Net amortization of premiums and discounts
on investment securities
Provision for loan losses
Benefit from deferred taxes
Net (gain) loss on sales of available for sale securities
Depreciation and amortization
Loan principal sold
Proceeds from sales of loans
Net gain on sales of loans
Equity-based compensation
Net amortization (accretion) of purchase accounting adjustments
Gain on sale of foreclosed real estate
Gain on bargain purchase
Net change in:
Deferred loan fees
Accrued interest receivable
Other assets
Accrued expenses and other liabilities
Net cash provided by operating activities
Cash flows from investing activities
Proceeds from principal repayments on available for sale securities
Proceeds from principal repayments on held to maturity securities
Net proceeds from sales and calls of available for sale securities
Purchases of available for sale securities
Purchase of held to maturity securities
Purchase of bank-owned life insurance
Acquisition, net of cash paid
Net increase in loans
Purchases of premises and equipment
Purchase of Federal Home Loan Bank stock
Proceeds from sale of foreclosed real estate
Net cash used by investing activities
For the Years Ended December 31,
2013
2011
2012
$
5,161
$
1,214
$
2,204
97
585
(357)
(648)
666
(72,589)
74,509
(2,020)
343
(80)
(63)
(1,333)
479
(185)
(502)
(1,114)
2,949
723
180
10,514
-
(7,623)
(10,031)
30,883
(77,004)
(908)
(134)
1,693
(51,707)
130
1,821
(777)
18
612
(575)
1,765
(18)
563
-
-
-
539
206
(1,432)
4,101
8,167
1,103
480
54,973
(6,997)
-
-
-
(162,026)
(684)
(1,034)
-
(114,185)
126
1,049
(404)
(250)
541
(46,035)
48,823
(547)
250
-
-
-
344
(745)
274
835
6,465
1,143
233
31,979
(69,026)
-
-
-
(80,704)
(96)
(84)
-
(116,555)
18 Bankwell Financial Group, Inc.
See notes to consolidated financial statements.
88149_Bankwell_Financials.indd 18
4/23/14 6:46 PM
CONSOLIDATED STATEMENTS OF CASH FLOWS- (Continued)
For Years Ended December 31, 2013, 2012 and 2011
(In thousands)
Cash flows from financing activities
Net change in time certificates of deposit
Net change in other deposits
Net (repayments) proceeds from short term FHLB advances
Proceeds from issuance of Series C preferred stock
Redemption of Series A preferred stock
Redemption of Series B preferred stock
Proceeds from issuance of common stock
Exercise of options
Dividends paid on preferred stock
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents:
Beginning of year
End of period
Supplemental disclosures of cash flows information:
Cash paid for:
Interest
Income taxes
Acquisition of noncash assets and liabilities:
Assets acquired
Liabilities assumed
Noncash investing and financing activities
Loans transferred to foreclosed real estate
For the Years Ended December 31,
2013
2011
2012
$
66,538
68,772
(47,000)
-
-
-
13,178
467
(111)
101,844
53,086
$
(230)
95,216
33,000
-
-
-
-
-
(132)
127,854
21,836
$
(1,265)
59,243
14,000
10,980
(4,797)
(240)
-
18
(206)
77,733
(32,357)
28,927
82,013
$
7,091
28,927
$
39,448
7,091
$
$
2,527
2,872
$
3,208
1,984
$
2,952
866
34,869
(64,446)
52
-
-
962
-
-
-
See notes to consolidated financial statements.
Annual Report 2013
19
88149_Bankwell_Financials.indd 19
4/25/14 7:40 PM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Operations and Summary of Significant Accounting Policies
Bankwell Financial Group, Inc. (the "Company" or "Bankwell") is a federally-chartered bank-holding
company located in New Canaan, Connecticut. The Company offers a broad range of financial services
through its banking subsidiary, Bankwell Bank, (the "Bank"). Bankwell Bank was originally chartered as two
separate banks, The Bank of New Canaan ("BNC") and The Bank of Fairfield ("TBF"). In September 2013,
The Bank of New Canaan and The Bank of Fairfield were merged and rebranded as "Bankwell Bank." In
November 2013, the Bank acquired The Wilton Bank, which added one branch and approximately
$25.1 million in loans and $64.2 million in deposits. See Note 4, Mergers and Acquisitions, for further
information on the acquisition.
The Bank is a Connecticut state charted commercial bank, founded in 2002, whose deposits are insured under
the Deposit Insurance Fund administered by the Federal Deposit Insurance Corporation ("FDIC"). The Bank
provides a full range of banking services to commercial and consumer customers, primarily concentrated in the
Fairfield County region of Connecticut, with branch locations in New Canaan, Stamford, Fairfield, and Wilton,
Connecticut.
Basis of consolidated financial statement presentation
The consolidated financial statements as of and for the years ending December 31, 2013 and 2012 have
been prepared in accordance with accounting principles generally accepted in the United States of
America ("GAAP") and general practices within the banking industry. Such policies have been followed
on a consistent basis.
Management has evaluated subsequent events for potential recognition or disclosure in the consolidated
financial statements through March 25, 2014, the date upon which the Company's consolidated financial
statements were available to be issued. No subsequent events were identified that would have required a
change to the consolidated financial statements or disclosure in the notes to the consolidated financial
statements, other than as disclosed in Note 19, Subsequent Events.
Use of estimates
In preparing the consolidated financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets
and liabilities as of the date of the balance sheet and revenue and expenses for the period. Actual results
could differ from those estimates. Material estimates that are particularly susceptible to significant change
in the near term relate to deferred taxes, the fair values of financial instruments and the determination of
the allowance for loan losses. While management uses available information to recognize losses on loans,
future additions to the allowance for loan losses may be necessary based on changes in economic
conditions.
Principles of consolidation
The consolidated financial statements include the accounts of the Company and the Bank. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Significant concentrations of credit risk
Most of the Company's activities are with customers located within Fairfield County and the surrounding
region of Connecticut, and declines in property values in these areas could significantly impact the
Company. The Company has significant concentrations in commercial real estate. Management does not
believe they present any special risk. The Company does not have any significant concentrations in any
one industry or customer.
Cash and cash equivalents and statement of cash flows
Cash and due from banks and federal funds sold are recognized as cash equivalents in the consolidated
statements of cash flows. Federal funds sold generally mature in one day. For purposes of reporting cash
flows, all highly liquid debt instruments purchased with an original maturity of three months or less are
considered to be cash equivalents. Cash flows from loans and deposits are reported net. The balances of
cash and due from banks and federal funds sold, at times, may exceed federally insured limits. The
Company has not experienced any losses from such concentrations.
20 Bankwell Financial Group, Inc.
88149_Bankwell_Financials.indd 20
4/25/14 7:40 PM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Investment securities
Management determines the appropriate classifications of investment securities at the date individual
investment securities are acquired, and the appropriateness of such classifications is reaffirmed at each
balance sheet date. The Company's investment securities are categorized as either available for sale or
held to maturity. Held to maturity investments are carried at amortized cost; available for sale securities
are carried at fair value, with unrealized gains and losses excluded from earnings and reported in other
comprehensive income (loss) as a separate component of capital, net of estimated income taxes.
Fair value of investment securities is determined by applying the valuation framework in accordance with
GAAP, which specifies a hierarchy of valuation techniques based on whether the inputs to those
techniques are observable or unobservable. Observable inputs reflect market data obtained from
independent sources, while unobservable inputs reflect the Company's market assumptions.
Investment securities are reviewed regularly for other-than-temporary impairment. For debt securities,
other-than-temporary impairment is deemed to exist if the present value of the expected future cash flows
is less than the amortized cost basis of the security. The credit loss component of an other-than-temporary
impairment write-down is recorded in earnings, while the remaining portion of the impairment loss is
recognized in other comprehensive income (loss), provided the Company does not intend to sell the
underlying debt security and it is more likely than not that the Company will not be required to sell the
debt security prior to recovery.
In determining whether a credit loss exists and the period over which the fair value of the debt security is
expected to recover, management considers the following factors: the length of time and extent that fair
value has been less than cost, the financial condition and near term prospects of the issuer, any external
credit ratings, the level of excess cash flows generated from the underlying collateral supporting the
principal and interest payments of the debt securities, the level of credit enhancement provided by the
structure and the Company's ability and intent to hold the security for a period sufficient to allow for any
anticipated recovery in fair value.
The sale of a held to maturity security within three months of its maturity date or after collection of at
least 85% of the principal outstanding at the time the security was acquired is considered a maturity for
purposes of classification and disclosure.
Purchase premiums and discounts are recognized in interest income using the interest method over the
terms of the securities. Gains or losses on the sales of securities are recognized at trade date utilizing the
specific identification method.
Bank owned life insurance
The investment in bank owned life insurance ("BOLI") represents the cash surrender value of life
insurance policies on the lives of certain Bank employees who have provided positive consent allowing
the Bank to be the beneficiary of such policies. Increases in the cash value of the policies, as well as
insurance proceeds received, are recorded in noninterest income, and are not subject to income taxes. The
financial strength of the insurance carrier is reviewed prior to the purchase of BOLI and annually
thereafter.
Federal Home Loan Bank stock
Federal Home Loan Bank of Boston ("FHLB") stock is a non-marketable equity security that is carried at
cost and evaluated for impairment.
Loans held for sale
Loans held for sale are those loans which management has the intent to sell in the foreseeable future, and
are carried at the lower of aggregate cost or market value. Net unrealized losses, if any, are recognized by
a valuation allowance through a charge to noninterest income. Realized gains and losses on the sale of
loans are recognized on the settlement date and are determined by the difference between the sale
proceeds and the carrying value of the loans.
88149_Bankwell_Financials.indd 21
4/25/14 7:40 PM
Annual Report 2013
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loans may be sold with servicing rights released or retained. At the time of the sale, management
determines the value of any retained servicing rights, which represents the present value of the differential
between the contractual servicing fee and adequate compensation, defined as the fee a sub-servicer would
require to assume the role of servicer, after considering the estimated effects of prepayments. If material,
a portion of the gain on the sale of the loan is recognized as due to the value of the servicing rights, and a
servicing asset is recorded.
Loans receivable
Loans receivable that management has the ability and intent to hold for the foreseeable future or until
maturity or payoff are stated at their current unpaid principal balances, net of the allowance for loan
losses, net deferred loan origination fees and unamortized loan premiums.
A loan is considered impaired when it is probable that all contractual principal or interest payments due
will not be collected in accordance with the terms of the loan agreement. Impaired loans are measured
based on the present value of expected future cash flows discounted at the loan's effective interest rate or,
as a practical expedient, at the loan's observable market price or the fair value of the collateral, if the loan
is collateral dependent. The amount of impairment, if any, and any subsequent changes are recorded as
adjustments to the allowance for loan losses.
Management reviews all nonaccrual loans, other loans past due 90 days or more, and restructured loans
for impairment. In most cases, loan payments that are past due less than 90 days are considered minor
collection delays and the related loans are not considered to be impaired. Consumer installment loans are
considered to be pools of small balance homogeneous loans, which are collectively evaluated for
impairment.
Modifications to a loan are considered to be a troubled debt restructuring ("TDR") when two conditions
are met: 1) the borrower is experiencing financial difficulties and 2) the modification constitutes a
concession. Modified terms are dependent upon the financial position and needs of the individual
borrower. Debt may be bifurcated with separate terms for each tranche of the restructured debt. The
decision to restructure a loan, versus aggressively enforcing the collection of the loan, may benefit the
Company by increasing the ultimate probability of collection.
If a performing loan is restructured into a TDR it remains in performing status. If a nonperforming loan is
restructured into a TDR, it continues to be carried in nonaccrual status. Initially, all TDRs are reported as
impaired. Nonaccrual classification may be removed if the borrower demonstrates compliance with the
modified terms for a minimum of six months. TDR's are reported as such for at least one year from the
date of restructuring. In years after the restructuring, troubled debt restructured loans are removed from
this classification if the restructuring agreement specifies a market rate of interest equal to that which
would be provided to a borrower with similar credit at the time of restructuring and the loan is not
deemed to be impaired based on the modified terms.
Appraisals for real estate collateral dependent loans are obtained from independent third parties on whom
we review their professional qualifications on an annual basis. Updated appraisals are obtained when a
loan is in the process of collection, which is typically when the loan changes to nonaccrual status, or when
warranted by other deterioration in the borrower's credit status. A large portion of our real estate loan
portfolio has been originated in past four years, thereby reflecting post 2008 financial crisis market
values. If necessary, and taken in conjunction with other credit factors, adjustments are made to appraisal
values when determining our allowance for loan losses.
Acquired loans
Loans that the Company acquired in acquisitions are initially recorded at fair value with no carryover of
the related allowance for credit losses. Determining the fair value of the loans involves estimating the
amount and timing of principal and interest cash flows initially expected to be collected on the loans and
discounting those cash flows at an appropriate market rate of interest.
22 Bankwell Financial Group, Inc.
88149_Bankwell_Financials.indd 22
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For loans which meet the criteria stipulated in Accounting Standards Codification ("ASC") 310-30,
"Loans and Debt Securities Acquired with Deteriorated Credit Quality," the Company recognizes an
accretable yield, which is defined as the excess of all cash flows expected at acquisition over the initial
fair value of the loan, as interest income on a level-yield basis over the expected remaining life of the
loan. The excess of the loan's contractually required payments over the cash flows expected to be
collected is the nonaccretable difference. The nonaccretable difference is not recognized as an adjustment
of yield, a loss accrual, or a valuation allowance. After the initial acquisition, the Company continues to
evaluate whether the timing and the amount of cash to be collected are reasonably estimated. Subsequent
significant increases in cash flows the Company expects to collect will first reduce previously recognized
valuation allowance and then be reflected prospectively as an increase to the level yield. Subsequent
decreases in expected cash flows may result in the loan being considered impaired. Interest income is not
recognized to the extent that the net investment in the loan would increase to an amount greater than the
estimated payoff amount.
For ASC 310-30 loans, the expected cash flows reflect anticipated prepayments, determined on a loan by
loan basis, according to the anticipated collection plan of these loans. Prepayments result in the
recognition of the nonaccretable balance as current period yield. Changes in prepayment assumptions may
change the amount of interest income and principal expected to be collected. The expected prepayments
used to determine the accretable yield are consistent between the cash flows expected to be collected and
projections of contractual cash flows so as to not affect the nonaccretable difference.
For loans that do not meet the ASC 310-30 criteria, the Company accretes interest income on a level yield
basis using the contractually required cash flows. The Company subjects loans that do not meet the ASC
310-30 criteria to ASC Topic 450, "Contingencies", by collectively evaluating these loans for an
allowance for loan loss, using the same methodology as loans originated by the Company.
Acquired loans that met the criteria for nonaccrual of interest prior to the acquisition are considered
performing upon acquisition, regardless of whether the customer is contractually delinquent, if the
Company can reasonably estimate the timing and amount of the expected cash flows on such loans and if
the Company expects to fully collect the new carrying value of the loans. As such, the Company may no
longer consider the loan to be nonaccrual or nonperforming and may accrue interest on these loans,
including the impact of any accretable yield. The Company has determined that it can reasonably estimate
future cash flows on the Company's current portfolio of acquired loans that are past due 90 days or more,
and on which the Company is accruing interest and the Company expects to fully collect the carrying
value of the loans.
Allowance for loan losses
The allowance for loan losses is established as losses are estimated to have occurred through a provision
for loan losses charged to earnings. Loan losses are charged against the allowance for loan losses when
management believes the non-collectability of a loan balance is confirmed. Subsequent recoveries, if any,
are credited to the allowance for loan losses.
The allowance for loan losses is evaluated on a regular basis by management and is based upon
management's periodic review of the collectability of the loans in light of historical experience, the nature
and volume of the loan portfolio, adverse situations that may affect the borrower's ability to repay,
estimated value of any underlying collateral and prevailing economic conditions. This evaluation is
inherently subjective, as it requires estimates that are susceptible to significant revision as more
information becomes available.
The allowance for loan losses consists of specific and general components. The specific component
relates to impaired loans that are classified as doubtful, substandard or special mention. For these loans,
an allowance is established when the discounted cash flows, collateral value or observable market price of
the impaired loan is lower than the carrying value of that loan. The general component covers non-
classified loans and is based on historical loss experience adjusted for qualitative factors, and includes
88149_Bankwell_Financials.indd 23
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Annual Report 2013
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
unallocated components maintained to cover uncertainties that could affect management's estimation of
probable losses, and reflects the margin of imprecision inherent in the underlying assumptions used in the
methodologies for estimating specific and general losses in the portfolio.
Management believes the allowance for loan losses is adequate. While management uses available
information to recognize losses on loans, future additions to the allowance may be necessary based on
changes in economic conditions. In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the allowance for loan losses. Such agencies have the authority
to require additions to the allowance or charge-offs based on the agencies' judgments about information
available to them at the time of their examination.
Interest and fees on loans
Interest on loans is accrued and included in income based on contractual rates applied to principal
amounts outstanding. Accrual of interest is discontinued when loan payments are 90 days or more past
due, based on contractual terms, or when, in the judgment of management, collectability of the loan or
loan interest becomes uncertain. When interest accrual is discontinued, all unpaid accrued interest is
reversed against interest income. Subsequent recognition of income occurs only to the extent payment is
received subject to management's assessment of the collectability of the remaining interest and principal.
A nonaccrual loan is restored to accrual status when it is no longer delinquent and collectability of interest
and principal is no longer in doubt.
Loan origination fees, net of direct loan origination costs, are deferred and amortized as an adjustment to
the loan's yield generally over the contractual life of the loan, utilizing the interest method.
Foreclosed real estate
Assets acquired through deed in lieu or loan foreclosure are initially recorded at fair value less costs to
sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of
cost or fair value less estimated costs to sell. If fair value declines subsequent to foreclosure, a valuation
allowance is recorded through expense. Operating costs after acquisition are expensed.
Premises and equipment
Premises and equipment are stated at cost, net of accumulated depreciation and amortization. Leasehold
improvements are capitalized and amortized over the shorter of the terms of the related leases or the
estimated economic lives of the improvements. Depreciation and amortization is charged to operations
using the straight-line method over the estimated useful lives of the related assets which range from 3 to
39 years. Gains and losses on dispositions are recognized upon realization. Maintenance and repairs are
expensed as incurred and improvements are capitalized.
Income taxes
The Company accounts for certain income and expense items differently for financial reporting purposes
than for income tax purposes. Provisions for deferred taxes are being made in recognition of these
temporary differences. The Company examines its financial statements, income tax provision and federal
and state income tax returns and analyzes its tax positions, including permanent and temporary
differences, as well as the major components of income and expense to determine whether a tax benefit is
more likely than not to be sustained upon examination by tax authorities. It is the Company's policy to
recognize interest and penalties related to unrecognized tax liabilities within income tax expense in the
consolidated statements of income.
Related party transactions
The Company's Directors, Officers and their affiliates have been customers of and have had transactions
with the Banks, and it is expected that such persons will continue to have such transactions in the future.
Management believes that all deposits accounts, loans, services and commitments comprising such
transactions were made in the ordinary course of business, and on substantially the same terms, including
interest rates, as those prevailing at the time for comparable transactions with other customers who are not
Directors or Officers.
24 Bankwell Financial Group, Inc.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock compensation
Stock-based compensation expense is measured as of the grant date, based on the fair value of the award,
and is recognized as an expense over the requisite service period.
Earnings per share
Basic earnings per share ("EPS") is computed by dividing income available to common shareholders by
the weighted-average number of shares of common stock outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts to issue common stock (such as stock
options) were exercised or converted into common stock or resulted in the issuance of common stock that
then shared in earnings. Unvested share-based payment awards, which include the right to receive non-
forfeitable dividends, are considered to participate with common stock in undistributed earnings for
purposes of computing EPS.
The Company's unvested restricted stock awards are participating securities, and therefore, are included in
the computation of both basic and diluted earnings per common share. EPS is calculated using the two-
class method, under which calculations (1) exclude from the numerator any dividends paid or owed on
participating securities and any undistributed earnings considered to be attributable to participating
securities and (2) exclude from the denominator the dilutive impact of the participating securities.
Comprehensive income
Accounting principles generally require that recognized revenue, expenses, gains and losses be included
in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on
available for sale securities, are reported as a separate component of the stockholders' equity section of
the balance sheets, such items, along with net income, are components of comprehensive income.
Fair values of financial instruments
The following methods and assumptions were used by management in estimating the fair value of its
financial instruments:
Cash and due from banks, federal funds sold, accrued interest receivable and mortgagors' escrow
accounts: The carrying amount is a reasonable estimate of fair value.
Investment securities: Fair values are based on quoted market prices or dealer quotes, if available. If
a quoted market price is not available, fair value is estimated using quoted market prices for similar
securities. The fair value of securities is further classified in accordance with the framework specified
in GAAP as discussed in Note 16, Fair Value Measurements.
FHLB stock: The carrying value of FHLB stock approximates fair value based on the most recent
redemption provisions of the FHLB.
Loans held for sale: The fair value is based upon prevailing market prices.
Loans receivable: For variable rate loans which reprice frequently and have no significant change in
credit risk, fair values are based on carrying values. The fair value of fixed rate loans are estimated
by discounting the future cash flows using the year end rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities.
Deposits: The fair value of demand deposits, regular savings and certain money market deposits is
the amount payable on demand at the reporting date. The fair value of certificates of deposit and other
time deposits is estimated using a discounted cash flow calculation that applies interest rates currently
being offered for deposits of similar remaining maturities to a schedule of aggregated expected
maturities on such deposits.
Advances from the FHLB: The fair value of the advances is estimated using a discounted cash flow
calculation that applies current FHLB interest rates for advances of similar maturity to a schedule of
maturities of such advances.
88149_Bankwell_Financials.indd 25
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Annual Report 2013
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recent accounting pronouncements
The following section includes changes in accounting principles and potential effects of new accounting
guidance and pronouncements.
Accounting Standards Update No. 2014-04, Reclassification of Residential Real Estate Collateralized
Consumer Mortgage Loans upon Foreclosure ("ASU 2014-04)
The Update clarifies that an in substance repossession or foreclosure occurs upon either the creditor
obtaining legal title to the residential real estate property or the borrower conveying all interest in the
residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of
foreclosure or through a similar legal agreement. The amendments are effective for annual periods, and
interim reporting periods within those annual periods, beginning after December 15, 2014. The
amendments may be adopted using either a modified retrospective transition method or a prospective
transition method. Early adoption is permitted. Management does not believe the amendments will have a
material impact on the Company's Consolidated Financial Statements.
Accounting Standards Update No. 2013-11, Income Taxes (Topic 740), Presentation of an Unrecognized
Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward
Exists ("ASU 2013-11")
This Update states that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be
presented in the financial statements as a reduction to a deferred tax asset for a net operating loss
carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net
operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting
date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result
from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the
entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the
unrecognized tax benefit should be presented in the financial statements as a liability and should not be
combined with deferred tax assets. The amendments in ASU 2013-11 are effective for nonpublic entities
for fiscal years, and interim periods within those years, beginning after December 15, 2014, with early
adoption permitted. The amendments should be applied prospectively to all unrecognized tax benefits that
exist at the effective date. Retrospective application is permitted. Management does not expect the
implementation of this update to have a material effect on the Company's consolidated financial
statements.
Accounting Standards Update No. 2013-10, Derivatives and Hedging (Topic 815), Inclusion of the Fed
Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge
Accounting Purposes ("ASU No. 2013-10")
This Update permits the Fed Funds Effective Swap Rate (OIS) to be used as a U.S. benchmark interest
rate for hedge accounting purposes, in addition to UST and LIBOR. The amendments also remove the
restriction on using different benchmark rates for similar hedges. Prior to the amendments in this ASU,
only U.S. Treasury and the LIBOR swap rates were considered benchmark interest rates. Including the
Fed Funds Effective Swap Rate (OIS) as an acceptable U.S. benchmark interest rate in addition to U.S.
Treasury and LIBOR rates provides a more comprehensive spectrum of interest rates to be utilized as the
designated benchmark interest rate risk component under the hedge accounting guidance. The
amendments in ASU 2013-10 are effective prospectively for qualifying new or redesignated hedging
relationships entered into on or after July 17, 2013. Management does not expect the implementation of
this update to have a material effect on the Company's consolidated financial statements.
26 Bankwell Financial Group, Inc.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting Standards Update No. 2013-02 - Other Comprehensive Income (Topic 220): Reporting of
Amounts Reclassified Out of Accumulated Other Comprehensive Income ("ASU 2013-02")
In February 2013, the FASB issued ASU 2013-02, to supersede and replace the presentation requirements
for reclassifications out of accumulated other comprehensive income in ASUs 2011-05 (issued in June
2011) and 2011-12 (issued in December 2011). The amendments require an entity to report the effect of
significant reclassifications out of accumulated other comprehensive income on the respective line items
in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its
entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in
their entirety to net income in the same reporting period, an entity is required to cross-reference other
disclosures required under U.S. GAAP that provide additional detail about those amounts. The
amendments in ASU 2013-02 are effective prospectively for nonpublic entities for reporting periods
beginning after December 15, 2013. Management does not expect the implementation of this update to
have a material effect on the Company's consolidated financial statements.
Accounting Standards Update No. 2011-11 - Balance Sheet (Topic 210): Disclosures about Offsetting
Assets and Liabilities ("ASU 2011-11")
In December 2011, the FASB issued ASU 2011-11, enhancing disclosures about offsetting assets and
liabilities by requiring improved information about financial instruments and derivative instruments that
are either: (1) offset in accordance with certain rights to set off conditions prescribed by current
accounting guidance; or (2) subject to an enforceable master netting agreement or similar agreement,
irrespective of whether they are offset in accordance to current accounting guidance. The amendments in
ASU No. 2011-11 were effective for annual reporting periods beginning on or after January 1, 2013. This
information will enable users of an entity's financial statements to evaluate the effects or potential effects
of netting arrangements on an entity's financial position, including the effect or potential effect of rights
of setoff associated with certain financial instruments and derivative instruments. The implementation of
this update did not have a material effect on the Company's consolidated financial statements.
Reclassification
Certain prior year amounts have been reclassified to conform with the current year financial statement
presentation. These reclassifications only changed the reporting categories but did not affect the results of
operations or financial position.
2. PREFERRED AND COMMON STOCK
Preferred stock
On February 27, 2009, the Company entered into a Letter Agreement, including a Securities Purchase
Agreement (together, the "Purchase Agreement"), with the United States Department of the Treasury (the
"Treasury") pursuant to which the Company issued and sold to the Treasury 4,797 shares of the
Company's Fixed Rate Cumulative Perpetual Preferred Stock, Series A, no par (the "Series A Preferred
Stock"), with a liquidation preference of $1,000 per preferred share, for a total purchase price of
$4.8 million and a warrant (the "Warrant") to purchase 240 shares of the Company's Fixed Rate
Cumulative Perpetual Preferred Stock, Series B, no par (the "Series B Preferred Stock"), with a
liquidation preference of $1,000 per preferred share, at an exercise price of $.01. The Warrant had a ten-
year term and was immediately exercisable. Immediately following the issuance of the Series A Preferred
Stock and the Warrant, the Treasury exercised its rights under the Warrant to acquire 240 shares of the
Series B Preferred Stock through a cashless exercise.
88149_Bankwell_Financials.indd 27
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Annual Report 2013
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company allocated the $4.8 million in proceeds received from the Treasury between Series A
Preferred Stock and Series B Preferred Stock, assuming that the Preferred Stock would be replaced with a
qualifying equity offering and the Preferred Stock would therefore be redeemed at the end of five years.
The allocation was recorded assuming a discount rate of 12% on the cash flows of each instrument. The
allocation of the proceeds was $4.5 million for Series A Preferred Stock and $291 thousand for Series B
Preferred Stock, for total proceeds of $4.8 million. The Series A Preferred Stock and the Series B
Preferred Stock were fully amortized and accreted during the year ended December 31, 2009.
The Series A Preferred Stock and Series B Preferred Stock were fully redeemed by the Company on
August 4, 2011 (see below). The Series A Preferred Stock paid cumulative dividends at a rate of 5% per
360-day year for the first five years and thereafter at a rate of 9% per 360-day year. The Series A
Preferred Stock was non-voting. The Series B Preferred Stock paid cumulative dividends at a rate of 9%
per 360-day year. The Series B Preferred Stock generally had the same rights and privileges as the Series
A Preferred Stock.
In 2011, the Company elected to participate in Treasury's Small Business Lending Fund Program
("SBLF"). The SBLF is a $30 billion fund established under the Small Business Jobs Act of 2010 to
encourage lending to small businesses by providing Tier 1 capital to qualified community banks with
assets of less than $10 billion. The SBLF is intended to expend the ability to lend to small businesses, in
order to help stimulate the economy and promote job growth.
On August 4, 2011, the Treasury approved the Company's request to redeem the Series A Preferred Stock
and Series B Preferred Stock through participation in the SBLF. The Company sold 10,980 shares of
Senior Non-Cumulative Perpetual Preferred Stock, Series C, no par (the "Series C Preferred Stock"),
having a liquidation preference of $1,000 per preferred share, to the Treasury and simultaneously
repurchased all of its Series A Preferred Stock and Series B Preferred Stock sold to the Treasury in 2009.
The transaction resulted in net capital proceeds to the Company of $5.9 million, of which at least 90%
was invested in the Banks as Tier 1 Capital.
The Series C Preferred stock pays noncumulative dividends. The dividend rate on the Series C Preferred
Stock for the initial ten quarterly dividend periods, commencing with the period ended September 30,
2011 and ending with the period ended December 31, 2013, is determined each quarter based on the
increase in the Banks' Qualified Small Business Lending over a baseline amount. The Company has paid
dividends at a rate of 1.0% since issuance. For the eleventh quarterly dividend payment through four and
one-half years after its issuance, the dividend rate on the Series C Preferred Stock will be fixed at the rate
in effect at the end of the ninth quarterly dividend period. In the second quarter of 2016, four and one-
half years from its issuance, the dividend rate will be fixed at 9.0% per annum.
The Series C Preferred Stock has no maturity date and ranks senior to the Company's common stock with
respect to the payment of dividends and distributions and amounts payable upon liquidation, dissolution
and winding up of the Company. The Series C Preferred Stock is non-voting, other than voting rights on
matters that could adversely affect the Series C Preferred Stock, and is redeemable at any time by the
Company, subject to the approval of its federal banking regulator. The redemption price is the aggregate
liquidation preference of the SBLF Preferred Stock plus accrued but unpaid dividends and pro rata
portion of any lending incentive fee. All redemptions must be in an amount at least equal to 25% of the
number of originally issued shares of SBLF Preferred Stock, or 100% of the then-outstanding shares if
less than 25% of the number of shares originally issued.
Common stock
On March 23, 2007, BNC completed a secondary offering, begun in October 2006, and raised a total of
$15.5 million ($15.4 million, net of expenses). The purpose of the offering was to capitalize the Company
and through it, capitalize TBF during its de novo period, and allow for the continued growth of BNC.
28 Bankwell Financial Group, Inc.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On July 10, 2007, BNC began a Private Placement for the sale of Units similar to those offered in the
secondary offering. The purpose of the Private Placement was to attract investors from the Town of
Fairfield who would be willing to support TBF during its de novo period. The Private Placement raised a
total of $1.7 million ($1.6 million, net of expenses). The net proceeds of these funds were added to the
Company's capital in the first quarter of 2008.
For both the 2006 Secondary Offering and the 2007 Private Placement, the Company issued 945,789 units
and received $17.2 million in total capital ($17.1 million, net of expenses).
On December 20, 2010, the Company completed a Private Placement for the sale of its common stock.
The purpose of the offering was to raise additional capital for future growth. The Company issued
300,321 shares and received $4.2 million in total capital ($4.16 million, net of expenses).
On September 30, 2013, the Company completed a Private Placement for the sale of its common stock,
which began in the fourth quarter of 2012, for the purpose of raising additional capital for future growth.
On January 11, 2013, the Company issued 527,513 shares and received $7.3 million in total capital
($7.3 million, net of expenses) and on September 30, 2013, the Company issued 370,000 shares and
received $6.2 million in total capital ($5.9 million, net of expenses).
Regarding the September 30, 2013 issuance of 370,000 shares, the purchaser executed an agreement that,
among other things, provides it with "pre-emptive" rights for a period of three years. This entitles the
investor to be afforded the opportunity to acquire from the Company, for the same price and on the same
terms as such Company securities are offered, in the aggregate up to the amount of such securities
required to enable the investor group to maintain its ownership percentage of Company stock (measured
immediately prior to such offering).
Dividends
The Company's stockholders are entitled to dividends when and if declared by the board of directors, out
of funds legally available. Connecticut law prohibits the Company from paying cash dividends except
from its net profits, which are defined by state statutes.
The payment of dividends are subject to additional restrictions in connection with preferred stock issued
under TARP, which were repurchased in August 2011, and the Treasury Department's SBLF, which were
issued in August 2011.
For the years ended December 31, 2013, 2012 and 2011, the Company declared and paid cash dividends
on preferred stock of $111 thousand, $132 thousand, and $206 thousand, respectively. For the years
ended December 31, 2013, 2012 and 2011, the Company did not declare or pay dividends on its common
stock. The Company did not repurchase any of its common stock during 2013, 2012 or 2011.
3. RESTRICTIONS ON CASH AND DUE FROM BANKS
The Bank is required to maintain $125 thousand in the Federal Reserve Bank for clearing purposes.
4. MERGERS AND ACQUISITIONS
On November 5, 2013, the Company acquired all of the outstanding common shares of The Wilton Bank
("Wilton"). Wilton was a state chartered commercial bank located in Wilton, Connecticut, which
operated as one branch. As a result of the transaction, Wilton merged into Bankwell Bank. This business
combination expanded the Bank's presence in Fairfield County and enhanced opportunities for businesses,
customer relationships, employees and the communities served by the Bank.
On the acquisition date, Wilton had 372,985 outstanding common shares, net of 108,260 shares of
treasury stock, and shareholders' equity of $6.3 million. Wilton shareholders received $13.50 per share
resulting in a consideration value of $5.0 million.
88149_Bankwell_Financials.indd 29
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Annual Report 2013
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The results of Wilton's operations are included in the Company's Consolidated Statement of Income from
the acquisition date. The Company recorded merger and acquisition expenses totaling $908 thousand
during the year ended December 31, 2013.
The assets and liabilities in the Wilton acquisition were recorded at their fair value based on
management's best estimate using information available at the date of acquisition. Consideration paid and
fair values of Wilton's assets acquired and liabilities assumed are summarized in the following tables:
Consideration paid: (In thousands)
Cash consideration paid to Wilton shareholders
Recognized amounts of identifiable assets acquired
and (liabilities) assumed: (In thousands)
As Acquired
Cash
Held to maturity investments securities
Loans
Premises and equipment
Other real estate owned
Core deposit intangibles
Deferred tax assets, net
Other assets
Deposits
Other liabilities
Total identifiable net assets
Gain on purchase
Explanation of fair value adjustments:
$
35,919
1,022
27,097
4,303
1,895
-
-
587
(64,145)
(336)
6,342
$
Fair Value
Adjustments
-
$
-
(2,008)
-
(450)
499
1,997
-
(12)
-
26
$
a
b
c
d
e
Amount
$
5,035
As Recorded
at Acquisition
$
35,919
1,022
25,089
4,303
1,445
499
1,997
587
(64,157)
(336)
6,368
$
$
(1,333)
a) The adjustment represents the write down of the book value of loans to their estimated fair value based on
current interest rates and expected cash flows, which includes an estimate of expected loan loss inherent in the
portfolio.
b) The adjustment represents the write down of the book value of foreclosed real estate to their estimated fair value
based on current appraisals.
c) Represents the economic value of the acquired core deposit base (total deposits less jumbo time deposits). The
core deposit intangible will be amortized over an estimated life of 9.3 years based on the double declining
balance method of amortization.
d) Represents net deferred tax assets resulting from the fair value adjustments related to the acquired assets and
liabilities, identifiable intangibles and other purchase accounting adjustments.
e) The adjustment represents the fair value of time deposits, which were valued at a premium of 0.11% as they bore
slightly higher rates than the prevailing market.
Except for collateral dependent loans with deteriorated credit quality, the fair values for loans acquired
from Wilton were estimated using cash flow projections based on the remaining maturity and repricing
terms. Cash flows were adjusted by estimating future credit losses and the rate of prepayments. Projected
monthly cash flows were then discounted to present value using a risk-adjusted market rate for similar
loans. For collateral dependent loans with deteriorated credit quality, to estimate the fair value, the
Company analyzed the value of the underlying collateral of the loans, assuming the fair values of the
loans were derived from the eventual sale of the collateral. Those values were discounted using market
derived rates of return, with consideration given to the period of time and costs associated with the
foreclosure and disposition of the collateral. There was no carryover of Wilton's allowance for credit
losses associated with the loans that were acquired as the loans were initially recorded at fair value.
30 Bankwell Financial Group, Inc.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information about the acquired loan portfolio subject to purchased credit impaired accounting guidance
(ASC 310-30) as of November 5, 2013 is, as follows:
(In thousands)
Contractually required principal and interest at acquisition
Contractual cash flows not expected to be collected (nonaccretable discount)
Expected cash flows at acquisition
Interest component of expected cash flows (accretable discount)
Fair value of acquired loans
November 5,
2013
$
14,528
(1,412)
13,116
(1,513)
11,603
$
The following table discloses unaudited pro forma supplemental information from the combined results of
operations of 2013 and 2012 assuming the acquisition of Wilton had been completed as of January 1,
2012:
(In thousands, except per share amounts)
Net interest income
Noninterest income
Net income (loss) attributable to common shareholders
Pro forma earnings (loss) per share
Basic
Diluted
Pro Forma (Unaudited)
Twelve Months Ended
December 31,
2013
2012
$
26,456
3,758
3,767
$
21,735
623
241
$
$
1.09
1.07
$
$
0.09
0.08
The unaudited pro forma supplemental information combines the historical results of Bankwell and
Wilton. The unaudited pro forma information includes adjustment for scheduled amortization and
accretion of fair value adjustments recorded at the time of the merger. These adjustments would have
been different if they had been recorded on January 1, 2012. The pro forma income does not indicate
what would have occurred had the acquisition taken place on January 1, 2012 and does not indicate
expected future results. Operating cost savings and other business synergies expected as a result of the
acquisition are not reflected in the pro forma amounts. Non-recurring expenses and income related to the
acquisition including professional fees, system conversion and integration costs, as well as the bargain
purchase gain are excluded from the 2013 period in which the amounts were recognized. In 2013, non-
recurring expenses amounted to $908 thousand, and the bargain purchase gain totaled $1.3 million. Since
the acquisition date of November 5, 2013 through December 31, 2013, revenues and earnings recorded by
the Company related to the acquired operations approximated $425 thousand and $212 thousand,
respectively.
5. GOODWILL AND OTHER INTANGIBLE ASSETS
As discussed in Note 4, Mergers and Acquisitions, the Company completed its acquisition of The Wilton
Bank during the fourth quarter of 2013. In accordance with applicable accounting guidance, the amount
paid is allocated to the fair value of the net assets acquired, with any excess amounts recorded as
goodwill. If the fair value of the net assets is greater than the amount paid, the excess amount is recorded
to noninterest income as a gain on the purchase.
88149_Bankwell_Financials.indd 31
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Annual Report 2013
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company recorded a gain of $1.3 million in conjunction with the acquisition, the amount that the net
assets exceeded the amount paid. Therefore, there is no goodwill as of December 31, 2013 as a result of
this acquisition. An other intangible asset of $499 thousand was recorded, representing the economic
value of the acquired core deposit base.
The following is a summary of other intangible assets at December 31, 2013:
December 31, 2013
Core deposit intangible
Gross Intangible
Asset
Accumulated
Amortization
(In thousands)
Net Intangible
Asset
$
499
$
18
$
481
The core deposit intangible asset is being amortized over 9.3 years on double declining balance method.
Amortization expense for the year ended December 31, 2013 was $18 thousand.
6. INVESTMENT SECURITIES
The amortized cost, gross unrealized gains and losses and fair values of available for sale and held to
maturity securities at December 31, 2013 were as follows:
Available for sale securities:
U.S. Government and agency obligations
Due from one through five years
Due from five through ten years
State agency and municipal obligations
Due from five through ten years
Due after ten years
Corporate bonds
Due from one through five years
Government-sponsored mortgage backed securities
Amortized
Cost
December 31, 2013
Gross Unrealized
Gains
Losses
(In thousands)
Fair
Value
$
1,000
4,997
5,997
-
$
-
-
$
(17)
(292)
(309)
$
983
4,705
5,688
3,125
8,480
11,605
9,166
1,133
152
375
527
411
78
-
-
-
(11)
-
3,277
8,855
12,132
9,566
1,211
Total available for sale securities
$
27,901
$
1,016
$
(320)
$
28,597
Held to maturity securities:
U.S. Government and agency obligations
Due from one through five years
State agency and municipal obligations
Due after ten years
Corporate bonds
Due from five through ten years
Government-sponsored mortgage backed securities
$
1,021
$
-
$
(2)
$
1,019
11,461
1,000
334
-
-
28
-
11,461
(27)
-
973
362
Total held to maturity securities
$
13,816
$
28
$
(29)
$
13,815
32 Bankwell Financial Group, Inc.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amortized cost, gross unrealized gains and losses and fair values of available for sale and held to
maturity securities at December 31, 2012 were as follows:
Available for sale securities:
U.S. Government and agency obligations
Due from five through ten years
State agency and municipal obligations
Due from five through ten years
Due after ten years
Corporate bonds
Due from one through five years
Due from five through ten years
Government-sponsored mortgage backed securities
Amortized
Cost
December 31, 2012
Gross Unrealized
Gains
Losses
(In thousands)
Fair
Value
$
5,997
$
16
$
(8)
$
6,005
3,631
13,405
17,036
11,612
2,069
13,681
1,872
286
1,209
1,495
657
232
889
94
-
-
-
(14)
-
(14)
-
3,917
14,614
18,531
12,255
2,301
14,556
1,966
Total available for sale securities
$
38,586
$
2,494
$
(22)
$
41,058
Held to maturity securities:
State agency and municipal obligations
Due after ten years
Corporate bonds
$
3,903
$
-
$
-
$
3,903
Due from five through ten years
Government-sponsored mortgage backed securities
1,000
451
-
34
(96)
-
904
485
Total held to maturity securities
$
5,354
$
34
$
(96)
$
5,292
For the years ended December 31, 2013, 2012 and 2011, the Company realized gross gains of
$648 thousand, $76 thousand and $250 thousand from the sales of investment securities, respectively. For
the years ended December 31, 2013, 2012 and 2011, gross losses on the sale of investment securities were
$0, $95 thousand and $0, respectively. These amounts were reclassified out of accumulated other
comprehensive income and included in net income under the line item "net gain (loss) on sale of available
for sale securities" in noninterest income.
At December 31, 2013 and 2012, securities with approximate fair values of $6.2 million and $5.0 million,
respectively, were pledged as collateral for public deposits.
88149_Bankwell_Financials.indd 33
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Annual Report 2013
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of the fair value and related unrealized losses of temporarily impaired
investment securities, aggregated by investment category and length of time that individual securities had
been in a continuous unrealized loss position at December 31, 2013 and 2012:
Length of Time in Continuous Unrealized Loss Position
Less Than 12 Months
Fair
Value
Unrealized
Loss
12 Months or More
Fair
Value
Unrealized
Loss
Total
Fair
Value
Unrealized
Loss
(In thousands)
December 31, 2013
U.S. Government and agency
obligations
Corporate bonds
Total investment securities
December 31, 2012
U.S. Government and agency
obligations
Corporate bonds
Total investment securities
5,797
-
5,797
1,991
-
1,991
$
$
$
$
$
$
$
$
$
$
$
$
(222)
-
(222)
910
1,961
2,871
(89)
(38)
(127)
$
$
$
$
$
$
$
$
(8)
-
(8)
$
-
1,889
1,889
$
$
-
(110)
(110)
$
6,707
1,961
8,668
1,991
1,889
3,880
(311)
(38)
(349)
(8)
(110)
(118)
At December 31, 2013 and 2012, there were eight and four individual investment securities, respectively,
in which the fair value of the security was less than the amortized cost of the security. Management
believes the unrealized losses are temporary and are the result of recent market conditions, and
determined that there has been no deterioration in credit quality subsequent to purchase.
The U.S. Government and agency obligations owned are either direct obligations of the U.S. Government
or are issued by one of the stockholder-owned corporations chartered by the U.S. Government. The
Company's corporate bonds are all rated above investment grade. The U.S. Government and agency
obligations and the corporate bonds have experienced declines due to general market conditions.
Management determined that there has been no deterioration in credit quality subsequent to purchase and
believes that unrealized losses are temporary, resulting from recent market conditions.
34 Bankwell Financial Group, Inc.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
Loans acquired in connection with the Wilton acquisition in 2013 are referred to as "acquired" loans as a
result of the manner in which they are accounted for. All other loans are referred to as "originated" loans.
Accordingly, selected credit quality disclosures that follow are presented separately for the originated
loan portfolio and the acquired loan portfolio.
The following table sets forth a summary of the loan portfolio at December 31, 2013 and 2012:
(In thousands)
Real estate loans:
Residential
Commercial
Construction
Home equity
Commercial business
Consumer
Total loans
Allowance for loan losses
Deferred loan origination fees, net
Unamortized loan premiums
Originated
December 31, 2013
Acquired
Total
December 31, 2012
Total
$
155,874
305,823
44,187
9,625
$
-
10,710
7,358
4,267
$
155,874
316,533
51,545
13,892
$
144,288
284,763
33,148
11,030
515,509
92,173
225
607,907
(8,382)
(1,785)
16
22,335
1,393
377
24,105
-
(31)
-
537,844
93,566
602
632,012
(8,382)
(1,816)
16
473,229
56,764
57
530,050
(7,941)
(1,338)
21
Loans receivable, net
$
597,756
$
24,074
$
621,830
$
520,792
Lending activities are conducted principally in the Fairfield County region of Connecticut, and consist of
residential and commercial real estate loans, commercial business loans and a variety of consumer loans.
Loans may also be granted for the construction of residential homes and commercial properties. All
residential and commercial mortgage loans are collateralized by first or second mortgages on real estate.
The following table summarizes activity in the accretable yields for the acquired loan portfolio for the
year ended December 31, 2013:
(In thousands)
Balance at beginning of period
Acquisition
Accretion
Reclassification from nonaccretable difference for loans with
improved cash flows (a)
Other changes in expected cash flows (b)
Balance at end of period
Explanation of adjustments:
2013
-
$
1,513
(95)
-
-
1,418
$
a) Results in increased interest income as a prospective yield adjustment over the remaining life of the
corresponding pool of loans.
b) Represents changes in cash flows expected to be collected due to factors other than credit (e.g. changes in
prepayment assumptions and/or changes in interest rates on variable rate loans), as well as loan sales,
modifications and payoffs.
88149_Bankwell_Financials.indd 35
4/25/14 7:40 PM
Annual Report 2013
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Risk management
The Company has established credit policies applicable to each type of lending activity in which it
engages. The Company evaluates the creditworthiness of each customer and, in most cases, extends
credit of up to 80% of the market value of the collateral at the date of the credit extension, depending on
the borrowers' creditworthiness and the type of collateral. The market value of collateral is monitored on
an ongoing basis and additional collateral is obtained when warranted. Real estate is the primary form of
collateral. Other important forms of collateral are time deposits and marketable securities. While
collateral provides assurance as a secondary source of repayment, the Company ordinarily requires the
primary source of repayment to be based on the borrower's ability to generate continuing cash flows. The
Company's policy for collateral requires that, generally, the amount of the loan may not exceed 90% of
the original appraised value of the property. Private mortgage insurance is required for that portion of the
residential loan in excess of 80% of the appraised value of the property.
Credit quality of loans and the allowance for loan losses
Management segregates the loan portfolio into portfolio segments which is defined as the level at which
the Company develops and documents a systematic method for determining its allowance for loan losses.
The portfolio segments are segregated based on loan types and the underlying risk factors present in each
loan type. Such risk factors are periodically reviewed by management and revised as deemed appropriate.
The Company's loan portfolio is segregated into the following portfolio segments:
Residential Real Estate: This portfolio segment consists of the origination of first mortgage loans
secured by one-to four-family owner occupied residential properties and residential construction
loans to individuals to finance the construction of residential dwellings for personal use located in
our market area.
Commercial Real Estate: This portfolio segment includes loans secured by commercial real
estate, non-owner occupied one-to four-family and multi-family dwellings for property owners
and businesses in our market area. Loans secured by commercial real estate generally have larger
loan balances and more credit risk than owner occupied one-to four-family mortgage loans.
Construction: This portfolio segment includes commercial construction loans for commercial
development projects, including condominiums, apartment buildings, and single family
subdivisions as well as office buildings, retail and other income producing properties and land
loans, which are loans made with land as security. Construction and land development financing
generally involves greater credit risk than long-term financing on improved, owner-occupied real
estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial
estimate of the value of the property at completion of construction compared to the estimated cost
(including interest) of construction and other assumptions. If the estimate of construction cost
proves to be inaccurate, the Company may be required to advance additional funds beyond the
amount originally committed in order to protect the value of the property. Moreover, if the
estimated value of the completed project proves to be inaccurate, the borrower may hold a
property with a value that is insufficient to assure full repayment. Construction loans also expose
the Company to the risks that improvements will not be completed on time in accordance with
specifications and projected costs and that repayment will depend on the successful operation or
sale of the properties, which may cause some borrowers to be unable to continue with debt
service which exposes the Company to greater risk of non-payment and loss.
Home Equity Loans: This portfolio segment primarily includes home equity loans and home
equity lines of credit secured by owner occupied one-to four-family residential properties. Loans
of this type are written at a maximum of 75% of the appraised value of the property and the
Company requires a second lien position on the property. These loans can be affected by
economic conditions and the values of the underlying properties.
36 Bankwell Financial Group, Inc.
88149_Bankwell_Financials.indd 36
4/25/14 7:40 PM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Commercial Business Loans: This portfolio segment includes commercial business loans secured
by assignments of corporate assets and personal guarantees of the business owners. Commercial
business loans generally have higher interest rates and shorter terms than other loans, but they
also may involve higher average balances, increased difficulty of loan monitoring and a higher
risk of default since their repayment generally depends on the successful operation of the
borrower's business.
Consumer Loans: This portfolio segment includes loans secured by passbook or certificate
accounts, or automobiles, as well as unsecured personal loans and overdraft lines of credit. This
type of loan entails greater risk than residential mortgage loans, particularly in the case of loans
that are unsecured or secured by assets that depreciate rapidly.
Allowance for loan losses
The following tables set forth the balance of the allowance for loan losses at December 31, 2013, 2012
and 2011, by portfolio segment:
Residential
Real Estate
Commercial
Real Estate
Construction
Home Equity
Commercial
Business
Consumer
Unallocated
Total
(In thousands)
December 31, 2013
Originated
Beginning balance
$
1,230
$
3,842
$
929
$
220
$
1,718
$
2
$
-
$
7,941
Charge-offs
Recoveries
Provisions
-
-
80
(166)
-
(60)
-
-
103
-
-
(30)
-
-
507
(4)
26
(15)
-
-
-
(170)
26
585
Ending balance
$
1,310
$
3,616
$
1,032
$
190
$
2,225
$
9
$
-
$
8,382
Acquired
Beginning balance
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Charge-offs
Recoveries
Provisions
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Ending balance
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Total
Beginning balance
$
1,230
$
3,842
$
929
$
220
$
1,718
$
2
$
-
$
7,941
Charge-offs
Recoveries
Provisions
-
-
80
(166)
-
(60)
-
-
103
-
-
(30)
-
-
507
(4)
26
(15)
-
-
-
(170)
26
585
Ending balance
$
1,310
$
3,616
$
1,032
$
190
$
2,225
$
9
$
-
$
8,382
December 31, 2012
Beginning balance
$
1,290
$
2,519
$
1,007
$
274
$
1,317
$
11
$
7
$
6,425
Charge-offs
Recoveries
Provisions
(261)
-
201
-
-
1,323
(60)
-
(18)
-
-
(54)
-
-
401
(5)
21
(25)
-
-
(7)
(326)
21
1,821
Ending balance
$
1,230
$
3,842
$
929
$
220
$
1,718
$
2
$
-
$
7,941
December 31, 2011
Beginning balance
Charge-offs
Recoveries
Provisions
Ending balance
$
$
$
$
$
$
$
1,053
-
-
237
1,290
1,806
-
-
713
2,519
951
(84)
-
140
1,007
313
-
-
(39)
274
744
-
-
573
1,317
20
-
20
(29)
11
$
553
-
-
(546)
$
7
5,440
(84)
20
1,049
6,425
$
$
$
$
$
$
$
With respect to the originated portfolio, the allocation to each portfolio segment is not necessarily
indicative of future losses in any particular portfolio segment and does not restrict the use of the
allowance to absorb losses in other portfolio segments.
Annual Report 2013
37
88149_Bankwell_Financials.indd 37
4/25/14 7:40 PM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables are a summary, by portfolio segment and impairment methodology, of the allowance
for loan losses and related portfolio balances at December 31, 2013 and 2012:
Originated Loans
Acquired Loans
Total
Portfolio
Allowance
Portfolio
Allowance
Portfolio
Allowance
$
$
$
$
December 31, 2013
Loans individually evaluated for impairment:
Residential real estate
Commercial real estate
Construction
Home equity
Commercial business
Consumer
Subtotal
Loans collectively evaluated for impairment:
Residential real estate
Commercial real estate
Construction
Home equity
Commercial business
Consumer
Subtotal
1,867
1,117
-
97
642
-
3,723
154,007
304,706
44,187
9,528
91,531
225
604,184
(In thousands)
$
-
-
-
-
-
-
$
-
-
$
10,710
7,358
4,267
1,393
377
24,105
$
$
-
-
-
-
-
-
$
-
-
$
-
-
-
-
-
$
-
73
56
-
4
12
-
145
1,237
3,560
1,032
187
2,212
9
8,237
1,867
1,117
-
97
642
-
3,723
154,007
315,416
51,545
13,795
92,924
602
628,289
73
56
-
4
12
-
145
1,237
3,560
1,032
187
2,212
9
8,237
$
$
$
$
$
$
$
$
$
$
$
$
Total
$
607,907
$
8,382
$
24,105
$
-
$
632,012
$
8,382
Total
Portfolio
Allowance
(In thousands)
December 31, 2012
Loans individually evaluated for impairment:
Residential real estate
Commercial real estate
Construction
Home equity
Commercial business
Consumer
Subtotal
Loans collectively evaluated for impairment:
Residential real estate
Commercial real estate
Construction
Home equity
Commercial business
Consumer
Subtotal
$
$
2,137
1,817
-
-
194
-
4,148
-
$
249
-
-
9
-
258
$
$
$
142,151
282,946
33,148
11,030
56,570
57
525,902
1,230
3,593
929
220
1,709
2
7,683
$
$
Total
$
530,050
$
7,941
38 Bankwell Financial Group, Inc.
88149_Bankwell_Financials.indd 38
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Credit quality indicators
The Company's policies provide for the classification of loans into the following categories: pass, special
mention, substandard, doubtful and loss. Consistent with regulatory guidelines, loans that are considered
to be of lesser quality are classified as substandard, doubtful, or loss assets. A loan is considered
substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or
of the collateral pledged, if any. Substandard loans include those loans characterized by the distinct
possibility that the Company will sustain some loss if the deficiencies are not corrected. Loans classified
as doubtful have all of the weaknesses inherent in those classified substandard with the added
characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently
existing facts, conditions and values, highly questionable and improbable. Loans classified as loss are
those considered uncollectible and of such little value that their continuance as loans is not warranted.
Loans that do not expose the Company to risk sufficient to warrant classification in one of the
aforementioned categories, but which possess potential weaknesses that deserve close attention, are
designated as special mention.
When loans are classified as special mention, substandard or doubtful, the Company disaggregates these
loans and allocates a portion of the related general loss allowances to such loans as the Company deems
prudent. Determinations as to the classification of loans and the amount of loss allowances are subject to
review by the Company's regulators, which can require the Company to establish additional loss
allowances. The Company regularly reviews its loan portfolio to determine whether any loans require
classification in accordance with applicable regulations.
The following tables are a summary of the loan portfolio quality indicators by portfolio segment at
December 31, 2013 and 2012:
Commercial Credit Quality Indicators
At December 31, 2013
At December 31, 2012
Commercial
Real Estate
Construction
Commercial
Business
Commercial
Real Estate
Construction
Commercial
Business
(In thousands)
$
304,469
237
1,117
-
-
305,823
10,351
24
335
-
-
10,710
316,533
$
$
44,187
-
-
-
-
44,187
$
91,093
438
642
-
-
92,173
4,689
161
2,508
-
-
7,358
51,545
$
825
252
316
-
-
1,393
93,566
$
$
282,697
249
1,817
-
-
284,763
-
-
-
-
-
-
284,763
$
$
33,148
-
-
-
-
33,148
$
55,447
1,123
194
-
-
56,764
-
-
-
-
-
-
33,148
$
-
-
-
-
-
-
56,764
$
Originated loans:
Pass
Special mention
Substandard
Doubtful
Loss
Total originated loans
Acquired loans:
Pass
Special mention
Substandard
Doubtful
Loss
Total acquired loans
Total
88149_Bankwell_Financials.indd 39
4/25/14 7:40 PM
Annual Report 2013
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Residential and Consumer Credit Quality Indicators
At December 31, 2013
At December 31, 2012
Home Equity
Consumer
Residential
Real Estate
Home Equity
Consumer
(In thousands)
$
9,447
178
-
-
-
9,625
4,221
-
46
-
-
4,267
13,892
$
$
225
-
-
-
-
225
234
143
-
-
-
377
602
$
$
142,151
-
2,137
-
-
144,288
$
11,030
-
-
-
-
11,030
-
-
-
-
-
-
144,288
$
-
-
-
-
-
-
11,030
$
$
57
-
-
-
-
57
-
-
-
-
-
-
57
$
Residential
Real Estate
$
153,443
2,431
-
-
-
155,874
-
-
-
-
-
-
155,874
$
Originated loans:
Pass
Special mention
Substandard
Doubtful
Loss
Total originated loans
Acquired loans:
Pass
Special mention
Substandard
Doubtful
Loss
Total acquired loans
Total
Loan portfolio aging analysis
When a loan is 15 days past due, the Company sends the borrower a late notice. The Company also
contacts the borrower by phone if the delinquency is not corrected promptly after the notice has been sent.
When the loan is 30 days past due, the Company mails the borrower a letter reminding the borrower of
the delinquency, and attempts to contact the borrower personally to determine the reason for the
delinquency and ensure the borrower understands the terms of the loan. If necessary, subsequent
delinquency notices are issued and the account will be monitored on a regular basis thereafter. By the
90th day of delinquency, the Company will send the borrower a final demand for payment and may
recommend foreclosure. A summary report of all loans 30 days or more past due is provided to the board
of directors of the Company each month. Loans greater than 90 days past due are put on nonaccrual
status. A nonaccrual loan is restored to accrual status when it is no longer delinquent and collectability of
interest and principal is no longer in doubt.
40 Bankwell Financial Group, Inc.
88149_Bankwell_Financials.indd 40
4/25/14 7:40 PM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables set forth certain information with respect to our loan portfolio delinquencies by
portfolio segment and amount as of December 31, 2013 and 2012:
Originated Loans
Real estate loans:
Residential real estate
Commercial real estate
Construction
Home equity
Commercial business
Consumer
Total originated loans
Acquired Loans
Real estate loans:
Residential real estate
Commercial real estate
Construction
Home equity
Commercial business
Consumer
Total acquired loans
Total loans
As of December 31, 2013
31-60 Days
Past Due
61-90 Days
Past Due
Greater Than
90 Days
Total Past
Due
Current
(In thousands)
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
$
1,003
-
-
-
-
-
1,003
-
797
2,508
-
315
-
3,620
4,623
$
$
1,003
-
-
-
-
-
1,003
-
797
2,508
-
315
-
3,620
4,623
$
$
154,871
305,823
44,187
9,625
92,173
225
606,904
-
9,913
4,850
4,267
1,078
377
20,485
627,389
$
As of December 31, 2012
31-60 Days
Past Due
61-90 Days
Past Due
Greater Than
90 Days
Total Past
Due
Current
(In thousands)
Real estate loans:
Residential real estate
Commercial real estate
Construction
Home equity
Commercial business
Consumer
Total
-
$
-
-
-
40
-
40
$
-
$
-
-
-
-
-
$
-
$
$
$
2,137
1,817
-
-
-
-
3,954
2,137
1,817
-
-
40
-
3,994
142,151
282,946
33,148
11,030
56,724
57
526,056
$
$
$
Carrying
Amount > 90
Days and
Accruing
$
-
-
-
-
-
-
-
-
797
2,508
-
315
-
3,620
3,620
$
Carrying
Amount > 90
Days and
Accruing
-
$
-
-
-
-
-
$
-
88149_Bankwell_Financials.indd 41
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Annual Report 2013
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loans on nonaccrual status
The following is a summary of nonaccrual loans by portfolio segment as of December 31, 2013 and 2012:
December 31,
2013
2012
(In thousands)
Residential real estate
Commercial real estate
Construction
Home equity
Commercial business
$
1,003
-
-
-
-
$
2,137
1,817
-
-
-
Total
$
1,003
$
3,954
The amount of income that was contractually due but not recognized on originated nonaccrual loans
totaled $23 thousand, $276 thousand and $133 thousand, respectively for the years ended December 31,
2013, 2012 and 2011. The amount of actual interest income recognized on these loans was $8 thousand,
$113 thousand and $76 thousand, respectively for the years ended December 31, 2013, 2012 and 2011.
At December 31, 2013 and 2012, there were no commitments to lend additional funds to any borrower on
nonaccrual status.
The preceding table excludes acquired loans that are accounted for as purchased credit impaired loans
totaling $6.2 million at December 31, 2013. Such loans otherwise meet the Company's definition of a
nonperforming loan but are excluded because the loans are included in loan pools that are considered
performing. The discounts arising from recording these loans at fair value were due, in part, to credit
quality. The acquired loans are accounted for on either a pool or individual basis and the accretable yield
is being recognized as interest income over the life of the loans based on expected cash flows.
Impaired loans
An impaired loan generally is one for which it is probable, based on current information, the Company
will not collect all the amounts due under the contractual terms of the loan. Loans are individually
evaluated for impairment. When the Company classifies a problem loan as impaired, it provides a
specific valuation allowance for that portion of the asset that is deemed uncollectible.
42 Bankwell Financial Group, Inc.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes impaired loans as of December 31, 2013:
Originated
Impaired loans without a valuation allowance:
As of and for the Year Ended December 31, 2013
Carrying
Amount
Unpaid
Principal
Balance
Average
Carrying
Amount
Interest
Income
Recognized
Associated
Allowance
(In thousands)
Total impaired loans without a valuation allowance
$
-
$
-
$
-
$
-
$
-
Impaired loans with a valuation allowance:
Residential real estate
Commercial real estate
Home equity
Commercial business
Total impaired loans with a valuation allowance
Total originated impaired loans
Acquired
Impaired loans without a valuation allowance:
$
$
$
$
$
1,867
1,117
97
642
3,723
3,723
$
$
1,880
1,117
97
642
3,736
3,736
73
56
4
12
145
145
1,896
1,127
221
680
3,924
3,924
$
$
$
$
$
$
$
$
36
56
7
37
136
136
Total impaired loans without a valuation allowance
$
-
$
-
$
-
$
-
$
-
Impaired loans with a valuation allowance:
Total impaired loans with a valuation allowance
Total acquired impaired loans
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
The following table summarizes impaired loans as of December 31, 2012:
Impaired loans without a valuation allowance:
Residential real estate
Impaired loans with a valuation allowance:
Commercial real estate
Commercial business
Total impaired loans with a valuation allowance
Total impaired loans
As of and for the Year Ended December 31, 2012
Carrying
Amount
Unpaid
Principal
Balance
Average
Carrying
Amount
Interest
Income
Recognized
Associated
Allowance
(In thousands)
$
2,137
$
2,137
$
-
$
2,273
$
47
$
$
$
$
$
$
1,817
194
2,011
4,148
$
$
$
1,817
194
2,011
4,148
249
9
258
258
$
$
2,461
198
2,659
4,932
$
$
44
14
58
105
$
$
88149_Bankwell_Financials.indd 43
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Annual Report 2013
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes impaired loans as of December 31, 2011:
As of and for the Year Ended December 31, 2011
Impaired loans without a valuation allowance:
Commercial real estate
Home equity loans
Commercial business
Total impaired loans without a valuation allowance
Impaired loans with a valuation allowance:
Residential real estate
Commercial real estate
Construction
Commercial business
Total impaired loans with a valuation allowance
Total impaired loans
Carrying
Amount
Unpaid
Principal
Balance
Average
Carrying
Amount
Interest
Income
Recognized
$
$
$
$
$
$
$
$
$
$
$
$
$
Associated
Allowance
(In thousands)
$
-
-
-
$
-
275
222
164
2
663
663
310
90
206
606
2,166
2,520
1,248
65
5,999
6,605
$
$
$
$
$
$
16
1
15
32
58
178
-
4
240
272
307
90
203
600
307
90
203
600
2,166
2,500
1,175
57
5,898
6,498
$
$
2,166
2,500
1,557
57
6,280
6,880
$
$
Troubled debt restructurings (TDRs)
Modifications to a loan are considered to be a troubled debt restructuring when two conditions are met: 1)
the borrower is experiencing financial difficulties and 2) the modification constitutes a concession.
Modified terms are dependent upon the financial position and needs of the individual borrower. Trouble
debt restructurings are classified as impaired loans.
If a performing loan is restructured into a TDR it remains in performing status. If a nonperforming loan is
restructured into a TDR, it continues to be carried in nonaccrual status. Nonaccrual classification may be
removed if the borrower demonstrates compliance with the modified terms for a minimum of six months.
Troubled debt restructured loans are reported as such for at least one year from the date of restructuring.
In years after the restructuring, troubled debt restructured loans are removed from this classification if the
restructuring agreement specifies a market rate of interest equal to that which would be provided to a
borrower with similar credit at the time of restructuring and the loan is not deemed to be impaired based
on the modified terms.
The recorded investment in TDRs was $1.6 million and $1.9 million, respectively, at December 31, 2013
and 2012.
The following table presents loans whose terms were modified as TDRs during the periods presented.
(Dollars in thousands)
Years ended December 31,
Residential real estate
Commercial real estate
Home equity
Commercial business
Total
Number of Loans
2013
2012
Pre-Modification
2013
2012
Post-Modification
2013
2012
Outstanding Recorded Investment
-
-
1
-
1
1
1
-
2
4
$
-
-
97
-
$
1,026
194
-
794
$
-
-
97
-
$
864
194
-
794
$
97
$
2,014
$
97
$
1,852
All TDRs at December 31, 2013 and 2012 were performing in compliance under their modified terms and
therefore, were on accrual status.
44 Bankwell Financial Group, Inc.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides information on how loans were modified as a TDR during the years ended
December 31, 2013 and 2012.
Maturity/amortization concession
Below market interest rate concession
Total
December 31,
2013
2012
(In thousands)
$
97
-
$
264
1,588
$
97
$
1,852
There were no loans modified in a troubled debt restructuring, for which there was a payment default
during the years ended December 31, 2013 and 2012.
8. PREMISES AND EQUIPMENT
At December 31, 2013 and 2012, premises and equipment consisted of the following:
Land
Building
Leasehold improvements
Furniture and fixtures
Equipment
Accumulated depreciation and amortization
December 31,
2013
2012
(In thousands)
$
1,450
3,544
3,157
1,456
2,090
11,697
(4,637)
-
$
-
3,187
661
1,775
5,623
(3,105)
Premises and equipment, net
$
7,060
$
2,518
For the years ended December 31, 2013 and 2012, depreciation and amortization expense related to
premises and equipment totaled $666 thousand and $612 thousand, respectively.
9. DEPOSITS
At December 31, 2013 and 2012, deposits consisted of the following:
Noninterest bearing demand deposit accounts
Interest bearing accounts:
NOW and money market
Savings
Time certificates of deposit
Total interest bearing accounts
December 31,
2013
2012
(In thousands)
$
118,618
$
78,120
238,231
107,692
197,004
542,927
127,812
136,101
120,048
383,961
Total deposits
$
661,545
$
462,081
88149_Bankwell_Financials.indd 45
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Annual Report 2013
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Contractual maturities of time certificates of deposit as of December 31, 2013 and 2012 are summarized
below:
2013
2014
2015
2016
2017
December 31,
2013
2012
(In thousands)
$
-
173,265
12,294
5,707
5,738
$
97,401
12,480
4,054
3,018
3,095
$
197,004
$
120,048
Time certificates of deposit in denominations of $100,000 or more were approximately $150.8 million,
and $91.7 million at December 31, 2013 and 2012, respectively. The Dodd-Frank Wall Street Reform
and Consumer Protection Act (the "Dodd-Frank Act"), signed into law on July 21, 2010, permanently
raised the maximum deposit insurance amount to $250,000, retroactive to January 1, 2008. The aggregate
amount of individual certificate accounts with balances of $250,000 or more were approximately
$40.5 million and $21.9 million at December 31, 2013 and 2012, respectively.
The following table summarizes interest expense by account type for the years ended December 31, 2013,
2012 and 2011:
NOW and money market
Savings
Time certificates of deposit
2013
Years Ended December 31,
2012
(In thousands)
2011
$
547
543
1,143
$
657
846
864
$
550
527
946
Total interest expense on deposits
$
2,233
$
2,367
$
2,023
10. Federal Home Loan Bank Advances and Other Borrowings
The following is a summary of FHLB advances with maturity dates and weighted average rates at
December 31, 2013 and 2012:
December 31,
2013
2012
Amount
Due
Weighted
Average
Rate
Amount
Due
Weighted
Average
Rate
$
-
%
-
$
67,000
0.86
%
22,000
2,000
20,000
0.50
2.75
0.99
2,000
2,000
20,000
3.24
2.75
0.99
(Dollars in thousands)
Year of Maturity:
2013
2014
2015
2017
Total advances
$
44,000
0.83
%
$
91,000
0.98
%
46 Bankwell Financial Group, Inc.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Bank has additional borrowing capacity at the FHLB, in excess of outstanding advances, up to a
certain percentage of the value of qualified collateral, as defined in the FHLB Statement of Products
Policy, at the time of the borrowing. In accordance with agreements with the FHLB, the qualified
collateral must be free and clear of liens, pledges and encumbrances. There were no additional
borrowings at December 31, 2013 and 2012.
Additionally, the Bank has access to a pre-approved secured line of credit of $450 thousand with the
FHLB, none of which was outstanding at December 31, 2013 and 2012.
The Bank has an unsecured line of credit of $2.0 million with Bankers' Bank Northeast, none of which
was outstanding at December 31, 2013 and 2012.
Federal Home Loan Bank Stock
As a member of the FHLB, the Bank is required to maintain investments in their capital stock. The Bank
owned 48,342 and 44,422 shares at December 31, 2013 and 2012, respectively. There is no ready market
or quoted market values for the stock. The shares have a par value of $100 and are carried on the
consolidated balance sheets at cost, as the stock is only redeemable at par subject to the redemption
practices of the FHLB.
11. Commitments and Contingencies
Leases
The Company leases its corporate office space, as well as all but one branch location, plus certain
equipment under operating lease agreements, which expire at various dates through 2028. In addition to
rental payments, the leases require payment of property taxes and certain common area maintenance fees.
At December 31, 2013, future minimum rental commitments under the terms of these leases by year were
as follows:
Period Ending December 31,
2014
2015
2016
2017
2018
Thereafter
December 31, 2013
(In thousands)
$
1,718
1,714
1,196
1,165
914
4,190
$
10,897
Total rental expense approximated $1.5 million, $1.3 million and $1.2 million for the years ended
December 31, 2013, 2012 and 2011, respectively.
Legal matters
The Company is involved in various legal proceedings which have arisen in the normal course of
business. Management believes that resolution of these matters will not have a material effect on the
Company's financial condition or results of operations.
88149_Bankwell_Financials.indd 47
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Annual Report 2013
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Employment agreements
The Company and its subsidiaries have entered into employment agreements with certain executive
officers. The agreements have different terms and provide each executive with a base salary, annual cash
bonuses and other benefits as determined by the Compensation Committee of the board of directors.
Off-balance sheet instruments
In the normal course of business, the Company is a party to financial instruments with off-balance sheet
risk to meet the financing needs of its customers. These financial instruments include commitments to
extend credit and involve, to varying degrees, elements of credit and interest rate risk in excess of the
amounts recognized in the financial statements. The contractual amounts of these instruments reflect the
extent of involvement the Company has in particular classes of financial instruments.
The contractual amounts of commitments to extend credit represents the amounts of potential accounting
loss should the contract be fully drawn upon, the customer's default, and the value of any existing
collateral becomes worthless. Management uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments and evaluates each customer's
creditworthiness on a case-by-case basis. Management believes that they control the credit risk of these
financial instruments through credit approvals, credit limits, monitoring procedures and the receipt of
collateral as deemed necessary.
Financial instruments whose contract amounts represented credit risk at December 31, 2013 and 2012
were as follows:
December 31,
2013
2012
(In thousands)
Commitments to extend credit:
Loan commitments
Undisbursed construction loans
Unused home equity lines of credit
$
$
61,633
44,670
11,575
117,878
39,339
54,705
10,714
104,758
$
$
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments to extend credit generally have fixed expiration dates
or other termination clauses and may require payment of a fee by the borrower. Since these commitments
could expire without being drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. The amount of collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on management's credit evaluation of the counter party. Collateral held
varies, but may include residential and commercial property, deposits and securities.
48 Bankwell Financial Group, Inc.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Income Taxes
Income tax expense for the years ended December 31, 2013, 2012 and 2011 consisted of:
Current provision:
Federal
State
Total current
Deferred provision:
Federal
State
Total deferred
Total income tax expense
2013
2012
(In thousands)
2011
$
1,944
597
2,541
$
1,018
416
1,434
$
1,176
225
1,401
(385)
28
(357)
2,184
$
(508)
(269)
(777)
657
$
(218)
(186)
(404)
997
$
A reconciliation of the anticipated income tax expense, computed by applying the statutory federal
income tax rate of 34% to the income before income taxes, to the amount reported in the consolidated
statements of income for the years ended December 31, 2013, 2012 and 2011 was as follows:
Income tax expense at statutory federal rate
State tax expense, net of federal tax effect
Restricted stock options
Gain from bargain purchase
Income exempt from tax
Other items, net
Income tax expense before change
in valuation allowance
Change in valuation allowance
Income tax expense
2013
December 31,
2012
(In thousands)
2011
$
2,497
239
28
(453)
(294)
(7)
$
636
161
191
-
(281)
14
$
1,089
150
85
-
(271)
14
2,010
174
2,184
$
721
(64)
657
$
1,067
(70)
997
$
88149_Bankwell_Financials.indd 49
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Annual Report 2013
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2013 and 2012, the components of deferred tax assets and liabilities were as follows:
Deferred tax assets:
Allowance for loan losses
Net operating loss carryforwards
Purchase accounting adjustments
Deferred fees
Start-up costs
Other
Gross deferred tax assets
Valuation allowance
Deferred tax receivable, net of valuation allowance
Deferred tax liabilities:
Tax bad debt reserve
Depreciation
Unrealized gain on available for sale securities
Gross deferred tax liabilities
Net deferred tax asset
December 31,
2013
2012
(In thousands)
$
3,348
1,479
1,094
707
484
512
7,624
(682)
6,942
$
3,093
236
-
521
266
76
4,192
(182)
4,010
499
327
271
1,097
5,845
$
98
151
963
1,212
2,798
$
At December 31, 2013, the Company had federal net operating loss carryovers of $3.5 million. The
carryovers were transferred to the Company upon the merger with The Wilton Bank. The losses will
expire in 2032 and are subject to certain annual limitations which amount to $176 thousand per year.
In addition, at December 31, 2013 and 2012, there were net operating loss carry forwards of
approximately $6.0 million and $4.0 million, respectively, for state tax purposes that were available to
reduce future state taxable income. A valuation allowance against deferred tax assets is required if, based
on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets
will not be realized. At December 31, 2013 and 2012, management recorded a valuation allowance
against the deferred tax benefits of the state operating loss carry forwards and other state deferred tax
assets for the bank holding company.
Management regularly analyzes their tax positions and at December 31, 2013, does not believe that the
Company has taken any tax positions where future deductibility is not certain. As of December 31, 2013,
the Company is subject to unexpired statutes of limitation for examination of its tax returns for U.S.
federal and Connecticut income taxes for the years 2010 through 2012.
13. 401(k) Profit Sharing Plan
The Company's employees are eligible to participate in The Bankwell Financial Group, Inc. and its
Subsidiaries and Affiliates 401(k) Plan (the "401k Plan"). The 401k Plan covers substantially all
employees who are 21 years of age. Under the terms of the 401k Plan, participants can contribute up to a
certain percentage of their compensation, subject to federal limitations. The Company matches eligible
contributions and may make discretionary matching and/or profit sharing contributions. Participants are
immediately vested in their contributions and become fully vested in the Company's contributions after
completing six years of service. The Company contributed $127 thousand, $102 thousand and
$103 thousand to the 401k Plan during the years ended December 31, 2013, 2012 and 2011, respectively.
50 Bankwell Financial Group, Inc.
88149_Bankwell_Financials.indd 50
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Stockholders' Equity
Earnings per share
Basic earnings per share ("EPS") is computed by dividing income available to common shareholders by
the weighted-average number of shares of common stock outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts to issue common stock (such as stock
options) were exercised or converted into common stock or resulted in the issuance of common stock that
then shared in earnings. Unvested share-based payment awards, which include the right to receive non-
forfeitable dividends, are considered to participate with common stock in undistributed earnings for
purposes of computing EPS.
The Company's unvested restricted stock awards are participating securities, and therefore, are included in
the computation of both basic and diluted earnings per common share. EPS is calculated using the two-
class method, under which calculations (1) exclude from the numerator any dividends paid or owed on
participating securities and any undistributed earnings considered to be attributable to participating
securities and (2) exclude from the denominator the dilutive impact of the participating securities.
The following is a reconciliation of earnings available to common stockholders and basic weighted-
average common shares outstanding to diluted weighted average common shares outstanding, reflecting
the application of the two-class method:
Net income
Preferred stock dividends and net accretion
Dividends and undistributed earnings allocated to
participating securities
For the Years Ended December 31,
2013
2012
(In thousands, except per share data)
2011
$
5,161
(111)
$
1,214
(132)
$
2,204
(206)
(89)
-
-
Net income available to common shareholders
$
4,961
$
1,082
$
1,998
Weighted average shares outstanding, basic
Effect of dilutive equity-based awards
Weighted average shares outstanding, diluted
Net earnings per common share:
Basic earnings per common share
Diluted earnings per common share
3,395
56
3,451
2,768
97
2,865
2,757
54
2,811
$
1.46
1.44
$
0.39
0.38
$
0.72
0.71
88149_Bankwell_Financials.indd 51
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Annual Report 2013
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Equity award plans
The Company has five equity award plans (shown below), which are collectively referred to as the "Plan".
On June 25, 2003, the Company's shareholders approved The Bank of New Canaan Bank Management,
Director and Founder Stock Option Plan under which both incentive and non qualified common stock
options may be granted. At inception, there were 152,200 shares of common stock reserved for issuance
under this plan.
On July 26, 2006, the Company's shareholders approved The 2006 Bank of New Canaan Stock Option
Plan under which both incentive and non qualified common stock options may be granted. At inception,
there were 47,800 shares of common stock reserved for issuance under this plan.
On June 27, 2007, the Company's shareholders approved The 2007 Bank of New Canaan Stock Option
and Equity Award Plan under which both incentive and non qualified common stock options and other
equity awards may be granted. At inception, there were 165,244 shares of common stock reserved for
issuance under this plan.
On June 22, 2011, the Company's shareholders approved the 2011 BNC Financial Group, Inc. Stock
Option and Equity Award Plan. The plan includes consideration of grants from prior plans and imposes
an overall cap on dilution to shareholders of 15% of the Company's issued and outstanding shares as of
January 1, 2011. At inception, there were 45,000 shares of common stock reserved for issuance under
this plan.
On September 19, 2012, the Company's shareholders adopted the 2012 BNC Financial Group, Inc. Stock
Plan, or the "2012 Plan." The plan includes consideration of grants from prior plans and 10% of the
number of shares sold in the Company's capital raise following the adoption of the 2012 Plan. On
June 26, 2013, the Company's shareholders adopted an amendment to the 2012 Plan, which provides for
an aggregate number of shares reserved and available for issuance in the amount of an "overhang" of up
to 12% on a going-forward basis. During 2013, the Company issued 897,513 shares of common stock in
connection with its capital raise, thereby providing 89,751 shares of common stock to be reserved for
issuance under the 2012 Plan.
Any future issuances of equity awards will be made under the 2012 Plan and/or any new plan adopted by
the Company and its shareholders in the future. All equity awards made under the 2012 Plan are made by
means of an award agreement, which contains the specific terms and conditions of the grant. At
December 31, 2013, there were 49,840 shares reserved for future issuance under the 2012 Plan.
Share Options: As discussed in Note 1, the Company accounts for stock options based on the fair value
at the date of grant over the vesting period of such awards on a straight line basis. For the years ended
December 31, 2013, 2012, and 2011, the Company recorded expense related to options granted under the
various plans of approximately $41 thousand, $82 thousand, and $76 thousand, respectively.
52 Bankwell Financial Group, Inc.
88149_Bankwell_Financials.indd 52
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
There were no options granted during the year ended December 31, 2013. The fair value of options
granted during the years ended December 31, 2012 and 2011 were estimated at the grant date using the
minimum value option-pricing model with the following weighted-average assumptions for the grants:
Weighted average expected lives, in years
Risk-free interest rate
Expected stock price volatility
Expected annual forfeiture rate
Years Ended
December 31,
2012
7.5
1.81%
35.00%
6.00%
2011
7.5
2.83%
34.84%
10.76%
A summary of the status of outstanding stock options at December 31, 2013, 2012 and 2011, and changes
during the periods then ended, were as follows:
2013
December 31,
2012
2011
Number
of
Shares
272,358
-
(4,080)
(46,640)
(13,070)
208,568
Weighted
Average
Exercise
Price
$
15.23
-
17.42
10.02
10.00
16.67
Number
of
Shares
277,558
9,650
(14,850)
-
-
272,358
Weighted
Average
Exercise
Price
$
14.60
15.00
13.13
-
-
15.23
Number
of
Shares
273,628
10,000
(4,070)
(2,000)
-
277,558
Options outstanding at beginning of period
Granted
Forfeited
Exercised
Expired
Options outstanding at end of period
Options exercisable at end of period
188,852
16.84
241,237
15.23
239,632
Weighted
Average
Exercise
Price
$
14.58
15.00
16.20
10.00
14.60
15.21
Weighted-average fair value of options
granted during the period
N/A
$
6.54
$
5.81
Additional information concerning options outstanding and exercisable at December 31, 2013 is
summarized as follows:
Options Outstanding
Options Exercisable
Weighted
Average
Remaining
Life (Years)
Weighted
Average
Exercise
Price
0.36
2.98
4.42
2.95
3.96
3.34
$10.00
$13.39
$15.42
$17.50
$20.52
$16.67
Weighted
Average
Remaining
Life (Years)
Weighted
Average
Exercise
Price
0.36
2.57
3.07
2.95
3.94
2.99
$10.00
$13.68
$15.60
$17.50
$20.51
$16.84
Number of
Shares
18,885
33,925
28,370
41,100
66,572
188,852
Number of
Shares
18,885
38,615
39,970
41,100
69,998
208,568
Exercise Price Ranges
$ 0.00 to $10.00
$10.01 to $14.50
$14.51 to $16.00
$16.01 to $17.50
$17.51 to $20.81
Total intrinsic value is the amount by which the fair value of the underlying stock exceeds the exercise
price of an option on the exercise date. The total intrinsic value of share options exercised during the
years ended December 31, 2013, 2012 and 2011 was $544 thousand, $0 and $8 thousand, respectively.
88149_Bankwell_Financials.indd 53
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Annual Report 2013
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restricted Stock: Restricted stock provides grantees with rights to shares of common stock upon
completion of a service period and certain performance goals. Shares of unvested restricted stock are
participating securities and considered outstanding. Restricted stock awards generally vest over one to
five years. The following table presents the activity for restricted stock for the years ended December 31,
2013, 2012 and 2011.
2013
December 31,
2012
2011
Number
of
Shares
49,500
87,456
(12,900)
(1,916)
122,140
Weighted
Average
Grant Date
Fair Value
$
15.00
16.38
14.92
15.95
15.98
Number
of
Shares
30,000
49,500
(30,000)
-
49,500
Weighted
Average
Grant Date
Fair Value
$
15.96
15.00
15.96
-
15.00
Number
of
Shares
20,000
15,000
(5,000)
-
30,000
Weighted
Average
Grant Date
Fair Value
$
16.92
15.00
16.92
-
15.96
Unvested at beginning of period
Granted
Vested
Forfeited
Unvested at end of period
The Company's restricted stock expense for the years ended December 31, 2013, 2012 and 2011 was
$268 thousand, $481 thousand and $174 thousand, respectively.
Warrants
As discussed in Note 2, BNC's October 26, 2006 Stock Offering and the July 10, 2007 Private Placement
(the "Offerings") call for the issuance of Units. Each Unit issued pursuant to the Offerings represented
one share of common stock and one non-transferable Warrant. The Warrants were exercisable at any time
from and including October 1, 2009 and prior to or on November 30, 2009, unless extended or accelerated
by the board of directors in their discretion. The board of directors has extended the exercise period to
October 1, 2014 through December 1, 2014. Each Warrant allows a holder to purchase .3221 shares of
Common Stock at an exercise price of $14.00 per share. None of the warrants have been exercised as of
December 31, 2013. Assuming that all of the Warrants issued are exercised in full during the exercise
period, the Company would receive $4,264,941 in gross capital and issue 304,640 shares of common
stock. A total of 945,789 units were sold generating gross capital of $17,191,202.
15. Fair Value of Financial Instruments
GAAP requires disclosure of fair value information about financial instruments, whether or not
recognized in the statements of condition, for which it is practicable to estimate that value. In cases where
quoted market prices are not available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the assumptions used, including the
discount rates and estimates of future cash flows. In that regard, the derived fair value estimates cannot be
substantiated by comparisons to independent markets and, in many cases, could not be realized in
immediate settlement of the instrument.
Management uses its best judgment in estimating the fair value of the Company's financial instruments;
however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all
financial instruments, the fair value estimates presented herein are not necessarily indicative of the
amounts the Company could have realized in a sales transaction at either June 30, 2013 or December 31,
2012 or 2011. The estimated fair value amounts have been measured as of the respective period-ends, and
have not been reevaluated or updated for purposes of these consolidated financial statements subsequent
to those respective dates. As such, the estimated fair values of these financial instruments subsequent to
the respective reporting dates may be different than the amounts reported at each period-end.
54 Bankwell Financial Group, Inc.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The carrying values and fair values of the Company's financial instruments December 31, 2013 and 2012
were as follows:
December 31,
2013
2012
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
(In thousands)
$
82,013
28,597
13,816
100
621,830
2,360
4,834
$
82,013
28,597
13,815
100
623,876
2,360
4,834
$
28,927
41,058
5,354
-
520,792
2,109
4,442
$
28,927
41,058
5,292
-
528,199
2,109
4,442
118,618
238,231
107,692
197,004
44,000
118,618
238,231
107,692
197,762
43,902
78,120
127,812
136,121
120,048
91,000
78,120
127,812
136,121
121,029
91,407
Financial Assets:
Cash and due from banks
Available for sale securities
Held to maturity securities
Loans held for sale
Loans receivable, net
Accrued interest receivable
FHLB stock
Financial Liabilities:
Demand deposits
NOW and money market
Savings
Time deposits
Advances from the FHLB
16. Fair Value Measurements
The Company is required to account for certain assets at fair value on a recurring or non-recurring basis.
As discussed in Note 1, the Company determines fair value in accordance with GAAP, which defines fair
value and establishes a framework for measuring fair value. Fair value is defined as the exchange price
that would be received for an asset or paid to transfer a liability (exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between market participants on the
measurement date. GAAP establishes a fair value hierarchy which requires an entity to maximize the use
of observable inputs and minimize the use of unobservable inputs when measuring fair value. The
standard describes three levels of inputs that may be used to measure fair values:
Level 1 — Quoted prices (unadjusted) for identical assets or liabilities in active markets that
the entity has the ability to access as of the measurement date.
Level 2 — Significant other observable inputs other than Level 1 prices such as quoted prices
for similar assets or liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable market data.
Level 3 — Significant unobservable inputs that reflect a company's own assumptions about the
assumptions that market participants would use in pricing an asset or liability.
Valuation techniques based on unobservable inputs are highly subjective and require judgments regarding
significant matters such as the amount and timing of future cash flows and the selection of discount rates
that may appropriately reflect market and credit risks. Changes in these judgments often have a material
impact on the fair value estimates. In addition, since these estimates are as of a specific point in time they
are susceptible to material near-term changes.
88149_Bankwell_Financials.indd 55
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Annual Report 2013
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Financial instruments measured at fair value on a recurring basis
The following tables detail the financial instruments carried at fair value on a recurring basis at
December 31, 2013 and 2012, and indicates the fair value hierarchy of the valuation techniques utilized
by the Company to determine the fair value. The Company had no transfers into or out of Levels 1, 2 or 3
during the years ended December 31, 2013 and 2012.
(In thousands)
December 31, 2013:
Available-for-sale investment securities:
U.S. Government and agency obligations
State agency and municipal obligations
Corporate bonds
Mortgage backed securities
December 31, 2012:
Available-for-sale investment securities:
U.S. Government and agency obligations
State agency and municipal obligations
Corporate bonds
Mortgage backed securities
December 31, 2011:
Available-for-sale investment securities:
U.S. Government and agency obligations
State agency and municipal obligations
Corporate bonds
Mortgage backed securities
Level 1
Fair Value
Level 2
Level 3
$
-
-
-
-
$
5,688
12,132
9,566
1,211
$
-
-
-
-
-
$
-
-
-
$
6,005
18,531
14,556
1,966
-
$
-
-
-
-
$
-
-
-
$
41,749
19,198
24,981
3,143
-
$
-
-
-
Available for sale investment securities: The fair value of the Company's investment securities are
estimated by using pricing models or quoted prices of securities with similar characteristics (i.e. matrix
pricing) and are classified within Level 2 of the valuation hierarchy.
Financial instruments measured at fair value on a nonrecurring basis
Certain assets and liabilities are measured at fair value on a non-recurring basis in accordance with
generally accepted accounting principles. These include assets that are measured at the-lower-of-cost-or-
market that were recognized at fair value below cost at the end of the period as well as assets that are not
measured at fair value on an ongoing basis but are subject to fair value adjustments in certain
circumstances, such as when there is evidence of impairment.
56 Bankwell Financial Group, Inc.
88149_Bankwell_Financials.indd 56
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table details the financial instruments carried at fair value on a nonrecurring basis at
December 31, 2013 and 2012, and indicates the fair value hierarchy of the valuation techniques utilized
by the Company to determine the fair value:
(In thousands)
December 31, 2013:
Impaired loans
Foreclosed real estate
December 31, 2012:
Impaired loans
Foreclosed real estate
Level 1
Fair Value
Level 2
Level 3
-
$
-
-
$
-
$
3,723
829
-
$
-
-
$
-
$
4,148
962
The following table presents information about quantitative inputs and assumptions for Level 3 financial
instruments carried at fair value on a nonrecurring basis at December 31, 2013 and 2012:
(Dollars in thousands)
December 31, 2013:
Fair
Value
Valuation
Methodology
Unobservable
Input
Range
(Weighted Average)
Impaired loans
$
3,723
Appraisals
Discounted cash flows
Discount for dated appraisals
Discount rate
3.5% to 5.0%
1.9%
Foreclosed real estate
$
829
Appraisals
Discount for dated appraisals
29.4% to 46.0%
December 31, 2012:
Impaired loans
$
4,148
Appraisals
Discounted cash flows
Discount for dated appraisals
Discount rate
0% to 13.7%
5.0%
Foreclosed real estate
$
962
Appraisals
Discount for dated appraisals
6.0% to 10.0%
Impaired loans: Loans are generally not recorded at fair value on a recurring basis. Periodically, the
Company records nonrecurring adjustments to the carrying value of loans based on fair value
measurements for partial charge-offs of the uncollectible portions of those loans. Nonrecurring
adjustments also include certain impairment amounts for collateral-dependent loans calculated in
accordance with ASC 310-10 when establishing the allowance for credit losses. Such amounts are
generally based on the fair value of the underlying collateral supporting the loan. Collateral is typically
valued using appraisals or other indications of value based on recent comparable sales of similar
properties or other assumptions. Estimates of fair value based on collateral are generally based on
assumptions not observable in the marketplace and therefore such valuations have been classified as
Level 3.
Foreclosed real estate: The Company classifies property acquired through foreclosure or acceptance of
deed-in-lieu of foreclosure as foreclosed real estate and repossessed assets in its financial statements.
Upon foreclosure, the property securing the loan is written down to fair value less selling costs. The
write-down is based upon differences between the appraised value and the book value. Appraisals are
based on observable market data such as comparable sales, however assumptions made in determining
comparability are unobservable and therefore these assets are classified as Level 3 within the valuation
hierarchy.
88149_Bankwell_Financials.indd 57
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Annual Report 2013
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Regulatory Matters
The Bank and Company are subject to various regulatory capital requirements administered by the federal
banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory – and
possibly additional discretionary – actions by regulators that, if undertaken, could have a direct material
effect on the Company's consolidated financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and other factors.
On September 9, 2013, the Company changed its name from BNC Financial Group, Inc. to Bankwell
Financial Group, Inc., and it merged together the two bank subsidiaries, BNC and TBF and renamed the
combined entity, Bankwell Bank.
Quantitative measures established by regulation to ensure capital adequacy require the Bank and
Company to maintain minimum amounts and ratios of total and Tier I capital to risk-weighted assets and
of Tier I capital to average assets, as defined by regulation. Management believes, as of December 31,
2013, the Bank and Company meet all capital adequacy requirements to which they are subject.
As of December 31, 2013, the Bank and Company were well capitalized under the regulatory framework
for prompt corrective action, as shown in the following schedules. There are no conditions or events
since then that management believes have changed this category.
The capital amounts and ratios for the Bank and Company at December 31, 2013, were as follows:
(Dollars in thousands)
Bankwell Bank
December 31, 2013
Total Capital to Risk-Weighted Assets
Tier I Capital to Risk-Weighted Assets
Tier I Capital to Average Assets
Bankwell Financial Group, Inc.
December 31, 2013
Total Capital to Risk-Weighted Assets
Tier I Capital to Risk-Weighted Assets
Tier I Capital to Average Assets
Actual Capital
Amount
Ratio
For Capital
Adequacy Purposes
Amount
Ratio
To be Well
Capitalized Under
Prompt Corrective
Action Provisions
Amount
Ratio
$
66,674
58,908
58,908
10.74%
9.49%
7.91%
$
49,682
24,841
29,772
8.00%
4.00%
4.00%
$
62,103
37,262
37,215
10.00%
6.00%
5.00%
$
76,537
68,766
68,766
12.32%
11.07%
9.15%
$
49,683
24,841
3,068
8.00%
4.00%
4.00%
$
62,103
37,262
37,585
10.00%
6.00%
5.00%
58 Bankwell Financial Group, Inc.
88149_Bankwell_Financials.indd 58
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The capital amounts and ratios for BNC and TBF at December 31, 2012, were as follows:
(Dollars in thousands)
The Bank of New Canaan
December 31, 2012
Total Capital to Risk-Weighted Assets
Tier I Capital to Risk-Weighted Assets
Tier I Capital to Average Assets
The Bank of Fairfield
December 31, 2012
Total Capital to Risk-Weighted Assets
Tier I Capital to Risk-Weighted Assets
Tier I Capital to Average Assets
Actual Capital
Amount
Ratio
For Capital
Adequacy Purposes
Amount
Ratio
To be Well
Capitalized Under
Prompt Corrective
Action Provisions
Amount
Ratio
$
38,849
34,138
34,138
10.34%
9.09%
7.88%
$
30,048
15,024
17,325
8.00%
4.00%
4.00%
$
37,560
22,536
21,656
10.00%
6.00%
5.00%
$
14,809
13,268
13,268
12.05%
10.80%
8.39%
$
9,829
4,915
6,327
8.00%
4.00%
4.00%
$
12,287
7,372
7,909
10.00%
6.00%
5.00%
Restrictions on dividends
The ability of the Company to pay dividends depends, in part, on the ability of the Bank to pay dividends
to the Company. In accordance with State of Connecticut Banking Rules and Regulations, regulatory
approval is required to pay dividends in excess of the Bank's earnings retained in the current year plus
retained earnings from the previous two years. The Bank is also prohibited from paying dividends that
would reduce its capital ratios below minimum regulatory requirements.
18. RELATED PARTY TRANSACTIONS
In the normal course of business, the Company may grant loans to executive officers, directors and
members of their immediate families, as defined, and to entities in which these individuals have more
than a 10% equity ownership. Such loans are transacted at terms including interest rates, similar to those
available to unrelated customers. Changes in loans outstanding to such related parties during the years
ending December 31, 2013, 2012 and 2011 were as follows:
Balance, beginning of year
Additional loans
Repayments and changes in status
2013
$
5,260
13,775
(11,689)
December 31,
2012
(In thousands)
5,098
$
3,769
(3,607)
2011
$
5,315
218
(435)
Balance, end of year
$
7,346
$
5,260
$
5,098
Related party deposits aggregated approximately $44.7 million, $27.0 million, and $21.6 million at
December 31, 2013, 2012, and 2011, respectively.
During the years ended December 31, 2013, 2012 and 2011, the Company paid approximately $862
thousand, $123 thousand and $117 thousand, respectively, to related parties for services provided to the
Company. The payments were primarily for consulting and legal services.
19. SUBSEQUENT EVENTS
The Company has received approval from its regulators to establish a branch location in Norwalk,
Connecticut, which is expected to open in the first quarter of 2014.
88149_Bankwell_Financials.indd 59
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Annual Report 2013
59
88149_Bankwell_Financials.indd 60
4/25/14 7:41 PM
Bankwell was formed with a simple
idea – to build on the legacies of
four hometown banks and to
create a single institution that
excels at serving the financial needs
of customers and local businesses.
Our name represents our unwavering
commitment to forge creative,
stronger-than-ever ties with our
customers, employees, shareholders
and communities…so that everyone
can bank well.
Corporate Information
Shareholders
For help in transferring ownership, address changes, or lost or stolen stock certificates, please contact:
Registrar and Transfer Company
10 Commerce Drive, Cranford, NJ 07016-3572
(800) 368-5948
www.rtco.com
Stock Symbols
BWFG – Common Stock – Initial Offering
Stock Quotes
Keefe, Bruyette & Woods, Inc.
Kristen Ryan, Assistant Vice President
787 Seventh Avenue, 4th Floor, New York, NY 10019
(212) 887-8901
Shareholder Contact
Bankwell Financial Group, Inc.
Ms. Peyton R. Patterson or Mr. Ernest J. Verrico, Sr.
220 Elm Street, New Canaan, CT 06840
(203) 652-0166
Independent Auditors
Whittlesey & Hadley, PC
280 Trumbull Street, Hartford, CT 06103
Locations
Bankwell Financial Group, Inc.
Executive Office, 220 Elm Street, Suite 100
New Canaan, CT 06840
203-652-0166
Loan Production Office
855 Main Street, Suite 700, Bridgeport, CT 06604
(203) 683-6363
Contents
Letter from the CEO . . . . . . . . . . . . . . . . . . . . . . . . .1
Executive Management Team . . . . . . . . . . . . . . . . 3
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . 4
2013 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
A New Brand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Our Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Independent Auditors Report . . . . . . . . . . . . . . . 13
Corporate Information. . . . . . . . Inside back cover
Fairfield
One Sasco Hill
Fairfield CT
06824
(203) 659-7600
2220 Black Rock Tnpk
Fairfield, CT
06825
(203) 659-7610
New Canaan
208 Elm Street
New Canaan, CT
06840
(203) 972-3838
156 Cherry Street
New Canaan, CT
06840
(203) 966-7080
Stamford
Wilton
612 Bedford Street
Stamford, CT
06901
(203) 391-5777
47 Old Ridgefield Rd
Wilton, CT
06897
(203) 762-2265
This annual report may include forward-looking statements by the Company that are within the protection of the Private Securities Litigation Reform Act of 1995. Such statements are
based upon the current beliefs and expectations of our management and are subject to signifi cant risks and uncertainties that could cause our actual results to differ materially from
those set forth in such forward-looking statements. Forward-looking statements can be identifi ed by the fact that they do not relate strictly to historical or current facts. Words such as
“believes,” “anticipates,” “expects,” “intends,” “plans,” “estimates,” “targeted” and similar expressions, and future or conditional verbs, such as “will,” “would,” “should,” “could” or “may”
are intended to identify forward-looking statements but are not the only means to identify these statements. Factors that could cause differences in actual results may be beyond our
control —Any forward-looking statements made by or on behalf of us in this report speak only as of its date, and we do not undertake to update forward-looking statements to refl ect the
impact of circumstances or events that arise after that date.
88149_Bankwell_IFC_IBC.indd 1
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ANNUAL REPORT 2013
220 Elm Street, New Canaan, CT 06840
Bankwell Bank is a member of the FDIC and an Equal Housing Lender. This statement has not been
reviewed for accuracy or relevance by the Federal Deposit Insurance Corporation.
FOUR LIKE-MINDED BANKS CAME TOGETHER TO CREATE
A HIGH-PERFORMING COMMUNITY BANK THAT ENABLES
PEOPLE, BUSINESSES AND COMMUNITIES TO THRIVE.
88149_Bankwell_BC_FC.indd 1
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