Bankwell Financial Group, Inc.
Annual Report 2017

Plain-text annual report

Annual Review 2017 The promise of an exceptional banking experience. Bankwell is a community bank with nearly $1.8 billion Bankwell is a community bank with nearly $1.8 billion in assets that serves the banking and lending needs of businesses and residents throughout Connecticut. We pride ourselves on our unique ability to provide customers with a hometown, private banking experience, and the products and technology to meet their everyday needs. We off er a wide range of services for businesses and individuals, including mobile banking, commercial loans and lines of credit, and online cash management services for businesses. We’re also committed to giving back to the community. In addition to providing business loans that help to create jobs and improve the economy, we’re actively involved with more than 200 not-for-profi t organizations and events statewide, helping to shape and improve the communities we serve. Our goal, when it’s all said and done, is to make it possible for everyone to Bankwell for Good. Bankwell Through the Years ASSETS $1,628,919 $1,796,607 s d n a s u o h t n i s r a l l o D $0 20 02 Founded The Bank of New Canaan $1,099,531 $779,618 $190,906 $247,041 $395,708 2007 2008 2010 2013 2014 2016 2017 Holding company formed (BNC Financial Group) Founded second bank, The Bank of Fairfield Founded third bank, Stamford First Bank, a division of The Bank of New Canaan The Banks merge into “Bankwell”; Bankwell acquires The Wilton Bank Bankwell acquires Quinnipiac Bank & Trust Company Named one of the “Top 100 Best-Performing Community Banks of 2016”* Named to Sandler OʼNeill “Sm-All Stars Class of 2017”** *Bankwell was named one of the “Top 100 Best-Performing Community Banks of 2016” between $1 billion and $10 billion in assets nationwide based on certain metrics for the year ended December 31, 2016, by S&P Global Market Intelligence. **Bankwell was named one of 29 banks nationwide to make the Sandler O’Neill and Partners list of “Sm-All Stars” and the only Connecticut bank to make the list. Fellow Investors, Clients and Colleagues, The financial climate of 2017 was the most volatile en- countered by banks for quite some time. While equity markets charged ahead to all-time highs, banks faced an increasingly challenging interest rate environment. The Federal Reserve’s long-awaited tightening cycle began in ear- nest, and, although longer term interest rates have trended higher, the real impact from the tightening was seen in shorter term rates, putting pressure on most banks’ earnings. Despite the headwinds of this macroeconomic backdrop, Bankwell maintained a net interest margin of 330 basis points. This, coupled with our focus on efficiency and rigorous expense control, enabled our company to achieve a 10.2% core return on equity before one-time charges such as those related to the Tax Cuts and Jobs Act of 2017. An examination of Bankwell’s balance sheet will demonstrate within Fairfield County; two of these will be “maiden” Bankwell our well-earned reputation for an exacting credit underwriting branches in their respective towns. The Bank has also added process. Our ratio of non-performing assets to total assets stood capacity in our lending business, as we seek to deliver on our goal at just 0.31% at December 31, 2017. This compares favorably to of becoming a leading alternative for the small to medium-sized the 0.83% result from our regional peer group of $1 billion-$3 businesses neglected by our larger competitors. We continue to billion banks. The current credit cycle continues to be benign, develop additional meaningful partnerships within communities however, if history is any indicator, we cannot expect this envi- throughout our footprint. ronment to endure indefinitely. Over the course of the past year, Bankwell’s commitment to excellence remains steadfast: we have made considerable investments in time and resources to • To our communities, we seek to be your best corporate augment our credit risk monitoring and to establish a new port- neighbor. folio management team. These investments have enhanced an • To our employees, we commit to our continuous invest- already vigorous process. ment in your growth and to foster a culture that values Looking ahead, I believe that Bankwell is well-positioned collaboration. for success. We continue to grow in size and profitability. Over • To our shareholders, we promise an uncompromising focus the next several months we’ll be opening three new branches on stewardship of your capital. Sincerely, Christopher R. Gruseke President & CEO Bankwell Financial Group Executive Management Team Christopher R. Gruseke President & Chief Executive Officer Christine Chivily Executive Vice President, Chief Credit & Risk Officer David P. Dineen Executive Vice President, Head of Community Banking Penko Ivanov Executive Vice President, Chief Financial Officer Heidi S. DeWyngaert Executive Vice President, Chief Lending Officer Laura J. Waitz Executive Vice President, Chief of Staff Board of Directors Richard Castiglioni Partner Diserio Martin O’Connor and Castiglioni, LLP Stamford, CT Eric Dale Chief Legal Officer Nielsen Holdings PLC Wilton, CT Christopher R. Gruseke President & Chief Executive Officer Bankwell Financial Group New Canaan, CT Daniel S. Jones President NewsBank, Inc. New Canaan, CT Todd H. Lampert Managing Member Lampert, Toohey & Rucci, LLC; Managing Member Main Street Group, LLC New Canaan, CT Victor Liss Retired Stratford, CT Carl M. Porto Principal Parrett, Porto, Parese & Colwell, P.C. Hamden, CT 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 George Bauer Chairman & CEO GPB Group, Ltd. Wilton, CT Gail E. D. Brathwaite President & CEO G.E.D.B. Consulting Stamford, CT Bankwell Financial Group Financial Highlights (dollars in 000’s except per share data) STATEMENT OF CONDITION Total assets Gross portfolio loans Investment securities Deposits FHLB borrowings Subordinated debt Total equity STATEMENT OF INCOME AND EXPENSE Interest income Interest expense Net interest income Provision for loan losses Noninterest income Noninterest expense Income before income tax Net income Basic earnings per share Diluted earnings per share FINANCIAL RATIOS Tier 1 capital to average assets1 Bankwell Bank Tier 1 capital to risk-weighted assets1 December 31, 2017 2016 2015 2014 2013 $1,796,607 1,543,016 113,767 1,398,405 199,000 25,103 161,027 $71,201 16,837 54,364 1,341 4,629 32,523 25,129 13,830 1.80 1.78 $1,628,919 $1,330,372 $1,099,531 $779,618 1,365,939 104,610 1,147,513 50,807 1,289,037 1,046,942 160,000 25,051 145,895 $60,990 11,898 49,092 3,914 2,676 29,544 18,310 12,350 1.64 1.62 120,000 25,000 131,769 $50,754 7,966 42,788 3,230 3,484 29,171 13,871 9,030 1.23 1.21 929,762 76,463 835,439 129,000 – 632,012 42,413 661,545 44,000 – 129,210 69,485 $35,589 $28,092 3,929 31,660 2,152 3,041 25,812 6,737 4,568 0.78 0.78 2,765 25,327 585 4,723 22,120 7,345 5,161 1.46 1.44 9.61% 10.10% 10.84% 11.12 % 7.91% Bankwell Bank 10.99% 11.59% 12.18% 12.47% 9.49% Total capital to risk-weighted assets1 Bankwell Bank Net interest margin Return on average assets Return on average shareholders’ equity Allowance for loan losses to total loans Nonperforming assets to total assets 1Represents bank ratios. 12.19% 3.30% 0.80% 8.93% 1.23% 0.31% 12.85% 13.39% 13.55% 10.74% 3.54% 0.85% 8.94% 1.32% 0.20% 3.77% 0.75% 6.76% 1.23% 0.38% 3.84% 0.52% 4.66% 1.17% 0.39% 3.94% 0.77% 8.17% 1.33% 0.23% NET INCOME 5 YEAR ASSET GROWTH $12,350 $13,830 $9,030 s d n a s u o h t n i s r a l l o D C A G R 2 3 % $1,330 $1,629 $1,797 $1,100 $780 s n o i l l i m n i s r a l l o D 2015 2016 2017 2013 2014 2015 2016 2017 Building Relationships “Bankwell’s support has given us the opportunity to expand our reach in the fight against childhood hunger in local communities. They’ve helped make it possible to provide holiday gifts to children in need, and they’ve gone beyond financial support to give their time to help us pack bags of food that we distribute to 800 children each week throughout Fairfield and Westchester counties.” — T I N A K R A M E R & S H A W N E E K N I G H T , F O U N D E R S , F I L L I N G I N T H E B L A N K S , N O R W A L K , C T 2017 Overview Recognition of Excellence: 2017 was a year of national recognition for Bankwell. In March, Bankwell was named one of the “Top 100 Best-Performing Community Banks” nationwide by S&P Global Market Intelligence. Several months later, Bankwell was recognized as one Sandler O’Neill + Partners of 29 high quality small-cap banks and thrifts in the country that outperformed the industry, comprising the Sandler O’Neill and Partners “Sm-All Stars Class of 2017.” SM-ALL STARS Financial Results Bankwell had another outstanding year in 2017 as we continue to position ourselves for long-term growth and profitability. We maintained our positive earnings trend with record core net in- come1 of $15.7 million or $2.03 per share, an increase from $12.4 million and $1.62 per share for 2016. Total assets were $1.8 billion at year end, an increase of 10% from 2016. Total revenue for the year ended December 31, 2017 reached $59.0 million versus $51.8 million in 2016, an increase of 14%. Net interest income for the year was $54.4 million, up 11% over the previous year. Our strong net income, revenues and interest income growth were all fueled by continued organic earning asset growth. Reflecting our commitment to local businesses, total gross loans surpassed $1.5 billion at year end, as loan growth contin- ued across multiple portfolios, including commercial mortgage loans and commercial and industrial loans. The growth in loans was primarily funded by increased deposits. Credit quality re- mained exceptionally strong, with non-performing assets as a percentage of total assets totaling 0.31% at year end. We are fully aware that a critical component of our overall success is our outstanding asset quality, and we are committed to main- taining that standard through strong underwriting and vigilant credit management. Total deposits for 2017 reached $1.4 billion, up 8% over 2016. We attribute this steady growth in our deposit base to our John Nelson with Bob Palermo, SVP, Senior Loan Officer at Bankwell “Working with Bankwell is truly a pleasure, in large part because of the unparalleled personal service they provide. While Bankwell has all the capabilities of a larger institution, I feel that they are local bankers who are very much in touch with their customers’ needs. I simply can’t say enough about how much I value the relationship.” — JOHN NELSON, CEO Continued > PARAGON REALTY GROUP, WESTPORT, CT NPA/TOTAL ASSETS DEPOSIT BALANCES 0.83% $1,289 $1,398 0.31% $1,047 s n o i l l i m n i s r a l l o D Regional Peer Group* Bankwell 2015 2016 2017 *Regional peer group includes Banks in CT, MA, NY, NJ with assets between $1 billion-$3 billion. ■ Checking ■ Savings ■ Money Market ■ Time Deposit 1 GAAP Net Income has been adjusted for several non-recurring items to determine Core Net Income. These adjustments include $3.3 million or $0.42 per share for a write-down of our deferred tax asset resulting from tax reform, ($0.9) million or ($0.11) per share as a result from a change in our loan reserve methodology, ($0.7) million or ($0.08) per share resulting from income recognized from servicing assets and $0.2 million or $0.02 per share resulting from charges due to reduction in our workforce. focus on a hometown, private banking style, combined with a strong digital platform. The current rate environment, regulatory controls, continu- ally changing consumer behavior and a profusion of automated banking and payment innovations have challenged the tradi- tional banking model. We are constantly evaluating the most effective and efficient ways to provide the greatest value to our customers. At the same time, we are mindful of managing our expenses as we forge ahead with our priorities and our vision. As a result of this rigorous approach to increased productivity and expense control, our efficiency ratio for 2017 improved to 54.9%, versus 56.5% in 2016. Capital Growth At year end, our shareholders’ equity remained strong at $161.0 million – an increase of $15.1 million over 2016 – primarily a re- sult of net income for the year, offset by cash dividends declared. As of December 31, 2017, the tangible common equity ratio and tangible book value were 8.81% and $20.59, respectively. The Company views a regular dividend to be an important component of the Company’s overall capital management strat- egy, and The Board of Directors increased cash dividends in early 2018 by 71%. Focus on Growth Our outlook for 2018 is positive. We are particularly excited about the opening of three new Bankwell branches this spring in Darien, Westport and North Stamford. These branches are strategically located in markets that are contiguous to our ex- isting branch network, and these communities are ideal markets to embrace the Bankwell brand of service. We look forward to growing existing relationships in these markets as we devel- op new ones. With the opening of the new locations, we will expand our footprint to 12 branches throughout Fairfield and New Haven counties. “Bankwell has become a foundational component to XPT Group’s growth. Their expertise in our insurance distribu- tion segment has made working together an asset as we buy firms into our partnership. Further, their online capa- bilities match up with any larger bank and have enabled us to operate nationally with ease. The icing on the cake is their friendly can-do disposition that makes working together a pleasure. It all underscores why they have been so successful because they help their customers excel.” — TOM RUGGIERI, FOUNDING PARTNER & CEO XPT GROUP, LLC., NEW HAVEN, CT Investing in our franchise is an important element of “build- ing a better bank” for our customers and employees. Everything we do is driven by that purpose, and every individual, business and community we serve benefits from customized hands-on care by our knowledgeable and experienced staff. We offer bet- ter products, diversified expertise and innovative technologies. These are the tools we use to craft the financial well-being of each and every customer. Continued> REVENUE EFFICIENCY RATIO* $51,768 $46,272 $58,993 62.3% 56.5% 54.9% s d n a s u o h t n i s r a l l o D 2015 2016 2017 2015 2016 2017 * Efficiency ratio is defined as non-interest expenses, less merger and acquisition related expenses, other real estate owned expenses and amortization of intangible assets, divided by our operating revenue, which is equal to net interest income plus non-interest income excluding gains and losses on sales of securities and gains and losses on other real estate owned. In our judgment, the adjustments made to operating revenue allow investors and analysts to better assess our operating expenses in relation to our core operating revenue by removing the volatility that is associated with certain one-time items and other discrete items that are unrelated to our core business. “The support from Bankwell in 2017 allowed the Connecticut Food Bank to provide more than 15,000 meals to our hungry neighbors here in Connecticut. Bankwell is a wonderful new partner, and we appreciate everything that they do as a supporter of our cause.” — B E R N I E B E A U D R E A U , C E O , C T F O O D B A N K , W A L L I N G F O R D , C T “As a small business owner, I count on a community bank for support, and Bankwell has been there every step of the way — from their personal service to their extensive outreach in the community. I’ve been with Bankwell since we opened Rosie in 2004, and I would never think of banking anywhere else!” — R O S E B O N U R A , O W N E R , R O S I E , N E W C A N A A N , C T Community Commitment 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 econ- omy and business environment impact individuals and business- es alike. Our connection to our communities puts both our resourc- es and imagination to work. When we find a situation where we can make a meaningful difference, we look to find more than just one way to help. In 2017, we leveraged our strength and resourc- es to support more than 200 community organizations through volunteering, mentoring and financial support. One of the pro- grams we’re most proud of is the partnership we have grown with the Rams Foundation Council, a substance-free teen group at New Canaan High School. In 2017, we expanded our support of this organization and played an instrumental role in launching a similar program at Wilton High School. We believe that sub- stance-free living should be a fundamental choice for our youth, and our hope is to bring this program to additional communities over the coming months. Co-owners Janine, David and Clement Brancale “By working to understand what we’re all about, Bank- well has steadily built our relationship into a partner- ship. From depository banking to mortgages to lines of credit, Bankwell has tailored their financial products and expertise to meet our specific needs — helping us to prosper and grow. We look forward to years of continued growth with Bankwell by our side.” — DAVID BRANCALE, CO-OWNER STAR AUTO SALES & VEHICLE LEASING ASSOCIATES, MERIDEN, CT Left to right: Bonni Gottlieb, Kendall Wisinski, Annabel Hartigan, Brian Minicus and Kathy Arrix. “As a place where kids can connect, grow and give back, The Darien Depot is one of the longest-running youth centers of its kind in the country. Bankwell does a great job of managing our business banking, but it’s their commitment to the community that really sets the bank apart. This spring, Bankwell will recognize a teen for their commitment to community with the first annual “Bankwell for Good” scholarship at the Depot.” — BONNI GOTTLIEB, EXECUTIVE DIRECTOR AND KATHY ARRIX, CHAIRMAN DARIEN DEPOT, DARIEN, CT In the spring of 2017 we also launched the Bankwell Pet Adoption Project, a program that was created to generate aware- ness, collect supplies and provide financial support for homeless animals in rescue shelters throughout Fairfield and New Haven counties. With the help of our community partners, this program has had a significant impact on the animal adoption rate and continues to increase traffic to local shelters. Over the last year, we continued our partnership with the Maritime Aquarium in Norwalk, supporting the Children’s Opportunity Fund that makes it possible for underserved chil- dren to visit the Aquarium. We held frequent “drives” through- out all of our branches: we collected coats for Person-to-Person in Darien, food for the Open Door Shelter Food Pantry in Nor- walk and school supplies for the Clifford Beers Clinic in Hamden, to name a few. In Stamford, we joined forces with Mill River Col- laborative to help expand the many opportunities and resources they provide to local residents. Continued > “When we brought our business to Bankwell 15 years ago, they became the architects of a banking relationship that helped us build our business. We’ve had the business support of a team of experts and the resources to help us expand. They’re partners – and friends – that we rely on, and for us, the perfect business fit.” — M I C H A E L & S U S A N D ’ E L I A , O W N E R S , O L Y M P I C C O N S T R U C T I O N , S T A M F O R D , C T On an educational front, Bankwell teams in each of our markets provide ongoing financial literacy workshops targeted to teens, seniors, college students and business owners — both at our branches and within the community — with an emphasis on money management, credit and enhancing cybersecurity. Giving back is important to our team. It is part of our cul- ture, and the pride and enthusiasm of our employees reflects those values every day. To heighten awareness about giving back and align employees with our vision, in 2017 we presented the first annual “Bankwell for Good” award, recognizing a Bankwell employee who has demonstrated outstanding community out- reach over the course of the year. This spring, we will present the “Bankwell for Good” scholarship to a teen at the Darien Depot who demonstrates an exceptional commitment to service. We started a bank to take care of the people, businesses and communities we care about, and we pride ourselves on being poised and energized to meet new challenges as they arise. While we have always been committed to nurturing and supporting organizations that serve the people of Connecticut, in 2017 we went beyond those borders to help others in need. In a year when extreme weather conditions took an unexpected toll on many parts of the country, we reached out to help fel- low community bankers in need in Houston, Texas, through our “Bankers Helping Bankers” program, donating $15,000 to help the bank and its employees get back on their feet. We believe a true community bank puts the wellness of the community at its center. That’s why every branch, every fi- nancial expert and every service we offer supports, educates or enriches the lives of the people who put their trust in us. Our interests are aligned with those in the communities where we do business. Our communities in turn trust our commitment to be accountable in supporting programs that enhance the quality of life in our neighborhoods. We believe our true value lies in being a strong corporate partner and a part of the fabric of each community we serve. “Bankwell has become an important ally in animal welfare and a business committed to improving the lives of local rescue animals. The Bankwell Pet Adoption Project has significantly impacted the lives of rescue animals in need. They have also provided food, supplies and donations that fund much-needed medical care received at the Connecticut Humane Society. We are proud to partner with Bankwell in their mission of saving animals’ lives and delivering them to loving homes.” – GORDON WILLARD, EXECUTIVE DIRECTOR CONNECTICUT HUMANE SOCIETY, NEWINGTON, CT “As part of the National Trust for Historic Preservation, we’re grateful to Bankwell as a community leader for their generous support of “Community Days” at the Glass House. Community Days provide local resi- dents with free entry to the site on select days throughout the year as a way to thank our local community for their wonderful support of this iconic historic site.” – C H R I S T A C A R R , C O M M U N I C A T I O N S D I R E C T O R , T H E G L A S S H O U S E , N E W C A N A A N , C T Corporate information Shareholders For help in transferring ownership, address changes, or lost or stolen stock certificates, please contact: Computershare 480 Washington Blvd. 29th Floor Jersey City, NJ 07310 (800) 368-5948 www.computershare.com St ock Symbol BWFG – Common Stock St ock Q uot e s www.nasdaq.com Shareholder Con tact Bankwell Financial Group, Inc. Mr. Christopher R. Gruseke or Mr. Penko Ivanov 220 Elm Street New Canaan, CT 06840 (203) 652-0166 Auditors RSM US LLP 157 Church Street, 11th Floor, New Haven, CT 06510 Corpo rate Counsel Hinckley, Allen & Snyder, LLP 20 Church Street, Hartford, CT 06103 Locat ions Executive Office 220 Elm Street, New Canaan, CT 06840 (203) 652-0166 Elm Street Branch 208 Elm Street New Canaan, CT 06840 (203) 972-3838 Sasco Hill Branch One Sasco Hill Fairfield, CT 06824 (203) 659-7600 Norwalk Branch 370 Westport Avenue Norwalk, CT 06851 (203) 663-0480 Cherry Street Branch 156 Cherry Street New Canaan, CT 06840 (203) 966-7080 Black Rock Branch 2220 Black Rock Turnpike Fairfield, CT 06825 (203) 659-7610 Hamden Branch 2704 Dixwell Avenue Hamden, CT 06518 (203) 407-0756 Stamford Branch 612 Bedford Street Stamford, CT 06901 (203) 391-5777 Wilton Branch 47 Old Ridgefield Road Wilton, CT 06897 (203) 762-2265 North Haven Branch 24 Washington Avenue North Haven, CT 06473 (475) 238-6807 This Year in Review 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. mybankwell.com Bankwell 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. 

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