Bankwell Financial Group, Inc. — Q1 2015 Form 10-Q
Business context and reporting period
Unaudited results cover the three months ended March 31, 2015, compared with Q1 2014; balance-sheet figures are compared with December 31, 2014. Bankwell is a Connecticut bank holding company serving commercial and retail customers, primarily in Fairfield and New Haven Counties. Q1 2014 predates the October 2014 Quinnipiac acquisition, so the periods are not fully comparable.
Financial and operating results
| Metric | Q1 2015 / March 31, 2015 | Comparable period / prior year-end |
|---|---|---|
| Net interest income | $9.9 million reported; $10.0 million FTE | $7.1 million reported; $7.3 million FTE |
| Net interest margin, FTE | 3.89% | 3.97% in Q1 2014 |
| Net income | $1.873 million; $1.846 million attributable to common shareholders | $1.123 million; $1.096 million attributable to common shareholders |
| Diluted EPS | $0.26 | $0.28 in Q1 2014 |
| Provision for loan losses | $733,000 | $211,000 in Q1 2014 |
| Noninterest income / expense | $599,000 / $6.972 million | $769,000 / $6.041 million in Q1 2014 |
| Total assets | $1.104 billion | $1.100 billion at December 31, 2014 |
| Loans / deposits | $964.0 million net loans; $834.7 million deposits | $916.0 million net loans; $835.4 million deposits at December 31, 2014 |
| FHLB advances | $133.0 million | $129.0 million at December 31, 2014 |
| Cash and cash equivalents | $19.4 million | $48.6 million at December 31, 2014 |
| Shareholders’ equity | $131.4 million | $129.2 million at December 31, 2014 |
- Net cash from operating activities was $2.8 million; investing activities used $35.5 million, primarily reflecting $48.9 million of net loan growth; financing activities provided $3.5 million. Cash decreased by $29.1 million during the quarter.
- Loan growth was led by commercial real estate, which increased $44.9 million from year-end. Total loans before deferred fees and allowance rose 5.2% to $978.6 million.
- Allowance for loan losses was $11.6 million, or 1.18% of total loans, versus $10.9 million, or 1.17%, at year-end. Nonperforming assets were $3.3 million, or 0.30% of assets, down from $4.3 million, or 0.39%.
- The Bank reported regulatory capital ratios above minimum and “well-capitalized” thresholds. At March 31, its common equity Tier 1 ratio was 12.08%, total capital ratio 13.26%, and Tier 1 leverage ratio 10.99%.
Material changes and management commentary
- Net interest income increased 38.5%, supported mainly by loan growth and the larger average balance sheet. Management reported that FTE net interest margin declined 8 basis points, citing the low-rate environment and higher funding costs.
- Interest expense rose 92.9%, reflecting higher average interest-bearing deposits and borrowings, as well as higher rates on time deposits and borrowed money.
- Net income increased, but diluted EPS fell from $0.28 to $0.26; weighted-average diluted shares increased from about 3.8 million to 7.1 million, following the 2014 IPO and other share issuances.
- Noninterest income declined 22%, primarily because gains and fees from loan sales fell by $339,000. Noninterest expense rose 15%, mainly from higher staffing, incentive accruals, and occupancy costs associated with added branches.
- Management said liquidity was expected to be sufficient for current loan and other commitments. Available resources included $19.4 million of cash and $50.7 million of available-for-sale securities. Commitments to originate loans were $41.3 million; undisbursed approved credit lines were $122.1 million; time deposits of $253.8 million were scheduled to mature within one year.
Outlook, risks, contingencies, and unusual items
- The filing provides no specific earnings, growth, or margin guidance. Management’s outlook is qualified by forward-looking risks and assumptions.
- Key exposures include commercial real estate concentrations and geographic concentration in Connecticut; local property-value declines could adversely affect results. Construction and commercial business lending also carry credit risks.
- Interest-rate risk is described as liability-sensitive. Management reported the Bank remained within internal limits; modeled net interest income declined 5.47% under a +200-basis-point parallel shock, and economic value of equity declined 14.40% under the same shock.
- Management identified fair value of acquired assets, the loan-loss allowance, stock-based compensation, and derivative valuation as estimates susceptible to significant near-term change.
- Three loans totaling $3.274 million were modified as troubled debt restructurings during Q1; the filing said all TDRs were performing under modified terms and none defaulted during the quarter. No material loss was expected from pending legal proceedings; no material subsequent event was identified through May 11, 2015.
- Series C preferred stock dividends were 1.0%; the filing says the rate is scheduled to become fixed at 9.0% per annum in Q2 2016. The company had not paid common dividends.
Important facts for investors to verify
- Whether loan growth, especially commercial real estate growth, is being matched by stable credit performance and adequate provisioning.
- How much of the improvement in net income reflects sustainable core operations versus balance-sheet growth and acquisition effects; also monitor margin and funding-cost trends.
- Whether cash reduction, near-term time-deposit maturities, and undrawn credit commitments alter liquidity needs or reliance on FHLB funding.
- The impact of share dilution on per-share earnings and the future cost of the preferred-stock dividend step-up.
- How interest-rate changes, collateral values, and the Connecticut market concentration affect modeled risk and actual credit outcomes.