Bankwell Financial Group, Inc. — 2023 Form 10-K
Business context and reporting period. This is the annual report for the fiscal year ended December 31, 2023, not a standalone fourth-quarter report. Bankwell is a Connecticut bank holding company operating through Bankwell Bank, with nine branches and a commercial-lending focus. At year-end, it reported $3.22 billion in assets, $2.72 billion in gross loans, $2.74 billion in deposits, and $265.8 million in shareholders’ equity.
Financial performance and position
| Metric | 2023 | 2022 |
|---|---|---|
| Net interest income | $94.5 million | $94.7 million |
| Provision for loan losses | $0.9 million | $5.4 million |
| Noninterest income | $4.8 million | $3.0 million |
| Noninterest expense | $50.4 million | $44.4 million |
| Net income | $36.7 million | $37.4 million |
| Diluted EPS | $4.67 | $4.79 |
| Net interest margin | 2.98% | 3.78% |
| Efficiency ratio | 50.8% | 45.4% |
| Return on average assets | 1.13% | 1.44% |
| Operating cash flow | $31.9 million | $82.7 million |
- Interest income increased to $188.5 million from $117.9 million, but interest expense rose to $94.0 million from $23.2 million, leaving net interest income nearly flat. Management attributed margin compression to higher funding costs, partly offset by higher earning-asset yields.
- Total revenue, defined by the company as net interest income plus noninterest income, increased 1.6% to $99.3 million. Higher loan-sale gains and fees and service charges contributed to the increase.
- Noninterest expense rose 14%, primarily from salaries and benefits and FDIC insurance expense. FDIC insurance expense increased 154% to $4.2 million.
- Gross loans increased 1.6% to $2.72 billion; deposits declined 2.3% to $2.74 billion; and total assets declined to $3.22 billion from $3.25 billion. Cash and cash equivalents fell to $269.2 million from $355.7 million.
- Year-end debt included $90.0 million of FHLB advances and $69.2 million of subordinated debentures. The FHLB advances mature in 2024; the subordinated notes have stated maturities in 2031 and 2032.
- Shareholders’ equity rose to $265.8 million. The Bank reported a 9.81% Tier 1 leverage ratio, 11.30% Tier 1 risk-based capital ratio, and 12.32% total risk-based capital ratio; it stated that it exceeded applicable well-capitalized thresholds.
Material changes and asset quality
- Nonperforming loans increased to $49.2 million from $16.4 million; nonperforming assets rose to 1.53% of assets from 0.51%. Nonperforming loans were 1.81% of total loans, versus 0.61% a year earlier.
- The allowance for credit losses on loans was $27.9 million, or 1.03% of loans, compared with $22.4 million, or 0.84%. Net charge-offs were 0.03% of average loans. Adoption of CECL on January 1, 2023 reduced beginning retained earnings by $4.9 million after tax.
- Commercial real estate made up about 72% of gross loans. Office-backed loans totaled $193.0 million; 96.9% were pass-rated, with two relationships totaling $6.0 million on nonaccrual. Multifamily loans totaled $257.5 million and were reported as entirely pass-rated.
- The company expanded CRE monitoring, portfolio-management resources, covenant tracking, Board reporting, and third-party loan review. It also conducted a detailed review of its general office portfolio.
- Available-for-sale securities had a $7.5 million net unrealized loss at year-end, improved from $9.2 million in 2022. No allowance for credit losses on securities was recorded.
Liquidity, outlook, risks, and unusual items
- Deposits remained the primary funding source. Brokered CDs totaled $860.5 million, down from $976.5 million; brokered money-market deposits were $91.4 million, up from $41.8 million. Management reported $344.4 million of additional immediate FHLB borrowing capacity based on eligible collateral.
- Undrawn commitments to extend credit totaled $333.5 million, down from $561.0 million. These commitments may expire unused and are not necessarily expected cash outflows.
- Management’s interest-rate simulations indicated the Bank remained liability-sensitive. Under parallel-shock scenarios, estimated one-year net interest income declined 2.7% for a 100-basis-point rise and 8.1% for a 300-basis-point rise. Actual outcomes may differ from simulations.
- No quantitative earnings or margin guidance was provided. Management emphasized relationship-driven growth, technology and operating efficiency, disciplined risk management, and potential strategic acquisitions.
- Key risks include CRE and borrower credit deterioration, loan maturities and refinancing, deposit pricing and funding competition, interest-rate exposure, real-estate values, liquidity volatility, cybersecurity and third-party systems, and regulatory or FDIC assessment costs. The company said it was not directly affected by 2023 bank failures but noted broader sector volatility.
- Effective March 31, 2024, the company expected to become subject to larger-company capital requirements after exceeding the $3 billion asset threshold for the Small Bank Holding Company Policy Statement. The filing does not quantify the expected effect.
- The company adopted CECL in 2023, recording the $4.9 million after-tax opening retained-earnings reduction. The auditor issued unqualified opinions on the financial statements and internal controls; management and the auditor reported effective internal control over financial reporting.
- Subsequent events: the Board declared a $0.20-per-share dividend payable February 23, 2024, and the company repurchased 17,239 shares through March 11, 2024 at a weighted-average price of $25.12. A director who chaired the Audit Committee died in February 2024; an interim chair was appointed.
- Management reported no legal proceedings expected to have a material adverse effect. The filing provides no material litigation contingency amount.
Important facts for investors to verify
- Whether the rise in nonaccrual loans—especially commercial real estate and commercial business credits—leads to further downgrades, charge-offs, or reserve increases.
- CRE maturity, refinancing, occupancy, and collateral trends, including performance of office and residential-care exposures.
- Deposit retention, brokered-funding dependence, deposit costs, and available contingent liquidity as funding conditions change.
- Whether asset yields can offset funding-cost pressure and stabilize net interest margin, earnings, and the efficiency ratio.
- The assumptions and sensitivity behind CECL reserves, including economic forecasts, peer scaling, and qualitative adjustments.
- The capital and compliance implications of the larger-company requirements effective March 31, 2024, and the effect of future capital distributions or repurchases.