Bankwell Financial Group, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet comparisons are to December 31, 2023. Bankwell is a Connecticut-based bank holding company operating through Bankwell Bank, focused primarily on commercial real estate, commercial business, and consumer banking. Amounts below are in U.S. dollars; financial amounts are rounded to millions unless stated otherwise.
Financial performance and condition
- Earnings and revenue: Net income was $3.8 million, or $0.48 per diluted share, versus $10.4 million, or $1.33, a year earlier. Revenue (net interest income plus noninterest income) fell to $22.1 million from $27.1 million. Returns on average assets and average equity were 0.47% and 5.59%, respectively, versus 1.30% and 17.48%.
- Net interest: Net interest income was $21.1 million versus $25.5 million; net interest margin declined to 2.71% from 3.24%. Interest income increased 9.0% to $48.3 million, but interest expense rose $8.4 million to $27.1 million, principally from higher deposit rates. Average cost of interest-bearing deposits rose to 4.28% from 2.89%.
- Other income and expenses: Noninterest income decreased 40% to $0.9 million, primarily because loan-sale gains fell to $0.3 million from $0.9 million. Noninterest expense increased 4.8% to $13.3 million. Management attributed the increase mainly to director fees, including timing and accelerated vesting related to a director’s death. The effective tax rate was 26.0%, compared with 23.4%.
- Assets and loans: Total assets were $3.16 billion, down 1.9% from year-end. Gross loans declined $39.0 million (1.4%) to $2.68 billion, with construction loans down $31.4 million and commercial real estate loans down $20.0 million; commercial business and consumer balances increased.
- Deposits and funding: Deposits declined $63.2 million (2.3%) to $2.67 billion. Noninterest-bearing deposits increased to $376.2 million, while interest-bearing deposits decreased. Brokered CDs were $780.5 million and brokered money-market deposits $51.4 million. FHLB advances remained $90.0 million; subordinated debentures were $69.3 million carrying value.
- Cash flow and liquidity: Operating activities provided $9.0 million and investing activities provided $35.2 million, including a $30.9 million net decrease in loans. Financing activities used $65.7 million, including deposit outflows, dividends, and repurchases. Cash and equivalents decreased $21.5 million to $247.6 million. The Bank reported $327.8 million of additional immediate FHLB borrowing availability and multiple other borrowing facilities.
- Capital and equity: Shareholders’ equity was $268.0 million, up $2.3 million. The Bank reported regulatory capital ratios above applicable minimums; its March 31 table gives CET1 11.60%, Tier 1 risk-based 11.60%, total risk-based 12.63%, and Tier 1 leverage 10.09%. The Company’s corresponding table reports 9.47%, 9.47%, 12.96%, and 8.28%. The Company became subject to larger-company capital requirements effective March 31, 2024.
Material changes and asset quality
- Provision for credit losses increased to $3.7 million from $0.8 million, primarily reflecting $3.7 million of gross charge-offs. Net charge-offs were $3.7 million, compared with $0.4 million a year earlier. The allowance for loan losses was $28.0 million, or 1.04% of gross loans, versus 1.03% at year-end.
- Nonaccrual loans decreased to $46.5 million from $49.2 million; nonperforming assets were 1.48% of total assets versus 1.53%. Total past-due loans increased to $38.6 million from $21.3 million, and loans 90 days or more past due rose to $21.3 million from $11.4 million. No loans over 90 days past due were still accruing interest.
- Commercial real estate was approximately 72% of gross loans. Non-owner-occupied properties represented 63.85% of the CRE portfolio. Office loans totaled $189.6 million, or 7.1% of total loans; management reported 98.4% of that portfolio as pass-rated. CRE collateral and borrower performance remain important risk exposures.
- The investment portfolio had an approximately $8.0 million net unrealized loss at March 31, versus $7.5 million at year-end. Management reported no expected credit losses on securities and stated it had the intent and ability to retain securities in unrealized-loss positions until recovery or maturity.
Outlook, risks, and unusual items
- The filing provides no specific earnings, loan-growth, or margin guidance. Management describes its priorities as client-focused service, organic growth and selective acquisitions, scalable infrastructure, and disciplined risk management.
- Management’s interest-rate simulations show the Bank remains liability-sensitive: higher rates are modeled to reduce net interest income, although the modeled declines improved versus year-end. Results depend on assumptions about deposit pricing and attrition, loan and securities prepayments, and future rates; actual outcomes may differ.
- Key disclosed risks include commercial real estate concentrations and property-value declines, borrower repayment capacity, competition for deposits and funding costs, interest-rate changes, and uncertainty in credit-loss and fair-value estimates. Approximately 71% of deposits were FDIC-insured; the filing also reports $110.6 million insured through FHLB standby letters of credit.
- The Company repurchased 36,180 shares during the quarter for $0.9 million at a weighted average $25.38 per share. Subsequent to quarter-end it repurchased 9,744 shares at a weighted average $25.14. The Board declared a $0.20-per-share dividend payable May 21, 2024.
- Management reported no material expected loss from pending legal proceedings and no material changes to previously disclosed risk factors. Disclosure controls were deemed effective, with no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Reconcile the capital-ratio labels: the MD&A narrative appears to transpose Tier 1 and total-capital figures relative to the regulatory-capital table.
- Track deposit retention, brokered-funding reliance, large time-deposit maturities, and funding costs as deposits declined and interest expense increased.
- Monitor the increase in past-due loans and 90-day delinquencies, the quarter’s CRE charge-offs, and changes in nonaccrual and criticized loans.
- Assess whether net interest margin stabilizes and whether lower loan balances and reduced loan-sale gains persist.
- Review the assumptions supporting the allowance for credit losses, CRE collateral valuations, and the reported unrealized securities losses.