Bankwell Financial Group, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report; the filing text does not provide a clear standalone fourth-quarter income statement. Bankwell Financial Group is a Connecticut bank holding company operating through Bankwell Bank, focused mainly on commercial banking in Connecticut and selected relationship-based lending outside its market.
Financial performance and position
| Metric | 2022 | 2021 |
|---|---|---|
| Net interest income | $94.7 million | $67.9 million |
| Net income | $37.4 million | $26.6 million |
| Diluted earnings per share | $4.79 | $3.36 |
| Net interest margin | 3.78% | 3.17% |
| Efficiency ratio | 45.4% | 53.9% |
| Return on average assets | 1.44% | 1.17% |
| Return on average common equity | 16.72% | 13.86% |
- Net interest income rose $26.9 million, chiefly from loan growth and higher loan yields, partly offset by higher deposit funding costs. Interest expense increased 72% to $23.2 million.
- Provision for loan losses was $5.4 million, versus a $57,000 credit in 2021. Noninterest income fell 46% to $3.0 million, while noninterest expense rose 12% to $44.4 million.
- Cash provided by operating activities was $82.7 million; investing activities used $811.2 million, primarily reflecting $838.0 million of net loan growth; financing activities provided $739.5 million. Cash and cash equivalents increased $11.0 million to $355.7 million.
- At year-end, total assets were $3.25 billion, gross loans $2.68 billion, deposits $2.80 billion, and shareholders’ equity $238.5 million. Loans grew 41% and deposits 32% from 2021.
- Loan mix remained concentrated in commercial real estate: $1.92 billion, or 71.8% of loans. Commercial business loans were $520.4 million; construction loans were $155.2 million.
- Funding and debt: brokered CDs were $976.5 million, up from $249.4 million; FHLB advances were $90.0 million; subordinated debt had $70.0 million face value ($69.0 million carrying value). The 2022 issuance added $35.0 million of 6% fixed-to-floating subordinated notes due 2032.
- Liquidity included $355.7 million of cash and cash equivalents and $402.2 million of additional immediate FHLB borrowing capacity against pledged eligible loans. Time deposits totaling $1.08 billion were scheduled to mature within one year.
- Bank regulatory capital ratios at year-end were 10.28% common equity Tier 1, 10.28% Tier 1 risk-based, 11.07% total risk-based, and 9.88% Tier 1 leverage. The Bank met applicable capital requirements; the parent’s Tier 1 risk-based ratio was 8.21%, below the stated 8.50% minimum including the capital conservation buffer.
Material changes versus 2021
- Net income rose 40.8%, supported by stronger net interest income and a larger earning-asset base. Average loans increased 23.4%, and the yield on earning assets rose to 4.64% from 3.75%.
- Funding costs increased as rates rose: the average cost of interest-bearing deposits increased to 1.07% from 0.65%. Management noted seven Federal Reserve rate increases in 2022.
- Credit indicators improved in some respects: nonperforming assets declined to 0.51% of assets from 0.68%, past-due loans fell to 0.60% of loans from 1.72%, and the allowance rose to $22.4 million from $16.9 million. The allowance-to-loans ratio declined to 0.84% from 0.89% as the loan book expanded.
- Available-for-sale securities had $8.7 million of gross unrealized losses at year-end, versus a $2.4 million gross unrealized gain position in 2021. Management said it intended and was able to hold securities until recovery or maturity.
- Shareholders’ equity increased $36.5 million. Net income and favorable swap marks contributed, partly offset by dividends of $6.2 million and share repurchases of $5.5 million. The annual dividend per share increased to $0.80 from $0.64.
Outlook, risks and unusual items
- Outlook: Management described continued focus on organic growth, client relationships, selective acquisitions, scalable infrastructure, and disciplined risk management. The filing provides no specific earnings, loan-growth, margin, or other numerical guidance.
- Interest-rate risk: Management characterized the balance sheet as liability-sensitive. In the year-end parallel-shock simulation, estimated one-year net interest income declined 2.7% for a 100-basis-point rise, 6.0% for 200 basis points, and 8.9% for 300 basis points. Results depend on assumptions about deposit pricing, prepayments, and balance-sheet behavior.
- Credit and concentration risk: Commercial real estate, construction, and commercial business lending carry higher risk than consumer lending. The five largest borrower relationships ranged from approximately $83.7 million to $127.5 million. The filing also flags portfolio seasoning, real estate values, borrower cash flows, and economic conditions as risks.
- CECL: Adopted January 1, 2023. The company estimated initial pre-tax increases of $4.6–$5.6 million to the loan allowance and $1.1–$1.4 million to the unfunded-commitment reserve, with corresponding after-tax reductions to opening retained earnings. Subsequent effects depend on portfolio and economic conditions.
- Unusual expenses and operations: 2022 noninterest expense included $0.6 million of deposit-account losses, including $0.3 million associated with two identity-theft events. Professional-services expense rose partly due to consulting for a core-system conversion. A Wilton branch closed in October 2022; a replacement Stamford branch was approved to open in March 2023.
- Other items: The company issued $35 million of subordinated notes in August 2022. It reported no material pending litigation and no current tax audits. Its financial statements received an unqualified audit opinion; the auditor identified qualitative allowance-for-loan-loss adjustments as a critical audit matter. The auditor did not attest to internal-control effectiveness.
Important facts for investors to verify
- Whether rapid loan growth—especially in commercial real estate—and large borrower exposures remain consistent with underwriting standards and future credit performance.
- How CECL adoption affected first-quarter 2023 allowances, retained earnings, capital ratios, and later provision expense.
- Whether brokered-CD dependence and large near-term time-deposit maturities increase deposit costs or liquidity pressure, and how available borrowing capacity changes.
- Whether rising rates improve asset yields enough to offset deposit repricing, given the bank’s liability-sensitive interest-rate profile.
- How the securities portfolio’s unrealized losses, swap valuations, and related accumulated other comprehensive income evolve as rates change.
- Whether growth-related expenses, core-system conversion costs, and operational losses normalize, and whether reported efficiency improvements persist.