Bankwell Financial Group, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are primarily with FY2020. This is an annual report, not a standalone fourth-quarter earnings report. Bankwell is a Connecticut-based bank holding company operating through Bankwell Bank, focused chiefly on commercial and middle-market lending in Connecticut and the New York metropolitan area.
Financial performance and condition
| Metric | FY2021 / Dec. 31, 2021 | FY2020 / Dec. 31, 2020 |
|---|---|---|
| Net income | $26.6 million | $5.9 million |
| Diluted EPS | $3.36 | $0.75 |
| Net interest income | $67.9 million | $54.8 million |
| Net interest margin | 3.17% | 2.77% |
| Total revenue (company-defined non-GAAP measure) | $73.5 million | $57.7 million |
| Noninterest expense | $39.7 million | $42.8 million |
| Gross loans | $1.895 billion | $1.626 billion |
| Deposits | $2.124 billion | $1.827 billion |
| Total assets | $2.456 billion | $2.254 billion |
| Total shareholders’ equity | $202.0 million | $176.6 million |
| FHLB advances / subordinated debt | $50.0 million / $34.4 million | $175.0 million / $25.3 million |
Return on average assets was 1.17% (0.28% in 2020); return on average common equity was 13.86% (3.35%); and the efficiency ratio was 53.9% (73.9%). Tangible book value per share, a non-GAAP measure, rose to $26.19 from $22.43. The Bank’s year-end capital ratios included a 9.94% Tier 1 leverage ratio, 11.18% Tier 1 risk-based ratio, and 12.00% total risk-based capital ratio; it met applicable capital requirements and was well capitalized.
Cash flow: Operating activities provided $34.6 million, investing activities used $270.0 million, and financing activities provided $170.6 million. Cash and cash equivalents declined $64.9 million to $344.7 million, principally as loan growth used funds. The filing does not present a free-cash-flow measure, which is not a typical primary performance metric for a bank.
Material changes and drivers
- Net income increased $20.7 million year over year. Management attributed the improvement primarily to lower deposit interest costs, loan growth, resumed loan sales, reduced noninterest expense, and lower credit-loss provisioning compared with the elevated COVID-related reserves in 2020.
- Net interest income rose $13.1 million; the 40-basis-point margin expansion reflected lower rates paid on interest-bearing deposits and a larger proportion of noninterest-bearing deposits. Average earning assets grew 8.0%, while their yield eased to 3.75% from 3.85%.
- Provision for loan losses shifted to a $57,000 credit from a $7.6 million provision. The allowance fell to $16.9 million, or 0.89% of loans, from $21.0 million, or 1.29%. FY2021 included $4.1 million of net charge-offs, mainly a $4.0 million commercial real estate charge-off.
- Noninterest income increased $2.8 million to $5.7 million, largely due to $2.7 million of gains and fees from loan sales. Management also cited a one-time $0.9 million federal COVID payroll tax credit and a $0.2 million loss on sale of the former headquarters.
- Noninterest expense declined $3.1 million. Lower salary expense reflected a reduced workforce after the 2020 voluntary early retirement plan and other actions; lower data-processing expense reflected a $1.1 million one-time legacy-vendor termination charge in 2020.
- Deposits grew 16%, with management citing commercial core-deposit gathering. Noninterest-bearing deposits increased to $399.0 million from $270.2 million. FHLB advances declined $125.0 million, partly replaced by lower-cost brokered deposits.
Credit, liquidity, outlook, and risks
- Commercial real estate represented 71.6% of loans; commercial business lending represented 18.5%. Gross loans excluding PPP loans increased $303.9 million year over year. PPP balances declined to $0.2 million from $34.8 million.
- Nonperforming assets improved to 0.68% of assets from 1.48%; nonaccrual loans declined to $16.6 million from $33.4 million. However, loans 30 or more days past due rose to $32.6 million from $15.1 million, including a $10.5 million commercial real estate loan with an extension in progress. The company reported that $4.9 million of past-due loans had been brought current by January 31, 2022.
- Troubled debt restructurings increased to $25.8 million from $9.1 million. No loans remained on active COVID-related deferral at year-end. The allowance’s adequacy depends on management estimates and qualitative judgments; the auditor identified these qualitative allowance adjustments as a critical audit matter.
- Year-end cash and cash equivalents were $344.7 million. The Bank also reported $349.1 million of immediately available additional FHLB borrowing capacity and $62.0 million of other stated credit lines, none outstanding. Total loan commitments, including undisbursed construction loans and unused home-equity lines, were $396.9 million, up from $237.1 million.
- Interest-rate simulations described the Bank as liability-sensitive. The modeled effect of an immediate 100-basis-point rate decline on economic value of equity was negative 21.4%, outside the company’s policy parameter; management said it viewed that scenario as unlikely and took no further action. Model outcomes depend on assumptions about deposit behavior, prepayments, and rates.
- The company issued $35.0 million of fixed-to-floating subordinated debt at 3.25% through October 2026, then three-month Term SOFR plus 233 basis points, and retired its remaining 2015 notes. It had not determined the most applicable replacement for LIBOR-linked instruments and disclosed transition and operational risks.
- Management described continued uncertainty from COVID-19 and noted that future effects depend on the pandemic and economic conditions. The filing provides no quantitative earnings, loan-growth, or margin guidance.
- Key risks include commercial real estate and borrower concentrations, regional economic exposure, credit losses and collateral values, interest-rate changes, competition for deposits, cyber and third-party system risks, regulatory requirements, and execution/integration risks from potential acquisitions. Management reported no legal proceedings expected to have a material adverse effect.
Other notable disclosures
The company paid $5.0 million in common dividends and repurchased $5.1 million of stock during 2021. The board declared a $0.20-per-share dividend payable in February 2022, an 11% increase over the prior quarter. The company also reported purchases of 109,564 shares after year-end through March 7, 2022. The financial statements received an unqualified audit opinion; management concluded internal control over financial reporting was effective, but the auditor did not attest to internal controls.
Investor verification priorities
- Review the $10.5 million past-due commercial real estate loan, its extension status, subsequent payment performance, and related collateral valuation.
- Assess the increase in TDRs and past-due loans alongside the lower allowance ratio, FY2021 charge-offs, and the assumptions underlying the allowance estimate.
- Check commercial real estate concentration, large borrower exposures, and the local Connecticut/New York-area economic outlook.
- Examine deposit mix and brokered funding dependence, upcoming time-deposit maturities, available borrowing capacity, and the funding of $396.9 million in commitments.
- Evaluate rate sensitivity, swap positions and collateral requirements, and the company’s LIBOR transition plans and subordinated-note reset terms.
- Separate recurring earnings from loan-sale income, the payroll tax credit, and prior-year restructuring/vendor charges; confirm whether margin and expense improvements persist.