Bankwell Financial Group, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; balance-sheet comparisons are to December 31, 2020. The company is a Connecticut-focused bank holding company whose lending is concentrated in commercial real estate and commercial business loans.
Financial performance and position
| Metric | Q1 2021 | Comparable / prior period |
|---|---|---|
| Net income | $5.7 million | $1.4 million, Q1 2020 |
| Diluted EPS | $0.71 | $0.17, Q1 2020 |
| Net interest income | $14.7 million | $13.3 million, Q1 2020 |
| Net interest margin | 2.74% | 2.98%, Q1 2020 |
| Provision for loan losses | $0.3 million credit | $3.2 million provision, Q1 2020 |
| Noninterest income / expense | $2.0 million / $9.6 million | $1.1 million / $9.7 million, Q1 2020 |
| Return on average assets / equity | 1.02% / 12.67% | 0.29% / 3.03%, Q1 2020 |
At March 31, 2021, total assets were $2.24 billion, net loans $1.65 billion, deposits $1.86 billion, and shareholders’ equity $187.9 million. Cash and cash equivalents were $362.0 million; available-for-sale securities were $83.2 million. FHLB advances were $125.0 million and subordinated debentures were $25.3 million. Cash flows were $16.7 million provided by operating activities, $44.3 million used in investing, and $20.0 million used in financing; cash and equivalents decreased $47.6 million during the quarter.
Gross loans increased $47.6 million from year-end, while deposits rose $32.5 million. The allowance for loan losses was $20.5 million, or 1.23% of gross loans, versus $21.0 million, or 1.29%, at year-end. Nonperforming assets were $31.4 million (1.40% of assets), down from $33.4 million (1.48%). The Bank reported regulatory capital ratios above well-capitalized thresholds; its Common Equity Tier 1 ratio was 11.02% and total capital ratio was 12.17%.
Material changes and drivers
- Net interest income rose 10.3% year over year as lower deposit funding costs more than offset reduced interest income. Net interest margin nonetheless fell 24 basis points, primarily due to excess liquidity.
- Earnings benefited from a $0.3 million credit to the loan-loss provision, compared with a $3.2 million provision a year earlier. Management attributed the improvement mainly to improving economic trends, partly offset by increased reserves on impaired loans and loan growth.
- Noninterest income increased 82.5%, including $0.5 million from resumed SBA loan sales and a one-time $0.9 million federal COVID-19 employee retention credit. The comparison was also affected by $0.4 million of non-recurring swap fees in Q1 2020.
- Noninterest expense was nearly flat year over year. Lower salaries reflected workforce reductions and a voluntary early retirement plan; occupancy and equipment costs and FDIC insurance expense increased.
- Shareholders’ equity increased $11.3 million from year-end, driven by net income and a $7.7 million favorable after-tax change in accumulated other comprehensive income, largely from interest-rate swap marks. Dividends and share repurchases partly offset the increase.
Outlook, risks, and unusual items
The filing provides no quantitative earnings or revenue guidance. Management said recovery from COVID-19 disruptions was expected as vaccinations expanded and restrictions eased, but emphasized continuing uncertainty about the pandemic’s duration and business impact.
Key risks include the portfolio’s commercial real estate concentration and geographic exposure, borrower repayment capacity, collateral values, and interest-rate sensitivity. At March 31, $31.4 million of loans were on nonaccrual; total loans past due were 2.39% of gross loans, compared with 0.93% at year-end. One $2.7 million loan more than 90 days past due remained accruing because of an administrative delay in processing a modification. CARES Act deferrals still applied to $0.3 million of loans.
The company described itself as liability sensitive. Its estimated economic value of equity declined 26.8% under a 100-basis-point rate decrease, which management said was outside policy parameters; management took no further action, citing the Bank’s well-capitalized status and its view that the scenario was extremely unlikely. These simulations depend on assumptions and may not predict actual results.
Other notable items: the company recorded a $0.9 million employee retention credit; it had recorded a separate $3.9 million office-consolidation, contract-termination, and severance charge in Q4 2020. The board declared a $0.14-per-share dividend payable May 24, 2021. After quarter-end, the company committed to retire $10.0 million of subordinated debt on May 15, 2021. Management reported effective disclosure controls, no material change in internal controls, no material change in previously disclosed risk factors, and no expected material loss from pending legal proceedings.
Important facts for investors to verify
- How much of Q1 earnings growth is sustainable after excluding the one-time employee retention credit, SBA loan-sale gains, and unusually favorable provision comparison.
- Trends in commercial real estate credit quality, past-due and impaired loans, nonaccrual balances, and the adequacy of the loan-loss allowance.
- The cost, stability, and concentration of funding, including brokered deposits, and the company’s liquidity position after the planned $10 million debt retirement.
- How interest-rate movements affect net interest margin, swap-related accumulated comprehensive income, and the disclosed downside in economic value of equity.
- Whether loan growth and the expected economic recovery materialize while COVID-19 uncertainty and regional real estate risks remain.