Bridgewater Bancshares, Inc. Annual Report

(2) Average loan balances include nonaccrual loans. Interest income on loans includes amortization of deferred loan fees, net of deferred loan costs. (3) Net interest margin includes the tax equivalent adjustment and represents the annualized results of: (i) the difference between interest income on interest earning assets and the interest expense on interest bearing liabilities, divided by (ii) average interest earning assets for the period. Interest Rates and Operating Interest Differential Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest earning assets and interest bearing liabilities, as well as changes in average interest rates. The following table presents the effect that these factors had on the interest earned on interest earning assets and the interest incurred on interest bearing liabilities. The effect of changes in volume is determined by multiplying the change in volume by the previous period’s average rate. Similarly, the effect of rate changes is calculated by multiplying the change in average rate by the previous period’s volume. The changes not attributable specifically to either volume or rate have been allocated to the changes due to volume. The following table presents the changes in the volume and rate of interest bearing assets and liabilities for the year ended December 31, 2019, compared to the year ended December 31, 2018, and for the year ended December 31, 2018, compared to the year ended December 31, 2017.

Year Ended December 31, 2019

Year Ended December 31, 2018

Compared with

Compared with

Year Ended December 31, 2018

Year Ended December 31, 2017

Change Due To:

Interest

Change Due To:

Interest

(dollars in thousands)

Volume Rate Variance Volume

Rate Variance

Interest Earning Assets: Cash Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment Securities: Taxable Investment Securities . . . . . . . . . . . . . . . . . Tax Exempt Investment Securities . . . . . . . . . . . . . (645) Total Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . (190) 1,163 255 250

505

(21)

45

24

455 1,021 1,476

507

479

986

142 (503) (663) (796) (1,459)

973 (156) (317) (473) Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,425 1,394 16,819 15,990 2,019 18,009 Federal Home Loan Bank Stock . . . . . . . . . . . . . . . 63 86 149 55 79 134 Total Interest Earning Assets. . . . . . . . . . . . . . . . . $ 15,553 $ 2,893 $ 18,446 $ 15,868 $ 1,826 $ 17,694 Interest Bearing Liabilities: Interest Bearing Transaction Deposits. . . . . . . . . . . 165 834 999 38 208 246 Savings and Money Market Deposits . . . . . . . . . . . 807 2,259 3,066 753 1,710 2,463 Time Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 938 1,710 2,648 200 1,171 1,371 Brokered Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 615 697 1,312 697 1,475 2,172 Federal Funds Purchased . . . . . . . . . . . . . . . . . . . . . (478) 27 (451) 160 308 468 Notes Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (75) (18) (93) (74) 12 (62) FHLB Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,069 620 1,689 407 431 838 Subordinated Debentures . . . . . . . . . . . . . . . . . . . . . 7 (19) (12) 754 65 819 Total Interest Bearing Liabilities. . . . . . . . . . . . . . 3,048 6,110 9,158 2,935 5,380 8,315 Net Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,505 $ (3,217) $ 9,288 $ 12,933 $ (3,554) $ 9,379

Interest Income, Interest Expense, and Net Interest Margin 2019 Compared to 2018

Net interest income was $74.1 million for the year ended December 31, 2019, an increase of $9.4 million, or 14.5%, compared to $64.7 million for the year ended December 31, 2018. The increase in net interest income was largely attributable to growth in average interest earning assets, particularly strong organic growth in the loan portfolio. Net interest margin (on a fully tax-equivalent basis) for the year ended December 31, 2019 was 3.59%, compared to 3.72% for the year ended December 31, 2018, a decrease of 13 basis points. While net interest margin has benefitted from the repricing of variable rate loans and the origination of new loans at higher rates, this was outpaced by increased balances and rates on deposits and borrowings.

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