Bridgewater Bank Annual Report

lending, which includes single family residential construction loans, land development, finished lots and raw land loans, and commercial and multifamily construction. In recent years, the Bank has increased its commercial and industrial lending. This portfolio includes a mix of term equipment loans, revolving lines of credit and lease transactions to support the needs of local businesses. Additionally, the Bank has a niche within the tax credit investment market whereby it bridges equity capital receivables on various tax credit projects. The Bank focuses on lending to borrowers located or investing in the Twin Cities MSA across a diverse range of industries and property types. The Bank does not generally lend outside of its market, however, as a relationship lender, it will, from time to time, finance properties located outside of Minnesota for its existing customers in select situations. Growth over the last several years has been partially attributable to the Bank’s ability to cultivate relationships with certain individuals and businesses that have resulted in a concentration of large loans to a small number of borrowers. The Bank has established an informal, internal limit on loans to one borrower, principal or guarantor, but may, under certain circumstances, consider going above this internal limit in situations where management’s understanding of the industry, the borrower’s business and the credit quality of the borrower are commensurate with the increased size of the relationship. Deposits. The Bank has developed a suite of deposit products targeted at commercial clients, including a variety of remote deposit and cash management products, along with commercial transaction accounts. The Bank also offers consumers traditional retail deposit products through the branch network, along with online, mobile and direct banking channels. Many of the deposits do not require a branch visit, creating efficiencies across the Bank’s branch network. The Bank has developed relationships with certain individuals and businesses that have resulted in a concentration of large deposits from a small number of clients. As of December 31, 2018, the 10 largest depositor relationships accounted for approximately 18.1% of total deposits. This high concentration of depositors presents a risk to liquidity if one or more of them decides to change its relationship with the Bank and to withdraw all or a significant portion of their accounts. While the Bank is committed to growing core deposits, brokered deposits are used as a strategic component of the funding strategy and interest rate risk management. The Bank’s Asset Liability Management, or ALM, Committee monitors the size of this portfolio. As core deposits have grown, brokered deposits have remained a consistent part of the portfolio. Competitive Strengths As the Company seeks to continue to grow the business, the following strengths are believed to provide a competitive advantage over other financial institutions operating in its market area: Commercial Banking Expertise. Management believes we have earned the reputation as one of the prominent commercial real estate lenders in the Twin Cities MSA due in large part to the strength of the lending team. The Company has an experienced, professional team of 17 commercial lenders, and believes the ability to drive quality, commercial loan growth is a result of being able to provide each client with access to a knowledgeable, experienced and dedicated banker. Due to their market knowledge and understanding of clients’ businesses, the lenders are well positioned to provide timely and relevant feedback to clients. Management believes the responsive credit culture separates us from competitors. Multifamily Lending Niche. The Company specializes in multifamily lending, which typically represents between 20% to 25% of the total loan portfolio. This lending niche lowers the risk profile of the overall loan portfolio due to its lower historical loss rates when compared to other loan types.

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