Bridgewater Bank Annual Report

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 tables show 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. Changes which are not due solely to volume or rate have been allocated to these categories based on the respective percentage changes in average volume and average rate as they compare to each other. The following table presents the changes in the volume and rate of interest bearing assets and liabilities for the year ended December 31, 2018, compared to the year ended December 31, 2017, and for the year ended December 31, 2017, compared to the year ended December 31, 2016.

Year Ended December 31, 2018

Year Ended December 31, 2017

Compared with

Compared with

Year Ended December 31, 2017 Change Due To: Interest

Year Ended December 31, 2016 Change Due To: Interest

(dollars in thousands)

Volume

Rate Variance Volume

Rate Variance

Interest Earning Assets: Cash Investments . . . . . . . . . . . . . . . . . . . . . . . . . . Investment Securities: Taxable Investment Securities . . . . . . . . . . . . . . . .

(21)

45

24

(57)

16

(41)

507

479

986

506

345

851

Tax Exempt Investment Securities . . . . . . . . . . . . (663) (796) (1,459) 1,981 Total Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . (156) (317) (473) 2,487 641 3,128 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,990 2,019 18,009 14,584 (1,182) 13,402 Federal Home Loan Bank Stock . . . . . . . . . . . . . . 55 79 134 18 3 21 Total Interest Earning Assets. . . . . . . . . . . . . . . . $ 15,868 $ 1,826 $ 17,694 $ 17,032 $ (522) $ 16,510 296 2,277

Interest Bearing Liabilities: Interest Bearing Transaction Deposits. . . . . . . . . . Savings and Money Market Deposits . . . . . . . . . . Time Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Brokered Deposits . . . . . . . . . . . . . . . . . . . . . . . . . Federal Funds Purchased . . . . . . . . . . . . . . . . . . . . Notes Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FHLB Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . Subordinated Debentures . . . . . . . . . . . . . . . . . . . .

38

208

246

85

(97)

(12)

753 1,710 2,463 200 1,171 1,371 697 1,475 2,172

602 742 784

205 122

807 864

321 1,105

160

308

468

40

73

113

(74)

12

(62)

(57)

(5)

(62)

407 754

431

838 819

26

85

111 733

65

841 (108)

Total Interest Bearing Liabilities. . . . . . . . . . . . . 2,935 5,380 8,315 3,063 596 3,659 Net Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,933 $ (3,554) $ 9,379 $ 13,969 $ (1,118) $ 12,851

Interest Income, Interest Expense, and Net Interest Margin 2018 Compared to 2017

Net interest income was $64.7 million for the year ended December 31, 2018, an increase of $10.6 million, or 19.5%, compared to $54.2 million for the year ended December 31, 2017. 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, 2018 was 3.72%, compared to 3.92% for the year ended December 31, 2017, a decrease of 20 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. Furthermore, the lower statutory federal tax rate reduced the net interest income tax equivalent adjustment by six basis points.

51