Bridgewater Bancshares, Inc._2023 Annual Report

The following table presents a summary of interest and fees recognized on loans for the year ended December 31, 2023 and, excluding PPP loans, for the years ended December 31, 2022 and 2021:

For the year ended December 31,

2023

2022

2021

Interest ................. Fees ................... Yield on Loans . . . . . . . .

5.11 %

4.38 %

4.33 %

0.10

0.20

0.21

5.21 %

4.58 %

4.54 %

Interest Expense. Interest expense on interest bearing liabilities was $117.2 million for the year ended December 31, 2023, an increase of $83.2 million, or 244.7%, compared to $34.0 million for the year ended December 31, 2022. The increase was primarily due to growth and upward repricing of the deposit and FHLB advances portfolios in the higher interest rate environment. Interest expense on deposits was $96.0 million for the year ended December 31, 2023, compared to $23.4 million for the year ended December 31, 2022. The $72.7 million, or 310.8%, increase in interest expense on deposits was primarily due to the upward repricing of the deposit portfolio in the higher interest rate environment and the average balance of interest bearing deposits increasing by $523.6 million, or 23.6%. The cost of total deposits was 2.73% for the year ended December 31, 2023, a 198 basis point increase, compared to 0.75% for the year ended December 31, 2022. The increase was primarily due to the upward repricing of the deposit portfolio in the higher interest rate environment. Interest expense on borrowings was $21.1 million for the year ended December 31, 2023, an increase of $10.5 million, compared to $10.6 million for the year ended December 31, 2022. This increase was primarily due to the increased utilization of federal funds purchased and FHLB advances in the higher interest rate environment. 2022 Compared to 2021 Net interest income was $129.7 million for the year ended December 31, 2022, an increase of $20.2 million, or 18.4%, compared to $109.5 million for the year ended December 31, 2021. The increase in net interest income was primarily due to growth in average interest earning assets and higher yields on investment securities and core loans, offset partially by higher rates paid on deposits and borrowings and lower PPP fee recognition. Net interest margin (on a fully tax-equivalent basis) for the year ended December 31, 2022 was 3.45%, a decrease of nine basis points, compared to 3.54% for the year ended December 31, 2021. Core net interest margin (on a fully tax-equivalent basis), a non-GAAP financial measure which excludes the impact of loan fees and PPP balances, interest, and fees, for the year ended December 31, 2022 was 3.27%, a one basis point decrease from 3.28% for the year ended December 31, 2021. The Company remains focused on managing the impact of continued interest rate hikes and the evolving shape of the yield curve during this unique interest rate environment. The Company recognized $898,000 of PPP origination fees for the year ended December 31, 2022, compared to $5.4 million for the year ended December 31, 2021. There were no remaining PPP origination fees to be recognized as of December 31, 2022. At December 31, 2022, the Company had three PPP loans outstanding totaling $1.0 million, compared to 153 PPP loans outstanding totaling $26.2 million at December 31, 2021. Average interest earning assets were $3.79 billion for the year ended December 31, 2022, an increase of $674.4 million, or 21.6%, compared to $3.12 billion for the year ended December 31, 2021. The increase in average interest earning assets was primarily due to strong organic growth in the loan portfolio and purchases of investment securities, offset partially by the forgiveness of PPP loans and the reduction of cash balances. Average interest bearing liabilities were $2.53 billion for the year ended December 31, 2022, an increase of $442.3 million, or 21.2%, compared to $2.09 billion for the year ended December 31, 2021. The increase in average interest bearing liabilities was primarily due to an increase in savings and money market deposits and federal funds purchased, offset partially by a decrease in time deposits.

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