Bridgewater Bancshares, Inc. Annual Report

The following tables present a summary of primary and secondary liquidity levels as of the dates indicated:

Primary Liquidity—On-Balance Sheet

December 31, 2019 December 31, 2018

(Dollars in thousands) Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ Securities Available for Sale . . . . . . . . . . . . . . . . . . . . . . . Total Primary Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . $ Ratio of Primary Liquidity to Total Deposits . . . . . . . . . . (Dollars in thousands) Net Secured Borrowing Capacity with the FHLB . . . . . . $ Net Secured Borrowing Capacity with the Federal Reserve Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unsecured Borrowing Capacity with Correspondent Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Secondary Liquidity . . . . . . . . . . . . . . . . . . . . . . . . $ Ratio of Primary and Secondary Liquidity to Total Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Secondary Liquidity—Off-Balance Sheet Borrowing Capacity

31,935 $

28,444 253,378 281,822

289,877

321,812 $

17.6 %

18.1 %

December 31, 2019 December 31, 2018

209,840 $

122,120

113,164

114,051

105,000

90,000 326,171

428,004 $

41.1 % 39.0 % During the year ended December 31, 2019, primary liquidity increased $40.0 million due to a $36.5 million increase in securities available for sale and a $3.5 million increase in cash and cash equivalents, when compared to December 31, 2018. Secondary liquidity increased $101.8 million as of December 31, 2019 when compared to December 31, 2018, due to a $87.7 million increase in the borrowing capacity on the secured borrowing line with the FHLB and a $15.0 million increase in unsecured borrowing capacity with correspondent lenders, offset partially by a $887,000 decrease in the borrowing capacity on the secured credit line with the Federal Reserve Bank. In addition to primary liquidity, the Company generates liquidity from cash flows from the loan and securities portfolios and from the large base of core customer deposits, defined as noninterest bearing transaction, interest bearing transaction, savings, non-brokered money market accounts and non-brokered time deposits less than $250,000. At December 31, 2019, core deposits totaled approximately $1.47 billion and represented 80.7% of total deposits. These core deposits are normally less volatile, often with customer relationships tied to other products offered by the Company, which promote long-standing relationships and stable funding sources. The Company uses brokered deposits, the availability of which is uncertain and subject to competitive market forces and regulation, for liquidity management purposes. At December 31, 2019, brokered deposits totaled $234.4 million, consisting of $231.9 million of brokered time deposits and $2.4 million of non-maturity brokered money market and transaction accounts. At December 31, 2018, brokered deposits totaled $291.2 million, consisting of $264.2 million of brokered time deposits and $27.0 million of non-maturity brokered money market accounts. The Company’s liquidity policy includes guidelines for On-Balance Sheet Liquidity (a measurement of primary liquidity to total deposits plus borrowings), Total On-Balance Sheet Liquidity with Borrowing Capacity (a measurement of primary and secondary liquidity to total deposits plus borrowings), Wholesale Funding Ratio (a measurement of total wholesale funding to total deposits plus borrowings), and other guidelines developed for measuring and maintaining liquidity. As of December 31, 2019, the Company was in compliance with all established liquidity guidelines. GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures Some of the financial data included in this report are not measures of financial performance recognized by GAAP. Management uses these non-GAAP financial measures in the analysis of performance: • “Efficiency ratio” is defined as noninterest expense less the amortization of intangibles divided by our operating revenue, which is equal to net interest income plus noninterest income excluding gains and losses on sales of securities. In our judgment, the adjustments made to operating revenue allow investors and analysts to better assess our operating expenses in relation to our core operating revenue by removing the

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