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Bridgewater Bank(BWB) - 2022 Q4 - Annual Report
BWBBridgewater Bank(BWB)2023-03-06 16:00
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Loan Portfolio and Asset Composition - Commercial loans represented 12.2% of the total gross loan portfolio at December 31, 2022[22] - The company's advances from the FHLB were collateralized by 1.20billionofrealestateandcommercialloansasofDecember31,2022[35]−TotalassetsasofDecember31,2022,were1.20 billion of real estate and commercial loans as of December 31, 2022[35] - Total assets as of December 31, 2022, were 4.35 billion, with total gross loans at 3.57billion,totaldepositsat3.57 billion, total deposits at 3.42 billion, and total shareholders' equity at 394.1million[51]−Over80394.1 million[51] - Over 80% of the company's real estate loan balances as of December 31, 2022, were secured by properties located in the Twin Cities market[78] - The multifamily loan portfolio has experienced no net charge-offs over the past five years and only 62,000 of net charge-offs since inception[84] - The company's multifamily lending expertise has historically represented a large portion of the loan portfolio, with lower historical loss rates compared to other loan types[84] - The 10 largest borrowing relationships accounted for approximately 19.4% of the total gross loan portfolio as of December 31, 2022[203] - 72.3% of the company's loan portfolio by dollar amount has been originated in the past three years, indicating a relatively new portfolio that may not yet reflect future delinquency and default levels[205] - The company's total loans secured by multifamily and CRE non-owner occupied properties plus total construction and land development loans represent more than 514.9% of its total risk-based capital, indicating a concentration in CRE lending[214] - The company may need to increase its provision for loan losses if delinquencies and defaults rise, which could materially impact its business, financial condition, and growth prospects[205] Deposit and Funding Sources - The company had approximately 776.2millionofbrokereddeposits,representing22.7776.2 million of brokered deposits, representing 22.7% of total deposits, 97.0 million of FHLB advances, and 287.0millionoffederalfundspurchasedasofDecember31,2022[35]−The10largestdepositorrelationshipsaccountedforapproximately15.0287.0 million of federal funds purchased as of December 31, 2022[35] - The 10 largest depositor relationships accounted for approximately 15.0% of total deposits as of December 31, 2022, presenting a liquidity risk if these relationships change[82] - The company plans to increase core deposits over time to support loan growth and build market share, supplemented by non-core funding sources when necessary[97] - A decline in available funding could adversely impact the company's ability to implement its strategic plan, including originating loans and investing in securities, or to fulfill obligations such as repaying borrowings or meeting deposit withdrawal demands[208] Market and Economic Conditions - The Twin Cities MSA had an unemployment rate of 2.6% as of December 31, 2022, lower than the national average of 3.5%[43] - Wells Fargo and US Bank controlled 62.3% of the deposit market share in the Twin Cities MSA as of June 30, 2022, while the company had a deposit market share of approximately 1.4%[44] - The company's market ranked second in median household income in the Midwest and eighth in the nation as of December 31, 2022[43] - The Twin Cities Metropolitan Statistical Area (MSA) had total deposits of 232.4 billion as of June 30, 2022, ranking as the 16th largest MSA in the U.S. by total deposits[54] - The United States experienced an annual increase in the consumer price index of approximately 6.5% as of the end of 2022[200] Risk Management and Regulatory Compliance - Nonperforming assets adversely affect net interest income and increase loan administration costs, potentially impacting net income and returns on assets and equity[23] - The company's enterprise risk management committee meets quarterly to assess and manage overall enterprise risk, with reports provided to the board on a quarterly basis[88] - The company is subject to Basel III Rule requirements, including a Common Equity Tier 1 Capital ratio of 4.5% of risk-weighted assets and a Tier 1 Capital ratio of 6% of risk-weighted assets[112] - As of December 31, 2022, the company was well-capitalized and in compliance with the Basel III Rule requirements and capital conservation buffer[134] - The company may elect the Community Bank Leverage Ratio (CBLR) framework, which requires a CBLR greater than 9% for institutions with less than 10billionintotalconsolidatedassets[135]−ThecompanymustmaintainaCommonEquityTier1Capitalofatleast2.510 billion in total consolidated assets[135] - The company must maintain a Common Equity Tier 1 Capital of at least 2.5% to pay unrestricted dividends, factoring in the capital conservation buffer[150][161] - The FDIC increased the minimum reserve ratio from 1.15% to 1.35% of estimated insured deposits, and the company's FDIC insurance assessment will increase beginning in 2023[146] - The company is subject to the Basel III Rule, which requires higher quality capital and introduces Common Equity Tier 1 Capital, with minimum ratios of 7% for Common Equity Tier 1 Capital, 8.5% for Tier 1 Capital, and 10.5% for Total Capital[160][161] - The company must maintain a surplus of at least 20% of its capital to pay dividends, and once the surplus reaches 50%, dividends can be paid out of net profits without reducing capital below regulatory requirements[148] - The company is subject to the liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) under Basel III, requiring adequate high-quality liquid assets and stable funding sources[147] - The company must comply with the Federal Reserve's capital requirements to be well-capitalized, which includes maintaining specific capital ratios and being well-managed[166] - The company is prohibited from acquiring more than 5% of a class of voting shares of any non-bank company, with exceptions for certain banking-related businesses[167] - The company is subject to prompt corrective action by federal regulators if it becomes undercapitalized, which may include restrictions on asset growth, activities, and capital distributions[164] - The Bank's deposit accounts are insured by the FDIC's Deposit Insurance Fund (DIF) up to 250,000 per insured depositor category[172] - The total base assessment rates for FDIC insurance premiums range from 1.5 basis points to 30 basis points[174] - The Bank exceeded its capital requirements under applicable guidelines as of December 31, 2022[177] - The new accounting standard CECL became applicable on January 1, 2023, requiring financial institutions to estimate lifetime expected credit losses on loans[199] - The company is subject to heightened risk management practices due to its concentration in CRE lending, as required by regulatory guidance[214] Growth and Strategic Initiatives - The company's assets have grown at a compounded annual growth rate of 32.8% since 2005, surpassing 4.0billionintotalassetsin2022[42]−Thecompanycompletedasmallbankacquisitionin2016,addingapproximately4.0 billion in total assets in 2022[42] - The company completed a small bank acquisition in 2016, adding approximately 76.1 million in assets and 66.7millioninseasonedcoredeposits[42]−Thecompanymayconsideropportunisticacquisitionstocomplementitsexistingbusinessandbolsteritsbalancesheetwithoutcompromisingitsriskprofileorculture[98]−Thecompany′sgrowthstrategyisdependentonattractingandretainingkeypersonnelandmanagingcostseffectively[189]WorkforceandCorporateCulture−AsofDecember31,2022,womenandpeopleofcolorcomprised5266.7 million in seasoned core deposits[42] - The company may consider opportunistic acquisitions to complement its existing business and bolster its balance sheet without compromising its risk profile or culture[98] - The company's growth strategy is dependent on attracting and retaining key personnel and managing costs effectively[189] Workforce and Corporate Culture - As of December 31, 2022, women and people of color comprised 52% and 18% of the company's total workforce, respectively, and 54% and 11% of manager roles, respectively[100] - The company had 246 full-time equivalent employees as of December 31, 2022, an increase of 12% from December 31, 2021[118] - The company established a 20 per hour minimum wage in 2021, becoming one of the few local Minnesota companies to do so[119] - The company launched an ESG webpage in March 2022 to communicate its ESG priorities and actions[104] Operational and Geographic Concentration Risks - The Bank's operations are geographically concentrated in the Twin Cities MSA, making it vulnerable to local economic downturns[195] - The Bank is subject to environmental liabilities that could result in substantial remediation costs and reduced property values[194] - The Bank's loan portfolio is significantly exposed to real estate loans, making it sensitive to changes in real estate values and liquidity[192] Financial Holding Company and Regulatory Framework - The company has elected to operate as a financial holding company, allowing it to engage in a wider range of nonbanking activities, including securities and insurance underwriting, merchant banking, and other financial activities[138] - The Federal Reserve reduced all reserve tranches to zero percent in March 2020, allowing the company to loan or invest funds previously held as reserves[153]