Bridgewater Bank(US:BWB)2023-08-02 16:00PART I FINANCIAL INFORMATION Consolidated Financial Statements (unaudited) This section presents the unaudited consolidated financial statements for Bridgewater Bancshares, Inc. as of June 30, 2023, including balance sheets, income, comprehensive income, shareholders' equity, and cash flows, with notes Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and shareholders' equity at specific dates Consolidated Balance Sheet Highlights (Unaudited) | (dollars in thousands) | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $4,603,185 | $4,345,662 | | Loans, Net | $3,677,792 | $3,512,157 | | Securities Available for Sale | $538,220 | $548,613 | | Cash and Cash Equivalents | $177,101 | $87,043 | | Total Liabilities | $4,194,059 | $3,951,598 | | Total Deposits | $3,577,932 | $3,416,543 | | FHLB Advances | $262,000 | $97,000 | | Total Shareholders' Equity | $409,126 | $394,064 | Consolidated Statements of Income This section outlines the company's financial performance over periods, showing revenues, expenses, and net income Consolidated Statements of Income Highlights (Unaudited) | (dollars in thousands) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $25,872 | $32,530 | $54,439 | $62,710 | | Provision for Credit Losses | $50 | $3,025 | $675 | $4,700 | | Noninterest Income | $1,415 | $1,650 | $3,358 | $3,207 | | Noninterest Expense | $14,388 | $13,752 | $28,571 | $27,260 | | Net Income | $9,816 | $12,882 | $21,458 | $25,144 | | Diluted EPS | $0.31 | $0.41 | $0.69 | $0.80 | Consolidated Statements of Comprehensive Income This section presents net income and other comprehensive income items, reflecting changes in equity from non-owner sources Consolidated Statements of Comprehensive Income (Unaudited) | (dollars in thousands) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $9,816 | $12,882 | $21,458 | $25,144 | | Total Other Comprehensive Loss, Net of Tax | ($3,012) | ($9,354) | ($2,966) | ($20,067) | | Comprehensive Income | $6,804 | $3,528 | $18,492 | $5,077 | Consolidated Statements of Shareholders' Equity This section details changes in the company's equity accounts, including net income, dividends, and other comprehensive income - Total Shareholders' Equity increased from $394.1 million at December 31, 2022, to $409.1 million at June 30, 2023. The change was driven by net income of $21.5 million, partially offset by a $3.9 million cumulative effect of adopting a new accounting principle (CECL), $2.0 million in preferred stock dividends, and a $3.0 million increase in accumulated other comprehensive loss46 Consolidated Statements of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities over specific periods Consolidated Statements of Cash Flows Highlights (Unaudited) | (dollars in thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $22,716 | $71,226 | | Net Cash Used in Investing Activities | ($165,624) | ($485,751) | | Net Cash Provided by Financing Activities | $232,966 | $344,569 | | Net Change in Cash and Cash Equivalents | $90,058 | ($69,956) | Notes to Consolidated Financial Statements This section provides detailed explanations of the accounting policies, significant transactions, and financial instrument details supporting the financial statements - On January 1, 2023, the Company adopted the Current Expected Credit Loss (CECL) methodology. This resulted in a net decrease to retained earnings of $3.9 million, primarily due to establishing a $4.8 million allowance for off-balance sheet credit exposures and a $650,000 increase in the allowance for credit losses on loans, partially offset by a deferred tax impact9394 Impact of Adopting CECL on January 1, 2023 | (dollars in thousands) | Pre-CECL Balance | CECL Adoption Impact | Post-CECL Balance | | :--- | :--- | :--- | :--- | | Allowance for Credit Losses on Loans | $47,996 | $650 | $48,646 | | Allowance for Credit Losses on Off-balance Sheet Credit Exposures | $360 | $4,850 | $5,210 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the financial condition and results of operations, highlighting net income decrease due to net interest margin compression, strong loan growth, and robust asset quality Operating Results Overview This section provides a summary of key financial performance metrics over recent quarters, offering a quick glance at trends Selected Quarterly Financial Data | (dollars in thousands, except per share data) | Q2 2023 | Q1 2023 | Q4 2022 | Q3 2022 | Q2 2022 | | :--- | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $25,872 | $28,567 | $32,893 | $34,095 | $32,530 | | Net Income | $9,816 | $11,642 | $13,735 | $14,513 | $12,882 | | Diluted EPS | $0.31 | $0.37 | $0.45 | $0.47 | $0.41 | | Total Assets | $4,603,185 | $4,602,899 | $4,345,662 | $4,128,987 | $3,883,264 | | Total Loans, Gross | $3,736,211 | $3,684,360 | $3,569,446 | $3,380,082 | $3,225,885 | Discussion and Analysis of Results of Operations This section analyzes the factors influencing the company's financial performance, including net interest income, credit losses, and noninterest expenses - Net income for Q2 2023 was $9.8 million ($0.31 per diluted share), a decrease from $12.9 million ($0.41 per diluted share) in Q2 2022. The decline was primarily driven by a 118 basis point decrease in net interest margin to 2.40%, as higher funding costs outpaced the increase in earning asset yields290307 Rate/Volume Analysis of Net Interest Income (Q2 2023 vs Q2 2022) | (dollars in thousands) | Change Due to Volume | Change Due to Rate | Total Variance | | :--- | :--- | :--- | :--- | | Total Interest Earning Assets | $9,245 | $8,106 | $17,351 | | Total Interest Bearing Liabilities | $7,880 | $15,997 | $23,877 | | Net Interest Income | $1,365 | ($7,891) | ($6,526) | - The provision for credit losses on loans was significantly lower at $550,000 for Q2 2023, compared to $3.0 million for Q2 2022, primarily reflecting continued strong credit quality alongside portfolio growth347 - Noninterest expense increased by $636,000 year-over-year to $14.4 million in Q2 2023, mainly due to higher FDIC insurance assessments and derivative collateral fees335 Financial Condition This section details the company's financial position, including asset growth, loan portfolio quality, deposit trends, and capital adequacy - Total assets grew to $4.60 billion at June 30, 2023, a 5.9% increase from year-end 2022, driven by strong loan growth. Total gross loans increased by $166.8 million (4.7%) during the same period to $3.74 billion354355 - Asset quality remains exceptionally strong, with nonperforming loans at $662,000, representing just 0.02% of total loans at June 30, 2023377378 - Total deposits increased by $161.4 million (4.7%) since year-end 2022 to $3.58 billion. The company increased its use of brokered deposits, which grew by $198.7 million to $974.8 million, representing 27.2% of total deposits409398 - The company's capital ratios remain well above regulatory minimums. As of June 30, 2023, the consolidated Total Risk-based Capital Ratio was 13.50% and the Tier 1 Leverage Ratio was 9.47%407415 Liquidity This section assesses the company's ability to meet its short-term obligations, detailing primary and secondary liquidity sources Liquidity Position Summary | (dollars in thousands) | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Primary Liquidity | $440,632 | $596,703 | | (Cash & Unpledged Securities) | | | | Total Secondary Liquidity | $1,521,686 | $782,975 | | (Borrowing Capacity) | | | | Total Primary and Secondary Liquidity | $1,962,318 | $1,379,678 | - Total on- and off-balance sheet liquidity significantly increased to $1.96 billion as of June 30, 2023, from $1.38 billion at year-end 2022, primarily due to an $828.8 million increase in borrowing capacity with the Federal Reserve Bank435417 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, managed by the ALM Committee, with simulations showing asset-sensitivity in falling rates and liability-sensitivity in rising rates Net Interest Income Sensitivity Analysis (12-Month Projection) | Change in Interest Rates (bps) | Forecasted NII Change from Base (as of June 30, 2023) | | :--- | :--- | | +400 | (7.68)% | | +300 | (5.74)% | | +200 | (3.80)% | | +100 | (1.89)% | | 0 (Base) | — | | -100 | 4.01% | | -200 | 7.50% | | -300 | 11.22% | - The company utilizes cash flow hedges, including interest rate swaps and caps, to manage interest rate exposure for its brokered deposit and wholesale borrowing portfolios. As of June 30, 2023, these hedges had a total notional amount of $308.0 million444 Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of June 30, 2023, the company's disclosure controls and procedures were effective459 - There were no material changes in the company's internal control over financial reporting during the quarter447 PART II OTHER INFORMATION Legal Proceedings The company is not involved in any material pending legal proceedings beyond routine litigation incidental to its business - The Company and its subsidiaries are not subject to any material pending legal proceedings outside of ordinary routine litigation467 Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes have occurred to the risk factors disclosed in the Company's Annual Report on Form 10-K filed on March 7, 2023448 Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase shares under its publicly announced program in Q2 2023, but withheld shares for tax purposes, with a $25.0 million repurchase program remaining available Issuer Purchases of Equity Securities (Q2 2023) | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Purchased as Part of Publicly Announced Program | | :--- | :--- | :--- | :--- | | April 2023 | 513 | $10.84 | 0 | | May 2023 | 0 | N/A | 0 | | June 2023 | 350 | $9.11 | 0 | | Total | 863 | $10.14 | 0 | - The company's stock repurchase program, authorizing up to $25.0 million in repurchases, remains fully available as of June 30, 2023, and is set to expire on August 16, 2024461 Other Items (Items 3, 4, 5, 6) This section covers remaining disclosures, including no defaults on senior securities, the CEO's termination of a Rule 10b5-1 trading plan, and a list of filed exhibits - On May 15, 2023, Chairman, CEO, and President Jerry Baack terminated a Rule 10b5-1 trading arrangement that was originally adopted on December 14, 2021470 - There were no defaults upon senior securities, and mine safety disclosures are not applicable463278