UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ________
Commission File Number 001-38412
BRIDGEWATER BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
|
Minnesota |
|
26‑0113412 |
|
|
|
|
|
3800 American Boulevard West, Suite 100 |
55431 |
(952) 893‑6868
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S‑T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.
|
Large accelerated filer |
☐ |
Accelerated filer |
☐ |
|
|
|
|
|
|
Non‑accelerated filer |
Smaller reporting company |
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐ No ☒
The number of shares of the Common Stock outstanding as of November 6, 2018 was 30,064,374.
The number of shares of the Non-voting Common Stock outstanding as of November 6, 2018 was 0.
2
PART 1 – FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
Bridgewater Bancshares, Inc. and Subsidiaries
(dollars in thousands, except share data)
|
|
|
September 30, |
|
December 31, |
||
|
|
|
2018 |
|
2017 |
||
|
|
|
(Unaudited) |
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
Cash and Cash Equivalents |
|
$ |
21,537 |
|
$ |
23,725 |
|
Bank-owned Certificates of Deposits |
|
|
3,305 |
|
|
3,072 |
|
Securities Available for Sale, at Fair Value |
|
|
240,786 |
|
|
229,491 |
|
Loans, Net of Allowance for Loan Losses of $18,949 at September 30, 2018 (unaudited) and $16,502 at December 31, 2017 |
|
|
1,576,707 |
|
|
1,326,507 |
|
Federal Home Loan Bank (FHLB) Stock, at Cost |
|
|
7,814 |
|
|
5,147 |
|
Premises and Equipment, Net |
|
|
11,387 |
|
|
10,115 |
|
Foreclosed Assets |
|
|
— |
|
|
581 |
|
Accrued Interest |
|
|
6,400 |
|
|
5,342 |
|
Goodwill |
|
|
2,626 |
|
|
2,626 |
|
Other Intangible Assets, Net |
|
|
1,100 |
|
|
1,243 |
|
Other Assets |
|
|
14,131 |
|
|
8,763 |
|
Total Assets |
|
$ |
1,885,793 |
|
$ |
1,616,612 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
Noninterest Bearing |
|
$ |
342,292 |
|
$ |
292,539 |
|
Interest Bearing |
|
|
1,136,796 |
|
|
1,046,811 |
|
Total Deposits |
|
|
1,479,088 |
|
|
1,339,350 |
|
Federal Funds Purchased |
|
|
53,000 |
|
|
23,000 |
|
Notes Payable |
|
|
15,500 |
|
|
17,000 |
|
FHLB Advances |
|
|
94,000 |
|
|
68,000 |
|
Subordinated Debentures, Net of Issuance Costs |
|
|
24,604 |
|
|
24,527 |
|
Accrued Interest Payable |
|
|
1,230 |
|
|
1,408 |
|
Other Liabilities |
|
|
7,519 |
|
|
6,165 |
|
Total Liabilities |
|
|
1,674,941 |
|
|
1,479,450 |
|
|
|
|
|
|
|
|
|
SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
Preferred Stock- $0.01 par value |
|
|
|
|
|
|
|
Authorized 10,000,000; None Issued and Outstanding at September 30, 2018 (unaudited) and December 31, 2017 |
|
|
— |
|
|
— |
|
Common Stock- $0.01 par value |
|
|
|
|
|
|
|
Common Stock - Authorized 75,000,000; Issued and Outstanding 27,235,832 at September 30, 2018 (unaudited) and 20,834,001 at December 31, 2017 |
|
|
272 |
|
|
208 |
|
Non-voting Common Stock- Authorized 10,000,000; Issued and Outstanding 2,823,542 at September 30, 2018 (unaudited) and 3,845,860 at December 31, 2017 |
|
|
28 |
|
|
38 |
|
Additional Paid-In Capital |
|
|
125,715 |
|
|
66,324 |
|
Retained Earnings |
|
|
88,473 |
|
|
69,508 |
|
Accumulated Other Comprehensive Income (Loss) |
|
|
(3,636) |
|
|
1,084 |
|
Total Shareholders' Equity |
|
|
210,852 |
|
|
137,162 |
|
Total Liabilities and Equity |
|
$ |
1,885,793 |
|
$ |
1,616,612 |
See accompanying notes to consolidated financial statements.
3
Bridgewater Bancshares, Inc. and Subsidiaries
Consolidated Statements of Income
(dollars in thousands, except per share data)
(Unaudited)
|
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||
|
|
|
September 30, |
|
September 30, |
||||||||
|
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
||||
|
INTEREST INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, Including Fees |
|
$ |
20,207 |
|
$ |
15,707 |
|
$ |
56,055 |
|
$ |
43,060 |
|
Investment Securities |
|
|
1,790 |
|
|
1,538 |
|
|
4,830 |
|
|
4,444 |
|
Other |
|
|
139 |
|
|
139 |
|
|
353 |
|
|
266 |
|
Total Interest Income |
|
|
22,136 |
|
|
17,384 |
|
|
61,238 |
|
|
47,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
4,322 |
|
|
2,591 |
|
|
10,853 |
|
|
6,897 |
|
Notes Payable |
|
|
144 |
|
|
162 |
|
|
442 |
|
|
497 |
|
FHLB Advances |
|
|
488 |
|
|
212 |
|
|
1,159 |
|
|
585 |
|
Subordinated Debentures |
|
|
401 |
|
|
348 |
|
|
1,167 |
|
|
348 |
|
Federal Funds Purchased |
|
|
147 |
|
|
10 |
|
|
321 |
|
|
119 |
|
Total Interest Expense |
|
|
5,502 |
|
|
3,323 |
|
|
13,942 |
|
|
8,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME |
|
|
16,634 |
|
|
14,061 |
|
|
47,296 |
|
|
39,324 |
|
Provision for Loan Losses |
|
|
1,275 |
|
|
1,200 |
|
|
2,775 |
|
|
2,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME AFTER |
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION FOR LOAN LOSSES |
|
|
15,359 |
|
|
12,861 |
|
|
44,521 |
|
|
36,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer Service Fees |
|
|
184 |
|
|
174 |
|
|
539 |
|
|
483 |
|
Net Gain (Loss) on Sales of Available for Sale Securities |
|
|
(49) |
|
|
15 |
|
|
(108) |
|
|
(51) |
|
Net Gain (Loss) on Sales of Foreclosed Assets |
|
|
(88) |
|
|
202 |
|
|
(225) |
|
|
352 |
|
Other Income |
|
|
767 |
|
|
596 |
|
|
1,480 |
|
|
1,169 |
|
Total Noninterest Income |
|
|
814 |
|
|
987 |
|
|
1,686 |
|
|
1,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST EXPENSE |
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and Employee Benefits |
|
|
4,910 |
|
|
3,685 |
|
|
13,534 |
|
|
9,945 |
|
Occupancy and Equipment |
|
|
596 |
|
|
570 |
|
|
1,767 |
|
|
1,629 |
|
Other Expense |
|
|
2,020 |
|
|
1,854 |
|
|
5,221 |
|
|
5,060 |
|
Total Noninterest Expense |
|
|
7,526 |
|
|
6,109 |
|
|
20,522 |
|
|
16,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES |
|
|
8,647 |
|
|
7,739 |
|
|
25,685 |
|
|
21,668 |
|
Provision for Income Taxes |
|
|
2,184 |
|
|
3,064 |
|
|
6,526 |
|
|
8,113 |
|
NET INCOME |
|
$ |
6,463 |
|
$ |
4,675 |
|
$ |
19,159 |
|
$ |
13,555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER SHARE |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.22 |
|
$ |
0.19 |
|
$ |
0.67 |
|
$ |
0.55 |
|
Diluted |
|
|
0.21 |
|
|
0.19 |
|
|
0.66 |
|
|
0.55 |
|
Dividends Paid Per Share |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
See accompanying notes to consolidated financial statements.
4
Bridgewater Bancshares, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(dollars in thousands)
(Unaudited)
|
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||
|
|
|
September 30, |
|
September 30, |
||||||||
|
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
||||
|
Net Income |
|
$ |
6,463 |
|
$ |
4,675 |
|
$ |
19,159 |
|
$ |
13,555 |
|
Other Comprehensive Income (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gains (Losses) on Available for Sale Securities |
|
|
(2,253) |
|
|
475 |
|
|
(6,551) |
|
|
6,820 |
|
Unrealized Gains on Cash Flow Hedge |
|
|
5 |
|
|
6 |
|
|
155 |
|
|
17 |
|
Reclassification Adjustment for (Gains) Losses Realized in Income |
|
|
49 |
|
|
(15) |
|
|
108 |
|
|
51 |
|
Income Tax Impact |
|
|
463 |
|
|
(163) |
|
|
1,374 |
|
|
(2,411) |
|
Total Other Comprehensive Income (Loss), Net of Tax |
|
|
(1,736) |
|
|
303 |
|
|
(4,914) |
|
|
4,477 |
|
Comprehensive Income |
|
$ |
4,727 |
|
$ |
4,978 |
|
$ |
14,245 |
|
$ |
18,032 |
See accompanying notes to consolidated financial statements.
5
Bridgewater Bancshares, Inc. and Subsidiaries
Consolidated Statements of Shareholders’ Equity
Nine Months Ended September 30, 2018 and 2017
(dollars in thousands, except share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
Other |
|
|
|
||
|
|
|
Shares |
|
Common Stock |
|
Paid‑In |
|
Retained |
|
Comprehensive |
|
|
|
|||||||||
|
|
|
Voting |
|
Nonvoting |
|
Voting |
|
Nonvoting |
|
Capital |
|
Earnings |
|
Income (Loss) |
|
Total |
||||||
|
|
|
|
||||||||||||||||||||
|
BALANCE December 31, 2016 |
|
20,744,001 |
|
3,845,860 |
|
$ |
207 |
|
$ |
38 |
|
$ |
65,777 |
|
$ |
52,619 |
|
$ |
(3,275) |
|
$ |
115,366 |
|
Stock-based Compensation |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
156 |
|
|
— |
|
|
— |
|
|
156 |
|
Comprehensive Income |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
13,555 |
|
|
4,477 |
|
|
18,032 |
|
Stock Options Exercised |
|
40,000 |
|
— |
|
|
1 |
|
|
— |
|
|
120 |
|
|
— |
|
|
— |
|
|
121 |
|
BALANCE September 30, 2017 |
|
20,784,001 |
|
3,845,860 |
|
$ |
208 |
|
$ |
38 |
|
$ |
66,053 |
|
$ |
66,174 |
|
$ |
1,202 |
|
$ |
133,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE December 31, 2017 |
|
20,834,001 |
|
3,845,860 |
|
$ |
208 |
|
$ |
38 |
|
$ |
66,324 |
|
$ |
69,508 |
|
$ |
1,084 |
|
$ |
137,162 |
|
Stock-based Compensation |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
588 |
|
|
— |
|
|
— |
|
|
588 |
|
Comprehensive Income (Loss) |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
19,159 |
|
|
(4,914) |
|
|
14,245 |
|
Issuance of Common Stock, Net of Issuance Costs |
|
5,379,513 |
|
— |
|
|
54 |
|
|
— |
|
|
58,803 |
|
|
— |
|
|
— |
|
|
58,857 |
|
Conversion of Non-voting Stock to Voting Stock |
|
1,022,318 |
|
(1,022,318) |
|
|
10 |
|
|
(10) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Reclassification of the Income Tax Effects of the Tax Cuts and Jobs Act to Retained Earnings |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(194) |
|
|
194 |
|
|
— |
|
BALANCE September 30, 2018 |
|
27,235,832 |
|
2,823,542 |
|
$ |
272 |
|
$ |
28 |
|
$ |
125,715 |
|
$ |
88,473 |
|
$ |
(3,636) |
|
$ |
210,852 |
See accompanying notes to consolidated financial statements.
6
Bridgewater Bancshares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(dollars in thousands)
(Unaudited)
|
|
|
Nine Months Ended |
||||
|
|
|
September 30, |
||||
|
|
|
2018 |
|
2017 |
||
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
Net Income |
|
$ |
19,159 |
|
$ |
13,555 |
|
Adjustments to Reconcile Net Income to Net Cash |
|
|
|
|
|
|
|
Provided by Operating Activities: |
|
|
|
|
|
|
|
Net Amortization on Securities Available for Sale |
|
|
2,309 |
|
|
2,081 |
|
Net Loss on Sales of Securities Available for Sale |
|
|
108 |
|
|
51 |
|
Provision for Loan Losses |
|
|
2,775 |
|
|
2,975 |
|
Depreciation and Amortization of Premises and Equipment |
|
|
560 |
|
|
522 |
|
Amortization of Other Intangible Assets |
|
|
143 |
|
|
143 |
|
Amortization of Subordinated Debt Issuance Costs |
|
|
77 |
|
|
17 |
|
Net (Gain) Loss on Sale of Foreclosed Assets |
|
|
225 |
|
|
(352) |
|
Stock-based Compensation |
|
|
588 |
|
|
156 |
|
Changes in Operating Assets and Liabilities: |
|
|
|
|
|
|
|
Accrued Interest Receivable and Other Assets |
|
|
(4,897) |
|
|
(1,969) |
|
Accrued Interest Payable and Other Liabilities |
|
|
1,176 |
|
|
1,832 |
|
Net Cash Provided by Operating Activities |
|
|
22,223 |
|
|
19,011 |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
(Increase) Decrease in Bank-owned Certificates of Deposit |
|
|
(233) |
|
|
1,627 |
|
Proceeds from Sales of Securities Available for Sale |
|
|
21,590 |
|
|
15,249 |
|
Proceeds from Maturities, Paydowns, Payups and Calls of Securities Available for Sale |
|
|
17,298 |
|
|
17,971 |
|
Purchases of Securities Available for Sale |
|
|
(59,043) |
|
|
(54,710) |
|
Net Increase in Loans |
|
|
(252,975) |
|
|
(271,139) |
|
Net (Increase) Decrease in FHLB Stock |
|
|
(2,667) |
|
|
323 |
|
Purchases of Premises and Equipment |
|
|
(1,832) |
|
|
(1,102) |
|
Proceeds from Sales of Foreclosed Assets |
|
|
356 |
|
|
4,352 |
|
Net Cash Used in Investing Activities |
|
|
(277,506) |
|
|
(287,429) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
Increase in Deposits |
|
|
139,738 |
|
|
271,240 |
|
Net Increase (Decrease) in Federal Funds Purchased |
|
|
30,000 |
|
|
(28,000) |
|
Principal Payments on Notes Payable |
|
|
(1,500) |
|
|
(1,500) |
|
Proceeds from FHLB Advances |
|
|
35,000 |
|
|
19,000 |
|
Principal Payments on FHLB Advances |
|
|
(9,000) |
|
|
(9,000) |
|
Proceeds from Issuance of Subordinated Debentures |
|
|
— |
|
|
24,484 |
|
Issuance of Common Stock |
|
|
58,857 |
|
|
121 |
|
Net Cash Provided by Financing Activities |
|
|
253,095 |
|
|
276,345 |
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH EQUIVALENTS |
|
|
(2,188) |
|
|
7,927 |
|
Cash and Cash Equivalents Beginning |
|
|
23,725 |
|
|
16,499 |
|
Cash and Cash Equivalents Ending |
|
$ |
21,537 |
|
$ |
24,426 |
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW DISCLOSURE |
|
|
|
|
|
|
|
Cash Paid for Interest |
|
$ |
14,043 |
|
$ |
8,066 |
|
Cash Paid for Income Taxes |
|
|
5,590 |
|
|
9,360 |
|
Loans Transferred to Foreclosed Assets |
|
|
— |
|
|
689 |
See accompanying notes to consolidated financial statements.
7
Bridgewater Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(dollars in thousands, except share data)
(Unaudited)
Note 1: Description of the Business and Summary of Significant Accounting Policies
Organization
Bridgewater Bancshares, Inc. (the “Company”) is a financial holding company whose operations consist of the ownership of its wholly-owned subsidiaries, Bridgewater Bank (the “Bank”) and Bridgewater Risk Management, Inc. The Bank commenced operations in 2005 and provides retail and commercial loan and deposit services, principally to customers within the Minneapolis-St. Paul-Bloomington, MN-WI Metropolitan Statistical Area. In 2008, the Bank formed BWB Holdings, LLC, a wholly owned subsidiary of the Bank, for the purpose of holding repossessed property. In 2018, the Bank formed Bridgewater Investment Management, Inc., a wholly owned subsidiary of the Bank, for the purpose of holding certain municipal securities and to engage in municipal lending activities.
Bridgewater Risk Management was incorporated in December 2016 as a wholly-owned insurance company subsidiary of the Company. It insures the Company and its subsidiaries against certain risks unique to the operations of the Company and for which insurance may not be currently available or economically feasible in today’s insurance marketplace. Bridgewater Risk Management pools resources with several other insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves.
Initial Public Offering
On March 16, 2018, the Company completed an initial public offering (“IPO”) and received net proceeds, after deducting underwriting discounts and offering expenses, of $58.9 million for the shares of common stock sold by the Company in the offering.
Basis of Presentation
The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10‑Q and, therefore, do not include all disclosures necessary for a complete presentation of the consolidated balance sheets, consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of shareholders’ equity and consolidated statements of cash flows in conformity with U.S. generally accepted accounting principles (“GAAP”). However, all normal recurring adjustments which are, in the opinion of management, necessary for the fair presentation of the interim financial statements have been included. The results of operations for the nine-month period ended September 30, 2018 are not necessarily indicative of the results which may be expected for the entire year. For further information, refer to the consolidated financial statements and footnotes included in the Company’s prospectus filed with the Securities and Exchange Commission (“SEC”) on March 14, 2018, pursuant to Rule 424(b)(4) under the Securities Act of 1933.
Principles of Consolidation
These consolidated financial statements include the amounts of the Company, the Bank and Bridgewater Risk Management. All significant intercompany balances and transactions have been eliminated in consolidation.
Emerging Growth Company
The Company qualifies as an “emerging growth company” under the Jumpstart Our Business Startups Act (the “JOBS Act”). Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933 for complying with new or revised accounting standards. As an emerging growth company, the Company can delay the adoption of certain
8
accounting standards until those standards would otherwise apply to private companies. The Company elected to take advantage of the benefits of this extended transition period.
Impact of Recently Adopted Accounting Standards
In May 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017‑09, Compensation – Stock Compensation (Topic 718) (“ASU 2017-09”). ASU 2017-09 provides clarity about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The Company did not modify any share-based payment awards, thus, the impact of adopting the new standard, effective January 1, 2018, had no impact on the Company’s consolidated financial statements.
In February 2018, the FASB issued ASU 2018‑02, Income Statement-Reporting Comprehensive Income (Topic 220) (“ASU 2018-02”): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments of this ASU allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from Public Law 115-97, commonly known as the Tax Cuts and Jobs Act. The Company elected to adopt ASU 2018-02 and, as a result, reclassified $194,000 from accumulated other comprehensive income to retained earnings as of January 1, 2018. The reclassification impacted the consolidated balance sheet and the consolidated statement of shareholders’ equity as of and for the nine months ended September 30, 2018.
Impact of Recently Issued Accounting Standards
The following ASUs have been issued by FASB and may impact the Company’s consolidated financial statements in future reporting periods.
In May 2014, the FASB issued ASU 2014‑09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014‑09”). ASU 2014‑09 implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014‑09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2015‑14, Revenue from Contracts with Customers (Topic 606) (“ASU 2015‑14”) was issued in August 2015 which defers adoption to annual reporting periods beginning after December 15, 2018 and interim reporting periods beginning after December 15, 2019. The timing of the Company’s revenue recognition is not expected to materially change. The Company’s largest portions of revenue, interest and fees on loans and gain on sales of loans, are specifically excluded from the scope of the guidance, and the Company currently recognizes the majority of the remaining revenue sources in a manner that management believes is consistent with the new guidance. Because of this, management believes that revenue recognized under the new guidance will generally approximate revenue recognized under current GAAP. These observations are subject to change as the evaluation is completed.
In January 2016, the FASB issued ASU 2016‑01, Financial Instruments—Overall (Subtopic 825‑10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016‑01”). This guidance changes how entities account for equity investments that do not result in consolidation and are not accounted for under the equity method of accounting. Entities will be required to measure these investments at fair value at the end of each reporting period and recognize changes in fair value in net income. A practicability exception will be available for equity investments that do not have readily determinable fair values; however, the exception requires the Company to adjust the carrying amount for impairment and observable price changes in orderly transactions for the identical or a similar investment of the same issuer. This guidance also changes certain disclosure requirements and other aspects of current GAAP. This guidance is effective for fiscal years beginning after December 15, 2018 and for interim reporting periods beginning after December 15, 2019. Early adoption is permitted for only one of the six amendments. The Company is evaluating the impact this new standard will have on its consolidated financial statements.
9
In February 2016, the FASB issued ASU 2016‑02, Leases (Topic 842) (“ASU 2016‑02”). The new guidance establishes the principles to report transparent and economically neutral information about the assets and liabilities that arise from leases. Entities will be required to recognize the lease assets and lease liabilities that arise from leases in the statement of financial position and to disclose qualitative and quantitative information about lease transactions, such as information about variable lease payments and options to renew and terminate leases. Also, in July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements which provides an optional transition method to adopt the new requirements of ASU 2016-02 as of the adoption date with no adjustment to the presentation or disclosure of comparative prior periods included in the financial statement in the period of adoption. The guidance is effective for fiscal years beginning after December 15, 2019 and interim reporting periods beginning after December 15, 2020. The Company’s assets and liabilities will increase based on the present value of the remaining lease payments for leases in place at the adoption date; however, this is not expected to be significant to the Company’s results of operations. The Company is evaluating the impact these new standards will have on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016‑05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships (“ASU 2016‑05”). The new guidance clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815 does not, in and of itself, require de-designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. This guidance is effective for fiscal years beginning after December 15, 2017 and interim reporting periods beginning after December 15, 2018. The adoption of this guidance will not have a significant impact on the Company’s consolidated financial statements.
In March 2016, the FASB issued ASU 2016‑09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016‑09”). The new guidance simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Entities will be required to recognize the income tax effects of awards in the income statement when the awards vest or are settled. This guidance is effective for fiscal years beginning after December 15, 2017 and interim reporting periods beginning after December 31, 2018. The adoption of this ASU will not have a significant impact on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU 2016‑13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this ASU affect all entities that measure credit losses on financial instruments including loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables, and any other financial asset that has a contractual right to receive cash that is not specifically excluded. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this ASU replace the incurred loss impairment methodology required in current GAAP with a methodology that reflects expected credit losses that requires consideration of a broader range of reasonable and supportable information to estimate credit losses. The amendments in this ASU will affect entities to varying degrees depending on the credit quality of the assets held by the entity, the duration of the assets held, and how the entity applies the current incurred loss methodology. The amendments in this ASU are effective for fiscal years beginning after December 15, 2020 and interim reporting periods beginning after December 15, 2021.
All entities may adopt the amendments in the ASU early as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Amendments should be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. The Company is evaluating the impact this new standard will have on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017‑04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendments in this ASU were issued to address concerns over the cost and complexity of the two-step goodwill impairment test and resulted in the removal of the second step of the test. The amendments require an entity to apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to
10
the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. This ASU is intended to reduce the cost and complexity of the two-step goodwill impairment test and is effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2021, with early adoption permitted for testing performed after January 1, 2017. Upon adoption, the amendments should be applied on a prospective basis and the entity is required to disclose the nature of and reason for the change in accounting principle upon transition. The adoption of this guidance is not expected to have a significant impact on the Company’s consolidated financial statements.
In March 2017, the FASB issued ASU 2017‑08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310‑20): Premium Amortization on Purchased Callable Debt Securities. The amendments in this ASU shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount as discounts continue to be accreted to maturity. This ASU is intended to more closely align the amortization period of premiums and discounts to expectations incorporated in market pricing on the underlying securities. In most cases, market participants price securities to the call date that produces the worst yield when the coupon is above current market rates and prices securities to maturity when the coupon is below market rates. As a result, the amendments more closely align interest income recorded on bonds held at a premium or a discount with the economics of the underlying instrument. This ASU is intended to reduce diversity in practice and is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. Upon adoption, the amendments should be applied using a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principles. The adoption of this guidance is not expected to have a significant impact on the Company’s consolidated financial statements.
In August 2017, the FASB issued ASU 2017‑12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The amendments of this ASU better align an entity’s accounting and financial reporting for hedging activities with the economic objectives of those activities. The ASU is effective for fiscal years beginning after December 15, 2019 and interim reporting periods beginning after December 15, 2020, with early adoption permitted. The Company is evaluating the impact this new standard with have on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018‑13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The amendments of this ASU modify the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The adoption of this guidance is not expected to have a significant impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40). The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The adoption of this guidance is not expected to have a significant impact on the Company’s consolidated financial statements.
11
Note 2: Earnings Per Share
Basic earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per common share are calculated by dividing net income by the weighted average number of shares adjusted for the dilutive effect of stock options. The dilutive effect was computed using the treasury stock method, which assumes the stock options were exercised and the hypothetical proceeds from the exercise were used by the Company to purchase common stock at the average market price during the period.
The following table presents the numerators and denominators for basic and diluted earnings per share computations for the three and nine months ended September 30, 2018 and 2017:
|
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||
|
|
|
September 30, |
|
September 30, |
||||||||
|
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
||||
|
Net Income Available to Common Shareholders |
|
$ |
6,463 |
|
$ |
4,675 |
|
$ |
19,159 |
|
$ |
13,555 |
|
Weighted Average Common Stock Outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Stock Outstanding (Basic) |
|
|
30,059,374 |
|
|
24,600,731 |
|
|
28,640,601 |
|
|
24,593,524 |
|
Stock Options |
|
|
430,274 |
|
|
219,208 |
|
|
430,274 |
|
|
219,208 |
|
Weighted Average Common Stock Outstanding (Dilutive) |
|
|
30,489,648 |
|
|
24,819,939 |
|
|
29,070,876 |
|
|
24,812,732 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings per Common Share |
|
$ |
0.22 |
|
$ |
0.19 |
|
$ |
0.67 |
|
$ |
0.55 |
|
Diluted Earnings per Common Share |
|
|
0.21 |
|
|
0.19 |
|
|
0.66 |
|
|
0.55 |
Note 3: Securities
The following tables present the amortized cost and estimated fair value of securities with gross unrealized gains and losses at September 30, 2018 and December 31, 2017:
|
|
|
September 30, 2018 |
||||||||||
|
|
|
|
|
|
Gross |
|
Gross |
|
|
|
||
|
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
|
|
|||
|
|
|
Cost |
|
Gains |
|
Losses |
|
Fair Value |
||||
|
Securities Available for Sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Securities |
|
$ |
14,848 |
|
$ |
— |
|
$ |
(32) |
|
$ |
14,816 |
|
Municipal Bonds |
|
|
117,495 |
|
|
518 |
|
|
(2,071) |
|
|
115,942 |
|
Mortgage-Backed Securities |
|
|
48,918 |
|
|
2 |
|
|
(2,376) |
|
|
46,544 |
|
Corporate Securities |
|
|
14,975 |
|
|
26 |
|
|
(195) |
|
|
14,806 |
|
SBA Securities |
|
|
49,650 |
|
|
10 |
|
|
(982) |
|
|
48,678 |
|
Total Securities Available for Sale |
|
$ |
245,886 |
|
$ |
556 |
|
$ |
(5,656) |
|
$ |
240,786 |
|
|
|
December 31, 2017 |
||||||||||
|
|
|
|
|
|
Gross |
|
Gross |
|
|
|
||
|
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
|
|
|||
|
|
|
Cost |
|
Gains |
|
Losses |
|
Fair Value |
||||
|
Securities Available for Sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal Bonds |
|
$ |
115,784 |
|
$ |
3,005 |
|
$ |
(469) |
|
$ |
118,320 |
|
Mortgage-Backed Securities |
|
|
61,945 |
|
|
11 |
|
|
(1,275) |
|
|
60,681 |
|
Corporate Securities |
|
|
5,052 |
|
|
80 |
|
|
(25) |
|
|
5,107 |
|
SBA Securities |
|
|
45,368 |
|
|
242 |
|
|
(227) |
|
|
45,383 |
|
Total Securities Available for Sale |
|
$ |
228,149 |
|
$ |
3,338 |
|
$ |
(1,996) |
|
$ |
229,491 |
12
The following table shows the fair value and gross unrealized losses of securities with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:
|
|
|
Less Than 12 Months |
|
12 Months or Greater |
|
Total |
||||||||||||
|
|
|
|
|
|
Unrealized |
|
|
|
|
Unrealized |
|
|
|
|
Unrealized |
|||
|
|
|
Fair Value |
|
Losses |
|
Fair Value |
|
Losses |
|
Fair Value |
|
Losses |
||||||
|
September 30, 2018 |
|
|
|
|
|
|
|
|
||||||||||
|
U.S. Treasury Securities |
|
$ |
14,816 |
|
|
(32) |
|
|
— |
|
|
— |
|
$ |
14,816 |
|
$ |
(32) |
|
Municipal Bonds |
|
|
61,107 |
|
|
(1,054) |
|
|
22,927 |
|
|
(1,017) |
|
|
84,034 |
|
|
(2,071) |
|
Mortgage-Backed Securities |
|
|
10,104 |
|
|
(437) |
|
|
36,194 |
|
|
(1,939) |
|
|
46,298 |
|
|
(2,376) |
|
Corporate Securities |
|
|
9,514 |
|
|
(113) |
|
|
1,965 |
|
|
(82) |
|
|
11,479 |
|
|
(195) |
|
SBA Securities |
|
|
37,734 |
|
|
(687) |
|
|
8,847 |
|
|
(295) |
|
|
46,581 |
|
|
(982) |
|
Total Securities Available for Sale |
|
$ |
133,275 |
|
$ |
(2,323) |
|
$ |
69,933 |
|
$ |
(3,333) |
|
$ |
203,208 |
|
$ |
(5,656) |