Bridgewater Bancshares, Inc._2023 Annual Report

Bridgewater Bancshares, Inc. and Subsidiaries Notes to Consolidated Financial Statements (dollars in thousands, except share data)

or client owes the Company, and results in credit risk to the Company. When the fair value of a derivative instrument contract is negative, the Company owes the client or counterparty and therefore, the Company has no credit risk. The following table presents a summary of the Company’s interest rate swaps to facilitate customer transactions as of December 31, 2023 and 2022:

December 31, 2023

December 31, 2022

Notional Amount

Estimated Fair Value

Notional Amount

Estimated Fair Value

(dollars in thousands)

Interest rate swap agreements: Assets ............................... Liabilities ............................ Total...................................

$

63,814 63,814 127,628

$

6,981 (6,981)

$

65,315 65,315 130,630

$

8,240 (8,240)

—

$

$

—

$

$

Cash Flow Hedging Derivatives For derivative instruments that are designated and qualify as a cash flow hedge, the aggregate fair value of the derivative instrument is recorded in other assets or other liabilities with any gain or loss related to changes in fair value recorded in accumulated other comprehensive income, net of tax. The gain or loss is reclassified into earnings in the same period during which the hedged asset or liability affects earnings and is presented in the same income statement line item as the earnings effect of the hedged asset or liability. The Company utilizes cash flow hedges to manage interest rate exposure for the brokered deposit and wholesale borrowing portfolios. During the next 12 months, the Company estimates that $7.5 million will be reclassified to interest expense, as a reduction of the expense. The following table presents a summary of the Company’s interest rate swaps designated as cash flow hedges as of December 31, 2023 and 2022:

December 31, 2023 December 31, 2022

(dollars in thousands)

NotionalAmount ................................ $ Weighted Average Pay Rate ....................... Weighted Average Receive Rate ................... Weighted Average Maturity (Years) ................ NetUnrealizedGain.............................. $

183,000

$

163,000

2.00 % 5.48 %

1.90 % 3.47 %

4.04 5,271

5.15

$ 9,175 The Company purchases interest rate caps, designated as cash flow hedges, of certain deposit liabilities. The interest rate caps require receipt of variable amounts from the counterparties when interest rates rise above the strike price in the contracts. For the years ended December 31, 2023 and 2022, the Company recognized amortization expense on the interest rate caps of $791,000 and $772,000, respectively, which was recorded as a component of interest expense on brokered deposits and FHLB advances. The following table presents a summary of the Company’s interest rate caps designated as cash flow hedges as of December 31, 2023 and 2022:

December 31, 2023

December 31, 2022

(dollars in thousands)

NotionalAmount ................................................. $ Unamortized Premium Paid ......................................... Weighted Average Strike Rate ...................................... Weighted Average Maturity (Years) ..................................

125,000

$

125,000

5,081

5,872

0.96 %

0.96 %

6.34

7.35

114