Bridgewater Bancshares, Inc. (NASDAQ:BWB) Q3 2023 Earnings Conference Call October 26, 2023 9:00 AM ET Company Participants Justin Horstman - Director of Investor Relations Jerry Baack - Chairman, President and Chief Executive Officer Joe Chybowski - Chief Financial Officer Jeff Shellberg - Executive Vice President and Chief Credit Officer Nick Place - Chief Lending Officer Conference Call Participants Jeffrey Rulis - D.A. Davidson Operator Good morning, and welcome to the Bridgewater Bancshares 2023 Third ...

PART I FINANCIAL INFORMATION [Consolidated Financial Statements (unaudited)](index=3&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20(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](index=3&type=section&id=Consolidated%20Balance%20Sheets) 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](index=4&type=section&id=Consolidated%20Statements%20of%20Income) 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](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) 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](index=6&type=section&id=Consolidated%20Statements%20of%20Shareholders'%20Equity) 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 loss[46](index=46&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) 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](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) 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 impact[93](index=93&type=chunk)[94](index=94&type=chunk) 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](index=56&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) 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](index=65&type=section&id=Operating%20Results%20Overview) 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](index=67&type=section&id=Discussion%20and%20Analysis%20of%20Results%20of%20Operations) 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 yields[290](index=290&type=chunk)[307](index=307&type=chunk) 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 growth[347](index=347&type=chunk) - 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 fees[335](index=335&type=chunk) [Financial Condition](index=82&type=section&id=Financial%20Condition) 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 billion**[354](index=354&type=chunk)[355](index=355&type=chunk) - Asset quality remains exceptionally strong, with nonperforming loans at **$662,000**, representing just **0.02%** of total loans at June 30, 2023[377](index=377&type=chunk)[378](index=378&type=chunk) - 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 deposits[409](index=409&type=chunk)[398](index=398&type=chunk) - 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%**[407](index=407&type=chunk)[415](index=415&type=chunk) [Liquidity](index=99&type=section&id=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 Bank[435](index=435&type=chunk)[417](index=417&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=103&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) 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 million**[444](index=444&type=chunk) [Controls and Procedures](index=106&type=section&id=Item%204.%20Controls%20and%20Procedures) 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 effective[459](index=459&type=chunk) - There were no material changes in the company's internal control over financial reporting during the quarter[447](index=447&type=chunk) PART II OTHER INFORMATION [Legal Proceedings](index=108&type=section&id=Item%201.%20Legal%20Proceedings) 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 litigation[467](index=467&type=chunk) [Risk Factors](index=108&type=section&id=Item%201A.%20Risk%20Factors) 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, 2023[448](index=448&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=108&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) 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, 2024[461](index=461&type=chunk) [Other Items (Items 3, 4, 5, 6)](index=109&type=section&id=Other%20Items%20(Items%203,%204,%205,%206)) 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, 2021[470](index=470&type=chunk) - There were no defaults upon senior securities, and mine safety disclosures are not applicable[463](index=463&type=chunk)[278](index=278&type=chunk)

Bridgewater Bancshares, Inc. (NASDAQ:BWB) Q2 2023 Earnings Conference Call July 27, 2023 9:00 AM ET Company Participants Justin Horstman - Director, Investor Relations Jerry Baack - Chairman, President and Chief Executive Officer Joe Chybowski - Chief Financial Officer Nick Place - Chief Lending Officer Jeff Shellberg - Director, Secretary, Executive Vice President and Chief Credit Officer Conference Call Participants Brendan Nosal - Piper Sandler Jeff Rulis - D.A. Davidson Ben Gerlinger - the Hovde Group O ...

SIGNATURES 68 2 PART 1 – FINANCIAL INFORMATION Bridgewater Bancshares, Inc. and Subsidiaries Consolidated Balance Sheets (dollars in thousands, except share data) Table of Contents | --- | --- | --- | --- | --- | --- | |--------------------------------------------------------------------|-------|-------|------------------------------|--------|--------------------------| | INTEREST INCOME | | | Three \nMarch 31, 2023 | Months | Ended \nMarch 31, 2022 | | Loans, Including Fees | | $ | 44,955 | $ | 31,744 | | ...

Bridgewater Bancshares, Inc. (NASDAQ:BWB) Q1 2023 Earnings Conference Call March 27, 2023 9:00 AM ET Company Participants Justin Horstman - Director, Investor Relations Jerry Baack - Chairman, President and Chief Executive Officer Joe Chybowski - Chief Financial Officer Nick Place - Chief Lending Officer Jeff Shellberg - Director, Secretary, Executive Vice President and Chief Credit Officer Conference Call Participants Brendan Nosal - Piper Sandler Jeff Rulis - D.A. Davidson Ben Gerlinger - Hovde Group Oper ...

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 $1.20 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 $3.57 billion, total deposits at $3.42 billion, and total shareholders' equity at $394.1 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 $776.2 million of brokered deposits, representing 22.7% of total deposits, $97.0 million of FHLB advances, and $287.0 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 $10 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 $4.0 billion in total assets in 2022[42] - The company completed a small bank acquisition in 2016, adding approximately $76.1 million in assets and $66.7 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]

Bridgewater Bancshares, Inc. (NASDAQ:BWB) Q4 2022 Results Conference Call January 26, 2023 9:00 AM ET Company Participants Justin Horstman - Director of Investor Relations Jerry Baack - Chairman, President and Chief Executive Officer Joe Chybowski - Chief Financial Officer Jeff Shellberg - Chief Credit Officer Nick Place - Chief Lending Officer Conference Call Participants Brendan Nosal - Piper Sandler Jeff Rulis - D.A. Davidson Ben Gerlinger - Hovde Group Operator Good morning, and welcome to the Bridgewat ...

Table of Contents 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, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | --- | --- | |--------------------------------------------------------------------------------------|-----------------------------------------------------| | For the ...

[PART I FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) This section presents the unaudited consolidated financial statements and management's discussion and analysis of financial condition and results of operations [Consolidated Financial Statements (unaudited)](index=3&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20%28unaudited%29) This section presents the unaudited consolidated financial statements of Bridgewater Bancshares, Inc. and its subsidiaries for the period ended June 30, 2022, including balance sheets, income statements, comprehensive income, shareholders' equity, cash flows, and detailed notes explaining significant accounting policies, earnings per share, securities, loans, deposits, derivatives, subordinated debentures, commitments, stock options, regulatory capital, fair value measurements, and subsequent events [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) The consolidated balance sheets show the financial position of Bridgewater Bancshares, Inc. and its subsidiaries as of June 30, 2022, compared to December 31, 2021, highlighting significant changes in assets, liabilities, and shareholders' equity | Metric | June 30, 2022 (Unaudited) ($ thousands) | December 31, 2021 ($ thousands) | |:---|:---|:---| | **ASSETS** ||| | Cash and Cash Equivalents | $73,517 | $143,473 | | Securities Available for Sale, at Fair Value | $482,583 | $439,362 | | Loans, Net | $3,171,638 | $2,769,917 | | Total Assets | $3,883,264 | $3,477,659 | | **LIABILITIES** ||| | Total Deposits | $3,201,953 | $2,946,237 | | Total Liabilities | $3,508,381 | $3,098,387 | | **SHAREHOLDERS' EQUITY** ||| | Total Shareholders' Equity | $374,883 | $379,272 | | Total Liabilities and Equity | $3,883,264 | $3,477,659 | [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) The consolidated statements of income provide a summary of the company's financial performance for the three and six months ended June 30, 2022 and 2021, showing increases in net interest income and net income available to common shareholders | Metric | Three Months Ended June 30, 2022 ($ thousands) | Three Months Ended June 30, 2021 ($ thousands) | Six Months Ended June 30, 2022 ($ thousands) | Six Months Ended June 30, 2021 ($ thousands) | |:---|:---|:---|:---|:---|\ | Total Interest Income | $37,782 | $31,147 | $72,476 | $61,587 | | Total Interest Expense | $5,252 | $4,859 | $9,766 | $9,904 | | Net Interest Income | $32,530 | $26,288 | $62,710 | $51,683 | | Provision for Loan Losses | $3,025 | $1,600 | $4,700 | $2,700 | | Net Income | $12,882 | $10,993 | $25,144 | $21,664 | | Net Income Available to Common Shareholders | $11,868 | $10,993 | $23,117 | $21,664 | | Basic Earnings per Share | $0.43 | $0.39 | $0.83 | $0.77 | | Diluted Earnings per Share | $0.41 | $0.38 | $0.80 | $0.75 | [Consolidated Statements of Comprehensive Income](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) The consolidated statements of comprehensive income detail the net income and other comprehensive income (loss) components, primarily driven by unrealized gains and losses on available-for-sale securities and cash flow hedges | Metric | Three Months Ended June 30, 2022 ($ thousands) | Three Months Ended June 30, 2021 ($ thousands) | Six Months Ended June 30, 2022 ($ thousands) | Six Months Ended June 30, 2021 ($ thousands) | |:---|:---|:---|:---|:---|\ | Net Income | $12,882 | $10,993 | $25,144 | $21,664 | | Unrealized Gains (Losses) on Available for Sale Securities | $(15,402) | $2,866 | $(38,414) | $350 | | Unrealized Gains (Losses) on Cash Flow Hedges | $4,363 | $(2,551) | $13,392 | $3,054 | | Total Other Comprehensive Income (Loss), Net of Tax | $(9,354) | $(59) | $(20,067) | $2,663 | | Comprehensive Income | $3,528 | $10,934 | $5,077 | $24,327 | [Consolidated Statements of Shareholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Shareholders%27%20Equity) The consolidated statements of shareholders' equity show the changes in equity components for the three and six months ended June 30, 2022 and 2021, reflecting impacts from comprehensive income, stock-based compensation, stock repurchases, and preferred stock dividends - Total Shareholders' Equity decreased from **$379,441 thousand** at March 31, 2022, to **$374,883 thousand** at June 30, 2022, primarily due to stock repurchases and accumulated other comprehensive loss[18](index=18&type=chunk) - Stock repurchases for the three months ended June 30, 2022, amounted to **$7,959 thousand**, reducing common stock and additional paid-in capital[18](index=18&type=chunk) - Accumulated Other Comprehensive Income (Loss) significantly decreased from **$(1,707) thousand** at March 31, 2022, to **$(11,061) thousand** at June 30, 2022, reflecting a substantial comprehensive loss[18](index=18&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) The consolidated statements of cash flows illustrate the sources and uses of cash for operating, investing, and financing activities for the six months ended June 30, 2022 and 2021, showing a net decrease in cash and cash equivalents | Metric | Six Months Ended June 30, 2022 ($ thousands) | Six Months Ended June 30, 2021 ($ thousands) | |:---|:---|:---|\ | Net Cash Provided by Operating Activities | $71,226 | $27,930 | | Net Cash Used in Investing Activities | $(485,751) | $(304,619) | | Net Cash Provided by Financing Activities | $344,569 | $208,211 | | Net Change in Cash and Cash Equivalents | $(69,956) | $(68,478) | | Cash and Cash Equivalents Ending | $73,517 | $92,197 | [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed explanations and disclosures supporting the consolidated financial statements, covering business operations, accounting policies, earnings per share calculations, investment securities, loan portfolio analysis, deposit composition, derivative instruments, subordinated debt, commitments, stock-based compensation, regulatory capital, and fair value measurements [Note 1: Description of the Business and Summary of Significant Accounting Policies](index=9&type=section&id=Note%201%3A%20Description%20of%20the%20Business%20and%20Summary%20of%20Significant%20Accounting%20Policies) This note describes Bridgewater Bancshares, Inc. as a financial holding company operating Bridgewater Bank, which provides retail and commercial loan and deposit services in the Minneapolis-St. Paul area. It also outlines the basis of presentation, principles of consolidation, use of estimates, and the company's status as an 'emerging growth company' under the JOBS Act, including its election for an extended transition period for new accounting standards - Bridgewater Bancshares, Inc. is a financial holding company with primary operations through Bridgewater Bank, offering retail and commercial loan and deposit services in the Minneapolis-St. Paul-Bloomington, MN-WI Metropolitan Statistical Area[23](index=23&type=chunk) - The company qualifies as an 'emerging growth company' under the JOBS Act and has elected to use the extended transition period for complying with new or revised financial accounting standards[30](index=30&type=chunk)[31](index=31&type=chunk) - Material estimates susceptible to significant change include the allowance for loan losses, deferred tax assets, fair value of financial instruments, and investment securities impairment[29](index=29&type=chunk) [Note 2: Earnings Per Share](index=13&type=section&id=Note%202%3A%20Earnings%20Per%20Share) This note details the calculation of basic and diluted earnings per common share, including the weighted average number of common shares outstanding and the dilutive effect of stock compensation | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |:---|:---|:---|:---|:---|\ | Net Income Available to Common Shareholders ($ thousands) | $11,868 | $10,993 | $23,117 | $21,664 | | Weighted Average Common Stock Outstanding (Basic) | 27,839,260 | 28,040,762 | 27,980,749 | 28,029,129 | | Dilutive Effect of Stock Compensation | 964,582 | 1,087,419 | 1,011,031 | 1,019,295 | | Weighted Average Common Stock Outstanding (Dilutive) | 28,803,842 | 29,128,181 | 28,991,780 | 29,048,424 | | Basic Earnings per Common Share | $0.43 | $0.39 | $0.83 | $0.77 | | Diluted Earnings per Common Share | $0.41 | $0.38 | $0.80 | $0.75 | - Approximately **332,200** and **300,500** shares of stock options, restricted stock awards, and restricted stock units were excluded from diluted EPS calculation for the three and six months ended June 30, 2022, respectively, as they were anti-dilutive[37](index=37&type=chunk) [Note 3: Securities](index=14&type=section&id=Note%203%3A%20Securities) This note provides a breakdown of the company's securities available for sale, including amortized cost, fair value, and unrealized gains and losses, and details the proceeds and gains/losses from sales of these securities | Security Type | June 30, 2022 Amortized Cost ($ thousands) | June 30, 2022 Fair Value ($ thousands) | December 31, 2021 Amortized Cost ($ thousands) | December 31, 2021 Fair Value ($ thousands) | |:---|:---|:---|:---|:---|\ | U.S. Treasury Securities | $2,620 | $2,606 | $756 | $754 | | Municipal Bonds | $184,401 | $167,521 | $151,665 | $158,369 | | Mortgage-Backed Securities | $155,580 | $144,969 | $125,563 | $124,537 | | Corporate Securities | $104,647 | $103,097 | $81,925 | $84,480 | | SBA Securities | $24,690 | $24,642 | $30,474 | $30,370 | | Asset-Backed Securities | $40,000 | $39,748 | $39,867 | $40,852 | | Total Securities Available for Sale | $511,938 | $482,583 | $430,250 | $439,362 | - At June 30, 2022, **448 debt securities** had unrealized losses with an aggregate depreciation of approximately **7.7%** from amortized cost, primarily due to changes in interest rates, not issuer financial condition[43](index=43&type=chunk) | Metric | Three Months Ended June 30, 2022 ($ thousands) | Three Months Ended June 30, 2021 ($ thousands) | Six Months Ended June 30, 2022 ($ thousands) | Six Months Ended June 30, 2021 ($ thousands) | |:---|:---|:---|:---|:---|\ | Proceeds From Sales of Securities | $25,066 | $6,107 | $25,066 | $7,757 | | Gross Gains on Sales | $234 | $702 | $234 | $702 | | Gross Losses on Sales | $(182) | $0 | $(182) | $0 | [Note 4: Loans](index=17&type=section&id=Note%204%3A%20Loans) This note provides a detailed breakdown of the loan portfolio by segment, activity in the allowance for loan losses, impairment methods, risk categories, and aging of past due loans. It also discusses troubled debt restructurings and COVID-19 related loan modifications | Loan Segment | June 30, 2022 ($ thousands) | December 31, 2021 ($ thousands) | |:---|:---|:---|\ | Commercial | $403,569 | $360,169 | | Paycheck Protection Program | $4,860 | $26,162 | | Construction and Land Development | $359,191 | $281,474 | | Total Real Estate Mortgage Loans | $2,451,326 | $2,145,225 | | Total Loans, Gross | $3,225,885 | $2,819,472 | | Allowance for Loan Losses | $(44,711) | $(40,020) | | Total Loans, Net | $3,171,638 | $2,769,917 | | Metric | Three Months Ended June 30, 2022 ($ thousands) | Three Months Ended June 30, 2021 ($ thousands) | |:---|:---|:---|\ | Beginning Balance | $41,692 | $35,987 | | Provision for Loan Losses | $3,025 | $1,600 | | Loans Charged-off | $(14) | $(3) | | Recoveries of Loans | $8 | $7 | | Total Ending Allowance Balance | $44,711 | $37,591 | - As of June 30, 2022, there were two loans classified as troubled debt restructurings with total outstanding balances of **$201,000**, a decrease from four loans totaling **$1.4 million** at December 31, 2021[59](index=59&type=chunk) Summary of Active COVID-19 Loan Modifications as of June 30, 2022 | Modification Type | Amount ($ thousands) | of Loans | |:---|:---|:---|\ | Interest-Only | $25,091 | 6 | | Extended Amortization | $4,694 | 1 | | Total | $29,785 | 7 | [Note 5: Deposits](index=25&type=section&id=Note%205%3A%20Deposits) This note outlines the composition of deposits, including transaction, savings, money market, time, and brokered deposits, and provides a maturity schedule for brokered and customer time deposits | Deposit Type | June 30, 2022 ($ thousands) | December 31, 2021 ($ thousands) | |:---|:---|:---|\ | Transaction Deposits | $1,484,149 | $1,419,873 | | Savings and Money Market Deposits | $952,138 | $863,567 | | Time Deposits | $272,424 | $293,474 | | Brokered Deposits | $493,242 | $369,323 | | Totals | $3,201,953 | $2,946,237 | Scheduled Maturities of Brokered and Customer Time Deposits at June 30, 2022 | Maturity | Amount ($ thousands) | |:---|:---|\ | Less than 1 Year | $172,726 | | 1 to 2 Years | $94,935 | | 2 to 3 Years | $124,252 | | 3 to 4 Years | $105,491 | | 4 to 5 Years | $22,442 | | Greater than 5 Years | $24,423 | | Totals | $544,269 | - The aggregate amount of time deposits greater than **$250,000** was approximately **$53.4 million** at June 30, 2022, down from **$59.6 million** at December 31, 2021[63](index=63&type=chunk) [Note 6: Derivative Instruments and Hedging Activities](index=27&type=section&id=Note%206%3A%20Derivative%20Instruments%20and%20Hedging%20Activities) This note describes the company's use of derivative financial instruments, including interest rate swaps and caps, for interest rate risk management. It distinguishes between non-hedge derivatives used for client transactions and cash flow hedging derivatives used to manage exposure for brokered deposits and wholesale borrowings Summary of Non-Hedge Interest Rate Swaps | Derivative Type | June 30, 2022 Notional Amount ($ thousands) | June 30, 2022 Estimated Fair Value ($ thousands) | December 31, 2021 Notional Amount ($ thousands) | December 31, 2021 Estimated Fair Value ($ thousands) | |:---|:---|:---|:---|:---|\ | Interest rate swap agreements (Assets) | $65,916 | $5,099 | $49,101 | $641 | | Interest rate swap agreements (Liabilities) | $65,916 | $(5,099) | $49,101 | $(641) | | Total | $131,832 | $0 | $98,202 | $0 | Summary of Cash Flow Hedging Interest Rate Swaps | Metric | June 30, 2022 | December 31, 2021 | |:---|:---|:---|\ | Notional Amount ($ thousands) | $125,000 | $125,000 | | Weighted Average Pay Rate | 1.23% | 1.27% | | Weighted Average Receive Rate | 1.01% | 0.14% | | Weighted Average Maturity (Years) | 3.27 | 3.76 | | Net Unrealized Gain (Loss) ($ thousands) | $7,487 | $791 | Summary of Cash Flow Hedging Interest Rate Caps | Metric | June 30, 2022 | December 31, 2021 | |:---|:---|:---|\ | Notional Amount ($ thousands) | $125,000 | $110,000 | | Unamortized Premium Paid ($ thousands) | $6,269 | $5,859 | | Weighted Average Strike Rate | 0.96% | 0.90% | | Weighted Average Maturity (Years) | 8.08 | 8.72 | | Amortization Expense (Six Months Ended) ($ thousands) | $370 | $95 | [Note 7: Subordinated Debentures](index=30&type=section&id=Note%207%3A%20Subordinated%20Debentures) This note provides a summary of the company's subordinated debentures, including their establishment dates, redemption dates, maturity dates, outstanding amounts, interest rates, and coupon structures | Name | Date Established | First Redemption Date | Maturity Date | Total Debt Outstanding June 30, 2022 ($ thousands) | Interest Rate | Coupon Structure | |:---|:---|:---|:---|:---|:---|:---|\ | 2027 Notes | July 12, 2017 | July 15, 2022 | July 15, 2027 | $13,750 | 5.88% | Fixed-to-Floating | | 2030 Notes | June 19, 2020 | July 1, 2025 | July 1, 2030 | $50,000 | 5.25% | Fixed-to-Floating | | 2031 Notes | July 8, 2021 | July 15, 2026 | July 15, 2031 | $30,000 | 3.25% | Fixed-to-Floating | | Subordinated Debentures, Net of Issuance Costs | | | | $92,459 | | | [Note 8: Commitments, Contingencies and Credit Risk](index=30&type=section&id=Note%208%3A%20Commitments%2C%20Contingencies%20and%20Credit%20Risk) This note details the company's financial instruments with off-balance sheet credit risk, such as unfunded commitments under lines of credit and letters of credit, and confirms the absence of material legal proceedings | Commitment Type | June 30, 2022 ($ thousands) | December 31, 2021 ($ thousands) | |:---|:---|:---|\ | Unfunded Commitments Under Lines of Credit | $892,523 | $799,148 | | Letters of Credit | $116,017 | $119,647 | | Totals | $1,008,540 | $918,795 | - The company had outstanding letters of credit with the FHLB totaling **$53.7 million** at June 30, 2022, up from **$36.5 million** at December 31, 2021[79](index=79&type=chunk) - Neither the Company nor its subsidiaries are party to any material pending legal proceedings beyond ordinary routine litigation incidental to the Bank's business[80](index=80&type=chunk) [Note 9: Stock Options and Restricted Stock](index=30&type=section&id=Note%209%3A%20Stock%20Options%20and%20Restricted%20Stock) This note describes the company's stock-based compensation plans, including stock options, restricted stock awards, and restricted stock units, detailing their terms, activity, and associated compensation expenses - The Company has three equity incentive plans: the 2012 Plan (expired March 2022), the 2017 Plan (**1,500,000 shares** authorized), and the 2019 EIP (**1,000,000 shares** authorized), granting options, restricted stock, and restricted stock units[83](index=83&type=chunk)[84](index=84&type=chunk)[85](index=85&type=chunk) Stock Option Activity and Outstanding Options at June 30, 2022 | Metric | Six Months Ended June 30, 2022 | |:---|:---|\ | Stock Options Outstanding at Period End | 2,021,995 | | Weighted Average Exercise Price | $9.10 | | Options Exercisable at Period End | 1,332,720 | | Weighted Average Exercise Price (Exercisable) | $7.00 | - Total unrecognized compensation cost for nonvested stock options was **$2.1 million** (weighted-average period of **2.8 years**), for restricted stock awards was **$659,000** (**1.5 years**), and for restricted stock units was **$4.2 million** (**3.1 years**) as of June 30, 2022[93](index=93&type=chunk)[97](index=97&type=chunk)[103](index=103&type=chunk) [Note 10: Regulatory Capital](index=36&type=section&id=Note%2010%3A%20Regulatory%20Capital) This note presents the regulatory capital amounts and ratios for the Company and the Bank, demonstrating compliance with minimum capital requirements and 'well capitalized' standards under prompt corrective action regulations | Capital Ratio | Company (Consolidated) June 30, 2022 Actual Ratio | Company (Consolidated) Minimum Required For Capital Adequacy Purposes Ratio | Bank June 30, 2022 Actual Ratio | Bank Minimum Required For Capital Adequacy Purposes Ratio | Bank To be Well Capitalized Under Prompt Corrective Action Regulations Ratio | |:---|:---|:---|:---|:---|:---|\ | Total Risk-based Capital | 13.98% | 8.00% | 12.74% | 8.00% | 10.00% | | Tier 1 Risk-based Capital | 10.29% | 6.00% | 11.53% | 6.00% | 8.00% | | Common Equity Tier 1 Capital | 8.50% | 4.50% | 11.53% | 4.50% | 6.50% | | Tier 1 Leverage Ratio | 10.33% | 4.00% | 11.43% | 4.00% | 5.00% | - Both the Company and the Bank met all capital adequacy requirements and were considered 'well capitalized' as of June 30, 2022[106](index=106&type=chunk) [Note 11: Fair Value Measurement](index=38&type=section&id=Note%2011%3A%20Fair%20Value%20Measurement) This note details the company's fair value measurements for assets and liabilities, categorizing them into a three-level hierarchy based on input observability. It covers recurring measurements for investment securities, interest rate caps, and swaps, as well as nonrecurring measurements for impaired loans - The company categorizes fair value measurements into Level 1 (quoted prices in active markets), Level 2 (observable inputs for similar assets/liabilities), and Level 3 (unobservable inputs)[109](index=109&type=chunk)[110](index=110&type=chunk)[111](index=111&type=chunk) | Financial Instrument | June 30, 2022 Total Fair Value ($ thousands) | December 31, 2021 Total Fair Value ($ thousands) | |:---|:---|:---|\ | **Financial Assets:** ||| | Securities Available for Sale | $482,583 | $439,362 | | Interest Rate Caps | $15,144 | $7,356 | | Interest Rate Swaps | $12,586 | $2,358 | | **Financial Liabilities:** ||| | Interest Rate Swaps | $5,099 | $1,567 | Net Impairment Losses Related to Nonrecurring Fair Value Measurements of Impaired Loans | Impaired Loans | June 30, 2022 Level 2 Fair Value ($ thousands) | June 30, 2022 Loss ($ thousands) | December 31, 2021 Level 2 Fair Value ($ thousands) | December 31, 2021 Loss ($ thousands) | |:---|:---|:---|:---|:---|\ | Impaired Loans | $11,985 | $235 | $9,360 | $625 | [Note 12: Subsequent Events](index=46&type=section&id=Note%2012%3A%20Subsequent%20Events) This note discloses a subsequent event where the Board of Directors declared a quarterly cash dividend on its Series A Preferred Stock, payable on September 1, 2022 - On July 26, 2022, the Board of Directors declared a quarterly cash dividend of **$36.72 per share** (**$0.3672 per depositary share**) on its 5.875% Non-Cumulative Perpetual Preferred Stock, Series A, payable September 1, 2022[139](index=139&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=46&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations for the three and six months ended June 30, 2022, discussing key performance drivers, critical accounting policies, and an in-depth analysis of net interest income, noninterest income, noninterest expense, and financial position components [General](index=46&type=section&id=General) This subsection introduces the management's discussion and analysis, emphasizing that annualized interim results may not predict full-year performance and should be read with the consolidated financial statements and the prior annual report [Forward-Looking Statements](index=46&type=section&id=Forward-Looking%20Statements) This section highlights the presence of forward-looking statements in the report, cautioning readers about inherent uncertainties and risks that could cause actual results to differ materially from projections, including economic conditions, credit risk, regulatory changes, and cybersecurity incidents - The report contains forward-looking statements subject to inherent uncertainties, risks, and changes in circumstances, including the ongoing COVID-19 pandemic, real estate market health, credit risk management, and rising inflation[141](index=141&type=chunk)[142](index=142&type=chunk) - Key risk factors include loan concentrations, ability to manage credit and liquidity risk, dependence on non-core funding, talent shortages, cybersecurity incidents, and legislative/regulatory changes[142](index=142&type=chunk) [Overview](index=50&type=section&id=Overview) This overview describes Bridgewater Bancshares, Inc. as a financial holding company focused on profitable growth through its simple, efficient business model, with primary income from loans and investments, and expenses from deposits, borrowings, and overhead - The Company's principal sources of funds are transaction, savings, time, and other deposits, and short-term and long-term borrowings[146](index=146&type=chunk) - Primary income sources are interest and fees from loans, interest and dividends from investment securities, and service charges[146](index=146&type=chunk) - The Company's business model focuses on providing responsive support and unconventional experiences to clients to drive profitable growth[146](index=146&type=chunk) [Information Regarding COVID-19 Impact](index=50&type=section&id=Information%20Regarding%20COVID-19%20Impact) Management continues to closely monitor the unpredictable impact of the COVID-19 pandemic, including its effects on the economy, financial markets, and the company's financial condition and operations, acknowledging the fluid situation and inability to estimate its full duration and impact - Management is closely monitoring the unpredictable nature and impact of the COVID-19 pandemic on the economy, financial markets, and the Company's financial condition and operations[147](index=147&type=chunk) - The situation remains fluid, and the full duration and impact of the pandemic cannot be estimated[147](index=147&type=chunk) [Critical Accounting Policies and Estimates](index=50&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section discusses critical accounting policies and estimates that require complex and subjective judgments, including the allowance for loan losses, investment securities impairment, fair value of financial instruments, and deferred tax assets, noting the company's election of an extended transition period for new accounting standards under the JOBS Act - The Company's financial statements rely on significant estimates and assumptions, particularly for fair value measurements, which can lead to financial statement volatility[148](index=148&type=chunk) - The Company, as an emerging growth company, has elected the extended transition period for new or revised accounting standards under the JOBS Act[149](index=149&type=chunk) [Operating Results Overview](index=55&type=section&id=Operating%20Results%20Overview) This section provides an overview and detailed discussion of the company's operating results, including net income, net interest income, average balances and yields, and a comparison of interest income, interest expense, and net interest margin for the three and six months ended June 30, 2022 and 2021 | Metric | Q2 2022 | Q1 2022 | Q4 2021 | Q3 2021 | Q2 2021 | |:---|:---|:---|:---|:---|:---|\ | Basic Earnings Per Share | $0.43 | $0.40 | $0.41 | $0.41 | $0.39 | | Diluted Earnings Per Share | $0.41 | $0.39 | $0.39 | $0.40 | $0.38 | | Return on Average Assets (Annualized) | 1.38% | 1.42% | 1.46% | 1.37% | 1.43% | | Net Interest Margin (Annualized) | 3.58% | 3.60% | 3.51% | 3.54% | 3.52% | | Efficiency Ratio | 40.2% | 42.4% | 40.8% | 43.9% | 42.0% | | Metric | Q2 2022 ($ thousands) | Q2 2021 ($ thousands) | 6M 2022 ($ thousands) | 6M 2021 ($ thousands) | |:---|:---|:---|:---|:---|\ | Net Income | $12,882 | $10,993 | $25,144 | $21,664 | | Net Interest Income | $32,530 | $26,288 | $62,710 | $51,683 | | Provision for Loan Losses | $3,025 | $1,600 | $4,700 | $2,700 | | Noninterest Income | $1,650 | $1,603 | $3,207 | $2,611 | | Noninterest Expense | $13,752 | $11,477 | $27,260 | $22,400 | | Income Before Income Taxes | $17,403 | $14,814 | $33,957 | $29,194 | | Provision for Income Taxes | $4,521 | $3,821 | $8,813 | $7,530 | - Net interest income increased by **$6.2 million** (**23.7%**) to **$32.5 million** in Q2 2022 compared to Q2 2021, driven by growth in average interest earning assets and lower rates paid on deposits, partially offset by declining loan yields and lower PPP fee recognition[185](index=185&type=chunk) - The net interest margin (tax-equivalent) for Q2 2022 increased by **six basis points** to **3.58%** from **3.52%** in Q2 2021, primarily due to rising earning asset yields and increasing funding costs[186](index=186&type=chunk) - PPP origination fees recognized decreased significantly to **$244,000** in Q2 2022 from **$1.4 million** in Q2 2021, with only **$135,000** remaining to be recognized as of June 30, 2022[187](index=187&type=chunk) - Total interest income (tax-equivalent) increased by **$6.6 million** (**21.4%**) to **$38.1 million** in Q2 2022, mainly due to organic loan growth and investment securities purchases, despite reduced PPP fee recognition[191](index=191&type=chunk) - Interest expense on interest bearing liabilities increased by **$393,000** (**8.1%**) to **$5.3 million** in Q2 2022, while the cost of interest bearing liabilities declined **10 basis points** to **0.86%**, due to lower deposit rates partially offset by growth in interest bearing deposits and federal funds purchased[194](index=194&type=chunk) - Noninterest income increased by **$47,000** to **$1.7 million** in Q2 2022, driven by higher letter of credit fees, bank-owned life insurance income, and other income, partially offset by lower gains on securities sales[215](index=215&type=chunk) - Noninterest expense increased by **$2.3 million** to **$13.8 million** in Q2 2022, primarily due to a **$1.5 million** increase in salaries and employee benefits, along with higher professional fees, marketing, and other expenses[218](index=218&type=chunk) - The efficiency ratio improved to **40.2%** in Q2 2022 from **42.0%** in Q2 2021, and the adjusted efficiency ratio improved to **40.0%** from **41.5%**[222](index=222&type=chunk) - Income tax expense was **$4.5 million** in Q2 2022, with an effective combined federal and state income tax rate of **26.0%**, compared to **25.8%** in Q2 2021[226](index=226&type=chunk) [Financial Condition](index=74&type=section&id=Financial%20Condition) This section analyzes the company's financial condition, focusing on asset growth, the composition and quality of the loan and investment securities portfolios, deposit trends, borrowed funds, contractual obligations, capital levels, and liquidity management - Total assets increased by **$405.6 million** (**11.7%**) to **$3.88 billion** at June 30, 2022, compared to December 31, 2021, driven by strong organic loan growth and investment securities purchases[227](index=227&type=chunk) - Total gross loans grew by **$406.4 million** (**14.4%**) to **$3.23 billion** at June 30, 2022, with significant growth in commercial, construction and land development, multifamily, and CRE nonowner occupied segments, excluding PPP loans[228](index=228&type=chunk) - Securities available for sale increased by **$43.2 million** (**9.8%**) to **$482.6 million** at June 30, 2022, with municipal securities, government agency mortgage-backed securities, and corporate securities being major components[231](index=231&type=chunk) - Investor CRE loans totaled **$2.33 billion** at June 30, 2022, representing **72.4%** of the total gross loan portfolio (excluding PPP loans) and **492.1%** of the Bank's total risk-based capital[240](index=240&type=chunk) - Nonperforming loans totaled **$688,000** at June 30, 2022, a decrease of **$34,000** from December 31, 2021, with no loans 90 days past due and still accruing or foreclosed assets[252](index=252&type=chunk) - The allowance for loan losses increased by **$4.7 million** to **$44.7 million** at June 30, 2022, from **$40.0 million** at December 31, 2021, primarily due to robust loan portfolio growth[260](index=260&type=chunk) - Total deposits increased by **$255.7 million** (**8.7%**) to **$3.20 billion** at June 30, 2022, driven by growth in noninterest bearing transaction deposits, savings, money market, and brokered deposits[263](index=263&type=chunk) - Total shareholders' equity decreased by **$4.4 million** to **$374.9 million** at June 30, 2022, primarily due to increased unrealized losses in the securities portfolio and stock repurchases, partially offset by net income[274](index=274&type=chunk) - The company repurchased **492,417 shares** of common stock for **$8.0 million** during Q2 2022, with **$3.2 million** remaining under the stock repurchase program[275](index=275&type=chunk) - Primary liquidity decreased by **$44.5 million** to **$525.8 million** at June 30, 2022, while secondary liquidity increased by **$62.0 million** to **$971.8 million**, ensuring compliance with liquidity guidelines[289](index=289&type=chunk)[292](index=292&type=chunk) [Non-GAAP Financial Measures](index=95&type=section&id=Non-GAAP%20Financial%20Measures) This section provides reconciliations of non-GAAP financial measures, such as Pre-Provision Net Revenue, Core Net Interest Margin, Efficiency Ratio, Adjusted Efficiency Ratio, Tangible Common Equity, and Tangible Book Value Per Share, to their comparable GAAP measures, offering additional insights into the company's operating performance and trends - The Company uses non-GAAP financial measures to supplement GAAP results, providing meaningful information for investors to understand operating performance and trends, and to facilitate peer comparisons[294](index=294&type=chunk) | Metric | Q2 2022 | Q1 2022 | Q4 2021 | Q3 2021 | Q2 2021 | |:---|:---|:---|:---|:---|:---|\ | Pre-Provision Net Revenue ($ thousands) | $20,439 | $18,346 | $18,134 | $17,533 | $15,852 | | Core Net Interest Margin | 3.34% | 3.34% | 3.25% | 3.22% | 3.31% | | Efficiency Ratio | 40.2% | 42.4% | 40.8% | 43.9% | 42.0% | | Adjusted Efficiency Ratio | 40.0% | 42.0% | 40.3% | 41.5% | 41.5% | | Tangible Common Equity/Tangible Assets | 7.87% | 8.60% | 8.91% | 8.81% | 9.10% | | Tangible Book Value Per Common Share | $11.03 | $11.01 | $10.98 | $10.62 | $10.22 | [Quantitative and Qualitative Disclosures About Market Risk](index=98&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the company's primary market risk, which is interest rate risk, and outlines its management through the ALM Committee, including the use of net interest income simulation and hedging instruments like interest rate swaps and caps - The Company's primary market risk is interest rate risk, managed by the ALM Committee through a board-approved risk management infrastructure[301](index=301&type=chunk)[303](index=303&type=chunk) - The Company uses interest rate swaps and caps as hedging transactions to mitigate interest rate exposure, with total notional amounts of **$250.0 million** at June 30, 2022, and **$235.0 million** at December 31, 2021[305](index=305&type=chunk) Net Interest Income Simulation (12-Month Projection) | Change (basis points) in Interest Rates | June 30, 2022 Forecasted Net Interest Income ($ thousands) | June 30, 2022 Percentage Change from Base | |:---|:---|:---|\ | +400 | $137,534 | (1.61)% | | +300 | $138,282 | (1.07)% | | +200 | $138,863 | (0.66)% | | +100 | $139,278 | (0.36)% | | 0 | $139,783 | — | | −100 | $140,495 | 0.51% | [Controls and Procedures](index=101&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms that the company's Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of disclosure controls and procedures as of June 30, 2022, concluding they were effective, and reports no material changes in internal control over financial reporting - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of June 30, 2022[311](index=311&type=chunk) - There were no material changes in the Company's internal control over financial reporting during the quarter ended June 30, 2022[312](index=312&type=chunk) [PART II OTHER INFORMATION](index=103&type=section&id=PART%20II%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity security sales, defaults, mine safety, other information, and exhibits [Legal Proceedings](index=103&type=section&id=Item%201.%20Legal%20Proceedings) This section states that neither the company nor its subsidiaries are involved in any material pending legal proceedings, beyond routine litigation incidental to the Bank's business - Neither the Company nor its subsidiaries are party to any material pending legal proceedings, other than ordinary routine litigation incidental to the Bank's business[314](index=314&type=chunk) [Risk Factors](index=103&type=section&id=Item%201A.%20Risk%20Factors) This section indicates that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K - There have been no material changes to the risk factors disclosed in the Company's Annual Report on Form 10-K filed on March 8, 2022[315](index=315&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=104&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the company's stock repurchase activities during the second quarter of 2022 and confirms no unregistered sales of equity securities or use of proceeds from registered securities | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ($) | |:---|:---|:---|:---|:---|\ | April 1 - 30, 2022 | 179,996 | $16.56 | 179,996 | $8,222,832 | | May 1 - 31, 2022 | 174,100 | $15.91 | 174,100 | $5,453,402 | | June 1 - 30, 2022 | 138,671 | $15.97 | 138,321 | $3,243,732 | | Total | 492,767 | $16.16 | 492,417 | $3,243,732 | - The stock repurchase program, initially approved on January 22, 2019, and subsequently expanded to **$40.0 million**, was extended through October 27, 2022[317](index=317&type=chunk) - There were no unregistered sales of equity securities or use of proceeds from registered securities during the period[318](index=318&type=chunk)[319](index=319&type=chunk) [Defaults Upon Senior Securities](index=104&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section states that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[320](index=320&type=chunk) [Mine Safety Disclosures](index=104&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section indicates that mine safety disclosures are not applicable to the company - Mine Safety Disclosures are not applicable to the Company[321](index=321&type=chunk) [Other Information](index=105&type=section&id=Item%205.%20Other%20Information) This section states that there is no other information to report - No other information is reported in this section[323](index=323&type=chunk) [Exhibits](index=105&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including organizational documents, certifications, and XBRL financial data files - Exhibits include Second Amended and Restated Articles of Incorporation, Amended and Restated Bylaws, Statement of Designation of Preferred Stock, CEO and CFO certifications (Rule 13a-14(a) and 18 U.S.C. Section 1350), and XBRL financial data files[324](index=324&type=chunk) [SIGNATURES](index=106&type=section&id=SIGNATURES) This section contains the official signatures of the company's authorized officers, certifying the report [SIGNATURES](index=106&type=section&id=SIGNATURES) This section contains the signatures of the registrant's authorized officers, Jerry J. Baack (Chairman, CEO, and President) and Joe M. Chybowski (Chief Financial Officer), certifying the report on August 4, 2022 - The report is signed by Jerry J. Baack, Chairman, Chief Executive Officer and President, and Joe M. Chybowski, Chief Financial Officer, on August 4, 2022[328](index=328&type=chunk)

Table of Contents 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 March 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | --- | --- | --- | |--------------------------------------------------------------------------------------|-----------------------------------------------|--------------- ...