[PART I](index=6&type=section&id=PART%20I) [Business](index=6&type=section&id=Item%201.%20Business) Bridgewater Bancshares, Inc. is a Minnesota-based financial holding company focused on commercial real estate lending, with assets of **$3.48 billion** as of December 31, 2021 Financial Highlights as of December 31, 2021 | Metric | Amount (Billions) | |------------------------|-------------------| | Total Assets | $3.48 | | Total Gross Loans | $2.82 | | Total Deposits | $2.95 | | Total Shareholders' Equity | $0.379 | - The company has grown significantly since its inception in 2005, driven primarily by organic growth in commercial real estate lending, with assets surpassing **$3.0 billion** in 2021[17](index=17&type=chunk) - Operating in the competitive Twin Cities MSA, the company ranked ninth in deposit market share with approximately **1.2%** as of June 30, 2021[23](index=23&type=chunk)[25](index=25&type=chunk) - The company's lending activities are concentrated in commercial real estate, with a particular expertise in multifamily financing, which has historically represented **20-30%** of the loan portfolio[28](index=28&type=chunk) - The Bank is deemed to have a concentration in Commercial Real Estate (CRE) lending, with CRE and development loans representing **483.4%** of its total capital as of December 31, 2021, requiring heightened risk management practices[131](index=131&type=chunk) [Risk Factors](index=38&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant credit, liquidity, operational, and market risks, primarily from commercial real estate loan concentration and non-core funding - A significant portion of the loan portfolio consists of commercial real estate loans, representing **71.3%** of the total gross loan portfolio and **483.4%** of the Bank's total risk-based capital at year-end 2021, exposing the company to risks in real estate values[145](index=145&type=chunk) - The company has a high concentration of large loans, with the **10 largest borrowing relationships** accounting for approximately **19.2%** of the total gross loan portfolio as of December 31, 2021[169](index=169&type=chunk) - There is a high concentration of large depositors, with the **10 largest depositor relationships** accounting for approximately **17.1%** of total deposits, posing a liquidity risk if these clients withdraw their funds[189](index=189&type=chunk) - The company depends on non-core funding sources, including **$369.3 million** in brokered deposits, which represented **12.5%** of total deposits as of December 31, 2021[184](index=184&type=chunk)[185](index=185&type=chunk) - The ongoing COVID-19 pandemic poses a material risk, potentially impacting clients' ability to fulfill financial obligations, increasing delinquencies, and negatively affecting regional economic conditions[330](index=330&type=chunk)[331](index=331&type=chunk)[332](index=332&type=chunk) [Unresolved Staff Comments](index=87&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - None[335](index=335&type=chunk) [Properties](index=87&type=section&id=Item%202.%20Properties) The company's corporate headquarters is located in St. Louis Park, Minnesota, operating seven full-service branch offices within the Twin Cities MSA, with three owned and four leased - The company operates a total of **seven full-service branch offices** in the Twin Cities MSA[336](index=336&type=chunk) - Of the seven branch locations, **three are owned** by the company and **four are operated under lease agreements**[337](index=337&type=chunk) [Legal Proceedings](index=89&type=section&id=Item%203.%20Legal%20Proceedings) The company is not a party to any material pending legal proceedings, other than ordinary routine litigation incidental to its business - Neither the Company nor its subsidiaries are party to any material pending legal proceedings outside of ordinary routine litigation[339](index=339&type=chunk) [Mine Safety Disclosures](index=89&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[340](index=340&type=chunk) [PART II](index=89&type=section&id=PART%20II) [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=89&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on Nasdaq, with a **$40.0 million** stock repurchase program active, and future common stock dividends are not anticipated - The company's common stock and depository shares are traded on the Nasdaq Stock Market under the symbols **\"BWB\"** and **\"BWBBP\"**, respectively[342](index=342&type=chunk) - A stock repurchase program authorized up to **$40.0 million** is effective through October 27, 2022, with approximately **$12.4 million** remaining available for repurchases as of the end of Q4 2021[347](index=347&type=chunk)[345](index=345&type=chunk) - The company does not anticipate paying dividends on its common stock in the foreseeable future, intending to retain earnings to support operations and growth[351](index=351&type=chunk) [Selected Financial Data](index=93&type=section&id=Item%206.%20Selected%20Financial%20Data) This section has been intentionally omitted as permitted by recent SEC rule amendments designed to modernize and simplify financial disclosure requirements - The information previously required by this item has been intentionally omitted as permitted by SEC rule amendments[356](index=356&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=93&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2021, net income rose **68.0%** to **$45.7 million**, driven by increased net interest income and reduced loan loss provisions, with total assets growing **18.8%** to **$3.48 billion** Year-over-Year Performance Comparison (2021 vs. 2020) | Metric | 2021 | 2020 | % Change | |-----------------------------|-------------------|-------------------|----------| | Net Income | $45.7 million | $27.2 million | +68.0% | | Diluted EPS | $1.54 | $0.93 | +64.8% | | Net Interest Income | $109.5 million | $88.0 million | +24.5% | | Provision for Loan Losses | $5.2 million | $12.8 million | -59.4% | | Total Assets (Year-End) | $3.48 billion | $2.93 billion | +18.8% | | Total Gross Loans (Year-End)| $2.82 billion | $2.33 billion | +21.2% | - Net interest margin expanded to **3.54%** in 2021 from **3.46%** in 2020, benefiting from lower deposit costs and accelerated recognition of PPP loan fees[395](index=395&type=chunk) - Asset quality remained strong, with nonperforming assets at **$0.722 million** or **0.02%** of total assets, at year-end 2021[464](index=464&type=chunk) - Total deposits grew by **17.8%** to **$2.95 billion**, with a significant **30.2%** increase in noninterest-bearing deposits, which comprised **29.7%** of total deposits at year-end 2021[477](index=477&type=chunk) - Shareholders' equity increased by **42.9%** to **$379.3 million**, primarily due to retained earnings and the net issuance of **$66.5 million** in preferred stock[491](index=491&type=chunk)[490](index=490&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=147&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate risk, managed by its ALM Committee using **$235.0 million** in derivatives, with a **100 basis point** rate increase projected to raise net interest income by **0.55%** - The company's primary market risk is identified as interest rate risk, which is the risk of loss to net interest income due to changes in interest rates[526](index=526&type=chunk) - To mitigate interest rate risk, the company utilizes cash flow hedges, including interest rate swaps and caps, with a total notional amount of **$235.0 million** as of December 31, 2021[529](index=529&type=chunk) Net Interest Income Sensitivity Analysis (as of Dec 31, 2021) | Change in Interest Rates (bps) | Projected % Change in Net Interest Income | |--------------------------------|-------------------------------------------| | +400 | +5.75% | | +200 | +2.15% | | +100 | +0.55% | | -100 | -2.71% | [Financial Statements and Supplementary Data](index=150&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited consolidated financial statements for Bridgewater Bancshares, Inc. for the three years ended December 31, 2021, receiving an unqualified opinion - The independent registered public accounting firm, CliftonLarsonAllen LLP, issued an unqualified audit opinion on the consolidated financial statements[538](index=538&type=chunk) - The Consolidated Balance Sheet as of December 31, 2021, reports total assets of **$3.478 billion** and total liabilities of **$3.098 billion**[546](index=546&type=chunk)[543](index=543&type=chunk) - The Consolidated Statement of Income for the year ended December 31, 2021, shows Net Interest Income of **$109.51 million** and Net Income of **$45.69 million**[551](index=551&type=chunk) - Note 5 details the loan portfolio composition, with Real Estate Mortgage loans comprising the largest segment at **$2.145 billion** as of December 31, 2021[666](index=666&type=chunk) - Note 20 confirms that as of December 31, 2021, both the Company and the Bank's capital ratios exceeded the minimum requirements to be considered well-capitalized under regulatory guidelines[758](index=758&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=221&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[809](index=809&type=chunk) [Controls and Procedures](index=221&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2021 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[810](index=810&type=chunk) - Management asserts that the company maintained effective internal control over financial reporting as of December 31, 2021, based on the COSO framework[815](index=815&type=chunk) - There were no changes in internal control over financial reporting during the fiscal year that materially affected, or are reasonably likely to materially affect, the company's internal controls[817](index=817&type=chunk) [Other Information](index=223&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None[818](index=818&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=223&type=section&id=Item%209C%3A%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to the company - Not applicable[819](index=819&type=chunk) [PART III](index=223&type=section&id=PART%20III) [Directors, Executive Officers and Corporate Governance](index=223&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the company's definitive Proxy Statement for its 2022 Annual Meeting of Shareholders - Information is incorporated by reference from the definitive proxy statement to be filed within 120 days of the fiscal year end[821](index=821&type=chunk) [Executive Compensation](index=223&type=section&id=Item%2011.%20Executive%20Compensation) Information on executive and director compensation is incorporated by reference from the company's definitive Proxy Statement for its 2022 Annual Meeting of Shareholders - Information is incorporated by reference from the definitive proxy statement to be filed within 120 days of the fiscal year end[822](index=822&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=224&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) This section details equity compensation plans, showing **2,113,653** securities to be issued and **677,275** available for future issuance as of December 31, 2021 Equity Compensation Plan Information as of December 31, 2021 | Plan Category | Securities to be Issued Upon Exercise | Weighted-Average Exercise Price | Securities Remaining for Future Issuance | |------------------------------------------------|---------------------------------------|---------------------------------|------------------------------------------| | Equity compensation plans approved by shareholders | 2,113,653 | $7.67 | 677,275 | [Certain Relationships and Related Transactions, and Director Independence](index=224&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related party transactions and director independence is incorporated by reference from the company's definitive Proxy Statement for its 2022 Annual Meeting of Shareholders - Information is incorporated by reference from the definitive proxy statement to be filed within 120 days of the fiscal year end[827](index=827&type=chunk) [Principal Accounting Fees and Services](index=224&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information detailing fees paid to the principal accountant is incorporated by reference from the company's definitive Proxy Statement for its 2022 Annual Meeting of Shareholders - Information is incorporated by reference from the definitive proxy statement to be filed within 120 days of the fiscal year end[828](index=828&type=chunk) [PART IV](index=225&type=section&id=PART%20IV) [Exhibits and Financial Statement Schedules](index=225&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists financial statements from Item 8 and provides a comprehensive list of all exhibits filed with the Form 10-K - The consolidated financial statements from Item 8 are incorporated by reference[832](index=832&type=chunk) - A detailed list of exhibits filed with the report is provided, including articles of incorporation, bylaws, indentures, employment agreements, and various certifications[832](index=832&type=chunk)[833](index=833&type=chunk)[834](index=834&type=chunk) [Form 10-K Summary](index=229&type=section&id=Item%2016%3A%20Form%2010-K%20Summary) The company did not provide a summary for this item - None[837](index=837&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 September 30, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | --- | --- | |------------------------------------------------------------------------------------------------------------------------------|------------------------- ...

[PART I FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) [Item 1. Consolidated Financial Statements (unaudited)](index=3&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20(unaudited)) This section presents the unaudited consolidated financial statements of Bridgewater Bancshares, Inc. and its subsidiaries for the periods ended June 30, 2021, and December 31, 2020 [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) The balance sheets highlight the company's financial position, showing growth in assets, loans, and deposits Consolidated Balance Sheet Highlights (dollars in thousands) | Metric | June 30, 2021 (Unaudited) | December 31, 2020 | | :---------------------- | :------------------------ | :---------------- | | Total Assets | $3,162,612 | $2,927,345 | | Loans, Net | $2,545,145 | $2,282,436 | | Total Deposits | $2,720,906 | $2,501,636 | | Total Liabilities | $2,871,782 | $2,661,940 | | Total Shareholders' Equity | $290,830 | $265,405 | - Total Assets increased by **$235.3 million (8.0%)** from December 31, 2020, to June 30, 2021, primarily driven by growth in loans and investment securities[9](index=9&type=chunk)[238](index=238&type=chunk) - Total Deposits grew by **$219.3 million (8.8%)** from December 31, 2020, to June 30, 2021, with noninterest-bearing deposits comprising **27.9%** of total deposits at June 30, 2021[9](index=9&type=chunk)[276](index=276&type=chunk) [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) The income statements detail the company's financial performance, including net interest income, provision for loan losses, and net income Consolidated Statements of Income Highlights (dollars in thousands, except per share data) | Metric (Unaudited) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Interest Income | $31,147 | $28,166 | $61,587 | $55,634 | | Total Interest Expense | $4,859 | $6,824 | $9,904 | $14,190 | | Net Interest Income | $26,288 | $21,342 | $51,683 | $41,444 | | Provision for Loan Losses | $1,600 | $3,000 | $2,700 | $5,100 | | Total Noninterest Income | $1,603 | $1,977 | $2,611 | $3,696 | | Total Noninterest Expense | $11,477 | $10,711 | $22,400 | $20,457 | | Income Before Income Taxes | $14,814 | $9,608 | $29,194 | $19,583 | | Provision for Income Taxes | $3,821 | $2,010 | $7,530 | $4,542 | | NET INCOME | $10,993 | $7,598 | $21,664 | $15,041 | | Basic Earnings per Share | $0.39 | $0.26 | $0.77 | $0.52 | | Diluted Earnings per Share | $0.38 | $0.26 | $0.75 | $0.51 | - Net income for Q2 2021 increased by **44.7% to $11.0 million** compared to Q2 2020, and diluted EPS increased by **44.9% to $0.38**[177](index=177&type=chunk) - For the six months ended June 30, 2021, net income rose **44.0% to $21.7 million**, with diluted EPS increasing **45.5% to $0.75**[177](index=177&type=chunk) [Consolidated Statements of Comprehensive Income](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) The comprehensive income statements present net income and other comprehensive income components, reflecting overall financial performance Consolidated Statements of Comprehensive Income Highlights (dollars in thousands) | Metric (Unaudited) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income | $10,993 | $7,598 | $21,664 | $15,041 | | Total Other Comprehensive Income (Loss), Net of Tax | $(59) | $989 | $2,663 | $(1,456) | | Comprehensive Income | $10,934 | $8,587 | $24,327 | $13,585 | - Total Other Comprehensive Income (Loss) for the three months ended June 30, 2021, was a loss of **$59 thousand**, a decrease from a gain of **$989 thousand** in the prior year period[15](index=15&type=chunk) - For the six months ended June 30, 2021, Total Other Comprehensive Income (Loss) was a gain of **$2,663 thousand**, a significant improvement from a loss of **$1,456 thousand** in the prior year period[15](index=15&type=chunk) [Consolidated Statements of Shareholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Shareholders'%20Equity) The statements of shareholders' equity track changes in equity components, including common stock, retained earnings, and accumulated other comprehensive income Consolidated Statements of Shareholders' Equity Highlights (dollars in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :-------------------------------------- | :------------ | :---------------- | | Common Stock | $282 | $281 | | Additional Paid-In Capital | $104,811 | $103,714 | | Retained Earnings | $176,495 | $154,831 | | Accumulated Other Comprehensive Income | $9,242 | $6,579 | | Total Shareholders' Equity | $290,830 | $265,405 | - Total Shareholders' Equity increased by **$25.4 million (9.6%) to $290.8 million** at June 30, 2021, primarily due to net income of **$21.7 million** and a **$2.7 million** increase in accumulated other comprehensive income[291](index=291&type=chunk) - Stock-based compensation for the six months ended June 30, 2021, was **$1,157 thousand**, contributing to Additional Paid-In Capital[20](index=20&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) The cash flow statements categorize cash movements from operating, investing, and financing activities, showing liquidity changes Consolidated Statements of Cash Flows Highlights (dollars in thousands) | Metric (Unaudited) | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------- | :----------------------------- | :----------------------------- | | Net Cash Provided by Operating Activities | $27,930 | $682 | | Net Cash Used in Investing Activities | $(304,619) | $(329,792) | | Net Cash Provided by Financing Activities | $208,211 | $475,603 | | NET CHANGE IN CASH AND CASH EQUIVALENTS | $(68,478) | $146,493 | | Cash and Cash Equivalents Ending | $92,197 | $178,428 | - Net cash provided by operating activities significantly increased to **$27.9 million** for the six months ended June 30, 2021, from **$0.7 million** in the prior year[23](index=23&type=chunk) - Net cash used in investing activities decreased to **$304.6 million** for the six months ended June 30, 2021, from **$329.8 million** in the prior year, primarily due to lower purchases of securities and premises/equipment[23](index=23&type=chunk) - Net cash provided by financing activities decreased to **$208.2 million** for the six months ended June 30, 2021, from **$475.6 million** in the prior year, mainly due to lower net increase in deposits and no new FHLB advances[23](index=23&type=chunk) [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes provide detailed explanations of significant accounting policies and specific financial statement line items [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 the company's business operations and outlines its key accounting policies - Bridgewater Bancshares, Inc. is a financial holding company operating Bridgewater Bank, which provides retail and commercial loan and deposit services primarily in the Minneapolis-St. Paul-Bloomington, MN-WI Metropolitan Statistical Area[25](index=25&type=chunk) - The Company qualifies as an 'emerging growth company' under the JOBS Act and has elected to take advantage of the extended transition period for complying with new or revised accounting standards[32](index=32&type=chunk)[33](index=33&type=chunk) - The adoption of ASU 2019-12 (Income Taxes) and ASU 2020-01 (Investments) in Q1 2021 did not have a material impact on the consolidated financial statements[34](index=34&type=chunk)[35](index=35&type=chunk) [Note 2: Earnings Per Share](index=12&type=section&id=Note%202%3A%20Earnings%20Per%20Share) This note details the calculation of basic and diluted earnings per share, including the impact of stock compensation Earnings Per Share (dollars in thousands, except per share data) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income Available to Common Shareholders | $10,993 | $7,598 | $21,664 | $15,041 | | Weighted Average Common Stock Outstanding (Basic) | 28,040,762 | 28,676,441 | 28,029,129 | 28,733,968 | | Dilutive Effect of Stock Compensation | 1,087,419 | 488,716 | 1,019,295 | 616,458 | | Weighted Average Common Stock Outstanding (Dilutive) | 29,128,181 | 29,165,157 | 29,048,424 | 29,350,426 | | Basic Earnings per Common Share | $0.39 | $0.26 | $0.77 | $0.52 | | Diluted Earnings per Common Share | $0.38 | $0.26 | $0.75 | $0.51 | - Approximately **23,000** and **56,000** stock options, restricted stock awards, and restricted stock units were excluded from diluted EPS calculation for the three and six months ended June 30, 2021, respectively, due to their anti-dilutive effect[38](index=38&type=chunk) [Note 3: Securities](index=12&type=section&id=Note%203%3A%20Securities) This note provides information on the company's investment securities portfolio, including fair values and unrealized gains/losses Securities Available for Sale (dollars in thousands) | Type of Security | June 30, 2021 Fair Value | December 31, 2020 Fair Value | | :-------------------------- | :----------------------- | :--------------------------- | | U.S. Treasury Securities | $1,010 | $0 | | Municipal Bonds | $126,015 | $115,012 | | Mortgage-Backed Securities | $124,842 | $124,260 | | Corporate Securities | $76,763 | $72,155 | | SBA Securities | $36,146 | $40,107 | | Asset-Backed Securities | $38,010 | $39,095 | | Total Securities Available for Sale | $402,786 | $390,629 | - At June 30, 2021, 141 debt securities had unrealized losses totaling approximately **2.5%** of amortized cost, primarily due to changes in interest rates, not issuer financial condition[43](index=43&type=chunk) Proceeds and Gains/Losses from Sales of Securities Available for Sale (dollars in thousands) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Proceeds From Sales of Securities | $6,107 | $31,936 | $7,757 | $34,038 | | Gross Gains on Sales | $702 | $1,435 | $702 | $1,438 | | Gross Losses on Sales | $0 | $(74) | $0 | $(74) | [Note 4: Loans](index=16&type=section&id=Note%204%3A%20Loans) This note details the composition of the loan portfolio, allowance for loan losses, and COVID-19 related loan modifications Loan Portfolio Composition (dollars in thousands) | Loan Type | June 30, 2021 | December 31, 2020 | | :------------------------------ | :------------ | :---------------- | | Commercial | $321,474 | $304,220 | | Paycheck Protection Program | $99,072 | $138,454 | | Construction and Land Development | $251,573 | $170,217 | | Real Estate Mortgage: | | | | 1-4 Family Mortgage | $277,943 | $294,479 | | Multifamily | $790,275 | $626,465 | | CRE Owner Occupied | $87,507 | $75,604 | | CRE Non-owner Occupied | $758,101 | $709,300 | | Total Real Estate Mortgage Loans | $1,913,826 | $1,705,848 | | Consumer and Other | $8,241 | $7,689 | | Total Loans, Gross | $2,594,186 | $2,326,428 | | Allowance for Loan Losses | $(37,591) | $(34,841) | | Net Deferred Loan Fees | $(11,450) | $(9,151) | | Total Loans, Net | $2,545,145 | $2,282,436 | Allowance for Loan Losses Activity (dollars in thousands) | Metric (Unaudited) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Beginning Balance | $35,987 | $24,585 | $34,841 | $22,526 | | Provision for Loan Losses | $1,600 | $3,000 | $2,700 | $5,100 | | Loans Charged-off | $(3) | $(1) | $(17) | $(48) | | Recoveries of Loans | $7 | $49 | $67 | $55 | | Total Ending Allowance Balance | $37,591 | $27,633 | $37,591 | $27,633 | - As of June 30, 2021, the Company had 19 modified loans totaling **$33.9 million** in response to the COVID-19 pandemic, representing **1.4%** of the total loan portfolio (excluding PPP loans)[61](index=61&type=chunk)[154](index=154&type=chunk) [Note 5: Deposits](index=23&type=section&id=Note%205%3A%20Deposits) This note outlines the composition and growth of the company's deposit base, including transaction and brokered deposits Deposit Composition (dollars in thousands) | Deposit Type | June 30, 2021 | December 31, 2020 | | :---------------------------- | :------------ | :---------------- | | Transaction Deposits | $1,190,146 | $1,038,193 | | Savings and Money Market Deposits | $761,485 | $657,617 | | Time Deposits | $321,857 | $353,543 | | Brokered Deposits | $447,418 | $452,283 | | Totals | $2,720,906 | $2,501,636 | - Total deposits increased by **$219.3 million (8.8%)** from December 31, 2020, to June 30, 2021, with noninterest-bearing transaction deposits growing to **$758.0 million**[276](index=276&type=chunk) [Note 6: Notes Payable](index=25&type=section&id=Note%206%3A%20Notes%20Payable) This note details changes in the company's notes payable, including payoffs and new lines of credit - The Company's **$11.0 million** note payable matured and was paid off in full on February 25, 2021[63](index=63&type=chunk) - A new **$25.0 million** revolving line of credit was entered into on March 1, 2021, maturing February 28, 2023, with no outstanding balance as of June 30, 2021[64](index=64&type=chunk) [Note 7: Derivative Instruments and Hedging Activities](index=25&type=section&id=Note%207%3A%20Derivative%20Instruments%20and%20Hedging%20Activities) This note describes the company's use of derivative instruments for interest rate risk management and hedging activities - The Company uses interest rate swaps and caps for interest rate risk management, including non-hedge derivatives to facilitate client transactions and cash flow hedges for brokered certificate of deposit and wholesale borrowing portfolios[65](index=65&type=chunk)[66](index=66&type=chunk)[70](index=70&type=chunk) Interest Rate Swap Agreements (Non-Hedge) (dollars in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :-------------- | :------------ | :---------------- | | Notional Amount | $98,800 | $99,392 | | Estimated Fair Value | $0 | $0 | Cash Flow Hedging Derivatives (dollars in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :-------------------------- | :------------ | :---------------- | | Notional Amount (Swaps) | $125,000 | $111,000 | | Net Unrealized Loss (Swaps) | $(1,098) | $(3,410) | | Notional Amount (Caps) | $60,000 | $50,000 | | Fair Value (Caps Assets) | $4,431 | $2,834 | [Note 8: Tax Credit Investments](index=27&type=section&id=Note%208%3A%20Tax%20Credit%20Investments) This note provides information on the company's investments in tax credit projects and associated financial impacts - The Company invests in qualified affordable housing projects (LIHTC) and federal historic projects (FHTC) for community reinvestment and tax credits[75](index=75&type=chunk) Tax Credit Investments (dollars in thousands) | Investment Type | June 30, 2021 Investment | June 30, 2021 Unfunded Commitment | December 31, 2020 Investment | December 31, 2020 Unfunded Commitment | | :-------------- | :----------------------- | :-------------------------------- | :--------------------------- | :------------------------------------ | | LIHTC | $3,011 | $0 | $1,867 | $0 | | FHTC | $2,035 | $967 | $2,198 | $1,858 | | Total | $5,046 | $967 | $4,065 | $1,858 | Amortization Expense and Tax Benefit (dollars in thousands) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Amortization Expense | $210 | $432 | $398 | $588 | | Total Tax Benefit Recognized | $(239) | $(529) | $(478) | $(782) | [Note 9: Commitments, Contingencies and Credit Risk](index=28&type=section&id=Note%209%3A%20Commitments%2C%20Contingencies%20and%20Credit%20Risk) This note details off-balance sheet commitments, potential contingencies, and credit risk exposures - The Company has off-balance sheet credit risk from unfunded commitments under lines of credit and letters of credit, totaling **$903.4 million** at June 30, 2021[81](index=81&type=chunk)[83](index=83&type=chunk) Off-Balance Sheet Commitments (dollars in thousands) | Commitment Type | June 30, 2021 | December 31, 2020 | | :---------------------------------- | :------------ | :---------------- | | Unfunded Commitments Under Lines of Credit | $800,914 | $644,338 | | Letters of Credit | $102,455 | $90,206 | | Totals | $903,369 | $734,544 | - There are no material pending legal proceedings against the Company or its subsidiaries[84](index=84&type=chunk) [Note 10: Stock Options and Restricted Stock Awards](index=29&type=section&id=Note%2010%3A%20Stock%20Options%20and%20Restricted%20Stock%20Awards) This note outlines the company's equity incentive plans, including stock option and restricted stock award activity - The Company has three equity incentive plans (2012 Plan, 2017 Plan, 2019 EIP) for directors, officers, employees, and consultants, with shares reserved for future grants[86](index=86&type=chunk)[87](index=87&type=chunk)[88](index=88&type=chunk) Stock Option Grants Summary (Six Months Ended June 30, 2021) | Metric | Shares | Weighted Average Exercise Price | | :------------------------------ | :---------- | :------------------------------ | | Outstanding at Beginning of Year | 1,914,250 | $7.29 | | Granted | 20,500 | $16.88 | | Exercised | (26,400) | $5.81 | | Forfeitures | (800) | $7.47 | | Outstanding at Period End | 1,907,550 | $7.42 | | Options Exercisable at Period End | 1,200,950 | $6.06 | - Total unrecognized compensation cost for nonvested stock options was **$1,689 thousand**, expected to be recognized over **2.1 years**[97](index=97&type=chunk) - Total unrecognized compensation cost for nonvested restricted stock awards was **$1,124 thousand**, expected to be recognized over **2.5 years**[100](index=100&type=chunk) - Total unrecognized compensation cost for nonvested restricted stock units was **$2,292 thousand**, expected to be recognized over **four years**[106](index=106&type=chunk) [Note 11: Regulatory Capital](index=34&type=section&id=Note%2011%3A%20Regulatory%20Capital) This note details the company's and the bank's compliance with regulatory capital requirements and ratios - The Company and the Bank are subject to various regulatory capital requirements, including minimum amounts and ratios for common equity Tier 1, Tier 1, and total capital to risk-weighted assets, and Tier 1 capital to average consolidated assets (leverage ratio)[107](index=107&type=chunk)[108](index=108&type=chunk) Company (Consolidated) Capital Ratios (June 30, 2021) | Capital Ratio | Actual Amount (thousands) | Actual Ratio | Minimum for Capital Purposes Ratio | | :--------------------------- | :------------------------ | :----------- | :--------------------------------- | | Total Risk-Based Capital | $388,317 | 13.49% | 8.00% | | Tier 1 Risk-Based Capital | $278,388 | 9.67% | 6.00% | | Common Equity Tier 1 Capital | $278,388 | 9.67% | 4.50% | | Tier 1 Leverage Ratio | $278,388 | 9.08% | 4.00% | Bank Capital Ratios (June 30, 2021) | Capital Ratio | Actual Amount (thousands) | Actual Ratio | Minimum for Capital Purposes Ratio | To be Well Capitalized Ratio | | :--------------------------- | :------------------------ | :----------- | :--------------------------------- | :--------------------------- | | Total Risk-Based Capital | $359,586 | 12.49% | 8.00% | 10.00% | | Tier 1 Risk-Based Capital | $323,575 | 11.24% | 6.00% | 8.00% | | Common Equity Tier 1 Capital | $323,575 | 11.24% | 4.50% | 6.50% | | Tier 1 Leverage Ratio | $323,575 | 10.57% | 4.00% | 5.00% | [Note 12: Fair Value Measurement](index=35&type=section&id=Note%2012%3A%20Fair%20Value%20Measurement) This note explains the methodology for fair value measurements of financial instruments, categorized by input observability - The Company categorizes assets and liabilities measured at fair value into a three-level hierarchy (Level 1, 2, 3) based on the observability of inputs to the valuation technique[112](index=112&type=chunk)[113](index=113&type=chunk)[114](index=114&type=chunk) Fair Value of Financial Assets (Recurring Basis, June 30, 2021, dollars in thousands) | Asset Type | Level 1 | Level 2 | Level 3 | Total | | :-------------------------- | :------ | :--------- | :------ | :--------- | | U.S. Treasury Securities | $1,010 | $0 | $0 | $1,010 | | Municipal Bonds | $0 | $126,015 | $0 | $126,015 | | Mortgage-Backed Securities | $0 | $124,842 | $0 | $124,842 | | Corporate Securities | $0 | $76,763 | $0 | $76,763 | | SBA Securities | $0 | $36,146 | $0 | $36,146 | | Asset-Backed Securities | $0 | $38,010 | $0 | $38,010 | | Interest Rate Caps | $0 | $4,431 | $0 | $4,431 | | Interest Rate Swaps | $0 | $1,677 | $0 | $1,677 | | Total Financial Assets | $1,010 | $407,884 | $0 | $408,894 | - Impaired loans are measured at fair value using collateral value, market value of similar debt, or discounted cash flows, with collateral values estimated using Level 2 inputs[124](index=124&type=chunk) [Note 13: Subsequent Events](index=43&type=section&id=Note%2013%3A%20Subsequent%20Events) This note discloses significant events occurring after the balance sheet date, such as debenture issuances and redemptions - On July 8, 2021, the Company issued **$30.0 million** of subordinated debentures with an initial fixed interest rate of **3.25%**, maturing July 15, 2031[142](index=142&type=chunk) - In July 2021, the Company redeemed **$11.25 million** of its 2027 Fixed-to-Floating Rate Subordinated Notes, resulting in a **$582 thousand** loss on extinguishment[143](index=143&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=43&type=section&id=Item%202.%20Management's%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, 2021 [General](index=43&type=section&id=General) This section provides a general overview of the company's financial reporting and forward-looking statements - The discussion explains the Company's financial condition and results for Q2 2021, emphasizing that interim results may not predict full-year performance[144](index=144&type=chunk) - The report contains forward-looking statements subject to inherent uncertainties, risks, and changes in circumstances, including loan concentrations, real estate market health, credit risk management, and the COVID-19 pandemic[145](index=145&type=chunk)[147](index=147&type=chunk) [Overview](index=47&type=section&id=Overview) This section provides a high-level summary of the company's business, strategic focus, and the impact of the COVID-19 pandemic - Bridgewater Bancshares, Inc. is a financial holding company focused on profitable growth through responsive support and unconventional client experiences, with primary income from interest and fees on loans and investments[150](index=150&type=chunk) - The COVID-19 pandemic continues to create uncertainty, but Minnesota's reopening and vaccination efforts are returning activity to pre-pandemic levels[151](index=151&type=chunk)[152](index=152&type=chunk) - The Company actively manages credit risk, especially in vulnerable industries, and has provided COVID-19 related loan modifications totaling **$33.9 million (1.4%)** of the loan portfolio (excluding PPP loans) as of June 30, 2021[153](index=153&type=chunk)[154](index=154&type=chunk) - The Company participated in both rounds of the SBA's PPP, with **$99.1 million** in outstanding principal balances and recognized **$1.4 million** and **$2.9 million** in net origination fees for the three and six months ended June 30, 2021, respectively[155](index=155&type=chunk) [Critical Accounting Policies and Estimates](index=49&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section outlines the key accounting policies and estimates that require significant management judgment - Key critical accounting policies include the Allowance for Loan Losses, Investment Securities Impairment, Fair Value of Financial Instruments, and Deferred Tax Asset, all requiring significant management judgment and estimates[161](index=161&type=chunk)[162](index=162&type=chunk)[164](index=164&type=chunk)[168](index=168&type=chunk)[169](index=169&type=chunk) - As an emerging growth company, the Company has elected an extended transition period for new accounting standards, including CECL, until January 1, 2023[160](index=160&type=chunk)[223](index=223&type=chunk) [Operating Results Overview](index=53&type=section&id=Operating%20Results%20Overview) This section presents a summary of key financial performance metrics and ratios for recent periods Selected Per Common Share Data | Metric | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | | :------------------------- | :------------ | :------------- | :---------------- | :----------------- | :------------ | | Basic Earnings Per Share | $0.39 | $0.38 | $0.18 | $0.25 | $0.26 | | Diluted Earnings Per Share | $0.38 | $0.37 | $0.17 | $0.25 | $0.26 | | Book Value Per Share | $10.33 | $9.92 | $9.43 | $9.25 | $8.92 | Selected Performance Ratios | Metric | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | | :----------------------------------------- | :------------ | :------------- | :---------------- | :----------------- | :------------ | | Return on Average Assets (Annualized) | 1.43% | 1.47% | 0.70% | 1.05% | 1.17% | | Return on Average Common Equity (Annualized) | 15.40% | 15.87% | 7.45% | 10.84% | 11.98% | | Net Interest Margin (Tax-equivalent) | 3.52% | 3.60% | 3.61% | 3.28% | 3.38% | | Efficiency Ratio | 42.0% | 41.2% | 59.0% | 42.3% | 48.6% | [Selected Financial Data](index=54&type=section&id=Selected%20Financial%20Data) This section provides a tabular summary of selected balance sheet and income statement data over several periods Selected Balance Sheet Data (dollars in thousands) | Metric | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | | :--------------------------- | :------------ | :------------- | :---------------- | :----------------- | :------------ | | Total Assets | $3,162,612 | $3,072,359 | $2,927,345 | $2,774,564 | $2,754,463 | | Total Loans, Gross | $2,594,186 | $2,426,123 | $2,326,428 | $2,259,228 | $2,193,778 | | Allowance for Loan Losses | $37,591 | $35,987 | $34,841 | $31,381 | $27,633 | | Deposits | $2,720,906 | $2,638,654 | $2,501,636 | $2,273,044 | $2,242,051 | | Total Shareholders' Equity | $290,830 | $279,171 | $265,405 | $265,432 | $257,190 | Selected Income Statement Data (dollars in thousands) | Metric | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | | :----------------------------------------- | :------------ | :------------- | :---------------- | :----------------- | :------------ | | Interest Income | $31,147 | $30,440 | $30,699 | $28,493 | $28,166 | | Net Interest Income | $26,288 | $25,395 | $24,841 | $21,679 | $21,342 | | Provision for Loan Losses | $1,600 | $1,100 | $3,900 | $3,750 | $3,000 | | Noninterest Income | $1,603 | $1,008 | $986 | $1,157 | $1,977 | | Noninterest Expense | $11,477 | $10,923 | $15,258 | $9,672 | $10,711 | | Net Income | $10,993 | $10,671 | $4,979 | $7,174 | $7,598 | [Discussion and Analysis of Results of Operations](index=55&type=section&id=Discussion%20and%20Analysis%20of%20Results%20of%20Operations) This section offers a detailed analysis of the company's financial performance, including net income and net interest income [Net Income](index=55&type=section&id=Net%20Income) This section analyzes the company's net income performance for the current and prior periods - Net income for Q2 2021 increased by **44.7% to $11.0 million** (from **$7.6 million** in Q2 2020), and diluted EPS increased by **44.9% to $0.38** (from **$0.26**)[177](index=177&type=chunk) - For the six months ended June 30, 2021, net income rose **44.0% to $21.7 million** (from **$15.0 million** in YTD 2020), with diluted EPS increasing **45.5% to $0.75** (from **$0.51**)[177](index=177&type=chunk) [Net Interest Income](index=55&type=section&id=Net%20Interest%20Income) This section discusses the primary drivers of net interest income, including interest-earning assets and funding costs - Net interest income is the Company's primary revenue source, influenced by interest-earning assets, funding sources, and interest rates. The net interest margin (tax-equivalent) captures the impact of noninterest-bearing funds[178](index=178&type=chunk) - The FOMC's 150 basis point rate decrease in March 2020 impacts the comparability of net interest income between 2021 and 2020[178](index=178&type=chunk) [Average Balances and Yields](index=56&type=section&id=Average%20Balances%20and%20Yields) This section presents average balances and corresponding yields/rates for interest-earning assets and interest-bearing liabilities Average Balances and Yields (Three Months Ended June 30, 2021 vs 2020, dollars in thousands) | Metric | June 30, 2021 Average Balance | June 30, 2021 Yield/Rate | June 30, 2020 Average Balance | June 30, 2020 Yield/Rate | | :----------------------------------- | :---------------------------- | :----------------------- | :---------------------------- | :----------------------- | | Total Interest Earning Assets | $3,019,437 | 4.17% | $2,567,292 | 4.45% | | Total Interest Bearing Liabilities | $2,039,172 | 0.96% | $1,739,002 | 1.58% | | Net Interest Income / Interest Rate Spread | $26,495 | 3.21% | $21,581 | 2.87% | | Net Interest Margin | | 3.52% | | 3.38% | Average Balances and Yields (Six Months Ended June 30, 2021 vs 2020, dollars in thousands) | Metric | June 30, 2021 Average Balance | June 30, 2021 Yield/Rate | June 30, 2020 Average Balance | June 30, 2020 Yield/Rate | | :----------------------------------- | :---------------------------- | :----------------------- | :---------------------------- | :----------------------- | | Total Interest Earning Assets | $2,951,636 | 4.24% | $2,422,448 | 4.66% | | Total Interest Bearing Liabilities | $2,006,531 | 1.00% | $1,674,165 | 1.70% | | Net Interest Income / Interest Rate Spread | $52,105 | 3.24% | $41,935 | 2.96% | | Net Interest Margin | | 3.56% | | 3.48% | [Interest Rates and Operating Interest Differential](index=59&type=section&id=Interest%20Rates%20and%20Operating%20Interest%20Differential) This section analyzes the impact of changes in volume and interest rates on interest income and expense Interest Income Variance (Three Months Ended June 30, 2021 vs 2020, dollars in thousands) | Source of Change | Change Due To: Volume | Change Due To: Rate | Total Interest Variance | | :--------------- | :-------------------- | :------------------ | :---------------------- | | Total Interest Earning Assets | $4,781 | $(1,832) | $2,949 | Interest Expense Variance (Three Months Ended June 30, 2021 vs 2020, dollars in thousands) | Source of Change | Change Due To: Volume | Change Due To: Rate | Total Interest Variance | | :--------------- | :-------------------- | :------------------ | :---------------------- | | Total Interest Bearing Liabilities | $473 | $(2,438) | $(1,965) | Interest Income Variance (Six Months Ended June 30, 2021 vs 2020, dollars in thousands) | Source of Change | Change Due To: Volume | Change Due To: Rate | Total Interest Variance | | :--------------- | :-------------------- | :------------------ | :---------------------- | | Total Interest Earning Assets | $10,159 | $(4,275) | $5,884 | Interest Expense Variance (Six Months Ended June 30, 2021 vs 2020, dollars in thousands) | Source of Change | Change Due To: Volume | Change Due To: Rate | Total Interest Variance | | :--------------- | :-------------------- | :------------------ | :---------------------- | | Total Interest Bearing Liabilities | $1,355 | $(5,641) | $(4,286) | [Comparison of Interest Income, Interest Expense, and Net Interest Margin](index=62&type=section&id=Comparison%20of%20Interest%20Income%2C%20Interest%20Expense%2C%20and%20Net%20Interest%20Margin) This section compares the components of interest income and expense, and analyzes changes in the net interest margin - Net interest income for Q2 2021 increased by **$4.9 million (23.2%) to $26.3 million**, driven by growth in average interest-earning assets, lower deposit rates, and PPP loan origination fees[193](index=193&type=chunk) - Net interest margin (tax-equivalent) for Q2 2021 increased by **14 basis points to 3.52%**, while core net interest margin increased by **9 basis points to 3.31%**[194](index=194&type=chunk) - The Company recognized **$1.4 million** in PPP origination fees in Q2 2021, contributing to an elevated PPP loan yield of **4.75%**[195](index=195&type=chunk) - Total interest income (tax-equivalent) for Q2 2021 was **$31.4 million**, up **10.4%** from Q2 2020, primarily due to organic loan growth and PPP loan income[200](index=200&type=chunk) - Interest expense on interest-bearing liabilities decreased by **$2.0 million (28.8%) to $4.9 million** in Q2 2021, mainly due to lower deposit rates and payoff of notes payable[203](index=203&type=chunk) - For the six months ended June 30, 2021, net interest income increased by **$10.2 million (24.7%) to $51.7 million**, and net interest margin (tax-equivalent) increased by **8 basis points to 3.56%**[209](index=209&type=chunk)[210](index=210&type=chunk) [Provision for Loan Losses](index=68&type=section&id=Provision%20for%20Loan%20Losses) This section discusses the provision for loan losses and its relationship to the allowance for loan losses and economic conditions - The provision for loan losses decreased by **$1.4 million to $1.6 million** in Q2 2021 (from **$3.0 million** in Q2 2020) and by **$2.4 million to $2.7 million** for YTD 2021 (from **$5.1 million** in YTD 2020), reflecting changes in economic conditions[221](index=221&type=chunk) - The allowance for loan losses to total loans was **1.45%** at June 30, 2021, up from **1.26%** at June 30, 2020, primarily due to economic uncertainties from the COVID-19 pandemic[222](index=222&type=chunk) [Noninterest Income](index=68&type=section&id=Noninterest%20Income) This section analyzes the components of noninterest income, including customer service fees and gains on securities sales - Noninterest income decreased by **$374 thousand to $1.6 million** in Q2 2021 (from **$2.0 million** in Q2 2020), mainly due to lower gains on sales of securities, partially offset by increased customer service fees and other income[223](index=223&type=chunk) - For YTD 2021, noninterest income decreased by **$1.1 million to $2.6 million** (from **$3.7 million** in YTD 2020), primarily due to lower gains on sales of securities and swap fees[223](index=223&type=chunk) Noninterest Income Components (dollars in thousands) | Component | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Customer Service Fees | $231 | $135 | $465 | $375 | | Net Gain on Sales of Securities | $702 | $1,361 | $702 | $1,364 | | Swap Fees | $0 | $0 | $0 | $907 | | Other Income | $298 | $117 | $615 | $320 | [Noninterest Expense](index=69&type=section&id=Noninterest%20Expense) This section details the components of noninterest expense, such as salaries, occupancy, and information technology costs - Noninterest expense increased by **$766 thousand to $11.5 million** in Q2 2021 (from **$10.7 million** in Q2 2020), driven by higher salaries and employee benefits and occupancy/equipment expenses, partially offset by lower FHLB advance prepayment fees[229](index=229&type=chunk) - For YTD 2021, noninterest expense increased by **$1.9 million (9.5%) to $22.4 million** (from **$20.5 million** in YTD 2020), primarily due to increases in salaries, occupancy, and information technology expenses, partially offset by lower FHLB advance prepayment fees[230](index=230&type=chunk) - The efficiency ratio was **42.0%** for Q2 2021, down from **48.6%** in Q2 2020. The adjusted efficiency ratio increased to **41.5%** in Q2 2021 from **40.4%** in Q2 2020[233](index=233&type=chunk) Noninterest Expense Components (dollars in thousands) | Component | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Salaries and Employee Benefits | $7,512 | $6,348 | $14,614 | $12,802 | | Occupancy and Equipment | $980 | $672 | $2,035 | $1,385 | | Information Technology and Telecommunications | $549 | $326 | $1,011 | $592 | | FHLB Advance Prepayment Fees | $0 | $1,430 | $0 | $1,430 | [Income Tax Expense](index=71&type=section&id=Income%20Tax%20Expense) This section discusses the company's income tax expense and effective tax rates for the reporting periods - Income tax expense was **$3.8 million** for Q2 2021 (up from **$2.0 million** in Q2 2020), with an effective combined federal and state income tax rate of **25.8%** (up from **20.9%**)[237](index=237&type=chunk) - For YTD 2021, income tax expense was **$7.5 million** (up from **$4.5 million** in YTD 2020), with an effective combined rate of **25.8%** (up from **23.2%**), primarily due to fewer tax credits recognized[237](index=237&type=chunk) [Financial Condition](index=71&type=section&id=Financial%20Condition) This section provides an in-depth analysis of the company's balance sheet, including assets, liabilities, and equity [Assets](index=71&type=section&id=Assets) This section analyzes the composition and growth of the company's total assets, including loans and investment securities - Total assets at June 30, 2021, were **$3.16 billion**, an increase of **$235.3 million (8.0%)** from December 31, 2020, and **$408.1 million (14.8%)** from June 30, 2020[238](index=238&type=chunk) - Total gross loans at June 30, 2021, were **$2.59 billion**, an increase of **$267.8 million (11.5%)** from December 31, 2020, and **$400.4 million (18.3%)** from June 30, 2020, driven by organic growth and client/banker acquisition opportunities[239](index=239&type=chunk) [Investment Securities Portfolio](index=71&type=section&id=Investment%20Securities%20Portfolio) This section details the composition and purpose of the company's investment securities portfolio - The investment securities portfolio provides liquidity, stable income, and collateral, consisting primarily of municipal securities, U.S. government agency mortgage-backed securities, SBA securities, and corporate securities[242](index=242&type=chunk)[243](index=243&type=chunk) - Securities available for sale increased by **$12.2 million (3.1%) to $402.8 million** at June 30, 2021, from **$390.6 million** at December 31, 2020[244](index=244&type=chunk) Investment Securities Portfolio Composition (June 30, 2021) | Security Type | Percentage of Portfolio | | :-------------------------------- | :---------------------- | | Municipal Securities | 31.3% | | Government Agency Mortgage-Backed Securities | 30.3% | | SBA Securities | 9.0% | | Corporate Securities | 19.1% | | U.S. Treasury Securities | 0.3% | | Asset-Backed Securities | 9.4% | | Other Mortgage-Backed Securities | 0.6% | [Loan Portfolio](index=73&type=section&id=Loan%20Portfolio) This section provides a detailed breakdown of the company's loan portfolio by type and geographic concentration - The Company's primary lending focus is real estate mortgage lending in the Minneapolis-St. Paul-Bloomington, MN-WI Metropolitan Statistical Area, constituting **76.7%** of the portfolio (excluding PPP loans) at June 30, 2021[245](index=245&type=chunk)[252](index=252&type=chunk) - Net loan exposures originated were **$512.8 million** in Q2 2021, compared to **$242.7 million** in Q2 2020. Total gross loans increased by **$267.8 million (11.5%) to $2.59 billion** at June 30, 2021[250](index=250&type=chunk) - Annualized loan growth for the six months ended June 30, 2021, excluding PPP loans, was **28.3%**[250](index=250&type=chunk) Loan Portfolio Composition by Category (June 30, 2021, dollars in thousands) | Loan Category | Amount | Percent | | :-------------------------------- | :---------- | :------ | | Commercial | $321,474 | 12.4% | | Paycheck Protection Program | $99,072 | 3.8% | | Construction and Land Development | $251,573 | 9.7% | | 1-4 Family Mortgage | $277,943 | 10.7% | | Multifamily | $790,275 | 30.5% | | CRE Owner Occupied | $87,507 | 3.4% | | CRE Nonowner Occupied | $758,101 | 29.2% | | Consumer and Other | $8,241 | 0.3% | | Total Loans, Gross | $2,594,186 | 100.0% | [Asset Quality](index=76&type=section&id=Asset%20Quality) This section discusses the company's credit quality, including loan classifications, nonperforming assets, and the allowance for loan losses - The Company emphasizes credit quality, using an internal asset classification system consistent with federal banking regulations (watch, substandard, doubtful, loss)[256](index=256&type=chunk) Loan Classifications (June 30, 2021, dollars in thousands) | Loan Category | Risk Watch | Substandard | Total | | :-------------------------------- | :--------- | :---------- | :---------- | | Commercial | $26,571 | $1,213 | $27,784 | | Construction and Land Development | $0 | $140 | $140 | | 1-4 Family Mortgage | $716 | $1,350 | $2,066 | | CRE Owner Occupied | $0 | $865 | $865 | | CRE Nonowner Occupied | $29,409 | $3,615 | $33,024 | | Consumer and Other | $0 | $12 | $12 | | Totals | $56,696 | $7,195 | $63,891 | - Nonperforming loans totaled **$761 thousand** at June 30, 2021, a slight decrease from **$775 thousand** at December 31, 2020. There were no foreclosed assets[264](index=264&type=chunk) Nonperforming Assets (dollars in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :----------------------------------------- | :------------ | :---------------- | | Total Nonaccrual Loans | $761 | $775 | | Total Nonperforming Loans | $761 | $775 | | Total Nonperforming Assets | $761 | $775 | | Nonaccrual Loans to Total Loans | 0.03% | 0.03% | | Nonperforming Assets to Total Loans Plus Foreclosed Assets | 0.03% | 0.03% | - The allowance for loan losses was **$37.6 million** at June 30, 2021, an increase of **$2.8 million** from December 31, 2020. The ALLL as a percentage of total loans (excluding PPP loans) was **1.50%** at June 30, 2021[271](index=271&type=chunk) [Deposits](index=84&type=section&id=Deposits) This section analyzes the composition, growth, and funding characteristics of the company's deposit base - Total deposits increased by **$219.3 million (8.8%) to $2.72 billion** at June 30, 2021, from **$2.50 billion** at December 31, 2020[276](index=276&type=chunk) - Noninterest-bearing transaction deposits comprised **27.9%** of total deposits at June 30, 2021, reflecting successful client acquisition and pandemic-related liquidity accumulation[276](index=276&type=chunk) - Brokered deposits totaled **$447.4 million** at June 30, 2021, a slight decrease from **$452.3 million** at December 31, 2020, but increased during the quarter due to opportunities for low-cost funding[277](index=277&type=chunk) Average Balance and Rate Paid on Deposits (Three Months Ended June 30, 2021 vs 2020, dollars in thousands) | Deposit Category | June 30, 2021 Average Balance | June 30, 2021 Average Rate | June 30, 2020 Average Balance | June 30, 2020 Average Rate | | :-------------------------------- | :---------------------------- | :------------------------- | :---------------------------- | :------------------------- | | Noninterest Bearing Transaction Deposits | $732,299 | —% | $603,456 | —% | | Interest Bearing Transaction Deposits | $421,132 | 0.50% | $272,565 | 0.56% | | Savings and Money Market Deposits | $764,632 | 0.49% | $521,313 | 1.02% | | Time Deposits < $250,000 | $266,116 | 1.27% | $241,009 | 2.30% | | Time Deposits > $250,000 | $66,230 | 1.38% | $147,348 | 2.03% | | Brokered Deposits | $379,768 | 1.03% | $319,711 | 1.69% | | Total Deposits | $2,630,177 | 0.54% | $2,105,402 | 0.99% | [Borrowed Funds](index=86&type=section&id=Borrowed%20Funds) This section details the company's use of borrowed funds, including federal funds purchased, FHLB advances, and lines of credit - The Company utilizes overnight borrowings (federal funds purchased) for daily liquidity and loan growth, with an average amount outstanding of **$9.9 million** in Q2 2021 at a weighted average interest rate of **0.24%**[280](index=280&type=chunk) - FHLB advances outstanding were **$57.5 million** at June 30, 2021. The **$11.0 million** note payable was fully paid off in Q1 2021[281](index=281&type=chunk) - A new **$25.0 million** revolving line of credit was established on March 1, 2021, with no outstanding balances at June 30, 2021[281](index=281&type=chunk) - The Company had additional borrowing capacity of **$508.5 million** at FHLB and **$94.6 million** at the Federal Reserve discount window at June 30, 2021[283](index=283&type=chunk)[284](index=284&type=chunk) [Subordinated Debentures](index=86&type=section&id=Subordinated%20Debentures) This section describes the company's outstanding subordinated debentures, including terms and regulatory capital treatment - The Company issued **$50.0 million** of subordinated debentures on June 19, 2020, with a fixed interest rate of **5.25%** until July 1, 2025, then converting to a variable rate (3-month SOFR + **5.13%**), maturing July 1, 2030[285](index=285&type=chunk) - Another **$25.0 million** of subordinated debentures were issued on July 12, 2017, with a fixed rate of **5.875%** until July 15, 2022, then converting to a variable rate (3-month LIBOR + **3.88%**), maturing July 15, 2027[287](index=287&type=chunk) - All subordinated debentures qualify for Tier 2 regulatory capital treatment[288](index=288&type=chunk) - Subsequent to quarter-end, on July 8, 2021, the Company issued **$30.0 million** of new subordinated notes due 2031 and redeemed **$11.25 million** of its 2027 notes[142](index=142&type=chunk)[143](index=143&type=chunk)[289](index=289&type=chunk) [Contractual Obligations](index=88&type=section&id=Contractual%20Obligations) This section presents a table of the company's contractual obligations and how they are expected to be met Contractual Obligations (June 30, 2021, dollars in thousands) | Obligation Type | Within One Year | One to Three Years | Three to Five Years | After Five Years | Total | | :-------------------------------- | :-------------- | :----------------- | :------------------ | :--------------- | :----------- | | Deposits Without a Stated Maturity | $2,142,381 | $0 | $0 | $0 | $2,142,381 | | Time Deposits | $193,002 | $130,768 | $211,815 | $42,940 | $578,525 | | FHLB Advances | $15,000 | $15,000 | $23,500 | $4,000 | $57,500 | | Subordinated Debentures | $0 | $0 | $0 | $75,000 | $75,000 | | Commitment to Fund Tax Credit Investments | $967 | $0 | $0 | $0 | $967 | | Operating Lease Obligations | $509 | $987 | $978 | $697 | $3,171 | | Totals | $2,351,859 | $146,755 | $236,293 | $122,637 | $2,857,544 | - The Company expects to meet all contractual obligations through earnings, loan/securities repayments, and deposit gathering, supplemented by various borrowing mechanisms[290](index=290&type=chunk) [Shareholders' Equity](index=88&type=section&id=Shareholders'%20Equity) This section analyzes changes in shareholders' equity, including net income and stock repurchase activities - Shareholders' equity increased by **$25.4 million (9.6%) to $290.8 million** at June 30, 2021, primarily due to **$21.7 million** in net income and a **$2.7 million** increase in accumulated other comprehensive income[291](index=291&type=chunk) - During the six months ended June 30, 2021, the Company repurchased **16,618 shares** of common stock for **$208 thousand**, with **$14.5 million** remaining under the stock repurchase program[292](index=292&type=chunk) [Regulatory Capital](index=88&type=section&id=Regulatory%20Capital) This section discusses the company's and the bank's compliance with regulatory capital requirements and ratios - The Company and the Bank are subject to Basel III regulatory capital framework and Dodd-Frank Act rules, including a **2.5%** capital conservation buffer[293](index=293&type=chunk)[301](index=301&type=chunk) - Management believes both the Company and the Bank met all capital adequacy requirements and the capital conservation buffer as of June 30, 2021[299](index=299&type=chunk)[301](index=301&type=chunk) Company (Consolidated) Capital Ratios (June 30, 2021) | Capital Ratio | Actual Ratio | Minimum for Capital Purposes Ratio | | :--------------------------- | :----------- | :--------------------------------- | | Total Risk-Based Capital | 13.49% | 8.00% | | Tier 1 Risk-Based Capital | 9.67% | 6.00% | | Common Equity Tier 1 Capital | 9.67% | 4.50% | | Tier 1 Leverage Ratio | 9.08% | 4.00% | Bank Capital Ratios (June 30, 2021) | Capital Ratio | Actual Ratio | Minimum for Capital Purposes Ratio | To be Well Capitalized Ratio | | :--------------------------- | :----------- | :--------------------------------- | :--------------------------- | | Total Risk-Based Capital | 12.49% | 8.00% | 10.00% | | Tier 1 Risk-Based Capital | 11.24% | 6.00% | 8.00% | | Common Equity Tier 1 Capital | 11.24% | 4.50% | 6.50% | | Tier 1 Leverage Ratio | 10.57% | 4.00% | 5.00% | [Off-Balance Sheet Arrangements](index=92&type=section&id=Off-Balance%20Sheet%20Arrangements) This section describes the company's off-balance sheet arrangements, such as commitments to extend credit and letters of credit - The Company enters into off-balance sheet arrangements, including commitments to extend credit and letters of credit, which involve credit and interest rate risk[303](index=303&type=chunk) Credit Arrangements and Financial Instruments (dollars in thousands) | Commitment Type | June 30, 2021 Fixed | June 30, 2021 Variable | December 31, 2020 Fixed | December 31, 2020 Variable | | :---------------------------------- | :------------------ | :--------------------- | :---------------------- | :------------------------- | | Unfunded Commitments Under Lines of Credit | $344,308 | $456,606 | $243,988 | $400,350 | | Letters of Credit | $11,565 | $90,890 | $10,954 | $79,252 | | Totals | $355,873 | $547,496 | $254,942 | $479,602 | [Liquidity](index=92&type=section&id=Liquidity) This section discusses the company's liquidity management strategy and available primary and secondary liquidity sources - Liquidity management ensures the Company can meet cash and collateral obligations, overseen by the ALM Committee, through primary (on-balance sheet) and secondary (borrowing capacity) liquidity[306](index=306&type=chunk)[307](index=307&type=chunk) Primary Liquidity Levels (dollars in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :------------------------- | :------------ | :---------------- | | Cash and Cash Equivalents | $83,141 | $145,348 | | Securities Available for Sale | $402,786 | $390,629 | | Total Primary Liquidity | $485,927 | $535,977 | | Ratio to Total Deposits | 17.9% | 21.4% | Secondary Liquidity Levels (dollars in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :----------------------------------------- | :------------ | :---------------- | | Net Secured Borrowing Capacity with the FHLB | $508,461 | $361,236 | | Net Secured Borrowing Capacity with the Federal Reserve Bank | $94,567 | $76,830 | | Unsecured Borrowing Capacity with Correspondent Lenders | $191,000 | $143,000 | | Secured Borrowing Capacity with Correspondent Lender | $25,000 | $0 | | Total Secondary Liquidity | $819,028 | $581,066 | | Ratio of Primary and Secondary Liquidity to Total Deposits | 48.0% | 44.7% | - Core deposits totaled approximately **$2.21 billion** at June 30, 2021, representing **81.2%** of total deposits, providing stable funding[312](index=312&type=chunk) [Non-GAAP Financial Measures](index=94&type=section&id=Non-GAAP%20Financial%20Measures) This section explains the company's use of non-GAAP financial measures and provides reconciliations to GAAP measures - The Company uses non-GAAP financial measures, such as Pre-Provision Net Revenue, Core Net Interest Margin, Efficiency Ratio, and Tangible Common Equity, to provide meaningful information to investors and facilitate peer comparisons[315](index=315&type=chunk)[316](index=316&type=chunk) Pre-Provision Net Revenue (dollars in thousands) | Metric | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | | :------------------------ | :------------ | :------------- | :---------------- | :----------------- | :------------ | | Net Operating Revenue | $27,189 | $26,403 | $25,797 | $22,727 | $21,958 | | Total Operating Noninterest Expense | $11,337 | $10,805 | $9,499 | $9,527 | $8,919 | | Pre-Provision Net Revenue | $15,852 | $15,598 | $16,298 | $13,200 | $13,039 | Core Net Interest Margin | Metric | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | | :------------------------ | :------------ | :------------- | :---------------- | :----------------- | :------------ | | Core Net Interest Income | $23,705 | $22,543 | $21,440 | $19,527 | $19,444 | | Core Average Interest Earning Assets | $2,870,125 | $2,734,203 | $2,594,444 | $2,474,485 | $2,428,057 | | Core Net Interest Margin | 3.31% | 3.34% | 3.29% | 3.14% | 3.22% | Adjusted Efficiency Ratio | Metric | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | | :------------------------ | :------------ | :------------- | :---------------- | :----------------- | :------------ | | Adjusted Noninterest Expense | $11,290 | $10,757 | $9,451 | $9,479 | $8,872 | | Adjusted Operating Revenue | $27,189 | $26,403 | $25,797 | $22,727 | $21,958 | | Adjusted Efficiency Ratio | 41.5% | 40.7% | 36.6% | 41.7% | 40.4% | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=99&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details the Company's primary market risk, which is interest rate risk, and how it is measured and managed [Interest Rate Risk](index=99&type=section&id=Interest%20Rate%20Risk) This section describes the company's exposure to interest rate risk and its strategies for measurement and mitigation - The Company's primary market risk is interest rate risk, managed by the ALM Committee through a board-approved risk management infrastructure that sets limits and targets for various metrics[323](index=323&type=chunk)[325](index=325&type=chunk) - The Company uses interest rate swaps and caps as cash flow hedges to mitigate interest rate exposure for brokered deposits and wholesale borrowing portfolios, with a total notional amount of **$185.0 million** at June 30, 2021[327](index=327&type=chunk) Net Interest Income Simulation (12-Month Projection, dollars in thousands) | Change (basis points) in Interest Rates | June 30, 2021 Forecasted Net Interest Income | June 30, 2021 Percentage Change from Base | | :-------------------------------------- | :------------------------------------------- | :---------------------------------------- | | +400 | $102,185 | 5.30% | | +300 | $100,629 | 3.69% | | +200 | $98,964 | 1.98% | | +100 | $97,547 | 0.52% | | 0 | $97,045 | —% | | −100 | $94,373 | (2.75)% | - LIBOR is used as an index rate for various financial instruments, and the Company is evaluating risks related to its discontinuation, expected between December 31, 2021, and June 30, 2023[333](index=333&type=chunk) [Item 4. Controls and Procedures](index=102&type=section&id=Item%204.%20Controls%20and%20Procedures) This section addresses the effectiveness of the Company's disclosure controls and procedures and reports on any changes in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=102&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section reports on the effectiveness of the company's disclosure controls and procedures as assessed by management - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of June 30, 2021, ensuring timely and accurate reporting[334](index=334&type=chunk) [Changes in Internal Control Over Financial Reporting](index=104&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section confirms whether there have been any material changes in the company's internal control over financial reporting - There have been no material changes in the Company's internal control over financial reporting during the period covered by this report[336](index=336&type=chunk) [PART II OTHER INFORMATION](index=104&type=section&id=PART%20II%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=104&type=section&id=Item%201.%20Legal%20Proceedings) This section confirms the absence of any material legal proceedings against the Company or its subsidiaries - 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[337](index=337&type=chunk) [Item 1A. Risk Factors](index=104&type=section&id=Item%201A.%20Risk%20Factors) This section states that there have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K - No material changes to the risk factors disclosed in the Company's Annual Report on Form 10-K filed on March 11, 2021[338](index=338&type=chunk) [Item 2. 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 reports that there were no unregistered sales of equity securities or use of proceeds from registered securities during the period - No unregistered sales of equity securities or use of proceeds from registered securities occurred during the period[339](index=339&type=chunk)[340](index=340&type=chunk)[341](index=341&type=chunk) [Item 3. Defaults Upon Senior Securities](index=104&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section confirms that there were no defaults upon senior securities - No defaults upon senior securities[342](index=342&type=chunk) [Item 4. Mine Safety Disclosures](index=104&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable[343](index=343&type=chunk) [Item 5. Other Information](index=104&type=section&id=Item%205.%20Other%20Information) This section indicates that there is no other information to report - No other information to report[344](index=344&type=chunk) [Item 6. Exhibits](index=105&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Form 10-Q, including indentures, purchase agreements, registration rights agreements, and certifications - The report includes exhibits such as the Indenture dated July 8, 2021, Forms of **3.25%** Fixed-to-Floating Rate Subordinated Note, Subordinated Note Purchase Agreement, Registration Rights Agreement, and certifications by the CEO and CFO[346](index=346&type=chunk) [SIGNATURES](index=106&type=section&id=SIGNATURES) [Signatures](index=106&type=section&id=Signatures) This section contains the required signatures of the Company's authorized officers, including the Chairman, Chief Executive Officer, and President, and the Chief Financial Officer - The report is signed by Jerry J. Baack, Chairman, Chief Executive Officer and President, and Joe M. Chybowski, Chief Financial Officer, on July 30, 2021[350](index=350&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, 2021 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 ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020. 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 (St ...

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, 2020 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 cha ...

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 June 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ________ | --- | --- | |--------------------------------------------------------------------------------------|-------------- ...

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, 2020 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 ...

PART I [Item 1. Business](index=4&type=section&id=Item%201.%20Business) Bridgewater Bancshares, Inc. is a Minnesota-based financial holding company specializing in commercial real estate lending in the Twin Cities MSA - Bridgewater Bancshares, Inc. is a Minnesota corporation and financial holding company operating through Bridgewater Bank, with seven full-service offices in the Twin Cities MSA[12](index=12&type=chunk) - The company was established in 2005, focusing on commercial real estate investors, small business entrepreneurs, and high net worth individuals[13](index=13&type=chunk) - The Company's growth has been primarily organic, driven by commercial real estate lending, with assets growing at a compounded annual growth rate of **34.7% since 2005**[14](index=14&type=chunk) Key Financial Metrics (as of December 31, 2019) | Metric | Amount ($ millions) | | :----------------- | :------------------ | | Total Assets | 2,270 | | Total Gross Loans | 1,910 | | Total Deposits | 1,820 | | Shareholders' Equity | 244.8 | - The Twin Cities MSA, where the Company operates, is the **15th largest metropolitan statistical area in the U.S. by total deposits** and the **3rd largest in the Midwest**, characterized by strong demographics[17](index=17&type=chunk)[20](index=20&type=chunk) Twin Cities MSA Deposit Market Share (as of June 30, 2019) | Rank | Institution | Market Share (%) | | :--- | :--------------------------- | :--------------- | | 1 | U.S. Bancorp | 38.81 | | 2 | Wells Fargo & Co | 34.14 | | 10 | Bridgewater Bancshares, Inc. | 0.91 | - The Bank primarily focuses on commercial lending, with a niche in multifamily financing (**20-30% of the loan portfolio**), which has historically shown lower loss rates[24](index=24&type=chunk)[35](index=35&type=chunk) - The Bank offers a suite of deposit products targeted at commercial clients, including remote deposit and cash management, alongside traditional retail products[30](index=30&type=chunk) - Competitive strengths include commercial banking expertise, an engaged and experienced board and management team, efficiency, a hard-working and entrepreneurial culture, solid asset quality metrics, and proactive enterprise risk management[33](index=33&type=chunk)[36](index=36&type=chunk)[39](index=39&type=chunk)[40](index=40&type=chunk)[41](index=41&type=chunk)[42](index=42&type=chunk) - Strategies for growth include focusing on organic growth in the market area, leveraging entrepreneurial culture and talent, and considering opportunistic acquisitions that complement existing business[45](index=45&type=chunk)[47](index=47&type=chunk)[48](index=48&type=chunk) - The Company and its subsidiaries are extensively regulated by federal and state laws, including those from the Federal Reserve, FDIC, and Minnesota Department of Commerce. Recent regulatory relief (Regulatory Relief Act) has eased some burdens for community banks[49](index=49&type=chunk)[51](index=51&type=chunk) - Regulatory capital requirements have become more stringent post-financial crisis, with Basel III introducing Common Equity Tier 1 Capital and increasing minimum ratios. The Company and Bank were **well-capitalized as of December 31, 2019**, and in compliance with the capital conservation buffer[52](index=52&type=chunk)[54](index=54&type=chunk)[56](index=56&type=chunk) - The Bank is subject to FDIC deposit insurance premiums, supervisory assessments by MFID, liquidity requirements, and various consumer protection laws like CRA and anti-money laundering statutes[64](index=64&type=chunk)[66](index=66&type=chunk)[68](index=68&type=chunk) - As of December 31, 2019, the Bank's total loans secured by multifamily and nonfarm residential properties plus construction and land development loans represented **516.6% of its total capital**, indicating a concentration in commercial real estate lending requiring heightened risk management[70](index=70&type=chunk) - As of December 31, 2019, the Company had **160 full-time equivalent employees** and considers relationships with employees to be good[70](index=70&type=chunk) [Item 1A. Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) The company faces various risks including credit concentrations, liquidity challenges, operational vulnerabilities, regulatory changes, and market volatility - The loan portfolio has a large concentration in commercial real estate (**68.2% of total gross loans** and **516.6% of the Bank's total risk-based capital as of December 31, 2019**), making it vulnerable to real estate market fluctuations[76](index=76&type=chunk)[77](index=77&type=chunk) - The allowance for loan losses (**1.18% of total gross loans at December 31, 2019**) may be insufficient to absorb potential losses, and the new CECL accounting standard (effective January 1, 2023) could require increases to allowance levels[86](index=86&type=chunk)[89](index=89&type=chunk)[90](index=90&type=chunk)[91](index=91&type=chunk)[92](index=92&type=chunk) - A high concentration of large loans to certain borrowers (top 10 relationships accounted for **16.5% of total gross loan portfolio at December 31, 2019**) increases credit risk[98](index=98&type=chunk) - Dependence on non-core funding sources (e.g., brokered deposits, FHLB advances) can lead to higher and more volatile funding costs. Brokered deposits were **12.9% of total deposits at December 31, 2019**[114](index=114&type=chunk)[115](index=115&type=chunk) - A high concentration of large depositors (top 10 relationships accounted for **22.2% of total deposits at December 31, 2019**) poses a liquidity risk if significant withdrawals occur[116](index=116&type=chunk)[117](index=117&type=chunk) - The Company's ability to pay dividends is dependent on dividends from the Bank, which are subject to federal and state regulatory limitations[120](index=120&type=chunk) - Operational risks include fraudulent activity, breaches of information security controls, cybersecurity incidents, and reliance on third-party information technology systems[136](index=136&type=chunk)[137](index=137&type=chunk)[139](index=139&type=chunk)[140](index=140&type=chunk)[141](index=141&type=chunk) - The Company is subject to extensive regulation, and changes in laws, interpretations, or enforcement actions could significantly affect operations, increase costs, or restrict business activities[183](index=183&type=chunk)[184](index=184&type=chunk)[188](index=188&type=chunk) - Interest rate fluctuations significantly affect net interest income. The transition away from LIBOR as a reference rate could negatively impact income, expenses, and financial contract values[230](index=230&type=chunk)[231](index=231&type=chunk)[233](index=233&type=chunk)[163](index=163&type=chunk)[166](index=166&type=chunk) - The Company's common stock is relatively thinly traded, and its price could be volatile due to various factors, including market conditions, analyst reports, and company-specific news[240](index=240&type=chunk)[241](index=241&type=chunk) [Item 1B. Unresolved Staff Comments](index=74&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments from the SEC - None[256](index=256&type=chunk) [Item 2. Properties](index=74&type=section&id=Item%202.%20Properties) The company's headquarters is in Bloomington, relocating to St. Louis Park in 2020, operating seven branches in the Twin Cities MSA - The corporate headquarters is located in Bloomington, Minnesota, and is planned to relocate to a site owned in St. Louis Park, Minnesota, in **2020**[257](index=257&type=chunk) - The Company operates **seven branch offices** in the Twin Cities MSA; three are owned (St. Louis Park, Orono, Minneapolis-Hennepin Avenue) and four are leased (Bloomington, Greenwood, Minneapolis-Marquette Avenue, St. Paul)[257](index=257&type=chunk)[258](index=258&type=chunk) [Item 3. Legal Proceedings](index=75&type=section&id=Item%203.%20Legal%20Proceedings) Neither the company nor its subsidiaries are involved in any material pending legal proceedings - Neither the Company nor its subsidiaries are involved in any material pending legal proceedings, other than ordinary routine litigation incidental to the Bank's business[260](index=260&type=chunk) - The Company is not aware of any contemplated proceedings by a governmental authority against it or its subsidiaries[260](index=260&type=chunk) [Item 4. Mine Safety Disclosures](index=75&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[261](index=261&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=75&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on Nasdaq (BWB), with a $25.0 million repurchase program and no current dividend policy - The Company's common stock trades on the Nasdaq Stock Market under the symbol '**BWB**'[263](index=263&type=chunk) - As of February 24, 2020, there were **28,973,572 shares** of Common Stock issued and outstanding[1](index=1&type=chunk) - In January 2019, the board approved a **$15.0 million** stock repurchase program, which was increased by **$10.0 million** in July 2019, totaling **$25.0 million**. The program continues through January 22, 2021[255](index=255&type=chunk)[264](index=264&type=chunk)[265](index=265&type=chunk) - The Company has not historically declared or paid dividends on its common stock and does not intend to in the foreseeable future, anticipating future earnings will be retained to support operations and business growth[246](index=246&type=chunk)[247](index=247&type=chunk)[267](index=267&type=chunk) - Dividend payments are subject to restrictions under Minnesota law and banking regulations, including capital adequacy guidelines and policies of the Federal Reserve[268](index=268&type=chunk)[269](index=269&type=chunk)[270](index=270&type=chunk) [Item 6. Selected Financial Data](index=77&type=section&id=Item%206.%20Selected%20Financial%20Data) This section provides a five-year summary of selected consolidated financial data, including per share metrics, performance, and asset quality ratios Selected Per Common Share Data | Metric | 2019 ($) | 2018 ($) | 2017 ($) | 2016 ($) | 2015 ($) | | :-------------------------- | :------- | :------- | :------- | :------- | :------- | | Basic Earnings Per Share | 1.07 | 0.93 | 0.69 | 0.59 | 0.65 | | Diluted Earnings Per Share | 1.05 | 0.91 | 0.68 | 0.58 | 0.64 | | Book Value Per Share | 8.45 | 7.34 | 5.56 | 4.69 | 4.05 | | Tangible Book Value Per Share | 8.33 | 7.22 | 5.40 | 4.53 | 4.05 | Selected Performance Ratios | Metric | 2019 (%) | 2018 (%) | 2017 (%) | 2016 (%) | 2015 (%) | | :-------------------------------------- | :------- | :------- | :------- | :------- | :------- | | Return on Average Assets (ROA) | 1.49 | 1.51 | 1.16 | 1.20 | 1.39 | | Return on Average Common Equity (ROE) | 13.50 | 13.87 | 13.18 | 12.88 | 17.50 | | Net Interest Margin | 3.59 | 3.72 | 3.92 | 4.00 | 4.18 | | Efficiency Ratio | 47.4 | 46.5 | 44.4 | 45.8 | 43.6 | | Core Deposits to Total Deposits | 80.7 | 74.2 | 76.7 | 77.2 | 79.4 | Selected Asset Quality Data | Metric | 2019 (%) | 2018 (%) | 2017 (%) | 2016 (%) | 2015 (%) | | :-------------------------------------- | :------- | :------- | :------- | :------- | :------- | | Loans 30-89 Days Past Due to Total Loans | 0.02 | 0.02 | 0.05 | 0.07 | 0.14 | | Nonperforming Loans to Total Loans | 0.02 | 0.03 | 0.08 | 0.23 | 0.29 | | Nonperforming Assets to Total Assets | 0.02 | 0.03 | 0.11 | 0.52 | 0.33 | | Allowance for Loan Losses to Total Loans | 1.18 | 1.20 | 1.22 | 1.23 | 1.26 | | Net Loan Charge-Offs to Average Loans | 0.01 | 0.00 | 0.00 | 0.11 | 0.14 | Selected Balance Sheet Data (Year-End, $ thousands) | Metric | 2019 | 2018 | 2017 | 2016 | 2015 | | :-------------------------- | :---------- | :---------- | :---------- | :---------- | :--------- | | Total Assets | 2,268,830 | 1,973,741 | 1,616,612 | 1,260,394 | 928,686 | | Total Loans, Gross | 1,912,038 | 1,664,931 | 1,347,113 | 1,000,739 | 799,497 | | Deposits | 1,823,310 | 1,560,934 | 1,339,350 | 1,023,508 | 761,882 | | Total Shareholders' Equity | 244,794 | 220,998 | 137,162 | 115,366 | 80,178 | Selected Income Statement Data (Annual, $ thousands) | Metric | 2019 | 2018 | 2017 | 2016 | 2015 | | :-------------- | :------- | :------- | :------- | :------- | :------ | | Interest Income | 103,778 | 85,226 | 66,346 | 50,632 | 39,193 | | Interest Expense| 29,646 | 20,488 | 12,173 | 8,514 | 6,498 | | Net Income | 31,403 | 26,920 | 16,889 | 13,215 | 11,195 | [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=79&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes the company's financial condition and operating results for 2017-2019, focusing on income, expenses, and balance sheet trends [General Overview](index=79&type=section&id=General%20Overview) The company's revenue primarily stems from loan interest and investment income, with main expenses being interest on deposits and employee compensation - The Company's primary revenue sources are interest and fees from loans, and interest/dividends from investment securities. Principal expenses include interest on deposits/borrowings and employee compensation[16](index=16&type=chunk)[279](index=279&type=chunk) [Critical Accounting Policies and Estimates](index=80&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Financial statements rely on critical accounting policies and estimates for securities, loan loss allowance, and deferred tax assets - The Company's financial statements rely on significant accounting policies and estimates, including the valuation of securities, determination of the allowance for loan losses, and calculation of deferred tax assets, which require complex and subjective judgments[280](index=280&type=chunk)[282](index=282&type=chunk) - The Company has elected to use the extended transition period for complying with new or revised accounting standards available to emerging growth companies under the JOBS Act[281](index=281&type=chunk) - The allowance for loan losses is an estimate for probable loan losses, established through a provision for loan losses, and is adjusted based on portfolio analysis, historical loss experience, and economic conditions[283](index=283&type=chunk) - Investment securities impairment is assessed periodically, considering factors like fair value relative to cost, market liquidity, issuer's financial condition, and the Company's intent and ability to hold the investment[286](index=286&type=chunk) - Deferred tax assets and liabilities are recognized for future tax consequences of temporary differences, with a valuation allowance established if realization is not 'more likely than not,' requiring significant judgment on future income and tax plans[288](index=288&type=chunk) [Results of Operations](index=82&type=section&id=Results%20of%20Operations) This section details the company's financial performance, including net income, net interest income, and expense trends Net Income and EPS Trends | Metric | 2019 ($ millions) | 2018 ($ millions) | 2017 ($ millions) | | :------------------------- | :---------------- | :---------------- | :---------------- | | Net Income | 31.4 | 26.9 | 16.9 | | Net Income Growth (YoY) | 16.7% | 59.4% | 27.8% | | Diluted EPS | 1.05 | 0.91 | 0.68 | | Diluted EPS Growth (YoY) | 14.5% | 35.5% | 15.6% | - Net interest income increased by **$9.4 million (14.5%) in 2019** compared to 2018, primarily due to strong organic loan portfolio growth. Net interest margin decreased by **13 basis points to 3.59% in 2019**, as increased deposit and borrowing costs outpaced asset repricing[302](index=302&type=chunk)[303](index=303&type=chunk) - Total interest income on a tax-equivalent basis increased by **$18.4 million (21.4%) in 2019**, driven by loan portfolio growth and higher average loan yields. Interest expense on interest-bearing liabilities increased by **$9.2 million (44.7%)** due to higher market rates and growth in deposits and borrowings[307](index=307&type=chunk)[309](index=309&type=chunk)[311](index=311&type=chunk)[312](index=312&type=chunk) Provision for Loan Losses | Year | Provision for Loan Losses ($ thousands) | | :--- | :-------------------------------------- | | 2019 | 2,700 | | 2018 | 3,575 | | 2017 | 4,175 | - The allowance for loan losses as a percentage of gross loans outstanding was **1.18% at December 31, 2019**, down from **1.20% in 2018**, reflecting continued strength in credit quality[326](index=326&type=chunk)[328](index=328&type=chunk) - Noninterest income increased by **$1.3 million (50.5%) in 2019**, mainly due to gains on sales of securities and foreclosed assets, and increased swap fees[329](index=329&type=chunk)[330](index=330&type=chunk) Noninterest Income Components ($ thousands) | Category | 2019 | 2018 | 2017 | | :----------------------------- | :---- | :---- | :---- | | Customer Service Fees | 760 | 745 | 660 | | Net Gain (Loss) on Sales of Securities | 516 | (125) | (250) | | Net Gain (Loss) on Sales of Foreclosed Assets | 69 | (225) | 356 | | Letter of Credit Fees | 1,184 | 1,296 | 1,072 | | Swap Fees | 255 | — | — | | Total Noninterest Income | 3,826 | 2,543 | 2,536 | - Noninterest expense increased by **$5.4 million (17.0%) in 2019**, primarily due to higher salaries and employee benefits (**+$3.5 million**) and increased staff (from **140 to 160 FTEs**)[333](index=333&type=chunk)[334](index=334&type=chunk) - The efficiency ratio (non-GAAP) was **47.4% in 2019**, a marginal increase from **46.5% in 2018**. The adjusted efficiency ratio (excluding tax credit investment amortization) was **43.3% in 2019**, up from **41.7% in 2018**[336](index=336&type=chunk)[337](index=337&type=chunk) Noninterest Expense Components ($ thousands) | Category | 2019 | 2018 | 2017 | | :----------------------------- | :----- | :----- | :----- | | Salaries and Employee Benefits | 22,076 | 18,620 | 14,051 | | Occupancy and Equipment | 3,085 | 2,351 | 2,192 | | Amortization of Tax Credit Investments | 3,225 | 3,293 | 1,916 | | Total Noninterest Expense | 36,932 | 31,562 | 25,496 | - Income tax expense increased to **$6.9 million in 2019** from **$5.2 million in 2018**, with the effective combined federal and state income tax rate rising to **18.1% from 16.3%**, primarily due to fewer tax credits recognized[344](index=344&type=chunk) [Financial Condition](index=96&type=section&id=Financial%20Condition) This section analyzes the company's balance sheet, covering assets, liabilities, equity, loan portfolio, and liquidity - Total assets increased by **$295.1 million (15.0%) to $2.27 billion** at December 31, 2019, driven by a **14.8% increase in total gross loans to $1.91 billion**[348](index=348&type=chunk) - The investment securities portfolio, held as available for sale, increased by **$36.5 million (14.4%) to $289.9 million** at December 31, 2019, primarily consisting of municipal securities, U.S. government agency mortgage-backed securities, and corporate securities[352](index=352&type=chunk)[353](index=353&type=chunk) Loan Portfolio Composition (as of December 31, 2019) | Loan Category | Amount ($ thousands) | Percent of Total Loans (%) | | :-------------------------------- | :------------------- | :------------------------- | | Commercial Construction | 276,035 | 14.5 | | Land Development Real Estate Mortgage | 196,776 | 10.3 | | 1-4 Family Mortgage | 260,611 | 13.6 | | Multifamily | 515,014 | 26.9 | | CRE Owner Occupied | 66,584 | 3.5 | | CRE Nonowner Occupied | 592,545 | 31.0 | | Consumer and Other | 4,473 | 0.2 | | Total Loans, Gross | 1,912,038 | 100.0 | - The Company's primary focus remains on real estate mortgage lending, which constituted **75.0% of the portfolio** at December 31, 2019[365](index=365&type=chunk) - Nonperforming loans totaled **$461,000** at December 31, 2019, a decrease of **$120,000** from **$581,000** at December 31, 2018. There were no foreclosed assets at year-end 2019[370](index=370&type=chunk) Nonperforming Assets ($ thousands) | Metric | 2019 | 2018 | 2017 | | :---------------------- | :--- | :--- | :---- | | Total Nonaccrual Loans | 461 | 581 | 1,139 | | Total Nonperforming Loans | 461 | 581 | 1,139 | | Foreclosed Assets | — | — | 581 | | Total Nonperforming Assets | 461 | 581 | 1,720 | - The allowance for loan losses increased by **$2.5 million to $22.5 million** at December 31, 2019, from **$20.0 million** at December 31, 2018[378](index=378&type=chunk) - Goodwill remained at **$2.6 million** at December 31, 2019 and 2018, originating from the 2016 acquisition of First National Bank of the Lakes. Other intangible assets were **$861,000** at December 31, 2019[382](index=382&type=chunk) - Total deposits increased by **$262.4 million (16.8%) to $1.82 billion** at December 31, 2019. Noninterest-bearing deposits comprised **24.5% of total deposits**[383](index=383&type=chunk) - Brokered deposits decreased to **$234.4 million (12.9% of total deposits)** at December 31, 2019, from **$291.2 million (18.7%)** at December 31, 2018, due to successful core deposit growth and strategic management of brokered time deposits[385](index=385&type=chunk) - Borrowed funds at December 31, 2019, included FHLB advances of **$136.5 million** and notes payable of **$13.0 million**. The Company had additional borrowing capacity of **$209.8 million with FHLB** and **$113.2 million with the Federal Reserve discount window**[390](index=390&type=chunk)[391](index=391&type=chunk) - Subordinated debentures, issued in July 2017, totaled **$24.7 million** (net of issuance costs) at December 31, 2019, with a fixed interest rate of **5.875% until July 2022**, then converting to a variable rate[393](index=393&type=chunk) Contractual Obligations (as of December 31, 2019, $ thousands) | Obligation Category | Within One Year | One to Three Years | Three to Five Years | After Five Years | Total | | :------------------------------ | :-------------- | :----------------- | :------------------ | :--------------- | :---------- | | Deposits Without Stated Maturity | 1,231,364 | — | — | — | 1,231,364 | | Time Deposits | 336,684 | 177,030 | 78,232 | — | 591,946 | | Notes Payable | 2,000 | 11,000 | — | — | 13,000 | | FHLB Advances | 10,000 | 44,000 | 72,500 | 10,000 | 136,500 | | Subordinated Debentures | — | — | — | 25,000 | 25,000 | | Operating Lease Obligations | 940 | 774 | 643 | 1,130 | 3,487 | - Shareholders' equity increased by **$23.8 million (10.8%) to $244.8 million** at December 31, 2019, primarily due to net income retention and an increase in accumulated other comprehensive income, partially offset by stock repurchases[399](index=399&type=chunk) - The Company and Bank met all regulatory capital adequacy requirements as of December 31, 2019, including the fully phased-in capital conservation buffer[403](index=403&type=chunk)[405](index=405&type=chunk) - Off-balance sheet arrangements include commitments to extend credit and letters of credit, totaling **$580.2 million** at December 31, 2019, which involve credit and interest rate risk[406](index=406&type=chunk)[408](index=408&type=chunk) - Primary liquidity (cash and available-for-sale securities) increased to **$321.8 million** at December 31, 2019. Secondary liquidity (borrowing capacity) increased to **$428.0 million**[413](index=413&type=chunk)[414](index=414&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=122&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate risk, managed by its ALM Committee using interest rate swaps and income simulations - The Company's primary market risk is interest rate risk, managed by its ALM Committee through a risk management infrastructure that sets limits and targets for various metrics[427](index=427&type=chunk)[428](index=428&type=chunk) - The Company uses interest rate swaps as cash flow hedges to manage interest rate exposure for brokered certificates of deposit, wholesale borrowings, and notes payable portfolios, converting variable rates to fixed rates[430](index=430&type=chunk) - A net interest income simulation model is used to measure potential changes in net interest income over 12 months from immediate and sustained interest rate shifts[431](index=431&type=chunk) Forecasted Net Interest Income Sensitivity to Interest Rate Changes (as of December 31, 2019) | Change (basis points) in Interest Rates | Forecasted Net Interest Income ($ thousands) | Percentage Change from Base (%) | | :-------------------------------------- | :------------------------------------------- | :------------------------------ | | +400 | 80,558 | 13.47 | | +300 | 78,064 | 9.95 | | +200 | 75,591 | 6.47 | | +100 | 73,113 | 2.98 | | 0 | 70,996 | — | | −100 | 68,685 | (3.26) | | −200 | 67,127 | (5.45) | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA [REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM](index=125&type=section&id=REPORT%20OF%20INDEPENDENT%20REGISTERED%20PUBLIC%20ACCOUNTING%20FIRM) CliftonLarsonAllen LLP issued an unqualified opinion on the company's consolidated financial statements for 2017-2019, affirming GAAP compliance - CliftonLarsonAllen LLP issued an unqualified opinion on the consolidated financial statements of Bridgewater Bancshares, Inc. and Subsidiaries for the periods ended December 31, 2019, 2018, and 2017[438](index=438&type=chunk) - The financial statements are presented fairly, in all material respects, in conformity with accounting principles generally accepted in the United States of America[438](index=438&type=chunk) - The Company is not required to have, nor was the auditor engaged to perform, an audit of its internal control over financial reporting in accordance with PCAOB standards[439](index=439&type=chunk) - CliftonLarsonAllen LLP has served as the Company's auditor since **2005**[440](index=440&type=chunk) [Bridgewater Bancshares, Inc. and Subsidiaries Consolidated Balance Sheets](index=126&type=section&id=Bridgewater%20Bancshares,%20Inc.%20and%20Subsidiaries%20Consolidated%20Balance%20Sheets) The consolidated balance sheets detail the company's financial position for 2019 and 2018, showing assets, liabilities, and shareholders' equity Consolidated Balance Sheets (as of December 31, $ thousands) | Asset/Liability/Equity | 2019 | 2018 | | :------------------------------- | :---------- | :---------- | | **Assets:** | | | | Cash and Cash Equivalents | 31,935 | 28,444 | | Securities Available for Sale | 289,877 | 253,378 | | Loans, Net | 1,884,000 | 1,640,385 | | Premises and Equipment, Net | 27,628 | 13,074 | | Goodwill | 2,626 | 2,626 | | Total Assets | 2,268,830 | 1,973,741 | | **Liabilities:** | | | | Deposits | 1,823,310 | 1,560,934 | | Federal Funds Purchased | — | 18,000 | | FHLB Advances | 136,500 | 124,000 | | Subordinated Debentures, Net | 24,733 | 24,630 | | Total Liabilities | 2,024,036 | 1,752,743 | | **Shareholders' Equity:** | | | | Total Shareholders' Equity | 244,794 | 220,998 | [Bridgewater Bancshares, Inc. and Subsidiaries Consolidated Statements of Income](index=127&type=section&id=Bridgewater%20Bancshares,%20Inc.%20and%20Subsidiaries%20Consolidated%20Statements%20of%20Income) The consolidated statements of income present the company's financial performance for 2017-2019, highlighting net income and revenue drivers Consolidated Statements of Income (Annual, $ thousands) | Income/Expense Item | 2019 | 2018 | 2017 | | :---------------------------------- | :------- | :------- | :------- | | Total Interest Income | 103,778 | 85,226 | 66,346 | | Total Interest Expense | 29,646 | 20,488 | 12,173 | | Net Interest Income | 74,132 | 64,738 | 54,173 | | Provision for Loan Losses | 2,700 | 3,575 | 4,175 | | Total Noninterest Income | 3,826 | 2,543 | 2,536 | | Total Noninterest Expense | 36,932 | 31,562 | 25,496 | | Income Before Income Taxes | 38,326 | 32,144 | 27,038 | | Provision for Income Taxes | 6,923 | 5,224 | 10,149 | | Net Income | 31,403 | 26,920 | 16,889 | | Basic Earnings Per Share ($) | 1.07 | 0.93 | 0.69 | | Diluted Earnings Per Share ($) | 1.05 | 0.91 | 0.68 | [Bridgewater Bancshares, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income](index=128&type=section&id=Bridgewater%20Bancshares,%20Inc.%20and%20Subsidiaries%20Consolidated%20Statements%20of%20Comprehensive%20Income) The consolidated statements of comprehensive income detail net income and other comprehensive income components for 2017-2019 Consolidated Statements of Comprehensive Income (Annual, $ thousands) | Item | 2019 | 2018 | 2017 | | :---------------------------------------- | :----- | :----- | :----- | | Net Income | 31,403 | 26,920 | 16,889 | | Unrealized Gains (Losses) on Available for Sale Securities | 9,514 | (3,804)| 6,354 | | Unrealized Gains (Losses) on Cash Flow Hedges | (962) | 9 | 121 | | Total Other Comprehensive Income (Loss), Net of Tax | 6,342 | (2,846)| 4,359 | | Comprehensive Income | 37,745 | 24,074 | 21,248 | [Bridgewater Bancshares, Inc. and Subsidiaries Consolidated Statements of Shareholders' Equity](index=129&type=section&id=Bridgewater%20Bancshares,%20Inc.%20and%20Subsidiaries%20Consolidated%20Statements%20of%20Shareholders'%20Equity) The consolidated statements of shareholders' equity detail changes in equity components for 2017-2019, including net income and repurchases Consolidated Statements of Shareholders' Equity (Annual, $ thousands) | Equity Component | Balance Dec 31, 2017 | Balance Dec 31, 2018 | Balance Dec 31, 2019 | | :------------------------------- | :------------------- | :------------------- | :------------------- | | Common Stock | 246 | 301 | 290 | | Additional Paid-In Capital | 66,324 | 126,031 | 112,093 | | Retained Earnings | 69,508 | 96,234 | 127,637 | | Accumulated Other Comprehensive Income (Loss) | 1,084 | (1,568) | 4,774 | | Total Shareholders' Equity | 137,162 | 220,998 | 244,794 | - Key activities affecting equity in 2019 included **$31.4 million** in comprehensive income, **$0.8 million** in stock-based compensation, and **$15.0 million** in stock repurchases[458](index=458&type=chunk) [Bridgewater Bancshares, Inc. and Subsidiaries Consolidated Statements of Cash Flows](index=130&type=section&id=Bridgewater%20Bancshares,%20Inc.%20and%20Subsidiaries%20Consolidated%20Statements%20of%20Cash%20Flows) The consolidated statements of cash flows detail cash generated and used in operating, investing, and financing activities for 2017-2019 Consolidated Statements of Cash Flows (Annual, $ thousands) | Cash Flow Activity | 2019 | 2018 | 2017 | | :--------------------------------- | :-------- | :-------- | :-------- | | Net Cash Provided by Operating Activities | 39,527 | 29,408 | 24,902 | | Net Cash Used in Investing Activities | (276,211) | (354,236) | (350,182) | | Net Cash Provided by Financing Activities | 240,175 | 329,547 | 332,506 | | Net Change in Cash and Cash Equivalents | 3,491 | 4,719 | 7,226 | | Cash and Cash Equivalents Ending | 31,935 | 28,444 | 23,725 | - Investing activities were primarily impacted by a net increase in loans (used **$247.6 million in 2019**) and purchases of premises and equipment (used **$15.6 million in 2019**)[462](index=462&type=chunk) - Financing activities in 2019 included a **$262.4 million increase in deposits** and **$42.5 million from FHLB advances**, partially offset by **$15.0 million in stock repurchases**[462](index=462&type=chunk) [Bridgewater Bancshares, Inc. and Subsidiaries Notes to Consolidated Financial Statements](index=131&type=section&id=Bridgewater%20Bancshares,%20Inc.%20and%20Subsidiaries%20Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed notes to the consolidated financial statements, covering accounting policies, estimates, and regulatory compliance [Note 1: Description of the Business and Summary of Significant Accounting Policies](index=131&type=section&id=Note%201:%20Description%20of%20the%20Business%20and%20Summary%20of%20Significant%20Accounting%20Policies) This note describes the company's business, its subsidiaries, and summarizes significant accounting policies and estimates - The Company is a financial holding company, owning Bridgewater Bank and Bridgewater Risk Management, Inc. The Bank provides retail and commercial loan and deposit services in the Minneapolis-St. Paul-Bloomington, MN-WI Metropolitan Statistical Area[466](index=466&type=chunk) - The consolidated financial statements include the Company, the Bank, and its wholly-owned subsidiaries (BWB Holdings, LLC and Bridgewater Investment Management, Inc.)[468](index=468&type=chunk) - The preparation of financial statements requires management to make estimates and assumptions, particularly for securities valuation, allowance for loan losses, deferred tax assets, and investment securities impairment[469](index=469&type=chunk)[470](index=470&type=chunk) - As an 'emerging growth company' under the JOBS Act, the Company takes advantage of certain exemptions from reporting requirements, including an extended transition period for new accounting standards[471](index=471&type=chunk)[474](index=474&type=chunk) - Loans are generally reported at outstanding unpaid balances, adjusted for charge-offs, allowance for loan losses, and deferred fees/costs. Interest accrual is discontinued for loans **90 days past due** unless well-collateralized[479](index=479&type=chunk)[481](index=481&type=chunk) - The allowance for loan losses is an estimate of inherent losses, comprising general reserves (for nonimpaired loans based on historical losses and economic factors), specific reserves (for impaired loans), and unallocated reserves (for uncertainties in economic conditions)[483](index=483&type=chunk)[484](index=484&type=chunk)[485](index=485&type=chunk)[486](index=486&type=chunk) - The Company assigns risk ratings (Pass, Watch, Substandard, Doubtful, Loss) to all loans and performs periodic internal reviews to assess credit risks[490](index=490&type=chunk)[491](index=491&type=chunk)[492](index=492&type=chunk)[493](index=493&type=chunk)[494](index=494&type=chunk) - The Company uses derivative financial instruments (interest rate swaps) for interest rate risk management, with fair values recorded in other assets or liabilities. Cash flow hedges are used to manage exposure for brokered CDs, wholesale borrowings, and notes payable[525](index=525&type=chunk)[527](index=527&type=chunk) - The Company adopted ASU 2014-09 (Revenue from Contracts with Customers) effective **January 1, 2019**, with no material impact on revenue recognition[536](index=536&type=chunk) - Recently issued accounting standards, including ASU 2016-02 (Leases) and ASU 2016-13 (Credit Losses - CECL), have delayed effective dates for emerging growth companies. The Company is evaluating their potential impact[541](index=541&type=chunk)[542](index=542&type=chunk)[544](index=544&type=chunk) [Note 2: Earnings Per Share](index=151&type=section&id=Note%202:%20Earnings%20Per%20Share) This note details the computation of basic and diluted earnings per share, including the impact of stock compensation - Basic EPS is calculated by dividing net income by the weighted average common shares outstanding. Diluted EPS adjusts for the dilutive effect of stock compensation using the treasury stock method[533](index=533&type=chunk) Earnings Per Share Computations | Metric | 2019 | 2018 | 2017 | | :-------------------------------------- | :---------- | :---------- | :---------- | | Net Income Available to Common Shareholders ($ thousands) | 31,403 | 26,920 | 16,889 | | Weighted Average Common Stock Outstanding (Basic) | 29,358,644 | 29,001,393 | 24,604,464 | | Dilutive Effect of Stock Compensation | 638,132 | 434,821 | 413,226 | | Weighted Average Common Stock Outstanding (Dilutive) | 29,996,776 | 29,436,214 | 25,017,690 | | Basic Earnings per Common Share ($) | 1.07 | 0.93 | 0.69 | | Diluted Earnings per Common Share ($) | 1.05 | 0.91 | 0.68 | [Note 3: Bank‑Owned Certificates of Deposit](index=152&type=section&id=Note%203:%20Bank%E2%80%91Owned%20Certificates%20of%20Deposit) This note provides a breakdown of bank-owned certificates of deposit by maturity Bank-Owned Certificates of Deposit by Maturity (at Cost, $ thousands) | Maturity | 2019 | 2018 | | :----------------------------- | :---- | :---- | | One Year or Less | 1,229 | 1,586 | | After One Year Through Five Years | 1,425 | 1,719 | | Totals | 2,654 | 3,305 | [Note 4: Securities](index=152&type=section&id=Note%204:%20Securities) This note details the composition and fair value of the company's securities portfolio, including unrealized gains and losses Securities Available for Sale (as of December 31, 2019, $ thousands) | Category | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | | :------------------------- | :------------- | :--------------------- | :---------------------- | :--------- | | U.S. Treasury Securities | 4,990 | 8 | — | 4,998 | | Municipal Bonds | 99,441 | 6,338 | (36) | 105,743 | | Mortgage-Backed Securities | 64,312 | 697 | (281) | 64,728 | | Corporate Securities | 49,674 | 633 | (131) | 50,176 | | SBA Securities | 50,126 | 35 | (602) | 49,559 | | Asset-Backed Securities | 14,673 | — | — | 14,673 | | Total | 283,216 | 7,711 | (1,050) | 289,877 | - At December 31, 2019, **110 debt securities** had unrealized losses (aggregate depreciation of **1.1% from amortized cost**), primarily due to interest rate changes, not credit quality. Management intends to hold these securities for the foreseeable future[562](index=562&type=chunk) Proceeds from Sales of Securities Available for Sale ($ thousands) | Year | Proceeds | Gross Gains | Gross Losses | | :--- | :------- | :---------- | :----------- | | 2019 | 42,864 | 774 | (258) | | 2018 | 24,684 | 290 | (415) | | 2017 | 36,209 | 405 | (655) | [Note 5: Loans](index=154&type=section&id=Note%205:%20Loans) This note provides a detailed breakdown of the loan portfolio, allowance for loan losses, and loan risk categories Loan Portfolio Components (as of December 31, $ thousands) | Loan Category | 2019 | 2018 | | :-------------------------------- | :---------- | :---------- | | Commercial | 276,035 | 260,833 | | Construction and Land Development | 196,776 | 210,041 | | Real Estate Mortgage: | | | | 1-4 Family Mortgage | 260,611 | 226,773 | | Multifamily | 515,014 | 407,934 | | CRE Owner Occupied | 66,584 | 64,458 | | CRE Non-owner Occupied | 592,545 | 490,632 | | Consumer and Other | 4,473 | 4,260 | | Total Loans, Gross | 1,912,038 | 1,664,931 | | Allowance for Loan Losses | (22,526) | (20,031) | | Net Deferred Loan Fees | (5,512) | (4,515) | | Total Loans, Net | 1,884,000 | 1,640,385 | Allowance for Loan Losses Activity ($ thousands) | Activity | 2019 | 2018 | 2017 | | :------------------------ | :----- | :----- | :----- | | Balance, Beginning of Period | 20,031 | 16,502 | 12,333 | | Provision for Loan Losses | 2,700 | 3,575 | 4,175 | | Charge-offs | (388) | (421) | (177) | | Recoveries | 183 | 375 | 171 | | Balance, End of Period | 22,526 | 20,031 | 16,502 | Loan Risk Category (as of December 31, 2019, $ thousands) | Loan Category | Pass | Watch | Substandard | Total | | :-------------------------------- | :---------- | :---- | :---------- | :---------- | | Commercial | 275,741 | 21 | 273 | 276,035 | | Construction and Land Development | 196,462 | 138 | 176 | 196,776 | | Real Estate Mortgage | 1,427,965 | 5,116 | 2,232 | 1,435,313 | | Consumer and Other | 4,459 | — | 14 | 4,473 | | Totals | 1,904,068 | 5,275 | 2,695 | 1,912,038 | - At December 31, 2019, there were **three loans** classified as troubled debt restructurings with an outstanding balance of **$452**[576](index=576&type=chunk) [Note 6: Premises and Equipment](index=161&type=section&id=Note%206:%20Premises%20and%20Equipment) This note details the company's premises and equipment, including land, buildings, and construction in progress Premises and Equipment (as of December 31, $ thousands) | Category | 2019 | 2018 | | :----------------------- | :----- | :----- | | Land | 5,174 | 5,174 | | Building | 3,487 | 3,462 | | Leasehold Improvements | 3,344 | 2,718 | | Furniture and Equipment | 3,902 | 3,191 | | Construction in Progress | 16,693 | 2,494 | | Subtotal | 32,600 | 17,039 | | Accumulated Depreciation | (4,972)| (3,965)| | Totals | 27,628 | 13,074 | - Construction in progress represents amounts paid for the new corporate headquarters building, expected to be completed in **2020**[578](index=578&type=chunk) - Rent expense for banking premises totaled **$1,264 thousand in 2019**, up from **$870 thousand in 2018**[579](index=579&type=chunk) [Note 7: Intangible Assets](index=162&type=section&id=Note%207:%20Intangible%20Assets) This note details the company's intangible assets, including core deposit intangibles and favorable leases Intangible Assets (as of December 31, $ thousands) | Category | 2019 | 2018 | | :----------------------- | :--- | :--- | | Core Deposit Intangible | 1,093| 1,093| | Favorable Lease | 445 | 445 | | Subtotal | 1,538| 1,538| | Accumulated Amortization | (677)| (486)| | Totals | 861 | 1,052| - Amortization expense of intangible assets was **$191 thousand** for each of the years ended December 31, 2019, 2018, and 2017[584](index=584&type=chunk) [Note 8: Deposits](index=162&type=section&id=Note%208:%20Deposits) This note provides a breakdown of the company's deposit composition, including transaction, savings, and time deposits Composition of Deposits (as of December 31, $ thousands) | Deposit Category | 2019 | 2018 | | :------------------------------ | :---------- | :---------- | | Transaction Deposits | 712,136 | 548,770 | | Savings and Money Market Deposits | 516,785 | 402,639 | | Time Deposits | 360,027 | 318,356 | | Brokered Deposits | 234,362 | 291,169 | | Totals | 1,823,310 | 1,560,934 | - Brokered deposits decreased from **$291.2 million in 2018 to $234.4 million in 2019**, reflecting a reduction in reliance on these funding sources[587](index=587&type=chunk) Scheduled Maturities of Time Deposits ($100,000 or more, as of December 31, 2019, $ thousands) | Maturity | Amount | | :----------------------- | :----- | | Three Months or Less | 78,005 | | Over Three Months through Six Months | 56,588 | | Over Six Months through 12 Months | 150,083| | Over 12 Months | 223,927| | Totals | 508,603| [Note 9: Notes Payable](index=163&type=section&id=Note%209:%20Notes%20Payable) This note details the company's notes payable, including outstanding amounts, interest rates, and maturity dates - The Company had **$13.0 million** in notes payable outstanding at December 31, 2019, secured by **100% of the Bank's stock**. The note accrues interest at a variable rate (1-month LIBOR plus **2.40%**) and matures in **February 2021**[590](index=590&type=chunk) [Note 10: Derivative Instruments and Hedging Activities](index=163&type=section&id=Note%2010:%20Derivative%20Instruments%20and%20Hedging%20Activities) This note describes the company's use of derivative financial instruments, primarily interest rate swaps, for risk management - The Company uses interest rate swaps to facilitate client transactions and manage interest rate risk, entering into offsetting positions to minimize risk[591](index=591&type=chunk)[592](index=592&type=chunk) Interest Rate Swaps to Facilitate Customer Transactions (as of December 31, 2019, $ thousands) | Category | Notional Amount | Estimated Fair Value | | :---------- | :-------------- | :------------------- | | Assets | 7,140 | 150 | | Liabilities | 7,140 | (150) | | Total | 14,280 | — | - Cash flow hedges are utilized to manage interest rate exposure for brokered certificates of deposit, wholesale borrowings, and notes payable portfolios. The total notional amount for cash flow hedges was **$48.0 million** at December 31, 2019[596](index=596&type=chunk)[597](index=597&type=chunk) [Note 11: Federal Home Loan Bank Advances and Other Borrowings](index=165&type=section&id=Note%2011:%20Federal%20Home%20Loan%20Bank%20Advances%20and%20Other%20Borrowings) This note details the company's FHLB advances and other borrowing capacities, including collateral and outstanding amounts - FHLB advances totaled **$136.5 million** at December 31, 2019, collateralized by **$690.6 million of mortgage loans**. The Company had **$209.8 million** in remaining available FHLB borrowing capacity[600](index=600&type=chunk) - The Bank had **$113.2 million** in borrowing availability from the Federal Reserve Bank of Minneapolis at December 31, 2019, with no outstanding advances[601](index=601&type=chunk) - There were no federal funds purchased outstanding at December 31, 2019, compared to **$18.0 million** at December 31, 2018[602](index=602&type=chunk) [Note 12: Subordinated Debentures](index=165&type=section&id=Note%2012:%20Subordinated%20Debentures) This note details the company's subordinated debentures, including issuance terms, interest rates, and regulatory capital treatment - On July 12, 2017, the Company issued **$25.0 million** in subordinated debentures, net of issuance costs of **$516 thousand**. These notes mature on **July 15, 2027**, with a fixed interest rate of **5.875% until July 15, 2022**, then converting to a variable rate (3-month LIBOR plus **388 basis points**)[603](index=603&type=chunk)[604](index=604&type=chunk) - The subordinated debentures qualify for Tier 2 regulatory capital treatment for the first **five years**[393](index=393&type=chunk) [Note 13: Related‑Party Transactions](index=167&type=section&id=Note%2013:%20Related%E2%80%91Party%20Transactions) This note provides information on loans and deposits involving related parties, including directors and executive officers Loans to Related Parties ($ thousands) | Activity | 2019 | 2018 | | :----------------------- | :----- | :----- | | Beginning Balance | 39,454 | 11,344 | | New Loans and Advances | 13,298 | 35,761 | | Repayments | (15,269)| (7,653)| | Totals | 37,483 | 39,454 | - Deposits from related parties were **$11.2 million** at December 31, 2019, and **$8.9 million** at December 31, 2018[607](index=607&type=chunk) [Note 14: Income Taxes](index=167&type=section&id=Note%2014:%20Income%20Taxes) This note details the company's income tax provision, effective tax rate reconciliation, and deferred tax assets and liabilities - The Tax Cuts and Jobs Act of 2017 reduced the federal corporate tax rate from **35% to 21%** effective January 1, 2018, leading to a one-time additional income tax expense of **$2.0 million in 2017** due to deferred tax asset revaluation[609](index=609&type=chunk)[610](index=610&type=chunk) Income Tax Provision ($ thousands) | Tax Component | 2019 | 2018 | 2017 | | :---------------------------- | :---- | :---- | :----- | | Current Tax Provision | 7,670 | 6,522 | 10,206 | | Deferred Tax Benefit | (747) | (1,298)| (2,062)| | Change in Deferred Taxes Due to Enacted Changes in Tax Law | — | — | 2,005 | | Total Income Tax Provision | 6,923 | 5,224 | 10,149 | Effective Tax Rate Reconciliation | Item | 2019 (%) | 2018 (%) | 2017 (%) | | :---------------------------------------- | :------- | :------- | :------- | | Statutory Rate | 21.0 | 21.0 | 35.0 | | State Income Taxes (Net of Federal Benefit) | 7.1 | 8.6 | 6.5 | | Tax Credits | (7.3) | (10.0) | (6.0) | | Deferred Tax Asset Revaluation | — | — | 7.4 | | Total Effective Tax Rate | 18.1 | 16.3 | 37.5 | - The net deferred tax asset was **$5.9 million** at December 31, 2019, primarily from allowance for loan losses and deferred compensation, offset by unrealized gains on securities[614](index=614&type=chunk) [Note 15: Tax Credit Investments](index=168&type=section&id=Note%2015:%20Tax%20Credit%20Investments) This note describes the company's investments in affordable housing and historic tax credit projects and their accounting impact - The Company invests in qualified affordable housing projects (LIHTC) and federal historic projects (FHTC) for community reinvestment and tax credits[615](index=615&type=chunk) Tax Credit Investments (as of December 31, $ thousands) | Investment Type | Accounting Method | 2019 Investment | 2019 Unfunded Commitment | | :-------------- | :---------------------- | :-------------- | :----------------------- | | LIHTC | Proportional Amortization | 2,148 | — | | FHTC | Equity | 2,262 | 3,395 | | Total | | 4,410 | 3,395 | Amortization Expense and Tax Benefit from Tax Credit Investments ($ thousands) | Year | Investment Type | Amortization Expense | Tax Benefit Recognized | | :--- | :-------------- | :------------------- | :--------------------- | | 2019 | LIHTC | 289 | (330) | | | FHTC | 3,225 | (3,687) | | | Total | 3,514 | (4,017) | | 2018 | LIHTC | 310 | (346) | | | FHTC | 3,293 | (3,782) | | | Total | 3,603 | (4,128) | | 2017 | FHTC | 1,916 | (2,225) | | | Total | 1,916 | (2,225) | [Note 16: Commitments, Contingencies and Credit Risk](index=169&type=section&id=Note%2016:%20Commitments,%20Contingencies%20and%20Credit%20Risk) This note outlines the company's off-balance sheet commitments, including lines of credit and potential legal liabilities - The Company has off-balance sheet financial instruments, including unfunded commitments under lines of credit and letters of credit, which involve credit risk[620](index=620&type=chunk) Off-Balance Sheet Commitments (as of December 31, $ thousands) | Commitment Type | 2019 | 2018 | | :---------------------------------- | :------ | :------ | | Unfunded Commitments Under Lines of Credit | 500,962 | 395,032 | | Letters of Credit | 79,225 | 81,053 | | Totals | 580,187 | 476,085 | - The Bank has construction contracts for a new headquarters building in St. Louis Park, with a guaranteed maximum price of **$23.0 million** for the core and shell, and a separate **$6.32 million** contract for the interior build-out, both anticipated for completion in **2020**[626](index=626&type=chunk) - Management believes any liability from legal claims would not materially impact the consolidated financial statements[627](index=627&type=chunk) [Note 17: Stock Options and Restricted Stock Awards](index=170&type=section&id=Note%2017:%20Stock%20Options%20and%20Restricted%20Stock%20Awards) This note details the company's stock-based compensation plans, including stock options and restricted stock awards - The Company has three stock-based compensation plans (2012 Plan, 2017 Plan, 2019 EIP) for directors, officers, and employees, granting stock options and restricted stock awards[628](index=628&type=chunk)[629](index=629&type=chunk)[630](index=630&type=chunk) - As of December 31, 2019, there were **1,961,650 stock options outstanding** with a weighted-average exercise price of **$7.08**. Compensation expense for stock options was **$721 thousand in 2019**[633](index=633&type=chunk) - In 2019, **132,960 restricted stock awards** were granted with a fair value of **$12.92**, vesting over **four years**. Compensation expense for restricted stock awards was **$31 thousand in 2019**[637](index=637&type=chunk)[638](index=638&type=chunk) [Note 18: Profit Sharing Plan](index=174&type=section&id=Note%2018:%20Profit%20Sharing%20Plan) This note describes the company's profit sharing 401(k) plan, including employer match and discretionary contributions - The Company has a combined profit sharing 401(k) plan with employer match contributions (**100% up to 4% of pay**) and discretionary contributions[641](index=641&type=chunk) Employer Contributions to 401(k) Plan ($ thousands) | Contribution Type | 2019 | 2018 | 2017 | | :---------------- | :--- | :--- | :--- | | Employer Match | 603 | 483 | 304 | | Profit Sharing | 473 | 328 | 250 | [Note 19: Deferred Compensation Plan](index=174&type=section&id=Note%2019:%20Deferred%20Compensation%20Plan) This note details the company's deferred compensation plan for certain employees, including vesting terms and liability - The Company implemented a deferred compensation plan in **2013** for certain employees, with discretionary contributions vesting on the **fourth anniversary** and accruing interest based on the Bank's return on average equity[643](index=643&type=chunk) - The liability for the deferred compensation plan was **$3.5 million** at December 31, 2019, and **$2.9 million** at December 31, 2018[643](index=643&type=chunk) [Note 20: Regulatory Capital](index=174&type=section&id=Note%2020:%20Regulatory%20Capital) This note outlines the company's and the bank's regulatory capital requirements under Basel III, including capital ratios - Effective **January 1, 2015**, the Company and Bank's capital requirements were updated to implement Basel III capital reforms, including a capital conservation buffer fully phased-in at **2.5% on January 1, 2019**[644](index=644&type=chunk)[648](index=648&type=chunk) Regulatory Capital Ratios (as of December 31, 2019) | Capital Ratio (Consolidated) | Actual Ratio (%) | Minimum for Capital Adequacy (%) | Required Plus Conservation Buffer (%) | | :--------------------------- | :--------------- | :------------------------------- | :------------------------------------ | | Total Risk-Based Capital | 12.98 | 8.00 | 10.50 | | Tier 1 Risk-Based Capital | 11.39 | 6.00 | 8.50 | | Common Equity Tier 1 Capital | 11.39 | 4.50 | 7.00 | | Tier 1 Leverage Ratio | 10.69 | 4.00 | 4.00 | - Management believes the Company and the Bank met all applicable capital adequacy requirements as of December 31, 2019 and 2018[649](index=649&type=chunk) [Note 21: Fair Value Measurement](index=175&type=section&id=Note%2021:%20Fair%20Value%20Measurement) This note explains the company's fair value measurement hierarchy for assets and liabilities, detailing valuation techniques - The Company categorizes assets and liabilities measured at fair value into a three-level hierarchy (Level 1, 2, 3) based on the observability of inputs to the valuation technique[650](index=650&type=chunk)[651](index=651&type=chunk)[653](index=653&type=chunk)[654](index=654&type=chunk) Fair Value of Financial Assets (Recurring Basis, as of December 31, 2019, $ thousands) | Asset Category | Level 1 | Level 2 | Level 3 | Total | | :----------------------------- | :------ | :-------- | :------ | :------ | | U.S. Treasury Securities | 4,998 | — | — | 4,998 | | Municipal Bonds | — | 105,743 | — | 105,743 | | Mortgage-Backed Securities | — | 64,728 | — | 64,728 | | Corporate Securities | — | 50,176 | — | 50,176 | | SBA Securities | — | 49,559 | — | 49,559 | | Asset-Backed Securities | — | 14,673 | — | 14,673 | | Interest Rate Swaps | — | 284 | — | 284 | | Total Fair Value of Financial Assets | 4,998 | 285,163 | — | 290,161 | - Investment securities fair values are determined using quoted market prices (Level 1) or matrix pricing/models with observable inputs (Level 2). Interest rate swaps are valued using internally developed models with market observable inputs (Level 2)[658](index=658&type=chunk)[659](index=659&type=chunk)[660](index=660&type=chunk) Net Impairment Losses on Nonrecurring Fair Value Measurements (Impaired Loans, $ thousands) | Year | Loss | | :--- | :--- | | 2019 | 206 | | 2018 | 396 | | 2017 | 109 | - Fair value estimates for financial instruments not recognized at fair value on an ongoing basis are based on discounted cash flows or other valuation techniques, which are significantly affected by assumptions[668](index=668&type=chunk)[669](index=669&type=chunk) [Note 22: Revenue Recognition](index=181&type=section&id=Note%2022:%20Revenue%20Recognition) This note describes the company's adoption of ASU 2014-09 and its impact on revenue recognition policies - The Company adopted ASU 2014-09 (Topic 606) on **January 1, 2019**, using the modified retrospective approach, with no material impact on revenue measurement, timing, or recognition[682](index=682&type=chunk) - Most revenue is from financial instruments outside Topic 606's scope. Revenue-generating activities within Topic 606 include customer service fees (recognized monthly or upon transaction completion) and debit card interchange fees (recognized as service is provided)[683](index=683&type=chunk)[685](index=685&type=chunk)[686](index=686&type=chunk) - Gain on sales of other real estate, under Topic 610-20, is recognized when a contract exists and control is transferred, with collectability being a key criterion. This change is not considered material due to infrequent sales[687](index=687&type=chunk) [Note 23: Accumulated Other Comprehensive Income (Loss)](index=184&type=section&id=Note%2023:%20Accumulated%20Other%20Comprehensive%20Income%20(Loss)) This note details the components of accumulated other comprehensive income (loss), including unrealized gains and losses Components of Other Comprehensive Income (Loss), Net of Tax ($ thousands) | Item | 2019 | 2018 | 2017 | | :---------------------------------------- | :----- | :----- | :----- | | Net Unrealized Gain (Loss) on Available for Sale Securities | 7,109 | (2,853)| 4,280 | | Net Unrealized Gain (Loss) on Cash Flow Hedge | (767) | 7 | 79 | | Net Other Comprehensive Income (Loss) During Period | 6,342 | (2,846)| 4,359 | | Balance at End of Year | 4,774 | (1,568)| 1,084 | [Note 24: Parent Company Financial Information](index=186&type=section&id=Note%2024:%20Parent%20Company%20Financial%20Information) This note provides condensed financial information for the parent company, including balance sheets and income statements Parent Company Condensed Balance Sheets (as of December 31, $ thousands) | Asset/Liability/Equity | 2019 | 2018 | | :------------------------------- | :------ | :------ | | Cash and Cash Equivalents | 27,315 | 45,498 | | Investment in Subsidiaries | 253,456 | 213,676 | | Total Assets | 283,747 | 261,561 | | Notes Payable | 13,000 | 15,000 | | Subordinated Debentures, Net | 24,733 | 24,630 | | Total Liabilities | 38,953 | 40,563 | | Total Shareholders' Equity | 244,794 | 220,998 | Parent Company Condensed Statements of Income (Annual, $ thousands) | Income/Expense Item | 2019 | 2018 | 2017 | | :---------------------------------- | :----- | :----- | :----- | | Total Income | 1,225 | 1,239 | 154 | | Total Interest Expense | 3,052 | 3,314 | 1,960 | | Equity in Undistributed Earnings | 32,454 | 28,071 | 17,982 | | Net Income | 31,403 | 26,920 | 16,889 | Parent Company Condensed Statements of Cash Flows (Annual, $ thousands) | Cash Flow Activity | 2019 | 2018 | 2017 | | :--------------------------------- | :-------- | :-------- | :-------- | | Net Cash Used by Operating Activities | (740) | (1,519) | (1,093) | | Net Cash Used in Investing Activities | (742) | (25,000) | (350,182) | | Net Cash Provided (Used) by Financing Activities | (16,701) | 56,963 | 332,506 | | Net Change in Cash and Cash Equivalents | (18,183) | 30,444 | 7,226 | | Cash and Cash Equivalents Ending | 27,315 | 45,498 | 23,725 | [Note 25: Quarterly Condensed Financial Information (Unaudited)](index=188&type=section&id=Note%2025:%20Quarterly%20Condensed%20Financial%20Information%20(Unaudited)) This note presents unaudited quarterly condensed financial information, including interest income and net income Unaudited Quarterly Condensed Financial Information (2019, $ thousands) | Quarter | Interest Income | Interest Expense | Net Interest Income | Net Income | | :------ | :-------------- | :--------------- | :------------------ | :--------- | | March 31| 24,267 | 7,136 | 17,131 | 7,018 | | June 30 | 25,520 | 7,382 | 18,138 | 8,009 | | Sept 30 | 26,572 | 7,637 | 18,935 | 7,805 | | Dec 31 | 27,419 | 7,491 | 19,928 | 8,571 | Unaudited Quarterly Condensed Financial Information (2018, $ thousands) | Quarter | Interest Income | Interest Expense | Net Interest Income | Net Income | | :------ | :-------------- | :--------------- | :------------------ | :--------- | | March 31| 18,710 | 3,947 | 14,763 | 5,950 | | June 30 | 20,392 | 4,493 | 15,899 | 6,746 | | Sept 30 | 22,136 | 5,502 | 16,634 | 6,463 | | Dec 31 | 23,988 | 6,546 | 17,442 | 7,761 | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. [ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.](index=189&type=section&id=ITEM%209.%20CHANGES%20IN%20AND%20DISAGREEMENTS%20WITH%20ACCOUNTANTS%20ON%20ACCOUNTING%20AND%20FINANCIAL%20DISCLOSURE.) There have been no changes in or disagreements with accountants on accounting and financial disclosure - None[706](index=706&type=chunk) ITEM 9A. CONTROLS AND PROCEDURES [Evaluation of Disclosure Controls and Procedures](index=189&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) The CEO and CFO concluded that disclosure controls and procedures were effective as of December 31, 2019 - The Company's Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2019, the Company's disclosure controls and procedures were effective[707](index=707&type=chunk) [Management's Report on Internal Control over Financial Reporting](index=189&type=section&id=Management's%20Report%20on%20Internal%20Control%20over%20Financial%20Reporting) Management affirmed effective internal control over financial reporting as of December 31, 2019, without auditor attestation - Management is responsible for establishing and maintaining adequate internal control over financial reporting[709](index=709&type=chunk) - As an emerging growth company, the Company's internal control over financial reporting was not subject to attestation by its independent registered public accounting firm[708](index=708&type=chunk) - Based on an assessment against the COSO 2013 framework, the CEO and CFO asserted that the Company maintained effective internal control over financial reporting as of December 31, 2019[712](index=712&type=chunk) [Changes in Internal Control Over Financial Reporting](index=190&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) No material changes in internal control over financial reporting occurred during the period covered by this report - No material changes in internal control over financial reporting occurred during the period covered by this Annual Report on Form 10-K[714](index=714&type=chunk) ITEM 9B. OTHER INFORMATION [ITEM 9B. OTHER INFORMATION](index=190&type=section&id=ITEM%209B.%20OTHER%20INFORMATION) No other information is required to be disclosed under this item - None[715](index=715&type=chunk) PART III [ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.](index=190&type=section&id=ITEM%2010.%20DIRECTORS,%20EXECUTIVE%20OFFICERS%20AND%20CORPORATE%20GOVERNANCE.) Information on directors, executive officers, and corporate governance is incorporated by reference from the definitive proxy statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the definitive proxy statement for the Annual Meeting of Shareholders on April 28, 2020[717](index=717&type=chunk) [ITEM 11. EXECUTIVE COMPENSATION.](index=190&type=section&id=ITEM%2011.%20EXECUTIVE%20COMPENSATION.) Information on executive compensation is incorporated by reference from the definitive proxy statement - Information on executive compensation is incorporated by reference from the definitive proxy statement for the Annual Meeting of Shareholders on April 28, 2020[718](index=718&type=chunk) [ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.](index=191&type=section&id=ITEM%2012.%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20STOCKHOLDER%20MATTERS.) This section details equity compensation plans and security ownership, incorporated by reference from the definitive proxy statement Equity Compensation Plans (as of December 31, 2019) | Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights ($) | Number of securities remaining available for future issuance | | :------------------------------------------ | :------------------------------------------------------------------------ | :------------------------------------------------------------------------------ | :-----------------------------------------------------

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, 2019 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 cha ...