Bridgewater Bank(BWB) - 2019 Q4 - Annual Report

PART I Item 1. Business 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] - The company was established in 2005, focusing on commercial real estate investors, small business entrepreneurs, and high net worth individuals[13] - 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] 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][20] 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][35] - The Bank offers a suite of deposit products targeted at commercial clients, including remote deposit and cash management, alongside traditional retail products[30] - 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][36][39][40][41][42] - 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][47][48] - 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][51] - 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][54][56] - 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][66][68] - 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] - As of December 31, 2019, the Company had 160 full-time equivalent employees and considers relationships with employees to be good[70] Item 1A. Risk Factors 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][77] - 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][89][90][91][92] - 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] - 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][115] - 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][117] - The Company's ability to pay dividends is dependent on dividends from the Bank, which are subject to federal and state regulatory limitations[120] - Operational risks include fraudulent activity, breaches of information security controls, cybersecurity incidents, and reliance on third-party information technology systems[136][137][139][140][141] - 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][184][188] - 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][231][233][163][166] - 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][241] Item 1B. Unresolved Staff Comments There are no unresolved staff comments from the SEC - None[256] Item 2. Properties 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] - 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][258] Item 3. Legal Proceedings 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] - The Company is not aware of any contemplated proceedings by a governmental authority against it or its subsidiaries[260] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[261] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 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] - As of February 24, 2020, there were 28,973,572 shares of Common Stock issued and outstanding[1] - In January 2019, the board approved a $15.0 million stock repurchase program, which was increased by $10.0 million in July 2019, totaling $25.0 million. The program continues through January 22, 2021[255][264][265] - The Company has not historically declared or paid dividends on its common stock and does not intend to in the foreseeable future, anticipating future earnings will be retained to support operations and business growth[246][247][267] - Dividend payments are subject to restrictions under Minnesota law and banking regulations, including capital adequacy guidelines and policies of the Federal Reserve[268][269][270] Item 6. Selected Financial Data This section provides a five-year summary of selected consolidated financial data, including per share metrics, performance, and asset quality ratios Selected Per Common Share Data | Metric | 2019 ($) | 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 This section analyzes the company's financial condition and operating results for 2017-2019, focusing on income, expenses, and balance sheet trends General Overview 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][279] Critical Accounting Policies and Estimates 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][282] - 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] - 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] - 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] - 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] Results of Operations 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][303] - 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 $9.2 million (44.7%) due to higher market rates and growth in deposits and borrowings[307][309][311][312] Provision for Loan Losses | Year | Provision for Loan Losses ($ 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][328] - Noninterest income increased by $1.3 million (50.5%) in 2019, mainly due to gains on sales of securities and foreclosed assets, and increased swap fees[329][330] Noninterest Income Components ($ 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 (+$3.5 million) and increased staff (from 140 to 160 FTEs)[333][334] - The efficiency ratio (non-GAAP) was 47.4% in 2019, a marginal increase from 46.5% in 2018. The adjusted efficiency ratio (excluding tax credit investment amortization) was 43.3% in 2019, up from 41.7% in 2018[336][337] Noninterest Expense Components ($ 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] Financial Condition 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] - The investment securities portfolio, held as available for sale, increased by $36.5 million (14.4%) to $289.9 million at December 31, 2019, primarily consisting of municipal securities, U.S. government agency mortgage-backed securities, and corporate securities[352][353] Loan Portfolio Composition (as of December 31, 2019) | Loan Category | Amount ($ 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] - Nonperforming loans totaled $461,000 at December 31, 2019, a decrease of $120,000 from $581,000 at December 31, 2018. There were no foreclosed assets at year-end 2019[370] Nonperforming Assets ($ 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] - 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] - 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] - 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] - 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][391] - 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] 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] - The Company and Bank met all regulatory capital adequacy requirements as of December 31, 2019, including the fully phased-in capital conservation buffer[403][405] - 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][408] - Primary liquidity (cash and available-for-sale securities) increased to $321.8 million at December 31, 2019. Secondary liquidity (borrowing capacity) increased to $428.0 million[413][414] Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, managed by its ALM Committee using interest rate swaps and income simulations - The Company's primary market risk is interest rate risk, managed by its ALM Committee through a risk management infrastructure that sets limits and targets for various metrics[427][428] - The Company uses interest rate swaps as cash flow hedges to manage interest rate exposure for brokered certificates of deposit, wholesale borrowings, and notes payable portfolios, converting variable rates to fixed rates[430] - A net interest income simulation model is used to measure potential changes in net interest income over 12 months from immediate and sustained interest rate shifts[431] Forecasted Net Interest Income Sensitivity to Interest Rate Changes (as of December 31, 2019) | Change (basis points) in Interest Rates | Forecasted Net Interest Income ($ 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 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] - The financial statements are presented fairly, in all material respects, in conformity with accounting principles generally accepted in the United States of America[438] - 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] - CliftonLarsonAllen LLP has served as the Company's auditor since 2005[440] Bridgewater Bancshares, Inc. and Subsidiaries Consolidated Balance Sheets 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 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 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 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] Bridgewater Bancshares, Inc. and Subsidiaries Consolidated Statements of Cash Flows 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] - 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] Bridgewater Bancshares, Inc. and Subsidiaries Notes to Consolidated Financial Statements 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 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] - The consolidated financial statements include the Company, the Bank, and its wholly-owned subsidiaries (BWB Holdings, LLC and Bridgewater Investment Management, Inc.)[468] - 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][470] - 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][474] - 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][481] - 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][484][485][486] - The Company assigns risk ratings (Pass, Watch, Substandard, Doubtful, Loss) to all loans and performs periodic internal reviews to assess credit risks[490][491][492][493][494] - 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][527] - The Company adopted ASU 2014-09 (Revenue from Contracts with Customers) effective January 1, 2019, with no material impact on revenue recognition[536] - 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][542][544] Note 2: Earnings Per Share 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] 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 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 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] 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 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] Note 6: Premises and Equipment 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] - Rent expense for banking premises totaled $1,264 thousand in 2019, up from $870 thousand in 2018[579] Note 7: Intangible Assets 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] Note 8: Deposits 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] 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 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] Note 10: Derivative Instruments and Hedging Activities 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][592] 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][597] Note 11: Federal Home Loan Bank Advances and Other Borrowings 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] - 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] - There were no federal funds purchased outstanding at December 31, 2019, compared to $18.0 million at December 31, 2018[602] Note 12: Subordinated Debentures 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 $516 thousand. These notes mature on July 15, 2027, with a fixed interest rate of 5.875% until July 15, 2022, then converting to a variable rate (3-month LIBOR plus 388 basis points)[603][604] - The subordinated debentures qualify for Tier 2 regulatory capital treatment for the first five years[393] Note 13: Related‑Party Transactions This note provides information on loans and deposits involving related parties, including directors and executive officers Loans to Related Parties ($ 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] Note 14: Income Taxes 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 $2.0 million in 2017 due to deferred tax asset revaluation[609][610] Income Tax Provision ($ 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] Note 15: Tax Credit Investments 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] 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 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] 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] - Management believes any liability from legal claims would not materially impact the consolidated financial statements[627] Note 17: Stock Options and Restricted Stock Awards 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][629][630] - 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] - 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 $31 thousand in 2019[637][638] Note 18: Profit Sharing Plan This note describes the company's profit sharing 401(k) plan, including employer match and discretionary contributions - The Company has a combined profit sharing 401(k) plan with employer match contributions (100% up to 4% of pay) and discretionary contributions[641] Employer Contributions to 401(k) Plan ($ thousands) | Contribution Type | 2019 | 2018 | 2017 | | :---------------- | :--- | :--- | :--- | | Employer Match | 603 | 483 | 304 | | Profit Sharing | 473 | 328 | 250 | Note 19: Deferred Compensation Plan 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] - The liability for the deferred compensation plan was $3.5 million at December 31, 2019, and $2.9 million at December 31, 2018[643] Note 20: Regulatory Capital 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][648] 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] Note 21: Fair Value Measurement 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][651][653][654] 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][659][660] 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][669] Note 22: Revenue Recognition 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] - 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][685][686] - 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] Note 23: Accumulated Other Comprehensive Income (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 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) 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. There have been no changes in or disagreements with accountants on accounting and financial disclosure - None[706] ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures 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] Management's Report on Internal Control over Financial Reporting 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] - 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] - 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] Changes in Internal Control Over Financial Reporting 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] ITEM 9B. OTHER INFORMATION ITEM 9B. OTHER INFORMATION No other information is required to be disclosed under this item - None[715] PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. 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] ITEM 11. EXECUTIVE COMPENSATION. 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] ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. 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 | | :------------------------------------------ | :------------------------------------------------------------------------ | :------------------------------------------------------------------------------ | :-----------------------------------------------------