Bridgewater Bank(BWB) - 2021 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Consolidated Financial Statements (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 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][238] - 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][276] Consolidated Statements of Income 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] - 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] Consolidated Statements of Comprehensive Income 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] - 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] Consolidated Statements of Shareholders' Equity 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] - Stock-based compensation for the six months ended June 30, 2021, was $1,157 thousand, contributing to Additional Paid-In Capital[20] Consolidated Statements of Cash Flows 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] - 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] - 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] Notes to Consolidated Financial Statements 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 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] - 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][33] - 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][35] Note 2: Earnings Per Share 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] Note 3: Securities 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] 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 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][154] Note 5: Deposits 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] Note 6: Notes Payable 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] - 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] Note 7: Derivative Instruments and Hedging Activities 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][66][70] 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 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] 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 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][83] 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] Note 10: Stock Options and Restricted Stock Awards 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][87][88] 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] - Total unrecognized compensation cost for nonvested restricted stock awards was $1,124 thousand, expected to be recognized over 2.5 years[100] - Total unrecognized compensation cost for nonvested restricted stock units was $2,292 thousand, expected to be recognized over four years[106] Note 11: Regulatory Capital 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][108] 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 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][113][114] 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] Note 13: Subsequent Events 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] - 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] - 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][147] 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] - The COVID-19 pandemic continues to create uncertainty, but Minnesota's reopening and vaccination efforts are returning activity to pre-pandemic levels[151][152] - 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][154] - 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] Critical Accounting Policies and Estimates 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][162][164][168][169] - As an emerging growth company, the Company has elected an extended transition period for new accounting standards, including CECL, until January 1, 2023[160][223] Operating Results Overview 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 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 This section offers a detailed analysis of the company's financial performance, including net income and net interest income Net Income 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] - 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] Net Interest Income 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] - The FOMC's 150 basis point rate decrease in March 2020 impacts the comparability of net interest income between 2021 and 2020[178] Average Balances and Yields 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 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 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] - 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] - The Company recognized $1.4 million in PPP origination fees in Q2 2021, contributing to an elevated PPP loan yield of 4.75%[195] - 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] - 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] - 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][210] Provision for Loan Losses 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] - 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] Noninterest Income 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] - 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] 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 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] - 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] - 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] 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 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] - 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] Financial Condition This section provides an in-depth analysis of the company's balance sheet, including assets, liabilities, and equity 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] - 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] Investment Securities Portfolio 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][243] - 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] 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 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][252] - 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] - Annualized loan growth for the six months ended June 30, 2021, excluding PPP loans, was 28.3%[250] 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 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] 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] 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] 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] - Noninterest-bearing transaction deposits comprised 27.9% of total deposits at June 30, 2021, reflecting successful client acquisition and pandemic-related liquidity accumulation[276] - 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] 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 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] - 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] - A new $25.0 million revolving line of credit was established on March 1, 2021, with no outstanding balances at June 30, 2021[281] - 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][284] Subordinated Debentures 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] - 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] - All subordinated debentures qualify for Tier 2 regulatory capital treatment[288] - 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][143][289] Contractual Obligations 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] Shareholders' Equity 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] - 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] Regulatory Capital 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][301] - Management believes both the Company and the Bank met all capital adequacy requirements and the capital conservation buffer as of June 30, 2021[299][301] 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 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] 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 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][307] 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] Non-GAAP Financial Measures 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][316] 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 This section details the Company's primary market risk, which is interest rate risk, and how it is measured and managed Interest Rate Risk 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][325] - 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] 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] Item 4. Controls and Procedures 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 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] Changes in Internal Control Over Financial Reporting 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] PART II OTHER INFORMATION Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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][340][341] Item 3. Defaults Upon Senior Securities This section confirms that there were no defaults upon senior securities - No defaults upon senior securities[342] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable[343] Item 5. Other Information This section indicates that there is no other information to report - No other information to report[344] Item 6. Exhibits 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] SIGNATURES 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]