UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ________

Commission File Number 001-38412

BRIDGEWATER BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

Minnesota (State or other jurisdiction of incorporation or organization)	26-0113412 (I.R.S. Employer Identification No.)
4450 Excelsior Boulevard, Suite 100 St. Louis Park, Minnesota (Address of principal executive offices)	55416 (Zip Code)

(952) 893-6868

(Registrant’s telephone number, including area code)

3800 American Boulevard West, Suite 100, Bloomington, Minnesota 55431

(Former name, former address and former fiscal year, if change since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
	Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:		Trading Symbol	Name of each exchange on which registered:
Common Stock, $0.01 Par Value		BWB	The Nasdaq Stock Market LLC

The number of shares of the Common Stock outstanding as of November 2, 2020 was 28,281,741.

Table of Contents

PART I FINANCIAL INFORMATION	3
Item 1. Consolidated Financial Statements (unaudited)	3
Consolidated Balance Sheets	3
Consolidated Statements of Income	4
Consolidated Statements of Comprehensive Income	5
Consolidated Statements of Shareholders’ Equity	6
Consolidated Statements of Cash Flows	7
Notes to Consolidated Financial Statements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3. Quantitative and Qualitative Disclosures About Market Risk	69
Item 4. Controls and Procedures	71
PART II OTHER INFORMATION	71
Item 1. Legal Proceedings	71
Item 1A. Risk Factors	71
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	74
Item 3. Defaults Upon Senior Securities	75
Item 4. Mine Safety Disclosures	75
Item 5. Other Information	75
Item 6. Exhibits	76
SIGNATURES	77

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PART 1 – FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Bridgewater Bancshares, Inc. and Subsidiaries

Consolidated Balance Sheets

(dollars in thousands, except share data)

	September 30,		December 31,
	2020		2019
	(Unaudited)
ASSETS
Cash and Cash Equivalents	$	91,510	$	31,935
Bank-Owned Certificates of Deposit		2,862		2,654
Securities Available for Sale, at Fair Value		373,955		289,877
Loans, Net of Allowance for Loan Losses of $31,381 at September 30, 2020 (unaudited) and $22,526 at December 31, 2019		2,217,480		1,884,000
Federal Home Loan Bank (FHLB) Stock, at Cost		7,817		7,824
Premises and Equipment, Net		48,885		27,628
Accrued Interest		9,647		6,775
Goodwill		2,626		2,626
Other Intangible Assets, Net		718		861
Other Assets		19,064		14,650
Total Assets	$	2,774,564	$	2,268,830
LIABILITIES AND EQUITY
LIABILITIES
Deposits:
Noninterest Bearing	$	685,773	$	447,509
Interest Bearing		1,587,271		1,375,801
Total Deposits		2,273,044		1,823,310
Notes Payable		11,500		13,000
FHLB Advances		127,500		136,500
Subordinated Debentures, Net of Issuance Costs		73,665		24,733
Accrued Interest Payable		2,082		1,982
Other Liabilities		21,341		24,511
Total Liabilities		2,509,132		2,024,036
SHAREHOLDERS' EQUITY
Preferred Stock- $0.01 par value
Authorized 10,000,000; None Issued and Outstanding at September 30, 2020 (unaudited) and December 31, 2019		—		—
Common Stock- $0.01 par value
Common Stock - Authorized 75,000,000; Issued and Outstanding 28,710,775 at September 30, 2020 (unaudited) and 28,973,572 at December 31, 2019		287		290
Additional Paid-In Capital		110,010		112,093
Retained Earnings		149,852		127,637
Accumulated Other Comprehensive Income		5,283		4,774
Total Shareholders' Equity		265,432		244,794
Total Liabilities and Equity	$	2,774,564	$	2,268,830

See accompanying notes to consolidated financial statements.

3

Bridgewater Bancshares, Inc. and Subsidiaries

Consolidated Statements of Income

(dollars in thousands, except per share data)

(Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2020		2019		2020		2019
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
INTEREST INCOME
Loans, Including Fees	$	26,224	$	24,220	$	77,250	$	69,720
Investment Securities		2,100		1,910		6,387		5,739
Other		169		442		490		900
Total Interest Income		28,493		26,572		84,127		76,359
INTEREST EXPENSE
Deposits		4,840		6,209		15,734		17,932
Notes Payable		108		127		334		378
FHLB Advances		748		908		2,839		2,510
Subordinated Debentures		1,118		393		1,990		1,163
Federal Funds Purchased		—		—		107		172
Total Interest Expense		6,814		7,637		21,004		22,155
NET INTEREST INCOME		21,679		18,935		63,123		54,204
Provision for Loan Losses		3,750		900		8,850		2,100
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES		17,929		18,035		54,273		52,104
NONINTEREST INCOME
Customer Service Fees		200		184		575		564
Net Gain on Sales of Available for Sale Securities		109		58		1,473		516
Net Gain on Sales of Foreclosed Assets		—		69		—		69
Other Income		848		635		2,805		1,565
Total Noninterest Income		1,157		946		4,853		2,714
NONINTEREST EXPENSE
Salaries and Employee Benefits		6,550		5,915		19,352		15,841
Occupancy and Equipment		894		761		2,279		2,202
Other Expense		2,228		2,408		8,498		8,400
Total Noninterest Expense		9,672		9,084		30,129		26,443
INCOME BEFORE INCOME TAXES		9,414		9,897		28,997		28,375
Provision for Income Taxes		2,240		2,092		6,782		5,543
NET INCOME	$	7,174	$	7,805	$	22,215	$	22,832
EARNINGS PER SHARE
Basic	$	0.25	$	0.27	$	0.77	$	0.77
Diluted		0.25		0.27		0.76		0.76
Dividends Paid Per Share		—		—		—		—

See accompanying notes to consolidated financial statements.

4

Bridgewater Bancshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(dollars in thousands)

(Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Net Income	$	7,174	$	7,805	$	22,215	$	22,832
Other Comprehensive Income (Loss):
Unrealized Gains on Available for Sale Securities		2,276		2,014		5,397		10,218
Unrealized Gains (Losses) on Cash Flow Hedges		7		(306)		(3,593)		(1,324)
Reclassification Adjustment for (Gains) Losses Realized in Income		204		(78)		(1,160)		(536)
Income Tax Impact		(522)		(343)		(135)		(1,755)
Total Other Comprehensive Income (Loss), Net of Tax		1,965		1,287		509		6,603
Comprehensive Income	$	9,139	$	9,092	$	22,724	$	29,435

See accompanying notes to consolidated financial statements.

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Bridgewater Bancshares, Inc. and Subsidiaries

Consolidated Statements of Shareholders’ Equity

Three and Nine Months Ended September 30, 2020 and 2019

(dollars in thousands, except share data)

(Unaudited)

								Accumulated
				Additional				Other
	Shares	Common Stock		Paid-In		Retained		Comprehensive
Three Months Ended	Voting	Voting		Capital		Earnings		Income (Loss)		Total
BALANCE June 30, 2019	28,986,729	$	290	$	113,838	$	111,261	$	3,748	$	229,137
Stock-based Compensation	—		—		175		—		—		175
Comprehensive Income	—		—		—		7,805		1,287		9,092
Stock Repurchases	(205,567)		(2)		(2,343)		—		—		(2,345)
BALANCE September 30, 2019	28,781,162	$	288	$	111,670	$	119,066	$	5,035	$	236,059
BALANCE June 30, 2020	28,837,560	$	288	$	110,906	$	142,678	$	3,318	$	257,190
Stock-based Compensation	7,399		—		384		—		—		384
Comprehensive Income	—		—		—		7,174		1,965		9,139
Stock Options Exercised	2,000		—		15		—		—		15
Stock Repurchases	(137,984)		(1)		(1,295)		—		—		(1,296)
Issuance of Restricted Stock Awards	5,000		—		—		—		—		—
Forfeiture of Restricted Stock Awards	(3,200)		—		—		—		—		—
BALANCE September 30, 2020	28,710,775	$	287	$	110,010	$	149,852	$	5,283	$	265,432
								Accumulated
				Additional				Other
	Shares	Common Stock		Paid-In		Retained		Comprehensive
Nine Months Ended	Voting	Voting		Capital		Earnings		Income (Loss)		Total
BALANCE December 31, 2018	30,097,274	$	301	$	126,031	$	96,234	$	(1,568)	$	220,998
Stock-based Compensation	—		—		524		—		—		524
Comprehensive Income	—		—		—		22,832		6,603		29,435
Stock Options Exercised	15,400		—		61		—		—		61
Stock Repurchases	(1,331,512)		(13)		(14,946)		—		—		(14,959)
BALANCE September 30, 2019	28,781,162	$	288	$	111,670	$	119,066	$	5,035	$	236,059
BALANCE December 31, 2019	28,973,572	$	290	$	112,093	$	127,637	$	4,774	$	244,794
Stock-based Compensation	22,610		—		1,206		—		—		1,206
Comprehensive Income (Loss)	—		—		—		22,215		509		22,724
Stock Options Exercised	17,500		—		54		—		—		54
Stock Repurchases	(315,848)		(3)		(3,343)		—		—		(3,346)
Issuance of Restricted Stock Awards	16,141		—		—		—		—		—
Forfeiture of Restricted Stock Awards	(3,200)		—		—		—		—		—
BALANCE September 30, 2020	28,710,775	$	287	$	110,010	$	149,852	$	5,283	$	265,432

See accompanying notes to consolidated financial statements.

6

Bridgewater Bancshares, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(dollars in thousands)

(Unaudited)

	Nine Months Ended
	September 30,
	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	22,215	$	22,832
Adjustments to Reconcile Net Income to Net Cash
Provided by (Used for) Operating Activities:
Net Amortization on Securities Available for Sale		1,891		1,865
Net Gain on Sales of Securities Available for Sale		(1,473)		(516)
Provision for Loan Losses		8,850		2,100
Depreciation and Amortization of Premises and Equipment		660		662
Loss on Sale of Premises and Equipment		2		—
Amortization of Other Intangible Assets		143		143
Amortization of Subordinated Debt Issuance Costs		138		77
Net Gain on Sale of Foreclosed Assets		—		(69)
Stock-based Compensation		1,206		524
Changes in Operating Assets and Liabilities:
Accrued Interest Receivable and Other Assets		(3,993)		129
Accrued Interest Payable and Other Liabilities		(11,716)		4,158
Net Cash Provided by Operating Activities		17,923		31,905
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) Decrease in Bank-owned Certificates of Deposit		(208)		651
Proceeds from Sales of Securities Available for Sale		38,832		42,864
Proceeds from Maturities, Paydowns, Payups and Calls of Securities Available for Sale		23,629		28,693
Purchases of Securities Available for Sale		(140,974)		(73,628)
Net Increase in Loans		(342,464)		(181,054)
Net (Increase) Decrease in FHLB Stock		7		(410)
Purchases of Premises and Equipment		(22,040)		(13,352)
Proceeds from Sales of Foreclosed Assets		134		1,102
Net Cash Used in Investing Activities		(443,084)		(195,134)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits		449,734		241,302
Net Decrease in Federal Funds Purchased		—		(18,000)
Principal Payments on Notes Payable		(1,500)		(1,500)
Proceeds from FHLB Advances		96,000		37,500
Principal Payments on FHLB Advances		(105,000)		(20,000)
Issuance of Subordinated Debt, net of Issuance Costs		48,794		—
Stock Options Exercised		54		61
Stock Repurchases		(3,346)		(14,959)
Net Cash Provided by Financing Activities		484,736		224,404
NET CHANGE IN CASH AND CASH EQUIVALENTS		59,575		61,175
Cash and Cash Equivalents Beginning		31,935		28,444
Cash and Cash Equivalents Ending	$	91,510	$	89,619
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash Paid for Interest	$	20,766	$	22,121
Cash Paid for Income Taxes		7,917		3,800
Loans Transferred to Foreclosed Assets		134		1,033
Premises and Equipment Transferred to Other Assets		121		—
Net Investment Securities Purchased but Not Settled		2,059		—

See accompanying notes to consolidated financial statements.

7

Bridgewater Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(dollars in thousands, except share data)

(Unaudited)

Note 1: Description of the Business and Summary of Significant Accounting Policies

Organization

Bridgewater Bancshares, Inc. (the “Company”) is a financial holding company whose operations consist of the ownership of its wholly-owned subsidiaries, Bridgewater Bank (the “Bank”) and Bridgewater Risk Management, Inc. The Bank commenced operations in 2005 and provides retail and commercial loan and deposit services, principally to customers within the Minneapolis-St. Paul-Bloomington, MN-WI Metropolitan Statistical Area. In 2008, the Bank formed BWB Holdings, LLC, a wholly owned subsidiary of the Bank, for the purpose of holding repossessed property. In 2018, the Bank formed Bridgewater Investment Management, Inc., a wholly owned subsidiary of the Bank, for the purpose of holding certain municipal securities and to engage in municipal lending activities.

Bridgewater Risk Management, a subsidiary of the Company, was incorporated in 2016 as a wholly owned insurance company. It insures the Company and its subsidiaries against certain risks unique to the operations of the Company and for which insurance may not be currently available or economically feasible in today’s insurance marketplace. Bridgewater Risk Management pools resources with several other insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves.

Basis of Presentation

The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures necessary for a complete presentation of the consolidated balance sheets, consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of shareholders’ equity and consolidated statements of cash flows in conformity with U.S. generally accepted accounting principles (“GAAP”). However, all normal recurring adjustments which are, in the opinion of management, necessary for the fair presentation of the interim financial statements have been included. The results of operations for the three and nine month periods ended September 30, 2020 are not necessarily indicative of the results which may be expected for the entire year. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 12, 2020.

Principles of Consolidation

These consolidated financial statements include the amounts of the Company, the Bank, with locations in Bloomington, Greenwood, Minneapolis (2), St. Louis Park, Orono, and St. Paul, Minnesota, BWB Holdings, LLC, Bridgewater Investment Management, Inc., and Bridgewater Risk Management, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates in Preparation of Financial Statements

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Information available which could affect judgements includes, but is not limited to, changes in interest rates, changes in the performance of the economy, including COVID-19 pandemic related changes, and changes in the financial condition of borrowers.

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Material estimates that are particularly susceptible to significant change in the near term include the determination of the allowance for loan losses, calculation of deferred tax assets, fair value of financial instruments, and investment securities impairment.

Emerging Growth Company

The Company qualifies as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and may take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In addition, even if the Company complies with the greater obligations of public companies that are not emerging growth companies, the Company may avail itself of the reduced requirements applicable to emerging growth companies from time to time in the future, so long as the Company is an emerging growth company. The Company will continue to be an emerging growth company until the earliest to occur of: (1) the end of the fiscal year following the fifth anniversary of the date of the first sale of common equity securities under the Company’s Registration Statement on Form S-1, which was declared effective by the SEC on March 13, 2018; (2) the last day of the fiscal year in which the Company has $1.07 billion or more in annual revenues; (3) the date on which the Company is deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended (the “Exchange Act”); or (4) the date on which the Company has, during the previous three-year period, issued publicly or privately, more than $1.0 billion in non-convertible debt securities.

Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933 for complying with new or revised accounting standards. As an emerging growth company, the Company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company elected to take advantage of the benefits of this extended transition period.

Paycheck Protection Program Loan Segment

The Company maintains a separate general valuation allowance for each portfolio segment. The Paycheck Protection Program, or PPP, loan segment was added by the Company in the second quarter of 2020. PPP loans are loans to businesses, sole proprietorships, independent contractors and self-employed individuals who meet certain criteria and eligibility requirements through a loan program established by the Coronavirus Aid, Relief and Economic Security Act, or, CARES Act, and administered through the Small Business Administration (SBA). PPP loans generally have a two year term and earn interest at 1%. The Company believes that the primary source of repayment will be forgiveness granted by the SBA in accordance with the terms of the program. Credit risk in these loans is limited due to a full guarantee by the U.S. Government. The Company does not assign risk ratings to loans in this segment and will continue to monitor segment performance as circumstances evolve.  

Impact of Recently Adopted Accounting Guidance

In January 2017, the Financial Accounting Standards Board, or FASB, issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendments in this accounting standards update, or ASU, were issued to address concerns over the cost and complexity of the two-step goodwill impairment test and resulted in the removal of the second step of the test. The amendments require an entity to apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. The Company adopted the accounting standard during the first quarter of 2020. The adoption of the standard did not have a material impact on the Company’s consolidated financial statements. The Company’s policy is to test goodwill for impairment annually or on an interim basis if an event triggering impairment may have occurred. The economic turmoil and market volatility resulting from the COVID-19 pandemic resulted in a substantial decrease in the Company’s stock price and market capitalization. The

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Company believed such decrease was a triggering event requiring an interim goodwill impairment analysis as of March 31, 2020. Under the new simplified guidance, the Company’s estimated fair value to a market participant as of March 31, 2020, exceeded its carrying amount resulting in no impairment charge for the period.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The amendments of this ASU modify the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The Company adopted this standard during the first quarter of 2020 and the adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40). The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). Implementation costs incurred in the application development stage are capitalized depending on the nature of the costs, while costs incurred during the preliminary project and post implementation stages are expensed as the activities are performed. The amendment also requires entities to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement and in the same income statement line item as the fees associated with the hosting element. The Company adopted the accounting standard during the first quarter of 2020. The adoption of the standard did not have a material impact on the Company’s consolidated financial statements.

In April 2020, various regulatory agencies, including the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation, issued an interagency statement titled Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus, that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of the COVID-19 pandemic. The interagency statement was effective immediately and impacted accounting for loan modifications. Under Accounting Standards Codification 310-40, Receivables – Troubled Debt Restructurings by Creditors (ASC 310-40), a restructuring of debt constitutes a troubled debt restructuring, or TDR, if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. The regulatory agencies confirmed with the staff of the FASB that short-term modifications made on a good faith basis in response to the COVID-19 pandemic to borrowers who were current prior to any relief, are not to be considered TDRs. These include short-term modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant.

Additionally, Section 4013 of the CARES Act that passed on March 27, 2020 further provides banks with the option to elect either or both of the following, from March 1, 2020 until the earlier of December 31, 2020 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 pandemic declared by the President of the United States under the National Emergencies Act (50 U.S.C. 1601 et seq.) terminates:

(i) to suspend the requirements under GAAP for loan modifications related to the COVID–19 pandemic that would otherwise be categorized as a TDR; and/or

(ii) to suspend any determination of a loan modified as a result of the effects of the COVID–19 pandemic as being a TDR, including impairment for accounting purposes.
​

If a bank elects a suspension noted above, the suspension (i) will be effective for the term of the loan modification, but solely with respect to any modification, including a forbearance arrangement, an interest rate modification, a repayment plan, and any other similar arrangement that defers or delays the payment of principal or interest, that occurs during the applicable period for a loan that was not more than 30 days past due as of December 31, 2019; and (ii) will not apply to any adverse impact on the credit of a borrower that is not related to the COVID–19 pandemic. The Company has applied this guidance to qualifying loan modifications.

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Impact of Recently Issued Accounting Standards

The following ASUs have been issued by the FASB and may impact the Company’s consolidated financial statements in future reporting periods.

In January 2020, the FASB issued ASU 2020-01, Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323 and Topic 815. This ASU clarifies that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the fair value measurement alternative. The ASU will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company does not expect adoption to have a material impact on the consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate, or LIBOR, or another reference rate expected to be discontinued, if certain criteria are met. LIBOR is used as an index rate for the Company’s interest-rate swaps, subordinated debt, various investment securities, and approximately 8.6% of the Company’s loans as of September 30, 2020.

If reference rates are discontinued, the existing contracts will be modified to replace the discontinued rate with a replacement rate. For accounting purposes, such contract modifications would have to be evaluated to determine whether the modified contract is a new contract or a continuation of an existing contract. If they are considered new contracts, the previous contract would be extinguished. Under one of the optional expedients of ASU 2020-04, modifications of contracts within the scope of Topic 310, Receivables, and 470, Debt, will be accounted for by prospectively adjusting the effective interest rates and no such evaluation is required. When elected, the optional expedient for contract modifications must be applied consistently for all eligible contracts or eligible transactions. The expedients and exceptions in this update are available to all entities starting March 12, 2020 through December 31, 2022. The Company is in the process of evaluating the impact of this pronouncement on those financial assets and liabilities where LIBOR is used as an index rate.

In February 2016, the FASB issued ASU 2016-02, Leases  (Topic 842). The new topic supersedes Topic 840, Leases, and increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requires disclosures of key information about leasing arrangements. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, which provides narrow amendments to clarify how to apply certain aspects of the new lease standard, and ASU 2018-11, Leases: Targeted Improvements, which was issued to provide relief to companies from restating comparative periods. Pursuant to this ASU, in the period of adoption the Company will not restate comparative periods presented in its condensed financial statements. The effective date of this guidance for public companies is for reporting periods beginning after December 15, 2018. In June 2020, the FASB issued ASU 2020-05, which delays the adoption for ASU 2016-02 for non-public entities to fiscal years beginning after December 15, 2021, and interim periods beginning after December 15, 2022. As an emerging growth company as defined in the JOBS Act, the Company has elected to delay adoption of this ASU until January 1, 2022. The Company continues to assess and implement changes to its accounting processes for leases to help ensure that it meets the reporting and disclosure requirements of this ASU. The Company’s assets and liabilities will increase based on the present value of the remaining lease payments for leases in place at the adoption date; however, this is not expected to be material to the Company’s consolidated financial statements.

Subsequent Events

Subsequent events have been evaluated through November 5, 2020, which is the date the consolidated financial statements were available to be issued.

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Note 2: Earnings Per Share

Basic earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per common share are calculated by dividing net income by the weighted average number of shares adjusted for the dilutive effect of stock compensation. For the three and nine months ended September 30, 2020, stock options and restricted stock awards of approximately 557,000 and 557,000, respectively, were excluded from the calculation because their effect would have been anti-dilutive. For the three and nine months ended September 30, 2019, stock options of approximately 100,000 and 135,000, respectively were excluded from the calculation because their effect would have been anti-dilutive.

The following table presents the numerators and denominators for basic and diluted earnings per share computations for the three and nine months ended September 30, 2020 and 2019:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Net Income Available to Common Shareholders	$	7,174	$	7,805	$	22,215	$	22,832
Weighted Average Common Stock Outstanding:
Weighted Average Common Stock Outstanding (Basic)		28,683,855		28,820,144		28,717,142		29,535,589
Dilutive Effect of Stock Compensation		490,746		677,817		583,621		645,967
Weighted Average Common Stock Outstanding (Dilutive)		29,174,601		29,497,961		29,300,763		30,181,556
Basic Earnings per Common Share	$	0.25	$	0.27	$	0.77	$	0.77
Diluted Earnings per Common Share		0.25		0.27		0.76		0.76