UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2021

OR

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

For the transition period from ____________ to ________

Commission File Number 001-38412

BRIDGEWATER BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

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)

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 July 26, 2021 was 28,185,527.

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	30
Item 3. Quantitative and Qualitative Disclosures About Market Risk	61
Item 4. Controls and Procedures	63
PART II OTHER INFORMATION	64
Item 1. Legal Proceedings	64
Item 1A. Risk Factors	64
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	64
Item 3. Defaults Upon Senior Securities	64
Item 4. Mine Safety Disclosures	64
Item 5. Other Information	64
Item 6. Exhibits	65
SIGNATURES	66

2

PART 1 – FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Bridgewater Bancshares, Inc. and Subsidiaries

Consolidated Balance Sheets

(dollars in thousands, except share data)

	June 30,		December 31,
	2021		2020
	(Unaudited)
ASSETS
Cash and Cash Equivalents	$	92,197	$	160,675
Bank-Owned Certificates of Deposit		2,368		2,860
Securities Available for Sale, at Fair Value		402,786		390,629
Loans, Net of Allowance for Loan Losses of $37,591 at June 30, 2021 (unaudited) and $34,841 at December 31, 2020		2,545,145		2,282,436
Federal Home Loan Bank (FHLB) Stock, at Cost		5,832		5,027
Premises and Equipment, Net		50,177		50,987
Accrued Interest		8,728		9,172
Goodwill		2,626		2,626
Other Intangible Assets, Net		574		670
Other Assets		52,179		22,263
Total Assets	$	3,162,612	$	2,927,345
LIABILITIES AND EQUITY
LIABILITIES
Deposits:
Noninterest Bearing	$	758,023	$	671,903
Interest Bearing		1,962,883		1,829,733
Total Deposits		2,720,906		2,501,636
Notes Payable		—		11,000
FHLB Advances		57,500		57,500
Subordinated Debentures, Net of Issuance Costs		73,913		73,739
Accrued Interest Payable		2,654		1,615
Other Liabilities		16,809		16,450
Total Liabilities		2,871,782		2,661,940
SHAREHOLDERS' EQUITY
Preferred Stock- $0.01 par value
Authorized 10,000,000; None Issued and Outstanding at June 30, 2021 (unaudited) and December 31, 2020		—		—
Common Stock- $0.01 par value
Common Stock - Authorized 75,000,000; Issued and Outstanding 28,162,777 at June 30, 2021 (unaudited) and 28,143,493 at December 31, 2020		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 Liabilities and Equity	$	3,162,612	$	2,927,345

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				Six Months Ended
	June 30,		June 30,		June 30,		June 30,
	2021		2020		2021		2020
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
INTEREST INCOME
Loans, Including Fees	$	28,748	$	25,913	$	56,656	$	51,026
Investment Securities		2,312		2,091		4,732		4,287
Other		87		162		199		321
Total Interest Income		31,147		28,166		61,587		55,634
INTEREST EXPENSE
Deposits		3,513		5,170		7,184		10,894
Notes Payable		—		111		61		226
FHLB Advances		228		1,064		456		2,091
Subordinated Debentures		1,112		479		2,197		872
Federal Funds Purchased		6		—		6		107
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
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES		24,688		18,342		48,983		36,344
NONINTEREST INCOME
Customer Service Fees		231		135		465		375
Net Gain on Sales of Available for Sale Securities		702		1,361		702		1,364
Other Income		670		481		1,444		1,957
Total Noninterest Income		1,603		1,977		2,611		3,696
NONINTEREST EXPENSE
Salaries and Employee Benefits		7,512		6,348		14,614		12,802
Occupancy and Equipment		980		672		2,035		1,385
Other Expense		2,985		3,691		5,751		6,270
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
EARNINGS PER SHARE
Basic	$	0.39	$	0.26	$	0.77	$	0.52
Diluted		0.38		0.26		0.75		0.51
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				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Net Income	$	10,993	$	7,598	$	21,664	$	15,041
Other Comprehensive Income (Loss):
Unrealized Gains on Available for Sale Securities		2,866		3,300		350		3,122
Unrealized Gains (Losses) on Cash Flow Hedges		(2,551)		(741)		3,054		(3,673)
Reclassification Adjustment for Gains Realized in Income		(357)		(1,307)		(29)		(1,292)
Income Tax Impact		(17)		(263)		(712)		387
Total Other Comprehensive Income (Loss), Net of Tax		(59)		989		2,663		(1,456)
Comprehensive Income	$	10,934	$	8,587	$	24,327	$	13,585

See accompanying notes to consolidated financial statements.

5

Bridgewater Bancshares, Inc. and Subsidiaries

Consolidated Statements of Shareholders’ Equity

Three and Six Months Ended June 30, 2021 and 2020

(dollars in thousands, except share data)

(Unaudited)

								Accumulated
				Additional				Other
				Paid-In		Retained		Comprehensive
Three Months Ended	Shares	Common Stock		Capital		Earnings		Income		Total
BALANCE March 31, 2020	28,807,375	$	288	$	110,446	$	135,080	$	2,329	$	248,143
Stock-based Compensation	7,490		—		421		—		—		421
Comprehensive Income	—		—		—		7,598		989		8,587
Stock Options Exercised	15,500		—		39		—		—		39
Issuance of Restricted Stock Awards	7,195		—		—		—		—		—
BALANCE June 30, 2020	28,837,560	$	288	$	110,906	$	142,678	$	3,318	$	257,190
BALANCE March 31, 2021	28,132,929	$	281	$	104,087	$	165,502	$	9,301	$	279,171
Stock-based Compensation	4,848		—		583		—		—		583
Comprehensive Income (Loss)	—		—		—		10,993		(59)		10,934
Stock Options Exercised	25,000		1		141		—		—		142
BALANCE June 30, 2021	28,162,777	$	282	$	104,811	$	176,495	$	9,242	$	290,830
								Accumulated
				Additional				Other
	Shares	Common Stock		Paid-In		Retained		Comprehensive
Six Months Ended	Voting	Voting		Capital		Earnings		Income		Total
BALANCE December 31, 2019	28,973,572	$	290	$	112,093	$	127,637	$	4,774	$	244,794
Stock-based Compensation	15,211		—		822		—		—		822
Comprehensive Income (Loss)	—		—		—		15,041		(1,456)		13,585
Stock Options Exercised	15,500		—		39		—		—		39
Stock Repurchases	(177,864)		(2)		(2,048)		—		—		(2,050)
Issuance of Restricted Stock Awards	11,141		—		—		—		—		—
BALANCE June 30, 2020	28,837,560	$	288	$	110,906	$	142,678	$	3,318	$	257,190
BALANCE December 31, 2020	28,143,493	$	281	$	103,714	$	154,831	$	6,579	$	265,405
Stock-based Compensation	9,856		—		1,157		—		—		1,157
Comprehensive Income	—		—		—		21,664		2,663		24,327
Stock Options Exercised	26,400		1		153		—		—		154
Stock Repurchases	(16,618)		—		(208)		—		—		(208)
Restricted Shares Withheld for Taxes	(354)		—		(5)		—		—		(5)
BALANCE June 30, 2021	28,162,777	$	282	$	104,811	$	176,495	$	9,242	$	290,830

See accompanying notes to consolidated financial statements.

6

Bridgewater Bancshares, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(dollars in thousands)

(Unaudited)

	Six Months Ended
	June 30,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	21,664	$	15,041
Adjustments to Reconcile Net Income to Net Cash
Provided by (Used for) Operating Activities:
Net Amortization on Securities Available for Sale		1,755		1,136
Net Gain on Sales of Securities Available for Sale		(702)		(1,364)
Provision for Loan Losses		2,700		5,100
Depreciation of Premises and Equipment		1,146		380
Amortization of Other Intangible Assets		96		96
Amortization of Subordinated Debt Issuance Costs		174		52
Stock-based Compensation		1,157		822
Changes in Operating Assets and Liabilities:
Accrued Interest Receivable and Other Assets		(4,870)		(8,074)
Accrued Interest Payable and Other Liabilities		4,810		(12,507)
Net Cash Provided by Operating Activities		27,930		682
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) Decrease in Bank-Owned Certificates of Deposit		492		(241)
Proceeds from Sales of Securities Available for Sale		7,757		34,038
Proceeds from Maturities, Paydowns, Payups and Calls of Securities Available for Sale		18,023		17,312
Purchases of Securities Available for Sale		(39,341)		(87,215)
Net Increase in Loans		(265,409)		(277,092)
Net Increase in FHLB Stock		(805)		(793)
Purchases of Premises and Equipment		(336)		(15,935)
Proceeds from Sales of Foreclosed Assets		—		134
Purchase of Bank-Owned Life Insurance		(25,000)		—
Net Cash Used in Investing Activities		(304,619)		(329,792)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits		219,270		418,741
Principal Payments on Notes Payable		(11,000)		(1,000)
Proceeds from FHLB Advances		—		96,000
Principal Payments on FHLB Advances		—		(85,000)
Issuance of Subordinated Debt, net of Issuance Costs		—		48,873
Stock Options Exercised		154		39
Stock Repurchases		(208)		(2,050)
Shares Repurchased for Tax Withholdings Upon Vesting of Restricted Stock-Based Awards		(5)		—
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 Beginning		160,675		31,935
Cash and Cash Equivalents Ending	$	92,197	$	178,428
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash Paid for Interest	$	8,691	$	14,167
Cash Paid for Income Taxes		10,438		4,243
Loans Transferred to Foreclosed Assets		—		134
Premises and Equipment Transferred to Other Assets		—		121
Net Investment Securities Sold but Not Settled		—		1,433

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 six-month periods ended June 30, 2021 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 11, 2021.

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.

8

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. 

Impact of Recently Adopted Accounting Guidance

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU aims to simplify the accounting for income taxes by removing certain exceptions to the general principles and also simplification of areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enactment of tax laws or rate changes. The Company adopted this standard during the first quarter of 2021 and the adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

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 Company adopted this standard during the first quarter of 2021 and the adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

Subsequent Events

Subsequent events have been evaluated through July 30, 2021, which is the date the consolidated financial statements were available to be issued.

9

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 computed by dividing net income by the weighted average number of shares adjusted for the dilutive effect of stock compensation. For the three and six months ended June 30, 2021, stock options, restricted stock awards and restricted stock units of approximately 23,000 and 56,000, respectively, were excluded from the calculation because their effect would have been anti-dilutive. For the three and six months ended June 30, 2020, stock options and restricted stock awards of approximately 561,000 and 560,000, 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 six months ended June 30, 2021 and 2020:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Net Income Available to Common Shareholders	$	10,993	$	7,598	$	21,664	$	15,041
Weighted Average Common Stock Outstanding:
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

Note 3: Securities

The following tables present the amortized cost and estimated fair value of securities with gross unrealized gains and losses at June 30, 2021 and December 31, 2020:

	June 30, 2021
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
Securities Available for Sale:
U.S. Treasury Securities	$	1,009	$	1	$	—	$	1,010
Municipal Bonds		118,599		8,219		(803)		126,015
Mortgage-Backed Securities		125,053		1,640		(1,851)		124,842
Corporate Securities		74,002		2,849		(88)		76,763
SBA Securities		36,302		93		(249)		36,146
Asset-Backed Securities		36,619		1,391		—		38,010
Total Securities Available for Sale	$	391,584	$	14,193	$	(2,991)	$	402,786