10-Q - BWB - Equibles

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2021

☐	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 ofincorporation or organization)		26-0113412 (I.R.S. EmployerIdentification 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.

<br><br>		<br><br>
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 May 3, 2021 was 28,142,929.

Table of Contents 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	29
Item 3. Quantitative and Qualitative Disclosures About Market Risk	58
Item 4. Controls and Procedures	60

PART II OTHER INFORMATION	60

Item 1. Legal Proceedings	60
Item 1A. Risk Factors	60
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	60
Item 3. Defaults Upon Senior Securities	61
Item 4. Mine Safety Disclosures	61
Item 5. Other Information	61
Item 6. Exhibits	62

SIGNATURES	63

Table of Contents PART 1 – FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Bridgewater Bancshares, Inc. and Subsidiaries

Consolidated Balance Sheets

(dollars in thousands, except share data)


		March 31,			December 31,
	****	2021		****	2020
		(Unaudited)
ASSETS
Cash and Cash Equivalents		$	200,896		$	160,675
Bank-Owned Certificates of Deposit			2,369			2,860
Securities Available for Sale, at Fair Value			397,326			390,629
Loans, Net of Allowance for Loan Losses of $35,987 at March 31, 2021 (unaudited) and $34,841 at December 31, 2020			2,378,863			2,282,436
Federal Home Loan Bank (FHLB) Stock, at Cost			5,820			5,027
Premises and Equipment, Net			51,297			50,987
Accrued Interest			8,718			9,172
Goodwill			2,626			2,626
Other Intangible Assets, Net			622			670
Other Assets			23,822			22,263
Total Assets		$	3,072,359		$	2,927,345

LIABILITIES AND EQUITY
LIABILITIES
Deposits:
Noninterest Bearing		$	712,999		$	671,903
Interest Bearing			1,925,655			1,829,733
Total Deposits			2,638,654			2,501,636
Notes Payable			—			11,000
FHLB Advances			57,500			57,500
Subordinated Debentures, Net of Issuance Costs			73,826			73,739
Accrued Interest Payable			1,736			1,615
Other Liabilities			21,472			16,450
Total Liabilities			2,793,188			2,661,940

SHAREHOLDERS' EQUITY
Preferred Stock- $0.01 par value
Authorized 10,000,000; None Issued and Outstanding at March 31, 2021 (unaudited) and December 31, 2020			—			—
Common Stock- $0.01 par value
Common Stock - Authorized 75,000,000; Issued and Outstanding 28,132,929 at March 31, 2021 (unaudited) and 28,143,493 at December 31, 2020			281			281
Additional Paid-In Capital			104,087			103,714
Retained Earnings			165,502			154,831
Accumulated Other Comprehensive Income			9,301			6,579
Total Shareholders' Equity			279,171			265,405
Total Liabilities and Equity		$	3,072,359		$	2,927,345

See accompanying notes to consolidated financial statements. 3

Table of Contents Bridgewater Bancshares, Inc. and Subsidiaries

Consolidated Statements of Income

(dollars in thousands, except per share data)

(Unaudited)


		Three Months Ended
		March 31,			March 31,
	****	2021		****	2020
INTEREST INCOME
Loans, Including Fees		$	27,908		$	25,113
Investment Securities			2,420			2,196
Other			112			159
Total Interest Income			30,440			27,468

INTEREST EXPENSE
Deposits			3,671			5,724
Notes Payable			61			115
FHLB Advances			228			1,027
Subordinated Debentures			1,085			393
Federal Funds Purchased			—			107
Total Interest Expense			5,045			7,366

NET INTEREST INCOME			25,395			20,102
Provision for Loan Losses			1,100			2,100

NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES			24,295			18,002

NONINTEREST INCOME
Customer Service Fees			234			240
Net Gain on Sales of Available for Sale Securities			—			3
Other Income			774			1,476
Total Noninterest Income			1,008			1,719

NONINTEREST EXPENSE
Salaries and Employee Benefits			7,102			6,454
Occupancy and Equipment			1,055			713
Other Expense			2,766			2,579
Total Noninterest Expense			10,923			9,746

INCOME BEFORE INCOME TAXES			14,380			9,975
Provision for Income Taxes			3,709			2,532
NET INCOME		$	10,671		$	7,443

EARNINGS PER SHARE
Basic		$	0.38		$	0.26
Diluted			0.37			0.25
Dividends Paid Per Share			—			—

See accompanying notes to consolidated financial statements. 4

Table of Contents Bridgewater Bancshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(dollars in thousands)

(Unaudited)


		Three Months Ended
		March 31,
	****	2021		****	2020
Net Income		$	10,671		$	7,443
Other Comprehensive Income (Loss):
Unrealized Losses on Available for Sale Securities			(2,516)			(178)
Unrealized Gains (Losses) on Cash Flow Hedges			5,605			(2,932)
Reclassification Adjustment for Losses Realized in Income			328			15
Income Tax Impact			(695)			650
Total Other Comprehensive Income (Loss), Net of Tax			2,722			(2,445)
Comprehensive Income		$	13,393		$	4,998

See accompanying notes to consolidated financial statements.

Table of Contents Bridgewater Bancshares, Inc. and Subsidiaries

Consolidated Statements of Shareholders’ Equity

Three Months Ended March 31, 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 (Loss)		****	Total

BALANCE December 31, 2019	28,973,572		$	290		$	112,093		$	127,637		$	4,774		$	244,794
Stock-based Compensation	7,721			—			401			—			—			401
Comprehensive Income (Loss)	—			—			—			7,443			(2,445)			4,998
Stock Repurchases	(177,864)			(2)			(2,048)			—			—			(2,050)
Issuance of Restricted Stock Awards	3,946			—			—			—			—			—
BALANCE March 31, 2020	28,807,375		$	288		$	110,446		$	135,080		$	2,329		$	248,143

BALANCE December 31, 2020	28,143,493		$	281		$	103,714		$	154,831		$	6,579		$	265,405
Stock-based Compensation	5,008			—			574			—			—			574
Comprehensive Income	—			—			—			10,671			2,722			13,393
Stock Options Exercised	1,400			—			12			—			—			12
Stock Repurchases	(16,618)			—			(208)			—			—			(208)
Issuance of Restricted Stock Awards	—			—			—			—			—			—
Restricted Shares Withheld for Taxes	(354)			—			(5)			—			—			(5)
BALANCE March 31, 2021	28,132,929		$	281		$	104,087		$	165,502		$	9,301		$	279,171

See accompanying notes to consolidated financial statements. 6

Table of Contents Bridgewater Bancshares, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(dollars in thousands)

(Unaudited)


	Three Months Ended
	March 31,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	10,671	$	7,443
Adjustments to Reconcile Net Income to Net Cash
Provided by (Used for) Operating Activities:
Net Amortization on Securities Available for Sale		814		580
Net Gain on Sales of Securities Available for Sale		—		(3)
Provision for Loan Losses		1,100		2,100
Depreciation of Premises and Equipment		554		187
Amortization of Other Intangible Assets		48		48
Amortization of Subordinated Debt Issuance Costs		87		26
Stock-based Compensation		574		401
Changes in Operating Assets and Liabilities:
Accrued Interest Receivable and Other Assets		1,141		(5,207)
Accrued Interest Payable and Other Liabilities		6,295		(7,736)
Net Cash Provided (Used) by Operating Activities		21,284		(2,161)

CASH FLOWS FROM INVESTING ACTIVITIES	****
(Increase) Decrease in Bank-owned Certificates of Deposit		491		(241)
Proceeds from Sales of Securities Available for Sale		1,650		2,102
Proceeds from Maturities, Paydowns, Payups and Calls of Securities Available for Sale		8,838		10,545
Purchases of Securities Available for Sale		(18,674)		(23,902)
Net Increase in Loans		(97,527)		(91,130)
Net Increase in FHLB Stock		(793)		(3,193)
Purchases of Premises and Equipment		(864)		(7,830)
Proceeds from Sales of Foreclosed Assets		—		134
Net Cash Used in Investing Activities		(106,879)		(113,515)

CASH FLOWS FROM FINANCING ACTIVITIES	****
Net Increase in Deposits		137,017		76,817
Principal Payments on Notes Payable		(11,000)		(500)
Proceeds from FHLB Advances		—		76,000
Principal Payments on FHLB Advances		—		(5,000)
Stock Options Exercised		12		—
Stock Repurchases		(208)		(2,050)
Shares Repurchased for Tax Withholdings Upon Vesting of Restricted Stock-Based Awards		(5)		—
Net Cash Provided by Financing Activities		125,816		145,267

NET CHANGE IN CASH AND CASH EQUIVALENTS		40,221		29,591
Cash and Cash Equivalents Beginning		160,675		31,935
Cash and Cash Equivalents Ending	$	200,896	$	61,526

SUPPLEMENTAL CASH FLOW DISCLOSURE	****
Cash Paid for Interest	$	4,837	$	7,633
Cash Paid for Income Taxes		295		430
Loans Transferred to Foreclosed Assets		—		134
Net Investment Securities Purchased but Not Settled		1,840		6,944

						<br><br><br><br>

See accompanying notes to consolidated financial statements. 7

Table of Contents 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-month period ended March 31, 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

Table of Contents 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 May 6, 2021, which is the date the consolidated financial statements were available to be issued.

Table of Contents 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 months ended March 31, 2021 and 2020, 314,800 and 306,946, respectively, of stock options, restricted stock awards and restricted stock units were excluded from the calculation because they were deemed to be antidilutive.

The following table presents the numerators and denominators for basic and diluted earnings per share computations for the three months ended March 31, 2021 and 2020:


		Three Months Ended
		March 31,
	****	2021		****	2020
Net Income Available to Common Shareholders		$	10,671		$	7,443
Weighted Average Common Stock Outstanding:
Weighted Average Common Stock Outstanding (Basic)			28,017,366			28,791,494
Dilutive Effect of Stock Compensation			927,846			710,751
Weighted Average Common Stock Outstanding (Dilutive)			28,945,212			29,502,245

Basic Earnings per Common Share		$	0.38		$	0.26
Diluted Earnings per Common Share			0.37			0.25

Note 3: Securities

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


		March 31, 2021
					Gross			Gross
		Amortized			Unrealized			Unrealized
	****	Cost		****	Gains		****	Losses		****	Fair Value
Securities Available for Sale:
U.S. Treasury Securities		$	1,010		$	1		$	—		$	1,011
Municipal Bonds			115,544			7,773			(1,195)			122,122
Mortgage-Backed Securities			123,913			1,566			(2,213)			123,266
Corporate Securities			72,038			2,155			(122)			74,071
SBA Securities			38,327			42			(318)			38,051
Asset-Backed Securities			37,456			1,349			—			38,805
Total Securities Available for Sale		$	388,288		$	12,886		$	(3,848)		$	397,326


		December 31, 2020
					Gross			Gross
		Amortized			Unrealized			Unrealized
	****	Cost		****	Gains		****	Losses		****	Fair Value
Securities Available for Sale:
Municipal Bonds		$	105,975		$	9,373		$	(336)		$	115,012
Mortgage-Backed Securities			123,395			2,029			(1,164)			124,260
Corporate Securities			71,116			1,240			(201)			72,155
SBA Securities			40,455			32			(380)			40,107
Asset-Backed Securities			38,135			976			(16)			39,095
Total Securities Available for Sale		$	379,076		$	13,650		$	(2,097)		$	390,629

Table of Contents The following tables present the fair value and gross unrealized losses of securities with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2021 and December 31, 2020:


		Less Than 12 Months						12 Months or Greater						Total
					Unrealized						Unrealized						Unrealized
	****	Fair Value		****	Losses		****	Fair Value		****	Losses		****	Fair Value		****	Losses
March 31, 2021
Municipal Bonds		$	27,707		$	(903)		$	6,830		$	(292)		$	34,537		$	(1,195)
Mortgage-Backed Securities			60,731			(2,212)			1,648			(1)			62,379			(2,213)
Corporate Securities			12,422			(90)			968			(32)			13,390			(122)
SBA Securities			409			—			25,417			(318)			25,826			(318)
Total Securities Available for Sale		$	101,269		$	(3,205)		$	34,863		$	(643)		$	136,132		$	(3,848)


		Less Than 12 Months						12 Months or Greater						Total
					Unrealized						Unrealized						Unrealized
	****	Fair Value		****	Losses		****	Fair Value		****	Losses		****	Fair Value		****	Losses
December 31, 2020
Municipal Bonds		$	12,023		$	(329)		$	223		$	(7)		$	12,246		$	(336)
Mortgage-Backed Securities			45,120			(1,163)			1,699			(1)			46,819			(1,164)
Corporate Securities			23,643			(131)			2,430			(70)			26,073			(201)
SBA Securities			3,288			(3)			28,193			(377)			31,481			(380)
Asset-Backed Securities			2,471			(16)			—			—			2,471			(16)
Total Securities Available for Sale		$	86,545		$	(1,642)		$	32,545		$	(455)		$	119,090		$	(2,097)

At March 31, 2021, 172 debt securities had unrealized losses with aggregate depreciation of approximately 2.7% from the Company’s amortized cost basis. At December 31, 2020, 150 debt securities had unrealized losses with aggregate depreciation of approximately 1.7% from the Company’s amortized cost basis. These unrealized losses related principally to changes in interest rates and were not due to changes in the financial condition of the issuer, the quality of any underlying assets, or applicable credit enhancements. In analyzing whether unrealized losses on debt securities are other than temporary, management considers whether the securities are issued by a government body or agency, whether a rating agency has downgraded the securities, industry analysts’ reports, the financial condition and performance of the issuer, and the quality of any underlying assets or credit enhancements. Since management has the ability and intent to hold these debt securities for the foreseeable future, no declines were deemed to be other than temporary as of March 31, 2021.

The following table presents a summary of amortized cost and estimated fair value of debt securities by the lesser of expected call date or contractual maturity as of March 31, 2021. Call date is used when a call of the debt security is expected, determined by the Company when the security has a market value above its amortized cost. Contractual maturities will differ from expected maturities for mortgage-backed, SBA securities and asset-backed securities because borrowers may have the right to call or prepay obligations without penalties.


March 31, 2021	****	Amortized Cost		****	Fair Value
Due in One Year or Less		$	7,226		$	7,291
Due After One Year Through Five Years			73,840			76,850
Due After Five Years Through 10 Years			68,205			72,435
Due After 10 Years			39,321			40,628
Subtotal			188,592			197,204
Mortgage-Backed Securities			123,913			123,266
SBA Securities			38,327			38,051
Asset-Backed Securities			37,456			38,805
Totals		$	388,288		$	397,326

As of March 31, 2021 and December 31, 2020, the securities portfolio was unencumbered. 11

Table of Contents The following table presents a summary of the proceeds from sales of securities available for sale, as well as gross gains and losses, for the three months ended March 31, 2021 and 2020:


		Three Months Ended
		March 31,
	****	2021		****	2020
Proceeds From Sales of Securities		$	1,650		$	2,102
Gross Gains on Sales			—			3
Gross Losses on Sales			—			—

Note 4: Loans

The following table presents the components of the loan portfolio at March 31, 2021 and December 31, 2020:


		March 31,			December 31,
	****	2021		****	2020
Commercial		$	301,023		$	304,220
Paycheck Protection Program			163,258			138,454
Construction and Land Development			193,372			170,217
Real Estate Mortgage:
1-4 Family Mortgage			294,964			294,479
Multifamily			665,415			626,465
CRE Owner Occupied			79,665			75,604
CRE Non-owner Occupied			720,396			709,300
Total Real Estate Mortgage Loans			1,760,440			1,705,848
Consumer and Other			8,030			7,689
Total Loans, Gross			2,426,123			2,326,428
Allowance for Loan Losses			(35,987)			(34,841)
Net Deferred Loan Fees			(11,273)			(9,151)
Total Loans, Net		$	2,378,863		$	2,282,436

Table of Contents The following table presents the activity in the allowance for loan losses, by segment, for the three months ended March 31, 2021 and 2020:


					Paycheck			Construction									CRE			CRE
					Protection			and Land			1--4 Family						Owner			Non-owner			Consumer
Three Months Ended March 31, 2021	****	Commercial		****	Program		****	Development		****	Mortgage		****	Multifamily		****	Occupied		****	Occupied		****	and Other		****	Unallocated		****	Total
Allowance for Loan Losses:
Beginning Balance		$	5,703		$	70		$	2,491		$	3,972		$	9,517		$	1,162		$	10,991		$	203		$	732		$	34,841
Provision for Loan Losses			729			13			282			(76)			339			(7)			35			32			(247)			1,100
Loans Charged-off			—			—			—			(5)			—			—			—			(9)			—			(14)
Recoveries of Loans			19			—			—			3			—			32			—			6			—			60
Total Ending Allowance Balance		$	6,451		$	83		$	2,773		$	3,894		$	9,856		$	1,187		$	11,026		$	232		$	485		$	35,987

Three Months Ended March 31, 2020
Allowance for Loan Losses:
Beginning Balance		$	3,058		$	—		$	2,202		$	2,839		$	5,824		$	792		$	6,972		$	85		$	754		$	22,526
Provision for Loan Losses			531			—			(71)			361			732			146			1,031			18			(648)			2,100
Loans Charged-off			(34)			—			—			—			—			—			—			(13)			—			(47)
Recoveries of Loans			2			—			—			2			—			—			—			2			—			6
Total Ending Allowance Balance		$	3,557		$	—		$	2,131		$	3,202		$	6,556		$	938		$	8,003		$	92		$	106		$	24,585

The following tables present the balance in the allowance for loan losses and the recorded investment in loans, by segment, based on impairment method as of March 31, 2021 and December 31, 2020:


				Paycheck			Construction									CRE			CRE
				Protection			and Land			1--4 Family						Owner			Non-owner			Consumer
Allowance for Loan Losses at March 31, 2021	****	Commercial		Program		****	Development		****	Mortgage		****	Multifamily		****	Occupied		****	Occupied		****	and Other		****	Unallocated		****	Total
Individually Evaluated for Impairment		$	277	$	—		$	—		$	—		$	—		$	—		$	—		$	13		$	—		$	290
Collectively Evaluated for Impairment			6,174		83			2,773			3,894			9,856			1,187			11,026			219			485			35,697
Totals		$	6,451	$	83		$	2,773		$	3,894		$	9,856		$	1,187		$	11,026		$	232		$	485		$	35,987

Allowance for Loan Losses at December 31, 2020
Individually Evaluated for Impairment		$	37	$	—		$	—		$	—		$	—		$	—		$	—		$	13		$	—		$	50
Collectively Evaluated for Impairment			5,666		70			2,491			3,972			9,517			1,162			10,991			190			732			34,791
Totals		$	5,703	$	70		$	2,491		$	3,972		$	9,517		$	1,162		$	10,991		$	203		$	732		$	34,841


					Paycheck			Construction									CRE			CRE
					Protection			and Land			1--4 Family						Owner			Non-owner			Consumer
Loans at March 31, 2021	****	Commercial		****	Program		****	Development		****	Mortgage		****	Multifamily		****	Occupied		****	Occupied		****	and Other		****	Total
Individually Evaluated for Impairment		$	1,273		$	—		$	146		$	1,356		$	—		$	870		$	3,081		$	13		$	6,739
Collectively Evaluated for Impairment			299,750			163,258			193,226			293,608			665,415			78,795			717,315			8,017			2,419,384
Totals		$	301,023		$	163,258		$	193,372		$	294,964		$	665,415		$	79,665		$	720,396		$	8,030		$	2,426,123

Loans at December 31, 2020
Individually Evaluated for Impairment		$	239		$	—		$	156		$	1,498		$	—		$	870		$	12,388		$	13		$	15,164
Collectively Evaluated for Impairment			303,981			138,454			170,061			292,981			626,465			74,734			696,912			7,676			2,311,264
Totals		$	304,220		$	138,454		$	170,217		$	294,479		$	626,465		$	75,604		$	709,300		$	7,689		$	2,326,428

Table of Contents The following table presents information regarding total carrying amounts and total unpaid principal balances of impaired loans by loan segment as of March 31, 2021 and December 31, 2020:


		March 31, 2021									December 31, 2020
		Recorded			Principal			Related			Recorded			Principal			Related
	****	Investment		****	Balance		****	Allowance		****	Investment		****	Balance		****	Allowance
Loans With No Related Allowance for Loan Losses:
Commercial		$	109		$	109		$	—		$	122		$	122		$	—
Construction and Land Development			146			753			—			156			763			—
Real Estate Mortgage:		****									****	****			****
HELOC and 1-4 Family Junior Mortgage			883			883			—			884			884			—
1st REM - Rentals			473			473			—			478			478			—
CRE Owner Occupied			870			870			—			870			870			—
CRE Non Owner Occupied			3,081			3,081			—			12,524			12,524			—
Totals			5,562			6,169			—			15,034			15,641			—

Loans With An Allowance for Loan Losses:
Commercial			1,164			1,167			277			117			120			37
Consumer and Other			13			13			13			13			13			13
Totals			1,177			1,180			290			130			133			50
Grand Totals		$	6,739		$	7,349		$	290		$	15,164		$	15,774		$	50

The following table presents information regarding the average balances and interest income recognized on impaired loans by loan segment for the three months ended March 31, 2021 and 2020:



	Three Months Ended March 31,
	2021					****	2020
	Average			Interest			Average			Interest
	Investment		****	Recognized		****	Investment		****	Recognized
Loans With No Related Allowance for Loan Losses:
Commercial	$	117		$	2		$	163		$	3
Construction and Land Development		150			—			175			—
Real Estate Mortgage:
HELOC and 1-4 Family Junior Mortgage		884			11			329			—
1st REM - Rentals		476			6			932			11
CRE Owner Occupied		871			3			1,837			25
CRE Non Owner Occupied		3,089			39			225			3
Totals		5,587			61			3,661			42

Loans With An Allowance for Loan Losses:
Commercial		1,159			12			111			—
Consumer and Other		13			—			14			—
Totals		1,172			12			125			—
Grand Totals	$	6,759		$	73		$	3,786		$	42

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The process of analyzing loans for changes in risk rating is ongoing through routine monitoring of the portfolio and annual internal credit reviews for credits meeting certain thresholds.

Table of Contents The following tables present the risk category of loans by loan segment as of March 31, 2021 and December 31, 2020, based on the most recent analysis performed by management:


		March 31, 2021
	****	Pass		****	Watch		****	Substandard		****	Total
Commercial		$	271,737		$	28,013		$	1,273		$	301,023
Paycheck Protection Program			163,258			—			—			163,258
Construction and Land Development			193,226			—			146			193,372
Real Estate Mortgage:
HELOC and 1-4 Family Junior Mortgage			28,913			—			883			29,796
1st REM - 1-4 Family			44,705			699			—			45,404
LOCs and 2nd REM - Rentals			21,593			—			—			21,593
1st REM - Rentals			197,698			—			473			198,171
Multifamily			665,415			—			—			665,415
CRE Owner Occupied			78,795			—			870			79,665
CRE Non-owner Occupied			687,771			29,544			3,081			720,396
Consumer and Other			8,017			—			13			8,030
Totals		$	2,361,128		$	58,256		$	6,739		$	2,426,123


		December 31, 2020
	****	Pass		****	Watch		****	Substandard		****	Total
Commercial		$	289,465	$		14,516	$		239		$	304,220
Paycheck Protection Program			138,454			—			—			138,454
Construction and Land Development			170,061			—			156			170,217
Real Estate Mortgage:
HELOC and 1-4 Family Junior Mortgage			29,396			—			884			30,280
1st REM - 1-4 Family			41,239			703			—			41,942
LOCs and 2nd REM - Rentals			20,678			—			—			20,678
1st REM - Rentals			200,965			—			614			201,579
Multifamily			626,465			—			—			626,465
CRE Owner Occupied			74,734			—			870			75,604
CRE Non-owner Occupied			667,336			29,576			12,388			709,300
Consumer and Other			7,676			—			13			7,689
Totals		$	2,266,469		$	44,795		$	15,164		$	2,326,428

The following tables present the aging of the recorded investment in past due loans by loan segment as of March 31, 2021 and December 31, 2020:


		Accruing Interest
					30-89 Days			90 Days or
March 31, 2021	****	Current		****	Past Due		****	More Past Due		****	Nonaccrual		****	Total
Commercial		$	301,017		$	—		$	—		$	6		$	301,023
Paycheck Protection Program			163,258			—			—			—			163,258
Construction and Land Development			193,226			—			—			146			193,372
Real Estate Mortgage:
HELOC and 1-4 Family Junior Mortgage			29,796			—			—			—			29,796
1st REM - 1-4 Family			45,404			—			—			—			45,404
LOCs and 2nd REM - Rentals			21,593			—			—			—			21,593
1st REM - Rentals			198,171			—			—			—			198,171
Multifamily			665,415			—			—			—			665,415
CRE Owner Occupied			79,047			—			—			618			79,665
CRE Non-owner Occupied			720,396			—			—			—			720,396
Consumer and Other			8,030			—			—			—			8,030
Totals		$	2,425,353		$	—		$	—		$	770		$	2,426,123

Table of Contents


		Accruing Interest
					30-89 Days			90 Days or
December 31, 2020	****	Current		****	Past Due		****	More Past Due		****	Nonaccrual		****	Total
Commercial		$	304,211		$	3		$	—		$	6		$	304,220
Paycheck Protection Program			138,454			—			—			—			138,454
Construction and Land Development			170,061			—			—			156			170,217
Real Estate Mortgage:
HELOC and 1-4 Family Junior Mortgage			30,280			—			—			—			30,280
1st REM - 1-4 Family			41,942			—			—			—			41,942
LOCs and 2nd REM - Rentals			20,668			10			—			—			20,678
1st REM - Rentals			201,579			—			—			—			201,579
Multifamily			626,465			—			—			—			626,465
CRE Owner Occupied			74,991			—			—			613			75,604
CRE Non-owner Occupied			709,300			—			—			—			709,300
Consumer and Other			7,689			—			—			—			7,689
Totals		$	2,325,640		$	13		$	—		$	775		$	2,326,428

At March 31, 2021, there were three loans classified as troubled debt restructurings with a current outstanding balance of $408. In comparison, at December 31, 2020, there were three loans classified as troubled debt restructurings with an outstanding balance of $421. There were no news loan classified as a troubled debt restructuring during the three month period ended March 31, 2021 and no loans classified as troubled debt restructurings during the previous twelve months subsequently defaulted during the three months ended March 31, 2021.

In response to the COVID-19 pandemic, the Company has developed programs for clients who are experiencing business and personal disruptions due to the COVID-19 pandemic pursuant to which the Company may provide interest-only modifications, loan payment deferrals, or extended amortization modifications. In accordance with interagency regulatory guidance and the CARES Act, qualifying loans modified in response to the COVID-19 pandemic will not be considered troubled debt restructurings.

The following table presents a summary of active loan modifications made in response to the COVID-19 pandemic, by loan segment and modification type, as of March 31, 2021:


		Interest-Only					Payment Deferral					Extended Amortization					Total
(dollars in thousands)	****	Amount		****	# of Loans	****	Amount		****	# of Loans	****	Amount		****	# of Loans	****	Amount		****	# of Loans
Commercial		$	3,547		7		$	—		—		$	4,802		1		$	8,349		8
Real Estate Mortgage:
CRE Owner Occupied			—		—			618		3			—		—			618		3
CRE Nonowner Occupied			28,116		8			—		—			—		—			28,116		8
Totals		$	31,663		15		$	618		3		$	4,802		1		$	37,083		19

Note 5: Deposits

The following table presents the composition of deposits at March 31, 2021 and December 31, 2020:


		March 31,			December 31,
	****	2021		****	2020
Transaction Deposits		$	1,146,343		$	1,038,193
Savings and Money Market Deposits			791,583			657,617
Time Deposits			344,581			353,543
Brokered Deposits			356,147			452,283
Totals		$	2,638,654		$	2,501,636

Table of Contents Note 6: Notes Payable

On February 25, 2021, the Company’s $11,000 note payable matured and was paid off in full.

On March 1, 2021 the Company entered into a Loan and Security Agreement and related revolving note with an unaffiliated financial institution that was secured by 100% of the issued and outstanding stock of the Bank. The revolving line of credit is for a maximum principal amount of $25,000 and matures on February 28, 2023. Interest accrues on unpaid principal balances at a variable interest rate equal to the greater of the Wall Street Journal Prime Rate in effect or a floor rate of 3.85%. The Company is required to pay quarterly payments of interest on the unpaid principal balance. Principal payments may be made any time prior to the maturity date, on which date all unpaid principal and accrued interest are due and payable. The note contains customary representations, warranties, and covenants, including certain financial covenants and capital ratio requirements. As of March 31, 2021, the Company believes it was in compliance with all covenants. As of March 31, 2021, there were no outstanding balances under the revolving line of credit.

Note 7: Derivative Instruments and Hedging Activities

The Company uses derivative financial instruments, which consist of interest rate swaps and interest rate caps, to assist in its interest rate risk management. The notional amount does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual agreements. Derivative financial instruments are reported at fair value in other assets or other liabilities. The accounting for changes in the fair value of a derivative depends on whether it has been designated and qualifies as part of a hedging relationship. For derivatives not designated as hedges, the gain or loss is recognized in current earnings.

Non-hedge Derivatives

The Company enters into interest rate swaps to facilitate client transactions and meet their financing needs. Upon entering into these instruments to meet client needs, the Company enters into offsetting positions with large U.S. financial institutions in order to minimize the risk to the Company. These swaps are derivatives, but are not designated as hedging instruments.

Interest rate swap contracts involve the risk of dealing with counterparties and their ability to meet contractual terms. When the fair value of a derivative instrument contract is positive, this generally indicates that the counter party or client owes the Company, and results in credit risk to the Company. When the fair value of a derivative instrument contract is negative, the Company owes the client or counterparty and therefore, the Company has no credit risk.

The following table presents a summary of the Company’s interest rate swaps to facilitate customer transactions as of March 31, 2021 and December 31, 2020:


	March 31, 2021				December 31, 2020
	Notional		Estimated		Notional		Estimated
	Amount		Fair Value		Amount		Fair Value
Interest Rate Swap Agreements:
Assets	$	49,546	$	1,188	$	49,696	$	2,701
Liabilities		49,546		(1,188)		49,696		(2,701)
Total	$	99,092	$	—	$	99,392	$	—

Table of Contents Cash Flow Hedging Derivatives

For derivative instruments that are designated and qualify as a cash flow hedge, the aggregate fair value of the derivative instrument is recorded in other assets or other liabilities with any gain or loss related to changes in fair value recorded in accumulated other comprehensive income, net of tax. The gain or loss is reclassified into earnings in the same period during which the hedged asset or liability affects earnings and is presented in the same income statement line item as the earnings effect of the hedged asset or liability. The Company utilizes cash flow hedges to manage interest rate exposure for the brokered certificate of deposit, wholesale borrowing, and notes payable portfolios. During the next 12 months, the Company estimates that $1,118 will be reclassified to interest expense.

The following table presents a summary of the Company’s interest rate swaps designated as cash flow hedges as of March 31, 2021 and December 31, 2020:


	****	March 31, 2021		****	December 31, 2020
Notional Amount		$	115,000		$	111,000
Weighted Average Pay Rate			1.11	%		1.26	%
Weighted Average Receive Rate			0.19	%		0.22	%
Weighted Average Maturity (Years)			4.47			3.95
Net Unrealized Loss		$	(600)		$	(3,410)

During 2020, the Company purchased interest rate caps, designated as cash flow hedges, of certain deposit liabilities, with notional amounts totaling $50,000. The interest rate caps require receipt of variable amounts from the counterparties when interest rates rise above the strike price in the contracts. An initial premium of $2,689 was paid up front for the caps executed in 2020. Amortization on the interest rate caps was $26 and was recorded as a component of interest expense on brokered deposits for the three months ended March 31, 2021. The weighted average strike price for outstanding interest rate caps was 0.75% at March 31, 2021.

The following table presents a summary of the Company’s interest rate contracts as of March 31, 2021 and December 31, 2020:


	March 31, 2021				December 31, 2020
	Notional		Estimated		Notional		Estimated
	Amount		Fair Value		Amount		Fair Value
Interest Rate Swap Agreements:
Assets	$	50,000	$	1,388	$	5,000	$	56
Liabilities		65,000		(1,988)		106,000		(3,466)
Interest rate cap agreements:
Assets		50,000		5,890		50,000		2,834

The Company is party to collateral support agreements with certain derivative counterparties. These agreements require that the Company maintain collateral based on the fair values of derivative transactions. In the event of default by the Company, the counterparty would be entitled to the collateral. As of March 31, 2021 and December 31, 2020, the Company pledged cash collateral for the Company’s derivative contracts of $2,128 and $8,526, respectively. In addition, 18

Table of Contents as of March 31, 2021 and December 31, 2020, the Company's interest rate cap counterparties have pledged cash collateral to the Company of $6,370 and $2,700, respectively.

The following table presents the effect of derivative instruments in cash flow hedging relationships on the consolidated statements of income for the three months ended March 31, 2021 and 2020:


		Three Months Ended March 31,
(dollars in thousands)		2021			2020
Derivatives in	Location of Loss	Loss
Cash Flow Hedging	Reclassified from	Reclassified from
Relationships	AOCI into Income	AOCI into Earnings
Interest rate swaps	Interest expense		$	(262)		$	(18)
Interest rate caps	Interest expense			(66)			—

No amounts were reclassified from accumulated other comprehensive income into net income related to hedge ineffectiveness for these derivatives during the three months ended March 31, 2021 and 2020, and no amounts are expected to be reclassified from accumulated other comprehensive income into net income related to hedge ineffectiveness over the next twelve months.

Note 8: Tax Credit Investments

The Company invests in qualified affordable housing projects and federal historic projects for the purpose of community reinvestment and obtaining tax credits. The Company’s tax credit investments are limited to existing lending relationships with well-known developers and projects within the Company’s market area.

The following table presents a summary of the Company’s investments in qualified affordable housing projects and other tax credit investments at March 31, 2021 and December 31, 2020:


			March 31, 2021				December 31, 2020
Investment		Accounting Method		Investment		Unfunded Commitment ^(1)^		Investment		Unfunded Commitment
Low Income Housing Tax Credit (LIHTC)		Proportional Amortization	$	1,797	$	—	$	1,867	$	—
Federal Historic Tax Credit (FHTC)		Equity		2,080		1,683		2,198		1,858
Total			$	3,877	$	1,683	$	4,065	$	1,858
(1)	All commitments are expected to be paid by the Company by December 31, 2021.
---	---

Table of Contents The following table presents a summary of the amortization expense and tax benefit recognized for the Company’s qualified affordable housing projects and other tax credit investments for the three months ended March 31, 2021 and 2020:


	Three Months Ended
	March 31,
	2021		****	2020
Amortization Expense^(1)^
LIHTC	$	70		$	71
FHTC		118			85
Total	$	188		$	156
Tax Benefit Recognized^(2)^
LIHTC	$	(83)		$	(83)
FHTC		(156)			(170)
Total	$	(239)		$	(253)
(1)	The amortization expense for the LIHTC investments are included in income tax expense. The amortization for the FHTC tax credits are included in noninterest expense.
---	---
(2)	All of the tax benefits recognized are included in income tax expense. The tax benefit recognized for the FHTC investments primarily reflects the tax credits generated from the investments, and excludes the net tax expense/benefit of the investments’ income/loss.
---	---

Note 9: Commitments, Contingencies and Credit Risk

Financial Instruments with Off-Balance Sheet Credit Risk

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets.

The Company’s exposure to credit loss is represented by the contractual, or notional, amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance sheet instruments. Since some of the commitments are expected to expire without being drawn upon and some of the commitments may not be drawn upon to the total extent of the commitment, the notional amount of these commitments does not necessarily represent future cash requirements.

The following commitments were outstanding at March 31, 2021 and December 31, 2020:


		March 31,			December 31,
	****	2021		****	2020
Unfunded Commitments Under Lines of Credit		$	745,605		$	644,338
Letters of Credit			94,912			90,206
Totals		$	840,517		$	734,544

The Company had outstanding letters of credit with the FHLB in total amounts of $48,093 and $60,091 at March 31, 2021 and December 31, 2020, respectively, on behalf of customers and to secure public deposits.

Legal Contingencies

Neither the Company nor any of its subsidiaries is a party, and no property of these entities is subject, to any material pending legal proceedings, other than ordinary routine litigation incidental to the Bank’s business. The Company does not know of any proceeding contemplated by a governmental authority against the Company or any of its subsidiaries.

Table of Contents Note 10: Stock Options and Restricted Stock Awards

The Company established the Bridgewater Bancshares, Inc. 2012 Combined Incentive and Non-Statutory Stock Option Plan (the “2012 Plan”) under which the Company may grant options to its directors, officers, and employees for up to 750,000 shares of common stock. Both incentive stock options and nonqualified stock options may be granted under the 2012 Plan. The exercise price of each option equals the fair market value of the Company’s stock on the date of grant and the maximum term of each outstanding option is ten years. All outstanding options have been granted with vesting periods of five years. As of March 31, 2021 and December 31, 2020, there were 30,000 shares of the Company’s common stock reserved for future option grants under the 2012 Plan.

In 2017, the Company adopted the Bridgewater Bancshares, Inc. 2017 Combined Incentive and Non-Statutory Stock Option Plan (the “2017 Plan”). Under the 2017 Plan, the Company may grant options to its directors, officers, employees and consultants for up to 1,500,000 shares of common stock. Both incentive stock options and nonqualified stock options may be granted under the 2017 Plan. The exercise price of each option equals the fair market value of the Company’s stock on the date of grant and the maximum term of each outstanding option is ten years. All outstanding options have been granted with vesting periods of four or five years. As of March 31, 2021 and December 31, 2020, there were 314,400 and 313,600 of remaining shares of the Company’s common stock reserved for future option grants under the 2017 Plan.

In 2019, the Company adopted the Bridgewater Bancshares, Inc. 2019 Equity Incentive Plan (the “2019 EIP”). The types of awards which may be granted under the 2019 EIP include incentive and nonqualified stock options, stock appreciation rights, stock awards, restricted stock units, restricted stock and cash incentive awards. The Company may grant these awards to its directors, officers, employees and certain other service providers for up to 1,000,000 shares of common stock. The exercise price of each option equals the fair market value of the Company’s stock on the date of grant and the maximum term of each award is ten years. All outstanding awards have been granted with a vesting period of four years. As of March 31, 2021 and December 31, 2020, there were 550,875 and 561,883 of remaining shares of the Company’s common stock reserved for future grants under the 2019 EIP.

Stock Options

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model. The following table presents a summary of the status of the Company’s stock option grants for the three months ended March 31, 2021:


		March 31, 2021
	****	****	****	Weighted
				Average
		Shares		Exercise Price
Outstanding at Beginning of Year		1,914,250		$	7.29
Granted		—			—
Exercised		(1,400)			8.24
Forfeitures		(800)			7.47
Outstanding at Period End		1,912,050		$	7.29

Options Exercisable at Period End		1,212,200		$	6.00

For the three months ended March 31, 2021 and 2020, the Company recognized compensation expense for stock options of $223 and $218, respectively. 21

Table of Contents The following table presents information pertaining to options outstanding at March 31, 2021:


			Options Outstanding					Options Exercisable
							Weighted Average
			Number of		Weighted Average		Remaining Contractual	Number of		Weighted Average
Range of Exercise Prices		****	Options	****	Exercise Price		Life in Years	Options	****	Exercise Price
$	2.13 - 3.99		522,750		$	2.94	2.7	522,750		$	2.94
	7.00 - 7.99		966,500			7.47	6.5	574,900			7.47
	8.00 - 8.99		25,000			8.76	9.0	—			—
	10.00 - 10.99		10,000			10.08	9.2	—			—
	11.00 - 11.99		85,000			11.27	8.1	24,000			11.33
	12.00 - 12.99		277,800			12.89	8.4	80,550			12.89
	13.00 - 13.99		25,000			13.22	7.1	10,000			13.22
	Totals		1,912,050		$	7.29	5.9	1,212,200		$	6.00

As of March 31, 2021, there was $1,802 of total unrecognized compensation cost related to nonvested stock options granted under the 2012 Plan, 2017 Plan and 2019 EIP that is expected to be recognized over a weighted-average period of 3.0 years.

The following table presents an analysis of nonvested options to purchase shares of the Company’s stock issued and outstanding for the three months ended March 31, 2021:


	****	****	****	Weighted
		Number of		Average Grant
		Shares		Date Fair Value
Nonvested Options at December 31, 2020		708,900		$	3.24
Granted		—			—
Vested		(8,250)			3.03
Forfeited		(800)			7.47
Nonvested Options at March 31, 2021		699,850		$	3.24

Restricted Stock Awards

In 2019 and 2020, the Company granted restricted stock awards out of the 2019 EIP. These awards vest in equal annual installments on the first four anniversaries of the date of the grant. Nonvested restricted stock awards are classified as outstanding shares with voting and forfeitable dividend rights.

The following table presents an analysis of nonvested restricted stock awards outstanding for the three months ended March 31, 2021:


	****	****	****	Weighted
		Number of		Average Grant
		Shares		Date Fair Value
Nonvested Awards at December 31, 2020		110,962		$	12.63
Granted		—			—
Vested		(986)			12.67
Forfeited		—			—
Nonvested Awards at March 31, 2021		109,976		$	12.63

Compensation expense associated with the restricted stock awards is recognized on a straight-line basis over the period that the restrictions associated with the awards lapse based on the total cost of the award at the grant date. For the three months ended March 31, 2021, and 2020, the Company recognized compensation expense for restricted stock awards of $112 and $108, respectively. 22

Table of Contents As of March 31, 2021, there was $1,237 of total unrecognized compensation cost related to nonvested restricted stock awards granted under the 2019 EIP that is expected to be recognized over a period of four years.

In addition, during the three months ended March 31, 2021, the Company issued 5,008 shares of unrestricted common stock to directors as a part of their compensation for their annual services on the Company’s board of directors. The aggregate value of the shares issued to directors of $81 was included in stock based compensation expense in the accompanying consolidated statements of shareholders’ equity.

Restricted Stock Units

In 2020, the Company granted restricted stock units out of the 2019 EIP. Restricted stock units granted out of the 2019 EIP represent the right to receive one share of Company stock upon vesting and vest in equal annual installments on the first four anniversaries of the date of the grant. Nonvested restricted stock units have no voting or dividend rights and are not considered outstanding until vesting. As of March 31, 2021, 6,000 restricted stock units were granted with a weighted average grant date fair value of $13.92.

Compensation expense associated with the restricted stock units is recognized on a straight-line basis over the period that the restrictions associated with the units lapse based on the total cost of the unit at the grant date. For the three months ended March 31, 2021, the Company recognized compensation expense for restricted stock units of $158. No compensation expense was recognized for restricted stock units for the three months ended March 31, 2020.

As of March 31, 2021, there was $2,406 of total unrecognized compensation cost related to nonvested restricted stock units granted under the 2019 EIP that is expected to be recognized over a period of four years. As of March 31, 2021, no restricted stock units vested.

Note 11: Regulatory Capital

The Company and the Bank are subject to various regulatory requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank must also meet certain specific capital guidelines under the regulatory framework for prompt corrective action. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios of common equity Tier 1 capital, Tier 1 capital and total capital to risk-weighted assets and of Tier 1 capital to average consolidated assets (referred to as the “leverage ratio”), as defined under the applicable regulatory capital rules. 23

Table of Contents The following tables present the capital amounts and ratios for the Company and the Bank as of March 31, 2021 and December 31, 2020:


							Minimum Required					For Capital Adequacy					To be Well Capitalized
							For Capital Adequacy					Purposes Plus Capital					Under Prompt Corrective
		Actual					Purposes					Conservation Buffer					Action Regulations
March 31, 2021	****	Amount		****	Ratio	****	Amount		****	Ratio	****	Amount		****	Ratio		Amount		****	Ratio
		(dollars in thousands)
Company (Consolidated):
Total Risk-Based Capital		$	372,720		14.46	%	$	206,221		8.00	%	$	270,665		10.50	%		N/A		N/A
Tier 1 Risk-Based Capital			266,621		10.34			154,666		6.00			219,110		8.50			N/A		N/A
Common Equity Tier 1 Capital			266,621		10.34			115,999		4.50			180,443		7.00			N/A		N/A
Tier 1 Leverage Ratio			266,621		9.11			117,121		4.00			117,121		4.00			N/A		N/A
Bank:
Total Risk-Based Capital		$	343,660		13.33	%	$	206,202		8.00	%	$	270,640		10.50	%	$	257,753		10.00	%
Tier 1 Risk-Based Capital			311,390		12.08			154,652		6.00			219,090		8.50			206,202		8.00
Common Equity Tier 1 Capital			311,390		12.08			115,989		4.50			180,427		7.00			167,539		6.50
Tier 1 Leverage Ratio			311,390		10.65			116,939		4.00			116,939		4.00			146,174		5.00


							Minimum Required					For Capital Adequacy					To be Well Capitalized
							For Capital Adequacy					Purposes Plus Capital					Under Prompt Corrective
		Actual					Purposes					Conservation Buffer					Action Regulations
December 31, 2020	****	Amount		****	Ratio	****	Amount		****	Ratio	****	Amount		****	Ratio		Amount		****	Ratio
		(dollars in thousands)
Company (Consolidated):
Total Risk-Based Capital		$	360,198		14.58	%	$	197,604		8.00	%	$	259,355		10.50	%		N/A		N/A
Tier 1 Risk-Based Capital			255,530		10.35			148,203		6.00			209,954		8.50			N/A		N/A
Common Equity Tier 1 Capital			255,530		10.35			111,152		4.50			172,904		7.00			N/A		N/A
Tier 1 Leverage Ratio			255,530		9.28			110,168		4.00			110,168		4.00			N/A		N/A
Bank:
Total Risk-Based Capital		$	330,380		13.37	%	$	197,629		8.00	%	$	259,388		10.50	%	$	247,036		10.00	%
Tier 1 Risk-Based Capital			299,447		12.12			148,222		6.00			209,981		8.50			197,629		8.00
Common Equity Tier 1 Capital			299,447		12.12			111,166		4.50			172,925		7.00			160,574		6.50
Tier 1 Leverage Ratio			299,447		10.89			109,972		4.00			109,972		4.00			137,465		5.00

The Company and the Bank must maintain a capital conservation buffer, as defined by Basel III regulatory capital guidelines, in order to avoid limitations on capital distributions, including dividend payments, stock repurchases and certain discretionary bonus payments to executive officers.

Note 12: Fair Value Measurement

The Company categorizes its assets and liabilities measured at fair value into a three-level hierarchy based on the priority of the inputs to the valuation technique used to determine fair value. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used in the determination of the fair value measurement fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement. Assets and liabilities valued at fair value are categorized based on the inputs to the valuation techniques as follows:

Level 1 – Inputs that utilized quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. 24

Table of Contents Level 2 – Inputs that include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instruments. Fair values for these instruments are estimated using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows.

Level 3 – Inputs that are unobservable for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity.

Subsequent to initial recognition, the Company may re-measure the carrying value of assets and liabilities measured on a nonrecurring basis to fair value. Adjustments to fair value usually result when certain assets are impaired. Such assets are written down from their carrying amounts to their fair value.

Professional standards allow entities the irrevocable option to elect to measure certain financial instruments and other items at fair value for the initial and subsequent measurement on an instrument-by-instrument basis. The Company adopted the policy to value certain financial instruments at fair value. The Company has not elected to measure any existing financial instruments at fair value; however, it may elect to measure newly acquired financial instruments at fair value in the future.

Recurring Basis

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The following tables present the balances of the assets and liabilities measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020:


		March 31, 2021
	****	Level 1		****	Level 2		****	Level 3		****	Total
Fair Value of Financial Assets:
Securities Available for Sale:
U.S. Treasury Securities		$	1,011		$			$	—		$	1,011
Municipal Bonds			—			122,122			—			122,122
Mortgage-Backed Securities			—			123,266			—			123,266
Corporate Securities			—			74,071			—			74,071
SBA Securities			—			38,051			—			38,051
Asset-Backed Securities			—			38,805			—			38,805
Interest Rate Caps			—			5,890			—			5,890
Interest Rate Swaps			—			2,576			—			2,576
Total Fair Value of Financial Assets		$	1,011		$	404,781		$	—		$	405,792
Fair Value of Financial Liabilities:
Interest Rate Swaps		$	—		$	3,176		$	—		$	3,176
Total Fair Value of Financial Liabilities		$	—		$	3,176		$	—		$	3,176

Table of Contents


		December 31, 2020
	****	Level 1		****	Level 2		****	Level 3		****	Total
Fair Value of Financial Assets:
Securities Available for Sale:
Municipal Bonds		$	—		$	115,012		$	—		$	115,012
Mortgage-Backed Securities			—			124,260			—			124,260
Corporate Securities			—			72,155			—			72,155
SBA Securities			—			40,107			—			40,107
Asset-Backed Securities			—			39,095			—			39,095
Interest Rate Caps			—			2,834			—			2,834
Interest Rate Swaps			—			2,757			—			2,757
Total Fair Value of Financial Assets		$	—		$	396,220		$	—		$	396,220
Fair Value of Financial Liabilities:
Interest Rate Swaps		$	—		$	6,167		$	—		$	6,167
Total Fair Value of Financial Liabilities		$	—		$	6,167		$	—		$	6,167

Investment Securities

When available, the Company uses quoted market prices to determine the fair value of investment securities; such items are classified in Level 1 of the fair value hierarchy.

For the Company’s investments, when quoted prices are not available for identical securities in an active market, the Company determines fair value utilizing vendors who apply matrix pricing for similar bonds where no price is observable or may compile prices from various sources. These models are primarily industry-standard models that consider various assumptions, including time value, yield curve, volatility factors, prepayment speeds, default rates, loss severity, current market, and contractual prices for the underlying financial instruments, as well as other relevant economic measures. Substantially, all of these assumptions are observable in the marketplace and can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Fair values from these models are verified, where possible, against quoted market prices for recent trading activity of assets with similar characteristics to the security being valued. Such methods are generally classified as Level 2. However, when prices from independent sources vary, or cannot be obtained or corroborated, a security is generally classified as Level 3.

Interest Rate Caps

The fair value of the caps is calculated by determining the total expected asset or liability exposure of the derivatives. Total expected exposure incorporates both the current and potential future exposure of the derivative, derived from using observable inputs, such as yield curves and volatilities, and accordingly are valued using Level 2 inputs.

Interest Rate Swaps

Interest rate swaps are traded in over-the-counter markets where quoted market prices are not readily available. For those interest rate swaps, fair value is determined using internally developed models of a third party that uses primarily market observable inputs, such as yield curves and option volatilities, and accordingly are valued using Level 2 inputs.

Nonrecurring Basis

Certain assets are measured at fair value on a nonrecurring basis. These assets are not measured at fair value on an ongoing basis; however, they are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment or a change in the amount of previously recognized impairment. 26

Table of Contents The following tables present net impairment losses related to nonrecurring fair value measurements of certain assets at March 31, 2021 and December 31, 2020:


		March 31, 2021
	****	Level 1		****	Level 2		****	Level 3		****	Loss
Impaired Loans		$	—		$	887		$	—		$	290
Totals		$	—		$	887		$	—		$	290


		December 31, 2020
	****	Level 1		****	Level 2		****	Level 3		****	Loss
Impaired Loans		$	—		$	80		$	—		$	50
Totals		$	—		$	80		$	—		$	50

Impaired Loans

In accordance with the provisions of the loan impairment guidance, impairment is measured on loans when it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, or discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceeds the recorded investments in such loans. Impaired loans for which an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. Collateral values are estimated using Level 2 inputs based on customized discounting criteria.

Impairment amounts on impaired loans represent specific valuation allowance and write-downs during the period presented on impaired loans that were individually evaluated for impairment based on the estimated fair value of the collateral less estimated selling costs, excluding impaired loans fully charged-off.

Fair Value

Disclosure of fair value information about financial instruments, for which it is practicable to estimate that value, is required whether or not recognized in the consolidated balance sheets. In cases where quoted market prices are not available, fair values are based on estimates using present value of cash flow or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimate of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases could not be realized in immediate settlement of the instruments. Certain financial instruments with a fair value that is not practicable to estimate and all non-financial instruments are excluded from the disclosure requirements. Accordingly, the aggregate fair value amounts presented do not necessarily represent the underlying value of the Company.

Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters that could affect the estimates. Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business. Deposits with no stated maturities are defined as having a fair value equivalent to the amount payable on demand. This prohibits adjusting fair value derived from retaining those deposits for an expected future period of time. This component, commonly referred to as a deposit base intangible, is neither considered in the above amounts nor is it recorded as an intangible asset on the balance sheet. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates. 27

Table of Contents The following tables present the carrying amount and estimated fair values of financial instruments at March 31, 2021 and December 31, 2020:


		March 31, 2021
					Fair Value Hierarchy
		Carrying												Estimated
	****	Amount		****	Level 1		****	Level 2		****	Level 3		****	Fair Value
Financial Assets:
Cash and Due From Banks		$	200,896		$	200,896		$	—		$	—		$	200,896
Bank-Owned Certificates of Deposit			2,369			—			2,405			—			2,405
Securities Available for Sale			397,326			—			397,326			—			397,326
FHLB Stock, at Cost			5,820			—			5,820			—			5,820
Loans, Net			2,378,863			—			2,370,337			—			2,370,337
Accrued Interest Receivable			8,718			—			8,718			—			8,718
Interest Rate Caps			5,890			—			5,890			—			5,890
Interest Rate Swaps			2,576			—			2,576			—			2,576

Financial Liabilities:
Deposits		$	2,638,654		$	—		$	2,604,786		$	—		$	2,604,786
FHLB Advances			57,500			—			58,629			—			58,629
Subordinated Debentures			73,826			—			76,258			—			76,258
Accrued Interest Payable			1,736			—			1,736			—			1,736
Interest Rate Swaps			3,176			—			3,176			—			3,176


		December 31, 2020
					Fair Value Hierarchy
		Carrying												Estimated
	****	Amount		****	Level 1		****	Level 2		****	Level 3		****	Fair Value
Financial Assets:
Cash and Due From Banks		$	160,675		$	160,675		$	—		$	—		$	160,675
Bank-Owned Certificates of Deposit			2,860			—			2,908			—			2,908
Securities Available for Sale			390,629			—			390,629			—			390,629
FHLB Stock, at Cost			5,027			—			5,027			—			5,027
Loans, Net			2,282,436			—			2,309,421			—			2,309,421
Accrued Interest Receivable			9,172			—			9,172			—			9,172
Interest Rate Caps			2,834			—			2,834			—			2,834
Interest Rate Swaps			2,757			—			2,757			—			2,757

Financial Liabilities:
Deposits		$	2,501,636		$	—		$	2,509,148		$	—		$	2,509,148
Notes Payable			11,000			—			11,001			—			11,001
FHLB Advances			57,500			—			58,830			—			58,830
Subordinated Debentures			73,739			—			74,769			—			74,769
Accrued Interest Payable			1,615			—			1,615			—			1,615
Interest Rate Swaps			6,167			—			6,167			—			6,167

The following methods and assumptions were used by the Company to estimate fair value of consolidated financial statements not previously discussed.

Cash and due from banks – The carrying amount of cash and cash equivalents approximates their fair value.

Bank-owned certificates of deposit – Fair values of bank-owned certificates of deposit are estimated using the discounted cash flow analysis based on current rates for similar types of deposits.

FHLB stock – The carrying amount of FHLB stock approximates its fair value. 28

Table of Contents Loans, Net – Fair values for loans are estimated based on discounted cash flows, using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality.

Accrued interest receivable – The carrying amount of accrued interest receivable approximates its fair value since it is short term in nature and does not present anticipated credit concerns.

Deposits – The fair values disclosed for demand deposits without stated maturities (interest and noninterest transaction, savings, and money market accounts) are equal to the amount payable on demand at the reporting date (their carrying amounts). Fair values for the fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Federal funds purchased – The carrying amount of federal funds purchased approximates the fair value.

Notes payable and subordinated debentures – The fair values of the Company’s notes payable and subordinated debt are estimated using a discounted cash flow analysis, based on the Company’s current incremental borrowing rate for similar types of borrowing arrangements.

FHLB advances – The fair values of the Company’s FHLB advances are estimated using discounted cash flow analysis based on the Company’s current incremental borrowing rates for similar types of borrowing agreements.

Accrued interest payable – The carrying amount of accrued interest payable approximates its fair value since it is short term in nature.

Off-balance sheet instruments – Fair values of the Company’s off-balance sheet instruments (lending commitments and unused lines of credit) are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the counterparties’ credit standing and discounted cash flow analysis. The fair value of these off-balance-sheet items approximates the recorded amounts of the related fees and was not material at March 31, 2021 and December 31, 2020.

Limitations – The fair value of a financial instrument is the current amount that would be exchanged between market participants, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Consequently, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

The following discussion explains the Company’s financial condition and results of operations as of and for the three months ended March 31, 2021. Annualized results for this interim period may not be indicative of results for the full year or future periods. The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes presented elsewhere in this report and the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission, or the SEC, on March 11, 2021. 29

Table of Contents Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, statements concerning plans, estimates, calculations, forecasts and projections with respect to the anticipated future performance of the Company. These statements are often, but not always, identified by words such as “may”, “might”, “should”, “could”, “predict”, “potential”, “believe”, “expect”, “continue”, “will”, “anticipate”, “seek”, “estimate”, “intend”, “plan”, “projection”, “would”, “annualized”, “target” and “outlook”, or the negative version of those words or other comparable words of a future or forward-looking nature. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:

●	loan concentrations in our loan portfolio;
●	the overall health of the local and national real estate market;
---	---
●	business and economic conditions generally and in the financial services industry, nationally and within our market area;
---	---
●	the ability to successfully manage credit risk;
---	---
●	the ability to maintain an adequate level of allowance for loan losses;
---	---
●	new or revised accounting standards, including as a result of the implementation of the new Current Expected Credit Loss standard;
---	---
●	the concentration of large loans to certain borrowers;
---	---
●	the ability to successfully manage liquidity risk;
---	---
●	the dependence on non-core funding sources and our cost of funds;
---	---
●	the concentration of large deposits from certain clients;
---	---
●	the ability to raise additional capital to implement our business plan;
---	---
●	the ability to implement our growth strategy and manage costs effectively;
---	---
●	the composition of senior leadership team and the ability to attract and retain key personnel;
---	---
●	the occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents;
---	---
●	interruptions involving our information technology and telecommunications systems or third-party servicers;
---	---
●	competition in the financial services industry;
---	---
●	severe weather, natural disasters, wide spread disease or pandemics (including the COVID-19 pandemic), acts of war or terrorism, civil unrest or other adverse external events;
---	---
●	developments and uncertainty related to the future use and availability of some reference rates, such as the London Interbank Offered Rate, as well as other alternative reference rates;
---	---
●	the effectiveness of the risk management framework;
---	---
●	the commencement and outcome of litigation and other legal proceedings and regulatory actions against us;
---	---
●	the extensive regulatory framework that applies to us;
---	---
●	the impact of recent and future legislative and regulatory changes;
---	---
●	interest rate risk;
---	---

Table of Contents

●	fluctuations in the values of the securities held in our securities portfolio;
●	the negative effects of the COVID-19 pandemic, including its effects on the economic environment, our clients and our operations, as well as any changes to federal, state or local government laws, regulations or orders in connection with the pandemic; and
---	---
●	changes to U.S. tax laws, regulations and guidance<br>
---	---

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this report. In addition, past results of operations are not necessarily indicative of future results. Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

Overview

The Company is a financial holding company headquartered in St. Louis Park, Minnesota. The principal sources of funds for loans and investments are transaction, savings, time, and other deposits, and short-term and long-term borrowings. The Company’s principal sources of income are interest and fees collected on loans, interest and dividends earned on investment securities and service charges. The Company’s principal expenses are interest paid on deposit accounts and borrowings, employee compensation and other overhead expenses. The Company’s simple, efficient business model of providing responsive support and unconventional experiences to clients continues to be the underlying principle that drives the Company’s profitable growth.

Information Regarding COVID-19 Impact

Financial Position and Results of Operations. The novel coronavirus, or COVID-19, pandemic has continued to create uncertainty and extraordinary change for the Company, its clients, its communities and the country as a whole. Vaccines have been rolled out nationwide in the first quarter of 2021, however the situation remains fluid and management cannot estimate the duration and full impact of the COVID-19 pandemic on the economy, financial markets and the Company’s financial condition and results of operations.

Effects on the Company’s Market Area. The Company’s primary banking market area is the Minneapolis-St. Paul-Bloomington, MN-WI Metropolitan Statistical Area. Throughout the COVID-19 pandemic, Minnesota’s Governor issued a number of restrictions impacting business and gatherings within the state. The Company’s branch operations continue to operate in compliance with fluid statewide mandates, maintaining the safety of employees and clients as the utmost priority, all while attempting to ensure clients’ diverse banking needs are met.

Capital and Liquidity. At March 31, 2021, the Company and Bank’s capital ratios were in excess of all regulatory requirements. The Company maintains access to multiple sources of liquidity, on- and off-balance sheet.

Active Management of Credit Risk. The Company has modified its internal policies to increase oversight and analysis of all credits, especially in vulnerable industries such as hospitality and restaurants, to proactively monitor evolving credit risk. The Company has not yet experienced charge-offs related to the COVID-19 pandemic, but the continued uncertainty regarding the severity and duration of the pandemic and related economic effects has and will continue to affect the Company’s estimate of its allowance for loan losses and resulting provision for loan losses. The Company will continue to monitor credits closely while working with clients to provide relief when appropriate.

COVID-19 Related Loan Deferrals and PPP Lending. The Company has developed programs for clients who are experiencing business and personal disruptions due to the COVID-19 pandemic by providing interest-only modifications, loan payment deferrals, and extended amortization modifications. In accordance with regulatory guidance and the CARES Act, qualifying loans modified in response to the COVID-19 pandemic will not be considered TDRs. There was no new modification activity in the first quarter of 2021. The Company had 19 modified loans totaling $37.1 million outstanding as of March 31, 2021, representing 1.6% of the total loan portfolio, excluding PPP loans. 31

Table of Contents

In a further effort to assist both existing and new clients, the Company participated in both the first and second rounds of the SBA’s PPP, which stemmed from the CARES Act that was signed into law on March 27, 2020, and reopened as authorized by the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act, or Economic Aid Act, which was signed into law on December 27, 2020. As of March 31, 2021, $93.1 million of round one PPP loans and $70.1 million of round two PPP loans remained outstanding for total outstanding PPP principal balances of $163.3 million. The Company recognized $1.5 million of net origination fees associated with the program during the three months ended March 31, 2021.

Processes, Controls, and Business Continuity. The Company’s operations are being conducted in material compliance with current federal, state and local government guidelines regarding social distancing, sanitation, and personal hygiene. Employees in the office work in accordance with health and safety procedures, including increasing physical space between employees, using face coverings, and requiring employees with COVID-19 symptoms or exposure to quarantine away from the office. Additional information about the Company’s COVID-19 pandemic assistance programs, including relevant disclosures and up-to-date information, is maintained at bwbmn.com.

The Company’s ongoing investments in technology, digital platforms and electronic banking have allowed clients and employees to transact with minimal interruption during this time of uncertainty. Additional team members have been assigned to assist clients over the telephone and work with clients on new enrollments in online banking and other treasury management services. Internally, these investments in technology have enabled increased communication capabilities for departments by use of video conferencing, chat, and other collaborative features.

The Company believes it is positioned to continue these business continuity measures for the foreseeable future; however, no assurances can be provided as circumstances may change depending on the duration of the pandemic.

Critical Accounting Policies and Estimates

The consolidated financial statements of the Company are prepared based on the application of certain accounting policies, the most significant of which are described in Note 1 of the notes to the consolidated financial statements included as a part of the Company’s Annual Report on Form 10-K. Certain policies require numerous estimates and strategic or economic assumptions that may prove inaccurate or subject to variation and may significantly affect the reported results and financial position for the current period or in future periods. The use of estimates, assumptions, and judgments are necessary when financial assets and liabilities are required to be recorded or adjusted to reflect fair value. Assets carried at fair value inherently result in more financial statement volatility. Fair values and information used to record valuation adjustments for certain assets and liabilities are based on either quoted market prices or are provided by other independent third-party sources, when available. When such information is not available, management estimates valuation adjustments. Changes in underlying factors, assumptions or estimates in any of these areas could have a material impact on the future financial condition and results of operations of the Company. Management has discussed each critical accounting policy and the methodology for the identification and determination of critical accounting policies with the Company's Audit Committee.

The JOBS Act permits the Company an extended transition period for complying with new or revised accounting standards affecting public companies. The Company has elected to take advantage of this extended transition period, which means that the financial statements included in this report, as well as any financial statements filed in the future, will not be subject to all new or revised accounting standards generally applicable to public companies for the transition period for so long as the Company remains an emerging growth company or until the Company affirmatively and irrevocably opts out of the extended transition period under the JOBS Act.

The following is a discussion of the critical accounting policies and significant estimates that require the Company to make complex and subjective judgements. 32

Table of Contents Allowance for Loan Losses

The allowance for loan losses, sometimes referred to as the “allowance,” is established through a provision for loan losses which is charged to expense. Loan losses are charged against the allowance when management determines all or a portion of the loan balance to be uncollectible. Subsequent recoveries, if any, are credited to the allowance for cash received on previously charged-off amounts. If the allowance is considered inadequate to absorb future loan losses on existing loans for any reason, including but not limited to, increases in the size of the loan portfolio, increases in charge-offs or changes in the risk characteristics of the loan portfolio, then the provision for loan losses is increased.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the original contractual terms of the loan agreement. The collection of all amounts due according to original contractual terms means that both the contractual interest and principal payments of a loan will be collected as scheduled in the loan agreement. An impaired loan is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, or, as a practical expedient, at the loan’s observable market price, or the fair value of the underlying collateral, reduced by costs to sell on a discounted basis, is used if a loan is collateral dependent.

Investment Securities Impairment

Periodically, the Company may need to assess whether there have been any events or economic circumstances to indicate that a security on which there is an unrealized loss is impaired on an other than temporary basis. In any such instance, the Company would consider many factors, including the length of time and the extent to which the fair value has been less than the amortized cost basis, the market liquidity for the security, the financial condition and the near-term prospects of the issuer, expected cash flows, and the intent and ability to hold the investment for a period of time sufficient to recover the temporary loss. Securities on which there is an unrealized loss that is deemed to be other than temporary are written down to fair value, with the write-down recorded as a realized loss in securities gains (losses).

The fair values of investment securities are generally determined by various pricing models. The Company evaluates the methodologies used to develop the resulting fair values. The Company performs a semi-annual analysis on the pricing of investment securities to ensure that the prices represent reasonable estimates of fair value. The procedures include initial and ongoing reviews of pricing methodologies and trends. The Company seeks to ensure prices represent reasonable estimates of fair value through the use of broker quotes, current sales transactions from the portfolio and pricing techniques, which are based on the net present value of future expected cash flows discounted at a rate of return market participants would require. As a result of this analysis, if the Company determines there is a more appropriate fair value, the price is adjusted accordingly.

Fair Value of Financial Instruments

The fair value of a financial instrument is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts business. A framework has been established for measuring the fair value of financial instruments that considers the attributes specific to particular assets or liabilities and includes a three-level hierarchy for determining fair value based on the transparency of inputs to each valuation as of the measurement date. The Company estimates the fair value of financial instruments using a variety of valuation methods. When financial instruments are actively traded and have quoted market prices, quoted market prices are used for fair value and are classified as Level 1. When financial instruments, such as investment securities and derivatives, are not actively traded, the Company determines fair value based on various sources and may apply matrix pricing with observable prices for similar instruments where a price for the identical instrument is not observable. The fair values of these financial instruments, which are classified as Level 2, are determined by pricing models that consider observable market data such as interest rate volatilities, yield curve, credit spreads, prices from external market data providers and/or nonbinding broker-dealer quotations. When observable inputs do not exist, the Company estimates fair value based on available market data, and these values are classified as Level 3. Imprecision in estimating fair values can impact the carrying value of assets and liabilities and the amount of revenue or loss recorded. 33

Table of Contents Deferred Tax Asset

The Company uses the asset and liability method of accounting for income taxes as prescribed by GAAP. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. If currently available information indicates it is “more likely than not” that the deferred tax asset will not be realized, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Accounting for deferred income taxes is a critical accounting estimate because the Company exercises significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. Management’s determination of the realization of deferred tax assets is based upon management’s judgment of various future events and uncertainties, including the timing and amount of future income, reversing temporary differences which may offset, and the implementation of various tax plans to maximize realization of the deferred tax asset. These judgments and estimates are inherently subjective and reviewed on a continual basis as regulatory and business factors change. Any reduction in estimated future taxable income may require the Company to record a valuation allowance against the deferred tax assets. A valuation allowance would result in additional income tax expense in such period, which would negatively affect earnings. 34

Table of Contents Operating Results Overview

The following table summarizes certain key financial results for the periods indicated:


		As of and for the Three Months Ended
		March 31,			December 31,			September 30,			June 30,			March 31,
		2021			2020			2020			2020			2020
Per Common Share Data
Basic Earnings Per Share		$	0.38		$	0.18		$	0.25		$	0.26		$	0.26
Diluted Earnings Per Share			0.37			0.17			0.25			0.26			0.25
Book Value Per Share			9.92			9.43			9.25			8.92			8.61
Tangible Book Value Per Share ^(1)^			9.80			9.31			9.13			8.80			8.49
Basic Weighted Average Shares Outstanding			28,017,366			28,179,768			28,683,855			28,676,441			28,791,494
Diluted Weighted Average Shares Outstanding			28,945,212			28,823,384			29,174,601			29,165,157			29,502,245
Shares Outstanding at Period End			28,132,929			28,143,493			28,710,775			28,837,560			28,807,375

Selected Performance Ratios
Return on Average Assets (Annualized)			1.47	%		0.70	%		1.05	%		1.17	%		1.29	%
Pre-Provision Net Revenue Return on Average Assets (Annualized) ^(1)^			2.15			2.30			1.94			2.00			2.11
Return on Average Common Equity (Annualized)			15.87			7.45			10.84			11.98			11.94
Return on Average Tangible Common Equity (Annualized)^(1)^			16.06			7.55			10.98			12.14			12.10
Average Equity to Average Assets ^(1)^			9.28			9.44			9.71			9.73			10.82
Yield on Interest Earning Assets			4.31			4.46			4.30			4.45			4.90
Yield on Total Loans, Gross			4.74			4.89			4.73			4.85			5.17
Cost of Interest Bearing Liabilities			1.04			1.24			1.50			1.58			1.84
Cost of Total Deposits			0.59			0.69			0.87			0.99			1.27
Net Interest Margin ^(2)^			3.60			3.61			3.28			3.38			3.59
Efficiency Ratio^(1)^			41.2			59.0			42.3			48.6			44.4
Adjusted Efficiency Ratio ^(1)^			40.7			36.6			41.7			40.4			44.1
Noninterest Expense to Average Assets (Annualized)			1.51			2.16			1.42			1.64			1.69
Adjusted Noninterest Expense to Average Assets (Annualized) ^(1)^			1.49			1.34			1.40			1.37			1.68
Loan to Deposit Ratio			91.9			93.0			99.4			97.8			105.4
Core Deposits to Total Deposits			83.5			78.1			77.1			75.7			78.6
Tangible Common Equity to Tangible Assets ^(1)^			8.99			8.96			9.46			9.23			10.13
(1)	Represents a non-GAAP financial measure. See "Non-GAAP Financial Measures" for further details.
---	---
(2)	Amounts calculated on a tax-equivalent basis using the statutory federal tax rate of 21%.
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Table of Contents Selected Financial Data

The following tables summarize certain selected financial data as of and for the periods indicated:


		March 31,			December 31,			September 30,		June 30,			March 31,
(dollars in thousands)	****	2021		****	2020		****	2020		2020		****	2020
Selected Balance Sheet Data
Total Assets		$	3,072,359		$	2,927,345		$	2,774,564	$	2,754,463		$	2,418,730
Total Loans, Gross			2,426,123			2,326,428			2,259,228		2,193,778			2,002,817
Allowance for Loan Losses			35,987			34,841			31,381		27,633			24,585
Goodwill and Other Intangibles			3,248			3,296			3,344		3,391			3,439

Deposits			2,638,654			2,501,636			2,273,044		2,242,051			1,900,127
Tangible Common Equity^(1)^			275,923			262,109			262,088		253,799			244,704
Total Shareholders' Equity			279,171			265,405			265,432		257,190			248,143
Average Total Assets - Quarter-to-Date			2,940,262			2,816,032			2,711,755		2,622,272			2,317,040
Average Common Equity - Quarter-to-Date			272,729			265,716			263,195		255,109			250,800
(1)	Represents a non-GAAP financial measure. See “Non-GAAP Financial Measures” for further details.
---	---


	For the Three Months Ended
	March 31,			December 31,		September 30,		June 30,			March 31,
(dollars in thousands)	2021		****	2020		2020		2020		****	2020
Selected Income Statement Data
Interest Income	$	30,440		$	30,699	$	28,493	$	28,166		$	27,468
Interest Expense		5,045			5,858		6,814		6,824			7,366
Net Interest Income		25,395			24,841		21,679		21,342			20,102
Provision for Loan Losses		1,100			3,900		3,750		3,000			2,100
Net Interest Income after Provision for Loan Losses		24,295			20,941		17,929		18,342			18,002
Noninterest Income		1,008			986		1,157		1,977			1,719
Noninterest Expense		10,923			15,258		9,672		10,711			9,746
Income Before Income Taxes		14,380			6,669		9,414		9,608			9,975
Provision for Income Taxes		3,709			1,690		2,240		2,010			2,532
Net Income	$	10,671		$	4,979	$	7,174	$	7,598		$	7,443

Table of Contents Discussion and Analysis of Results of Operations

Net Income

Net income was $10.7 million for the first quarter of 2021, a 43.4% increase compared to net income of $7.4 million for the first quarter of 2020. Net income per diluted common share for the first quarter of 2021 was $0.37, a 46.1% increase compared to $0.25 per diluted common share for the first quarter of 2020.

Net Interest Income

The Company’s primary source of revenue is net interest income, which is impacted by the level of interest earning assets and related funding sources, as well as changes in the level of interest rates. The difference between the average yield on earning assets and the average rate paid for interest bearing liabilities is the net interest spread. Noninterest bearing sources of funds, such as demand deposits and shareholders’ equity, also support earning assets. The impact of the noninterest bearing sources of funds is captured in the net interest margin, which is calculated as net interest income divided by average earning assets. Both the net interest margin and net interest spread are presented on a tax-equivalent basis, which means that tax-free interest income has been adjusted to pretax-equivalent income, assuming a 21% federal tax rate. Management’s ability to respond to changes in interest rates by using effective asset-liability management techniques is critical to maintaining the stability of the net interest margin and the momentum of the Company’s primary source of earnings. In response to the COVID-19 pandemic, the Federal Open Market Committee, or FOMC, decreased the targeted federal funds rate by a total of 150 basis points in March 2020. This decrease may impact the comparability of net interest income between 2021 and 2020.

Table of Contents Average Balances and Yields

The following table presents, for the three months ended March 31, 2021 and 2020, the average balances of each principal category of assets, liabilities and shareholders’ equity, and an analysis of net interest income. The average balances are principally daily averages and, for loans, include both performing and nonperforming balances. Interest income on loans includes the effects of net deferred loan origination fees and costs accounted for as yield adjustments. These tables are presented on a tax-equivalent basis, if applicable.


		For the Three Months Ended															****
		March 31, 2021								March 31, 2020							****
		Average			Interest			Yield/		Average			Interest			Yield/	****
	****	Balance		****	& Fees		****	Rate	****	Balance		****	& Fees		****	Rate	****
(dollars in thousands)
Interest Earning Assets:
Cash Investments		$	105,477		$	34		0.13	%	$	29,462		$	59		0.81	%
Investment Securities:
Taxable Investment Securities			301,680			1,723		2.32			188,186			1,387		2.96
Tax-Exempt Investment Securities^(1)^			80,963			881		4.41			94,728			1,024		4.35
Total Investment Securities			382,643			2,604		2.76			282,914			2,411		3.43
Paycheck Protection Program Loans ^(2)^			148,881			1,864		5.08			—			—		—
Loans ^(1)(2)^			2,241,038			26,074		4.72			1,954,959			25,150		5.17
Total Loans			2,389,919			27,938		4.74			1,954,959			25,150		5.17
Federal Home Loan Bank Stock			5,045			78		6.28			10,270			100		3.93
Total Interest Earning Assets			2,883,084			30,654		4.31	%		2,277,605			27,720		4.90	%
Noninterest Earning Assets			57,178								39,435
Total Assets		$	2,940,262							$	2,317,040
Interest Bearing Liabilities:
Deposits:
Interest Bearing Transaction Deposits		$	364,017			422		0.47	%	$	246,843			431		0.70	%
Savings and Money Market Deposits			724,104			1,008		0.56			533,578			1,905		1.44
Time Deposits			344,715			1,267		1.49			376,154			2,177		2.33
Brokered Deposits			402,694			974		0.98			218,289			1,211		2.23
Total Interest Bearing Deposits			1,835,530			3,671		0.81			1,374,864			5,724		1.67
Federal Funds Purchased			—			—		—			24,835			107		1.74
Notes Payable			6,722			61		3.66			12,505			115		3.70
FHLB Advances			57,500			228		1.61			172,379			1,027		2.40
Subordinated Debentures			73,776			1,085		5.96			24,744			393		6.39
Total Interest Bearing Liabilities			1,973,528			5,045		1.04	%		1,609,327			7,366		1.84	%
Noninterest Bearing Liabilities:
Noninterest Bearing Transaction Deposits			676,173								444,201
Other Noninterest Bearing Liabilities			17,832								12,712
Total Noninterest Bearing Liabilities			694,005								456,913
Shareholders' Equity			272,729								250,800
Total Liabilities and Shareholders' Equity		$	2,940,262							$	2,317,040
Net Interest Income / Interest Rate Spread						25,609		3.27	%					20,354		3.06	%
Net Interest Margin ^(3)^								3.60	%							3.59	%
Taxable Equivalent Adjustment:
Tax-Exempt Investment Securities and Loans						(214)								(252)
Net Interest Income					$	25,395							$	20,102
(1)	Interest income and average rates for tax-exempt investment securities and loans are presented on a tax-equivalent basis, assuming a federal income tax rate of 21%.
---	---
(2)	Average loan balances include nonaccrual loans. Interest income on loans includes amortization of deferred loan fees, net of deferred loan costs.
---	---
(3)	Net interest margin includes the tax equivalent adjustment and represents the annualized results of: (i) the difference between interest income on interest earning assets and the interest expense on interest bearing liabilities, divided by (ii) average interest earning assets for the period.
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Table of Contents Interest Rates and Operating Interest Differential

Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest earning assets and interest bearing liabilities, as well as changes in average interest rates. The following table presents the effect that these factors had on the interest earned on interest earning assets and the interest incurred on interest bearing liabilities. The effect of changes in volume is determined by multiplying the change in volume by the previous period’s average rate. Similarly, the effect of rate changes is calculated by multiplying the change in average rate by the previous period’s volume. The changes not attributable specifically to either volume or rate have been allocated to the changes due to volume. The following tables present the changes in the volume and rate of interest bearing assets and liabilities for the three months ended March 31, 2021, compared to the three months ended March 31, 2020.


		Three Months Ended March 31, 2021
		Compared with
		Three Months Ended March 31, 2020
		Change Due To:						Interest
(dollars in thousands)	****	Volume		****	Rate		****	Variance
Interest Earning Assets:
Cash Investments		$	24		$	(49)		$	(25)
Investment Securities:
Taxable Investment Securities			636			(300)			336
Tax-Exempt Investment Securities			(158)			15			(143)
Total Securities			478			(285)			193
Loans:
Paycheck Protection Program Loans			1,864			—			1,864
Loans			3,120			(2,196)			924
Total Loans			4,984			(2,196)			2,788
Federal Home Loan Bank Stock			(82)			60			(22)
Total Interest Earning Assets		$	5,404		$	(2,470)		$	2,934

Interest Bearing Liabilities:
Interest Bearing Transaction Deposits		$	132		$	(141)		$	(9)
Savings and Money Market Deposits			249			(1,146)			(897)
Time Deposits			(133)			(777)			(910)
Brokered Deposits			436			(673)			(237)
Total Deposits			684			(2,737)			(2,053)
Federal Funds Purchased			(1)			(106)			(107)
Notes Payable			(53)			(1)			(54)
FHLB Advances			(464)			(335)			(799)
Subordinated Debentures			718			(26)			692
Total Interest Bearing Liabilities			884			(3,205)			(2,321)
Net Interest Income		$	4,520		$	735		$	5,255

Comparison of Interest Income, Interest Expense, and Net Interest Margin

Net interest income was $25.4 million for the first quarter of 2021, an increase of $5.3 million, or 26.3%, compared to $20.1 million for the first quarter of 2020. The increase in net interest income was primarily due to growth in average interest earning assets, lower rates paid on deposits, and the recognition of PPP loan origination fees, offset partially by declining yields on loans and investment securities. The increase in average interest earning assets was primarily due to increased on-balance sheet liquidity, continued strong organic growth in the loan portfolio, as well as the funding of PPP loans.

Net interest margin (on a fully tax-equivalent basis) for the first quarter of 2021 was 3.60%, a 1 basis point increase from 3.59% in the first quarter of 2020. 39

Table of Contents While the origination volume of PPP loans earning 1.00% negatively impacts net interest margin, the recognition of fees associated with the originations has benefited net interest margin for the first quarter of 2021. The SBA began forgiving PPP loans, which has accelerated the recognition of PPP fees starting in the fourth quarter of 2020 and continuing into the first quarter of 2021. The Company recognized $1.5 million of PPP origination fees during the first quarter of 2021, compared to no fees during the first quarter of 2020. The elevated fee recognition is illustrated in the 5.08% PPP loan yield for the first quarter of 2021.

The following table summarizes PPP loan originations and net origination fees through March 31, 2021:



		Originated						Outstanding						Program Lifetime
		Number			Principal			Number			Principal			Net Origination			Net Origination
(dollars in thousands)	****	of Loans		****	Balance		****	of Loans		****	Balance		****	Fees Generated		****	Fees Earned
Round One PPP Loans			1,200		$	181,600			412		$	93,114		$	5,706		$	4,359
Round Two PPP Loans			517			70,144			517			70,144			3,041			68
Totals			1,717		$	251,744			929		$	163,258		$	8,747		$	4,427

Average interest earning assets for the first quarter of 2021 increased $605.5 million, or 26.6%, to $2.88 billion, from $2.28 billion for the first quarter of 2020. This increase in average interest earning assets was primarily due to increased on-balance sheet liquidity and continued strong organic growth in the loan portfolio, including the funding of PPP loans. Average interest bearing liabilities increased $364.2 million, or 22.6%, to $1.97 billion for the first quarter of 2021, from $1.61 billion for the first quarter of 2020. The increase in average interest bearing liabilities was primarily due to an increase in interest bearing deposits and the issuance of subordinated debentures in the second quarter of 2020, offset partially by a decrease in federal funds purchased, notes payable and FHLB advances.

Average interest earning assets produced a tax-equivalent yield of 4.31% for the first quarter of 2021, compared to 4.90% for the first quarter of 2020. The decline in the yield on interest earning assets was primarily due to the historically low interest rate environment coupled with unprecedented liquidity, resulting in lower loan and security yields and excess cash balances. The average rate paid on interest bearing liabilities was 1.04% for the first quarter of 2021, compared to 1.84% for the first quarter of 2020 primarily due to lower rates paid on deposits, offset partially by strong growth of interest bearing deposits and additional subordinated debentures.

Interest Income. Total interest income, on a tax-equivalent basis, was $30.7 million for the first quarter of 2021, compared to $27.7 million for the first quarter of 2020. The $2.9 million, or 10.6%, increase in total interest income on a tax-equivalent basis was primarily due to continued organic growth in the loan portfolio and PPP loan income.

Interest income on loans, on a tax-equivalent basis, was $27.9 million for the first quarter of 2021, compared to $25.2 million for the first quarter of 2020. The $2.8 million, or 11.1%, increase was due to a 22.2% increase in the average balance of loans outstanding due to continued organic loan growth, which included $148.9 million of PPP loans.

Loan interest income and loan fees remain the primary contributing factors to the changes in yield on interest earning assets. The aggregate loan yield, excluding PPP loans, decreased to 4.72% in the first quarter of 2021, which was 45 basis points lower than 5.17% in the first quarter of 2020. While loan fees have maintained a relatively stable contribution to the aggregate loan yield, the historically low yield curve has resulted in a declining core yield on loans in comparison to prior periods.

The following table presents a summary of interest and fees recognized on loans, excluding PPP loans, for the periods indicated is as follows:


	Three Months Ended
	March 31, 2021		December 31, 2020		September 30, 2020		June 30, 2020		March 31, 2020	****
Interest	4.50	%	4.59	%	4.69	%	4.76	%	4.90	%
Fees	0.22		0.28		0.24		0.25		0.27

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Yield on Loans, Excluding PPP Loans		4.72	%		4.87	%		4.93	%		5.01	%		5.17	%

Interest Expense. Interest expense on interest bearing liabilities decreased $2.3 million, or 31.5%, to $5.0 million for the first quarter of 2021, compared to $7.4 million for the first quarter of 2020. The cost of interest bearing liabilities declined 80 basis points from 1.84% in the first quarter of 2020 to 1.04% in the first quarter of 2021, primarily due to lower rates paid on deposits, offset partially by strong growth of interest bearing deposits and additional subordinated debentures.

Interest expense on deposits was $3.7 million for the first quarter of 2021, a decrease of $2.1 million, or 35.9%, from $5.7 million for the first quarter of 2020. The cost of total deposits declined 68 basis points from 1.27% in the first quarter of 2020, to 0.59% in the first quarter of 2021, primarily due to deposit rate cuts consistent with a lower rate environment and the downward repricing of time deposits. Given the strong deposit inflows and ample time deposit maturities over the next 12 months, the Company anticipates continued deposit repricing opportunities in the future.

Interest expense on borrowings decreased $268,000 to $1.4 million for the first quarter of 2021, compared to $1.6 million for the first quarter of 2020. This decrease was primarily due to lower average balances of federal funds purchased and FHLB advances, partially offset by a higher average balance of subordinated debentures due to the issuance of $50.0 million of subordinated debentures during the second quarter of 2020. It is worth noting, the significant FHLB de-leveraging strategy executed in the fourth quarter of 2020 has begun to manifest lower interest bearing liability costs in the current quarter.

Provision for Loan Losses

The provision for loan losses was $1.1 million for the first quarter of 2021, a decrease of $1.0 million, compared to the provision for loan losses of $2.1 million for the first quarter of 2020. The provision recorded in the first quarter of 2021 was primarily attributable to growth of the loan portfolio.

The allowance for loan losses to total loans was 1.48% at March 31, 2021, compared to 1.23% at March 31, 2020. The allowance for loan losses to total loans, excluding $163.3 million of PPP loans, was 1.59% at March 31, 2021. The increase in the allowance for loan losses to total loans ratio between the periods was primarily due to economic uncertainties and evolving risks driven by the impact of the COVID-19 pandemic.

As an emerging growth company, the Company is not subject to Accounting Standards Update No. 2016-13 “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments,” or CECL, until January 1, 2023.

The following table presents the activity in the allowance for loan losses for the three month period ended March 31, 2021 and 2020:


	Three Months Ended
	March 31,			March 31,
(dollars in thousands)	2021		****	2020
Balance at Beginning of Period	$	34,841		$	22,526
Provision for Loan Losses		1,100			2,100
Charge-offs		(14)			(47)
Recoveries		60			6
Balance at End of Period	$	35,987		$	24,585

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Noninterest Income

Noninterest income was $1.0 million for the first quarter of 2021, a decrease of $711,000 from $1.7 million for the first quarter of 2020. The decrease was primarily due to lower swap fees, partially offset by increased letter of credit fees and other miscellaneous items.

The following table presents the major components of noninterest income for the three months ended March 31, 2021, compared to the three months ended March 31, 2020:


	Three Months Ended
	March 31,						Increase/
(dollars in thousands)	2021		****	2020		****	(Decrease)
Noninterest Income:
Customer Service Fees	$	234		$	240		$	(6)
Net Gain on Sales of Securities		—			3			(3)
Letter of Credit Fees		327			274			53
Debit Card Interchange Fees		130			92			38
Swap Fees		—			907			(907)
Other Income		317			203			114
Totals	$	1,008		$	1,719		$	(711)

Noninterest Expense

Noninterest expense was $10.9 million for the first quarter of 2021, an increase of $1.2 million from $9.7 million for the first quarter of 2020. The increase was primarily driven by a $648,000 increase in salaries and employee benefits as the result of merit increases and increased staff to meet the needs of the Company’s growth, a $342,000 increase in occupancy and equipment expense, and a $196,000 increase in information technology expense. The overall increase in noninterest expense was partially offset by a decrease of $180,000 in marketing and advertising expense.

Full-time equivalent employees increased from 170 at the end of the first quarter of 2020 to 200 at the end of the first quarter of 2021. Despite the uncertainty surrounding the COVID-19 pandemic, the Company continues to attract strategic hires in lending, deposit gathering, technology, risk management, and other supportive roles which further demonstrates the Company’s status as a preferred employer amidst ongoing market disruption.

Efficiency Ratio. The efficiency ratio, a non-GAAP financial measure, reports total noninterest expense, less amortization of intangible assets, as a percentage of net interest income plus total noninterest income, less gains (losses) on sales of securities. Management believes this non-GAAP financial measure provides a meaningful comparison of operational performance and facilitates investors’ assessments of business performance and trends in comparison to peers in the banking industry. The Company’s efficiency ratio, and its comparability to some peers, is negatively impacted by the amortization of tax credit investments, as well as other non-routine items, within noninterest expense.

The efficiency ratio was 41.2% for the first quarter of 2021, compared to 44.4% for the first quarter of 2020. While the recognition of the tax credits increases operating expenses, and concurrently the efficiency ratio, it directly reduces income tax expense and the effective tax rate. Excluding the impact of certain non-routine income and expenses from noninterest expense, the adjusted efficiency ratio, a non-GAAP measure, decreased to 40.7% for the first quarter of 2021, compared to 44.1% for the first quarter of 2020. The efficiencies of the Company's "branch-light" model have been evident throughout the pandemic, and going forward, have positioned the Company well to continue making investments in technology as the industry adapts to evolving client behavior. 42

Table of Contents The following table presents the major components of noninterest expense for the three months ended March 31, 2021, compared to the three months ended March 31, 2020:


	Three Months Ended
	March 31,						Increase/
(dollars in thousands)	2021		****	2020		****	(Decrease)
Noninterest Expense:
Salaries and Employee Benefits	$	7,102		$	6,454		$	648
Occupancy and Equipment		1,055			713			342
FDIC Insurance Assessment		315			190			125
Data Processing		291			229			62
Professional and Consulting Fees		544			485			59
Information Technology and Telecommunications		462			266			196
Marketing and Advertising		286			466			(180)
Intangible Asset Amortization		48			48			—
Amortization of Tax Credit Investments		118			85			33
Other Expense		702			810			(108)
Totals	$	10,923		$	9,746		$	1,177

Income Tax Expense

The provision for income taxes includes both federal and state taxes. Fluctuations in effective tax rates reflect the differences in the inclusion or deductibility of certain income and expenses for income tax purposes and the recognition of tax credits. The Company’s future effective income tax rate will fluctuate based on the mix of taxable and tax-free investments and loans, the recognition and availability of tax credit investments, and overall taxable income.

Income tax expense was $3.7 million for the first quarter of 2021, compared to $2.5 million for the first quarter of 2020. The effective combined federal and state income tax rate for the first quarter of 2021 was 25.8%, compared to 25.4% for the first quarter of 2020. The higher income tax expense was primarily due to higher income before taxes in the first quarter of 2021 compared to the first quarter of 2020.

Financial Condition

Assets

Total assets at March 31, 2021 were $3.07 billion, an increase of $145.0 million, or 5.0%, over total assets of $2.93 billion at December 31, 2020 and an increase of $653.6 million, or 27.0%, over total assets of $2.42 billion at March 31, 2020. The linked-quarter increase in total assets was primarily due to strong organic loan growth and excess cash balances linked to continued strong deposit inflows. The year-over-year increase in total assets was primarily due to organic loan growth, PPP loan growth, purchases of investment securities, and excess cash balances.

Total gross loans at March 31, 2021 were $2.43 billion, an increase of $99.7 million, or 4.3%, over total gross loans of $2.33 billion at December 31, 2020, and an increase of $423.3 million, or 21.1%, over total gross loans of $2.00 billion at March 31, 2020. When excluding the PPP loans, gross loans grew by $74.9 million during the first quarter of 2021, or 13.9% on an annualized basis.

Investment Securities Portfolio

The investment securities portfolio is used to make various term investments and is intended to provide the Company with adequate liquidity, a source of stable income, and at times, serve as collateral for certain types of deposits. Investment balances in the investment securities portfolio are subject to change over time based on funding needs and interest rate risk management objectives. The liquidity levels take into account anticipated future cash flows and are maintained at levels management believes are appropriate to ensure future flexibility in meeting anticipated funding needs. 43

Table of Contents The investment securities portfolio consists primarily of municipal securities, U.S. government agency mortgage backed securities, SBA securities, and corporate securities comprised of subordinated debentures of bank and financial holding companies. In addition, the Company also holds U.S. treasury securities, asset-backed securities and other debt securities, all with varying contractual maturities. These maturities do not necessarily represent the expected life of the securities as the securities may be called or paid down without penalty prior to their stated maturities. All investment securities are held as available for sale.

Securities available for sale were $397.3 million at March 31, 2021, compared to $390.6 million at December 31, 2020, an increase of $6.7 million or 1.7%. At March 31, 2021, municipal securities represented 30.7% of the investment securities portfolio, government agency mortgage-backed securities represented 30.9% of the portfolio, SBA securities represented 9.6% of the portfolio, corporate securities represented 18.6% of the portfolio, U.S. treasury securities represented 0.2% of the portfolio, asset-backed securities represented 9.8% of the portfolio, and other mortgage-backed securities represented 0.2% of the portfolio.

The following table presents the amortized cost and fair value of securities available for sale, by type, at March 31, 2021 and December 31, 2020:


	****	March 31, 2021					****	December 31, 2020
		Amortized			Fair			Amortized			Fair
	****	Cost		****	Value		****	Cost		****	Value
U.S. Treasury Securities		$	1,010		$	1,011		$	—		$	—
SBA Securities			38,327			38,051			40,455			40,107
Mortgage-Backed Securities Issued or Guaranteed by U.S. Agencies (MBS):
Residential Pass-Through:
Guaranteed by GNMA			842			901			892			957
Issued by FNMA and FHLMC			15,455			15,490			16,067			16,117
Other Residential Mortgage-Backed Securities			95,720			94,429			94,440			94,409
Commercial Mortgage-Backed Securities			11,229			11,775			11,254			12,032
All Other Commercial MBS			667			671			742			745
Total MBS			123,913			123,266			123,395			124,260
Municipal Securities			115,544			122,122			105,975			115,012
Corporate Securities			72,038			74,071			71,116			72,155
Asset-Backed Securities			37,456			38,805			38,135			39,095
Total		$	388,288		$	397,326		$	379,076		$	390,629

Loan Portfolio

The Company focuses on lending to borrowers located or investing in the Minneapolis-St. Paul-Bloomington, MN-WI Metropolitan Statistical Area across a diverse range of industries and property types. The Company lends primarily to commercial customers, consisting of loans secured by nonfarm, nonresidential properties, multifamily residential properties, land, and non-real estate business assets. Responsive service, local decision making, and an efficient turnaround time from application to closing have been significant factors in growing the loan portfolio.

The Company manages concentrations of credit exposure through a risk management program which implements formalized processes and procedures specifically for managing and mitigating risk within the loan portfolio. The processes and procedures include board and management oversight, commercial real estate exposure limits, portfolio monitoring tools, management information systems, market reports, underwriting standards, internal and external loan review, and stress testing.

The Company originated net loan exposures of $326.0 million for the first quarter of 2021, compared to $200.0 million for the first quarter of 2020. Net loan exposures include principal advances and unfunded commitments on newly originated loans, net of loan participations sold and PPP loan originations. Total gross loans increased $99.7 million, or 4.3%, to $2.43 billion at March 31, 2021, compared to $2.33 billion at December 31, 2020 and increased $423.3 million, 44

Table of Contents or 21.1%, from $2.00 billion at March 31, 2020. As of March 31, 2021, construction and land development loans increased $23.2 million, or 13.6%, multifamily loans increased $39.0 million, or 6.2%, and nonowner occupied CRE loans increased $11.1 million, or 1.6%, when compared to December 31, 2020. Collectively, the Company’s annualized loan growth for the three months ended March 31, 2021, excluding PPP loans, was 13.9%.

The following table presents the dollar and percentage composition of the loan portfolio by category, at the dates indicated:


		March 31, 2021					December 31, 2020					September 30, 2020					June 30, 2020					March 31, 2020
	****	Amount		****	Percent	****	Amount		****	Percent	****	Amount		****	Percent	****	Amount		****	Percent	****	Amount		****	Percent
(dollars in thousands)
Commercial		$	301,023		12.4	%	$	304,220		13.1	%	$	287,254		12.7	%	$	302,536		13.8	%	$	299,425		15.0	%
Paycheck Protection Program			163,258		6.7			138,454		6.0			181,596		8.0			180,228		8.2			—		—
Construction and Land Development			193,372		8.0			170,217		7.3			175,882		7.8			191,768		8.7			183,350		9.2
Real Estate Mortgage:
1 - 4 Family Mortgage			294,964		12.2			294,479		12.7			286,089		12.7			289,456		13.2			272,590		13.6
Multifamily			665,415		27.4			626,465		26.9			585,814		25.9			522,491		23.8			536,380		26.8
CRE Owner Occupied			79,665		3.3			75,604		3.2			75,963		3.4			73,539		3.4			75,207		3.8
CRE Nonowner Occupied			720,396		29.7			709,300		30.5			660,058		29.2			627,651		28.6			631,541		31.4
Total Real Estate Mortgage Loans			1,760,440		72.6			1,705,848		73.3			1,607,924		71.2			1,513,137		69.0			1,515,718		75.6
Consumer and Other			8,030		0.3			7,689		0.3			6,572		0.3			6,109		0.3			4,324		0.2
Total Loans, Gross			2,426,123		100.0	%		2,326,428		100.0	%		2,259,228		100.0	%		2,193,778		100.0	%		2,002,817		100.0	%
Allowance for Loan Losses			(35,987)					(34,841)					(31,381)					(27,633)					(24,585)
Net Deferred Loan Fees			(11,273)					(9,151)					(10,367)					(10,287)					(5,336)
Total Loans, Net		$	2,378,863				$	2,282,436				$	2,217,480				$	2,155,858				$	1,972,896

The Company’s primary focus historically has been on real estate mortgage lending, which constituted 77.8% of the portfolio, excluding PPP loans, as of March 31, 2021. The composition of the portfolio has remained consistent with prior periods and the Company does not expect any significant changes in the foreseeable future in the composition of the loan portfolio or in the emphasis on real estate lending.

As of March 31, 2021, investor CRE loans totaled $1.58 billion, consisting of $720.4 million of loans secured by nonowner occupied CRE, $665.4 million of loans secured by multifamily residential properties and $193.4 million of construction and land development loans. Investor CRE loans represented 69.8% of the total gross loan portfolio, excluding PPP loans, and 459.5% of the Bank’s total risk-based capital at March 31, 2021, compared to 455.8% at December 31, 2020. 45

Table of Contents The following tables present time to contractual maturity and sensitivity to interest rate changes for the loan portfolio at March 31, 2021 and December 31, 2020:


		As of March 31, 2021
	****	Due in One Year		****	More Than One		****	****
(dollars in thousands)		or Less			Year to Five Years			After Five Years
Commercial		$	107,314		$	138,283		$	55,426
Paycheck Protection Program			—			163,258			—
Construction and Land Development			85,278			65,757			42,337
Real Estate Mortgage:
1 - 4 Family Mortgage			61,973			187,720			45,271
Multifamily			80,505			228,352			356,558
CRE Owner Occupied			9,239			16,485			53,941
CRE Nonowner Occupied			141,619			286,695			292,082
Total Real Estate Mortgage Loans			293,336			719,252			747,852
Consumer and Other			3,751			3,603			676
Total Loans, Gross		$	489,679		$	1,090,153		$	846,291
Interest Rate Sensitivity:
Fixed Interest Rates		$	209,709		$	808,838		$	425,298
Floating or Adjustable Rates			279,970			281,315			420,993
Total Loans, Gross		$	489,679		$	1,090,153		$	846,291


		As of December 31, 2020
	****	Due in One Year		****	More Than One		****	****
(dollars in thousands)		or Less			Year to Five Years			After Five Years
Commercial		$	135,237		$	119,798		$	49,185
Paycheck Protection Program			—			138,454			—
Construction and Land Development			100,060			44,637			25,520
Real Estate Mortgage:
1 - 4 Family Mortgage			66,928			184,038			43,513
Multifamily			70,262			235,447			320,756
CRE Owner Occupied			14,930			16,701			43,973
CRE Nonowner Occupied			151,439			268,640			289,221
Total Real Estate Mortgage Loans			303,559			704,826			697,463
Consumer and Other			2,889			4,040			760
Total Loans, Gross		$	541,745		$	1,011,755		$	772,928
Interest Rate Sensitivity:
Fixed Interest Rates		$	219,464		$	777,201		$	336,008
Floating or Adjustable Rates			322,281			234,554			436,920
Total Loans, Gross		$	541,745		$	1,011,755		$	772,928

Asset Quality

The Company emphasizes credit quality in the originating and monitoring of the loan portfolio, and success in underwriting is measured by the levels of classified and nonperforming assets and net charge-offs. Federal regulations and internal policies require the use of an asset classification system as a means of managing and reporting problem and potential problem assets. The Company has incorporated an internal asset classification system, substantially consistent with federal banking regulations, as a part of the credit monitoring system. Federal banking regulations set forth a classification scheme for problem and potential problem assets as “substandard,” “doubtful” or “loss” assets. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the financial institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly 46

Table of Contents questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Assets which do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are required to be designated “watch.”

The following table presents information on loan classifications at March 31, 2021. The Company had no assets classified as doubtful or loss.


	Risk Category				****
(dollars in thousands)	Watch		Substandard			Total
Commercial	$	28,013	$	1,273		$	29,286
Construction and Land Development		—		146			146
Real Estate Mortgage:
1 - 4 Family Mortgage		699		1,356			2,055
CRE Owner Occupied		—		870			870
CRE Nonowner Occupied		29,544		3,081			32,625
Total Real Estate Mortgage Loans		30,243		5,307			35,550
Consumer and Other		—		13			13
Totals	$	58,256	$	6,739		$	64,995

The Company has increased oversight and analysis of all segments of the loan portfolio in response to the COVID-19 pandemic, especially in vulnerable industries such as hospitality and restaurants, to proactively monitor evolving credit risk. Loans that have potential weaknesses that warrant a watchlist risk rating at March 31, 2021, were $58.3 million, compared to $44.8 million at December 31, 2020. As the COVID-19 pandemic continues to evolve, the length and extent of the economic uncertainty may result in further watchlist or adverse classifications in the loan portfolio. Loans that warranted a substandard risk rating at March 31, 2021 were $6.7 million, compared to $15.2 at December 31, 2020.

The Company has developed programs for clients who are experiencing business and personal disruptions due to the COVID-19 pandemic by providing interest-only modifications, loan payment deferrals, and extended amortization modifications. In accordance with interagency regulatory guidance and the CARES Act, qualifying loans modified in response to the COVID-19 pandemic will not be considered TDRs. There was no new modification activity in the first quarter of 2021. The Company had 19 modified loans totaling $37.1 million outstanding as of March 31, 2021, representing 1.6% of the loan portfolio, excluding PPP loans.

The following table presents a rollforward of loan modification activity, by modification type, from December 31,2020 to March 31, 2021:


(dollars in thousands)	Interest-Only		Payment Deferral		Extended Amortization		Total
Principal Balance - December 31, 2020	$	61,105	$	613	$	4,834	$	66,552
Modification Expired		(29,396)		—		—		(29,396)
Net Principal Advances (Payments)		(46)		5		(32)		(73)
Principal Balance - March 31, 2021	$	31,663	$	618	$	4,802	$	37,083

Table of Contents The following table presents a summary of active loan modifications, by loan segment and modification type, at March 31, 2021:


		Interest-Only					Payment Deferral					Extended Amortization					Total
(dollars in thousands)	****	Amount		****	# of Loans	****	Amount		****	# of Loans	****	Amount		****	# of Loans	****	Amount		****	# of Loans
Commercial		$	3,547		7		$	—		—		$	4,802		1		$	8,349		8
Real Estate Mortgage:
CRE Owner Occupied			—		—			618		3			—		—			618		3
CRE Nonowner Occupied			28,116		8			—		—			—		—			28,116		8
Totals		$	31,663		15		$	618		3		$	4,802		1		$	37,083		19

Modifications have been granted on a case-by-case basis based on specific needs and circumstances affecting each borrower. Interest-only modifications have been primarily granted for three to six month periods, but range up to twelve months. Payment deferral modifications have been granted for three to six month periods.

Nonperforming Assets

Nonperforming loans include loans accounted for on a nonaccrual basis and loans 90 days past due and still accruing. Nonperforming assets consist of nonperforming loans plus foreclosed assets (i.e., real or personal property acquired through foreclosure). Nonaccrual loans totaled $770,000 and $775,000 as of March 31, 2021 and December 31, 2020, respectively, a decrease of $5,000. There were no loans 90 days past due and still accruing as of March 31, 2021 or December 31, 2020. There were no foreclosed assets as of March 31, 2021 or December 31, 2020.

The following table presents a summary of nonperforming assets, by category, at the dates indicated:


		March 31,			December 31,
(dollars in thousands)		2021			2020
Nonaccrual Loans:
Commercial		$	6		$	6
Construction and Land Development			146			156
Real Estate Mortgage:
CRE Owner Occupied			618			613
Total Real Estate Mortgage Loans			618			613
Total Nonaccrual Loans		$	770		$	775
Total Nonperforming Loans		$	770		$	775
Plus: Foreclosed Assets			—			—
Total Nonperforming Assets ^(1)^		$	770		$	775
Total Restructured Accruing Loans			262			265
Total Nonperforming Assets and Restructured Accruing Loans		$	1,032		$	1,040
Nonaccrual Loans to Total Loans			0.03	%		0.03	%
Nonperforming Loans to Total Loans			0.03			0.03
Nonperforming Assets to Total Loans Plus Foreclosed Assets ^(1)^			0.03			0.03
Nonperforming Assets and Restructured Accruing Loans to Total Loans Plus Foreclosed Assets			0.04			0.04
(1)	Nonperforming assets are defined as nonaccrual loans and loans greater than 90 days past due still accruing plus foreclosed assets.
---	---

The balance of nonperforming assets can fluctuate due to changes in economic conditions. The Company has established a policy to discontinue accruing interest on a loan (that is, place the loan on nonaccrual status) after it has become 90 days delinquent as to payment of principal or interest, unless the loan is considered to be well-collateralized and is actively in the process of collection. In addition, a loan will be placed on nonaccrual status before it becomes 90 days delinquent unless management believes that the collection of interest is expected. Interest previously accrued but uncollected on such loans is reversed and charged against current income when the receivable is determined to be uncollectible. If management believes that a loan will not be collected in full, an increase to the allowance for loan losses is recorded to reflect management’s estimate of any potential exposure or loss. Generally, payments received on 48

Table of Contents nonaccrual loans are applied directly to principal. Gross income that would have been recorded on nonaccrual loans during the three months ended March 31, 2021 was $19,000.

Allowance for Loan Losses

The allowance for loan losses is a reserve established through charges to earnings in the form of a provision for loan losses. The Company maintains an allowance for loan losses at a level management considers adequate to provide for known and probable incurred losses in the portfolio. The level of the allowance is based on management’s evaluation of estimated losses in the portfolio, after consideration of risk characteristics of the loans and prevailing and anticipated economic conditions. Loan charge-offs (i.e., loans judged to be uncollectible) are charged against the reserve and any subsequent recovery is credited to the reserve. The Company analyzes risks within the loan portfolio on a continual basis. A risk system, consisting of multiple grading categories for each portfolio class, is utilized as an analytical tool to assess risk and appropriate reserves. In addition to the risk system, management further evaluates risk characteristics of the loan portfolio under current and anticipated economic conditions, including the economic distress caused by the COVID-19 pandemic, and considers such factors as the financial condition of the borrower, past and expected loss experience, and other factors which management feels deserve recognition in establishing an appropriate reserve. These estimates are reviewed at least quarterly, and as adjustments become necessary, they are recognized in the periods in which they become known. Although management strives to maintain an allowance it deems adequate, future economic changes, deterioration of borrowers’ creditworthiness, and the impact of examinations by regulatory agencies all could cause changes to the allowance for loan losses.

At March 31, 2021, the allowance for loan losses was $36.0 million, an increase of $1.1 million from $34.8 million at December 31, 2020. Net charge-offs (recoveries) totaled ($46,000) during the first quarter of 2021 and $41,000 during the first quarter of 2020. The allowance for loan losses as a percentage of total loans was 1.48% as of March 31, 2021 and 1.50% as of December 31, 2020. The allowance for loan losses to total loans, excluding $163.3 million of PPP loans, was 1.59% as of March 31, 2021 and December 31, 2021. 49

Table of Contents The following table presents a summary of the activity in the allowance for loan loss reserve for the periods indicated:


		Three Months Ended
		March 31,
(dollars in thousands)	****	2021		****	2020
Balance, Beginning of Period		$	34,841		$	22,526
Charge-offs:
Commercial			—			34
Real Estate Mortgage:
1 - 4 Family Mortgage			5			—
Total Real Estate Mortgage Loans			5			—
Consumer and Other			9			13
Total Charge-offs			14			47
Recoveries:
Commercial			19			2
Real Estate Mortgage:
1 - 4 Family Mortgage			3			2
CRE Owner Occupied			32			—
Total Real Estate Mortgage Loans			35			2
Consumer and Other			6			2
Total Recoveries			60			6
Net Charge-offs (Recoveries)			(46)			41
Provision for Loan Losses			1,100			2,100
Balance at End of Period		$	35,987		$	24,585
Gross Loans, End of Period			2,426,123			2,002,817
Average Loans			2,389,919			1,954,959
Net Charge-offs (Recoveries) (Annualized) to Average Loans			(0.01)	%		0.01	%
Allowance to Total Gross Loans			1.48	%		1.23	%
Allowance to Total Gross Loans, Excluding PPP Loans			1.59	%		N/A

The following table presents a summary of the allocation of the allowance for loan losses by loan portfolio segment for the periods indicated:


		March 31,					December 31,
		2021					2020
(dollars in thousands)	****	Amount		****	Percent	****	Amount		****	Percent
Commercial		$	6,451		17.9	%	$	5,703		16.4	%
Paycheck Protection Program			83		0.2			70		0.2
Construction and Land Development			2,773		7.7			2,491		7.1
Real Estate Mortgage:
1 - 4 Family Mortgage			3,894		10.8			3,972		11.4
Multifamily			9,856		27.4			9,517		27.3
CRE Owner Occupied			1,187		3.3			1,162		3.3
CRE Nonowner Occupied			11,026		30.7			10,991		31.6
Total Real Estate Mortgage Loans			25,963		72.2			25,642		73.6
Consumer and Other			232		0.6			203		0.6
Unallocated			485		1.4			732		2.1
Total Allowance for Loan Losses		$	35,987		100.0	%	$	34,841		100.0	%

Table of Contents Deposits

The principal sources of funds for the Company are deposits, consisting of demand deposits, money market accounts, savings accounts, and certificates of deposit. The following table presents the dollar and percentage composition of the deposit portfolio, by category, at the dates indicated:


		March 31, 2021					December 31, 2020					September 30, 2020					June 30, 2020					March 31, 2020				****
(dollars in thousands)	****	Amount		****	Percent	****	Amount		****	Percent	****	Amount		****	Percent	****	Amount		****	Percent	****	Amount		****	Percent	****
Noninterest Bearing Transaction Deposits		$	712,999		27.0	%	$	671,903		26.9	%	$	685,773		30.2	%	$	648,869		28.9	%	$	476,217		25.1	%
Interest Bearing Transaction Deposits			433,344		16.4			366,290		14.6			322,253		14.2			285,386		12.7			255,483		13.4
Savings and Money Market Deposits			791,583		30.0			657,617		26.3			498,397		21.9			516,543		23.0			514,113		27.1
Time Deposits			344,581		13.1			353,543		14.1			363,897		16.0			382,187		17.1			393,340		20.7
Brokered Deposits			356,147		13.5			452,283		18.1			402,724		17.7			409,066		18.3			260,974		13.7
Total Deposits		$	2,638,654		100.0	%	$	2,501,636		100.0	%	$	2,273,044		100.0	%	$	2,242,051		100.0	%	$	1,900,127		100.0	%

Total deposits at March 31, 2021 were $2.64 billion, an increase of $137.0 million, or 5.5%, compared to total deposits of $2.50 billion at December 31, 2020, and an increase of $738.5 million, or 38.9%, over total deposits of $1.90 billion at March 31, 2020. Noninterest bearing transaction deposits were $713.0 million at March 31, 2021, compared to $671.9 million at December 31, 2020, and $476.2 million at March 31, 2020. Noninterest bearing deposits comprised 27.0% of total deposits at March 31, 2021, compared to 26.9% at December 31, 2020, and 25.1% at March 31, 2020. The growth in core, non-maturity deposits was a result of both successful new client acquisition initiatives and pandemic-related accumulation of liquidity by existing clients. Given the fluid environment, management believes deposits could experience fluctuations in future periods.

The Company relies on increasing the deposit base to fund loans and other asset growth. The Company is in a highly competitive market and competes for local deposits by offering attractive products with competitive rates. The Company expects to have a higher average cost of funds for local deposits compared to competitor banks due to the lack of an extensive branch network. The Company’s strategy is to offset the higher cost of funding with a lower level of operating expense. When appropriate, the Company utilizes alternative funding sources such as brokered deposits. The brokered deposit market provides flexibility in structure, optionality and efficiency not afforded in traditional retail deposit channels. At March 31, 2021, total brokered deposits were $356.1 million, a decrease of $96.1 million, or 21.3%, compared to total brokered deposits of $452.3 million at December 31, 2020. The strong deposit inflows have provided the flexibility to let higher cost deposits roll off and reduce reliance on brokered deposits in the interim.

The following table presents the average balance and average rate paid on each of the following deposit categories for the three months ended March 31, 2021 and 2020:


		As of and for the					As of and for the
		Three Months Ended					Three Months Ended
		March 31, 2021					March 31, 2020
		Average			Average		Average			Average
(dollars in thousands)	****	Balance		****	Rate	****	Balance		****	Rate
Noninterest Bearing Transaction Deposits		$	676,173		—	%	$	444,201		—	%
Interest Bearing Transaction Deposits			364,017		0.47			246,843		0.70
Savings and Money Market Deposits			724,104		0.56			533,578		1.44
Time Deposits < $250,000			259,389		1.46			246,017		2.39
Time Deposits > $250,000			85,326		1.59			130,137		2.20
Brokered Deposits			402,694		0.98			218,289		2.23
Total Deposits		$	2,511,703		0.59	%	$	1,819,065		1.27	%

Table of Contents Borrowed Funds

Federal Funds Purchased

In addition to deposits, the Company utilizes overnight borrowings to meet the daily liquidity needs of clients and fund loan growth. The following table summarizes overnight borrowings, which consist of federal funds purchased from correspondent banks on an overnight basis at the prevailing overnight market rates and the weighted average interest rates paid for the periods presented:


		As of and for the			As of and for the
		Three Months Ended			Three Months Ended
(dollars in thousands)	****	March 31, 2021		****	March 31, 2020
Outstanding at Period-End		$	—		$	—
Average Amount Outstanding			—			24,835
Maximum Amount Outstanding at any Month-End			—			37,000
Weighted Average Interest Rate:
During Period			—	%		1.74	%
End of Period			0.28	%		0.36	%

Other Borrowings

At March 31, 2021, other borrowings outstanding consisted of FHLB advances of $57.5 million. The Company’s $11.0 million note payable matured during the first quarter of 2021 and was paid off in full at maturity. On March 1, 2021, the Company entered into a Loan and Security Agreement and revolving note which has made a $25.0 million revolving line of credit available to the Company, secured by 100% of the issued and outstanding stock of the Bank. The maturity of the line of credit is February 28, 2023. As of March 31, 2021, there were no outstanding balances under the revolving line of credit.

As part of the CARES Act, the Federal Reserve Bank offered secured borrowings to banks who originated PPP loans through the Paycheck Protection Program Liquidity Facility, or PPPLF. As of March 31, 2021, the Company had not pledged any PPP loans to borrow funds under this facility. The facility is available through June 30, 2021.

The Company’s borrowing capacity at the FHLB is determined based on collateral pledged, generally consisting of loans. The Company had additional borrowing capacity under this credit facility of $430.8 million and $361.2 million at March 31, 2021 and December 31, 2020, respectively.

Additionally, the Company has borrowing capacity from other sources. As of March 31, 2021, the Bank was eligible to use the Federal Reserve discount window for borrowings. Based on assets pledged as collateral as of the applicable date, the Bank’s borrowing availability was approximately $84.8 million and $76.8 million at March 31, 2021 and December 31, 2020, respectively. As of March 31, 2021 and December 31, 2020, the Company had no outstanding advances.

Subordinated Debentures

On June 19, 2020, the Company issued $50.0 million of subordinated debentures at an initial fixed interest rate of 5.25% which is payable semi-annually. Beginning July 1, 2025, the interest rate converts to a variable interest rate equal to the three-month term SOFR, plus 5.13%, which is payable quarterly. The subordinated debentures mature on July 1, 2030. The subordinated debentures, net of issuance costs, were $49.0 million at March 31, 2021. On October 13, 2020, the Company completed an offer to exchange up to $50.0 million total principal amount of the subordinated debentures for substantially identical subordinated debentures registered under the Securities Act of 1933, in satisfaction of the Company’s obligations under a registration rights agreement entered into with the initial purchasers of the subordinated debentures. $47.0 million of the $50.0 million of the subordinated debentures were exchanged in the exchange offer.

Table of Contents On July 12, 2017, the Company issued $25.0 million of subordinated debentures at an initial fixed interest rate of 5.875% which is payable semi-annually. Beginning July 15, 2022, the interest rate converts to a variable interest rate equal to the three-month LIBOR plus 3.88%. The subordinated debentures mature on July 15, 2027. The subordinated debentures, net of issuance costs, were $24.9 million at March 31, 2021, compared to $24.8 million at December 31, 2020.

All of the subordinated debentures qualify for Tier 2 regulatory capital treatment at the Company level under applicable regulatory guidelines.

Contractual Obligations

The following table presents supplemental information regarding total contractual obligations at March 31, 2021:


	****	Within		****	One to		****	Three to		****	After		****
(dollars in thousands)		One Year			Three Years			Five Years			Five Years			Total
Deposits Without a Stated Maturity		$	2,056,929		$	—		$	—		$	—		$	2,056,929
Time Deposits			231,061			125,136			188,145			37,383			581,725
FHLB Advances			15,000			5,000			33,500			4,000			57,500
Subordinated Debentures			—			—			—			75,000			75,000
Commitment to Fund Tax Credit Investments			1,683			—			—			—			1,683
Operating Lease Obligations			505			990			996			805			3,296
Totals		$	2,305,178		$	131,126		$	222,641		$	117,188		$	2,776,133

The Company believes that it will be able to meet all contractual obligations as they come due through the maintenance of adequate cash levels. The Company expects to maintain adequate cash levels through earnings, loan and securities repayments and maturity activity and continued deposit gathering activities. As described above, the Company has in place various borrowing mechanisms for both short-term and long-term liquidity needs.

Shareholders’ Equity

Shareholders’ equity at March 31, 2021 was $279.1 million, an increase of $13.8 million, or 5.2%, over shareholders’ equity of $265.4 million at December 31, 2020, primarily due to $10.7 million of net income and a $2.7 million increase in accumulated other comprehensive income, partially offset by $208,000 of stock repurchases under the Company’s stock repurchase program. The increase in accumulated other comprehensive income primarily resulted from interest rate fluctuations between periods.

Stock Repurchase Program. On January 22, 2019, the Company adopted a stock repurchase program. Under the repurchase program, the Company was initially authorized to repurchase up to $15.0 million of its common stock in open market transactions or through privately negotiated transactions at the Company’s discretion. On July 23, 2019 and October 27, 2020, the Company's board of directors approved $10.0 million and $15.0 million increases, respectively, to the program for a total authorization of $40.0 million. Additionally, on October 27, 2020, the program duration was extended to run through October 27, 2022.

The Company remains committed to maintaining strong capital levels while enhancing shareholder value as it strategically executes its stock repurchase program in this fluid economic environment. During the first quarter of 2021, the Company repurchased 16,618 shares of its common stock at a weighted average price of $12.50 for a total of $208,000. All shares repurchased under the stock repurchase program were converted to authorized but unissued shares. At March 31, 2021, the remaining amount that could be used to repurchase shares under the stock repurchase program was $14.5 million.

Regulatory Capital. The Company and the Bank are subject to various regulatory capital requirements administered by federal banking regulators. Failure to meet minimum capital requirements can initiate certain mandatory 53

Table of Contents and possibly additional discretionary actions by federal banking regulators that, if undertaken, could have a direct material effect on the Company’s and Bank’s business.

Under applicable regulatory capital rules, the Company and Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank must also meet certain specific capital guidelines under the prompt corrective action framework. The capital amounts and classification are subject to qualitative judgments by the federal banking regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of common equity Tier 1 capital, Tier 1 capital and total capital to risk-weighted assets and of Tier 1 capital to average consolidated assets (referred to as the “leverage ratio”), as defined under the applicable regulatory capital rules.

Management believes the Company and the Bank met all capital adequacy requirements to which they were subject as of March 31, 2021. The regulatory capital ratios for the Company and the Bank to meet the minimum capital adequacy standards and for the Bank to be considered well capitalized under the prompt corrective action framework are set forth in the following tables. The Company’s and the Bank’s actual capital amounts and ratios are as of the dates indicated.


							Minimum Required					For Capital Adequacy					To be Well Capitalized
							For Capital Adequacy					Purposes Plus Capital					Under Prompt Corrective
		Actual					Purposes					Conservation Buffer					Action Regulations
March 31, 2021	****	Amount		****	Ratio	****	Amount		****	Ratio	****	Amount		****	Ratio		Amount		****	Ratio
		(dollars in thousands)
Company (Consolidated):
Total Risk-Based Capital		$	372,720		14.46	%	$	206,221		8.00	%	$	270,665		10.50	%		N/A		N/A
Tier 1 Risk-Based Capital			266,621		10.34			154,666		6.00			219,110		8.50			N/A		N/A
Common Equity Tier 1 Capital			266,621		10.34			115,999		4.50			180,443		7.00			N/A		N/A
Tier 1 Leverage Ratio			266,621		9.11			117,121		4.00			117,121		4.00			N/A		N/A
Bank:
Total Risk-Based Capital		$	343,660		13.33	%	$	206,202		8.00	%	$	270,640		10.50	%	$	257,753		10.00	%
Tier 1 Risk-Based Capital			311,390		12.08			154,652		6.00			219,090		8.50			206,202		8.00
Common Equity Tier 1 Capital			311,390		12.08			115,989		4.50			180,427		7.00			167,539		6.50
Tier 1 Leverage Ratio			311,390		10.65			116,939		4.00			116,939		4.00			146,174		5.00


							Minimum Required					For Capital Adequacy					To be Well Capitalized
							For Capital Adequacy					Purposes Plus Capital					Under Prompt Corrective
		Actual					Purposes					Conservation Buffer					Action Regulations
December 31, 2020	****	Amount		****	Ratio	****	Amount		****	Ratio	****	Amount		****	Ratio		Amount		****	Ratio
		(dollars in thousands)
Company (Consolidated):
Total Risk-Based Capital		$	360,198		14.58	%	$	197,604		8.00	%	$	259,355		10.50	%		N/A		N/A
Tier 1 Risk-Based Capital			255,530		10.35			148,203		6.00			209,954		8.50			N/A		N/A
Common Equity Tier 1 Capital			255,530		10.35			111,152		4.50			172,904		7.00			N/A		N/A
Tier 1 Leverage Ratio			255,530		9.28			110,168		4.00			110,168		4.00			N/A		N/A
Bank:
Total Risk-Based Capital		$	330,380		13.37	%	$	197,629		8.00	%	$	259,388		10.50	%	$	247,036		10.00	%
Tier 1 Risk-Based Capital			299,447		12.12			148,222		6.00			209,981		8.50			197,629		8.00
Common Equity Tier 1 Capital			299,447		12.12			111,166		4.50			172,925		7.00			160,574		6.50
Tier 1 Leverage Ratio			299,447		10.89			109,972		4.00			109,972		4.00			137,465		5.00

The Company and the Bank are subject to the rules of the Basel III regulatory capital framework and related Dodd-Frank Wall Street Reform and Consumer Protection Act. The rules require a capital conservation buffer of 2.5% that was added to the minimum requirements for capital adequacy purposes. A banking organization with a conservation buffer of less than the required amount is subject to limitations on capital distributions, including dividend payments, 54

Table of Contents stock repurchases and certain discretionary bonus payments to executive officers. At March 31, 2021, the ratios for the Company and the Bank were sufficient to meet the conservation buffer.

In 2019, the federal banking agencies issued a final rule to provide an optional simplified measure of capital adequacy for qualifying depository institutions and depository institution holding companies, titled the community bank leverage ratio, or CBLR framework. The Company has elected not to opt into the CBLR framework and will continue to compute regulatory capital ratios based on the Basel III Capital Rules discussed above.

Off-Balance Sheet Arrangements

In the normal course of business, the Company enters into various transactions to meet the financing needs of clients, which, in accordance with GAAP, are not included in the consolidated balance sheets. These transactions include commitments to extend credit, standby letters of credit, and commercial letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. Most of these commitments mature within two years and the standby letters of credit are expected to expire without being drawn upon. All off-balance sheet commitments are included in the determination of the amount of risk-based capital that the Company and the Bank are required to hold.

The Company’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit, standby letters of credit, and commercial letters of credit is represented by the contractual or notional amount of those instruments. The Company decreases its exposure to losses under these commitments by subjecting them to credit approval and monitoring procedures. The Company assesses the credit risk associated with certain commitments to extend credit and establishes a liability for probable credit losses.

The following table presents credit arrangements and financial instruments whose contract amounts represent credit risk as of March 31, 2021 and December 31, 2020:


		March 31, 2021						December 31, 2020
	****	Fixed		****	Variable		****	Fixed		****	Variable
(dollars in thousands)
Unfunded Commitments Under Lines of Credit		$	317,891		$	427,714		$	243,988		$	400,350
Letters of Credit			15,698			79,214			10,954			79,252
Totals		$	333,589		$	506,928		$	254,942		$	479,602

Liquidity

Liquidity is the Company’s capacity to meet cash and collateral obligations at a reasonable cost. Maintaining an adequate level of liquidity depends on the Company’s ability to efficiently meet both expected and unexpected cash flows and collateral needs without adversely affecting either daily operations or financial condition. The Bank’s Asset Liability Management, or ALM, Committee, which is comprised of members of senior management, is responsible for managing commitments to meet the needs of customers while achieving the Company’s financial objectives. The ALM Committee meets regularly to review balance sheet composition, funding capacities, and current and forecasted loan demand.

The Company manages liquidity by maintaining adequate levels of cash and other assets from on- and off-balance sheet arrangements. Specifically, on-balance sheet liquidity consists of cash and due from banks and unpledged investment securities available for sale, which are referred to as primary liquidity. In regards to off-balance sheet capacity, the Company maintains available borrowing capacity under secured borrowing lines with the FHLB, the Federal Reserve Bank of Minneapolis, and a correspondent lender, as well as unsecured lines of credit for the purpose of overnight funds with various correspondent banks, which the Company refers to as secondary liquidity.

In addition, the Bank is a member of the American Financial Exchange, or AFX, through which it may either borrow or lend funds on an overnight or short-term basis with a group of approved commercial banks. The availability of funds changes daily. As of March 31, 2021, the Company had no borrowings outstanding through the AFX. The Bank 55

Table of Contents has also established additional borrowing capacity through the Federal Reserve Bank’s PPPLF, where it can pledge PPP loans to borrow an equal amount of funds. As of March 31, 2021, the Company had no borrowings outstanding through this facility and $163.3 million of PPP loans available to pledge. The facility is available through June 30, 2021.

The following tables provide a summary of primary and secondary liquidity levels as of the dates indicated:


Primary Liquidity—On-Balance Sheet	****	March 31, 2021		****	December 31, 2020		****
(Dollars in thousands)							****
Cash and Cash Equivalents		$	191,885		$	145,348
Securities Available for Sale			397,326			390,629
Total Primary Liquidity		$	589,211		$	535,977
Ratio of Primary Liquidity to Total Deposits			22.3	%		21.4	%


Secondary Liquidity—Off-Balance Sheet							****
Borrowing Capacity	****	March 31, 2021		****	December 31, 2020		****
(Dollars in thousands)							****
Net Secured Borrowing Capacity with the FHLB		$	430,827		$	361,236
Net Secured Borrowing Capacity with the Federal Reserve Bank			84,791			76,830
Unsecured Borrowing Capacity with Correspondent Lenders			143,000			143,000
Secured Borrowing Capacity with Correspondent Lender			25,000			—
Total Secondary Liquidity		$	683,618		$	581,066
Ratio of Primary and Secondary Liquidity to Total Deposits			48.2	%		44.7	%

During the three months ended March 31, 2021, primary liquidity increased by $53.2 million due to a $46.5 million increase in cash and cash equivalents and a $6.7 million increase in securities available for sale, when compared to December 31, 2020. Secondary liquidity increased by $102.6 million as of March 31, 2021 when compared to December 31, 2020, due to a $69.6 million increase in the borrowing capacity on the secured borrowing line with the FHLB, an $8.0 million increase in the borrowing capacity on the secured credit line with the Federal Reserve Bank and a $25.0 million increase due to the addition of a secured revolving line of credit with a correspondent lender.

In addition to primary liquidity, the Company generates liquidity from cash flows from the loan and securities portfolios and from the large base of core customer deposits, defined as noninterest bearing transaction, interest bearing transaction, savings, non-brokered money market accounts and non-brokered time deposits less than $250,000. At March 31, 2021, core deposits totaled approximately $2.20 billion and represented 83.5% of total deposits. These core deposits are normally less volatile, often with customer relationships tied to other products offered by the Company, which promote long-standing relationships and stable funding sources.

The Company uses brokered deposits, the availability of which is uncertain and subject to competitive market forces and regulation, for liquidity management purposes. At March 31, 2021, brokered deposits totaled $356.1 million, consisting of $202.1 million of brokered time deposits and $154.0 million of non-maturity brokered money market and transaction accounts. At December 31, 2020, brokered deposits totaled $452.3 million, consisting of $292.6 million of brokered time deposits and $159.7 million of non-maturity brokered money market and transaction accounts.

The Company’s liquidity policy includes guidelines for On-Balance Sheet Liquidity (a measurement of primary liquidity to total deposits plus borrowings), Total On-Balance Sheet Liquidity with Borrowing Capacity (a measurement of primary and secondary liquidity to total deposits plus borrowings), Wholesale Funding Ratio (a measurement of total wholesale funding to total deposits plus borrowings), and other guidelines developed for measuring and maintaining liquidity. As of March 31, 2021, the Company was in compliance with all established liquidity guidelines in the policy.

Non-GAAP Financial Measures

In addition to the results presented in accordance with GAAP, the Company routinely supplements its evaluation with an analysis of certain non-GAAP financial measures. The Company believes these non-GAAP financial measures, in addition to the related GAAP measures, provide meaningful information to investors to help them 56

Table of Contents understand the Company’s operating performance and trends, and to facilitate comparisons with the performance of peers. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Reconciliations of non-GAAP disclosures used in this report to the comparable GAAP measures are provided in the following tables.


		For the Three Months Ended
		March 31,			December 31,			September 30,			June 30,			March 31,
	****	2021		****	2020		****	2020			2020			2020		****
(dollars in thousands)
Efficiency Ratio
Noninterest Expense		$	10,923		$	15,258		$	9,672		$	10,711		$	9,746
Less: Amortization of Intangible Assets			(48)			(48)			(48)			(47)			(48)
Adjusted Noninterest Expense		$	10,875		$	15,210		$	9,624		$	10,664		$	9,698
Net Interest Income			25,395			24,841			21,679			21,342			20,102
Noninterest Income			1,008			986			1,157			1,977			1,719
Less: Gain on Sales of Securities			—			(30)			(109)			(1,361)			(3)
Adjusted Operating Revenue		$	26,403		$	25,797		$	22,727		$	21,958		$	21,818
Efficiency Ratio			41.2	%		59.0	%		42.3	%		48.6	%		44.4	%

Adjusted Efficiency Ratio
Noninterest Expense		$	10,923		$	15,258		$	9,672		$	10,711		$	9,746
Less: Amortization of Tax Credit Investments			(118)			(146)			(145)			(362)			(85)
Less: FHLB Advance Prepayment Fees			—			(5,613)			—			(1,430)			—
Less: Amortization of Intangible Assets			(48)			(48)			(48)			(47)			(48)
Adjusted Noninterest Expense		$	10,757		$	9,451		$	9,479		$	8,872		$	9,613
Net Interest Income			25,395			24,841			21,679			21,342			20,102
Noninterest Income			1,008			986			1,157			1,977			1,719
Less: Gain on Sales of Securities			—			(30)			(109)			(1,361)			(3)
Adjusted Operating Revenue		$	26,403		$	25,797		$	22,727		$	21,958		$	21,818
Adjusted Efficiency Ratio			40.7	%		36.6	%		41.7	%		40.4	%		44.1	%


	For the Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,
	2021		****	2020		****	2020			2020			2020
(dollars in thousands)
Pre-Provision Net Revenue
Noninterest Income	$	1,008		$	986		$	1,157		$	1,977		$	1,719
Less: Gain on sales of Securities		—			(30)			(109)			(1,361)			(3)
Total Operating Noninterest Income		1,008			956			1,048			616			1,716
Plus: Net Interest income		25,395			24,841			21,679			21,342			20,102
Net Operating Revenue	$	26,403		$	25,797		$	22,727		$	21,958		$	21,818

Noninterest Expense	$	10,923		$	15,258		$	9,672		$	10,711		$	9,746
Less: Amortization of Tax Credit Investments		(118)			(146)			(145)			(362)			(85)
Less: FHLB Advance Prepayment Fees		—			(5,613)			—			(1,430)			—
Total Operating Noninterest Expense	$	10,805		$	9,499		$	9,527		$	8,919		$	9,661

Pre-Provision Net Revenue	$	15,598		$	16,298		$	13,200		$	13,039		$	12,157

Plus:
Non-Operating Revenue Adjustments		—			30			109			1,361			3
Less:
Provision for Loan Losses		1,100			3,900			3,750			3,000			2,100
Non-Operating Expense Adjustments		118			5,759			145			1,792			85
Provision for Income Taxes		3,709			1,690			2,240			2,010			2,532
Net Income	$	10,671		$	4,979		$	7,174		$	7,598		$	7,443

Average Assets	$	2,940,262		$	2,816,032		$	2,711,755		$	2,622,272		$	2,317,040
Pre-Provision Net Revenue Return on Average Assets		2.15	%		2.30	%		1.94	%		2.00	%		2.11	%

Table of Contents


	For the Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,
	2021		****	2020		****	2020			2020			2020
(dollars in thousands)
Tangible Common Equity and Tangible Common Equity/Tangible Assets
Common Equity	$	279,171		$	265,405		$	265,432		$	257,190		$	248,143
Less: Intangible Assets		(3,248)			(3,296)			(3,344)			(3,391)			(3,439)
Tangible Common Equity	$	275,923		$	262,109		$	262,088		$	253,799		$	244,704

Total Assets	$	3,072,359		$	2,927,345		$	2,774,564		$	2,754,463		$	2,418,730
Less: Intangible Assets		(3,248)			(3,296)			(3,344)			(3,391)			(3,439)
Tangible Assets	$	3,069,111		$	2,924,049		$	2,771,220		$	2,751,072		$	2,415,291
Tangible Common Equity/Tangible Assets		8.99	%		8.96	%		9.46	%		9.23	%		10.13	%

Tangible Book Value Per Share
Book Value Per Common Share	$	9.92		$	9.43		$	9.25		$	8.92		$	8.61
Less: Effects of Intangible Assets		(0.12)			(0.12)			(0.12)			(0.12)			(0.12)
Tangible Book Value Per Common Share	$	9.80		$	9.31		$	9.13		$	8.80		$	8.49

Return on Average Tangible Common Equity
Net Income	$	10,671		$	4,979		$	7,174		$	7,598		$	7,443

Average Common Equity	$	272,729		$	265,716		$	263,195		$	255,109		$	250,800
Less: Effects of Average Intangible Assets		(3,276)			(3,323)			(3,371)			(3,419)			(3,466)
Average Tangible Common Equity	$	269,453		$	262,393		$	259,824		$	251,690		$	247,334
Return on Average Tangible Common Equity		16.06	%		7.55	%		10.98	%		12.14	%		12.10	%

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

As a financial institution, the Company’s primary market risk is interest rate risk, which is defined as the risk of loss of net interest income or net interest margin because of changes in interest rates. The Company continually seeks to measure and manage the potential impact of interest rate risk. Interest rate risk occurs when interest earning assets and interest bearing liabilities mature or re-price at different times, on a different basis or in unequal amounts. Interest rate risk also arises when assets and liabilities each respond differently to changes in interest rates.

The Company’s management of interest rate risk is overseen by its ALM Committee, based on a risk management infrastructure approved by the board of directors that outlines reporting and measurement requirements. In particular, this infrastructure sets limits and management targets for various metrics, including net interest income simulation involving parallel shifts in interest rate curves, steepening and flattening yield curves, and various prepayment and deposit duration assumptions. The Company’s risk management infrastructure also requires a periodic review of all key assumptions used, such as identifying appropriate interest rate scenarios, setting loan prepayment rates based on historical analysis and noninterest bearing and interest bearing transaction deposit durations based on historical analysis. The Company does not engage in speculative trading activities relating to interest rates, foreign exchange rates, commodity prices, equities or credit.

The Company manages the interest rate risk associated with interest earning assets by managing the interest rates and terms associated with the investment securities portfolio by purchasing and selling investment securities from time to time. The Company manages the interest rate risk associated with interest bearing liabilities by managing the interest rates and terms associated with wholesale borrowings and deposits from customers which the Company relies on for funding. For example, the Company occasionally uses special offers on deposits to alter the interest rates and terms associated with interest bearing liabilities.

The Company has entered into certain hedging transactions including interest rate swaps and caps, which are designed to lessen elements of the Company’s interest rate exposure. Cash flow hedge relationships mitigate exposure to the variability of future cash flows or other forecasted transactions. The Company utilizes cash flow hedges to manage interest rate exposure for the brokered deposit and wholesale borrowing portfolios. At March 31, 2021 and 58

Table of Contents December 31, 2020, these cash flow hedges had a total notional amount of $165.0 million and $161.0 million, respectively. In the event that interest rates do not change in the manner anticipated, such transactions may adversely affect the Company’s results of operations.

Net Interest Income Simulation

The Company uses a net interest income simulation model to measure and evaluate potential changes in net interest income that would result over the next 12 months from immediate and sustained changes in interest rates as of the measurement date. This model has inherent limitations and the results are based on a given set of rate changes and assumptions as of a certain point in time. For purposes of the simulation, the Company assumes no growth in either interest-sensitive assets or liabilities over the next 12 months; therefore, the model’s results reflect an interest rate shock to a static balance sheet. The simulation model also incorporates various other assumptions, which the Company believes are reasonable but which may have a significant impact on results, such as: (1) the timing of changes in interest rates, (2) shifts or rotations in the yield curve, (3) re-pricing characteristics for market-rate-sensitive instruments, (4) differing sensitivities of financial instruments due to differing underlying rate indices, (5) varying loan prepayment speeds for different interest rate scenarios, (6) the effect of interest rate limitations in assets, such as floors and caps, and (7) overall growth and repayment rates and product mix of assets and liabilities. Because of the limitations inherent in any approach used to measure interest rate risk, simulation results are not intended as a forecast of the actual effect of a change in market interest rates on the results, but rather as a means to better plan and execute appropriate asset-liability management strategies and to manage interest rate risk.

Potential changes to the Company’s net interest income in hypothetical rising and declining rate scenarios calculated as of March 31, 2021 are presented in the table below. The projections assume an immediate, parallel shift downward of the yield curve of 100 basis points and immediate, parallel shifts upward of the yield curve of 100, 200, 300 and 400 basis points. In the current interest rate environment, a downward shift of the yield curve of 200, 300 and 400 basis points does not provide us with meaningful results and thus is not presented.


		March 31, 2021					December 31, 2020
Change (basis points) in Interest Rates	****	Forecasted Net		Percentage Change		****	Forecasted Net		Percentage Change
(12-Month Projection)		Interest Income		from Base			Interest Income		from Base
+400		$	97,863	10.79	%		$	91,046		10.03	%
+300			95,112	7.68				88,698		7.19
+200			92,302	4.49				86,241		4.22
+100			90,010	1.90				84,195		1.75
0			88,332	—				82,747		—
−100			85,956	(2.69)				81,780		(1.17)

The table above indicates that as of March 31, 2021, in the event of an immediate and sustained 400 basis point increase in interest rates, the Company would experience a 10.79% increase in net interest income. In the event of an immediate 100 basis point decrease in interest rates, the Company would experience a 2.69% decrease in net interest income.

The results of this simulation analysis are hypothetical, and a variety of factors might cause actual results to differ substantially from what is depicted. For example, if the timing and magnitude of interest rate changes differ from those projected, net interest income might vary significantly. Non-parallel yield curve shifts such as a flattening or steepening of the yield curve or changes in interest rate spreads would also cause net interest income to be different from that depicted. An increasing interest rate environment could reduce projected net interest income if deposits and other short-term liabilities re-price faster than expected or re-price faster than the Company’s assets. Actual results could differ from those projected if the Company grows assets and liabilities faster or slower than estimated, if the Company experienced a net outflow of deposit liabilities, or if the mix of assets and liabilities otherwise changes. Actual results could also differ from those projected if the Company experienced substantially different repayment speeds in the loan portfolio than those assumed in the simulation model. Finally, these simulation results do not contemplate all the actions that the Company may undertake in response to potential or actual changes in interest rates, such as changes to the 59

Table of Contents Company’s loan, investment, deposit, or funding strategies.

LIBOR Transition

LIBOR is used as an index rate for the Company’s interest rate swaps and caps, a portion of its subordinated debt, various investment securities and approximately 8.5% of the Company’s loans as of March 31, 2021. It is expected that the number of institutions that have been reporting information used to set LIBOR will stop doing so starting after December 31, 2021 through June 30, 2023 when their reporting commitment ends. As a result, LIBOR may no longer be available as an index or may be seen as no longer representative of the market. Alternative reference rates are being identified, but existing contracts may not have been written to allow the use of these alternatives. The Company is evaluating the risks related to this transition and its evaluation and mitigation of risks related to the discontinuation of LIBOR may span several reporting periods through 2023.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as that term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, or the Exchange Act) as of March 31, 2021, the end of the fiscal quarter covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2021, the Company’s disclosure controls and procedures were effective to ensure that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There has been no change in the Company’s internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

Item 1.A. Risk Factors

There have been no material changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K filed with the SEC on March 11, 2021.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Repurchases of Equity Securities

The following table presents stock purchases made during the first quarter of 2021: 60

Table of Contents


Period	Total Number of Shares Purchased ^(1)^	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ^(2)^	Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ^(2)^
January 1 - 31, 2021	16,618	$	12.50	16,618	$	14,499,391
February 1 - 28, 2021	—		—	—		14,499,391
March 1 - 31, 2021	354		15.89	—		14,499,391
Total	16,972	$	12.57	16,618	$	14,499,391
(1)	The total number of shares repurchased during the periods indicated includes shares repurchased as part of the Company’s stock repurchase program and shares withheld for income tax purposes in connection with vesting of restricted stock awards. The shares were purchased or otherwise valued at the closing price of the Company’s common stock on the date of purchase and/or withholding.
---	---
(2)	On January 22, 2019, the Company’s board of directors approved a stock repurchase program which authorized the Company to repurchase up to $15.0 million of its common stock, subject to certain limitations and conditions. The stock repurchase program was effective immediately and was subsequently expanded. On July 23, 2019 and October 27, 2020, the Company's board of directors approved $10.0 million and $15.0 million increases, respectively, to the stock repurchase program for a total authorization of $40.0 million. Additionally, on October 27, 2020, the stock repurchase program duration was extended to run through October 27, 2022. The stock repurchase program does not obligate the Company to repurchase any shares of its common stock, and other than repurchases that have been completed to date, there is no assurance that the Company will do so. Under the stock repurchase program, the Company may repurchase shares of common stock from time to time in open market or privately negotiated transactions. The extent to which the Company repurchases its shares, and the timing of such repurchases, will depend upon a variety of factors, including general market and economic conditions, regulatory requirements, availability of funds, and other relevant considerations, as determined by the Company. The Company may, in its discretion, begin, suspend or terminate repurchases at any time prior to the stock repurchase program’s expiration, without any prior notice.
---	---

Unregistered Sales of Equity Securities

None.

Use of Proceeds from Registered Securities

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Table of Contents Item 6. Exhibits


Exhibit Number	****	Description
10.1		Loan and Security Agreement, dated March 1, 2021, by and between Bridgewater Bancshares, Inc., as borrower, and ServisFirst Bank, as Lender (incorporated herein by reference to Exhibit 10.1 of Form 8-K filed on March 5, 2021)
10.2		Revolving Note, dated as of March 1, 2021, made by Bridgewater Bancshares, Inc., as Borrower, to and in favor of ServisFirst Bank, as Lender (incorporated herein by reference to Exhibit 10.2 of Form 8-K filed on March 5, 2021)
10.3		Pledge Agreement, dated as of March 1, 2021, by and between Bridgewater Bancshares, Inc., as borrower, and ServisFirst Bank, as Lender (incorporated herein by reference to Exhibit 10.3 of Form 8-K filed on March 5, 2021)
31.1		Certification of the Chief Executive Officer required by Rule 13a-14(a) of the Securities Exchange Act of 1934, and Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of the Chief Financial Officer required by Rule 13a-14(a) of the Securities Exchange Act of 1934, and Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.1		Financial information from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021, formatted in inline XBRL interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Comprehensive Income; (iv) Consolidated Statements of Shareholders’ Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements
104		The cover page for Bridgewater Bancshares, Inc’s Form 10-Q Report for the quarterly period ended March 31, 2021 formatted in inline XBRL and contained in Exhibit 101

Table of Contents SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Bridgewater Bancshares, Inc.

Date: May 6, 2021	By:	/s/ Jerry J. Baack
	Name:	Jerry J. Baack
	Title:	Chairman, Chief Executive Officer and President<br>(Principal Executive Officer)

Date: May 6, 2021	By:	/s/ Joe M. Chybowski
	Name:	Joe M. Chybowski
	Title:	Chief Financial Officer(Principal Financial and Accounting Officer)

Exhibit 31.1

Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Jerry J. Baack, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Bridgewater Bancshares, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


May 6, 2021


/s/ Jerry J. Baack
Jerry J. Baack
Chairman, Chief Executive Officer and President

Exhibit 31.2

Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Joe M. Chybowski, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Bridgewater Bancshares, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


May 6, 2021


/s/ Joe M. Chybowski
Joe M. Chybowski
Chief Financial Officer

Exhibit 32.1

Certification of Chief Executive Officer

Pursuant to 18 U.S.C. Section 1350 as Adopted

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Bridgewater Bancshares, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jerry J. Baack, Chairman, Chief Executive Officer and President of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and <br>
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
---	---

Dated: May 6, 2021	/s/ Jerry J. Baack
	Jerry J. Baack
	Chairman, Chief Executive Officer and President

Exhibit 32.2

Certification of Chief Financial Officer

Pursuant to 18 U.S.C. Section 1350 as Adopted

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Bridgewater Bancshares, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joe M. Chybowski, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and <br>
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
---	---

Dated: May 6, 2021	/s/ Joe M. Chybowski
	Joe M. Chybowski
	Chief Financial Officer<br><br>