Bridgewater Bancshares, Inc. Annual Report

Bridgewater Bancshares, Inc. and Subsidiaries Notes to Consolidated Financial Statements (dollars in thousands, except share data)

Note 12: Subordinated Debentures On July 12, 2017, the Company entered into a Subordinated Note Purchase Agreement with certain institutional accredited investors (the “Purchasers”) whereby the Company sold and issued $25,000 in aggregate principal amount of fixed-to-floating subordinated notes due 2027 (the “Notes”). The Notes were issued by the Company to the Purchasers at a price equal to 100% of their face amount. Issuance costs were $516 and have been netted against Subordinated Debt on the consolidated balance sheets. These costs are being amortized over five years, which represents the period from issuance to the first redemption date of July 15, 2022. Total amortization expense for the year ended December 31, 2019 was $103, with $267 remaining to be amortized as of December 31, 2019. Total amortization expense for the year ended December 31, 2018 was $103, with $370 remaining to be amortized as of December 31, 2018. Total amortization expense for the year ended December 31, 2017 was $43, with $473 remaining to be amortized as of December 31, 2017. The Notes mature on July 15, 2027, with a fixed interest rate of 5.875% payable semiannually in arrears for five years until July 15, 2022. Thereafter, the Company will be obligated to pay interest at a rate equal to 3-month LIBOR plus 388 basis points quarterly in arrears until either the early redemption date or the maturity date. The Notes are not convertible into or exchangeable for any other securities or assets of the Company or any of its subsidiaries. The Notes are redeemable by the Company, in whole or in part, on or after July 15, 2022, and at any time upon the occurrence of certain events. Any redemption by the Company would be at a redemption price equal to 100% of the outstanding principal amount of the Notes being redeemed, including any accrued and unpaid interest thereon. Note 13: Related-Party Transactions In the ordinary course of business, the Company has granted loans to executive officers, directors, principal shareholders, and their affiliates (related parties). The following table presents the activity associated with loans made between related parties for the years ended December 31, 2019 and 2018:

2019 2018 Beginning Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 39,454 $ 11,344 New Loans and Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,298 35,761 Repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,269) (7,653) Changes to Related Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 2 Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 37,483 $ 39,454

Deposits from related parties held by the Company at December 31, 2019 and 2018 were $11,223 and $8,856, respectively. The Company has a related party lease which is disclosed in Note 6. A member of the Company’s board of directors, David J. Volk, is a principal at Castle Creek Capital, LLC, which is the sole general partner of Castle Creek Capital Partners V, LP. During 2018, the Company entered into an Exchange Agreement with Castle Creek Capital Partners V, LP providing for the exchange of 1,431,796 shares of the Company’s non-voting common stock for 1,431,796 shares of the Company’s voting common stock. Note 14: Income Taxes On December 22, 2017, the President of the United States signed into law Public Law 115-97, commonly known as the Tax Cuts and Jobs Act, which amended the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. For businesses, the Tax Cuts and Jobs Act reduced the federal corporate tax rate from a maximum of 35% to a flat rate of 21%. The rate reduction was effective January 1, 2018.

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