Bridgewater Bancshares, Inc. Annual Report

The Company relies on increasing the deposit base to fund loan 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. At December 31, 2019, total brokered deposits were $234.4 million or 12.9% of total deposits, compared to total brokered deposits of $291.2 million, or 18.7% of total deposits at December 31, 2018. The decrease in brokered deposits as a percentage of total deposits was primarily attributable to the Company’s success in growing core deposits. Furthermore, the core deposit growth supported a strategy whereby the Company was able to exercise embedded call features on higher rate, brokered time deposits during the year ended December 31, 2019. The Company exercised the embedded optionality to decrease brokered deposit exposure, reissue brokered time deposits at lower rates, and utilize other funding sources, such as FHLB advances. The following table presents the average balance and average rate paid on each of the following deposit categories for the years ended December 31, 2019, 2018, and 2017: Noninterest Bearing Transaction Deposits . . $ 414,377 — % Interest Bearing Transaction Deposits . . . . . . 223,376 0.73 177,335 0.36 161,454 0.24 Savings and Money Market Deposits . . . . . . 447,040 1.73 381,318 1.23 284,641 0.78 Time Deposits < $250,000 . . . . . . . . . . . . . . . 232,310 2.30 196,235 1.93 181,871 1.62 Time Deposits > $250,000 . . . . . . . . . . . . . . . 116,838 2.61 103,786 1.87 104,969 1.35 Brokered Deposits . . . . . . . . . . . . . . . . . . . . . . 261,023 2.39 232,022 2.12 185,144 1.49 Total Deposits . . . . . . . . . . . . . . . . . . . . . . . . $ 1,694,964 1.42 % $ 1,421,594 1.12 % $ 1,217,311 0.80 % The following table presents time deposits, including brokered time deposits, of $100,000 or more, by time remaining until maturity. — % $ 330,898 — % $ 299,232 As of and for the Year Ended December 31, 2019 Average Average Balance Rate As of and for the Year Ended December 31, 2018 Average Average Balance Rate As of and for the Year Ended December 31, 2017 Average Average Balance Rate (dollars in thousands)

December 31,

(dollars in thousands)

2019

$ 78,005

Three Months or Less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Over Three Months through Six Months. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Over Six Months through 12 Months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Over 12 Months. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Totals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

56,588 150,083 223,927

$ 508,603

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 presents a summary of 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:

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