Bridgewater Bank Annual Report

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

Federal Reserve Discount Window. At December, 31, 2018 and 2017, the Company had the ability to draw additional borrowings of $114,051 and $37,530, respectively, from the Federal Reserve Bank of Minneapolis. The ability to draw borrowings is based on loan collateral pledged with principal balances of $159,616 and $47,590 as of December, 31, 2018 and 2017, subject to the approval from the Board of Governors of the Federal Reserve System. Federal Funds Purchased. Federal funds purchased mature one business day from the transaction date. There were $18,000 and $23,000 of federal funds purchased outstanding as of December, 31, 2018 and 2017, respectively. The interest rate as of December, 31, 2018 and 2017, was 2.63% and 1.63%, respectively. 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, 2018 was $103, respectively, 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, 2018 and 2017:

2018 2017 Beginning Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,344 $ 15,149 New Loans and Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,761 7,858 Repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,653) (5,368) Changes to Related Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 (6,295) Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 39,454 $ 11,344

Deposits from related parties held by the Company at December, 31, 2018 and 2017 were $8,856 and $4,039, respectively. The Company has a related party lease which is disclosed in Note 6. 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.

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