2020 Annual Report

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

The following table presents a summary of the Company’s interest rate swaps designated as cash flow hedges as of December 31, 2020 and 2019:

2020 2019 Notional Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 111,000 $ 48,000 Weighted Average Pay Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.26 % 1.89 % Weighted Average Receive Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.22 % 2.25 % Weighted Average Maturity (Years) . . . . . . . . . . . . . . . . . . . . . . . . . . 3.95 3.53 Net Unrealized Gain (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (3,410) $ (618)

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 totaled $41 and was recorded as a component of interest expense on brokered deposits for the year ended December 31, 2020. The weighted average strike rate for outstanding interest rate caps was 0.75% at December 31, 2020.

The following table presents a summary of the Company’s interest rate contracts as of December 31, 2020 and 2019:

December 31, 2020

December 31, 2019 Notional Estimated

Notional Amount

Estimated Fair Value

Amount

Fair Value

Interest rate swap agreements: Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,000 $

56 $ 18,000 $

134

Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,000 (3,466) 30,000 Interest rate cap agreements: Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 December 31, 2020 and 2019, the Company pledged cash collateral for the Company’s derivative contracts of $8,526 and $1,404, respectively. In addition, as of December 31, 2020, the Company's interest rate cap counterparties have pledged cash collateral to the Company of $2,700. (752) —

The following table presents the effect of derivative instruments in cash flow hedging relationships on the consolidated statements of income for the year ended December 31, 2020, 2019 and 2018:

Year Ended December 31,

2020

2019

2018

(dollars in thousands) Derivatives in Cash Flow Hedging

Location of Gain or (Loss) Reclassified from AOCI into Income

Gain (Loss)

Reclassified from AOCI into Earnings

Relationships

Interest rate swaps . . . . . . . . . . Interest expense Interest rate caps . . . . . . . . . . . Interest expense

$

(579) $

9 $

— —

—

—

No amounts were reclassified from accumulated other comprehensive income into net income related to hedge ineffectiveness for these derivatives during the years ended December 31, 2020, 2019 and 2018, 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.

120