Bridgewater Bancshares, Inc. Annual Report

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

The lower corporate income tax rate reduces the future net tax benefits of timing differences between book and taxable income recorded by the Company as a net deferred tax asset. As of December 31, 2017, the Company revalued its net deferred tax assets and recorded a one-time additional income tax expense of $2,005 related to the write-down of deferred tax assets for tax benefits that the Company does not expect to realize. The following table presents the allocation of federal and state income taxes between current and deferred portions as of December 31, 2019, 2018 and 2017: 2017 Current Tax Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,670 $ 6,522 $ 10,206 Deferred Tax Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (747) (1,298) (2,062) Change in Deferred Taxes Due to Enacted Changes in Tax Law . . . . . — — 2,005 Total Income Tax Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,923 $ 5,224 $ 10,149 The reasons for the differences between the statutory federal income tax rate and the effective tax rates are summarized as follows as of December 31, 2019, 2018 and 2017: 2019 2018 Interest on Investment Securities and Loans Exempt From Federal Income Tax . . . . . . . . . . . . . . . . . . . . . . . . (734) (1.9) (719) (2.2) (1,170) (4.3) Tax Credits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,781) (7.3) (3,207) (10.0) (1,621) (6.0) Deferred Tax Asset Revaluation . . . . . . . . . . . . . . . . . . . . . — — — — 2,005 7.4 Other Differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (321) (0.8) (355) (1.1) (285) (1.1) Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,923 18.1 % $ 5,224 16.3 % $10,149 37.5 % The Company’s effective tax rate may fluctuate as it is impacted by the level and timing of the Company’s utilization of historic tax credits, low-income housing tax credits, the level of tax-exempt investments and loans, and the overall level of pre-tax income. In 2017, the negative impact of the deferred tax asset revaluation was offset primarily by the effects of certain federal historic tax credits utilized in the period. The following table presents the components of the net deferred tax asset included in other assets, as of December 31, 2019 and 2018: 2019 2018 2017 Amount Percent Amount Percent Amount Percent Amount of Statutory Rate . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,048 State Income Taxes (Net of Federal Income Tax Benefit) . . 2,711 21.0 % $ 6,750 21.0 % $ 9,463 35.0 % 7.1 2,755 8.6 1,757 6.5

2019 2018 Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (231) $ (249) Allowance for Loan Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,342 5,757 Unrealized (Gain) Loss on Securities Available for Sale . . . . . . . . . . . . (1,399) 491 Unrealized (Gain) Loss on Cash Flow Hedge . . . . . . . . . . . . . . . . . . . . . 130 (74) Prepaid Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (50) (496) Deferred Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 742 651 Deferred Loan Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 599 — Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (230) 762 Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,903 $ 6,842

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