Bridgewater Bancshares, Inc. Annual Report

December 31, 2017. ROA was 1.51% and 1.16% for the years ended December 31, 2018 and 2017, respectively. ROE was 13.87% and 13.18% for the years ended December 31, 2018 and 2017, respectively. The year ended 2017 included a one-time additional expense of $2.0 million related to the enactment of the Tax Cuts and Jobs Act. Excluding the one-time impact of the Tax Cuts and Jobs Act, ROA and ROE for the year ended December 31, 2017 would have been 1.30% and 14.75%, respectively. Net Interest Income The Company’s primary source of revenue is net interest income, which is impacted by the level of interest earning assets and related funding sources, as well as changes in the levels of interest rates. The difference between the average yield on earning assets and the average rate paid for interest bearing liabilities is the net interest spread. Noninterest bearing sources of funds, such as demand deposits and shareholders’ equity, also support earning assets. The impact of the noninterest bearing sources of funds is captured in the net interest margin, which is calculated as net interest income divided by average earning assets. Both the net interest margin and net interest spread are presented on a tax-equivalent basis, which means that tax-free interest income has been adjusted to pretax-equivalent income, assuming a 21% federal tax rate beginning in 2018. A 35% federal tax rate has been applied to periods prior to 2018. Management’s ability to respond to changes in interest rates by effective asset-liability management techniques is critical to maintaining net interest margin. Average Balances and Yields The following table presents, for the years ended December 31, 2019, 2018, and 2017, the average balances of each principal category of assets, liabilities and shareholders’ equity, and an analysis of net interest income. The average balances are principally daily averages and, for loans, include both performing and nonperforming balances. Interest income on loans includes the effects of net deferred loan origination fees and costs accounted for as yield adjustments. These tables are presented on a tax-equivalent basis, if applicable.

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