Bridgewater Bancshares, Inc. Annual Report

gains on sales of securities and foreclosed assets and an increase in swap fees, partially offset by decreased letter of credit fees. 2018 Compared to 2017 Noninterest income was $2.5 million for the years ended December 31, 2018 and 2017, an increase of $7,000. The marginal increase was largely due to increased fees related to customer deposit accounts as a result of the overall increase in the number of our deposit clients, increased fees earned for letters of credit due to increased volume, and a decrease in losses on sales of securities. This activity was offset by an increased loss on sales of foreclosed assets. The following table presents the major components of noninterest income for the year ended December 31, 2019, compared to the year ended December 31, 2018, and for the year ended December 31, 2018, compared to the year ended December 31, 2017:

Year Ended December 31,

Year Ended December 31,

Increase/

Increase/

(dollars in thousands)

2019 2018 (Decrease) 2018 2017 (Decrease)

Noninterest Income: Customer Service Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 760 $ 745 $ Net Gain (Loss) on Sales of Securities . . . . . . . . . . . . . . . 516 (125)

15 $ 745 $ 660 $ 641 (125) (250) 294 (225) 356 (581) 85 125

Net Gain (Loss) on Sales of Foreclosed Assets . . . . . . . .

69 (225)

Letter of Credit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,184 1,296 (112) 1,296 1,072 Debit Card Interchange Fees . . . . . . . . . . . . . . . . . . . . . . . 418 391 Swap Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255 — Other Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 624 461 153 Totals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,826 $ 2,543 $ 1,283 $ 2,543 $ 2,536 $ 7 Noninterest Expense 2019 Compared to 2018 Noninterest expense totaled $36.9 million for the year ended December 31, 2019, a $5.4 million, or 17.0% increase from $31.6 million for the year ended December 31, 2018. The increase was primarily driven by a $3.5 million increase in salaries and employee benefits as the result of merit increases and increased staff to meet the needs of the Company’s growth, a $734,000 increase in occupancy and equipment and a $565,000 increase in professional and consulting fees. The increases were partially offset by a decrease of $180,000 in FDIC Insurance Assessment due to a credit from the FDIC for a portion of premiums previously paid to the DIF that became refundable when the DIF exceeded 1.38% of insured deposits, which occurred during the year ended December 31, 2019. The Company has no remaining credits as of December 31, 2019. Full-time equivalent employees increased from 140 as of December 31, 2018, to 160 as of December 31, 2019. The increase includes key strategic hires in deposit gathering roles, lending, information technology and other supportive functions as the Company continues to attract talent and capitalize on the M&A disruption in its market area. Efficiency Ratio. The efficiency ratio, a non-GAAP financial measure, reports total noninterest expense, less amortization of intangible assets, as a percentage of net interest income plus total noninterest income less gains (losses) on sales of securities. Management believes this non-GAAP financial measure provides a meaningful comparison of operational performance and facilitates investors’ assessments of business performance and trends in comparison to peers in the banking industry. The Company’s efficiency ratio, and its comparability to some peers, is negatively impacted by the amortization of tax credit investments within noninterest expense. The efficiency ratio was 47.4% for the year ended December 31, 2019, a marginal increase over 46.5% for the year ended December 31, 2018. The amortization of tax credit investments elevated the level of operating expenses in 27 391 390 1 255 — — — 163 461 308 224

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