Bridgewater Bancshares, Inc. Annual Report

both years, and while the recognition of the tax credits increases operating expenses, and concurrently the efficiency ratio, it directly reduces income tax expense and the effective tax rate. The adjusted efficiency ratio, a non-GAAP financial measure, which excludes the impact of the amortization of tax credit investments, increased slightly to 43.3% for the year ended December 31, 2019, compared to 41.7% for the year ended December 31, 2018. 2018 Compared to 2017 Noninterest expense totaled $31.6 million for the year ended December 31, 2018, a $6.1 million, or 23.8% increase from $25.5 million for the year ended December 31, 2017. The increase was primarily driven by a $4.6 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 $1.4 million increase in amortization of tax credit investments, a $261,000 increase in information technology and telecommunication expenses to support the Company’s growing infrastructure, and a $359,000 increase in marketing expenses to increase brand recognition in its market area. The increases were partially offset by a decrease of $1.1 million in professional and consulting fees due to higher expenses incurred during 2017 for preparation of the Company’s initial public offering, in comparison to 2018. Full-time equivalent employees increased from 114 as of December 31, 2017, to 140 as of December 31, 2018. Efficiency Ratio. The efficiency ratio was 46.5% for the year ended December 31, 2018, a marginal increase over 44.4% for the year ended December 31, 2017. The amortization of tax credit investments elevated the level of operating expenses in both years, and while the recognition of the tax credits increases operating expenses, and concurrently the efficiency ratio, it directly reduces income tax expense and the effective tax rate. The adjusted efficiency ratio, a non-GAAP financial measure, which excludes the impact of the amortization of tax credit investments, remained generally consistent at 41.7% for the year ended December 31, 2018, compared to 41.1% for the year ended December 31, 2017. The following table presents the major components of noninterest expense for the year ended December 31, 2019, compared to the year ended December 31, 2018, and the year ended December 31, 2018, compared to the year ended December 31, 2017: Noninterest Expense: Salaries and Employee Benefits. . . . . . . . . . . . . . . . . . $ 22,076 $ 18,620 $ 3,456 $ 18,620 $ 14,051 $ 4,569 Occupancy and Equipment . . . . . . . . . . . . . . . . . . . . . 3,085 2,351 734 2,351 2,192 159 FDIC Insurance Assessment . . . . . . . . . . . . . . . . . . . . 735 915 (180) 915 770 145 Data Processing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 647 470 177 470 592 (122) Professional and Consulting Fees . . . . . . . . . . . . . . . . 1,690 1,125 565 1,125 2,198 (1,073) Information Technology and Telecommunications . . 996 932 64 932 671 261 Marketing and Advertising . . . . . . . . . . . . . . . . . . . . . 1,507 1,342 165 1,342 983 359 Intangible Asset Amortization . . . . . . . . . . . . . . . . . . . 191 191 — 191 191 — Amortization of Tax Credit Investments. . . . . . . . . . . 3,225 3,293 (68) 3,293 1,916 1,377 Other Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,780 2,323 457 2,323 1,932 391 Totals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 36,932 $ 31,562 $ 5,370 $ 31,562 $ 25,496 $ 6,066 The Company expects future increases in noninterest expense as the Company continues investing in infrastructure to support balance sheet growth. Management remains focused on supporting growth primarily by adding to staff, investing in technology, and by enhancing risk controls. At the same time, management seeks to contain costs whenever prudent, which is evident in the stable nature of the efficiency ratio. Year Ended December 31, Year Ended December 31, Increase/ Increase/ (dollars in thousands) 2019 2018 (Decrease) 2018 2017 (Decrease)

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