Bridgewater Bank Annual Report

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

Note 14: Income Taxes On December 22, 2017, the President of the United States signed into law Public Law 115-97, commonly known as the Tax Cuts and Jobs Act, which amends the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. For businesses, the Tax Cuts and Jobs Act reduced the federal corporate tax rate from a maximum of 35% to a flat rate of 21%. The rate reduction was effective January 1, 2018. 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, 2018, 2017, and 2016: 2016 Current Tax Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,522 $ 10,206 $ 9,122 Deferred Tax Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,298) (2,062) (1,070) Change in Deferred Taxes Due to Enacted Changes in Tax Law . . . . . — 2,005 — Total Income Tax Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,224 $ 10,149 $ 8,052 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, 2018, 2017, and 2016: 2018 2017

2018

2017

2016

Amount Percent Amount Percent

Amount Percent

Amount of Statutory Rate . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,750 21.0 %$ 9,463 State Income Taxes (Net of Federal Income Tax Benefit) 2,755 8.6 1,757 Interest on Investment Securities and Loans Exempt From Federal Income Tax . . . . . . . . . . . . . . . . . . . . . . . . (719) (2.2) (1,170) Historic Tax Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,207) (10.0) (1,621) Other Differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (355) (1.1) (285) Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,224 16.3 %$10,149 Deferred Tax Asset Revaluation . . . . . . . . . . . . . . . . . . . . . — — 2,005

35.0 %$ 7,443 6.5 1,377

35.0 %

6.5

(4.3) (829)

(3.9)

(6.0)

— — 61

— — 0.3

7.4

(1.1)

37.5 %$ 8,052

37.9 %

The impact of the deferred tax asset revaluation was offset primarily by the effects of certain federal historic tax credits utilized in the current period. The Company utilizes these credits when the project is placed in service. 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.

105