Bridgewater Bank Annual Report

To be Well Capitalized Under Prompt Corrective Action Regulations Amount Ratio

For Capital Adequacy

Actual

Purposes

December 31, 2017

Amount Ratio

Amount Ratio (dollars in thousands)

Company (Consolidated): Total Risk-Based Capital . . . . . . . . . . . . . . . . $ 173,848 12.46 % $ 111,638 Tier 1 Risk-Based Capital . . . . . . . . . . . . . . . 132,459 9.49 83,729 Common Equity Tier 1 Capital . . . . . . . . . . . 132,459 9.49 62,797 Leverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . 132,459 8.38 63,264 Bank: Total Risk-Based Capital . . . . . . . . . . . . . . . . $ 171,805 12.37 % $ 111,134 Tier 1 Risk-Based Capital . . . . . . . . . . . . . . . 154,943 11.15 83,351 Common Equity Tier 1 Capital . . . . . . . . . . . 154,943 11.15 62,513 Leverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . 154,943 9.83 63,060

8.00 %

N/A N/A N/A N/A

N/A N/A N/A N/A

6.00 4.50 4.00

8.00 % $ 138,918 6.00 111,134 4.50 90,297 4.00 78,825

10.00 %

8.00 6.50

5.00 The Company and the Bank are subject to the rules of the Basel III regulatory capital framework and related Dodd-Frank Wall Street Reform and Consumer Protection Act. The rules include the implementation of a capital conservation buffer that is added to the minimum requirements for capital adequacy purposes. The capital conservation buffer is subject to a four year phase-in period that began on January 1, 2016, and will be fully phased-in on January 1, 2019, at 2.5%. The required phase-in capital conservation buffer during 2018 was 1.875%. A banking organization with a conservation buffer of less than the required amount will be subject to limitations on capital distributions, including dividend payments, and certain discretionary bonus payments to executive officers. At December 31, 2018, the ratios for the Company and the Bank were sufficient to meet the fully phased-in conservation buffer. Off-Balance Sheet Arrangements In the normal course of business, the Company enters into various transactions to meet the financing needs of clients, which, in accordance with GAAP, are not included in the consolidated balance sheets. These transactions include commitments to extend credit, standby letters of credit, and commercial letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. Most of these commitments mature within two years and the standby letters of credit are expected to expire without being drawn upon. All off-balance sheet commitments are included in the determination of the amount of risk- based capital that the Company and the Bank are required to hold. The Company’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit, standby letters of credit, and commercial letters of credit is represented by the contractual or notional amount of those instruments. The Company decreases its exposure to losses under these commitments by subjecting them to credit approval and monitoring procedures. The Company assesses the credit risk associated with certain commitments to extend credit and establishes a liability for probable credit losses. The following table sets forth credit arrangements and financial instruments whose contract amounts represent credit risk as of December 31, 2018 and December 31, 2017: (dollars in thousands) Unfunded Commitments Under Lines of Credit . . . . . . . . . . . . . . . . . . . $ 58,611 $ 336,421 $ 112,555 $ 196,958 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,899 47,154 12,334 52,212 Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 92,510 $ 383,575 $ 124,889 $ 249,170 Commitments to extend credit beyond current fundings are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Such commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We evaluate each December 31, 2018 Fixed Variable December 31, 2017 Fixed Variable

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