2020 Annual Report

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

Note 14: Income Taxes

The following table presents the allocation of federal and state income taxes between current and deferred portions as of December 31, 2020, 2019 and 2018:

2020 2018 Current Tax Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,062 $ 7,670 $ 6,522 Deferred Tax Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,590) (747) (1,298) Total Income Tax Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,472 $ 6,923 $ 5,224 2019

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, 2020, 2019 and 2018:

2020

2019

2018

Amount Percent Amount Percent Amount Percent Amount of Statutory Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,489 21.0 % $ 8,048 21.0 % $ 6,750 21.0 % State Income Taxes (Net of Federal Income Tax Benefit). . 3,014 8.5 2,711 7.1 2,755 8.6 Interest on Investment Securities and Loans Exempt From Federal Income Tax . . . . . . . . . . . . . . . . . . . . . . . . . (702) (2.0) (734) (1.9) (719) (2.2) Tax Credits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (770) (2.1) (2,781) (7.3) (3,207) (10.0) Other Differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (559) (1.6) (321) (0.8) (355) (1.1) Totals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,472 23.8 % $ 6,923 18.1 % $ 5,224 16.3 % 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.

The following table presents the components of the net deferred tax asset included in other assets, as of December 31, 2020 and 2019:

2020 2019 Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (986) $ (231) Allowance for Loan Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,848 6,342 Unrealized (Gain) Loss on Securities Available for Sale . . . . . . . . . . . . (2,426) (1,399) Unrealized (Gain) Loss on Cash Flow Hedges . . . . . . . . . . . . . . . . . . . . . 677 130 Prepaid Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (522) (50) Deferred Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 711 742 Deferred Loan Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 806 599 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (95) (230) Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,013 $ 5,903

Note 15: Tax Credit Investments

The Company invests in qualified affordable housing projects and federal historic projects for the purpose of community reinvestment and obtaining tax credits. The Company’s tax credit investments are limited to existing lending relationships with well-known developers and projects within the Company’s market area.

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