Bridgewater Bancshares, Inc._2023 Annual Report

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

The following table presents a summary of the Company’s investments in qualified affordable housing projects and other tax credit investments at December 31, 2023 and 2022:

(dollars in thousands)

December 31, 2023

December 31, 2022

Unfunded Commitment (2) Investment

Unfunded Commitment

Investment

Accounting Method (1)

Investment

— 323 N/A

4,701 $

Low Income Housing Tax Credit (LIHTC) Proportional Amortization $

16,897 $

7,579 $

N/A 3,403

N/A 2,353

1,785 N/A

Federal Historic Tax Credit (FHTC) . . . . Equity

Federal Historic Tax Credit (FHTC) . . . . Proportional Amortization

Total ............................

$

20,300 $

9,932 $

6,486 $

323

(1) The Company early adopted ASU 2023-02 applying the modified retrospective method. Effective January 1, 2023, historic tax credits were accounted for under the proportional amortization method. (2) All commitments are expected to be paid by the Company by December 31, 2024. The following table presents a summary of the amortization expense and tax benefit recognized for the Company’s qualified affordable housing projects and other tax credit investments during 2023, 2022 and 2021:

Year Ended December 31,

(dollars in thousands)

2023

2022

2021

Amortization Expense (1) LIHTC........................................ $ FHTC......................................... Total ......................................... $ Tax Benefit Recognized (2) LIHTC........................................ $ FHTC......................................... Total ......................................... $

1,810

$

271 408 679

$

280 562 842

668

2,478

$

$

(1,693) $

(330) $

(330) (625) (955)

(912)

(607)

(2,605) $

(937) $

(1) The amortization expense for the LIHTC investments are included in income tax expense. Prior to 2023, the amortization for the FHTC tax credits are included in noninterest expense. Beginning January 1, 2023, with the adoption of ASU 2023-02, the amortization expense for the FHTC investments are included in income tax expense. (2) All of the tax benefits recognized are included in income tax expense. Prior to 2023, the tax benefit recognized for the FHTC investments primarily reflected the tax credits generated from the investments, and excluded the net tax expense/benefit of the investments’ income/loss.

Note 16: Commitments, Contingencies and Credit Risk Financial Instruments with Off-Balance Sheet Credit Risk

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets. The Company’s exposure to credit loss is represented by the contractual, or notional, amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance sheet instruments. Since some of the commitments are expected to expire without being drawn upon and some of the commitments may not be drawn upon to the total extent of the commitment, the notional amount of these commitments does not necessarily represent future cash requirements.

119