Bridgewater Bancshares, Inc._2023 Annual Report

The allowance for credit losses on loans increased $2.5 million as of December 31, 2023, compared to December 31, 2022, reflecting the impact of adopting CECL of $650,000, a provision for credit losses of $2.1 million and net charge-offs of $202,000 during 2023. The provision for credit losses on loans was $2.1 million for the year ended December 31, 2023, a decrease of $5.7 million, compared to the provision for credit losses on loans of $7.7 million for the year ended December 31, 2022. The decrease in the provision for credit losses on loans was due to continued strong asset quality and a more managed pace of loan growth. The allowance for credit losses on loans to total loans was 1.36% at December 31, 2023, compared to 1.34% at December 31, 2022. The provision for credit losses for off-balance sheet credit exposures was a negative provision of $2.2 million for the year ended December 31, 2023, compared to $-0- for the year ended December 31, 2022. The negative provision for the year ended December 31, 2023 was due to a reduction in outstanding unfunded commitments primarily attributable to the migration of unfunded commitments to funded loans, as well as a moderation of volume of newly originated projects with unfunded commitments. The allowance for credit losses on off-balance sheet credit exposures was $3.0 million as of December 31, 2023, compared to $360,000 as of December 31, 2022. 2022 Compared to 2021 The allowance for loan losses increased $8.0 million as of December 31, 2022, compared to December 31, 2021, reflecting a provision for loan losses of $7.7 million and net recoveries of $276,000 during 2022. The provision for loan losses was $7.7 million for the year ended December 31, 2022, an increase of $2.6 million, compared to the provision for loan losses of $5.2 million for the year ended December 31, 2021. The increase in the provision for loan losses was primarily attributable to the growth of the loan portfolio. The allowance for loan losses to total loans was 1.34% at December 31, 2022, compared to 1.42% at December 31, 2021. The following table presents a summary of the activity in the allowance for credit losses on loans for the years ended December 31, 2023, 2022, and 2021:

Year Ended December 31,

(dollars in thousands)

2023

2022

2021

Balance at Beginning of Period .................................. $ Impact of Adopting CECL ...................................... Provision for Credit Losses ..................................... Charge-offs .................................................. Recoveries ................................................... Balance at End of Period ....................................... $

47,996 $

40,020 $

34,841

650

—

—

2,050

7,700

5,150

(224)

(37) 313

(74) 103

22

50,494 $

47,996 $

40,020

The following table presents a summary of the activity in the provision for credit losses for the years ended December 31, 2023, 2022, and 2021:

Year Ended December 31,

(dollars in thousands)

2023

2022

2021

Provision for Credit Losses on Loans ............................. $ Recovery of Credit Losses for Off-Balance Sheet Credit Exposures . . . . Provision for (Recovery of) Credit Losses . . . . . . . . . . . . . . . . . . . . . . . $

2,050 $

7,700 $

5,150

(2,225)

—

—

(175) $

7,700 $

5,150

Noninterest Income 2023 Compared to 2022

Noninterest income was $6.5 million for the year ended December 31, 2023, compared to $6.3 million for the year ended December 31, 2022, an increase of $161,000, or 2.5%. The increase was primarily due to increases in

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