Bridgewater Bancshares, Inc. Announces Record Second Quarter 2019 Earnings

BLOOMINGTON, Minn.–(BUSINESS WIRE)–Bridgewater Bancshares, Inc. (Nasdaq: BWB) (the Company), the parent company of Bridgewater Bank (the Bank), today announced net income of $8.0 million for the second quarter of 2019, an 18.7% increase over net income of $6.7 million for the second quarter of 2018. Net income per diluted common share for the second quarter of 2019 was $0.26, a 19.4% increase, compared to $0.22 per diluted common share for the same period in 2018.

“Our focus on profitable growth has led to record earnings in the second quarter of 2019,” noted Chairman, Chief Executive Officer, and President, Jerry Baack. “Double-digit loan and deposit growth supported by positive trends in net interest margin, favorable operating leverage, and consistently solid asset quality have all contributed to our strong financial results. We are encouraged by the positive momentum in new client acquisition activity since entering the St. Paul market last fall and are pleased with our growing brand awareness as we establish ourselves as the only locally led, publicly traded community bank within the Twin Cities market. ”

Second Quarter 2019 Financial Results

Basic

Diluted

Adjusted

Tangible book

ROA

ROE

Earnings per share

efficiency ratio ⁽¹⁾

value per share ⁽²⁾

1.55%

13.88%

0.27

0.26

42.7%

7.78

Ratio excludes the amortization of tax credit investments and represents a non-GAAP financial measure. See “Non-GAAP Financial Measures” for further details.
Represents a non-GAAP financial measure. See “Non-GAAP Financial Measures” for further details.

Linked-Quarter Highlights

Net income was $8.0 million for the second quarter of 2019, compared to $7.0 million for the first quarter of 2019, an increase of $1.0 million, or 14.1%.

Diluted earnings per common share were $0.26 for the second quarter of 2019, compared to $0.23 for the first quarter of 2019, an increase of 15.6%.

Tangible book value per share, a non-GAAP financial measure, increased 2.7%, or $0.20, to $7.78 at June 30, 2019, compared to $7.58 at March 31, 2019.

Annualized return on average assets (ROA) and return on average common equity (ROE) for the second quarter of 2019 were 1.55% and 13.88%, respectively, compared to annualized ROA and ROE of 1.42% and 12.60%, respectively, for the first quarter of 2019.

Gross loans increased $61.3 million, or 14.3% on an annualized basis, to $1.78 billion at June 30, 2019, compared to March 31, 2019.

Deposits increased $55.6 million, or 13.6% on an annualized basis, to $1.70 billion at June 30, 2019, compared to March 31, 2019.

The ratio of nonperforming assets to total assets was 0.07% at June 30, 2019, compared to 0.08% at March 31, 2019.

The adjusted efficiency ratio, a non-GAAP financial measure which excludes the impact of the amortization of tax credit investments from noninterest expense, was 42.7% for the second quarter of 2019, compared to 43.1% for the first quarter of 2019.

Year-Over-Year Highlights

Net income was $8.0 million for the second quarter of 2019, compared to $6.7 million for the second quarter of 2018, an increase of $1.3 million, or 18.7%.

Diluted earnings per common share were $0.26 for the second quarter of 2019, compared to $0.22 for the second quarter of 2018, an increase of 19.4%.

Tangible book value per share, a non-GAAP financial measure, increased 15.7%, or $1.05, to $7.78 at June 30, 2019, compared to $6.73 at June 30, 2018.

Annualized ROA and ROE for the second quarter of 2019 were 1.55% and 13.88%, respectively, compared to annualized ROA and ROE of 1.58% and 13.39%, respectively, for the second quarter of 2018.

Gross loans increased $321.6 million, or 22.0%, at June 30, 2019, compared to June 30, 2018.

Deposits increased $284.6 million, or 20.1%, at June 30, 2019, compared to June 30, 2018.

The ratio of nonperforming assets to total assets was 0.07% at June 30, 2019, compared to 0.05% at June 30, 2018.

The adjusted efficiency ratio, a non-GAAP financial measure which excludes the impact of the amortization of tax credit investments from noninterest expense, was 42.7% for the second quarter of 2019, compared to 39.0% for the second quarter of 2018.

Key Financial Measures


	As of and for the Three Months Ended									As of and for the Six Months Ended
	June 30,			March 31,			June 30,			June 30,			June 30,
	2019			2019			2018			2019			2018
Per Common Share Data ⁽¹⁾
Basic Earnings Per Share	$	0.27		$	0.23		$	0.22		$	0.50		$	0.45
Diluted Earnings Per Share		0.26			0.23			0.22			0.49			0.45
Book Value Per Share		7.90			7.70			6.85			7.90			6.85
Tangible Book Value Per Share ⁽²⁾		7.78			7.58			6.73			7.78			6.73
Basic Weighted Average Shares Outstanding		29,703,024			30,097,638			30,059,374			29,899,241			27,919,457
Diluted Weighted Average Shares Outstanding		30,312,039			30,706,736			30,486,801			30,510,180			28,345,844
Shares Outstanding at Period End		28,986,729			30,097,674			30,059,374			28,986,729			30,059,374

Selected Performance Ratios
Return on Average Assets (Annualized)		1.55	%		1.42	%		1.58	%		1.49	%		1.53	%
Return on Average Common Equity (Annualized)		13.88			12.60			13.39			13.25			14.56
Return on Average Tangible Common Equity (Annualized)⁽²⁾		14.10			12.81			13.64			13.47			14.88
Yield on Interest Earning Assets		5.05			4.99			4.88			5.02			4.83
Yield on Total Loans, Gross		5.33			5.27			5.29			5.30			5.20
Cost of Interest Bearing Liabilities		2.07			2.06			1.52			2.07			1.45
Cost of Total Deposits		1.46			1.46			1.03			1.46			0.97
Net Interest Margin ⁽³⁾		3.60			3.54			3.82			3.57			3.80
Efficiency Ratio⁽²⁾		50.1			44.1			39.0			47.2			40.8
Adjusted Efficiency Ratio ⁽⁴⁾		42.7			43.1			39.0			42.9			40.8
Noninterest Expense to Average Assets (Annualized)		1.84			1.59			1.51			1.72			1.57
Adjusted Noninterest Expense to Average Assets (Annualized) ⁽⁴⁾		1.57			1.55			1.51			1.56			1.57
Loan to Deposit Ratio		105.0			104.9			103.4
Core Deposits to Total Deposits		78.3			75.8			76.4
Tangible Common Equity to Tangible Assets ⁽²⁾		10.64			11.16			11.56

Capital Ratios (Bank Only)
Tier 1 Leverage Ratio		10.99	%		10.88	%		11.32	%
Tier 1 Risk-based Capital Ratio		11.73			11.71			12.44
Total Risk-based Capital Ratio		12.67			12.83			13.60

Includes shares of common stock and non-voting common stock. On October 25, 2018, the Company exchanged shares of common stock for all of the outstanding shares of non-voting common stock. Following the exchange, no shares of non-voting common stock were outstanding.
Represents a non-GAAP financial measure. See “Non-GAAP Financial Measures” for further details.
Amounts calculated on a tax-equivalent basis using the statutory federal tax rate of 21%.
Ratio excludes the amortization of tax credit investments and represents a non-GAAP financial measure. See “Non-GAAP Financial Measures” for further details.

Selected Financial Data


	June 30,		March 31,		December 31,		September 30,		June 30,
(dollars in thousands)	2019		2019		2018		2018		2018
Selected Balance Sheet Data
Total Assets	$	2,123,631	$	2,048,111	$	1,973,741	$	1,885,793	$	1,752,918
Total Loans, Gross		1,784,903		1,723,629		1,664,931		1,599,964		1,463,320
Allowance for Loan Losses		21,362		20,607		20,031		18,949		17,666
Goodwill and Other Intangibles		3,582		3,630		3,678		3,726		3,773

Deposits		1,699,265		1,643,666		1,560,934		1,479,088		1,414,691
Tangible Common Equity⁽¹⁾		225,555		228,145		217,320		207,126		202,154
Total Shareholders’ Equity		229,137		231,775		220,998		210,852		205,927
Average Total Assets – Quarter-to-Date		2,069,707		2,011,174		1,948,909		1,816,485		1,715,335
Average Common Equity – Quarter-to-Date		231,374		225,844		215,254		208,773		202,101

Represents a non-GAAP financial measure. See “Non-GAAP Financial Measures” for further details.


	For the Three Months Ended						For the Six Months Ended
	June 30,		March 31,		June 30,		June 30,		June 30,
(dollars in thousands)	2019		2019		2018		2019		2018
Selected Income Statement Data
Interest Income	$	25,520	$	24,267	$	20,392	$	49,787	$	39,102
Interest Expense		7,382		7,136		4,493		14,518		8,440
Net Interest Income		18,138		17,131		15,899		35,269		30,662
Provision for Loan Losses		600		600		900		1,200		1,500
Net Interest Income after Provision for Loan Losses		17,538		16,531		14,999		34,069		29,162
Noninterest Income		1,134		634		485		1,768		872
Noninterest Expense		9,474		7,885		6,464		17,359		12,996
Income Before Income Taxes		9,198		9,280		9,020		18,478		17,038
Provision for Income Taxes		1,189		2,262		2,274		3,451		4,342
Net Income	$	8,009	$	7,018	$	6,746	$	15,027	$	12,696

Income Statement

Net Interest Income

Net interest income was $18.1 million for the second quarter of 2019, an increase of $1.0 million, or 5.9%, from $17.1 million in the first quarter of 2019, and an increase of $2.2 million, or 14.1%, from $15.9 million in the second quarter of 2018. The linked-quarter increase in net interest income was driven by growth in average loans at higher rates. The year-over-year increase in net interest income was largely attributable to growth in average interest earning assets, which increased by 20.5% to $2.05 billion for the second quarter of 2019, from $1.70 billion for the second quarter of 2018. This increase in average interest earning assets was primarily due to continued organic growth in the loan portfolio.

Net interest margin (on a fully tax-equivalent basis) for the second quarter of 2019 was 3.60%, a six basis point increase from 3.54% in the first quarter of 2019 and a 22 basis point decrease from 3.82% in the second quarter of 2018. While the linked-quarter increase in net interest margin can be attributed to the repricing of variable-rate loans and the origination of new loans at higher rates, the primary driver of margin expansion was the cost of funds stabilization. On a year-over-year basis, net interest margin also benefitted from increased repricing of variable-rate loans and the origination of new loans at higher rates; however, it compressed due to decreased loan fees recognized and increased rates paid on deposits and borrowings.

Interest income was $25.5 million for the second quarter of 2019, an increase of $1.3 million, or 5.2%, from $24.3 million in the first quarter of 2019, and an increase of $5.1 million, or 25.1%, from $20.4 million in the second quarter of 2018. The yield on interest earning assets (on a fully tax-equivalent basis) rose to 5.05% in the second quarter of 2019, compared to 4.99% in the first quarter of 2019 and 4.88% in the second quarter of 2018.

Loan interest income and loan fees remain the primary contributing factors to the increase in yield on interest earning assets, driving the aggregate loan yield 4 basis points higher from 5.29% in the second quarter of 2018 to 5.33% in the second quarter of 2019. As the composition of the aggregate loan yield has shifted, solid loan growth at yields accretive to the existing portfolio yield has enabled the Company to offset the decrease in loan fee income. While deferred loan fees are regularly amortized into income, fluctuations in the level of loan fees recognized can vary based on prepayments and other factors.

A summary of interest and fees recognized on loans for the dates indicated is as follows:


	Three Months Ended
	June 30, 2019		March 31, 2019		December 31, 2018		September 30, 2018		June 30, 2018
Interest	5.10	%	5.07	%	4.98	%	4.87	%	4.80	%
Fees	0.23		0.20		0.29		0.38		0.49
Yield on Loans	5.33	%	5.27	%	5.27	%	5.25	%	5.29	%

Interest expense was $7.4 million for the second quarter of 2019, an increase of $246,000, or 3.4%, from $7.1 million in the first quarter of 2019, and an increase of $2.9 million, or 64.3%, from $4.5 million in the second quarter of 2018. The cost of interest bearing liabilities increased to 2.07% in the second quarter of 2019 from 2.06% in the first quarter of 2019, and 1.52% in the second quarter of 2018. These increases are due to higher costs and repricing of deposits and borrowings during both periods. Notably, since the Federal Open Market Committee began communicating its dovish policy pivot, the pace of rate increases on deposits decelerated significantly, and the Company only experienced a one basis point rise in funding costs on a linked-quarter basis. At the same time, local market competition for deposits remains fierce.

A summary of the Company’s average balances, interest yields and rates, and net interest margin for the three months ended June 30, 2019, March 31, 2019, and June 30, 2018 is as follows:


	For the Three Months Ended
	June 30, 2019						March 31, 2019						June 30, 2018
	Average		Interest		Yield/		Average		Interest		Yield/		Average		Interest		Yield/
	Balance		& Fees		Rate		Balance		& Fees		Rate		Balance		& Fees		Rate
(dollars in thousands)
Interest Earning Assets:
Cash Investments	$	38,142	$	171	1.80	%	$	27,945	$	87	1.27	%	$	25,082	$	65	1.04	%
Investment Securities:
Taxable Investment Securities		140,890		1,058	3.01			138,397		973	2.85			119,244		488	1.64
Tax-Exempt Investment Securities⁽¹⁾		103,223		1,103	4.28			110,463		1,173	4.31			120,965		1,247	4.13
Total Investment Securities		244,113		2,161	3.55			248,860		2,146	3.50			240,209		1,735	2.90
Loans ⁽²⁾		1,755,686		23,321	5.33			1,707,908		22,179	5.27			1,426,751		18,800	5.29
Federal Home Loan Bank Stock		7,694		100	5.23			7,911		100	5.12			5,486		54	3.95
Total Interest Earning Assets		2,045,635		25,753	5.05	%		1,992,624		24,512	4.99	%		1,697,528		20,654	4.88	%
Noninterest Earning Assets		24,072						18,550						17,807
Total Assets	$	2,069,707					$	2,011,174					$	1,715,335
Interest Bearing Liabilities:
Interest Bearing Transaction Deposits		202,886		387	0.77	%		181,033		232	0.52	%		178,775		160	0.36	%
Savings and Money Market Deposits		431,716		1,938	1.80			414,811		1,766	1.73			346,009		877	1.02
Time Deposits		354,026		2,120	2.40			329,511		1,880	2.31			305,077		1,386	1.82
Brokered Deposits		266,804		1,575	2.37			292,067		1,825	2.53			225,532		1,099	1.95
Federal Funds Purchased		2,089		12	2.24			24,956		160	2.59			12,340		56	1.82
Notes Payable		14,000		130	3.72			14,500		121	3.38			16,000		146	3.66
FHLB Advances		131,385		827	2.52			124,000		775	2.54			76,473		372	1.95
Subordinated Debentures		24,673		393	6.39			24,647		377	6.20			24,570		397	6.48
Total Interest Bearing Liabilities		1,427,579		7,382	2.07	%		1,405,525		7,136	2.06	%		1,184,776		4,493	1.52	%
Noninterest Bearing Liabilities:
Noninterest Bearing Transaction Deposits		401,480						369,912						320,581
Other Noninterest Bearing Liabilities		9,274						9,893						7,877
Total Noninterest Bearing Liabilities		410,754						379,805						328,458
Shareholders’ Equity		231,374						225,844						202,101
Total Liabilities and Shareholders’ Equity	$	2,069,707					$	2,011,174					$	1,715,335
Net Interest Income / Interest Rate Spread				18,371	2.98	%				17,376	2.93	%				16,161	3.36	%
Net Interest Margin ⁽³⁾					3.60	%					3.54	%					3.82	%
Taxable Equivalent Adjustment:
Tax-Exempt Investment Securities				(233)						(245)						(262)
Net Interest Income			$	18,138					$	17,131					$	15,899

Interest income and average rates for tax-exempt investment securities are presented on a tax-equivalent basis, assuming a statutory federal income tax rate of 21%.
Average loan balances include nonaccrual loans. Interest income on loans includes amortization of deferred loan fees, net of deferred loan costs.
Net interest margin includes the tax equivalent adjustment and represents the annualized results of: (i) the difference between interest income on interest earning assets and the interest expense on interest bearing liabilities, divided by (ii) average interest earning assets for the period.

Provision for Loan Losses

The provision for loan losses was $600,000 for the second quarter of 2019 and the first quarter of 2019. The provision for loan losses decreased $300,000 in the second quarter of 2019, compared to $900,000 for the second quarter of 2018. The provision for loan losses decreased in the second quarter of 2019 due to a decrease in charge-offs and increase in recoveries, in comparison to the second quarter of 2018.

The following table presents a reconciliation of the Company’s allowance for loan losses for the periods indicated:


	Three Months Ended									Six Months Ended
	June 30,			March 31,			June 30,			June 30,			June 30,
(dollars in thousands)	2019			2019			2018			2019			2018
Balance at Beginning of Period	$	20,607		$	20,031		$	17,121		$	20,031		$	16,502
Provision for Loan Losses		600			600			900			1,200			1,500
Charge-offs		(3	)		(36	)		(361	)		(39	)		(373	)
Recoveries		158			12			6			170			37
Balance at End of Period	$	21,362		$	20,607		$	17,666		$	21,362		$	17,666

Noninterest Income

Noninterest income was $1.1 million for the second quarter of 2019, an increase of $500,000 from $634,000 for the first quarter of 2019, and an increase of $649,000 from $485,000 for the second quarter of 2018. The increase compared to both prior periods was primarily due to increased gains on sales of securities.

The following table presents the major components of noninterest income for the periods indicated:


	Three Months Ended								Six Months Ended
	June 30,		March 31,			June 30,			June 30,		June 30,
(dollars in thousands)	2019		2019			2018			2019		2018
Noninterest Income:
Customer Service Fees	$	189	$	191		$	185		$	380	$	355
Net Gain (Loss) on Sales of Securities		463		(5	)		(59	)		458		(59	)
Net Loss on Sales of Foreclosed Assets	—		—				(141	)	—			(137	)
Letter of Credit Fees		213		246			297			459		367
Debit Card Interchange Fees		109		88			96			197		188
Other Income		160		114			107			274		158
Totals	$	1,134	$	634		$	485		$	1,768	$	872

Noninterest Expense

Noninterest expense was $9.5 million for the second quarter of 2019, an increase of $1.6 million from $7.9 million for the first quarter of 2019, and an increase of $3.0 million from $6.5 million for the second quarter of 2018. The increase compared to both prior periods was attributed to the amortization of tax credit investments and continued investments in employees, technology, marketing, and other operating costs to meet the needs of the Company’s growth and brand awareness efforts.

The following table presents the major components of noninterest expense for the periods indicated:


	Three Months Ended						Six Months Ended
	June 30,		March 31,		June 30,		June 30,		June 30,
(dollars in thousands)	2019		2019		2018		2019		2018
Noninterest Expense:
Salaries and Employee Benefits	$	5,124	$	4,802	$	4,306	$	9,926	$	8,624
Occupancy and Equipment		785		656		597		1,441		1,171
FDIC Insurance Assessment		285		285		165		570		435
Data Processing		151		153		126		304		158
Professional and Consulting Fees		451		388		222		839		523
Information Technology and Telecommunications		208		236		220		444		403
Marketing and Advertising		404		465		280		869		564
Intangible Asset Amortization		47		48		47		95		95
Amortization of Tax Credit Investments		1,390		177		—		1,567		—
Other Expense		629		675		501		1,304		1,023
Totals	$	9,474	$	7,885	$	6,464	$	17,359	$	12,996

The Company had 150 full-time equivalent employees at June 30, 2019, compared to 143 employees at March 31, 2019, and 125 employees at June 30, 2018. The increases include key strategic hires in deposit gathering, lending, and other supportive roles. While the recognition of tax credit investments creates volatility in the level of total noninterest expense and concurrently the efficiency ratio, it directly reduces income tax expense and the effective tax rate. The efficiency ratio, a non-GAAP financial measure, was 50.1% for the second quarter of 2019, compared to 44.1% for the first quarter of 2019, and 39.0% for the second quarter of 2018. Excluding the impact of the amortization of tax credit investments, the adjusted efficiency ratio, a non-GAAP financial measure, was 42.7% for the second quarter of 2019, 43.1% for the first quarter of 2019, and 39.0% for the second quarter of 2018.

Income Taxes

The effective combined federal and state income tax rate for the second quarter of 2019 was 12.9%, a decrease from 24.4% for the first quarter of 2019, and a decrease from 25.2% for the second quarter of 2018. The lower effective combined rate compared to both periods was due to the recognition of tax credits that became eligible to be applied in 2019. The effective combined federal and state income tax rate for the six months ended June 30, 2019 was 18.7%.

Balance Sheet

Total assets at June 30, 2019 were $2.12 billion, a 3.7% increase from $2.05 billion at March 31, 2019, and a 21.1% increase from $1.75 billion at June 30, 2018. The increase in total assets was primarily due to organic loan growth.

Total gross loans at June 30, 2019 were $1.78 billion, an increase of $61.3 million, or 3.6%, over total gross loans of $1.72 billion at March 31, 2019, and an increase of $321.6 million, or 22.0%, over total gross loans of $1.46 billion at June 30, 2018.

The following table details the composition of the Company’s loan portfolio, by category, at the dates indicated:


	June 30, 2019			March 31, 2019			December 31, 2018			September 30, 2018			June 30, 2018
(dollars in thousands)
Commercial and Industrial	$	287,804		$	284,807		$	260,833		$	235,502		$	204,072
Construction and Land Development		195,568			178,782			210,041			187,919			164,492
Real Estate Mortgage:
1 – 4 Family Mortgage		247,029			233,131			226,773			224,124			213,265
Multifamily		437,198			417,975			407,934			389,511			340,888
CRE Owner Occupied		68,681			66,130			64,458			65,905			65,891
CRE Nonowner Occupied		544,579			538,998			490,632			492,499			470,437
Total Real Estate Mortgage Loans		1,297,487			1,256,234			1,189,797			1,172,039			1,090,481
Consumer and Other		4,044			3,806			4,260			4,504			4,275
Total Loans, Gross		1,784,903			1,723,629			1,664,931			1,599,964			1,463,320
Allowance for Loan Losses		(21,362	)		(20,607	)		(20,031	)		(18,949	)		(17,666	)
Net Deferred Loan Fees		(5,157	)		(4,791	)		(4,515	)		(4,308	)		(4,058	)
Total Loans, Net	$	1,758,384		$	1,698,231		$	1,640,385		$	1,576,707		$	1,441,596

Total deposits at June 30, 2019 were $1.70 billion, an increase of $55.6 million, or 3.4%, over total deposits of $1.

Contacts

Investor Relations Contact:

Jerry Baack

Chief Executive Officer

[email protected]

952-893-6866

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