Bridgewater Bancshares, Inc. Announces Third 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 $7.8 million for the third quarter of 2019, a 20.8% increase over net income of $6.5 million for the third quarter of 2018. Net income per diluted common share for the third quarter of 2019 was $0.27, a 24.8% increase, compared to $0.21 per diluted common share for the same period in 2018.

“We produced solid financial results in the third quarter as we continue to drive shareholder value,” commented Chairman, Chief Executive Officer, and President, Jerry Baack. “We could not be more pleased with our deposit growth of $103.0 million during the quarter, representing 24.0% annualized growth. This result reflects our ongoing investment in our deposit offering platform and brand awareness efforts. Profitable loan growth continues to be at the forefront of our business plan and we remain focused on disciplined loan pricing in this challenging rate environment. Our asset quality remains strong as demonstrated by our nonperforming assets to total assets ratio of 0.04%, which speaks to our diligent underwriting practices and the health of the diversified Twin Cities economy.”

Third Quarter 2019 Financial Results

		Diluted		Adjusted	Tangible book
ROA	ROE	Earnings per share		efficiency ratio ⁽¹⁾	value per share ⁽²⁾
1.43%	13.31%	$	0.27	42.9%	$	8.08

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 $7.8 million for the third quarter of 2019, compared to $8.0 million for the second quarter of 2019.

Diluted earnings per common share were $0.27 for the third quarter of 2019, compared to $0.26 for the second quarter of 2019.

Tangible book value per share, a non-GAAP financial measure, was $8.08 at September 30, 2019, compared to $7.78 at June 30, 2019.

Annualized return on average assets (ROA) and return on average common equity (ROE) for the third quarter of 2019 were 1.43% and 13.31%, respectively, compared to annualized ROA and ROE of 1.55% and 13.88%, respectively, for the second quarter of 2019.

Gross loans increased $61.3 million, or 13.6% on an annualized basis, to $1.85 billion at September 30, 2019, compared to June 30, 2019.

Deposits increased $103.0 million, or 24.0% on an annualized basis, to $1.80 billion at September 30, 2019, compared to June 30, 2019.

The ratio of nonperforming assets to total assets was 0.04% at September 30, 2019, compared to 0.07% at June 30, 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 42.9% for the third quarter of 2019, compared to 42.7% for the second quarter of 2019.

Year-Over-Year Highlights

Net income was $7.8 million for the third quarter of 2019, compared to $6.5 million for the third quarter of 2018, an increase of $1.3 million, or 20.8%.

Diluted earnings per common share were $0.27 for the third quarter of 2019, compared to $0.21 for the third quarter of 2018, an increase of 24.8%.

Tangible book value per share, a non-GAAP financial measure, increased 17.2%, or $1.19, to $8.08 at September 30, 2019, compared to $6.89 at September 30, 2018.

Annualized ROA and ROE for the third quarter of 2019 were 1.43% and 13.31%, respectively, compared to annualized ROA and ROE of 1.41% and 12.28%, respectively, for the third quarter of 2018.

Gross loans increased $246.3 million, or 15.4%, at September 30, 2019, compared to September 30, 2018.

Deposits increased $323.1 million, or 21.8%, at September 30, 2019, compared to September 30, 2018.

The ratio of nonperforming assets to total assets was 0.04% at September 30, 2019 and September 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 42.9% for the third quarter of 2019, compared to 42.7% for the third quarter of 2018.

Key Financial Measures


	As of and for the Three Months Ended									As of and for the Nine Months Ended
	September 30,			June 30,			September 30,			September 30,			September 30,
	2019			2019			2018			2019			2018
Per Common Share Data ⁽¹⁾
Basic Earnings Per Share	$	0.27		$	0.27		$	0.22		$	0.77		$	0.67
Diluted Earnings Per Share		0.27			0.26			0.21			0.76			0.66
Book Value Per Share		8.20			7.90			7.01			8.20			7.01
Tangible Book Value Per Share ⁽²⁾		8.08			7.78			6.89			8.08			6.89
Basic Weighted Average Shares Outstanding		28,820,144			29,703,024			30,059,374			29,535,589			28,640,601
Diluted Weighted Average Shares Outstanding		29,497,961			30,312,039			30,489,648			30,181,556			29,070,876
Shares Outstanding at Period End		28,781,162			28,986,729			30,059,374			28,781,162			30,059,374

Selected Performance Ratios
Return on Average Assets (Annualized)		1.43	%		1.55	%		1.41	%		1.46	%		1.49	%
Return on Average Common Equity (Annualized)		13.31			13.88			12.28			13.27			13.70
Return on Average Tangible Common Equity (Annualized)⁽²⁾		13.52			14.10			12.51			13.49			13.99
Yield on Interest Earning Assets		4.98			5.05			4.92			5.01			4.85
Yield on Total Loans, Gross		5.32			5.33			5.25			5.31			5.22
Cost of Interest Bearing Liabilities		2.04			2.07			1.73			2.06			1.54
Cost of Total Deposits		1.42			1.46			1.19			1.44			1.05
Net Interest Margin ⁽³⁾		3.56			3.60			3.71			3.57			3.76
Efficiency Ratio⁽²⁾		45.6			50.1			42.7			46.6			41.5
Adjusted Efficiency Ratio ⁽⁴⁾		42.9			42.7			42.7			42.9			41.5
Noninterest Expense to Average Assets (Annualized)		1.66			1.84			1.64			1.70			1.60
Adjusted Noninterest Expense to Average Assets (Annualized) ⁽⁴⁾		1.56			1.57			1.64			1.56			1.59
Loan to Deposit Ratio		102.4			105.0			108.2
Core Deposits to Total Deposits		79.9			78.3			76.6
Tangible Common Equity to Tangible Assets ⁽²⁾		10.43			10.64			11.01

Capital Ratios (Bank Only)
Tier 1 Leverage Ratio		10.88	%		10.99	%		11.16	%
Tier 1 Risk-based Capital Ratio		11.61			11.73			11.82
Total Risk-based Capital Ratio		12.44			12.67			12.95

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


	September 30,		June 30,		March 31,		December 31,		September 30,
(dollars in thousands)	2019		2019		2019		2018		2018
Selected Balance Sheet Data
Total Assets	$	2,232,339	$	2,123,631	$	2,048,111	$	1,973,741	$	1,885,793
Total Loans, Gross		1,846,218		1,784,903		1,723,629		1,664,931		1,599,964
Allowance for Loan Losses		22,124		21,362		20,607		20,031		18,949
Goodwill and Other Intangibles		3,535		3,582		3,630		3,678		3,726

Deposits		1,802,236		1,699,265		1,643,666		1,560,934		1,479,088
Tangible Common Equity⁽¹⁾		232,524		225,555		228,145		217,320		207,126
Total Shareholders’ Equity		236,059		229,137		231,775		220,998		210,852
Average Total Assets – Quarter-to-Date		2,168,909		2,069,707		2,011,174		1,948,909		1,816,485
Average Common Equity – Quarter-to-Date		232,590		231,374		225,844		215,254		208,773

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


	For the Three Months Ended						For the Nine Months Ended
	September 30,		June 30,		September 30,		September 30,		September 30,
(dollars in thousands)	2019		2019		2018		2019		2018
Selected Income Statement Data
Interest Income	$	26,572	$	25,520	$	22,136	$	76,359	$	61,238
Interest Expense		7,637		7,382		5,502		22,155		13,942
Net Interest Income		18,935		18,138		16,634		54,204		47,296
Provision for Loan Losses		900		600		1,275		2,100		2,775
Net Interest Income after Provision for Loan Losses		18,035		17,538		15,359		52,104		44,521
Noninterest Income		946		1,134		814		2,714		1,686
Noninterest Expense		9,084		9,474		7,526		26,443		20,522
Income Before Income Taxes		9,897		9,198		8,647		28,375		25,685
Provision for Income Taxes		2,092		1,189		2,184		5,543		6,526
Net Income	$	7,805	$	8,009	$	6,463	$	22,832	$	19,159

Income Statement

Net Interest Income

Net interest income was $18.9 million for the third quarter of 2019, an increase of $797,000, or 4.4%, from $18.1 million in the second quarter of 2019, and an increase of $2.3 million, or 13.8%, from $16.6 million in the third quarter of 2018. The linked-quarter increase in net interest income was driven by growth in average interest earning assets. The year-over-year increase in net interest income was largely attributable to growth in average interest earning assets, which increased by $329.5 million, or 18.2%, to $2.13 billion for the third quarter of 2019, from $1.81 billion for the third 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 third quarter of 2019 was 3.56%, a 4 basis point decrease from 3.60% in the second quarter of 2019, and a 15 basis point decrease from 3.71% in the third quarter of 2018. While yield curve dynamics and lower market rates have weighed on earning asset yields, and subsequently the Company’s net interest margin, funding costs have benefitted as evidenced by the 3 basis point decline over the linked-quarter. On a year-over-year basis, net interest margin benefitted from repricing of variable-rate loans and the origination of new loans at higher rates; however, it compressed due to elevated cash balances, lower loan fees recognized, and increased rates paid on deposits and borrowings.

Interest income was $26.6 million for the third quarter of 2019, an increase of $1.1 million, or 4.1%, from $25.5 million in the second quarter of 2019, and an increase of $4.4 million, or 20.0%, from $22.1 million in the third quarter of 2018. The yield on interest earning assets (on a fully tax-equivalent basis) was 4.98% in the third quarter of 2019, compared to 5.05% in the second quarter of 2019 and 4.92% in the third quarter of 2018.

Loan interest income and loan fees remain the primary contributing factors to the year-over-year increase in yield on interest earning assets, driving the aggregate loan yield 7 basis points higher from 5.25% in the third quarter of 2018 to 5.32% in the third quarter of 2019. The linked-quarter decrease of the aggregate loan yield of 1 basis point was primarily due to competitive market pressures and lower interest rates. On a year-over-year basis, 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 periods indicated is as follows:


	Three Months Ended
	September 30, 2019		June 30, 2019		March 31, 2019		December 31, 2018		September 30, 2018
Interest	5.07	%	5.10	%	5.07	%	4.98	%	4.87	%
Fees	0.25		0.23		0.20		0.29		0.38
Yield on Loans	5.32	%	5.33	%	5.27	%	5.27	%	5.25	%

Interest expense was $7.6 million for the third quarter of 2019, an increase of $255,000, or 3.5%, from $7.4 million in the second quarter of 2019, and an increase of $2.1 million, or 38.8%, from $5.5 million in the third quarter of 2018. The cost of interest bearing liabilities decreased to 2.04% in the third quarter of 2019 from 2.07% in the second quarter of 2019, primarily due to the Company exercising embedded optionality in the brokered deposit portfolio and supplementing the portfolio with strong core deposit growth at lower rates. On a year-over-year basis, the cost of interest bearing liabilities was up 31 basis points from 1.73% in the third quarter of 2018 to 2.04% in the third quarter of 2019 due to higher costs and repricing of deposits and borrowings during the period. Despite the Federal Open Market Committee cutting rates by 25 basis points twice during the period, 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 September 30, 2019, June 30, 2019 and September 30, 2018 is as follows:


	For the Three Months Ended
	September 30, 2019						June 30, 2019						September 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	$	73,970	$	346	1.86	%	$	38,142	$	171	1.80	%	$	23,822	$	72	1.20	%
Investment Securities:
Taxable Investment Securities		151,319		1,095	2.87			140,890		1,058	3.01			132,197		839	2.52
Tax-Exempt Investment Securities⁽¹⁾		95,575		1,031	4.28			103,223		1,103	4.28			116,042		1,204	4.12
Total Investment Securities		246,894		2,126	3.42			244,113		2,161	3.55			248,239		2,043	3.27
Loans ⁽²⁾		1,805,920		24,220	5.32			1,755,686		23,321	5.33			1,526,765		20,207	5.25
Federal Home Loan Bank Stock		8,111		96	4.72			7,694		100	5.23			6,619		67	4.02
Total Interest Earning Assets		2,134,895		26,788	4.98	%		2,045,635		25,753	5.05	%		1,805,445		22,389	4.92	%
Noninterest Earning Assets		34,014						24,072						11,040
Total Assets	$	2,168,909					$	2,069,707					$	1,816,485
Interest Bearing Liabilities:
Interest Bearing Transaction Deposits		250,667		511	0.81	%		202,886		387	0.77	%		171,923		165	0.38	%
Savings and Money Market Deposits		453,340		2,080	1.82			431,716		1,938	1.80			398,092		1,373	1.37
Time Deposits		359,329		2,229	2.46			354,026		2,120	2.40			295,320		1,490	2.00
Brokered Deposits		242,600		1,389	2.27			266,804		1,575	2.37			241,355		1,294	2.13
Federal Funds Purchased		—		—	—			2,089		12	2.24			27,391		147	2.13
Notes Payable		13,500		127	3.73			14,000		130	3.72			15,500		144	3.69
FHLB Advances		143,690		908	2.51			131,385		827	2.52			89,652		488	2.16
Subordinated Debentures		24,699		393	6.31			24,673		393	6.39			24,595		401	6.47
Total Interest Bearing Liabilities		1,487,825		7,637	2.04	%		1,427,579		7,382	2.07	%		1,263,828		5,502	1.73	%
Noninterest Bearing Liabilities:
Noninterest Bearing Transaction Deposits		434,021						401,480						335,483
Other Noninterest Bearing Liabilities		14,473						9,274						8,401
Total Noninterest Bearing Liabilities		448,494						410,754						343,884
Shareholders’ Equity		232,590						231,374						208,773
Total Liabilities and Shareholders’ Equity	$	2,168,909					$	2,069,707					$	1,816,485
Net Interest Income / Interest Rate Spread				19,151	2.94	%				18,371	2.98	%				16,887	3.19	%
Net Interest Margin ⁽³⁾					3.56	%					3.60	%					3.71	%
Taxable Equivalent Adjustment:
Tax-Exempt Investment Securities				(216)						(233)						(253)
Net Interest Income			$	18,935					$	18,138					$	16,634

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 $900,000 for the third quarter of 2019, an increase of $300,000 from $600,000 for the second quarter of 2019, and a decrease of $375,000 from $1.3 million for the third quarter of 2018. The provision for loan losses increased in the third quarter of 2019 due to an increase in charge-offs and decrease in recoveries, compared to the second quarter of 2019. The year-over-year decrease was attributable to the strong asset quality and consistent performance of the loan portfolio within the diversified Twin Cities economy.

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


	Three Months Ended						Nine Months Ended
	September 30,		June 30,		September 30,		September 30,		September 30,
(dollars in thousands)	2019		2019		2018		2019		2018
Balance at Beginning of Period	$	21,362	$	20,607	$	17,666	$	20,031	$	16,502
Provision for Loan Losses		900		600		1,275		2,100		2,775
Charge-offs		(144)		(3)		(11)		(183)		(384)
Recoveries		6		158		19		176		56
Balance at End of Period	$	22,124	$	21,362	$	18,949	$	22,124	$	18,949

Noninterest Income

Noninterest income was $946,000 for the third quarter of 2019, a decrease of $188,000 from $1.1 million for the second quarter of 2019, and an increase of $132,000 from $814,000 for the third quarter of 2018. The linked-quarter decrease was primarily due to decreased gains on sales of securities. The year-over-year increase was primarily due to increased gains on sales of securities and foreclosed assets, offset partially by decreased letter of credit fees.

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


	Three Months Ended						Nine Months Ended
	September 30,		June 30,		September 30,		September 30,		September 30,
(dollars in thousands)	2019		2019		2018		2019		2018
Noninterest Income:
Customer Service Fees	$	184	$	189	$	184	$	564	$	539
Net Gain (Loss) on Sales of Securities		58		463		(49)		516		(108)
Net Gain (Loss) on Sales of Foreclosed Assets		69		—		(88)		69		(225)
Letter of Credit Fees		331		213		447		790		814
Debit Card Interchange Fees		116		109		99		313		287
Other Income		188		160		221		462		379
Totals	$	946	$	1,134	$	814	$	2,714	$	1,686

Noninterest Expense

Noninterest expense was $9.1 million for the third quarter of 2019, a decrease of $390,000 from $9.5 million for the second quarter of 2019, and an increase of $1.6 million from $7.5 million for the third quarter of 2018. The linked-quarter decrease was primarily due to decreased amortization of tax credit investments and an FDIC insurance assessment credit applied in the current period, offset partially by increased salaries and employee benefits expense. The year-over-year increase 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						Nine Months Ended
	September 30,		June 30,		September 30,		September 30,		September 30,
(dollars in thousands)	2019		2019		2018		2019		2018
Noninterest Expense:
Salaries and Employee Benefits	$	5,915	$	5,124	$	4,910	$	15,841	$	13,534
Occupancy and Equipment		761		785		596		2,202		1,767
FDIC Insurance Assessment		—		285		240		570		675
Data Processing		182		151		167		486		325
Professional and Consulting Fees		414		451		313		1,253		836
Information Technology and Telecommunications		233		208		271		677		674
Marketing and Advertising		339		404		347		1,208		911
Intangible Asset Amortization		48		47		48		143		143
Amortization of Tax Credit Investments		530		1,390		15		2,097		15
Other Expense		662		629		619		1,966		1,642
Totals	$	9,084	$	9,474	$	7,526	$	26,443	$	20,522

The Company had 158 full-time equivalent employees at September 30, 2019, compared to 150 employees at June 30, 2019, and 139 employees at September 30, 2018. The increases include strategic hires in deposit gathering, lending, technology, 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 45.6% for the third quarter of 2019, compared to 50.1% for the second quarter of 2019, and 42.7% for the third quarter of 2018. Excluding the impact of the amortization of tax credit investments, the adjusted efficiency ratio, a non-GAAP financial measure, was 42.9% for the third quarter of 2019, and 42.7% for the second quarter of 2019 and third quarter of 2018.

Income Taxes

The effective combined federal and state income tax rate for the third quarter of 2019 was 21.1%, an increase from 12.9% for the second quarter of 2019, and a decrease from 25.3% for the third quarter of 2018. The lower effective combined rates in 2019 compared to 2018 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 nine months ended September 30, 2019 was 19.5%.

Balance Sheet

Total assets at September 30, 2019 were $2.23 billion, a 5.1% increase from $2.12 billion at June 30, 2019, and a 18.4% increase from $1.89 billion at September 30, 2018. The increase in total assets was primarily due to organic loan growth.

Total gross loans at September 30, 2019 were $1.85 billion, a net increase of $61.3 million, or 3.4%, over total gross loans of $1.78 billion at June 30, 2019, and an increase of $246.3 million, or 15.4%, over total gross loans of $1.60 billion at September 30, 2018.

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


	September 30, 2019		June 30, 2019		March 31, 2019		December 31, 2018		September 30, 2018
(dollars in thousands)
Commercial and Industrial	$	291,723	$	287,804	$	284,807	$	260,833	$	235,502
Construction and Land Development		216,054		195,568		178,782		210,041		187,919
Real Estate Mortgage:
1 – 4 Family Mortgage		254,782		247,029		233,131		226,773		224,124
Multifamily		456,257		437,198		417,975		407,934		389,511
CRE Owner Occupied		71,209		68,681		66,130		64,458		65,905
CRE Nonowner Occupied		551,992		544,579		538,998		490,632		492,499
Total Real Estate Mortgage Loans		1,334,240		1,297,487		1,256,234		1,189,797		1,172,039
Consumer and Other		4,201		4,044		3,806		4,260		4,504
Total Loans, Gross		1,846,218		1,784,903		1,723,629		1,664,931		1,599,964
Allowance for Loan Losses		(22,124)		(21,362)		(20,607)		(20,031)		(18,949)
Net Deferred Loan Fees		(5,788)		(5,157)		(4,791)		(4,515)		(4,308)
Total Loans, Net	$	1,818,306	$	1,758,384	$	1,698,231	$	1,640,385	$	1,576,707

Contacts

Investor Relations Contact:

Jerry Baack

Chief Executive Officer

[email protected]
952-893-6866

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