Bridgewater Bancshares, Inc. Announces Record Annual and Fourth 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 $8.6 million for the fourth quarter of 2019, a 10.4% increase over net income of $7.8 million for the fourth quarter of 2018. Net income per diluted common share for the fourth quarter of 2019 was $0.29, a 14.0% increase, compared to $0.25 per diluted common share for the same period in 2018.

“We are pleased to announce record earnings for the fourth quarter and full year of 2019, which reflects the hard work and dedication of our BWB team,” noted Chairman, Chief Executive Officer, and President, Jerry Baack. “We continue to work diligently to grow both sides of the balance sheet as demonstrated by the Company’s annual, organic growth of 14.8% in gross loans and 16.8% in deposits. Despite this challenging rate environment, we are encouraged by our net interest margin stabilization as we actively manage our deposit costs lower. As our loan trajectory continues, asset quality remains strong with our nonperforming assets to total assets ratio at just 0.02% at the end of the year. Heading into 2020, we look forward to further technology investments aimed at enhancing our current client experience and servicing prospective clients attracted to our responsive support and simple solutions. We are grateful to be operating within the vibrant Twin Cities market and continue to brand ourselves as the only locally led, publicly traded community bank.”

Linked-Quarter Highlights

• Net income was $8.6 million for the fourth quarter of 2019, compared to $7.8 million for the third quarter of 2019, an increase of $766,000, or 9.8%.
• Diluted earnings per common share for the fourth quarter of 2019 were $0.29, compared to $0.27 for the third quarter of 2019, an increase of 9.6%.
• Annualized return on average assets (ROA) and return on average common equity (ROE) for the fourth quarter of 2019 were 1.53% and 14.16%, respectively, compared to annualized ROA and ROE of 1.43% and 13.31%, respectively, for the third quarter of 2019.
• The ratio of nonperforming assets to total assets was 0.02% at December 31, 2019, compared to 0.04% at September 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 44.3% for the fourth quarter of 2019, compared to 42.9% for the third quarter of 2019.

Annual 2019 Highlights

• Net income was $31.4 million for the year ended December 31, 2019, compared to $26.9 million for the year ended December 31, 2018, an increase of 16.7%.
• Diluted earnings per common share for the year ended December 31, 2019 were $1.05, compared to $0.91 for the year ended December 31, 2018, an increase of 14.5%.
• ROA and ROE for the year ended December 31, 2019 were 1.49% and 13.50%, respectively, compared to ROA and ROE of 1.51% and 13.87%, respectively, for the year ended December 31, 2018.
• Tangible book value per share, a non-GAAP financial measure, was $8.33 at December 31, 2019, compared to $7.22 at December 31, 2018, an increase of 15.3%.
• Gross loans increased $247.1 million, or 14.8%, at December 31, 2019, compared to December 31, 2018.
• Deposits increased $262.4 million, or 16.8%, at December 31, 2019, compared to December 31, 2018.
• Net loan charge-offs as a percent of average loans was 0.01% for the year ended December 31, 2019, compared to 0.00% for the year ended December 31, 2018.
• The ratio of nonperforming assets to total assets decreased to 0.02% at December 31, 2019, compared to 0.03% at December 31, 2018.
• The adjusted efficiency ratio, a non-GAAP financial measure was 43.3% for the year ended December 31, 2019, compared to 41.7% for the year ended December 31, 2018.

Income Statement

Net Interest Income

Net interest income was $19.9 million for the fourth quarter of 2019, an increase of $993,000, or 5.2%, from $18.9 million in the third quarter of 2019, and an increase of $2.5 million, or 14.3%, from $17.4 million in the fourth quarter of 2018. The linked-quarter increase in net interest income was due to growth in average interest earning assets, as well as a change in the mix of 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 $249.9 million, or 12.9%, to $2.19 billion for the fourth quarter of 2019, from $1.94 billion for the fourth 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 fourth quarter of 2019 was 3.65%, a 9 basis point increase from 3.56% in the third quarter of 2019, and a 3 basis point increase from 3.62% in the fourth quarter of 2018. The linked-quarter increase in net interest margin can be attributed to an increase in loan fee income and lower rates paid on deposits. The year-over-year increase in net interest margin can be largely attributed to an increase in interest and fees earned on loans which outpaced the higher rates paid on deposits and borrowings.

Interest income was $27.4 million for the fourth quarter of 2019, an increase of $847,000, or 3.2%, from $26.6 million in the third quarter of 2019, and an increase of $3.4 million, or 14.3%, from $24.0 million in the fourth quarter of 2018. The yield on interest earning assets (on a fully tax-equivalent basis) was 5.01% in the fourth quarter of 2019, compared to 4.98% in the third quarter of 2019, and 4.96% in the fourth quarter of 2018.

Loan interest income and loan fees remain the primary contributing factors to the linked-quarter and year-over-year increases in yield on interest earning assets, driving the aggregate loan yield to 5.33% in the fourth quarter of 2019, which is 1 basis point higher than 5.32% in the third quarter of 2019, and 6 basis points higher than 5.27% in the fourth quarter of 2018. 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. Increased loan fees recognized in the fourth quarter of 2019 in comparison to the third quarter of 2019 and the fourth quarter of 2018 were primarily due to the accelerated recognition of deferred fees on loans that were paid off prior to maturity.

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

Interest expense was $7.5 million for the fourth quarter of 2019, a decrease of $146,000, or 1.9%, from $7.6 million in the third quarter of 2019, and an increase of $945,000, or 14.4%, from $6.5 million in the fourth quarter of 2018. The cost of interest bearing liabilities decreased to 1.96% in the fourth quarter of 2019 from 2.04% in the third quarter of 2019, primarily due to lower rates paid on deposits, particularly on savings and money market accounts. On a year-over-year basis, the cost of interest bearing liabilities was up 4 basis points from 1.92% in the fourth quarter of 2018 to 1.96% in the fourth quarter of 2019 due to higher costs and repricing of deposits and borrowings during the period. Local market competition for deposits remains fierce, driving top of market rates to remain competitive on interest bearing deposits.

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

Provision for Loan Losses

The provision for loan losses was $600,000 for the fourth quarter of 2019, a decrease of $300,000 from $900,000 for the third quarter of 2019, and a decrease of $200,000 from $800,000 for the fourth quarter of 2018. The decrease in both periods 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:

Noninterest Income

Noninterest income was $1.1 million for the fourth quarter of 2019, an increase of $166,000 from $946,000 for the third quarter of 2019, and an increase of $255,000 from $857,000 for the fourth quarter of 2018. The linked-quarter increase was primarily due to increased letter of credit and swap fees, offset partially by decreased gains on sales of securities and foreclosed assets. The year-over-year increase was primarily due to increased swap fees, offset partially by decreased letter of credit fees.

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

Noninterest Expense

Noninterest expense was $10.5 million for the fourth quarter of 2019, an increase of $1.4 million from $9.1 million for the third quarter of 2019, and a decrease of $551,000 from $11.0 million for the fourth quarter of 2018. The linked-quarter increase was primarily due to increased salaries and employee benefits, occupancy and equipment, amortization of tax credit investments and FDIC insurance assessment. The year-over-year decrease was attributed to decreased amortization of tax credit investments, offset partially by increased salaries and employee benefits.

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

The Company had 160 full-time equivalent employees at December 31, 2019, compared to 158 employees at September 30, 2019, and 140 employees at December 31, 2018. Throughout the year, the increased head count included 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 49.6% for the fourth quarter of 2019, compared to 45.6% for the third quarter of 2019, and 60.0% for the fourth quarter of 2018. Excluding the impact of the amortization of tax credit investments, the adjusted efficiency ratio, a non-GAAP financial measure, was 44.3% for the fourth quarter of 2019, 42.9% for the third quarter of 2019 and 42.1% for the fourth quarter of 2018.

Income Taxes

The effective combined federal and state income tax rate for the fourth quarter of 2019 was 13.9%, a decrease from 21.1% for the third quarter of 2019, and an increase from (20.2)% for the fourth quarter of 2018. The lower effective combined rate in the fourth quarter of 2019 compared to the third quarter of 2019 was primarily due to the recognition of tax credits that became eligible to be applied. Conversely, the higher effective combined rate in the fourth quarter of 2019 compared to the fourth quarter of 2018 was primarily due to fewer tax credits being recognized. The effective combined federal and state income tax rate was 18.1% for the year ended December 31, 2019, compared to 16.3% for the year ended December 31, 2018.

Balance Sheet

Total assets at December 31, 2019 were $2.27 billion, a 1.6% increase from $2.23 billion at September 30, 2019, and a 15.0% increase from $1.97 billion at December 31, 2018. The increase in total assets was primarily due to organic loan growth.

Total gross loans at December 31, 2019 were $1.91 billion, an increase of $65.8 million, or 3.6%, over total gross loans of $1.85 billion at September 30, 2019, and an increase of $247.1 million, or 14.8%, over total gross loans of $1.66 billion at December 31, 2018.

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

Total deposits at December 31, 2019 were $1.82 billion, an increase of $21.1 million, or 1.2%, over total deposits of $1.80 billion at September 30, 2019, and an increase of $262.4 million, or 16.8%, over total deposits of $1.56 billion at December 31, 2018. The linked-quarter decrease of $31.0 million in noninterest bearing transaction deposits was primarily due to seasonality among the Company’s title company deposit clients, which may experience higher fluctuations in their ordinary course of business.

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

Total shareholders’ equity at December 31, 2019 was $244.8 million, an increase of $8.7 million, or 3.7%, over total shareholders’ equity of $236.1 million at September 30, 2019, and an increase of $23.8 million, or 10.8%, over total shareholders’ equity of $221.0 million at December 31, 2018. The linked-quarter increase was due to net income retained, partially offset by a decrease in unrealized gains in the securities portfolio. The year-over-year increase was due to net income retained and increased unrealized gains in the securities portfolio, partially offset by stock repurchases made under the Company’s stock buyback program. There were no stock repurchases made under this program during the fourth quarter of 2019.

Tangible book value per share, a non-GAAP financial measure, was $8.33 as of December 31, 2019, an increase of 3.1% from $8.08 as of September 30, 2019, and an increase of 15.3% from $7.22 as of December 31, 2018.

Asset Quality

Asset quality metrics for the Company remained strong at December 31, 2019. Annualized net charge-offs (recoveries) as a percent of average loans for the fourth quarter of 2019 were 0.04%, compared to 0.03% for the third quarter of 2019, and (0.07)% for the fourth quarter of 2018. At December 31, 2019, the Company’s nonperforming assets, which include nonaccrual loans, loans past due 90 days and still accruing, and foreclosed assets, were $461,000, or 0.02% of total assets, as compared to $828,000, or 0.04% of total assets at September 30, 2019, and $581,000, or 0.03% of total assets at December 31, 2018.

About the Company

Bridgewater Bancshares, Inc. is a financial holding company headquartered in Bloomington, Minnesota. The Company has two wholly owned subsidiaries, Bridgewater Bank, a Minnesota-chartered commercial bank founded in November 2005, and Bridgewater Risk Management, Inc., a captive insurance company founded in December 2016. Bridgewater Bank has two wholly owned subsidiaries, Bridgewater Investment Management, Inc. and BWB Holdings, LLC. Bridgewater Bank currently operates through 7 branches in Bloomington, Greenwood, Minneapolis (2), St. Louis Park, Orono, and St. Paul, all located within the Minneapolis-St. Paul-Bloomington metropolitan statistical area.

Use of Non-GAAP financial measures

In addition to the results presented in accordance with U.S. Generally Accepted Accounting Principles (GAAP), the Company routinely supplements its evaluation with an analysis of certain non-GAAP financial measures. The Company believes these non-GAAP financial measures, in addition to the related GAAP measures, provide meaningful information to investors to help them understand the Company’s operating performance and trends, and to facilitate comparisons with the performance of peers. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Reconciliations of non-GAAP disclosures used in this earnings release to the comparable GAAP measures are provided in the accompanying tables.

Forward-Looking Statements

This earnings release contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, statements concerning plans, estimates, calculations, forecasts and projections with respect to the anticipated future performance of the Company. These statements are often, but not always, identified by words such as “may”, “might”, “should”, “could”, “predict”, “potential”, “believe”, “expect”, “continue”, “will”, “anticipate”, “seek”, “estimate”, “intend”, “plan”, “projection”, “would”, “annualized”, “target” and “outlook”, or the negative version of those words or other comparable words of a future or forward-looking nature.

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following: loan concentrations in our portfolio; the overall health of the local and national real estate market; our ability to successfully manage credit risk; business and economic conditions generally and in the financial services industry, nationally and within our market area; our ability to maintain an adequate level of allowance for loan losses; the concentration of large loans to certain borrowers; the concentration of large deposits from certain customers; our ability to successfully manage liquidity risk; our dependence on non-core funding sources and our cost of funds; our ability to raise additional capital to implement our business plan; our ability to implement our growth strategy and manage costs effectively; the composition of our senior leadership team and our ability to attract and retain key personnel; the occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents; interruptions involving our information technology and telecommunications systems or third-party servicers; competition in the financial services industry; the effectiveness of our risk management framework; the commencement and outcome of litigation and other legal proceedings and regulatory actions against us; the impact of recent and future legislative and regulatory changes; interest rate risk; fluctuations in the values of the securities held in our securities portfolio; the imposition of tariffs or other governmental policies impacting the value of products produced by our commercial borrowers; severe weather, natural disasters, acts of war or terrorism or other adverse external events; and any other risks described in the “Risk Factors” sections of other reports filed by the Company with the Securities and Exchange Commission.

Any forward-looking statement made by us in this press release is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

View source version on businesswire.com: https://www.businesswire.com/news/home/20200123005128/en/

Investor Relations Contact: Jerry Baack Chief Executive Officer investorrelations@bwbmn.com 952-893-6866

Source: Bridgewater Bancshares, Inc.