Bridgewater Bancshares, Inc. Announces First Quarter 2020 Earnings

Company Release - 4/30/2020 7:05 AM ET

BLOOMINGTON, Minn.--(BUSINESS WIRE)-- Bridgewater Bancshares, Inc. (Nasdaq: BWB) (the Company), the parent company of Bridgewater Bank (the Bank), today announced net income of $7.4 million for the first quarter of 2020, a 6.1% increase over net income of $7.0 million for the first quarter of 2019. Net income per diluted common share for the first quarter of 2020 was $0.25, a 10.4% increase, compared to $0.23 per diluted common share for the same period in 2019.

“In this unprecedented time, it has become very clear that our people are passionate, flexible and committed to assisting our clients and communities in ways beyond measure. I have witnessed initiative, creativity, humor and resilience among our incredibly talented team,” commented Chairman, Chief Executive Officer, and President, Jerry Baack. “The COVID-19 pandemic has evolved rapidly and created a significant amount of disruption for our clients and their businesses. Our strong first quarter earnings and increased loan provisioning position us to be able to assist clients so that our communities will be able to better weather the severe business interruptions caused by the pandemic. The health and safety of our employees, their families and our clients and their businesses are our top priorities. We remain committed to safe and sound banking practices. As the situation continues to evolve, additional steps will be taken to further these efforts in the weeks ahead, subject to regulatory and governmental guidance.”

First Quarter 2020 Financial Results

 

 

 

 

Diluted

 

Nonperforming

 

Adjusted

 

Tangible common equity

ROA

 

ROE

 

Earnings per share

 

assets to total assets

 

efficiency ratio (1)

 

to tangible assets (2)

1.29%

 

11.94%

 

$

0.25

 

0.03%

 

44.1%

 

10.13%

(1)

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

(2)

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

Linked-Quarter Highlights

  • Annualized pre-provision net revenue return on average assets (PPNR ROA), a non-GAAP financial measure, was 2.11% for the first quarter of 2020, compared to 2.09% for the fourth quarter of 2019.
  • Gross loans increased $90.8 million, or 19.1% on an annualized basis, to $2.00 billion at March 31, 2020, compared to December 31, 2019.
  • Deposits increased $76.8 million, or 16.9% on an annualized basis, to $1.90 billion at March 31, 2020, compared to December 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 44.1% for the first quarter of 2020, compared to 44.3% for the fourth quarter of 2019.
  • Net loan charge-offs as a percent of average loans was 0.01% for the first quarter of 2020, compared to 0.04% for the fourth quarter of 2019.
  • The ratio of nonperforming assets to total assets was 0.03% at March 31, 2020, compared to 0.02% at December 31, 2019.
  • A loan loss provision of $2.1 million was recorded for the first quarter of 2020, primarily due to increased allocations for economic factors associated with the COVID-19 pandemic. The allowance for loan losses to total loans was 1.23% at March 31, 2020, compared to 1.18% at December 31, 2019.
  • The Company was able to rapidly deploy its business continuity plans in response to the COVID-19 pandemic. In addition, assistance programs have been developed to support clients experiencing business and personal disruptions due to the COVID-19 pandemic, including loan modifications, as needed, and participation in the Small Business Administration’s Paycheck Protection Program.

Year-Over-Year Highlights

  • Net income was $7.4 million for the first quarter of 2020, compared to $7.0 million for the first quarter of 2019, an increase of $425,000, or 6.1%.
  • Diluted earnings per common share for the first quarter of 2020 was $0.25, compared to $0.23 for the first quarter of 2019, an increase of 10.4%.
  • Tangible book value per share, a non-GAAP financial measure, increased 12.1%, or $0.91, to $8.49 at March 31, 2020, compared to $7.58 at March 31, 2019.
  • Gross loans increased $279.2 million, or 16.2%, at March 31, 2020, compared to March 31, 2019.
  • Deposits increased $256.5 million, or 15.6%, at March 31, 2020, compared to March 31, 2019.
  • The ratio of nonperforming assets to total assets was 0.03% at March 31, 2020, compared to 0.08% at March 31, 2019.

Recent Developments

The recent outbreak of the novel coronavirus, or COVID-19, which was declared a pandemic by the World Health Organization on March 11, 2020, has negatively impacted the global economy in extreme ways and created uncertainty in world financial markets. In response to this pandemic, the Company rapidly deployed its business continuity plan and continues to take steps to protect the health and safety of its employees and clients. Given the fluidity of the situation, management cannot estimate the duration and full impact of the COVID-19 pandemic on the economy, financial markets and the Company’s financial condition and results of operations. At this point, management does not expect that the Company’s financial results in future quarters will track with the Company’s historical performance.

Operations are being conducted in compliance with current federal, state and local government guidelines regarding social distancing, sanitation, and personal hygiene. Bank branches have modified hours and have been limited to two locations with drive-up services for in-person banking transactions, and lobby access to certain branches by appointment in the case of critical needs. Additional details about the Company’s COVID-19 pandemic assistance programs, including relevant disclosures and up-to-date information, have been added and are maintained at bwbmn.com.

Prior to the declaration of the COVID-19 pandemic, the Company had initiated efforts to update technology and desktop hardware in anticipation of the Company’s move to a new corporate headquarters in the second half of 2020. The Company was able to leverage these efforts and expedite the process of providing 100% of the Company’s non-branch personnel with the ability to work remotely. To ensure the safety of our staff and clients, branch personnel is working on a rotating schedule limiting exposure through social distancing.

The Company’s investments in technology, digital platforms and electronic banking has allowed clients and employees to transact with minimal interruption during these times of uncertainty. Additional staff have been assigned to assist clients over the telephone and work with clients on new enrollments in online banking and other treasury management services. Internally, these investments in technology have enabled increased communication capabilities for departments by use of video conferencing, chat, and other collaborative features.

The Company has increased oversight and analysis of all credits, especially in vulnerable industries such as hospitality and restaurants, to proactively monitor evolving credit risk. With the change in economic conditions, and particularly, Minnesota’s Stay at Home order from the state governor, the Company’s portfolio is expected to be negatively impacted. Management expects delinquencies and charge-offs to rise in future periods due to the continued impact of the COVID-19 pandemic. The Company will continue to monitor credits closely, while working with clients to provide relief when appropriate.

The Company has developed programs for assisting existing clients through this uncertain time by providing loan payment deferrals and interest-only modifications. As of April 24, 2020 the Company had approved loan modifications for 137 loans totaling $266.8 million. Of that total, modifications to interest-only payments totaled $151.3 million and loans with payment deferrals of principal totaled $115.5 million. In accordance with recent regulatory and accounting guidance, loans modified in response to the COVID-19 pandemic will not be considered troubled debt restructurings.

In a further effort to assist both existing and new clients, the Company is participating in government loan programs through the Small Business Administration, or SBA, primarily the Paycheck Protection Program. This program stemmed from the Coronavirus, Aid, Relief and Economic Security, or CARES, Act that was signed into law on March 27, 2020. As of April 24, 2020, the Company had funded nearly 600 loans, totaling approximately $150.0 million, to borrowers, including both existing and new clients. The Company has continued to accept and process applications under the newly expanded program.

Key Financial Measures

 

 

 

 

 

 

 

 

 

 

 

 

 

As of and for the Three Months Ended

 

 

 

March 31,

 

December 31,

 

March 31,

 

 

 

2020

 

2019

 

2019

 

Per Common Share Data

 

 

 

 

 

 

 

 

 

 

Basic Earnings Per Share

 

$

0.26

 

$

0.30

 

$

0.23

 

Diluted Earnings Per Share

 

 

0.25

 

 

0.29

 

 

0.23

 

Book Value Per Share

 

 

8.61

 

 

8.45

 

 

7.70

 

Tangible Book Value Per Share (1)

 

 

8.49

 

 

8.33

 

 

7.58

 

Basic Weighted Average Shares Outstanding

 

 

28,791,494

 

 

28,833,576

 

 

30,097,638

 

Diluted Weighted Average Shares Outstanding

 

 

29,502,245

 

 

29,561,103

 

 

30,706,736

 

Shares Outstanding at Period End

 

 

28,807,375

 

 

28,973,572

 

 

30,097,674

 

 

 

 

 

 

 

 

 

 

 

 

Selected Performance Ratios

 

 

 

 

 

 

 

 

 

 

Return on Average Assets (Annualized)

 

 

1.29

%

 

1.53

%

 

1.42

%

Pre-Provision Net Revenue Return on Average Assets (Annualized)(1)

 

 

2.11

 

 

2.09

 

 

2.03

 

Return on Average Common Equity (Annualized)

 

 

11.94

 

 

14.16

 

 

12.60

 

Return on Average Tangible Common Equity (Annualized) (1)

 

 

12.10

 

 

14.37

 

 

12.81

 

Yield on Interest Earning Assets

 

 

4.90

 

 

5.01

 

 

4.99

 

Yield on Total Loans, Gross

 

 

5.17

 

 

5.33

 

 

5.27

 

Cost of Interest Bearing Liabilities

 

 

1.84

 

 

1.96

 

 

2.06

 

Cost of Total Deposits

 

 

1.27

 

 

1.34

 

 

1.46

 

Net Interest Margin (2)

 

 

3.59

 

 

3.65

 

 

3.54

 

Efficiency Ratio (1)

 

 

44.4

 

 

49.6

 

 

44.1

 

Adjusted Efficiency Ratio (3)

 

 

44.1

 

 

44.3

 

 

43.1

 

Noninterest Expense to Average Assets (Annualized)

 

 

1.69

 

 

1.87

 

 

1.59

 

Adjusted Noninterest Expense to Average Assets (Annualized) (3)

 

 

1.68

 

 

1.67

 

 

1.55

 

Loan to Deposit Ratio

 

 

105.4

 

 

104.9

 

 

104.9

 

Core Deposits to Total Deposits

 

 

78.6

 

 

80.7

 

 

75.8

 

Tangible Common Equity to Tangible Assets (1)

 

 

10.13

 

 

10.65

 

 

11.16

 

 

 

 

 

 

 

 

 

 

 

 

Capital Ratios (Bank Only) (4)

 

 

 

 

 

 

 

 

 

 

Tier 1 Leverage Ratio

 

 

10.93

%

 

11.01

%

 

10.88

%

Tier 1 Risk-based Capital Ratio

 

 

11.53

 

 

11.72

 

 

11.70

 

Total Risk-based Capital Ratio

 

 

12.67

 

 

12.16

 

 

12.83

 

 

 

 

 

 

 

 

 

 

 

 

Capital Ratios (Consolidated) (4)

 

 

 

 

 

 

 

 

 

 

Tier 1 Leverage Ratio

 

 

10.51

%

 

10.69

%

 

11.26

%

Tier 1 Risk-based Capital Ratio

 

 

11.10

 

 

11.39

 

 

12.14

 

Total Risk-based Capital Ratio

 

 

13.38

 

 

12.98

 

 

14.58

 

(1)

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

(2)

Amounts calculated on a tax-equivalent basis using the statutory federal tax rate of 21%.

(3)

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

(4)

Preliminary data. Current period subject to change prior to filings with applicable regulatory agencies.

Selected Financial Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

September 30,

 

June 30,

 

March 31,

(dollars in thousands)

 

2020

 

2019

 

2019

 

2019

 

2019

Selected Balance Sheet Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets

 

$

2,418,730

 

$

2,268,830

 

$

2,232,339

 

$

2,123,631

 

$

2,048,111

Total Loans, Gross

 

 

2,002,817

 

 

1,912,038

 

 

1,846,218

 

 

1,784,903

 

 

1,723,629

Allowance for Loan Losses

 

 

24,585

 

 

22,526

 

 

22,124

 

 

21,362

 

 

20,607

Goodwill and Other Intangibles

 

 

3,439

 

 

3,487

 

 

3,535

 

 

3,582

 

 

3,630

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

1,900,127

 

 

1,823,310

 

 

1,802,236

 

 

1,699,265

 

 

1,643,666

Tangible Common Equity (1)

 

 

244,704

 

 

241,307

 

 

232,524

 

 

225,555

 

 

228,145

Total Shareholders' Equity

 

 

248,143

 

 

244,794

 

 

236,059

 

 

229,137

 

 

231,775

Average Total Assets - Quarter-to-Date

 

 

2,317,040

 

 

2,221,370

 

 

2,168,909

 

 

2,069,707

 

 

2,011,174

Average Common Equity - Quarter-to-Date

 

 

250,800

 

 

240,188

 

 

232,590

 

 

231,374

 

 

225,844

(1)

 

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

 

 

For the Three Months Ended

 

 

March 31,

 

December 31,

 

March 31,

(dollars in thousands)

 

2020

 

2019

 

2019

Selected Income Statement Data

 

 

 

 

 

 

 

 

 

Interest Income

 

$

27,468

 

$

27,419

 

$

24,267

Interest Expense

 

 

7,366

 

 

7,491

 

 

7,136

Net Interest Income

 

 

20,102

 

 

19,928

 

 

17,131

Provision for Loan Losses

 

 

2,100

 

 

600

 

 

600

Net Interest Income after Provision for Loan Losses

 

 

18,002

 

 

19,328

 

 

16,531

Noninterest Income

 

 

1,719

 

 

1,112

 

 

634

Noninterest Expense

 

 

9,746

 

 

10,489

 

 

7,885

Income Before Income Taxes

 

 

9,975

 

 

9,951

 

 

9,280

Provision for Income Taxes

 

 

2,532

 

 

1,380

 

 

2,262

Net Income

 

$

7,443

 

$

8,571

 

$

7,018

Income Statement

Net Interest Income

Net interest income was $20.1 million for the first quarter of 2020, an increase of $174,000, or 0.9%, from $19.9 million in the fourth quarter of 2019, and an increase of $3.0 million, or 17.3%, from $17.1 million in the first quarter of 2019. 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 $285.0 million, or 14.3%, to $2.28 billion for the first quarter of 2020, from $1.99 billion for the first quarter of 2019. 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 first quarter of 2020 was 3.59%, a 6 basis point decrease from 3.65% in the fourth quarter of 2019, and a 5 basis point increase from 3.54% in the first quarter of 2019. While the Company diligently worked to reduce the cost of interest bearing liabilities during the first quarter of 2020, the linked-quarter decrease in net interest margin was primarily attributable to the historically low and flat yield curve weighing on earning asset yields. The year-over-year increase in net interest margin was largely attributable to the reduction in deposit costs outpacing the lower rates earned in interest and fees on loans.

Interest income was $27.5 million for the first quarter of 2020, an increase of $49,000, or 0.2%, from $27.4 million in the fourth quarter of 2019, and an increase of $3.2 million, or 13.2%, from $24.3 million in the first quarter of 2019. The yield on interest earning assets (on a fully tax-equivalent basis) was 4.90% in the first quarter of 2020, compared to 5.01% in the fourth quarter of 2019, and 4.99% in the first quarter of 2019. The decrease in the yield on interest earning assets in comparison to both prior periods was primarily due to the decline in market interest rates.

Loan interest income and loan fees remain the primary contributing factors to the changes in yield on interest earning assets. The aggregate loan yield decreased to 5.17% in the first quarter of 2020, which is 16 basis points lower than 5.33% in the fourth quarter of 2019, and 10 basis points lower than 5.27% in the first quarter of 2019. 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. The decreased yield on loans was attributable to declining market interest rates and lower loan fees recognized in the first quarter of 2020, compared to the fourth quarter of 2019. On a year-over-year basis, loan fees increased 7 basis points in their contribution to the aggregate loan yield; however, this was outweighed by the historically low yield curve pressuring the core loan yield lower, and ultimately resulted in the aggregate portfolio yield contracting by 10 basis points.

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

 

 

Three Months Ended

 

 

 

March 31, 2020

 

 

December 31, 2019

 

 

September 30, 2019

 

 

June 30, 2019

 

 

March 31, 2019

 

Interest

 

4.90

%

 

5.00

%

 

5.07

%

 

5.10

%

 

5.07

%

Fees

 

0.27

 

 

0.33

 

 

0.25

 

 

0.23

 

 

0.20

 

Yield on Loans

 

5.17

%

 

5.33

%

 

5.32

%

 

5.33

%

 

5.27

%

Interest expense was $7.4 million for the first quarter of 2020, a decrease of $125,000, or 1.7%, from $7.5 million in the fourth quarter of 2019, and an increase of $230,000, or 3.2%, from $7.1 million in the first quarter of 2019. The cost of interest bearing liabilities decreased to 1.84% in the first quarter of 2020 from 1.96% in the fourth quarter of 2019, primarily due to lower rates paid on deposits. On a year-over-year basis, the cost of interest bearing liabilities decreased 22 basis points from 2.06% in the first quarter of 2019 to 1.84% in the first quarter of 2020. The Federal Open Market Committee (FOMC) reduced the Fed Funds target rate numerous times over the past 12 months, savings and money market deposit accounts indexed to Fed Funds were the most directly impacted as evidenced by the 29 basis point reduction in costs. With the most recent Fed Funds cuts occurring late in the first quarter of 2020, the Company expects a further reprieve in deposit funding costs in future quarters.

A summary of the Company’s average balances, interest yields and rates, and net interest margin for the three months ended March 31, 2020, December 31, 2019 and March 31, 2019 is as follows:

 

 

For the Three Months Ended

 

 

 

March 31, 2020

 

December 31, 2019

 

March 31, 2019

 

 

 

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

 

$

29,462

 

$

59

 

0.81

%

$

45,818

 

$

150

 

1.30

%

$

27,945

 

$

87

 

1.27

%

Investment Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable Investment Securities

 

 

188,186

 

 

1,387

 

2.96

 

 

168,911

 

 

1,228

 

2.88

 

 

138,397

 

 

973

 

2.85

 

Tax-Exempt Investment Securities (1)

 

 

94,728

 

 

1,024

 

4.35

 

 

95,015

 

 

1,019

 

4.26

 

 

110,463

 

 

1,173

 

4.31

 

Total Investment Securities

 

 

282,914

 

 

2,411

 

3.43

 

 

263,926

 

 

2,247

 

3.38

 

 

248,860

 

 

2,146

 

3.50

 

Loans (1)(2)

 

 

1,954,959

 

 

25,150

 

5.17

 

 

1,872,234

 

 

25,132

 

5.33

 

 

1,707,908

 

 

22,179

 

5.27

 

Federal Home Loan Bank Stock

 

 

10,270

 

 

100

 

3.93

 

 

7,947

 

 

103

 

5.13

 

 

7,911

 

 

100

 

5.12

 

Total Interest Earning Assets

 

 

2,277,605

 

 

27,720

 

4.90

%

 

2,189,925

 

 

27,632

 

5.01

%

 

1,992,624

 

 

24,512

 

4.99

%

Noninterest Earning Assets

 

 

39,435

 

 

 

 

 

 

 

31,445

 

 

 

 

 

 

 

18,550

 

 

 

 

 

 

Total Assets

 

$

2,317,040

 

 

 

 

 

 

$

2,221,370

 

 

 

 

 

 

$

2,011,174

 

 

 

 

 

 

Interest Bearing Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Bearing Transaction Deposits

 

 

246,843

 

 

431

 

0.70

%

 

257,777

 

 

503

 

0.77

%

 

181,033

 

 

232

 

0.52

%

Savings and Money Market Deposits

 

 

533,578

 

 

1,905

 

1.44

 

 

487,424

 

 

1,963

 

1.60

 

 

414,811

 

 

1,766

 

1.73

 

Time Deposits

 

 

376,154

 

 

2,177

 

2.33

 

 

353,351

 

 

2,151

 

2.41

 

 

329,511

 

 

1,880

 

2.31

 

Brokered Deposits

 

 

218,289

 

 

1,211

 

2.23

 

 

243,358

 

 

1,447

 

2.36

 

 

292,067

 

 

1,825

 

2.53

 

Total Interest Bearing Deposits

 

 

1,374,864

 

 

5,724

 

1.67

 

 

1,341,910

 

 

6,064

 

1.79

 

 

1,217,422

 

 

5,703

 

1.90

 

Federal Funds Purchased

 

 

24,835

 

 

107

 

1.74

 

 

3,011

 

 

14

 

1.82

 

 

24,956

 

 

160

 

2.59

 

Notes Payable

 

 

12,505

 

 

115

 

3.70

 

 

13,000

 

 

123

 

3.75

 

 

14,500

 

 

121

 

3.38

 

FHLB Advances

 

 

172,379

 

 

1,027

 

2.40

 

 

136,554

 

 

897

 

2.61

 

 

124,000

 

 

775

 

2.54

 

Subordinated Debentures

 

 

24,744

 

 

393

 

6.39

 

 

24,725

 

 

393

 

6.31

 

 

24,647

 

 

377

 

6.20

 

Total Interest Bearing Liabilities

 

 

1,609,327

 

 

7,366

 

1.84

%

 

1,519,200

 

 

7,491

 

1.96

%

 

1,405,525

 

 

7,136

 

2.06

%

Noninterest Bearing Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest Bearing Transaction Deposits

 

 

444,201

 

 

 

 

 

 

 

451,265

 

 

 

 

 

 

 

369,912

 

 

 

 

 

 

Other Noninterest Bearing Liabilities

 

 

12,712

 

 

 

 

 

 

 

10,717

 

 

 

 

 

 

 

9,893

 

 

 

 

 

 

Total Noninterest Bearing Liabilities

 

 

456,913

 

 

 

 

 

 

 

461,982

 

 

 

 

 

 

 

379,805

 

 

 

 

 

 

Shareholders' Equity

 

 

250,800

 

 

 

 

 

 

 

240,188

 

 

 

 

 

 

 

225,844

 

 

 

 

 

 

Total Liabilities and Shareholders' Equity

 

$

2,317,040

 

 

 

 

 

 

$

2,221,370

 

 

 

 

 

 

$

2,011,174

 

 

 

 

 

 

Net Interest Income / Interest Rate Spread

 

 

 

 

 

20,354

 

3.06

%

 

 

 

 

20,141

 

3.05

%

 

 

 

 

17,376

 

2.93

%

Net Interest Margin (3)

 

 

 

 

 

 

 

3.59

%

 

 

 

 

 

 

3.65

%

 

 

 

 

 

 

3.54

%

Taxable Equivalent Adjustment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax-Exempt Investment Securities

 

 

 

 

 

(252)

 

 

 

 

 

 

 

(213)

 

 

 

 

 

 

 

(245)

 

 

 

Net Interest Income

 

 

 

 

$

20,102

 

 

 

 

 

 

$

19,928

 

 

 

 

 

 

$

17,131

 

 

 

(1)

Interest income and average rates for tax-exempt investment securities and loans are presented on a tax-equivalent basis, assuming a statutory federal income tax rate of 21%.

(2)

Average loan balances include nonaccrual loans. Interest income on loans includes amortization of deferred loan fees, net of deferred loan costs.

(3)

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 $2.1 million for the first quarter of 2020, an increase of $1.5 million from $600,000 for the fourth quarter of 2019 and the first quarter of 2019. The increase in the provision in the first quarter of 2020 was attributable to increased allocations for economic factors associated with the COVID-19 pandemic.

As an emerging growth company, the Company is not subject to Accounting Standards Update No. 2016-13 “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments,“ or CECL, until January 1, 2023.

The following table presents the activity in the Company’s allowance for loan losses for the periods indicated:

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31,

 

December 31,

 

March 31,

(dollars in thousands)

 

2020

 

2019

 

2019

Balance at Beginning of Period

 

$

22,526

 

 

$

22,124

 

 

$

20,031

 

Provision for Loan Losses

 

 

2,100

 

 

 

600

 

 

 

600

 

Charge-offs

 

 

(47

)

 

 

(205

)

 

 

(36

)

Recoveries

 

 

6

 

 

 

7

 

 

 

12

 

Balance at End of Period

 

$

24,585

 

 

$

22,526

 

 

$

20,607

 

Noninterest Income

Noninterest income was $1.7 million for the first quarter of 2020, an increase of $607,000 from $1.1 million for the fourth quarter of 2019, and an increase of $1.1 million from $634,000 for the first quarter of 2019. The linked-quarter increase was primarily due to increased swap fees, offset partially by decreased letter of credit fees. The year-over-year increase was primarily due to increased swap fees and customer service fees.

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

 

 

Three Months Ended

 

 

March 31,

 

December 31,

 

March 31,

(dollars in thousands)

 

2020

 

2019

 

2019

Noninterest Income:

 

 

 

 

 

 

 

 

 

Customer Service Fees

 

$

240

 

$

196

 

$

191

 

Net Gain (Loss) on Sales of Securities

 

 

3

 

 

 

 

(5

)

Letter of Credit Fees

 

 

274

 

 

394

 

 

246

 

Debit Card Interchange Fees

 

 

92

 

 

105

 

 

88

 

Swap Fees

 

 

907

 

 

255

 

 

Other Income

 

 

203

 

 

162

 

 

114

 

Totals

 

$

1,719

 

$

1,112

 

$

634

 

Noninterest Expense

Noninterest expense was $9.7 million for the first quarter of 2020, a decrease of $743,000 from $10.5 million for the fourth quarter of 2019, and an increase of $1.9 million from $7.9 million for the first quarter of 2019. The linked-quarter decrease was primarily due to decreased amortization of tax credit investments and occupancy and equipment, offset partially by increased salaries and employee benefits. The year-over-year increase was attributed to increased salaries and employee benefits and professional and consulting fees, offset partially by decreased FDIC insurance assessment and amortization of tax credit investments.

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

 

 

Three Months Ended

 

 

March 31,

 

December 31,

 

March 31,

(dollars in thousands)

 

2020

 

2019

 

2019

Noninterest Expense:

 

 

 

 

 

 

 

 

 

Salaries and Employee Benefits

 

$

6,454

 

$

6,235

 

$

4,802

Occupancy and Equipment

 

 

713

 

 

883

 

 

656

FDIC Insurance Assessment

 

 

190

 

 

165

 

 

285

Data Processing

 

 

229

 

 

161

 

 

153

Professional and Consulting Fees

 

 

485

 

 

437

 

 

388

Information Technology and Telecommunications

 

 

266

 

 

319

 

 

236

Marketing and Advertising

 

 

466

 

 

299

 

 

465

Intangible Asset Amortization

 

 

48

 

 

48

 

 

48

Amortization of Tax Credit Investments

 

 

85

 

 

1,128

 

 

177

Other Expense

 

 

810

 

 

814

 

 

675

Totals

 

$

9,746

 

$

10,489

 

$

7,885

The Company had 170 full-time equivalent employees at March 31, 2020, compared to 160 employees at December 31, 2019, and 143 employees at March 31, 2019. The increased head count included strategic hires in deposit gathering, lending, technology, and other supportive roles to meet the needs of the Company’s growing infrastructure.

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 44.4% for the first quarter of 2020, compared to 49.6% for the fourth quarter of 2019, and 44.1% for the first quarter of 2019. Excluding the impact of the amortization of tax credit investments, the adjusted efficiency ratio, a non-GAAP financial measure, was 44.1% for the first quarter of 2020, 44.3% for the fourth quarter of 2019 and 43.1% for the first quarter of 2019.

Income Taxes

The effective combined federal and state income tax rate for the first quarter of 2020 was 25.4%, an increase from 13.9% for the fourth quarter of 2019 and an increase from 24.4% for the first quarter of 2019. The higher effective combined rate compared to both periods was due to fewer tax credits being recognized.

Balance Sheet

Total assets at March 31, 2020 were $2.42 billion, a 6.6% increase from $2.27 billion at December 31, 2019, and a 18.1% increase from $2.05 billion at March 31, 2019. The increase in total assets was primarily due to organic loan growth.

Total gross loans at March 31, 2020 were $2.00 billion, an increase of $90.8 million, or 4.7%, over total gross loans of $1.91 billion at December 31, 2019, and an increase of $279.2 million, or 16.2%, over total gross loans of $1.72 billion at March 31, 2019.

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

 

 

March 31, 2020

 

December 31, 2019

 

September 30, 2019

 

June 30, 2019

 

March 31, 2019

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and Industrial

 

$

299,425

 

 

$

276,035

 

 

$

291,723

 

 

$

287,804

 

 

$

284,807

 

Construction and Land Development

 

 

183,350

 

 

 

196,776

 

 

 

216,054

 

 

 

195,568

 

 

 

178,782

 

Real Estate Mortgage:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1 - 4 Family Mortgage

 

 

272,590

 

 

 

260,611

 

 

 

254,782

 

 

 

247,029

 

 

 

233,131

 

Multifamily

 

 

536,380

 

 

 

515,014

 

 

 

456,257

 

 

 

437,198

 

 

 

417,975

 

CRE Owner Occupied

 

 

75,207

 

 

 

66,584

 

 

 

71,209

 

 

 

68,681

 

 

 

66,130

 

CRE Nonowner Occupied

 

 

631,541

 

 

 

592,545

 

 

 

551,992

 

 

 

544,579

 

 

 

538,998

 

Total Real Estate Mortgage Loans

 

 

1,515,718

 

 

 

1,434,754

 

 

 

1,334,240

 

 

 

1,297,487

 

 

 

1,256,234

 

Consumer and Other

 

 

4,324

 

 

 

4,473

 

 

 

4,201

 

 

 

4,044

 

 

 

3,806

 

Total Loans, Gross

 

 

2,002,817

 

 

 

1,912,038

 

 

 

1,846,218

 

 

 

1,784,903

 

 

 

1,723,629

 

Allowance for Loan Losses

 

 

(24,585

)

 

 

(22,526

)

 

 

(22,124

)

 

 

(21,362

)

 

 

(20,607

)

Net Deferred Loan Fees

 

 

(5,336

)

 

 

(5,512

)

 

 

(5,788

)

 

 

(5,157

)

 

 

(4,791

)

Total Loans, Net

 

$

1,972,896

 

 

$

1,884,000

 

 

$

1,818,306

 

 

$

1,758,384

 

 

$

1,698,231

 

Total deposits at March 31, 2020 were $1.90 billion, an increase of $76.8 million, or 4.2%, over total deposits of $1.82 billion at December 31, 2019, and an increase of $256.5 million, or 15.6%, over total deposits of $1.64 billion at March 31, 2019.

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

 

 

March 31, 2020

 

December 31, 2019

 

September 30, 2019

 

June 30, 2019

 

March 31, 2019

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest Bearing Transaction Deposits

 

$

476,217

 

$

447,509

 

$

478,493

 

$

409,198

 

$

404,937

Interest Bearing Transaction Deposits

 

 

255,483

 

 

264,627

 

 

243,889

 

 

231,318

 

 

180,459

Savings and Money Market Deposits

 

 

514,113

 

 

516,785

 

 

470,518

 

 

456,447

 

 

434,186

Time Deposits

 

 

393,340

 

 

360,027

 

 

363,308

 

 

359,338

 

 

346,163

Brokered Deposits

 

 

260,974

 

 

234,362

 

 

246,028

 

 

242,964

 

 

277,921

Total Deposits

 

$

1,900,127

 

$

1,823,310

 

$

1,802,236

 

$

1,699,265

 

$

1,643,666

Total shareholders’ equity at March 31, 2020 was $248.1 million, an increase of $3.3 million, or 1.4%, over total shareholders’ equity of $244.8 million at December 31, 2019, and an increase of $16.4 million, or 7.1%, over total shareholders’ equity of $231.8 million at March 31, 2019. The linked-quarter increase was due to net income retained, partially offset by stock repurchases made under the Company’s stock repurchase program, a decrease in unrealized gains in the securities portfolio, and an increase in unrealized losses in the interest rate swap portfolio. The year-over-year increase was due to net income retained, partially offset by stock repurchases made under the Company’s stock repurchase program.

Tangible book value per share, a non-GAAP financial measure, was $8.49 as of March 31, 2020, an increase of 2.0% from $8.33 as of December 31, 2019, and an increase of 12.1% from $7.58 as of March 31, 2019.

During the first quarter of 2020, the Company repurchased 177,864 shares of its common stock, representing less than 1% of the Company’s outstanding shares. Shares were repurchased at a weighted average price of $11.52 for a total of $2.0 million. Although the stock repurchase program remains in place, the Company has not repurchased any shares since March 16, 2020. The Company remains committed to maintaining strong capital levels and will consider the current economic environment and the uncertainty of the long-term impact of the COVID-19 pandemic when evaluating its future utilization of the stock repurchase program. Management currently does not expect to begin repurchasing shares again until the COVID-19 pandemic has subsided.

Asset Quality

Asset quality metrics for the Company remained strong at March 31, 2020. Annualized net charge-offs as a percent of average loans for the first quarter of 2020, were 0.01%, compared to 0.04% for the fourth quarter of 2019, and 0.01% for the first quarter of 2019. At March 31, 2020, the Company’s nonperforming assets, which include nonaccrual loans, loans past due 90 days and still accruing, and foreclosed assets, were $606,000, or 0.03% of total assets, as compared to $461,000, or 0.02% of total assets at December 31, 2019, and $1.6 million, or 0.08% of total assets at March 31, 2019.

The Company is closely analyzing all segments within the loan portfolio in response to the COVID-19 pandemic. As a result, at the end of the first quarter of 2020 the Company identified loans that have potential weaknesses that warrant a watchlist risk rating. At March 31, 2020, watchlist loans increased to $45.8 million, compared to $5.3 million at December 31, 2019. Loans added to the watchlist during the first quarter of 2020 were in vulnerable industries, primarily hospitality and restaurants. As the COVID-19 pandemic continues to evolve, the length and extent of the economic contraction will dictate further watchlist or adverse classifications in the loan portfolio.

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: the negative effects of the COVID-19 pandemic, including its potential effects on the economic environment, our clients and our operations, as well as any changes to federal, state or local government laws, regulations or orders in connection with the pandemic; 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 clients; 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; developments and uncertainty related to the future use and availability of some reference rates, such as the London Interbank Offered Rate, as well as other alternative reference rates; 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, wide spread disease or pandemics (including the recent coronavirus outbreak), 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.

Bridgewater Bancshares, Inc. and Subsidiaries

Consolidated Balance Sheets

(dollars in thousands, except share data)

 

 

 

March 31,

 

December 31,

 

March 31,

 

 

2020

 

2019

 

2019

 

 

(Unaudited)

 

 

 

 

(Unaudited)

ASSETS

 

 

 

 

 

 

 

 

 

Cash and Cash Equivalents

 

$

61,526

 

$

31,935

 

$

48,750

Bank-Owned Certificates of Deposit

 

 

2,895

 

 

2,654

 

 

2,948

Securities Available for Sale, at Fair Value

 

 

307,317

 

 

289,877

 

 

250,285

Loans, Net of Allowance for Loan Losses of $24,585 at March 31, 2020 (unaudited), $22,526 at December 31, 2019 and $20,607 at March 31, 2019 (unaudited)

 

 

1,972,896

 

 

1,884,000

 

 

1,698,231

Federal Home Loan Bank (FHLB) Stock, at Cost

 

 

11,017

 

 

7,824

 

 

7,324

Premises and Equipment, Net

 

 

35,271

 

 

27,628

 

 

15,697

Accrued Interest

 

 

7,102

 

 

6,775

 

 

7,058

Goodwill

 

 

2,626

 

 

2,626

 

 

2,626

Other Intangible Assets, Net

 

 

813

 

 

861

 

 

1,004

Other Assets

 

 

17,267

 

 

14,650

 

 

14,188

Total Assets

 

$

2,418,730

 

$

2,268,830

 

$

2,048,111

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

Noninterest Bearing

 

$

476,217

 

$

447,509

 

$

404,937

Interest Bearing

 

 

1,423,910

 

 

1,375,801

 

 

1,238,729

Total Deposits

 

 

1,900,127

 

 

1,823,310

 

 

1,643,666

Notes Payable

 

 

12,500

 

 

13,000

 

 

14,500

FHLB Advances

 

 

207,500

 

 

136,500

 

 

124,000

Subordinated Debentures, Net of Issuance Costs

 

 

24,759

 

 

24,733

 

 

24,656

Accrued Interest Payable

 

 

1,688

 

 

1,982

 

 

1,679

Other Liabilities

 

 

24,013

 

 

24,511

 

 

7,835

Total Liabilities

 

 

2,170,587

 

 

2,024,036

 

 

1,816,336

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

Preferred Stock- $0.01 par value

 

 

 

 

 

 

 

 

 

Authorized 10,000,000; None Issued and Outstanding at March 31, 2020 (unaudited), December 31, 2019 and March 31, 2019 (unaudited)

 

 

 

 

 

 

Common Stock- $0.01 par value

 

 

 

 

 

 

 

 

 

Common Stock - Authorized 75,000,000; Issued and Outstanding 28,807,375 at March 31, 2020 (unaudited), 28,973,572 at December 31, 2019 and 30,097,674 at March 31, 2019 (unaudited)

 

 

288

 

 

290

 

 

301

Additional Paid-In Capital

 

 

110,446

 

 

112,093

 

 

126,209

Retained Earnings

 

 

135,080

 

 

127,637

 

 

103,252

Accumulated Other Comprehensive Income

 

 

2,329

 

 

4,774

 

 

2,013

Total Shareholders' Equity

 

 

248,143

 

 

244,794

 

 

231,775

Total Liabilities and Equity

 

$

2,418,730

 

$

2,268,830

 

$

2,048,111

Bridgewater Bancshares, Inc. and Subsidiaries

Consolidated Statements of Income

(dollars in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31,

 

December 31,

 

March 31,

 

 

2020

 

2019

 

2019

 

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

INTEREST INCOME

 

 

 

 

 

 

 

 

 

Loans, Including Fees

 

$

25,113

 

$

25,132

 

$

22,179

 

Investment Securities

 

 

2,196

 

 

2,034

 

 

1,901

 

Other

 

 

159

 

 

253

 

 

187

 

Total Interest Income

 

 

27,468

 

 

27,419

 

 

24,267

 

 

 

 

 

 

 

 

 

 

 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

Deposits

 

 

5,724

 

 

6,064

 

 

5,703

 

Notes Payable

 

 

115

 

 

123

 

 

121

 

FHLB Advances

 

 

1,027

 

 

897

 

 

775

 

Subordinated Debentures

 

 

393

 

 

393

 

 

377

 

Federal Funds Purchased

 

 

107

 

 

14

 

 

160

 

Total Interest Expense

 

 

7,366

 

 

7,491

 

 

7,136

 

 

 

 

 

 

 

 

 

 

 

NET INTEREST INCOME

 

 

20,102

 

 

19,928

 

 

17,131

 

Provision for Loan Losses

 

 

2,100

 

 

600

 

 

600

 

 

 

 

 

 

 

 

 

 

 

NET INTEREST INCOME AFTER

 

 

 

 

 

 

 

 

 

PROVISION FOR LOAN LOSSES

 

 

18,002

 

 

19,328

 

 

16,531

 

 

 

 

 

 

 

 

 

 

 

NONINTEREST INCOME

 

 

 

 

 

 

 

 

 

Customer Service Fees

 

 

240

 

 

196

 

 

191

 

Net Gain (Loss) on Sales of Available for Sale Securities

 

 

3

 

 

 

 

(5

)

Other Income

 

 

1,476

 

 

916

 

 

448

 

Total Noninterest Income

 

 

1,719

 

 

1,112

 

 

634

 

 

 

 

 

 

 

 

 

 

 

NONINTEREST EXPENSE

 

 

 

 

 

 

 

 

 

Salaries and Employee Benefits

 

 

6,454

 

 

6,235

 

 

4,802

 

Occupancy and Equipment

 

 

713

 

 

883