Bridgewater Bancshares, Inc. Announces Second Quarter 2020 Earnings

Company Release - 7/30/2020 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 $7.6 million for the second quarter of 2020, a 2.1% increase over net income of $7.4 million for the first quarter of 2020, and a 5.1% decrease over net income of $8.0 million for the second quarter of 2019. Net income per diluted common share for the second quarter of 2020 and 2019 was $0.26.

“I’m extremely proud of our team and their resiliency to navigate this challenging environment, in what has proved be a quarter of mixed emotions,” commented Chairman, Chief Executive Officer, and President, Jerry Baack. “We believe our strong pre-provision earnings, driven by our top quartile efficiency, provide flexibility for us to continue weathering this pandemic. During the quarter, we enhanced our firm foundation by increasing our reserve build and successfully issuing $50 million of 5.25% Fixed-to-Floating Rate Subordinated Notes due June 2030 in a private placement. Our team has undergone massive efforts to remain connected with our clients, to understand the impacts to their operations, and we are actively working to support them during this unprecedented time. We worked tirelessly to help more than 1,100 clients, new and existing, obtain Paycheck Protection Program, or PPP, funds and have further supported borrowers through our loan modification programs. Although this teamwork inspired us this quarter, recent tragic events hit very close to home in our own Minneapolis community and bring to light the social injustices that exist. It is an important time for change and while there is much work to do, our team is committed to helping our communities emerge stronger and more united.”

Second Quarter 2020 Financial Results

ROA

 

ROE

 

Diluted
Earnings per share

 

Nonperforming
assets to total assets

 

Adjusted
efficiency ratio (1)

 

Tangible common equity
to tangible assets (1)

1.17%

 

11.98%

 

$

0.26

 

0.02%

 

40.4%

 

9.23%

 

(1) 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, a non-GAAP financial measure, was 2.00% for the second quarter of 2020, compared to 2.11% for the first quarter of 2020.
  • The adjusted efficiency ratio, a non-GAAP financial measure which excludes the impact of certain non-routine income and expenses from noninterest expense, was 40.4% for the second quarter of 2020, compared to 44.1% for the first quarter of 2020.
  • Through the Company’s participation in the Small Business Administration’s (SBA) Paycheck Protection Program (PPP) over 1,100 loans were funded to both existing and new clients. As of June 30, 2020, principal balances originated during the quarter totaled $180.2 million and resulted in fees from the SBA, net of costs, of $5.7 million, $528,000 of which was recognized in the second quarter of 2020.
  • Deposits increased $341.9 million to $2.24 billion at June 30, 2020, compared to March 31, 2020. The growth included $133.8 million in organic deposits, or 28.2% annualized, excluding an estimated $60.0 million in growth attributable to remaining PPP loan funds.
  • Issued $50.0 million of 5.25% Fixed-to-Floating Rate Subordinated Notes due June 2030 in a private placement on June 19, 2020.
  • Annualized net loan charge-offs (recoveries) as a percent of average loans were (0.01)% for the second quarter of 2020, compared to 0.01% for the first quarter of 2020.
  • The ratio of nonperforming assets to total assets was 0.02% at June 30, 2020, compared to 0.03% at March 31, 2020.
  • A loan loss provision of $3.0 million was recorded for the second 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 1.26% at June 30, 2020, compared to 1.23% at March 31, 2020. The allowance for loan losses to total loans, excluding $180.2 million of PPP loans, was 1.37% at June 30, 2020.

Year-Over-Year Highlights

  • Diluted earnings per common share for the second quarter of 2020 were $0.26, compared to $0.26 for the second quarter of 2019.
  • Cost of deposits declined 47 basis points to 0.99% in the second quarter of 2020 compared to 1.46% in the second quarter of 2019.
  • Tangible book value per share, a non-GAAP financial measure, increased 13.1%, or $1.02, to $8.80 at June 30, 2020, compared to $7.78 at June 30, 2019.
  • Gross loans increased $408.9 million at June 30, 2020, or 22.9%, compared to June 30, 2019. Year-over-year loan growth was $228.6 million, excluding $180.2 million of PPP loans. Year-to-date annualized loan growth for 2020, excluding PPP loans, was 10.6% as of June 30, 2020.
  • Deposits increased $542.8 million at June 30, 2020, or 31.9%, compared to June 30, 2019. Year-over-year growth consisted of $316.7 million in organic deposits, excluding an estimated $60.0 million in growth attributable to remaining PPP loan funds. Year-to-date annualized organic deposit growth, excluding remaining PPP loan funds, for 2020 was 23.2% as of June 30, 2020.
  • The ratio of nonperforming assets to total assets was 0.02% at June 30, 2020, compared to 0.07% at June 30, 2019.

Recent Developments

The outbreak of the novel coronavirus, or COVID-19, which was declared a pandemic by the World Health Organization on March 11, 2020, has continued to create uncertainty and extraordinary change for the Company, its clients, its communities and the country as a whole. 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. Proactively, defensive strategies have been employed in all departments to ensure the Company is well positioned to battle the unforeseen implications of the COVID-19 pandemic. 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.

The Company’s primary banking market area is the Minneapolis-St. Paul-Bloomington, MN-WI Metropolitan Statistical Area. In Minnesota, the Governor issued an order on March 25, 2020 that, subject to limited exceptions, required individuals to stay at home and non-essential businesses to cease all activities, other than minimum basic operations. This order was lifted as of May 18, 2020 and the state entered a phased-in approach to reopening, where businesses must operate under certain restrictions based on the nature and industry of the business. As a result of the original order and restrictions, Minnesota has experienced a dramatic and sudden increase in unemployment levels, significant stress on personal and business income, and recessionary economic conditions. Recent increases in COVID-19 infections across the nation have created uncertainty surrounding the future recovery of many companies’ operations and the local economy. Fortunately, to date Minnesota has been less impacted by the virus than other states in terms of cases and deaths.

The Company’s operations are being conducted in material compliance with current federal, state and local government guidelines regarding social distancing, sanitation, and personal hygiene. Throughout the quarter, bank branches operated under modified hours and limited locations. In June, the Company started to expand hours and reopen branch locations providing clients with full-service options at all but the Company’s two downtown locations, where offices remain closed and traffic would be minimal. To ensure the safety of the Company’s staff and clients, masks are mandatory and proper social distancing protocols are enforced. Non-branch personnel continue to work remotely. A COVID-19 Preparedness Plan has been created outlining the protocols for employees as they return to the office which is currently scheduled for mid-August. Additional details about the Company’s COVID-19 pandemic assistance programs, including relevant disclosures and up-to-date information, are maintained at bwbmn.com.

During the second quarter, the Company participated in the SBA’s PPP which stemmed from the Coronavirus, Aid, Relief and Economic Security, or CARES, Act that was signed into law on March 27, 2020. The Company committed significant efforts related to PPP loan origination in the second quarter of 2020, and will shift such efforts to forgiveness processing in future quarters. The following table summarizes PPP loan originations by balance segment:

 

 

As of and for the three months ended June 30, 2020

 

 

Number

 

Principal

 

Net Origination

 

Net Origination

(dollars in thousands)

 

of Loans

 

Balance

 

Fees Generated

 

Fees Earned

Balance Segment

 

 

 

 

 

 

 

 

 

 

 

 

Less than $350

 

 

1,004

 

$

64,429

 

$

2,934

 

$

263

$350 to $2,000

 

 

107

 

 

80,618

 

 

2,388

 

 

231

Greater than $2,000

 

 

11

 

 

35,181

 

 

349

 

 

34

Totals

 

 

1,122

 

$

180,228

 

$

5,671

 

$

528

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 the uncertain duration of the COVID-19 pandemic, the Company’s portfolio is expected to be negatively impacted and management expects delinquencies and charge-offs to rise in future periods. The Company will continue to monitor credits closely, while working with clients to provide relief when appropriate.

The Company has developed programs for clients who are experiencing business and personal disruptions due to the COVID-19 pandemic by providing loan payment deferrals and interest-only modifications. In accordance with interagency regulatory guidance and the CARES Act, qualifying loans modified in response to the COVID-19 pandemic will not be considered troubled debt restructurings.

The following table presents a summary of closed loan modifications, by loan segment and modification type, as of June 30, 2020:

 

 

Interest-Only

 

Payment Deferral

 

Total

 

 

Amount

 

# of Loans

 

Amount

 

# of Loans

 

Amount

 

# of Loans

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

17,615

 

36

 

$

13,355

 

14

 

$

30,970

 

50

Construction and Land Development

 

 

133

 

1

 

 

 

 

 

133

 

1

Real Estate Mortgage:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1 - 4 Family Mortgage

 

 

8,037

 

22

 

 

420

 

2

 

 

8,457

 

24

Multifamily

 

 

41,320

 

6

 

 

16,251

 

3

 

 

57,571

 

9

CRE Owner Occupied

 

 

7,397

 

14

 

 

1,502

 

3

 

 

8,899

 

17

CRE Nonowner Occupied

 

 

100,805

 

41

 

 

86,175

 

18

 

 

186,980

 

59

Consumer and Other

 

 

 

 

 

 

 

 

 

Totals

 

$

175,307

 

120

 

$

117,703

 

40

 

$

293,010

 

160

Modifications have been granted based on specific needs and circumstances affecting each borrower. Interest-only modifications have been primarily granted for a three to six month period, but range up to twelve months. Payment deferral modifications have been granted for a three to six month period. Management anticipates the loan modifications may continue throughout 2020.

The Company’s construction of a new corporate headquarters in St. Louis Park is nearing completion. Despite the challenges faced with the COVID-19 pandemic, the Company does not anticipate delays in the scheduled third quarter 2020 opening of the new building. Management expects that occupancy and equipment expense will rise in future periods related to the operations and depreciation of the new building.

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,

 

 

 

2020

 

2020

 

2019

 

 

2020

 

2019

 

Per Common Share Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic Earnings Per Share

 

$

0.26

 

$

0.26

 

$

0.27

 

 

$

0.52

 

$

0.50

 

Diluted Earnings Per Share

 

 

0.26

 

 

0.25

 

 

0.26

 

 

 

0.51

 

 

0.49

 

Book Value Per Share

 

 

8.92

 

 

8.61

 

 

7.90

 

 

 

8.92

 

 

7.90

 

Tangible Book Value Per Share (1)

 

 

8.80

 

 

8.49

 

 

7.78

 

 

 

8.80

 

 

7.78

 

Basic Weighted Average Shares Outstanding

 

 

28,676,441

 

 

28,791,494

 

 

29,703,024

 

 

 

28,733,968

 

 

29,899,241

 

Diluted Weighted Average Shares Outstanding

 

 

29,165,157

 

 

29,502,245

 

 

30,312,039

 

 

 

29,350,426

 

 

30,510,180

 

Shares Outstanding at Period End

 

 

28,837,560

 

 

28,807,375

 

 

28,986,729

 

 

 

28,837,560

 

 

28,986,729

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selected Performance Ratios

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on Average Assets (Annualized)

 

 

1.17

%

 

1.29

%

 

1.55

%

 

 

1.22

%

 

1.49

%

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

 

 

2.00

 

 

2.11

 

 

2.08

 

 

 

2.05

 

 

2.05

 

Return on Average Common Equity (Annualized)

 

 

11.98

 

 

11.94

 

 

13.88

 

 

 

11.96

 

 

13.25

 

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

 

 

12.14

 

 

12.10

 

 

14.10

 

 

 

12.12

 

 

13.47

 

Yield on Interest Earning Assets

 

 

4.45

 

 

4.90

 

 

5.05

 

 

 

4.66

 

 

5.02

 

Yield on Total Loans, Gross

 

 

4.85

 

 

5.17

 

 

5.33