Bridgewater Bancshares Inc (BWB) 8-K Earnings Release

Bridgewater Bancshares, Inc. (Nasdaq: BWB) (the Company), the parent company of Bridgewater Bank (the Bank), today announced net income of $6.5 million for the third quarter of 2018, a 38.2% increase over net income of $4.7 million for the third quarter of 2017. Net income per diluted common share for the third quarter of 2018 was $0.21, a 12.5% increase, compared to $0.19 per diluted common share for the same period in 2017.

“We had another strong quarter and I could not be more pleased with the results.” says Jerry Baack, Chairman, Chief Executive Officer, and President. “Our third quarter results demonstrate strong organic growth on both sides of the balance sheet, which is supported by our continued investments in our people and infrastructure. We look to finish this milestone year by focusing on the expansion of our operations into the St. Paul market, as well as remaining active in attracting and onboarding displaced clients and personnel from recent M&A dislocation in our market.”

THIRD QUARTER 2018 FINANCIAL RESULTS


		Basic		Diluted			Tangible book
ROA	ROE	Earnings per share		Earnings per share		Efficiency ratio (1)	value per share (1)
1.41%	12.28%	$	0.22	$	0.21	42.7%	$	6.89

(1)

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

Third Quarter 2018 Highlights

Annualized return on average assets (ROA) and return on average common equity (ROE) for the third quarter of 2018 were 1.41% and 12.28%, respectively, compared to annualized ROA and ROE of 1.23% and 14.07%, respectively, for the third quarter of 2017.

Net income was $6.5 million for the third quarter of 2018 compared to $4.7 million for the third quarter of 2017, an increase of 38.2%.

Diluted earnings per common share for the third quarter of 2018 were $0.21, compared to $0.19 for the third quarter of 2017.

Gross loans increased $328.0 million to $1.60 billion at the end of the third quarter of 2018 compared to $1.27 billion as of the same time last year, an increase of 25.8%.

Nonperforming assets to total assets decreased to 0.04%, compared to 0.13% in the third quarter of 2017.

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Key Financial Measures


	As of and for the Three Months Ended						As of and for the Nine Months Ended
	September 30,			September 30,			September 30,			September 30,
	2018			2017			2018			2017
Per Common Share Data (1)
Basic Earnings Per Share	$	0.22		$	0.19		$	0.67		$	0.55
Diluted Earnings Per Share		0.21			0.19			0.66			0.55
Book Value Per Share		7.01			5.43
Tangible Book Value Per Share (2)		6.89			5.27
Basic Weighted Average Shares Outstanding		30,059,374			24,600,731			28,640,601			24,593,524
Diluted Weighted Average Shares Outstanding		30,489,648			24,819,939			29,070,876			24,812,732
Shares Outstanding at Period End		30,059,374			24,629,861

Selected Performance Ratios
Return on Average Assets (Annualized)		1.41	%		1.23	%		1.49	%		1.29	%
Return on Average Common Equity (Annualized)		12.28			14.07			13.70			14.44
Return on Average Tangible Common Equity (Annualized) (2)		12.51			14.50			13.99			14.91
Yield on Interest Earning Assets		4.92			4.77			4.85			4.74
Yield on Total Loans, Gross		5.25			5.13			5.22			5.08
Cost of Interest Bearing Liabilities		1.73			1.24			1.54			1.15
Cost of Total Deposits		1.19			0.81			1.05			0.78
Net Interest Margin (3)		3.71			3.89			3.76			3.93
Efficiency Ratio (2)		42.7			40.3			41.5			39.9
Noninterest Expense to Average Assets (Annualized)		1.64			1.61			1.60			1.58
Loan to Deposit Ratio		108.2			98.2
Core Deposits to Total Deposits		76.6			76.6
Tangible Common Equity to Tangible Assets (2)		11.01			8.36

Capital Ratios (Bank Only)
Tier 1 Leverage Ratio		11.16	%		10.12	%
Tier 1 Risk-based Capital Ratio		11.82			11.92
Total Risk-based Capital Ratio		12.95			13.14

(1)

Includes shares of common stock and non-voting common stock.

(2)

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

(3)

Amounts calculated on a tax-equivalent basis using the statutory federal tax rate of 21% for 2018 and 35% for 2017.

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Selected Financial Data


	September 30,		September 30,
(dollars in thousands)	2018		2017		% Change
Selected Balance Sheet Data
Total Assets	$	1,885,793	$	1,556,665	21.1	%
Total Loans, Gross		1,599,964		1,271,962	25.8
Allowance for Loan Losses		18,949		15,219	24.5
Goodwill and Other Intangibles		3,726		3,916	(4.9)

Deposits		1,479,088		1,294,748	14.2
Tangible Common Equity (1)		207,126		129,759	59.6
Total Shareholders' Equity		210,852		133,675	57.7
Average Total Assets - Quarter-to-Date		1,816,485		1,505,307	20.7
Average Common Equity - Quarter-to-Date		208,773		131,862	58.3

(1)

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,		September 30,				September 30,		September 30,
(dollars in thousands)	2018		2017		% Change		2018		2017		% Change
Selected Income Statement Data
Interest Income	$	22,136		17,384	27.3	%	$	61,238	$	47,770	28.2	%
Interest Expense		5,502		3,323	65.6			13,942		8,446	65.1
Net Interest Income		16,634		14,061	18.3			47,296		39,324	20.3
Provision for Loan Losses		1,275		1,200	6.3			2,775		2,975	(6.7)
Net Interest Income after Provision for Loan Losses		15,359		12,861	19.4			44,521		36,349	22.5
Noninterest Income		814		987	(17.5)			1,686		1,953	(13.7)
Noninterest Expense		7,526		6,109	23.2			20,522		16,634	23.4
Income Before Income Taxes		8,647		7,739	11.7			25,685		21,668	18.5
Provision for Income Taxes		2,184		3,064	(28.7)			6,526		8,113	(19.6)
Net Income	$	6,463	$	4,675	38.2		$	19,159	$	13,555	41.3

Income Statement

Net Interest Income

Net interest income was $16.6 million for the third quarter of 2018, an increase of $2.6 million, or 18.3%, compared to $14.1 million for the third quarter of 2017. The increase in net interest income was largely attributable to growth in average interest earning assets, which increased by 21.0% to $1.81 billion for the three months ended September 30, 2018, from $1.49 billion for the three months ended September 30, 2017. 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 2018 was 3.71%, compared to 3.89% for the third quarter of 2017, a decrease of 18 basis points. While net interest margin has benefitted from the repricing of variable-rate loans and the origination of new loans at higher rates, this was offset by increased balances and rates on non-core deposits and borrowings. Furthermore, the new lower statutory federal tax rate reduced the tax equivalent adjustment by six basis points.

Interest income increased $4.8 million, or 27.3%, to $22.1 million for the third quarter of 2018, compared to $17.4 million for the third quarter of 2017, primarily due to the increase in average loan balances. The yield on interest earning assets (on a fully tax-equivalent basis) rose to 4.92% in the third quarter of 2018, compared to 4.77% in the third quarter of 2017. Loan interest income and loan fees remain the primary contributing factors to the increase in yield on interest earning assets, driving the aggregate loan yield 12 basis points higher from 5.13% in the third quarter of 2017 to 5.25% in the third quarter of 2018.

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Interest expense increased $2.2 million to $5.5 million for the third quarter of 2018, compared to $3.3 million for the third quarter of 2017, primarily due to increases in interest rates and average balances of both deposits and borrowings. The cost of interest bearing liabilities increased to 1.73% in the third quarter of 2018 from 1.24% in the third quarter of 2017 due to higher costs of both deposits and borrowings compared to the third quarter of 2017.

A summary of the Company’s average balances, interest yields and rates, and net interest margin for the three months ended September 30, 2018 and 2017 is as follows:

Consolidated Average Balances, Interest Yields and Rates


	For the Three Months Ended
	September 30, 2018						September 30, 2017
	Average		Interest		Yield/		Average		Interest		Yield/
	Balance		& Fees		Rate		Balance		& Fees		Rate
(dollars in thousands)
Interest Earning Assets:
Cash Investments	$	23,822	$	72	1.20	%	$	40,480	$	110	1.08	%
Investment Securities:
Taxable Investment Securities		132,197		839	2.52			102,592		491	1.90
Tax-Exempt Investment Securities (1)		116,042		1,204	4.12			130,772		1,610	4.88
Total Investment Securities		248,239		2,043	3.27			233,364		2,101	3.57
Loans (2)		1,526,765		20,207	5.25			1,214,501		15,707	5.13
Federal Home Loan Bank Stock		6,619		67	4.02			3,772		29	3.05
Total Interest Earning Assets		1,805,445		22,389	4.92	%		1,492,117		17,947	4.77	%
Noninterest Earning Assets		11,040						13,190
Total Assets	$	1,816,485					$	1,505,307
Interest Bearing Liabilities:
Interest Bearing Transaction Deposits		171,923		165	0.38	%		178,074		97	0.22	%
Savings and Money Market Deposits		398,092		1,373	1.37			302,885		619	0.81
Time Deposits		295,320		1,490	2.00			288,782		1,117	1.53
Brokered Deposits		241,355		1,294	2.13			193,587		758	1.55
Federal Funds Purchased		27,391		147	2.13			3,420		10	1.16
Notes Payable		15,500		144	3.69			17,500		162	3.67
FHLB Advances		89,652		488	2.16			53,217		212	1.58
Subordinated Debentures		24,595		401	6.47			21,562		348	6.40
Total Interest Bearing Liabilities		1,263,828		5,502	1.73	%		1,059,027		3,323	1.24	%
Noninterest Bearing Liabilities:
Noninterest Bearing Transaction Deposits		335,483						307,361
Other Noninterest Bearing Liabilities		8,401						7,057
Total Noninterest Bearing Liabilities		343,884						314,418
Shareholders' Equity		208,773						131,862
Total Liabilities and Shareholders' Equity	$	1,816,485					$	1,505,307
Net Interest Income / Interest Rate Spread				16,887	3.19	%				14,624	3.53	%
Net Interest Margin (3)					3.71	%					3.89	%
Taxable Equivalent Adjustment:
Tax-Exempt Investment Securities				(253)						(563)
Net Interest Income			$	16,634					$	14,061

(1)

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% in 2018 and 35% in 2017.

(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 $1.3 million for the third quarter of 2018, an increase of $75,000 compared to the provision for loan losses of $1.2 million for the third quarter of 2017. The provision increased in the third quarter of 2018 primarily due to higher loan growth in comparison to the third quarter of 2017.

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A reconciliation of the Company’s allowance for loan losses for the three and nine month periods ended September 30, 2018 and 2017 is as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(dollars in thousands)	2018		2017		2018		2017
Balance at Beginning of Period	$	17,666	$	14,053	$	16,502	$	12,333
Provision for Loan Losses		1,275		1,200		2,775		2,975
Charge-offs		(11)		(47)		(384)		(130)
Recoveries		19		13		56		41
Balance at September 30,	$	18,949	$	15,219	$	18,949	$	15,219

Noninterest Income

Noninterest income was $814,000 for the third quarter of 2018, a decrease of $173,000 from $987,000 for the third quarter of 2017.

The following table presents the major components of noninterest income for the three and nine month periods ended September 30, 2018, compared to the three and nine month periods ended September 30, 2017:


	Three Months Ended						Nine Months Ended
	September 30,				Increase/		September 30,				Increase/
(dollars in thousands)	2018		2017		(Decrease)		2018		2017		(Decrease)
Noninterest Income:
Customer Service Fees	$	184	$	174	$	10	$	539	$	483	$	56
Net Gain (Loss) on Sales of Securities		(49)		15		(64)		(108)		(51)		(57)
Net Gain (Loss) on Sales of Foreclosed Assets		(88)		202		(290)		(225)		352		(577)
Letter of Credit Fees		447		387		60		814		634		180
Debit Card Interchange Fees		99		101		(2)		287		293		(6)
Other Income		221		108		113		379		242		137
Totals	$	814	$	987	$	(173)	$	1,686	$	1,953	$	(267)

Noninterest Expense

Noninterest expense was $7.5 million for the third quarter of 2018, an increase of $1.4 million, or 23.2% from $6.1 million for the third quarter of 2017. The increase was primarily driven by a $1.2 million increase in salaries and employee benefits as the result of merit increases and increased staff to meet the needs of the Company’s growth. The increase was partially offset by a decrease of $456,000 in professional and consulting fees due to higher expenses incurred in the third quarter of 2017 in contemplation of the initial public offering, in comparison to the third quarter of 2018.

The following table presents the major components of noninterest expense for the three and nine month periods ended September 30, 2018, compared to the three and nine month periods ended September 30, 2017:


	Three Months Ended						Nine Months Ended
	September 30,				Increase/		September 30,				Increase/
(dollars in thousands)	2018		2017		(Decrease)		2018		2017		(Decrease)
Noninterest Expense:
Salaries and Employee Benefits	$	4,910	$	3,685	$	1,225	$	13,534	$	9,945	$	3,589
Occupancy and Equipment		596		570		26		1,767		1,629		138
FDIC Insurance Assessment		240		15		225		675		525		150
Data Processing		167		138		29		325		464		(139)
Professional and Consulting Fees		313		769		(456)		836		1,328		(492)
Information Technology and Telecommunications		271		178		93		674		500		174
Marketing and Advertising		347		206		141		911		736		175
Intangible Asset Amortization		48		48		—		143		143		—
Other Expense		634		500		134		1,657		1,364		293
Totals	$	7,526	$	6,109	$	1,417	$	20,522	$	16,634	$	3,888

Full-time equivalent employees increased from 115 at the end of the third quarter of 2017 to 139 at the end of the third quarter of 2018. The increase includes key strategic hires, particularly in deposit gathering roles, as the Company continues to capitalize on M&A disruption. Despite increased overhead, the Company experienced only a marginal increase in the efficiency ratio, a non-GAAP financial measure. The efficiency ratio was 42.7% for the third quarter of 2018, compared to 40.3% for the third quarter of 2017.

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Income Taxes

The effective combined federal and state income tax rate for the third quarter of 2018 was 25.3%, compared to 39.6% for the third quarter of 2017. The lower effective combined rate was primarily due to the reduction in the federal corporate tax rate from 35% to 21%.

Balance Sheet

Total assets at September 30, 2018 were $1.89 billion, a 7.6% increase from $1.75 billion at June 30, 2018, and a 21.1% increase from $1.56 billion at September 30, 2017. The increase in total assets was primarily due to organic loan growth.

Total gross loans at September 30, 2018 were $1.60 billion, an increase of $136.6 million, or 9.3%, over total gross loans of $1.46 billion at June 30, 2018, and an increase of $328.0 million, or 25.8%, over total gross loans of $1.27 billion at September 30, 2017.

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


	September 30, 2018		June 30, 2018		March 31, 2018		December 31, 2017		September 30, 2017
(dollars in thousands)
Commercial and Industrial	$	235,502	$	204,072	$	199,262	$	217,753	$	192,840
Construction and Land Development		187,919		164,492		147,842		130,586		119,427
Real Estate Mortgage:
1 - 4 Family Mortgage		224,124		213,265		200,573		195,707		187,573
Multifamily		389,511		340,888		332,770		317,872		286,191
CRE Owner Occupied		65,905		65,891		67,512		65,909		59,208
CRE Nonowner Occupied		492,499		470,437		453,498		415,034		422,269
Total Real Estate Mortgage Loans		1,172,039		1,090,481		1,054,353		994,522		955,241
Consumer and Other		4,504		4,275		3,963		4,252		4,454
Total Loans, Gross		1,599,964		1,463,320		1,405,420		1,347,113		1,271,962
Allowance for Loan Losses		(18,949)		(17,666)		(17,121)		(16,502)		(15,219)
Net Deferred Loan Fees		(4,308)		(4,058)		(4,130)		(4,104)		(4,128)
Total Loans, Net	$	1,576,707	$	1,441,596	$	1,384,169	$	1,326,507	$	1,252,615

Total deposits at September 30, 2018 were $1.48 billion, an increase of $64.4 million, or 4.6%, over total deposits of $1.41 billion at June 30, 2018, and an increase of $184.3 million, or 14.2%, over total deposits of $1.29 billion at September 30, 2017.

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

September 30, 2018

June 30, 2018

March 31, 2018

December 31, 2017

September 30, 2017

(dollars in thousands)

Bridgewater Bancshares Inc (BWB) SEC Filing 8-K Material Event for the period ending Thursday, October 25, 2018

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