Third Quarter 2024 Highlights

• Tangible book value per share⁽¹⁾ of $13.96 for the third quarter of 2024, an increase of $0.43, or 12.8% annualized, compared to $13.53 for the second quarter of 2024.
• Pre-provision net revenue⁽¹⁾ increased $489,000, or 4.5%, from the second quarter of 2024.
• Net interest income increased $603,000, or 2.4%, from the second quarter of 2024.
• Net interest margin (on a fully tax-equivalent basis) of 2.24% for the third quarter of 2024, in line with the second quarter of 2024.
• Core deposits⁽²⁾ increased by $93.6 million, or 14.4% annualized, from the second quarter of 2024. Total deposits decreased by $60.3 million from the second quarter of 2024, primarily driven by a decrease in brokered deposits of $131.3 million.
• Gross loans decreased $114.8 million from the second quarter of 2024, primarily driven by elevated levels of loan payoffs.
• Loan-to-deposit ratio of 98.3%, compared to 99.8% at June 30, 2024.
• Efficiency ratio⁽¹⁾ of 58.0%, down from 58.7% for the second quarter of 2024.
• No provision for credit losses on loans was recorded in the third quarter of 2024. The allowance for credit losses on loans to total loans was 1.38% at September 30, 2024, compared to 1.37% at June 30, 2024.
• Annualized net loan charge-offs as a percentage of average loans of 0.10% for the third quarter of 2024, compared to 0.00% for the second quarter of 2024, primarily driven by one central business district office loan.
• Nonperforming assets to total assets of 0.19% at September 30, 2024, compared to 0.01% at June 30, 2024.
• Announced the strategic acquisition of First Minnetonka City Bank. Received all required regulatory approvals in October 2024 and expect to close on the transaction during the fourth quarter of 2024.

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

(2) Core deposits are defined as total deposits less brokered deposits and certificates of deposit greater than $250,000.

Bridgewater Bancshares, Inc. (Nasdaq: BWB) (the Company), the parent company of Bridgewater Bank (the Bank), today announced net income of $8.7 million for the third quarter of 2024, compared to $8.1 million for the second quarter of 2024, and $9.6 million for the third quarter of 2023. Earnings per diluted common share were $0.27 for the third quarter of 2024, compared to $0.26 for the second quarter of 2024, and $0.30 for the third quarter of 2023.

“Bridgewater’s third quarter results were highlighted by robust core deposit growth and a stable net interest margin amid an improving interest rate backdrop following the Fed’s rate cut in September,” said Chairman and Chief Executive Officer, Jerry Baack. “As a result, we generated improved net interest income and pre-provision net revenue growth. Asset quality also remained a strength as we continued to see improving multifamily trends in the Twin Cities, such as declining vacancy rates.

“In August, we were excited to announce the signing of a definitive agreement for the acquisition of First Minnetonka City Bank, which we expect to close during the fourth quarter of 2024. This deal brings several strategic benefits including a low-cost, core deposit base and balance sheet optionality. When combined with the strong core deposit growth we have generated year-to-date, we believe we will have an enhanced funding and liquidity profile that positions us well moving forward.”

Key Financial Measures

Income Statement

Net Interest Margin and Net Interest Income

Net interest margin (on a fully tax-equivalent basis) for the third quarter of 2024 was 2.24%, stable with the second quarter of 2024, and an eight basis point decline from 2.32% in the third quarter of 2023. Core net interest margin (on a fully tax-equivalent basis), a non-GAAP financial measure which excludes the impact of loan fees, was 2.16% for the third quarter of 2024, a one basis point decline from 2.17% in the second quarter of 2024, and an eight basis point decline from 2.24% in the third quarter of 2023.

• Net interest margin has remained stable at 2.24% each quarter in 2024.
• The year-over-year decline in the margin was primarily due to higher funding costs, offset partially by higher earning asset yields.

Net interest income was $25.6 million for the third quarter of 2024, an increase of $603,000 from $25.0 million in the second quarter of 2024, and an increase of $178,000 from $25.4 million in the third quarter of 2023.

• The linked-quarter increase in net interest income was primarily due to increased cash balances, higher yields in the securities and loan portfolios and increased loan fees due to elevated loan payoffs, offset partially by decreased loan balances and higher rates paid on deposits.
• The year-over year increase in net interest income was primarily due to increased cash balances, growth and higher yields in the securities portfolio, and higher yields on loans, offset partially by growth and higher rates on deposits.

Interest income was $63.0 million for the third quarter of 2024, an increase of $2.1 million from $60.9 million in the second quarter of 2024, and an increase of $6.2 million from $56.8 million in the third quarter of 2023.

• The yield on interest earning assets (on a fully tax-equivalent basis) was 5.48% in the third quarter of 2024, compared to 5.41% in the second quarter of 2024 and 5.14% in the third quarter of 2023.
• The linked-quarter increase in the yield on interest earning assets was primarily due to continued repricing of assets at accretive yields.
• The year-over-year increase in the yield on interest earning assets was primarily due to the purchase of higher yielding securities and the repricing of the loan and securities portfolios in the higher interest rate environment.
• Loan interest income and loan fees remained one of the primary contributing factors to the changes in the yield on interest earning assets. The aggregate loan yield increased to 5.57% in the third quarter of 2024, seven basis points higher than 5.50% in the second quarter of 2024, and 31 basis points higher than 5.26% in the third quarter of 2023.
• The core loan yield continued to rise as new loan originations and the existing portfolio reprice in the higher rate environment.

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

Interest expense was $37.4 million for the third quarter of 2024, an increase of $1.5 million from $35.9 million in the second quarter of 2024, and an increase of $6.0 million from $31.4 million in the third quarter of 2023.

• The cost of interest bearing liabilities was 4.27% in the third quarter of 2024, compared to 4.19% in the second quarter of 2024 and 3.81% in the third quarter of 2023.
• The linked-quarter increase in the cost of interest bearing liabilities was primarily due to higher rates paid on deposits, offset partially by a decrease in the utilization of overnight borrowings.
• The year-over-year increase in the cost of interest bearing liabilities was primarily due to continued deposit repricing in the higher rate environment.

Interest expense on deposits was $34.2 million for the third quarter of 2024, an increase of $2.6 million from $31.6 million in the second quarter of 2024, and an increase of $7.0 million from $27.2 million in the third quarter of 2023.

• The cost of total deposits was 3.58% in the third quarter of 2024, compared to 3.46% in the second quarter of 2024 and 2.99% in the third quarter of 2023.
• The linked-quarter increase in the cost of total deposits was primarily due to continued client demand for higher interest rates and increased competition.
• The year-over-year increase in the cost of total deposits was primarily due to upward repricing of the deposit portfolio in the higher interest rate environment.

Provision for Credit Losses

The provision for credit losses on loans was $-0- for the third quarter of 2024, compared to $600,000 for the second quarter of 2024 and $-0- for the third quarter of 2023.

• No provision for credit losses on loans was recorded in the third quarter of 2024. Although loans decreased during the quarter, increased loss rates and other qualitative factor adjustments resulted in no provision for the quarter.
• The allowance for credit losses on loans to total loans was 1.38% at September 30, 2024, compared to 1.37% at June 30, 2024 and 1.36% at September 30, 2023.

The provision for credit losses for off-balance sheet credit exposures was $-0- for the third quarter of 2024, compared to $-0- for the second quarter of 2024, and a negative provision of $600,000 for the third quarter of 2023.

• No provision was recorded during the third quarter of 2024 due to unfunded commitments remaining stable as the migration to funded loans was offset by the volume of newly originated loans with unfunded commitments.

Noninterest Income

Noninterest income was $1.5 million for the third quarter of 2024, a decrease of $241,000 from $1.8 million for the second quarter of 2024, and a decrease of $204,000 from $1.7 million for the third quarter of 2023.

• The linked-quarter decrease was primarily due to a net loss on sale of securities in the third quarter and a net gain on sale of securities in the second quarter.
• The year-over-year decrease was primarily due to $493,000 of FHLB prepayment income recognized in the previous year which did not reoccur, offset partially by higher letter of credit fees, an increase in the cash surrender value of bank-owned life insurance and an increase in other income.

Noninterest Expense

Noninterest expense was $15.8 million for the third quarter of 2024, an increase of $221,000 from $15.5 million for the second quarter of 2024 and an increase of $523,000 from $15.2 million for the third quarter of 2023.

• The linked-quarter increase was primarily due to increases in professional and consulting fees related to the acquisition of First Minnetonka City Bank and salaries and employee benefits, offset partially by a decrease in data processing and derivative collateral fees.
• The year-over-year increase was primarily attributable to increases in salaries and employee benefits, higher professional and consulting fees relating to the acquisition of First Minnetonka City Bank and increases in information technology and telecommunications and marketing and advertising expenses, offset partially by a decrease in the FDIC insurance assessment and lower derivative collateral fees.
• The efficiency ratio, a non-GAAP financial measure, was 58.0% for the third quarter of 2024, compared to 58.7% for the second quarter of 2024, and 56.1% for the third quarter of 2023.
• The Company had 265 full-time equivalent employees at September 30, 2024, compared to 258 at June 30, 2024, and 255 at September 30, 2023.

Income Taxes

The effective combined federal and state income tax rate was 23.6% for both the second and third quarter of 2024, compared to 23.0% for the third quarter of 2023.

Balance Sheet

Loans

Total gross loans at September 30, 2024 were $3.69 billion, a decrease of $114.8 million, or 3.0%, over total gross loans of $3.80 billion at June 30, 2024, and a decrease of $36.7 million, or 1.0%, over total gross loans of $3.72 billion at September 30, 2023.

• The decrease in the loan portfolio during the third quarter of 2024 was due to elevated loan payoffs.

Deposits

Total deposits at September 30, 2024 were $3.75 billion, a decrease of $60.3 million, or 1.6%, over total deposits of $3.81 billion at June 30, 2024, and an increase of $71.9 million, or 2.0%, over total deposits of $3.68 billion at September 30, 2023.

• Core deposits, defined as total deposits excluding brokered deposits and time deposits greater than $250,000, increased $93.6 million, or 14.4% annualized, from the second quarter of 2024. Growth in core deposits was due to both increased balances of existing clients and new client acquisitions. On a year-to-date basis, core deposits increased by $131.2 million, or 6.9% annualized. Based on the nature of the Company’s client base, core deposit balances can fluctuate from quarter to quarter, as deposit growth is not always linear.
• Brokered deposits, which declined by $131.3 million, or 12.7%, in the current quarter, continue to be used as a supplemental funding source, as needed.
• Uninsured deposits were 25.0% of total deposits as of September 30, 2024, compared to 22.5% of total deposits as of June 30, 2024.

Liquidity

Total on- and off-balance sheet liquidity was $2.29 billion as of September 30, 2024, compared to $2.22 billion at June 30, 2024 and $2.18 billion at September 30, 2023.

Asset Quality

Overall asset quality remained superb due to the Company’s measured risk selection, consistent underwriting standards, active credit oversight and experienced lending and credit teams.

• Annualized net charge-offs as a percentage of average loans were 0.10% for the third quarter of 2024, compared to 0.00% for the second quarter of 2024, and 0.01% for the third quarter of 2023. The increase in net charge-offs was primarily due to one central business district office loan.
• At September 30, 2024, the Company’s nonperforming assets, which include nonaccrual loans, loans past due 90 days and still accruing, and foreclosed assets, were $8.8 million, or 0.19% of total assets, compared to $678,000, or 0.01%, of total assets at June 30, 2024, and $749,000, or 0.02%, of total assets at September 30, 2023. The increase in nonperforming assets was primarily due to one central business district office loan that previously had a substandard risk rating.
• Loans with potential weaknesses that warranted a watchlist risk rating at September 30, 2024 totaled $32.0 million, compared to $30.4 million at June 30, 2024, and $26.9 million at September 30, 2023.
• Loans that warranted a substandard risk rating at September 30, 2024 totaled $31.6 million, compared to $33.9 million at June 30, 2024, and $35.6 million at September 30, 2023.

Capital

Total shareholders’ equity at September 30, 2024 was $452.2 million, an increase of $13.0 million, or 3.0%, compared to total shareholders’ equity of $439.2 million at June 30, 2024, and an increase of $36.2 million, or 8.7%, over total shareholders’ equity of $416.0 million at September 30, 2023.

• The linked-quarter increase was primarily due to net income retained and a decrease in unrealized losses in the securities portfolio, offset partially by a decrease in unrealized gains in the derivatives portfolio and preferred stock dividends.
• The year-over-year increase was due to net income retained and a decrease in unrealized losses in the securities portfolio, offset partially by a decrease in unrealized gains in the derivatives portfolio, preferred stock dividends, and stock repurchases.
• The Common Equity Tier 1 Risk-Based Capital Ratio was 9.79% at September 30, 2024, compared to 9.41% at June 30, 2024, and 9.07% at September 30, 2023.
• Tangible common equity as a percentage of tangible assets, a non-GAAP financial measure, was 8.17% at September 30, 2024, compared to 7.90% at June 30, 2024, and 7.61% at September 30, 2023.

Tangible book value per share, a non-GAAP financial measure, was $13.96 as of September 30, 2024, an increase of 12.8% annualized from $13.53 as of June 30, 2024, and an increase of 12.8% from $12.37 as of September 30, 2023.

• The Company has increased tangible book value per share each of the past 31 quarters.

The Company did not repurchase any shares of its common stock during the third quarter of 2024.

• The Company has $15.3 million remaining under its current share repurchase authorization.

Today, the Company also announced that its Board of Directors has declared a quarterly cash dividend on its 5.875% Non-Cumulative Perpetual Preferred Stock, Series A (Series A Preferred Stock). The quarterly cash dividend of $36.72 per share, equivalent to $0.3672 per depositary share, each representing a 1/100th interest in a share of the Series A Preferred Stock (Nasdaq: BWBBP), is payable on December 2, 2024 to shareholders of record of the Series A Preferred Stock at the close of business on November 15, 2024.

Conference Call and Webcast

The Company will host a conference call to discuss its third quarter 2024 financial results on Thursday, October 24, 2024 at 8:00 a.m. Central Time. The conference call can be accessed by dialing 844-481-2913 and requesting to join the Bridgewater Bancshares earnings call. To listen to a replay of the conference call via phone, please dial 877-344-7529 and enter access code 1933700. The replay will be available through October 31, 2024. The conference call will also be available via a live webcast on the Investor Relations section of the Company’s website, investors.bridgewaterbankmn.com, and archived for replay.

About the Company

Bridgewater Bancshares, Inc. (Nasdaq: BWB) is a St. Louis Park, Minnesota-based financial holding company. Bridgewater's banking subsidiary, Bridgewater Bank, is a premier, full-service Twin Cities bank dedicated to serving the diverse needs of commercial real estate investors, entrepreneurs, business clients and successful individuals. By pairing a range of deposit, lending, and treasury management solutions with a responsive service model, Bridgewater has seen continuous growth and profitability. With total assets of $4.7 billion and seven branches as of September 30, 2024, Bridgewater is considered one of the largest locally led banks in the State of Minnesota, and has received numerous awards for its growth, banking services, and esteemed corporate culture.

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: interest rate risk, including the effects of changes in interest rates; fluctuations in the values of the securities held in our securities portfolio, including as the result of changes in interest rates; business and economic conditions generally and in the financial services industry, nationally and within our market area, including the level and impact of inflation and possible recession; the effects of developments and events in the financial services industry, including the large-scale deposit withdrawals over a short period of time that resulted in recent bank failures; loan concentrations in our portfolio; the overall health of the local and national real estate market; our ability to successfully manage credit risk; our ability to maintain an adequate level of allowance for credit losses on loans; new or revised accounting standards; the concentration of large loans to certain borrowers; the concentration of large deposits from certain clients, including those who have balances above current FDIC insurance limits; our ability to successfully manage liquidity risk, which may increase our dependence on non-core funding sources such as brokered deposits, and negatively impact 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; talent and labor shortages and employee turnover; the occurrence of fraudulent activity, breaches or failures of our or our third-party vendors’ information security controls or cybersecurity-related incidents, including as a result of sophisticated attacks using artificial intelligence and similar tools; interruptions involving our information technology and telecommunications systems or third-party servicers; competition in the financial services industry, including from nonbank competitors such as credit unions and “fintech” companies; 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, including in response to recent bank failures; risks related to climate change and the negative impact it may have on our customers and their businesses; the imposition of other governmental policies impacting the value of products produced by our commercial borrowers; severe weather, natural disasters, wide spread disease or pandemics, acts of war or terrorism or other adverse external events, including the ongoing conflict in the Middle East and the Russian invasion of Ukraine; potential impairment to the goodwill the Company recorded in connection with acquisitions; risks associated with our ongoing acquisition of First Minnetonka City Bank, including the possibility that the merger may be more difficult or expensive to accomplish than anticipated, diversion of management's attention from daily operations and the effect of the proposed merger on the Company’s customer and employee relationships and operating results; changes to U.S. or state tax laws, regulations and guidance; potential changes in federal policy and at regulatory agencies as a result of the upcoming 2024 presidential election; and any other risks described in the “Risk Factors” sections of 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. The Company undertakes 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.