8-K: Bridgewater Bancshares Reports $7.8 Million Net Income for First Quarter 2024, Driven by Strong Balance Sheet Growth

Bridgewater Bancshares announced a net income of $7.8 million for the first quarter of 2024, with notable growth in loans and core deposits.

Summary

• Bridgewater Bancshares reported a net income of $7.8 million for the first quarter of 2024, a decrease from $8.9 million in the previous quarter and $11.6 million in the first quarter of 2023.
• Diluted earnings per common share were $0.24, down from $0.28 in the fourth quarter of 2023 and $0.37 in the first quarter of 2023.
• The company's tangible book value per share increased to $13.20, up from $12.84 in the previous quarter, marking the 29th consecutive quarter of growth.
• Gross loans increased by $59.9 million, or 6.5% annualized, from the fourth quarter of 2023.
• Deposits increased by $97.3 million, or 10.5% annualized, including a $90.3 million increase in core deposits, or 14.3% annualized.
• The loan-to-deposit ratio decreased to 99.4%, down from 100.4% at the end of 2023.
• Net interest margin was 2.24%, a slight decrease from 2.27% in the previous quarter.
• Noninterest expense decreased by $551,000, or 3.5%, from the fourth quarter of 2023.
• The efficiency ratio was 58.2%, compared to 58.8% in the previous quarter.
• The company repurchased 193,802 shares of common stock at an average price of $11.75 per share, totaling $2.3 million.
• A provision for credit losses on loans of $850,000 was recorded to support loan growth.
• The allowance for credit losses on loans to total loans was 1.36% at both March 31, 2024 and December 31, 2023.
• The company declared a quarterly cash dividend of $0.3672 per depositary share on its Series A Preferred Stock, payable on June 3, 2024.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive. While the company shows strong growth in key areas like loans and deposits, there are some concerning trends such as decreased net income and net interest margin compression. The company's strong asset quality and capital position are positives, but the overall financial performance is mixed.

Positives

• The company experienced strong growth in both loans and deposits.
• The loan-to-deposit ratio improved, falling below 100% for the first time since early 2022.
• Noninterest expenses were well-controlled, decreasing from the previous quarter.
• Asset quality remained strong with low nonperforming assets and net charge-offs.
• Tangible book value per share continued to grow for the 29th consecutive quarter.
• The company is well-positioned for potential interest rate cuts and a normalizing yield curve.
• The company has a strong liquidity position with $2.25 billion in total onand off-balance sheet liquidity.

Negatives

• Net income decreased compared to both the previous quarter and the same quarter last year.
• Earnings per diluted common share decreased compared to both the previous quarter and the same quarter last year.
• Net interest margin experienced a slight compression compared to the previous quarter.
• The cost of total deposits increased to 3.32% from 3.19% in the previous quarter.

Risks

• The company faces interest rate risk, including the effects of significant rate increases by the Federal Reserve.
• Fluctuations in the values of securities held in the portfolio could impact financial results.
• Business and economic conditions, including inflation and potential recession, could affect performance.
• The company is exposed to risks related to loan concentrations and the overall health of the real estate market.
• The company's ability to manage liquidity risk and dependence on non-core funding sources could impact cost of funds.
• Cybersecurity incidents and interruptions to information technology systems pose a risk.
• Competition in the financial services industry could impact the company's market share.
• The company is subject to risks related to climate change and other adverse external events.

Future Outlook

The company expects low-to-mid-single digit loan growth, modest net interest margin pressure in the near-term, and noninterest expense growth throughout 2024. They will continue to evaluate share repurchases and focus on aligning loan growth with core deposit growth.

Management Comments

• Bridgewater's 2024 first quarter results were highlighted by improved balance sheet growth, including the loan portfolio and core deposits, said Chairman, Chief Executive Officer, and President, Jerry Baack.
• We were encouraged by an uptick in loan balances due to the increased loan demand and pipelines we began seeing in late 2023.
• Deposit balances, including core deposits, also rebounded nicely during the quarter, resulting in our loan-to-deposit ratio dropping below 100% for the first time since the first quarter of 2022.
• While the economic environment continues to evolve, we remain optimistic about our outlook as we execute on our proven business model and continue to provide a differentiated level of service to our clients.

Industry Context

The results reflect the challenges and opportunities in the current banking environment, including interest rate fluctuations and competition for deposits. The company's focus on core deposit growth and maintaining asset quality aligns with industry best practices.

Comparison to Industry Standards

• Bridgewater's tangible book value per share growth of 192% since 4Q16 significantly outperforms the peer bank average of 63%.
• The company's efficiency ratio of 58.2% is better than the industry median of 63% for banks with assets between $3 billion and $10 billion.
• Bridgewater's nonperforming assets to total assets ratio of 0.01% is very low compared to industry averages.
• The company's loan-to-deposit ratio of 99.4% is a positive sign of balance sheet management compared to some peers struggling with liquidity.

Stakeholder Impact

• Shareholders will be impacted by the decrease in net income and earnings per share, but also by the continued growth in tangible book value and the dividend on preferred stock.
• Employees may be affected by the company's focus on efficiency and cost management.
• Customers will benefit from the company's continued growth and strong financial position.
• Creditors will be reassured by the company's strong asset quality and capital ratios.

Next Steps

• The company will host a conference call on April 25, 2024, to discuss the first quarter 2024 financial results.
• The company will continue to focus on aligning loan growth with core deposit growth.
• The company will continue to evaluate share repurchases based on valuation, capital levels, and other uses of capital.

Key Dates

Keywords

Bridgewater Bancshares, financial results, net income, earnings per share, tangible book value, loan growth, deposit growth, net interest margin, noninterest expense, asset quality, capital ratios, share repurchase, dividends, banking, financial services