8-K: Bridgewater Bancshares Reports $8.7 Million Net Income for Third Quarter 2024, Announces First Minnetonka City Bank Acquisition

Bridgewater Bancshares announced a net income of $8.7 million for the third quarter of 2024, alongside the strategic acquisition of First Minnetonka City Bank.

Summary

• Bridgewater Bancshares reported a net income of $8.7 million for the third quarter of 2024, an increase from $8.1 million in the second quarter of 2024, but a decrease from $9.6 million in the third quarter of 2023.
• Diluted earnings per common share were $0.27 for the third quarter of 2024, compared to $0.26 in the previous quarter and $0.30 in the same quarter of the previous year.
• The company's tangible book value per share increased to $13.96, a rise of $0.43 from the previous quarter, representing a 12.8% annualized growth.
• Pre-provision net revenue increased by $489,000, or 4.5%, compared to the second quarter of 2024.
• Net interest income rose by $603,000, or 2.4%, from the second quarter of 2024.
• The net interest margin remained stable at 2.24% for the third consecutive quarter.
• Core deposits increased by $93.6 million, or 14.4% annualized, from the second quarter of 2024, while total deposits decreased by $60.3 million due to a reduction in brokered deposits by $131.3 million.
• Gross loans decreased by $114.8 million from the second quarter of 2024, primarily due to elevated loan payoffs.
• The loan-to-deposit ratio was 98.3%, down from 99.8% at the end of the second quarter of 2024.
• The efficiency ratio improved to 58.0%, down from 58.7% in the second quarter of 2024.
• No provision for credit losses on loans was recorded in the third quarter of 2024.
• Annualized net loan charge-offs were 0.10% of average loans, compared to 0.00% in the second quarter of 2024, primarily due to one central business district office loan.
• Nonperforming assets to total assets increased to 0.19% from 0.01% in the previous quarter.
• Bridgewater Bancshares announced the strategic acquisition of First Minnetonka City Bank, with all regulatory approvals received in October 2024 and expected to close in the fourth quarter of 2024.

Sentiment

Score: 7

Explanation: The sentiment is positive due to the strong core deposit growth, stable net interest margin, and strategic acquisition. However, there are some concerns about the decrease in total deposits, loan balances, and the increase in nonperforming assets, which temper the overall positive outlook.

Positives

• The company experienced robust core deposit growth, increasing by $93.6 million, or 14.4% annualized, from the second quarter of 2024.
• Net interest income saw a positive increase of $603,000, or 2.4%, from the previous quarter.
• The net interest margin remained stable at 2.24% for the third consecutive quarter, indicating consistent performance.
• The efficiency ratio improved to 58.0%, down from 58.7% in the second quarter of 2024, showing better cost management.
• The strategic acquisition of First Minnetonka City Bank is expected to bring a low-cost core deposit base and balance sheet optionality.
• The company's liquidity position remains strong with $2.29 billion in total onand off-balance sheet liquidity.
• The company has increased tangible book value per share each of the past 31 quarters.

Negatives

• Total deposits decreased by $60.3 million from the second quarter of 2024, primarily due to a $131.3 million decrease in brokered deposits.
• Gross loans decreased by $114.8 million from the second quarter of 2024, driven by elevated loan payoffs.
• Annualized net loan charge-offs increased to 0.10% of average loans, compared to 0.00% in the second quarter of 2024, due to one central business district office loan.
• Nonperforming assets to total assets increased to 0.19% from 0.01% in the previous quarter, primarily due to one central business district office loan.
• Net income decreased from $9.6 million in the third quarter of 2023 to $8.7 million in the third quarter of 2024.

Risks

• The company faces interest rate risk, including the effects of changes in interest rates and fluctuations in the values of securities held in its portfolio.
• There are risks associated with business and economic conditions, including inflation and possible recession.
• The company is exposed to risks related to loan concentrations, the overall health of the real estate market, and the ability to manage credit risk.
• There are risks associated with the concentration of large deposits from certain clients, including those above FDIC insurance limits.
• The company faces liquidity risk, which may increase dependence on non-core funding sources.
• The acquisition of First Minnetonka City Bank carries risks, including integration challenges and potential diversion of management's attention.
• The company is exposed to cybersecurity risks and potential interruptions to information technology systems.
• Competition in the financial services industry, including from nonbank competitors, poses a risk.
• The company is subject to legal and regulatory risks, including the impact of recent and future legislative changes.
• There are risks related to climate change and other adverse external events.

Future Outlook

The company expects relatively flat loan balances in the fourth quarter of 2024, excluding the impact of the First Minnetonka City Bank acquisition, and anticipates moderate net interest margin expansion beginning in the fourth quarter of 2024, dependent on the pace of additional rate cuts and a normalizing yield curve. The closing of the First Minnetonka City Bank acquisition is expected to provide a net interest margin tailwind in 2025.

Management Comments

• 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.

Industry Context

This announcement comes at a time when the banking industry is navigating a complex interest rate environment and increased regulatory scrutiny. The acquisition of First Minnetonka City Bank is a strategic move to enhance Bridgewater's deposit base and market position in the Twin Cities area. The focus on core deposit growth and maintaining a stable net interest margin is consistent with industry trends aimed at improving profitability and resilience.

Comparison to Industry Standards

• Bridgewater's tangible book value per share growth of 12.8% annualized significantly outperforms the peer bank average of 69% growth through 2Q24.
• The company's efficiency ratio of 58.0% is better than the peer median of 63% in 2Q24, indicating strong cost management.
• Bridgewater's allowance for credit losses to total loans of 1.38% is well-reserved compared to the peer median of 1.13%.
• The company's nonperforming assets to total assets of 0.19% is higher than the previous quarter but still relatively low compared to some peers.
• The company's focus on multifamily lending in the Twin Cities aligns with a market that is experiencing positive trends, such as declining vacancy rates and strong absorption, which is a positive differentiator compared to banks with more exposure to other real estate sectors.

Stakeholder Impact

• Shareholders will benefit from the increased tangible book value per share and the potential for future growth through the acquisition.
• Employees may experience changes due to the acquisition, but the company is focused on a smooth integration.
• Customers will have access to a broader range of services and locations due to the acquisition.
• Suppliers and creditors will be impacted by the company's overall financial performance and strategic direction.

Next Steps

• The company expects to close the acquisition of First Minnetonka City Bank in the fourth quarter of 2024.
• The company will continue to focus on profitable growth while aligning loan growth with core deposit growth.
• The company will continue to monitor the loan portfolio for signs of credit weakness.
• The company will evaluate potential share repurchases based on valuation, capital levels, and other uses of capital.

Key Dates

Keywords

Bridgewater Bancshares, Net Income, Earnings, Bank Acquisition, First Minnetonka City Bank, Core Deposits, Net Interest Margin, Loan Growth, Asset Quality, Financial Results