Company Overview
Bridgewater Bancshares, Inc. is a financial holding company headquartered in St. Louis Park, Minnesota, providing a full range of banking and financial services to customers through its wholly-owned subsidiary, Bridgewater Bank. With a focus on the Minneapolis-St. Paul metropolitan area, Bridgewater Bank has established itself as a leading community bank, delivering consistent growth and shareholder value since its inception in 2005.
Business Model and Strategy
Bridgewater Bancshares’ success can be attributed to its simple, efficient business model of providing responsive support and exceptional customer experiences. The company’s focus on real estate lending, particularly commercial real estate and multifamily loans, has been a key driver of its growth. As of September 30, 2024, real estate mortgage loans comprised 81.8% of the company’s total loan portfolio, with a strong emphasis on multifamily and commercial real estate non-owner occupied properties. The bank has grown its loan portfolio across a diverse range of industries and property types, with a primary emphasis on commercial lending secured by nonfarm, nonresidential properties, multifamily residential properties, land, and non-real estate business assets. Bridgewater’s approach to banking, characterized by responsive service, local decision-making, and efficient turnaround times from application to closing, has been instrumental in its growth and success in the Minneapolis-St. Paul region.
Credit Quality and Risk Management
Throughout its history, Bridgewater has maintained a strong credit culture with a long track record of excellent asset quality. The company has demonstrated its ability to actively monitor its loan portfolios, especially in the CRE and multifamily sectors, and maintain robust credit metrics overall. Despite occasional one-off credit issues, such as challenges faced with a central business district office loan in recent quarters, Bridgewater has remained committed to prudent risk management and conservative underwriting standards, even when that has resulted in slower near-term loan growth at times. The company has also focused on optimizing its funding mix, growing a stable core deposit base, and maintaining ample liquidity to position the organization for long-term success.
Financials
The company’s financial performance has been impressive, with consistent profitability and growth. For the nine months ended September 30, 2024, Bridgewater Bancshares reported net income of $24.6 million, or $0.77 per diluted share. This compares to net income of $31.1 million, or $0.99 per diluted share, for the same period in the prior year. The decrease in net income was primarily due to a higher provision for credit losses and an increase in noninterest expense, partially offset by an increase in net interest income.
Net interest income for the nine months ended September 30, 2024, was $75.2 million, compared to $79.9 million for the same period in 2023. The decrease was primarily attributable to higher funding costs, which offset the increase in earning asset yields. The company’s net interest margin, on a fully tax-equivalent basis, was 2.24% for the nine months ended September 30, 2024, down from 2.47% for the same period in 2023.
Bridgewater Bancshares’ balance sheet remained strong, with total assets of $4.69 billion as of September 30, 2024, compared to $4.61 billion as of December 31, 2023. The company’s loan portfolio totaled $3.69 billion as of September 30, 2024, a decrease of 1.0% compared to December 31, 2023, primarily due to elevated loan payoffs. Total deposits increased by 1.0% to $3.75 billion as of September 30, 2024, from $3.71 billion as of December 31, 2023.
For the most recent quarter, Bridgewater Bancshares reported revenue of $960 and net income of $8,675,000. The company’s operating cash flow (OCF) was -$5,986,000, and free cash flow (FCF) was -$5,792,000 for the quarter. The current ratio and quick ratio both stand at 247.71, indicating strong short-term liquidity.
Asset Quality
The company’s asset quality remained excellent, with nonperforming assets to total assets of just 0.19% as of September 30, 2024. The allowance for credit losses on loans was $51.0 million, or 1.38% of total loans, as of September 30, 2024, compared to $50.5 million, or 1.36% of total loans, as of December 31, 2023. Annualized year-to-date net charge-offs were just 0.03%, further demonstrating the company’s strong asset quality.
Capital Position
Bridgewater Bancshares’ capital position also remained strong, with a common equity Tier 1 capital ratio of 13.06% and a total risk-based capital ratio of 14.27% as of September 30, 2024. These ratios exceeded the well-capitalized thresholds set by regulatory authorities.
Liquidity
The company has focused on optimizing its funding mix and growing a stable core deposit base. As of September 30, 2024, total deposits increased by 1.0% to $3.75 billion, compared to $3.71 billion as of December 31, 2023. This growth in deposits, along with the company’s strong capital position, contributes to Bridgewater Bancshares’ ample liquidity, positioning the organization for long-term success. The company reported cash of $191,860,000 on its balance sheet, further enhancing its liquidity position.
Business Segments
Bridgewater Bancshares operates two primary business segments: Banking and Wealth Management.
The Banking segment is the core of BWB’s operations, comprising the majority of the company’s assets, revenue, and earnings. This segment focuses on providing a range of banking products and services to commercial and retail customers, primarily within the Minneapolis-St. Paul-Bloomington, MN-WI Metropolitan Statistical Area.
The loan portfolio is diversified across various commercial real estate (CRE) categories, including multifamily residential properties, CRE owner-occupied, and CRE non-owner occupied. As of September 30, 2024, CRE loans constituted 69.9% of the total gross loan portfolio and 449.1% of the bank’s total risk-based capital. The largest CRE loan concentrations were in the industrial (24.4%), office (19.1%), and retail (16.3%) sectors. The bank also has exposures to construction and land development loans (3.2% of total loans) as well as 1-4 family residential mortgages (11.4% of total loans).
The bank’s deposit base is diverse, comprising noninterest-bearing transaction accounts (19.0% of total deposits), interest-bearing transaction accounts (21.5%), savings and money market accounts (26.2%), and time deposits (9.3%). The bank also utilizes brokered deposits (24.0% of total deposits) as a supplemental funding source. As of September 30, 2024, the bank’s loan-to-deposit ratio was 98.3%.
For the nine months ended September 30, 2024, the Banking segment generated $182.6 million in interest income and $107.4 million in interest expense, resulting in net interest income of $75.2 million. The provision for credit losses on loans was $1.5 million for the same period. Noninterest income, which includes fees, commissions, and other revenue streams, totaled $4.8 million for the nine-month period.
The Wealth Management segment provides investment advisory, wealth planning, and other related services to high-net-worth individuals and families. This segment generates revenue primarily through asset management fees, which are typically based on the value of assets under management (AUM).
Strategic Initiatives
In August 2024, Bridgewater Bancshares announced the acquisition of First Minnetonka City Bank, a transaction that is expected to enhance the company’s market position and provide additional scale and diversification. The acquisition, which is expected to close in the fourth quarter of 2024, will add approximately $241 million in assets, $215 million in deposits, and $129 million in loans to Bridgewater’s balance sheet.
Recent Performance and Future Outlook
Bridgewater Bancshares reported earnings of $0.27 per share for the 2024 third quarter, which was considered a solid performance. The company’s net interest margin held steady at 2.24% for the third straight quarter. BWB saw strong core deposit growth of $93 million or 14.4% annualized in the third quarter. However, loan balances declined by $115 million in the third quarter due to elevated loan payoffs, which were up 42% year-to-date compared to 2023.
Looking ahead to the fourth quarter of 2024, BWB expects loan growth to be primarily driven by the acquisition of First Minnetonka City Bank, with organic loan growth remaining relatively flat due to continued payoff headwinds. The company anticipates modest margin expansion to begin in the fourth quarter and continue into 2025, given their liability-sensitive balance sheet and the potential for further interest rate cuts. The magnitude of margin expansion will depend on the pace of future rate cuts and the slope of the yield curve.
For 2025, BWB is targeting mid-single digit loan growth, which would allow them to continue improving their loan-to-deposit ratio and funding mix. Expenses are expected to generally track in line with asset growth over time.
Conclusion
Overall, Bridgewater Bancshares’ consistent financial performance, strong asset quality, and strategic initiatives, including the acquisition of First Minnetonka City Bank, position the company well for continued growth and shareholder value creation. The company’s focus on optimizing its funding mix, maintaining a strong capital position, and prudent risk management should support its ability to navigate potential economic challenges and capitalize on growth opportunities in the coming years.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.