Bridgewater Bancshares, Inc., a financial holding company headquartered in St. Louis Park, Minnesota, has been steadily carving its niche in the highly competitive Twin Cities banking landscape. With a focus on providing responsive support and unconventional experiences to its clients, Bridgewater Bank, the company’s banking subsidiary, has established itself as a premier, full-service community bank dedicated to serving the region’s commercial real estate investors, small business entrepreneurs, and high-net-worth individuals.
Company History and Growth
Founded in 2005, Bridgewater Bancshares has experienced impressive growth, both organically and through strategic acquisitions. The company’s history is marked by a disciplined approach to expansion, evident in its ability to navigate the evolving industry dynamics and maintain a strong financial position. In 2008, the Bank formed BWB Holdings, LLC, a wholly-owned subsidiary, for the purpose of holding repossessed property. This strategic move demonstrated the company’s proactive approach to managing its assets during a challenging economic period. Further expanding its capabilities, in 2018, the Bank established Bridgewater Investment Management, Inc., another wholly-owned subsidiary, to hold certain municipal securities and engage in municipal lending activities. This diversification of services has allowed Bridgewater to better serve its clientele and tap into new revenue streams.
Business Strategy
Throughout its history, Bridgewater Bank has consistently focused on building responsive, personal relationships with its target client base. This commitment to personalized service has been a key differentiator in the competitive banking landscape. The company’s emphasis on credit quality in originating and monitoring its loan portfolio has been a cornerstone of its success, resulting in historically low levels of classified and nonperforming assets, as well as minimal net charge-offs.
Financials
As of September 30, 2024, Bridgewater Bancshares reported total assets of $4.69 billion, a 1.7% increase from the end of 2023 and a 3.0% rise compared to the same period in the prior year. This growth can be attributed to the company’s focus on building a diversified asset base, with investments in cash, securities, and a loan portfolio that caters to the distinct needs of its target clientele.
The company’s loan portfolio, which stood at $3.69 billion as of September 30, 2024, has seen a slight decline of 1.0% from the end of 2023 and the same period in the prior year. This moderation in loan growth can be partly attributed to elevated payoffs, which the company has been actively managing. However, Bridgewater’s prudent approach to lending, with a focus on maintaining credit quality, has been a key driver of its success.
Bridgewater’s net interest margin, a crucial metric for banks, has remained relatively stable, holding steady at 2.24% for the third consecutive quarter as of September 30, 2024. This consistency in the net interest margin, coupled with annualized average earning asset growth of 4.3%, has contributed to a 2.4% increase in net interest income from the previous quarter.
For the third quarter of 2024, Bridgewater reported revenue of $960,000 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. The decrease in OCF and FCF was primarily due to higher interest expenses and provisions for credit losses.
Liquidity
The company’s core deposit growth has been a standout performance, with a 14.4% annualized increase in the third quarter of 2024, totaling $93.6 million. This growth in core deposits, defined as total deposits excluding brokered deposits and time deposits greater than $250,000, reflects Bridgewater’s ability to attract and retain a stable funding base, which is crucial for supporting its lending activities and managing interest rate risk.
As of September 30, 2024, Bridgewater had $191.86 million in cash and cash equivalents. The company also maintains a $40 million revolving credit facility with ServisFirst Bank, of which $13.75 million was outstanding as of the same date. Total deposits were $3.75 billion as of September 30, 2024, up from $3.71 billion at the end of 2023. Core deposits (excluding brokered deposits) accounted for 71.5% of total deposits.
Asset Quality
Bridgewater’s asset quality remains a strength, with annualized year-to-date net charge-offs of just 0.03% and non-performing assets accounting for only 0.19% of total assets as of September 30, 2024. This strong credit profile can be attributed to the company’s disciplined underwriting practices and proactive management of its loan portfolio, particularly in the commercial real estate and multifamily sectors. Nonperforming assets were $8.81 million as of September 30, 2024, up from $919 million at the end of 2023. The allowance for credit losses on loans was 1.38% of total loans.
Strategic Acquisitions
In August 2024, Bridgewater announced the acquisition of First Minnetonka City Bank, a strategic move that aligns with the company’s growth plans. The acquisition is expected to enhance Bridgewater’s deposit base, improve its liquidity profile, and provide additional income diversification through First Minnetonka City Bank’s investment advisory platform. The transaction, which is subject to customary closing conditions, is anticipated to close in the fourth quarter of 2024.
Capital Position
Bridgewater’s capital position remains robust, with a Common Equity Tier 1 (CET1) ratio of 9.79% as of September 30, 2024, up from 9.41% at the end of 2023. The company’s strong capital levels provide a solid foundation for navigating the evolving regulatory landscape and pursuing strategic opportunities for growth. Shareholders’ equity was $452.20 million as of September 30, 2024, up from $425.51 million at the end of 2023.
Outlook
Looking ahead, Bridgewater Bancshares is well-positioned to continue its trajectory of profitable growth. The company’s focus on building a diversified asset base, maintaining strong credit quality, and optimizing its funding sources have been the key drivers of its success. As Bridgewater navigates the dynamic banking industry, its disciplined approach to expansion and commitment to providing exceptional service to its clients are expected to remain at the forefront of its strategic priorities.
Bridgewater expects loan growth in the fourth quarter 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 company’s current loan pipeline is the strongest it has been all year, and they are focused on generating profitable growth while adhering to their conservative credit culture. Bridgewater expects their capital ratios to decline modestly as a result of the First Minnetonka City Bank acquisition, but they will continue to evaluate future share repurchases.
Looking further ahead, Bridgewater is targeting mid-single digit loan growth in 2025, which they believe is an attainable goal that will allow them to continue improving their loan and deposit mix. This outlook reflects the company’s confidence in its strategy and ability to navigate the evolving banking landscape.
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