Bridgewater Bancshares, Inc. (Nasdaq: BWB) (the Company), the parent company of Bridgewater Bank (the Bank), today announced net income of $7.8 million for the fourth quarter of 2018, a 132.8% increase over net income of $3.3 million for the fourth quarter of 2017. Net income per diluted common share for the fourth quarter of 2018 was $0.25, a 91.1% increase, compared to $0.13 of net income per diluted common share for the same period in 2017.

The fourth quarter of 2017 included a one-time expense in the amount of $2.0 million related to the enactment of the Tax Cuts and Jobs Act (“Tax Reform”). Excluding the one-time impact of Tax Reform in the fourth quarter of 2017, net income increased 45.4% in the fourth quarter of 2018 over the fourth quarter of 2017.

“2018 was an eventful year beginning with our initial public offering in the first quarter and concluding with record earnings for the year and the fourth quarter,” noted Chairman, Chief Executive Officer, and President, Jerry Baack. “We closed out the year with strong organic loan and deposit growth and continue to be very pleased with credit quality as nonperforming assets have trended to just 0.03% of total assets. As we continue to execute our efficient business model in 2019, we also look to continue strategic investments in talent and technology to best serve our clients.”

Fourth Quarter 2018 Financial Results

         
Basic Diluted Tangible book
ROA ROE Earnings per share Earnings per share Efficiency ratio (1) value per share (1)
1.58 % 14.30 % $ 0.26 $ 0.25 60.0% $ 7.22
       

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

 

Fourth Quarter 2018 Highlights

  • Annualized return on average assets (ROA) and return on average common equity (ROE) for the fourth quarter of 2018 were 1.58% and 14.30%, respectively, compared to annualized ROA and ROE of 0.83% and 9.73%, respectively, for the fourth quarter of 2017.
  • Net income was $7.8 million for the fourth quarter of 2018 compared to $3.3 million for the fourth quarter of 2017, an increase of 132.8%.
  • Diluted earnings per common share for the fourth quarter of 2018 were $0.25, compared to $0.13 for the fourth quarter of 2017.
  • Nonperforming assets to total assets decreased to 0.03%, compared to 0.11% at December 31, 2017.
  • Adjusted efficiency ratio, a non-GAAP financial measure which excludes the impact of the amortization of tax credit investments from noninterest expense, was 42.1% for the fourth quarter of 2018, compared to 44.1% for the fourth quarter of 2017.

Annual 2018 Highlights

  • ROA and ROE for the year ended December 31, 2018 were 1.51% and 13.87%, respectively, compared to ROA and ROE of 1.16% and 13.18%, respectively, for the year ended December 31, 2017.
  • Net income was $26.9 million for the year ended December 31, 2018 compared to $16.9 million for the year ended December 31, 2017, an increase of 59.4%.
  • Diluted earnings per common share for the year ended December 31, 2018 were $0.91, compared to $0.68 for the year ended December 31, 2017.
  • Gross loans increased $317.8 million to $1.66 billion for the year ended December 31, 2018, compared to $1.35 billion as of December 31, 2017, an increase of 23.6%.
  • Net loan charge-offs as a percent of average loans was 0.00% for the year ended December 31, 2018.
  • Tangible book value per share, a non-GAAP financial measure, increased 33.7%, from $5.40 as of December 31, 2017 to $7.22 as of December 31, 2018.

Key Financial Measures

       
As of and for the Three Months Ended As of and for the Year Ended
December 31, December 31, December 31, December 31,
2018 2017 2018 2017
Per Common Share Data (1)
Basic Earnings Per Share $ 0.26 $ 0.14 $ 0.93 $ 0.69
Diluted Earnings Per Share 0.25 0.13 0.91 0.68
Book Value Per Share 7.34 5.56
Tangible Book Value Per Share (2) 7.22 5.40
Basic Weighted Average Shares Outstanding 30,072,003 24,636,926 29,001,393 24,604,464
Diluted Weighted Average Shares Outstanding 30,506,824 25,050,152 29,436,214 25,017,690
Shares Outstanding at Period End 30,097,274 24,679,861
 
Selected Performance Ratios
Return on Average Assets (Annualized) 1.58 % 0.83 % (5) 1.51 % 1.16 % (5)
Return on Average Common Equity (Annualized) 14.30 9.73 (5) 13.87 13.18 (5)
Return on Average Tangible Common Equity (Annualized) (2) 14.55 10.02 14.15 13.60
Yield on Interest Earning Assets 4.96 4.82 4.88 4.76
Yield on Total Loans, Gross 5.27 5.13 5.23 5.10
Cost of Interest Bearing Liabilities 1.92 1.29 1.65 1.19
Cost of Total Deposits 1.32 0.85 1.12 0.80
Net Interest Margin (3) 3.62 3.88 3.72 3.92
Efficiency Ratio (2) 60.0 56.4 46.5 44.4
Adjusted Efficiency Ratio (4) 42.1 44.1 41.7 41.1
Noninterest Expense to Average Assets (Annualized) 2.25 2.22 1.78 1.76
Loan to Deposit Ratio 106.7 100.6
Core Deposits to Total Deposits 75.8 76.7
Tangible Common Equity to Tangible Assets (2) 11.03 8.26
 
Capital Ratios (Bank Only)
Tier 1 Leverage Ratio 10.82 % 9.83 %
Tier 1 Risk-based Capital Ratio 11.63 11.15
Total Risk-based Capital Ratio 12.76 12.37
 
(1)   Includes shares of common stock and non-voting common stock. On October 25, 2018, the Company exchanged shares of common stock for all of the outstanding shares of non-voting common stock. Following the exchange, no shares of non-voting common stock were outstanding.
(2) Represents a non-GAAP financial measure. See "Non-GAAP Financial Measures" for further details.
(3) Amounts calculated on a tax-equivalent basis using the statutory federal tax rate of 21% for 2018 and 35% for 2017.
(4) Ratio excludes the amortization of tax credit investments and represents a non-GAAP financial measure. See "Non-GAAP Financial Measures" for further details.
(5) ROA and ROE, excluding a one-time additional expense of $2.0 million related to the revaluation of the deferred tax asset, would have been 1.34% and 15.59%, respectively for the three months ended December 31, 2017 and 1.30% and 14.75%, respectively for the year ended December 31, 2107.
 

Selected Financial Data

     
December 31, December 31,
(dollars in thousands) 2018 2017 % Change
Selected Balance Sheet Data
Total Assets $ 1,973,741 $ 1,616,612

22.1 

%
Total Loans, Gross 1,664,931 1,347,113

23.6 

Allowance for Loan Losses 20,031 16,502

21.4 

Goodwill and Other Intangibles 3,678 3,869 (4.9)
 
Deposits 1,560,934 1,339,350

16.5 

Tangible Common Equity (1) 217,320 133,293

63.0 

Total Shareholders' Equity 220,998 137,162

61.1 

Average Total Assets - Quarter-to-Date 1,948,909 1,584,721

23.0 

Average Common Equity - Quarter-to-Date 215,254 135,875

58.4 

 

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

 
           
For the Three Months Ended For the Year Ended
December 31, December 31, December 31, December 31,
(dollars in thousands) 2018 2017 % Change 2018 2017 % Change
Selected Income Statement Data
Interest Income $ 23,988 $ 18,576 29.1 % $ 85,226 $ 66,346 28.5 %
Interest Expense   6,546     3,727 75.6   20,488   12,173 68.3
Net Interest Income   17,442     14,849 17.5   64,738   54,173 19.5
Provision for Loan Losses   800     1,200 (33.3 )   3,575   4,175 (14.4 )
Net Interest Income after Provision for Loan Losses 16,642 13,649 21.9 61,163 49,998 22.3
Noninterest Income 857 583 47.0 2,543 2,536 0.3
Noninterest Expense   11,040     8,862 24.6   31,562   25,496 23.8
Income Before Income Taxes 6,459 5,370 20.3 32,144 27,038 18.9
Provision (Benefit) for Income Taxes   (1,302 )   2,036 (163.9 )   5,224   10,149 (48.5 )
Net Income $ 7,761   $ 3,334 132.8 $ 26,920 $ 16,889 59.4
 

Income Statement

Net Interest Income

Net interest income was $17.4 million for the fourth quarter of 2018, an increase of $2.6 million, or 17.5%, compared to $14.8 million for the fourth quarter of 2017. The increase in net interest income was largely attributable to growth in average interest earning assets, which increased by 23.3% to $1.94 billion for the three months ended December 31, 2018, from $1.57 billion for the three months ended December 31, 2017. This increase in average interest earning assets was primarily due to continued organic growth in the loan portfolio.

Net interest margin (on a fully tax-equivalent basis) for the fourth quarter of 2018 was 3.62%, compared to 3.88% for the fourth quarter of 2017, a decrease of 26 basis points. While net interest margin has benefitted from the repricing of variable-rate loans and the origination of new loans at higher rates, this was offset by increased balances and rates on deposits and borrowings. Furthermore, the new lower statutory federal tax rate reduced the tax equivalent adjustment by five basis points.

Interest income increased $5.4 million, or 29.1%, to $24.0 million for the fourth quarter of 2018, compared to $18.6 million for the fourth quarter of 2017, primarily due to the increase in average loan balances. The yield on interest earning assets (on a fully tax-equivalent basis) rose to 4.96% in the fourth quarter of 2018, compared to 4.82% in the fourth quarter of 2017. Loan interest income and loan fees remain the primary contributing factors to the increase in yield on interest earning assets, driving the aggregate loan yield 14 basis points higher from 5.13% in the fourth quarter of 2017 to 5.27% in the fourth quarter of 2018.

Interest expense increased $2.8 million to $6.5 million for the fourth quarter of 2018, compared to $3.7 million for the fourth quarter of 2017, primarily due to increases in interest rates and average balances of both deposits and borrowings. The cost of interest bearing liabilities increased to 1.92% in the fourth quarter of 2018 from 1.29% in the fourth quarter of 2017 due to higher costs of both deposits and borrowings compared to the fourth quarter of 2017.

A summary of the Company’s average balances, interest yields and rates, and net interest margin for the three months and years ended December 31, 2018 and 2017 is as follows:

Consolidated Average Balances, Interest Yields and Rates

           
For the Three Months Ended
December 31, 2018 December 31, 2017
Average Interest Yield/ Average Interest Yield/
Balance & Fees Rate Balance & Fees Rate
(dollars in thousands)
Interest Earning Assets:
Cash Investments $ 21,249 $ 63 1.18 % $ 21,659 $ 46 0.84 %
Investment Securities:
Taxable Investment Securities 140,858 918 2.59 110,533 551 1.98
Tax-Exempt Investment Securities (1)   114,356   1,196 4.15   123,559   1,517 4.87
Total Investment Securities 255,214 2,114 3.29 234,092 2,068 3.50
Loans (2) 1,654,415 21,978 5.27 1,311,837 16,964 5.13
Federal Home Loan Bank Stock   7,759   83 4.24   4,814   29 2.39
Total Interest Earning Assets 1,938,637 24,238 4.96 % 1,572,402 19,107 4.82 %
Noninterest Earning Assets   10,272   12,319
Total Assets $ 1,948,909 $ 1,584,721
Interest Bearing Liabilities:
Interest Bearing Transaction Deposits 173,825 197 0.45 % 176,068 116 0.26 %
Savings and Money Market Deposits 426,185 1,675 1.56 337,027 715 0.84
Time Deposits 301,372 1,633 2.15 290,516 1,148 1.57
Brokered Deposits 265,523 1,614 2.41 216,044 843 1.55
Federal Funds Purchased 50,228 315 2.49 14,391 50 1.38
Notes Payable 15,000 152 4.02 17,000 159 3.71
FHLB Advances 95,467 559 2.32 68,339 295 1.71
Subordinated Debentures   24,621   401 6.46   24,518   401 6.49
Total Interest Bearing Liabilities 1,352,221 6,546 1.92 % 1,143,903 3,727 1.29 %
Noninterest Bearing Liabilities:
Noninterest Bearing Transaction Deposits 370,792 296,070
Other Noninterest Bearing Liabilities   10,642   8,873
Total Noninterest Bearing Liabilities 381,434 304,943
Shareholders' Equity   215,254   135,875
Total Liabilities and Shareholders' Equity $ 1,948,909 $ 1,584,721
Net Interest Income / Interest Rate Spread 17,692 3.04 % 15,380 3.53 %
Net Interest Margin (3) 3.62 % 3.88 %
Taxable Equivalent Adjustment:
Tax-Exempt Investment Securities   (250)   (531)
Net Interest Income $ 17,442 $ 14,849
 
(1)   Interest income and average rates for tax-exempt investment securities are presented on a tax-equivalent basis, assuming a statutory federal income tax rate of 21% in 2018 and 35% in 2017.
(2) Average loan balances include nonaccrual loans. Interest income on loans includes amortization of deferred loan fees, net of deferred loan costs.
(3) Net interest margin includes the tax equivalent adjustment and represents the annualized results of: (i) the difference between interest income on interest earning assets and the interest expense on interest bearing liabilities, divided by (ii) average interest earning assets for the period.
 
           
For the Year Ended
December 31, 2018 December 31, 2017
Average Interest Yield/ Average Interest Yield/
Balance & Fees Rate Balance & Fees Rate
(dollars in thousands)
Interest Earning Assets:
Cash Investments $ 22,962 $ 250 1.09 % $ 25,306 $ 226 0.89 %
Investment Securities:
Taxable Investment Securities 129,486 2,878 2.22 102,115 1,892 1.85
Tax-Exempt Investment Securities (1)   116,557   4,830   4.14   130,289   6,289   4.83
Total Investment Securities 246,043 7,708 3.13 232,404 8,181 3.52
Loans (2) 1,491,166 78,033 5.23 1,177,491 60,024 5.10
Federal Home Loan Bank Stock   6,321   249   3.94   4,288   115   2.68
Total Interest Earning Assets 1,766,492 86,240 4.88 % 1,439,489 68,546 4.76 %
Noninterest Earning Assets   11,100   12,243
Total Assets $ 1,777,592 $ 1,451,732
Interest Bearing Liabilities:
Interest Bearing Transaction Deposits 177,335 635 0.36 % 161,454 389 0.24 %
Savings and Money Market Deposits 381,318 4,681 1.23 284,641 2,218 0.78
Time Deposits 300,021 5,731 1.91 286,840 4,360 1.52
Brokered Deposits 232,022 4,924 2.12 185,144 2,752 1.49
Federal Funds Purchased 29,671 637 2.15 15,247 169 1.11
Notes Payable 15,750 594 3.77 17,750 656 3.70
FHLB Advances 82,562 1,718 2.08 56,458 880 1.56
Subordinated Debentures   24,582   1,568   6.38   12,253   749   6.11
Total Interest Bearing Liabilities 1,243,261 20,488 1.65 % 1,019,787 12,173 1.19 %
Noninterest Bearing Liabilities:
Noninterest Bearing Transaction Deposits 330,898 299,232
Other Noninterest Bearing Liabilities   9,350   4,590
Total Noninterest Bearing Liabilities 340,248 303,822
Shareholders' Equity   194,083   128,123
Total Liabilities and Shareholders' Equity $ 1,777,592 $ 1,451,732
Net Interest Income / Interest Rate Spread 65,752 3.23 % 56,373 3.57 %
Net Interest Margin (3) 3.72 % 3.92 %
Taxable Equivalent Adjustment:
Tax-Exempt Investment Securities   (1,014 )   (2,200 )
Net Interest Income $ 64,738   $ 54,173  
 
(1)   Interest income and average rates for tax-exempt investment securities are presented on a tax-equivalent basis, assuming a statutory federal income tax rate of 21% in 2018 and 35% in 2017.
(2) Average loan balances include nonaccrual loans. Interest income on loans includes amortization of deferred loan fees, net of deferred loan costs.
(3) Net interest margin includes the tax equivalent adjustment and represents the annualized results of: (i) the difference between interest income on interest earning assets and the interest expense on interest bearing liabilities, divided by (ii) average interest earning assets for the period.
 

Provision for Loan Losses

The provision for loan losses was $800,000 for the fourth quarter of 2018, a decrease of $400,000 compared to the provision for loan losses of $1.2 million for the fourth quarter of 2017. The provision decreased in the fourth quarter of 2018 primarily due to continued strength in credit quality and lower loan growth in comparison to the fourth quarter of 2017.

A reconciliation of the Company’s allowance for loan losses for the three months and years ended December 31, 2018 and 2017 is as follows:

       
Three Months Ended Year Ended
December 31, December 31,
(dollars in thousands) 2018 2017 2018 2017
Balance at Beginning of Period $ 18,949 $ 15,219 $ 16,502 $ 12,333
Provision for Loan Losses 800 1,200 3,575 4,175
Charge-offs (37 ) (47 ) (421 ) (177 )
Recoveries   319     130     375     171  
Balance at End of Period $ 20,031   $ 16,502   $ 20,031   $ 16,502  
 

Noninterest Income

Noninterest income was $857,000 for the fourth quarter of 2018, an increase of $274,000 from $583,000 for the fourth quarter of 2017.

The following table presents the major components of noninterest income for the three month period and year ended December 31, 2018, compared to the three month period and year ended December 31, 2017:

           
Three Months Ended Year Ended
December 31, Increase/ December 31, Increase/
(dollars in thousands) 2018 2017 (Decrease) 2018 2017 (Decrease)
Noninterest Income:
Customer Service Fees $ 206 $ 177 $ 29 $ 745 $ 660 $ 85
Net Loss on Sales of Securities (17 ) (199 ) 182 (125 ) (250 ) 125
Net Gain (Loss) on Sales of Foreclosed Assets — 4 (4 ) (225 ) 356 (581 )
Letter of Credit Fees 482 438 44 1,296 1,072 224
Debit Card Interchange Fees 104 97 7 391 390 1
Other Income   82     66     16     461     308     153  
Totals $ 857   $ 583   $ 274   $ 2,543   $ 2,536   $ 7  
 

Noninterest Expense

Noninterest expense was $11.0 million for the fourth quarter of 2018, an increase of $2.2 million, or 24.6% from $8.9 million for the fourth quarter of 2017. The increase was primarily driven by a $1.0 million increase in salaries and employee benefits as the result of merit increases and increased staff to meet the needs of the Company’s growth and a $1.4 million increase in amortization of tax credit investments. The increase was partially offset by a decrease of $581,000 in professional and consulting fees due to higher expenses incurred in the fourth quarter of 2017 in preparation of the Company’s initial public offering, in comparison to the fourth quarter of 2018.

The following table presents the major components of noninterest expense for the three month period and year ended December 31, 2018, compared to the three month period and year ended December 31, 2017:

           
Three Months Ended Year Ended
December 31, Increase/ December 31, Increase/
(dollars in thousands) 2018 2017 (Decrease) 2018 2017 (Decrease)
Noninterest Expense:
Salaries and Employee Benefits $ 5,086 $ 4,106 $ 980 $ 18,620 $ 14,051 $ 4,569
Occupancy and Equipment 584 563 21 2,351 2,192 159
FDIC Insurance Assessment 240 245 (5 ) 915 770 145
Data Processing 145 128 17 470 592 (122 )
Professional and Consulting Fees 289 870 (581 ) 1,125 2,198 (1,073 )
Information Technology and Telecommunications 258 333 (75 ) 932 671 261
Marketing and Advertising 431 247 184 1,342 983 359
Intangible Asset Amortization 48 48 — 191 191 —
Amortization of Tax Credit Investments 3,278 1,916 1,362 3,293 1,916 1,377
Other Expense   681   406   275     2,323   1,932   391  
Totals $ 11,040 $ 8,862 $ 2,178   $ 31,562 $ 25,496 $ 6,066  
 

While the recognition of tax credit investments elevates the level of operating expenses and concurrently the efficiency ratio, it directly reduces income tax expense and the effective tax rate. Consequently, the efficiency ratio, a non-GAAP financial measure, increased to 60.0% for the fourth quarter of 2018, compared to 56.4% for the fourth quarter of 2017 due to amortization of tax credit investments of $3.3 million and $1.9 million, respectively.

Full-time equivalent employees increased from 114 at the end of the fourth quarter of 2017 to 140 at the end of the fourth quarter of 2018. The increase includes key strategic hires, particularly in deposit gathering roles, as the Company continues to capitalize on M&A disruption in its market area. Despite the increase in salaries and employee benefits related to the 26 new hires, the Company experienced a decrease in the adjusted efficiency ratio, a non-GAAP financial measure, due to favorable operating leverage. The adjusted efficiency ratio, which excludes the impact of the amortization of tax credit investments, decreased slightly to 42.1% for the fourth quarter for 2018 compared to 44.1% for the fourth quarter of 2017.

Income Taxes

The effective combined federal and state income tax rate for the fourth quarter of 2018 was (20.2)%, compared to 37.9% for the fourth quarter of 2017. The lower effective combined rate was primarily due to the recognition of $3.8 million of tax credit investments and reduction in the federal corporate tax rate from 35% to 21%. For the years ended December 31, 2018 and 2017, the effective combined federal and state income tax rate was 16.3% and 37.5%, respectively.

Balance Sheet

Total assets at December 31, 2018 were $1.97 billion, a 4.7% increase from $1.89 billion at September 30, 2018, and a 22.1% increase from $1.62 billion at December 31, 2017. The increase in total assets was primarily due to organic loan growth.

Total gross loans at December 31, 2018 were $1.66 billion, an increase of $65.0 million, or 4.1%, over total gross loans of $1.60 billion at September 30, 2018, and an increase of $317.8 million, or 23.6%, over total gross loans of $1.35 billion at December 31, 2017.

The following table details the composition of the Company’s loan portfolio, by category, at the dates indicated:

         
December 31, 2018 September 30, 2018 June 30, 2018 March 31, 2018 December 31, 2017
(dollars in thousands)
Commercial and Industrial $ 260,833 $ 235,502 $ 204,072 $ 199,262 $ 217,753
Construction and Land Development 210,041 187,919 164,492 147,842 130,586
Real Estate Mortgage:
1 - 4 Family Mortgage 226,773 224,124 213,265 200,573 195,707
Multifamily 407,934 389,511 340,888 332,770 317,872
CRE Owner Occupied 64,458 65,905 65,891 67,512 65,909
CRE Nonowner Occupied   490,632     492,499     470,437     453,498     415,034  
Total Real Estate Mortgage Loans 1,189,797 1,172,039 1,090,481 1,054,353 994,522
Consumer and Other   4,260     4,504     4,275     3,963     4,252  
Total Loans, Gross 1,664,931 1,599,964 1,463,320 1,405,420 1,347,113
Allowance for Loan Losses (20,031 ) (18,949 ) (17,666 ) (17,121 ) (16,502 )
Net Deferred Loan Fees   (4,515 )   (4,308 )   (4,058 )   (4,130 )   (4,104 )
Total Loans, Net $ 1,640,385   $ 1,576,707   $ 1,441,596   $ 1,384,169   $ 1,326,507  
 

Total deposits at December 31, 2018 were $1.56 billion, an increase of $81.8 million, or 5.5%, over total deposits of $1.48 billion at September 30, 2018, and an increase of $221.6 million, or 16.5%, over total deposits of $1.34 billion at December 31, 2017.

The following table details the composition of the Company’s deposit portfolio, by category, at the dates indicated:

         
December 31, 2018 September 30, 2018 June 30, 2018 March 31, 2018 December 31, 2017
(dollars in thousands)
Noninterest Bearing Transaction Deposits $ 369,203 $ 342,292 $ 323,320 $ 315,036 $ 292,539
Interest Bearing Transaction Deposits 179,567 175,455 178,045 164,899 177,292
Savings and Money Market Deposits 402,639 416,140 381,942 339,541 369,942
Time Deposits 318,356 290,887 300,701 304,743 292,096
Brokered Deposits   291,169   254,314   230,683   228,817   207,481
Total Deposits $ 1,560,934 $ 1,479,088 $ 1,414,691 $ 1,353,036 $ 1,339,350
 

Total shareholders’ equity at December 31, 2018 was $221.0 million, an increase of $10.1 million, or 4.8%, over total shareholders’ equity of $210.9 million at September 30, 2018, and an increase of $83.8 million, or 61.1%, over total shareholders’ equity of $137.2 million at December 31, 2017. The increase in total shareholders’ equity for the three months ended December 31, 2018 compared to September 30, 2018, was primarily due to net income retained. The increase in total shareholders’ equity for the year ended December 31, 2018 compared to December 31, 2017, was primarily due to capital raised in the Company’s initial public offering.

Tangible book value per share, a non-GAAP financial measure, increased 33.7%, from $5.40 as of December 31, 2017 to $7.22 as of December 31, 2018.

Asset Quality

Asset quality metrics for the Company remained strong at December 31, 2018. Annualized net charge-offs (recoveries) as a percent of average loans for the fourth quarter of 2018 were (0.07)%, compared to 0.00% for the third quarter of 2018, and (0.03)% for the fourth quarter of 2017. At December 31, 2018, the Company’s nonperforming assets, which include nonaccrual loans and other real estate owned, were $581,000, or 0.03% of total assets, as compared to $718,000, or 0.04% of total assets at September 30, 2018, and $1.7 million, or 0.11% of total assets at December 31, 2017.

About the Company

Bridgewater Bancshares, Inc. is a financial holding company headquartered in Bloomington, Minnesota. The Company has two wholly owned subsidiaries, Bridgewater Bank, a Minnesota-chartered commercial bank founded in November 2005, and Bridgewater Risk Management, Inc., a captive insurance company founded in December 2016. Bridgewater Bank has two wholly owned subsidiaries, Bridgewater Investment Management, Inc. and BWB Holdings, LLC. Bridgewater Bank currently operates through 7 branches in Bloomington, Greenwood, Minneapolis (2), St. Louis Park, Orono, and St. Paul, all located within the Minneapolis-St. Paul-Bloomington metropolitan statistical area.

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 press 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: loan concentrations in our portfolio; the overall health of the local and national real estate market; our ability to successfully manage credit risk; business and economic conditions generally and in the financial services industry, nationally and within our market area; our ability to maintain an adequate level of allowance for loan losses; our high concentration of large loans to certain borrowers; our ability to successfully manage liquidity risk; our dependence on non-core funding sources and 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; the occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents; interruptions involving our information technology and telecommunications systems or third-party servicers; competition in the financial services industry; 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; interest rate risk; fluctuations in the values of the securities held in our securities portfolio; the imposition of tariffs or other governmental policies impacting the value of products produced by our commercial borrowers; and any other risks described in the “Risk Factors” sections of other 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. We undertake 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.

Bridgewater Bancshares, Inc. and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands, except share data)

   
December 31, December 31,
2018 2017
 
ASSETS
Cash and Cash Equivalents $ 28,444 $ 23,725
Bank-owned Certificates of Deposits 3,305 3,072
Securities Available for Sale, at Fair Value 253,378 229,491
Loans, Net of Allowance for Loan Losses of $20,031 at December 31, 2018 and $16,502 at December 31, 2017 1,640,385 1,326,507
Federal Home Loan Bank (FHLB) Stock, at Cost 7,614 5,147
Premises and Equipment, Net 13,074 10,115
Foreclosed Assets — 581
Accrued Interest 6,589 5,342
Goodwill 2,626 2,626
Other Intangible Assets, Net 1,052 1,243
Other Assets   17,274   8,763
Total Assets $ 1,973,741 $ 1,616,612
 
LIABILITIES AND EQUITY
LIABILITIES
Deposits:
Noninterest Bearing $ 369,203 $ 292,539
Interest Bearing   1,191,731   1,046,811
Total Deposits 1,560,934 1,339,350
Federal Funds Purchased 18,000 23,000
Notes Payable 15,000 17,000
FHLB Advances 124,000 68,000
Subordinated Debentures, Net of Issuance Costs 24,630 24,527
Accrued Interest Payable 1,806 1,408
Other Liabilities   8,373   6,165
Total Liabilities   1,752,743   1,479,450
 
SHAREHOLDERS' EQUITY
Preferred Stock- $0.01 par value
Authorized 10,000,000; None Issued and Outstanding at December 31, 2018 and December 31, 2017 — —
Common Stock- $0.01 par value
Common Stock - Authorized 75,000,000; Issued and Outstanding 30,097,274 at December 31, 2018 and 20,834,001 at December 31, 2017 301 208
Non-voting Common Stock- Authorized 10,000,000; Issued and Outstanding -0- at December 31, 2018 and 3,845,860 at December 31, 2017 — 38
Additional Paid-In Capital 126,031 66,324
Retained Earnings 96,234 69,508
Accumulated Other Comprehensive Income (Loss)   (1,568)   1,084
Total Shareholders' Equity   220,998   137,162
Total Liabilities and Equity $ 1,973,741 $ 1,616,612
 

Bridgewater Bancshares, Inc. and Subsidiaries
Consolidated Statements of Income
(dollars in thousands, except per share data)

       
Three Months Ended Year Ended
December 31, December 31,
2018 2017 2018 2017
INTEREST INCOME
Loans, Including Fees $ 21,978 $ 16,964 $ 78,033 $ 60,024
Investment Securities 1,864 1,537 6,694 5,981
Other   146     75     499     341  
Total Interest Income   23,988     18,576     85,226     66,346  
 
INTEREST EXPENSE
Deposits 5,119 2,822 15,972 9,719
Notes Payable 152 159 594 656
FHLB Advances 559 295 1,718 880
Subordinated Debentures 401 401 1,568 749
Federal Funds Purchased   315     50     636     169  
Total Interest Expense   6,546     3,727     20,488     12,173  
 
NET INTEREST INCOME 17,442 14,849 64,738 54,173
Provision for Loan Losses   800     1,200     3,575     4,175  
 
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 16,642 13,649 61,163 49,998
 
NONINTEREST INCOME
Customer Service Fees 206 177 745 660
Net Gain (Loss) on Sales of Available for Sale Securities (17 ) (199 ) (125 ) (250 )
Net Gain (Loss) on Sales of Foreclosed Assets — 4 (225 ) 356
Other Income   668     601     2,148     1,770  
Total Noninterest Income   857     583     2,543     2,536  
 
NONINTEREST EXPENSE
Salaries and Employee Benefits 5,086 4,106 18,620 14,051
Occupancy and Equipment 584 563 2,351 2,192
Other Expense   5,370     4,193     10,591     9,253  
Total Noninterest Expense   11,040     8,862     31,562     25,496  
 
INCOME BEFORE INCOME TAXES 6,459 5,370 32,144 27,038
Provision (Benefit) for Income Taxes   (1,302 )   2,036     5,224     10,149  
NET INCOME $ 7,761   $ 3,334   $ 26,920   $ 16,889  
 
EARNINGS PER SHARE
Basic $ 0.26 $ 0.14 $ 0.93 $ 0.69
Diluted 0.25 0.13 0.91 0.68
Dividends Paid Per Share — — — —
 

Bridgewater Bancshares, Inc. and Subsidiaries
Summary Quarterly Consolidated Financial Data
(dollars in thousands)

     
As of and for the Three Months Ended
December 31, September 30, December 31,
2018 2018 2017
Selected Asset Quality Data
Loans 30-89 Days Past Due $ 311 $ 12 $ 664
Loans 30-89 Days Past Due to Total Loans 0.02 % 0.00 % 0.05 %
Nonperforming Loans $ 581 $ 718 $ 1,139
Nonperforming Loans to Total Loans 0.03 % 0.04 % 0.08 %
Foreclosed Assets $ — $ — $ 581
Nonaccrual Loans to Total Loans 0.03 % 0.04 % 0.08 %
Nonaccrual Loans and Loans Past Due 90 Days and Still Accruing to Total Loans 0.03 0.04 0.08
Nonperforming Assets (1) $ 581 $ 718 $ 1,720
Nonperforming Assets to Total Assets (1) 0.03 % 0.04 % 0.11 %
Allowance for Loan Losses to Total Loans 1.20 1.18 1.22
Allowance for Loans Losses to Nonperforming Loans 3,447.68 2,639.14 1,448.81
Net Loan Charge-Offs (Recoveries) (Annualized) to Average Loans (0.07 ) 0.00 (0.03 )
 

(1) Nonperforming assets are defined as nonaccrual loans plus loans 90 days past due plus foreclosed assets.

Non-GAAP Financial Measures

   
As of and for the Three Months Ended As of and for the Year Ended
December 31, December 31, December 31, December 31,
2018 2017 2018 2017
(dollars in thousands)
Efficiency Ratio
Noninterest Expense $ 11,040 $ 8,862 $ 31,562 $ 25,496
Less: Amortization of Intangible Assets   (48 )   (48 )   (191 )   (191 )
Adjusted Noninterest Expense $ 10,992   $ 8,814   $ 31,371   $ 25,305  
Net Interest Income 17,442 14,849 64,738 54,173
Noninterest Income 857 583 2,543 2,536
Less: (Gain) Loss on Sales of Securities   17     199     125     250  
Adjusted Operating Revenue $ 18,316   $ 15,631   $ 67,406   $ 56,959  
Efficiency Ratio 60.0 % 56.4 % 46.5 % 44.4 %
 
Adjusted Efficiency Ratio
Noninterest Expense $ 11,040 $ 8,862 $ 31,562 $ 25,496
Less: Amortization of Tax Credit Investments (3,278 ) (1,916 ) (3,293 ) (1,916 )
Less: Amortization of Intangible Assets   (48 )   (48 )   (191 )   (191 )
Adjusted Noninterest Expense $ 7,714   $ 6,898   $ 28,078   $ 23,389  
Net Interest Income 17,442 14,849 64,738 54,173
Noninterest Income 857 583 2,543 2,536
Less: (Gain) Loss on Sales of Securities   17     199     125     250  
Adjusted Operating Revenue $ 18,316   $ 15,631   $ 67,406   $ 56,959  
Adjusted Efficiency Ratio 42.1 % 44.1 % 41.7 % 41.1 %
 
     
As of and for the Three Months Ended As of and for the Year Ended
December 31, December 31, December 31, December 31,
2018 2017 2018 2017
(dollars in thousands, except share data)
Tangible Common Equity and Tangible Common Equity/Tangible Assets
Common Equity $ 220,998 $ 137,162
Less: Intangible Assets   (3,678)   (3,869)
Tangible Common Equity   217,320   133,293
Total Assets 1,973,741 1,616,612
Less: Intangible Assets   (3,678)   (3,869)
Tangible Assets $ 1,970,063 $ 1,612,743
Tangible Common Equity/Tangible Assets 11.03 % 8.26 %
 
Tangible Book Value Per Share
Book Value Per Common Share $ 7.34 $ 5.56
Less: Effects of Intangible Assets   (0.12)   (0.16)
Tangible Book Value Per Common Share $ 7.22 $ 5.40
 
Average Tangible Common Equity
Average Common Equity $ 215,254 $ 135,875 $ 194,083 $ 128,123
Less: Effects of Average Intangible Assets   (3,701)   (3,885)   (3,772)   (3,956)
Average Tangible Common Equity $ 211,553 $ 131,990 $ 190,311 $ 124,167