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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ________

Commission File Number 001-38412

BRIDGEWATER BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

Minnesota
(State or other jurisdiction of
incorporation or organization)

26-0113412
(I.R.S. Employer
Identification No.)

4450 Excelsior Boulevard, Suite 100
St. Louis Park, Minnesota
(Address of principal executive offices)

55416
(Zip Code)

(952893-6868

(Registrant’s telephone number, including area code)

. Securities registered pursuant to Section 12(b) of the Act:

Title of each class: 

      

Trading Symbol 

    

Name of each exchange on which registered: 

Common Stock, $0.01 Par Value 

 

BWB

 

The Nasdaq Stock Market LLC 

Depositary Shares, each representing a 1/100th interest in a share of 5.875% Non-Cumulative Perpetual Preferred Stock, Series A, par value $0.01 per share

BWBBP

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

  

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

The number of shares of the Common Stock outstanding as of April 30, 2024 was 27,373,972.

Table of Contents

PART I FINANCIAL INFORMATION

3

Item 1. Consolidated Financial Statements (unaudited)

3

Consolidated Balance Sheets

3

Consolidated Statements of Income

4

Consolidated Statements of Comprehensive Income

5

Consolidated Statements of Shareholders’ Equity

6

Consolidated Statements of Cash Flows

7

Notes to Consolidated Financial Statements

8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

34

Item 3. Quantitative and Qualitative Disclosures About Market Risk

57

Item 4. Controls and Procedures

59

PART II OTHER INFORMATION

59

Item 1. Legal Proceedings

59

Item 1A. Risk Factors

60

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

60

Item 3. Defaults Upon Senior Securities

61

Item 4. Mine Safety Disclosures

61

Item 5. Other Information

61

Item 6. Exhibits

61

SIGNATURES

62

2

PART 1 – FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Bridgewater Bancshares, Inc. and Subsidiaries

Consolidated Balance Sheets

(dollars in thousands, except share data)

March 31, 

December 31, 

    

2024

    

2023

(Unaudited)

ASSETS

Cash and Cash Equivalents

$

143,355

$

128,562

Securities Available for Sale, at Fair Value

 

633,282

 

604,104

Loans, Net of Allowance for Credit Losses of $51,347 at March 31, 2024 (unaudited) and $50,494 at December 31, 2023

3,726,502

 

3,667,215

Federal Home Loan Bank (FHLB) Stock, at Cost

 

17,195

 

17,097

Premises and Equipment, Net

 

48,299

 

48,886

Accrued Interest

 

16,696

 

16,697

Goodwill

 

2,626

 

2,626

Other Intangible Assets, Net

 

180

 

188

Bank-Owned Life Insurance

34,778

34,477

Other Assets

 

100,196

 

92,138

Total Assets

$

4,723,109

$

4,611,990

LIABILITIES AND EQUITY

 

  

 

  

LIABILITIES

 

  

 

  

Deposits:

 

  

 

  

Noninterest Bearing

$

698,432

$

756,964

Interest Bearing

 

3,108,793

 

2,952,984

Total Deposits

 

3,807,225

 

3,709,948

Notes Payable

13,750

13,750

FHLB Advances

 

317,000

 

319,500

Subordinated Debentures, Net of Issuance Costs

 

79,383

 

79,288

Accrued Interest Payable

 

4,405

 

5,282

Other Liabilities

 

67,735

 

58,707

Total Liabilities

 

4,289,498

 

4,186,475

SHAREHOLDERS' EQUITY

 

  

 

  

Preferred Stock- $0.01 par value; Authorized 10,000,000

Preferred Stock - Issued and Outstanding 27,600 Series A shares ($2,500 liquidation preference) at March 31, 2024 (unaudited) and December 31, 2023

66,514

 

66,514

Common Stock- $0.01 par value; Authorized 75,000,000

 

 

Common Stock - Issued and Outstanding 27,589,827 at March 31, 2024 (unaudited) and 27,748,965 at December 31, 2023

276

 

277

Additional Paid-In Capital

 

95,069

 

96,320

Retained Earnings

 

287,468

 

280,650

Accumulated Other Comprehensive Loss

 

(15,716)

 

(18,246)

Total Shareholders' Equity

 

433,611

 

425,515

Total Liabilities and Equity

$

4,723,109

$

4,611,990

See accompanying notes to consolidated financial statements.

3

Bridgewater Bancshares, Inc. and Subsidiaries

Consolidated Statements of Income

(dollars in thousands, except per share data)

(Unaudited)

Three Months Ended

March 31, 

March 31, 

    

2024

    

2023

INTEREST INCOME

 

  

 

  

Loans, Including Fees

$

49,581

$

44,955

Investment Securities

 

7,916

 

6,218

Other

 

1,172

 

819

Total Interest Income

 

58,669

 

51,992

INTEREST EXPENSE

 

 

Deposits

 

30,190

 

16,374

Federal Funds Purchased

304

4,944

Notes Payable

 

295

 

263

FHLB Advances

 

2,258

 

861

Subordinated Debentures

 

991

 

983

Total Interest Expense

 

34,038

 

23,425

NET INTEREST INCOME

 

24,631

 

28,567

Provision for Credit Losses

 

750

 

625

NET INTEREST INCOME AFTER

 

  

 

  

PROVISION FOR CREDIT LOSSES

 

23,881

 

27,942

NONINTEREST INCOME

 

  

 

  

Customer Service Fees

 

342

349

Net Gain (Loss) on Sales of Available for Sale Securities

 

93

(56)

Letter of Credit Fees

 

316

634

Debit Card Interchange Fees

141

138

Bank-Owned Life Insurance

301

234

FHLB Prepayment Income

299

Other Income

357

345

Total Noninterest Income

 

1,550

 

1,943

NONINTEREST EXPENSE

 

  

 

  

Salaries and Employee Benefits

 

9,433

8,815

Occupancy and Equipment

 

1,057

1,209

FDIC Insurance Assessment

 

875

665

Data Processing

412

357

Professional and Consulting Fees

889

755

Derivative Collateral Fees

486

380

Information Technology and Telecommunications

796

683

Marketing and Advertising

322

262

Intangible Asset Amortization

9

48

Other Expense

910

895

Total Noninterest Expense

 

15,189

 

14,069

INCOME BEFORE INCOME TAXES

 

10,242

 

15,816

Provision for Income Taxes

 

2,411

 

4,174

NET INCOME

7,831

11,642

Preferred Stock Dividends

(1,013)

(1,013)

NET INCOME AVAILABLE TO COMMON SHAREHOLDERS

$

6,818

$

10,629

EARNINGS PER SHARE

 

 

  

Basic

$

0.25

$

0.38

Diluted

0.24

0.37

4

See accompanying notes to consolidated financial statements.

Bridgewater Bancshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(dollars in thousands)

(Unaudited)

Three Months Ended

March 31, 

    

2024

    

2023

Net Income

$

7,831

$

11,642

Other Comprehensive Income:

 

Unrealized Gains on Available for Sale Securities

235

5,243

Unrealized Gains (Losses) on Cash Flow Hedges

5,712

(4,169)

Reclassification Adjustment for Gains Realized in Income

(2,396)

(1,011)

Income Tax Impact

(1,021)

(17)

Total Other Comprehensive Income, Net of Tax

2,530

46

Comprehensive Income

$

10,361

$

11,688

See accompanying notes to consolidated financial statements.

5

Bridgewater Bancshares, Inc. and Subsidiaries

Consolidated Statements of Shareholders’ Equity

Three Months Ended March 31, 2024 and 2023

(dollars in thousands, except share data)

(Unaudited)

Accumulated

Additional

Other

Preferred

Common Stock

Paid-In

Retained

Comprehensive

Three Months Ended

Stock

    

Shares

    

Amount

    

Capital

    

Earnings

    

Income (Loss)

    

Total

BALANCE December 31, 2022

 

$

66,514

27,751,950

$

278

$

96,529

$

248,685

$

(17,942)

$

394,064

Cumulative Effect of the Adoption of ASU 2016-13

(3,920)

(3,920)

Cumulative Effect of the Adoption of ASU 2023-02

(21)

(21)

Balance as of January 1, 2023, as Adjusted for Change in Accounting Principles

66,514

27,751,950

278

96,529

244,744

(17,942)

390,123

Stock-based Compensation

 

10,608

941

 

941

Comprehensive Income

 

11,642

46

 

11,688

Stock Options Exercised

82,000

261

261

Vested Restricted Stock Units

1,625

Restricted Shares Withheld for Taxes

(939)

(15)

(15)

Preferred Stock Dividend

(1,013)

(1,013)

BALANCE March 31, 2023

 

$

66,514

27,845,244

$

278

$

97,716

$

255,373

$

(17,896)

$

401,985

BALANCE December 31, 2023

 

$

66,514

27,748,965

$

277

$

96,320

$

280,650

$

(18,246)

$

425,515

Stock-based Compensation

 

10,452

1,031

 

1,031

Comprehensive Income

 

7,831

2,530

 

10,361

Stock Options Exercised

8,000

66

66

Stock Repurchases

(193,802)

(1)

(2,275)

(2,276)

Vested Restricted Stock Units

22,365

Restricted Shares Withheld for Taxes

(6,153)

(73)

(73)

Preferred Stock Dividend

(1,013)

(1,013)

BALANCE March 31, 2024

 

$

66,514

27,589,827

$

276

$

95,069

$

287,468

$

(15,716)

$

433,611

See accompanying notes to consolidated financial statements.

6

Bridgewater Bancshares, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(dollars in thousands)

(Unaudited)

Three Months Ended

March 31, 

2024

2023

CASH FLOWS FROM OPERATING ACTIVITIES

Net Income

$

7,831

$

11,642

Adjustments to Reconcile Net Income to Net Cash

 

 

Provided by Operating Activities:

 

 

Net Amortization on Securities Available for Sale

 

(281)

 

101

Net (Gain) Loss on Sales of Securities Available for Sale

 

(93)

 

56

Provision for Credit Losses on Loans

 

850

 

1,500

Credit for Off-Balance Sheet Exposures

(100)

(875)

Depreciation of Premises and Equipment

 

593

 

651

Amortization of Other Intangible Assets

 

9

 

48

Amortization of Right-of Use Asset

139

125

Amortization of Subordinated Debt Issuance Costs

95

96

Stock-based Compensation

 

1,031

 

941

Changes in Operating Assets and Liabilities:

 

 

Accrued Interest Receivable and Other Assets

 

(6,398)

 

(6,369)

Accrued Interest Payable and Other Liabilities

 

3,509

 

(118)

Net Cash Provided by Operating Activities

 

7,185

 

7,798

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

Increase in Bank-Owned Certificates of Deposit

 

(44)

Proceeds from Sales of Securities Available for Sale

 

12,784

19,959

Proceeds from Maturities, Paydowns, Payups and Calls of Securities Available for Sale

 

9,143

7,055

Purchases of Securities Available for Sale

 

(45,559)

(32,689)

Net Increase in Loans

 

(60,137)

(114,711)

Net Increase in FHLB Stock

 

(98)

(9,026)

Purchases of Premises and Equipment

 

(6)

(7)

Net Cash Used in Investing Activities

(83,873)

 

(129,463)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

Net (Increase) Decrease in Deposits

 

97,277

(5,420)

Net Increase in Federal Funds Purchased

150,000

Proceeds from FHLB Advances

 

208,000

155,500

Principal Payments on FHLB Advances

(210,500)

(55,500)

Preferred Stock Dividends Paid

(1,013)

(1,013)

Stock Options Exercised

66

261

Stock Repurchases

(2,276)

Shares Repurchased for Tax Withholdings Upon Vesting of Restricted Stock-Based Awards

(73)

(14)

Net Cash Provided by Financing Activities

 

91,481

 

243,814

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

14,793

 

122,149

Cash and Cash Equivalents Beginning

 

128,562

 

87,043

Cash and Cash Equivalents Ending

$

143,355

$

209,192

SUPPLEMENTAL CASH FLOW DISCLOSURE

 

 

Cash Paid for Interest

$

34,820

$

22,903

Cash Paid for Income Taxes

 

 

39

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES

Net Investment Securities (Purchased) Sold but Not Settled

3,446

See accompanying notes to consolidated financial statements.

7

Bridgewater Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Note 1: Description of the Business and Summary of Significant Accounting Policies

Organization

Bridgewater Bancshares, Inc. (the “Company”) is a financial holding company whose operations consist of the ownership of its wholly-owned subsidiary, Bridgewater Bank (the “Bank”). The Bank commenced operations in 2005 and provides retail and commercial loan and deposit services, principally to customers within the Minneapolis-St. Paul-Bloomington, MN-WI Metropolitan Statistical Area. In 2008, the Bank formed BWB Holdings, LLC, a wholly-owned subsidiary of the Bank, for the purpose of holding repossessed property. In 2018, the Bank formed Bridgewater Investment Management, Inc., a wholly-owned subsidiary of the Bank, for the purpose of holding certain municipal securities and to engage in municipal lending activities.

Basis of Presentation

The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures necessary for a complete presentation of the consolidated balance sheets, consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of shareholders’ equity and consolidated statements of cash flows in conformity with U.S. generally accepted accounting principles (“GAAP”). However, all normal recurring adjustments which are, in the opinion of management, necessary for the fair presentation of the interim financial statements have been included. The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results which may be expected for the entire year. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 7, 2024.

Principles of Consolidation

These consolidated financial statements include the amounts of the Company, the Bank, with locations in Bloomington, Greenwood, Minneapolis (2), St. Louis Park, Orono, and St. Paul, Minnesota, BWB Holdings, LLC, and Bridgewater Investment Management, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates in Preparation of Financial Statements

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Information available which could affect judgements includes, but is not limited to, changes in interest rates, changes in the performance of the economy, including elevated levels of inflation and possible recession, and changes in the financial condition of borrowers.

Material estimates that are particularly susceptible to significant change in the near term include the determination of the allowance for credit losses, calculation of deferred tax assets, fair value of financial instruments, and investment securities impairment.

8

Impact of Recently Issued Accounting Guidance

In March 2024, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2024-02, Codification Improvements: Amendments to Remove References to the Concepts Statements. The ASU amends the Codification to remove references to various concepts and impacts a variety of topics in the Codification. The amendments apply to all reporting entities within the scope of the affected accounting guidance, but in most instances the references removed are extraneous and not required to understand or apply the guidance. Generally, the amendments in ASU 2024-02 are not intended to result in significant accounting changes for most entities. ASU 2024-02 is effective January 1, 2025 and is not expected to have a material impact on the Company’s consolidated financial statements.

Subsequent Events

Subsequent events have been evaluated through May 2, 2024, which is the date the consolidated financial statements were available to be issued.

Note 2: Earnings Per Share

Basic earnings per common share are computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per common share are computed by dividing net income available to common shareholders by the weighted average number of common shares adjusted for the dilutive effect of stock compensation. For the three months ended March 31, 2024, stock options, restricted stock awards and restricted stock units totaling 1,158,046 were excluded from the calculation because they were deemed to be anti-dilutive. For the three months ended March 31, 2023, stock options, restricted stock awards and restricted stock units totaling 621,994 shares were excluded from the calculation because they were deemed to be antidilutive.

The following table presents the numerators and denominators for basic and diluted earnings per share computations for the three months ended March 31, 2024 and 2023:

Three Months Ended

March 31, 

(dollars in thousands, except per share data)

    

2024

    

2023

Net Income Available to Common Shareholders

$

6,818

$

10,629

Weighted Average Common Stock Outstanding:

Weighted Average Common Stock Outstanding (Basic)

27,691,401

27,726,894

Dilutive Effect of Stock Compensation

398,404

763,152

Weighted Average Common Stock Outstanding (Dilutive)

28,089,805

28,490,046

Basic Earnings per Common Share

$

0.25

$

0.38

Diluted Earnings per Common Share

0.24

0.37

9

Note 3: Securities

The following tables present the amortized cost and estimated fair value of securities with gross unrealized gains and losses at March 31, 2024 and December 31, 2023:

March 31, 2024

Gross

Gross

Amortized

Unrealized

Unrealized

(dollars in thousands)

    

Cost

    

Gains

    

Losses

    

Fair Value

Securities Available for Sale:

Municipal Bonds

$

151,221

$

28

$

(19,158)

$

132,091

Mortgage-Backed Securities

 

260,079

 

1,544

(17,407)

 

244,216

Corporate Securities

 

142,851

348

(10,247)

 

132,952

SBA Securities

 

16,864

252

(91)

17,025

Asset-Backed Securities

106,637

519

(158)

106,998

Total Securities Available for Sale

$

677,652

$

2,691

$

(47,061)

$

633,282

December 31, 2023

Gross

Gross

Amortized

Unrealized

Unrealized

(dollars in thousands)

    

Cost

    

Gains

    

Losses

    

Fair Value

Securities Available for Sale:

Municipal Bonds

$

151,512

$

47

$

(19,035)

$

132,524

Mortgage-Backed Securities

 

249,455

 

2,261

 

(16,401)

 

235,315

Corporate Securities

 

142,098

386

(11,879)

 

130,605

SBA Securities

 

18,497

279

(102)

 

18,674

Asset-Backed Securities

87,054

357

(425)

86,986

Total Securities Available for Sale

$

648,616

$

3,330

$

(47,842)

$

604,104

Securities with a carrying value of $169.5 million and $170.7 million were pledged to secure borrowing capacity at the Federal Reserve Discount Window as of March 31, 2024 and December 31, 2023, respectively.

10

The following tables present the fair value and gross unrealized losses of securities with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2024 and December 31, 2023:

Less Than 12 Months

12 Months or Greater

Total

Number of

Unrealized

Unrealized

Unrealized

(dollars in thousands, except number of holdings)

    

Holdings

    

Fair Value

    

Losses

    

Fair Value

    

Losses

    

Fair Value

    

Losses

March 31, 2024

Municipal Bonds

215

$

7,862

$

(44)

$

122,437

$

(19,114)

$

130,299

$

(19,158)

Mortgage-Backed Securities

129

42,583

(665)

124,205

(16,742)

 

166,788

 

(17,407)

Corporate Securities

113

16,148

(290)

105,583

(9,957)

 

121,731

 

(10,247)

SBA Securities

45

1,973

(5)

6,296

(86)

 

8,269

 

(91)

Asset-Backed Securities

17

24,404

(67)

16,595

(91)

40,999

(158)

Total Securities Available for Sale

519

$

92,970

$

(1,071)

$

375,116

$

(45,990)

$

468,086

$

(47,