Bridgewater Bancshares, Inc. Announces Third Quarter 2019 Earnings

Bridgewater Bancshares, Inc. BWB (the Company), the parent company of Bridgewater Bank (the Bank), today announced net income of $7.8 million for the third quarter of 2019, a 20.8% increase over net income of $6.5 million for the third quarter of 2018. Net income per diluted common share for the third quarter of 2019 was $0.27, a 24.8% increase, compared to $0.21 per diluted common share for the same period in 2018.

"We produced solid financial results in the third quarter as we continue to drive shareholder value," commented Chairman, Chief Executive Officer, and President, Jerry Baack. "We could not be more pleased with our deposit growth of $103.0 million during the quarter, representing 24.0% annualized growth. This result reflects our ongoing investment in our deposit offering platform and brand awareness efforts. Profitable loan growth continues to be at the forefront of our business plan and we remain focused on disciplined loan pricing in this challenging rate environment. Our asset quality remains strong as demonstrated by our nonperforming assets to total assets ratio of 0.04%, which speaks to our diligent underwriting practices and the health of the diversified Twin Cities economy."

Third Quarter 2019 Financial Results

		Diluted		Adjusted	Tangible book
ROA	ROE	Earnings per share		efficiency ratio ⁽¹⁾	value per share ⁽²⁾
1.43%	13.31%	$	0.27	42.9%	$	8.08

Ratio excludes the amortization of tax credit investments and represents a non-GAAP financial measure. See "Non-GAAP Financial Measures" for further details.
Represents a non-GAAP financial measure. See "Non-GAAP Financial Measures" for further details.

Linked-Quarter Highlights

Net income was $7.8 million for the third quarter of 2019, compared to $8.0 million for the second quarter of 2019.

Diluted earnings per common share were $0.27 for the third quarter of 2019, compared to $0.26 for the second quarter of 2019.

Tangible book value per share, a non-GAAP financial measure, was $8.08 at September 30, 2019, compared to $7.78 at June 30, 2019.

Annualized return on average assets (ROA) and return on average common equity (ROE) for the third quarter of 2019 were 1.43% and 13.31%, respectively, compared to annualized ROA and ROE of 1.55% and 13.88%, respectively, for the second quarter of 2019.

Gross loans increased $61.3 million, or 13.6% on an annualized basis, to $1.85 billion at September 30, 2019, compared to June 30, 2019.

Deposits increased $103.0 million, or 24.0% on an annualized basis, to $1.80 billion at September 30, 2019, compared to June 30, 2019.

The ratio of nonperforming assets to total assets was 0.04% at September 30, 2019, compared to 0.07% at June 30, 2019.

The adjusted efficiency ratio, a non-GAAP financial measure which excludes the impact of the amortization of tax credit investments from noninterest expense, was 42.9% for the third quarter of 2019, compared to 42.7% for the second quarter of 2019.

Year-Over-Year Highlights

Net income was $7.8 million for the third quarter of 2019, compared to $6.5 million for the third quarter of 2018, an increase of $1.3 million, or 20.8%.

Diluted earnings per common share were $0.27 for the third quarter of 2019, compared to $0.21 for the third quarter of 2018, an increase of 24.8%.

Tangible book value per share, a non-GAAP financial measure, increased 17.2%, or $1.19, to $8.08 at September 30, 2019, compared to $6.89 at September 30, 2018.

Annualized ROA and ROE for the third quarter of 2019 were 1.43% and 13.31%, respectively, compared to annualized ROA and ROE of 1.41% and 12.28%, respectively, for the third quarter of 2018.

Gross loans increased $246.3 million, or 15.4%, at September 30, 2019, compared to September 30, 2018.

Deposits increased $323.1 million, or 21.8%, at September 30, 2019, compared to September 30, 2018.

The ratio of nonperforming assets to total assets was 0.04% at September 30, 2019 and September 30, 2018.

The adjusted efficiency ratio, a non-GAAP financial measure which excludes the impact of the amortization of tax credit investments from noninterest expense, was 42.9% for the third quarter of 2019, compared to 42.7% for the third quarter of 2018.

Key Financial Measures


	As of and for the Three Months Ended									As of and for the Nine Months Ended
	September 30,			June 30,			September 30,			September 30,			September 30,
	2019			2019			2018			2019			2018
Per Common Share Data ⁽¹⁾
Basic Earnings Per Share	$	0.27		$	0.27		$	0.22		$	0.77		$	0.67
Diluted Earnings Per Share		0.27			0.26			0.21			0.76			0.66
Book Value Per Share		8.20			7.90			7.01			8.20			7.01
Tangible Book Value Per Share ⁽²⁾		8.08			7.78			6.89			8.08			6.89
Basic Weighted Average Shares Outstanding		28,820,144			29,703,024			30,059,374			29,535,589			28,640,601
Diluted Weighted Average Shares Outstanding		29,497,961			30,312,039			30,489,648			30,181,556			29,070,876
Shares Outstanding at Period End		28,781,162			28,986,729			30,059,374			28,781,162			30,059,374

Selected Performance Ratios
Return on Average Assets (Annualized)		1.43	%		1.55	%		1.41	%		1.46	%		1.49	%
Return on Average Common Equity (Annualized)		13.31			13.88			12.28			13.27			13.70
Return on Average Tangible Common Equity (Annualized)⁽²⁾		13.52			14.10			12.51			13.49			13.99
Yield on Interest Earning Assets		4.98			5.05			4.92			5.01			4.85
Yield on Total Loans, Gross		5.32			5.33			5.25			5.31			5.22
Cost of Interest Bearing Liabilities		2.04			2.07			1.73			2.06			1.54
Cost of Total Deposits		1.42			1.46			1.19			1.44			1.05
Net Interest Margin ⁽³⁾		3.56			3.60			3.71			3.57			3.76
Efficiency Ratio⁽²⁾		45.6			50.1			42.7			46.6			41.5
Adjusted Efficiency Ratio ⁽⁴⁾		42.9			42.7			42.7			42.9			41.5
Noninterest Expense to Average Assets (Annualized)		1.66			1.84			1.64			1.70			1.60
Adjusted Noninterest Expense to Average Assets (Annualized) ⁽⁴⁾		1.56			1.57			1.64			1.56			1.59
Loan to Deposit Ratio		102.4			105.0			108.2
Core Deposits to Total Deposits		79.9			78.3			76.6
Tangible Common Equity to Tangible Assets ⁽²⁾		10.43			10.64			11.01

Capital Ratios (Bank Only)
Tier 1 Leverage Ratio		10.88	%		10.99	%		11.16	%
Tier 1 Risk-based Capital Ratio		11.61			11.73			11.82
Total Risk-based Capital Ratio		12.44			12.67			12.95

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.
Represents a non-GAAP financial measure. See "Non-GAAP Financial Measures" for further details.
Amounts calculated on a tax-equivalent basis using the statutory federal tax rate of 21%.
Ratio excludes the amortization of tax credit investments and represents a non-GAAP financial measure. See "Non-GAAP Financial Measures" for further details.

Selected Financial Data


	September 30,		June 30,		March 31,		December 31,		September 30,
(dollars in thousands)	2019		2019		2019		2018		2018
Selected Balance Sheet Data
Total Assets	$	2,232,339	$	2,123,631	$	2,048,111	$	1,973,741	$	1,885,793
Total Loans, Gross		1,846,218		1,784,903		1,723,629		1,664,931		1,599,964
Allowance for Loan Losses		22,124		21,362		20,607		20,031		18,949
Goodwill and Other Intangibles		3,535		3,582		3,630		3,678		3,726

Deposits		1,802,236		1,699,265		1,643,666		1,560,934		1,479,088
Tangible Common Equity⁽¹⁾		232,524		225,555		228,145		217,320		207,126
Total Shareholders' Equity		236,059		229,137		231,775		220,998		210,852
Average Total Assets - Quarter-to-Date		2,168,909		2,069,707		2,011,174		1,948,909		1,816,485
Average Common Equity - Quarter-to-Date		232,590		231,374		225,844		215,254		208,773

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


	For the Three Months Ended						For the Nine Months Ended
	September 30,		June 30,		September 30,		September 30,		September 30,
(dollars in thousands)	2019		2019		2018		2019		2018
Selected Income Statement Data
Interest Income	$	26,572	$	25,520	$	22,136	$	76,359	$	61,238
Interest Expense		7,637		7,382		5,502		22,155		13,942
Net Interest Income		18,935		18,138		16,634		54,204		47,296
Provision for Loan Losses		900		600		1,275		2,100		2,775
Net Interest Income after Provision for Loan Losses		18,035		17,538		15,359		52,104		44,521
Noninterest Income		946		1,134		814		2,714		1,686
Noninterest Expense		9,084		9,474		7,526		26,443		20,522
Income Before Income Taxes		9,897		9,198		8,647		28,375		25,685
Provision for Income Taxes		2,092		1,189		2,184		5,543		6,526
Net Income	$	7,805	$	8,009	$	6,463	$	22,832	$	19,159

Income Statement

Net Interest Income

Net interest income was $18.9 million for the third quarter of 2019, an increase of $797,000, or 4.4%, from $18.1 million in the second quarter of 2019, and an increase of $2.3 million, or 13.8%, from $16.6 million in the third quarter of 2018. The linked-quarter increase in net interest income was driven by growth in average interest earning assets. The year-over-year increase in net interest income was largely attributable to growth in average interest earning assets, which increased by $329.5 million, or 18.2%, to $2.13 billion for the third quarter of 2019, from $1.81 billion for the third quarter of 2018. 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 third quarter of 2019 was 3.56%, a 4 basis point decrease from 3.60% in the second quarter of 2019, and a 15 basis point decrease from 3.71% in the third quarter of 2018. While yield curve dynamics and lower market rates have weighed on earning asset yields, and subsequently the Company's net interest margin, funding costs have benefitted as evidenced by the 3 basis point decline over the linked-quarter. On a year-over-year basis, net interest margin benefitted from repricing of variable-rate loans and the origination of new loans at higher rates; however, it compressed due to elevated cash balances, lower loan fees recognized, and increased rates paid on deposits and borrowings.

Interest income was $26.6 million for the third quarter of 2019, an increase of $1.1 million, or 4.1%, from $25.5 million in the second quarter of 2019, and an increase of $4.4 million, or 20.0%, from $22.1 million in the third quarter of 2018. The yield on interest earning assets (on a fully tax-equivalent basis) was 4.98% in the third quarter of 2019, compared to 5.05% in the second quarter of 2019 and 4.92% in the third quarter of 2018.

Loan interest income and loan fees remain the primary contributing factors to the year-over-year increase in yield on interest earning assets, driving the aggregate loan yield 7 basis points higher from 5.25% in the third quarter of 2018 to 5.32% in the third quarter of 2019. The linked-quarter decrease of the aggregate loan yield of 1 basis point was primarily due to competitive market pressures and lower interest rates. On a year-over-year basis, as the composition of the aggregate loan yield has shifted, solid loan growth at yields accretive to the existing portfolio yield has enabled the Company to offset the decrease in loan fee income. While deferred loan fees are regularly amortized into income, fluctuations in the level of loan fees recognized can vary based on prepayments and other factors.

A summary of interest and fees recognized on loans for the periods indicated is as follows:


	Three Months Ended
	September 30, 2019		June 30, 2019		March 31, 2019		December 31, 2018		September 30, 2018
Interest	5.07	%	5.10	%	5.07	%	4.98	%	4.87	%
Fees	0.25		0.23		0.20		0.29		0.38
Yield on Loans	5.32	%	5.33	%	5.27	%	5.27	%	5.25	%

Interest expense was $7.6 million for the third quarter of 2019, an increase of $255,000, or 3.5%, from $7.4 million in the second quarter of 2019, and an increase of $2.1 million, or 38.8%, from $5.5 million in the third quarter of 2018. The cost of interest bearing liabilities decreased to 2.04% in the third quarter of 2019 from 2.07% in the second quarter of 2019, primarily due to the Company exercising embedded optionality in the brokered deposit portfolio and supplementing the portfolio with strong core deposit growth at lower rates. On a year-over-year basis, the cost of interest bearing liabilities was up 31 basis points from 1.73% in the third quarter of 2018 to 2.04% in the third quarter of 2019 due to higher costs and repricing of deposits and borrowings during the period. Despite the Federal Open Market Committee cutting rates by 25 basis points twice during the period, local market competition for deposits remains fierce.

A summary of the Company's average balances, interest yields and rates, and net interest margin for the three months ended September 30, 2019, June 30, 2019 and September 30, 2018 is as follows:


	For the Three Months Ended
	September 30, 2019						June 30, 2019						September 30, 2018
	Average		Interest		Yield/		Average		Interest		Yield/		Average		Interest		Yield/
	Balance		& Fees		Rate		Balance		& Fees		Rate		Balance		& Fees		Rate
(dollars in thousands)
Interest Earning Assets:
Cash Investments	$	73,970	$	346	1.86	%	$	38,142	$	171	1.80	%	$	23,822	$	72	1.20	%
Investment Securities:
Taxable Investment Securities		151,319		1,095	2.87			140,890		1,058	3.01			132,197		839	2.52
Tax-Exempt Investment Securities⁽¹⁾		95,575		1,031	4.28			103,223		1,103	4.28			116,042		1,204	4.12
Total Investment Securities		246,894		2,126	3.42			244,113		2,161	3.55			248,239		2,043	3.27
Loans ⁽²⁾		1,805,920		24,220	5.32			1,755,686		23,321	5.33			1,526,765		20,207	5.25
Federal Home Loan Bank Stock		8,111		96	4.72			7,694		100	5.23			6,619		67	4.02
Total Interest Earning Assets		2,134,895		26,788	4.98	%		2,045,635		25,753	5.05	%		1,805,445		22,389	4.92	%
Noninterest Earning Assets		34,014						24,072						11,040
Total Assets	$	2,168,909					$	2,069,707					$	1,816,485
Interest Bearing Liabilities:
Interest Bearing Transaction Deposits		250,667		511	0.81	%		202,886		387	0.77	%		171,923		165	0.38	%
Savings and Money Market Deposits		453,340		2,080	1.82			431,716		1,938	1.80			398,092		1,373	1.37
Time Deposits		359,329		2,229	2.46			354,026		2,120	2.40			295,320		1,490	2.00
Brokered Deposits		242,600		1,389	2.27			266,804		1,575	2.37			241,355		1,294	2.13
Federal Funds Purchased		—		—	—			2,089		12	2.24			27,391		147	2.13
Notes Payable		13,500		127	3.73			14,000		130	3.72			15,500		144	3.69
FHLB Advances		143,690		908	2.51			131,385		827	2.52			89,652		488	2.16
Subordinated Debentures		24,699		393	6.31			24,673		393	6.39			24,595		401	6.47
Total Interest Bearing Liabilities		1,487,825		7,637	2.04	%		1,427,579		7,382	2.07	%		1,263,828		5,502	1.73	%
Noninterest Bearing Liabilities:
Noninterest Bearing Transaction Deposits		434,021						401,480						335,483
Other Noninterest Bearing Liabilities		14,473						9,274						8,401
Total Noninterest Bearing Liabilities		448,494						410,754						343,884
Shareholders' Equity		232,590						231,374						208,773
Total Liabilities and Shareholders' Equity	$	2,168,909					$	2,069,707					$	1,816,485
Net Interest Income / Interest Rate Spread				19,151	2.94	%				18,371	2.98	%				16,887	3.19	%
Net Interest Margin ⁽³⁾					3.56	%					3.60	%					3.71	%
Taxable Equivalent Adjustment:
Tax-Exempt Investment Securities				(216)						(233)						(253)
Net Interest Income			$	18,935					$	18,138					$	16,634

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%.
Average loan balances include nonaccrual loans. Interest income on loans includes amortization of deferred loan fees, net of deferred loan costs.
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 $900,000 for the third quarter of 2019, an increase of $300,000 from $600,000 for the second quarter of 2019, and a decrease of $375,000 from $1.3 million for the third quarter of 2018. The provision for loan losses increased in the third quarter of 2019 due to an increase in charge-offs and decrease in recoveries, compared to the second quarter of 2019. The year-over-year decrease was attributable to the strong asset quality and consistent performance of the loan portfolio within the diversified Twin Cities economy.

The following table presents a reconciliation of the Company's allowance for loan losses for the periods indicated:


	Three Months Ended						Nine Months Ended
	September 30,		June 30,		September 30,		September 30,		September 30,
(dollars in thousands)	2019		2019		2018		2019		2018
Balance at Beginning of Period	$	21,362	$	20,607	$	17,666	$	20,031	$	16,502
Provision for Loan Losses		900		600		1,275		2,100		2,775
Charge-offs		(144)		(3)		(11)		(183)		(384)
Recoveries		6		158		19		176		56
Balance at End of Period	$	22,124	$	21,362	$	18,949	$	22,124	$	18,949

Noninterest Income

Noninterest income was $946,000 for the third quarter of 2019, a decrease of $188,000 from $1.1 million for the second quarter of 2019, and an increase of $132,000 from $814,000 for the third quarter of 2018. The linked-quarter decrease was primarily due to decreased gains on sales of securities. The year-over-year increase was primarily due to increased gains on sales of securities and foreclosed assets, offset partially by decreased letter of credit fees.

The following table presents the major components of noninterest income for the periods indicated:


	Three Months Ended						Nine Months Ended
	September 30,		June 30,		September 30,		September 30,		September 30,
(dollars in thousands)	2019		2019		2018		2019		2018
Noninterest Income:
Customer Service Fees	$	184	$	189	$	184	$	564	$	539
Net Gain (Loss) on Sales of Securities		58		463		(49)		516		(108)
Net Gain (Loss) on Sales of Foreclosed Assets		69		—		(88)		69		(225)
Letter of Credit Fees		331		213		447		790		814
Debit Card Interchange Fees		116		109		99		313		287
Other Income		188		160		221		462		379
Totals	$	946	$	1,134	$	814	$	2,714	$	1,686

Noninterest Expense

Noninterest expense was $9.1 million for the third quarter of 2019, a decrease of $390,000 from $9.5 million for the second quarter of 2019, and an increase of $1.6 million from $7.5 million for the third quarter of 2018. The linked-quarter decrease was primarily due to decreased amortization of tax credit investments and an FDIC insurance assessment credit applied in the current period, offset partially by increased salaries and employee benefits expense. The year-over-year increase was attributed to the amortization of tax credit investments and continued investments in employees, technology, marketing, and other operating costs to meet the needs of the Company's growth and brand awareness efforts.

The following table presents the major components of noninterest expense for the periods indicated:


	Three Months Ended						Nine Months Ended
	September 30,		June 30,		September 30,		September 30,		September 30,
(dollars in thousands)	2019		2019		2018		2019		2018
Noninterest Expense:
Salaries and Employee Benefits	$	5,915	$	5,124	$	4,910	$	15,841	$	13,534
Occupancy and Equipment		761		785		596		2,202		1,767
FDIC Insurance Assessment		—		285		240		570		675
Data Processing		182		151		167		486		325
Professional and Consulting Fees		414		451		313		1,253		836
Information Technology and Telecommunications		233		208		271		677		674
Marketing and Advertising		339		404		347		1,208		911
Intangible Asset Amortization		48		47		48		143		143
Amortization of Tax Credit Investments		530		1,390		15		2,097		15
Other Expense		662		629		619		1,966		1,642
Totals	$	9,084	$	9,474	$	7,526	$	26,443	$	20,522

The Company had 158 full-time equivalent employees at September 30, 2019, compared to 150 employees at June 30, 2019, and 139 employees at September 30, 2018. The increases include strategic hires in deposit gathering, lending, technology, and other supportive roles. While the recognition of tax credit investments creates volatility in the level of total noninterest expense and concurrently the efficiency ratio, it directly reduces income tax expense and the effective tax rate. The efficiency ratio, a non-GAAP financial measure, was 45.6% for the third quarter of 2019, compared to 50.1% for the second quarter of 2019, and 42.7% for the third quarter of 2018. Excluding the impact of the amortization of tax credit investments, the adjusted efficiency ratio, a non-GAAP financial measure, was 42.9% for the third quarter of 2019, and 42.7% for the second quarter of 2019 and third quarter of 2018.

Income Taxes

The effective combined federal and state income tax rate for the third quarter of 2019 was 21.1%, an increase from 12.9% for the second quarter of 2019, and a decrease from 25.3% for the third quarter of 2018. The lower effective combined rates in 2019 compared to 2018 was due to the recognition of tax credits that became eligible to be applied in 2019. The effective combined federal and state income tax rate for the nine months ended September 30, 2019 was 19.5%.

Balance Sheet

Total assets at September 30, 2019 were $2.23 billion, a 5.1% increase from $2.12 billion at June 30, 2019, and a 18.4% increase from $1.89 billion at September 30, 2018. The increase in total assets was primarily due to organic loan growth.

Total gross loans at September 30, 2019 were $1.85 billion, a net increase of $61.3 million, or 3.4%, over total gross loans of $1.78 billion at June 30, 2019, and an increase of $246.3 million, or 15.4%, over total gross loans of $1.60 billion at September 30, 2018.

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


	September 30, 2019		June 30, 2019		March 31, 2019		December 31, 2018		September 30, 2018
(dollars in thousands)
Commercial and Industrial	$	291,723	$	287,804	$	284,807	$	260,833	$	235,502
Construction and Land Development		216,054		195,568		178,782		210,041		187,919
Real Estate Mortgage:
1 - 4 Family Mortgage		254,782		247,029		233,131		226,773		224,124
Multifamily		456,257		437,198		417,975		407,934		389,511
CRE Owner Occupied		71,209		68,681		66,130		64,458		65,905
CRE Nonowner Occupied		551,992		544,579		538,998		490,632		492,499
Total Real Estate Mortgage Loans		1,334,240		1,297,487		1,256,234		1,189,797		1,172,039
Consumer and Other		4,201		4,044		3,806		4,260		4,504
Total Loans, Gross		1,846,218		1,784,903		1,723,629		1,664,931		1,599,964
Allowance for Loan Losses		(22,124)		(21,362)		(20,607)		(20,031)		(18,949)
Net Deferred Loan Fees		(5,788)		(5,157)		(4,791)		(4,515)		(4,308)
Total Loans, Net	$	1,818,306	$	1,758,384	$	1,698,231	$	1,640,385	$	1,576,707

Total deposits at September 30, 2019 were $1.80 billion, an increase of $103.0 million, or 6.1%, over total deposits of $1.70 billion at June 30, 2019, and an increase of $323.1 million, or 21.8%, over total deposits of $1.48 billion at September 30, 2018.

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


	September 30, 2019		June 30, 2019		March 31, 2019		December 31, 2018		September 30, 2018
(dollars in thousands)
Noninterest Bearing Transaction Deposits	$	478,493	$	409,198	$	404,937	$	369,203	$	342,292
Interest Bearing Transaction Deposits		243,889		231,318		180,459		179,567		175,455
Savings and Money Market Deposits		470,518		456,447		434,186		402,639		416,140
Time Deposits		363,308		359,338		346,163		318,356		290,887
Brokered Deposits		246,028		242,964		277,921		291,169		254,314
Total Deposits	$	1,802,236	$	1,699,265	$	1,643,666	$	1,560,934	$	1,479,088

Total shareholders' equity at September 30, 2019 was $236.1 million, an increase of $6.9 million, or 3.0%, over total shareholders' equity of $229.1 million at June 30, 2019, and an increase of $25.2 million, or 12.0%, over total shareholders' equity of $210.9 million at September 30, 2018. The increase compared to both periods is due to net income retained and increased unrealized gains, partially offset by stock repurchases made under the Company's stock buyback program.

During the third quarter of 2019, the Company repurchased 205,567 shares of its common stock, representing less than 1% of the Company's outstanding shares. Shares were repurchased at a weighted average price of $11.41 for a total of $2.3 million. Strong profitability and capital growth allowed the Company to strategically execute its stock buyback program to enhance shareholder value while maintaining adequate capital levels.

Tangible book value per share, a non-GAAP financial measure, was $8.08 as of September 30, 2019, an increase of 3.8% from $7.78 as of June 30, 2019, and an increase of 17.2% from $6.89 as of September 30, 2018.

Asset Quality

Asset quality metrics for the Company remained strong at September 30, 2019. Annualized net charge-offs (recoveries) as a percent of average loans for the third quarter of 2019 were 0.03%, compared to (0.04)% for the second quarter of 2019, and 0.00% for the third quarter of 2018. At September 30, 2019, the Company's nonperforming assets, which include nonaccrual loans, loans past due 90 days and still accruing, and foreclosed assets, were $828,000, or 0.04% of total assets, as compared to $1.6 million, or 0.07% of total assets at June 30, 2019, and $718,000, or 0.04% of total assets at September 30, 2018. Notably, the Company had zero loans 30-89 days past due at September 30, 2019.

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 earnings 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; the concentration of large loans to certain borrowers; the concentration of large deposits from certain customers; 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)*

	September 30,		December 31,		September 30,
	2019		2018		2018
	(Unaudited)				(Unaudited)
ASSETS
Cash and Cash Equivalents	$	89,619	$	28,444	$	21,537
Bank-Owned Certificates of Deposit		2,654		3,305		3,305
Securities Available for Sale, at Fair Value		263,803		253,378		240,786
Loans, Net of Allowance for Loan Losses of $22,124 at September 30, 2019 (unaudited), $20,031 at December 31, 2018 and $18,949 at September 30, 2018 (unaudited)		1,818,306		1,640,385		1,576,707
Federal Home Loan Bank (FHLB) Stock, at Cost		8,024		7,614		7,814
Premises and Equipment, Net		25,764		13,074		11,387
Accrued Interest		6,519		6,589		6,400
Goodwill		2,626		2,626		2,626
Other Intangible Assets, Net		909		1,052		1,100
Other Assets		14,115		17,274		14,131
Total Assets	$	2,232,339	$	1,973,741	$	1,885,793

LIABILITIES AND EQUITY
LIABILITIES
Deposits:
Noninterest Bearing	$	478,493	$	369,203	$	342,292
Interest Bearing		1,323,743		1,191,731		1,136,796
Total Deposits		1,802,236		1,560,934		1,479,088
Federal Funds Purchased		—		18,000		53,000
Notes Payable		13,500		15,000		15,500
FHLB Advances		141,500		124,000		94,000
Subordinated Debentures, Net of Issuance Costs		24,707		24,630		24,604
Accrued Interest Payable		1,763		1,806		1,230
Other Liabilities		12,574		8,373		7,519
Total Liabilities		1,996,280		1,752,743		1,674,941

SHAREHOLDERS' EQUITY
Preferred Stock- $0.01 par value
Authorized 10,000,000; None Issued and Outstanding at September 30, 2019 (unaudited), December 31, 2018 and September 30, 2018 (unaudited)		—		—		—
Common Stock- $0.01 par value
Common Stock - Authorized 75,000,000; Issued and Outstanding 28,781,162 at September 30, 2019 (unaudited), 30,097,274 at December 31, 2018 and 27,235,832 at September 30, 2018 (unaudited)		288		301		272
Non-voting Common Stock- Authorized 10,000,000; Issued and Outstanding -0- at September 30, 2019 (unaudited) and December 31, 2018 and 2,823,542 at September 30, 2018 (unaudited)		—		—		28
Additional Paid-In Capital		111,670		126,031		125,715
Retained Earnings		119,066		96,234		88,473
Accumulated Other Comprehensive Income (Loss)		5,035		(1,568)		(3,636)
Total Shareholders' Equity		236,059		220,998		210,852
Total Liabilities and Equity	$	2,232,339	$	1,973,741	$	1,885,793

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

	Three Months Ended						Nine Months Ended
	September 30,		June 30		September 30,		September 30,		September 30,
	2019		2019		2018		2019		2018
INTEREST INCOME
Loans, Including Fees	$	24,220	$	23,321	$	20,207	$	69,720	$	56,055
Investment Securities		1,910		1,928		1,790		5,739		4,830
Other		442		271		139		900		353
Total Interest Income		26,572		25,520		22,136		76,359		61,238

INTEREST EXPENSE
Deposits		6,209		6,020		4,322		17,932		10,853
Notes Payable		127		130		144		378		442
FHLB Advances		908		827		488		2,510		1,159
Subordinated Debentures		393		393		401		1,163		1,167
Federal Funds Purchased		—		12		147		172		321
Total Interest Expense		7,637		7,382		5,502		22,155		13,942

NET INTEREST INCOME		18,935		18,138		16,634		54,204		47,296
Provision for Loan Losses		900		600		1,275		2,100		2,775

NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES		18,035		17,538		15,359		52,104		44,521

NONINTEREST INCOME
Customer Service Fees		184		189		184		564		539
Net Gain (Loss) on Sales of Available for Sale Securities		58		463		(49)		516		(108)
Net Gain (Loss) on Sales of Foreclosed Assets		69		—		(88)		69		(225)
Other Income		635		482		767		1,565		1,480
Total Noninterest Income		946		1,134		814		2,714		1,686

NONINTEREST EXPENSE
Salaries and Employee Benefits		5,915		5,124		4,910		15,841		13,534
Occupancy and Equipment		761		785		596		2,202		1,767
Other Expense		2,408		3,565		2,020		8,400		5,221
Total Noninterest Expense		9,084		9,474		7,526		26,443		20,522

INCOME BEFORE INCOME TAXES		9,897		9,198		8,647		28,375		25,685
Provision for Income Taxes		2,092		1,189		2,184		5,543		6,526
NET INCOME	$	7,805	$	8,009	$	6,463	$	22,832	$	19,159

EARNINGS PER SHARE
Basic	$	0.27	$	0.27	$	0.22	$	0.77	$	0.67
Diluted		0.27		0.26		0.21		0.76		0.66
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
	September 30,			June 30,			March 31,			December 31,			September 30,
	2019			2019			2019			2018			2018
Selected Asset Quality Data
Loans 30-89 Days Past Due	$	—		$	470		$	387		$	311		$	12
Loans 30-89 Days Past Due to Total Loans		0.00	%		0.03	%		0.02	%		0.02	%		0.00	%
Nonperforming Loans	$	828		$	555		$	1,557		$	581		$	718
Nonperforming Loans to Total Loans		0.04	%		0.03	%		0.09	%		0.03	%		0.04	%
Foreclosed Assets	$	—		$	1,033		$	—		$	—		$	—
Nonaccrual Loans to Total Loans		0.04	%		0.03	%		0.09	%		0.03	%		0.04	%
Nonaccrual Loans and Loans Past Due 90 Days and Still Accruing to Total Loans		0.04			0.03			0.09			0.03			0.04
Nonperforming Assets ⁽¹⁾	$	828		$	1,588		$	1,557		$	581		$	718
Nonperforming Assets to Total Assets ⁽¹⁾		0.04	%		0.07	%		0.08	%		0.03	%		0.04	%
Allowance for Loan Losses to Total Loans		1.20			1.20			1.20			1.20			1.18
Allowance for Loans Losses to Nonperforming Loans		2,671.98			3,849.01			1,323.51			3,447.68			2,639.14
Net Loan Charge-Offs (Recoveries) (Annualized) to Average Loans		0.03			(0.04)			0.01			(0.07)			0.00

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

Non-GAAP Financial Measures


	For the Three Months Ended									For the Nine Months Ended
	September 30,			June 30,			September 30,			September 30,			September 30,
	2019			2019			2018			2019			2018
(dollars in thousands)
Efficiency Ratio
Noninterest Expense	$	9,084		$	9,474		$	7,526		$	26,443		$	20,522
Less: Amortization of Intangible Assets		(48)			(47)			(48)			(143)			(143)
Adjusted Noninterest Expense	$	9,036		$	9,427		$	7,478		$	26,300		$	20,379
Net Interest Income		18,935			18,138			16,634			54,204			47,296
Noninterest Income		946			1,134			814			2,714			1,686
Less: (Gain) Loss on Sales of Securities		(58)			(463)			49			(516)			108
Adjusted Operating Revenue	$	19,823		$	18,809		$	17,497		$	56,402		$	49,090
Efficiency Ratio		45.6	%		50.1	%		42.7	%		46.6	%		41.5	%

Adjusted Efficiency Ratio
Noninterest Expense	$	9,084		$	9,474		$	7,526		$	26,443		$	20,522
Less: Amortization of Tax Credit Investments		(530)			(1,390)			(15)			(2,097)			(15)
Less: Amortization of Intangible Assets		(48)			(47)			(48)			(143)			(143)
Adjusted Noninterest Expense	$	8,506		$	8,037		$	7,463		$	24,203		$	20,364
Net Interest Income		18,935			18,138			16,634			54,204			47,296
Noninterest Income		946			1,134			814			2,714			1,686
Less: (Gain) Loss on Sales of Securities		(58)			(463)			49			(516)			108
Adjusted Operating Revenue	$	19,823		$	18,809		$	17,497		$	56,402		$	49,090
Adjusted Efficiency Ratio		42.9	%		42.7	%		42.7	%		42.9	%		41.5	%


	As of and for the Three Months Ended									As of and for the Nine Months Ended
	September 30,			June 30,			September 30,			September 30,		September 30,
	2019			2019			2018			2019		2018
(dollars in thousands, except share data)
Tangible Common Equity and Tangible Common Equity/Tangible Assets
Common Equity	$	236,059		$	229,137		$	210,852
Less: Intangible Assets		(3,535)			(3,582)			(3,726)
Tangible Common Equity		232,524			225,555			207,126
Total Assets		2,232,339			2,123,631			1,885,793
Less: Intangible Assets		(3,535)			(3,582)			(3,726)
Tangible Assets	$	2,228,804		$	2,120,049		$	1,882,067
Tangible Common Equity/Tangible Assets		10.43	%		10.64	%		11.01	%

Tangible Book Value Per Share
Book Value Per Common Share	$	8.20		$	7.90		$	7.01
Less: Effects of Intangible Assets		(0.12)			(0.12)			(0.12)
Tangible Book Value Per Common Share	$	8.08		$	7.78		$	6.89

Average Tangible Common Equity
Average Common Equity	$	232,590		$	231,374		$	208,773		$	229,961	$	186,949
Less: Effects of Average Intangible Assets		(3,558)			(3,605)			(3,748)			(3,605)		(3,797)
Average Tangible Common Equity	$	229,032		$	227,769		$	205,025		$	226,356	$	183,152

Bridgewater Bancshares, Inc. and Subsidiaries
Analysis of Average Balances, Yields and Rates (year-to-date)
*(dollars in thousands, except per share data) (Unaudited)*

	For the Nine Months Ended
	September 30, 2019						September 30, 2018
	Average		Interest		Yield/		Average		Interest		Yield/
	Balance		& Fees		Rate		Balance		& Fees		Rate
(dollars in thousands)
Interest Earning Assets:
Cash Investments	$	46,158	$	604	1.75	%	$	23,540	$	188	1.07	%
Investment Securities:
Taxable Investment Securities		143,583		3,126	2.91			125,668		1,960	2.09
Tax-Exempt Investment Securities⁽¹⁾		103,032		3,307	4.29			117,284		3,634	4.14
Total Investment Securities		246,615		6,433	3.49			242,952		5,594	3.08
Loans ⁽²⁾		1,756,855		69,720	5.31			1,436,152		56,055	5.22
Federal Home Loan Bank Stock		7,906		296	5.00			5,837		165	3.78
Total Interest Earning Assets		2,057,534		77,053	5.01	%		1,708,481		62,002	4.85	%
Noninterest Earning Assets		26,303						11,410
Total Assets	$	2,083,837					$	1,719,891
Interest Bearing Liabilities:
Interest Bearing Transaction Deposits		211,784		1,130	0.71	%		178,518		438	0.33	%
Savings and Money Market Deposits		433,430		5,784	1.78			366,198		3,006	1.10
Time Deposits		347,731		6,230	2.40			299,566		4,099	1.83
Brokered Deposits		266,976		4,788	2.40			220,733		3,310	2.00
Federal Funds Purchased		8,923		172	2.58			22,743		321	1.89
Notes Payable		14,000		378	3.61			16,000		442	3.69
FHLB Advances		133,097		2,510	2.52			78,212		1,159	1.98
Subordinated Debentures		24,673		1,163	6.30			24,570		1,167	6.35
Total Interest Bearing Liabilities		1,440,614		22,155	2.06	%		1,206,540		13,942	1.54	%
Noninterest Bearing Liabilities:
Noninterest Bearing Transaction Deposits		401,973						317,437
Other Noninterest Bearing Liabilities		11,289						8,965
Total Noninterest Bearing Liabilities		413,262						326,402
Shareholders' Equity		229,961						186,949
Total Liabilities and Shareholders' Equity	$	2,083,837					$	1,719,891
Net Interest Income / Interest Rate Spread				54,898	2.95	%				48,060	3.31	%
Net Interest Margin ⁽³⁾					3.57	%					3.76	%
Taxable Equivalent Adjustment:
Tax-Exempt Investment Securities				(694)						(764)
Net Interest Income			$	54,204					$	47,296

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%.
Average loan balances include nonaccrual loans. Interest income on loans includes amortization of deferred loan fees, net of deferred loan costs.
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.

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