Third Quarter 2023 Highlights

Annualized return on average assets (ROA) of 0.85%, compared to 0.88% for the second quarter of 2023.
Annualized return on average shareholders' equity (ROE) of 9.23%, compared to 9.69% for the second quarter of 2023, and annualized return on average tangible common equity (ROATCE)⁽¹⁾ of 9.92%, compared to 10.48% for the second quarter of 2023.
Deposits increased by $97.6 million, or 10.8% annualized, from the second quarter of 2023, including an increase of core deposits⁽²⁾ of $69.9 million, or 11.0% annualized.
Core deposit growth exceeded loan growth for the second consecutive quarter as gross loans declined slightly by $13.9 million from the second quarter of 2023, lowering the loan-to-deposit ratio to 101.3%.
Net interest margin (on a fully tax-equivalent basis) of 2.32%, compared to 2.40% in the second quarter of 2023.
Efficiency ratio⁽¹⁾ of 56.5%, compared to 52.7% for the second quarter of 2023.
No provision for credit losses on loans was recorded in the third quarter of 2023. The allowance for credit losses on loans to total loans was 1.36% at both September 30, 2023 and June 30, 2023.
Annualized net loan charge-offs as a percentage of average loans of 0.01% for the third quarter of 2023, compared to 0.00% for the second quarter of 2023.
Nonperforming assets to total assets of 0.02% at September 30, 2023 and June 30, 2023.
Tangible book value per share⁽¹⁾ of $12.37 at September 30, 2023, an increase of $0.23, or 7.4% annualized, compared to $12.15 at June 30, 2023.

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

(2) Core deposits are defined as total deposits less brokered deposits and certificates of deposit greater than $250,000.

Bridgewater Bancshares, Inc. (NASDAQ:BWB) (the Company), the parent company of Bridgewater Bank (the Bank), today announced net income of $9.6 million for the third quarter of 2023, compared to $9.8 million for the second quarter of 2023, and $14.5 million for the third quarter of 2022. Earnings per diluted common share were $0.30 for the third quarter of 2023, compared to $0.31 for the second quarter of 2023, and $0.47 per diluted common share for the same period in 2022.

"Throughout the third quarter, Bridgewater saw the continuation of several encouraging trends, including signs of net interest margin stabilization, enhanced balance sheet composition, and superb asset quality," said Chairman, Chief Executive Officer, and President, Jerry Baack. "A second consecutive quarter of strong core deposit growth and reduced borrowings aided our net interest margin. In addition, we are being very thoughtful in how we position the balance sheet for longer term success as this unique banking environment continues to evolve.

"The quality of our loan portfolio was evident again during the quarter due to our consistent underwriting standards, active credit oversight, and experienced lending and credit teams. We also remained focused on our ongoing client engagement efforts, investments in our people, and creating efficiencies across the organization, all with an eye toward continuing our track record of consistent tangible book value growth, which has increased each of the past 27 quarters."

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,
	2023			2023			2022			2023			2022
Per Common Share Data
Basic Earnings Per Share	$	0.31		$	0.32		$	0.49		$	1.01		$	1.32
Diluted Earnings Per Share		0.30			0.31			0.47			0.99			1.27
Book Value Per Share		12.47			12.25			11.44			12.47			11.44
Tangible Book Value Per Share ⁽¹⁾		12.37			12.15			11.33			12.37			11.33

Financial Ratios
Return on Average Assets ⁽²⁾		0.85	%		0.88	%		1.46	%		0.93	%		1.42	%
Pre-Provision Net Revenue Return on Average Assets ⁽¹⁾⁽²⁾		1.01			1.16			2.15			1.22			2.15
Return on Average Shareholders' Equity ⁽²⁾		9.23			9.69			14.99			10.19			13.85
Return on Average Tangible Common Equity⁽¹⁾⁽²⁾		9.92			10.48			17.03			11.07			15.63
Net Interest Margin⁽³⁾		2.32			2.40			3.53			2.47			3.57
Core Net Interest Margin ⁽¹⁾⁽³⁾		2.24			2.31			3.38			2.39			3.35
Cost of Total Deposits		2.99			2.66			0.73			2.57			0.55
Cost of Funds		3.10			2.91			0.93			2.81			0.73
Efficiency Ratio⁽¹⁾		56.5			52.7			39.8			51.6			40.7
Noninterest Expense to Average Assets ⁽²⁾		1.35			1.29			1.42			1.32			1.48
Tangible Common Equity to Tangible Assets ⁽¹⁾		7.61			7.39			7.57			7.61			7.57
Common Equity Tier 1 Risk-based Capital Ratio (Consolidated) ⁽⁴⁾		9.07			8.72			8.47			9.07			8.47

Balance Sheet and Asset Quality (dollars in thousands)
Total Assets	$	4,557,070		$	4,603,185		$	4,128,987		$	4,557,070		$	4,128,987
Total Loans, Gross		3,722,271			3,736,211			3,380,082			3,722,271			3,380,082
Deposits		3,675,509			3,577,932			3,305,074			3,675,509			3,305,074
Loan to Deposit Ratio		101.3	%		104.4	%		102.3	%		101.3	%		102.3	%
Net Loan Charge-Offs (Recoveries) to Average Loans ⁽²⁾		0.01			0.00			(0.03	)		0.00			(0.01	)
Nonperforming Assets to Total Assets⁽⁵⁾		0.02			0.02			0.02			0.02			0.02
Allowance for Credit Losses to Total Loans		1.36			1.36			1.38			1.36			1.38

(1)	Represents a non-GAAP financial measure. See "Non-GAAP Financial Measures" for further details.
(2)	Annualized.
(3)	Amounts calculated on a tax-equivalent basis using the statutory federal tax rate of 21%.
(4)	Preliminary data. Current period subject to change prior to filings with applicable regulatory agencies.
(5)	Nonperforming assets are defined as nonaccrual loans plus 90 days past due and still accruing plus foreclosed assets.

Income Statement

Net Interest Income and Net Interest Margin

Net interest margin (on a fully tax-equivalent basis) for the third quarter of 2023 was 2.32%, an eight basis point decline from 2.40% in the second quarter of 2023 and a 121 basis point decline from 3.53% in the third quarter of 2022. Core net interest margin (on a fully tax-equivalent basis), a non-GAAP financial measure which excludes the impact of loan fees and PPP balances, interest, and fees was 2.24% for the third quarter of 2023, a seven basis point decline from 2.31% in the second quarter of 2023, and a 114 basis point decline from 3.38% in the third quarter of 2022.

The linked-quarter decline in the margin was primarily due to higher funding costs, offset partially by higher earning asset yields.
The year-over-year decline in the margin was primarily due to higher funding costs and increased borrowings in the rising interest rate environment, offset partially by higher earning asset yields.

Net interest income was $25.4 million for the third quarter of 2023, a decrease of $451,000 from $25.9 million in the second quarter of 2023, and a decrease of $8.7 million from $34.1 million in the third quarter of 2022.

The linked-quarter decrease in net interest income was primarily due to higher rates paid on deposits in the rising interest rate environment.
The year-over-year decrease in net interest income was primarily due to higher rates paid on deposits and increased borrowings in the rising interest rate environment.
Average interest earning assets were $4.42 billion for the third quarter of 2023, an increase of $21.4 million, or 0.5%, from $4.40 billion for the second quarter of 2023, and an increase of $544.5 million, or 14.1%, from $3.87 billion for the third quarter of 2022. The linked-quarter increase in average interest earning assets was primarily due to an increase in cash. The year-over-year increase in average interest earning assets was primarily due to strong growth in the loan portfolio and purchases of investment securities.

Interest income was $56.8 million for the third quarter of 2023, an increase of $1.8 million from $55.0 million in the second quarter of 2023, and an increase of $14.5 million from $42.4 million in the third quarter of 2022.

The yield on interest earning assets (on a fully tax-equivalent basis) was 5.14% in the third quarter of 2023, compared to 5.06% in the second quarter of 2023 and 4.37% in the third quarter of 2022.
The linked-quarter increase in the yield on interest earning assets was primarily due to the increase in market interest rates resulting in new loan originations and loans repricing at yields accretive to the existing portfolio.
The year-over-year increase in the yield on interest earning assets was primarily due to growth and repricing of the loan and securities portfolios in the rising interest rate environment.
Loan interest income and loan fees remain the primary contributing factors to the changes in the yield on interest earning assets. The aggregate loan yield, excluding PPP loans, increased to 5.26% in the third quarter of 2023, which was seven basis points higher than 5.19% in the second quarter of 2023, and 67 basis points higher than 4.59% in the third quarter of 2022.
While loan fees have historically maintained a relatively stable contribution to the aggregate loan yield, the recent periods saw fewer loan prepayments, which historically has accelerated the recognition of loan fees. Despite the overall decrease in fee recognition, the Company is encouraged that the core loan yield continues to rise as new loan originations and the existing portfolio reprice in the higher rate environment.

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


	Three Months Ended
	September 30, 2023		June 30, 2023		March 31, 2023		December 31, 2022		September 30, 2022
Interest	5.16	%	5.09	%	4.95	%	4.74	%	4.42	%
Fees	0.10		0.10		0.11		0.12		0.17
Yield on Loans, Excluding PPP Loans	5.26	%	5.19	%	5.06	%	4.86	%	4.59	%

Interest expense was $31.4 million for the third quarter of 2023, an increase of $2.3 million from $29.1 million in the second quarter of 2023, and an increase of $23.1 million from $8.3 million in the third quarter of 2022.

The cost of interest bearing liabilities increased 22 basis points on a linked-quarter basis from 3.59% in the second quarter of 2023 to 3.81% in the third quarter of 2023, primarily due to higher rates paid on deposits in the rising interest rate environment.
On a year-over-year basis, the cost of interest bearing liabilities increased 251 basis points from 1.30% in the third quarter of 2022 to 3.81% in the third quarter of 2023, primarily due to the rapid increase in market interest rates that occurred between the periods, which impacted all funding sources.

Interest expense on deposits was $27.2 million for the third quarter of 2023, an increase of $4.2 million from $23.0 million in the second quarter of 2023, and an increase of $21.2 million from $6.0 million in the third quarter of 2022.

The cost of total deposits increased 33 basis points on a linked-quarter basis from 2.66% in the second quarter of 2023, to 2.99% in the third quarter of 2023, primarily due to the rising interest rate environment and increased competition from other market alternatives.
On a year-over-year basis, the cost of total deposits increased 226 basis points from 0.73% in the third quarter of 2022, to 2.99% in the third quarter of 2023, primarily due to upward repricing of the deposit portfolio in the higher interest rate environment.

Provision for Credit Losses

The provision for credit losses on loans was zero for the third quarter of 2023, compared to $550,000 for the second quarter of 2023 and $1.5 million for the third quarter of 2022.

No provision for credit losses on loans was recorded in the third quarter of 2023 due to a more managed pace of loan growth.
The allowance for credit losses on loans to total loans was 1.36% at September 30, 2023, compared to 1.36% at June 30, 2023, and 1.38% at September 30, 2022.

The provision for credit losses for off-balance sheet credit exposures was a negative provision of $600,000 for the third quarter of 2023, compared to a negative $500,000 for the second quarter of 2023 and zero for the third quarter of 2022.

The negative provision during the quarter was due to a reduction in outstanding unfunded commitments primarily attributable to the migration to funded loans, as well as a moderation in volume of newly originated projects with unfunded commitments.

Noninterest Income

Noninterest income was $1.7 million for the third quarter of 2023, an increase of $311,000 from $1.4 million for the second quarter of 2023 and an increase of $339,000 from $1.4 million for the third quarter of 2022.

The linked-quarter increase was primarily due to $0.5 million of FHLB prepayment income, offset partially by lower other income.
The year-over-year increase was primarily due to $0.5 million of FHLB prepayment income, offset partially by decreased letter of credit fees and other income.

Noninterest Expense

Noninterest expense was $15.4 million for the third quarter of 2023, an increase of $962,000 from $14.4 million for the second quarter of 2023 and an increase of $1.2 million from $14.2 million for the third quarter of 2022. It is worth noting, on a year-to-date basis through the third quarter, noninterest expense increased $2.5 million, or 6.0%, compared to year-to-date in 2022.

The linked-quarter increase was primarily due to increases in salaries and employee benefits and industry-wide increases in the FDIC insurance assessment, offset partially by a decrease in professional and consulting fees.
The year-over-year increase was primarily attributable to increases in the FDIC insurance assessment and derivative collateral fees, offset partially by decreases in marketing and advertising.
The efficiency ratio, a non-GAAP financial measure, was 56.5% for the third quarter of 2023, compared to 52.7% for the second quarter of 2023, and 39.8% for the third quarter of 2022.
The Company had 255 full-time equivalent employees at September 30, 2023, compared to 253 employees at June 30, 2023, and 246 employees at September 30, 2022.

Income Taxes

The effective combined federal and state income tax rate for the third quarter of 2023 was 22.3%, a decrease from 23.6% for the second quarter of 2023 and 26.8% for the third quarter of 2022. The effective combined federal and state rate for the nine months ended September 30, 2023 and 2022 was 24.1% and 26.3%, respectively.

Balance Sheet

Loans


(dollars in thousands)	September 30, 2023		June 30, 2023		March 31, 2023		December 31, 2022		September 30, 2022
Commercial	$	459,063	$	459,184	$	454,193	$	435,344	$	412,448
Paycheck Protection Program		791		877		963		1,049		1,192
Construction and Land Development		294,818		351,069		312,277		295,554		280,380
1 - 4 Family Construction		64,463		69,648		85,797		70,242		55,177
Real Estate Mortgage:
1 - 4 Family Mortgage		404,716		400,708		380,210		355,474

Bridgewater Bancshares, Inc. Announces Third Quarter 2023 Net Income of $9.6 Million, $0.30 Diluted Earnings Per Common Share