Acquisition Of First Minnetonka City Bank And Leadership Changes Will Strengthen Liquidity And Efficiency

Key Takeaways

• The acquisition and strategic changes are set to enhance liquidity, improve revenue streams, and drive earnings growth through operational efficiency.
  
• Core deposit growth and lower reliance on brokered deposits are expected to boost net interest margins amid a favorable rate environment.
  
• Elevated loan payoffs, increased competition, and risky loans may hinder revenue growth, profitability, and financial stability amid slow asset growth and deposit market challenges.

Catalysts

Operates as the bank holding company for Bridgewater Bank that provides banking products and services to commercial real estate investors, entrepreneurs, business clients, and individuals in the United States.

• The acquisition of First Minnetonka City Bank is expected to provide additional liquidity, improve the loan-to-deposit ratio, and introduce a new fee income stream, positively impacting revenue and earnings.
  
• The opportunity for modest margin expansion is anticipated due to an easing rate environment and core deposit growth, which will likely enhance net interest margins and net interest income.
  
• A strong loan pipeline and continued origination of higher-yielding loans are expected to support loan revenue growth, even in the face of elevated loan payoffs.
  
• Improved deposit mix through core deposit growth and reduced reliance on higher-cost brokered deposits should help lower deposit costs, thereby potentially increasing net margins.
  
• Strategic leadership changes aimed at enhancing revenue generation and operational efficiency are likely to drive better net margins and overall earnings growth.

Bridgewater Bancshares Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bridgewater Bancshares's revenue will grow by 15.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 27.9% today to 31.2% in 3 years time.
• Analysts expect earnings to reach $50.4 million (and earnings per share of $1.79) by about December 2027, up from $29.4 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.1x on those 2027 earnings, down from 14.1x today. This future PE is lower than the current PE for the US Banks industry at 12.9x.
• Analysts expect the number of shares outstanding to grow by 0.86% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.78%, as per the Simply Wall St company report.

Bridgewater Bancshares Future Earnings Per Share Growth

Risks

• Elevated loan payoffs and increased competition resulted in a decline in loan balances, which could impact revenue growth.
  
• An uptick in net charge-offs and nonperforming loans, particularly due to a risky central business district office loan, may affect earnings and net margins.
  
• The integration of First Minnetonka City Bank may cause a temporary decline in tangible book value, impacting financial stability.
  
• A highly competitive deposit market could constrain the ability to reduce deposit costs quickly, potentially affecting net interest margins.
  
• Slower than expected asset growth compared to expense growth could pressure profitability and net margins.

Valuation

• The analysts have a consensus price target of $17.83 for Bridgewater Bancshares based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $161.4 million, earnings will come to $50.4 million, and it would be trading on a PE ratio of 12.1x, assuming you use a discount rate of 6.8%.
• Given the current share price of $15.13, the analyst's price target of $17.83 is 15.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.