Bridgewater Bancshares, Inc. Q2 FY2025 earnings call

• Strong revenue growth with net interest income up and record fee income. - Loan portfolio grew 12.5% annualized, driven by core deposit growth across CRE, multifamily, C&I, and construction. - Asset quality remained robust with no net charge-offs and nonperforming assets below peer levels. - Initiatives: Rollout of enhanced retail and small business online banking platform and systems conversion of the First Minnetonka City Bank acquisition on track. Recognized as a 2025 Top Workplace. - Market disruption in the Twin Cities from Old National's acquisition of Bremer Bank presents growth opportunities for client and talent acquisition.

Bridgewater reported strong financials. Net interest income grew $2.2 million during the quarter, with net interest margin expanding by 11 basis points to 2.62%. Fee income was record-breaking, with nearly $1 million in swap fee income and over $200,000 in investment advisory fees from the acquired platform. The loan portfolio saw 12.5% annualized growth, driven by core deposit growth. Core deposits increased $16 million annualized, and total deposits grew $74 million in the second quarter. Asset quality remained strong with no net charge-offs and nonperforming assets at 0.19%.

• Net interest margin expected to see slight expansion in Q3 due to subordinated debt headwind, but more expansion in future quarters as loan portfolio reprices. - Mid- to high single-digit loan growth expected in the back half of 2025, dependent on core deposit growth and loan payoffs. - Noninterest expense growth in the high teens for 2025, excluding merger-related expenses, to support larger asset base post-acquisition.

• Modest credit migration into watch, special mention, and substandard categories, but not systemic. - Tighter spreads due to increased competition in the market. - Dependence on interest rate cuts for further margin expansion or deposit cost reductions.

Q: Just a question on the margin. Do you guys have a June average for the margin? I know that we've got some headwinds in the third quarter, but it's always a good jump-off point.

A: Yes, Jeff, it was 2.65% stand-alone in June.

Q: This is Adam Kroll on for Nate Race. So you guys obviously had really strong loan growth during the quarter and especially within CRE. So I was just curious, you expect CRE to be the primary driver of growth in the back half. And just wondering if you could expand on what you're seeing in terms of competition and if spreads have compressed at all?

A: Yes. This is Nick. I would say that in the back half of the year, we expect our growth to just be in line with all of our typical verticals...

Q: looping back on the NIM. I understand in your prepared remarks, you talked about the impact of taking out sub debt, but we were wondering how we should think about NIM thereafter and if there's any benefit that will be seen from the loan repricing.

A: Yes, this is Joe. So yes, I think as we called out in prepared remarks, we really wanted to highlight just the sub debt dynamic in the third quarter...

Q: And the other question is just to do with your funding side. Is there any downward repricing you can still squeeze out of funding costs? Or is it really dependent on further rate cuts? I know you said you could do it most likely without the rate cuts, but is there any other color that you can add?

A: Yes. I think we continue to look at opportunities across our deposit portfolios...