Bridgewater Bancshares, Inc. Q3 FY2025 earnings call

• Core team demonstrated ability to take market share with steady net interest income growth, strong core deposit and loan growth.
• Asset quality remained strong with low non-performing assets and net charge-offs. Tangible book value per share saw significant annualized growth.
• Successful completion of new retail/small business online banking platform launch and First Minnetonka City Bank systems conversion. Transitions in strategic leadership team with elevations of key executives like Katie Morell to Chief Credit Officer.
• Highlighted strong revenue growth trends driven by net interest income, though fee income had some lumpiness, with expectation of rebound in swap fees in Q4.

Core deposits grew 11.5% annualized in the third quarter, with balances up. Loan growth was 6.6% annualized, driven by growth across multiple asset classes including affordable housing. Net interest income increased $1.6 million, and net interest margin expanded to 2.63%. Tangible book value per share increased 20% annualized in Q3 and 14% annualized year to date. Core deposits contributed to the growth, with non-interest-bearing deposits up ~$35 million and brokered deposits down during the quarter. Loan yields increased, and the cost of deposits stabilized with an expectation of decline in Q4.

• Expect mid to high single-digit loan growth in the near term, with core deposit growth being a governor.
• Confident in meaningful net interest margin expansion to 3% by early 2027, driven by loan yields repricing higher and deposit costs declining with potential Fed rate cuts.
• Expenses expected to return to growing in line with asset growth as systems conversion impacts subside.

• Potential impact of interest rate changes on net interest margin and funding costs.
• Credit risks related to specific loans, such as the substandard office loan and the multifamily loan that migrated to substandard, though overall portfolio performance is strong and no systemic issues identified.

Q: On the margin path towards 3%, how is the improvement expected to transition over time?

A: Joe Chybowski stated it's fairly steady, with 2-3 basis points per month, assuming rate cuts happen as expected, with repricing on loans and deposit costs declining.

Q: On the affordable housing piece, what's the comfort level in growing the national part of the book?

A: Nick Place mentioned deep history in affordable housing since 2007, working with top-tier borrowers, and feeling good about the underserved market and growth potential on both loan and deposit sides.

Q: On cash balances and securities yield trajectory, what's the outlook?

A: Joe Chybowski said cash balances were impacted by core deposit growth, with loan growth as top priority, and securities yields were boosted by opportunities, with opportunistic redeployment to support loan growth.