Bridgewater Bancshares, Inc. Stock price
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Key metrics
📘 Market Capitalization
📈 What is it?
Market capitalization shows how much a company is currently worth on the stock market.
🧮 How is it calculated?
🏛️ Why is it important?
It helps classify companies by size (Large, Mid, Small Cap) and indicates their market presence and relative stability.
🧮 Calculation
🎯 What does this mean for investors?
- Large-cap companies tend to be more stable, often pay dividends, but may grow more slowly.
- Smaller firms may offer higher growth potential but come with more volatility.
- Market capitalization is a useful indicator of company size — but not a measure of whether a stock is undervalued or overvalued.
📘 Enterprise Value (EV)
📈 What is it?
Enterprise Value represents the total cost to acquire a company — including its debt and excluding its cash reserves.
🧮 How is it calculated?
(= Market Cap + Net Debt)
🏛️ Why is it important?
EV gives a more complete picture of a company's value than market cap alone and is used in key valuation ratios like EV/FCF or EV/Sales.
🧮 Calculation
🎯 What does this mean for investors?
- Enterprise Value shows the true cost of buying a company, including all financial obligations.
- It is more accurate than just looking at market cap, especially when comparing companies with different levels of debt or cash.
- Professional investors prefer EV-based multiples because they better reflect the company’s full financial footprint.
📘 Net Debt
📈 What is it?
Net Debt shows how much debt remains after subtracting a company’s available cash reserves.
🧮 How is it calculated?
🏛️ Why is it important?
It indicates how dependent a company is on borrowed money and how easily it can service its debt in the short term.
🎯 What does this mean for investors?
- Low or negative net debt signals financial strength and flexibility.
- Companies with strong cash positions are better positioned in crises.
- High net debt increases financial risk — especially in environments with rising interest rates or economic downturns.
📘 Cash
📈 What is it?
Cash represents all liquid assets a company can access immediately — including cash, bank deposits, and short-term investments.
🧮 How is it calculated?
🏛️ Why is it important?
It reflects a company’s financial flexibility and resilience — enabling investments, buybacks, or buffer in downturns.
🧮 Calculation
🎯 What does this mean for investors?
- A strong cash position means greater room for maneuver and crisis resistance.
- Cash-rich companies can invest, pay down debt, or repurchase shares.
- But excess idle cash might indicate a lack of growth opportunities.
📘 Shares Outstanding
📈 What is it?
Shares outstanding represent the total number of a company’s shares currently held by investors — excluding treasury stock.
🧮 How is it calculated?
🏛️ Why is it important?
It’s the basis for key metrics like Earnings Per Share (EPS), Market Capitalization, or the Price/Earnings ratio (P/E).
🧮 Calculation
🎯 What does this mean for investors?
- Fewer shares in circulation typically increase earnings per share — making each share more valuable.
- Share buybacks reduce the number of shares and boost per-share metrics.
- Issuing new shares does the opposite — diluting shareholder value and lowering per-share figures.
📘 Price-to-Earnings Ratio (P/E)
📈 What is it?
The P/E ratio shows how many times a company's earnings per share are reflected in its current share price — in other words, how "expensive" the stock appears relative to its profits.
🧮 How is it calculated?
🏛️ Why is it important?
The P/E ratio is one of the most widely used valuation metrics. It helps investors assess whether a stock appears cheap or expensive compared to its earnings power.
🧮 Calculation
📊 P/E (TTM) = Based on earnings from the last 12 months (Trailing Twelve Months):🎯 What does this mean for investors?
- A low P/E may indicate undervaluation — or signal underlying issues.
- A high P/E may reflect strong growth expectations — or an overvalued stock.
📘 Price-to-Sales Ratio (P/S)
📈 What is it?
The P/S ratio shows how much investors are paying for $1 of the company’s revenue – regardless of profitability.
🧮 How is it calculated?
🏛️ Why is it important?
P/S is especially useful for evaluating growth companies or businesses not yet profitable. It reflects how the market values the company’s sales.
🧮 Calculation
Market Cap = $579.70m | Revenue (TTM) = $162.09m
Market Cap = $579.70m | Estimated Revenue = $173.23m
🎯 What does this mean for investors?
- A low P/S may indicate undervaluation — or low profitability.
- A high P/S can reflect strong growth expectations — or excessive optimism.
- Especially helpful when evaluating companies where profits are low, volatile, or negative.
📘 Enterprise Value to Sales (EV/Sales)
📈 What is it?
EV/Sales shows how much investors are paying for $1 of revenue — considering not just equity, but also debt and cash. It’s the capital structure–adjusted version of the P/S ratio.
🧮 How is it calculated?
🏛️ Why is it important?
It’s ideal for comparing companies with different levels of debt. It reflects a company's true cost relative to its revenue.
🧮 Calculation
Enterprise Value = $688.58m | Revenue (TTM) = $162.09m
Enterprise Value = $688.58m | Forward Revenue = $173.23m
🎯 What does this mean for investors?
- EV/Sales allows for capital structure–neutral company comparisons.
- A lower ratio may indicate undervaluation; a higher one may signal strong growth expectations or overvaluation.
- Especially helpful when evaluating high-growth companies with low or negative earnings.
📘 Enterprise Value to Free Cash Flow (EV/FCF)
📈 What is it?
EV/FCF shows how many years it would take for a company to "pay back" its enterprise value using its free cash flow.
🧮 How is it calculated?
🏛️ Why is it important?
It focuses on real cash generation, ignoring accounting noise — ideal for assessing profitability and value based on liquidity, not earnings.
🧮 Calculation
🎯 What does this mean for investors?
- A low EV/FCF may signal undervaluation and strong cash generation.
- A high EV/FCF might reflect weak recent cash flow or aggressive growth expectations.
- Best suited for stable, mature businesses with predictable free cash flows.
📘 Price-to-Book Ratio (P/B)
📈 What is it?
The P/B ratio compares a company’s market value to its book value — showing how much investors are paying for each dollar of net assets.
🧮 How is it calculated?
🏛️ Why is it important?
P/B is commonly used for asset-heavy industries like banks or industrials. It helps assess whether a stock is trading above or below its net asset value.
🧮 Calculation
🎯 What does this mean for investors?
- A P/B below 1 may signal undervaluation — or weak profitability.
- A P/B above 1 implies the market expects future value creation (e.g., brand, IP, growth).
- Best used for companies with tangible assets and strong balance sheets.
📘 Equity Ratio
📈 What is it?
The equity ratio indicates what portion of a company’s total assets is financed by shareholders’ equity – in other words, how much it relies on its own capital.
🧮 How is it calculated?
🏛️ Why is it important?
A high equity ratio reflects financial strength and stability, especially during downturns. It’s a key indicator of a company’s solvency and long-term risk profile.
🧮 Calculation
🎯 What does this mean for investors?
- Companies with high equity ratios are generally more resilient and less dependent on external debt.
- Low equity ratios can signal higher risk or aggressive financial strategies.
- Important: Always assess the equity ratio in combination with the return on equity (ROE). This shows not just how stable the company is – but also how efficiently it uses shareholder capital.
📘 Return on Equity (ROE)
📈 What is it?
Return on equity (ROE) shows how efficiently a company uses its shareholders’ equity to generate profit. In other words: how much net income is earned per dollar of equity.
🧮 How is it calculated?
🏛️ Why is it important?
ROE is a core profitability metric. It helps investors understand whether a company delivers attractive returns on the capital provided by its shareholders.
🧮 Calculation
🎯 What does this mean for investors?
- A high ROE indicates that the company is using its capital efficiently and profitably.
- It’s especially meaningful for capital-intensive businesses or firms with high equity bases.
- Important: A very high ROE can also result from high debt levels – always interpret it alongside the equity ratio to assess financial health.
📘 Return on Capital Employed (ROCE)
📈 What is it?
ROCE measures how efficiently a company generates profits from its total capital – including both equity and interest-bearing debt.
🧮 How is it calculated?
It evaluates the return on all capital employed, regardless of how it’s financed.
🏛️ Why is it important?
ROCE is ideal for comparing companies with different financing structures. It shows how well management uses capital to create value for both shareholders and creditors.
🎯 What does this mean for investors?
- A high ROCE means the company uses its capital efficiently – regardless of whether it's funded by debt or equity.
- The higher the ROCE compared to peers, the more value the company creates with its invested capital.
- Especially relevant for capital-intensive sectors like industrials, energy, or infrastructure.
📘 Return on Invested Capital (ROIC)
📈 What is it?
ROIC measures how efficiently a company generates returns from the capital invested in its core operations – regardless of whether the capital comes from equity or debt.
🧮 How is it calculated?
- NOPAT = Net Operating Profit After Taxes
- Invested Capital = Operating assets minus non-interest-bearing liabilities
🏛️ Why is it important?
ROIC is one of the most accurate indicators of capital efficiency. Unlike return on equity, it is not distorted by leverage and shows how much value is created for all capital providers.
🎯 What does this mean for investors?
- A high ROIC shows how effectively a company uses the capital that is truly invested in its core operations.
- Unlike ROCE, ROIC focuses only on the capital that is actively used to run the business – and that requires a return (i.e. interest-bearing).
- Especially useful when comparing companies with large amounts of excess cash or non-interest-bearing liabilities – giving a more realistic picture of capital efficiency.
📘 Leverage Ratio (Debt-to-Equity)
📈 What is it?
The leverage ratio indicates how much a company relies on interest-bearing debt (such as loans and bonds) relative to its shareholders’ equity.
🧮 How is it calculated?
🏛️ Why is it important?
This ratio helps assess a company’s financial structure and risk profile. High leverage can enhance returns – but also increases exposure to interest rate changes and financial stress.
🧮 Calculation
🎯 What does this mean for investors?
- A low leverage ratio signals financial strength and independence.
- A higher ratio can improve returns in good times but increases risk during downturns or rising interest rate periods.
- 👉 Always interpret in the context of industry, capital intensity, and interest rate environment.
📘 Revenue
📈 What is it?
Revenue shows how much a company earns in total from selling its products and services – the gross income before any costs are deducted.
🧮 How is it calculated?
🏛️ Why is it important?
Revenue is one of the key figures to assess a company’s size, market position, and growth potential.
🧮 Calculation
🎯 What does this mean for investors?
- Growing revenue indicates rising demand and can be an early signal of future earnings growth.
- Comparing actual and expected revenue reveals trends in the market environment and analyst sentiment.
- Note: Strong revenue alone isn’t enough – margins and profitability matter just as much.
📘 EBITDA
📈 What is it?
EBITDA stands for “Earnings Before Interest, Taxes, Depreciation, and Amortization.” It reflects a company’s operating profit before the effects of financing, taxes, and accounting depreciation.
🧮 How is it calculated?
🏛️ Why is it important?
EBITDA is widely used to evaluate a company’s operating performance – especially across capital-intensive sectors or international comparisons.
🎯 What does this mean for investors?
- A high or growing EBITDA indicates strong operational profitability – independent of taxes, interest, or accounting methods.
- It’s especially useful for comparing companies across sectors or geographies.
- Important: EBITDA is not a net income figure – it excludes key costs like depreciation and interest.
📘 EBIT
📈 What is it?
EBIT stands for “Earnings Before Interest and Taxes.” It reflects a company’s operating profit after depreciation, but before interest and tax expenses.
🧮 How is it calculated?
🏛️ Why is it important?
EBIT is a core profitability metric that shows how well the company performs in its main business operations – independent of capital structure and tax environment.
🎯 What does this mean for investors?
- A high EBIT indicates strong profitability from the company’s core business – before financial and tax effects.
- It allows better comparison between companies with different debt levels or tax structures.
- Compared to EBITDA, EBIT already accounts for depreciation and reflects capital intensity more clearly.
📘 Net Income
📈 What is it?
Net income is the company’s total profit – the amount left after all expenses, taxes, interest, and depreciation have been deducted.
🧮 How is it calculated?
🏛️ Why is it important?
Net income is the most comprehensive measure of a company’s profitability – showing how much actual profit remains after all business and financing costs.
🧮 Calculation
🎯 What does this mean for investors?
- Growing net income indicates that the company is managing all of its costs efficiently.
- It directly influences valuation metrics like P/E ratio and the company’s dividend capacity.
- Over time, net income trends reveal how resilient and profitable the business model really is.
📘 Free Cash Flow (FCF)
📈 What is it?
Free Cash Flow shows how much actual cash remains after a company covers its operating expenses and capital expenditures.
🧮 How is it calculated?
🏛️ Why is it important?
FCF reflects a company’s real financial strength – regardless of accounting profits. It shows how much flexibility a company has for dividends, share buybacks, or debt reduction.
🧮 Calculation
🎯 What does this mean for investors?
- High free cash flow means the company generates real, usable cash – independent of reported net income.
- It’s often the most reliable base for sustainable dividends and buybacks.
- Declining FCF can be an early warning sign – even when profits appear stable.
📘 Revenue Growth
📈 What is it?
Revenue growth shows how much a company’s sales have changed compared to the previous year – both on a trailing basis (TTM) and based on forward projections.
🧮 How is it calculated?
Forward = (Expected revenue ÷ Revenue in prior year − 1) × 100
Forward growth is based on analyst estimates for the current fiscal year.
🏛️ Why is it important?
Rising revenue signals growing demand, business expansion, and market share gains – especially important for growth-oriented companies.
🧮 Calculation
🎯 What does this mean for investors?
- Growth is the engine of long-term value creation – especially in tech and growth sectors.
- What matters is not just current growth, but its sustainability.
- Forward projections reflect whether analysts expect continued momentum – or a slowdown.
📘 EBITDA Growth
📈 What is it?
EBITDA growth shows how much a company’s operating profit (before interest, taxes, depreciation, and amortization) has increased or decreased compared to the previous year.
🧮 How is it calculated?
Forward = (Expected EBITDA ÷ EBITDA from prior year − 1) × 100
The forward estimate is based on analyst projections for the current fiscal year.
🏛️ Why is it important?
Growing EBITDA indicates improving operational profitability – regardless of financing or accounting effects.
🎯 What does this mean for investors?
- Strong EBITDA growth signals operational efficiency and scalability – especially during growth phases.
- EBITDA growth can be an early indicator of margin and earnings expansion – but should be assessed alongside revenue and EBIT.
📘 EBIT Growth
📈 What is it?
EBIT growth shows how much a company’s operating profit (after depreciation, but before interest and taxes) has increased compared to the previous year.
🧮 How is it calculated?
Forward = (Expected EBIT ÷ EBIT from prior year − 1) × 100
The forward estimate is based on analyst projections for the current fiscal year.
🏛️ Why is it important?
EBIT growth is a direct indicator of a company’s business performance – taking into account capital intensity through depreciation.
🎯 What does this mean for investors?
- Rising EBIT signals improving operating profitability – even after accounting for depreciation.
- It’s especially important for evaluating companies with significant capital expenditures.
- Combined with revenue and EBITDA growth, EBIT growth provides a well-rounded view of operational progress.
📘 Net Income Growth
📈 What is it?
Net income growth shows how much a company’s bottom-line profit has increased or decreased compared to the previous year – both on a trailing basis (TTM) and based on analyst projections.
🧮 How is it calculated?
Forward = (Expected net income ÷ Net income from prior year − 1) × 100
The forward estimate reflects analysts’ expectations for the current fiscal year.
🏛️ Why is it important?
Net income is the ultimate measure of profitability. Growing net income signals stronger efficiency, cost control, and sustainable earnings power.
🧮 Calculation
🎯 What does this mean for investors?
- Stronger net income boosts valuation, dividend potential, and investor confidence.
- If profits stall while revenue grows, it may signal margin pressure.
📘 Free Cash Flow Growth
📈 What is it?
Free cash flow (FCF) growth shows how a company’s available cash – after covering operating expenses and capital expenditures – has changed compared to the previous year.
🧮 How is it calculated?
🏛️ Why is it important?
Free cash flow reflects real financial strength. Growing FCF indicates more flexibility for dividends, share buybacks, and reinvestment.
🧮 Calculation
🎯 What does this mean for investors?
- Declining FCF may point to rising investments, increasing costs, or weaker operating performance.
- Especially for dividend investors, FCF growth is critical – since dividends are paid from actual available cash.
- A negative trend isn't always bad, but it deserves closer attention.
📘 Gross Margin
📈 What is it?
Gross margin shows how much of a company’s revenue remains after deducting the direct costs of goods sold (like materials and production). It represents the company’s “raw profit” before fixed costs, taxes, and interest.
🧮 How is it calculated?
Or simply: Gross Margin = Gross Profit ÷ Revenue × 100
🏛️ Why is it important?
Gross margin indicates how efficiently a company can produce or procure what it sells. It is a key measure of product-level profitability and pricing power.
🎯 What does this mean for investors?
- A high gross margin suggests strong pricing power and efficient production.
- Falling margins may signal rising input costs or competitive pressure.
- Compared to peers, gross margin offers insights into the quality of a business model.
📘 EBITDA Margin
📈 What is it?
The EBITDA margin shows how much of a company’s revenue remains as operating profit before interest, taxes, depreciation, and amortization.It reflects operating efficiency without being distorted by financing or accounting factors.
🧮 How is it calculated?
🏛️ Why is it important?
The EBITDA margin reveals how much operating income a company generates per dollar of revenue – independent of capital structure and tax effects.
🎯 What does this mean for investors?
- A high EBITDA margin reflects strong core profitability – before accounting distortions.
- It allows for effective comparisons across companies and sectors.
- A stable or growing margin signals efficient cost control and business scalability.
📘 EBIT Margin
📈 What is it?
The EBIT margin shows what percentage of revenue remains as operating profit after depreciation but before interest and taxes.
🧮 How is it calculated?
🏛️ Why is it important?
The EBIT margin reflects a company’s core profitability while accounting for capital intensity (e.g. machinery, infrastructure). It’s especially useful for comparing businesses with different levels of depreciation.
🎯 What does this mean for investors?
- A high EBIT margin shows that the company remains efficient even after factoring in depreciation.
- It’s especially relevant for capital-intensive industries.
- Stable or rising EBIT margins over time are a strong indicator of pricing power and business quality.
📘 Net margin
📈 What is it?
Net margin shows how much of a company’s revenue remains as bottom-line profit after deducting all costs, interest, taxes, and depreciation.
🧮 How is it calculated?
🏛️ Why is it important?
Net margin reflects a company’s overall efficiency – across operations, financing, and taxation. It shows how much actual profit is generated from each dollar of revenue.
🧮 Calculation
🎯 What does this mean for investors?
- A high net margin means the company is not only strong operationally but also manages financing and taxes efficiently.
- Peer comparisons reveal business quality and competitiveness.
- Declining margins despite revenue growth can be a red flag for rising costs or inefficiencies.
📘 Free cash flow margin
📈 What is it?
The free cash flow (FCF) margin shows how much of a company’s revenue remains as actual free cash after covering all operating expenses and capital expenditures.
🧮 How is it calculated?
🏛️ Why is it important?
This margin reflects the true liquidity generated by the business – independent of accounting rules or depreciation. It’s especially relevant for dividends, buybacks, and reinvestment decisions.
🧮 Calculation
🎯 What does this mean for investors?
- A high FCF margin means a company consistently generates strong cash flow.
- It’s a positive signal for financial stability and shareholder returns.
- The long-term trend is key – a declining margin may indicate rising investments or weakening operating efficiency.
📘 Earnings per share (EPS)
📈 What is it?
Earnings per Share (EPS) shows how much profit is attributable to a single share – and is one of the most important metrics for evaluating a company's performance.
🧮 How is it calculated?
The diluted share count reflects potential new shares that could be issued through options, convertible bonds, or other rights.
🏛️ Why is it important?
EPS is the basis for many key valuation metrics like P/E ratio, PEG ratio, or payout ratio. It enables comparisons of profitability across companies, regardless of their size.
🧮 Calculation
🎯 What does this mean for investors?
- EPS captures per-share profitability and is especially useful for comparisons over time or with analyst estimates.
- Rising EPS may signal consistent growth or share buybacks.
- Important: Always use diluted EPS for more realistic valuations – especially in companies with stock-based compensation.
📘 Free cash flow per share (FCF per share)
📈 What is it?
Free Cash Flow per Share shows how much free cash flow a company generates per outstanding share – after investments, but before dividends or debt repayments.
🧮 How is it calculated?
Free cash flow is calculated as operating cash flow minus capital expenditures (CapEx).
🏛️ Why is it important?
FCF per Share reveals how much real cash is available per share – useful for dividends, buybacks, or reducing debt. Unlike net income, free cash flow is harder to manipulate and often seen as a more reliable metric.
🧮 Calculation
🎯 What does this mean for investors?
- High FCF per share signals strong financial flexibility.
- It shows how much capital the company can effectively reinvest or return to shareholders.
- Particularly relevant for dividend payers and capital-efficient businesses.
📘 Short interest
📈 What is it?
Short interest indicates how many shares of a company are currently sold short – that is, borrowed and sold by investors who expect the price to decline.
🧮 How is it calculated?
It reflects the percentage of a company’s shares that are being shorted relative to the total shares available.
🏛️ Why is it important?
Short interest serves as a sentiment indicator: A high value may signal skepticism or bearish expectations – but also increases the potential for a short squeeze if prices rise unexpectedly.
🧮 Calculation
🎯 What does this mean for investors?
- Low short interest usually indicates market confidence in the company.
- High short interest can be a warning sign – or an opportunity if sentiment shifts.
- Especially relevant in volatile markets or ahead of key earnings releases.
📘 Employees
📈 What is it?
The employee count shows how many people a company employs worldwide – offering insights into its size, structure, and business model.
🧮 How is it calculated?
🏛️ Why is it important?
It helps assess operational scale, labor intensity, and cost structure. Combined with revenue and profit, it enables key metrics like revenue per employee or productivity.
🧮 Calculation
🎯 What does this mean for investors?
- A high headcount can signal operational complexity – but also significant growth capacity.
- Revenue per employee is a key indicator of efficiency.
- Especially useful for comparing tech, industrial, or service-heavy companies.
📘 Turnover per employee
📈 What is it?
Revenue per employee indicates how much revenue a company generates on average per employee – a key measure of efficiency and productivity.
🧮 How is it calculated?
The employee count is typically taken from the most recent annual report.
🏛️ Why is it important?
This metric helps compare business models – especially between labor-intensive and technology-driven companies. A high value suggests automation, operational efficiency, or strong value creation per head.
🧮 Calculation
🎯 What does this mean for investors?
- A high revenue per employee indicates a scalable and margin-strong business model.
- A low figure may reflect labor-intensive operations or lower value-add.
- Especially helpful when comparing tech companies to industrial or service sectors.
Bridgewater Bancshares, Inc. Stock Analysis
Analyst Opinions
8 Analysts have issued a Bridgewater Bancshares, Inc. forecast:
Analyst Opinions
8 Analysts have issued a Bridgewater Bancshares, Inc. forecast:
Bridgewater Bancshares, Inc. Events
Past Events
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JUL
22
Q2 2026 Earnings Call
about 2 months ago
|
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APR
22
Q1 2026 Earnings Call
5 months ago
|
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JAN
28
Q4 2025 Earnings Call
8 months ago
|
|
OCT
22
Q3 2025 Earnings Call
11 months ago
|
StocksGuide Free
Bridgewater Bancshares, Inc. — Q2 2026 Earnings Call
1. Management Discussion
Good morning, and welcome to the Bridgewater Bancshares 2026 Second Quarter Earnings Call. My name is Nick, and I will be your conference operator today. [Operator Instructions]. Please note that today's call is being recorded. At this time, I would like to introduce Justin Horstman, Vice President of Investor Relations to begin the conference call. Please go ahead.
Thank you, Nick, and good morning, everyone. Joining me on today's call are Jerry Baack, Chairman and Chief Executive Officer; Joe Chybowski, President and Chief Financial Officer; Nick Place, Chief Banking Officer; and Katie Morrel, Chief Credit Officer.
In just a few moments, we will provide an overview of our 2026, 2nd quarter financial results. We will be referencing a slide presentation that is available on the Investor Relations section of Bridgewater's website, investors.bridgewaterbankmn.com.
Following our opening remarks, we will open the call for questions. During today's presentation, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We caution that such statements are predictions and that actual results may differ materially. Please see the forward-looking statement disclosure in the slide presentation and our 2026, 2nd quarter earnings release for more information about risks and uncertainties, which may affect us. The information we will provide today is as of and for the quarter ended June 30, 2026, and we undertake no duty to update the information.
We may also disclose non-GAAP financial measures during this call. We believe that certain 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 our peers.
We caution that these disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP. Please see our slide presentation and 2026, 2nd quarter earnings release for reconciliations of non-GAAP disclosures to the comparable GAAP measures.
I would now like to turn the call over to Bridgewater's Chairman and CEO, Jerry Baack.
Thank you, Justin, and thank you for joining us this morning. I'm thrilled to say that Bridgewater reported another strong quarter. We continue to take market share, saw improved profitability and build tangible book value.
We surpassed the 1% ROA for the first time since early 2023. And which was largely driven by continued net interest margin expansion and net interest income growth. We reported a second quarter margin of 3.07%, which exceeds the 3% goal we set at the end of 2026.
We -- most importantly, net interest income continued to grow, up an impressive 21% annualized in the second quarter. We have been very pleased with the overall revenue growth momentum, which helped improve our efficiency ratio. With a strong reputation for being the employer of choice, we added to our talent base.
We made several opportunistic hires, adding top talent and taking full advantage of the continued market disruption in the Twin Cities. This resulted in some elevated personnel expenses as talent became available earlier than expected. Year-to-date, we have added 15 key hires from competitor banks that have recently been acquired.
These additions, including both production and office talent will support the future scaling of the bank, strengthen our ability to serve clients and create long-term value for shareholders. During the second quarter, we remain disciplined to not only grow the balance sheet but ensure we were growing it profitably. We grew loan balances at an annualized pace of 5.4% as core deposits were seasonally low.
Nick will talk more about how we're thinking about growth in a few minutes, but we are continuing to get in front of new and existing clients and are feeling good about the momentum on both sides of the balance sheet. Asset quality was a strength of the quarter once again as we had minimal net charge-offs. We saw a modest uptick in nonperforming assets but have seen stabilization across our watch, special mention and substandard loans.
Katie will provide more thoughts shortly. As a team, we continue to feel good about the overall asset quality of our loan portfolio. We continue to build capital through retained earnings during the second quarter as our CET1 ratio increased 8 basis points to 9.61% and is now 58 basis points year-over-year.
During the past quarter, we repurchased approximately $700,000 of common stock, taking advantage of a weighted average price of just $18.12 per share. As you know, tangible book value has always been the highlight for Bridgewater, and that was the case again in the second quarter as tangible book value increased 17% annualized to $16.61.
On Slide 4, you will note that tangible book value has grown over 50% in the last 4.5 years. This remains an important differentiation for us. Before I turn it over to Joe, I want to take a moment to thank our team members for all their efforts. We added a lot of talent this year, and I believe our unique culture is a real asset in the market.
It's been exciting to onboard these individuals and welcome them to the BWB team. We have a group that's motivated to serve our clients and keep strengthening Bridgewater's foothold in the market. I am confident that we have the right team in place and grateful for all the efforts of our team members, both new and old.
With that, I'll turn it over to Joe.
Thanks, Jerry. Starting on Slide 5. We continue to see strong profitability and revenue growth trends as our return on average assets topped 1%. This improved profitability has been a function of strong revenue growth as net interest margin expansion and balance sheet growth have driven meaningfully higher net interest income. I'll talk more about this on the next slide.
In addition, we have been pleased with the noninterest income contribution to total revenue. Swap fees and investment advisory fees continue to be meaningful sources of fee income that we didn't have a couple of years ago and letter of credit fees bounced back in the second quarter.
Turning to Slide 6. Our ability to drive revenue growth through net interest income continues to be a consistent part of the Bridgewater story. During the second quarter, net interest income grew at a 21% annualized pace, driven by both net interest margin expansion and earning asset growth. We are very pleased with the margin expansion we have seen so far in 2026. And -- you'll remember that we entered 2026 with a 2.75% margin in the fourth quarter of 25% and a goal to achieve a 3% margin by the end of the year. After nearly getting there in the first quarter, we saw another 8 basis points of expansion in the second quarter, already putting us over our target at 307 -- with deposit costs stabilizing, the margin expansion during the quarter was primarily due to the ongoing loan repricing we have seen across our portfolio.
In addition, loan fees have continued to increase as payoffs remained elevated. Looking ahead, we do expect to see some additional net interest margin expansion in the back half of 2026, albeit at a slower pace than we saw in the second quarter. For reference, our net interest margin for the month of June 2026 was $3.08 compared to $3.07 for the full quarter.
With continued growth opportunities and margin slowly ticking higher, we're well positioned for ongoing net interest income growth in the quarters ahead. Slide 7 provides more details on the net interest margin drivers. Loan yields expanded 10 basis points during the second quarter and are now up 13 basis points year-to-date, given the repricing of our larger fixed rate portfolio which makes up 64% of the loan book. The expansion of our loan yields has been very strong relative to the rest of the banking space.
We would expect to see some additional loan repricing to support the future margin as our loan portfolio includes $629 million of fixed rate loans scheduled to mature over the next 12 months at a weighted average yield of $5.62 and another $114 million of adjusted rate loans repricing or maturing at 399 -- with these lower yields running off the books and new originations in the second quarter going on the books in the low 6s, we have further repricing upside ahead of us.
We have also been taking proactive steps over the past year or 2 to make our portfolio more rate neutral by originating more variable rate loans and ultimately aligning our variable rate loan book with our variable rate deposit book. Variable rate loans now make up 25% of the loan portfolio, up from 18% a year ago. While lower deposit costs were a significant driver of margin expansion in the first quarter, we saw deposit costs remain relatively stable in the second quarter given past rate cuts being fully priced in as well as seasonal deposit mix shifts.
Turning to Slide 8. We continue to operate a highly efficient business model with an efficiency ratio consistently below peers. Not only do we have a strong revenue growth story, we also have a track record of a well-controlled expense base. In the first half of 2026, we proactively took advantage of unique opportunities in our market to invest in the business and our people.
Given the recent M&A disruption in the Twin Cities, there's been an influx of available talent, and we didn't want to miss an opportunity to secure people felt it will be great long-term fits for Bridgewater. Thanks to our culture and our prominence in the local banking space, we have been able to add 15 talented and experienced individuals from recently acquired competitor banks in 2026 alone.
Given the additional hiring, we have seen a pull forward of expenses year-to-date. However, we believe this will support the future growth and scaling of the bank as we move through 2026 and beyond. Overall, we generated positive operating leverage in the second quarter as total revenue increased at a 20% annualized pace, while noninterest expense increased at only 13%.
Given the higher pace of expense growth in the first half of the year, -- we expect to be able to hold expenses relatively flat from second quarter levels over the remainder of 2026, with positive operating leverage momentum continuing.
With that, I'll turn it over to Nick.
Thanks, Joe. Turning to Slide 9. Core deposits continue to be a key priority for us as we have seen strong momentum over the past couple of years. During the second quarter, total deposits increased $41 million or 3.8% annualized from the first quarter while core deposits declined 3.5%.
As a reminder, the occasional decline in core deposits is not unusual for us as growth is not always linear given the nature of our primarily commercial deposit base. The second quarter is also typically our seasonal low. In addition, we've seen real estate clients having new opportunities and beginning to invest cash into new projects, ultimately resulting in some deposit outflows.
In the meantime, we supplemented core deposits with wholesale funding, similar to what we have done in the past. Looking ahead, we remain focused on aligning loan growth with core deposit growth over time. While the positive competition remains elevated in the market, we expect to continue the historical core deposit momentum we have seen, especially given stronger seasonality trends we tend to experience in the back half of the year.
Our core deposit pipeline remains strong, including the more deposit-rich affordable housing vertical as well as additional opportunities we are seeing from the M&A disruption in the Twin Cities. In addition, we have already exceeded the our first year deposit goals for our new branch in Lake Omo, highlighting the attractiveness of that high-growth community in the Twin Cities.
Turning to Slide 10. The pace of loan growth in the second quarter was consistent with what we saw in the first quarter at 5.4% annualized. Given the slower pace of core deposit growth in the first half of the year, we have been more disciplined on the loan side, as we focus on generating balanced profitable growth across the balance sheet.
Loan competition remains elevated as credit unions in some of the larger regionals are being more aggressive on pricing. So to us, being disciplined means knowing we don't need to grow at any cost. During the first half of the year, we've been more selective on pricing and structure, emphasize deals with the right clients and invested in core verticals where profitability is highest.
And this strategy has paid off. Loan growth has been a bit more moderated than expected, but we have seen substantial margin expansion and ultimately very strong net interest income growth. Loan growth over the back half of the year will be dependent on levels of core deposit growth, competition and payoffs. We have always had a strong growth engine, demand is still high, and we are getting in front of an abundance of deals including opportunities related to the M&A disruption.
But some of the spreads we are seeing today are just too tight for our liking. As we look to optimize overall profitability, we are targeting a mid- to high single-digit pace of loan growth over the rest of 2026. Turning to Slide 7 -- or sorry, 11, you can see the discipline we've had on the loan side as originations have moderated a bit. Payoff activity also remains elevated, similar to what other banks are seeing. This has been due to the natural selling of assets as well as the tightening of agency spreads driving refinance activity. We would expect payoffs to continue to be a growth headwind for us over the near term.
Turning to Slide 12. You can see the majority of our loan growth in the second quarter came in multifamily, an area where we have immense experience and expertise. Construction and development saw the largest decrease as some of our commercial construction projects completed and migrated into multifamily or other CRE portfolios. We have continued to add key production folks and verticals we are focused on, including C&I and CRE.
There are real opportunities for us to continue taking market share in these areas and the Minneapolis market continues to be strong. Finishing up on Slide 13, I wanted to give an update on what we are seeing in the national affordable housing space, a key growth vertical that it currently makes up about 16% of our loan portfolio.
Overall, we have seen 22% year-over-year growth in affordable housing loans, which, as a reminder, are spread across multifamily C&I and construction. Balances remained relatively flat in the second quarter due to a larger payoff in the C&I credit, However, the multifamily portion of the portfolio continued to grow, now making up 75% of our affordable housing balances.
As I mentioned earlier about focusing on our most profitable verticals, new affordable housing originations tend to have higher yields than the rest of the loan portfolio. This is an added benefit to our overall profitability given that we expect continued growth in this vertical. With that, I'll turn it over to Katie.
Thanks, Nick. Turning to Slide 14. The overall credit profile of our portfolio continues to be strong. Nonperforming assets did move modestly higher in the quarter to 40 basis points. This increase was driven by 1 mixed-use property that was already rated substandard. We are working with the borrower as they pursue a sale of the property and remain optimistic about achieving a near-term resolution. I also wanted to provide a quick update on the Central Business District office loan that was moved to nonaccrual back in the first quarter of 2025.
While this has been a longer-term workout, we are now taking steps towards a near-term disposition of this asset. In connection with that process and given the limited leasing progress over the past year, we've increased the specific reserve for this loan, up to a total of $4 million. As we continue to advance the disposition process, additional reserve adjustments may be necessary depending on market feedback and transaction developments. Overall, we are pleased with the progress being made towards resolving our 2 largest nonperforming assets and remain confident in the overall credit quality of the portfolio.
We have continued to slowly lower our conservative reserve level, down 5 basis points from a year ago to 1.30% of loans. We expect to reduce this down even further as we continue to execute on problem loan action plans and resolve remaining credit issues. And for the second quarter, net charge-offs were very low once again at just 4 basis points.
Now looking at Slide 15, our watch and special mention as well as substandard loans have remained relatively stable, both sitting right around 1% of total loans. These stable levels reflect the conservative underwriting and strong asset quality that continue to characterize the Bridgewater portfolio.
I'll now turn it back over to Joe.
Thanks, Katie. Slide 16 highlights our growing capital position, which continues to build through retained earnings. Notably, our CET1 ratio increased from $9.53 to $961 -- we did resume share repurchases early in the quarter given where the stock was trading. We repurchased about $700,000 of common stock at a weighted average price of $18. 12 -- you'll recall that we also launched an at-the-market offering in the first quarter to give us the optionality to raise additional capital if we needed and if market conditions were favorable.
To date, we have not issued any shares into the market as part of the ATM. We have built ourselves optionality regarding capital today. And as we've demonstrated over the years, we will continue to be strong capital stewards as we evaluate capital levels and deployment going forward.
Turning to Slide 17. I'll recap our near-term expectations. As Nick mentioned, with a focus on profitable growth, we expect the mid- to high single-digit pace of loan growth in the back half of the year given a variety of factors, including competition, loan payoffs and our ability to continue generating strong core deposit growth.
From a net interest margin standpoint, we have already surpassed our 3% target that we had for the end of the year. However, we still feel there is more room to go, but we would expect the pace of margin expansion to continue slowing in the third quarter.
More importantly, with our continued loan growth, we can continue to drive increased net interest income. As I mentioned earlier, year-to-date expenses have been higher than expected due to opportunistic hiring and annual merit increases in the first quarter. As a result, we believe most of the expense growth for the year was front-loaded and that expenses in the third and fourth quarters should be relatively stable with second quarter levels.
I'll now turn it back to Jerry.
Thanks, Joe. Before we open up for questions, I want to provide a quick progress report on our 2026 strategic priorities. We remain focused on taking market share in a profitable way. We have been disciplined in growing our loan portfolio given the seasonally lower deposits so far this year. This has resulted in improved profitability with a much higher net interest margin and strong net interest income growth.
We have also continued to make impressive progress with the continued focus on our affordable housing vertical as balances were up 19% annualized year-to-date.
With that, we'll open it up for questions.
[Operator Instructions]. The first question will come from Jeff Rulis with D.A. Davidson.
2. Question Answer
Maybe a question on the loan growth side and particularly the payoffs -- it seems like that's more of a -- well, 2 part on the payoffs is one, just kind of characterizing. It sounds like it's more event-driven less about rate. I mean you talked about sale of assets and competition. Just wanted to kind of unpack the type of payoffs that you're seeing?
And then the second thing is any visibility, it sounds like you're still expecting more to come. But -- is there anything that -- what you can see the pace of payoffs ahead?
Jeff, this is Nick. No, I think the payoff activity is really what we've been talking about over the last handful of quarters, which is a bit of a catch-up of the natural sort of life cycle of some of the transactions for our clients, where they're a lot of times buying, improving and then ultimately stabilizing and either refinancing to permanent debt or selling the assets.
So given where rates have been in the last couple of years, I think some of that is just the natural evolution of those transactions coming to conclusion for us. So nothing concerning on that front, but I just think it's a catch-up from where we were at from a seasonally low or a typically low perspective a year to 1.5 years ago.
On the go-forward payoff side, I think it can be really difficult to predict, but the levels that we've seen over the last 3 quarters, that seems to be kind of the consistent pace for us now. So that's kind of the level that we're modeling as we're thinking about what we're expecting over the back half of the year.
Nick. And maybe 1 on the margin. I guess, is it not to oversimplify, but safe to say that further margin expansion, a little more earning asset dependent at this point. I mean the funding costs are stabilizing and maybe less help that way and just trying to unpack the components of that sounds like it's still up on the margin, but less so because it's maybe just 1 side of the balance sheet in terms of earning asset yield gains. Is that fair to say?
Yes, Jeff, this is Joe. I think that's the right way to think about it. I think we've -- last year, as we said, was definitely a deposit cost story, especially with Fed rate cuts. But yes, this year, it's certainly been -- the loan portfolio has been driving that, whether it's through growth or through just continued repricing of that portfolio.
So I mean, we definitely still focus on the deposit side and certainly looking for opportunities to rationalize deposit costs lower. But yes, to your point, we expect that margin expansion to come from the earning asset side.
Got it. And maybe 1 last one, if I could squeeze it in. Maybe for Katie, on the maybe that multifamily loan that was added to nonaccrual, it sounds maybe just any specific reserves against that and maybe a time line for resolution that you see for that one.
Sure. Jeff, so we are carrying a specific reserve against that loan. It's a little less than $1 million. So that is part of what's making up the specific reserves in our allowance currently. So as far as the time line, we're -- moving quickly, we've shared that it's a near-term resolution is our goal on this one. But ultimately, there's some parts of that, that are out of our control, but I think we've shown that we've been able to move quickly through other assets similarly that have been on nonaccrual.
So certainly, focusing on moving as quickly as possible while achieving the best outcome for the bank.
And Katie, just remind us the balance of the 2 largest credits that you mentioned, the office loan and I assume this 1 here, just the total balances of those.
Yes. I mean together, those 2 are making up about 90% of that NPA balances. So the mixed-use multifamily is about 10.5% and then 8.6% on the office.
The next question will come from Nathan Race with Piper Sandler.
Right again on the margin topic, Curious if you guys can comment just what you're seeing from a competitive deposit pricing perspective in the Twin Cities these days. And conversely, on the other side of the balance sheet, what you're seeing from a loan pricing perspective as well and just in terms of the weighted average rate on new loan production these days.
This is Nick. Yes, on the deposit front, I mean, competition is still pretty strong out there as I think lenders are getting more aggressive on the asset side, and it's causing them to remain focused on growing deposits. So we feel like we're still getting in front of good opportunities.
I think our market with just the makeup of the deposit market and being so heavily weighted to wells in U.S. Bank. We still see a lot of opportunity to pick up deposits at relatively low costs from those folks. But on the commercial side, bringing in full deposit relationships, we're seeing money market balances and rates still in the 3s. And then we blend those sort of client costs down with operating accounts to get inside of that.
So we feel like there's still deposit momentum that we can gather as -- in the back half of the year as we tend to have more success seasonally in the back half. And those deposit costs continue to come down. But with where we've been at from a loan-to-deposit ratio perspective, we've been mindful about not cutting those costs too much.
The loan side, that competition is for real quality assets is, in some cases, gotten a bit silly, frankly. We've seen spreads on deals at 150 basis points over SOFR. And those are just levels that we're not even going to try to compete that. We're going to focus on our core client relationships or like our affordable housing vertical where we can get spreads meaningfully outside and wide of what we can do on the sort of core CRE front here locally.
So I think we've been trying to be disciplined on finding the right deals that we can put on the balance sheet that are good from a credit risk perspective, but are also priced at a level that makes sense for us. And then also, I think Joe touched on the progress we made on the variable rate nature of the book. I think that's another structural thing that we're trying to focus on, too. I mean we could put growth on for long-term fixed rate assets.
And that's also not something we're as interested in doing as we were in 2021 as we felt the pain of that as rates moved up. So I think the growth engine is there, and we're optimistic about putting on loans at good yields, and that's really our focus.
Okay. Great. And if I could just follow up on the deposit pricing competition. Nick, would you say that's changed much in the last 90 days? Or has there been any major differences competitively along those lines?
No, I don't think it's changed much. I think it's quality opportunities and relationships that are kind of falling out of some of the M&A disruption or competition has been pretty fierce on those for a handful of quarters. So I don't think it's really changed too much on the deposit front. I think for us, it's just a focus the front half of the year being a little seasonally lower for deposits, that's where we tend to get a little bit more aggressive on the opportunities that we have.
Okay. Great. And then just in terms of kind of the loan production capacity of the expanded team as you guys have made a number of hires over the last several quarters. Curious, as you look out to next year and some of these folks continue to ramp up and bring over some clients from prior institutions, how do you think that can kind of change or increase the production relative to, call it, $200 million or so on average over the last 4 or 5 quarters?
Yes. I mean I don't think we're anywhere near max capacity on the loan production side as it relates to talent. I think the folks that we have here are phenomenal and the client relationships that we have are great. And the new folks that we picked up are expanding that client base for us. So I think we've got room to go on our loan production compared to what we've seen through the first few quarters this year.
I think a lot of that loan growth isn't necessarily that we're not getting front of transactions. Like I said, sometimes just pricing doesn't make sense, structure doesn't make sense. And then we're mindful about aligning our loan growth with core deposits. So -- the opportunities in our pipeline is big. I think we're being sort of disciplined on putting on growth that makes sense. So I think our folks are doing a great job and there's certainly capacity there to expand our loan production as some of the other metrics make sense.
The next question will come from Brandon Rud with Stephens.
This is Matthew Brave on for Brandon. On Page 20 slides, you highlighted about $600 million of time and brokered deposits that are scheduled to reprice. At what rate are those expected to reprice?
Yes. So they're just over 4%, kind of between 4% and 4.5%. So we're constantly looking at new opportunities complementing the rest of the balance sheet, whether it's shorter term or in a lot of cases, further out the curve with embedded optionality. So some of that's roll off, as we said, and we continue to look for those opportunities to supplement core deposit growth.
Great. And then maybe 1 on the loan portfolio. I noticed the variable rate loan mix has been trending higher the last few quarters. Is there a target level you'd like that mix to reach?
Nick, Yes. I mean I think our near-term goal is we're really trying to align our variable rate loan book with our variable rate deposit portfolio. So we've got a little bit of room to go to get to that level. I mean long term, we'd like to see the variable rate part of our book be a bit more balanced with our fixed rate portfolio.
So getting to that 30%, 40% of the portfolio long term would be an ideal range. But that's a slow shift to turn. So we think that will be -- it will take some time for us to get to that level.
[Operator Instructions] The next question will come from Brendan Nosal with Hovde Group.
Maybe starting off on the expense base, totally get the the call out of flat expenses from the second quarter level through the end of the year. you kind of alluded to it in your prep remarks, but was this more of a timing discrepancy? Or was there some intentionality to how you're going to manage expenses in the back half as loan growth came in slower than you were thinking earlier in the year?
Brendan, it's Joe. I mean, as you know, I mean, we continue to invest in people and technology. I mean, that's been a theme since we went public. And obviously, we've been fortunate with continued market disruption here in the Twin Cities. So we're always looking for opportunities to add talent. I think, obviously, a lot of disruption came in the tail end of '25 into '26.
And so we're not going to kind of peanut butter spread those hires throughout the year. I think we're going to take advantage where we see opportunities, in some cases, pull those forward. So I think that's certainly nothing new. And as we think about it, we feel comfortable with the -- both the production and nonproduction staff, and that's part of where -- we said some of it's front-loaded certainly.
And as we think about the back half of the year, we feel like it can be relatively flat from an expense standpoint. So, but certainly not the new, and we'll continue to be opportunistic if opportunities arise. I think we always want to invest in the business and the scalability of the company.
Okay. And maybe kind of related note here. If I look at kind of your expense to asset ratio over the past, I don't know, 6 quarters, it's been moving higher up to 165 this quarter, Joe, as you mentioned on those opportunistic hires. As those teams start to kind of produce and generate assets, is there kind of a medium-term opportunity to leverage those key meds and bring that expense to asset ratio back down to where it had been running?
Yes, I certainly think it's possible. I think when we look at whether it's that ratio or we look at just pure operating leverage, I mean, this quarter is a great example where you see revenue growth at a 20% clip in expenses at 13%. So I mean, that's an ideal kind of ratio between those 2.
So yes, I think there as we invest in the business and the growth translates and production folks continue to migrate their relationships over. I mean, certainly, we're optimistic about the growth prospects of the company, but we're also not going to be shortsighted to not continue to invest in our people and technology. So I think that ratio will it has guided higher, I think, by no means our are we concerned that it's out of whack.
This concludes our question-and-answer session. I will now turn the call back over to Jerry Baack for any closing remarks.
Thanks for joining the call today. Bridgewater is really excited about the growth and profitability outlook in the second half of '26. And I also just want to do a shout out to our Bridgewater team members that have done a phenomenal job this year and the years to come. So have a great day. Thanks.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Bridgewater Bancshares, Inc. — Q2 2026 Earnings Call
Bridgewater Bancshares, Inc. — Q1 2026 Earnings Call
1. Management Discussion
Good morning, and welcome to the Bridgewater Bancshares' 2026 First Quarter Earnings Call. My name is Danielle, and I will be your conference operator today. [Operator Instructions] Please note that today's call is being recorded. At this time, I would like to introduce Justin Horstman, Vice President of Investor Relations, to begin the conference call. Please go ahead.
Thank you, Danielle, and good morning, everyone. Joining me on today's call are Jerry Baack, Chairman and Chief Executive Officer; Joe Chybowski, President and Chief Financial Officer; Nick Place, Chief Banking Officer; and Katie Morrell, Chief Credit Officer. In just a few moments, we will provide an overview of our 2026 first quarter financial results. We will be referencing a slide presentation that is available on the Investor Relations section of Bridgewater's website, investors.bridgewaterbankmn.com.
Following our opening remarks, we will open the call for questions. During today's presentation, we may make projections or other forward regarding future events or the future financial performance of the company. We caution that such statements are predictions and that actual results may differ materially. Please see the forward-looking statement disclosure in the slide presentation and our 2026 first quarter earnings release for more information about risks and uncertainties, which may affect us. The information we will provide today is as of and for the quarter ended March 31, 2026, and we undertake no duty to update the information. We may also disclose non-GAAP financial measures during this call.
We believe certain 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 our peers. We caution that these disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP. Please see our slide presentation and 2026 first quarter earnings release for reconciliations of non-GAAP disclosures to the comparable GAAP measures. I would now like to turn the call over to Bridgewater's Chairman and CEO, Jerry Baack.
Thank you, Justin, and thank you for joining us this morning. Bridgewater is off to a strong start in 2026 with several positive developments during the quarter, positioning us well for the rest of the year. First and foremost, I would like to point out our net interest margin expansion. While we mentioned last quarter that we expected to reach a 3% margin by the end of 2026, we nearly got there in the first quarter as margin expanded to 2.99%. Deposit costs declined and loans repriced higher, helping us get there quicker than anticipated. We expect to see slow additional margin expansion over the coming quarters. Because of the strong net interest margin, we were able to continue growing net interest income. This happened even while our balance sheet shrunk during the quarter, due to some strategic sales of securities.
These securities sales were part of several opportunistic actions taken in the first quarter to enhance our balance sheet efficiency, resulting in both a substantial gain and positioning us for improved profitability moving forward. I want to be clear that this was not the standard balance sheet repositioning many other banks have done recently that involved selling securities at a large loss to increase future margin but rather a calculated tactic, Joe and our treasury team recognized as interest rates moved in our favor. In response to this shift, they executed on an opportunity to improve forward profitability while taking an immediate gain. Joe will provide more details on this in a minute.
I'm pleased to report we continued to take market share in the first quarter as the loan portfolio grew 5.5% annualized with much of the growth continuing to come from our commitment to our affordable housing vertical. Core deposit momentum also continued as balances increased 3.2% annualized while the overall deposit mix continued to improve. Asset quality remained positive in the first quarter as net charge-offs and nonperforming assets both declined nicely. We continue to feel good about the overall asset quality of our loan portfolio, resulting from the strong credit culture we pride ourselves on. In addition, we saw a nice uptick in our capital ratios as CET1 increased 36 basis points to 9.53%.
Turning to Slide 4. Tangible book value growth continues to be a stable of the Bridgewater story. And that was no different in the first quarter as tangible book value increased 9.9% annualized to $15.93 per share. This is an important differentiator for Bridgewater. We are proud of our ability to create aid and sustain shareholder value through tangible book value growth and how consistent this trajectory has been over the past decade. Before I pass it over to Joe, I also wanted to share that we successfully expanded our footprint to the East. In February, we opened our de novo branch in Lake Elmo, there's a growing area in the Twin Cities, and we are thrilled with the opportunities it presents to Bridgewater Bank. With that, I'll turn it over to Joe.
Thanks, Jerry. Before we take a deeper dive into the first quarter results, I wanted to walk through the balance sheet efficiency actions we took in late January and early February, which are laid out on Slide 5. As Jerry mentioned, this was really a win-win for us as our treasury team recognized how we could take advantage of the volatility in interest rates to not only improve future profitability but also generate substantial near-term revenue. As part of this strategy, we sold a portion of our high-quality securities portfolio, which included the sale of $147 million of treasuries for a net gain of $1.2 million and the sale of $62 million of municipal bonds for a net gain of $6.1 million. By selling these securities that were yielding in the 4% and 5% ranges, we were able to redeploy these dollars into higher-yielding loans going forward.
In addition to these security sales, we also prepaid $97.5 million of higher cost FHLB advances that were being used to fund the securities. While this resulted in a prepayment expense of $982,000 it helped to improve our funding mix and reduce our overall cost of funds. At the end of the day, we generated an additional $7.3 million of pretax net income in the first quarter. increased our permanent capital levels and supported future net interest margin expansion by reducing our cost of funds and creating an opportunity to redeploy capital into higher-yielding loans. This is another example of how we are actively and thoughtfully managing our balance sheet to drive shareholder value.
Turning to Slide 6. We were able to grow net interest income by 3% quarter-over-quarter despite the average interest-earning assets declining $185 million as a result of the balance sheet actions I just mentioned. This is pretty impressive and was driven by 24 basis points of net interest margin expansion in the first quarter to $2.99. Our expectation had been to get to a 3% net interest margin by the end of '26, but we were very pleased that several factors allowed us to nearly get there in the first quarter. First, we saw the full quarter impact of the fourth quarter rate cuts on both sides of the balance sheet. As total deposit costs declined 18 basis points and loan yields were still able to reprice higher by 3 basis points given the fixed rate nature of the portfolio.
Notably, deposit betas during this most recent rate cut cycle have outperformed the betas we saw during the prior cycle, primarily due to a larger portion of our deposit base being directly tied to short-term rates. Second, loan fees continue to increase as payoffs remained elevated. And third, there was a modest margin impact within the quarter from the balance sheet efficiency actions we took which resulted in a decrease in higher cost borrowings and a smaller balance sheet. Given that we were able to pull forward much of our expected net interest margin expansion for the year into the first quarter, we expect the pace of margin expansion to slow meaningfully going forward. However, we still expect to see some mild margin expansion over the coming quarters, even with no additional rate cuts.
With net interest margin resetting higher, some margin expansion expected to continue and earning asset growth set to return, we are well positioned to continue driving net interest income moving forward. Slide 7 highlights some of the net interest margin drivers. The cost of total deposits declined by 18 basis points in the first quarter and is now down 40 basis points over the past 2 quarters. The decline in the first quarter reflects the full quarter impact of the rate cuts from the fourth quarter of 2025. Absent any additional rate cuts, we would expect to see deposit costs stabilize going forward. although we will continue to look for additional opportunities to lower the rates of deposit accounts where it makes sense. Our portfolio loan yield increased 3 basis points during the quarter to 5.81%.
As we have said in the past, we expect our loan portfolio to continue to reprice higher in the current environment given the larger fixed rate component, which makes up 65% of the portfolio. We have been actively originating more variable rate loans to make the portfolio more rate neutral going forward. Variable rate loans now make up 23% of the loan portfolio, up from 17% a year ago. We would expect this loan repricing to continue to support future margin expansion as our loan portfolio includes $644 million of fixed rate loans scheduled to mature over the next 12 months at a weighted average yield of $573 and another $106 million of adjustable rate loans repricing or maturing at 3.86%. With these lower yields running off the books and new originations in the first quarter going on the books around 6% and we have further repricing upside ahead of us.
Turning to Slide 8. We continue to see strong profitability and revenue growth trends as our adjusted return on average assets was just under 1% for the second consecutive quarter. We have also continued to consistently grow total revenue driven by steady net interest income growth. In addition, noninterest income has topped $2 million every quarter since the fourth quarter of 2024. And even excluding securities gains. This is a result of new fee income sources we have added recently, including swap fees and investment advisory fees, both of which we expect to continue to see throughout 2026.
Turning to Slide 9. We have a strong track record of well-managed expense growth as evidenced by our consistently better than peer efficiency ratio. Excluding the $982,000 of FHLB prepayment expense expenses still a bit elevated in the first quarter, which is typically the case due to some seasonality. First quarter expenses included our annual merit increases going into effect across the organization early in the quarter. several key strategic hires related to the disruption in the market and the pull forward of some charitable contributions. Occupancy expense also increased due to the opening of our new branch in Lake Elmo. As we've said before, we continue to expect adjusted noninterest expense to track closely with our general pace of asset growth over time. Keep in mind that this won't apply in the first quarter as assets declined due to the security sales. With that, I'll turn it over to Nick.
Thanks, Joe. Turning to Slide 10. You can see our core deposit momentum continued with annualized growth of 3.2% in the first quarter. We are pleased with this level of growth as balances tend to remain seasonally lower earlier in the year. We have also seen an ongoing positive deposit mix shift given the more consistent core deposit growth an overall decline in higher-cost brokered and time deposits, which have declined on a combined basis year-over-year. We continue to be very pleased with our core deposit growth and pipeline overall. This includes traction in our affordable housing vertical as well as opportunities from the ongoing M&A disruption in the Twin Cities. While our deposit growth tends to be a bit slower during the first half of the year, we feel really good about our ability to continue growing core deposits over time as these provide the fuel for our organic loan growth.
Turning to Slide 11. Loan balances grew 5.5% annualized in the first quarter. We have seen an increase in competition in recent months, which has caused spreads to tighten a bit, but our pipeline remains strong and is near 3-year highs. As a result, we are in a good position to be selective on the types of deals we want to do and at yields that make sense. Overall, we feel we are right on track to hit our expectations of high single-digit loan growth for the year. Obviously, there will be various factors that impact our pace of growth, including competitive dynamics levels of payoffs and of course, core deposit growth, which is really our governor on how quickly we can grow loans.
Turning to Slide 12. You can see that our loan pipeline is continuing to translate into new originations and while loan advances continue to increase as well. The increase in loan advances was driven by new construction projects over the past year that are now funding. We would expect to see new originations and advances remain strong in 2026. Payoff activity also remained elevated, and we expect these to continue given the current interest rate environment. Turning to Slide 13. C&I was the largest loan growth category during the first quarter. This was largely due to activity in real estate-related C&I, including affordable housing. C&I is a strategic growth focus for us and an area in which we continue to invest.
This includes adding additional talent with 3 new C&I bankers we have recently brought on board, stemming from the M&A disruption in the market. Overall, we are optimistic about our ability to continue expanding both talent and clients in this area. We continue to see meaningful opportunities for growth in affordable housing as balances in this vertical increased $57 million or 35% annualized during the first quarter. This growth was spread across both C&I and multifamily. With an ongoing focus on growing affordable housing and C&I as well as our strong expertise in multifamily and CRE, we feel good about the mix and growth outlook for our loan portfolio. With that, I'll turn it over to Katie.
Thanks, Nick. Turning to Slide 14. Our overall credit profile remains strong. After a modest increase in nonperforming assets and net charge-offs in the fourth quarter, both came back down in the first quarter. We mentioned in January that the multifamily loan we moved to nonaccrual in the fourth quarter was under a purchase agreement. As planned, this transaction closed in the first quarter, dropping our NPAs back to 0.22%. The Net charge-offs were also very minimal at just 0.05% annualized for the quarter. As we have said before, with the loan portfolio of our size, we do expect to have some modest net charge-offs and upticks in nonperforming assets from time to time, but we have also demonstrated our ability to effectively work through these credits. Overall, our loan portfolio continues to perform well, and we remain well reserved at 1.31% of total loans.
Looking at Slide 15. Our watch and special mention loans have remained relatively stable, sitting right around 1% of total loans, while substandard loans declined quarter-over-quarter primarily due to the multifamily loan mentioned previously. We continue to monitor all watch list credits closely, but again, feel good about our overall asset quality and our ability to identify emerging risks within the portfolio. I'll now turn it back over to Joe.
Thanks, Katie. Slide 16 highlights our enhanced capital position, which benefited from some of the balance sheet efficiency initiatives we mentioned earlier. Notably, our CET1 ratio increased from 9.17% to 9.53%. We did not repurchase any shares during the quarter given our strong organic growth pipeline, and where the stock was trading. In fact, we actually announced the launch of an at-the-market offering for the sale of up to $50 million of common stock, which could add approximately 100 basis points to our CET1 ratio if fully executed. However, we did not execute on the sale of any of these shares during the first quarter. While we feel comfortable with our current capital levels, we like the additional optionality and capital cushion the ATM offering can provide if we choose to use it. Given the strong recent performance of the stock, we want to have the optionality to execute on the ATM and and support capital levels if market conditions are favorable.
Turning to Slide 17, I'll recap our near-term expectations. As Nick mentioned, we feel we are on track to grow the loan portfolio at a high single-digit pace over the course of 2026. This will be dependent on a variety of factors, especially our ability to continue generating strong core deposit growth as we look to keep our loan-to-deposit ratio in the 95% to 105% range. From a net interest margin standpoint, we have basically already reached our 3% target that we had for the end of the year. As a result, we expect to see just some slow margin expansion from here, assuming no additional rate cuts in 2026. Our main focus remains on growing net interest income which we believe we can do given expectations for margin expansion and continued loan growth. We also expect expense growth to align relatively well with asset growth over time.
This may not be the case each quarter, but over the long run, we believe this alignment can continue as we have seen in the past. We feel we are well reserved at current levels and would expect provision to remain dependent on the pace of loan growth and the overall asset quality of the portfolio. We also feel that we can maintain stable capital levels after a solid increase in the first quarter. We also have some future optionality based on market conditions around share repurchases and and the ATM we have in place. I'll now turn it back to Jerry.
Thanks, Joe. Before we open it up for questions, I want to provide a quick progress report on our 2026 strategic priorities. We remain focused on taking market share in a profitable way. In the first quarter, I was pleased to see good loan and core deposit growth. But what was even more exciting was a substantial net interest margin expansion. Our credit culture also continues to show through with minimal net charge-offs. Our affordable housing vertical is another area that we are very focused on in 2026 and and we have seen positive traction in this space as our brand and reputation continue to build. Lastly, on the technology front, we are working through several initiatives, which include bank-wide efforts to set the foundation for leveraging AI thoughtfully across the organization. I'm proud of the team and the efforts put forth in the first quarter and believe we are well positioned for the year ahead. With that, we will open it up for questions.
[Operator Instructions] The first question comes from Brendan Nosal from Hovde Group.
Hope you're doing well Brendan.
2. Question Answer
Maybe just starting off here on capital. You created what, 30 to 40 basis points of tangible capital this quarter with the security sale. Do you think that lessens the need for you to tap the market with the ATM in your view?
Brendan, this is Joe. Yes. I mean, I think it all depends like we said, I mean, we're going to be opportunistic with the ATM. We like the optionality that it provides. I think we're not going to bank on translating unrealized gains to realized gains. So I just think as we just generally think about capital, I think we're comfortable with where we're at. We're comfortable with the optionality we have on both sides want to be thoughtful about the organic growth prospects that we have. And so I don't think it changes the calculus by kind of the onetime gain that we took.
Okay. Okay. Maybe turning to the hires you made this quarter, I think FTE headcount was up like 15% for the quarter. guess that there is a lot of M&A dislocation in your markets. But just wondering if there's any really notable hires in that number that you're particularly excited about?
Brendan, this is Nick. Yes, I mean, we feel -- we've been saying it for a while that we feel like we're well positioned in the market to take advantage both on the on the client front and the talent front from the M&A disruption. I think sometimes those hires come early in that process, sometimes it takes some time, and we're starting to see the fruits of that labor pay off now. We're really excited about some C&I hires that we've had in the last handful of months. Those folks are really hitting the ground running now and are able to be bringing in some really phenomenal opportunities for us with great local C&I relationships. So -- and around that, we're having to bolster and taking advantage of some of that disruption to bolster in other areas. Katie has done a great job hiring some senior credit folks to assist us in that C&I effort. So overall, we feel like our brand is well positioned to continue to take advantage of that M&A disruption on the hiring front.
Okay. Okay. Great. I'm going to sneak one more in here. Just on the quarter, the actions with the securities portfolio. Do you view that as additive to your prior outlook of the 3% NIM by the end of '26 or just kind of an acceleration of getting there? And I'm asking because if the NIM outlook is still around 3-ish, but the earning asset base is a couple of hundred million smaller is obviously like NII considerations to that dynamic.
Yes. I mean I think the security sales certainly contributed to the margin outperformance, but it was a small amount. I mean, it's 2 basis points in the quarter. So it's just -- there's no one silver bullet certainly, this was part of it. So I think it's not like by not doing that, we are going to miss out on pulling forward margin going forward. So it had an impact. It was just part of the overall strategy itself. But I think the bigger thing, I think, is just the deposit the cost of deposit decline that we experienced and really outperformed in the quarter. I think that, coupled with loan payoffs, I mean, I think as we said, there's we really wanted to not rely on rate cuts and additional rate cuts to really pull forward that margin. So it was definitely an all-hands-on-deck effort to achieve the margin expansion we did in the first quarter.
The next question comes from Jeff Rulis from D.A. Davidson.
Just a question on the M&A side, a lot of discussion of benefiting from disruption. I guess taking the other side of that is just a check in on your outward acquisitions if talking about conversations and the interest, I see it's #2 on your capital priorities of chasing down M&A? Any updates to mention there?
Jeff, it's Jerry. I'd say nothing different than the past. I mean I certainly continue to stay in front of people. I would probably say things appear in the first quarter to have slowed down more than I expected, but I think that has a lot to do with just geopolitical reasons. So we'll see. But it certainly continues to be a priority. But at the end of the day, it's organic growth and continuing to take market share in the Twin Cities as first and formal what we're focusing on.
And maybe on the -- not to focus too much on the margin, but it didn't sound like restructure or kind of the moves you made with the balance sheet didn't have much impact in the quarter. I guess the timing of that, maybe for Joe, was there any tail benefit of those moves that it was 2 basis points this quarter. So that's, I guess, question one on the margin. Is there a tail that you'd expect to see in the second quarter and then the other part is, I guess, as you hit the margin goal, maybe you got to set a new one we get the language of moderate increases from here, but just trying to see about further out where you think a terminal margin could be where the balance sheet sits today.
Yes, Jeff, I'll try to address the first part and the second. I think the -- there's definitely going to be a pull forward or a future impact by just selling those securities and redeploying those into higher yielding loans. So the 2 basis points this quarter, you can certainly -- it was early on in the quarter so you could somewhat annualize that as we redeploy those into loans, earning in the 6s. So that's certainly definitely beneficial. I think as we talked about in the past, the amount of deposits that we have linked to Fed funds, I mean, we're close to $2 billion now. I think to have 75 basis points of cuts in the fourth quarter, really saw obviously a full quarter benefit of that here. And I think that certainly drove the majority of the margin expansion. I think even outperformed our expectation on really deposit betas as we compare it to prior cycles.
So super pleased with that. And then obviously, on the loan repricing side, we've kind of laid out that's more spread pretty evenly throughout the year as loans reprice so I think that's where we just more talk about the more kind of mild expansion opportunities. It's pretty front-loaded driven by deposits and then it will be more gradual and back loaded based on assets. and the securities itself were -- I think it's always been a source of strength for us. Our securities portfolio has been above market earnings, certainly. And so -- but by selling the securities by no means do we now have an underperforming securities portfolio that lags on performance. It's certainly additive as well. So I think we'll continue to look for opportunities to rationalize deposit costs lower throughout the year.
I mean that will never stop, and we're certainly not going to bank on rate cuts, as I said. I think we're assuming no rate cuts the rest of the year. And we're just really pleased with the expansion we had. I mean we get to -- certainly to experience and that margin uptick ultimately, most focused on growing NII. And I think as the loan portfolio and the loan growth prospects translate that certainly will happen.
Next question comes from Nathan Race from Piper Sandler.
Just going back to the last line of question around kind of the yield pickup on the fixed and adjustable rate loans that are return over the next year. Joe, can you help us just with the yield pickup that we can expect on those 2 portfolios relative to what you laid out in terms of the runoff yield on Slide 21.
Yes. I mean, I think, as I said, it's pretty balanced throughout the year. So it's not like it's concentrated in 1 quarter or the other. I think specifically the adjustable rate portfolio just over $100 million, sub-4%. So as that comes up on reprice and whether that either that pays off or it reprices and resets today at kind of new money yields in the 6s, I think there's certainly additive to margin going forward and to the accretive to the existing loan book. I think the fixed rate portfolio, as we've continued to churn through the reprice over the last couple of years, obviously, that yield and reprice, there's less of a benefit, but there's still certainly a benefit today is that still sub-6%.
I just think the other piece that we talked about on the loan payoff front, as deals that have deferred fees associated with them on originations do pay off. that obviously accelerates the fee potential. We saw a pickup here in the first quarter, 12 basis points of the loan yield was loan fees. That's an uptick from prior quarters and it gives us an opportunity to recycle dollars in the low 6s. So I think it's certainly not concentrated. It's spread throughout the year, continue to see that benefit both from new originations and growing the portfolio and then just existing kind of repricing opportunities.
Got it. That's helpful. I appreciate the earlier commentary around kind of deposit costs under the current kind of forward rate outlook. But just curious kind of what you're seeing from a competitive perspective in terms of deposit pricing across the twin cities. And when it comes to deposit gathering, curious if maybe Nick, you could touch on kind of what the latent deposit gathering opportunities look like with some of the team members you brought over recently from some competitors in terms of what the size of their kind of deposit portfolios look like at their prior institutions.
This is Nick. Yes, I mean on the deposit front overall, I mean, it continues to be a competitive market, but we are seeing new deposits come in at costs that are meaningfully lower than we saw last year. We feel really good about the team that we have and their ability to get in front of the right opportunities to bring in core deposits at costs that make sense. The teams that we brought on board or the individuals we brought on board, they're actively prospecting and working through their portfolio. There's low-hanging fruit. On the deposit front that can come over quickly. Those balances tend to come more in the savings and money market side of things, which tend to be a little bit more expensive with operating accounts to follow as our treasury management teams work with their their clients to onboard the full relationship.
So overall, we'll be able to blend the cost of those deposits down. But the prospects with these folks to bring in sticky core deposit relationships really both on the consumer or the commercial and the business owner side, which our executive banking team does a phenomenal job of bringing on full deposit relationships with the owners and executives at these companies we feel great about our prospects to continue to grow core deposits over time. The Lake Elmo market that we talked about, we feel like that's a really underserved market, and that long term, we'll be able to grow well within that community. We've hired some great folks on that side of town as well that we feel will drive deposit growth long term.
So we feel really good about our deposit pipeline and our ability to drive core deposit growth, especially when we think about the first half of the year being a seasonally low part of the year for us on the deposit front, we grew balances really well in Q4, which is pretty typical for us from a seasonality perspective. And we were not surprised to see some of those balances drift out as our customers did distributions, pay taxes, that sort of thing. So we feel good that we were able to grow deposits even in what is a seasonally more difficult quarter for us to do so.
Got it. That's great color. Really helpful. I apologize if you already touched on this, but if I could sneak one last one in on expenses. Just given the step up in 1Q, I'm curious if there was any kind of front-loading of costs just given the branch opening and maybe some seasonality? And then maybe, Joe, if you could just help us with kind of a starting point for 2Q expenses just to kind of get to that high single-digit growth guide consistent with kind of the loan growth expectations.
Yes, Nate. I think, as we said, the our annual merit cycle, there's always a step-up at the beginning of the year as promotions and merit increases take place. So it's historically and with prior years is a step-up in salaries and benefits. However, I would say, to Nick's point earlier, I mean, we continue to get in front of great people, part of the M&A disruption. And so I think the head count up and just supporting the growth of the organization also contributes to that step-up in salaries. Certainly, Lake Elmo coming online, super excited about that and a little bit of step-up in occupancy, but that market is going to be fantastic for us.
And then the other thing is just a real push on marketing and advertising throughout our market. Given the disruption that's been a continued campaign so not kind of a onetime item, but certainly just a continuation of really trying to continue to build the brand. So I think, ultimately, as you said, I think we don't try to look at expenses in isolation on a quarter-over-quarter basis, we're more just thinking about continuing to invest in the business over the long haul. And just given the growth prospects, we feel really good about the investment we continue to make in people and technology. And I think over the long haul, as we've always said, that relationship of asset growth relative to expenses, we still feel like we maintain that I get this first quarter, obviously, with the sale of the securities, that average assets, NIE to average assets ratio does somewhat break down. But I think over the long haul, we're confident that the asset growth and the expense growth will go in line and excited about the investments we continue to make in the business.
Understandable. Makes sense. I appreciate the color.
The next question comes from Brandon Rud from Stephens.
I think I think you just touched on it, but the difference in the period end and average deposits. When you look at good starting point for the second quarter. Would you see deposits kind of closer to the period end level of $4.3 billion or closer to that average level?
Yes. I mean, closer to the period.
And I think, as Nick said, some seasonal outflows with the deposit base, but I do think as taxes get paid distributions get made, I mean those balances build back up. So I think that's a good way to think about it.
Yes, Brandon, I think our low watermark on deposits is usually like early January, late January or mid to late January, I should say, and it typically rebuilds from there. So we feel good about where we ended the quarter.
Okay. Perfect. And just my last one. It seems like a bit of a slower start to the year for the multifam portfolio. Is that more reflective of stronger growth in '25? Or is that a broader trend?
Brandon, this is Nick. I don't think it's a broader trend. I mean, I think quarter-over-quarter, there's some quarters where we see large growth where we have some good originations and a small amount of payoffs and in certain quarters where payoffs outpaces our new loan originations. So we're not -- I'm not overly concerned around what we saw in Q1 within that portfolio. Our teams continue to be in front of the right clients and building deep relationships with folks. We mentioned our advances, we've seen an uptick in both multifamily and CRE construction in the last 12 months. So that's providing some tailwinds for us to build construction advances and those loans once complete and stabilize to sort of roll into our multifamily and CRE buckets, creating some growth in those categories as well as those construction projects convert.
So no, I mean, our pipeline remains really strong. We feel really good about the opportunities we have in front of us. And I think we are continuing our trend over the last handful of years of really being disciplined in our growth approach, being laser focused on trying to grow our loans in line with deposits. And remaining in front of as many folks as we can to build a really strong pipeline and then be selective on the credits that we feel the best about and the ones in which we can add to the balance sheet in a profitable way.
Okay. Perfect.
This concludes our question-and-answer session. I would like to turn the conference back over to Jerry Baack for closing remarks.
Thanks, everyone, for joining our call today. We're really excited about 2026 and the growth and profitability outlook that that is in front of us and continuing to take advantage of the M&A disruption in the Twin Cities so big shout out to our team members are veterans and our new hires. It's -- we have a phenomenal team here and appreciate everything they do. Everybody, have a great day.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Bridgewater Bancshares, Inc. — Q1 2026 Earnings Call
Bridgewater Bancshares, Inc. — Q4 2025 Earnings Call
1. Management Discussion
Good morning, and welcome to the Bridgewater Bancshares 2025 Fourth Quarter Earnings Call. My name is Betsy, and I will be your conference operator today. [Operator Instructions] Please note that today's call is being recorded.
At this time, I would like to introduce Justin Horstman, Vice President of Investor Relations, to begin the conference call. Please go ahead.
Thank you, Betsy, and good morning, everyone. Joining me on today's call are Jerry Baack, Chairman and Chief Executive Officer; Joe Chybowski, President and Chief Financial Officer; Nick Place, Chief Banking Officer; and Katie Morrell, Chief Credit Officer.
In just a few moments, we will provide an overview of our 2025 fourth quarter financial results. We will be referencing a slide presentation that is available on the Investor Relations section of Bridgewater's website, investors.bridgewaterbankmn.com. Following our opening remarks, we will open the call for questions.
During today's presentation, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We caution that such statements are predictions and that actual results may differ materially. Please see the forward-looking statement disclosure in the slide presentation and our 2025 fourth quarter earnings release for more information about risks and uncertainties, which may affect us. The information we will provide today is as of and for the quarter ended December 31, 2025, and we undertake no duty to update the information.
We may also disclose non-GAAP financial measures during this call. We believe certain 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 our peers. We caution that these disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP. Please see our slide presentation and 2025 fourth quarter earnings release for reconciliations of non-GAAP disclosures to the comparable GAAP measures.
I would now like to turn the call over to Bridgewater's Chairman and CEO, Jerry Baack.
Thank you, Justin, and thank you, everyone, for joining us this morning. We finished the year strong with robust loan and core deposit growth, net interest margin expansion and higher fee income. Expenses were also well controlled and asset quality remains strong. The successful quarter reflected reflective of the team at Bridgewater Bank. This all comes as we continue to take market share by providing an unconventional reliable experience to our clients.
We continue to see opportunities in the Twin Cities for both client and talent acquisition and are taking advantage of both. We also see opportunities to grow the business outside of our market by using the expertise we have developed and expanded across the affordable housing market. Not only did we have a great quarter, but we see plenty of reasons for that to continue in 2026. Revenue growth was a key highlight of the quarter, both from a spread and fee perspective. We saw net interest margin expand 12 basis points to 2.75%, driving strong growth in net interest income.
Last quarter, we mentioned that we expected to get back to a 3% margin by early 2027. We are well on track for that, and in fact, I think we can pull it forward into 2026. Joe will talk more about that in a few minutes.
Swap fees, while up and down from quarter-to-quarter were strong in the fourth quarter. driving an increase in noninterest income as well. Core deposit growth of 9% was another highlight of the quarter, which allowed us to produce loan growth of 9% as well. As we've been focused on growing loans in line with core deposits, on a full year basis, core deposits were up 8%, while loans grew at 11% pace exceeding our mid- to high single-digit guide we had at the beginning of the year.
We also continue to feel good about the strength of our asset quality profile even as we saw a modest uptick in nonperforming assets and net charge-offs in the fourth quarter. Katie will provide more thoughts on this shortly.
We pride ourselves on being able to produce consistent tangible book value per share growth for our shareholders. This is evident on Slide 4 and was again the case in the fourth quarter as tangible book value grew 16.5% annualized and was up 15.3% year-over-year. This continues to be a unique part of the Bridgewater story and one we are incredibly proud of.
Before I turn it over to Joe, I want to take a minute to share some additional updates. First, in late December, we closed 1 of the 2 branches we added through the First Minnetonka City Bank acquisition. The decision was due to having other branches in close proximity. Overall, we were pleased to see very little deposit attrition from the FMCB post merger. We're also on track to open a new branch in Lake Elmo next month. We're excited about the opportunity that will present as we expand further into the growing affluent East Metro, the Twin Cities.
Second, we continue to see opportunities related to recent M&A disruption in the Twin Cities, both on the talent and client front. American National's acquisition of Bremer has been the main 1 but the pending acquisitions of Midwest One and American National have created additional opportunities. Bridgewater is now the second largest locally led bank in the twin cities. So we feel well positioned to be the bank of choice for those looking to work or bank local.
Third, I'd like to acknowledge the events that have unfolded in the Twin Cities in recent weeks. It's been difficult to watch what's happening across our community. The people and the city are resilient, and we will get through this. In the meantime, we are actively monitoring the impact of these events are having on our team members and clients. and we'll continue to be here to support them in any way we can.
Lastly, I want to thank our team for a great year in 2025 with an acquisition, a core conversion the launch of a new online banking platform and other technology advancements there are many new initiatives and challenges to work through. I remain impressed with the team and their consistent willingness to over deliver. The efforts of our entire team continue to be the magic that makes Bridgewater a place people want to work and do business. I'm thankful for their efforts and the overall leadership across the organization.
With that, I will turn it over to Joe.
Thank you, Jerry. Slide 5 provides more color on the encouraging trends we are seeing with net interest income and net interest margin. We expected net interest margin expansion to return in the fourth quarter, given 3 Fed rate cuts in late 2025. And this is exactly what happened as the margin increased 12 basis points to 2.75% primarily due to lower deposit costs. With margin expansion and continued earning asset growth, we saw net interest income increased 5% during the quarter.
Last quarter, we mentioned that we saw a path to get back to a 3% net interest margin by early 2027. Given the expansion we saw in the fourth quarter and as we look ahead to repricing opportunities in 2026, we are actually pulling forward and believe we can get to 3% NIM by the end of 2026 and this does not assume any additional rate cuts. As a result, we are very optimistic about our ability to continue driving net interest income growth going forward.
Slide 6 highlights the decline in deposit costs I mentioned, which decreased 22 basis points to $2.97 in the fourth quarter. At year-end, we had $1.8 billion of funding tied to short-term rates, including $1.4 billion of immediately adjustable deposits. As a result, given the Fed rate cuts in September, October and December of 2025, we were able to reprice a good portion of the book lower driving lower deposit costs and boosting net interest margin. We could see deposit costs move a bit lower in the first quarter as we recognized the full quarter impact of the December rate cut. But absent any additional rate cuts, we would expect deposit costs to begin to stabilize again.
On the loan side, we are very pleased to see yields hold steady in the fourth quarter despite the 3 recent rate cuts. This was a function of the loan repricing opportunities we have. which includes $637 million of strat loans scheduled to mature over the next 12 months at a weighted average yield of 5.55% and another $106 million of adjustable rate loans repricing or maturing at 3.84%. With these lower-yielding loans running off the books and new originations in the fourth quarter, going on the books in the low to mid-6s, we have further repricing upside ahead of us. We've also been active in increasing the variable rate mix of our portfolio to create better balance across interest rate environments. Variable rate loans now make up 22% of our loan book compared to 14% a year ago.
Turning to Slide 7. We continue to see strong revenue and profitability growth trends. In fact, adjusted ROA was just under 1% in the fourth quarter, while total revenue increased 32% year-over-year. Noninterest income also bounced back in the fourth quarter driven by increases in swap fees and letter of credit fees. After seeing no swap fee income in the third quarter, we generated $651,000 of swap fee income in the fourth quarter. Quarterly swaps have averaged nearly $500,000 per quarter over the past 5 quarters, but continue to be quite lumpy due to the timing and size of the fees. We expect swap fees to continue to be a portion of the revenue story in 2026, but given the shape of the yield curve and the current environment, we would expect them to slow a bit.
Turning to Slide 8. Expenses were well controlled during the fourth quarter. Throughout much of 2025, we saw higher-than-usual levels of expense growth as we work toward the systems conversion of First Minnetonka City Bank in the third quarter. Historically, we have seen expense growth aligned with asset growth over time. With the conversion behind us, we expected to get back to the pace as fourth quarter expenses, excluding merger-related, were up just 9.5% annualized, which is more in line with our expected pace of asset growth.
With well-controlled expenses and strong revenue growth, our adjusted efficiency ratio declined to 50.7%, the lowest level since the first quarter of 2023. It is also worth mentioning that we exceeded our 30% cost savings estimate for 2025 related to our recent acquisition.
With that, I'll turn it over to Nick.
Thanks, Joe. Slide 9 highlights the momentum we continue to have on the core deposit front, thanks to the efforts of our bankers and the opportunities we have in the market. Overall, we saw annualized core deposit growth of 8.8% in the fourth quarter and 7.9% for the full year of 2025. The other notable story here is the improved mix as we saw strong noninterest-bearing deposit growth for the second consecutive quarter, including an increase of $100 million during the fourth quarter while broker deposits have been declining.
Looking ahead, we continue to have a strong core deposit pipeline, including deposits we gather as part of our affordable housing initiatives. However, we would expect growth to be less linear in 2026, given the nature of a deposit base, especially during the first half of the year. To that extent, we will continue to leverage broker deposits, if needed, as we have done in the past. But overall, we feel really good about our ability to continue growing core deposits over time.
While core deposit growth has been strong, so has our loan growth, as you can see on Slide 10. Loan balances were up 8.9% annualized in the fourth quarter and 11.4% for the year as our pipeline remains robust, and we see continued demand across the market. As we look ahead to 2026, I'm excited about the opportunities at our pipeline and the overall market demand will continue to present. On the other hand, the pace of core deposit growth and loan payoff levels will impact the overall level of loan growth. Considering all this, we believe we can maintain loan growth in the high single digits in 2026.
Turning to Slide 11. You can see that the loan growth we saw in the fourth quarter was driven by an increase in originations in spite of an increase in payoffs and paydowns as well. The increase in originations was expected given the strength of our pipeline and some of the deal closings we saw a slide from the third quarter into the fourth quarter. The increase in payoffs is due in part to a catch-up from the slower payoff trends we have seen recently as well as the pullback in rates, allowing for more refinances and sales.
Turning to Slide 12. Construction was the largest driver of growth during the fourth quarter as an increase in new construction projects over the past year or so have begun funding. A good portion of this construction growth came in the affordable housing vertical. We continue to see great traction in the affordable housing space as balances overall increased $41 million in the fourth quarter or 27% annualized. On a full year basis, affordable housing balances increased 29% in 2025, spread across the construction, C&I and multifamily portfolios. We expect this to be a key contributor to loan growth for us going forward as we continue to invest in this vertical.
With that, I'll turn it over to Katie.
Thanks, Nick. Slide 13 provides a closer look at the multifamily portfolio, which continues to perform well and reflects a long track record of strong credit quality. Since the bank was founded in 2005, we still have recorded only $62,000 in net charge-offs within this portfolio, underscoring the resilience of the asset class and consistency in our underwriting discipline. In addition, multifamily fundamentals in the Twin Cities remain positive, especially as vacancy rates declined throughout 2025, and concessions became less prevalent, leading to increased rent growth. Multifamily sales volume also increased in the back half of 2025, further supporting the positive market trends in this segment.
While there are still a few submarkets where conditions have softened, we remain confident about the multifamily portfolio overall and believe it is positioned to continue performing well. On the office side, our exposure remains limited at just under 5% of total loans, with the majority located in suburban Twin Cities locations where performance has been comparatively stronger than central business districts.
Turning to Slide 14. Our overall credit profile remains strong. Nonperforming assets increased modestly to 0.41% of assets driven by a multifamily loan that migrated to nonaccrual after the client's original purchase agreement fell through. The property is now under a new contract, giving us confidence in a near-term resolution. We also recorded $1.2 million of net charge-offs during the quarter related to a fully reserved C&I loan. Despite this, full year net charge-offs remained very low at just 0.04% of average loans.
Our allowance ratio declined slightly from 1.34% to 1.31% due to the charge-off and continues to compare favorably to peers. Importantly, the items driving the modest uptick in NPAs and net charge-offs for both isolated issues and followed an extended period of virtually no nonperforming assets or net charge-offs, an outcome that is just not sustainable for a portfolio of our size.
Turning to Slide 15. Our classified loan levels remain low at 1.3% of total loans and 8.3% of capital. Watch and special mention loans are also manageable and make up just over 1% of the loan book. While we continue to actively monitor all loans on our watch list, we did not see any meaningful new migration during the quarter. And as stated previously, we feel credit trends within the portfolio remain stable.
I'll now turn it back over to Joe.
Thanks, Katie. Slide 16 highlights our comfortable capital position. This includes our CET1 ratio, which increased slightly from $908 million to $917 million. We've been able to regularly build capital through our retained earnings since our acquisition in late 2024. We did not repurchase any shares during the quarter given our strong organic growth pipeline and where the stock was trading. As of year-end, we still had $13.1 million remaining under current share repurchase authorization. In the near term, we expect capital levels to hold relatively stable, given earnings retention and our stronger growth outlook.
Turning to Slide 17, I'll recap our expectations for 2026. As Nick mentioned, we feel comfortable that we can grow loans in the high single digits in 2026. This will be dependent on a variety of factors, especially our ability to continue generating strong core deposit growth as we look to keep our loan-to-deposit ratio in the 95% to 105% range. From a net interest margin standpoint, we are more bullish now than we were this time a year ago. We think we can now get to a 3% net interest margin by the end of 2026 instead of early 2027, and this does not assume any additional rate cuts. We also expect to get back to growing expenses in line with assets, unlike 2025, where expense growth was a bit higher as we work toward the acquisition systems conversion.
We feel we're were well reserved at current levels and would expect provisions to remain dependent on the pace of loan growth and the overall asset quality of the portfolio.
I'll now turn it over to Gerry.
Thanks, Joe. We are really pleased how we finished 2025 and the catalysts we have to support growth and profitability heading into 2026. On Slide 18, I'll finish up by outlining our strategic priorities we will be focusing on in 2026. These are very consistent with the priorities we set in 2025, but there are some new areas where we will increase our focus.
The first is optimizing our levels of profitable growth. In 2025, we were able to get back to the levels of growth we have been accustomed to. We want to ensure that we maintain that with a focus on optimizing profitability. Continuing to align loan growth with core deposit growth, while expanding our net interest margin will be key.
Second, we want to continue to gain market share in the Twin Cities. This has always been an objective, and we are proud of the progress we have made. Given the M&A disruption, we believe we are the bank of choice for clients who appreciate our local knowledge and commitment. We'll look to expand our expertise and capacity across certain targeted verticals, including nonprofits and SBA, areas where we have added some impressive talent. In addition, we implemented an M&A readiness plan in 2025 and that positions us well to take advantage of future opportunities.
Third is to continue expanding the reach of our affordable housing vertical, both locally and nationally. This includes enhancing our perm product offering, which would help drive additional loan and swap fee income.
Last is continuing to leverage technology investments to support growth organizational efficiencies across the business. This includes leveraging recent investments and developing a more formal strategy around AI.
With that, we will open it up for questions.
[Operator Instructions] The first question comes from the line of Nathan Race with Piper Sandler.
2. Question Answer
Maybe Joe or Nick, I was wondering if you could just kind of unpack some of the deposit growth in the quarter. Obviously, noninterest-bearing had some nice increase quarter-over-quarter. Curious if there's any seasonality in that or and just how you're kind of seeing the deposit gathering pipeline unfold with some of the hires you've made recently? Just to Jerry's point on some of the M&A-related disruption ongoing in the twin cities.
It's Nick. Yes, I mean we felt really good about our overall deposit growth, not only for the quarter but the year. Q4 does tend to be a seasonally high watermark for us. We do have a lot of clients that tend to build balances late in the year and some of those balances do trickle out in Q1. So there was some seasonality there. We feel really good about our deposit pipeline overall, however, we're continue to get in front of great client relationships, both locally and nationally through that affordable housing vertical and the talent we've been able to pick up on both of those fronts has been great.
So we do expect, as we've seen over the last handful of years that Q1 and Q2 of the year do tend to be more modest, and we've seen even outflows in those quarters in the past. So that does tend to be the low watermark for us on the year. But we feel great about the progress that we're making on growing core deposits. And should we need to, as we've said before, I mean, we will supplement with broker deposits if loan growth is robust in a quarter and some of that seasonality is impacting the pace of core deposits. So overall, we feel really good about where we're at.
That's helpful. Maybe for Joe, with the $743 million of loans that you have fixed and adjustable rate repricing higher over the balance of this year, can you kind of just speak to the cadence of that? Is there any kind of lumpiness quarter-to-quarter? Or is it pretty spread out just in terms of thinking about that as kind of the main driver to close to a 3% margin by the end of this year?
Yes, Nate. No, it's -- as you said, it's pretty well laid out. I mean, it's not like there's super concentration in 1 quarter versus the other. So we feel good about just kind of continued repricing higher. That will be the biggest driver of the NIM guide to 3% is really on the asset side. And I think just given that roll off and given we're originating loans today, we feel that's very achievable.
Okay. Maybe one last one for me on expenses. I appreciate the commentary or outlook there is pretty consistent with asset growth. So is it fair to expect 2026 expenses in that high single-digit range or is it maybe kind of more of a low double-digit expectation for this year?
No, I think high singles, like you said, I mean, asset growth, we expect grows in the high singles. And so as we continue to invest in the business, people and technology, we will manage that the same. And like we said, '25. Obviously, given the acquisition was a little outside of the norm, but I think if you go back further look, I mean, we've historically always operated that way. So we feel good about it.
Okay. Great. And sorry, just within that context, I mean does that contemplate any additional production-related hires, obviously, there's been a theme on this call in terms of some of the M&A related disruption. So just curious what type of conversations you're having and kind of what the magnitude of additional opportunities to maybe a production talent or do you think the existing team has plenty of capacity just to grow with some of the disruption ongoing?
Yes, Nate, this is Nick. Yes, we can continue to get some operational leverage out of the team. I think we're evaluating not only the capacity of the group, how portfolios are allocated, but really are internal processes to streamline things. So we're certainly looking in the business as well to gain some leverage there. While we will be opportunistic on the hiring front. We've been able to pick up some people here recently, and we will always be opportunistic on the hiring side. So as it relates to expenses, I think that could be difficult to predict. But overall, we really are excited about our prospects to drive that growth, both with the staff we have and the talent that we're bringing in.
Okay. Great. And I apologize, I actually just one more, Nick. To your point, are there any nonsolicits in place of some of the hires that you've made on the production side of things lately?
It varies from person to person, but surprisingly, most of them have not had non-solicits.
The next question comes from Brendan Nosal with Hovde.
Hope you're doing well. Joe, maybe starting off for you with the margin outlook. Totally get it's a more bullish outlook. You're pulling forward the 3% margin -- can you just help us with kind of the apples-to-apples given you pulled out the rate cut? Like if you do still get the 50 basis points of cuts across 2026, like how does the margin compare to the current 3% expectation by year-end?
Yes, Brendan. I mean, it pulls it forward. I think this last quarter is a prime example where you get 3 cuts. We really -- fourth quarter with the weight cut in the third quarter in September, you really started to realize that in fourth quarter. You get one right in the middle of October and then you obviously get the one in December that we expect to kind of reap the benefits here in the first quarter. So I think the deposit cut story, I mean if you do get to rate cuts, it just pulls for that 3% kind of target. I think the asset side is much more obviously reliant on slope in the curve and the repricing story.
So I just think the deposit story, if we don't get those cuts, we expect cost to somewhat stabilize kind of middle part of the year. But I think, yes, if you do get kind of an implied rate scenario and 2 cuts this year, that just pulls that forward and directly impacts deposit costs.
Okay. Perfect. That's helpful. Maybe turning to asset quality. Can you folks just update us on that CBD office loan that flipped to nonaccrual earlier in the year? Like where are you on kind of work out? And what are our expectations around that credit?
Brendan, this is Katie. We've mentioned previously, we expect that to be a longer-term work out. We've given the borrower time to re-lease the vacant space there. So that -- we still have a specific reserve on the loan, and expect it to be a longer-term workout.
Okay. All right. One last one for me. Jerry, a lot of good organic trends at the bank in 2026. But would love to hear your take on the M&A environment and your own appetite for potential tuck-in acquisitions as you look over the year ahead.
Brendan, really just more of the same of what we've talked about in the past, and we're always talking to local owners of banks and continue to have those conversations and hope would have something similar to what the First Minnetonka City Bank did for us. So I mean, again, we always say and we mean that if we wake up every day and we look at the business organically and what we can do organically and take market share and the M&A strategy is really second place to that. But we continue to be optimistic that over the next few years, a couple more deals might come our way.
The next question comes from Jeff Rulis with D.A. Davidson.
Wanted to check in on the affordable housing vertical. Just kind of want to -- in your discussions, how big could you -- or do you intend to grow that? Is there a cap on the size of that, I think around -- I think you mentioned [ 650 ] now. But just wanted to see what the if there's a concentration size that you'd like to keep it to?
Jeff, this is Nick. Yes, I mean, we really like the space. We do like the diversity in the geographic locations of some of the clients and projects that we're financing. We appreciate the diversification in the product type. Some of it lands in our construction bucket, some is in sort of stabilized multifamily. There's some land transactions in there. They're C&I. So we appreciate what that can provide for us, too. It's roughly 15 or so percent of the book today overall. We feel really good about where that's at and continuing to grow that over time.
We believe in the short term, it will -- the pace of that portfolio growth will outpace the overall portfolio growth. So we expect that to increase as a percentage of the book overall here near term. We haven't set any specific parameters around how big we want that to get, but we're being methodical about how we're growing it and overall feel really good about the space.
That's great. And then I can't remember, maybe if it was you or Joe on the -- on the swap fees, any -- we know these are going to be lumpy, but trying to model that I think there was some mention of maybe that maybe cools off a bit. But for a full year, is that somewhat concurrent with growing the affordable housing vertical in terms of swap fees going forward?
Yes. I mean there's certainly opportunity within the affordable housing vertical to drive some additional swap fee revenue over time, and we're actively building out a plan for that and a pipeline for those. That said, the swap market was a bit sort of dislocated with treasuries for a while there last year that did provide a bit of a boost in attractiveness of that product and to some degree, drove additional swap transactions in 2025. So that market is more in line with sort of its historical average today compared to treasuries. And so that does make those transactions a little less competitive.
But -- we're really pleased with the progress that we've made just on educating the banker teams on how to sell through that product and educating our clients on the benefits of leveraging interest rate swaps on some of their transactions. So we expect it to be a bigger piece of the business overall, but last 4 or 5 quarters, we probably averaged $500,000 a year, even though it's been lumpy. I would expect it to be a bit inside of that here this year just given some of that swap spread to treasuries kind of being more in line with historical average.
And then one other one for Katie on the credit side. Just checking the what you said on both the nonaccrual was really 1 multifamily loan and the increase in net charge-off was a C&I loan.
Yes, that's correct. Both of those upticks were directly tied to sort of isolated loans. So we feel good about the portfolio overall, and it's really just more of a timing issue.
Got it. So it doesn't sound that systemic in multifamily. I guess are you seeing any -- where you see pressure -- is it rate reset kind of one-offs? Or where are the pinch points on multifamily when you do see some issues crop up?
Yes. I think overall, we feel really good about our multifamily portfolio. As I mentioned in the prepared remarks, there's certainly still some pockets that are more challenged. So I would say that's what drives some of the challenges still. But overall, I mean, the market fundamentals are improving, property performances individually are improving. So the trends are all positive.
Katie, when you say pockets of challenges that the geographic location, the type of building...
Yes, geographic box. Yes, yes.
[Operator Instructions] The next question comes from Brandon Rud with Stephens.
My questions have been asked. I guess I'll maybe start with question on Slide 18, the modernizing the core banking system. I guess, can you just maybe provide a general time line for that? Is that something that can be completed in 2026? Or is that more of a multiyear project? And then two, is that more a what I'll call it, quality of life improvement from the client-facing side or something that can be an expense saver over the longer term?
Brandon, this is Joe. I think, I mean, to all your questions, it's really all of the above. We're a Fiserv bank. So historically, we've -- and still today, we our core runs through Fiserv. And I think some of the technology innovation 5, 7 years ago was reliant on really Fiserv and their innovation stack. So the last couple of years, we've really spent a lot of time evaluating how can we position ourselves to take a better advantage of kind of emerging technologies and set ourselves up to somewhat decouple from Fiserv's innovation and -- so I think that modernizing core banking is really a lot of that.
I mean it's everything from efficiencies internally and how we book loans and deposits. But ultimately, how do we best serve our clients. So how do we stay in front of emerging technologies trends. It's moving so quickly. And so I think at the end of the day, the core banking stack is more of a custodian of information, and I think we really want to be set up such that we can flex and we can innovate with the space.
So to your point, it's a longer-term longer-term initiatives, certainly, and it's not one that's just begun today. We've been working on it for years now. And so we're just excited for the position that we're in and really the optionality that we have.
Got it. Okay. I appreciate that. Maybe just a last one here on the increased competition in Twin Cities. Are you seeing that have an impact on loan spreads or new deposit rates? I heard from a few other banks that there are some irrational competitors out there. I'm just curious if that increased competition is impacting that. at all?
Brandon, this is Nick. Yes, we definitely saw increased competition, particularly on the loan front throughout 2025, I think a lot of banks have built up some liquidity as they sort of retrenched after 2023 and have better line of sight on where sort of rates are stabilizing out at and -- so a lot of banks kind of got off the sidelines and we're back in the market. I see that as a good thing overall. I think having a healthy banking economy is good for our local economy and ultimately, will just benefit all of us.
So in our pipeline, albeit probably peaked out in third quarter of last year still remains really strong. I mean we're probably 75%, 80% of where we were at the peak. So we feel really good about our prospects to continue to grow in spite of some of the increased competition, and we'll let some of those transactions that people want to go out and buy, they can go ahead and do that, and we'll keep -- we'll move on to the next opportunity.
This concludes our question-and-answer session. I will now turn the call back over to Jerry Baack for any closing remarks.
I just want to say thank you, everyone, for joining the call today. We're very excited about 2026 and the future here at BWB and part of that is the strategic leadership team that we have now in my confidence and them moving forward. I just want to thank our incredible team members here at Bridgewater Bank. Have a great day. Thanks.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Bridgewater Bancshares, Inc. — Q4 2025 Earnings Call
Bridgewater Bancshares, Inc. — Q3 2025 Earnings Call
1. Management Discussion
Good morning, and welcome to the Bridgewater Bancshares 2025 Third Quarter Earnings Results Call. My name is Megan, and I will be your conference operator today. [Operator Instructions] Please note that today's call is being recorded.
At this time, I would like to introduce Justin Horstman, Vice President of Investor Relations, to begin the conference call. Please go ahead.
Thank you, Megan, and good morning, everyone. Joining me on today's call are Jerry Baack, Chairman and Chief Executive Officer; Joe Chybowski, President and Chief Financial Officer; Nick Place, Chief Banking Officer; Katie Morrell, Chief Credit Officer; and Jeff Shellberg, Deputy Chief Credit Officer.
In just a few moments, we will provide an overview of our 2025 third quarter financial results. We will be referencing a slide presentation that is available on the Investor Relations section of Bridgewater's website, investors.bridgewaterbankmn.com. Following our opening remarks, we will open the call for questions.
During today's presentation, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We caution that such statements are predictions and that actual results may differ materially. Please see the forward-looking statement disclosure in the slide presentation and our 2025 third quarter earnings release for more information about risks and uncertainties, which may affect us. The information we will provide today is as of and for the quarter ended September 30, 2025, and we undertake no duty to update the information.
We may also disclose non-GAAP financial measures during this call. We believe certain 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 our peers. We caution that these disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP. Please see our slide presentation and 2025 third quarter earnings release for reconciliations of non-GAAP disclosures to the comparable GAAP measures.
I would now like to turn the call over to Bridgewater's Chairman and CEO, Jerry Baack.
Thank you, Justin, and thank you, everyone, for joining us this morning. In the third quarter, our team continued to demonstrate our ability to take market share by growing deposits and generating loans, which resulted in steady net interest income growth. We saw strong core deposit growth with balances up 11.5% annualized. This continues to be a testament to our talented banking teams and the relationship model we prioritize. The relatively steady pace of core deposit growth we have seen over the past year has positioned us to be more aggressive on the loan front as our loan-to-deposit ratio remains near the lower end of our target range.
We generated strong loan growth of 6.6% annualized during the third quarter as we continue to see growth across multiple asset classes, including the affordable housing space. This helped drive a $1.6 million increase in net interest income during the quarter. We also saw 1 basis point of net interest margin expansion to 2.63%. Joe will talk more about the margin in a minute, but we are optimistic about our ability to see more meaningful expansion in the coming quarters.
Asset quality continues to be a strength as nonperforming assets remained at consistently low levels and net charge-offs were just 0.03% of loans. We continue to see some modest risk rating migration within the portfolio, which our Chief Credit Officer, Katie Morrell, will touch on shortly, but we continue to feel good about the portfolio overall.
Lastly, we've developed a reputation for consistently building tangible book value, which you can see on Slide 4, as tangible book value per share increased 20% annualized in the third quarter and is up 14% annualized year-to-date. This continues to be how we drive shareholder value.
Before I turn it over to Joe, I want to share an update regarding the successful completion of 2 significant initiatives in the third quarter, the launch of our new retail and small business online banking platform in July and the systems conversion of our acquisition of First Minnetonka City Bank in September. The new online banking platform gives our clients an updated robust platform to enhance the way they manage their finances at Bridgewater.
In addition, it provides our smaller entrepreneurial clients with a platform designed specifically for them. The team worked tirelessly to ensure smooth migrations initially for Bridgewater clients and then convert to our newly acquired clients a few months later. The success of both conversions reinforce my confidence that we have the right team to take advantage of future M&A opportunities as they become available.
In August, we also announced some transitions to our strategic leadership team. Most notably, Mary Jayne Crocker, our Chief Strategy Officer; and Jeff Shellberg, our Chief Credit Officer, will both be retiring in 2026. Mary Jayne will join our Board of Directors next year, while Jeff will continue to work alongside Katie in a Deputy Chief Credit Officer role until his retirement, ensuring Bridgewater's credit culture remains consistent.
Jeff and Mary Jayne have been with me at Bridgewater since founding the bank in 2025. I'm so appreciative of their contributions. And quite simply, Bridgewater would not be what it is without them.
By executing the succession plan we have been working on for a few years, I am confident in the leadership of the bank going forward. We elevated Katie Morrell to Chief Credit Officer; Jessica Stejskal to the new role of Chief Experience Officer; and Laura Espeseth to her role of Chief Administrative Officer. All 3 are talented individuals with strong worth ethics, bringing a diverse set of skills. I am thrilled that we have the internal talent to continue to drive our unconventional culture and continue our growth trajectory.
Overall, I believe Bridgewater is well positioned as we head into the fourth quarter and in 2026. Our outlook for loan and deposit growth remains very strong as we continue to see opportunities from M&A disruption in the Twin Cities. Our goal is to grow to become a $10 billion bank by 2030, and we believe we're on track to get there. Our balance sheet is well positioned for meaningful net interest margin expansion in this rates down environment. With the systems conversions behind us, we look for expense growth to return to more normalized levels in line with asset growth and the Twin Cities market trends remain favorable, which will hopefully support continued strong asset quality.
With that, I will turn it over to Joe.
Thank you, Jerry. Slide 5 highlights another quarter of strong net interest income growth, driven by annualized average earning asset growth of 16% and 1 basis point of net interest margin expansion to 2.63%. As we mentioned last quarter, we were not expecting much margin expansion in the third quarter as we anticipated the higher asset yield repricing to be mostly offset by a couple of specific headwinds, which is what we saw.
The most notable headwind was the $80 million of subordinated debt at 7.625% we issued in June, which we used to redeem $50 million of outstanding subordinated debt at 5.25% this created a 6 basis point net drag on margin in the third quarter. We also continue to see the ongoing benefit of the purchase accounting accretion diminish as it contributed just 4 basis points to margin during the quarter.
In addition, we had higher-than-expected average cash balances in the third quarter due to our strong deposit growth. While this put added pressure on the margin, we view it as a good thing as it created more net interest income dollars and gives us more funding to deploy into future loan growth.
Looking ahead, we are well positioned for more meaningful net interest margin expansion in the fourth quarter and into 2026, especially given the full quarter impact of the September rate cut and the potential for additional cuts. In fact, we believe we have a path to get to a 3% margin by early 2027. Combining our margin expansion with the loan growth outlook that Nick will talk about in a few minutes, we are in a great position to continue driving net interest income growth from here.
Turning to Slide 6. Our loan yields continue to reprice higher even in the current environment. Loan yields increased 5 basis points during the third quarter, which was a slower pace than the second quarter as we saw less new originations and payoffs, resulting in less overall churn of the portfolio. With $608 million of fixed rate loans scheduled to mature over the next 12 months at a weighted average yield of 5.69% and another $140 million of adjustable rate loans repricing or maturing at 3.85%, we still have more loan repricing upside ahead of us as new originations in the third quarter were in the mid-6s. We would expect this repricing to be a tailwind to margin going forward, especially as the portfolio continues to turn over.
Overall, total earning asset yields increased 7 basis points to 5.63% as we also saw an increase in securities yields during the quarter. The cost of total deposits were 3.19%, continuing the stabilization trend we have seen throughout 2025. However, we should see deposit cost decline in the fourth quarter as we have $1.7 billion of funding tied to short-term rates, including $1.4 billion of immediately adjustable deposits that we repriced lower immediately following the recent rate cut in mid-September.
Turning to Slide 7. We continue to see strong revenue growth trends driven by the momentum in net interest income. Fee income has also been a contributing component to revenue growth in recent quarters due to increased swap fee income and investment advisory fees. We did see fee income decline in the third quarter, however, due to the lack of swap fee income. We mentioned last quarter that swap fees would continue to be part of the revenue mix going forward, and we expect that to continue to be the case. However, this just highlights the lumpiness of these fees.
Over the past 5 quarters, swap fees have averaged about $300,000 per quarter, but have ranged from 0 to nearly $1 million. I can say that we expect a rebound in swap fees in the fourth quarter as we have already booked some in October.
On Slide 8, as expected, the higher-than-usual increase in noninterest expenses we have seen year-to-date continued in the third quarter as we have had some redundant expenses this year, leading up to the core conversion. We added 17 full-time equivalent employees during the quarter, which drove an increase in salary expense. Marketing expenses were also elevated during the quarter due to advertising directly related to our focus on bringing talent and clients from the Old National and Bremer disruption, which have been bearing fruit.
We feel much of the higher expenses in the third quarter were really opportunistic in nature as we continue to position the bank for ongoing growth. Now that the systems conversion is behind us, we would expect expenses to return to growing more in line with asset growth over time.
With that, I'll turn it over to Nick.
Thanks, Joe. Slide 9 highlights the strong core deposit momentum we have seen over the past year, which continued in the third quarter as core deposits grew 11.5% annualized and are now up 7.4% annualized year-to-date. Core deposits are the lifeblood of what we do here. This more consistent growth we have seen recently provides us the ability to grow the bank in a more profitable way. You can see it from a deposit mix shift standpoint.
During the third quarter, noninterest-bearing deposits increased approximately $35 million, while broker deposits declined by about the same amount. Overall, we continue to feel good about the core deposit pipeline, especially given opportunities out there related to the local M&A disruption.
Turning to Slide 10. As we mentioned last quarter, we expected loan growth to be in the mid- to high single digits in the second half of the year after outperforming these expectations in the first half. And this is what we saw in the third quarter as loan balances increased 6.6% annualized and are now up 12% annualized year-to-date.
Generating loan growth has never been a problem for Bridgewater. With more consistent core deposit growth, loan pipelines that remain at 3-year highs, opportunities from M&A disruption and a 98% loan-to-deposit ratio that is in the lower half of our target range, we are in a good position to continue being aggressive on the loan front. We also had several deals we expected to close in the third quarter that were pushed out a quarter. As a result, we should have a bit of a head start here in the fourth quarter.
Overall, we continue to expect near-term loan growth to be in the mid- to high single-digit range. This will, of course, be dependent on the ongoing pace of core deposit growth as well as loan payoffs, which can be difficult to predict.
Turning to Slide 11. You can see our loan origination activity, which was down a bit in the third quarter, primarily due to some deal closing sliding from the third quarter to the fourth quarter, as I mentioned earlier. We would expect this to pick back up in the fourth quarter as our pipeline remains at a 3-year high. Payoffs have also trended a bit lower recently. And while payoffs are a drag on loan growth, these recycled dollars will allow us to continue to fund new loan originations at attractive yields.
Turning to Slide 12. The loan growth we saw in the third quarter was spread across several key asset classes, including construction, multifamily, nonowner-occupied CRE and even 1 to 4 family. As mentioned last quarter, that construction was an area where we would be seeing more balance sheet growth following an increase in new construction projects in the back half of 2024. These projects are now starting to fund, driving an increase in balances in the third quarter. We would expect this to continue being a catalyst for loan growth throughout 2026. And while it isn't called out in its own section of the portfolio, we continue to have success in our national affordable housing vertical as this drove much of the multifamily growth during the quarter.
With that, I'll turn it over to Katie.
Thanks, Nick. Slide 13 provides a closer look at our multifamily and office exposure. We continue to see positive multifamily trends in the Twin Cities. This includes lower vacancy rates, which recently dropped below 6%, strong absorption and reduced use of concessions, all of which suggest a favorable outlook for higher levels of net operating income. We continue to expand our affordable housing business, both locally and on a national basis. The portfolio now totals $611 million with $467 million in multifamily, while the rest is in land, construction or non-real estate.
The total portfolio has grown at a 27% annualized pace year-to-date. We feel good about this portfolio from a credit standpoint as we continue to work with experienced developers across the country and because of the shortage of affordable housing nationwide. Our nonowner-occupied CRE office exposure remains limited at just 5% of total loans. We continue to work through the 1 central business district office loan that is rated substandard and on nonaccrual, but overall, we feel good about our office portfolio.
Turning to Slide 14. Our overall credit profile remains strong. Our reserve level of 1.34% is conservative compared to peers, and our nonperforming assets held steady at just 0.19% of total assets, well below peer levels. Net charge-offs also remained very low at 0.03% of average loans. The minimal amount of charge-offs we had during the quarter were related to the legacy First Minnetonka City Bank portfolio.
Turning to Slide 15. Our classified loans remain at relatively low levels. We did have one multifamily loan that migrated from special mention to substandard during the quarter. This was a loan that we moved to special mention last quarter while it was under a purchase agreement. Unfortunately, that purchase agreement was canceled, and we decided to move the loan to substandard while we actively monitor new sales prospects for the property. The borrower remains engaged with the bank and is committed to moving the asset quickly. Importantly, we do not see any systemic credit issues as our overall portfolio is performing well and the multifamily sector continues to show favorable trends.
I'll now turn it back over to Joe.
Thanks, Katie. Slide 16 highlights our capital ratios, which remained relatively stable in the third quarter with our CET1 ratio increasing slightly from 9.03% to 9.08%. We did not repurchase any shares during the quarter given our strong organic growth pipeline and where the stock was trading. As of quarter end, we still have $13.1 million remaining under our current share repurchase authorization. In the near term, we expect capital levels to hold relatively stable given retained earnings and our stronger growth outlook.
Turning to Slide 17, I'll recap our near-term expectations. Given our strong loan pipelines and opportunities we continue to see in the market, we believe we can continue to generate mid- to high single-digit loan growth in the near term. Core deposit growth will continue to be a governor here, but we feel we are in a good spot to be offensive minded as our target loan-to-deposit ratio remains 95% to 105%. While net interest margin increased just 1 basis point in the third quarter, we feel bullish about more meaningful margin expansion over the next several quarters. We believe we have a path to get back to a 3% margin by early 2027, driven both by loan yields repricing higher and deposit costs declining with additional Fed rate cuts.
At the end of the day, our focus is on driving net interest income growth, which will come from both the margin expansion and our stronger loan growth outlook. Noninterest expense growth has been higher than what we have typically seen due to the later systems conversion. But now that, that is behind us, we expect to return to growing expenses relatively in line with asset growth over time. We also feel we are well reserved at current levels and would expect provision to remain dependent on the pace of loan growth and the overall asset quality of the portfolio.
I'll now turn it back to Jerry.
Thanks, Joe. Finishing on Slide 18, I want to provide a quick update on our 2025 strategic priorities. As we suggested earlier, we have clearly returned to a more normalized level of profitable growth in 2025, with 12% annualized loan growth and 7% annualized core deposit growth year-to-date. With a strong marketing campaign and talented team of bankers, we continue to take market share in the Twin Cities, both on the loan and deposit fronts.
Our brand is stronger than ever. We continue to build strong relationships, and we are taking advantage of the ongoing M&A disruption. Our technology and operations team successfully rolled out our new retail and small business online banking platform while also completing the systems conversion of our First Minnetonka City Bank acquisition.
As we look forward, we do plan to close 1 of the 2 branches we acquired from First Minnetonka City Bank. This will provide some additional efficiencies as we have branch coverage in the area. While this brings us to 8 branches, we will be bumping back up to 9 when we open a de novo branch, expanding our footprint into the East Metro of the Twin Cities in early 2026.
With that, we'll open it up for questions.
[Operator Instructions] The first question comes from the line of Jeff Rulis with D.A. Davidson.
Jeff, are you there? We can't hear you.
2. Question Answer
Can you hear me now?
Yes, we can hear you.
Okay. Sorry about that. On to the margin path that you outlined towards 3%. I wanted to see if -- I appreciate the visibility there. But I guess over the course of a year plus, do you expect that improvement to be fairly measured? Or does it ramp later? Any sense, I know there's a lot of inputs there with rates and such, but any idea how that kind of -- that path towards their transitions?
Jeff, this is Joe. Yes, I think generally, it's fairly steady. I mean it's 2 to 3 basis points a month. I will say we are assuming those cuts happen, just 2 of them happened in October and in December. So the deposit piece might be more front-loaded. But the asset side, as we lay out our portfolio, roughly $750 million of fixed and adjustable rolling off kind of in the mid-5s. So I think that will happen pretty steady throughout 2026. But yes, we think it's very much achievable with just 2 cuts assumed early on.
Got it. And then maybe rate related and turning towards the credit side and maybe for Katie or Jeff, just on the kind of a clumsy question, but I would assume rate cuts would offer some relief to your borrowers. Have you run any analysis of the percent of borrowers sort of a tangible benefit of 50 basis points of cuts or more? I don't know if there's a -- or come in the form of upgrades with cash flow relief. Anything you could quantify on the expected rate cuts and what that might mean for the health of the loan portfolio?
I don't think we have anything quantified to share. But I mean, we are proactively getting ahead of any loans with repricing risk. We feel like that's getting materially better since the last 18 to 24 months. So certainly, any further reduction in rates will only benefit those loans that are repricing and currently at a fixed rate over the next year. And a lot of those also with the repricing risk, we potentially had action plans already in place with borrowers due to covenant failures or the pending reprice. So we feel really good about having gotten ahead of any from a credit risk standpoint that have repricing risk.
Appreciate it. Yes, probably a little early, but that's helpful. And maybe just one last one, just sort of a housekeeping. I am trying to map the merger costs, was that truly in other -- I know you kind of broke out in Slide 8, the cost. I was just trying to mesh that with the press release. Anything in professional and consulting? Or is it truly absent out of comp out of professional and consulting, truly other.
Yes. The slide in -- that we lay out noninterest expense pulls it out and just highlights it. So those costs that were specifically related to the merger itself. So I think when we talk about this quarter, the kind of the increase in expenses was more salaries related ordinary course, marketing, given our offensive minded efforts around OMB and Bremer, advertising specifically, and then just general consulting fees. So I don't know if that's answering your question.
Yes. I guess the go forward, the messaging is that, obviously, we think the merger costs kind of go away and you're talking about the core costs even coming down or normalizing with the pace of growth. Is that's essentially the message?
Yes, definitely. I think this was kind of the last quarter where we had that redundancy in expenses. But I think as we look forward into 4Q and then into '26, we view expenses growing similar to how they did pre-deal, where it's assets and expenses growing in line. You can see that in the core kind of NIE to average assets has been steady at 1.43% the last couple of quarters. So we envision if we grow at a mid- to high single-digit pace next year, that expenses would grow in line.
The next question comes from the line of Brendan Nosal with Hovde Group.
Just to circle back to kind of the margin outlook. I really appreciate you guys putting a stake in the ground a little further out than you typically do. Just kind of on the moving pieces of that 3% margin, get the rate cut commentary out of the Fed that's underpinning that. Can you just speak to kind of assumptions for what the belly of the yield curve does and how that impacts back book lowering pricing? And then if you look at that roughly 40 basis points of margin improvement that you're kind of calling for, can you just bifurcate that between relief on the funding side and yield pickup on the loan side?
Yes, Brendan, this is Joe. I think we envision kind of the belly of the curve really staying where it is, maybe some slight decline, but I think there -- I think slope, as we've always said, is our friend certainly. So if we kind of have a terminal Fed funds rate in the mid-3s and the 5- to 10-year part of the curve where it's at, I mean, that's what our assumption is. Now granted you get more cuts or you get some flattening or steepening, I think obviously, those have impacts, too. But nonetheless, I think slope is certainly our friend.
On the other side, in terms of bifurcating loans and deposits, I just think the comment is similar to earlier where there's continued repricing throughout 2026 on the asset side, both fixed and adjustable rate loans. I also think just given the pickup in origination activity, the churn of the portfolio, certainly buoys or increases earning asset yields, specifically in the loan book.
And then the deposit portfolio, I think, is most sensitive that $1.7 billion that we highlight will obviously benefit with those first 2 cuts that we're assuming here in October and December. And then the rest of the portfolio, we continue to rationalize lower in a different rate environment.
So I think it's both sides, coordinated effort, but I think very achievable as we think about it throughout '26. Like I said, it's 2 to 3 basis points a month, considering the dynamics of the composition of the balance sheet, if we're putting on loans low to mid-6s and kind of incremental additional new funding in the low 3s. We think that spread in itself is very much accretive to the existing margin. So all of that coupled together is how we can feel confident about that path to early '27.
Yes. Okay. Okay. That makes sense. Maybe just kind of switching gears to the affordable housing piece. Just kind of curious what the comfort level is and kind of growing the national piece of that book. I think the national piece is only like 4% of loans today maybe that are kind of out of market at this point. Just kind of curious how high you're comfortable taking this over time.
Brendan, this is Nick. Yes, this has been maybe somewhat recent that we've been sharing our activity level within this space, but it's certainly not a new business line for us. It's something that we've been involved with going back to probably 2007. So we have a deep history and working knowledge within the space. So I think that is sort of a foundational piece that gives us a lot of comfort in understanding not only the transactions that we get involved with, but vetting through the borrowers that we're meeting with that are new to us as we've expanded our reach beyond the Minneapolis-St. Paul market.
So the quality of borrower that we've been focusing on is really top tier, and we feel really good about the pieces that we're getting involved with on those transactions. being relatively short term in nature, refinancing stabilized properties as they're coming out of their compliance period or providing sort of ancillary pieces of debt that are relatively short term that churn pretty quick.
So overall, we feel really good about how we're positioned in that space. We feel like it's an underserved market that we're well positioned to be able to provide our banking services to and grow on both sides of the equation of the balance sheet. Certainly, the loan side is maybe what we shared within the prepared remarks, but that has been a really good source of growing core deposits as well as those client relationships are eager for a relationship bank that understands their business and are open to moving their deposit balances to us even if they are based outside of the Twin Cities.
So it certainly is a relationship game for us, and we're not looking for transactional business there. So for a lot of those reasons, we feel good about where we're positioned in that space and how we see it providing a growth path for us in the future.
[Operator Instructions] The next question comes from the line of Nathan Race with Piper Sandler.
Just going back to the loan growth outlook. I appreciate near-term expectations haven't really changed, but it seems like you guys are being pretty offensive in terms of some of the hires that you completed in the quarter and your -- maybe there's more to come on that point. So just curious if we can expect any step change function in terms of kind of the growth trajectory into next year. Is it possible we can get back to kind of the stronger pace of growth that we saw, both in terms of loans and deposits prior to the rate hiking cycle starting in 2022?
Yes. Nate, this is Nick. Yes, I mean, we feel really good about where we're at from a loan growth outlook perspective. I think one thing that we're mindful of is -- and I think we made a lot of progress in the last 18 months about aligning our loan growth to be more consistent with our deposit growth, specifically on the core deposit front. So I think that a strategy that we're trying to employ as we think about our future loan growth. That does provide us with a more profitable path on a go-forward basis.
So I think it's -- certainly, that engine is there and the potential is there to grow faster than that. I think we're just trying to be both selective on sort of the client relationship front and the profitability front as we think about our loan growth to ensure that we're not putting ourselves in a loan deposit position that forces us to really pull back hard on growth in a quarter or 2 just as we -- if we outperformed our expectations.
So we feel good about a lot of the verticals that we're in. The disruption that we talked about within the Twin Cities is real. And we've been able to have great conversations with both clients that are impacted and production staff. And I think those conversations will continue here over the next year as clients are transitioned over and as personnel find their new normal at the new organization, and we're expecting to be beneficiaries on both of those fronts. So that's certainly something that could impact the amount of our loan growth as we bring on production staff, hopefully, over the next year or so.
Got it. That's really helpful. And Nick, can you maybe just touch on where you expect to see these hires impact? I mean, are these more C&I related? Or any color in terms of potential growth impacts that we can see across the balance sheet?
Yes. I mean that's certainly something that we've had as a strategic priority to improve our expertise and depth of knowledge in that space. So yes, definitely, there's conversations within that front. But we've always been opportunistic in our hiring, and that's really across the bank, whether that's production staff or operations folks, compliance and BSA, I mean, there's a lot of really talented banking personnel here in the Twin Cities, and we're open to having conversations with all of them.
Specific to the production front, though, I think we try to differentiate ourselves by thinking about sort of niche business lines. And to the extent that we can expand into a new vertical through the acquisition of a person or a team, we're definitely open to that as well. And we're having conversations sort of across all of those fronts now and hopeful that some of those will pay off here in 2026.
Okay. Great. And then a couple of questions for Joe. there's some differences in the end-of-period average cash balances. I imagine the sub debt impact had some relevancy there. Just curious if you can touch on kind of where you'd like to run in terms of cash levels going forward? And then also, it looked like securities yields ticked up nicely in the quarter. Just any thoughts on the securities yield trajectory from here in light of the rate outlook.
Yes. I think on the cash side, I think we were generally just really pleased with the core deposit growth that translated during the quarter. I think a lot of that we had messaged with some seasonal outflows in the second quarter would come back in the third. So we did certainly have higher average cash balances throughout the quarter. I think we're always ultimately, loan growth being top priority and given pipelines where they're at, I think we -- when we think about cash and securities, we always want to have liquidity such to fund that growth.
From the security standpoint, yields going forward, there were opportunities. I think just given where rates were at kind of more mid-quarter where we saw some opportunities to put on some longer duration paper. So part of that contributed to the higher boost in securities yields during the quarter. And then I think where we're at today, we're definitely active just kind of redeploying as there's paydowns, payoffs, maturities.
Some of that's also just recycling FMCB's portfolio, which we had always kind of planned once we closed the deal last year. So I think we're opportunistic in the security space as well. But I think ultimately, we want to support the loan growth outlook. And I think where the pipeline is at, I think that's certainly bullish on continued growth there into '26.
Okay. Great. And then maybe a couple for Katie. On the loan that we've talked about a couple of quarters now, I believe you guys have a specific allocation there. Just curious if you're still expecting some charge-offs there at some point in the future. And if there's any specific reserves on the credit that moved to substandard in 3Q?
So yes, starting with the office loan, our specific reserve hasn't changed on that one. It's just under $3 million. And we continue to see leasing prospects and some interest. There's been more return to the office in Downtown St. Paul. So we're not planning a charge-off at this time on that loan. And then in regard to the multifamily loan that we moved this quarter, that one does not have a specific reserve. And like we shared in the prepared remarks, the borrowers sort of moving quickly to reengage a new buyer and hopefully sell that asset quickly.
This concludes our question-and-answer session. I will now turn the call back over to Jerry Baack for any closing remarks.
I want to thank everybody for joining the call today. We're really excited about our ability to take market share in the Twin Cities market and believe the fourth quarter and 2026 will certainly be a good year for us.
I do want to call out and thank some of the team members that we have here, our deposit and operations, technology and operations team have really busted their butts these last few months to get the conversions done successfully. And I also just want to do another shout out for Mary Jayne Crocker and Jeff Shellberg and how incredible they've been as partners for me considering 20 years ago, we started this bank in our basement. So it's great to still be on the board supporting us going forward, but a great shout out to them. Thanks for everybody taking the call today. Thanks.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Bridgewater Bancshares, Inc. — Q3 2025 Earnings Call
Financial data from Bridgewater Bancshares, Inc.
Revenue
Revenue is the sum of all sales generated by a company, e.g. for its products or services.
Revenue (TTM) metric explainedDirect Costs
Direct costs are the costs incurred directly in connection with the manufacture of the product or service.
Gross Profit
Gross Profit indicates how much of the revenue remains in the company after deducting direct production costs. If the percentage share of sales is calculated, this is referred to as the gross margin.
Gross Profit metric explainedSelling and Administrative Expenses
Selling, general and administrative expenses (SG&A) include all expenses for marketing and sales as well as the general administration of the company.
Research and Development Expense
Research and development costs (R&D) provide information on how much the company invests in the research and development of its products. The costs are particularly interesting as a percentage of revenue and in comparison to direct competitors.
EBITDA
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is the company's earnings before interest, taxes, depreciation and amortization. The EBITDA margin is calculated as a percentage of sales.
Depreciation and Amortization
Depreciation represents reductions in the value of the company's assets (e.g. due to wear and tear on machinery).
EBIT (Operating Income)
EBIT (Earnings Before Interest and Taxes) is the company's profit before interest and taxes, also known as the operating income. The EBIT Margin is calculated as a percentage of sales at
.
Net Profit
Net Profit represents the profit or loss after deduction of all costs.
Net Profit metric explainedStocksGuide Premium
| Jun '26 |
+/-
%
|
||
| Revenue | 162 162 |
30%
30%
100%
|
|
| - Interest Income | 145 145 |
26%
26%
89%
|
|
| - Non-Interest Income | 17 17 |
75%
75%
11%
|
|
| Interest Expense | 145 145 |
1%
1%
89%
|
|
| Non-Interest Expense | -84 -84 |
21%
21%
-52%
|
|
| Loan Loss Provisions | 4.30 4.30 |
24%
24%
3%
|
|
| Net Profit | 52 52 |
54%
54%
32%
|
|
In millions USD.
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Bridgewater Bancshares, Inc. Stock News
Company Profile
Bridgewater Bancshares, Inc. is a holding company. It offers banking services to real estate and small business entrepreneurs, personal loans, bridge financing, home equity, business checking, insured cash sweep and premier business checking. The company was founded by Jerry J. Baack and Jeffrey D. Shellberg in 2005 and is headquartered in Bloomington, MN.
StocksGuide Premium
| Head office | United States |
| CEO | Mr. Baack |
| Employees | 337 |
| Founded | 2005 |
| Website | investors.bridgewaterbankmn.com |
