BWB - Earnings call 3 2023 | Bridgewater Bancshares, Inc.

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Operator

Good morning, and welcome to the Bridgewater Bancshares 2023 Third Quarter Earnings Call. My name is Debbie, 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, Director of Investor Relations, to begin the conference call. ahead. go Please

Justin Horstman

and Debbie, everyone. Thank good you, morning,

Chief me and Chief today's Jeff we Chief Nick will are few overview just Chief third call President Chairman, Shellberg, quarter Place, and Officer; our Baack, provide Jerry Credit Officer. Executive moments, Officer; In a Joining Financial on Lending of Officer; XXXX an Chybowski, Joe results. financial

section referencing is available Investor Relations that a on investors.bridgewaterbankmn.com. presentation of slide be website, will We Bridgewater's the

for questions. we remarks, our call open Following will the opening

During may or forward-looking future statements and for affect release company. XXXX we see that today's regarding financial statements about forward-looking uncertainties, information Please that which more may materially. and caution the the our other third presentation, actual statement or quarter projections make differ us. in risks results of future earnings such the events predictions We may are performance disclosure

addition with will we non-GAAP our We measures XX, call. information for September understand the of performance measures, trends as ended operating during to the The in the period facilitate help meaningful duty to we investors of today certain the non-GAAP financial provide no We also disclose update and and XXXX, this is believe provide undertake company's related may GAAP them to and and the information to performance financial comparisons measures to peers. information.

viewed Please of substitute for the a reconciliations in GAAP. to GAAP not operating as release with XXXX see our We comparable be caution third should disclosures these that determined accordance quarter non-GAAP disclosures measures. for results earnings

Baack. Chairman, the to Jerry President CEO, like now I to Bridgewater's turn over would and call

Gerald Baack

several quick with third which quarter, of us Justin, and you, thank Thank trends. the joining everyone, for overview encouraging today. start I'll a you, had

to after in the First, pleased quarter. interest begin margin to margin quarter, seeing we're the during stability began third slow in the last compression the net

the basis quarter. we margin of will talk points margin saw throughout about the stabilization more While Joe month-to-month a quarter-over-quarter, basis X signs dynamics the shortly. declined on

to apart Second, enhancing higher longer-term to loan in us reliance are pace and and set deposit our our the profitability we've rate focused base, reduce made sheet interest prolonged efforts the of environment, higher been borrowings for slow growth cost being on our build Concentrated given near composition our term. balance on success.

second at the we our XX% consecutive overall and total base an with in basis increased quarter, core quarter funding XX% For deposits from improvements saw end. quarter overnight the annualized borrowings declined no borrowings second as on

the years a have robust have intentionally of in long slowed loan third While quarter. balances growth in and declined profitable XXXX, we record we pace generating the over slightly and growth track saw of the determined loan actually

an environment. are part we was this current to also our during pay growth downs about uptick in due While the the being payoffs and in thoughtful more quarter, in

Combined limited more and expect term. ratio generate near we net result, favorable. growth a growing As in the will stabilizing becomes more This deposits reducing us the to loan the with and give capital environment ability when growth profitable margin. the loan-to-deposit the interest

we been engine, that don't a Bridgewater has and see always changing. growth certainly

well selective more a remained for better position today being believed long will Expenses term. controlled we However, very us basis. the year-to-year on

our However, the related we in expense primarily increase to as saw people. quarter, making ongoing in we expected, third are an investments in noninterest

levels Lastly, substandard levels of point asset with assets loans. consistently quality nonperforming remains and X low of basis watch charge-offs net stable superb of just and

this very performance diligent proactive be we on the our front, pleased and to continue with quality loan portfolio. we of While and remain

overall driving done focus remained our book XX to growth our addition on these steady encouraging for value for tangible have quarters. shareholders, which In trends, we consecutive

been $XX the billion each $X able quarters. past between assets tangible in banks of grow of XX% X book only fact, to and have In billion value

insights to happening less turnover into take it committed BWB service, members Before to across hand better bank. culture to some remains and the I want a team focus. additional other a and translate over and minute We continue remains Engaged norms, activities share ultimately, more great mentorship, workforce. Participation volunteering receive Joe, our I members. a health wellness, The nationally culture. to to including see industry high turnover locally remains and well D&I below engagement team and for and in events, with we recognition our

potential running year was C&I. we engage are are focus with addition, continuing making We reach than for women-led into a anyone, companies strength we certain verticals beginning on niche to are businesses us, in in and these the like indicated areas In which connections, system. strong the entrepreneurs operating includes to we at is to and clients, using our we opportunities. targeted extend we that proactively EOS and C&I something existing outreach Networking better where expanded the and have inroads do and of this

BWB. on early are had have the While creating Investments workflows are specifically rewards we technology, been still in as the effectively Investments project are large always efficient has business. stages, soon in we efficiencies success internal management initiatives to and ensuring in C&I we opportunities. early in across important new execute our possible. streamlining Being creating function as

environment for many banks, positioned remains challenging I is Bridgewater overall remain forward. moving on how the very While optimistic

Joe. With it to that, I'm to going turn over

Joseph Chybowski

you, Thank Jerry.

from was compression, more core stand-alone during Slide loan to of Even just basis months a $X.XX. trend stabilization driven remaining million be the coupled quarter. with of quarter margin the in margin June a moderation and saw chart of X. the net margin they in for which bottom in fees increase borrowings on is September lumpy XXXX of XXXX. on showed in the month-to-month began to mid-teens the points After encouraging was rising steady declined July, of several excludes shows XXXX, core quarter. slowing $X.XX just earning into signs The month X the asset basis with the right compared but throughout third basis deposits continued August This as slow declined core the monthly by margin as This margin the funding to stand-alone trend seeing This compression yields. our and $X.XX late to relatively gradual a The costs month. points in month down grew from which of and stable margin X third can Turning continued the we early second quarter margin September. interest

We that as given remain would alternatives. expect pressure keeping and continues the quarterly will mind stabilize costs margin to compression the to in are market under the other near over term slow funding

the past, the margin curve rates, pace As changes is dependent and factors, on the including we've deposit core interest outlook in yield mentioned shape of of in future several the the growth.

and Portfolio for so moved components to higher various foreseeable do X margin. should Slide continue loan shows yields the the the future. of

next look year ahead, we of million adjustable nearly As scheduled rate over loans and $XXX of we rate variable have efficiently reprice million $XXX to and floating. fixed over loans the

over point Another XX aggregate yields factor fees, here on portfolio around had is loan basis impact past quarters. loan the a which few the have

down origination However, basis have realization from payoffs point fee deferred as declined mid-XXXX subsequent XX well. this is meaningfully in loan our and run rate as

In the quarter from addition has yields, the on up also basis loan X.XX%. increase, to yield second continued XX our to portfolio to points securities

that do annualized muted, securities book during we loan has mind the we have have XX% period-end not Keep held-to-maturity grow to in with any up balances the While been third securities. quarter. continued growth more

deposit a was rise costs cost in in rising and largely slowed money. meaningfully. funding strong This our core to While yields, of to borrowings funds asset on growth reliance due continue the outpace and has decrease overnight earning

said, see rate uncertain quarter. overall fact, in That XX and basis continue XX increased In Fed's outlook. to still the pressure, interest given compared increase second bank from just third costs our and funding deposit quarter in the to costs move under and are funding higher, competition expect point alternatives points slowly basis a we nonbank other the to costs

Slide to X. Turning

We strong revenue of profitability. a long demonstrated have track and record

of spread-based quarter, income While environment quarter. more interest saw first this third revenue. the in a third increased stabilization primarily $XXX,XXX Noninterest part and we both prepayment net our what the quarter due saw to has in to terms of to challenging in we income of in the similar FHLB been income total in model, due signs revenue

X.X% across the remained incentives year. case the second noninterest the Expenses was increased we that a closely decline of of to second quarter, we noninterest as controlled Historically, X. in increase employee pace an Slide year-to-date see would well to third asset the in increased the very the and quarter, Turning related base. This an in the expense just indicated entire our with have the half which has in first quarter X.X% was growth. of tracked after growth X.X% majority expense

still headwinds. the X% On XXXX growth expense has in increased basis, our a is to XXXX, we efficient mid-XX% to that highly XX.X%. our relative with remain and key to from our good due feel a noninterest and ability year-to-date Even discipline, the ratio into people. about up maintain revenue asset expense case. the still year-over-year We model ongoing range in the expenses, our banks investments efficiency of making other Overall, just to below while our expect operating business control

I'll to Nick. With over that, it turn

Nicholas Place

Thanks, Joe.

liquidation To growth Deposit cost XX% increased core the borrowings quarter with growth, annualized the was the broker since quarter. for this overnight of added our of highlight million strategy during helped quarter. we've core during $XX was combined a funding of annualized. we X. with XX.X% founded. deposit Slide deposits, had consecutive higher or deposits, the place When offset to million core consistent supplement the million deposit bank growth in deposits including to Turning $XXX second the Total of $XX

client it's confident our deposit our remain remain of in time longer as deposit pipelines important our times. to over nature strong. acquisition base our ability growth the that outlook, and onboarding to results terms continue of We In momentum in deposit remember

said, clients. can our X being we from our Cities developed core Twin have relationships over speaks which added past the and $XXX the million of with fluctuate bank, quite brand bit linear. in to That with of our have the growth strength over the often deposit growth quarter-to-quarter not deposits, we the a quarters, However,

annualized Turning Slide Had higher-than-expected Loan growth million our quarter. from declined which than have annualized largely quarter $XX was were much pay X.X% payoffs with to the to we levels, growth balances been expectations. as due in consistent closer second X.X% and second during quarter. would and to increased downs paydowns This X. loan lower the expecting remain payoffs came

over our the more our core to However, being client clients profitability earlier, taking on mentioned the longer includes term. growth focus as a environment new thoughtful near-term to strategy are supporting optimize current selective on Jerry This in approach continued while a relationships. we more

loan Throw cost in we in the support need growth do where credit seeing to pricing bring that would a still are so, We profitability But in from in more sense higher would to cycle, rate at doesn't make the funding. it are and today. demand market a on we compromise higher just standpoint.

for us in our deposit opportunity good our the term. improve a near and to continue loan-to-deposit presents ratio building this Ultimately, on momentum

In X fact, over XXX%. our the loan-to-deposit XXX% past have lowered ratio quarters, to from we

improves, to we when will is growth positioned more As into loan this capital deploy robust more better ratio the favorable. be environment

Slide to XX. Turning

loan quarter. a notable Payoffs year-over-year, over You can year. new in increase steady advances the as see to third originations with and paydowns quarter rates similar over on while have But third interest we've as XX% a stabilize. they mentioned, the trajectory that rebounded the declines been past was declined in began and have there

use including participation of the We million to growth, tool loan to our as year-to-date. $XXX also continue a loan manage sale

the did was quarter. with to you we given XX, projects remain lot the the Slide migrating construction On loan as portfolios we see various we of across portfolio. relatively comfortable have our during loan a these their primarily construction multifamily movement there related balances diversification Overall, from in to was loan stable completed The see movement not balances phase. can

it to I'll With turn that, over Jeff.

Jeffrey Shellberg

Nick. Thanks,

to Turning XX. Slide

of very We just due. continue were quality up past about $XXX,XXX cumulative XXXX, days charge-offs assets net virtually just charge-offs basis no XX assets our loans at of making and XX September. remained total asset the point. to good at end since just again with X.XX% low X feel we of levels, to Net nonperforming as had

teams. and experienced All due to of underwriting active and consistent credit credit standards, risk lending largely oversight measured this our selection, is

time. While early the businesses, over credit longer for higher interest weakness, are still environment of we putting pressure will normalization rate not result which likely is in signs on seeing credit

also of X.XX% loans. We well reserved gross remain at

have credit We we commitments, quarter are balances, which provision loan provision did had unfunded $XXX,XXX the no loans. negative construction for but primarily during stable the for given a losses

we outlook, As continue and continue and economic credit these to would our growth the we provisions lower quality. commitments near depending with fund in term, loan on to to expect the our limited see overall conditions

Overall, we loans portfolio forward. Substandard positioned is can well stable during the you profile and good about Watch XX, the feel that risk feel moving our Slide of remained On see quarter. relatively it and the

majority some office provide risk nonowner-occupied We a portfolios. from XX. on is and CRE standpoint. which our fixed CRE repricing our Slide The book helps more information rate, to Turning of

with and the recommend We or process XX to continue that to flow stream resetting actively rates over have our the months loans cash engage maturing identify solutions necessary. next if clients early in possible

this in now have loans on We completed maturing focusing for repricing process loans. XXXX XXXX are and and our

end, is $XX central nonowner-occupied million. about office of in million had This which in X business we $XXX quarter total located includes only totaling As districts X% CRE loans of exposure, the loans.

these they since We and to loan exposure. and lower amount, and suburban portfolios we client about noticed diversified the continue closely, last in we outlook office well. Overall, portfolio continue the material average monitor perform to quarter, Midwestern good the this haven't feel changes base any primarily given

it to Joe. turn over I'll now back

Joseph Chybowski

Jeff. Thanks,

Turning XX. to Slide

the has You the and liquidity, third growth uninsured capital our increased to and the XX of billion $X.X throughout quarter, off-balance another n the end X.Xx strong per quarter. Slide At sheet level value can that book Tangible to value of see X.X% robust highlights the book liquidity share we ratios. year. of continued our third improve a had our profile tangible $XX.XX on- deposits.

to ability demonstrate tangible ups consistently and continue market downs. value book to through We grow various and

capital which X%. saw including the all a in our From tangible second over consecutive standpoint, to and an X.XX%, increased common which CETX X.XX% increase to capital equity, of for from increased ratios we quarter,

From these organic remains given more time primary our build ratios retention. focus. growth capital and loan of on over are We growth pace earnings moderated continuing a to priority continued focused standpoint, our

Beyond to that, and review we potential continue opportunities. monitor M&A

$XX to repurchase the will a XXXX, was going million approved have continue that forward. evaluate by stock in which also program We Board we

thoughts expected in Coming on I'll our we of near-term the high outlook. end loan to single-digit Turning Slide summarize XX, year, growth XXXX. our

are at around in basis X%. We line year-to-date annualized relatively running on a

high limited to building interest be base However, on term given to in persistent in more growth we near the the a favorable environment. loan funding focus lending expect rate as we able environment, our deploy

linear given up growth expect base. mentioned, it's of As deposit Nick continue to I'll not on time, reiterate, our basis, we nature linked over but core the deposit a trending quarter

Our to of has current $XXX of back our $XX million declined loan-to-deposit million. into ratio XXX% target range

a that like we'd bottom expect the As to pressures, would pleased the to that funding quarterly of compression continues near stabilization we slow. the ongoing are moderate range term. see toward Obviously, the there including as and in ratio moving near we growth, are standpoint. a over margin We margin with continue progress still loan to trend lot end we from but are of the term pieces, where

to growth to we the it the be full we to of to front, Expense business growth expect expense that year opportunities. we important aligned in has typically investing continue for expect is see growth, the noninterest feel our ongoing the and people On but expense would XXXX. asset future as with growth support case

expense of pace with slower the expect moderation to originated growth, continuing commitments. given lower projects in loan unfunded a We the fund levels of unfunded commitments and of volume provision also newly

now Jerry. I'll it back turn over to

Gerald Baack

Thanks, those on challenging today. the XX. macroeconomic at still the shared strategic Joe. with of up we Slide and the Finishing place, priorities the environment, have in beginning you we year Despite are identified

value. on growth grow reiterate would including of has of current tangible each way able pace which margin But progress also in good than been made in environment challenges, have continue The continued despite This value of we shareholder to. slower presented for cycles. that, tangible a economic compression banking ability our through key us been several remains we a to all a We and focus drive had them. value. loan meaningful book used I to compounding we've book

questions. we that, up With for will open this

Operator

[Operator Instructions] Jeff Rulis with D.A. The first comes question Davidson. from

Jeff Rulis

at want through growth, kind that little just of limited Looking I the to bit. poke a

it. on were pretty clear guys You

we maybe the visibility how growth level gauge is possible. schedule to or paydowns amortization participations have turn out try of net be, kind you figure kind sort limited are, one to where of if may where that if Just have or of long ahead on we of any

Nicholas Place

quarter that included transactions This funded prior that of A that through Nick. loans participant to a participation construction the is lot were had we originated related on that had them.

our pulled a back continue transactions term. on we're We the to a new for growth effort lot bit long selling have participations of on as to an supplement that looking

were although -- do advances that we quarter, So the actual balances good slightly feel and quarter-over-quarter. we were -- and originations up down about

quarter of So third up with second some it into some fourth that was pushed lumpy payoffs were bit from were of quarter from and which some moved third. increased into delayed a which and

as to earlier it in we're the payoffs, out look we be had looks pipeline a So year. of -- like it at more been bit our

bit project QX. in we it like forward, it As sort of a there exacerbated felt lumpy was just and

Jeff Rulis

could Okay. Or high the if Bridgewater And of think know for net couple in a mid- guess you be kind Nick, expectations 'XX we'd digit? to I do of growth, over revert on we quarters? single don't to historical have you

Nicholas Place

think your thought first there is I right. No,

where heavily weighted sort I think be year at like where like it. may the we've further as XXXX, we're perfectly of smooth times half back be It at linear. isn't -- always I always and feels given the we likely kind of we're digits as look of mid-single in mentioned it looking that is mean, growth we're would through our though, toward that lumpy likelihood, all thinking it. at throughout out, just more

Jeff Rulis

I'm in in the X% a -- -- where the expense near switching that relative of assets on of was expense if even asset be I growth of head growth? a of pairing quarter growth that muted, revert then and and sense coupling I of just kind the FDIC do base, some question going growth and historical appreciate historical down is Maybe side, of expenses term Joe, just but kind similar rationalize asset a to it. length. up jog, you of and Nick, but loan kind gears, cost and to growth think quarters of expenses of that kind kind the Got can't 'XX, of want were asked, comments get that kind of of trying just you to for to kind growth in with near-term sort next That's control couple we pretty to back expense

Joseph Chybowski

you're the way, right about it think I thinking Jeff. Yes,

average I look and the long rate we think year relationship up, held always the haul. or over to you that's and more full -- that look in on that look basis said, relatively if at a ratio, it it's expense at take the a noninterest as over growth line. And if it step on has we've you whether back assets, at you year,

expenses So that. run loan to mid-single-digit I'd to next expect line point, Nick's also in year. growth with

basis. I quarter over quarter over So the of think a again, guided looking it's And quarter, in basis, long -- hard third year, expected step-up that haul. we the a only if as last But think it's think on growth XX%. we we more about way. it's you quarter-over-quarter the a a don't about basis, last linked back year-to-date just And think we from it it X%. on asset We

relationship that intact. remains So

Jeff Rulis

the the to Jeff, listening And just loans At other multifamily of portfolio, so credit-related been what's viability XX% the a that maybe clean. on I'm very curious, in question, second on of just very kind maybe sector, question on kind late, some long-term a of guessing of historically just of -- calls.

revisit from to level how general? multifamily comfort end, segment the you with about your in your feel Just want

Jeffrey Shellberg

of overall the press X%, like has good We've came the inventory bloom we're and total bust in national really on and feel market. has Twin in but the the Twin said, about just growth number market, about always We market characteristics We a -- units the of occupancy the which or construction under overbuilt there recently. looking talked recent multifamily just gauge -- And portfolio. trying that feel the by multifamily Cities been Great you been at market to of than been been the much rent relative to average. to national the terms was a question. Cities the on the about a There out market more good stable was in in there you nationally levels. with lot before, at Cities Twin this market has never lower report

seen of So think there's That tells inventory single-family I projects. multifamily market as overbuilt, the the it said, rates some for floating coverage just interest lack well we rate the of With the of in well on and -- not debt the and it's covenant that in market service environment for bodes on being the market up, have folding testing our interest ratios need terms with compression up. you with housing. of that also pressures with some

over term, that will that will a long expect term the short be more We then somewhat and back ratio. normalized to come

I and thing add lacking want I everywhere like just market a our And in represent of significant is portion the affordable Cities is units. housing that Twin to last the guess units affordable

that, just point So that stabilization portfolio. think data another in I reflects is that the

Jeff Rulis

But looked on down up NPAs continue overall, And kind bit. just could, substandard list Jeff, and credit your a multifamily, to I if outside a overall, great. of But charge-offs be at language net body watch thoughts, I bit, general, balances credit. in of just pretty

Jeffrey Shellberg

No.

no, good. portfolio looking -- covenant Just testing We're probably dialed into between the loans. of between more feel repricing at

are that's that of the at looking that risk as a we lot way there, banks deck I the have of our bigger in think shows the out a probably mentioned same factors that fixed lot commercial product one estate real of as of because rate focus. I the

But just much. we're the impact try now, that can portfolio. potential factors too right order seeing risk to But to identify not standpoint. repricing dive in to a we in continuing wherever we're from helps that So would

Operator

any turn closing This like I to Jerry remarks. the concludes session. Baack our would call back question-and-answer for over to

Gerald Baack

networking seeing brand, future, culture, and our continue strong BWB joining and encouraging Thanks today. we trends are events. to for our optimistic our remain the about push the call

and some of are nation in best clients, obviously the I the think, too. have employees, our We

So to today, we'll quarter. thanks for time your Bye. talk next you and

Operator

attending the concludes This presentation. Thank conference. today's you for

You disconnect. may now

Bridgewater Bancshares (BWB) 26 Oct 232023 Q3 Earnings call transcript