Bridgewater Bancshares Inc Q2 FY2024 earnings call

• Jerry Baack noted stabilized net interest margin, return to revenue growth, strong asset quality, and 30th consecutive quarter of tangible book value per share growth. Loan and deposit growth were muted in Q2, but year-to-date growth remained in low to mid single digits. Asset quality was very strong with no net charge-offs.
• Joe Chybowski discussed net interest income growth driven by portfolio loan yield increase offsetting deposit pricing pressures, margin components, and expense management with expenses tracking in line with expectations.
• Nick Place talked about loan and deposit balances, loan growth drivers including payoffs, loan portfolio repricing potential, and performance of CRE and multifamily portfolios, noting strong performance and proactive covenant testing.
• Strategic priorities include balance sheet optimization, client base expansion, launch of new CRM tool, and credit portfolio monitoring.

Net interest margin held flat at 2.24% in the second quarter. Loan growth moderated to 1.7% annualized in Q2 after 6.5% in Q1, with year-to-date loan growth at 4.1%. Deposit balances were relatively flat in Q2, with core deposits down $53 million, and year-to-date deposit growth at 5.3%. Tangible book value per share grew 9.8% annualized for the 30th consecutive quarter, up nearly 200% over those 30 quarters compared to a sub-70% median for banks with $3 billion to $10 billion in assets.

• Full year loan growth expected in low to mid single-digit range, with loan payoffs likely a headwind in the back half of the year.
• Margin expected to remain stable near current levels in the near term until interest rate cuts, then expand.
• Expenses expected to track relatively in line with asset growth in 2024, following a trajectory similar to 2023.

• Regulatory scrutiny on CRE-heavy banks and potential impact on capital requirements.
• Continued deposit pricing pressures until rate relief.
• Loan payoffs impacting loan growth by offsetting new origination activity.

Q: Brendan Nosal asked about regulator relationship regarding CRE-heavy business model and asset quality.

A: Jerry Baack stated regulators are comfortable with enterprise risk management and concentration monitoring, with an exam in August and no expected changes.

Q: Brendan Nosal asked about share repurchase appetite.

A: Joe Chybowski said share repurchases are evaluated based on multiple factors including share price, growth opportunities, and market conditions.

Q: Jeff Rulis asked about loan yield acceleration and deposit gathering.

A: Joe Chybowski discussed loan yield growth tied to first quarter growth and payoffs, and Nick Place noted Q2 deposit gathering was muted due to seasonality but future inflows expected.

Q: Jeff Rulis asked about M&A.

A: Jerry Baack said they continue to have conversations with local banks and stay in front of potential targets.

Q: Nathan Race asked about deposit costs and loan payoffs.

A: Joe Chybowski talked about CD maturing and inflection in deposit costs, and Nick Place discussed loan payoffs as expected due to transaction lifecycle and recycling cash into new loans.

Q: Nathan Race asked about securities yields.

A: Joe Chybowski said no unusual repositioning, just ordinary portfolio management.