Bridgewater (BWB) Q4 2025 Earnings Transcript

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DATE

Wednesday, Jan. 28, 2026 at 9 a.m. ET

CALL PARTICIPANTS

- Chairman and Chief Executive Officer — Gerald (Jerry) Baack

- President and Chief Financial Officer — Joseph (Joe) Chybowski

- Chief Banking Officer — Nicholas (Nick) Place

- Chief Credit Officer — Katie Morrell

- Director of Investor Relations — Justin Horstman

Full Conference Call Transcript

Justin Horstman: 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.

Gerald 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 remained strong. The successful quarter 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, 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 are 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 of 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. Old National's acquisition of Bremer has been the main one, but the pending acquisitions of MidWestOne 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 overdeliver. 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.

Joseph Chybowski: 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 increase 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 declining 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 are 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 recognize 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 fixed rate 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 align with asset growth over time. With the conversion behind us, we expect it 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.

Nicholas Place: 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 brokered 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 initiative.

However, we would expect growth to be less linear in 2026, given the nature of the 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 that 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 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.

Katie Morrell: 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 thr