On Wednesday, Bridgewater Bancshares (NASDAQ:BWB) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
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The full earnings call is available at https://event.choruscall.com/mediaframe/webcast.html?webcastid=DP9KwhU9
Summary
Bridgewater Bancshares reported a strong start to 2026, with a net interest margin expansion to 2.99%, nearly reaching their year-end target of 3%.
The company executed strategic sales of securities, resulting in a net gain and improved balance sheet efficiency, contributing to a $7.3 million increase in pre-tax net income for the quarter.
Loan portfolio grew by 5.5% annualized, with a focus on affordable housing, while core deposits increased by 3.2% annualized, demonstrating continued market share gains.
Asset quality remained strong with declines in net charge-offs and non-performing assets, and capital ratios improved, with CET1 increasing by 36 basis points to 9.53%.
The company opened a new branch in Lake Elmo, expanding their footprint in the Twin Cities, and announced an at-the-market offering for up to $50 million of common stock to enhance capital flexibility.
Management expressed confidence in continued net interest margin expansion and loan growth, despite competitive pressures, and emphasized ongoing strategic priorities, including leveraging AI and focusing on affordable housing.
Full Transcript
OPERATOR
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. All participants have been placed in listen only mode. After Bridgewater’s opening remarks, there will be a question and answer session. To ask a question, please press Star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press Star then two. 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.
Justin Horstman (Vice President of Investor Relations)
Thank you Danielle and good morning everyone. Joining me on today’s call are Jerry Bock, Chairman and Chief Executive Officer Joe Chabowski, 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 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, 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 Bock. 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 than helping us get there quicker than anticipated. We expect to see slow additional margin expansion over the coming quarters. Because of the net 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 security 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 staple 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 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. This is 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.
Joe Chabowski (President and Chief Financial Officer)
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 of the volatility in interest rates to not only improve future profitability but also generate substantial near term revenue. As part of the 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 pre tax 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 299. 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 continued 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 two 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 386. With these lower yields running off the books and new originations in the first quarter going on the books around 6%, 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, non interest income has topped $2 million every quarter since the fourth quarter of 2024, 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 nine 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 …
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