Release Date: October 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Bridgewater Bancshares Inc (BWB, Financial) reported a solid quarter with earnings of 27 cents per share.
- The company experienced a second consecutive quarter of net interest income growth and ongoing net interest margin stability.
- Strong core deposit growth was noted, enhancing the overall deposit mix.
- The acquisition of First Minnetonka City Bank is expected to provide additional liquidity and balance sheet optionality.
- Asset quality remains strong with no uptick in net charge-offs and non-performing loans, despite challenges in the office loan sector.
Negative Points
- Loan balances declined due to elevated loan payoffs and increased market competition.
- The company expects loan balances to remain relatively flat in the fourth quarter due to continued payoff headwinds.
- There was a $935,000 charge-off related to a central business district office loan.
- Expenses are expected to continue to move modestly higher, excluding merger-related expenses.
- Deposit costs have been pressured, although they are expected to decline with future rate cuts.
Q & A Highlights
Q: Can you provide more detail on the elevated loan payoffs? Are they customer-driven or encouraged by the bank for credit purposes?
A: (Nick Place, Chief Banking Officer): It's a mix of both. Some payoffs were expected as part of the transaction lifecycle, while others were influenced by changes in the rate environment and equity markets. There isn't a specific theme, but rather a catch-up of payoffs that might have been more evenly spread over the past 18 months.
Q: Regarding the margin, what was the timing of the brokered or time deposit runoff, and what was the average rate of those rolling off?
A: (Joe Chybowski, President and CFO): The brokered deposits were called mid-August to early September, with rates north of 5% to mid-5.5%. This was margin beneficial as we replaced them with core deposit growth, maintaining optionality in our brokered CDs.
Q: How do you see loan growth for next year, considering the current pipeline and payoff challenges?
A: (Nick Place, Chief Banking Officer): We expect mid-single-digit loan growth in 2025, which aligns with our strategy to balance loans and deposits. The pipeline is strong, but growth may not be immediate due to the lag between pipeline build-up and balance sheet growth.
Q: How responsive was deposit pricing to the recent 50 basis point rate cut, and what were the spot deposit costs at the end of the quarter?
A: (Joe Chybowski, President and CFO): Deposit pricing was proactive, with clients educated on rate changes. Spot deposit costs were in the low 3.40s compared to 3.58% for the quarter, reflecting a decline.
Q: What is the outlook for the margin in the fourth quarter, considering the acquisition and balance sheet deleveraging?
A: (Joe Chybowski, President and CFO): We expect modest margin expansion, aided by the acquisition's balance sheet optionality. The pace of Fed rate cuts will influence the extent of margin expansion, with competition in deposit pricing remaining strong.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
