Q1 2024 Earnings Summary
- Attractive Loan Repricing: Q&A responses highlighted that over $500 million of loans are set to reprice at new money yields in the mid- to high-7% range, offering significant net interest income tailwinds.
- Robust Core Deposit Growth: The team emphasized ongoing, strong core deposit wins and the strategic hiring to bolster deposit gathering, supporting a low-cost funding base and improving balance sheet stability.
- Moderated Margin Compression and NII Upside: Management noted a slowing pace of margin compression and a focus on growing net interest income, which together suggest potential for enhanced earnings despite a challenging rate environment.
- Margin Pressure Risk: Sustained net interest margin compression is a concern, as the bank is experiencing modest yet persistent margin declines due to the impact of rising funding costs and mix shifts from noninterest-bearing to interest-bearing deposits.
- Rising Deposit Costs: The deposit cost increases—illustrated by the reported level of 337 basis points in March—could further pressure margins if the trend does not moderate, affecting overall profitability.
- Credit Normalization Concerns: With continued economic pressures from a higher interest rate environment, there is a risk of credit quality deterioration and normalization, which could impact asset quality and future loan performance.
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Margin Outlook
Q: Is there a NIM inflection path without Fed cuts?
A: Management sees a slowing pace of margin compression with modest near-term pressure driven by shifts from noninterest-bearing to interest-bearing deposits, while focusing on growing net interest income through robust loan growth. -
Net Interest Margin
Q: What was March's net interest margin?
A: Management noted that the March net interest margin was about 223 basis points lower than the quarter’s overall level. -
Loan Repricing
Q: What loan maturities and repricing are upcoming?
A: They reported that north of $500 million in fixed-rate loans, with a blended rate of 5%, is set to roll off as new money comes in at yields in the mid-to-high 7% range. -
Deposit Costs
Q: What are March's deposit cost levels?
A: The deposit cost coming out of March was reported at 337 basis points, with the pace of cost increases showing signs of moderation. -
Rate Risk Positioning
Q: Can the bank adjust its rate risk profile?
A: Management is balancing fixed versus variable rate funding and maintaining flexibility across the balance sheet, while also considering strategic M&A to boost noninterest income without altering liability sensitivity dramatically. -
Loan Pipeline Composition
Q: Is the pipeline more weighted towards C&I?
A: The bank’s pipeline remains well diversified and consistent with its overall portfolio mix, with some growth in the C&I segment from line utilization. -
Deposit Growth Initiatives
Q: Will new hires boost deposit gathering?
A: New hires are expected to bolster long-term core deposit growth, although seasonal factors may cause a slight slowdown in Q2. -
Multifamily Maturities
Q: What percent of multifamily loans mature post-2024?
A: Management did not provide an exact figure during the call, mentioning that further details will be shared after the call.
Research analysts covering Bridgewater Bancshares.