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    Bridgewater Bancshares (BWB)

    BWB Q2 2025: NIM to expand despite 7bp subordinated debt drag

    Reported on Jul 25, 2025 (After Market Close)
    Pre-Earnings Price$16.11Last close (Jul 24, 2025)
    Post-Earnings Price$16.14Open (Jul 25, 2025)
    Price Change
    $0.03(+0.19%)
    • Margin expansion potential: Despite a noted short‑term headwind from subordinated debt issuance, management’s Q&A responses underscore that underlying dynamics—driven by ongoing loan repricing and stabilized deposit costs—support sustained net interest margin expansion over time .
    • Recurring swap fee income: The call highlighted that swap fees, now a recurring element thanks to a strategic focus and broad banker engagement, are diversifying revenues and bolstering non‑interest income .
    • CRE and market disruption opportunities: Executives emphasized robust CRE growth along with favorable market disruptions and M&A activity, positioning the bank to capture additional loan growth across CRE and multifamily verticals .
    • Margin Drag from Subordinated Debt: The Q&A discussion pointed out that the recent issuance of subordinated debt is expected to create a 7 basis point drag on net interest margin in the upcoming quarter, suggesting potential near‐term margin pressure.
    • Lumpy Swap Fee Income: Executives noted that the swap fee income is inherently lumpy and unpredictable, implying that relying on this as a consistent source of noninterest revenue poses uncertainty.
    • Increased Competitive Pressure: Participants highlighted that local banks re-entering the market are intensifying competition, which could compress spreads and narrow margins across key revenue streams.
    MetricYoY ChangeReason

    Loan Growth

    +$152 million (15.9% annualized)

    **Robust loan originations rose 17% vs Q4 2024 and loan payoffs decreased by 45% compared to Q4 2024, building a record pipeline that drove this strong growth over previous periods. **

    Deposit Growth

    +$75.7 million (7.5% annualized)

    **Deposits grew steadily with core deposits increasing by 8.3% annualized versus Q4 2024, reflecting both existing and new client acquisitions, improving on prior period performance. **

    Revenue Growth

    +23% YoY to $32.3 million

    **Revenue increased significantly as net interest income rose by 12% from Q4 2024, driven by an expanding net interest margin and higher average earning assets when compared to previous results. **

    Efficiency Improvement

    Improved from 56.8% to 55.5%

    **Enhanced revenue performance combined with controlled expense growth led to a better efficiency ratio in Q1 2025 compared to Q4 2024, showing operational improvements over time. **

    Asset Quality

    Nonperforming assets at $10.3 million (0.20%)

    **The rise in nonperforming assets is primarily due to one central business district office loan with a special mention risk rating, indicating a shift in asset quality relative to earlier periods. **

    FMCB Acquisition

    Full-quarter impact observed in Q1 2025

    **The integration of the FMCB acquisition contributed additional investment advisory fees while also incurring merger-related expenses, marking a notable change from the pre-acquisition period. **

    MetricPeriodPrevious GuidanceCurrent GuidanceChange

    Loan Growth

    Q3 2025

    no prior guidance

    Mid- to high single-digit growth expected in the back half of 2025

    no prior guidance

    Net Interest Margin

    Q3 2025

    no prior guidance

    Slight margin expansion expected in Q3 2025, with additional expansion in future quarters. Rate cuts later in 2025 could further expand margins

    no prior guidance

    Non-Interest Expense

    FY 2025

    Full-year 2025 noninterest expense growth is expected to be in the high teens, excluding merger-related expenses

    Full-year 2025 growth expected in the high teens, excluding merger-related expenses, due to supporting a larger asset base and redundant expenses until systems conversion in Q3 2025

    no change

    Provision for Loan Losses

    FY 2025

    The provision is expected to remain dependent on the pace of loan growth and the overall asset quality of the portfolio

    Dependent on loan growth pace and asset quality

    no change

    Capital Levels

    FY 2025

    Capital levels are expected to remain relatively stable in the near term, given the stronger growth outlook

    Expected to remain stable due to earnings retention and growth outlook

    no change

    Technology Initiatives

    FY 2025

    Two significant technology initiatives are planned for 2025: – An upgraded retail and small business online banking platform. – Systems conversion of the recent acquisition

    Completion of two significant initiatives in Q3 2025: – Enhanced retail and small business online banking platform rollout. – Systems conversion of the First Minnetonka Citibank acquisition

    no change

    Market Disruption Opportunities

    FY 2025

    no prior guidance

    Growth opportunities expected from market disruption in the Twin Cities due to Old National's acquisition of Bremer Bank

    no prior guidance

    TopicPrevious MentionsCurrent PeriodTrend

    Net Interest Margin Expansion

    In Q3 2024, management discussed stable margins with modest expansion forecasts driven by deposit cost declines and loan repricing ( ). In Q4 2024, they expressed optimism with continued modest expansion supported by lower deposit costs ( ). In Q1 2025, they reported a 19 basis point increase and highlighted factors such as declining deposit costs and improved loan yields ( ).

    In Q2 2025, they reported an 11 basis point expansion despite headwinds from the subordinated debt issuance which is expected to cause a 7 bps drag in Q3; they remain confident in long‐term expansion via proactive loan repricing ( ).

    Consistent upward expansion with evolving short‐term headwinds and sustained long‐term optimism.

    Loan Growth

    In Q3 2024, loan growth was expected to be flat with a robust pipeline yet cautious outlook ( ). In Q4 2024, they observed a 7% annualized increase with a healthy pipeline ( ). In Q1 2025, they reported strong annualized growth rates (16% and 15.9%) with record pipeline levels ( ).

    In Q2 2025, loan balances grew at a 12.5% annualized rate with the pipeline near a three‐year high and double the new originations compared to the prior year ( ).

    A shift from cautious or flat expectations to robust and record growth signals, indicating improving confidence in loan origination.

    Deposit Growth and Funding Cost Management

    In Q3 2024, they highlighted strong core deposit growth and an improved deposit mix through reduction of higher-cost deposits ( ). In Q4 2024, core deposits surged with strategic deposit mix enhancements, while funding costs were actively managed ( ). In Q1 2025, strong organic core deposit growth continued alongside efforts to lower deposit costs through rate cut benefits ( ).

    In Q2 2025, they reported continued strong deposit growth (e.g., $74 million increase) with stabilization of deposit costs and proactive management through relationship adjustments and wholesale funding strategies ( ).

    Consistently positive deposit growth with ongoing improvements in funding cost management and stabilization amid seasonal headwinds.

    CRE Lending and Asset Quality

    In Q3 2024, the focus was on multifamily strength, limited office exposure, and modest growth expectations amid a conservative credit approach ( ). In Q4 2024, they noted construction commitments and market disruption opportunities while monitoring office risks ( ). In Q1 2025, opportunities from market disruption and a focus on affordable housing were emphasized alongside caution on office loan risks ( ).

    In Q2 2025, CRE lending showed robust growth driven by non-owner-occupied CRE and affordable housing, with strong asset quality indicated by minimal charge-offs and only a minor uptick in classified loans ( ).

    An evolution from cautious selective growth to robust expansion leveraging market disruption, while maintaining sound asset quality and managing specific credit risks.

    Competitive Pressure in Lending

    In Q3 2024, competitive pressures were noted with increasing competition leading to tighter yields on new loans ( ). In Q4 2024, competition was described as stiff with noticeably tighter spreads ( ). In Q1 2025, increased competition emerged from previously sidelined players tightening spreads further ( ).

    In Q2 2025, re-emerging competition continues to drive tighter spreads, prompting the strategic use of swap products and opportunistic positioning amid market disruption ( ).

    Persistent and intensifying competition across periods, with strategic adjustments emerging to mitigate pricing and spread challenges.

    Recurring Swap Fee Income Dynamics

    In Q3 2024 there was no mention of swap fee income dynamics. In Q4 2024, swap fees were reported at over $500,000 but were characterized as transaction-specific and sporadic ( ). In Q1 2025, there was no discussion on this topic.

    In Q2 2025, a new strategic focus on driving recurring swap fee income was introduced, with initiatives to train staff and market the benefits, though the income remains lumpy quarter-to-quarter ( ).

    An emerging focus in the current period aiming for increased consistency, though income remains volatile and transaction-dependent.

    Subordinated Debt Impact on Margins

    There was no discussion of subordinated debt in Q3 2024, Q4 2024, or Q1 2025.

    In Q2 2025, the issuance of $80 million of subordinated debt at 7% replacing $50 million at 5.25% was introduced as a new short-term headwind, anticipated to create a 7 basis point net drag on margins in Q3 ( ).

    A new topic in Q2 2025, identified as a short-term drag on margins despite its potential to improve the capital position in the future.

    Integration Synergies and Expense Rationalization

    In Q3 2024, integration of the acquisition was mentioned as strategically beneficial with low integration risk ( ). In Q4 2024, detailed cost savings (up to 30%) and expense rationalization efforts were outlined, including planned systems conversion and expense rationalization spending ( ). In Q1 2025, merger-related expenses were noted with efficiency improvements and an emphasis on technology initiatives for conversion ( ).

    In Q2 2025, integration synergies continue with the systems conversion on track for third-quarter completion and strong deposit retention noted, though noninterest expense growth is expected to remain in the high teens until full rationalization is achieved ( ).

    A consistently positive narrative on integration, evolving from initial strategic benefits to detailed expense rationalization and ongoing synergy realization.

    Dependence on Fed Rate Cuts and Macroeconomic Uncertainty

    In Q3 2024, the discussion centered on modest margin expansion driven by rate cuts, with uncertainties regarding the pace of future cuts and competitive pricing challenges ( ). In Q4 2024, reliance on rate cuts was highlighted as key to reducing deposit costs amid an uncertain rate outlook ( ). In Q1 2025, a significant portion of the funding base was noted to be tied to short-term rates, positioning the bank to benefit from potential rate cuts despite macroeconomic concerns ( ).

    In Q2 2025, the strategy remains similar with deposit cost stabilization tied to potential rate cuts and acknowledgment of macroeconomic uncertainties affecting margins, even as short-term headwinds like the subordinated debt emerge ( ).

    A consistent reliance on Fed rate cuts remains, with persistent macroeconomic uncertainties affecting future margin prospects, though the bank adapts its funding strategy over time.

    1. Margin Performance
      Q: What was June’s margin average?
      A: Management reported a $265M standalone margin in June, providing a strong baseline despite anticipated Q3 headwinds.

    2. NIM Outlook
      Q: How will margin trend post sub debt?
      A: They expect continued modest NIM expansion driven by ongoing loan repricing and stable deposit costs, even with a slight Q3 drag from sub debt issuance.

    3. Funding Costs
      Q: Can further funding cost reductions be achieved?
      A: The team is actively reviewing deposit and wholesale funding relationships to lower funding costs further, independent of rate cuts.

    4. Sec Sale Rate
      Q: What yield did the securities sale achieve?
      A: The securities sale was executed on treasuries and MBS yielding in the low 4%, which is below the overall portfolio’s blended yield, enabling redeployment into loans earning mid-to-high 6% levels.

    5. CRE Growth
      Q: Is CRE the main growth driver?
      A: While CRE was strong in Q2, management envisions balanced growth across all verticals—including CRE, affordable housing, and multifamily—throughout the remainder of the year.

    6. M&A Activity
      Q: Any new M&A opportunities on the horizon?
      A: Conversations continue at a preliminary stage, with a strategic focus on organic growth while selectively exploring M&A opportunities.

    Research analysts covering Bridgewater Bancshares.