Up next, we have Bridgewater Bancshares, Inc., traded on NASDAQ under symbol BWB. On behalf of the company, we have Jerry Baack, Chairman and CEO, and Joe Chybowski, President and CFO.
Welcome, everyone. Thanks for joining. Today, we're excited to be here at the Midwest Ideas Conference. Again, I'm Jerry Baack, the lead founder, Chairman and CEO of Bridgewater Bancshares. We're located in the Minneapolis area, in Twin Cities, suburb named St. Louis Park. We were founded in 2005. Our platform, since the very beginning, is really to focus on an entrepreneurial banking base and continue to grow in the Twin Cities area and take advantage of the disruption in the area. Today, we're about $5.3 billion in assets, primarily a commercial focus, focused on entrepreneurs. We have a great multifamily experience, affordable housing, and again, just taking market share in the area. We have nine branches currently. Five of those were de novo branches. Four of those were branches that we acquired through two very small in-market acquisitions we did over the years.
Our strategic leadership team has, this has actually changed since this slide. The six of us have been together for quite a while on this leadership team. Two of my founding leaders of the bank are retiring, and I'm the only guy that's left. With that said, we've always been able to take talent into our organization and have them become leaders over time. We're really excited about the three new additions to our leadership team, which is Jess Stejskal, Katie Morrell, and Laura Esposito. Things that really differentiate BWB is our culture, our growth, our efficiency, and risk management. I can talk about each one just briefly here. Our culture at Bridgewater Bank is probably unlike any other bank in the nation. We really have a solid culture. People really get the work hard, play hard mentality. We've got a phenomenal group of people.
We've always tried to do things that we say are unconventional, different than a normal, boring bank. We have activities for clients or our employees and just differentiate ourselves across the entire landscape. Balance sheet growth has really been one of our hallmarks. We've always had consistent growth. What we really look at is consistent, tangible book value growth. If you look at the slide, we've really had a solid growth in book value. We did one small acquisition that it dipped down for a little bit, but this shows how we compare compared to peers on our book value growth. Risk management, we really take this seriously. Since day one, we've had less charge-offs, less non-performing loans than all of our peers. We just have a phenomenal risk management process.
We talked about our highly efficient business model, with having such a light branch footprint for the amount of assets we have, which has driven profitability for us and efficiency. My last slide, until I turn it over to Joe, is really just talking about the Twin Cities and what's happened in the industry. 10 years ago, we were the 14th largest locally led institution in the Twin Cities. Today, we're the second behind U.S. Bank. We're the only publicly traded company in the Twin Cities other than U.S. Bank. There's just a lot of market disruption within the Twin Cities that we've been able to take advantage of over the years. The biggest driver right now is really Old National Bank, which has done a lot of consolidation over the years. It has purchased Bremer Bank, which is about a $17 billion bank in the Twin Cities.
We continue to take advantage of that. With that, I'm going to turn it over to Joe.
Thank you, Jerry. Yeah, as Jerry mentioned, robust organic asset growth, really going back to the founding in 2005. The chart here we show is the last 10 years, 20% compounded growth, primarily organic. We've done two small acquisitions, one in 2016, and we just closed one in 2024. Otherwise, the organic growth, to Jerry's point, there's been a ton of consolidation, which has really been kind of our bread and butter, picking off teams, picking off business. To Jerry's point, the mention of Bremer Bank continues to be an opportunity for us to grow. We feel like we have a phenomenal runway to continue to grow in the Twin Cities. If you think about U.S. Bank and Wells Fargo, they still control over 60% of the deposit market share. For us, if we just get the scraps, it's a tremendous opportunity.
Core deposits, this is the lifeblood of any banking institution. We feel like we do it very well. If you look over the last five quarters or even over the last five years, we've grown at an 11% clip. It's certainly not easy. We feel like we have phenomenal teams that get in front of relationships. To my point earlier, U.S. Bank, Wells Fargo continue to provide opportunities to bring over deposits. I think we feel like we have the full suite of products to serve a lot of these clients, the technology stack in place, and ultimately, we differentiate with the service. Feel good about the runway. Core deposits will always be, for us, somewhat of the governor of growth. We feel like since the founding, we've definitely supplemented core deposit growth with more wholesale funding, but truly, the value of the franchise is driven here.
Feel good about the runway as well, considering the continued disruption in the Twin Cities. Loan growth, we have a phenomenal team that really gets in front of high-quality paper. There's no trouble of people wanting debt. I think we've tried to be really methodical about the loan growth, especially over the last five quarters, really focused on core deposits and then ultimately profitable loan growth. You think over the last couple of years, it's been a difficult rate environment, and it's been harder for deals to pencil, but we've tried to be really disciplined about pricing. We feel really good about the runway and the pipeline that we have here over the coming quarters. We feel like we're getting in front of a lot of high-quality, both existing clients and prospective clients. Loan growth is a hallmark and always has been.
The portfolio, you know, it's been an intentional effort over the last 10 years. You can see here just the diversification. We've always felt like the portfolio is well diversified, but an intentional shift truly to originate more multifamily. You've seen the portfolio grow from 21% in 2015 to close to 40% today. To Jerry's point, that is our bread and butter, multifamily lending within the Twin Cities. I'll talk about more of an opportunity we see more nationally. This asset class has performed very well. I'll show you on the next slide. In banking, the regulators would consider it a CRE concentration. They measure that relative to our risk-based capital. They have some, you know, thresholds and guidelines related to exposure.
I'd say on the face, you know, we are over that limit, but I also think we feel really good about multifamily and feel like it's a different asset class. When those CRE guidelines were written in 2006, we felt like it didn't fully consider multifamily. The performance of that portfolio and that asset class, you can see going back, you know, really the last 30 years. This is FDIC net charge-off history. Multifamily has been the best performer if you consider it relative to other asset classes. We've seen that in our portfolio. We've only experienced $62,000 of charge-offs in our 20-year history. It's definitely performed very well. As Jerry said, that all starts with the principles and the relationships. We feel like we have a phenomenal network within the Twin Cities and growing that really supports these projects.
A lot of diversification, you can see whether you look at it based on class type, primarily within the Twin Cities, and then based on unit type. We feel like it's a well-diversified portfolio, very granular, average loan size of $3.4 million. It continues to perform very well despite a lot of the national headlines. Affordable housing would be now a subsegment of the multifamily. This is an expertise we've had for a long time. I think we've really seen this as an opportunity to grow more outside of the market. We've always done kind of naturally affordable housing. Now this is more intentional, involving low-income housing tax credits. I think the advent of this, I mean, we banked a lot of high-quality developers within the Twin Cities. We would follow them to other markets, but we would always kind of base it on their location.
We'd use kind of a ring fence around the Twin Cities. Now I think this expertise, and we see this opportunity, gives us the ability to work with developers out of the market that are originating within the Twin Cities. We also see an opportunity to follow out-of-market developers out of market. Tremendous opportunity here. There's a shortage of housing, really in every major MSA. We feel really good about this space and where we can stack up within the capital stack. The loss history on the affordable housing space is even better than the multifamily space. We see this as a growth opportunity, more on a national basis. It's grown at a 15% clip over the last year. We continue to get in front of the best-in-breed developers across the country. A spread-based business model, pretty simple. We make loans, we bring in deposits, we clip a spread.
Obviously, that was a slog from really mid-2023 until the Fed started cutting at the tail end of last year. With an inverted yield curve, it's been challenging. You can see that from a revenue standpoint. Two years of just stagnant revenue growth. Since the Fed started cutting in the tail end of 2024, we see a real opportunity both for margins to expand and then growth to really continue and translate. We've also spent a lot of time over the last couple of years trying to diversify the income stream. We have a lot of focus on fee income, and you can see that really starting to translate at the tail end of 2024. In the second quarter of 2025, it was a record quarter for us from a non-interest income perspective.
I think we really try to be disciplined about non-interest income as that a lot of times comes with an expansive overhead. We do see opportunities to continue to grow that and diversify our revenue stream. We also feel good about the growth going forward. From a margin standpoint, I touched on it a little bit on the previous slide, but net interest margin, that's the primary driver of earnings for us. Really seen expansion here over the last couple of quarters and continue to see runway. As the loan book continues to reprice, a lot of 2020 and 2021 vintages are rolling off and repricing, you know, in some cases, high 3%s, low 4%s are now repricing in the mid-6%s to low 7%s. That's really provided a pickup in terms of the earning asset yields.
Deposits, as the Fed, you know, has cut rates and potentially will cut rates if Trump becomes a voting member, you know, we see an opportunity for deposit costs to continue to fall as well and margin to expand. This is the loan portfolio really broken out based on fixed, variable, and adjustable. Primarily a fixed-rate book. Obviously, in a, you know, a + 500 rate environment has been challenging. However, like I said, as debt continues to roll off or reprice, you can see here over the next 12 months, you know, we got just inside of $600 million repricing in the mid-5%. We'll put on new debt today in the mid-6%s. Similar on the adjustable portfolio, you can see at $443 million, that'll again reprice in the mid-6%s. There's a real repricing opportunity here. Also, sloping the curve has helped as we've gotten some steepening here.
If the Fed cuts short rates and the belly of the curve stays the same, I mean, that's a nirvana environment for us. We really feel good about the margin trajectory and really the growth of net interest income over the coming quarters. Highly efficient business model. Jerry touched on this a little bit. Extremely branch-light footprint. Commercial focus. Nine branches compared to our peers. Typically have, you know, just about 40 branches. This is intentional strategically throughout the Twin Cities. We look at it as the overhead that comes with the branch network. The larger the branch network can translate to a lower deposit cost. We really look at this breakdown here.
If you look at our overhead relative to our earning assets and you add our cost of funds, you know, our goal is to always be well inside of our peers who have larger branch networks but a lower cost of funds. You can see that play out here on a total cost basis. We're well inside of our peers. This is an intentional effort. Obviously, efficiency ratio is driven both by revenue and expenses. We feel like we continue to well control expenses. As the revenue growth has picked up, as I talked about, you can see the efficiency ratio continue to grind lower. Our target range is really 45%- 50%. We still have some room to grow, but we definitely see that continuing to trend lower as revenue has picked back up. Strong credit culture. Jerry touched on this a little bit. This has been a hallmark.
He didn't mention, so Jerry was a previous FDIC regulator. We have seven regulators on staff. Our other principal founder, Jeff Shellberg, was at the FDIC for 15 years. We definitely have a background of regulatory compliance, and I think that drives our high-quality credit culture. You can see that through the numbers. Us, relative to peers, both on charge-offs and in non-performing assets, continue to outperform peers over the years. This is more just a deeper dive into substandard assets, NPAs themselves. Been extremely well controlled. The pickup there in NPAs in the second quarter is primarily one project. It's a CBD office loan in St. Paul. As you know, that's definitely been a challenged environment for us. That is our only CBD office loan that's still on the books. It will certainly be a longer-term workout, but feel really good about the broader portfolio.
From an allowance perspective, our allowance is healthy, well-reserved relative to peers at 1.35% relative to loans. Charge-off history, as I talked about, extremely low, not only over the last five years, but really going back to inception. This has always been a hallmark of ours. Capital, to support all of it. We highlight our capital priorities here. As I touched on earlier, organic growth is our primary use of capital. Earnings retention to support growth has always been important. M&A, we've only done two deals. That dip down there, in the third quarter of 2024, is when we closed our deal. Previous to that, we were accreting capital. Now as growth has picked back up, we really feel like the earnings retention should support growth on a go-forward basis.
Whether it's a TCE, tangible common equity, or common equity tier 1, both kind of regulatory ratios, we feel really good about the runway and the ability to support growth. We do support this, depending on valuation, share repurchases. We're not afraid to support the stock, and we've seen opportunities over the last couple of years to do that. We do not pay a dividend today. I believe you said if we do pay a dividend, the day we do that, we will sell. No, the growth itself is supported. We feel like it's a better use of capital than to pay out to shareholders on a dividend basis. Strategic priorities, I think we set these obviously every year. Really, they haven't changed over the last couple of years in terms of can we get back to more profitable levels of growth?
Can we continue to grow the deposit base, both loan and deposit market share? We've really invested in technology over the last five years, starting with kind of loan workflow solutions, back office workflow solutions. How can we digitize any sort of process? Really built out a data warehouse. We spent a lot of time partnering with ServiceNow. I think as the growth really kind of was more controlled over the last couple of years, we spent a lot of time investing internally. We really feel like those investments will start to pay off as the growth picks back up. Finally, just from an M&A perspective, we closed that deal in the third quarter of last year. Our conversion is here in September 8th. Integration has been well on track. Client retention has been awesome. We've only seen 2% - 3% deposit attrition. We feel like it's gone really well.
Ultimately, I think there are more opportunities within the Twin Cities and throughout Minnesota to do more M&A. We're going to be really disciplined about that. Make sure that the companies that we consider are definitely complementary to our business model. With that, we'll open it up for questions.
Yes.
A couple of questions. I'm surprised to see that target on the credit is such a ratio of 45: 15 when you were in the very low performance in 2021 and 2022. Why are you actually looking at a higher residency ratio as a target? In what conditions brought that down to the very low 40%s? That's number one. Number two, I'm not sure that many have listened for, I mean, in the New York area, a lot of people have got.
Yeah, good questions. On the efficiency ratio comment, I think when we look at the environment in 2020 and 2021, it was a zero-rate environment. When we think about on a go-forward basis, again, I don't like to call rates, but we don't anticipate we get back to that environment. I do think we're trying to think about what's a more normalized rate environment and what's kind of our go-forward efficiency ratio from that perspective. The 45% - 50% is our goal. I think there's potential, as we've invested a lot in technology and really starting to see the payoff, that you could break through, get back to the low 40%. I think our goal is to get 45% - 50% to start. Certainly, with an upward sloping normalized yield curve, we definitely see that as potential and possible.
On the rent control question, I don't know, Jerry, if you want to take that one. Yeah.
We're definitely not New York, but sometimes there's some ideas that come through our city council that are very similar. St. Paul had rent control. They still have rent control. They scaled it back significantly. That really changed all the building in that community. Minneapolis did try, also tried to do rent control. Do I think it's an issue long-term? Yeah, I think it's an issue across the nation. I think every municipality does things differently. We're certainly not concentrated in just the Minneapolis and St. Paul city areas. We're in all the other suburbs, et cetera. We do underwrite St. Paul and Minneapolis differently than we would the first or second-ranked suburbs. To date, there has not been anything significant that's happened. That doesn't mean it's not going to. Did that answer your question?
Yeah, the 67% LTV that you put there, that's updated for recent transactions.
That's based on within two years of either an appraisal or an internal evaluation. We go back through the entire portfolio. It's a weighted average of what the most or the oldest one would be, two years, so 18 months to two years. Generally, if you look at it on an overall average basis, they're either appraisals or internal evaluations within 12 months- 14 months.
The last question I had is you talked about non-interest income. To what extent do you consider it either trust or insurance, just core financial or?
Trust or insurance, you were saying? I don't, unless that came through an acquisition, through an M&A transaction, I really don't think that's something that we've really thought hard about. I don't think we'd want to build that internally. Would we consider buying it or diversifying into that space? We'd consider it. It's probably not on our top five list of non-interest income sources that we're looking at, though. You know.
You want to go on this one? Take that one, yeah.
Yeah, I think when we look at non-interest income, like I said earlier, a lot of it is these, you know, it's a big overhead build-out. To Jerry's point, if we don't want to build it, it would be more buying it. Now, insurance, you know, the premiums and the valuations on insurance, banks peeling that off has gotten, you know, pretty silly, to be totally honest. A lot of insurance that lives within banks is selling. That's a space that, you know, we don't see on our list. Where we see real opportunity is through swap fee income. Not to get really in the weeds, but on a loan transaction today, we have the ability to swap with our clients from a fixed to a floating rate. A lot of that generates, you know, swap fee income up front. It's kind of our core business being commercial banking.
You add swap fee income, we don't deviate far from our core business. The overhead already exists today. The upside of the swap fee income can be tremendous. Ultimately, I think we see those avenues where we don't deviate far from the core business, but we can generate fee income. That's been the biggest driver, I'd say, of growth thus far. Through one of the M&A deals, we did acquire a small investment advisory firm. They have about $250 million in assets under management. Two advisors, I mean, we see some potential to plug that into our kind of high net worth client base. Outside of that, it's kind of core kind of deposit service charges and really core banking transaction fees. I think the thought of building mortgage, you know, mortgage has really obviously struggled over the last couple of years. That's not appealing either.
Try to be really disciplined on, you know, those non-interest income sources and really the build-out that it would take to put it in place.
Do you see any change in developments there, or are you seeing the cost?
Yeah, I'd say maybe not explicitly the cost yet, but I'd say their approach has changed pretty dramatically. We actually just kicked off an FDIC exam on Monday. You can see a wholesale change in their interactions. Not that it was combative before. We've always had a good regulatory relationship. It's almost like they really want to be your partner. They're really trying to streamline the exam process, trying to streamline the reporting process. Our relationship manager with the FDIC has also really been a partner. You're seeing it through just a more friendly regulatory environment. From the M&A perspective, transactions are getting approved much quicker. There's been a distinct change, certainly. I think we're 80% in the Twin Cities.
In St. Paul and Minneapolis, let's say it's
20%.
I was going to say 15.
Yeah.
We tried to get that complete data one.
We're more in the seven-county metro outside of just Minneapolis, St. Paul proper.
The last question you had on your slide.
Exactly. That's the give and take. Exactly. Yep.
Question that is driven by wholesale funds. If you strip that out, what is your true?
Great question. Yeah, our core deposit costs are kind of in the mid-2%s. If you look at our total deposit costs, they're in the low 3%s. I think the fact that we supplement with wholesale funding definitely brings that cost higher. The core book has performed really well. That's a great question.
Just how much multifamily, Finn, may I have listed for you, Jerry?
They only had $1 million of multifamily. They had a $100 million loan portfolio, only $1 million. I think that was a big add too. I mean, core deposits were first and foremost. That franchise had a phenomenal granular deposit base. The loan portfolio was only $100 million on a $250 million bank and no CRE that came with it. We really, really like that.
I'm sure you can't get anything multifamily to be living with.
I'm sorry.
I always joke. It's usually a couple of things. It's either drugs or alcohol. It's just a couple of clients that kind of hit the skids. Outside of that, there's another multifamily that we downgraded that just that service isn't there. They're in a part of the Twin Cities that just hasn't recovered since the riots, and it's been tough.
I'd say generally, I mean, multifamily . We saw definitely some oversupply really in 2021 and 2022 as deals came online. Over 2023 and 2024, just given rates, there wasn't a lot of new projects. We've really seen a lot of definitely absorption. Vacancy rates across the Twin Cities continue to come down. Concessions burn off. I think while the reprice was somewhat challenging on 2020 and 2021 vintages, we feel really good about the go-forward. I think also just transactions have also picked up within the Twin Cities. For some projects that haven't penciled out and haven't worked, our clients have been willing to kind of blow through their equity and sell projects. There's been buyers and sellers. I think it's been a healthy functioning market too. If there wasn't somebody stepping in on the other side, we'd start to be concerned.
I think that's helped support values as well. No, no, pretty much nothing. Yeah. We have a pretty small SBA portfolio, but it's an opportunity that we do see potential growth. One of the banks that we mentioned, Bremer Bank, that was purchased by Old National, they had a decent SBA platform. We are talking to some of their folks potentially looking at building that out. We do see an opportunity to expand SBA, certainly.
You kept the branches of the acquisition. Barring any future acquisition, how much do you think you need to make it a new branching or a de novo branching?
Yeah. I think it's one of those that, we actually have a de novo branch that we're coming online in the first quarter of next year on the east side of the Twin Cities. We still see opportunities to plant de novo branches, barring any sort of M&A activity. As we look at M&A, we're certainly looking at their footprints relative to ours and, you know, is it complementary or is there overlap? The deal that we just did had two branches. I mean, they do fit within our footprint. We continue to evaluate, do we need both of those branches or not? I think they've performed very well. The fact that we only have nine, it's not a huge drag, but I think there's still a place for de novos throughout the Twin Cities. We continue to evaluate that.
I don't know if you have any other comments on that.
No.
the revenues are a level of deposits, I mean.
Yeah. Our goal is $100 million in the first five years. I think if you look at our branches, we're well above that, just given, you know, we only have nine of them. I mean, that's always kind of been our model. In order for it to actually make sense, you know, we got to grow to at least that in the first five years.
Any purchase loans or, I guess, the out-of-market loans? Are they customers that took you out of market or are those purchase?
They're customers that took us out of market. Purchase loans can count on one hand. I think we don't do purchasing of loans. I think there was a lot of banks get burned through the GFC on that. For us, out-of-market loans, the affordable housing space is really where we're starting to follow now out-of-market developers. Primarily, it's always started with the Twin Cities roots to it. We'll follow a client out of market.
What's the quarter by? They're talking about CNI. Where's the deposit base coming from?
Yeah, I mean, it's really like the Twin Cities. I think a lot of it, like we talked about, given U.S. Bank and Wells Fargo have over 60% of the share. I mean, a lot of it's just coming from legacy relationships there. There's been a lot of consolidation. That one slide really highlights the amount of banks, kind of $2 billion - $5 billion, that have been gobbled up over the last 10 years. You kind of look at these, you think about TCF, right? I mean, Twin Cities Financial was a staple within the Twin Cities. Huntington bought them. Bremer Bank got acquired. Klein Bank got bought by Old National. Anchor Bank, Central Bank both got bought by Old National and Midwest One. A lot of it is us through the disruption of these deals merging together. We're attracting a lot of their clients.
The market itself, I mean, also there's been growth, obviously, in the Twin Cities deposit market, and we continue to grow faster than that. I'd say for us, we try to be really focused on who we go after. I think ultimately it's the high net worth individual within the Twin Cities, the real estate entrepreneur. I mean, it's a myriad of opportunities. More and more as we stand alone now outside of U.S. Bank, we've seen a lot more clients that have been disrupted that are coming to us. I think the C&I piece, that continues to obviously be a great deposit source. The affordable housing initiative I talked about has also been a great deposit source for us as well. If you think about a lot of those clients, really they don't have any tie to the loan itself.
It's being financed by Fannie or Freddie or HUD, and so there's no requirement to where the deposits end up. For us, we've seen that as an opportunity to lead with the loan. We show our service level and how we operate, and ultimately, we've been translated to deposits. I think that's been a huge part of that growth initiative. It's not just the asset, but really the funding opportunity. Yeah.
Do you have much in the way of municipal deposits?
We don't. That's an area that Bremer did a lot of municipal, had a lot of municipal deposits. I think the hard part with municipalities is, a lot of times they outsource to a broker-dealer and investment advisor. It's kind of a, it becomes a zero-sum game in terms of the deposit costs that come with municipalities. The infrastructure you have to have is, we haven't seen it be extremely profitable. However, with Bremer exiting, we do see an opportunity to potentially grow that business. Getting a blinking red light. I don't know what the time keeps resetting. Is that good or bad? Oh, shoot. Okay. Sorry about that. Thank you, everyone. Appreciate it.