Bridgewater Bancshares, Inc.

Good morning and welcome to the Bridgewater Bank Shares 2023 Third Quarter Earnings Call. My name is Debbie 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 2. Please note that today's call is being recorded. At this time, I would like to introduce Justin Horstman, Director of Investor Relations, to begin the conference call. Please go ahead.

Thank you, Debbie, and good morning, everyone. Joining me on today's call are Jerry Bach, Chairman, President, and Chief Executive Officer Joe Schabowski, Chief Financial Officer, Jeff Shelberg, Chief Credit Officer, and Nick Place, Chief Lending Officer. In just a few moments, we will provide an overview of our 2023 third 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 disclosure in our 2023 third 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 period ended September 30th, 2023. 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 2023 third 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, President, and CEO, Jerry Bach.

Thank you, Justin, and thank you everyone for joining us today. I'll start with a quick overview of the third quarter, which had several encouraging trends. First, after net interest margin compression began to slow in the last quarter, WE'RE PLEASED TO BEGIN SEEING THE STABILITY IN THE MARGIN DURING THE THIRD QUARTER. WHILE THE MARGIN DECLINED EIGHT BASIS POINTS QUARTER OVER QUARTER, WE SAW SIGNS OF STABILIZATION ON A MONTH-TO-MONTH BASIS THROUGHOUT THE QUARTER. JOE WILL TALK MORE ABOUT THE MARGIN DYNAMIC SHORTLY. SECOND, GIVEN THE PROLONGED HIGHER INTEREST RATE ENVIRONMENT, WE'VE BEEN FOCUSED ON ENHANCING OUR BALANCE SHEET COMPOSITION TO SET US APART FOR LONGER TERM PROFITABILITY AND SUCCESS. Concentrated efforts are being made to build our deposit base, reduce our reliance on higher cost borrowings, and slow our pace of loan growth in the near term. For the second consecutive quarter, we saw improvements in our overall funding base as core deposits increased 11% on an annualized basis, and total borrowings declined 30% from the second quarter with no overnight borrowings on quarter end. While we have determined a long track record Generating robust and profitable loan growth over the years, we have intentionally slowed the pace of loan growth in 2023 and actually saw balances decline slightly in the third quarter. While this was due in part to an uptick in payoffs and paydowns during the quarter, we're also being more thoughtful about our growth in the current environment. As a result, we expect more limited loan growth in the near term. Combined with growing deposits and capital, reducing the loan deposit ratio, and stabilizing the net interest margin, this will give us the ability to generate profitable growth when the environment becomes more favorable. Bridgewater has always been a growth engine, and we certainly don't see that changing. However, we believe being more selective today will position us better for the long term. Expenses remain very well controlled on a year-to-year basis. However, as expected, we saw an increase in non-interest expense in the third quarter, primarily related to ongoing investments we're making in our people. Lastly, asset quality remains superb with just one basis point of net charge-offs, consistently low levels of non-performing assets and stable levels of watch and substandard loans. While we continue to be very proactive and diligent on this front, we remain pleased with the performance and quality of our loan portfolio. In addition to these encouraging trends, our overall focus remained on driving steady, tangible book value growth for our shareholders, which we have done for 27 consecutive quarters. In fact, only 12% of banks between $3 and $10 billion in assets have been able to grow tangible book value each of the past eight quarters. Before I hand it over to Joe, I want to take a minute to share some additional insights into other activities happening across the bank. The BWB culture remains a focus. Engaged team members translate to better service, less turnover, and ultimately a more committed workforce. We see great engagement with our team members Participation in events, including health and wellness, mentorship, DE&I, and volunteering remains high, and turnover remains well below industry norms. And we continue to receive recognition locally and nationally for our culture. In addition, we are continuing to proactively engage with existing and potential clients, which includes expanded outreach to targeted verticals in C&I. We indicated at the beginning of the year that CNI was a focus for us, and we were making inroads in certain niche areas where we have strong connections, like women-led businesses and entrepreneurs and companies running on the EOS operating system. Networking is something we do better than anyone, and we are using the strength to extend outreach into these opportunities. While we are still in the early stages, we have had early success in creating new CNI opportunities. Being efficient has always been important to BWB. Investments in technology, specifically streamlining workflows, are creating efficiencies across the business. Investments in our project management function are ensuring we execute effectively on large internal initiatives and reap the rewards as soon as possible. While the overall environment remains challenging for many banks, I remain very optimistic on how Bridgewater is position moving forward. With that, I'm going to turn it over to Joe.