On Wednesday, Bridgewater Bancshares (NASDAQ:BWB) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
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Summary
Bridgewater Bancshares reported a strong start to 2026, with a net interest margin expansion to 2.99%, nearly reaching their year-end target of 3%.
The company executed strategic sales of securities, resulting in a net gain and improved balance sheet efficiency, contributing to a $7.3 million increase in pre-tax net income for the quarter.
Loan portfolio grew by 5.5% annualized, with a focus on affordable housing, while core deposits increased by 3.2% annualized, demonstrating continued market share gains.
Asset quality remained strong with declines in net charge-offs and non-performing assets, and capital ratios improved, with CET1 increasing by 36 basis points to 9.53%.
The company opened a new branch in Lake Elmo, expanding their footprint in the Twin Cities, and announced an at-the-market offering for up to $50 million of common stock to enhance capital flexibility.
Management expressed confidence in continued net interest margin expansion and loan growth, despite competitive pressures, and emphasized ongoing strategic priorities, including leveraging AI and focusing on affordable housing.
Full Transcript
OPERATOR
Good morning and welcome to the Bridgewater Bancshares 2026 first quarter earnings call. My name is Danielle 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 two. Please note that today’s call is being recorded at this time. I would like to introduce Justin Horstman, Vice President of Investor Relations, to begin the conference call. Please go ahead.
Justin Horstman (Vice President of Investor Relations)
Thank you Danielle and good morning everyone. Joining me on today’s call are Jerry Bock, Chairman and Chief Executive Officer Joe Chabowski, President and Chief Financial Officer Nick Place, Chief Banking Officer and Katie Morrell, Chief Credit Officer. In just a few moments we will provide an overview of our 2026 first 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, statement disclosure in the slide presentation and our 2026 first 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 quarter ended March 31, 2026 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 slide presentation and 2026 first 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 and CEO Jerry Bock. Thank you Justin and thank you for joining us this morning. Bridgewater is off to a strong start in 2026 with several positive developments during the quarter positioning us well for the rest of the year. First and foremost, I would like to point out Our Net Interest Margin Expansion While we mentioned last quarter that we expected to reach a 3% margin by the end of 2026, we nearly got there in the first quarter as margin expanded to 2.99%, deposit costs declined and loans repriced higher than helping us get there quicker than anticipated. We expect to see slow additional margin expansion over the coming quarters. Because of the net strong net interest margin, we were able to continue growing net interest income. This happened even while our balance sheet shrunk during the quarter due to some strategic sales of securities. These security sales were part of several opportunistic actions taken in the first quarter to enhance our balance sheet efficiency, resulting in both a substantial gain and positioning us for improved profitability moving forward. I want to be clear that this was not the standard balance sheet repositioning many other banks have done recently that involved selling securities at a large loss to increase future margin, but rather a calculated tactic Joe and our treasury team recognized. As interest rates moved in our favor in response to this shift, they executed on an opportunity to improve forward profitability while taking an immediate gain. Joe will provide more details on this in a minute. I’m pleased to report we continued to take market share in the first quarter as the loan portfolio grew 5.5% annualized with much of the growth continuing to come from our commitment to our affordable housing vertical. Core deposit momentum also continued as balances increased 3.2% annualized while the overall deposit mix continued to improve. Asset quality remained positive in the first quarter as net charge offs and nonperforming assets both declined nicely. We continue to feel good about the overall asset quality of our loan portfolio resulting from the strong credit culture we pride ourselves on. In addition, we saw a nice uptick in our capital ratios as CET1 increased 36 basis points to 9.53%. Turning to slide 4 tangible book value growth continues to be a staple of the Bridgewater story and that was no different in the first quarter as tangible book value increased 9.9% annualized to $15.93 per share. This is an important differentiator for Bridgewater. We are proud of our ability to create and sustain shareholder value through tangible book value growth and how consistent this trajectory has been over the past decade. Before I pass it over to Joe, I also wanted to share that we successfully expanded our footprint to the east. In February we opened our De Novo branch in Lake Elmo. This is a growing area in the Twin Cities and we are thrilled with the opportunities it presents to Bridgewater Bank. With that, I’ll turn it over to Joe.
Joe Chabowski (President and Chief Financial Officer)
Thanks Jerry. Before we take a deeper dive into the first quarter results, I wanted to walk through the balance sheet efficiency actions we took in late January and early February which are laid out on slide 5. As Jerry mentioned, this was really a win win for us as our treasury team recognized how we could take advantage of of the volatility in interest rates to not only improve future profitability but also generate substantial near term revenue. As part of the strategy, we sold a portion of our high quality securities portfolio which included the sale of 147 million of treasuries for a net gain of 1.2 million and the sale of 62 million of municipal bonds for a net gain of 6.1 million. By selling these securities that were yielding in the 4 and 5% ranges, we were able to redeploy these dollars into higher yielding loans going forward. In addition to these security Sales, we also prepaid 97.5 million of higher cost FHLB advances that were being used to fund the securities. While this resulted in a prepayment expense of 982,000, it helped to improve our funding mix and reduce our overall cost of funds at the end of the day. We generated an additional 7.3 million of pre tax net income in the first quarter, increased our permanent capital levels and supported future net interest margin expansion by reducing our cost of funds and creating an opportunity to redeploy capital into higher yielding loans. This is another example of how we are actively and thoughtfully managing our balance sheet to drive shareholder value. Turning to Slide 6, we were able to grow net interest income by 3% quarter over quarter despite the average interest earning assets declining 185 million as a result of the balance sheet actions I just mentioned. This is pretty impressive and was driven by 24 basis points of net interest margin expansion in the first quarter to 299. Our expectation had been to get to a 3% net interest margin by the end of 26, but we were very pleased that several factors allowed us to nearly get there in the first quarter. First, we saw the full quarter impact of the fourth quarter rate cuts on both sides of the balance sheet as total deposit costs declined 18 basis points and loan yields were still able to reprice higher by 3 basis points given the fixed rate nature of the portfolio. Notably, deposit betas during this most recent rate cut cycle have outperformed the betas we saw during the prior cycle, primarily due to a larger portion of our deposit base being directly tied to short term rates. Second, loan fees continued to increase as payoffs remained elevated. And third, there was a modest margin impact within the quarter from the balance sheet efficiency actions we took which resulted in a decrease in higher cost borrowings and a smaller balance sheet. Given that we were able to pull forward much of our expected net interest margin expansion for the year into the first quarter, we expect the pace of margin expansion to slow meaningfully going forward. However, we still expect to see some mild margin expansion over the coming quarters even with no additional rate cuts. With net interest margin resetting higher, some margin expansion expected to continue, and earning asset growth set to return, we are well positioned to continue driving net interest income Moving forward. Slide 7 highlights some of the net interest margin drivers the cost of total deposits declined by 18 basis points in the first quarter and is now down 40 basis points over the past two quarters. The decline in the first quarter reflects the full quarter impact of the rate cuts from the fourth quarter of 2025. Absent any additional rate cuts, we would expect to see deposit costs stabilize going forward, although we will continue to look for additional opportunities to lower the rates of deposit accounts where it makes sense. Our Portfolio loan yield increased 3 basis points during the quarter to 5.81. As we have said in the past, we expect our loan portfolio to continue to reprice higher in the current environment. Given the larger fixed rate component which makes up 65% of the portfolio, we have been actively originating more variable rate loans to make the portfolio more rate neutral going forward. Variable rate loans now make up 23% of the loan portfolio, up from 17% a year ago. We would expect this loan repricing to continue to support future margin expansion as our loan portfolio includes 644 million of fixed rate loans scheduled to mature over the next 12 months at a weighted average yield of 573 and another 106 million of adjustable rate loans repricing or maturing at 386. With these lower yields running off the books and new originations in the first quarter going on the books around 6%, we have further repricing upside ahead of us. Turning to Slide 8, we continue to see strong profitability and revenue growth trends as our adjusted return on average assets was just under 1% for the second consecutive quarter. We have also continued to consistently grow total revenue driven by steady net interest income growth. In addition, non interest income has topped $2 million every quarter since the fourth quarter of 2024, even excluding securities gains. This is a result of new fee income sources we have added recently, including swap fees and investment advisory fees, both of which we expect to continue to see throughout 2026. Turning to slide nine we have a strong track record of well managed expense growth as evidenced by our consistently better than peer efficiency ratio excluding the 982,000 of FHLB prepayment expense expenses still a bit elevated in the first quarter which is typically the case due to some seasonality first quarter expenses included, our annual merit increases going into effect across the organization early in the quarter, several key strategic hires related to the disruption in the market and the pull forward of some charitable contributions. Occupancy expense also increased due to the opening of our new branch in Lake Elmo. As we’ve said before, we continue to expect adjusted non interest expense to track closely with our general pace of asset growth over time. Keep in mind that this won’t apply in the first quarter as assets decline due to security sales. With that I’ll turn it over to Nick.
Nick Place (Chief Banking Officer)
Thanks Joe. Turning to slide 10 you can see our core deposit momentum continued with annualized growth of 3.2% in the first quarter. We were pleased with this level of growth as balances tend to remain seasonally lower earlier in the year. We have also seen an ongoing positive deposit mix shift given the more consistent core deposit growth, an overall decline in higher cost brokered in time deposits which have declined on a combined basis year over year. We continue to be very pleased with our core deposit growth and pipeline overall. This includes traction in our affordable housing vertical as well as opportunities from the ongoing M and a disruption in the Twin Cities. While our deposit growth tends to be a bit slower during the first half of the year, we feel really good about our ability to continue growing core deposits over time as these provide the fuel for our organic loan growth. Turning to Slide 11 loan balances grew 5.5% annualized in the first quarter. We have seen an increase in competition in recent months which has caused spreads to tighten a bit, but our pipeline remains strong and is near 3 year highs. As a result, we are in a good position to be selective on the types of deals we want to do and at yields that make sense. Overall, we feel we are right on track to hit our expectations of high single digit loan growth for the year. Obviously there will be various factors that impact our pace of growth including competitive dynamics, levels of payoffs and of course core deposit growth which is really our governor on how quickly we can grow loans. Turning to slide 12 you can see that our loan pipeline is continuing to translate into new originations while loan advances continue to increase as well. The increase in loan advances was driven by new construction projects over the past year that are now funding. We would expect to see new originations and advances remain strong in 2026. Payoff activity also remained elevated and we expect these to continue given the current interest rate Environment turning to Slide 13 CNI was the largest loan growth category during the first quarter. This was largely due to activity in real estate related cni including affordable housing. C and I is a strategic growth focus for us and an area in which we continue to invest. This includes adding additional talent with three new CNI bankers we’ve recently brought on board stemming from the MA disruption in the market. Overall, we are optimistic about our ability to continue expanding both talent and clients in this area. We continue to see meaningful opportunities for growth in affordable housing as balances in this vertical increase 57 million or 35% annualized during the first quarter. This growth is spread across both CNI and multifamily. With an ongoing focus on growing affordable housing and CNI as well as our strong expertise in multifamily and cre. We feel good about the mix and growth outlook for our loan portfolio. With that, I’ll turn it over to Katie.
Katie Morrell (Chief Credit Officer)
Thanks nick. Turning to slide 14, our overall credit profile remains strong after a modest increase in non performing assets and net charge offs in the fourth quarter. Both came back down in the first quarter. We mentioned in January that the multifamily loan we moved to non accrual in the fourth quarter was under a purchase agreement as planned. This transaction closed in the first quarter, dropping our NPAs back to 0.22%. Net charge offs were also very minimal at just0.05% annualized for the quarter. As we have said before, with a loan portfolio of our size, we do expect to have some modest net charge offs and and upticks in non performing assets from time to time, but we have also demonstrated our ability to effectively work through these credits. Overall, our loan portfolio continues to perform well and we remain well reserved at 1.31% of total loans. Looking at slide 15, our watch and special mention loans have remained relatively stable, sitting right around 1% of total loans, while substandard loans declined quarter over quarter primarily due to the multifamily loan mentioned previously. We continue to monitor all watch list credits closely, but again feel good about our overall asset quality and our ability to identify emerging risks within the portfolio. I’ll now turn it back over to Joe.
Joe Chabowski (President and Chief Financial Officer)
Thanks Katie. Slide 16 highlights our enhanced capital position which benefited from some of the balance sheet efficiency initiatives we mentioned earlier. Notably, our CET1 ratio increased from 917 to 953. We did not repurchase any shares during the quarter given our strong organic growth pipeline and where the stock was trading. In fact, we actually announced the launch of an at the market offering for the sale of up to 50 million of common stock which could add approximately 100 basis points to our CET1 ratio if fully executed. However, we did not execute on the sale of any of these shares during the first quarter. While we feel comfortable with our current capital levels, we like the additional optionality and capital cushion the ATM offering can provide if we choose to use it. Given the strong recent performance of the stock, we want to have the optionality to execute on the ATM and support capital levels if market conditions are favorable. Turning to slide 17 I’ll recap our near term expectations as Nick mentioned, we feel we are on track to grow the loan portfolio at a high single digit pace over the course of 2026. This will be dependent on a variety of factors, especially our ability to continue generating strong core deposit growth as we look to keep our loan to deposit ratio in the 95 to 105 range. From a net interest margin standpoint, we have basically already reached our 3% target that we had for the end of the year. As a result, we expect to see just some slow margin expansion from here, assuming no additional rate cuts in 2026. Our main focus remains on growing net interest income, which we believe we can do given expectations for margin expansion and continued loan growth. We also expect expense growth to align relatively well with asset growth over time. This may not be the case each quarter, but over the long run we believe this alignment can continue. As we have seen in the past, we feel we are well reserved at current levels and would expect provision to remain dependent on the pace of loan growth and the overall asset quality of the portfolio. We also feel that we can maintain stable capital levels after a solid increase in the first quarter. We also have some future optionality based on market conditions around share repurchases and the ATM we have in place. I’ll now turn it back to Jerry Thanks Joe.
Jerry Bock (Chairman and Chief Executive Officer)
Before we open it up for questions, I wanted to provide a quick progress report on our 2026 strategic priorities. We remain focused on taking market share in a profitable way in the first quarter. I was pleased to see good loan and core deposit growth, but what was even more exciting was a substantial net interest margin expansion. Our credit culture also continues to show through with minimal net charge offs. Our affordable housing vertical is another area that we are very focused on in 2026 and we have seen positive traction in this space as our brand and reputation continue to build. Lastly, on the technology front, we are working through several initiatives which include bank wide efforts to set the foundation for leveraging AI thoughtfully across the organization. I am proud of the team and the efforts put forth in the first quarter and believe we are well positioned for the year ahead. With that, we will open it up for questions.
OPERATOR
We will now begin the question and answer session. To ask a question, you may press Star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press Star then two. The first question comes from Brendan Nozzle from HUVD Group. Please go ahead. Hey, good morning everybody. Hope you’re doing well. Morning, Brendan.
Brendan Nozzle
Maybe just starting off here on capital, you know, you created what, 30 to 40 basis points of tangible capital this quarter with the security sale. Do you think that lessens the need for you to tap the market with the ATM in your view?
Joe Chabowski (President and Chief Financial Officer)
Hey, Brendan, this is Joe. Yeah, I mean, I think it all depends like we said. I mean we’re going to be opportunistic with the ATM. We like the optionality that it provides. I think we’re not going to bank on translating unrealized gains to realized gains. So I just think as we just generally think about capital, you know, I think we’re comfortable with where we’re at. We’re comfortable with the optionality we have on both sides. Want to be thoughtful about the organic growth prospects that we have. And so I don’t think it changes the calculus by kind of the one time gain that we took. Okay. Okay.
Nick Place (Chief Banking Officer)
Thanks, Jeff. Maybe turning to the hires you made this quarter, I think FT headcount was up like 15 for the quarter. Get that there’s a lot of M and A dislocation in your markets, but just wondering if there’s any really notable hires in that number that you’re particularly excited about. Hey, Brendan, this is Nick. Yeah, I mean we feel, we’ve been saying it for a while, that we feel like we’re well positioned in the market to take advantage both on the, on the client front and the talent front from the M and A disruption. I think, you know, sometimes those hires come early in that process. Sometimes it takes some time and we’re starting to see the fruits of that labor payoff now. You know, we’re really excited about some C and I hires that we’ve had in the last handful of months. You know, those folks are really hitting the ground running now and are able to be bringing in some really phenomenal opportunities for us with, with great local CNI relationships. So, you know, and around that we’re having to bolster and taking advantage of some of that disruption to bolster in other areas. You know, Katie’s done a great job hiring some senior credit folks to assist us in that CNI effort. So, you know, overall we feel like our, our brand is well positioned to continue to take advantage of that M and a disruption on the hiring front. Okay, great. Thanks Nick.
Brendan Nozzle
I’m going to sneak one more in here just on this quarter’s actions with the securities portfolio. Do you view that as additive to your prior outlook of the 3% NIM by the end of 26 or just kind of an acceleration of getting there? And I’m asking because if the NIM outlook is still around 3ish, but the earning asset base is a couple hundred million smaller, there’s obviously NII considerations to that dynamic.
Joe Chabowski (President and Chief Financial Officer)
Yeah, I mean I think that, you know, the security sale certainly contributed to, you know, to the margin outperformance, but it was a small amount. I mean it’s two basis points in the quarter. So it’s just, you know, there’s no one silver bullet. Certainly this was part of it. So I think it’s not like by not doing that, you know, we are going to miss out on pulling forward margin going forward. So it, it had an impact. It was just part of, you know, the overall strategy itself. But I think the bigger thing I think is just the deposit, you know, the cost of deposit decline that we experienced and really outperformed in the quarter. I think that that coupled with, you know, loan payoffs, I mean, I think as we said there’s, we really wanted to not rely on rate cuts and additional rate cuts to really pull forward that margin. So it was definitely an all hands on deck effort to achieve the margin expansion we did in the first quarter. Okay. All right, fantastic. Thanks for taking my questions.
OPERATOR
The next question comes from Jeff Rillis from DA Davidson. Please go ahead.
Jeff Rillis
Thanks. Good morning. Just a question on the MA side, a lot of discussion of benefiting from disruption. I guess taking the other side of that is just a check in on your outward acquisitions. If talking about conversations and the interest, I see it’s number two on your capital priorities of chasing down M and A. Any updates to mention there?
Jerry Bock (Chairman and Chief Executive Officer)
Hey Jeff, it’s Jerry. I’d say nothing different than the past. I mean, I Certainly continue to stay in front of people. I would probably say things appear in the first quarter to have slowed down more than I expected. But I think that has a lot to do with just geopolitical reasons. So we’ll see. But it certainly continues to be a priority. But at the end of the day it’s organic growth and continuing to take market share in the Twin Cities is first and foremost what we’re focusing on.
Joe Chabowski (President and Chief Financial Officer)
Thanks, Jerry. And maybe on the, not to focus too much on the margin, but it didn’t sound like the restructuring or of the moves he made with the balance sheet didn’t have much impact in the quarter. I guess the timing of that maybe for Joe, was there any tail benefit of those moves? That it was 2 basis points this quarter. So that’s I guess question one on the margin, is there a tail that you’d expect to see in the second quarter? And then the other part is, I guess as you hit the margin goal, maybe you got to set a new one. We get the language of moderate increases from here, but just trying to see about further out where you think a terminal margin could be, where the balance sheet sits today. Yeah, Jeff, I’ll try to address the first part and then the second, I think the, you know, there’s definitely going to be a pull forward or you know, a future impact by, you know, just selling those securities and redeploying those into higher yielding loans. So the two basis points, you know, this, this quarter, you can certainly, you know, it was early on in the quarter so you could, you know, somewhat annualize that, you know, as we redeploy those into loans, you know, earning in the sixes. So that’s certainly definitely beneficial. I think as we talked about know in the past, the, you know, the amount of deposits that we have linked to fed funds, I mean we’re close to $2 billion now. You know, I think to have 75 basis points of cuts in the fourth quarter, you know, really saw obviously a full quarter benefit of that here. And I think that that certainly drove, you know, the majority of the margin expansion, I think even outperformed our expectation on, you know, really deposit betas as we compared it to, you know, prior cycles. So super pleased with that. And then obviously on the loan repricing side, you know, we’ve kind of laid out, you know, that’s more, you know, spread pretty evenly throughout the year as loans reprice. So I think that’s where we just more talk about the more, you know, kind of mild expansion opportunities. It’s pretty Front loaded, driven by deposits. And then it’ll be more gradual and backloaded based on assets. And the securities itself were, you know, I think it’s always been a source of strength for us. Our securities portfolio has been, you know, above market earnings certainly. And so but by selling these securities, by no means do we now have, you know, an underperforming securities portfolio that lags on performance. It’s certainly additive as well. So I think we’ll continue to look for opportunities to rationalize deposit costs lower throughout the year. I mean that, that will never stop. And we’re certainly not going to, you know, bank on, on rate cuts. As I said, I think we’re assuming no rate cuts the rest of the year. And we’re just, you know, really pleased with the expansion we had. I mean we get to, you know, certainly to, to experience and, and you know, that, that margin uptick, you know, and ultimately, you know, most focused on growing nii and I think as the loan portfolio and the loan growth prospects, you know, translate, you know, that certainly will happen. Got it. Thanks for the color.
OPERATOR
The next question comes from Nathan Race from Piper Sandler. Please go ahead.
Nathan Race
Hey guys, good morning. Thanks for taking the questions. Just going back to the last line of questioning around kind of the yield pickup on the fixed and adjustable rate loans that are returned over the next year. Joe, can you help us just with the yield pickup that we can expect on those two portfolios relative to what you laid out in terms of the runoff Yield on slide 21?
Joe Chabowski (President and Chief Financial Officer)
Yeah, I mean, I think as I said, it’s, it’s pretty, it’s pretty balanced throughout the year. So it’s not like it’s, you know, concentrated in one quarter or the other. I think, you know, specifically the adjustable rate portfolio, just over 100 million sub 4%. So as that comes up on reprice and whether that, you know, either that pays off or it reprices and resets, you know, today at kind of new money yields in the sixes. I think there’s certain, certainly additive to margin going forward and to the accretive to the existing loan book. You know, I think the, the fixed rate portfolio as we’ve continued to churn through the reprice over the last couple years, you know, obviously that, that yield and reprice, there’s less of a benefit, but there’s, there’s still certainly a benefit today is that still sub 6%. I just think the other piece that we talked about on, on the loan payoff front, you know, as deals that have deferred fees associated with them on originations do pay off. You know, that obviously accelerates the fee potential. We saw a pickup here in the first quarter. You know, 12 basis points of the loan yield was loan fees. That’s an uptick from prior quarters and it gives us an opportunity to recycle dollars in the low sixes. So I think it’s certainly not concentrated, it’s spread throughout the year. Continue to see that benefit both from new originations and growing the portfolio and then just existing kind of repricing opportunities.
Nathan Race
Got it. That’s helpful. You know, I appreciate the earlier commentary around kind of deposit costs under the current kind of forward rate outlook, you know, but just curious, kind of what you’re seeing from a competitive perspective in terms of deposit pricing across the Twin Cities and when it comes to deposit gathering, you know, curious if maybe Mick, you can touch on kind of what the latent deposit gathering opportunities look like with some of the team members you brought over recently from some competitors in terms of what the size of their deposit portfolios look like at their prior institutions.
Nick Place (Chief Banking Officer)
Hey, Nate, this is Nick. Yeah, I mean on the deposit front overall, I mean, it continues to be a competitive market, but we are seeing, you know, new deposits come in at costs that are meaningfully lower than we saw last year. We feel really good about the team that we have and their ability to get in front of the right opportunities to bring in core deposits at costs that make sense. The teams that we brought on board or the individuals we brought on board, they’re actively prospecting and working through their portfolio. There’s low hanging fruit on the deposit front that can come over quickly. Those balances tend to come more in the savings and money market side of things, which tend to be a little bit more expensive. With operating accounts to follow as our treasury management teams work with their clients to onboard the full relationship. So, you know, overall we’ll be able to blend the cost of those deposits down. But you know, the prospects with these folks, you know, to bring in, you know, sticky core deposit relationships both on the consumer or the commercial and you know, the business owner side, which our executive banking team does a phenomenal job of, you know, bringing on full deposit relationships with the owners and executives at these companies, you know, we feel great about our, our prospects to continue to grow core deposits over time. You know, the Lake Elmo market that we talked about, we feel like that’s a really underserved market and that long term we’ll be able to grow well within that, that community. We’ve hired some great Folks in that, on that side of town as well that we feel will, will drive deposit growth long term. So you know, we feel really good about our deposit pipeline and our ability to drive core deposit growth. Especially when we think about the first half of the year being a seasonally low part of the year for us on the deposit front. We grew balances really well in Q4, which is pretty typical for us from a seasonality perspective. And we were not surprised to see some of those balances drift out as our customers did distributions, paid taxes, that sort of thing. So we feel good that we were able to grow deposits even in what is seasonally, you know, more difficult quarter for us to do. So.
Nathan Race
Got it. That’s great color, really helpful. Thanks Nick. I apologize if you already touched on this, but if I could sneak one last one in on expenses. You know, just given the step up in 1Q, I’m curious if you know, there was any kind of front loading of costs just given the branch opening and maybe some seasonality and then maybe Joe, if you could just help us with kind of a starting point for 2Q expenses just to kind of get to that high single digit growth guide consistent with kind of the loan growth expectations.
Joe Chabowski (President and Chief Financial Officer)
Yeah, Nate, I think, you know, as we said the, our annual merit cycle, there’s always a step up at the beginning of the year as promotions and merit increases take place. So it’s you know, historically and with prior, prior years is a step up in salaries and benefits. However, I would say, you know, to Nick’s point earlier, I mean we, we continue to get in front of great people, part of the M and a disruption. And so you know, I think the headcount up and just supporting the growth the organization also contributes to, you know, that step up in salaries. You know, certainly Lake Elmo coming online super excited about, you know, that and a little bit of step up in occupancy. But you know that market’s going to be fantastic for us. And then the other thing is just a real push on marketing and advertising throughout our market given the disruption that’s been a continued campaign. So not kind of a one time item but certainly just a continuation of really trying to continue to build the brand. So I think ultimately as you said, I think we don’t try to look at expenses in isolation on a quarter over quarter basis. We’re more just thinking about continuing to invest in the business over the long haul. And just given the growth prospects, we feel really good about the investment we continue to make in people and technology. And I Think over the long haul, as we’ve always said that relationship of asset growth relative to expenses, we still feel like we maintain that, you know, I get this first quarter, obviously with the sale of the securities, that average assets, ni to average assets, you know, ratio does somewhat break down. But I think, you know, over the long haul, you know, we’re confident that the asset growth and the expense growth will go in line and excited about the investments we continue to make in the business.
Nathan Race
Understandable. Makes sense. I appreciate all the color. Thanks, guys.
OPERATOR
As a reminder, if you have a question, please press Star one. The next question comes from Brandon Rood from Stevens. Please go ahead.
Brandon Rood
Morning. Thank you for all the color on the nim. I think he just touched on it. But the difference in the period end
Joe Chabowski (President and Chief Financial Officer)
and average deposits, when you look at a good starting point for the second quarter, would you see deposits kind of closer to the period end level of 4.3 billion or closer to that? Excuse me, average level? Yeah, I mean, closer to the period. And I think, as Nick said, some seasonal outflows with the deposit base. But I do think, you know, as taxes get paid, distributions get made, I mean, those balances build back up. So I think that’s, that’s a good way to think about it.
Nick Place (Chief Banking Officer)
Yeah. Brandon? I think our low water mark on deposits is usually like early January, late January or mid to late January, I should say. And it typically rebuilds from there. So we feel good about where we ended the quarter.
Brandon Rood
Okay, perfect. Thank you. And just my last one, it seems like a bit of a slower start to the year for the multifamily portfolio. Is that more reflective of stronger growth
Nick Place (Chief Banking Officer)
in 25 or is that a broader trend? Brandon? Yeah, this is. Nick. I don’t think it’s a broader trend. I mean, I think quarter over quarter, there’s some quarters where we see large growth where we have some good originations and a small amount of payoffs, and then certain quarters where payoffs outpaces our new loan originations. So we’re not, I’m not overly concerned around what we saw in Q1. Within that portfolio, our teams continue to be in front of the right clients and building deep relationships with folks. We mentioned our advances. We’ve seen an uptick in both multifamily and CRE construction in the last 12 months. So that’s providing some, some tailwinds for us to build, you know, construction advances. And those, those loans, once complete and stabilized, do sort of roll into our multifamily and CRE buckets, creating some growth within those categories as well as those construction projects convert. So, no, I mean, our pipeline remains really strong. We feel really good about, you know, the opportunities we have in front of us. And I think we are continuing our trend over the last handful of years of really being disciplined in our growth approach, being laser focused on trying to grow our loans in line with deposits and remaining in front of as many folks as we can to build a really strong pipeline and then be selective on the credits that we feel the best about and the ones in which we can add to the balance sheet in a profitable way.
Brandon Rood
Okay, perfect. Thank you for taking my questions.
OPERATOR
This concludes our question and answer session. I would like to turn the conference back over to Jerry Bach for closing remarks.
Jerry Bock (Chairman and Chief Executive Officer)
Thanks everyone for joining our call today. We’re really excited about 2026 and the growth and profitability outlook that that is in front of us and continuing to take advantage of the M and A disruption in the Twin Cities. I also just want a big shout out to our team members, our veterans and our new hires. We have a phenomenal team here and appreciate everything they do. Everybody have a great day.
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