Bridgewater Bancshares Inc Q4 FY2025 Earnings Call

Good morning, and welcome to the Bridgewater Bancshares 2025 Fourth Quarter Earnings Call. My name is Betsy, and I will be your conference operator today. 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.

Thank you, Betsy, and good morning, everyone. Joining me on today's call are Jerry Baack, Chairman and Chief Executive Officer; Joe Chybowski, 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 2025 fourth quarter financial results. We will be referencing a slide presentation that is available on the Investor Relations section of Bridgewater's website. 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 the slide presentation and our 2025 fourth 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 December 31, 2025, 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 2025 fourth 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 Baack.

Thank you, Justin, and thank you, everyone, for joining us this morning. We finished the year strong with robust loan and core deposit growth, net interest margin expansion and higher fee income. Expenses were also well controlled and asset quality remained strong. The successful quarter reflects the team at Bridgewater Bank. This all comes as we continue to take market share by providing an unconventional reliable experience to our clients. We continue to see opportunities in the Twin Cities for both client and talent acquisition and are taking advantage of both. We also see opportunities to grow the business outside of our market by using the expertise we have developed and expanded across the affordable housing market. Not only did we have a great quarter, but we see plenty of reasons for that to continue in 2026. Revenue growth was a key highlight of the quarter, both from a spread and fee perspective. We saw net interest margin expand 12 basis points to 2.75%, driving strong growth in net interest income. Last quarter, we mentioned that we expected to get back to a 3% margin by early 2027. We are well on track for that and in fact, think we can pull it forward into 2026. Joe will talk more about that in a few minutes. Swap fees, while up and down from quarter to quarter, were strong in the fourth quarter, driving an increase in noninterest income as well. Core deposit growth of 9% was another highlight of the quarter, which allowed us to produce loan growth of 9% as well. As we've been focused on growing loans in line with core deposits, on a full year basis, core deposits were up 8%, while loans grew at an 11% pace, exceeding our mid- to high single-digit guide we had at the beginning of the year. We also continue to feel good about the strength of our asset quality profile even as we saw a modest uptick in nonperforming assets and net charge-offs in the fourth quarter. Katie will provide more thoughts on this shortly. We pride ourselves on being able to produce consistent tangible book value per share growth for our shareholders. This is evident on Slide 4 and was again the case in the fourth quarter as tangible book value grew 16.5% annualized and was up 15.3% year-over-year. This continues to be a unique part of the Bridgewater story and one we are incredibly proud of. Before I turn it over to Joe, I want to take a minute to share some additional updates. First, in late December, we closed one of the two branches we added through the First Minnetonka City Bank acquisition. The decision was due to having other branches in close proximity. Overall, we were pleased to see very little deposit attrition from the FMCB post-merger. We are also on track to open a new branch in Lake Elmo next month. We're excited about the opportunity that will present as we expand further into the growing affluent East metro of the Twin Cities. Second, we continue to see opportunities related to recent M&A disruption in the Twin Cities, both on the talent and client front. Old National's acquisition of Bremer has been the main one, but the pending acquisitions of MidWestOne and American National have created additional opportunities. Bridgewater is now the second-largest locally led bank in the Twin Cities. So we feel well positioned to be the bank of choice for those looking to work or bank local. Third, I'd like to acknowledge the events that have unfolded in the Twin Cities in recent weeks. It's been difficult to watch what's happening across our community. The people and the city are resilient, and we will get through this. In the meantime, we are actively monitoring the impact of these events on our team members and clients, and we'll continue to be here to support them in any way we can. Lastly, I want to thank our team for a great year in 2025. With an acquisition, a core conversion, the launch of a new online banking platform and other technology advancements, there are many new initiatives and challenges to work through. I remain impressed with the team and their consistent willingness to overdeliver. The efforts of our entire team continue to be the magic that makes Bridgewater a place people want to work and do business. I'm thankful for their efforts and the overall leadership across the organization. With that, I will turn it over to Joe.

Thank you, Jerry. Slide 5 provides more color on the encouraging trends we are seeing with net interest income and net interest margin. We expected net interest margin expansion to return in the fourth quarter given three Fed rate cuts in late 2025. And this is exactly what happened as the margin increased 12 basis points to 2.75%, primarily due to lower deposit costs. With margin expansion and continued earning asset growth, we saw net interest income increase 5% during the quarter. Last quarter, we mentioned that we saw a path to get back to a 3% net interest margin by early 2027. Given the expansion we saw in the fourth quarter and as we look ahead to repricing opportunities in 2026, we are actually pulling forward and believe we can get to 3% NIM by the end of 2026, and this does not assume any additional rate cuts. As a result, we are very optimistic about our ability to continue driving net interest income growth going forward. Slide 6 highlights the declining deposit costs I mentioned, which decreased 22 basis points to 2.97% in the fourth quarter. At year-end, we had $1.8 billion of funding tied to short-term rates, including $1.4 billion of immediately adjustable deposits. As a result, given the Fed rate cuts in September, October and December of 2025, we are able to reprice a good portion of the book lower, driving lower deposit costs and boosting net interest margin. We could see deposit costs move a bit lower in the first quarter as we recognize the full quarter impact of the December rate cut. But absent any additional rate cuts, we would expect deposit costs to begin to stabilize again. On the loan side, we are very pleased to see yields hold steady in the fourth quarter despite the three recent rate cuts. This was a function of the loan repricing opportunities we have, which includes $637 million of fixed-rate loans scheduled to mature over the next 12 months at a weighted average yield of 5.55% and another $106 million of adjustable-rate loans repricing or maturing at 3.84%. With these lower-yielding loans running off the books and new originations in the fourth quarter going on the books in the low to mid-six percent range, we have further repricing upside ahead of us. We've also been active in increasing the variable rate mix of our portfolio to create better balance across interest rate environments. Variable rate loans now make up 22% of our loan book compared to 14% a year ago. Turning to Slide 7. We continue to see strong revenue and profitability growth trends. In fact, adjusted ROA was just under 1% in the fourth quarter, while total revenue increased 32% year-over-year. Noninterest income also bounced back in the fourth quarter, driven by increases in swap fees and letter of credit fees. After seeing no swap fee income in the third quarter, we generated $651,000 of swap fee income in the fourth quarter. Quarterly swaps have averaged nearly $500,000 per quarter over the past five quarters, but continue to be quite lumpy due to the timing and size of the fees. We expect swap fees to continue to be a portion of the revenue story in 2026. But given the shape of the yield curve and the current environment, we would expect them to slow a bit. Turning to Slide 8. Expenses were well controlled during the fourth quarter. Throughout much of 2025, we saw higher-than-usual levels of expense growth as we worked toward the systems conversion of First Minnetonka City Bank in the third quarter. Historically, we have seen expense growth align with asset growth over time. With the conversion behind us, we expect it to get back to the pace as fourth quarter expenses, excluding merger-related, were up just 9.5% annualized, which is more in line with our expected pace of asset growth. With well-controlled expenses and strong revenue growth, our adjusted efficiency ratio declined to 50.7%, the lowest level since the first quarter of 2023. It is also worth mentioning that we exceeded our 30% cost savings estimate for 2025 related to our recent acquisition. With that, I'll turn it over to Nick.

Thanks, Joe. Slide 9 highlights the momentum we continue to have on the core deposit front, thanks to the efforts of our bankers and the opportunities we have in the market. Overall, we saw annualized core deposit growth of 8.8% in the fourth quarter and 7.9% for the full year of 2025. The other notable story here is the improved mix as we saw strong noninterest-bearing deposit growth for the second consecutive quarter, including an increase of $100 million during the fourth quarter, while brokered deposits have been declining. Looking ahead, we continue to have a strong core deposit pipeline, including deposits we gather as part of our affordable housing initiative. However, we would expect growth to be less linear in 2026, given the nature of the deposit base, especially during the first half of the year. To that extent, we will continue to leverage broker deposits if needed, as we have done in the past. But overall, we feel really good about our ability to continue growing core deposits over time. While core deposit growth has been strong, so has our loan growth, as you can see on Slide 10. Loan balances were up 8.9% annualized in the fourth quarter and 11.4% for the year as our pipeline remains robust, and we see continued demand across the market. As we look ahead to 2026, I'm excited about the opportunities that our pipeline and the overall market demand will continue to present. On the other hand, the pace of core deposit growth and loan payoff levels will impact the overall level of loan growth. Considering all this, we believe we can maintain loan growth in the high single digits in 2026. Turning to Slide 11. You can see that the loan growth we saw in the fourth quarter was driven by an increase in originations in spite of an increase in payoffs and paydowns as well. The increase in originations was expected given the strength of our pipeline and some of the deal closings we saw slide from the third quarter into the fourth quarter. The increase in payoffs is due in part to a catch-up from the slower payoff trends we have seen recently as well as the pullback in rates, allowing for more refinances and sales. Turning to Slide 12. Construction was the largest driver of growth during the fourth quarter as an increase in new construction projects over the past year or so have begun funding. A good portion of this construction growth came in the affordable housing vertical. We continue to see great traction in the affordable housing space as balances overall increased $41 million in the fourth quarter or 27% annualized. On a full year basis, affordable housing balances increased 29% in 2025, spread across the construction, C&I and multifamily portfolios. We expect this to be a key contributor to loan growth for us going forward as we continue to invest in this vertical. With that, I'll turn it over to Katie.

Thanks, Nick. Slide 13 provides a closer look at the multifamily portfolio, which continues to perform well and reflects a long track record of strong credit quality. Since the bank was founded in 2005, we have recorded only $62,000 in net charge-offs within this portfolio, underscoring the resilience of the asset class and consistency in our underwriting discipline. In addition, multifamily fundamentals in the Twin Cities remain positive, especially as vacancy rates declined throughout 2025 and concessions became less prevalent, leading to increased rent growth. Multifamily sales volume also increased in the back half of 2025, further supporting the positive market trends in this segment. While there are still a few submarkets where conditions have softened, we remain confident about the multifamily portfolio overall and believe it is positioned to continue performing well. On the office side, our exposure remains limited at just under 5% of total loans, with the majority located in suburban Twin Cities locations where performance has been comparatively stronger than central business districts. Turning to Slide 14. Our overall credit profile remains strong. Nonperforming assets increased modestly to 0.41% of assets, driven by a multifamily loan that migrated to nonaccrual after the client's original purchase agreement fell through. The property is now under a new contract, giving us confidence in a near-term resolution. We also recorded $1.2 million of net charge-offs during the quarter related to a fully reserved C&I loan. Despite this, full year net charge-offs remained very low at just 0.04% of average loans. Our allowance ratio declined slightly from 1.34% to 1.31% due to the charge-off and continues to compare favorably to peers. Importantly, the items driving the modest uptick in NPAs and net charge-offs were both isolated issues and followed an extended period of virtually no nonperforming assets or net charge-offs, an outcome that is just not sustainable for a portfolio of our size. Turning to Slide 15. Our classified loan levels remain low at 1.2% of total loans and 8.3% of capital. Watch and special mention loans are also manageable and make up just over 1% of the loan book. While we continue to actively monitor all loans on our watch list, we did not see any meaningful new migration during the quarter. As stated previously, we feel credit trends within the portfolio remain stable. I'll now turn it back over to Joe.

Thanks, Katie. Slide 16 highlights our comfortable capital position. This includes our CET1 ratio, which increased slightly from 9.08% to 9.17%. We've been able to regularly build capital through our retained earnings since our acquisition in late 2024. We did not repurchase any shares during the quarter given our strong organic growth pipeline and where the stock is trading. As of year-end, we still had $13.1 million remaining under current share repurchase authorization. In the near term, we expect capital levels to hold relatively stable given earnings retention and our stronger growth outlook. Turning to Slide 17, I'll recap our expectations for 2026. As Nick mentioned, we feel comfortable that we can grow loans in the high single digits in 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 are more bullish now than we were this time a year ago. We think we can now get to a 3% net interest margin by the end of 2026 instead of early 2027, and this does not assume any additional rate cuts. We also expect to get back to growing expenses in line with assets, unlike 2025, where expense growth was a bit higher as we worked toward the acquisition systems conversion. We feel we're 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. I'll now turn it over to Jerry.

Thanks, Joe. We are really pleased by how we finished 2025 and the catalysts we have to support growth and profitability heading into 2026. On Slide 18, I'll finish up by outlining our strategic priorities we will be focusing on in 2026. These are very consistent with the priorities we set in 2025, but there are some new areas where we will increase our focus. The first is optimizing our levels of profitability growth. In 2025, we were able to get back to the levels of growth we have been accustomed to. We want to ensure that we maintain that with a focus on optimizing profitability. Continuing to align loan growth with core deposit growth while expanding our net interest margin will be key. Second, we want to continue to gain market share in the Twin Cities. This has always been an objective, and we are proud of the progress we have made. Given the M&A disruption, we believe we are the bank of choice for clients who appreciate our local knowledge and commitment. We will look to expand our expertise and capacity across certain targeted verticals, including nonprofits and SBA, areas where we have added some impressive talent. In addition, we implemented an M&A readiness plan in 2025 that positions us well to take advantage of future opportunities. Third is to continue expanding the reach of our affordable housing vertical, both locally and nationally. This includes enhancing our perm product offering, which would help drive additional loan and swap fee income. Lastly, we will continue to leverage technology investments to support growth and organizational efficiencies across the business. This includes leveraging recent investments and developing a more formal strategy around AI. With that, we will open it up for questions.

The first question comes from Nathan Race with Piper Sandler.

Maybe Joe or Nick, could you explain the deposit growth for the quarter? It seems like noninterest-bearing deposits saw a significant increase compared to the previous quarter. I'm interested to know if there’s any seasonal factor involved and how you perceive the deposit gathering efforts with the recent hires, especially considering the ongoing M&A-related disruptions in the Twin Cities.

Nate, this is Nick. Yes. I mean, we feel really good about our overall deposit growth, not only for the quarter but the year. Q4 does tend to be a seasonally high watermark for us. We do have a lot of clients that tend to build balances late in the year and some of those balances do trickle out in Q1. So there was some seasonality there. We feel really good about our deposit pipeline overall. However, we continue to get in front of great client relationships, both locally and nationally through that affordable housing vertical. The talent we've been able to pick up on both of those fronts has been great. So we do expect, as we've seen over the last handful of years that Q1 and Q2 of the year do tend to be more modest than we've seen, even outflows in those quarters in the past. So that does tend to be the low watermark for us on the year, but we feel great about the progress that we're making on growing core deposits. And should we need to, as we've said before, I mean, we will supplement with broker deposits if loan growth is robust in the quarter and some of that seasonality is impacting the pace of core deposits. So overall, we feel really good about where we're at.

That's helpful. Maybe for Joe, with the $743 million of loans that you have fixed and adjustable rate repricing higher over the balance of this year, can you kind of just speak to the cadence of that? Is there any kind of lumpiness quarter-to-quarter? Is it pretty spread out just in terms of thinking about that as kind of the main driver to get close to a 3% margin by the end of this year?

Yes, Nate. It's well laid out. There isn't a significant concentration in one quarter compared to another. We are confident about continuing to reprice higher. The main factor driving the NIM guidance to 3% is on the asset side. Considering the roll-off and our current loan origination levels, we believe that goal is very attainable.

Okay. Maybe one last one for me on expenses. I appreciate the commentary or outlook there is pretty consistent with asset growth. So is it fair to expect 2026 expenses in that high single-digit range? Or is it maybe kind of more of a low double-digit expectation for this year?

No, I think high singles, like you said, I mean asset growth, we expect grows in the high singles. And so as we continue to invest in the business, people and technology, we will manage that the same. And like we said, '25, obviously, given the acquisition was a little outside of the norm. But I think if you go back further look, I mean, we've historically always operated that way. So we feel good about it.

Okay. Great. And sorry, just within that context, I mean, does that contemplate any additional production-related hires? Obviously, there's been a theme on this call in terms of some of the M&A-related disruption. So just curious what type of conversations you're having and kind of what the magnitude of additional opportunities to maybe add production talent? Or do you think the existing team has plenty of capacity just to grow with some of the disruption ongoing?

Yes, Nathan, this is Nick. Yes, we can continue to get some operational leverage out of the team. I think we're evaluating not only the capacity of the group, how portfolios are allocated, but really our internal processes to streamline things. So we're certainly looking in the business as well to gain some leverage there, while we will be opportunistic on the hiring front. We've been able to pick up some people here recently, and we will always be opportunistic on the hiring side. So as it relates to expenses, I think that could be difficult to predict. But overall, we really are excited about our prospects to drive that growth, both with the staff we have and the talent that we're bringing in.

Okay. Great. I apologize. Actually, just one more, Nick. To your point, are there any non-solicits in place with some of the hires that you've made on the production side of things lately?

It varies from person to person, but surprisingly, most of them have not had non-solicits.

The next question comes from Brendan Nosal with Hovde.

Joe, maybe starting off for you with the margin outlook. Totally get it's a more bullish outlook. You're pulling forward the 3% margin. Can you just help us with kind of the apples-to-apples given you pulled out the rate cuts? Like if you do still get the 50 basis points of cuts across 2026, like how does the margin compare to the current 3% expectation by year-end?

Yes, Brendan, it accelerates things. This last quarter is a perfect example with three cuts. In the fourth quarter, you really started to see the impact of the rate cut from September. There was another one in the middle of October, and then we anticipate the one in December will lead to benefits in the first quarter. So, regarding the deposit cuts, if we receive two rate cuts, that will bring the 3% target closer. The asset side is more dependent on the curve's slope and the repricing process. If we don't get those cuts, we expect costs to stabilize in the middle of the year. However, if we do have an implied rate scenario with two cuts this year, it will advance that timeline and directly influence deposit costs.

Okay. Perfect. That's helpful. Maybe turning to asset quality. Can you folks just update us on that CBD office loan that slipped to nonaccrual earlier in the year? Like where are you on kind of work out? And what are expectations around that credit?

Brendan, this is Katie. We've mentioned previously, we expect that to be a longer-term workout. We've given the borrower time to re-lease the vacant space there. So we still have a specific reserve on the loan and expect it to be a longer-term workout.

Okay. All right. One last one for me. Jerry, a lot of good organic trends at the bank in 2026. But would love to hear your take on the M&A environment and your own appetite for potential tuck-in acquisitions as you look over the year ahead.

Brendan, really just more of the same of what we've talked about in the past, and we're always talking to local owners of banks and continue to have those conversations and hope we would have something similar to what the First Minnetonka City Bank did for us. So I mean, again, we always say and we mean that if we wake up every day and we look at the business organically and what we can do organically and take market share, and the M&A strategy is really second place to that. But we continue to be optimistic that over the next few years, a couple more deals might come our way.

The next question comes from Jeff Rulis with D.A. Davidson.

I wanted to check in on the affordable housing sector. In your discussions, how much do you plan to grow that? Is there a limit on its size? I believe you mentioned it being around 650 now, but I'm curious if there's a specific concentration size you would like to maintain.

Jeff, this is Nick. Yes, I mean, we really like the space. We do like the diversity in the geographic locations of some of the clients and projects that we're financing. We appreciate the diversification in the product type. Some of it lands in our construction bucket, some is in sort of stabilized multifamily. There's some land transactions in there. There's C&I. So we appreciate what that can provide for us, too. It's roughly 15% of the book today overall. We feel really good about where that's at and continuing to grow that over time. We believe in the short term, the pace of that portfolio growth will outpace the overall portfolio growth. So we expect that to increase as a percentage of the book overall here in the near term. We haven't set any specific parameters around how big we want that to get, but we're being methodical about how we're growing it and overall feel really good about the space.

That's great. Nick, I can't remember if it was you or Joe who mentioned the swap fees. We know these will vary, but I'm trying to get a model in place. There was some talk about it possibly cooling off a bit. For the full year, will the swap fees be somewhat in line with the growth of the affordable housing vertical moving forward?

Yes. I mean there's certainly opportunity within the affordable housing vertical to drive some additional swap fee revenue over time, and we're actively building out a plan for that and a pipeline for those. That said, the swap market was a bit sort of dislocated with treasuries for a while there last year that did provide a bit of a boost in attractiveness of that product and to some degree, drove additional swap transactions in 2025. So that market is more in line with sort of its historical average today compared to treasuries. And so that does make those transactions a little less competitive. But we're really pleased with the progress that we've made just on educating the banker teams on how to sell through that product and educating our clients on the benefits of leveraging interest rate swaps on some of their transactions. So we expect it to be a bigger piece of the business overall. But the last four or five quarters, we probably averaged $500,000 a year, even though it's been lumpy. I would expect it to be a bit inside of that here this year, just given some of that swap spread to treasuries kind of being more in line with historical average.

And then one other question for Katie regarding the credit side. I wanted to confirm that the nonaccrual you mentioned was primarily due to one multifamily loan, and the rise in net charge-off was related to a C&I loan.

Yes, that's correct. Both of those upticks were directly tied to isolated loans. So we feel good about the portfolio overall, and it's really just more of a timing issue.

Got it. It doesn't seem to be a systemic issue in multifamily. Are you noticing any particular areas of pressure? Is it related to rate resets or are there specific pinch points in multifamily where problems tend to arise?

Yes. I think overall, we feel really good about our multifamily portfolio. As I mentioned in the prepared remarks, there are certainly still some pockets that are more challenged. So I would say that's what drives some of the challenges still. But overall, the market fundamentals are improving. Property performances individually are improving. So the trends are all positive.

The next question comes from Brandon Rud with Stephens.

Most of my questions have been asked. I would like to start with a question about the core banking system modernization mentioned on Slide 18. Can you provide a general timeline for that? Is it expected to be completed in 2026, or is it a multi-year project? Additionally, will this modernization primarily enhance client-facing services, or will it also lead to long-term cost savings?

Brandon, this is Joe. To answer your questions, it encompasses all aspects mentioned. As a Fiserv bank, we have historically relied on Fiserv, and our core still runs through them. Over the past few years, we have focused on evaluating how to better leverage emerging technologies and gradually separate from Fiserv's innovation. Modernizing our core banking system is a significant part of that effort. It involves improving internal efficiencies in loan and deposit processing while ultimately enhancing service to our clients. With the rapid pace of emerging technology trends, we aim to ensure that our core banking system functions primarily as a custodian of information. We want to be positioned to adapt and innovate within the industry. This is a long-term initiative that has been in progress for several years, and we are excited about our current position and the flexibility it affords us.

Got it. Okay. I appreciate that. Maybe just a last one here on the increased competition in Twin Cities. Are you seeing that have any impact on loan spreads or new deposit rates? We've heard from a few other banks that there are some irrational competitors out there. I'm just curious if that increased competition is impacting that at all.

Brandon, this is Nick. Yes, we definitely saw increased competition, especially regarding loans throughout 2025. Many banks have accumulated liquidity after 2023 and have a clearer view of where rates are stabilizing. As a result, several banks have re-entered the market, which I view positively. A healthy banking economy benefits our local economy and ultimately everyone involved. While our pipeline likely peaked in the third quarter of last year, it still remains strong, around 75% to 80% of its peak. We are optimistic about our growth prospects despite the increased competition. We'll let others pursue certain transactions, and we'll focus on the next opportunity.

This concludes our question-and-answer session. I will now turn the call back over to Jerry Baack for any closing remarks.

I just want to say thank you, everyone, for joining the call today. We're very excited about 2026 and the future here at Bridgewater Bank. And part of that is the strategic leadership team that we have now and my confidence in them moving forward. I just want to thank our incredible team members here at Bridgewater Bank. Have a great day. Thanks.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.