Bridgewater Bancshares Signals Strong Momentum Into 2026

Bridgewater Bancshares ((BWB)) has held its Q4 earnings call. Read on for the main highlights of the call.

Bridgewater Bancshares Projects Strong Momentum After Robust Quarter

Bridgewater Bancshares’ latest earnings call struck an upbeat tone, underscored by strong revenue growth, expanding net interest margin, healthy loan and core deposit growth, and markedly better efficiency. While management acknowledged isolated credit issues, modestly higher nonperforming assets, and some near‑term deposit and fee volatility, these were framed as manageable and specific rather than systemic. Overall, executives emphasized that the bank is entering 2026 with solid momentum and growing confidence in its ability to deliver higher margins and sustained, profitable balance sheet growth.

Net Interest Margin Expansion and Path to 3% by 2026

Bridgewater reported a 12‑basis‑point sequential increase in net interest margin (NIM) to 2.75% in the fourth quarter, a critical driver of improved profitability. Management attributed the gain primarily to lower deposit costs and more favorable balance sheet positioning, and notably pulled forward its NIM target, now aiming to reach 3.0% by the end of 2026 instead of early 2027. This signals confidence that funding repricing and asset mix shifts will continue to support margin expansion even amid a potentially shifting rate environment.

Revenue and Net Interest Income Surge

Total revenue climbed 32% year over year, with quarterly net interest income rising 5%, benefitting from both margin expansion and growth in earning assets. The combination of higher NIM and a larger balance sheet is translating into stronger core earnings power. For investors, this pairing—volume plus pricing—suggests that Bridgewater is not merely relying on one‑off items but building a more durable earnings base.

Strong Core Deposit and Loan Growth Outpaces Guidance

Core deposits grew at roughly a 9% annualized pace in the fourth quarter and 7.9% for the full year, including about $100 million of growth in noninterest‑bearing deposits in Q4 alone. On the asset side, loan balances grew 8.9% annualized in Q4 and 11.4% for the year, surpassing the bank’s mid‑ to high‑single‑digit growth guidance. This above‑plan loan growth, supported by solid core funding rather than outsized wholesale dependence, underscores the franchise’s ability to capture business in its markets despite rising competition.

Tangible Book Value and Profitability Trend Higher

Tangible book value per share grew at a 16.5% annualized pace in the quarter and was up 15.3% year over year, reflecting strong retained earnings and balance sheet resilience. Profitability also improved, with adjusted return on assets just under 1% in the fourth quarter and the adjusted efficiency ratio strengthening to 50.7%, the best reading since early 2023. These metrics point to a franchise becoming more efficient and capital‑accretive, both key considerations for shareholders focused on long‑term value creation.

Lower Deposit Costs and Powerful Repricing Tailwinds

Deposit costs fell 22 basis points in Q4 to 2.97%, a notable move given industry‑wide funding pressure. Management highlighted that approximately $1.8 billion of funding is tied to short‑term rates, with $1.4 billion immediately adjustable, giving the bank meaningful flexibility to benefit as funding costs normalize. This repricing runway is expected to be a major lever behind projected margin gains through 2026.

Affordable Housing and Construction Fuel Targeted Growth

Affordable housing lending emerged as a standout growth engine, with balances up 29% for the full year and an additional $41 million of growth in Q4, equating to a 27% annualized rate. Construction lending was a primary driver of fourth‑quarter loan growth, and management emphasized that affordable housing is a strategic vertical going forward. For investors, this signals a deliberate focus on niche segments where the bank believes it has strong expertise and attractive risk‑adjusted returns.

Improved Funding Mix and Variable‑Rate Positioning

Bridgewater continued to reshape its balance sheet by increasing variable‑rate loans to 22% of the portfolio, up from 14% a year ago. This shift enhances interest rate flexibility and reduces the bank’s sensitivity to potential rate cuts, as more of the portfolio can reprice upward or downward with market conditions. The improved mix, paired with stronger core deposits, should help stabilize earnings across different rate scenarios.

Capital Strength and Acquisition Cost Synergies

The bank’s common equity tier 1 (CET1) ratio edged up from 9.08% to 9.17%, demonstrating ongoing capital build despite robust growth. Management also noted that it exceeded its target of more than 30% cost savings from a recent acquisition, helping to support the improved efficiency ratio. Importantly, Bridgewater chose not to repurchase shares during the quarter, preserving capital while it continues to absorb growth and maintain flexibility for future opportunities.

Credit Quality: Modest NPA Uptick but Low Losses

Nonperforming assets rose to 0.41% of total assets in the fourth quarter, and the bank recorded $1.2 million of net charge‑offs. However, full‑year net charge‑offs remained low at just 0.04% of average loans, indicating that overall credit performance is still strong. Management framed the uptick as manageable and largely tied to a limited number of specific credits rather than a broad deterioration in the portfolio.

Isolated Problem Credits and Extended Workouts

The quarter’s credit noise centered on a few isolated cases: a multifamily loan that moved to nonaccrual after a sale fell through (now under a new contract), a fully reserved commercial and industrial loan that drove the Q4 charge‑off, and a central business district office loan that remains in a longer‑term workout with a specific reserve. Management stressed that these are idiosyncratic issues and that they continue to work through them with what they view as adequate reserves and collateral coverage.

Slight Decline in Allowance Coverage

Following the fourth‑quarter charge‑off, the allowance for credit losses edged down from 1.34% to 1.31% of loans. While this represents a modest decline in coverage, the bank indicated that its reserve levels remain favorable relative to peers. Given the still‑low overall loss experience, management appears comfortable with the current provisioning stance, tying future reserve builds more closely to loan growth and any changes in asset quality trends.

Swap Fee Volatility and Prospects for Cooling

Swap fee income remained a positive but volatile contributor, totaling $651,000 in the quarter. Management cautioned that swap fees are likely to continue in 2026 but may cool and remain lumpy as swap spreads normalize. For investors, this means that while swaps add a useful revenue stream, they should not be viewed as a stable core earnings driver.

Seasonality and Competitive Pressure on Deposits and Spreads

Executives flagged typical seasonality in core deposits, noting that the first and second quarters have historically been weaker, which could temporarily temper deposit growth. They also cited intensified competition in the Twin Cities market, which is pressuring loan pricing and may influence both spreads and deposit costs. The bank’s strategy is to stay disciplined on pricing while leveraging its relationship‑driven model to retain and attract clients in a more challenging competitive environment.

Acquisition‑Related Expense Noise in 2025

Operating expenses in 2025 were elevated due to systems conversion and other costs tied to a recent acquisition, pushing expense growth above normal levels. Management emphasized that these costs are largely temporary and reiterated expectations that expense growth in 2026 will fall back in line with asset growth in the high single digits. The anticipated normalization of expenses, together with realized cost synergies, should support further improvement in the bank’s efficiency metrics.

Guidance: Margin Expansion, Disciplined Growth, and Capital Flexibility

Looking ahead, Bridgewater laid out a constructive 2026 roadmap. Management expects net interest margin to climb to around 3.0% by year‑end, supported by lower funding costs, significant repricing opportunities on $1.8 billion of short‑term‑linked funding, and a growing share of variable‑rate loans. The bank is targeting high‑single‑digit loan growth, ongoing core deposit expansion with a loan‑to‑deposit ratio managed in the 95%–105% range, and expense growth that tracks high‑single‑digit asset growth as acquisition noise fades. Provisions are expected to move in line with loan growth and observed asset quality, while swap fees remain a helpful but variable contributor. Management also plans to continue building its affordable housing portfolio and maintain a solid capital position, providing flexibility for measured growth and potential future capital actions.

In closing, Bridgewater Bancshares’ earnings call painted a picture of a bank steadily strengthening its core fundamentals: faster revenue growth, higher margins, better efficiency, and a growing, well‑funded balance sheet. Although isolated credit issues, competitive pressures, and fee volatility remain watchpoints, the overall message was one of confidence in continued profitable growth into 2026. For investors, the combination of upward‑trending NIM, robust loan and deposit growth, and disciplined capital and expense management positions the company as a compelling regional banking story to watch.