Bridgewater Bancshares Q2 Earnings Call Highlights

Key Points

• Bridgewater Bancshares posted a strong second quarter, with net interest margin rising to 3.07% and return on assets moving back above 1% for the first time since early 2023. Management said improved profitability was driven by loan repricing, higher net interest income, and disciplined balance sheet management.
• Loan growth remained steady while deposit growth was mixed. Loans grew at a 5.4% annualized pace, but core deposits fell due to seasonal weakness and some client cash moving into projects, leading the bank to use wholesale funding and stay selective on pricing.
• Credit quality and capital remained solid, with net charge-offs at just four basis points and CET1 capital rising to 9.61%. The company also continued to build tangible book value and selectively repurchase stock while maintaining a focus on profitable growth, especially in affordable housing.

Bridgewater Bancshares NASDAQ: BWB reported improved second-quarter profitability, driven by continued net interest margin expansion, net interest income growth and disciplined balance sheet management, executives said on the company’s 2026 second quarter earnings call.

Chairman and Chief Executive Officer Jerry Baack said the company “reported another strong quarter,” citing market share gains, improved profitability and growth in tangible book value. Baack said Bridgewater surpassed a 1% return on assets for the first time since early 2023, largely because of net interest margin expansion and higher net interest income.

The bank reported a second-quarter net interest margin of 3.07%, exceeding the 3% goal management had set for the end of 2026. Net interest income grew at a 21% annualized pace in the quarter, according to Baack and President and Chief Financial Officer Joe Chybowski.

Margin Expansion Drives Revenue Growth

Chybowski said Bridgewater entered 2026 with a 2.75% margin in the fourth quarter of 2025 and had already surpassed its full-year target by the end of the second quarter. He said the company’s June 2026 net interest margin was 3.08%, compared with 3.07% for the full quarter.

“With deposit costs stabilizing, the margin expansion during the quarter was primarily due to the ongoing loan repricing we have seen across our portfolio,” Chybowski said. He added that loan fees also increased as payoffs remained elevated.

Loan yields expanded 10 basis points during the quarter and were up 13 basis points year to date. Chybowski said the company’s larger fixed-rate portfolio, which makes up 64% of the loan book, continues to reprice. He noted that $629 million of fixed-rate loans are scheduled to mature over the next 12 months at a weighted average yield of 5.62%, along with $114 million of adjustable-rate loans repricing or maturing at 3.99%.

Management said it expects additional net interest margin expansion in the second half of 2026, but at a slower pace than in the second quarter. In response to an analyst question, Chybowski said future margin gains are expected to come primarily from the earning asset side rather than lower funding costs.

Loan Growth Remains Disciplined as Deposit Growth Fluctuates

Chief Banking Officer Nick Place said total deposits increased $41 million, or 3.8% annualized, from the first quarter, while core deposits declined 3.5%. He said the decline was not unusual given the company’s commercial deposit base and the second quarter’s typical seasonal weakness.

Place said some real estate clients invested cash into new projects, contributing to deposit outflows. The company supplemented core deposits with wholesale funding during the period.

Loan balances grew at a 5.4% annualized pace in the second quarter, consistent with the first quarter. Place said Bridgewater has been more selective on loan pricing and structure as core deposit growth slowed in the first half of the year and competition remained elevated.

“To us, being disciplined means knowing we don’t need to grow at any cost,” Place said. He said Bridgewater is targeting mid- to high-single-digit loan growth for the rest of 2026, depending on core deposit growth, competition and payoffs.

Place said payoff activity remains a near-term headwind, driven by asset sales and refinancing activity as agency spreads tightened. During the question-and-answer session, he described recent payoffs as a “catch-up” in the natural lifecycle of client transactions, rather than a source of concern.

Affordable Housing Remains a Growth Vertical

Bridgewater continued to emphasize affordable housing, which Place described as a key growth vertical representing about 16% of the loan portfolio. He said affordable housing loans grew 22% year over year, though balances were relatively flat in the second quarter because of a larger payoff in a C&I credit.

The multifamily portion of the affordable housing portfolio continued to grow and now represents 75% of affordable housing balances, Place said. He added that new affordable housing originations typically carry higher yields than the broader loan portfolio, supporting profitability.

Overall loan growth in the second quarter was concentrated in multifamily, while construction and development declined as some commercial construction projects completed and moved into multifamily or other commercial real estate categories.

Expenses Rise on Opportunistic Hiring

Baack said Bridgewater added talent during the quarter amid continued market disruption in the Twin Cities. Year to date, the company has hired 15 individuals from competitor banks that were recently acquired, including production and office staff.

Chybowski said the hiring led to elevated personnel expenses in the first half of 2026, but management believes the additions will support future growth and scalability. He said Bridgewater generated positive operating leverage in the second quarter, with total revenue increasing at a 20% annualized pace while non-interest expense rose 13%.

Management expects expenses in the third and fourth quarters to remain relatively flat compared with second-quarter levels. In response to an analyst question, Chybowski said the company moved quickly to hire available talent rather than spread the hiring evenly throughout the year.

Credit Quality and Capital Position

Chief Credit Officer Katie Morrell said the company’s overall credit profile remains strong. Non-performing assets rose modestly to 40 basis points, driven by one mixed-use property that was already rated substandard. Morrell said Bridgewater is working with the borrower as they pursue a sale of the property and remains optimistic about a near-term resolution.

Morrell also provided an update on a central business district office loan moved to nonaccrual in the first quarter of 2025. She said the company is taking steps toward a near-term disposition of the asset and has increased the specific reserve on the loan to $4 million because of limited leasing progress over the past year.

Net charge-offs remained low at four basis points in the second quarter. Morrell said watch, special mention and substandard loans were stable, each at about 1% of total loans. The allowance for credit losses declined five basis points from a year ago to 1.30% of loans, and Morrell said the company expects to reduce the reserve further as it executes problem loan action plans and resolves remaining credit issues.

Bridgewater also continued to build capital through retained earnings. Chybowski said the company’s CET1 ratio increased to 9.61% from 9.53%. The company repurchased approximately $700,000 of common stock during the quarter at a weighted average price of $18.12 per share. Chybowski said Bridgewater has not issued shares under the at-the-market offering it launched in the first quarter.

Baack said tangible book value increased at a 17% annualized pace to $16.61 and has grown more than 50% over the past four and a half years. He said the company remains focused on taking market share profitably, maintaining credit discipline and growing in targeted areas such as affordable housing.

About Bridgewater Bancshares (NASDAQ:BWB)

Bridgewater Bancshares, Inc is the bank holding company for Bridgewater Bank, a New Jersey-chartered community bank founded in 2006. Headquartered in Bridgewater, New Jersey, the company provides a broad array of financial services designed to meet the needs of both individual and business customers. As a locally focused institution, Bridgewater Bancshares emphasizes relationship banking, combining personalized service with the efficiency of modern banking technologies.

The company’s retail banking platform offers checking and savings accounts, certificates of deposit, money market accounts and consumer loan products.

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