Bridgewater Bancshares Inc BWB

Bridgewater Bancshares achieved a return on average assets (ROAA) above 1% for the first time since early 2023, driven by strong revenue growth. The net interest margin (NIM) expanded by 8 basis points in Q2 FY26 to 3.07%, exceeding the company's 3% year-end target. This expansion was primarily attributed to ongoing loan repricing, with loan yields increasing 10 basis points during the quarter and 13 basis points year-to-date. Deposit costs remained relatively stable after significant reductions in Q1 FY26.

The company capitalized on market disruption^🌐 in the Twin Cities, opportunistically hiring 15 talented individuals from recently acquired competitor banks in 2026. This strategic investment in talent, including both production and office staff, led to elevated personnel expenses in the first half of the year. However, management expects expenses to remain relatively flat from Q2 levels through the remainder of 2026, anticipating continued positive operating leverage as revenue growth outpaces expense growth.

Loan balances grew at an annualized pace of 5.4% in Q2 FY26, with a focus on profitable growth. The company is targeting mid- to high single-digit loan growth for the second half of 2026, contingent on core deposit growth and market conditions. Core deposits declined 3.5% in Q2 FY26, a seasonally low quarter, but the core deposit pipeline remains strong, with expectations for stronger momentum in H2 FY26. Wholesale funding was used to supplement core deposits.

Asset quality remained strong with minimal net charge-offs of 4 basis points in Q2 FY26. Nonperforming assets (NPA) increased modestly to 40 basis points, primarily due to one mixed-use multifamily property ($10.5 million balance) that was already rated substandard. The company is actively working towards near-term resolutions for its two largest NPAs, including a Central Business District office loan ($8.6 million balance) for which a specific reserve of $4 million has been increased. Watch, special mention, and substandard loans remained stable at approximately 1% of total loans.

Bridgewater continued to build capital through retained earnings, with the CET1 ratio increasing 8 basis points to 9.61% in Q2 FY26, up 58 basis points year-over-year. The company repurchased approximately $700,000 of common stock at a weighted average price of $18.12 per share, taking advantage of market conditions. An at-the-market (ATM) offering launched in Q1 FY26 has not been utilized to date, providing capital optionality.

The affordable housing vertical, a key growth area, constitutes about 16% of the loan portfolio and saw 22% year-over-year growth, with 19% annualized growth year-to-date. The multifamily portion of this portfolio grew and now makes up 75% of affordable housing balances. New affordable housing originations tend to have higher yields. The company is also strategically shifting its loan portfolio towards more variable-rate loans, which now comprise 25% of the portfolio, up from 18% a year ago, aiming to align with its variable-rate deposit book.