Bridgewater Bancshares (NASDAQ:BWB) executives said the company began 2026 with what CEO Jerry Baack described as a “strong start,” highlighting a sharp increase in net interest margin, continued organic loan and deposit growth, and improved asset quality during the first quarter.
Net interest margin neared 3% ahead of schedule
Baack said Bridgewater’s net interest margin expanded to 2.99% in the first quarter, close to the company’s previously stated goal of reaching a 3% margin by the end of 2026. “Deposit costs declined and loans repriced higher, helping us get there quicker than anticipated,” he said, adding that management expects “slow additional margin expansion over the coming quarters.”
Chybowski said the cost of total deposits declined 18 basis points in the first quarter and is down 40 basis points over the past two quarters. He added that, absent additional rate cuts, deposit costs are expected to stabilize, though the bank will “continue to look for additional opportunities to lower the rates of deposit accounts where it makes sense.”
On the asset side, Chybowski said the portfolio loan yield increased three basis points to 5.81%, supported by the fixed-rate nature of the portfolio. He noted 65% of the portfolio is fixed-rate, while variable-rate loans increased to 23% of total loans from 17% a year ago as the company originated more floating-rate credits to be “more rate neutral going forward.”
Balance sheet actions generated a gain and reduced funding costs
Management devoted significant attention to balance sheet actions taken in late January and early February. Baack emphasized the moves were “not the standard balance sheet repositioning many other banks have done recently that involved selling securities at a large loss,” but rather an effort to improve profitability while generating an immediate gain as rates moved favorably.
Chybowski said the bank sold portions of its securities portfolio, including:
- $147 million of treasuries for a net gain of $1.2 million
- $62 million of municipal bonds for a net gain of $6.1 million
He added that Bridgewater also prepaid $97.5 million of higher-cost FHLB advances that funded those securities, resulting in a $982,000 prepayment expense. Chybowski said the combined strategy generated $7.3 million of additional pre-tax net income in the quarter, increased permanent capital levels, and supported future margin expansion through a lower cost of funds and the ability to redeploy into higher-yielding loans.
Asked about the impact of the securities actions on margin, Chybowski told analysts the sales contributed about two basis points to first-quarter margin expansion, and he expects additional benefit as proceeds are redeployed into loans “earning in the sixes.”
Loan growth led by C&I and affordable housing; deposits grew despite seasonal pressures
Chief Banking Officer Nick Place said core deposit balances increased 3.2% annualized in the first quarter, despite typical early-year seasonality. Place cited continued improvement in deposit mix and year-over-year declines in higher-cost brokered and time deposits.
Place said the deposit environment remains competitive, but new deposits are coming in at “meaningfully lower” costs than last year. He also described deposit opportunities tied to hiring and client disruption linked to M&A activity in the Twin Cities, noting that deposits often arrive first in savings and money market accounts, with operating accounts following as clients onboard full treasury management relationships.
On lending, Place reported loan balances grew 5.5% annualized in the first quarter. While he said competition has increased and spreads have tightened “a bit,” Place described the pipeline as “near three-year highs,” enabling the bank to remain selective. Management reiterated expectations for high single-digit loan growth in 2026, with Place emphasizing that core deposit growth remains the key constraint on how quickly the bank can expand loans.
Place said C&I was the largest loan growth category in the quarter, driven largely by real estate-related C&I activity, including affordable housing. He also said Bridgewater added three C&I bankers in recent months, tied to the same M&A disruption. Affordable housing was highlighted as a major growth driver, with balances in the vertical increasing $57 million, or 35% annualized, spread across both C&I and multifamily lending.
Baack also noted an expansion of the bank’s footprint, citing the February opening of a de novo branch in Lake Elmo, which he called a growing area in the Twin Cities.
Asset quality improved; capital increased and ATM offering added optionality
Chief Credit Officer Katie Morrell said credit metrics improved after a modest fourth-quarter uptick. She said non-performing assets fell to 0.22% after a multifamily credit moved to non-accrual in the fourth quarter was resolved via a planned purchase agreement that closed in the first quarter. Net charge-offs were 0.05% annualized for the quarter, and Morrell said the allowance remained at 1.31% of total loans. She also said watch and special mention loans were stable at around 1% of total loans, while substandard loans declined quarter-over-quarter, largely due to the resolved multifamily credit.
Chybowski said CET1 increased 36 basis points to 9.53% and the company did not repurchase shares during the quarter, citing organic growth opportunities and where the stock was trading. He also discussed an at-the-market offering for up to $50 million of common stock, which he said could add about 100 basis points to CET1 if fully executed, though no shares were sold in the first quarter. In response to an analyst question, Chybowski said the company plans to be “opportunistic” with the ATM and that the quarter’s securities gain did not change the broader capital calculus.
Outlook: slower margin expansion, focus remains on net interest income and market share
Looking ahead, Chybowski said Bridgewater has “basically already reached” its year-end net interest margin target, and now expects only “slow margin expansion” assuming no additional rate cuts in 2026. With that margin reset and loan growth expected to continue, he said management remains focused on growing net interest income.
On expenses, Chybowski said first-quarter non-interest expense was elevated due to seasonality and items including annual merit increases, strategic hires, the Lake Elmo branch opening, and marketing and advertising efforts tied to market disruption. He reiterated the bank’s expectation that adjusted expense growth should align with asset growth over time, while acknowledging the first quarter’s asset decline from securities sales distorts that relationship in the near term.
During the Q&A, Baack said M&A activity appeared to have “slowed down more than I expected” in the first quarter, which he attributed to “geopolitical reasons,” while reiterating that organic growth and taking market share in the Twin Cities remain Bridgewater’s primary focus.
Baack closed by pointing to progress on 2026 strategic priorities, including affordable housing expansion and technology initiatives intended to lay the groundwork for “leveraging AI thoughtfully across the organization.”
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.
