Bridgewater Bancshares (BWB) Q4 2025: Net Interest Margin Expands 12bps, Accelerating Path to 3% Target
Bridgewater Bancshares delivered a robust Q4, with net interest margin (NIM) expanding 12 basis points and core deposit and loan growth both advancing at 9% annualized rates. Disciplined loan repricing and strong asset quality underpinned results, while management’s bullish margin outlook signals a faster return to pre-cycle profitability. With strategic focus on affordable housing, market share gains, and technology modernization, BWB is positioning for sustainable growth despite competitive and macro headwinds in 2026.
Summary
- Margin Expansion Accelerates Timeline: NIM improvement and loan repricing support a faster path to 3% margin by year-end 2026.
- Deposit and Loan Growth Aligned: Core deposit and loan growth remain tightly matched, supporting disciplined balance sheet expansion.
- Affordable Housing and Tech Drive Next Phase: Strategic investments in affordable housing and core modernization set up new growth levers.
Performance Analysis
Bridgewater Bancshares’ Q4 results reflected a well-balanced growth profile, with net interest margin (NIM) expanding 12 basis points to 2.75% and net interest income rising 5% sequentially. This outpaced expectations, as management now sees a path to 3% NIM by end of 2026, pulled forward from early 2027. The margin gain was primarily driven by lower deposit costs, which declined 22 basis points in the quarter, benefiting from three Federal Reserve rate cuts in late 2025 and a high mix of immediately adjustable deposits.
Loan growth kept pace with deposits, both up 9% annualized in Q4, with full-year loan growth of 11% outstripping core deposit growth of 8%. The bank’s strategy of aligning loan growth to core deposit inflows has supported balance sheet stability and asset quality. Non-interest income rebounded, led by $651,000 in swap fee revenue, though management expects this to moderate in 2026. Expense discipline returned post-acquisition and systems conversion, with adjusted efficiency ratio improving to 50.7%, the lowest since early 2023.
- Spread Management: NIM expansion and loan repricing dynamics are driving higher net interest income without relying on further rate cuts.
- Deposit Mix Shift: Non-interest bearing deposit growth improved mix, while reliance on brokered deposits declined.
- Asset Quality Resilience: Non-performing assets and charge-offs increased modestly, but remain at low, isolated levels, underscoring strong credit discipline.
Overall, Bridgewater’s Q4 performance demonstrated effective execution across growth, margin, and credit, setting up a constructive outlook for 2026 even as competition intensifies and swap fee tailwinds moderate.
Executive Commentary
"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. This all comes as we continue to take market share by providing an unconventional, reliable experience to our clients."
Jerry Bach, Chairman and Chief Executive Officer
"With margin expansion and continued earning asset growth, we saw net interest income increase 5% during the quarter. Given the expansion we saw in the fourth quarter, and as we look ahead to repricing opportunities in 2026, we're 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."
Joe Schabowski, President and Chief Financial Officer
Strategic Positioning
1. Margin Expansion and Repricing Leverage
BWB’s path to a 3% NIM by end of 2026 is underpinned by active loan repricing, with $743 million of fixed and adjustable loans set to reprice at higher yields over the next 12 months. The shift toward a higher variable-rate loan mix (now 22% of the book, up from 14% last year) provides additional flexibility as the rate environment evolves. Management’s guidance does not depend on further Fed cuts, signaling confidence in asset-side levers.
2. Core Deposit and Loan Growth Discipline
Management’s focus on matching loan growth to core deposit inflows remains central, maintaining a target loan-to-deposit ratio of 95% to 105%. Non-interest bearing deposits grew $100 million in Q4, further improving funding mix. While Q1 and Q2 typically see seasonal deposit outflows, BWB’s pipeline, especially via affordable housing initiatives, supports ongoing growth. Brokered deposits will be used opportunistically to supplement funding if needed.
3. Affordable Housing Vertical Scaling
The affordable housing vertical is emerging as a key growth driver, with balances up 27% annualized in Q4 and 29% for the year, now representing about 15% of the loan book. This portfolio is diversified across construction, C&I (commercial and industrial), and multifamily, and management expects its growth to outpace the overall loan book in the near term. The vertical also supports incremental swap fee income and deposit gathering nationally.
4. Technology Modernization and Efficiency
BWB is investing in core banking modernization to improve both client experience and operational efficiency. The bank is seeking to decouple from legacy provider Fiserv’s innovation stack, allowing greater agility in adopting emerging technologies, including AI. This is a multi-year initiative aimed at future-proofing infrastructure and supporting scalable growth.
5. Market Share Gains Amid M&A Disruption
Recent M&A activity in the Twin Cities banking market has created talent and client acquisition opportunities, with BWB now the second largest locally led bank in the region. Management is leveraging this disruption to recruit talent and win new business, while maintaining a disciplined approach to potential future acquisitions. An M&A readiness plan is in place, but organic growth remains the primary focus.
Key Considerations
BWB’s Q4 performance underscores a business model built on disciplined balance sheet management, targeted growth verticals, and operational efficiency. The bank’s ability to pull forward its NIM recovery timeline, maintain strong asset quality, and capitalize on local market disruption positions it well for 2026, but execution risks remain as competition heats up and fee income normalizes.
Key Considerations:
- Loan Repricing Cadence: The $743 million in loans set to reprice is spread evenly across quarters, supporting steady margin improvement rather than lumpy gains.
- Deposit Growth Seasonality: Q1 and Q2 are typically low watermarks for deposit growth, requiring careful funding management to sustain loan momentum.
- Affordable Housing Concentration: The vertical’s rapid growth is positive, but concentration risk and underwriting discipline must be actively managed as it expands.
- Expense Run-Rate Normalization: With integration costs behind, expense growth is expected to track high single-digit asset growth, but opportunistic hiring and tech investments could drive variability.
- Competitive Lending Environment: Increased competition in the Twin Cities is pressuring loan spreads, but management remains selective and confident in pipeline quality.
Risks
Rising competition for loans and deposits in the Twin Cities could pressure spreads and funding costs, while the affordable housing vertical’s rapid expansion may introduce concentration and credit risks if not tightly managed. Non-interest income, especially swap fees, is expected to moderate as market conditions normalize, removing a recent tailwind. Isolated credit events in multifamily and C&I, though not systemic, highlight the need for vigilance as the cycle matures.
Forward Outlook
For Q1 2026, Bridgewater guided to:
- Loan growth in the high single digits, contingent on deposit inflows and loan payoff trends.
- Net interest margin approaching 3% by year-end, with further improvement driven by loan repricing rather than additional Fed rate cuts.
For full-year 2026, management maintained guidance:
- Expense growth tracking high single-digit asset growth, normalizing post-acquisition.
- Continued investment in technology and affordable housing initiatives to drive both revenue and efficiency.
Management highlighted several factors that will shape results:
- Seasonal deposit outflows in early 2026 may require tactical use of brokered funding.
- Affordable housing vertical growth is expected to outpace the broader loan book, with corresponding opportunities for fee income.
Takeaways
BWB’s Q4 results reinforce its disciplined approach to growth, margin management, and credit quality, with strategic levers in affordable housing and technology setting up the next phase of expansion. The bank’s ability to accelerate its NIM recovery and maintain strong asset quality in a competitive market is a clear differentiator.
- Margin Recovery Is Real: Loan repricing and deposit cost management underpin a credible path to 3% NIM by year-end, even without further rate cuts.
- Growth Engines Are Diversified: Affordable housing and technology modernization provide new revenue and efficiency opportunities, but require close oversight as they scale.
- Watch Competition and Fee Income: Competitive intensity and normalizing swap fees could pressure spreads and non-interest revenue, making disciplined execution critical in 2026.
Conclusion
Bridgewater Bancshares enters 2026 with momentum in margin, growth, and operational discipline, leveraging repricing tailwinds and strategic investments to offset a tougher competitive landscape. Execution on deposit gathering, credit vigilance, and affordable housing expansion will be key watchpoints for investors in the year ahead.
Industry Read-Through
BWB’s results highlight several sector-wide themes for regional banks: margin recovery is increasingly driven by asset-side repricing and funding cost management, while non-interest income volatility (notably from swaps) is likely to moderate as yield curves normalize. The rapid growth and diversification of affordable housing lending points to a broader industry push into specialized verticals, but also raises questions about concentration risk and underwriting standards. Competitive dynamics in local markets are intensifying post-M&A, with talent and client flows creating both opportunity and pricing pressure. Technology modernization and core decoupling are becoming table stakes for banks seeking long-term efficiency and innovation agility.