Bridgewater Bancshares Margin Widens as Credit Quality Softens
Bridgewater Bancshares posted net interest margin expansion for a third straight quarter even as nonperforming assets nearly doubled to $21.6 million.
Bridgewater Bancshares (BWB) reported net income of $14.0 million, or $0.45 a diluted share, in the second quarter of 2026, up from $11.5 million, or $0.38, a year earlier.
The Minnesota-based bank's core lending business kept improving even as a one-time gain from the prior quarter dropped out of results, exposing a widening gap between the bank's underlying earnings power and the headline GAAP figure. Net income fell from $17.4 million, or $0.58 a share, in the first quarter of 2026, but adjusted diluted EPS, which strips out non-core items, actually rose to $0.45 from $0.41 over the same span, reflecting the securities gain that had inflated the prior quarter.
Net interest income rose to $38.6 million, up 21.0% on an annualized basis from $36.6 million in the first quarter and up 18.7% from $32.5 million a year earlier. The tax-equivalent net interest margin expanded to 3.07%, up 8 basis points sequentially and 45 basis points year-over-year, marking a third consecutive quarter of expansion from 2.62% in the second quarter of 2025. Loan yields climbed to 5.91%, extending a four-quarter climb from 5.74%.
Gross loans grew to $4.43 billion, up 5.4% annualized from the first quarter and up 6.8% from a year earlier, with growth concentrated in the multifamily portfolio. Funding that growth required a shift in the deposit mix: total deposits rose to $4.35 billion, but core deposits excluding brokered funds and large CDs fell $29.9 million sequentially, pulling their share of total deposits down to 77.0% from 78.4% in the first quarter. Brokered deposits rose $45.2 million over the same period, continuing the bank's reliance on wholesale funding to bridge the gap.
Credit metrics moved in different directions. Net charge-offs edged down to 0.04% of average loans annualized from 0.05% in the first quarter, but nonperforming assets to total assets nearly doubled to 0.40% from 0.22%, with dollar nonperforming assets rising to $21.6 million from $11.7 million. Even so, the provision for credit losses on loans dropped to $550,000 from $1.4 million in the first quarter and $2.0 million a year earlier, as loan growth was offset by changes in qualitative factors.
Noninterest income fell to $2.3 million from $9.6 million in the first quarter, a $7.2 million decline driven by the absence of a $7.3 million net gain on securities sales that had boosted the prior period. Noninterest expense also declined to $21.9 million from $22.2 million, after a $982,000 FHLB prepayment penalty in the first quarter did not recur. The efficiency ratio improved to 53.0% from 56.3% sequentially, though it was little changed from 52.6% a year earlier.
Capital and per-share metrics continued to build. Tangible book value per share rose to $16.61, up 17.1% annualized from $15.93 in the first quarter, while the CET1 ratio improved to 9.61%, extending a five-quarter uptrend from 9.03%.
Bridgewater repurchased 38,659 shares for $700,000 at an average price of $18.12 during the quarter, leaving $12.4 million under its buyback authorization. Full-time equivalent headcount grew to 355 from 337 in the first quarter, driven by seasonal interns and key talent hires.