Bridgewater Bancshares (BWB) Q3 2026 earnings review
Bridgewater's deposits rise and costs fall, but lending will slow
Bridgewater Bancshares, a Twin Cities bank lending mainly on apartments and commercial property, earned more while spending less, but now plans slower lending. Profit per share rose 29% from a year ago as revenue grew and costs fell. Chairman and chief executive Jerry Baack pointed to an efficiency ratio under 50%, the lowest in more than three years, and customers brought in $165 million of core deposits.
| Profit per share | $0.49 +29% from a year ago |
|---|---|
| Core deposits | +$165M in the quarter −$29M the quarter before |
| Efficiency ratio (costs as a share of revenue) | 48.8% 53.0% last quarter |
| Loan growth outlook | Cut mid-single digit, from mid-to-high |
⚖️ Verdict: 🔴 Bearish
The story got worse because the bank lowered both growth plans: loans at a mid-single-digit pace, down from mid-to-high, and a margin that holds rather than widens as the Fed raises rates. The good news: core deposits stopped stalling and costs came in under plan, which is why profit climbed so fast. The bank says core deposits run lower early in the year, so one quarter does not settle funding.
The question now is whether the margin holds at 3.09% while rates rise. If cheap deposits keep arriving, repricing loans outrun deposit costs; if the inflow proves seasonal, brokered money returns at higher rates and the margin slips. The fourth-quarter margin will tell.
🐂 Bull Case
Revenue Grew Faster Than Costs
Bridgewater Bancshares is a Twin Cities bank that lends mainly on apartment buildings and commercial property. Chairman and chief executive Jerry Baack credited the quarter to "Across-the-board revenue growth and well-controlled expenses", and the numbers support him, because revenue grew far faster than the cost of running the bank.
- Revenue: up 20% from a year ago, to $43.2 million
- Operating costs: up 7% from a year ago, and down from last quarter
- Costs as a share of revenue: 49.4%, from 55.2% a year ago
- Pay and benefits, the largest line: 33.2% of revenue, from 33.8%, despite 35 more staff
The fall from last quarter came from marketing, consulting fees and other overhead, which together cost $809,000 less. Pay rose because the bank has hired 17 people from rivals caught up in local mergers, so revenue is outrunning a growing payroll rather than a frozen one. One caution: the plan returns costs to $21.9 million next quarter, which by our math puts the full year up 13%.
What to watch: fourth-quarter operating costs against the $21.9 million planned, reported in January. The plan already has costs rising again, so the test is whether revenue grows enough to keep them under half of revenue.
Affordable Housing Lending Carried Loan Growth
Bridgewater has financed subsidised affordable apartments for many years, and that business now holds $734 million of loans, about 16% of the book by our math. The bank said growth this quarter came from "continued traction in the affordable housing vertical across the construction and development and C&I portfolios", while "Elevated payoff activity impacted the multifamily portfolio".
- Affordable housing loans: up $82 million this year, a 17% annualised pace
- Year on year: up 20%, against 7% for all loans
- Ordinary apartment loans: down $29 million in the quarter
So the specialised business grew while the ordinary apartment book shrank. That matters beyond loans, because the bank calls the vertical a "Strong source of core deposit growth", and this quarter's deposit inflow is what let it cut brokered funding.
What to watch: the affordable housing balance next quarter against the total book. If it keeps growing near 20% while other lending stalls, the bank's growth rests on one specialised business, 38% of it outside Minnesota.
🐻 Bear Case
Loan Growth Now Waits on Core Deposits
Loan growth is the main way Bridgewater adds revenue, and Baack said the bank "continued to execute on our profitable growth strategy". Yet it lowered its growth plan for the second time this year, to a mid-single-digit pace that is "dependent on the pace of core deposit growth".
- Plan in January: high single digit, about 8%, for 2026
- Plan in July: mid-to-high single digit for the second half
- Plan now: mid-single digit
- Delivered: 6.1% annualised this year, 7.2% this quarter
For a year core deposits barely grew, so the bank bought brokered deposits, wholesale money it calls "a supplemental funding source, as needed". This quarter customers brought in $165 million of core deposits and the bank repaid $96 million of brokered money, its best funding quarter in two years. One quarter does not settle it, because the bank warns that "Core deposit growth is not always linear and tends to be seasonally lower early in the year".
It also names "increased loan competition and banks being more aggressive on pricing" as a brake, so it declines deals priced too thin even with deposits in hand. By our math the new plan adds about $57 million of loans in the fourth quarter and ends 2026 up about 6%.
What to watch: first-quarter core deposits, the seasonally weak period, and fourth-quarter loan growth against the $57 million the plan implies. Deposits holding with loans below plan would mean competition, not funding, now sets the pace.
Margin Expansion Is Over, the Bank Says
Net interest margin, the gap between what a bank earns on loans and pays for funding, reached 3.09% after two years of steady rises. The standing story was that loans repricing to higher rates would keep widening it, and Baack says the balance sheet "is better positioned today for a higher interest rate environment given our intentional mix shift toward more variable-rate loans".
- Margin: 3.09%, up 0.02 points from last quarter and 0.46 from a year ago
- Loan yield: 5.96%, up 0.05 points; cost of deposits 2.78%, down 0.02
- Rate shock, by the bank's own model: interest income falls 1.0% if rates rise one point, 2.5% if two
The new outlook is "Net interest margin stability over the near-term", which "assumes three additional rate hikes through the first half of 2027", with "Higher loan repricing offsetting higher deposit costs". The rate table cuts against the chief executive's framing, because the bank still loses income when rates rise, only less than two years ago. Loans worth $802 million reprice over the next year at about 5.5% by our math, but the bank no longer says that outruns deposit costs.
What to watch: the fourth-quarter margin against this quarter's 3.09%, with the cost of deposits beside it. A margin below that level with deposit costs rising would mean the Fed's increases reached deposits before the loan book repriced.
One Mixed-Use Loan Cost $2.3 Million in Charge-offs
More than a third of Bridgewater's loans are on apartment buildings, and last quarter one mixed-use apartment loan of $10.5 million went onto nonaccrual, meaning the bank stopped counting its interest. This quarter it wrote off $2.3 million of that loan, which lifted net charge-offs to 0.21% of loans, annualised.
- Provision for loan losses: $2.75 million, up from $550,000, for loan growth "and an additional specific reserve"
- Provision as a share of revenue: 6.4%, up 5 percentage points from last quarter
- Nonperforming assets: $20.9 million; two loans make up 80% of them
- Watch-list loans: $23.6 million, down 39% in the quarter
The loss matters beyond its size because the bank says its multifamily charge-offs since 2005 total $3 million, so one loan now equals most of that history. The shrinking watch list is good news, but the release does not say what remains of this loan or of the $8.6 million downtown office loan that carries the other reserve.
What to watch: the remaining balance on the mixed-use loan and the reserve on the office loan in the fourth-quarter results. A second charge-off on either would show last quarter's reserve was too small.
Risks This Quarter Didn't Answer
Three standing concerns got no new number in the release or the slides, so this quarter neither confirms nor eases them. Each has a disclosure that will, and the quarterly filing is the usual place.
- Downtown office loan: $8.6 million on nonaccrual since early 2025, with a $4 million reserve last quarter; the provision cites "and an additional specific reserve" without naming the loan. The filing shows loan-level reserves.
- Investor property concentration: 457% of risk-based capital last quarter against a 300% supervisory guideline, and commercial property and construction lending led this quarter's growth; the filing's capital tables update it.
- Swap fees: $112,000 this quarter against $263,000 last quarter, with no timeline for the permanent-loan product meant to lift them; any figure would move the fee case.
👓 Other Themes
The Fed Is Raising Rates Again
The release refers to "the recent increase in the benchmark federal funds rate by the Federal Reserve", and the bank's plan "assumes three additional rate hikes through the first half of 2027". That reverses the 2025 backdrop of cuts that lowered its deposit costs. About $2.0 billion of its funding and $1.2 billion of its loans move with short-term rates, so each increase lifts both sides within months.
💲 Other KPIs
Fee income rose 25% from a year ago, led by letter-of-credit fees. Swap fees, earned when borrowers fix their interest rate, fell to $112,000 from $263,000, so the quarter's gain came from a lumpier line. Fees stay under 6% of revenue, so results depend on interest income.
Tangible book value per share fell 1.7% in the quarter, the first drop since the acquisition at the end of 2024, because rising rates cut the bond portfolio's market value by $22 million after tax. It remains up 9.4% from a year ago, and regulatory capital edged up because those paper losses do not count there.
The tax rate fell to 21.5% from 24.1% last quarter. The reason is that the bank bought tax-exempt municipal bonds, which now make up 46% of its securities. By our math the lower rate added about $0.02 per share, so a small part of the profit gain is tax, not operations.
🔮 Guidance
Cut. The plan now has loans growing at a mid-single-digit annual pace, down from mid-to-high, and remains "dependent on the pace of core deposit growth". By our math that adds about $57 million in the fourth quarter and ends 2026 up about 6%. January's plan was 8%, so this is the second cut this year.
Cut. The plan no longer has the margin widening; it calls for "Net interest margin stability over the near-term" with "Higher loan repricing offsetting higher deposit costs", and it "assumes three additional rate hikes through the first half of 2027". The margin has risen for eight straight quarters, so a stable reading would be the first pause since late 2024.
Unchanged. The bank still expects interest income to grow, now from "NIM stabilization and loan growth outlook" rather than a widening margin. By our math, mid-single-digit loan growth on a stable margin points to roughly 1% to 1.5% growth per quarter, against 5% this quarter, so the pace slows a lot.
Unchanged. The bank still plans fourth-quarter costs at the second-quarter level of $21.9 million, so this quarter's $21.3 million was a dip rather than a new base. By our math the full year then comes to about $87 million. That is 13% more than last year, well ahead of asset growth, while January's plan had costs growing in line with assets.
Unchanged. The target range stays at 95% to 105%. The ratio fell about a point, to 100.8%, because deposits grew faster than loans. It has sat in the upper half of the range all year, which is why the bank ties its lending pace to deposit growth.
Unchanged. The bank again plans to hold capital steady with an "Opportunistic and nimble approach to capital", as buyer or issuer. It bought no shares this quarter, leaving $12.4 million of authorisation, and sold none under its $50 million at-the-market programme. Common equity tier 1 edged up to 9.63%.
❓ Key Questions
What remains of the mixed-use loan after the charge-off?
The bank wrote off $2.3 million of a $10.5 million nonaccrual loan but did not give the remaining balance or say whether a sale is near. A second write-down would question last quarter's reserve.
What reserve does the downtown office loan carry now?
The provision cites an additional specific reserve without naming the loan. The $8.6 million office loan has sat on nonaccrual since early 2025 with a $4 million reserve; investors need the updated figure and market feedback.
When do the 17 new hires pay for themselves?
Pay is up 17% from a year ago and the plan returns total costs to $21.9 million next quarter. The bank has not said how much lending or deposits the hires have produced, or what 2027 expense growth it plans.
How much of the deposit inflow is seasonal?
Core deposits rose $165 million in one quarter after barely moving for a year. The bank says early-year deposits run lower, so the split between lasting accounts and transaction-driven balances decides next year's lending capacity.
How fast do rate-tied deposits reprice versus loans?
The bank has $1.6 billion of deposits that adjust immediately and $802 million of loans repricing over a year. With three more rate increases assumed, the timing gap decides whether the margin truly holds.