Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2025
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ________
Commission File Number 001-38412
BRIDGEWATER BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Minnesota(State or other jurisdiction ofincorporation or organization)
26-0113412(I.R.S. EmployerIdentification No.)
4450 Excelsior Boulevard, Suite 100St. Louis Park, Minnesota(Address of principal executive offices)
55416(Zip Code)
(952) 893-6868
(Registrant’s telephone number, including area code)
. Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Trading Symbol
Name of each exchange on which registered:
Common Stock, $0.01 Par Value
BWB
The Nasdaq Stock Market LLC
Depositary Shares, each representing a 1/100th interest in a share of 5.875% Non-Cumulative Perpetual Preferred Stock, Series A, par value $0.01 per share
BWBBP
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of the Common Stock outstanding as of October 28, 2025 was 27,584,732.
PART I FINANCIAL INFORMATION
3
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets
Consolidated Statements of Income
4
Consolidated Statements of Comprehensive Income
5
Consolidated Statements of Shareholders’ Equity
6
Consolidated Statements of Cash Flows
7
Notes to Consolidated Financial Statements
8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
43
Item 3. Quantitative and Qualitative Disclosures About Market Risk
71
Item 4. Controls and Procedures
72
PART II OTHER INFORMATION
73
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
74
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
75
SIGNATURES
76
2
PART 1 – FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Bridgewater Bancshares, Inc. and Subsidiaries
(dollars in thousands, except share data)
September 30,
December 31,
2025
2024
(Unaudited)
ASSETS
Cash and Cash Equivalents
$
131,818
229,760
Bank-Owned Certificates of Deposit
3,658
4,377
Securities Available for Sale, at Fair Value
826,473
768,247
Loans, Net of Allowance for Credit Losses of $56,390 at September 30, 2025 (unaudited) and $52,277 at December 31, 2024
4,149,882
3,809,436
Federal Home Loan Bank (FHLB) Stock, at Cost
21,373
19,297
Premises and Equipment, Net
50,955
49,533
Accrued Interest
19,244
17,711
Goodwill
11,982
Other Intangible Assets, Net
7,160
7,850
Bank-Owned Life Insurance
46,121
44,646
Other Assets
91,328
103,403
Total Assets
5,359,994
5,066,242
LIABILITIES AND EQUITY
LIABILITIES
Deposits:
Noninterest Bearing
822,632
800,763
Interest Bearing
3,470,132
3,286,004
Total Deposits
4,292,764
4,086,767
Notes Payable
—
13,750
FHLB Advances
404,500
359,500
Subordinated Debentures, Net of Issuance Costs
108,588
79,670
Accrued Interest Payable
5,208
4,008
Other Liabilities
51,471
64,612
Total Liabilities
4,862,531
4,608,307
SHAREHOLDERS' EQUITY
Preferred Stock- $0.01 par value; Authorized 10,000,000
Preferred Stock - Issued and Outstanding 27,600 Series A shares ($2,500 liquidation preference) at September 30, 2025 (unaudited) and December 31, 2024
66,514
Common Stock- $0.01 par value; Authorized 75,000,000
Common Stock - Issued and Outstanding 27,584,732 at September 30, 2025 (unaudited) and 27,552,449 at December 31, 2024
276
Additional Paid-In Capital
97,101
95,088
Retained Earnings
339,135
309,421
Accumulated Other Comprehensive Loss
(5,563)
(13,364)
Total Shareholders' Equity
497,463
457,935
Total Liabilities and Equity
See accompanying notes to consolidated financial statements.
(dollars in thousands, except per share data)
Three Months Ended
Nine Months Ended
INTEREST INCOME
Loans, Including Fees
60,038
51,895
171,746
152,861
Investment Securities
10,371
8,725
28,968
24,818
Other
3,224
2,407
7,825
4,895
Total Interest Income
73,633
63,027
208,539
182,574
INTEREST EXPENSE
Deposits
34,615
34,187
99,215
95,995
Federal Funds Purchased
16
1,159
106
296
624
887
2,933
1,942
7,941
6,325
Subordinated Debentures
1,888
1,001
3,992
2,982
Total Interest Expense
39,542
37,428
111,788
107,348
NET INTEREST INCOME
34,091
25,599
96,751
75,226
Provision for Credit Losses
1,100
4,600
1,350
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES
32,991
92,151
73,876
NONINTEREST INCOME
Customer Service Fees
501
373
1,492
1,081
Net Gain (Loss) on Sales of Available for Sale Securities
59
(28)
534
385
Letter of Credit Fees
383
424
1,161
1,127
Debit Card Interchange Fees
173
152
462
448
Swap Fees
26
980
440
352
1,206
965
Investment Advisory Fees
208
746
FHLB Prepayment Income
301
Other Income
297
223
885
803
Total Noninterest Income
2,061
1,522
7,767
4,835
NONINTEREST EXPENSE
Salaries and Employee Benefits
12,229
9,851
34,963
28,959
Occupancy and Equipment
1,266
1,069
3,774
3,218
FDIC Insurance Assessment
775
750
1,975
2,350
Data Processing
637
368
1,881
1,252
Professional and Consulting Fees
1,261
1,149
3,365
2,890
Derivative Collateral Fees
309
381
1,132
1,395
Information Technology and Telecommunications
973
840
2,915
2,448
Marketing and Advertising
658
367
1,420
1,006
Intangible Asset Amortization
230
9
690
Other Expense
1,618
976
4,918
2,944
Total Noninterest Expense
19,956
15,760
57,033
46,488
INCOME BEFORE INCOME TAXES
15,096
11,361
42,885
32,223
Provision for Income Taxes
3,495
2,686
10,131
7,602
NET INCOME
11,601
8,675
32,754
24,621
Preferred Stock Dividends
(1,013)
(3,040)
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS
10,588
7,662
29,714
21,581
EARNINGS PER SHARE
Basic
0.38
0.28
1.08
0.79
Diluted
0.27
1.06
0.77
(dollars in thousands)
Net Income
Other Comprehensive Income (Loss):
Unrealized Gains on Available for Sale Securities
13,860
14,738
21,068
16,141
Unrealized Gains (Losses) on Cash Flow Hedges
(41)
(6,761)
(4,538)
987
Reclassification Adjustment for Gains Realized in Income
(1,659)
(2,498)
(5,583)
(7,543)
Income Tax Impact
(3,495)
(1,575)
(3,146)
(2,755)
Total Other Comprehensive Income, Net of Tax
8,665
3,904
7,801
6,830
Comprehensive Income
20,266
12,579
40,555
31,451
Three and Nine Months Ended September 30, 2025 and 2024
Accumulated
Additional
Preferred
Common Stock
Paid-In
Retained
Comprehensive
Stock
Shares
Amount
Capital
Earnings
Income (Loss)
Total
BALANCE June 30, 2024
27,348,049
273
93,205
294,569
(15,320)
439,241
Stock-based Compensation
8,496
923
Stock Options Exercised
69,856
1
517
518
Vested Restricted Stock Units
3,000
Restricted Shares Withheld for Taxes
(3,711)
(48)
Preferred Stock Dividend
BALANCE September 30, 2024
27,425,690
274
94,597
302,231
(11,416)
452,200
BALANCE June 30, 2025
27,470,283
275
95,174
328,547
(14,228)
476,282
7,566
1,079
106,563
851
852
500
(180)
(3)
BALANCE September 30, 2025
27,584,732
BALANCE December 31, 2023
27,748,965
277
96,320
280,650
(18,246)
425,515
29,832
2,994
78,356
586
587
Stock Repurchases
(446,509)
(4)
(5,173)
(5,177)
25,665
(10,619)
(130)
BALANCE December 31, 2024
27,552,449
23,495
3,118
Comprehensive Income (Loss)
148,738
1,246
1,247
(167,709)
(1)
(2,190)
(2,191)
38,962
(11,203)
(161)
CASH FLOWS FROM OPERATING ACTIVITIES
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Net Amortization on Securities Available for Sale
(2,635)
(1,064)
Net Gain on Sales of Securities Available for Sale
(534)
(385)
Provision for Credit Losses on Loans and Leases
4,400
1,450
Credit for Credit Losses on Off-Balance Sheet Exposures
200
(100)
Depreciation of Premises and Equipment
1,767
Amortization of Other Intangible Assets
Amortization of Right-of Use Asset
419
117
Cash Surrender Value of Bank-Owned Life Insurance
(1,206)
(965)
Amortization of Subordinated Debt Issuance Costs
286
Deferred Income Taxes
(2,701)
(1,100)
Changes in Operating Assets and Liabilities:
Accrued Interest Receivable and Other Assets
(1,232)
(465)
Accrued Interest Payable and Other Liabilities
(14,527)
(15,383)
Net Cash Provided by Operating Activities
20,835
11,799
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in Bank-Owned Certificates of Deposit
719
Proceeds from Sales of Securities Available for Sale
64,707
101,612
Proceeds from Maturities, Paydowns, Payups and Calls of Securities Available for Sale
108,590
45,219
Purchases of Securities Available for Sale
(204,111)
(189,344)
Net Increase in Loans
(344,846)
36,464
Net Increase in FHLB Stock
(2,076)
(1,529)
Purchases of Premises and Equipment
(3,303)
(658)
Purchase of Bank-owned Life Insurance
(4,630)
Redemption of Bank-owned Life Insurance
4,361
Net Cash Used in Investing Activities
(380,589)
(8,236)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits
205,997
37,494
Principal Payments on Notes Payable
(13,750)
Proceeds from FHLB Advances
936,500
699,000
Principal Payments on FHLB Advances
(891,500)
(669,000)
Issuance of Subordinated Debt, net of Issuance Costs
78,690
Redemption of Subordinated Debt, net of Issuance Costs
(49,980)
Preferred Stock Dividends Paid
Shares Repurchased for Tax Withholdings Upon Vesting of Restricted Stock-Based Awards
(131)
(94)
Shares Repurchased for Tax Withholdings Upon Exercise Stock Options
(30)
(36)
Net Cash Provided by Financing Activities
261,812
59,734
NET CHANGE IN CASH AND CASH EQUIVALENTS
(97,942)
63,297
Cash and Cash Equivalents Beginning
128,562
Cash and Cash Equivalents Ending
191,859
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash Paid for Interest
110,380
108,886
Cash Paid for Income Taxes
Federal
6,000
2,850
Minnesota
4,050
2,516
Other States
158
119
Total Cash Paid for Income Taxes
10,208
5,485
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Loans Transferred to Foreclosed Assets
434
Note 1: Description of the Business and Summary of Significant Accounting Policies
Organization
Bridgewater Bancshares, Inc. (the “Company”) is a financial holding company whose operations consist of the ownership of its wholly-owned subsidiary, Bridgewater Bank (the “Bank”). The Bank commenced operations in 2005 and provides retail and commercial loan and deposit services, principally to customers within the Minneapolis-St. Paul-Bloomington, MN-WI Metropolitan Statistical Area. In 2008, the Bank formed BWB Holdings, LLC, a wholly-owned subsidiary of the Bank, for the purpose of holding repossessed property. In 2018, the Bank formed Bridgewater Investment Management, Inc., a wholly-owned subsidiary of the Bank, for the purpose of holding certain municipal securities and to engage in municipal lending activities.
Recent Developments
On December 13, 2024, the Bank completed its acquisition of First Minnetonka City Bank (“FMCB”) in an all-cash transaction. On the closing date, FMCB merged with and into the Bank, with the Bank as the surviving entity. The acquisition of FMCB added two full-service branches in Minnetonka, Minnesota to the Bank’s footprint, and added approximately $225.7 million of deposits and $117.1 million of loans as of December 31, 2024.
On June 24, 2025, the Company entered into a Subordinated Note Purchase Agreement with certain institutional accredited investors and qualified institutional buyers pursuant to which the Company sold and issued $80.0 million in aggregate principal amount of its 7.625% Fixed-to-Floating Rate Subordinated Notes due 2035 (the “Notes”). The Notes were issued by the Company to such purchasers at a price equal to 100% of their face amount. The Company used the net proceeds it received from the sale of the Notes to redeem $50 million of outstanding 5.25% Fixed-to-Floating Rate Subordinated Notes due 2030 and for general corporate purposes.
On July 4, 2025, the President signed H.R. 1, the “One Big Beautiful Bill Act,” into law. The legislation includes several changes to federal tax law that generally allow for more favorable deductibility of certain business expenses beginning in 2025, including the restoration of immediate expensing of domestic research and development expenditures, reinstatement of 100% bonus depreciation, and more favorable rules for determining the limitation on business interest expense. The financial impact was immaterial to the financial statements.
On September 30, 2025, the Company announced its plan to close its Country Village branch location, effective December 29, 2025, given the close proximity to its Glen Lake branch in Minnetonka, Minnesota.
Basis of Presentation
The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures necessary for a complete presentation of the consolidated balance sheets, consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of shareholders’ equity and consolidated statements of cash flows in conformity with U.S. generally accepted accounting principles (“GAAP”). However, all normal recurring adjustments which are, in the opinion of management, necessary for the fair presentation of the interim financial statements have been included. The results of operations for the three and nine months ended September 30, 2025 are not necessarily indicative of the results which may be expected for the entire year. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 6, 2025.
Principles of Consolidation
These consolidated financial statements include the amounts of the Company, the Bank, with locations in Bloomington, Greenwood, Minneapolis (2), Minnetonka (2), Orono, St. Louis Park, and St. Paul, Minnesota, BWB Holdings, LLC, and Bridgewater Investment Management, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates in Preparation of Financial Statements
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Information available which could affect judgements includes, but is not limited to, changes in interest rates, changes in the performance of the economy, including elevated levels of inflation and possible recession, and changes in the financial condition of borrowers.
Material estimates that are particularly susceptible to significant change in the near term include the determination of the allowance for credit losses (“ACL”).
Segment Reporting
An operating segment is generally defined as a component of a business for which discrete financial information is available and whose operating results are regularly reviewed by the chief operating decision maker (“CODM”). Substantially all of the Company’s operations involve the delivery of loan and deposit products to clients. The Company’s CODM makes operating decisions and assesses performance based on an ongoing review of the banking activities, which constitute the Company’s only operating segment for financial reporting purposes. The Company’s single segment is managed on a consolidated basis by the CODM who is the Chief Executive Officer.
The accounting policies of this segment are the same as those described throughout this Note 1 concerning significant accounting policies. The CODM assesses performance of the segment and determines the appropriate allocation of Company resources based on consolidated net income, which is reported in the Consolidated Statements of Income. Consolidated net income is used in deciding where to deploy capital, and to monitor how budget compares to actual results. It is also used in benchmarking performance measures to Company peers for compensation related analysis. The measure of segment assets is reported on the Consolidated Balance Sheets as total consolidated assets.
Impact of Recently Adopted Accounting Guidance
On January 1, 2025, the Company adopted Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic ASC 740) Income Taxes. The ASU improves the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in rate reconciliation and (2) disaggregation of income taxes paid by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. The amendments in ASU 2023-09 are effective for fiscal years beginning after December 15, 2024. The Company’s adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
Impact of Recently Issued Accounting Standards
The following ASU’s have been issued by FASB and may impact the Company’s consolidated financial statements in future reporting periods:
On November 4, 2024, the FASB issued ASU 2024-03, which was updated in ASU 2025-01, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40). The ASU requires disclosure of additional information about specific expense categories in the notes to the financial statements. This ASU does not change or remove current expense disclosure requirements, but does affect where this information appears in the notes to the financial statements. The amendments are effective for the first fiscal year period beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. The amendments should be applied on a prospective or a retrospective basis, with an option to early adopt. The Company is currently evaluating the impact of ASU 2024-03 and ASU 2025-01.
On September 18, 2025, the FASB issued ASU 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software. The ASU removes all references to a prescriptive and sequential software development method (referred to as “project stages”) throughout Subtopic 350-40. The amendments require an entity to start capitalizing software costs when management has authorized and committed to funding the software project and it is probable that the project will be completed and the software will be used to perform the function intended. The amendments are effective for annual reporting periods beginning after December 15, 2027 and for interim reporting within those annual reporting periods. Early adoption is permitted as of the beginning of an annual reporting period. The Company is currently evaluating the impact of ASU 2025-06.
Subsequent Events
Subsequent events have been evaluated through October 30, 2025, which is the date the consolidated financial statements were available to be issued.
Note 2: Earnings Per Share
Basic earnings per common share are computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per common share are computed by dividing net income available to common shareholders by the weighted average number of common shares, adjusted for the dilutive effect of stock compensation. For the three and nine months ended September 30, 2025, stock options and restricted stock units totaling 570,500 and 535,450 shares, respectively, were excluded from the calculation because they were deemed to be anti-dilutive. For the three and nine months ended September 30, 2024, stock options and restricted stock units totaling 774,770 and 1,137,208 shares, respectively, were excluded from the calculation because they were deemed to be antidilutive.
10
The following table presents the numerators and denominators for basic and diluted earnings per share computations for the three and nine months ended September 30, 2025 and 2024:
Net Income Available to Common Shareholders
Weighted Average Common Stock Outstanding:
Weighted Average Common Stock Outstanding (Basic)
27,504,840
27,382,798
27,511,297
27,486,590
Dilutive Effect of Stock Compensation
685,566
522,112
578,112
433,194
Weighted Average Common Stock Outstanding (Dilutive)
28,190,406
27,904,910
28,089,409
27,919,784
Basic Earnings per Common Share
Diluted Earnings per Common Share
Note 3: Securities
The following tables present the amortized cost and estimated fair value of securities with gross unrealized gains and losses at September 30, 2025 and December 31, 2024:
September 30, 2025
Gross
Amortized
Unrealized
Cost
Gains
Losses
Fair Value
Securities Available for Sale:
U.S. Treasury Securities
155,902
(8,703)
147,199
Municipal Bonds
247,471
6,614
(13,538)
240,547
Mortgage-Backed Securities
267,171
2,877
(10,899)
259,149
Corporate Securities
109,613
1,791
(3,421)
107,983
U.S Government Agency Securities
9,803
9,835
Asset-Backed Securities
61,687
92
(19)
61,760
Total Securities Available for Sale
851,647
11,447
(36,621)
December 31, 2024
179,835
(12,090)
167,748
139,891
23
(17,649)
122,265
259,833
882
(15,825)
244,890
139,161
1,041
(6,016)
134,186
22,053
85
(56)
22,082
76,891
211
(26)
77,076
817,664
2,245
(51,662)
Securities with a carrying value of $264.9 million and $289.9 million were pledged to secure borrowing capacity at the Federal Reserve Discount Window as of September 30, 2025 and December 31, 2024, respectively.
11
The following tables present the fair value and gross unrealized losses of securities with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2025 and December 31, 2024:
Less Than 12 Months
12 Months or Greater
Number of
(dollars in thousands, except number of holdings)
Holdings
191
19,961
(654)
95,294
(12,884)
115,255
113
10,653
(47)
115,179
(10,852)
125,832
51
5,366
(49)
47,728
(3,372)
53,094
31
1,279
(5)
2,470
3,749
10,035
(13)
6,899
(6)
16,934
395
47,294
(768)
414,769
(35,853)
462,063
14
157,091
236
21,329
(120)
95,774
(17,529)
117,103
168
47,636
(391)
118,824
(15,434)
166,460
93
6,860
(75)
91,666
(5,941)
98,526
38
5,878
4,071
(51)
9,949
5,735
10,161
(21)
15,896
556
244,529
(12,686)
320,496
(38,976)
565,025
At September 30, 2025, 395 debt securities had unrealized losses with aggregate depreciation of approximately 7.3% from the Company’s amortized cost basis. At December 31, 2024, 556 debt securities had unrealized losses with aggregate depreciation of approximately 8.4% from the Company’s amortized cost basis. These unrealized losses have not been recognized into income because management does not intend to sell these securities, and it is not more likely than not it will be required to sell the securities before recovery of its amortized cost basis. Furthermore, the unrealized losses are due to changes in interest rates and other market conditions and were not reflective of credit events. To make this determination, consideration is given to such factors as the credit rating of the issuer, level of credit enhancement, changes in credit ratings, market conditions such as current interest rates, any adverse conditions specific to the security, and delinquency status on contractual payments. As of September 30, 2025 and December 31, 2024, there was no allowance for credit losses carried on the Company’s securities portfolio.
Accrued interest receivable on securities, which is recorded within accrued interest on the balance sheet, totaled $7.0 million and $6.2 million at September 30, 2025 and December 31, 2024, respectively, and was excluded from the estimate of credit losses.
The Company has entered into a fair value hedging transaction to mitigate the impact of changing interest rates on the fair value of U.S. treasury securities and mortgage-backed securities. See Note 7 – Derivative Instruments and Hedging Activities for disclosure of the gains and losses recognized on derivative instruments and the cumulative fair value hedging adjustments to the carrying amount of the hedged securities.
12
The following table presents a summary of the amortized cost and estimated fair value of debt securities by the earlier of expected call date or contractual maturity as of September 30, 2025. Call date is used when a call of the debt security is expected, as determined by the Company when the security has a market value above its amortized cost. Contractual maturities will differ from expected maturities for mortgage-backed, U.S. government agency securities and asset-backed securities because borrowers may have the right to call or prepay obligations without penalties.
Amortized Cost
Due in One Year or Less
42,029
42,814
Due After One Year Through Five Years
130,801
134,703
Due After Five Years Through 10 Years
152,428
142,107
Due After 10 Years
187,728
176,105
Subtotal
512,986
495,729
Totals
The following table presents a summary of the proceeds from sales of securities available for sale, as well as gross gains and losses, for the three and nine months ended September 30, 2025 and 2024:
Proceeds From Sales of Securities
5,112
50,779
Gross Gains on Sales
488
543
1,594
Gross Losses on Sales
(516)
(9)
(1,209)
13
Note 4: Loans and Allowance for Credit Losses
The following table presents the components of the loan portfolio at September 30, 2025 and December 31, 2024:
Commercial
533,476
497,662
Leases
43,186
44,291
Construction and Land Development
159,991
97,255
1-4 Family Construction
41,739
41,961
Real Estate Mortgage:
1-4 Family Mortgage
487,297
474,383
Multifamily
1,578,223
1,425,610
CRE Owner Occupied
192,966
191,248
CRE Nonowner Occupied
1,158,622
1,083,108
Total Real Estate Mortgage Loans
3,417,108
3,174,349
Consumer and Other
19,054
12,996
Total Loans, Gross
4,214,554
3,868,514
Allowance for Credit Losses
(56,390)
(52,277)
Net Deferred Loan Fees
(8,282)
(6,801)
Total Loans, Net
The following tables present the aging in past due loans and loans on nonaccrual status, with and without an ACL by loan segment, as of September 30, 2025 and December 31, 2024:
Accruing Interest
30-89 Days
90 Days or
Nonaccrual
Current
Past Due
More Past Due
with ACL
without ACL
532,193
1,250
33
43,167
19
159,951
40
486,980
317
191,218
1,748
1,149,973
8,649
18,213
841
4,201,657
2,906
9,899
497,432
171
44,257
34
97,197
58
474,185
178
20
190,197
1,051
12,975
18
3,866,922
1,291
78
The Company aggregates loans into credit quality indicators based on relevant information about the ability of borrowers to service their debt by using internal reviews in which management monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which the borrowers operate, and the fair values of collateral securing the loans. The Company analyzes all loans individually to assign a risk rating, grouped into six major categories defined as follows:
Pass: A pass loan is a credit with no known or existing potential weaknesses deserving of management’s close attention.
Watch: Loans classified as watch have a credit where the borrower’s financial strength and performance has
been declining and may pose an elevated level of risk. Watch loans have been identified as having minor deterioration in loan quality or other credit weaknesses/circumstances meriting closer attention of management.
Special Mention: Loans classified as special mention have a potential weakness that deserves management’s
close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date. Special mention loans are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification. This is a transitional rating and loans should not be classified as special mention for more than one year.
Substandard: Loans classified as substandard are not adequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. Well defined weaknesses include a borrower’s lack of marketability, inadequate cash flow or collateral support, failure to complete construction on time, or the failure to fulfill economic expectations. They are characterized by the distinct possibility that the Company will sustain loss if the deficiencies are not corrected.
Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or repayment in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loss: Loans classified as loss are considered uncollectible and charged-off immediately.
15
The following tables present loan balances classified by credit quality indicators by year of origination as of September 30, 2025 and December 31, 2024:
2023
2022
2021
Prior
Revolving
Pass
127,366
88,485
29,477
57,803
16,507
27,330
170,940
517,908
Watch/Special Mention
94
610
164
555
1,431
Substandard
110
142
1,306
10,380
2,190
14,137
Total Commercial
127,570
88,627
31,393
68,347
16,516
27,338
173,685
Current Period Gross Write-offs
186
254
11,963
12,035
9,356
6,292
2,151
1,370
Total Leases
6,311
84,744
60,287
1,604
337
12,545
Total Construction and Land Development
60,327
20,093
9,104
227
201
187
11,927
Total 1-4 Family Construction
71,539
73,348
47,161
90,200
68,477
56,564
78,865
486,154
633
193
1,143
Total 1-4 Family Mortgage
72,172
47,354
56,881
285,418
189,795
128,257
428,087
321,394
157,685
9,677
1,520,313
31,841
2,213
34,054
10,561
13,295
23,856
Total Multifamily
317,259
130,470
438,648
170,980
19,712
21,034
25,716
59,371
29,689
27,775
1,955
185,252
563
436
2,191
1,832
5,022
792
2,692
Total CRE Owner Occupied
19,864
21,597
26,508
31,873
29,966
3,787
262,084
316,755
91,792
219,899
127,344
120,235
4,191
1,142,300
135
15,283
904
16,187
Total CRE Nonowner Occupied
277,367
317,659
120,370
686,662
602,399
296,124
808,118
549,088
378,197
96,520
2,910
234
397
325
1,116
14,013
Total Consumer and Other
25
Total Period Gross Write-offs
294
Total Loans
933,942
772,726
339,101
883,639
568,435
408,021
308,690
2020
135,665
45,089
67,579
23,353
13,349
19,794
178,293
483,122
96
29
1,716
1,917
44
10,491
65
1,913
12,623
135,775
45,133
78,146
23,449
13,443
181,922
15,128
12,684
9,736
4,057
1,504
1,148
9,770
74,967
6,027
6,791
585
8,827
75,025
29,378
1,164
363
10,568
89,561
58,054
102,627
77,293
55,936
18,289
71,097
472,857
298
196
324
818
45
643
708
89,879
58,295
56,260
18,932
219,162
133,916
486,854
336,859
161,626
57,679
6,624
1,402,720
9,953
10,692
22,890
229,115
136,161
497,546
22,761
31,402
62,522
34,228
17,801
15,355
2,121
186,190
1,759
1,739
593
4,091
967
32,369
35,987
19,540
2,714
356,582
113,973
261,827
148,866
73,300
97,350
6,962
1,058,860
9,622
3,659
2,690
894
16,865
7,261
122
7,383
373,465
117,754
151,556
98,244
1,236
715,220
344,579
924,522
601,695
310,726
190,210
87,397
921
3,061
498
157
1,301
7,035
12,978
3,079
17
1,253
971,447
411,990
1,020,891
630,306
326,974
211,157
295,749
The following tables present the activity in the ACL, by segment, for the three and nine months ended September 30, 2025 and 2024:
Provision for
(Recovery of)
Credit Losses
Loans and
Recoveries
Total Ending
Beginning
for Loans
of Loans
Allowance
Balance
and Leases
Charged-off
Three Months Ended September 30, 2025
5,935
1,112
(254)
6,793
52
(15)
418
1,104
176
1,280
278
2,413
2,432
23,921
(691)
23,230
1,137
(25)
20,443
207
20,650
47,914
(490)
47,424
153
(7)
181
55,765
900
(276)
56,390
Nine Months Ended September 30, 2025
5,630
1,416
866
414
331
(37)
2,795
(363)
23,120
1,290
(178)
17,735
44,940
2,484
52,277
(294)
Three Months Ended September 30, 2024
6,018
(350)
5,673
1,220
(141)
522
(128)
394
2,774
2,779
22,480
(125)
22,355
1,258
1,233
17,581
730
(935)
17,376
44,093
43,743
(2)
129
51,949
(937)
51,018
Nine Months Ended September 30, 2024
5,398
265
2,156
(1,077)
558
(164)
2,651
125
22,217
138
1,184
49
16,225
2,086
42,277
2,398
105
28
(14)
50,494
(949)
The following tables present the balance in the ACL and the recorded investment in loans, by segment, as of September 30, 2025 and December 31, 2024:
Individually
Collectively
Evaluated for
Credit Loss
ACL at September 30, 2025
1,317
5,476
226
23,004
2,889
17,761
3,115
44,309
4,432
51,958
ACL at December 31, 2024
133
5,497
362
137
144
52,133
Loans at September 30, 2025
14,205
519,271
23,857
1,554,366
4,525
188,441
1,142,435
45,712
3,371,396
59,976
4,154,578
Loans at December 31, 2024
14,045
483,617
473,675
1,558
189,690
8,278
1,074,830
10,544
3,163,805
24,699
3,843,815
The following tables present the amortized cost basis of collateral dependent loans by the primary collateral type, which are individually evaluated to determine expected credit losses, and the related ACL allocated to these loans, as of September 30, 2025 and December 31, 2024:
Primary Type of Collateral
Business
ACL
Real Estate
Assets
Allocation
2,525
11,680
45,752
11,699
21
3,688
10,357
10,602
10,409
Accrued interest receivable on loans, which is recorded within accrued interest on the balance sheet, totaled $12.1 million and $11.4 million at September 30, 2025 and December 31, 2024, respectively, and was excluded from the estimate of credit losses.
For both the three months ended September 30, 2025 and September 30, 2024, there were no modified loans to borrowers experiencing financial difficulty. For the nine months ended September 30, 2025, the Company modified one commercial real estate (“CRE”), nonowner occupied loan, with an outstanding balance of $8.6 million, for a borrower experiencing financial difficulty by granting a 3-year extension of the loan at a below market rate. For the nine months ended September 30, 2024, there were no modified loans to borrowers experiencing financial difficulty.
Note 5: Goodwill and Other Intangible Assets
Goodwill was $12.0 million at September 30, 2025 and December 31, 2024. Goodwill is not amortized but is subject to, at a minimum, an annual test for impairment. Other intangible assets consist of core deposit relationships and favorable lease terms.
The following table presents a summary of other intangible assets at September 30, 2025 and December 31, 2024:
Core Deposit Intangible
8,833
Favorable Lease
445
9,278
Accumulated Amortization
(2,118)
(1,428)
Amortization expense of other intangible assets was $230,000 for the three months ended September 30, 2025 and $9,000 for the three months ended September 30, 2024. Amortization expense of other intangible assets was $690,000 for the nine months ended September 30, 2025 and $26,000 for the nine months ended September 30, 2024. The core deposit intangible asset is amortized over its estimated useful life of ten years.
22
The following table presents the estimated future amortization of the core deposit intangible and favorable lease assets for the next five years and thereafter. The projections of amortization expense are based on existing asset balances as of September 30, 2025.
Core Deposit
Favorable
Intangible
Lease
221
2026
871
2027
2028
830
2029
2030
773
Thereafter
2,681
7,031
Note 6: Deposits
The following table presents the composition of deposits at September 30, 2025 and December 31, 2024:
Transaction Deposits
1,683,406
1,663,005
Savings and Money Market Deposits
1,428,726
1,259,503
Time Deposits
346,214
338,506
Brokered Deposits
834,418
825,753
Brokered deposits included brokered transaction and money market accounts of $149.4 million and $127.4 million as of September 30, 2025 and December 31, 2024, respectively.
The following table presents the scheduled maturities of brokered and time deposits at September 30, 2025:
Less than 1 Year
663,327
1 to 2 Years
118,836
2 to 3 Years
79,134
3 to 4 Years
72,237
4 to 5 Years
97,733
1,031,267
The aggregate amount of time deposits greater than $250,000 was approximately $179.8 million and $155.0 million at September 30, 2025 and December 31, 2024, respectively.
Note 7: Derivative Instruments and Hedging Activities
The Company uses derivative financial instruments, which consist of interest rate swaps, interest rate caps, and fair value swaps to assist in its interest rate risk management. The notional amount does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual agreements. Derivative financial instruments are reported at fair value in other assets or other liabilities. The accounting for changes in the fair value of a derivative depends on whether it has been designated and qualifies as part of a hedging relationship and classification as either a cash flow hedge or fair value hedge for those derivatives which are designated as part of a hedging relationship. For derivatives not designated as hedges, the gain or loss is recognized in current earnings.
Non-hedge Derivatives
The Company enters into interest rate swaps to facilitate client transactions and meet their financing needs. Upon entering into these instruments to meet client needs, the Company enters into offsetting positions with large U.S. financial institutions in order to minimize the risk to the Company. These swaps are derivatives, but are not designated as hedging instruments.
Interest rate swap contracts involve the risk of dealing with counterparties and their ability to meet contractual terms. When the fair value of a derivative instrument contract is positive, this generally indicates that the counterparty or client owes the Company, and results in credit risk to the Company. When the fair value of a derivative instrument contract is negative, the Company owes the client or counterparty and therefore, the Company has no credit risk.
The following table presents a summary of the Company’s interest rate swaps to facilitate customer transactions as of September 30, 2025 and December 31, 2024:
Notional
Estimated
Interest rate swap agreements:
170,837
8,549
115,577
8,210
Liabilities
(8,549)
(8,210)
341,674
231,154
The Company has entered into a risk participation agreement (“RPA”) to share credit exposure with a counterparty related to an interest rate swap agreement associated with a loan participation. Under the RPA, the Company sold a portion of its credit exposure, receiving an up-front fee, and will be required to make a payment if the loan client defaults on its obligations. The notional amount of the RPA reflects the Company’s pro-rata share of the derivative instrument consistent with its share of the related participated loan.
The following table presents a summary of the Company’s RPA as of September 30, 2025 and December 31, 2024:
Location of
Gain (Loss)
Risk Participation Agreement
9,944
24
Any gain or loss related to changes in the fair value of the RPA is recorded to earnings. For the three months ended September 30, 2025, the total net gain recorded to earnings was $2,000. For the nine months ended September, 30, 2025, the total net loss recorded to earnings was $17,000. There was no gain or loss recorded to earnings for the three and nine months ended September 30, 2024
Cash Flow Hedging Derivatives
For derivative instruments that are designated and qualify as a cash flow hedge, the aggregate fair value of the derivative instrument is recorded in other assets or other liabilities with any gain or loss related to changes in fair value recorded in accumulated other comprehensive income, net of tax. The gain or loss is reclassified into earnings in the same period during which the hedged asset or liability affects earnings and is presented in the same income statement line item as the earnings effect of the hedged asset or liability. The Company utilizes cash flow hedges to manage interest rate exposure for the brokered deposit and wholesale borrowing portfolios. During the next 12 months, the Company estimates that $3.7 million will be reclassified to interest expense, as a reduction of the expense.
The following table presents a summary of the Company’s interest rate swaps designated as cash flow hedges as of September 30, 2025 and December 31, 2024:
Notional Amount
183,000
178,000
Weighted Average Pay Rate
2.87
%
2.20
Weighted Average Receive Rate
4.30
4.80
Weighted Average Maturity (Years)
4.42
4.02
Net Unrealized Gain
636
5,139
The Company purchases interest rate caps, designated as cash flow hedges, of certain liabilities. The interest rate caps require receipt of variable amounts from the counterparties when interest rates rise above the strike price in the contracts. For the three and nine months ended September 30, 2025, the Company recognized amortization expense on the interest rate caps of $200,000 and $593,000, respectively, which was recorded as a component of interest expense on FHLB advances. For the three and nine months ended September 30, 2024, the Company recognized amortization expense on the interest rate caps of $204,000 and $600,000, respectively, which was recorded as a component of interest expense on brokered deposits and FHLB advances.
The following table presents a summary of the Company’s interest rate caps designated as cash flow hedges as of September 30, 2025 and December 31, 2024:
125,000
Unamortized Premium Paid
4,281
Weighted Average Strike Rate
0.96
4.59
5.34
The following table presents the effect of derivative instruments in cash flow hedging relationships on the consolidated statements of income for the three and nine months ended September 30, 2025 and 2024:
Three Months Ended September 30,
Nine Months Ended September 30,
Derivatives in
Location of Gain
Gain
Cash Flow Hedging
Reclassified
Reclassified from
Relationships
from AOCI into Income
AOCI into Earnings
Interest rate swaps
Interest expense
683
1,478
2,318
4,549
Interest rate caps
917
1,048
2,731
2,609
No amounts were reclassified from accumulated other comprehensive income into net income related to hedge ineffectiveness for these derivatives during the three and nine months ended September 30, 2025 and 2024, and no amounts are expected to be reclassified from accumulated other comprehensive income into net income related to hedge ineffectiveness over the next twelve months.
Fair Value Hedging Derivatives
For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument as well as the offsetting gain or loss on the hedged asset or liability attributable to the hedged risk are recognized in current earnings. The gain or loss on the derivative instrument is presented on the same income statement line item as the earnings effect of the hedged item. The Company utilizes fair value hedges to mitigate the effect of changing interest rates on the fair values of fixed rate available for sale securities. The hedging strategy converts the fixed interest rates to variable interest rates based on Secured Overnight Financing Rate (“SOFR”).
The following table presents a summary of the Company’s interest rate swaps designated as fair value hedges as of September 30, 2025 and December 31, 2024:
243,569
145,850
3.56
3.52
4.32
4.82
14.79
19.47
The effects of the Company’s fair value hedge relationships on the income statement during the three and nine months ended September 30, 2025 and 2024 were as follows:
Amount of Gain (Loss) Recognized in Income
Securities
Location of Gain (Loss)
Interest Rate Swaps
Interest Income
(202)
(893)
(3,734)
Securities Available for Sale
202
893
3,734
The following table presents amounts that were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges at September 30, 2025 and December 31, 2024:
Cumulative Amount of Fair Value Hedging Adjustment
Included in the Carrying Amount of the Hedged
Carrying Amount of The Hedged Assets/Liabilities
Assets/Liabilities
Line Item on the Balance Sheet
250,347
156,337
6,778
10,487
The following table presents a summary of the Company’s interest rate contracts as of September 30, 2025 and December 31, 2024:
Interest Rate Swap Agreements - Borrowings:
45,000
1,914
138,000
(1,278)
Interest Rate Swap Agreements - Securities:
7,546
97,719
Interest Rate Cap Agreements:
13,643
19,319
The Company is party to collateral support agreements with certain derivative counterparties. These agreements require that the Company maintain collateral based on the fair values of derivative transactions. In the event of default by the Company, the counterparty would be entitled to the collateral. As of September 30, 2025 and December 31, 2024, the Company had pledged no cash collateral for the Company’s derivative contracts. As of September 30, 2025 and December 31, 2024, the Company’s counterparties had pledged cash collateral to the Company of $25.2 million and $44.2 million, respectively.
The following table summarizes gross and net information about derivative instruments that are eligible for offset in the balance sheet at September 30, 2025 and December 31, 2024:
Gross Amounts Not Offset in the Balance Sheet
Net Amounts of
Gross Amounts
Assets (Liabilities)
of Recognized
Offset in the
Presented in the
Financial
Cash Collateral
Net Assets
Balance Sheet
Instruments
Received
(Liabilities)
31,652
25,243
6,409
(10,595)
43,155
44,233
(1,078)
Note 8: Federal Home Loan Bank Advances and Other Borrowings
Federal Home Loan Bank Advances. The Company has entered into an Advances, Pledge, and Security Agreement with the FHLB whereby specific mortgage loans of the Bank with aggregate principal balances of $1.64 billion and $1.54 billion at September 30, 2025 and December 31, 2024, respectively, were pledged to the FHLB as collateral. FHLB advances are also secured with FHLB stock owned by the Company. Total remaining available capacity under the agreement was $493.6 million and $483.2 million at September 30, 2025 and December 31, 2024, respectively.
27
The following table presents information regarding FHLB advances, by maturity, at September 30, 2025 and December 31, 2024:
Weighted
Average
Rate
Outstanding
4.36
320,500
4.62
288,000
3.71
31,500
3.45
21,500
30,000
4.13
27,500
4.10
15,000
4.01
22,500
4.09
7,500
Line of Credit. The Company has a Loan and Security Agreement and related revolving note with an unaffiliated financial institution that is secured by 100% of the issued and outstanding stock of the Bank. The note contains customary representations, warranties, and covenants, including certain financial covenants and capital ratio requirements. The Company believes it was in compliance with all covenants as of September 30, 2025 and December 31, 2024.
The following table presents information regarding the revolving line of credit at September 30, 2025 and December 31, 2024:
Total Debt
Interest
Name
Maturity Date
Coupon Structure
Revolving Credit Facility
September 1, 2026
7.50
Variable with Floor (1)
Note 9: Subordinated Debentures
On June 24, 2025, the Company issued $80.0 million of Fixed-to-Floating Rate Subordinated Notes due June 30, 2035. The Notes bear a fixed interest rate of 7.625% from June 24, 2025 to but excluding June 30, 2030, with interest during this period payable semi-annually in arrears. From June 30, 2030 to the stated maturity date or earlier redemption date, the interest rate converts to a variable rate equal to the then current three-month term SOFR, plus 388 basis points, which is payable quarterly. The Company used the net proceeds it received from the sale of the Notes to redeem $50 million of outstanding 5.25% Fixed-to-Floating Rate Subordinated Notes due 2030 and for general corporate purposes. The transaction resulted in debt issuance costs of approximately $1.3 million that is being amortized over 10 years.
The following table presents a summary of the Company’s subordinated debentures as of September 30, 2025 and December 31, 2024:
Date
First
Maturity
Established
Redemption Date
2030 Notes
June 19, 2020
July 1, 2025
July 1, 2030
50,000
5.25
Fixed-to-Floating (1)
2031 Notes
July 8, 2021
July 15, 2026
July 15, 2031
3.25
Fixed-to-Floating (2)
2035 Notes
June 24, 2025
June 30, 2030
June 30, 2035
80,000
7.625
Fixed-to-Floating (3)
110,000
Debt Issuance Costs
(1,412)
(330)
Note 10: Commitments, Contingencies and Credit Risk
Financial Instruments with Off-Balance Sheet Credit Risk
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets.
The Company’s exposure to credit loss is represented by the contractual, or notional, amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance sheet instruments. Since some of the commitments are expected to expire without being drawn upon and some of the commitments may not be drawn upon to the total extent of the commitment, the notional amount of these commitments does not necessarily represent future cash requirements.
The following table presents information regarding commitments outstanding at September 30, 2025 and December 31, 2024:
Unfunded Commitments Under Lines of Credit
794,788
679,064
Letters of Credit
133,538
124,397
928,326
803,461
The Company had outstanding letters of credit with the FHLB of $135.4 million and $103.2 million at September 30, 2025 and December 31, 2024, respectively, on behalf of customers and to secure public deposits.
The ACL for off-balance sheet credit exposures was $3.8 million and $3.6 million at September 30, 2025 and December 31, 2024, respectively, and is separately classified on the balance sheet within other liabilities.
The following table presents the balance and activity in the ACL for off-balance sheet credit exposures for the three and nine months ended September 30, 2025 and 2024:
Allowance for Credit Losses:
Beginning Balance
3,610
2,885
2,985
Provision for (Recovery of) Off-Balance Sheet Credit Exposures
Total Ending Balance
3,810
Legal Contingencies
Neither the Company nor any of its subsidiaries is a party, and no property of these entities is subject, to any material pending legal proceedings, other than ordinary routine litigation incidental to the Bank’s business. The Company does not know of any material proceeding contemplated by a governmental authority against the Company or any of its subsidiaries.
Note 11: Stock Options and Restricted Stock
In 2012, the Company adopted the Bridgewater Bancshares, Inc. 2012 Combined Incentive and Non-Statutory Stock Option Plan (the “2012 Plan”) under which the Company was able to grant options to its directors, officers, and employees for up to 750,000 shares of common stock. Both incentive stock options and nonqualified stock options were granted under the 2012 Plan. The exercise price of each option equals the fair market value of the Company’s stock on the date of grant, and the maximum term of each outstanding option is ten years. All outstanding options have been granted with vesting periods of four or five years. The 2012 Plan expired in March 2022, and awards are no longer able to be granted under the 2012 Plan.
In 2017, the Company adopted the Bridgewater Bancshares, Inc. 2017 Combined Incentive and Non-Statutory Stock Option Plan (the “2017 Plan”). Under the 2017 Plan, the Company may grant options to its directors, officers, employees and consultants for up to 1,500,000 shares of common stock. Both incentive stock options and nonqualified stock options may be granted under the 2017 Plan. The exercise price of each option equals the fair market value of the Company’s stock on the date of grant and the maximum term of each outstanding option is ten years. All outstanding options have been granted with vesting periods of four or five years. As of September 30, 2025 and December 31, 2024, there were 10,000 and 30,000 shares, respectively, of the Company’s common stock reserved for future option grants under the 2017 Plan.
In 2019, the Company adopted the Bridgewater Bancshares, Inc. 2019 Equity Incentive Plan (the “2019 EIP”). The types of awards which may be granted under the 2019 EIP include incentive and nonqualified stock options, stock appreciation rights, stock awards, restricted stock units, restricted stock and cash incentive awards. The Company may grant these awards to its directors, officers, employees and certain other service providers for up to 1,000,000 shares of common stock. The exercise price of each option equals the fair market value of the Company’s stock on the date of grant and the maximum term of each award is ten years. All outstanding awards have been granted with a vesting period of four years. As of September 30, 2025 and December 31, 2024, there were 2,192 and 87 shares, respectively, of the Company’s common stock reserved for future grants under the 2019 EIP.
In 2023, the Company adopted the Bridgewater Bancshares, Inc. 2023 Equity Incentive Plan (the “2023 EIP”). Under the 2023 EIP, the Company may grant incentive and nonqualified stock options, stock appreciation rights, stock awards, restricted stock units, restricted stock and cash incentive awards. The Company may grant these awards to its directors, officers, employees and certain other service providers for up to 1,500,000 shares of common stock. The
30
exercise price of each option equals the fair market value of the Company’s stock on the date of grant and the maximum term of each award is ten years. All outstanding awards have been granted with a vesting period of four years. As of September 30, 2025 and December 31, 2024, there were 661,403 and 972,460 shares, respectively, of the Company’s common stock reserved for future grants under the 2023 EIP.
Stock Options
The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected volatilities are based on an industry index as described below. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account the fact that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Historically, the Company has not paid a dividend on its common stock and does not expect to do so in the near future.
The Company used the S&P 600 CM Bank Index as its historical volatility index. The S&P 600 CM Bank Index is an index of publicly traded small capitalization, regional, commercial banks located throughout the United States. There were 59 banks in the index ranging in market capitalization from $600 million up to $5.0 billion.
The weighted average assumptions used in the model for valuing stock options grants for the nine months ended September 30, 2025 are as follows:
Dividend Yield
Expected Life
Years
Expected Volatility
30.83
Risk-Free Interest Rate
The following table presents a summary of the status of the Company’s outstanding stock options for the nine months ended September 30, 2025:
Exercise Price
Outstanding at Beginning of Year
1,860,609
10.69
Granted
275,000
13.77
Exercised
(148,738)
8.39
Forfeitures
(16,500)
12.94
Outstanding at Period End
1,970,371
11.28
Options Exercisable at Period End
1,396,745
10.52
For the three months ended September 30, 2025 and 2024, the Company recognized compensation expense for stock options of $315,000 and $227,000, respectively. For the nine months ended September 30, 2025 and 2024, the Company recognized compensation expense for stock options of $893,000 and $712,000, respectively.
The following table presents information pertaining to options outstanding at September 30, 2025:
Options Outstanding
Options Exercisable
Weighted Average
Remaining Contractual
Range of Exercise Prices
Options
Life in Years
7.00 - 7.99
714,438
7.47
2.0
8.00 - 8.99
2,961
8.76
4.5
10.00 - 10.99
204,250
10.62
7.7
96,499
10.59
11.00 - 11.99
229,125
11.16
6.5
117,000
11.22
12.00 - 12.99
249,097
12.91
3.8
13.00 - 13.99
285,000
13.75
9.3
2,500
17.00 - 17.99
285,500
17.50
6.3
214,250
5.0
As of September 30, 2025, there was $2.4 million of total unrecognized compensation cost related to nonvested stock options that is expected to be recognized over a weighted-average period of 2.3 years.
The following table presents an analysis of nonvested options to purchase shares of the Company’s stock issued and outstanding for the nine months ended September 30, 2025:
Average Grant
Date Fair Value
Nonvested Options at December 31, 2024
437,501
5.18
5.83
Vested
(129,000)
5.33
Forfeited
(9,875)
4.85
Nonvested Options at September 30, 2025
573,626
5.46
Restricted Stock Awards
There was no restricted stock award activity for the nine months ended September 30, 2025. Compensation expense associated with restricted stock awards is recognized on a straight-line basis over the period that the restrictions associated with the awards lapse based on the total cost of the award at the grant date. For the three months ended September 30, 2025 and 2024, the Company recognized compensation expense associated with restricted stock awards of $-0- and $2,000, respectively. For the nine months ended September 30, 2025 and 2024, the Company recognized compensation expense associated with restricted stock awards of $-0- and $12,000, respectively.
In addition, during the nine months ended September 30, 2025, the Company issued 23,495 shares of unrestricted common stock to non-employee directors as a part of their compensation for their annual services on the Company’s board of directors. The aggregate value of the shares issued to non-employee directors of $369,000 was included in stock based compensation expense in the accompanying consolidated statements of shareholders’ equity.
Restricted Stock Units
The Company has granted restricted stock units out of the 2019 EIP and 2023 EIP. Restricted stock units represent the right to receive one share of Company stock upon vesting and vest in equal annual installments on the first four anniversaries of the date of the grant. Nonvested restricted stock units have no voting or dividend rights and are not considered outstanding until vesting.
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The following table presents an analysis of nonvested restricted stock units outstanding for the nine months ended September 30, 2025:
Units
Nonvested at December 31, 2024
415,758
14.46
55,355
13.78
(38,962)
14.12
(8,398)
14.39
Nonvested at September 30, 2025
423,753
14.40
Compensation expense associated with the restricted stock units is recognized on a straight-line basis over the period that the restrictions associated with the units lapse based on the total cost of the unit at the grant date. For the three months ended September 30, 2025 and 2024, the Company recognized compensation expense associated with restricted stock units of $629,000 and $574,000, respectively. For both the nine months ended September 30, 2025 and 2024, the Company recognized compensation expense associated with restricted stock units of $1.9 million.
As of September 30, 2025, there was $4.2 million of total unrecognized compensation cost related to nonvested restricted stock units granted under the 2019 EIP and 2023 EIP that is expected to be recognized over a weighted-average period of 2.3 years.
Note 12: Regulatory Capital
The Company and the Bank are subject to various regulatory requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank must also meet certain specific capital guidelines under the regulatory framework for prompt corrective action. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios of common equity Tier 1 capital, Tier 1 capital and total capital to risk-weighted assets and of Tier 1 capital to average consolidated assets (referred to as the “leverage ratio”), as defined under the applicable regulatory capital rules.
The following tables present the capital amounts and ratios for the Company, on a consolidated basis, and the Bank as of September 30, 2025 and December 31, 2024:
Minimum Required
For Capital Adequacy
To be Well Capitalized
Purposes Plus Capital
Under Prompt Corrective
Actual
Purposes
Conservation Buffer
Action Regulations
Ratio
Company (Consolidated):
Total Risk-based Capital
652,426
369,556
8.00
485,042
10.50
N/A
Tier 1 Risk-based Capital
486,065
277,167
6.00
392,653
8.50
Common Equity Tier 1 Capital
419,551
9.08
207,875
4.50
323,361
7.00
Tier 1 Leverage Ratio
9.02
215,446
4.00
Bank:
619,058
13.43
368,824
484,082
461,030
10.00
561,397
12.18
276,618
391,876
207,464
322,721
299,670
6.50
10.43
215,230
269,037
5.00
585,966
13.76
340,581
447,013
453,049
10.64
255,436
361,867
386,535
191,577
298,008
9.44
191,878
573,158
13.49
340,003
446,254
425,004
520,000
12.24
255,002
361,253
191,252
297,503
276,253
10.86
191,593
239,491
The Company and the Bank must maintain a capital conservation buffer, as defined by regulatory guidelines, in order to avoid limitations on capital distributions, including dividend payments, stock repurchases and certain discretionary bonus payments to executive officers.
Note 13: Fair Value Measurement
The Company categorizes its assets and liabilities measured at fair value into a three-level hierarchy based on the priority of the inputs to the valuation technique used to determine fair value. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used in the determination of the fair value measurement fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement. Assets and liabilities valued at fair value are categorized based on the inputs to the valuation techniques as follows:
Level 1 – Inputs that utilized quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access.
Level 2 – Inputs that include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instruments. Fair values for these instruments are estimated using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows.
Level 3 – Inputs that are unobservable for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity.
Subsequent to initial recognition, the Company may re-measure the carrying value of assets and liabilities measured on a nonrecurring basis to fair value. Adjustments to fair value usually result when certain assets are impaired. Such assets are written down from their carrying amounts to their fair value.
Professional standards allow entities the irrevocable option to elect to measure certain financial instruments and other items at fair value for the initial and subsequent measurement on an instrument-by-instrument basis. The Company adopted the policy to value certain financial instruments at fair value. The Company has not elected to measure any existing financial instruments at fair value; however, it may elect to measure newly acquired financial instruments at fair value in the future.
Recurring Basis
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. There have been no changes in methodologies used as of September 30, 2025. The following tables present the balances of assets and liabilities measured at fair value on a recurring basis as of September 30, 2025 and December 31, 2024:
Level 1
Level 2
Level 3
Fair Value of Financial Assets:
U.S. Government Agency Securities
Fair Value Swaps
Interest Rate Caps
10,463
Total Fair Value of Financial Assets
710,926
858,125
Fair Value of Financial Liabilities:
768
9,827
Total Fair Value of Financial Liabilities
10,595
10,612
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643,654
811,402
When available, the Company uses quoted market prices to determine the fair value of investment securities; such items are classified in Level 1 of the fair value hierarchy.
For the Company’s investments, when quoted prices are not available for identical securities in an active market, the Company determines fair value utilizing vendors who apply matrix pricing for similar bonds where no price is observable or may compile prices from various sources. These models are primarily industry-standard models that consider various assumptions, including time value, yield curve, volatility factors, prepayment speeds, default rates, loss severity, current market, and contractual prices for the underlying financial instruments, as well as other relevant economic measures. Substantially, all of these assumptions are observable in the marketplace and can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Fair values from these models are verified, where possible, against quoted market prices for recent trading activity of assets with similar characteristics to the security being valued. Such methods are generally classified as Level 2. However, when prices from independent sources vary, or cannot be obtained or corroborated, a security is generally classified as Level 3.
Fair value swaps are traded in over-the-counter markets where quoted market prices are not readily available. For such fair value swaps, fair value is determined using internally developed models of a third party that uses primarily market observable inputs, such as yield curves and option volatilities, and accordingly are valued using Level 2 inputs.
The fair value of the caps is calculated by determining the total expected asset or liability exposure of the derivatives. Total expected exposure incorporates both the current and potential future exposure of the derivative, derived from using observable inputs, such as yield curves and volatilities, and accordingly are valued using Level 2 inputs.
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Interest rate swaps are traded in over-the-counter markets where quoted market prices are not readily available. For those interest rate swaps, fair value is determined using internally developed models of a third party that uses primarily market observable inputs, such as yield curves and option volatilities, and accordingly are valued using Level 2 inputs.
Risk Participation Agreements
The fair value of risk participation agreements is calculated by determining the total expected asset or liability exposure using observable inputs, such as yield curves and volatilities, of the derivative to the borrower and applying an unobservable credit default probability to that exposure, and accordingly are valued using level 3 inputs.
Nonrecurring Basis
Certain assets are measured at fair value on a nonrecurring basis. These assets are not measured at fair value on an ongoing basis; however, they are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment or a change in the amount of previously recognized impairment.
The following tables present net credit losses related to nonrecurring fair value measurements of certain assets at September 30, 2025 and December 31, 2024:
Loss
Individually Evaluated Loans
16,222
4,457
91
The Company records certain loans at fair value on a non-recurring basis. Individually evaluated loans for which an allowance is established, or a write-down has occurred during the period, based on the fair value of collateral require classification in the fair value hierarchy. The fair value of the loan’s collateral is determined by appraisals, independent valuation and other techniques. When the fair value of the loan’s collateral is based on an observable market price the Company classifies the fair value of the individually evaluated loans within Level 2 of the valuation hierarchy. For loans in which the valuation has unobservable inputs, the Company classifies these within the Level 3 of the valuation hierarchy. As of September 30, 2025, collateral values were estimated using a combination of observable inputs, including recent appraisals, and unobservable inputs, including internally determined values based on cost adjusted for depreciation and customized discounting criteria on appraisals which ranged from 4-25%. Due to the significance of unobservable inputs, fair values of individually evaluated loans have been classified as Level 3.
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Disclosure of fair value information about financial instruments, for which it is practicable to estimate that value, is required whether or not recognized in the consolidated balance sheets. In cases where quoted market prices are not available, fair values are based on estimates using present value of cash flow or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimate of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases could not be realized in immediate settlement of the instruments. Certain financial instruments with a fair value that is not practicable to estimate and all non-financial instruments are excluded from the disclosure requirements. Accordingly, the aggregate fair value amounts presented do not necessarily represent the underlying value of the Company.
Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters that could affect the estimates. Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business. Deposits with no stated maturities are defined as having a fair value equivalent to the amount payable on demand. This prohibits adjusting fair value derived from retaining those deposits for an expected future period of time. This component, commonly referred to as a deposit base intangible, is neither considered in the above amounts nor is it recorded as an intangible asset on the balance sheet. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.
The following tables present the carrying amounts and estimated fair values of financial instruments at September 30, 2025 and December 31, 2024:
Fair Value Hierarchy
Carrying
Financial Assets:
Cash and Due From Banks
3,675
679,274
FHLB Stock, at Cost
Loans, Net
4,069,195
4,085,417
Accrued Interest Receivable
Financial Liabilities:
4,295,375
404,710
104,304
4,370
600,499
3,709,775
3,709,866
4,131,298
13,775
358,759
76,056
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The following methods and assumptions were used by the Company to estimate fair value of financial instruments not previously discussed.
Cash and due from banks – The carrying amount of cash and cash equivalents approximates their fair value.
Bank-owned certificates of deposit – Fair values of bank-owned certificates of deposit are estimated using the discounted cash flow analysis based on current rates for similar types of deposits.
FHLB stock – The carrying amount of FHLB stock approximates its fair value.
Loans, net – Fair values for loans are estimated based on discounted cash flows, using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality.
Accrued interest receivable – The carrying amount of accrued interest receivable approximates its fair value since it is short term in nature and does not present anticipated credit concerns.
Deposits – The fair values disclosed for demand deposits without stated maturities (interest and noninterest transaction, savings, and money market accounts) are equal to the amount payable on demand at the reporting date (their carrying amounts). Fair values for the fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.
Notes payable and subordinated debentures – The fair values of the Company’s notes payable and subordinated debentures are estimated using a discounted cash flow analysis, based on the Company’s current incremental borrowing rate for similar types of borrowing arrangements.
FHLB advances – The fair values of the Company’s FHLB advances are estimated using discounted cash flow analysis based on the Company’s current incremental borrowing rates for similar types of borrowing agreements.
Accrued interest payable – The carrying amount of accrued interest payable approximates its fair value since it is short term in nature.
Off-balance sheet instruments – Fair values of the Company’s off-balance sheet instruments (lending commitments and unused lines of credit) are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the counterparties’ credit standing and discounted cash flow analysis. The fair value of these off-balance sheet items approximates the recorded amounts of the related fees and was not material at September 30, 2025 and December 31, 2024.
Limitations – The fair value of a financial instrument is the current amount that would be exchanged between market participants, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Consequently, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.
Note 14: Accumulated Other Comprehensive Income
The following tables present the components of other comprehensive income for the three and nine months ended September 30, 2025 and 2024:
Before Tax
Tax Effect
Net of Tax
Net Unrealized Gain on Available for Sale Securities
(3,984)
9,876
Less: Reclassification Adjustment for Net Gains Included in Net Income
(59)
(42)
Total Unrealized Gain
13,801
(3,967)
9,834
Net Unrealized Loss on Cash Flow Hedge
(29)
Less: Reclassification Adjustment for Gains Included in Net Income
(1,600)
460
(1,140)
Total Unrealized Loss
(1,641)
472
(1,169)
Other Comprehensive Income
12,160
(4,236)
10,502
Less: Reclassification Adjustment for Net Losses Included in Net Income
(8)
14,766
(4,244)
10,522
1,943
(4,818)
(2,526)
726
(1,800)
(9,287)
2,669
(6,618)
5,479
(6,055)
15,013
154
(380)
20,534
(5,901)
14,633
1,304
(3,234)
(5,049)
1,451
(3,598)
(9,587)
2,755
(6,832)
10,947
(4,639)
11,502
111
(274)
15,756
(4,528)
11,228
Net Unrealized Gain on Cash Flow Hedge
(284)
703
(7,158)
2,057
(5,101)
(6,171)
1,773
(4,398)
9,585
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The following tables present the changes in each component of accumulated other comprehensive income, net of tax, for the three and nine months ended September 30, 2025 and 2024:
Available For
Other Comprehensive
Sale Securities
Cash Flow Hedge
Balance at Beginning of Period
(22,944)
8,716
Other Comprehensive (Loss) Before Reclassifications
9,847
Amounts Reclassified from Accumulated Other Comprehensive Income
(1,182)
Net Other Comprehensive Income (Loss) During Period
Balance at End of Period
(13,110)
7,547
(31,014)
15,694
Other Comprehensive Income (Loss) Before Reclassifications
5,684
(1,780)
(20,492)
9,076
(27,743)
14,379
11,779
(3,978)
(31,720)
13,474
Other Comprehensive Income Before Reclassifications
12,205
(5,375)
Net Other Comprehensive Income During Period
Note 15: Subsequent Events
On October 21, 2025, the Company’s Board of Directors announced a quarterly cash dividend of $36.72 per share ($0.3672 per depositary share) on its 5.875% Non-Cumulative Perpetual Preferred Stock, Series A (“Series A Preferred Stock”), payable on December 1, 2025, to shareholders of record on the Series A Preferred Stock at the close of business on November 14, 2025.
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General
The following discussion explains the Company’s financial condition and results of operations as of and for the three and nine months ended September 30, 2025. Annualized results for these interim periods may not be indicative of results for the full year or future periods. The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes presented elsewhere in this report and the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, filed with the Securities and Exchange Commission, or the SEC, on March 6, 2025.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, statements concerning plans, estimates, calculations, forecasts and projections with respect to the anticipated future performance of the Company. These statements are often, but not always, identified by words such as “may”, “might”, “should”, “could”, “predict”, “potential”, “believe”, “expect”, “continue”, “will”, “anticipate”, “seek”, “estimate”, “intend”, “plan”, “projection”, “would”, “annualized”, “target” and “outlook”, or the negative version of those words or other comparable words of a future or forward-looking nature. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this report. In addition, past results of operations are not necessarily indicative of
future results. Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made. The Company undertakes no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.
Overview
The Company is a financial holding company headquartered in St. Louis Park, Minnesota. The principal sources of funds for loans and investments are transaction, savings, time, and other deposits, and short-term and long-term borrowings. The Company’s principal sources of income are interest and fees collected on loans, interest and dividends earned on investment securities and service charges. The Company’s principal expenses are interest paid on deposit accounts and borrowings, employee compensation and other overhead expenses. The Company’s simple, efficient business model of providing responsive support and unconventional experiences to clients continues to be the underlying principle that drives the Company’s profitable growth.
Critical Accounting Policies and Estimates
The consolidated financial statements of the Company are prepared based on the application of certain accounting policies, the most significant of which are described in “Note 1 – Description of the Business and Summary of Significant Accounting Policies” of the notes to the consolidated financial statements included as a part of the Company’s most recent Annual Report on Form 10-K, filed with the SEC on March 6, 2025. There have been no significant changes in the critical accounting policies or the assumptions and judgments utilized in applying these policies since December 31, 2024. Certain policies require numerous estimates and strategic or economic assumptions that may prove inaccurate or subject to variation and may significantly affect the reported results and financial position for the current period or in future periods. Changes in underlying factors, assumptions or estimates in any of these areas could have a material impact on the future financial condition and results of operations. Management has discussed each critical accounting policy and the methodology for the identification and determination of critical accounting policies with the Company’s Audit Committee.
On December 13, 2024, the Company's wholly-owned banking subsidiary, Bridgewater Bank, completed its
acquisition of FMCB in an all-cash transaction. On the closing date, FMCB merged with and into Bridgewater Bank, with Bridgewater Bank as the surviving entity. The acquisition of FMCB aligns with and accelerates the Company’s strategic priorities, including its focus on continued growth within the Twin Cities market. The acquisition of FMCB added approximately $245.0 million of assets, $225.7 million of deposits, $117.1 million of loans and leases as of December 31, 2024, and two branch locations in Minnetonka, Minnesota. The acquisition also added an investment advisory business that offers nondeposit investment products through a third party arrangement. During the three and nine months ended September 30, 2025, the Company incurred merger-related expenses of $530,000 and $1.6 million, respectively. The acquisition may impact comparability between periods.
On June 24, 2025, the Company entered into a Subordinated Note Purchase Agreement with certain institutional accredited investors and qualified institutional buyers pursuant to which the Company sold and issued $80.0 million of aggregate principal amount of its 7.625% Fixed-to-Floating Rate Subordinated Notes due 2035. The Notes were issued by the Company to such purchasers at a price equal to 100% of their face amount. The Company used the net proceeds it received from the sale of the Notes to redeem $50 million of outstanding 5.25% Fixed-to-Floating Rate Subordinated Notes due 2030 and for general corporate purposes.
On July 4, 2025, the President signed H.R. 1, the “One Big Beautiful Bill Act,” into law. The legislation includes several changes to federal tax law that generally allow for more favorable deductibility of certain business expenses beginning in 2025, including the restoration of immediate expensing of domestic research and development
expenditures, reinstatement of 100% bonus depreciation, and more favorable rules for determining the limitation on business interest expense. The financial impact was immaterial to the financial statements.
Operating Results Overview
The following table summarizes certain key financial results as of and for the periods indicated:
As of and for the Three Months Ended
June 30,
March 31,
Income Statement
Net Interest Income
32,452
30,208
26,967
2,000
1,500
2,175
Noninterest Income
3,627
2,079
2,533
Noninterest Expense
18,941
18,136
16,812
11,520
9,633
8,204
10,506
8,620
7,190
Per Common Share Data
Basic Earnings Per Share
0.31
0.26
Diluted Earnings Per Share
Adjusted Diluted Earnings Per Share (1)
0.39
0.37
0.32
Book Value Per Share
15.62
14.92
14.60
14.21
14.06
Tangible Book Value Per Share (1)
14.93
13.89
13.96
Basic Weighted Average Shares Outstanding
27,460,982
27,568,772
27,459,433
Diluted Weighted Average Shares Outstanding
27,998,008
28,036,506
28,055,532
Shares Outstanding at Period End
27,560,150
Selected Performance Ratios
Return on Average Assets (2)
0.86
0.90
0.68
0.73
Pre-Provision Net Revenue Return on Average Assets (1)(2)
1.19
1.27
1.13
1.05
Return on Average Shareholders' Equity (2)
9.47
9.80
7.16
7.79
Return on Average Tangible Common Equity (1)(2)
10.93
9.22
7.43
8.16
Average Shareholders' Equity to Average Assets
9.04
9.14
9.18
9.52
9.42
Net Interest Margin (3)
2.63
2.62
2.51
2.32
2.24
Core Net Interest Margin (1)(3)
2.52
2.49
2.37
2.16
Yield on Interest Earning Assets(3)
5.63
5.56
5.43
5.40
5.48
Yield on Total Loans, Gross(3)
5.79
5.74
5.61
5.55
5.57
Cost of Interest Bearing Liabilities
3.89
3.83
3.82
4.06
4.27
Cost of Total Deposits
3.19
3.16
3.18
3.40
3.58
Cost of Funds
3.17
3.38
3.54
Efficiency Ratio (1)
54.7
52.6
55.5
56.8
58.0
Noninterest Expense to Average Assets (2)
1.47
1.45
1.40
1.33
Adjusted Financial Ratios (1)
Adjusted Return on Average Assets
0.88
0.80
0.71
0.75
Adjusted Pre-Provision Net Revenue Return on Average Assets (2)
1.23
1.31
1.18
1.09
0.98
Adjusted Return on Average Shareholders' Equity
9.77
9.64
8.77
7.49
7.96
Adjusted Return on Average Tangible Common Equity
10.74
9.68
7.82
8.36
Adjusted Efficiency Ratio
53.2
51.5
53.7
55.2
57.2
Adjusted Noninterest Expense to Average Assets
1.43
1.41
1.36
5,296,673
5,136,808
4,691,517
4,145,799
4,020,076
3,685,590
4,236,742
4,162,457
3,747,442
468,975
Loan to Deposit Ratio
98.2
97.9
96.6
94.7
98.3
Core Deposits to Total Deposits (4)
76.4
75.2
76.2
76.0
71.5
Uninsured Deposits to Total Deposits
29.2
30.5
28.7
27.7
25.0
Capital Ratios (Consolidated) (5)
9.10
9.45
9.75
Common Equity Tier 1 Risk-based Capital Ratio
9.03
9.79
Tier 1 Risk-based Capital Ratio
10.51
10.55
11.44
Total Risk-based Capital Ratio
14.17
13.62
14.62
Tangible Common Equity to Tangible Assets (1)
7.71
7.40
7.48
7.36
8.17
46
Selected Asset Quality Data
Loans 30-89 Days Past Due
12,492
466
Loans 30-89 Days Past Due to Total Loans
0.07
0.30
0.01
0.03
0.00
Nonperforming Loans
9,991
10,134
10,290
8,378
Nonperforming Loans to Total Loans
0.24
0.23
Nonaccrual Loans to Total Loans
Nonaccrual Loans and Loans Past Due 90 Days and Still Accruing to Total Loans
Foreclosed Assets
185
Nonperforming Assets (6)
10,319
8,812
Nonperforming Assets to Total Assets (6)
0.19
0.20
Allowance for Credit Losses on Loans to Total Loans
1.34
1.35
1.38
Allowance for Credit Losses on Loans to Nonaccrual Loans
564.41
550.28
522.51
17,367.77
608.95
Net Loan Charge-Offs (Annualized) to Average Loans (2)
0.10
Watchlist/Special Mention Risk Rating Loans
40,642
53,282
38,346
46,581
31,991
Substandard Risk Rating Loans
58,074
44,986
31,587
21,791
31,637
Discussion and Analysis of Results of Operations
Net income was $11.6 million for the third quarter of 2025, compared to net income of $8.7 million for the third quarter of 2024. Earnings per diluted common share for the third quarter of 2025 were $0.38, compared to $0.27 per diluted common share for the third quarter of 2024. Adjusted net income, a non-GAAP financial measure, was $12.0 million for the third quarter of 2025, compared to $8.9 million for the third quarter of 2024. Adjusted earnings per diluted common share, a non-GAAP financial measure, for the third quarter of 2025 were $0.39, compared to $0.28 per diluted common share for the third quarter of 2024.
The Company’s primary source of revenue is net interest income, which is impacted by the level of interest earning assets and related funding sources, as well as changes in interest rates. The difference between the average yield on earning assets and the average rate paid for interest bearing liabilities is the net interest spread. Noninterest bearing sources of funds, such as demand deposits and shareholders’ equity, also support earning assets. The impact of the noninterest bearing sources of funds is captured in the net interest margin, which is calculated as net interest income divided by average earning assets. Both the net interest margin and net interest spread are presented on a tax-equivalent basis, which means that tax-free interest income has been adjusted to pretax-equivalent income, assuming a 21% federal tax rate. Management’s ability to respond to changes in interest rates by using effective asset-liability management techniques is critical to managing net interest margin and the Company’s primary source of earnings.
47
Average Balances and Yields
The following tables present, for the three and nine months ended September 30, 2025 and 2024, the average balances of each principal category of assets, liabilities and shareholders’ equity, and an analysis of net interest income. The average balances are principally daily averages and, for loans, include both performing and nonperforming balances. Interest income on loans includes the effects of net deferred loan origination fees and costs accounted for as yield adjustments. These tables are presented on a tax-equivalent basis, if applicable.
For the Three Months Ended
September 30, 2024
Yield/
& Fees
Interest Earning Assets:
Cash Investments
256,174
2,732
4.23
157,114
1,971
4.99
Investment Securities:
Taxable Investment Securities
730,643
9,448
5.13
668,429
8,406
Tax-Exempt Investment Securities (1)
81,962
1,168
5.66
31,496
402
5.08
Total Investment Securities
812,605
10,616
699,925
8,808
5.01
Loans (1)(2)
4,132,987
60,317
3,721,654
52,118
Federal Home Loan Bank Stock
492
9.12
16,828
10.31
Total Interest Earning Assets
5,223,139
74,157
4,595,521
63,333
Noninterest Earning Assets
149,304
108,283
5,372,443
4,703,804
Interest Bearing Liabilities:
Interest Bearing Transaction Deposits
843,905
8,037
3.78
804,161
9,369
4.63
1,473,465
13,465
3.63
939,665
10,262
4.34
342,926
3,703
4.28
355,050
3,918
4.39
856,516
9,410
989,712
10,638
Total Interest Bearing Deposits
3,516,812
3.90
3,088,588
4.40
141
5.72
5,679
8.58
2.88
309,120
2.50
108,639
6.89
79,519
Total Interest Bearing Liabilities
4,035,630
3,491,118
Noninterest Bearing Liabilities:
Noninterest Bearing Transaction Deposits
793,760
710,192
Other Noninterest Bearing Liabilities
57,184
59,417
Total Noninterest Bearing Liabilities
850,944
769,609
Shareholders' Equity
485,869
443,077
Total Liabilities and Shareholders' Equity
Net Interest Income / Interest Rate Spread
1.74
25,905
1.21
Taxable Equivalent Adjustment:
Tax-Exempt Investment Securities and Loans
(524)
(306)
48
For the Nine Months Ended
210,525
6,469
4.11
104,831
3,722
4.74
744,605
27,364
4.91
649,538
23,867
49,987
2,030
31,597
1,203
5.09
794,592
29,394
4.95
681,135
25,070
4.92
4,034,656
172,418
5.71
3,740,855
153,568
20,601
1,356
8.80
18,111
1,173
8.65
5,060,374
209,637
5.54
4,544,932
183,533
5.39
145,373
102,993
5,205,747
4,647,925
837,504
23,995
757,409
25,332
4.47
1,383,876
38,092
3.68
917,051
28,502
4.15
333,199
10,280
344,484
10,935
4.24
841,750
26,848
4.26
993,445
31,226
4.20
3,396,329
3.91
3,012,389
456
4.64
27,605
11,030
7.57
8.62
388,026
2.74
311,380
2.71
90,853
5.87
79,424
5.02
3,886,694
3.85
3,444,548
4.16
779,897
700,308
64,878
67,405
844,775
767,713
474,278
435,664
97,849
1.69
76,185
2.59
(1,098)
(959)
Interest Rates and Operating Interest Differential
Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest earning assets and interest bearing liabilities, as well as changes in average interest rates. The following table presents the effect that these factors had on the interest earned on interest earning assets and the interest incurred on interest bearing liabilities. The effect of changes in volume is determined by multiplying the change in volume by the previous period’s average rate. Similarly, the effect of rate changes is calculated by multiplying the change in average rate by the previous period’s volume. The changes not attributable specifically to either volume or rate have been allocated to the changes due to volume. The following tables present the changes in the volume and rate of interest bearing assets and liabilities for the three months ended September 30, 2025, compared to the three months ended September 30, 2024, and for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:
Compared with
Change Due To:
Volume
Variance
1,062
(301)
761
828
214
1,042
Tax-Exempt Investment Securities
721
766
Total Securities
1,549
259
1,808
Loans
6,149
2,050
8,199
(50)
56
8,866
1,958
10,824
405
(1,736)
(1,331)
4,906
(1,703)
3,203
(95)
(215)
(1,435)
206
(1,229)
3,756
(3,328)
428
(149)
(190)
697
991
508
379
4,810
(2,696)
2,114
4,056
4,654
8,710
50
3,244
(497)
2,747
3,472
3,497
745
82
827
4,217
107
4,324
12,427
6,423
18,850
163
183
20,051
6,053
26,104
2,271
(3,608)
(1,337)
12,824
9,590
(358)
(297)
(655)
(4,867)
489
(4,378)
9,870
(6,650)
3,220
(943)
(200)
(1,143)
(152)
(111)
(263)
1,563
53
1,616
499
511
1,010
10,837
(6,397)
4,440
9,214
12,450
21,664
Comparison of Net Interest Margin, Interest Income, and Interest Expense
Third Quarter of 2025 Compared to Third Quarter of 2024
Net interest income was $34.1 million for the third quarter of 2025, an increase of $8.5 million compared to $25.6 million for the third quarter of 2024. The increase in net interest income was primarily due to growth and higher yields in the loan and securities portfolios and purchase accounting accretion, offset partially by higher deposit balances.
Net interest margin (on a fully tax-equivalent basis) for the third quarter of 2025 was 2.63%, a 39 basis point increase from 2.24% in the third quarter of 2024. Core net interest margin (on a fully tax-equivalent basis), a non-GAAP financial measure which excludes the impact of loan fees and purchase accounting accretion, was 2.52% for the third quarter of 2025, a 36 basis point increase from 2.16% in the third quarter of 2024. The increase in the margin was primarily due to higher earning asset yields and purchase accounting accretion, offset partially by the effects of the subordinated debt refinance completed in the second quarter of 2025.
Average interest earning assets were $5.22 billion for the third quarter of 2025, an increase of $627.6 million, or 13.7%, compared to $4.60 billion for the third quarter of 2024. This increase in average interest earning assets was primarily due to growth in the loan and securities portfolios, higher average cash balances, and the FMCB acquisition. Average interest bearing liabilities were $4.04 billion for the third quarter of 2025, an increase of $544.5 million, or 15.6%, compared to $3.49 billion for the third quarter of 2024. The increase in average interest bearing liabilities was primarily due to deposit growth and deposits acquired, offset partially by a decrease in brokered deposits.
Average interest earning assets produced a tax-equivalent yield of 5.63% for the third quarter of 2025, compared to 5.48% for the third quarter of 2024. The increase in the yield on interest earning assets was primarily due to growth and repricing of the loan and securities portfolios and purchase accounting accretion attributable to the acquisition of FMCB. The average rate paid on interest bearing liabilities was 3.89% for the third quarter of 2025, compared to 4.27% for the third quarter of 2024. The decrease was primarily due to lower rates paid on deposits.
Interest Income. Total interest income, on a tax-equivalent basis, was $74.2 million for the third quarter of 2025, compared to $63.3 million for the third quarter of 2024. The $10.8 million, or 17.1%, increase in total interest income on a tax-equivalent basis was primarily due to growth of the loan and securities portfolios and higher earning asset yields.
Interest income on the investment securities portfolio, on a tax-equivalent basis, increased $1.8 million for the third quarter of 2025, compared to the third quarter of 2024, primarily due to a $112.7 million, or 16.1%, increase in average balances between the two periods primarily attributable to purchases of investment securities, offset partially by securities sales.
Interest income on loans, on a tax-equivalent basis, was $60.3 million for the third quarter of 2025, compared to $52.1 million for the third quarter of 2024. The $8.2 million, or 15.7%, increase was primarily due to growth and repricing of the loan portfolio in the higher interest rate environment.
The aggregate loan yield increased to 5.79% in the third quarter of 2025, which was 22 basis points higher than 5.57% in the third quarter of 2024. Core loan yield, a non-GAAP financial measure, continued to rise as new loans originated at higher yields and the existing portfolio repriced in the higher interest rate environment.
The following table presents a summary of interest, fees and accretion recognized on loans for the periods indicated:
June 30, 2025
March 31, 2025
5.59
5.50
5.47
Fees
0.09
0.11
0.08
Accretion
0.04
Yield on Loans
Interest Expense. Interest expense on interest bearing liabilities was $39.5 million for the third quarter of 2025, an increase of $2.1 million, from $37.4 million for the third quarter of 2024. The increase was primarily due to growth of the deposit portfolio, increased utilization of FHLB advances, and higher balance and rate of subordinated debentures following the payoff of $50.0 million of outstanding subordinated notes and the issuance of $80.0 million of new subordinated notes at the end of the second quarter, offset partially by a decrease in rates paid on deposits.
Interest expense on deposits was $34.6 million for the third quarter of 2025, an increase of $428,000, from $34.2 million for the third quarter of 2024. The increase in interest expense on deposits was primarily due to higher balances in savings and money market deposits and interest bearing transaction deposits, offset partially by a decrease in rates paid on those deposit account types. The cost of total deposits was 3.19% in the third quarter of 2025, a 39 basis point decrease, compared to 3.58% in the third quarter of 2024. The decrease was primarily due to lower rates paid on deposits following interest rate cuts in 2024 and 2025 and decreases in average brokered deposit balances.
Interest expense on borrowings was $4.9 million for the third quarter of 2025, an increase of $1.7 million, compared to $3.2 million for the third quarter of 2024. The increase was primarily due to an increased utilization of FHLB advances and higher balance and rate of subordinated debentures due to the previously-discussed subordinated debt refinance in the second quarter of 2025.
Nine Months Ended September 30, 2025 Compared to Nine Months Ended September 30, 2024
Net interest income was $96.8 million for the nine months ended September 30, 2025, an increase of $21.5 million, or 28.6%, compared to $75.2 million for the nine months ended September 30, 2024. The increase in net interest income was primarily due to growth and higher yields in the loan and securities portfolios, offset partially by higher interest bearing liability balances.
Net interest margin (on a fully tax-equivalent basis) for the nine months ended September 30, 2025 was 2.59%, a 35 basis point increase from 2.24% for the nine months ended September 30, 2024. Core net interest margin (on a fully tax equivalent basis), a non-GAAP financial measure which excludes the impact of loan fees and purchase accounting accretion, was 2.46% for the nine months ended September 30, 2025, a 29 basis point increase from 2.17% for the nine months ended September 30, 2024.
Average interest earning assets were $5.06 billion for the nine months ended September 30, 2025, an increase of $515.4 million, or 11.3%, compared to $4.54 billion for the nine months ended September 30, 2024. This increase in average interest earning assets was primarily due to higher average cash balances, growth in the loan and securities portfolios, and the FMCB acquisition. Average interest bearing liabilities were $3.89 billion for the nine months ended September 30, 2025, an increase of $442.1 million, or 12.8%, compared to $3.44 billion for nine months ended September 30, 2024. The increase in average interest bearing liabilities was primarily due to an increase in savings and money market deposits and interest bearing transaction deposits, offset partially by a decrease in brokered deposits.
Average interest earning assets produced a tax-equivalent yield of 5.54% for the nine months ended September 30, 2025, compared to 5.39% for the nine months ended September 30, 2024. The average rate paid on interest bearing liabilities was 3.85% for the nine months ended September 30, 2025, compared to 4.16% for the nine months ended September 30, 2024.
Interest Income. Total interest income on a tax-equivalent basis was $209.6 million for the nine months ended September 30, 2025, compared to $183.5 million for the nine months ended September 30, 2024. The $26.1 million increase in total interest income on a tax-equivalent basis was primarily due to growth in the loan and securities portfolios and higher earning asset yields.
Interest income on the investment securities portfolio, on a tax-equivalent basis, was $29.4 million for the nine months ended September 30, 2025, compared to $25.1 million for the nine months ended September 30, 2024. The $4.3 million increase in total interest income on the investment securities portfolio was primarily due to a $113.5 million, or 16.7%, increase in average balances between the two periods primarily attributable to purchases of investment securities.
Interest income on loans, on a tax-equivalent basis, for the nine months ended September 30, 2025 was $172.4 million, compared to $153.6 million for the nine months ended September 30, 2024. The $18.9 million increase was primarily due to growth and repricing of the loan portfolio in the higher interest rate environment.
Interest Expense. Interest expense on interest bearing liabilities was $111.8 million for the nine months ended September 30, 2025, compared to $107.3 million for the nine months ended September 30, 2024. The $4.4 million increase was primarily due to growth of the deposit portfolio.
Interest expense on deposits increased to $99.2 million for the nine months ended September 30, 2025, compared to $96.0 million for the nine months ended September 30, 2024. The $3.2 million increase in interest expense on deposits was primarily due to higher balances in savings and money market deposits and interest bearing transaction deposits, offset partially by a decrease in brokered deposits and lower rates paid on deposits.
Interest expense on borrowings was $12.6 million for the nine months ended September 30, 2025, compared to $11.4 million for the nine months ended September 30, 2024. This $1.2 million increase was primarily due to higher average balances of FHLB advances and subordinated debentures, offset partially by lower average balances of federal funds purchased.
The provision for credit losses on loans and leases was $900,000 for the third quarter of 2025, compared to $-0- for the third quarter of 2024. The provision for credit losses on loans and leases was $4.4 million for the nine months ended September 30, 2025, compared to $1.5 million for the nine months ended September 30, 2024. The provision for credit losses on loans and leases recorded in the third quarter of 2025 was primarily attributable to growth in the loan portfolio and an increase in specific reserves for loans individually evaluated. The allowance for credit losses on loans and leases to total loans was 1.34% at September 30, 2025, compared to 1.38% at September 30, 2024.
The following table presents a summary of the activity in the allowance for credit losses on loans and leases for the periods indicated:
Charge-offs
The provision for credit losses for off-balance sheet credit exposures was $200,000 for the third quarter of 2025, compared to $-0- for the third quarter of 2024. The provision recorded during the third quarter of 2025 was primarily due to an increase in the volume of newly originated loans with unfunded commitments in the commercial and construction and land development segments. The provision for credit losses for off-balance sheet credit exposures was $200,000 for the nine months ended September 30, 2025, compared to a negative provision of $100,000 for the nine months ended September 30, 2024. The allowance for credit losses on off-balance sheet credit exposures was $3.8 million as of September 30, 2025, compared to $2.9 million as of September 30, 2024.
The following table presents a summary of the activity in the provision for credit losses for the periods indicated:
Increase/
(Decrease)
2,950
Provision for (Recovery of) Credit Losses for Off-Balance Sheet Credit Exposures
300
3,250
54
Noninterest income was $2.1 million for the third quarter of 2025, an increase of $539,000 from $1.5 million for the third quarter of 2024. The increase was primarily due to higher investment advisory fees and customer service fees. Noninterest income was $7.8 million for the nine months ended September 30, 2025, an increase of $2.9 million from $4.8 million for the nine months ended September 30, 2024. The increase was primarily due to higher swap fees, investment advisory fees, and customer service fees.
The following table presents the major components of noninterest income for the periods indicated:
Noninterest Income:
128
411
Net Gain (Loss) on Sales of Securities
87
149
954
88
241
539
2,932
Noninterest expense was $20.0 million for the third quarter of 2025, an increase of $4.2 million from $15.8 million for the third quarter of 2024. The increase was primarily attributable to increases in salaries and employee benefits, marketing and advertising, operating costs related to the FMCB acquisition, and merger-related expenses.
Noninterest expense was $57.0 million for the nine months ended September 30, 2025, an increase of $10.5 million, from $46.5 million for the nine months ended September 30, 2024. The increase was primarily attributable to increases in salaries and employee benefits, increased operating costs related to the FMCB acquisition, and merger-related expenses.
The Company had 325 full-time equivalent employees at September 30, 2025, compared to 308 at June 30, 2025, and 265 at September 30, 2024. The year-over-year increase was largely driven by the addition of employees from the acquisition of FMCB and the hiring of key talent across the organization.
Efficiency Ratio. The efficiency ratio, a non-GAAP financial measure, reports total noninterest expense, less amortization of intangible assets, as a percentage of net interest income plus total noninterest income, less gains (losses) on sales of securities. Management believes this non-GAAP financial measure provides a meaningful comparison of operational performance and facilitates investors’ assessments of business performance and trends in comparison to peers in the banking industry.
The efficiency ratio was 54.7% for the third quarter of 2025, compared to 58.0% for the third quarter of 2024. The efficiency ratio was 54.2% and 58.3%, respectively for the nine months ended September 30, 2025 and
55
September 30, 2024. The Company’s efficiency has remained consistently below the industry median due in part to its “branch-light” model.
The following table presents the major components of noninterest expense for the periods indicated:
Noninterest Expense:
2,378
6,004
197
(375)
269
629
112
475
(72)
467
291
664
642
1,974
4,196
10,545
Income Tax Expense
The provision for income taxes includes both federal and state taxes. Fluctuations in effective tax rates reflect the differences in the inclusion or deductibility of certain income and expenses for income tax purposes and the recognition of tax credits. The Company’s future effective income tax rate will fluctuate based on the mix of taxable and tax-free investments and loans, the recognition and availability of tax credit investments, and overall taxable income.
Income tax expense was $3.5 million for the third quarter of 2025, compared to $2.7 million for the third quarter of 2024. The effective combined federal and state income tax rate for the third quarter of 2025 was 23.2%, compared to 23.6% for the third quarter of 2024. Income tax expense was $10.1 million for the nine months ended September 30, 2025, compared to $7.6 million for the nine months ended September 30, 2024. The effective combined federal and state income tax rate for both the nine months ended September 30, 2025 and 2024 was 23.6%.
Financial Condition
Total assets at September 30, 2025 were $5.36 billion, an increase of $293.8 million, or 5.8%, over total assets of $5.07 billion at December 31, 2024, and an increase of $668.5 million, or 14.2%, over total assets of $4.69 billion at September 30, 2024. The year-to-date increase was primarily due to organic growth in the loan portfolio. The year-over-year increase was primarily due to growth in the loan and securities portfolios driven by organic growth and the acquisition of FMCB in the fourth quarter of 2024.
Investment Securities Portfolio
The investment securities portfolio is used to make various term investments and is intended to provide the Company with adequate liquidity, a source of stable income, and at times, serve as collateral for certain types of deposits or borrowings. Investment balances in the investment securities portfolio are subject to change over time based on funding needs and interest rate risk management objectives. The liquidity levels take into account anticipated
future cash flows and are maintained at levels management believes are appropriate to ensure future flexibility in meeting anticipated funding needs.
The investment securities portfolio consists primarily of U.S. treasury securities, U.S. government agency mortgage backed securities, municipal securities, corporate securities comprised primarily of subordinated debentures of banks and financial holding companies, and asset-backed securities. In addition, the Company also holds other mortgage backed and other debt securities, all with varying contractual maturities. These maturities do not necessarily represent the expected life of the securities as the securities may be called or paid down without penalty prior to their stated maturities. All investment securities are held as available for sale.
Securities available for sale were $826.5 million at September 30, 2025, an increase of $58.2 million, or 7.6%, compared to $768.2 million at December 31, 2024. The increase was primarily due to purchases of investment securities and improvements in the overall securities market.
The following table presents the amortized cost and fair value of securities available for sale, by type, at September 30, 2025 and December 31, 2024:
Fair
Value
Percent
17.8
21.8
1.2
2.9
Mortgage-Backed Securities Issued or Guaranteed by U.S. Agencies (MBS):
Residential Pass-Through:
Guaranteed by GNMA
45,040
44,773
5.4
7,726
7,021
0.8
Issued by FNMA and FHLMC
27,949
25,991
3.1
60,532
57,354
7.5
Other Residential Mortgage-Backed Securities
75,620
68,830
8.3
71,301
61,969
8.1
Commercial Mortgage-Backed Securities
7,592
7,388
0.9
11,084
10,583
1.4
All Other Commercial MBS
110,970
112,167
13.6
109,190
107,963
14.1
Total MBS
31.3
31.9
Municipal Securities
29.1
15.9
13.1
17.5
10.0
100.0
Loan Portfolio
The Company focuses on lending to borrowers located or investing in the Minneapolis-St. Paul-Bloomington, MN-WI Metropolitan Statistical Area across a diverse range of industries and property types. The Company lends primarily to commercial customers, consisting of loans secured by nonfarm, nonresidential properties, multifamily residential properties, land, and non-real estate business assets. Responsive service, local decision making, and an efficient turnaround time from application to closing have been significant factors in growing the loan portfolio.
The Company manages concentrations of credit exposure through a risk management program which implements formalized processes and procedures specifically for managing and mitigating risk within the loan portfolio. The processes and procedures include board of directors and management oversight, commercial real estate exposure limits, portfolio monitoring tools, management information systems, market reports, underwriting standards, internal and external loan review, and stress testing.
Total gross loans at September 30, 2025 were $4.21 billion, an increase $346.0 million, or 8.9%, over total gross loans of $3.87 billion at December 31, 2024, and an increase of $529.0 million, or 14.4%, over total gross loans of $3.69 billion at September 30, 2024. The year-to-date increase in the loan portfolio was primarily due to increased loan originations and lower loan payoffs. The year-over-year increase was primarily attributable to increased loan originations and the acquisition of FMCB during the fourth quarter of 2024.
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The following table presents the dollar and percentage composition of the loan portfolio by category, at the dates indicated:
12.7
549,259
13.3
528,801
13.2
12.9
493,403
13.4
1.0
44,817
1.1
43,958
136,438
3.3
128,073
3.2
2.5
118,596
39,095
39,438
45,822
1.3
11.6
474,269
11.4
479,461
11.9
12.3
421,179
37.4
1,555,731
37.5
1,534,747
38.2
36.9
1,379,814
4.6
192,837
4.7
196,080
4.9
182,239
27.5
1,137,007
27.4
1,055,157
26.1
28.0
1,032,142
81.1
3,359,844
81.0
3,265,445
82.1
3,015,374
81.8
0.4
16,346
14,361
0.3
12,395
(55,765)
(53,766)
(51,018)
(7,629)
(7,218)
(5,705)
4,082,405
3,959,092
3,628,867
The Company primarily focuses on real estate mortgage lending, which constituted 81.1% of the portfolio at September 30, 2025. The composition of the portfolio has remained relatively consistent with prior periods, and the Company does not expect any significant changes in the composition of the loan portfolio or the emphasis on real estate lending in the foreseeable future.
As of September 30, 2025, investor CRE loans totaled $2.94 billion, consisting of $1.16 billion of loans secured by nonowner occupied CRE, $1.58 billion of loans secured by multifamily residential properties, $41.7 million of 1-4 family construction loans, and $160.0 million of construction and land development loans. Investor CRE loans represented 69.7% of the total gross loan portfolio and 474.7% of the Bank’s total risk-based capital at September 30, 2025, compared to 68.4% and 462.0%, respectively, at December 31, 2024.
The following table provides a breakdown of CRE nonowner occupied loans by collateral types as of September 30, 2025 and December 31, 2024:
Percent of
CRE Nonowner
Total Loan
Occupied Portfolio
Portfolio
Collateral Type:
Industrial
310,417
26.8
7.4
285,594
26.4
Office
210,908
18.2
191,638
17.7
Retail
189,452
16.4
172,530
Nursing/Assisted Living
119,633
10.3
2.8
108,452
Mini Storage Facility
109,548
9.5
2.6
111,705
10.2
Medical Office
90,549
7.8
2.1
110,486
128,115
11.0
102,703
The following tables present time to contractual maturity and sensitivity to interest rate changes for the loan portfolio as of September 30, 2025 and December 31, 2024:
As of September 30, 2025
Due in One Year
More Than One
More Than Five
After
or Less
Year to Five Years
Year to Fifteen Years
Fifteen Years
227,214
233,343
70,072
2,847
4,301
38,545
340
82,777
70,515
6,699
37,324
4,214
95,296
299,725
67,256
25,020
228,139
822,792
443,045
84,247
10,645
119,673
59,090
3,558
263,268
697,651
197,277
426
597,348
1,939,841
766,668
113,251
9,687
8,913
161
293
958,651
2,295,371
844,141
116,391
Interest Rate Sensitivity:
Fixed Interest Rates
607,379
1,776,247
419,383
25,313
Floating or Adjustable Rates
351,272
519,124
424,758
91,078
As of December 31, 2024
170,588
248,695
75,467
2,912
4,998
38,641
652
53,373
42,002
1,880
38,996
2,764
74,914
297,516
76,647
25,306
206,913
637,012
513,194
68,491
4,704
112,223
69,742
4,579
264,947
602,380
214,971
810
551,478
1,649,131
874,554
99,186
8,813
3,776
174
233
828,246
1,985,009
952,928
102,331
580,854
1,622,161
475,264
32,271
247,392
362,848
477,664
70,060
Asset Quality
The Company emphasizes credit quality in the originating and monitoring of the loan portfolio, and success in underwriting is measured by the levels of classified and nonperforming assets and net charge-offs. Federal regulations and internal policies require the use of an asset classification system as a means of managing and reporting problem and potential problem assets. The Company has incorporated an internal asset classification system, substantially consistent with federal banking regulations, as a part of the credit monitoring system. Federal banking regulations set forth a classification scheme for problem and potential problem assets as “special mention,” “substandard,” “doubtful” or “loss” assets. An asset identified as “special mention” is not adversely classified but has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the payment prospects of the asset. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. A financial institution with assets classified as “special mention” is not expected to sustain losses of principal or interest from these assets and should not classify assets under this category for more than a year. “Substandard” assets include those characterized by the “distinct possibility” that the financial institution will sustain “some loss” if the deficiencies are not corrected.
Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Assets which do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are required to be designated “watch.”
The following table presents information on loan classifications at September 30, 2025. The Company had no assets classified as doubtful or loss at September 30, 2025.
Risk Category
15,568
57,910
7,714
16,322
39,211
43,878
83,089
98,716
Loans that have potential weaknesses that warranted a watch or special mention risk rating at September 30, 2025 totaled $40.6 million, compared to $46.6 million at December 31, 2024. Loans that warranted a substandard risk rating at September 30, 2025 totaled $58.1 million, compared to $21.8 million at December 31, 2024. Management continues to actively work with these borrowers and closely monitor substandard credits.
Nonperforming Assets
Nonperforming loans include loans accounted for on a nonaccrual basis and loans 90 days past due and still accruing. Nonaccrual loans totaled $10.0 million as of September 30, 2025 and $301,000 as of December 31, 2024. There were no loans 90 days past due and still accruing as of September 30, 2025 or December 31, 2024. There were also no foreclosed assets as of September 30, 2025 and December 31, 2024.
The following table presents a summary of nonperforming assets, by category, at the dates indicated:
Total Nonaccrual Loans
Total Nonperforming Loans
Total Nonperforming Assets (1)
Nonperforming Assets to Total Loans Plus Foreclosed Assets (1)
The balance of nonperforming assets can fluctuate due to changes in economic conditions. The Company has established a policy to discontinue accruing interest on a loan (that is, to place the loan on nonaccrual status) after it
60
has become 90 days delinquent as to payment of principal or interest, unless the loan is considered to be well-collateralized and is actively in the process of collection. In addition, a loan will be placed on nonaccrual status before it becomes 90 days delinquent unless management believes that the collection of interest is expected. Interest previously accrued but uncollected on such loans is reversed and charged against current income when the receivable is determined to be uncollectible. If management believes that a loan will not be collected in full, an increase to the allowance for credit losses on loans is recorded to reflect management’s estimate of any potential exposure or loss. Generally, payments received on nonaccrual loans are applied directly to principal. Gross income that would have been recorded on nonaccrual loans for three and nine months ended September 30, 2025 was $56,000 and $398,000, respectively. Gross income that would have been recorded on nonaccrual loans for the three and nine months ended September 30, 2024 was $116,000 and $152,000, respectively.
The allowance for credit losses on loans and leases is a reserve established through charges to earnings in the form of a provision for credit losses. The Company maintains an allowance for credit losses at a level management considers adequate to provide for expected lifetime losses in the portfolio. Although management strives to maintain an allowance it deems adequate, future economic changes, deterioration of borrowers’ creditworthiness, and the impact of examinations by regulatory agencies, among other factors, all could cause changes to the allowance for credit losses on loans and leases.
At September 30, 2025, the allowance for credit losses on loans and leases was $56.4 million, an increase of $4.1 million from $52.3 million at December 31, 2024. Net charge-offs (recoveries) totaled $275,000 during the third quarter of 2025 and $931,000 during the third quarter of 2024. Net charge-offs (recoveries) totaled $287,000 for the nine months ended September 30, 2025, and $926,000 for the nine months ended September 30, 2024. The allowance for credit losses on loans and leases as a percentage of total loans was 1.34% at September 30, 2025 and 1.35% at December 31, 2024.
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The following table presents a summary of net charge-offs for the periods indicated:
Net Charge-offs (Recoveries)
253
(10)
935
932
Total Net Charge-offs (Recoveries)
931
287
926
Net Charge-offs to Average Loans
0.14
0.05
0.35
0.12
0.13
0.16
Total Net Charge-offs (Recoveries) (Annualized) to Average Loans
Gross Loans, End of Period
Average Loans
Allowance for Credit Losses to Total Gross Loans
The following table presents a summary of the allocation of the allowance for credit losses on loans and leases by loan portfolio segment as of the dates indicated:
12.1
10.8
0.7
2.3
1.7
0.5
0.6
1 - 4 Family Mortgage
4.3
5.3
41.2
44.2
36.6
33.9
84.1
85.9
Total Allowance for Credit Losses
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The principal sources of funds for the Company are deposits, consisting of demand deposits, money market accounts, savings accounts, and certificates of deposit. The following table presents the dollar and percentage composition of the deposit portfolio, by category, at the dates indicated:
19.1
787,868
18.6
791,528
19.0
19.6
713,309
860,774
20.1
791,748
18.7
840,378
20.2
862,242
21.1
805,756
21.5
33.3
1,441,694
34.0
1,372,191
33.0
30.8
980,345
26.2
344,882
326,821
347,080
19.4
870,550
20.6
831,539
20.0
900,952
24.0
Total deposits at September 30, 2025 were $4.29 billion, an increase of $206.0 million, or 5.0%, compared to total deposits of $4.09 billion at December 31, 2024, and an increase of $545.3 million, or 14.6%, over total deposits of $3.75 billion at September 30, 2024. Core deposits, defined as total deposits excluding brokered deposits and time deposits greater than $250,000, increased $172.0 million, or 7.4% annualized, from December 31, 2024. Growth in core deposits was primarily due to both increased balances of existing clients and new client acquisitions. Based on the nature of the Company’s client base, management believes core deposits could fluctuate in future periods as deposit growth is not always linear.
The Company relies on increasing the deposit base to fund loans and other asset growth. The Company is in a highly competitive market and competes for local deposits by offering attractive products with competitive rates. The Company expects to have a higher average cost of funds for local deposits compared to competitor banks due to the lack of an extensive branch network. The Company’s strategy is to offset the higher cost of funding with a lower level of operating expense. When appropriate, the Company utilizes alternative funding sources such as brokered deposits. The brokered deposit market provides flexibility in structure, optionality and efficiency not afforded in traditional retail deposit channels. As of September 30, 2025, total brokered deposits were $834.4 million, an increase of $8.7 million, compared to total brokered deposits of $825.8 million at December 31, 2024. Brokered deposits continue to be used as a supplemental funding source, as needed, to support loan portfolio growth.
The following table presents the average balance and average rate paid on each of the following deposit categories as of and for the three months ended September 30, 2025 and 2024:
As of and for the
Time Deposits < $250,000
170,163
184,397
Time Deposits > $250,000
172,763
4.29
170,653
4,310,572
3,798,780
The Company’s total uninsured deposits, which are the amounts of deposit accounts that exceed the FDIC insurance limit, currently $250,000, were approximately $1.26 billion, or 29.2% of total deposits, at
63
September 30, 2025 and $1.14 billion, or 27.7% of total deposits, at December 31, 2024. These amounts were estimated based on the same methodologies and assumptions used for regulatory reporting purposes.
Borrowed Funds
Other Borrowings
At September 30, 2025, the Company had outstanding FHLB advances of $404.5 million, compared to $359.5 million at December 31, 2024. The Company’s borrowing capacity at the FHLB is determined based on collateral pledged, generally consisting of loans. The Company had additional borrowing capacity under this credit facility of $493.6 million and $483.2 million at September 30, 2025 and December 31, 2024, respectively.
The Company has an outstanding Loan and Security Agreement and revolving note with a third party correspondent lender, which is secured by 100% of the issued and outstanding stock of the Bank. The maximum principal amount of the revolving line of credit is $40.0 million, and the facility matures on September 1, 2026. As of September 30, 2025 the Company had no outstanding balance under the revolving line of credit, compared to $13.8 million as of December 31, 2024. The Company also has two outstanding letters of credit totaling $6.4 million under this facility as of both September 30, 2025 and December 31, 2024.
Additionally, the Company has borrowing capacity from other sources. As of September 30, 2025, the Bank was eligible to use the Federal Reserve discount window for borrowings. Based on assets pledged as collateral as of the applicable date, the Bank’s borrowing availability was approximately $994.0 million and $925.8 million at September 30, 2025 and December 31, 2024, respectively. As of September 30, 2025 and December 31, 2024, the Company had no outstanding advances from the discount window.
As of September 30, 2025 and December 31, 2024, the Company had subordinated debentures, net of issuance costs, of $108.6 million and $79.7 million, respectively.
For additional information, see “Note 9 – Subordinated Debentures” of the Company’s Consolidated Financial Statements included as part of this report.
Contractual Obligations
The following table presents supplemental information regarding total contractual obligations at September 30, 2025:
Within
One to
Three to
One Year
Three Years
Five Years
Deposits Without a Stated Maturity
3,261,497
197,970
169,970
61,500
Commitment to Fund Tax Credit Investments
2,212
Operating Lease Obligations
754
304
1,666
4,248,122
260,224
192,774
110,022
4,811,142
The Company believes that it will be able to meet all contractual obligations as they come due through the maintenance of adequate cash levels. The Company expects to maintain adequate cash levels through earnings, loan
64
and securities repayments and maturity activity and continued deposit gathering activities. As described above, the Company has in place various borrowing mechanisms for both short-term and long-term liquidity needs.
Total shareholders’ equity at September 30, 2025 was $497.5 million, an increase of $39.5 million, or 8.6%, compared to total shareholders’ equity of $457.9 million at December 31, 2024. The increase was primarily due to net income retained and a decrease in unrealized losses in the securities portfolio, offset partially by a decrease in unrealized gains in the derivatives portfolio, preferred stock dividends, and stock repurchases.
Tangible book value per share, a non-GAAP financial measure, was $14.93 as of September 30, 2025, an increase of 10.7% from $13.49 as of December 31, 2024. Tangible common equity as a percentage of tangible assets, a non-GAAP financial measure, was 7.71% at September 30, 2025, compared to 7.36% at December 31, 2024.
Stock Repurchase Program. The Company did not repurchase any shares of its common stock pursuant to its existing stock repurchase program during the three months ended September 30, 2025. During the nine months ended September 30, 2025, the Company repurchased 167,709 shares of its common stock, representing 0.61% of the Company’s issued and outstanding shares as of September 30, 2025. Shares were repurchased during this period at a weighted average price of $13.07 per share, for a total of $2.2 million. All shares repurchased under the stock repurchase program were converted to authorized but unissued shares. As of September 30, 2025, the remaining amount that could be used to repurchase shares under the 2022 Stock Repurchase Program was $13.1 million. The Company remains committed to maintaining strong capital levels while enhancing shareholder value as it strategically executes its stock repurchase program based on various factors including valuation, capital levels and other uses of capital.
Regulatory Capital. The Company and the Bank are subject to various regulatory capital requirements administered by federal banking regulators. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by federal banking regulators that, if undertaken, could have a direct material effect on the Company’s and Bank’s business.
Management believes the Company and the Bank met all capital adequacy requirements to which they were subject as of September 30, 2025. The regulatory capital ratios necessary for the Company and the Bank to meet minimum capital adequacy standards, and for the Bank to be considered well capitalized under the prompt corrective action framework, are set forth in the following tables. The Company’s and the Bank’s actual capital amounts and ratios as of the dates indicated are presented in the following tables:
Regulations include a capital conservation buffer of 2.5% that is added to the minimum requirements for capital adequacy purposes. A banking organization with a conservation buffer of less than the required amount is subject to limitations on capital distributions, including dividend payments, stock repurchases and certain discretionary bonus payments to executive officers. At September 30, 2025, the ratios for the Company and the Bank were sufficient to meet the conservation buffer.
Off-Balance Sheet Arrangements
In the normal course of business, the Company enters into various transactions to meet the financing needs of clients, which, in accordance with GAAP, are not included in the consolidated balance sheets. These transactions include commitments to extend credit, standby letters of credit, and commercial letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. Most of these commitments mature within two years and the standby letters of credit are expected to expire without being drawn upon. All off-balance sheet commitments are included in the determination of the amount of risk-based capital that the Company and the Bank are required to hold.
The Company’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit, standby letters of credit, and commercial letters of credit is represented by the contractual or notional amount of those instruments. The Company decreases its exposure to losses under these commitments by subjecting them to credit approval and monitoring procedures. The Company assesses the credit risk associated with certain commitments to extend credit and establishes a liability for probable credit losses.
The following table presents credit arrangements and financial instruments whose contract amounts represented credit risk as of September 30, 2025 and December 31, 2024:
Fixed
Variable
244,628
550,160
174,273
504,791
24,664
108,874
9,012
115,385
269,292
659,034
183,285
620,176
Liquidity
Liquidity is the Company’s capacity to meet cash and collateral obligations at a reasonable cost. Maintaining an adequate level of liquidity depends on the Company’s ability to efficiently meet both expected and unexpected cash
66
flow and collateral needs without adversely affecting either daily operations or financial condition. The Bank’s Asset Liability Management, or ALM, Committee, is responsible for managing commitments to meet the needs of customers while achieving the Company’s financial objectives. The ALM Committee meets regularly to review balance sheet composition, funding capacities, and current and forecasted loan demand.
The Company manages liquidity by maintaining adequate levels of cash and other assets from on- and off-balance sheet arrangements. Specifically, on-balance sheet liquidity consists of cash and due from banks and unpledged investment securities available for sale, which are referred to as primary liquidity. In regards to off-balance sheet capacity, the Company maintains available borrowing capacity under secured borrowing lines with the FHLB, the Federal Reserve Bank of Minneapolis, and a correspondent lender, as well as unsecured lines of credit for the purpose of overnight funds with various correspondent banks, which the Company refers to as secondary liquidity.
Total on- and off-balance sheet liquidity was $2.39 billion as of September 30, 2025, compared to $2.30 billion at December 31, 2024.
The following tables present a summary of primary and secondary liquidity levels as of the dates indicated:
Primary Liquidity—On-Balance Sheet
109,903
188,884
Less: Pledged Securities
(264,901)
(289,903)
Total Primary Liquidity
671,475
667,228
Ratio of Primary Liquidity to Total Deposits
15.6
16.3
Secondary Liquidity—Off-Balance Sheet
Net Secured Borrowing Capacity with the FHLB
493,644
483,245
Net Secured Borrowing Capacity with the Federal Reserve Bank
994,039
925,798
Unsecured Borrowing Capacity with Correspondent Lenders
200,000
Secured Borrowing Capacity with Correspondent Lender
33,605
19,855
Total Secondary Liquidity
1,721,288
1,628,898
Total Primary and Secondary Liquidity
2,392,763
2,296,126
Ratio of Primary and Secondary Liquidity to Total Deposits
55.7
56.2
During the nine months ended September 30, 2025, primary liquidity increased by $4.2 million due to a $58.2 million increase in securities available for sale and a $25.0 million decrease in pledged securities, offset partially by a $79.0 million decrease in cash and cash equivalents, when compared to December 31, 2024. Secondary liquidity increased by $92.4 million as of September 30, 2025, when compared to December 31, 2024, due to a $68.2 million increase in the borrowing capacity with the Federal Reserve Bank, a $13.8 million increase in the borrowing capacity with correspondent lenders, and a $10.4 million increase in borrowing capacity with the FHLB.
In addition to primary liquidity, the Company generates liquidity from cash flows from the loan and securities portfolios and from the large base of core deposits, defined as noninterest bearing transaction, interest bearing transaction, savings, non-brokered money market accounts and non-brokered time deposits less than $250,000. At September 30, 2025, core deposits totaled approximately $3.28 billion and represented 76.4% of total deposits. These core deposits are normally less volatile, often with customer relationships tied to other products offered by the Company, which promote long-standing relationships and stable funding sources.
The Company uses brokered deposits, the availability of which is uncertain and subject to competitive market forces and regulation, for liquidity and interest rate risk management purposes. At September 30, 2025, brokered deposits totaled $834.4 million, consisting of $685.1 million of brokered time deposits and $149.4 million of non-maturity brokered money market and transaction accounts. At December 31, 2024, brokered deposits totaled $825.8
67
million, consisting of $698.3 million of brokered time deposits and $127.4 million of non-maturity brokered money market and transaction accounts.
The Company’s liquidity policy includes guidelines for On-Balance Sheet Liquidity (a measurement of primary liquidity to total deposits plus borrowings), Total On-Balance Sheet Liquidity with Borrowing Capacity (a measurement of primary and secondary liquidity to total deposits plus borrowings), Wholesale Funding Ratio (a measurement of total wholesale funding to total deposits plus borrowings), and other guidelines developed for measuring and maintaining liquidity.
Non-GAAP Financial Measures
In addition to financial measures presented in accordance with GAAP, the Company routinely supplements its evaluation with an analysis of certain non-GAAP financial measures. The Company believes these non-GAAP financial measures, in addition to the related GAAP measures, provide meaningful information to investors to help them understand the Company’s operating performance and trends, and to facilitate comparisons with the performance of peers. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Reconciliations of non-GAAP disclosures used in this report to the comparable GAAP measures are provided in the following tables:
Pre-Provision Net Revenue
Less: (Gain) Loss on Sales of Securities
(474)
Less: FHLB Advance Prepayment Income
Total Operating Noninterest Income
2,002
2,852
2,078
1,550
6,932
4,450
Plus: Net Interest Income
Net Operating Revenue
36,093
35,304
32,286
29,500
27,149
103,683
79,676
Total Operating Noninterest Expense
16,137
16,363
14,150
12,688
11,389
46,650
33,188
Plus:
Non-Operating Revenue Adjustments
835
Less:
3,618
3,018
2,309
Average Assets
5,162,182
5,071,446
4,788,036
Pre-Provision Net Revenue Return on Average Assets
1.20
0.95
Adjusted Pre-Provision Net Revenue
Less: Merger-related Expenses
(530)
(540)
(565)
(488)
(224)
(1,635)
Adjusted Total Operating Noninterest Expense
19,426
18,401
17,571
16,324
15,536
55,398
46,264
16,667
16,903
14,715
13,176
11,613
48,285
33,412
Adjusted Pre-Provision Net Revenue Return on Average Assets
1.24
68
Core Net Interest Margin
Net Interest Income (Tax-equivalent Basis)
34,614
32,770
30,464
27,254
97,848
Loan Fees
(966)
(1,019)
(719)
(747)
(968)
(2,704)
(2,342)
Purchase Accounting Accretion:
Loan Accretion
(425)
(342)
(1,147)
Bond Accretion
(89)
(578)
(91)
(819)
Bank-Owned Certificates of Deposit Accretion
(17)
Deposit Certificates of Deposit Accretion
(38)
(88)
Total Purchase Accounting Accretion
(618)
(2,071)
Core Net Interest Income (Tax-equivalent Basis)
33,160
31,133
28,780
26,416
24,937
93,073
73,843
Average Interest Earning Assets
5,019,058
4,928,283
4,682,841
2.46
2.17
Core Loan Yield
Loan Interest Income (Tax-equivalent Basis)
58,122
53,979
52,078
153,567
Core Loan Interest Income
58,971
56,678
52,918
51,331
51,150
168,567
151,225
4,064,540
3,899,258
3,730,532
Efficiency Ratio
Less: Amortization of Intangible Assets
(230)
(52)
(690)
Adjusted Noninterest Expense
19,726
18,711
17,906
16,760
15,751
56,343
46,462
Less: Gain (Loss) on Sales of Securities
Adjusted Operating Revenue
35,605
103,984
54.2
58.3
19,196
18,171
17,341
16,272
15,527
54,708
46,238
52.8
Adjusted Noninterest Expense to Average Assets (Annualized)
1.42
69
Tangible Common Equity and Tangible Common Equity/Tangible Assets
Less: Preferred Stock
(66,514)
Total Common Shareholders' Equity
430,949
409,768
402,461
391,421
385,686
Less: Intangible Assets
(19,142)
(19,372)
(19,602)
(19,832)
(2,789)
Tangible Common Equity
411,807
390,396
382,859
371,589
382,897
Tangible Assets
5,340,852
5,277,301
5,117,206
5,046,410
4,688,728
Tangible Common Equity/Tangible Assets
Tangible Book Value Per Share
Book Value Per Common Share
Less: Effects of Intangible Assets
(0.69)
(0.71)
(0.72)
(0.10)
Tangible Book Value Per Common Share
Return on Average Tangible Common Equity
Average Shareholders' Equity
471,700
465,408
455,949
Less: Average Preferred Stock
Average Common Equity
419,355
405,186
398,894
389,435
376,563
407,764
369,150
Less: Effects of Average Intangible Assets
(19,274)
(19,504)
(19,738)
(4,412)
(2,794)
(2,802)
Average Tangible Common Equity
400,081
385,682
379,156
385,023
373,769
388,260
366,348
10.23
7.87
Adjusted Diluted Earnings Per Common Share
Add: Merger-related Expenses
530
540
565
224
1,635
Total Adjustments
471
(235)
564
252
800
Less: Tax Impact of Adjustments
(110)
(135)
(107)
(189)
Adjusted Net Income Available to Common Shareholders
10,949
10,327
9,049
7,571
7,855
30,325
21,458
Add: Total Adjustments
Less: Tax Impact
Net Income, Excluding Impact of Merger-related Expenses
11,962
11,341
10,062
8,585
8,868
33,365
24,498
0.70
9.41
7.51
Net Income Available to Common Shareholders, Excluding Impact of Merger-related Expenses
10.44
70
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
As a financial institution, the Company’s primary market risk is interest rate risk, which is defined as the risk of loss of net interest income or net interest margin because of changes in interest rates. The Company continually seeks to measure and manage the potential impact of interest rate risk. Interest rate risk occurs when interest earning assets and interest bearing liabilities mature or re-price at different times, on a different basis or in unequal amounts. Interest rate risk also arises when assets and liabilities each respond differently to changes in interest rates.
The Company’s management of interest rate risk is overseen by its ALM Committee, based on a risk management infrastructure approved by the board of directors that outlines reporting and measurement requirements. In particular, this infrastructure sets limits and management targets for various metrics, including net interest income simulation involving parallel shifts in interest rate curves, steepening and flattening yield curves, and various prepayment and deposit duration assumptions. The Company’s risk management infrastructure also requires a periodic review of all key assumptions used, such as identifying appropriate interest rate scenarios, setting loan prepayment rates based on historical analysis and noninterest bearing and interest bearing transaction deposit durations based on historical analysis. The Company does not engage in speculative trading activities relating to interest rates, foreign exchange rates, commodity prices, equities or credit.
The Company manages the interest rate risk associated with interest earning assets by managing the interest rates and terms associated with the investment securities portfolio by purchasing and selling investment securities from time to time. The Company manages the interest rate risk associated with interest bearing liabilities by managing the interest rates and terms associated with wholesale borrowings and deposits from customers which the Company relies on for funding. For example, the Company occasionally uses special offers on deposits to alter the interest rates and terms associated with interest bearing liabilities.
The Company has entered into certain hedging transactions including fair value swaps and interest rate swaps and caps, which are designed to lessen elements of the Company’s interest rate exposure. Cash flow hedge relationships mitigate exposure to the variability of future cash flows or other forecasted transactions. The Company utilizes cash flow hedges to manage interest rate exposure for the brokered deposit and wholesale borrowing portfolios. These cash flow hedges had a total notional amount of $308.0 million and $303.0 million at September 30, 2025 and December 31, 2024, respectively. Fair value hedge relationships mitigate exposure to changes in the fair value of a recognized asset or value. The Company utilizes fair value hedges to manage fair value exposure for the U.S. treasury security, mortgage-backed security, and municipal security portfolios. These fair value hedges had a total notional amount of $243.6 million and $145.9 million at September 30, 2025 and December 31, 2024, respectively. In the event that interest rates do not change in the manner anticipated, such transactions may adversely affect the Company’s results of operations.
Net Interest Income Simulation
The Company uses a net interest income simulation model to measure and evaluate potential changes in net interest income that would result over the next 12 months from immediate and sustained changes in interest rates as of the measurement date. This model has inherent limitations and the results are based on a given set of rate changes and assumptions as of a certain point in time. For purposes of the simulation, the Company assumes no growth in either interest-sensitive assets or liabilities over the next 12 months; therefore, the model’s results reflect an interest rate shock to a static balance sheet. The simulation model also incorporates various other assumptions, which the Company believes are reasonable but which may have a significant impact on results, such as: (1) the timing of changes in interest rates, (2) shifts or rotations in the yield curve, (3) re-pricing characteristics for market-rate-sensitive instruments, (4) differing sensitivities of financial instruments due to differing underlying rate indices, (5) varying loan prepayment speeds for different interest rate scenarios, (6) the effect of interest rate limitations in assets, such as
floors and caps, and (7) overall growth and repayment rates and product mix of assets and liabilities. Because of the limitations inherent in any approach used to measure interest rate risk, simulation results are not intended as a forecast of the actual effect of a change in market interest rates on the results, but rather as a means to better plan and execute appropriate asset-liability management strategies and to manage interest rate risk.
Potential changes to the Company’s net interest income in hypothetical rising and declining rate scenarios calculated as of September 30, 2025 and December 31, 2024 are presented in the table below. The projections assume an immediate, parallel shift downward of the yield curve of 100, 200, 300, and 400 basis points and immediate, parallel shifts upward of the yield curve of 100, 200, 300 and 400 basis points.
Change (basis points)
Forecasted
Percentage
in Interest Rates
Net Interest
Change
(12-Month Projection)
Income
from Base
+400
138,605
(10.03)
130,390
(6.00)
+300
142,757
(7.33)
132,605
(4.40)
+200
146,468
(4.92)
134,355
(3.14)
+100
149,883
(2.70)
136,411
(1.66)
0
154,049
138,708
−100
160,743
4.35
143,038
3.12
−200
170,174
10.47
147,997
6.70
−300
182,264
18.32
153,515
10.67
−400
193,011
25.29
158,778
14.47
The table above indicates that as of September 30, 2025, in the event of an immediate and sustained 400 basis point increase in interest rates, the Company would experience a 10.03% decrease in net interest income. In the event of an immediate 400 basis point decrease in interest rates, the Company would experience an 25.29% increase in net interest income.
The results of this simulation analysis are hypothetical, and a variety of factors might cause actual results to differ substantially from what is depicted. For example, if the timing and magnitude of interest rate changes differ from those projected, net interest income might vary significantly. Non-parallel yield curve shifts such as a flattening or steepening of the yield curve or changes in interest rate spreads would also cause net interest income to be different from that depicted. An increasing interest rate environment could reduce projected net interest income if deposits and other short-term liabilities re-price faster than expected or re-price faster than the Company’s assets. Actual results could differ from those projected if the Company grows assets and liabilities faster or slower than estimated, if the Company experienced a net outflow of deposit liabilities, or if the mix of assets and liabilities otherwise changes. Actual results could also differ from those projected if the Company experienced substantially different repayment speeds in the loan portfolio than those assumed in the simulation model. Finally, these simulation results do not contemplate all the actions that the Company may undertake in response to potential or actual changes in interest rates, such as changes to the Company’s loan, investment, deposit, or funding strategies.
Evaluation of Disclosure Controls and Procedures
The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as that term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, or the Exchange Act) as of September 30, 2025, the end of the fiscal quarter covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2025, the Company’s disclosure controls and
procedures were effective to ensure that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There has been no change in the Company’s internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
Neither the Company nor any of its subsidiaries is a party, and no property of these entities is subject, to any material pending legal proceedings, other than ordinary routine litigation incidental to the Bank’s business. The Company does not know of any proceeding contemplated by a governmental authority against the Company or any of its subsidiaries.
Item 1.A. Risk Factors
There have been no material changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K filed with the SEC on March 6, 2025.
Issuer Repurchases of Equity Securities
The following table presents stock purchases made during the third quarter of 2025:
Period
Total Number of Shares Purchased (1)
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)
Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
July 1 - 31, 2025
180
16.23
13,089,198
August 1 - 31, 2025
September 1 - 30, 2025
Unregistered Sales of Equity Securities
None.
Use of Proceeds from Registered Securities
Not applicable.
Rule 10b5-1 Trading Plans
During the quarter ended September 30, 2025, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule10b5-1(c) or any non-Rule 10b5-1 trading arrangement.
Exhibit Number
Description
Third Amended and Restated Articles of Incorporation of Bridgewater Bancshares, Inc. (incorporated herein by reference to Exhibit 3.1 on Form 8-K filed on April 27, 2023)
Second Amended and Restated Bylaws of Bridgewater Bancshares, Inc. (incorporated herein by reference to Exhibit 3.2 on Form 8-K filed on April 27, 2023)
Statement of Designation of 5.875% Non-Cumulative Perpetual Preferred Stock, Series A (incorporated herein by reference to Exhibit 3.1 on Form 8-K filed on August 17, 2021)
10.1
First Amendment to Employment Agreement among Bridgewater Bancshares, Inc., Bridgewater Bank, and Mary Jane Crocker, dated August 18, 2025 (incorporated herein by reference to Exhibit 10.1 on Form 8-K filed on August 19, 2025)
First Amendment to Employment Agreement among Bridgewater Bancshares, Inc., Bridgewater Bank, and Jeffrey Shellberg, dated August 18, 2025 (incorporated herein by reference to Exhibit 10.2 on Form 8-K filed on August 19, 2025)
31.1
Certification of the Chief Executive Officer required, by Rule 13a-14(a) of the Securities Exchange Act of 1934, and Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of the Chief Financial Officer required by Rule 13a-14(a) of the Securities Exchange Act of 1934, and Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.1
Financial information from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2025, formatted in inline XBRL interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Comprehensive Income; (iv) Consolidated Statements of Shareholders’ Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements
104
The cover page for Bridgewater Bancshares, Inc’s Form 10-Q Report for the quarterly period ended September 30, 2025 formatted in inline XBRL and contained in Exhibit 101
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Bridgewater Bancshares, Inc.
Date: October 30, 2025
By:
/s/ Jerry J. Baack
Name:
Jerry J. Baack
Title:
Chairman and Chief Executive Officer(Principal Executive Officer)
/s/ Joe M. Chybowski
Joe M. Chybowski
President and Chief Financial Officer(Principal Financial Officer)