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 June 30, 2026
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 July 28, 2026 was 27,883,823.
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
44
Item 3. Quantitative and Qualitative Disclosures About Market Risk
72
Item 4. Controls and Procedures
73
PART II OTHER INFORMATION
74
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
75
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
76
SIGNATURES
77
2
PART I – FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Bridgewater Bancshares, Inc. and Subsidiaries
(dollars in thousands, except share data)
June 30,
December 31,
2026
2025
(Unaudited)
ASSETS
Cash and Cash Equivalents
$
169,806
123,511
Securities Available for Sale, at Fair Value
605,412
776,441
Loans, Net of Allowance for Credit Losses of $57,418 at June 30, 2026 (unaudited) and $56,443 at December 31, 2025
4,360,502
4,244,108
Federal Home Loan Bank (FHLB) Stock, at Cost
17,979
21,122
Premises and Equipment, Net
52,730
51,576
Accrued Interest
16,946
18,929
Goodwill
11,982
Other Intangible Assets, Net
6,477
6,930
Bank-Owned Life Insurance
45,671
46,576
Other Assets
102,221
105,827
Total Assets
5,389,726
5,407,002
LIABILITIES AND EQUITY
LIABILITIES
Deposits:
Noninterest Bearing
830,952
923,070
Interest Bearing
3,515,252
3,397,299
Total Deposits
4,346,204
4,320,369
FHLB Advances
326,000
399,500
Subordinated Debentures, Net of Issuance Costs
108,882
108,677
Accrued Interest Payable
2,565
3,227
Other Liabilities
58,166
58,134
Total Liabilities
4,841,817
4,889,907
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 June 30, 2026 (unaudited) and December 31, 2025
66,514
Common Stock- $0.01 par value; Authorized 75,000,000
Common Stock - Issued and Outstanding 27,880,830 at June 30, 2026 (unaudited) and 27,759,970 at December 31, 2025
279
278
Additional Paid-In Capital
100,868
98,287
Retained Earnings
380,841
351,455
Accumulated Other Comprehensive Gain (Loss)
(593)
561
Total Shareholders' Equity
547,909
517,095
Total Liabilities and Equity
See accompanying notes to consolidated financial statements.
(dollars in thousands, except per share data)
Three Months Ended
Six Months Ended
INTEREST INCOME
Loans, Including Fees
64,146
57,888
125,872
111,708
Investment Securities
6,904
9,200
13,827
18,597
Other
1,606
2,110
2,922
4,601
Total Interest Income
72,656
69,198
142,621
134,906
INTEREST EXPENSE
Deposits
29,711
32,497
58,504
64,600
Federal Funds Purchased
19
16
257
Notes Payable
—
260
518
2,494
2,852
4,932
5,008
Subordinated Debentures
1,866
1,121
3,715
2,104
Total Interest Expense
34,090
36,746
67,408
72,246
NET INTEREST INCOME
38,566
32,452
75,213
62,660
Provision for Credit Losses
550
2,000
1,750
3,500
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES
38,016
30,452
73,463
59,160
NONINTEREST INCOME
Customer Service Fees
520
496
1,047
991
Net Gain on Sales of Available for Sale Securities
474
7,251
475
Letter of Credit Fees
304
323
489
778
Debit Card Interchange Fees
230
152
431
289
Swap Fees
263
938
503
980
451
387
898
766
Investment Advisory Fees
213
538
FHLB Prepayment Income
301
Other Income
296
343
795
588
Total Noninterest Income
2,324
3,627
11,888
5,706
NONINTEREST EXPENSE
Salaries and Employee Benefits
13,916
11,363
27,408
22,734
Occupancy and Equipment
1,360
1,274
2,735
2,508
FDIC Insurance Assessment
595
750
1,375
1,200
Data Processing
692
625
1,303
1,244
Professional and Consulting Fees
1,267
1,110
2,463
Derivative Collateral Fees
206
372
374
823
Information Technology and Telecommunications
1,258
971
2,325
1,942
Marketing and Advertising
604
435
1,380
762
Intangible Asset Amortization
227
453
460
FHLB Prepayment Penalty
982
Other Expense
1,769
1,811
3,266
3,300
Total Noninterest Expense
21,894
18,941
44,064
37,077
INCOME BEFORE INCOME TAXES
18,446
15,138
41,287
27,789
Provision for Income Taxes
4,439
3,618
9,874
6,636
NET INCOME
14,007
11,520
31,413
21,153
Preferred Stock Dividends
(1,014)
(2,027)
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS
12,993
10,506
29,386
19,126
EARNINGS PER SHARE
Basic
0.47
0.38
1.06
0.70
Diluted
0.45
1.03
0.68
(dollars in thousands)
Net Income
Other Comprehensive Income (Loss):
Unrealized Gains (Losses) on Available for Sale Securities
5,000
(479)
2,059
7,208
Unrealized Gains (Losses) on Cash Flow Hedges
3,378
(1,455)
5,828
(4,497)
Reclassification Adjustment for Gains Realized in Income
(1,099)
(2,091)
(9,507)
(3,924)
Income Tax Impact
(2,092)
1,156
466
349
Total Other Comprehensive Income (Loss), Net of Tax
5,187
(2,869)
(1,154)
(864)
Comprehensive Income
19,194
8,651
30,259
20,289
Three and Six Months Ended June 30, 2026 and 2025
Accumulated
Additional
Preferred
Common Stock
Paid-In
Retained
Comprehensive
Stock
Shares
Amount
Capital
Earnings
Income (Loss)
Total
BALANCE March 31, 2025
27,560,150
276
95,503
318,041
(11,359)
468,975
Stock-based Compensation
7,409
1,053
Comprehensive Income (Loss)
Stock Options Exercised
27,175
218
Stock Repurchases
(122,704)
(1)
(1,569)
(1,570)
Vested Restricted Stock Units
300
Restricted Shares Withheld for Taxes
(2,047)
(31)
Preferred Stock Dividend
BALANCE June 30, 2025
27,470,283
275
95,174
328,547
(14,228)
476,282
BALANCE March 31, 2026
27,832,867
99,564
367,848
(5,780)
528,424
7,191
79,431
1
848
849
(38,659)
(700)
BALANCE June 30, 2026
27,880,830
BALANCE December 31, 2024
27,552,449
95,088
309,421
(13,364)
457,935
15,929
2,039
42,175
395
(167,709)
(2,190)
(2,191)
38,462
(11,023)
(158)
BALANCE December 31, 2025
27,759,970
15,493
2,426
109,831
1,173
1,174
50,373
(16,178)
(318)
CASH FLOWS FROM OPERATING ACTIVITIES
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Net Amortization on Securities Available for Sale
(2,034)
(1,394)
Net Gain on Sales of Securities Available for Sale
(7,251)
(475)
Provision for Credit Losses on Loans
1,900
Recovery of Off-Balance Sheet Exposures
(150)
Loan Discount Accretion
(495)
(767)
Depreciation of Premises and Equipment
1,310
1,256
Amortization of Other Intangible Assets
Amortization of Right-of Use Asset
281
280
Cash Surrender Value of Bank-Owned Life Insurance
(898)
Amortization of Subordinated Debt Issuance Costs
205
171
Deferred Income Taxes
(303)
(1,561)
Remeasurement of Interest Rate Swap
140
Changes in Operating Assets and Liabilities:
Accrued Interest Receivable and Other Assets
(2,724)
833
Accrued Interest Payable and Other Liabilities
1,676
(14,036)
Net Cash Provided by Operating Activities
25,949
10,692
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in Bank-Owned Certificates of Deposit
480
Proceeds from Sales of Securities Available for Sale
208,501
59,595
Proceeds from Termination of Interest Rate Swaps
10,403
Proceeds from Maturities, Paydowns, Payups and Calls of Securities Available for Sale
57,259
50,531
Purchases of Securities Available for Sale
(90,964)
(73,642)
Net Increase in Loans
(117,799)
(275,886)
Purchase of FHLB Stock
(47,729)
(2,175)
Redemption of FHLB Stock
50,872
Purchases of Premises and Equipment
(2,464)
(1,702)
Redemption of Bank-owned Life Insurance
1,803
Net Cash Provided (Used) by Investing Activities
69,882
(242,799)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits
25,835
149,975
Proceeds from FHLB Advances
490,000
633,500
Principal Payments on FHLB Advances
(563,500)
(588,500)
Issuance of Subordinated Debt, net of Issuance Costs
78,828
Redemption of Subordinated Debt, net of Issuance Costs
(49,980)
Preferred Stock Dividends Paid
365
Shares Repurchased for Tax Withholdings Upon Vesting of Restricted Stock-Based Awards
(218)
(128)
Shares Repurchased for Tax Withholdings Upon Exercise Stock Options
(100)
Net Cash Provided (Used) by Financing Activities
(49,536)
219,842
NET CHANGE IN CASH AND CASH EQUIVALENTS
46,295
(12,265)
Cash and Cash Equivalents Beginning
229,760
Cash and Cash Equivalents Ending
217,495
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash Paid for Interest
67,865
71,973
Cash Paid for Income Taxes
8,221
5,883
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Loans Transferred to Foreclosed Assets
185
Note 1: Description of the Business and Summary of Significant Accounting Policies
Organization
Bridgewater Bancshares, Inc. (the “Company”) is a financial holding company headquartered in St. Louis Park, Minnesota, 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 Twins Cities MSA. 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
In February 2026, the Company opened a new branch location in Lake Elmo, Minnesota to expand the Company’s presence in the eastern side of the Twin Cities market.
On February 27, 2026, the Company and its wholly owned subsidiary, Bridgewater Bank, entered into an equity distribution agreement with Piper Sandler & Co., as distribution agent, pursuant to which the Company may offer and sell, from time to time, shares of its common stock with an aggregate gross sales price of up to $50.0 million, including through “at-the-market” offerings and other permitted methods. The distribution agent is entitled to a commission of 2.5% of the gross sales price of the common stock sold in such offering. The Company is not obligated to sell any shares of its common stock pursuant to the equity distribution agreement, and may suspend or terminate sales thereunder at any time. Any shares sold will be issued pursuant to the Company’s effective shelf registration statement on Form S-3 and related prospectus supplement, and net proceeds, if any, are expected to be used for general corporate purposes, including investments in or advances to the Company’s subsidiaries, working capital, capital expenditures, stock repurchases, debt repayment, or potential acquisitions.
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 six months ended June 30, 2026 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 February 26, 2026.
Principles of Consolidation
These consolidated financial statements include the amounts of the Company, the Bank, with locations in Bloomington, Greenwood, Lake Elmo, Minneapolis (2), Minnetonka, 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 in Note 1 of the Company’s most recent Annual Report on Form 10-K, filed with the SEC on February 26, 2026, 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.
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 six months ended June 30, 2026, stock options, restricted stock units, and performance stock units totaling 81,703 and 117,241, respectively, were excluded from the calculation because they were deemed to be anti-dilutive. For the three and six months ended June 30, 2025, stock options and restricted stock units totaling 576,788 and 585,885, respectively, were excluded from the calculation because they were deemed to be anti-dilutive.
9
The following table presents the numerators and denominators for basic and diluted earnings per share computations for the three and six months ended June 30, 2026 and 2025:
Net Income Available to Common Shareholders
Weighted Average Common Stock Outstanding:
Weighted Average Common Stock Outstanding (Basic)
27,861,522
27,460,982
27,830,976
27,514,579
Dilutive Effect of Stock Compensation
727,810
537,026
715,745
508,013
Weighted Average Common Stock Outstanding (Dilutive)
28,589,332
27,998,008
28,546,721
28,022,529
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 June 30, 2026 and December 31, 2025:
June 30, 2026
Gross
Amortized
Unrealized
Cost
Gains
Losses
Fair Value
Securities Available for Sale:
Municipal Bonds
263,990
5,633
(12,753)
256,870
Mortgage-Backed Securities
234,000
2,050
(10,720)
225,330
Corporate Securities
88,221
1,892
(1,979)
88,134
U.S. Government Agency Securities
6,919
61
(24)
6,956
Asset-Backed Securities
28,146
(26)
28,122
Total Securities Available for Sale
621,276
9,638
(25,502)
December 31, 2025
U.S. Treasury Securities
155,863
(9,657)
146,206
242,995
8,686
(12,513)
239,168
252,291
3,442
(10,061)
245,672
93,080
1,958
(2,631)
92,407
8,664
(30)
8,707
44,298
20
(37)
44,281
797,191
14,179
(34,929)
Securities with a carrying value of $104.1 million and $254.3 million were pledged to secure borrowing capacity at the Federal Reserve Discount Window as of June 30, 2026 and December 31, 2025, respectively.
10
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 June 30, 2026 and December 31, 2025:
Less Than 12 Months
12 Months or Greater
Number of
(dollars in thousands, except number of holdings)
Holdings
164
9,547
(54)
88,978
(12,699)
98,525
115
52,004
(159)
103,944
(10,561)
155,948
38
12,866
(111)
33,975
(1,868)
46,841
22
661
(6)
1,269
(18)
1,930
8,002
(3)
10,917
(23)
18,919
346
83,080
(333)
239,083
(25,169)
322,163
22,430
(354)
94,839
(12,159)
117,269
108
4,701
(14)
110,265
(10,047)
114,966
45
10,341
(68)
39,318
(2,563)
49,659
25
800
1,884
(27)
2,684
13,024
6,150
19,174
51,296
(470)
398,662
(34,459)
449,958
At June 30, 2026 and December 31, 2025, 346 and 372 debt securities had unrealized losses with aggregate depreciation of approximately 7.3% and 7.2%, respectively, from the Company’s amortized cost. 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 primarily 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 June 30, 2026 and December 31, 2025, 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 $4.7 million and $6.2 million at June 30, 2026 and December 31, 2025, respectively, and was excluded from the estimate of credit losses.
The Company has entered into fair value hedging transactions to mitigate the impact of changing interest rates on the fair value of securities within the portfolio. See Note 6 – Derivative Instruments and Hedging Activities for additional information.
There were no net realized gains or losses as a result of sales from the securities portfolio for the three months ended June 30, 2026. There was a $7.3 million net realized gain as a result of sales from the securities portfolio for the six months ended June 30, 2026, which included a net gain of $10.4 million recorded on the termination of fair value hedges on treasury and municipal securities.
11
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 June 30, 2026. 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
39,681
41,668
Due After One Year Through Five Years
168,158
171,669
Due After Five Years Through 10 Years
133,781
122,384
Due After 10 Years
10,591
9,283
Subtotal
352,211
345,004
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 six months ended June 30, 2026 and 2025:
Proceeds From Sales of Securities
58,503
Gross Gains on Sales
6,190
484
Gross Losses on Sales
(9,342)
(9)
Note 4: Loans and Allowance for Credit Losses
The following table presents the components of the loan portfolio at June 30, 2026 and December 31, 2025:
Commercial
591,034
547,245
Leases
41,802
43,407
Construction and Land Development
186,248
216,163
1-4 Family Construction
46,539
45,152
Real Estate Mortgage:
1-4 Family Mortgage
485,288
496,142
Multifamily
1,690,566
1,587,338
CRE Owner Occupied
191,153
189,754
CRE Nonowner Occupied
1,168,863
1,165,104
Total Real Estate Mortgage Loans
3,535,870
3,438,338
Consumer and Other
24,896
19,212
Total Loans, Gross
4,426,389
4,309,517
Allowance for Credit Losses
(57,418)
(56,443)
Net Deferred Loan Fees
(8,469)
(8,966)
Total Loans, Net
12
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 June 30, 2026 and December 31, 2025:
Accruing Interest
30-89 Days
90 Days or
Nonaccrual
Current
Past Due
More Past Due
with ACL
without ACL
591,025
186,222
26
484,390
842
56
1,678,448
12,118
1,160,214
8,649
3,514,205
20,767
24,077
799
4,403,870
871
21,566
82
546,499
746
216,129
34
495,922
1,574,043
13,295
1,156,397
58
3,416,116
222
21,944
4,286,515
968
90
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.
13
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.
14
The following tables present loan balances classified by credit quality indicator by year of origination as of June 30, 2026 and December 31, 2025:
2024
2023
2022
Prior
Revolving
Pass
121,749
120,683
66,006
14,144
25,218
31,357
199,619
578,776
Watch/Special Mention
477
120
751
1,828
Substandard
122
10,308
10,430
Total Commercial
122,229
66,605
35,526
31,477
200,370
Current Period Gross Write-offs
639
7,809
13,628
8,499
6,256
3,876
1,734
Total Leases
31,224
116,990
24,361
98
186
252
13,111
Total Construction and Land Development
24,387
11,792
14,366
765
184
19,432
Total 1-4 Family Construction
40,556
82,885
64,506
38,586
79,684
92,228
85,315
483,760
200
623
649
1,328
Total 1-4 Family Mortgage
41,379
83,534
79,740
234,700
400,253
188,417
73,209
376,051
368,791
10,538
1,651,959
26,489
1,456
10,645
17
Total Multifamily
262,645
386,696
368,808
709
13,497
20,503
20,349
21,981
51,509
50,397
2,382
180,618
1,481
5,699
7,180
3,355
Total CRE Owner Occupied
23,462
57,208
53,752
163,255
307,687
223,014
63,844
198,761
186,271
7,627
1,150,459
2,582
2,805
12,124
893
15,822
Total CRE Nonowner Occupied
166,060
322,393
223,907
483,581
826,683
497,179
199,101
722,405
701,059
105,862
631
2,591
254
154
244
19,871
23,897
190
809
Total Consumer and Other
1,043
20,071
35
39
Total Period Gross Write-offs
648
713
1,396
Total Loans
657,266
1,094,941
597,587
219,853
762,147
735,749
358,846
15
2021
163,333
83,059
17,582
28,653
14,774
25,668
201,739
534,808
584
165
1,234
1,983
135
10,313
10,454
83,194
18,166
39,131
14,780
202,973
21
1,239
1,504
15,721
11,057
8,412
5,390
1,749
1,078
158,592
42,019
1,598
412
13,286
42,053
29,621
2,910
196
12,239
98,718
68,467
43,294
85,577
66,080
47,581
85,425
495,142
944
1,000
99,662
85,633
440,012
166,790
77,979
405,405
304,191
124,609
10,647
1,529,633
31,728
2,201
33,929
13,296
10,480
23,776
485,036
80,180
415,885
22,102
20,740
23,532
52,754
28,295
26,910
1,932
176,265
1,510
5,823
432
2,171
1,842
11,778
1,711
25,042
58,577
30,438
29,081
3,774
367,117
252,912
70,464
216,814
123,618
113,955
4,110
1,148,990
133
15,080
901
15,981
382,197
253,813
4,243
988,997
509,810
218,980
776,909
524,327
315,226
104,089
3,046
198
306
269
1,074
14,275
30
1,243
1,553
1,359,310
649,222
247,462
822,117
541,498
343,046
346,862
The following tables present the activity in the ACL, by segment, for the three and six months ended June 30, 2026 and 2025:
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 June 30, 2026
6,395
(677)
328
6,046
305
1,696
(296)
1,400
355
(42)
313
2,385
2,276
24,140
1,588
(709)
25,019
1,065
(32)
1,033
20,677
79
20,756
48,267
1,535
(718)
49,084
259
(20)
57,277
(738)
329
57,418
Six Months Ended June 30, 2026
5,982
237
(639)
352
(56)
1,687
(287)
316
2,475
(190)
23,775
1,953
1,080
(47)
20,595
161
47,925
1,877
181
132
(39)
56,443
(1,396)
471
Three Months Ended June 30, 2025
5,847
87
5,935
381
1,075
29
1,104
292
2,585
(172)
2,413
23,927
23,921
1,226
(89)
1,137
18,314
2,129
20,443
46,052
1,862
47,914
153
53,766
55,765
Six Months Ended June 30, 2025
5,630
368
866
238
331
(53)
2,795
(382)
23,120
801
1,290
(153)
17,735
2,708
44,940
2,974
142
24
52,277
18
The following tables present the balance in the ACL and the recorded investment in loans, by segment, as of June 30, 2026 and December 31, 2025:
Individually
Collectively
Evaluated for
Credit Loss
ACL at June 30, 2026
189
5,857
995
24,024
4,019
16,737
5,014
44,070
80
199
5,283
52,135
ACL at December 31, 2025
134
5,848
789
22,986
2,889
17,706
3,678
44,247
3,812
52,631
Loans at June 30, 2026
580,604
483,960
187,798
1,153,041
32,623
3,503,247
24,087
43,888
4,382,501
Loans at December 31, 2025
10,527
536,718
1,563,562
3,553
186,201
16,867
1,148,237
45,196
3,393,142
55,757
4,253,760
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 June 30, 2026 and December 31, 2025:
Primary Type of Collateral
Business
ACL
Real Estate
Assets
Allocation
10,178
32,649
10,987
159
10,296
45,302
Accrued interest receivable on loans, which is recorded within accrued interest on the balance sheet, totaled $12.2 million and $12.7 million at June 30, 2026 and December 31, 2025, respectively, and was excluded from the estimate of credit losses.
For the three and six months ended June 30, 2026, there were no loans modified to borrowers experiencing financial difficulty. For the three and six months ended June 30, 2025, the Company modified one commercial real estate, or 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.
Note 5: Deposits
The following table presents the composition of deposits at June 30, 2026 and December 31, 2025:
Transaction Deposits
1,775,454
1,816,810
Savings and Money Market Deposits
1,435,582
1,380,922
Time Deposits
243,694
312,154
Brokered Deposits
891,474
810,483
Brokered deposits included brokered transaction and money market accounts of $145.2 million and $145.5 million as of June 30, 2026 and December 31, 2025, respectively.
The following table presents the scheduled maturities of brokered and time deposits at June 30, 2026:
Less than 1 Year
546,416
1 to 2 Years
92,402
2 to 3 Years
138,635
3 to 4 Years
100,219
4 to 5 Years
112,339
990,011
The aggregate amount of time deposits greater than $250,000 was approximately $107.1 million and $158.7 million at June 30, 2026 and December 31, 2025, respectively.
Note 6: 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.
Derivatives Designated as Hedging Instruments
The Company uses derivative instruments to hedge its exposure to economic risks, including interest rate, liquidity and credit risk. Certain hedging relationships are formally designated and qualify for hedge accounting under GAAP. On the date the Company enters into a derivative contract designated as a hedging instrument, the derivative is designated as either a fair value hedge or a cash flow hedge. When a derivative is designated as a fair value or cash flow hedge, the Company performs an assessment, at inception, and at a minimum, quarterly thereafter, to determine the effectiveness of the derivative in offsetting changes in the value or cash flows of the hedged item(s).
Fair value hedges: 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”).
During the six months ended June 30, 2026, the Company terminated certain fair value interest rate swaps with an aggregate notional amount of $195.9 million, resulting in a net gain of $10.4 million. The net gain was recognized in earnings and included in net gains on sales of available for sale securities.
The following table presents a summary of the Company’s interest rate swaps designated as fair value hedges as of June 30, 2026 and December 31, 2025:
Notional Amount
43,703
242,314
Weighted Average Pay Rate
3.82
%
3.55
Weighted Average Receive Rate
3.64
4.20
Weighted Average Maturity (Years)
12.98
14.54
Cash flow hedges: 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 $5.1 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 June 30, 2026 and December 31, 2025:
278,000
263,000
3.12
2.96
3.66
3.94
3.57
3.90
Net Unrealized Gain
4,051
1,286
The Company purchases interest rate caps, designated as cash flow hedges, of certain funding liabilities. The interest rate caps require receipt of variable amounts from the counterparties when interest rates rise above the strike price specified in the contracts. For both the three and six months ended June 30, 2026 and 2025, the Company recognized amortization expense on the interest rate caps of $198,000 and $393,000, respectively, which was recorded as a component of interest expense on brokered deposits and FHLB advances.
23
The following table presents a summary of the Company’s interest rate caps designated as cash flow hedges as of June 30, 2026 and December 31, 2025:
125,000
Unamortized Premium Paid
3,095
3,488
Weighted Average Strike Rate
0.96
3.85
4.34
Derivatives Not Designated as Hedging Instruments
Interest rate swaps: The Company enters into interest rate swaps to facilitate client transactions and meet their financing needs. Upon entering into these instruments, the Company enters into offsetting positions with large U.S. financial institutions in order to minimize 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 associated credit risk.
Risk participation agreements (“RPA”): The Company has entered into RPAs to share credit exposure with a counterparty in connection with interest rate swaps associated with loan participations. Under an RPA, the Company either assumes or sells a portion of the underlying credit exposure and, in exchange, pays or receives an upfront fee. When the Company assumes credit exposure, it is entitled to receive payment from the counterparty in the event of a borrower default. Conversely, when the Company sells credit exposure, it is obligated to make a payment to the counterparty if the underlying borrower 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 the total notional amounts and gross fair values of the Company’s derivatives as of June 30, 2026 and December 31, 2025:
Derivative Assets
Derivative Liabilities
Notional
Estimated
Designated as hedging instruments:
Fair Value hedges:
Interest rate swaps
332
Cash flow hedges:
233,000
4,186
45,000
Interest rate caps
13,636
Total derivatives designated as hedging instruments
401,703
18,154
Not designated as hedging instruments:
343,319
7,552
Risk participation agreements
22,762
9,816
Total derivatives not designated as hedging instruments
366,081
7,553
353,135
7,558
145,850
10,968
96,464
419
185,500
2,012
77,500
725
13,221
456,350
26,201
173,964
1,144
267,831
8,699
12,851
9,902
280,682
8,700
277,733
8,712
The Company is party to collateral support agreements with certain derivative counterparties. These agreements require the Company to 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 both June 30, 2026 and December 31, 2025, the Company had pledged no cash collateral for its derivative contracts. As of June 30, 2026 and December 31, 2025, the Company’s counterparties had pledged cash collateral to the Company of $22.8 million and $26.2 million, respectively.
The following table presents the effect of derivative instruments in cash flow hedging relationships on the consolidated statements of income for the three and six months ended June 30, 2026 and 2025:
Gains (Losses)
Recognized in
Reclassified from
OCI
OCI into Earnings
1,725
409
554
690
(1,365)
707
(1,707)
910
2,764
877
808
1,379
(3,829)
1,635
(4,118)
1,815
No amounts were reclassified from accumulated other comprehensive income into net income related to hedge ineffectiveness for these derivatives during the three and six months ended June 30, 2026 and 2025, 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.
The effects of the Company’s hedging relationships on the income statement during the three and six months ended June 30, 2026 and 2025 are presented in the table below:
Location and Amount of Gains (Losses) Recognized in Income
Interest Income
Interest Expense
Investment
Securities -
Taxable
Total amounts in the Consolidated Statements of Income
Fair value hedges:
469
33
376
337
353
393
662
356
67
810
684
695
(3,532)
147
1,488
The following table presents amounts that were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges at June 30, 2026 and December 31, 2025:
Cumulative Fair
Value Hedging
Adjustment in the
Carrying Amount
Carrying Amount of
of Hedged Assets/
Hedged Assets/
Liabilities
Available for sale securities
44,035
252,863
10,549
The gain recognized on derivatives not designated as hedging relationships for the three and six months ended June 30, 2026 and 2025 was as follows:
Derivatives not designated
Consolidated Statements
Three Months Ended June 30,
Six Months Ended June 30,
as hedging Instruments
of Income Location
(19)
27
The following table summarizes gross and net information about derivative instruments that were eligible for offset on the balance sheet at June 30, 2026 and December 31, 2025:
Net Amounts of
Gross Amounts
Assets (Liabilities)
Gross Amounts Not Offset in the Balance Sheet
of Recognized
Offset in the
Presented in the
Financial
Cash Collateral
Net Assets
Balance Sheet
Instruments
Received (Paid)
(Liabilities)
25,705
(22,803)
2,902
(7,686)
34,900
(26,183)
8,717
(9,844)
Note 7: 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 $1.68 billion and $1.62 billion at June 30, 2026 and December 31, 2025, 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 $745.8 million and $611.3 million at June 30, 2026 and December 31, 2025, respectively.
The following table presents information regarding FHLB advances, by maturity, at June 30, 2026 and December 31, 2025:
Weighted
Average
Rate
Outstanding
3.76
292,000
4.04
319,500
3.60
34,000
4.13
27,500
4.02
30,000
4.10
15,000
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 maximum principal amount of the Company’s revolving line of credit is $40 million. As of June 30, 2026 and December 31, 2025, the Company had two outstanding letters of credit totaling $2.7 million and $6.4 million, respectively, under this facility. 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 June 30, 2026 and December 31, 2025.
28
The following table presents information regarding the revolving line of credit at June 30, 2026 and December 31, 2025:
Total Debt
Interest
Name
Maturity Date
Coupon Structure
Revolving Credit Facility
September 1, 2026
6.75
Variable with Floor (1)
Note 8: 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 June 30, 2026 and December 31, 2025:
Unfunded Commitments Under Lines of Credit
823,739
796,843
Letters of Credit
103,518
124,837
927,257
921,680
The Company had outstanding letters of credit with the FHLB of $69.6 million and $109.0 million at June 30, 2026 and December 31, 2025, respectively, on behalf of customers and to secure public deposits.
The ACL for off-balance sheet credit exposures was $3.9 million and $4.0 million at June 30, 2026 and December 31, 2025, 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 six months ended June 30, 2026 and 2025:
Allowance for Credit Losses:
Beginning Balance
3,860
3,610
4,010
Recovery of Off-Balance Sheet Credit Exposures
Total Ending Balance
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 9: Stock Options, Restricted Stock, and Performance Stock Units
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 both June 30, 2026 and December 31, 2025, there were 10,000 shares 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 June 30, 2026 and December 31, 2025, there were 6,222 and 2,192 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, performance 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 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. Restricted stock units and restricted stock awards have been granted with a vesting period of four years. Performance stock units have been granted with a contingent vesting provision based on the achievement of specified performance goals over a three-year performance period. Performance stock units cliff vest with actual payouts ranging from 0% to 200% of the target award, depending on the level of performance achieved against the pre-established performance goals. As of June 30, 2026 and December 31, 2025, there were 266,131 and 464,751 shares, respectively, of the Company’s common stock reserved for future grants under the 2023 EIP.
In 2026, the Company adopted the Bridgewater Bancshares, Inc. 2026 Equity Incentive Plan (the “2026 EIP”). Under the 2026 EIP, the Company may grant incentive and nonqualified stock options, stock appreciation rights, stock
awards, restricted stock units, performance 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 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. Restricted stock units and restricted stock awards have been granted with a vesting period of four years. Performance stock units have been granted with a contingent vesting provision based on the achievement of specified performance goals over a three-year performance period. Performance stock units cliff vest with actual payouts ranging from 0% to 200% of the target award, depending on the level of performance achieved against the pre-established performance goals. As of June 30, 2026, there were 1,500,000 shares of the Company’s common stock reserved for future grants under the 2026 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 56 banks in the index ranging in market capitalization from $600.0 million up to $5.0 billion.
The weighted average assumptions used in the model for valuing stock options grants for the six months ended June 30, 2026 are as follows:
Dividend Yield
Expected Life
Years
Expected Volatility
30.88
Risk-Free Interest Rate
The following table presents a summary of the status of the Company’s outstanding stock options for the six months ended June 30, 2026:
Exercise Price
Outstanding at Beginning of Year
1,935,175
11.59
Granted
35,000
17.76
Exercised
(109,831)
10.70
Forfeitures
(30,000)
13.24
Outstanding at Period End
1,830,344
11.74
Options Exercisable at Period End
1,381,093
11.19
For the three months ended June 30, 2026 and 2025, the Company recognized compensation expense for stock options of $220,000 and $313,000, respectively. For the six months ended June 30, 2026 and 2025, the Company recognized compensation expense for stock options of $502,000 and $578,000, respectively.
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The following table presents information pertaining to options outstanding at June 30, 2026:
Options Outstanding
Options Exercisable
Weighted Average
Remaining Contractual
Range of Exercise Prices
Options
Life in Years
7.00 - 7.99
622,892
7.47
1.3
8.00 - 8.99
2,961
8.76
3.8
10.00 - 10.99
173,750
10.65
7.1
69,749
11.00 - 11.99
171,125
11.11
6.2
98,375
11.12
12.00 - 12.99
236,616
12.91
3.1
13.00 - 13.99
252,500
13.77
8.6
65,000
13.75
17.00 - 17.99
310,500
17.50
5.9
285,500
18.00 - 18.99
60,000
18.08
9.5
4.6
As of June 30, 2026, there was $2.0 million of total unrecognized compensation cost related to nonvested stock options that is expected to be recognized over a weighted-average period of 2.2 years.
The following table presents an analysis of nonvested options to purchase shares of the Company’s stock issued and outstanding for the six months ended June 30, 2026:
Average Grant
Date Fair Value
Nonvested Options at December 31, 2025
584,251
5.69
7.36
Vested
(140,000)
5.55
Forfeited
5.67
Nonvested Options at June 30, 2026
449,251
5.87
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 vested and settled.
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The following table presents an analysis of nonvested restricted stock units outstanding for the six months ended June 30, 2026:
Units
Nonvested at December 31, 2025
447,661
15.24
64,419
19.54
(50,373)
13.93
(12,106)
16.67
Nonvested at June 30, 2026
449,601
15.96
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 June 30, 2026 and 2025, the Company recognized compensation expense associated with restricted stock units of $639,000 and $623,000, respectively. For the six months ended June 30, 2026 and 2025, the company recognized compensation expense associated with restricted stock units of $1.5 million and $1.2 million, respectively.
As of June 30, 2026, there was $5.6 million of total unrecognized compensation cost related to nonvested restricted stock units granted under the 2019 EIP, 2023 EIP, and 2026 EIP that is expected to be recognized over a weighted-average period of 2.6 years.
Stock Awards
During the six months ended June 30, 2026, the Company issued 15,493 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 $298,000 was included in stock based compensation expense in the accompanying consolidated statements of shareholders’ equity.
Performance Stock Units
In 2026, the Company granted performance stock units under the 2023 EIP. Each performance stock unit represents the right to receive one share of Company common stock upon vesting. Vesting of the performance stock units is contingent upon achievement of specified performance metrics measured over a three-year performance period. Participants may earn 50%, 100%, or 200% of the target award based on the achievement of metrics at the end of the performance period. No payout will be earned for a performance metric if the applicable threshold level is not achieved. Final payouts are determined based on the level of achievement of both performance metrics at the conclusion of the three-year performance period.
All performance stock units are granted at the fair value of the Company’s common stock on the grant date. Because the number of shares ultimately earned is contingent upon achievement of specified performance conditions, an estimate is made of the number of shares expected to vest based on the probability that the performance criteria will be achieved to determine the amount of compensation expense to be recognized. This estimate is re-evaluated quarterly, and total compensation expense is adjusted for any change in the current period. For the three and six months ended June 30, 2026, the Company recognized compensation expense associated with performance stock units of $146,000. There was no compensation expense associated with performance stock units recognized for the three and six months ended June 30, 2025.
The following table presents an analysis of nonvested performance stock units outstanding for the six months ended June 30, 2026:
121,784
18.75
As of June 30, 2026, there was $2.1 million of total unrecognized compensation cost related to performance stock units granted under the 2023 EIP that is expected to be recognized over a weighted-average period of 2.5 years.
Note 10: 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 June 30, 2026 and December 31, 2025:
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
702,363
14.48
388,156
8.00
509,454
10.50
N/A
Tier 1 Risk-based Capital
532,824
10.98
291,117
6.00
412,415
8.50
Common Equity Tier 1 Capital
466,310
9.61
218,337
4.50
339,636
7.00
Tier 1 Leverage Ratio
10.02
212,622
4.00
Bank:
676,498
13.98
387,227
508,235
484,033
10.00
615,984
12.73
290,420
411,428
217,815
338,823
314,622
6.50
11.65
211,574
264,468
5.00
667,814
14.12
378,356
496,593
500,002
10.57
283,767
402,004
433,488
9.17
212,825
331,062
9.20
217,505
636,973
13.49
377,687
495,715
472,109
577,942
12.24
283,266
401,293
212,449
330,477
306,871
217,116
271,395
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 11: 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 June 30, 2026. The following tables present the balances of assets and liabilities measured at fair value on a recurring basis as of June 30, 2026 and December 31, 2025:
Level 1
Level 2
Level 3
Fair Value of Financial Assets:
Fair Value Swaps
Interest Rate Caps
Interest Rate Swaps
11,738
Risk Participation Agreements
Total Fair Value of Financial Assets
631,118
631,119
Fair Value of Financial Liabilities:
7,687
Risk Participation Agreement
Total Fair Value of Financial Liabilities
7,693
10,711
665,135
811,342
9,424
9,843
9,856
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.
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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.
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.
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.
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The following tables present net credit losses related to nonrecurring fair value measurements of certain assets at June 30, 2026 and December 31, 2025:
Loss
Individually Evaluated Loans
16,532
5,992
39,043
The Company records certain loans at fair value on a non-recurring basis. Individually evaluated loans for which an allowance is established, or for which 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 such loans within Level 3 of the valuation hierarchy. As of June 30, 2026, 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. Due to the significance of unobservable inputs, fair values of individually evaluated loans have been classified as Level 3.
The valuation techniques and significant unobservable inputs used to measure Level 3 estimated fair value as of June 30, 2026 and December 31, 2025 were as follows:
Valuation
Unobservable
Asset Type
Technique
Input
Range
Collateral Dependent Loans
Appraisal, Evaluation Value, or Third-Party Sales Contract
Property Specific Adjustment
15,803
3% - 13%
6%
Discounted Cash Flows
Discount Rate
729
30%
Appraisal/Evaluation Value
1% - 10%
3%
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 June 30, 2026 and December 31, 2025:
Fair Value Hierarchy
Carrying
Financial Assets:
Securities Available for Sale
FHLB Stock, at Cost
Loans, Net
4,292,237
4,308,769
Accrued Interest Receivable
Financial Liabilities:
4,345,920
325,452
102,969
630,235
4,142,794
4,181,837
4,324,551
399,760
102,579
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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.
Accrued interest payable – The carrying amount of accrued interest payable approximates its fair value since it is short term in nature.
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.
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.
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 June 30, 2026 and December 31, 2025.
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.
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Note 12: Accumulated Other Comprehensive Income
The following table presents the components of other comprehensive income for the three and six months ended June 30, 2026 and 2025:
Before Tax
Tax Effect
Net of Tax
Net Unrealized Gain on Available for Sale Securities
(1,437)
3,563
Less: Reclassification Adjustment for Net Gains Included in Net Income
Total Unrealized Gain
Net Unrealized Gain on Cash Flow Hedge
(971)
2,407
Less: Reclassification Adjustment for Gains Included in Net Income
(783)
2,279
(655)
1,624
Other Comprehensive Gain
7,279
Net Unrealized Loss on Available for Sale Securities
138
(341)
(474)
136
(338)
Total Unrealized Loss
(953)
274
(679)
Net Unrealized Loss on Cash Flow Hedge
417
(1,038)
(1,617)
465
(1,152)
(3,072)
882
Other Comprehensive Loss
(4,025)
(592)
1,467
2,084
(5,167)
(5,192)
1,492
(3,700)
(1,675)
4,153
(2,256)
(1,607)
3,572
(1,026)
2,546
(1,620)
(2,071)
5,137
137
6,733
(1,934)
4,799
1,292
(3,205)
(3,449)
(2,458)
(7,946)
2,283
(5,663)
(1,213)
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The following table presents the changes in each component of accumulated other comprehensive income, net of tax, for the three and six months ended June 30, 2026 and 2025:
Available For
Other Comprehensive
Sale Securities
Cash Flow Hedge
Balance at Beginning of Period
(14,556)
8,776
Other Comprehensive Income Before Reclassifications
5,970
Amounts Reclassified from Accumulated Other Comprehensive Income
Net Other Comprehensive Income During Period
Balance at End of Period
(10,993)
10,400
(22,265)
10,906
Other Comprehensive Loss Before Reclassifications
(1,037)
(1,378)
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)
(1,153)
(1,491)
Net Other Comprehensive Loss During Period
(22,944)
8,716
(7,293)
7,854
5,620
(6,774)
Net Other Comprehensive Income (Loss) During Period
(27,743)
14,379
Other Comprehensive Income (Loss) Before Reclassifications
(2,796)
Note 13: Subsequent Events
On July 21, 2026, 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 September 1, 2026, to shareholders of record on the Series A Preferred Stock at the close of business on August 14, 2026.
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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 six months ended June 30, 2026. 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, 2025, filed with the Securities and Exchange Commission, or the SEC, on February 26, 2026.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meanings of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the 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 known and unknown uncertainties, risks, changes in circumstances and other factors 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 brokered 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 noninterest income, including service charges, letter of credit fees, and swap fees. The Company’s principal expenses are interest paid on deposit accounts and borrowings, employee compensation and other overhead expenses. The Company’s simple, highly efficient business model of providing responsive support and simple solutions 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 February 26, 2026. There have been no significant changes in the critical accounting policies or the assumptions and judgments utilized in applying these policies since December 31, 2025. 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 February 27, 2026, the Company and the Bank entered into an equity distribution agreement with Piper Sandler & Co., as distribution agent, pursuant to which the Company may offer and sell, from time to time, shares of its common stock with an aggregate gross sales price of up to $50.0 million, including through “at-the-market” offerings and other permitted methods. The distribution agent is entitled to a commission of 2.5% of the gross sales price of the common stock sold in such offering. The Company is not obligated to sell any shares of its common stock pursuant to the equity distribution agreement, and may suspend or terminate sales thereunder at any time. Any shares sold will be issued pursuant to the Company’s effective shelf registration statement on Form S-3 and related prospectus supplement, and net proceeds, if any, are expected to be used for general corporate purposes, including investments in or advances to the Company’s subsidiaries, working capital, capital expenditures, stock repurchases, debt repayment, or potential acquisitions.
46
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
March 31,
September 30,
Income Statement
Net Interest Income
36,647
35,687
34,091
1,450
1,100
Noninterest Income
9,564
3,148
2,061
Noninterest Expense
22,170
20,238
19,956
17,406
13,334
11,601
16,393
12,320
10,588
Per Common Share Data
Basic Earnings Per Share
0.59
Diluted Earnings Per Share
0.58
0.43
Adjusted Diluted Earnings Per Share (1)
0.41
0.44
0.39
0.37
Book Value Per Share
17.27
16.60
16.23
15.62
14.92
Tangible Book Value Per Share (1)
16.61
15.93
15.55
14.93
14.21
Basic Weighted Average Shares Outstanding
27,800,091
27,641,138
27,504,840
Diluted Weighted Average Shares Outstanding
28,490,176
28,354,756
28,190,406
Shares Outstanding at Period End
27,584,732
Selected Performance Ratios
Return on Average Assets (2)
1.35
0.97
0.86
0.90
Pre-Provision Net Revenue Return on Average Assets (1)(2)
1.43
1.30
1.19
1.27
Return on Average Shareholders' Equity (2)
10.17
13.45
10.38
9.47
9.80
Return on Average Tangible Common Equity (1)(2)
11.15
15.13
11.53
10.93
Average Shareholders' Equity to Average Assets
10.39
10.01
9.37
9.04
9.14
Net Interest Margin (3)
3.07
2.99
2.75
2.63
2.62
Core Net Interest Margin (1)(3)
2.94
2.86
2.52
2.49
Yield on Interest Earning Assets(3)
5.73
5.65
5.58
5.63
5.56
Yield on Total Loans, Gross(3)
5.91
5.81
5.78
5.79
5.74
Cost of Interest Bearing Liabilities
3.51
3.53
3.73
3.89
3.83
Cost of Total Deposits
2.80
2.79
2.97
3.19
3.16
Cost of Funds
2.91
2.90
3.25
Efficiency Ratio (1)
53.0
56.3
51.6
54.7
52.6
Noninterest Expense to Average Assets (2)
1.65
1.71
1.48
1.47
Adjusted Financial Ratios (1)
Adjusted Return on Average Assets (2)
0.98
0.99
0.88
Adjusted Pre-Provision Net Revenue Return on Average Assets (2)
1.37
1.38
1.23
1.31
Adjusted Return on Average Shareholders' Equity
9.76
10.54
9.77
9.64
Adjusted Return on Average Tangible Common Equity
10.72
11.72
10.86
10.74
Adjusted Efficiency Ratio
53.8
50.7
53.2
51.5
Adjusted Noninterest Expense to Average Assets
1.64
1.45
5,335,396
5,359,994
5,296,673
4,368,042
4,214,554
4,145,799
4,305,511
4,292,764
4,236,742
497,463
Loan to Deposit Ratio
101.8
101.5
99.7
98.2
97.9
Core Deposits to Total Deposits (4)
77.0
78.4
77.6
76.4
75.2
Uninsured Deposits to Total Deposits
26.2
26.6
29.8
29.2
30.5
Capital Ratios (Consolidated) (5)
9.89
9.02
Common Equity Tier 1 Risk-based Capital Ratio
9.53
9.08
9.03
Tier 1 Risk-based Capital Ratio
10.94
10.52
10.51
Total Risk-based Capital Ratio
14.17
Tangible Common Equity to Tangible Assets (1)
8.62
8.34
8.01
7.71
7.40
47
Selected Asset Quality Data
Loans 30-89 Days Past Due
494
2,906
12,492
Loans 30-89 Days Past Due to Total Loans
0.02
0.01
0.07
0.30
Nonperforming Loans
21,648
11,715
22,034
9,991
10,134
Nonperforming Loans to Total Loans
0.49
0.27
0.51
0.24
Nonaccrual Loans to Total Loans
Nonaccrual Loans and Loans Past Due 90 Days and Still Accruing to Total Loans
Foreclosed Assets
Nonperforming Assets (6)
10,319
Nonperforming Assets to Total Assets (6)
0.40
0.22
0.19
Allowance for Credit Losses on Loans to Total Loans
1.34
Allowance for Credit Losses on Loans to Nonaccrual Loans
265.23
488.92
256.16
564.41
550.28
Net Loan Charge-Offs to Average Loans (2)
0.04
0.05
0.11
0.03
0.00
Watchlist/Special Mention Risk Rating Loans
38,469
47,681
47,823
40,642
53,282
Substandard Risk Rating Loans
43,074
52,956
58,074
44,986
Discussion and Analysis of Results of Operations
Net income was $14.0 million for the second quarter of 2026, compared to net income of $11.5 million for the second quarter of 2025. Earnings per diluted common share for the second quarter of 2026 were $0.45, compared to $0.38 per diluted common share for the second quarter of 2025.
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.
48
Average Balances and Yields
The following table presents, for the three and six months ended June 30, 2026 and 2025, 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
June 30, 2025
Yield/
& Fees
Interest Earning Assets:
Cash Investments
140,738
1,167
3.33
166,164
1,681
4.06
Investment Securities:
Taxable Investment Securities
460,567
5,233
4.56
734,998
8,883
4.85
Tax-Exempt Investment Securities (1)
144,241
2,115
5.88
31,940
401
5.04
Total Investment Securities
604,808
7,348
4.87
766,938
9,284
4.86
Loans (1)(2)
4,380,477
64,537
4,064,540
58,122
Federal Home Loan Bank Stock
18,692
438
9.39
21,416
429
8.03
Total Interest Earning Assets
5,144,715
73,490
5,019,058
69,516
Noninterest Earning Assets
172,500
143,124
5,317,215
5,162,182
Interest Bearing Liabilities:
Interest Bearing Transaction Deposits
931,588
7,504
3.23
813,906
7,769
1,436,829
11,650
1,370,831
12,692
3.71
230,949
2,089
3.63
326,024
3,268
843,456
8,468
4.03
833,629
8,768
4.22
Total Interest Bearing Deposits
3,442,822
3.46
3,344,390
1,901
1,369
4.64
13,750
7.58
340,341
404,473
2.83
108,835
6.87
83,892
5.36
Total Interest Bearing Liabilities
3,893,899
3,847,874
Noninterest Bearing Liabilities:
Noninterest Bearing Transaction Deposits
808,295
774,424
Other Noninterest Bearing Liabilities
62,446
68,184
Total Noninterest Bearing Liabilities
870,741
842,608
Shareholders' Equity
552,575
471,700
Total Liabilities and Shareholders' Equity
Net Interest Income / Interest Rate Spread
39,400
2.22
32,770
1.73
Taxable Equivalent Adjustment:
Tax-Exempt Investment Securities and Loans
(834)
49
For the Six Months Ended
119,232
1,938
3.28
185,850
3,737
483,235
10,763
4.49
751,702
17,916
4.81
131,980
3,879
5.93
33,734
862
5.15
615,215
14,642
4.80
785,436
18,778
4.82
4,358,793
126,639
5.86
3,982,389
112,101
5.68
19,012
984
10.43
20,209
864
5,112,252
144,203
4,973,884
135,480
5.49
167,942
143,115
5,280,194
5,116,999
910,253
14,440
3.20
834,537
15,958
3.86
1,424,031
23,073
3.27
1,336,632
24,627
3.72
241,628
4,422
3.69
327,613
6,577
4.05
824,144
16,569
834,244
17,438
3,400,056
3.47
3,333,026
3.91
13,127
688
7.60
338,417
379,652
2.66
108,783
6.89
81,813
5.19
3,860,383
3.52
3,808,929
821,342
770,849
59,692
68,607
881,034
839,456
538,777
468,614
76,795
2.17
63,234
1.67
3.03
2.56
(1,582)
(574)
50
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 June 30, 2026, compared to the three months ended June 30, 2025, and for the six months ended June 30, 2026, compared to the six months ended June 30, 2025:
Compared with
Change Due To:
Volume
Variance
(210)
(304)
(514)
(3,119)
(531)
(3,650)
Tax-Exempt Investment Securities
1,647
1,714
Total Securities
(1,472)
(464)
(1,936)
Loans
4,657
1,758
6,415
(63)
2,912
1,062
3,974
949
(1,214)
(265)
536
(1,578)
(1,042)
(860)
(319)
(1,179)
(398)
(300)
723
(3,509)
(2,786)
(2)
(260)
112
(358)
427
318
745
425
(3,081)
(2,656)
2,487
4,143
6,630
51
(1,082)
(717)
(1,799)
(5,980)
(1,173)
(7,153)
2,888
129
3,017
(3,092)
(1,044)
(4,136)
10,942
3,596
14,538
(61)
6,707
2,016
8,723
1,201
(2,719)
(1,518)
1,416
(2,970)
(1,554)
(1,574)
(581)
(2,155)
(203)
(666)
(869)
840
(6,936)
(6,096)
243
241
(518)
(601)
525
(76)
921
1,611
885
(5,723)
(4,838)
5,822
7,739
13,561
Comparison of Net Interest Margin, Interest Income, and Interest Expense
Second Quarter of 2026 Compared to Second Quarter of 2025
Net interest income was $38.6 million for the second quarter of 2026, an increase of $6.1 million compared to net interest income of $32.5 million for the second quarter of 2025. The increase in net interest income was primarily due to growth in the loan portfolio and lower rates paid on deposits, offset partially by lower investment securities balances following the sale of $208.5 million of securities in the first quarter of 2026, and higher balances and rates paid on subordinated debt.
Net interest margin (on a fully tax-equivalent basis), the second quarter of 2026 was 3.07%, a 45 basis point increase from 2.62% in the second quarter of 2025. 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 attributable to the acquisition of FMCB, was 2.94% for the second quarter of 2026, a 45 basis point increase from 2.49% in the second quarter of 2025. The increase in net interest margin (on a fully tax-equivalent basis) was primarily due to growth and repricing of the loan portfolio at higher yields and lower rates paid on deposits.
Average interest earning assets were $5.14 billion for the second quarter of 2026, an increase of $125.7 million, or 2.5%, compared to $5.02 billion for the second quarter of 2025. The increase in average interest earning assets was primarily due to growth in the loan portfolio, offset partially by lower investment securities balances. Average interest bearing liabilities were $3.89 billion for the second quarter of 2026, an increase of $46.0 million, or
52
1.2%, compared to $3.85 billion for the second quarter of 2025. The increase in average interest bearing liabilities was primarily due to higher deposit balances, offset partially by a decrease in FHLB advances.
Average interest earning assets produced a tax-equivalent yield of 5.73% for the second quarter of 2026, compared to 5.56% for the second quarter of 2025. The increase in the yield on interest earning assets was primarily due to growth and repricing of the loan portfolio at accretive yields. The average rate paid on interest bearing liabilities was 3.51% for the second quarter of 2026, compared to 3.83% for the second quarter of 2025. The decrease was primarily due to lower rates paid on deposits following interest rate cuts in 2025.
Interest Income. Total interest income, on a tax-equivalent basis, was $73.5 million for the second quarter of 2026, compared to $69.5 million for the second quarter of 2025. The $4.0 million, or 5.7%, increase in total interest income, on a tax-equivalent basis, was primarily due to growth and repricing of the loan portfolio at higher yields.
Interest income on the investment securities portfolio, on a tax-equivalent basis, decreased $1.9 million for the second quarter of 2026, compared to the second quarter of 2025, primarily due to a $162.1 million, or 21.1%, decrease in average balances between the two periods. The decrease in securities was due to the Company selling $208.5 million of securities for a pre-tax gain of $7.3 million in the first quarter of 2026.
Interest income on loans, on a tax-equivalent basis, was $64.5 million for the second quarter of 2026, compared to $58.1 million for the second quarter of 2025. The $6.4 million, or 11.0%, increase was primarily due to growth and repricing of the loan portfolio.
The aggregate loan yield, on a tax-equivalent basis, was 5.91% in the second quarter of 2026, a 17 basis point increase, compared to 5.74% in the second quarter of 2025. Core loan yield, a non-GAAP financial measure which excludes the impact of loan fees and purchase accounting accretion attributable to the acquisition of FMCB, 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:
March 31, 2026
September 30, 2025
5.76
5.66
5.59
Fees
0.13
0.12
0.10
0.09
Accretion
Yield on Loans
Interest Expense. Interest expense was $34.1 million for the second quarter of 2026, a decrease of $2.7 million, or 7.2%, from $36.7 million for the second quarter of 2025. The decrease was primarily due to lower rates paid on deposits, offset partially by higher balances and rates paid on subordinated debentures.
Interest expense on deposits was $29.7 million for the second quarter of 2026, a decrease of $2.8 million, or 8.6%, from $32.5 million for the second quarter of 2025. The decrease in interest expense on deposits was primarily due to lower rates paid on deposits and lower average balances of time deposits. The cost of total deposits was 2.80% in the second quarter of 2026, a 36 basis point decrease, compared to 3.16% in the second quarter of 2025. The decrease was primarily due to lower rates paid on deposits following interest rate cuts in 2025 and an increase in noninterest bearing deposits.
53
Interest expense on borrowings was $4.4 million for the second quarter of 2026, an increase of $130,000, compared to $4.2 million for the second quarter of 2025. The increase was primarily due to higher balances and rates on subordinated debentures due to the subordinated debt refinancing in the second quarter of 2025.
Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025
Net interest income was $75.2 million for the six months ended June 30, 2026, an increase of $12.6 million, or 20.0%, compared to $62.7 million for the six months ended June 30, 2025. The increase in net interest income was primarily due to growth and higher yields in the loan portfolio and lower rates paid on deposits, offset partially by lower investment securities balances following the sale of $208.5 million of securities in the first quarter of 2026, and lower cash balances.
Net interest margin (on a fully tax-equivalent basis) for the six months ended June 30, 2026 was 3.03%, a 47 basis point increase from 2.56% for the six months ended June 30, 2025. 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 2.90% for the six months ended June 30, 2026, a 47 basis point increase from 2.43% for the six months ended June 30, 2025.
Average interest earning assets were $5.11 billion for the six months ended June 30, 2026, an increase of $138.4 million, or 2.8%, compared to $4.97 billion for the six months ended June 30, 2025. The increase in average interest earning assets was primarily due to growth in the loan portfolio, offset partially by lower investment securities and cash balances. Average interest bearing liabilities were $3.86 billion for the six months ended June 30, 2026, an increase of $51.5 million, or 1.4%, compared to $3.81 billion for the six months ended June 30, 2025. The increase in average interest bearing liabilities was primarily due to higher deposit balances, federal funds purchased, and subordinated debentures, offset partially by a decrease in FHLB advances and notes payable.
Average interest earning assets produced a tax-equivalent yield of 5.69% for the six months ended June 30, 2026, compared to 5.49% for the six months ended June 30, 2025. The average rate paid on interest bearing liabilities was 3.52% for the six months ended June 30, 2026, compared to 3.82% for the six months ended June 30, 2025.
Interest Income. Total interest income on a tax-equivalent basis was $144.2 million for the six months ended June 30, 2026, compared to $135.5 million for the six months ended June 30, 2025. The $8.7 million increase in total interest income on a tax-equivalent basis was primarily due to growth and repricing in the loan portfolio.
Interest income on the investment securities portfolio, on a tax-equivalent basis, decreased $4.1 million during the six months ended June 30, 2026, compared to the six months ended June 30, 2025, primarily due to a $170.2 million, or 21.7%, decrease in average balances between the two periods. The decrease was primarily attributable to the sale of $208.5 million of securities for a pre-tax gain of $7.3 million in the first quarter of 2026.
Interest income on loans, on a tax-equivalent basis, for the six months ended June 30, 2026 was $126.6 million, compared to $112.1 million for the six months ended June 30, 2025. The $14.5 million, or 13.1%, 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 $67.4 million for the six months ended June 30, 2026, a decrease of $4.8 million, compared to $72.2 million for the six months ended June 30, 2025. The decrease was primarily due to lower rates paid on deposits, offset partially by higher balances and rates paid on subordinated debentures.
Interest expense on deposits decreased to $58.5 million for the six months ended June 30, 2026, compared to $64.6 million for the six months ended June 30, 2025. The $6.1 million decrease in interest expense on deposits was
54
primarily due to lower rates paid on deposits, lower time deposit balances, and an increase in noninterest bearing deposits.
Interest expense on borrowings was $8.9 million for the six months ended June 30, 2026, compared to $7.6 million for the six months ended June 30, 2025. The $1.3 million increase was primarily due to higher balances and rates on subordinated debentures due to the subordinated debt refinancing in the second quarter of 2025, offset partially by paying down the notes payable balance.
The provision for credit losses on loans and leases was $550,000 for the second quarter of 2026, compared to $2.0 million for the second quarter of 2025. The provision for credit losses on loans and leases was $1.9 million for the six months ended June 30, 2026, compared to $3.5 million for the six months ended June 30, 2025. The provision for credit losses on loans and leases recorded in the second quarter of 2026 was primarily attributable to growth in the loan portfolio, offset partially by changes to qualitative factors. The allowance for credit losses on loans and leases to total loans was 1.30% at June 30, 2026, compared to 1.35% at June 30, 2025.
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 $-0- for each of the second quarter of 2026 and 2025. No provision was recorded during the second quarter of 2026 due to unfunded commitments remaining stable as the migration to funded loans was offset by the volume of newly originated loans with unfunded commitments. The provision for credit losses for off-balance sheet credit exposures was a negative provision of $150,000 for the six months ended June 30, 2026, compared to $-0- for the six months ended June 30, 2025. The allowance for credit losses on off-balance sheet credit exposures was $3.9 million as of June 30, 2026, compared to $4.0 million as of December 31, 2025.
The following table presents a summary of the activity in the provision for credit losses for the periods indicated:
Increase/
(Decrease)
Provision for Credit Losses on Loans and Leases
(1,450)
(1,600)
Recovery of Credit Losses for Off-Balance Sheet Credit Exposures
(1,750)
55
Noninterest income was $2.3 million for the second quarter of 2026, a decrease of $1.3 million from $3.6 million for the second quarter of 2025. The decrease was primarily due to lower swap fees, net gain on sale of securities, and FHLB prepayment income. Noninterest income was $11.9 million for the six months ended June 30, 2026, an increase of $6.2 million from $5.7 million for the six months ended June 30, 2025. The increase was primarily due to higher net gain on sale of securities, offset partially by lower swap fees and FHLB prepayment income.
The following table presents the major components of noninterest income for the periods indicated:
Noninterest Income:
Net Gain on Sales of Securities
6,776
(289)
78
(675)
(477)
64
(64)
(301)
207
(1,303)
6,182
Noninterest expense was $21.9 million for the second quarter of 2026, an increase of $3.0 million from $18.9 million for the second quarter of 2025. The increase was primarily attributable to increases in salaries and employee benefits and information technology expense.
Noninterest expense was $44.1 million for the six months ended June 30, 2026, an increase of $7.0 million from $37.1 million for the six months ended June 30, 2025. The increase was primarily attributable to increases in salaries and employee benefits, an FHLB advance prepayment penalty, and marketing and advertising expenses.
The Company had 355 full-time equivalent employees at the end of the second quarter of 2026, compared to 308 at the end of the second quarter of 2025. The increase was largely driven by the hiring of key talent across the organization amidst continued M&A disruption.
Efficiency Ratio. The efficiency ratio (on a fully tax-equivalent basis), 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 (on a fully tax-equivalent basis) was 53.0% for the second quarter of 2026, compared to 52.6% for the second quarter of 2025. The efficiency ratio was 54.6% and 53.9%, respectively, for the six months ended June 30, 2026 and June 30, 2025. The Company’s efficiency ratio 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:
2,553
4,674
86
(155)
175
59
157
359
(166)
(449)
287
383
169
618
(7)
(34)
2,953
6,987
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 $4.4 million for the second quarter of 2026, compared to $3.6 million for the second quarter of 2025. The effective combined federal and state income tax rate for the second quarter of 2026 was 24.1%, compared to 23.9% for the second quarter of 2025. Income tax expense was $9.9 million for the six months ended June 30, 2026, compared to $6.6 million for the six months ended June 30, 2025. The effective combined federal and state income tax rate for each of the six months ended June 30, 2026 and 2025 was 23.9%. The effective tax rate remained stable across both periods.
57
Financial Condition
Total assets at June 30, 2026 were $5.39 billion, a decrease of $17.3 million, or 0.3%, compared to total assets of $5.41 billion at December 31, 2025, and an increase of $93.1 million, or 1.8%, compared to total assets of $5.30 billion at June 30, 2025. The year-to-date decrease was primarily due to the sale of investment securities and pre-payment of FHLB advances. The Company sold $208.5 million of securities in the first quarter of 2026 as part of a strategic balance sheet repositioning to enhance efficiency and drive future earnings. The year-over-year increase was primarily due to growth in the loan portfolio, offset partially by the sale of investment securities.
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. All investment securities are held available for sale.
Securities available for sale were $605.4 million at June 30, 2026, a decrease of $171.0 million, or 22.0%, compared to $776.4 million at December 31, 2025. The decrease was primarily due to the sale of investment securities in the first quarter of 2026, a strategic move taken to enhance the Company’s balance sheet efficiency and positioning the Company for improved profitability moving forward.
The following table presents the amortized cost and fair value of securities available for sale, by type, at June 30, 2026 and December 31, 2025:
Fair
Value
Percent
18.8
1.1
Mortgage-Backed Securities Issued or Guaranteed by U.S. Agencies (MBS):
Residential Pass-Through:
Guaranteed by GNMA
42,303
41,717
6.9
44,133
44,124
5.7
Issued by FNMA and FHLMC
20,469
18,521
21,166
19,326
2.5
Other Residential Mortgage-Backed Securities
74,058
67,279
11.1
73,596
67,322
8.7
Commercial Mortgage-Backed Securities
4,207
3,980
0.7
6,226
6,034
0.8
All Other Commercial MBS
92,963
93,833
15.5
107,170
108,866
14.0
Total MBS
37.3
31.7
Municipal Securities
42.4
30.8
14.6
11.9
100.0
Loan Portfolio
The Company focuses on lending to borrowers located or investing in the Twin Cities MSA across a diverse range of industries and property types. The Company lends primarily to commercial clients, 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 oversight by the board of directors and management, 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 June 30, 2026 were $4.43 billion, an increase of $116.9 million, or 5.5% annualized, over total gross loans of $4.31 billion at December 31, 2025, and an increase of $280.6 million, or 6.8%, over total gross loans of $4.15 billion at June 30, 2025. Both the year-to-date and the year-over-year increases in the loan portfolio were primarily due to increased loan originations and more favorable market conditions.
The following table presents the dollar and percentage composition of the loan portfolio by category, at the dates indicated:
13.4
593,406
13.6
12.7
533,476
549,259
13.3
0.9
41,791
1.0
43,186
44,817
4.2
209,421
4.8
5.0
159,991
136,438
3.3
50,629
41,739
39,095
11.0
488,029
11.2
11.5
487,297
11.6
474,269
11.4
38.2
1,590,091
36.4
36.8
1,578,223
37.4
1,555,731
37.5
4.3
188,588
4.4
192,966
192,837
4.7
26.4
1,185,371
27.1
27.0
1,158,622
27.5
1,137,007
27.4
79.9
3,452,079
79.0
79.7
3,417,108
81.1
3,359,844
81.0
0.6
20,716
0.5
19,054
0.4
16,346
(57,277)
(56,390)
(55,765)
(8,633)
(8,282)
(7,629)
4,302,132
4,149,882
4,082,405
The Company primarily focuses on real estate mortgage lending, which constituted 79.9% of the portfolio at June 30, 2026. 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 June 30, 2026, investor CRE loans totaled $3.09 billion, consisting of $1.69 billion of loans secured by multifamily residential properties, $1.17 billion of loans secured by nonowner occupied CRE, $186.2 million of construction and land development loans, and $46.5 million of 1-4 family construction loans. Investor CRE loans represented 69.9% of the total gross loan portfolio and 457.1% of the Bank’s total risk-based capital at June 30, 2026, compared to 69.9% and 473.1%, respectively, at December 31, 2025.
The following table provides a breakdown of CRE nonowner occupied loans by collateral types as of June 30, 2026 and December 31, 2025:
Percent of
CRE Nonowner
Total Loan
Occupied Portfolio
Portfolio
Collateral Type:
Industrial
330,511
28.3
7.5
320,107
7.4
Office
228,246
19.5
5.2
212,926
18.3
4.9
Retail
218,634
18.7
202,904
17.4
Mini Storage Facility
108,104
9.2
2.4
109,324
9.4
Nursing/Assisted Living
95,958
8.2
2.2
119,738
10.3
2.8
Medical Office
42,443
3.6
65,527
5.6
1.5
144,967
12.5
3.2
134,578
The following tables present time to contractual maturity and sensitivity to interest rate changes for the loan portfolio as of June 30, 2026 and December 31, 2025:
As of June 30, 2026
Due in One Year
More Than One
More Than Five
After
or Less
Year to Five Years
Year to Fifteen Years
Fifteen Years
248,507
255,764
83,960
2,803
4,941
35,800
1,061
89,386
79,538
17,324
34,494
12,045
129,717
279,957
53,361
22,253
333,727
918,202
351,516
87,121
31,706
120,992
36,230
2,225
205,774
761,841
200,835
413
700,924
2,080,992
641,942
112,012
20,330
110
303
1,098,582
2,468,292
744,397
115,118
Interest Rate Sensitivity:
Fixed Interest Rates
630,687
1,802,736
360,576
22,557
Floating or Adjustable Rates
467,895
665,556
383,821
92,561
As of December 31, 2025
231,121
237,328
75,966
2,830
4,514
38,351
542
123,801
82,397
9,965
37,784
7,171
197
105,250
308,347
59,085
23,460
202,007
891,088
408,779
85,464
13,483
123,336
50,239
2,696
274,244
693,610
196,828
422
594,984
2,016,381
714,931
112,042
9,594
9,149
156
1,001,798
2,390,777
801,757
115,185
636,867
1,772,310
389,099
23,773
364,931
618,467
412,658
91,412
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.
60
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 June 30, 2026. The Company had no assets classified as doubtful or loss at June 30, 2026.
Risk Category
12,258
1,528
38,607
10,535
18,404
36,451
69,074
999
82,357
Loans that had potential weaknesses that warranted a watch or special mention risk rating at June 30, 2026 totaled $38.5 million, compared to $47.8 million at December 31, 2025. Loans that warranted a substandard risk rating at June 30, 2026 totaled $43.9 million, compared to $53.0 million at December 31, 2025. 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 $21.6 million as of June 30, 2026 and $22.0 million as of December 31, 2025. There were no loans 90 days past due and still accruing as of either June 30, 2026 and December 31, 2025. There were also no foreclosed assets as of either June 30, 2026 and December 31, 2025.
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
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. There are no loans, outside of those included in the tables above, that cause management to have serious doubts as to the ability of borrowers to comply with present repayment terms. Gross income that would have been recorded on nonaccrual loans for the three and six months ended June 30, 2026 was $166,000 and $229,000, respectively. Gross income that would have been recorded on nonaccrual loans for the three and six months ended June 30, 2025 was $169,000 and $342,000, 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 June 30, 2026, the allowance for credit losses on loans and leases was $57.4 million, an increase of $975,000 from $56.4 million at December 31, 2025. Net charge-offs totaled $409,000 during the second quarter of 2026 and $1,000 during the second quarter of 2025. Net charge-offs totaled $925,000 for the six months ended June 30, 2026, and $12,000 for the six months ended June 30, 2025. The allowance for credit losses on loans and leases as a percentage of total loans was 1.30% at June 30, 2026 and 1.31% December 31, 2025.
The following table presents a summary of net charge-offs for the periods indicated:
Net Charge-offs (Recoveries)
(328)
173
718
Total Net Charge-offs (Recoveries)
925
Net Charge-offs (Recoveries) to Average Loans
(0.23)
0.06
0.17
0.08
0.34
0.33
0.18
Total Net Charge-offs (Recoveries) (Annualized) to Average Loans
Gross Loans, End of Period
Average Loans
Allowance for Credit Losses to Total Gross Loans
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The following table presents a summary of the allocation of the allowance for credit losses on loans by loan portfolio segment as of the dates indicated:
10.5
10.6
3.0
1 - 4 Family Mortgage
4.0
43.7
42.1
1.8
1.9
36.1
36.5
85.6
84.9
0.3
Total Allowance for Credit Losses
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
828,845
19.3
21.4
822,632
787,868
18.6
944,502
21.7
899,911
20.9
893,740
20.7
860,774
20.1
791,748
33.1
1,497,517
34.7
31.9
1,428,726
33.3
1,441,694
34.0
232,959
5.4
7.2
346,214
8.1
344,882
20.5
846,279
19.7
834,418
19.4
870,550
20.6
Total deposits at June 30, 2026 were $4.35 billion, an increase of $25.8 million, or 0.6%, compared to total deposits of $4.32 billion at December 31, 2025, and an increase of $109.5 million, or 2.6%, compared to total deposits of $4.24 billion at June 30, 2025. Core deposits, defined as total deposits excluding brokered deposits and time deposits greater than $250,000, decreased $3.6 million, or 0.2% annualized, from December 31, 2025. Based on the nature of the Company’s client base, management believes core deposits will fluctuate 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 June 30, 2026, total brokered deposits were $891.5 million, an increase of $81.0 million, compared to total brokered deposits of $810.5 million at December 31, 2025. Brokered deposits continue to be used as a supplemental funding source, as needed, to support loan portfolio growth.
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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 June 30, 2026 and 2025:
As of and for the
Time Deposits < $250,000
139,463
163,946
Time Deposits > $250,000
91,486
3.79
162,078
4,251,117
4,118,814
The Company’s total uninsured deposits, which are the amounts of deposit accounts that exceed the FDIC insurance limit, currently $250,000, were approximately $1.14 billion, or 26.2% of total deposits, at June 30, 2026 and $1.29 billion, or 29.8% of total deposits, at December 31, 2025. These amounts were estimated based on the same methodologies and assumptions used for regulatory reporting purposes.
Borrowed Funds
Other Borrowings
At June 30, 2026, the Company had outstanding FHLB advances of $326.0 million, compared to $399.5 million at December 31, 2025. During the six months ended June 30, 2026, the Company prepaid $97.5 million of fixed rate FHLB term advances with an average cost of 4.08% and incurred a prepayment fee of $982,000. 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 $745.8 million and $611.3 million at June 30, 2026 and December 31, 2025, 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 both June 30, 2026 and December 31, 2025, the Company had no outstanding balances under the revolving line of credit. The Company had two outstanding letters of credit totaling $2.7 million and $6.4 million under this facility as of June 30, 2026 and December 31, 2025, respectively, which reduce the availability under the facility by the amounts of the letters of credit so long as they remain outstanding.
Additionally, the Company has borrowing capacity from other sources. As of June 30, 2026, 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 $1.08 billion and $1.03 billion at June 30, 2026 and December 31, 2025, respectively. As of June 30, 2026 and December 31, 2025, the Company had no outstanding advances from the discount window.
As of June 30, 2026 and December 31, 2025, the Company had subordinated debentures, net of issuance costs, of $108.9 million and $108.7 million, respectively.
Contractual Obligations
The following table presents supplemental information regarding total contractual obligations at June 30, 2026:
Within
One to
Three to
One Year
Three Years
Five Years
Deposits Without a Stated Maturity
3,356,193
231,037
212,558
110,000
Commitment to Fund Tax Credit Investments
15,725
Operating Lease Obligations
439
626
1,205
4,210,773
265,663
212,698
4,799,134
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 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 June 30, 2026 was $547.9 million, an increase of $30.8 million, or 6.0%, compared to total shareholders’ equity of $517.1 million at December 31, 2025. The increase was primarily due to net income retained and an increase in unrealized gains in the derivatives portfolio, offset partially by an increase in unrealized losses in the securities portfolio and preferred stock dividends.
Tangible book value per share, a non-GAAP financial measure, was $16.61 as of June 30, 2026, an increase of 6.8% from $15.55 as of December 31, 2025. Tangible common equity as a percentage of tangible assets, a non-GAAP financial measure, was 8.62% at June 30, 2026, compared to 8.01% at December 31, 2025.
Stock Repurchase Program. During the three and six months ended June 30, 2026, the Company repurchased 38,659 shares of its common stock, representing 0.01% of the Company’s issued and outstanding shares. Shares were repurchased during this period at a weighted average price of $18.12 per share, for a total of approximately $700,000. All shares repurchased under the stock repurchase program were converted to authorized but unissued shares. As of June 30, 2026, the remaining amount that could be used to repurchase shares under the 2022 Stock Repurchase Program was $12.4 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.
At-the-Market Common Stock Offering Program. The Company maintains an effective shelf registration statement on file with the SEC (the “Registration Statement”), which authorizes the Company to offer and sell shares of its common stock from time to time. Under the Registration Statement, the Company has established an at-the-market common stock offering program (the “ATM Program”) permitting the sale of common stock up to an aggregate gross sales price of $50 million.
The ATM Program provides the Company with additional flexibility to access the capital markets efficiently and is intended to be used for general corporate purposes, including growth, investments in or advances to subsidiaries, working capital, capital expenditures, stock repurchases, debt repayment, or potential acquisitions. During the three and six months ended June 30, 2026, the Company did not sell any shares pursuant to the ATM Program.
65
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 June 30, 2026. 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 June 30, 2026, 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.
66
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 June 30, 2026 and December 31, 2025:
Fixed
Variable
269,188
554,551
245,571
551,272
16,536
86,982
13,074
111,763
285,724
641,533
258,645
663,035
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 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 $2.73 billion as of June 30, 2026, compared to $2.51 billion at December 31, 2025.
The following tables present a summary of primary and secondary liquidity levels as of the dates indicated:
Primary Liquidity—On-Balance Sheet
146,372
96,997
Less: Pledged Securities
(104,089)
(254,334)
Total Primary Liquidity
647,695
619,104
Ratio of Primary Liquidity to Total Deposits
14.9
14.3
Secondary Liquidity—Off-Balance Sheet
Net Secured Borrowing Capacity with the FHLB
745,818
611,349
Net Secured Borrowing Capacity with the Federal Reserve Bank
1,081,280
1,026,415
Unsecured Borrowing Capacity with Correspondent Lenders
220,000
Secured Borrowing Capacity with Correspondent Lender
37,348
33,605
Total Secondary Liquidity
2,084,446
1,891,369
Total Primary and Secondary Liquidity
2,732,141
2,510,473
Ratio of Primary and Secondary Liquidity to Total Deposits
62.9
58.1
During the six months ended June 30, 2026, primary liquidity increased by $28.6 million due to a $150.2 million decrease in pledged securities and a $49.4 million increase in cash and cash equivalents, offset partially by a $171.0 million decrease in securities available for sale, when compared to December 31, 2025. Secondary liquidity increased by $193.1 million as of June 30, 2026, due to a $134.5 million increase in borrowing capacity with the FHLB, a $54.9 million increase in the borrowing capacity with the Federal Reserve Bank, and a $3.7 million increase in the borrowing capacity with a secured lender, when compared to December 31, 2025.
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 June 30, 2026, core deposits totaled approximately $3.35 billion and represented 77.0% 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 June 30, 2026, brokered deposits totaled $891.5 million, consisting of $746.3 million of brokered time deposits and $145.2 million of non-maturity brokered money market and transaction accounts. At December 31, 2025, brokered deposits totaled $810.5 million, consisting of $665.0 million of brokered time deposits and $145.5 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.
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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 on Sales of Securities
(80)
(59)
Less: FHLB Advance Prepayment Income
Total Operating Noninterest Income
2,313
3,068
2,002
Plus: Net Interest Income
Net Operating Revenue
40,890
38,960
38,755
36,093
35,304
Total Operating Noninterest Expense
18,996
16,790
18,517
16,137
16,363
Plus:
Non-Operating Revenue Adjustments
775
Less:
5,435
3,813
3,495
Average Assets
5,242,761
5,438,555
5,372,443
Pre-Provision Net Revenue Return on Average Assets
Adjusted Pre-Provision Net Revenue
Less: Merger-related Expenses
(346)
(530)
(540)
Less: FHLB Advance Prepayment Penalty
(982)
Adjusted Total Operating Noninterest Expense
21,188
19,892
19,426
18,401
17,772
18,863
16,667
16,903
Adjusted Pre-Provision Net Revenue Return on Average Assets
69
Core Net Interest Margin
Net Interest Income (Tax-equivalent Basis)
37,395
36,447
34,614
Loan Fees
(1,464)
(1,257)
(1,041)
(966)
(1,019)
Purchase Accounting Accretion:
Loan Accretion
(171)
(324)
(546)
(380)
(425)
Bond Accretion
(17)
(22)
(33)
(152)
Bank-Owned Certificates of Deposit Accretion
(16)
(4)
Deposit Certificates of Deposit Accretion
(13)
Total Purchase Accounting Accretion
(188)
(595)
(488)
(618)
Core Net Interest Income (Tax-equivalent Basis)
37,748
35,792
34,811
33,160
31,133
Average Interest Earning Assets
5,079,430
5,264,700
5,223,139
Core Loan Yield
Loan Interest Income (Tax-equivalent Basis)
62,102
61,746
60,317
Core Loan Interest Income
62,902
60,521
60,159
58,971
56,678
4,336,869
4,239,936
4,132,987
Efficiency Ratio
Less: Amortization of Intangible Assets
(227)
(226)
(231)
(230)
Adjusted Noninterest Expense
21,667
20,007
19,726
18,711
Adjusted Operating Revenue
35,605
20,962
19,661
19,196
18,171
Adjusted Noninterest Expense to Average Assets (Annualized)
70
Tangible Common Equity and Tangible Common Equity/Tangible Assets
Less: Preferred Stock
(66,514)
Total Common Shareholders' Equity
481,395
461,910
450,581
430,949
409,768
Less: Intangible Assets
(18,459)
(18,685)
(18,912)
(19,142)
(19,372)
Tangible Common Equity
462,936
443,225
431,669
411,807
390,396
Tangible Assets
5,371,267
5,316,711
5,388,090
5,340,852
5,277,301
Tangible Common Equity/Tangible Assets
Tangible Book Value Per Share
Book Value Per Common Share
Less: Effects of Intangible Assets
(0.66)
(0.67)
(0.68)
(0.69)
(0.71)
Tangible Book Value Per Common Share
Return on Average Tangible Common Equity
Average Shareholders' Equity
524,825
509,655
485,869
Less: Average Preferred Stock
Average Common Equity
486,061
458,311
443,141
419,355
405,186
Less: Effects of Average Intangible Assets
(18,588)
(18,816)
(19,042)
(19,274)
(19,504)
Average Tangible Common Equity
467,473
439,495
424,099
400,081
385,682
Adjusted Diluted Earnings Per Common Share
Add: Merger-related Expenses
530
540
Add: FHLB Advance Prepayment Penalty
Total Adjustments
(6,269)
266
(235)
Less: Tax Impact of Adjustments
(110)
Adjusted Net Income Available to Common Shareholders
11,616
12,527
10,949
10,327
Adjusted Return on Average Assets
Add: Total Adjustments
Adjusted Net Income
12,629
13,541
11,962
11,341
71
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 $403.0 million at June 30, 2026 and $388.0 million at December 31, 2025, respectively. Fair value hedge relationships mitigate the effects of changing interest rates on the fair values of fixed rate available for sale securities. 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 $43.7 million and $242.3 million at June 30, 2026 and December 31, 2025, 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 June 30, 2026 and December 31, 2025 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
157,663
(5.46)
156,625
(6.09)
+300
160,436
(3.80)
159,606
(4.30)
+200
162,706
(2.43)
162,132
(2.79)
+100
164,975
(1.07)
164,454
(1.40)
0
166,766
166,785
−100
173,899
4.28
173,029
3.74
−200
189,017
13.34
182,394
9.36
−300
211,709
26.95
193,779
16.18
−400
216,607
29.89
199,357
19.53
The table above indicates that as of June 30, 2026, in the event of an immediate and sustained 400 basis point increase in interest rates, the Company would experience a 5.46% decrease in net interest income. In the event of an immediate 400 basis point decrease in interest rates, the Company would experience a 29.89% 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 Exchange Act) as of June 30, 2026, 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 June 30, 2026, 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.
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 February 26, 2026.
Issuer Repurchases of Equity Securities
The following table presents stock purchases made during the second quarter of 2026:
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
April 1 - 30, 2026
13,089,198
May 1 - 31, 2026
38,659
18.12
12,388,743
June 1 - 30, 2026
Unregistered Sales of Equity Securities
None.
Use of Proceeds from Registered Securities
Not applicable.
Rule 10b5-1 Trading Plans
During the quarter ended June 30, 2026, 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
Form of Performance-Based Restricted Stock Unit Award Agreement under the Bridgewater Bancshares, Inc. 2023 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 on Form 10-Q filed on April 30, 2026)†
10.2
Bridgewater Bancshares, Inc. 2026 Equity Incentive Plan (incorporated herein by reference to Appendix A to the definitive proxy statement filed on March 16, 2026)†
Form of Restricted Stock Award Agreement under the Bridgewater Bancshares, Inc. 2026 Equity Incentive Plan (incorporated herein by reference to Exhibit 4.4 on Form S-8 filed on May 1, 2026)†
10.4
Form of Restricted Stock Unit Award Agreement under the Bridgewater Bancshares, Inc. 2026 Equity Incentive Plan (incorporated herein by reference to Exhibit 4.5 on Form S-8 filed on May 1, 2026)†
Form of Nonqualified Stock Option Award Agreement under the Bridgewater Bancshares, Inc. 2026 Equity Incentive Plan (incorporated herein by reference to Exhibit 4.6 on Form S-8 filed on May 1, 2026)†
Form of Incentive Stock Option Award Agreement under the Bridgewater Bancshares, Inc. 2026 Equity Incentive Plan (incorporated herein by reference to Exhibit 4.7 on Form S-8 filed on May 1, 2026)†
10.7
Form of Performance Based Restricted Stock Unit Award Agreement under the Bridgewater Bancshares, Inc. 2026 Equity Incentive Plan (incorporated herein by reference to Exhibit 4.8 on Form S-8 filed on May 1, 2026)†
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 June 30, 2026, 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 June 30, 2026 formatted in inline XBRL and contained in Exhibit 101
________________
† Indicates a management contract or compensatory plan.
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: July 30, 2026
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)