10-K: Bridgewater Bancshares Reports Strong 2025 Growth, Profitability

Bridgewater Bancshares, Inc. announced robust financial results for the fiscal year ended December 31, 2025, driven by significant loan and deposit growth and improved net interest income.

Summary

• Net income for the year ended December 31, 2025, increased by 40.4% to $46.1 million, up from $32.8 million in 2024.
• Diluted earnings per share rose by 44.9% to $1.49 in 2025, compared to $1.03 in 2024.
• Total assets grew by 6.7% to $5.41 billion as of December 31, 2025, from $5.07 billion at December 31, 2024.
• Total gross loans increased by 11.4% to $4.31 billion in 2025, up from $3.87 billion in 2024.
• Total deposits increased by 5.7% to $4.32 billion in 2025, from $4.09 billion in 2024.
• Net interest income increased by $30.2 million to $132.4 million in 2025, compared to $102.2 million in 2024.
• The net interest margin (on a fully tax-equivalent basis) improved by 37 basis points to 2.63% in 2025 from 2.26% in 2024.
• Noninterest income increased by 48.1% to $10.9 million in 2025, primarily due to higher swap fees, investment advisory fees, and customer service fees.
• The efficiency ratio improved to 53.5% in 2025 from 57.9% in 2024.
• Nonperforming loans to total loans increased significantly to 0.51% at December 31, 2025, from 0.01% at December 31, 2024.
• The provision for credit losses on loans and leases increased to $5.7 million in 2025 from $2.9 million in 2024.
• The company issued $80.0 million in 7.625% Fixed-to-Floating Rate Subordinated Notes due 2035 in June 2025, using proceeds to redeem $50 million of 5.25% subordinated notes due 2030.
• A new branch location in Lake Elmo, Minnesota, opened in February 2026, while the Country Village branch closed in December 2025.

Sentiment

Score: 8

Explanation: StockSavvy.ai views this as a strong performance, with significant growth in key financial metrics and improved efficiency, despite an increase in nonperforming loans and the inherent risks of CRE concentration. The proactive management of capital and liquidity, coupled with strategic growth initiatives, indicates a positive trajectory.

Positives

• Net income increased by 40.4% and diluted earnings per share by 44.9% year-over-year, demonstrating strong profitability.
• Total assets grew by 6.7%, total gross loans by 11.4%, and total deposits by 5.7%, indicating robust organic growth.
• Net interest margin improved significantly by 37 basis points to 2.63%, reflecting effective asset-liability management.
• Noninterest income saw a substantial increase of 48.1%, driven by diverse revenue streams like swap fees and investment advisory fees.
• The efficiency ratio improved to 53.5% from 57.9%, remaining below the industry median due to its branch-light model.
• The company and its bank subsidiary maintained 'well capitalized' status, exceeding all minimum regulatory capital requirements.
• The multifamily loan portfolio has shown strong performance with no net charge-offs over the past three years and only $62,000 since inception.
• Leadership transitions in 2025 brought new talent and experience to the Strategic Leadership Team, preparing for long-term growth.
• Total onand off-balance sheet liquidity increased to $2.51 billion from $2.30 billion, enhancing financial flexibility.
• Unrealized losses in the securities portfolio decreased by $20.5 million from December 31, 2024, positively impacting tangible book value.

Negatives

• Nonperforming loans to total loans increased significantly to 0.51% at December 31, 2025, from 0.01% at December 31, 2024, indicating a deterioration in asset quality.
• The provision for credit losses on loans and leases increased to $5.7 million in 2025 from $2.9 million in 2024, primarily due to loan growth and increased historical loss rates.
• The company relies on non-core funding sources, with brokered deposits representing 18.8% of total deposits, which can be more volatile and costly.
• A high concentration of large deposits, with the 10 largest depositor relationships accounting for approximately 16.2% of total deposits, poses a liquidity risk if significant withdrawals occur.
• Noninterest expense increased by $14.0 million (22.1%), driven by higher salaries, professional fees, data processing, marketing, and merger-related expenses.
• The refinancing of subordinated debt in June 2025 resulted in a higher interest rate (7.625% for new notes vs. 5.25% for redeemed notes).
• One CRE nonowner occupied loan of $8.6 million was modified with a 3-year extension at a below-market rate due to borrower financial difficulty, highlighting potential credit stress.

Risks

• Credit risk and risks from concentrations (by type of borrower, geographic area, collateral, and industry) within the loan portfolio, particularly commercial real estate (CRE) loans, which represent 69.9% of the total gross loan portfolio and 473.1% of the Bank's total risk-based capital.
• Exposure to fluctuations in real estate values and the overall health of the local and national real estate market, which could impair collateral value and increase loan losses.
• Inability to successfully manage credit risk, including maintaining adequate allowance for credit losses, especially given the increase in nonperforming loans.
• Liquidity risk due to dependence on non-core funding sources such as brokered deposits and FHLB advances, and the concentration of large deposits from certain clients.
• Inability to raise additional capital on favorable terms if needed to meet business needs or finance acquisitions.
• Operational, strategic, and reputational risks, including challenges in implementing growth strategies, managing costs, attracting and retaining key personnel, talent shortages, fraudulent activity, and cybersecurity incidents (including those employing artificial intelligence).
• Interruptions involving information technology and telecommunications systems or third-party servicers.
• Intense competition in the financial services industry from larger banks, credit unions, fintech companies, and digital asset service providers, which may have greater resources or less regulation.
• Legal, accounting, and compliance risks, including adherence to stringent CRE lending guidance, effectiveness of risk management framework, accuracy of accounting estimates, changes in accounting policies, and potential litigation or regulatory actions.
• Market and interest rate risks, where fluctuations in interest rates could adversely affect net interest income, the value of the securities portfolio, and derivative instruments.
• The company's common stock is relatively thinly traded, which could lead to significant price volatility.
• The company does not intend to pay cash dividends on its common stock in the foreseeable future, meaning shareholder returns depend on stock price appreciation.
• Future issuances of common stock could result in dilution for existing shareholders.
• Common stock holders have lower priority than debt obligations and preferred stock in the event of liquidation.

Future Outlook

The company expects continued moderation in the federal funds rate in 2026, which could positively affect its net interest income and investment securities portfolio. It anticipates additional growth opportunities from market disruption caused by local bank acquisitions by out-of-state acquirers and plans to continue its organic growth strategy, including expanding its affordable housing initiatives nationally. The company will also continue to evaluate opportunistic acquisition opportunities. Management estimates that $3.3 million will be reclassified to interest expense from cash flow hedges in the next 12 months. The revised Basel III Endgame Rule is expected to primarily affect large, complex banking organizations, suggesting less direct impact on Bridgewater.

Management Comments

• 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.
• Management believes the Company has earned the reputation as one of the prominent commercial real estate lenders in the Twin Cities MSA due in large part to the strength of the banking team.
• Management believes the responsive credit culture separates the Company from its competitors.
• Management believes that there will be further bank consolidation in the Twin Cities MSA and in the surrounding markets and that the Company is well positioned to be a preferred partner for smaller institutions looking to exit through a sale to a strong buyer.
• Management believes the Company and the Bank met all capital adequacy requirements to which they were subject as of December 31, 2025.

Industry Context

StockSavvy.ai notes that Bridgewater Bancshares operates in the highly competitive Minneapolis-St. Paul-Bloomington, MN-WI Metropolitan Statistical Area (Twin Cities MSA), which ranks as the 15th largest MSA in the United States in total deposits. The market has experienced disruption due to acquisitions of local institutions by larger regional banks headquartered outside the market, creating opportunities for Bridgewater to attract both talent and clients by leveraging its local banking advantage. The broader financial services industry is undergoing rapid technological changes, with increasing competition from nonbank entities such as credit unions, fintech companies, and digital asset service providers. Bridgewater's strategic focus on commercial real estate (CRE) lending and affordable housing aligns with specific market demands, although CRE concentrations are subject to heightened regulatory scrutiny. The company's ability to maintain a strong efficiency ratio in this competitive landscape is a notable strength.

Comparison to Industry Standards

• The Twin Cities MSA, where the company primarily operates, ranks first in median household income in the Midwest and seventh in the nation when compared to the top 20 MSAs by population size, indicating a strong economic environment.
• The Twin Cities MSA had an unemployment rate of 4.3% as of December 31, 2025, which was lower than the national average of 4.4%, suggesting a resilient labor market.
• The company's deposit market share of 1.84% in the Twin Cities MSA ranks ninth overall and third among banks headquartered in Minnesota, positioning it competitively against dominant national players like U.S. Bancorp (41.21%) and Wells Fargo & Co (17.75%).
• The company's efficiency ratio of 53.5% for 2025 is consistently below the industry median, attributed to its branch-light operating model.
• The Bank's total CRE loans, including multifamily and construction, represented 473.1% of its total risk-based capital at December 31, 2025, which exceeds the 300% supervisory criteria for potentially significant CRE loan concentrations, requiring heightened risk management practices.

Management Changes

Corporate Governance

Legal Proceedings

• No material pending legal proceedings other than ordinary routine litigation incidental to the Bank's business.
• No proceeding contemplated by a governmental authority against the Company or any of its subsidiaries.

Related Party Transactions

• Loans to executive officers, directors, principal shareholders, and their affiliates totaled $10.4 million at December 31, 2025, with new loans and advances of $11.3 million and repayments of $10.2 million during the year.
• Deposits from related parties held by the Company totaled $16.6 million at December 31, 2025.
• The Company has an operating lease agreement for its Greenwood branch location with Bridgewater Properties Greenwood, LLC, a related party through common ownership. Future minimum rent commitments under this lease are $108,000 for 2026.

Stakeholder Impact

• Shareholders: Positive impact from strong financial performance, increased net income, EPS, and tangible book value. However, there is no intention to pay common stock dividends in the foreseeable future, and potential for dilution from future equity issuances exists.
• Employees: Positive impact from leadership development programs, mentorship opportunities, competitive wages and benefits, and a program offering paid time off for volunteering. Leadership transitions also provide career growth opportunities.
• Customers: Benefits from the company's focus on responsive support, tailored solutions, and expertise in specialized lending areas like multifamily and affordable housing. The opening of a new branch expands service accessibility.
• Communities: Positive impact through investments in qualified affordable housing projects and federal historic projects, as well as employee-driven volunteerism and financial contributions to local organizations.
• Creditors: The issuance of subordinated debentures provides funding, but these rank below deposits and other indebtedness in the event of liquidation. The company's strong capital ratios provide comfort regarding its ability to meet obligations.

Next Steps

• The annual meeting of stockholders is scheduled for April 28, 2026.
• The 2022 Stock Repurchase Program has been extended until August 26, 2026, with $13.1 million remaining for repurchases.
• The 2031 Subordinated Notes will transition to a three-month term SOFR + 2.52% interest rate beginning July 15, 2026.
• The 2035 Subordinated Notes will transition to a three-month term SOFR + 3.88% interest rate beginning June 30, 2030.
• The company plans to continue its organic growth strategy, including expanding its affordable housing initiatives nationally.
• The company will continue to evaluate opportunistic acquisition opportunities that align with its strategic priorities.
• The company expects to capitalize on additional growth opportunities arising from market disruption due to local banks being acquired by out-of-state acquirers.
• The company will continue to enhance its Leadership Development Program and Mentorship Program to foster internal talent.
• The company is currently evaluating the impact of several recently issued accounting standards (ASU 2024-03, ASU 2025-06, ASU 2025-09, ASU 2025-11, ASU 2025-12) on its future consolidated financial statements.

Key Dates

Recommendation

Bridgewater Bancshares demonstrated strong financial performance in 2025 with significant growth in net income, EPS, loans, and deposits, alongside an improved net interest margin and efficiency ratio. These factors typically warrant a positive outlook. However, the notable increase in nonperforming loans to 0.51% from 0.01% and the high concentration in commercial real estate lending (473.1% of risk-based capital) introduce material credit risk that requires close monitoring. While management has implemented heightened risk management practices, these concentrations could expose the company to significant losses if real estate market conditions deteriorate. The reliance on non-core funding sources and the absence of common stock dividends also present considerations. A 'hold' recommendation reflects the balance between the strong operational and financial growth and the elevated, albeit managed, credit and liquidity risks.

Keywords

Banking, Financial Services, Commercial Real Estate, CRE Lending, Deposits, Loans, Net Interest Income, Capital Ratios, Risk Management, Cybersecurity, Minneapolis-St. Paul MSA, Affordable Housing, SEC Filing, 10-K, Financial Holding Company, Basel III, Fintech, Digital Assets, Interest Rate Risk, Liquidity Risk, Corporate Governance