10-Q: Bridgewater Bancshares Reports Strong Q3 Growth

Bridgewater Bancshares, Inc. announced a significant increase in net income and diluted EPS for the third quarter of 2025, driven by robust loan and securities portfolio growth and improved net interest margin.

Summary

• Net income for the third quarter of 2025 increased to $11.6 million, up from $8.7 million in the third quarter of 2024.
• Diluted earnings per common share rose to $0.38 in Q3 2025, compared to $0.27 in Q3 2024.
• Net interest income grew by $8.5 million, or 33.2%, to $34.1 million in Q3 2025, primarily due to loan and securities portfolio growth and higher yields.
• The net interest margin (tax-equivalent) expanded by 39 basis points to 2.63% in Q3 2025.
• Total assets increased by $293.8 million, or 5.8%, to $5.36 billion at September 30, 2025, compared to December 31, 2024.
• Total gross loans reached $4.21 billion, an 8.9% increase year-to-date, driven by increased originations and lower payoffs.
• Total deposits grew by $206.0 million, or 5.0%, to $4.29 billion, with core deposits increasing by $172.0 million (7.4% annualized) from December 31, 2024.
• The Company issued $80.0 million in 7.625% Fixed-to-Floating Rate Subordinated Notes due 2035 and redeemed $50 million of existing 5.25% notes.
• Nonperforming loans significantly increased to $10.0 million at September 30, 2025, from $301,000 at December 31, 2024, representing 0.24% of total loans.
• Provision for credit losses on loans and leases was $900,000 in Q3 2025, compared to $0 in Q3 2024, primarily due to loan portfolio growth and increased specific reserves.

Sentiment

Score: 7

Explanation: The company demonstrated strong financial performance with significant increases in net income, EPS, net interest income, and net interest margin, alongside improved efficiency and robust capital. However, a notable increase in nonperforming loans and the associated provision for credit losses introduce a degree of caution, preventing a higher sentiment score.

Positives

• Net income increased by 33.7% to $11.6 million in Q3 2025 from $8.7 million in Q3 2024.
• Diluted EPS grew by 40.7% to $0.38 in Q3 2025 from $0.27 in Q3 2024.
• Net interest income increased by $8.5 million (33.2%) to $34.1 million in Q3 2025.
• Net interest margin (tax-equivalent) improved by 39 basis points to 2.63% in Q3 2025.
• Core net interest margin (tax-equivalent) increased by 36 basis points to 2.52% in Q3 2025.
• Total interest income (tax-equivalent) rose by 17.1% to $74.2 million in Q3 2025.
• Cost of total deposits decreased by 39 basis points to 3.19% in Q3 2025.
• Noninterest income increased by $539,000 to $2.1 million in Q3 2025, driven by higher investment advisory and customer service fees.
• Efficiency ratio improved to 54.7% in Q3 2025 from 58.0% in Q3 2024, indicating better operational performance.
• Total assets grew by 5.8% year-to-date to $5.36 billion.
• Total gross loans increased by 8.9% year-to-date to $4.21 billion.
• Total deposits increased by 5.0% year-to-date to $4.29 billion, with core deposits growing 7.4% annualized.
• Total shareholders' equity increased by 8.6% year-to-date to $497.5 million.
• Tangible book value per share increased by 10.7% year-to-date to $14.93.
• The Company and Bank maintain strong capital ratios, well above minimum regulatory requirements and 'well capitalized' thresholds.

Negatives

• Interest expense on interest bearing liabilities increased by $2.1 million to $39.5 million in Q3 2025, primarily due to deposit growth, increased FHLB advances, and higher subordinated debenture balances.
• Noninterest expense increased by $4.2 million to $20.0 million in Q3 2025, mainly due to higher salaries, employee benefits, marketing, and merger-related expenses.
• Provision for credit losses on loans and leases increased to $900,000 in Q3 2025 from $0 in Q3 2024.
• Nonperforming loans increased significantly to $10.0 million at September 30, 2025, from $301,000 at December 31, 2024.
• The ratio of nonperforming loans to total loans rose to 0.24% at September 30, 2025, from 0.01% at December 31, 2024.
• The allowance for credit losses on loans and leases as a percentage of total loans slightly decreased to 1.34% at September 30, 2025, from 1.35% at December 31, 2024.

Risks

• Exposure to interest rate risk, including the effects of changes in interest rates and fluctuations in the values of the securities portfolio.
• Impacts on the U.S. economy from new or changing policies, regulations, and executive orders, including tariffs, immigration, DEI/ESG initiatives, consumer protection, foreign policy, and tax regulations.
• Business and economic conditions, including inflation, potential recession, and Federal Reserve monetary policies.
• Developments in the financial services industry, such as large-scale deposit withdrawals and bank failures.
• Credit risk and concentrations within the loan portfolio, particularly in Commercial Real Estate (CRE) loans and large loans to certain borrowers.
• Ability to maintain an adequate allowance for credit losses on loans.
• Concentration of large deposits from certain clients, including those above FDIC insurance limits.
• Liquidity risk, which may increase dependence on non-core funding sources like brokered deposits and negatively impact the cost of funds.
• Ability to raise additional capital to implement business plans.
• Talent and labor shortages, and employee turnover.
• Fraudulent activity, breaches of information security controls, cybersecurity incidents (including AI-related attacks and insider fraud).
• Interruptions involving information technology and telecommunications systems or third-party servicers.
• Competition in the financial services industry from nonbank competitors (credit unions, fintech, digital asset service providers).
• Effectiveness of the risk management framework.
• Rapid technological changes, including the development and implementation of artificial intelligence tools.
• Commencement, cost, and outcome of litigation, legal proceedings, and regulatory actions.
• Impact of recent and future legislative and regulatory changes.
• Risks related to climate change and its potential negative impact on customers and businesses.
• Imposition of tariffs or other governmental policies impacting the global supply chain.
• Severe weather, natural disasters, pandemics, acts of war or terrorism (e.g., Middle East conflicts, Russian invasion of Ukraine).
• Potential impairment to goodwill recorded in connection with acquisitions.
• Risks associated with the integration of First Minnetonka City Bank (FMCB), including potential difficulties, higher expenses, and effects on customer and employee relationships.
• Changes to U.S. or state tax laws, regulations, and governmental policies.
• Impact of bank failures or adverse developments at other banks and related negative publicity on investor and depositor sentiment.
• Effects of a U.S. government shutdown on customers.

Future Outlook

The Company's net interest income simulation model projects a 10.03% decrease in net interest income over the next 12 months in an immediate and sustained 400 basis point increase in interest rates, and a 25.29% increase in net interest income in an immediate 400 basis point decrease in interest rates. These projections are hypothetical and based on a static balance sheet and specific assumptions, and actual results may differ. The Company continues to focus on profitable growth through its efficient business model and managing interest rate risk through hedging strategies.

Management Comments

• Our simple, efficient business model of providing responsive support and unconventional experiences to clients continues to be the underlying principle that drives our profitable growth.
• Our efficiency has remained consistently below the industry median due in part to our branch-light model.
• Based on the nature of our client base, core deposits could fluctuate in future periods as deposit growth is not always linear.
• We believe the Company and the Bank met all capital adequacy requirements to which they were subject as of September 30, 2025.
• We remain committed to maintaining strong capital levels while enhancing shareholder value as we strategically execute our stock repurchase program based on various factors including valuation, capital levels and other uses of capital.

Industry Context

The financial services industry faces ongoing challenges from interest rate fluctuations, competition from nonbank entities like credit unions and fintech companies, and rapid technological changes, including the adoption of artificial intelligence. The Company acknowledges the risk of large-scale deposit withdrawals and bank failures seen in the broader industry. Bridgewater Bancshares operates with a branch-light model, which it believes contributes to an efficiency ratio consistently below the industry median, offsetting a potentially higher average cost of funds for local deposits compared to competitors.

Comparison to Industry Standards

• The Company's efficiency ratio of 54.7% for Q3 2025 is consistently below the industry median, indicating superior operational efficiency compared to its peers in the banking sector.
• The Company's consolidated capital ratios (Total Risk-based Capital: 14.12%, Tier 1 Risk-based Capital: 10.52%, Common Equity Tier 1 Capital: 9.08%, Tier 1 Leverage Ratio: 9.02%) are all well above the minimum regulatory requirements, demonstrating a strong capital position relative to industry standards.
• Bridgewater Bank's capital ratios (Total Risk-based Capital: 13.43%, Tier 1 Risk-based Capital: 12.18%, Common Equity Tier 1 Capital: 12.18%, Tier 1 Leverage Ratio: 10.43%) exceed the 'well capitalized' thresholds under prompt corrective action regulations, indicating a robust financial standing compared to other regulated banks.

Legal Proceedings

• Neither the Company nor any of its subsidiaries is a party to any material pending legal proceedings, other than ordinary routine litigation incidental to the Bank's business. No material proceeding contemplated by a governmental authority against the Company or its subsidiaries is known.

Stakeholder Impact

• Shareholders: Benefited from increased net income, diluted EPS, and tangible book value per share. The ongoing stock repurchase program and preferred stock dividend also enhance shareholder value.
• Employees: The Company saw an increase in full-time equivalent employees, partly due to the FMCB acquisition and new talent acquisition, indicating growth in employment opportunities.
• Customers: The acquisition of FMCB expanded the Bank's footprint with two new branches, while the planned closure of the Country Village branch may impact some local customers.
• Creditors: The issuance of new subordinated debentures and redemption of older ones altered the Company's debt structure, affecting bondholders.

Next Steps

• The Company plans to close its Country Village branch location, effective December 29, 2025.
• A quarterly cash dividend of $36.72 per share on its 5.875% Non-Cumulative Perpetual Preferred Stock, Series A, is payable on December 1, 2025, to shareholders of record on November 14, 2025.
• The Company will continue to execute its stock repurchase program, with $13.1 million remaining under the authorization, which has been extended to August 26, 2026.

Key Dates

Recommendation

Bridgewater Bancshares delivered strong financial results for Q3 2025, marked by significant growth in net income, EPS, and net interest margin, coupled with improved operational efficiency and robust capital levels. The strategic acquisition of FMCB and ongoing loan/deposit growth are positive indicators. However, the notable increase in nonperforming loans and the corresponding rise in the provision for credit losses warrant caution. While the overall financial health appears strong, the deterioration in asset quality introduces uncertainty. A 'hold' recommendation allows investors to maintain their position, acknowledging the company's strengths while monitoring the trend in nonperforming assets and its potential impact on future profitability and risk profile.

Keywords

Banking, Financial Services, Regional Bank, Minnesota, Commercial Real Estate, Deposits, Loans, Capital Ratios, SEC Filing, 10-Q, Net Interest Income, Earnings Per Share, Asset Quality, Liquidity, Subordinated Debt