Executive Summary / Key Takeaways

• Strategic Growth Trajectory: Bridgewater Bancshares (BWB) is executing a clear strategy for profitable growth, aiming to become a $10 billion bank by 2030, driven by strong core deposit generation and opportunistic loan expansion, particularly in the Twin Cities market.
• Robust Financial Performance: The company demonstrated strong Q3 2025 results with net interest income up 17.1% year-over-year and net interest margin expanding to 2.63%, supported by higher earning asset yields and effective deposit cost management.
• Optimistic Margin Outlook: Management anticipates meaningful net interest margin expansion into 2026, with a projected path to a 3% margin by early 2027, primarily fueled by loan portfolio repricing and declining deposit costs in a rate-down environment.
• Operational Efficiency and Technological Advancement: Recent successful systems conversions and the launch of a new online banking platform enhance client experience and operational efficiency, positioning the bank for normalized expense growth post-integration.
• Resilient Asset Quality & Competitive Edge: BWB maintains superb asset quality with low non-performing assets and net charge-offs, while strategically capitalizing on M&A disruption in the Twin Cities to gain market share and attract talent.

A Relationship-Driven Ascent in Regional Banking

Bridgewater Bancshares, Inc. (NASDAQ:BWB) operates as a focused commercial bank, primarily serving the Minneapolis-St. Paul metropolitan area through its wholly-owned subsidiary, Bridgewater Bank. Since its inception in 2005, the company has cultivated a business model centered on providing responsive support and unconventional experiences to its clients, a strategy that continues to drive its profitable growth. This approach has allowed BWB to carve out a niche, particularly excelling in commercial real estate and multifamily lending, and distinguishing itself from larger, less personalized institutions.

The regional banking sector, in which BWB operates, is characterized by intense competition for top-tier talent and a need for scale to compete effectively with larger national banks. Regional banks, like Bridgewater, offer a unique value proposition through deep community integration, localized decision-making, and a nuanced understanding of client needs. However, they also face challenges from larger rivals with broader geographic footprints and more advanced technological infrastructures, such as Wintrust Financial Corporation (WTFC), Huntington Bancshares Incorporated (HBAN), and Associated Banc-Corp (ASB). These larger competitors often demonstrate stronger revenue growth and cash flow generation due to their scale, enabling greater investment in technology and market expansion.

Bridgewater's strategic response to this competitive landscape involves leveraging its strong local brand and customer relationships to foster loyalty and pricing power in its core markets. The company's efficient distribution channels, including its branch network and digital services, contribute to cost leadership in regional operations, potentially resulting in lower operating costs compared to some larger counterparts. While BWB's smaller scale can present vulnerabilities in technology adoption costs and geographic diversification, its focused operations allow for agility in niche markets.

Technological Advancement and Operational Streamlining

Bridgewater Bancshares has made strategic investments in its technological infrastructure to enhance client experience and operational efficiency. A significant development was the launch of a new retail and small business online banking platform in July 2025. This platform provides clients with an updated, robust tool to manage their finances, specifically designed to cater to the needs of smaller entrepreneurial clients.

Furthermore, the company successfully completed the systems conversion of its First Minnetonka City Bank (FMCB) acquisition in September 2025. This achievement reinforced management's confidence in its team's ability to integrate acquisitions smoothly and capitalize on future M&A opportunities. While the company faces the broader industry trend of rapid technological changes, BWB's focus on enhancing its core banking platforms and streamlining post-acquisition integrations demonstrates a commitment to leveraging technology for strategic advantage and improved client service.

A History of Growth and Strategic Evolution

Bridgewater Bank commenced operations in 2005, founded by Jerry Baack, Jeff Shellberg, and Mary Jane Crocker, establishing a de novo bank focused on commercial real estate and small business lending in the Twin Cities market. The company's early growth included the formation of BWB Holdings, LLC in 2008 and Bridgewater Investment Management, Inc. in 2018, diversifying its service offerings. A key area of expertise developed over time is affordable housing, a vertical the company has been involved with since 2007 and has recently invested in more heavily.

The period of 2023 and 2024 saw BWB adopt a more defensive stance due to challenging market conditions and slower funding growth. However, a renewed focus on core deposit growth and the strategic acquisition of First Minnetonka City Bank (FMCB) in December 2024 significantly improved the company's liquidity profile. This acquisition added two full-service branches, approximately $225.7 million of deposits, and $117.1 million of loans, positioning BWB to be more "offensive-minded" in its growth strategy.

Strong Financial Momentum and Margin Expansion

Bridgewater Bancshares reported robust financial performance for the third quarter of 2025, with net income reaching $11.6 million, compared to $8.7 million for the same period in 2024. This growth was underpinned by a significant increase in net interest income, which rose by $8.5 million, or 17.1%, to $34.1 million year-over-year. The net interest margin, on a fully tax-equivalent basis, expanded by 39 basis points to 2.63% in Q3 2025 from 2.24% in Q3 2024. The core net interest margin, excluding loan fees and purchase accounting accretion, also saw a substantial increase of 36 basis points to 2.52%.

The expansion in net interest margin was primarily driven by higher earning asset yields and purchase accounting accretion from the FMCB acquisition, partially offset by the impact of a subordinated debt refinance in Q2 2025. Average interest-earning assets grew by $627.6 million (13.7%) to $5.22 billion in Q3 2025, fueled by growth in the loan and securities portfolios, higher average cash balances, and the FMCB acquisition. The tax-equivalent yield on average interest-earning assets increased to 5.63% in Q3 2025, up from 5.48% in Q3 2024.

On the funding side, the average rate paid on interest-bearing liabilities decreased to 3.89% in Q3 2025 from 4.27% in Q3 2024, primarily due to lower rates paid on deposits. The cost of total deposits was 3.19% in Q3 2025, a 39 basis point decrease from 3.58% in Q3 2024, reflecting the impact of interest rate cuts in 2024 and 2025 and a decrease in average brokered deposit balances.

Noninterest income increased by $539,000 to $2.1 million in Q3 2025, largely due to higher investment advisory fees and customer service fees. Noninterest expense, however, rose by $4.2 million to $20 million in Q3 2025, attributed to increases in salaries and employee benefits, marketing and advertising, and merger-related expenses. Despite this, the efficiency ratio improved to 54.70% for Q3 2025, down from 58% in Q3 2024. Management expects expense growth to normalize in line with asset growth now that systems conversions are complete.

Robust Loan and Deposit Dynamics

Bridgewater's loan portfolio demonstrated strong growth, with total gross loans reaching $4.21 billion at September 30, 2025, an increase of $346 million (8.9%) from December 31, 2024. Loan growth was 6.6% annualized in Q3 2025, and 12% annualized year-to-date. The aggregate loan yield increased to 5.79% in Q3 2025, 22 basis points higher than in Q3 2024, as new loans originated at higher yields and the existing portfolio repriced. New originations in Q3 2025 were in the mid-6s.

The company's core deposit growth has been a significant strength, with balances up 11.5% annualized in Q3 2025 and 7.4% annualized year-to-date. Core deposits totaled $3.28 billion, representing 76.40% of total deposits at September 30, 2025. This consistent growth is a testament to the company's relationship model and has positioned BWB to be more aggressive on the loan front, with its loan-to-deposit ratio near the lower end of its target range.

Asset Quality and Risk Management

Bridgewater maintains a superb asset quality profile. Nonperforming assets remained at consistently low levels, at just 0.19% of total assets in Q3 2025. Net charge-offs were minimal, at 0.03% of average loans for Q3 2025, with the few charge-offs related to the legacy First Minnetonka City Bank portfolio. The allowance for credit losses on loans and leases to total loans stood at 1.34% at September 30, 2025.

While the company acknowledges some modest risk rating migration within the portfolio, management does not see any systemic credit issues. One multifamily loan migrated from special mention to substandard in Q3 2025 after a purchase agreement was canceled, but the borrower remains engaged, and the company is actively monitoring new sales prospects. The non-owner-occupied CRE office exposure remains limited at 5% of total loans, and while one Central Business District office loan is rated substandard and on non-accrual with a specific reserve of just under $3 million, management is not planning a charge-off at this time.

Liquidity and Capital Strength

BWB maintains a strong liquidity position, with total assets reaching $5.36 billion at September 30, 2025. Securities available for sale increased to $826.5 million, contributing to primary liquidity. The company also has substantial secondary liquidity through borrowing capacity at the FHLB ($493.6 million available) and the Federal Reserve discount window ($994 million available). Total on- and off-balance sheet liquidity amounted to $2.39 billion as of September 30, 2025.

Total shareholders' equity increased to $497.5 million at September 30, 2025, an 8.6% increase from December 31, 2024, primarily due to retained net income and a decrease in unrealized losses in the securities portfolio. Tangible common equity as a percentage of tangible assets was 7.71% at September 30, 2025. The company did not repurchase shares in Q3 2025, prioritizing its strong organic growth pipeline, but has $13.1 million remaining under its repurchase authorization, which was extended to August 26, 2026.

Outlook: A Clear Path to Enhanced Value

Bridgewater Bancshares is poised for continued growth and profitability. Management is optimistic about achieving more meaningful net interest margin expansion in the coming quarters, with a clear path to a 3% margin by early 2027. This outlook is predicated on the full quarter impact of the September rate cut and potential additional Fed rate cuts, which are expected to drive down deposit costs, particularly for the $1.7 billion of funding tied to short-term rates. Concurrently, the loan portfolio is expected to continue repricing higher, with new originations in the mid-6s providing a tailwind.

The company anticipates near-term loan growth in the mid-to-high single-digit range, supported by robust loan pipelines at three-year highs and ongoing opportunities from M&A disruption in the Twin Cities. This growth will be balanced with core deposit generation, maintaining a loan-to-deposit ratio between 95% and 105%. Net interest income growth is projected to be in the low double-digit range, driven by both margin expansion and loan growth.

Operational efficiency is also a key focus. With the systems conversion behind them, noninterest expense growth is expected to return to more normalized levels, growing in line with asset growth. Strategic initiatives include the planned closure of the Country Village branch by December 29, 2025, for efficiency, and the opening of a new de novo branch in the East Metro of the Twin Cities in early 2026, expanding its footprint. Bridgewater's long-term goal is to grow to a $10 billion bank by 2030.

Key Risks to Monitor

While the outlook is positive, investors should consider several risks. The company's net interest income simulation indicates sensitivity to interest rate changes, with a 400 basis point decrease potentially increasing net interest income by 25.29%, but a 400 basis point increase could decrease it by 10.03%. Credit risk, particularly within the Central Business District office portfolio, remains a point of active management, although the overall portfolio quality is strong. Economic uncertainty, including the impact of tariffs, could lead clients to become more cautious on projects, potentially affecting loan demand. Intense competition in the Twin Cities market for both loans and deposits could also pressure margins and growth.

Conclusion

Bridgewater Bancshares is demonstrating a compelling investment narrative, characterized by disciplined growth, expanding profitability, and a resilient asset quality profile. The company's strategic focus on relationship banking, coupled with its ability to capitalize on market disruption and leverage technological enhancements, positions it favorably within the competitive regional banking landscape. With a clear path to a 3% net interest margin by early 2027 and a commitment to achieving $10 billion in assets by 2030, BWB is actively shaping its future. The ongoing efforts to optimize its operational footprint and strategically expand its market reach underscore a proactive management team dedicated to driving shareholder value through consistent tangible book value growth. Investors looking for a regional bank with a strong growth engine and a proven ability to execute on its strategic priorities should find Bridgewater Bancshares an attractive consideration.