Bridgewater Bancshares Preferred Stock 5.875% Perpetual

Company Overview

Business Model: Bridgewater Bancshares, Inc. is a Minnesota-based financial holding company operating primarily through its wholly-owned subsidiary, Bridgewater Bank. The Company's core value proposition is commercial banking, with a significant focus on commercial real estate (CRE) lending, including nonfarm, nonresidential, multifamily, nonowner occupied single family residential, construction, and land development loans. It has also expanded its focus on affordable housing lending nationally. Revenue is primarily generated from interest and fees on loans, interest and dividends on investment securities, and noninterest income such as service charges, letter of credit fees, and swap fees. Funding sources include transaction, savings, time, and brokered deposits, as well as short-term and long-term borrowings.

Market Position: The Company operates within the Minneapolis-St. Paul-Bloomington, MN-WI Metropolitan Statistical Area (“Twin Cities MSA”), which ranked 15th largest in the U.S. by total deposits ($232.6 billion as of June 30, 2025). As of the same date, Bridgewater Bancshares, Inc. held a 1.84% deposit market share in the Twin Cities MSA, ranking 9th overall and 3rd among banks headquartered in Minnesota. Competitive strengths include specialized commercial banking and multifamily lending expertise, a branch-light operating model (nine branches), solid asset quality metrics, and proactive enterprise risk management. The multifamily portfolio has experienced no net charge-offs over the past three years and only $62,000 since inception.

Recent Strategic Developments: In December 2024, Bridgewater Bank acquired First Minnetonka City Bank, which added approximately $245.0 million of assets, $225.7 million of deposits, $117.1 million of loans and leases, and an investment advisory function. One of the acquired branches was subsequently closed in December 2025. In February 2026, a new branch opened in Lake Elmo, Minnesota. The Company also executed a capital markets transaction in June 2025, selling $80.0 million in 7.625% Fixed-to-Floating Rate Subordinated Notes due 2035, with proceeds used to redeem $50 million of outstanding 5.25% Fixed-to-Floating Rate Subordinated Notes due 2030 and for general corporate purposes. Loan growth returned to normalized levels in 2025.

Geographic Footprint: Bridgewater Bancshares, Inc. is headquartered in St. Louis Park, Minnesota, and operates nine full-service offices across the Twin Cities MSA. While its primary operations are concentrated in this region, the Company has a national affordable housing lending strategy, indicating broader market reach for specific loan products.

Financial Performance

Revenue Analysis

Profitability Metrics:

• Return on Average Assets (ROA): 0.87%
• Return on Average Shareholders' Equity (ROE): 9.53%
• Net Interest Margin (tax-equivalent): 2.63%
• Operating Margin (Income Before Income Taxes / Total Revenue): 41.9%
• Net Margin (Net Income / Total Revenue): 32.2%

Investment in Growth:

• Capital Expenditures: $2,043k (increase in Premises and Equipment, Net from 2024 to 2025)
• Strategic Investments: $33.1 million cash acquisition of First Minnetonka City Bank in December 2024. Tax credit investments increased by $8,978k in 2025, with $11,380k in unfunded commitments.

Loan Portfolio Analysis

Total Loans, Gross: $4,309,517k (+11.4% YoY) Key Growth Drivers: Loan growth in 2025 was primarily driven by increases in multifamily loans, construction and land development loans, and commercial real estate (CRE) nonowner occupied loans.

Product Portfolio (as of December 31, 2025):

• Real Estate Mortgage Loans: $3,438,338k (79.7% of total gross loans)
  • Multifamily: $1,587,338k (+11.3% YoY)
  • CRE Nonowner Occupied: $1,165,104k (+7.6% YoY)
  • 1-4 Family Mortgage: $496,142k
  • CRE Owner Occupied: $189,754k
• Construction and Land Development Loans: $216,163k (+122.3% YoY)
• 1-4 Family Construction Loans: $45,152k
• Commercial Loans: $547,245k
• Leases: $43,407k
• Consumer and Other Loans: $19,212k

Market Dynamics:

• The loan portfolio exhibits a high concentration in commercial real estate, with investor CRE loans totaling $3.01 billion, representing 69.9% of the total gross loan portfolio and 473.1% of the Bank’s total risk-based capital as of December 31, 2025.
• Over 75% of real estate loan balances are secured by properties within the Twin Cities MSA.
• CRE nonowner occupied loans are diversified across collateral types, including Industrial (27.5%), Office (18.3%), Retail (17.4%), Nursing/Assisted Living (10.3%), Mini Storage Facility (9.4%), and Medical Office (5.6%).

Asset Quality (as of December 31, 2025):

• Allowance for Credit Losses on Loans and Leases to Total Loans: 1.31%
• Allowance for Credit Losses on Loans and Leases to Nonperforming Loans: 256.16%
• Nonperforming Loans: $22,034k (0.51% of total loans)
• Net Loan Charge-Offs to Average Loans: 0.04%
• Watch/Special Mention loans: $47,823k
• Substandard loans: $52,956k

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: The Company repurchased 167,709 shares of common stock for $2.2 million at a weighted average price of $13.07 during 2025. As of December 31, 2025, $13.1 million remained under the stock repurchase program, authorized until August 26, 2026.
• Dividend Payments: $4,054k was paid in preferred stock dividends in 2025. The Company does not intend to pay cash dividends on its common stock in the foreseeable future.

Balance Sheet Position (as of December 31, 2025):

• Cash and Equivalents: $123,511k
• Total Debt: $508,177k (comprising $399,500k in FHLB Advances and $108,677k in Subordinated Debentures, Net of Issuance Costs)
• Net Cash Position: $(384,666)k
• Total Assets: $5,407,002k
• Total Shareholders' Equity: $517,095k
• Tangible Common Equity to Tangible Assets: 8.01% (up from 7.36% in 2024)
• Debt Maturity Profile: FHLB advances include $319,500k due in less than one year (weighted average rate 4.04%). Subordinated debentures include $30,000k (2031 Notes) which migrate to a floating rate in July 2026, and $80,000k (2035 Notes) which migrate to a floating rate in June 2030.

Cash Flow Generation (for the year ended December 31, 2025):

• Operating Cash Flow: $27,812k
• Free Cash Flow: $25,769k (Operating Cash Flow less increase in Premises and Equipment, Net)

Operational Excellence

Production & Service Model: Bridgewater Bank operates with a branch-light model, utilizing nine full-service offices to deliver commercial and traditional retail banking services. Its operational philosophy emphasizes commercial banking expertise, particularly in multifamily financing, and leverages online, mobile, and direct banking channels for deposit products, including remote deposit and cash management services.

Supply Chain Architecture: Key Suppliers & Partners:

• Technology Partners: The Company relies on critical third-party systems for data processing and banking platforms.
• Derivative Counterparties: Engages with large U.S. financial institutions to offset interest rate swap positions, minimizing risk.

Facility Network:

• Headquarters: The corporate headquarters is located at 4450 Excelsior Boulevard, Suite 100, St. Louis Park, Minnesota 55416.
• Distribution: The Company operates nine full-service branch offices in the Twin Cities MSA. Five of these branches are owned (Lake Elmo, Minneapolis (Hennepin Avenue), Minnetonka, Orono, and St. Louis Park), while four are leased (Greenwood, Minneapolis (60 South Sixth Street), St. Paul, and Bloomington). The Lake Elmo branch commenced operations in February 2026.

Operational Metrics (for the year ended December 31, 2025):

• Efficiency Ratio: 53.5% (improved from 57.9% in 2024)
• Noninterest Expense to Average Assets: 1.47% (increased from 1.35% in 2024)

Market Access & Customer Relationships

Go-to-Market Strategy: Distribution Channels:

• Direct Sales: The Company leverages its commercial banking expertise and experienced team for direct client engagement.
• Digital Platforms: Online, mobile, and direct banking channels are utilized to offer commercial and traditional retail deposit products.

Customer Portfolio: Enterprise Customers:

• Customer Concentration: As of December 31, 2025, the 10 largest depositor relationships accounted for approximately 16.2% of total deposits, and the 10 largest borrowing relationships accounted for approximately 15.3% of the total gross loan portfolio.

Geographic Revenue Distribution:

• Over 75% of the Company's real estate loan balances are secured by properties located within the Twin Cities MSA.
• Growth Markets: The Company has a national affordable housing lending strategy, indicating efforts to diversify its market reach beyond its core geographic footprint.

Competitive Intelligence

Market Structure & Dynamics

Industry Characteristics: The Company operates in the highly competitive Twin Cities MSA, which had total deposits of $232.6 billion as of June 30, 2025. The market is characterized by the presence of large national and regional banks, credit unions, non-bank financial services companies, fintech companies, and digital asset providers. The industry is also influenced by macroeconomic factors such as elevated inflation (consumer price index increased approximately 2.7% in 2025) and interest rate changes, with the FOMC decreasing the federal funds rate in Q4 2025 and anticipating further cuts in 2026. Regulatory developments, such as the GENIUS Act signed in 2025 to regulate stablecoins, also shape the competitive landscape.

Competitive Positioning Matrix (as of December 31, 2025):

Direct Competitors

Primary Competitors (by deposit market share in Twin Cities MSA as of June 30, 2025):

• U.S. Bancorp: 41.21% market share.
• Wells Fargo & Co: 17.75% market share.
• Ameriprise Financial, Inc.: 9.67% market share.
• Old National Bancorp: 3.53% market share.
• Huntington Bancshares Incorporated: 2.81% market share.
• Bank of America Corporation: 2.23% market share.
• Bank of Montreal: 2.08% market share.
• State Bankshares, Inc.: 1.91% market share.
• Choice Financial Holdings, Inc.: 1.31% market share.

Emerging Competitive Threats: The Company faces increasing competition from fintech companies and digital asset providers, alongside new regulatory frameworks for digital assets like stablecoins.

Competitive Response Strategy: The Company's growth strategies include organic growth by leveraging its commercial banking expertise, efficient operating model, strong branding, and national affordable housing strategy, alongside efforts to increase core deposits. It also aims to capitalize on its entrepreneurial culture and talent, and remains open to opportunistic acquisitions.

Risk Assessment Framework

Strategic & Market Risks

Market Dynamics:

• Interest Rate Risk: The Company's primary market risk is interest rate fluctuations, managed by its Asset/Liability Management Committee. A 12-month net interest income simulation as of December 31, 2025, indicated a 6.09% decrease with a +400 basis point interest rate increase and a 19.53% increase with a -400 basis point decrease.
• Technology Disruption: The financial services industry faces increasing cybersecurity risks, including electronic fraudulent activity, security breaches, and cyber-attacks. The Company also acknowledges potential issues with artificial intelligence, such as flaws, biased data, ethical concerns, and new regulations.
• Customer Concentration: The 10 largest depositor relationships accounted for approximately 16.2% of total deposits, and the 10 largest borrowing relationships accounted for approximately 15.3% of the total gross loan portfolio as of December 31, 2025, posing concentration risk.

Operational & Execution Risks

Supply Chain Vulnerabilities:

• Supplier Dependency: The Company is dependent on critical third-party systems for data processing and banking platforms, which introduces operational risk.
• Geographic Concentration: Over 75% of the Company's real estate loan balances are secured by properties in the Twin Cities MSA, concentrating geographic risk.

Financial & Regulatory Risks

Market & Financial Risks:

• Credit Risk: A significant concentration in commercial real estate loans ($3.01 billion, representing 69.9% of total gross loans and 473.1% of the Bank’s total risk-based capital) exposes the Company to specific credit risks. Real estate loans comprise 85.8% of the total gross loan portfolio. Affordable housing loans also involve unique complexities and reliance on government programs.
• Liquidity and Funding Risks: The Company relies on non-core funding sources, including $810.5 million of brokered deposits (18.8% of total deposits) and $399.5 million of FHLB advances as of December 31, 2025. Approximately 30% of deposits ($1.29 billion) were uninsured.
• Unrealized Losses: The securities portfolio had unrealized losses, net of tax, of $7.3 million as of December 31, 2025.

Regulatory & Compliance Risks:

• Industry Regulation: The Company is subject to commercial real estate lending guidance due to its concentration in this area. While the Bank does not pay the FDIC's special assessment due to having less than $5 billion in estimated uninsured deposits, it incurs higher compliance costs from CFPB rules and paid approximately $163,100 in supervisory assessments to the MDOC in 2025. Bridgewater Investment Management, Inc.'s municipal lending activities for tax treatment may be subject to IRS investigation.

Innovation & Technology Leadership

Research & Development Focus: Core Technology Areas: While not explicitly detailed as traditional R&D, the Company focuses on leveraging digital platforms to enhance customer experience and operational efficiency, including remote deposit and cash management services, as well as online and mobile banking channels.

Intellectual Property Portfolio: The filing does not provide specific details regarding the Company's patent strategy, licensing programs, or IP litigation.

Technology Partnerships: The Company relies on critical third-party systems for data processing and banking platforms, indicating strategic alliances with technology providers.

Leadership & Governance

Executive Leadership Team (as of February 26, 2026)

Leadership Continuity: The Strategic Leadership Team experienced transitions in 2025, with Mary Jayne Crocker (Chief Strategy Officer) and Jeffrey D. Shellberg (Deputy Chief Credit Officer) scheduled to retire in 2026. New additions to the SLT in 2025 included Katie Morrell (Chief Credit Officer), Jessica Stejskal (Chief Experience Officer), and Laura B. Espeseth (Chief Administrative Officer).

Board Composition: The Board of Directors includes Jerry J. Baack, Joe M. Chybowski, Laura B. Espeseth, Lisa M. Brezonik, Mary Jayne Crocker, James S. Johnson, David B. Juran, Mohammed Lawal, Douglas J. Parish, Jeffrey D. Shellberg, Thomas P. Trutna, Todd B. Urness, and David J. Volk. The Nominating and ESG Committee provides board oversight for ESG matters.

Human Capital Strategy

Workforce Composition:

• Total Employees: 322 full-time equivalent employees as of December 31, 2025, representing an 11% increase from the prior year. None of the employees are party to a collective bargaining agreement.
• Geographic Distribution: Primarily concentrated in the Twin Cities MSA, aligning with the Company's branch network.
• Skill Mix: The Company emphasizes commercial banking expertise as a competitive strength.

Talent Management: Acquisition & Retention:

• Employee Value Proposition: The Company offers a hybrid working model and provides employees with up to 16 hours of paid time off per year for volunteering.

Diversity & Development:

• Diversity Metrics: As of December 31, 2025, women and people of color comprised 53% and 21% of the total workforce, respectively. In manager roles, women represented 56% and people of color 13%.
• Development Programs: The Leadership Development Program was enhanced in 2025.
• Culture & Engagement: The Company fosters a hard-working and entrepreneurial culture, guided by core values of Unconventional, Responsive, Dedicated, Growth, and Accurate. A Diversity, Equity and Inclusion Committee was established in 2019.

Environmental & Social Impact

Environmental Commitments: The filing states that ESG priorities include contributing to a healthier natural environment, but specific emissions targets, carbon neutrality commitments, or renewable energy adoption strategies are not detailed.

Supply Chain Sustainability: The filing does not provide specific details on supplier engagement regarding ESG requirements or responsible sourcing practices.

Social Impact Initiatives:

• Community Investment: The Company supports community involvement by offering employees up to 16 hours of paid time off annually for volunteering.
• Product Impact: The Company has an expanded focus on affordable housing lending nationally, which contributes to social welfare.
• Work Environment: ESG priorities include creating a diverse, equitable, and inclusive work environment, supported by the Diversity, Equity and Inclusion Committee.

Business Cyclicality & Seasonality

Demand Patterns:

• Economic Sensitivity: Loan growth returned to normalized levels in 2025. The Company operates in an environment influenced by elevated inflation (consumer price index increased approximately 2.7% in 2025) and interest rate changes, with the FOMC decreasing the federal funds rate in Q4 2025 and expecting additional cuts in 2026.

Planning & Forecasting: The filing does not explicitly detail the Company's demand forecasting approach, inventory management, or capacity planning.

Regulatory Environment & Compliance

Regulatory Framework: Industry-Specific Regulations: Bridgewater Bancshares, Inc. and Bridgewater Bank are regulated by the Federal Reserve Board of Governors, the FDIC, and the Minnesota Department of Commerce, Financial Institutions Division (“MDOC”). The Company benefits from the Economic Growth, Regulatory Relief and Consumer Protection Act of 2018, which exempts it from mandatory stress tests, risk committee, or Volcker Rule compliance. As of December 31, 2025, both the Company and the Bank were well capitalized, exceeding applicable quantitative capital ratio standards and meeting Basel III Rule requirements and capital conservation buffer. The Bank's concentration in CRE lending (473.1% of total risk-based capital) requires heightened risk management under commercial real estate lending guidance. CFPB rules have led to higher compliance costs. The Bank paid approximately $163,100 in supervisory assessments to the MDOC for 2025.

Trade & Export Controls: The filing does not contain material information regarding trade or export controls.

Legal Proceedings: Management believes that any liability arising from legal claims would not materially impact the consolidated financial statements.

Tax Strategy & Considerations

Tax Profile:

• Effective Tax Rate: The Company's effective combined federal and state income tax rate was 23.2% for both 2025 and 2024.
• Geographic Tax Planning: Bridgewater Investment Management, Inc. holds municipal securities and engages in municipal lending activities to achieve favorable federal income tax treatment, which the IRS may investigate.
• Tax Reform Impact: The One Big Beautiful Bill Act, enacted on July 4, 2025, had no material effect on the Company’s 2025 consolidated financial statements.
• Tax Credits: The Company utilizes Low Income Housing Tax Credits (LIHTC) and Federal Historic Tax Credits (FHTC) for tax benefits, with investments totaling $26,772k and unfunded commitments of $11,380k as of December 31, 2025.
• Net Deferred Tax Asset: The net deferred tax asset was $18.3 million as of December 31, 2025.

Insurance & Risk Transfer

Risk Management Framework:

• Risk Transfer Mechanisms: The Company actively uses derivative instruments, including fair value hedges (interest rate swaps), cash flow hedges (interest rate swaps and interest rate caps), and risk participation agreements, to manage interest rate, liquidity, and credit risks. These instruments are formally designated for hedge accounting under GAAP. The Company does not engage in speculative trading.