KBRA Affirms Ratings for Bridgewater Bancshares, Inc.

KBRA affirms the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, the preferred shares rating of BB+, and the short-term debt rating of K3 for St. Louis Park, Minnesota-based Bridgewater Bancshares, Inc. (NASDAQ: BWB) (“Bridgewater” or “the company”). KBRA also affirms the deposit and senior unsecured debt ratings of BBB+, the subordinated debt rating BBB, and the short-term deposit and debt ratings of K2 for Bridgewater Bank, the main subsidiary. The Outlook for all long-term ratings is Stable.

Key Credit Considerations

BWB's earnings profile has strengthened following the margin pressure experienced during the rapid rising-rate cycle, although profitability remains comparatively spread-reliant and somewhat constrained by above-peer funding costs, reflecting a relatively higher reliance on wholesale funding sources (28% of total funding). NIM expanded 83 bps from its mid-2024 trough to 3.07% in 2Q26, driven by continued loan repricing, organic loan growth, and lower deposit costs as the benefits of prior rate cuts have been realized. Management expects further margin expansion, albeit at a more moderate pace, supported by continued back-book repricing and mid- to high-single-digit loan growth. The company's efficient operating model and historically modest credit costs provide additional support for earnings, although fee income remains limited. The ratings are further supported by BWB's long-standing track record of strong asset quality, underpinned by a credit-focused management team, disciplined underwriting standards, active portfolio monitoring, and deep knowledge of its core markets. Since 2014, NPAs have averaged just 0.21%. Although NPAs increased modestly during 2025 and 1H26, deterioration remains largely idiosyncratic, with 90% of current problem assets concentrated in two relationships, a CBD office loan and a mixed-use multifamily relationship. BWB's five-year average net charge-off ratio of 0.01% remains well below the majority of its peers, with limited charge-off activity continuing through 1H26. Additionally, despite this favorable loss history, the company has maintained a conservative reserve position, with the ACL at 1.30% of loans as of 2Q26. Investor CRE concentration remains elevated at 457% of total risk-based capital as of 2Q26; however, this declines to a more moderate 207% when excluding multifamily exposures. We note that multifamily lending represents the largest component of this concentration and has demonstrated exceptionally strong performance historically, with cumulative losses of less than $1 million since 2005. Capital remains the primary rating constraint, with risk-based capital ratios historically tracking below similarly rated peers, reflecting BWB's growth-oriented strategy and comparatively high risk-weighted asset density (89%). Nevertheless, recent capital metrics have improved following the all-cash acquisition of First Minnetonka City Bank in 4Q24, with CET1 increasing to 9.6% as of 2Q26. Management is comfortable operating with a consolidated CET1 ratio between 9%–10%, which remains below peer averages; however, given the company's consistently strong credit performance, conservative reserve levels, and improved earnings power supporting internal capital generation, capital remains adequate. Capital flexibility is further enhanced by the company's authorized $50 million at-the-market common equity program, which management views primarily as a contingent source of capital.

Rating Sensitivities

A rating upgrade is not expected over the near-to-medium term. Over the longer term, risk-based capital metrics more consistent with the higher rating category, reduced reliance on noncore funding, and the continued maintenance of strong credit quality and sound profitability could support positive rating momentum. Conversely, ratings could come under pressure if capital ratios decline meaningfully below current levels, particularly if the CET1 ratio falls below 9%, or if deterioration in credit quality or increased reliance on noncore funding materially weakens earnings over multiple quarters, limiting internal capital generation.

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