FIRST BUSINESS FINANCIAL SERVICES, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations General Unless otherwise indicated or unless the context requires otherwise, all references in this Report to the “Corporation,” “we,” “us,” “our,” or similar references mean First Business Financial Services, Inc. together with our subsidiary. “FBB” or the “Bank” refers to our subsidiary, First Business Bank. Forward-Looking Statements This report may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, which reflect our current views with respect to future events and financial performance. Forward-looking statements are not based on historical information, but rather are related to future operations, strategies, financial results, or other developments. Forward-looking statements are based on management’s expectations as well as certain assumptions and estimates made by, and information available to, management at the time the statements are made. Such statements are subject to risks and uncertainties, including among other things: • Adverse changes in the economy or business conditions, either nationally or in our markets including, without limitation, inflation, economic downturn, labor shortages, wage pressures, and the adverse effects of public health events on the global, national, and local economy. • Uncertainty created by potential federal government actions relating to the authority of regulatory agencies (including bank regulators), international trade policy, and other significant policy matters. • Competitive pressures among depository and other financial institutions nationally and in our markets. • Increases in defaults by borrowers and other delinquencies. • Our ability to manage growth effectively includes the successful expansion of our client support, administrative infrastructure, and internal management systems. • Fluctuations in interest rates and market prices. • Changes in legislative or regulatory requirements applicable to us and our subsidiaries. • Changes in tax requirements, including tax rate changes, new tax laws, and revised tax law interpretations. • Fraud, including client and system failure or breaches of our network security, including our internet banking activities. • Failure to comply with the applicable SBA regulations in order to maintain the eligibility of the guaranteed portions of SBA loans. • Ongoing volatility in the banking sector may result in new legislation, regulations or policy changes that could subject the Corporation and the Bank to increased government regulation and supervision. • The proportion of the Corporation’s deposit account balances that exceed FDIC insurance limits may expose the Bank to enhanced liquidity risk. • The Corporation may be subject to increases in FDIC insurance assessments. These risks could cause actual results to differ materially from what we have anticipated or projected. These risk factors and uncertainties should be carefully considered by our shareholders and potential investors. See Part I, Item 1A — Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2024, and in this report, below, for discussion relating to risk factors impacting us. Investors should not place undue reliance on any such forward-looking statements, which speak only as of the date made. These factors could affect our financial performance and could cause actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods. Where any such forward-looking statement includes a statement of the assumptions or bases underlying such forward-looking statement, we caution that, while our management believes such assumptions or bases are reasonable and are made in good faith, assumed facts or bases can vary from actual results, and the differences between assumed facts or bases and actual results can be 35 Table of Contents material, depending on the circumstances. Where, in any forward-looking statement, an expectation or belief is expressed as to future results, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will be achieved or accomplished. We do not intend to, and specifically disclaim any obligation to, update any forward-looking statements. The following discussion and analysis is intended as a review of significant events and factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with the unaudited Consolidated Financial Statements and the Notes thereto presented in this Form 10-Q. Overview We are a registered bank holding company incorporated under the laws of the State of Wisconsin and are engaged in the commercial banking business through our wholly-owned banking subsidiary, FBB. All of our operations are conducted through FBB and First Business Specialty Finance, LLC (“FBSF”), a wholly-owned subsidiary of FBB. We operate as a business bank focusing on delivering a full line of commercial banking products and services tailored to meet the specific needs of small and medium-sized businesses, business owners, executives, professionals, and high net worth individuals. Our products and services include those for business banking, private wealth management services, and bank consulting. Within business banking, we offer commercial lending, asset-based lending, accounts receivable financing, equipment financing, floorplan financing, vendor financing, SBA lending and servicing, treasury management services, and company retirement plans. Our private wealth management services include trust and estate administration, financial planning, investment management, and private banking for executives and owners of our business banking clients and others. Our bank consulting experts provide investment portfolio administrative services, asset liability management services, and asset liability management process validation for other financial institutions. We do not utilize a branch network to attract retail clients. Our operating model is predicated on deep client relationships, financial expertise, and an efficient, centralized administration function delivering best in class client satisfaction. Our focused model allows experienced staff to provide the level of financial expertise needed to develop and maintain long-term relationships with our clients. Financial Performance Summary Results as of and for the three months ended March 31, 2025 include: • Net income available to common shareholders totaled $11.0 million, or diluted earnings per share of $1.32, for the three months ended March 31, 2025, compared to $8.6 million, or diluted earnings per share of $1.04, for the same period in 2024. • Annualized return on average assets (“ROAA”) for the three months ended March 31, 2025 measured 1.14% compared to 0.98% for the same period in 2024. • Return on average tangible common equity (“ROATCE”) is defined as net income available to common shareholders divided by average equity less average intangible assets and average preferred stock. ROATCE was 14.12% for the three months ended March 31, 2025, compared to 12.79% for the same period in 2024. • Pre-tax, pre-provision (“PTPP”) adjusted earnings, which excludes certain one-time and discrete items, for the three months ended March 31, 2025 was $16.2 million, compared to $13.1 million in the same period in 2024. • Fees in lieu of interest, defined as prepayment fees, asset-based loan fees, non-accrual interest, and loan fee amortization, totaled $2.1 million for the three months ended March 31, 2025, compared to $849,000 for the same period in 2024. • Net interest margin was 3.69% for the three months ended March 31, 2025 compared to 3.58% for the same period in 2024. Adjusted net interest margin, which excludes the impact of fees in lieu of interest, and other recurring, but volatile, components of net interest margin, was 3.46% for the three months ended March 31, 2025, compared to 3.43% for the same period in 2024. • Top line revenue, defined as net interest income plus non-interest income, totaled $40.8 million for the three months ended March 31, 2025, compared to $36.3 million in the same period in 2024. • Effective tax rate, including the benefit from Low-Income Housing Tax Credits, was 17.0% for the three months ended March 31, 2025 compared to 16.5% for the same period in 2024. 36 Table of Contents • Provision for credit losses was $2.7 million for the three months ended March 31, 2025 compared to $2.3 million for the same period in 2024. • Total assets at March 31, 2025 increased $91.7 million, or 9.5% annualized, to $3.945 billion from $3.853 billion at December 31, 2024. • Period-end gross loans and leases receivable increased $71.4 million, or 9.2% annualized, to $3.185 billion as of March 31, 2025 compared to $3.114 billion as of December 31, 2024. Average gross loans and leases of $3.186 billion increased $298.3 million, or 10.3%, for the three months ended March 31, 2025, compared to $2.887 billion for the same period in 2024. • Non-performing assets were $24.1 million and 0.61% of total assets as of March 31, 2025, compared to $28.4 million and 0.74% of total assets as of December 31, 2024. • The allowance for credit losses, including reserve for unfunded credit commitments, decreased $753,000 compared to December 31, 2024. The allowance for credit losses, including reserve for unfunded credit commitments, was 1.15% of total loans, compared to 1.20% at December 31, 2024. • Period-end core deposits at March 31, 2025 increased $66.3 million, or 11.1% annualized, to $2.463 billion from $2.396 billion as of December 31, 2024. Average core deposits of $2.363 billion increased $16.4 million or 0.7%, for the three months ended March 31, 2025, compared to $2.346 billion for the same period in 2024. • Private wealth and trust assets under management and administration increased by $5.9 million, or 0.7% annualized, to $3.425 billion at March 31, 2025, compared to $3.419 billion at December 31, 2024. Private wealth trust assets under management and administration increased $104.4 million, or 3.1%, compared to the same period in 2024. Results of Operations Top Line Revenue Top line revenue, comprised of net interest income and non-interest income, increased $4.6 million, or 12.6%, for the three months ended March 31, 2025, compared to the same period in 2024, due to a 12.7% increase in net interest income and a 12.2% increase in non-interest income. The increase in net interest income was driven by an increase in average loans and leases outstanding as well as an increase in fees in lieu of interest. The increase in non-interest income was due to increases in gains on the sale of SBA loans and private wealth fee income, partially offset by decreases in loan fees. The components of top line revenue were as follows: For the Three Months Ended March 31, 2025 2024 $ Change % Change (Dollars in Thousands) Net interest income $ 33,258 $ 29,511 $ 3,747 12.7 % Non-interest income 7,579 6,757 822 12.2 Top line revenue $ 40,837 $ 36,268 $ 4,569 12.6 Annualized Return on Average Assets (“ROAA”) and Annualized Return on Average Tangible Common Equity (“ROATCE”) ROAA for the three months ended March 31, 2025 was 1.14%, compared to 0.98% for the three months ended March 31, 2024. The increase in ROAA for the three months ended was due to increases in net interest income and non-interest income, partially offset by an increase in operating expenses and income tax expense. We consider ROAA a critical metric to measure the profitability of our organization and how efficiently our assets are deployed. ROAA also allows us to better benchmark our profitability to our peers without the need to consider different degrees of leverage which can ultimately influence return on equity measures. ROATCE for the three months ended March 31, 2025 was 14.1%, compared to 12.8% for the three months ended March 31, 2024. The reasons for the change in ROATCE are consistent with the net income variance explanation as discussed under ROAA above. We view ROATCE as an important measurement for monitoring profitability and continue to focus on improving our return to our shareholders by enhancing the overall profitability of our client relationships, controlling our expenses, and minimizing our costs of credit. 37 Table of Contents Efficiency Ratio and Pre-Tax, Pre-Provision Adjusted Earnings Efficiency ratio measured 60.3% for the three months ended March 31, 2025, compared to 63.8% for the three months ended March 31, 2024. The percentage increase in top line revenue exceeded the percentage increase in operating expenses, resulting in positive quarterly operating leverage. Revenue increased for the reasons stated above in the Top Line Revenue section, while operating expenses increased at a slower rate in the periods of comparison as described in the Non-Interest Expense section. Efficiency ratio is a non-GAAP measure representing operating expense, which is non-interest expense excluding the effects of the SBA recourse benefit or provision, net gains or losses on repossessed assets, amortization of other intangible assets, and other discrete items, if any, divided by operating revenue, which is equal to net interest income plus non-interest income less realized net gains or losses on securities, if any. PTPP adjusted earnings for three months ended March 31, 2025 were $16.2 million, compared to $13.1 million for the three months ended March 31, 2024, an increase of 23.4%. PTPP adjusted earnings is defined as operating revenue less operating expense. The increase in PTPP adjusted earnings was primarily driven by increases in both net interest income and non-interest income, partially offset by an increase in operating expenses. In the judgment of the Corporation’s management, the adjustments made to non-interest expense and non-interest income allow investors and analysts to better assess the Corporation’s operating expenses in relation to its core operating revenue by removing the volatility associated with certain one-time items and other discrete items. PTPP adjusted earnings is a non-GAAP measure that allows management to benchmark performance of our model to our peers without the influence of the provision for credit losses and tax considerations, which will ultimately influence other traditional financial measurements, including ROAA and ROATCE. The information provided below reconciles the efficiency ratio to its most comparable GAAP measure. Please refer to the Non-Interest Income and Non-Interest Expense sections below for discussion on additional drivers of the year-over-year change in the efficiency ratio and PTPP adjusted earnings. For the Three Months Ended March 31, 2025 2024 $ Change % Change (Dollars in Thousands) Total non-interest expense $24,719 $23,342 $1,377 5.9% Less: Net (gain) loss on repossessed assets (8) 86 (94) NM Impairment of tax credit investments 110 — 110 NM SBA recourse provision — 126 (126) NM Total operating expense (a) $24,617 $23,130 $1,487 6.4 Net interest income $33,258 $29,511 $3,747 12.7 Total non-interest income 7,579 6,757 822 12.2 Less: Net loss on sale of securities — (8) 8 NM Adjusted non-interest income 7,579 6,765 814 12.0 Operating revenue (b) $40,837 $36,276 $4,561 12.6 Efficiency ratio 60.28% 63.76% Pre-tax, pre-provision adjusted earnings (b-a) $16,220 $13,146 $3,074 23.4 Average total assets $3,842,368 $3,527,941 $314,427 8.9 Net Interest Income Net interest income levels depend on the amount of and yield on interest-earning assets as compared to the amount of and rate paid on interest-bearing liabilities. Net interest income is sensitive to changes in market rates of interest and the asset/liability management processes to prepare for and respond to such changes. 38 Table of Contents The following table provides information with respect to (1) the change in net interest income attributable to changes in rate (changes in rate multiplied by prior volume) and (2) the change in net interest income attributable to changes in volume (changes in volume multiplied by prior rate) for the three months ended March 31, 2025 compared to the same period in 2024. The change in net interest income attributable to changes in rate and volume (changes in rate multiplied by changes in volume) has been allocated to the rate and volume changes in proportion to the relationship of the absolute dollar amounts of the change in each. Increase (Decrease) for the Three Months Ended March 31, 2025 Compared to 2024 Rate Volume Net (In Thousands) Interest-earning assets Commercial real estate and other mortgage loans (1) $ (1,457 ) $ 3,223 $ 1,766 Commercial and industrial loans (1) 26 1,977 2,003 Consumer and other loans (1) (1 ) (43 ) (44 ) Total loans and leases receivable (1,432 ) 5,157 3,725 Mortgage-related securities 245 674 919 Other investment securities (154 ) (155 ) (309 ) FHLB and FRB Stock (84 ) 96 12 Short-term investments (199 ) (401 ) (600 ) Total net change in income on interest-earning assets (1,624 ) 5,371 3,747 Interest-bearing liabilities Transaction accounts (1,631 ) 596 (1,035 ) Money market accounts (1,464 ) 650 (814 ) Certificates of deposit (430 ) (919 ) (1,349 ) Wholesale deposits (8 ) 2,385 2,377 Total deposits (3,533 ) 2,712 (821 ) FHLB advances 542 115 657 Other borrowings 84 80 164 Total net change in expense on interest-bearing liabilities (2,907 ) 2,907 — Net change in net interest income $ 1,283 $ 2,464 $ 3,747 (1) The average balances of loans and leases include non-accrual loans and leases and loans held for sale. 39 Table of Contents The tables below show our average balances, interest, average yields/rates, net interest margin, and the spread between the combined average yields earned on interest-earning assets and average rates on interest-bearing liabilities for the three months ended March 31, 2025 and 2024. The average balances are derived from average daily balances. For the Three Months Ended March 31, 2025 2024 Average Balance Interest Average Yield/Rate (4) Average Balance Interest Average Yield/Rate (4) (Dollars in Thousands) Interest-earning assets Commercial real estate and other mortgage loans (1) $ 1,925,661 $ 29,886 6.21 % $ 1,721,186 $ 28,120 6.54 % Commercial and industrial loans (1) 1,212,656 24,727 8.16 1,115,724 22,724 8.15 Consumer and other loans (1) 47,479 661 5.57 50,544 705 5.58 Total loans and leases receivable (1) 3,185,796 55,274 6.94 2,887,454 51,549 7.14 Mortgage-related securities (2) 308,656 3,195 4.14 241,940 2,276 3.76 Other investment securities (3) 43,145 209 1.94 67,980 518 3.05 FHLB and FRB stock 13,623 294 8.63 12,271 282 9.19 Short-term investments 51,072 558 4.37 85,072 1,158 5.44 Total interest-earning assets 3,602,292 59,530 6.61 3,294,717 55,783 6.77 Non-interest-earning assets 240,076 233,224 Total assets $ 3,842,368 $ 3,527,941 Interest-bearing liabilities Transaction accounts $ 927,250 7,412 3.20 $ 862,896 8,447 3.92 Money market accounts 831,598 6,751 3.25 761,893 7,565 3.97 Certificates of deposit 189,547 1,861 3.93 278,248 3,210 4.61 Wholesale deposits 694,431 6,992 4.03 457,536 4,615 4.03 Total interest-bearing deposits 2,642,826 23,016 3.48 2,360,573 23,837 4.04 FHLB advances 305,549 2,374 3.11 287,307 1,717 2.39 Other borrowings 54,708 882 6.45 49,457 718 5.81 Total interest-bearing liabilities 3,003,083 26,272 3.50 2,697,337 26,272 3.90 Non-interest-bearing demand deposit accounts 414,499 443,416 Other non-interest-bearing liabilities 90,683 93,307 Total liabilities 3,508,265 3,234,060 Stockholders’ equity 334,103 293,881 Total liabilities and stockholders’ equity $ 3,842,368 $ 3,527,941 Net interest income $ 33,258 $ 29,511 Interest rate spread 3.11 % 2.88 % Net interest-earning assets $ 599,209 $ 597,380 Net interest margin 3.69 % 3.58 % Average interest-earning assets to average interest-bearing liabilities 119.95 % 122.15 % Return on average assets (4) 1.14 % 0.98 % Return on average tangible common equity (4) 14.12 % 12.79 % Average equity to average assets 8.70 % 8.33 % Non-interest expense to average assets (4) 2.57 % 2.65 % (1) The average balances of loans and leases include non-accrual loans and leases and loans held for sale. Interest income related to non-accrual loans and leases is recognized when collected. Interest income includes net loan fees in lieu of interest. (2) Includes amortized cost basis of assets available-for-sale and held-to-maturity. (3) Yields on tax-exempt municipal securities are not presented on a tax-equivalent basis in this table. (4) Represents annualized yields/rates. 40 Table of Contents The change in yield of the respective interest-earning asset or the rate paid on interest-bearing liability compared to the change in short-term market rates is commonly referred to as a beta. The table below displays the beta calculations for loans and leases, total interest earning assets, core deposits, interest-bearing deposits and total interest-bearing liabilities for the three months ended March 31, 2025 and 2024. Additionally, adjusted total loans and leases and total interest-earning assets excludes the volatile impact of fees in lieu of interest. For the Three Months Ended March 31, 2025 2024 Increase Asset and Liability Beta Analysis Average Yield/Rate (4) (Decrease) Total loans and leases receivable (a) 6.94 % 7.14 % (0.20 )% Total interest-earning assets (b) 6.61 % 6.77 % (0.16 )% Adjusted total loans and leases receivable (1)(c) 6.68 % 7.03 % (0.35 )% Adjusted total interest-earning assets (1)(d) 6.38 % 6.68 % (0.30 )% Total core deposits (e) 2.71 % 3.28 % (0.57 )% Total bank funding (f) 3.02 % 3.31 % (0.29 )% Net interest margin (g) 3.69 % 3.58 % 0.11 % Adjusted net interest margin (h) 3.46 % 3.43 % 0.03 % Effective fed funds rate (3)(i) 4.33 % 5.33 % (1.00 )% Beta Calculations: Total loans and leases receivable (a)/(i) 20.00 % Total interest-earning assets (b)/(i) 16.00 % Adjusted total loans and leases receivable (1)(c)/(i) 35.00 % Adjusted total interest-earning assets (1)(d)/(i) 30.00 % Total core deposits (e)/(i) 57.00 % Total bank funding (2)(f)/(i) 29.00 % Comparison of Net Interest Income for the Three Months Ended March 31, 2025 and 2024 Net interest income increased $3.7 million, or 12.7%, during the three months ended March 31, 2025, compared to the three months ended March 31, 2024. The increase in net interest income reflected an increase in average gross loans and leases, an increase in fees in lieu of interest, and net interest margin improvement. Fees in lieu of interest, which vary from quarter to quarter, totaled $2.1 million for the three months ended March 31, 2025, compared to $849,000 for the same period in 2024. FILOI was elevated due to reclassification of loan fees that were previously classified as non-interest income to interest income. Excluding fees in lieu of interest, net interest income for the three months ended March 31, 2025 increased $2.5 million, or 8.88%. Average gross loans and leases for the three months ended March 31, 2025 increased $298.3 million, or 10.3%, compared to the three months ended March 31, 2024. The yield on average loans and leases for the three months ended March 31, 2025 was 6.94%, compared to 7.14% for the three months ended March 31, 2024. Excluding the impact of loan fees in lieu of interest, the yield on average loans and leases for the three months ended March 31, 2025 was 6.68%, compared to 7.02% for the three months ended March 31, 2024. The yield on average interest-earning assets for the three months ended March 31, 2025 measured 6.61%, compared to 6.77% for the three months ended March 31, 2024. Excluding loan fees in lieu of interest, the yield on average interest-earning assets for the three months ended March 31, 2025 was 6.38%, compared to 6.67% for the three months ended March 31, 2024. The decrease in yield was primarily due to the decrease in short-term market rates partially offset by the reinvestment of cash flows from the securities and fixed-rate loan portfolios. Compared to the prior year quarter, the quarter's daily average effective federal funds rate was 4.33%. The daily average effective federal funds rate for the three months ended March 31, 2025 decreased 100 basis points compared to the prior year quarter. 41 Table of Contents The rate paid on average interest-bearing core deposits for the three months ended March 31, 2025 decreased to 3.29%, from 4.04% for the three months ended March 31, 2024. The average rate paid on total interest-bearing liabilities for the three months ended March 31, 2025 decreased to 3.50%, from 3.90% for the three months ended March 31, 2024. Total interest-bearing liabilities may include interest-bearing deposits, FHLB advances, subordinated and junior subordinated notes and debentures payable, federal funds purchased, and other borrowings. The average rates paid decreased primarily due to the decrease in short-term market rates. The daily average effective federal funds rate for the three months ended March 31, 2025 decreased by 100 basis points compared to the prior year quarter. Net interest margin increased to 3.69% for the three months ended March 31, 2025, compared to 3.58% for the three months ended March 31, 2024. The primary driver of the increase in net interest margin was lower funding costs, partially offset by a decrease in earning asset yields. Adjusted net interest margin measured 3.46% for the three months ended March 31, 2025, compared to 3.43% for the three months ended March 31, 2024. Adjusted net interest margin is a non-GAAP measure representing net interest income excluding the impact of fees in lieu of interest, and other recurring, but volatile, components of net interest margin divided by average interest-earning assets less other recurring, but volatile, components of average interest-earning assets. Management believes its success in growing core deposits, disciplined loan pricing, and increased production in existing higher-yielding commercial lending products will allow the Corporation to achieve a net interest margin that supports our long-term profitability goals. The collection of loan fees in lieu of interest is an expected source of volatility to quarterly net interest income and net interest margin. In addition, net interest margin may also experience volatility due to events such as the collection of interest on loans previously in non-accrual status or the accumulation of significant short-term deposit inflows. The Corporation maintains a long-term target for net interest margin in the range of 3.60% - 3.65%. Performance in future quarters will vary due to factors such as the level of fees in lieu of interest and the timing, pace, and scale of future interest rate changes. Provision for Credit Losses We determine our provision for credit losses pursuant to our allowance for credit loss methodology. It is based on a reasonable and supportable forecast as well as considerations for composition, risk, and performance indicators in our credit portfolio. Refer to Allowance for Credit Losses , below, for further information regarding our allowance for credit loss methodology. The following table shows the components of the provision for credit losses for the three months ended March 31, 2025 compared to the same period in 2024. For the Three Months Ended March 31, 2025 2024 (In Thousands) Change in qualitative factors $ (355 ) $ 740 Change in quantitative factors 1,560 (199 ) Charge-offs 3,810 921 Recoveries (398 ) (227 ) Change in reserves on individually evaluated loans, net (2,495 ) 629 Change due to loan growth, net 741 354 Change in unfunded credit commitment reserves (204 ) 108 Total provision for credit losses $ 2,659 $ 2,326 42 Table of Contents Qualitative factor changes reflect management’s evaluation of the level of risk within the portfolio based upon several factors for each portfolio segment. The current period benefit is primarily due to lower growth rates in certain loan pools. Quantitative factor changes reflect the change in the reasonable and supportable forecast as well as other model assumptions. Charge-offs in excess of previously established specific reserves require an additional provision for credit losses to maintain the allowance for credit losses at a level deemed appropriate by management. This amount is net of the release of any specific reserve that may have already been provided. The addition of specific reserves on individually evaluated loans represents new specific reserves established when collateral shortfalls or government guaranty deficiencies are present, while the release of specific reserves represents the reduction of previously established reserves that are no longer required. Refer to Asset Quality , below, for further information regarding the overall credit quality of our loan and lease portfolio. Comparison of Non-Interest Income for the Three Months Ended March 31, 2025 and 2024 Non-Interest Income Non-interest income for the three months ended March 31, 2025 increased $822,000, or 12.2%, to $7.6 million compared to $6.8 million for the same period in 2024. The increase in total non-interest income was primarily driven by higher gains on the sale of SBA loans and private wealth fee income, partially offset by a decrease in loan fees. Management continues to focus on revenue growth from multiple non-interest income sources to maintain a diversified revenue stream. Contribution from fee-based revenue sources can be variable and driven by changes in the interest rate environment, client activity, and the value of underlying investments. Total non-interest income accounted for 18.6% of total revenues for both the three months ended March 31, 2025 and March 31, 2024. The components of non-interest income were as follows: For the Three Months Ended March 31, 2025 2024 $ Change % Change (Dollars in Thousands) Private wealth management services fee income $3,492 $3,111 $381 12.2% Gain on sale of SBA loans 963 195 768 393.8 Service charges on deposits 1,048 940 108 11.5 Loan fees 388 847 (459) (54.2) Increase in cash surrender value of bank-owned life insurance 437 412 25 6.1 Net loss on sale of securities — (8) 8 (100.0) Swap fees 113 198 (85) (42.9) Other non-interest income 1,138 1,062 76 7.2 Total non-interest income $7,579 $6,757 $822 12.2 Fee income ratio (1) 18.6% 18.6% (1) Fee income ratio is fee income, per the above table, divided by top line revenue (defined as net interest income plus non-interest income). Gain on sale of SBA loans increased $768,000, or 393.8%, for the three months ended March 31, 2025, compared to the same period in 2024. Management expects the SBA production to continue to grow year-over-year. Private wealth fee income increased $381,000, or 12.2% for the three months ended March 31, 2025, compared to the same period in 2024. Private wealth fee income is up compared to the prior year primarily due to an increase in assets under management and administration, increases in fee rates across the client base, and non-recurring transaction fees in the 2025 period. Private wealth fee income can vary due to the mix of business at different fee structures and can be positively or negatively influenced by the timing and magnitude of volatility within the capital markets. As of March 31, 2025, private wealth and trust assets under management and administration totaled $3.425 billion, increasing $104.4 million, or 3.1%, compared to $3.320 billion as of March 31, 2024, due to an increase in market values, new clients, and new money from existing clients. Service charges on deposits increased $108,000, or 11.5% for the three months ended March 31, 2025, compared to the same period in 2024. The increase is primarily driven by new and expanded core deposit relationships. Treasury management business 43 Table of Contents development efforts remain robust as gross treasury management service charges increased $108,000, or 6.7%, for the three months ended March 31, 2025, compared to the same period in 2024. Management believes growth in gross analyzed service charges is a strong indicator of success for the Corporation given the direct correlation to adding and expanding core business relationships. Loan fee income decreased $459,000 or 54.2%, for the three months ended March 31, 2025, compared to the same period in 2024. The change is primarily due to the re-classification of certain types of C&I loan fees from non-interest income to interest income made on a prospective basis. Excluding this reclassification, loan fee income increased $67,000. Comparison of Non-Interest Expense for the Three Months Ended March 31, 2025 and 2024 Non-Interest Expense Non-interest expense for the three months ended March 31, 2025 increased $1.4 million, or 5.9%, compared to the same period in 2024. Operating expense, which excludes certain one-time and discrete items as defined in the Efficiency Ratio table above, increased $1.5 million, or 6.4%, for the three months ended March 31, 2025, compared to the same period in 2024. The increase in operating expense was primarily due to an increase in compensation expense, other expenses, computer software expense, and FDIC insurance. The components of non-interest expense were as follows : For the Three Months Ended March 31, 2025 2024 $ Change % Change Compensation $ 16,747 $ 16,157 $ 590 3.7 % Occupancy 590 607 (17 ) (2.8 ) Professional fees 1,459 1,571 (112 ) (7.1 ) Data processing 1,082 1,018 64 6.3 Marketing 968 818 150 18.3 Equipment 376 345 31 9.0 Computer software 1,603 1,418 185 13.0 FDIC insurance 780 610 170 27.9 Other non-interest expense 1,114 798 316 39.6 Total non-interest expense $ 24,719 $ 23,342 $ 1,377 5.9 Total operating expense (1) $ 24,617 $ 23,130 $ 1,487 6.4 Actual full-time equivalent employees 354 348 (1) Total operating expense represents total non-interest expense, adjusted to exclude the impact of discrete items as previously defined in the non-GAAP efficiency ratio calculation, above. Compensation expense for the three months ended March 31, 2025 increased $590,000, or 3.7%, compared to the same period in 2024. The increase in compensation expense was primarily due to annual merit increases, promotions, and increases in headcount. Successful hiring efforts to secure talent resulted in average full-time equivalent employees for the three months ended March 31, 2025 increasing to 354, up 2%, compared to 348 for the three months ended March 31, 2024. Computer software expense increased $185,000, or 13.0%, for the three months ended March 31, 2025, compared to the same period in 2024. The increase was primarily due to our commitment to innovative technology to support growth initiatives, enhance productivity, and improve the client experience. FDIC insurance expense increased $170,000, or 27.9%, for the three months ended March 31, 2025, compared to the same period in 2024, primarily due increase in assessment rate and assessable base. Marketing expense increased $150,000, or 18.3%, for the three months ended March 31, 2025, compared to the same period in 2024. The increase was primarily due to an increase in business development efforts and advertising projects related to the Corporation’s growth initiatives. 44 Table of Contents Other non-interest expense for the three months ended March 31, 2025 increased $316,000, or 39.6%, compared to the same period in 2024. The increase was primarily due to an increase in collateral liquidation expenses and early stage expenses related to SBIC investments costs. Income Taxes Income tax expense totaled $2.3 million for the three months ended March 31, 2025 compared to $1.8 million for the same period in 2024. Income tax expense included a $459,000 net benefit from tax credit investments compared to $376,000 for the same period in 2024. The effective tax rate for the three months ended March 31, 2025 was 17.00% compared to 16.5% for the same period in 2024. The increase in effective tax rate is primarily due to higher state income taxes. The Corporation expects to report an effective tax rate between 16% and 18% for 2025. Generally, the provision for income taxes is determined by applying an estimated annual effective income tax rate to income before taxes and adjusting for discrete items. The rate is based on the most recent annualized forecast of pre-tax income, book versus tax differences and tax credits, if any. If we conclude that a reliable estimated annual effective tax rate cannot be determined, the actual effective tax rate for the year-to-date period may be used. We re-evaluate the income tax rates each quarter. Therefore, the current projected effective tax rate for the entire year may change. 45 Table of Contents Financial Condition General Total assets increased by $91.7 million, or 9.5%, to $3.945 billion as of March 31, 2025 compared to $3.853 billion at December 31, 2024. The increase in total assets was primarily driven by increases in loans and leases receivable, available-for-sale securities, and short-term investments. Total liabilities increased by $84.2 million, or 9.6%, to $3.609 billion at March 31, 2025 compared to $3.525 billion at December 31, 2024. The increase in total liabilities was primarily due to an increase in deposits. Total stockholders’ equity increased by $7.5 million, or 9.1%, to $336.1 million at March 31, 2025 compared to $328.6 million at December 31, 2024. The increase in total stockholders’ equity was primarily due to retention of earnings partially offset by dividends paid to common and preferred stockholders. Cash and Cash Equivalents Cash and cash equivalents include short-term investments and cash and due from banks. Cash and due from banks increased $5.1 million to $34.6 million at March 31, 2025 from $29.5 million at December 31, 2024. Short-term investments increased by $7.8 million to $136.0 million at March 31, 2025 from $128.2 million at December 31, 2024. Our short-term investments primarily consist of interest-bearing deposits held at the FRB. We value the safety and soundness provided by the FRB, and therefore, we incorporate short-term investments in our readily accessible liquidity program. As of March 31, 2025 and December 31, 2024, interest-bearing deposits held at the FRB were $135.0 million and $127.8 million, respectively. Securities Total securities, including available-for-sale and held-to-maturity, increased by $17.9 million, or 20.5%, to $366.0 million, or 9.3% of total assets at March 31, 2025 compared to $348.1 million or 9.0% of total assets at December 31, 2024. During the three months ended March 31, 2025, the Corporation recognized unrealized gains of $4.7 million before income taxes through other comprehensive income, compared to unrealized losses of $2.9 million for the same period in 2024. The unrealized gains in the current period were driven by the decrease in market interest rates. As of March 31, 2025 and December 31, 2024, our overall securities portfolio, including available-for-sale securities and held-to-maturity securities, had an estimated weighted-average expected maturity of 5.1 years and 5.2 years, respectively. Our investment philosophy remains as stated in our most recent Annual Report on Form 10-K. We use a third-party pricing service as our primary source of market prices for our securities portfolio. On a quarterly basis, we validate the reasonableness of prices received from this source through independent verification, data integrity validation primarily through comparison of current price to an expectation-based analysis of movement in prices based upon the changes in the related yield curves, and other market factors. We did not recognize any credit losses in the securities portfolio as of March 31, 2025. Loans and Leases Receivable Period-end loans and leases receivable, net of allowance for credit losses, increased by $71.8 million, or 9.3% annualized, to $3.149 billion at March 31, 2025 from $3.077 billion at December 31, 2024 primarily driven by commercial loan growth. Management expects to manage loan growth towards our long term target of 10%. Total commercial real estate (“CRE”) loans decreased $7.2 million to $1.910 billion. The decrease was primarily due to payoffs and lighter demand. CRE loans represented 59.9% and 61.6% of our total loans as of March 31, 2025 and December 31, 2024, respectively. As of March 31, 2025, 13.5% of the CRE loans were owner-occupied CRE, compared to 14.3% as of December 31, 2024. We consider owner-occupied CRE more characteristic of the Corporation’s C&I portfolio as, in general, the client’s primary source of repayment is the cash flow from the operating entity occupying the commercial real estate property. Commercial and Industrial ("C&I") loans increased $77.4 million, or 26.9% annualized, to $1.229 billion compared to December 31, 2024. The increase was due to growth in traditional commercial lending, Equipment Finance, and Floorplan Financing loan portfolios. 46 Table of Contents We continue to actively pursue C&I loans across the Corporation as this segment of our loan and lease portfolio provides an attractive yield commensurate with an appropriate level of credit risk and creates opportunities for core deposit, treasury management, and private wealth management relationships which generate additional fee revenue. Underwriting of new credit is primarily through approval from a serial sign-off or committee process and is a key component of our operating philosophy. Business development officers have no individual lending authority. To monitor the ongoing credit quality of our loans and leases, each credit is evaluated for proper risk rating using a nine grade risk rating system at the time of origination, subsequent renewal, evaluation of updated financial information from our borrowers, or as other circumstances dictate. While we continue to experience competition from banks and non-banks operating in our primary geographic areas, we remain committed to our underwriting standards and will not deviate from those standards for the sole purpose of growing our loan and lease portfolio. We continue to expect our new loan and lease activity to be adequate to replace normal amortization, allowing us to continue growing in future years. The types of loans and leases we originate and the various risks associated with these originations remain consistent with information previously outlined in our most recent Annual Report on Form 10-K. The following table presents information concerning the composition of the Bank’s consolidated loans and leases receivable. As of March 31, As of December 31, 2025 2024 Amount Outstanding % of Total Loans and Leases Amount Outstanding % of Total Loans and Leases (Dollars in Thousands) Commercial real estate: Commercial real estate — owner occupied $ 258,050 8.1 % $ 273,397 8.8 % Commercial real estate — non-owner occupied 838,634 26.3 845,298 27.1 Construction 215,613 6.8 221,086 7.1 Multi-family 549,220 17.2 530,853 17.1 1-4 family 48,450 1.5 46,496 1.5 Total commercial real estate 1,909,967 59.9 1,917,130 61.6 Commercial and industrial 1,229,098 38.6 1,151,720 37.0 Consumer and other 46,190 1.5 45,000 1.4 Total gross loans and leases receivable 3,185,255 100.0 % 3,113,850 100.0 % Less: Allowance for credit losses 35,236 35,785 Deferred loan fees and costs, net 855 722 Loans and leases receivable, net $ 3,149,164 $ 3,077,343 Below is a view of selected loan portfolios disaggregated by North American Industry Classification (“NAICs”) code as of March 31, 2025: Real Estate Wholesale and Manufacturing Retail and Hospitality Transportation and Warehousing Other Total Commercial real estate — owner occupied 8% 32% 12% 12% 36% 100% Commercial real estate — non- owner occupied 74% (1) 1% 2% 10% 13% 100% Commercial and industrial 3% 27% 19% 8% 43% 100% (1) Includes approximately $277.4 million of office real estate, or 9% of gross loans. See Asset Quality for further discussion of industry-specific risks. 47 Table of Contents Deposits Deposit composition As of (in thousands) March 31, 2025 December 31, 2024 September 30, 2024 June 30, 2024 March 31, 2024 Non-interest-bearing transaction accounts $433,201 $436,111 $428,012 $406,804 $400,267 Interest-bearing transaction accounts 1,015,846 965,637 930,252 841,146 818,080 Money market accounts 831,897 809,695 817,129 837,569 813,467 Certificates of deposit 181,751 184,986 207,337 224,116 266,029 Wholesale deposits 780,348 710,711 587,217 575,548 457,563 Total deposits $3,243,043 $3,107,140 $2,969,947 $2,885,183 $2,755,406 Uninsured deposits $1,055,347 $980,278 $1,088,496 $1,011,977 $995,428 Less: uninsured deposits collateralized by pledged assets 9,344 6,864 10,755 34,810 16,622 Total uninsured, net collateralized deposits $1,046,003 $973,414 $1,077,741 $977,167 $978,806 % of total deposits 32.3% 31.3% 36.3% 33.9% 35.5% As of March 31, 2025, total period-end deposits increased by $135.9 million, or 4.3%, to $3.243 billion from $3.107 billion at December 31, 2024. As of March 31, 2025, total period-end core deposits increased $66.3 million, or 11.1% annualized, to $2.463 billion, compared to $2.396 billion at December 31, 2024. The increase in period-end balances is due to increases of $50.2 million and $22.2 million in interest bearing transaction accounts and money market accounts, respectively, offset by decreases of $3.2 million and $2.9 million in certificates of deposit and non-interest-bearing transaction accounts, respectively. Management believes the Bank’s deposit-centric sales strategy, led by treasury management sales, will continue to contribute to a net increase in deposits; however, period-end deposit balances associated with core relationships will fluctuate based upon maturity of time deposits, client demands for the use of their cash, and our ability to maintain existing and acquire new client relationships. Therefore, we believe average balances are a better indicator of our deposit growth. Our strategic efforts remain focused on adding core deposit relationships. We measure the success of core deposit gathering efforts based on the number and average balances of our deposit accounts as compared to ending balances due to the variability of some of our larger relationships. The Bank’s average core deposits, consisting of all transaction accounts, money market accounts, and certificates of deposit, increased $16.4 million, or 0.7%, to $2.363 billion for the three months ended March 31, 2025 compared to $2.346 billion for the three months ended March 31, 2024. FHLB Advances and Other Borrowings As of March 31, 2025, FHLB advances and other borrowings decreased by $33.5 million, or 41.8%, to $286.6 million from $320.0 million at December 31, 2024. As average deposit balances have increased, we have been able to reduce our usage of FHLB advances as a percentage of total funding. We will continue to utilize FHLB advances and wholesale deposits to manage interest rate risk, liquidity, and contingency funding. Consistent with our funding philosophy to manage interest rate risk, we will use the most efficient and cost effective source of wholesale funds. We will utilize FHLB advances to the extent we maintain an adequate level of excess borrowing capacity for liquidity and contingency funding purposes and pricing remains favorable in comparison to the wholesale deposit alternative. We will use FHLB advances and/or brokered certificates of deposit in specific maturity periods needed, typically three to five years, to match-fund fixed rate loans and effectively mitigate the interest rate risk measured through our asset/liability management process and to support asset growth initiatives while taking into consideration our operating goals and desired level of usage of wholesale funds. Please refer to the section entitled Liquidity and Capital Resources , below, for further information regarding our use and monitoring of wholesale funds. 48 Table of Contents Preferred Stock The Corporation has 12,500 shares, or $12.5 million in aggregate liquidation preference, of 7.0% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A, par value $0.01 per share, with a liquidation preference of $1,000 per share (the “Series A Preferred Stock”) outstanding as of March 31, 2025 and December 31, 2024. The Corporation expects to pay dividends on the Series A Preferred Stock when and if declared by its Board, at a fixed rate of 7.0% per annum, payable quarterly, in arrears, on March 15, June 15, September 15 and December 15 of each year up to, but excluding, March 15, 2027. For each dividend period from and including March 15, 2027, dividends will be paid at a floating rate of Three-Month Term SOFR plus a spread of 539 basis points per annum. During the three months ended March 31, 2025, the Corporation paid $219,000 in cash dividends with respect to the Series A Preferred Stock. The Series A Preferred Stock is perpetual and has no stated maturity. The Corporation may redeem the Series A Preferred Stock at its option at a redemption price equal to $1,000 per share, plus any declared and unpaid dividends (without regard to any undeclared dividends), subject to regulatory approval, on or after March 15, 2027 or within 90 days following a regulatory capital treatment event, in accordance with the terms of the Series A Preferred Stock. Derivatives The Board approved Bank policies allow the Bank to participate in hedging strategies or to use financial futures, options, forward commitments, or interest rate swaps. The Bank utilizes, from time to time, derivative instruments in the course of its asset/liability management. The Corporation’s derivative financial instruments, under which the Corporation is required to either receive cash from or pay cash to counterparties depending on changes in interest rates applied to notional amounts, are carried at fair value on the consolidated balance sheets. As of March 31, 2025, the aggregate amortizing notional value of interest rate swaps with various commercial borrowers was approximately $1.059 billion, compared to $1.022 billion as of December 31, 2024. We receive fixed rates and pay floating rates based upon designated benchmark interest rates on the swaps with commercial borrowers. These swaps mature between June 2025 and July 2041. Commercial borrower swaps are completed independently with each borrower and are not subject to master netting arrangements. As of March 31, 2025, the commercial borrower swaps were reported on the Consolidated Balance Sheet as a derivative asset of $6.0 million and liability of $44.8 million compared to a derivative asset of $2.0 million and liability of $56.6 million as of December 31, 2024. On the offsetting swap contracts with dealer counterparties, we pay fixed rates and receive floating rates based upon designated benchmark interest rates. These interest rate swaps also have maturity dates between June 2025 and July 2041. Dealer counterparty swaps are subject to master netting agreements among the contracts within our Bank and were reported on the Consolidated Balance Sheet as a net derivative asset of $38.9 million as of March 31, 2025, compared to a net derivative asset of $54.5 million as of December 31, 2024. The gross amount of dealer counterparty swaps as of March 31, 2025, without regard to the enforceable master netting agreement, was a gross derivative liability of $6.0 million and gross derivative asset of $44.8 million, compared to a gross derivative liability of $2.0 million and gross derivative asset of $56.6 million as of December 31, 2024. The Corporation also enters into interest rate swaps to manage interest rate risk and reduce the cost of match-funding certain long-term fixed rate loans. These derivative contracts involve the receipt of floating rate interest from a counterparty in exchange for the Corporation making fixed-rate payments over the life of the agreement, without the exchange of the underlying notional value. The instruments are designated as cash flow hedges as the receipt of floating rate interest from the counterparty is used to manage interest rate risk associated with forecasted interest payments on short-term FHLB advances or wholesale deposits. The change in the fair value of these hedging instruments is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged transactions affect earnings. As of March 31, 2025, the aggregate notional value of interest rate swaps designated as cash flow hedges was $539.7 million. These interest rate swaps mature between April 2025 and February 2041. A pre-tax unrealized loss of $5.7 million was recognized in other comprehensive income for the three months ended March 31, 2025, and there was no ineffective portion of these hedges. The Corporation also enters into interest rate swaps to mitigate market value volatility on certain long-term fixed securities. The objective of the hedge is to protect the Corporation against changes in fair value due to changes in benchmark interest rates. The instruments are designated as fair value hedges as the changes in the fair value of the interest rate swap are expected to offset changes in the fair value of the hedged item attributable to changes in the SOFR swap rate, the designated benchmark interest rate. These derivative contracts involve the receipt of floating rate interest from a counterparty in exchange for the Corporation making fixed-rate 49 Table of Contents payments over the life of the agreement, without the exchange of the underlying notional value. The change in the fair value of these hedging instruments is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged transactions affect earnings. As of March 31, 2025, the aggregate notional value of interest rate swaps designated as fair value hedges was $12.5 million. These interest rate swaps mature between February 2031 and October 2034. A pre-tax unrealized loss of $165,000 was recognized in other comprehensive income for the three months ended March 31, 2025, and there was no ineffective portion of these hedges. For further information and discussion of our derivatives, see Note 13 — Derivative Financial Instruments of the Consolidated Financial Statements. Asset Quality Non-performing Assets Total non-performing assets consisted of the following at March 31, 2025 and December 31, 2024, respectively: March 31, 2025 December 31, 2024 (Dollars in Thousands) Non-accrual loans and leases Commercial real estate: Commercial real estate - owner occupied $ 567 $ 591 Commercial real estate - non-owner occupied — — Construction — — Multi-family — — 1-4 family — — Total non-accrual commercial real estate 567 591 Commercial and industrial 23,489 27,776 Consumer and other — — Total non-accrual loans and leases 24,056 28,367 Repossessed assets, net 36 51 Total non-performing assets $ 24,092 $ 28,418 Total non-accrual loans and leases to gross loans and leases 0.76 % 0.91 % Total non-accrual loans to gross loans and leases plus repossessed assets, net 0.76 0.91 Total non-performing assets to total assets 0.61 0.74 Allowance for credit losses to gross loans and leases 1.15 1.20 Allowance for credit losses to non-accrual loans and leases 151.79 131.38 Non-accrual loans decreased $4.3 million, to $24.1 million at March 31, 2025, compared to $28.4 million at December 31, 2024. The Corporation’s non-accrual loans as a percentage of total gross loans and leases measured 0.76% and 0.91% at March 31, 2025 and December 31, 2024, respectively. The change in non-accrual loans and leases is primarily driven by charge-offs of Equipment Finance loans in the C&I portfolio. Charge-offs on Equipment Finance loans were higher this quarter due to a change in calculation which accelerated charge-offs by approximately one quarter. Management believes this change better reflects the impact of an accelerated collection and liquidation process. We continue to expect full repayment of the one ABL loan that defaulted during the second quarter of 2023. The liquidation process under Chapter 7 bankruptcy and related litigation has delayed final resolution. The current balance of this loan is $6.2 million, unchanged from the prior quarter. Excluding this credit, non-performing assets totaled $17.9 million, or 0.45% of total assets in the current quarter and $22.2 million, or 0.58% of total assets at December 31, 2024. We use a wide variety of available metrics to assess the overall asset quality of the portfolio and no one metric is used independently to make a final conclusion as to the asset quality of the portfolio. Non-performing assets as a percentage of total assets was 0.61% and 0.74% at March 31, 2025 and December 31, 2024, respectively. As of March 31, 2025 and December 31, 2024, the payment performance of our loans and leases did not point to any new areas of concern, as approximately 99.2% and 99.1%, respectively, of the total portfolio at the end of each period was in a current payment status. We reviewed loans and leases with exposure to certain industries: 50 Table of Contents • Transportation and Logistics, Equipment Finance: 2% of total loans - Management considered the following: 10% of Equipment Finance Transportation loans are rated Category IV. Based on our reserve methodology for individually and collectively evaluated loans, we believe our reserves related to this industry to be appropriate. • Transportation and Logistics, other than Equipment Finance: 2% of total loans - Management considered the following: Less than 1% of the Transportation loans outside of Equipment Finance are rated Category IV. Collateral on these loans includes commercial real estate, business assets, and equipment. Based on our reserve methodology for individually and collectively evaluated loans, we believe our reserves related to this industry to be appropriate. • Office, Commercial Real Estate: 9% of total loans - Management considered the following: office exposure is concentrated in the Wisconsin markets where local market vacancy rates are below national rates; repricing risk of this portfolio is lower due to a majority of loans having a maturity date in 2030 and beyond and all of these loans are conventional fixed rate or fixed to the client via an interest rate swap; and there are no non-accrual loans in the portfolio. Based on our reserve methodology for individually and collectively evaluated loans, we believe our reserves related to this loan category to be appropriate. • Multifamily, Commercial Real Estate: 16% of total loans - Management considered the following: multifamily exposure is concentrated in the Wisconsin markets where local market vacancy rates are below national rates, repricing risk is lower through use of fix rate terms including all multi-family loans with maturities beyond 2030 are conventional fixed rate or fixed to the client via an interest rate swap: there are no non-accrual loans in the portfolio. Based on our reserve methodology for individually and collectively evaluated loans, we believe our reserves related to this loan category to be appropriate. We also monitor asset quality through our established categories as defined in Note 5 – Loans, Lease Receivables, and Allowance for Credit Losses of the Consolidated Financial Statements. As we continue to actively monitor the credit quality of our loan and lease portfolios, we may identify additional loans and leases for which the borrowers or lessees are having difficulties making the required principal and interest payments based upon factors including, but not limited to, the inability to sell the underlying collateral, inadequate cash flow from the operations of the underlying businesses, liquidation events, or bankruptcy filings. We proactively work with our loan borrowers experiencing financial difficulty to find meaningful solutions to difficult situations that are in the best interests of the Bank. As of March 31, 2025, as well as in all previous reporting periods, there were no loans over 90 days past due and still accruing interest. Loans and leases greater than 90 days past due are placed on non-accrual status and individually evaluated for reserve requirement. Cash received while a loan or a lease is on non-accrual status is generally applied solely against the outstanding principal. If collectability of the contractual principal and interest is not in doubt, payments received may be applied to both interest due on a cash basis and principal. The following represents additional information regarding our non-accrual loans and leases: As of and for the Three Months Ended March 31, As of and for the Year Ended December 31, 2025 2024 2024 (In Thousands) Individually evaluated loans and leases with no specific reserves required $ 10,570 $ 9,325 $ 13,125 Individually evaluated loans and leases with specific reserves required 13,486 10,504 15,242 Total individually evaluated loans and leases 24,056 19,829 28,367 Less: Specific reserves (included in allowance for credit losses) 6,423 6,618 8,918 Net non-accrual loans and leases $ 17,633 $ 13,211 $ 19,449 Average non-accrual loans and leases $ 27,228 $ 20,541 $ 19,589 Allowance for Credit Losses The allowance for credit losses, including unfunded commitment reserves, decreased $753,000, or 2.0%, to $36.5 million as of March 31, 2025 from $37.3 million as of December 31, 2024. The allowance for credit losses as a percentage of gross loans and leases was 1.15% as of March 31, 2025 compared to 1.20% as of December 31, 2024. 51 Table of Contents During the three months ended March 31, 2025, we recorded net charge-offs of $3.4 million, comprised of $3.8 million of charge-offs and $398,000 of recoveries. Charge-offs on Equipment Finance loans were higher this quarter due to a change in policy which accelerated charge-offs by approximately one quarter. Management believes this change better reflects the impact of an accelerated collection and liquidation process. We will continue to experience some level of periodic charge-offs in the future as exit strategies are considered and executed. Loans and leases with previously established specific reserves may ultimately result in a charge-off under a variety of scenarios. As of March 31, 2025 and December 31, 2024, our ratio of allowance for credit losses to total non-accrual loans and leases was 151.79% and 131.38%, respectively. This ratio increased primarily due to an increase in general reserves and a decrease in non-accrual loans. Non-accrual loans and leases exhibit weaknesses that inhibit repayment in compliance with the original terms of the note or lease; however, the evaluation of non-accrual loans and leases may not always result in a specific reserve included in the allowance for credit losses. Given our business practices and evaluation of our existing loan and lease portfolio, we believe this coverage ratio is appropriate for the probable losses inherent in our loan and lease portfolio as of March 31, 2025. When it is determined that we will not receive our entire contractual principal or the loss is confirmed, we record a charge against the allowance for credit loss reserve to bring the loan or lease to its net realizable value. It is typically part of our process to obtain appraisals on individually evaluated loans and leases that are primarily secured by real estate. As we complete new appraisals and/or market evaluations, in specific situations current fair values collateralizing certain collateral-dependent loans are inadequate to support the entire amount of the outstanding debt. As a result of our review process, we have concluded an appropriate allowance for credit losses for the funded loan and lease portfolio was $36.5 million, or 1.15% of gross loans and leases, at March 31, 2025. Given ongoing complexities with current workout situations and the uncertainty surrounding future economic conditions, further charge-offs, and increased provisions for credit losses may be recorded if additional facts and circumstances lead us to a different conclusion. Various federal and state regulatory agencies review the allowance for credit losses. These agencies could require certain loan and lease balances to be classified differently or charged off when their credit evaluations differ from those of management, based on their judgments about information available to them at the time of their examination. The following represents additional information regarding our allowance for credit losses: As of  March 31, 2025 December 31, 2024 (in thousands) % of total loans (in thousands) % of total loans Allowance for credit losses: Loans collectively evaluated $ 28,813 0.90 % $ 26,867 0.86 % Loans individually evaluated 6,423 0.20 % 8,918 0.29 % Unfunded commitments reserve 1,279 1,483 Total 36,515 1.15 % 37,268 1.20 % Loans and lease receivables: 3,184,400 3,113,128 52 Table of Contents The following is a summary of the activity in the allowance for credit losses: As of and for the Three Months Ended March 31, 2025 2024 (Dollars in Thousands) Allowance at beginning of period $ 37,268 $ 32,997 Charge-offs: Commercial real estate: Commercial real estate — owner occupied — — Commercial real estate — non-owner occupied — — Construction — — Multi-family — — 1-4 family — — Commercial and industrial (3,800 ) (899 ) Consumer and other (10 ) (22 ) Total charge-offs (3,810 ) (921 ) Recoveries: Commercial real estate: Commercial real estate — owner occupied 2 1 Commercial real estate — non-owner occupied — — Construction — — Multi-family — — 1-4 family 6 110 Commercial and industrial 390 116 Consumer and other — — Total recoveries 398 227 Net charge-offs (3,412 ) (694 ) Provision for credit losses 2,659 2,326 Allowance at end of period $ 36,515 $ 34,629 Components: Allowance for credit losses on loans $ 35,236 $ 32,799 Allowance for credit losses on unfunded credit commitments 1,279 1,830 Total ACL $ 36,515 $ 34,629 Annualized net charge offs (recoveries) as a percentage of average gross loans and leases 0.43 % 0.10 % Liquidity and Capital Resources The Corporation expects to meet its liquidity needs through existing cash on hand, established cash flow sources, its third-party senior line of credit, and dividends received from the Bank. While the Bank is subject to certain generally applicable regulatory limitations regarding its ability to pay dividends to the Corporation, we do not believe that the Corporation will be adversely affected by these dividend limitations. The Corporation’s principal liquidity requirements at March 31, 2025 were the interest payments due on subordinated notes and debentures and cash dividends payable to both common and preferred stockholders. The capital ratios of the Bank met all applicable regulatory capital adequacy requirements in effect on March 31, 2025, and continue to meet the heightened requirements imposed by Basel III, including the capital conservation buffer. The Corporation’s Board and management teams adhere to the appropriate regulatory guidelines on decisions which affect their capital positions, including but not limited to, decisions relating to the payment of dividends and increasing indebtedness. 53 Table of Contents The Bank maintains liquidity by obtaining funds from several sources. The Bank’s primary sources of funds are principal and interest payments on loans receivable and mortgage-related securities, deposits, and other borrowings, such as federal funds, and FHLB advances. The scheduled payments of loans and mortgage-related securities are generally a predictable source of funds. Deposit flows and loan prepayments, however, are greatly influenced by general interest rates, economic and industry conditions, and competition. Sources of liquidity As of (in thousands) March 31, 2025 December 31, 2024 September 30, 2024 June 30, 2024 March 31, 2024 Short-term investments $ 136,033 $ 128,207 $ 86,670 $ 54,680 $ 46,984 Collateral value of unencumbered pledged loans 501,268 444,453 397,852 401,602 340,639 Market value of unencumbered securities 324,365 310,125 279,191 289,104 288,965 Readily accessible liquidity 961,666 882,785 763,713 745,386 676,588 Fed fund lines 45,000 45,000 45,000 45,000 45,000 Excess brokered CD capacity 1 948,949 981,463 1,102,767 1,051,678 1,166,661 Total liquidity $ 1,955,615 $ 1,909,248 $ 1,911,480 $ 1,842,064 $ 1,888,249 Total uninsured, net of collateralized deposits 1,046,003 973,414 1,077,741 977,167 978,806 (1) Bank internal policy limits brokered CDs to 50% of total bank funding when combined with FHLB advances. We view readily accessible liquidity as a critical element to meet our cash and collateral obligations. We define our readily accessible liquidity as the total of our short-term investments, our unencumbered securities available-for-sale, and our unencumbered pledged loans. Our readily accessible liquidity increased quarter over quarter. At March 31, 2025 and December 31, 2024, the Bank had $135.0 million and $127.8 million on deposit with the FRB recorded in short-term investments, respectively. Any excess funds not used for loan funding or satisfying other cash obligations were maintained as part of our readily accessible liquidity in our interest-bearing accounts with the FRB, as we value the safety and soundness provided by the FRB. We plan to utilize excess liquidity to fund loan and lease portfolio growth, pay down maturing debt, allow run off of maturing wholesale certificates of deposit or invest in securities to maintain adequate liquidity at an improved margin. We had $1.012 billion of outstanding wholesale funds at March 31, 2025, compared to $976.1 million of wholesale funds as of December 31, 2024, which represented 29.1% and 28.9%, respectively, of ending balance total bank funding. Wholesale funds include FHLB advances and brokered certificates of deposit. Total bank funding is defined as total deposits plus FHLB advances. We are committed to raising core deposits while utilizing wholesale funds to mitigate interest rate risk. Wholesale funds continue to be an efficient and cost effective source of funding for the Bank and allows it to gather funds across a larger geographic base at price levels and maturities that are more attractive than local time deposits when required to raise a similar level of core deposits within a short time period. Access to such deposits and borrowings allows us the flexibility to refrain from pursuing single service deposit relationships in markets that have experienced unfavorable pricing levels. The administrative costs associated with wholesale funds are considerably lower than those that would be incurred to administer a similar level of local deposits with a similar maturity structure. Wholesale funds are also stable as each issuance has a structured maturity date and may only be redeemed in certain limited circumstances. During the time frames necessary to accumulate wholesale funds in an orderly manner, we will use short-term FHLB advances to meet our temporary funding needs. The short-term FHLB advances will typically have terms of one week to one month to cover the overall expected funding demands. Period-end core deposits increased $66.3 million as of March 31, 2025, compared to December 31, 2024 from $2,396 million at December 31, 2024 to $2,462 million at March 31, 2025. The increase was primarily due to increases of $50.2 million and $22.2 million in interest-bearing transaction accounts and money market accounts, respectively. These increases were partially offset by a $3.2 million and $2.9 million decrease in certificates of deposit and non-interest-bearing transaction accounts, respectively. We will continue to use wholesale funds in specific maturity periods, typically three to five years, needed to effectively mitigate the interest rate risk measured through our asset/liability management process or in shorter time periods if core deposit balances decline. In order to provide for ongoing liquidity and funding, none of our wholesale certificates of deposit allow for withdrawal at the option of the depositor before the stated maturity date and FHLB advances have contractual maturity terms. The Bank limits the percentage of 54 Table of Contents wholesale funds to total bank funds in accordance with liquidity policies approved by its Board. The Bank was in compliance with its policy limits as of March 31, 2025. The Bank was able to access the wholesale funding market as needed at rates and terms comparable to market standards during the quarter ended March 31, 2025. In the event that there is a disruption in the availability of wholesale funds at maturity, the Bank has managed the maturity structure, in compliance with our approved liquidity policy, so at least one year of maturities could be funded through readily accessible liquidity. These potential funding sources include deposits maintained at the FRB or Federal Reserve Discount Window utilizing currently unencumbered securities and acceptable loans as collateral. As of March 31, 2025, the accessible liquidity was in excess of the stated policy minimum. We believe the Bank will also have access to the unused federal funds lines, cash flows from borrower repayments, and cash flows from security maturities. The Bank also has the ability to raise local market deposits by offering attractive rates to generate the level required to fulfill its liquidity needs. The Corporation has a shelf registration statement on file with the Securities and Exchange Commission that would allow the Corporation to offer and sell, from time to time and in one or more offerings, up to $75.0 million in aggregate initial offering price of common and preferred stock, debt securities, warrants, subscription rights, units, or depository shares, or any combination thereof. The Corporation has in recent years, and may from time to time in the future, raise capital through the sale of debt or equity securities in private placements exempt from registration under federal securities laws. During the three months ended March 31, 2025, operating activities resulted in a net cash inflow of $11.3 million, which included net income of $11.2 million. Net cash used by investing activities for the three months ended March 31, 2025 was $97.4 million primarily due to net loan disbursements, investments made in securities available for sale, and additional investments in tax credit investments. Net cash provided by financing activities was $99.0 million for the three months ended March 31, 2025 primarily due to a net increase in deposits. Please refer to the Consolidated Statements of Cash Flows included in PART I., Item 1 for further details regarding significant sources of cash flow for the Corporation. Contractual Obligations and Off-Balance Sheet Arrangements As of March 31, 2025, there were no material changes to our contractual obligations and off-balance sheet arrangements disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024. We continue to believe that we have adequate capital and liquidity accessible from various sources to fund projected contractual obligations and commitments. 55 Table of Contents