First Internet Bancorp 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this report. This discussion and analysis includes certain forward-looking statements that involve risks, uncertainties, and assumptions. You should review the “Risk Factors” sections of this report and our Annual Report on Form 10-K for the year ended December 31, 2024 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by such forward-looking statements. See also “Cautionary Note Regarding Forward-Looking Statements” at the beginning of this report. Overview First Internet Bancorp is a bank holding company headquartered in Fishers, Indiana that conducts its primary business activities through its wholly-owned subsidiary, First Internet Bank of Indiana (the “Bank”), an Indiana chartered bank. The Bank was the first state-chartered, Federal Deposit Insurance Corporation (“FDIC”) insured Internet bank and commenced banking operations in 1999. First Internet Bancorp was incorporated under the laws of the State of Indiana on September 15, 2005. On March 21, 2006, we consummated a plan of exchange by which we acquired all of the outstanding shares of the Bank. The Bank has three wholly-owned subsidiaries: First Internet Public Finance Corp., an Indiana corporation that provides a range of public and municipal finance lending and leasing products to governmental entities throughout the United States and acquires securities issued by state and local governments and other municipalities; JKH Realty Services, LLC, a Delaware limited liability company that manages other real estate owned properties as needed; and SPF15, Inc., an Indiana corporation that owns real estate used primarily for the Bank’s principal office. We offer a wide range of commercial, small business, consumer and municipal banking products and services. We conduct our consumer and small business deposit operations primarily through digital channels on a nationwide basis and have no traditional branch offices. Our consumer lending products are primarily originated on a nationwide basis through relationships with dealerships and financing partners. Our commercial banking products and services are delivered through a relationship banking model or through strategic partnerships and include commercial and industrial (“C&I”), construction and investor commercial real estate, single tenant lease financing, public finance, healthcare finance, small business lending, franchise finance and commercial deposits and treasury management. Our C&I team provides credit solutions such as lines of credit, term loans, owner-occupied commercial real estate loans and corporate credit cards on a regional basis to commercial borrowers primarily in the Midwest and Southwest regions of the United States. We offer construction and investor commercial real estate loans, as well as single tenant lease financing, on a nationwide basis. Our public finance team provides a range of public and municipal lending and leasing products to government entities on a nationwide basis. Our healthcare finance team was established in conjunction with our strategic partnership with Provide, Inc. (formerly known as Lendeavor, Inc.), a San Francisco-based technology-enabled lender to healthcare practices, which provided lending on a nationwide basis for healthcare practice finance or acquisition, acquisition or refinancing of owner-occupied commercial real estate and equipment purchases. In the third quarter 2021, Provide was acquired by a super-regional financial institution. Subsequent to Provide being acquired, the acquiring institution has retained most, if not all, of Provide’s loan origination activity and our healthcare finance loan balances have declined. Our franchise finance business was established in July 2021 in conjunction with our business relationship with ApplePie Capital, a company that specializes in providing financing to franchisees in various industry segments across the United States. Our commercial deposits and treasury management team works with the other commercial teams to provide deposit products and treasury management services to our commercial and municipal lending customers as well as pursues commercial deposit opportunities in business segments where we have no credit relationships. We believe that we differentiate ourselves from larger financial institutions by providing a full suite of services to emerging small businesses and entrepreneurs on a nationwide basis. We are an active lender in the Small Business Administration (“SBA”) 7(a) program, closing $460.4 million in SBA 7(a) loans during the nine months ended September 30, 2025, and currently rank as the 7th largest SBA 7(a) lender for the SBA’s 2025 fiscal year ended. We also offer a top-ranked small business checking account product to our country’s entrepreneurs. We also offer payment, deposit, card and lending products and services through partnerships with financial technology companies and platforms (“fintechs”). With the rapid evolution of technology that enables small businesses to manage their finances digitally, fintechs are addressing a significantly growing marketplace. Fintechs have created robust digital offerings, unburdened by legacy technology architecture, to address growing customer expectations. Through partnerships with selected 47 fintechs, we believe our ability to win and retain small business relationships will be significantly enhanced. Furthermore, we believe partnering with select fintechs will allow us to further diversify our revenue sources, acquire deposits and pursue additional asset generation capabilities. As of September 30, 2025, the Company had consolidated assets of $5.6 billion, consolidated deposits of $4.9 billion and stockholders’ equity of $352.2 million. Results of Operations During the third quarter 2025, net loss was $41.6 million, or $4.76 diluted loss per share, compared to net income of $7.0 million, or $0.80 diluted earnings per share, during the third quarter 2024, representing a decrease in net income of $48.6 million, or 695.0%, and a decrease in diluted earnings per share of $5.56, or 695.0%. During the nine months ended September 30, 2025, net loss was $40.5 million, or $4.63 diluted loss per share, compared to the nine months ended September 30, 2024 net income of $17.9 million, or $2.05 per diluted share, resulting in a decrease in net income of $58.4 million, or 325.4%, and a decrease in diluted earnings per share of $6.68, or 325.9%. The $48.6 million decrease in net income for the third quarter 2025 compared to the third quarter 2024 was due primarily to an increase of $31.4 million, or 926.2%, in the provision for credit losses, a decrease of $36.7 million, or 304.9%, in noninterest income, as well as an increase of $2.7 million, or 11.7%, in noninterest expense, partially offset by an increase of $8.6 million, or 39.5%, in net interest income and a decrease of $13.6 million in income tax expense. The $58.4 million decrease in net income for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024 was due primarily to an increase of $50.5 million, or 511.3%, in the provision for credit losses, a decrease of $40.1 million, or 127.6%, in noninterest income and an increase of $4.7 million, or 7.0%, in noninterest expense, partially offset by an increase of $19.6, or 30.7%, in net interest income and a decrease of $17.2 million in income tax expense. During the third quarter 2025, the Company closed on the sale of $836.9 million of single tenant lease financing loans recognizing a pre-tax loss of $37.8 million on the transaction. The transaction was executed as part of an initiative to strengthen the Company’s regulatory capital ratios and improve its interest rate risk position. While the loss on the transaction negatively impacted shareholders’ equity and regulatory capital, the transaction significantly reduced risk-weighted assets, resulting in a net positive effect on regulatory capital ratios. Furthermore, the loan sale reduced the Company’s interest rate risk profile by reducing exposure to longer-duration assets. Additionally, the Company expects the transaction to have a beneficial impact on key profitability metrics, such as net interest margin and return on average assets, in future periods. Subsequent to September 30, 2025, the Company sold an additional $14.3 million of single tenant lease financing loans resulting in a pre-tax loss of $0.5 million. The Company does not anticipate any additional sales from this transaction. During the third quarter 2025, return on average assets (“ROAA”), return on average shareholders’ equity (“ROAE”), and return on average tangible common equity (“ROATCE”) were (2.71%), (42.11%) and (42.62%), respectively, compared to 0.50%, 7.32% and 7.41%, respectively, for the third quarter 2024. During the nine months ended September 30, 2025, ROAA, ROAE and ROATCE were (0.91%), (13.80%) and (13.97%), respectively, compared to 0.45%, 6.42% and 6.51%, respectively, for the nine months ended September 30, 2024. During the three months ended September 30, 2025, the Company sold $836.9 million of single tenant lease financing loans, which resulted in a net loss on the sale of $29.1 million. Excluding the net loss on the sale of these loans, adjusted net loss for the three months ended September 30, 2025 was $12.5 million and adjusted diluted loss per share was $1.42. Additionally, for the three months ended September 30, 2025, adjusted ROAA, adjusted ROAE and adjusted ROATCE were (0.81%), (12.63%) and (12.78%), respectively. During the nine months ended September 30, 2025, the Company sold $836.9 million of single tenant lease financing loans, which resulted in a net loss on the sale of $29.1 million. Excluding the net loss on the sale of these loans, adjusted net loss for the nine months ended September 30, 2025 was $11.3 million and adjusted diluted loss per share was $1.29. Additionally, for the nine months ended September 30, 2025, adjusted ROAA, adjusted ROAE and adjusted ROATCE were (0.25%), (3.86%) and (3.91%), respectively. During the nine months ended September 30, 2024, the Company recognized $0.5 million in IT termination fees and $0.1 million in anniversary expenses. Excluding these items, adjusted net income for the nine months ended September 30, 2024 was $18.4 million and adjusted diluted earnings per share was $2.10. Additionally, for the nine months ended September 30, 2024, adjusted ROAA, adjusted ROAE and adjusted ROATCE were 0.46%, 6.58% and 6.67%, respectively. 48 During the third quarter 2025, adjusted pre-tax, pre-provision income (“PTPP”) was $18.1 million, an increase of 64.3% from adjusted PTPP of $11.0 million for the third quarter 2024. The $7.1 million increase was due to an increase of $8.6 million, or 39.5%, in net interest income and an increase of $1.1 million, or 9.5%, in adjusted noninterest income, partially offset by an increase of $2.7 million, or 11.7%, in noninterest expense. During the nine months ended September 30, 2025, adjusted PTPP was $41.9 million, an increase of 43.7% from adjusted PTPP of $29.1 million for the nine months ended September 30, 2024. The $12.7 million increase was due to an increase of $19.6 million, or 30.7%, in net interest income, partially offset by a decrease of $2.2 million, or 7.2%, in adjusted noninterest income and an increase of $4.7 million, or 7.0%, in noninterest expense. Refer to the “Reconciliation of Non-GAAP Financial Measures” section of Part I, Item 2 of this report, Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional information. Consolidated Average Balance Sheets and Net Interest Income Analyses For the periods presented, the following tables provide the average balances of interest-earning assets and interest-bearing liabilities and the related yields and cost of funds. The tables do not reflect any effect of income taxes except for net interest margin - FTE, as discussed below. Balances are based on the average of daily balances. Nonaccrual loans are included in average loan balances. 49 Three Months Ended September 30, 2025 September 30, 2024 (dollars in thousands) Average Balance Interest /Dividends Yield /Cost Average Balance Interest /Dividends Yield /Cost Assets Interest-earning assets Loans, including loans held-for-sale $ 4,427,200 $ 68,958 6.18 % $ 4,029,360 $ 59,792 5.90 % Securities - taxable 819,941 8,614 4.17 % 713,992 6,953 3.87 % Securities - non-taxable 78,602 652 3.29 % 78,417 1,042 5.29 % Other earning assets 569,811 6,164 4.29 % 526,384 7,203 5.44 % Total interest-earning assets 5,895,554 84,388 5.68 % 5,348,153 74,990 5.58 % Allowance for credit losses - loans (49,495) (44,572) Noninterest-earning assets 235,733 220,329 Total assets $ 6,081,792 $ 5,523,910 Liabilities Interest-bearing liabilities Interest-bearing demand deposits $ 1,399,323 $ 11,742 3.33 % $ 511,446 $ 2,880 2.24 % Savings accounts 20,035 42 0.83 % 22,774 48 0.84 % Money market accounts 1,250,350 11,771 3.73 % 1,224,680 12,980 4.22 % Fintech - brokered deposits — — — % 153,012 1,682 4.37 % Certificates and brokered deposits 2,463,302 26,579 4.28 % 2,472,166 29,825 4.80 % Total interest-bearing deposits 5,133,010 50,134 3.87 % 4,384,078 47,415 4.30 % Other borrowed funds 365,119 3,902 4.24 % 620,032 5,810 3.73 % Total interest-bearing liabilities 5,498,129 54,036 3.90 % 5,004,110 53,225 4.23 % Noninterest-bearing deposits 174,494 113,009 Other noninterest-bearing liabilities 17,283 26,730 Total liabilities 5,689,906 5,143,849 Shareholders’ equity 391,886 380,061 Total liabilities and shareholders’ equity $ 6,081,792 $ 5,523,910 Net interest income $ 30,352 $ 21,765 Interest rate spread 1 1.78% 1.35% Net interest margin 2 2.04% 1.62% Net interest margin - FTE 3 2.12% 1.70% 1 Yield on total interest-earning assets minus cost of total interest-bearing liabilities. 2 Net interest income divided by total average interest-earning assets (annualized). 3 On an FTE basis assuming a 21% tax rate. Net interest income is adjusted to reflect income from assets such as municipal loans and securities that are exempt from Federal income taxes. This is to recognize the income tax savings that facilitates a comparison between taxable and tax-exempt assets. The Company believes that it is a standard practice in the banking industry to present net interest margin and net interest income on a fully-taxable equivalent basis, as these measures provide useful information to make peer comparisons. Net interest margin - FTE represents a non-GAAP financial measure. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of this measure to its most directly comparable GAAP measure. 50 Nine Months Ended September 30, 2025 September 30, 2024 (dollars in thousands) Average Balance Interest /Dividends Yield /Cost Average Balance Interest /Dividends Yield /Cost Assets Interest-earning assets Loans, including loans held-for-sale $ 4,359,785 $ 198,305 6.08 % $ 3,953,170 $ 172,321 5.82 % Securities - taxable 832,060 26,139 4.20 % 670,728 19,123 3.81 % Securities - non-taxable 79,745 1,967 3.30 % 76,257 2,981 5.22 % Other earning assets 471,096 15,692 4.45 % 476,697 19,691 5.52 % Total interest-earning assets 5,742,686 242,103 5.64 % 5,176,852 214,116 5.52 % Allowance for credit losses - loans (48,091) (41,526) Noninterest-earning assets 231,985 220,165 Total assets $ 5,926,580 $ 5,355,491 Liabilities Interest-bearing liabilities Interest-bearing demand deposits $ 1,195,651 $ 28,483 3.19 % $ 467,054 $ 7,538 2.16 % Savings accounts 20,786 131 0.84 % 22,760 144 0.85 % Money market accounts 1,220,080 34,220 3.75 % 1,228,538 38,727 4.21 % Fintech - brokered deposits — — — % 119,470 3,912 4.37 % Certificates and brokered deposits 2,478,620 81,720 4.41 % 2,344,272 83,718 4.77 % Total interest-bearing deposits 4,915,137 144,554 3.93 % 4,182,094 134,039 4.28 % Other borrowed funds 444,532 14,111 4.24 % 662,824 16,251 3.28 % Total interest-bearing liabilities 5,359,669 158,665 3.96 % 4,844,918 150,290 4.14 % Noninterest-bearing deposits 154,604 114,425 Other noninterest-bearing liabilities 20,377 23,037 Total liabilities 5,534,650 4,982,380 Shareholders’ equity 391,930 373,111 Total liabilities and shareholders’ equity $ 5,926,580 $ 5,355,491 Net interest income $ 83,438 $ 63,826 Interest rate spread 1 1.68% 1.38% Net interest margin 2 1.94% 1.65% Net interest margin - FTE 3 2.02% 1.74% 1 Yield on total interest-earning assets minus cost of total interest-bearing liabilities. 2 Net interest income divided by total average interest-earning assets (annualized). 3 On an FTE basis assuming a 21% tax rate. Net interest income is adjusted to reflect income from assets such as municipal loans and securities that are exempt from Federal income taxes. This is to recognize the income tax savings that facilitates a comparison between taxable and tax-exempt assets. The Company believes that it is a standard practice in the banking industry to present net interest margin and net interest income on a fully-taxable equivalent basis, as these measures provide useful information to make peer comparisons. Net interest margin - FTE represents a non-GAAP financial measure. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of this measure to its most directly comparable GAAP measure. 51 Rate/Volume Analysis The following table illustrates the impact of changes in the volume of interest-earning assets and interest-bearing liabilities and interest rates on net interest income for the periods indicated. The change in interest not due solely to volume or rate has been allocated in proportion to the absolute dollar amounts of the change in each. Three Months Ended September 30, 2025 vs. September 30, 2024 Due to Changes in Nine Months Ended September 30, 2025 vs. September 30, 2024 Due to Changes in (amounts in thousands) Volume Rate Net Volume Rate Net Interest income Loans, including loans held-for-sale $ 6,191 $ 2,975 $ 9,166 $ 18,116 $ 7,868 $ 25,984 Securities – taxable 1,091 570 1,661 4,922 2,094 7,016 Securities – non-taxable 17 (407) (390) 212 (1,226) (1,014) Other earning assets 3,106 (4,145) (1,039) (228) (3,771) (3,999) Total 10,405 (1,007) 9,398 23,022 4,965 27,987 Interest expense Interest-bearing deposits 25,497 (22,778) 2,719 27,131 (16,616) 10,515 Other borrowed funds (6,178) 4,270 (1,908) (7,871) 5,731 (2,140) Total 19,319 (18,508) 811 19,260 (10,885) 8,375 (Decrease) increase in net interest income $ (8,914) $ 17,501 $ 8,587 $ 3,762 $ 15,850 $ 19,612 Net interest income for the third quarter 2025 was $30.4 million, an increase of $8.6 million, or 39.5%, compared to $21.8 million for the third quarter 2024. The increase in net interest income was the result of a $9.4 million, or 12.5%, increase in total interest income to $84.4 million for the third quarter 2025 from $75.0 million for the third quarter 2024. The increase in total interest income was partially offset by a $0.8 million, or 1.5%, increase in total interest expense to $54.0 million for the third quarter 2025 from $53.2 million for the third quarter 2024. Net interest income for the nine months ended September 30, 2025 was $83.4 million, an increase of $19.6 million, or 30.7%, compared to $63.8 million for the nine months ended September 30, 2024. The increase in net interest income was the result of a $28.0 million, or 13.1%, increase in total interest income to $242.1 million for the nine months ended September 30, 2025 from $214.1 million for the nine months ended September 30, 2024. The increase in total interest income was partially offset by an $8.4 million, or 5.6%, increase in total interest expense to $158.7 million for the nine months ended September 30, 2025 from $150.3 million for the nine months ended September 30, 2024. The increase in total interest income for the third quarter 2025 compared to third quarter 2024 was due primarily to an increase in interest earned on loans, resulting from an increase of 28 bps in the yield earned on loans, including loans held-for-sale, as well as an increase of $397.8 million, or 9.9%, in the average balance of loans, including loans held-for-sale. Related to securities, the average balance increased $106.1 million, or 13.4%, while the yield earned on the securities portfolio increased 8 bps for the third quarter 2025 compared to the third quarter 2024. The yield on funded portfolio loan originations was 7.50% for the third quarter 2025, a decrease of 135 bps compared to the third quarter 2024, reflective of 100 bps of Fed rate cuts in the second half of 2024. However, new origination yields remained well above the overall loan portfolio yield, helping to drive both total interest income and the loan portfolio yield higher. The increase in total interest income for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024 was due primarily to an increase in interest earned on loans, resulting from an increase of 26 bps in the yield on loans, including loans held-for-sale, as well as an increase of $406.6 million, or 10.3%, in the average balance of loans, including loans held-for-sale. Additionally, the average balance of securities increased $164.8 million, or 22.1%, and the yield earned on the securities portfolio increased 17 bps for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. The increase in total interest income was partially offset as the yield on other earning assets decreased 107 bps and the average balance of other earning assets decreased $5.6 million, or 1.2%. The increase in the yield earned on loans and securities was due to both existing and newly-originated interest-earning assets, despite the lowered interest rates in September. The yield on funded portfolio loan originations was 7.58% for the nine months ended September 30, 2025, a decrease of 127 bps compared to the nine months ended September 30, 2024. 52 The increase in total interest expense for the third quarter 2025 compared to the third quarter 2024 was due primarily to increases of $8.9 million, or 307.7%, in interest expense associated with interest-bearing demand deposits, partially offset by decreases of $3.2 million, or 10.9%, in interest expense associated with certificates and brokered deposits, $1.2 million, or 9.3%, in interest expense associated with money market accounts and $1.9 million, or 32.8%, in interest expense associated with other borrowed funds. When combined with deposits formerly classified as fintech – brokered deposits, the increase in interest expense related to interest-bearing demand deposits was driven by an increase in the average balance of $734.9 million, or 110.6%, compared to the third quarter 2024 due to continued growth in fintech deposits, while the cost of funds increased 109 bps due to the change in deposit mix. The decrease in interest expense related to certificates and brokered deposits was driven by a decrease of 52 bps in the cost of these deposits, as well as a decrease in the average balance of these deposits of $8.9 million, or 0.4%. The decrease in interest expense related to money market accounts was driven by a 49 bp decrease in the cost of these deposits, partially offset by an increase in the average balance of these deposits of $25.7 million, or 2.1%. The decrease in interest expense related to other borrowed funds was driven by a decrease in the average balance of $254.9 million, or 41.1%, partially offset by an increase of 51 bps in the cost of funds. The increase in total interest expense for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024 was due primarily to an increase of $20.9 million, or 277.9%, in interest expense associated with interest-bearing demand deposits, partially offset by decreases of $4.5 million, or 11.6%, in interest expense associated with money market accounts, $2.1 million, or 13.2%, in interest expense associated with other borrowed funds and $2.0 million, or 2.4%, in interest expense associated with certificates and brokered deposits. When combined with deposits formerly classified as fintech - brokered deposits, the increase in interest expense related to interest-bearing demand deposits was due primarily to a 103 bp increase in the cost of these deposits, as well as an increase of $609.1 million, or 103.9%, in the average balance of these deposits. The decrease in interest expense related to money market accounts was driven primarily by a decrease of 46 bps in the cost of these deposits, as well as a decrease of $8.5 million, or 0.7%, in the average balance of these deposits. The decrease in interest expense related to other borrowed funds was driven by a decrease in the average balance of $218.3 million, or 32.9%, partially offset by a 96 bp increase in the cost of these funds. The increase in interest expense related to certificates and brokered deposits was driven by an increase of $134.3 million, or 5.7%, in the average balance of these deposits, partially offset by a decrease of 36 bps in the cost of these deposits. The increase in the average balance of these deposits was driven by the continued benefit from CD repricing, partially offset by lower brokered deposit balances as the Company used on-balance sheet liquidity to pay down higher-cost short term FHLB advances, which is expected to positively impact deposit costs in future periods. Overall, the cost of total interest-bearing liabilities for the third quarter 2025 decreased 33 bps to 3.90% from 4.23% for the third quarter 2024. The cost of total interest-bearing liabilities for the nine months ended September 30, 2025 decreased 18 bps to 3.96% from 4.14% for the nine months ended September 30, 2024. Net interest margin (“NIM”) was 2.04% for the third quarter 2025 compared to 1.62% for the third quarter 2024, an increase of 42 bps. On a fully-taxable equivalent (“FTE”) basis, NIM was 2.12% for the third quarter 2025 compared to 1.70% for the third quarter 2024, an increase of 42 bps. NIM was 1.94% for the nine months ended September 30, 2025 compared to 1.65% for the nine months ended September 30, 2024, an increase of 29 bps. FTE NIM was 2.02% for the nine months ended September 30, 2025 compared to 1.74% for the nine months ended September 30, 2024, an increase of 28 bps. The increase in the third quarter and nine months ended September 30, 2025 NIM and FTE NIM compared to the third quarter and nine months ended September 30, 2024 reflects the combination of deploying cash balances into higher yielding loans and securities and continued improvement in the cost of funds related to deposits. Noninterest (Loss) Income The following table shows noninterest (loss) income for each of the periods presented. Three Months Ended Nine Months Ended (amounts in thousands) September 30, 2025 September 30, 2024 September 30, 2025 September 30, 2024 Service charges and fees $ 369 $ 245 $ 912 $ 711 Loan servicing revenue 2,055 1,570 6,017 4,363 Loan servicing asset revaluation (1,332) (846) (3,666) (2,109) (Loss) gain on sale of loans (27,103) 9,933 (16,783) 24,761 Other 1,364 1,127 4,857 3,683 Total noninterest (loss) income $ (24,647) $ 12,029 $ (8,663) $ 31,409 53 During the third quarter 2025, there was a loss in noninterest income of $24.6 million, representing a decrease of $36.7 million, or 304.9%, compared to $12.0 million of noninterest income for the third quarter 2024. The decrease in noninterest income was due primarily to a decrease in gain on sale of loans, partially offset by an increase in other noninterest income. The decrease of $37.0 million, or 372.9%, in gain on sale of loans was due to the sale of $836.9 million of single tenant lease financing loans that was completed during the quarter, which resulted in a pre-tax loss of $37.8 million. Excluding the loss on the loan sale, adjusted noninterest income totaled $13.2 million for the third quarter 2025, an increase of $1.1 million, compared to the third quarter 2024. The increase was driven by higher gain on sale revenue, which consisted almost entirely of sales of U.S. Small Business Administration (“SBA”) 7(a) guaranteed loans. The increase in other noninterest income of $0.2 million, or 3.3%, was due primarily to distributions from fund investments. During the nine months ended September 30, 2025, there was a loss in noninterest income of $8.7 million, a decrease of $40.1 million, or 127.6%, compared to $31.4 million for the nine months ended September 30, 2024. The decrease in noninterest income was due primarily to a decrease in gain on sale of loans, partially offset by an increase in other noninterest income. The decrease of $41.5 million, or 167.8%, in gain on sale of loans was due primarily to the sale of $836.9 million of single tenant lease financing loans that was completed during the quarter, which resulted in a pre-tax loss of $37.8 million. Excluding the loss on the loan sale, adjusted noninterest income totaled $29.2 million for the nine months ended September 30 2025, a decrease of $2.2 million, compared to the nine months ended September 2024. The decrease was driven by lower gain on sale revenue, which was due to a decrease in the volume of SBA 7(a) guaranteed loans sales, as the Company implemented a process change to hold SBA loans for a longer period of time before selling them in the secondary market. The increase in other noninterest income of $1.2 million, or 31.9%, was due primarily to distributions from fund investments. Noninterest Expense The following table shows noninterest expense for each of the periods presented. Three Months Ended Nine Months Ended (amounts in thousands) September 30, 2025 September 30, 2024 September 30, 2025 September 30, 2024 Salaries and employee benefits $ 14,384 $ 13,456 $ 38,358 $ 37,714 Marketing, advertising and promotion 482 548 1,831 1,893 Consulting and professional services 979 902 3,143 2,777 Data processing 651 675 1,942 1,845 Loan expenses 1,850 1,524 4,901 4,566 Premises and equipment 3,572 2,918 9,968 8,898 Deposit insurance premium 1,584 1,219 4,546 3,536 Other 1,957 1,552 6,127 4,924 Total noninterest expense $ 25,459 $ 22,794 22794000 $ 70,816 $ 66,153 Noninterest expense for the third quarter 2025 was $25.5 million, representing an increase of $2.7 million, or 11.7%, compared to $22.8 million for the third quarter 2024. The increase in noninterest expense was due primarily to increases in salaries and employee benefits, premises and equipment, deposit insurance premium, other expense and loan expenses. The increase of $0.9 million, or 6.9%, in salaries and employee benefits was driven primarily by an increase in incentive compensation. The increase of $0.7 million, or 22.4%, in premises and equipment was due primarily to software maintenance expense. The increase of $0.4 million, or 29.9%, in deposit insurance premium was due to changes in the composition of the loan portfolio. The increase in other expenses of $0.4 million, or 26.1%, was due primarily to higher fintech volume activity. The increase of $0.3 million, or 21.4%, in loan expenses was due primarily to collection expense, as well as third party servicing associated with SBA and fintech lending. Noninterest expense for the nine months ended September 30, 2025 was $70.8 million, an increase of $4.7 million, or 7.0%, compared to $66.2 million for the nine months ended September 30, 2024. The increase was due primarily to increases in other expense, premises and equipment, deposit insurance premium, salaries and employee benefits, consulting and professional fees and loan expenses. The increase in other expense of $1.2 million, or 24.4%, was due primarily to higher fintech volume activity. The increase of $1.1 million, or 12.0%, in premises and equipment was due primarily to software maintenance expense. The increase of $1.0 million, or 28.6%, in deposit insurance premium was due to changes in the composition of the loan portfolio. The increase of $0.6 million, or 1.7%, in salaries and employee benefits was due primarily to an increase in incentive compensation. The increase of $0.4 million, or 13.2%, in consulting and professional fees was due mainly to 54 increased legal and audit fees. The increase of $0.3 million, or 7.3%, in loan expenses was due primarily to collection expense, as well as third party servicing associated with SBA and fintech lending. The Company recorded an income tax benefit of $13.0 million for the third quarter 2025, compared to an income tax provision of $0.6 million and an effective tax rate of 8.1% for the third quarter 2024. The Company recorded an income tax benefit of $15.9 million for the nine months ended September 30, 2025, compared to an income tax provision of $1.3 million and an effective tax rate of 6.6% for the nine months ended September 30, 2024. The income tax benefits recognized during the third quarter 2025 and the nine months ended September 30, 2025 reflect lower pre-tax earnings, as well as the benefit of tax exempt income. The variance from the federal statutory rate for the third quarter 2024 and the nine months ended September 30, 2024 was due primarily to tax-exempt income. Interest income on certain loans or securities issued by governmental, municipal and not-for-profit entities, and earnings from bank-owned life insurance were the primary components of tax-exempt income. Financial Condition The following table shows summary balance sheet data for each of the periods presented. (amounts in thousands) Balance Sheet Data: September 30, 2025 December 31, 2024 Total assets $ 5,639,174 $ 5,737,859 Loans 3,603,506 4,170,646 Total securities 887,631 837,151 Loans held-for-sale 141,580 54,695 Noninterest-bearing deposits 243,539 136,451 Interest-bearing deposits 4,671,895 4,796,755 Total deposits 4,915,434 4,933,206 Advances from Federal Home Loan Bank 249,500 295,000 Total shareholders’ equity 352,168 384,063 Total assets decreased $98.7 million, or 1.7%, to $5.6 billion at September 30, 2025 compared to $5.7 billion at December 31, 2024. The decrease was due primarily to a decline in loans due to the single tenant leasing financing loan sale and lower construction and franchise finance balances, partially offset by higher investor commercial real estate, commercial and industrial and small business lending balances. Total liabilities declined $66.8 million, or 1.2%, to $5.3 billion at September 30, 2025 compared to $5.4 billion at December 31, 2024. The decrease was due mainly to a decline in advances from the Federal Home Loan Bank and, to a lesser extent, a decrease in total deposits. Increased liquidity from growth in fintech partnership deposits allowed the Company to pay down higher cost brokered deposits and advances from the Federal Home Loan Bank throughout 2025. As of September 30, 2025, total shareholders’ equity was $352.2 million, a decrease of $31.9 million, or 8.3%, compared to December 31, 2024. The decrease in shareholders’ equity was due primarily to the net loss during 2025, partially offset by a decrease in accumulated other comprehensive loss as unrealized losses on securities decreased during the nine months ended September 30, 2025. Tangible common equity totaled $347.5 million as of September 30, 2025, representing a decrease of $31.9 million, or 8.4%, compared to December 31, 2024. The ratio of total shareholders’ equity to total assets decreased to 6.25% as of September 30, 2025 from 6.69% as of December 31, 2024, and the ratio of tangible common equity to tangible assets decreased to 6.17% as of September 30, 2025 from 6.62% as of December 31, 2024. Book value per common share decreased 8.8% to $40.42 as of September 30, 2025 from $44.31 as of December 31, 2024. Tangible book value per share decreased 8.9% to $39.88 as of September 30, 2025 from $43.77 as of December 31, 2024. The decrease in both book value per common share and tangible book value per share was driven primarily by the decreases in total shareholders’ equity and tangible common equity. Refer to the “Reconciliation of Non-GAAP Financial Measures” section of Part I, Item 2 of this report, Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional information. 55 Loan Portfolio Analysis The following table shows a summary of the Company’s loan portfolio for each of the periods presented. (dollars in thousands) September 30, 2025 December 31, 2024 Commercial loans Commercial and industrial $ 206,301 5.7 % $ 120,175 2.9 % Owner-occupied commercial real estate 50,046 1.4 % 53,591 1.3 % Investor commercial real estate 644,184 17.9 % 269,431 6.5 % Construction 300,291 8.3 % 413,523 9.9 % Single tenant lease financing 108,146 3.1 % 949,748 22.7 % Public finance 480,119 13.3 % 485,867 11.6 % Healthcare finance 150,522 4.2 % 181,427 4.4 % Small business lending 401,628 11.1 % 331,914 8.0 % Franchise finance 450,340 12.5 % 536,909 12.9 % Total commercial loans 2,791,577 77.5 % 3,342,585 80.2 % Consumer loans Residential mortgage 349,275 9.7 % 375,160 9.0 % Home equity 15,806 0.4 % 18,274 0.4 % Other consumer loans 423,004 11.7 % 407,947 9.8 % Total consumer loans 788,085 21.8 % 801,381 19.2 % Net deferred loan origination costs, premiums and discounts on purchased loans and other 1 23,844 0.7 % 26,680 0.6 % Total loans 3,603,506 100.0 % 4,170,646 100.0 % Allowance for credit losses - loans (59,923) (44,769) Net loans $ 3,543,583 $ 4,125,877 1 Includes carrying value adjustments of $20.2 million and $22.9 million related to terminated interest rate swaps associated with public finance loans as of September 30, 2025 and December 31, 2024, respectively. Total loans were $3.6 billion as of September 30, 2025, a decrease of $567.1 million, or 13.6%, compared to December 31, 2024. Total commercial loan balances were $2.8 billion as of September 30, 2025, down $551.0 million, or 16.5%, from December 31, 2024. Total consumer loan balances were $788.1 million as of September 30, 2025, a decrease of $13.3 million, or 1.66%, compared to December 31, 2024. Compared to December 31, 2024, the decrease in commercial loan balances was driven by the sale of $836.9 million of single tenant lease financing loans that was completed during the third quarter, as well as decreases in construction, franchise finance and continued run off in the healthcare finance portfolio. The decreases were partially offset by increases in investor commercial real estate, which was driven by completed construction projects that were moved to investor commercial real estate upon entering their stabilization period, as well as growth in the commercial and industrial and small business lending portfolios. The slight decrease in consumer loan balances was due primarily to a decrease in the residential mortgage portfolio, partially offset by origination activity in the other consumer loans portfolio. 56 Asset Quality Nonperforming loans are comprised of nonaccrual loans and loans 90 days past due and accruing. Nonperforming assets include nonperforming loans, other real estate owned and other nonperforming assets, which consist of repossessed assets. The following table provides a summary of the Company’s nonperforming assets for each of the periods presented. (dollars in thousands) September 30, 2025 December 31, 2024 Nonaccrual loans Commercial loans: Commercial and industrial $ 264 $ — Healthcare finance 1,460 — Single tenant lease financing 1,665 — Small business lending 13,524 11,429 Franchise finance 30,978 10,382 Total commercial loans 47,891 21,811 Consumer loans: Residential mortgage 4,407 4,083 Other consumer loans 75 61 Total consumer loans 4,482 4,144 Total nonaccrual loans 52,373 25,955 Past due 90 days and accruing loans Commercial loans: Small business lending 877 1,320 Total commercial loans 877 1,320 Consumer loans: Residential mortgage — 1,142 Other consumer loans — 4 Total consumer loans — 1,146 Total past due 90 days and accruing loans 877 2,466 Total nonperforming loans 53,250 28,421 Other real estate owned Small business lending 1,801 — Residential mortgage — 272 Total other real estate owned 1,801 272 Other nonperforming assets 186 212 Total nonperforming assets $ 55,237 $ 28,905 Total nonperforming loans to total loans 1.48 % 0.68 % Total nonperforming assets to total assets 0.98 % 0.50 % Allowance for credit losses - loans to total loans 1.66 % 1.07 % Nonaccrual loans to total loans 1.45 % 0.62 % Allowance for credit losses - loans to nonaccrual loans 114.4 % 172.5 % Allowance for credit losses - loans to nonperforming loans 112.5 % 157.5 % Total nonperforming loans increased $24.8 million, or 87.4%, to $53.3 million as of September 30, 2025 compared to $28.4 million as of December 31, 2024 due primarily to an increase in nonperforming loans in the franchise finance and small business lending portfolios during the year. Total nonperforming assets increased $26.3 million, or 91.1%, to $55.2 million as of September 30, 2025, compared to $28.9 million as of December 31, 2024, due primarily to the aforementioned increase in nonperforming loans and an increase in OREO related to small business lending. As of September 30, 2025, the Company had 57 two small business lending properties in OREO with carrying values of $1.8 million. As of December 31, 2024, the Company had one residential mortgage property in OREO with a carrying value of $0.3 million. Allowance for Credit Losses - Loans The following table provides a rollforward of the allowance for credit losses for each of the periods presented; however, allocation of a portion of the allowance to one segment does not preclude its availability to absorb losses in other segments. Three Months Ended Nine Months Ended Year Ended (dollars in thousands) September 30, 2025 September 30, 2024 September 30, 2025 September 30, 2024 December 31, 2024 Balance, beginning of period $ 46,517 $ 43,405 $ 44,769 $ 38,774 $ 38,774 Provision charged to expense 34,393 3,858 60,110 10,360 18,815 Losses charged off Commercial and industrial 93 — 93 — — Single tenant lease financing — — — 195 195 Small business lending 15,883 1,309 31,403 2,171 10,441 Franchise finance 5,385 — 13,471 577 1,466 Residential mortgage 17 17 28 86 159 Other consumer loans 374 425 1,046 760 1,009 Total losses charged off 21,752 1,751 46,041 3,789 13,270 Recoveries Commercial and industrial 2 3 6 7 8 Small business lending 635 169 808 274 325 Franchise finance 64 — 82 — — Residential mortgage — — 7 1 1 Home equity 2 3 5 6 7 Other consumer loans 62 34 177 88 109 Total recoveries 765 209 1,085 376 450 Balance, end of period $ 59,923 $ 45,721 $ 59,923 $ 45,721 $ 44,769 Net charge-offs $ 20,987 $ 1,542 $ 44,956 $ 3,413 $ 12,820 Net charge-offs (recoveries) to average loans (annualized) Commercial and industrial 0.00 % (0.01 %) (0.01 %) (0.01 %) (0.01 %) Single tenant lease financing 0.00 % 0.00 % 0.00 % 0.03 % 0.02 % Small business lending 3.92 % 0.48 % 9.17 % 0.90 % 3.39 % Franchise finance 1.51 % 0.00 % 3.59 % 0.14 % 0.27 % Fintech partnership lending 0.57 % 0.00 % 0.59 % 0.00 % 0.00 % Total commercial net charge-offs 0.77 % 0.05 % 1.67 % 0.11 % 0.37 % Residential mortgage 0.02 % 0.02 % 0.01 % 0.03 % 0.04 % Home equity (0.02 %) (0.02 %) (0.04 %) (0.04 %) (0.03 %) Other consumer loans 0.41 % 0.46 % 0.39 % 0.29 % 0.28 % Total consumer net charge-offs 0.06 % 0.07 % 0.15 % 0.13 % 0.13 % Total net charge-offs to average loans 1.89 % 0.15 % 1.38 % 0.12 % 0.32 % The allowance for credit losses - loans (“ACL”) was $59.9 million as of September 30, 2025, compared to $44.8 million as of December 31, 2024. The increase in the ACL reflects updated assumptions to the Company’s CECL model, including updates that significantly increased the ACL related to small business lending, as well as additional specific reserves related to franchise finance loans that were placed on nonaccrual during the nine month period ended September 30, 2025, partially offset by the removal of specific reserves for small business lending and franchise finance loans that were charged off. Furthermore, the ACL as a percentage of total loans was impacted by lower total loan balances following the sale of $836.9 million of single tenant lease financing loans. The ACL as a percentage of total loans was 1.66% at September 30, 2025, compared to 1.07% at December 31, 2024. The ACL as a percentage of nonperforming loans decreased to 112.5% as of September 30, 2025, compared to 157.5% as of December 31, 2024, as the increase in nonperforming loans outweighed the increase in the ACL. 58 Net charge-offs of $21.0 million were recognized during the third quarter 2025, resulting in net charge-offs to average loans of 1.89%, compared to net charge-offs of $1.5 million, or 0.15% of average loans, for the third quarter 2024. Net charge-offs in the third quarter 2025 were elevated as the Company continued to take action to resolve problem loans in the small business lending and franchise finance portfolios. Approximately $15.2 million of net charge-offs recognized during the quarter were related to small business lending and $5.3 million were related to franchise finance loans, with $3.5 million of existing specific reserves previously applied to these loans. During the nine months ended September 30, 2025, the Company recorded net charge-offs of $45.0 million, compared to net charge-offs of $3.4 million during the nine months ended September 30, 2024. The increase in net charge-offs for the nine months ended September 30, 2025 was driven primarily by $30.6 million in net charge-offs related to small business lending and $13.4 million in net charge-offs related to franchise finance loans, with $13.4 million of existing specific reserves previously applied to these loans. The provision for credit losses - loans in the third quarter 2025 was $34.4 million, compared to $3.9 million for the third quarter 2024. The increase in the provision for credit losses - loans for the third quarter 2025 was driven primarily by the net charge-offs, additional specific reserves and the increase in the ACL related to small business lending discussed above, partially offset by the decrease in the ACL resulting from the sale of the single tenant lease financing loans mentioned above and by the decrease in specific reserves related to franchise finance loans that were charged off. The provision for credit losses - loans during the nine months ended September 30, 2025 was $60.1 million, compared to $10.4 million for the nine months ended September 30, 2024. The increase in the provision for credit losses - loans for the nine months ended September 30, 2025 was driven primarily by the net charge-offs, additional specific reserves and the increase in the ACL related to small business lending discussed above, partially offset by the decrease in the ACL resulting from the sale of the single tenant lease financing loans mentioned above and by the decrease in specific reserves related to small business lending and franchise finance loans that were charged off. 59 Investment Securities Portfolio The following tables show the amortized cost and approximate fair value of our investment securities portfolio by security type for each of the periods presented. (amounts in thousands) Amortized Cost September 30, 2025 December 31, 2024 Securities available-for-sale U.S. Government-sponsored agencies $ 68,291 $ 83,811 Municipal securities 64,837 67,441 Agency mortgage-backed securities - residential 378,027 300,914 Agency mortgage-backed securities - commercial 61,272 64,214 Private label mortgage-backed securities - residential 37,389 46,623 Asset-backed securities 17,458 23,802 Corporate securities 26,017 40,049 Total available-for-sale 653,291 626,854 Securities held-to-maturity, net carrying value Municipal securities 11,011 12,843 Agency mortgage-backed securities - residential 221,144 201,840 Agency mortgage-backed securities - commercial 5,653 5,705 Corporate securities 23,917 29,408 Total held-to-maturity, net carrying value 261,725 249,796 Total securities $ 915,016 $ 876,650 (amounts in thousands) Approximate Fair Value September 30, 2025 December 31, 2024 Securities available-for-sale U.S. Government-sponsored agencies $ 67,536 $ 82,816 Municipal securities 62,552 63,654 Agency mortgage-backed securities - residential 355,485 269,641 Agency mortgage-backed securities - commercial 60,509 63,331 Private label mortgage-backed securities - residential 36,900 45,821 Asset-backed securities 17,535 23,821 Corporate securities 25,389 38,271 Total available-for-sale 625,906 587,355 Securities held-to-maturity Municipal securities 10,494 11,925 Agency mortgage-backed securities - residential 209,924 184,412 Agency mortgage-backed securities - commercial 4,748 4,548 Corporate securities 23,281 27,966 Total held-to-maturity 248,447 228,851 Total securities $ 874,353 $ 816,206 The approximate fair value of available-for-sale investment securities increased $38.6 million, or 6.6%, to $625.9 million as of September 30, 2025, compared to $587.4 million as of December 31, 2024. The increase was due primarily to an increase of $85.8 million in agency mortgage-backed securities - residential, partially offset by decreases of $15.3 million in U.S. Government-sponsored agencies, $12.9 million in corporate securities, $8.9 million in private label mortgage-backed securities - residential, $6.3 million in asset-backed securities, $2.8 million in agency mortgage-backed securities - commercial and $1.1 million in municipal securities. The Company deployed liquidity during 2025 into new purchases of available-for-sale variable-rate agency mortgage-backed securities - residential, partially offset by net pay down activity in other security types. As of September 30, 2025, the Company had securities with a net carrying value of $261.7 million designated as held-to-maturity, compared to $249.8 million as of December 31, 2024. The increase was due primarily to purchases of CRA-eligible agency mortgage-backed securities - residential made in the first quarter 2025. 60 Accrued Income and Other Assets Accrued income and other assets increased $21.0 million, or 33.3%, to $84.0 million at September 30, 2025, compared to $63.0 million at December 31, 2024. The increase was due primarily to increases of $12.7 million in deferred tax assets, $6.6 million in equity fund investments and $1.5 million in prepaid assets. Accrued Expenses and Other Liabilities Accrued expenses and other liabilities decreased $2.5 million, or 13.9%, to $15.5 million at September 30, 2025, compared to $17.9 million at December 31, 2024. The decrease was due primarily to decreases of $2.7 million in accrued salary and benefits and $1.2 million in other accrued expenses, partially offset by increases of $1.2 million in unfunded commitments and $0.3 million in the reserve for unfunded loan commitments. Deposits The following table shows the composition of the Company’s deposit base for each of the periods presented. (dollars in thousands) September 30, 2025 December 31, 2024 Noninterest-bearing deposits $ 243,539 5.0 % $ 136,451 2.8 % Interest-bearing demand deposits 1,003,950 20.4 % 896,661 18.2 % Savings accounts 18,694 0.4 % 19,823 0.4 % Money market accounts 1,250,202 25.4 % 1,183,789 24.0 % Certificates of deposits 2,115,613 43.0 % 2,133,455 43.2 % Brokered deposits 283,436 5.8 % 563,027 11.4 % Total deposits $ 4,915,434 100.0 % $ 4,933,206 100.0 % Total deposits decreased $17.8 million, or 0.3%, to $4.9 billion as of September 30, 2025, compared to $4.9 billion as of December 31, 2024. The decrease was due primarily to decreases of $279.6 million, or 49.7%, in brokered deposits and $17.8 million, or 0.8%, in certificates of deposits, partially offset by increases of $107.3 million, or 12.0%, in interest-bearing demand deposits, $107.1 million, or 78.5%, in noninterest-bearing deposits and $66.4 million, or 5.6%, in money market accounts. The increase in noninterest-bearing deposits and interest-bearing demand deposits, driven by growth in fintech partnership deposits, provided the ability to pay down maturing higher-cost brokered deposits and certificates of deposits. Uninsured deposit balances represented 33% of total deposits at September 30, 2025, up from 25% at December 31, 2024. These balances include Indiana-based municipal deposits, which are insured by the Indiana Board for Depositories, as well as larger balance accounts under contractual agreements that only allow withdrawal under certain conditions. After subtracting these types of deposits, the adjusted uninsured deposit balance drops to 27% as of September 30, 2025, compared to 20% as of December 31, 2024. Regulatory Capital Requirements The Company and the Bank are subject to various regulatory capital requirements administered by state and federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weighting and other factors. The Basel III Capital Rules became effective for the Company and the Bank on January 1, 2015, subject to a phase-in period for certain provisions. Quantitative measures established by the Basel III Capital Rules to ensure capital adequacy require the maintenance of minimum amounts and ratios of Common Equity Tier 1 capital, Tier 1 capital and Total capital, as defined in the regulations, to risk-weighted assets, and of Tier 1 capital to adjusted quarterly average assets (“Leverage Ratio”). 61 The Basel III Capital Rules were fully phased in on January 1, 2019 and require the Company and the Bank to maintain: 1) a minimum ratio of Common Equity Tier 1 capital to risk-weighted assets of 4.5%, plus a 2.5% “capital conservation buffer” (resulting in a minimum ratio of Common Equity Tier 1 capital to risk-weighted assets of 7.0%); 2) a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0%, plus the capital conservation buffer (resulting in a minimum Tier 1 capital ratio of 8.5%); 3) a minimum ratio of Total capital to risk-weighted assets of 8.0%, plus the capital conservation buffer (resulting in a minimum Total capital ratio of 10.5%); and 4) a minimum Leverage Ratio of 4.0%. The capital conservation buffer is designed to absorb losses during periods of economic stress. Failure to maintain the minimum Common Equity Tier 1 capital ratio plus the capital conservation buffer will result in potential restrictions on a banking institution’s ability to pay dividends, repurchase stock and/or pay discretionary compensation to its employees. The following tables present actual and required capital ratios as of September 30, 2025 and December 31, 2024 for the Company and the Bank under the Basel III Capital Rules. The minimum required capital amounts presented include the minimum required capital levels as of September 30, 2025 and December 31, 2024, which are based on the Basel III Capital Rules. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules. As permitted by the federal banking regulatory agencies, the Company elected the option to delay the impact of the day one adoption of ASC 326. The transition adjustments of $4.5 million will be phased into the regulatory capital calculations over a three-year period, with 25% of the adjustment recognized in 2023, 50% of the adjustment recognized in 2024, 75% of the adjustment recognized in 2025 and 100% of the adjustment recognized in 2026. Actual Minimum Capital Required - Basel III Minimum Required to be Considered Well Capitalized (dollars in thousands) Capital Amount Ratio Capital Amount Ratio Capital Amount Ratio As of September 30, 2025: Common equity tier 1 capital to risk-weighted assets Consolidated $ 346,448 $ 262,425 7.00 % N/A N/A Bank 417,831 9.24 % 261,004 7.00 % $ 242,361 6.50 % Tier 1 capital to risk-weighted assets Consolidated 346,448 9.24 % 318,659 8.50 % N/A N/A Bank 417,831 11.21 % 316,934 8.50 % 298,290 8.00 % Total capital to risk-weighted assets Consolidated 491,591 13.11 % 393,637 10.50 % N/A N/A Bank 464,620 12.46 % 391,506 10.50 % 372,863 10.00 % Leverage ratio Consolidated 346,448 5.69 % 243,391 4.00 % N/A N/A Bank 417,831 6.89 % 242,566 4.00 % 303,208 5.00 % 62 Actual Minimum Capital Required - Basel III Minimum Required to be Considered Well Capitalized (dollars in thousands) Capital Amount Ratio Capital Amount Ratio Capital Amount Ratio As of December 31, 2024: Common equity tier 1 capital to risk-weighted assets Consolidated $ 400,100 9.30 % $ 301,052 7.00 % N/A N/A Bank 475,793 11.11 % 299,774 7.00 % $ 278,362 6.50 % Tier 1 capital to risk-weighted assets Consolidated 400,100 9.30 % 365,563 8.50 % N/A N/A Bank 475,793 11.11 % 364,012 8.50 % 342,599 8.00 % Total capital to risk-weighted assets Consolidated 542,808 12.62 % 451,578 10.50 % N/A N/A Bank 520,610 12.16 % 449,662 10.50 % 428,249 10.00 % Leverage ratio Consolidated 400,100 6.90 % 232,011 4.00 % N/A N/A Bank 475,793 8.23 % 231,331 4.00 % 289,164 5.00 % Shareholders’ Dividends The Company’s Board of Directors declared a cash dividend of $0.06 per share of common stock payable October 15, 2025 to shareholders of record as of September 30, 2025. The Company expects to continue to pay cash dividends on a quarterly basis; however, the declaration and amount of any future cash dividends will be subject to the sole discretion of the Board of Directors and will depend upon many factors, including the Company’s results of operations, financial condition, capital requirements, regulatory and contractual restrictions (including with respect to the Company’s outstanding subordinated debt), business strategy and other factors deemed relevant by the Board of Directors. As of September 30, 2025, the Company had $107.0 million principal amount of subordinated debt outstanding evidenced by the 2029 Notes, 2030 Note and 2031 Notes. The agreements that govern our outstanding subordinated debt prohibit the Company from paying any dividends on its common stock or making any other distributions to shareholders at any time when there shall have occurred, and be continuing to occur, an event of default under the applicable agreement. If an event of default were to occur and the Company did not cure it, the Company would be prohibited from paying any dividends or making any other distributions to shareholders or from redeeming or repurchasing any common stock. Capital Resources The Company believes it has sufficient liquidity and capital resources to meet its cash and capital expenditure requirements for the next twelve months and longer. The Company may explore strategic alternatives, including additional asset, deposit or revenue generation channels that complement our small business, commercial and consumer banking platforms, which may require additional capital. If the Company is unable to secure such capital at favorable terms, its ability to take advantage of such opportunities could be adversely affected. On December 19, 2022, the Company's Board of Directors approved a stock repurchase program that authorized the repurchase of up to $25.0 million of our outstanding common stock from time to time on the open market or in privately negotiated transactions. The stock repurchase authorization expired on December 31, 2024. Under this program, the Company repurchased 559,522 shares of common stock at an average price of $19.06, for a total investment of $10.7 million. On October 20, 2025, the Board of Directors of the Company authorized the repurchase of up to $25.0 million of the Company's outstanding common stock from time to time on the open market or in privately negotiated transactions. The stock repurchase authorization is scheduled to expire on September 30, 2027. Various factors determine the amount and timing of our share repurchases, including our capital requirements, organic growth and other strategic opportunities, economic and market conditions (including the trading price of our stock), and regulatory and legal considerations. 63 Liquidity Liquidity management is the process used by the Company to manage the continuing flow of funds necessary to meet its financial commitments on a timely basis and at a reasonable cost while also maintaining safe and sound operations. Liquidity, represented by cash and investment securities, is a product of the Company’s operating, investing and financing activities. The primary sources of funds are deposits, principal and interest payments on loans and investment securities, maturing loans and investment securities, access to wholesale funding sources and collateralized borrowings. In addition, the Company may elect to hold certain deposit balances off-balance sheet, with optionality to bring them back onto the balance sheet as funding needs evolve. While scheduled payments and maturities of loans and investment securities are relatively predictable sources of funds, deposit flows are greatly influenced by interest rates, general economic conditions and competition. Therefore, the Company supplements deposit growth and enhances interest rate risk management through borrowings and wholesale funding, which are generally advances from the Federal Home Loan Bank (“FHLB”) and brokered deposits. The Company holds cash and investment securities that qualify as liquid assets to maintain adequate liquidity to ensure safe and sound operations and meet its financial commitments. At September 30, 2025, on a consolidated basis, the Company had $1.4 billion in cash and cash equivalents and investment securities available-for-sale and $141.6 million in loans held-for-sale that were generally available for its cash needs. Further, the Company retains the ability draw upon any deposit balances held off-balance sheet, with optionality to recall $717.7 million of such funds onto the balance sheet at September 30, 2025. The Company can also generate funds from wholesale funding sources and collateralized borrowings. At September 30, 2025, the Bank had the ability to borrow an additional $1.4 billion from the FHLB, the Federal Reserve and correspondent bank Fed Funds lines of credit, which when combined with cash balances and off-balance sheet deposits, totaled $2.9 billion and represented 216% of adjusted uninsured deposit balances. The Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, the Company is responsible for paying any dividends declared to its common shareholders and interest and principal on outstanding debt. The Company’s primary sources of funds are cash maintained at the holding company level and dividends from the Bank, the payment of which is subject to regulatory limits. At September 30, 2025, the Company, on an unconsolidated basis, had $15.3 million in cash for debt servicing and operating expenses. The Company uses its sources of funds primarily to meet ongoing financial commitments, including withdrawals by depositors, credit commitments to borrowers, operating expenses and capital expenditures. At September 30, 2025, approved outstanding loan commitments, including unused lines of credit and standby letters of credit, amounted to $594.8 million. Certificates of deposits and brokered deposits scheduled to mature in one year or less at September 30, 2025 totaled $1.5 billion. Management is not aware of any other events or regulatory requirements that, if implemented, are likely to have a material effect on either the Company’s or the Bank’s liquidity. 64 Reconciliation of Non-GAAP Financial Measures This Management’s Discussion and Analysis contains financial information determined by methods other than in accordance with GAAP. Non-GAAP financial measures, specifically tangible common equity, tangible assets, tangible book value per common share, tangible common equity to tangible assets, average tangible common equity, return on average tangible common equity, total interest income - FTE, net interest income - FTE, net interest margin - FTE, pre-tax, adjusted total revenue, pre-provision (loss) income, adjusted pre-tax, pre-provision income, adjusted noninterest income, adjusted noninterest expense, adjusted (loss) income before income taxes, adjusted income tax (benefit) provision, adjusted net (loss) income, adjusted diluted (loss) earnings per share, adjusted return on average assets, adjusted return on average shareholders’ equity and adjusted return on average tangible common equity are used by the Company’s management to measure the strength of its capital and analyze profitability, including its ability to generate earnings on tangible capital invested by its shareholders. The Company also believes that it is a standard practice in the banking industry to present total interest income, net interest income and net interest margin on a fully-taxable equivalent basis, as those measures provide useful information for peer comparisons. Although the Company believes these non-GAAP financial measures provide a greater understanding of its business, they should not be considered a substitute for financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP financial measures that may be presented by other companies. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the following table for each of the periods presented. (dollars in thousands, except share and per share data) Three Months Ended Nine Months Ended September 30, 2025 September 30, 2024 September 30, 2025 September 30, 2024 Total equity - GAAP $ 352,168 $ 385,129 $ 352,168 $ 385,129 Adjustments: Goodwill (4,687) (4,687) (4,687) (4,687) Tangible common equity $ 347,481 $ 380,442 $ 347,481 $ 380,442 Total assets - GAAP $ 5,639,174 $ 5,823,259 $ 5,639,174 $ 5,823,259 Adjustments: Goodwill (4,687) (4,687) (4,687) (4,687) Tangible assets $ 5,634,487 $ 5,818,572 $ 5,634,487 $ 5,818,572 Common shares outstanding 8,713,094 8,667,894 8,713,094 8,667,894 Book value per common share $ 40.42 $ 44.43 $ 40.42 $ 44.43 Effect of goodwill (0.54) (0.54) (0.54) (0.54) Tangible book value per common share $ 39.88 $ 43.89 $ 39.88 $ 43.89 Total shareholders’ equity to assets 6.25 % 6.61 % 6.25 % 6.61 % Effect of goodwill (0.08 %) (0.07 %) (0.08 %) (0.07 %) Tangible common equity to tangible assets 6.17 % 6.54 % 6.17 % 6.54 % Total average equity - GAAP $ 391,886 $ 380,061 $ 391,930 $ 373,111 Adjustments: Average goodwill (4,687) (4,687) (4,687) (4,687) Average tangible common equity $ 387,199 $ 375,374 $ 387,243 $ 368,424 Return on average shareholders’ equity (42.11 %) 7.32 % (13.80 %) 6.42 % Effect of goodwill (0.51 %) 0.09 % (0.17 %) 0.09 % Return on average tangible common equity (42.62 %) 7.41 % (13.97 %) 6.51 % 65 (dollars in thousands, except share and per share data) Three Months Ended Nine Months Ended September 30, 2025 September 30, 2024 September 30, 2025 September 30, 2024 Total interest income $ 84,388 $ 74,990 $ 242,103 $ 214,116 Adjustments: Fully-taxable equivalent adjustments 1 1,158 1,133 3,484 3,498 Total interest income - FTE $ 85,546 $ 76,123 $ 245,587 $ 217,614 Net interest income $ 30,352 $ 21,765 $ 83,438 $ 63,826 Adjustments: Fully-taxable equivalent adjustments 1 1,158 1,133 3,484 3,498 Net interest income - FTE $ 31,510 $ 22,898 $ 86,922 $ 67,324 Net interest margin 2.04 % 1.62 % 1.94 % 1.65 % Effect of fully-taxable equivalent adjustments 1 0.08 % 0.08 % 0.08 % 0.09 % Net interest margin - FTE 2.12 % 1.70 % 2.02 % 1.74 % 1 Assuming a 21% tax rate 66 (dollars in thousands, except share and per share data) Three Months Ended Nine Months Ended September 30, 2025 September 30, 2024 September 30, 2025 September 30, 2024 Total revenue- GAAP 1 $ 5,705 $ 33,794 $ 74,775 $ 95,235 Adjustments: Gain on sale of loans 37,823 — 37,823 — Adjusted total revenue $ 43,528 $ 33,794 $ 112,598 $ 95,235 Net (loss) income-GAAP $ (41,593) $ 6,990 $ (40,457) $ 17,946 Adjustments: 2 Provision for credit losses 34,789 3,390 60,330 9,869 Income tax (benefit) provision (12,950) 620 (15,914) 1,267 Pre-tax, pre-provision (loss) income $ (19,754) $ 11,000 $ 3,959 $ 29,082 Pre-tax, pre-provision (loss) income $ (19,754) $ 11,000 $ 3,959 $ 29,082 Adjustments: Loss on sale of loans $ 37,823 $ — $ 37,823 $ — Adjusted Pre-tax, pre-provision income $ 18,069 $ 11,000 $ 41,782 $ 29,082 Noninterest (loss) income - GAAP $ (24,647) $ 12,029 $ (8,663) $ 31,409 Adjustments: Loss on sale of loans $ 37,823 $ — $ 37,823 $ — Adjusted noninterest income $ 13,176 $ 12,029 $ 29,160 $ 31,409 Noninterest expense - GAAP $ 25,459 $ 22,794 $ 70,816 $ 66,153 Adjustments: IT termination fees — — — (452) Anniversary expenses — — — (120) Adjusted noninterest expense $ 25,459 $ 22,794 $ 70,816 $ 65,581 (Loss) Income before income taxes - GAAP $ (54,543) $ 7,610 $ (56,371) $ 19,213 Adjustments: Loss on sale of loans 37,823 — 37,823 — IT termination fees — — — 452 Anniversary expenses — — — 120 Adjusted (loss) income before income taxes $ (16,720) $ 7,610 $ (18,548) $ 19,785 Income tax (benefit) provision - GAAP $ (12,950) $ 620 $ (15,914) $ 1,267 Adjustments: 2 Loss on sale of loans 8,699 — 8,699 — IT termination fees — — — 95 Anniversary expenses — — — 25 Adjusted income tax (benefit) provision $ (4,251) $ 620 $ (7,215) $ 1,387 Net (loss) income - GAAP $ (41,593) $ 6,990 $ (40,457) $ 17,946 Adjustments: Loss on sale of loans 29,124 — 29,124 — IT termination fees — — — 357 Anniversary expenses — — — 95 Adjusted net (loss) income $ (12,469) $ 6,990 $ (11,333) $ 18,398 1 Calculated as the sum of total interest income, total interest expense and noninterest (loss) income 2 Assuming a 21% tax rate 67 (dollars in thousands, except share and per share data) Three Months Ended Nine Months Ended September 30, 2025 September 30, 2024 September 30, 2025 September 30, 2024 Diluted average common shares outstanding 8,742,052 8,768,731 8,730,519 8,756,544 Diluted (loss) earnings per share - GAAP $ (4.76) $ 0.80 $ (4.63) $ 2.05 Adjustments: Effect of loss on sale of loans 3.33 — 3.34 — Effect of IT termination fees — — — 0.04 Effect of anniversary expenses — — — 0.01 Adjusted diluted (loss) earnings per share $ (1.43) $ 0.80 $ (1.29) $ 2.10 Return on average assets (2.71 %) 0.50 % (0.91 %) 0.45 % Effect of loss on sale of loans 1.90 % 0.00 % 0.66 % 0.00 % Effect of IT termination fees 0.00 % 0.00 % 0.00 % 0.01 % Effect of anniversary expenses 0.00 % 0.00 % 0.00 % 0.00 % Adjusted return on average assets (0.81 %) 0.50 % (0.25 %) 0.46 % Return on average shareholders' equity (42.11 %) 7.32 % (13.80 %) 6.42 % Effect of loss on sale of loans 29.48 % 0.00 % 9.94 % 0.00 % Effect of IT termination fees 0.00 % 0.00 % 0.00 % 0.13 % Effect of anniversary expenses 0.00 % 0.00 % 0.00 % 0.03 % Adjusted return on average shareholders’ equity (12.63 %) 7.32 % (3.86 %) 6.58 % Return on average tangible common equity (42.62 %) 7.41 % (13.97 %) 6.51 % Effect of loss on sale of loans 29.84 % 0.00 % 10.06 % 0.00 % Effect of IT termination fees 0.00 % 0.00 % 0.00 % 0.13 % Effect of anniversary expenses 0.00 % 0.00 % 0.00 % 0.03 % Adjusted return on average tangible common equity (12.78 %) 7.41 % (3.91 %) 6.67 % Critical Accounting Policies and Estimates There have been no material changes in the Company’s critical accounting policies or estimates from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2024, except as described below. Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Goodwill is not amortized but is periodically evaluated for impairment under the provisions of ASC Topic 350, Intangibles - Goodwill and Others. Impairment losses on recorded goodwill, if any, will be recorded as operating expenses. Impairment testing is performed using either a qualitative or quantitative approach. The Company has selected August 31 as the date to perform the annual goodwill impairment test. Additionally, the Company performs a goodwill impairment evaluation on an interim basis when events or circumstances indicate impairment potentially exists. To quantitatively test goodwill for impairment, an income-based approach and a market-based approach are completed. The income-based approach utilizes a calculation based on the discounted cash flow method and relies on assumptions, some of which involve a level of subjectivity and judgment. Certain assumptions may be subject to market and economic conditions. Notably, key inputs to estimate the discounted after-tax net income stream and terminal fair value of the Company include projected balance sheet and income statement forecasts prepared by Company management. Further, after-tax net income streams distributable to common equity holders are subjected to a minimum tangible equity requirement of 8.00%. These inputs are discounted by the cost of equity, which includes assumptions involving the Company’s beta, equity risk, size and premiums, and the 20-year treasury yield. Assumptions used in calculating the cost of equity are obtained using market and third-party data. The market-based approach utilizes two methodologies for its calculation: a peer analysis and a comparable transaction analysis. The peer analysis uses a set of comparable institutions price to earnings and price to tangible book value multiples and 68 applies the multiple to forecasted net income/tangible book value to determine if impairment is present. The peer analysis also includes an assumed control premium in the determination of the fair value of the Company. The comparable transaction analysis applies price-to-earnings and price-to-tangible book value multiples for comparable merger and acquisition activity and applies the multiple to forecasted net income and tangible book value to determine if impairment is present. Notably, the comparable transaction analysis assumes a control premium is already implied within the multiples selected. Upon completion of the income-based approach and market-based approach, the results are then weighted to determine a final estimated fair value of equity. When results were compared to book value, no impairment was indicated as of August 31, 2025. Judgment is inherent in assessing goodwill for impairment. The various assumptions used in assessing goodwill for impairment involve uncertainties that are beyond the Company’s control and could cause actual results to differ materially from those projected. We will continue to monitor the impact of current economic conditions and other events on the Company’s business, operating results, cash flows and financial condition. If the current economic conditions and other events were to deteriorate and the Company’s stock price falls below current levels for a prolonged period, we will have to reevaluate the impact on the Company’s financial condition and potential impairment of goodwill. Recent Accounting Pronouncements Refer to Note 15 to the condensed consolidated financial statements. Off-Balance Sheet Arrangements In the ordinary course of business, the Company enters into financial transactions to extend credit, interest rate swap agreements and forms of commitments that may be considered off-balance sheet arrangements. Interest rate swaps are arranged to receive hedge accounting treatment and are classified as either fair value or cash flow hedges. Fair value hedges are purchased to convert certain fixed rate assets to floating rate. Cash flow hedges are used to convert certain variable rate liabilities into fixed rate liabilities. In November 2024, the Company’s interest rate swap derivative designated as fair value hedges matured. In December 2024, the Company terminated interest rate swaps utilized as cash flow hedges against Federal Home Loan Bank advances. As a result, the Company had no interest rate swaps that were classified as either fair value or cash flow hedges either at September 30, 2025 or at December 31, 2024. Refer to Note 12 to the condensed consolidated financial statements for additional information about derivative financial instruments. 69