What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-11-17 compared with 2025-08-05 · 185 added, 150 removed, 474 unchanged (41% of the section changed)

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(individually, “Bancshares” and collectively with its subsidiaries including Live Oak Banking Company, the “Company”).

This discussion should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this quarterly report on Form 10-Q and with the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2024 (the “2024 Form 10-K”).

This discussion should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this quarterly report on Form 10-Q and with the Company's Annual Report on Form 10-K/A for the fiscal year ended December 31, 2024 (the “2024 Form 10-K/A”).

Results of operations for the periods included in this quarterly report on Form 10-Q are not necessarily indicative of results to be obtained during any future period.

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• the impacts of any pandemic or public health situation on trade (including supply chains and export levels), travel, employee productivity and other economic activities that may have a destabilizing and negative effect on financial markets, economic activity and customer behavior;

Table of Conten t s

• a reduction in or the termination of the Company’s ability to use the technology-based platform that is critical to the success of the Company’s business model or to develop a next-generation banking platform, including a failure in or a breach of the Company’s operational or security systems or those of its third party service providers;

• risks relating to the material weakness we identified in our internal control over financial reporting;

• the impact of the restatement of the Consolidated Statements of Cash Flows and related notes;

• risks relating to the material weaknesses we identified in our internal control over financial reporting;

• technological risks and developments, including cyber threats, attacks, or events;

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• the effect of any mergers, acquisitions or other transactions, to which the Company or the Bank may from time to time be a party, including management’s ability to successfully integrate any businesses acquired;

Table of Conten t s

• adverse results, including related fees and expenses, from pending or future lawsuits, government investigations or private actions;

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The Bank also lends more broadly to select borrowers outside of those verticals.

As of June 30, 2025, the Company’s wholly owned material subsidiaries were the Bank, Government Loan Solutions (“GLS”), Live Oak Grove, LLC (“Grove”) and Live Oak Ventures, Inc.

As of September 30, 2025, the Company’s wholly owned material subsidiaries were the Bank, Government Loan Solutions (“GLS”), Live Oak Grove, LLC (“Grove”) and Live Oak Ventures, Inc.

(“Live Oak Ventures”).

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TLH holds land adjacent to the Bank's headquarters consisting of wetlands and other protected property for the use and enjoyment of the Bank's employees and customers.

Table of Conten t s

The Company generates revenue primarily from net interest income and secondarily through origination and sale of government guaranteed loans.

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Performance Summary

Three months ended June 30, 2025 compared with three months ended June 30, 2024

For the three months ended June 30, 2025, the Company reported net income attributable to Live Oak Bancshares, Inc.

of $23.4 million, or $0.51 per diluted share, compared to net income attributable to Live Oak Bancshares, Inc.

of $27.0 million, or $0.59 per diluted share, for the second quarter of 2024.

The decrease in net income was principally due to the following items:

• Provision for credit losses increased by $11.5 million, or 97.6%, to $23.3 million, compared to $11.8 million for the second quarter of 2024;

• Management fee income decreased by $3.3 million, or 100.0%, due to the restructuring of the Canapi Funds in the third quarter of 2024;

• Other noninterest income decreased by $6.1 million, or 55.6%, largely related to a $6.7 million gain arising from the sale of one of the Company’s aircraft in the second quarter of 2024;

• Other noninterest expense increased by $3.5 million, or 133.8%, principally driven by a $2.8 million loss arising from the early buyout of the Company's sole bioenergy lease.

Key factors largely offsetting the decrease in net income are increased levels of net interest income of $17.9 million, combined with increased net gains on sales of loans of $7.2 million.

Six months ended June 30, 2025 compared with six months ended June 30, 2024

For the six months ended June 30, 2025, the Company reported net income attributable to Live Oak Bancshares, Inc.

of $33.1 million, or $0.72 per diluted share, compared to net income attributable to Live Oak Bancshares, Inc.

of $54.5 million, or $1.20 per diluted share, for the six months ended June 30, 2024.

Three months ended September 30, 2025 compared with three months ended September 30, 2024

For the three months ended September 30, 2025, the Company reported net income attributable to common shareholders of $25.6 million, or $0.55 per diluted share, compared to net income attributable to common shareholders of $13.0 million, or $0.28 per diluted share, for the three months ended September 30, 2024.

The increase in net income was principally due to the following items:

• Increased net interest income of $18.5 million, or 19.1%;

• Provision for credit losses decreased by $12.3 million, or 35.5%, to $22.2 million, compared to $34.5 million for the third quarter of 2024;

• Increased net gains on sales of loans of $4.2 million, or 25.4%, principally the result of higher loan sale volumes in the third quarter of 2025;

Key factors largely offsetting the increase in net income are increased levels of salaries and employee benefits of $8.3 million and income tax expense of $5.3 million.

Nine months ended September 30, 2025 compared with nine months ended September 30, 2024

For the nine months ended September 30, 2025, the Company reported net income attributable to common shareholders of $58.7 million, or $1.28 per diluted share, compared to net income attributable to common shareholders of $67.6 million, or $1.48 per diluted share, for the nine months ended September 30, 2024.

The decrease in net income was largely due to the following items:

• Provision for credit losses increased by $24.1 million, or 85.6%, to $52.2 million, compared to $28.1 million for the first half of 2024;

• Management fee income decreased by $6.5 million, or 100.0%, due to reasons discussed above;

• Other noninterest income decreased by $11.8 million, or 57.0%, largely related to activity in the first half of 2024 arising from the above noted $6.7 million gain arising from the sale of one of the Company’s aircraft combined with a first quarter of 2024 gain arising from increased fair value of equity warrant assets;

• Provision for credit losses increased by $11.8 million, or 18.9%, to $74.5 million, compared to $62.6 million for the first nine months of 2024;

• Management fee income decreased by $7.7 million, or 100.0%, due to the restructuring of the Canapi Funds in the third quarter of 2024;

• Other noninterest income decreased by $14.1 million, or 50.4%, largely related to the combination of a $2.4 million gain from the sale of a building in the third quarter of 2024, $6.7 million gain arising from the sale of one of the Company’s aircraft in the second quarter of 2024 and a $5.7 million first quarter of 2024 gain arising from increased fair value of equity warrant assets;

• Noninterest expense increased by $27.6 million, or 11.9%.

This increase was principally comprised by increased levels of salary and employee benefits of $3.6 million, technology expense of $3.6 million and other expense of $3.0 million.

This increase was principally comprised of increased levels of salary and employee benefits of $11.9 million, technology expense of $4.8 million, FDIC insurance of $3.0 million and other expense of $3.8 million.

The increase in other expense was principally comprised of a $2.8 million loss arising from the early buyout of the Company's sole bioenergy lease;

• Net income tax expense increased by $7.7 million, from $3.6 million in the first half of 2024, to $11.3 million for the first half of 2025.

Table of Conten t s

• Net income tax expense increased by $13.0 million, from $8.4 million in the first nine months of 2024, to $21.4 million for the same period of 2025.

This increase was largely the result of an additional $10.6 million in investment tax credits related to the Company's fourth quarter of 2023 renewable energy investment that became eligible for an extra 10% in tax credits in the first quarter of 2024.

Key factors largely offsetting the decrease in net income are increased levels of net interest income of $28.3 million, combined with increased net gains on sales of loans of $14.4 million.

Key factors largely offsetting the decrease in net income are increased levels of net interest income of $46.8 million and increased net gains on sales of loans of $18.6 million.

Net Interest Income and Margin

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Due to the nature of a branchless bank and the relatively low overhead required for deposit gathering, the rates that the Bank offers are generally above the industry average.

Three months ended June 30, 2025 compared with three months ended June 30, 2024

For the three months ended June 30, 2025, net interest income increased $17.9 million, or 19.6%, to $109.2 million compared to $91.3 million for the three months ended June 30, 2024.

Three months ended September 30, 2025 compared with three months ended September 30, 2024

For the three months ended September 30, 2025, net interest income increased $18.5 million, or 19.1%, to $115.5 million compared to $97.0 million for the three months ended September 30, 2024.

This increase was principally due to the growth in the held for investment loan and lease portfolio outpacing growth in interest-bearing liabilities, offset by the decrease in average yield on interest-earning assets outpacing the decrease in average cost of funds.

Average interest-earning assets increased by $2.16 billion, or 19.3%, to $13.36 billion for the second quarter of 2025, compared to $11.20 billion for the second quarter of 2024, while the yield on average interest-earning assets decreased 39 basis points to 6.73%.

The cost of funds on interest-bearing liabilities for the second quarter of 2025 decreased 37 basis points to 3.78% and the average balance of interest-bearing liabilities increased by $1.83 billion, or 17.6%, over the second quarter of 2024.

As indicated in the rate/volume analysis below, the overall increase discussed above is reflected in increased interest income of $25.8 million outpacing growth in interest expense of $7.9 million for the second quarter of 2025 compared to the second quarter of 2024.

The net interest margin remained stable at 3.28% for both the second quarters of 2024 and 2025.

Six months ended June 30, 2025 compared with six months ended June 30, 2024

For the six months ended June 30, 2025, net interest income increased $28.3 million, or 15.6%, to $209.8 million compared to $181.4 million for the six months ended June 30, 2024.

Average interest-earning assets increased by $2.19 billion, or 19.0%, to $13.77 billion for the third quarter of 2025, compared to $11.57 billion for the third quarter of 2024, while the yield on average interest-earning assets decreased 51 basis points to 6.67%.

The cost of funds on interest-bearing liabilities for the third quarter of 2025 decreased 49 basis points to 3.68% and the average balance of interest-bearing liabilities increased by $1.81 billion, or 17.0%, over the third quarter of 2024.

As indicated in the rate/volume analysis below, the overall increase discussed above is reflected in increased interest income of $22.5 million outpacing growth in interest expense of $4.0 million for the third quarter of 2025 compared to the third quarter of 2024.

The net interest margin remained stable at 3.33% for both the third quarters of 2024 and 2025.

Nine months ended September 30, 2025 compared with nine months ended September 30, 2024

For the nine months ended September 30, 2025, net interest income increased $46.8 million, or 16.8%, to $325.2 million compared to $278.4 million for the nine months ended September 30, 2024.

Average interest-earning assets increased by $2.01 billion, or 18.2%, to $13.06 billion for the six months ended June 30, 2025, compared to $11.05 billion for the six months ended June 30, 2024, while the yield on average interest-earning assets decreased 36 basis points to 6.75%.

The cost of funds on interest-bearing liabilities for the six months ended June 30, 2025 decreased 27 basis points to 3.84%, and the average balance of interest-bearing liabilities increased by $1.72 billion, or 16.7%, over the six months ended June 30, 2024.

Average interest-earning assets increased by $2.07 billion, or 18.5%, to $13.30 billion for the nine months ended September 30, 2025, compared to $11.22 billion for the nine months ended September 30, 2024, while the yield on average interest-earning assets decreased 42 basis points to 6.72%.

The cost of funds on interest-bearing liabilities for the nine months ended September 30, 2025 decreased 35 basis points to 3.78%, and the average balance of interest-bearing liabilities increased by $1.75 billion, or 16.8%, over the nine months ended September 30, 2024.

The increase in average interest-bearing liabilities was largely driven by funding for significant loan originations and growth as well as maintenance of the Company's target liquidity profile.

As indicated in the rate/volume analysis below, the overall increase discussed above is reflected in increased interest income of $46.5 million outpacing growth in interest expense of $18.2 million for the six months ended June 30, 2025 compared to the six months ended June 30, 2024.

The net interest margin decreased from 3.30% for the six months ended June 30, 2024 to 3.24% for the six months ended June 30, 2025.

In June and July 2025, the Federal Reserve decided to maintain the federal funds upper target rate at 4.5%.

In June 2025, the Federal Reserve released its most current federal funds target rate midpoint projections which implied a decrease of the median Federal Funds rate to 3.9% by the end of 2025.

As indicated in the rate/volume analysis below, the overall increase discussed above is reflected in increased interest income of $69.0 million outpacing growth in interest expense of $22.2 million for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024.

The net interest margin decreased from 3.31% for the nine months ended September 30, 2024 to 3.27% for the nine months ended September 30, 2025.

Table of Conten t s

In September 2025, the Federal Reserve lowered the federal funds upper target rate by 25 basis points to 4.25%.

Subsequently, in October 2025, the Federal Reserve further decreased the federal funds upper target rate by 25 basis points, to 4.00%.

The Federal Reserve released its most recent federal funds target rate midpoint projections which implied a decrease of the median Federal Funds rate to 3.6% by the end of 2025 and a decrease of approximately 25 basis points to 3.4% by the end of 2026.

There can be no assurance that any further decreases or increases in the Federal Funds rate will occur, and if they do, the amount and timing of actual adjustments are subject to change.

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Loan fees are included in interest income on loans.

Three Months Ended June 30,

Three Months Ended September 30,

Balance Interest Average

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(1) Average loan and lease balances include non-accruing loans and leases.

Six Months Ended June 30,

Table of Conten t s

Nine Months Ended September 30,

Interest Average

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(1) Average loan and lease balances include non-accruing loans and leases.

Table of Conten t s

Rate/Volume Analysis.

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For purposes of this table, increases or decreases attributable to changes in both rate and volume that cannot be segregated have been allocated proportionally based on the changes due to rate and the changes due to volume.

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2024 2025 vs.

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The Company believes that its focus on compliance with regulations and guidance from the SBA and USDA are key factors to managing this risk.

For the second quarter of 2025, there was a provision for credit losses of $23.3 million compared to $11.8 million for the same period in 2024, an increase of $11.5 million.

For the six months ended June 30, 2025, there was a provision for credit losses of $52.2 million compared to $28.1 million for the same period in 2024, an increase of $24.1 million.

The increase in provision was principally driven by loan growth and elevated specific reserves on individually evaluated loans amid a challenging macroeconomic environment, where elevated interest rates and inflationary pressures placed financial strain on some small business and commercial borrowers.

Loans and leases held for investment at historical cost were $10.71 billion as of June 30, 2025, increasing by $1.90 billion, or 21.6%, compared to June 30, 2024.

Net charge-offs for loans and leases carried at historical cost were $31.4 million, or 1.19% of average quarterly loans and leases held for investment, carried at historical cost, on an annualized basis, for the three months ended June 30, 2025, compared to net charge-offs of $8.3 million, or 0.38%, for the three months ended June 30, 2024, an increase of $23.2 million, or 281.0%.

The increase in net charge-offs compared to the second quarter of 2024 was largely concentrated to individually evaluated loans with specific reserves recorded in prior periods.

For the six months ended June 30, 2025, net charge-offs totaled $38.2 million compared to $11.4 million for the six months ended June 30, 2024 , an increase of $26.8 million , or 234.8% .

For the third quarter of 2025, there was a provision for credit losses of $22.2 million compared to $34.5 million for the same period in 2024, a decrease of $12.3 million.

The decrease over the third quarter of 2024 was primarily driven by lower levels of specific reserves required on individually evaluated loans in the third quarter of 2025.

For the nine months ended September 30, 2025, there was a provision for credit losses of $74.5 million compared to $62.6 million for the same period in 2024, an increase of $11.8 million.

This increase in provision was principally driven by loan growth and the below discussed charge off impacts amid a challenging macroeconomic environment.

Elevated interest rates and inflationary pressures have placed financial strain on some small business and commercial borrowers which resulted in a continued increase in charge-offs.

Loans and leases held for investment at historical cost were $11.27 billion as of September 30, 2025, increasing by $1.79 billion, or 18.8%, compared to September 30, 2024.

Table of Conten t s

Net charge-offs for loans and leases carried at historical cost were $16.8 million, or 0.61% of average quarterly loans and leases held for investment, carried at historical cost, on an annualized basis, for the three months ended September 30, 2025, compared to net charge-offs of $1.7 million, or 0.08%, for the three months ended September 30, 2024, an increase of $15.1 million, or 883.4%.

The increase in net charge-offs compared to the third quarter of 2024 was largely concentrated to individually evaluated loans with specific reserves recorded in prior periods.

For the nine months ended September 30, 2025, net charge-offs totaled $55.0 million compared to $13.1 million for the nine months ended September 30, 2024 , an increase of $41.9 million , or 319.3% .

Net charge-offs are a key element of historical experience in the Company's estimation of the allowance for credit losses on loans and leases.

In addition, nonperforming loans and leases not guaranteed by the SBA or USDA, excluding $8.9 million and $9.6 million accounted for under the fair value option at June 30, 2025 and 2024, respectively, totaled $59.6 million, which was 0.56% of the held for investment loan and lease portfolio carried at historical cost at June 30, 2025, compared to $37.3 million, or 0.42% of loans and leases held for investment carried at historical cost at June 30, 2024.

In addition, nonperforming loans and leases not guaranteed by the SBA or USDA, excluding $6.8 million and $8.7 million accounted for under the fair value option at September 30, 2025 and 2024, respectively, totaled $76.9 million, which was 0.68% of the held for investment loan and lease portfolio carried at historical cost at September 30, 2025, compared to $49.4 million, or 0.52% of loans and leases held for investment carried at historical cost at September 30, 2024.

Noninterest Income

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In addition, the loan servicing revaluation is significantly impacted by changes in market rates and other underlying assumptions such as prepayment speeds and default rates.

Net gain (loss) on loans accounted for under the fair value option is also significantly impacted by changes in market rates, prepayment speeds and inherent credit risk.

Net (loss) gain on loans accounted for under the fair value option is also significantly impacted by changes in market rates, prepayment speeds and inherent credit risk.

Other less consistent elements of noninterest income include gains and losses on investments.

The following table shows the components of noninterest income and the dollar and percentage changes for the periods presented.

Three Months Ended June 30, 2025/2024 Increase (Decrease)

Three Months Ended September 30, 2025/2024 Increase (Decrease)

2025 2024 Amount Percent

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Net gains on sales of loans 20,868 16,646 4,222 25.4

Net gain on loans accounted for under the fair value option

Net (loss) gain on loans accounted for under the fair value option

(350) 2,255 (2,605) (115.5)

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Total noninterest income $ 30,614 $ 32,932 $ (2,318) (7.0) %

Six Months Ended June 30, 2025/2024 Increase (Decrease)

Table of Conten t s

Nine Months Ended September 30, 2025/2024 Increase (Decrease)

2025 2024 Amount Percent

3 unchanged sentences

Net gains on sales of loans 61,157 42,543 18,614 43.8

Net gain (loss) on loans accounted for under the fair value option 48 (47) 95 202.1

Net (loss) gain on loans accounted for under the fair value option

(302) 2,208 (2,510) (113.7)

Equity method investments (loss) income (6,425) (8,182) 1,757 21.5

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Total noninterest income $ 90,721 $ 93,188 $ (2,467) (2.6) %

For the three months ended June 30, 2025, noninterest income increased by $367 thousand, or 1.1%, compared to the three months ended June 30, 2024.

Principal changes when compared with the second quarter of 2024 are higher net gains on sales of loans of $7.2 million combined with a $3.3 million decrease in management fee income due to the restructuring of the Canapi Funds in the third quarter of 2024 and a $6.1 million decrease in other noninterest income largely related to a $6.7 million gain arising from the sale of one of the Company’s aircraft in the second quarter of 2024.

For the six months ended June 30, 2025, noninterest income decreased by $149 thousand, or 0.2%, compared to the six months ended June 30, 2024.

Principal changes when compared with the first half of 2024 are primarily a result of a $2.2 million increase in loss related to the servicing asset revaluation combined with a $6.5 million decrease in management fee income discussed above and a $11.8 million decrease in other noninterest income largely related to activity in the first half of 2024 arising from a $6.7 million gain arising from the sale of one of the Company’s aircraft combined with a gain arising from increased fair value of equity warrant assets.

Partially offsetting these negative changes was higher net gains on sales of loans of $14.4 million.

For the three months ended September 30, 2025, noninterest income decreased by $2.3 million, or 7.0%, compared to the three months ended September 30, 2024.

Principal changes when compared with the third quarter of 2024 are a $2.6 million negative change in net gain to net loss on loans accounted for under the fair value option and a $2.2 million decrease in other noninterest income largely related to largely related to the $2.4 million gain from the sale of a building in the third quarter of 2024.

Partially offsetting the decrease in noninterest income is higher net gains on sales of loans of $4.2 million.

For the nine months ended September 30, 2025, noninterest income decreased by $2.5 million, or 2.6%, compared to the nine months ended September 30, 2024.

Principal changes when compared with the first nine months of 2024 are primarily a result of a $2.3 million increase in loss related to the servicing asset revaluation combined with a $2.5 million negative change in net gain to net loss on loans accounted for under the fair value option, $7.7 million decrease in management fee income discussed above and a $14.1 million decrease in other noninterest income.

The previously discussed decrease in noninterest income was largely due to higher income in the first nine months of 2024 related to a $2.4 million gain from the sale of a building, a $6.7 million gain arising from an aircraft sale and a $5.7 million fair value gain in equity warrant assets.

Partially offsetting the decrease in total noninterest income over the prior year to date period was higher net gains on sales of loans of $18.6 million combined with $2.7 million in higher levels of loan servicing revenue.

The following tables reflects loan and lease production, sales of guaranteed loans and the aggregate balance in guaranteed loans sold.

These components are key drivers of the Company's noninterest income.

Three months ended June 30, Three months ended March 31,

Three months ended September 30, Three months ended

June 30, Three months ended March 31,

2025 2024 2025 2024 2025 2024

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3,856,253 3,300,524 3,685,981 3,177,629 3,486,533 3,057,641

Six Months Ended June 30, For years ended December 31,

Nine Months Ended September 30, For years ended December 31,

2025 2024 2024 2023 2022 2021

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(1) This represents the outstanding principal balance of guaranteed loans serviced, as of the last day of the applicable period, which have been sold into the secondary market.

Table of Conten t s

Changes in various components of noninterest income are discussed in more detail below.

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The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as adequate compensation for servicing, the discount rate, the custodial earnings rate, ancillary income, prepayment speeds and default rates and losses, with prepayment speed and discount rate being the most sensitive assumptions.

For the three months ended June 30, 2025, there was a net loss on loan servicing asset revaluation of $3.1 million, compared to a net loss of $2.9 million for the three months ended June 30, 2024.

For the six months ended June 30, 2025, there was a net loss on loan servicing asset revaluation of $7.8 million compared to a net loss of $5.6 million for the six months ended June 30, 2024, resulting in a negative comparative year-to-date change of $2.2 million.

The decrease in the valuation of the servicing asset compared to the first half of 2024 was principally the result of principal paydowns or runoff as well as less favorable market conditions in 2025.

For the three months ended September 30, 2025, there was a net loss on loan servicing asset revaluation of $4.4 million, compared to a net loss of $4.2 million for the three months ended September 30, 2024.

For the nine months ended September 30, 2025, there was a net loss on loan servicing asset revaluation of $12.1 million compared to a net loss of $9.8 million for the nine months ended September 30, 2024, resulting in a negative comparative year-to-date change of $2.3 million.

The decrease in the valuation of the servicing asset compared to the first nine months of 2024 was principally the result of principal paydowns or runoff as well as less favorable market conditions in 2025.

Net Gains on Sales of Loans:

For the three months ended June 30, 2025, net gains on sales of loans increased $7.2 million, or 50.3%, compared to the three months ended June 30, 2024.

The volume of guaranteed loans sold increased $71.9 million, or 28.7%, for the three months ended June 30, 2025 to $322.3 million from $250.5 million for the three months ended June 30, 2024.

For the six months ended June 30, 2025, net gains on sales of loans increased $14.4 million, or 55.6%, compared to the six months ended June 30, 2024.

For the six months ended June 30, 2025, the volume of guaranteed loans sold increased $151.5 million, or 34.7%, to $588.6 million from $437.1 million for the six months ended June 30, 2024.

The average net gain on loan sale premium increased from 106% to 107% in the second quarters of 2024 and 2025, respectively, and for the six months ended June 30, 2024 and 2025.

The increase in net gains on sales of loans over the second quarter of 2024 and six months ended June 30, 2024 was principally related to a higher loan sale volume combined with improving premiums.

For the three months ended September 30, 2025, net gains on sales of loans increased $4.2 million, or 25.4%, compared to the three months ended September 30, 2024.

The volume of guaranteed loans sold increased $81.4 million, or 30.6%, for the three months ended September 30, 2025 to $347.8 million from $266.3 million for the three months ended September 30, 2024.

For the nine months ended September 30, 2025, net gains on sales of loans increased $18.6 million, or 43.8%, compared to the nine months ended September 30, 2024.

For the nine months ended September 30, 2025, the volume of guaranteed loans sold increased $232.9 million, or 33.1%, to $936.3 million from $703.4 million for the nine months ended September 30, 2024.

The average net gain on loan sale premium decreased from 107% to 106% in the third quarters of 2024 and 2025, respectively, and increased from 106% to 107% for the nine months ended September 30, 2024 and 2025, respectively.

The increase in net gains on sales of loans over the third quarter of 2024 and nine months ended September 30, 2024 was principally related to a higher loan sale volume combined with relatively stable average premiums.

Net (Loss) Gain on Loans Accounted for Under the Fair Value Option:

For the three months ended September 30, 2025, the Company had a net loss on loans accounted for under the fair value option of $350 thousand compared to a net gain of $2.3 million for the third quarter of 2024, a negative change of $2.6 million, or 115.5%.

For the nine months ended September 30, 2025, the Company had a net loss on loans accounted for under the fair value option of $302 thousand compared to a net gain of $2.2 million for the same period of 2024, a negative change of $2.5 million, or 113.7%.

The carrying amount of loans accounted for under the fair value option at September 30, 2025 and 2024 was $280.3 million (all classified as held for investment) and $343.4 million (all classified as held for investment), respectively, a decrease of $63.1 million, or 18.4%.

The increased levels of net losses arising from the valuation of loans accounted for under the fair value option for both comparative periods was principally the result of credit downgrades in the derivation of fair value for a portion of the underlying loans.

Table of Conten t s

Noninterest Expense

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The following table shows the components of noninterest expense and the related dollar and percentage changes for the periods presented.

Three Months Ended June 30, 2025/2024 Increase (Decrease)

Three Months Ended September 30, 2025/2024 Increase (Decrease)

2025 2024 Amount Percent

15 unchanged sentences

Total noninterest expense $ 87,285 $ 77,589 $ 9,696 12.5 %

Six Months Ended June 30, 2025/2024 Increase (Decrease)

Nine Months Ended September 30, 2025/2024 Increase (Decrease)

2025 2024 Amount Percent

9 unchanged sentences

Other loan origination and maintenance expense 13,552 12,442 1,110 8.9

Renewable energy tax credit investment (recovery) impairment 270 (757) 1,027 135.7

Renewable energy tax credit investment impairment (recovery) 606 (642) 1,248 194.4

FDIC insurance 10,739 7,782 2,957 38.0

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Total noninterest expense $ 260,595 $ 232,982 $ 27,613 11.9 %

Total noninterest expense for the three and six months ended June 30, 2025, increased $11.6 million, or 15.0%, and increased $17.9 million, or 11.5%, respectively, compared to the same periods in 2024.

The changes within noninterest expense for the comparable three and six month periods was largely driven by various components, as discussed below.

Table of Conten t s

Total noninterest expense for the three and nine months ended September 30, 2025, increased $9.7 million, or 12.5%, and increased $27.6 million, or 11.9%, respectively, compared to the same periods in 2024.

The changes within noninterest expense for the comparable three and nine month periods was largely driven by various components, as discussed below.

Salaries and employee benefits:

Total personnel expense for the three and six months ended June 30, 2025 increased by $2.9 million, or 6.2%, and increased by $3.6 million, or 3.9%, respectively, compared to the same periods in 2024.

Total personnel expense for the three and nine months ended September 30, 2025 increased by $8.3 million, or 18.6%, and increased by $11.9 million, or 8.6%, respectively, compared to the same periods in 2024.

The increase over both comparative periods of 2024 is principally related to investment in human resources to support strategic and growth initiatives.

Total full-time equivalent employees increased from 987 at June 30, 2024, to 1,056 at June 30, 2025.

Salaries and employee benefits expense included $6.9 million and $13.7 million of stock-based compensation for the three and six months ended June 30, 2025, respectively, compared to $6.8 million and $13.2 million for the three and six months ended June 30, 2024, respectively.

Total full-time equivalent employees increased from 999 at September 30, 2024, to 1,029 at September 30, 2025.

Salaries and employee benefits expense included $6.0 million and $19.7 million of stock-based compensation for the three and nine months ended September 30, 2025, respectively, compared to $6.7 million and $19.9 million for the three and nine months ended September 30, 2024, respectively.

Expenses related to the employee stock purchase program, stock grants, stock option compensation and restricted stock expense are all considered stock-based compensation.

Technology expense :

For the three and six months ended June 30, 2025, technology expense increased $2.1 million, or 25.9%, and $3.6 million, or 22.9%, respectively, compared to the same periods in 2024.

This increase for both compared periods was primarily related to enhanced investments in the Company’s technology resources.

For the nine months ended September 30, 2025, technology expense increased $4.8 million, or 19.2%, compared to the same period in 2024.

This increase was primarily related to enhanced investments in the Company’s technology resources.

FDIC insurance:

For the nine months ended September 30, 2025, FDIC insurance increased $3.0 million, or 38.0%, compared to the same period in 2024.

This decrease is largely the product of the Company’s continued growth combined with increased FDIC assessment rates.

Other expense :

For the three and six months ended June 30, 2025, other expense increased $3.5 million, or 133.8%, and $3.0 million, or 50.4%, respectively, compared to the same periods in 2024.

The increase over both comparative periods was principally driven by a $2.8 million loss arising from the early buyout of the Company's sole bioenergy lease in the second quarter of 2025.

For the nine months ended September 30, 2025, other expense increased $3.8 million, or 44.2%, compared to the same period in 2024.

The increase was principally driven by a $2.8 million loss arising from the early buyout of the Company's sole bioenergy lease in the second quarter of 2025.

Income Tax Expense

For the three months ended June 30, 2025, income tax expense was $7.8 million compared to income tax expense of $9.1 million in the second quarter of 2024, and the Company’s effective tax rates were 25.0% and 25.2%, respectively.

For the six months ended June 30, 2025, income tax expense was $11.3 million compared to $3.6 million for the six months ended June 30, 2024, and the Company’s effective tax rates were 25.4% and 6.2%, respectively.

The lower level of income tax expense for the second quarter of 2025 as compared to the second quarter of 2024 was largely the result of decreased pretax income during the current period.

The higher level of income tax expense for the first half of 2025 as compared to the first half of 2024 was largely the result of an additional $10.6 million in tax credits related to the Company's fourth quarter of 2023 renewable energy investment that became eligible for an extra 10% in tax credits in the first quarter of 2024.

Partially offsetting the comparative increase in income tax expense in the first half of 2025 was decreased pretax income during the current period.

For the three months ended September 30, 2025, income tax expense was $10.1 million compared to income tax expense of $4.8 million in the third quarter of 2024, and the Company’s effective tax rates were 27.6% and 27.0%, respectively.

For the nine months ended September 30, 2025, income tax expense was $21.4 million compared to $8.4 million for the nine months ended September 30, 2024, and the Company’s effective tax rates were 26.4% and 11.1%, respectively.

The higher level of income tax expense for the third quarter of 2025 as compared to the third quarter of 2024 was largely the result of heightened pretax income during the current period.

The higher level of income tax expense for the first nine months of 2025 as compared to the same period in 2024 was largely the result of an additional $10.6 million in tax credits related to the Company's fourth quarter of 2023 renewable energy investment that became eligible for an extra 10% in tax credits in the first quarter of 2024.

Table of Conten t s

Discussion and Analysis of Financial Condition

June 30, 2025 vs.

September 30, 2025 vs.

December 31, 2024

Total assets at June 30, 2025 were $13.83 billion, an increase of $887.8 million, or 6.9%, compared to total assets of $12.94 billion at December 31, 2024.

Total assets at September 30, 2025 were $14.67 billion, an increase of $1.72 billion, or 13.3%, compared to total assets of $12.94 billion at December 31, 2024.

The growth in total assets was principally driven by the following:

• Cash and cash equivalents, comprised of cash and due from banks, combined with investment securities available-for-sale was $1.99 billion at June 30, 2025, an increase of $131.0 million, or 7.1%, compared to $1.86 billion at December 31, 2024.

This increase reflects growing deposit levels combined with maintenance of the Company's targeted liquidity profile.

• Growth in total loans and leases held for investment and held for sale of $785.5 million, or 7.4%, during the first half of 2025, from $10.58 billion at December 31, 2024, to $11.36 billion at June 30, 2025.

This growth was a result of strong origination activity during the first half of 2025 of $2.92 billion.

Total deposits were $12.59 billion at June 30, 2025, an increase of $834.3 million, or 7.1%, from $11.76 billion at December 31, 2024.

• Cash and cash equivalents, comprised of cash and due from banks, combined with investment securities available-for-sale was $2.27 billion at September 30, 2025, an increase of $408.7 million, or 22.0%, compared to $1.86 billion at December 31, 2024.

This increase reflects growing deposit levels and net proceeds of a third quarter of 2025 preferred stock issuance, discussed further below, combined with maintenance of the Company's targeted liquidity profile.

• Growth in total loans and leases held for investment and held for sale of $1.34 billion, or 12.6%, during the first nine months of 2025, from $10.58 billion at December 31, 2024, to $11.92 billion at September 30, 2025.

This growth was a result of strong origination activity during the first nine months of 2025 of $4.57 billion.

Total deposits were $13.29 billion at September 30, 2025, an increase of $1.53 billion, or 13.0%, from $11.76 billion at December 31, 2024.

The increase in total deposits from the prior period was to support growth in the loan and lease portfolio as well as the Company's targeted liquidity levels.

At June 30, 2025, the Bank’s total uninsured deposits were approximately $1.95 billion, or 15.4%, of total deposits.

At September 30, 2025, the Bank’s total uninsured deposits were approximately $2.19 billion, or 16.3%, of total deposits.

Total shareholders' equity was $1.20 billion at September 30, 2025, an increase of $199.1 million, or 19.8%, from $1.00 billion at December 31, 2024.

The increase in total shareholders' equity from the prior period was largely due to $96.3 million in net proceeds from the issuance of preferred stock during the quarter combined with net income of $59.5 million and other comprehensive income of $30.2 million.

Table of Conten t s

Commercial Real Estate

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construction, land development, multifamily property and nonfarm, nonresidential real property.

The following table provides information with respect to commercial real estate loans as of June 30, 2025.

The following table provides information with respect to commercial real estate loans as of September 30, 2025.

Guaranteed Unguaranteed Total (1)

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Typically, collections of interest and principal received on a nonaccrual loan or lease are applied to the outstanding principal as determined at the time of collection of the loan or lease.

Nonperforming assets, including loans measured at fair value, at June 30, 2025 were $473.5 million, which represented a $101.7 million, or 27.4%, increase from December 31, 2024.

These nonperforming assets at June 30, 2025 were comprised of $467.1 million in nonaccrual loans and leases and $6.3 million in foreclosed assets.

Of the $473.5 million of nonperforming assets, $402.8 million carried a government guarantee, leaving an unguaranteed exposure of $70.6 million in total nonperforming assets at June 30, 2025.

Nonperforming assets, including loans measured at fair value, at September 30, 2025 were $530.8 million, which represented a $159.1 million, or 42.8%, increase from December 31, 2024.

These nonperforming assets at September 30, 2025 were comprised of $519.8 million in nonaccrual loans and leases and $11.0 million in foreclosed assets.

Of the $530.8 million of nonperforming assets, $442.9 million carried a government guarantee, leaving an unguaranteed exposure of $87.9 million in total nonperforming assets at September 30, 2025.

This represents a decrease of $3.7 million, or 4.0%, from an unguaranteed exposure of $91.6 million at December 31, 2024.

Table of Conten t s

The following table provides information with respect to nonperforming assets, excluding loans measured at fair value, at the dates indicated.

June 30, 2025 (1)

September 30, 2025 (1)

December 31, 2024 (1)

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(1) Excludes loans measured at fair value.

Nonperforming assets, excluding loans measured at fair value, at June 30, 2025 were $402.7 million, which represented a $96.4 million, or 31.5%, increase from December 31, 2024.

These nonperforming assets at June 30, 2025 were comprised of $396.3 million in nonaccrual loans and leases and $6.3 million in foreclosed assets.

Of the $402.7 million of nonperforming assets, $341.9 million carried a government guarantee, leaving an unguaranteed exposure of $60.7 million in total nonperforming assets at June 30, 2025.

Nonperforming assets, excluding loans measured at fair value, at September 30, 2025 were $467.3 million, which represented a $161.1 million, or 52.6%, increase from December 31, 2024.

These nonperforming assets at September 30, 2025 were comprised of $456.3 million in nonaccrual loans and leases and $11.0 million in foreclosed assets.

Of the $467.3 million of nonperforming assets, $387.6 million carried a government guarantee, leaving an unguaranteed exposure of $79.7 million in total nonperforming assets at September 30, 2025.

This represents a decrease of $1.9 million, or 2.4%, from an unguaranteed exposure of $81.6 million at December 31, 2024.

See the below discussion related to the change in potential problem and individually evaluated loans and leases for management’s overall observations regarding growth in total nonperforming loans and leases.

As a percentage of the Bank’s total capital, nonperforming loans and leases, excluding loans measured at fair value, represented 33.2% at June 30, 2025, compared to 26.7% at December 31, 2024.

Adjusting the ratio to include only the unguaranteed portion of nonperforming loans and leases at historical cost to reflect management’s belief that the greater magnitude of risk resides in this portion, the ratios at both June 30, 2025 and December 31, 2024 were 5.0% and 7.2%, respectively.

As of June 30, 2025, and December 31, 2024, potential problem (also referred to as criticized) and classified loans and leases, excluding loans measured at fair value, totaled $1.14 billion and $1.04 billion, respectively.

As a percentage of the Bank’s total capital, nonperforming loans and leases, excluding loans measured at fair value, represented 37.0% at September 30, 2025, compared to 26.7% at December 31, 2024.

Adjusting the ratio to include only the unguaranteed portion of nonperforming loans and leases at historical cost to reflect management’s belief that the greater magnitude of risk resides in this portion, the ratios at September 30, 2025 and December 31, 2024 were 6.2% and 7.2%, respectively.

As of September 30, 2025, and December 31, 2024, potential problem (also referred to as criticized) and classified loans and leases, excluding loans measured at fair value, totaled $1.29 billion and $1.04 billion, respectively.

The following is a discussion of these loans and leases.

Risk Grades 50 through 80 represent the spectrum of criticized and classified loans and leases.

For a complete description of the risk grading system, see “Credit Quality Indicators” in Note 3 in the notes to consolidated financial statements in the Company’s 2024 Form 10-K.

At June 30, 2025 , the portion of criticized and classified loans and leases guaranteed by the SBA or USDA totaled $578.8 million and total portfolio unguaranteed exposure risk was $561.0 million , or 7.5% of total held for investment unguaranteed exposure carried at historical cost.

For a complete description of the risk grading system, see “Credit Quality Indicators” in Note 3 in the notes to consolidated financial statements in the Company’s 2024 Form 10-K/A.

At September 30, 2025 , the portion of criticized and classified loans and leases guaranteed by the SBA or USDA totaled $633.8 million and total portfolio unguaranteed exposure risk was $654.0 million , or 8.2% of total held for investment unguaranteed exposure carried at historical cost.

This compares to the December 31, 2024 portion of criticized and classified loans and leases guaranteed by the SBA or USDA which totaled $518.7 million and total portfolio unguaranteed exposure risk was $523.3 million , or 7.8% of total held for investment unguaranteed exposure carried at historical cost .

As of June 30, 2025 and December 31, 2024 , loans and leases carried at historical cost within the following verticals comprise the largest portion of the total potential problem and classified loans and leases:

As of June 30, 2025 As of December 31, 2024

Table of Conten t s

As of September 30, 2025 and December 31, 2024 , loans and leases carried at historical cost within the following verticals comprise the largest portion of the total potential problem and classified loans and leases:

As of September 30, 2025 As of December 31, 2024

Vertical % of Criticized and Classified Loans and Leases

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Bioenergy 7.3 Senior Housing 9.9

Healthcare 8.3 Healthcare 6.9

Sponsor Finance 5.8 Sponsor Finance 5.5

Sponsor Finance 6.1 Healthcare 6.9

Healthcare 5.7 Sponsor Finance 5.5

Auto Care 5.6 Wine & Craft Beverage 5.3

Self Storage 5.2 Search Fund Lending 5.0

Community Facilities 4.3 Community Facilities 4.8

Wine & Craft Beverage 4.3 Self Storage 4.6

Search Fund Lending 4.3 Community Facilities 4.8

Solar Energy 4.2 Self Storage 4.6

% of Total Criticized and Classified Loans 60.2% % of Total Criticized and Classified Loans 68.2%

Of the above listed verticals, Senior Housing, Sponsor Finance, Bioenergy and Community Facilities are within the Company’s Commercial Banking division , the remainder of the above listed verticals are within the Small Business Banking division.

The total $97.8 million increase in potential problem and classified loans and leases in the first six months of 2025 was comprised of $59.9 million in increased levels of Risk Grade 50 loans and leases, as discussed below and $38.0 million in classified loans.

The overall increase in criticized and classified loans in the first half of 2025 was primarily driven by higher levels of commercial borrowers impacted by the challenging macroeconomic environment .

Of the above listed verticals, Senior Housing, Sponsor Finance, Bioenergy, Solar Energy and Community Facilities are within the Company’s Commercial Banking division , the remainder of the above listed verticals are within the Small Business Banking division.

The total $245.9 million increase in potential problem and classified loans and leases in the first nine months of 2025 was comprised of $94.4 million in increased levels of Risk Grade 50 loans and leases, as discussed below and $151.5 million in classified loans.

The overall increase in classified loans in the first nine months of 2025 was primarily driven by higher levels of small business and commercial borrowers impacted by the challenging macroeconomic environment .

These changes largely reflect the effects of normal growth and isolated borrower performance migrations rather than any systemic credit deterioration.

The Company believes that its underwriting and credit quality standards have remained high and continues to consider changing economic conditions as well as the current interest rate environment.

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Credit personnel will review the request to determine if the customer is experiencing financial stress and how the event has impacted the ability of the customer to repay the loan or lease long term.

At June 30, 2025, the Company had a total of $45.9 million in loans modified in 2025 to borrowers experiencing financial difficulty, excluding loans measured at fair value, $43.7 million of which remained current and $36.0 million of which are for an other-than-insignificant payment delay or term extension.

Management endeavors to be proactive in its approach to identify and resolve p roblem loans and leases and is focused on working with the borrowers and guarantors of these loans and leases to provide loan and lease modifications when warranted.

At September 30, 2025, the Company had a total of $80.4 million in loans modified in 2025 to borrowers experiencing financial difficulty, excluding loans measured at fair value, $78.1 million of which remained current and $68.6 million million of which are for an other-than-insignificant payment delay or term extension.

Management endeavors to be proactive in its approach to identify and resolve problem loans and leases and is focused on working with the borrowers and guarantors of these loans and leases to provide loan and lease modifications when warranted.

Management implements a proactive approach to identifying and classifying loans and leases as special mention (also referred to as criticized), Risk Grade 50.

At June 30, 2025 , and December 31, 2024 , Risk Grade 50 loans and leases, excluding lo ans measured at fair value, totaled $589.8 million and $529.9 million, respectively, for an increase of $59.9 million.

Relative to total held for investment unguaranteed exposure carried at historical cost at December 31, 2024 and June 30, 2025, unguaranteed Risk Grade 50 loans and leases increased from $357.9 million, or 5.3%, to $413.3 million, or 5.5%, respectively.

At September 30, 2025, and December 31, 2024, Risk Grade 50 loans and leases, excluding loans measured at fair value, totaled $624.3 million and $529.9 million, respectively, for an increase of $94.4 million.

Relative to total held for investment unguaranteed exposure carried at historical cost at December 31, 2024 and September 30, 2025, unguaranteed Risk Grade 50 loans and leases increased from $357.9 million, or 5.3%, to $442.9 million, or 5.5%, respectively.

The increase in unguaranteed Risk Grade 50 loans and leases was primarily driven by higher levels of small business and commercial borrowers impacted by the challenging macroeconomic environment .

Table of Conten t s

The largest year-to-date changes in Risk Grade 50 loans and leases carried at historical cost were within the foll owing verticals :

June 30, 2025 vs.

September 30, 2025 vs.

December 31, 2024 Increase (Decrease)

Healthcare $ 26,396 37.1 %

Government Contractors 25,677 36.1

Solar Energy $ 38,124 32.7 %

Sponsor Finance 27,057 23.2

Agriculture 12,373 17.4

Government Contractors 16,682 14.3

Senior Care 13,170 11.3

Auto Care 12,054 10.3

Hospitality 8,780 12.3

RV Parks 5,286 7.4

Self Storage (5,409) (7.6)

Veterinary (6,799) (9.6)

Senior Housing 10,014 8.6

Hospitality 9,929 8.5

Agriculture 9,040 7.8

Restoration 7,693 6.6

Commercial Real Estate Financing (7,498) (6.4)

General Lending (14,948) (12.8)

Search Fund Lending (12,300) (17.3)

Veterinary (18,903) (16.2)

Wine & Craft Beverage (22,269) (19.1)

Total of largest changes in Risk Grade 50 loans and leases $ 80,145 68.8%

The increase in Risk Grade 50 loans and leases, exclusive of loans measured at fair value, during the first six months of 2025 was principally confined to 13 verticals, as reflected above.

Of the above listed verticals, Government Contractors, Sponsor Finance, Hospitality, Senior Housing, and Commercial Real Estate Financing are within the Company’s Commercial Banking division and the remainder of the above listed verticals are within the Small Business Banking division.

At June 30, 2025, approximately 97.8% of loans and leases classified as Risk Grade 50 are performing with no relationships having payments past due more than 30 days.

The change in Risk Grade 50 loans and leases, exclusive of loans measured at fair value, during the first nine months of 2025 was principally confined to 13 verticals, as reflected above.

Of the above listed verticals, Solar Energy, Sponsor Finance, Government Contractors, Senior Housing, Hospitality, and Commercial Real Estate Financing are within the Company’s Commercial Banking division and the remainder of the above listed verticals are within the Small Business Banking division.

At September 30, 2025, approximately 99.5% of loans and leases classified as Risk Grade 50 are performing with no relationships having payments past due more than 30 days.

While the level of nonperforming assets fluctuates in response to changing economic and market conditions, in light of the relative size and composition of the loan and lease portfolio and management’s degree of success in resolving problem assets, management believes that a proactive approach to early identification and intervention is critical to successfully managing a small business loan portfolio.

Allowance for Credit Losses on Loans and Leases

The ACL of $167.5 million at December 31, 2024, increased by $14.7 million, or 8.8%, to $182.2 million at June 30, 2025.

The ACL as a percentage of loans and leases held for investment at historical cost amounted to 1.7% at both December 31, 2024 and June 30, 2025, respectively.

The increase in the ACL during the first six months of 2025 was primarily the result of specific reserve changes on individually evaluated loans and continued growth of the loan and lease portfolio.

The ACL of $167.5 million at December 31, 2024, increased by $18.2 million, or 10.9%, to $185.7 million at September 30, 2025.

The ACL as a percentage of loans and leases held for investment at historical cost amounted to 1.7% at both December 31, 2024 and September 30, 2025, respectively.

The increase in the ACL during the first nine months of 2025 was primarily the result of loan growth and charge off impacts amid a challenging macroeconomic environment, where elevated interest rates and inflationary pressures have placed financial strain on some small business and commercial borrowers.

See also the above section captioned “Provision for Credit Losses” in “Results of Operations” for related information.

Actual past due held for in vestment loans and leases, inclusive of loans measured at fair value, have de creased by $12.0 million since December 31, 2024 .

Total loans and leases 90 or more days past due in creased $46.3 million , or 18.1 %, compared to December 31, 2024 .

This increase was comprised of a $1.8 million increase in unguaranteed exposure combined with a $44.5 million increase in the guaranteed portion of past due loans compared to December 31, 2024 .

At June 30, 2025 and December 31, 2024 , total held for investment unguaranteed loans and leases past due as a percentage of total held for investment unguaranteed loans and leases, inclusive of loans measured at fair value, was 0.7% and 1.3% , respectively.

Total unguaranteed loa ns and leases past due were comprised of $48.5 million carried at historical cost, a de crease of $28.9 million , and $8.5 million measured at fair value, a decrease of $1.8 million , as of June 30, 2025 compared to December 31, 2024 .

Table of Conten t s

Actual past due held for in vestment loans and leases, inclusive of loans measured at fair value, have increased by $147.4 million since December 31, 2024.

Total loans and leases 90 or more days past due increased $46.0 million, or 18.0%, compared to December 31, 2024.

This increase was comprised of a $185 thousand decrease in unguaranteed exposure combined with a $46.2 million increase in the guaranteed portion of past due loans compared to December 31, 2024.

At September 30, 2025 and December 31, 2024, total held for investment unguaranteed loans and leases past due as a percentage of total held for investment unguaranteed loans and leases, inclusive of loans measured at fair value, was 1.4% and 1.3%, respectively.

Total unguaranteed loans and leases past due were comprised of $103.8 million carried at historical cost, an increase of $26.4 million, and $8.0 million measured at fair value, a decrease of $2.2 million, as of September 30, 2025 compared to December 31, 2024.

Management continues to actively monitor and work to improve asset quality.

Management believes the ACL of $182.2 million at June 30, 2025 is appropriate in light of the risk inherent in the loan and lease portfolio.

Management believes the ACL of $185.7 million at September 30, 2025 is appropriate in light of the risk inherent in the loan and lease portfolio.

Management’s judgments are based on numerous assumptions about current and expected events that it believes to be reasonable, but which may or may not be valid.

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The OCR model output is then used by management to ensure adequate liquidity sources are available during those future periods.

At June 30, 2025, the total amount of these four liquidity source items was $4.49 billion, or 32.5% of total assets, an increase of 0.1% of total assets from $4.20 billion, or 32.4% of total assets, at December 31, 2024.

At September 30, 2025, the total amount of these four liquidity source items was $4.84 billion, or 33.0% of total assets, an increase of 0.6% of total assets from $4.20 billion, or 32.4% of total assets, at December 31, 2024.

Loans and other assets are funded primarily by customer deposits, brokered deposits and loan sales.

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Additionally, the Company maintains a guaranteed and unguaranteed loan portfolio that is also a contingent liquidity source, whether via pledging to the Federal Reserve Discount Window or through liquidation.

At June 30, 2025, $ 597.0 million of the investment securities portfolio were pledged for unused borrowing capacity, leaving $728.2 million available to be pledged as collateral.

At September 30, 2025, $ 580.2 million of the investment securities portfolio were pledged for unused borrowing capacity, leaving $793.0 million available to be pledged as collateral.

Contractual Obligations

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Other than normal changes in the ordinary course of the Company’s operations, there have been no significant changes in the types of contractual obligations or amounts due since December 31, 2024.

See the section titled “Liquidity Management” in Part II, Item 7 of the Company’s 2024 Form 10-K for additional discussion of contractual obligations.

See the section titled “Liquidity Management” in Part II, Item 7 of the Company’s 2024 Form 10-K/A for additional discussion of contractual obligations.

Off-Balance Sheet Arrangements

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Commitments and Contingencies in the accompanying notes to Unaudited Condensed Consolidated Financial Statements.

Table of Conten t s

Asset/Liability Management and Interest Rate Sensitivity

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One method used to manage interest rate sensitivity is to measure the repricing differences, or interest rate gaps, between interest-earning assets and interest-bearing liabilities, across various time periods.

As of June 30, 2025, the balance sheet’s total cumulative gap position was 5.3%, meaning that over the entire life of the Company's assets and liabilities, more assets will reprice than liabilities.

As of September 30, 2025, the balance sheet’s total cumulative gap position was 6.3%, meaning that over the entire life of the Company's assets and liabilities, more assets will reprice than liabilities.

For further information, see Item 3.

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Therefore, management also uses an earnings simulation model to prepare, on a regular basis, earnings projections based on a range of instantaneous parallel interest rate shocks applied to a static balance sheet and non-parallel interest rate shocks applied to a dynamic balance sheet to measure interest rate risk.

As of June 30, 2025, the Company’s interest rate risk profile under the instantaneous parallel interest rate shock scenarios applied to a static balance sheet is moderately asset-sensitive.

As of September 30, 2025, the Company’s interest rate risk profile under the instantaneous parallel interest rate shock scenarios applied to a static balance sheet is moderately asset-sensitive.

For more information, see Item 3.

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Risk-based capital ratios, which include Tier 1 Capital, Total Capital and Common Equity Tier 1 Capital, are calculated based on regulatory guidance related to the measurement of capital and risk-weighted assets.

Capital amounts and ratios as of June 30, 2025, and December 31, 2024, are presented in the table below.

Table of Conten t s

Capital amounts and ratios as of September 30, 2025, and December 31, 2024, are presented in the table below.

Actual Minimum Capital

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Amount Ratio Amount Ratio Amount Ratio

Consolidated - June 30, 2025

Consolidated - September 30, 2025

Common Equity Tier 1 (to Risk-Weighted Assets) $ 1,118,546 10.51 % $ 478,920 4.50 % N/A N/A

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Tier 1 Capital (to Average Assets) 1,214,812 8.57 566,991 4.00 N/A N/A

Bank - June 30, 2025

Bank - September 30, 2025

Common Equity Tier 1 (to Risk-Weighted Assets) $ 1,100,069 10.48 % $ 472,318 4.50 % $ 682,237 6.50 %

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Actual results may differ from these estimates under different assumptions or conditions.

Accounting policies, including those for the Company's critical accounting policies, as described in detail in the Notes to the Company’s Unaudited Condensed Consolidated Financial Statements in this report and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, are an integral part of the Company’s consolidated financial statements.

Accounting policies, including those for the Company's critical accounting policies, as described in detail in the Notes to the Company’s Unaudited Condensed Consolidated Financial Statements in this report and in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2024, are an integral part of the Company’s consolidated financial statements.

A thorough understanding of these accounting policies is essential when reviewing the Company’s reported results of operations and financial position.

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Changes in this estimate, that are likely to occur from period to period, or the use of different estimates that the Company could have reasonably used in the current period, could have a material impact on the Company’s financial position, results of operations or liquidity.

Table of Conten t s

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis