What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-05-05 compared with 2025-11-17 · 144 added, 291 removed, 368 unchanged (54% 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/A for the fiscal year ended December 31, 2024 (the “2024 Form 10-K/A”).

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, 2025 (the “2025 Form 10-K”).

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;

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

• risks relating to the deployment and use of artificial intelligence by the Company, its customers, and counterparties;

• 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, 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 weaknesses we identified in our internal control over financial reporting;

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government shutdown;

• the impact of heightened regulatory scrutiny of financial products and services, primarily led by the Consumer Financial Protection Bureau and various state agencies;

• the impact of heightened regulatory scrutiny of financial products and services;

• the Company's ability to comply with any requirements imposed on it by regulators, and the potential negative consequences that may result;

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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;

• other risk factors listed from time to time in reports that the Company files with the SEC, including those described under “Risk Factors” in this Report;

• other risk factors listed from time to time in reports that the Company files with the U.S.

Securities and Exchange Commission, or the SEC, including those described under “Risk Factors” in this Report;

• the Company’s success at managing the risks involved in the foregoing.

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Nature of Operations

Bancshares is a financial holding company and a bank holding company headquartered in Wilmington, North Carolina incorporated under the laws of the state of North Carolina in December 2008.

Bancshares is a financial holding company and a bank holding company headquartered in Wilmington, North Carolina incorporated under the laws of North Carolina in December 2008.

The Company conducts business operations primarily through its commercial bank subsidiary, Live Oak Banking Company (the “Bank”).

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The Bank specializes in providing lending and deposit-related services to small businesses nationwide.

A significant portion of the loans originated by the Bank are partially guaranteed by the SBA under the 7(a) Loan Program and the U.S.

Department of Agriculture’s (“USDA”) Rural Energy for America Program (“REAP”), Water and Environmental Program (“WEP”), Business & Industry (“B&I”) and Community Facilities loan programs.

A significant portion of the loans originated by the Bank are partially guaranteed by the U.S.

Small Business Administration (“SBA”) under the 7(a) Loan program and the U.S.

Department of Agriculture (“USDA”) Rural Energy for America Program (“REAP”), Water and Environmental Program (“WEP”), Business & Industry (“B&I”) and Community Facilities loan programs.

These loans are to small businesses and professionals with what the Bank believes are lower risk characteristics.

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

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.

As of March 31, 2026, 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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Live Oak Ventures’ purpose is investing in businesses that align with the Company's strategic initiative to be a leader in financial technology.

Canapi Advisors, LLC (“Canapi Advisors”) was a wholly owned subsidiary providing investment advisory services to a series of funds (the “Canapi Funds”) focused on providing venture capital to new and emerging financial technology companies.

During the third quarter of 2024, the Canapi Funds were restructured and Canapi Advisors voluntarily withdrew as an investment advisor to the funds.

Canapi Advisors was subsequently dissolved in the fourth quarter of 2024.

As of December 31, 2024, Live Oak Ventures consolidated its investment in Synply, Inc.

During the fourth quarter of 2024, Live Oak Ventures consolidated its investment in Synply, Inc.

(“Synply”) as a result of its controlling interest in that entity.

Synply is a cloud-based technology platform designed to simplify the loan syndication process for financial institutions and discloses the non-controlling interest according to the Company’s consolidation policy.

The Bank’s wholly owned subsidiaries are Live Oak Number One, Inc., Live Oak Clean Energy Financing LLC (“LOCEF”), Live Oak Private Wealth, LLC (“Live Oak Private Wealth”) and Tiburon Land Holdings, LLC (“TLH”).

Synply is a cloud-based technology platform designed to simplify the loan syndication process for financial institutions.

The non-controlling interest in Synply is disclosed according to the Company’s consolidation policy.

As of March 31, 2026, t he Bank’s wholly owned subsidiaries were Live Oak Number One, Inc., Live Oak Clean Energy Financing LLC (“LOCEF”), Live Oak Private Wealth, LLC (“Live Oak Private Wealth”) and Tiburon Land Holdings, LLC (“TLH”).

Live Oak Number One, Inc.

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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.

Income from the retention of loans is comprised principally of interest income.

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

Income from the retention of loans consists principally of interest income.

Income from the sale of loans is comprised of loan servicing revenue and revaluation of related servicing assets along with net gains on sales of loans.

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Performance Summary

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.

Three months ended March 31, 2026 compared with three months ended March 31, 2025

For the three months ended March 31, 2026, the Company reported net income attributable to common shareholders of $27.9 million, or $0.60 per diluted share, compared to net income attributable to common shareholders of $9.7 million, or $0.21 per diluted share, for the three months ended March 31, 2025.

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

• Increased net interest income of $18.9 million, or 18.8%;

• 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;

• Provision for credit losses decreased by $8.9 million, or 30.6%, to $20.1 million, compared to $29.0 million for the first quarter of 2025;

Key factors largely offsetting the increase in net income are increased levels of salaries and employee benefits of $3.8 million and income tax expense of $6.7 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 $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 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;

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 $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 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 $2.19 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.

Three months ended March 31, 2026 compared with three months ended March 31, 2025

For the three months ended March 31, 2026, net interest income increased $18.9 million, or 18.8%, to $119.4 million compared to $100.5 million for the three months ended March 31, 2025.

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.

Average interest-earning assets increased by $2.06 billion, or 16.1%, to $14.82 billion for the first quarter of 2026, compared to $12.76 billion for the first quarter of 2025, while the yield on average interest-earning assets decreased 37 basis points to 6.40%.

The cost of funds on interest-bearing liabilities for the first quarter of 2026 decreased 42 basis points to 3.48% and the average balance of interest-bearing liabilities increased by $1.63 billion, or 13.9%, over the first quarter of 2025.

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 $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.

As indicated in the rate/volume analysis below, the overall increase discussed above is reflected in increased interest income of $20.8 million outpacing growth in interest expense of $1.9 million for the first quarter of 2026 compared to the first quarter of 2025.

The net interest margin increased from 3.20% for the first quarter of 2025 to 3.27% for the first quarter of 2026.

In March 2026, the Federal Reserve decided to maintain the federal funds upper target rate at 3.75%.

The Federal Reserve released its most current federal funds target rate midpoint projections at its previous meeting in March 2026 which implied a decrease of approximately 25 basis points to 3.4% by the end of 2026 and a decrease of approximately 25 basis points to 3.1% by the end of 2027.

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.

See “Item 7A.

Quantitative and Qualitative Disclosures About Market Risk” for information about the Company’s sensitivity to interest rates.

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Loan fees are included in interest income on loans.

Three Months Ended September 30,

Three Months Ended March 31,

Balance Interest Average

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Interest-bearing liabilities:

Interest-bearing checking $ 366,699 $ 4,082 4.42 % $ 350,239 $ 4,892 5.56 %

Savings $ 6,910,397 $ 55,420 3.25 % $ 5,540,147 $ 51,604 3.78 %

Money market accounts 131,756 84 0.25 134,481 190 0.56

Certificates of deposit 5,730,803 53,337 3.77 5,563,004 55,235 4.03

Total deposits 12,379,653 114,266 3.66 10,557,480 110,174 4.15

Borrowings 106,744 1,677 6.23 116,925 1,762 6.00

Total interest-bearing liabilities 12,486,397 115,943 3.68 10,674,405 111,936 4.17

Noninterest-bearing deposits 401,916 237,387

Noninterest-bearing liabilities 63,133 90,079

Shareholders' equity 1,157,893 999,116

Non-controlling interest 4,376 —

Total liabilities and shareholders' equity

$ 14,113,715 $ 12,000,987

Net interest income and interest rate spread

$ 115,485 2.99 % $ 97,000 3.01 %

Net interest margin 3.33 % 3.33 %

Ratio of average interest-earning assets to average interest-bearing liabilities

110.24 % 108.40 %

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

Table of Conten t s

Nine Months Ended September 30,

Interest Average

Interest-earning assets:

Interest-earning balances in other banks $ 670,453 $ 22,177 4.42 % $ 540,109 $ 21,861 5.41 %

Investment securities 1,402,659 34,912 3.33 1,264,067 27,923 2.95

Loans held for sale 395,332 24,723 8.36 383,817 27,542 9.59

Loans and leases held for investment (1)

10,830,102 587,005 7.25 9,036,152 522,478 7.72

Total interest-earning assets 13,298,546 668,817 6.72 11,224,145 599,804 7.14

Allowance for credit losses on loans and leases

(177,842) (133,148)

Noninterest-earning assets 534,702 559,036

Total assets $ 13,655,406 $ 11,650,033

Interest-bearing liabilities:

Interest-bearing checking $ 356,115 $ 11,980 4.50 % $ 318,387 $ 13,342 5.60 %

Savings 6,133,773 166,790 3.64 4,801,008 146,304 4.07

Money market accounts 129,488 297 0.31 129,493 563 0.58

Certificates of deposit 5,408,376 159,467 3.94 5,051,995 157,321 4.16

Other interest-bearing deposits 579,330 4,090 2.86 478,399 4,049 3.43

Total deposits 13,220,530 112,847 3.46 11,581,550 110,888 3.88

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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 September 30, Nine Months Ended September 30,

2024 2025 vs.

Increase (Decrease) Due to Increase (Decrease) Due to

Rate Volume Total Rate Volume Total

Three Months Ended March 31,

Increase (Decrease) Due to

Rate Volume Total

Interest income:

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Interest expense:

Interest-bearing checking (1,017) 207 (810) (2,787) 1,425 (1,362)

Savings $ (8,061) $ 11,877 $ 3,816

Money market accounts (103) (3) (106) (266) — (266)

Certificates of deposit (3,512) 1,614 (1,898)

Other interest-bearing deposits (742) 783 41

Borrowings 64 (132) (68)

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The provision for credit losses represents the amount necessary to be charged against the current period’s earnings to maintain the allowance for credit losses (“ACL”) on loans and leases at a level that the Company believes is appropriate in relation to the estimated losses inherent in the loan and lease portfolio.

Beginning in the second quarter of 2024, expense related to off-balance sheet credit exposures was also included in the provision for credit losses in response to growth in the amount of loans with applicable off-balance sheet credit risk.

Expense related to off-balance sheet credit exposures is also included in the provision for credit losses.

Commitments and Contingencies under the subheading Financial Instruments with Off-Balance-Sheet Risk for additional information .

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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 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% .

For the first quarter of 2026, there was a provision for credit losses of $20.1 million compared to $29.0 million for the same period in 2025, a decrease of $8.9 million.

The decrease over the first quarter of 2025 was primarily driven by lower levels of specific reserves required on individually evaluated loans in the first quarter of 2026.

Loans and leases held for investment at historical cost were $11.91 billion as of March 31, 2026, increasing by $1.54 billion, or 14.8%, compared to March 31, 2025.

Net charge-offs for loans and leases carried at historical cost were$18.6 million, or 0.63% of average quarterly loans and leases held for investment, carried at historical cost, on an annualized basis, for the three months ended March 31, 2026, compared to net charge-offs of $6.8 million, or 0.27%, for the three months ended March 31, 2025, an increase of $11.8 million, or 174.4%.

The increase in net charge-offs in the first quarter of 2026 was largely concentrated to individually evaluated loans with specific reserves recorded in prior periods.

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 $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.

In addition, nonperforming loans and leases not guaranteed by the SBA or USDA, excluding $6.9 million and $9.9 million accounted for under the fair value option at March 31, 2026 and 2025, respectively, totaled $116.8 million, which was 0.98% of the held for investment loan and lease portfolio carried at historical cost at March 31, 2026, compared to $99.9 million, or 0.96% of loans and leases held for investment carried at historical cost at March 31, 2025.

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 (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.

Net 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.

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 September 30, 2025/2024 Increase (Decrease)

2025 2024 Amount Percent

Noninterest income

Loan servicing revenue $ 8,812 $ 8,040 $ 772 9.6 %

Loan servicing asset revaluation (4,360) (4,207) (153) (3.6)

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

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

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

Equity method investments (loss) income (1,470) (1,393) (77) (5.5)

Equity security investments gains, net 18 909 (891) (98.0)

Lease income 2,179 2,424 (245) (10.1)

Management fee income — 1,116 (1,116) (100.0)

Other noninterest income 4,917 7,142 (2,225) (31.2)

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

Table of Conten t s

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

Three Months Ended March 31, 2026/2025 Increase (Decrease)

2026 2025 Amount Percent

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Net gains on sales of loans 15,425 15,438 (13) (0.1)

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

Net loss on loans accounted for under the fair value option

(1,165) (1,034) (131) (12.7)

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Lease income 2,135 2,573 (438) (17.0)

Management fee income — 7,658 (7,658) (100.0)

Other noninterest income 4,889 4,043 846 20.9

Total noninterest income $ 26,074 $ 22,371 $ 3,703 16.6 %

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.

For the three months ended March 31, 2026, noninterest income increased by $3.7 million, or 16.6%, compared to the three months ended March 31, 2025.

Principal changes when compared with the first quarter of 2025 are a $1.2 million decrease in loss related to the servicing asset revaluation combined with a $1.4 million decrease in equity method investment losses, principally associated with cessation of flow-through losses from Apiture, Inc.

which was sold in the fourth quarter of 2025.

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 September 30, Three months ended

June 30, Three months ended March 31,

2025 2024 2025 2024 2025 2024

Amount of loans and leases originated $ 1,648,711 $ 1,757,856 $ 1,526,592 $ 1,171,141 $ 1,396,223 $ 805,129

Guaranteed portions of loans sold 347,750 266,307 322,317 250,466 266,275 186,654

Outstanding balance of guaranteed loans sold (1)

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

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

Three Months Ended March 31, For years ended December 31,

2026 2025 2025 2024 2023 2022

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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.

Loan Servicing Asset Revaluation:

Change in Loan Servicing Asset Revaluation:

The Company revalues its serviced loan portfolio at least quarterly.

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 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 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

For the three months ended March 31, 2026, there was a net loss on loan servicing asset revaluation of $3.5 million, compared to a net loss of $4.7 million for the three months ended March 31, 2025.

The positive change in valuation of the servicing asset compared to the first quarter of 2025 was principally the result of improved market conditions in 2026.

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 September 30, 2025/2024 Increase (Decrease)

2025 2024 Amount Percent

Noninterest expense

Salaries and employee benefits $ 52,817 $ 44,524 $ 8,293 18.6 %

Non-employee expenses:

Travel expense 2,480 2,344 136 5.8

Professional services expense 1,999 3,287 (1,288) (39.2)

Advertising and marketing expense 1,839 2,473 (634) (25.6)

Occupancy expense 2,339 2,807 (468) (16.7)

Technology expense 10,234 9,081 1,153 12.7

Equipment expense 3,320 3,472 (152) (4.4)

Other loan origination and maintenance expense 4,777 4,872 (95) (1.9)

Renewable energy tax credit investment impairment

336 115 221 192.2

FDIC insurance 3,643 1,933 1,710 88.5

Other expense 3,501 2,681 820 30.6

Total non-employee expenses 34,468 33,065 1,403 4.2

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

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

Three Months Ended March 31, 2026/2025 Increase (Decrease)

2026 2025 Amount Percent

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Other loan origination and maintenance expense 5,919 4,585 1,334 29.1

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

FDIC insurance 4,401 3,551 850 23.9

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Total noninterest expense $ 85,293 $ 80,807 $ 4,486 5.6 %

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.

Total noninterest expense for the three months ended March 31, 2026, increased $4.5 million, or 5.6%, compared to the same period in 2025.

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

Salaries and employee benefits:

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 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.

Total personnel expense for the three months ended March 31, 2026 increased by $3.8 million, or 8.4%, compared to the same period in 2025.

The increase over the first three months of 2025 is principally related to investment in human resources to support strategic and growth initiatives.

Salaries and employee benefits expense included $6.9 million of stock-based compensation for the three months ended March 31, 2026, compared to $6.8 million for the three months ended March 30, 2025, 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 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 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.

Other loan origination and maintenance expense :

For the three months ended March 31, 2026, other loan origination and maintenance expense increased $1.3 million, or 29.1%, compared to the same period in 2025.

This increase was primarily related to maintenance of the Company's ongoing growth in the guaranteed loan portfolio.

Income Tax Expense

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

For the three months ended March 31, 2026, income tax expense was $10.1 million compared to income tax expense of $3.5 million in the first quarter of 2025, and the Company’s effective tax rates were 25.3% and 26.4%, respectively.

The higher level of income tax expense for the first quarter of 2026 as compared to the first quarter of 2025 was largely the result of heightened pretax income during the current period.

Discussion and Analysis of Financial Condition

September 30, 2025 vs.

March 31, 2026 vs.

December 31, 2025

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 $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.

Total assets at March 31, 2026 were $15.30 billion, an increase of $165.3 million, or 1.1%, compared to total assets of $15.13 billion at December 31, 2025.

The growth in total assets was principally driven by total loans and leases held for investment and held for sale increasing by $199.9 million, or 1.6%, in 2026, from $12.39 billion at December 31, 2025 to $12.59 billion at March 31, 2026.

This growth was a result of strong origination activity during the first quarter of 2026 of $1.37 billion.

Total deposits were $13.84 billion at March 31, 2026, an increase of $146.4 million, or 1.1%, from $13.69 billion at December 31, 2025.

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 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

At March 31, 2026, the Bank’s total uninsured deposits were approximately $2.38 billion, or 17.0%, of total deposits.

Total shareholders' equity was $1.28 billion at March 31, 2026, an increase of $27.7 million, or 2.2%, from $1.25 billion at December 31, 2025.

The increase in total shareholders' equity from the prior period was largely due to net income of $29.9 million combined with net share-based compensation activity of $3.9 million, offset by other comprehensive loss of $2.7 million and cash dividends of $2.1 million and $1.4 million related to preferred and common stock shares, respectively.

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 September 30, 2025.

The following table provides information with respect to commercial real estate loans as of March 31, 2026.

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 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

Total nonperforming assets, including loans measured at fair value, at March 31, 2026 were $519.0 million, which represented a $53.1 million, or 9.3%, decrease from December 31, 2025.

These nonperforming assets at March 31, 2026 were comprised of $507.0 million in nonaccrual loans and leases and $12.0 million in foreclosed assets.

Of the $519.0 million of nonperforming assets, $391.0 million carried a government guarantee, leaving an unguaranteed exposure of $128.0 million in total nonperforming assets at March 31, 2026.

This represents an increase of $16.8 million, or 15.1%, from an unguaranteed exposure of $111.2 million at December 31, 2025.

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

September 30, 2025 (1)

March 31, 2026 (1)

December 31, 2025 (1)

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(1) Excludes loans measured at fair value.

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.

Nonperforming assets, excluding loans measured at fair value, at March 31, 2026 were $456.2 million, which represented a $53.2 million, or 10.4%, decrease from December 31, 2025.

These nonperforming assets at March 31, 2026 were comprised of $444.2 million in nonaccrual loans and leases and $12.0 million in foreclosed assets.

Of the $456.2 million of nonperforming assets, $336.1 million carried a government guarantee, leaving an unguaranteed exposure of $120.1 million in total nonperforming assets at March 31, 2026.

This represents an increase of $17.3 million, or 16.9%, from an unguaranteed exposure of $102.8 million at December 31, 2025.

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 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.

As a percentage of the Bank’s total capital, nonperforming loans and leases, excluding loans measured at fair value, represented 33.6% at March 31, 2026, compared to 39.0% at December 31, 2025.

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 March 31, 2026 and December 31, 2025 were 8.8% and 7.9%, respectively.

As of March 31, 2026, and December 31, 2025, potential problem (also referred to as criticized or Risk Grade 50) and classified loans and leases, excluding loans measured at fair value, totaled $1.33 billion and $1.39 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/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.

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 2025 Form 10-K.

At March 31, 2026 , the portion of criticized and classified loans and leases guaranteed by the SBA or USDA totaled $653.4 million and total portfolio unguaranteed exposure risk was $680.8 million , or 7.9% of total held for investment unguaranteed exposure carried at historical cost.

This compares to the December 31, 2025 portion of criticized and classified loans and leases guaranteed by the SBA or USDA which totaled $669.8 million and total portfolio unguaranteed exposure risk was $719.9 million , or 8.6% of total held for investment unguaranteed exposure carried at historical cost .

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

As of March 31, 2026 and December 31, 2025, loans an d 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 March 31, 2026 As of December 31, 2025

Vertical % of Criticized and Classified Loans and Leases

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General Lending 12.3% General Lending 11.8%

Senior Housing 9.5 Bioenergy 11.1

Bioenergy 7.3 Senior Housing 9.9

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

Search Fund Lending 4.3 Community Facilities 4.8

Solar Energy 4.2 Self Storage 4.6

Solar Energy 8.0 Solar Energy 7.5

Sponsor Finance 7.6 Senior Housing 6.1

Auto Care & Auto Dealerships 6.4 Bioenergy 6.1

Self Storage 6.3 Sponsor Finance 6.1

Healthcare 5.6 Auto Care + Auto Dealerships 5.9

Senior Housing 4.9 Healthcare 5.4

Wine & Craft Beverages 4.9 Self Storage 5.4

RV Parks 4.2 RV Parks 4.0

% of Total Criticized and Classified Loans 60.2% % of Total Criticized and Classified Loans 58.3%

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 .

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

The total $55.4 million decrease in potential problem and classified loans and leases in the first three months of 2026 was comprised of $15.5 million in increased levels of Risk Grade 50 loans and leases, as discussed below and $70.9 million in decreased levels of classified loans.

The overall decrease in classified loans in the first quarter of 2026 was primarily driven by one $84.9 million Renewable Energy relationship that was moved out of loans resulting in no losses in the quarter due to the combination of a sale and related government guarantee.

The remainder of the change (increase) is due to isolated borrower-specific credit migrations, including movement of several larger individual exposures and isolated industries into classified status based on performance trends identified through ongoing credit reviews.

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

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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 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.

At March 31, 2026, the Company had a total of $43.2 million in loans modified in 2026 to borrowers experiencing financial difficulty, excluding loans measured at fair value, $42.8 million of which remained current and $30.1 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 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

At March 31, 2026, and December 31, 2025, Risk Grade 50 loans and leases, excluding loans measured at fair value, totaled $742.7 million and $727.2 million, respectively, for an increase of $15.5 million.

Relative to total held for investment unguaranteed exposure carried at historical cost at December 31, 2025 and March 31, 2026, unguaranteed Risk Grade 50 loans and leases decreased from $465.7 million, or 5.5%, to $462.3 million, or 5.3%, respectively.

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

September 30, 2025 vs.

March 31, 2026 vs.

December 31, 2025 Increase (Decrease)

Solar Energy $ 38,124 32.7 %

Sponsor Finance $ 13,414 86.7 %

Government Contractors 16,682 14.3

Senior Care 13,170 11.3

Auto Care 12,054 10.3

Senior Housing 10,014 8.6

Hospitality 9,929 8.5

Auto Care & Auto Dealerships 12,708 82.1

Hotels 11,952 77.2

Wine and Craft Beverages 10,647 68.8

Service Contractors 8,155 52.7

Agriculture 6,181 39.9

Restoration 7,693 6.6

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

General Lending (14,948) (12.8)

Educational Services 5,334 34.5

Veterinary 5,236 33.8

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

Care Services 4,909 31.7

RV Parks (8,454) (54.6)

Sponsor Search (13,092) (84.6)

Senior Housing (19,327) (124.9)

Government Contractors (27,603) (178.4)

Total of largest changes in Risk Grade 50 loans and leases $ 10,060 64.9%

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.

The change in Risk Grade 50 loans and leases, exclusive of loans measured at fair value, during the first three months of 2026 was principally confined to 13 verticals, as reflected above.

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

At March 31, 2026, approximately 99.6% 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 $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.

The ACL of $192.3 million at December 31, 2025, increased by $1.0 million, or 0.5%, to $193.3 million at March 31, 2026.

The ACL as a percentage of loans and leases held for investment at historical cost amounted to 1.6% at both December 31, 2025 and March 31, 2026.

The increase in the ACL during the first three months of 2026 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.

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.

Actual past due held for in vestment loans and leases, inclusive of loans measured at fair value, have decreased by $40.2 million since December 31, 2025.

Total loans and leases 90 or more days past due decreased $63.4 million, or 15.8%, compared to December 31, 2025.

This decrease was comprised of a $4.2 million increase in unguaranteed exposure combined with a $67.7 million decrease in the guaranteed portion of past due loans compared to December 31, 2025.

At March 31, 2026 and December 31, 2025, 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 1.1% and 0.9%, respectively.

Total unguaranteed loans and leases past due were comprised of $89.0 million carried at historical cost, an increase of $19.8 million, and $7.6 million measured at fair value, a decrease of $266 thousand, as of March 31, 2026 compared to December 31, 2025.

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

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 believes the ACL of $193.3 million at March 31, 2026 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 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.

At March 31, 2026, the total amount of these four liquidity source items was $4.96 billion, or 32.4% of total assets, an increase of 0.1% of total assets from $4.89 billion, or 32.3% of total assets, at December 31, 2025.

As of March 31, 2026 and December 31, 2025, the Company’s unused borrowing capacity was $4.09 billion and $3.97 billion, respectively, based upon securities and loans identified as available for collateral.

Unused borrowing capacity consists of access through the Federal Reserve Bank's discount window, available lines of credit with the Federal Home Loan Bank and other correspondent banks, and access to a repurchase agreement.

If additional collateral is available, the Company's aggregate borrowing capacity with all of the above sources is $7.77 billion and $7.54 billion as of March 31, 2026 and December 31, 2025, respectively.

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 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.

At March 31, 2026, $540.0 million of the investment securities portfolio were pledged for unused borrowing capacity, leaving $894.5 million available to be pledged as collateral.

Contractual Obligations

1 unchanged sentence

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, 2025.

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.

See the section titled “Liquidity Management” in Part II, Item 7 of the Company’s 2025 Form 10-K for additional discussion of contractual obligations.

Off-Balance Sheet Arrangements

2 unchanged sentences

Such transactions are used primarily to manage customers’ requests for funding and take the form of commitments to extend credit and standby letters of credit.

In 2025, the Company entered into airplane purchase agreement commitments.

For more information, see Note 2.

Investments and Note 8.

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

1 unchanged sentence

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 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.

As of March 31, 2026, the balance sheet’s total cumulative gap position was 6.7%, 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.

2 unchanged sentences

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 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.

As of March 31, 2026, 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.

17 unchanged sentences

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.

Table of Conten t s

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

Capital amounts and ratios as of March 31, 2026, and December 31, 2025, are presented in the table below.

Actual Minimum Capital

4 unchanged sentences

Amount Ratio Amount Ratio Amount Ratio

Consolidated - September 30, 2025

Consolidated - March 31, 2026

Common Equity Tier 1 (to Risk-Weighted Assets) $ 1,192,564 10.63 % $ 504,903 4.50 % N/A N/A

2 unchanged sentences

Tier 1 Capital (to Average Assets) 1,288,830 8.47 608,704 4.00 N/A N/A

Bank - September 30, 2025

Bank - March 31, 2026

Common Equity Tier 1 (to Risk-Weighted Assets) $ 1,183,260 10.61 % $ 501,786 4.50 % $ 724,801 6.50 %

18 unchanged sentences

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/A 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 for the year ended December 31, 2025, 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.

The Company’s most critical accounting policy and estimate is listed below.

The Company’s most critical accounting policy and estimate is the ACL.

This estimate requires the Company to make difficult, subjective or complex judgments about matters that are inherently uncertain.

• Allowance for credit losses

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

Except as described in Note 1.

Basis of Presentation, there were no changes related to critical accounting policies and estimates during the first quarter of 2026.

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