OLD SECOND BANCORP INC

Previous wording

The following discussion provides additional information regarding our operations for the three and six months ended June 30, 2025, compared to the three and six months ended June 30, 2024, and our financial condition at June 30, 2025, compared to December 31, 2024. This discussion should be read in conjunction with our consolidated financial statements as well as the financial and statistical data appearing elsewhere in this report and our Form 10-K for the year ended December 31, 2024. The results of operations for the three and six months ended June 30, 2025, are not necessarily indicative of future results. Dollar amounts presented in the following tables are in thousands, except per share data, and June 30, 2025 and 2024 amounts are unaudited.

Current wording

The following discussion provides additional information regarding our operations for the three and nine months ended September 30, 2025, compared to the three and nine months ended September 30, 2024, and our financial condition at September 30, 2025, compared to December 31, 2024. This discussion should be read in conjunction with our consolidated financial statements as well as the financial and statistical data appearing elsewhere in this report and our Form 10-K for the year ended December 31, 2024. The results of operations for the three and nine months ended September 30, 2025, are not necessarily indicative of future results. Dollar amounts presented in the following tables are in thousands, except per share data, and September 30, 2025 and 2024 amounts are unaudited.

Previous wording

The Company is a bank holding company headquartered in Aurora, Illinois. Through our wholly-owned subsidiary bank, Old Second National Bank, a national banking organization also headquartered in Aurora, Illinois (the “Bank”), we offer a wide range of financial services through our 53 banking centers located in Cook, DeKalb, DuPage, Kane, Kendall, LaSalle and Will counties in Illinois. These banking centers offer access to a full range of traditional retail and commercial banking services including treasury management operations as well as fiduciary and wealth management services. We focus our business on establishing and maintaining relationships with our clients while maintaining a commitment to provide for the financial services needs of the communities in which we operate. We emphasize relationships with individual customers as well as small to medium-sized businesses throughout our market area. We also have extensive wealth management services, which includes a registered investment advisory platform in addition to trust administration and trust services related to personal and corporate trusts and employee benefit plan administration services.

Current wording

The Company is a bank holding company headquartered in Aurora, Illinois. Through our wholly-owned subsidiary bank, Old Second National Bank, a national banking organization also headquartered in Aurora, Illinois (the “Bank”), we offer a wide range of financial services through our 55 banking centers located in Cook, DeKalb, DuPage, Kane, Kendall, LaSalle and Will counties in Illinois. These banking centers offer access to a full range of traditional retail and commercial banking services including treasury management operations as well as fiduciary and wealth management services. We focus our business on establishing and maintaining relationships with our clients while maintaining a commitment to provide for the financial services needs of the communities in which we operate. We emphasize relationships with individual customers as well as small to medium-sized businesses throughout our market area. We also have extensive wealth management services, which includes a registered investment advisory platform in addition to trust administration and trust services related to personal and corporate trusts and employee benefit plan administration services.

Previous wording

On July 1, 2025, we completed our previously announced merger with Bancorp Financial Inc. (“Bancorp Financial”), pursuant to the agreement and plan of merger dated February 24, 2025. At the effective time of the merger, Bancorp Financial merged with and into the Company, with the Company continuing as the surviving corporation. Immediately following the merger, Evergreen Bank Group, an Illinois-chartered banking corporation and wholly owned subsidiary of Bancorp Financial, merged with and into Old Second National Bank, with the Bank continuing as the surviving bank. Under the terms of the merger agreement, each share of Bancorp Financial common stock outstanding immediately prior to the effective time was converted into the right to receive 2.5814 shares of Old Second common stock and $15.93 in cash, without interest, with cash paid in lieu of any fractional shares.

Current wording

On July 1, 2025, we completed our previously announced acquisition of Bancorp Financial, Inc. (“Bancorp Financial”), pursuant to the agreement and plan of merger dated February 24, 2025. At the effective time of the acquisition, Bancorp Financial merged with and into the Company, with the Company continuing as the surviving corporation. Immediately following the merger, Evergreen Bank Group, an Illinois-chartered banking corporation and wholly owned subsidiary of Bancorp Financial, merged with and into Old Second National Bank, with the Bank continuing as the surviving bank. Under the terms of the merger agreement, each share of Bancorp Financial common stock outstanding immediately prior to the effective time was converted into the right to receive 2.5814 shares of Old Second common stock and $15.93 in cash, without interest, with cash paid in lieu of any fractional shares.

Previous wording

Net income for the second quarter of 2025 was $21.8 million, or $0.48 per diluted share, compared to $19.8 million, or $0.43 per diluted share, for the first quarter of 2025, and $21.9 million, or $0.48 per diluted share, for the second quarter of 2024. Net income was relatively flat compared to the prior year, and variances included an increase of $5.5 million in noninterest expense and a $229,000 decrease in noninterest income, partially offset by a $4.5 million increase in net interest and dividend income and a $1.3 million decrease in provision for credit losses. Adjusted net income, a non-GAAP financial measure that excludes mortgage servicing rights mark to market activity and certain nonrecurring items, as applicable, was $22.8 million for the second quarter of 2025, compared to $20.6 million for the first quarter of 2025, and $21.2 million for the second quarter of 2024.

Current wording

Our results of operations for the third quarter of 2025 include three full months of Bancorp Financial operations. Net income for the third quarter of 2025 was $9.9 million, or $0.18 per diluted share, compared to $21.8 million, or $0.48 per diluted share, for the second quarter of 2025, and $23.0 million, or $0.50 per diluted share, for the third quarter of 2024. Net income decreased significantly compared to the prior year like quarter, primarily due to the impact of the Bancorp Financial acquisition legal close and purchase accounting adjustments. Variances included an increase of $23.9 million in noninterest expense, a $17.7 million increase in provision for credit losses, and a $5.8 million increase in interest expense, partially offset by a $28.0 million increase in interest and dividend income, a $2.5 million increase in noninterest income and a $3.7 million decrease in provision for income taxes. Net income in the third quarter of 2025 was negatively impacted by Day Two non-PCD provision for loan losses recorded of $13.2 million, as well as acquisition costs, net of gains on branch sales, of $11.5 million, which primarily increased noninterest expense. Adjusted net income, a non-GAAP financial measure that excludes Day Two provision for credit loss adjustments, death benefits related to BOLI, mortgage servicing rights mark to market gains or losses, and acquisition related costs, net of gains on branch sales, as applicable, was $28.4 million for the third quarter of 2025, compared to $22.8 million for the second quarter of 2025, and $24.0 million for the third quarter of 2024.

Previous wording

Of the significant accounting policies used in the preparation of our consolidated financial statements, we have identified certain items as critical accounting policies based on the associated estimates, assumptions, judgments and complexity. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2024. There have been no material changes to our critical accounting policies or the estimates made pursuant to those policies during the most recent quarter from those disclosed in our 2024 Annual Report in Form 10-K.

Current wording

Of the significant accounting policies used in the preparation of our consolidated financial statements, we have identified certain items as critical accounting policies based on the associated estimates, assumptions, judgments and complexity. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2024. Refer toChanges in Significant Accounting Policieswithin Note 1 of this Form 10-Q for a description of policies impacted by the acquisition of Bancorp Financial.

Previous wording

Our income before taxes was $29.2 million in both the second quarter of 2025 and the second quarter of 2024. Net interest and dividend income increased $4.5 million, and provision for credit losses decreased $1.3 million in the second quarter of 2025 compared to the like 2024 quarter. Income before taxes was negatively impacted by a $229,000 decrease in noninterest income and a $5.5 million increase in noninterest expense. The noninterest expense increase of $5.5 million is primarily due to a $3.5 million increase in salary and employee benefits expense, a $578,000 increase in occupancy, furniture and equipment, a $508,000 increase in computer and data processing, a $448,000 increase in amortization of core deposit intangibles, and a $332,000 increase in other expenses, which were primarily driven by acquisition related costs. Our net income was $21.8 million, or $0.48 per diluted share, for the second quarter of 2025, compared to net income of $21.9 million, or $0.48 per diluted share, for the second quarter of 2024. The Bank remains well positioned to navigate uncertain macroeconomics. We have proactively addressed interest rate risk, maintained disciplined expense management, and ensured robust daily liquidity oversight. In addition, our liquidity metrics remain solid, and our short-duration securities portfolio provides flexibility for near-term funding requirements.

Current wording

Our income before taxes was $13.1 million in the third quarter of 2025, compared to $29.9 million third quarter of 2024. Net interest and dividend income increased $22.2 million, and provision for credit losses increased $17.7 million in the third quarter of 2025, compared to the like 2024 quarter. Income before taxes was also affected by a $2.5 million increase in noninterest income and a $23.9 million increase in noninterest expense. The noninterest expense increase of $23.9 million is primarily due to a $15.0 million increase in salary and employee benefits expense primarily attributable to $8.4 million of change in control, retention, and severance payouts related to the Bancorp Financial acquisition, a $1.1 million increase in occupancy, furniture and equipment, a $1.6 million increase in computer and data processing, a $681,000 increase in amortization of core deposit intangibles, a $2.0 million increase in consulting & management fees, and a $2.4 million increase in other expenses, which were all primarily driven by Bancorp Financial acquisition related costs. Total acquisition costs of $11.8 million, excluding net gains on branch sales were recorded as a result of the Bancorp Financial acquisition during the three months ended September 30, 2025. In addition, our five branch purchase from FRME in December 2024 also drove the increase in noninterest expenses for the year over year periods. Our net income was $9.9 million, or $0.18 per diluted share, for the third quarter of 2025, compared to net income of $23.0 million, or $0.50 per diluted share, for the third quarter of 2024. The Bank remains well positioned to navigate uncertain macroeconomics. We have proactively addressed interest rate risk, maintained disciplined expense management, and ensured robust daily liquidity oversight. In addition, our liquidity metrics remain solid, and our short-duration securities portfolio provides flexibility for near-term funding requirements.

Previous wording

Net interest and dividend income was $64.2 million in the second quarter of 2025, compared to $59.7 million in the second quarter of 2024. The $4.5 million increase was driven by a decrease in other short-term borrowings in the second quarter of 2025, compared to the second quarter of 2024, primarily due to these borrowings being completely paid down in the first quarter of 2025, as well as a $2.0 million increase in interest and dividend income due to increased security yields. A net increase of $836,000 on deposit interest expense in the second quarter of 2025 negatively impacted net interest and dividend income compared to the second quarter of 2024.

Current wording

Net interest and dividend income was $82.8 million in the third quarter of 2025, compared to $60.6 million in the third quarter of 2024. The $22.2 million increase was driven by a $28.0 million increase in interest and dividend income due to the acquisition of Bancorp Financial as well as organic loan growth. A net increase of $5.8 million in interest expense in the third quarter of 2025 negatively impacted net interest and dividend income compared to the third quarter of 2024, driven by the higher cost deposits and increased borrowing balances assumed with the Bancorp Financial acquisition.

Previous wording

Our income before taxes was $55.4 million for the six months ended June 30, 2025, compared to $57.7 million for the six months ended June 30, 2024. This decrease in pretax income was primarily due to an $11.8 million increase in noninterest expense and a $529,000 decrease in noninterest income. These changes were partially offset by a $7.7 million increase in net interest and dividend income and a $2.4 million decrease in provision for credit losses. Our net income was $41.7 million, or $0.91 per diluted share, for the six months ended June 30, 2025, compared to net income of $43.2 million, or $0.95 per diluted share, for the same period of 2024.

Current wording

Our income before taxes was $68.5 million for the nine months ended September 30, 2025, compared to $87.6 million for the nine months ended September 30, 2024. This decrease in pretax income was primarily due to a $35.7 million increase in noninterest expense and a $15.3 million increase in provision for credit losses, which were both driven by the acquisition of Bancorp Financial. These changes were partially offset by a $29.9 million increase in net interest and dividend income, a $2.0 million increase in noninterest income, and a $4.5 million decrease in provision for income taxes. Our net income was $51.5 million, or $1.06 per diluted share, for the nine months ended September 30, 2025, compared to net income of $66.2 million, or $1.45 per diluted share, for the same period of 2024.

Previous wording

Net interest and dividend income was $127.1 million for the six months ended June 30, 2025, compared to $119.5 million for the same period of 2024. The $7.7 million increase was primarily driven by a decrease in interest expense in the first six months of 2025, compared to the first six months of 2024, driven by a reduction in other short-term borrowings expense as the remainder of these borrowings were paid off in the first quarter of 2025. Also contributing to the increase in net interest and dividend income was a $2.4 million increase in securities related income due to the year over year increase in yield in the securities portfolio. Lower interest expenses were partially offset by the effect of market interest rates on our loan portfolio, which contributed a $1.2 million decrease in loan related income.

Current wording

Net interest and dividend income was $209.9 million for the nine months ended September 30, 2025, compared to $180.1 million for the same period of 2024. The $29.9 million increase was primarily driven by an increase in loan related income of $25.5 million due to the loan portfolio acquired with Bancorp Financial as well as a $3.1 million increase in securities related income due to the year over year higher yielding securities portfolio. Partially offsetting the increase in interest and dividend income was an increase in interest expense in the first nine months of 2025, compared to the first nine months of 2024, driven by higher cost of deposits and increased borrowing balances assumed with the acquisition of Bancorp Financial. However, this increase in interest expense was nominal, due to a reduction in average balances of short-term borrowings in the year over year period, primarily stemming from the inflow of cash received related to the FRME five branch purchase in December 2024.

Previous wording

The decreased yield of two basis points on interest earning assets compared to the linked period was primarily driven by a lower yield on FHLBC and FRBC Stock due to less capital stock dividends received during the second quarter of 2025 and repricing within the loan portfolio. Changes in the market interest rate environment impact earning assets at varying intervals depending on the repricing timeline of loans, as well as the securities maturity, paydown and purchase activities.

Current wording

The increased yield of 66 basis points on interest earning assets compared to the linked period was primarily driven by higher interest rate consumer credits and related accretion on the loan portfolio acquired from Bancorp Financial, as the average yield on the acquired portfolio prior to purchase accounting accretion was 8.60%. Changes in the market interest rate environment impact earning assets at varying intervals depending on the repricing timeline of loans, as well as the securities maturity, paydown and purchase activities.

Previous wording

The year over year increase of one basis point on interest earning assets was primarily driven by maturities in our securities portfolio with many older and lower yielding securities maturing and being replaced with higher yielding investments while maintaining the shorter duration portfolio composition. Average balances of securities available for sale increased $10.7 million in the second quarter of 2025 compared to the prior year like quarter, with a corresponding increase to the tax equivalent yield on the securities available for sale portfolio of 41 basis points year over year primarily due to variable security rate resets and new higher yielding securities. Average balances of loans and loans held for sale increased $2.1 million in the second quarter of 2025 compared to the prior year like quarter, while the tax equivalent yield on loans and loans held for sale decreased four basis points.

Current wording

The year over year increase of 51 basis points on interest earning assets was primarily driven by higher yielding consumer credits and related accretion on the Bancorp Financial portfolio acquired, as well as planned turnover in our securities portfolio with many older and lower yielding securities maturing and being replaced with higher yielding investments while maintaining the shorter duration portfolio composition. Average balances of loans and loans held for sale increased $1.25 billion in the third quarter of 2025 compared to the prior year like quarter, with a corresponding increase to the tax equivalent yield on the loan portfolio of 47 basis points year over year due to the Bancorp Financial acquisition and organic growth. Average balances of securities available for sale decreased $8.0 million in the third quarter of 2025 compared to the prior year like quarter, but showed an increase to the tax equivalent yield on the securities available for sale portfolio of 25 basis points year over year primarily due to variable security rate resets and run-off of lower yielding investments.

Previous wording

Average balances of interest bearing deposit accounts have increased slightly since the first quarter of 2025 through the second quarter of 2025, from $3.10 billion to $3.12 billion, as NOW and money market account average balances increased, while savings and time deposit accounts decreased. We have continued to control the cost of funds over the periods reflected by monitoring market activity as well as allowing previous exception-priced deposits to runoff naturally, which resulted in only a two basis point increase in the cost of interest bearing deposits, from 128 basis points for the quarter ended March 31, 2025, to 130 basis points for the quarter ended June 30, 2025. A 17-basis point increase in money market accounts for the quarter ended June 30, 2025, drove a significant portion of the increase from the prior linked quarter, with a 10-basis point decrease in the cost of time deposits partially offsetting the overall change in the cost of deposits. The cost of interest bearing deposits decreased three basis points for the quarter ended June 30, 2025, from 133 basis points for the quarter ended June 30, 2024. A 67-basis point decrease in the cost of time deposit accounts drove a significant portion of the overall decrease from the prior year like quarter.

Current wording

Average balances of interest bearing deposit accounts have increased significantly since the second quarter of 2025 through the third quarter of 2025, from $3.12 billion to $4.15 billion, as all average interest bearing deposit account categories increased as a result of the Bancorp Financial acquisition. The Bancorp Financial acquisition drove the increase in interest bearing deposit expenses of $9.8 million compared to the prior linked quarter, which increased the cost of interest bearing deposits from 130 basis points for the quarter ended June 30, 2025, to 191 basis points for the quarter ended September 30, 2025. We will continue to control the cost of funds by monitoring market activity as well as allowing previous exception-priced deposits and the brokered CDs acquired from Bancorp Financial to runoff naturally. A 66 basis point increase in savings accounts and a 61 basis point increase in time deposits for the quarter ended September 30, 2025, drove a significant portion of the increase from the prior linked quarter, as a majority of the accounts assumed from Bancorp Financial were within these deposit categories. The cost of interest bearing deposits increased 43 basis points for the quarter ended September 30, 2025, from 148 basis points for the quarter ended September 30, 2024. A 20 basis point increase in the cost of money market accounts and a 70 basis point increase in savings accounts drove a significant portion of the overall increase from the prior year like quarter.

Previous wording

Borrowing costs decreased slightly in the second quarter of 2025, compared to the first quarter of 2025, primarily due to the $1.4 million decrease in average other short-term borrowings stemming from a decrease in average daily FHLB advances over the prior linked quarter as the remainder of this borrowing was already paid down early in the first quarter of 2025. The decrease of $242.9 million year over year of average FHLB advances was based on daily liquidity needs and was the primary driver of the $3.3 million decrease to interest expense on other short-term borrowings. Subordinated and junior subordinated debt interest expense were essentially flat over each of the periods presented.

Current wording

Borrowing costs increased in the third quarter of 2025, compared to the second quarter of 2025. The increase is primarily due to the $26.0 million increase in average other short-term borrowings, which are overnight FHLB advances based on daily liquidity needs, over the prior linked quarter as well as $14.8 million in notes payable and other borrowings due to long term FHLB advances assumed from Bancorp Financial. The decrease of $279.5 million year over year of average FHLB advances was based on daily liquidity needs due to the changes in the funding mix as a result of recent acquisitions and was the primary driver of the $3.9 million decrease to interest expense on other short-term borrowings. Subordinated and junior subordinated debt interest expense were essentially flat over each of the periods presented.

Previous wording

Our net interest margin, for both GAAP and TE presentations, showed nominal declines over the prior linked quarter periods, but healthy growth over the prior year like quarter presented above. Our net interest margin (GAAP) decreased two basis points to 4.83% for the second quarter of 2025, compared to 4.85% for the first quarter of 2025, but increased 23 basis points compared to 4.60% for the second quarter of 2024. Our net interest margin (TE) decreased three basis points to 4.85% for the second quarter of 2025, compared to 4.88% for the first quarter of 2025, but increased 22 basis points compared to 4.63% for the second quarter of 2024. The decrease in net interest margin for the second quarter of 2025, compared to the prior linked quarter, was driven by market interest rates on securities and one more day in the period with larger interest earning asset balances. The net interest margin increased in the second quarter of 2025, compared to the prior year like quarter, primarily due to higher security yields as well as the decrease in average other short-term borrowings and the corresponding reduction in interest expense. See the discussion entitled “Non-GAAP Financial Measures,” above, and the tables beginning on page 51 that provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

Current wording

Our net interest margin, for both GAAP and tax equivalent (“TE”) presentations, showed noticeable growth over the prior linked quarter period and over the prior year like quarter presented above. Our net interest margin (GAAP) increased 20 basis points to 5.03% for the third quarter of 2025, compared to 4.83% for the second quarter of 2025, and increased 41 basis points compared to 4.62% for the third quarter of 2024. Our net interest margin (TE) increased 20 basis points to 5.05% for the third quarter of 2025, compared to 4.85% for the second quarter of 2025, and increased 41 basis points compared to 4.64% for the third quarter of 2024. The increase in net interest margin for the third quarter of 2025, compared to the prior linked quarter, was driven by the Bancorp Financial acquisition, market interest rates, and one more day in the period with larger interest earning asset balances. The net interest margin increased in the third quarter of 2025, compared to the prior year like quarter, primarily due to the Bancorp Financial acquisition, higher security yields, and the decrease in average other short-term borrowings and the corresponding reduction in interest expense. See the discussion entitled “Non-GAAP Financial Measures,” above, and the tables beginning on page 54 that provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

Previous wording

The year over year increase of five basis points on interest earning assets was driven by increased yields on our securities portfolio. The securities portfolio was primarily impacted by maturities and paydowns of lower yielding assets and timely purchase of higher yielding securities as we work to increase the weighted average yield in the portfolio while maintaining short duration. Average securities available-for-sale increased $4.6 million for the six months ended June 30, 2025, compared to the six months ended June 30, 2024, due to strategic purchases of securities. Due to market interest rate increases year over year, securities available-for-sale interest income yields were higher in the six months ended June 30, 2025, leading to an increase in securities income to $22.3 million for the six months ended June 30, 2025, compared to $19.9 million for the like 2024 period. Average loans, including loans held for sale, decreased $29.1 million in the six months ended June 30, 2025, compared to the six months ended June 30, 2024. Flat loan yields and lower average balances resulted in $123.6 million of loan and dividend interest income in the six months ended June 30, 2025, compared to $124.9 million in the like 2024 period.

Current wording

The year over year increase of 24 basis points on interest earning assets was driven by increased yields on our loans and securities portfolios. Average loans, including loans held for sale, increased $402.2 million in the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024, due to the acquisition of Bancorp Financial. The large increase in average loans resulted in $215.0 million of loan interest income in the nine months ended September 30, 2025, compared to $189.4 million in the like 2024 period. The acquired portfolio provided higher yielding consumer loans helping to increase our overall loan portfolio yield. The securities portfolio was primarily impacted by maturities and paydowns of lower yielding assets and timely purchase of higher yielding securities as we work to increase the weighted average yield in the portfolio while maintaining short duration. Average securities available-for-sale increased $300,000 for the nine months ended September 30, 2025, compared the like 2024 period. Over the same period, market interest rates increased leading to an increase in securities income of $3.1 million to $33.8 million for the nine months ended September 30, 2025, compared to $30.7 million for the like 2024 period.

Previous wording

Average balances of interest bearing deposit accounts have increased significantly since June 30, 2024, through the six months ended June 30, 2025, from $2.78 billion to $3.11 billion driven by the FRME acquisition, with these increases reflected in all categories other than savings accounts. We have continued to control the cost of funds over the periods reflected, with the rate of overall interest bearing deposits increasing by four basis points to 129 basis points from 125 basis points as of June 30, 2024. A 20-basis point increase in the cost of money market funds as of June 30, 2025, compared to June 30, 2024, was due to select deposit account exception pricing and drove a significant portion of the overall increase. Also contributing to the overall increase was an 11-basis point increase in savings accounts as interest paid on savings accounts increased with the goal of remaining competitive to peer offerings, compared to the six months ended June 30, 2024, while the average balance decreased. Interest expense paid on time deposits partially offset the growth in cost of deposits year over year, as the cost of average time deposits decreased 45 basis points to 265 basis points for the six months ended June 30, 2025, compared to 310 basis points for the six months ended June 30, 2024.

Current wording

Average balances of interest bearing deposit accounts have increased significantly since September 30, 2024, through the nine months ended September 30, 2025, from $2.79 billion to $3.46 billion driven by the Bancorp Financial and FRME acquisitions, with these increases reflected in all deposit categories. The Bancorp Financial acquisition contributed to the increase in interest bearing deposit expense of $12.0 million compared to the prior year like period, which increased the cost of interest bearing deposits from 133 basis points for the nine months ended September 30, 2024, to 154 basis points for the nine months ended September 30, 2025. A 21 basis point increase in the cost of money market funds and a 34 basis point increase in savings accounts as of September 30, 2025, compared to September 30, 2024, drove a significant portion of the increase from the prior year period, as a majority of the deposit accounts assumed in the Bancorp Financial acquisition were within these deposit categories. Interest expense paid on time deposits partially offset the growth in cost of deposits year over year, as the cost of average time deposits decreased 28 basis points to 292 basis points for the nine months ended September 30, 2025, compared to 320 basis points for the nine months ended September 30, 2024.

Previous wording

Our borrowing interest expense was controlled over the past twelve months due to lower FHLB advance volumes as the remaining advances were paid off in the first quarter of 2025. This resulted in an average balance decrease of $286.8 million compared to the six months ended June 30, 2024, with an accompanying decrease of $7.9 million of interest expense. Subordinated and junior subordinated debt interest expense remained flat over the periods presented.

Current wording

Our borrowing interest expense was controlled over the past twelve months due to lower outstanding short-term FHLB advances compared to the prior year like period. This resulted in an average balance decrease of $284.3 million compared to the nine months ended September 30, 2024, with an accompanying decrease of $11.8 million of interest expense. However, our note payable average balance increased by $5.0 million compared to the nine months ended September 30, 2024, as we assumed long-term FHLB advances with the acquisition of Bancorp Financial. Subordinated and junior subordinated debt interest expense remained flat over the periods presented.

Previous wording

Our net interest margin (GAAP) increased 26 basis points to 4.84% for the six months ended June 30, 2025, compared to 4.58% for the six months ended June 30, 2024. Our net interest margin (TE) increased 27 basis points to 4.87% for the six months ended June 30, 2025, compared to 4.60% for the six months ended June 30, 2024. The increase in the current period, compared to the prior year like period, is primarily due to lower interest expense related to the lower average balances and interest on other short-term borrowings and increased yields on securities.

Current wording

Our net interest margin (GAAP) increased 32 basis points to 4.91% for the nine months ended September 30, 2025, compared to 4.59% for the nine months ended September 30, 2024. Our net interest margin (TE) increased 32 basis points to 4.94% for the nine months ended September 30, 2025, compared to 4.62% for the nine months ended September 30, 2024. The increase in the current period, compared to the prior year like period, is primarily due to lower interest expense related to the lower average balances and interest on other short-term borrowings and increased yields on loans and securities.

Previous wording

2 Interest income from loans is shown on a tax equivalent basis, which is a non-GAAP financial measure, as discussed in the table on page 51, and includes loan fee income of $365,000 for the second quarter of 2025, loan fee income of $545,000 for the first quarter of 2025, and loan fee expense of $936,000 for the second quarter of 2024. Nonaccrual loans are included in the above-stated average balances.

Current wording

2 Interest income from loans is shown on a tax equivalent basis, which is a non-GAAP financial measure, as discussed in the table on page 56, and includes loan fee income of $1.2 million for the third quarter of 2025, loan fee income of $365,000 for the second quarter of 2025, and loan fee expense of $155,000 for the third quarter of 2024. Nonaccrual loans are included in the above-stated average balances.

Previous wording

2 Interest income from loans is shown on a tax equivalent basis, which is a non-GAAP financial measure, as discussed in the table on page 51, and includes fee income of $910,000 and fee expense of $1.8 million for the six months ended June 30, 2025 and 2024, respectively. Nonaccrual loans are included in the above-stated average balances.

Current wording

2 Interest income from loans is shown on a tax equivalent basis, which is a non-GAAP financial measure, as discussed in the table on page 56, and includes fee income of $2.1 million and fee expense of $2.0 million for the nine months ended September 30, 2025 and 2024, respectively. Nonaccrual loans are included in the above-stated average balances.

Previous wording

The decrease in noninterest income of $229,000 in the second quarter of 2025, compared to the second quarter of 2024, is primarily due to no death benefits realized on BOLI in 2025, compared to an $893,000 death benefit recorded in the second quarter of 2024. Also contributing to the reduction in noninterest income during the quarter was a $233,000 decrease in residential mortgage banking revenue mainly due to a $293,000 decrease in MSRs mark to market valuations. Partially offsetting the decrease in noninterest income from the prior year like quarter was a $324,000 increase in wealth management income primarily due to growth in advisory fees and estate fees, a $280,000 increase in service charges on deposits, and a $284,000 increase in other income due to growth in commercial swap fee income, as well as a real estate tax refund related to a prior year tax assessment received in the second quarter of 2025 from an OREO property.

Current wording

The increase in noninterest income of $2.5 million in the third quarter of 2025, compared to the third quarter of 2024, is primarily due to a $728,000 increase in wealth management income from growth in advisory and estate fees, a $315,000 increase in the cash surrender value of BOLI due to changes in market interest rates, and a $430,000 death benefit realized on BOLI recorded in the third quarter of 2025. Also contributing to the increase in noninterest income during the quarter was a $699,000 increase in residential mortgage banking revenue mainly due to a $575,000 increase in MSRs mark to market valuations.

Previous wording

Noninterest income decreased $529,000, or 2.4%, for the six months ended June 30, 2025, compared to the six months ended June 30, 2024. This decrease was primarily driven by a $732,000 decrease in mortgage banking revenue, comprised primarily of a $957,000 increase in MSRs mark to market losses and partially offset by a $232,000 increase in the net gain on sales of mortgage loans. In addition, the current six month period decreased due to a $804,000 decrease in the cash surrender value of BOLI due to market interest rate changes on COLI investments, and no death benefits were realized on BOLI in the second quarter of 2025, compared to an $893,000 death benefit realized on BOLI in the prior linked period. Partially offsetting these decreases was an $852,000 increase in wealth management income, a $584,000 increase in service charges on deposits, a $175,000 increase in card related income, and a $290,000 increase in other income.

Current wording

Noninterest income increased $2.0 million, or 6.2%, for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024. This increase was primarily driven by a $1.6 million increase in wealth management income from growth in advisory and estate fees, an $858,000 increase in service charges on deposits, a $325,000 increase in card related income, and a $234,000 increase in other income. Partially offsetting these increases was a $489,000 decrease in the cash surrender value of BOLI due to market interest rate changes on COLI investments, and a $475,000 decrease in death benefits realized on BOLI.

Previous wording

The year over year increase in noninterest expense is primarily attributable to a $3.5 million increase in salaries and employee benefits, primarily due to increases in annual base salary rates, officers’ incentives, and restricted stock units expense in the second quarter of 2025. Also contributing to the increase was a $578,000 increase in occupancy, furniture and equipment, a $508,000 increase in computer and data processing expenses, a $448,000 increase in core deposit intangible, and a $332,000 increase in other expense primarily due to the effect of the FRME branches purchased in December 2024 as well as acquisition-related costs associated with our merger with Bancorp Financial. Partially offsetting the year over year increase was a $270,000 decrease in consulting & management fees, as the prior year included consulting costs for a compliance item.

Current wording

The year over year increase in noninterest expense is primarily attributable to a $15.0 million increase in salaries and employee benefits, primarily due to $8.4 million of change in control, retention, and severance payouts related to the Bancorp Financial acquisition as well as increases in annual base salary rates, officers’ incentives, restricted stock expense, and increased workforce in the third quarter of 2025. Also contributing to the increase was a $1.1 million increase in occupancy, furniture and equipment, a $1.6 million increase in computer and data processing expenses, a $681,000 increase in core deposit intangible, a $2.0 million increase in consulting & management fees, and a $2.4 million increase in other expense primarily due to the effect of the First Merchants branches purchased in December 2024 as well as costs associated with our acquisition of Bancorp Financial.

Previous wording

Noninterest expense for the six months ended June 30, 2025, increased $11.8 million, or 15.5%, compared to the six months ended June 30, 2024, primarily due to a $6.2 million increase in salaries and employee benefits due to forty additional full-time equivalent employees in 2025 related to the FRME branch transaction in December 2024, higher annual base salary rates, restricted stock expense, and deferred employee compensation due to market interest rate changes. Occupancy, furniture and equipment increased $1.2 million and the amortization of core deposit intangibles increased $905,000, both of which were primarily due to the FRME transaction . Computer and data processing increased $601,000, legal fees increased $396,000, and other expense increased $384,000 due to Bancorp Financial acquisition-related costs. Other increases year over year include a $1.9 million increase in other real estate owned, net, related to operating costs, closing costs, and valuation adjustments as we liquidated multiple OREO properties in the six months ended June 30, 2025.

Current wording

Noninterest expense for the nine months ended September 30, 2025, increased $35.7 million, or 30.9%, compared to the nine months ended September 30, 2024, the increase includes $14.5 million of cost related to the branch acquisition and the Bancorp Financial acquisition. The increase is primarily due to a $21.3 million increase in salaries and employee benefits due to $8.4 million of change in control, retention, and severance payouts related to the Bancorp Financial acquisition, as well as higher annual base salary rates, increased workforce, restricted stock expense, and deferred employee compensation due to market interest rate changes. Occupancy, furniture and equipment increased $2.3 million, computer and data processing increased $2.2 million, the amortization of core deposit intangibles increased $1.6 million, consulting & management fees increased $1.8 million, and other expense increased $2.8 million, all of which were primarily due to Bancorp Financial and FRME acquisition related costs. Other increases year over year include a $1.8 million increase in other real estate owned, net, related to operating costs, closing costs, and valuation adjustments as we liquidated multiple OREO properties in the nine months ended September 30, 2025.

Previous wording

We recorded income tax expense of $7.4 million for the second quarter of 2025 on $29.2 million of pretax income, compared to income tax expense of $6.4 million on $26.2 million of pretax income in the first quarter of 2025, and income tax expense of $7.3 million on $29.2 million of pretax income in the second quarter of 2024. Our effective tax rate was 25.3% in the second quarter of 2025, 24.3% for the first quarter of 2025, and 25.0% for the second quarter of 2024.

Current wording

We recorded income tax expense of $3.2 million for the third quarter of 2025 on $13.1 million of pretax income, compared to income tax expense of $7.4 million on $29.2 million of pretax income in the second quarter of 2025, and income tax expense of $6.9 million on $29.9 million of pretax income in the third quarter of 2024. Our effective tax rate was 24.5% in the third quarter of 2025, 25.3% for the second quarter of 2025, and 23.1% for the third quarter of 2024.

Previous wording

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law. The OBBBA extends or makes permanent a number of provisions originally enacted in the 2017 Tax Cuts and Jobs Act and introduces new items affecting both individuals and businesses. Topic 740, Income Taxes, of the FASB Accounting Standards Codification requires the effects of newly enacted tax law to be recognized in the period of enactment. Because enactment occurred after the quarter-end date of June 30, 2025, we are evaluating OBBBA’s impact on our deferred tax assets and liabilities, effective tax rate, and tax-related processes (e.g., payroll reporting for qualifying wage items). Based on preliminary analysis, we do not currently expect the OBBBA to have a material impact on our 2025 estimated annual effective tax rate or on our consolidated financial statements, but our evaluation is ongoing.

Current wording

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law. The OBBBA extends or makes permanent a number of provisions originally enacted in the 2017 Tax Cuts and Jobs Act and introduces new items affecting both individuals and businesses. Topic 740, Income Taxes, of the FASB Accounting Standards Codification requires the effects of newly enacted tax law to be recognized in the period of enactment. We are still evaluating OBBBA’s impact on our deferred tax assets and liabilities, effective tax rate, and tax-related processes (e.g., payroll reporting for qualifying wage items). Based on preliminary analysis, we do not currently expect the OBBBA to have a material impact on our 2025 estimated annual effective tax rate or on our consolidated financial statements, but our evaluation is ongoing.

Previous wording

Total assets increased $51.9 million to $5.70 billion at June 30, 2025, from $5.65 billion at December 31, 2024, due primarily to the increase of $42.4 million in cash, the increase of $16.0 million in securities available-for-sale, and the increase of $17.3 million in total loans. These increases are partially offset by a decrease in OREO of $15.1 million and a decrease in deferred tax assets of $6.2 million. We continue to actively assess potential investment opportunities to utilize our excess liquidity. Total deposits were $4.80 billion at June 30, 2025, an increase of $29.7 million from December 31, 2024.

Current wording

Total assets increased $1.34 billion to $6.99 billion at September 30, 2025, from $5.65 billion at December 31, 2024, due primarily to the increase of $17.2 million in cash and the increase of $1.28 billion in total loans due to portfolio assumed from the Bancorp Financial acquisition. These increases are partially offset by a decrease in OREO of $15.2 million and a decrease in securities available-for-sale of $4.2 million. We continue to actively assess potential investment opportunities to utilize our excess liquidity. Total deposits were $5.76 billion at September 30, 2025, an increase of $991.5 million from December 31, 2024, due to the assumed deposit portfolio from the Bancorp Financial acquisition.

Previous wording

Securities available-for-sale increased $16.0 million as of June 30, 2025, compared to December 31, 2024, and increased $4.0 million compared to June 30, 2024. The increase in the portfolio during year 2025 was driven by $162.5 million in purchases and a $13.9 million decrease to unrealized losses on securities available-for-sale, partially offset by paydowns totaling $83.8 million along with maturities and calls totaling $75.8 million. We continue to position the portfolio in higher credit quality, shorter duration securities with an appropriate mix of fixed- and floating-rate exposures.

Current wording

Securities available-for-sale decreased $4.2 million as of September 30, 2025, compared to December 31, 2024, and decreased $33.4 million compared to September 30, 2024. The decrease in the portfolio during year 2025 was driven by paydowns totaling $124.8 million along with maturities and calls totaling $75.8 million, partially offset by $183.8 million in purchases and a $20.9 million decrease to unrealized losses on securities available-for-sale. We continue to position the portfolio in higher credit quality, shorter duration securities with an appropriate mix of fixed- and floating-rate exposures.

Previous wording

Total loans were $4.00 billion as of June 30, 2025, an increase of $17.3 million from December 31, 2024. The increase in total loans in the first six months of 2025, compared to December 31, 2024, was due primarily to increased originations, net of paydowns, within leases of $32.8 million, commercial real estate - investor of $40.0 million, and construction of $50.0 million, partially offset by net decreases in commercial of $81.5 million, commercial real estate – owner occupied of $30.8 million, and multifamily of $17.5 million. Total loans increased $22.1 million compared to June 30, 2024, primarily due to originations, net of paydowns, within leases of $71.6 million, commercial real estate – investor of $104.4 million, and construction of $66.1 million, partially offset by net decreases in commercial of $90.5 million, commercial real estate – owner occupied of $93.5 million, and multifamily of $55.0 million. As required by CECL, the balance (or amortized cost basis) of purchased credit deteriorated loans, or PCD loans (discussed below) is carried on a gross basis, rather than net of the associated credit loss estimate, and the expected credit losses for PCD loans are estimated and separately recognized as part of the allowance for credit losses, or ACL.

Current wording

Total loans were $5.27 billion as of September 30, 2025, an increase of $1.28 billion from December 31, 2024. The increase in total loans in the first nine months of 2025, compared to December 31, 2024, was primarily due to the $1.19 billion portfolio acquired from Bancorp Financial which significantly expanded our consumer lending and added the powersport classification. Excluding the acquisition, the Bank achieved organic loan growth, net of paydowns, of $89.0 million, comprised of leases, commercial real estate – investor, and residential real estate – owner occupied, partially offset by net decreases in commercial, commercial real estate – owner occupied, and construction. Total loans increased $1.27 billion compared to September 30, 2024, was primarily due to the $1.19 billion portfolio acquired from Bancorp Financial. Excluding the acquisition, the Bank achieved organic loan growth, net of paydowns, of $79.9 million, comprised of leases, commercial real estate – investor and residential real estate – owner occupied, partially offset by net decreases in commercial, commercial real estate – owner occupied, and construction. As required by CECL, the balance (or amortized cost basis) of purchased credit deteriorated loans, or PCD loans (discussed below) is carried on a gross basis, rather than net of the associated credit loss estimate, and the expected credit losses for PCD loans are estimated and separately recognized as part of the allowance for credit losses, or ACL.

Previous wording

The quality of our loan portfolio is impacted not only by our credit decisions but also by the economic health of the communities in which we operate. Since we are located in a corridor with significant open space and undeveloped real estate, real estate lending (including commercial real estate, construction, residential, multifamily, and HELOCs) has been and continues to be a sizeable portion of our portfolio. These categories comprised 68.5% of the portfolio as of June 30, 2025, compared to 67.2% of the portfolio as of December 31, 2024. At June 30, 2025, our outstanding commercial real estate loans and undrawn commercial real estate commitments, excluding owner occupied real estate, were equal to 267.7% of our Tier 1 capital plus allowance for credit losses, a decrease from 273.3% at December 31, 2024. We continue to oversee and seek to manage our loan portfolio in accordance with interagency guidance on risk management.

Current wording

The quality of our loan portfolio is impacted not only by our credit decisions but also by the economic health of the communities in which we operate. Since we are located in a corridor with significant open space and undeveloped real estate, real estate lending (including commercial real estate, construction, residential, multifamily, and HELOCs) has been and continues to be a sizeable portion of our portfolio. These categories comprised 57.5% of the portfolio as of September 30, 2025, compared to 67.2% of the portfolio as of December 31, 2024. At September 30, 2025, our outstanding commercial real estate loans and undrawn commercial real estate commitments, excluding owner occupied real estate, were equal to 232.3% of our Tier 1 capital plus allowance for credit losses, a decrease from 273.3% at December 31, 2024. We continue to oversee and seek to manage our loan portfolio in accordance with interagency guidance on risk management.

Previous wording

Nonperforming loans consist of nonaccrual loans and loans 90 days or greater past due. Nonperforming loans increased by $2.0 million to $32.2 million at June 30, 2025, from $30.3 million at December 31, 2024, and decreased by $14.6 million from $46.9 million at June 30, 2024. Purchased credit deteriorated loans, or PCD loans, are purchased loans that, as of the date of acquisition, we determined had experienced a more-than-insignificant deterioration in credit quality since origination. PCD loans and their related deferred loan costs are included in our nonperforming loan disclosures, if such loans otherwise meet the definition of a nonperforming loan. Management continues to carefully monitor loans considered to be in a classified status. Nonperforming loans as a percent of total loans were 0.8% as of both June 30, 2025, and December 31, 2024, and 1.2% as of June 30, 2024. The distribution of our nonperforming loans is shown in the following table.

Current wording

Nonperforming loans consist of nonaccrual loans and loans 90 days or greater past due. Nonperforming loans increased by $17.7 million to $48.0 million at September 30, 2025, from $30.3 million at December 31, 2024, and decreased by $4.3 million from $52.3 million at September 30, 2024. The increase of Nonperforming loans in the first nine months is driven by additions of two larger relationships. One relationship in commercial real estate – owner occupied is in the process of being renewed and both relationships are well positioned in a collateral perspective. Purchased credit deteriorated loans, or PCD loans, are purchased loans that, as of the date of acquisition, we determined had experienced a more-than-insignificant deterioration in credit quality since origination. PCD loans are included in our nonperforming loan disclosures, if such loans otherwise meet the definition of a nonperforming loan. Management continues to carefully monitor loans considered to be in a classified status. Nonperforming loans as a percent of total loans were 0.9% as of September 30, 2025, 0.8% as of December 31, 2024, and 1.3% as of September 30, 2024. The distribution of our nonperforming loans is shown in the following table.

Previous wording

Loan charge-offs, net of recoveries, for the second quarter of 2025, prior linked quarter and year over year quarter are shown in the following table.

Current wording

Loan charge-offs, net of recoveries, for the third quarter of 2025, prior linked quarter and year over year quarter are shown in the following table:

Previous wording

Net charge offs, reported in the above table, reflect continuing management attention to credit quality and remediation efforts. The net charge offs for the second quarter of 2025 were primarily due to a $1.1 million charge off on a large commercial loan. We have continued our conservative loan valuations and aggressive recovery efforts on prior charge-offs.

Current wording

Net charge offs, reported in the above table, reflect continuing management attention to credit quality and remediation efforts. Increased charge off rates from previous quarters are due to the addition of powersport loans. Powersport loans are measured for asset quality at origination based on FICO scores, then based on past due status through the life of the loan, and charge off occurs once a loan is past due 120 days. The gross charge offs for the third quarter of 2025 were primarily due to powersport loans of $3.7 million and $848,000 on two lease relationships. The increase to net charge offs in powersport and other are primarily related to loans identified as PCD at the acquisition date. We have continued our conservative loan valuations and aggressive recovery efforts on prior charge-offs.

Previous wording

The following table shows classified assets by segment for the following periods.

Current wording

The following table shows classified assets by classification for the following periods:

Previous wording

Total classified loans increased $5.6 million and classified assets decreased $9.8 million as of June 30, 2025, from December 31, 2024, respectively. The increase in classified loans since December 31, 2024, is due to additions to classified loans of $36.5 million, offset by outflows of $30.9 million which consisted of $11.9 million of loans paid off, $6.6 million of classified loans upgraded, $5.9 million of principal reductions through payments and partial charge offs, $1.5 million of loans charged off, and $5.0 million transferred into OREO. Classified assets decreased primarily due to the OREO outflows of $19.5 million on four OREO sales during the first six months of 2025. The $25.0 million decrease in classified assets compared to June 30, 2024, is primarily due to a classified loan decrease of $24.8 million. Classified loans since June 30, 2024, had outflows of $114.4 million which consisted of $41.9 million of loans paid off, $33.6 million of classified loans upgraded, $1.6 million of loans charged off, $18.8 million of net principal reductions and partial charge offs, and $19.2 million transferred to OREO. The outflows are offset by additions of $89.6 million of loans from June 30, 2024. Management monitors a ratio of classified assets to the sum of Bank Tier 1 capital and the ACL on loans as another measure of overall change in loan related asset quality, which is referred to as the “classified assets ratio.” The classified assets ratio was 14.91% for the period ended June 30, 2025, compared to 17.45% as of December 31, 2024, and 18.98% as of June 30, 2024.

Current wording

Total classified loans increased $42.3 million and $21.4 million as of September 30, 2025, from December 31, 2024, and September 30, 2025, respectively. The increase in classified loans since December 31, 2024, is due to additions to classified loans of $99.4 million, offset by outflows of $57.1 million which consisted of $26.0 million of loans paid off, $15.5 million of classified loans upgraded, $7.1 million of principal reductions through payments and partial charge offs, $2.5 million of loans charged off, $5.0 million transferred into OREO, and $1.0 million repossessed. Classified assets increased primarily due to the increases to classified loans and is offset by net OREO outflows of $15.2 million, which was driven on four OREO sales during the first nine months of 2025. The $21.7 million increase in classified assets compared to September 30, 2024, is primarily due to a classified loan increase of $21.4 million. Classified loans since September 30, 2024, had outflows of $95.3 million which consisted of $35.4 million of loans paid off, $21.6 million of classified loans upgraded, $2.5 million of loans charged off, $17.5 million of net principal reductions and partial charge offs, and $18.0 million transferred to OREO. The outflows are offset by additions of $116.7 million of loans from September 30, 2024. Management monitors a ratio of classified assets to the sum of Bank Tier 1 capital and the ACL on loans as another measure of overall change in loan related asset quality, which is referred to as the “classified assets ratio.” The classified assets ratio was 16.55% for the period ended September 30, 2025, compared to 17.45% as of December 31, 2024, and 17.71% as of September 30, 2024.

Previous wording

At June 30, 2025, our ACL on loans totaled $43.0 million, and our ACL on unfunded commitments, included in other liabilities, totaled $2.3 million. In the second quarter of 2025, we recorded provision expense on loans of $2.2 million, primarily due to credit migration to special mention or worse in commercial and commercial real estate segments, which led to higher loss rates in the pooled loan segments. One large commercial charge off in the amount of $1.1 million makes up the majority of second quarter total. This amount was already reserved for as of March 31, 2025, as a specific allocation. Further, we recorded a $277,000 provision on unfunded commitments, primarily due to an adjustment of historical benchmark assumptions, such as funding rates and the period used to forecast those rates, within the ACL calculation. These adjustments resulted in a $2.5 million net impact to the provision for credit losses for the second quarter of 2025.

Current wording

At September 30, 2025, our ACL on loans totaled $75.0 million, and our ACL on unfunded commitments, included in other liabilities, totaled $2.3 million. In relation to the acquisition, we recorded a Day One purchase accounting credit mark of $17.5 million and a Day Two non-PCD provision expense of $13.2 million based on our assessment of the acquired loans. In the third quarter of 2025, we recorded provision expense on loans of $19.7 million, primarily due to the Day Two non-PCD provision expense and a $6.5 million provision for credit losses on loans. The provision on credits losses were due to the inclusion of the powersport loan portfolio and related current period charge-offs, as well as two large downgrades to standards in commercial that has resulted in higher pooled loss rates. We expect a run rate of approximately $3.0 million in net charge offs each quarter from our acquisition of Bancorp Financial. Further, we recorded a $38,000 provision on unfunded commitments, primarily due to an adjustment of historical benchmark assumptions, such as funding rates and the period used to forecast those rates, within the ACL calculation. These adjustments resulted in a $6.5 million net impact to the provision for credit losses for the third quarter of 2025.

Previous wording

Management estimates the amount of provision required on a quarterly basis and records the appropriate provision expense, or release of expense, to maintain an adequate reserve for all potential and estimated credit losses on loans, leases and unfunded commitments. The ACL on loans totaled $43.0 million as of June 30, 2025, $43.6 million as of December 31, 2024, and $42.3 million as of June 30, 2024. Our ACL on loans to total loans was 1.08% as of June 30, 2025, 1.10% as of December 31, 2024, and 1.06% as of June 30, 2024. See Item 7 –* Critical Accounting Estimates*in the Management Discussion and Analysis in our 2024 Annual Report in Form 10-K for discussion of our ACL methodology on loans. Allocations of the ACL may be made for specific loans, but the entire allowance is available for any loan that, in our judgment, should be charged-off.

Current wording

Management estimates the amount of provision required on a quarterly basis and records the appropriate provision expense, or release of expense, to maintain an adequate reserve for all potential and estimated credit losses on loans, leases and unfunded commitments. The ACL on loans totaled $75.0 million as of September 30, 2025, $43.6 million as of December 31, 2024, and $44.4 million as of September 30, 2024. Our ACL on loans to total loans was 1.4% as of September 30, 2025, and 1.1% as of December 31, 2024, and September 30, 2024. See Item 7 –* Critical Accounting Estimates*in the Management Discussion and Analysis in our 2024 Annual Report in Form 10-K for discussion of our ACL methodology on loans. Allocations of the ACL may be made for specific loans, but the entire allowance is available for any loan that, in our judgment, should be charged-off.

Previous wording

The coverage ratio of the ACL on loans to nonperforming loans was 133.3% as of June 30, 2025, which was an increase from the coverage ratio of 119.4% as of March 31, 2025, and an increase from 90.2% as of June 30, 2024. Net charge-offs to average loans have remained relatively stable over the past year, at 0.08% for the quarter ended June 30, 2025, 0.45% for the quarter ended March 31, 2025, and 0.59% for the quarter ended June 30, 2024.

Current wording

The coverage ratio of the ACL on loans to nonperforming loans was 156.4% as of September 30, 2025, which was an increase from the coverage ratio of 133.3% as of June 30, 2025, and an increase from 85.0% as of September 30, 2024. Net charge-offs to average loans increased in the current quarter though remaining manageable, at 0.39% for the quarter ended September 30, 2025, compared to 0.08% for the quarter ended June 30, 2025, and (0.02%) for the quarter ended September 30, 2024.

Previous wording

As of June 30, 2025, OREO totaled $6.5 million, reflecting a decrease of $15.1 million from $21.6 million at December 31, 2024, and a decrease of $434,000 from $6.9 million at June 30, 2024. There were two property sales totaling $1.2 million during the second quarter of 2025. Valuation write-downs of $157,000 were recorded related to adjustments for updated appraisals on properties held. Valuation write-downs totaling $1.8 million occurred in the fourth quarter of 2024 and there were no valuation adjustments in the second quarter of 2024.

Current wording

As of September 30, 2025, OREO totaled $6.4 million, reflecting a decrease of $15.2 million from $21.6 million at December 31, 2024, and a decrease of $1.8 million from $8.2 million at September 30, 2024. There were no property sales during the third quarter. A valuation adjustment of $70,000 was recorded to on a property to bring the book value to contract value less cost to sell. Valuation write-downs totaling $1.8 million occurred in the fourth quarter of 2024, and there were no valuation adjustments in the third quarter of 2024.

Previous wording

Total deposits were $4.80 billion at June 30, 2025, which reflects a $29.7 million increase from total deposits of $4.77 billion at December 31, 2024, and an increase of $276.7 million from total deposits of $4.52 billion at June 30, 2024. The increase in deposits at June 30, 2025, compared to December 31, 2024, was primarily due to increases in NOW accounts of $19.2 million and money market accounts of $68.7 million. These increases were partially offset by a decrease of $54.6 million in time deposits. The increase in deposits at June 30, 2025, compared to June 30, 2024, stemmed from both the FRME branch acquisition and legacy deposit account seasonal increases, and was primarily related to increases in savings accounts of $20.6 million, NOW accounts of $83.1 million, money market accounts of $135.1 million, and time deposits of $62.3 million, partially offset by a decrease in noninterest bearing deposits of $24.4 million. Total quarterly average deposits increased $274.0 million, or 6.0%, in the year over year period, driven by an increase in average money market accounts of $141.6 million, time deposits of $85.2 million, and NOW accounts of $82.8 million, which was partially offset by a decrease in average noninterest bearing deposits of $40.3 million. The overall increase in quarterly average deposits for the year over year period was primarily due to the acquisition of the FRME branches.

Current wording

Total deposits were $5.76 billion at September 30, 2025, which reflects a $991.5 million increase from total deposits of $4.77 billion at December 31, 2024, and an increase of $1.29 billion from total deposits of $4.47 billion at September 30, 2024. The increase in deposits at September 30, 2025, compared to December 31, 2024, was primarily due to increases in noninterest bearing deposits of $33.1 million, savings accounts of $210.7 million, NOW accounts of $40.2 million, money market accounts of $197.9 million, and time deposits of $509.6 million. The increase in deposits at September 30, 2025, compared to September 30, 2024, stemmed primarily from both the FRME branch acquisition and Bancorp Financial acquisition, and was related to increases in noninterest bearing deposits of $69.0 million, savings accounts of $257.0 million, NOW accounts of $112.7 million, money market accounts of $268.6 million, and time deposits of $587.5 million. Total quarterly average deposits increased $1.44 billion, or 32.2%, in the year over year period, driven by an increase in average time deposits of 695.8 million, NOW accounts of $114.5 million, money market accounts of $261.6 million, savings accounts of $279.9 million and noninterest bearing deposits of $90.7 million. The overall increase in quarterly average deposits for the year over year period was primarily due to the acquisition of Bancorp Financial. Included in our quarterly average time deposits are $96.9 million of brokered deposits compared to none at September 30, 2024. The brokered deposits were assumed in the acquisition of Bancorp Financial; these deposits will run-off by 2027.