OLD SECOND BANCORP INC

Previous wording

The following discussion provides additional information regarding our operations for the three and six months ended June 30, 2026, compared to the three and six months ended June 30, 2025, and our financial condition at June 30, 2026, compared to December 31, 2025. 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, 2025. The results of operations for the three and six months ended June 30, 2026 are not necessarily indicative of future results. Dollar amounts presented in the following tables are in thousands, except per share data, and June 30, 2026 and 2025 amounts are unaudited. Certain items in prior periods have been reclassified to conform to the current presentation.

Current wording

The following discussion provides additional information regarding our operations for the three and nine months ended September 30, 2026, compared to the three and nine months ended September 30, 2025, as well as our operations for the three months ended September 30, 2026, compared to the three months ended June 30, 2026. The following discussion also provides additional information regarding our financial condition at September 30, 2026, compared to December 31, 2025. 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, 2025. The results of operations for the three and nine months ended September 30, 2026 are not necessarily indicative of future results. Dollar amounts presented in the following tables are in thousands, except per share data, and September 30, 2026 and 2025 amounts are unaudited. Certain items in prior periods have been reclassified to conform to the current presentation.

Previous wording

We have made, and will continue to make, various forward-looking statements with respect to financial and business matters. Comments regarding our business that are not historical facts are considered forward-looking statements that involve inherent risks and uncertainties. Actual results may differ materially from those contained in these forward-looking statements. For additional information regarding our cautionary disclosures, see the “Cautionary Note Regarding Forward-Looking Statements” on page 3 of this report.

Current wording

We have made, and will continue to make, various forward-looking statements with respect to financial and business matters. Comments regarding our business that are not historical facts are considered forward-looking statements that involve inherent risks and uncertainties. Actual results may differ materially from those contained in these forward-looking statements. For additional information regarding our cautionary disclosures, see the “Cautionary Note Regarding Forward-Looking Statements” in this report.

Previous wording

Net income for the second quarter of 2026 was $28.2 million, or $0.54 per diluted share, compared to $25.6 million, or $0.48 per diluted share, for the first quarter of 2026, and $21.8 million, or $0.48 per diluted share, for the second quarter of 2025. Net income increased compared to the prior year like quarter, primarily due to the Bancorp Financial acquisition and the related growth in net interest income. Variances in the year over year period included an increase of $26.0 million in interest and dividend income and a $2.4 million increase in noninterest income, partially offset by a $6.9 million increase in interest expense, a $5.0 million increase in provision for credit losses, a $7.8 million increase in noninterest expense, and a $2.3 million increase in provision for income taxes. Net income in the second quarter of 2026 was negatively impacted by provision for credit losses of $7.5 million, compared to $9.5 million and $2.5 million recorded in the first quarter of 2026 and second quarter of 2025, respectively. Adjusted net income, a non-GAAP financial measure that excludes mortgage servicing rights mark to market gains or losses, net securities gains or losses, and acquisition related costs, net of gains on branch sales, as applicable, was $28.7 million for the second quarter of 2026, compared to $26.0 million for the first quarter of 2026, and $22.8 million for the second quarter of 2025.

Current wording

Net income for the third quarter of 2026 was $28.9 million, or $0.56 per diluted share, compared to $28.2 million, or $0.54 per diluted share, for the second quarter of 2026, and $9.9 million, or $0.18 per diluted share, for the third quarter of 2025. Net income increased compared to the prior year like quarter, primarily due to the absence of acquisition related expense, and the Day Two non-PCD provision recorded in connection with the Bancorp Financial acquisition in the 2025 period. Variances in the year over year period included a decrease of $3.3 million in interest expense, a decrease of $12.9 million in provision for credit losses, and a decrease of $11.5 million in noninterest expense, partially offset by a $2.0 million decrease in interest and dividend income and a $6.6 million increase in provision for income taxes. Net income in the third quarter of 2026 was negatively impacted by provision for credit losses of $6.8 million, compared to $7.5 million and $19.7 million recorded in the second quarter of 2026 and third quarter of 2025, respectively. The $19.7 million recorded in the third quarter of 2025 was due to purchase accounting adjustments and the Day Two non-PCD provision for loan losses recorded of $13.2 million. Adjusted net income, a non-GAAP financial measure that excludes mortgage servicing rights mark to market gains or losses, net securities gains or losses, and acquisition related costs, net of gains on branch sales, as applicable, was $28.5 million for the third quarter of 2026, compared to $28.7 million for the second quarter of 2026, and $28.4 million for the third quarter of 2025.

Previous wording

See the discussion entitled “Non-GAAP Financial Measures” on page 47, as well as the table below, which provides a reconciliation of this non-GAAP measure to the most comparable GAAP equivalents:

Current wording

See the discussion entitled “Non-GAAP Financial Measures” below, as well as the table below, which provides a reconciliation of this non-GAAP measure to the most comparable GAAP equivalents:

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, 2025. 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 2025 Annual Report 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, 2025. 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 2025 Annual Report on Form 10-K.

Previous wording

Our income before taxes was $37.8 million in the second quarter of 2026, compared to $29.2 million in the second quarter of 2025. Net interest and dividend income increased $19.1 million, and provision for credit losses increased $5.0 million in the second quarter of 2026, compared to the like 2025 quarter. Income before taxes was also affected by a $2.4 million increase in noninterest income and a $7.8 million increase in noninterest expense. The noninterest expense increase of $7.8 million is primarily due to a $3.2 million increase in salary and employee benefits expense primarily attributable to the additional employees retained in the Bancorp Financial acquisition as well as increases in stock comp expense, payroll taxes, 401(k) expense, and deferred compensation expense. Also contributing to the increase in noninterest expense was a $641,000 increase in occupancy, furniture and equipment, a $525,000 increase in computer and data processing, a $1.7 million increase in consumer credit expense, and a $1.3 million increase in other expenses, which were all primarily driven by the additional operations assumed from the Bancorp Financial acquisition. Total acquisition costs of $526,000 were recorded as a result of the Bancorp Financial acquisition during the three months ended June 30, 2026. Our net income was $28.2 million, or $0.54 per diluted share, for the second quarter of 2026, compared to net income of $21.8 million, or $0.48 per diluted share, for the second quarter of 2025. The Bank remains well positioned to navigate uncertain macroeconomic conditions. 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 $38.7 million in the third quarter of 2026, compared to $13.1 million in the third quarter of 2025. Net interest and dividend income increased $1.3 million, and provision for credit losses decreased $12.9 million in the third quarter of 2026, compared to the like 2025 quarter. Noninterest income decreased nominally while noninterest expense declined $11.5 million. The noninterest expense decrease of $11.5 million is primarily due to an $8.9 million decrease in salary and employee benefits expense primarily attributable to Bancorp Financial acquisition related costs for change in control, retention and severance payments. Also contributing to the decrease in noninterest expense was a $744,000 decrease in computer and data processing, a $1.7 million decrease in professional fees, and a $343,000 decrease in other expenses, which were all primarily driven by the Bancorp Financial acquisition costs that were recorded in the third quarter of 2025. Our net income was $28.9 million, or $0.56 per diluted share, for the third quarter of 2026, compared to net income of $9.9 million, or $0.18 per diluted share, for the third quarter of 2025. We continue to monitor macroeconomic conditions, interest rate risk, expense levels, and daily liquidity.

Previous wording

Our income before taxes was $71.9 million for the six months ended June 30, 2026, compared to $55.4 million for the six months ended June 30, 2025. This increase in pretax income was primarily due to a $37.3 million increase in net interest and dividend income and a $4.8 million increase in noninterest income. These changes were partially offset by a $12.1 million increase in provision for credit losses, a $13.5 million increase in noninterest expense, and a $4.4 million increase in provision for income taxes. Our net income was $53.8 million, or $1.02 per diluted share, for the six months ended June 30, 2026, compared to net income of $41.7 million, or $0.91 per diluted share, for the same period of 2025.

Current wording

Our income before taxes was $110.6 million for the nine months ended September 30, 2026, compared to $68.5 million for the nine months ended September 30, 2025. This increase in pretax income was primarily due to a $38.6 million increase in net interest and dividend income, an $803,000 decrease in provision for credit losses, and a $4.8 million increase in noninterest income, partially offset by a $2.0 million increase in noninterest expense. Provision for income taxes increased $11.0 million. Our net income was $82.7 million, or $1.58 per diluted share, for the nine months ended September 30, 2026, compared to net income of $51.5 million, or $1.06 per diluted share, for the same period of 2025.

Previous wording

Net interest and dividend income was $164.5 million for the six months ended June 30, 2026, compared to $127.1 million for the same period of 2025. The $37.3 million increase was primarily driven by an increase in loan related income and fees of $53.4 million due to the loan portfolio acquired from Bancorp Financial. Partially offsetting the increase in net interest and dividend income was an increase of $13.4 million in interest expense in the first six months of 2026, compared to the first six months of 2025, driven by an increase in deposit costs due to the deposits assumed in the Bancorp Financial acquisition. Also contributing to the rise in interest expense was an increase in other short-term borrowings expense due to a higher FHLB advance volume based on liquidity needs in the 2026 period.

Current wording

Net interest and dividend income was $248.5 million for the nine months ended September 30, 2026, compared to $209.9 million for the same period of 2025. The $38.6 million increase was primarily driven by an increase in loan related income and fees of $53.5 million primarily due to the loan portfolio acquired from Bancorp Financial, as well as a rise in market interest rates. Partially offsetting the increase in net interest and dividend income was an increase of $10.1 million in interest expense in the first nine months of 2026, compared to the first nine months of 2025, driven by an increase in deposit costs due to the deposits assumed in the Bancorp Financial acquisition and an increasing rate environment. Also contributing to the rise in interest expense was an increase in other short-term borrowings expense due to a higher FHLBC advance volume based on liquidity needs in the 2026 period, as total deposits have declined $432.7 million year over year as of September 30, 2026.

Previous wording

Net interest and dividend income was $83.3 million in the second quarter of 2026, compared to $64.2 million in the second quarter of 2025. The $19.1 million increase was driven by an increase in interest income, primarily related to the powersport loan portfolio recorded due to the acquisition of Bancorp Financial. A net increase of $6.9 million in interest expense in the second quarter of 2026 negatively impacted net interest and dividend income compared to the second quarter of 2025, driven by the higher cost deposits assumed from Bancorp Financial, and increased short-term borrowing balances driven by the liquidity needed to fund the Bancorp Financial acquisition.

Current wording

Net interest and dividend income was $84.0 million in the third quarter of 2026, compared to $82.8 million in the third quarter of 2025. The $1.3 million increase was driven by a decrease of $3.3 million in interest expenses in the third quarter of 2026 driven by lower deposit costs on decreased average balances, primarily related to time deposits, partially offset by increased short-term borrowing costs due to higher average FHLBC advance balances based on liquidity needs. A net decrease of $2.0 million in interest income in the third quarter of 2026 negatively impacted net interest and dividend income compared to the third quarter of 2025, driven by a decrease in securities income due to paydowns and maturities coupled with market rate changes. Loan interest income was effectively flat relative to the prior year like quarter.

Previous wording

The year over year yield increase of 66 basis points on interest earning assets was primarily driven by higher loan balances and higher yielding consumer credits and related accretion on the acquired Bancorp Financial portfolio, partially offset by a slight decline on investment yields. Average balances of loans and loans held for sale increased $1.26 billion in the second quarter of 2026 compared to the prior year like quarter, with a corresponding increase to the tax equivalent yield on the loan portfolio of 63 basis points year over year due to loan portfolios acquired from Bancorp Financial. Average balances of securities available for sale decreased $94.1 million in the second quarter of 2026 compared to the prior year like quarter, and showed a decrease to the tax equivalent yield on the securities available for sale portfolio of three basis points year over year.

Current wording

The year over year yield increase of 6 basis points on interest earning assets was primarily driven by higher FHLBC and FRBC dividend yields. Average balances of loans and loans held for sale increased $9.8 million in the third quarter of 2026 compared to the prior year like quarter, but showed a nominal decrease to the tax equivalent yield on the loan portfolio of 1 basis point year over year. Average balances of securities available for sale decreased $144.8 million in the third quarter of 2026 compared to the prior year like quarter, and showed a decrease to the tax equivalent yield on the securities available for sale portfolio of nine basis points year over year.

Previous wording

The cost of interest bearing deposits increased 17 basis points for the quarter ended June 30, 2026, from 130 basis points for the quarter ended June 30, 2025. A 37-basis point increase in the cost of savings accounts drove a significant portion of the overall increase from the prior year like quarter, primarily due to the higher rate deposit accounts assumed in the Bancorp Financial acquisition. In addition, average time deposits increased $272.5 million due to the Bancorp Financial acquisition; both higher average balances and higher rates offered by Bancorp Financial resulted in a $1.7 million increase in time deposit interest expense. We will continue to control the cost of funds by monitoring market activity as well as allowing previously exception-priced deposits and the brokered CDs acquired from Bancorp Financial to runoff naturally.

Current wording

The cost of interest bearing deposits decreased 42 basis points for the quarter ended September 30, 2026, from 191 basis points for the quarter ended September 30, 2025. A 69-basis point decrease in the cost of time deposits drove a significant portion of the overall decrease from the prior year like quarter, primarily due to the decrease in average time deposits of $442.2 million as higher rate brokered CDs and other exception-priced time deposits, including those from the Bancorp Financial acquisition, have rolled off. In addition, money market and savings accounts reflected decreases of 13 basis points and 26 basis points, respectively. We will continue to control the cost of funds by monitoring market activity as well as allowing previously mentioned exception-priced deposits and the brokered CDs acquired from Bancorp Financial to runoff naturally.

Previous wording

The increase of $312.8 million year over year of average FHLB advances was based on daily liquidity needs due to the changes in the funding mix in part due to necessary use of cash on the Bancorp Financial acquisition and was the primary driver of the $3.0 million increase to interest expense on other short-term borrowings. The elevated short-term borrowings balance is anticipated to continue, assuming continued loan growth and securities reinvestment. The increase of $14.8 million year over year of average notes payable and other borrowings was due to the FHLB long-term putable advances assumed in the Bancorp Financial acquisition and was the reason for the $156,000 increase to interest expense on notes payable and other borrowings. The $25.1 million decrease in average subordinated debt was due to the $30.0 million partial redemption in the second quarter of 2026, which reduced the prior $60.0 million principal balance then outstanding. The subordinated debt changed from a fixed to floating rate; in addition, debt issuance costs of $213,000 were accelerated, resulting in a $129,000 increase in interest expense on a lower average balance. Junior subordinated debt interest expense was essentially flat over each of the periods presented.

Current wording

The increase of $295.4 million year over year of average FHLBC advances was based on daily liquidity needs and was the primary driver of the $2.8 million increase to interest expense on other short-term borrowings. The elevated short-term borrowings balance is anticipated to continue, assuming continued loan growth and securities reinvestment. The decrease of $868,000 year over year of average notes payable and other borrowings was due to a $5.0 million option on FHLBC long-term putable advances assumed in the Bancorp Financial acquisition being exercised during the third quarter of 2026. This led to a $22,000 increase to interest expense on notes payable and other borrowings as $31,000 of additional expense was recorded in the quarter from the remaining purchase accounting adjustments (“PAA”) on the exercised debt. The $29.7 million decrease in average subordinated debt was due to the $30.0 million partial redemption in the second quarter of 2026, which reduced the prior $60.0 million principal balance then outstanding. Junior subordinated debt interest expense was essentially flat over each of the periods presented.

Previous wording

The increased yield of 11 basis points on interest earning assets for the three months ended June 30, 2026 as compared to the linked period was primarily driven by the increased yields on loans and securities. 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 6 basis points on interest earning assets for the three months ended September 30, 2026 as compared to the linked period was primarily driven by the increased yields on loans and dividends from the FHLBC and FRBC. Total average interest earning assets decreased $68.4 million in the third quarter of 2026, compared to the prior linked quarter, driven by a $74.9 million reduction in securities available-for-sale. 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

Average balances of interest bearing deposit accounts have decreased $81.7 million since the first quarter of 2026 through the second quarter of 2026, from $3.83 billion to $3.74 billion. The decrease is driven by a $94.2 million decrease in time deposits as exception priced deposits, mainly time deposits, and brokered deposits from the Bancorp Financial acquisition, run off, partially offset by a $19.8 million increase in lower cost NOW accounts. The significant time deposit average balance decrease led to the $1.0 million decrease in time deposit costs, compared to the prior linked quarter, which accounted for a large majority of the $653,000 total decrease in deposit interest expense, as all other deposit category interest costs increased. As a result, time deposits were the primary driver in the decrease in the costs of interest bearing deposits from 152 basis points for the quarter ended March 31, 2026, to 147 basis points for the quarter ended June 30, 2026.

Current wording

Average balances of interest bearing deposit accounts have decreased $55.5 million since the second quarter of 2026 through the third quarter of 2026, from $3.74 billion to $3.69 billion. The decrease is driven by a $63.2 million decrease in time deposits as exception priced deposits run off, and a $10.4 million decrease in savings accounts. Partially offsetting the decrease in average balances of interest bearing deposit accounts was a $4.5 million increase in lower cost NOW accounts and a $13.7 million increase in money market accounts. The significant decline in time deposit average balances led to the $442,000 decrease in time deposit interest expense, compared to the prior linked quarter, which mitigated the net $151,000 total increase in deposit interest expense, as all other deposit category interest costs increased. As a result, NOW, money market, and savings deposits were the primary drivers in the increase in the costs of interest bearing deposits from 147 basis points for the quarter ended June 30, 2026, to 149 basis points for the quarter ended September 30, 2026.

Previous wording

Borrowing costs increased in the second quarter of 2026, compared to the first quarter of 2026. Changes in our borrowing costs are generally driven by fluctuations in balance and related rates on other short-term borrowings, which are overnight FHLB advances; these fluctuations are based on the daily liquidity needs during the period. The increase in borrowing expense over the prior linked period was primarily due to the $123.7 million increase in average balance of other short-term borrowings and the resulting increase in interest expense. Also contributing to the increase in interest expense was the subordinated debt changing from a fixed to floating rate and the acceleration of debt issuance costs of $213,000 due to the partial redemption, resulting in a net $129,000 increase to subordinated debt interest expense quarter over linked quarter.

Current wording

Borrowing costs increased in the third quarter of 2026, compared to the second quarter of 2026. Changes in our borrowing costs are generally driven by fluctuations in balances and related rates on other short-term borrowings, which are overnight FHLBC advances; these fluctuations are based on the daily liquidity needs during the period. The increase in borrowing expense over the prior linked period was primarily due to the $8.6 million increase in average balance of other short-term borrowings and the resulting increase in interest expense. Partially offsetting the increase in borrowing costs was a $133,000 decrease in subordinated debt interest expense as the partial redemption of subordinated debt occurred in the second quarter of 2026 and resulted in the acceleration of debt issuance costs of $213,000.

Previous 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 discussed above. Our net interest margin (GAAP) increased nine basis points to 5.21% for the second quarter of 2026, compared to 5.12% for the first quarter of 2026. Our net interest margin (TE) increased nine basis points to 5.23% for the second quarter of 2026, compared to 5.14% for the first quarter of 2026. The increase in net interest margin for the second quarter of 2026, compared to the prior linked quarter, was driven by the increase in yields on loans and loans held for sale, partially offset by an increase in the cost of interest bearing liabilities. See the discussion entitled “Non-GAAP Financial Measures,” above, and the table on page 53 that provides 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 slight growth over the prior linked quarter, as discussed above. Our net interest margin (GAAP) increased four basis points to 5.25% for the third quarter of 2026, compared to 5.21% for the second quarter of 2026. Our net interest margin (TE) increased four basis points to 5.27% for the third quarter of 2026, compared to 5.23% for the second quarter of 2026. The increase in net interest margin for the third quarter of 2026, compared to the prior linked quarter, was driven by the increase in yields on loans and loans held for sale and dividends from the FHLBC and FRBC, partially offset by a nominal increase in the cost of interest bearing liabilities. See the discussion entitled “Non-GAAP Financial Measures,” above, and the table under “Reconciliation of Tax-Equivalent (TE) Non-GAAP Financial Measures” that provides a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

Previous wording

The year over year increase of 60 basis points on interest earning assets was primarily driven by increased yields on loans and loans held for sale due to the Bancorp Financial acquisition. Average securities available-for-sale decreased $80.0 million for the six months ended June 30, 2026, compared to the six months ended June 30, 2025, due to maturities, calls, and paydowns during the year over year period. Due to market interest rate increases year over year, securities available-for-sale interest income yields were nominally higher in the six months ended June 30, 2026, but lower average balances led to an overall decrease in securities income to $20.9 million for the six months ended June 30, 2026, compared to $22.3 million for the like 2025 period. Average loans, including loans held for sale, increased $1.26 billion in the six months ended June 30, 2026, compared to the six months ended June 30, 2025, due to the Bancorp Financial acquisition. Increased loan yields and higher average balances resulted in $177.1 million of loan interest income in the six months ended June 30, 2026, compared to $123.6 million in the like 2025 period.

Current wording

The year over year increase of 38 basis points on interest earning assets was primarily driven by increased yields on loans and loans held for sale due to the Bancorp Financial acquisition in July 2025. Average securities available-for-sale decreased $101.8 million for the nine months ended September 30, 2026, compared to the nine months ended September 30, 2025, due to maturities, calls, and paydowns, net of purchases, during the year over year period. Due to market interest rate changes year over year, securities available-for-sale interest income yields were nominally lower in the nine months ended September 30, 2026, and lower average balances led to an overall decrease in securities income to $30.7 million for the nine months ended September 30, 2026, compared to $33.8 million for the like 2025 period. Average loans, including loans held for sale, increased $835.8 million in the nine months ended September 30, 2026, compared to the nine months ended September 30, 2025, due to the Bancorp Financial acquisition. Increased loan yields and higher average balances resulted in $268.5 million of tax equivalent loan interest income in the nine months ended September 30, 2026, compared to $215.0 million in the like 2025 period. Due to average loan growth and deposit attrition over the past year, average interest earning deposits with financial institutions also decreased in the year over year like period, resulting in a $2.4 million decline in interest income on these interest earning deposits.

Previous wording

Average balances of interest bearing deposit accounts have increased significantly for the six month period year over year. For the six months ended June 30, 2026, compared to the six months ended June 30, 2025, this reflected a $3.11 billion to $3.78 billion change driven by the Bancorp Financial acquisition, with these increases reflected in all categories. As a result of the Bancorp Financial acquisition and the deposits assumed, the rate of overall interest bearing deposits increased by 21 basis points, to 150 basis points from 129 basis points for the year over year period. A 38-basis point increase in the cost of savings accounts as of June 30, 2026, compared to June 30, 2025, was the primary driver behind the interest bearing deposit rate increase, as a large portion of the deposits assumed in the Bancorp Financial acquisition were within this deposit category. Interest expense paid on time deposits also increased year over year from $9.3 million for the six months ended June 30, 2025 to $13.4 million for the six months ended June 30, 2026. However, the interest rate on average time deposits remained relatively flat compared to the prior year like period as we continue to allow previously exception-priced deposits and the brokered CDs acquired from Bancorp Financial to runoff naturally.

Current wording

Average balances of interest bearing deposit accounts have increased noticeably for the nine month period year over year. For the nine months ended September 30, 2026, compared to the nine months ended September 30, 2025, average interest bearing deposits increased from $3.46 billion to $3.75 billion, driven by the Bancorp Financial acquisition, with these increases reflected in all deposit categories. The cost of overall interest bearing deposits decreased by 5 basis points, to 149 basis points from 154 basis points for the year over year period. A 30 basis point decrease in the cost of time deposits was the primary driver behind the interest bearing deposit rate decrease and was a result of the continued runoff of previously exception-priced deposits and brokered CDs assumed from the Bancorp Financial acquisition. The decrease in time deposit rates paid was partially offset by growth in rates paid for savings and NOW accounts.

Previous wording

Our borrowing interest expense increased over the past twelve months due to higher FHLB advance volumes as well as borrowings assumed in the Bancorp Financial acquisition. This resulted in an increase in average borrowings of $240.9 million compared to the six months ended June 30, 2025, with an accompanying increase of $5.2 million of interest expense on borrowings. Subordinated debt average balances decreased by $12.6 million in the year over year period as a partial redemption of $30.0 million of the principal balance occurred in the second quarter of 2026. At the same time as the partial redemption, the subordinated debt rate changed from fixed to floating and $213,000 of issuance costs were recognized, resulting in a $129,000 increase in interest expense on lower average balances compared to the prior year like period. Junior subordinated debt interest expense remained flat over the periods presented.

Current wording

Our borrowing interest expense increased over the past year due to higher FHLBC advance volumes as well as borrowings assumed in the Bancorp Financial acquisition. This resulted in an increase in average borrowings of $245.8 million compared to the nine months ended September 30, 2025, with an accompanying increase of $8.0 million of interest expense on borrowings. Subordinated debt average balances decreased by $18.4 million in the year over year period as a partial redemption of $30.0 million of the principal balance occurred in the second quarter of 2026. At the same time as the partial redemption, the subordinated debt rate changed from fixed to floating and $213,000 of issuance costs were recognized, resulting in a $124,000 increase in interest expense on lower average balances compared to the prior year like period. Junior subordinated debt interest expense remained flat over the periods presented.

Previous wording

Our net interest margin (GAAP) increased 38 basis points to 5.21% for the three months ended June 30, 2026, compared to 4.83% for the three months ended June 30, 2025. Our net interest margin (TE) increased 38 basis points to 5.23% for the three months ended June 30, 2026, compared to 4.85% for the three months ended June 30, 2025. The increase in the current period, compared to the prior year like period, is primarily due to the Bancorp Financial acquisition and the resulting increase in loan yields, partially offset by higher interest expense related to the larger average deposit balances and interest on other short-term borrowings. See the discussion entitled “Non-GAAP Financial Measures,” above, and the table on page 53 that provides a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

Current wording

Our net interest margin (GAAP) increased 28 basis points to 5.19% for the nine months ended September 30, 2026, compared to 4.91% for the nine months ended September 30, 2025. Our net interest margin (TE) increased 27 basis points to 5.21% for the nine months ended September 30, 2026, compared to 4.94% for the nine months ended September 30, 2025. The increase in the current period, compared to the prior year like period, is primarily due to the Bancorp Financial acquisition and the resulting increase in loan yields, partially offset by higher interest expense related to the larger average deposit balances and interest on other short-term borrowings. See the discussion entitled “Non-GAAP Financial Measures,” above, and the table under “Reconciliation of Tax-Equivalent (TE) Non-GAAP Financial Measures” that provides a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

Previous wording

1Represents a non-GAAP financial measure. See the discussion entitled “Reconciliation of Tax-Equivalent Non-GAAP Financial Measures” on page 53 that provides a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent. Tax equivalent basis is calculated using a marginal tax rate of 21% in 2026 and 2025, respectively.

Current wording

1Represents a non-GAAP financial measure. See the discussion entitled “Reconciliation of Tax-Equivalent (TE) Non-GAAP Financial Measures” on page 53 that provides a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent. Tax equivalent basis is calculated using a marginal tax rate of 21% in 2026 and 2025, respectively.

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 53, and includes loan fee income of $2.0 million for the second quarter of 2026, loan fee income of $1.9 million for the first quarter of 2026, and loan fee income of $365,000 for the second quarter of 2025. 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 under “Reconciliation of Tax-Equivalent (TE) Non-GAAP Financial Measures,” and includes loan fee income of $1.8 million for the third quarter of 2026, loan fee income of $2.0 million for the second quarter of 2026, and loan fee income of $1.2 million for the third quarter of 2025. Nonaccrual loans are included in the above-stated average balances.

Previous wording

1Represents a non-GAAP financial measure. See the discussion entitled “Reconciliation of Tax-Equivalent Non-GAAP Financial Measures” on page 53 that provides a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent. Tax equivalent basis is calculated using a marginal tax rate of 21% in 2026 and 2025, respectively.

Current wording

1Represents a non-GAAP financial measure. See the discussion entitled “Reconciliation of Tax-Equivalent (TE) Non-GAAP Financial Measures” on page 53 that provides a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent. Tax equivalent basis is calculated using a marginal tax rate of 21% in 2026 and 2025, respectively.

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 53, and includes loan fee income of $3.9 million and loan fee income of $910,000 for the six months ended June 30, 2026 and 2025, 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 “Reconciliation of Tax-Equivalent (TE) Non-GAAP Financial Measures,” and includes loan fee income of $5.7 million and loan fee income of $2.1 million for the nine months ended September 30, 2026 and 2025, respectively. Nonaccrual loans are included in the above-stated average balances.

Previous wording

The increase in noninterest income of $2.4 million in the second quarter of 2026, compared to the second quarter of 2025, is primarily due to a $525,000 increase in wealth management income from growth in advisory, agent, and person trust fees, a $543,000 increase in residential mortgage banking revenue, primarily due to a $379,000 increase in MSRs mark to market valuations, and a $779,000 increase in the cash surrender value of BOLI due to changes in market interest rates on our COLI investments. Also contributing to the increase in noninterest income during the quarter was a $551,000 increase in other income due to powersport and consumer loan fees provided by the acquired Bancorp Financial loan portfolio.

Current wording

The decrease in noninterest income of $39,000 in the third quarter of 2026, compared to the third quarter of 2025, is primarily due to a $379,000 decrease in the cash surrender value of BOLI due to changes in market interest rates, primarily on COLI investments. Also contributing to the decrease in noninterest income during the third quarter of 2026 was $430,000 of death benefits realized on BOLI in the 2025 period, compared to none in the 2026 period, and a $102,000 decrease in card related income compared to the prior year. Partially offsetting the decreases to noninterest income during the quarter was a $167,000 increase in wealth management income from growth in advisory, agent, 12b-1 fees, and personal trust fees, and a $762,000 increase in residential mortgage banking revenue, primarily due to a $1.0 million increase in MSRs mark to market valuations.

Previous wording

Noninterest income increased $4.8 million, or 22.7%, for the six months ended June 30, 2026, compared to the six months ended June 30, 2025. This increase was primarily driven by a $819,000 increase in wealth management income, a $1.1 million increase in mortgage banking revenue, comprised primarily of a $797,000 decrease in MSRs mark to market losses. In addition, noninterest income for the six month period ended June 30, 2026, compared to the like 2025 period, increased due to a $1.4 million increase in the cash surrender value of BOLI due to market interest rate changes on COLI investments and a $1.3 million increase in other income primarily driven by growth in powersport and consumer loan fees provided by the acquired Bancorp Financial loan portfolio.

Current wording

Noninterest income increased $4.8 million, or 13.9%, for the nine months ended September 30, 2026, compared to the nine months ended September 30, 2025. This increase was primarily driven by a $986,000 increase in wealth management income, a $101,000 increase in service charges on deposits, and a $1.9 million increase in mortgage banking revenue, comprised primarily of a $1.8 million increase in MSRs mark to market valuations. In addition, noninterest income for the nine month period ended September 30, 2026, compared to the like 2025 period, increased due to a $984,000 increase in the cash surrender value of BOLI due to market interest rate changes, primarily on COLI investments, and a $1.3 million increase in other income primarily driven by growth in powersport and consumer loan fees provided by the acquired Bancorp Financial loan portfolio. Partially offsetting the increase in noninterest income for the nine months ended September 30, 2026, compared to the nine months ended September 30, 2025, was $430,000 in death benefits realized on BOLI in 2025; no like death benefit was recorded for the nine month period in 2026.

Previous wording

2* Theadjusted efficiency ratioshown in the table above is a non-GAAP financial measure calculated as noninterest expense, excluding amortization of core deposits, OREO expenses, acquisition expense, net of gains or losses on branch sales, as applicable, divided by the sum of net interest income on a fully tax equivalent basis, total noninterest income less net gains or losses on securities, death benefit realized on BOLI, as applicable, mark to market gains or losses on MSRs, and includes a tax equivalent adjustment on the change in cash surrender value of BOLI. See the discussion entitled “Non-GAAP Financial Measures” above and the table on page 57 that provides a reconciliation of this non-GAAP financial measure to the most comparable GAAP equivalent.*

Current wording

2* Theadjusted efficiency ratioshown in the table above is a non-GAAP financial measure calculated as noninterest expense, excluding amortization of core deposits, OREO expenses, acquisition expense, net of gains or losses on branch sales, as applicable, divided by the sum of net interest income on a fully tax equivalent basis, total noninterest income less net gains or losses on securities, death benefit realized on BOLI, as applicable, mark to market gains or losses on MSRs, and includes a tax equivalent adjustment on the change in cash surrender value of BOLI. See the discussion entitled “Non-GAAP Financial Measures” above and the table under “Reconciliation of Adjusted Efficiency Ratio Non-GAAP Financial Measures” that provides a reconciliation of this non-GAAP financial measure to the most comparable GAAP equivalent.*

Previous wording

Noninterest expense for the second quarter of 2026 increased $1.0 million, or 2.1%, compared to the first quarter of 2026, and increased $7.8 million, or 18.0%, compared to the second quarter of 2025. The increase in the second quarter of 2026, compared to the first quarter of 2026, was driven by a $430,000 increase in salaries and employee benefits with increases reflected primarily in salaries, officer incentive accruals, deferred compensation expense, and insurance premiums. Also contributing to the increase was a $712,000 increase in other expenses due to growth in director deferred compensation expense, a $172,000 increase in litigation related expense regarding two unrelated customer disputes with limited exposure that are both considered non-recurring in nature, and an accrual of $184,000 related to powersport loan gap insurance refunds due to customers related to loan prepayments.

Current wording

Noninterest expense for the third quarter of 2026 increased $370,000, or 0.7%, compared to the second quarter of 2026, but decreased $11.5 million, or 18.3%, compared to the third quarter of 2025. The increase in the third quarter of 2026, compared to the second quarter of 2026, was driven by a $743,000 increase in salaries and employee benefits with increases reflected primarily in salaries, officer incentive accruals, and insurance premiums. Also contributing to the increase was a $166,000 increase in occupancy, furniture and equipment due to increases in real estate taxes and office equipment maintenance, a $120,000 increase in advertising and marketing expense due to costs associated with a 2026 brand awareness campaign, and a $257,000 increase in professional fees due to consulting and management fees related to the 2026 brand awareness campaign as well as an increase in loan related legal fees. Partially offsetting the increase in noninterest expense for the third quarter of 2026, compared to the second quarter of 2026, was an $868,000 decrease in other expense primarily due to decreases in director deferred compensation expense, decreases in non-legal commercial expenses, a decrease in litigation expense as two non-recurring and unrelated customer disputes with limited exposure were recorded last quarter, and a decrease in miscellaneous expenses as the previous quarter included an accrual related to powersport loan gap insurance refunds due to customers related to loan prepayments.

Previous wording

2* The adjusted efficiency ratio shown in the table above is a non-GAAP financial measure calculated as noninterest expense, excluding amortization of core deposits, OREO expenses, acquisition expense, net of gains or losses on branch sales, as applicable, divided by the sum of net interest income on a fully tax equivalent basis, total noninterest income less net gains or losses on securities, death benefit realized on BOLI, as applicable, mark to market gains or losses on MSRs, and includes a tax equivalent adjustment on the change in cash surrender value of BOLI. See the discussion entitled “Non-GAAP Financial Measures” above and the table on page 57 that provides a reconciliation of this non-GAAP financial measure to the most comparable GAAP equivalent.*

Current wording

2* The adjusted efficiency ratio shown in the table above is a non-GAAP financial measure calculated as noninterest expense, excluding amortization of core deposits, OREO expenses, acquisition expense, net of gains or losses on branch sales, as applicable, divided by the sum of net interest income on a fully tax equivalent basis, total noninterest income less net gains or losses on securities, death benefit realized on BOLI, as applicable, mark to market gains or losses on MSRs, and includes a tax equivalent adjustment on the change in cash surrender value of BOLI. See the discussion entitled “Non-GAAP Financial Measures” above and the table under “Reconciliation of Adjusted Efficiency Ratio Non-GAAP Financial Measures” that provides a reconciliation of this non-GAAP financial measure to the most comparable GAAP equivalent.*

Previous wording

Noninterest expense for the six months ended June 30, 2026, increased $13.5 million, or 15.4%, compared to the six months ended June 30, 2025, primarily due to a $5.8 million increase in salaries and employee benefits due to additional full-time equivalent employees in 2026 related to the Bancorp Financial acquisition in July 2025, higher annual base salary rates, restricted stock expense, and deferred employee compensation due to market interest rate changes. Also contributing to the increase was a $1.5 million increase in occupancy, furniture and equipment, a $1.6 million increase in computer and data processing, a $351,000 increase in advertising and marketing expense, a $3.2 million increase in consumer credit expense, and a $2.0 million increase in other expense, which were all primarily due to the effect Bancorp Financial acquisition and the corresponding acquisition costs and growth in expenses. Partially offsetting the increases year over year include a $2.0 million decrease in other real estate owned expense, net, as a majority of OREO properties have been sold since the second quarter of 2025, resulting in a reduction of expenses.

Current wording

Noninterest expense for the nine months ended September 30, 2026, increased $2.0 million, or 1.3%, compared to the nine months ended September 30, 2025, primarily due to a $1.8 million increase in occupancy, furniture and equipment, an $808,000 increase in computer and data processing expense, a $3.6 million increase in consumer credit expense, and a $1.7 million increase in other expense, which are all primarily due to the effect of the Bancorp Financial acquisition and the corresponding growth in expenses. Partially offsetting the increases year over year were a $3.0 million decrease in salaries and employee benefits primarily due to 2025 payments for change in control, retention and severance on the acquisition of Bancorp Financial and other acquisition-related costs, as well as a decrease in the officer incentive accrual for 2026 due to certain performance metrics falling short of target, a $1.5 million decrease in professional fees as the prior year included Bancorp Financial acquisition related costs, and a $2.2 million decrease in other real estate owned expense, net, as all OREO properties have been sold since the third quarter of 2025, resulting in a reduction of expenses.

Previous wording

We recorded income tax expense of $9.7 million for the second quarter of 2026 on $37.8 million of pretax income, compared to income tax expense of $8.5 million on $34.1 million of pretax income in the first quarter of 2026, and income tax expense of $7.4 million on $29.2 million of pretax income in the second quarter of 2025. Our effective tax rate was 25.5% in the second quarter of 2026, 24.9% for the first quarter of 2026, and 25.3% for the second quarter of 2025.

Current wording

We recorded income tax expense of $9.8 million for the third quarter of 2026 on $38.7 million of pretax income, compared to income tax expense of $9.7 million on $37.8 million of pretax income in the second quarter of 2026, and income tax expense of $3.2 million on $13.1 million of pretax income in the third quarter of 2025. Our effective tax rate was 25.3% in the third quarter of 2026, 25.5% for the second quarter of 2026, and 24.5% for the third quarter of 2025.

Previous wording

We recorded income tax expense of $18.1 million for the six months ended June 30, 2026, on $71.9 million of pretax income, compared to income tax expense of $13.8 million on $55.4 million of pretax income for the six months ended June 30, 2025. Our effective tax rate was 25.2% for the six months ended June 30, 2026, compared to 24.8% for the like 2025 period.

Current wording

We recorded income tax expense of $27.9 million for the nine months ended September 30, 2026, on $110.6 million of pretax income, compared to income tax expense of $17.0 million on $68.5 million of pretax income for the nine months ended September 30, 2025. Our effective tax rate was 25.3% for the nine months ended September 30, 2026, compared to 24.8% for the like 2025 period.

Previous wording

Total assets decreased $32.4 million to $6.87 billion at June 30, 2026, from $6.90 billion at December 31, 2025, due primarily to the decrease of $49.8 million in securities available-for-sale and a decrease of $6.3 million in total loans. We continue to actively assess potential investment opportunities to utilize our excess liquidity. Total deposits were $5.44 billion at June 30, 2026, a decrease of $151.4 million from December 31, 2025.

Current wording

Total assets decreased $124.1 million to $6.78 billion at September 30, 2026, from $6.90 billion at December 31, 2025, due primarily to the decrease of $111.9 million in securities available-for-sale and a decrease of $14.1 million in total loans. We continue to actively assess potential investment opportunities to utilize our excess liquidity. Total deposits were $5.33 billion at September 30, 2026, a decrease of $268.5 million from December 31, 2025.

Previous wording

Securities available-for-sale decreased $49.8 million as of June 30, 2026, compared to December 31, 2025, and decreased $136.9 million compared to June 30, 2025. The decrease in the portfolio during 2026 was driven by paydowns totaling $119.2 million, along with maturities and calls totaling $41.2 million and a $4.6 million increase in unrealized losses on securities available-for-sale. This was partially offset by $116.0 million in purchases. 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 $111.9 million as of September 30, 2026, compared to December 31, 2025, and decreased $178.9 million compared to September 30, 2025. The decrease in the portfolio during 2026 was driven by paydowns totaling $171.4 million, along with maturities and calls totaling $102.6 million and a $22.2 million increase in unrealized losses on securities available-for-sale. This was partially offset by $185.5 million in purchases. 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 $5.25 billion as of June 30, 2026, a decrease of $6.3 million from December 31, 2025. The decrease in total loans in the first six months of 2026, compared to December 31, 2025, was primarily due to paydowns, net of originations, in commercial real estate – investor, commercial real estate – owner occupied, construction, and powersport. Total loans increased $1.25 billion compared to June 30, 2025, which was primarily due to the $1.20 billion portfolio acquired from Bancorp Financial. Excluding the acquisition, the Bank achieved organic loan growth, net of paydowns, of $51.5 million, driven by commercial and other, partially offset by net decreases in construction loans. 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. Refer to Item 1. Note 1. Recent Accounting Pronouncements, for discussion of the Company’s adoption of ASU 2025-08, which will impact how PCD loans are recorded for any future acquisitions.

Current wording

Total loans were $5.24 billion as of September 30, 2026, a decrease of $14.1 million from December 31, 2025. The decrease in total loans in the first nine months of 2026, compared to December 31, 2025, was primarily due to paydowns, net of originations, in commercial real estate – investor, commercial real estate – owner occupied, construction, and powersport. Total loans decreased $26.4 million compared to September 30, 2025, mostly driven by paydowns, net of originations, in commercial real estate – investor, construction, and powersport. 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. Refer to Item 1. Note 1. Recent Accounting Pronouncements, for discussion of ASU 2025-08, which the Company has elected not to early adopt and which will impact how purchased loans are recorded for any future acquisitions completed after adoption.

Previous wording

The powersports loan portfolio provides a more balanced loan portfolio overall by broadening the scope of our consumer lending and offering a higher yield in a lower rate environment. The initial credit considerations for powersport loans rely more heavily on FICO scores compared to other loan types in our loan portfolio. During the six months ended June 30, 2026, we originated $192.6 million powersport loans with a weighted average yield of 10.42%. As of June 30, 2026, the weighted average FICO score, at the time of origination, of the entire powersport portfolio is 728.

Current wording

The powersport loan portfolio provides a more balanced loan portfolio overall by broadening the scope of our consumer lending and offering a higher yield in a lower rate environment. The initial credit considerations for powersport loans rely more heavily on FICO scores compared to other loan types in our loan portfolio. During the nine months ended September 30, 2026, we originated $301.2 million of powersport loans with a weighted average yield of 10.41%. As of September 30, 2026, the weighted average FICO score, at the time of origination, of the entire powersport portfolio is 728.

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 55.1% of the portfolio as of June 30, 2026, compared to 56.5% of the portfolio as of December 31, 2025. At June 30, 2026, our outstanding commercial real estate loans and undrawn commercial real estate commitments, excluding owner occupied real estate, were equal to 210.2% of our Tier 1 capital plus allowance for credit losses, a decrease from 220.3% at December 31, 2025. 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 55.4% of the portfolio as of September 30, 2026, compared to 56.5% of the portfolio as of December 31, 2025. At September 30, 2026, our outstanding commercial real estate loans and undrawn commercial real estate commitments, excluding owner occupied real estate, were equal to 208.5% of the Bank’s Tier 1 capital plus allowance for credit losses, a decrease from 220.3% at December 31, 2025. 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 $3.7 million to $56.5 million at June 30, 2026, from $52.8 million at December 31, 2025, and increased by $24.2 million from $32.2 million at June 30, 2025. The increase from December 31, 2025 and June 30, 2025 was mostly driven by non-accrual additions of a few larger commercial relationships in the first quarter of 2026. Purchased credit deteriorated loans (“PCD”) 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. Total PCD loans are $62.2 million, of which $1.9 million meet the definition of nonperforming, as of June 30, 2026 and $78.6 million, of which $3.4 million meet the definition of nonperforming, as of December 31, 2025. Management continues to carefully monitor loans considered to be in a classified status. Nonperforming loans as a percent of total loans were 1.1% as of June 30, 2026, 1.0% as of December 31, 2025, and 0.8% as of June 30, 2025. 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 decreased by $13.2 million to $39.6 million at September 30, 2026, from $52.8 million at December 31, 2025, and decreased by $8.3 million from $48.0 million at September 30, 2025. The decrease from December 31, 2025 and September 30, 2025 was mostly driven by non-accrual charge-offs for a commercial relationship in the third quarter of 2026 and a larger paydown for a commercial real estate – investor relationship. Purchased credit deteriorated loans (“PCD”) 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. Total PCD loans are $52.5 million, of which $1.8 million meet the definition of nonperforming, as of September 30, 2026 and $78.6 million, of which $3.4 million meet the definition of nonperforming, as of December 31, 2025. 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 September 30, 2026, 1.0% as of December 31, 2025, and 0.9% as of September 30, 2025. 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 2026 as compared to the 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 2026 as compared to the 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. There was a decrease of $622,000 in gross charge offs, as compared to the linked quarter, primarily due to lower powersport and commercial real estate – investor charge offs, offset by increased commercial charge offs. 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. 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. There was an increase of $3.8 million in gross charge-offs, as compared to the linked quarter, primarily due to larger charge-offs taken on a single commercial relationship and slight increase in powersport charges-offs. 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. We have continued our conservative loan valuations and aggressive recovery efforts on prior charge-offs.