Live Oak Bancshares, Inc.

Previous wording

The following presents management’s discussion and analysis of the financial condition and results of operations of Live Oak Bancshares, Inc. (individually, “Bancshares” and collectively with its subsidiaries including Live Oak Banking Company, the “Company”). This discussion should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this quarterly report on Form 10-Q and with the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2024 (the “2024 Form 10-K”). Results of operations for the periods included in this quarterly report on Form 10-Q are not necessarily indicative of results to be obtained during any future period.

Current wording

The following presents management’s discussion and analysis of the financial condition and results of operations of Live Oak Bancshares, Inc. (individually, “Bancshares” and collectively with its subsidiaries including Live Oak Banking Company, the “Company”). This discussion should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this quarterly report on Form 10-Q and with the Company's Annual Report on Form 10-K/A for the fiscal year ended December 31, 2024 (the “2024 Form 10-K/A”). Results of operations for the periods included in this quarterly report on Form 10-Q are not necessarily indicative of results to be obtained during any future period.

Previous wording

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

Current wording

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

Previous wording

For the six months ended June 30, 2025, the Company reported net income attributable to Live Oak Bancshares, Inc. of $33.1 million, or $0.72 per diluted share, compared to net income attributable to Live Oak Bancshares, Inc. of $54.5 million, or $1.20 per diluted share, for the six months ended June 30, 2024.

Current wording

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

Previous wording

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

Current wording

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

Previous wording

For the three months ended June 30, 2025, the Company reported net income attributable to Live Oak Bancshares, Inc. of $23.4 million, or $0.51 per diluted share, compared to net income attributable to Live Oak Bancshares, Inc. of $27.0 million, or $0.59 per diluted share, for the second quarter of 2024.

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

•Noninterest expense increased by $17.9 million, or 11.5%. This increase was principally comprised by increased levels of salary and employee benefits of $3.6 million, technology expense of $3.6 million and other expense of $3.0 million. The increase in other expense was principally comprised of a $2.8 million loss arising from the early buyout of the Company's sole bioenergy lease;

Current wording

•Noninterest expense increased by $27.6 million, or 11.9%. This increase was principally comprised of increased levels of salary and employee benefits of $11.9 million, technology expense of $4.8 million, FDIC insurance of $3.0 million and other expense of $3.8 million. The increase in other expense was principally comprised of a $2.8 million loss arising from the early buyout of the Company's sole bioenergy lease;

Previous wording

•Net income tax expense increased by $7.7 million, from $3.6 million in the first half of 2024, to $11.3 million for the first half of 2025. This increase was largely the result of an additional $10.6 million in investment tax credits related to the Company's fourth quarter of 2023 renewable energy investment that became eligible for an extra 10% in tax credits in the first quarter of 2024.

Current wording

•Net income tax expense increased by $13.0 million, from $8.4 million in the first nine months of 2024, to $21.4 million for the same period of 2025. This increase was largely the result of an additional $10.6 million in investment tax credits related to the Company's fourth quarter of 2023 renewable energy investment that became eligible for an extra 10% in tax credits in the first quarter of 2024.

Previous wording

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

Current wording

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

Previous wording

For the three months ended June 30, 2025, net interest income increased $17.9 million, or 19.6%, to $109.2 million compared to $91.3 million for the three months ended June 30, 2024. This increase was principally due to the growth in the held for investment loan and lease portfolio outpacing growth in interest-bearing liabilities, offset by the decrease in average yield on interest-earning assets outpacing the decrease in average cost of funds. Average interest-earning assets increased by $2.16 billion, or 19.3%, to $13.36 billion for the second quarter of 2025, compared to $11.20 billion for the second quarter of 2024, while the yield on average interest-earning assets decreased 39 basis points to 6.73%. The cost of funds on interest-bearing liabilities for the second quarter of 2025 decreased 37 basis points to 3.78% and the average balance of interest-bearing liabilities increased by $1.83 billion, or 17.6%, over the second quarter of 2024.

Current wording

For the three months ended September 30, 2025, net interest income increased $18.5 million, or 19.1%, to $115.5 million compared to $97.0 million for the three months ended September 30, 2024. This increase was principally due to the growth in the held for investment loan and lease portfolio outpacing growth in interest-bearing liabilities, offset by the decrease in average yield on interest-earning assets outpacing the decrease in average cost of funds. Average interest-earning assets increased by $2.19 billion, or 19.0%, to $13.77 billion for the third quarter of 2025, compared to $11.57 billion for the third quarter of 2024, while the yield on average interest-earning assets decreased 51 basis points to 6.67%. The cost of funds on interest-bearing liabilities for the third quarter of 2025 decreased 49 basis points to 3.68% and the average balance of interest-bearing liabilities increased by $1.81 billion, or 17.0%, over the third quarter of 2024.

Previous wording

As indicated in the rate/volume analysis below, the overall increase discussed above is reflected in increased interest income of $25.8 million outpacing growth in interest expense of $7.9 million for the second quarter of 2025 compared to the second quarter of 2024. The net interest margin remained stable at 3.28% for both the second quarters of 2024 and 2025.

Current wording

As indicated in the rate/volume analysis below, the overall increase discussed above is reflected in increased interest income of $22.5 million outpacing growth in interest expense of $4.0 million for the third quarter of 2025 compared to the third quarter of 2024. The net interest margin remained stable at 3.33% for both the third quarters of 2024 and 2025.

Previous wording

For the six months ended June 30, 2025, net interest income increased $28.3 million, or 15.6%, to $209.8 million compared to $181.4 million for the six months ended June 30, 2024. This increase was principally due to the growth in the held for investment loan and lease portfolio outpacing growth in interest-bearing liabilities, offset by the decrease in average yield on interest-earning assets outpacing the decrease in average cost of funds. Average interest-earning assets increased by $2.01 billion, or 18.2%, to $13.06 billion for the six months ended June 30, 2025, compared to $11.05 billion for the six months ended June 30, 2024, while the yield on average interest-earning assets decreased 36 basis points to 6.75%. The cost of funds on interest-bearing liabilities for the six months ended June 30, 2025 decreased 27 basis points to 3.84%, and the average balance of interest-bearing liabilities increased by $1.72 billion, or 16.7%, over the six months ended June 30, 2024.

Current wording

For the nine months ended September 30, 2025, net interest income increased $46.8 million, or 16.8%, to $325.2 million compared to $278.4 million for the nine months ended September 30, 2024. This increase was principally due to the growth in the held for investment loan and lease portfolio outpacing growth in interest-bearing liabilities, offset by the decrease in average yield on interest-earning assets outpacing the decrease in average cost of funds. Average interest-earning assets increased by $2.07 billion, or 18.5%, to $13.30 billion for the nine months ended September 30, 2025, compared to $11.22 billion for the nine months ended September 30, 2024, while the yield on average interest-earning assets decreased 42 basis points to 6.72%. The cost of funds on interest-bearing liabilities for the nine months ended September 30, 2025 decreased 35 basis points to 3.78%, and the average balance of interest-bearing liabilities increased by $1.75 billion, or 16.8%, over the nine months ended September 30, 2024.

Previous wording

The increase in average interest-bearing liabilities was largely driven by funding for significant loan originations and growth as well as maintenance of the Company's target liquidity profile. As indicated in the rate/volume analysis below, the overall increase discussed above is reflected in increased interest income of $46.5 million outpacing growth in interest expense of $18.2 million for the six months ended June 30, 2025 compared to the six months ended June 30, 2024. The net interest margin decreased from 3.30% for the six months ended June 30, 2024 to 3.24% for the six months ended June 30, 2025.

Current wording

The increase in average interest-bearing liabilities was largely driven by funding for significant loan originations and growth as well as maintenance of the Company's target liquidity profile. As indicated in the rate/volume analysis below, the overall increase discussed above is reflected in increased interest income of $69.0 million outpacing growth in interest expense of $22.2 million for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. The net interest margin decreased from 3.31% for the nine months ended September 30, 2024 to 3.27% for the nine months ended September 30, 2025.

Previous wording

In June and July 2025, the Federal Reserve decided to maintain the federal funds upper target rate at 4.5%. In June 2025, the Federal Reserve released its most current federal funds target rate midpoint projections which implied a decrease of the median Federal Funds rate to 3.9% by the end of 2025. There can be no assurance that any further decreases or increases in the Federal Funds rate will occur, and if they do, the amount and timing of actual adjustments are subject to change. See Item 3. Quantitative and Qualitative Disclosures About Market Risk for information about the Company’s sensitivity to interest rates.

Current wording

In September 2025, the Federal Reserve lowered the federal funds upper target rate by 25 basis points to 4.25%. Subsequently, in October 2025, the Federal Reserve further decreased the federal funds upper target rate by 25 basis points, to 4.00%. The Federal Reserve released its most recent federal funds target rate midpoint projections which implied a decrease of the median Federal Funds rate to 3.6% by the end of 2025 and a decrease of approximately 25 basis points to 3.4% by the end of 2026. There can be no assurance that any further decreases or increases in the Federal Funds rate will occur, and if they do, the amount and timing of actual adjustments are subject to change. See Item 3. Quantitative and Qualitative Disclosures About Market Risk for information about the Company’s sensitivity to interest rates.

Previous wording

For the second quarter of 2025, there was a provision for credit losses of $23.3 million compared to $11.8 million for the same period in 2024, an increase of $11.5 million. For the six months ended June 30, 2025, there was a provision for credit losses of $52.2 million compared to $28.1 million for the same period in 2024, an increase of $24.1 million. The increase in provision was principally driven by loan growth and elevated specific reserves on individually evaluated loans amid a challenging macroeconomic environment, where elevated interest rates and inflationary pressures placed financial strain on some small business and commercial borrowers.

Current wording

For the nine months ended September 30, 2025, there was a provision for credit losses of $74.5 million compared to $62.6 million for the same period in 2024, an increase of $11.8 million. This increase in provision was principally driven by loan growth and the below discussed charge off impacts amid a challenging macroeconomic environment. Elevated interest rates and inflationary pressures have placed financial strain on some small business and commercial borrowers which resulted in a continued increase in charge-offs.

Previous wording

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

Current wording

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

Previous wording

Net charge-offs for loans and leases carried at historical cost were $31.4 million, or 1.19% of average quarterly loans and leases held for investment, carried at historical cost, on an annualized basis, for the three months ended June 30, 2025, compared tonet charge-offsof $8.3 million, or 0.38%, for the three months ended June 30, 2024, an increase of $23.2 million, or 281.0%. The increase in net charge-offs compared to the second quarter of 2024 was largely concentrated to individually evaluated loans with specific reserves recorded in prior periods. For the six months ended June 30, 2025, net charge-offs totaled $38.2 million compared to$11.4 million for thesix months ended June 30, 2024, anincrease of$26.8 million, or 234.8%. Net charge-offs are a key element of historical experience in the Company's estimation of the allowance for credit losses on loans and leases.

Current wording

Net charge-offs for loans and leases carried at historical cost were $16.8 million, or 0.61% of average quarterly loans and leases held for investment, carried at historical cost, on an annualized basis, for the three months ended September 30, 2025, compared to net charge-offs of $1.7 million, or 0.08%, for the three months ended September 30, 2024, an increase of $15.1 million, or 883.4%. The increase in net charge-offs compared to the third quarter of 2024 was largely concentrated to individually evaluated loans with specific reserves recorded in prior periods. For the nine months ended September 30, 2025, net charge-offs totaled $55.0 million compared to$13.1 million for thenine months ended September 30, 2024, anincrease of$41.9 million, or 319.3%. Net charge-offs are a key element of historical experience in the Company's estimation of the allowance for credit losses on loans and leases.

Previous wording

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

Current wording

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

Previous wording

Noninterest income is principally comprised of net gains from the sale of SBA and USDA-guaranteed loans along with loan servicing revenue and related revaluation of the servicing asset. Revenue from the sale of loans depends upon the volume, maturity structure and rates of underlying loans as well as the pricing and availability of funds in the secondary markets prevailing in the period between completed loan funding and closing of sale. In addition, the loan servicing revaluation is significantly impacted by changes in market rates and other underlying assumptions such as prepayment speeds and default rates. Net gain (loss) on loans accounted for under the fair value option is also significantly impacted by changes in market rates, prepayment speeds and inherent credit risk. Other less consistent elements of noninterest income include gains and losses on investments.

Current wording

Noninterest income is principally comprised of net gains from the sale of SBA and USDA-guaranteed loans along with loan servicing revenue and related revaluation of the servicing asset. Revenue from the sale of loans depends upon the volume, maturity structure and rates of underlying loans as well as the pricing and availability of funds in the secondary markets prevailing in the period between completed loan funding and closing of sale. In addition, the loan servicing revaluation is significantly impacted by changes in market rates and other underlying assumptions such as prepayment speeds and default rates. Net (loss) gain on loans accounted for under the fair value option is also significantly impacted by changes in market rates, prepayment speeds and inherent credit risk. Other less consistent elements of noninterest income include gains and losses on investments.

Previous wording

For the three months ended June 30, 2025, noninterest income increased by $367 thousand, or 1.1%, compared to the three months ended June 30, 2024. Principal changes when compared with the second quarter of 2024 are higher net gains on sales of loans of $7.2 million combined with a $3.3 million decrease in management fee income due to the restructuring of the Canapi Funds in the third quarter of 2024 and a $6.1 million decrease in other noninterest income largely related to a $6.7 million gain arising from the sale of one of the Company’s aircraft in the second quarter of 2024.

Current wording

For the three months ended September 30, 2025, noninterest income decreased by $2.3 million, or 7.0%, compared to the three months ended September 30, 2024. Principal changes when compared with the third quarter of 2024 are a $2.6 million negative change in net gain to net loss on loans accounted for under the fair value option and a $2.2 million decrease in other noninterest income largely related to largely related to the $2.4 million gain from the sale of a building in the third quarter of 2024. Partially offsetting the decrease in noninterest income is higher net gains on sales of loans of $4.2 million.

Previous wording

For the six months ended June 30, 2025, noninterest income decreased by $149 thousand, or 0.2%, compared to the six months ended June 30, 2024. Principal changes when compared with the first half of 2024 are primarily a result of a $2.2 million increase in loss related to the servicing asset revaluation combined with a $6.5 million decrease in management fee income discussed above and a $11.8 million decrease in other noninterest income largely related to activity in the first half of 2024 arising from a $6.7 million gain arising from the sale of one of the Company’s aircraft combined with a gain arising from increased fair value of equity warrant assets. Partially offsetting these negative changes was higher net gains on sales of loans of $14.4 million.

Current wording

For the nine months ended September 30, 2025, noninterest income decreased by $2.5 million, or 2.6%, compared to the nine months ended September 30, 2024. Principal changes when compared with the first nine months of 2024 are primarily a result of a $2.3 million increase in loss related to the servicing asset revaluation combined with a $2.5 million negative change in net gain to net loss on loans accounted for under the fair value option, $7.7 million decrease in management fee income discussed above and a $14.1 million decrease in other noninterest income. The previously discussed decrease in noninterest income was largely due to higher income in the first nine months of 2024 related to a $2.4 million gain from the sale of a building, a $6.7 million gain arising from an aircraft sale and a $5.7 million fair value gain in equity warrant assets. Partially offsetting the decrease in total noninterest income over the prior year to date period was higher net gains on sales of loans of $18.6 million combined with $2.7 million in higher levels of loan servicing revenue.

Previous wording

Loan Servicing Asset Revaluation: The Company revalues its serviced loan portfolio at least quarterly. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as adequate compensation for servicing, the discount rate, the custodial earnings rate, ancillary income, prepayment speeds and default rates and losses, with prepayment speed and discount rate being the most sensitive assumptions. For the three months ended June 30, 2025, there was a net loss on loan servicing asset revaluation of $3.1 million, compared to a net loss of $2.9 million for the three months ended June 30, 2024. For the six months ended June 30, 2025, there was a net loss on loan servicing asset revaluation of $7.8 million compared to a net loss of $5.6 million for the six months ended June 30, 2024, resulting in a negative comparative year-to-date change of $2.2 million. The decrease in the valuation of the servicing asset compared to the first half of 2024 was principally the result of principal paydowns or runoff as well as less favorable market conditions in 2025.

Current wording

Loan Servicing Asset Revaluation: The Company revalues its serviced loan portfolio at least quarterly. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as adequate compensation for servicing, the discount rate, the custodial earnings rate, ancillary income, prepayment speeds and default rates and losses, with prepayment speed and discount rate being the most sensitive assumptions. For the three months ended September 30, 2025, there was a net loss on loan servicing asset revaluation of $4.4 million, compared to a net loss of $4.2 million for the three months ended September 30, 2024. For the nine months ended September 30, 2025, there was a net loss on loan servicing asset revaluation of $12.1 million compared to a net loss of $9.8 million for the nine months ended September 30, 2024, resulting in a negative comparative year-to-date change of $2.3 million. The decrease in the valuation of the servicing asset compared to the first nine months of 2024 was principally the result of principal paydowns or runoff as well as less favorable market conditions in 2025.

Previous wording

Net Gains on Sales of Loans: For the three months ended June 30, 2025, net gains on sales of loans increased $7.2 million, or 50.3%, compared to the three months ended June 30, 2024. The volume of guaranteed loans sold increased $71.9 million, or 28.7%, for the three months ended June 30, 2025 to $322.3 million from $250.5 million for the three months ended June 30, 2024. For the six months ended June 30, 2025, net gains on sales of loans increased $14.4 million, or 55.6%, compared to the six months ended June 30, 2024. For the six months ended June 30, 2025, the volume of guaranteed loans sold increased $151.5 million, or 34.7%, to $588.6 million from $437.1 million for the six months ended June 30, 2024. The average net gain on loan sale premium increased from 106% to 107% in the second quarters of 2024 and 2025, respectively, and for the six months ended June 30, 2024 and 2025. The increase in net gains on sales of loans over the second quarter of 2024 and six months ended June 30, 2024 was principally related to a higher loan sale volume combined with improving premiums.

Current wording

Net Gains on Sales of Loans: For the three months ended September 30, 2025, net gains on sales of loans increased $4.2 million, or 25.4%, compared to the three months ended September 30, 2024. The volume of guaranteed loans sold increased $81.4 million, or 30.6%, for the three months ended September 30, 2025 to $347.8 million from $266.3 million for the three months ended September 30, 2024. For the nine months ended September 30, 2025, net gains on sales of loans increased $18.6 million, or 43.8%, compared to the nine months ended September 30, 2024. For the nine months ended September 30, 2025, the volume of guaranteed loans sold increased $232.9 million, or 33.1%, to $936.3 million from $703.4 million for the nine months ended September 30, 2024. The average net gain on loan sale premium decreased from 107% to 106% in the third quarters of 2024 and 2025, respectively, and increased from 106% to 107% for the nine months ended September 30, 2024 and 2025, respectively. The increase in net gains on sales of loans over the third quarter of 2024 and nine months ended September 30, 2024 was principally related to a higher loan sale volume combined with relatively stable average premiums.

Previous wording

Total noninterest expense for the three and six months ended June 30, 2025, increased $11.6 million, or 15.0%, and increased $17.9 million, or 11.5%, respectively, compared to the same periods in 2024. The changes within noninterest expense for the comparable three and six month periods was largely driven by various components, as discussed below.

Current wording

Total noninterest expense for the three and nine months ended September 30, 2025, increased $9.7 million, or 12.5%, and increased $27.6 million, or 11.9%, respectively, compared to the same periods in 2024. The changes within noninterest expense for the comparable three and nine month periods was largely driven by various components, as discussed below.

Previous wording

Salaries and employee benefits: Total personnel expense for the three and six months ended June 30, 2025 increased by $2.9 million, or 6.2%, and increased by $3.6 million, or 3.9%, respectively, compared to the same periods in 2024. The increase over both comparative periods of 2024 is principally related to investment in human resources to support strategic and growth initiatives. Total full-time equivalent employees increased from 987 at June 30, 2024, to 1,056 at June 30, 2025. Salaries and employee benefits expense included $6.9 million and $13.7 million of stock-based compensation for the three and six months ended June 30, 2025, respectively, compared to $6.8 million and $13.2 million for the three and six months ended June 30, 2024, respectively. Expenses related to the employee stock purchase program, stock grants, stock option compensation and restricted stock expense are all considered stock-based compensation.

Current wording

Salaries and employee benefits: Total personnel expense for the three and nine months ended September 30, 2025 increased by $8.3 million, or 18.6%, and increased by $11.9 million, or 8.6%, respectively, compared to the same periods in 2024. The increase over both comparative periods of 2024 is principally related to investment in human resources to support strategic and growth initiatives. Total full-time equivalent employees increased from 999 at September 30, 2024, to 1,029 at September 30, 2025. Salaries and employee benefits expense included $6.0 million and $19.7 million of stock-based compensation for the three and nine months ended September 30, 2025, respectively, compared to $6.7 million and $19.9 million for the three and nine months ended September 30, 2024, respectively. Expenses related to the employee stock purchase program, stock grants, stock option compensation and restricted stock expense are all considered stock-based compensation.

Previous wording

Technology expense: For the three and six months ended June 30, 2025, technology expense increased $2.1 million, or 25.9%, and $3.6 million, or 22.9%, respectively, compared to the same periods in 2024. This increase for both compared periods was primarily related to enhanced investments in the Company’s technology resources.

Current wording

Technology expense: For the nine months ended September 30, 2025, technology expense increased $4.8 million, or 19.2%, compared to the same period in 2024. This increase was primarily related to enhanced investments in the Company’s technology resources.

Previous wording

Other expense: For the three and six months ended June 30, 2025, other expense increased $3.5 million, or 133.8%, and $3.0 million, or 50.4%, respectively, compared to the same periods in 2024. The increase over both comparative periods was principally driven by a $2.8 million loss arising from the early buyout of the Company's sole bioenergy lease in the second quarter of 2025.

Current wording

Other expense: For the nine months ended September 30, 2025, other expense increased $3.8 million, or 44.2%, compared to the same period in 2024. The increase was principally driven by a $2.8 million loss arising from the early buyout of the Company's sole bioenergy lease in the second quarter of 2025.

Previous wording

For the three months ended June 30, 2025, income tax expense was $7.8 million compared to income tax expense of $9.1 million in the second quarter of 2024, and the Company’s effective tax rates were 25.0% and 25.2%, respectively. For the six months ended June 30, 2025, income tax expense was $11.3 million compared to $3.6 million for the six months ended June 30, 2024, and the Company’s effective tax rates were 25.4% and 6.2%, respectively. The lower level of income tax expense for the second quarter of 2025 as compared to the second quarter of 2024 was largely the result of decreased pretax income during the current period. The higher level of income tax expense for the first half of 2025 as compared to the first half of 2024 was largely the result of an additional $10.6 million in tax credits related to the Company's fourth quarter of 2023 renewable energy investment that became eligible for an extra 10% in tax credits in the first quarter of 2024. Partially offsetting the comparative increase in income tax expense in the first half of 2025 was decreased pretax income during the current period.

Current wording

For the three months ended September 30, 2025, income tax expense was $10.1 million compared to income tax expense of $4.8 million in the third quarter of 2024, and the Company’s effective tax rates were 27.6% and 27.0%, respectively. For the nine months ended September 30, 2025, income tax expense was $21.4 million compared to $8.4 million for the nine months ended September 30, 2024, and the Company’s effective tax rates were 26.4% and 11.1%, respectively. The higher level of income tax expense for the third quarter of 2025 as compared to the third quarter of 2024 was largely the result of heightened pretax income during the current period. The higher level of income tax expense for the first nine months of 2025 as compared to the same period in 2024 was largely the result of an additional $10.6 million in tax credits related to the Company's fourth quarter of 2023 renewable energy investment that became eligible for an extra 10% in tax credits in the first quarter of 2024.

Previous wording

Total assets at June 30, 2025 were $13.83 billion, an increase of $887.8 million, or 6.9%, compared to total assets of $12.94 billion at December 31, 2024. The growth in total assets was principally driven by the following:

Current wording

Total assets at September 30, 2025 were $14.67 billion, an increase of $1.72 billion, or 13.3%, compared to total assets of $12.94 billion at December 31, 2024. The growth in total assets was principally driven by the following:

Previous wording

•Cash and cash equivalents, comprised of cash and due from banks, combined with investment securities available-for-sale was $1.99 billion at June 30, 2025, an increase of $131.0 million, or 7.1%, compared to $1.86 billion at December 31, 2024. This increase reflects growing deposit levels combined with maintenance of the Company's targeted liquidity profile.

Current wording

•Cash and cash equivalents, comprised of cash and due from banks, combined with investment securities available-for-sale was $2.27 billion at September 30, 2025, an increase of $408.7 million, or 22.0%, compared to $1.86 billion at December 31, 2024. This increase reflects growing deposit levels and net proceeds of a third quarter of 2025 preferred stock issuance, discussed further below, combined with maintenance of the Company's targeted liquidity profile.

Previous wording

•Growth in total loans and leases held for investment and held for sale of $785.5 million, or 7.4%, during the first half of 2025, from $10.58 billion at December 31, 2024, to $11.36 billion at June 30, 2025. This growth was a result of strong origination activity during the first half of 2025 of $2.92 billion.

Current wording

•Growth in total loans and leases held for investment and held for sale of $1.34 billion, or 12.6%, during the first nine months of 2025, from $10.58 billion at December 31, 2024, to $11.92 billion at September 30, 2025. This growth was a result of strong origination activity during the first nine months of 2025 of $4.57 billion.

Previous wording

Total deposits were $12.59 billion at June 30, 2025, an increase of $834.3 million, or 7.1%, from $11.76 billion at December 31, 2024. The increase in total deposits from the prior period was to support growth in the loan and lease portfolio as well as the Company's targeted liquidity levels. At June 30, 2025, the Bank’s total uninsured deposits were approximately $1.95 billion, or 15.4%, of total deposits.

Current wording

Total deposits were $13.29 billion at September 30, 2025, an increase of $1.53 billion, or 13.0%, from $11.76 billion at December 31, 2024. The increase in total deposits from the prior period was to support growth in the loan and lease portfolio as well as the Company's targeted liquidity levels. At September 30, 2025, the Bank’s total uninsured deposits were approximately $2.19 billion, or 16.3%, of total deposits.

Previous wording

Nonperforming assets, including loans measured at fair value, at June 30, 2025 were $473.5 million, which represented a $101.7 million, or 27.4%, increase from December 31, 2024. These nonperforming assets at June 30, 2025 were comprised of $467.1 million in nonaccrual loans and leases and $6.3 million in foreclosed assets. Of the $473.5 million of nonperforming assets, $402.8 million carried a government guarantee, leaving an unguaranteed exposure of $70.6 million in total nonperforming assets at June 30, 2025. This represents a decrease of $20.9 million, or 22.9%, from an unguaranteed exposure of $91.6 million at December 31, 2024.

Current wording

Nonperforming assets, including loans measured at fair value, at September 30, 2025 were $530.8 million, which represented a $159.1 million, or 42.8%, increase from December 31, 2024. These nonperforming assets at September 30, 2025 were comprised of $519.8 million in nonaccrual loans and leases and $11.0 million in foreclosed assets. Of the $530.8 million of nonperforming assets, $442.9 million carried a government guarantee, leaving an unguaranteed exposure of $87.9 million in total nonperforming assets at September 30, 2025. This represents a decrease of $3.7 million, or 4.0%, from an unguaranteed exposure of $91.6 million at December 31, 2024.

Previous wording

Nonperforming assets, excluding loans measured at fair value, at June 30, 2025 were $402.7 million, which represented a $96.4 million, or 31.5%, increase from December 31, 2024. These nonperforming assets at June 30, 2025 were comprised of $396.3 million in nonaccrual loans and leases and $6.3 million in foreclosed assets. Of the $402.7 million of nonperforming assets, $341.9 million carried a government guarantee, leaving an unguaranteed exposure of $60.7 million in total nonperforming assets at June 30, 2025. This represents a decrease of $20.9 million, or 25.6%, from an unguaranteed exposure of $81.6 million at December 31, 2024.

Current wording

Nonperforming assets, excluding loans measured at fair value, at September 30, 2025 were $467.3 million, which represented a $161.1 million, or 52.6%, increase from December 31, 2024. These nonperforming assets at September 30, 2025 were comprised of $456.3 million in nonaccrual loans and leases and $11.0 million in foreclosed assets. Of the $467.3 million of nonperforming assets, $387.6 million carried a government guarantee, leaving an unguaranteed exposure of $79.7 million in total nonperforming assets at September 30, 2025. This represents a decrease of $1.9 million, or 2.4%, from an unguaranteed exposure of $81.6 million at December 31, 2024.

Previous wording

As a percentage of the Bank’s total capital, nonperforming loans and leases, excluding loans measured at fair value, represented 33.2% at June 30, 2025, compared to 26.7% at December 31, 2024. Adjusting the ratio to include only the unguaranteed portion of nonperforming loans and leases at historical cost to reflect management’s belief that the greater magnitude of risk resides in this portion, the ratios at both June 30, 2025 and December 31, 2024 were 5.0% and 7.2%, respectively.

Current wording

As a percentage of the Bank’s total capital, nonperforming loans and leases, excluding loans measured at fair value, represented 37.0% at September 30, 2025, compared to 26.7% at December 31, 2024. Adjusting the ratio to include only the unguaranteed portion of nonperforming loans and leases at historical cost to reflect management’s belief that the greater magnitude of risk resides in this portion, the ratios at September 30, 2025 and December 31, 2024 were 6.2% and 7.2%, respectively.

Previous wording

As of June 30, 2025, and December 31, 2024, potential problem (also referred to as criticized) and classified loans and leases, excluding loans measured at fair value, totaled $1.14 billion and $1.04 billion, respectively. The following is a discussion of these loans and leases. Risk Grades 50 through 80 represent the spectrum of criticized and classified loans and leases. For a complete description of the risk grading system, see “Credit Quality Indicators” in Note 3 in the notes to consolidated financial statements in the Company’s 2024 Form 10-K. At June 30, 2025, the portion of criticized and classified loans and leases guaranteed by the SBA or USDA totaled$578.8 million and total portfolio unguaranteed exposure risk was$561.0 million, or 7.5% of total held for investment unguaranteed exposure carried at historical cost. This compares to the December 31, 2024 portion of criticized and classified loans and leases guaranteed by the SBA or USDA which totaled$518.7 million and total portfolio unguaranteed exposure risk was$523.3 million, or 7.8% of total held for investment unguaranteed exposure carried at historical cost.

Current wording

As of September 30, 2025, and December 31, 2024, potential problem (also referred to as criticized) and classified loans and leases, excluding loans measured at fair value, totaled $1.29 billion and $1.04 billion, respectively. The following is a discussion of these loans and leases. Risk Grades 50 through 80 represent the spectrum of criticized and classified loans and leases. For a complete description of the risk grading system, see “Credit Quality Indicators” in Note 3 in the notes to consolidated financial statements in the Company’s 2024 Form 10-K/A. At September 30, 2025, the portion of criticized and classified loans and leases guaranteed by the SBA or USDA totaled$633.8 million and total portfolio unguaranteed exposure risk was$654.0 million, or 8.2% of total held for investment unguaranteed exposure carried at historical cost. This compares to the December 31, 2024 portion of criticized and classified loans and leases guaranteed by the SBA or USDA which totaled$518.7 million and total portfolio unguaranteed exposure risk was$523.3 million, or 7.8% of total held for investment unguaranteed exposure carried at historical cost.

Previous wording

Of the above listed verticals, Senior Housing, Sponsor Finance, Bioenergy and Community Facilitiesare within the Company’s Commercial Banking division, the remainder of the above listed verticals are within the Small Business Banking division. The total $97.8 million increase in potential problem and classified loans and leases in the first six months of 2025 was comprised of $59.9 million in increased levels of Risk Grade 50 loans and leases, as discussed below and $38.0 million in classified loans. The overall increase in criticized and classified loans in the first half of 2025 was primarily driven by higher levels of commercial borrowers impacted by the challenging macroeconomic environment. The Company believes that its underwriting and credit quality standards have remained high and continues to consider changing economic conditions as well as the current interest rate environment.

Current wording

Of the above listed verticals, Senior Housing, Sponsor Finance, Bioenergy, Solar Energy and Community Facilitiesare within the Company’s Commercial Banking division, the remainder of the above listed verticals are within the Small Business Banking division. The total $245.9 million increase in potential problem and classified loans and leases in the first nine months of 2025 was comprised of $94.4 million in increased levels of Risk Grade 50 loans and leases, as discussed below and $151.5 million in classified loans. The overall increase in classified loans in the first nine months of 2025 was primarily driven by higher levels of small business and commercial borrowers impacted by the challenging macroeconomic environment. These changes largely reflect the effects of normal growth and isolated borrower performance migrations rather than any systemic credit deterioration. The Company believes that its underwriting and credit quality standards have remained high and continues to consider changing economic conditions as well as the current interest rate environment.

Previous wording

Loans and leases that experience insignificant payment delays and payment shortfalls are generally not individually evaluated for the purpose of estimating the allowance for credit losses. The Bank generally considers an “insignificant period of time” from payment delays to be a period of 90 days or less. The Bank would consider a modification for a customer experiencing what is expected to be a short-term event that has temporarily impacted cash flow. This could be due, among other reasons, to illness, weather, impact from a one-time expense, slower than expected start-up, construction issues or other short-term issues. Credit personnel will review the request to determine if the customer is experiencing financial stress and how the event has impacted the ability of the customer to repay the loan or lease long term. At June 30, 2025, the Company had a total of $45.9 million in loans modified in 2025 to borrowers experiencing financial difficulty, excluding loans measured at fair value, $43.7 million of which remained current and $36.0 million of which are for an other-than-insignificant payment delay or term extension.

Current wording

Loans and leases that experience insignificant payment delays and payment shortfalls are generally not individually evaluated for the purpose of estimating the allowance for credit losses. The Bank generally considers an “insignificant period of time” from payment delays to be a period of 90 days or less. The Bank would consider a modification for a customer experiencing what is expected to be a short-term event that has temporarily impacted cash flow. This could be due, among other reasons, to illness, weather, impact from a one-time expense, slower than expected start-up, construction issues or other short-term issues. Credit personnel will review the request to determine if the customer is experiencing financial stress and how the event has impacted the ability of the customer to repay the loan or lease long term. At September 30, 2025, the Company had a total of $80.4 million in loans modified in 2025 to borrowers experiencing financial difficulty, excluding loans measured at fair value, $78.1 million of which remained current and $68.6 million million of which are for an other-than-insignificant payment delay or term extension.