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/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.

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 for the fiscal year ended December 31, 2025 (the “2025 Form 10-K”). Results of operations for the periods included in this quarterly report on Form 10-Q are not necessarily indicative of results to be obtained during any future period.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

•other risk factors listed from time to time in reports that the Company files with the U.S. Securities and Exchange Commission, or the SEC, including those described under “Risk Factors” in this Report; and

Previous wording

Bancshares is a financial holding company and a bank holding company headquartered in Wilmington, North Carolina incorporated under the laws of the state of North Carolina in December 2008. The Company conducts business operations primarily through its commercial bank subsidiary, Live Oak Banking Company (the “Bank”). The Bank was incorporated in February 2008 as a North Carolina-chartered commercial bank. The Bank specializes in providing lending and deposit related services to small businesses nationwide. A significant portion of the loans originated by the Bank are partially guaranteed by the SBA under the 7(a) Loan Program and the U.S. Department of Agriculture’s (“USDA”) Rural Energy for America Program (“REAP”), Water and Environmental Program (“WEP”), Business & Industry (“B&I”) and Community Facilities loan programs. These loans are to small businesses and professionals with what the Bank believes are lower risk characteristics. Industries, or “verticals,” on which the Bank focuses its lending efforts are carefully selected. The Bank also lends more broadly to select borrowers outside of those verticals.

Current wording

Bancshares is a financial holding company and a bank holding company headquartered in Wilmington, North Carolina incorporated under the laws of North Carolina in December 2008. The Company conducts business operations primarily through its commercial bank subsidiary, Live Oak Banking Company (the “Bank”). The Bank was incorporated in February 2008 as a North Carolina-chartered commercial bank. The Bank specializes in providing lending and deposit-related services to small businesses nationwide. A significant portion of the loans originated by the Bank are partially guaranteed by the U.S. Small Business Administration (“SBA”) under the 7(a) Loan program and the U.S. Department of Agriculture (“USDA”) Rural Energy for America Program (“REAP”), Water and Environmental Program (“WEP”), Business & Industry (“B&I”) and Community Facilities loan programs. These loans are to small businesses and professionals with what the Bank believes are lower risk characteristics. Industries, or “verticals,” on which the Bank focuses its lending efforts are carefully selected. The Bank also lends more broadly to select borrowers outside of those verticals.

Previous wording

As of September 30, 2025, the Company’s wholly owned material subsidiaries were the Bank, Government Loan Solutions (“GLS”), Live Oak Grove, LLC (“Grove”) and Live Oak Ventures, Inc. (“Live Oak Ventures”). GLS is a management and technology consulting firm that advises and offers solutions and services to participants in the government guaranteed lending sector. GLS primarily provides services in connection with the settlement, accounting, and securitization processes for government guaranteed loans, including loans originated under the SBA 7(a) loan programs and USDA guaranteed loans. The Grove provides Company employees and business visitors with on-site dining at the Company's Wilmington, North Carolina headquarters. Live Oak Ventures’ purpose is investing in businesses that align with the Company's strategic initiative to be a leader in financial technology. Canapi Advisors, LLC (“Canapi Advisors”) was a wholly owned subsidiary providing investment advisory services to a series of funds (the “Canapi Funds”) focused on providing venture capital to new and emerging financial technology companies. During the third quarter of 2024, the Canapi Funds were restructured and Canapi Advisors voluntarily withdrew as an investment advisor to the funds. Canapi Advisors was subsequently dissolved in the fourth quarter of 2024. As of December 31, 2024, Live Oak Ventures consolidated its investment in Synply, Inc. (“Synply”) as a result of its controlling interest in that entity. Synply is a cloud-based technology platform designed to simplify the loan syndication process for financial institutions and discloses the non-controlling interest according to the Company’s consolidation policy.

Current wording

As of March 31, 2026, the Company’s wholly owned material subsidiaries were the Bank, Government Loan Solutions (“GLS”), Live Oak Grove, LLC (“Grove”) and Live Oak Ventures, Inc. (“Live Oak Ventures”). GLS is a management and technology consulting firm that advises and offers solutions and services to participants in the government guaranteed lending sector. GLS primarily provides services in connection with the settlement, accounting, and securitization processes for government guaranteed loans, including loans originated under the SBA 7(a) loan programs and USDA guaranteed loans. The Grove provides Company employees and business visitors with on-site dining at the Company's Wilmington, North Carolina headquarters. Live Oak Ventures’ purpose is investing in businesses that align with the Company's strategic initiative to be a leader in financial technology. During the fourth quarter of 2024, Live Oak Ventures consolidated its investment in Synply, Inc. (“Synply”) as a result of its controlling interest in that entity. Synply is a cloud-based technology platform designed to simplify the loan syndication process for financial institutions. The non-controlling interest in Synply is disclosed according to the Company’s consolidation policy.

Previous wording

The Bank’s wholly owned subsidiaries are Live Oak Number One, Inc., Live Oak Clean Energy Financing LLC (“LOCEF”), Live Oak Private Wealth, LLC (“Live Oak Private Wealth”) and Tiburon Land Holdings, LLC (“TLH”). Live Oak Number One, Inc. holds properties foreclosed on by the Bank. LOCEF provides financing to entities for renewable energy applications. Live Oak Private Wealth provides high-net-worth individuals and families with strategic wealth and investment management services. TLH holds land adjacent to the Bank's headquarters consisting of wetlands and other protected property for the use and enjoyment of the Bank's employees and customers.

Current wording

As of March 31, 2026, the Bank’s wholly owned subsidiaries were Live Oak Number One, Inc., Live Oak Clean Energy Financing LLC (“LOCEF”), Live Oak Private Wealth, LLC (“Live Oak Private Wealth”) and Tiburon Land Holdings, LLC (“TLH”). Live Oak Number One, Inc. holds properties foreclosed on by the Bank. LOCEF provides financing to entities for renewable energy applications. Live Oak Private Wealth provides high-net-worth individuals and families with strategic wealth and investment management services. TLH holds land adjacent to the Bank's headquarters consisting of wetlands and other protected property for the use and enjoyment of the Bank's employees and customers.

Previous wording

The Company generates revenue primarily from net interest income and secondarily through origination and sale of government guaranteed loans. Income from the retention of loans is comprised principally of interest income. Income from the sale of loans is comprised of loan servicing revenue and revaluation of related servicing assets along with net gains on sales of loans. Offsetting these revenues are the cost of funding sources, provision for credit losses, any costs related to foreclosed assets and other operating costs such as salaries and employee benefits, travel, professional services, advertising and marketing and tax expense. The Company also has less routinely generated gains and losses arising from its financial technology investments.

Current wording

The Company generates revenue primarily from net interest income and secondarily through the origination and sale of government guaranteed loans. Income from the retention of loans consists principally of interest income. Income from the sale of loans is comprised of loan servicing revenue and revaluation of related servicing assets along with net gains on sales of loans. Offsetting these revenues are the cost of funding sources, provision for credit losses, any costs related to foreclosed assets and other operating costs such as salaries and employee benefits, travel, professional services, advertising and marketing and tax expense. The Company also has less routinely generated gains and losses arising from its financial technology investments.

Previous 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.

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous 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.

Current wording

For the three months ended March 31, 2026, net interest income increased $18.9 million, or 18.8%, to $119.4 million compared to $100.5 million for the three months ended March 31, 2025. 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 $2.06 billion, or 16.1%, to $14.82 billion for the first quarter of 2026, compared to $12.76 billion for the first quarter of 2025, while the yield on average interest-earning assets decreased 37 basis points to 6.40%. The cost of funds on interest-bearing liabilities for the first quarter of 2026 decreased 42 basis points to 3.48% and the average balance of interest-bearing liabilities increased by $1.63 billion, or 13.9%, over the first quarter of 2025.

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 $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.

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 $20.8 million outpacing growth in interest expense of $1.9 million for the first quarter of 2026 compared to the first quarter of 2025. The net interest margin increased from 3.20% for the first quarter of 2025 to 3.27% for the first quarter of 2026.

Previous 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.

Current wording

In March 2026, the Federal Reserve decided to maintain the federal funds upper target rate at 3.75%. The Federal Reserve released its most current federal funds target rate midpoint projections at its previous meeting in March 2026 which implied a decrease of approximately 25 basis points to 3.4% by the end of 2026 and a decrease of approximately 25 basis points to 3.1% by the end of 2027. There can be no assurance that any further decreases or increases in the Federal Funds rate will occur, and if they do, the amount and timing of actual adjustments are subject to change. See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” for information about the Company’s sensitivity to interest rates.

Previous wording

The provision for credit losses represents the amount necessary to be charged against the current period’s earnings to maintain the allowance for credit losses (“ACL”) on loans and leases at a level that the Company believes is appropriate in relation to the estimated losses inherent in the loan and lease portfolio. Beginning in the second quarter of 2024, expense related to off-balance sheet credit exposures was also included in the provision for credit losses in response to growth in the amount of loans with applicable off-balance sheet credit risk. See Note 10. Commitments and Contingencies under the subheading Financial Instruments with Off-Balance-Sheet Riskfor additional information.

Current wording

The provision for credit losses represents the amount necessary to be charged against the current period’s earnings to maintain the allowance for credit losses (“ACL”) on loans and leases at a level that the Company believes is appropriate in relation to the estimated losses inherent in the loan and lease portfolio. Expense related to off-balance sheet credit exposures is also included in the provision for credit losses. See Note 8. Commitments and Contingencies under the subheading Financial Instruments with Off-Balance-Sheet Riskfor additional information.

Previous wording

For the third quarter of 2025, there was a provision for credit losses of $22.2 million compared to $34.5 million for the same period in 2024, a decrease of $12.3 million. The decrease over the third quarter of 2024 was primarily driven by lower levels of specific reserves required on individually evaluated loans in the third quarter of 2025.

Current wording

For the first quarter of 2026, there was a provision for credit losses of $20.1 million compared to $29.0 million for the same period in 2025, a decrease of $8.9 million. The decrease over the first quarter of 2025 was primarily driven by lower levels of specific reserves required on individually evaluated loans in the first quarter of 2026.

Previous 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.

Current wording

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

Previous 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.

Current wording

Net charge-offs for loans and leases carried at historical cost were$18.6 million, or 0.63% of average quarterly loans and leases held for investment, carried at historical cost, on an annualized basis, for the three months ended March 31, 2026, compared to net charge-offs of $6.8 million, or 0.27%, for the three months ended March 31, 2025, an increase of $11.8 million, or 174.4%. The increase in net charge-offs in the first quarter of 2026 was largely concentrated to individually evaluated loans with specific reserves recorded in prior periods. Net charge-offs are a key element of historical experience in the Company's estimation of the allowance for credit losses on loans and leases.

Previous 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.

Current wording

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

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 (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.

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 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

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.

Current wording

Change in Loan Servicing Asset Revaluation: The Company revalues its serviced loan portfolio at least quarterly. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as adequate compensation for servicing, the discount rate, the custodial earnings rate, ancillary income, prepayment speeds and default rates and losses, with prepayment speed and discount rate being the most sensitive assumptions. For the three months ended March 31, 2026, there was a net loss on loan servicing asset revaluation of $3.5 million, compared to a net loss of $4.7 million for the three months ended March 31, 2025. The positive change in valuation of the servicing asset compared to the first quarter of 2025 was principally the result of improved market conditions in 2026.

Previous 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.

Current wording

Total noninterest expense for the three months ended March 31, 2026, increased $4.5 million, or 5.6%, compared to the same period in 2025. The changes within noninterest expense for the comparable three month periods was largely driven by components, discussed below.

Previous 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.

Current wording

Salaries and employee benefits: Total personnel expense for the three months ended March 31, 2026 increased by $3.8 million, or 8.4%, compared to the same period in 2025. The increase over the first three months of 2025 is principally related to investment in human resources to support strategic and growth initiatives. Salaries and employee benefits expense included $6.9 million of stock-based compensation for the three months ended March 31, 2026, compared to $6.8 million for the three months ended March 30, 2025, respectively. Expenses related to the employee stock purchase program, stock grants, stock option compensation and restricted stock expense are all considered stock-based compensation.

Previous 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.

Current wording

Other loan origination and maintenance expense: For the three months ended March 31, 2026, other loan origination and maintenance expense increased $1.3 million, or 29.1%, compared to the same period in 2025. This increase was primarily related to maintenance of the Company's ongoing growth in the guaranteed loan portfolio.

Previous 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.

Current wording

For the three months ended March 31, 2026, income tax expense was $10.1 million compared to income tax expense of $3.5 million in the first quarter of 2025, and the Company’s effective tax rates were 25.3% and 26.4%, respectively. The higher level of income tax expense for the first quarter of 2026 as compared to the first quarter of 2025 was largely the result of heightened pretax income during the current period.

Previous 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.

Current wording

Total assets at March 31, 2026 were $15.30 billion, an increase of $165.3 million, or 1.1%, compared to total assets of $15.13 billion at December 31, 2025. The growth in total assets was principally driven by total loans and leases held for investment and held for sale increasing by $199.9 million, or 1.6%, in 2026, from $12.39 billion at December 31, 2025 to $12.59 billion at March 31, 2026. This growth was a result of strong origination activity during the first quarter of 2026 of $1.37 billion.

Previous 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.

Current wording

Total deposits were $13.84 billion at March 31, 2026, an increase of $146.4 million, or 1.1%, from $13.69 billion at December 31, 2025. The increase in total deposits from the prior period was to support growth in the loan and lease portfolio as well as the Company's targeted liquidity levels. At March 31, 2026, the Bank’s total uninsured deposits were approximately $2.38 billion, or 17.0%, of total deposits.

Previous wording

Total shareholders' equity was $1.20 billion at September 30, 2025, an increase of $199.1 million, or 19.8%, from $1.00 billion at December 31, 2024. The increase in total shareholders' equity from the prior period was largely due to $96.3 million in net proceeds from the issuance of preferred stock during the quarter combined with net income of $59.5 million and other comprehensive income of $30.2 million.

Current wording

Total shareholders' equity was $1.28 billion at March 31, 2026, an increase of $27.7 million, or 2.2%, from $1.25 billion at December 31, 2025. The increase in total shareholders' equity from the prior period was largely due to net income of $29.9 million combined with net share-based compensation activity of $3.9 million, offset by other comprehensive loss of $2.7 million and cash dividends of $2.1 million and $1.4 million related to preferred and common stock shares, respectively.

Previous 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.

Current wording

Total nonperforming assets, including loans measured at fair value, at March 31, 2026 were $519.0 million, which represented a $53.1 million, or 9.3%, decrease from December 31, 2025. These nonperforming assets at March 31, 2026 were comprised of $507.0 million in nonaccrual loans and leases and $12.0 million in foreclosed assets. Of the $519.0 million of nonperforming assets, $391.0 million carried a government guarantee, leaving an unguaranteed exposure of $128.0 million in total nonperforming assets at March 31, 2026. This represents an increase of $16.8 million, or 15.1%, from an unguaranteed exposure of $111.2 million at December 31, 2025.

Previous 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.

Current wording

Nonperforming assets, excluding loans measured at fair value, at March 31, 2026 were $456.2 million, which represented a $53.2 million, or 10.4%, decrease from December 31, 2025. These nonperforming assets at March 31, 2026 were comprised of $444.2 million in nonaccrual loans and leases and $12.0 million in foreclosed assets. Of the $456.2 million of nonperforming assets, $336.1 million carried a government guarantee, leaving an unguaranteed exposure of $120.1 million in total nonperforming assets at March 31, 2026. This represents an increase of $17.3 million, or 16.9%, from an unguaranteed exposure of $102.8 million at December 31, 2025.

Previous 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.

Current wording

As a percentage of the Bank’s total capital, nonperforming loans and leases, excluding loans measured at fair value, represented 33.6% at March 31, 2026, compared to 39.0% at December 31, 2025. Adjusting the ratio to include only the unguaranteed portion of nonperforming loans and leases at historical cost to reflect management’s belief that the greater magnitude of risk resides in this portion, the ratios at March 31, 2026 and December 31, 2025 were 8.8% and 7.9%, respectively.

Previous 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.

Current wording

As of March 31, 2026, and December 31, 2025, potential problem (also referred to as criticized or Risk Grade 50) and classified loans and leases, excluding loans measured at fair value, totaled $1.33 billion and $1.39 billion, respectively. The following is a discussion of these loans and leases. Risk Grades 50 through 80 represent the spectrum of criticized and classified loans and leases. For a complete description of the risk grading system, see “Credit Quality Indicators” in Note 3 in the notes to consolidated financial statements in the Company’s 2025 Form 10-K. At March 31, 2026, the portion of criticized and classified loans and leases guaranteed by the SBA or USDA totaled$653.4 million and total portfolio unguaranteed exposure risk was$680.8 million, or 7.9% of total held for investment unguaranteed exposure carried at historical cost. This compares to the December 31, 2025 portion of criticized and classified loans and leases guaranteed by the SBA or USDA which totaled$669.8 million and total portfolio unguaranteed exposure risk was$719.9 million, or 8.6% of total held for investment unguaranteed exposure carried at historical cost.

Previous 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.

Current wording

Of the above listed verticals, Senior Housing, Sponsor Finance, Bioenergy, and Solar Energyare within the Company’s Commercial Banking division, the remainder of the above listed verticals are within the Small Business Banking division. The total $55.4 million decrease in potential problem and classified loans and leases in the first three months of 2026 was comprised of $15.5 million in increased levels of Risk Grade 50 loans and leases, as discussed below and $70.9 million in decreased levels of classified loans. The overall decrease in classified loans in the first quarter of 2026 was primarily driven by one $84.9 million Renewable Energy relationship that was moved out of loans resulting in no losses in the quarter due to the combination of a sale and related government guarantee. The remainder of the change (increase) is due to isolated borrower-specific credit migrations, including movement of several larger individual exposures and isolated industries into classified status based on performance trends identified through ongoing credit reviews. These changes largely reflect the effects of normal growth and isolated borrower performance migrations rather than any systemic credit deterioration. 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 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.

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 March 31, 2026, the Company had a total of $43.2 million in loans modified in 2026 to borrowers experiencing financial difficulty, excluding loans measured at fair value, $42.8 million of which remained current and $30.1 million of which are for an other-than-insignificant payment delay or term extension.

Previous wording

Management endeavors to be proactive in its approach to identify and resolve problem loans and leases and is focused on working with the borrowers and guarantors of these loans and leases to provide loan and lease modifications when warranted. Management implements a proactive approach to identifying and classifying loans and leases as special mention (also referred to as criticized), Risk Grade 50. At September 30, 2025, and December 31, 2024, Risk Grade 50 loans and leases, excluding loans measured at fair value, totaled $624.3 million and $529.9 million, respectively, for an increase of $94.4 million. Relative to total held for investment unguaranteed exposure carried at historical cost at December 31, 2024 and September 30, 2025, unguaranteed Risk Grade 50 loans and leases increased from $357.9 million, or 5.3%, to $442.9 million, or 5.5%, respectively. The increase in unguaranteed Risk Grade 50 loans and leases was primarily driven by higher levels of small business and commercial borrowers impacted by the challenging macroeconomic environment.

Current wording

Management endeavors to be proactive in its approach to identify and resolve problem loans and leases and is focused on working with the borrowers and guarantors of these loans and leases to provide loan and lease modifications when warranted. Management implements a proactive approach to identifying and classifying loans and leases as special mention (also referred to as criticized), Risk Grade 50. At March 31, 2026, and December 31, 2025, Risk Grade 50 loans and leases, excluding loans measured at fair value, totaled $742.7 million and $727.2 million, respectively, for an increase of $15.5 million. Relative to total held for investment unguaranteed exposure carried at historical cost at December 31, 2025 and March 31, 2026, unguaranteed Risk Grade 50 loans and leases decreased from $465.7 million, or 5.5%, to $462.3 million, or 5.3%, respectively.

Previous wording

The change in Risk Grade 50 loans and leases, exclusive of loans measured at fair value, during the first nine months of 2025 was principally confined to 13 verticals, as reflected above. Of the above listed verticals, Solar Energy, Sponsor Finance, Government Contractors, Senior Housing, Hospitality, and Commercial Real Estate Financing are within the Company’s Commercial Banking division and the remainder of the above listed verticals are within the Small Business Banking division.

Current wording

The change in Risk Grade 50 loans and leases, exclusive of loans measured at fair value, during the first three months of 2026 was principally confined to 13 verticals, as reflected above. Of the above listed verticals Sponsor Finance, Government Contractors, Senior Housing and Hotels are within the Company’s Commercial Banking division and the remainder of the above listed verticals are within the Small Business Banking division.

Previous wording

At September 30, 2025, approximately 99.5% of loans and leases classified as Risk Grade 50 are performing with no relationships having payments past due more than 30 days. While the level of nonperforming assets fluctuates in response to changing economic and market conditions, in light of the relative size and composition of the loan and lease portfolio and management’s degree of success in resolving problem assets, management believes that a proactive approach to early identification and intervention is critical to successfully managing a small business loan portfolio.

Current wording

At March 31, 2026, approximately 99.6% of loans and leases classified as Risk Grade 50 are performing with no relationships having payments past due more than 30 days. While the level of nonperforming assets fluctuates in response to changing economic and market conditions, in light of the relative size and composition of the loan and lease portfolio and management’s degree of success in resolving problem assets, management believes that a proactive approach to early identification and intervention is critical to successfully managing a small business loan portfolio.

Previous wording

The ACL of $167.5 million at December 31, 2024, increased by $18.2 million, or 10.9%, to $185.7 million at September 30, 2025. The ACL as a percentage of loans and leases held for investment at historical cost amounted to 1.7% at both December 31, 2024 and September 30, 2025, respectively. The increase in the ACL during the first nine months of 2025 was primarily the result of loan growth and charge off impacts amid a challenging macroeconomic environment, where elevated interest rates and inflationary pressures have placed financial strain on some small business and commercial borrowers. See also the above section captioned “Provision for Credit Losses” in “Results of Operations” for related information.

Current wording

The ACL of $192.3 million at December 31, 2025, increased by $1.0 million, or 0.5%, to $193.3 million at March 31, 2026. The ACL as a percentage of loans and leases held for investment at historical cost amounted to 1.6% at both December 31, 2025 and March 31, 2026. The increase in the ACL during the first three months of 2026 was primarily the result of loan growth and charge off impacts amid a challenging macroeconomic environment, where elevated interest rates and inflationary pressures have placed financial strain on some small business and commercial borrowers. See also the above section captioned “Provision for Credit Losses” in “Results of Operations” for related information.

Previous wording

Actual past due held for investment loans and leases, inclusive of loans measured at fair value, have increased by $147.4 million since December 31, 2024. Total loans and leases 90 or more days past due increased $46.0 million, or 18.0%, compared to December 31, 2024. This increase was comprised of a $185 thousand decrease in unguaranteed exposure combined with a $46.2 million increase in the guaranteed portion of past due loans compared to December 31, 2024. At September 30, 2025 and December 31, 2024, total held for investment unguaranteed loans and leases past due as a percentage of total held for investment unguaranteed loans and leases, inclusive of loans measured at fair value, was 1.4% and 1.3%, respectively. Total unguaranteed loans and leases past due were comprised of $103.8 million carried at historical cost, an increase of $26.4 million, and $8.0 million measured at fair value, a decrease of $2.2 million, as of September 30, 2025 compared to December 31, 2024. Management continues to actively monitor and work to improve asset quality. Management believes the ACL of $185.7 million at September 30, 2025 is appropriate in light of the risk inherent in the loan and lease portfolio. Management’s judgments are based on numerous assumptions about current and expected events that it believes to be reasonable, but which may or may not be valid. Accordingly, no assurance can be given that management’s ongoing evaluation of the loan and lease portfolio in light of changing economic conditions and other relevant circumstances will not require significant future additions to the ACL, thus adversely affecting the Company’s operating results. Additional information on the ACL is presented in Note 5. Loans and Leases Held for Investment and Credit Quality of the Unaudited Condensed Consolidated Financial Statements in this report.

Current wording

Actual past due held for investment loans and leases, inclusive of loans measured at fair value, have decreased by $40.2 million since December 31, 2025. Total loans and leases 90 or more days past due decreased $63.4 million, or 15.8%, compared to December 31, 2025. This decrease was comprised of a $4.2 million increase in unguaranteed exposure combined with a $67.7 million decrease in the guaranteed portion of past due loans compared to December 31, 2025. At March 31, 2026 and December 31, 2025, total held for investment unguaranteed loans and leases past due as a percentage of total held for investment unguaranteed loans and leases, inclusive of loans measured at fair value, was 1.1% and 0.9%, respectively. Total unguaranteed loans and leases past due were comprised of $89.0 million carried at historical cost, an increase of $19.8 million, and $7.6 million measured at fair value, a decrease of $266 thousand, as of March 31, 2026 compared to December 31, 2025. Management continues to actively monitor and work to improve asset quality. Management believes the ACL of $193.3 million at March 31, 2026 is appropriate in light of the risk inherent in the loan and lease portfolio. Management’s judgments are based on numerous assumptions about current and expected events that it believes to be reasonable, but which may or may not be valid. Accordingly, no assurance can be given that management’s ongoing evaluation of the loan and lease portfolio in light of changing economic conditions and other relevant circumstances will not require significant future additions to the ACL, thus adversely affecting the Company’s operating results. Additional information on the ACL is presented in Note 5. Loans and Leases Held for Investment and Credit Quality of the Unaudited Condensed Consolidated Financial Statements in this report.

Previous wording

Liquidity management refers to the ability to meet day-to-day cash flow requirements based primarily on activity in loan and deposit accounts of the Company’s customers. Liquidity is immediately available from four major sources: (a) cash on hand and on deposit at other banks; (b) the outstanding balance of federal funds sold; (c) the fair value of unpledged investment securities; and (d) availability under lines of credit, FHLB advances and the Federal Reserve Discount Window. A primary tool in the Company's liquidity management process is the utilization of an Outflow Coverage Ratio (“OCR”) model to stress outflows in various scenarios with targeted days of liquidity coverage. The OCR model output is then used by management to ensure adequate liquidity sources are available during those future periods. At September 30, 2025, the total amount of these four liquidity source items was $4.84 billion, or 33.0% of total assets, an increase of 0.6% of total assets from $4.20 billion, or 32.4% of total assets, at December 31, 2024.

Current wording

Liquidity management refers to the ability to meet day-to-day cash flow requirements based primarily on activity in loan and deposit accounts of the Company’s customers. Liquidity is immediately available from four major sources: (a) cash on hand and on deposit at other banks; (b) the outstanding balance of federal funds sold; (c) the fair value of unpledged investment securities; and (d) availability under lines of credit, FHLB advances and the Federal Reserve Discount Window. A primary tool in the Company's liquidity management process is the utilization of an Outflow Coverage Ratio (“OCR”) model to stress outflows in various scenarios with targeted days of liquidity coverage. The OCR model output is then used by management to ensure adequate liquidity sources are available during those future periods. At March 31, 2026, the total amount of these four liquidity source items was $4.96 billion, or 32.4% of total assets, an increase of 0.1% of total assets from $4.89 billion, or 32.3% of total assets, at December 31, 2025.