MBIN 10-K & 10-Q changes, risk factors and insider trading

Mortgage production, especially refinancing activity, declines in rising interest rate environments. Interest rates had been historically low in recent years, but the market has seenexperienced interest rate increases throughout 2023 and then a drop in mid-2024 before increasing again at the endmost of 2024.2024 Moreover,but ifbegan to decrease or stabilize during 2025. If interest rates increase further,increase, there can be no assurance that our mortgage production will continue at current levels. Because we sell a substantial portion of the mortgage loans we originate and purchase, the profitability of our mortgage banking business also depends in large part on our ability to aggregate a high volume of loans and sell them at a gain in the secondary market. Thus, in addition to our dependence on the interest rate environment, we are dependent upon (i) the existence of an active secondary market and (ii) our ability to profitably sell loans or securities into that market. If our level of mortgage production declines, the profitability will depend upon our ability to reduce our costs commensurate with the reduction of revenue from our mortgage operations. The Company also maintains a servicing rights asset for which changes in valuation serve as a natural hedge against the impact that rates have on production volume.

Our business and operations are sensitive to general business and economic conditions in the United States. If the national, regional or local economies experience worsening economic conditions, including high levels of unemployment, our growth and profitability could be constrained. Additionally, our ability to assess the credit worthiness of our customers is made more complex by uncertain business and economic conditions. Weak economic conditions are characterized by, among other indicators, deflation, elevated levels of unemployment, fluctuations in debt and equity capital markets, increased delinquencies on mortgage, commercial and consumer loans, residential and commercial real estate price declines, increases in nonperforming assets and foreclosures, lower home sales and commercial activity, and fluctuations in the multi-family FHA financing sector. Additionally,Interest 2022rates throughhad been historically low in recent years, but the market experienced interest rate increases throughout 2023 and most of 2024 hadbut elevatedbegan levelsto ofdecrease or stabilize during 2025. If inflation and interest rates, with a modest decline in interest rates during mid-2024, before increasing again near the end of 2024. If these conditions persist,increase, it could also cause increased volatility and uncertainty in the business environment, which could adversely affect loan demand and our clients’ ability to repay indebtedness. All of these factors are generally detrimental to our business. Our business is significantly affected by monetary and other regulatory policies of the U.S. federal government, its agencies and government-sponsored entities. Changes in any of these policies are influenced by macroeconomic conditions and other factors that are beyond our control, are difficult to predict and could have a material adverse effect on our business, financial position, results of operations and growth prospects.

We are required to comply with the SEC's rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of internal controls over financial reporting.

If we identify any material weaknesses in our internal control over financial reporting or are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors, counterparties and customers may lose confidence in the accuracy and completeness of our financial statements and reports; our liquidity, access to capital markets and perceptions of our creditworthiness could be adversely affected; and the market price of our common stock could decline. In addition, we could become subject to investigations by the stock exchange on which our securities are listed, the SEC, Federal Reserve, FDIC, IDFI, IDFPR, CFPB or other regulatory authorities, which could require additional financial and management resources. These events could have an adverse effect on our business, financial condition and results of operations.

Downgrades of the Company’sCompany’s, or its subsidiaries’ credit rating, and its perceived creditworthiness, could affect our ability to borrow funds and/or access capital markets on favorable terms. Such downgrades could adversely affect the future borrowings or capital raised, including substantially raising the costs and could cause creditors and business counterparties to raise collateral requirements. A downgrade of the credit rating may also adversely affect the market value of such instruments and, further, exacerbate the other risks to which we are subject and any related adverse effects on our business, financial condition, or results of operations. Downgrades could result from general industry-wide or regulatory factors not solely related to the Company, including conditions and factors caused by events that the Company has little or no control over.

Our business and growth strategies are built primarily upon our ability to retain employees with experience and business relationships within their respective market areas. We seek to manage the continuity of our executive management team through regular succession planning. As part of such succession planning, other executives and high performing individuals have been identified and are provided certain training in order to be prepared to assume particular management roles and responsibilities in the event of the departure of a member of our executive management team. However, the loss of Mr. Petrie or Mr. Dunlap, or any of our other key personnel could have an adverse impact on our business and growth because of their skills, years of industry experience, and knowledge of our market areas, our failure to develop and implement a viable succession plan, the difficulty of finding qualified replacement personnel, or any difficulties associated with transitioning of responsibilities to any new members of the executive management team. While ourcertain executive officers (exceptother forthan Mr. Petrie) are subject to non-competition and non-solicitation provisions as part of change in control agreements entered into with them and many of our multi-family mortgage originators and loan officers are generally subject to non-solicitation provisions as part of their employment, our ability to enforce such agreements may not fully mitigate the injury to our business from the breach of such agreements, as such employees could leave us and immediately begin soliciting our customers. The departure of any of our personnel who are not subject to enforceable non-competition and/or non-solicitation agreements could have a material adverse impact on our business, results of operations and growth prospects.

The use of statistical and quantitative models and other quantitative analyses is endemic to bank decision-making, and the employment of such analyses is becoming increasingly widespread in our operations. Liquidity stress testing, interest rate sensitivity analysis, allowance for credit losses computations, mortgage servicing rights valuations, and the identification of possible violations of anti-money laundering regulations are all examples of areas in which we are dependent on models and the data that underlies them. The use of statistical and quantitative models is also becoming more prevalent in regulatory compliance. While we are not currently subject to annual Dodd-Frank Act stress testing (DFAST) and the Comprehensive Capital Analysis and Review (CCAR) submissions, we anticipate that model-derived testing may become more extensively implemented by regulators in the future. We anticipate data-based modeling will penetrate further into bank decision-making, particularly risk management efforts, as the capacities developed to meet rigorous stress testing requirements are able to be employed more widely and in differing applications. While we believe these quantitative techniques and approaches improve our decision-making, they also create the possibility that faulty data or flawed quantitative approaches could negatively impact our decision-making ability or, if we become subject to regulatory stress-testing in the future, adverse regulatory scrutiny. Secondarily, because of the complexity inherent in these approaches, misunderstanding or misuse of their outputs could similarly result in suboptimal decision-making.

AtAs Decembera 31,financial 2024institution we had total assets of $18.8 billion. We expect to continue to exceedover $10 billion in total assets in the future. Upon crossing that threshold,assets, we becameare subject to increased regulatory scrutiny and expectations imposed by the Dodd-Frank Act.Act, including the direct oversight and examination authority of the CFPB. Compliance with the standards imposed by our regulators because of such scrutiny and expectations could increase our operational costs. Our regulators may also consider our compliance with their standards when examining our operations generally or considering any request for regulatory approval we may make.

Previously, while Merchants Bank was subject to regulations adopted by the CFPB, the FDIC was primarily responsible for examining Merchants Bank’s compliance with consumer protection laws and the CFPB’s regulations. However, in 2023, after exceeding $10 billion in total assets for four consecutive quarters, Merchants Bank became subject to direct examination of the CFPB. We cannot be certain how such direct examination will continue to impact us. Additionally, institutions over $10 billion are also subject to limits on interchange fees paid by merchants when debit cards are used as payment. However, any such limitation would have a minimal effect on us because interchange fees are not a material portion of our fee income.

The Baselfederal IIIbanking regulatoryregulations impose certain minimum capital reforms,requirements oron Baselfinancial III,institutions, notincluding only increased mostdefinitions of the required minimum regulatorywhat capital ratios, but also introduced a new common equity Tier 1 capital ratio and the concept of a capital conservation buffer. Basel III also expanded the definition of capital by establishing additional criteria that capital instruments must meet to be considered additionalconstitutes Tier 1 and Tier 2 capital.capital and establish a capital conservation buffer, and categorize financial institutions based on the institution’s capital levels in comparison to such minimum and buffer. In order to be acategorized as “well-capitalized” depository institution under Baselsuch III,regulations, an institution must maintain a common equity Tier 1 capital ratio of 6.5% or more; a Tier 1 capital ratio of 8% or more; a total capital ratio of 10% or more; and a leverage ratio of 5% or more. Institutions must also maintain a capital conservation buffer consisting of common equity Tier 1 capital.

The failure to meet applicable regulatory capital requirements could result in one or more of our regulators placing limitations or conditions on our activities, including our growth initiatives, or restricting the commencement of new activities, and could affect customer and investor confidence, our costs of funds and FDIC insurance costs, our ability to pay dividends on our common stock, our ability to make acquisitions, our ability to hold certain types of deposits, such as brokered deposits, and our business, results of operations and financial conditions, generally.

The Federal Reserve, FDIC, IDFI, IDFPR, Fannie Mae, Freddie Mac, FHA, RHS,USDA, and Ginnie Mae periodically examine our business, including our compliance with laws and regulations. If, as a result of an examination, a banking agency were to determine that our financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any of our operations had become unsatisfactory, or that we were in violation of any law or regulation, they may take a number of different remedial actions as they deem appropriate. These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to assess civil money penalties, to fine or remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate our deposit insurance and place us into receivership or conservatorship. Any regulatory action against us could have an adverse effect on our business, financial condition and results of operations.

The BSA, the Patriot Act and other laws and regulations require financial institutions, among other duties, to institute and maintain an effective anti-money laundering program and to file reports such as suspicious activity reports and currency transaction reports. We are required to comply with these and other anti-money laundering requirements. The federal banking agencies and FinCEN are authorized to impose significant civil money penalties for violations of those requirements and have recently engaged in coordinated enforcement efforts against banks and other financial services providers with the U.S. Department of Justice, Drug Enforcement Administration and Internal Revenue Service. We are also subject to increased scrutiny of compliance with the rules enforced by the Office of Foreign Assets Control. If our policies, procedures and systems are deemed deficient, we would be subject to liability, including fines and regulatory actions, which may include restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including our acquisition plans.

Discussion and Analysis of the Company’s financial condition and the results of operations for the year ended December 31, 20232024 compared to the year ended December 31, 20222023 is contained in Item 7 of Form 10-K for the year ended December 31, 20232024 filed with the SEC on MarchFebruary 12,28, 2024.2025.

We are a diversified bank holding company headquartered in Carmel, Indiana and registered under the Bank Holding Company Act of 1956, as amended. We currently operate in multiple business segments, including Multi-family Mortgage Banking that offers multi-family housing and healthcare facility financing and servicing, as well as syndicated low-income housing tax credit and debt funds; Mortgage Warehousing that offers mortgage warehouse financing, commercial loans, and deposit services; and Banking that offers portfolio lending for multi-family and healthcare facility loans, retail and correspondent residential mortgage banking, jumbo lending, agricultural lending, SBA lending, and traditional community banking.

Our business consists of funding low risk, multi-family, residential, and SBA loans meeting underwriting standards of government programs under an originate to selloriginate-to-sell model, and retaining adjustable-rate loans as held for investment to reduce interest rate risk. The gain on sale of these loans and servicing fees contribute to noninterest income. The funding source is primarily from mortgage custodial, municipal, retail, commercial,commercial and brokered deposits, andas well as short-term borrowing. We believe that the combination of net interest income and noninterest income from the sale of low risk profile assets resultshas traditionally resulted in lower than industry charge-offs and a lower expense base, which serves to maximize net income and higher than industry shareholder return.

Net interest income. Net interest income represents interest income less interest expense. We generate interest income from interest (net of deferred origination fees received and costs paid, which are amortized over the expected life of the loans) and fees received on interest-earning assets, including loans, investment securities, cash, and dividends on FHLB stock and other equity securities we own. We incur interest expense from interest paid on interest-bearing liabilities, including interest-bearing deposits and borrowings. Net interest income is the most significant contributor to our revenues and net income. To evaluate net interest income, we measure and monitor: (a) yields on our loans and other interest-earning assets; (b) duration on our loans, deposits, and borrowings; (c) the costs of our deposits and other funding sources; (d) our net interest margin; and (e) the regulatory risk weighting associated with the assets. Net interest margin is calculated as the annualized net interest income divided by average interest-earning assets. Because noninterest-bearing sources of funds, such as noninterest-bearing deposits and shareholders’ equity, also fund interest-earning assets, net interest margin includes the benefit of these noninterest-bearing sources.

Changes in market interest rates, the slope of the yield curve, and interest we earn on interest-earning assets or pay on interest-bearing liabilities, as well as the volume and types of interest-earning assets, interest-bearing and noninterest-bearing liabilities and shareholders’ equity, usually have the largest impact on changes in our net interest spread, net interest marginmargin, and net interest income during a reporting period.

Noninterest Income. Noninterest income consists of, among other things: (a) gain on sale of loans; (b) loan servicing fees; (c) fair value adjustments to the value of servicing rightsrights, derivatives, and certain loans; (d) mortgage warehouse fees; and (e) syndication and asset management fees; and (f) other noninterest income.

Gain on sale of loans includes placement and origination fees, capitalized servicing rights, trading gains and losses, exit and extension fees, gains and losses on certain derivatives and other related income. Loan servicing fees are collected as payments are received for loans in the servicing portfolio and reduced by amortization on servicing rights. Fair value adjustments to the value of servicing rights are also included in noninterest income. Mortgage warehouse fees are accrued at the time of funding. Syndication fee income is generally recognized at the point in time when investor equity capital is obtained primarily to acquire qualifying investments in LIHTC projects for its funds. Related asset management fees for syndicated LIHTC or debt funds are recognized over time. Other noninterest income includes the recognition and changes in value to protective derivatives associated with certain investment securities,securities and certain loans, as well as income earned on joint ventures.

Loan origination and servicing expenses include third party processing for financing activities and loan-related origination expenses. Occupancy expense includes depreciation expense on our owned properties, lease expense on our leased properties and other occupancy-related expenses. Equipment expense includes furniture, fixtures and equipment related expenses. Professional fees include legal, accounting, consulting and other outsourcing arrangements. FDIC insurance expense represents the assessments that we pay to the FDIC for deposit insurance. Technology expense includes data processing fees paid to our third-party data processing system provider, cybersecurity fees, and other data service providers. Credit risk transfer premium expense includes premiums paid for our credit default swap arrangements. Other general and administrative expenses include expensesthose associated with servicingcollateral expense,preservation activities associated with nonperforming loans, servicing, advertising, marketing, sponsorships, insurance, certain derivatives, travel, meals, training, supplies, and postage, among other miscellaneous expenses.fees and costs.

Noninterest expenses generally increase as we grow our business. Noninterest expenses have increased significantly over the past few years as we have grown organically,organically and asalso experienced challenges with nonperforming loans. Additionally, we have built out and modernized our operational infrastructure and implemented our plan to build an efficient, technology-driven mortgage banking operation with significant operational capacity for growth.

Asset Levels. We manage our asset levels based upon forecasted closings or fundings within our business segments to ensure we have the necessary liquidity and capital to meet the required regulatory capital ratios. Each segment evaluates its funding needs by forecasting the fundings and sales of loans, communicating with customers on their projected funding needs, and reviewing its opportunities to add new customers.

Liquidity. We manage our liquidity based upon factors that include: (a) ourthe amount of custodial and brokered deposits as a percentage of total deposits (b) the level of diversification of our funding sources (c) the allocation and amount of our deposits among deposit types (d) the short-term funding sources used to fund assets (e) the amount of non-deposit funding used to fund assets (f) the availability of unused funding sources; (g) off-balance sheet obligations; (h) the availability of assets to be readily converted into cash without a material loss on the investment; (i) the amount of cash and cash equivalentequivalents; (j) the repricing characteristics of our assets; (k) maturity and duration of our assets when compared to the repricing characteristics of our liabilities; (l) costs of available funding options; and (m) other factors.

Economic and Interest Rate Environment. TheOur operating results of our operations areremain highly dependent on economic conditions, mortgage volumes, and market interest rates. Residential mortgage volumes fluctuate based on market interest rates, economic conditions, and the credit parameters set by government agencies,agencies such as Fannie Mae, Freddie Mac, and Ginnie Mae, as these factors directly influence borrower demand, housing affordability, warehouse line utilization, and the performance of our retail mortgage, multifamily and other marketlending participants.activities.

ACL-Loans. One of our key operating objectives has been, and continues to be, maintenance of an appropriate level of ACL-Loans infor our loan portfolio. The provision for credit losses recorded in prior years was primarily due to growth in our loan portfolio, as our historical loss rates remainedwere very low. AsThe provision for credit losses recorded in 2025 was significantly affected by increases in specific reserves associated with certain multi-family loans impacted by declines in property values and the ongoing investigation of borrowers involved in mortgage fraud or suspected fraud. We expect loan growth to continue in 2026; however, we anticipate that our loan portfoliolower overall willprovision continuefor credit losses due to growa reduction in 2025,identified weimpairments couldon expectproblem loans. Future provision levels may vary based on the provisionemergence to increase, but could also be influenced byof any changes tonew problem loansloans, changes in our portfolio composition, or theshifts loan type mix within the portfolio. It could also be influenced byin external market factors,conditions, such asincluding interest rates and thebroader economic environment. Additional details are provided in the ACL-Loans portion of the Comparison of Financial Condition at December 31, 20242025 and December 31, 2023.2024. Because there could be unforeseen future losses, the Company continues to monitor the situation and may need to adjust future expectations as developments occur.

Issuance and Redemption of Preferred Stock. On April 1, 2024, the Company redeemed all outstanding shares of the 7.00% Fixed-to-Floating Rate Series A Non-Cumulative Perpetual Preferred Stock at a price equal to the liquidation preference of $25 per share, or $52.0 million, using cash on hand. The $1.8 million of expenses associated with the original issuance, which were capitalized in 2019, were recognized through retained earnings upon redemption, thus reducing net income available to common shareholders.

On November 25, 2024, the Company issued 9,200,000 depositary shares, each representing a 1/40th interest in a share of its 7.625% Fixed Rate Reset Series E Non-Cumulative Perpetual Preferred Stock, without par value, and with a liquidation preference of $1,000 per share (equivalent to $25 per depositary share). The aggregate gross offering proceeds for the shares issued by the Company was $230.0 million, and after deducting underwriting discounts and commissions and offering expenses of approximately $7.3 million paid to third parties, the Company received total net proceeds of $222.7 million.

Credit Risk Transfers, Loan Sales and Securitizations. Growth in the loan origination pipeline has prompted the Company to seek additional avenues to effectively manage regulatory capital levels and reduce credit risk, in addition to issuing preferred and common stock. Accordingly, we have completed several loan sale and securitization transactions, as well as credit default swaps and credit linkedcredit-linked notes. In doing so, the Company has been able to effectively reduce its risk-weighted assets and maintain well-capitalized capital ratios. In December 2025, the Company fully repaid its credit-linked notes. Also see Note 5: Loans and Allowance for Credit Losses on Loans.

General and Administrative Expenses. We expect to continue incurring increased noninterest expense attributable to general and administrative expenses related to building out and modernizing our operational infrastructure, marketing, and other administrative expenses to execute our strategic initiatives, as well as expenses to hire additional personnel and other costs required to continue our growth. We also expect costs to increase with additional regulatory compliance requirements.

NoninterestNet Interest Income. NoninterestNet interest income of $148.1$517.1 million for the year ended December 31, 20242025 increaseddecreased $33.4$5.6 million, or 29%,1%, compared to $114.7 million for the year ended December 31, 2023.2024. The increase1% wasdecrease primarilyreflected duea to$101.9 million, or 8% decrease in interest income from lower average yields on higher gainaverage balances on sale, increased loan servicing fees,loans and higherloans syndicationheld andfor asset management fees.sale. The increasesdecrease werein interest income was partially offset by a $96.3 million, or 12%, decrease in otherinterest noninterestexpense, income.primarily due to lower average balances on certificates of deposit at lower rates, as well as higher average balances at lower rates on borrowings.

Management’s discussion and analysis of the financial condition at MarchJune 31,30, 2026 and results of operations for the three and six months ended MarchJune 31,30, 2026 and 2025, is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto, appearing in Part I, Item 1 of this Form 10-Q.

The words “the Company,” “we,” “our,our” and “us” refer to Merchants Bancorp and its consolidated subsidiaries, unless we indicate otherwise.

Financial Highlights for the Three Months Ended MarchJune 31,30, 2026

Our business consists of funding low risk, multi-family, residential, and SBA loans meeting underwriting standards of government programs under an originate to sell model, and retaining adjustable-rate loans as held for investment to reduce interest rate risk. The gain on sale of these loans and servicing fees contribute to noninterest income. The funding source is primarily from mortgage custodial, retail, commercial, brokered deposits,deposits and short-term borrowings. We believe that the combination of net interest income and noninterest income from the sale of low risk profile assets has traditionally resulted in lower than industry charge-offs and a lower expense base, which serves to maximize net income and higher than industry shareholder return.

As of MarchJune 31,30, 2026, we had approximately $20.3$21.2 billion in total assets, $13.0$14.3 billion in deposits, and $2.3$2.4 billion in total shareholders’ equity. Total assets as of MarchJune 31,30, 2026 included $11.4$12.3 billion of loans receivable, net of ACL-LoansACL-Loans, and $4.7$4.6 billion of loans held for sale. Assets also included $1.4 billion in securities held to maturity and $843.9$820.1 million in securities available for sale, the majority of which were acquired from a warehouse customer. There are some restrictions on the types of securities we hold, particularly for those that are funded by certain multi-family custodial deposits where we set the cost of deposits based on the yield of the related security. Additionally, we had $437.0$407.4 million of mortgage loans in process of securitization that represent pre-sold multi-family rental real estate loan originations in primarily Ginnie Mae, Fannie Mae, and Freddie Mac mortgage-backed securities pending settlements that typically occur within 30 days, as well as other assets of $744.2$751.0 million, which primarily related to low-income housing tax credits, and $83.2$314.7 million of cash and cash equivalents. Servicing rights at MarchJune 31,30, 2026 were $229.6$236.9 million based on the fair value of the loan servicing, which primarily includes Ginnie Mae multi-family servicing rights with 10-year call protection.protection at origination.

Comparison of Financial Condition at MarchJune 31,30, 2026 and December 31, 2025

Total Assets. Total assets of $20.3$21.2 billion at MarchJune 31,30, 2026 increased $872.8$1.8 million,billion, or 4%,9%, compared to $19.4 billion at December 31, 2025. The increase was due primarily to growth in loans and loans held for sale, specifically in the warehousemulti-family and multi-family loanwarehouse portfolios, whichas werewell partiallyas offsetrevolving lines of credit collateralized by lowermortgage balancesservicing rights that are included in the healthcarecommercial loanand commercial real estate portfolio. Warehouse loans, including loans held for sale and loans receivable, are exclusively made up of loans to residential and multi-family mortgage bankers that are funding agency-eligible mortgages and commercial loans, which represent all of the Company’s loans to non-depository institutions.

Cash and Cash Equivalents. Cash and cash equivalents of $83.2$314.7 million at MarchJune 31,30, 2026 decreasedincreased $129.0$102.5 million, or 61%,48%, compared to $212.2 million at December 31, 2025. The decreaseincrease was primarily attributable to growthsatisfy in theanticipated loan portfolio.funding commitments.

Mortgage Loans in Process of Securitization. Mortgage loans in process of securitization of $437.0$407.4 million at MarchJune 31,30, 2026 decreased $183.1$212.7 million, or 30%,34%, compared to $620.1 million at December 31, 2025. These represent loans that our banking subsidiary, Merchants Bank, has funded and are held in the loan portfolio pending settlement, as primarily Ginnie Mae, Fannie Mae, and Freddie Mac mortgage-backed securities with a firm investor commitment to purchase the securities.

Securities Available for Sale. Securities available for sale of $843.9$820.1 million at MarchJune 31,30, 2026 decreased $21.2$45.0 million, or 2%,5%, compared to $865.1 million at December 31, 2025. The decrease in securities available for sale was primarily due to $225.5$305.3 million in calls, maturities, repayments, sales and other adjustments, partially offset by purchases of $204.3$260.4 million during the period.

Included in securities available for sale were $550.2$527.7 million and $571.3 million of investments for which a fair value option was elected at MarchJune 31,30, 2026 and December 31, 2025, respectively. Fair value option securities represent securities which the Company has elected to carry at fair value and are separately identified on the unaudited condensed consolidated balance sheets with changes in the fair value recognized in earnings as they occur.

As of MarchJune 31,30, 2026, AOCL of $0.8$1.2 million, related to securities available for sale increased $771,000$1.2 million from December 31, 2025. The $0.8$1.2 million of AOCL as of MarchJune 31,30, 2026 represented less than 0.001%0.15% of total equity and total securities available for sale, reflecting our interest rate risk policy of maintaining short duration on assets and liabilities.

Securities Held to Maturity. Securities held to maturity of $1.4 billion at MarchJune 31,30, 2026 decreased $117.7$188.8 million, or 8%,million compared to $1.5 billion at December 31, 2025. The decrease was due to repaymentsrepayments, and amortizationnet of securities totaling $117.7 million during the period.accretion.

Loans Held for Sale. Loans held for sale of $4.7$4.6 billion at MarchJune 31,30, 2026 increased $836.7$742.9 million, or 22%,19%, compared to $3.9 billion at December 31, 2025. The increase in loans held for sale was due primarily to a significant increase in single-family warehouse participations, as we experienced higher volume. Loans held for sale are comprised primarily of single-family residential real estate loan participations that meet Fannie Mae, Freddie Mac, or Ginnie Mae eligibility. Loans held for sale also includes single-family, SBA, and multi-family loans that are expected to be sold or securitized in the future.

Loans Receivable, Net. Loans receivable, net of ACL-Loans, of $11.4$12.3 billion at MarchJune 31,30, 2026, increased $448.5$1.3 millionbillion, or 12%, compared to $11.0 billion at December 31, 2025. The increase in net loans was comprised primarily of:

As of MarchJune 31,30, 2026, approximately 97% of total loans reprice within three months, which reduces the risk of market rate fluctuations.increases.

The Company is a nationwide lender, especially in our largest portfolios of multi-family, mortgage warehouse repurchase agreements,multi-family and healthcare financing.financing portfolios.

ACL-Loans. The ACL-Loans of $76.8$75.8 million at MarchJune 31,30, 2026 decreased $6.5$7.5 million, or 8%,9%, compared to $83.3 million at December 31, 2025. The decrease compared to December 31, 2025 was driven by $23.0a $12.1 million decrease in specific reserves partially offset by a $4.6 million increase in the pooled loan reserve. For the six months ended June 30, 2026, $34.1 million of net charge-offs that were partially offset by a $15.9$26.6 million increase in provision expensefor credit losses on loans. The latter was primarily associated with declines on certain multi-family property values, after receiving new appraisals, and the ongoing investigation of borrowers involved in mortgage fraud or suspected fraud, and loan growth. Additionally, the changes were attributable to certain types of subordinated loans that the Company no longer offers to borrowers. Losses on underperforming loans have been largely identified and have either been included in ACL-Loans as specific reserves or charged-off. Additional details are provided in the Asset Quality portion of the Comparison of Financial Condition at MarchJune 31,30, 2026 and December 31, 2025 and in Note 4: Loans and Allowance for Credit Losses on Loans.

Goodwill. Goodwill of $8.0 million at MarchJune 31,30, 2026 was unchanged compared to December 31, 2025.

Servicing Rights. Servicing rights of $229.6$236.9 million at MarchJune 31,30, 2026 increased $12.3$19.7 millionmillion, or 9%, compared to $217.3 million at December 31, 2025. During the threesix months ended MarchJune 31,30, 2026, a positive fair market value adjustment of $8.9$15.0 million and originated or purchased servicing of $5.9$9.9 million were partially offset by paydowns of $2.5$5.2 million. The $8.9$15.0 million positive fair market value adjustment reflected a positive adjustment of $7.4$12.0 million for multi-family and healthcare mortgages and $1.6a positive adjustment of $3.0 million for single-family mortgages and SBA loans during the threesix months ended MarchJune 31,30, 2026.

Servicing rights are recognized in connection with sales of loans when we retain servicing of the sold loans. The servicing rights are recorded and carried at fair value based on the expected future cash flows. The fair value increase recorded during the threesix months ended MarchJune 31,30, 2026 was driven by higher escrow earnings rates in the multi-family and healthcare servicing portfolios, which increased the expected cash flows from servicing activities. Lower prepayment assumptions in the single-family and healthcare portfolios also contributed to the higher servicing values. The value of servicing rights generally increases in rising 10-year interest rate environments and declines in falling interest rate environments due to expected prepayments.prepayments and earning rates that are influenced by projected future interest rates on escrow deposits.

Other Real Estate Owned. Other real estate owned of $60.2$72.4 million at MarchJune 31,30, 2026 increased $0.1$12.2 millionmillion, or 20%, compared to December 31, 2025.

Other Assets and Receivables. Other assets and receivables of $744.2$751.0 million at MarchJune 31,30, 2026 increased by $30.9$37.8 million, or 4%,5%, compared to December 31, 2025. The increase was primarily due to aan $22.9$11.8 million increase in incomeLIHTC tax receivable primarily related to tax credits purchased during the period.assets.

Deposits. Deposits of $13.0$14.3 billion at MarchJune 31,30, 2026 decreasedincreased $89.4$1.2 million,billion, or 1%,9%, compared to December 31, 2025. As of MarchJune 31,30, 2026, approximately 83%85% of the total deposits reprice within three months.

A summary of deposits as of MarchJune 31,30, 2026 and December 31, 2025 is below.

Core deposits increased by $781.4$1.7 million,billion, or 7%,15%, to $12.1$13.0 billion at MarchJune 31,30, 2026 compared to $11.3 billion at December 31, 2025. Core deposits represented 93%91% of total deposits at MarchJune 31,30, 2026 compared to 87% of total deposits at December 31, 2025.

We have decreased our use of total brokered deposits by $870.8$459.5 million, or 50%,26%, to $886.5$1.3 millionbillion at MarchJune 31,30, 2026,2026 compared to $1.8 billion at December 31, 2025. Brokered deposits represented 7%9% of total deposits at MarchJune 31,30, 2026,2026 compared to 13% of total deposits at December 31, 2025. As of MarchJune 31,30, 2026, brokered certificates of deposit had a weighted average remaining duration of 8851 days.

Interest-bearing deposits at MarchJune 31,30, 2026 increased $12.8$1.2 million,billion, or 10%, to $13.6 billion compared to $12.4 billion compared toat December 31, 2025, and noninterest-bearing deposits decreasedincreased $102.2$2.6 million, or 17%, to $501.9$606.7 million at MarchJune 31,30, 2026 compared to $604.1 million at December 31, 2025. The increase in interest-bearing deposits is primarily related to custodial account relationships.

Uninsured deposits totaled approximately $3.5$4.2 billion as of MarchJune 31,30, 2026, representing 27%29% of total deposits. Since 2018, the Company has offered its customers an opportunity to insure balances in excess of $250,000 through our insured cash sweep program that extends FDIC protection up to $100 million. The balance of deposits in this program was $1.5 billion and $1.4 billion as of MarchJune 31,30, 2026 and December 31, 2025, respectively.2025.

Borrowings. Borrowings of $4.8$4.3 billion at MarchJune 31,30, 2026 increased $930.9$440.0 million, or 24%,11%, compared to December 31, 2025. The higher level of collateralized borrowing was primarily due to increased borrowings at FHLB. The Company primarily utilizes borrowing facilities from the FHLB, the Federal Reserve’s discount window, AFX, and Federal Funds, using the most cost-effective options available. See Note 10: Borrowings for further information.

The Company continues to have significant borrowing capacity based on available collateral. As of MarchJune 31,30, 2026, unused lines of credit totaled $3.9$5.5 billion, an increase of 4%, compared to $5.3 billion at December 31, 2025. The Company’s ratio of total collateralized borrowing capacity to total assets was 42%46% at MarchJune 31,30, 2026,2026 compared to 47% as ofat December 31, 2025.

OtherDeferred and Current Tax Liabilities. OtherDeferred and current tax liabilities of $219.8 million at MarchJune 31,30, 2026 decreasedincreased $30.7$16.2 million, or 12%,48%, compared to $250.5$33.9 million at December 31, 2025. The decreaseincrease is primarily due to growth in otherservicing liabilities was primarily in accrued expensesassets and unfundedother commitmentsderivative for low-income housing credit investments.activity.

Total Shareholders’ Equity. Total shareholders’ equity was $2.3$2.4 billion asat ofJune March 31,30, 2026. The $49.5$113.0 million, or 2%,5%, increase compared to December 31, 2025 resulted primarily from net income of $67.7$146.0 million for the threesix months ended MarchJune 31,30, 2026. The increase was partially offset by dividends paid on common and preferred shares of $15.3$30.6 million during the periodperiod, as well as repurchases of common stock totaling $2.2 million. See Note 13: Common Stock for more details on the common stock repurchases.

During the three months ended MarchJune 31,30, 2026, the Company recorded charge-offs across sevenfive relationships, primarily in the healthcare and multi-family loan portfoliosportfolio totaling $23.0$16.5 million and had $616,000$4.8 million of recoveries compared to $10.5$46.1 million of charge-offs and $28,000 ofno recoveries for the three months ended MarchJune 31,30, 2025. Nearly 75% of the charge-offs for the three months ended March 31, 2026 were related to two relationships.

Overall criticized loans receivable of $505.5$444.7 million declined by $2.7$63.5 million, or 1%,12%, compared to $508.2 million at December 31, 2025 and $226.0decreased $144.4 million, or 31%,25%, compared to MarchJune 31,30, 2025. These declines reinforceare consistent with the viewCompany’s expectation that the frequency of migration to criticized status would stabilize and eventually subside, drivenand workout efforts would yield an increase in resolutions. As of June 30, 2026, 6% of the criticized loans were covered by favorablecredit marketdefault conditions and our efforts with proactive portfolio management.swaps.

Loans receivable classified as Special Mention totaled $234.3$214.8 million at MarchJune 31,30, 2026, increased $9.9 million, or 5%, compared to $204.9 million at December 31, 20252025, and $407.9increased $43.3 million, or 25%, compared to $171.5 million at MarchJune 31,30, 2025. Loans receivable classified as Substandard totaled $271.2$229.9 million at MarchJune 31,30, 2026, declining $73.3 million, or 24%, compared to $303.3 million at December 31, 20252025, and $323.6down million$187.7 atmillion, Marchor 31,45%, from June 30, 2025.

As of MarchJune 31,30, 2026, all Substandard loans have been evaluated for impairment, and these loans have specific reserves of $11.7$3.9 million. The Company believes that the remaining loans are well collateralized.

Total nonperforming loans (nonaccrual and greater than 90 days late but still accruing) were $247.5$205.6 million, or 2.16%1.67%, of total loans receivable, at MarchJune 31,30, 2026, compared to $197.8 million, or 1.79%, of total loans receivable at December 31, 2025 and $284.6$251.5 million, or 2.73%,2.39%, at MarchJune 31,30, 2025.

Loans receivable greater than 30 days past due were $242.3$207.7 million at MarchJune 31,30, 20262026, compared to $206.6 million at December 31, 20252025, and $304.6$279.0 million at MarchJune 31,30, 2025. As of MarchJune 31,30, 2026, 11%10% of the delinquent loans were covered by credit default swaps.

As a percentage of nonperforming loans, the ACL-Loans was 31%37% at MarchJune 31,30, 2026 compared to 42% at December 31, 2025 and 29%37% at MarchJune 31,30, 2025. The changes in percentage was primarily due to fluctuations in nonperforming loans.

The Company continues to reduce its credit risk through loan sales and securitization activities. Since 2024, the Company has strategically executed credit protection arrangements through credit default swaps to reduce riskpotential ofloss losses.exposure, Thewith coverage rangesranging from 13-15% of the unpaid principal balances for each arrangement. As of MarchJune 31,30, 2026, the unpaid principal balancebalances of loans protected by credit default swaps was $2.5$2.2 billion, compared to $2.8 billion as of December 31, 2025. Despite having credit protection on these loans, the Company is required to carry an allowance for credit losses on loans receivable. For additional information see Note 11: Derivative Financial Instruments and the Company’s 2025 Annual Report on Form 10–K.

The percentage of commercial real estate loans as a percentage of total Tier I risk-based capital, including the ACL-Loans, has declined from 324% to 309%301% from December 31, 2025 to MarchJune 31,30, 2026, respectively.

Comparison of Operating Results for the Three Months Ended MarchJune 31,30, 2026 and 2025

General. Net income of $67.7$78.3 million for the three months ended MarchJune 31,30, 2026 increased by $9.5$40.3 million, or 16%,106%, compared withto $38.0 million for the three months ended MarchJune 31,30, 2025. The improvementincrease was primarily attributabledriven toby a $22.9$43.8 million, or 97%,83%, increasedecrease in noninterestthe incomeprovision drivenfor principallycredit losses, reflecting improved asset quality. The results were also favorably impacted by higher positive fair value adjustments to mortgage servicing rights and certain derivatives. Net income also benefited from a $6.5$7.8 million, or 5%,million increase in net interest income.income, Theseand increasesa $4.1 million decrease in noninterest expense, which were partially offset by a $14.0 million, or 23%, increase in noninterest expense and a $7.6$10.6 million increase in the provision for creditincome losses.taxes, and a decrease of $4.8 million in noninterest income.

Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in weighted average interest rates (rate). The following table sets forth the effects of changing volumesrates and ratesvolumes on our net interest income during the periods shown. Information is provided with respect to (i) effects on interest income attributable to changes in volume (changes in volume multiplied by prior rate) and (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume). Yields have been calculated on a pre-tax basis.

The following table summarizes the increases and decreases in interest income and interest expense resulting from changes in average balances (volume) and changes in average interest rates (rate).:

Net Interest Income. Net interest income of $128.6$136.5 million for the three months ended MarchJune 31,30, 2026 increased $6.5$7.8 million, or 5%,6%, compared with $128.7 million for the three months ended MarchJune 31,30, 2025. The increase reflected lower interest expense on certificates of deposits and borrowings,deposit, partially offset by higher interest expense on interest-bearing checking accounts and lower interest income on loans and loanssecurities held forto sale.maturity.

Interest Income. Interest income of $270.5$294.1 million for the three months ended MarchJune 31,30, 2026,2026 decreased $16.7$10.3 million, or 6%,3%, compared with $287.2$304.4 million for the three months ended MarchJune 31,30, 2025. ThisThe decrease was primarily attributable to lower average balances and yields on securities held to maturity, as well as lower average yields on higher average balances on loans and loans held for sale, as well as lower average yields on lower average balances on securities held to maturity.sale.

Interest Expense. Total interest expenseincome of $141.9$18.1 million on securities held to maturity for the three months ended MarchJune 31,30, 2026, decreased $23.1$5.1 million, or 14%,22%, compared withto $165.0$23.2 million for the three months ended MarchJune 31,30, 2025.