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

There are risks, many beyond our control, which could cause our results to differ significantly from management’s expectations. Some of these risk factors are described below. Any factor described in this Annual Report on Form 10-K could, by itself or together with one or more other factors, adversely affect our business, results of operations and/or financial condition. Additional risks and uncertainties not currently known to us or that we currently consider not to not be material also may materially and adversely affect us. In assessing these risks, you should also refer to other information disclosed in our SEC filings, including the financial statements and notes thereto. The risks discussed below also include forward-looking statements, and actual results may differ substantially from those discussed or implied in these forward-looking statements.

The United States generally and the regions in which we operate experienced significant inflationary pressures in 2022 and 2023, evidenced by higher gas prices, higher food prices and other consumer items. Inflation represents a loss in purchasing power because the value of investments does not keep up with inflation and erodes the purchasing power of money and the potential value of investments over time. In 2024 and early 2025, continued regional economic uncertainty, exacerbated by persistent inflation, supply chain disruptions, and subdued consumer spending, has further increased the risks in our primary markets. Accordingly, inflation can result in material adverse effects upon our customers, their businesses and, as a result, our financial position and results of operation.operations.

Inflationary pressures normally cause the Federal Reserve to increase interest rates, for instance, from March 2022 through July 2023. Increases in interest rates in the past have led to recessions of various lengths and intensities and might lead to such a recession in the future. Such a recession or any other adverse changes in business and economic conditions generally or specifically in the markets in which we operate could affect our business, including causing one or more of the following negative developments:

Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to their environmental, social and governance (“ESG”) practices and disclosure. Investor advocacy groups, investment funds and influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety, diversity, labor conditionsconditions, and human rights. Although the current U.S. administration may reduce regulatory burdens related to ESG, companies serving diverse stakeholder bases may face varied or conflicting expectations, requiring ongoing diligence to balance regulatory, market, and consumer pressures. Increased ESG-related compliance costs could result in higher overall operational expenses. Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, and our stock price. While U.S. federal regulations may become less stringent under the current U.S. administration, new government regulations globally could result in more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure. Concerns over the long-term impacts of climate change continue to lead to governmental efforts around the world to mitigate those impacts, even if federal action in the U.S. slows. Consumers and businesses may also adjust their behavior as a result of these concerns. We and our customers will need to respond to new laws and regulations, as well as consumer and business preferences resulting from climate change concerns. We and our customers may face cost increases, asset value reductions, operating process changes, among other impacts. The extent of these impacts will likely vary depending on our customer’s specific attributes, including reliance on or role in carbon-intensive activities. In addition, we could face reductions in creditworthiness on the part of some customers or in the value of assets securing loans. Our efforts to take these risks into account in making lending and other decisions may not fully protect us from the negative impact of new laws, regulations, or changes in consumer or business behavior. Even in the absence of stringent federal action in the U.S., the global and market-driven emphasis on ESG-related practices is expected to persist, requiring ongoing adaptation and investment.

We must effectively manage credit risk. As a lender, we are exposed to the risk that our borrowers will be unable to repay their loans according to their original contractual terms, and that the collateral securing repayment of their loans, if any, may not be sufficient to ensure repayment. This risk has been exacerbated in recent years by the effects of the COVID-19 pandemic, which disrupted global economic activity, caused supply chain challenges, and increased financial stress on borrowers. Additionally, this risk may be further impacted by future events with similar widespread economic effects, such as other pandemics, geopolitical conflicts, natural disasters, or significant market disruptions. Further there are risks inherent in making any loan, including risks relating to proper loan underwriting, risks resulting from changes in economic and industry conditions and risks inherent in dealing with individual borrowers, including the risk that a borrower may not provide information to us about its business in a timely manner, and/or may present inaccurate or incomplete information to us, and risks relating to the value of collateral. In order to manage credit risk successfully, we must, among other things, maintain disciplined and prudent underwriting standards and ensure that our lenders follow those standards. The weakening of these standards for any reason, such as an attempt to attract higher yielding loans, a lack of discipline or diligence by our employees in underwriting and monitoring loans, the inability of our employees to adequately adapt policies and procedures to changes in economic or any other conditions affecting borrowers and the quality of our loan portfolio, may result in loan defaults, foreclosures and additional charge-offs and may necessitate that we significantly increase our allowance for credit losses, each of which could adversely affect our net income. Our inability to successfully manage credit risk could have a material adverse effect on our business, financial condition or results of operations.

We maintain an ACL at a level we believe is adequate to absorb estimated credit losses that are expected to occur within the existing loan portfolio through their contractual terms.terms in accordance with applicable accounting standards. The level of the ACL is inherently subjective and is influenced by various factors, many of which are beyond our control, including, but not limited to, the performance of the loan portfolio, consideration of current economic trends, changes in interest rates and property values, estimated losses on pools of homogeneous loans based on an analysis that uses historical loss experience for prior periods that are determined to have like characteristics with management’s economic forecast period, such as pre-recessionary, recessionary, or recovery periods, portfolio growth and concentration risk, management and staffing changes, the interpretation of loan risk classifications by regulatory authorities and other credit market factors. Economic uncertainty remains elevated inentering 2025,2026, driven by persistent inflationary pressures, higher interest rates, geopolitical conflicts, and the potential for continued volatility in global markets.markets—despite forecasts for moderate growth in the U.S. and abroad. These factors may lead to a significant increase in our ACL in future periods. In addition, bank regulatory agencies periodically review our ACL and may require an increase in the provision for credit losses or the recognition of additional loan charge-offs, based on judgments different from those of management. If charge-offs in future periods exceed the ACL, we will need additional provisions to increase the allowance. Any increases in the ACL will result in a decrease in net income and capital and may have a material adverse effect on our financial condition and results of operations. We may be required to make significant increases in the provision for credit losses and to charge-off additional loans in the future.

The application of the purchase method of accounting in past acquisitions, more recently our five branch purchase and the resulting loans acquired from First Merchants Bank in 2024, our pending merger of Bancorp Financial,Financial in 2025, and any future acquisitions will impact our ACL. Under the purchase method of accounting, all acquired loans are recorded in our consolidated financial statements at their estimated fair value at the time of acquisition and any related acquired ACL is eliminated, as new credit marks are established on acquired loans based on an assessment of credit quality as of the acquisition date. To the extent that our estimates of fair value are too high, we will incur losses associated with the acquired loans.

Our loan portfolio generally reflects the profile of the communities in which we operate. Because we operate in areas that sawhave seen rapid historical growth, real estate lending of all types is a significant portion of our loan portfolio. Total real estate lending was $2.68$2.97 billion, or approximately 67.2%,56.5%, of our loan portfolio at December 31, 2024,2025, compared to $2.78$2.68 billion, or approximately 68.8%,67.2%, at December 31, 2023.2024. Given that the primary (if not only) source of collateral on these loans is real estate, adverse developments affecting real estate values in our market area could increase the credit risk associated with our real estate loan portfolio.

In addition, with respect to commercial real estate loans, the banking regulators are examining commercial real estate lending activity with greater scrutiny, and may require banks with higher levels of commercial real estate loans to implement enhanced underwriting, internal controls, risk management policies and portfolio stress testing, as well as possibly higher levels of allowances for credit losses and capital levels as a result of commercial real estate lending growth and exposures. At December 31, 2024,2025, our outstanding commercial real estate loans and undrawn commercial real estate commitments, excluding owner occupied real estate, were equal to 273.3%approximately 220.3% of our Tier 1 capital plus allowance for credit losses, a decrease from 286.9%273.3% at December 31, 2023.2024. In 2024,2025, we were able to maintain the level of our non-owner occupied commercial real estate loans under 300% of capital, as outlined in regulatory guidance, and are performing heightened monitoring over commercial real estate exposures, including concentration limits on commercial real estate type, sub-types and individual tenant exposure, frequent loan portfolio stress testing, as well as sensitivity analysis and using current and prospective market data during underwriting. Executive management and the Board are actively involved in the review of our commercial real estate portfolio and the approval of individual transactions, with transactions over $5.0 million approved by a management loan committee that includes our chief executive officer, our vice chairman, our chief credit officer, and our senior lending officer. Commercial real estate transactions over $20.0 million and a relationship credit exposure over $25.0 million require the additional approval of the Directors Loan Committee. Commercial real estate loans rated watch or worse are actively monitored and reviewed by management and the Board no less than quarterly. If our regulators require us to maintain higher levels of capital than we would otherwise be expected to maintain due to our commercial real estate concentration, this could limit our ability to leverage our capital and have a material adverse effect on our business, financial condition, results of operations and prospects. If the OCC, our primary regulator, were to impose restrictions on the amount of commercial real estate loans we can hold in our portfolio, our earnings would be adversely affected.

Our earnings and cash flows are largely dependent upon our net interest income. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions, our competition and policies of various governmental and regulatory agencies, particularly the Federal Reserve. Changes in monetary policy could influence our earnings. InThe Federal Reserve cut rates to near zero in March 2020, inthen responseraised tothem the COVID-19 pandemic, the Federal Reserve reduced the target Federal Funds rate toaggressively between zero and 0.25%. However, starting in March 2022 and continuingmid-2023 throughto mid-2023, the Federal Reserve raised thea target Federalrange Fundsof rate5.25%–5.50% to betweencombat 5.25%inflation. and 5.50% in response to persistent inflationary pressures. As of 2025, interest ratesRates remain elevated, and prolonged higher rates could result incompress net interest margin compressionmargins as interest-bearingfunding liabilitycosts ratesrise continuefaster tothan reprice upwards, while interest-earning assets may have already repriced to peakasset yields. Additionally, sustained high interest rates may also adversely affect our current borrowers’ ability to repay variable rate loans, the demand for loans and our ability to originate loans and decrease loan prepayment rates. Conversely, when interest rates fall, net interest income can decline if interest-earning assets mature or reprice more quickly, or to a greater degree than interest-bearing liabilities. Furthermore, a reduction in interest rates may lead to increased prepayments on our loan and mortgage-backed securities portfolios and increased competition for deposits. Although management believes it has implemented effective asset and liability management strategies to reduce the potential effects of changes in interest rates on our results of operations, any substantial, unexpected, prolonged change in market interest rates could continue to have a material adverse effect on our financial condition and results of operations.

Our nonperforming loans (which consist of nonaccrual loans and loans past due 90 days or more still accruing interest), were $52.8 million at December 31, 2025, an increase of 74.4%, compared to $30.3 million at December 31, 2024, a decrease of 55.9%, compared to $68.8 million at December 31, 2023.2024. Other real estate owned, or OREO, totaled $1.4 million at December 31, 2025, a decrease of 93.4%, compared to $21.6 million at December 31, 2024, an increase of 322.0%, compared to $5.1 million at December 31, 2023.2024. Our nonperforming assets adversely affect our net income in various ways. For example, we do not accrue interest income on nonaccrual loans and OREO may have expenses in excess of any lease revenues collected, thereby adversely affecting our net income, return on assets and return on equity. Our loan administration costs also increase because of our nonperforming assets. The resolution of nonperforming assets requires significant time commitments from management, which can be detrimental to the performance of their other responsibilities. There is no assurance that we will not experience increases in nonperforming assets in the future, or that our nonperforming assets will not result in losses in the future.

We face substantial competition in all areas of our operations from a variety of different competitors, many of which are larger and have more financial resources. We compete with commercial banks, credit unions, savings and loan associations, mortgage banking firms, other financial service businesses, including investment advisory and wealth management firms, mutual fund companies, and securities brokerage and investment banking firms, as well as super-regional, national and international financial institutions that operate offices in our primary market areas and elsewhere. Local competitors continue to expand their presence in the western suburbs of Chicago, including the communities that surround Aurora, Illinois, and these competitors may be better positioned than us to compete for loans, acquisitions and personnel. As customers’ preferences and expectations continue to evolve, technology has lowered barriers to entry and made it possible for banks to expand their geographic reach by providing services over the Internet and for non-banks to offer products and services traditionally provided by banks, such as business and consumer lending, automatic transfer and automatic payment systems. There has also been significant advancement, as well as setbacks, in the exchange of digital assets (“cryptocurrency”) that could continue to materially impact the financial services industry. We have not entered into or considered any transactions or custodial agreements regarding cryptocurrency. Because of this rapidly changing technology, our future success will depend in part on our ability to address our customers’ needs by using technology. Customer loyalty can be easily influenced by a competitor’s new products, especially offerings that could provide cost savings or a higher return to the customer. Moreover, the financial services industry could become even more competitive as a result of legislative and regulatory changes, and many large scale competitors can leverage economies of scale to offer better pricing for products and services compared to what we can offer. Likewise, rapid adoption of AI by competitors, either in financial services or FinTech, could create significant pressure on pricing, automation, or client satisfaction. If we fail to keep pace with AI-enabled analytics and customer offerings, our competitive positioning could be detrimentally impacted.

We compete with these other institutions in attracting deposits and assets under management, processing payment transactions, and in making loans. We may not be able to compete successfully with other financial institutions in our markets, particularly with larger financial institutions operating in our markets that have significantly greater resources than us and offer financial products and services that we are unable to offer, putting us at a disadvantage in competing with them for loans and deposits and wealth management clients, and we may have to pay higher interest rates to attract deposits, accept lower yields on loans to attract loans and pay higher wages for new employees, resulting in lower net interest margin and reduced profitability. In addition, competitors that are not depository institutions are generally not subject to the extensive regulations that apply to us. If we are unable to compete effectively with those banking or other financial services businesses, we could find it more difficult to attract new and retain existing clients and our net interest margin, net interest income and wealth management fees could decline, which would adversely affect our results of operations and could cause us to incur losses in the future.

We believe that our continued growth and future success will depend in large part on the skills of our executive officers and other key employees and our ability to motivate and retain these individuals, as well as our ability to attract, motivate and retain highly qualified senior and middle management and other skilled employees. Our business is primarily relationship-driven in that many of our key personnel have extensive customer or asset management relationships. Loss of key personnel with such relationships may lead to the loss of business if the customers were to follow that employee to a competitor or if asset management expertise was not replaced in a timely manner. Competition for employees is intense, and the process of locating key personnel with the combination of skills and attributes required to execute our business strategy may be lengthy. In 2021, there was a dramatic increase in workers leaving their positions throughout our industry and other industries that is being referred to as the “great resignation,” and the market to build, retain and replace talent then became even more highly competitive. These trends resulted in labor shortages in many of our markets, which made attracting new employees and replacing existing employees more difficult. However, by 2023, labor shortages began to ease somewhat, and while challenges persisted, the economy showed signs of stabilization in the labor market, improving workforce availability. While labor conditions have improved,continued to evolve through 2024 and 2025, talent retention and competition for skilled workers remain key concerns for many industries. We may not be successful in retaining key personnel, and the unexpected loss of services of one or more of our key personnel could have a material adverse effect on our business because of their skill, knowledge of our primary markets, years of industry experience and the difficulty of promptly finding qualified replacement personnel. If the services of any of our key personnel should become unavailable for any reason, we may not be able to identify and hire qualified persons on terms acceptable to the Company, or at all, which could have a material adverse effect on our business, financial condition, results of operation and future prospects.

We rely on software developed by third party vendors to process various Company transactions. In some cases, we have contracted with third parties to run their proprietary software on our behalf at a location under the control of the third party. These systems include, but are not limited to, core data processing, payroll, loan origination, wealth management record keeping, and securities portfolio management. While we perform a review of controls instituted by the vendor over these programs in accordance with industry standards and institute our own user controls, we must rely on the continued maintenance of the performance controls by these outside parties, including safeguards over the security of customer data. In addition, we create backup copies of key processing output daily in the event of a failure on the part of any of these systems. Nonetheless, we may incur a temporary disruption in our ability to conduct our business or process our transactions, or incur damage to our reputation if a third-party vendor fails to adequately maintain internal controls or institute necessary changes to systems. Our reliance on third-party vendors for critical systems and services therefore increases our exposure to cybersecurity risks. While regulatory expectations for vendor oversight have intensified, requiring enhanced due diligence and ongoing monitoring, failure of third-party controls could result in operational disruptions or data breaches. A disruption or breach of security may ultimately have a material adverse effect on our financial condition and results of operations.

Our use of third partythird-party vendors and our other ongoing third partythird-party business relationships are subject to regulatory requirements and attention.

We regularly use third party vendors as part of our business. We also have substantial ongoing business relationships with other third parties. These types of third partythird-party relationships are subject to demanding regulatory requirements and attention by our federal bank regulators. Recent regulationsupervisory requiresguidance and examination practices require us to enhance our due diligence, risk assessment, ongoing monitoring and control over our third partythird-party vendors and other ongoing third partythird-party business relationships. We expect that our regulators will hold us responsible for deficiencies in our oversight and control of our third partythird-party relationships and in the performance of the parties with which we have these relationships. As a result, if our regulators conclude that we have not exercised adequate oversight and control over our third party vendors or other ongoing third party business relationships or that such third parties have not performed appropriately, we could be subject to enforcement actions, including civil money penalties or other administrative or judicial penalties or fines as well as requirements for customer remediation, any of which could have a material adverse effect on our business, financial condition or results of operations.

Criminals committing fraud increasingly are using more sophisticated techniques and in some cases are part of larger criminal rings, which allow them to be more effective. The fraudulent activity has taken many forms, ranging from check fraud, mechanical devices attached to ATMs,ATMs (“skimming”), social engineering and phishing attacks to obtain personal information or impersonation of our clients through the use of falsified or stolen credentials. Additionally, an individual or business entity may properly identify themselves, particularly when banking online, yet seek to establish a business relationship for the purpose of perpetrating fraud. Further, in addition to fraud committed against us, we may suffer losses as a result of fraudulent activity committed against third parties. Increased deployment of technologies, such as chip card technology, multi-factor authentication, and active customer alerts defray and reduce aspects of fraud; however, criminals are turning to other sources to steal personally identifiable information, such as unaffiliated healthcare providers and government entities, in order to impersonate the consumer to commit fraud. Many of these data compromises are widely reported in the media. Further, as a result of the increased sophistication of fraud activity, we have increased our spending on systems and controls to detect and prevent fraud. This will result in continued ongoing investments in the future.

The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driventechnology driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driventechnology driven products and services or be successful in marketing these products and services to our customers. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business, financial condition and results of operations.

In addition to cyber-attacks or other security breaches involving the theft of sensitive and confidential information, hackers have engaged in attacks against large financial institutions, particularly denial of service attacks that are designed to disrupt key business services, such as customer-facing web sites. We operate in an industry where otherwise effective preventive measures against security breaches become vulnerable as breach strategies change frequently and cyber-attacks can originate from a wide variety of sources. It is possible that a cyber-incident, such as a security breach, may be undetected for a period of time. However, applying guidance from the Federal Financial Institutions Examination Council,Council and our primary federal regulator, we have identified security risks and employemployed risk mitigation controls. Following a layered security approach, we have analyzed and will continue to analyze security related to device specific considerations, user access topics, transaction-processing and network integrity. We expect that we will spend additional time and will incur additional costs going forward to modify and enhance protective measures and that effort and spending will continue to be required to investigate and remediate any information security vulnerabilities.

We also face risks related to cyber-attacks and other security breaches in connection with credit card and debit card transactions that typically involve the transmission of sensitive information regarding our customers through various third parties, including merchant-acquiring banks, payment processors, payment card networks and their processors. Some of these parties have in the past been the target of security breaches and cyber-attacks. Because these third parties and related environments such as the point-of-sale are not under our direct control, future security breaches or cyber-attacks affecting any of these third parties could impact usus, and in some casescases, we may have risk exposure and suffer losses for breaches or attacks. We offer our customers protection against fraud and attendant losses for unauthorized use of debit cards in order to stay competitive in the marketplace. Offering such protection exposes us to potential losses which, in the event of a data breach at one or more retailers of considerable magnitude, may adversely affect our business, financial condition, and results of operation.operations. Further cyber-attacks or other breaches in the future, whether affecting us or others, could intensify consumer concern and regulatory focus and result in reduced use of payment cards and increased costs, all of which could have a material adverse effect on our business. To the extent we are involved in any future cyber-attacks or other breaches, our reputation could be affected which may have a material adverse effect on our business, financial condition or results of operations.

We or our third-party (or fourth party) vendors, clients or counterparties may develop or incorporate AI technology in certain business processes, services, or products. The development and use of AI presentspresent a number of risks and challenges to our business. The legal and regulatory environment relating to AI is uncertain and rapidly evolving, both in the U.S. and internationally, and includes regulatory schemes targeted specifically at AI as well as provisions in intellectual property, privacy, consumer protection, employment, and other laws applicable to the use of AI. These evolving laws and regulations could require changes in our implementation of AI technology and increase our compliance costs and the risk of non-compliance. AI models, particularly generative AI models, may produce output or take action that is incorrect, thatresulting reflectsin “hallucinations”, or including biases included in the data on which they are trained, that resultsresulting in the release of private, confidential, or proprietary information, that infringes on the intellectual property rights of others, or that is otherwise harmful.harmful or false. In addition, the complexity of many AI models makes it difficult to understand why they are generating particular outputs. This limited transparency increases the challenges associated with assessing the proper operation of AI models, understanding and monitoring the capabilities of the AI models, reducing erroneous output, eliminating bias, and complying with regulations that require documentation or explanation of the basis on which decisions are made. Further, we may rely on AI models developed by third parties, and, to that extent, would be dependent in part on the manner in which those third parties develop and train their models, including risks arising from the inclusion of any unauthorized material in the training data for their models and the effectiveness of the steps these third parties have taken to limit the risks associated with the output of their models, matters over which we may have limited visibility. Any of these risks could expose us to liability or adverse legal or regulatory consequences and harm our reputation and the public perception of our business or the effectiveness of our security measures.

There can be no assurance that we will be able to continue to grow and to be profitable in future periods, or, if profitable, that our overall earnings will remain consistent or increase in the future. Our strategy is focused on organic growth, supplemented by opportunistic acquisitions, including our five branchfive-branch purchase from First Merchants Bank in 2024, and our pending merger with Bancorp Financial.Financial in 2025. Our growth requires that we increase our loans and deposits while managing risks by following prudent loan underwriting standards without increasing interest rate risk or compressing our net interest margin, maintaining more than adequate capital and liquidity levels at all times, hiring and retaining qualified employees and successfully implementing strategic projects and initiatives. Even if we are able to increase our interest income, our earnings may nonetheless be reduced by increased expenses, such as additional employee compensation or other general and administrative expenses and increased interest expense on any liabilities incurred or deposits solicited to fund increases in assets. Additionally, if our competitors extend credit on terms we find to pose excessive risks, or at interest rates which we believe do not warrant the credit exposure, we may not be able to maintain our lending volume and could experience deteriorating financial performance. Our inability to manage our growth successfully or to continue to expand into new markets could have a material adverse effect on our business, financial condition or results of operations.

We may be exposed to difficulties in combining the operations of acquired or merged businesses, including First Merchants,Merchants and if completed, our merger with Bancorp Financial, into our own operations, which may prevent us from achieving the expected benefits from our merger and acquisition activities.

We may not be able to fully achieve the strategic objectives and operating efficiencies that we anticipate in our merger and acquisition activities, including with respect to our merger with our five branch acquisition from First Merchants Bank,Bank and our pending merger with Bancorp Financial. Inherent uncertainties exist in integrating the operations of an acquired or merged business. WeSuch mayintegration could cause us to lose our customers or the customers of acquired or merged entities as a result of an acquisition. We may also lose key personnel from the acquired entity as a result of an acquisition. We may not discover all known and unknown factors when examining a company for acquisition or merger during the due diligence period. These factors could produce unintended and unexpected consequences for us. Undiscovered factors as a result of an acquisition or merger could bring civil, criminal, and financial liabilities against us, our management, and the management of those entities we acquire or merge with. In addition, if difficulties arise with respect to the integration process, the economic benefits expected to result from acquisitions and mergers might not occur. Failure to successfully integrate businesses that we acquire or merge with could have an adverse effect on our profitability, return on equity, return on assets, or our ability to implement our strategy, any of which in turn could have a material adverse effect on our business, financial condition and results of operations. These factors could contribute to our not achieving the expected benefits from our mergers and acquisitions within desired time frames, if at all.

Our available-for-sale securities are carried at estimated fair value. The determination of fair value for securities categorized in Level 2 or Level 3 involves significant judgment due to the complexity of the factors contributing to the valuation, many of which are not readily observable in the market. Recent market disruptions and the resulting fluctuations in fair value have made the valuation process even more difficult and subjective. If the valuations are incorrect, it could harm our financial results and financial condition.

The 2023 high-profile bank failures involving Silicon Valley Bank, Signature Bank, and First Republic Bank caused general uncertainty and concern regarding the liquidity adequacy of the banking sector. Although we were not directly affected by these bank failures, the resulting speed and ease in which news, including social media commentary, led depositors to withdraw or attempt to withdraw their funds from these and other financial institutions caused the stock prices of many financial institutions to become volatile. In 2024 and into 2025, continued concerns regarding the stability of certain regional banks and potential liquidity risks have further contributed to market volatility and investor caution. The failure of the Santa Anna National Bank and Pulaski Savings Bank in 2025, and the early 2026 bank failure of Metropolitan Capital Bank & Trust, has only added to this uncertainty. Additional bank failures could have an adverse effect on our financial condition and results of operations, either directly or through an adverse impact on certain of our customers.

In response to the bank failures and the resulting market reaction, in March 2023 the Secretary of the Treasury approved actions enabling the FDIC to complete its resolutions of the failed banks in a manner that fully protects depositors by utilizing the Deposit Insurance Fund, including the use of Bridge Banks to assume all of the deposit obligations of the failed banks, while leaving unsecured lenders and equity holders of such institutions exposed to losses. In addition, the Federal Reserve announced it would make available additional funding to eligible depository institutions under a Bank Term Funding Program to help assure banks have the ability to meet the needs of all their depositors. However, the Federal Reserve ceased extending credit under the Bank Term Funding Program on March 11, 2024. In an effort to strengthen public confidence in the banking system and protect depositors, regulators announced that any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law, which increased our FDIC insurance assessment and increased our costs of doing business. However, it is uncertain whether these steps by the government will continue to be sufficient to calm financial markets, reduce the risk of significant depositor withdrawals at other institutions and thereby reduce the risk of additional bank failures. As a result of this uncertainty, we face the potential for reputational risk, deposit outflows, increased costs and competition for liquidity, and increased credit risk which, individually or in the aggregate, could have a material adverse effect on our business, financial condition and results of operations.

In 2025, theThe U.S. political landscape remains uncertain,fluid, withand the Republicans holding the majoritychanges in bothCongressional thecomposition, U.S.presidential House of Representativesadministrations, and theagency U.S. Senate. A unified Republican Congress has created conditions for potential shifts in policy, though partisan divisionleadership may still result in challengesshift toin enactingregulatory sweepingpriorities reforms.and policy direction. Under the Biden Administration, Congressional committees with jurisdiction over the banking sector pursued oversight and legislative initiatives in a variety of areas, including addressing climate-related risks, promoting diversity and equality within the banking industry and addressing other ESG matters, improving competition in the banking sector and enhancing oversight of bank mergers and acquisitions, establishing a regulatory framework for digital assets and markets, and oversight of pandemic responses and economic recovery. TheSubsequent Trumpchanges Administration,in alongsideadministration aand unifiedCongressional Republican Congress,leadership may pursueresult policiesin efforts to reverse, suspend, or changesmodify thatregulatory (i)initiatives reverseadopted orin suspendprior key actions implemented under the Biden Administration, (ii)periods, promote deregulation by easing regulatory burdens on financial institutions, (iii) adopt a technology-forward regulatory approach, and (iv)or take a more favorable stance on bank mergers and acquisitions, potentially streamlining the approval process to encourage consolidation within the banking sector. The prospects for the enactment of major banking reform legislation remain unclear at this time.acquisitions.

Furthermore, leadership changes within federal banking agencies and financial regulators continue to shape the regulatory environment. Since therecent changechanges in presidential administration in 2020,administrations, key positions across agencies — including the Comptroller of the Currency, CFPB, CFTC, SEC, and the U.S. Treasury — have experienced significantperiods turnover.of Whileturnover someand leadership positions were filled, others remained vacant,transition, leading to ongoing shifts in regulatory priorities and enforcement approaches. TheFuture unifiedchanges Republicanin governmentagency couldleadership may further alter theregulatory compositionpolicies, ofsupervisory these agencies, introducing new leadershipfocus, and newenforcement policies and rules that could significantly impact the banking sector.activity. The potential impact of thechanges unified Republicanin government leadership and any additional changes in agency personnel, policies and priorities on the financial services sector, including the Company and the Bank, cannot be fully predicted at this time. Regulations and laws may be modified at any time, and new legislation may be enacted that will affect us. Any future changes in federal and state laws and regulations, as well as the interpretation and implementation of such laws and regulations, could affect us in substantial and unpredictable ways, including those listed above or other ways that could have a material adverse effect on our business, financial condition or results of operations.

Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. Our management must exercise judgment in selecting and applying many of these accounting policies and methods so they comply with GAAP and reflect management’s judgment of the most appropriate manner in which to report our financial condition and results. In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which may be reasonable under the circumstances, yet which may result in our reporting materially different results than would have been reported under a different alternative. These judgments are often based on assumptions about future economic conditions, borrower behavior, interest rates, and market conditions, which may differ materially from actual outcomes.

Certain accounting policies are critical to presenting our financial condition and results of operations. They require management to make difficult, subjective or complex judgments about matters that are uncertain. Materially different amounts could be reported under different conditions or using different assumptions or estimates. These critical accounting policies include the allowance for credit losses and fair value methodologies. Because of the uncertainty of estimates involved in these matters, we may be required to significantly increase the ACL or sustain credit losses that are significantly higher than the reserve provided, reduce the carrying value of an asset measured at fair value, or significantly increase liabilities measured at fair value. In addition, changes in regulatory guidance, supervisory expectations, or examination findings may result in required changes to our methodologies or assumptions. Any of these could have a material adverse effect on our business, financial condition or results of operations.

Our internal controls, disclosure controls, processes and procedures, and corporate governance policies and procedures are based in part on certain assumptions and can provide only reasonable (not absolute) assurances that the objectives of the system are met. Any failure or circumvention of our controls, processes and procedures or failure to comply with regulations related to controls, processes and procedures could necessitate changes in those controls, processes and procedures, which may increase our compliance costs, divert management attention from our business or subject us to regulatory actions and increased regulatory scrutiny. In addition, deficiencies in internal control over financial reporting could result in restatements, delayed filings, or adverse market reactions. Any of these could have a material adverse effect on our business, financial condition or results of operations.

We are subject to federal and state fair lending laws, and failure to comply with these laws could lead to material penalties.

Federal and state fair lending laws and regulations, such as the Equal Credit Opportunity Act and the Fair Housing Act, impose nondiscriminatory lending requirements on financial institutions. The DOJ, the CFPB and other federal and state agencies are responsible for enforcing these laws and regulations. Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation. Regulatory standards and enforcement priorities in this area may change over time, including through changes in interpretations, supervisory guidance, or enforcement approaches. A successful challenge to our performance under the fair lending laws and regulations could adversely impact our rating under the Community Reinvestment Act and result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on merger and acquisition activity and restrictions on expansion activity, which could negatively impact our reputation, business, financial condition and results of operations.

We compute our income tax provision based on enacted tax rates in the jurisdictions in which we operate. Any change in enacted tax laws, rules or regulatory or judicial interpretations, or any change in the pronouncements relating to accounting for income taxes could adversely affect our effective tax rate, tax payments and results of operations. The taxing authorities in the jurisdictions in which we operate may challenge our tax positions, which could increase our effective tax rate and harm our financial position and results of operations. We are subject to audit and review by U.S. federal and state tax authorities. Any adverse outcome of such a review or audit could have a negative effect on our financial position and results of operations. In addition, we are subject to income, franchise and other taxes in numerous state and local jurisdictions, and our state and local tax obligations are subject to differing and evolving tax laws, regulations and interpretations. We currently file income tax returns in multiple states and may be subject to additional state tax filing obligations, including as a result of nexus standards, apportionment methodologies or changes in state tax law. We may from time to time enter into voluntary disclosure agreements (“VDAs”) or be subject to audits or inquiries by state and local taxing authorities. Any adverse change in state or local tax laws or interpretations, or any adverse outcome of a state or local tax audit, review, inquiry or VDA process, could increase our tax liabilities, result in the assessment of penalties or interest, and adversely affect our financial position and results of operations.

In addition, deferredDeferred tax assets are reported as assets on our balance sheet and represent the decrease in taxes expected to be paid in the future because of net operating losses (“NOLs”) and tax credit carryforwards and because of future reversals of temporary differences in the bases of assets and liabilities as measured by enacted tax laws and their bases as reported in the financial statements. As of December 31, 2024,2025, we had net deferred tax assets of $26.6$31.3 million, which included a $18.6$11.2 million tax effect of adjustments related to other comprehensive income. Realization of deferred tax assets is dependent upon the generation of sufficient future taxable income during the periods in which existing deferred tax assets are expected to become deductible for income tax purposes. Adverse economic conditions or reduced profitability could limit our ability to realize these deferred tax assets. Changes in enacted tax laws, such as adoption of a lower income tax rate in any of the jurisdictions in which we operate, could impact our ability to obtain the future tax benefits represented by our deferred tax assets. Our deferred tax asset may be further reduced in the future if estimates of future income or our tax planning strategies do not support the amount of the deferred tax asset. Charges to establish a valuation allowance with respect to our deferred tax asset could have a material adverse effect on our financial condition and results of operations.

Some of the services we provide, such as wealth management services through River Street Advisors, LLC, require us to act as fiduciaries for our customers and others. Customers make claims and on occasion take legal action pertaining to our performance of our fiduciary responsibilities. In addition, evolving regulatory standards, litigation theories, and fiduciary expectations may increase the scope or frequency of such claims. Whether customer claims and legal action related to our performance of our fiduciary responsibilities are founded or unfounded, if such claims and legal action are not resolved in a manner favorable to us, they may result in significant financial liability and/or adversely affect the market perception of us and our products and services as well as impact customer demand for those products and services. Any financial liability or reputational damage could have a material adverse effect on our business, which, in turn, could have a material adverse impact on our financial condition and results of operations.

Currently, there are certain other legal proceedings pending against the Company and our subsidiaries in the ordinary course of business. While the outcome of any legal proceeding is inherently uncertain, based on information currently available, the Company’s management believes that any liabilities arising from pending legal matters would not have a material adverse effect on us or our consolidated financial statements. However, adverse rulings, settlements, or regulatory actions could result in outcomes that differ materially from management’s expectations. However, if actual results differ from management’s expectations, it could have a material adverse effect on our financial condition, results of operations, or cash flows.

Many aspects of the banking business involve a substantial risk of legal liability. From time to time, we are, or may become, the subject of information-gathering requests, reviews, investigations and proceedings, and other forms of regulatory inquiry, including by bank regulatory agencies, self-regulatory agencies, the SEC, and law enforcement authorities. The results of such proceedings could lead to significant civil or criminal penalties, including monetary penalties, damages, adverse judgements,judgments, settlements, fines, injunctions, restrictions on the way we conduct our business or reputational harm. Even where no enforcement action is ultimately taken, responding to such matters may result in significant management distraction and expense.

We may need to raise additional capital, in the form of debt or equity securities, in the future to have sufficient capital resources to meet our commitments and fund our business needs and future growth, particularly if the quality of our assets or earnings were to deteriorate significantly. In addition, the Company and the Bank are each required by federal regulatory authorities to maintain adequate levels of capital to support their operations.operations and to comply with evolving regulatory capital expectations, including stress testing, capital planning, and concentration risk considerations.

Our ability to raise capital will depend on, among other things, conditions in the capital markets,markets and market listing rules—which are outside of our control, control—and our financial performance. Accordingly, we cannot provide assurance that such capital will be available on terms acceptable to us or at all. Any occurrence that limits our access to capital, may adversely affect our capital costs and our ability to raise capital and, in turn, our liquidity. Market volatility, increased regulatory scrutiny of financial institutions, or adverse perceptions regarding the banking industry could further constrain capital availability. Further, if we need to raise capital in the future we may have to do so when many other financial institutions are also seeking to raise capital and would then have to compete with those institutions for investors. Any inability to raise capital on acceptable terms when needed could have a material adverse effect on our business, financial condition and results of operations and could be dilutive to both tangible book value and our share price.

In addition, an inability to raise capital when needed may subject us to increased regulatory supervision and the imposition of restrictions on our growth and business. These restrictions could negatively affect our ability to operate or further expand our operations through loan growth, acquisitions or the establishment of additional branches. Regulators could also limit capital distributions, including dividends or share repurchases. These restrictions may also result in increases in operating expenses and reductions in revenues that could have a material adverse effect on our financial condition, results of operations and share price.

Liquidity measures the ability to meet current and future cash flow needs as they become due. The liquidity of a financial institution reflects its ability to meet loan requests, to accommodate possible outflows in deposits, and to take advantage of interest rate market opportunities and is essential to a financial institution’s business. The ability of a financial institution to meet its current financial obligations is a function of its balance sheet structure, its ability to liquidate assets and its access to alternative sources of funds. Recent bank failures and heightened sensitivity to liquidity risk have increased regulatory and market focus on contingency funding planning and liquidity stress testing. We seek to ensure that our funding needs are met by maintaining an appropriate level of liquidity through asset and liability management. If we are unable to obtain funds when needed, it could have a material adverse effect on our business, financial condition and results of operations.

We rely on bank deposits to be a low cost and stable source of funding. In addition, our future growth will largely depend on our ability to maintain and grow a strong deposit base. If we are unable to continue to attract and retain core deposits, to obtain third party financing on favorable terms, or to have access to interbank or other liquidity sources, we may not be able to grow our assets as quickly. Changes in depositor behavior, including increased rate sensitivity and the ease of transferring deposits through digital channels, may increase deposit volatility. We compete with banks and other financial services companies for deposits. If our competitors raise the rates they pay on deposits in response to interest rate changes initiated by the FRBCFederal Reserve’s Federal Open Market Committee (“FOMC”), or for other reasons of their choice, our funding costs may increase, either because we raise our rates to avoid losing deposits or because we lose deposits and must rely on more expensive sources of funding. Higher funding costs could reduce our net interest margin and net interest income. Any decline in available funding could adversely affect our ability to continue to implement our business strategy which could have a material adverse effect on our liquidity, business, financial condition and results of operations.

Holders of our common stock are only entitled to receive such cash dividends as our board of directors may declare out of funds legally available for such payments. Any declaration and payment of dividends on common stock will depend upon our earnings and financial condition, liquidity and capital requirements, the general economic and regulatory climate, our ability to service any equity or debt obligations senior to the common stock, and other factors deemed relevant by the board of directors. Furthermore, consistent with our business plans, growth initiatives, capital availability, projected liquidity needs, and other factors, we have made, and will continue to make, capital management decisions and policies that could adversely impact the amount of dividends, if any, paid to our stockholders. Although we currently expect to continue to pay quarterly dividends, any future determination relating to our dividend policy will be made by our board of directors and will depend on a number of factors. We are subject to certain restrictions on the payment of cash dividends as a result of banking laws, regulations and policies.policies, including regulatory capital conservation buffer requirements and supervisory expectations regarding capital distributions. Finally, our ability to pay dividends to our stockholders depends on our receipt of dividends from the Bank, which is also subject to restrictions on dividends as a result of banking laws, regulations and policies. See Part II, Item 5. “Dividends.”

Shares of our common stock are listed on the NASDAQ Global Select Market; however, the average daily trading volume in our common stock is less than that of larger financial services companies. A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of a sufficient number of willing buyers and sellers of the common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control. Given the current daily average trading volume of our common stock, significant sales of our common stock in a brief period of time, or the expectation of these sales, could cause a significant decline in the price of our common stock.stock and increased volatility.

We are generally not restricted from issuing additional shares of our common stock up to the number of shares authorized in our Certificate of Incorporation. We may issue additional shares of our common stock (or securities convertible into common stock), for instance, in the pending merger with Bancorp Financial, for a number of reasons, including to finance our operations and business strategy (including mergers and acquisitions), to adjust our ratio of debt to equity, to address regulatory capital concerns, or to satisfy our obligations upon the exercise of outstanding stock awards. We may issue equity securities in transactions that generate cash proceeds, transactions that free up regulatory capital but do not immediately generate or preserve substantial amounts of cash, and transactions that generate regulatory or balance sheet capital only and do not generate or preserve cash. If we choose to raise capital by selling shares of our common stock or securities convertible into common stock for any reason, the issuance would have a dilutive effect on the holders of our common stock and could have a material negative effect on the market price of our common stock.stock and on our earnings per share.

Certain federal banking laws, including regulatory approval requirements, could make it more difficult for a third party to acquire us, even if doing so would be perceived to be beneficial to our stockholders. In addition, certain provisions in our certificate of incorporation and bylaws could make it more difficult for a third party to acquire control of the Company, even if such event was perceived by you to be beneficial to your interests. These include, among others, (a) provisions that empower our board of directors, without stockholder approval, to issue preferred stock, the terms of which, including voting power, are set by the board of directors, (b) we have a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our board, and (c) the approval of certain business combinations requirerequires the affirmative vote of at least 75% of our outstanding shares of common stock. In addition, federal banking regulators must approve certain changes in control under applicable banking laws. The combination of these laws and provisions in our certificate of incorporation may inhibit certain business combinations, including a non-negotiated merger or other business combination, which, in turn, could adversely affect the market price of our common stock. These provisions in our certificate of incorporation could also discourage proxy contests and make it more difficult and expensive for holders of our common stock to elect directors other than the candidates nominated by our board of directors or otherwise remove existing directors and management, even if current management is not performing adequately.

The following discussion provides additional information regarding our operations for the twelve-month periods endingended December 31, 2024,2025, 20232024 and 2022,2023, and financial condition at December 31, 20242025 and 20232024 and should be read in conjunction with our consolidated financial statements and the related notes. Historical results of operations and the percentage relationships among any amounts included, and any trends that may appear, may not indicate trends in operations or results of operations for any future periods.

Our primary deposit products are checking, NOW, money market, savings, and certificate of deposit accounts, and our primary lending products are commercial mortgages, leases, construction lending, commercial loans, residential mortgages, powersport, and other consumer loans. Many of our loans are secured by various forms of collateral including real estate, business assets, and consumer property although borrower cash flow is the primary source of repayment at the time of loan origination.

Our 20242025 net income, as compared to the prior year, decreased primarily as a result of deposit interest expense outpacing our increased interest income throughout much of 2024, as well as additional costs incurred with ourthe FRMEBancorp branchFinancial transaction.acquisition. Adjusted net income, a non-GAAP financial measure that excludes transaction-relatedacquisition-related costs, Day Two provision for credit losses, MSR mark to market (gains)/losses, net securities (gains)/losses, death benefits realized on BOLI, litigation expense, and net gains on branch sales was $85.9$102.6 million in 2024.2025. See the discussion entitled “Non-GAAP Financial Measures” on page 5148 and the table below, which provides a reconciliation of this non-GAAP measure and related items, to the most comparable GAAP equivalents.

Adjusted net income provides for a comparative analysis of our performance excluding those one-time matters, such as transaction-related costs for our acquisition of Bancorp Financial and our purchase of five FRME branches, Day Two provision for credit losses from our acquisition of Bancorp Financial, net securities (gains)/losses, death benefits realized on BOLI, litigation expense related to a claim regarding prior years’ overdraft fee compliance, and net gains or net losses stemming from branch sales completed to eliminate duplicative geographic locations due to past acquisitions, and the Visa credit card and land trust portfolio sales, which were executed to exit products that were not within our strategic plan.acquisitions.

Net interest and dividend income decreasedincreased $10.3$51.3 million, or 4.1%21.2% for 20242025 compared to 2023,2024, due primarily to increased interest expenseand duedividend toincome higherstemming marketfrom ratesour acquisition of Bancorp Financial as well as decreased borrowing costs on deposits throughout 2024, partially offset by the impact of market interest rates on loans, and lower average balances on FHLBC advances. Partially offsetting the increase in interest and dividend income from the prior year was an increase in interest expense due to higher deposit costs from the additional deposits assumed with the acquisition of Bancorp Financial. Average loans, including loans held-for-sale, decreasedincreased $13.4$622.3 million, or 0.33%,15.6%, in 20242025 compared to 2023.2024 due to the loan portfolio included in the acquisition of Bancorp Financial. Total interest and dividend income growth in 2024,2025, compared to 2023,2024, resulted in a 3132 basis point increase in average rates earned on interest earning assets. Average interest bearing deposits decreasedincreased $36.6$768.2 million, or 1.3%,27.3%, for 20242025 compared to 2023,2024, whileand average deposit rates increased 8122 basis points over the same period. The increase in deposit rates was primarily due to growth in exception priced deposits andincurred higherin ratesthe overallBancorp offeredFinancial acquisition, which we are allowing to customers,run whichoff impactedover deposit expense in all interest bearing deposit categories.time. Average noninterest bearing deposits decreasedincreased by $158.7$1.5 million, or 8.3%,0.1%, from 20232024 to 2024.2025.

We continued to reposition our balance sheet in 20242025 to ensure adequate liquidity, reduce asset quality risk, and to offset the risingmanage interest rate risk on our cost of funds. In 2024,2025, our available-for-sale securities portfolio decreased $31.1$71.2 million, compared to year-end 2023,2024, due primarily to $304.2$279.6 million of paydowns, maturities, and calls and $5.3$7.5 million of strategic sales. These decreases in 20242025 were partially offset by security purchases of $265.5$191.6 million. The change in activity in 2025, compared to year end 2024, excludes the sale of Bancorp Financial’s $117.6 million available-for-sale securities portfolio shortly after the acquisition closed. The unrealized mark to market adjustment on securities was a $68.6$43.1 million unrealized loss as of December 31, 2024,2025, compared to ana $84.2$68.6 million unrealized loss at December 31, 2023,2024, due primarily to changes in market interest rates and the portfolio holdings mix year over year. Average interest bearing liabilities decreasedincreased $133.8$545.1 million, to $3.75 billion in 2025 from $3.21 billion in 2024 from $3.34 billion in 2023.2024. Total average borrowings decreased $97.3$223.2 million to $171.5 million compared to $394.7 million compared to $492.0 million in 2023.2024. The decrease in average borrowings was primarily due to a $84.8$224.1 million decrease in other short-term borrowings due to a reduction in overnight FHLBC advances throughout 2024. During 2023, we paid off our notes payable and our senior notes, resulting in a decrease in average borrowings of $1.3 million and $22.0 million, respectively.2025.

Management also continued to emphasize credit quality and maintained our capital ratios with continued strong liquidity. In 2024,2025, we experiencedhad aloan decrease in loansgrowth of $61.6$1.27 million,billion, or 1.5%,31.9%, over 2023.2024 primarily due to the acquired loan portfolio of Bancorp Financial. Nonperforming assets relative to total assets decreased slightly in 20242025 and 2023 relative to total assets,2024, with nonperforming assets of $51.9$55.6 million, or 0.92%,0.81%, of total assets for 2025, compared to $52.4 million, or 0.92% of total assets for 2024, compared toand $73.9 million, or 1.29% of total assets for 2023, and $34.5 million, or 0.59% of total assets, for 2022.2023. The total dollar decreaseincrease in 2024,2025, compared to 2023,2024, was primarily due to aan decreaseincrease in nonaccrual loans of $38.7$19.1 million and an increase in loans past due 90 days and accruing of $3.4 million, partially offset by a $16.5$20.2 million increasedecrease in OREO. We continue to take steps to control operating expenses and increase noninterest income.

Our consolidated financial statements are prepared based on the application of accounting policies in accordance with GAAP and follow general practices within the banking industry. These policies require the reliance on estimates, assumptions and judgements,judgments, which may prove inaccurate or are subject to variations. Changes in underlying factors, estimates, assumptions or judgementsjudgments could have a material impact on our future financial condition and results of operations.

Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different thanfrom originally reported. We have identified the determination of the allowance for credit losses and fair value measurements to be the accounting areas that require the most subjective or complex judgments and, as such, could be most subject to revision as new or additional information becomes available or circumstances change, including overall changes in the economic climate and/or market interest rates. Therefore, we consider these policies, discussed below, to be critical accounting estimates and discuss them directly with the Audit Committee of our board of directors.

Because our estimates of the ACL involve judgments and are influenced by factors outside of our control, there is uncertainty inherent in these estimates. Changes in such estimates could significantly impact our ACL and provision for credit losses. See Note 1 – BasisSummary of Presentation and Changes in Significant Accounting Policies in the accompanying notes to the consolidated financial statements included elsewhere in this annual report for a discussion of our ACL.

As a result of management’s modeling, we decreasedincreased our ACL on loans to $43.6$72.3 million as of December 31, 20242025; in addition, we decreasedincreased our ACL on unfunded commitments to $1.9$2.1 million as of December 31, 2024,2025, included within other liabilities. We recorded provision for credit losses of $12.8$27.6 million in 2024,2025, comprised of $13.6$14.2 million of provision for credit loss expense on loans, a Day Two non-PCD provision expense of $13.2 million, and a $185,000 of provision expense on unfunded commitments. Additionally, we recorded a Day One purchase accounting credit mark of $17.5 million to the ACL in relation to the acquisition of Bancorp Financial. In 2024, we recorded a provision for credit losses of $12.8 million, comprised of a $13.6 million provision for credit loss expense on loans, and a $834,000 release of provision for credit losses on unfunded commitments. In 2023, we recorded a provision for credit losses of $16.5 million, comprised of ana $18.1 million provision for credit loss expense on loans, and a $1.6 million release of provision for credit losses on unfunded commitments. In 2022, we recorded a provision for credit losses of $6.6 million, comprised of a $6.8 million provision for credit loss expense on loans, and a $200,000 release of provision for credit losses on unfunded commitments. In addition, a discussion of the factors driving changes in the amount of the ACL is included in the “Allowances for Credit Losses” section below.

Our net interest income decreasedincreased $10.3$51.3 million, or 4.1%,21.2%, to $293.0 million for 2025, from $241.6 million for 2024, from $251.9 million for 2023.2024. The decreaseincrease in 20242025 was primarily driven by the higher interest rate environment through much of 2024,2025 as well as the acquisition of Bancorp Financial, which resulted in ourincreased costloan ofincome fundsfrom increasingthe primarilyacquired dueloan to CD specials, exception pricing on deposits and higher rates paid on short-term borrowings.portfolio. Our net interest margin, which is net interest income divided by total interest-earning assets, was 4.96% for the year ended 2025, compared to 4.61% for the year ended 2024, comparedan to 4.64% for the year ended 2023, a decreaseincrease of three35 basis points. Our net interest margin on a taxable equivalent (TE) basis was 4.98% for the year ended 2025, compared to 4.63% for the year ended 2024, comparedan to 4.67% for the year ended 2023, a decreaseincrease of four35 basis points. Average interest earning assets decreasedincreased $185.4$667.5 million during 20242025 as volume slowedincreased from the loan portfolio acquired from Bancorp Financial and rates reflected significant growth, impacting net interest income. The increase in interest expense in 20242025 compared to 20232024 was due primarily to an expense increase in all interest bearing deposit categories due to higher rates,rates and the interest bearing deposits assumed from the Bancorp Financial acquisition, partially offset by lower average balances in our short-term funding (overnight FHLBC advances) throughout 2024.2025.

Our average interest bearing liabilities decreasedincreased $133.8$545.1 million, or 4.0%,17.0%, to $3.75 billion for 2025, from $3.21 billion forin 2024, from $3.34 billion in 2023, due primarily to aan decreaseincrease in all deposit categoriescategories, partially offset by a significant decrease to other thanshort timeterm deposits,borrowings. asThe wellincrease asin average interest bearing deposits is a noteworthyresult decreaseof inthe otherdeposits short-termassumed borrowings.from the Bancorp Financial acquisition. Average interest bearing deposits decreasedincreased by $36.6$768.2 million, or 1.3%,27.3%, to $3.58 billion in 2025, compared to $2.81 billion in 2024, compared to $2.85 billion in 2023.2024. Our average borrowings decreased $97.3$223.2 million to $171.5 million in 2025 from $394.7 million in 20242024, fromdriven $492.0 million in 2023. This was mainly due toby a decrease of $84.8$224.1 million in average other short-term borrowings due to a reduction in overnight FHLBC advances throughout 2024. Also contributing to the decrease in our average borrowings was a $22.0 million decrease in average senior notes as the remaining principal was paid off in its entirety in June 2023 and a $1.3 million decrease in average notes payable as the term loan was paid off in its entirety in February 2023.2025. Partially offsetting the decrease in our average borrowings was an increase of $10.7$7.5 million in averagenotes securitiespayable solddue underto repurchaseFHLB agreements.long-term putable advances that were assumed in the Bancorp Financial acquisition.

2 Interest income from loans is shown on a tax equivalent basis, which is a non-GAAP financial measure, discussed below, and includes net fees of $4.0 million for 2025, net costs of $1.8 million for 2024, and net costs of $2.7 million for 2023, and net fees of $3.0 million for 2022.2023. Nonaccrual loans are included in the above stated average balances.

We recorded a $12.8$27.6 million provision for credit losses in 2024,2025, aan decreaseincrease of $3.8$14.8 million,million from 2023.2024. The decreaseincrease in provision expense over the prior year was primarily due to the $13.2 million of Day Two non-PCD provision expense in relation to the Bancorp Financial acquisition and increased current year charge offs within the newly acquired powersport loan segment. The 2024 provision for credit losses of $12.8 million compared to $16.5 million in 2023 was primarily due to the decrease in loans of $61.6 million in 2024, and lower current-year net charge offs, as well as improved asset quality and economic factors. The 2023 provision for credit losses of $16.5 million compared to $10.0 million in 2022 was primarily due to loan growth of $173.3 million in 2023 and prior-year net charge offs, partially offset by improved economic factors.

Our income tax expense totaled $27.7$27.4 million for the year ended December 31, 20242025, compared to an income tax expense of $32.7$27.7 million in 20232024 and $24.1$32.7 million for 2022.2023. The decrease in income tax expense in 2024,2025, compared to 2023,2024, is commensurate with the decrease in our pretax income as well as with the new state ruling regarding tax rate apportionment factors related to income generated from securities or loans originated in other states.income. Income tax expense reflected all relevant statutory tax rates and GAAP accounting. Our effective tax rate was 25.5% for 2025, 24.5% for 2024, and 26.3% for 2023, and 26.4% for 2022.2023. Any changes in tax rates will be recorded in the period enacted.

Our total assets were $5.65$6.90 billion at December 31, 2024,2025, aan decreaseincrease of $73.4$1.25 million,billion, or 1.3%,22.2%, from December 31, 2023.2024. Our total cash and cash equivalents decreasedincreased $816,000,$24.7 million, driven by acash decreasereceived from securities activity and the increase in other short term borrowings, as well as net cash andreceived duewith fromthe banks,Bancorp primarilyFinancial to pay down short-term borrowings.acquisition.

Our loans decreasedincreased by $61.6$1.27 million,billion, or 1.5%,31.9%, to $3.98$5.25 billion for the year ended December 31, 2024,2025, compared to 2023.2024. This decreaseincrease is primarily due to declinesthe $1.20 billion of loans acquired in commercial,our commercialacquisition realof estate-ownerBancorp occupiedFinancial and multifamily$76.1 portfolios.million of net organic loan growth.

Our total securities decreased by $31.1$71.2 million, or 2.6%,6.1%, for the year ended December 31, 2024,2025, compared to 2023,2024, primarily due to $304.2$279.6 million of paydowns, maturities, and calls and $5.3$7.5 million of strategic sales.sales, excluding the sale of Bancorp Financial’s $117.6 million available-for-sale securities portfolio after the acquisition closed. These decreases in 20242025 were partially offset by security purchases of $265.5$191.6 million as well as the $15.5$25.6 million reduction of unrealized losses recorded in 2024.2025. We recorded no pretax net security gains of $7,000 in 2025 compared to no pretax net gains or losses in 2024 compared to pretax net losses of $4.1 million in 2023.2024.

Our total liabilities were $4.98$6.01 billion at December 31, 2024,2025, aan decreaseincrease of $167.2$1.03 million,billion, or 3.2%,20.6%, from December 31, 2023.2024. Total deposits increased by $198.0$827.3 million, or 4.3%,17.3%, to $5.60 billion for the year ended December 31, 2025, compared to $4.77 billion for the year ended December 31, 2024, compared to $4.57 billion for the year ended December 31, 2023, primarily due to the deposits receivedassumed from the fiveacquisition branchof purchaseBancorp transaction with FRME.Financial.

At December 31, 2024,2025, total stockholders’ equity was $671.0$896.8 million, compared to $577.3$671.0 million at December 31, 2023.2024. The increase in stockholders’ equity primarily stems from the acquisition of Bancorp Financial, which resulted in $7.9 million of additional common stock outstanding and $132.6 million of additional paid in capital, as well as net income of $85.3$80.3 million recorded in 20242025, as well asand the $18.4 million decrease in accumulated other comprehensive losses due to the reduction in unrealized losses in the available for sale securities portfolio.

As shown below, the overall composition of our securities portfolio was largely consistent in 20242025 versuscompared 2023,to with2024, moderateas changeswell as in the2024 overallcompared compositionto of our securities portfolio in 2023 versus 2022.2023.

Some of our holdings of U.S. government agency mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMOs”) are issuances of government-sponsored enterprises, such as Fannie Mae and Freddie Mac, which are not backed by the full faith and credit of the U.S. government. Some holdings of MBS and CMOs are issued by Ginnie Mae, which do carry the full faith and credit of the U.S. government. We also hold some MBS and CMOs that were not issued by U.S. government agencies and are typically credit-enhanced via over-collateralization and/or subordination. Holdings of ABS also includes securities backed by student loans issued under the U.S. Department of Education’s (“DOE”) FFEL program, which generally provides a minimum 97% U.S. DOE guarantee of principal. These ABS securities also have added credit enhancement through over-collateralization and/or subordination. The majority of holdings issued by states and political subdivisions are general obligation or revenue bonds that have S&P or Moody’s ratings of AA- or higher. Other state and political subdivision issuances are unrated and generally consist of smaller investment amounts that involve issuers in our markets. The credit quality of these issuers is monitoredmonitored, and none have been identified as posing a material risk of loss. We also hold collateralized loan obligation (“CLOs”) securities that are generally backed by a pool of debt issued by multiple middle-sized and large businesses. Our CLO S&P or Moody’s ratings distribution consists of 100% rated AAA or AA. CLO credit enhancement is achieved through over-collateralization and/or subordination.

Management continues to emphasize loan portfolio quality, and credit remediation continued in 2024.2025. The decreaseincrease of nonaccrual and classified loans as of December 31, 2024,2025, compared to the prior year end, is due to larger relationships with officemixed buildingsuse andcommercial assistedreal living centersestate that have been transferred into OREO, have been paid off, or have been upgradeddowngraded in 2024,2025, discussed in the “Asset Quality” section below. We recorded net loan charge-offs of $16.2 million in 2025, $14.2 million in 2024, and $23.3 million in 2023, and $1.6 million in 2022.2023.

The quality of our loan portfolio is in large part a reflection of the economic health of the communities in which we operate. Our local communities have been relatively stable in the past five years. While there are no significant concentrations of loans where the customers’ ability to honor loan terms is dependent upon a single economic sector, the real estate categories represented 67.2%56.5% and 68.8%67.2% of the portfolio at December 31, 20242025 and 2023,2024, respectively. Our lending exposure is diversified across our each of our segments presented above. ThoughIn 20242025, excluding the Bancorp Financial acquisition, we experienced a net declineincrease in the overall portfolio, and leases and commercial real estate – investor continuedcontinue to grow.be the largest segments of growth. We had no concentration of loans exceeding 10% of total loans that were not otherwise disclosed as a category of loans at December 31, 2024.2025. We remain committed to overseeing and managing our loan portfolio to avoid unnecessarily high credit concentrations in accordance with the general interagency guidance on risk management. Consistent with those commitments, management monitors our asset diversification and anticipates that the percentage of real estate lending in relation to the overall portfolio will decrease in the future.

1 The “Other” class includes consumer loansloans, such as collector cars, manufactured homes, and solar loans, as well as overdrafts; the “One Year or Less” column one includes demand notes.

Nonperforming loans consist of nonaccrual loans and loans 90 days or greatermore past due.due and accruing. Remediation work is ongoing in all relevant segments. Nonperforming loans decreasedincreased year over year by $38.5$22.5 million, or 56.0%,74.4%, to $52.8 million at December 31, 2025, but decreased by $38.5 million to $30.3 million at December 31, 2024, but increased by $35.9 million to $68.8 million at December 31, 2023, compared to December 31, 2022.2023. Nonperforming assets, which includes nonperforming loans plus other real estate owned,owned and repossessed assets, totaled $51.9$55.6 million as of December 31, 2025, compared to $52.4 million as of December 31, 2024, compared toand $73.9 million as of December 31, 2023, and $34.5 million as of December 31, 2022.2023. Nonperforming credit metrics decreasedincreased in 2024,2025, largely due to officeincreased buildingsnonaccrual and senior/assisted living facilities which were paid off, upgraded or transferred into OREO,loans, and management is carefully monitoring loans consideredcontinues to bework inthese a classified status.loans. Nonperforming loans as a percent of total loans decreasedincreased to 1.0% as of December 31, 2025, from 0.8% as of December 31, 2024, fromand 1.7% as of December 31, 2023, and 0.9% December 31, 2022.2023. Our nonperforming loans by performance metric is shown in the following table.

Accrual of interest is discontinued on a loan when principal or interest is 90 days or more past due, unless the loan is well secured and in the process of collection. Powersport loans are placed on nonaccrual when principal or interest payments become 120 days past due and in the process of restructuring. When a loan is placed on nonaccrual status, interest previously accrued but not collected in the current period is reversed against current period interest income. Interest income of approximately $815,000,$1.0 million, $815,000 and $1.9 million and $284,000 was recorded and collected during 2024,2025, 20232024 and 2022,2023, respectively, on loans that subsequently went to nonaccrual status by year-end. Interest income, which would have been recognized during 2024,2025, 20232024 and 2022,2023, had these loans been on an accrual basis throughout the year, was approximately $4.2$3.8 million, $7.3$4.2 million and $2.7$7.3 million, respectively.

Total past due loans, including accruing and nonaccrual loans, totaled $27.3$85.7 million at year-end 2024,2025, a $22.1$58.4 million decreaseincrease from year end 2023,2024, resulting in the rate of past due loans to total loans decreasingincreasing to 1.6% at year-end 2025 compared to 0.7% at year-end 20242024, compared toand 1.2% at year-end 2023,2023. As of December 31, 2025, $42.9 million of delinquent loans are past due 30-59 days and 0.6% at year-end 2022.accruing. Refer to Note 5, “Loans and Allowance for Credit Losses on Loans”, in our Consolidated Financial Statements, below, for further detail of past due loans by classification for 20242025 and 2023.2024.

Classified loans include nonaccrual and all other loans considered substandard. Classified assets include both classified loansloans, OREO and OREO.repossessed assets. Loans classified as substandard are inadequately protected by either the current net worth and ability to meet payment obligations of the obligor, or by the collateral pledged to secure the loan, if any. These loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt and carry the distinct possibility that we will sustain some loss if deficiencies remain uncorrected.

Total classified loans increased in 2025 by $58.1 million compared to 2024, and decreased in 2024 by $40.8 million compared to 2023,2023. The increase in 2025 is primarily due to an increase of $36.5 million of commercial real estate – owner occupied loans and increased$26.8 inmillion 2023of commercial loans, and partially offset by $23.9a decrease of $7.9 million of construction, compared to 2022.2024. In 2025, the increase to classified commercial real estate – owner occupied and commercial loans were driven by downgrades of $52.9 million for commercial real estate – owner occupied and $45.8 million downgrades for commercial. The decrease in 20242024, compared to 2023, is primarily due to a decrease of $29.3 million of Commercialcommercial real estate – investor loans and $27.0 million of commercial real estate – owner occupied, and partially offset by an increase of $16.3 million of commercial, compared to 2023. In 2024, the decrease to classified commercial real estate – owner occupied and commercial real estate – investor loans were driven by loan risk rating upgrades of $20.1 million for commercial real estate – owner occupied and $8.8 million for commercial real estate – investor, primarily in the healthcare industry. The rise in 2023 is primarily due to an increase of $16.4 million of Commercial real estate – investor loans, an increase of $13.7 million of commercial real estate – owner occupied, and an increase of $15.8 million of construction, compared to 2022. In 2023, the increases to classified commercial real estate – owner occupied and commercial real estate – investor loans were driven by downgrades to loans collateralized by office buildings and senior/assisted living facilities.

Total classified assets, which includes OREO,OREO decreasedand $24.3repossessed assets, increased $38.8 million in 20242025 compared to 2023 but increased compared to 2022.2024. The decreaseincrease in classified loansassets year over year was negativelymostly due to the increases to classified loans but were offset by a $16.5$20.2 milliondecrease increase into OREO in 20242025 compared to 2024, primarily due to the sales of five OREO properties for a net fair value of $24.7 million. Our OREO portfolio increased $16.5 million in 2024 from 2023, primarily due to the transfer of five properties with a net fair value of $19.4 million, net of participations and valuation adjustments. Our OREO portfolio increased $3.6 million in 2023 from 2022. Management monitors a metric of classified assets to the sum of Bank Tier 1 capital and the ACL, which is referred to as the “classified assets ratio.” Our classified assets ratio decreasedincreased to 17.37%17.82% at December 31, 2025, compared to 17.45% at December 31, 2024, compared toand 21.66% at December 31, 2023, from 18.36% at December 31, 2022.2023.

At December 31, 2024,2025, the ACL on loans totaled $43.6$72.3 million, and the ACL on unfunded commitments, included in other liabilities, totaled $1.9$2.1 million, compared to the ACL on loans of $44.3$43.6 million and ACL on unfunded commitments of $2.7$1.9 million at December 31, 2023.2024. The decreaseincrease in the ACL on loans was primarily due to largea chargeDay offsOne takenPCD allocation of $17.5 million and a Day Two non-PCD provision of $13.2 million in therelation fourth quarter of 2024 and changes with our economic forecast duringto the year.Bancorp Financial acquisition.

One measure of the adequacy of the ACL is the ratio of the ACL on loans to total loans. The ACL as a percentage of total loans was 1.4% as of December 31, 2025, and 1.1% as of December 31, 2024 and as of December 31, 2023.2024. In management’s judgment, an adequate allowance for estimated losses has been established; however, there can be no assurance that losses will not exceed the estimated amounts in the future.

The provision for credit losses, which includes a provision for losses on unfunded commitments, is a charge to earnings to maintain the ACL at a level consistent with management’s assessment of expected losses over the expected life of the loan portfolio as well as considering changes in macroeconomic conditions. During 2025, we recorded a $14.2 million of provision for credit losses expense on loans, a $13.2 million Day Two non-PCD provision for credit loss and a $185,000 of provision for credit losses on unfunded commitments. During 2024, we recorded a $13.6 million of provision for credit losses expense on loans and a $834,000 release of provision for credit losses on unfunded commitments. During 2023, we recorded an $18.1 million provision for credit losses expense on loans, and a $1.6 release of provision for credit losses on unfunded commitments.

The provision for credit losses on loans is based upon management’s estimate of future expected credit losses in the loan and lease portfolio and its evaluation of the adequacy of the ACL. Our provision for credit losses in 20242025 totaled $12.8$27.6 million, compared to $12.8 million in 2024, and $16.5 million in 2023, and $6.6 million in 2022.2023. Net charge-offs recorded in 20242025 totaled $14.2$16.2 million, compared to net charge-offs of $23.3$14.2 million recorded in 2023,2024, and net charge-offs of $1.6$23.3 million in 2022.2023. The significant charge offs in 20242025 were comprised of onemultiple powersport loans, three commercial credit,credits, and fourone commercial real estate credits, offset by one significant commercial real estate recovery.credit. Our ACL on loans to averagetotal loans was 1.4% at December 31, 2025, and 1.1% as ofat December 31, 2024 and 2023, compared to 1.4% at December 31, 2022.2023.

1 The “Other” class includes consumer loansloans, such as collector cars, manufactured homes, and solar loans, as well as overdrafts for each year presented.

During 2025, the provision of credit losses on unfunded commitments totaled $185,000, and the allowance for unfunded commitments totaled $2.1 million as of December 31, 2025. During 2024, the release of credit losses on unfunded commitments totaled $834,000, and the allowance for unfunded commitments totaled $1.9 million as of December 31, 2024. During 2023, the release of credit losses on unfunded commitments totaled $1.6 million, and allowance for unfunded commitments totaled $2.7 million as of December 31, 2023. Management reviewed the securities portfolio for credit loss exposure and determined that no allowance for credit losses on securities was required for 20242025 or 2023.2024. See Note 4 to the Consolidated Financial Statements for more detail on the ACL for securities analysis performed.

Other real estate owned (“OREO”) increaseddecreased to $1.4 million as of December 31, 2025, compared to $21.6 million as of December 31, 2024, compared to $5.1 million as of December 31, 2023, reflecting a $16.5$20.2 million increase.decrease. During 2024,2025, we transferred fiveone OREO propertiesproperty from loans with a total fair value of $19.4$5.0 million, net of participations and valuation adjustments,million and we sold threefive properties which had a total net book value of $2.8$25.2 million. Net gains on the sale of OREO properties during 20242025 totaled $390,000,$201,000, compared to net gains on sale of OREO properties of $256,000 in 2023 and $163,000 in 2022. The OREO valuation reserve increased to $1.9 million$390,000 in 2024 comparedand to $118,000$256,000 in 2023.

Other real estate assets transferred from loans are recorded at the fair value of the property when transferred, less estimated costs to sell, establishing a new cost basis. The OREO valuation reserve for the year ended 20242025 was $1.9 million,$632,000, which was 7.9%30.7% of gross OREO at year-end 2024.2025. This compares to $118,000,$1.9 million, or 2.3%,7.9%, of gross OREO, net of participations and purchase accounting adjustments, at year-end 2023.2024.

Investing in shares of our common stock involves certain risks, including those identified and described in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, as well as cautionary statements contained in this Quarterly Report,Report on Form 10-Q, including those under the caption “Cautionary Note Regarding Forward-Looking Statements.”

The following discussion provides additional information regarding our operations for the three and six months ended MarchJune 31,30, 2026, compared to the three and six months ended MarchJune 31,30, 2025, and our financial condition at MarchJune 31,30, 2026, compared to December 31, 2025. This discussion should be read in conjunction with our consolidated financial statements as well as the financial and statistical data appearing elsewhere in this report and our Form 10-K for the year ended December 31, 2025. The results of operations for the three and six months ended MarchJune 31,30, 2026 are not necessarily indicative of future results. Dollar amounts presented in the following tables are in thousands, except per share data, and MarchJune 31,30, 2026 and 2025 amounts are unaudited. Certain items in prior periods have been reclassified to conform to the current presentation.

The Company is a bank holding company headquartered in Aurora, Illinois. Through our wholly-owned subsidiary bank, Old Second National Bank, a national banking organization also headquartered in Aurora, Illinois (the “Bank”),Illinois, we offer a wide range of financial services through our 5554 banking centers located in Cook, DeKalb, DuPage, Kane, Kendall, LaSalle and Will counties in Illinois. These banking centers offer access to a full range of traditional retail and commercial banking services including treasury management operations as well as fiduciary and wealth management services. We focus our business on establishing and maintaining relationships with our clients while maintaining a commitment to provide for the financial services needs of the communities in which we operate. We emphasize relationships with individual customers as well as small to medium-sized businesses throughout our market area. We also have extensive wealth management services, which include a registered investment advisory platform in addition to trust administration and trust services related to personal and corporate trusts and employee benefit plan administration services.

As of July 1, 2025, Bancorp Financial had approximately $1.43 billion of total assets, $1.20 billion of total loans, and $1.23 billion of total deposits. The consideration paid totaled $189.4 million and consisted of 7.9 million shares of Old Second common stock and $48.9 million in cash. The systems conversion was successfully completed in October 2025. As of June 30, 2026, all acquisition related expenses have been reported and the measurement period is closed.

As of MarchJune 31,30, 2026, all of our capital ratios were in excess of all regulatory requirements. While we believe that we have sufficient capital to withstand an extended economic recession, our reported and regulatory capital ratios could be adversely impacted by credit losses.

Net income for the firstsecond quarter of 2026 was $28.2 million, or $0.54 per diluted share, compared to $25.6 million, or $0.48 per diluted share, comparedfor tothe $28.8first quarter of 2026, and $21.8 million, or $0.54$0.48 per diluted share, for the fourth quarter of 2025, and $19.8 million, or $0.43 per diluted share, for the firstsecond quarter of 2025. Net income increased compared to the prior year like quarter, primarily due to the Bancorp Financial acquisition and the resultingrelated growth in net interest income. Variances in the year over year period included an increase of $24.8$26.0 million in interest and dividend income and a $2.4 million increase in noninterest income, partially offset by a $6.5$6.9 million increase in interest expense, a $7.1$5.0 million increase in provision for credit losses, a $5.7$7.8 million increase in noninterest expense, and a $2.1$2.3 million increase in provision for income taxes. Net income in the firstsecond quarter of 2026 was negatively impacted by provision for credit losses of $9.5$7.5 million, compared to $3.0$9.5 million and $2.4$2.5 million recorded in the fourthfirst quarter of 20252026 and firstsecond quarter of 2025, respectively. Adjusted net income, a non-GAAP financial measure that excludes mortgage servicing rights mark to market gains or losses, net securities gains or losses, and acquisition related costs, net of gains on branch sales, as applicable, was $28.7 million for the second quarter of 2026, compared to $26.0 million for the first quarter of 2026, comparedand to $30.8$22.8 million for the fourth quarter of 2025, and $20.6 million for the firstsecond quarter of 2025.

The following provides an overview of some of the factors impacting our financial performance for the three-month period ended MarchJune 31,30, 2026, compared to the like period ended MarchJune 31,30, 2025:

Our income before taxes was $34.1$37.8 million in the firstsecond quarter of 2026, compared to $26.2$29.2 million in the firstsecond quarter of 2025. Net interest and dividend income increased $18.2$19.1 million, and provision for credit losses increased $7.1$5.0 million in the firstsecond quarter of 2026, compared to the like 2025 quarter. Income before taxes was also affected by a $2.4 million increase in noninterest income and a $5.7$7.8 million increase in noninterest expense. The noninterest expense increase of $5.7$7.8 million is primarily due to a $2.7$3.2 million increase in salary and employee benefits expense primarily attributable to the additional employees retained in the Bancorp Financial acquisition as well as increases in stock comp expense, payroll taxes, 401(k) expense, and higherdeferred basecompensation salaryexpense. rates,Also ancontributing $823,000to the increase in noninterest expense was a $641,000 increase in occupancy, furniture and equipment, a $1.0 million$525,000 increase in computer and data processing, a $1.5$1.7 million increase in consumer credit expense, and a $721,000$1.3 million increase in other expenses, which were all primarily driven by the additional operations assumed from the Bancorp Financial acquisition. Total acquisition costs of $349,000$526,000 were recorded as a result of the Bancorp Financial acquisition during the three months ended MarchJune 31,30, 2026. Our net income was $25.6$28.2 million, or $0.54 per diluted share, for the second quarter of 2026, compared to net income of $21.8 million, or $0.48 per diluted share, for the first quarter of 2026, compared to net income of $19.8 million, or $0.43 per diluted share, for the firstsecond quarter of 2025. The Bank remains well positioned to navigate uncertain macroeconomic conditions. We have proactively addressed interest rate risk, maintained disciplined expense management, and ensured robust daily liquidity oversight. In addition, our liquidity metrics remain solid, and our short-duration securities portfolio provides flexibility for near-term funding requirements.

Net interest and dividend income was $81.1$83.3 million in the firstsecond quarter of 2026, compared to $62.9$64.2 million in the firstsecond quarter of 2025. The $18.2$19.1 million increase was driven by a $24.8 millionan increase in interest andincome, dividendprimarily incomerelated to the powersport loan portfolio recorded due to the acquisition of Bancorp Financial. A net increase of $6.5$6.9 million in interest expense in the firstsecond quarter of 2026 negatively impacted net interest and dividend income compared to the firstsecond quarter of 2025, driven by the higher cost deposits assumed from Bancorp Financial, and increased short-term borrowing balances driven by the liquidity needed to fund the Bancorp Financial acquisition.

The year over year yield increase of 5366 basis points on interest earning assets was primarily driven by higher loan balances and higher yielding consumer credits and related accretion on the acquired Bancorp Financial portfolioportfolio, acquired,partially asoffset wellby asa plannedslight turnoverdecline inon ourinvestment securities portfolio with many older and lower yielding securities maturing and being replaced with higher yielding investments while maintaining the shorter duration portfolio composition.yields. Average balances of loans and loans held for sale increased $1.25$1.26 billion in the firstsecond quarter of 2026 compared to the prior year like quarter, with a corresponding increase to the tax equivalent yield on the loan portfolio of 4863 basis points year over year due to certainloan portfolios acquired from Bancorp Financial. Average balances of securities available for sale decreased $65.8$94.1 million in the firstsecond quarter of 2026 compared to the prior year like quarter, butand showed ana increasedecrease to the tax equivalent yield on the securities available for sale portfolio of seventhree basis points year over year primarily due to variable security rate resets and run-off of lower yielding investments.year.

The cost of interest bearing deposits increased 2417 basis points for the quarter ended MarchJune 31,30, 2026, from 128130 basis points for the quarter ended MarchJune 31,30, 2025. A 41-basis37-basis point increase in the cost of savings accounts drove a significant portion of the overall increase from the prior year like quarter, primarily due to the higher rate deposit accounts assumed in the Bancorp Financial acquisition. In addition, average time deposits increased $337.3$272.5 million due to the Bancorp Financial acquisition; both higher average balances and higher rates offered by Bancorp Financial resulted in a $2.4$1.7 million increase in time deposit interest expense. We will continue to control the cost of funds by monitoring market activity as well as allowing previouspreviously exception-priced deposits and the brokered CDs acquired from Bancorp Financial to runoff naturally.

The increase of $187.6$312.8 million year over year of average FHLB advances was based on daily liquidity needs due to the changes in the funding mix in part due to necessary use of cash on the Bancorp Financial acquisition and was the primary driver of the $1.8$3.0 million increase to interest expense on other short-term borrowings. The elevated short-term borrowings balance is anticipated to continue, assuming continued loan growth and securities reinvestment. The increase of $14.8 million year over year of average notes payable and other borrowings was due to the FHLB long-term putable advances assumed in the Bancorp Financial acquisition and was the reason for the $155,000$156,000 increase to interest expense on notes payable and other borrowings. SubordinatedThe and$25.1 juniormillion decrease in average subordinated debt was due to the $30.0 million partial redemption in the second quarter of 2026, which reduced the prior $60.0 million principal balance then outstanding. The subordinated debt changed from a fixed to floating rate; in addition, debt issuance costs of $213,000 were accelerated, resulting in a $129,000 increase in interest expense on a lower average balance. Junior subordinated debt interest expense werewas essentially flat over each of the periods presented.

Our net interest margin, for both GAAP and tax equivalent (“TE”) presentations, showed noticeable growth over the prior linked quarter period and over the prior year like quarter discussed above. Our net interest margin (GAAP) increased five38 basis points to 5.12%5.21% for the firstthree quartermonths ofended June 30, 2026, compared to 5.07%4.83% for the fourththree quartermonths ofended 2025,June and increased 27 basis points compared to 4.85% for the first quarter of30, 2025. Our net interest margin (TE) increased five38 basis points to 5.14%5.23% for the firstthree quartermonths ofended June 30, 2026, compared to 5.09%4.85% for the fourththree quartermonths ofended 2025,June and increased 26 basis points compared to 4.88% for the first quarter of30, 2025. The increase in net interest margin for the firstcurrent quarter of 2026, compared to the prior linked quarter, was driven by the reduction in the cost of interest bearing liabilities. The net interest margin increased in the first quarter of 2026,period, compared to the prior year like quarter,period, wasis primarily due to the Bancorp Financial acquisition and the resulting increase in loan yieldsyields, whichpartially outpacedoffset by higher interest expense related to the higherlarger costaverage ofdeposit deposits.balances and interest on other short-term borrowings. See the discussion entitled “Non-GAAP Financial Measures,” above, and the tables beginningtable on page 4853 that provideprovides a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

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

2 Interest income from loans is shown on a tax equivalent basis, which is a non-GAAP financial measure, as discussed in the table on page 50,53, and includes loan fee income of $2.0 million for the second quarter of 2026, loan fee income of $1.9 million for the first quarter of 2026, loan fee income of $1.9 million for the fourth quarter of 2025, and loan fee income of $545,000$365,000 for the firstsecond quarter of 2025. Nonaccrual loans are included in the above-stated average balances.

Noninterest income increased $476,000,$631,000, or 3.9%,5.0%, in the firstsecond quarter of 2026, compared to the fourthfirst quarter of 2025,2026, and increased $2.4 million, or 23.8%,21.7%, compared to the firstsecond quarter of 2025. The increase from the fourthfirst quarter of 20252026 was primarily driven by a $225,000$245,000 increase in residentialwealth mortgagemanagement banking revenue mainlyincome due to a $276,000 increasegrowth in MSRsadvisory, markinsurance to– marketannuities, valuations,agent, estate, and person trust fees, and a $248,000$387,000 increase in the cash surrender value of BOLI due to changes in market interest rates,rates andon aCOLI $358,000investments. Also contributing to the increase in other income primarily driven by growth in powersport and consumer loan fees provided by the legacy Bancorp Financial loan portfolio. Partially offsetting the increases during the firstsecond quarter of 2026, compared to the fourthfirst quarter of 2025,2026, was a $154,000$133,000 decrease in wealth management income due to lower insurance – annuities fees, estate fees, and miscellaneous fees, and a $194,000 decreaseincrease in card related income due to a reductiongrowth in debit card fees based on the higher volume of ATM activity and related fees. Partially offsetting the increases during the second quarter of 2026, compared to the first quarter of 2026, was a $176,000 decrease in other income due to a decrease in powersport related dealer charge-back income.

The increase in noninterest income of $2.4 million in the firstsecond quarter of 2026, compared to the firstsecond quarter of 2025, is primarily due to a $294,000$525,000 increase in wealth management income from growth in advisoryadvisory, agent, and person trust fees, a $150,000$543,000 increase in serviceresidential chargesmortgage onbanking deposits,revenue, primarily due to a $584,000$379,000 increase in MSRs mark to market valuations, and a $779,000 increase in the cash surrender value of BOLI due to changes in market interest rates,rates andon aour $574,000COLI increase in residential mortgage banking revenue mainly due to a $418,000 increase in MSRs mark to market valuations.investments. Also contributing to the increase in noninterest income during the quarter was a $714,000$551,000 increase in other income due to powersport and consumer loan fees provided by the legacyacquired Bancorp Financial loan portfolio.

Noninterest expense for the firstsecond quarter of 2026 decreasedincreased $2.7$1.0 million, or 5.1%, compared to the fourth quarter of 2025, and increased $5.7 million, or 12.8%,2.1%, compared to the first quarter of 2026, and increased $7.8 million, or 18.0%, compared to the second quarter of 2025. The decreaseincrease in the firstsecond quarter of 2026, compared to the fourthfirst quarter of 2025,2026, was driven by a $1.3$430,000 million decreaseincrease in salaries and employee benefits with decreasesincreases reflected primarily in salaries, officer incentive accruals, deferred compensation expense, and insurance premiums. OtherAlso decreasescontributing includeto the increase was a $1.4$712,000 million decreaseincrease in computer and data processingother expenses due to thegrowth timingin director deferred compensation expense, a $172,000 increase in litigation related expense regarding two unrelated customer disputes with limited exposure that are both considered non-recurring in nature, and an accrual of costs incurred$184,000 related to thepowersport coreloan systemgap conversioninsurance as a result of our acquisition of Bancorp Financial and a $267,000 decrease in net OREO expensesrefunds due to acustomers $235,000 gain recorded on the transfer of one propertyrelated to OREOloan during the first quarter of 2026.prepayments.

The year over year increase in noninterest expense is primarily attributable to a $2.7$3.2 million increase in salaries and employee benefits, primarily due to the increased workforce from the Bancorp Financial acquisition as well as increases in annual base salary ratesrates, stock compensation expense, payroll taxes, 401(k) expense, and payrolldeferred taxesemployee compensation expense in the firstsecond quarter of 2026. Partially offsetting the increase to salaries and employee benefits was a decrease in the officer incentive accrual due to certain performance metrics compared to budget. Also contributing to the increase in noninterest expense year over year was ana $823,000$641,000 increase in occupancy, furniture and equipment, a $1.0 million$525,000 increase in computer and data processing expenses, a $1.5$1.7 million increase in consumer credit expense, and a $721,000$1.3 million increase in other expense primarily due to the effect of the Bancorp Financial acquisition and the corresponding growth in expenses. Partially offsetting the year over year increase in noninterest expense was a $2.1 million decrease in net OREO expenses as a majority of OREO properties have been sold since the first quarter of 2025, resulting in a reduction of expenses.

We recorded income tax expense of $8.5$9.7 million for the firstsecond quarter of 2026 on $34.1$37.8 million of pretax income, compared to income tax expense of $10.5$8.5 million on $39.3 million of pretax income in the fourth quarter of 2025, and income tax expense of $6.4 million on $26.2$34.1 million of pretax income in the first quarter of 2026, and income tax expense of $7.4 million on $29.2 million of pretax income in the second quarter of 2025. Our effective tax rate was 25.5% in the second quarter of 2026, 24.9% infor the first quarter of 2026, 26.7%and 25.3% for the fourth quarter of 2025, and 24.3% for the firstsecond quarter of 2025.

Income tax expense reflected all relevant statutory tax rates and GAAP accounting. There were no significant changes in our ability to utilize our deferred tax assets during the quarter ended MarchJune 31,30, 2026. We had no valuation reserve on the deferred tax assets as of MarchJune 31,30, 2026.

Total assets decreased $53.5$32.4 million to $6.85$6.87 billion at MarchJune 31,30, 2026, from $6.90 billion at December 31, 2025, due primarily to the decrease of $66.9$49.8 million in securities available-for-sale and a decrease of $6.3 million in total loans. This decrease was partially offset by an increase in securities available-for-sale of $24.9 million. We continue to actively assess potential investment opportunities to utilize our excess liquidity. Total deposits were $5.56$5.44 billion at MarchJune 31,30, 2026, a decrease of $31.1$151.4 million from December 31, 2025.

Securities available-for-sale increaseddecreased $24.9$49.8 million as of MarchJune 31,30, 2026, compared to December 31, 2025, butand decreased $31.3$136.9 million compared to MarchJune 31,30, 2025. The increasedecrease in the portfolio during 2026 was driven by $106.9 million in purchases, partially offset by paydowns totaling $62.0$119.2 millionmillion, along with maturities and calls totaling $16.2$41.2 million and a $3.3$4.6 million increase in unrealized losses on securities available-for-sale. This was partially offset by $116.0 million in purchases. We continue to position the portfolio in higher credit quality, shorter duration securities with an appropriate mix of fixed- and floating-rate exposures.

Total loans were $5.19$5.25 billion as of MarchJune 31,30, 2026, a decrease of $66.9$6.3 million from December 31, 2025. The decrease in total loans in the first threesix months of 2026, compared to December 31, 2025, was primarily due to paydowns, net of originations, in commercial real estate – investor, commercial real estate – owner occupied, construction, and powersport. Total loans increased $1.25 billion compared to MarchJune 31,30, 2025, which was primarily due to the $1.20 billion portfolio acquired from Bancorp Financial. Excluding the acquisition, the Bank achieved organic loan growth, net of paydowns, of $49.3$51.5 million, compriseddriven ofby commercial, leases, residential real estate – owner occupied,commercial and other, partially offset by net decreases in commercialconstruction real estate - investor, construction, and multifamily.loans. As required by CECL, the balance (or amortized cost basis) of purchased credit deteriorated loans, or PCD loans (discussed below) is carried on a gross basis, rather than net of the associated credit loss estimate, and the expected credit losses for PCD loans are estimated and separately recognized as part of the allowance for credit losses, or ACL. Refer to Item 1. Note 1. Recent Accounting Pronouncements, for discussion of the Company’s adoption of ASU 2025-08, which will impact how PCD loans are recorded for any future acquisitions.

The addition of the powersports loan portfolio has given usprovides a more balanced loan portfolio overall by broadening the scope of our consumer lending and offering a higher yield in a lower rate environment. The initial credit considerations for powersport loans rely more heavily on FICO scores compared to other loan types in our loan portfolio. During the threesix months ended MarchJune 31,30, 2026, we originated $79.1$192.6 million powersport loans with a weighted average yield of 10.67%.10.42%. As of MarchJune 31,30, 2026, the weighted average FICO score, at the time of origination, of the entire powersport portfolio is 727.728.

The quality of our loan portfolio is impacted not only by our credit decisions but also by the economic health of the communities in which we operate. Since we are located in a corridor with significant open space and undeveloped real estate, real estate lending (including commercial real estate, construction, residential, multifamily, and HELOCs) has been and continues to be a sizeable portion of our portfolio. These categories comprised 56.3%55.1% of the portfolio as of MarchJune 31,30, 2026, compared to 56.5% of the portfolio as of December 31, 2025. At MarchJune 31,30, 2026, our outstanding commercial real estate loans and undrawn commercial real estate commitments, excluding owner occupied real estate, were equal to 203.7%210.2% of our Tier 1 capital plus allowance for credit losses, a decrease from 220.3% at December 31, 2025. We continue to oversee and seek to manage our loan portfolio in accordance with interagency guidance on risk management.

Nonperforming loans consist of nonaccrual loans and loans 90 days or greater past due. Nonperforming loans increased by $22.7$3.7 million to $75.5$56.5 million at MarchJune 31,30, 2026, from $52.8 million at December 31, 2025, and increased by $40.7$24.2 million from $34.8$32.2 million at MarchJune 31,30, 2025. The increase infrom total nonperforming loans as of MarchDecember 31, 20262025 isand June 30, 2025 was mostly driven by non-accrual additions of a few larger commercial relationships and two larger relationships that are 90 days past due and accruing. The two past due and accruing relationships, one in commercial real estate – owner occupied and another in commercial real estate – investor, are in the processfirst quarter of being renewed, and both relationships are well positioned from a collateral perspective.2026. Purchased credit deteriorated loans,loans or (“PCD loans,”) are purchased loans that, as of the date of acquisition, we determined had experienced a more-than-insignificant deterioration in credit quality since origination. PCD loans are included in our nonperforming loan disclosures, if such loans otherwise meet the definition of a nonperforming loan. Total PCD loans are $62.2 million, of which $1.9 million meet the definition of nonperforming, as of June 30, 2026 and $78.6 million, of which $3.4 million meet the definition of nonperforming, as of December 31, 2025. Management continues to carefully monitor loans considered to be in a classified status. Nonperforming loans as a percent of total loans were 1.5%1.1% as of MarchJune 31,30, 2026, 1.0% as of December 31, 2025, and 0.9%0.8% as of MarchJune 31,30, 2025. The distribution of our nonperforming loans is shown in the following table.

Loan charge-offs, net of recoveries, for the firstsecond quarter of 2026 as compared to the prior linked quarter and year over year quarter are shown in the following table:

Net charge offs, reported in the above table, reflect continuing management attention to credit quality and remediation efforts. TheThere increasewas a decrease of $622,000 in gross charge-offscharge for the first quarter of 2026,offs, as compared to the priorlinked quarters presented, werequarter, primarily due to lower powersport loans of $4.7 million, oneand commercial real estate charge-off– forinvestor $3.9charge million,offs, andoffset aby $1.3 million charge-off on aincreased commercial relationship.charge offs. Powersport loans are measured for asset quality at origination based on FICO scores, then based on past due status through the life of the loan, and charge-off occurs once a loan is past due 120 days. We have continued our conservative loan valuations and aggressive recovery efforts on prior charge-offs.

Total classified loans decreased $1.5$18.0 million as of MarchJune 31,30, 2026, from December 31, 2025, but increased $63.5$34.5 million compared to MarchJune 31,30, 2025. The decrease in classified loans since December 31, 2025, is due to outflows tofrom classified loans of $10.2$39.6 million, offset by additions of $8.7$21.6 million. Outflows consisted of $6.0$13.2 million of loans paid off, $1.6$16.1 million of classified loans upgraded, $1.1$5.8 million of principal reductions through payments and partial charge offs, $1.3$4.3 million of loans charged off, and $235,000 of loans transferred into OREO. Classified assets decreased as of MarchJune 31,30, 2026, compared to theDecember prior31, linked quarter end,2025, due to the decreases to classified loans and a total decrease of $1.3 million related to OREO and repossessed assets. The $61.7$29.2 million increase in classified assets as of MarchJune 31,30, 2026, compared to MarchJune 31,30, 2025, is primarily due to the classified loan increase of $63.5$34.5 million, noted above, lessand a reduction$585,000 increase in OREOrepossessed balancesassets, yearpartially overoffset year.by a $5.9 million reduction to OREO. Classified loans since MarchJune 31,30, 2025 had additions of $149.3$126.9 million and were offset by outflows of $85.8$92.4 million which consisted of $54.8$51.8 million of loans paid off, $16.7$25.0 million of classified loans upgraded, $2.4$5.3 million of loans charged off, $5.7$9.1 million of net principal reductions and partial charge offs, $5.2 million$235,000 transferred to OREO, and $1.0 million repossessed. Management monitors a ratio of classified assets to the sum of Bank Tier 1 capital and the ACL on loans as another measure of overall change in loan related asset quality, which is referred to as the “classified assets ratio.” The classified assets ratio was 16.93%15.14% for the period ended MarchJune 31,30, 2026, compared to 17.82% as of December 31, 2025, and 13.12%14.91% as of MarchJune 31,30, 2025.

At MarchJune 31,30, 2026, our ACL on loans totaled $72.1$70.4 million, and our ACL on unfunded commitments, included in other liabilities, totaled $2.0 million. In the firstsecond quarter of 2026, we recorded a provision expense on loans of $9.6$7.5 million driven by increased charge-offs and the downgrade of one commercial relationship. Further, we recorded a $101,000$2,500 provision release on unfunded commitments, primarily due to an adjustment of historical benchmark assumptions, such as funding rates and the period used to forecast those rates, within the ACL calculation. These adjustments resulted in a $9.5$7.5 million net expense to the provision for credit losses for the firstsecond quarter of 2026.

Management estimates the amount of provision required on a quarterly basis and records the appropriate provision expense, or release of expense, to maintain an adequate reserve for all potential and estimated credit losses on loans, leases and unfunded commitments. The ACL on loans totaled $72.1$70.4 million as of MarchJune 31,30, 2026, $72.3 million as of December 31, 2025, and $41.6$43.0 million as of MarchJune 31,30, 2025. Our ACL on loans to total loans was 1.3% as of June 30, 2026, 1.4% as of March 31, 2026 and December 31, 2025, and 1.1% Marchas 31,of June 30, 2025. See Item 7 – Critical Accounting Estimates in the Management Discussion and Analysis in our 2025 Annual Report in Form 10-K for discussion of our ACL methodology on loans. Allocations of the ACL may be made for specific loans, but the entire allowance is available for any loan that, in our judgment, should be charged-off.

The coverage ratio of the ACL on loans to nonperforming loans was 95.5%124.6% as of MarchJune 31,30, 2026, which was a decrease from the coverage ratio of 136.9% as of December 31, 2025, and a decrease from 119.4%133.3% as of MarchJune 31,30, 2025. ExcludingAnnualized loans past due 90 days and accruing that are in the process of renewal, the coverage ratio for March 31, 2026 was 115.5%. Netnet charge-offs to average loans increaseddecreased slightly in the current quarter, though remaining manageable,quarter at 0.76%0.71% for the quarter ended MarchJune 31,30, 2026, compared to 0.45%0.76% for the quarters ended December 31, 2025 and March 31, 2026 and was an increase from the prior year quarter of 0.08% as of June 30, 2025.

In management’s judgment, an adequate ACL has been established to encompass the current lifetime expected credit losses at MarchJune 31,30, 2026, as well as general changes in lending policy, procedures and staffing, and other external factors. However, there can be no assurance that actual losses will not exceed the estimated amounts in the future, based on unforeseen economic events, changes in business climates and the condition of collateral at the time of default and repossession. Continued volatility in the economic environment stemming from the impacts of and response to inflation, tariffs, potential recession, and the war in Ukraine and the war in Iran, and the associated effects on our customers, or other factors, such as changes in business climates and the condition of collateral at the time of default or repossession, may revise our current expectations of future credit losses in future reporting periods.

As of MarchJune 31,30, 2026, OREO totaled $632,000,$622,000, reflecting a decrease of $795,000$805,000 from $1.4 million at December 31, 2025, and a decrease of $2.2$5.9 million from $2.9$6.5 million at MarchJune 31,30, 2025. InThere were no transfers or sales during the firstthree quartermonths ofended 2026,June there30, 2026. There was one OREO sale totaling $1.4 million, net of gains, and one property transferred with a value of $632,000. The valuation adjustment balanceof was reversed along with the$10,000 related OREO balance due to thean saleupdated inannual the first quarter of 2026.appraisal. There was no valuation adjustment in the fourth quarter of 2025 and we recorded a valuation adjustment of $454,000$157,000 in the firstsecond quarter of 2025.

Total deposits were $5.56$5.44 billion at MarchJune 31,30, 2026, which reflects a $31.1$151.4 million decrease from total deposits of $5.60 billion at December 31, 2025, but an increase of $712.2$646.2 million from total deposits of $4.85$4.80 billion at MarchJune 31,30, 2025. The decrease in deposits at MarchJune 31,30, 2026, compared to December 31, 2025, was primarily due to decreases in savings accounts of $4.6$15.3 million and time deposits of $97.0$185.0 million, primarily due to the roll off of higher rate brokered deposits and other exception-priced time deposits acquired from the Bancorp Financial acquisition. These decreases were partially offset by increases in noninterest bearing deposits of $16.4$7.6 million, NOW accounts of $8.1$24.7 million and money market accounts of $46.0$16.6 million. The increase in deposits at March 31, 2026, compared to March 31, 2025, stemmed primarily from the acquisition of Bancorp Financial, which impacted all deposit types. Total quarterly average deposits increased $764.8 million, or 15.9%, in the year over year period, primarily driven by the acquisition of Bancorp Financial, which included an increase in average time deposits of $337.3 million, savings accounts of $178.1 million, money market accounts of $144.9 million, NOW accounts of $69.4 million, and noninterest bearing deposits of $35.1 million. Included in our quarterly average time deposits are $46.6 million of brokered deposits compared to none at March 31, 2025. Brokered deposits totaling $115.0 million were assumed in the acquisition of Bancorp Financial and we expect these deposits to run-off by early 2028.