Bancorp, Inc.: Form 10-Q for the period ended Sep 30, 2025

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides information about our results of operations, financial condition, liquidity and asset quality. This information is intended to facilitate your understanding and assessment of significant changes and trends related to our financial condition and results of operations. This MD&A should be read in conjunction with our financial information in our Form 10-K, as amended, for the fiscal year ended 2024 (the “2024 Form 10-K, as amended”) and the unaudited interim consolidated financial statements and notes thereto contained in this Quarterly Report on Form 10-Q.

MD&A is organized in the following sections:

Overview

Executive Summary

Results of Operations

Liquidity and Capital Resources

Financial Condition

Off-Balance Sheet Arrangements

Important Note Regarding Forward-Looking Statements

When used in this Quarterly Report on Form 10-Q, statements regarding The Bancorp’s business, that are not historical facts, are “forward-looking statements.” These statements may be identified by the use of forward-looking terminology, including, but not limited to the words “intend,” “may,” “believe,” “will,” “expect,” “look,” “anticipate,” “plan,” “estimate,” “continue,” or similar words. Forward-looking statements include but are not limited to, statements regarding our annual fiscal 2025 results, profitability, and increased volumes, and relate to our current assumptions, projections, and expectations about our business and future events, including current expectations about important economic, political, and technological factors, among other factors, and are subject to risks and uncertainties, which could cause the actual results, events, or achievements to differ materially from those set forth in or implied by the forward-looking statements and related assumptions. Factors that could cause results to differ from those expressed in the forward-looking statements also include, but are not limited to, the risks and uncertainties referenced or described in The Bancorp’s filings with the Securities and Exchange Commission, including the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of our Annual Report on Form 10-K, as amended, for the fiscal year ended December 31, 2024 and other documents that we file from time to time with the Securities and Exchange Commission as well as the following:

an inconsistent recovery from an extended period of unpredictable economic and growth conditions in the U.S. economy may adversely impact our assets and operating results and result in increases in payment defaults and other credit risks, decreases in the fair value of some assets and increases in our provision for credit losses;

weak economic and credit market conditions, either globally, nationally or regionally, may result in a reduction in our capital base, reducing our ability to maintain deposits at current levels;

changes in the interest rate environment, particularly in response to inflation, could adversely affect our revenue and expenses and the availability and cost of capital, cash flows and liquidity;

volatility in the banking sector (including perception of such conditions) and responsive actions taken by governmental agencies to stabilize the financial system could result in increased regulation or liquidity constraints;

operating costs may increase;

adverse legislation or governmental or regulatory policies may be promulgated;

we may fail to satisfy our regulators with respect to legislative and regulatory requirements;

management and other key personnel may leave or change roles without effective replacements;

increased competition may reduce our client base or cause us to lose market share;

the costs of our interest-bearing liabilities, principally deposits, may increase relative to the interest received on our interest-bearing assets, principally loans, thereby decreasing our net interest income;

loan and investment yields may decrease, resulting in a lower net interest margin;

geographic concentration could result in our loan portfolio being adversely affected by regional economic factors;

the market value of real estate that secures certain of our loans may be adversely affected by economic and market conditions and other conditions outside of our control such as lack of demand, natural disasters, changes in neighborhood values, competitive overbuilding, weather, casualty losses and occupancy rates;

cybersecurity risks, including data security breaches, ransomware, malware, “denial of service” attacks and identity theft, could result in disclosure of confidential information, operational interruptions and legal and financial exposure;

natural disasters, pandemics, other public health crises, acts of terrorism, geopolitical conflict, including trade disputes and tariffs, sanctions, war or armed conflict, such as the conflicts between Russia and Ukraine and conflicts in the Middle East as well as the possible expansion of such conflicts in surrounding areas, or other catastrophic events could disrupt the systems of us or third party service providers and negatively impact general economic conditions;

we may not be able to sustain our historical growth rates in our loan, prepaid and debit card and other lines of business;

our entry into consumer fintech lending and its future potential impact on our operations and financial condition may result in new operational, legal and financial risks;

risks related to actual or threatened litigation;

our ability to remediate the material weaknesses in internal control over financial reporting identified, and to subsequently maintain effective internal control over financial reporting;

our internal controls and procedures may fail or be circumvented, and our risk management policies may not be adequate; and

we may not be able to manage credit risk to desired levels, improve our net interest margin and monitor interest rate sensitivity, manage our real estate exposure to capital levels and maintain flexibility if we achieve asset growth.

We caution readers not to place undue reliance on forward-looking statements, which speak only as of the date hereof and are based on information presently available to our management. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q except as required by applicable law.

Overview

The Bancorp’s balance sheet has a risk profile enhanced by the special nature of the collateral supporting its loan niches, and related underwriting. Those loan niches have contributed to increased earnings levels, even during periods in which markets have experienced various economic stresses. Real estate bridge lending is comprised of workforce housing which we consider to be working class apartments at more affordable rental rates, in selected states. We believe that underwriting requirements provide significant protection against loss, as supported by LTV ratios based on third-party appraisals. SBLOC and IBLOC loans are collateralized by marketable securities and the cash value of life insurance, respectively, while SBA loans are either SBA 7(a) loans that come with significant government-related guarantees, or SBA 504 loans that are made at 50-60% LTVs. Additional detail with respect to these loan portfolios is included in the related tables in “Financial Condition.” Also enhancing our risk profile is the substantial earnings impact of its payment businesses.

Nature of Operations

We are a Delaware financial holding company and our primary, wholly owned subsidiary is The Bancorp Bank, National Association. The vast majority of our revenue and income is currently generated through the Bank. In our continuing operations, we have four primary lines of specialty lending in our national specialty finance segment:

SBLOC, IBLOC, and investment advisor financing;

leasing (direct lease financing);

SBLs, consisting primarily of SBA loans; and

non-SBA commercial real estate bridge loans.

SBLOCs and IBLOCs are loans that are generated through affinity groups and are respectively collateralized by marketable securities and the cash value of insurance policies. SBLOCs are typically offered in conjunction with brokerage accounts and are offered nationally. IBLOC loans are typically viewed as an alternative to standard policy loans from insurance companies and are utilized by our existing advisor base as well as insurance agents throughout the country. Investment advisor financing are loans made to investment advisors for purposes of debt refinance, acquisition of another investment firm or internal succession. Vehicle fleet and, to a lesser extent, other equipment leases are generated in a number of Atlantic Coast and other states and are collateralized primarily by vehicles. SBA loans are generated nationally and are collateralized by commercial properties and other types of collateral. Our non-SBA commercial real estate bridge loans, at fair value, are primarily collateralized by multifamily properties (apartment buildings), and to a lesser extent, by hotel and retail properties. These loans were originally generated for sale through securitizations. In 2020, we decided to retain these loans on our balance sheet as interest-earning assets and resumed originating such loans in the third quarter of 2021. These new originations are identified as real estate bridge loans, consist of apartment building loans, and are held for investment in the loan portfolio. Prior originations originally intended for securitizations continue to be accounted for at fair value, and are included on the balance sheet in “Commercial loans, at fair value.”

In our fintech segment we make consumer fintech loans which consist of short-term extensions of credit including secured credit card loans made in conjunction with marketers and servicers.

The majority of our deposits and non-interest income are generated in our fintech segment, which consists of consumer transaction accounts accessed by Bank-issued prepaid or debit cards and payment companies that process their clients’ corporate and consumer payments, automated clearing house (“ACH”) accounts, the collection of card payments on behalf of merchants and other payments through our Bank. The card-accessed deposit accounts are comprised of debit and prepaid card accounts that are generated by companies that market directly to end users. Our card-accessed deposit account types are diverse and include: consumer and business debit, general purpose reloadable prepaid, pre-tax medical spending benefit, payroll, gift, government, corporate incentive, reward, business payment accounts and others. Our ACH accounts facilitate bill payments, and our acquiring accounts provide clearing and settlement services for payments made to merchants which must be settled through associations such as Visa or Mastercard. Consumer transaction account banking services are provided to organizations with a pre-existing customer base tailored to support or complement the services provided by these organizations to their customers, which we refer to as “affinity or private label banking.” These services include loan and deposit accounts for investment advisory companies through our Institutional Banking department. We typically provide these services under the name and through the facilities of each organization with whom we develop a relationship.

Executive Summary

On August 18, 2025, we completed an offering of $200.0 million aggregate principal amount of 7.375% Senior Notes due 2030. The net proceeds from the sale of the notes were utilized to repay all $100.0 million principal amount of the 4.75% note due August 2025, and the remaining proceeds may be utilized to fund our share repurchase program and for general corporate purposes.

On October 23, 2024, the Board approved a common stock repurchase program for the 2025 fiscal year which authorizes the Company to repurchase $37.5 million in value of our common stock per fiscal quarter in 2025, for a maximum amount of $150.0 million. On July 7, 2025, the Board authorized the increase of the capacity of the existing share repurchase program for the third and fourth quarters of 2025 to $300.0 million and $200.0 million for 2026. This increase cumulatively represents up to $500.0 million in share repurchases through year-end 2026.

We repurchased 2,034,053 shares of our common stock at an average cost of $73.74 per share during the quarter ended September 30, 2025, and our share repurchases for the nine months of 2025 were 3,472,396 shares at an average price of $64.80. As a result of share repurchases, outstanding shares, net of treasury shares, at September 30, 2025 amounted to 44.5 million, compared to 47.3 million shares at December 31, 2024, or a reduction of 6%.

We remain focused on growing our fintech revenues through new partnerships, products and services. Consumer fintech loans of $785.0 million as of September 30, 2025 increased 15% compared to a $680.5 million balance at June 30, 2025 and increased 180% compared to the September 30, 2024 balance of $280.1 million. Certain loan fees on consumer fintech loans are recorded as non-interest income, and totaled $4.5 million for the quarter ended September 30, 2025 compared to $1.6 million for the quarter ended September 30, 2024. In addition, as part of our strategies we will reallocate or reduce resources where appropriate. As part of those efforts, in the fourth quarter of 2025 we plan to restructure our institutional banking business to de-emphasize growth and reallocate space on our balance sheet. We expect this action will result in a $1.3 million restructuring charge in the fourth quarter of 2025 and $8.0 million in run-rate expense reductions in 2026.

Financial Highlights

Financial highlights include:

(Dollars in millions, except per share data)

Our net income increased to $54.9 million for the third quarter of 2025, from $51.5 million for the third quarter of 2024. Our cost of funds decreased to 2.15% in the third quarter of 2025 from 2.54% in the third quarter of 2024. See “Asset and Liability Management” in this MD&A for further discussion of how our funding sources and loans adjust to Federal Reserve rate changes.

Fintech fees are the largest drivers of non-interest income. Such fees for the third quarter of 2025 increased $5.7 million over the comparable 2024 period.

Key Performance Indicators

We use a number of key performance indicators (“KPIs”) to measure our overall financial performance and believe they are useful to investors because they provide additional information about our underlying operational performance and trends. Those indicators include:

Return on assets and return on equity. Two KPIs commonly used within the banking industry to measure overall financial performance are return on assets and return on equity. Return on assets measures the amount of earnings compared to the level of assets utilized to generate those earnings and is derived by dividing net income by average assets. Return on equity measures the amount of earnings compared to the equity utilized to generate those earnings and is derived by dividing net income by average shareholders’ equity.

Ratio of equity to assets. Ratio of equity to assets is another KPI frequently utilized within the banking industry and is derived by dividing period-end shareholders’ equity by period-end total assets.

Net interest margin and credit losses. Net interest margin is a KPI associated with net interest income, which is the largest component of our earnings and is the difference between the interest earned on our interest-earning assets consisting of loans and investments, less the interest on our funding, consisting primarily of deposits. Net interest margin is derived by dividing net interest income by average interest-earning assets. Higher levels of earnings and net interest income on lower levels of assets, equity and interest-earning assets are generally desirable. However, these indicators must be considered in light of regulatory capital requirements, which impact equity, and credit risk inherent in loans. Accordingly, the magnitude of credit losses is an additional KPI.

Other KPIs. Other KPIs we use from time to time include growth in average loans and leases, non-interest income growth, the level of non-interest expense and various capital measures including equity to assets.

(Dollars in millions)

At September 30, 2025, the ratio of equity to assets was 9.05%, compared to 10.07% at September 30, 2024, primarily driven by reductions in equity from share repurchases partially offset by an increase in equity capital from retained earnings.

Net interest margin was 4.45% in the third quarter of 2025, versus 4.78% in the third quarter of 2024 reflecting the impact of Federal Reserve rate decreases beginning in September 2024.

Non-interest income—fintech fees increased to $35.1 million in the third quarter of 2025, up 19.3% from $29.4 million in the third quarter of 2024 and up 24.4% for the nine months ended September 30, 2025 compared to the comparable prior year, which reflected continued organic volume growth with existing partners and products and the impact of new products launched within the past year.

Critical Accounting Estimates

Our accounting and reporting policies conform with GAAP and general practices within the financial services industry. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. We view critical accounting estimates as those estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. Our critical accounting policies and estimates as of September 30, 2025, remain unchanged from those presented in the 2024 Form 10-K, as amended, under Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Results of Operations

Comparison of third quarter of 2025 to third quarter of 2024

Net Income

Net income for the third quarter of 2025 was $54.9 million, or $1.18 per diluted share, compared to $51.5 million, or $1.04 per diluted share, for the third quarter of 2024. Income before income taxes was $73.2 million in the third quarter of 2025 compared to $69.0 million in the third quarter of 2024.

Net Interest Income

Our net interest income for the third quarter of 2025 increased $465,000, or 0.5%, to $94.2 million from $93.7 million in the third quarter of 2024. Our interest income for the third quarter of 2025 decreased to $136.4 million, a decrease of $3.3 million, or 2.4%, from $139.7 million for the third quarter of 2024. The decrease reflected lower investment securities income, driven by lower securities balances. While our average loans and leases increased to $6.69 billion for the third quarter of 2025 from $6.02 billion for the third quarter of 2024, an increase of $666.2 million, or 11.1%, lower rates resulted in decreased interest income. Related interest income decreased $1.5 million on a tax equivalent basis, reflecting the impact of the aforementioned Federal Reserve rate decreases. Additionally, fees on the majority of consumer fintech loan balances are recorded as non-interest income, which impacts both net interest income and net interest margin. The fees are included in non-interest income as most of the Bank’s current fintech loans do not charge interest to the consumer. The Bank generally earns fees on such loans based on transaction activity and volume; those fees are recorded as non-interest income. Of the total $1.5 million decrease in loan interest income on a tax equivalent basis, the largest decreases were $3.7 million for all real estate bridge loans, $2.0 million for IBLOC, and $545,000 for leasing partially offset by increases in small business lending, fintech, investment advisor financing, and SBLOC of $2.5 million, $1.0 million, $959,000, and $831,000 respectively.

Our average investment securities of $1.43 billion for the third quarter of 2025 decreased $151.6 million from $1.58 billion for the third quarter of 2024. Related tax equivalent interest income decreased $2.3 million, reflecting lower securities balances.

Our net interest margin (calculated by dividing net interest income by average interest-earning assets) for the third quarter of 2025 was 4.45% compared to 4.78% for the third quarter of 2024, a decrease of 33 basis points. While the yield on interest-earning assets decreased 68 basis points, the cost of deposits and interest-bearing liabilities decreased 39 basis points, or a net change of 29 basis points. Average interest-earning deposits at the Federal Reserve Bank increased $107.6 million, or 43.5%, to $355.0 million in the third quarter of 2025 from $247.3 million in the third quarter of 2024. In the third quarter of 2025, the average yield on our loans decreased to 6.87% from 7.73% for the third quarter of 2024, a decrease of 86 basis points. The yield on taxable investment securities in the third quarter of 2025 was 4.90% compared to 5.02% for the third quarter of 2024.

Average Daily Balances

The following table presents the average daily balances of assets, liabilities and shareholders’ equity and the respective interest earned or paid on interest-earning assets and interest-bearing liabilities, as well as average annualized rates, for the periods indicated:

(Dollars in thousands)

For the third quarter of 2025, average interest-earning assets increased to $8.47 billion, an increase of $622.3 million, or 7.9%, from $7.85 billion in the third quarter of 2024. The increase reflected increased average interest-earning deposits at the Federal Reserve Bank of $107.6 million, increased average balances of loans and leases of $666.2 million, or 11.1%, offset by decreased average investment securities of $151.6 million, or 9.6%. For those respective periods, average demand and interest checking deposits increased $618.7 million, or 8.9%. The interest expense shown for demand and interest checking is primarily comprised of interest paid to our affinity groups.

Provision for Credit Losses on Loans

Our provision for credit losses was $45.1 million for the third quarter of 2025 compared to a provision of $3.6 million for the third quarter of 2024, an increase of $41.5 million. The increase in provision is primarily attributable to a provision for consumer fintech loans of $39.8 million in the third quarter of 2025, compared to no related provision in the same quarter of 2024. We recognized a related $39.8 million non-interest income amount in the third quarter of 2025 related to a credit enhancement provided contractually by a third party. Accordingly, there have been no related net losses. See further discussion of this program in “Financial Condition—Portfolio Performance” in MD&A.

In addition, the provision for credit losses on non-consumer fintech loans was $5.8 million in the third quarter of 2025, an increase of $2.3 million compared to the third quarter of 2024, primarily driven by $3.1 million higher provision for the direct lease financing portfolio. The higher provision for the lease portfolio reflects the impact of elevated charge-offs in the third quarter of 2025.

For more information about our provision, allowance and credit loss experience, see “Financial Condition—Portfolio Performance” below and “Note 6. Loans” to the unaudited consolidated financial statements herein.

Non-Interest Income

Non-interest income was $80.4 million in the third quarter of 2025 compared to $32.1 million in the third quarter of 2024. The $48.3 million, or 150.5%, increase between those respective periods is primarily driven by $39.8 million of consumer fintech loan credit enhancement income. Consumer fintech loan credit enhancement income correlates to a like amount for provision for credit losses on consumer fintech loans. See further discussion above under “Provision for Credit Losses on Loans.”

Prepaid, debit card and related fees increased $1.6 million, or 6.7%, to $25.5 million for the third quarter of 2025, compared to $23.9 million in the third quarter of 2024. The increase reflected higher transaction volume from new clients and organic growth from existing clients. ACH, card and other payment processing fees increased $1.2 million, or 30.4%, to $5.1 million for the third quarter of 2025, compared to $3.9 million in the third quarter of 2024, reflecting an increase in rapid funds transfer volume.

Consumer credit fintech fees increased $2.9 million to $4.5 million for the third quarter of 2025, compared to $1.6 million in the third quarter of 2024, reflecting increased loan volume.

Other non-interest income increased $2.1 million for the third quarter of 2025, compared to the third quarter of 2024, which reflected $2.3 million from the forfeiture of an earnest money deposit for a terminated OREO sale agreement.

Non-Interest Expense

The following table presents the principal categories of non-interest expense for the periods indicated:

(Dollars in thousands)

44

Total non-interest expense was $56.4 million for the third quarter of 2025, an increase of $3.1 million, or 5.9%, compared to $53.3 million for the third quarter of 2024. The increase reflected a $3.5 million increase in salaries and benefits expense. Primary drivers of changes in non-interest expense were as follows:

Salaries and employee benefits expense increased $3.5 million, reflecting higher stock and other incentive compensation, and employee insurance expense. The increase also reflected higher IT and cybersecurity, and higher financial crimes and risk management expense.

Data processing expense decreased $149,000, reflecting the impact of newly effective contract terms.

Audit expense increased $214,000, reflecting higher expense for regulatory filings.

Legal expense increased $428,000, reflecting the impact of fintech payments related matters and higher expense for regulatory filings.

Software expense increased $479,000, reflecting higher expenditures for information technology infrastructure including leasing, institutional banking, cybersecurity, and enterprise risk.

Other non-interest expense decreased $1.3 million, reflecting a one-time loss in the third quarter of 2024 from a transaction processing delay.

Income Taxes

Income tax expense was $18.2 million for the third quarter of 2025 compared to $17.5 million in the third quarter of 2024. A 24.9% effective tax rate in 2025 and a 25.4% effective tax rate in 2024, based on a 21% federal tax rate and the impact of various state income taxes.

Comparison of first nine months 2025 to first nine months 2024

Net Income

Net income for the first nine months of 2025 was $171.9 million, or $3.64 per diluted share, compared to $161.6 million, or $3.15 per diluted share, for the first nine months of 2024. Income before income taxes was $228.0 million in the first nine months of 2025 compared to $215.8 million in the first nine months of 2024.

Net Interest Income

Our net interest income for the first nine months of 2025 increased $1.5 million, or 0.5%, to $283.4 million from $281.9 million in the first nine months of 2024. Our interest income for the first nine months of 2025 increased to $419.3 million, an increase of $6.6 million, or 1.6%, from $412.8 million for the first nine months of 2024. The increase in interest income reflected the impact of higher investment securities balances and $3.0 million of interest footnoted in the following “Average Daily Balances Table”. While our average loans and leases increased to $6.55 billion for the first nine months of 2025 from $5.83 billion for the first nine months of 2024, an increase of $715.5 million, or 12.3%, lower rates resulted in decreased interest income. Related interest income decreased $9.6 million on a tax equivalent basis. Additionally, fees on the majority of consumer fintech loan balances are recorded as non-interest income, which impacts both net interest income and net interest margin. The fees are included in non-interest income as most of the Bank’s current fintech loans do not charge interest to the consumer. The Bank generally earns fees on such loans based on transaction activity and volume; those fees are recorded as non-interest income. Of the total $9.6 million decrease in loan interest income on a tax equivalent basis, the largest decreases were $11.9 million for all real estate bridge loans and $7.1 million for SBLOC and IBLOC, while small business lending, investment advisor financing, fintech, and leasing increased $6.1 million, $2.7 million, $1.8 million, and $696,000, respectively.

Our average investment securities of $1.46 billion for the first nine months of 2025 increased $205.6 million from $1.26 billion for the first nine months of 2024. Related tax equivalent interest income increased $11.2 million, reflecting an increase in balances and $3.0 million of prior period interest on CRE-2, which was repaid in the second quarter of 2025 as a result of the sale of underlying collateral. That security was the only remaining security from our prior securitizations.

Our net interest margin (calculated by dividing net interest income by average interest-earning assets) for the first nine months of 2025 was 4.32% compared to 4.96% for the first nine months of 2024, a decrease of 64 basis points. While the yield on interest-earning assets decreased 87 basis points, the cost of deposits and interest-bearing liabilities decreased 29 basis points, or a net change of 58 basis points. Average interest-earning deposits at the Federal Reserve Bank increased $259.6 million, or 53.3%, to $746.5 million in the first nine months of 2025 from $486.9 million in the first nine months of 2024. In the first nine months of 2025, the average yield on our loans decreased to 6.84% from 7.90% for the first nine months of 2024, a decrease of 106 basis points. The yield on taxable investment securities in the first nine months of 2025 was 5.30% compared to 4.98% for the first nine months of 2024, also reflecting the aforementioned $3.0 million of prior period interest on CRE-2.

Average Daily Balances

The following table presents the average daily balances of assets, liabilities and shareholders’ equity and the respective interest earned or paid on interest-earning assets and interest-bearing liabilities, as well as average annualized rates, for the periods indicated:

(Dollars in thousands)

(3) The nine months ended September 30, 2025 includes $3.0 million of interest income from a security that was known as “CRE-2” and which was related to our discontinued commercial real estate securitization business. The CRE-2 interest was repaid in the second quarter as a result of the final sale of underlying collateral related to that security. CRE-2 was the last security remaining related to the discontinued commercial real estate securitization business. The $3.0 million of prior period interest income was excluded from change due to rate.

For the first nine months of 2025, average interest-earning assets increased to $8.76 billion, an increase of $1.18 billion, or 15.6%, from $7.58 billion in the first nine months of 2024. The increase reflected increased average interest-earning deposits at the Federal Reserve Bank of $259.6 million, increased average balances of loans and leases of $715.5 million, or 12.3%, and increased average investment securities of $205.6 million, or 16.3%. For those respective periods, average demand and interest checking deposits increased $1.22 billion, or 18.3%. The interest expense shown for demand and interest checking is primarily comprised of interest paid to our affinity groups.

Provision for Credit Losses on Loans

Our provision for credit losses was $136.3 million for the first nine months of 2025 compared to a provision of $7.0 million for the first nine months of 2024, an increase of $129.3 million. The increase is primarily attributable to a provision for consumer fintech loans of $128.9 million in the nine months of 2025, compared to no related provision in the same period of 2024. We recognized a related $128.9 million non-interest income amount in the nine months of 2025 related to a credit enhancement provided contractually by a third party. Accordingly, there have been no related net losses. See further discussion of this program in “Financial Condition—Portfolio Performance” in MD&A.

Non-Interest Income

Non-interest income was $247.8 million in the first nine months of 2025 compared to $92.2 million in the first nine months of 2024. The $155.6 million, or 168.7%, increase between those respective periods reflected $128.9 million of consumer fintech loan credit enhancement income which correlated to a like amount for provision for credit losses on consumer fintech loans, and an increase in prepaid, debit card and related fees. The increase also reflected increased ACH, card and other payment processing fees. Prepaid, debit card and related fees increased $4.4 million, or 6.0%, to $77.3 million for the first nine months of 2025, compared to $72.9 million in the first nine months of 2024. The increase reflected higher transaction volume from new clients and organic growth from existing clients. ACH, card and other payment processing fees increased $5.9 million, or 60.0%, to $15.8 million for the first nine months of 2025, compared to $9.9 million in the first nine months of 2024, reflecting an increase in rapid funds transfer volume.

Consumer credit fintech fees amounted to $12.1 million for the first nine months of 2025, compared to $1.7 million for the comparable prior year period. The impact of such lending may also be reflected in a lower cost of deposits, as a result of deposits required for secured credit card loans.

Net realized and unrealized gains on commercial loans, at fair value, decreased $495,000, or 22.4%, to $1.7 million for the first nine months of 2025 from $2.2 million for the first nine months of 2024, as related loan balances continue to paydown.

Leasing related income increased $2.6 million, or 90.4%, to $5.5 million for the first nine months of 2025 from $2.9 million for the first nine months of 2024.

Other non-interest income increased $4.0 million, or 153.5%, to $6.5 million for the first nine months of 2025 from $2.6 million in the first nine months of 2024 which reflected increased payoff fees on REBL loans and $2.3 million from the forfeiture of an earnest money deposit for a terminated OREO sale agreement.

Non-Interest Expense

The following table presents the principal categories of non-interest expense for the periods indicated:

(Dollars in thousands)

47

Total non-interest expense was $166.9 million for the first nine months of 2025, an increase of $15.5 million, or 10.2%, compared to $151.4 million for the first nine months of 2024. Of the $15.5 million increase, $10.2 million resulted from an increase in salaries and benefits expense. Primary drivers of changes in non-interest expense were as follows:

Salaries and employee benefits expense increased $10.2 million, reflecting higher stock and other incentive compensation, and employee insurance expense. The increase also reflected higher IT and cybersecurity, and higher financial crimes and risk management expense.

Data processing expense decreased $561,000, reflecting the impact of newly effective contract terms.

Audit expense increased $735,000, reflecting higher expense for regulatory filings.

Legal expense increased $2.8 million, reflecting payments related matters and higher expense for regulatory filings.

FDIC insurance expense increased $542,000, reflecting an increase in the assessment rate in the second quarter of 2025.

Software expense increased $1.5 million, reflecting higher expenditures for information technology infrastructure including leasing, institutional banking, cybersecurity, and enterprise risk.

Income Taxes

Income tax expense was $56.1 million for the first nine months of 2025 compared to $54.1 million in the first nine months of 2024. A 24.6% effective tax rate in 2025 and a 25.1% effective tax rate in 2024 based on a 21% federal tax rate and the impact of various state income taxes.

Liquidity and Capital Resources

Liquidity defines our ability to generate funds at a reasonable cost to support asset growth, meet deposit withdrawals, satisfy borrowing needs and otherwise operate on an ongoing basis. Maintaining an adequate level of liquidity depends on the institution’s ability to efficiently meet both expected and unexpected cash flows without adversely affecting daily operations or financial condition. The Company’s liquidity management policy requirements include sustaining defined liquidity minimums, concentration monitoring and management, stress testing, contingency planning and related oversight. Based on our sources of funding and liquidity discussed below, we believe we have sufficient liquidity and capital resources available for our needs in the next 12 months and for the foreseeable future. We invest the funds we do not need for daily operations primarily in overnight federal funds or in our interest-bearing account at the Federal Reserve. We actively monitor our positions and contingent funding sources daily.

Our primary source of funding has been deposits. Average total deposits increased by $618.2 million, or 8.8%, to $7.63 billion for the third quarter of 2025 compared to the third quarter of 2024. Federal Reserve average balances increased to $355.0 million in the third quarter of 2025 from $247.3 million in the third quarter of 2024.

One source of contingent liquidity is available-for-sale securities, which amounted to $1.38 billion at September 30, 2025, compared to $1.50 billion at December 31, 2024. At September 30, 2025, outstanding loans amounted to $6.67 billion, compared to $6.11 billion at the prior year end, an increase of $559.0 million representing a use of funds. Commercial loans, at fair value, decreased to $142.7 million from $223.1 million between those respective dates, a decrease of $80.5 million, which provided funding as that portfolio is in runoff.

Historically we have originated loans for securitization and sale, but in recent years we are retaining substantially all loans on our balance sheet. Our liquidity planning has not previously placed undue reliance on securitizations, and while our future planning excludes the impact of securitizations, other liquidity sources, primarily deposits, are determined to be adequate.

While we do not have a traditional branch system, we believe that our core deposits, which include our demand, interest checking, savings and money market accounts, have similar characteristics to those of a bank with a branch system. The majority of our deposit accounts are obtained with the assistance of third-parties and as a result have historically been classified as brokered by the FDIC. Prior to December 2020, FDIC guidance for classification of deposit accounts as brokered was relatively broad, and generally included accounts which were referred to or “placed” with the institution by other companies. If the Bank ceases to be categorized as “well capitalized” under banking regulations, it will be prohibited from accepting, renewing or rolling over any of its deposits classified as brokered without the consent of the FDIC. In such a case, the FDIC’s refusal to grant consent to our accepting, renewing or rolling over brokered deposits could effectively restrict or eliminate the ability of the Bank to operate its business lines as presently conducted. In December 2020, the FDIC issued a new regulation which, in the third quarter of 2021, resulted in the majority of our deposits being reclassified from brokered to non-brokered. On July 30, 2024, the FDIC proposed a regulation eliminating certain automatic exceptions which resulted in the reclassification of significant amounts of our deposits from brokered to non-brokered as a result of the December 2020 rules changes, while retaining the ability of financial institutions to reapply. If the proposed regulation were to be adopted, significant amounts of our deposits could be reclassified as brokered, which could also result in an increase in our federal deposit insurance rate and expense. On January 21, 2025, the FDIC announced that the proposed regulation would not be adopted. Of our total deposits of $7.33 billion as of September 30, 2025, $509.3 million were classified as brokered and an estimated $623.4 million were not insured by FDIC insurance, which requires identification of the depositor and is limited to $250,000 per identified depositor. Uninsured accounts may represent a greater liquidity risk than FDIC-insured accounts should large depositors withdraw funds as a result of negative financial developments either at the Bank or in the economy. Significant amounts of our uninsured deposits are comprised of small balances, such as anonymous gift cards and corporate incentive cards for which there is no identified depositor. We do not believe that such uninsured accounts present a significant liquidity risk.

Certain components of our deposits experience seasonality, creating greater excess liquidity at certain times. The largest deposit inflows occur in the first quarter of the year when certain of our accounts are credited with tax refund payments from the U.S. Treasury.

While consumer deposit accounts, including prepaid and debit card accounts, comprise the vast majority of our funding needs, we maintain secured borrowing lines with the FHLB and the Federal Reserve that are collateralized by pledged loans. As of September 30, 2025, we had $200.0 million borrowed under these facilities, and $2.78 billion of additional available capacity which we can access anytime. We expect to continue to maintain our facilities with the FHLB and Federal Reserve.

As a holding company conducting substantially all our business through our subsidiaries, our near-term need for liquidity consists principally of cash for required interest payments on our subordinated debentures, consisting of 2038 Debentures, and senior debt, consisting of $200.0 million senior notes with an interest rate of 7.375% and maturing in September 2030 (the “2030 Senior Notes”). Semi-annual interest payments on the 2030 Senior Notes are approximately $7.4 million, and quarterly interest payments on the 2038 Debentures are approximately $300,000. As of September 30, 2025, we had cash reserves of approximately $96.0 million at the holding company. We expect that a significant portion of that cash will fund share repurchases. Stock repurchases have historically been funded by dividends from the Bank, as have been interest payments on the above debt instruments. Stock repurchases may be terminated at any time. The holding company’s sources of liquidity are primarily comprised of dividends paid by the Bank to the Company, and the issuance of debt.

Included in our cash and cash-equivalents at September 30, 2025 were $74.5 million of interest-earning deposits which primarily consisted of deposits with the Federal Reserve.

In 2025, $117.1 million of securities purchases were exceeded by $272.0 million of securities redemptions. We had outstanding commitments to fund loans, including unused lines of credit, of $1.95 billion and $1.98 billion as of September 30, 2025, and December 31, 2024, respectively. The majority of our commitments are variable rate and originate with SBLOC. The recorded amount of such commitments has, for many accounts, been based on the full amount of collateral in a customer’s investment account. The funding requirements for such commitments occur on a measured basis over time and would be funded by normal deposit growth. Additionally, these loans are “demand” loans and as such, represent a contingent source of funding.

Capital Resources and Requirements

We must comply with capital adequacy guidelines issued by our regulators. A bank must, in general, have a Tier 1 leverage ratio of 5.00%, a ratio of Tier I capital to risk-weighted assets of 8.0%, a ratio of total capital to risk-weighted assets of 10.0% and a ratio of common equity Tier 1 to risk weighted assets of 6.5% to be considered “well capitalized.” The Tier I leverage ratio is the ratio of Tier 1 capital to average assets for the quarter. “Tier I capital” includes common shareholders’ equity, certain qualifying perpetual preferred stock and minority interests in equity accounts of consolidated subsidiaries, less intangibles. At September 30, 2025, the Bank was “well capitalized” under banking regulations.

The following table sets forth our regulatory capital amounts and ratios for the periods indicated:

Asset and Liability Management

The management of rate sensitive assets and liabilities is essential to controlling interest rate risk and optimizing interest margins. An interest rate sensitive asset or liability is one that, within a defined time period, either matures or experiences an interest rate change in line with general market rates. Interest rate sensitivity measures the relative volatility of an institution’s interest margin resulting from changes in market interest rates. While it is difficult to predict the impact of inflation and responsive Federal Reserve rate changes on our net interest income, the Federal Reserve has historically utilized increases in the overnight federal funds rate as one tool in fighting inflation. As a result of high rates of inflation, the Federal Reserve raised rates in 2022 and in 2023. In the third quarter of 2024 the

Federal Reserve began lowering rates and has held rates steady in the first two quarters of 2025. In the third quarter of 2025 the Federal Reserve began lowering rates. Our largest funding source, prepaid and debit card deposit accounts, contractually adjusts to only a portion of increases or decreases in rates which are largely determined by such Federal Reserve actions. That pricing has generally supported the maintenance of a balance sheet for which net interest income tends to increase with increases in rates. While deposits reprice to only a portion of Federal Reserve rate changes, such changes are immediate. Interest-earning assets, comprised primarily of loans and securities, tend to adjust more fully to rate increases at lagged contractual pricing intervals. The majority of our loans and securities are variable rate and generally reprice monthly or quarterly, although some reprice over several years. Additionally, the impact of loan interest rate floors which must be exceeded before rates on certain loans increase, may result in decreases in net interest income with lesser increases in rates. Cumulative 2022 Federal Reserve interest rate increases resulted in contractual rates on loans generally exceeding rate floors beginning in the second quarter of 2022.

We have adopted policies designed to manage net interest income and preserve capital over a broad range of interest rate movements. To effectively administer the policies and to monitor our exposure to fluctuations in interest rates, we maintain an asset/liability committee, consisting of the Bank’s Chief Executive Officer, Chief Accounting Officer, Chief Financial Officer, Chief Credit Officer and others. This committee meets quarterly to review our financial results, develop strategies to optimize margins and to respond to market conditions. The primary goal of our policies is to optimize margins and manage interest rate risk, subject to overall policy constraints for prudent management of interest rate risk.

We monitor, manage and control interest rate risk through a variety of techniques, including the use of traditional interest rate sensitivity analysis (also known as “gap analysis”) and an interest rate risk management model. With the interest rate risk management model, we project future net interest income and then estimate the effect of various changes in interest rates on that projected net interest income. We also use the interest rate risk management model to calculate the change in net portfolio value over a range of interest rate change scenarios. Traditional gap analysis involves arranging our interest-earning assets and interest-bearing liabilities by repricing periods and then computing the difference (or “interest rate sensitivity gap”) between the assets and liabilities that we estimate will reprice during each time period and cumulatively through the end of each time period.

Both interest rate sensitivity modeling and gap analysis are done at a specific point in time and involve a variety of significant estimates and assumptions. Interest rate sensitivity modeling requires, among other things, estimates of how much and when yields and costs on individual categories of interest-earning assets and interest-bearing liabilities will respond to general changes in market rates, future cash flows and discount rates. Gap analysis requires estimates as to when individual categories of interest-sensitive assets and liabilities will re-price, and assumes that assets and liabilities assigned to the same repricing period will reprice at the same time and in the same amount. Gap analysis does not account for the fact that repricing of assets and liabilities is discretionary and subject to competitive and other pressures. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds interest rate sensitive assets. During a period of falling interest rates, a positive gap would tend to adversely affect net interest income, while a negative gap would tend to result in an increase in net interest income. During a period of rising interest rates, a positive gap would tend to result in an increase in net interest income while a negative gap would tend to affect net interest income adversely.

The following table sets forth the estimated maturity or repricing structure of our interest-earning assets and interest-bearing liabilities at September 30, 2025. Except as stated below, the amounts of assets or liabilities shown which reprice or mature during a particular period were determined in accordance with the contractual terms of each asset or liability. The majority of transaction and savings balances are assumed to be “core” deposits, or deposits that will generally remain with us regardless of market interest rates. We estimate the repricing characteristics of these deposits based on historical performance, past experience, judgmental predictions and other deposit behavior assumptions. However, we may choose not to reprice liabilities proportionally to changes in market interest rates for competitive or other reasons. Additionally, although non-interest-bearing transaction accounts are not paid interest, we estimate certain of the balances will reprice as a result of the contractual fees that are paid to the affinity groups which are based upon a rate index, and therefore are included in interest expense. We have adjusted the transaction account balances in the table downward, to better reflect the impact of their partial adjustment to changes in rates. Loans and security balances, which adjust more fully to market rate changes, are based upon actual balances. The table does not assume any prepayment of fixed-rate loans, mortgage and asset backed securities are scheduled based on their anticipated cash flow, including prepayments based on historical data and current market trends. The table does not necessarily indicate the impact of general interest rate movements on our net interest income because the repricing and related behavior of certain categories of assets and liabilities (for example, prepayments of loans and withdrawal of deposits) is beyond our control. As a result, certain assets and liabilities indicated as repricing within a stated period may in fact reprice at different times and at different rate levels.

(Dollars in thousands)

(1) Transaction accounts are comprised primarily of demand deposits. While demand deposits are non-interest-bearing, related fees paid to affinity groups may reprice according to specified indices.

The methods used to analyze interest rate sensitivity in this table have a number of limitations. Certain assets and liabilities may react differently to changes in interest rates even though they reprice or mature in the same or similar time periods. The interest rates on certain assets and liabilities may change at different times than market interest rates, with some changing in advance of changes in market rates and some lagging behind changes in market rates. Additionally, the actual prepayments and withdrawals we experience when interest rates change may deviate significantly from those assumed in calculating the data shown in the table. Accordingly, actual results can and often do differ from projections.

We believe that the assumptions utilized in evaluating our estimated net interest income are reasonable; however, the interest rate sensitivity of our assets, liabilities and off-balance sheet financial instruments, as well as the estimated effect of changes in interest rates on estimated net interest income, could vary substantially if different assumptions are used or actual experience differs from presumed behavior of various deposit and loan categories. The following table shows the effects of interest rate shocks on our net portfolio value described as Market Value of Portfolio Equity (“MVPE”) and net interest income. Rate shocks assume that current interest rates change immediately and sustain parallel shifts. For interest rate increases or decreases of 100 and 200 basis points, our policy includes a guideline that our MVPE ratio should not decrease more than 10% and 15%, respectively, and that net interest income should not decrease more than 10% and 15%, respectively. As illustrated in the following table, we complied with our asset/liability policy guidelines at September 30, 2025. While our modeling suggests that rate increases of 100 and 200 basis points will have a positive impact on net interest income (as shown in the table below), the actual amount of such increase cannot be determined, and there can be no assurance any increase will be realized. Because the Company has emphasized variable rate instruments in its loan and investment portfolios, it tends to benefit from higher interest rate environments. Future Federal Reserve rate reductions may result in a return to lower net interest income levels. In April 2024, the Company purchased approximately $900.0 million of fixed rate commercial and residential mortgage securities of varying maturities to reduce its exposure to lower levels of net interest income, in anticipation of Federal Reserve rate reductions. In September 2024, the Federal Reserve began to lower rates. Such purchases would also reduce the additional net interest income which would result should the Federal Reserve increase rates. At the time of purchase, those securities had respective estimated weighted average yields and lives of approximately 5.11% and eight years, respectively.

(Dollars in thousands)

Financial Condition

General. Our total assets at September 30, 2025 were $8.60 billion, of which our total loans were $6.67 billion, and our commercial loans, at fair value, were $142.7 million. At December 31, 2024, our total assets were $8.73 billion, of which our total loans were $6.11 billion, and our commercial loans, at fair value were $223.1 million.

Interest-earning Deposits

At September 30, 2025, we had a total of $74.5 million of interest-earning deposits compared to $564.1 million at December 31, 2024, a decrease of $489.5 million. These deposits were comprised primarily of balances at the Federal Reserve.

Investment Portfolio

Total investment securities decreased to $1.38 billion at September 30, 2025, a decrease of $118.6 million, or 7.9%, from December 31, 2024.

For the nine months ended September 30, 2025 and 2024, we recognized no credit-related losses on our investment securities.

At September 30, 2025 and December 31, 2024 no investment securities were encumbered, as lines of credit established for borrowings were collateralized by loans.

The following table shows the contractual maturity distribution and the weighted average yield of our investment securities as of September 30, 2025 (dollars in thousands). The weighted average yield was calculated by dividing the amount of individual securities to total securities in each category, multiplying by the yield of the individual security and adding the results of those individual computations.

(1) If adjusted to their taxable equivalents, yields would approximate 4.05%, 2.91%, 4.90%, and 5.62% for zero to one year, one to five years, five to ten years, and over ten years, respectively, at a federal tax rate of 21%.

For detailed information on the composition and maturity distribution of our investment securities, see “Note 5. Investment Securities” to the unaudited consolidated financial statements herein.

In addition to our investment securities, we have stock in Federal Reserve, Federal Home Loan, and Atlantic Central Bankers Bank that are recorded at cost and amounted to $25.3 million at September 30, 2025 and $15.6 million at December 31, 2024. Each of these institutions require their correspondent banking institutions to hold stock as a condition of membership. While a fixed stock amount is required by each of these institutions, the FHLB stock requirement increases or decreases with the level of borrowing activity.

Total Loan Portfolio

The following table summarizes our loan portfolio, by loan category (dollars in thousands):

(1) SBLOC are collateralized by marketable securities, while IBLOC, are collateralized by the cash surrender value of insurance policies. At September 30, 2025 and December 31, 2024, IBLOC loans amounted to $471.6 million and $548.1 million, respectively.

(2) At September 30, 2025 consumer fintech loans consisted of $416.0 million of secured credit card loans, with the balance comprised of other short-term extensions of credit.

(3) Includes demand deposit overdrafts reclassified as loan balances totaling $1.8 million and $1.2 million at September 30, 2025 and December 31, 2024, respectively. Estimated overdraft charge-offs and recoveries are reflected in the ACL and are immaterial. Includes warehouse financing related to loan sales to third party purchasers of $122.5 million and $65.5 million at September 30, 2025 and December 31, 2024, respectively. Weighted average look through loan to values (“LTVs”) based on our most recent appraisals for the related mortgaged properties were less than 60% as-is and less than 55% as-stabilized.

The majority of our loan portfolio is loans recorded at amortized cost, which are recognized net of an allowance for credit loss. Loans, net of deferred loan fees and costs increased to $6.67 billion at September 30, 2025 from $6.11 billion at December 31, 2024. This $555.9 million increase primarily reflected growth in our consumer fintech of $330.7 million, of which $214.8 million is secured credit card loans and $86.7 million is unsecured short-term extensions of credit that are covered by a third-party credit enhancement agreement. The $53.2 million increase in other loans includes $56.9 million of warehouse financing related to real estate bridge loan sales to third-party purchasers.

Commercial loans, at fair value are comprised of non-SBA commercial real estate loans and SBA loans which had been originated for sale or securitization through the first quarter of 2020, and which are now being held for investment on the balance sheet. These loans continue to be recognized at fair value, and this portfolio declined $80.5 million from December 31, 2024, as this portfolio continues to runoff. All originations are now being recognized at amortized cost.

The sections that follow contain detailed discussion of portfolio concentrations, estimated maturities, portfolio performance and allowance for credit loss.

Small Business Lending

The following tables summarize our SBL portfolio, including loans held at fair value, by loan category as of September 30, 2025 (dollars in thousands):

(1) Substantially all these loans are made under the 504 Program, which dictates origination date LTV percentages, generally 50%-60%, to which The Bancorp Bank, N.A. adheres.

(2) Includes $15.4 million in 504 Program first mortgages with an origination date LTV of 50-60% and $5.7 million in SBA interim loans with an approved SBA post-construction full takeout/payoff.

(3) Includes the unguaranteed portion of 7(a) Program loans which are generally 70% or more guaranteed by the U.S. government. SBA 7(a) Program loans are not made on the basis of real estate LTV; however, they are subject to SBA's "All Available Collateral" rule which mandates that to the extent a borrower or its 20% or greater principals have available collateral (including personal residences), the collateral must be pledged to fully collateralize the loan, after applying SBA-determined liquidation rates. In addition, all 7(a) Program loans and 504 Program loans require the personal guaranty of all 20% or greater owners.

(4) Includes the portion of SBA 7(a) Program loans which have been guaranteed by the U.S. government, and therefore are assumed to have no credit risk.

(5) Comprised of $4.4 million of loans sold that do not qualify for true sale accounting.

(6) The SBLs held at fair value are comprised of the government guaranteed portion of 7(a) Program loans at the dates indicated.

The following table summarizes our SBL portfolio, excluding guaranteed and other, by loan type as of September 30, 2025 (dollars in thousands):

(1) Of the SBL commercial mortgage and SBL construction loans, $161.9 million represents the total of the non-guaranteed portion of SBA 7(a) Program loans and non-SBA loans. The balance of those categories represents SBA 504 Program loans with 50%-60% origination date LTVs.

(2) Loan types of less than $5.0 million are spread over approximately one hundred different business types.

The following table summarizes our SBL portfolio, excluding guaranteed and other, by state as of September 30, 2025 (dollars in thousands):

The following table summarizes the ten largest loans in our SBL portfolio, excluding guaranteed and other, as of September 30, 2025 (dollars in thousands):

Real Estate Lending

Commercial real estate loans consist primarily real estate bridge loans. and excludes SBA loans. Commercial real estate loans were as follows as of September 30, 2025 (dollars in thousands):

(1) In addition to “as is” origination date appraisals, on which the weighted average origination date LTVs are based, third-party appraisers also estimated “as stabilized” values, which represents additional potential collateral value as rehabilitation progresses, and units are re-leased at stabilized rental rates. The weighted average origination date “as stabilized” LTV was estimated at 60%.

The following table summarizes our commercial real estate loans by state as of September 30, 2025 (dollars in thousands):

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The following table summarizes our fifteen largest commercial real estate loans as of September 30, 2025 (dollars in thousands). All of these loans are multifamily loans.

Institutional Banking

The following table summarizes our institutional banking portfolio by type as of September 30, 2025 (dollars in thousands):

For SBLOC, we generally lend up to 50% of the value of equities and 80% for investment grade securities. While the value of equities has fallen in excess of 30% in recent years, the reduction in collateral value of brokerage accounts collateralizing SBLOCs generally has been less. This is because many collateral accounts are “balanced” and accordingly, have a component of debt securities, which have either not decreased in value as much as equities, or in some cases may have increased in value. Further, many of these accounts have the benefit of professional investment advisors who provided some protection against market downturns, through diversification and other means. Additionally, borrowers often utilize only a portion of collateral value, which lowers the percentage of principal to the market value of collateral.

The following table summarizes our ten largest SBLOC loans as of September 30, 2025 (dollars in thousands):

IBLOC loans are backed by the cash value of life insurance policies which have been assigned to us. We generally lend up to 95% of such cash value. Our underwriting standards require approval of the insurance companies which carry the policies backing these loans. Currently, ten insurance companies have been approved and, as of October 28, 2025, all were rated A- or better by AM Best.

Commercial Fleet Leasing

The following table summarizes our direct lease financing portfolio by type as of September 30, 2025 (dollars in thousands):

(1) Of the total $693.3 million of direct lease financing, $640.2 million consisted of vehicle leases with the remaining balance consisting of equipment leases.

(2) Includes public universities and school districts.

The following table summarizes our direct lease financing portfolio by state as of September 30, 2025 (dollars in thousands):

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Portfolio Estimated Maturities

The following table presents loan categories by maturity for the period indicated. Actual repayments historically have, and will likely in the future, differ significantly from contractual maturities because individual borrowers generally have the right to prepay loans, with or without prepayment penalties. See “Asset and Liability Management” in this MD&A for a discussion of interest rate risk.

(Dollars in thousands)

Portfolio Performance

For our loans recorded at amortized cost, the following tables present delinquencies by type of loan as of the dates specified (dollars in thousands):

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Loans are considered to be non-performing if they are on a non-accrual basis or they are past due 90 days or more and still accruing interest. A loan which is past due 90 days or more and still accruing interest remains on accrual status only when it is both adequately secured as to principal and interest and is in the process of collection.

The following table summarizes our non-performing assets, with discussion of significant changes between periods to follow (dollars in thousands):

(Dollars in thousands)

Non-accrual loans increased $41.5 million, driven primarily by a $26.9 million REBL loan (discussed below), $42.4 million of other additions, partially offset by $17.2 million of payments, $4.1 million transferred to OREO, $5.1 million of charge-offs, and $1.4 million transferred to repossessed vehicle inventory.

The increase in non-accrual REBL loans includes a $26.9 million loan balance which was transferred to non-accrual status in the second quarter of 2025. The loan is secured by an apartment building with an “as is” LTV of 75% and an “as stabilized” LTV of 65%, based on a December 2024 appraisal. In November 2025, we entered into a new loan agreement for this property with a borrower with greater financial capacity.

Loans past due 90 days or more still accruing interest amounted to $20.5 million at September 30, 2025 and $5.8 million at December 31, 2024. The $14.7 million increase includes a $17.9 million REBL loan and $3.4 million of other additions, partially offset by $6.5 million of loan payments received.

Other real estate owned includes a REBL apartment building rehabilitation property with a balance of $43.0 million and $41.1 million as of September 30, 2025, and December 31, 2024, respectively. Third-party appraisals on the property as of June 30, 2025, for “as stabilized” and "as is" values are of $59.1 million and $51.4 million, respectively, or LTVs of 73% and 83%.

Total non-performing assets presented on the table above exclude Commercial loans, at fair value for all periods presented. Loans at fair value on our Balance sheets as of September 30, 2025, and December 30, 2024, include a delinquent loan of $11.2 million which is collateralized by a vacant retail property. Based upon an August 2025 appraisal, the “as is” LTV is 86% and the “as stabilized” LTV is 62%. The borrower is attempting to sell the property as the source of repayment for the loan. However, there can be no assurance that any such sale will be consummated.

We evaluate loans under an internal loan risk rating system as a means of identifying problem loans. At September 30, 2025 and December 31, 2024, classified loans were segregated by year of origination and are shown in “Note 6. Loans” to the unaudited consolidated financial statements herein. At September 30, 2025, there were $268.7 million of loans classified as special mention and substandard in total, which included $185.3 million REBL loans. Through November 2025, $84.1 million of the $185.3 million in REBL loans as of September 30, 2025 were refinanced with borrowers with greater financial capacity (including the $26.9 million loan discussed above).

See detail on our loan modifications in “Note 6. Loans” to the unaudited consolidated financial statements herein.

Asset Quality Ratios

The following table summarizes select asset quality ratios for each of the periods indicated:

The ratio of the ACL to total loans increased to 0.96% as of September 30, 2025 from 0.52% at September 30, 2024 as the ACL increased proportionately more than total loans. The $33.1 million increase in the ACL between those dates is primarily driven by a $29.3 million reserve on consumer fintech loans at September 30, 2025, compared to no reserve at September 30, 2024 and $12.9 million at December 30, 2024. As with the $112.5 million of net charge-offs described under “Net Charge-offs” below, the $29.3 million correlated with a like amount of consumer fintech loan credit enhancement asset, reflecting our expected recovery under that guarantee. Accordingly, there was no impact on net income. See further discussion under “Consumer Fintech Programs” below.

The ratio of the ACL to non-performing loans decreased to 71.33% at September 30, 2025, from 101.70% at September 30, 2024, primarily as a result of the increase in non-performing loans which proportionately exceeded the increase in the ACL. As a result, the ratio of non-performing loans to total loans increased to 1.35% at September 30, 2025 from 0.52% at September 30, 2024. The increase in non-performing loans also was reflected in the ratio of non-performing assets to total assets which increased to 1.77% at September 30, 2025 from 1.28% at September 30, 2024. See further discussion of the increases in our non-performing loans under “Portfolio Performance.”

The ratio of net charge-offs to average loans was 1.85% for the nine months ended September 30, 2025, and 0.07% for the nine months ended September 30, 2024. The increase in net charge-offs reflected consumer fintech net charge-offs, which were correlated to a like amount of consumer fintech loan credit enhancement income, with no impact on net income.

Allowance for Credit Losses

We review the adequacy of our ACL on at least a quarterly basis to determine a provision for credit losses to maintain our ACL at a level we believe is appropriate to recognize current expected credit losses. Our Chief Credit Officer oversees the loan review department, which measures the adequacy of the ACL independently of loan production officers. For detailed information on the ACL methodology, see “Note 6. Loans” to the unaudited consolidated financial statements herein.

A summary of loans recorded at amortized cost and the allowance follows (dollars in thousands):

At September 30, 2025, the ACL increased $19.3 million, primarily reflecting a $16.4 million increase in reserves on consumer fintech loans, which are $29.3 million and $12.9 million as of September 30, 2025 and December 31, 2024, respectively. The increase in the allowance related to consumer fintech loans correlates to the recorded credit enhancement asset on the balance sheet.

Consumer Fintech Programs

Our fintech programs include consumer transaction accounts and consumer fintech loans.

Consumer transaction accounts consist primarily of Bank-issued stored value prepaid or debit cards. For this program, we recognize a deposit liability for the current balance of the cards and recognize fee-based revenue in Non-interest income—Prepaid, debit card and related fees; we do not have any receivables or allowance risk related to the payment programs.

Consumer fintech loans consist of short-term loans originated by our Bank, with the marketing and servicing assistance of third-party relationships. Loans receivable originated under these consumer fintech agreements are governed by an agreement with the borrower and may include: secured credit cards and unsecured short-term extensions of credit. For the secured credit card program, we recognize a loan receivable and a deposit liability for the cash collateral that secures those accounts. Unsecured fintech loans include payroll advance and other short term-extensions of credit; those accounts are typically repaid within a year of origination.

As of September 30, 2025, and December 31, 2024, all fintech loans, both secured and unsecured, are covered by credit enhancement agreements. The third-party agreements governing the fintech loans include provisions for credit enhancements, through which the third party guarantees losses on such consumer fintech loans (either in whole or in part). When a fintech loan meets a defined delinquency level, we recognize a charge-off of the receivable, and the incurred losses are covered by the third party. Any subsequent recoveries from the charged-off loan are credited to the third party.

The third-party relationship agreements governing fintech loans include requirements for pledging cash reserve accounts at the Bank as collateral for loss exposure, through which we can collect when losses occur. The reserve accounts are then replenished by the counterparties based on contractually required thresholds. In addition to the reserve accounts, the agreements also provide for the right to offset any cashflows we owe to the third parties (such as for monthly revenues) against any net realized loan losses. While we continually monitor the risk of these counterparties, establish the reserve thresholds at levels we consider appropriate to cover loss exposure on these short-term loan receivables, and we have additional protection from our rights to net realized loan losses against cashflows owed to the third party, if the third-party defaults under their agreement and/or is unable to fulfill their contractual obligations to replenish the reserve account and cover losses, we may be exposed to loan losses in excess of our net reserve position.

The loan receivable agreement with the borrower and the third-party credit enhancement agreements are required to be accounted for separately as freestanding contracts in accordance with U.S. GAAP. As such, we recognize the separate units of account as follows:

Consumer fintech loans receivable from the borrower are recognized on the Balance sheet, along with an estimate of credit loss for fintech loans through the allowance. Provision for credit losses on consumer fintech loans is recognized on the Statement of operations.

A credit enhancement asset is recognized on the Balance sheet for the estimated recovery under the third-party credit enhancement agreement, and the Company recognizes Non-interest income—Consumer fintech loan credit enhancement on the Statement of Operations. In addition, Deposit liability on our Balance sheet includes amounts for reserve account collateral held to fund losses under the credit enhancement agreements.

The measurement of the estimated credit losses and the expected recovery from the credit enhancement are based on the same estimate and correlate to like amounts in our financial statements. We recognized credit enhancement assets of $29.3 million and $12.9 million on the Balance sheets as of September 30, 2025, and December 31, 2024, respectively.

Loan review and Allowance estimate

A description of loan review coverage targets is set forth below.

On a quarterly basis a sampling of the largest SBLOC and IBLOC loans are reviewed. A minimum of 20 loans will be reviewed each quarter. The coverage percentage is on a cumulative basis, as loans are generally reviewed one time unless classified as either special mention or substandard.

SBLOC – The targeted review threshold was 40% comprised of a sample of large balance SBLOCs by commitment. At September 30, 2025, approximately 53% of the SBLOC portfolio had been reviewed.

IBLOC – The targeted review threshold was 40% comprised of a sample of large balance IBLOCs by commitment. At September 30, 2025, approximately 67% of the IBLOC portfolio had been reviewed.

The following loan review percentages are performed annually for the portfolios listed below. At September 30, 2025, in excess of 50% of the total loan portfolio was reviewed by the loan review department or, for SBLs, rated internally by that department. In addition to the review of all loans classified as either special mention or substandard, the targeted coverages and scope of the reviews are risk-based and vary according to each portfolio as follows:

Advisor Financing – The targeted review threshold was 65%. At September 30, 2025, approximately 72% of the investment advisor financing portfolio had been reviewed. The loan balance review threshold was $1.0 million.

SBLs – The targeted review threshold was 65%. The loan balance review threshold was $1.5 million. At September 30, 2025, 67% of the non-government guaranteed SBL loan portfolio had been reviewed.

Direct Lease Financing – The targeted review threshold was 55%. The loan balance review threshold was $1.5 million. At September 30, 2025, approximately 64% of the leasing portfolio had been reviewed.

Commercial Real Estate Bridge Loans, at fair value and Commercial Real Estate Bridge Loans, at amortized cost (floating and fixed rate, excluding SBA, which are included in SBLs above) – The targeted review threshold was 75%. At September 30, 2025, approximately 97% of the floating and fixed rate, non-SBA commercial real estate bridge loans had been reviewed.

Other minor loan categories are reviewed at the discretion of the loan review department.

Although we consider our ACL to be adequate based on information currently available, future additions to the ACL may be necessary due to changes in economic conditions, our ongoing loss experience and that of our peers, changes in management’s assumptions as to future delinquencies, recoveries and losses, deterioration of specific credits and management’s intent with regard to the disposition of loans and leases.

Management estimates the ACL quarterly and for most loan categories uses relevant available internal and external historical loan performance information to determine the quantitative component of the reserve, and current economic conditions and reasonable and supportable forecasts and other factors to determine the qualitative component of the reserve. Reserves on specific credit-deteriorated loans comprise the third and final component of the reserve. Historical credit loss experience provides the quantitative basis for the estimation of expected credit losses over the estimated remaining life of the loans. The qualitative component of the ACL is designed to be responsive to changes in portfolio credit quality and the impact of current and future economic conditions on loan performance and is subjective. The review of the appropriateness of the ACL is performed by the Chief Credit Officer and presented to the Audit Committee of the Company’s Board of Directors for review. The Company uses the vintage analysis to determine the allowance for the SBL, leasing and REBL portfolios, the probability of default/loss given default for the SBLOC, IBLOC and Consumer Fintech loan portfolios and discounted cash flow for the other loan portfolio. For the vintage analysis the loans are segregated by product type, to recognize differing risk characteristics within portfolio segments, and an average historical loss rate is calculated for each product type. Loss rates are computed by classifying net charge-offs by year of loan origination and dividing into total originations for that specific year. The average loss rate is then projected over the estimated remaining loan lives unique to each loan pool, to determine estimated lifetime losses. For the probability of default/loss given default the Company calculates the likelihood a borrower will default and then the expected loss after the default occurs. The discounted cash flow method estimates expected credit losses by projecting the cash flows of a financial asset over its lifetime, discounting those flows back to their present value, and comparing the result to the asset's amortized cost basis. Loans that do not share risk characteristics are evaluated on an individual basis. If foreclosure is believed to be probable or repayment is expected from the sale of collateral, a reserve for deficiency is established within the ACL. Those reserves are estimated based on the difference between loan principal and the estimated fair value of the collateral, adjusted for estimated disposition costs.

The Company also considers the need for an additional ACL based upon qualitative factors such as current loan performance statistics by pool, and economic conditions. These qualitative factors are intended to account for forward looking expectations over a twelve-to-eighteen-month period not reflected in historical loss rates and otherwise unaccounted for in the quantitative process. Accordingly, such factors may increase or decrease the allowance compared to historical loss rates as the Company’s forward-looking expectations change. The qualitative factor percentages are applied against the pool balances as of the end of the period. Aside from the qualitative adjustments to account for forward looking expectations of loss over a twelve-to-eighteen-month projection period, the balance of the ACL reverts to the Company’s quantitative analysis derived from its historical loss rates. The qualitative and quantitative historical loss rate components, together with the allowances on specific credit-deteriorated loans, comprise the total ACL.

The Company ranks its qualitative factors in five levels: minimal, low, moderate, moderate-high, and high-risk. The individual qualitative factors for each portfolio segment have their own scale based on an analysis of that segment. A high-risk ranking results in the largest increase in the ACL calculation with each level below having a lesser impact on a sliding scale. The qualitative factors used for each portfolio are described below in the description of each portfolio segment.

A similar process is employed to calculate an ACL assigned to off-balance sheet commitments, which are comprised of unfunded loan commitments and letters of credit. That ACL for unfunded commitments is recorded in other liabilities. Even though portions of the ACL may be allocated to loans that have been individually measured for credit deterioration, the entire ACL is available for any credit that, in management’s judgment, should be charged off.

At September 30, 2025, the ACL amounted to $64.2 million of which $13.9 million of allowances resulted from the Company’s historical charge-off ratios, $29.3 million from consumer fintech loans, and $5.1 million from reserves on specific loans, with the balance comprised of the qualitative components. The $13.9 million resulted primarily from SBA non-real estate lending and leasing charge-offs. For non-fintech loans, the proportion of qualitative reserves compared to charge-off history related reserves reflects the general absence of charge-offs in the Company’s largest loan portfolios consisting of SBLOC and IBLOC and real estate bridge lending which results, at least in part, from the nature of related collateral. Such collateral respectively consists of marketable securities, the cash value of life insurance and workforce apartment buildings. As charge-offs are nonetheless possible, significant subjectivity is required to consider qualitative factors to derive the related components of the allowance. For consumer fintech loans, net charge offs correlate to like amounts of credit enhancement income with no impact on net income.

The Company had not, prior to the fourth quarter of 2023, increased the economic factor for multifamily real estate bridge lending. While Federal Reserve rate increases directly increase real estate bridge loan floating-rate borrowing costs, those borrowers are required to purchase interest rate caps that will partially limit the increase in borrowing costs during the term of the loan. Additionally, there continues to be several additional mitigating factors within the multifamily sector that should continue to fuel demand. Higher interest rates are increasing the cost to purchase a home, which in turn is increasing the number of renters and subsequent demand for multifamily. The softening demand for new homes should continue to exacerbate the current housing shortage, and therefore continue to fuel demand for multifamily apartment homes. Additionally, higher rents in the multifamily sector are causing renters to be more price sensitive, which is driving demand for most of the apartment buildings within the Company’s loan portfolio which management considers “workforce” housing. At September 30, 2025, real estate bridge loans classified as special mention and substandard respectively amounted to $55.1 million and $130.2 million compared to $84.4 million and $134.4 million at December 31, 2024. Each classified loan was evaluated for a potential increase in the allowance for credit losses (“ACL”) on the basis of the aforementioned third-party appraisals of apartment building collateral. On the basis of “as is” and “as stabilized” LTVs, increases to the allowance were not required. The current allowance for credit losses for REBL, is primarily based upon historical industry losses for multi-family loans, in the absence of significant charge-offs within the Company’s REBL portfolio. As a result of increasing amounts of loans classified as special mention and substandard, the Company evaluated potential related sensitivity for REBL in the third quarter of 2024. Such evaluation is inherently subjective as it requires material estimates that may be susceptible to change as more information becomes available. As a result, the Company added a new qualitative factor to its ACL analysis.

The economic qualitative factor is based on the estimated impact of economic conditions on the loan pools, as distinguished from the economic factors themselves, for the following reasons. The Company has experienced limited multifamily (apartment building) loan charge-offs, despite stressed economic conditions. Accordingly, the ACL for this pool was derived from a qualitative factor based on industry loss information for multifamily housing. The Company’s charge-offs have been miniscule for SBLOC and IBLOC notwithstanding stressed economic periods, and their ACL is accordingly also determined by a qualitative factor. Investment advisor loans were first offered in 2020 with limited performance history, during which charge-offs have not been experienced. For investment advisor loans, the nature of the underlying ultimate repayment source was considered, namely the fee-based advisory income streams resulting from investment portfolios under management, and the impact changes in economic conditions would have on those payment streams. The qualitative factors used for this and the other portfolios are described below in the description of each portfolio segment. Additionally, the Company’s charge-off histories for SBLs, primarily SBA, and leases have not correlated with economic conditions, including trends in unemployment. While specific economic factors did not correlate with actual historical losses, multiple economic factors are considered in the economic qualitative factor. For the non-guaranteed portion of SBA loans, leases, real estate bridge lending and investment advisor financing, the Company’s loss forecasting analysis included a review of industry statistics. However, the Company’s own charge-off history and average life estimates, for categories in which the Company has experienced charge-offs, was the primary quantitatively derived element in the forecasts. The qualitative component results from management’s qualitative assessments which consider internal and external inputs.

Net Charge-offs

The following tables reflect the relationship of year-to-date average loans outstanding, based upon quarter end averages, and net charge-offs by loan category (dollars in thousands):

Net charge-offs were $117.7 million for the nine months ended September 30, 2025, an increase of $114.0 million from net charge-offs of $3.7 million during the nine months ended September 30, 2024. In the nine months ended 2025, the Company, based on contractual agreements, recorded $112.5 million of net charge-offs related to consumer fintech loans, and correlated amounts in the provision for credit losses and in non-interest income with no impact to net income.

We review charge-offs at least quarterly in loan surveillance meetings which include the chief credit officer, the loan review department and other senior credit officers in a process which includes identifying any trends or other factors impacting portfolio management. In recent periods charge-offs have been primarily comprised of the non-guaranteed portion of SBA 7(a) loans and leases. The charge-offs have resulted from individual borrower or business circumstances as opposed to overall trends or other factors.

The following table summarizes the Company’s non-accrual loans and loans past due 90 days or more still accruing interest, by year of origination, at September 30, 2025 and December 31, 2024:

65

Premises and Equipment, Net

Premises and equipment amounted to $25.9 million at September 30, 2025, compared to $27.6 million at December 31, 2024.

Other assets

Other assets amounted to $182.0 million at September 30, 2025 compared to $182.7 million at December 31, 2024.

Deposits

Our primary source of funding is deposit acquisition. We offer a variety of deposit accounts with a range of interest rates and terms, including demand, checking and money market accounts, through and with the assistance of affinity groups. The majority of our deposits are generated through prepaid card and debit and other payments related deposit accounts. At September 30, 2025, we had total deposits of $7.33 billion compared to $7.75 billion at December 31, 2024, which reflected a decrease of $415.2 million, or 5.4%. Daily deposit balances are subject to variability, and deposits averaged $7.63 billion in the third quarter of 2025. Savings and money market balances are a modest percentage of our funding and we have swept such deposits off our balance sheet to other institutions. Such sweeps are utilized to optimize diversity within our funding structure by managing the percentage of individual client deposits to total deposits. A diversified group of prepaid and debit card accounts, which have an established history of stability and lower cost than certain other types of funding, comprise the majority of our deposits.

Our product mix includes prepaid card accounts for salary, medical spending, commercial, general purpose reloadable, corporate and other incentive, gift, government payments and transaction accounts accessed by debit cards. Balances are subject to daily fluctuations, which may comprise a significant component of variances between dates. Our funding is comprised primarily of millions of small transaction-based consumer balances, the vast majority of which are FDIC-insured. We have multi-year, contractual relationships with affinity groups which sponsor such accounts and with whom we have had long-term relationships (see Item 1. “Business—Our

Strategies” in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2024). Those long-term relationships comprise the majority of our deposits while we continue to grow and add new client relationships. Of our deposits at September 30, 2025, the top three affinity groups accounted for approximately $3.91 billion, the next three largest $1.28 billion, and the four subsequent largest $709.9 million. Of our deposits at year-end 2024, the top three affinity groups accounted for approximately $3.79 billion, the next three largest accounted for $1.64 billion, and the four subsequent largest accounted for $756.9 million. While certain of these relationships may have changed their ranking in the top ten, the affinity groups themselves were generally identical at both dates, with some movement in the tenth and eleventh largest relationships.

We believe that payroll, debit, and government-based accounts such as child support are comparable to traditional consumer checking accounts. Such balances in the top ten relationships at September 30, 2025 totaled $3.24 billion while balances related to consumer and business payment companies, including companies sponsoring incentive payments, amounted to $2.66 billion. Such balances in the top ten relationships at year-end 2024 totaled $3.81 billion while balances related to consumer and business payment companies, including companies sponsoring incentive and gift card payments, amounted to $2.38 billion.

We pay interest directly to consumer account holders for an immaterial amount of deposit balances, while the vast majority of interest expense results from fees paid to affinity groups. While affinity groups may decide to pay interest or other remuneration to account holders, they do not currently do so for the vast majority of balances. The vast majority of payments to affinity groups are variable rate and equate to varying contractual percentages tied to the effective federal funds rate, which results from Federal Reserve rate hikes and reductions. The effective federal funds rate also reflects a market rate which might be required to replace lower cost deposits, or fund loan growth in excess of deposit growth, at least in the short-term. Because underlying balances have generally exhibited stability, so too have trends in the cost of funds. The more consequential impact to cost of funds are market changes and the effective federal funds rate, specifically the impact of Federal Reserve rate hikes and reductions. We model significant fee-based relationships in our net interest income sensitivity modeling (see “Item 2 – Asset and Liability Management” above). The following discussion is applicable to our transaction accounts, comprising the majority of our deposits, in the 100 and 200 basis point rate increase and decrease scenarios as presented in the applicable table in that Asset and Liability Management section, above. The impact of the Federal Reserve rate hikes or reductions, which respectively increase or decrease interest expense, has approximated the ratio of our cost of funds divided by the effective federal funds rate, all else equal. However, there can be no assurance that such ratios could not change significantly given the other variables discussed in the Asset and Liability Management section.

In third quarter of 2025, our demand and interest checking balances averaged $7.56 billion, compared to $6.94 billion in third quarter of 2024. The growth primarily reflected increases in payment company balances. Average savings and money market balances decreased to $64.5 million the third quarter of 2025, compared to $65.1 million in the third quarter of 2024. We sweep deposits off our balance sheet to other institutions to optimize diversity within our funding structure by managing the percentage of individual client deposits to total deposits.

In 2024 and the first nine months of 2025, we did not use short-term time deposits. Short-term time deposits are generated through established intermediaries such as banks and other financial companies. These deposits generally originate with investment or trust companies or banks, which offer those deposits at market rates to FDIC-insured institutions, such that the balances are fully FDIC-insured. These deposits are generally classified as brokered.

The following table presents the average balance and rates paid on deposits for the periods indicated (dollars in thousands):

(1) Of the amounts shown for 2025 and 2024, $134.8 million and $149.1 million, respectively, represented balances on which the Bank paid interest. The remaining balance for each period reflects amounts subject to fees paid to third parties, which are based upon contractual percentages applied to a rate index, generally the effective federal funds rate, and therefore classified as interest expense.

Short-term Borrowings

Short-term borrowings consist of amounts borrowed on our lines of credit with the Federal Reserve Bank or FHLB. There were $200.0 million of borrowings with FHLB at September 30, 2025. There were no borrowings on either line at December 31, 2024. We generally utilize overnight borrowings to manage our daily reserve requirements at the Federal Reserve. Period-end and year-to-date information for the dates shown is as follows.

(Dollars in thousands)

Senior Debt

On August 18, 2025, we issued $200.0 million of the 2030 Senior Notes, with a maturity date of September 1, 2030, and a 7.375% interest rate, with interest paid semi-annually on March 1 and September 1, commencing on March 1, 2026. The 2030 Senior Notes are the Company’s direct, unsecured and unsubordinated obligations and rank equal in priority with all our existing and future unsecured and unsubordinated indebtedness and senior in right of payment to all our existing and future subordinated indebtedness. In lieu of repayment of debt from dividends paid by the Bank to the Company, industry practice includes the issuance of new debt to repay maturing debt.

In addition, in August 2025, we repaid all issued and outstanding Senior notes due 2025.

Other long-term borrowings

At September 30, 2025, we had other long-term borrowings of $13.8 million compared to $14.1 million at December 31, 2024. The borrowings consisted of sold loans which were accounted for as a secured borrowing because they did not qualify for true sale accounting. We do not have any policy prohibiting us from incurring debt.

The 2038 Debentures, which total $13.4 million, mature in March 2038 and bear interest at SOFR plus 3.51%, are grandfathered to qualify as Tier 1 capital at the Bank.

Other Liabilities

Other liabilities amounted to $67.2 million at September 30, 2025, compared to $68.0 million at December 31, 2024.

Shareholders’ Equity

As a means of returning capital to shareholders, we implemented the stock repurchase programs described below. Under the repurchase programs, we intend to repurchase shares through open market purchases, privately-negotiated transactions, block purchases or otherwise in accordance with applicable federal securities laws, including Rule 10b-18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The repurchase programs may be modified or terminated at any time.

On October 23, 2024, the Board approved a common stock repurchase program for the 2025 fiscal year (the “2025 Repurchase Program”), which authorizes the Company to repurchase $37.5 million in value of the Company’s common stock per fiscal quarter in 2025, for a maximum amount of $150.0 million. On July 7, 2025, the Board of the Company authorized the increase of the capacity of the Company’s existing share repurchase program for the third and fourth quarters of 2025 to $300.0 million and $200.0 million for 2026 (the “Repurchase Plan”). This increase cumulatively represents up to $500.0 million in share repurchases through year-end 2026.

During the three and nine months ended September 30, 2025, the Company repurchased 2,034,053 and 3,472,396 shares of its common stock in the open market under the 2025 Repurchase Program at an average price of $73.74 per share and $64.80 per share, respectively.

Off-Balance Sheet Arrangements

There were no off-balance sheet arrangements during the nine months ended September 30, 2025 that have or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our interests.

Financial instruments whose contract amounts represent potential credit risk for us primarily consist of our unused commitments to extend credit which were approximately $1.95 billion and $1.97 billion at September 30, 2025 and December 31, 2024, respectively. The vast majority of commitments reflect SBLOC commitments, which are variable rate, and connected to lines of credit collateralized by marketable securities. The amount of those lines is generally based upon the value of the collateral, and not expected usage. The majority of those available lines have not been drawn upon, and SBLOC loans are “demand” loans and can be called at any time.

In addition, we have standby letters of credit of $85,000 and $1.7 million as of September 30, 2025 and December 31, 2024, respectively.

Information about market risk for the quarter ended September 30, 2025 is included under “Asset and Liability Management” in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q. Except for such information, there has been no material change to our assessment of our sensitivity to market risk as discussed in the 2024 Form 10-K, as amended.

As noted under “Asset and Liability Management” in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q, the Company’s exposure to interest rate risk is managed through the use of guidelines which limit interest rate exposure to higher interest rates. Because the Company has emphasized variable rate instruments in its loan and investment portfolios, it tends to benefit from higher interest rate environments. As a result of the Federal Reserve rate increases in 2022 and 2023, net interest income has increased and exceeded prior period levels. While future Federal Reserve rate reductions may result in lower net interest income, such exposure to lower rates was significantly reduced in the third quarter of 2024 with the purchase of fixed rate securities. In addition to the aforementioned guidelines which the Company uses to manage interest rate risk, the Company utilizes an asset liability committee to provide oversight by multiple departments and senior officers.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer), as appropriate, to allow timely decisions regarding required disclosure. Because of inherent limitations, disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of disclosure controls and procedures are met.

Under the supervision of our Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were ineffective as of September 30, 2025 due to the material weaknesses in internal controls over financial reporting that were previously disclosed in Part II, Item 9A. “Controls and Procedures” in our 2024 Form 10-K, as amended. The material weaknesses identified exist in the design of two controls related to (i) the completion of all closing procedures prior to the filing of a required periodic report with the SEC, and (ii) the evaluation of the accounting and financial reporting associated with the credit enhancement contained within a third-party agreement and the impact on the allowance for credit losses for consumer fintech loans.

Remediation Plan for Material Weaknesses

In response to the identified material weaknesses with respect to the two controls noted above, management instituted a remediation plan to enhance its internal control over financial reporting to: (i) require receipts of approval and documentation of the same prior to the filing of any required periodic report with the SEC; and (ii) refine the evaluation of the accounting and financial reporting associated with the credit enhancement contained within a third-party agreement and the impact on the allowance for credit losses for consumer fintech loans. The actions that we have taken are subject to continued testing and ongoing management review. Management will not be able to conclude whether the steps we have taken will fully remediate these material weaknesses in our internal control over financial reporting until we have completed our testing and evaluation of the enhanced controls for effectiveness. Management may also conclude that additional measures may be required to remediate the material weaknesses in our internal control over financial reporting, which may necessitate additional actions to be taken.

Changes in Internal Control Over Financial Reporting

Other than the material weaknesses and remediation efforts described above, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Our business, financial condition, operating results and cash flows are subject to various risks and uncertainties, including those described in Part I, Item 1A. “Risk Factors” in the 2024 Form 10-K, as amended. There have been no material changes from the risk factors disclosed in the 2024 Form 10-K, as amended.