ENTERPRISE FINANCIAL SERVICES CORP (EFSC)

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Forward Looking Statements

This Quarterly Report on Form 10-Q contains information and statements that are considered “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements are based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company, and include, without limitation, statements about the Company’s plans, strategies, goals, objectives, expectations, or consequences of statements about the future performance, operations, products and services of the Company and its subsidiaries, as well as statements about the Company’s expectations regarding revenue and asset growth, financial performance and profitability, loan and deposit growth, yields and returns, loan diversification and credit management, products and services, stockholder value creation and the impact of acquisitions. Forward-looking statements are typically identified with the use of terms such as “may,” “might,” “will,” “would,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “could,” “continue,” “intend,” and the negative and other variations of these terms and similar words and expressions, although some forward-looking statements may be expressed differently. Forward-looking statements are inherently subject to risks and uncertainties and our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. You should be aware that our actual results could differ materially from those contained in the forward-looking statements.

While there is no assurance that any list of risks and uncertainties or risk factors is complete, important factors that could cause actual results to differ materially from those in the forward-looking statements include the following, without limitation: the Company’s ability to efficiently integrate acquisitions into its operations, retain the clients of these businesses and grow the acquired operations, the Company’s ability to collect insurance proceeds from claims made related to tax recapture events, credit risk, changes in the appraised valuation of real estate securing impaired loans, outcomes of litigation and other contingencies, exposure to general and local economic and market conditions, high unemployment rates, higher inflation and its impacts (including U.S. federal government measures to address higher inflation), impacts of trade and tariff policies, U.S. fiscal debt, budget and tax matters (including the effect of a prolonged U.S. federal government shutdown), and any slowdown in global economic growth, risks associated with rapid increases or decreases in prevailing interest rates, our ability to attract and retain deposits and access to other sources of liquidity, consolidation in the banking industry, competition from banks and other financial institutions, the Company’s ability to attract and retain relationship officers and other key personnel, burdens imposed by federal and state regulation, changes in legislative or regulatory requirements, as well as current, pending or future legislation or regulation that could have a negative effect on our revenue and businesses, including rules and regulations relating to bank products and financial services, changes in accounting policies and practices or accounting standards, natural disasters (such as wildfires and earthquakes), terrorist activities, war and geopolitical matters (including in Israel, Iran and Ukraine, and the imposition of additional sanctions and export controls in connection therewith), or pandemics, and their effects on economic and business environments in which we operate, including the related disruption to the financial market and other economic activity; and other risks discussed under the caption “Risk Factors” under Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, and other reports filed with the SEC, all of which could cause the Company’s actual results to differ from those set forth in the forward-looking statements. The Company cautions that the preceding list is not exhaustive of all possible risk factors and other factors could also adversely affect the Company’s results.

Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management’s analysis and expectations only as of the date of such statements. Forward-looking statements speak only as of the date they are made, and the Company does not intend, and undertakes no obligation, to publicly revise or update forward-looking statements after the date of this report, whether as a result of new information, future events or otherwise, except as required by federal securities law. You should understand that it is not possible to predict or identify all risk factors. Readers should carefully review all disclosures we file from time to time with the SEC which are available on the Company’s website at www.enterprisebank.com under “Investor Relations.”

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Introduction

The following discussion describes the significant changes to the financial condition of the Company that have occurred during the first six months of 2026 compared to the financial condition as of December 31, 2025. In addition, this discussion summarizes the significant factors affecting the results of operations of the Company for the three months ended June 30, 2026, compared to the linked first quarter of 2026 (“linked quarter”) and the results of operations, liquidity and cash flows for the six months ended June 30, 2026 compared to the same period in 2025 (“prior year-to-date period”). In light of the nature of the Company’s business, the Company’s management believes that the comparison to the linked quarter is the most relevant to understand the financial results from management’s perspective. For purposes of the Quarterly Report on Form 10-Q, the Company is presenting a comparison to the corresponding prior year-to-date period. This discussion should be read in conjunction with the accompanying condensed consolidated financial statements included in this report and the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.

Critical Accounting Policies and Estimates

The Company’s critical accounting policies are considered important to the understanding of the Company’s financial condition and results of operations. These accounting policies require management’s most difficult, subjective and complex judgments about matters that are inherently uncertain. Because these estimates and judgments are based on current circumstances, they may change over time or prove to be inaccurate based on actual experience. If different assumptions or conditions were to prevail, and depending upon the severity of such changes, the possibility of a materially different financial condition and/or results of operations could reasonably be expected.

A full description of our critical accounting policies and the impact and any associated risks related to those policies on our business operations are discussed throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” where such policies affect our reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.

The Company has prepared all of the consolidated financial information in this report in accordance with GAAP. The Company makes estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Such estimates include the valuation of loans, goodwill, intangible assets, and other long-lived assets, along with assumptions used in the calculation of income taxes, among others. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using loss experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. We adjust such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in estimates resulting from continuing changes in the economic environment will be reflected in the financial statement in future periods. There can be no assurances that actual results will not differ from those estimates.

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ACL

The Company maintains separate allowances for funded loans, unfunded loans, and held-to-maturity securities, collectively referred to as the ACL. The ACL is a valuation account to adjust the cost basis to the amount expected to be collected, based on management’s experience, current conditions, and reasonable and supportable forecasts. For purposes of determining the allowance for funded and unfunded loans, the portfolios are segregated into pools that share similar risk characteristics that are then further segregated by credit grades. Loans that do not share similar risk characteristics are evaluated on an individual basis and are not included in the collective evaluation. The Company estimates the amount of the allowance based on loan loss experience, adjusted for current and forecasted economic conditions, including unemployment, changes in GDP, and commercial and residential real estate prices. The Company’s forecast of economic conditions uses internal and external information and considers a weighted average of a baseline, upside, and downside scenarios. Because economic conditions can change and are difficult to predict, the anticipated amount of estimated loan defaults and losses, and therefore the adequacy of the allowance, could change significantly and have a direct impact on the Company’s credit costs. The Company’s ACL on loans was $139.2 million at June 30, 2026 based on the weighting of the different economic scenarios. As a hypothetical example, if the Company had only used the upside scenario, the allowance would have decreased $26.9 million. Conversely, the allowance would have increased $40.5 million using only the downside scenario.

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Executive Summary

Below are highlights of the Company’s financial performance for the periods indicated. Comparisons to prior year periods are affected by the acquisition of 12 branches in Arizona and Kansas in the fourth quarter 2025 (the “Branch Acquisition”).

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[Excerpt truncated for page length; source filing is linked above.]

ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Introduction

The objective of this section is to provide an overview of the results of operations and financial condition of the Company by focusing on changes in certain key measures from year to year. It should be read in conjunction with the Consolidated Financial Statements and related Notes contained in “Item 8. Financial Statements and Supplementary Data,” and other financial data presented elsewhere in this report, particularly the information regarding the Company’s business operations described in Item 1. A detailed discussion comparing 2024 and 2023 results is incorporated herein by reference to Item 7 of the Company’s 2024 Annual Report on Form 10-K filed on February 28, 2025.

Executive Summary

The Company offers a broad range of business and personal banking services including wealth management. Lending services include C&I, CRE, real estate construction and development, residential real estate, specialty, and consumer loans. A wide variety of deposit products and a complete suite of treasury management and international trade services complement our lending capabilities. The Company’s results of operations are also affected by prevailing economic conditions, competition, government policies and other actions of regulatory agencies.

The Company’s financial condition, operating results and liquidity in 2025 continued to be impacted by monetary policy actions. The Federal Reserve decreased the target federal funds rate 75 basis points in 2025, following a 100 basis point decrease in 2024. This follows the period of 2022 to 2023 when the Federal Reserve increased the target federal funds rate 525 basis points.

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Financial Performance Highlights

Below are highlights of our financial performance for the years ended December 31, 2025, 2024 and 2023.

1Non-GAAP measures. A reconciliation has been included in this MD&A section under the caption “Use of Non-GAAP Financial Measures.”

2Dividends per common share divided by diluted earnings per common share.

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2025 Financial Highlights

During 2025, we noted the following significant developments:

•The Company had a return on average assets of 1.24%. This drove a 11.0% increase in tangible book value per share in 2025.

•Dividends paid in 2025 of $1.22 per share increased $0.16 per share, or 15%, compared to $1.06 per share in 2024.

•The Company repurchased 258,739 shares of its common stock at a weighted-average share price of $54.60.

•The Bank acquired 12 branches from First Interstate Bank, including certain deposits and loans, and the owned real estate and fixed and other assets associated with the 12 branches. The Company acquired $609 million in deposits, and certain, mostly commercially-oriented loans with outstanding balances of approximately $292 million as of December 31, 2025. The transaction added 10 branches in Arizona and two branches in Kansas City, and expands the Company’s presence in those markets.

•A solar provider from which the Company had purchased $24.1 million of transferrable solar tax credits declared bankruptcy. The bankrupt solar provider indirectly owned, through a complex structure of multiple entities, the solar projects generating the tax credits that the Company purchased. As part of the bankruptcy, the bankrupt solar provider sold and transferred equity interests in certain of those entities. As a result of this transfer, the $24.1 million of solar tax credits purchased by the Company were recaptured. The Company previously purchased an insurance policy to insure against recapture risk and anticipates proceeds from the insurance policy to cover the $24.1 million of recaptured tax credits and approximately $8.0 million of incremental tax liability attributable to the anticipated insurance proceeds from the insured recaptured credits.

•The Company redeemed $63.3 million of subordinated debt that had a floating rate of three-month Term SOFR plus a spread of 5.66%. The redemption was funded through the issuance of a $63.3 million senior note at a rate of one-month Term SOFR plus a spread of 2.50%.

The Company noted the following trends during 2025:

•The Company reported net income of $201.4 million, or $5.31 per diluted share for 2025, compared to $185.3 million, or $4.83 per diluted share for 2024. PPNR1 for 2025 was $274.7 million, compared to $255.2 million in 2024. PPNR ROAA1 for 2025 and 2024 was 1.70% and 1.72%, respectively. The increase in PPNR1 was primarily due to higher net interest income that benefited from an organic increase in average interest-earning asset balances and liquidity provided through the Branch Acquisition, and lower rates paid on interest-bearing liabilities. These increases were partially offset by an increase in noninterest expense due to the Branch Acquisition, merit increases, higher headcount and higher deposit costs from growth in the deposit verticals.

•Net interest income was $626.7 million, an increase of $58.6 million over the prior year. NIM increased to 4.21% in 2025, from 4.16% in 2024, primarily due to higher average loan and securities balances, higher yields on the securities portfolio, and lower short-term interest rates that decreased deposit interest expense. Average loans and securities increased $472.6 million and $753.8 million, respectively, compared to 2024. While the decline in market interest rates reduced the yield on loans 28 basis points, the yield on securities increased 51 basis points compared to 2024. The total cost of deposits was 1.77% in 2025 compared to 2.12% in 2024.

1 PPNR, PPNR ROAA, and the core efficiency ratio are non-GAAP measures. A reconciliation has been included in this MD&A section under the caption “Use of Non-GAAP Financial Measures.”

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•Noninterest income was $113.1 million, an increase of $43.4 million from $69.7 million in 2024. Noninterest income in 2025 includes $32.1 million of anticipated insurance proceeds from a pending claim related to a recapture event during the third quarter 2025 with respect to a $24.1 million solar tax credit. There is an offsetting amount of $32.1 million in income tax expense related to the solar tax credit recapture.

•Noninterest expense was $429.8 million in 2025, a 12% increase from $385.0 million in 2024. The increase in noninterest expense was primarily from higher deposit costs due to an increase in average deposit vertical balances, an increase in compensation due an expanded associate base and the onboarding of the associates from the fourth quarter 2025 Branch Acquisition, along with other expenses related to the Branch Acquisition. The increase was partially offset by a $4.9 million decline in core conversion expenses due to the completion of the core implementation in the fourth quarter 2024. The core efficiency ratio1 was 59.3% in 2025, compared to 58.4% in 2024.

2024 Financial Highlights

During 2024, noted the following significant developments:

•The Company had a return on average assets of 1.25%. This drove a 10.1% increase in tangible book value per share in 2024.

•Dividends paid in 2024 of $1.06 per share increased $0.06 per share, or 6%, compared to $1.00 per share in 2023.

•The Company repurchased 626,778 of its common shares at a weighted-average share price of $46.95.

•In the fourth quarter 2024, the Company successfully completed the conversion of its legacy core system into a new core banking platform.

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RESULTS OF OPERATIONS

Net Interest Income

Average Balance Sheet

The following table presents, for the periods indicated, certain information related to our average interest-earning assets and interest-bearing liabilities, as well as, the corresponding interest rates earned and paid, all on a tax-equivalent basis. Average balances are presented on a daily average basis.

1Average balances include nonaccrual loans. Interest income includes loan fees of $7.0 million, $9.6 million, and $13.8 million for the years ended December 31, 2025, 2024, and 2023 respectively.

2Non-taxable income is presented on a fully tax-equivalent basis using a tax rate of approximately 25%. The tax-equivalent adjustments were $11.7 million, $8.4 million, and $8.1 million for the years ended December 31, 2025, 2024, and 2023, respectively.

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Rate/Volume

The following table sets forth, on a tax-equivalent basis for the periods indicated, a summary of the changes in interest income and interest expense resulting from changes in yield/rates and volume.

Net interest income (on a tax-equivalent basis) was $638.5 million for 2025, compared to $576.5 million for 2024, an increase of $61.9 million. The increase in net interest income in 2025 was primarily due to higher average interest-earning asset balances and a decrease in the average rates paid on interest-bearing liabilities.

Total tax-equivalent interest income of $900.1 million increased $40.6 million in 2025 primarily due to a $42.2 million increase in interest income from investment securities. Higher interest income on investment securities was primarily due to a $753.8 million increase in average securities balances and a 51 basis point increase in yield on investment securities. Average securities represented 22% and 18% of earnings assets for 2025 and 2024, respectively. Average loan balances increased $472.6 million during the year primarily from organic loan growth and the Branch Acquisition, partially offset by a 28 basis point decrease in loan yield resulting in a $0.2 million decrease in loan interest income.

Overall, average interest-earning assets increased $1.3 billion, or 9%, to $15.1 billion for the year ended December 31, 2025. Excess liquidity provided through the Branch Acquisition was deployed into the securities portfolio and other interest-earning assets. Volume growth of the balance sheet drove an increase in interest income on earning assets of $62.8 million, partially offset by a decrease of $22.1 million in yield on interest-earning assets in 2025 compared to 2024.

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Total interest expense decreased $21.3 million in 2025 primarily due to decreased rates paid on interest-bearing liabilities. The decrease in deposit interest expense reflects lower rates paid on deposits, partially offset by successful marketing efforts and acquired deposits in connection with the Branch Acquisition that increased average deposit balances. Total average interest-bearing deposits increased to $9.1 billion, an increase of $643.8 million, or 8%, in 2025 over the average for 2024. Average noninterest-bearing deposits increased $483.4 million, or 12%, in 2025 compared to the average for 2024. Average noninterest-bearing deposits represented 33% of total average deposits in 2025, compared to 32% in 2024. Overall, average interest-bearing liabilities increased $722.9 million, or 8%, for the year ended December 31, 2025 as compared to the prior year end. The increase in the average balance of interest-bearing liabilities increased interest expense in 2025 by $23.4 million, which was partially offset by the decrease in the average cost of interest-bearing liabilities that decreased interest expense $44.7 million in 2025.

The tax-equivalent net interest margin was 4.21% for 2025, compared to 4.16% for 2024. The primary driver of the increase in net interest margin from 2024 to 2025 was lower interest expense on the deposit portfolio. Since September 2024, the Federal Reserve has reduced the federal funds target rate 175 basis points. As of December 31, 2025, variable-rate loans comprised approximately 60% of total loans. The earning-asset yield decreased 26 basis points to 5.94% in 2025, compared to 6.20% in 2024. Comparatively, the cost of interest-bearing liabilities decreased 47 basis points to 2.73%, from 3.20% in 2024.

Noninterest Income

The following table presents a comparative summary of the major components of noninterest income for each of the years in the three-year period ended December 31, 2025:

Noninterest income increased $43.4 million, or 62%, in 2025 compared to 2024. The increase in noninterest income was primarily due to $32.1 million of anticipated insurance proceeds from a third quarter 2025 pending claim related to a recapture event with respect to a solar tax credit that the Company purchased and applied to prior taxable periods. Excluding this item, noninterest income increased primarily due to an $11.5 million increase in other income. Other income increased primarily due to higher BOLI income ($3.7 million), an increase in gains on the sale of SBA loans ($2.8 million), and an increase in net gain on OREO ($3.2 million). Private equity and community development income are not consistent sources of income and fluctuate based on distributions and earnings from the underlying funds. In 2025, the Company sold the guaranteed portion of SBA 7(a) loans of $78.2 million for a gain of $4.2 million, compared to $23.1 million and $1.4 million, respectively, in 2024.

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Noninterest Expense

The following table presents a comparative summary of the components of noninterest expense:

Noninterest expense increased $44.8 million, or 12%, in 2025 compared to 2024. The increase was attributed primarily to an increase in compensation and benefits due to annual merit increases, an expanded associate base, the onboarding of the associates from the Branch Acquisition, and the recruitment of new relationship bankers. The total cost of the Branch Acquisition in noninterest expense was $3.7 million in 2025. The increase from 2024 was also primarily due to a $14.6 million increase in deposit costs due to an increase in average deposit vertical balances. For certain deposit accounts in the Company’s deposit verticals, clients receive an earnings credit allowance on average collected balances that may be used to offset expenses associated with the client’s activities for managing the accounts. These costs are reflected in noninterest expense as deposit costs. Average balances in the deposit verticals were approximately $3.8 billion and $3.1 billion, resulting in an average deposit vertical cost of 2.75% and 2.82% for 2025 and 2024, respectively.

Income Taxes

As part of the normal, ongoing review of state tax apportionment, the Company's state statutory tax rate was increased in the fourth quarter. Due to the increase, the Company’s blended federal and state tax rate was approximately 25.1% in 2025, compared to 24.8% in 2024. Included in tax expense during 2025 was $24.1 million in recaptured tax credits as discussed above and approximately $8.0 million of incremental tax liability attributable to the anticipated insurance proceeds from the insured recaptured credits. Excluding the impact of the recaptured tax credits and related insurance proceeds, the adjusted effective tax rate2 for 2025, after adjusting for permanent tax differences such as tax exempt income and tax credits, is approximately 20.0% compared to 19.9% in 2024. See “Item 8. Note 15 – Income Taxes” for additional information.

2 Adjusted effective tax rate is a non-GAAP measure. A reconciliation has been included in this MD&A section under the caption “Use of Non-GAAP Financial Measures.”

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FINANCIAL CONDITION

Summary Balance Sheet

The table below represents the summary balance sheet shown as a percentage of account class (total assets, total liabilities or total stockholders’ equity), as applicable:

Assets

Loans by Type

The Company has a diversified loan portfolio, with no particular concentration of credit in any one economic sector other than those noted in the table of loans by NAICS code below; however, a substantial portion of the portfolio, including the C&I category, is secured by real estate. The ability of the Company’s borrowers to honor their contractual obligations is partially dependent upon the local economy and its effect on the real estate market. Included in total loans at December 31, 2025 are $292.0 million of loans from the Branch Acquisition.

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The following table sets forth the composition of the loan portfolio by type of loans:

C&I loans are made based on the borrower’s ability to generate cash flows for repayment from income sources, general credit strength, experience, and character, even though such loans may also be secured by real estate or other assets. The credit risk related to commercial loans is largely influenced by general economic conditions and the resulting impact on a borrower’s operations.

The Company continues to focus on originating high-quality C&I loan relationships as they allow for cross selling opportunities involving other banking products. Our specialized products, especially sponsor finance, life insurance premium financing, and tax credit lending, consist of primarily C&I loans, and have contributed significantly to the Company’s C&I loan growth. These loans are sourced through relationships developed with wealth and estate planning firms, private equity funds and tax credit specialists and are not bound geographically to our markets. As a result, these specialized loan products offer opportunities to expand and diversify our overall geographic concentration by entering into new markets. C&I also represents loans to state and political subdivisions, loans to nondepository financial institutions, and loans to purchase, or are fully secured by, investment securities.

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Real estate loans place an emphasis on the estimated cash flows from the operation of the property and/or the underlying collateral value.

•Our CRE loans, including investor-owned and owner-occupied categories, primarily represent commercial property loans on which the primary source of repayment is income from the property for investor-owned and the operating business for owner-occupied. These loans are principally underwritten based on the cash flow coverage of the property, the Company’s loan to value guidelines, and generally require either the limited or full guaranty of principal sponsors of the credit. The Company also maintains standards for amortization and maturity terms. CRE loans also represent owner-occupied C&I loans for which the primary source of repayment is dependent on sources other than the underlying collateral. In an effort to mitigate credit risk, the Company routinely reviews its loan portfolio for various concentrations. Annually, management prepares an assessment of credit risk in the various loan portfolios, with a significant portion of the commercial loan portfolio subject to review. These reviews consider the Company’s collateral position as well as exposure to a given industry sector. The Company performs site visits as part of the underwriting process, in addition to stress tests for vacancy, rental and interest rates on certain property types. The Company believes that the loan portfolio is sufficiently diversified to provide protection from deterioration in any particular industry, geography or devaluation of a specific collateral type.

•Construction and land development loans relating primarily to residential and commercial properties, represent financing secured by real estate under development for eventual sale or undeveloped ground. At December 31, 2025, $378.5 million of these loans include the use of interest reserves and follow standard underwriting guidelines. Construction projects are monitored by the loan officer and a centralized independent loan disbursement function.

•Residential real estate loans include residential mortgages, which are loans that, due to size or other attributes, do not qualify for conventional home mortgages available-for-sale in the secondary market, second mortgages, home equity lines and conventional mortgages that are part of a broad banking relationship with the Company. Residential mortgage loans are usually limited to a maximum of 80% of collateral value at origination.

Consumer loans represent loans to individuals. Credit risk is managed by thoroughly reviewing the creditworthiness of the borrowers prior to origination and thereafter.

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The following table presents a breakdown of loans by NAICS code at the periods indicated:

At December 31, 2025 and 2024, the Company had an agricultural loan portfolio of $69.3 million and $121.8 million, respectively. The Company continues to wind down this portfolio over time as the loans mature or pay down. The Company does not intend to enter into new agricultural loans.

The following table presents a breakdown of C&I loans by size at the periods indicated:

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The following table presents a breakdown of CRE loans (investor owned and owner occupied) by size at the periods indicated:

The Company had $574.8 million and $513.7 million of investor owned office real estate loans as of December 31, 2025 and 2024, respectively. The Company also had $399.0 million and $322.5 million of multifamily CRE loans as of December 31, 2025 and 2024, respectively.

The following table presents a breakdown of construction loans by size at the periods indicated:

The following table presents a breakdown of residential loans by size at the periods indicated:

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The following table presents a breakdown of consumer loans by size at the periods indicated:

The following table presents a breakdown of total loans by geographic region at the periods indicated:

The following table presents a breakdown of total loans by MSA, excluding specialty and consumer loans, at the periods indicated:

Loan guarantees, primarily on SBA 7(a) loans, totaled $960.1 million and $947.7 million at December 31, 2025 and 2024, respectively.

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The following table sets forth additional information on certain categories of loans that are included in total loans above at the periods indicated:

The sponsor finance portfolio is primarily comprised of loans in the manufacturing and wholesale trade sectors. It includes mid-market company mergers and acquisitions, targeted private equity firms, principally SBICs, and senior debt financing to portfolio companies.

The life insurance premium finance category specializes in financing whole life insurance premiums utilized in high net worth estate planning, through relationships with boutique estate planners throughout the United States.

The tax credit portfolio includes tax credit-related lending on affordable housing projects funded through the use of

federal and state low income housing tax credits. In addition, we provide leveraged and other loans on projects funded through the CDFI New Markets Tax Credit Program. This portfolio also includes tax credit brokerage through 10-year streams of state tax credits from affordable housing development funds. The tax credits are sold to clients and other individuals for tax planning purposes.

SBA loans are originated under the SBA 7(a) program and are primarily owner-occupied, CRE loans secured by a 1st lien. These loans predominantly have a 75% portion guaranteed by the SBA.

Significant loan concentrations are considered to exist for a financial institution when there are amounts loaned to numerous borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. At December 31, 2025, no significant concentrations exceeding 10% of total loans existed in the Company’s loan portfolio, except as described above.

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The following table presents the maturity distribution of loans at December 31, 2025 categorized by fixed or variable interest rates, net of unearned loan fees:

(1) Includes loans with no stated maturity and overdraft lines of credit.

The majority of variable rate loans are based on the prime rate or SOFR. At December 31, 2025, $4.8 billion or 68% of variable rate loans were subject to an interest rate floor. Most variable rate loan originations have one-to three-year maturities. Management monitors this mix as part of its interest rate risk management. The Company has also entered into interest rate hedges to reduce the cash flow impact of changes in interest rates on the variable rate loan portfolio. These hedges, which include interest rate swaps and collars, had a notional amount of $400.0 million at both December 31, 2025 and 2024. See “Interest Rate Risk” of this MD&A section for additional information.

Provision and ACL

The following table presents the components of the provision for credit losses for the periods indicated:

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The provision for credit losses, which includes a provision for losses on unfunded commitments, is a charge to earnings to maintain the ACL on loans at a level consistent with management’s assessment of expected losses in the loan portfolio at the balance sheet date. The Company also records reversals of interest on nonaccrual loans and interest recoveries directly through the provision of credit losses.

The CECL methodology requires economic forecasts to be factored into determining estimated losses. As a result, CECL is designed to typically require a higher level of provision at the start of an economic downturn. The increase in the provision for credit losses in 2025 was primarily due to loan growth, net charge-offs and the increase in nonperforming loans. The higher provision for credit losses in 2024 was also primarily due to loan growth, net charge-offs and the increase in nonperforming loans.

To the extent the Company does not recognize charge-offs and economic forecasts improve in future periods, the Company could recognize a reversal of provision for credit losses. Conversely, if economic conditions and the Company’s forecast worsens, the Company could recognize elevated levels of provision for credit losses. The provision is also reflective of charge-offs in the period.

The following table summarizes the allocation of the ACL on loans:

The ACL on loans was 1.19% of total loans at December 31, 2025, compared to 1.23%, and 1.24%, at December 31, 2024 and 2023, respectively. The decrease in the allowance to total loans ratio in 2025 compared to 2024 was primarily due to an improvement in the economic forecast, a reduction in qualitative reserves, and net loan charge-offs of $24.3 million. The Company adopted a new accounting standard in the current quarter that resulted in the $3.3 million credit mark on the acquired loan portfolio from the Branch Acquisition being added directly to the ACL in purchase accounting and no provision for credit losses was recognized on the acquired loans.

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The following table is a summary of net charge-offs (recoveries) to average loans for the periods indicated:

(1) Excludes loans held for sale.

See “Critical Accounting Policies and Estimates” of this MD&A section for more information on the ACL methodology.

Nonperforming loans and assets

See “Item 8. Note 1 – Summary of Significant Accounting Policies” for more information on nonaccrual loans and OREO. The following table presents the categories of nonperforming assets and other ratios, excluding government guaranteed portions, as of the dates indicated.

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Nonperforming loans based on loan type were as follows:

The following table summarizes the changes in nonperforming loans:

Nonperforming loans at December 31, 2025 increased $40.1 million, or 94%, when compared to December 31, 2024. The addition to nonperforming loans during 2025 was primarily related to seven real estate loans to special purpose entities (each an “SPE Borrower”) affiliated with two commercial banking relationships in Southern California that share some common ownership. Litigation resulting from a business dispute between the owners of the entities resulted in all of the SPE Borrowers filing bankruptcy in the first quarter 2025, which was subsequently dismissed. In the fourth quarter 2025, the Company foreclosed on six of the seven properties serving as collateral for the loans. The six properties were transferred to OREO at fair market value, less selling costs. Based on each individual property’s fair value, a net charge-off of $4.0 million and a gain on transfer of $6.2 million was recorded. The seventh property with a book value of $4.0 million was foreclosed on in the first quarter of 2026. The following table provides a summary of the six properties foreclosed in 2025 by collateral type:

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Other than these foreclosures, the increase in nonperforming loans during 2025 was driven primarily by net charge-offs of $24.3 million and a relationship with two loans totaling $28.0 million that went on nonaccrual. These loans are well-secured with real estate collateral and the Company expects to collect the full value of the outstanding loans. Subsequent to December 31, 2025, $17.5 million in nonperforming loans were fully paid off in the first quarter of 2026.

OREO

The following table summarizes the changes in OREO:

Investment Securities

At December 31, 2025, our portfolio of investment securities was $3.7 billion, or 22% of total assets, compared to $2.8 billion, or 18% of total assets as of December 31, 2024. The portfolio is comprised of both available-for-sale and held-to-maturity securities.

The table below sets forth the carrying value of investment securities, excluding the ACL:

The ACL on held-to-maturity debt securities was $0.1 million and $0.3 million at December 31, 2025 and 2024, respectively. The Company had no debt securities classified as trading at December 31, 2025 or December 31, 2024.

The following table summarizes contractual maturity and tax-equivalent yields on the investment portfolio at December 31, 2025:

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Yields on tax-exempt securities are computed on a taxable equivalent basis using a tax rate of 25.1%. Actual maturities can differ from contractual maturities, as borrowers may have the right to call or repay obligations with or without prepayment penalties.

The following table details the balance of FHLB capital stock and other investments. Other investments consist primarily of common stock investments related to our trust preferred securities, community development funds, and investments in private equity funds, primarily SBICs. These investments do not have a stated maturity.