Credit Update
Net charge-offs of $14.3 million in 2Q25; primarily small business lending and franchise finance with $7.3 million of specific reserves in place
Nonperforming loans increased $9.3 million from 1Q25 to $43.5 million as of June 30, 2025, representing 1.00% of total loans
Primarily driven by franchise finance loans moved to nonaccrual with related specific reserves
NPLs / total loans is in line with industry-wide 1.00% nonperforming loans (as published by the Federal Reserve)
Total delinquencies 30 days or more past due (excluding nonperforming loans) declined to 0.62% of total performing loans, down from 0.77% as of March 31, 2025
Franchise Finance UpdateActively working on resolution strategies with identified problem loans
Moved $12.6 million to nonaccrual in 2Q25 with related specific reserves of $4.5 million
Delinquencies up modestly from March 31, 2025 but loan count is low - 9 loans out of 633 total loans in the portfolio
Working with borrowers in earlier stage of delinquency to pursue solutions that minimize losses
Pace of new delinquencies has slowed
No loans on deferral as of June 30, 2025, down from 22 loans at the end of 2024 (leading indicator of problem loans)
Recent success with workout strategies - recovery rate of 75% on certain problem loans
Small Business Lending Update$1.8 billion in total balances originated since January 1, 2020 as a nationwide, generalist lender
Credit experience in the Company's portfolio is consistent with publicly disclosed data regarding the SBA 7(a) program portfolio for all lenders
Nonaccrual loans and net charge-offs elevated in the 2022-2023 vintages
Select industries have underperformed on a relative basis
Successive refinements to our credit approval criteria and processes, beginning in 2023, have led to improved performance
Nonaccrual loans appear to have plateaued
Delinquencies as of June 30, 2025 are down $2.4 million, or 23%, from December 31, 2024 and down $7.4 million, or 48%, from March 31, 2025
$3.7 million on deferral as of June 30, 2025 - down from $10.4 million as of December 31, 2024
Secondary market sales deferred during the second quarter of 2025 to align with SBA expectations
$1.6 million in gain on sale in 2Q25 vs. $8.6 million in 1Q25
Loans sales in the third quarter have resumed at a normalized run rate: $52 million in guaranteed balances sold quarter-to-date, for an anticipated $3.7 million net gain on sale (additional loan sales to follow)
Continued net interest income and net interest margin expansion through combination of higher loan origination yields and deposit repricing
Gain on sale of SBA 7(a) loans reverts to normalized levels as significant loan sale activity resumes in 3Q25
Continued uncertainty around global and domestic economic policy may impact outlook
3Q25 Outlook | 4Q25 Outlook | FY 2026 Outlook | ||||
Loan growth | ~2% (not annualized) | ~2% (not annualized) | 5% - 7% | |||
Net interest income (FTE) Net interest margin (FTE) | ~$33.5 million 2.20% - 2.25% | ~$35.5 million 2.30% - 2.35% | $158 - $163 million 2.50% - 2.60% | |||
Noninterest income | ~$13.25 million | ~$13.25 million | $51 - $54 million | |||
Noninterest expense | ~$27 million | ~$27 million | $108 - $112 million | |||
Provision for credit losses | $10 - $11 million | $10 - $11 million | $37 - $40 million |
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