SOUTHERN FIRST BANCSHARES INC

Previous wording

At December 31, 2023, we had total assets of $4.06 billion, a 9.9% increase from total assets of $3.69 billion at December 31, 2022. The largest components of our total assets are loans which were $3.60 billion and $3.27 billion at December 31, 2023 and 2022, respectively. Our liabilities and shareholders’ equity at December 31, 2023 totaled $3.74 billion and $312.5 million, respectively, compared to liabilities of $3.40 billion and shareholders’ equity of $294.5 million at December 31, 2022. The principal component of our liabilities is deposits which were $3.38 billion and $3.13 billion at December 31, 2023 and 2022, respectively.

Current wording

At December 31, 2024, we had total assets of $4.09 billion, a slight increase from total assets of $4.06 billion at December 31, 2023. The largest components of our total assets are loans which were $3.63 billion and $3.60 billion at December 31, 2024 and 2023, respectively. Our liabilities and shareholders’ equity at December 31, 2024 totaled $3.76 billion and $330.4 million, respectively, compared to liabilities of $3.74 billion and shareholders’ equity of $312.5 million at December 31, 2023. The principal component of our liabilities is deposits which were $3.44 billion and $3.38 billion at December 31, 2024 and 2023, respectively.

Previous wording

Our net income available to common shareholders for the years ended December 31, 2023 and 2022 was $13.4 million and $29.1 million, or diluted earnings per share (“EPS”) of $1.66 and $3.61 for the years ended December 31, 2023 and 2022, respectively. The decrease in net income resulted primarily from a decrease in net interest income and an increase in noninterest expenses, partially offset by a decrease in the provision for credit losses. In addition, our net income available to shareholders was $46.7 million, or EPS of $5.85 for the year ended December 31, 2021.

Current wording

Our net income available to common shareholders for the years ended December 31, 2024 and 2023 was $15.5 million and $13.4 million, or diluted earnings per share (“EPS”) of $1.91 and $1.66 for the years ended December 31, 2024 and 2023, respectively. The increase in net income resulted primarily from an increase in net interest income and an increase in noninterest income, partially offset by an increase in noninterest expenses and a decrease in the provision for credit losses. In addition, our net income available to shareholders was $29.1 million, or EPS of $3.61 for the year ended December 31, 2022.

Previous wording

Our level of net interest income is determined by the level of earning assets and the management of our net interest margin. For the years ended December 31, 2023, 2022, and 2021, our net interest income was $77.7 million, $97.6 million, and $87.7 million, respectively. The $20.0 million, or 20.5%, decrease in net interest income during 2023, compared to 2022, was driven by a $79.9 million increase in interest expense, primarily related to our interest-bearing deposits, partially offset by a $59.9 million increase in interest income. During 2022, our net interest income increased $9.9 million, or 11.3%, compared to 2021, while average interest-earning assets increased $525.0 million and average interest-bearing liabilities increased $401.0 million.

Current wording

Our level of net interest income is determined by the level of earning assets and the management of our net interest margin. For the years ended December 31, 2024, 2023, and 2022, our net interest income was $81.2 million, $77.7 million, and $97.6 million, respectively. The $3.6 million, or 4.6%, increase in net interest income during 2024, compared to 2023, was driven by a $23.6 million increase in interest income, partially offset by a $20.0 million increase in interest expense. During 2023, our net interest income decreased $20.0 million, or 20.5%, compared to 2022. This decrease in net interest income was driven by a $79.9 million increase in interest expense, primarily related to our interest-bearing deposits, partially offset by a $59.9 million increase in interest income during the 2023 period.

Previous wording

Interest income for the years ended December 31, 2023, 2022, and 2021 was $177.6 million, $117.7 million, and $93.2 million, respectively. A significant portion of our interest income relates to our strategy to maintain a large portion of our assets in higher earning loans compared to lower yielding investments and federal funds sold. As such, 93.5% of our interest income related to interest on loans during 2023, compared to 97.1% during 2022 and 98.3% during 2021. Also, included in interest income on loans was $1.7 million related to the net amortization of loan fees and capitalized loan origination costs for the year ended December 31, 2023, compared to $1.7 million and $1.4 million for the years ended December 31, 2022 and 2021, respectively. The increase in interest income during 2023 was driven by an increase in average interest-earning assets, combined with higher yields on those assets.

Current wording

Interest income for the years ended December 31, 2024, 2023, and 2022 was $201.2 million, $177.6 million, and $117.7 million, respectively. A significant portion of our interest income relates to our strategy to maintain a large portion of our assets in higher earning loans compared to lower yielding investments and federal funds sold. As such, 92.9% of our interest income related to interest on loans during 2024, compared to 93.5% during 2023 and 97.1% during 2022. Also, included in interest income on loans was $1.6 million related to the net amortization of loan fees and capitalized loan origination costs for the year ended December 31, 2024, compared to $1.7 million for the years ended December 31, 2023 and 2022, respectively. The increase in interest income during 2024 was driven by an increase in average interest-earning assets, combined with higher yields on those assets.

Previous wording

Interest expense was $99.9 million, $20.0 million, and $5.4 million for the years ended December 31, 2023, 2022, and 2021, respectively. Interest expense on deposits for 2023 represented 91.4% of total interest expense, compared to 90.3% for 2022, and 71.9% for 2021, while interest expense on borrowings represented 8.6% of total interest expense for 2023, compared to 9.7% for 2022, and 28.1% for 2021. The increase in interest expense on deposits during 2023 resulted primarily from an increase in the rate paid on deposit balances which relates to the Federal Reserve’s 525 basis point increase in the federal funds rate over the past two years.

Current wording

Interest expense was $120.0 million, $99.9 million, and $20.0 million for the years ended December 31, 2024, 2023, and 2022, respectively. Interest expense on deposits for 2024 represented 90.7% of total interest expense, compared to 91.4% for 2023, and 90.3% for 2022, while interest expense on borrowings represented 9.3% of total interest expense for 2024, compared to 8.6% for 2023, and 9.7% for 2022. The increase in interest expense on deposits during the 2024 and 2023 periods was driven by the increase in the rate paid on deposit balances which relates to the Federal Reserve’s 525 basis point increase in the federal funds rate beginning in March 2022 and continuing through July 2023.

Previous wording

Our net interest margin, on a tax-equivalent basis (TE), was 2.07%, 3.19% and 3.45% for the years ended December 31, 2023, 2022 and 2021, respectively. Our net interest margin (TE) decreased 112 basis points in 2023, compared to 2022, driven by higher costs on our interest-bearing liabilities, partially offset by an increase in yield on our interest-earning assets. During 2022, our net interest margin decreased 26 basis points, compared to 2021, due to higher costs on our interest-bearing liabilities, partially offset by an increase in yield on our interest-earning assets.

Current wording

Our net interest margin, on a tax-equivalent basis (TE), was 2.06%, 2.07% and 3.19% for the years ended December 31, 2024, 2023 and 2022, respectively. Our net interest margin (TE) was relatively stable in 2024, compared to 2023 as both our yield on interest earning assets and rate of interest bearing liabilities increased similarly during the year. During 2023, our net interest margin decreased 112 basis points, compared to 2022, driven primarily by higher costs on our interest-bearing liabilities.

Previous wording

During the year ended December 31, 2022, our average interest-earning assets increased by $525.0 million, compared to 2021, while the yield on our interest-earning assets increased by 17 basis points. The increase in average interest-earning assets was driven primarily by a $556.5 million increase in average loan balances combined with an $35.3 million decrease in federal funds sold and interest-bearing deposits with banks. In addition, the increase in yield on our interest earning assets was driven by a 144 basis point increase in the yield on our federal funds sold and other interest-bearing deposits which repriced as the Federal Reserve increased the federal funds rate by 425 basis points during 2022.

Current wording

Our average interest-earning assets increased by $175.0 million during the year ended December 31, 2024, compared to 2023, while the related yield on our interest-earning assets increased by 39 basis points. The increase in average interest-earning assets was driven by a $131.9 million increase in average loan balances and a $26.2 million increase in federal funds sold and interest-bearing deposits with banks. In addition, the increase in yield on our interest earning assets was driven by a 40 basis point increase in the yield on our loan portfolio.

Previous wording

Our average interest-earning assets increased by $695.1 million during the year ended December 31, 2023, compared to 2022, while the related yield on our interest-earning assets increased by 88 basis points. The increase in average interest-earning assets was driven by a $626.9 million increase in average loan balances and a $46.4 million increase in federal funds sold and interest-bearing deposits with banks. In addition, the increase in yield on our interest earning assets was driven by a 357 basis point increase in the yield on our federal funds sold and other interest-bearing deposits which repriced as the Federal Reserve increased the federal funds rate by 100 basis points during 2023.

Current wording

During the year ended December 31, 2023, our average interest-earning assets increased by $695.1 million, compared to 2022, while the yield on our interest-earning assets increased by 88 basis points. The increase in average interest-earning assets was driven primarily by a $626.9 million increase in average loan balances combined with a $46.4 million increase in federal funds sold and interest-bearing deposits with banks. In addition, the increase in yield on our interest earning assets was driven by a 357 basis point increase in the yield on our federal funds sold and other interest-bearing deposits which repriced as the Federal Reserve increased the federal funds rate by 100 basis points during 2023.

Previous wording

Our average interest-bearing liabilities increased by $749.3 million during 2023 while the cost of our interest-bearing liabilities increased by 255 basis points. The increase in average interest-bearing liabilities was driven primarily by a $598.8 million increase in average interest-bearing deposits at an average rate of 3.46%. During 2022, our average interest-bearing liabilities increased by $401.0 million, compared to 2021, while the cost of our interest-bearing liabilities increased by 64 basis points.

Current wording

Our average interest-bearing liabilities increased by $193.2 million during 2024 while the cost of our interest-bearing liabilities increased by 44 basis points. The increase in average interest-bearing liabilities was driven primarily by a $268.7 million increase in average time deposits at an average rate of 4.94% and an increase of $70.4 million in FHLB advances and other borrowings. During 2023, our average interest-bearing liabilities increased by $749.3 million, compared to 2022, while the cost of our interest-bearing liabilities increased by 255 basis points.

Previous wording

Our net interest spread was 1.21% for the year ended December 31, 2023, compared to 2.88% for the same period in 2022 and 3.35% for 2021. The net interest spread is the difference between the yield we earn on our interest-earning assets and the rate we pay on our interest-bearing liabilities. The 255 basis point increase in the cost of our interest-

Current wording

Our net interest spread was 1.16% for the year ended December 31, 2024, compared to 1.21% for the same period in 2023 and 2.88% for 2022. The net interest spread is the difference between the yield we earn on our interest-earning assets and the rate we pay on our interest-bearing liabilities. The 44 basis point increase in the cost of our interest-bearing liabilities, partially offset by a 39 basis point increase in yield on our interest-earning assets resulted in a 5 basis point

Previous wording

bearing liabilities, partially offset by an 88 basis point increase in yield on our interest-earning assets resulted in a 167 basis point decrease in our net interest spread for the 2023 period. We anticipate continued pressure on our net interest spread and net interest margin in future periods as our deposits continue to reprice immediately with increases in the fed funds rate, compared to our loan portfolio which reprices as loans are originated or renewed.

Current wording

decrease in our net interest spread for the 2024 period. We anticipate continued pressure on our net interest spread and net interest margin in future periods as our deposits continue to reprice immediately with increases in the fed funds rate, compared to our loan portfolio which reprices as loans are originated or renewed.

Previous wording

Net interest income was $97.6 million for the year ended December 31, 2022, a $9.9 million increase from net interest income of $87.7 million for the year ended December 31, 2021. The increase in net interest income was driven by a $24.5 million increase in interest income, partially offset by a $14.6 million increase in interest expense. The $556.5 million increase in average loan balances was the primary driver of the increase in interest income, while the 65 basis point increase in deposit costs drove the increase in interest expense.

Current wording

Net interest income, the largest component of our income, was $81.2 million for the year ended December 31, 2024, a $3.6 million increase from net interest income of $77.7 million for the year ended December 31, 2023. The increase in net interest income was driven by a $23.6 million increase in interest income, partially offset by a $20.0 million increase in interest expense. The 40 basis point increase in loan yield combined with the $131.9 million increase in average loan balances drove the increase in interest income while the 47 basis point increase in deposit costs drove the increase in interest expense.

Previous wording

Net interest income, the largest component of our income, was $77.7 million for the year ended December 31, 2023, a $20.0 million decrease from net interest income of $97.6 million for the year ended December 31, 2022. The decrease in net interest income was driven by a $79.9 million increase in interest expense, partially offset by a $59.9 million increase in interest income. The 257 basis point increase in deposit costs drove the increase in interest expense while the $626.9 million increase in average loan balances combined with the 77 basis point increase in loan yield drove the increase in interest income.

Current wording

Net interest income was $77.7 million for the year ended December 31, 2023, a $20.0 million decrease from net interest income of $97.6 million for the year ended December 31, 2022. The decrease in net interest income was driven by a $79.9 million increase in interest expense, partially offset by a $59.9 million increase in interest income. The 257 basis point increase in deposit costs drove the increase in interest expense while the $626.9 million increase in average loan balances combined with the 77 basis point increase in loan yield drove the increase in interest income.

Previous wording

The provision for credit losses, which includes a provision for losses on unfunded commitments, is a charge to earnings to maintain the allowance for credit losses and reserve for unfunded commitments at levels consistent with management’s assessment of expected losses in the loan portfolio at the balance sheet date. On January 1, 2022, we adopted the Current Expected Credit Loss (CECL) methodology for estimating credit losses, which resulted in an increase of $1.5 million in our allowance for credit losses and an increase of $2.0 million in our reserve for unfunded commitments. The tax-effected impact of these two items amounted to $2.8 million and was recorded as an adjustment to our retained earnings as of January 1, 2022. We review the adequacy of the allowance for credit losses on a quarterly basis. Please see the discussion below under “Results of Operations – Allowance for Credit Losses” for a description of the factors we consider in determining the amount of the provision we expense each period to maintain this allowance.

Current wording

The provision for credit losses, which includes a provision for losses on unfunded commitments, is a charge to earnings to maintain the allowance for credit losses and reserve for unfunded commitments at levels consistent with management’s assessment of expected losses in the loan portfolio at the balance sheet date. We review the adequacy of the allowance for credit losses on a quarterly basis. Please see the discussion below under “Results of Operations – Allowance for Credit Losses” for a description of the factors we consider in determining the amount of the provision we expense each period to maintain this allowance.

Previous wording

There was a $1.3 million provision for credit losses for the year ended December 31, 2023, compared to a provision of $6.2 million and a reversal of $12.4 million for the years ended December 31, 2022 and 2021, respectively. The $1.3 million provision during 2023 included a $2.2 million provision for credit losses and a reversal of $949,000 for unfunded commitments. The $2.2 million provision was driven primarily by $329.3 million in loan growth during the year, while the $949,000 reversal was driven by a $153.7 million decrease in unfunded commitments. The $6.2 million provision during 2022, which included a $780,000 provision for unfunded commitments, was driven primarily by $783.5 million in loan growth during the year, combined with a $259.6 million increase in unfunded commitments. In addition, to loan growth,

Current wording

There was a $125,000 provision for credit losses for the year ended December 31, 2024, compared to a provision of $1.3 million and $6.2 million for the years ended December 31, 2023 and 2022, respectively. The $125,000 provision during 2024 included a provision of $500,000 for credit losses and a reversal of $375,000 for unfunded commitments. The $500,000 provision was driven primarily by $29.1 million in loan growth during the year combined with slightly lower expected loss rates due to historically low charge-offs, while the $375,000 reversal was driven by a $5.5 million decrease in unfunded commitments combined with lower historical loss rates. The $1.3 million provision during 2023 included a $2.2 million provision for credit losses and a reversal of $949,000 for unfunded commitments. The $2.2 million provision was driven primarily by $329.3 million in loan growth during the year, while the $949,000 reversal was driven by a $153.7 million decrease in unfunded commitments. The $6.2 million provision during 2022, which included a $780,000 provision for unfunded commitments, was driven primarily by $783.5 million in loan growth during the year, combined with a $259.6 million increase in unfunded commitments. In addition, to loan growth, the provision for credit losses was impacted by

Previous wording

the provision for credit losses was impacted by slightly lower expected loss rates due to historically low charge-offs during the 12 months ended December 31, 2022 while minor adjustments to two internal qualitative factors increased the qualitative component of the allowance and related provision expense. The $12.4 million reversal of provision during 2021 related to a reduction in qualitative adjustment factors driven by the overall improvement in economic conditions as well as improvement in the credit quality of our portfolio following the pandemic.

Current wording

slightly lower expected loss rates due to historically low charge-offs during the 12 months ended December 31, 2022 while minor adjustments to two internal qualitative factors increased the qualitative component of the allowance and related provision expense.

Previous wording

As of December 31, 2023, the allowance for credit losses totaled $40.7 million, or 1.13% of gross loans. In comparison, the allowance for credit losses totaled $38.6 million as of December 31, 2022, or 1.18% of gross loans, and $30.4 million as of December 31, 2021, or 1.22% of gross loans.

Current wording

As of December 31, 2024, the allowance for credit losses totaled $39.9 million, or 1.10% of gross loans. In comparison, the allowance for credit losses totaled $40.7 million as of December 31, 2023, or 1.13% of gross loans, and $38.6 million as of December 31, 2022, or 1.18% of gross loans.

Previous wording

During the year ended December 31, 2023, we had net charge-offs of $166,000, consisting of $761,000 of loans charged-off in the current year, partially offset by $595,000 of recoveries on loans previously charged-off. Net charge-offs were 0.00% of the average outstanding loan portfolio for 2023. In addition, nonperforming assets increased to 0.10% of total assets while our level of classified assets decreased to 4.25% at December 31, 2023.

Current wording

During the year ended December 31, 2024, we had net charge-offs of $1.3 million, consisting of $1.7 million of loans charged-off in the current year, partially offset by $466,000 of recoveries on loans previously charged-off. Net charge-offs were 0.04% of the average outstanding loan portfolio for 2024. In addition, nonperforming assets increased to 0.27% of total assets while our level of classified assets decreased to 4.25% at December 31, 2024.

Previous wording

We reported net recoveries of $1.4 million and net charge-offs of $1.3 million for the years ended December 31, 2022 and 2021, respectively, including charge-offs of $485,000 and recoveries of $825,000 in 2022 and 2021, respectively. The net recoveries of $1.4 million and charge-offs of $1.3 million during 2022 and 2021, respectively, represented 0.05% and 0.06% of the average outstanding loan portfolios for 2022 and 2021, respectively. In addition, nonperforming assets were 0.07% and 0.17% of total assets for 2022 and 2021, respectively, and classified assets were 4.72% and 12.61% at December 31, 2022 and 2021, respectively.

Current wording

We reported net charge-offs of $166,000 and net recoveries of $1.4 million for the years ended December 31, 2023 and 2022, respectively, including charge-offs of $761,000 and $485,000 in 2023 and 2022, respectively. The net charge-offs of $166,000 and net recoveries of $1.4 million during 2023 and 2022, respectively, represented 0.0.% and 0.05% of the average outstanding loan portfolios for 2023 and 2022, respectively. In addition, nonperforming assets were 0.10% and 0.07% of total assets for 2023 and 2022, respectively, and classified assets were 4.25% and 4.72% at December 31, 2023 and 2022, respectively.

Previous wording

Noninterest expenses were $62.9 million for the year ended December 31, 2022, a $6.5 million, or 11.5%, increase from noninterest expense of $56.4 million for 2021.

Current wording

Noninterest expenses were $73.3 million for the year ended December 31, 2024, a $4.5 million, or 6.5%, increase from noninterest expense of $68.8 million for 2023.

Previous wording

Partially offsetting the above increases was a decrease in professional of $139,000, or 5.3% due to less legal fees and consulting expenses.

Current wording

Partially offsetting the above increases was a decrease in professional fees of $139,000, or 5.3% due to less legal fees and consulting expenses during 2023.

Previous wording

Our efficiency ratio was 78.7% for 2023 compared to 58.7% for 2022. The efficiency ratio represents the percentage of one dollar of expense required to be incurred to earn a full dollar of revenue and is computed by dividing noninterest expense by the sum of net interest income and noninterest income. The increase during the 2023 period relates primarily to the decrease in net interest income compared to the prior year.

Current wording

Our efficiency ratio was 78.5% for 2024 and 78.7% for 2023. The efficiency ratio represents the percentage of one dollar of expense required to be incurred to earn a full dollar of revenue and is computed by dividing noninterest expense by the sum of net interest income and noninterest income. Our efficiency ratio was elevated for the twelve months ended December 31, 2024 due to the comparatively smaller increase in net interest income and noninterest income, as compared to the increase in noninterest expenses during the year.

Previous wording

Income tax expense was $4.0 million, $9.0 million and $14.1 million for the years ended December 31, 2023, 2022 and 2021, respectively. Our effective tax rate was 23.0% for the year ended December 31, 2023, compared to 23.6% for 2022, and 23.2% for 2021. The fluctuation in the effective rate for each of the periods is driven by to the impact of tax-exempt income and equity compensation transactions that occurred during the respective periods in relation to pre-tax income.

Current wording

Income tax expense was $4.4 million, $4.0 million and $9.0 million for the years ended December 31, 2024, 2023 and 2022, respectively. Our effective tax rate was 22.0% for the year ended December 31, 2024, compared to 23.0% for 2023, and 23.6% for 2022. The fluctuation in the effective rate for each of the periods is driven by the effect of equity compensation transactions and return to provision differences on our actual tax rate during the year compared to what was estimated during the year.

Previous wording

At December 31, 2023 and 2022, our investment securities portfolio was $154.6 million and $104.2 million, respectively, and represented approximately 3.8% and 2.8% of our total assets, respectively. Our available for sale investment portfolio included corporate bonds, US treasuries, US agency securities, SBA securities, state and political subdivisions, asset-backed securities, and mortgage-backed securities with a fair value of $134.7 million and amortized cost of $149.1 million for an unrealized loss of $14.4 million at December 31, 2023 compared to a fair value of $93.3 million and amortized cost of $110.3 million for an unrealized loss of $17.0 million at December 31, 2022.

Current wording

At December 31, 2024 and 2023, our investment securities portfolio was $151.6 million and $154.6 million, respectively, and represented approximately 3.7% and 3.8% of our total assets, respectively. Our available for sale investment portfolio included corporate bonds, US treasuries, US agency securities, SBA securities, state and political subdivisions, asset-backed securities, and mortgage-backed securities with a fair value of $132.1 million and amortized cost of $146.6 million for an unrealized loss of $14.5 million at December 31, 2024 compared to a fair value of $134.7 million and amortized cost of $149.1 million for an unrealized loss of $14.4 million at December 31, 2023.

Previous wording

Since loans typically provide higher interest yields than other types of interest-earning assets, a substantial percentage of our earning assets are invested in our loan portfolio. Average loans for the years ended December 31, 2023 and 2022 were $3.50 billion and $2.87 billion, respectively. Before allowance for credit losses, total loans outstanding at December 31, 2023 and 2022 were $3.60 billion and $3.27 billion, respectively.

Current wording

Since loans typically provide higher interest yields than other types of interest-earning assets, a substantial percentage of our earning assets are invested in our loan portfolio. Average loans for the years ended December 31, 2024 and 2023 were $3.63 billion and $3.50 billion, respectively. Before allowance for credit losses, total loans outstanding at December 31, 2024 and 2023 were $3.63 billion and $3.60 billion, respectively.

Previous wording

The principal component of our loan portfolio is loans secured by real estate mortgages. As of December 31, 2023, our loan portfolio included $3.05 billion, or 84.8%, of real estate loans, compared to $2.78 billion, or 84.8%, as of December 31, 2022. Most of our real estate loans are secured by residential or commercial property. We obtain a security interest in real estate, in addition to any other available collateral, in order to increase the likelihood of the ultimate repayment of the loan. Generally, we limit the loan-to-value ratio on loans to coincide with the appropriate regulatory guidelines. We attempt to maintain a relatively diversified loan portfolio to help reduce the risk inherent in concentration in certain types of collateral and business types. In addition to traditional residential mortgage loans, we issue second mortgage residential real estate loans and home equity lines of credit. Home equity lines of credit totaled $183.0 million as of December 31, 2023, of which approximately 46% were in a first lien position, while the remaining balance was second liens, compared to $179.3 million as of December 31, 2022, of which approximately 48% were in first lien positions and the remaining balance was in second liens. The average home equity loan had a balance of approximately $85,000 and a loan to value of approximately 73% as of December 31, 2023, compared to an average loan balance of $84,000 and a loan to value of approximately 73% as of December 31, 2022. Further, 0.8% and 0.6% of our total home equity lines of credit were over 30 days past due as of December 31, 2023 and 2022, respectively.

Current wording

31, 2023. Most of our real estate loans are secured by residential or commercial property. We obtain a security interest in real estate, in addition to any other available collateral, in order to increase the likelihood of the ultimate repayment of the loan. Generally, we limit the loan-to-value ratio on loans to coincide with the appropriate regulatory guidelines. We attempt to maintain a relatively diversified loan portfolio to help reduce the risk inherent in concentration in certain types of collateral and business types. In addition to traditional residential mortgage loans, we issue second mortgage residential real estate loans and home equity lines of credit. Home equity lines of credit totaled $204.9 million as of December 31, 2024, of which approximately 46% were in a first lien position, while the remaining balance was second liens, compared to $183.0 million as of December 31, 2023, of which approximately 46% were in first lien positions and the remaining balance was in second liens. The average home equity loan had a balance of approximately $92,000 and a loan to value of approximately 74% as of December 31, 2024, compared to an average loan balance of $85,000 and a loan to value of approximately 73% as of December 31, 2023. Further, 0.12% and 0.8% of our total home equity lines of credit were over 30 days past due as of December 31, 2024 and 2023, respectively.

Previous wording

Following is a summary of our loan composition for each of the last three years ended December 31, 2023. Of the $329.3 million in loan growth in 2023, $171.7 million of growth was in commercial related loans, while $157.6 million of growth was in consumer related loans, specifically consumer real estate mortgages which grew by $151.2 million during 2023. The increase in consumer real estate loans is related to our focus to continue to originate high quality 1-4 family consumer real estate loans. Our average consumer real estate loan currently has a principal balance of $469,000, a term of 23 years, and an average rate of 4.10%.

Current wording

Following is a summary of our loan composition for each of the last three years ended December 31, 2024. Of the $29.1 million in loan growth in 2024, $10.3 million of growth was in commercial related loans, while $18.9 million of growth was in consumer related loans, specifically consumer real estate mortgages which grew by $46.2 million and home equity lines of credit which grew by $21.9 million during 2024. Offsetting the growth in consumer real estate loans and home equity lines of credit was a $42.5 million decrease in consumer construction loans. The increase in consumer real estate loans is related to our focus to continue to originate high quality 1-4 family consumer real estate loans. Our average consumer real estate loan currently has a principal balance of $468,000, a term of 23 years, and an average rate of 4.36%.

Previous wording

Nonperforming assets include real estate acquired through foreclosure or deed taken in lieu of foreclosure and loans on nonaccrual status. The following table shows the nonperforming assets and the related percentage of nonperforming assets to total assets and gross loans for the five years ended December 31, 2023. Generally, a loan is placed on nonaccrual status when it becomes 90 days past due as to principal or interest, or when we believe, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that collection of the loan is doubtful. A payment of interest on a loan that is classified as nonaccrual is recognized as a reduction in principal when received. Our policy with respect to nonperforming loans requires the borrower to make a minimum of six consecutive payments in accordance with the loan terms before that loan can be placed back on accrual status. Further, the borrower must show capacity to continue performing into the future prior to restoration of accrual status.

Current wording

Nonperforming assets include real estate acquired through foreclosure or deed taken in lieu of foreclosure and loans on nonaccrual status. The following table shows the nonperforming assets and the related percentage of nonperforming assets to total assets and gross loans for the three years ended December 31, 2024. Generally, a loan is placed on nonaccrual status when it becomes 90 days past due as to principal or interest, or when we believe, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that collection of the loan is doubtful. A payment of interest on a loan that is classified as nonaccrual is recognized as a reduction in principal when received. Our policy with respect to nonperforming loans requires the borrower to make a minimum of six consecutive payments in accordance with the loan terms before that loan can be placed back on accrual status. Further, the borrower must show capacity to continue performing into the future prior to restoration of accrual status.

Previous wording

At December 31, 2023, nonperforming assets were $4.0 million, or 0.10% of total assets and 0.11% of gross loans, compared to $2.6 million, or 0.07% of total assets and 0.08% of gross loans at December 31, 2022. Nonaccrual loans increased $1.3 million to $4.0 million at December 31, 2023 from $2.6 million at December 31, 2022. During 2023, we added eight new loans totaling $2.0 million to nonaccrual, two loans totaling $283,000 were returned to accruing status, one loan totaling $30,000 was charged off, while paydowns on nonaccrual loans totaled $388,000. The amount of foregone interest income on the nonaccrual loans as of December 31, 2023 and 2022 was approximately $73,000 and $28,000, respectively, for the twelve-month periods.

Current wording

At December 31, 2024, nonperforming assets were $10.9 million, or 0.27% of total assets and 0.30% of gross loans, compared to $4.0 million, or 0.10% of total assets and 0.11% of gross loans at December 31, 2023. Nonaccrual loans increased $6.9 million during the twelve months ending December 31, 2024 due primarily to one commercial relationship related to the assisted living industry. The amount of foregone interest income on the nonaccrual loans as of December 31, 2024 and 2023 was approximately $200,000 and $73,000, respectively, for the twelve-month periods.

Previous wording

A significant portion, or 95.1%, of nonaccrual loans at December 31, 2023 were secured by real estate. We have evaluated the underlying collateral on these loans and believe that the collateral on these loans is sufficient to minimize future losses. As a result of this level of coverage on nonaccrual loans, we believe the allowance for credit losses of $40.7 million for the year ended December 31, 2023 is adequate.

Current wording

A significant portion, or 94.9%, of nonaccrual loans at December 31, 2024 were secured by real estate. We have evaluated the underlying collateral on these loans and believe that the collateral on these loans is sufficient to minimize future losses. As a result of this level of coverage on nonaccrual loans, we believe the allowance for credit losses of $39.9 million for the year ended December 31, 2024 is adequate.

Previous wording

In addition, approximately 85% of our loans are collateralized by real estate and approximately 96% of our individually evaluated loans are secured by real estate. Individual loan evaluations are generally performed for individually evaluated loans, which includes nonaccrual loans and certain loans not meeting the risk characteristics of the pool, whether on accrual or nonaccrual status. We use third party appraisers to determine the fair value of collateral dependent loans. Our current loan and appraisal policies require us to review individually evaluated loans at least annually and determine whether it is necessary to obtain an updated appraisal, either through a new external appraisal or an internal appraisal evaluation. We review each of our individually evaluated loans on a quarterly basis to determine the level of impairment. As of December 31, 2023, we do not have any individually evaluated loans carried at a value in excess of the appraised value. We typically charge-off a portion or create a specific reserve for individually evaluated loans when we do not expect repayment to occur as agreed upon under the original terms of the loan agreement.

Current wording

In addition, approximately 84% of our loans are collateralized by real estate and approximately 95% of our individually evaluated loans are secured by real estate. Individual loan evaluations are generally performed for individually evaluated loans, which includes nonaccrual loans and certain loans not meeting the risk characteristics of the pool, whether on accrual or nonaccrual status. We use third party appraisers to determine the fair value of collateral dependent loans. Our current loan and appraisal policies require us to review individually evaluated loans at least annually and determine whether it is necessary to obtain an updated appraisal, either through a new external appraisal or an internal appraisal evaluation. We review each of our individually evaluated loans on a quarterly basis to determine the level of impairment. As of December 31, 2024, we do not have any individually evaluated loans carried at a value in excess of the appraised value. We typically charge-off a portion or create a specific reserve for individually evaluated loans when we do not expect repayment to occur as agreed upon under the original terms of the loan agreement.

Previous wording

At December 31, 2023, individually evaluated loans totaled approximately $4.8 million for which $3.7 million of these loans have a reserve of approximately $688,000 allocated in the allowance. At December 31, 2022, individually evaluated loans totaled approximately $7.1 million for which $6.8 million of these loans had a reserve of approximately $1.3 million allocated in the allowance.

Current wording

At December 31, 2024, individually evaluated loans totaled approximately $12.2 million for which $4.5 million of these loans have a reserve of approximately $1.9 million allocated in the allowance. At December 31, 2023, individually evaluated loans totaled approximately $4.8 million for which $3.7 million of these loans had a reserve of approximately $688,000 allocated in the allowance.

Previous wording

We adopted Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”) effective January 1, 2023. The amendments in ASU 2022-02 eliminated the recognition and measurement of troubled debt restructurings and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty. During the 12 months ended December 31, 2023, we had two commercial business loans that were modified due to the borrowers experiencing financial difficulty. The amortized cost basis of the two loans was $319,000 at December 31, 2023.

Current wording

We adopted Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”) effective January 1, 2023. The amendments in ASU 2022-02 eliminated the recognition and measurement of troubled debt restructurings and enhanced disclosures for loan

Previous wording

At December 31, 2023 and December 31, 2022, the allowance for credit losses was $40.7 million and $38.6 million, respectively, or 1.13% and 1.18% of outstanding loans, respectively. The allowance for credit losses as a percentage of our outstanding loan portfolio decreased from the prior year primarily due to historically low loan charge-offs which factors into the expected loss rate on our current loan portfolio. In addition, our nonperforming assets increased to 0.10% compared to 0.07%, as a percentage of total assets, at December 31, 2023 and 2022, respectively. Our classified assets decreased to 4.25% of capital as of December 31, 2023, compared to 4.72% of capital as of December 31, 2022. See Note 4 to the Consolidated Financial Statements for more information on our allowance for credit losses.

Current wording

At December 31, 2024 and December 31, 2023, the allowance for credit losses was $39.9 million and $40.7 million, respectively, or 1.10% and 1.13% of outstanding loans, respectively. The allowance for credit losses as a percentage of our outstanding loan portfolio decreased from the prior year primarily due to historically low loan charge-offs which factors into the expected loss rate on our current loan portfolio. In addition, our nonperforming assets increased to 0.27% as a percentage of total assets at December 31, 2024 from 0.10%, as a percentage of total assets, at December 31, 2023, while our classified assets were 4.25% of capital as of December 31, 2024 and December 31, 2023. See Note 4 to the Consolidated Financial Statements for more information on our allowance for credit losses.

Previous wording

Our retail deposits represented $3.00 billion, or 88.8% of total deposits at December 31, 2023. At December 31, 2022, retail deposits represented $2.90 billion, or 92.5% of our total deposits. Brokered deposits were $379.4 million, representing 11.2% of our total deposits at December 31, 2023 and are included in time deposits greater than $250,000 in the following table. Our loan-to-deposit ratio was 107%, 104%, and 97% at December 31, 2023, 2022, and 2021, respectively.

Current wording

Our retail deposits represented $2.89 billion, or 84.0% of total deposits, at December 31, 2024 and $3.00 billion, or 88.8% of total deposits, at December 31, 2023. Brokered deposits were $550.3 million, representing 16.0% of our total deposits at December 31, 2024, and $379.4 million, or 12.6%, at December 31, 2023 and are included in time deposits greater than $250,000 in the following table. Our loan-to-deposit ratio was 106%, 107%, and 104% at December 31, 2024, 2023, and 2022, respectively.

Previous wording

During the 12 months ended December 31, 2023, our average transaction account balances increased by $197.0 million, or 7.8%, while our average time deposit balances increased by $330.1 million, or 109.4%. Core deposits exclude out-of-market deposits and time deposits of $250,000 or more and provide a relatively stable funding source for our loan portfolio and other earning assets. Our core deposits were $2.81 billion, $2.76 billion, and $2.48 billion at December 31, 2023, 2022 and 2021, respectively.

Current wording

During the 12 months ended December 31, 2024, our average transaction account balances decreased by $183.7 million, or 6.7%, while our average time deposit balances increased by $268.8 million, or 42.5%. Core deposits exclude out-of-market deposits and time deposits of $250,000 or more and provide a relatively stable funding source for our loan portfolio and other earning assets. Our core deposits were $2.66 billion, $2.81 billion, and $2.76 billion at December 31, 2024, 2023 and 2022, respectively.

Previous wording

Time deposits that meet or exceed the FDIC insurance limit of $250,000 at December 31, 2023 and December 31, 2022 were $568.1 million and $374.8 million, respectively, including wholesale deposits.

Current wording

Time deposits that meet or exceed the FDIC insurance limit of $250,000 at December 31, 2024 and December 31, 2023 were $774.0 million and $568.1 million, respectively, including wholesale deposits.

Previous wording

At December 31, 2023 and 2022, the Company estimates that it has approximately $1.3 billion and $1.4 billion, respectively, in uninsured deposits including related interest accrued and unpaid. Since it is not reasonably practicable to provide a precise measure of uninsured deposits, the amounts above are estimates and are based on the same methodologies and assumptions used for the bank’s regulatory reporting requirements by the FDIC for the Call Report.

Current wording

At December 31, 2024 and 2023, we estimate that we have approximately $1.3 billion, respectively, in uninsured deposits including related interest accrued and unpaid. Since it is not reasonably practicable to provide a precise measure of uninsured deposits, the amounts above are estimates and are based on the same methodologies and assumptions used for the Bank’s regulatory reporting requirements by the FDIC for the Call Report.

Previous wording

Liquidity is our ability to fund operations, to meet depositor withdrawals, to provide for customers’ credit needs, and to meet maturing obligations and existing commitments. Our liquidity principally depends on our cash flows from operating activities, investment in and maturity of assets, changes in balances of deposits and borrowings, and our ability to borrow funds. The bank failures in the first five months of 2023 exemplify the potential serious results of the unexpected inability of insured depository institutions to obtain needed liquidity to satisfy deposit withdrawal requests, including how quickly such requests can accelerate once uninsured depositors lose confidence in an institutions ability to satisfy its obligations to depositors. We seek to ensure our funding needs are met by maintaining a level of liquidity through asset and liability management. Liquidity management involves monitoring our sources and uses of funds in order to meet our day-to-day cash flow requirements while maximizing profits. Liquidity management is made more complicated because different balance sheet components are subject to varying degrees of management control. For example, the timing of maturities of our investment portfolio is fairly predictable and subject to a high degree of control at the time investment decisions are made. However, net deposit inflows and outflows are far less predictable and are not subject to the same degree of control.

Current wording

Liquidity is our ability to fund operations, to meet depositor withdrawals, to provide for customers’ credit needs, and to meet maturing obligations and existing commitments. Our liquidity principally depends on our cash flows from operating activities, investment in and maturity of assets, changes in balances of deposits and borrowings, and our ability to borrow funds. The several large bank failures across the United States in the first five months of 2023 exemplify the potential serious results of the unexpected inability of insured depository institutions to obtain needed liquidity to satisfy deposit withdrawal requests, including how quickly such requests can accelerate once uninsured depositors lose confidence in an institutions ability to satisfy its obligations to depositors. We seek to ensure our funding needs are met by maintaining a level of liquidity through asset and liability management. Liquidity management involves monitoring our sources and uses of funds in order to meet our day-to-day cash flow requirements while maximizing profits. Liquidity management is made more complicated because different balance sheet components are subject to varying degrees of management control. For example, the timing of maturities of our investment portfolio is fairly predictable and subject to a high degree

Previous wording

At December 31, 2023 and 2022, our cash and cash equivalents amounted to $156.2 million and $170.9 million, or 3.9% and 4.6% of total assets, respectively. Our investment securities at December 31, 2023 and 2022 amounted to $154.6 million and $104.2 million, or 3.8% and 2.8% of total assets, respectively. Investment securities traditionally provide a secondary source of liquidity since they can be converted into cash in a timely manner.

Current wording

At December 31, 2024 and 2023, our cash and cash equivalents amounted to $162.9 million and $156.2 million, or 4.0% and 3.9% of total assets, respectively. Our investment securities at December 31, 2024 and 2023 amounted to $151.6 million and $154.6 million, or 3.7% and 3.8% of total assets, respectively. Investment securities traditionally provide a secondary source of liquidity since they can be converted into cash in a timely manner.