SOUTHERN FIRST BANCSHARES INC

Previous wording

The following discussion reviews our results of operations for the three- and nine-month periods ended September 30, 2024 as compared to the three- and nine-month periods ended September 30, 2023 and assesses our financial condition as of September 30, 2024 as compared to December 31, 2023. You should read the following discussion and analysis in conjunction with the accompanying consolidated financial statements and the related notes and the consolidated financial statements and the related notes for the year ended December 31, 2023 included in our Annual Report on Form 10-K for that period. Results for the three- and nine-month periods ended September 30, 2024 are not necessarily indicative of the results for the year ending December 31, 2024 or any future period.

Current wording

The following discussion reviews our results of operations for the three month period ended March 31, 2025 as compared to the three month period ended March 31, 2024 and assesses our financial condition as of March 31, 2025 as compared to December 31, 2024. You should read the following discussion and analysis in conjunction with the accompanying consolidated financial statements and the related notes and the consolidated financial statements and the related notes for the year ended December 31, 2024 included in our Annual Report on Form 10-K for that period. Results for the three month period ended March 31, 2025 are not necessarily indicative of the results for the year ending December 31, 2025 or any future period.

Previous wording

This report contains statements which constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). Forward-looking

Current wording

This report contains statements which constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). Forward-

Previous wording

statements may relate to our financial condition, results of operations, plans, objectives, or future performance. These statements are based on many assumptions and estimates and are not guarantees of future performance. Our actual results may differ materially from those anticipated in any forward-looking statements, as they will depend on many factors about which we are unsure, including many factors which are beyond our control. The words “may,” “would,” “could,” “should,” “will,” “seek to,” “strive,” “focus,” “expect,” “anticipate,” “predict,” “project,” “potential,” “believe,” “continue,” “assume,” “intend,” “plan,” and “estimate,” as well as similar expressions, are meant to identify such forward-looking statements. Potential risks and uncertainties that could cause our actual results to differ from those anticipated in any forward-looking statements include, but are not limited to:

Current wording

looking statements may relate to our financial condition, results of operations, plans, objectives, or future performance. These statements are based on many assumptions and estimates and are not guarantees of future performance. Our actual results may differ materially from those anticipated in any forward-looking statements, as they will depend on many factors about which we are unsure, including many factors which are beyond our control. The words “may,” “would,” “could,” “should,” “will,” “seek to,” “strive,” “focus,” “expect,” “anticipate,” “predict,” “project,” “potential,” “believe,” “continue,” “assume,” “intend,” “plan,” and “estimate,” as well as similar expressions, are meant to identify such forward-looking statements. Potential risks and uncertainties that could cause our actual results to differ from those anticipated in any forward-looking statements include, but are not limited to:

Previous wording

At September 30, 2024, we had total assets of $4.17 billion, a 2.9% increase from total assets of $4.06 billion at December 31, 2023. The largest component of our total assets is loans which were $3.62 billion and $3.60 billion at September 30, 2024 and December 31, 2023, respectively. Our liabilities and shareholders’ equity at September 30, 2024 totaled $3.85 billion and $326.5 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 $3.52 billion and $3.38 billion at September 30, 2024 and December 31, 2023, respectively.

Current wording

At March 31, 2025, we had total assets of $4.28 billion, a 4.8% increase from total assets of $4.09 billion at December 31, 2024. The largest component of our total assets is loans which were $3.68 billion and $3.63 billion at March 31, 2025 and December 31, 2024, respectively. Our liabilities and shareholders’ equity at March 31, 2025 totaled $3.95 billion and $337.6 million, respectively, compared to liabilities of $3.76 billion and shareholders’ equity of $330.4 million at December 31, 2024. The principal component of our liabilities is deposits which were $3.62 billion and $3.44 billion at March 31, 2025 and December 31, 2024, respectively.

Previous wording

Our net income to common shareholders was $4.4 million and $4.1 million for the three months ended September 30, 2024 and 2023, respectively. Diluted earnings per share (“EPS”) was $0.54 for the third quarter of 2024 as compared to $0.51 for the same period in 2023. The increase in net income was primarily driven by an increase in

Current wording

Our net income to common shareholders was $5.3 million and $2.5 million for the three months ended March 31, 2025 and 2024, respectively. Diluted earnings per share (“EPS”) was $0.65 for the first quarter of 2025 as compared to $0.31 for the same period in 2024. The increase in net income was primarily driven by an increase in net interest income.

Previous wording

Our level of net interest income is determined by the level of earning assets and the management of our net interest margin. Our net interest income was $20.6 million for the third quarter of 2024, a 6.4% increase over net interest income of $19.3 million for the third quarter of 2023, driven primarily by a $3.7 million increase in interest income on our interest-earning assets, partially offset by a $2.5 million increase in interest expense. In addition, our net interest margin, on a tax-equivalent (TE) basis, was 2.08% for the third quarter of 2024 compared to 1.97% for the same period in 2023.

Current wording

Our level of net interest income is determined by the level of earning assets and the management of our net interest margin. Our net interest income was $23.4 million for the first quarter of 2025, a 25.4% increase over net interest income of $18.6 million for the first quarter of 2024, driven primarily by a $3.5 million decrease in interest expense and a $1.3 million increase in interest income on our interest-earning assets. In addition, our net interest margin, on a tax-equivalent (TE) basis, was 2.41% for the first quarter of 2025 compared to 1.94% for the same period in 2024.

Previous wording

We have included a number of tables to assist in our description of various measures of our financial performance. For example, the “Average Balances, Income and Expenses, Yields and Rates” table reflects the average balance of each category of our assets and liabilities as well as the yield we earned or the rate we paid with respect to each category during the three- and nine-month periods ended September 30, 2024 and 2023. A review of this table shows that our loans typically provide higher interest yields than do other types of interest-earning assets, which is why we direct a substantial percentage of our earning assets into our loan portfolio. Similarly, the “Rate/Volume Analysis” tables demonstrate the effect of changing interest rates and changing volume of assets and liabilities on our financial condition during the periods shown. We also track the sensitivity of our various categories of assets and liabilities to changes in interest rates, and we have included tables to illustrate our interest rate sensitivity with respect to interest-earning accounts and interest-bearing accounts.

Current wording

We have included a number of tables to assist in our description of various measures of our financial performance. For example, the “Average Balances, Income and Expenses, Yields and Rates” table reflects the average balance of each category of our assets and liabilities as well as the yield we earned or the rate we paid with respect to each category during the three month period ended March 31, 2025 and 2024. A review of this table shows that our loans typically provide higher interest yields than do other types of interest-earning assets, which is why we direct a substantial percentage of our earning assets into our loan portfolio. Similarly, the “Rate/Volume Analysis” tables demonstrate the effect of changing interest rates and changing volume of assets and liabilities on our financial condition during the periods shown. We also track the sensitivity of our various categories of assets and liabilities to changes in interest rates, and we have included tables to illustrate our interest rate sensitivity with respect to interest-earning accounts and interest-bearing accounts.

Previous wording

Our net interest margin (TE) increased 11 basis points to 2.08% during the third quarter of 2024, compared to the third quarter of 2023, primarily due to an increase in our interest-earning assets, as well as an increase in the yield on our interest-earning assets. Our average interest-earning assets grew by $40.1 million during the third quarter of 2024 from the prior year, while the average yield on these assets increased by 34 basis points to 5.18%. Our average interest-bearing liabilities grew by $29.0 million during the third quarter of 2024 from the prior year, while the rate on these liabilities increased 30 basis points to 4.02%.

Current wording

Our net interest margin (TE) increased 47 basis points to 2.41% during the first quarter of 2025, compared to the first quarter of 2024, primarily due to a decrease in the cost on our interest-bearing liabilities. Our average interest-bearing liabilities grew by $26.8 million during the first quarter of 2025 from the prior year, while the rate on these liabilities decreased 46 basis points to 3.52%. Our average interest-earning assets grew by $70.5 million during the first quarter of 2025 from the prior year, while the average yield on these assets increased by 10 basis points to 5.12%.

Previous wording

The increase in our average interest-bearing liabilities during the third quarter of 2024 resulted primarily from a $53.1 million increase in our interest-bearing deposits from the prior year, while the 30 basis point increase in rate on our interest-bearing liabilities was driven by a 31 basis point increase in deposit rates.

Current wording

The increase in our average interest-bearing liabilities during the first quarter of 2025 resulted primarily from a $39.6 million increase in our interest-bearing deposits from the prior year, while the 46 basis point decrease in rate on our interest-bearing liabilities was driven by a 50 basis point decrease in deposit rates.

Previous wording

The increase in average interest-earning assets for the third quarter of 2024 related primarily to an increase of $74.6 million in our average loan balances from the prior year, partially offset by a $23.6 million decrease in average federal funds sold and interest-bearing deposits with banks. The 34 basis point increase in yield on our interest-earning assets was driven by a 35 basis point increase in loan yield and a 24 basis point increase in yield on federal funds sold and interest-bearing deposits with banks.

Current wording

The increase in average interest-earning assets for the first quarter of 2025 related primarily to an increase of $50.9 million in our average loan balances from the prior year and a $13.4 million increase in average federal funds sold and interest-bearing deposits with banks. The 10 basis point increase in yield on our interest-earning assets was driven by a 15 basis point increase in loan yield, partially offset by a 108 basis point decrease in yield on federal funds sold and interest-bearing deposits with banks, resulting from the 100 basis point decrease in the Fed Funds rate during the latter part of 2024.

Previous wording

Our net interest spread was 1.16% for the third quarter of 2024 compared to 1.12% for the same period in 2023. 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 34 basis point increase in yield on our interest-earning assets was partially offset by a 30 basis point increase in the rate on our interest-bearing liabilities, resulting in a 4 basis point increase in our net interest spread for the 2024 period. We anticipate continued pressure on our net interest spread and net

Current wording

Our net interest spread was 1.60% for the first quarter of 2025 compared to 1.04% for the same period in 2024. 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 10 basis point increase in yield on our interest-earning assets, combined with the 46 basis point decrease in the rate on our interest-bearing liabilities, resulted in a 56 basis point increase

Previous wording

Net interest income, the largest component of our income, was $20.6 million for the third quarter of 2024 and $19.3 million for the third quarter of 2023, a $1.2 million, or 6.4%, increase year over year. The increase during 2024 was driven by a $3.7 million increase in interest income primarily due to higher yields on our loan portfolio and an increase in average loan balances. Partially offsetting the increase in interest income was a $2.5 million increase in interest expense which was primarily driven by higher rates on our interest-bearing deposits.

Current wording

Net interest income, the largest component of our income, was $23.4 million for the first quarter of 2025 and $18.6 million for the first quarter of 2024, a $4.7 million, or 25.4%, increase year over year. The increase during 2025 was driven by a $3.5 million decrease in interest expense primarily due to lower rates on our interest-bearing deposits as well as an increase in the average balance and yield on our loan portfolio.

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. We review the adequacy of the allowance for credit losses on a quarterly basis. Please see the discussion included in Note 4 – Loans and 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 included in Note 4 – Loans and 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. Based on the transition to the DCF methodology for calculating the ACL, management analyzed the risk level associated with factors such as the global, national and local economy, which includes the potential impact of tariffs, changes in the experience and depth of management, as well as changes in the risk ratings and volume and severity of past due loans in the consideration of the qualitative portion of the ACL.

Previous wording

Noninterest income was $3.2 million for the third quarter of 2024, a $425,000, or 15.5%, increase from noninterest income of $2.8 million for the third quarter of 2023. Mortgage banking income continues to be the largest component of our noninterest income at $1.5 million for the third quarter of 2024, an increase of $241,000, or 20.0%, over the prior year. The increase was driven by higher mortgage volume during the third quarter of 2024. Service fees on deposit accounts increased $99,000, or 27.8%, over the prior year. The increase was driven by fee income on our commercial credit cards and additional wire fee income.

Current wording

Noninterest income was $3.1 million for the first quarter of 2025, a $450,000, or 16.9%, increase from noninterest income of $2.7 million for the first quarter of 2024. Mortgage banking income continues to be the largest component of our noninterest income at $1.4 million for the first quarter of 2025, an increase of $260,000, or 22.3%, over the prior year. The increase was driven by higher mortgage volume during the first quarter of 2025. Service fees on deposit accounts increased $152,000, or 39.3%, over the prior year. The increase was driven by fee income on our commercial credit cards and additional wire fee income.

Previous wording

Noninterest expense was $18.0 million for the third quarter of 2024, a $737,000, or 4.3%, increase from noninterest expense of $17.3 million for the third quarter of 2023. The increase in noninterest expense was driven primarily by the following:

Current wording

Noninterest expense was $18.8 million for the first quarter of 2025, a $736,000, or 4.1%, increase from noninterest expense of $18.1 million for the first quarter of 2024. The increase in noninterest expense was driven primarily by the following:

Previous wording

Our efficiency ratio was 75.9% for the third quarter of 2024, compared to 78.3% for the third quarter of 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. The improvement during the 2024 period is due to the higher level of net interest income recorded.

Current wording

Our efficiency ratio was 71.1% for the first quarter of 2025, compared to 84.9% for the first quarter of 2024. 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 improvement during the 2025 period was driven primarily by the increase in net interest income.

Previous wording

We incurred income tax expense of $1.3 million and $1.2 million for the three months ended September 30, 2024 and 2023, respectively, and $3.1 million and $2.8 million for the nine months ended September 30, 2024 and 2023, respectively. Our effective tax rate was 23.9% and 23.4% for the nine months ended September 30, 2024 and 2023, respectively. The higher tax rate during the first nine months of 2024 was driven by the effect of equity compensation transactions during the period.

Current wording

We incurred income tax expense of $1.6 million and $862,000 for the three months ended March 31, 2025 and 2024, respectively. Our effective tax rate was 23.8% and 25.5% for the three months ended March 31, 2025 and 2024, respectively. The decrease in the effective tax rate was driven by the effect of equity compensation transactions in comparison to our income before income tax expense.

Previous wording

At September 30, 2024, the $154.2 million in our investment securities portfolio represented approximately 3.7% of our total assets. Our available for sale investment portfolio included corporate bonds, US treasuries, US government agency securities, state and political subdivisions, asset-backed securities and mortgage-backed securities with a fair value of $134.6 million and an amortized cost of $146.1 million, resulting in an unrealized loss of $11.5 million. At December 31, 2023, the $154.6 million in our investment securities portfolio represented approximately 3.8% of our total assets, including investment securities with a fair value of $134.7 million and an amortized cost of $149.1 million for an unrealized loss of $14.4 million. In addition, other investments, which include FHLB Stock and other nonmarketable investments, decreased $299,000 from December 31, 2023 to $19.6 million at September 30, 2024.

Current wording

At March 31, 2025, the $151.2 million in our investment securities portfolio represented approximately 3.5% of our total assets. Our available for sale investment portfolio included corporate bonds, US treasuries, US government agency securities, state and political subdivisions, asset-backed securities and mortgage-backed securities with a fair value of $131.3 million and an amortized cost of $144.0 million, resulting in an unrealized loss of $12.7 million. At December 31, 2024, the $151.6 million in our investment securities portfolio represented approximately 3.7% of our total assets, including investment securities with a fair value of $132.1 million and an amortized cost of $146.6 million for an unrealized loss of $14.5 million. In addition, other investments, which include FHLB Stock and other nonmarketable investments, increased $437,000 from December 31, 2024 to $19.9 million at March 31, 2025.

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, excluding mortgage loans held for sale, for the nine months ended September 30, 2024 and 2023 were $3.62 billion and $3.46 billion, respectively. Before the allowance for credit losses, total loans outstanding at September 30, 2024 and December 31, 2023 were $3.62 billion and $3.60 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, excluding mortgage loans held for sale, for the three months ended March 31, 2025 and 2024 were $3.67 billion and $3.62 billion, respectively. Before the allowance for credit losses, total loans outstanding at March 31, 2025 and December 31, 2024 were $3.68 billion and $3.63 billion, respectively.

Previous wording

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. Home equity lines of credit totaled $195.4 million as of September 30, 2024, of which approximately 45% were in a first lien position, while the remaining balance was second liens. At December 31, 2023, our home equity lines of credit totaled $183.0 million, of which approximately 46% were in first lien positions, while the remaining balance was in second liens. The average home equity loan had a balance of approximately $89,000 and a loan to value of 73% as of September 30, 2024, compared to an average loan balance of $85,000 and a loan to value of approximately 73% as of December 31, 2023. Further, 0.3% and 0.8% of our total home equity lines of credit were over 30 days past due as of September 30, 2024 and December 31, 2023, respectively.

Current wording

The principal component of our loan portfolio is loans secured by real estate mortgages. As of March 31, 2025, our loan portfolio included $3.08 billion, or 83.7%, of real estate loans, compared to $3.03 billion, or 83.5%, at December 31, 2024. 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. Home equity lines of credit totaled $223.1 million as of March 31, 2025, of which approximately 49% were in a first lien position, while the remaining balance was second liens. At December 31, 2024, our home equity lines of credit totaled $204.9 million, of which approximately 46% were in first lien positions, while the remaining balance was in second liens. The average home equity loan had a balance of approximately $100,000 and a loan to value of 73% as of March 31, 2025, compared to an average loan balance of $92,000 and a loan to value of approximately 74% as of December 31, 2024. Further, 0.42% and 0.12% of our total home equity lines of credit were over 30 days past due as of March 31, 2025 and December 31, 2024, respectively.

Previous wording

Following is a summary of our loan composition at September 30, 2024 and December 31, 2023. During the first nine months of 2024, our loan portfolio increased by $16.9 million, or 0.47%, primarily driven by a $15.5 million increase in consumer loans secured by real estate. Our consumer real estate portfolio grew by $49.9 million and includes high quality 1-4 family consumer real estate loans. Our average consumer real estate loan currently has a principal balance of $470,000, a term of 23 years, and an average rate of 4.33% as of September 30, 2024, compared to a principal balance of $469,000, a term of 23 years, and an average rate of 4.10% as of December 31, 2023.

Current wording

Following is a summary of our loan composition at March 31, 2025 and December 31, 2024. During the first three months of 2025, our loan portfolio increased by $52.2 million, or 1.44%, primarily driven by a $39.6 million increase in consumer loans secured by real estate. Our consumer real estate portfolio grew by $18.7 million and includes high quality 1-4 family consumer real estate loans. Our average consumer real estate loan currently has a principal balance of $472,000, a term of 23 years, and an average rate of 4.44% as of March 31, 2025, compared to a principal balance of $468,000, a term of 23 years, and an average rate of 4.36% as of December 31, 2024.

Previous wording

We have included the table below to provide additional clarity on our commercial real estate exposure. We have not identified any geographic concentrations within these collateral types. Our level of non-owner occupied commercial real estate represents 257.3% of the Bank’s total risk-based capital at September 30, 2024.

Current wording

We have included the table below to provide additional clarity on our commercial real estate exposure. We have not identified any geographic concentrations within these collateral types. Our level of non-owner occupied commercial real estate loans represents 245.9% of the Bank’s total risk-based capital at March 31, 2025. The table below presents the majority of our commercial real estate exposure in the commercial business, construction, and non-owner occupied segments.

Previous wording

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 contractual principal or interest on 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 and to show capacity to continue performing into the future before that loan can be placed back on accrual status. As of September 30, 2024 and December 31, 2023, we had no loans 90 days past due and still accruing.

Current wording

Nonperforming assets include real estate acquired through foreclosure or deed taken in lieu of foreclosure and loans on nonaccrual status. 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 contractual principal or interest on 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 and to show capacity to continue performing into

Previous wording

At September 30, 2024, nonperforming assets were $11.6 million, or 0.28% of total assets and 0.32% of gross loans. Comparatively, nonperforming assets were $4.0 million, or 0.10% of total assets and 0.11% of gross loans at December 31, 2023. Nonaccrual loans increased $7.6 million during the first nine months of 2024 due primarily to two relationships totaling $6.9 million that went on nonaccrual during the second quarter. The amount of foregone interest income on nonaccrual loans in the first nine months of 2024 and 2023 was $134,000 and $48,000, respectively.

Current wording

At March 31, 2025, nonperforming assets were $11.0 million, or 0.26% of total assets and 0.30% of gross loans. Comparatively, nonperforming assets were $10.9 million, or 0.27% of total assets and 0.30% of gross loans at December 31, 2024. The amount of foregone interest income on nonaccrual loans in the first quarter of 2025 and 2024 was $74,000 and $10,000, respectively.

Previous wording

At September 30, 2024 and December 31, 2023, the allowance for credit losses represented 346.78% and 1,026.58% of the total amount of nonperforming loans, respectively. A significant portion of the nonperforming loans at September 30, 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.

Current wording

At March 31, 2025 and December 31, 2024, the allowance for credit losses represented 378.09% and 366.94% of the total amount of nonperforming loans, respectively. A significant portion of the nonperforming loans at March 31, 2025 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.

Previous wording

In addition, at September 30, 2024, 84.4% of our loans were collateralized by real estate and 98.8% of our individually evaluated loans were secured by real estate. We utilize third party appraisers to determine the fair value of collateral dependent loans. Our current loan and appraisal policies require us to obtain updated appraisals on an annual basis, either through a new external appraisal or an appraisal evaluation. Individually evaluated loans are reviewed on a quarterly basis to determine the level of impairment. As of September 30, 2024, we did not have any individually evaluated real estate 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, at March 31, 2025, 83.7% of our loans were collateralized by real estate and 95.1% of our individually evaluated loans were secured by real estate. We utilize third party appraisers to determine the fair value of collateral dependent loans. Our current loan and appraisal policies require us to obtain updated appraisals on an annual basis, either through a new external appraisal or an appraisal evaluation. Individually evaluated loans are reviewed on a quarterly basis to determine the level of credit loss. As of March 31, 2025, we did not have any individually evaluated real estate 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 September 30, 2024, individually evaluated loans totaled $12.4 million with a reserve of approximately $1.6 million allocated in the allowance for credit losses. Comparatively, individually evaluated loans totaled $4.8 million at December 31, 2023 for which $3.7 million of these loans had a reserve of approximately $688,000 allocated in the allowance for credit losses.

Current wording

At March 31, 2025, individually evaluated loans totaled $12.1 million, for which $5.0 million of these loans had a reserve of approximately $1.8 million allocated in the allowance for credit losses. Comparatively, individually evaluated loans totaled $12.2 million at December 31, 2024 for which $4.5 million of these loans had a reserve of approximately $1.9 million allocated in the allowance for credit losses.

Previous wording

The allowance for credit losses was $40.2 million, representing 1.11% of outstanding loans and providing coverage of 346.78% of nonperforming loans at September 30, 2024 compared to $40.7 million, or 1.13% of outstanding loans and 1,026.55% of nonperforming loans at December 31, 2023. At September 30, 2023, the allowance for credit losses was $41.1 million, or 1.16% of outstanding loans and 953.25% of nonperforming loans.

Current wording

The allowance for credit losses was $40.7 million, representing 1.10% of outstanding loans and providing coverage of 378.09% of nonperforming loans at March 31, 2025 compared to $39.9 million, or 1.10% of outstanding loans and 366.94% of nonperforming loans at December 31, 2024. At March 31, 2024, the ACL was $40.4 million, or 1.11% of outstanding loans and 1,109.13% of nonperforming loans.

Previous wording

Our retail deposits represented $2.93 billion, or 83.3% of total deposits, while our wholesale deposits represented $588.5 million, or 16.7%, of total deposits at September 30, 2024. At December 31, 2023, retail deposits represented $3.00 billion, or 88.8%, of our total deposits and wholesale deposits were $379.4 million, representing 11.2% of our total deposits. Our loan-to-deposit ratio was 103% at September 30, 2024 and 107% at December 31, 2023.

Current wording

Our retail deposits represented $3.02 billion, or 83.4% of total deposits, while our wholesale deposits represented $600.5 million, or 16.6%, of total deposits at March 31, 2025. At December 31, 2024, retail deposits represented $2.89 billion, or 84.0%, of our total deposits and wholesale deposits were $550.3 million, representing 16.0% of our total deposits. Our loan-to-deposit ratio was 102% at March 31, 2025 and 106% at December 31, 2024.

Previous wording

Our primary focus is on increasing core deposits, which exclude out-of-market deposits and time deposits of $250,000 or more, in order to provide a relatively stable funding source for our loan portfolio and other earning assets. While our non-interest bearing deposits increased by $15.6 million from $674.2 million at December 31, 2023, our core deposits decreased to $2.71 billion from $2.81 billion at December 31, 2023. In addition, at September 30, 2024 and December 31, 2023, we estimate that we have approximately $1.3 billion, or 36.3% and 38.7% of total deposits, 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 by the FDIC for the Bank’s regulatory reporting requirements.

Current wording

Our primary focus is on increasing core deposits, which exclude out-of-market deposits and time deposits of $250,000 or more, in order to provide a relatively stable funding source for our loan portfolio and other earning assets. In addition, at March 31, 2025 and December 31, 2024, we estimate that we have approximately $1.4 billion and $1.3 billion, or 38.5% and 37.1% of total deposits, 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 by the FDIC for the Bank’s regulatory reporting requirements.

Previous wording

During the first nine months of 2024, our average transaction account balances decreased by $179.0 million, or 6.5%, from the prior year, while our average time deposit balances increased by $281.2 million, or 47.8%.

Current wording

During the first three months of 2025, our average transaction account balances decreased by $64.4 million, or 2.5%, from the prior year, while our average time deposit balances increased by $128.5 million, or 16.0%.

Previous wording

Time deposits that meet or exceed the FDIC insurance limit of $250,000 at September 30, 2024 and December 31, 2023 were $813.4 million and $568.1 million, respectively. We have a relationship with IntraFi Promontory Network, allowing us to provide deposit customers with access to aggregate FDIC insurance in amounts exceeding $250,000. This gives us the ability, as and when needed, to attract and retain large deposits from insurance conscious customers. With IntraFi, we have the option to keep deposits on balance sheet or sell them to other members of the network.

Current wording

Time deposits that meet or exceed the FDIC insurance limit of $250,000 at March 31, 2025 and December 31, 2024 were $800.7 million and $774.0 million, respectively. We have a relationship with IntraFi Promontory Network, allowing us to provide deposit customers with access to aggregate FDIC insurance in amounts exceeding $250,000. This gives us the ability, as and when needed, to attract and retain large deposits from insurance conscious customers. With IntraFi, we have the option to keep deposits on balance sheet or sell them to other members of the network.

Previous wording

At September 30, 2024, we had $240.0 million of convertible fixed rate FHLB advances with a weighted average rate of 3.74%, while at December 31, 2023, we had $275.0 million in FHLB Advances. Of the $275.0 million outstanding at December 31, 2023, $35.0 million was at a variable rate and $240.0 million was at fixed rates. At September 30, 2024, the $240.0 million was secured with approximately $1.24 billion of mortgage loans and $14.5 million of stock in the FHLB. At December 31, 2023, the $275.0 million was secured with approximately $1.25 billion of mortgage loans and $16.1 million of stock in the FHLB.

Current wording

At March 31, 2025 and December 31, 2024, we had $240.0 million of convertible fixed rate FHLB advances with a weighted average rate of 3.74%. At March 31, 2025, the $240.0 million was secured with approximately $1.28 billion of mortgage loans and $14.5 million of stock in the FHLB. At December 31, 2024, the $240.0 million was secured with approximately $1.29 billion of mortgage loans and $14.5 million of stock in the FHLB.

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 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 institution’s 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

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 institution’s 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.

Previous wording

At September 30, 2024 and December 31, 2023, our cash and cash equivalents totaled $260.6 million and $156.2 million, respectively, or 6.2% and 3.9% of total assets, respectively. Our investment securities at September 30, 2024 and December 31, 2023 amounted to $154.2 million and $154.6 million, respectively, 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.

Current wording

At March 31, 2025 and December 31, 2024, our cash and cash equivalents totaled $305.1 million and $162.9 million, respectively, or 7.1% and 4.0% of total assets, respectively. Our investment securities at March 31, 2025 and December 31, 2024 amounted to $151.2 million and $151.6 million, respectively, or 3.5% and 3.7% of total assets, respectively. Investment securities traditionally provide a secondary source of liquidity since they can be converted into cash in a timely manner.

Previous wording

Our ability to maintain and expand our deposit base and borrowing capabilities serves as our primary source of liquidity. We plan to meet our future cash needs through the liquidation of temporary investments, the generation of deposits, loan payoffs, and from additional borrowings. In addition, we will receive cash upon the maturity and sale of loans and the maturity of investment securities. We maintain six federal funds purchased lines of credit with correspondent banks totaling $128.5 million for which there were no borrowings against the lines of credit at September 30, 2024. We also had $172.8 million pledged and available with the Federal Reserve Discount Window at September 30, 2024. Comparatively, at December 31, 2023, we had $227.1 million pledged and available with the Federal Reserve Discount Window. At December 31, 2023, we had $13.0 million of marketable investment securities pledged in the Federal Reserve’s Bank Term Funding Program which closed on March 11, 2024.

Current wording

Our ability to maintain and expand our deposit base and borrowing capabilities serves as our primary source of liquidity. We plan to meet our future cash needs through the liquidation of temporary investments, the generation of deposits, loan payoffs, and from additional borrowings. In addition, we will receive cash upon the maturity and sale of loans and the maturity of investment securities. We maintain six federal funds purchased lines of credit with correspondent banks totaling $128.5 million for which there were no borrowings against the lines of credit at March 31, 2025. We also had $228.5 million pledged and available with the Federal Reserve Discount Window at March 31, 2025. Comparatively, at December 31, 2024, we had $210.8 million pledged and available with the Federal Reserve Discount Window.

Previous wording

We are also a member of the FHLB, from which applications for borrowings can be made. The FHLB requires that securities, qualifying mortgage loans, and stock of the FHLB owned by the Bank be pledged to secure any advances from the FHLB. The unused borrowing capacity currently available from the FHLB at September 30, 2024 was $716.7 million, based primarily on the Bank’s qualifying mortgages available to secure any future borrowings. However, we are able to pledge additional securities to the FHLB in order to increase our available borrowing capacity. In addition, at September 30, 2024 and December 31, 2023 we had $276.5 million and $388.3 million, respectively, of letters of credit outstanding with the FHLB to secure client deposits.

Current wording

We are also a member of the FHLB, from which applications for borrowings can be made. The FHLB requires that securities, qualifying mortgage loans, and stock of the FHLB owned by the Bank be pledged to secure any advances from the FHLB. The unused borrowing capacity currently available from the FHLB at March 31, 2025 was $774.7 million, based primarily on the Bank’s qualifying mortgages available to secure any future borrowings. However, we are able to pledge additional securities to the FHLB in order to increase our available borrowing capacity. In addition, at March 31, 2025 and December 31, 2024 we had $212.3 million and $205.4 million, respectively, of letters of credit outstanding with the FHLB to secure client deposits.

Previous wording

We have a relationship with IntraFi Promontory Network, allowing us to provide deposit customers with access to aggregate FDIC insurance in amounts exceeding $250,000. This gives us the ability, as and when needed, to attract and retain large deposits from insurance conscious customers. With IntraFi, we have the option to keep deposits on balance sheet or sell them to other members of the network. Additionally, subject to certain limits, the Bank can use IntraFi to purchase cost-effective funding without collateralization and in lieu of generating funds through traditional brokered CDs or the FHLB. In this manner, IntraFi can provide us with another funding option. Thus, it serves as a deposit-gathering tool and an additional liquidity management tool. Under the Economic Growth, Regulatory Relief, and Consumer Protection Act, a well capitalized bank with a CAMELS rating of 1 or 2 may hold reciprocal deposits up to the lesser of 20% of its total liabilities or $5 billion without those deposits being treated as brokered deposits.

Current wording

We have a relationship with IntraFi Promontory Network, allowing us to provide deposit customers with access to aggregate FDIC insurance in amounts exceeding $250,000. This gives us the ability, as and when needed, to attract and retain large deposits from insurance conscious customers. With IntraFi, we have the option to keep deposits on balance sheet or sell them to other members of the network. Additionally, subject to certain limits, the Bank can use IntraFi to purchase cost-effective funding without collateralization and in lieu of generating funds through

Previous wording

We also have a line of credit with another financial institution for $15.0 million, which was unused at September 30, 2024. The line of credit was issued on December 28, 2023 at an interest rate of the U.S. Prime Rate plus 0.25% and a maturity date of February 28, 2025.

Current wording

We also have a line of credit with another financial institution for $15.0 million, which was unused at March 31, 2025. The line of credit was renewed on February 28, 2025 at an interest rate of the U.S. Prime Rate plus 0.25% and matures on March 5, 2026.

Previous wording

On September 30, 2024, in conjunction with the semi-annual interest payment, we redeemed $11.5 million of our outstanding subordinated debt. Beginning September 30, 2024, the interest rate shall reset quarterly to an interest rate per annum equal to the Three-Month Term SOFR plus 340.8 basis points, payable quarterly in arrears.

Current wording

On September 30, 2024, in conjunction with the semi-annual interest payment, we redeemed $11.5 million of our outstanding subordinated debt. Beginning September 30, 2024, the interest rate reset to an interest rate per annum equal to the Three-Month Term SOFR plus 340.8 basis points (8.00% at March 31, 2025), payable quarterly in arrears.