SOUTHERN FIRST BANCSHARES INC

Previous wording

The following discussion reviews our results of operations for the three and six month periods ended June 30, 2025 as compared to the three and six month periods ended June 30, 2024 and assesses our financial condition as of June 30, 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 and six month periods ended June 30, 2025 are not necessarily indicative of the results for the year ending December 31, 2025 or any future period.

Current wording

The following discussion reviews our results of operations for the three and nine month periods ended September 30, 2025 as compared to the three and nine month periods ended September 30, 2024 and assesses our financial condition as of September 30, 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 and nine month periods ended September 30, 2025 are not necessarily indicative of the results for the year ending December 31, 2025 or any future period.

Previous wording

At June 30, 2025, we had total assets of $4.31 billion, a 5.4% increase from total assets of $4.09 billion at December 31, 2024. The largest component of our total assets is loans which were $3.75 billion and $3.63 billion at June 30, 2025 and December 31, 2024, respectively. Our liabilities and shareholders’ equity at June 30, 2025 totaled $3.96 billion and $345.5 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 $3.64 billion and $3.44 billion at June 30, 2025 and December 31, 2024, respectively.

Current wording

At September 30, 2025, we had total assets of $4.36 billion, a 6.6% increase from total assets of $4.09 billion at December 31, 2024. The largest component of our total assets is loans which were $3.79 billion and $3.63 billion at September 30, 2025 and December 31, 2024, respectively. Our liabilities and shareholders’ equity at September 30, 2025 totaled $4.00 billion and $356.3 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 $3.68 billion and $3.44 billion at September 30, 2025 and December 31, 2024, respectively.

Previous wording

Our net income to common shareholders was $6.6 million and $3.0 million for the three months ended June 30, 2025 and 2024, respectively. Diluted earnings per share (“EPS”) was $0.81 for the second quarter of 2025 as compared to $0.37 for the same period in 2024. The increase in net income was primarily driven by an increase in net interest income.

Current wording

Our net income to common shareholders was $8.7 million and $4.4 million for the three months ended September 30, 2025 and 2024, respectively. Diluted earnings per share (“EPS”) was $1.07 for the third quarter of 2025 as compared to $0.54 for the same period in 2024. The increase in net income was primarily driven by an increase in net interest income.

Previous wording

Our net income to common shareholders was $11.8 million and $5.5 million for the six months ended June 30, 2025 and 2024, respectively. Diluted earnings per share (“EPS”) was $1.46 for the second quarter of 2025 as compared to $0.68 for the same period in 2024. The increase in net income was primarily driven by an increase in net interest income.

Current wording

Our net income to common shareholders was $20.5 million and $9.9 million for the nine months ended September 30, 2025 and 2024, respectively. Diluted earnings per share (“EPS”) was $2.54 for the nine months ended September 30, 2025 as compared to $1.22 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 $25.3 million for the second quarter of 2025, a 29.5% increase over net interest income of $19.5 million for the second quarter of 2024, driven primarily by a $3.9 million decrease in interest expense on our interest-bearing deposits combined with a $1.8 million increase in interest income on our interest-earning assets. In addition, our net interest margin, on a tax-equivalent (TE) basis, was 2.50% for the second quarter of 2025 compared to 1.98% for the same period in 2024.

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 $27.5 million for the third quarter of 2025, a 33.7% increase over net interest income of $20.6 million for the third quarter of 2024, driven primarily by a $3.8 million increase in interest income on our interest-earning assets combined with a $3.1 million decrease in interest expense on our interest-bearing liabilities. In addition, our net interest margin, on a tax-equivalent (TE) basis, was 2.62% for the third quarter of 2025 compared to 2.08% 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 six month periods ended June 30, 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.

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 and nine month periods ended September 30, 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 by 52 basis points to 2.50% during the second quarter of 2025, compared to the second quarter of 2024, primarily due to a decrease in the cost of our interest-bearing liabilities resulting from the 100 basis point decrease in the Fed Funds rate during the latter part of 2024. Our average interest-bearing liabilities grew by only $15.8 million during the second quarter of 2025 from the prior year, while the rate on these liabilities decreased 55 basis points to 3.49%. Our average interest-earning assets grew by $79.1 million during the second quarter of 2025 from the prior year, while the average yield on these assets increased by six basis points to 5.18%.

Current wording

Our net interest margin (TE) increased by 54 basis points to 2.62% during the third quarter of 2025, compared to the third quarter of 2024, primarily due to a decrease in the cost of our interest-bearing liabilities resulting from the 125 basis point decrease in the Fed Funds rate during the last twelve months. Our average interest-bearing liabilities grew by $154.1 million during the third quarter of 2025 from the prior year, while the rate on these liabilities decreased 59 basis points to 3.43%. Our average interest-earning assets grew by $239.0 million during the third quarter of 2025 from the prior year, while the average yield on these assets increased by five basis points to 5.23%.

Previous wording

The increase in average interest-earning assets for the second quarter of 2025 related primarily to an increase of $78.5 million in our average loan balances from the prior year. The six basis point increase in yield on our interest-earning assets was driven by a 14 basis point increase in loan yield, offset by a 116 basis point decrease in yield on federal funds sold and interest-bearing deposits with banks, as a result of the decrease in the Fed Funds rate.

Current wording

The increase in average interest-earning assets for the third quarter of 2025 related primarily to an increase of $154.8 million in our average loan balances from the prior year. The five basis point increase in yield on our interest-earning assets was driven by a 14 basis point increase in loan yield, offset by a 115 basis point decrease in yield on federal funds sold and interest-bearing deposits with banks, as a result of the decrease in the Fed Funds rate.

Previous wording

Our net interest spread was 1.69% for the second quarter of 2025 compared to 1.08% 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 six basis point increase in yield on our interest-earning assets, combined with the 55 basis point decrease in the rate on our interest-bearing liabilities, resulted in a 61 basis point increase in our net interest spread for the 2025 period. We anticipate continued pressure on our net interest spread and net interest margin in future periods based on the competitive rate environment around our deposits.

Current wording

Our net interest spread was 1.80% for the third quarter of 2025 compared to 1.16% 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 five basis point increase in yield on our interest-earning assets, combined with the 59 basis point decrease in the rate on our interest-bearing liabilities, resulted in a 64 basis point increase in our net interest spread for the 2025 period. We seek to fund increased loan volumes by growing our core deposits,

Previous wording

During the first six months of 2025, our net interest margin (TE) increased by 51 basis points to 2.47%, compared to 1.96% for the first six months of 2024, primarily due to a decrease in the cost of our interest-bearing liabilities. Our average interest-bearing liabilities grew by only $21.6 million from prior year, while the rate of these liabilities decreased by 50 basis points to 3.51%. In addition, our average interest-earning assets grew by $55.4 million, while the average yield increased by 10 basis points to 5.18%.

Current wording

During the first nine months of 2025, our net interest margin (TE) increased by 51 basis points to 2.51%, compared to 2.00% for the first nine months of 2024, primarily due to a decrease in the cost of our interest-bearing liabilities. Our average interest-bearing liabilities grew by only $66.2 million from the prior year, while the rate of these liabilities decreased by 54 basis points to 3.48%. In addition, our average interest-earning assets grew by $130.4 million, while the average yield increased by seven basis points to 5.18%.

Previous wording

The increase in average interest-bearing liabilities for the first half of 2025 was driven by an increase in interest-bearing deposits of $33.7 million, partially offset by a $11.4 million decrease in subordinated debentures. The primary driver of our decrease in interest expense was a 56 basis point decrease in the cost of our interest-bearing deposits.

Current wording

The increase in average interest-bearing liabilities for the first nine months of 2025 was driven by an increase in interest-bearing deposits of $78.0 million, partially offset by a $11.4 million decrease in subordinated debentures. The primary driver of our decrease in interest expense was a 59 basis point decrease in the cost of our interest-bearing deposits.

Previous wording

The increase in average interest-earning assets for the first half of 2025 related primarily to a $64.8 million increase in our average loan balances. The increase in yield on our interest-earning assets was driven by a 14 basis point increase on our loan yield, partially offset by a 114 basis point decrease in the yield on Federal Funds sold and interest-bearing deposits with banks.

Current wording

The increase in average interest-earning assets for the first nine months of 2025 related primarily to a $95.2 million increase in our average loan balances. The increase in yield on our interest-earning assets was driven by a 14 basis point increase on our loan yield, partially offset by a 115 basis point decrease in the yield on Federal Funds sold and interest-bearing deposits with banks.

Previous wording

Our net interest spread was 1.67% for the first half of 2025 compared to 1.06% 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 50 basis point decrease in the rate on our interest-bearing liabilities, resulted in a 61 basis point increase in our net interest spread for 2025.

Current wording

Our net interest spread was 1.70% for the first nine months of 2025 compared to 1.09% 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 seven basis point increase in yield on our interest-earning assets, combined with the 54 basis point decrease in the rate on our interest-bearing liabilities, resulted in a 61 basis point increase in our net interest spread for 2025.

Previous wording

Net interest income, the largest component of our income, was $25.3 million for the second quarter of 2025 and $19.5 million for the second quarter of 2024, a $5.8 million, or 29.5%, increase year over year. The increase during 2025 was driven by a $4.0 million decrease in interest expense primarily due to lower rates on our interest-bearing deposits as well as higher yields on our loan portfolio.

Current wording

Net interest income, the largest component of our income, was $27.5 million for the third quarter of 2025 and $20.6 million for the third quarter of 2024, a $6.9 million, or 33.7%, increase year over year. The increase during 2025 was driven by a $3.8 million increase in interest income primarily due to an increase in average loan balances and higher yields on our loan portfolio, as well as a $3.1 million decrease in interest expense primarily due to lower rates on our interest-bearing deposits.

Previous wording

Net interest income for the first half of 2025 was $48.7 million compared to $38.2 million for 2024, a $10.5 million, or 27.5%, increase. The increase in net interest income during 2025 was driven by a $7.5 million decrease in interest expense, related primarily to lower rates on our interest-bearing deposits as well as an increase in average balance and yield on our loan portfolio.

Current wording

Net interest income for the first nine months of 2025 was $76.2 million compared to $58.8 million for 2024, a $17.4 million, or 29.7%, increase. The increase in net interest income during 2025 was driven by a $10.6 million decrease in interest expense, related primarily to lower rates on our interest-bearing deposits, as well as an increase in the 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

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. During the quarter ended September 30, 2025, the risk weightings associated with certain qualitative factors were revised based on new information reflecting the current economic and market environment. The result of these changes was immaterial as it relates to the allowance for credit loss balance.

Previous wording

We recorded a provision expense of $1.5 million and $325,000 for the six months ended June 30, 2025 and June 30, 2024, respectively. The $1.5 million provision expense for the first half of 2025 included $1.4 provision for credit losses and a $50,000 reserve for unfunded commitments. The increase in provision expense was primarily due to loan growth during the first half of the year. The $325,000 provision expense for the first half of 2024 included $750,000 provision for credit losses and a $425,000 reversal for unfunded commitments.

Current wording

We recorded a provision expense of $2.3 million and $325,000 for the nine months ended September 30, 2025 and September 30, 2024, respectively. The $2.3 million provision expense for the first nine months of 2025 included $1.9 provision for credit losses and a $400,000 reserve for unfunded commitments. The increase in provision expense was primarily due to loan growth and changes in qualitative factors related to delinquency status, risk migration and collateral values on commercial real estate during the first nine months of the year. The $325,000 provision expense for the first nine months of 2024 included a $750,000 provision for credit losses and a $425,000 reversal for unfunded commitments.

Previous wording

Noninterest income was $3.3 million for the second quarter of 2025, a $189,000, or 5.4%, decrease from noninterest income of $3.5 million for the second quarter of 2024. Mortgage banking income continues to be the largest component of our noninterest income at $1.6 million for the second quarter of 2025, a decrease of $354,000, or 18.4%, over the prior year which was driven by lower mortgage volume during the second quarter of 2025. Service fees on deposit accounts increased $151,000, or 36.3%, over the prior year, driven by fee income on our commercial credit cards and additional wire fee income.

Current wording

Noninterest income was $3.6 million for the third quarter of 2025, a $425,000, or 13.4%, increase from noninterest income of $3.2 million for the third quarter of 2024. Mortgage banking income continues to be the largest component of our noninterest income at $1.6 million for the third quarter of 2025, an increase of $151,000, or 10.4%, over the prior year. Service fees on deposit accounts increased $170,000, or 37.4%, over the prior year, driven by fee income on our commercial credit cards and additional wire fee income.

Previous wording

Noninterest income was $6.4 million for the first half of 2025, a $260,000, or 4.2%, increase from noninterest income of $6.2 million for the second half of 2024. Service fees on deposit account increased by $296,000, or 36.5% over the prior year, while mortgage banking income decreased by $94,000, or 3.0%, from the first half of 2024.

Current wording

Noninterest income was $10.0 million for the first nine months of 2025, a $684,000, or 7.3%, increase from noninterest income of $9.4 million for the first nine months of 2024. Service fees on deposit account increased by $466,000, or 36.8% over the prior year and income from bank owned life insurance increased by $92,000, or 7.9%, from the first nine months of 2024.

Previous wording

Noninterest expense was $19.3 million for the second quarter of 2025, a $693,000, or 3.7%, increase from noninterest expense of $18.6 million for the second quarter of 2024. The increase in noninterest expense was driven primarily by the following:

Current wording

Noninterest expense was $18.9 million for the third quarter of 2025, a $907,000, or 5.0%, increase from noninterest expense of $18.0 million for the third quarter of 2024. The increase in noninterest expense was driven primarily by the following:

Previous wording

Partially offsetting the above increases was a decrease in insurance expense of $55,000, or 5.7% due to lower FDIC insurance premiums.

Current wording

Partially offsetting the above increases was a decrease in occupancy of $148,000, or 5.7% due to lower depreciation expense as several larger items were fully depreciated during the third quarter of 2025.

Previous wording

Noninterest expense was $38.2 million for the first half of 2025, a $1.4 million, or 3.9%, increase from noninterest expense of $36.7 million for the first half of 2024. The increase in noninterest expense was driven primarily by the following:

Current wording

Noninterest expense was $57.1 million for the first nine months of 2025, a $2.3 million, or 4.3%, increase from noninterest expense of $54.8 million for the first nine months of 2024. The increase in noninterest expense was driven primarily by the following:

Previous wording

Our efficiency ratio was 67.5% for the second quarter of 2025, compared to 80.9% for the second 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.

Current wording

Our efficiency ratio was 66.2% for the third quarter of 2025, compared to 75.9% for the third 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 $2.0 million and $909,000 for the three months ended June 30, 2025 and 2024, respectively, and $3.7 million and $1.8 million for the six months ended June 30, 2025 and 2024. Our effective tax rate was 23.6% and 24.3% for the six months ended June 30, 2025 and 2024, respectively. The decrease in the

Current wording

We incurred income tax expense of $2.7 million and $1.3 million for the three months ended September 30, 2025 and 2024, respectively, and $6.3 million and $3.1 million for the nine months ended September 30, 2025 and 2024. Our effective tax rate was 23.6% and 23.9% for the nine months ended September 30, 2025 and 2024, respectively.

Previous wording

effective tax rate was driven by the effect of equity compensation transactions in comparison to our income before income tax expense.

Current wording

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 June 30, 2025, the $148.8 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 $128.9 million and an amortized cost of $141.0 million, resulting in an unrealized loss of $12.2 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 $416,000 from December 31, 2024 to $19.9 million at June 30, 2025.

Current wording

At September 30, 2025, the $151.1 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 $131.0 million and an amortized cost of $141.7 million, resulting in an unrealized loss of $10.7 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 $576,000 from December 31, 2024 to $20.1 million at September 30, 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 six months ended June 30, 2025 and 2024 were $3.69 billion and $3.63 billion, respectively. Before the allowance for credit losses, total loans outstanding at June 30, 2025 and December 31, 2024 were $3.75 billion and $3.63 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 nine months ended September 30, 2025 and 2024 were $3.72 billion and $3.62 billion, respectively. Before the allowance for credit losses, total loans outstanding at September 30, 2025 and December 31, 2024 were $3.79 billion and $3.63 billion, respectively.

Previous wording

The principal component of our loan portfolio is loans secured by real estate mortgages. As of June 30, 2025, our loan portfolio included $3.12 billion, or 83.2%, 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 $234.6 million as of June 30, 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 $104,000 and a loan to value of 72% as of June 30, 2025, compared to an average loan balance of $92,000 and a loan to value of approximately 74% as of December 31, 2024. Further, 0.49% and 0.12% of our total home equity lines of credit were over 30 days past due as of June 30, 2025 and December 31, 2024, respectively.

Current wording

The principal component of our loan portfolio is loans secured by real estate mortgages. As of September 30, 2025, our loan portfolio included $3.14 billion, or 83.0%, 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 $240.0 million as of September 30, 2025, of which approximately 48% 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 $105,000 and a loan to value of 73% as of September 30, 2025, compared to an average loan balance of $92,000 and a loan to value of approximately 74% as of December 31, 2024. Further, 0.59% and 0.12% of our total home equity lines of credit were over 30 days past due as of September 30, 2025 and December 31, 2024, respectively.

Previous wording

Following is a summary of our loan composition at June 30, 2025 and December 31, 2024. During the first six months of 2025, our loan portfolio increased by $115.1 million, or 6.39% annualized, primarily driven by a $69.6 million increase in consumer loans secured by real estate and a $33.5 million increase in commercial business loans. Our consumer real estate portfolio grew by $35.6 million and includes high quality 1-4 family consumer real estate loans. Our average consumer real estate loan currently has a principal balance of $476,000, a term of 23 years, and an average rate of 4.51% as of June 30, 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.

Current wording

Following is a summary of our loan composition at September 30, 2025 and December 31, 2024. During the first nine months of 2025, our loan portfolio increased by $157.3 million, or 4.33% annualized, primarily driven by a $71.1 million increase in consumer loans secured by real estate and a $53.8 million increase in commercial owner occupied loans. In addition, commercial business loans increased by $48.3 million during the first nine months of 2025. Our consumer real estate portfolio grew by $31.1 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 24 years, and an average rate of 4.54% as of September 30, 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 loans represents 241.1% of the Bank’s total risk-based capital at June 30, 2025. The table below presents the majority of our commercial real estate exposure by collateral type which are included in the commercial business, construction, and non-owner occupied segments.

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 237.4% of the Bank’s total risk-based capital at September 30, 2025. The table below presents the majority of our commercial real estate exposure by collateral type which are included in the commercial business, construction, and non-owner occupied segments.

Previous 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 the future before that loan can be placed back on accrual status. As of June 30, 2025 we had one loan that was

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 June 30, 2025, nonperforming assets were $11.7 million, or 0.27% of total assets and 0.31% 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 second quarter of 2025 and 2024 was $126,000 and $13,000, respectively.

Current wording

At September 30, 2025, nonperforming assets were $11.7 million, or 0.27% of total assets and 0.31% 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 third quarter of 2025 and 2024 was $28,000 and $111,000, respectively.

Previous wording

At June 30, 2025 and December 31, 2024, the allowance for credit losses represented 362.35% and 366.94% of the total amount of nonperforming loans, respectively. A significant portion of the nonperforming loans at June 30, 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.

Current wording

At September 30, 2025 and December 31, 2024, the allowance for credit losses represented 364.50% and 366.94% of the total amount of nonperforming loans, respectively. A significant portion of the nonperforming loans at September 30, 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 June 30, 2025, 83.2% of our loans were collateralized by real estate and 95.8% 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 credit loss. As of June 30, 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.

Current wording

In addition, at September 30, 2025, 83.0% of our loans were collateralized by real estate and 99.8% 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 credit loss. As of September 30, 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 June 30, 2025, individually evaluated loans totaled $12.7 million, for which $4.8 million of these loans had a reserve of approximately $1.7 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.

Current wording

At September 30, 2025, individually evaluated loans totaled $12.8 million, for which $4.3 million of these loans had a reserve of approximately $1.2 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 $41.3 million, representing 1.10% of outstanding loans and providing coverage of 362.35% of nonperforming loans at June 30, 2025 compared to $39.9 million, or 1.10% of outstanding loans and 366.94% of nonperforming loans at December 31, 2024. At June 30, 2024, the ACL was $40.2 million, or 1.11% of outstanding loans and 357.95% of nonperforming loans.

Current wording

The allowance for credit losses was $41.8 million, representing 1.10% of outstanding loans and providing coverage of 364.50% of nonperforming loans at September 30, 2025 compared to $39.9 million, or 1.10% of outstanding loans and 366.94% of nonperforming loans at December 31, 2024. At September 30, 2024, the ACL was $40.2 million, or 1.11% of outstanding loans and 346.78% of nonperforming loans.

Previous wording

Our retail deposits represented $3.08 billion, or 84.6% of total deposits, while our wholesale deposits represented $560.7 million, or 15.4%, of total deposits at June 30, 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 103% at June 30, 2025 and 106% at December 31, 2024.

Current wording

Our retail deposits represented $3.11 billion, or 84.6% of total deposits, while our wholesale deposits represented $568.0 million, or 15.4%, of total deposits at September 30, 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 103% at September 30, 2025 and 106% at December 31, 2024.

Previous wording

During the first six months of 2025, our average transaction account balances decreased by $26.1 million, or 1.0%, from the prior year, while our average time deposit balances increased by $86.3 million, or 10.2%.

Current wording

During the first nine months of 2025, our average transaction account balances increased by $30.7 million, or 1.2%, from the prior year, while our average time deposit balances increased by $82.5 million, or 9.5%.

Previous wording

Time deposits that meet or exceed the FDIC insurance limit of $250,000 at June 30, 2025 and December 31, 2024 were $769.1 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.

Current wording

Time deposits that meet or exceed the FDIC insurance limit of $250,000 at September 30, 2025 and December 31, 2024 were $791.8 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 June 30, 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 June 30, 2025, the $240.0 million was secured with approximately $1.32 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.

Current wording

At September 30, 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 September 30, 2025, the $240.0 million was secured with approximately $1.37 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.