SOUTHERN FIRST BANCSHARES INC

Previous wording

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

Current wording

At December 31, 2025, we had total assets of $4.40 billion, an increase from total assets of $4.09 billion at December 31, 2024. The largest components of our total assets are loans, which were $3.85 billion and $3.63 billion at December 31, 2025 and 2024, respectively. Our liabilities and shareholders’ equity at December 31, 2025 totaled $4.03 billion and $368.7 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 $3.72 billion and $3.44 billion at December 31, 2025 and 2024, respectively.

Previous wording

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

Current wording

Our net income available to common shareholders for the years ended December 31, 2025 and 2024 was $30.4 million and $15.5 million, or diluted earnings per share (“EPS”) of $3.72 and $1.91 for the years ended December 31, 2025 and 2024, respectively. The increase in net income resulted primarily from an increase in net interest income. In addition, our net income available to common shareholders was $13.4 million, or EPS of $1.66 for the year ended December 31, 2023.

Previous wording

Certain accounting policies inherently involve a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported, which could have a material impact on the carrying values of our assets and liabilities and our results of operations. We consider these accounting policies and estimates to be critical accounting policies. We have identified the determination of the allowance for credit losses, the fair valuation of financial instruments and income taxes to be the accounting areas that require the most subjective or complex judgments and, as such, could be most subject to revision as new or additional information becomes available or circumstances change, including overall changes in the economic climate and/or market interest rates. Therefore, management has reviewed and approved these critical accounting policies and estimates and has discussed these policies with the Company’s Audit Committee.

Current wording

Certain accounting policies inherently involve a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported, which could have a material impact on the carrying values of our assets and liabilities and our results of operations. We consider these accounting policies and estimates to be critical. We have identified the determination of the allowance for credit losses, the fair valuation of financial instruments and income taxes to be the accounting areas that require the most subjective or complex judgments and, as such, could be most subject to revision as new or additional information becomes available or circumstances change, including overall changes in the economic climate and/or market interest rates. Therefore, management has reviewed and approved these critical accounting policies and estimates and has discussed these policies with the Company’s Audit Committee.

Previous wording

There are many factors affecting the ACL; some are quantitative while others require qualitative judgment. Although management believes its process for determining the allowance adequately considers all the potential factors that could potentially result in credit losses, the process includes subjective elements and is susceptible to significant change. To the extent actual outcomes are worse than management estimates, additional provision for credit losses could be required that could adversely affect our earnings or financial position in future periods.

Current wording

There are many factors affecting the ACL; some are quantitative while others require qualitative judgment. Although management believes its process for determining the allowance adequately considers all the potential factors that could result in credit losses, the process includes subjective elements and is susceptible to significant change. Changes in economic conditions, portfolio composition, collateral values, and forecast assumptions could materially affect the ACL. To the extent actual outcomes are worse than management estimates, additional provision for credit losses could be required that could adversely affect our earnings or financial position in future periods. During 2025, we transitioned to the discounted cash flow “DCF” methodology for calculating the ACL, and management analyzed the risk level associated with factors such as changes in lending policies; international, national, regional, and local conditions; volume and terms of loans; experience and depth of management; volume and severity of past due loans; concentrations of credit; and loan review results in the consideration of the qualitative portion of the ACL.

Previous wording

The fair value hierarchy requires use of observable inputs first and subsequently unobservable inputs when observable inputs are not available. Our fair value measurements involve various valuation techniques and models, which involve inputs that are observable (Level 1 or Level 2 in fair value hierarchy), when available. The level of judgment required to determine fair value is dependent on the methods or techniques used in the process. Assets and liabilities that are measured at fair value using quoted prices in active markets (Level 1) do not require significant judgment while the valuation of assets and liabilities when quoted market prices are not available (Levels 2 and 3) may require significant

Current wording

The fair value hierarchy requires use of observable inputs first and subsequently unobservable inputs when observable inputs are not available. Our fair value measurements involve various valuation techniques and models, which involve inputs that are observable (Level 1 or Level 2 in fair value hierarchy), when available. The level of judgment required to determine fair value is dependent on the methods or techniques used in the process. Assets and liabilities that are measured at fair value using quoted prices in active markets (Level 1) do not require significant judgment while the valuation of assets and liabilities when quoted market prices are not available (Levels 2 and 3) may require significant judgment to assess whether observable or unobservable inputs for those assets and liabilities provide reasonable determination of fair value. See Note 12 to the Consolidated Financial Statements for additional information regarding the fair values measured at each level of the fair value hierarchy, additional discussion regarding fair value measurements, and a brief description of how fair value is determined for categories that have unobservable inputs.

Previous wording

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

Current wording

Our level of net interest income is determined by the level of earning assets and the management of our net interest margin. For the years ended December 31, 2025, 2024, and 2023, our net interest income was $105.0 million, $81.2 million, and $77.7 million, respectively. The $23.7 million, or 29.2%, increase in net interest income during 2025, compared to 2024, was driven by a $13.5 million decrease in interest expense and a $10.3 million increase in interest income. During 2024, our net interest income increased $3.6 million, or 4.6%, compared to 2023. This increase in net interest income was driven by a $23.6 million increase in interest income, partially offset by a $20.0 million increase in interest expense during the 2024 period.

Previous wording

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

Current wording

Interest income for the years ended December 31, 2025, 2024, and 2023 was $211.5 million, $201.2 million, and $177.6 million, respectively. A significant portion of our interest income relates to our strategy to maintain a large portion of our assets in higher earning loans compared to lower yielding investments and federal funds sold. As such, 93.7% of our interest income related to interest on loans during 2025, compared to 92.9% during 2024 and 93.5% during 2023. Also, included in interest income on loans was $1.7 million related to the net amortization of loan fees and capitalized loan origination costs for the year ended December 31, 2025, compared to $1.6 million and $1.7 million for the years ended December 31, 2024 and 2023, respectively. The increase in interest income during 2025 was driven by an increase in average loan balances, combined with an increase in loan yield.

Previous wording

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

Current wording

Interest expense was $106.5 million, $120.0 million, and $99.9 million for the years ended December 31, 2025, 2024, and 2023, respectively. Interest expense on deposits for 2025 represented 89.8% of total interest expense, compared to 90.7% for 2024, and 91.4% for 2023, while interest expense on borrowings represented the remaining portion of total interest expense. The decrease in interest expense on deposits during 2025 was driven primarily by repricing of our deposit portfolio in response to declining market interest rates, including reductions in the Federal Reserve’s target range for the federal funds rate during 2024 and 2025.

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 shows 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 2024, 2023, and 2022. Similarly, the “Rate/Volume Analysis” table demonstrates 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 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 shows 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 2025, 2024, and 2023. Similarly, the “Rate/Volume Analysis” table demonstrates 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

Previous wording

The following table sets forth information related to our average balance sheet, average yields on assets, and average costs of liabilities at December 31, 2024, 2023 and 2022. We derived these yields or costs by dividing income or expense by the average balance of the corresponding assets or liabilities. We derived average balances from the daily balances throughout the periods indicated. During the same periods, we had no securities purchased with agreements to resell. All investments were owned at an original maturity of over one year. Nonaccrual loans are included in earning assets in the following tables. Loan yields have been reduced to reflect the negative impact on our earnings of loans on nonaccrual status. The net of capitalized loan costs and fees are amortized into interest income on loans.

Current wording

The following table sets forth information related to our average balance sheet, average yields on assets, and average costs of liabilities for the years ended December 31, 2025, 2024 and 2023. We derived these yields or costs by dividing income or expense by the average balance of the corresponding assets or liabilities. We derived average balances from the daily balances throughout the periods indicated. During the same periods, we had no securities purchased with agreements to resell. All investments were purchased at an original maturity of over one year. Nonaccrual loans are included in earning assets in the following tables. Loan yields have been reduced to reflect the negative impact on our earnings of loans on nonaccrual status. The net of capitalized loan costs and fees are amortized into interest income on loans.

Previous wording

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

Current wording

Our net interest margin, on a tax-equivalent basis (TE), was 2.57%, 2.06% and 2.07% for the years ended December 31, 2025, 2024 and 2023, respectively. During 2025, our net interest margin increased 51 basis points, compared to 2024, driven primarily by a decrease in rates paid on our interest-bearing liabilities, combined with an increase in our average interest-earning assets. During 2024, our net interest margin was relatively stable, compared to 2023 as both our interest earning assets and interest-bearing liabilities increased similarly in volume and rates during the year.

Previous wording

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

Current wording

Our average interest-earning assets increased by $152.4 million during the year ended December 31, 2025, compared to 2024, while the related yield on our interest-earning assets increased by six basis points. The increase in average interest-earning assets was driven by a $124.1 million increase in average loan balances, while the increase in yield on our interest earning assets was driven by a 13 basis point increase in the yield on our loan portfolio.

Previous wording

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

Current wording

Our average interest-bearing liabilities increased by $81.7 million during 2025 while the cost of our interest-bearing liabilities decreased by 54 basis points. The increase in average interest-bearing liabilities was driven primarily by a $90.5 million increase in average interest-bearing deposits. The decrease in cost of our interest-bearing liabilities was primarily driven by a 58 basis point decrease in the cost of our interest-bearing deposits.

Previous wording

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

Current wording

During the year ended December 31, 2024, our average interest-earning assets increased by $175.0 million, compared to 2023, while the yield on our interest-earning assets increased by 39 basis points. The increase in average interest-earning assets was driven primarily by a $131.9 million increase in average loan balances, while the yield on our interest earning assets was driven by a 40 basis point increase in the yield on our loan portfolio. During 2024, our average interest-bearing liabilities increased by $193.2 million, compared to 2023, while the cost of our interest-bearing liabilities increased by 44 basis points.

Previous wording

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

Current wording

Our net interest spread was 1.76% for the year ended December 31, 2025, compared to 1.16% for the same period in 2024 and 1.21% for 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 six basis point increase in our interest-earning assets, combined with the 54 basis point decrease in the cost of our interest-bearing liabilities, resulted in a 60 basis point increase in our net interest spread for the 2025 period. We seek to fund increased loan volumes by growing our core deposits, but, subject to internal policy limits on the amount of wholesale funding we may maintain, will utilize wholesale funding to fund shortfalls, if any, or provide additional liquidity. To the extent that our dependence on wholesale funding sources increases, our net interest margin would likely be negatively impacted as we may not be able to reduce the rates we pay on these deposits as quickly as we can on core deposits as rates have and may continue to decline. We continue to deploy various asset liability management strategies to manage our risk to interest rate fluctuations.

Previous wording

Net interest income can be analyzed in terms of the impact of changing interest rates and changing volume. The following tables set forth the effect which the varying levels of interest-earning assets and interest-bearing liabilities and the applicable rates have had on changes in net interest income for the periods presented.

Current wording

Net interest income can be analyzed in terms of the impact of changing interest rates and changing volume. The following table sets forth the effect which the varying levels of interest-earning assets and interest-bearing liabilities and the applicable rates have had on changes in net interest income for the periods presented. The rate/volume variance has been allocated between the rate and volume variances based on the relative magnitude of the change in each, with the remaining interaction reflected in the rate/volume column.

Previous wording

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

Current wording

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

Previous wording

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

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

Previous wording

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

Current wording

There was a $3.0 million provision for credit losses for the year ended December 31, 2025, compared to a provision of $125,000 and $1.3 million for the years ended December 31, 2024, and 2023, respectively. The $3.0 million provision during 2025 included a provision of $2.5 million for credit losses and a $500,000 provision for unfunded commitments. The $2.5 million provision was driven primarily by $213.4 million in loan growth during the year combined with slightly lower expected loss rates due to historically low charge-offs, while the $500,000 provision for unfunded commitments was driven by a $124.5 million increase in unfunded commitments combined with lower historical loss rates. The $125,000 provision during 2024 included a $500,000 provision for credit losses and a reversal of $375,000 in the provision for unfunded commitments. The $500,000 provision for credit losses was driven primarily by $29.1 million in loan growth during the year combined with slightly lower expected loss rates due to historically low charge-offs, while the $375,000 reversal was driven by a $5.5 million decrease in unfunded commitments combined with lower historical loss rates. The $1.3 million provision during 2023 included a $2.2 million provision for credit losses and a reversal of $949,000 for unfunded commitments. The $2.2 million provision was driven primarily by $329.3 million in loan growth during the year, while the $949,000 reversal was driven by a $153.7 million decrease in unfunded commitments.

Previous wording

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

Current wording

As of December 31, 2025, the allowance for credit losses totaled $42.3 million, or 1.10% of gross loans. In comparison, the allowance for credit losses totaled $39.9 million as of December 31, 2024, or 1.10% of gross loans, and $40.7 million as of December 31, 2023, or 1.13% of gross loans.

Previous wording

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

Current wording

During the year ended December 31, 2025, we had net charge-offs of $84,000, consisting of $351,000 of loans charged-off in the current year, partially offset by $267,000 of recoveries on loans previously charged-off. Net charge-offs were

Previous wording

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

Current wording

We reported net charge-offs of $1.3 million and $166,000 for the years ended December 31, 2024, and 2023, respectively, including charge-offs of $1.7 million and $761,000 in 2024 and 2023, respectively. The net charge-offs of $1.3 million and $166,000 during 2024 and 2023, respectively, represented 0.04% and 0.00% of the average outstanding loan portfolios for 2024 and 2023, respectively. In addition, nonperforming assets were 0.27% and 0.10% of total assets for 2024 and 2023, respectively, and classified assets were 4.25% at December 31, 2024 and 2023.

Previous wording

Noninterest income was $12.1 million for the year ended December 31, 2024, a $2.3 million, or 23.1%, increase compared to noninterest income of $9.9 million for the year ended December 31, 2023. The increase in noninterest income during 2024, compared to 2023, resulted primarily from an increase in mortgage banking income, service fees on deposit accounts and income from bank owned life insurance. Mortgage banking income increased by $1.5 million, or 37.8%, due to higher mortgage volume during the year. Service fees on deposit accounts increased by $382,000, or 27.6%, due to transaction volume and increased use of the commercial credit cards offered to our clients.

Current wording

Noninterest income was $12.1 million for the year ended December 31, 2024, a $2.3 million, or 23.1%, increase compared to noninterest income of $9.9 million for the year ended December 31, 2023. The increase in noninterest income during 2024, compared to 2023, resulted primarily from an increase in mortgage banking income, service fees on deposit accounts and income from bank owned life insurance. Mortgage banking income increased by $1.5 million, or 37.8%, due to higher mortgage volume during the year while service fees on deposit accounts increased by $382,000, or 27.6%, due to transaction volume and increased use of the commercial credit cards offered to our clients.

Previous wording

Noninterest expenses were $68.8 million for the year ended December 31, 2023, a $5.9 million, or 9.4%, increase from noninterest expense of $62.9 million for 2022.

Current wording

Noninterest expenses were $75.5 million for the year ended December 31, 2025, a $2.2 million, or 3.0%, increase from noninterest expenses of $73.3 million for 2024.

Previous wording

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

Current wording

Our efficiency ratio was 64.0% for 2025, 78.5% for 2024 and 78.7% for 2023. The efficiency ratio represents the percentage of one dollar of expense required to be incurred to earn a full dollar of revenue and is computed by dividing noninterest expense by the sum of net interest income and noninterest income. Our efficiency ratio decreased for the twelve months ended December 31, 2025 due to the comparatively larger increase in net interest income and noninterest income, as compared to the increase in noninterest expenses during the year.

Previous wording

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

Current wording

Income tax expense was $9.2 million, $4.4 million and $4.0 million for the years ended December 31, 2025, 2024 and 2023, respectively. Our effective tax rate was 23.3% for the year ended December 31, 2025, compared to 22.0% for 2024, and 23.0% for 2023. The fluctuation in the effective rate for each of the periods is driven by the effect of equity compensation transactions and return to provision differences on our actual tax rate during the year compared to what was estimated during the year.

Previous wording

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

Current wording

At December 31, 2025 and 2024, our investment securities portfolio (including available-for-sale securities and other investments) was $147.8 million and $151.6 million, respectively, and represented approximately 3.4% and 3.7% of our total assets, respectively. Our available for sale investment portfolio included corporate bonds, US treasuries, US agency securities, SBA securities, state and political subdivisions, asset-backed securities, and mortgage-backed securities with a fair value of $127.7 million and amortized cost of $137.2 million for an unrealized loss of $9.4 million at December 31, 2025 compared to a fair value of $132.1 million and amortized cost of $146.6 million for an unrealized loss of $14.5 million at December 31, 2024. The net unrealized losses primarily reflect the impact of market interest rate movements on the fair value of our fixed-rate securities portfolio.

Previous wording

Contractual maturities and yields on our investments are shown in the following table. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

Current wording

Contractual maturities and yields on a tax-equivalent basis for our investments are shown in the following table. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

Previous wording

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

Current wording

Since loans typically provide higher interest yields than other types of interest-earning assets, a substantial percentage of our earning assets are invested in our loan portfolio. Average loans for the years ended December 31, 2025 and 2024 were $3.75 billion and $3.63 billion, respectively. Before allowance for credit losses, total loans outstanding at December 31, 2025 and 2024 were $3.85 billion and $3.63 billion, respectively.

Previous wording

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

Current wording

The principal component of our loan portfolio is loans secured by real estate mortgages. As of December 31, 2025, our loan portfolio included $3.18 billion, or 82.8%, of loans secured by real estate, compared to $3.03 billion, or 83.5%, as of 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 categories. In addition to traditional residential mortgage loans, we issue second mortgage residential real estate loans and home equity lines of credit. Home equity lines of credit totaled $248.7 million as of December 31, 2025, of which approximately 47% were in a first lien position, while the remaining balance was second liens, compared to $204.9 million as of December 31, 2024, of which approximately 46% were in first lien positions and the remaining balance was in second liens. The average home equity loan had a balance of approximately $108,000 and a loan to value of approximately 73% as of December 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, 0.38% and 0.12% of our total home equity lines of credit were over 30 days past due as of December 31, 2025 and 2024, respectively.

Previous wording

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

Current wording

Following is a summary of our loan composition for each of the last three years ended December 31, 2025. Of the $213.4 million in loan growth in 2025, $141.8 million of growth was in commercial related loans, specifically commercial owner occupied which grew by $85.4 million and commercial business which grew by $63.6 million, partially offset by declines in other commercial categories (including construction and non-owner occupied real estate loans), while $71.5 million of growth was in consumer related loans. Consumer real estate loans represent the largest category in our consumer portfolio and currently have an average principal balance of $472,000, a term of 24 years, and an average rate of 4.55%.

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 247.2% of the Bank’s total risk-based capital at December 31, 2024.

Current wording

We have included the tables below to provide additional clarity on our commercial real estate exposure. We have not identified any material geographic concentrations within these collateral types. 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

The following table summarizes the loans due after one year by category.

Current wording

The following table summarizes loans due after one year (i.e., excluding loans due one year or less), by category and by interest rate type.

Previous wording

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

Current wording

Nonperforming assets include real estate acquired through foreclosure or deed taken in lieu of foreclosure and loans on nonaccrual status. The following table shows the nonperforming assets and the related percentage of nonperforming assets to total assets and gross loans as of December 31, 2025. Generally, a loan is placed on nonaccrual status when it becomes 90 days past due as to principal or interest, or when we believe, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that collection of the loan is doubtful. A payment of interest on a loan that is classified as nonaccrual is recognized as a reduction in principal when received. Our policy with respect to nonperforming loans requires the borrower to make a minimum of six consecutive payments in accordance with the loan terms before that loan can be placed back on accrual status. Further, the borrower must show capacity to continue performing into the future prior to restoration of accrual status.

Previous wording

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

Current wording

At December 31, 2025, nonperforming assets were $14.1 million, or 0.32% of total assets, compared to $10.9 million, or 0.27% of total assets at December 31, 2024. In addition, nonaccrual loans were 0.36% of gross loans at December 31, 2025 and 0.30% of gross loans at December 31, 2024. Nonaccrual loans increased $3.0 million during the twelve months ended December 31, 2025 due to loans moving within the consumer real estate portfolio. The amount of foregone interest income on the nonaccrual loans as of December 31, 2025 and 2024 was approximately $308,000 and $200,000, respectively, for the years ended December 31, 2025 and 2024.

Previous wording

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

Current wording

A significant portion, or 98.0%, of nonaccrual loans at December 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. As a result of this level of coverage on nonaccrual loans, we believe the allowance for credit losses of $42.3 million as of December 31, 2025 is adequate.

Previous wording

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

Current wording

In addition, approximately 83% of our loans are collateralized by real estate and approximately 98% of our individually evaluated loans are secured by real estate. Individual loan evaluations are generally performed for individually evaluated loans, which includes nonaccrual loans and certain loans not meeting the risk characteristics of the pool, whether on accrual or nonaccrual status. We use third party appraisers to determine the fair value of collateral dependent loans. Our current loan and appraisal policies require us to review individually evaluated loans at least annually and determine whether it is necessary to obtain an updated appraisal, either through a new external appraisal or an internal appraisal evaluation. We review each of our individually evaluated loans on a quarterly basis to determine the level of impairment. As of December 31, 2025, we do not have any individually evaluated loans carried at a value in excess of the appraised value. We typically charge-off a portion or create a specific reserve for individually evaluated loans when we do not expect repayment to occur as agreed upon under the original terms of the loan agreement.

Previous wording

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

Current wording

At December 31, 2025, individually evaluated loans totaled approximately $15.1 million for which $5.2 million of these loans had a reserve of approximately $1.5 million allocated in the allowance. At December 31, 2024, individually evaluated loans totaled approximately $12.2 million for which $4.5 million of these loans had a reserve of approximately $1.9 million allocated in the allowance.

Previous wording

modifications to borrowers experiencing financial difficulty. Loan modifications to borrowers experiencing financial difficulty were not material for the twelve months ended December 31, 2024 and December 31, 2023.

Current wording

December 31, 2025. Loan modifications to borrowers experiencing financial difficulty were not material for the twelve months ended December 31, 2024.

Previous wording

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

Current wording

At December 31, 2025 and December 31, 2024, the allowance for credit losses was $42.3 million and $39.9 million, respectively, or 1.10% of outstanding loans, respectively. In addition, our nonperforming assets increased to 0.32% as a percentage of total assets at December 31, 2025 from 0.27%, as a percentage of total assets, at December 31, 2024, while our classified assets were 4.22% and 4.25% of total capital (risk based) as of December 31, 2025 and December 31, 2024, respectively. See Note 4 to the Consolidated Financial Statements for more information on our allowance for credit losses.