SOUTHERN FIRST BANCSHARES INC

Previous 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.

Current wording

The following discussion reviews our results of operations for the three-month period ended March 31, 2026 as compared to the three-month period ended March 31, 2025 and assesses our financial condition as of March 31, 2026 as compared to December 31, 2025. 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, 2025 included in our Annual Report on Form 10-K for that period. Results for the three-month period ended March 31, 2026 are not necessarily indicative of the results for the year ending December 31, 2026 or any future period.

Previous wording

Our business model continues to be client-focused, utilizing relationship teams to provide our clients with a specific banker contact and support team responsible for all of their banking needs. The purpose of this structure is to provide a consistent and superior level of professional service, and we believe it provides us with a distinct competitive advantage. We consider exceptional client service to be a critical part of our culture, which we refer to as "ClientFIRST."

Current wording

provide a consistent and superior level of professional service, and we believe it provides us with a distinct competitive advantage. We consider exceptional client service to be a critical part of our culture, which we refer to as "ClientFIRST."

Previous 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.

Current wording

At March 31, 2026, we had total assets of $4.58 billion, a 4.0% increase from total assets of $4.40 billion at December 31, 2025. The largest component of our total assets is loans which were $3.94 billion and $3.85 billion at March 31, 2026, and December 31, 2025, respectively. Our liabilities and shareholders’ equity at March 31, 2026 totaled $4.20 billion and $379.4 million, respectively, compared to liabilities of $4.03 billion and shareholders’ equity of $368.7 million at December 31, 2025. The principal component of our liabilities is deposits which were $3.87 billion and $3.72 billion at March 31, 2026 and December 31, 2025, respectively.

Previous 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.

Current wording

Our net income to common shareholders was $9.9 million and $5.3 million for the three months ended March 31, 2026, and 2025, respectively. Diluted earnings per share (“EPS”) was $1.19 for the first quarter of 2026 as compared to $0.65 for the same period in 2025. 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 $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.

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 $30.3 million for the first quarter of 2026, a 29.4% increase over net interest income of $23.4 million for the first quarter of 2025, driven primarily by a $5.0 million increase in interest income on our interest-earning assets combined with a $1.9 million decrease in interest expense on our interest-bearing liabilities. In addition, our net interest margin, on a tax-equivalent (TE) basis, was 2.88% for the first quarter of 2026 compared to 2.41% for the same period in 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 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.

Current wording

We have included a number of tables to assist in our description of various measures of our financial performance. For example, the “Average Balances, Income and Expenses, Yields and Rates” table reflects the average balance of each category of our assets and liabilities as well as the yield we earned or the rate we paid with respect to each category during the three-month periods ended March 31, 2026 and 2025. 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 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%.

Current wording

Our net interest margin (TE) increased by 47 basis points to 2.88% during the first quarter of 2026, compared to the first quarter of 2025, driven primarily by an increase in our average interest-earning assets combined with a decrease in rates paid on our interest-bearing liabilities. Our average interest-earning assets grew by $324.4 million during the first quarter of 2026 from the prior year, while the average yield on these assets increased by eight basis points to 5.20%. Our average interest-bearing liabilities grew by $208.3 million during the first quarter of 2026 from the prior year, while the rate on these liabilities decreased 46 basis points to 3.06%.

Previous 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.

Current wording

The increase in average interest-earning assets for the first quarter of 2026 related primarily to an increase of $225.1 million in our average loan balances from the prior year. The eight-basis point increase in yield on our interest-earning assets was driven by a 13 basis point increase in the yield on our loan portfolio. The 13 basis point increase included a $543,000 repayment of interest on one large nonaccrual loan.

Previous wording

The increase in average interest-bearing liabilities for the third quarter of 2025 related primarily to an increase of $165.4 million in our average interest-bearing deposits, partially offset by a $11.4 million decrease in subordinated debentures. The primary driver of the decrease in interest expense was a 65 basis point decrease in the cost of our interest-bearing deposits.

Current wording

The increase in average interest-bearing liabilities for the first quarter of 2026 related primarily to an increase of $208.3 million in our average interest-bearing deposits. The 46 basis point decrease in cost of our interest-bearing liabilities was driven by a 50 basis point decrease in the cost of our interest-bearing deposits.

Previous 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,

Current wording

Our net interest spread was 2.14% for the first quarter of 2026 compared to 1.60% for the same period in 2025. 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 eight-basis point increase in yield on our interest-earning assets, combined with the 46 basis point decrease in the rate on our interest-bearing liabilities, resulted in a 54 basis point increase in our net interest spread for the 2026 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

Previous wording

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.

Current wording

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, 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.

Current wording

Net interest income, the largest component of our income, was $30.3 million for the first quarter of 2026 and $23.4 million for the first quarter of 2025, a $6.9 million, representing a 29.4%, increase year over year. The increase during 2026 was driven by a $5.0 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 $1.9 million decrease in interest expense primarily due to lower rates on our interest-bearing deposits.

Previous wording

The provision for credit losses, which includes a provision for losses on unfunded commitments, is a charge to earnings to maintain the allowance for credit losses and reserve for unfunded commitments at levels consistent with management’s assessment of expected losses in the loan portfolio at the balance sheet date. We review the adequacy of the allowance for credit losses on a quarterly basis. Please see the discussion included in Note 4 – Loans and Allowance for Credit Losses for a description of the factors we consider in determining the amount of the provision we expense each period to maintain this allowance. 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.

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.

Previous 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.

Current wording

Noninterest income was $3.5 million for the first quarter of 2026, a $426,000, or 13.7%, increase from noninterest income of $3.1 million for the first quarter of 2025. The increase in noninterest income during 2026, compared to 2025, resulted primarily from an increase in mortgage banking income and service fees on deposit accounts. Mortgage banking income increased $69,000, or 4.8%, over the prior year due to higher mortgage volume. Service fees on deposit accounts increased $217,000, or 40.3%, over the prior year, driven by higher transaction volume, fee income on our commercial credit cards and additional wire fee income.

Previous 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:

Current wording

Noninterest expense was $20.0 million for the first quarter of 2026, a $1.2 million, or 6.3%, increase from noninterest expense of $18.8 million for the first quarter of 2025. The increase in noninterest expense was driven primarily by the following:

Previous 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.

Current wording

Partially offsetting the above increases was a decrease in insurance expense of $118,000, or 11.7%, due to lower FDIC assessment expense during the first quarter of 2026.

Previous 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.

Current wording

Our efficiency ratio was 59.2% for the first quarter of 2026, compared to 71.1% for the first quarter of 2025. 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 2026 period was driven primarily by the increase in net interest income.

Previous 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.

Current wording

We incurred income tax expense of $2.6 million and $1.6 million for the three months ended March 31, 2026 and 2025, respectively. Our effective tax rate was 20.8% and 23.8% for the three months ended March 31, 2026 and 2025, respectively. The decrease in the effective tax rate was driven by the effect of equity compensation transactions in comparison to our income before income tax expense.

Previous wording

At September 30, 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.

Current wording

At March 31, 2026, the $144.6 million in our investment securities portfolio represented approximately 3.2% 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 $124.2 million and an amortized cost of $134.2 million, resulting in an unrealized loss of $10.0 million. At December 31, 2025, the $147.8 million in our investment securities portfolio represented approximately 3.4% of our total assets, including investment securities with a fair value of $127.7 million and an amortized cost of $137.2 million for an unrealized loss of $9.4 million. In addition, other investments, which include FHLB Stock and other nonmarketable investments, increased $314,000 from December 31, 2025 to $20.4 million at March 31, 2026.

Previous wording

Since loans typically provide higher interest yields than other types of interest earning assets, a substantial percentage of our earning assets are invested in our loan portfolio. Average loans, excluding mortgage loans held for sale, for the nine months ended September 30, 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.

Current wording

Since loans typically provide higher interest yields than other types of interest earning assets, a substantial percentage of our earning assets are invested in our loan portfolio. Average loans, excluding mortgage loans held for sale, for the three months ended March 31, 2026 and 2025 were $3.90 billion and $3.67 billion, respectively. Before the allowance for credit losses, total loans outstanding at March 31, 2026 and December 31, 2025 were $3.94 billion and $3.85 billion, respectively.

Previous 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.

Current wording

The principal component of our loan portfolio is loans secured by real estate mortgages. As of March 31, 2026, our loan portfolio included $3.22 billion, or 81.8%, of real estate loans, compared to $3.18 billion, or 82.8%, at December 31, 2025. 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 $262.5 million as of March 31, 2026, of which approximately 49% were in a first lien position, while the remaining balance was second liens. At December 31, 2025, our home equity lines of credit totaled $248.7 million, of which approximately 47% were in first lien positions, while the remaining balance was in second liens. The average home equity loan had a balance of approximately $112,000 and a loan to value of 74% as of March 31, 2026, compared to an average loan balance of $108,000 and a loan to value of approximately 73% as of December 31, 2025. Further, 0.58% and 0.38% of our total home equity lines of credit were over 30 days past due as of March 31, 2026 and December 31, 2025, respectively.

Previous 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.

Current wording

Following is a summary of our loan composition at March 31, 2026 and December 31, 2025. During the first three months of 2026, our loan portfolio increased by $97.1 million, or 10.2% annualized, primarily driven by a $58.1 million increase in commercial business loans and a $22.6 million increase in commercial owner occupied loans. In addition, home equity loans increased by $13.8 million during the first three months of 2026. Our consumer real estate portfolio, which decreased by $5.2 million includes high quality 1-4 family consumer real estate loans. Our average consumer real estate loan currently has a principal balance of $470,000, a term of 24 years, and an average rate of 4.57% as of March 31, 2026, compared to a principal balance of $472,000, a term of 24 years, and an average rate of 4.55% as of December 31, 2025.

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 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.

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. 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

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 the future before that loan can be placed back on accrual status. As of March 31, 2026 and December 31, 2025 we had no loans that were 90 days past due and still accruing.

Previous 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.

Current wording

At March 31, 2026, nonperforming assets were $11.9 million, or 0.26% of total assets and 0.30% of gross loans. Comparatively, nonperforming assets were $14.1 million, or 0.32% of total assets and 0.37% of gross loans at December 31, 2025. The increase in commercial owner occupied loans was due to one loan being moved to non-accrual status during the first quarter of 2026, while the decrease in commercial non-owner occupied loans was primarily driven by the payoff of one large non-residential loan. The amount of foregone interest income on nonaccrual loans in the first quarter of 2026 and 2025 was $68,000 and $74,000, respectively.

Previous 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.

Current wording

At March 31, 2026 and December 31, 2025, the allowance for credit losses represented 378.22% and 305.65% of the total amount of nonperforming loans, respectively. A significant portion of the nonperforming loans at March 31, 2026 were secured by real estate. We have evaluated the underlying collateral on these loans and believe that the collateral on these loans is sufficient to minimize future losses.

Previous wording

In addition, at September 30, 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.

Current wording

In addition, at March 31, 2026, 81.8% of our loans were collateralized by real estate and 92.2% of our individually evaluated loans were secured by real estate. We utilize third party appraisers to determine the fair value of collateral dependent loans. Our current loan and appraisal policies require us to obtain updated appraisals on an annual basis, either through a new external appraisal or an appraisal evaluation. Individually evaluated loans are reviewed on a quarterly basis to determine the level of credit loss. As of March 31, 2026, we did not have any individually evaluated real estate loans carried at a value in excess of the appraised value. We typically charge-off a portion or create a specific reserve for individually evaluated loans when we do not expect repayment to occur as agreed upon under the original terms of the loan agreement.

Previous wording

At September 30, 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.

Current wording

At March 31, 2026, individually evaluated loans totaled $12.8 million, for which $5.7 million of these loans had a reserve of approximately $2.3 million allocated in the allowance for credit losses. Comparatively, individually evaluated loans totaled $15.1 million at December 31, 2025 for which $5.2 million of these loans had a reserve of approximately $1.5 million allocated in the allowance for credit losses.

Previous 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.

Current wording

The allowance for credit losses was $43.4 million, representing 1.10% of outstanding loans and providing coverage of 378.22% of nonperforming loans at March 31, 2026, compared to $42.3 million, or 1.10% of outstanding loans

Previous wording

Under the DCF methodology, the expected loss rates are evaluated at an individual loan level, incorporating a forecast for certain economic conditions, prepayment assumptions, weighted average life of loan and peer loss experience into the credit loss calculation. In addition, the model no longer considers risk rating as a key factor in the calculation of expected credit losses. This factor drove the decrease in expected loss under the DCF model for the commercial non-owner occupied category as loans with a risk rating less than “pass” were assigned a higher expected loss rate under the lifetime PD/LGD model. In addition, loan categories such as commercial business and consumer real estate loans were highly impacted by the incorporation of prepayment rates and a regression analysis under the DCF method. Higher prepayment rates shortened the recovery period for expected losses, resulting in an increased expected loss rate while the regression analysis, which includes a forecasted gross national product (“GDP”) and unemployment rate, increased the probability of default for both of these loan categories and consequently resulted in a higher expected loss rate. Finally, the incorporation of the weighted average life of loan into the calculation was a key driver of the change in the overall allocation between our commercial portfolio and our consumer portfolio as the weighted average life of our consumer loans is generally longer than that of our commercial loans, thus driving the changes in the expected loss rate to correlate to the expected life of the loan. As a result, the allocation of the ACL shifted among loan categories, reducing the ACL allotted to the commercial portfolio and increasing the ACL allotted to the consumer portfolio.

Current wording

Under the DCF methodology, expected loss rates are evaluated at the individual loan level using contractual cash flows, prepayment assumptions, reasonable and supportable economic forecasts, and other model inputs. Internal risk ratings continue to inform credit risk monitoring, segmentation, and qualitative adjustments, as applicable. The incorporation of the weighted average life of loan into the calculation was a key driver of the change in allocation between our commercial portfolio and our consumer portfolio as the weighted average life of our consumer loans is generally longer than that of our commercial loans, thus driving the changes in the expected loss rate to correlate to the expected life of the loan. As a result, the allocation of the ACL shifted among loan categories, reducing the ACL allotted to the commercial portfolio and increasing the ACL allotted to the consumer portfolio.

Previous 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.

Current wording

Our retail deposits represented $3.37 billion, or 87.0% of total deposits, while our brokered deposits represented $501.7 million, or 13.0%, of total deposits at March 31, 2026. At December 31, 2025, retail deposits represented $3.16 billion, or 85.1%, of our total deposits and brokered deposits were $552.9 million, representing 14.9% of our total deposits. Our loan-to-deposit ratio was 102% at March 31, 2026 and 103% at December 31, 2025.

Previous wording

Our primary focus is on increasing core deposits, which exclude out-of-market deposits and time deposits of $250,000 or more, in order to provide a relatively stable funding source for our loan portfolio and other earning assets. In addition, at September 30, 2025 and December 31, 2024, we estimate that we have approximately $1.4 billion and $1.3 billion, or 38.1% and 37.1% of total deposits, respectively, in uninsured deposits, including related interest accrued and unpaid. Since it is not reasonably practicable to provide a precise measure of uninsured deposits, the amounts above are estimates and are based on the same methodologies and assumptions used by the FDIC for the Bank’s regulatory reporting requirements.

Current wording

Our primary focus is on increasing core deposits, which exclude out-of-market deposits and time deposits of $250,000 or more, in order to provide a relatively stable funding source for our loan portfolio and other earning assets. In addition, at March 31, 2026 and December 31, 2025, we estimate that we have approximately $1.6 billion and $1.5 billion, or 42.4% and 39.6% of total deposits, respectively, in uninsured deposits, including related interest accrued and unpaid. Since it is not reasonably practicable to provide a precise measure of uninsured deposits, the amounts above are estimates and are based on the same methodologies and assumptions used by the FDIC for the Bank’s regulatory reporting requirements.

Previous wording

During the first nine months of 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%.

Current wording

During the first three months of 2026, our average transaction account balances increased by $313.4 million, or 12.5%, from the prior year, while our average time deposit balances decreased by $35.2 million, or 3.8%. The increase in our average transaction account balances is the result of our focus on growing core deposits.

Previous 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.

Current wording

allowing us to provide deposit customers with access to aggregate FDIC insurance in amounts exceeding $250,000. This gives us the ability, as and when needed, to attract and retain large deposits from insurance conscious customers. With IntraFi, we have the option to keep deposits on balance sheet or sell them to other members of the network.

Previous wording

At September 30, 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.

Current wording

At March 31, 2026 and December 31, 2025, we had $240.0 million of convertible fixed rate FHLB advances with a weighted average rate of 3.74%. At March 31, 2026, the $240.0 million was secured with approximately $1.37 billion of mortgage loans and $14.8 million of stock in the FHLB. At December 31, 2025, the $240.0 million was secured with approximately $1.38 billion of mortgage loans and $14.5 million of stock in the FHLB.

Previous wording

At September 30, 2025 and December 31, 2024, our cash and cash equivalents totaled $282.9 million and $162.9 million, respectively, or 6.5% and 4.0% of total assets, respectively. Our investment securities at September 30, 2025 and December 31, 2024 amounted to $151.1 million and $151.6 million, respectively, or 3.5% and 3.7% of total assets, respectively. Investment securities traditionally provide a secondary source of liquidity since they can be converted into cash in a timely manner.

Current wording

Our investment securities at March 31, 2026 and December 31, 2025 amounted to $144.6 million and $147.8 million, respectively, or 3.2% and 3.4% of total assets, respectively. Investment securities traditionally provide a secondary source of liquidity since they can be converted into cash in a timely manner.

Previous wording

Our ability to maintain and expand our deposit base and borrowing capabilities serves as our primary source of liquidity. We plan to meet our future cash needs through the liquidation of temporary investments, the generation of deposits, loan payoffs, and from additional borrowings. In addition, we will receive cash upon the maturity and sale of loans and the maturity of investment securities. We maintain six federal funds purchased lines of credit with correspondent banks totaling $128.5 million for which there were no borrowings against the lines of credit at September 30, 2025. We also had $189.8 million pledged and available with the Federal Reserve Discount Window

Current wording

Our ability to maintain and expand our deposit base and borrowing capabilities serves as our primary source of liquidity. We plan to meet our future cash needs through the liquidation of temporary investments, the generation of deposits, loan payoffs, and from additional borrowings. In addition, we will receive cash upon the maturity and sale of loans and the maturity of investment securities. We maintain six federal funds purchased lines of credit with correspondent banks totaling $128.5 million for which there were no borrowings against the lines of credit at March 31, 2026. We also had $178.6 million pledged and available with the Federal Reserve Discount Window at March 31, 2026. Comparatively, at December 31, 2025, we had $181.2 million pledged and available with the Federal Reserve Discount Window.

Previous wording

We are also a member of the FHLB, from which applications for borrowings can be made. The FHLB requires that securities, qualifying mortgage loans, and stock of the FHLB owned by the Bank be pledged to secure any advances from the FHLB. The unused borrowing capacity currently available from the FHLB at September 30, 2025 was $828.9 million, based primarily on the Bank’s qualifying mortgages available to secure any future borrowings. However, we are able to pledge additional securities to the FHLB in order to increase our available borrowing capacity. In addition, at September 30, 2025 and December 31, 2024 we had $224.0 million and $205.4 million, respectively, of letters of credit outstanding with the FHLB to secure client deposits.

Current wording

We are also a member of the FHLB, from which applications for borrowings can be made. The FHLB requires that securities, qualifying mortgage loans, and stock of the FHLB owned by the Bank be pledged to secure any advances from the FHLB. The unused borrowing capacity currently available from the FHLB at March 31, 2026 was $811.7 million, based primarily on the Bank’s qualifying mortgages available to secure any future borrowings. However, we are able to pledge additional securities to the FHLB in order to increase our available borrowing capacity. In addition, at March 31, 2026 and December 31, 2025 we had $270.3 million and $231.9 million, respectively, of letters of credit outstanding with the FHLB to secure client deposits.

Previous wording

On September 30, 2024, in conjunction with the semi-annual interest payment, we redeemed $11.5 million of our outstanding subordinated debt. Beginning September 30, 2024, the interest rate on our remaining $11.5 million of outstanding subordinated debt reset to an interest rate per annum equal to the Three-Month Term SOFR plus 340.8 basis points (7.65% at September 30, 2025), payable quarterly in arrears.

Current wording

We have $11.5 million of outstanding subordinated debt. The interest rate on the outstanding subordinated debt reset to an interest rate per annum equal to the Three-Month Term SOFR plus 340.8 basis points (7.37% at March 31, 2026), payable quarterly in arrears. The subordinated debt is intended to qualify as Tier 2 capital for regulatory capital purposes for the Company; however, the amount that is eligible to be included in Tier 2 capital will be reduced by 20% each year during the last five years before maturity date of the Notes beginning in the quarter ended December 31, 2024.

Previous wording

Total shareholders’ equity was $356.3 million at September 30, 2025 and $330.4 million at December 31, 2024. The $25.9 million increase from December 31, 2024 is primarily related to net income of $20.5 million during the first nine months of 2025, stock option exercises and equity compensation expenses of $2.3 million, and a $3.0 million increase in other comprehensive income related to our available for sale securities.

Current wording

Total shareholders’ equity was $379.4 million at March 31, 2026 and $368.7 million at December 31, 2025. The $10.8 million increase from December 31, 2025 is primarily related to net income of $9.9 million during the first three months of 2026, stock option exercises and equity compensation expenses of $1.3 million. Partially offsetting the increase was a $411,000 decrease in other comprehensive income related to our available for sale securities.