SOUTHERN FIRST BANCSHARES INC

NOTE 1 –Summary of Significant Accounting Policies

Nature of Business

Southern First Bancshares, Inc. (the “Company”) is a South Carolina corporation that owns all of the capital stock of Southern First Bank (the “Bank”) and all of the stock of Greenville First Statutory Trusts I and II (collectively, the “Trusts”). The Trusts are special purpose non-consolidated entities organized for the sole purpose of issuing trust preferred securities. The Bank’s primary federal regulator is the Federal Deposit Insurance Corporation (the “FDIC”). The Bank is also regulated and examined by the South Carolina Board of Financial Institutions. The Bank is primarily engaged in the business of accepting demand deposits and savings deposits insured by the FDIC, and providing commercial, consumer and mortgage loans to the general public.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2026 are not necessarily indicative of the results that may be expected for the year ending December 31, 2026. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 as filed with the U.S. Securities and Exchange Commission (“SEC”) on February 24, 2026. The consolidated financial statements include the accounts of the Company and the Bank. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, “Consolidation,” the financial statements related to the Trusts have not been consolidated.

Risks and Uncertainties

In the normal course of its business, the Company is subject to economic and regulatory risks. The principal economic risks inherent in the Company’s business include interest rate risk, credit risk, liquidity risk and market risk. Interest rate risk arises from changes in market interest rates and from differences in the repricing and maturity characteristics of the Company’s interest-earning assets and interest-bearing liabilities. Credit risk is the risk of loss arising from a borrower’s inability or unwillingness to satisfy contractual repayment obligations. Liquidity risk is the risk that the Company may be unable to meet cash flow needs, fund loan demand, satisfy depositor withdrawal requests or otherwise operate on a cost-effective basis in the ordinary course of business. Market risk reflects changes in the value of collateral securing loans, the valuation of real estate held by the Company, the fair value of investment securities and loans, and broader changes in financial market conditions. The Company also operates in a highly regulated industry and may be affected by changes in laws, regulations, regulatory expectations and supervisory practices.

The Federal Reserve has stated that inflation remains somewhat elevated and that uncertainty about the economic outlook remains elevated. Changes in interest rates, inflation, economic growth, employment conditions, geopolitical developments and other domestic and international events may affect loan demand, deposit levels and funding costs, asset quality, borrower repayment capacity and the value of financial assets. In addition, credit conditions in certain sectors, including commercial real estate, continue to warrant close attention, particularly as loans mature and borrowers face refinancing risk. The extent to which these factors, as well as any related legislative, regulatory or supervisory responses, may adversely affect the Company’s business, financial condition, results of operations and cash flows remains uncertain.

The Company is subject to the regulations of various governmental agencies. These regulations can and do change significantly from period to period. The Company also undergoes periodic examinations by the regulatory agencies, which may subject the Company to changes with respect to the valuation of assets, the amount of required credit loss allowance and operating restrictions resulting from the regulators’ judgments based on information available to them at the time of their examinations.

The Bank makes loans to individuals and businesses in the Upstate, Midlands, and Lowcountry regions of South Carolina as well as the Triangle, Triad and Charlotte regions of North Carolina and Atlanta, Georgia for various personal and commercial purposes. The Bank’s loan portfolio has a concentration of real estate loans. As of March 31, 2026 and December 31, 2025, real estate loans represented 81.8% and 82.8%, respectively, of total loans. However, borrowers’ ability to repay their loans is not dependent upon any specific economic sector.

As of March 31, 2026, the Company’s and the Bank’s capital ratios were in excess of all regulatory requirements. While management believes that we have sufficient capital to withstand an extended economic recession, our reported and regulatory capital ratios could be adversely impacted by future credit losses.

The Company maintains access to multiple sources of liquidity, including a $15.0 million holding company line of credit with another bank which could be used to support capital ratios at the subsidiary bank. As of March 31, 2026, the $15.0 million line was unused.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amount of income and expenses during the reporting periods. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses, real estate acquired in the settlement of loans, fair value of financial instruments, and valuation of deferred tax assets.

Change in Accounting Estimate

During the first quarter of 2025, the Company changed its methodology for estimating the allowance for credit losses (“ACL”) on loans by transitioning from a lifetime probability of default and loss given default model to a discounted cash flow (“DCF”) approach. The Company transitioned to the DCF method as it allows for a better estimation of credit losses through customization among the various inputs by loan segmentation. The DCF model uses regression techniques that relate one or more economic factors to the default rate of various portfolios to build reasonable and supportable forecasts to estimate future losses. The Company determined that the national gross domestic product and unemployment rate were the two economic factors which had the greatest correlation to historical performance for use in the forecasted portion of the model. In addition, the transition to the DCF model allowed the Company to reduce its reliance on qualitative factors and to analyze them on a more granular level, such as by segment. The refinement represents a change in accounting estimate under ASC Topic 250, Accounting Changes and Error Corrections, with prospective application beginning in the period of change. This change in accounting estimate did not have a material effect on the Company’s financial statements.

Reclassifications

Certain amounts, previously reported, have been reclassified to present all periods on a comparable basis and such reclassification had no effect on shareholders’ equity or net income.

Subsequent Events

Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. Non-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date.

Newly Issued, But Not Yet Effective Accounting Standards

In November 2024, the FASB amended the Income Statement – Reporting Comprehensive Income topic in the Accounting Standards Codification to require public companies to disclose, in interim and annual reporting periods, additional information about certain expenses in the notes to the financial statements. The amendments are effective for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company will apply the amendments retrospectively to all

prior periods presented in the financial statements. The Company does not expect these amendments to have a material effect on its financial statements.

In December 2025, the FASB amended the Interim Reporting topic in the Accounting Standards Codification to clarify current interim reporting requirements. The amendments are effective for interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The amendments in this update can be applied prospectively or retrospectively. The Company does not expect these amendments to have a material effect on its financial statements.

NOTE 2 –Investment Securities

The amortized costs and fair value of investment securities are as follows:

Contractual maturities and yields on the Company’s investment securities at March 31, 2026 and December 31, 2025 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.

The tables below summarize gross unrealized losses on investment securities and the fair market value of the related securities at March 31, 2026 and December 31, 2025, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.

At March 31, 2026, the Company had 107 individual investments that were in an unrealized loss position. The unrealized losses were primarily attributable to changes in interest rates, rather than deterioration in credit quality and the issuers of these securities continue to make timely principal and interest payments under the contractual terms of the securities. The Company does not intend to sell these securities, and it is more likely than not that the Company will not be required to sell these securities before recovery of the amortized cost. Additional information related to the

types of securities held at March 31, 2026, other than securities issued or guaranteed by US government entities or agencies including US Treasuries and substantially all of the Company’s mortgage-backed securities, is as follows:

Corporate securities – The Company has one holding in corporate debt securities for which there have been no payment defaults.

Municipal securities – All of the Company’s holdings of municipal bonds were investment grade and there have been no payment defaults. All of these securities have been rated A+ or higher by Moody’s or Standard & Poors or Fitch.

Asset-backed securities – There were four investment grade asset-backed securities, and there have been no payment default on these securities.

As such, there is no allowance for credit losses on available for sale securities recognized as of March 31, 2026.

Other investments are comprised of the following and are recorded at cost which approximates fair value.

The Company has evaluated other investments for impairment and determined that the other investments are not impaired as of March 31, 2026 and December 31, 2025 and ultimate recoverability of the par value of the investments is probable. All of the FHLB stock is used to collateralize advances to the FHLB.

At March 31, 2026 and December 31, 2025, there were no securities pledged as collateral for repurchase agreements from brokers.

NOTE 3 –Mortgage Loans Held for Sale

Mortgage loans originated and intended for sale in the secondary market are reported as loans held for sale and carried at fair value under the fair value option with changes in fair value recognized in current period earnings. Loans held for sale and their fair values are estimated using observable quoted market or contracted prices or market price equivalents, which would be used by other market participants. At the date of funding of the mortgage loan held for sale, the funded amount of the loan, the related derivative asset or liability of the associated interest rate lock commitment, less direct loan costs becomes the initial recorded investment in the loan held for sale. Such amount approximates the fair value of the loan. At March 31, 2026, mortgage loans held for sale totaled $13.7 million compared to $11.6 million at December 31, 2025.

NOTE 4 –Loans and Allowance for Credit Losses

The following table summarizes the composition of our loan portfolio. Total gross loans are recorded net of deferred loan fees and costs, which totaled $5.8 million as of March 31, 2026 and $5.6 million as of December 31, 2025.

Maturities and Sensitivity of Loans to Changes in Interest Rates

The information in the following tables summarize the loan maturity distribution by type and related interest rate characteristics based on the contractual maturities of individual loans, including loans which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval, as well as modification of terms upon maturity. Actual repayments of loans may differ from the maturities reflected below, because borrowers have the right to prepay obligations with or without prepayment penalties.

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.

Credit Quality Indicators

The Company tracks credit quality based on its internal risk ratings. Upon origination, a loan is assigned an initial risk grade, which is generally based on several factors such as the borrower’s credit score, the loan-to-value ratio, the debt-to-income ratio, etc. After loans are initially graded, they are monitored regularly for credit quality based on many factors, such as payment history, the borrower’s financial status, and changes in collateral value. Loans can be downgraded or upgraded depending on management’s evaluation of these factors. Internal risk-grading policies are consistent throughout each loan type.

A description of the general characteristics of the risk grades is as follows:

The following table presents loan balances classified by credit quality indicators by year of origination as of March 31, 2026.

The following table presents loan balances classified by credit quality indicators by year of origination as of December 31, 2025.

The following tables present loan balances by age and payment status.

As of March 31, 2026 and December 31, 2025, accruing loans 30 days or more past due represented 0.20% and 0.14% of the Company’s total loan portfolio, respectively. Commercial loans accruing 30 days or more past due were 0.05% and 0.02% of the Company’s total loan portfolio as of March 31, 2026, and December 31, 2025, respectively. Consumer loans accruing 30 days or more past due were 0.15% and 0.12% of total loans as of March 31, 2026, and December 31, 2025, respectively.

The table below summarizes nonaccrual loans by major categories for the periods presented.

The Company didnot recognize interest income on nonaccrual loans for the three months ended March 31, 2026 and March 31, 2025. Accrued interest reversed during the three months ended March 31, 2026 was approximately $118,000. The accrued interest reversed during the three months ended March 31, 2025 wasnot material. Foregone interest income on the nonaccrual loans for the three-month period ended March 31, 2026 and 2025 was approximately $68,000 and $74,000, respectively.

The table below summarizes information regarding nonperforming assets.

Modifications to Borrowers Experiencing Financial Difficulty

The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a discounted cash flow model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.

Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses due to the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. Loan modifications to borrowers experiencing financial difficulty were not material for the three months ended March 31, 2026 and March 31, 2025, respectively.

Allowance for Credit Losses

The Company maintains an allowance for credit losses to provide for expected credit losses. Losses are charged against the allowance when management believes that the principal is uncollectable. Subsequent recoveries, if any, are credited to the allowance. Allocations of the allowance are made for specific loans and for pools of similar types of loans, although the entire allowance is available for any loan that, in management’s judgment, should be charged against the allowance. A provision for credit losses is taken based on management’s ongoing evaluation of the appropriate allowance balance.

A formal evaluation of the adequacy of the ACL is conducted quarterly. This assessment includes procedures to estimate the allowance and test the adequacy and appropriateness of the resulting balance. The level of the allowance is based upon management's evaluation of historical default and loss experience, current and projected economic conditions, asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrowers' ability to repay a loan, the estimated value of any underlying collateral, composition of the loan portfolio, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations. Management believes the level of the ACL is adequate to absorb all expected future losses inherent in the loan portfolio at the balance sheet date. The allowance is increased through provision for credit losses and decreased by charge-offs, net of recoveries of amounts previously charged-off.

On January 1, 2025, the Company transitioned to the DCF modeling approach to estimate the ACL on loans as it allows for a better estimation of credit losses through customization among the various inputs by loan segmentation. The DCF methodology is applied on a segment-by-segment basis at the loan level with a one-year reasonable and supportable forecast period, followed by a one-year reversion to the long-term average. The Company considers economic forecasts of national gross domestic product (“GDP”) and unemployment rates as reported by Fannie

Mae to inform the model for loss estimation. Historical loss rates used in the quantitative model were derived using both the Bank's and peer bank data obtained from publicly-available sources (i.e., federal call reports) encompassing an economic cycle. The peer group utilized by the Bank is comprised of financial institutions of relatively similar size (i.e., $1-$15 billion of total assets) and in similar markets. In addition, the DCF methodology considers the weighted average life of the portfolio, impacting the reaction time and the exposure to potential loss based on changes in the interest rate environment. Management also considers qualitative adjustments when estimating loan losses to take into account the model's quantitative limitations. Qualitative adjustments to quantitative loss factors, either negative or positive, may include 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; effects of changes in lending policy; concentrations of credit; and loan review results. The Company enhanced its qualitative factor framework to better address risks that are not reflected in the quantitative loss factors.

The following tables summarize the activity related to the allowance for credit losses for the three months ended March 31, 2026 and March 31, 2025.

There was a provision for credit losses of $1.2 million and $750,000 for the three months ended March 31, 2026 and March 31, 2025, respectively.

Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral, and where the borrower is experiencing financial difficulty. The Company reviews individually evaluated loans for designation as collateral dependent loans, as well as other loans that management of the Company designates as having higher risk. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the allowance for credit losses.

Under CECL, for collateral dependent loans, the Company has adopted the practical expedient to measure the allowance for credit losses based on the fair value of collateral. The allowance for credit losses is calculated on an individual loan basis based on the shortfall between the fair value of the loan's collateral, which is adjusted for liquidation costs/discounts, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required.

The following tables present an analysis of collateral-dependent loans of the Company as of March 31, 2026 and December 31, 2025.

Allowance for Credit Losses - Unfunded Loan Commitments

The allowance for credit losses for unfunded loan commitments was $2.1 million and $2.0 million at March 31, 2026 and December 31, 2025, respectively, and is separately classified on the balance sheet within other liabilities. The following table presents the balance and activity in the ACL for unfunded loan commitments for the three months ended March 31, 2026 and twelve months ended December 31, 2025.

NOTE 5 –Leases

The Company had operating right-of-use (“ROU”) assets, included in property and equipment, of $24.8 million and $19.0 million as of March 31, 2026 and December 31, 2025, respectively. The Company had lease liabilities, included in other liabilities, of $27.6 million and $21.7 million as of March 31, 2026 and December 31, 2025,

respectively. We maintain operating leases on land and buildings for various office spaces. The lease agreements have maturity dates ranging from January 2028 to December 2036, some of which include options for multiple five-year extensions. The weighted average remaining life of the lease term for these leases was 5.61 years and 4.31 years as March 31, 2026 and December 31, 2025, respectively. The ROU asset and lease liability are recognized at lease commencement by calculating the present value of lease payments over the lease term. The ROU assets also include any initial direct costs incurred and lease payments made at or before commencement date and are reduced by any lease incentives.

The discount rate used in determining the lease liability for each individual lease was the FHLB fixed advance rate which corresponded with the remaining lease term at implementation of the accounting standard and as of the lease commencement date for leases subsequently entered into. The weighted average discount rate for leases was 2.95% and 2.27% as of March 31, 2026 and December 31, 2025, respectively.

The total operating lease costs were $744,000 and $613,000 for the three months ended March 31, 2026, and 2025, respectively.

Operating lease payments due as of March 31, 2026 were as follows:

NOTE 6 –Derivative Financial Instruments

The Company utilizes derivative financial instruments primarily to hedge its exposure to changes in interest rates. All derivative financial instruments are recognized as either assets or liabilities and measured at fair value.

The Company enters into commitments to originate residential mortgage loans held for sale, at specified interest rates and within a specified period of time, with clients who have applied for a loan and meet certain credit and underwriting criteria (interest rate lock commitments). These interest rate lock commitments (“IRLCs”) meet the definition of a derivative financial instrument and are reflected in the balance sheet at fair value with changes in fair value recognized in current period earnings. Unrealized gains and losses on the IRLCs are recorded as derivative assets and derivative liabilities, respectively, and are measured based on the value of the underlying mortgage loan, quoted mortgage-backed securities (“MBS”) prices and an estimate of the probability that the mortgage loan will fund within the terms of the interest rate lock commitment, net of estimated commission expenses.

The Company manages the interest rate and price risks associated with its outstanding IRLCs and mortgage loans held for sale by entering into derivative instruments such as forward sales of MBS. These derivatives are free-standing derivatives and are not designated as instruments for hedge accounting. Management expects these derivatives will experience changes in fair value opposite to changes in fair value of the IRLCs and mortgage loans held for sale, thereby reducing earnings volatility. The Company takes into account various factors and strategies in determining the portion of the mortgage pipeline (IRLCs and mortgage loans held for sale) it wants to economically hedge. The gain or loss resulting from the change in the fair value of the derivative is recognized in the Company’s statement of income during the period of change.

On December 1, 2025, the Company terminated $300 million of pay-fixed portfolio layer method fair value swaps previously designated as hedging instruments. At termination, the cumulative fair value hedge basis adjustment, included in gross loans, was $2.4 million, which will be amortized over the weighted average life of the remaining portfolio, or 77 months.

The following table summarizes the Company’s outstanding financial derivative instruments at March 31, 2026 and December 31, 2025.

NOTE 7 –Fair Value Accounting

FASB ASC 820, “Fair Value Measurement and Disclosures,” defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1 – Quoted market price in active markets

Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include certain debt and equity securities that are traded in an active exchange market.

Level 2 – Significant other observable inputs

Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include fixed income securities and mortgage-backed securities that are held in the Company’s available-for-sale portfolio and valued by a third-party pricing service, as well as certain individually evaluated loans.

Level 3 – Significant unobservable inputs

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. These methodologies may result in a significant portion of the fair value being derived from unobservable data.

The methods of determining the fair value of assets and liabilities presented in this note are consistent with our methodologies disclosed in Note 12 of the Company’s 2025 Annual Report on Form 10-K. See Note 6 for how the derivative asset fair value is determined. The Company’s loan portfolio is initially fair valued using a segmented approach, using the eight categories of loans as disclosed in Note 4 – Loans and Allowance for Credit Losses. Loans are considered a Level 3 classification.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The tables below present the recorded amount of assets and liabilities measured at fair value on a recurring basis as of March 31, 2026 and December 31, 2025.

The Company had no liabilities measured at fair value on a recurring basis as of March 31, 2026.

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The tables below present the recorded amount of assets and liabilities measured at fair value on a nonrecurring basis as of March 31, 2026 and December 31, 2025.

The Company had no liabilities carried at fair value or measured at fair value on a nonrecurring basis as of March 31, 2026 and December 31, 2025.

For Level 3 assets and liabilities measured at fair value on a recurring or nonrecurring basis as of March 31, 2026 and December 31, 2025, the significant unobservable inputs used in the fair value measurements were as follows:

Fair Value of Financial Instruments

Financial instruments require disclosure of fair value information, whether or not recognized in the consolidated balance sheets, when it is practical to estimate the fair value. A financial instrument is defined as cash, evidence of an ownership interest in an entity or a contractual obligation which requires the exchange of cash. Certain items are specifically excluded from the disclosure requirements, including the Company’s common stock, premises and equipment and other assets and liabilities.

The estimated fair values of the Company’s financial instruments at March 31, 2026 and December 31, 2025 are as follows:

NOTE 8 –Earnings Per Common Share

The following schedule reconciles the numerators and denominators of the basic and diluted earnings per share computations for the three-month periods ended March 31, 2026 and 2025. Dilutive common shares arise from the potentially dilutive effect of the Company’s stock options and unvested restricted stock that were outstanding at March 31, 2026. The assumed conversion of stock options can create a difference between basic and dilutive net income per common share. At March 31, 2026 and 2025, there were 6,913 and 210,099 options, respectively, that were not considered in computing diluted earnings per common share because they were anti-dilutive.

NOTE 9 –Subsequent Event

Public Offering of Common Stock

On April 17, 2026, the Company closed its previously announced underwritten public offering of 1,207,500 shares of its common stock, which includes 157,500 shares issued pursuant to the underwriters’ exercise in full of their option to purchase additional shares, at a public offering price of $54.00 per share. Aggregate gross proceeds from the offering were approximately $65.2 million, before underwriting discounts and commissions and estimated offering expenses. The Company intends to use the net proceeds from the offering for general corporate purposes,

which may include supporting organic growth initiatives, providing capital to the Bank, redeeming or repurchasing outstanding indebtedness, including subordinated debt, and for working capital purposes.

**Item 2.